Freeport Indonesia Case Classroom Discussion Guide

1. 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

2. Printed on recycled paper-actually better, not printed at all

3. Printed on recycled paper-actually better, not printed at all 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

4. Printed on recycled paper-actually better, not printed at all 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?

5. Printed on recycled paper-actually better, not printed at all Short Video Gold Mine in the Clouds Will run before class and during the break and the small group discussion

6. Printed on recycled paper-actually better, not printed at all Case questions What is your evaluation of Freeport Indonesia�s Environmental Management? What is your evaluation of Freeport�s 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?

7. Printed on recycled paper-actually better, not printed at all 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.

8. Printed on recycled paper-actually better, not printed at all What is your evaluation of Freeport�s Environmental Management? What have they done? Details will be part of class discussion

9. Printed on recycled paper-actually better, not printed at all What is your evaluation of Freeport�s 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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11. Printed on recycled paper-actually better, not printed at all What is your evaluation of Freeport�s Environmental Management? Current financial statements Google finance http://finance.google.com/finance?fstype=ii&q=NYSE:FCX

12. Printed on recycled paper-actually better, not printed at all What is your evaluation of Freeport�s Environmental Management? What should they do? How proactive should Freeport be with their environmental risk management strategy?

13. Printed on recycled paper-actually better, not printed at all 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

14. Printed on recycled paper-actually better, not printed at all 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

15. Printed on recycled paper-actually better, not printed at all 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;

16. Printed on recycled paper-actually better, not printed at all Lessons learned Does Pro-active environmental strategy kills criticism Even a mining company can think about sustainability

17. Printed on recycled paper-actually better, not printed at all 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/asia/27gold.html

18. Printed on recycled paper-actually better, not printed at all 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-report-may-06