FCX Increasing Production At North America Copper Mines

PHOENIX - Freeport-McMoRan Copper & Gold Inc. (FCX) operates seven open-pit copper mines in North America - Morenci, Bagdad, Safford, Sierrita and Miami in Arizona, and Tyrone and Chino in New Mexico. All of the North America mining operations are wholly owned, except for Morenci. The company records its 85 percent joint venture interest in Morenci using the proportionate consolidation method. In addition to copper, certain of FCX's North America copper mines (Sierrita, Bagdad, Morenci and Chino) also produce molybdenum concentrates.

Operating and Development Activities. The company has completed projects to increase production at its North America copper mines, including restarting certain mining and milling operations and increasing mining rates at Morenci and Chino. Ramp up activities at Chino are continuing, with annual production of approximately 250 million pounds of copper targeted in 2014. FCX continues to evaluate opportunities to invest in additional production capacity at its North America copper mines in response to positive exploration results in recent years.

At Morenci, FCX is engaged in a project to expand mining and milling capacity to process additional sulfide ores identified through exploratory drilling. The approximate $1.4 billion project is targeting incremental annual production of approximately 225 million pounds of copper in 2014 (an approximate 40 percent increase from 2012) through an increase in milling rates from 50,000 metric tons of ore per day to approximately 115,000 metric tons of ore per day and mining rates from 700,000 short tons per day to 900,000 short tons per day. Engineering activities are progressing and construction activities are under way.

FCX operates four copper mines in South America - Cerro Verde in Peru and El Abra, Candelaria and Ojos del Salado in Chile. FCX owns a 53.56 percent interest in Cerro Verde, a 51 percent interest in El Abra, and an 80 percent interest in both the Candelaria and Ojos del Salado mining complexes. South America mining includes open-pit and underground mining. In addition to copper, the Cerro Verde mine produces molybdenum concentrates, and the Candelaria and Ojos del Salado mines produce gold and silver.

At Cerro Verde, FCX is engaged in a large-scale expansion. The approximate $4.4 billion project would expand the concentrator facilities from 120,000 metric tons of ore per day to 360,000 metric tons of ore per day and provide incremental annual production of approximately 600 million pounds of copper and 15 million pounds of molybdenum beginning in 2016. Cerro Verde received approval of the environmental impact assessment in fourth-quarter 2012. Detailed engineering and long-lead item procurement are under way, and construction is expected to commence in 2013.

FCX is also engaged in pre-feasibility studies for a potential large-scale milling operation at El Abra to process additional sulfide material and to achieve higher recoveries. Exploration results at El Abra have identified a significant sulfide resource.

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 large-scale, high-grade underground ore bodies. 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. Development of the Grasberg Block Cave and Deep Mill Level Zone (DMLZ) is advancing. The DMLZ is expected to commence production in 2015, and the Grasberg Block Cave mine is scheduled to commence production in 2017. Over the next five years, estimated aggregate capital spending on these projects is currently expected to average $715 million per year ($565 million per year net to PT Freeport Indonesia).

Production from the Deep Ore Zone (DOZ) underground mine averaged 51,200 metric tons of ore per day in fourth-quarter 2012, and is expected to ramp up to the design rate of 80,000 metric tons of ore per day by year-end 2013, following completion of ongoing panel repairs.

The high-grade Big Gossan underground mine, which began producing in fourth-quarter 2010, averaged 2,100 metric tons of ore per day in fourth-quarter 2012. Full rates of 7,000 metric tons of ore per day are expected in 2014.

Indonesia's fourth-quarter 2012 sales of 204 million pounds of copper and 224 thousand ounces of gold were higher than fourth-quarter 2011 sales of 50 million pounds of copper and 102 thousand ounces of gold, primarily reflecting the impact in fourth-quarter 2011 of labor related disruptions and temporary suspension of milling operations.

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. FCX expects sales from Indonesia to approximate 1.1 billion pounds of copper and 1.2 million ounces of gold for the year 2013, compared with 716 million pounds of copper and 915 thousand ounces of gold for the year 2012. FCX expects sales from Indonesia to increase in fourth-quarter 2013 as PT Freeport Indonesia gains access to higher ore grades and achieves the targeted ramp up in production from the DOZ mine. Approximately 33 percent of Indonesia's projected copper sales and 38 percent of projected gold sales are expected in fourth-quarter 2013.

Indonesia's unit net cash costs (including gold and silver credits) of $1.33 per pound of copper in fourth-quarter 2012 were lower than unit net cash costs of $3.57 per pound in fourth-quarter 2011 primarily reflecting higher sales volumes. Fourth-quarter 2011 costs also included $66 million, or $1.30 per pound of copper, for bonuses and other strike-related costs.

FCX estimates Indonesia's unit net cash costs (net of gold and silver credits) would approximate $0.68 per pound of copper for the year 2013, based on current sales volume and cost estimates and assuming an average gold price of $1,700 per ounce.

FCX is the world's largest producer of molybdenum. FCX conducts molybdenum mining operations at its wholly owned Henderson underground mine and Climax open-pit mine in Colorado, and also sells molybdenum produced from its North and South America copper mines.

The Climax molybdenum mine, which was commissioned in second-quarter 2012, includes a new 25,000 metric ton per day mill facility. Production in fourth-quarter 2012 totaled 5 million pounds of molybdenum and is targeted at 20 million pounds for 2013, with potential to produce 30 million pounds per year, depending on market conditions. FCX intends to operate the Climax and Henderson mines in a flexible manner to meet market requirements. FCX believes that Climax is one of the most attractive primary molybdenum mines in the world, with large-scale production capacity, attractive cash costs and future growth options.

FCX is actively conducting exploration activities near its existing mines with a focus on opportunities to expand reserves that will support the development of additional future production capacity in the large minerals districts where it currently operates. Favorable exploration results indicate opportunities for significant future potential reserve additions in North and South America and in the Tenke Fungurume minerals district. The drilling data in North America continue to indicate the potential for expanded sulfide production.

Exploration spending for the year 2013 is expected to approximate $235 million, compared with $251 million in 2012. Exploration activities will continue to focus primarily on the potential for future reserve additions in FCX's existing minerals districts. Approximately one third of the 2013 budget is associated with greenfield exploration projects.

FCX reported fourth-quarter 2012 net income attributable to common stock of $743 million, compared with $640 million, for fourth-quarter 2011. Fourth-quarter 2012 net income included a net credit of $40 million associated with adjustments to environmental obligations and related litigation reserves and a gain for insurance recoveries, partly offset by charges for labor agreement costs at Candelaria and for costs associated with the PXP and MMR transactions. Fourth-quarter 2011 net income included a net charge of $73 million ($0.08 per share) associated with adjustments to environmental obligations and related litigation reserves and bonuses for new labor agreements and other employee costs at PT Freeport Indonesia, Cerro Verde and El Abra. For the year 2012, FCX reported net income attributable to common stock of $3.0 billion, compared with $4.6 billion, for the year 2011.