Freeport reports Q4 Indonesian production

The following is an excerpt on Papua project of US mining giant Freeport-McMoRan Copper & Gold Inc.'s fourth quarter 2011 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.

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 mid-2013. 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 $700 million ($550 million net to PT Freeport Indonesia) per year on underground development activities.

Following is summary consolidated operating data for the Indonesia mining operations for the fourth quarters and years ended 2011 and 2010:

Indonesian Mining Operations	Three Months Ended December 31		Years Ended December 31
	2011	2010	2011	2010
Copper (million of recoverable pounds):
Production	68	309	846	1,222
Sales	50	295	846	1,214
Average realized price per pound	$ 3.31	$ 4.34	$ 3.85	$ 3.69
Gold (thousands of recoverable ounces):
Production	149	601	1,272	1,786
Sales	102	565	1,272	1,786
Average realized price per ounce	$ 1664	$ 1,399	$ 1,583	$ 1,271
Unit net cash (credits) costs per pound of copper:
Site production and delivery, excluding adjustments	$ 6.92	$ 1.55	$ 12.21	$ 1.53
Gold and silver credits	(3.72)	(2.81)	(2.47)	(1.92)
Treatment charges	0.22	0.19	0.19	0.22
Royalties	0.15	0.16	0.16	0.13
Unit net cash (credits) costs (*)	$ 3.57	$ 0.91	$ 0.09	$ 0.04
*. Includes impacts of $66 million ($1.30 per pound of copper for fourth-quarter 2011 and $0.08 per pound of copper for the year 2011) associated with signing bonuses and other strike-related costs. *. 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 website, ?www.fcx.com.?

Indonesia's fourth-quarter 2011 copper sales of 50 million pounds and gold sales of 102 thousand ounces were lower than fourth-quarter 2010 copper sales of 295 million pounds and gold sales of 565 thousand ounces, reflecting the impact of labor-related disruptions and the temporary suspension of milling operations because of damage to the concentrate and fuel pipelines.

The estimated impact of the labor and pipeline disruptions (net to PT Freeport Indonesia), including the eight-day work stoppage in July 2011, totaled 165 million pounds of copper and 170 thousand ounces of gold in fourth-quarter 2011, and 235 million pounds of copper and 275 thousand ounces of gold for the year 2011.

In December 2011, PT Freeport Indonesia reached an agreement with union officials to end the threemonth strike that commenced on September 15, 2011. Pursuant to the terms, PT Freeport Indonesia agreed to increase base wages by 24 percent in the first year and by 13 percent in the second year (equivalent to a 40 percent increase over two-years on a compounded basis). PT Freeport Indonesia also paid a bonus equivalent to three months of base wages and agreed to provide other benefits, including enhancements to housing allowances, educational assistance and retirement savings plans. The parties also agreed that future wage negotiations would be based on living costs and the competitiveness of wages within Indonesia.

FCX expects sales from Indonesia to approximate 930 million pounds of copper and 1.1 million ounces of gold for the year 2012, compared to 2011 sales of 846 million pounds of copper and 1.3 million ounces of gold. Gold sales in 2012 are projected to be lower than in 2011 because of mining in a lower grade section of the Grasberg mine in 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. The achievement of projected 2012 sales volumes depends on a number of factors, including the timing of restoring full operations at Grasberg following the extended disruption.

Unit net cash costs (including gold and silver credits) for Indonesia averaged $3.57 per pound of copper in fourth-quarter 2011, compared to a net credit of $0.91 per pound in fourth-quarter 2010, primarily reflecting lower copper and gold sales volumes and the impact of signing bonuses and other strike-related costs.

FCX estimates Indonesia's average unit net cash costs (net of gold and silver credits) would approximate $0.98 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. Indonesia's unit net cash costs for 2012 would change by approximately $0.06 per pound for each $50 per ounce change in the average price of gold. Higher projected unit net cash costs in 2012, compared to 2011, primarily reflect higher input costs, including labor and energy, and lower by-product credits, partly offset by higher projected copper volumes. Quarterly unit net cash costs are expected to vary significantly with variations in quarterly metal sales volumes. (end of edited excerpt)