Copper: Technology and Competitiveness

September 1988

NTIS order #PB89-138887
Recommended Citation:

U.S. Congress, Office of Technology Assessment, Copper: Technology and Competitiveness, OTA-E-367 (Washington, DC: U.S. Government Printing Office, September 1988).

Library of Congress Catalog Card Number 87-619893

For sale by the Superintendent of Documents

U.S. Government Printing Office, Washington, DC 20402-9325

(order form can be found in the back of this report)
Foreword

The discovery of copper by primitive people provided a transition from the Stone

Age to the Metal Ages (Copper, Bronze, and Iron). For thousands of years, copper remained important for making tools, weapons, jewelry, and objets d’art. It was not until the Industrial Revolution and the age of electricity, however, that copper’s excellent electrical conductivity stimulated a demand for a highly developed copper industry.

The ancient mines were completely swamped by the increased world demand. But

the westward expansion in North America led to the discovery of copper deposits that

met much of this demand and made the United States the world leader in copper production for over a century.

Although copper markets historically have been volatile, exhibiting wide swings

i n supply and price with the opening of new mines and with general economic conditions, the U.S. industry had always managed to maintain its leadership. During the

early 980s, however, the global economic recession combined with the opening of

numerous mines throughout the world to create oversupplies and low prices that called

into question the survival of the domestic copper industry. Many U.S. mines and plants

closed or cutback production. Over 28,000 jobs were eliminated. Producers sustained

heavy financial losses and had to adopt aggressive cost-cutting programs.

This report responds to a request from the Technology Assessment Board—the congressional oversight body for the Office of Technology Assessment (OTA)–prompted

by the balance-of-trade and other economic implications of these events. The report

describes the conditions the domestic and world copper industry faced during the early

1980s. It documents the steps U.S. copper companies took to improve their position

so dramatically in the mid-980s, and evaluates the industry’s present and possible

future status, including relative costs of production and the elements of those costs.

The report concludes that the revitalized U.S. copper industry can compete in all

but the worst foreseeable markets. Notably, the industry’s turnaround came entirely

from its own efforts; the Federal government rendered little assistance. The U.S. industry is now smaller, but it is still the world leader in smelter and refinery production,

and ranks second in mine production. Its costs, though not the lowest in the world,

are now low enough to weather most price swings. However, should the adverse conditions of the early 1980s recur, copper prices might fall to levels at which some domestic producers will again be unable to compete. The Report analyzes options available to the Federal government (and industry) to enhance the industry’s competitive

position.

Substantial assistance was received from many organizations and individuals in

the course of this study. We would like to express special thanks to the OTA advisory

panel, the project’s consultants, the U.S. Bureau of Mines, and the many reviewers

whose comments helped to ensure the completeness and accuracy of the report.

JOHN H-. GIBBONS

Director
OTA Copper Advisory Panel

George S. Ansell, Chairman

President, Colorado School of Mines

Richard Ayres

Senior Staff Attorney

Natural Resources Defense Council

Paul Biderman

Secretary, Department of Energy and Minerals

State of New Mexico

Corale L. Brierley

president

Advanced Mineral Technologies Inc.

Erling Brostuen2

Secretary, Department of Energy and Minerals

State of New Mexico

Henry Cole

Senior Staff Scientist

Clean Water Action Project

Robert Dimock

Vice President, Gold

BP Minerals America

William H. Dresher

president

International Copper

John A. Hansen

Division3

Research Association

Department of Economics

State University of New York at Fredonia

James G. Hascall

president

Olin Brass

John Kelly4

General Motors Corp.

Robert H. Lesemann

president

CRU Consultants Inc.

Larry G. Lewallens

president

AT&T Nassau Metals

Robert J. Muth

Vice President

Asarco, Inc.

William G. Pariseau

Department of Mining Engineering

University of Utah

Michael Rieber

Deparment of Mining

University of Arizona

Thomas D. Schlabach

Department Head

Engineering

AT&T Bell Laboratories

Joel Secoyb

AT&T Nassau Metals

Jack E. Thompson

Tucson, Arizona

Mikon Wadsworth

Dean, School of Mines

University of Utah

Russell L. Wood

President

Copper Range Co.

‘ Until January 1987.

~After January 1987.

3Formerly Vice President, Technology

4Retlred 1987.

5Until October 1986.

bAtter October 1986.

NOTE: OTA appreciates and is grateful for the valuable assistance and thoughtful critiques provided by the advisory

panel members. The panel does not, however, necessarily approve, disapprove, or endorse this report.

OTA assumes full responsibility for the report and the accuracy of its contents.

iv
OTA Copper Project Staff

Lionel S. Johns, Assistant Director, OTA

Energy, Materials, and International Security Division

Peter D. Blair, Energy and Materials Program Manager

Jenifer Robison, Project Director

Project Staff

Vickie Basinger Boesch, Industry and Market Structure

John Newman, Production Costs

Margaret Passmore, Environment/ Aspects and Energy Use

Consultant

Curtis Seltzer

Administrative Staff

Lillian Chapman, Administrative Assistant

Linda Long, Administrative Secretary

Phyllis Brumfield, Secretary

v
Acknowledgments

We are grateful to the many individuals who shared their special knowledge, expertise, and information about the copper industry, copper markets, and production technology with the OTA Staff

in the course of this study. Others provided critical evaluation and review during the compilation

of the report. These individuals are listed in Appendix C of this report.

Special thanks go to the government organizations, corporations, and academic institutions with

whom these experts are affiliated. These include:

American Mining Congress

Arizona Mining Association

Asarco, Inc.

BP Minerals America

Colorado School of Mines

Copper Range Co.

Cyprus Minerals, Inc.

Inspiration Consolidated Copper Co.

Phelps Dodge Corp.

Resource Strategies Inc.

Robison Clipping Service

State of Montana, Bureau of Mining and

Geology

State of New Mexico, Department of Energy

and Minerals

State of Utah, Department of Natural

Resources and Energy

U.S. Bureau of Mines

U.S. Environmental Protection Agency

U.S. Geological Survey

University of Arizona, College of Mines

University of Utah, School of Mines

State of Arizona, Department of Mineral

Resources
Contents

Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

part One: Introduction and Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapter 1. Introduction and Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Part Two: Industry and Market Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapter 2. The Current Status of the World Copper Industry . . . . . . . . . . . . . . . . . . .

Chapter 3. The Business Structure of the Copper Industry . . . . . . . . . . . . . . . . . . . . . .

Chapter 4. Market Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Part Three: Resources and Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapter 5. World Copper Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1

5

35

37

43

61

87

91

Chapter 6. Copper Production Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103

Chapter 7. Energy Use in the Copper Industry . . . . . . .

Chapter 8. Environmental Aspects of Copper Production

Part Four: Competitiveness . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . 151

. . . . . . . . . . . . . . . . . . . . . . . 159

. . . . . . . . . . . . . . . . . . . . . . . . 181

Chapter 9. Production Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...............185

Chapter 10. Strategies for Future Competitivenss. . . . . . . . . . . . . . . . . . . . . . ........219

Appendix A. Acronyms and Abbreviations. . . . . . . . . . . . . . . . . . . . . . .............257

Appendix B. Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...........259

Appendix C. Acknowledgements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..263

Indexes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...267

General Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .........................267

Copper Properties Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .................271

vii
Part One

Introduction and Summary
Chapter 1
CONTENTS

Page

Findings and Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Why Is The Domestic Copper Industry lmportant? . . . . . . . . . . . . . . . . . . . . . . 9

How Competitive Is The Domestic Copper Industry Today? . . . . . . . . . . . . . . . 15

What Are The Likely Prospects for Future Competitiveness? . . . . . . . . . . . . . . . 20

What Can the Federal Government Do To Improve the Prospects

for Competitiveness? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. ... +.. ...... 24

Option Set 1: Do Nothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Option Set 2: Protect the Industry From World Market Changes.. . . . . . . . . . 26

Option Set 3: Promote Investments in Competitiveness . . . . . . . . . . . . . . . . . . 27

What Can the Copper industry Do To Maintainer Improve

Box

l-A.

l-B.

l-c .

1-D

l-E.

Figure

1-1.

1-2.

1-3.

1-4.

1-5.

1-6.

1-7.

1-8.

1-9.

1-10.

1-11.

1-12.

Table

ts Competitiveness? . . ..’. . . . . . . . . . . . . . . . . . .... . . . . . . . . . . . . . . . . . . 31

Boxes

Page

Copper Production. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

The Costs of Smelter Pollution Control.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

What Happened to the Price of Copper?. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

The U.S.-Canada Free Trade Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

technological Innovation and R&D Needs . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Figures

Page

Principal Stages of the Copper Production Process . . . . . . . . . . . . . . . . . . . 8

Flow Sheets for Copper Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Major World Copper Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

U.S. Copper Consumption by End-use Sector, 1986 . . . . . . . . . . . . . . . . . . 11

The Copper Industry in 1986 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Copper’s Economic lmpact in the State of Arizona, 1987 . . . . . . . . . . . . . . 13

Major Sources of U.S. Copper Import% 1986 . . . . . . . . . . . . . . . . . . . . . . . . 14

Average Net Operating Costs for Major Copper Producing Countries . . . . 16

productivity in the U.S. Copper Industry: 1973-1986 . . . . . . . . . . . . . . . . . . 19

Average price Compared With U.S. and Rest-of-World Refined Copper

Production and Consumption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Sulfur Dioxide Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Trends in U.S. Bureau of Mines R&D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Tables

Page

l-1. Changes in the U.S. Copper Industry: 1981-86 . . . . . . . . . . . . . . . . . . . . . . . 17

l-2. Recent Government Acquisitions of Copper Capacity . . . . . . . . . . . . . . . . . . 17

1-3. Strategies Adopted by U.S. Copper Companies in Response to Economic

Conditions 1980-87 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

l-4. Copper Markets: 1983-87 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Chapter 1

Introduction and Summary

The early 1980s brought hard times to the domestic copper industry. Low prices and slack demand led to mine closings, worker layoffs, and

financial losses, which in turn raised questions

about the industry’s viability. Copper producers responded by modernizing their equipment

and cutting costs. By 1987, when prices began

to rise, the U.S. industry was profitable again.

But what of the future? Copper prices historically

have been cyclical, and undoubtedly will fall

again. What steps need to be taken now for the

domestic copper industry to survive another

prolonged downturn? This assessment documents

the industry’s actions to improve its position so

dramatically during the 1980s, evaluates its

present–and possible future—competitive status,

and discusses options available to Congress (and

the industry) to prepare for the next market

slump.

Copper is the world’s third most widely used

metal (after iron and aluminum). Its advantageous chemical, mechanical, and physical properties make it valuable in electrical and telecommunications products, building construction,

industrial machinery and equipment, transportation, and consumer products. Copper’s strategic uses include ordnance, command-communication-co ntrol-intelligence (C3

I) systems, and

miIitary transportation and advanced weaponry

systems,

The industry that explores for, mines, smelts,

refines, fabricates, markets, and recycles copper is of significant economic importance in its

own right. In 1979, when the U.S. copper industry was at its peak, it employed over 90,000 people, with total shipments of the industry’s products exceeding $10 billion. ’ Over 25 major mines,

17 smelters, and 22 refineries were in operation.

The industry’s contribution to gross national product (GNP) was more than $6 billion, with almost

40 percent contributed by copper mining and

‘ Unless noted otherwise ftgures In this a~sessment are In nominal dol la r~ a nci metric tonnes ( 1 met nc tonne = 1.1 short ton =

2204.6 pounds),

concentrating; 30 percent by smelters, refineries,

and wire mills; and 30 percent by brass mills. z

Domestic and world copper consumption began to slide in 1979, and dropped even further

during the ensuing recession. The price of copper peaked in 1980, then plummeted over 50 percent by the end of 1984. Despite the market

slump, copper production in the rest of the world

continued to increase, and world inventories balIooned. Furthermore, the strong U.S. dollar during this period favored imported copper.

By the mid-1980s, domestic mine production

had fallen to its lowest level since the 1960s, and

the United States lost its position as the world’s

leading copper producer for the first time in a

century. From March 1981 to January 1983, 28

domestic mines closed or cut back production,

and U.S. mine capacity utilization hovered

around 65 percent. At the end of 1982, the industry had laid off about 42 percent of the total

copper work force.

As a result, domestic copper companies lost a

lot of money. Amoco Minerals lost nearly $60 million on copper from 1981 to 1985; Asarco lost

over $384 million from 1982 to 1985; Phelps

Dodge lost $400 million between 1982 and 1984;

and Kennecott lost over $600 million between

1982 and 1985. Anaconda simply went out of

business.

By 1985, the rest of the economy had rebounded from the recession, but the minerals industry lagged behind. Although demand exceeded world production and inventories began

to decline, prices remained low. Only two U.S.

copper firms reported profits from their operations, imports were at their highest since 1946,

and domestic capacity utilization was still only

73 percent. Some previously closed mines re-

~Louis Sousa, The U.S. Copper Industry: Problems, Issues, and

Outlook (Washington, DC: U.S. Department of the Interior, Bureau of Mines, October 1981).

31 nventorles are stocks of copper heId at refineries and at commodity exchange warehouses awaiting shipment (or, for some copper, at refineries awaiting processing).

5
6

opened in 1985, but several major operations

closed, including Bingham Canyon—the largest

mine in the United States.

The balance-of-trade and other economic implications of these conditions prompted the Technology Assessment Board—the congressional

oversight body for the Office of Technology

Assessment (OTA)–to ask OTA to undertake a

study identifying technical and economic issues

related to the decline of the U.S. copper industry. Nine members of the Congressional Copper

Caucus subsequently endorsed the request. In

particular, the letter of request asked OTA to:

. . . address the entire structure of the industry,

including mining, refining, and smelting technologies. Operational and institutional constraints

should also be addressed. The study should also

provide recommendations which can be implemented by both government and industry entities in revitalizing our domestic copper industry.

This assessment responds to that request. During the course of OTA’s analysis, the U.S. copper industry began its phenomenal recovery from

the ravages of 1981-84. In 1985, the price of copper rose slightly, demand remained strong, inventories began to shrink, and world copper production was closer to being in line with demand.

Industry management also took steps to improve their financial situation. They restructured

assets and shed a lot of debt. Marginal cost producers either closed permanently or shut down

on a long-term care and maintenance basis. The

remaining operations cut costs across the board.

Labor costs were reduced through wage rate cuts

and productivity improvements. Companies

made major capital investments at mines, smelters, and refineries to improve operating efficiency. Largely in response to low prices, domestic mines also increased their average ore grade

from 0.48 percent to over 0.6 percent by closing marginal mines and changing the mine plans

at others.

As a result of this restructuring and capital investment, the U.S. copper companies that survived the industry’s depression are now profitable. Many industry analysts question how long

this will last, however. Although financially

healthy, the companies are operating at the margin in the sense that they have closed high-cost

mines, made most available capital investments

in technology, and reduced labor and wage rates

to a minimum. Most analysts consider another

price slump inevitable as new mines throughout

the world come on line in the early 1990s. If

prices again stay low for several years, copper

companies would have to find new means of

reducing their costs further (other than closing

facilities), or implement other strategies in order to remain competitive.

Because of the improvements in the industry’s

condition, OTA structured this assessment around

three basic questions aimed at assessing the industry’s future. First, what is the present status

of the domestic and world copper industry, including relative costs of production and the elements of those costs? Second, what did U.S. copper companies do in order to improve their

position so dramatically in the mid-1980s? Third,

what options will be available to Congress (and

the domestic industry) to enhance their competitive position next time they face the conditions

they experienced in the early 1980s?

This assessment is limited, for the most part,

to the primary copper industry—that sector that

mines copper ore and processes and refines it to

produce 99.99+ percent pure copper. (Box 1-A

provides a brief overview of the copper production processes, and defines the terms used by the

industry. ) The assessment discusses the first stage

in fabrication of copper products—the production of copper rod (the precursor of copper wire)

—only to the extent that rod mills are integrated

with other operations. It does not discuss the

downstream fabrication of copper products (e.g.,

pipe, wire) except in the context of demand in

various end-use sectors.4

This assessment also does not discuss recycling

of copper except to note the extent to which copper scrap is used to meet total demand (i.e., it

does not evaluate policy options related to recycling). s It also is limited to copper production and

4Note that most U.S. copper imports are in the form of semifabricated and fabricated products.

SAn earlier OTA report discussed recycling of several important

metals and materials; see U.S. Congress, Office of Technology

Assessment, Strategic Materials: Technologies To Reduce U.S. import Vu/nerabi/ity, OTA-ITE-248 (Washington, DC: U.S. Government Printing Office, May 1985).
7

Box l-A.—Copper Production

Copper is a reddish or salmon-pink metallic element. In ore, the copper usually is linked with sulfur

(sulfide ores) or oxygen (oxide ores). Ores also contain other metals, including valuable byproduct metals (e.g., gold, silver, and molybdenum), and large quantities of valueless rock. Ore typically contains from

0.4 percent to 6 percent copper. For most applications, however, refined copper has to be 99.99+ percent pure. Therefore, a series of operations are performed that result in products with a successively higher

copper content (see figures 1-1 and 1 -2).

Copper ore may be mined by either open pit or underground methods, or the mineral values may

be leached out of the ore (solution mining). Once the ore has been mined, the copper is extracted from

it either by /caching (hydrometallurgical recovery) or through heat (pyrornetahrgical methods). in

hydrometallurgical processes, water or an acidic chemical solution percolates through the ore and dissolves the minerals. The copper is recovered from the resulting pregnant Ieachate either through iron precipitation or solvent extraction.

Pyrometallurgical processes employ high-temperature chemical reactions to extract copper. The ore

is first pulverized by tumbling it with steel balls in cylindrical mills. The ground ore is then concentrated

to eliminate much of the valueless material. The concentrates contain 20 to 30 percent copper. Depending on the copper minerals and the type of equipment, subsequent pyrometallurgical treatment of the

concentrates may take as many as three steps: roasting, smelting, and converting. Roasting dries, heats,

and partially removes the sulfur from the concentrate to facilitate smelting. The concentrates are smelted

to produce a liquid copper matte (35 to 75 percent copper), plus slag (waste)1 and sulfur dioxide gas.

After smelting, the molten matte is converted into blister copper (98.5 to 99.5 percent copper), slag, and

sulfur dioxide gas.2 The molten blister is fire refined to further reduce its sulfur and oxygen content and

poured into molds. When cooled, it is anode copper.

The final step in the purification process is electrolytic treatment, either through electrowinning of

solvent extraction solutions or electrolytic refining of copper anodes. The end product, cathode copper,

is 99.99+ percent copper. Cathodes are melted and cast into wirebars or continuous bar stock for wire

manufacture, into slabs for mechanical use, or ingots for alloying.

I The slag from smelting and converting may be recycled to recover its copper content.

~lt IS called ‘‘ bllster’ because bubbles of su Ifu r dioxide form on the surface of the copper during solid lflcatlon.

consumption in the market economy countries ● Part Two reviews the structure of the domes

(also termed the Non-Socialist World: or NSW).6

A brief description of copper activities in the centrally planned countries is included at the end of

chapter 4.

The assessment is organized as follows:

● the remainder of this chapter summarizes

OTA’s findings on these questions and presents options for Congress (and industry) to

consider;

GThe Non-Socialist World (NSW) refers to all copper producing

and consuming market economy countries. This includes Yugoslavia, but excludes Albania, Bulgaria, Czechoslovakia, Cuba,

Democratic Republic of Germany, Hungary, Poland, Romania, and

the USSR. China also is excluded from consumption and production figures, but is included in trade figures because of the significant amount of copper imported into China from NSW countries

in recent years.

tic and world copper industry and the status of copper markets (chs. 2-4);

● Part Three describes copper production, including the geology of copper deposits, technologies for mining and processing copper

ores, and R&D needs for advanced technologies; and energy use and environmental

controls in copper processing (chs. 5-8); and

● Part Four discusses the competitive status of

the U.S. copper industry, including domestic and international production costs and

the factors that influence them, measures of

competitiveness and where the U.S. industry stands under each measure, and government policies and industrial strategies that

affect competitiveness (chs. 9 and 10).
8

Figure 1.1 —Principal Stages of the Copper Production Process

Mining

Q

#

...- . . . .

3 tons of

concentrates

Converting w

blister copper

Refining

furnace

Refining

refined facilities

copper

/

NOTE: Tonnage of residuals is based on experience in the Southwestern United States assuming an ore grade of 0.6 per.

cent copper.

SOURCE: J F McDivitt and G Manners, Minerals and Men (Baltimore, MD: The Johns Hopkins University Press, 1974).
9

Figure 1-2.-Flow Sheets for Copper Production

Sulfide ores Oxide and sulfide ores

x

 Leaching

1

I

FINDINGS AND OPTIONS

Why Is The Domestic Copper

Industry Important?

Copper conducts both heat and electricity

very well. It is also strong, wear- and corrosionresistant, and nonmagnetic. These properties

make the metal and its alloys vital in nearly every

industrial sector. Moreover, the copper industry contributes billions of dollars to gross national and regional products. Finally, copper is

an important strategic metal.

In contrast with its importance, copper is a

scarce metal. On average, the Earth’s crust contains only 0.0058 percent copper, compared with

8 percent aluminum and 5.8 percent iron. Most

commercial copper ore deposits today contain

from 0.5 to 6 percent copper. Although the

United States has one-fifth of the world’s recoverable copper reserves (see figure 1-3), our ore

grades are relatively low–averaging only 0.65

percent.
10

Figure 1-3.-Major World Copper Resources

SOURCE” U S Bureau of Mines

The Uses of Copper

In 1986, around 41 percent of copper mill

products went to the construction industry (see

figure 1-4). Uses there include electrical wiring,

plumbing and heating, air-conditioning and refrigeration, and architectural applications (such

as gutters and roof and wall cladding). The second largest market—23 percent—was the electrical and electronics industry for telecommunications, power utilities, industrial controls,

business electronics, lighting and wiring, etc. Next

was the industrial machinery and equipment industry, with 14 percent of total shipments. Virtually all modes of transportation-automobiles,

trucks, railroad equipment, aircraft and aerospace, and ships—contain copper. This sector accounted for almost 13 percent of domestic demand in 1986. Radiators, bearings, wiring,

electronic devices, and brake linings are only a

few of the auto and truck parts made with copper or copper alloys. Finally, miscellaneous consumer goods (ranging from appliances to cooking

utensils to jewelry and objets d’art), military ap-
Figure I-4. -U.S. Copper Consumption by

End-use Sector, 1986

Construction

E Iectrical

23% Consumer/Misc

9%

Machinery 13%

14%

SOURCE. Copper Development Association

placations, coinage, pharmaceuticals, and chemicals accounted for around 9 percent of consumption in 1986.7

Copper’s uses—and the industry’s fortunes—

vary over time. When copper prices remain high

for extended periods, some consumers may

switch to other metals instead (e. g., aluminum

for architectural uses and some wiring). Other

substitutions arise from performance considerations (for instance, aluminum in car radiators to

reduce weight), or from technological change (fiber optics for telecommunications). When copper consumption drops and prices are low, as

happened during the 1982 to 1983 recession, the

U.S. copper industry has trouble competing in

world markets.

The Economic Importance of the

Primary Copper Industry

In 1986, the United States mined 1.15 million

tonnes of copper at 87 mines located in 12

States. 8 At 61 of these mines, copper was the primary product, and at the other 26 it was a byproduct of gold, silver, lead, or zinc mining. Fifteen percent of the copper concentrate produced

7Copper Development Association, “Copper and Copper Alloy

Mill Products to U.S. Markets–1 986, ” CDA Market Data, May 10,

1987.

8Due to low ore grades in the United States, the domestic industry mined 170 million tonnes of ore to produce the 1.15 million

tonnes of copper.

Photo credit: General Motors

Microcomputer for controlling an automobile engine.

Over the last two decades, copper use in the electrical

and electronics industry has increased significantly

due to the growth of electronic devices in computers

and telecommunications, consumer products,

automobiles, and control devices.

domestically (containing 174,350 tonnes of copper) was exported (see figure 1 -5). Nine primary

and seven secondary smelters operated in 1986,9

producing almost 1.2 million tonnes of blister

copper—903,000 tonnes from domestic concentrates, 288,000 tonnes from scrap, and 5,000

tonnes from imported concentrates. Twenty-four

domestic refineries turned out nearly 1.5 million

tonnes of refined copper in 1986, including over

125,000 tonnes from electrowinning plants.

Around 27 percent of domestic refinery output

was from scrap, and 2 percent was from imported

blister and anode.10 Refined copper imports increased 33 percent in 1986; U.S. net import

reliance11 was 27 percent.

9

0ne primary and one secondary smelter closed permanently

in 1987.

Iojanlce I_. W. jolly and Daniel Edelstein, “Copper,” preprint from

1986 Bureau of Mines Minerals Yearbook (Washington, DC: U.S.

Department of the Interior, Bureau of Mines, 1987).

I I AS a percent of apparent consumption; defined as imPortS —

exports + adjustments for Government and industry stock changes.
12

Figure 1-5.-The Copper Industry in 1986

(production numbers in 1000 metric tonnes)

175

15% U 12

1%

I 9 8 9

1,184 1,600 DOMESTIC I ➤ ➤

100% 86s I I — — 99% 99% CONSUMERS

Employment

Inputs

10,000 ● 5,400

concentrate,

1% imported

SOURCE: OTA from U.S. Bureau of Mines data.

The value of primary copper produced from

domestic ores was $1.67 billion. U.S. exports

of concentrates, blister, refined products, and

scrap were valued at $464.7 million, while imports of these products into the United States

were worth $772 million.12 To produce these

products, the primary copper industry employed

over 10,000 mine and mill workers and 5,400

smelter and refinery employees.

With this magnitude of production and employment, each copper operation contributes

substantially to the local and regional, as well

as the national, economy. Operations in

30% Imported

Arizona–which produce nearly two-thirds of the

Nation’s copper–contributed $5.8 billion to the

State’s economy in 1987. Despite the industry’s

continued recovery, this was still far below the

peak contribution of $9.6 billion in 1981 (see figure 1-6). Revenues to State and local government

from severance, property, payroll, and sales taxes

totaled $56 million; equipment and other supplies sold to the copper industry by Arizona firms

were $608 million; and total wages and salaries

equaled $292 million.l J

The economic impact of just one mine is shown

in the Copper Range Company’s estimate that the

‘

3 Richard Ducote, “Copper’s Impact in State Put at $5.8 billion

Iz)olly and Edelstein, supra note 10. for ‘87, ” The Arizona Dai/y Star, July 27, 1988.
13

10

8

4

2

0

Figure 1-6.-Copper’s Economic Impact in

the State of Arizona, 1987

1978 1979 1980 1981 1982 1983 1984 1985 1986 1987

Year

SOURCE Richard Ducote. “Copper’s Impact in State Put at $5.8 Billion to ‘87, ”

The Arizona Daily Star July 27, 1986

1986 reopening of the White Pine Mine on Michigan’s upper peninsula would contribute $38 million to the economies of three counties during

the first year of operation. The mine employed

900 people, adding $18 million to personal income. The analysis projected that mine employees wouId spend $13 million in retail sales, generating 63 new retail establishments, and creating

576 new non-manufacturing jobs. The mine itself paid $32.3 million directly to vendors during its first year.14

The recent contraction of the domestic copper industry also had significant impacts on local and regional economies. permanent ClOSUre

of the Douglas, Arizona smelter in January 1987

cost the town 344 direct jobs with an annual payroll of $10 million. Throughout Cochise County,

up to 680 jobs eventually could be affected, totaling another $11.8 million in lost earnings. In

addition to lost jobs and earnings, the sparsely

populated county lost one of its major sources

of tax revenue; the smelter paid $314,ooO in property taxes alone in 1986.15

Cutbacks in the copper industry also affect the

fortunes of its suppliers. For example, the U.S.

IAJOIIY and Edel Stein, Supra note 10

15Anthony Opyrcha[ et al., The Chang/ng Role of the Nonfue’

Minerals Industry in the State and Local Economies ot’Arizona ( 1981-

1986) (wastlington, DC: U.S. Department of the Interior, Bureau

of Mines, 1987).

mining machinery industry experienced substantial excess capacity due to many of the same

problems that affected the minerals industry, including reduced mineral demand during the first

half of the 1980s, the strong dollar during the

same period, and increased competition from imports. Although mining machinery firms have undertaken significant cost reduction measures to

remain competitive (including closing plants),

several companies have gone out of business. 16

The Strategic Importance of Copper

Copper is a strategic material—it is essential

in the production of equipment critical to the

U.S. economy and the national defense. The Department of Commerce estimates that military

consumption of copper for ordnance has ranged

from 10 percent of total U.S. demand at the

height of the Vietnam War to around 1.5 percent

during peacetime. In addition, copper wire is a

critical component of all command-communication-contro!-intelligence (C3

I) systems. Military

transportation and advanced weaponry systems

also use significant quantities of copper. Finally,

the vast industrial base that supports the national

defense requires machinery and goods containing copper.17

In 1986, U.S. refined copper imports were

around 24 percent of refined consumption. This

is roughly equal to the copper used by the electrical and electronics industry in 1986. The principal sources of imports were Chile, Canada,

Peru, Zambia, and Zaire (see figure 1-7).18 While

neither political instability nor hostility is a major concern about the security of supplies from

these countries, their imports can be subject to

disruption (e.g., due to labor strikes or insecure

transportation routes).

As a result, copper is included in the National

Defense Stockpile. The current stockpile goal is

1 million short tons. In 1986, the inventory was

22,297 short tons of copper, plus 6,751 short tons

161 nternational Tracje Administration (ITA), A Cornpeorwe AsseSSrnent of the U.S. M/n/ng Mach/nery /no’ustry (Washington, DC: U.S.

Government Printing Office, 1986).

; 7Sousa, supra note 2.

lflJanice L.W. jolly and Daniel Edelstein, ‘‘Copper, ” Mineral COmrnodity Summaries: 1987 (Washington, DC: U.S. Department of

the Interior, Bureau of Mines, 1987).
14

Figure 1-7.-Major Sources of U.S. Copper Imports, 1986

Canada

.———’——n

Chile

40%

SOURCE: U.S. Bureau of Mines data.

of copper contained in 9,645 short tons of brass.lg

over the years stockpile purchases and releases

have affected copper supply and price. For example, from 1959 to 1963 stockpile acquisitions

combined with copper industry strikes and strong

economic expansion to push prices upward .20

The stockpile inventory shortfall often has attracted congressional attention as a means of

prodding sluggish markets. Most recently, legislation was introduced in the 98th Congress (1983

“ibid.

zou .s. Department of the Interior, Bureau of Mines, Minerals Yearbook, various years.

to 1984) to purchase copper for the National Defense Stockpile. Opponents argued that the proposed acquisitions were insufficient to reopen

any shutdown operations, and would have established a precedent of allowing economic considerations to supersede defense needs.

Purchasing domestic copper for the stockpile

when demand and prices are low could help the

industry bridge these difficult periods without

having to close facilities. Bringing the stockpile

up to its goal of 1 million tons, however, would

require the purchase of almost 971,000 tons of

copper. This is equivalent to 90 percent of 1986
U.S. primary refinery production, and 15 percent

of world production. Even if spread over several

years, such purchases could have far-reaching

and unintended effects on copper production unless world inventories were very high. It also

could cost as much as $2 billion, depending on

the price of copper.

How Competitive Is The Domestic

Copper Industry Today?

International competitiveness is the ability of

companies in one country to produce and sell

products in rivalry with those in other countries.

American industries and companies also compete

among themselves for markets and for resources

such as investment capital and quality employees. In its simplest sense, competitiveness is measured by comparing countries’ or firms’ costs of

production and thus profitability. Other measures

may consider market share and resource endowments (e.g., ore reserves, capital, or technology),

The copper industry has rebounded from the

hardships it endured in the early 1980s, but at

the cost of significant restructuring. Domestic

companies cut their production costs substantially and now are profitable. The average U.S.

net operating cost in 1986 was approximately 54

cents/lb, down from a 1981 level of between 80

and 90 cents/lb. Costs in other major producing

countries averaged around 45 cents/lb in 1986

(see figure 1-8). The average domestic producer

price in 1986 was 66.05 cents/lb, and the price

on the London Metal Exchange averaged 62.28

cents/ lb. 21

The industry achieved part of these cost reductions through capital investments and other

positive actions (e.g., revised mining plans; see

below) that greatly increased domestic productivity. The remainder came from the permanent

closure of high-cost facilities. Today, the U.S.

industry as a whole is smaller. There are fewer

firms producing copper at fewer operations with

fewer employees (see table 1-1 ),

zlThe domestic producer price is that set in direct producerconsumer contracts. The London Metal Exchange price is a spot

market commodity price.

15

This does not mean the United States is no

longer a major player in the world copper industry. We are still the world leader in smelter

and refinery production, and rank second in

mine production. Expansion throughout the

world industry has substantially altered our market share, however (table 1-1 ). The domestic

share of world mine/mill and refinery output declined 24 percent from 1981 to 1986; smelter

share dropped 31 percent. In contrast, U.S. consumption as a percent of world demand remained constant. As a result, U.S. net import reliance grew from 6 percent in 1981 to 27 percent

in 1986,

Losses in market share for industrialized countries are inevitable as other nations develop their

resources. However, they do mean less market

power. In the copper industry, nationalizations

of many operations compounded the market

trend (see table 1-2). Because they no longer own

and/or control output at those operations, American companies lost much of their ability to influence world production in response to changes

in price and demand.

Competitive advantages also can be gained

through other resources, including the size and

nature of ore deposits, labor, investment capital,

and technological capabilities. The United States

has 17 percent of the world’s undeveloped

copper resources— more than any other single

country except Chile (see figure 1 -3). I n particular, we have copper oxide deposits that will be

amenable to low-cost in situ leaching when the

technology becomes commercial. On the other

hand, our sulfide resources are relatively low

in grade because of the age of our mines. This

leads to higher production costs because of the

expense in handling more material to produce

an equivalent amount of copper. For porphyry

ore deposits (the most common), this difference

in grade eventually will average out worldwide

as other countries’ copper industries mature.

Less-developed countries’ (LDCs) main competitive advantage is in low wage rates. While the

domestic industry has the highest labor productivity among the world’s copper-producing

countries (see figure 1-9), labor costs are still a

much larger share of our production costs than

for most of our foreign competitors.
16

Count r y

Chile

Peru

Zaire

Zambia

Mexico

Australia

S Africa

USA

Canada

P h i I i p p i n es

Figure 1-8.-Average Net Operating Costs

for Major Copper Producing Countries

I

!

I

I

I

I

I

I

I

[ I I I I I I I i I I

80 70 60 50 40 30 20 10 0 400 8 0 0 1200 1600

Cost (cants/lb) Production ( 1000 metric tonnes)

NOTE This chart compares average net operating costs to mine production Net costs equal gross mining, milling, and smelt.

ing/refining chargers, includlng transportation, minus byproduct credits The average total cost IS compared to only

mine output because, while some countries (e g , Peru) have very little smelting/refining capacity, those charges are

attributed to the country i n which the ore is mined

SOURCE U S Bureau of Mines data

Developed countries, on the other hand, tend

to be advantaged in attracting investment capital for new mines and technological innovation.

The United States undermines this advantage

when it contributes to international loans (e.g.,

through the World Bank) to develop copper resources abroad at interest rates lower than those

that LDCs could obtain on the open market.

Financing and interest rates will become more

important to LDCs as their debt multiplies and

they find debt financing more difficuIt to obtain.

Technology affects competitiveness bot h

through the ability to research and develop innovations and to implement them given available

worker skills, While the United States has some

advantage over most of our foreign competitors

in both aspects, this is largely negated by the rapidity of technology transfer in the world copper industry.

What Contributed to the Domestic

Industry’s Current Competitive Position?

A wide range of events—both domestic and

international—shaped the current competitive

status of the U.S. copper industry. Market conditions in the U.S. copper industry began to

worsen in 1980, when a labor strike idled a large

portion of the industry. In 1981, anticipating

strong demand growth, most operations resumed

production at full capacity and output increased

30 percent. Instead, there was a global economic

recession and demand growth was much lower

than expected. oversupply conditions developed

quickly. U.S. refined copper inventories increased 54 percent in 1981. The domestic producer price dropped 17 percent–the largest decline since 1975 (see figure 1-1 O). In 1982,

domestic consumption declined 23 percent, inventories rose another 43 percent, and the price
17

Table 1-1 .—Changes in the U.S. Copper Industry: 1981.86

(1,000 metric tonnes)

1981 1986

Measure Tonnes Percent of total

Mine production:

United States . . . . . . . . . . . . . . . . . . 1,538 230/o

World a . . . . . . . . . . . . . . . . . . . . . . . . 6,489 100

Primary smelter production:

United States . . . . . . . . . . . . . . . . . . 1,317 21

World a . . . . . . . . . . . . . . . . . . . . . . . 6,059 100

Primary refinery production:

United States . . . . . . . . . . . . . . . . . . 1,227 19

Worlda . . . . . . . . . . . . . . . . . . . . . . . . 6,327 100

Refined consumption:

United States . . . . . . . . . . . . . . . . . . 2,030 27

World a . . . . . . . . . . . . . . . . . . . . . . . . 7,252 100

U.S. imports for consumption:

Ore and concentrateb . . . . . . . . . . . 39

Refined . . . . . . . . . . . . . . . . . . . . . . . 331 16C

Unmanufactured d. . . . . . . . . . . . . . . . . 438

U.S. exports:

Ore and concentrate . . . . . . . . . . . 151

Refined . . . . . . . . . . . . . . . . . . . . . . . 24

Unmanufactured . . . . . . . . . . . . . . . NA

U.S. net import reliance . . . . . . . 6

Producing copper mines . . . . . . . . . . 58

Total mine/mill employmentf . . . . . . . 30,600

Operating primary smelters . . . . . . . . 15

Smelter/refinery employmentf . . . . . . 14,000

Tonnes Percent of total

1,147 17%

6,629 100

908 13

6,828 100

1,073 16

6,348 100

2,122 27

7,672 100

4

502 24C

598

174

12

442

27

61

10,154

9

g

6,100

Percent change

–250/o

2

–31

12

–13

<1

5

6

–89

51

36

15

–50

350

5

–66

–40

–56

aMarket econonly countries

bCopper content

Cpercent of U.s refined cOnSufTIPtlOn

dlncludes Copper content of alloy scrap

eAs a percent of apparent ~onsumptlon; defined as Imports – exports + adjustments for Government and industry stock changes

flncludes office workers

gone Closed In January 1987

SOURCE OTA from Bureau of Mines and World Bureau of Metal Statistics data

Table 1.2.—Recent Government Acquisitions of Copper Capacity

1967 . . . . . . . . . . . . Gecamines, Zaire 1000/0 nationalization

1969 . . . . . . . . . . . . Codelco, Chile 51 % takeover of major mines

1969 ....., . . . . . . NCCM/RCM, Zambiaa 51 % takeover of Zambia capacity

1971 . . . . . . . . . . . . Codelco, Chile increase—51 0/0 to 1000/0

1974 . . . . . . . . . . . . Cerro de Pasco, Perub

1000/0 nationalization

1977 . . . . . . . . . . . . Cerro Verde, Peru Start-up, 1000/0 government

1979 ..., . . . . . . . .ZCCM, Zambiac Government holding increased to 60°/0

1980 . . . . . . . . . . . . La Caridad, Mexico Start-up, 440/0 government

afqcha”~a consolidated copper Mines, Ltd (f.JccM) and Roan Consolidated COPPer Mines, Ltd. (RCM)

bcerro de pasco renamed centrom’in

CNccM and Ffckl reorganized into ZCCM

SOURCE: Marian Radetskl, State Mineral Enterprises (Washington, DC: Resources for the Future, 1985).

fell to an annual average of 73 cents/lb—a level In 1982, domestic mine production declined

at which only five or six U.S. mines could oper- to its lowest level since the 1960s, and for the

ate at a profit. As a resuIt, the pace of mine shut- first time the United states was not the world’s

downs and worker layoffs, which had begun in leading copper producer. From March 1981 to

late 1981, accelerated. January 1983, 28 domestic mines closed or cut
18

Open pit mining currently accounts for around 75 percent of domestic copper production. While this is a cost-effective

extraction method, U.S. production costs are moderately high because domestic mines have to handle

larger quantities of material due to our low ore grades.
19

Figure 1-9.-Productivity in the U.S.

