Freeport-McMoRan 2012 Annual Report Download - page 37

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MANAGEMENT’S DISCUSSION AND ANALYSIS
2011 2010
Income Income Tax
Effective Tax Income Effective (Provision)
Income
a
Tax Rate Provision (Loss)
a
Tax Rate Benefit
U.S. $ 2,112 23% $ (478) $ 1,307 19% $ (244)
South America 3,017 36% (1,075)
b
2,995 33% (999)
Indonesia 2,923 43% (1,256) 4,069 42% (1,709)
Africa 357 34% (120) 395 30% (118)
Eliminations and other 409
N/A (158) (254) N/A 87
Consolidated FCX $ 8,818
35% $ (3,087) $ 8,512 35% $ (2,983)
a. Represents income (loss) by geographic location before income taxes and equity in affiliated companies’ net earnings.
b. In September 2011, Peru enacted a new mining tax and royalty regime and also created a special mining burden that companies with stability agreements can elect to pay. Cerro Verde elected
to pay this special mining burden during the remaining term of its stability agreement. As a result, Cerro Verde recognized additional current and deferred tax expense of $53 million ($49 million
net of noncontrolling interests) in 2011. The deferred portion of this accrual relates primarily to the assets recorded in connection with the 2007 acquisition of FMC.
Refer to Note 12 for further discussion of income taxes.
OPERATIONS
North America Copper Mines
We currently operate seven copper mines in North America —
Morenci, Bagdad, Safford, Sierrita and Miami in Arizona, and
Tyrone and Chino in New Mexico. All of these mining operations
are wholly owned, except for Morenci, an unincorporated joint
venture in which we own an 85 percent undivided interest.
The North America copper mines include open-pit mining,
sulfide ore concentrating, leaching and solution extraction/
electrowinning (SX/EW) operations. Molybdenum concentrate is
also produced by certain of our North America copper mines
(Sierrita, Bagdad, Morenci and Chino). A majority of the copper
produced at our North America copper mines is cast into copper
rod by our Rod & Refining operations. The remainder of our
North America copper sales is in the form of copper cathode or
copper concentrate, a portion of which is shipped to Atlantic
Copper, an affiliated smelter.
Operating and Development Activities. We have increased
production at our North America copper mines, reflecting the
restart of certain mining and milling operations and the increase
of mining rates at Morenci and Chino. Ramp-up activities at
Chino are continuing, with annual production of approximately
250 million pounds of copper targeted in 2014, compared with
144 million pounds of copper in 2012. We continue to evaluate
opportunities to invest in additional production capacity at our
North America copper mines in response to positive exploration
results in recent years.
Morenci Mill Expansion. We are engaged in a project to expand
mining and milling capacity at Morenci to process additional
sulfide ores identified through exploratory drilling. The
approximate $1.4 billion project is targeting incremental annual
production of approximately 225 million pounds of copper in 2014
(an approximate 40 percent increase from 2012) through an
increase in milling rates from 50,000 metric tons of ore per day to
approximately 115,000 metric tons of ore per day, and mining
rates from 700,000 short tons per day to 900,000 short tons per
day. Engineering activities are progressing and construction
activities are under way. Project costs of $294 million have been
incurred as of December 31, 2012 ($267 million during 2012).
Operating Data. Following is summary operating data for the
North America copper mines for the years ended December 31:
2012 2011 2010
Operating Data, Net of Joint Venture Interest
Copper (millions of recoverable pounds)
Production 1,363 1,258 1,067
Sales, excluding purchases 1,351 1,247 1,085
Average realized price per pound $ 3.64 $ 3.99 $ 3.42
Molybdenum (millions of recoverable
pounds)
Production
a
36 35 25
100% Operating Data
SX/EW operations
Leach ore placed in stockpiles
(metric tons per day) 998,600 888,300 648,800
Average copper ore grade (percent) 0.22 0.24 0.24
Copper production (millions of
recoverable pounds) 866 801 746
Mill operations
Ore milled (metric tons per day) 239,600 222,800 189,200
Average ore grade (percent):
Copper 0.37 0.38 0.32
Molybdenum 0.03 0.03 0.03
Copper recovery rate (percent) 83.9 83.1 83.0
Copper production (millions of
recoverable pounds) 592 549 398
a. Reflects molybdenum production from certain of our North America copper mines. Sales
of molybdenum are reflected in the Molybdenum division.
2012 compared with 2011. Copper sales volumes from our
North America copper mines increased to 1.35 billion pounds
in 2012, compared with 1.25 billion pounds in 2011, primarily
reflecting increased production at the Chino mine.
Following is a summary of the approximate amounts in the
calculation of our consolidated provision for income taxes for the
years ended December 31 (in millions, except percentages):