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molybdenum concentrate in chemical applications. As part of this business plan, demand for <br />molybdenum concentrate for use in metallurgical applications is generally met with molybdenum <br />concentrate produced at byproduct mines owned by CMC's parent, Phelps Dodge. This core <br />business plan is pursued as a long-term strategy, notwithstanding short term spikes or declines in <br />prices. <br />In light of these market and business changes, the Climax Mine's swing producer status as <br />defined in the 1989 amendment of its reclamation permit - an operation maintained in a ready <br />state with the ability to come on-line quickly in response to demand by a market dominated by <br />metallurgical applications -has become obsolete. The Climax Mine's status as a swing producer <br />as contemplated by its reclamation permit needs to be modified in accordance with current <br />economic reality. The Climax Mine will be operated in response to demand for molybdenum <br />concentrate by Climax Molybdenum Companys chemical application customers. A major factor <br />in the Climax Mine's operations will be the extent to which chemical applications' demand can be <br />satisfied by the Henderson Mine. Based on current market conditions, it is expected that near the <br />end of the life of the Henderson Mine the capital investments will be made at the Climax Mine that <br />will enable it to replace Henderson's role as Phelps Dodge's primary source of high quality <br />molybdenum concentrate, and the Henderson Mine will shift to the role of swing producer. In the <br />meantime, planning and permitting activities to enable the Climax Mine to operate as a swing <br />producer for chemical application uses in the near term, and as a replacement to the Henderson <br />Mine in the long term, are ongoing, along with continuing reclamation activities. <br />The Phelps Dodge Mining Company has presented business perspectives relative to Climax <br />Molybdenum Company and the operation of the Henderson and Climax Mines in Colorado in its <br />corporate financial and annual reports. These documents are available at www.phelosdodae.com <br />and include summaries of reserves, operational capability, and market reviews. <br />Water Treatment Upgrades <br />Present Climax Water Treatment System <br />The Climax site straddles the Continental Divide with surface water flows into three drainage <br />basins, the Arkansas River, Eagle River, and Tenmile Creek basins. The site receives more than <br />25 inches of precipitation annually, the majority of which falls as snow. Under a Colorado <br />Discharge Permit System permit (CPDES) from the Colorado Department of Public Health and <br />Environment (CDPHE), Climax is required to treat all process water and contaminated runoff <br />(impacted waters) from the site. <br />The existing Climax water management system involves surface and underground water sources <br />that are distributed among the three drainage basins. Impacted water sources in the Arkansas <br />River Basin include the 5-Shaft discharge. Sources within the Tenmile Creek Basin include the <br />Camp, E-dump, F-dump, and McNulty Gulch drainages, non-interceptible stormwater from <br />multiple locations, Tenmile Tailings Impoundment Dam (3-Dam seeps), Mayflower Tailings <br />Impoundment Dam (5-Dam seeps), and historic sources in Searle Gulch. The Eagle River Basin <br />drainage sources include Robinson Tailings Impoundment (1-Dam seeps), Robinson Lake, non- <br />interceptible stormwater sources, Robinson Lake Dam, and Eagle Park Reservoir Dam (4-Dam <br />seeps). Of the three drainage basins, Climax is only authorized to discharge treated impacted <br />waters to Tenmile Creek. <br />Currently lime is added to the source flows to adjust pH to circumneutral (7.0). From the Lime <br />Station, these waters flow by gravity to the Tenmile Tailings Pond Tenmile Pond is maintained at <br />a circumneutral pH by adding lime to the source flows at the Lime Station. Tenmile Pond provides <br />first-stage hydroxide precipitation and clarification as well as sludge storage. Effluent from <br />Tenmile Pond flows to the base of 3-Dam where lime is again added to raise pH to approximately <br />10. From the 3-Dam water flows by gravity in an open channel to the MayFlower Tailings <br />Impoundment for second-stage hydroxide precipitation and clarification Effluent from MayFlower <br />