Freeport-McMoRan 2011 Annual Report Download - page 76

74 | FREEPORT-McMoRan COPPER & GOLD INC.
exploration information and exploration results, including
geological data and/or geological information, that were available
as of the acquisition date.
Carrying amounts assigned to VBPP are not charged to expense
until the VBPP becomes associated with additional proven and
probable reserves and the reserves are produced or the VBPP is
determined to be impaired. Additions to proven and probable
reserves for properties with VBPP will carry with them the value
assigned to VBPP at the date acquired, less any impairment amounts.
Intangible Assets and Liabilities. FCX recorded intangible
assets and liabilities primarily as a result of the acquisition of
FMC. Indenite-lived intangibles primarily include water rights.
Denite-lived intangibles include favorable and unfavorable
contracts (primarily related to treatment and rening contract
rates, power contracts and tire contracts), royalty payments, patents
and process technology. e fair value of identiable intangible
assets was estimated based principally upon comparable market
transactions and discounted future cash ow projections. e
ranges for estimated useful lives are 1 to 10 years for treatment and
rening, power and tire contracts; 1 to 12 years for royalty
payments; and principally 10 to 20 years for patents and process
technology. All indenite-lived intangible assets are subject to
impairment testing at least annually, unless events occur or
circumstances change between annual tests that would more likely
than not reduce the indenite-lived intangible asset’s fair value
below its carrying value.
Asset Impairment. FCX reviews and evaluates its long-lived assets
for impairment when events or changes in circumstances
indicate that the related carrying amounts may not be recoverable.
Long-lived assets, other than indenite-lived intangible assets,
are evaluated for impairment under the two-step model. An
impairment is considered to exist if total estimated future cash
ows on an undiscounted basis are less than the carrying amount
of the asset. Once it is determined that an impairment exists, an
impairment loss is measured as the amount by which the asset
carrying value exceeds its fair value. Fair value is generally
determined using valuation techniques, such as estimated future
cash ows.
In evaluating mining operations’ long-lived assets for
recoverability, estimates of aer-tax undiscounted future cash
ows of FCX’s individual mining operations are used, with
impairment losses measured by reference to fair value. As quoted
market prices are unavailable for FCX’s individual mining
operations, fair value is determined through the use of discounted
estimated future cash ows. Estimated cash ows used to assess
recoverability of long-lived assets and measure the fair value of
FCX’s mining operations are derived from current business plans,
which are developed using near-term price forecasts reective of
the current price environment and management’s projections for
long-term average metal prices. Estimates of future cash ows
include near and long-term metal price assumptions; estimates of
commodity-based and other input costs; proven and probable
reserve estimates, including any costs to develop the reserves and
the timing of producing the reserves; and the use of appropriate
current escalation and discount rates.
Deferred Mining Costs. Stripping costs (i.e., the costs of removing
overburden and waste material to access mineral deposits)
incurred during the production phase of a mine are considered
variable production costs and are included as a component of
inventory produced during the period in which stripping costs are
incurred. Major development expenditures, including stripping
costs to prepare unique and identiable areas outside the current
mining area for future production that are considered to be
pre-production mine development, are capitalized and amortized
on the unit-of-production method based on estimated recoverable
proven and probable reserves for the ore body beneted. However,
where a second or subsequent pit or major expansion is considered
to be a continuation of existing mining activities, stripping costs
are accounted for as a current production cost and a component of
the associated inventory.
Environmental Expenditures. Environmental expenditures are
expensed or capitalized, depending upon their future economic
benets. Accruals for such expenditures are recorded when it is
probable that obligations have been incurred and the costs can be
reasonably estimated. For closed facilities and closed portions of
operating facilities with environmental obligations, the related
obligation is accrued when a decision to close a facility, or a portion
of a facility, is made by management and the environmental
obligation is considered to be probable. Environmental obligations
attributed to the Comprehensive Environmental Response,
Compensation, and Liability Act (CERCLA) or analogous state
programs are considered probable when a claim is asserted, or
is probable of assertion, and FCX, or any of its subsidiaries, have
been associated with the site. Other environmental remediation
obligations are considered probable based on specic facts and
circumstances. FCX’s estimates of these costs are based on an
evaluation of various factors, including currently available facts,
existing technology, presently enacted laws and regulations,
remediation experience, whether or not FCX is a potentially
responsible party (PRP) and the ability of other PRPs to pay their
allocated portions. With the exception of those obligations
assumed in the acquisition of FMC that were recorded at estimated
fair values (refer to Note 13 for further discussion), environmental
obligations are recorded on an undiscounted basis. Where the
available information is sucient to estimate the amount of the
obligation, that estimate has been used. Where the information
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS