Freeport-McMoRan 2011 Annual Report Download - page 30

28 | FREEPORT-McMoRan COPPER & GOLD INC.
Metals Week Molybdenum Dealer Oxide Prices
rough January 31, 2012
is graph presents the Metals Week Molybdenum Dealer Oxide
weekly average price from January 2002 through January 2012. In
late 2008, molybdenum prices declined signicantly as a result of
the nancial market turmoil and a decline in demand; however,
molybdenum prices have since increased, which we believe is
supported by improved economic conditions and resulting demand
increases. During 2011, the weekly average price of molybdenum
ranged from $12.70 per pound to $17.88 per pound, averaged
$15.49 per pound and was $13.35 per pound on December30, 2011.
e Metals Week Molybdenum Dealer Oxide weekly average price
was $14.50 per pound on February15,2012.
CRITICAL ACCOUNTING ESTIMATES
Management’s Discussion and Analysis of Financial Condition and
Results of Operations is based on our consolidated nancial
statements, which have been prepared in conformity with generally
accepted accounting principles (GAAP) in the U.S. e preparation
of these statements requires that we make estimates and assumptions
that aect the reported amounts of assets, liabilities, revenues and
expenses. We base these estimates on historical experience and on
assumptions that we consider reasonable under the circumstances;
however, reported results could dier from those based on the
current estimates under dierent assumptions or conditions. e
areas requiring the use of management’s estimates are also discussed
in Note 1 under the subheading “Use of Estimates.” Management
has reviewed the following discussion of its development and
selection of critical accounting estimates with the Audit Committee
of our Board of Directors (the Board).
Mineral Reserves. Recoverable proven and probable reserves are
the part of a mineral deposit that can be economically and legally
extracted or produced at the time of the reserve determination. e
determination of reserves involves numerous uncertainties with
respect to the ultimate geology of the ore bodies, including
quantities, grades and recovery rates. Estimating the quantity and
grade of reserves requires us to determine the size, shape and
depth of our ore bodies by analyzing geological data, such as
samplings of drill holes, tunnels and other underground workings.
In addition to the geology of our mines, assumptions are required
to determine the economic feasibility of mining these reserves,
including estimates of future commodity prices and demand, the
mining methods we use and the related costs incurred to develop
and mine our reserves. Our estimates of recoverable proven
and probable reserves are prepared by and are the responsibility of
our employees. A majority of these estimates have been reviewed
and veried by independent experts in mining, geology and
reserve determination.
At December31,2011, our consolidated recoverable proven
and probable reserves included 119.7 billion pounds of copper,
33.9 million ounces of gold and 3.42 billion pounds of
molybdenum, which were determined using long-term average
prices of $2.00 per pound for copper, $750 per ounce for gold and
$10.00 per pound for molybdenum. e following table
summarizes changes in our estimated consolidated recoverable
proven and probable copper, gold and molybdenum reserves
during 2011 and 2010:
Copper Gold Molybdenum
(billion (million (billion
pounds) ounces) pounds)
Consolidated reserves at
December 31, 2009 104.2 37.2 2.59
Net additions/revisions 20.2 0.2 0.87
Production (3.9) (1.9) (0.07)
Consolidated reserves at
December 31, 2010 120.5 35.5 3.39
Net additions/revisions 2.9 (0.2) 0.11
Production (3.7) (1.4) (0.08)
Consolidated reserves at
December 31, 2011 119.7 33.9 3.42
Refer to Note 18 for further information regarding estimated
recoverable proven and probable reserves.
As discussed in Note 1, we depreciate our life-of-mine mining
and milling assets and values assigned to proven and probable
reserves using the unit-of-production (UOP) method based on our
estimated recoverable proven and probable reserves, and also have
other assets that are depreciated on a straight-line basis over their
estimated useful lives. Because the economic assumptions used to
estimate reserves change from period to period and additional
geological data is generated during the course of operations,
estimates of reserves may change, which could have a signicant
impact on our results of operations, including changes to
prospective depreciation rates and asset carrying values. Based on
projected copper sales volumes for 2012, if estimated copper
reserves at our mines were 10 percent higher at December31,2011,
we estimate that our annual depreciation, depletion and
amortization expense for 2012 would decrease by $38 million
($20 million to net income attributable to common stockholders),
and a 10 percent decrease in copper reserves would increase
depreciation, depletion and amortization expense by $46 million
MANAGEMENT’S DISCUSSION AND ANALYSIS
2002 20062004 2008 2010 2012
$40
$35
$30
$25
$20
$15
$10
$5
Dollars per pound