Copper Industry: 1973-1986

Employee hours per tonne of Cu

40

30

2 0 -

l o -

— Mine-mil l -- Smelter-refinery

I

I I

I o + 1 1 1 1 1 ! I T I I I 1 I

73 74 75 76 77 78 79 80 81 82 83 84 85 86

Year

SOURCE U S Bureau of Mines

Figure 1-1O.-Average Price Compared with

U.S. and Rest-of-World Refined Copper

Production and Consumption

Million metric tonnes Current U S dollars

8

6

4

2

0

1980 1981 1982 1983 198 4 1985 1986

London Metal Exchange Price

“P” = production, “C” = consumption

SOURCE OTA from WBMS data.

back production, and total U.S. mine capacity

utilization hovered around 65 percent. At the end

of 1982, about 42 percent of the total copper

work force had been laid off.

While U.S. production declined sharply, foreign production increased (see figure 1-1 O). In

1982, more than 60 percent of the copper-producing nations either increased or maintained

their levels of production. Mine production outside North America increased almost 8 percent

from 1981 to 1983. The intergovernmental Council of Copper Exporting Countries (CIPEC) continued to support its policy of maintaining production in spite of falling prices. The eight CIPEC

members—Australia, Chile, Indonesia, Papua

New Guinea, Peru, Yugoslavia, Zaire, and Zambia–accounted for 41 percent of world production in 1982, compared with 38 percent in 1981.

Chile, alone, increased production 15 percent in

1982 and thereby became the world’s leading

copper producer. These additional supplies exacerbated the downward pressure on the already

weak U.S. market prices. By December 1984, the

price had fallen to $0.55/lb, off 62 percent from

its high of $1 .43/lb in February 1980.

Several factors contributed to this market picture. First, the strong dollar made U.S. exports

less competitive and lowered the price of imported copper compared with its domestic counterpart. Second, the market share of foreign

government-owned or controlled capacity increased. Governments—when they set production levels—often are concerned more with social goals such as maintaining employment and

foreign exchange than with market conditions.

Third, international financing institutions (in

which the United States participates) assisted foreign capacity expansions. Finally, compliance

with environmental regulations meant higher domestic operating costs (see box 1-B).

Most domestic companies met the challenges

posed by these events head-on (see table 1-3).

They made capital investments in new mine, mill,

smelter, and refinery technology, and added solvent extraction-electrowinning (SX-EW) capacity

(which has low capital, labor, and operating

costs). They obtained direct cost reductions

through wage cuts in the 1986 labor negotiations

and rate cuts in power and transportation contracts. They cut back production at some facilities and closed high-cost operations. Finally, they

restructured assets and shed debt through sales/

purchases of copper or other types of business

ventures.

New technology that reduced costs through

increased operating efficiency and productivity

played a major role in helping the domestic industry regain its competitiveness. For example,

most operations have now installed automated

controls at all stages of copper production. While
20

Box l-B.—The Costs of Smelter Pollution Control

Domestic copper smelters must achieve 90 percent control of their sulfur oxide emissions. The gases

from the smelter, roaster, and converter are collected, cleaned, and routed to a plant that converts the

sulfur dioxide to sulfuric acid. This requires smelting and converting processes that result in relatively high

concentrations of sulfur dioxide in their gaseous emissions (at least 4 percent for the smelter furnace). The

sulfuric acid can be sold or used at nearby mines for leaching copper from ores or waste dumps. I n the

absence of leaching operations, however, it usually is a “red ink” item because the main markets are

nearer the Gulf Coast and the transportation cost is prohibitive.

Sulfur oxide emission controls resulted in the replacement of most reverberatory smelting furnaces

in the United States with flash, continuous, or electric furnaces, because the reverberatory furnace gas

has too low a sulfur oxide concentration for economical recovery. While this brought significant air quality improvements with related (but unquantifiable) health benefits, it also meant substantial capital expenditures for U.S. smelters, and increased operating costs due to the acid plant. Present levels of environmental control entail capital and operating costs of between 10 and 15 cents/lb of copper. ’ In addition

to the increased cost, the U.S. industry has lost substantial smelting capacity. Of the 16 smelters operating

in the United States in the late 1970s, 8 have closed permanently—most because the capital investment

to meet regulations was unwarranted given current and anticipated market conditions.

In contrast, copper smelters in Canada, Chile, Mexico, Zaire, and Zambia–most of our major smelting competitors—achieve only about 1 to 35 percent control, or enough to produce the sulfuric acid needed

at nearby leaching operations (see figure 1-1 1). Japanese smelters achieve 95 percent control as part of

government policy to provide sulfuric acid for the Japanese chemical industry. Information regarding the

costs of acid production in these countries is not available. However, it is clear that domestic air quality

regulation combined with the location of acid markets puts U.S. producers at a competitive disadvantage.

~Everest Consulting, Alr Pollution Requirements for Copper Smelters In the United States Compared to Chile, Peru, Mexico, Zatre, and Zambia, 1985.

the gains from such innovations will continue un- several years as world production grows more

til the next generation of technologies comes

along, the comparative advantages of such gains

are largely negated over time by technology transfer. Most operations also added low-cost SX-EW

capacity to reduce their average production costs.

What Are The Likely Prospects For

Future Competitiveness?

The domestic industry’s current production

costs are low enough to ensure profitability into

the early 1990s. Indeed, with the largely unforeseen rise in copper prices during 1987 (see

box l-C), copper companies are enjoying excellent profits. Though rapid price collapses followed similar price advances in 1973-74 and

1979-80, a rapid downturn is not expected during 1988-89 (barring another recession) because

inventories currently are low. But a gradual

downward price trend is projected over the next

rapidly than consumption. 22

World copper mine capacity is projected to

increase significantly between 1988 and 1992.

If all planned mine expansions and new projects

meet their anticipated production levels by the

early 1990s, they will add around 1 million tonnes

to annual output–15 percent of 1986 output.

Other mines will cut back production or close

entirely, however (e. g., the Tyrone mine in New

Mexico will exhaust its sulfide reserves in the early

1990s). Future output from Zambia and Zaire are

highly uncertain due to the need for significant

capital investment in their mines and processing

facilities, and because political unrest causes

transportation problems. The widespread occurrence of AIDS in these countries also makes it

more difficuIt for operations thereto attract ski I led

labor.

‘

zSimon Strauss, “Copper: Prices Surged Unexpectedly,” Engineering & Mining Journal, April 1988.
21

Aus t ral I a

Canada

ChiIe

Japan

Peru

P h I I IppInes

u s

Zaire

Zambia

Figure 1-11.-Sulfur Dioxide Control

I I I I I I i

I

1200 8 0 0 4 0 0 0 25 5 0 75 100

1000 tonnes smelter production % sulfur control

SOURCE: Duane Chapman, “The Economic Significance of Pollution Control and Worker Safety Cost for World Copper Trade, ”

Cornell Agricultural Economics Staff Paper, Cornell University, Ithaca, New York, 1987

Photo credit: Manley-Prim Photography, Tucson, AZ

An electrowinning plant. Solvent extraction-electrowinning is one of the technologies that helped U.S. copper companies

reduce their costs of production during the 1980s.
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23

Box I-C.—What Happened to the Price of Copper?1

Copper prices rose dramatically in the latter half of 1987–soaring to $1 .45/lb by year’s end–and hovered near $1.00/lb in early 1988. In light of the low prices ($0.60 to $0.64/lb) during 1983 to 1986 and

the modest increases (to around $0.70/lb) projected by analysts for 1987, this price boom was striking

(see table 1-4).2 It resulted from smaller consumer inventories, strong demand, moderate growth in production, and the weaker dollar, which in turn led to dwindling market inventories and increased market

speculation.

Consumer behavior. In the early to mid-1980s, copper consumers adopted a policy of maintaining

minimum inventories, largely in response to the general economic recession and the huge copper market

stocks (1 7 percent of consumption in 1983). As consumers reduced their existing inventories to the new

low levels, they masked the strength in copper demand and contributed to keeping the price low. In 1985-

86, when industrial activity was improving and copper consumption was rising, the drawdown of inventories resulted in a decline in copper deliveries. The minimum inventory approach was a low-cost, low-risk

policy as long as the price remained low and relatively stable, and stocks remained high. In 1987, when

prices rose and stocks shrank (to below 10 percent of a year’s deliveries), the potential costs and risks

of minimum inventories increased. Consumers began building up their inventories, and consumption probably grew at a slightly lower rate than deliveries.

Supply and demand. Copper consumption and deliveries rebounded from the 1982-83 recession in

1984. Production increased much more gradually, however, and copper stocks dropped 32 percent during 1984. Although consumption probably increased further in 1985 and 1986, deliveries decreased because of consumer inventory reductions. Production in these years was more in line with deliveries, so

producer and warehouse stocks were drawn down only about 12 percent in 1984 and 8 percent in 1986.

The stocks, however, still remained above 10 percent of deliveries.

In 1987, when deliveries regained their 1984 levels, production was slow to react. It quickly became

apparent that, contrary to widespread belief, significant capacity (idled during the early 1980s) was not

waiting in the wings for improved market conditions. In the first quarter, stocks dropped 21 percent—to

9 percent of 1986 deliveries–and the price began to rise. This led to anticipation of a tighter market, and

to increases in consumer inventories and speculative purchases. The trend continued in the second quarter, when stocks fell another 18 percent (to 7.6 percent of 1986 deliveries) and the price topped $0.72/lb.

Speculative buying picked up further, and warehouse levels actually rose slightly in the third quarter, while

the price hit nearly $0.85/lb. As the year waned, the discrepancy between the growth rates of supply and

demand became apparent. At the same time, inventories dropped below 7 percent of a year’s deliveries,

and near-panic buying ensued. During the fourth quarter of 1987, inventories plummeted 44 percent and

prices climbed to $1 .45/lb.

The value of the dollar. Copper typically is priced in U.S. dollars. From 1980 to 1985, the U.S. dollar

appreciated relative to other world currencies. When the dollar is high relative to the value of the currencies of consuming countries, they are able to purchase less copper for a given amount of money. This

can depress demand. The effect can be offset to some extent by the fact that profits are measured in the

local currency. Thus, for firms that export, the higher the dollar, the greater the local profits. After peaking

in early 1985, the dollar devalued against the currencies of other developed countries. While this reduced

foreign companies’ profits, it also made copper cheaper. The shift in exchange rates, plus continued growth

in worldwide industrial activity, stimulated demand.

{Unless otherwise noted, the information I n this box IS drawn from Simon Strauss, “Copper: Prices Surged Unexpectedly, ” Engineering & M/n/ng

)ourna/, April 1988.

‘Figures given are London Metal Exchange prices I n nominal $U .S. per pound.

Over the same period, world demand growth If another recession were combined with slugIS expected to slow to around 1 to 1.5 percent gish demand and production increases, the price

.

annually as the huge debt held by LDCs inhibits of copper woulddrop again—perhaps as- low

their economic growth and thus their copper as 40 to so cents/lb (the estimated marginal cost

consumption. of new large state-of-the-art operations opening
24

Table 1.4.–Copper Markets: 1983-87

Stocks aLME price Refined production Refined deliveries

Date (1,000 mt) (U.S. $/lb.) (1,000 mt) (1,000 mt)c

Dec. 31, 1983 . . . . . . . . . . . . . . . . . . . . 1,186.4 64,0 7,416.4 5,489.2

Dec. 31, 1984 . . . . . . . . . . . . . . . . . . . . 802.4 59.9 7,274.8 6,076.0

Dec.31, 1985 . . . . . . . . . . . . . . . . . . . . 701.6 64.0 7,390.9 5,687.8

Dec.31, 1986 . . . . . . . . . . . . . . . . . . . . 645.9 60.4 7,522.8 5,578.1

Mar.31, 1987 . . . . . . . . . . . . . . . . . . . . 514.5 68.2

June30, 1987 . . . . . . . . . . . . . . . . . . . . 423.9 72.5

Sep.30, 1987 . . . . . . . . . . . . . . . . . . . . 434.5 84,6

Dec.31, 1987 . . . . . . . . . . . . . . . . . . . . 243.3 145.4 NA 6,049.7

NA = not available.

aA~reported bytheAmerican Bureau of Metal Statistics forWestern world stocks at refinery warehouses andinthe LMEand COMEXwarehouseS. RePofiing refineries

account foran estimated 85 percent of production in market-economy countries.

bprimaw and secondary.

cDeliveries t. refineries as reported t. the American Bureau of Metal Statistics, Data cover only about 85 percent of the Western world copper industry.

SOURCE: World Bureau of Metal Statistics; U.S. Bureau of Mines; Simon Strauss, “Copper: Prices Surged Unexpectedly,” Engineering & Mining Journal, April 1988.

in the early 1990s). That price is below the current average domestic cost of production. Some

of our foreign competitors, however, can operate profitably at that price. Others are likely to

continue to produce regardless of demand in order to maintain employment or foreign exchange.

A price drop of this severity would produce

roughly the same conditions for the domestic

industry that existed during the early 1980s.

Higher cost U.S. operations would have the

same three choices: shut down, lose money, or

find ways to cut costs further. Even with the current high prices, many operations are still struggling to repay their debt from the last recession,

and could not afford to lose much money.

Moreover, because most companies already

have taken advantage of available technological cost-saving measures, they will have fewer

options without substantial R&D. Possible actions the government and/or the domestic producers might consider in order to prepare for and

bridge such market conditions are discussed in

the following sections.

WHAT CAN THE FEDERAL GOVERNMENT DO TO IMPROVE

THE PROSPECTS FOR COMPETITIVENESS?

Federal policies with potential impacts on the

competitiveness of the domestic copper industry include those related to taxation, trade and

foreign aid, defense, the environment, R&D,

and general industrial development. The current

effects of these policies on the copper industry

vary. Some, such as present modest Federal investments in R&D and industrial incentives for

education and training, are neutral or provide

small benefits.

others, such as environmental regulation,

have been very costly to the industry (although

beneficial to society as a whole), but their primary impacts (smelter closure, or the capital cost

of new smelters and acid plants) have run their

course. The industry has made the capital expenditures necessary to comply with current regPhoto credit: Jenifer Rob/son

Copper mining generates large volumes of waste. More

stringent disposal requirements (e.g., classifying mine

waste as hazardous) would entail capital outlays and

new mining practices that could lead to further

mine closures.
25

ulations. Barring any further changes in environmental control requirements (e.g., more stringent

air quality standards or classification of wastes as

hazardous) that would require additional capital outlays, the present burden of compliance is

in slightly higher operating costs compared with

countries without similar requirements. This disadvantage could even out over the long term if

pressure for environmental quality initiatives in

LDCs mounted. On the other hand, more stringent environmental regulations could break the

domestic industry.

Decisions under various trade initiatives generally have gone against the primary copper industry. As imports grew during the last decade,

U.S. producers twice requested and were denied

relief through tariffs, quotas, and orderly marketing agreements (bilateral agreements to restrict

imports into the United States) under the Trade

Act of 1974, Legislation introduced since 1984

would have required the Federal Government to

negotiate with foreign producers to reduce their

output during periods of low demand/price, and

would have classified foreign subsidization of production during oversupply situations as an unfair trade practice. These proposals either did not

pass Congress or were vetoed by President Reagan. The U.S.-Canada Free Trade Agreement

(which has yet to be ratified; see box l-D) essentially ignores Canadian Government subsidization of copper producers by relegating the issue

to a bilateral working group with a 7-year

deadline.

Tax policy, on the other hand, is generally

beneficial to the industry. For example, before

the Tax Reform Act of 1986, the Congressional

Budget Office estimated that the U.S. mining industry benefited more than any other sector from

preferences designed to reduce its taxes.23 The

two most important tax provisions targeted specifically at the mining industry are depletion allowances and expensing of exploration and development costs .24 Other pre-1986 tax benefits

applicable to all industries (but now rescinded)

~3u .s. Congres5, congressional Budget Office, Federal SuPPOff

of’ U.S. Business (Washington, DC: U ,S. Government Printing Office, January 1984),

ZqNote that depletlon allowances cover foreign production by U.S.

firms.

included the accelerated cost-recovery system

(ACRS), and the investment tax credit. These

measures primarily benefited capital intensive

activities, and their repeal will not unduIy affect

most of the industry’s planned modernizations

and low-capital cost SX-EW expansions.

In examining these policies to determine what

the Federal Government might do to help the

copper industry remain competitive, three possible policy goals are apparent. The first is to

refrain from interfering in the market; i.e., do

nothing. The second goal is to protect the industry from the effects of a significant downturn in prices. The third goal is to promote industry investments in technologies and products

that could lower costs and bolster market share

in the event of such a downturn.

Option Set 1: Do Nothing

When OTA began this study, several copper

industry executives expressed concern about the

possible side-effects of government assistance.

During their troubled times, they sought government intervention through trade measures to

stem the rising tide of copper imports, through

tax incentives to help finance plant modernizations, through relief from environmental regulations, even through direct government copper

purchases. Yet once their situation had turned

around, the domestic industry was almost

pleased that the government had refused aid.

They had been left to make it on their own and,

for the most part, had succeeded. This does not

mean, however, that they have stopped lobbying for a “level playing field” (e.g., in the U. S.-

Canada Free Trade Agreement).

This strategy would maintain the status quo in

all the policy areas listed above (i. e., it assumes

no major changes in policy with the incoming

administration). Except where current policies

advantage or disadvantage the domestic industry compared with foreign competitors, this option set is policy neutral. Thus, tax policy would

not reinstate investment incentives (even though

they were available for pre-tax reform expansions

and modernizations), trade relief would continue

to be denied regardless of market conditions,

environmental regulations would remain in place,

and R&D would continue to be modest.
26

Box l-D.—The U.S.-Canada Free Trade Agreement

The United States and Canada signed an accord in January 1988 that seeks to liberalize trade and

investment between the two countries. This bilateral agreement would eliminate all tariffs on goods trade

by 1998, reduce nontariff trade barriers, establish rules for bilateral investment, and create a dispute settlement mechanism.1 To be enacted, the U.S.-Canada Free Trade Agreement (FTA) must yet be approved

by the U.S. Congress and the Canadian Parliament.2

The FTA is opposed by several major copper producers, represented by the Non-Ferrous Metals Producers Committee (NFMPC),3 because it phases out the tariff on imports of Canadian copper and it fails

to prohibit some Canadian subsidization practices. These producers are concerned that Canadian copper

mines and smelters are being modernized with below-market-rate capital made available through various

national and provincial government assistance programs. They cite as an example the allotment of C$84

million of government funds, from an acid rain program, for modernization and pollution control at

Noranda’s copper smelter at Rouyn, Quebec. There also have been suggestions that subsidies may be

made available to reopen Noranda’s Gaspe copper mine in Murdockville, Quebec (closed in April 1987

because of a fire), and to the Hudson Bay Mining and Smelting Co. copper smelter at Flin Flon, Manitoba.

Even with such subsidies, Canadian smelters only recover an average of 25 percent of their S02

, compared with 90 percent recovery in the United States (see figure 1-11).

The accord does not actually sanction the subsidization programs, but leaves their legality up to a

bilateral working group established to iron out the differences between U.S. and Canadian unfair trade

law. Until the group finishes its work (up to 7 years), both countries would apply their own antidumping

and countervailing duty laws to any disputes that may arise. For cases under these laws that are investigated in the interim, the FTA only comes into play after the U.S. International Trade Commission and

Commerce Department (or their Canadian counterparts) have made their final determinations. independent binational panels (instead of the national courts, as is now the case) would review contested determinations for their consistency with the laws of the country that made the ruling.4

I The accord also deals with services trade, business travel, energy and national security concerns, and some outstanding trade Issues.

‘The FTA was approved by the U.S. House of Representatives In August 1988.

JThe NFMPC is a trade association whose members are Asarco, Phelps Dodge, and the Doe Run Co. (a lead producer based in St. Lou Is, MO).

Their position on the FTA is outlined in the statement by Roberl J. Muth, President, before the Mining and Natural Resources Subcommittee of the

Interior and Insular Affairs Committee of the U.S. House of Representatives, Mar. 10, 1988. In addition to subsidies, the NFMPC IS against the FTA

because it weakens judicial review in unfair trade cases.

qln the United States, an unfair trade case can be concluded once the ITC and the Commerce Department have made their findings. Quite often,

however, the determinations of these agencies are challenged before the U.S. Court of International Trade.

Without major market changes in the interim, would mean at least temporary cutbacks in the

a severe price slump likely would have the same

results as in the early to mid-1980s. The highest

cost producers would shut down, and others

would cut back their conventional mine output

and rely more on leaching and SX-EW production. Operations that have paid off their debt and

accrued capital during the current high prices

might buy facilities from firms that cannot survive periods of red ink.

Technological innovation alone probably is insufficient to change this picture. Even if advanced technologies were to bring further significant cost reductions to the domestic industry,

rapid technology transfer and the insensitivity of

many foreign producers to drops in price/demand

domestic industry. It will -likely take a combination of technological innovation and a more stable and secure market share.

Option Set 2: Protect the Industry

From World Market Changes

This group of options incorporates many initiatives promoted by the copper industry in the

past, including protectionist measures, direct subsidization, and product support. Protectionist

measures under tax and trade policies might encompass:

● tax breaks for copper consumers related to

the difference in cost between foreign and
27

●

●

●

domestic copper to encourage them to “Buy

American”;

trade relief through tariffs, quotas, and orderly marketing agreements, etc. for copper

imports from foreign government-subsidized

capacity that contributes to oversupplies in

world copper markets;

pollution import tariffs for blister and refined

products based on foreign producers’ degree

of air quality control; and

requiring U.S. representatives to the lnternational -Monetar”y Fund to ask for a ban on

loans or other financial aid to countries that

subsidize excess capacity or do not adjust

production in response to market changes,

or at least to vote against such loans.

Direct government subsidization could be introduced under defense or mineral policy. Congress could invoke the Defense Production Act

(DPA) to support modernization of domestic copper capacity as part of preparedness policy (e.g.,

Title Ill loan guarantees to expedite production

in the event of a national emergency). This option would be supported both by the fact that

copper is a strategic commodity and by the long

Ieadtime (typically 6 months to 3 years) needed

to reopen shutdown mines or bring new mines

on line. Military consumption of copper for ordnance alone quadrupled between 1965 and

1966, requiring the release of 550,000 tons from

the National Defense Stockpile. DPA loans were

then offered in 1967 to 1969 to stimulate domestic copper production.

A comprehensive minerals industry policy that

would maintain a specified level of productive

capacity at a cost commensurate with the value

of the minerals to national security and the economy could be established under the Mining and

Mineral Policy Act of 1970.

Direct product support might include domestic

content requirements for imported products containing significant amounts of copper (e.g., automobiles); mandated use of domestic copper by

government contractors (for instance, in Federal

construction projects or defense contractor products); purchases of domestic copper to meet the

National Defense Stockpile goal of 1 million short

tons; and increased domestic copper content in

coinage.

This set of options, singly or in combination,

would help the domestic copper industry maintain its competitive position in the face of adverse market conditions. However, when the

underlying objective is to promote competitiveness by aiding industry adjustment to changing

markets, protectionist policies tend to be counterproductive. They mask the market signals and

eliminate an industry’s need to adjust.25 They

also may be costly to other sectors of the domestic economy (e.g., brass and wire mills and

other copper consumers).

Moreover, protectionist policies distort markets

in ways that usually require increasing protection.

For instance, Orderly Marketing Agreements (bilateral agreements to restrict imports into the

United States) typically are used to give American firms time to adjust to new market situations.

However, restricting imports from one country

can stimulate increased production elsewhere.

Also, limiting the volume of imports encourages

foreign producers to move into higher value

goods, or to alter the composition of the goods

they produce to escape the quantitative limits on

certain imports. Thus, such import restrictions

simultaneously insulate American producers from

incentives to adjust to foreign competition and

provide powerful inducements to our competitors to adopt strategies that make them even more

competitive. 26

Protectionist policies, therefore, should be contemplated only when linked to an explicit and

monitored plan for adjustment with a timetable.

Alternatively, it may be more economically efficient to provide direct subsidies or exceptional

tax arrangements to maintain domestic production during the market adjustment period.

Option Set 3: Promote Investments

in Competitiveness

The alternative to protectionist policies are

those that actively promote domestic competitiveness. Rather than insulating an industry from

the impacts of market situations after they arise,

ZsJoh n Zysman and Laura Tyson (eds. ) American /ndusfrY in /international Competition: Government Pol/c/es and Corporate Strategies (Ithaca, NY: Cornell University Press, 1983).

26] bid ,
28

Photo credit: Manley-Prim Photography, Tucson, AZ

Conveyor systems coupled with in-pit ore crushers are particularly advantageous for U.S. mines

because of our high truck haulage costs.

such policies aim to anticipate market changes

and promote government and private investments

that will foster future competitiveness. Policymakers thus need an understanding of the target

industry’s operations and the factors that contribute to its competitiveness (or lack thereof).

Because technology transfer is almost instantaneous in the copper industry, the first place

to search for a technological advantage is in resources or aspects of production that are common in the United States but rare elsewhere. For

example, North America has copper oxide ore

bodies that are particularly suitable for leaching

and solvent extraction -electrowinning. The

lowest cost copper ( <30 cents/lb) currently is

produced using this technology in combination

with mine waste dumps containing very lowgrade resources, but for which the mining cost

has already been incurred (see box l-E). However, research is underway on methods to leach

ore in place (i. e., without ever having to mine

it). When developed and proven in the field, in

situ solution mining could provide a significant

cost advantage for the U.S. industry. Labor-saving

innovations also would benefit the domestic industry because our labor costs are so high. While

these innovations could be copied elsewhere, the

relative advantage would not be so great.

The U.S. industry also is at a disadvantage in

materials handling: mines have to haul more ore
29

.

because of our lower ore grades, The combined

energy, labor, and other costs make our transportation charges very high. Some mines are

replacing trucks with conveyor systems coupled

with in-pit ore crushing machines. While this

technology is likely to be applied wherever in the

world electricity is cheaper than diesel fuel, it

benefits U.S. mines because of our high truck

haulage costs. A more radical technological costsaver might use artificial intelligence to develop

some form of “driverless truck. ”

Policies that would promote development of

these technologies include government investment in R&D and in education and training. Because most companies already have taken advantage of available technological innovations,

radical rather than incremental research is

needed.

There is no comprehensive Federal policy

toward research and development (whether for

minerals or industry as a whole) .2’ Congress might

authorize R&D as part of legislation in specific

policy areas (e.g., as in the Mining and Mineral

Policy Act of 1970), although actual appropriations may fall short of the authorization. R&D

funding for minerals and materials also may be

provided as part of an agency’s general program

responsibilities. The Bureau of Mines and Geological Survey (USGS) –both within the U.S. Department of the Interior–sponsor (and often carry

out) most of the Federal R&D on copper production and related technologies.

The Bureau of Mines total R&D budget for FY

89 is expected to decrease by $10 million to $86

million. The proposed decrease was in applied

research, which the Reagan Administration believes is the responsibility of private industry. Only

about one-third of their present mining research

budget goes to mining technology (figure 1-1 2a);

of that, less than half could aid the competitiveness of the minerals industry (figure 1 -12b). The

Geological Survey’s total R&D budget for FY 89

is projected to be $224 million, a decrease of$12

~“,+!lthough the Unlte(j States spends more on R&i3 than any other

Lou nt ry, It c (~ntl n ues to lag beh I nd some of lts com petltors I n the

~ha re ot gro~s nat I o na I [)rcxi uct de~, oteci to c IV I I la n R&D. J a pa n

$~x’nd \ nea rl} 3 percent ot Its G N P on R&D; the U, S, share I \ on [y

\lightly ab[jl e 2 5 [)c’rc ent. \ee “R&D Scoreboard, ” Bu\/nes\ Week,

June .?2, 1987

million from FY 88, About 75 percent of the USGS

research budget is for geological and mineral resource surveys and mapping, 28

Federal R&D support also could be introduced

through tax incentives. Firms, however, could interpret a general R&D tax deduction or credit

broadly to the detriment of Federal revenues. A

provision targeted toward investments in commercial-scale (or nearly so) demonstration projects—the most expensive aspect of R&D—for

promising technological innovations could be

very effective,

Some Federal (and private) R&D money goes

to support research programs at universities, including the State mineral institutes and the Bureau of Mines mineral technology centers. The

mineral institutes originally were administered by

the Office of Surface Mining under the Surface

Mining Control and Reclamation Act; responsibility subsequently was transferred to the Bureau

of Mines. Almost every budget request since 1982

has proposed to abolish the institutes. Congress

also has enacted special initiatives to provide seed

money for research centers. One example is the

new Center for Advanced Studies in Copper Research and Utilization at the University of Arizona,

whose mandate focuses primarily on copper

product applications (e.g., ceramic superconductors), but also includes process technologies (e.g.,

in situ solution mining).

Research funding for universities not only provides a valuable source of technological innovation for the minerals industry, but also supports

education and training for the next generation

of industry employees. While enrollment in mining and other engineering disciplines historically

has been cyclical (and currently is low due to the

poor economic performance of the minerals industry during the early 1980s),29 evidence of Federal support for truly innovative R&D couId at-

——zB(~fi”lce of Management and B ud~et, f3ud~Jet ot fhc L,(n/fed St.]te\

Government, FIsca/ Year 7989 (Washington, DC LI. S. Government

Prlntlng Office, 1988J.

~oln 1978, 3,117 undergraduate students were enrolled In 26 mlninR engl neerl ng programf I n the U nlted States, By 1987, the number ot prograrn~ had dropped to 19, with additional closings and

merger~ expected, AS a resu It, sl~n Ificant shortages of mining engi -

neer~ are [)redicted at least through 1992. Eileen Ashworth, “Where

Have All the Graduate\ Gone, ’r LANDMARC, January/Februar y

1988,
30

Figure l-12.-Trends in U.S.

MiIIion dollars Mining Research

8 0 -

6 0 -

4 0 -

20

0

1970

8

6

4

2

0

1975

Year

of

1980

MilIion dollars Mining Technology

1985

Metal and

non metal

Coal ControlIing

mine wastes

Conservation of

land resources

SOURCE: U S. Department of the Interior, Bureau of Mines, Technica/ Highlights: &fin/ng Research 1987 (Washington, DC:

U S. Government Prlntlng Office, 1988)
31

tract high-quality students. Policies supportive of

continuing education and training also would address high domestic labor costs by improving

prod activity. JO

The high cost of compliance with environmental regulations—especially air quality control requirements—also adversely affects domestic competitiveness. Marketing the sulfuric

acid byproduct of air pollution control is a major cost of compliance. Unless copper companies can use the acid at a nearby leaching operation, they lose money on it because the primary

markets for sulfuric acid are on the Gulf Coast

and transporting the acid there is not cost-effective. This has been less of a problem in the last

several years because of the growth in leach production in the Southwest. If a sulfuric acid market imbalance were to reappear, the Federal Government might counteract it through options that

couId facilitate cheaper transportation to the Gulf

Coast (e.g., amending the anti-trust laws to allow

joint marketing or transportation agreements).

This might create a sulfuric acid surplus in the

Southeast, however. Promoting industrial development of sulfuric acid users near the smelters

is another possibility, but could be limited by

water availability.

Research into more cost-effective means of

pollution control also could help, but promoting control abroad would be more equitable. A

positive approach to accomplishing this is

through International Monetary Fund loan incentives for environmental controls (e.g., variable interest rates based on the degree of control). More

protectionist-oriented strategies would include

jOAn additional means of “leveling the playing field” for labor

costs is to actively promote industrial development, and thus higher

wages, in LDCs.

WHAT CAN

refusing to support international loans for projects

that fail to achieve a certain level of control. As

noted in box 1-D, the industry also is concerned

about government subsidies for pollution control

at Canadian smelters.

The strong dollar during the early to mid-1980s

also adversely affected the domestic copper industry by favoring imports. This argues for Federal macroeconomic policies that support low interest rates and a devalued dollar, and thus

promote exports.

Finally, domestic producers are sensitive to

market signals, whiIe many of their competitors

ignore those signals in order to continue promoting social goals such as employment and foreign

exchange. One alternative to the protectionist responses discussed previously is continued active

support for the Copper Producer/Consumer Forum, and for international trading codes under

the General Agreement on Tariffs and Trade

(GATT) working group on trade problems affecting nonferrous metals. Both of these provide forums for voicing concerns to the LDCs about the

market effects of their production strategies during recessionary conditions. 31

Also included in this set of options are policies that actively promote the U.S. copper industry and its products, whether through research on new products, through advertising,

or through direct purchasing support (e.g., use

of domestic materials in Federal buildings, and

coinage). While these might have a small impact

on competitiveness, they can be important symbolically.

JIThe United States aJso might consider joining the intergovernmental Council of Copper Exporting Countries (C IPEC), and use

it as an educational forum. Participation in such consortia historically has been antithetical to U.S. political philosophy, however.

THE COPPER INDUSTRY DO TO MAINTAIN OR

IMPROVE ITS COMPETITIVENESS?

Although they continue to seek government dustry made significant capital investments in

support to ensure future competitiveness, domes- new technology and took other actions to imtic copper companies are well aware that such prove their own position. As noted previously,

support is not always (or even often) forthcom- however, the next time the price drops it is likely

ing. Thus, during the recent downswing, the in- to go lower and may stay lower longer. To be
32

competitive under those conditions, domestic

producers will need cost-saving technological

innovations beyond those now being demonstrated (e.g., in situ solution mining) or a captured market. This will require investments in

R&D now, as well as new ways of thinking about

their product.

R&D spending in the copper industry is low,

averaging less than 1 percent of sales in 1986.

This compares with an average for the whole metals and mining industry of almost 2 percent of

sales, and a national industrial average of 3.5 percent of sales.32 The copper industry considers

mineral exploration to be their research; they rely

on equipment vendors for process technology

R&D and consumers for product research. The

Industrial and Mining Machinery sector also lags

behind the national average in R&D expenditures, however. Furthermore, the U.S. mining

machinery industry consistently lost market share

to foreign competitors throughout the early and

mid-1980s, and now is operating with substantial excess capacity .33 If this trend continues, their

R&D expenditures can be expected to decline.

At the same time, the growth of foreign equipment suppliers will mean that more R&D is likely

to focus on foreign mining and processing

problems.

One option for increasing the level of R&D

on process technology is for the industry to actively pursue cooperative research ventures involving producers, vendors, universities, and

government agencies. Anti-trust and patent concerns about such ventures were addressed in the

National Cooperative Research Act of 1984 (Public Law 98-462). In 1987, a group of universities

took the lead in forming the Mining and Excavation Research Institute (MERI) under the umbrella

of the American Society of Mechanical Engineers.

MERI’s goal is to unite universities, industry, and

government to provide coordination and leadership in long-range research. Industry members

contribute $5,000 annual dues and participate

through the Industry Advisory Panel. Government funding is still being sought. In 1988 the

American Mining Congress appointed a steering

32’’ R&D Scoreboard, ” Business Week, June 22, 1987.

JJITA, supra note 16 .

committee to plan cooperative research .34 A

perennial concern in cooperative research is the

continuity of funding from all parties once a

project is underway.

The domestic copper industry still faces competition for markets, both from imports and

from other metals and materials (e.g., aluminum). Two basic options are available to offset

further market losses—expand sales in current

markets or develop new products and uses for

copper and market them aggressively.

The companies argue that marketing would be

futile because they already are selling all the copper they produce. In the same breath, they complain about idle capacity. Simultaneously developing new markets and capturing a larger share

of them could address both problems.

One key to expanding sales is marketing based

on product differentiation. Superior quality—

including customer service—may command

higher prices in the marketplace, making production costs less significant. Although, copper

traditionally has been considered a fungible commodity of uniform quality, different producers experience different rates of customer returns for

breakage and other quality-related factors. Product differentiation based on quality is likely to become more important as specialty copper alloys

and high-technology applications such as superconducting materials occupy an increasing share

of the end-use market.

