Freeport-McMoRan 2012 Annual Report Download - page 33

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MANAGEMENT’S DISCUSSION AND ANALYSIS
Impairment of Assets. We evaluate our long-lived assets (to be
held and used) for impairment when events or changes in
circumstances indicate that the related carrying amount of such
assets may not be recoverable. In evaluating our long-lived assets
for recoverability, estimates of after-tax undiscounted future cash
flows of our individual mining operations are used, with
impairment losses measured by reference to fair value. As quoted
market prices are unavailable for our individual mining operations,
fair value is determined through the use of discounted estimated
future cash flows. The estimated cash flows used to assess
recoverability of our long-lived assets and measure fair value of
our mining operations are derived from current business plans,
which are developed using near-term price forecasts reflective of
the current price environment and management’s projections
for long-term average metal prices. In addition to near- and long-
term metal price assumptions, other key assumptions include
commodity-based and other input costs; proven and probable
reserves, including the timing and cost to develop and produce the
reserves; and the use of appropriate escalation and discount rates.
Because the cash flows used to assess recoverability of our
long-lived assets and measure fair value of our mining operations
require us to make several estimates and assumptions that are
subject to risk and uncertainty, changes in these estimates and
assumptions could result in the impairment of our long-lived
asset values. Events that could result in impairment of our long-
lived assets include, but are not limited to, decreases in future
metal prices, decreases in estimated recoverable proven and
probable reserves and any event that might otherwise have a
material adverse effect on mine site production levels or costs.
Refer to Note 4 for further discussion.
CONSOLIDATED RESULTS
Years Ended December 31, 2012 2011 2010
Financial Data (in millions, except per share amounts)
Revenues
a,b
$ 18,010 $ 20,880 $ 18,982
Operating income
a
$ 5,814
c,d,e
$ 9,140
c,e
$ 9,068
c
Net income attributable to FCX common stockholders
f
$ 3,041
c,d,e,g,h
$ 4,560
c,e,g,h
$ 4,273
c,g
Diluted net income per share attributable to FCX common stockholders
f
$ 3.19
c,d,e,g,h
$ 4.78
c,e,g,h
$ 4.57
c,g
Diluted weighted-average common shares outstanding 954 955 949
Mining Operating Data
Copper (recoverable)
Production (millions of pounds) 3,663 3,691 3,908
Sales, excluding purchases (millions of pounds) 3,648 3,698 3,896
Average realized price per pound $ 3.60 $ 3.86 $ 3.59
Site production and delivery costs per pound
i
$ 2.00 $ 1.72 $ 1.40
Unit net cash costs per pound
i
$ 1.48 $ 1.01 $ 0.79
Gold (recoverable)
Production (thousands of ounces) 958 1,383 1,886
Sales, excluding purchases (thousands of ounces) 1,010 1,378 1,863
Average realized price per ounce $ 1,665 $ 1,583 $ 1,271
Molybdenum (recoverable)
Production (millions of pounds) 85 83 72
Sales, excluding purchases (millions of pounds) 83 79 67
Average realized price per pound $ 14.26 $ 16.98 $ 16.47
a. Refer to Note 17 for a summary of revenues and operating income by business segment.
b. Includes the impact of adjustments to provisionally priced concentrate and cathode sales recognized in prior years. Refer to “Revenues” and “Disclosures About Market Risks — Commodity
Price Risk” for further discussion.
c. Includes net (credits) charges for adjustments to environmental obligations and related litigation reserves totaling $(62) million ($(40) million to net income attributable to common stockholders
or $(0.04) per share) in 2012, $107 million ($86 million to net income attributable to common stockholders or $0.09 per share) in 2011 and $19 million ($15 million to net income attributable to
common stockholders or $0.02 per share) in 2010.
d. Includes a gain of $59 million ($31 million to net income attributable to common stockholders or $0.03 per share) for the settlement of the insurance claim for business interruption and property
damage relating to the 2011 incidents affecting PT Freeport Indonesia's concentrate pipelines.
e. Includes charges totaling $16 million ($8 million to net income attributable to common stockholders or $0.01 per share) associated with labor agreement costs at Candelaria in 2012 and
$116 million ($50 million to net income attributable to common stock or $0.05 per share) primarily associated with bonuses for new labor agreements and other employee costs at PT Freeport
Indonesia, Cerro Verde and El Abra in 2011.
f. We defer recognizing profits on intercompany sales until final sales to third parties occur. Refer to “Operations — Atlantic Copper Smelting & Refining” for a summary of net impacts from
changes in these deferrals.
g. Includes net losses on early extinguishment of debt totaling $149 million ($0.16 per share) in 2012, $60 million ($0.06 per share) in 2011 and $71 million ($0.07 per share) in 2010. Refer to Note 9
for further discussion.
h. The 2012 period includes a net tax credit of $98 million, net of noncontrolling interests ($0.11 per share), associated with adjustments to Cerro Verde’s deferred income taxes. The 2011 period
includes a tax charge of $49 million, net of noncontrolling interests ($0.05 per share), for additional taxes associated with Cerro Verde’s election to pay a special mining burden during the
remaining term of its current stability agreement. Refer to Note 12 and “Provision for Income Taxes” below for further discussion of these amounts.
i. Reflects per pound weighted-average production and delivery costs and unit net cash costs (net of by-product credits) for all copper mines, before net noncash and other costs. For
reconciliations of the per pound costs by operating division to production and delivery costs applicable to sales reported in our consolidated financial statements, refer to “Operations —
Unit Net Cash Costs” and to “Product Revenues and Production Costs.”