Freeport-McMoRan 2011 Annual Report Download - page 31

2011 ANNUAL REPORT | 29
($24 million to net income attributable to common stockholders).
We perform annual assessments of our existing assets in connection
with the review of mine operating and development plans. If it is
determined that assigned asset lives do not reect the expected
remaining period of benet, any change could aect prospective
depreciation rates.
As discussed below and in Note 1, we review and evaluate our
long-lived assets for impairment when events or changes in
circumstances indicate that the related carrying amount of such
assets may not be recoverable, and changes to our estimates of
recoverable proven and probable reserves could have an impact on
our assessment of asset recoverability.
Recoverable Copper. We record, as inventory, applicable costs for
copper contained in mill and leach stockpiles that are expected to
be processed in the future based on proven processing
technologies. Mill and leach stockpiles are evaluated periodically
to ensure that they are stated at the lower of cost or market.
Accounting for recoverable copper from mill and leach stockpiles
represents a critical accounting estimate because (i) it is generally
impracticable to determine copper contained in mill and leach
stockpiles by physical count, which requires management to
employ reasonable estimation methods and (ii) recovery rates
from leach stockpiles can vary signicantly. e quantity of
material delivered to mill and leach stockpiles is based on surveyed
volumes of mined material and daily production records.
Sampling and assaying of blasthole cuttings determine the
estimated copper grade contained in the material delivered to the
mill and leach stockpiles.
Expected copper recovery rates for mill stockpiles are
determined by metallurgical testing. e recoverable copper in
mill stockpiles, once entered into the production process, can be
produced into copper concentrate almost immediately.
Expected copper recovery rates for leach stockpiles are
determined using small-scale laboratory tests, small- to large-scale
column testing (which simulates the production-scale process),
historical trends and other factors, including mineralogy of the ore
and rock type. Ultimate recovery of copper contained in leach
stockpiles can vary signicantly from a low percentage to more
than 90 percent depending on several variables, including type of
copper recovery, mineralogy and particle size of the rock. For
newly placed material on active stockpiles, as much as 70 percent of
the copper ultimately recoverable may be extracted during the rst
year, and the remaining copper may be recovered over many years.
Processes and recovery rates are monitored regularly, and
recovery rate estimates are adjusted periodically as additional
information becomes available and as related technology changes.
At December31,2011, estimated consolidated recoverable copper
was 3.1 billion pounds in leach stockpiles (with a carrying value of
$2.4 billion) and 1.3 billion pounds in mill stockpiles (with a
carrying value of $604 million).
Environmental Obligations. Our mining, exploration, production
and historical operating activities are subject to stringent laws
and regulations governing the protection of the environment, and
compliance with those laws requires signicant expenditures.
Environmental expenditures for closed facilities and closed portions
of operating facilities are expensed or capitalized depending upon
their future economic benets. e guidance provided by U.S.
GAAP requires that liabilities for contingencies be recorded when it
is probable that a liability has been incurred and the amount can be
reasonably estimated. Refer to Note 1 for discussion of our
accounting policy for environmental expenditures.
Accounting for environmental obligations represents a critical
accounting estimate because changes to environmental laws and
regulations and/or circumstances aecting our operations could
result in signicant changes to our estimates, which could have a
signicant impact on our results of operations. We review changes
in facts and circumstances associated with our environmental and
reclamation obligations at least quarterly. Judgments and estimates
are based upon available facts, existing technology, presently
enacted laws and regulations, remediation experience, whether or
not we are a potentially responsible party (PRP), the ability of other
PRPs to pay their allocated portions and take into consideration
reasonably possible outcomes. Our cost estimates can change
substantially as additional information becomes available
regarding the nature or extent of site contamination, updated cost
assumptions (including increases and decreases to cost estimates
and changes in the anticipated scope and timing of remediation
activities), required remediation methods and actions by or against
governmental agencies or private parties.
At December31,2011, environmental obligations recorded in
our consolidated balance sheets totaled approximately $1.5 billion,
which reect obligations for environmental liabilities attributed to
the Comprehensive Environmental Response, Compensation, and
Liability Act (CERCLA) or analogous state programs and for
estimated future costs associated with environmental matters at
closed facilities and closed portions of certain operating facilities.
Following is a summary of changes in our estimated environmental
obligations for the years ended December 31 (in millions):
2011 2010 2009
Balance at beginning of year $ 1, 422 $ 1,464 $ 1,401
Accretion expense
a
88 97 102
Additions 132 19 40
Reductions
(68) — (3)
Spending (121) (158) (76)
Balance at end of year $ 1,453 $ 1,422 $ 1,464
a. Represents accretion of the fair value of environmental obligations assumed in the
acquisition of Freeport-McMoRan Corporation (FMC, formerly Phelps Dodge Corporation),
which were determined on a discounted cash flow basis.
Refer to Note 13 for further discussion of environmental obligations.
MANAGEMENT’S DISCUSSION AND ANALYSIS