Freeport Indonesia Case Classroom Discussion Guide

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Freeport Indonesia Case Classroom Discussion Guide

• Professor Doug Cerf
• Donald Bren Graduate School of Environmental
  Science and Management
• Environmental Risk Management (ESM 286)
• Winter 2008

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Two parts to our study of Freeport Indonesia

• Case Analysis
• Answer the questions for the case and draw some
  conclusions
• Prepare a stakeholder analysis
• We could have done the stakeholder analysis
  first, however, I did not want to assign both for
  the first class meeting

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Case Issues

• Environmental risk management of a large firm
• The environmental and social issues raised by
  modern mining in a developing country
• The long term viability of this mining project
• How many resources are allocated to environmental
  management?
• The appropriate distribution of the economic
  rents
• Economic rents are the operating profits
• Freeport, Indonesian government, Irian Jaya
  people, etc.
• Does Freeport need long term mining rights to
  protect its enormous capital investment?

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Short Video

• Gold Mine in the Clouds
• Will run before class and during the break and
  the small group discussion

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Case questions

• What is your evaluation of Freeport Indonesias
  Environmental Management?
• What is your evaluation of Freeports treatment
  of social and cultural affairs?
• Is this project, or could this project be,
  sustainable? How should economic rents be
  distributed?
• Should Freeport expand? Should Indonesia allow
  it?

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Small group discussion

• Phase 2 In class, students will be put in
  temporary (for the day) teams to discuss the
  case. This small group discussion will last
  about 20-30 minutes. The goal of the small group
  discussion is for students to take their
  understanding of the case and its issues to the
  next level. During these sessions students
  should write notes on their executive summaries
  using a blue pen or pencil.

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What is your evaluation of Freeports
Environmental Management?

• What have they done?
• Details will be part of class discussion

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What is your evaluation of Freeports
Environmental Management?

• How much has been allocated for environmental
  remediation and management?
• What level is appropriate?
• Distributions of Economic Rents (revenues less
  operating expenses)
• Details on the next slide

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What is your evaluation of Freeports
Environmental Management?

• Current financial statements
• Google finance
• http//finance.google.com/finance?fstypeiiqNYSE
  FCX

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What is your evaluation of Freeports
Environmental Management?

• What should they do?
• How proactive should Freeport be with their
  environmental risk management strategy?

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Lessons Learned

• How at risk is Freeport economically related to
  its environmental risk?
• Understanding stakeholders is fundamental to
  doing environmental risk management
• In particular the strength of the respective
  stakeholders (stockholders and environmental
  stakeholders)
• For a mining company, who dominates?
• The expansion issue

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Lessons Learned

• Freeport misunderstood the need for environmental
  management. They were forced to acknowledge.
• Freeport does not understand the need for
  environmental management for an egregious
  business (mining).
• Companies have obligations to meet environmental
  standards.
• Minimum local standards
• Probably World bank standards
• Possibly Home Country Standards

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Study (Stuart Hart, Cornell University)

• Comparison of American firms operating
  internationally using
• US environmental standards
• (Lower) Environmental standards in country of
  operation
• Companies using US standards perform better
• Could be a surrogate for good management
• Do corporate global environmental standards
  create or destroy market value? Glen Dowell
  Stuart Hart Bernard Yeung Management Science
  Aug 2000 46, 8

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Lessons learned

• Does Pro-active environmental strategy kills
  criticism
• Even a mining company can think about
  sustainability

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• Excerpt from Below a Mountain of Wealth, a River
  of Waste, New York Times, 12/27/05
• http//www.nytimes.com/2005/12/27/international/as
  ia/27gold.html

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WALHI report on Freeport-Rio Tinto

• The Indonesian Forum for Environment (WALHI -
  Friends of the Earth Indonesia)
• the largest forum of non-government and
  community-based organisations in Indonesia.
• It is represented in 25 provinces and has over
  438 member organisations (as of June 2004).
• http//www.eng.walhi.or.id/kampanye/tambang/frpt-r
  eport-may-06