Freeport-McMoRan 2004 Annual Report Download - page 75

Notes To Consolidated Financial Statements
million฀and฀the฀remaining฀$30.5฀million฀was฀paid฀in฀January฀
2005.฀After฀considering฀its฀joint฀venture฀partner’s฀interest฀
in฀the฀proceeds,฀PT฀Freeport฀Indonesia’s฀joint฀venture฀share฀
of฀proceeds฀totaled฀$95.0฀million.฀As฀a฀result฀of฀the฀settle-
ment,฀FCX฀recorded฀on฀its฀income฀statement฀an฀$87.0฀million฀
gain฀on฀insurance฀settlement฀for฀the฀business฀interruption฀
recovery฀and฀an฀$8.0฀million฀gain฀to฀production฀costs฀for฀the฀
property฀loss฀recovery฀for฀a฀net฀gain฀of฀$48.8฀million,฀after฀
taxes฀and฀minority฀interest฀sharing,฀in฀2004.
Environmental, Reclamation and Mine Closure.
FCX฀has฀an฀environmental฀policy฀committing฀it฀not฀only฀to฀
compliance฀with฀federal,฀state฀and฀local฀environmental฀
statutes฀and฀regulations,฀but฀also฀to฀continuous฀improve-
ment฀of฀its฀environmental฀performance฀at฀every฀operational฀
site.฀FCX฀believes฀that฀its฀operations฀are฀being฀conducted฀
pursuant฀to฀applicable฀permits฀and฀are฀in฀compliance฀in฀
all฀material฀respects฀with฀applicable฀environmental฀laws,฀
rules฀and฀regulations.฀FCX฀incurred฀aggregate฀environ-
mental฀capital฀expenditures฀and฀other฀environmental฀costs,฀
including฀Rio฀Tinto’s฀share,฀totaling฀$65.1฀million฀in฀2004,฀
$72.1฀million฀in฀2003฀and฀$62.6฀million฀in฀2002.
The฀ultimate฀amount฀of฀reclamation฀and฀closure฀costs฀to฀
be฀incurred฀at฀PT฀Freeport฀Indonesia’s฀operations฀will฀be฀
determined฀based฀on฀applicable฀laws฀and฀regulations฀and฀
PT฀Freeport฀Indonesia’s฀assessment฀of฀appropriate฀remedial฀
activities฀in฀the฀circumstances,฀after฀consultation฀with฀
governmental฀authorities,฀affected฀local฀residents฀and฀other฀
affected฀parties฀and฀cannot฀currently฀be฀projected฀with฀
precision.฀Estimates฀of฀the฀ultimate฀reclamation฀and฀closure฀
costs฀PT฀Freeport฀Indonesia฀will฀incur฀in฀the฀future฀involve฀
complex฀issues฀requiring฀integrated฀assessments฀over฀a฀
period฀of฀many฀years฀and฀are฀subject฀to฀revision฀over฀time฀
as฀more฀complete฀studies฀are฀performed.฀Some฀reclamation฀
costs฀will฀be฀incurred฀during฀mining฀activities,฀while฀most฀
closure฀costs฀and฀the฀remaining฀reclamation฀costs฀will฀be฀
incurred฀at฀the฀end฀of฀mining฀activities,฀which฀are฀currently฀
estimated฀to฀continue฀for฀more฀than฀35฀years.
Effective฀January฀1,฀2003,฀FCX฀adopted฀SFAS฀No.฀143฀
(see฀Note฀1).฀At฀December฀31,฀2004฀and฀2003,฀PT฀Freeport฀
Indonesia฀revised฀its฀reclamation฀and฀closure฀estimates฀
for฀(1)฀changes฀in฀the฀projected฀timing฀of฀certain฀reclama-
tion฀costs,฀(2)฀changes฀in฀certain฀cost฀estimates฀and฀(3)฀
additional฀asset฀retirement฀obligations฀incurred฀during฀2003.฀
At฀December฀31,฀2004,฀FCX฀estimated฀these฀aggregate฀
obligations฀to฀be฀approximately฀$149฀million฀for฀PT฀Freeport฀
Indonesia฀and฀$18฀million฀for฀Atlantic฀Copper,฀and฀estimated฀
PT฀Freeport฀Indonesia’s฀aggregate฀discounted฀asset฀retire-
ment฀obligations฀to฀be฀$22.0฀million฀and฀Atlantic฀Copper’s฀to฀
be฀$0.8฀million.฀At฀December฀31,฀2003,฀FCX฀estimated฀these฀
aggregate฀obligations฀to฀be฀approximately฀$130฀million฀for฀
PT฀Freeport฀Indonesia฀and฀$17฀million฀for฀Atlantic฀Copper,฀
and฀estimated฀PT฀Freeport฀Indonesia’s฀aggregate฀discounted฀
asset฀retirement฀obligations฀to฀be฀$25.7฀million฀and฀Atlantic฀
Copper’s฀to฀be฀$0.8฀million.฀The฀changes฀reduced฀the฀related฀
asset฀balances฀and฀are฀not฀expected฀to฀have฀a฀material฀
impact฀on฀future฀net฀income.฀A฀rollforward฀of฀FCX’s฀consoli-
dated฀discounted฀asset฀retirement฀obligations฀for฀2004฀and฀
2003฀follows฀(in฀thousands):
฀ ฀ 2004฀ 2003
Asset฀retirement฀obligation฀at฀beginning฀of฀year฀ ฀ ฀ $฀26,486฀ $฀28,485
Liabilities฀incurred฀ ฀ ฀ ฀ —฀ ฀ 605
Liabilities฀settled฀ ฀ ฀ ฀ —฀ ฀(1,222)
Accretion฀expense฀ ฀ ฀ ฀ 2,985฀ ฀ 2,852
Revision฀for฀changes฀in฀estimates฀ ฀ ฀ ฀(6,698)฀ ฀(4,333)
Foreign฀exchange฀loss฀ ฀ ฀ ฀ 75฀ ฀ 99
Asset฀retirement฀obligation฀at฀end฀of฀year฀ ฀฀ ฀ $฀22,848฀ $฀26,486
In฀1996,฀PT฀Freeport฀Indonesia฀began฀contributing฀to฀
a฀cash฀fund฀($6.0฀million฀balance฀at฀December฀31,฀2004)฀
designed฀to฀accumulate฀at฀least฀$100฀million฀(including฀
interest)฀by฀the฀end฀of฀its฀Indonesian฀mining฀activities.฀
PT฀Freeport฀Indonesia฀plans฀to฀use฀this฀fund,฀including฀
accrued฀interest,฀to฀pay฀the฀above-mentioned฀mine฀closure฀
and฀reclamation฀costs.฀Any฀costs฀in฀excess฀of฀the฀$100฀
million฀fund฀would฀be฀funded฀by฀operational฀cash฀flow฀or฀
other฀sources.฀Future฀changes฀in฀regulations฀could฀require฀
FCX฀to฀incur฀additional฀costs฀that฀would฀be฀charged฀against฀
future฀operations.฀Estimates฀involving฀environmental฀
matters฀are฀by฀their฀nature฀imprecise฀and฀can฀be฀expected฀
to฀be฀revised฀over฀time฀because฀of฀changes฀in฀government฀
regulations,฀operations,฀technology฀and฀inflation.
Contract of Work. FCX฀is฀entitled฀to฀mine฀in฀Indonesia฀
under฀the฀“Contract฀of฀Work”฀between฀PT฀Freeport฀Indonesia฀
and฀the฀Government฀of฀Indonesia.฀The฀original฀Contract฀of฀
Work฀was฀entered฀into฀in฀1967฀and฀was฀replaced฀with฀a฀new฀
Contract฀of฀Work฀in฀1991.฀The฀initial฀term฀of฀the฀current฀
Contract฀of฀Work฀expires฀in฀2021,฀but฀can฀be฀extended฀by฀
PT฀Freeport฀Indonesia฀for฀two฀10-year฀periods,฀subject฀to฀
Indonesian฀government฀approval,฀which฀cannot฀be฀withheld฀
or฀delayed฀unreasonably.฀Given฀the฀importance฀of฀contracts฀
of฀work฀under฀the฀Indonesian฀legal฀system฀and฀PT฀Freeport฀
Indonesia’s฀over฀35฀years฀of฀working฀with฀the฀Indonesian฀
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