Freeport-McMoRan 2011 Annual Report Download - page 100

98 | FREEPORT-McMoRan COPPER & GOLD INC.
A summary of changes in FCX’s AROs for the years ended
December31 follows:
2011 2010 2009
Balance at beginning of year $ 856 $ 731 $ 712
Liabilities incurred 9 5 12
Revisions to cash flow estimates 48 105 (17)
Accretion expense 58 54 52
Spending (49) (38) (28)
Foreign currency translation adjustment (1) (1) —
Balance at end of year 921 856 731
Less current portion (31) (69) (46)
Long-term portion $ 890 $ 787 $ 685
ARO costs may increase or decrease signicantly in the future as a
result of changes in regulations, changes in engineering designs
and technology, permit modications or updates, changes in mine
plans, ination 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 benecial.
During 2011 and 2010, the revisions to cash ow estimates are
primarily related to increased costs of near-term closure activities
at the Chino mine in New Mexico. Additionally, accelerated
timing of closure activities at the Chino mine resulted in revisions
to cash ow estimates during 2010.
Legal requirements in New Mexico, Arizona and Colorado
require nancial assurance to be provided for the estimated costs
of reclamation and closure, including groundwater quality
protection programs. FCX has satised nancial assurance
requirements by using a variety of mechanisms, such as
performance guarantees, nancial capability demonstrations, trust
funds, surety bonds, letters of credit and collateral. e applicable
regulations specify nancial strength tests that are designed to
conrm a company’s or guarantor’s nancial capability to fund
estimated reclamation and closure costs. e amount of nancial
assurance FCX is required to provide will vary with changes in
laws, regulations and reclamation and closure requirements and
cost estimates. At December31,2011, FCX’s nancial assurance
obligations associated with these closure and reclamation costs
totaled $899 million, of which approximately $565 million was in
the form of parent company guarantees and nancial capability
demonstrations. At December31,2011, FCX had trust assets
totaling $151 million, which are legally restricted to fund a portion
of its AROs for the Chino, Tyrone and Cobre mines 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). e New Mexico
Environment Department (NMED) has required each of these
operations to submit closure plans for NMED’s approval. e
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,” which provides the statutory
basis for determining where groundwater quality standards must
be met at FCX’s New Mexico mining sites. In December 2010,
Tyrone entered into a settlement agreement with NMED that calls
for a two-year 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 two-year period of the stay,
then Tyrone will move to dismiss the appeal. Finalized closure plan
requirements, including those resulting 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,2011, FCX had accrued reclamation and closure costs
of $424 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. e
APP program also may require mitigation and discharge reduction
or elimination of some discharges.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS