Freeport-McMoRan 2012 Annual Report Download - page 76

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
and refining operations (refer to Note 3 for further discussion).
Mill and leach stockpiles, and inventories of materials and
supplies, as well as salable products, are stated at the lower of
weighted-average cost or market. Costs of finished goods and
work-in-process (i.e., not materials and supplies) inventories
include labor and benefits, supplies, energy, depreciation,
depletion, amortization, site overhead costs and other necessary
costs associated with the extraction and processing of ore,
including, depending on the process, mining, haulage, milling,
concentrating, smelting, leaching, solution extraction, refining,
roasting and chemical processing. Corporate general and
administrative costs are not included in inventory costs.
Work-in-Process. In-process inventories include mill and leach
stockpiles at mining operations and Atlantic Copper's in-process
product inventories. In-process inventories represent materials
that are currently in the process of being converted to a salable
product. Conversion processes for mining operations vary
depending on the nature of the copper ore and the specific mining
operation. For sulfide ores, processing includes milling and
concentrating and results in the production of copper and
molybdenum concentrates or, alternatively, copper cathode by
concentrate leaching. For oxide ores and certain secondary
sulfide ores, processing includes leaching of stockpiles, solution
extraction and electrowinning (SX/EW) and results in the production
of copper cathodes. In-process stockpile material is measured
based on assays of the material included in these processes and
projected recoveries. In-process inventories are valued based
on the costs incurred to various points in the process, including
depreciation relating to associated process facilities.
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 refining 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. The
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. Material is
removed from the stockpiles at a weighted-average cost per pound.
Because it is generally impracticable to determine copper
contained in mill and leach stockpiles by physical count,
reasonable estimation methods are employed. The 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. The 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 significantly 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 first year, and the remaining copper may be recovered over
many years.
Processes and recovery rates for mill and leach stockpiles are
monitored regularly, and recovery rate estimates are adjusted
periodically as additional information becomes available and as
related technology changes. Adjustments to recovery rates will
typically result in a future impact to the value of the material
removed from the stockpiles at a revised weighted-average cost
per pound of recoverable copper.
For Atlantic Copper, in-process inventories represent copper
concentrates at various stages of conversion into anodes and
cathodes. Atlantic Copper’s in-process inventories are valued at
the weighted-average cost of the material fed to the smelting and
refining process plus in-process conversion costs.
Finished Goods. Finished goods include salable products (e.g.,
copper and molybdenum concentrates, copper anodes, copper
cathodes, copper rod, copper wire, molybdenum oxide, high-
purity molybdenum chemicals and other metallurgical products).
Finished goods are valued based on the weighted-average cost of
source material plus applicable conversion costs relating to
associated process facilities.
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 after 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 shafts, adits,
drifts, 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
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