SIERRITA / TWIN BUTTES 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 Sierrita operation is located in the Santa Cruz River watershed. The water for the operation is groundwater. The wells that supply the water may be subject to the Gila River adjudication only to the extent that such wells are determined to be pumping or impacting appropriable surface water. Phelps Dodge has filed Statements of Claimants in the adjudication for these water sources in case any are later determined to produce or impact appropriable surface water. In 1980, the Arizona legislature enacted the Arizona Groundwater Code. The Code established Active Management Areas (AMA’s) in several groundwater basins, including the Santa Cruz Groundwater Basin. The groundwater at this operation is subject to regulation under the Santa Cruz AMA.

Phelps Dodge Mining Company, one of the world’s leading producers of copper and molybdenum has ordered four Series II Advanced Equipment (AE) Simulators from Immersive Technologies under a strategic partnering relationship entered into by both companies earlier this year. Phelps Dodge partnered with Immersive Technologies based on their clear leadership in mining equipment simulation including expertise in simulator software and hardware design, experience in successful implementation in the fi eld and a strong product support record. The AE Simulators will be used to train new operators and re-train experienced operators at Morenci, the largest copper mine in North America, Sierrita and Bagdad copper mines in Arizona, Chino and Tyrone copper mines in new Mexico, and Candelaria copper mine in the Atacama Desert of Northern Chile.

The concentrator operations at Bagdad and Sierrita, are being increased to full capacity. Bagdad will produce at full capacity by the second quarter of 2004 and Sierrita by the fourth quarter of 2004. Both sites have been operating at reduced capacity since 2002.