Freeport-McMoRan 2011 Annual Report Download - page 51

2011 ANNUAL REPORT | 49
During 2011, we incurred environmental capital expenditures
and other environmental costs (including our joint venture
partners’ shares) of $387 million for programs to comply with
applicable environmental laws and regulations that aect our
operations, compared to $372 million in 2010 and $289 million in
2009. e increase in environmental costs in 2011 and 2010,
compared with 2009, primarily related to the settlement of
environmental legal matters (see Note 13 for further discussion).
For 2012, we expect to incur approximately $636 million
of aggregate environmental capital expenditures and other
environmental costs, which are part of our overall 2012 operating
budget. e increase compared with 2011 primarily relates to
higher spending for ongoing environmental remediation activities
and higher environmental capital expenditures. e timing
and amount of estimated payments could change as a result of
changes in regulatory requirements, changes in scope and costs
of reclamation activities, and as actual spending occurs.
Asset Retirement Obligations
We recognize AROs as liabilities when incurred, with the initial
measurement at fair value. ese liabilities, which are initially
estimated based on discounted cash ow estimates, are accreted to
full value over time through charges to income. Reclamation costs
for future disturbances are recorded as an ARO in the period of
disturbance. Our cost estimates are reected on a third-party cost
basis and comply with our legal obligation to retire tangible,
In addition to our debt maturities and other contractual
obligations, we have other commitments, which we expect to fund
with available cash, projected operating cash ows, available credit
facilities or future nancing transactions, if necessary. ese
include (i) PT Freeport Indonesia’s commitment to provide one
percent of its annual revenue for the development of the local
people in its area of operations through the Freeport Partnership
Fund for Community Development, (ii) TFM’scommitment to
provide 0.3 percent of its annual revenue for the development of
the local people in its area of operations and (iii) other commercial
commitments, including standby letters of credit, surety bonds
and guarantees. Refer to Notes 13 and 14 for further discussion.
CONTINGENCIES
Environmental
e cost of complying with environmental laws is a fundamental
and substantial cost of our business. At December 31, 2011,
we had $1.5 billion recorded in our consolidated balance sheets
for environmental obligations attributed to CERCLA or
analogous state programs and for estimated future costs associated
with environmental matters at closed facilities and closed
portions of certain operating facilities. Refer to Note 13 for further
information about environmental regulation, including signicant
environmental matters.
Total 2012 2013 to 2014 2015 to 2016 Thereafter
Reclamation and environmental obligations
a
$ 4,975 $ 236 $ 360 $ 272 $ 4,107
Debt maturities 3,537 4 — — 3,533
Scheduled interest payment obligations
b
1,974 285 571 572 546
Take-or-pay contracts
c
2,085 1,338 397 113 237
Operating lease obligations 200 24 33 27 116
Atlantic Copper obligation to insurance company
d
49 9 18 19 3
PT Freeport Indonesia mine closure and reclamation fund
e
17 2 1 1 13
Total
f
$ 12,837 $ 1,898 $ 1,380 $ 1,004 $ 8,555
a. Represents estimated cash payments, on an undiscounted and unescalated basis, associated with reclamation and environmental activities. The timing and the amount of these payments could
change as a result of changes in regulatory requirements, changes in scope and costs of reclamation activities, and as actual spending occurs. Refer to Note 13 for additional discussion of
environmental and reclamation matters.
b. Scheduled interest payment obligations were calculated using stated coupon rates for fixed-rate debt and interest rates applicable at December 31, 2011, for variable-rate debt. As discussed in
Note 20, in February 2012, we sold $3.0 billion in senior notes and announced our intent to redeem the remaining $3.0 billion of our 8.375% Senior Notes. We estimate annual interest savings
associated with the refinancing to approximate $160 million.
c. Represents contractual obligations for purchases of goods or services that are defined by us as agreements that are enforceable and legally binding and that specify all significant terms. Take-or-pay
contracts primarily comprise the procurement of copper concentrates and cathodes ($1.1 billion), electricity ($338 million), transportation services ($293 million) and oxygen ($128 million). Some of our
take-or-pay contracts are settled based on the prevailing market rate for the service or commodity purchased, and in some cases, the amount of the actual obligation may change over time because
of market conditions. Obligations for copper concentrates and cathodes provide for deliveries of specified volumes, at market-based prices, primarily to Atlantic Copper and the North America
copper mines. Electricity obligations are primarily for contractual minimum demand at the South America and Tenke mines. Transportation obligations are primarily for South America contracted
ocean freight and for North America rail freight. Oxygen obligations provide for deliveries of specified volumes, at fixed prices, primarily to Atlantic Copper.
d. In August 2002, Atlantic Copper complied with Spanish legislation by agreeing to fund 7.2 million euros annually for 15 years to an approved insurance company for an estimated 72 million euro
contractual obligation to supplement amounts paid to certain retired employees. Atlantic Copper had $39 million recorded for this obligation at December 31, 2011.
e. Represents PT Freeport Indonesia’s commitments to contribute amounts to a cash fund designed to accumulate at least $100 million, including interest, by the end of our Indonesia mining
activities to be used for mine closure and reclamation.
f. This table excludes certain other obligations in our consolidated balance sheets, including estimated funding for pension obligations as the funding may vary from year to year based on
changes in the fair value of plan assets and actuarial assumptions, and accrued liabilities totaling $128 million that relate to unrecognized tax benefits where the timing of settlement is not
determinable. This table also excludes purchase orders for the purchase of inventory and other goods and services, as purchase orders typically represent authorizations to purchase
rather than binding agreements.
MANAGEMENT’S DISCUSSION AND ANALYSIS