Freeport-McMoRan 2011 Annual Report Download - page 105

LIBOR plus 6 percent. In December 2010, the addenda to TFM’s
ARMC and Amended and Restated Shareholders’ Agreement were
signed by the parties. In March 2011, the amendments were
approved by a ministerial council, and a Presidential Decree,
signed by the President and Prime Minister of the DRC, was issued
in April 2011. In addition, the change in FCX’s eective ownership
interest in the Tenke Fungurume minerals district and the
conversion of intercompany loans to equity will be eected aer
receiving the required government approval of the modications to
TFM’s bylaws that reect the agreement with the Government of
the DRC.
Community Development Programs. FCX has adopted policies
that govern its working relationships with the communities where
it operates. ese policies are designed to guide its practices and
programs in a manner that respects basic human rights and the
culture of the local people impacted by FCX’s operations. FCX
continues to make signicant expenditures on community
development, education, training and cultural programs.
In 1996, PT Freeport Indonesia established the Freeport
Partnership Fund for Community Development (Partnership
Fund) through which PT Freeport Indonesia has made available
funding and technical assistance to support community
development initiatives in the area of health, education and
economic development of the area. PT Freeport Indonesia has
committed through 2016 to provide one percent of its annual
revenue for the development of the local people in its area of
operations through the Partnership Fund. PT Freeport Indonesia
charged $50 million in 2011, $64 million in 2010 and $59 million in
2009 to cost of sales for this commitment.
During 2006, the Peruvian government announced that all
mining companies operating in Peru would be required to make
annual contributions to local development funds for a ve-year
period (covering the years 2006 through 2010) when copper prices
exceeded certain levels that were adjusted annually. e
contribution, which expired in 2010, was equal to 3.75 percent of
aer-tax prots, of which 2.75 percent was contributed to a local
mining fund and 1.00 percent to a regional mining fund. e
charge to cost of sales for these local mining fund contributions
totaled $41 million in 2010 and $28 million in 2009. Cerro Verde’s
nal contribution to these funds was made in early 2011.
TFM has committed to assist the communities living within its
concession in the Katanga province of the DRC. TFM will
contribute 0.3 percent of net sales revenue from production to a
community development fund to assist the local communities with
development of local infrastructure and related services, such as
those pertaining to health, education and economic development.
TFM charged $4 million in 2011, $3 million in 2010 and $1 million
in 2009 to cost of sales for this commitment.
Guarantees. FCX provides certain nancial guarantees (including
indirect guarantees of the indebtedness of others) and indemnities.
At its Morenci mine in Arizona, FCX has a venture agreement
dated February7, 1986, with Sumitomo, which includes a put and
call option guarantee clause. FCX holds an 85 percent undivided
interest in the Morenci complex. Under certain conditions dened
in the venture agreement, Sumitomo has the right to sell its
15 percent share to FCX. Likewise, under certain conditions, FCX
has the right to purchase Sumitomo’s share of the venture.
At December31,2011, the maximum potential payment FCX is
obligated to make to Sumitomo upon exercise of the put option (or
FCX’s exercise of its call option) totaled approximately $123 million
based on calculations dened in the venture agreement. At
December31,2011, FCX had not recorded any liability in its
consolidated nancial statements in connection with this
guarantee as FCX does not believe, based on information available,
that it is probable that any amounts will be paid under this
guarantee as the fair value of Sumitomo’s 15 percent share is in
excess of the exercise price.
Prior to its acquisition by FCX, FMC and its subsidiaries have,
as part of merger, acquisition, divestiture and other transactions,
from time to time, indemnied certain sellers, buyers or
other parties related to the transaction from and against certain
liabilities associated with conditions in existence (or claims
associated with actions taken) prior to the closing date of the
transaction. As part of these transactions, FMC indemnied the
counterparty from and against certain excluded or retained
liabilities existing at the time of sale that would otherwise have
been transferred to the party at closing. ese indemnity
provisions generally now require FCX to indemnify the party
against certain liabilities that may arise in the future from the
pre-closing activities of FMC for assets sold or purchased. e
indemnity classications include environmental, tax and certain
operating liabilities, claims or litigation existing at closing and
various excluded liabilities or obligations. Most of these indemnity
obligations arise from transactions that closed many years ago,
and given the nature of these indemnity obligations, it is
impossible to estimate the maximum potential exposure. Except
as described in the following sentence, FCX does not consider any
of such obligations as having a probable likelihood of payment
that is reasonably estimable, and accordingly, has not recorded
any obligations associated with these indemnities. With respect to
FCX’s environmental indemnity obligations, any expected costs
from these guarantees are accrued when potential environmental
obligations are considered by management to be probable and the
costs can be reasonably estimated.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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