Similarly, copper has properties that make it

superior to the materials that often are substituted for it. Copper industry associations have

publicized copper’s advantages in response to

specific market threats (e.g., aluminum wiring in

houses), but neither individual companies nor

the associations routinely advertise copper in order to reverse or prevent such substitutions. In

contrast, one of copper’s major competitors—

the aluminum industry–regularly advertises both

JACarl R. Peterson, “Tremendous Opportunities Exist for Major

Technology Advances, ” AMCjourna/, June 1988. Possible institutional frameworks for cooperative minerals industry R&D are discussed in U.S. Congress, Office of Technology Assessment, Western Surface Mine Permitting and Reclamation (Washington, DC:

U.S. Government Printing Office, OTA-E-279), June 1986; see also

Jenifer Robison, “Bridging the Research Gap,” speech presented

to the American Mining Congress Coal Convention, May 1986.
33

its product and its innovative research programs

in the trade press.

Product research also could forestall substitutions and expand markets. Associations representing the primary copper industry publicize

promising new applications, but do little direct

research. Yet other metals in decline have found

cooperative R&D with major consumers on new

products very promising. The steel industry, for

example, started a cooperative research program

tion of materials in, and foreign capture of markets for, steel parts in cars.

Finally, a “Buy American” campaign backed

up with ads about the problems faced by the domestic copper industry couId be very effective—

especially if aimed toward the effects of imports

on domestic capacity and employment. Foreign

products and components not only threaten

present domestic employment and market share,

but also advance foreign manufacturing experwith U.S. auto makers to deal with the substitu- tise and thus future foreign market share.

Box l-E. —Technological Innovation and R&D Needs

The last boom in technological innovation for copper production occurred in the first two decades

of this century, when open pit mining, flotation concentration, and the reverberatory smelter were adapted

to porphyry copper ores. Instead of great leaps forward, technological innovations of the last 65 years

have largely consisted of adaptations of other types of technology to mining (e.g., computers, conveyor

systems), plus incremental changes that allowed companies to exploit lower grade ores and continually

reduce the costs of production. Economies of scale have been realized i n all phases of copper production.

Both machine and human productivity have increased dramatically.

Most copper producers have taken advantage of available technological advances. They have modernized their mining and milling equipment, installed new smelter furnaces, and updated their refineries

(see table 1-3). Most operations also are now computerized, from truck dispatching, to underground remote control systems, to online monitoring and automatic controls in milling, smelting, and refining. The

resulting cost savings are substantial. For instance, Asarco reduced its production cost at the Mission Mine

28 percent between 1981 and 1984, largely by modernizing the truck fleet and flotation cells and adding

computerized systems.

The major recent innovation that contributed to the domestic industry’s revival, however, is leaching/SXEW. Phelps Dodge (PO) reduced its overall production cost at the Tyrone Mine as much as 11 cents/lb

between 1980 and 1985 by adding leaching/SX-EW.1 The process was so successful that PD expanded

the Tyrone electrowinning plant, increasing its output to about 32,000 tonnes in 1986. Expansion to a

total capacity of 50,000 tonnes/yr is scheduled for 1988 -89.2 To further benefit from this strategy, PD is

adding two other SX-EW plants at Morenci and Chino. Other companies have made simiIar SX-EW capacity additions.

Some additional production cost savings may be achieved through innovations now undergoing sitespecific demonstration and engineering. These include in-pit crushing and conveying, column flotation

cells, and autogenous grinding. Still, major economic growth in the industry will require radical, rather

than incremental, technological change. It also will require new technologies that compensate for inherent domestic disadvantages (e.g., low ore grades, high labor costs).3 Possibilities are an underground continuous mining machine, in situ solution mining of virgin ore bodies (including sulfide and complex ores),

alternative grinding methods, and a truly continuous smelting process.

I United Nat Ions I ndustrlal Development Organ Izatlon (UN I DO), Techrrologlcal Ahernahves for Copper, Lead, Zinc and T/n In De~ eloping Countnes,

report prepared for the First Consultation on the Non-ferrous Metals 1 ndustry, Budapest, Hungary, )UIY 1987.

~“phelps Dodge Has Something to Smile About, ” Eng/neer/ng and Min[ng journal, Aug. 1987.

‘George S. Ansel!, “Blendlng New Technology Into an Established Industry, ” paper presented at the American Mining Congress Mlntng Con\en

tlon, San Francisco, CA, Sept. 1985.
Industry

Part Two

and Market Structure
CONTENTS

Page

The

The

The

World Copper Market. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Status of the U.S. Copper industry: 1980-86 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Struggle for Competitiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

to profitability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2-1. Mine Production in Major Copper-Producing Countries 1981-83

39

40

41

42

Page

. . . . . . . . 39
Chapter 2

The Current Status of

the World Copper Industry
Chapter 2

The Current Status of

the World Copper Industry

THE WORLD COPPER MARKET

In 1981, the world copper industry appeared

to be thriving. Production levels were strong and

employment was high. The scarcity mentality of

the 1970s had left many believing that copper,

as a natural resource, would always be in short

supply; that development in Third World countries would continue to drive demand growth;

and that the market imbalance wouId keep prices

strong. Projections of continuing demand growth,

combined with high prices, led the world copper industry to focus more on increasing capacity and less on reducing production costs.

Instead of the anticipated growth and prosperity, the world copper industry received a severe

jolt. The recession of 1982-83 stunted economic

growth and development in most parts of the

world. World demand for copper declined more

than 6 percent during 1982. Copper consumption dropped in the United States—the primary

market for domestic producers—even more

sharply, falling 18 percent in 1982.

While demand waned, world copper production capacity continued to grow due to the ambitious expansion plans formulated during the

late 1970s. The Ieadtime for a new or expanded

copper operation is often several years or longer.

When the mines initiated in the late 197os finally

came on line, they entered a market already

plagued by mounting inventories. Subsequently,

prices plummeted–falling over 50 percent from

1980 to 1984.

Despite high inventories and low prices, more

than half of the copper-producing nations either

increased or maintained production in 1982-83.

Mine production outside North America increased almost 8 percent from 1981 to 1983.

These were the countries with low production

costs, or those whose output is more sensitive to

social goals (such as maintaining employment or

foreign exchange) than to profits. The Intergovernmental Council of Copper Exporting Countries (CIPEC) continued to support its policy of

maintaining production in spite of falling prices.

The eight CIPEC members–Australia, Chile, lndonesia, Papua New Guinea, Peru, Yugoslavia,

Zaire, and Zambia–accounted for 41 percent of

world production in 1982, compared to 38 percent in 1981 (see fig. 2-1 ).’ Chile alone increased

its output 15 percent in 1982, becoming the

world leader in copper mine production. In more

profit-conscious countries–especially the United

States and Canada–production dropped precipitously. In the United States, mine production decreased 26 percent in 1982; more than 28 mines

closed, either temporarily or permanently, between March 1981 and January 1983.

1 Mi ne capacity i n Peru Increased ok’er th IS period, but actua I IJroductton decllned due to labor and other operational problems. By

1984, production had increased 3 percent oi er 1981; by 1985 It

was 14 percent higher relatiie to 1981,

Figure 2-1 .—Mine Production in Major

Copper-Producing Countries, 1981-83

Australia

Canada

ChiIe

I ndonesia

PNG

Peru

u s

Yugoslavia

Zaire

Zambia I 1 1 , [ I [ 4

0

SOURCE U S Bureau of Mines data ,

39
40

STATUS OF THE U.S. COPPER INDUSTRY: 1980-86

Due to the continued oversupply, the world

copper market remained depressed for several

years after signs of recovery had appeared in

other economic sectors. These conditions hit the

domestic copper industry especially hard. In

1981, U.S. copper mine production had exceeded 1.5 million tonnes, 2 but over the next 2

years domestic output fell nearly one-third to just

over 1 million tonnes, and remained below 1.2

million tonnes through 1987. Output from domestic copper smelters and refineries also declined after 1980, in part in response to market

conditions, but also due to the closure of older

smelters that would be too expensive to upgrade

to comply with air quality regulations. U.S. primary and secondary copper smelter production

fell from a strong 1981 level of nearly 1.4 million

tonnes to about 1 million tonnes in 1983, and

then increased to 1.2 million tonnes by 1986.3

While the United States remained the world’s

leading supplier of refined copper, domestic production in 1986 (1,6 million tonnes) was more

than 20 percent lower than the peak level of

1981.

The domestic employment impacts of the

changing market structure have been severe. In

1979, the U.S. copper industry employed over

44,000 people in mines, mills, smelters, and

refineries, and over 46,000 at fabricators. By the

end of 1983, direct employment in the domestic industry that mines and processes copper had

fallen by 41 percent. The impact on regional

economies extends beyond the jobs lost in the

mining and minerals processing industry. I n Arizona, for example, the Bureau of Mines estimates

that for each 10 jobs in the primary metals industry, an additional 14 jobs are created in the

businesses that supply goods and services to the

industry and their employees (e. g., equipment

suppliers and retail establishments).4

2,411 fIgu res I n this report are in metric tonnes u n less ~t~teci otherw Iw. One metric tonne= 0.907 short tons= 2,204 pounds.

I Prl ma ry smelters process new copper, most Iy I n the form of con-

( entrate5. Secondary smelters process copper ~crap

‘The tigu res gI\ en Include m I n ing, smelt! ng, and retl ni ng ot al I

primary metclls, Includlng copper, gold, silver, molybdenum, and

lead, I towe\ er, bec auw the copper mlnlng and ~)roce~slng lndu~-

try re~)rewnted 74 percent of the total value ot Arizona rnlnerals

prdu( tlon In 1986, the ilm~)act< are c onsldered reprewntatlieot

c oppfsr.

U.S. copper producers’ struggle to survive in

a more competitive market has brought about

an emphasis on more efficient, less labor-intensive technologies. While improved productivity

has been an important step in maintaining a viable domestic copper industry, many jobs have

been eliminated as a result. For example, in 1980

the Bingham Canyon mine in Utah employed

7,000 workers to produce around 182,000 tonnes

of copper. These operations made Kennecott,

now BP Minerals America, Utah’s largest private

employers Bingham closed in 1985 due to market conditions and pending management decisions about modernization. Employment fell to

240 maintenance and security personnel. Subsequently, around $400 million was invested in

modernization of the mine, mill, and ancillary facilities. When Bingham Canyon reopened in

1987, employment, including construction workers for modernization efforts, was only 2,371. Full

production of 200,000 tonnes is expected in mid1988 with 1,800 employees. This represents a 75

percent reduction in labor requirements as a resuIt of the more efficient operations.

The increased competition for markets has focused attention on copper supply levels and production costs. The domestic copper industry has

several cost-related disadvantages to overcome

in order to be competitive in the world market

(see ch. 9). These include low ore grades, high

labor costs, and stringent environmental and

health and safety regulations. The first two have

affected domestic production costs throughout

the history of the industry, but have become

more important over the last 10 years as a larger

share of world copper capacity shifted to less developed countries.

The nature of U.S. resources places the domestic industry at an immediate disadvantage.

The average ore grade of domestic copper reserves is about 0.62 percent copper—more than

30 percent lower than the world average. This

means that U.S. operations must mine and mill

about 30 percent more ore than the average com-

‘Personal communication to OTA from Frank Fisher of BP

MIneral< America.
41

petitor in order to recover the same amount of

copper (see ch. 5).

While highly productive, U.S. workers are paid

wages four or five times higher than those at most

foreign operations. Despite our higher productivity, the net result of the lower ore grades and

higher wages is that labor costs per pound of

copper in the United States are well above the

world average.

THE STRUGGLE FOR

For the most part, the domestic industry met

the challenge to compete in the world copper

marketplace head-on. They developed and implemented ambitious strategies aimed at cost reductions at all stages of copper production. In

general, the overaIl strategies formulated by most

domestic producers contained the same major

components: 1 ) reduced labor and other costs;

2) capital investment in more efficient equipment

and technologies, particularly expansion of leaching and SX-EW facilities; 3) revised mining strategies; and 4) corporate and debt restructuring

(see ch. 10).

The cost of labor to the U.S. copper mining industry has dropped considerably in the last few

years as a result of wage and benefit concessions

and productivity gains. Workers accepted 20 to

30 percent reductions in the 1986 contract negotiations. I n return, they receive incentives for

productivity increases. Bonuses tied to increases

in copper prices also assure labor of a share of

the profits when market conditions are good. 6

Other efforts to reduce labor and administration

costs have included redefining jobs at all levels

to reduce overhead and increase staff flexibility;

eliminating several corporate levels to reduce personnel requirements and improve communications; and relocating executive and administrative offices closer to company operations to cut

office expenses and travel. Non-labor costs such

fIAS a resu It of the sudden rise I n copper prices I n 1987, ~, 1 ~~

ot the 9,500 copper workers I n Arizona receii ed bon uses tota II ng

more than $10,4 rnllllon In Janu.~ry 1988,

Another important cost component for domestic producers is compliance with environmental and health and safety regulations. A

1985 industry estimate of the cost to U.S. copper producers for compliance with these regulations was around 10 to 15 cents/lb. While there

is some evidence of growing consciousness in developing countries of the environmental impacts

of mining and smelting, the degree of pollution

control in these areas is much lower (see ch. 8).

COMPETITIVENESS

as transportation and energy charges also have

been reduced through the renegotiation of contracts.

The expanded use of solution mining, or leaching, methods in the domestic copper industry also

has played a crucial role in the industry’s renewed competitiveness. Solution mining offers

a means by which the vast amount of low-grade

ore in mine waste dumps can be processed economically (see ch. 6). The costs of mining the

waste ore have already been taken from the

books. As a result, producing copper using leaching, followed by solvent extraction and electrowinning, costs only about 30 cents/lb.

In-pit conveyors and automated truck dispatching systems also have improved productivity and

decreased costs. Mill efficiency has been improved through computerized onstream analysis and flow control. Other technological milling

improvements include new materials for ball mill

linings, larger tumbling mills and flotation cells,

using chunks of ore rather than steel balls in

tumbling mills, and column cells. The Asarco Mission Mine complex reduced their cash cost of

producing 1 pound of copper in concentrates

about 28 percent between 1981 and 1984—

largely by modernizing their truck fleet and flotation cells. Smelter and refinery efficiencies have

been improved primarily through automated controls and computer monitoring, and reduced

energy consumption.

Closure of many high-cost operations was necessary to achieve the lower average cost of domestic production, In addition, many companies
42

revised their mining plans by raising the ore cut- proved productivity and further reduced costs.

off grade, lowering the waste-ore stripping ratio, At some mines, however, these improvements

steepening pit slopes, or closing low-grade sec- may reduce long-term capacity.

tions of underground mines. These changes im -

1987–THE RETURN TO PROFITABILITY

When copper prices soared to over $1/lb in

1987, with spot prices reaching $1.50/lb near the

end of the year, the domestic copper industry was

ready to reap the benefits. Cost-cutting measures

implemented in the industry had brought domestic average copper production costs down to

$0.55/lb in 1986 as compared with $0.79/lb in

1981. When combined with the increase in

prices, this meant the return to profitability for

an industry that had suffered enormous losses

earlier in the decade.

Of the six major U.S. copper-producing companies, four operated throughout 1987 and all

four reported net profits, ranging from $279 million at Asarco to $26 million at Cyprus. Kennecott

and Magma are expected to report net profits for

1988, when they resume full production after major modernization efforts.

While the domestic industry is enjoying its

current prosperity, it is not entirely sanguine

about the future. The industry is still contracting, as evidenced by the sale of Inspiration Consolidated Copper Company’s domestic operations to Cyprus Minerals in 1988. Moreover, most

copper company executives anticipate that the

conditions that prevailed during the first half of

this decade will be repeated during the next

recession. Because most companies have already

taken advantage of available cost-reducing technological innovations, they are concerned that

they will have few options for further cost reductions without major technological breakthroughs.
Chapter 3

The Business Structure

of the Copper Industry
CONTENTS

Investment

Ownership

Page

Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

of Capacity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Changing Ownership of Domestic Capacity . . . . . . . . . . . . . . . . . . . . . . . .

The Expansion of State Mining Enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

International Financing and Subsidization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Price Structure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The LME and COMEX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Direct Producer-Customer Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Role of lnventories. . . . . . . . . .

Near-Term Price Determinants . . . .

Long-Term Price Determinants . . . .

The Effects of Price Instability . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ,

Boxes

Box

45

48

48

50

52

54

54

56

57

57

58

58

3-A. The Cost of Greenfields Has Grown TremendousIy. . . . . . . . . . . . . . . . . . . . 47

3-B. Phelps Dodge and the Consolidation of Ownership . . . . . . . . . . . . . . . . . . . 49

3-C. increased Government Control in the World Copper Industry . . . . . . . . . . 52

3-D. intermediaries in the Copper Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

3-E. The Volatility of Copper Prices and Demand . . . . . . . . . . . . . . . . . . . . . . . . . 60

Figure

3-1.

3-2.

3-3.

3-4.

Figures

and Price Structure . . . . . .

Most Copper Trade Occurs at the Refined

London Copper Price . . . . . . . . . . . . . . . . .

GNP Compared to Copper Price . . . . . . . .

Tables

Table

Page

. . . . . 55

Stage: ............... . . . . . 56

. . . . . . . . . . . . . . . . . . . . . . . . . . . 59

. . . . . . . . . . . . . . . . . . . . . . . . . . . 59

Page

3-1. Government Ownership in the Copper Industry, 1981 . . . . . . . . . . . . . . . . . 51

3-2. Government Acquisitions of Copper Capacity . . . . . . . . . . . . . . . . . . . . . . 53

3-3. Major Copper Price Quotations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Chapter 3

The Business Structure

of the Copper Industry

The structure of the world copper industry has

changed significantly during the last 25 years.

Rapid growth in world copper demand began in

the industrialized countries following World War

II, and then shifted to the less developed countries. This led to the construction of significant

new copper production capacity, Initially this

capacity was owned and operated by the same

corporations that had controlled the industry

for most of this century. Gradually, however,

changes in investment risks, in the development

philosophies of third world countries, in the diversification strategies of multinational corporations,

and in the way copper is bought and sold on

world markets, changed the picture substantially.

Today, instead of several multinationals developing copper properties and selling their products

under contract prices, there are numerous producers–many of them government-owned or

controlled. In addition, since the mid- to late

1970s, the New York and London commodity exchanges have played a more important role in

setting copper prices.

This chapter reviews the major factors that have

influenced the structure of the world copper industry in recent years. It begins with a discussion

of the investment risks in a copper venture. It then

outlines trends in domestic and world copper capacity ownership since 1960, and analyzes the

role of international financial institutions in capacity development. The chapter ends with a

description of pricing, including how prices are

set, the factors that may affect price over the

short- and long-term, and the impacts of unstable prices on producers. The following chapter

describes the market structure of the copper industry in terms of supply and demand trends.

INVESTMENT RISK

Copper mining and processing are characterized by large, high risk capital investments. Because many mining operations are located in remote areas, significant infrastructure costs often

are incurred as well. Thus, private investors in

the mining industry require a greater return on

invested capital than those investing in retail or

manufacturing ventures of comparable size.

The potential risks include negative exploration results, market changes during or after mine

development, government nationalization, and

disruptions from political or natural causes.

First, copper is a relatively scarce element.l The

size and shape of a deposit must be estimated

from numerous data sets with varying degrees of

certainty. A company will invest perhaps tens of

1 The Bureau of Mines estl mates the average grade of demonstrated lead and zinc resources to be 2.22 and 5.10 percent, respectively, while the average grade of minable world copper resources IS less than 1 percent; see ch. 5,

millions of dollars and 5 years or more in exploration and feasibility studies.2 Not only must a deposit contain copper, but either the copper or

its by- or co-product minerals (e. g., gold, silver,

cobalt, molybdenum) need to be of sufficient

grade, quantity, etc. that extraction and processing are economically feasible, given current and

anticipated conditions in the copper market.

Second, development of a new mine or expansion of existing facilities requires a long leadtime—a year or more for expansions and an average of 2 to 5 years for new operations. During

this period, economic conditions can change

drastically and may alter profitability. The uncertainty in predicting the economic feasibility of a

project increases with the Ieadtime, and so does

the risk.

2EXp10ratiOn and developrnent are discussed in detail in ch. 6.

45
46

The political environment of a copper operation also may add risk. Corporate officials can

choose a site for a manufacturing plant, but can

only mine copper where it is found. More than

one-half of the Non-Socialist World’s (NSW)3

copper resources are located in the developing

nations of Latin America and Africa. Many of

these nations are striving to improve their standard of living through economic development and

political autonomy. Strict government control

often accompanies this effort and turmoil is not

uncommon.

3

The Non-Socialist World (N SW) refers to all copper producing

and consuming market economy countries. This includes Yugoslavia, but excludes Albania, Bulgaria, Czechoslovakia, Cuba,

Democratic Republic of Germany, Hungary, Poland, Romania, and

the USSR. China is also excluded from consumption and production figures, but is included in trade figures because of the significant amount of copper imported into China from NSW countries

in recent years.

During the 1960s and 1970s, there was a wave

of government nationalization of foreign-owned

mining enterprises. In some cases, compensation

to foreign investors was small or nonexistent. For

example, when the Chilean government first

expropriated the country’s four largest copper

mines, compensation was offered for only one

mine. Later, when the military junta led by General Pinochet took over the country, some compensation for all properties was negotiated with

the previous owners. Because of this risk, private

investment in foreign mining operations declined

until recently when developing countries, burdened with heavy debts, began offering inducements to foreign investors to bring in needed capital (see discussion of government ownership,

below).

Mines and mineral processing facilities located

in politically unstable areas (especially those experiencing armed conflicts) have additional risks.
4 7

These operations sometimes have a strong impact on regional and national economies (i.e.,

they are major employers or represent significant

foreign exchange earnings), making them targets

for aggressive actions. Threats of labor shortages,

damage to equipment and machinery, disruption

of energy supplies, and interruption of transportation services loom in these situations.

Supplies do not actually have to be interrupted

to have significant economic impacts on U.S.

mineral markets, however. For example, a rebel

invasion of Zaire’s mining country in 1978 led to

fears of a cobalt shortage that stimulated panic

buying. Prices soared and domestic users turned

to cheaper substitutes and recycling where possible. However, mining and processing facilities

were closed only briefly, and cobalt production

in Zaire and Zambia actually increased 43 percent in 1978 and 12 percent in 1979.4

Copper resources are often located in remote

regions, so adverse physical conditions are not

unusual. Extreme weather may interrupt production (e.g., at the Andean mines of Chile and Peru),

or the altitude, humidity, or other conditions may

require extensive testing and adaptation of machinery and equipment.

In addition to being risky, copper mining operations are capital intensive (see box 3-A). More

and more of the world’s high grade resources are

being depleted, making it necessary to mine and

process lower grade ores. Capital investment is

a function of the gross ore tonnage handled rather

than the net amount of copper processed. The

need to handle more ore has led to greater

mechanization of operations in order to reduce

operating costs. This has increased the initial cash

outlay for labor, equipment, and services during

the start-up time, as well as the cost of the money

used to pay these expenses (i.e., the cost of interest on borrowed funds and/or the opportunity

cost of equity funding.)

Mining and smelting also have environmental

impacts (see ch. 8). In the United States, considerable capital investment as well as increased

operating costs are incurred to meet strict envi4U .S. Congress, Office of Technology Assessment, Strategic Materials: Technologies To Reduce U.S. Import Vulnerability (Washington, DC: U.S. Government Printing Office, OTA-ITE-248) May

1985.

Box 3-A.—The Cost of Greenfields

Has Grown Tremendously

The cost of opening a greenfield (new) mining operation has skyrocketed. In the United

States, declining ore grades and rigid environmental regulation have compounded this cost.

For example, in 1953, the Silver Bell mine/mill

in Arizona opened with an initial capacity of

18,000 tonnes of copper per year at a capital cost

of $18 million, or $1,000 per ton of capacity. ’

In comparison, in 1982, the Copper Flat mine

in New Mexico required an initial investment of

$103 million for 18,000 tonnes per year. This

represented $5,720 per ton of capacity—470

percent more than the Silver Bell operation.2

One result of the tremendous surge in the cost

of greenfield projects has been an increase in

the incremental expansion of existing capacity.

In the 30 years from 1950 to 1980, when demand was growing rapidly, around 20 new copper mines were opened in the United States,

while perhaps five mines expanded production

substantially. With slightly lower demand

growth, only two or three new conventional

mines may open in the United States between

1980 and 2000, while most operating mines plan

to expand their conventional mine capacity or

add leaching capacity during that period.

1 Cost figures in box 3-A are In nom{ nal U.S. dollars.

‘Simon Strauss, Troub/e in the Third K/ngdorn (London: MI nl ng

journal Books Ltd., 1986).

ronmental regulations. Even in less developed

countries, environmental conditions are becoming more important. In 1986, Chilean smelter

workers threatened to disrupt production due to

concerns about the health effects of sulfur and

arsenic emissions. s

Mines in remote areas typically require large

investments in infrastructure. In addition to housing, roads, and utilities, community facilities such

as schools, hospitals, and recreation centers also

must be provided. Government subsidization of

infrastructure is sometimes available; otherwise,

the mining company must absorb the entire cost.

Because the cost is incurred before production

begins, this increases capital investment.

5Janice L.W. Jolly and Daniel Edelstein, ‘‘Copper, ” preprint from

1986 Bureau of Mines Minerals Yearbook (Washington, DC: U.S.

Department of the Interior, Bureau of Mines, 1987).
48

OWNERSHIP OF CAPACITY6

Because of the need for large scale operations

and the enormous capital investment required,

ownership and control of most of the world’s

copper mining and processing capacity is held

by large multinational corporations and State

mining enterprises. Governments and multinationals are better able to acquire the financing

for copper mining ventures and to absorb the

risks.

Prior to the 1960s, multinationals controlled

most of the world’s copper production capacity. In 1947, four major private mining firms held

an estimated 60 percent of world copper output.7

This share had dropped to 47 percent in 1956

and, by 1974, the four largest mining firms held

a majority ownership interest in less than 19 percent of NSW copper output.8

In general, the last 25 years has seen a broad

diversification in ownership of capacity, followed by some contraction. Diversification

moves included more countries producing copper (recent market entrants include Papua New

Guinea and Indonesia), increased government

participation in mining (especially in Africa and

South America), the acquisition and subsequent

sale of copper operations by oil companies (primarily in North America), and the increased importance of independent (non-integrated) mining and smelting companies (e.g., the rise of the

Japanese smelting industry; see ch. 4). This was

followed in the last few years by the consolidation of many government-influenced enterprises,

oil company divestitures, and increased integration.

The Changing Ownership of

Domestic Capacity

In the mid-to late-1800s, gold and silver discoveries could make or break an individual prospector, but copper deposits typically were financed

bThe corporate structure of the world copper industry, including the principal players, is discussed in ch. 9.

7

0utside of the USSR.

8Raymond F. Mikesell, The Wor/d Copper /ndustry: Structure and

Economic Analysis (Baltimore, MD: The Johns Hopkins Press, 1979),

p. 28.

first, by conglomerates “back East” that needed

copper to feed the industrial revolution, and then

by companies that already owned established

mining properties. Thus, exploitation of the copper deposits on the Keeweenaw Peninsula of

Michigan9 was financed by companies in Boston. ’” Firms that had their start in Butte, Montana

(e.g., Amalgamated Copper Co., later to become

Anaconda Minerals) provided capital to develop

deposits in Arizona (e.g., the earliest Miami mines

and the United Verde mine). 11

Two trends fostered the initial concentration

of ownership in the copper industry. First, established fabricators in the East were searching for

new supplies as the U.S. economy advanced and

people moved West. Thus Phelps, Dodge& Company (PD), a New York mercantile outfit that had

entered the copper and brass fabricating business

in 1845, purchased its first copper claim (the Atlanta) in Bisbee, Arizona in 1881 to secure its supply of raw materials. Today, PD is the largest U.S.

copper producer, but is no longer in the fabricating business (see box 3-B).12

Second, with development of the mining industry, the amount of capital needed to finance

a new venture increased rapidly. For instance,

Phelps, Dodge and Company purchased the Atlanta claim for $40,000, and then spent 3 years

of development work and an additional $95,000

just to find the main ore body.13 Although initial

capital investments often were sufficient to locate

a deposit, or even begin production, additional

financing usually was needed to maintain the

competitive status of projects as the ore type and

grade changed over time (e.g., the Douglas

smelter mentioned in box 3-B).

Other investments were required because the

state of technological development was rudimentary when a mine opened. In Globe, Arizona, for

9

The first major mines in the United States; see ch. 6.

IODonald Chaput, The C/ift: America First Great Copper Mine

(Kalamazoo, Ml: Sequoia Press, 1971).

I ITable 6.3 in Ch. 6 shows a detailed history of U.S. mine cfevelopment, including initial and subsequent ownership.

JzLyn ~ R. Bai Icy, L?jsbee.. Queen of the Copper Camps (Tucson,

AZ: Western[ore Press, 1983).

‘ ~lbid.
49

BOX 3-B .—Phelps Dodge and the Consolidation of Ownership

Phelps Dodge began their first copper mining venture in Bisbee, Arizona in 1881 to feed their brass

mills back East. At that time, they had numerous competitors in Bisbee. These included small operators

with limited financial backing, as well as early mining conglomerates such as the Calumet & Arizona Mining Co., which was formed to operate the Irish Mag mine i n Bisbee and later bought the New Cornelia

claim in Ajo. PD began to consolidate their holdings in Bisbee within a couple of years, first with the purchase of the Copper Queen mine, whose underground workings had broken through into the Atlanta claim.

The Copper Queen continued to produce until 1975. Over the next 20 years, PD bought several other

claims and mines in Bisbee to i reprove the efficiency of their mine plans and ore processing. Their increased mine production, plus changes in the ore, led to construction of the Douglas smelter in 1904 (which

closed in 1987), the largest and most modern smelter of its time.

In 1895 to 1896, PD also expanded into other parts of Arizona and Mexico by purchasing the Detroit

Copper Co. and its properties in Clifton/Morenci and the Guggenheim interests near Nacozari, Mexico.

In 1910, they acquired the claims in Tyrone, New Mexico. All of these areas are still producing copper,

although PD is no longer involved in Nacozari. During the 1920s, PD added the Old Dominion mine in

Globe, Arizona.

In 1929, PD went public. This provided them with an infusion of capital just before other companies

began suffering huge losses due to the depression. During the 1930s, they purchased the Arizona Copper

Company (the remaining claims in the Clifton area), and the Calumet & Arizona Company. PD’s ownership status then remained relatively constant until the 1980s, when their production capacity began to

decline due to the exhaustion of developed reserves in Bisbee, the impending exhaustion of sulfide ore

at Tyrone, and the closure of the high-cost New Cornelia mine. I n 1986, PD purchased Kennecott’s twothirds interest in Chino Mines in New Mexico.

example, the mine and smelter built around 1881 financed in large part by Guggenheim family incould” not handle the local carbonate ore very

efficiently. New owners and an infusion of capital provided a branch railroad, a new smelter, and

new underground mine development during the

1890s, which made the Old Dominion mine at

Globe profitable.14 Even where technological or

other changes do not occur, a mine must expand

into an ore body to maintain grade and output.

Capital became even more important in the

early 1900s, when economies of scale (i.e., high

capital cost but low unit operating costs) allowed

development of low grade porphyry ore deposits and new types of smelters (see ch. 6). The capability to exploit these ores profitably started the

next wave of consolidation in ownership as companies scrambled to acquire rights to porphyry

deposits held by individual prospectors. During

this period, two other firms moved to consolidate

their holdings within the domestic copper industry: Kennecott (dating from the early 1900s and

I Jl ~~ ~, j{)r~ l~nl~n, c~pp~r ~~~ Enmmp.;ssiffg Story of bl~?~klnd’~

F/rst Meta/ (Berkeley, CA Howell-North Books, 1973).

terests) became the other preeminent mining

firm, and the American Smelting and Refining

Company (now Asarco) was funded by Morgan

banking interests to provide downstream processing. (Asarco originally owned and operated the

smelter and refinery at Kennecott’s Bingham Canyon mine,) Kennecott originally was formed to

develop the Bonanza copper deposit in Alaska.

Subsequently they acquired or developed mines

in Ely, Nevada; Ray, Arizona; and Chino, New

Mexico.

The search for mineral rights also extended to

foreign countries, including the modern development of the first major properties in Chile,

Peru, and northern Mexico (e.g., El Teniente and

Chuquicamata in Chile, Cerro de Pasco in Peru,

Cananea in Mexico). This represented the first

major period of foreign expansion by Anaconda,

Kennecott, and Asarco.

The next wave of new copper mines in the

United States resulted from the increase in demand due to post-World War II industrial devel-
50

opment and the technological advance that permitted exploitation of lower grade ore bodies.

While most of the players remained the same,

there were a few notable new entrants. Asarco

went into the mining business in Arizona to provide feed for its own smelters. Newmont Mining

Company (through various subsidiaries, including Magma), Cyprus Mines, and Duval also began copper mining in Arizona and Nevada. Inspiration began consolidating its holdings in

Claypool, Arizona.

Then in the 1970s, major oil companies expanded into the copper business, in part as a response to increased government control of foreign oil operations, and in part for diversification

given the projected rapid dwindling of oil reserves. Arco bought Anaconda, Amoco (Standard

Oil of Indiana) acquired Cyprus Mines, Pennzoil

purchased Duval, and Louisiana Land and Exploration bought Copper Range. SOHIO bought

Kennecott, then British Petroleum (BP) took over

SOHIO. Cities Service acquired Miami Copper

(Arizona) and Tennessee Copper, then Occidental bought Cities Service. EXXON, Shell, Hudson

Bay, and Superior Oil also purchased copper

properties. By 1983, mines owned by oil companies accounted for around 10 percent of the

total production from the world’s 50 largest

mines. 15

The extensive movement of oil companies into

the copper industry was greeted with enthusiasm

because it was thought to mean large amounts

of capital for capacity expansions and modernization to meet anticipated burgeoning demand. 16 However, most oil companies found this

diversification venture disappointing. Their managers often did not understand the cost and operational implications of the huge tonnages of material needed to produce hard-rock minerals. The

companies also did not fully anticipate the long

payback periods for capital investment in nonfuel mining. The rapid drop in oil and copper

prices and in copper demand in the early 1980s,

15Kenj I Takeuchi et al, The World Copper Industry: /tS Changing

S(ructure and Future Prospects (Washington, DC: World Bank Staff

Commodity Working Papers, Number 15, 1987).

lbLouis j. Sousa, The U.S. Copper Industry: Problems, Issues, and

Out/ook (Washington, DC: Bureau of Mines, U.S. Department of

the Interior, October 1981 ).

plus the government appropriation of numerous

foreign properties, compounded their cash flow

problems. In the United States, only BP is still in

the copper business, with one operation– Bingham Canyon. Cities Service sold its Arizona properties to Newmont. Amoco spun off Cyprus Minerals with sufficient capitalization to purchase

additional mines. Arco/Anaconda sold its Arizona

and Montana mines and wrote off the Nevada

properties.

Since 1985, four other major shifts in ownership occurred in the U.S. copper industry. First,

Copper Range–reorganized and staffed primarily with White Pine mine employees—bought the

mine and smelter from Echo Bay. Copper Range

is 70 percent owned by an Employees Stock Option Plan and 30 percent by Mine Management

Resources. Second, Kennecott sold Ray Mines to

Asarco (significantly increasing Asarco’s presence

in copper mining), and its share in Chino Mines to

PD (partially replacing PD’s soon-to-be-exhausted

Tyrone deposit and closed Douglas smelter).

Third, Newmont spun off Magma (including Pinto

Valley) with sufficient recapitalization to finance

modernization of the mine and smelter. Fourth,

Cyprus Minerals acquired Duval’s, Noranda’s,

and Inspiration’s Arizona properties, making it

the second largest copper producer in the United

States.

The Expansion of State

Mining Enterprises

A second major change in the structure of the

world copper industry resulted from a dramatic

increase i n government participation in production–especially in less-developed countries (LDCs).

In 1960, governments had some influence in less

than 3 percent of all NSW copper mine capacity, but by 1970, about 43 percent of NSW capacity was owned in whole or in part by governmerits. ’ 7 In 1981, governments owned a majority

share in 35 percent of NSW copper mine capacity, but in LDCS the ownership shares were much

larger; 73 percent of LDC capacity had at least

5 percent government ownership, while 62 percent had majority State ownership.

I zsi r Ronald Prai n, Copper: The Anatomy of an Industry (London: Mining Journal Books Ltd., 1975).
51

Government control of smelting and refining

capacity was even greater (see table 3-1 ).18 The

Bureau of Mines estimates that 65 percent of

NSW demonstrated copper resources in 1985

had government involvement through direct

ownership of copper production, including 100

percent of Codelco (Chile) and 60 percent of

Zambia Consolidated Copper Mines Ltd–ZCCM

(Zambia )

19– the two largest NSW copper producing companies,20 The major ownership changes

that contributed to this trend are discussed in box

3-C and shown in table 3-2.

The expansion of State influence in copper production activities had an enormous effect on

world copper markets in recent years. State investment decision making often is governed by

objectives other than profitability; goals such as

maintaining employment and self-reliance of supply or creating foreign exchange may carry as

much or more weight. In Zambia, for example,

maintaining copper production is essential because sales of the co-products, copper and cobalt, account for 90 percent of foreign exchange

I 8Ma ~lan Ra~et7 kl, Stc;tp ,$4/npr,?/ Enterprises Wash i n@~n, Dc:

Resources for the Future, 1985),

1 gThe Zam bla n percentage gI\ en here reflects a correct iOn to the

Bureau of Mines report made followlng a private conversation with

the author of that report.

Z~U ,s. Bureau of Mines, An Appraisa/ otMinera/s Ava//ab///ty for

?4 Cornrrrodit/es (Washington, DC: U.S. Department of the Interior,

Bureau of Mines Bulletln 692, 1987).

earnings. With such goals, production and marketing strategies in State mining enterprises are

less sensitive in the short term to cyclical market

fluctuations, unlike private operations that must

react to declines in demand and price. As a result, State enterprises tend to produce at fuII capacity regardless of market conditions.

