Groundwater Awareness League
P. O. Box 934
Green Valley , AZ 85622
February 7, 2007

Securities and Exchange Commission
Complaint Center
100 F Street NE
Washington , D.C. 20549-0213

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

We have perused the EDGAR filings of Phelps Dodge Corporation and Freeport-McMoRan and it appears that both companies have failed to disclose certain information that could be relevant to the proposed acquisition. I intend to show in this report that a Phelps Dodge and Freeport-McMoRan combination has great potential to wreak environmental havoc both in U.S.A. and in Third World countries.

In going over various documents in regard to permits, it was noted that there are some discrepancies in the ownership of Phelps Dodge Corporation. At the time of the merger of a Phelps Dodge and Cyprus Minerals, March of 2000, on a Phelps Dodge letterhead, the Department of Environmental Quality [See Attachment One] and Bureau of Land Management [See Attachment Two] were informed of an ownership change with slightly different letters. In general, they stated Phelps Dodge was a wholly owned subsidiary of Cyprus Climax Metals, which was a subsidiary of Cyprus Minerals Company, which was a subsidiary of Cyprus Amax Minerals Company—and they were all using the name of Phelps Dodge. Cyprus Amax Minerals Corporation is listed as an active company, formed in 2000, in the Arizona State Commission database [See Attachment Three], as is Phelps Dodge Corporation [See Attachment Four], along with a group of subsidiaries [Attachment Five]. Both companies have the same address and many of the same officers. We can find no documentation stating that Phelps Dodge Corporation is the parent company. Of course, the corporate jargon is difficult for a layperson to decipher, but one does wonder what corporation is being acquired.

However, the principal concern is not administrative, but environmental issues and liabilities. When Phelps Dodge acquired Cyprus in 1999, Cyprus owned four mining operations in Arizona that were either Superfund or potential Superfund sites. Three years previously, i n June, 1996, the Arizona Water Quality Appeals Board delayed a plan for Phelps Dodges’ building of a subdivision on mine tailings that were contaminating groundwater in Verde Valle. At that time the Chairman criticized Phelps Dodge in strong terms, saying the multinational mining giant had a "long, replete and unbroken record of environmental insensitivity." Yet this fact was ignored when the Cyprus-Phelps Dodge merger took place, which gave Phelps Dodge responsibility for an undisclosed number of environmental challenges throughout the U.S.

It is assumed that any new owner is liable for existing environmental responsibilities. This could be true; however, there is plenty of evidence to show that any environmental priorities are put on the back burner in order to garner larger profits to encourage shareholder purchases. There have been serious delays in Aquifer Protection Permits for facilities previously owned by Cyprus. Delays are to the advantage of the mining companies because Department of Environmental Quality has no compliance authority until the permit is in place.

In fact, ample evidence exists to argue that the selling of Cyprus was a deliberate attempt to obstruct the completion of certain Aquifer Protection Permits, for the permits ready to be finalized in 1999 were delayed another 5 to 6 years because of the acquisition.

An example is the pending Aquifer Protection Permit for Twin Buttes Mine, Sahuarita, Arizona. After negotiating with Cyprus for 8 years, the project was stalled by the merger for another 6 years. The following is taken from the Arizona Department of Environmental Quality (ADEQ) Aquifer Protection Permit P-100408 Fact Sheet:

In accordance with Arizona Revised Statutes (ARS) (ARS * 49-250(B)(11)), the facilities that CSC [Cyprus Sierrita Corporation] initiated or restarted after 1986 are classified as new, requiring an APP permit to operate or close. Following protracted discussion with Cyprus for a period covering over eight years, the company finally submitted an APP permit application to ADEQ on December 28, 1998. On December 2, 1999, CSC changed its name to Phelps Dodge Sierrita, Inc. as a result of a stock merger. Phelps Dodge Sierrita, Inc. submitted an addendum to the 1998 APP permit application (“Twin Buttes Area Wide APP Application Addendum”) on July 6, 2005.

Further, Cyprus was in the midst of a law suit for air quality violations from 1995 to 1996 at the Sierrita site [See Attachment Six]. They had perpetuated these violations purposely, and continued to disobey the Clean Air Act by denying the violations to the environmental authorities and continuing the violations. The lawsuit was finalized in 2004, when Phelps Dodge Corporation paid $1.4 million in fines. It is noteworthy and relevant to the current acquisition that it appears Cyprus Amax did not disclose these environmental liabilities publicly at the time of the acquisition.

