Freeport-McMoRan 2014 Annual Report Download - page 51

MANAGEMENT’S DISCUSSION AND ANALYSIS
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Under the MOU, no terms of the COW other than those relating
to the export duties, the smelter bond and royalties described
above will be changed until the completion of an amended COW.
PT-FI is advancing plans for the construction of new smelter
capacity in parallel with completing negotiations of its long-term
operating rights and will also discuss the possibility of expanding
industrial activities in Papua in connection with its long-term
development plans. PT-FI has identified a site adjacent to the
existing PT Smelting site in Gresik, Indonesia, for the construction
of additional smelter capacity.
PT-FI is required to apply for renewal of export permits at
six-month intervals. In January 2015, PT-FI obtained a renewal of
its export license through July 25, 2015.
Operating and Development Activities. We have several projects
in progress in the Grasberg minerals district related to the
development of large-scale, long-lived, high-grade underground
ore bodies. In aggregate, these underground ore bodies are
expected to ramp up over several years to process approximately
240,000 metric tons of ore per day following the transition from
the Grasberg open pit, currently anticipated to occur in late 2017.
Development of the Grasberg Block Cave and Deep Mill Level
Zone (DMLZ) underground mines is advancing to enable DMLZ to
commence production in late 2015 and the Grasberg Block Cave
mine to commence production in early 2018. Over the next five
years, estimated aggregate capital spending on these projects is
currently expected to average $0.9 billion per year ($0.7 billion per
year net to PT-FI). Considering the long-term nature and size of
these projects, actual costs could vary from these estimates.
Additionally, PT-FI may reduce or defer these activities pending
resolution of negotiations for an amended COW.
The following provides additional information on the continued
development of the Common Infrastructure project, the Grasberg
Block Cave underground mine and development of the DMLZ ore
body that lies below the Deep Ore Zone (DOZ) underground mine.
Common Infrastructure and Grasberg Block Cave Mine. In 2004,
PT-FI commenced its Common Infrastructure project to provide
access to its large undeveloped underground ore bodies located
in the Grasberg minerals district through a tunnel system located
approximately 400 meters deeper than its existing underground
tunnel system. In addition to providing access to our underground
ore bodies, the tunnel system will enable PT-FI to conduct future
exploration in prospective areas associated with currently
identified ore bodies. The tunnel system was completed to the Big
Gossan terminal, and the Big Gossan mine was brought into
production in 2010. Development of the DMLZ and Grasberg Block
Cave underground mines is advancing using the Common
Infrastructure project tunnels as access.
The Grasberg Block Cave underground mine accounts for more
than 40 percent of our recoverable proven and probable reserves
in Indonesia. Production at the Grasberg Block Cave mine is
expected to commence in early 2018, at the end of mining the
Grasberg open pit. Targeted production rates once the Grasberg
Block Cave mining operation reaches full capacity are expected to
approximate 160,000 metric tons of ore per day.
Aggregate mine development capital for the Grasberg Block
Cave mine and associated Common Infrastructure is expected to
approximate $5.7 billion (incurred between 2008 to 2021), with
PT-FI’s share totaling approximately $5.1 billion. Aggregate
project costs totaling $1.8 billion have been incurred through
December 31, 2014 ($0.5 billion during 2014).
DMLZ. The DMLZ ore body lies below the DOZ mine at the
2,590-meter elevation and represents the downward continuation
of mineralization in the Ertsberg East Skarn system and
neighboring Ertsberg porphyry. We plan to mine the ore body
using a block-cave method with production beginning in late
2015. Targeted production rates once the DMLZ mining operation
reaches full capacity are expected to approximate 80,000 metric
tons of ore per day. Drilling efforts continue to determine the
extent of this ore body. Aggregate mine development capital
costs for the DMLZ mine are expected to approximate $2.7 billion
(incurred between 2009 to 2020), with PT-FI’s share totaling
approximately $1.6 billion. Aggregate project costs totaling $1.2
billion have been incurred through December 31, 2014 ($0.3 billion
during 2014).
Operating Data. Following is summary operating data for our
Indonesia mining operations for the years ended December 31.
2014 2013 2012
Operating Data, Net of Joint Venture Interest
Copper (recoverable)
Production (millions of pounds) 636 915 695
Sales (millions of pounds) 664 885 716
Average realized price per pound $ 3.01 $ 3.28 $ 3.58
Gold (recoverable)
Production (thousands of ounces) 1,130 1,142 862
Sales (thousands of ounces) 1,168 1,096 915
Average realized price per ounce $ 1,229 $ 1,312 $ 1,664
100% Operating Data
Ore milled (metric tons per day):
a
Grasberg open pit 69,100 127,700 118,800
DOZ underground mine
b
50,500 49,400 44,600
Big Gossan underground mine
c
900 2,100 1,600
Total 120,500 179,200 165,000
Average ore grade:
Copper (percent) 0.79 0.76 0.62
Gold (grams per metric ton) 0.99 0.69 0.59
Recovery rates (percent):
Copper 90.3 90.0 88.7
Gold 83.2 80.0 75.7
Production (recoverable):
Copper (millions of pounds) 651 928 695
Gold (thousands of ounces) 1,132 1,142 862
a. Amounts represent the approximate average daily throughput processed at PT-FI’s mill
facilities from each producing mine.
b. Ore milled from the DOZ underground mine is expected to ramp up to 70,000 metric tons of
ore per day in the second half of 2015.
c. Ore milled from the Big Gossan underground mine is expected to ramp up to 7,000 metric
tons of ore per day in 2018.