Freeport-McMoRan 2014 Annual Report Download - page 53

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MANAGEMENT’S DISCUSSION AND ANALYSIS
51
Because certain assets are depreciated on a straight-line basis,
PT-FI’s unit depreciation rate varies with the level of copper
production and sales.
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.
PT Smelting intercompany profit (loss) represents the change
in the deferral of 25 percent of PT-FI’s profit on sales to
PT Smelting. Refer to “Operations — Smelting & Refining“ for
further discussion.
Assuming achievement of current sales volume and cost
estimates, and an average gold price of $1,300 per ounce for
2015, we estimate that Indonesia’s unit net cash costs (net of gold
and silver credits) are expected to approximate $1.19 per pound
of copper for the year 2015. Indonesia’s projected unit net cash
costs would change by approximately $0.06 per pound for each
$50 per ounce change in the average price of gold during 2015.
Because of the fixed nature of a large portion of Indonesia’s
costs, unit costs vary from quarter to quarter depending on copper
and gold volumes.
2013 2012
By-Product Co-Product Method By-Product
Co-Product Method
Method Copper Gold Method Copper Gold
Revenues, excluding adjustments $ 3.28 $ 3.28 $ 1,312 $ 3.58 $ 3.58 $ 1,664
Site production and delivery, before net noncash
and other costs shown below 2.46 1.62 648 3.12 1.93 894
Gold and silver credits (1.69) — — (2.22) — —
Treatment charges 0.23 0.15 61 0.21 0.13 61
Royalty on metals 0.12 0.08 33 0.13 0.08 38
Unit net cash costs 1.12 1.85 742 1.24 2.14 993
Depreciation and amortization 0.28 0.19 73 0.30 0.18 85
Noncash and other costs, net 0.13 0.09 35 0.11 0.07 33
Total unit costs 1.53 2.13 850 1.65 2.39 1,111
Revenue adjustments, primarily for pricing on
prior period open sales — — (1) 0.02 0.02 3
PT Smelting intercompany loss (0.02) (0.01) (6) (0.05) (0.03) (15)
Gross profit per pound/ounce $ 1.73 $ 1.14 $ 455 $ 1.90 $ 1.18 $ 541
Copper sales (millions of recoverable pounds) 885 885 716 716
Gold sales (thousands of recoverable ounces) 1,096 915
Unit net cash costs (net of gold and silver credits) for our
Indonesia mining operations averaged $1.12 per pound of copper
in 2013, compared with $1.24 per pound in 2012, primarily
reflecting higher volumes.
Africa Mining
Africa mining includes Tenke Fungurume Mining S.A.’s (TFM)
Tenke minerals district. We hold an effective 56 percent interest in
the Tenke copper and cobalt mining concessions in the Katanga
province of the DRC through our consolidated subsidiary TFM,
and we are the operator of Tenke.
The Tenke operation includes surface mining, leaching and
SX/EW operations. Copper production from the Tenke minerals
district is sold as copper cathode. In addition to copper, the
Tenke minerals district produces cobalt hydroxide.
Operating and Development Activities. TFM completed its second
phase expansion project in early 2013, which included increasing
mine, mill and processing capacity. Construction of a second
sulphuric acid plant is under way, with completion expected in
2016. We continue to engage in exploration activities and
metallurgical testing to evaluate the potential of the highly
prospective minerals district at Tenke. These analyses are being
incorporated in future plans for potential expansions of
production capacity. Future expansions are subject to a number of
factors, including power availability, economic and market
conditions, and the business and investment climate in the DRC.
Operating Data. Following is summary operating data for our
Africa mining operations for the years ended December 31.
2014 2013 2012
Copper (recoverable)
Production (millions of pounds) 447 462 348
Sales (millions of pounds) 425 454 336
Average realized price per pound
a
$ 3.06 $ 3.21 $ 3.51
Cobalt (contained)
Production (millions of pounds) 29 28 26
Sales (millions of pounds) 30 25 25
Average realized price per pound $ 9.66 $ 8.02 $ 7.83
Ore milled (metric tons per day) 14,700 14,900 13,000
Average ore grade (percent):
Copper 4.06 4.22 3.62
Cobalt 0.34 0.37 0.37
Copper recovery rate (percent) 92.6 91.4 92.4
a. Includes point-of-sale transportation costs as negotiated in customer contracts.
2014 compared with 2013. Copper sales volumes from TFM
decreased to 425 million pounds in 2014, compared with 454 million
pounds in 2013, primarily because of lower ore grades.