Over the long term, however, substantial operating losses will mean an inability to meet interest payments on debt. In Mexico, the $104 billion foreign debt, combined with the inefficient

management and operating losses at State-run enterprises, led to a recently announced government policy of divestiture. The Cananea Mine and

smelter, located about 15 miles south of the U.S.

border in Sonora, is the first enterprise offered

for sale. Cananea, which has a capacity of 160,000

tonnes per year, is owned by NAFINSA, a government bank. It is expected to generate around

$100 million (U. S.) in export earnings in 1988.

Cananea reportedly has not shown a profit for

at least eleven years, however. Recently, the La

Caridad mine and smelter (about 75 miles south

of the border at Nacozari, Sonora) were added

to the sales list. La Caridad is owned and operated by Mexicana de Cobre, the State copper

firm .21

‘

] James H. Maish, “Planned Sale of Copper ,Mlne Stl rs Emot Ions

in Cananea, ” The Ar/zona DdI/} War, ]uly 5, 1988,

Table 3.1 .—Government Ownership in the Copper Industry, 1981

Copper metal content

Mining Smelting Refining

Western world:

Total capacity (1,000 tons) . . . . . . . . . . . . . . . . . 7,820 8,780 9,120

Percent of capacity with at least 5°/0

government ownership . . . . . . . . . . . . . . . . . . 40.5 30.6 25.9

Percent of capacity with majority government

ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34.7 29.7 24.3

Developing countries:

Total capacity (1 ,000 tons) . . . . . . . . . . . . . . . . . 4,120 3,340 2,580

Percent of capacity with at least 5°/0

government ownership . . . . . . . . . . . . . . . . . . 73.0 75.5 82.6

Percent of capacity with majority government

ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62.0 72.9 77.0

SOURCE Marian Radetzki, State Minera/ Enterprises (Washington, DC Resources for the Future, 1988)
52

Box 3-C.— Increased Government Control in the World Copper Industry

The dramatic increase in government control over copper production facilities may be attributed primariIy to the rise in nationalism in the early 1960s, which led to a desire for sovereignty over local industry. Countries perceived mineral resources as part of their national heritage; control of those resources

by foreigners was seen as at least improper and at most as thievery. Sovereignty over minerals was achieved

through outright nationalization, through negotiations for majority share of ownership, or through legislation “encouraging” the sale of control to national firms. ’

The wave of nationalizations began in Zaire in 1967. Shortly after achieving independence from Belgium, Zaire nationalized Union Miniere du Haut Katanga–the Belgian copper company formed in the

late 1800s–and took over all of its assets and concessions. Generale Congolaise des Minerais (G EXAMINES)

was formed to control copper mining. This was followed in 1969 by government “purchases” of a 51

percent interest in all mining properties in Zambia (ZCCM) and in the large mines in Chile (CODELCO).

In 1971, the Chilean government passed a law in which the remaining interests in the major copper mines

came under formal national control. Subsequently, Chile also set up a state-owned smelting and refining

company —Empresa Nacional de Minera (ENAMI). Today, however, around 8 percent of Chile’s production is from privately-owned mines, and this percentage will increase dramatically when the Escondida

project opens.2 In Zambia, management and marketing continued under the former owners until 1974,

when these functions were taken over by the government. Government ownership increased to 60 percent in 1979.3

In 1974, Peru nationalized the Cerro de Pasco mine: and the La Oroya smelter/refinery, which have

since been operated as a state enterprise (Centromin PeruS.A.). A second Peruvian government company,

Minero Peru, was established to control a number of major undeveloped ore bodies formerly owned by

large international companies, including Anaconda and Asarco. Minero Peru began production at Cerro

Verde in 1977. A third company, Empresa Minera Especial Tintaya S.A. (Tintaya) was formed in the 1980s.

In 1986, however, the Southern Peru Copper Company (SPCC–jointly owned by Asarco, Phelps Dodge,

Newmont, and the Marmon Group) accounted for 61 percent of Peru’s copper production (although all

of SPCC’s output is marketed by a government agency ).4

Finally, in the late 1970s, Mexico passed legislation requiring a national equity share in mineral properties. La Caridad (44 percent owned by the Mexican government) started production in 1980. Subsequently,

92 percent of the ownership in the Cananea Mine (started in the late 1800s) passed to the Mexican government. 5

1 SI mon Strauss, Troub/e In the Tlrlrd K/rrgdorn (London: Mi ntng IOU rnal Books Ltd., 1986); Louis J. Sousa, The U.S. Copper /ndustry: Prob/erns,

/swes, ‘Irrd Out/ook (Washington, DC. Bureau of Mines, U.S. Department of the Intenor, Oct. 1981).

2The owners ot the Escondida copper project are: The Broken H I I I Pty. Co. Ltd. of Australia, 60 percent; Rio TI nto ZI nc Corp. Ltd., 30 percent;

and Mitsubishi Corp., 10 percent.

‘Sousa, Supra note 1; Ken)l Takeuchl et al, The World Copper Industry: Its Changing Structure and Future Prospects (Wash! ngton, DC VVorld Bank

Statt Commodity Working Papers, No 15, 1987)

~janlce L W Jol Iy and Da nlel Edelstel n, ‘‘Copper, preprint from 1986 Bureau of M/rres M/nera/s Yearbook (Washington, DC U.S. Department

of the Interior, Bureau of Mines, 1987)

‘Takeu[ hi, su pra note 3: Jol Iy and Edelstei n, \u pra note 4

International Financing and ernment for general national development and

Subsidization22 then targeted for a copper project. A controversial aspect of increased government participation

International financing for copper projects may in world copper production capacity is the imbe sought directly, or may be obtained by a gov- pact on production costs. Government-owned

22Unless otherwise noted, the discussion of international bank or influenced operations are seen by private profinancing and its impacts on the domestic copper industry are from ducers as receiving substantial cost benefits in

Jerry Krim, “The Confessional Financing of Mining Capacity, ” pa- the form of lower taxes, government-provided

per presented at the conference on Public Policy and the Competitiveness of U.S. and Canadian Metals Production, Golden, CO, infrastructure, and low-cost financing. They also

Jan. 27-30, 1987. are perceived as unresponsive to market condi-
53

Table 3-2.—Government Acquisitions of

Copper Capacity

1967

1969

1969

1971

1974

1977

1979

1980

Gecamines, Zaire

Codelco, Chile

NCCM/RCM, Zambiaa

Codelco, Chile

Cerro de Pasco, Perub

Cerro Verde, Peru

ZCCM, Zambiac

La Caridad, Mexico

1000/0 nationalization

51 % takeover of major

mines

51 % takeover of Zambia

capacity

increase—51 % to 1000/0

1000/0 nationalization

Start-up, 1000/0

government

Government holding

increased to 60°/0

Start-up, 440/0

government

aNchanga Consolidated Copper Mines, Ltd. (NCCM) and Roan Consolidated Copper Mines, Ltd (RCM).

bcerro de pasco renamed Centromin.

cNCCM and RCM reorganized into ZCCM.

SOURCE: Marian Radetzki, State Mineral Enter@es (Washington, DC: Resources

for the Future, 1985).

tions, and likely to be subsidized further during

market downturns.

Low-cost financing is an especially touchy issue for domestic producers. State copper operations are largely i n developing countries where

considerable funding comes from international

financial institutions, such as the World Bank, the

International Monetary Fund (IMF), the lnterAmerican Development Bank, the Asian Development Bank, and the African Development

Bank. The multilateral development banks’ overall goal is to improve the standard of living in

LDCs. The IMF’s goal is to promote international

trade and a stable international monetary system;

its loans are to governments for balance-of-payment purposes only, not specific ventures. Funds

can be channeled into mining activities, however.

For example, within the IMF, the Compensatory

Financing Facility (CFF) assists governments that

have balance of payments problems due to low

prices for their principal commodity exports.

The United States contributes to loans through

these international banks and, by doing so, can

be involved in the subsidization of competitors

to the domestic mining industry (i.e., to the extent that loans are granted at lower interest rates

than could have been obtained without international bank participation; see below).

The major concerns of non-government copper producers with these financial arrangements

include: 1 ) the comparative advantage to recipients of confessional financing, 2) the leverage effects of international financial institution lending,

3) the promotion of new or expanded copper

production facilities without regard to current capacity or market conditions, and 4) the recipients

resultant mounting debt.

Perceptions of the risk associated with a mining operation may be altered by the presence of

international bank lending. While such loans generally represent a small portion of the capital

needed for a project, international bank participation may provide more credibility to a project

than it might otherwise have. The perceived reduction in risk may enable a mining venture to

acquire financing at terms not available without

international bank participation. This risk reduction is viewed as an advantage over competing

private firms.

More than two-thirds of World Bank loans are

provided at the interest rate at which the lending institution is able to obtain the funds. The U.S.

Bureau of Mines estimates that a representative

sample of loans made between 1980 and 1984

resulted in a net benefit to the borrower of 0.05

cents per pound of copper.23 While this is less

than 0.1 percent of the average price of copper

during that period, it is important to note that

Chile, the largest and one of the world’s lowest

cost copper producers, is a recipient of significant international bank financing.24

Perhaps the greatest impact from international

bank financing on domestic copper producers in

the 1980s has been the expansion of capacity in

LDCs despite a world copper market already

plagued by oversupply. During the 1982-85

slump, 60 percent of LDC copper producers

maintained or increased production despite low

prices and mounting inventories. Domestic output (and capacity) dropped sharply, while LDC

ZBCompar;son of /nternationa/ F/nanc/a/ Institutions and Private

Sector Loan Terms for Non-Fuel Mineral Projects in Develop/rig

Countries, (prepared by Price Waterhouse for the Bureau of Mines,

U.S. Department of the Interior, contract No. J0156023, May 1986).

Zqln December 1982, CO DELCO also obtained a $30S million

private loan, the largest single foreign loan ever issued to Chile.

The loan was financed by a syndicate of 25 foreign banks, including 14 in the United States. Janice L.W. Jolly and Daniel L, Edelstein, “Copper,” 1982 Bureau of Mines Minerals Yearbook (Washington, DC: U.S. Department of the Interior, Bureau of Mines, 1983).
54

expansion, funded in part by such financing, exacerbated the situation.

Finally, countries that depend on copper exports for foreign exchange have mounting debt

because copper price fluctuations adversely affected exchange earnings. These include Chile,

Zambia, Zaire, Peru, and the Philippines–among

our major world competitors. When copper

prices were rising in the early 1970s, the trade

balances and tax collections in these countries

improved, and they were able to pay some of the

interest on their foreign debt. When copper

prices plummeted after the oil embargo and again

in the early 1980s, however, their foreign exchange earnings and tax revenues also dropped.

Their interest and amortization payments became

troublesome, and all five countries had to borrow through the Compensatory Financing Facility. As of April 30, 1986, six countries had outstanding CFF/lMF loans totalling almost $1.4

billion that were tied to problems arising from the

loss of copper export earnings.25

Recent studies on international bank financing

impacts on domestic manufacturing and mining

operations have led to a reassessment of U.S.

contributions to such loans. Recommendations

to reduce or eliminate U.S. participation where

a loan may have a significant impact on domestic mining or manufacturing industries have surfaced several times in proposed trade legislation

over the last few years. These bills either did not

pass Congress or were vetoed by President Reagan (see ch. 10).

Zssimon strauss, l_rOUbje in the Third Kingdom (London: Mining

Journal Books Ltd., 1986).

PRICE STRUCTURE

Copper is traded in various stages of processing including concentrate; blister and anode; refined, semi-fabricated, and fabricated products;

and scrap (see figure 3-1 ). Within these stages exists an even broader range of classifications of

copper products, such as old and new scrap,

wirebars, ingot, cakes, billets, etc. Most copper

is traded—and its price determined—as refined

cathode and rod (i.e., refined metal at least 99.99

percent copper), however (figure 3-2). The price

structures for other types of the metal are determined by refined copper prices.

Copper may be sold either through contracts

or on-the-spot trading on the commodity exchanges—the London Metal Exchange (LME) and

the Commodity Exchange of New York (COMEX).

Today, around 80 to 95 percent of trade involves

contracts between refiners and semi-fabricators

for cathode or rod; the remainder is sold in onthe-spot trading on the two exchanges. The

players in these markets are described in box 3-

D. Long-term contracts for ores and concentrates

provide a hedge against market gluts, and

lengthen the adjustment period when prices fall.

Copper is sold at commodity exchange prices,

at prices published in journals such as Metals

Week, or at a published producer price. The Metals Week price is a weighted average based on

daily tonnages and sales prices. A producer price

is based on productive capacity, probable demand, level of competition, and cost of production (see table 3-3). Prior to 1978, most domestic (and Canadian) copper trade was at producer

prices. Changes in the commodity exchange

prices were met by adjustments to the producer

prices. In the late 1970s, most domestic producers switched to COMEX pricing. Those still using

the producer price have adopted flexible pricing

policies, including more frequent adjustments in

price following changes on the COMEX. Most

transactions outside of the United States, including foreign shipments to domestic customers, are

based on LME price quotations.

The LME and COMEX

The amount of copper traded on the LME is

a very small part of all copper trade, but this market plays an important role in setting the price.

The LME serves as a “hedging” market–a clearing market for producers whose output exceeds

their contracts, for small producers, and for accumulated inventories. Inventories in the LME are
55

Figure 3-1.-Copper

Producing countries

(

Market and Price Structure

Consuming countries

r I

I

t J u 7PI Electrica l

Doalora Fabr I caters

I

I I t A ● b

c

Trade: ~

Con ● tr uction T

I n tog rated I n tograted Ret I ners ~ London

p rod uce r.

-

s m e I te r ●

- ~ rod, bars, ; Meta l

cathodes : Exchang e

) Mach I ner y

+

, w ,

I

Trade: ; I ndep. - Scrap I ndep. Trans PO r tat 10 r

dealers -

I

●

conce n t rates : S mel tere — refine rs — ● nd ! broke rs

~t I 4 I I ● Ordnanc e

+

,

,

,

I -

Non I n teg rate d L i n ked

Trade: ; Othe r

bliste r : prod uce rs

e w

s m e I te rs ,

(

@ ~@– @

M/ning ● nd Processing up to ~ Trade ~ Processing up to Fabrication Final uae

concentrating refine d me ta I a ta te ~ refined motai ● tate

SOURCE Walter C Labys, &lar/ret Structure, Bargaining Power, and Resource Price Formation (Lexington, MA: D C. Health and Co , 1980)

an indicator of the balance of supply and demand

in the world copper market (see below).

Copper is traded on the LME in the form of

electrolytic cathode or high conductivity firerefined copper in 25 tonne contracts. Delivery

can be immediate (the next day) or in 3 months

from approved LME warehouses. All trade occurs

between the LME member and the customer.

LME contracts usually do not contain a Force

Majeure clause.zb Margins and commissions are

set by the exchange. z’

26A Force Majeure is invoked when the supply Of copperis curtalled for circumstances beyond the control of the parties involved,

such as a strike or Inclement weather.

~pRObert T. Kec k, ‘‘ IJ nderstand i ng the Copper Futures Market,

Forecast/rig Commodity Prices: How the Experts Analyze the Markets, Harry Jiler (cd,) (New York, NY: Commodity Research Bureau, 1 975).

Price quotations on the LME are determined

by transactions occurring during two daily trading sessions. These sessions last 5 minutes (1 2:00-

12:05 pm and 3:40-3:45 pm, London time), with

trade permitted to continue for 20 minutes following each session. Prices are quoted in pounds

sterling and tenths of a pound sterling on a metric tonne basis, and may fluctuate without limit

according to market activity. zB

The COMEX differs from the LME in several

ways. Trading on the COMEX is continuous from

9:50 am to 2:00 pm (New York time). COA4EX

prices are quoted in cents and tenths of a cent

per pound of copper. Fluctuations in price are

limited to 5 cents per pound per day.zg

2Blbid.

291 bld
56

Figure 3-2.-Most Copper Trade Occurs

at the Refined Stage

Ref I ned

BI Ister end anode

10%

Ores & concentrate S”

30%

‘Copper content

SOURCE: World Bureau of Metal Statistics data

BOX 3-D. —Intermediaries in the

Copper Market

Agents.– Negotiate agreements between producers or consumers for a fee based on the value

of the product sold.

Merchants.—Make direct purchases from producers and then sell the product to the highest

bidder. Terms of acquisition are often more

favorable than those obtained by agents or direct customer negotiation.

Brokers.–Buy and sell orders on the active

metals exchanges for producers, consumers, and

investors for a fee. If a broker handles both the

buy and sell order, a commission is received for

both actions.

Also, on the COMEX, copper is traded in the

form of electrolytic cathode, or high conductivity

fire-refined in 25,000 pound (12.5 short-ton) contracts. Futures contract sellers must have sufficient

copper to deliver when the contract is settled.

The delivery period extends up to 14 months,

with deliveries occurring in january, March, May,

july, September, October, or December. Deliveries are made from COMEX-licensed warehouses located across the United States and the

point of delivery is the option of the seller. All

Table 3-3.—Major Copper Price Quotations

London Metal Exchange (LME):

Electrolytic wire b;rs, ”cash for immediate delive~ in

warehouse.

Up to W-day delivery, electrolytic wire bars.

Cash, electrolytic copper in the form of cathodes, by

grade.

W-day, electrolytic copper in the form of cathodes, by

grade.

New York Producer Prfce:

Domestic refinery price (E&&fJ),a electrolytic wire bars.

From January 1967, FOB domestic net Atlantic

seaboard refinery.

Same price delivered which includes shipping cost.

Same price based on cathodes.

New York Commodity Exchange (COMEX):

Spot settlement price.

Futures Price.

Federal Republic of Germany:

Electrolytic comer wire bars

aEnginmring and Mining Journal price.

SOURCE: Walter C. Labys, Market Structure, Bargaining Power, and Resource

Price Forrrration (Lexington, MA: DC. Heath and Company, 19S0).

trade occurs through members, usually through

a floor broker. Minimum margins and commissions are set by the exchange. A clearing house

exists to record all member transactions and report net positions of the customers.30

Direct Producer-Customer Contracts

Most copper trade involves transactions between refiners and semi-fabricators. Contracts for

primary refined copper are usually for 1 year, A

contract typically specifies the total annual tonnage and the monthly delivery limits within which

the buyer can make purchases.31 Other specifications include point of delivery, packing, etc. Unlike most commodities, the price is not specified,

but stated more generally in a pricing clause such

as “the seller’s price at the time of delivery. ”sz

Ores and concentrates usually are sold in longterm contracts of 1 to 10 years. These contracts

may be linked to financial agreements in which

a smelter may provide financing for resource de301 bld .

JI us. International Trade Commission (ITC), Ur?wrought COPper: Report to the President on Investigation No. TA-201-52 Under Section 201 of the Trade Act of 1974, ITC Publication 1549

(Washington, DC: ITC, July 1984).

JzWalter C. Labys, Market Structure, Bargaining Power, and Resource Price Formation (Lexington, MA: D.C. Heath and Company,

1980).
57

velopment in return for a percentage share of the

mine’s output. For example, 15 percent of production from Phelps Dodge’s Morenci mine is for

the account of Sumitomo Corporation. These

financing arrangements and many long-term concentrates contracts are designed to facilitate the

flow of raw materials to smelters with insufficient

or no mining resources.33 As noted above, they

also can ease adjustment to market fluctuations.

Concentrates may be sold to a smelter directly,

or may be toll smelted (i.e., processed by the

smelter/refinery for a fee and then returned to the

producer). In either case, the value of the concentrate is calculated based on the price of refined copper. The price set by the smelter is

determined by a basic formula: LME (or U.S. producer) price, times percent copper content, less

conversion fee, less unwanted byproduct removal charge, plus precious metal sale credit,

plus other byproduct sale credit, minus transport

cost (if paid by the smelter) .34 In practice, for both

direct sales and toll smelting, the price will vary

with the negotiated terms and conditions of the

contract, such as byproduct clauses and the economic and cost conditions at the time of purchase

(i.e., exchange rates). Blister and anode copper

are sold on similar terms, i.e., prices are a function of the LME refined price.

The Role of Inventories

The structure of the copper industry is such that

production usually cannot be increased quickly

due to the long Ieadtimes for new or expanded

capacity. Nor can production levels always be

reduced rapidly or in small increments because

economies of scale require minimum production

levels and there are significant exit costs for shutting down capacity.

Therefore, consumers, producers, and speculators may stockpile copper to guard against (or

profit from) shifts in supply and demand, inflation, and exchange rate adjustments. Speculators

on the exchanges also may hold inventories in

anticipation of price shifts. Finally, copper consumers may find themselves with unwanted inJJThe smelters in Japan are almost completely reliant upOn i mreported raw materials to feed their facilities; see ch. 4.

JdLabys, supra note 31,

ventories as a result of unanticipated reductions

in demand for their products.

In general, producers and consumers maintain

stocks as a precautionary measure. Continuation

of supply is critical for most consumers, who may

hold inventories to guard against possible supply disruptions and sudden price increases (e.g.,

due to labor strikes, transportation problems, or

adverse weather). Producers may stockpile copper awaiting an increase in price, or in anticipation of events such as labor strikes in order to

meet future contractual obligations. Both of these

practices were more pronounced prior to the

1980s, when the cost of holding stocks was less

significant to a company’s balance sheet. Cost is

less significant for those consumers who hold inventories to ensure an uninterrupted flow of materials for manufacturing activities that have a high

down-time cost, however.

Because planned inventories are used by both

copper producers and consumers as a “hedge,”

they are considered an important indicator of the

balance between supply and demand. Changes

in inventories mirror shifts i n market conditions,

and significant changes are usually reflected in

the market price. Short-term changes in inventories usually mean temporary or cyclical fluctuations in consumption or production. Longterm inventory surpluses or shortages may imply

more fundamental structural changes in copper

demand, such as decreased intensity of use or

a need to expand world production capacity.

Near-Term Price Determinants

Near-term prices (1 to 3 years) tend to fluctuate in response to normal business cycles through

their effects on consumer demand. Price shifts

may be exaggerated by speculative actions, however. For, example, in late 1987, copper prices

began to rise as inventories dropped. The average price of copper for the first half of the year

was about 66 cents per pound—up only a few

cents from 1986. This minor increase, however,

led to anticipation of a tighter copper market and

a subsequent increase in copper sales to investors. The increased demand by speculators tightened the market even further, and by the end

of 1987 spot prices had soared to nearly $1.50
58

per pound.35 Some investment analysts even suggested that someone was trying to “corner” the

copper market as the Hunt brothers had exploited market conditions in an attempt to corner the silver market in 1979.36

Near-term copper price movements also are

tied to the relative inelasticity of world copper

supply and demand, which in turn may mask

longer-term effects. As noted previously, copper

production capacity is slow to respond to both

increases and decreases in demand. Thus, during the early 1980s, many major copper producers perceived the downturn in demand and price

as part of the general economic recession. When

copper prices were much slower to respond to

the economic recovery in the United States than

other sectors, however, more fundamental

changes in the world copper industry (e.g., due

to new market entrants, substitution, and third

world debt) were recognized.

Long-Term Price Determinants

In the long term (5 years and beyond), prices

are determined by the structure of the market,

including: the degree of ownership concentration (and thus market control) among producers

and consumers; economic forces, such as technological change leading to radical shifts in production costs or consumer demand; and investment patterns, including the extent of government

participation. For the copper industry, some noteworthy structural, economic, and technological

factors may play an important role in long-run

pricing. First, long-term contracts for ores and

concentrates are likely to become more prevalent as the location of new smelting capacity is

increasingly dictated by environmental concerns.

Second, concentration of ownership in the industry, particularly mining, has become more

diluted. While the most recent sales of domestic

capacity have, for the most part, meant fewer

companies involved in domestic production,

more countries have entered the market. While

the trend toward State control of production at

foreign copper properties is likely to continue,

351bid.

Jb’’who’s squeezing Copper, Forbes, Feb. 8, 1988.

ownership probably will widen as burgeoning

third world debt makes it increasingly difficult for

LDCs to obtain project financing. Thus their cost

of capital will be higher without significant private participation or development bank help.

Third, greenfield copper capacity additions

have leveled off, and the surplus capacity that existed during the early 1980s is declining. While

new capacity is planned for the next 5 years, it

may be partially offset by exhaustion or cutback

of existing operations, combined with demand

growth created by new or expanded applications.

Potential influences on future supply and demand

are discussed—but not predicted—in more detail in chapter 4.

Fourth, the application of leaching and solvent

extraction-electrowinning (SX-EW) technologies

has made possible the recovery of copper from

lower grade ores at a low cost. This is a doubleedged sword for the domestic copper industry.

While the United States has large oxide and waste

dump reserves from which the domestic industry can produce copper for as low as 30 cents/lb,

this production can exert downward pressure on

world prices. Moreover, technology transfer in

the copper industry is almost instantaneous, and

SX-EW is particularly attractive to debt-ridden

LDCs because of its low capital cost and undemanding operational requirements (see ch. 10).

Technologies affecting demand also play an important role in setting long-term copper prices.

The impact of these innovations is as uncertain

as future supply, however. Even the effects of

technologies now on the drawing board, such as

superconducting materials and their applications,

are highly uncertain (see ch. 4). Completely unanticipated innovations could make or break the

copper industry by replacing the metal in critical applications or providing broad new uses.

The Effects of Price Instability

Copper prices historically have been volatile

(see figure 3-3). A large portion of copper consumption is in electricity, construction, and

transportation— industrial sectors normally associated with economic growth and development.

Copper demand is so sensitive to these sectors

that it tends to fluctuate much more wildly than
59

Figure 3-3.-London Copper Price

0’

i I I I

1900 1920 1940 1960 1980

SOURCE Kenjl Takeuchi, The World Copper Industry Its Changing Structure and

Future Prospects (Washington, DC The World Bank, 1987)

they do (see box 3-E). Demand for copper grows

radically during periods of industrial expansion

and experiences severe declines when industrialization wanes. These swings in world demand

are usually reflected in prices on the exchanges,

where even a few large buy or sell orders can

drastically affect short run prices.

Unstable copper prices create difficulties for

both producers and consumers. Economic forecasting by management prior to deciding to proceed with an operation includes a prediction of

anticipated copper prices. With volatile prices,

such predictions are very difficult. Indeed, it was

the relatively steady price increases of the late

1960s and early 1970s, combined with the increase in demand prompted by the Vietnam War,

that encouraged the opening of so many new

mines in the early 1970s. But the inability to predict the oil embargo with its ensuing recession

quickly burst this bubble. A second severe recession within 5 years meant record copper inventories, and tolled the death knell for many

mines. 37

Unstable prices also make it difficult for copper consumers to plan their production line. For

a given application (e. g., automobile radiators),

copper may be the best choice at a given price.

But if copper prices rise, aluminum or plastics

may be preferred. If the manufacturer changes

JzstraU~S, supra note 24.

to another material, and then copper prices go

down, he must decide whether to revert to copper. Frequent switches are difficult, however, because changes in raw materials usually mean

changes in design, in production equipment, and

in labor skills. 38

If copper has certain properties that require that

it be used regardless of cost, the manufacturer

loses control of his production cost. Changes in

the cost of copper may mean losses on inventories when prices go down, or more cash tied up

in stocks when prices rise. Moreover, the consumer is faced with frequent adjustments to prices

and difficuIty in maintaining profit margins.39

Unstable copper prices also create major problems for countries that depend on copper exports

for foreign exchange. When copper prices are

high, such countries enjoy improved balances of

trade and tax revenues, and are able to pay interest on their foreign debt. When copper prices

are low, however, their foreign exchange earnings and tax revenues decline, and they may be

forced to borrow from the Compensatory Financing Facility of the International Monetary Fund

to meet interest and amortization payments. As

noted previously, as of April 30, 1986, 6 countries had outstanding CFF/lMF loans totalling

almost $1.4 billion that were tied to problems arising from loss of copper export earnings.40

381 bid.

Figure 3-4.-GNP Compared to Copper Price

(1973-77)

Percent change

.

— G N P

40 “.

.

2 0

.

\ I

o . ,

,

I . I

- 2 0

- 4 0

/

\ ’

, , ,

1973 1974 1975 1976 1977

Year

LME price

SOURCE Office of Technology Assessment.
60

BOX 3-E. —The Volatility of Copper Prices and Demand

Figure 3-4 contrasts the changes in U.S. gross national product (as an indicator of general economic

growth) with the average annual copper price for the years 1973 to 1977. These were years of radical

economic change. 1973 had been the year of greatest economic activity yet recorded. Then the boom

halted abruptly in mid-1974 as the effects of the oil embargo began to be felt in steeply rising energy prices.

This was followed by a severe recession in 1975, with fairly rapid recovery in 1976 to 1977. Despite these

radical economic conditions, GNP fluctuated by only a few percentage points during 1973 to 1977. In

contrast with the single-digit percentage changes in GNP during these years, copper prices rose or fell

by double-digit percentages. The price went from a 1972 (pre-oil embargo) average of 48.5 cents/lb on

the London Metal Exchange, to a 1974 average of 93.1 cents/lb, and back to 59.4 cents/lb for 1974.1

Demand also was very volatile over the same period, going from 2.2 million tonnes in 1973 and 1974,

to almost 1.5 million tonnes in 1975. It then increased to 1.9 million tonnes in 1976 and 2.1 million tonnes

in 1976 and 2.1 million tones in 1977.2 The volatility of copper consumption arises from the large proportion of demand that is linked to industrial capital expenditures, construction activity, and major consumer

durable items such as automobiles and appliances.3 In addition to general economic trends, U.S. copper

demand in the 1970s was affected by significant structural changes related to substitution. Copper’s intensity of use fell about 25 percent between 1970 and 1980, primarily due to automotive and products downsizing, design changes to conserve materials or increase efficiency, and substitution by aluminum.4

I U.S. Bureau of Mines, M/nera/s Yearbook, various years.

‘I bid., U.S. consumption of primary copper plus old scrap.

‘Simon Strauss, Troub/e in the Third Kingdom (London: Mining Journal Books Ltd., 1986).

W .S. Bureau of Mines and U.S. Department of Commerce, Domestic Consumption Trends, 1972-82, and Forecasts to 1993 for Twelve Major Metals

(Washington, DC: US Department of the Interior, Bureau of Mines Open File Report 27-86, January 1986).
Chapter 4

Market Structure
CONTENTS

Page

Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

Domestic and World Copper Supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

Capacity Utilization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

Mining . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

Smelting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

Refining . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

Leaching and Solvent Extraction/Electrowinning . . . . . . . . . . . . . . . . . . . . . . . . . 72

Future Supply Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

Properties and Uses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

World Consumption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

Technology and Future Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

Concentrates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

Blister and Anode . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

Refined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84

Copper Markets in Centrally Planned Countries . . . . . . . . . . . . . . . . . . . . . . . . . . 84

Box

Box Page

4-A. Phelps Dodge and SX-EW Processing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

Figures

Figure Page

4-l. Average London Metal Exchange Price, 1980-86 . . . . . . . . . . . . . . . . . . . . . 63

4-2. World Copper Mine Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

4-3. Copper Mine Production in the Market Economy Countries. . . . . . . . . . . . 67

4-4. Trends in Mine Production, 1970-86 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68

4-S. Productivity in the U.S. Copper industry, 1973-86 . . . . . . . . . . . . . . . . . . . . 69

4-6. Primary Smelter Production: The U.S. Share Has Declined . . . . . . . . . . . . 70

4-7. Primary Smelter Production: 1970, 1980, 1986 . . . . . . . . . . . . . . . . . . . . . . 71

4-8. Primary Refinery production, 1986 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

4-9. U.S. Production of Refined Copper by Source, 1970-86 . . . . . . . . . . . . . . . 72

4-10. Distribution of Electrical and Electronics Uses in Copper Demand . . . . . . 78

4-n. U.S. Copper Demand by Sector: 1979, 1982, 1986 . . . . . . . . . . . . . . . . . . . 78

4-12. Refined Copper Imports as Percent of Domestic Refined Consumption . . 84

Tables

Table Page

4-l. Overview of U.S. and world Copper Markets: 1980-86 . . . . . . . . . . . . . . . . 64

4-2. Solvent Extraction/Electrowinning Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

4-3. U.S. Copper Trade, 1970) and 1986 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82

4-4. 1986 Concentrate Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

4-5. 1986 Blister and Anode Copper Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

4-6. 1986 Refined Copper Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84

4-7. Copper Production in Centrally Planned Countries . . . . . . . . . . . . . . . . . . . . 85
Chapter 4

Market Structure

During the 1980s, copper companies worldwide struggled to adjust to a changing market

environment. Western world’ copper production

capacity grew, while consumption declined in industrialized economies due to the 1982-83 global

recession and the aftershock of the energy crisis. Copper demand in less developed countries

(L D Cs) also was lower than expected as funding

for industrial development declined sharply with

staggering energy bills and growing international

debt. Thus, supply increased steadily despite decreases in demand and the real price of copper

during the first half of the decade (see figure 4-

1). Significant expansions in government-influenced production capacity, particularly in LDCs,

altered the structure of both the industry and the

market, From 1980 to 1983, inventories mounted

and prices dropped, forcing higher cost operations to reduce output or close. The domestic industry, because of its high wages, strict environmental regulations, and low ore grades, included

many high-cost producers and absorbed much

of the impact of the shrinking world market. Between 1981 and 1986, U.S. mine production declined 24 percent, while total Non-Socialist World

(NSW) mine output fell less than 1 percent.

‘All data In th IS chapter, u n less specitical Iy stated otherwise, are

Ilmlted to the Western world, also termed the market economy

countries, or the Non-Soclallst World (NSW). These refer to all copper producing and consuming market economy countries. This inCI udes Yugoslavia, but excludes Al ban ia, Bu Igaria, Czechoslovakia, Cuba, Democratic Republic of Germany, Hungary, Poland,

Romania, anci the USSR. China ts also excluded from consumptmn and production figures, but IS included in trade figures because

of the significant amount of copper Imported into China from NSW

countries i n recent years. A brief description of copper activities

outside the NSW market is provided at the end of this chapter.

Figure 4-1.-Average London Metal

Exchange Price, 1980-86

1

/ “

,/

05

, ,

, 1 1 ! 1 1 1 1 1 1 1 I 1 1

1970 1975 1980 1985

Year

— Current $

SOURCE U S Bureau of Mines data

This chapter reviews the current status of copper markets–supply, demand, and trade–for the

United States in particular and the Western world

as a whole. The chapter begins with an overview

of the events and trends in copper markets since

1980 that shaped the status quo. It then describes

copper supply (in capacity, and mine, smelter,

and refinery output) and consumption patterns

(by product and industrial sector). It also discusses

supply and demand trends that are likely to shape

the industry for the remainder of this century. Finally, the chapter analyzes recent trends in international trade in copper concentrates, blister

and anode copper, 2 and refined products.

2 BI ister is the copper produced by Smeltl ng and convert I ng; It

is converted to anodes In fire retlnl ng (See ch. 6)

OVERVIEW

At the beginning of this decade, the average tion and consumption were both around 7.1 milprice of copper on the London Metal Exchange lion tonnes (see table 4-l). That was the post-

(LME) was 99 cents/lb, J NSW stocks were just WWII heyday for the U.S. copper industry. In

over 1 million tonnes,4 and total refined produc- 1982, when the recession began to ripple through

the economy, consumption decreased slightly to 3AlI monetary figures ($ and cents)~ I n th IS chapter are In current

(or nominal) U.S. currency 6.8 million tonnes, prices dropped by 32 percent

‘~Tonnes refers to metric tons (2204.6 pounds). to 67.1 cents/lb, refined copper production rose

63
64

Table 4-1 .—Overview of U.S. and World

Copper Markets: 1980-86

(nominal U.S. cents/lb and 1,000 tonnes)

1980 1982 1984 1986

Average LME price . . 99.25 67.14 62.45 62.28

Stocks

U.S.a . . . . . . . . . . . . . . 314 695 564 225

NSW totai b. . . . . . . . . 703 1,100 1,200 796

Total refined production

U.S. . . . . . . . . . . . . . . . 1,726 1,694 1,490 1,479

NSW total . . . . . . . . . 7,070 7,233 7,275 7,523

Refined consumption

U.S. . . . . . . . . . . . . . . . 1,862 1,658 2,123 2,122

NSW total . . . . . . . . . 7,101 6,776 7,666 7,672

alnCludeS blister and materials in process of refining, PIUS refined coPPer held

by primary producers, wire and brass mills, and the New York Commodity

Exchange.

blncludes inventories of refined copper held by me MwJ York commodity

Exchange, the London Metal Exchange, and world refined-copper producers

clncludes primary arid secondary refinery output

SOURCE Office of Technology Assessment, from Bureau of Mines and WBMS

data

slightly to nearly 7.2 m i I lion tonnes, and inventories shot up nearly 60 percent to about 1.6 milion tonnes. s

The short-term factors that caused the market downturn include the high interest rates and

veak industrial economic growth that began

luring the recession. over the long term, the

hift of many developed countries away from

manufacturing to service industries; the miniaturization of many electronic parts; the downsizing of automobiles; and the substitution of

other materials for copper (primarily aluminum,

pIastics, and fiber optics) aggravated the drop

n demand.6 Finally, the strong U.S. dollar favored imported copper.

Not all operations adjust their output in response to changes in demand and price; producers consider factors other than current market

conditions. Social goals, such as maintaining employment levels and foreign exchange earnings,

are important to government-influenced operations. The market conditions for co-product metals are another major consideration. Third, mines

that must meet long-term contracts with smelters

for concentrates maintain production despite low

5World Bureau ot Metal Statlstlcs (W BMS), World Metal Stat/stIc5 Yearbook 1987 (May 1987).

bDomest/c Consumption Trends: 1972-82, and Forecasts to 1993

for Twe/\e M,?/or Meta/s (Washington, DC: U.S. Department of the

Interior, Bureau of Mines, IC 9101, 1986), p. 14,

prices and weak demand. The costs of closing

or slowing down an operation also play a role

in determining output levels. The influence of all

these factors was evident in 1982 when, despite

declining demand and prices, 60 percent of the

copper producers maintained or increased production. Inventories climbed by 36 percent as a

resuIt.

