To: Securities and Exchange Commission
From: Groundwater Awareness League, Inc.
Date: Feb. 7, 2007
Subject: Proposed Acquisition of Phelps Dodge Corporation by Freeport-McMoRan
Complaint One: Phelps Dodge Corporation environmental liabilities that would need to be assumed by Freeport-McMoRan Corporation
First, we wish to inform SEC, Phelps Dodge stockholders, and interested parties of environmental permits and actions that are in process for Phelps Dodge Corporation at the present time. Phelps Dodge has been no friend to the environment. Its long history in Arizona has been replete with violations of environmental, moral and ethical standards.* However, because of public pressure and large profits, Phelps Dodge seems to have had a change of attitude and for the past one year has been more responsive to citizen needs and state and federal agency demands. (*See www.savethesantacruzaquifer.info/PD History.htm )
Phelps Dodge operations are regular recipients of Notice of Violations from the U. S. Attorney General’s office, Environmental Protection Agency and the Department of Environmental Quality from the various states.
Following are the details of the three areas of concern for current environmental liability:
1) Phelps Dodge has pending water quality permits intended to stop the discharge of mining toxic waste into groundwater used for public and private drinking water.
2) Phelps Dodge has state and federal superfund and compliance programs now in place or pending.
3) Phelps Dodge has extensive environmental and reclamation costs at present and in the future.
1) Pending Water Quality Permits:
Environmental impact on water from hard-rock mining is a well-known liability. United States Geological Survey does quality research and monitoring on contamination of watersheds from mining of metals such as gold and copper. (See http://toxics.usgs.gov/investigations/hardrock_mining.html)
In Arizona, mining companies are required to have an Aquifer Protection Permit (APP) to protect public water supplies. Further, the State has no authority to impose compliance penalties until the APP is in place; therefore, making it advantageous for industry to delay the finalization of these permits. We at the Groundwater Awareness League, Inc. have been working continually for four years, including calling for two public hearings, to induce Phelps Dodge become proactive in cleaning up mining contamination of groundwater that is infringing on public and private water supplies.
Table 1. shows the status of the water permits mandated in the State of Arizona to protect the groundwater. As you can see, a large gap exists between the time of the Application and the issue date—many of them remain in process. Please note that the majority of these permits were begun in the mid-1980’s and had to be restarted in the early 1990’s because of the long delay in obtaining the necessary data and cooperation from the mining companies. Again, note that Cyprus Amax was able to avoid finalizing their permits in 1999 at Twin Buttes, Bagdad, Sierrita and Tohono O’dham Nation site (information remains confidential) due to their acquisition by Phelps Dodge.
Table 1: Status of Aquifer Protection Permits
* Source: Arizona Department of Environmental Quality, Water Permits, Mining Unit
2) Phelps Dodge has Federal and State superfund and compliance programs now in place or pending.
The environmental liabilities of Phelps Dodge Corporation in the states of Arizona, New Mexico and Colorado are astronomical. Further, they are parties to other Superfund sites across the country, including Missouri, Arkansas and New Jersey. At the time of their 1999 acquisition of Cyprus Amax, they disclosed in a SEC filing that they were involved in 29 Superfund sites.
In Arizona, Miami site was and continues to be an Arizona State Superfund site. In addition, the Tohono O’dham Nation, Sierrita and Twin Buttes are currently going through an assessment under the Comprehensive Environmental Response, Compensation, and Liability Act Sites (CERCLAS) because of groundwater contamination by radioactive chemicals and toxic metals. All of these sites were previously owned by Cyprus.
Table 2 shows the active Federal Comprehensive Environmental Response, Compensation, and Liability Act Sites—CERCLAS—at which assessment, removal, remedial, enforcement, cost recovery, or oversight activities are being planned or conducted under the Superfund program. At this time, the responsible party, Phelps Dodge, is footing the bill for the remediation of these sites. Therefore, it is difficult to ascertain the exact cost of the clean-ups.
Table 2. Phelps Dodge Active CERCLAS Sites
1) PHELPS DODGE CORP - COPPER BASIN BRANCH
2) PHELPS DODGE CORP NEW CORNELIA BRANCH
3) PHELPS DODGE VERDE MINE
4) PHELPS DODGE MIAMI MINE, Arizona WQARF site.
