Freeport-McMoRan 2011 Annual Report Download - page 39

2011 ANNUAL REPORT | 37
Unit net cash costs (net of by-product credits) for our North
America copper mines increased to $1.24 per pound of copper in
2010, compared with $1.11 per pound in 2009, primarily reecting
higher site production and delivery costs ($0.25 per pound)
associated with higher input costs and increased mining and
milling activities at certain mines. Partly osetting these higher
costs were higher molybdenum credits ($0.12 per pound) primarily
resulting from higher molybdenum prices.
Some of our U.S. copper rod customers request a xed market
price instead of the COMEX average price in the month of
shipment. We hedge this price exposure in a manner that allows
us to receive market prices in the month of shipment while the
customer pays the xed price they requested. Because these
contracts previously did not meet the criteria to qualify for hedge
accounting, revenue adjustments in 2009 reected unrealized
gains on these copper derivative contracts (refer to Note 15 for
further discussion).
South America Mining
We operate four copper mines in South America — Cerro Verde
in Peru, and El Abra, Candelaria and Ojos del Salado in Chile.
We own a 53.56 percent interest in Cerro Verde, a 51 percent
interest in El Abra and an 80 percent interest in both Candelaria
and Ojos del Salado.
South America mining includes open-pit and underground
mining, sulde ore concentrating, leaching and SX/EW operations.
Production from our South America mines is sold as copper
concentrate or copper cathode under long-term contracts. Our
South America mines ship a portion of their copper concentrate
inventories to Atlantic Copper, an aliated smelter. In addition
to copper, the Cerro Verde mine also produces molybdenum
concentrates, and the Candelaria and Ojos del Salado mines also
produce gold and silver.
Operating and Development Activities. El Abra Sulde. During
2011, we commenced production from El Abra’s newly
commissioned stacking and leaching facilities to transition from
production of oxide to sulde ores. Production from the sulde
ore will approximate 300 million pounds of copper per year,
replacing the depleting oxide copper production. e aggregate
capital investment for this project is expected to total $725 million
through 2015, of which approximately $580 million is for the
initial phase of the project that is expected to be completed in
rst-quarter 2012. Project costs of $513 million have been incurred
as of December31,2011 ($152 million during 2011).
We are also engaged in pre-feasibility studies for a potential
large-scale milling operation at El Abra to process additional
sulde material and to achieve higher recoveries. Exploration
results at El Abra indicate the potential for a signicant sulde
resource. Exploration activities are continuing.
Cerro Verde Expansion. At Cerro Verde, plans for a large-scale
concentrator expansion continue to be advanced. e approximate
$4 billion project would expand the concentrator facilities from
120,000 metric tons of ore per day to 360,000 metric tons of ore per
day and provide incremental annual production of approximately
600 million pounds of copper and 15 million pounds of
molybdenum beginning in 2016. An environmental impact
assessment was led in fourth-quarter 2011.
An agreement has been reached with the Regional Government
of Arequipa, the National Government, Servicio de Agua Potable y
Alcantarillado de Arequipa S. A. (SEDAPAR) and other local
institutions to allow Cerro Verde to nance the engineering and
construction of a wastewater treatment plant for Arequipa,
should Cerro Verde proceed with the expansion. Once Cerro Verde
obtains a license for the treated water, it would be used to
supplement existing water supplies to support the potential
concentrator expansion.
2010 2009
By-Product Co-Product Method By-Product
Co-Product Method
Method Copper Molybdenum
a
Method Copper Molybdenum
a
Revenues, excluding adjustments $ 3.42 $ 3.42 $ 15.60 $ 2.38 $ 2.38 $ 10.96
Site production and delivery, before net noncash
and other costs shown below 1.50 1.35 7.95 1.25 1.15 5.67
By-product credits
a
(0.35) — — (0.23) — —
Treatment charges 0.09 0.09 — 0.09 0.09 —
Unit net cash costs 1.24 1.44 7.95 1.11 1.24 5.67
Depreciation, depletion and amortization 0.24 0.22 0.54 0.22 0.21 0.40
Noncash and other costs, net 0.12 0.12 0.01 0.11 0.11 0.07
Total unit costs 1.60 1.78 8.50 1.44 1.56 6.14
Revenue adjustments — — — 0.08 0.08 —
Idle facility and other non-inventoriable costs (0.08) (0.08) (0.02) (0.08) (0.08) —
Gross profit per pound $ 1.74 $ 1.56 $ 7.08 $ 0.94 $ 0.82 $ 4.82
Copper sales (millions of recoverable pounds) 1,082 1,082 1,185 1,185
Molybdenum sales (millions of recoverable pounds)
b
25 25
a. Molybdenum credits and revenues reflect volumes produced at market-based pricing and also include tolling revenues at Sierrita.
b. Reflects molybdenum produced by certain of our North America copper mines.
MANAGEMENT’S DISCUSSION AND ANALYSIS