To: Securities and Exchange Commission

From: Groundwater Awareness League, Inc.
P. O. Box 934
Green Valley, AZ 85622

 Date: Feb. 7, 2007

Subject: Proposed Acquisition of Phelps Dodge Corporation by Freeport-McMoRan Corporation

Complaint Three: Regarding undisclosed information on human rights issues at Freeport-McMoRan’s Grasberg Gold-Copper Mine in Papua, Indonesia

The Human Rights issue is especially important because there is a danger Freeport-McMoRan (FM) could carry the practices used in their Indonesian operations Democratic Republic of Congo, a nation struggling to recover from years of war. In fact, that is exactly what Phelps Dodge’s CEO, Steve Whistler said they would do in a recent a conference call between the major players, “… and the opportunity to create a Grasberg type asset with the Tenke project in the Democratic Republic of the Congo.” And just what is the Grasberg type asset?

March 15, 2006
Indonesia : Bow and Arrow Attack Over U.S. Mining Company
New York Times by JANE PERLEZ (NYT)

A Sheraton hotel in Timika, in Papua Province, was attacked by 70 demonstrators with bows and arrows who demanded that its owner, the American mining company Freeport-McMoRan, stop operations at a huge gold and copper mine on a nearby mountain. The Sheraton Timika was closed, and its guests, many of them members of the Papua Parliament scheduled to visit the mine, were evacuated to Biak, said Alberth Rumbekwan of the Papua National Commission for Human Rights. Freeport-McMoRan has come under increasing pressure from Papuans and some Indonesian politicians to increase its tax payments. The company stopped mining for three days last month after demonstrators blocked roads at the complex.

February 26, 2006
Mine Blockade Is Ended
The New York Times

Protesters obstructing access to a huge mine owned by the American company Freeport-McMoRan in the remote Papua Province of Indonesia called off their blockade on Saturday. It was unclear whether operations had resumed, a senior police official said.

Work at the mine, the Grasberg, stopped Wednesday a day after illegal miners with bows and arrows clashed with the authorities. ''All access to the mine is normal,'' Anton Bachrul Alam of the national police said Saturday.

September 3, 2003
Violence, a US mining giant, and Papua politics
On Saturday, two Americans and one Indonesian were killed in an ambush.

Christian Science Monitor
By Dan Murphy | Special to the Christian Science

JAKARTA , INDONESIA – Indonesian soldiers were searching the fog-shrouded mountains Monday near the world's richest gold and copper mine for the killers of two American school teachers and one Indonesian.

Seven other Americans and one Indonesian girl were also wounded Saturday in one of the worst attacks on foreigners in Indonesia's modern history. The deaths come against an increasingly chaotic backdrop for the foreign mining and oil companies in Indonesia.

September 29, 1998
Hand in Glove: How Suharto's Circle, Mining Firm Did So Well Together

MOUNT JAYA , Indonesia ― At 13,000 feet up this remote crag, Steve Drake, operations chief of Freeport-McMoRan Copper & Gold Inc.'s huge Grasberg mine, looks out uneasily across Lake Wanogon. The dazzling turquoise pool is loaded with copper leached from the mine's waste-rock dump, so much copper that Freeport intends to mine the lake water some day.

Mr. Drake scans the dump, itself 1,000 feet tall, for fissures. Sensors have picked up a surge of water downstream in the Wanogon River. Seismometers indicate movement within the dump itself. Rains may have dislodged big chunks of waste rock into the lake, sending waves of copper water cascading down the river valley. He orders the dump temporarily shut ― too late. At the village of Banti downstream, 11 Amungme tribesmen, out on a bow-and-arrow hunting expedition, are reported missing in the flood.

A struggling democracy does not need a multinational corporation, with a goal of self-interest and profits to shareholders, exploiting its minerals. Freeport-McMoRan claims that it is producing gold at the lowest cost per ounce in the world in their Indonesian operation—which translates to mean it is cutting all labor and social responsibilities for the dividends paid to foreign investors. In the recent, November, 2006, Environmental Protection Agency conference on Hard Rock Mining, one section was devoted to the social and economic problems caused by mining, particularly at closure. [See Attachment One] A recently released report by Christian Aid outlines this tendency throughout the Third World.

January 2007
A rich seam: Who benefits from rising commodity prices?
By Christian Aid Organization—United Kingdom
Executive Summary Excerpt

Recent years have seen dramatic changes in the fortunes of a number of primary commodities. The price of copper went up nearly five-fold between 2002 and 2006, while other minerals such as gold, nickel and oil have also seen spectacular increases.

Mining companies have done well in the changed climate. Profits for the industry as a whole in 2005 were eight times the 2002 level. The first eight months of 2006 saw mergers and acquisitions worth over U$60 billion – more than any year since 1995.

Many of these commodities are exported from developing countries. Fifteen of the top 20 gold producers are developing countries 3. Similarly, 12 of the top 20 copper producers and nine of the top 20 nickel producers are developing countries. The top five developing-country copper producers accounted for three-quarters of all copper mined globally in 2005.

