Freeport-McMoRan 2008 Annual Report Download - page 99

Notes to Consolidated Financial Statements
2008 Annual Report FREEPORT-McMoRan COPPER & GOLD INC. 97
PT Freeport Indonesia Reclamation and Closure Programs. 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 32 years. At December 31,
2008, PT Freeport Indonesia had accrued reclamation and closure
costs of $83 million.
In 1996, PT Freeport Indonesia began contributing to a cash
fund ($11 million balance at December 31, 2008) 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.
In May 2008, the Indonesian Minister of the Department of
Energy and Mineral Resources issued a new regulation regarding
mine reclamation and closure, which requires a company to
provide a mine closure guarantee in the form of a time deposit
placed in a state-owned bank in Indonesia. PT Freeport Indonesia
does not believe that a deposit is required under the terms of its
Contract of Work, but is working with the Department of Energy
and Mineral Resources to review these requirements and discuss
other options for the mine closure guarantee.
Litigation. FCX is subject to legal proceedings claims and
liabilities that arise in the normal course of business. FCX
believes the amount of the ultimate liability with respect to those
matters will not have a material adverse effect, either
individually or in the aggregate, upon its business, financial
condition, liquidity, results of operations or cash flow.
Since approximately 1990, FMC or its subsidiaries have been
named as a defendant in product liability or premises lawsuits
claiming injury from exposure to asbestos found in electrical wire
products produced or marketed many years ago, or from asbestos
at certain FMC properties. FCX believes its liability, if any,
in these matters will not have a material adverse effect, either
individually or in the aggregate, upon its business, financial
condition, liquidity, results of operations or cash flow. There can
be no assurance, however, that future developments will not
alter this conclusion.
Letters of Credit and Surety Bonds. Standby letters of credit
totaled $81 million at December 31, 2008, primarily for
reclamation and environmental obligations and workers’
compensation insurance programs. In addition, FCX had surety
bonds totaling $89 million at December 31, 2008, associated with
reclamation and closure ($66 million – see discussion above),
self-insurance bonds primarily for workers’ compensation
($21 million) and miscellaneous bonds ($2 million).
Insurance. FCX purchases a variety of insurance products to
mitigate potential losses. The various insurance products
typically have specified deductible amounts, or self-insured
retentions, and policy limits. FCX generally is self-insured for U.S.
workers’ compensation, but purchases excess insurance up to
statutory limits. An actuarial analysis is performed twice a year
for various FCX casualty programs, including workers’
compensation, to estimate required insurance reserves. Insurance
reserves totaled $60 million at December 31, 2008, which
consisted of a current portion of $10 million (included in accounts
payable and accrued liabilities) and a long-term portion of
$50 million (included in other liabilities).
Other. In December 2008, Cerro Verde was notified by Peruvian
taxing authorities of their intent to assess mining royalties
related to the minerals processed by the Cerro Verde
concentrator. The amount claimed to be due through December
2007 is approximately $33 million. FCX believes that Cerro
Verde’s royalty obligations with respect to all minerals extracted
are governed by its existing stability agreement, regardless of the
processing method applied after extraction, and believes that
Cerro Verde owes no royalties with respect to minerals processed
through its concentrator. FCX intends to work cooperatively with
the Peruvian authorities to resolve this matter.
NOTE 16. COMMITMENTS AND GUARANTEES
Operating Leases. FCX leases various types of properties,
including offices and equipment. A summary of future minimum
rentals under these non-cancelable leases at December 31,
2008, follows:
2009 $ 26
2010 22
2011 17
2012 8
2013 4
After 2013 5
Total payments $ 82
Minimum payments under operating leases have not been reduced
by aggregate minimum sublease rentals, which are minimal.
Total aggregate rental expense under operating leases was
$90 million in 2008, $54 million in 2007 and $10 million in 2006.