Freeport-McMoRan 2013 Annual Report Download - page 87

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2013 ANNUAL REPORT | 85
Finished Goods. Finished goods for mining operations
represent 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, and various cobalt
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 Mining Development Costs.
Property, plant, equipment and mining 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 mineral 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 charged to expense as incurred. Depreciation
for mining and milling life-of-mine assets, infrastructure and other
common costs is determined using the unit-of-production (UOP)
method based on total estimated recoverable proven and probable
copper reserves (for primary copper mines) and proven and
probable molybdenum reserves (for primary molybdenum mines).
Development costs and acquisition costs for proven and probable
mineral reserves that relate to a specific ore body are depreciated
using the UOP method based on estimated recoverable proven
and probable mineral reserves for the ore body benefited.
Depreciation, depletion and amortization using the UOP method is
recorded upon extraction of the recoverable copper or molybdenum
from the ore body, at which time it is allocated to inventory cost
and then included as a component of cost of goods sold. Other
assets are depreciated on a straight-line basis over estimated
useful lives of up to 39 years for buildings and three to 25 years for
machinery and equipment, and mobile equipment.
Included in property, plant, equipment and mining
development costs is value beyond proven and probable mineral
reserves (VBPP), primarily resulting from FCX’s acquisition of
FMC in 2007. The concept of VBPP has been interpreted differently
by different mining companies. FCX’s VBPP is attributable to
(i) mineralized material, which includes measured and indicated
amounts, that FCX believes could be brought into production with
the establishment or modification of required permits and should
market conditions and technical assessments warrant, (ii) inferred
mineral resources and (iii) exploration potential.
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. Total copper recovery in leach
stockpiles can vary significantly from a low percentage to more
than 90 percent depending on several variables, including
processing methodology, processing variables, mineralogy and
particle size of the rock. For newly placed material on active
stockpiles, as much as 80 percent total copper recovery 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.