Letter from L. Corte, Western Nuclear, Inc., Re: 2007 Surety Information For
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46-116'a, WESTERN NUCLEAR, INC. 2801 Youngfield, Suite 340 Golden, Colorado 80401 (303) 274-1767 Fax: (303) 274-1762 Lawrence J. Corte President & GeneralManager December 12, 2006 United States Nuclear Regulatory Commission Attn: Mr. Gary Janosko Mail Stop 8- F42 Washington, DC 20555-001 Dear Mr. Janosko: I am the President of Western Nuclear Inc., a wholly owned subsidiary of Phelps Dodge Corporation (the "Company") located at One North Central Avenue, Phoenix, Arizona 85004, a New York corporation. This letter is to update current cost estimate for completing decommissioning of the Split Rock Site, near Jeffrey City, Wyoming. Though final reclamation efforts are in progress and all site reclamation obligations are anticipated to be complete in early 2007, we do not request ay change in the surety amount from the previous year. The amount has been adjusted for inflation by applying the Consumer Price Index for All Urban Consumers (CPI- U): unadjusted U.S. city average, percent change from October 2005 to September 2006 (1.3), to the 2006 surety amount ($12,279,018). Therefore, the 2007 surety amount would be: $12,279,018 X 1.013 = $12,438,645 The Company's use of the financial test to demonstrate financial assurance using a parent company guarantee is consistent with NRC's 1988 Technical Position on FinancialAssurances for Reclamation, Decommissioning, and Long-Term Surveillance and Control of Uranium Recovery Facilities ("Technical Position"). The financial resources of the Company have not changed significantly since 2006. Page t~o Letter to United States Nuclear Regulatory Commission December 12, 2006 The Company guarantees, through a parent company guarantee submitted to demonstrate compliance under 10 CFR Part 40, including Appendix A, and the above- mentioned NRC Technical Position, the decommissioning of the following facility owned and for operated by a subsidiary of this Company. The current cost estimates or certified amounts for decommissioning, so guaranteed, are shown for such facility: Name and Location License Number Certified Amounts or Facility Current Cost Estimates Western Nuclear, Inc. SUA-56 $12,438,645 Split Rock Facility 22 Ore Road Jeffrey City, Fremont County, Wyoming 82310 This Company is required to file a Form 10-K with the U.S. Securities and Exchange Commission for the latest fiscal year. The fiscal year of this firm ends on December 31. The figures for the following items marked with an asterisk are derived from this Company's independently audited, year-end financial statements and footnotes for the latest completed fiscal year, ended December 31, 2005. A copy of the Company's most recent financial statements is enclosed. I hereby certify that the content of this letter is true and correct to the best of my knowledge. Please contact me at your convenience if you have any questions regarding this submittal. /Sincerel Lawrence J. Corte President & General Manager Western Nuclear, Inc. phelps"dodge Company Overview Phelps Dodge Corporation is one of the world's leading producers of copper and molybdenum and is the largest producer of molybdenum-based chemicals and continuous cast copper rod. The company employs 13,500 people worldwide. Phelps Dodge Mining Company (PDMC) is an industry leader in the safe, efficient and environmentally responsible production of high-quality metals and minerals. PDMC is a fully integrated producer of copper and molybdenum, with mines and processing facilities in North and South America and Europe. PDMC also processes other metals as byproducts, such as gold, silver and rhenium. Phelps Dodge Exploration Corporation and the Process Technology Center work toward the ongoing discovery and development of economically viable mineral reserves and the refinement and creation of production and process technologies. Phelps Dodge Industries (PDI) consists of the company's Wire and Cable segment, which produces engineered products principally for the global energy sector. Its operations are characterized by products with internationally competitive cost and quality. Its factories, located in 10 countries, manufacture energy cables for international markets. Table of Contents Forward-Looking Statements: Except for historical information, the matters discussed 1 Results in Brief in this Annual Report and Form 10-K are forward-lookingstatements regarding future 2 Letter to Shareholders events or the future financial performance of Phelps Dodge Corporation. Actual 7 Market Review results may differ materially from those projected. These forward-lookingstatements representthe Company'sjudgment as of April 5, 2006, but involve a number of risks 11 Form 10-K and uncertainties. Furtherexplanation of these statements and a review of the fac- 156 Eight-Year Financial Summary tors that may affect them are included in Risk Factors and Management's Discussion 161 Directory and Analysis within Form 10-K on pages 33 and 45. Inside Back Cover - Shareholder Information Results in Brief 3 (Dollars in thousands, except per share amounts and copper prices and cost) 200 5(ag(b) 2004 (a)(o) 2 OO (a)(d) Sales and other operating revenues $ 8,287,100 6,415,200 3,498,500 Operating income $ 1,764,900 1,474,900 142,800 Net income $ 1,556,400 1,046,300 94,800 Earnings per common share - diluted a) $ 15.37 10.58 0.92 Return on average shareholders' equity 31.9% 29.8% 3.5% Net cash provided by operating activities $ 1,769,700 1,700,100 461,600 Capital outlays $ 686,000 303,600 151,400 Investments in subsidiaries and other, excluding cash received $ 12,200 13,700 1,000 Cash received from Chino acquisition (f) - - 50,000 Depreciation, depletion and amortization $ 441,800 455,500 376,700 Average number of shares outstanding - diluted (in thousands) 101,300 98,900 88,800 Supplemental Data - Special Items and Provisions Special items and provisions impacting operating income $ (523,100) (61,600) (41,700) Special items and provisions impacting net income (loss) $ (54,100) (50,400) 46,700 Special items and provisions impacting earnings (loss) per common share - diluted (e) $ (0.53) (0.51) 0.52 At Year End Total assets $10,358,000 8,594,100 7,272,900 Total debt $ 694,500 1,096,900 1,959,000 Long-term debt $ 677,700 972,200 1,703,900 Shareholders' equity $ 5,601,600 4,343,100 3,063,800 Common shares outstanding (in thousands) 101,600 95,900 91,000 Number of employees 15,500 14,000 13,000 Division Results PDMC operating income before special items (g) $ 2,377,200 1,618,000 270,700 PDMC operating income (g) $ 1,929,900 1,606,700 265,200 PD1 operating income before special items (h) $ 33,200 30,200 15,700 PD1 operating income (h) $ 14,600 18,800 13,700 Copper production (consolidated basis - tons) 1,228,000 1,260,600 1,242,300 Copper production (pro rata basis - tons) 1,042,300 1,081,700 1,042,500 Copper sales from own mines (consolidated basis - tons) 1,238,400 1,268,900 1,254,100 Copper sales from own mines (pro rata basis - tons) 1,051,600 1,089,100 1,052,600 Copper COMEX annual average spot price per pound - cathodes $ 1.68 1.29 0.81 LME annual average spot price per pound - cathodes $ 1.67 1.30 0.81 (a) 2005 and 2004 reflected foil consolidation of El Abra and candelaria; 2003 reflected ElAbra and (f) On December 19, 2003, we acqoired Heisel Minerals Corporation's (Heisel) one-third interest in candelania on a pro rata basin (St percent and 80 percent, respectively). As a resalt of the Chino Mines Company (Chino). Under the termsoof the agreement, Heisei paid$114.0 million, inclod- Company's agreement to sell Columbian Chemicals Company (Columbian), previously disclosed as ing $50.0 million to a sobsidiary of theCompany and$64.0 million that Heisel placed insatrust to fond nourSpecialty Chemicals segment, the operating resslts for Columbian honebeen reported sepa- one-third of Chins's financial assorance obligations onder New Mexico Mining reclamation laws. rately from continoing operations and shown as discontinund operations for till periods presented. (g) 2005 operating income for P0MG was $2,377.2 million before net special, pre-tax charges (b) 2005 operating income was $2,288.0 million before net special provisions of $523.t million of $447.3 million comprising $424.6 million for asset impairments, $35.7 million pronision for comprising $432.5 million for asset impairments, $11t3.3 million provision for ennironmental ennironmental costs and $1.5 million for ernvironmental insorance reconeries; partially offset by a costs, $7.8 million for transaction and employee-related costs associated with the pending North net special gain of $1 4.5 million for historical legal matters. 2004 operating income for P0MGwas American magnet wire assets sale and $0.7 million for Magnet Wire restroctoring activities; $1,618.0 million before net special, pre-tao charges of $11.3 million comprising $16.8 million partially offset by St19.4million net gain for historical legal matters, Sit1.2 million gain on sale of provision for environmental costs, $2.5 million for the settlement of historical legal matters and non-core real estate and$0.8 million net gain for ennironmeetal insorance recoveries. $1.1 million for asset impairments; partially offset by a net special gain of $9.1 million for environ- (c) 2004 operating income was $1,536.5 million before net special pronisions of $61 .6 million mental insorance recoveries. 2003 operating income for P0MGwas $270.7 million before a net comprising $58.9 million pronisionfor environmental costs, $10.5 million for Magnet Wire restructoring special, pre-taocharge of $5.5 million for ennironmental costs. actinities and$1.7 million for asset impairments; partially offset by $9.3 million gain for environmental (h) 2005 operating income for P01was $33.2 million before net special, pre-tax charges of $18.6 million insorance recoveries and$0.2 million net gair for the settlement of historical legal matters.