Freeport-McMoRan 2013 Annual Report Download - page 112

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
110 | FREEPORT-McMoRan
of FCX. At December 31, 2013, FCX had trust assets totaling
$158 million (included in other assets), which are legally restricted
to be used to satisfy its financial assurance obligations for its
mining properties in New Mexico.
New Mexico Environmental and Reclamation Programs. FCX’s
New Mexico operations are regulated under the New Mexico
Water Quality Act and regulations adopted under that act by the
Water Quality Control Commission (WQCC). The New Mexico
Environment Department (NMED) has required each of these
operations to submit closure plans for NMED’s approval. The
closure plans must include measures to assure meeting ground-
water quality standards following the closure of discharging
facilities and to abate any groundwater or surface water
contamination. In 2013, the WQCC adopted Supplemental
Permitting Requirements for Copper Mining Facilities, which
became effective on October 31, 2013. These rules identify closure
requirements for copper mine facilities. The rules were adopted
after an extensive stakeholder process in which FCX participated
and were jointly supported by FCX and NMED. Although the
rules are being challenged in the New Mexico courts by certain
environmental organizations and the New Mexico Attorney General,
their adoption, along with other commitments in a settlement
agreement between NMED and FCX, have allowed NMED and FCX’s
Tyrone operation to dismiss its appeal of a WQCC Final Order, dated
February 4, 2009, regarding closure conditions applicable to the
Tyrone mine. Finalized closure plan requirements, including those
resulting from the newly adopted rules, could result in increases in
closure costs for FCX’s New Mexico operations.
FCX’s New Mexico operations also are subject to regulation
under the 1993 New Mexico Mining Act (the Mining Act) and the
related rules that are administered by the Mining and Minerals
Division (MMD) of the New Mexico Energy, Minerals and Natural
Resources Department. Under the Mining Act, mines are required
to obtain approval of plans describing the reclamation to be
performed following cessation of mining operations. At
December 31, 2013, FCX had accrued reclamation and closure
costs of $465 million for its New Mexico operations. As stated
above, additional accruals may be required based on the state’s
review of FCX’s updated closure plans and any resulting permit
conditions, and the amount of those accruals could be material.
Arizona Environmental and Reclamation Programs. FCX’s
Arizona properties are subject to regulatory oversight in several
areas. ADEQ has adopted regulations for its aquifer protection
permit (APP) program that require permits for, among other
things, certain facilities, activities and structures used for mining,
concentrating and smelting and require compliance with aquifer
water quality standards at an applicable point of compliance well
or location. The APP program also may require mitigation and
discharge reduction or elimination of some discharges.
An application for an APP requires a description of a closure
strategy that will meet applicable groundwater protection
Asset Retirement Obligations (AROs). FCX’s ARO estimates are
reflected on a third-party cost basis and comply with FCX’s legal
obligation to retire tangible, long-lived assets.
A summary of changes in FCX’s AROs for the years ended
December 31 follows:
2013 2012 2011
Balance at beginning of year $ 1,146 $ 921 $ 856
Liabilities assumed in the
acquisitions of PXP and MMR
a
1,028 — —
Liabilities incurred 45 6 9
Settlements and revisions to
cash flow estimates, net 123 211 48
Accretion expense 95 55 58
Spending (107) (47) (49)
Other (2) — (1)
Balance at end of year 2,328 1,146 921
Less: current portion (115) (55) (31)
Long-term portion $ 2,213 $ 1,091 $ 890
a. The fair value of AROs assumed in the acquisitions of PXP and MMR ($741 million and
$287 million, respectively) were estimated based on projected cash flows, an estimated
long-term annual inflation rate of 2.5 percent, and discount rates based on FCX’s estimated
credit-adjusted, risk-free interest rates ranging from 1.3 percent to 6.3 percent.
ARO costs may increase or decrease significantly in the future as
a result of changes in regulations, changes in engineering
designs and technology, permit modifications or updates, changes
in mine plans, changes in drilling plans, settlements, inflation or
other factors and as actual reclamation spending occurs. ARO
activities and expenditures for mining operations generally are
made over an extended period of time commencing near the end
of the mine life; however, certain reclamation activities may be
accelerated if legally required or if determined to be economically
beneficial. The methods used or required to plug and abandon
non-producing oil and gas wellbores, remove platforms, tanks,
production equipment and flow lines, and restore wellsites could
change over time.
New Mexico, Arizona, Colorado and other states require
financial assurance to be provided for the estimated costs of mine
reclamation and closure, including groundwater quality protection
programs. FCX has satisfied financial assurance requirements
by using a variety of mechanisms, primarily involving parent
company performance guarantees and financial capability
demonstrations, but also including trust funds, surety bonds,
letters of credit and collateral. The applicable regulations specify
financial strength tests that are designed to confirm a company’s
or guarantor’s financial capability to fund estimated reclamation
and closure costs. The amount of financial assurance FCX is
required to provide will vary with changes in laws, regulations,
reclamation and closure requirements, and cost estimates. At
December 31, 2013, FCX’s financial assurance obligations
associated with these closure and reclamation/restoration costs
totaled $2.4 billion, of which $1.7 billion was in the form of
guarantees issued by FCX and financial capability demonstrations