Freeport-McMoRan 2013 Annual Report Download - page 45

MANAGEMENT’S DISCUSSION AND ANALYSIS
2013 ANNUAL REPORT | 43
Operating and Development Activities. We have increased
production from our North America copper mines in recent years
and we continue to evaluate opportunities to invest in additional
production capacity following positive exploration results. Future
investments will be undertaken based on the results of economic
and technical feasibility studies and market conditions.
Morenci Mill Expansion. We are expanding mining and milling
capacity to process additional sulfide ores identified through
exploratory drilling. The project is targeting incremental annual
production of approximately 225 million pounds of copper
beginning in 2014 (an approximate 40 percent increase from 2013)
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.
At full rates, Morenci’s copper production is expected to approach
1 billion pounds in 2015, compared with 564 million pounds
in 2013. As of December 31, 2013, construction was more than
60 percent complete, and the project is on track for first copper
production in the first half of 2014. At December 31, 2013, project
costs of $1.0 billion had been incurred ($0.7 billion during 2013),
with approximately $0.6 billion remaining to be incurred.
Operating Data. Following is summary operating data for the
North America copper mines for the years ended December 31:
2013 2012 2011
Operating Data, Net of Joint Venture Interest
Copper (millions of recoverable pounds)
Production 1,431 1,363 1,258
Sales, excluding purchases 1,422 1,351 1,247
Average realized price per pound $ 3.36 $ 3.64 $ 3.99
Molybdenum (millions of recoverable
pounds)
Production
a
32 36 35
100% Operating Data
SX/EW operations
Leach ore placed in stockpiles
(metric tons per day) 1,003,500 998,600 888,300
Average copper ore grade (percent) 0.22 0.22 0.24
Copper production
(millions of recoverable pounds) 889 866 801
Mill operations
Ore milled (metric tons per day) 246,500 239,600 222,800
Average ore grade (percent):
Copper 0.39 0.37 0.38
Molybdenum 0.03 0.03 0.03
Copper recovery rate (percent) 85.3 83.9 83.1
Copper production
(millions of recoverable pounds) 642 592 549
a. Refer to “Consolidated Results” for our consolidated molybdenum sales volumes, which
include sales of molybdenum produced at the North America copper mines.
Following is a summary of the approximate amounts used in
the calculation of our consolidated provision for income taxes for
the year ended December 31 (in millions, except percentages):
2011
Effective Income Tax
Income
a
Tax Rate Provision
U.S. $ 2,109 23% $ (477)
South America 3,017 36% (1,075)
b
Indonesia 2,923 43% (1,256)
Africa 357 34% (120)
Eliminations and other 412 N/A (159)
Consolidated FCX $ 8,818 35% $ (3,087)
a. Represents income 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 could elect to pay.
Cerro Verde elected to pay this special mining burden during the remaining term of its
1998 stability agreement, which expired on December 31, 2013. As a result, Cerro Verde
recognized additional tax expense of $53 million ($49 million net of noncontrolling
interests) in 2011.
Our consolidated effective income tax rate is a function of the
combined effective tax rates for the jurisdictions in which we
operate. Accordingly, variations in the relative proportions of
jurisdictional income result in fluctuations to our consolidated
effective income tax rate. Assuming average prices of $3.25 per
pound for copper, $1,200 per ounce for gold, $9.50 per pound
for molybdenum and Brent crude oil of $105 per barrel, and
achievement of current sales volume and cost estimates, we
estimate our annual consolidated effective tax rate for the year
2014 will approximate 35 percent.
Refer to Note 11 for further discussion of income taxes.
OPERATIONS
North America Copper Mines
We operate seven open-pit copper mines in North America —
Morenci, Bagdad, Safford, Sierrita and Miami in Arizona, and
Chino and Tyrone in New Mexico. All of the North America mining
operations are wholly owned, except for Morenci. We record our
85 percent joint venture interest in Morenci using the
proportionate consolidation method.
The North America copper mines include open-pit mining,
sulfide ore concentrating, leaching and solution extraction/
electrowinning (SX/EW) operations. A majority of the copper
produced at our North America copper mines is cast into copper
rod by our Rod & Refining segment. 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 (our wholly owned smelter). Molybdenum concentrate is
also produced by certain of our North America copper mines
(Sierrita, Bagdad, Morenci and Chino).