5) PHELPS DODGE TWIN BUTTES MINE
6) PHELPS DODGE SIERRITA MINE
3) Phelps Dodge has extensive environmental and reclamation costs
Environmental Protection Agency has jurisdiction over surface water, in February, 2003 the U.S. Environmental Protection Agency announced a $105,000 settlement with Phelps Dodge for discharging polluted water containing copper and sulfide from the Christmas Mine to a tributary of the Gila River. An inactive copper mine near Winkleman, Ariz. discharged pollutants at levels harmful to aquatic life into the Drippings Springs Wash in 2000 and 2001. The company failed to report monitoring results required by their discharge permit, failed to notify the EPA of discharges endangering the environment, and failed to notify EPA of facility changes that caused the permit violations. [See Attachment One]
The toxic chemicals that are kept in open holding ponds and mining slurry delivered to mammoth (3,600 acres at the PD Sierrita facility) tailings disposal ponds are a hazard are lethal to wildlife. Federal laws protect migratory birds and the PD Morenci copper mining operations have been cited several times for violations. [See Attachment Two]
Phelps Dodge will spend nearly $12 million to control the surface and groundwater discharges of contaminated water from the United Verde Mine in Jerome, AZ. In a typical year, thousands of pounds of copper and zinc, and hundreds of pounds of cadmium, are discharged into Bitter Creek and have the potential to wash down to the Verde river in wet years and harm aquatic life. The United Verde Mine produced in excess of $1 billion in copper, gold, silver, zinc—in the days before inflation. [See Attachment Three]
The Phelps Dodge Miami Mine, inherited from the Cyprus Miami Mine (formerly the Inspiration Mine) is a member of the The Pinal Creek Water Quality Assurance Revolving Fund (WQARF) Site is located in Gila County in and around the towns and communities of Globe, Miami, Claypool, and Wheatfields. In addition to PD, the group includes several BHP Copper, Inc. sites. Contamination was found in the alluvial aquifer of Bloody Tanks Wash, Miami Wash, Pinal Creek, locally in the regional Gila Conglomerate aquifer, in the perennial reach of Pinal Creek proper, and on-site at the various mines. Contamination generally consists of groundwater and/or surface water impacted by acidity and heavy metals. Soil and stream sediment contamination is also locally present within the Site. [See Attachment Four]
Although our concern has been the Southwest, environmental issues exist elsewhere. In Oklahoma, Phelps Dodge has been mandated to clean up two sites. Blackwell Zinc in Blackwell, Kay County and Brownfield in Collinsville, Tulsa County. The Blackwell Zinc Site was a smelter that operated from 1916 to 1972. Historical operations resulted in lead, cadmium and zinc contamination in the soils and cadmium and zinc contamination in the ground water. The soil cleanup was completed in 2001 under a consent order between the DEQ, Phelps Dodge Corporation and the Blackwell Industrial Authority. The ground water will be remediated by extracting the contaminated ground water using a series of pumping wells, removing the metals in an on-site treatment plant and discharging the treated water. Phelps Dodge is completing the design for the ground water remedy.
In Collinsville, Tulsa County, the Bartlesville Zinc Company operated a primary zinc smelter from 1910 to 1918 on forty acres. The PRP [principal responsible party], Phelps Dodge, is developing institutional controls to ensure that the disposal cell is not disturbed after the remedial action is complete. Once controls are in place, they will begin the remedial design and cleanup.
The three older mines in Arizona Morenci and Bisbee have been mined for some hundred years, before anyone had a concept of reclamation, so reclamation issues have piled up for years. Future reclamation costs constitute a considerable financial liability for Phelps Dodge Corporation. The estimate of closure and continuous cleaning water for 100 years is around $800 million for the two New Mexico mines, Chino and Tyrone. At the present time, PD has begun extensive reclamation at Tyrone operations. It is estimated that the costs are running some one million per month.
Summary of environmental costs at Chino Copper Mine
PD has been operating in the Southwest for over a hundred years. Since PD is an Arizona entity that has continually received favors from the Arizona Legislators through the years, there are no financial bonds required or true estimates made of closure costs in Arizona. However, it can be assumed that Sierrita, Bagdad, Verde, Clarkdale closures will approach the $400 million per mine figure, while the larger operations at Morinci and Bisbee could run much higher than Tyrone. It’s is probable that pumping will also have to continue for some 100 years at several of them mines to keep the contaminants in the groundwater from flowing off the site.
Since much of the environmental work is done by PD, the only financial records are from its own Annual Reports. While the reports must be accurate, there are ways of obscuring environmental costs. One favored method is to name facility changes or repairs, in many cases were mandated by environmental agencies, with labels, such as “Asset impairments.”
For example, the November 20, 2003 action by the U.S. Justice Department concerting the Verde Valle operations mandated asset repairs and improvements to be made to the facility to prevent further acid mine drainage discharging to the waters of the United States. These actions included the reclamation of a stockpile at the United Verde Mine along with a plan to stop the seepage into Bitter Creek. Further, engineering projects to stop discharge into House Canyon also had to be completed. [See Attachment Three] It is hard to ascertain what category this type of environmental implementation falls into on the financial statement on the Annual Reports.
Table 3: Total Environmental Costs for Phelps Dodge from 2002-2005
FOUR YEAR TOTAL $ 822.7 million
* Full report available on request