Freeport-McMoRan 2011 Annual Report Download - page 75

2011 ANNUAL REPORT | 73
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 rening 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. e 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. e 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. e 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 signicantly 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 rst
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
aer 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 shas, adits, dris, 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 primary molybdenum mines). Development costs and
acquisition costs for proven and probable reserves that relate
to a specic ore body are depreciated using the unit-of-production
method based on estimated recoverable proven and probable
reserves for the ore body beneted. 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 and three to 20 years for machinery
and equipment, and mobile equipment.
Included in property, plant, equipment and development costs is
value beyond proven and probable reserves (VBPP) primarily
resulting from FCX’s acquisition of FMC in 2007. e concept of
VBPP has been interpreted dierently by dierent 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 modication of required permits and should market conditions
and technical assessments warrant, (ii)inferred mineral
resources and (iii)exploration potential, as further dened below.
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 conrmed 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 condence based on geological evidence and
apparent geological and grade continuity aer applying economic
parameters. An inferred mineral resource has a lower level of
condence 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. e value assigned
to exploration potential was determined by interpreting the known
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS