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MANAGEMENT’S DISCUSSION AND ANALYSIS
FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report
42
2010 2009
By-Product Co-Product Method By-Product Co-Product Method
Method Copper Gold Method Copper Gold
Revenues, after adjustments
$ 3.69 $ 3.69 $ 1,271
$ 2.65 $ 2.65 $ 994
Site production and delivery, before net noncash
and other costs shown below
1.53 1.01 347
1.05 0.62 232
Gold and silver credits
(1.92) — —
(1.86) — —
Treatment charges
0.22 0.15 50
0.22 0.13 49
Royalty on metals
0.13 0.08 29
0.10 0.06 23
Unit net cash (credits) costs
(0.04) 1.24 426
(0.49) 0.81 304
Depreciation and amortization
0.21 0.14 48
0.20 0.11 43
Noncash and other costs, net
0.04 0.02 9
0.03 0.02 6
Total unit (credits) costs
0.21 1.40 483
(0.26) 0.94 353
Revenue adjustments, primarily for pricing on
prior year open sales
(0.01) (0.01) 1
0.04 0.04 2
PT Smelting intercompany profit
(0.03) (0.02) (8)
(0.04) (0.02) (9)
Gross profit per pound/ounce
$ 3.44 $ 2.26 $ 781
$ 2.91 $ 1.73 $ 634
Copper sales (millions of recoverable pounds)
1,214 1,214
1,400 1,400
Gold sales (thousands of recoverable ounces)
1,765
2,543
Because of the fixed nature of a large portion of PT Freeport
Indonesia’s costs, unit costs vary significantly from period to period
depending on volumes of copper and gold sold during the period.
Unit net cash costs (net of gold and silver credits) increased to a net
credit of $0.04 per pound of copper in 2010, compared with a net
credit of $0.49 per pound in 2009, reflecting higher site production
and delivery costs ($0.48 per pound) primarily associated with
higher input costs (including materials, labor and energy), higher
maintenance and support costs and higher cost sharing under
joint venture arrangements. Partly offsetting higher site production
and delivery costs were higher gold credits ($0.06 per pound)
associated with higher gold prices.
Treatment charges vary with the volume of metals sold and the
price of copper, and royalties vary with the volume of metals sold and
the prices of copper and gold.
Projected lower copper and gold volumes for 2011 and the effect
of higher input costs are expected to result in an increase in
PT Freeport Indonesia’s unit net cash costs. Assuming achievement
of current sales volume and cost estimates, and an average gold
price of $1,350 per ounce in 2011, we estimate that average unit net
cash costs for PT Freeport Indonesia (net of gold and silver credits)
would approximate $0.60 per pound of copper in 2011. Each
$50 per ounce change in average gold prices during the year would
have an approximate $0.065 per pound impact on PT Freeport
Indonesia’s 2011 unit net cash costs. Quarterly unit net cash costs
will vary significantly with variations in quarterly metal sales volumes,
and unit net cash costs are expected to be higher in the first half of
2011 compared with the second half.
2009 2008
By-Product Co-Product Method By-Product Co-Product Method
Method Copper Gold Method Copper Gold
Revenues, after adjustments $ 2.65 $ 2.65 $ 994 $ 2.36 $ 2.36 $ 861
Site production and delivery, before net noncash
and other costs shown below 1.05 0.62 232 1.59 1.13 413
Gold and silver credits (1.86) — — (0.97) — —
Treatment charges 0.22 0.13 49 0.24 0.17 63
Royalty on metals 0.10 0.06 23 0.10 0.07 26
Unit net cash (credits) costs (0.49) 0.81 304 0.96 1.37 502
Depreciation and amortization 0.20 0.11 43 0.20 0.14 52
Noncash and other costs, net 0.03 0.02 6 0.03 0.02 7
Total unit (credits) costs (0.26) 0.94 353 1.19 1.53 561
Revenue adjustments, primarily for pricing on
prior year open sales 0.04 0.04 2 0.09 0.09 6
PT Smelting intercompany profit (0.04) (0.02) (9) 0.01 0.01 4
Gross profit per pound/ounce $ 2.91 $ 1.73 $ 634 $ 1.27 $ 0.93 $ 310
Copper sales (millions of recoverable pounds) 1,400 1,400 1,111 1,111
Gold sales (thousands of recoverable ounces) 2,543 1,182