We cannot assume that a new company will be responsive to outstanding environmental liabilities. Mining companies have been known to undercut ethical practices for the sake of the bottom-line. The current ASARCO situation is a case in point. The new company, Grupo Mexico, may leave American taxpayers with more than $6 billion in environmental claims.

Asarco attorneys allege that when Grupo Mexico purchased Asarco's stock in a leveraged buyout in 1999, it did so to obtain control of Asarco's 54 percent ownership in the Southern Peru Copper Corp. Further, it is believed that Grupo Mexico sold off Asarco's chemical and aggregates subsidiaries to obtain the money to pay $817 million of acquisition debt that Grupo Mexico had guaranteed. Asarco claims that Grupo Mexico then formed the American Mining Corp. and transferred the Peruvian company to the new subsidiary for a low-ball price and left Asarco with few assets and tremendous liabilities. The Environmental Protection Agency estimates that cleaning up the estimated half a million abandoned mines across the country may cost taxpayers $35 billion or more (EPA 2000).

Another concern is the financial bonds and guarantees that Phelps Dodge Corporation hold with various states. These bonds and guarantees will have to be negotiated with a new company that has no experience in the mineral mining in the U.S. This dilemma could open opportunities for delays in reclamation. In fact, the Freeport-McMoRan 2005 Annual Report mentions long-term debt. [See Attachment Seven]

Further, Phelps Dodge’s assertion, taken from their 2003 Annual Report (page 75), gives their rational for not taking responsibility for the liability they think was perpetuated by a previous owner. The first paragraph details typical mining corporation jargon that appears to be used for avoiding environmental liabilities of $43 million, which could be some 50 years old.

American Zinc and Chemical Site
Phelps Dodge 2003 Annual Report (Page 75)

In June 1999, Cyprus Amax, now a subsidiary of Phelps Dodge, received an information request from the Pennsylvania Department of Environmental Protection (PADEP) regarding the former American Zinc and Chemical (AZC) site in Langeloth, Pennsylvania. The AZC site consists primarily of a former zinc smelter facility operated until 1947 by the former American Zinc and Chemical Company and includes some or all of a contiguous, currently operating molybdenum refinery formerly owned by the Climax Molybdenum Company, which is indirectly owned by Cyprus Amax. The American Zinc and Chemical Company, which was dissolved in 1951, also was a subsidiary of a corporate predecessor to Cyprus Amax.

In discussions with Cyprus Amax in 2001 and early 2002, PADEP informally indicated that it expects Cyprus Amax to investigate and remediate negative environmental conditions at the AZC site, which predominate at and about the former zinc smelter facility. The Company’s Form 10-K for the year ended December 31, 2002, indicated preliminary evaluations of the nature and extent of conditions at the site may range in cost from $18 million to $52 million. The Company reserved $20 million for possible remediation work at this site. Recently, an engineering evaluation and reasonable-cost analysis was performed to estimate the cost and feasibility of implementing the most likely remedial action that PADEP would accept based on effectiveness and implementability. To check the validity of the analysis, estimated site remedial costs were compared with costs from other environmental sites that have implemented similar remedial actions. In addition, a reasonable-cost analysis was performed on other possible remedial alternatives so a range of costs could be established for consideration. This analysis indicated that remediation of the site may range from $9 million to $43 million, with a most likely point in the range of $9 million. The most likely remedial action would include an additional site investigation study, implementation of storm water controls, constructing an engineered cap over 60 acres of slag and process waste, and long-term monitoring and operation and maintenance of the site. While the Company has reduced its reserve to $9 million for possible remediation work at the site, Cyprus Amax continues to believe and will continue to indicate to PADEP that the Company is not liable for the actions of its former subsidiary, American Zinc and Chemical Company, under existing federal and state environmental laws. To date, PADEP has not responded to Cyprus Amax’s assertion that it is not liable. [Emphasis added]

In order to make intelligent decisions on the proposed merger, there are three principal concerns on which the public needs to be informed:

Complaint One: Phelps Dodge Corporation environmental liabilities that would have to be assumed by Freeport-McMoRan Corporation

Complaint Two: Regarding erroneous statements about Freeport-McMoRan’s environmental record, including on their website and in a report filed on SEC’s EDGAR database

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

Enclosed are the three complaints, each with its own set of attachments. We feel that these complaints will clearly illustrate that Freeport-McMoRan is not qualified to take on the environmental liabilities and responsibilities of Phelps Dodge Corporation.

