Freeport-McMoRan 2012 Annual Report Download - page 95

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
hazardous substances is alleged to have damaged natural
resources (NRD). As of December 31, 2012, FCX had more than
100 active remediation projects, including NRD claims, in the
U.S. in 28 states.
A summary of changes in environmental obligations for the
years ended December 31 follows:
2012 2011 2010
Balance at beginning of year $ 1,453 $ 1,422 $ 1,464
Accretion expense
a
80 88 97
Additions 70 132 19
Reductions
b
(182) (68) —
Spending (199) (121) (158)
Balance at end of year 1,222 1,453 1,422
Less current portion (186) (205) (138)
Long-term portion $ 1,036 $ 1,248 $ 1,284
a. Represented accretion of the fair value of environmental obligations assumed in the 2007
acquisition of FMC, which were determined on a discounted cash flow basis.
b. Reductions primarily reflected adjustments for changes in the anticipated scope and
timing of environmental remediation projects and the settlement of environmental matters.
Estimated environmental cash payments (on an undiscounted and
unescalated basis) total $186 million in 2013, $225 million in 2014,
$124 million in 2015, $107 million in 2016, $110 million in 2017 and
$1.7 billion thereafter. The amount and timing of these estimated
payments could change as a result of changes in regulatory
requirements, changes in scope and timing of remediation
activities, the settlement of environmental matters and as actual
spending occurs.
FCX was required to record FMC’s environmental obligations at
fair value on the acquisition date in accordance with business
combination accounting guidance. Significant adjustments to
these obligations may occur in the future. New environmental
obligations will be recorded as described in Note 1 under
“Environmental Expenditures.” At December 31, 2012, FCX’s
environmental obligations totaled $1.2 billion, including $1.1 billion
recorded on a discounted basis for those obligations assumed in
the FMC acquisition at fair value. On an undiscounted and
unescalated basis, these obligations totaled $2.4 billion. FCX
estimates it is reasonably possible that these obligations could
range between $2.1 billion and $2.7 billion on an undiscounted and
unescalated basis.
FCX believes that there may be potential claims for recovery
from third parties, including the U.S. government and other PRPs.
These potential recoveries are not recognized unless realization
is considered probable.
At December 31, 2012, the most significant environmental
obligations were associated with the Pinal Creek site in Arizona;
the Newtown Creek site in New York City; historical smelter sites
principally located in Arizona, Kansas, New Jersey, Oklahoma
and Pennsylvania; and uranium mining sites in the western U.S.
The recorded environmental obligations for these sites totaled
$1.0 billion at December 31, 2012. 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 FMC 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 FMC acquisition. During 2011, the obligation was increased
by $31 million to reflect changes in remediation capping
designs that incorporate best practices for side slope regrading
and cap thickness.
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 (the 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 the 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 contaminated
sediments in the 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 a RI/FS is completed, which is
expected to take several years. On September 29, 2010, EPA
designated the creek as a Superfund site. Effective July 18, 2011,
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