Freeport-McMoRan 2014 Annual Report Download - page 49

MANAGEMENT’S DISCUSSION AND ANALYSIS
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isolation or as a substitute for measures of performance
determined in accordance with U.S. GAAP. This measure is
presented by other metals mining companies, although our
measure may not be comparable to similarly titled measures
reported by other companies.
Gross Profit per Pound of Copper. The following tables summarize
unit net cash costs and gross profit per pound at our South
America mining operations for the years ended December 31.
Unit net cash costs per pound of copper are reflected under
the by-product and co-product methods as the South America
mining operations also had small amounts of molybdenum, gold
and silver sales. Refer to “Product Revenues and Production
Costs“ for an explanation of the “by-product“ and “co-product“
methods and a reconciliation of unit net cash costs per pound
to production and delivery costs applicable to sales reported in
our consolidated financial statements.
2014
a
2013
By-Product Co-Product By-Product Co-Product
Method Method Method Method
Revenues, excluding adjustments $ 3.08 $ 3.08 $ 3.30 $ 3.30
Site production and delivery, before net noncash
and other costs shown below 1.62 1.50 1.53
b
1.42
By-product credits (0.22) — (0.27) —
Treatment charges 0.17 0.17 0.17 0.17
Royalty on metals 0.01 0.01 — —
Unit net cash costs 1.58 1.68 1.43 1.59
Depreciation, depletion and amortization 0.32 0.30 0.26 0.24
Noncash and other costs, net 0.06 0.07 0.04 0.03
Total unit costs 1.96 2.05 1.73 1.86
Revenue adjustments, primarily for pricing on
prior period open sales (0.05) (0.05) (0.03) (0.03)
Gross profit per pound $ 1.07 $ 0.98 $ 1.54 $ 1.41
Copper sales (millions of recoverable pounds) 1,135 1,135 1,325 1,325
a. Includes the results of Candelaria/Ojos through November 3, 2014.
b. Includes labor agreement costs totaling $36 million ($0.03 per pound) at Cerro Verde.
Our South America mines have varying cost structures because
of differences in ore grades and characteristics, processing costs,
by-products and other factors. During 2014, unit net cash costs
(net of by-product credits) for the South America mines ranged
from $1.47 per pound to $1.96 per pound at the individual mines
and averaged $1.58 per pound. Average unit net cash costs (net of
by-product credits) for our South America mining operations
increased to $1.58 per pound of copper in 2014, compared with
$1.43 per pound in 2013, primarily reflecting lower sales volumes
and by-product credits.
Because certain assets are depreciated on a straight-line basis,
South America’s unit depreciation rate may vary with asset
additions and the level of copper production and sales. The increase
in unit depreciation in 2014, compared with 2013, primarily
relates to asset additions at Cerro Verde.
Revenue adjustments primarily result from changes in prices on
provisionally priced copper sales recognized in prior periods.
Refer to “Consolidated Results — Revenues“ for further discussion
of adjustments to prior period provisionally priced copper sales.
Assuming achievement of current sales volume and cost
estimates and average prices of $9 per pound of molybdenum in
2015, we estimate that average unit net cash costs (net of
by-product credits) for our South America mining operations
would approximate $1.70 per pound of copper in 2015.