Freeport-McMoRan 2012 Annual Report Download - page 43

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MANAGEMENT’S DISCUSSION AND ANALYSIS
2012 compared with 2011. Sales volumes from our Indonesia
mining operations declined to 716 million pounds of copper and
915 thousand ounces of gold in 2012, compared with 846 million
pounds of copper and 1.3 million ounces of gold in 2011. Lower
copper and gold sales volumes in 2012 primarily reflected lower
ore grades.
At the Grasberg mine, the sequencing of mining areas with
varying ore grades causes fluctuations in the timing of ore
production resulting in varying quarterly and annual sales of copper
and gold. Consolidated sales volumes from our Indonesia
mining operations are expected to approximate 1.1 billion pounds
of copper and 1.2 million ounces of gold for 2013. We expect sales
from Indonesia to increase in fourth-quarter 2013 as PT Freeport
Indonesia gains access to higher ore grades and achieves the
targeted ramp up in production from the DOZ mine.
Approximately 33 percent of projected copper sales and 38 percent
of projected gold sales from our Indonesia mining operations are
currently expected in fourth-quarter 2013.
2011 compared with 2010. Sales volumes from our Indonesia
mining operations declined to 846 million pounds of copper and
1.3 million ounces of gold in 2011, compared with 1.2 billion
pounds of copper and 1.8 million ounces of gold in 2010. Lower
copper and gold sales volumes in 2011 primarily reflected the
impact of labor-related disruptions and the temporary suspension
of milling operations in fourth-quarter 2011 because of damage to
the concentrate pipelines.
Unit Net Cash Costs. Unit net cash costs per pound of copper 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. This
information differs 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. This measure is
presented by other metal mining companies, although our
measure may not be comparable to similarly titled measures
reported by other companies.
Gross Profit per Pound of Copper/per Ounce of Gold. The following
tables summarize the unit net cash costs (credits) and gross
profit per pound of copper and per ounce of gold at our Indonesia
mining operations for the years ended December 31. Refer to
“Production Revenues and Production Costs” for an explanation
of “by-product” and “co-product” methods and a reconciliation
of unit net cash costs (credits) per pound to production and
delivery costs applicable to sales reported in our consolidated
financial statements.
2012 2011
By-Product Co-Product Method By-Product
Co-Product Method
Method Copper Gold Method Copper Gold
Revenues, excluding adjustments $ 3.58 $ 3.58 $ 1,664 $ 3.85 $ 3.85 $ 1,583
Site production and delivery, before net noncash
and other costs shown below 3.12 1.93 894 2.21
a
1.34 551
Gold and silver credits (2.22) — — (2.47) — —
Treatment charges 0.21 0.13 61 0.19 0.11 46
Royalty on metals 0.13 0.08 38 0.16 0.10 41
Unit net cash costs 1.24 2.14 993 0.09 1.55 638
Depreciation and amortization 0.30 0.18 85 0.25 0.16 63
Noncash and other costs, net 0.11 0.07 33 0.04 0.02 10
Total unit costs 1.65 2.39 1,111 0.38 1.73 711
Revenue adjustments, primarily for pricing on
prior period open sales 0.02 0.02 3 (0.01) (0.01) (13)
PT Smelting intercompany profit (0.05) (0.03) (15) 0.13 0.08 32
Gross profit per pound/ounce
$ 1.90 $ 1.18 $ 541 $ 3.59 $ 2.19 $ 891
Copper sales (millions of recoverable pounds) 716 716 846 846
Gold sales (thousands of recoverable ounces) 915 1,270
a. Includes $66 million ($0.08 per pound) for bonuses and other strike-related costs.
Because of the fixed nature of a large portion of PT Freeport
Indonesia’s costs, unit costs vary from period to period depending
on volumes of copper and gold sold, as well as average realized
gold prices during the period. Unit net cash costs (net of gold and
silver credits) for our Indonesia mining operations averaged
$1.24 per pound of copper in 2012, compared with $0.09 per pound
in 2011. Higher unit net cash costs primarily reflected lower
copper and gold sales volumes.
Treatment charges vary with the volume of metals sold and
the price of copper, and royalties vary with the volume of metals
sold and the prices of copper and gold.
Because certain assets are depreciated on a straight-line
basis, PT Freeport Indonesia’s unit depreciation rate varies with
asset additions and the level of copper production and sales.