Freeport-McMoRan 2007 Annual Report Download - page 86

FREEPORT-McMoRan COPPER & GOLD INC.
2007 Annual Report
84 Financial & Operating Information
Notes to Consolidated Financial Statements
(ii) total revenues from production from Block A, including production from
PT Freeport Indonesia’s previously existing reserves. PT Freeport
Indonesia will continue to receive 100 percent of the cash flow from
specified annual amounts of copper, gold and silver through 2021
calculated by reference to its proven and probable reserves as of
December 31, 1994, and 60 percent of all remaining cash flow.
The joint venture agreement provides for adjustments to the specified
annual amounts of copper, gold and silver attributable 100 percent to PT
Freeport Indonesia upon the occurrence of certain events which cause an
extended interruption in production to occur, including events such as
the fourth-quarter 2003 Grasberg open-pit slippage and debris flow. As a
result of the Grasberg slippage and debris flow events, the 2004 specified
amounts attributable 100 percent to PT Freeport Indonesia were reduced
by 172 million recoverable pounds for copper and 272,000 recoverable
ounces for gold. Pursuant to agreements in 2005 and early 2006 with
Rio Tinto, these reductions were partially offset by increases in the
specified amounts attributable 100 percent to PT Freeport Indonesia
totaling 62 million recoverable pounds for copper and 170,000
recoverable ounces for gold in 2005, and 110 million recoverable pounds
for copper and 102,000 recoverable ounces for gold in 2021. The
payable to Rio Tinto for its share of joint venture cash flows totaled $68
million at December 31, 2007, and $69 million at December 31, 2006.
Sumitomo. FCX owns an 85 percent undivided interest in Morenci via
an unincorporated joint venture. The remaining 15 percent is owned by
Sumitomo, a jointly owned subsidiary of Sumitomo Metal Mining Co., Ltd.
and Sumitomo Corporation. Each partner takes in kind its share of Morenci’s
production. During the period March 20, 2007 to December 31, 2007,
Phelps Dodge purchased 87 million pounds of Morenci’s copper cathode
from Sumitomo for $299 million. FCX had a $10 million net payable to
Sumitomo at December 31, 2007.
Investment in PT Smelting. PT Smelting, an Indonesian company,
operates a smelter/refinery in Gresik, Indonesia. During 2006, PT Smelting
completed an expansion of its production capacity to 275,000 metric
tons of copper per year from 250,000 metric tons. PT Freeport Indonesia,
Mitsubishi Materials Corporation (Mitsubishi Materials), Mitsubishi
Corporation (Mitsubishi) and Nippon Mining & Metals Co., Ltd. (Nippon)
own 25 percent, 60.5 percent, 9.5 percent, and 5 percent, respectively, of
the outstanding PT Smelting common stock. PT Freeport Indonesia
provides nearly all of PT Smelting’s copper concentrate requirements.
Under the PT Smelting contract, for the first 15 years of PT Smelting’s
commercial operations beginning December 1998, the treatment and
refining charges on the majority of the concentrate PT Freeport Indonesia
provides will not fall below specified minimum rates ($0.21 per pound
after March 2004), subject to renegotiation in 2008. The rate was
approximately $0.38 per pound during 2007. PT Smelting had project-
specific debt, nonrecourse to PT Freeport Indonesia, totaling $219 million
at December 31, 2007, and $262 million at December 31, 2006.
NOTE 4. DISCONTINUED OPERATIONS
On October 31, 2007, FCX sold its international wire and cable business,
PDIC, for $735 million, which resulted in a net loss of $14 million ($9
million to net income) for transaction-related costs. The transaction
generated after-tax proceeds of approximately $650 million (net proceeds
of $597 million after taxes, transaction-related costs and PDIC cash).
As a result of the sale, the operating results of PDIC have been
removed from continuing operations and reported as discontinued
operations in the consolidated statements of income. Selected financial
information that has been reported as discontinued operations for the
period March 20, 2007, through December 31, 2007, follows:
Revenues $ 937
Operating income 78
Provision for income taxes (24)
Income from discontinued operations 35
Cash flows from discontinued operations for the year ended December 31,
2007, have not been separately identified in the consolidated statements
of cash flows.
NOTE 5. INVENTORIES, AND MILL AND LEACH STOCKPILES
The components of inventories follow:
December 31, 2007 2006
Mining Operations:
Raw materials $ 1 $ –
Work-in-process 71 11
Finished goodsa 898 4
Atlantic Copper:
Raw materials (concentrates) 164 189
Work-in-process 220 168
Finished goods 6 12
Total product inventories 1,360 384
Total materials and supplies, netb 818 340
Total inventories $ 2,178 $ 724
a. Primarily includes concentrates and cathodes.
b. Materials and supplies inventory is net of obsolescence reserves totaling $16 million at both
December 31, 2007, and December 31, 2006.
FCX acquired mill and leach stockpiles in the Phelps Dodge
acquisition. The following is a detail of mill and leach stockpiles as of
December 31, 2007.
North South
America America Total
Current:
Mill stockpiles $ – $ 6 $ 6
Leach stockpiles 630 71 701
Total current mill and leach stockpiles $ 630 $ 77 $ 707
Long-terma:
Mill stockpiles $ – $ 248 $ 248
Leach stockpiles 685 173 858
Total long-term mill and leach stockpiles $ 685 $ 421 $ 1,106
a. Materials in stockpiles not expected to be recovered within the next 12 months.