Freeport-McMoRan 2008 Annual Report Download - page 39

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Management’s Discussion and Analysis
2008 Annual Report FREEPORT-McMoRan COPPER & GOLD INC. 37
gold and silver credits, would approximate zero in 2009 and each
$50 per ounce change in gold prices during the year would have
an approximate $0.08 per pound impact on PT Freeport
Indonesia’s 2009 unit net cash costs. Because the majority of PT
Freeport Indonesia’s costs are fixed, unit costs vary with volumes
sold and the price of gold; accordingly, we expect PT Freeport
Indonesia’s unit net cash costs to be significantly lower than 2008
levels because of higher gold volumes and reduced commodity-
based input costs.
2007 2006
Co-Product Method Co-Product Method
By-Product By-Product
Method Copper Gold Method
Copper Gold
Revenues, after adjustments shown below $ 3.32 $ 3.32 $ 680.74 $ 3.13 $ 3.13 $ 566.51
a
Site production and delivery, before net noncash and nonrecurring costs
shown below 1.19 0.85 172.23 1.03 0.79 156.24
Gold and silver credits (1.36) – – (0.93) – –
Treatment charges 0.34 0.24 49.45 0.40 0.31 60.41
Royalty on metals 0.12 0.08 17.05 0.10 0.08 15.94
Unit net cash costs 0.29 1.17 238.73 0.60 1.18 232.59
Depreciation and amortization 0.17 0.12 25.54 0.15 0.12 23.25
Noncash and nonrecurring costs, net 0.04 0.03 5.90 0.04 0.03 5.60
Total unit costs 0.50 1.32 270.17 0.79 1.33 261.44
Revenue adjustments, primarily for pricing on prior period open sales 0.03 0.03 1.07 0.10
b
0.17 11.53
PT Smelting intercompany profit 0.01 0.01 1.71 – – (0.37)
Gross profit $ 2.86 $ 2.04 $ 413.35 $ 2.44 $ 1.97 $ 316.23
Consolidated sales
Copper (millions of recoverable pounds) 1,131 1,131 1,201 1,201
Gold (thousands of recoverable ounces) 2,185 1,736
a. Amount was approximately $606 per ounce before a loss resulting from redemption of our Gold-Denominated Preferred Stock, Series II.
b. Includes a $0.06 per pound loss on the redemption of our Gold-Denominated Preferred Stock, Series II.
Unit net cash costs, after gold and silver credits, decreased to $0.29
per pound of copper in 2007, compared with $0.60 per pound in
2006, reflecting higher gold and silver credits associated with
higher gold sales volumes and higher average realized gold prices
in 2007, and also reflected lower treatment charges in 2007. These
were partly offset by higher input costs, lower copper sales volumes
and higher royalties primarily related to higher metal prices.
Africa Mining
We hold an effective 57.75 percent interest in the Tenke
Fungurume copper and cobalt mining concessions in the
Katanga province of the DRC and are the operator of the project.
Construction activities are well advanced and initial production
is targeted during the second half of 2009. Annual production in
the initial years is expected to approximate 250 million pounds of
copper and 18 million pounds of cobalt. The initial project at
Tenke Fungurume is based on mining and processing ore
reserves approximating 119 million metric tons with average ore
grades of 2.6 percent copper and 0.35 percent cobalt. Refer to
“Development Projects” for further discussion of the Tenke
Fungurume project.
Molybdenum
Our Molybdenum operation is an integrated producer of
molybdenum, with mining, sulfide ore concentrating, roasting
and processing facilities that produce high-purity, molybdenum-
based chemicals, molybdenum metal powder and metallurgical
products, which are sold to customers around the world, and
includes the wholly owned Henderson molybdenum mine
in Colorado and related conversion facilities. The Henderson
underground mine produces high-purity, chemical-grade
molybdenum concentrates, which are typically further processed
into value-added molybdenum chemical products. The
Molybdenum operation also includes the wholly owned Climax
molybdenum mine in Colorado, which has been on care-and-
maintenance status since 1995; a sales company that purchases
and sells molybdenum from our Henderson mine and from
our North and South America copper mines that produce
molybdenum as a by-product; and related conversion facilities
that, at times, roast and/or process material on a toll basis. Toll
arrangements require the tolling customer to deliver appropriate
molybdenum-bearing material to our facilities for processing
into a product that is returned to the customer, who pays us for
processing their material into the specified products.
Molybdenum markets have been strong in recent years;
however, slowing demand for molybdenum, principally in the
metallurgical sector, has resulted in declines in molybdenum
prices at the end of 2008. As a result, we revised the operating
plan for our Henderson molybdenum mine to operate at a
curtailed rate, reflecting an approximate 25 percent reduction in
annual production. In addition to curtailed production rates at