MIAMI/BISBEE MINE

Arizona surface water law is based on the doctrine of prior appropriation (first in time, first in right). Surface water rights in Arizona are usufructuary rights, and as such the water right holder is granted only the right to use public waters for a statutorily defined beneficial use, at a designated location. Groundwater in Arizona is governed by the doctrine of reasonable use. Arizona has initiated two water rights adjudications in order to quantify and prioritize all of the surface water rights and water right claims to two of the state’s river systems and sources. Groundwater is not subject to the adjudication;however, wells may be adjudicated to the extent that they are found to produce or impact appropriable surface water.The Miami operation obtains water from a number of sources in the Salt River watershed. Statements of Claimants have been filed in connection with these water sources, each of which is subject to the adjudication and could be potentially impacted. Miami currently holds a Central Arizona Project (CAP) subcontract, although CAP water is not currently used at the operation. CAP water is not subject to adjudication; however, an exchange agreement has been executed to allow the delivery of this water to the Miami operation. The potential water supply for Bisbee is groundwater. The wells that supply the water may be subject to the Gila River adjudication to the extent that such wells are determined to be pumping or impacting appropriable surface water. Phelps Dodge has filed a Statement of Claimant in the adjudication for these water sources in case any are later determined to produce or impact appropriable surface water. As of 2005, Miami refinery was permanently closed.

The Miami smelter was to begin running at 100% capacity by the third quarter of 2004. It had been running at a reduced rate since 2002.

As a result of the economic environment, the mine and refinery were closed temporarily. This action eliminated 49,600 tons of annual copper production, in addition to an earlier reduction of 42,500 tons for 2002 resulting from a new mine plan implemented in 2000.