Demand remained stagnant until the economic

recovery belatedly reached the copper industry.

By 1984, consumption rose to 7.7 million tonnes

with refined production at 7.2 million tonnes (see

table 4-1 ). consequently, inventories dropped to

1.2 million tonnes.7 Even with stronger demand

and the reduction of world stocks, however, copper prices stayed low; the average LME price in

1984 was 62.5 cents/lb.

The failure of copper prices to improve in response to the revived market left many domestic producers scrambling to survive. Following

the sharp drop in 1982, NSW copper mine production inched upward while U.S. mine production fell slightly. For most domestic producers,

production cutbacks became necessary and high

cost mines were closed—some permanently.

The U.S. Bureau of Mines estimates that the mine

capacity of major U.S. producers fell nearly 20

percent between 1980 and 1984.8 Reserves at a

few mines that closed were depleted; other mines

could only produce economically at prices well

above $1/lb. The remaining producers were operating at levels far below capacity, however. I n

1983, U.S. copper mines operated at 58 percent

of capacity, while Chilean mines produced at 97

percent of capacity.9 10

Domestic producers, saddled with high labor

costs, lower ore grades, a high-value dollar, and

stringent environmental regulations had to re7WBMS, supra note 5.

8

janice L.W. Jolly, “Copper,” 1985 Minerals Yearbook (Washington, DC: U.S. Department ot the Interior, Bureau of Mines, 1987),

p. 327.

9

Janice L.W. Jolly, “Copper, ‘‘ Mineral Facts and Problems (Washington, DC: U.S. Department of the Interior, Bureau of Mines, 1986),

p. 201.

Incapacity utilization rates otien cannot be compared due to the

difficulties associated with defining and quantifying available capacity. However, it IS important to note that a major difference in

capacity utilization existed and that U.S. producers held significant

Idle capacity.
65

duce costs if they were to compete in the world

market. Major changes such as wage and benefit concessions, capital investments in plant and

equipment, revised mining plans (including higher cut-off grades and lower stripping ratios), overhead reductions, productivity improvements, and

debt restructuring were instrumental in reducing

costs (see ch. 10).

After peaking in early 1985, the dollar devalued

against the currencies of other developed countries, such as Japan. This brought benefits for domestic smelters in 1986. Initially, the Japanese

smelting industry attempted to retain its market

share by maintaining dollar prices for treatment

and refining charges. By December 1986, Japanese smelters, driven by mounting losses, were

forced to raise these charges by as much as 50

to 80 percent to adjust for the weaker dollar. ’ 11

‘‘D. Maxim, “Exchange Rate Developments and the Primary Copper Industry, ” paper presented at the conference on Public Policy

and the Competltlveness ot’ U.S. and Canadian Metals Production,

Golden, CO, Jan. 27-30, 1987, p. 12.

Copper operations in countries such as Spain,

Germany, and Finland also suffered from the

devaluation of the dollar. The value of the dollar rose, however, against the currencies of Chile,

Peru, Zambia, and Zaire, all major copper producers. This increased their profits in local currency terms.

By the end of 1986, the world copper industry

showed signs of a revival. production and consumption reached the highest levels in 10 years

and inventories dropped sharply—to less than half

the 1983 level. In 1987, the recovery continued.

Relatively strong demand (including increased

speculation), plus supply disruptions in Canada,

Zambia, and Peru, tightened the world copper

market. Inventories fell to minimum levels and

prices soared, providing a needed boost for both

domestic and world producers.

DOMESTIC AND WORLD COPPER SUPPLY

The copper industry is dynamic, with a constantly changing technical, corporate, and market environment. New technologies continue to

reduce costs and facilitate mining even very low

grade deposits. The nature of the industry–large

and capital intensive projects requiring extensive

exploration and development—often makes response to change slow, however. Entering and

exiting the market are neither simple nor cheap.

Exit costs are substantial and discourage closures

unless market conditions are severe or reserves

are exhausted.

Still, new sources of supply are needed to replace depleted ones. Even if copper demand continues to grow at its recent modest 2 percent annual rate or less, new mines will be needed to

keep the market in balance. To examine the

world copper supply outlook, and the role of the

United States therein, it is essential to identify

where supply and demand come from now, and

where they are likely to originate in the future.

Capacity

Identifying potential sources of supply (i.e.,

ore bodies and their developers) is relatively simple, but determining the production capacity is

more difficult. Capacity is a function of many factors, including price, technology, costs, ore grade,

and demand. Moreover, the definition of capacity

varies among analysts. Some reports use the rated

engineering capacity of equipment or plants,

regardless of actual or potential operating status.

Others use actual output for a given period,

regardless of underlying economic and other conditions (e.g., labor strikes, bad weather, or temporary fluctuations in ore grade). Furthermore,

some analysts do not include a mine’s copper

output in a country’s capacity data if copper is

not the primary metal produced (i. e., it is a byproduct or coproduct of other metal mining). As

a resuIt, capacity estimates vary widely, and output can be considerably greater or much less than

reported capacity.
66

The status of individual operations also is

often ambiguous. For example, facilities listed as

temporarily shut down may be considered available capacity when, in fact, they are highly unlikely to reopen (e.g., equipment has not been

maintained or has been cannibalized). The longer

an operation remains idle, the less likely that it

will resume production as technological advances

increase the capital investment needed to reenter the market. At the same time, corporate

strategies postpone the high costs associated with

permanent closure, substituting the lower maintenance costs of a “temporary” shut-down.

At the beginning of 1984, the U.S. Bureau of

Mines estimated copper mine production capacity in 37 countries at 7.4 million tonnes per year

(see figure 4-2).12 Twelve countries had mine capacity greater than 100,000 tonnes, accounting

for 90 percent of the total. The United States had

the largest share, with nearly 1.6 million tonnes,

followed by Chile with about 1.3 million tonnes.

Canada, Zambia, and Zaire also have substantial capacity, with 850,000, 600,000, and 544,000

tonnes, respectively, in 1984.

As of January 1987, annual mine capacity of

producing operations in the United States had

Figure 4-2.-World Copper Mine Capacity

(1984)

Major producers over 100,000 mt/yr

USA

Chile

Canada

Zambia

Zaire

Peru

Philippines

Australia

Mexico

S Africa

PNG

Yugoslavia

1550

o 400 800 1200 1600

1000 metric tonnes

SOURCE The World Bank

dropped slightly to about 1.5 million tonnes.13

Seventeen mines account for 92 percent of domestic capacity. Phelps Dodge has replaced Kennecott (now BP Minerals America) as the nation’s

largest copper producer. Phelps Dodge’s capacity

in four mines amounts to more than 530,000

tonnes (including 75,000 tonnes held by two Japanese partners), or 36 percent of domestic capacity. Also included in the domestic capacity total

is nearly 200,000 tonnes from BP Minerals’ newly

reopened Bingham Canyon mine.

Capacity Utilization

Copper’s strong demand growth and high earnings in the 1960s (and much of the 1970s) stimulated exploration and development for new

mines as well as expansions at existing faciIities.

The subsequent downswing resulted in a great

deal of this capacity being idled. Very low capacity utilization rates frequently were cited to highlight the industry’s distress, especially in the

United States. When prices rose so dramatically

in 1987 and domestic production did not increase correspondingly, it became apparent that

significant idle capacity was not waiting in the

wings for improved market conditions.

Spot shortages in copper markets during 1987

also imply that industry estimates of available (i.e.,

economically re-openable) capacity were high.

One estimate suggests that “only 45 percent of

the 0.9 million tonnes of mine capacity on standby at the end of 1985 was genuinely re-openable.” 14 Comparing 1986 Western world production data to an International Wrought Copper

Council estimate of available capacity yields utilization rates of 82.6 percent, 86 percent, and

87.5 percent for mines, smelters, and refineries,

respectivel y. 15

Mining

Since 1970, 52 market economy countries have

reported copper mine production. In 1986, NSW

‘ ‘Simon Strduss, “Copper: In 1986 the Metal Belied Its Reputation for Volatility, ” Engintwvng and ,Mlning /ourna/, March 1987.

‘“P.C. F. Crowson, “Aspects of Copper Supplies for the 1990s, ”

paper deliic’red at Copper 87, conference held In Chile, No\ember 1987.

151bid.
67

copper mines produced 6.66 million tonnes.

While nearly 40 Western countries reported

mine production, eight—Chile, the United

States, Canada, Zambia, Zaire, Peru, Australia,

and the Philippines—accounted for 78 percent

of total mine output (see figure 4-3). ’6

The U.S. industry led the world in copper

mine production for over a century, but lost that

position to Chile in 1982. As shown in figure 4-

4, Chile’s copper industry has been growing rapidly, with mine output nearly doubling from 1970

to 1986. At the same time, U.S. copper production was declining; in 1986 it was 27 percent

lower than in 1970. Zaire and Canada show modest growth, while Zambian production has declined slightly. Output from the numerous other

producers has increased sharply, due in part to

strong growth in countries that already had established mining industries (e.g., Mexico and Peru),

and in part to the appearance of new producers

such as Papua New Guinea and Indonesia.

Chile mined nearly 1.4 million tonnes in 1986

(21 percent of total output). Corporation del

Cobre de Chile (Codelco–Chile’s nationalized

copper company), announced ambitious plans

‘f’janicv L. LV, IOIIV and Daniel Ede15teln, “Copper,” preprint trom

/986 Bure,]u ot ,tllnes A1/ner,]/\ }e~irbook (Washington, DC, U.S.

USA

Canada 7

z

for expanding mine production, but budget constraints prevented their implementation.

In 1986, the U.S. industry continued to recover

from its weak 1983 level, increasing mine production almost 4 percent to around 1.2 million

tonnes (17 percent of NSW total). Arizona accounted for nearly 70 percent of U.S. output, with

New Mexico and Michigan in second and third

places. In total, 87 mines located in twelve States

produced copper in 1986; at 61 of these, copper was the primary product, and at 26 it was a

byproduct of gold, lead, silver, or zinc mining.17

Two U.S. mines reopened in the second half of

1986, including Bingham Canyon in Utah and the

Continental Mine in Butte, Montana. Earlier that

year, things had not been so optimistic when inspiration reduced production by 40 percent and

laid off 300 employees.

The improved domestic position resulted from

a variety of efforts made by the domestic industry to enhance its competitiveness, including

lower labor, energy, and transportation costs;

capital investments in plant and equipment; and

changes in mining plans (see ch. 10). The impact

of these efforts is evidenced by the almost 40 percent increase in productivity in domestic copper

Figure 4-3.-Copper Mine Production in the Market

Economy Countries (1986) (1000 metric tonnes)

6

. . .

ai

2 3 9

-

2 >-3 -

5 6

----- -

---

PNG 174

S AfrIca 184

MEXICO 285

MlSC 663

Zamb a 450 Per u 397

SOURCE U S Bureau of Mines data
68

Figure 4-4.-Trends in Mine Production, 1970-86

7

6

5

4

3

2

1

0

I I

70 71 72 73 74 75

1 r’

Yea r

85 86

1

I

mining between 1980 and 1984, shown in figure

4-5.

Canada maintained its position as the third

largest copper producer in 1986 with output of

768,200 tonnes (1 1.6 percent). A strike during

most of November and December at Noranda’s

Home smelter, which processes ores from several small mines, resulted in slightly reduced

aggregate mine production. Three Canadian

properties-Highmont, Lornex and Valley–were

consolidated during the year and an increase in

their total output is expected. Deepening of the

Ruttan Mine also increased its output. ’8

I Blbici,

SOURCE” U S Bureau of Mines data

Zaire, the fourth largest copper producing

country, mined 563,000 tonnes in 1986. The

State-owned La Generale des Carrieres et des

Mines du Zaire (Gecamines) has a 5-year investment program to rehabilitate its industry. The program focuses on maintaining mine production capacity while raising productivity and reducing

costs, primarily through worker training, revised

mining plans, and capital invest merit. ’9

The Zambia Consolidated Copper Mines Ltd.

(ZCCM), which accounted for all of Zambia’s

mine, smelter, and refinery production, mined

450,000 tonnes of copper in 1986. As in Zaire,

I Ylbid,
69

Figure 4-5.-Productivity in the U.S.

Copper Industry: 1973-86

50 “\

40

30-

l o -

0 1 , , 1 I , , , I I ,

73 74 75 76 77 78 79 80 81 82 83 84 85 86

Year

— Mine-mil l

SOURCE U S Bureau of Mines

ZCCM announced a 5-year reorganization plan

to reverse deterioration of its copper operations.

The plan included near-term closure of 50,000

tonnes annual mine capacity as soon as reserves

already drilled become exhausted. The Kansanshi and Chambishi copper mines, and one shaft

of the Konkola mine closed by mid-1986. The

plan reflects a strategy to reduce excess smelter

and refinery capacities vis-a-vis mine production

and to increase SX-EW production. In total,

20,000 workers will be affected–3,000 in 1986

alone .20

Despite labor problems, Peruvian mine production was up slightly in 1986 to 397,400 tonnes.

Three State-owned mining companies (Centromin Peru, Minero Peru, and Tintaya) and one

privately-owned company (SPCC) accounted for

about 96 percent of Peru’s copper production.

The two largest companies–SPCC and Centromin—experienced a combined reduction in mine

output of around 19 percent .21

Approximately thirty other market economy

countries reported mine production in 1986, including copper produced as a byproduct of other

mining activities. These countries accounted for

29 percent of the NSW total with combined production equal to 1.9 million tonnes.

Smelting

Western world primary smelter production was

nearly 6 million tonnes in 1986—a 13 percent increase since 1970. Total NSW smelter production (primary and secondary) was 6.8 million

tonnes. While the United States still holds the

lead in total smelting (primary and secondary),

domestic primary output has dropped almost

40 percent relative to 1970. Chilean primary

smelter output has increased consistently in the

last two decades, passing the United States in

1982 to become the world leader (see figure 4-6).

Domestic smelters produced nearly 1.2 million

tonnes (1 7.5 percent of the NSW total), including 908,100 tonnes of copper from domestic and

imported ores and concentrates and 287,800

tonnes from scrap materials. Nine primary

smelters and seven secondary smelters operated

during 1986, with one of each closing permanently in 1987. The United States imported

almost .5,000 tonnes of copper contained in concentrates, versus 174,348 tonnes exported .22

The scheduled reopening of two domestic

smelters and the modernization of a third showed

evidence of a recovery in the U.S. primary copper smelting industry in 1986. The White Pine

smelter in Michigan reopened in 1986 and the

Garfield smelter in Utah restarted in 1987. Magma

Copper is installing an Outokumpu flash furnace

at its San Manuel, Arizona smelter. When it reopens late in 1988, the smelter will be the largest

single-furnace smelter in the world, processing

about 2,700 tonnes of concentrates daily.

Phelps Dodge’s Douglas, Arizona, smelter was

permanently closed in January 1987 as part of an

agreement reached between the company, the

U.S. Environmental Protection Agency, and the

State of Arizona. The Douglas smelter was built

in 1904, and PD would have had to completely

rebuild it to bring it into compliance with air quality standards. Phelps Dodge partially compensated for the loss of the Douglas smelting capacity by buying Kennecott’s two-thirds share in the

Chino, New Mexico mine and smelter in 1986.

2(’ I blci,

‘

1 Ibid. ~zlbld.
70

Figure 4-6.-Primary Smelter Production:

The U.S. Share Has Declined

Chile 12%

Zambia 13

Canada 9% Z a ire 7 %

1970

SOURCE: U.S. Bureau of Mines data

28%

Chile ranked second in smelting with reported

output of 1.113 million tonnes (1 6.2 percent of

NSW total), followed by Japan with 951,400

tonnes (1 3.9 percent). Zaire and Zambia are also

major players in smelting, reporting outputs of

480,000 and 452,000 tonnes, respectively, Other

top smelters included: Canada, 491,000 tonnes;

Peru, 297,700 tonnes; Federal Republic of Germany, 246,000 tonnes; and Australia, 176,900

tonnes. The residual total of all other smaller producers amounted to 1.42 million tonnes, or 20.8

percent of total NSW smelter production (see figure 4-7).23

Refining

Western world primary copper refineries produced 6.3 million tonnes in 1986–the strongest

level since 1982 and a 2 percent increase over

1985. Western refineries also produced nearly 1.2

million tonnes from scrap. World primary refinery production has increased about 12 percent

in the last 10 years, yet domestic production has

dropped 23 percent during that time. The U.S.

share of NSW primary refined copper production fell from almost 25 percent in 1976 to only

about 17 percent in 1986. Chile has enjoyed the

(

15%

1986

largest growth in refined copper production, increasing 47 percent since 1976.

Canada, Zambia, the Federal Republic of Germany, and Belgium are also significant producers of refined copper (see figure 4-8). Four of the

smaller producers—the Philippines, South Korea,

South Africa, and Brazil–have experienced dramatic increases in output. In 1976, aggregate primary production from these four countries was

126,500 tonnes, or 2.2 percent of the NSW total. By 1986, their combined primary refinery output had increased to 564,900 tonnes, or 8.9 percent of the NSW total.

Total domestic refined copper production rose

3 percent in 1986 to 1.48 million tonnes, including 406,000 tonnes from secondary sources

(smelter and refinery scrap). Primary production

was 1.07 million tonnes—a 1.5 percent increase

over 1985. Virtually all of that increase was attributable to electrowon copper. Primary sources

included around 5,000 tonnes imported concentrates and 35,000 tonnes imported blister and

anode copper (see figure 4-9). Twenty-four domestic refineries operated during 1986, including 8 electrolytic, 10 electrowinning, and 9 firerefining facilities (some refineries had more than

one type of facility).
71

Figure 4-7.-Primary Smelter Production: 1970, 1980, 1986

Chi

Japan

Can

USA

ChiIe

Japan

Zambia

Canada

Zaire

Per u

Germany, F R

Other

o 4 0 0 8 0 0 120 0 1600

1000 met r i c tonnes

SOURCE U S Bureau of Mines data

Figure 4-8.-Pri

USA 17%

mary Refinery Production, 1986

Ie

Other

13

da -.

R

30%

5%

. .

YugosIavia 5%

Spain 6%

B r a z i I 6 %

P h I I I p p i n es 7 %

S Korea 8 %

S Africa 8 %

Peru 12%

Zaire 12%

Other 35%

SOURCE U S Bureau of Mines data
72

250 0

200 0

150 0

5 0 0

0

Figure 4-9. -U.S. Production of Refined Copper by Source, 1970-86

1000 metric tonnes

Year

84

I 1

8 5 8 6

NOTES: Old scap only. 1986 data on imports not available

SOURCE’ U S. Bureau of Mines data.

Chile (935,000 tonnes) and Japan (827,700

tonnes) followed the United States, providing

14.7 and 13 percent of 1986 NSW refinery output, respectively. Thirty-one other countries reported production for the year, with the top 10

accounting for 80 percent of the total.

Leaching and Solvent

Extraction/Electrowinning

The current ability of the U.S. copper industry to produce copper at a price competitive in

world markets is due in part to expanded use

of solution mining and solvent extraction-electrowinning (SX-EW) technologies. As described

in chapter 6, solution mining (or leaching) uses

chemical solutions or water to extract copper

from ores. Solution mining can operate on vats

or heaps of ore mined specifically for leaching,

or the solutions can be applied to old mine workings and mine waste dumps. In the future, solution mining also will be used with undisturbed

ore bodies. After leaching, the copper is either

precipitated out of the solution, or the copperIaden solution goes through solvent extraction

and electrowinning plants to produce cathodes,

Production of copper cathodes using these techniques is far less complicated than conventional

mining/milling/ smelting, and can cost less than

30 cents/lb for old workings and waste dumps.
73

Photo credit’ Jenifer Robison

Sprinklers applying leach solution to mine waste dumps. Copper produced by leaching accounted for almost 19 percent

of U.S. mine production in 1986.

Leaching/SX-EW of oxide and oxidized sulfide

ores is very attractive in today’s competitive copper markets because the technology has low capital costs and can be amortized rapidly compared

to conventional mining, milling, and smelting. It

can be built quickly, is flexible in its applications,

and can be run practically at any scale; it has low

operating costs, including energy use and environmental control requirements; and it requires

minimal supervision compared to conventional

copper production .24

As a result, the number of ongoing and planned

SX-EW projects in the United States and other major copper producing countries have increased

significantly since 1980 as part of copper com -

~qunlted Nations Irldustrlal Development organization ( U N I De)),

Technological A/terrrat/~es tor Copper, Lead, Z/nc and T/n in Det’e/op/ng Countr/es, report prepared for the FI rst Consu Itatmn on

the Non-ferrous Metals Industry, Budapest, Hungary, July 1987.

panics’ strategies to reduce costs (see box 4-A).

In 1986, the United States had around 263,000

tonnes of SX-EW capacity. Another 186,500

tonnes are planned, 145,500 by 1990 (see table

4-2).

U.S. mines leached ore with a recoverable copper content of around almost 215,000 tonnes (including dump leaching) in 1986. Ten electrowinning plants operated in the United States in 1986,

producing around 125,400 tonnes of copper

(around 12 percent of U.S. primary refinery production).

25 26

At least five other Western countries currently

produce copper through leaching/SX-EW: CanJJJOIIY and Edelsteln, supra note 16.

‘“It should be noted that total elect rowlnnlng production reported

before 1986 included AMAX’S Bralthwaite, Louisiana, plant, which

processed Imported copper) nickel matte.
74

BOX 4-A. —Phelps Dodge and SX-EW Processing

Phelps Dodge (PD), the nation’s largest copper producer, has found the SX-EW facilities at its Tyrone

operation to be a major cost-cutter. In 1984, this plant produced around 10,300 tonnes of copper at a

total unit cost, including interest and depreciation, of less than 30 cents/lb.1 Leaching plus SX-EW reduced

overall Tyrone production costs as much as 11 cents/lb between 1980 and 1985.2 The process was so

successful that PD expanded the Tyrone electrowinning plant, increasing its output to about 32,000 tonnes

in 1986. Further expansion to a total capacity of 50,000 tonnes/yr is scheduled for 1988 to 1989.3

To further benefit from this strategy, PD is adding two other SX-EW plants–at Morenci and Chino.

These will require a capital outlay of $130 million, with approximately the same cost of production as

at Tyrone. The 45,000 tonne/yr SX-EW plant at Morenci began operation in 1987; expansion to a total

capacity of about 68,000 tonnes/yr is expected within the next few years. A 40,000 tonne/yr plant at Chino

is expected to come on line in 1988.4

Phelps Dodge also is evaluating a recently explored ore body near Bisbee, Arizona, for its leaching

and SX-EW processing potential. Preliminary drilling results indicate 155 million tonnes of 0.5 percent copper

ore amenable to SX-EW. If these results hold true in further exploration, annual production is estimated

to be around 40,000 tonnes/yr. S

These facilities, plus increased smelter production at Chino, should compensate for the approaching

exhaustion of sulfide reserves at Tyrone. The share of electrowon copper produced by PD using leaching

plus SX-EW is expected to rise from its 1986 level of 8.7 percent to 33 percent or more by 1989.6

‘G. Robert Durham, “Remarks,” speech gwen at the Northwest Mining Association, 92nd Annual Meeting, Spokane, Washington, December 4, 1986.

‘U ntted Nations Industrial Development Organ lzatlon (UN I DO), Techno/ogica/A/terndtWes for Copper, Lead, ZIrrc and T/n In De\e/op/ngCounlr)es, report prepared for the First Consu Itatlon on the Non-ferrous Metals Industry, Budapest, Hungary, july 1987,

“’Phelps Dodge Has Something to Smile About, ” Engineering and Mirrjng Journal, August 1987.

41 bid.

5“North American SX-EW Copper, ” M/ne De~e/oprnent B/month/y, vol. V, No. 2, Oct. 31, 1987.

6Errgineer/ng and M/rr/rrg /ournal, su pra note 3.

ada (5,OOO tonnes capacity), Chile (90,000 tonnes

capacity), Peru (35,000 tonnes), Mexico (14,000),

and Zambia (475,000). Near-term expansions

have been announced at Chuquicamata in Chile,

and Cananea in Mexico. Reported electrowon

copper production in these countries in 1986 was

over 130,000 tonnes.

Future Supply Considerations

Overcapacity and low copper prices have existed in the copper industry throughout most of

the 1980s. Ambitious development plans prevalent in the 1970s have largely been replaced

with strategies aimed at reducing costs at existing facilities. Most recent capacity increases have

been new or expanded SX-EW facilities. With

the exception of small, relatively high-grade deposits, this trend is expected to continue until

in situ solution mining techniques become commercial. Then U.S. producers will begin to exploit large oxide deposits, again with SX-EW technology,

Planned expansions of traditional mining capacity primarily are overseas, where labor costs

are lower, ore grades higher, and environmental

regulations less stringent. The Ok Tedi Mine in

New Guinea began producing copper in 1987,

with long range plans for a capacity of 600,000

to 700,000 tonnes/yr of concentrates. However,

continuing financing and operational difficulties

make the amount produced and the schedule uncertain. During 1988, the Neves Corvo mine in

Portugal is projected to come on line with an annual capacity of about 100,000 tonnes of copper in concentrates, and the new Australian operation, Olympic Dam, will add an additional

55,000 tonnes. The Escondida mine in Chile is

tentatively planned to come on line in the early

1990s (perhaps as early as 1991), with Utah international holding a majority share. Initial
75

Table 4-2.—Solvent Extraction/Electrowinning Capacity

Planned

Existing capacity Estimated

capacity a Operating addition cost

Project Location (tonnes/yr) status (tonnes/yr) ($/lb) Comments

Bisbee . . . . . . . . . . . . . . . . Arizona

Cyprus Bagdad . . . . . . . .Arizona

Cyprus Casa Grande. . . . Arizona

Cyprus Johnson . . . . . . .Arizona

Inspiration . . . . . . . . . . .Arizona

Miami . . . . . . . . . . . . . . . .Arizona

Morenci . . . . . . . . . . . . . . . Arizona

Pinto Valley . . . . . . . . . . .Arizona

Ray . . . . . . . . . . . . . . . . . .Arizona

San Manuel . . . . . . . . . . .Arizona

Twin Buttes . . . . . . . . . .Arizona

Battle Mountain. , ... , . . Nevada

Chino . . . . . . . . . . . . . ... New Mexico

Tyrone . . . . . . . . . . . . . . . New Mexico

Gibraltar . . . . . . . . . . . . . . BC, Canada

Chuquicamata . . . . . . . . . Chile

El Teniente. . . . . . . . . . . Chile

Lo Aguirre . . . . . . . . . . . .Chile

Las Cascadas . . . . . . . . .Chile

Cananea . . . . . . . . . . . . . . Mexico

Cerro Verde . . . . . . . . . . . Peru

Nkana . . . . . . . . . . . . . . . .Zambia

Nchanaa . . . . . . . . . . . . . . Zambia

6,800

18,000

4,300

45,000

6,000

45,000

8,000

36,000

22,500

30,000

6,500 —

35,000

5,000

50,000

5,000

14,000

20,000

14,000

35,000

125,000

350.000

NA = not available.

aA~t”al production in any year may be less

Open

Open

Closed

Open

Open

Open

Open

Open

Open

Closed

Closed

Open

Open

Open

Open

Open

Open

Open

Open

Open

Open

SOURCE Off Ice of Technology Assessment, from data published by the U S Bu

ment Organization

planned output is 200,000 tonnes/yr, increasing

to 300,000 tonnes/yr. Other new projects include

the Salobo copper-gold deposit in Brazil (1 10,000

tonnes/y r); the Maria mine in Sonora, Mexico;

and the Ansil property in Canada (30,000

tonnes/yr) .27

These expansions will be balanced to some extent by cutbacks in other regions. Mines that are

nearing the exhaustion of their resources include

Tyrone in New Mexico and Prieska in South

Africa. Operational problems (including disrupreau of

41,000

22,000

13,000

23,000

12,000

22,500

41,000

15,000

40,000

20,000

- . . . . . -- .., .

0.45

<0.40

0.50

<0.60

0.60

0.25

0.37

0.50

0.45

0.50

0.50

<0.30

<0.30

0.35

0.45

<0.30

0.35

0.60

NA

0.40

0.35

NA

drilling snows 155 million

tonnes 0.5°/0 Cu amenable to

Sx

Cost includes mining; without

mining, cost is 29 cents/lb

Purchased from Noranda in

1987; ore leached in situ

Closed permanently at end of

1986

All mined ouput for 1986-87

processed by leaching

Date of expansion uncertain

Leaching low-grade sulfide ore;

leaching of tailings to begin

in 1989

Leaching 1.25°/0 silicate ore

Planned in situ leaching and

capacity expansion to begin

1988

Mine leased by Cyprus in 1988;

SX-EW status uncertain

Startup expected late 1988

Expansion expected 1988-89

Opened in 1986; first SX-EW in

Canada

Current expansion planned for

1990; long-term plans for

250,000 tonnes total

Startup expected late 1988;

leaching low-grade

(0.15-0 .45% Cu) dumps

Must be re-refined

Mines, Mine Development Bimonthly, and the United Nations Industrial Developtions due to weather and labor) continue to trouble Chile, Peru, and several smaller producers.

Mine operation and development in Zambia and

Zaire have suffered from inadequate capital investment and now are having trouble attracting

skilled employees due to the unstable political

environment and the threat of AlDS; their future

output is thus uncertain. Finally, efforts to reduce

production costs in recent years, including higher

cut-off grades, lower stripping ratios, and abandoning low-grade sections of underground mines,

have reduced the life of some mines.28

~-Simon D. Straus$, “Copimr. Prl( e~ Sur~ed Unw,pectedly, ” Engneerlng ,]nd ,\l/n/ng /ournCi/, April 1 ’988 181 bid.
76

DEMAND

Properties and Uses

Copper possesses valuable physical, chemical,

and mechanical properties that make the metal

and its alloys29 useful in nearly every sector of

the economy. Copper exhibits very high electrical conductivity (second only to silver in volumetric conductivity, and to aluminum in mass

conductivity), as well as high thermal conductivity. It also is nonmagnetic and is among the

strongest and most durable metals while still being highly malleable. Moreover, copper is especially resistant to corrosion and fatigue, and inhibits the attachment of organisms such as algae,

mussels, and slime to submerged structures (biofouling).

Demand for copper in individual sectors of

the economy varies with economic conditions

and consumer demand for products (e.g., electricity demand growth, housing starts, automobile purchases), as well as with the price and

availability of materials that might be used instead of copper. Over the last two decades there

has been a significant increase in copper use in

the electrical and electronics industries due to the

growth of electronic devices in computers and

telecommunications, consumer products, and

automobiles. The combination of all electrical/

electronics uses accounted for an average of 50

percent of the semifabricator market during the

1960s, but had risen to around 70 percent of

apparent domestic consumption by 1986.30

Construction industry demand ranked second

in 1986, with 15 percent. The major non-electrical uses there included plumbing and heating

materials, air conditioning and commercial refrigeration equipment, and roof and wall cladding.

Next was the industrial machinery and equipment industry, with 6 percent of total domestic

demand. in-plant equipment and industrial valves

and fittings are the major non-electrical uses in

this market. 31

~gI ncludl ~g brass, bronze, copper nickel, copper-nickel-zinc alloy and leaded copper; see ch. 1,

Iojolly and Edelstein, supra note 16.

‘1 I bid.

The diversity of uses for copper and its alloys

is evidenced in the range of consumer goods and

general products associated with these materials.

Consumer goods containing copper metal or its

alloys vary from appliances and cooking utensils

to fasteners to jewelry and objets d’art. Other miscellaneous uses include coinage, chemicals,

pharmaceuticals, and furnishings. Consumer

goods and miscellaneous applications (including

non-electrical military uses) represented 5 percent of 1986 total domestic demand for copper

mill products. 32

Virtually all modes of transportation contain

copper products. Radiators, bearings, and brake

linings are only a few of the many automobile

parts made with copper or copper alloys. Resistance to corrosion and biofouling have made

copper products invaluable in a number of applications associated with marine transportation,

including propeller shafts, steam and water lines,

and cladding for hulls. The railroad, aircraft and

aerospace, truck; and bus industries also make

widespread use of copper products. In total, the

transportation industry accounted for the remaining 4 percent of domestic demand for copper mill

products in 1986.33

The shares of demand for these end-use sectors change substantially when the electrical and

electronics applications are distributed among

them (e.g., the majority of electrical wiring is included in construction, and copper wire in cars

and trucks is included in the transportation sector rather than in electrical/electronics uses; see

figure 4-1 O). Again, significant variance over time

also is evident. Figure 4-11 compares U.S. copper demand by sector for 3 years: 1979, a year

of record consumption; 1982, a recession year;

and 1986, a year of recovery.

Using these disaggregate data, the major domestic market for copper in 1986 was the construction industry, accounting for around 41 percent of total demand. The second largest market

–23 percent–was in the electrical industry for

cable, electric motors, power generators, fans,
77

Architectural uses of copper have seen a renaissance in the 1980s, in part due to the low price and in part to new coatings

that greatly retard formation of the patina caused by exposure to the elements. Here, a copper strip is placed

above reflective glass windows.

blowers, lighting, industrial controls, transformers, bus bars, and switchgears. Next was the

industrial machinery and equipment industry,

with 14 percent of total domestic demand, followed by transportation (almost 13 percent), consumer goods and miscellaneous applications (9

percent) .34

Copper is a significant critical metal. While only

1 percent of U.S. copper consumption goes to

ordnance, per se, copper wire is a critical component of all electrical and electronics needs, including command-communication-control-intelligence (C3

1) systems. Military aircraft and

vehicles, and tactical, strategic, and advanced

weaponry systems also use significant quantities

~~copp~r Development A\soc Iat Ion, ‘‘Copper and @W~er Al IOY

MIII Products to U.S. Markets– 1986, ’ CDA Mdrket Data, May 10,

1987.

of copper. Military demand for electronic equipment and computer components is expanding.

Finally, the vast industrial base that supports the

national defense requires machinery and goods

containing copper. 35 For example, copper demand doubled within the first year of WWII , and

increased 25 percent within the first year of the

Vietnam War.

World Consumption

Total NSW demand for refined copper36 was

7.67 million tonnes in 1986. The United States

is the largest user of refined copper, with conJ5LOU IS Sousa, The U.S. Copper Industry, Problems, Issde$ and

Out/ook (Washington, DC: U.S. Department of the Interior, Bureau of Mines, October 1981 ).

~~consu Mption of u nwrought refined copper, whether refined

t’rom primary or secondary materials, except the direct use of copper in scrap.
78

Figure 4-10.-Distribution of Electrical and Electronic s

Uses in Copper Demand

Constructio n

0%

M

Consumer

5%

Transport

4%

Electrical /electronics uses

accounted for separately

(copper content o f

apparent consumption )

SOURCE: US. Bureau of Mines, Copper Development Association

Figure 4-11. -U.S. Copper Demand

by Sector: 1979, 1982, 1986

Percent of total demand

601 m 1

30

20

10

Elect Equip

Sector

SOURCE: US Bureau of Mines data.

sumption of 2.1 million tonnes. Demand in Japan, the second largest consumer, was around

1.2 million tonnes. European consumption of refined copper was 2.8 million tonnes in 1986, with

five countries–the Federal Republic of Germany,

France, Italy, the United Kingdom and Belgium–

accounting for almost 80 percent of European de13% . . . . . . . . . . . . .

. . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . .

. . . . . . . . . . . . .

. . . . . . . . . . .

.. .,...,

. . . .

Consumer /MI sc

10% L

among t he o t he r end-us e sectors

( gross weight shipments )

mand. Although Chile, Zaire, and Zambia are major copper producing countries, their consumption of the metal is low. Combined demand for

the three of 45,000 tonnes in 1986 represented

less than 1 percent of NSW refined copper

demand.

Remelting of unrefined copper scrap by semifabricators amounted to 2.5 million tonnes in

1986. Brass mills and other fabricators in the

United States and Japan were the primary consumers of scrap. Domestic consumption of copper scrap by brass mills declined 8 percent in

1986 due to supply shortages resulting from increased scrap exports and narrow profit margins

for scrap dealers. At some times, #l scrap was

actually more expensive than refined copper. Because of the scrap shortage, primary refined copper consumption at brass mills increased 26 percent during 1986.37
79

Technology and Future Demand38

In the last forty years, transistors and subsequent microelectronic technologies have had far-

-reaching effects. A host of derivative technologies

have evolved, such as advanced global communications and the array of services and products

introduced by the computer. The copper industry experienced both positive and negative impacts from this transition. The electronics industry

provided a sizable market for copper, representing nearly a quarter of domestic consumption i n

1986. However, the evolution of microelectronics

also brought more efficient technologies that decreased the intensity of copper use in some applications, including reducing wire size and

replacing the metal with optical fibers. In electronics, high-temperature fabrication and performance needs also have led to a shift from pure

copper to specialty alloys such as beryllium copper. Copper alloy consumption in electronics has

grown fivefold since 1975.39

Other recent technological developments having a negative impact on copper demand include

low-cost brazing methods, which allowed aluminum to replace copper in large portions of the

automotive radiator market; temperature-resistant

plastics that have replaced copper in many

plumbing tube applications; and aluminum alloys

that made aluminum wire and cable more competitive with their copper counterparts.

In balance, though, domestic copper consumption has grown at a modest rate of about

2 percent annually since 1970. over the same

period, consumption in the rest of the market

economy countries has averaged 3 percent annual growth, for an NSW average of around 2.4

percent.

Predicting future growth is difficult for a number of reasons. First, as noted above, technological changes have both positive and negative impacts on copper demand. This is evident even

in individual products. For example, the Copper

Development Association estimates that inJH u n le55 Ot her~vlse noted, the Info rmat ion I n t h Is SeCt iO n Is from

a presentation given by bl’I I I Ia m Dresher, I nternat Iona I Copper Re-

~ea rc h A$soclatlon, at Copper 87, i n Ch I Ie, No\em her 1987.

