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the final pricing of provisionally priced sales pursuant to contracts entered into in prior periods; in times of falling copper prices, the opposite occurs.
Consolidated revenues include net (unfavorable) favorable adjustments to current year provisionally priced copper sales (i.e., provisionally priced sales during the years 2022 and 2021) totaling
$(539) million for 2022 and $256 million for 2021. Refer to Note 14 for a summary of total adjustments to prior period and current period provisionally priced sales.
Prior Year Provisionally Priced Copper Sales. Net favorable adjustments to prior years’ provisionally priced copper sales (i.e., provisionally priced copper sales at December 31, 2021 and 2020) recorded in consolidated revenues totaled $60 million in 2022 and
$169 million in 2021. Refer to “Disclosures About Market Risks—
Commodity Price Risk” for further discussion of our provisionally priced copper sales, and to Note 14 for a summary of total adjustments to prior period and current period provisionally priced copper sales.
Purchased Copper. Lower revenues associated with purchased copper in 2022 compared to 2021, primarily reflects lower volumes and prices. We purchased copper cathode primarily for processing by our Rod & Refining operations, totaling 124 million pounds in 2022 and 173 million pounds in 2021.
Atlantic Copper Revenues. Lower Atlantic Copper revenues in 2022, compared with 2021, primarily reflect reduced operations as a result of a scheduled major maintenance turnaround resulting in a 78-day shutdown and lower copper prices.
Treatment Charges. Revenues from our concentrate sales are recorded net of treatment charges (i.e., fees paid to smelters that are generally negotiated annually), which will vary with the sales volumes and the price of copper. The increase in the treatment charges during 2022 primarily reflects higher copper sales volumes.
Royalties and Export Duties. Royalties are primarily on PT-FI sales and vary with the volume of metal sold and the prices of copper and gold. In late 2022, PT-FI’s export duty rate declined from 5% to 2.5% as a result of smelter development progress. Higher royalties and export duties during 2022, compared to 2021, are primarily associated with increased copper and gold sales volumes, partly offset by the decline in metal prices. Refer to “Operations—
Indonesia Mining” for further discussion of the current progress on additional smelting capacity in Indonesia and to Note 13 for a summary of PT-FI’s royalties and export duties.
Revenues
Consolidated revenues totaled $22.8 billion in both 2022 and 2021.
Our revenues primarily include the sale of copper concentrate, copper cathode, copper rod, gold in concentrate and molybdenum.
Following is a summary of changes in our consolidated revenues from 2021 to 2022 (in millions):
Consolidated revenues – 2021 $ 22,845
Mining operations:
Higher (lower) sales volumes:
Copper 1,759
Gold 832
Molybdenum (115)
(Lower) higher averaged realized prices:
Copper (1,812)
Gold (16)
Molybdenum 234
Adjustments for prior year provisionally priced copper sales (109) Lower revenues from sales of purchased copper (276)
Lower Atlantic Copper revenues (518)
Higher treatment charges (58)
Higher royalties and export duties (143) Other, including intercompany eliminations 157
Consolidated revenues – 2022 $ 22,780
Sales Volumes. Copper and gold sales volumes were higher in 2022, compared to 2021, primarily reflecting increased operating rates at the Grasberg minerals district and Cerro Verde. Refer to “Operations” for further discussion of sales volumes at our mining operations.
Realized Prices. Our consolidated revenues can vary significantly as a result of fluctuations in the market prices of copper, gold and molybdenum. In 2022, our average realized prices, compared with 2021, were 10% lower for copper, 1% lower for gold and 20% higher for molybdenum.
As discussed in “Disclosures About Market Risks—Commodity Price Risk,” substantially all of our copper concentrate and cathode sales contracts provide final copper pricing in a specified future month (generally one to four months from the shipment date). We record revenues and invoice customers at the time of shipment based on then-current LME prices, which results in an embedded derivative on provisionally priced concentrate and cathode sales that is adjusted to fair value through earnings each period, using the period-end forward prices, until final pricing on the date of settlement. To the extent final prices are higher or lower than what was recorded on a provisional basis, an increase or decrease to revenues is recorded each reporting period until the date of final pricing. Accordingly, in times of rising copper prices, our revenues benefit from adjustments to
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operating costs in 2022, including purchases of approximately 230 million gallons of diesel fuel; approximately 8,400 gigawatt hours of electricity at our North America and South America copper mining operations (we generate all of our power at our Indonesia mining operation); approximately 820 thousand metric tons of coal for our coal power plant in Indonesia; and approximately 1 million MMBtu (million British thermal units) of natural gas at certain of our North America mines. Based on current cost estimates, energy will approximate 24% of our copper mine site operating costs for 2023.