The concern that Freeport McMoRan management does not have the interest or the experience to take on the documented environmental projects is justified by the fact they have exhibited little interest in doing so at their Grasberg operations in Indonesia. Further, Freeport’s fertilizer operations in Florida and Louisiana were well known for creating environmental disasters in the mid-nineties. Jim Bob Moffett (then CEO and Chairman) attacked local environmentalists for opposing Freeport's dumping of radioactive gypsum waste into the Mississippi River. He called his home state of Louisiana a "banana republic” and tagged concerned citizens “ignorant.” (New Orleans Times-Picayune, Dec. 5, 1990.) If that’s what he thinks of his neighbors, it is hard to imagine his opinion of Third World persons.

In spite of Freeport-McMoRan’s sins of commission, Phelps Dodge management holds a positive attitude that they will continue running their present operations, so there is no cause for alarm. They assume Tim Snider, who is considered to be a factor in Phelps Dodge’s more humanistic approach in the past couple of years, will continue as the Chief Operating Officer. However, the Chief Executive Officer of Freeport-McMoRan and other management personnel are planning to move to Phoenix to take over. Where is any guarantee that management will remain the same? The majority of Cyprus operations managers were replaced by Phelps Dodge personnel, further, major changes were made in the board.

In the Asarco lawsuit, it is alleged that one of the first steps Grupo Mexico took after purchasing Asarco was to replace its entire board of directors and install its own people. If one needs evidence of what an ethically inept company can do, please check the 157 page list of debts, taxes and environmental liabilities and 128 pages of litigations accumulated by the mismanagement of the new company.* After all, James R. Moffett, Chairman of the Board of FM, said that Louisiana is a "banana republic"—so he only knows how to deal with the Third World reality. It is simply irrational to think that with such a background that this company can handle the tremendous environmental burden of one hundred years of mining by Phelps Dodge Corporation. (*See

The crux of the matter is that Phelps Dodge Corporation has made personal commitments to remedy environmental liabilities in Arizona, New Mexico and Colorado, and have been showing an incentive to do so for the past year. We desire and recommend that Phelps Dodge complete their environmental obligations and responsibilities before merging with any other corporation.

If you have any questions, I will be happy to attempt to find the answer for you. If you need further documentation on any matter, I can furnish it. I’m committed to digging out the facts and figures, so everyone can make an intelligent, informed decision.

Thank you for your attention to this matter,

Nancy Freeman
Executive Director
Groundwater Awareness League, Inc.

Attachments to this letter:

Attachment One: Phelps Dodge letter to Department of Environmental Quality concerning ownership of Twin Buttes and Sierrita (March 27, 2000)

Attachment Two: Phelps Dodge letter to Bureau of Land management concerning ownership of Cyprus Sierrita (March 3, 2000)

Attachment Three: Cyprus Amax Minerals Corporation, formed in 2000, listed as an active company in the Arizona State Corporation database

Attachment Four: Phelps Dodge Corporation listing as an active company—formed in 1917 as Copper Queen Consolidated Mining Company— the Arizona State Corporation database

Attachment Five: Listing of subsidiaries of Phelps Dodge Corporation in the Arizona State Corporation database

Attachment Six: Justice Department: Phelps Dodge Corporation to pay $1.4 to settle air pollution violations (June 21, 2004)

Attachment Seven: Freeport-McMoRan Copper & Gold Inc. 2005 Annual Report Financial Page

Attachment Eight: A few photos to give you a glimpse of the mining reality


Complaint One: Phelps Dodge Corporation environmental liabilities that would have to be assumed by Freeport-McMoRan Corporation with attachments

Complaint Two: Regarding erroneous statements about Freeport-McMoRan’s environmental record, including on their website and in a report filed on SEC’s EDGAR database with attachments

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

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