IIJjc)I Iy ancj Edelstel n, su pra note 16.

creased electric and electronic applications in automobiles since 1980 have more than offset reduced copper use due to downsizing of cars and

the one-third market share currently enjoyed by

aluminum radiators. A passenger car contained

around 41 pounds of copper in 1975, 36 pounds

in 1980, and 48 pounds in 1986. This increase

is projected to continue through at least 1990. 40

A second major difficulty in predicting shortterm future demand is the inability to foresee

general economic conditions. For instance, a

1980 Resources for the Future study suggested

that demand surges between 1980 and 1985

would lead to copper shortages .4’ Instead, there

was a major recession accompanied by capacity increases and substantial oversupply. Although

domestic demand grew at an average of 2 percent during 1970-1986, those years saw two

recessions, two periods of double-digit growth,

and several unusual market shifts (e. g., the rise

of personal computers and the effects of the oil

crisis).

Even more difficult to predict are demand

surges caused by new technologies. Much of the

technological research affecting copper consumption goes on outside the industry that

produces the metal, making forecasting even

more difficult. Estimates for the next 10 years

made by the Copper Development Association

include an enormous short-term growth in demand for consumer electronics, telecommunications, information services, and copper-dependent electronics such as heat pumps and devices

in automobiles.

Copper-based marine antifouling paints will increase rapidly through the early 1990s. Existing

paints use tributyltin (TBT), which is being banned

for environmental reasons. Copper paints may

only provide one year’s protection, compared to

3-7 years for TBT paints. Thus they will have to

be applied more often. Over the long term, cop-

~~copper De\el Opr-nent Association, ‘‘ Use in Autos Rises = Ca rs

Increase Electrical/E[ectronlc Systems, ” Copper Topics, No. 61, Winter 1987.

~1 Leonard L, Flschman, \\{or/d Mjrreral Trends and U.S. SLJPPIY

F’rob/erns (Washington, DC: Resources for the Future, Research Paper R-20, 1980).
80

per paints probably will be replaced by non-stick

coatings similar to Teflon. 42

Further down the road–perhaps 10 to 20 years

—the effects of new technologies, including superconductors (which use copper), might vary

from a major expansion in copper-consuming applications to drastic reductions from substitution

and obsolescence. Technological forecasting becomes completely opaque when it comes to radically new inventions, however. Something to42H ugh McKellar, “Good Substitutes Will Lessen Impact of Ban

on TBT Paints, ” Nationa/ Fisherman, December 1987, p. 5.

Photo credit: Argonne National Laboratory

Superconducting wire, ready for testing.

tally unforeseen could be invented tomorrow that

dramatically increases or decreases the demand

for copper.

Of known technologies, superconducting materials and their applications probably have the

greatest potential to impact future copper demand. A possibility exists for tremendous growth

in copper usage arising from several feasible developments in superconductor technologies, including: 1 ) the need for copper oxide in all high

temperature superconductors as part of the

chemical makeup; 2) the use of a predominantly

high purity, oxygen-free copper stabilizer in stateof-the-art superconductors; 3) the development

of “electricity pipelines” where electrical power

would be transmitted in copper-clad superconductors cooled by liquid nitrogen;43 and 4) a significant decrease in the cost of generating and

transmitting electricity could increase electricity

consumption and the demand for copper in wire

and cable applications would grow as well.

While the potential for expansion in copper

usage exists with the introduction of superconductor technologies, negative impacts also could

be realized. The development of a superconductor requiring no coolant or stabilizer could be

devastating, possibly replacing copper in all major electrical conduction applications. In addition,

superconducting electrical generators have several advantages over copper-wound generators

and require significantly less copper per megawatt. The new superconductor generators are

especially usefuI where space is a consideration

and are already replacing conventional wirewound generators in icebreakers and submarines.

430n ly a few ‘ ~electricity PI Pe[ i nest f wou Id be needed to Service

an entire continent, However, aluminum would be displaced from

high voltage transmission lines.

TRADE

Until the 1960s, most major copper operations mills; in other cases, blister copper or anodes

were integrated in the sense that ore was mined, were shipped to refineries located closer to fabrimilled, and smelted within the same region— caters. This pattern evolved in part due to the

often at the same site. Many operations were fur- transportation costs for copper contained in conther integrated to include refineries and wire centrates (20-30 percent Cu) versus copper in blis-
81

ter (98.5 percent) and anodes (99.5 percent).

Nearly all trade occurred in the form of refined

copper. As a result, much of the value added accrued to the country or region where the ore was

mined, or at least to the mining company.

In the early 1960s, the rapid growth of Japan

and West Germany, both deficient in copper resources, greatly increased the proportion of copper trade in concentrates. As part of their raw

materials strategies for postwar industrialization,

these countries built smelters at home, financed

mine development abroad, and arranged longterm contracts for trade between the two.44 The

trend toward increased trade in concentrates continued in the 1970s and 1980s, as financing and

operating smelters became increasingly difficult,

and as the Clean Air Act compliance deadlines

neared for U.S. smelters. Over the last 20-25

years, many major new mines developed around

the world were not paired with local smelters.

In Japan, this strategy was based on the reasoning that, by importing copper concentrate and

smelting and refining it themselves, they could

gain the value added in processing. Over time,

increased Japanese smelter capacity would encourage the development of new copper mines

in the Philippines, Papua New Guinea, and elsewhere around the Pacific Rim. This would mean

security of concentrate supply by making mines

dependent on Japan to buy their concentrates.45

producing sulfuric acid from the smelters’ sulfur dioxide-laden gases meant even more value

added, as this byproduct could be sold profitably

to the growing Japanese chemical industry.4G Japanese smelters were also given an advantageous

pricing system, whereby Japanese industries paid

higher than world market prices for copper and

sulfuric acid. This system was supported by high

tariffs on refined copper and sulfuric acid, and

essentially provided an indirect subsidy to the

smelters. The smelting companies were then able

~isome of the (i nan{ i ng ~a me from otficia I govern ment lend I n~

I nstltuttons such as the Export- I m port Bank of JJpan and the Germ~ n Kred Itanstalt tu r Wiederaufbau.

““’Asset Restructuring in the U.S. Copper Industry, Part I: U.S.

Industry Re\ponds to Dramatic ChanRe\ In World Role, ” CRL’ Cop

per 5tudIe$, \ol. 14, No, 4, (ltoher 1986 .

~~jal)an a 150 prod Uces elemental su Itu r and gYP5U m ~~lth the su 1-

tu r dIox Icfe (see ch. 8). They export both su Itunc acid and su Itur.

to offer foreign mines terms well below what it

would cost to finance, build, and operate smelters

and refineries.47 These generous terms drew a

great deal of concentrate to Japan, and have been

controversial among U.S. smelting companies

since the 1960s. Most recently, they came under fire during the tight concentrate market in the

early to mid-1980s.

The world concentrate market has been characterized by an increasing group of players and

supply shortages in the last few years. The demand for concentrates has risen as new and modernized smelters have come on line in Chile, the

Philippines, and elsewhere. As a result, concentrate supplies available to Japan have declined.

High energy costs and the increased valuation

of the yen relative to the currencies of other

smelting countries also reduced Japan’s ability to

compete for input for its smelters.

As a result, Japan has moved to secure their

supply of concentrates by investing directly in

overseas mining capacity. In the United States,

Phelps Dodge (PD) sold a 15 percent interest in

its Morenci properties (excluding the smelter but

including SX/EW output) to a partnership subsidiary of Sumitomo Metal Mining Company and Sumitomo Corporation in 1986.48 For PD, this sale

provided much-needed cash flow, and reduced

the operating imbalance that resulted from closure of the Morenci smelter.49 For Japan, the sale

was linked to an agreement that Sumitomo would

obtain their share of the concentrate at cost.50

Japan’s overall strategy dovetailed neatly with

two other trends affecting smelter and refinery

capacity in the United States. The first was simply the age of U.S. operations. Of the major copper-producing countries, the United States has

the oldest industry, with many facilities operating since the early 1900s and before. Modernization often is not simply a matter of exchang4TCRU Copper Studies, su pra note 45.

Aaprevi~usly, Ken necott had so Id a one-t h I rd Interest I n J I I r)f the

output of Chino Mines to MC Minerals, a joint venture between

Mltsublshl Corp. and ,Vlitsublshl Metal Corp. PD purchased the remaining two-thirds from Kennecott in 1986.

“qG, Robert Durham, “Remarks,” speech given at the Northwest

Mlntng Assoclatlon, 92nd Annual Meeting, Spokane, Washington,

Dec. 4, 1986.

WCRU (_opp~r &Ud/eS, SU pra ‘Ote 45 .
82

ing outdated equipment, but replacing the whole

plant, and the cost frequently is prohibitive. Thus,

in the mid-1980s, PD closed their 100-year old

refinery at Laurel Hill, New jersey. The second,

and more significant, trend was the combination

of slow demand growth, smelter age, and Clean

Air Act deadlines for smelter sulfur dioxide controls. Of 16 domestic copper smelters operating

in the late 1970s, eight have been closed permanently.

The net result of all these events is that the

United States has reversed its early 1970s position as a net exporter of refined copper products and a net importer of concentrates, to become a net importer of refined products and a

net exporter of concentrates (see table 4-3). In

1986, the United States exported 15 percent of

its concentrate production, while net import reliance for refined copper, measured as a percent

of apparent consumption, was 24 percent. imports for consumption of refined copper reached

a record high level in 1986, up 33 percent over

1985. The ratio of net imports to consumption

exceeded 20 percent for the third successive year.

Canada and Chile were the principal sources

of U.S. imports of refined products. Canadian

copper accounted for almost 50 percent of the

increase in total refined imports since 1985. In

terms of economic significance, the value of U.S.

trade in copper concentrates has gone from

roughly equivalent exports and imports in 1970,

to net exports valued at $184.6 million in 1986.

Refined products have shifted from net exports

of $72.4 million in 1970, to net imports of $540.6

million in 1986.51

“jolly and Edelstein, supra note 16.

While the balance of mining/smelting and trade

probably has shifted in the United States more

than in other major copper mining countries,

trading patterns have changed worldwide. The

following sections present data on exports and

imports of copper concentrates, blister/anode,

and refined products for the major producing and

consuming countries.

While OTA is able to report quantities of exports and imports, despite our best efforts at sorting out the available data, it was not possible to

determine which trade went where. No single

U.S. or international organization tracks such interchanges unless they are reported by the countries involved. Discrepancies between exports

claimed by mining country A destined for consuming country B, and imports reported by country B allegedly originating in country A, confound

any attempts to map trade among mining, smelting/refining, and consuming countries.

Trade in copper contained in manufactured

goods (e.g., automobiles, television sets) is virtually impossible to determine, because it is not

reported. Moreover, the copper content of such

goods varies among models and manufacturers,

and over time, and thus is extremely difficult to

calculate. This is part of a broader problem affecting the analysis of changes in materials intensity

of goods and the balance of trade in raw materials. It could be alleviated by reporting requirements for the copper content of goods imported

to (and exported from) the United States. Such

reporting could, however, be quite burdensome

and may mean disclosure of what is currently

considered proprietary information for some

products.

Table 4-3.—U.S. Copper Trade, 1970 and 1986 (thousand tonnes and million nominal $U.S.)

1970 1986

Exports Imports Exports Imports

Product Tonnes Value Tonnes Value Tonnes Value Tonnes Value

Concentrates a 

. . . 55.81 $58.4 58.76 $77.7 174.35 $187.8 4.93 $ 3.2

Blister b 

. . . . . . . . . 7.10 7.5 203.43 224.3 15.96 17.4 34.55 60.2

Refined . . . . . . . . . 200.64 221.6 119.85 149.2 12.45 136.4 501.98 677.0

Scrap c 

. . . . . . . . . . — d 2.09 2.0 134.30 123.1 27.22 31.6

a

lncludes matte

b For Ig88, exports include precipitate, Imports include anode.

cUnalloyed.

d No t available; probably 16,000 to 18,000 metric tonnes.

SOURCE: Off Ice of Technology Assessment, from Bureau of Mines data.
83

Concentrates

In 1986, 1.4 million tonnes of concentrates

were exported from Western countries for processing elsewhere (see table 4-4). Canada was the

largest exporter that year, shipping out 341,400

tonnes. Chile was second with exports totaling

281,300 tonnes, followed by Papua New Guinea

and the United States with concentrate exports

of 178,800 and 174,400 tonnes, respectively.

Japan was by far the largest recipient of trade

in concentrates, importing 837,400 tonnes in

1986 (60 percent of all concentrates destined for

market economy countries). In contrast, 1986

mine production in Japan was 35,000 tonnes—

around 4 percent of smelter production. As noted

previously, Japan is experiencing increasing competition for this low value added material, and

their relative share of the market is expected to

decline gradually. On a much smaller scale,

twelve other countries imported concentrates in

1986 .

Blister and Anode

Eleven countries reported exports of blister and

anode copper in 1986; eleven also reported imports (table 4-s). Five countries reported both imports and exports of these products (France, the

Federal Republic of Germany, Italy, Spain, and

the United States); all were net importers. 52

Zaire and Chile were the largest exporters of

blister and anode copper, providing around 60

percent of market economy country exports.

Zaire exports about 50 percent of its total smelter

output, while Chile exported almost 18 percent

of its smelter production in 1986. Peru’s shipping

94,700 tonnes blister and anode copper represented nearly one-third of its smelter production.

The United States imported 46,300 tonnes of blister and anode copper in 1986, and exported

16,000 tonnes. Belgium, the United Kingdom,

and the Federal Republic of Germany were the

SIWBMS, supra note 5.

Table 4-4.—1986 Concentrate Trade (1,000 metric tonnes)

Importers Exporters

Japan . . . . . . . . . . . . . . . . . . . . ... , . 837.4 Canada . . . . . . . . . . . . . . . . . . . . . . . . 341.4

Germany, F.R. . . . . . . . . . . . . . . . . . . 161.3 Chile . . . . . . . . . . . . . . . . . . . . . . . . . . 281.3

South Korea. . . . . . . . . . . . . . . . . . . . 116.7 PNG . . . . . . . . . . . . . . . . . . . . . . . . . . 178.8

Spain . . . . . . . . . . . . . . . . . . . . . . . . . . 72.3 USA . . . . . . . . . . . . . . . . . . . . . . . . . . . 174.4

Canada . . . . . . . . . . . . . . . . . . . . . . . . 70.7 Philippines . . . . . . . . . . . . . . . . . . . . . 93.3

Taiwan ... , , . . . . . . . . . . . . . . . . . . . 44.8’ Mexico . . . . . . . . . . . . . . . . . . . . . . . . 90.0’

Finland . . . . . . . . . . . . . . . . . . . . . . . . 43.2 Australia. . . . . . . . . . . . . . . . . . . . . . . 72.9

Other. . . . . . . . . . . . . . . . . . . . . . . . . . 51.7 Other. . . . . . . . . . . . . . . . . . . . . . . . . . 173.6

Total . . . . . . . . . . . . . . . . . . . . . . . . 1,398.1 Total . . . . . . . . . . . . . . . . . . . . . . . . 1,405.7

aJanuaV to September.

SOURCE World Bureau of Metal Statistics data

Table 4-5.—1986 Blister and Anode Copper Trade (1,000 metric tonnes)

Importers Exporters

Belgium . . . . . . . . . . . . . . . . . . . . . . . . . 240.0 Zaire. . . . . . . . . . . . . . . . . . . . . . . . . . . . 236.3b

United Kingdom . . . . . . . . . . . . . . . . . . 79.5 Chile . . . . . . . . . . . . . . . . . . . . . . . . . . . 199.4

Germany, F.R. . . . . . . . . . . . . . . . . . . . 69.8 Peru . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94.7

USA ., . . . . . . . . . . . . . . . . . . . . . . . . . . 46.3 Sweden . . . . . . . . . . . . . . . . . . . . . . . . . 18.5

South Korea . . . . . . . . . . . . . . . . . . . . . 34.6 USA , . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.0

Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . 27.8 Finland . . . . . . . . . . . . . . . . . . . . . . . . . 15.7

France . . . . . . . . . . . . . . . . . . . . . . . . . . 22.3 Germany, F.R. . . . . . . . . . . . . . . . . . . . 14.0

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 28.9 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.9

Total. . . . . . . . . . . . . . . . . . . . . . . . . . 549.2 Total. . . . . . . . . . . . . . . . . . . . . . . . . . 607.5

al 985 figure

SOURCE World Bureau of Metal Statistics data
84

largest recipients of blister and anode copper with

imports of 240,000, 79,500, and 69,800 tonnes,

respectively. 53

Refined

More than 30 countries were involved in trade

of refined copper in 1986. Major players in the

market (table 4-6) included Chile and Zambia,

with respective exports of 895,700 and 466,300

tonnes. The United States and the Federal Republic of Germany led imports with 491,700 and

447,900 tonnes, respectively.

U.S. imports of refined copper rose to 24 percent of domestic consumption in 1986. The

United States has been a net importer of refined

copper since 1976 and has experienced net exports in only 3 years since 1970. The penetration

of imported refined copper products in the do5)1 bid

mestic market in

than the 17-year

4-1 2).

1986 was only 1 percent lower

high level of 1980 (see figure

Figure 4-12.-Refined Copper Imports as

Percent of Domestic Refined Consumption

Percent

25%

20%

15%

1 o%

5%

o% - - r

70 71 72737475767778798081 828384858 6

Year

NOTE The United States was a net exporter of refined copper in 1970, 1971, and

1975

SOURCE Copper Development Association

Table 4-6.—1986 Refined Copper Trade (1,000 metric tonnes)

lmporters Exporters

USA . . . . . . . . . . . . . . . . . . . . . . . . . . . 491.7 Chile . . . . . . . . . . . . . . . . . . . . . . . . . . 895.7

Germany, F.R. . . . . . . . . . . . . . . . . . . 447.9 Zambia . . . . . . . . . . . . . . . . . . . . . . . . 466.3

Italy . . . . . . . . . . . . . . . . . . . . . . . . . . . 349.1 Canada . . . . . . . . . . . . . . . . . . . . . . . . 304.8

France. . . . . . . . . . . . . . . . . . . . . . . . . 334.5 Belgium . . . . . . . . . . . . . . . . . . . . . . . 232.5

Japan . . . . . . . . . . . . . . . . . . . . . . . . . 272.4 Peru. . . . . . . . . . . . . . . . . . . . . . . . . . . 193.0

United Kingdom . . . . . . . . . . . . . . . . 263.5 Philippines . . . . . . . . . . . . . . . . . . . . . 124.6

Belgium . . . . . . . . . . . . . . . . . . . . . . . 215.2 South Africa. . . . . . . . . . . . . . . . . . . . 68.4

China . . . . . . . . . . . . . . . . . . . . . . . . . 103.5a Germany, F.R. . . . . . . . . . . . . . . . . . . 67.8

Taiwan . . . . . . . . . . . . . . . . . . . . . . . . 84.7b Australia . . . . . . . . . . . . . . . . . . . . . . . 66.8

South Korea. . . . . . . . . . . . . . . . . . . . 83.9 Spain . . . . . . . . . . . . . . . . . . . . . . . . . . 62.3

Other . . . . . . . . . . . . . . . . . . . . . . . . . . 292.8 Other. . . . . . . . . . . . . . . . . . . . . . . . . . 243.8

Total . . . . . . . . . . . . . . . . . . . . . . . . 2,939.2 Total . . . . . . . . . . . . . . . . . . . . . . . . 2,726.0

aJanuary to september

b

January to October

SOURCE: World Bureau of Metal Statlstlcs data

COPPER MARKETS IN CENTRALLY PLANNED COUNTRIES54

Under central planning, the State determines icy are first to attain maximum self-sufficiency i n

prices, the level of production, the amount of supply, and second to conserve scarce foreign

consumption, and the purposes for which min- exchange. If a mineral must be imported, the

erals are used. The major priorities in mineral pol- source is most likely to be another centrallyplanned trading partner. Detailed official statis- u nless otherwlse noted, the materia I i n this section IS from Simon D, Strauss, Troub/e in the Third Kingdom (London: Mining tics of mineral production and consumption ar e

journal Books Ltd., 1986). not published by most centrally planned coun-
85

tries, including the Soviet Union and China. informed (but differing) estimates for the postWorld War II period are available from the U.S.

Bureau of Mines and the World Bureau of Metal

Statistics (see table 4-7).

Soviet production of copper between the two

world wars was small by world standards. Following World War II, production was expanded

to reduce import dependency and rebuild the industrial base. Between 1950 and 1986, production of copper contained in ore increased from

218,000 tons to 620,000 tonnes, and the Soviets

are now essentially self-sufficient in copper. I n

order to achieve self-sufficiency, however, the

Soviets have had to develop copper deposits that

would not be considered economically viable in

market-economy countries. For example, a 1985

report of the Kazakhstan Academy of Science

noted that “nationally ore containing 0.2 percent

copper is now considered economic. ”

After centuries of orientation on agricultural

rather than industrial production, the extent of

China’s mineral resources were largely unknown.

Since 1949, efforts have been made to explore

and map the country’s minerals, but the full potential is far from being determined. Large lowgrade copper deposits have been discovered that

will require enormous investments if they are to

become producers. However, this cost creates

severe problems given the government policy to

avoid incurring substantial external debt. Plans

for joint venture arrangements between the Chinese Government and foreign corporations are

proceeding very slowly. With roughly 25 percent

of the world’s popuIation, China accounted for

only about 5 percent of the global consumption

of most minerals—390,000 metric tons of copper

in 1985.

The current copper producing status of the

other centrally-planned countries is estimated to

be as follows:

●

●

●

●

●

●

●

●

Albania is self-sufficient;

Bulgaria has export surpluses;

Cuba has a modest output, exported as concentrate, but the mineral content of finished

goods supplied by the Soviet Union and

other countries is significant;

Czechoslovakia is heavily industrialized but

has a small non-fuel minerals industry, and

is a net importer;

The German Democratic Republic produces

only a small fraction of its own needs;

Hungary also is heavily import dependent;

Korea D.P. R. is close to self-sufficiency;

Poland is a large producer, with a wellestablished industry developed over the last

20 years with capital and technology from

the market-economy countries, and substantial exports to Western Europe; and

Romania has some production, but is a net

i m porter.

Table 4-7.—Copper Production in Centrally Planned Countries

(1,000 metric tonnes)

1 970a 1978 1986

Country Mine Smelter b Mine Smelter Refiner y

c Mine Smelte rc Refiner yc

Albania d . . . . . . . . . . . . . . . . . . . . . . .

Bulgaria . . . . . . . . . . . . . . . . . . . . . . .

China . . . . . . . . . . . . . . . . . . . . . . . . .

Cuba . . . . . . . . . . . . . . . . . . . . . . . . . .

Czechoslovakia . . . . . . . . . . . . . . . . .

German D.R. . . . . . . . . . . . . . . . . . . .

Hungary . . . . . . . . . . . . . . . . . . . . . . .

Mongolia . . . . . . . . . . . . . . . . . . . . . .

North Korea . . . . . . . . . . . . . . . . . . . .

Poland. . . . . . . . . . . . . . . . . . . . . . . . .

Romania . . . . . . . . . . . . . . . . . . . . . . .

U.S.S.R. . . . . . . . . . . . . . . . . . . . . . . . .

NA

43.2

100.0

3.0

4.4

10.0

1.0

NA

12.7

72.2

13.0

572.7

5.6

43.8

100.0

4.0

10.0

1.0

NA

12.7

72,4

10.0

572.7

11.5

58.0

200.0

2.8

4.7

16.0

0.5

4.0

15.0

321.0

27.0

865.0

9.5

64.0

200.0

10.0

17.0 e

0.3 —

20.0

337.0

42.9

955.0

7.0

62.0

270.0 —

23.8

49.0

13.1

—

25.0

332.2

40.5

980.0

17.6

80.0

185.0

3.3

10.0

10.0

—

128.0

15.0

431.0

27.0

620.0

13.7

90.0

225.0e

—

12.4

12.0e

O.lf

—

18.0

400.0

39.0

915.0

11.7

95.0

400.0 —

26.5

63.0

12.8

—

22.0

388. oe

43.0

965.0

Total . . . . . . . . . . . . . . . . . . . . . . . . 832.2 832.2 1,525.5 1,655,7 1,802.6 1,526.9 1,725.2 2,027.0

aReflnery data not available dprlmav smelter and refinery Production.

bPrlmary only ‘Primary

Cpr, may and secondary unless noted otherwise ‘Secondary only

SOURCE U S Bureau of Mines data
Part Three

Resources and Technology
,

Chapter 5

World Copper Resources

,
CONTENTS

Page

The Geology of Copper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Classes of Copper Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other Metals Occurring With Copper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Copper Resources and Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Ore Grades . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Box

91

91

92

94

98

Box Page

5-A. illustration of Expanding Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

Figures

Figure Page

s-1. Important Copper-Producing Areas in the Market Economy Countries . . . . 93

5-2. McKelvey Box . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95

5-3. Market Economy Country Copper Resources, 1985 . . . . . . . . . . . . . . . . . . . . 97

5-4. Average Ore Yields From U.S. Mines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .100

Tables

Table Page

5-1. Most Commonly Occurring Copper Mineral s........ . . . . . . . . . . . . . . . . . 91

5-2. Summary of Demonstrated Market Economy Country Copper Resources

in 1985 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96

5-3. Overall Effect of Varying Cut-off Grade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Chapter 5

World Copper Resources

A copper ore deposit is a localized zone in the

earth’s crust that contains copper-bearing minerals in unusually large quantities. On average,

the continental crust contains about 0.0058 percent copper, or 58 parts per million. A deposit

of copper-bearing minerals is classed as an ore

reserve if there are sufficient quantities and concentrations of minerals to be extracted at a profit.

Commercial copper ore deposits today contain

from 0.5 to 6 percent copper, or between 100

and 1000 times the crustal average. In contrast,

iron and aluminum constitute around 5.8 percent

and 8 percent of the earth’s crust, respectively,

and their commercial deposits need to be only

3 to 10 times as concentrated as the crustal average. Thus, copper may be considered a relatively

scarce element geochemically.1

This chapter begins with a description of the

geology of copper–the kinds of copper minerals,

how they formed, and where they are found. The

chapter then discusses current world copper resources, and the copper content (or ore grade)

of current mine production. The relations between ore grades, tonnages, and production costs

are discussed in chapter 9.

I Brian j. Skl nner, “A Second Iron AgP Atread?$ Amer/c,)n Sc/entIst, vol. 65 (May/june 1976), pp. 258-269.

THE GEOLOGY OF COPPER

Copper occurs in three different mineral groups

(see table 5-1). In sulfide mineral deposits, the

copper is linked with sulfur. In carbonate deposits, the copper occurs with carbon and oxygen.

In silicate mineral deposits, the copper is linked

with silicon and oxygen. The latter two groups

are also termed oxide ores. Copper is more easily extracted from the suIfide and carbonate

m i nerals.

Classes of Copper Deposits

Copper deposits are classified by general geologic setting, including the type of rock in which

the copper deposit formed. Rocks belong to three

Table 5-1 .—Most Commonly

main categories: igneous, sedimentary, and metamorphic. Each category is further subdivided on

the basis of distinguishing characteristics such as

mineralogical composition and texture. Igneous

rocks generally form from a molten mass such

as lava; sedimentary rocks form by the accumulation of material transported and deposited by

water or wind, from chemical precipitation, or

from the buildup of organic substances; and

metamorphic rocks come from the effect of heat

and pressure on other rocks.2

z F Ioyd F. Sabi ns, jr., Remote Sensing: Prmclp/es Jnd /nterpret,?-

Iion (New York, NY: W.H. Freeman & Co., 1986).

Occurring Copper Minerals

Elemental Components (weight percent)

Mineral Cu Fe s C02 Si02 H20

Sulfides:

Chalcopyrite. . . . . 34.5

Bornite . . . . . . . . . 63.3

Chalcocite . . . . . . 79.8

Covellite , . . . . . . . 66.4

Carbonates:

Azurite. . . . . . . . . . 55.3

Malachite . . . . . . . 57.4

Silicates:

Chwsocolla . . . . . 36.1

30.5 35.0 — — —

11.2 25.5 — — —

— 20.2 — — —

— 33.6 — — —

— — 25.6 — 5.2

— — 19.9 — 8.2

0

— — — 34.3 20.5

SOURCE Cornellus S Hurl but (cd.), Dana’s L4anua/ of M/nera/ogy (New York, NY Wiley, 17th ed , 1966)

91
92

The three main categories of copper deposits

are porphyry type deposits, strata-bound deposits, and massive sulfide deposits. Porphyry deposits are the most common. They account for

about 45 percent of the world’s total copper reserves, including the largest portion of the ore

reserves in the western United States. q These deposits are associated with bodies of igneous intrusive rocks with copper sulfide minerals disseminated in them.

Porphyry deposits tend to occur in discontinuous belts. The best known is the belt that runs

from Canada down through the southwestern

United States, northern Mexico, Central America, and South America through Peru, Chile, and

western Argentina. Another porphyry belt runs

through Papua New Guinea, Indonesia, and the

Philippines and on up into China and parts of

Siberia; and a third through southeastern Europe,

Iran, and Pakistan (see figure 5-1 ).

The grade and size of porphyry deposits varies.

Typical deposits in Chile and Peru contain 1.0

to 2.0 percent copper and 500 million to 1 billion tonnes of ore, although the largest deposits

may contain 4 to 5 billion tonnes. The deposits

in the southwestern United States and northern

Mexico contain 200 to 500 million tonnes of 0.4

to 0.8 percent copper ore. Those in the Philippines and Canada contain from 0.3 to 0.5 percent copper and from sO to 200 million tonnes

of ore.

Strata-bound deposits, the second most important in terms of metal reserves, are less common

and smaller than porphyry deposits (1 million to

100 million tonnes of ore per deposit). Copperbearing silicates, carbonates, and sulfides, occur

in old marine sediments, such as shales and sandstones. Strata-bound copper reserves are found

in Zambia and Zaire, as well as Europe and the

north central United States (figure 5-1 ). The Zambian deposits commonly contain 2.o to 4.o percent copper in suIfide minerals, and the Zairian

deposits 4.0 to 6.0 percent copper in carbonate

and silicate minerals.

JL)nited Nations Industrial Development Organization (UN IDO),

Technological Alternatives for Copper, Lead, Zinc and Tin in Developing Countries, Report prepared for the First Consu Itation on

the Non-ferrous Metals Industry, Budapest, Hungary, July 1987.

Massive sulfide deposits are large concentrations of mixed sulfide minerals (copper, nickel,

lead, or zinc) occurring as veins and massive

replacements in limestone, and as large bodies

in volcanic rock sequences. Massive sulfide deposits are important in eastern Canada and the

eastern United States, Australia, South Africa, the

Philippines, and Cyprus. These deposits typically

are small with well-defined boundaries and commonly have a copper content from 1.0 to 5.0 percent. Copper often is produced as a valuable byproduct of the other minerals in these deposits.

The volume of ore reserves ranges from several

hundred thousand to several million tonnes.

Most copper mineral deposits have definable

boundaries; in some these are gradational and

in others sharply defined (as in veins), Deposits

with gradational boundaries, such as porphyrins,

often contain zones that are subeconomic in ore

grade, which may become ore if either the price

of copper increases or the cost of extracting the

copper from the ore declines enough to make

mining profitable. Thus, significant changes in

perceived ore reserves may occur for such deposits as a result of cost or price changes.

Other Metals Occurring With Copper

Many copper deposits contain more than one

valuable metal. The other metals are classed as

coproducts or byproducts, depending on their

relative value. If the deposit is economically viable on the basis of copper production alone, then

copper is the main product and any other metals are byproducts. If the economic viability of

the deposit depends on the production of both

copper and one or more additional metals, then

copper and the other metal(s) are coproducts.

Depending on current metal prices, the status of

a metal occurring with copper can change from

byproduct to coproduct and vice versa.

Each class of copper deposit is characterized

by a different set of coproduct and byproduct metals. Important byproducts in porphyry deposits

are molybdenum, silver, and gold. Molybdenum

is a byproduct in some of the North and South

American deposits, and is actually a coproduct

for some of the Canadian deposits and U.S. deposits. Roughly 60 percent of world molybdenum
W
94

production is a result of copper mining.4 The Bougainvillea and Ok Tedi deposits in Papua New

Guinea, Ertsberg in Indonesia, and some Philippine deposits all have an unusually high gold content, but without any molybdenum.

The strata-bound deposits in Central Africa

commonly have cobalt as a byproduct, with the

Zairian deposits having a higher cobalt content.

4

1 bid.

These deposits are the Western world’s most important source of cobalt. s

The massive sulfide deposits contain significant

amounts of nickel, or of lead and zinc. other metals of less importance in massive sulfide deposits are silver, gold, bismuth, cadmium, and cobalt.

5U .S, Congress, Office of Technology Assessment (OTA), Strategic A4aterials: Technologies To Reduce U.S. Import Vulnerability,

OTA-ITE-249 (Washington, DC: U.S. Government Printing Off Ice,

January 1985)

COPPER RESOURCES AND RESERVES

A general classification for describing the status of mineral occurrences was developed by the

U.S. Geological Survey and the U.S. Bureau of

Mines in 1976.6 The so-called “McKelvey Box”

(named after the then director of the U.S. Bureau

of Mines, Vincent McKelvey) simplified the understanding of the economic relationships of the

mineral resource classification system (see figure

5-2). This system is based on a judgmental determination of present or anticipated future value

of the minerals. The economic definitions on

which the resource classification system is based

are:

●

●

●

●

●

Resource: A concentration of a naturallyoccurring mineral in a form and amount

such that economic extraction of a commodity is currently or potentially feasible.

Identified Resource: Resources whose location, grade, quality, and quantity are known

or reliably estimated.

Demonstrated Resource: Resources whose

location and characteristics have been measured directly with some certainty (measured)

or estimated with less certainty (indicated).

Inferred Resource: Resources estimated

from assumptions and evidence that

minerals occur beyond where measured or

indicated resources have been located.

Reserve Base: That part of an identified resource that meets the economic, chemical,

and physical criteria for current mining and

‘U.S. Department of the Interior, Bureau of Mines and Geological Survey, Principles of a ResourcelReserve Classification for

Minera/s (Washington, DC: Geological Survey Circular 831, 1980).

●

●

●

production practices, includ

is estimated from geological k

ferred reserve base).

ng that which

nowledge (inReserves: That part of the reserve base that

could be economically extracted at the time

of determination.

Marginal Reserves: That part of the reserve

base that at the time of determination

borders on being economically producible.

Undiscovered Resources: Resources whose

existence is only postulated.

These categories indicate different degrees of

knowledge about the quantity of reserves in an

ore body. For example, determination of measured reserves requires extensive drilling of the ore

body (see ch. 6). However, only the existence

of a minimum volume of ore must be proven in

order to justify preparation of a feasibility study

for a potential mine or mine expansion. Thus, indicated and inferred reserves may be a far larger

figure because extensive drilling is costly and

companies may not undertake drilling beyond

what is required for the feasibility study. Nevertheless, many published figures on reserves use

the broad sense of the term and include not only

measured reserves, but also indicated and inferred reserves. z

The criteria for measuring reserves have not

been standardized, so that totalling or comparing reserve estimates for different companies can

be like adding or comparing apples and oranges.

7Raymond F. Mikesell, The World Copper Industry: Structure and

Economic Ana/ysis (Baltimore, MD: The Johns Hopkins Press, 1979).
95

R

e

8

e

r

v

e

b

a

s

e

(A part of reserves or any resource category may be

restricted from extract ion by laws or regulations)

AREA: (mine, district, field, State, etc. )

Cumulative IDENTIFIED RESOURCES I

UNDISCOVERED RESOURCES

I

I

Demonstrated Probability range

,

I

Inferred

Measured Indicated Hypothetical I

ECONOMIC

MARGINALLY

ECONOMIC

ECONOMIC I

Reserves

Marginal reserves

Demonstrated

reserves

. . . . . . . . . . . . . . . . . . . . . . .

Inferred

marginal reserves

Inferred

resources

1

+ 1

I

I --

I

SOURCE U S Department of the Interior, Bureau of Mines and Geological Survey, “Principles of a Resource/Reserve Classification for Minerals, ” Geological Survey

Circular 831, 1980.

The amount of perceived reserves in an ore body

is a function of price and of extraction costs, and

assumes that the net return on production will

be sufficient to attract the required investment,

including an allowance for risk. However, minimum acceptable rates of return or discounted

cash flow rates will differ among companies, and

between government enterprises and private

companies. The potentially minable material in

a deposit also varies with available technology

and economic conditions. Resource estimates are

revised periodically to account for changes i n

these factors.

Recognizing these uncertainties, the U.S. Bureau of Mines and the U.S. Geological Survey

regularly develop estimates of world copper resources and reserves. Table 5-2 shows the Bureau of Mines 1985 copper resource and reserve

estimates for 241 deposits in the market economy

countries. The U.S. Geological Survey estimates

that total land-based copper resources (the reserve base plus a larger body of less well characterized resources) are around 1.6 billion tonnes,

of which 35 percent are in the market economy

countries. 8

In 1985, demonstrated resources of recoverable copper9 in the market economy countries

were estimated at 333.4 million tonnes for 241

deposits. The Bureau of Mines estimates the total world reserve base at 566 million tonnes contained copper in ore.10 Regionally, Latin America has the most abundant resources, with around

8jdnlce L.W. jolly, ‘‘Copper, ” Mineral Facts and Problems (Washington, DC: U.S. Government Printing Office, 1985).

9Contalned copper less mining and processing losses; includes

oxide and leach material.

Iojanice L,W. JoI[)I, “COPPer, “ 1985 Bureau of Mines Minerals

Yearbook (Washington, DC: U.S. Department of the Interior, Bureau of Mines, 1985).
N

l-r’)

. . . . . .

. . . . . .

. . . .

. . . .

. . . . .

. . . . .

. . . .

. . . .

. . . . O“ . . . . .

. . . . . . . . . . .

. . . .

. . . .

. . . .

. . . .

0 . . . .

. -

. . . .

. .

.

. .

. :%

. . :%’
97

43 percent of the western world’s demonstrated

resources of recoverable copper (see figure 5-3).

North America ranks second with around 27 percent of the total. About 11 percent of demonstrated resources are located in Oceania and Australia, followed by Africa with around 10 percent,

and Asia with 5 percent. The remaining 3 percent are located in Europe and the Middle East.

