Freeport-McMoRan 2012 Annual Report Download - page 97

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Uranium Mining Sites. During a period between 1940 and
the early 1970s, certain FMC predecessor entities were involved in
uranium exploration and mining in the western U.S. Similar
exploration and mining activities by other companies have caused
environmental impacts that have warranted remediation, and
EPA and local authorities are currently evaluating the need for
significant cleanup activities in the region. To date, FMC has
undertaken remediation at a limited number of sites associated
with these predecessor entities. An initiative to gather additional
information about sites in the region is ongoing, and information
gathered under this initiative was submitted to EPA Region 9
during the second and third quarters of 2008 and the fourth
quarter of 2009 in response to an information request by EPA
regarding uranium mining activities on Navajo Nation properties.
FCX utilized the results of FMC’s remediation experience, in
combination with historical and updated information to initially
estimate the fair value of uranium-related liabilities assumed in
the FMC acquisition.
Asset Retirement Obligations (AROs). FCX’s ARO cost estimates
are reflected on a third-party cost basis and comply with FCX’s
legal obligation to retire tangible, long-lived assets.
A summary of changes in FCX’s AROs for the years ended
December 31 follows:
2012 2011 2010
Balance at beginning of year $ 921 $ 856 $ 731
Liabilities incurred 6 9 5
Revisions to cash flow estimates
a
211 48 105
Accretion expense 55 58 54
Spending (47) (49) (38)
Foreign currency translation adjustment — (1) (1)
Balance at end of year 1,146 921 856
Less current portion (55) (31) (69)
Long-term portion $ 1,091 $ 890 $ 787
a. Revisions to cash flow estimates were primarily related to updated closure plans that
included revised cost estimates and accelerated timing of certain closure activities.
ARO costs may increase or decrease significantly in the future as
a result of changes in regulations, changes in engineering
designs and technology, permit modifications or updates, changes
in mine plans, inflation or other factors and as actual
reclamation spending occurs. ARO activities and expenditures
generally are made over an extended period of time commencing
near the end of the mine life; however, certain reclamation
activities may be accelerated if legally required or if determined to
be economically beneficial.
Legal requirements in New Mexico, Arizona, Colorado and
other states require financial assurance to be provided for the
estimated costs of reclamation and closure, including groundwater
quality protection programs. FCX has satisfied financial
assurance requirements by using a variety of mechanisms, such
as performance guarantees, financial capability demonstrations,
trust funds, surety bonds, letters of credit and collateral. The
applicable regulations specify financial strength tests that are
designed to confirm a company’s or guarantor’s financial
capability to fund estimated reclamation and closure costs. The
amount of financial assurance FCX is required to provide will
vary with changes in laws, regulations and reclamation and closure
requirements, and cost estimates. At December 31, 2012, FCX’s
financial assurance obligations associated with these closure and
reclamation costs totaled $970 million, of which $601 million was
in the form of guarantees issued by FCX and financial capability
demonstrations. At December 31, 2012, FCX had trust assets
totaling $161 million (included in other assets), which are legally
restricted to fund a portion of its AROs for properties in
New Mexico as required by New Mexico regulatory authorities.
New Mexico Environmental and Reclamation Programs. FCX’s
New Mexico operations are regulated under the New Mexico
Water Quality Act and regulations adopted under that act by the
Water Quality Control Commission (WQCC). The New Mexico
Environment Department (NMED) has required each of these
operations to submit closure plans for NMED’s approval.
The closure plans must include measures to assure meeting
groundwater quality standards following the closure of discharging
facilities and to abate any groundwater or surface water
contamination. In March 2009, the Tyrone operation appealed the
WQCC Final Order, dated February 4, 2009, regarding location of
the “places of withdrawal of water,” a legal criterion used to
determine where groundwater quality standards must be met at
FCX’s New Mexico mining sites. In December 2010, FCX's
Tyrone mine entered into a settlement agreement with NMED that
calls for a stay of the appeal while NMED and the WQCC complete
several administrative actions, including renewal of Tyrone’s
closure permit consistent with the terms of the settlement, review
and approval of a groundwater abatement plan and adoption of
alternative abatement standards, and adoption of new
groundwater discharge permit rules for copper mines. If the
administrative actions are concluded consistent with the terms of
the settlement agreement within the period of the stay, then
Tyrone will move to dismiss the appeal. In December 2012, Tyrone
and NMED agreed to extend the period to conclude the
administrative actions through December 31, 2013. The Court of
Appeals also extended the stay for another year. Finalized
closure plan requirements, including those resulting from the
actions to be taken under the settlement agreement, could result
in increases in closure costs for FCX's New Mexico operations.
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, 2012, FCX had accrued reclamation and closure
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