Freeport-McMoRan 2011 Annual Report Download - page 47

2011 ANNUAL REPORT | 45
Unit net cash costs (net of cobalt credits) for our Africa mining
operations of $1.07 per pound of copper in 2011 were higher than
unit net cash costs of $0.90 per pound of copper in 2010 reecting
higher site production and delivery costs ($0.17 per pound) mostly
associated with increased mining and milling activity and higher
input costs.
Assuming achievement of current sales volume and cost
estimates and an average cobalt price of $12 per pound for 2012,
we estimate that average unit net cash costs (net of cobalt credits)
would approximate $1.13 per pound of copper in 2012. Higher
projected unit net cash costs in 2012, compared with 2011, primarily
reect lower cobalt credits, partly oset by higher projected
copper volumes. Africa’s unit net cash costs for 2012 would change
by $0.11 per pound for each $2 per pound change in the average
price of cobalt during 2012.
Molybdenum
We are an integrated producer of molybdenum, with mining,
sulde ore concentrating, roasting and processing facilities that
produce high-purity, molybdenum-based chemicals, molybdenum
metal powder and metallurgical products, which are sold to
customers around the world. Our molybdenum operations include
the wholly owned Henderson molybdenum mine in Colorado and
related conversion facilities. e Henderson underground mine
produces high-purity, chemical-grade molybdenum concentrates,
which are typically further processed into value-added
molybdenum chemical products. e Molybdenum operations also
include the wholly owned Climax molybdenum mine in Colorado
(refer to further discussion below); a sales company that purchases
and sells molybdenum from our Henderson mine and from certain
of our North and South America mines that produce molybdenum;
and related conversion facilities that, at times, roast and/or process
material on a toll basis for third parties. Toll arrangements require
the tolling customer to deliver appropriate molybdenum-bearing
material to our facilities for processing into a product that is
returned to the customer, who pays us for processing their material
into the specied products.
Development Activities. Construction activities at the Climax
molybdenum mine are substantially complete, and we plan to
commence production during 2012. Production from the Climax
mine is expected to ramp up to a rate of 20 million pounds of
molybdenum per year during 2013 and, depending on market
conditions, may be increased to 30 million pounds of molybdenum
per year. We intend to operate our Climax and Henderson
molybdenum mines in a exible manner to meet market
requirements. e cost of the initial phase of the project, most of
which has been incurred (including $388 million in 2011),
approximates $700 million.
Operating Data. Following is summary operating data for the
Molybdenum operations for the years ended December 31.
2011 2010 2009
Molybdenum (millions of recoverable pounds)
Production
a
38 40 27
Sales, excluding purchases
b
79 67 58
Average realized price per pound $ 16.98 $ 16.47 $ 12.36
Henderson molybdenum mine
Ore milled (metric tons per day) 22,300 22,900 14,900
Average molybdenum ore grade
(percent) 0.24 0.25 0.25
Molybdenum production
(millions of recoverable pounds) 38 40 27
a. Reflects production at the Henderson molybdenum mine.
b. Includes sales of molybdenum produced at our North and South America mines.
2011 compared with 2010. Consolidated molybdenum sales
volumes increased to 79 million pounds in 2011, compared with
67 million pounds for 2010, primarily reecting improved
demand. For the year 2012, we expect molybdenum sales volumes
to approximate 80 million pounds, of which approximately
40 million pounds represents production from our North and
South America copper mines.
2010 compared with 2009. As a result of improved market
conditions, Henderson operated at approximately 90 percent
capacity during 2010, compared with 60 percent capacity during
most of 2009. Molybdenum sales volumes increased to 67 million
pounds in 2010, compared with 58 million pounds in 2009,
reecting improved demand in the chemicals sector.
Unit Net Cash Costs. Unit net cash costs per pound of
molybdenum is a measure intended to provide investors with
information about the cash-generating capacity of our mining
operations expressed on a basis relating to the primary metal product
for our respective operations. We use this measure for the same
purpose and for monitoring operating performance by our mining
operations. is information diers from measures of performance
determined in accordance with U.S. GAAP and should not be
considered in isolation or as a substitute for measures of performance
determined in accordance with U.S. GAAP. is measure is
presented by other mining companies, although our measure
may not be comparable to similarly titled measures reported by
other companies.
Gross Profit per Pound of Molybdenum. e following table
summarizes the unit net cash costs and gross prot per pound of
molybdenum at our Henderson molybdenum mine for the years
ended December 31. Refer to “Product Revenues and Production
Costs” for a reconciliation of unit net cash costs per pound to
production and delivery costs applicable to sales reported in our
consolidated nancial statements.
MANAGEMENT’S DISCUSSION AND ANALYSIS