Using new research from Zambia, Bolivia and the Philippines, this report shows that the companies which are reaping huge profits from extracting valuable and finite resources from developing countries often pay very little to the countries’ governments in taxes or royalties. Other benefits from resource extraction, such as employment, are also negligible. In addition, the presence of extractive industries can involve heavy costs….

Congo is at a critical phase in its transition to the rule of law and needs investment by business corporations to help generate revenue, to repair a shattered infrastructure, and revitalize the economy.  Any business involvement needs support economic, cultural and social development. In an environment of continued conflict, which still exists in the northeastern region, multinational corporations need to ensure that their activities do not in any way support any dissidents in this war-worn country.

Z-Net— a community of people committed to social change has compiled a report specifically on the Democratic Republic of the Congo:

July-August 2006
Suffering in the Congo — Behind the numbers
By Keith Harmon Snow & David Barouski

The British medical journal Lancet recently took greater notice of the Democratic Republic of the Congo (DRC). A group of physicians reported that about four million people have died since the “official” outbreak of the Congolese war in 1998. The BBC reported the war in Congo has claimed more lives than any armed conflict since World War II. Experts working in the Congo, and Congolese survivors, count over 10 million dead since war began in 1996—not 1998—with the U.S.-backed invasion to overthrow Zaire’s President Joseph Mobutu. 

War in the Congo is driven by the desire to extract raw materials, including diamonds, gold, columbium tantalite (coltan), niobium, cobalt, copper, uranium, and petroleum. Mining in the Congo by western companies proceeds at an unprecedented rate and it is reported that some $6 million in raw cobalt alone—an element of super alloys essential for nuclear, chemical, aerospace, and defense industries—exits the DRC daily. Also, heterogenite, a cobalt ore, was departing the DRC in 2004 at a rate of 6,000 tons per month at about $20 per pound or $268 million per month. Therefore, any analysis of the geopolitics in the Congo requires an understanding of the organized crime perpetrated through multinational businesses to see why the Congolese people have suffered unending war since 1996. 

Phelps Dodge has a long history of working in Third World countries in South America. They do not have a clean record, but they appear to have learned and responded to situations there. Reports are that a strike in April 2003 at their Candelaria operations in Chile was settled with the strikers being satisfied at the fulfillment of their demands for increase of wages by 3 percent plus other benefits including holidays, medical and a financial bonus linked to productivity. As is often the case in Third World Environments, there were unique problems to deal with, for example, a hunger strike by some 10 laborers. Care and sensitivity have to be exercised in the situations. Further, Candelaria was the first mining operation in the world to be certified for all of its facilities under International Standards Organization [ISO 14001] with specifications for environmental management systems. Contrast this with Freeport’s record, which is on every environmentalist’s concern list.

Only one year into the Democratic Republic of Congo venture, PD has showed signs of their experience gained while managing mines in Chile and Peru. They are working with the Congolese people to take some steps for financial and social responsibility from the beginning:

November 2, 2005
Phelps Dodge takes majority stake in Congo copper mine
The Business Journal of Phoenix

Phelps Dodge Corp. has exercised its option to take a controlling stake in the Tenke Fungurume copper/cobalt mining project in the Democratic Republic of the Congo, company officials said Wednesday.

Phelps Dodge said it will now hold a 57.75 percent interest in the project, with the rest held by Tenke Mining Corp. and Gecamines, the state-owned mining company.

A Phelps Dodge subsidiary will be the operator of the project as it is developed and put into production.

In the transaction, Gecamines will receive asset transfer payments totaling $50 million during a period of approximately five years as specified project milestones are reached. Phelps Dodge is responsible for initial payments totaling $25 million, and then 70 percent of the balance.

On the other hand, contrast the deal Freeport-McMoRan Indonesia management is offering the local people in Papua, where they have been making huge profits for almost 40 years— 934,627,000 net income in 2005. Also note the date of the offer—is this a timely move?

January 17, 2007
Papua Moves to Acquire Stake in Freeport

Papua’s provincial administration is negotiating with PT Freeport Indonesia on a 9.36% stake offered by the US copper and gold mining company.

Freeport earlier said it would sell the stake for $1 billion. Freeport made the offer as it is required by regulation to sell part of its shares to a local partner. . . . .

Further, the Freeport-McMoRan’s one mining asset in Indonesia is an unstable proposition. Presently, it is reported that FM is able to pay off the government officials, but governments do change, and governments do nationalize mining operations. This operation would not appear to be the “compelling value” for Phelps Dodge stockholders that FM claims.

To sum up, Phelps Dodge’s mining venture in the Congo could mean another local environmental, social, financial and cultural fiasco if put in the hands of Freeport-McMoRan. There’s not a thread of evidence in their history that would indicate otherwise.


Attachment One: The Socio-Economic Implications of Mine Closure: A South African and Zimbabwean Scenario by Mekiah Mugonda

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