Freeport-McMoRan 2008 Annual Report Download - page 42

Management’s Discussion and Analysis
North America Copper Mines
We have deferred the incremental expansion projects at the
Sierrita and Bagdad mines and the planned restart of the Miami
mine. These projects were previously expected to add production
of 180 million pounds of copper and six million pounds of
molybdenum per year beginning in 2010.
South America Copper Mines
El Abra. We have the opportunity to develop a large sulfide
deposit at El Abra that will extend the mine life by over 10 years.
Copper production from the sulfides is estimated to average
approximately 325 million pounds of copper per year, replacing
depleting oxide production. We had previously planned to begin
development of this project in 2009 to reach full production in
2012; however, in response to current market conditions, we
have deferred construction activities on this project. We will
continue to assess the timing of this project and will be prepared
to proceed with construction activities when market conditions
improve. Total initial capital for the project is estimated to
approximate $450 million.
Cerro Verde. We have also deferred the incremental expansion
project for the Cerro Verde concentrator, which is designed to
add 30 million pounds of additional copper production per year.
Indonesia
PT Freeport Indonesia has several projects in progress
throughout the Grasberg minerals district, including developing
its large-scale, high-grade underground ore bodies located
beneath and adjacent to the Grasberg open pit. Current projects
include the continued development of the Common Infrastructure
project, the Grasberg Block Cave and Big Gossan underground
mines and a further expansion of the DOZ underground mine.
Common Infrastructure. In 2004, PT Freeport Indonesia
commenced its Common Infrastructure project to provide access
to its large undeveloped underground ore bodies located in the
Grasberg minerals district through a tunnel system located
approximately 400 meters deeper than its existing underground
tunnel system. In addition to providing access to our underground
ore bodies, the tunnel system will enable PT Freeport Indonesia to
conduct future exploration in prospective areas associated with
currently identified ore bodies. The tunnel system has reached the
Big Gossan terminal and we are proceeding with development of
the lower Big Gossan infrastructure. We have also advanced
development of the Grasberg spur, and as of December 31, 2008,
we have completed the tunneling required to reach the Grasberg
underground ore body.
Grasberg Block Cave. In 2008, we completed the feasibility
study for the development of the Grasberg Block Cave, which
accounts for over one-third of our reserves in Indonesia.
Production at the Grasberg Block Cave is currently scheduled to
commence at the end of mining the Grasberg open pit, which is
expected to continue until the end of 2015. The timing of the
underground Grasberg Block Cave development will continue to
be assessed.
Based on the 2008 feasibility study, aggregate mine
development capital for the Grasberg Block Cave and associated
Common Infrastructure is expected to approximate $3.1 billion to
be incurred between 2008 and 2021, with PT Freeport Indonesia’s
share totaling approximately $2.8 billion. During 2008, aggregate
project costs incurred totaled $44 million.
Big Gossan. The Big Gossan underground mine is a high-grade
deposit located near PT Freeport Indonesia’s existing milling
complex. The Big Gossan mine is being developed as an open-
stope mine with backfill consisting of mill tailings and cement, an
established mining methodology expected to be higher cost than
the block-cave method used at the DOZ mine. Production is
designed to ramp up to 7,000 metric tons per day by late 2012
(equal to average annual aggregate incremental production
of 125 million pounds of copper and 65,000 ounces of gold, with
PT Freeport Indonesia receiving 60 percent of these amounts).
The total capital investment for this project is currently estimated
at approximately $480 million, of which $336 million has been
incurred through December 31, 2008.
DOZ Expansion. In mid-2007, PT Freeport Indonesia
completed the expansion of the capacity of the DOZ
underground operation to allow a sustained rate of 50,000 metric
tons per day. PT Freeport Indonesia’s further expansion of the
DOZ mine to 80,000 metric tons of ore per day is under way with
completion targeted by 2010. The capital cost for this expansion
is expected to approximate $100 million, with PT Freeport
Indonesia’s 60 percent share totaling approximately $60 million.
The success of the development of the DOZ mine, one of the
world’s largest underground mines, provides confidence in the
future development of PT Freeport Indonesia’s large-scale
undeveloped underground ore bodies.
Africa
Tenke Fungurume. We continue to engage in drilling activities,
exploration analyses and metallurgical testing to evaluate the
potential of this highly prospective district and expect its ore
reserves to increase significantly over time. Approximately $1.4
billion in aggregate project costs have been incurred through
December 31, 2008. Construction activities are well advanced and
initial production is targeted during the second half of 2009. We
estimate remaining costs to complete the initial project will be
slightly below our previous estimate of $1.75 billion. We are
responsible for funding 70 percent of project development costs
and are also responsible for certain cost overruns on the initial
project. In response to current market conditions, we have
deferred spending on certain expenditures not required for
the initial project. Capital costs and timing of expenditures
associated with this project will continue to be assessed.
Annual production in the initial years is expected to
approximate 250 million pounds of copper and 18 million pounds
40 FREEPORT-McMoRan COPPER & GOLD INC. 2008 Annual Report