Freeport reports Q2 Indonesian production

The following is an excerpt on Papua project of US mining giant Freeport-McMoRan Copper & Gold Inc.'s second quarter 2012 report released on Thursday.

Through its 90.64 percent owned and wholly consolidated subsidiary PT Freeport Indonesia, FCX operates the world's largest copper and gold mine in terms of reserves at its Grasberg operations in Papua, Indonesia. PT Freeport Indonesia produces copper concentrates, which contain significant quantities of gold and also silver.

FCX has several projects in progress 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 over several years to approximately 240,000 metric tons of ore per day following the currently anticipated transition from the Grasberg open pit in 2016. Over the next five years, estimated aggregate capital spending on these projects is expected to average $700 million per year ($550 million per year net to PT Freeport Indonesia). Considering the long-term nature and large size of these projects, actual costs could differ materially from these estimates.

The high-grade Big Gossan underground mine, which began producing in fourth-quarter 2010, is expected to reach full rates of 7,000 metric tons of ore per day in 2013. Substantial progress has been made in developing infrastructure and underground workings that will enable access to the underground ore bodies. Development of both the Grasberg Block Cave and Deep Mill Level Zone spurs is advancing, and the tunneling required to reach these underground ore bodies is complete.

Following is summary consolidated operating data for the Indonesia mining operations for the second quarters and first six months of 2012 and 2011:

Indonesian Mining Operations	Three Months Ended June 30
	2012	2011
Copper (million of recoverable pounds):
Production	173	261
Sales	183	265
Average realized price per pound	$ 3.49	$ 4.26
Gold (thousands of recoverable ounces):
Production	230	325
Sales	247	330
Average realized price per ounce	$ 1,587	$ 1,509
Unit net cash (credits) costs per pound of copper:
Site production and delivery, excluding adjustments	$ 2.23	$ 1.93
Gold and silver credits	(2.20)	(2.06)
Treatment charges	0.21	0.18
Royalties	0.13	0.17
Unit net cash (credits) costs (*)	$ 1.37	$ (0.22)
* For a reconciliation of unit net cash costs (credits) 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 VI, which is available on FCX's website, "www.fcx.com."

Indonesia's second-quarter 2012 copper sales of 183 million pounds and gold sales of 247 thousand ounces were significantly lower than second-quarter 2011 copper sales of 265 million pounds and gold sales of 330 thousand ounces, primarily reflecting anticipated lower ore grades and production rates.

Operations and productivity at PT Freeport Indonesia have continued to improve following the first-quarter 2012 work interruptions in connection with efforts to resume normal operations. PT Freeport Indonesia's milling rates averaged 179,500 metric tons of ore per day in second-quarter 2012, compared with the first-quarter 2012 average of 114,800 metric tons of ore per day. Mining operations in the Grasberg open pit are approaching normal levels and underground mining operations at the DOZ underground mine continue to be ramped up following the 2011 work stoppages. Mining rates at the DOZ underground mine averaged 45,400 metric tons per day in secondquarter 2012 and are expected to reach 80,000 metric tons per day in fourth-quarter 2012.

At the Grasberg mine, the sequencing of mining areas with varying ore grades also causes fluctuations in the timing of ore production resulting in varying quarterly and annual sales of copper and gold. FCX expects sales from Indonesia to approximate 750 million pounds of copper and 960 thousand ounces of gold for the year 2012, compared with 846 million pounds of copper and 1.3 million ounces of gold for the year 2011. PT Freeport Indonesia's revised sales estimates for 2012 are lower than previous estimates reported in April by approximately 50 million pounds of copper and 60 thousand ounces of gold because of a deferral of access to high-grade material in the open pit to future periods and a slower than expected ramp-up of the DOZ underground mine. FCX expects sales from Indonesia to increase in 2013 as PT Freeport Indonesia gains access to higher ore grades.

Indonesia's unit net cash costs (including gold and silver credits) of $1.37 per pound of copper in secondquarter 2012 were higher than unit net cash costs of $0.22 per pound in second-quarter 2011 primarily reflecting lower sales volumes.

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, as well as average realized gold prices during the period. FCX estimates Indonesia's average unit net cash costs (net of gold and silver credits) would approximate $1.24 per pound of copper for the year 2012, based on current sales volume and cost estimates and assuming an average gold price of $1,600 per ounce for the second half of 2012. Projected unit net cash costs for 2012 are higher than previous estimates reported in April primarily because of lower copper sales volumes and lower by-product credits. Indonesia's unit net cash costs for 2012 would change by approximately $0.04 per pound for each $50 perounce change in the average price of gold for the second half of 2012. FCX expects Indonesia's unit net cash costs to decline significantly in future years, compared to the year 2012, because of higher projected copper and gold volumes. (end of edited excerpt)