Freeport-McMoRan 2012 Annual Report Download - page 44

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42
MANAGEMENT’S DISCUSSION AND ANALYSIS
Revenue adjustments primarily result from changes in
prices on provisionally priced copper sales recognized in prior
years. Refer to “Consolidated Results — Revenues” for further
discussion of adjustments to prior year provisionally priced
copper sales.
Assuming achievement of current sales volume and cost
estimates, and an average gold price of $1,700 per ounce for 2013,
we estimate that average unit net cash costs for Indonesia (net
of gold and silver credits) would approximate $0.68 per pound of
copper for the year 2013. Indonesia’s unit net cash costs for 2013
would change by $0.055 per pound for each $50 per ounce change
in the average price of gold during 2013. Quarterly unit net cash
costs are expected to vary significantly with variations in quarterly
metal sales volumes, as well as average realized gold prices
during the period. Indonesia’s unit net cash costs for first-quarter
2013 are expected to approximate $1.57 per pound of copper and
are expected to be lower in future periods as volumes increase.
2011 2010
By-Product Co-Product Method By-Product
Co-Product Method
Method Copper Gold Method Copper Gold
Revenues, excluding adjustments $ 3.85 $ 3.85 $ 1,583 $ 3.69 $ 3.69 $ 1,271
Site production and delivery, before net noncash
and other costs shown below 2.21
a
1.34 551 1.53 1.01 347
Gold and silver credits (2.47) — — (1.92) — —
Treatment charges 0.19 0.11 46 0.22 0.15 50
Royalty on metals 0.16 0.10 41 0.13 0.08 29
Unit net cash costs (credits) 0.09 1.55 638 (0.04) 1.24 426
Depreciation and amortization 0.25 0.16 63 0.21 0.14 48
Noncash and other costs, net 0.04 0.02 10 0.04 0.02 9
Total unit costs 0.38 1.73 711 0.21 1.40 483
Revenue adjustments, primarily for pricing on
prior period open sales (0.01) (0.01) (13) (0.01) (0.01) 1
PT Smelting intercompany profit 0.13 0.08 32 (0.03) (0.02) (8)
Gross profit per pound/ounce $ 3.59 $ 2.19 $ 891 $ 3.44 $ 2.26 $ 781
Copper sales (millions of recoverable pounds) 846 846 1,214 1,214
Gold sales (thousands of recoverable ounces) 1,270 1,765
a. Includes $66 million ($0.08 per pound) for bonuses and other strike-related costs.
Unit net cash costs (net of gold and silver credits) for our
Indonesia mining operations averaged $0.09 per pound of copper
in 2011, compared with a net credit of $0.04 per pound in 2010.
Higher unit net cash costs primarily reflected lower copper sales
volumes and the impact of bonuses and other strike-related costs,
partially offset by higher gold and silver credits.
Africa Mining
Africa mining includes TFM's Tenke minerals district. We hold an
effective 56 percent interest in the Tenke copper and cobalt
mining concessions in the Katanga province of the DRC and are
the operator of TFM. As further discussed in Note 14, effective
March 26, 2012, the DRC government issued a Presidential Decree
approving modifications to TFM's bylaws, and our and Lundin
Mining Corporation's ownership interest in TFM total 80 percent
(previously 82.5 percent) and La Générale des Carrières et des
Mines' (Gécamines) ownership interest totals 20 percent
(previously 17.5 percent).
The Tenke operation includes surface mining, leaching and
SX/EW operations. Copper production from the Tenke minerals
district is sold as copper cathode. In addition to copper, the
Tenke minerals district produces cobalt hydroxide.
Refer to "Risk Factors" contained in Part I, Item 1A of our
annual report on Form 10-K for the year ended December 31,
2012, for discussion of risks associated with operations in Africa.
Operating and Development Activities. Our investment in the
initial project approximated $2 billion, and we have received
intercompany loan repayments, including interest, of approximately
$840 million through December 31, 2012.
An expansion of the project to optimize the current plant and
increase capacity was substantially completed in 2012. The
expanded mill is capable of throughput of 14,000 metric tons of
ore per day, and expanded processing facilities will enable the
addition of approximately 150 million pounds of copper
production per year. The approximate $850 million expansion
project is being completed within budget and included mill
upgrades, additional mining equipment, a new tankhouse and an
additional sulphuric acid plant (which is expected to be completed
in 2015). This expansion project was funded primarily with cash
generated from operations.
We continue to engage in drilling activities, exploration
analyses and metallurgical testing to evaluate the potential of the
highly prospective minerals district at Tenke. These analyses are