Freeport-McMoRan 2008 Annual Report Download - page 98

Notes to Consolidated Financial Statements
96 FREEPORT-McMoRan COPPER & GOLD INC. 2008 Annual Report
The most significant revisions to cash flow estimates in
2007 were related to changes at Chino, Tyrone and PT Freeport
Indonesia. During 2007, Chino and Tyrone each submitted
updated third-party closure cost estimates to the state of New
Mexico as part of the closure permit renewal process. As a result,
FCX revised its cash flow estimates and increased its ARO by
$95 million for Chino and $45 million for Tyrone. Additional
adjustments may be required based upon the state’s review of
the updated closure plans and any permit conditions imposed by
the state of New Mexico. Additionally, PT Freeport Indonesia
updated its cost estimates primarily for changes to its plans for
the treatment of acidic water, resulting in an increase of
$33 million.
Legal requirements in New Mexico, Arizona and Colorado
require financial assurance to be provided for the estimated costs
of reclamation and closure, including groundwater quality
protection programs. FCX has satisfied financial assurance
requirements by using a variety of mechanisms, such as third-
party performance guarantees, financial capability
demonstrations, trust funds, surety bonds, letters of credit and
collateral. The applicable regulatory requirements provide
financial strength tests to support performance guarantees and
financial capability demonstrations, which are designed to
confirm a company’s or guarantor’s financial capability to fund
future estimated reclamation and closure costs. The amount of
financial assurance FCX is required to provide will vary with
changes in laws, regulations and reclamation and closure cost
estimates. As of December 31, 2008, FCX’s financial assurance
obligations associated with closure and reclamation costs
totaled $708 million, of which approximately $425 million was in
the form of parent company guarantees and financial capability
demonstrations. At December 31, 2008, FCX had trust assets
totaling $114 million, which are legally restricted to fund a
portion of its AROs for Chino, Tyrone and Cobre as required by
New Mexico regulatory authorities. During 2008, FCX’s trust
assets that were voluntarily designated for funding global
reclamation and remediation activities decreased by $430 million
resulting primarily from reimbursement of previously incurred
costs for reclamation and environmental activities.
New Mexico Environmental and Reclamation Programs. FCX’s
New Mexico operations are subject to regulation under the New
Mexico Water Quality Act and the Water Quality Control
Commission (WQCC) regulations adopted under that Act. The
New Mexico Environment Department (NMED) has required each
of these operations to submit closure plans for NMED’s approval.
The closure plans must include measures to assure meeting
groundwater quality standards following the closure of
discharging facilities and to abate any groundwater or surface
water contamination.
FCX’s New Mexico operations also are subject to regulation
under the New Mexico Mining Act (the Mining Act), which
was enacted in 1993, and the Mining Act rules, which are
administered by the Mining Minerals Division (MMD). Under
the Mining Act, mines are required to submit and obtain
approval of closeout plans describing the reclamation to be
performed following cessation of mining operations at all or a
portion of the mines. At December 31, 2008, FCX had accrued
reclamation and closure costs of $372 million for its New
Mexico operations. As stated above, additional accruals may
be required based on the state’s review of FCX’s updated
closure plans and any resulting permit conditions, and the
amount of those accruals could be material.
Arizona Environmental and Reclamation Programs. FCX’s
Arizona properties are subject to regulatory oversight and
compliance in several areas. The Arizona Department of
Environmental Quality (ADEQ) has adopted regulations for its
aquifer protection permit (APP) program that replaced previous
Arizona groundwater quality protection permit regulations.
APP regulations require permits for certain facilities, activities
and structures for mining, concentrating and smelting and
require compliance with aquifer water quality standards at an
applicable point of compliance well or location. The APP program
also may require mitigation and discharge reduction or
elimination of some discharges.
An application for an APP requires a description of a closure
strategy to meet applicable groundwater protection requirements
following cessation of operations and a cost estimate to
implement the closure strategy. An APP may specify closure
requirements, which may include post-closure monitoring
and maintenance requirements. A more detailed closure plan
must be submitted within 90 days after a permitted entity
notifies ADEQ of its intent to cease operations. A permit
applicant must demonstrate its financial capability to meet the
closure costs required under the APP.
Portions of the Arizona mining facilities that operated after
January 1, 1986, also are subject to the Arizona Mined Land
Reclamation Act (AMLRA). AMLRA requires reclamation to
achieve stability and safety consistent with post-mining land use
objectives specified in a reclamation plan. Reclamation plans
require approval by the State Mine Inspector and must include a
cost estimate to perform the reclamation measures specified in
the plan. During 2008, FCX updated its closure approach at
Sierrita and Tohono to address site-specific regulatory obligations
and will continue to evaluate options for future reclamation and
closure activities at its other operating and non-operating sites,
which are likely to result in additional adjustments to FCX’s ARO
liabilities. At December 31, 2008, FCX had accrued reclamation
and closure costs of $164 million for its Arizona operations.