Freeport-McMoRan 2014 Annual Report Download - page 55

MANAGEMENT’S DISCUSSION AND ANALYSIS
53
Unit net cash costs (net of cobalt credits) for our Africa mining
operations of $1.21 per pound of copper in 2013 were lower than
unit net cash costs of $1.23 per pound of copper in 2012, primarily
reflecting higher copper sales volumes, partly offset by lower
cobalt credits.
Molybdenum Mines
We have two wholly owned molybdenum mines in North America —
the Henderson underground mine and the Climax open-pit mine,
both in Colorado. The Henderson and Climax mines produce
high-purity, chemical-grade molybdenum concentrates, which are
typically further processed into value-added molybdenum
chemical products. The majority of molybdenum concentrates
produced at the Henderson and Climax mines, as well as from
North and South America copper mines, are processed at our
own conversion facilities.
Production from our molybdenum mines totaled 51 million
pounds of molybdenum in 2014, 49 million pounds in 2013 and
41 million pounds in 2012. Refer to “Consolidated Results“ for our
consolidated molybdenum operating data, which includes sales
of molybdenum produced at our molybdenum mines and at our
North and South America copper mines, and refer to “Outlook“
for projected consolidated molybdenum sales volumes.
Unit Net Cash Costs Per Pound of Molybdenum. Unit net cash
costs per pound of molybdenum is a measure intended to provide
investors with information about the cash-generating capacity of
our mining operations expressed on a basis relating to the
primary metal product for our respective operations. We use this
measure for the same purpose and for monitoring operating
performance by our mining operations. This information differs
from measures of performance determined in accordance with
U.S. GAAP and should not be considered in 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.
Average unit net cash costs for our molybdenum mines totaled
$7.08 per pound of molybdenum in 2014, compared with $7.15
per pound in 2013 and with Henderson’s unit net cash costs
of $7.07 per pound in 2012. Assuming achievement of current sales
volume and cost estimates, we estimate unit net cash costs for
the molybdenum mines to average $7.60 per pound of molybdenum
in 2015. Refer to “Product Revenues and Production Costs“ for
a reconciliation of unit net cash costs per pound to production and
delivery costs applicable to sales reported in our consolidated
financial statements.
Smelting & Refining
We wholly own and operate a smelter in Miami, Arizona, and
Atlantic Copper, a smelter and refinery in Spain. Additionally,
PT-FI owns 25 percent of PT Smelting, a smelter and refinery in
Gresik, Indonesia. Treatment charges for smelting and refining
copper concentrates consist of a base rate and, in certain
contracts, price participation based on copper prices. Treatment
charges represent a cost to our mining operations and income to
Atlantic Copper and PT Smelting. Thus, higher treatment charges
benefit our smelter operations and adversely affect our mining
operations. Our North America copper mines are less significantly
affected by changes in treatment charges because these
operations are largely integrated with our Miami smelter. Through
this form of downstream integration, we are assured placement
of a significant portion of our concentrate production. During 2014,
approximately half of our consolidated concentrate production
was processed through the Miami smelter, Atlantic Copper and
PT Smelting’s facilities.
2013 2012
By-Product Co-Product Method By-Product
Co-Product Method
Method Copper Cobalt Method Copper Cobalt
Revenues, excluding adjustments
a
$ 3.21 $ 3.21 $ 8.02 $ 3.51 $ 3.51 $ 7.83
Site production and delivery, before net noncash
and other costs shown below 1.43 1.35 4.35 1.49 1.39 4.86
Cobalt credits
b
(0.29) — — (0.33) — —
Royalty on metals 0.07 0.06 0.14 0.07 0.06 0.12
Unit net cash costs 1.21 1.41 4.49 1.23 1.45 4.98
Depreciation, depletion and amortization 0.54 0.48 1.00 0.52 0.47 0.67
Noncash and other costs, net 0.06 0.06 0.11 0.09 0.08 0.11
Total unit costs 1.81 1.95 5.60 1.84 2.00 5.76
Revenue adjustments, primarily for pricing on
prior period open sales — — 0.09 0.02 0.02 0.09
Gross profit per pound $ 1.40 $ 1.26 $ 2.51 $ 1.69 $ 1.53 $ 2.16
Copper sales (millions of recoverable pounds) 454 454 336 336
Cobalt sales (millions of contained pounds) 25 25
a. Includes point-of-sale transportation costs as negotiated in customer contracts.
b. Net of cobalt downstream processing and freight costs.