Freeport-McMoRan 2010 Annual Report Download - page 93

FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report
91
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for many years to address those remediation issues. Certain FCX
subsidiaries have 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, 2010, 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:
2010 2009 2008
Balance at beginning of year $ 1,464 $ 1,401 $ 1,268
Liabilities assumed in the acquisition
of Phelps Dodge
— — 117
Accretion expense
a
97 102 95
Additions
19 40 36
Reductions
— (3) (1)
Spending
(158) (76) (114)
Balance at end of year
1,422 1,464 1,401
Less current portion
(138) (168) (120)
Long-term portion
$ 1,284 $ 1,296 $ 1,281
a. Represents accretion of the fair value of environmental obligations assumed in the
acquisition of Phelps Dodge, which were determined on a discounted cash flow basis.
Estimated environmental cash payments (on an undiscounted and
unescalated basis) total $138 million in 2011, $93 million in 2012,
$86 million in 2013, $49 million in 2014, $65 million in 2015
and $1.9 billion thereafter.
As a result of the acquisition of Phelps Dodge, FCX was required
to record Phelps Dodge’s environmental obligations at fair value on
the acquisition date in accordance with business combination
accounting guidance. Significant adjustments to these obligations
could occur in the future. New environmental obligations will be
recorded as described in Note 1 under “Environmental Expenditures.”
At December 31, 2010, FCX’s environmental obligations totaled
$2.3 billion on an undiscounted and unescalated basis ($1.4 billion
on a discounted fair value basis), and FCX estimates it is reasonably
possible that these obligations could range between $1.9 billion and
$3.3 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.
These potential recoveries are not recognized unless realization is
considered probable.
At December 31, 2010, the most significant environmental
obligations were associated with the Pinal Creek site in Arizona; the
Newtown Creek site in New York City; several historical smelter sites
principally located in Arizona, Kansas, Oklahoma and Pennsylvania; and
uranium mining sites in the western U.S. The recorded environmental
obligations for these sites totaled $1.1 billion at December 31, 2010.
A discussion of these sites follows.
Pinal Creek. The 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 Phelps
Dodge 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. The 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), filed 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. The settlement did
not result in a change to the obligation, which was estimated at fair
value when assumed in the Phelps Dodge acquisition.
Newtown Creek. From the 1930s until 1964, Phelps Dodge
Refining Corporation (PDRC), a subsidiary of FMC, operated a
smelter, and from the 1930s until 1984, it operated a refinery, on
the banks of Newtown 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 Newtown
Creek and discharges from the City of New York’s sewer system
over more than a century resulted in significant environmental
contamination of the waterway. The New York Attorney General
previously notified several companies, including PDRC, about
possible obligations to clean up sediments in Newtown Creek.
In March and April 2010, EPA notified PDRC and five others that
EPA considers them to be PRPs under CERCLA. The notified parties
began working with EPA to identify other PRPs, and EPA proposed
that the notified parties perform a Remedial Investigation/
Feasibility Study (RI/FS) at their expense and reimburse EPA for its
oversight costs. EPA is not expected to propose a remedy until
after an RI/FS is completed, which is expected to take several years.
On September 29, 2010, EPA designated Newtown Creek as a
Superfund site. These actions did not result in an adjustment to the
obligation, which was estimated at fair value when assumed in the
Phelps Dodge acquisition. The actual costs of fulfilling these remedial
obligations and the allocation of these costs among PRPs are