We view compliance with environmental regulations and legal requirements as the minimum acceptable level of performance and the foundation of our efforts to protect the natural environment. Incidents of noncompliance are treated seriously and measures are taken by management to prevent their recurrence. We publicly report on instances of noncompliance and their potential impacts and resolution.

On October 24, 2007, Chino Mines Company notified New Mexico Environment Department (NMED) that heavy rains during July, August and September led to a release of diluted leach solutions through a storm water outfall to an ephemeral stream on Chino’s property. Chino sent a follow up notice to NMED on November 7, 2007, which identified the interim corrective actions taken as a result of the discharge. On February 28, 2008, Chino received a proposed Administrative Compliance Order, which included a demand for civil penalties in the amount of $276,600 for violation of legal requirements in connection with Chino’s management of the solutions. Chino is preparing a response to NMED.

In September and October of 2006, Sierrita operations had three wind-blown tailings events that affected parts of the community of Green Valley, Arizona. Immediately following the events, Sierrita held a community meeting to update the community and outline the actions undertaken to prevent further incidents. We adjusted distribution of tailing material to increase surface moisture, increased use of blue algae to help form a crust on the surface of the impoundment, researched and tested other dust suppressants and purchased an additional low-pressure tractor that applies dust suppressant on the tailings impoundment with minimal surface disturbance. Sierrita also assisted affected property owners by arranging for homes to be cleaned and reimbursing home owners for the cost of cleaning. Overall, nearly 700 affected property owners had their homes cleaned or were reimbursed for their cleaning expenses during 2006 and 2007. Finally, Sierrita prepared a risk assessment to report on the effects of wind-blown tailings on human health. The report was completed in April 2007 and concluded that the tailing dust was comparable to dust from the surrounding desert. Any health effects would be similar to those associated with dust from the area. This was consistent with findings from an earlier Arizona Department of Health Services Report issued in October 2006.

The Arizona Department of Environmental Quality (ADEQ) issued two Notices of Violation (NOV) for the three tailings dust events. The two NOVs alleged visibility and permit violations. Sierrita has responded to the NOVs by acknowledging that dust likely did exceed a visibility standard, but denying the other allegations. Sierrita has implemented response actions that ADEQ has accepted and has entered into discussions with ADEQ to seek to resolve the NOVs.

In September 2006, EPA notified Sierrita of the possible assessment of stipulated penalties arising from deviations from certain provisions of a Consent Decree dated June 21, 2004, for molybdenum roasting operations, by and among Phelps Dodge Sierrita, Inc., the United States and ADEQ. In November 2007, Sierrita paid stipulated penalties of $140,500 to EPA and ADEQ as a condition to a joint request to the federal court for termination of the Consent Decree. In March 2008, the court terminated the Consent Decree.

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