Groundwater Awareness League
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:
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.
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.
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,
Attachments to this letter:
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