16. Environmental Costs and Asset Retirement Obligations
The company records an asset and related retirement obligation for the costs associated with the retirement of long-lived tangible assets when a legal liability to retire such assets exists. The major categories of asset retirement obligations include: reclamation and restoration costs at the company's potash and phosphate mining operations (most particularly phosphate mining), including management of materials generated by mining and mineral processing, such as various mine tailings and gypsum; land reclamation and revegetation programs; decommissioning of underground and surface operating facilities; general clean-up activities aimed at returning the areas to an environmentally acceptable condition; and post-closure care and maintenance.
The estimation of asset retirement obligation costs depends on the development of environmentally acceptable closure and post-closure plans. In some cases, this may require significant research and development to identify preferred methods for such plans that are economically sound and that, in most cases, may not be implemented for several decades. The company has continued to utilize appropriate technical resources, including outside consultants, to develop specific site closure and post-closure plans in accordance with the requirements of the various jurisdictions in which it operates. The company estimates that the undiscounted cash flows required to settle the asset retirement obligations approximate $4,050. The estimated cash flows have been discounted at credit-adjusted risk-free rates ranging from 5.6 percent to 6.8 percent. Other than certain land reclamation programs, settlement of the obligations is typically correlated with mine life estimates. Cash flow payments are expected to occur principally over the next 100 years for the company's phosphate operations. Payments relating to certain potash operations are not expected to occur until after that time. The present value of the company's asset retirement obligations at December 31, 2007 totaled $116.6 (2006 – $100.7), as set out in the table below. The asset retirement obligations are generally incurred over an extended period of time. The current portion totaled $10.2 (2006 – $7.2).
Certain of the company's facilities have asbestos-containing materials which the company will be obligated to remove and dispose of in a required manner should the asbestos become friable (i.e., readily crumbled or powdered) or should the property be demolished. As of December 31, 2007, the company has not recognized a conditional asset retirement obligation in its consolidated financial statements for certain locations where asbestos exists, because it does not have sufficient information to estimate the fair value of the obligation. As a result of the longevity of these facilities (due in part to maintenance procedures) and the fact that the company does not have plans for major changes that would require the removal of this asbestos, the timing of the removal of asbestos is indeterminable and the time over which the company may settle the obligation cannot be reasonably estimated as at December 31, 2007. The company would recognize a liability in the period in which sufficient information is available to reasonably estimate its fair value, as it has done for certain of the company's other facilities.
Other environmental liabilities typically relate to regulatory compliance, environmental management practices associated with ongoing operations other than mining, site assessment and remediation of environmental contamination related to the activities of the company and its predecessors, including waste disposal practices and ownership and operations of real property and facilities.
Site Assessment and Remediation Costs
The company has accrued $18.1 (2006 – $18.6) for costs associated with site assessment and remediation, including consulting fees, related to the clean-up of contaminated sites currently or formerly associated with the company or its predecessors' businesses. The current portion of these costs totaled $3.5 (2006 – $1.8). See Note 29, under Legal and Other Matters, for a more detailed discussion of site assessment and remediation costs.
Environmental Operating Costs and Capital Expenditures
The company's operating expenses, other than costs associated with asset retirement obligations, relating to compliance with environmental laws and regulations governing ongoing operations for 2007 were approximately $104.8 (2006 – $92.6; 2005 – $87.2). These amounts include environmental operating expenses related primarily to the production of phosphoric acid, fertilizer, feed and other products.
The company routinely undertakes environmental capital projects. In 2007, capital expenditures of $44.2 (2006 – $13.6) were incurred to meet pollution prevention and control objectives and $0.5 (2006 – $0.2) were incurred to meet other environmental objectives.
Following is a reconciliation of asset retirement and other environmental obligations as at December 31:
| 2007 | 2006 | |||
| Asset retirement obligations, beginning of year | $ | 100.7 | $ | 91.8 |
| Liabilities incurred | 6.8 | 7.2 | ||
| Liabilities settled | (4.5) | (3.6) | ||
| Accretion expense | 4.9 | 3.3 | ||
| Revisions in timing and amount of estimated cash flows | 8.7 | 2.0 | ||
| Asset retirement obligations, end of year | 116.6 | 100.7 | ||
| Other environmental liabilities | 18.1 | 18.6 | ||
| Less current portion (Note 12) | (13.7) | (9.0) | ||
| $ | 121.0 | $ | 110.3 |