Freeport reports higher Q2 Indonesian copper, gold sales
Thursday, July 21 2011 - 03:11 PM WIB
Through its 90.64 percent owned and wholly consolidated subsidiary PT Freeport Indonesia (PT-FI), FCX operates the world?s largest copper and gold mine in terms of reserves at its Grasberg operations in Papua, Indonesia.
FCX has several projects in process in the Grasberg minerals district, primarily related to the development of the large-scale, high-grade underground ore bodies located beneath and nearby the Grasberg open pit. In aggregate, these underground ore bodies are expected to ramp up to approximately 240,000 metric tons of ore per day following the currently anticipated transition from the Grasberg open pit in 2016.
The Deep Ore Zone (DOZ) mine, one of the world's largest underground mines, has been expanded to a capacity of 80,000 metric tons of ore per day; and a feasibility study for the Deep Mill Level Zone (DMLZ) has been completed. The high-grade Big Gossan mine, which began producing in fourth-quarter 2010, is expected to reach full rates of 7,000 metric tons of ore per day by the end of 2012. Substantial progress has been made in developing infrastructure and underground workings that will enable access to the underground ore bodies. Development of the terminal infrastructure and mine access for the Grasberg Block Cave and DMLZ ore bodies is in progress. Over the next five years, estimated aggregate capital spending is expected to average approximately $635 million ($500 million net to PT-FI) per year on underground development activities.
Following is summary consolidated operating data for the Indonesia mining operations for the second quarters and first six months of 2011 and 2010:
| Indonesian Mining Operations | Three Months Ended June 30 |
Six Months Ended June 30 |
||
| 2011 | 2010 | 2011 | 2010 | |
| Copper (million of recoverable pounds): | ||||
| Production | 261 | 276 | 545 | 555 |
| Sales | 265 | 259 | 543 | 555 |
| Average realized price per pound | $ 4.26 | $ 2.95 | $ 4.23 | $ 3.05 |
| Gold (thousands of recoverable ounces): | ||||
| Production | 325 | 294 | 766 | 723 |
| Sales | 276 | 811 | 734 | 1,332 |
| Average realized price per ounce | $ 1,509 | $ 1,235 | $ 1,466 | $ 1,171 |
| Unit net cash (credits) costs per pound of copper: | ||||
| Site production and delivery, excluding adjustments | $ 1.93 | $ 1.62 | $ 1.88 | $ 1.58 |
| Gold and silver credits | (2.06 ) | (1.41 ) | (2.20 ) | (1.61 ) |
| Treatment charges | 0.18 | 0.26 | 0.18 | 0.24 |
| Royalties | 0.17 | 0.11 | 0.16 | 0.11 |
| Unit net cash (credits) costs (*) | $ 0.22 | $ 0.58 | $ 0.02 | $ 0.32 |
| *. For a reconciliation of unit net cash (credits) costs per pound to production and delivery costs applicable to sales reported in FCX?s consolidated financial statements, refer to the supplemental schedule, ?Product Revenues and Production Costs,? beginning on page VII, which is available on FCX?s web site, ?www.fcx.com.? | ||||
At the Grasberg mine, the sequencing of mining areas with varying ore grades causes fluctuations in the timing of ore production resulting in varying quarterly and annual sales of copper and gold. Copper sales from Indonesia of 265 million pounds in second-quarter 2011 were slightly above second-quarter 2010 sales of 259 million pounds. Gold sales of 330 thousand ounces in second-quarter 2011 were higher than second-quarter 2010 sales of 276 thousand ounces.
During July 2011, PT-FI union workers commenced an eight-day labor strike, which led to a temporary suspension of mining, milling and concentrate shipments. On July 11, 2011, PT-FI reached an agreement with the union to end the strike and operations have resumed. PT-FI estimates the aggregate impact on 2011 production to approximate 35 million pounds of copper and 60 thousand ounces of gold. PT-FI has commenced negotiations with the union for its bi-annual renewal of the collective labor agreement, which is scheduled for renewal in October 2011.
FCX expects sales from Indonesia to approximate 1.0 billion pounds of copper and 1.45 million ounces of gold for the year 2011, compared with 1.2 billion pounds of copper and 1.8 million ounces of gold for the year 2010.
Because of the fixed nature of a large portion of Indonesia's costs, unit costs vary from quarter to quarter depending on volumes of copper and gold sold during the period. Unit net cash costs (net of gold and silver credits) for Indonesia of $0.22 per pound of copper in second-quarter 2011 were lower than unit net cash costs of $0.58 per pound in second-quarter 2010 as higher gold credits more than offset increases in site production and delivery costs.
FCX estimates Indonesia's average unit net cash costs (net of gold and silver credits) would approximate $0.28 per pound of copper for the year 2011, based on current sales volume and cost estimates and assuming an average gold price of $1,500 per ounce during the second half 2011. Indonesia's unit net cash costs for 2011 would change by approximately $0.04 per pound for each $50 per ounce change in the average price of gold during the second half of 2011. (end of excerpt)