Freeport-McMoRan 2011 Annual Report Download - page 97

2011 ANNUAL REPORT | 95
been advised by the U.S. Environmental Protection Agency (EPA),
the Department of the Interior, the Department of Agriculture
and several state agencies that, under CERCLA or similar state laws
and regulations, they may be liable for costs of responding to
environmental conditions at a number of sites that have been or are
being investigated to determine whether releases of hazardous
substances have occurred and, if so, to develop and implement
remedial actions to address environmental concerns. As of
December31,2011, FCX had more than 100 active remediation
projects in the U.S. in 27 states. FCX is also subject to claims where
the release of hazardous substances is alleged to have damaged
natural resources.
A summary of changes in environmental obligations for the
years ended December31 follows:
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
Less current portion (205) (138) (168)
Long-term portion $ 1,248 $ 1,284 $ 1,296
a. Represents accretion of the fair value of environmental obligations assumed in the
acquisition of FMC, which were determined on a discounted cash flow basis.
Estimated environmental cash payments (on an undiscounted and
unescalated basis) total $205 million in 2012, $130 million in 2013,
$80 million in 2014, $76 million in 2015, $43 million in 2016 and
$1.8 billion thereaer. e amounts and timing of these estimated
payments could change as a result of changes in regulatory
requirements, changes in scope and costs of remediation activities,
and as actual spending occurs.
As a result of the acquisition of FMC, FCX was required to record
FMC’s environmental obligations at fair value on the acquisition
date in accordance with business combination accounting guidance.
Signicant adjustments to these obligations may occur in the future.
New environmental obligations will be recorded as described in
Note 1 under “Environmental Expenditures.” At December 31, 2011,
FCX’s environmental obligations totaled $2.3 billion on an
undiscounted and unescalated basis ($1.5 billion, which included
environmental obligations assumed in the FMC acquisition at fair
value), and FCX estimates it is reasonably possible that these
obligations could range between $2.2 billion and $3.1 billion on an
undiscounted and unescalated basis.
FCX believes that there may be potential claims for recovery
from other third parties, including the U.S. government and other
PRPs. ese potential recoveries are not recognized unless
realization is considered probable.
At December31,2011, the most signicant environmental
obligations were associated with the Pinal Creek site in Arizona;
the Newtown Creek site in New York City; the Gilt Edge mine
site in South Dakota; several historical smelter sites principally
located in Arizona, Kansas, Oklahoma and Pennsylvania;
and uranium mining sites in the western U.S. e recorded
environmental obligations for these sites totaled $1.2 billion at
December31,2011. A discussion of these sites follows.
Pinal Creek. e Pinal Creek site was listed under the Arizona
Department of Environmental Quality’s (ADEQ) Water Quality
Assurance Revolving Fund program in 1989 for contamination in
the shallow alluvial aquifers within the Pinal Creek drainage near
Miami, Arizona. Since that time, environmental remediation was
performed by members of the Pinal Creek Group (PCG), consisting
of FMC Miami, Inc. (Miami), a wholly owned subsidiary of FMC,
and two other companies. In 1998, the District Court approved
a Consent Decree between the PCG members and the state of
Arizona resolving all matters related to an enforcement action
contemplated by the state of Arizona against the PCG members
with respect to groundwater contamination. e Consent Decree
committed the PCG members to complete the remediation work
outlined in the Consent Decree, and that work continues at
this time and is expected to continue for many years in the future.
Miami also was a party to litigation entitled Pinal Creek Group, et
al. v. Newmont Mining Corporation, et al., United States District
Court, District of Arizona, Case No. CIV 91-1764 PHX DAE
(LOA), led on May 1, 1991. Pursuant to a settlement in 2010,
Miami paid $40 million to certain members of the PCG to settle
the allocation of previously incurred costs, and agreed to take full
responsibility for future groundwater remediation at the Pinal
Creek site, with limited exceptions. e settlement did not result
in a change to the obligation, which was estimated at fair value
when assumed in the FMC acquisition. During 2011, the
obligation was increased by $31 million to reect changes in
remediation capping designs that incorporate best practices for
side slope regrading and cap thickness.
Newtown Creek. From the 1930s until 1964, Phelps Dodge
Rening Corporation (PDRC), a subsidiary of FMC, operated a
smelter, and from the 1930s until 1984, it operated a renery on the
banks of Newtown Creek (the creek), which is a 3.5-mile-long
waterway that forms part of the boundary between Brooklyn and
Queens in New York City. Heavy industrialization along the banks
of the creek and discharges from the City of New York’s sewer
system over more than a century resulted in signicant
environmental contamination of the waterway. e New York
Attorney General previously notied several companies, including
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS