Freeport-McMoRan 2005 Annual Report Download - page 87

฀84฀|฀FREEPORT-McMoRan฀COPPER฀&฀GOLD฀INC.฀฀฀FINANCIAL฀&฀OPERATING฀INFORMATION฀84฀|฀FREEPORT-McMoRan฀COPPER฀&฀GOLD฀INC.฀฀฀FINANCIAL฀&฀OPERATING฀INFORMATION
regulations.฀FCX฀incurred฀aggregate฀environmental฀capital฀
expenditures฀and฀other฀environmental฀costs,฀including฀Rio฀
Tinto’s฀share,฀totaling฀$44.0฀million฀in฀2005,฀$65.1฀million฀in฀
2004฀and฀$72.1฀million฀in฀2003.
฀ 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,฀2005,฀FCX฀estimated฀these฀aggregate฀
obligations฀to฀be฀approximately฀$156฀million฀for฀PT฀Freeport฀
Indonesia฀and฀$15฀million฀for฀Atlantic฀Copper,฀and฀estimated฀
PT฀Freeport฀Indonesia’s฀aggregate฀discounted฀asset฀retirement฀
obligations฀to฀be฀$26.5฀million฀and฀Atlantic฀Copper’s฀to฀be฀
$0.2฀million.฀At฀December฀31,฀2004,฀PT฀Freeport฀Indonesia฀
revised฀its฀reclamation฀and฀closure฀estimates฀for฀changes฀in฀the฀
projected฀timing฀of฀certain฀reclamation฀costs฀and฀changes฀in฀
certain฀cost฀estimates.฀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฀retirement฀obligations฀to฀be฀$22.0฀million฀
and฀Atlantic฀Copper’s฀to฀be฀$0.8฀million.฀The฀changes฀in฀
2004฀reduced฀the฀related฀asset฀balances฀and฀are฀not฀expected฀
to฀have฀a฀material฀impact฀on฀future฀net฀income.฀FCX’s฀
consolidated฀discounted฀asset฀retirement฀obligations฀for฀2005฀
and฀2004฀follow฀(in฀thousands):
฀2005฀ 2004
Asset฀retirement฀obligation฀at฀beginning฀
฀ of฀year฀ ฀ ฀ ฀ $฀22,848฀ $฀26,486
Accretion฀expense฀ ฀ ฀ ฀ 2,822฀ ฀ 2,985
Liabilities฀incurred฀ ฀ ฀ ฀ 1,744฀ ฀ —
Revision฀for฀changes฀in฀estimates฀ ฀ ฀ ฀ (709)฀ ฀(6,698)
Foreign฀exchange฀(gain)฀loss฀ ฀ ฀ ฀ (89)฀ ฀ 75
Asset฀retirement฀obligation฀at฀end฀of฀year฀ ฀ $฀26,616฀ $฀22,848
In฀1996,฀PT฀Freeport฀Indonesia฀began฀contributing฀to฀a฀cash฀
fund฀($7.2฀million฀balance฀at฀December฀31,฀2005)฀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฀
government,฀which฀included฀entering฀into฀the฀Contract฀of฀
Work฀in฀1991฀well฀before฀the฀expiration฀of฀the฀1967฀Contract฀
of฀Work,฀PT฀Freeport฀Indonesia฀fully฀expects฀that฀the฀
government฀will฀approve฀the฀extensions฀as฀long฀as฀it฀continues฀
to฀comply฀with฀the฀terms฀of฀the฀Contract฀of฀Work.
฀ Social฀and฀Economic฀Development฀Programs.฀FCX฀has฀a฀
comprehensive฀social,฀employment฀and฀human฀rights฀policy฀
to฀ensure฀that฀its฀operations฀are฀conducted฀in฀a฀manner฀
respecting฀basic฀human฀rights,฀the฀laws฀and฀regulations฀of฀the฀
host฀country,฀and฀the฀culture฀of฀the฀people฀who฀are฀
indigenous฀to฀the฀areas฀in฀which฀FCX฀operates.฀In฀1996,฀฀฀฀฀฀฀฀฀฀
PT฀Freeport฀Indonesia฀established฀the฀Freeport฀Partnership฀
Fund฀for฀Community฀Development,฀which฀was฀previously฀
called฀the฀Freeport฀Fund฀for฀Irian฀Jaya฀Development,฀through฀
which฀PT฀Freeport฀Indonesia฀has฀made฀available฀funding฀฀฀฀฀฀฀
and฀expertise฀to฀support฀the฀economic฀and฀social฀development฀
of฀the฀area.฀PT฀Freeport฀Indonesia฀has฀committed฀to฀provide฀
one฀percent฀of฀its฀annual฀revenue฀for฀the฀development฀of฀the฀
local฀people฀through฀the฀Freeport฀Partnership฀Fund฀for฀
Community฀Development.฀PT฀Freeport฀Indonesia฀charged฀
$35.7฀million฀in฀2005,฀$17.5฀million฀in฀2004฀and฀$17.4฀million฀
in฀2003฀to฀production฀costs฀for฀this฀commitment.
Notes to Consolidated Financial Statements