Management’s Discussion and Analysis statements to calculate the estimated average ratio of over- burden to ore over the life of the mine. The deferred mining cost method is used by some  companies in the metals mining industry; however,  industry practice varies. The Emerging Issues Task Force of  the Financial Accounting Standards Board (FASB) currently  is evaluating this issue. The deferred mining cost method  matches the cost of production with the sale of the related  metal from the open pit by assigning each metric ton of  ore removed an equivalent amount of overburden tonnage,  thereby averaging overburden removal costs over the  life of the mine. The mining cost capitalized in inventory  and the amounts charged to cost of goods sold do not  represent the actual costs incurred to mine the ore in any  given period. If we were to charge all mining costs to  expense when incurred, including all overburden removal  costs, as some mining companies do, there would be  greater volatility in our period-to-period results of operations. The application of the deferred mining cost method  has resulted in an asset on our balance sheets (“Deferred  Mining Costs”), which based on current mine plans, is  estimated to continue to increase through about 2010.  Subsequently, these costs are expected to begin to amortize  as a charge to production and delivery costs until they are  fully amortized at the end of the open pit’s life, which is  estimated to be in approximately 2015. This is because  PT Freeport Indonesia expects to mine higher than average  amounts of overburden through 2010 and less than average  thereafter. Deferred mining costs totaled $220.4 million  at December 31, 2004, and $142.6 million at December 31,  2003. Additions to deferred mining costs are classified as  increases in deferred mining costs in operating activities in  our consolidated statements of cash flows and totaled $77.8  million in 2004, $64.4 million in 2003 and $30.6 million in  2002. We evaluate the recoverability of our deferred mining  costs in conjunction with our evaluation of the recover- ability of our mining assets. The Grasberg mine is currently  our only producing open-pit mine. The estimated average ratio of overburden to ore over  the life of the Grasberg open pit used in our deferred  mining costs calculation is a critical accounting estimate  because (1) it is susceptible to change from period to  period because it requires management to make assump- tions about future mining activities and (2) changes could  materially affect net income. Our mine plan is derived from  a model that takes into consideration available geological  data and determines the most efficient and cost-effective  method of accessing the economic reserves. Significant  assumptions underlying our mine plan include the amount  of total overburden and ore we expect to move in a given  2004 ANNUAL REPORT  | 23 These estimates involve assumptions regarding future  copper and gold prices, the geology of our mines, the  mining methods we use and the related costs we incur to  develop and mine our reserves. Changes in these assump- tions could result in material adjustments to our reserve  estimates, which could result in changes to unit-of-produc- tion depreciation and amortization expense in future  periods, with corresponding adjustments to net income.  If aggregate estimated copper reserves were 10 percent  higher or lower at December 31, 2004, we estimate that  our annual depreciation expense for 2005 would change by  approximately $14 million, changing net income by approx- imately $7 million. Although some degree of variability  is expected, we believe the extent of our technical data  and operating experience – specifically as it relates to our  Grasberg open-pit mine, which we have been mining for 15  years – mitigates the potential for significant changes in  reserve estimates, especially as compared with mines that  are undeveloped or newly developed. As discussed in Note 1 of “Notes to Consolidated  Financial Statements,” we review and evaluate our long- lived assets for impairment when events or changes in  circumstances indicate that the related carrying amounts  may not be recoverable. Changes to our estimates of  proven and probable recoverable copper and gold reserves  could have an impact on our assessment of asset impair- ment. However, we believe it is unlikely that revisions to  our estimates of proven and probable recoverable copper  and gold reserves would give rise to an impairment of our  assets because of the significant size of our reserves in  relation to our asset carrying values. • Deferred Mining Costs –  Mining costs are charged to  operations as incurred. However, because of the configu- ration and location of the Grasberg ore body and the  location and extent of surrounding overburden, the ratio  of overburden to ore is much higher in the initial mining  of the pit than in later years. As a result, surface mining  costs associated with overburden removal at PT Freeport  Indonesia’s Grasberg open-pit mine that are estimated to  relate to future production are initially deferred when the  ratio of actual overburden removed to ore mined exceeds  the estimated average ratio of overburden to ore over the  life of the Grasberg open-pit mine. Those deferred costs are  subsequently charged to operating costs when the ratio  of actual overburden removed to ore mined falls below the  estimated average ratio of overburden removed to ore mined  over the life of the Grasberg open-pit mine. We use the  proven and probable ore reserves for the Grasberg open pit  disclosed in the notes to our consolidated financial 