In terms of individual countries, nearly half of

the market economy countries’ copper resources

are located in Chile and the United States, with

approximately 32 and 17 percent of the total, respectively. Australia ranks third in copper resources with 7 percent, and Peru, Mexico, and

Zaire each have around 6 percent. The remaining 26 percent are located in approximately 33

other countries. 11

More than 90 percent of U.S. copper reserves

are located in five States: Arizona, Utah, New

Mexico, Montana, and Michigan. Nearly all of

the reserves are in mines for which copper is the

11 ‘

( Copper,” An Appraisal of Minerals Availability for 34 Commodities (Washington, DC: U.S. Department of the Interior, Bureau of Mines, Bulletin 692, 1987).

Figure 5-3.—Market Economy Country

Copper Resources (1985) -

1.8%

e

v

5.2%

SOURCE” U S Bureau of Mines data
98 .

principal product; small quantities are in base or sizable, and may hold promise for future exploprecious metal mines where copper is a byprod- ration. 12

uct. Resources in Alaska and Minnesota also are 12 Jolly, Supra note 8.

ORE GRADES

Grade is the relative quantity or percentage of

mineral content in an orebody. As discussed

above, different types of copper deposits yield

different amounts of ore, with strata-bound deposits generally having the highest grades, and

porphyrins the lowest. The ore grade determines

how many tonnes of ore must be mined in order

to produce a tonne of copper. For example, a

mine with an ore grade of 0.5 percent must extract 200 tonnes of ore to produce 1 tonne of

metal, but an ore running 2.0 percent copper

only requires 50 tonnes to produce 1 tonne of

metal. Similarly, to maintain copper production,

the company mining 0.5 percent ore must discover 200 tonnes of new reserves for each tonne

of metal produced.

The yield of copper ore from domestic and foreign mines has declined over time, both with the

exhaustion of high-grade deposits and with technological changes that permitted profitable mining of lower ore grades. 13 For example, the initial discovery of copper in Butte, Montana was

a 50-foot wide seam of rich “copper glance” (lustrous chalcocite) ore that ran 30 percent copper.

As the copper glance was mined out and methods for processing lower grade ores were developed, mining at Butte moved into porphyry ores.

Today, the average ore grade at Butte is closer

to 0.5 percent copper. Box 5-A illustrates the relation between technological advances and resources, reserves, and ore grades using the Bingham Canyon, Utah mine as an example.

Currently, most of the world’s copper production comes from ores with an average yield of

around 0.79 percent copper. Individual countries’ resources vary in average ore grade from

a low of about 0.46 percent copper in Papua New

Guinea and the Philippines to a high of around

4 percent copper in Zaire (see table 5-2). The

United States has an average ore grade of 0.51

I ~The history Of technological development and its relation to ore

grade is discussed in ch. 6.

Box 5-A.—lllustration of Expanding

Reserves

The Bingham Pit is a classic example of how

mineral reserves expand as mining and exploration proceed, and as technology and economics permit the mining of ever lower ore

grades. The original prospectus for the Bingham

Canyon Mine, issued in 1899, estimated that the

deposit contained reserves of 12.4 million short

tons of copper ore with an average grade of 2

percent. At that time, 2 percent was an extremely low-grade copper ore. In the early

1900s, financing for the mine was sought from

the Guggenheim interests, who undertook an independent examination. That report, prepared

around 1905, estimated the property to contain

40 million short tons of ore assaying 1.98 percent copper. In 1910, as development of the

open pit proceeded, an adjacent property was

merged with Bingham, By 1929, the reserve estimates had increased to 640 million tons of 1.07

percent ore, and by 1931 to 1 billion tons of 1.1

percent ore. The mine operated continuously

until 1985, when it closed temporarily due to adverse conditions and for modernization. During

the 80 years that the Bingham Pit has been in

operation, it produced over 13 million tons of

copper from 1.7 billion tons of ore. When it resumed operation after modernization, its production capacity was scheduled to be 185,000

tons of refined copper per year, or 110,000 tons

of ore per day, with an average ore grade of

0.748 percent.1

‘Adapted from A. B, Parson s., The Porphyry C“oppers (New York,

NY The American Institute ot’ Mlnlng and Metallurgical Engineers,

1933), and Simon D Straus$, Troub/e In the Third K/ngdorn (London: ,Mlnlng Journal Books Ltd , 1986)

percent copper for all types of copper minerals,

including low-grade leachable deposits, and an

average feed grade of 0.62 percent copper for

suIfide resources.14

14u ,s, Bureau ot Mines, supra note 11.
. 99

The minimum grade that can be mined profitably from a deposit is termed the cut-off grade.

The yield and tonnage of ore above the cut-off

grade are critical both in estimating ore reserves

and determining mine profitability. For example,

although Africa is one of the least abundant regions of copper resources in terms of ore tonnage, it ranks third i n recoverable copper as a

resuIt of its richer ore, which averages 2.38 percent copper. Central and South America, on the

other hand, have only slightly better than average ore grades (0.91 percent), but rank first in recoverable copper due to the abundant tonnage.

Similarly, North America has lower than average

ore grades, but, because of the huge amount of

ore, ranks second in recoverable copper.

Cut-off grade, in turn, is a function of the type

of ore and mining operation. For example, a nearsurface deposit may have a slightly lower cut-off

grade than a deeper one, because the costs of

removing the overlying waste rock and hauling

the ore are lower. A mine with significant byproduct or coproduct minerals (e.g., lots of gold)

may have a lower cut-off grade than a mine

where copper is the only mineral, because the

ore’s extra value “pays” for the more costly handling and processing.

15 

Indeed, at mines wher e

copper is a byproduct, the principal minerals may

cover the full production cost and the copper represents profit.

In formulating a mine plan and determining the

cut-off grade, there is a trade-off between deeper

I 5The ~ole of bypro d UCt credits and ore grades in production costs

are discussed further in ch. 9.

mines with higher grade ore, and wider mines

that exploit the lower grades surrounding the

main ore body. A copper producer must mine,

crush/grind, and concentrate the total amount of

ore. These processes consume large amounts of

energy—both h u man and mechanical or electrical. Thus, the more material that has to be handled, the higher the cost tends to be. For example, with 1975 technology, producing cathode

copper from 0.5 percent ore was estimated to require more than 3 times as much direct and indirect energy than producing lead from 4 percent

ore.16 Recovery rates17 also tend to drop as the

ore grade decreases (see table 5-3).

Ore grade and mineralization thus play a critical role in determining the competitiveness of a

mining operation. The low grade of domestic

copper resources often was cited as a critical factor in the poor competitive position of the U.S.

industry during the early 1980s. Yet U.S. copper

producers have actually increased ore yields in

recent years (see figure 5-4). Improvements i n

metal recovery technology have meant less copper lost during processing. Mine plans have been

adjusted to take advantage of lower-grade areas

when prices are high, and higher grades when

prices are low.18 Also, because cut-off grades

16\$/i I I ic~ m c, Peter$, E4/)/orc](/on Jnd ~f/lJ//7,# ~C’0/O~\’ ( ~f’~~ York ~ NY: john Wiley & Son\, 1978}

I The reco\,eV rate is the amount of metal ‘lctu~[ly f)rociu[ ed tronl

the ore and not lost i n ta I I I ngs and other mastej, e~preswd ~s a

percentage ot’ the tot~l atallabte amount ot ore.

1 ~Note that t h IS IS not the same as h l~h-grad I ng, m h I c h I f remoi -

I ng the higher grade ore from a de[xlslt I n ~u c h a ~~ ay ai to p rec I ude future m I n I ng of the I owe r grade mate rla 1. ( )ve r t I me, however, selectlve mining ot the h Igher grade ore> I rn a Ciepoflt iIIll

red uce the average grade ot the rema I n I n R () re

Table 5.3.—Overall Effect of Varying Cut-off Grade

Cut-off grade (% Cu) . . . . . . . . . . . . . . . . . . . . . . . . 0 .22 .29 .34 .40 .45

Tons milled (X 10’). . . . . . . . . . . . . . . . . . . . . . . . . . 26.60 23.52 21.07 19.09 17,44 –

16.06

Mill head grade (% Cu) . . . . . . . . . . . . . . . . . . . . . . 0.45 0.50 0.55 0.60 C.65 0.70

Cu produced (tons) . . . . . . . . . . . . . . . . . . . . . . . . . . 106.3 100,000 100,000 100,000 100,000 100,000

Btu/ton Cu (x 108

) . . . . . . . . . . . . . . . . . . . . . . . . . . 101.0 97.9 95.9 95.1 95.7

Tons leached ( x 106) . . . . . . . . . . . . . . . . . . . . . . . . 0 4.15 9.03 13.82 18.90 25.12

Dump grade (o/o Cu) . . . . . . . . . . . . . . . . . . . . . . . . . 0 0.17 0.22 0.24 0.27 0.29

Cu produced (tons) . . . . . . . . . . . . . . . . . . . . . . . . . . 0 2,351 6,662 11,056 17,007 24,284

Btu/ton Cu (X 10 6

) . . . . . . . . . . . . . . . . . . . . . . . . . . 0 93.7 93.7 93.7 93.7 93.7

Total tons treated ( x 10’) . . . . . . . . . . . . . . . . . . . . 26.60 27.67 30.10 32.91 36.34 41.18

Total Cu produced (tons) . . . . . . . . . . . . . . . . . . . . . 100,000 102,351 106,622 111,056 117,007 124,284

Average Btu/ton Cu (X 10’) . . . . . . . . . . . . . . . . . . . 106.3 100.8 97.6 95.7 94.9 95.3

Percent resource recovery. . . . . . . . . . . . . . . . . . . . 0.835 0.822 0.787 0.750 0.751 0.671

SOURCE Charles H. Pitt and Milton E Wadsworth, ArJ Assessment of Energy Requ/rernenfs IrI Proven and New Copper Processes, report prepared for the U S. Depart.

ment of Energy, contract No EM-78 -S-07-1 743, Dec 31 1980
100

Figure 5-4.—Average Ore Yields From U.S. Mines

Percent copper

0 7

0 6 5

0 6

0 5 5

0 5

0 4 5

0.4 1 1 1

1 , , , 1 1 1 , ,

1970 1975 1980 1985

Year

SOURCE: U.S. Bureau of Mines, Minerals Yearbook, various years

have declined so much in the last century, waste

dumps contain significant copper resources; what

was waste when the cut-off grade was 2 percent

is now valuable ore. Waste-dump leaching (see

ch. 6) exploits a tremendous in-place resource

at a very low cost because the mining cost is already "off the books. ”19

19 Jon K. AhIness and Michael G. Pojar, In Situ Copper Leaching

in the United States: Case Histories of Operations (Washington DC:

U.S. Department of the Interior, Bureau of Mines, Circular No. 8961,

1983).
Chapter 6

Copper Production Technology
CONTENTS

Page

History . ............................10 3

Exploration . .........................113

Mining . . . . . . . . . . . . . . . . ..............116

Comminution and Separation . . . . . . .. ...127

Beneficiation. . . . . . . . . . . . . . . . . . ...; ...130

Pyrometallurgy. . .$ ...................133

Hydrometallurgy . ....................140

Electrometallurgy. . . ..................142

Melting and Casting. . .................145

Boxes

Box Page

6-A.The Lakeshore Mine in Situ Project ..126

6-B. Smelting Furnaces . . . . .

Figure

6-1.

6-2.

6-3.

6-4.

6-5.

6-6.

6-7.

6-8.

6-9.

6-10.

6-11.

6-12.

6-13.

Figures

Flow Sheets for Copper

Production . . . . . . . . . . .

. . . . . . . . . . . 136

Page

. . . . . . . . . . . 104

Early Smelting Technology. . .......107

Early Copper-Producing Areasof

Europe and the Middle East . ......108

Copper Deposits of Northern

Michigan . ......................109

Copper Production Areas of the

Northern and Central Rocky

Mountains . . . . . . ................112

Copper Production Areas of the

Southwest . .....................112

Sample Geologic Map . ...........114

Model of Hydrothermal Alteration

Zones Associated With Porphyry

Copper Deposits . . . . . . . . . . .......115

Stages of Mineral Exploration .. ....116

Underground Mining Terms . ......119

Two Underground Mining

Methods . . . . . . . . . . . . . . . . . ... ...12O

Open Pit Mining Terms . ..........121

Heap and Dump Leaching . .......123

Figure

6-14.

6-15.

6-16.

6-17.

6-18.

6-19.

6-20.

6-21.

6-22.

6-23,

6-24.

6-25.

6-26.

6-27.

6-28.

6-29.

6-30.

6-31.

Table

Page

Types of in Situ Leaching Systems ..124

Jaw Crusher . . . . . . ...............127

Hydrocyclone, . . . ...............129

Flotation Cells.. . ................130

Flowsheets for Copper Flotation ....132

Column Ceil . ...................133

Development of Smelting

Technology Compared with World

Copper Production . ..............135

Reverberatory Furnace . . . . . . . . ....136

Electric Furnace . ................137

INCO Flash Furnace . . . . . . . . .. ....138

Outokumpu Flash Furnace . .......138

Pierce-Smith Converter ... ... ... ..139

Noranda Reactor . ...............139

Mitsubishi Continuous Smelting

System . . . . . . . . . ................140

Kennecott Cone Precipitator . ......142

Flowsheet for Solvent Extraction ....143

Continuous Casting Wheel . .......146

Continuous Rod Rolling Mill ., ....,147

Tables

Page

6-1.

6-2.

6-3.

6-4.

6-5.

6-6.

6-7,

6-8.

Summary of Pyrometallurgical

Processes . . . . . . . .................105

Summary of Hydrometallurgical

Processes . . . . . . . .................106

Major U.S. Copper Mines . .........110

Remote Sensing Systems and Image

Types for Mineral Exploration . ......117

Considerations in Choice of Mining

Method . ........................11 8

Characteristics of Solution Mining

Techniques . .....................122

Summary of in Situ Copper Mining

Activities . .......................125

Smelter Technology in the

United States . . . . . . . . . . . ..........138
Chapter 6

Copper Production Technology

The last boom in technological innovation for

the copper industry occurred in the first two decades of this century, when open pit mining, flotation concentration, and the reverberatory

smelter were adapted to porphyry copper ores.

With the exception of leaching-solvent extraction-electrowinning, the basic methods of copper production have remained unchanged for 65

years. Moreover, six of the mines opened between 1900 and 1920 are still among the major

copper producers in the United States today.

Instead of great leaps forward, technological

innovation in the copper industry in the last 65

years has consisted largely of incremental

changes that allowed companies to exploit lower

grade ores and continually reduce the costs of

production. Economies of scale have been realized in all phases of copper production. Both machine and human productivity have increased

dramatically.

This chapter briefly describes the technology

for producing copper, from exploration, through

mining and milling, to smelting and refining or

solvent extraction and electrowinning. The chapter begins with an overview of the history of copper technology development. Then, for each

stage i n copper production, it reviews the current state-of-the-art, identifies recent technological advances, reviews probable future advances

and research and development needs, and discusses the importance of further advances to the

competitiveness of the U.S. industry. Figure 6-1

shows flow-sheets for pyrometallurgical’ and

hydrometallurgical

2 copper production. Tables

6-1 and 6-2 provide capsule summaries of these

processes.

1 PyrometaIIurgy IS the extractIon of metaI from ores anD concentrates using chemical reactions at high temperatures.

2 Hydrometallurgy is the recovery of metaIs from ores using waterbased solutions.

As early as 6000 B. C., native copper–the pure

metal—was found as reddish stones in the Mediterranean area and hammered into utensils,

weapons, and tools. Around 5000 B. C., artisans

discovered that heat made copper more malleable. Casting and smelting of copper began

around 4000-3500 B.C. (see figure 6-2). About

2500 B. C., copper was combined with tin to

make bronze—an alloy that allowed stronger

weapons and tools. Brass, an alloy of copper and

zinc, probably was not developed until 300 A.D.

Copper was first mined (as opposed to found

on the ground) in the Timna Valley in Israel—a

desolate area believed to be the site of King Solomon’s Mines (see figure 6-3). The Phoenicians

and Remans, who worked the great mines on

Cyprus and in the Rio Tinto area of southern

Spain, made the early advances in copper exploration and mining methods. For example, the Romans found nearly 100 lens-shaped ore bodies in

the Rio Tinto copper district. Modern geologists

have found only a few additional deposits, and

almost all of Rio Tinto’s modern production has

been from ore first discovered by the Remans.3

At Rio Tinto, the Remans mined the upper, oxidized, part of the ore and collected the copperIaden solutions produced by water slowly seeping down through the suIfide ore bodies. When

the Moors conquered this part of Spain during

the Middle Ages, the oxide ores had largely been

exhausted. Learning from the Roman experience

with seepage, the Moors developed open pit mining, heap leaching, and iron precipitation techniques that continued to be used at Rio Tinto into

the 20th century.

In Britain, copper and tin were worked in Cornwall and traded with the Phoenicians as early as

1500 B.C. The Remans brought improved metallurgical techniques to Britain, and spurred devel3

ira B. joralemon, Copper; The Encompassing Story of MankInd’s

First MetaL (Berkeley, CA: Howell-North Books, 1973).

103
104

Figure

Pyrometallurgical

Sulfide ores

(0.5-2% Cu)

I Comminution 1

I I

I

FIotation I

Concent rates

(20-30% Cu)

1

6-1.-FIow Sheets for Copper Production

Hydrometalluigical

Oxide and sulfide ores

(0.3-2.0% Cu)

Leaching

Pregnant Ieachate

(20-50% Cu)

Precipitation Solvent

extract ion

I

Smelting I I

Cement copper

1 (85-90% Cu)

Matte

(50-75% Cu)

I I

I Converting i

Anode refining

and casting

I I

I

Anodes

(99.5% Cu) I

Cathodes (99.99+% Cu)

SOURCE: Office of Technology Assessment.

opment of the mines of Cumberland and North

Wales. When the Remans left Britain early in the

5th century, however, economic development

stagnated and it was a thousand years or more

before Britain’s metal industry was reestablished.4

In the interim, Germany became the center of

the European copper industry, bringing a number of improvements in copper mining, metallurgy, and fabricating.5

4Sir Ronald L. Prain, Copper: The Anatomy of an Industry (London: Mining journal Books Ltd., 1975).

‘Raymond F. Mikesell, The World Copper Industry: Structure and

Economic Analysis (Baltimore, MD: The Johns Hopkins Press, 1979).

Cathodes (99.99+% Cu)

King Henry

berland and

Vlll reopened the mines

elsewhere, and Britain

in Cumbecame

famed for bronze casting and the manufacture

of armaments. By the end of the 16th century,

Britain was producing 75 percent of the world’s

copper. British advances in metallurgy helped to

establish a world monopoly in smelting that continued until around 1900, when foreign producers

built large mills and smelters that took advantage

of such British inventions as the reverberatory furnace and froth flotation. b Moreover, the miners

6Prain, supra note 4.
Table 6-1. —Summary of Pyrometallurgical Processes

Activity Product Constituents Percent copper Purpose or result

Big Bang . . . . . . . . . Universe

Hydrothermal

alteration . . . . . . . Porphyry rocks

Exploration and

development . . . . Deposit

Mining . . . . . . . . . . .Ore

Comminution. . . . . . Pulverized ore

Beneficiation

(flotation) . . . . . . .Concentrate

Smelting. . . . . . . . . . Matte

Converting . . . . . . . . Blister

Fire refining. . . . . . .Anode

Electrorefining . . . .Cathode

Pyrite, chalcopyrite, etc.

Copper ore, other minerals, waste rock

(gangue)

Copper minerals, iron and other metallic

pyrites, byproducts, and gangue

Same as mining but in the form of fine

particles

Copper minerals, iron pyrites, miscellaneous

minerals (including valuable byproducts),

and water (8-10%)

Copper sulfide (CU2S), iron sulfide (FeS),

byproducts, tramp elements, and up to

3°/0 dissolved oxygen

Copper with 0.5-2.0% dissolved oxygen and

0.05-0.2% sulfur, plus byproducts and some

tramp elements

Copper with 0.05-0.2% dissolved oxygen and

0.001-0.003% sulfur, plus byproducts and

tramp elements

Copper with less than 0.004% metallic

impurities. includina sulfur

0.0058

0.2-6.0

0.2-6.0

0.5-6.0

0.5-6.0

20-300/o dry

30-40°/0 reverb,

50-75°/0 flash

98-99

98-99

99.99

Formation of the earth

Concentration of copper in earth’s crust

Location of economic resource

Remove ore from ground and surrounding

rock or overburden

Creation of large surface area as preparation

for flotation

Removal of most gangue and collection of

some byproduct minerals (e.g., Mo, Ni, Pb,

Zn) to avoid further expense in materials

handling, transportation, and smelting

Heat-induced separation of complex sulfides

into copper sulfides, iron sulfides, and

sulfur; removal of sulfur as off gas (SO2) and

removal of gangue via slag; in oxygencharged systems, partial (50-90°/0) oxidation

of iron to produce iron oxide removed in

the slag and to produce heat

Oxidation and removal of most of the

remaining iron and sulfur; oxidation of

copper sulfide (CU2S) to elemental copper

and S02

Further removal of oxygen via introduction of

carbon or removal of sulfur via injected air

to produce sheets strong enough and even

enough for electrorefining (i.e., devoid of

blisters)

Collect byproducts (Ag, Au, PGMs) and remove

tramp elements (Bi, As, Fe, Sn, Se, Te)

SOURCE: Office of Technology Assessment, 1988
Table 6-2.—Summary of Hydrometallurgical Processes

Percent

Activity Product Constituents coDDer Purt,)ose or result

Big Bang . . . . . . . . . . . . . . . .Universe

Hydrothermal alteration and

oxidation . . . . . . . . . . . . . . Porphyry rocks

Exploration and

development . . . . . . . . . . . Deposit

Mininga

. . . . . . . . . . . . . . . . . . Ore

Leaching . . . . . . . . . . . . . . . . Pregnant Ieachate

Cementation

(precipitation) . . . . . . . . . .Cement coppeti

Solvent extraction . . . . . . . . Copper

electrolyte

Electrowinning . . . . . . . . . . . Electrowon

cathodes

0.0058

Copper ores 0.2-6.0

Copper ore, other minerals, waste rock 0.2-6.0

(gangue)

Copper minerals,b iron and other metallic 0.5-6.0

pyrites, byproducts, and gangue

Solution of copper and leaching agent 20-50

(water or HAO.)

Copper, iron (0.2-2.00/0), trace amounts of 85-90

silica and aluminum oxides, and oxygen

Organic solvent and pregnant Ieachate; 25-35

then organic copper miXtUre plUs H2S04

Copper with less than 0.004Y0 metallic 99.99

impurities

Formation of the earth

.

Concentration of copper in earth’s crust

Location of economic resource

Remove ore from ground and surrounding rock

or overburden

Dissolution of copper from ore in sulfuric acid

solvent, collection of solvent for

cementation or solvent extraction

Remove copper from pregnant Ieachate and

remove some impurities

Remove copper from pregnant Ieachate and

produce an electrolyte with sufficient

copper content for eiectrowinning

Recover copper from the loaded electrolyte

solution, recover valuable byproduct metals

(Au, Ag, PGMs), eliminate tramp metals

aMining is essentiallya Comminution process (see table 6-l); dump leaching uses materials that have already been mined and broken UP with exdosives

bpflma~ily Iow.grade oxidized minerals (e.g., malachite, azurite, chrysocolla,-cu prite, tenorite) but also sulfide minerals in waste dumps.

ccement copper usually is smelted, converted, and

SOURCE: Office of Technology Assessment, 1966.

electrorefined (see table 6-l).
107

Figure 6-2.—Early Smelting Technology

Charcoal

ore

flux \ m

The Egyptian copper smelting furnace was filled with a

mixture of copper ore, charcoal and iron ore to act as a

flux. It was blown for several hours by foot or hand

bellows.

By the end of the smelt the copper had separated from

the slag, which was tapped off.

SOURCE Robert Raymond, Out of tfre Fjery Furnace (University Park, PA The Pennsylvania State University Press, 1986)

and metallurgists of Cornwall, Devon, and Wales

provided much of the expertise for the early days

of the American copper industry. ’

Native Americans used native copper from the

Keeweenaw Peninsula of Upper Michigan and

from Isle Royale in Lake Superior as far back as

5000 B.C. (figure 6-4). The American colonies

produced copper beginning in 1709 in Simsbury,

Connecticut. By the 1830s, U.S. production in

Connecticut, New Jersey, and other States was

sufficient to supply the fabricators in Boston and

New York, but the demand for finished copper

and brass products was much greater than the

Supply. o

Thus, the discovery of copper (and other mineral) deposits became an important part of westward expansion in North America. Each ore body

is unique, however, and finding the ore often was

easier than devising methods of economical copper production and transportation. Table 6-3 provides a chronology of the major copper mines

in the United States, and the technological advances they contributed.

7Dona Id Chaput, The Cliff: Americ.? First Great Copper Mine

(Kalamazoo, Ml: Sequoia Press, 1971).

81 bld .

Organized copper mine development began

late in 1844 at Copper Harbor on the tip of the

Keeweenaw Peninsula–the first regular mine

shafts in the United States. The Cliff Mine, the

first great copper mine in the Western Hemisphere, opened in 1845; it contributed advanced

engines for hauling ore and miners out of the

shafts, and for dewatering the mine. g

As the population moved West, the discovery

of copper deposits often succeeded disappointing gold and silver claims. For example, mining

in Butte, Montana (figure 6-5) began in the early

1860s with gold, and then moved to a body of

silver and copper ore. The stamp mills (crushers)

and smelting furnaces in Butte could not separate the silver economically, however, and the

cost of transporting the ore 400 miles to the railroad was prohibitive. Butte was about to become

another Western ghost town, when adaptation

of smelting furnaces led to a silver boom. Then,

in 1881, a huge seam of rich “copper glance”

(chalcocite) that ran 30 percent copper turned

Butte into “the richest hill on earth. ” Railroads

were opened to Butte by the end of 1881, and

it was soon a city of 40,000 with four copper
108

Figure 6Q3.— Early Copper-Producing Areas of Europe and the Middle East

smelters. By 1887, Butte had passed the Lake Superior Copper Country in production.lo

As in Montana, gold and silver mining in the

Southwest paled into insignificance with the discovery and development of rich copper deposIOJoralemon, supra note s.

its. Also similar to Butte, profitable development

of the southwestern deposits depended on construction of railways to transport the copper to

fabricators, and on processing and smelting techniques that cou Id economically handle the various grades and types of ore found, which included carbonates, oxides, sulfides, and silicates.

A third factor was the amount of capital needed
109

Figure 6-4.—Copper Deposits of Northern Michigan

‘Ma’que”e” ‘we

—/ / / I Schoolcraft .

‘“ I / / I ndta= I zManistique

J-+”- ,

Green Bay ~’ ‘ “ Lake Michigan

.

The thin band of the Keweenaw copper range shoots UP through the peninsula, then goes beneath Lake Superior. Isle

Royale is in the same geological formation.

SOURCE: Donald Chaput, The Cliff: Arrrerica’s Ffrst Great Copper Mine (Kalamazoo, Ml: Sequoia Press, 1971).

to develop an ore body into a producing mine ure 6-6). Processing and smelting methods usu -

and provide the necessary infrastructure to ex- ally had to be tailored to each ore body or disploit it. trict. For example, in the early 1880s the

mass-produced Rankin & Brayton water-jacket

The Southern Pacific Railroad was completed furnace revolutionized the smelting of oxide ores

across Arizona in 1882, and lines eventually were from the Bisbee district of Arizona. This furnace

extended to the various mining districts (see fig- could be shipped as a complete unit, requiring
110

aoc2

~g I Oms

m-ml

c

2’

.- 8a

<

a

:lu~ NCO “= o .!! a.? ~

~-a oc-

.= --- @

a)Eu

CL, I~

U)21

cmcoN

.

= azo0

.

%’ ac

.-o3

“s

(ncw

.->

Ij

Inz

m

cmOc

.

No=

<:

- --

VW- C

(D: 6z:

ml coN.-2

0-

.-a

a)- 5m

(cl

<z<z . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

.7s-
Table 6“3.-Major U.S. Copper Mines—Continued

Year Year

.

Ore grade Mine

opened closed Name Location Owner and tYDe tYDe

1940 . . active Bagdad Bagdad, Arizona

1942 . active Clay/Morenci Morenci, Arizona

1950 . . . . . active San Manuel San Manuel, Arizona

1954 . . . . . 7984 Silver Bell Silver Bell, Arizona

1955 ..., 197 4 Lavender Pit Bisbee, Arizona

955 . . . . .

957 . . . . .

959 . . . . .

988 . . . . .

962 . . . . .

963 . . . . .

986 . . . . .

964 . . . . .

active White Pine White Pine, Michigan

active Pima Sahuarita, Arizona

1985 Twin Buttes Sahuarita, Arizona

active

active Mission Sahuarita, Arizona

1983 Butte Butte, Montana

active

NA Ithaca Peak Mineral Park, Arizona

1969 . . . . . active

1970 . . . . . active

1972 . . . . . 1984

1973 . . . . . active

1974 . . . . . active

1974 . . . . . leaching

1974 . . . . . active

1975 . . . . . 1986

1978 . . . active

1986 . . . . . active

Tyrone

Sierrita

Sacaton

San Xavier

Metcalf

Lake Shore

Pinto Valley

Johnson

Eisenhower

San Manuel

Tyrone, New Mexico

Sahuarita. Arizona

Casa Grande, Arizona

Sahuarita, Arizona

Morenci, Arizona

Casa Grande, Arizona

Miami, Arizona

Benson, Arizona

Sahuarita, Arizona

San Manuel, Arizona

Cyprus Mines

Phelps Dodge

Magma Copper Co.

Asarco

Phelps Dodge

Copper Range Co.

Cyprus Mines

Anaconda, then Anamax,

then Cyprus

Asarco

Anaconda Minerals,

then Montana Resources

Duval

Phelps Dodge

Duval, then Cyprus

Asarco

Asarco

Phelps Dodge

Hecla, then Noranda, then Cyprus

Cities Service, then Magma

Cyprus

Anamax, then Asarco

Magma

f).5°/o —sulfides

0.70/0—sulfides

0.6-0.70/. —sulfides

4-6Y0 —sulfides

1 YO —sulfides

0.50/O—sulfides

0.920/0—sulfides

0.730/0—oxides

sulfides

0.70/o—sulfides

0.3%-sulfides

sulfides

sulfides

0.80A—sulfides

10\O —oxides

0.460/0—sulfides

0.40/0

sulfides

oxides

OP

OP

UG

OP

OP

UG

OP

OP

OP

OP

OP

OP

OP

OP & UG

OP

OP

UG

OP

OP

OP

OP

Technological advances a

First solvent extraction

electrowinning plant (1976)

First in-pit crushing and

conveying system

NA indicates the actual date of closing or incorporation into open pit mining is unknown.

aDates indicate first use in the U.S. unless otherwise ind!cated.

bMinor amounts of production continued under various owners until around Iws.

cf.JurnerOus other shafts were opened in Blsbee between 1877 and 1 gf)o, most of which were subsequently purchased by Pheips Dodge and managed Jointly with the copper Queen.

SOURCE Office of Technology Assessment, 1988
112

Figure 6-5.—Copper Production Areas of the

Northern and Central Rocky Mountains

Montana

Coeur

StlOup

Idaho Wyoming

Uwl Colorado

SOURCE: Off Ice of Technology Assessment, 1988.

Figure 6.6.—Copper Production Areas

of the Southwest

+

Arizona I

New Maxioo

(310ba clm?w

Douglas —

SOURCE. Office of Technology Assessment, 1988.

few onsite engineering skills; it had improved fuel

economy, important in the lightly forested mountains of southeastern Arizona; and it required no

fire brick in its construction, which saved on shipping costs. ’ 1

Further developments in mining and processing technology followed the gradual decline in

ore grades.lz By the late 1800s, the copper ore

I I Lynn R. Bai Icy, B/sbee: Queen ot the Copper C.?mps (Tucson,

AZ: Westernlore Press, 1983).

12The Importance of ore grades for mine economics and competitiveness IS discussed in ch. 5,

grade in the Clifton-Morenci District of Arizona

had declined to only 4 to 5 percent copper–too

lean to be smelted directly at a profit. James Colquhoun devised a means of concentrating the ore

based on techniques used to process Colorado

gold ores. For some leaner oxide ores that could

not be processed this way, Colquhoun worked

out a process for dissolving the copper in sulfuric

acid and precipitating it on iron. This first U.S.

leaching plant was built in 1892.13

The adaptation of Colquhoun’s techniques to

deposits of low-grade porphyry ores was pioneered at Bingham Canyon in Utah, where gold

and silver miners had found an unusually large

mass of copper porphyry ore. But the ore grade,

then estimated to average 2.22 percent copper,

was too low to be exploited economically with

traditional mining and smelting methods.ld The

Utah Copper Company’s engineer, Daniel jackiing, determined that economies of scale were

the key to making Colquhoun’s concentration

techniques economical with such low-grade ore.

The Utah Copper Company’s 50()@ton-per-day

mill at Bingham Canyon began commercial production in 1907. Utah Copper made it even more

profitable by introducing open-pit mining with

steam shovels .15

Economies of scale in smelting also were realized in the early 1900s. Phelps Dodge had been

having problems with the Copper Queen smelter

in Bisbee as the mine went deeper and the copper carbonate and oxide graded into sulfide ore.

An entirely new smelter was built 25 miles south

of Bisbee, at a site named after James Douglas,

head of Phelps Dodge’s Bisbee operations. The

most modern smelter of its time, it had five furnaces with a capacity of 5000 tons/day. lb Phelps

Dodge closed the Douglas smelter in 1987 because bringing it into compliance with air quality regulations would have been too costly.

As soon as jackling showed that the low-grade

porphyrins could be mined profitably, they became the focus of exploration and development.

I ~Joralemon, supra note 3.

I ~The changes i n ore grade over time, and their effects on the

estimated resources in an ore body, are discussed in ch. 5, box 5-A.

I 5)oralemon, supra note 3.

IGBailey, supra note 11.
113

The Nevada Consolidated Company began production in Ely, Nevada in 1908. The Lewisohn

Brothers partnership, which owned the Old

Dominion Mine at Globe, Arizona, opened a porphyry mine at nearby Miami, Arizona in 1911.

The Utah Copper Company opened Ray Mines

in Arizona and Chino Mines in New Mexico in

1911. Phelps Dodge acquired claims and started

development work at Tyrone, New Mexico, duri ng the same period. 17 Most of these porphyrins

are still among the major producing ore bodies

in the United States today.

Not all of the porphyry ores were amenable to

jackling’s methods, however. For instance, available milling techniques could not recover enough

of the 2.5 percent ore at the Inspiration Company’s claims near Miami, Arizona. When Anaconda purchased these claims, their consulting

engineer, L.D. Ricketts, expanded on Colquhoun’s and Jackling’s work plus developments

in Britain, and built the first flotation plant for copper in the United States.18 Similarly, profitable de1 TPraln, supra note 4.

18A zinc flotatlon plant had been built in Butte in 1912.

velopment of the 30 million tons of 1.5 percent

carbonate ore at Ajo, Arizona was questionable

until Ricketts developed a process of leaching

with sulfuric acid that would produce copper

from Ajo ore for 8.5 cents/lb (the current selling

price was 14 cents/lb) .19

Phelps Dodge further refined these techniques

during the 1930s. Under 1935 conditions, with

the price of copper at 10 cents/lb, they proved

that a profit could be made with ore that was only

around 0.75 percent copper. However, demand

was too low to open new low-grade mines until

the wave of industrial development following

World War Il. The accompanying technological

advances that permitted economic exploitation

of low-grade ore bodies included large-scale mining equipment that facilitated open-pit operations, and further improvements in crushing and

flotation. More recent improvements, such as

new smelting furnaces and hydrometallurgical

processing methods, are described in the remainder of this chapter.

19 Jorajemon, supra note 3

EXPLORATION

Exploration includes all activities in the search

for and discovery of new mineral deposits, plus

the evaluations necessary to make a decision

about the size, initial operating characteristics,

and annual output of a potential mine. Exploration expenditures are highly sensitive to metal

markets, as evidenced by the trends during the

1980s, when gold exploration has boomed while

base metal exploration reached new lows. U.S.

companies have drastically cut their base metal

exploration staffs, land holdings, and most forms

of prospecting.20 Companies will continue exploration on a worldwide basis for a number of reasons, however. Their reserve base may be in

mines at which production is not economic at

current prices with existing technology, or they

may have only a few years of production remaining at existing mines. Other countries may wish to

increase mineral production to promote employ20’’Mlneral Exploration, ” Engineering and Mining Journal, july

1987.

ment, enhance foreign exchange, and finance

economic development. Even after discovery of

a deposit and the start of mining, exploration continues in an effort to find additional ore that will

keep the mine going for a longer time.

Modern exploration incorporates both direct

and indirect techniques. Direct methods include

geologic and photogeologic21 mapping (figure 6-

7); the study of rock types, geologic structures,

and other indicators of an ore body (figure 6-8);

and drilling and sampling. Indirect methods include geochemica122 and geophysicalzs investi21 photogeology is the geologic interpretation of aerial photographs.

ZzGeochemistry is the study of the distribution and amounts O(

chemical elements in the Earth. Geochemical exploration uses the

systematic measurement of one or more chemical properties of naturally occurring materials (e. g., rocks, glacial debris, soils, stream

sediments, water, vegetation, and air) to identify chemical patterns

that may be related to mineral deposits.

zjGeophyslcs is the study of the earth by quantitative physical

methods. Exploration geophysics applies the principles of physics
114

Figure 6-7.—Sample Geologic Map

(Bighorn Basin, Wyoming)

Structure symbols

/

u

D

Fault

x

Anticline

x

Syncline

< Dipand Strik e

‘~m’

o 1.0 km

SOURGE: Floyd F. Sablns, Remote Sensfrrg: %rrciples arrd Irrterprefaflon (New

York, NY: W.H. Freeman & Co., 1987).

gations. Both direct and indirect methods are followed by Laboratory. analyses of ore samples,

including ore treatment, concentration, and recovery tests; and evaluation of labor, transportation, water, energy, and environmental requirements. All of these studies must show favorable

economic and technical results before a copper

deposit can be considered a candidate for development. The cost of a total exploration program—

from initial literature search through feasibility

study—for a large porphyry copper deposit today

ranges from 5 million to tens of millions of dollars.