Depreciation, Depletion and Amortization
Depreciation will vary under the UOP method as a result of changes in sales volumes and the related UOP rates at our mining operations. Consolidated DD&A totaled $2.0 billion in both 2022 and 2021.
Metals Inventory Adjustments
Unfavorable metals inventory adjustments totaled $29 million in 2022 and $16 million in 2021. Adjustments in 2022 reflect NRV inventory adjustments related to lower market prices for copper and higher costs at Morenci and Bagdad. Adjustments in 2022 also include $10 million for stockpile write-offs at Cerro Verde.
Adjustments in 2021 were primarily related to a leach stockpile adjustment at Morenci.
Environmental Obligations and Shutdown Costs
Environmental obligation costs reflect net revisions to our long- term environmental obligations, which vary from period to period because of changes to environmental laws and regulations, the settlement of environmental matters and/or circumstances affecting our operations that could result in significant changes in our estimates (refer to “Critical Accounting Estimates—
Environmental Obligations” for further discussion). Shutdown costs include care-and-maintenance costs and any litigation, remediation or related expenditures associated with closed facilities or operations.
Net charges for environmental obligations and shutdown costs totaled $121 million in 2022, including $44 million for a proposed settlement related to historical environmental litigation and
$22 million in net unfavorable adjustments to environmental obligations. Net charges for the year 2021 totaled $91 million, including net unfavorable adjustments to environmental obligations totaling $41 million. Refer to Note 12 for further discussion of environmental obligations and litigation matters.
Production and Delivery Costs
Consolidated production and delivery costs totaled $13.0 billion in 2022, compared with $12.0 billion in 2021. Higher consolidated production and delivery costs in 2022 are primarily associated with significant inflationary cost pressures, principally associated with materials and supplies including sulfuric acid and explosives (41% of our site operating costs), labor (27% of our site operating costs) and energy prices (21% of our site operating costs). During 2022, prices for a number of commodity-related consumables increased at a time when copper prices declined. While prices for a number of commodity-related consumables have retreated from the highs of 2022, most cost elements remain high relative to long-term correlations.
Consolidated production and delivery costs also includes net charges totaling $157 million in 2022, primarily associated with ARO adjustments and an administrative fine at PT-FI; and $415 million in 2021, primarily associated with ARO adjustments and other net charges at PT-FI and nonrecurring labor-related costs at Cerro Verde for collective labor agreements, partly offset by refunds of Arizona transaction privilege taxes related to purchased electricity and favorable adjustments to prior-years’ profit sharing at Cerro Verde.
Refer to Note 16 for details of production and delivery costs by operating segment.
Mining Unit Site Production and Delivery Costs. Site production and delivery costs for our copper mining operations primarily include labor, energy and commodity-based inputs, such as sulfuric acid, reagents, liners, tires and explosives. Consolidated unit site production and delivery costs (before net noncash and other costs) for our copper mines averaged $2.19 per pound of copper in 2022 and $1.93 per pound in 2021. Higher consolidated unit site production and delivery costs in 2022, compared with 2021, primarily reflect higher energy prices and increased costs for consumables such as sulfuric acid, explosives, key equipment parts and other supplies and services. Refer to “Operations—Unit Net Cash Costs” for further discussion of unit net cash costs associated with our operating divisions, and to “Product Revenues and Production Costs” for reconciliations of per pound costs by operating division to production and delivery costs applicable to sales reported in our consolidated financial statements.
Our copper mining operations require significant amounts of energy, principally diesel, electricity, coal and natural gas, most of which is obtained from third parties under long-term contracts.
Our take-or-pay contractual obligations for electricity totaled approximately $0.3 billion at December 31, 2022. We do not have take-or-pay contractual obligations for other energy commodities.
Energy represented approximately 21% of our copper mine site
Capitalized interest varies with the level of expenditures for our development projects and average interest rates on our borrowings and totaled $150 million in 2022 and $72 million in 2021. The increase in capitalized interest in 2022, compared with 2021, is primarily associated with development activities related to Indonesia smelter projects. Refer to “Operations” and “Capital Resources and Liquidity—Investing Activities” for further discussion of current development projects.
