Freeport-McMoRan 2010 Annual Report Download - page 96

FREEPORT-McMoRan COPPER & GOLD INC. 2010 Annual Report
94
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
from the actions to be taken under the settlement agreement, could
result in increases in the Tyrone, Chino and Cobre closure costs.
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, 2010,
FCX had accrued reclamation and closure costs of $405 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 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 requirements
following cessation of operations and an estimate of the cost to
implement the closure strategy. An APP may specify closure
requirements, which may include post-closure monitoring and
maintenance. A more detailed closure plan must be submitted within
90 days after a permitted entity notifies ADEQ of its intent to
cease operations. A permit applicant must demonstrate its financial
ability to meet the closure costs estimated in the APP.
Portions of Arizona mining facilities that operated after January 1,
1986, also are subject to the Arizona Mined Land Reclamation Act
(AMLRA). AMLRA requires reclamation to achieve stability and safety
consistent with post-mining land use objectives specified in a
reclamation plan. Reclamation plans must be approved by the
State Mine Inspector and must include an estimate of the cost to
perform the reclamation measures specified in the plan. During 2008
and 2009, FCX updated its closure approaches at Sierrita, Tohono
and Bagdad to address site-specific regulatory obligations; during
2010, FCX updated its closure approaches for certain facilities at
Bagdad and Morenci. FCX will continue to evaluate options for future
reclamation and closure activities at its other operating and
non-operating sites, which are likely to result in additional adjustments
to FCX’s ARO liabilities. At December 31, 2010, FCX had accrued
reclamation and closure costs of $214 million for its Arizona operations.
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 30 years. At December 31, 2010,
PT Freeport Indonesia had accrued reclamation and closure costs of
$129 million and a long-term receivable for Rio Tinto’s share of the
obligation of $13 million (included in other assets).
In 1996, PT Freeport Indonesia began contributing to a cash fund
($13 million balance at December 31, 2010) designed to accumulate
at least $100 million (including interest) by the end of its Indonesia
mining activities. PT Freeport Indonesia plans to use this fund,
including accrued interest, to pay 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 December 2010, the Indonesian Minister of the Department of
Energy and Mineral Resources revised its 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. In accordance with its Contract of Work,
PT Freeport Indonesia is working with the Department of Energy and
Mineral Resources to review these requirements, including discussion
of other options for the mine closure guarantee. In October 2009,
PT Freeport Indonesia submitted its mine closure plan to the
Department of Energy and Mineral Resources for review and has
addressed comments received during the course of this review process.
Litigation. FCX is involved in various legal proceedings that arise
in the ordinary course of business or are associated with
environmental issues arising from legacy operations conducted over
the years by Phelps Dodge and its affiliates as discussed in this
note under “Environmental.”
Since approximately 1990, Phelps Dodge and various subsidiaries
have been named as defendants in a large number of lawsuits that
claim personal injury from exposure to asbestos allegedly contained
in electrical wire products produced or marketed many years ago,
either from asbestos contained in buildings and facilities located at
properties owned or operated by Phelps Dodge affiliates, or from
alleged asbestos in talc products. Many of these suits involve a large
number of codefendants. Based on litigation results to date and
facts currently known, 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.