Freeport-McMoRan 2008 Annual Report Download - page 71

Notes to Consolidated Financial Statements
2008 Annual Report FREEPORT-McMoRan COPPER & GOLD INC. 69
Mill and Leach Stockpiles. Mill and leach stockpiles are stated
at the lower of weighted-average cost or market.
Both mill and leach stockpiles generally contain lower-grade
ores that have been extracted from the ore body and are available
for copper recovery. For mill stockpiles, recovery is through
milling, concentrating, smelting and refining or, alternatively, by
concentrate leaching. For leach stockpiles, recovery is through
exposure to acidic solutions that dissolve contained copper and
deliver it in solution to extraction processing facilities. The
recorded cost of mill and leach stockpiles includes mining and
haulage costs incurred to deliver ore to stockpiles, depreciation,
depletion, amortization and site overhead costs.
Because it is generally impracticable to determine copper
contained in mill and leach stockpiles by physical count,
reasonable estimation methods are employed. The quantity of
material delivered to mill and leach stockpiles is based on
surveyed volumes of mined material and daily production
records. Sampling and assaying of blasthole cuttings determine
the estimated copper grade of the material delivered to mill and
leach stockpiles.
Expected copper recovery rates for mill stockpiles are
determined by metallurgical testing. The recoverable copper in
mill stockpiles, once entered into the production process, can be
produced into copper concentrate almost immediately.
Expected copper recovery rates for leach stockpiles are
determined using small-scale laboratory tests, small- to large-
scale column testing (which simulates the production-scale
process), historical trends and other factors, including mineralogy
of the ore and rock type. Ultimate recovery of copper contained in
leach stockpiles can vary significantly from a low percentage to
more than 90 percent depending on several variables, including
type of copper recovery, mineralogy and particle size of the rock.
For newly placed material on active stockpiles, as much as 70
percent of the copper ultimately recoverable may be extracted
during the first year, and the remaining copper may be recovered
over many years.
Processes and recovery rates are monitored regularly, and
recovery rate estimates are adjusted periodically as additional
information becomes available and as related technology changes.
Property, Plant, Equipment and Development Costs. Property,
plant, equipment and development costs are carried at cost.
Mineral exploration costs, as well as drilling and other costs
incurred for the purpose of converting mineral resources to
proven and probable reserves or identifying new mineral
resources at development or production stage properties, are
charged to expense as incurred. Development costs are
capitalized beginning after proven and probable reserves have
been established. Development costs include costs incurred
resulting from mine pre-production activities undertaken to gain
access to proven and probable reserves including shafts, adits,
drifts, ramps, permanent excavations, infrastructure and removal
of overburden. Additionally, interest expense allocable to the cost
of developing mining properties and to constructing new facilities
is capitalized until assets are ready for their intended use.
Expenditures for replacements and improvements are
capitalized. Costs related to periodic scheduled maintenance (i.e.,
turnarounds) are expensed as incurred. Depreciation for mining
and milling life-of-mine assets, infrastructure and other common
costs is determined using the unit-of-production method based
on total estimated recoverable proven and probable copper
reserves (for primary copper mines) and proven and probable
molybdenum reserves (for the primary molybdenum mine).
Development costs and acquisition costs for proven and probable
reserves that relate to a specific ore body are depreciated using
the unit-of-production method based on estimated recoverable
proven and probable reserves for the ore body benefited.
Depreciation, depletion and amortization using the unit-of-
production method is recorded upon extraction of the recoverable
copper or molybdenum from the ore body, at which time it is
allocated to inventory cost and then included as a component of
cost of goods sold. Other assets are depreciated on a straight-line
basis over estimated useful lives of up to 30 years for buildings,
three to 20 years for machinery and equipment, and three to 20
years for mobile equipment.
Included in property, plant, equipment and development costs
is value beyond proven and probable reserves (VBPP) resulting
from FCX’s acquisition of Phelps Dodge. The concept of VBPP is
described in Financial Accounting Standards Board (FASB)
Emerging Issues Task Force (EITF) Issue No. 04-3, “Mining
Assets: Impairment and Business Combinations,” and has been
interpreted differently by different mining companies. FCX’s
VBPP is attributable to (i) mineralized material, which includes
measured and indicated amounts, that FCX believes could be
brought into production with the establishment or modification of
required permits and should market conditions and technical
assessments warrant, (ii) inferred mineral resources and
(iii) exploration potential.
Mineralized material is a mineralized body that has been
delineated by appropriately spaced drilling and/or underground
sampling to support reported tonnage and average grade of
minerals. Such a deposit does not qualify as proven and probable
reserves until legal and economic feasibility are confirmed based
upon a comprehensive evaluation of development costs, unit
costs, grades, recoveries and other material factors. Inferred
mineral resources are that part of a mineral resource for which
the overall tonnages, grades and mineral contents can be
estimated with a reasonable level of confidence based on
geological evidence and apparent geological and grade continuity
after applying economic parameters. An inferred mineral resource
has a lower level of confidence than that applying to an indicated
mineral resource. Exploration potential is the estimated value of
potential mineral deposits that FCX has the legal right to access.