Other Income (Expense), Net
Other income (expense), net, totaled $207 million in 2022 and
$(105) million in 2021. The year 2022 primarily includes interest income totaling $136 million and credits totaling $76 million associated with favorable adjustments to penalties on historical contested tax matters. The year 2021 primarily includes charges totaling $208 million associated with historical contested tax matters at PT-FI, partly offset by gains on currency exchange rate movements and other net credits. Refer to Note 11 for discussion of historical tax matters.
Income Taxes
Following is a summary of the approximate amounts used in the calculation of our consolidated income tax provision for the years ended December 31 (in millions, except percentages):
Net Gain on Sales of Assets
Net gain on sales of assets totaled $2 million in 2022 and
$80 million in 2021. Gains on sales of assets in 2021 were primarily associated with the sale of our remaining Freeport Cobalt assets and the sale of carbon dioxide emissions credits at Atlantic Copper. Refer to Note 2 for further discussion of dispositions.
Net Gain on Early Extinguishment of Debt
Net gain on early extinguishment of debt totaled $31 million in 2022, consisting primarily of $44 million associated with senior note purchases, partly offset by a charge of $10 million associated with the repayment of the PT-FI term loan. Refer to Note 8 for further discussion.
Interest Expense, Net
Consolidated interest costs (before capitalization) totaled
$710 million in 2022 and $674 million in 2021. Higher interest costs (before capitalization) in 2022, compared with 2021, primarily reflects additional interest costs associated with PT-FI senior notes sold in April 2022, partly offset by lower interest costs associated with the repayment and purchase of certain FCX senior notes.
Refer to Note 8 for further discussion.
2022 2021
Income Tax Income Tax
Income Effective (Provision) Income Effective (Provision) (Loss)a Tax Rate Benefit (Loss)a Tax Rate Benefit
U.S.b $ 811 —% $ 4c $ 1,883 1% $ (10)c
South America 1,236 37% (453)d 2,072 40% (820)e
Indonesia 4,629 39% (1,797) 3,986 35% (1,377)f
PT-FI historical contested tax disputes 72 N/A (23) (219) N/A (147)
Eliminations and other (33) N/A 2 (63) N/A 55
Continuing Operations $ 6,715 34% $ (2,267) $7,659 30% $ (2,299)
a. Represents income before income taxes and equity in affiliated companies’ net earnings.
b. In addition to our North America mining operations, the U.S. jurisdiction reflects corporate-level expenses, which include interest expense associated with senior notes, general and administrative expenses, and environmental obligations and shutdown costs.
c. Includes valuation allowance release on prior year unbenefited NOLs.
d. Includes a tax benefit of $31 million ($16 million net of noncontrolling interest), primarily associated with completion of Cerro Verde’s 2016 tax audit.
e. Includes a tax benefit of $18 million ($9 million net of noncontrolling interest), primarily associated with completion of tax audits at Cerro Verde for the years 2014 and 2015.
f. Includes net tax benefits associated with the release of valuation allowances recorded against PT Rio Tinto Indonesia NOLs totaling $189 million ($151 million net of noncontrolling interest).
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In August 2022, the Act was signed into law, which includes, among other provisions, a new CAMT of 15% on the adjusted financial statement income (AFSI) of corporations with average AFSI exceeding $1.0 billion over a three-year period, and a new excise tax of 1% on the fair market value of net corporate stock repurchases.
The Act had no impact on our consolidated financial statements for the year ended December 31, 2022. The provisions of the Act are applicable to us beginning January 1, 2023. Additional guidance related to how the CAMT provisions of the Act will be applied or otherwise administered is yet to be released by the U.S. Department of the Treasury, and may differ from our interpretations. We will continue to analyze the impacts as additional guidance is available.
We expect the CAMT provisions will impact our U.S. tax position, and may further limit our ability to benefit from our U.S. NOLs.
Assuming achievement of current sales volume and cost estimates and average prices of $4.00 per pound for copper,
$1,900 per ounce for gold and $20.00 per pound for molybdenum for 2023, we estimate our consolidated effective tax rate for the year 2023 would approximate 33%. Changes in projected sales volumes and average prices during 2023 would incur tax impacts at estimated effective rates of 39% for Peru, 38% for Indonesia and 0% for the U.S., which excludes any potential impact from the Act. Our projected estimated effective tax rate of 0% for the U.S.
for the year 2023 may be adjusted as additional guidance is released by the U.S. Department of the Treasury on key provisions of the Act, including guidance on the CAMT.
Refer to Note 11 and Item 1A. “Risk Factors” contained in Part I of our annual report on Form 10-K for the year ended December 31, 2022, for further discussion of income taxes.