Exploration programs are divided into two main

phases: reconnaissance and target investigation

(see figure 6-9). Reconnaissance determines

whether the probability of finding ore i n an area

is favorable enough to warrant more extensive—

and more expensive—investigation. When a potentially favorable target area is found, the company must acquire the right to develop it. Land

can be acquired by leasing or purchasing mineral

rights owned by private parties, by staking claims

on Federal lands, or by leasing Federal or State

land, Some lands are unavailable for exploration

and development due to withdrawal for other

uses (e.g., wilderness, military reservations, water

projects, or urban development).

Following acquisition, the exploration team investigates the target in detail, first on the surface,

and then, if warranted, by drilling. The vertical

samples of ore and surrounding material taken

from drill holes are assayed to show the depth at

which the ore or other rock was fou ndr the type

and thickness of the material, and other data.

Then, metallurgical tests are run to determine

amenability of the ore to flotation or other techniques for separating the minerals from the host

rock.

to the search for mineral deposits. The geophysical properties and

effects of subsurface rocks and minerals that can be measured at

a distance with sophisticated electronic equipment include density, electrical conductivity, thermal conductivity, magnetism, radioactivity, elasticity, specific gravity, and seismic velocity. The techniques commonly used, either singly, or in combination in exploring

for metallic minerals are magnetic, electrical, and electromagnetic,

because these minerals usually have magnetic and electrical properties that contrast with those of the surrounding rocks.
115

Figure 6-8.-Model of Hydrothermal Alteration Zones

Associated With Porphyry Copper Deposits

Ground surface at time of ore formation

.- -- “- ‘ -

. .

. .

, \

,, ,.- ---- -

. ’

.

\

/ .

/’ , -. . ‘,

/ /’ ‘ .

,1 ‘,

,, ,,

Present

~

ground

surf ace

Cross section Map view of present surface

Alteration zones Other materials

Pro py

ISEli

 I I t Ic zono Arg I I I Ic zo no P hy I I 

EBB

Ic zono Pot a.. I c zon o U n 

EI

● l te red

 El

Ore 20 ne Qoesan

m

rock

● p1401m, oalol 19, qu •~ tx , Maol I n I t9 , qumr ix, ● er 101 la. au av I x . ● ● r 10 I Ie , bl o I I tw ,

oh ● tOOPY r I t~ , I I mo n I t. f ro m

oh I or I I* monl mor I I Ionl tm py r I t* Potmaal u m 1*I4 n par

mel y bden I 10, weal hm red ore

py r I I*

SOURCE Floyd F Sablns Remote Sensing Prfnc/p/es and In ferpretatlon (New York NY W H Freeman and Co 1987)

Recent advances in exploration methods include computer and statistical techniques for

analyzing and integrating data, and remote sensing technologies (see table 6-4). In addition, the

industry has benefited from refined geologic

models of the formation of copper ore bodies,

improved and cheaper drilling techniques, and

deeper penetration of electrical geophysical

met hods.

In the near term, it is unlikely that exploration

will reveal large new U.S copper deposits that are

minable with available technology, although

smaller high-grade deposits probably will be

found (e.g., a 3 percent copper deposit reported

in Montana in 1987). More likely are technological advances that wou Id allow known lowergrade ores to be mined economically. Such advances wou Id stimulate exploration for deposits

to which the new technology would apply. Thus,

the advent of solvent extraction and electrowi nning methods for recovering copper stim u Iated

exploration for oxide deposits.
116

Figure 6-9.-Stages of Mineral Exploration

Reconnaissance Target investigation

(Strategic Stages) (Tacticai Stages)

Stage #l Stage # 2 Stage # 3 Stage # 4

Regionai Detaiied Detaiied I Detaiied 3- Economic

appraisai n ●

reconnaissance n m surface n ● dimensional minerai

of favorabie appraisai sampiing and deposit

areas of target preliminary

I/

A

area evacuation

Region not Area remains *

Target

* Uneconomic

attract i ve

*

favorabie but area not m inerai

at this time < not attractive <

attract ive c

deposit

at this time

I I I J

Reject: ●

region

u n f avorabie

at th is time ‘1’ I

Recyciing after temporary rejection

Normai expiration sequence

Key expiration decisions

Reject:

not a

m inerai

deposit

SOURCE: Mineral Systems Inc , Technological /nnovafiorr in the Copper Indusfry (Washington, DC U S. Department of the Interior, Bureau of Mines, March 1983).

MINING

Mining is the extraction of minerals from ore

deposits. The term “mining” encompasses traditional methods such as underground, open pit,

and placer mining, as well as more exotic techniques such as in situ solution mining,zA Table 6-

5 summarizes the considerations in choosing a

mining method for a particular ore body. Conventional open pit mining currently accounts for

around 75 percent of domestic copper production (86 percent if dump and heap leaching are

included).

In general, solution mining has lower capital

and operating costs than other methods, but

Zqsolution mining is the leaching of ore with water-based chemical solutions. In situ solution mining treats the ore in place; I.e.,

without mining It first.

open pit mining offers the highest production

rates and leaves the least ore behind. However,

underground mining can reach greater depths.

Open pit and solution mining have safety advantages over underground mining, but open pit

methods have higher environmental costs than

the other two. Theoretically, in situ solution mining may be more efficient than open pit mining,

but its costs and production rates are unproven

on a commercial scale.

Mining (and milling) represent around threequarters of the gross operating cost of producing a pound of copper.25 U ,S. operations are at

ZsThlS includes all aspects of mining and milling, from drilling and

blasting of the overburden and ore, to transportation of concentrates to the smelter but excluding byproduct credits and working

capital interest; see ch. 9.
117

E

mc

(a

‘(n

a)

.-

ti

a)

n.Q

0.

(ngc

l-uv

(n

a

a00m0

co

a)

u) ?.-C

.—

3

>
118

Table 6.5.—Considerations in Choice

of Mining Method

Physical:

Geometry. . . . . . . . . . . . .

Geology . . . . . . . . . . . . . .

Geography. . . . . . . . . . . .

Technological:

Safety. . . . . . . . . . . . . . . .

Human resources. . . . . .

Flexibility . . . . . . . . . . . .

Experimental aspects . .

Time aspects . . . . . . . . .

Energy . . . . . . . . . . . . . . .

Water requirements . . . .

Surface requirements . .

Environment . . . . . . . . . .

Economic:

Cost limits . . . . . . . . . . .

Optimum life of mine . .

Length of tenure . . . . . .

Size, shape, continuity, and

depth of the orebody or

group of orebodies to be

mined together

Range and pattern of ore

grade

Physical characteristics of

ore, rock, and soil

Structural conditions

Geothermal conditions

Hydrologic conditions

Topography

Climate

Identification of hazards

Availability of skilled labor

Selectivity in product and

tonnage

Existing or new technology

Requirements for keeping

various workings open

during mining

Availability of power

Amount and availability

Area needed

Means of protecting the

surface, water resources,

and other mineral resources

Prospects of long-term rights

to mine

SOURCE William C. Peters, Exploration and Mining Geology (New York, NY: John

Wiley & Sons, 1978)

a competitive disadvantage in mining because of

relatively low average ore grades, only moderate byproduct credits, and high labor and environmental costs. Little can be done about the first

two, and labor costs were lowered substantially

in 1986. Therefore, further decreases in mining

costs must come from improvements in mine

technology and productivity. For instance, the

Bureau of Mines estimates that in situ solution

mining could make a domestic low-grade deposit

competitive with foreign production from higher

grade ores using conventional mining methods.26

Conversely, any significant increase in mining

cost could devastate the domestic industry.

~6Mineral s~tems i IIC., Technologic’?l Innovation in the Copper

/ndustry (Washington, L)C: U.S. Department ot’ the Interior, Bureau of Mines, March 1983).

Underground mining methods usually are used

for deep ore bodies where an open pit would be

impractical because of excessive waste removal.

Figure 6-10 illustrates the basic terms applicable

in underground mining; figure 6-11 shows two

types of underground copper mines, Underground development and maintenance, including tunneling, rock support, ventilation, electrical systems, water control, and transportation of

people and materials, add significantly to mining costs.

Open pit mining is used to extract massive deposits that are relatively near the surface. An open

pit bench mine has the appearance of a bowl,

with sides formed by a series of benches or terraces arranged in a spiral, or in levels with connecting ramps (figure 6-1 2). After removal of the

overlying waste (overburden), the ore is blasted

loose. Large electric or diesel shovels (or frontend loaders in smaller operations) load the ore

onto trucks or conveyor belts for transport to the

crusher. Open pit mining has lower development

and maintenance costs than underground mining because it requires fewer specialized systems.

However, the land disturbance is much greater

and environmental costs can be high (see ch. 8).

In solution mining, or leaching, water or an

aqueous chemical solution percolates through

the ore and dissolves the minerals. The resulting

mineral-laden solution, known as pregnant leachate, is collected and treated to recover the valuable minerals. Table 6-6 summarizes the four

types of solution mining.

Vat, heap, and dump leaching are methods of

hydrometallurgical processing of mined ore (see

figure 6-13). Thus they are complements, not

alternatives, to underground or open pit mining.

In situ leaching is a stand-alone mining method

(see figure 6-14). The leach solution percolates

through the ore to be collected in wells or underground mine workings. Natural fractures or

the effects of earlier mining can supply channels

for the leach solution, or the ore can be blasted

or fractured hydraulically.27 U.S. companies have

Zzjon K. Ah Iness and Michael G. Pojar, In Situ Copper Leaching

in the United States: Case Histories of Operations (Washington DC:

U.S. Department of the Interior, Bureau of Mines, Circular No. 8961,

1983).
119

Figure 6-10.-Underground Mining Terms

I 1 ,

/

/\

l“

Chutes

SOURCE William C Peters, Exploration and Mlning Geology (New York, NY: John Wiley & Sons, 1978)

mined copper in situ at 24 known sites (see table 6-7 and box 6-A).

Solution mining enjoys certain intrinsic advantages over conventional mining and milling, including lower combined capital and operating

costs, faster start-up times, and fewer adverse

environmental impacts. Furthermore, solution

mining is an expedient method of extracting metals from small, shallow deposits and is particularly suited to low-grade resources. Leaching old

mines (where the ore that can be mined economically has been removed) and leaching waste

dumps both use an in-place resource for which

the mining cost is already “off the books. ”28 As

a result of these advantages, solution mining has

gradually taken over an increasing percentage of

domestic mine production (see ch. 4).

There have been no truly radical technological advances in mining technology for at least

the last several decades. Witness a 1983 U.S. Bureau of Mines report on Technological InnovatIon in the Copper industry that had to stretch

z~l bid.

its time frame to the last 30 to 50 years to develop

a list of innovations.29 Instead, incremental improvements in existing methods, and adaptations

of other types of technology to mining (e.g., computers, conveyor systems) have gradually reduced

costs and increased productivity. These include

improved drilling and blasting equipment and

practices; larger and more efficient trucks and

shovels; more efficient underground equipment

such as hoists and ventilation fans; computerized

truck dispatching for open pit mines; computerized and remote control systems for underground

mine pumps and trains; in-pit ore crushing and

conveying; and improved slope stability analyses that allow steeper pit walls.

Possible future technological advances that

could provide important productivity gains in

copper mining include further demonstration

and development of in-pit crushing/conveying;

an underground continuous mining machine

adaptable to various ore and mine types; and

in situ solution mining of virgin ore bodies.

— — Z9M I n~ ra I syst~rns Inc., 5U pra note 26
Figure 6-11.-Two Underground

Rook bolts

7

—

Wet fill

Drain

.- - -

● lso

-. . .

Fill

Cut-and-fill

------

Mining Methods

. . . . . . . . . . . . . . . . . . . . . . .,

stoping

. . . . . . . . . . . . . . . . ;::. :::: . . . . . .

Haulago level

Block caving

SOURCE: Willlam C Peters, Exploration and Mining Geology (New York, NY John Wiley & Sons, 1978)
121

Figure 6-12.-Open Pit Mining Terms

 Over burde n

Ore

SOURCE William C Peters. Exploration and Mining Geology (New York, NY: John Wiley & Sons, 1978)

/ w

Portion of an open-pit mine, showing benches. Holes for the explosives are drilled (right). After the ore is blasted loose,

large shovels load the ore into trucks (center) for hauling to the primary crusher.
Table 6-6.—Characteristics of Solution Mining Techniques

Vat leaching Heap leaching Dump leaching In situ leaching

Ore grade. . . . . . . . . . . . . . . . . Moderate to high Moderate to high

Type of ore . . . . . . . . . . . . . . .Oxides, silicates, some Oxides, silicates, some

sulfides sulfides

Ore preparation. . . . . . . . . . . . May be crushed to optimize May be crushed to optimize

Container or pad . . . . .

Solution

Length o<

. . . . . . . . . . . .

leach cycle .

Solution application

method . . . . . . . . . . . .

Metal recovery method

copper recovery copper recovery

. . . . . Large impervious vat Specially built impervious

drainage pad

. . . . . Sulfuric acid for oxides; acid Sulfuric acid for oxides; acid

cure and acid-ferric cure cure and acid-ferric cure

provide oxidant needed for provide oxidant needed for

mixed oxide/sulfide ores mixed oxide/sulfide ores

. . . . . Days to months Days to months

. . . . . Spraying Spraying or sprinkling

. . . . . Solvent extraction for Solvent extraction for

oxides; iron precipitation oxides; iron precipitation

for mixed ores for mixed ores

LO W

Sulfides

None: waste rock used

None for existing dumps;

new dumps intended to be

leached would be graded,

and covered with an

impermeable polyethylene

membrane protected by a

layer of select fill

Acid ferric-sulfate solutions

with good air circulation

and bacterial activity for

sulfides

Months to years

Ponding/flooding, spraying,

sprinkling, trickle systems

Solvent extraction for

oxides; iron precipitation

for mixed ores

Low

oxides, silicates, some

sulfides

None, block caving, blasting

None

Sulfuric acid, acid cure,

acid-ferric cure, or acid

ferric-sulfate, depending

on ore type

Months

Injection holes, spraying,

sprinkling, trickle systems

Solvent extraction for

oxides; iron precipitation

for mixed ores

SOURCE Office of Technology Assessment,1988; based on J. Brent Hiskey, “The Renaissance of Copper Solution Mining, ” Arizona Bureau of Geology, Fieldnotes, fall 1986,
123

.

Figure 6-13.-Heap and Dump Leaching

Oxygen depleted air

Fresh

.

air

Temp.

i n active

lmpermeable” area

Iiner or”. Dump ‘L_____

Leach

solution Impermeable

. . . . . . . . . . . . . .

Leach

solution

bedrock ,

Leach solution

\

\

\

percolating

downward ~\

leaching pad

. . . . .

I I I

,

. . . . . . . . . . . . . . . . . . . . . . . . . . . .

,

Collection channel ‘, \

\

.--_ -. —._. ._-. -._. ._. ___- —-. _-_. ... __. —_______\

\

\

Copper ‘ ,

Pregnant recover y \Recycled \

Ieachate \ plan t \ spent Ieachate

\

\,

\ \\

Fresh air

Pregnant

Ieac hate

‘ \

SOURCE J Brent Hiskey, “The Renaissance of Copper Solution Mining, ” Fieldnotes Fall 1986
124

Injection

welIs

1

so

Copper

Figure 6-14.-Types of In Situ Leaching Systems

Copper

ution

\\

1

flow

\

Copper

recovery

II

Solution flow

SOURCE: J. Brent Hiskey, “The Renaissance of Copper Solution Mining, ” Fieldnotes,

Copper

recovery

plant

Oxygen

Injection

we I I

idence

zone

)

,

—

I

well 

/

Ore
Table 6-7.—Summary of in Situ Copper Mining Activities

Cu produced Average ore Principal Cu Ore Solution/ Solution Cu in Cu recovery Active

Mine (lb/day) grade (%) minerals preparation application recovery solution (gpl) method dates

2.0, then O 8

2.02

NA

0.5-0.75

1.0

0.6

0.59, then 0.65

1.8, then 0.7

0.15b

0.2-0.6

0.835

0.5-0.6

9.23

NA

NA

Precipitation on

scrap iron

Precipitation on

scrap Iron

Precipitation on

scrap iron

Precipitation on

scrap iron

Precipitation on

scrap iron

Precipitation on

scrap iron

Big Mike (NV) 1973-74. 1978-79

Bingham (UT)

Burro Mt. (NM)

Butte (MT)

Consolidated (NV)

Copper Queen (AZ)

5,000a

20,000b

NA

33,000b

NA

5,800a

1.18

0.3

NA

0.8

0.3

0.29

Cuprite, tenorite,

chalcopyrite

Chalcocite

Blasted pit walls,

terraced

None, leached

block-caved area

None, leached

block-caved area

None, leached

backfilled slopes

None, leached

block-caved area

None, leached pit

and underground

workings

Blasted pit bottom

Dilute H2SO4:

sprinklers

Water, launder

Recovery well

Tunnel

Underground

workings

Tunnel

Underground

workings

Underground

workings

Recovery wells

Underground

workings

Recovery well

Drifts

Drifts

Driff

Drifts

Underground

workings

Recovery well

1922-? (now part

of open pit)

Chalcocite Water 1941-49

Chalcopyrite,

chalcocite

Sulfides

Very dilute H2SO4:

rejection

Water

1930s-1964

1925-?

Chalcocite Water; sprinklers 1975-present

250 then 750b

5,200 b

NA

NA

30,000-35,000 b

Emerald Isle (AZ)

Inspiration (AZ)

Kimbley (NV)

Medler (AZ)

Miami (AZ)

1.0

0.5

0.32

0.38

0.88C

Chrysocolla Dilute H2S04,

perforated pipe

Dilute H2SO4;

injection holes

Dilute H2SO4;

injection

Water; flooded

drifts

Dilute H2SO4; pipe

spray and

injection holes

Dilute H2SO4;

injection wells

Water, sprinklers

Precipitation on

scrap iron

Precipitation on

scrap iron

NA

3/74-6/74, then

12/74-6/75

Azurite, malachite, 1967-74

chrysocolla

Chalcocite

None, leached

block-caved area

None 1970-71

Sulfides None Precipitation on

scrap iron

Precipitation on

scrap iron, then

SX-EW

Precipitation on

scrap iron

Precipitation on

scrap iron

SX-EW

1906-09

Chalcocite Glory hole over

block-caved area

1942-present

4,800b

20,000b

NA

NA

5,000a

Mountain City (NV)

Ray (AZ)

San Manuel (AZ)

Van Dyke (AZ)

Zonia (AZ)

0.93-1.1

1.0

0.47-0.72

0.5

0.2

Chalcocite

Chalcocite

Chrysocolla, cuprite

Chrysocolla

Chrysocolla

Block caving 1974

None, leached

block-caved area

None, leached

block-caved area

Wells drilled and

hydrofraced

Blasted pit walls

1941-49

Dilute H2SO4 1986-present

Dilute H2SO4,

rejection well

Dilute H2SO4,

SX-EW 1976-80

Recovery well in pit 2.0, then 0.8

bottom

Precipitation on

scrap iron

1973-75

and bottom sprinklers

NA = not available.

aMaximum.

bDesign capacity.

cOriginal ore body; caved stopes unknown.

SOURCE: Jon K. Ahlness and Michael G. Pojar, In Situ Copper Leaching in the United States: Case Histories of Operations (Washington, DC: U.S. Department of the Interior, Bureau of Mines Circular IC 8981).
126

Box 6-A.—The Lakeshore Mine In Situ Project

The Lakeshore Mine, near Casa Grande, Arizona, originally was a combination underground/leaching

operation. Beginning in the mid-1970s, Hecla Mining Co. developed an underground operation in which

sulfide ore was mined, crushed, and concentrated; copper sulfates were vat leached and electrowon; and

oxide ores were vat leached and precipitated. Underground mining was very expensive because the surrounding rock was weak and the tunnels needed extraordinary support. Therefore, the mine shut down

after around two years of operation.

Noranda purchased the property in 1979. Because of the problems with the ground, they focused

on the larger oxide ore body, using block caving techniques. As the price of copper dropped, however,

development of the deeper portions of the ore body became prohibitively expensive, and they began leaching the block caved areas, Noranda drilled injection holes through the caved areas, ran the solution into

blocked off underground haulage drifts, and then pumped it to the surface.

As the remaining ore in these areas became depleted, Noranda developed a plan for in situ leaching

of the deeper, virgin ore bodies. This plan involved injecting leach solution into the “solid” ore under.

pressure, with the assumption that the solution would rise to the zone of least pressure–the dammed

drifts-through the recovery wells. With an oxide ore body averaging 1..5 to 3 percent copper, this scheme,

if it worked, would provide 30 years of leach production. ’ The U.S. Bureau of Mines awarded a contract

for study of in situ techniques at Lakeshore (as well as at a less developed property nearby) in 1986.

Cyprus Minerals purchased the property in mid-1987, changing the name to Cyprus Casa Grande.

Cyprus hopes technologies for in situ leaching will enable it to exploit 50 million tons of oxide ore containing slightly less than 1 percent copper, or around 10 million lb/yr copper leach production from the

rubblized ore.2

1 PauI Musgrove, GeneraI Manager, Noranda Lakeshore Mine, personal communication to OTA, April 1986,

“’Cyprus Expands Operations via Lakeshore Acquisition, ” Engineering & Mining Journal, September 1987, at p. 19,

Photo credit: Manley-Prim Photography, Tucson, AZ

Crushing the ore in the pit and using conveyor belts to haul the crushed ore to the mill greatly reduces haulage costs.
127

COMMINUTION AND SEPARATION30

The first step in separating copper from other

minerals in ore mined by underground or open

pit methods is comminution (pulverization) of the

ore chunks—essentially from boulders to grains

of sand. (Mining is actually the first stage of size

reduction, accomplished with explosives. ) Primary, secondary, and tertiary crushing reduce the

ore to about 25 mm, and grinding accomplishes

finer reductions. Separators (e.g., screens,

cyclones 31) are used between stages to control

the size of particles going on to the next stage.

Together, comminution / separation and flotation/dewatering (beneficiation; see below), are

known as milling.

In terms of time, energy, and materials used

per tonne of copper produced, comminution is

expensive because the ore is still very low in

grade. Crushing and grinding consume around

33 to 40 percent of the total energy required to

produce refined copper (see ch. 7).32 There also

are significant materials costs and downtime for

maintenance. Dust control in mill buildings is

another cost factor. Therefore, improvements in

the energy, materials, or operating efficiency of

crushing could make a significant difference in

production costs. For example, autogenous33

grinding, if technically feasible, could save around

10 to 20 cents per ton of ore milled.34

Crushing often is accomplished in jaw, gyratory, and cone crushers, which fracture rocks by

compression (see figure 6-1 5). Jaw or gyratory

crushers are usually used for the first stage (primary crushing), and cone crushers for secondary and tertiary crushing. The choice is determined by feed size (jaw crushers handle larger

Figure 6-15.—Jaw Crusher

SOURCE: Gordon L Zucker and Hassan E El-Shall, A Guide to Mineral Processing, Montana College of Mineral Science and Technology,

Special Publication 85, 1982

pieces) and capacity (gyratory crushers handle

3 to 4 times more rocks of a given feed size). A

pneumatic or hydraulic impact breaker (similar

to a jackhammer) is used to break up rocks too

large for the primary crusher.

The crushed ore is transported, usually on conveyer belts, to the grinding mills. Grinding mills

can be operated wet or dry. I n general, when

subsequent processing is to be carried out wet

(e.g., flotation), wet grinding is the logical choice.

Wet grinding requires less power per tonne of

ore, less space, and does not need dust control

equipment. However, it uses more steel grinding media and mill lining material due to corrosion, and may be Iimited by the availability of

water. If wet grinding is used, the crushed ore

is mixed with water to form a slurry of around

40 percent solids.

Grinding mills work by tumbling the ore with

steel rods or balls, or particles of the ore itself (autogenous and semi-autogenous grinding). Because the grinding media eventually wear down,

new media must be added reguIarly. MiII liners,

which cushion the mill shell, also wear away and

must be replaced periodically. For liner replacement, the individual mill has to be taken out of
128

Photo credit: Jenifer Robison

Ore is tumbled in large cylindrical mills with steel balls or rods, or chunks of hard ore (autogenous grinding),

until it is pulverized.

production. Even so, mills usually can achieve

99 percent operating time.

Size separators control both the size of material fed to crushers or grinders and the size of the

final product. Thus they control both under- and

overgrinding. 35 There are two types of separators:

j~There is an Optimum mix between crushing and grinding. Any

breakage produces a range of product sizes, and when the reduction ratio (feed size/product size, or amount of reduction achieved)

is comparatively low, some of the feed is already as fine as the product of that or the next phase (e.g., fines that sift out of a primary

crusher). By screening this material out and bypassing the next reduction stage, the size of the machine can be reduced because

throughput is lower. Also, removal of finer particles will make the

equipment more efficient by reducing cushioning effects inside the

mill. Overgrinding also can be avoided by operating the final stages

in closed circuit with high circulating loads, so that material is sized

frequently and thus has little chance of being ground unnecessarily

before it is removed from the circuit.

screens for coarse materials, and classifiers for

fines. Screens separate ore sizes mechanically

using a slotted or mesh surface that acts as a

“go/no go” gauge. Classifiers are based on particles’ settling rate in a fluid (usually water). The

hydrocyclone (figure 6-16) is the industry standard for classifying because of its mechanical simplicity, low capital cost, and small space requirements. Often the hydrocyclone gives relatively

inefficient separations, however, resulting in recycling of some concentrates for regrinding and final concentration.

Recent technological advances in comminution have increased the size and efficiency of

both crushing and grinding equipment. instrumentation and controls have improved throughput rates and the consistency of particle size in
129

Figure 6-16.—Hydrocyclone

Vortex finder

Cylindrical section

Cyclone diameter

Replaceable linings J

Conical section

3

-:

‘Spiral within a spiral’

i

i

f

Air core

Included angle ~

Apex (spigot)

Underflow

SOURCE: Errol G. Kelly and David J. Spottiswood, Introduction to Mlneral Processing (New York, NY: John Wiley & Sons, 1982).

crushing and grinding mills.36 Size separation, in

contrast, has seen few significant innovations

since the basic screen was invented.

Research has improved the capacity, energy

utilization, and availability of cone crushers,

JbBisWas and Davenport, Supra note 34.

which make finer feed for balI miIIs. This has reduced the amount of grinding media consumed,

and in some cases eliminated the need to use

both rod and ball mills.37 Autogenous and semiautogenous grinding can eliminate the need for

secondary and tertiary crushing, allow larger mill

diameters, and reduce the amount of grinding

media consumed. Autogenous mills already have

lower maintenance and capital costs than conventional mills. However, they only operate efficiently within narrow ranges of ore grade and

hardness of feed material. Before autogenous

grinding can be used more widely, additional

work is needed to develop an improved understanding of ore properties such as hardness, moisture content, and shattering characteristics; and

to develop more durable mechanical/electrical

components .38

Areas that could especially benefit from R&D

include: 1) better classification in closed circuit

grinding, to avoid over- and undergrinding; 2) the

use of pebble milling instead of autogenous or

steel grinding media; 3) evaluation of optimal

energy consumption in size reduction by tradeoffs among blasting, crushing, grinding, and regrinding; 4) evaluation of alternative grinding devices (such as attrition mills and the Schenert

roller) that might have higher grinding efficiencies; and 5) stabilizing control strategies in grinding and classification .39 Solution mining (discussed previously) bypasses grinding, and often

crushing,

therefore

entirely; improvements in this area

would eliminate these costs.

37(_A. Rowland , “Innovations in Crushing and Grinding Technology, ” paper presented at the 1986 American Mining Congress

International Mining Show, Las Vegas, NV, Oct. 5-9, 1986.

JBMineral Systems Inc., supra note 26.

391 bid.
130

BENEFICIATION

The second step in separating copper from

other minerals in mined ore is beneficiation, or

concentration. The purpose of concentration is

to eliminate as much of the valueless material as

possible to avoid further expense in materials

handling, transportation, and smelting. Froth flotation is the prevalent concentration method in

the copper industry; it separates the pulverized

ore (containing around 0.6 to 2.0 percent copper) into concentrates (with 20 to 30 percent copper) plus tailings (wastes of 0.05 to 0.1 percent

copper) .40

A flotation cell resembles a large washing machine (see figure 6-1 7) that keeps all particles in

suspension through agitation. The ore is first conditioned with chemicals that make the copper

minerals water repellent (hydrophobic) without

affecting the other minerals. 41 Then air is bubbled up through the pulp; with agitation, the

hydrophobic copper minerals collide with and

attach to the air bubbles and float to the top of

the cell. As they reach the surface, the bubbles

form a froth that overflows into a trough for collection. The other minerals sink to the bottom

of the cell for removal .42

The simplest froth flotation operation is the separation of suIfide minerals from waste oxide

minerals (e. g., limestone, quartz). The separation

of different suIfide minerals (e. g., chalcopyrite

from pyrite) is more complex, because the surfaces of the minerals have to be modified so that

the reagent attaches specifically to the mineral

to be floated .43

in practice, each ore is unique. Therefore there

are no standard concentration procedures. A

thorough knowledge of the mineralogy of the ore

is essential for the design of a plant. Once a mill

~~Biswas and Davenport, supra note 34.

~1 The principal chemical reagent used is the colIector, which at

taches (adsorbs) preferentially to the mineral to be recovered. To

Improve the degree of selective adsorption, other chemicals may

be added to the slurry, Including activators, which modify the surface properties of a mineral so that it becomes more amenable to

flotation; depressants, which reduce the floatability of one or more

mineral constituents; dispersion agents to help the selective reaction

of other reagents; and pH regulators.

JIBlswas and Davenport, supra note 34.

d ~lbid.

Figure 6-17.— Flotation Cells

Upper portion

of rotor

draws air down

the standpipe

for thorough

mixing with pulp

of

ulp

Larger flotation /

units include false

bottom to aid pulp flow

SOURCE: Errol G. Kelly and David J Spottiswood, Introduction to Mineral Processing (New York, NY: John Wiley & Sons, 1982),

is in operation, continued appraisal of the mineralogy is critical to fine tuning to maintain efficiency. This arises because ore bodies are not

homogeneous; variations in feed mineralogy are

normal and may occur to such an extent that major circuit modifications are required.44

Conventional flotation is carried out in stages,

the purpose of each depending on the types of

~Kelly and Spottiswood, supra note 30.
131

Photo credit: US. Bureau of Mines

In fIotation, the copper attaches to bubbles and floats

to the top, where it forms a froth that overflows into

a trough for collection,

minerals in the ore (see figure 6-18). Selective flotation for copper sulfide-iron sulfide ores uses

three groups of flotation cells (figure 6-1 8a):

●

●

●

roughers use a moderate separating force to

float the incoming ore to produce a high

copper recovery with a concentrate grade

of 15 to 20 percent;

cleaners use a low separating force to upgrade the rougher concentrate by removing

misplaced waste material, resulting in a final high-grade copper concentrate of 20 to

30 percent and;

scavengers provide a final strong flotation

treatment for the rougher tailings (with a

large concentration of reagent and vigorous

flotation) to recover as much copper as

possible.

As shown in figure 6-1 8a, the tailings from the

cleaner flotation and the “float” from the scavenger flotation (middlings) are returned to the

start of the circuit. A regrind often is necessary

for this to be effective. Alternatively, there may

be a regrind between rougher and cleaner flotation,

45

For more complex ores, the first stage often is

a bulk float, similar to the rougher, i n which much

of the waste and some of the byproduct metals

are eliminated (figure 6- 18b). The buIk concentrate then goes to roughers, which float the copper and eliminate the remaining metals, and then

to cleaners. Again, there may be a regrind and

second rougher cycle.46

The product of froth flotation contains 60 to

80 percent water, most of which must be removed before the concentrate can be transported

or smelted, Dewatering is accomplished first by

settling in large vats, known as thickeners. The

solids settle by gravity to the bottom of the vat,

where they are scraped to a discharge outlet by

a slowly rotating rake.47 Filters are used for final

dewatering.

Over the last 10 to 20 years, advances have

been made in flotation chemicals, flotation cell

design, and automated circuits. Automated flotation monitoring and control systems improve

metal recovery and reduce reagent consumption.

Most U.S. operations have now installed these

systems. Continued improvements in sensitivity

wouId enhance the potential savings, however.

In flotation chemistry, a major development

was the recognition that adsorption of sulfide

minerals on air bubbles is an electrochemical

process. Changing the electrochemical potential

(by varying the chemical reagents) activates or

depresses the various minerals, making them float

or not float, and thus improves flotation efficiency. This offers significant savings—perhaps $1

million annually—in reagent costs. Other potential benefits of electrochemical control include

higher recoveries and lower operating costs, Even

qsBiSWas and Davenport, supra note 34.

’61 bid.

~zThe liquid from the thickeners usualIy is recycled to the grindding and flotation circuits. This prevents adverse environmental impacts from the trace metals in the liquid (e.g., copper, arsenic, cadmium, lead, and zinc; see ch. 8). Water recycle systems also reduce

water use, an important consideration i n the arid regions where

much of the world’s copper is produced.
132

Figure 6-18.-Flowsheets for Copper Flotation

6-18a. --Representative flowsheet for flotation of copper sulfides from iron sulfides

I

I

(3% Cu)

I

(19% Cu)

RogrIn d

6-18 b--- Summary flowsheet for production of copper, lead. nickel, molybdenum, and zinc concentrates

from a hypothetical complex ore

Regrlnd I

Rough coppor

concentrate Coppor roughers Coppor cleaners

“ PbS may also be floated from copper sulfides

9 ● MoS2 is floated off at this point.

SOURCE A K. Biswas and W.G Davenport, Extractive Metallurgy ot Copper (New York, NY: Pergamon Press, 1980),

a 1 percent improvement in copper recovery

(with no decrease in grade) could represent from

$1 million to $5 million of additional income annualIy.

48

An important trend in cell design is the tendency toward larger cells. In the 1960s, newly

installed cells had a volume of 3 or 4 cubic

meters; today, flotation cells may have a volume

of 85 cubic meters.49 Experiments also are proceeding with the use of column cells, which use

pneumatic agitation (see figure 6-1 9). Therefore

they can be more energy efficient and less costly

to maintain than mechanical agitators, Other potential advantages of column cells include better recovery of fine particles (and thus fewer

cleaning circuits), simpler control of electrochemical potential, and simpler automated process

controls. Moreover, one column cell will replace

several banks of mechanical flotation cells. Although these benefits have not been quantified,

the improved recovery and capital and operating cost savings couId add up to several millions

of dollars annually. so

~aGarret R, Hyde and Alexander Stojsic, ‘‘Advances in Froth Flotation, ” paper presented at the 1986 American Mining Congress

International Mining Show, Las Vegas, NV, Oct. 5-9, 1986.

~gBiswas and Davenport, supra note 34.

— — 501 bid ,
133

Figure 6-19.-Column Cel l Column cells already are used for molybdenum

‘, Wash water

Diameter -

(throughput )

I I

I

I

Cleaning

zone

(grade )

ColIection

zone

TaiIings

concentration, and are being tested in copper

milling. Experience with a column cell at San

Manuel, Arizona showed a concentrate grade of

29.83 percent copper with a sulfide copper recovery of 90.36 percent, compared to the conventional San Manuel flotation circuit with 29.99

percent copper in the concentrate and a recovery of 90.12 percent .51

51 13. V. Clingan and D. R. McGregor, ‘‘Column Flotation ExperiSOURCE J D McKay et al “Column Flotation, ” U.S. Bureau of Mines pamphlet, ence at Magma Copper Company,” Minerals and Metallurgica l

undated Processing, vol. 4, No. 3, August 1987, p. 121.

PYROMETALLURGY

Pyrometallurgical processes employ high- of equipment, pyrometallurgical recovery may

temperature chemical reactions to extract cop- take as many as four steps: roasting, smelting,

per from its ores and concentrates.52 These proc- converting, and fire refining.

esses generally are used with copper sulfides and,

in some cases, high-grade oxides. The use of high Smelting is a relatively small component in the

temperatures for metallurgical processing has sev- total cost of copper production—about 17 pereral advantages: chemical reaction rates are cent of gross U.S. production costs. In relative

rapid, some reactions that are impossible at low terms, however, the United States is least comtemperature become spontaneous at higher tem- petitive in smelting.. This is primarily attributaperature, and heating the mineral to a liquid fa- ble to high U.S. labor and energy costs. Thus, imcilitates separation of the metal from the residue. provements in smelter labor productivity and

Depending on the copper minerals and the type energy efficiency would enhance domestic indus52 Pyrometallurgical processes typtcally operate at temperatures try competitiveness, Domestic smelters also are

ranging from 500° C to 1250° C. at a disadvantage compared to some other coun-
134

tries due to the high level of environmental control required in the United States (ch. 10).

Roasting prepares ores and concentrates for

either pyrometallurgical or hydrometallurgical

processing. For the former, it dries, heats, and

partially removes the sulfur and volatile contaminants (e. g., arsenic) from the concentrate to produce a calcine suitable for smelting. In hydrometallurgical processing, roasting converts sulfide

minerals to more easily leachable oxides and sulfates .53

53 Biswas and Davenport, supra note 34.

In smelting, concentrates or calcines are processed at high temperatures to produce a liquid

copper-rich matte for converting, plus slag and

sulfur dioxide (S02

). The heat required to melt

the concentrate is generated from three sources:

1) retained heat from roasting, 2) external energy

sources such as fossil fuels and electricity, and

3) the heat produced by the chemical combination of iron sulfides with oxygen, The slag is discarded, either directly or after further copper recovery in an electric furnace or flotation cell. The

SO2 is captured for pollution control (see ch. 8).

Figure 6-20 shows changes in smelting technology along with the increase in copper produc-
135

Figure 6-20.-Development of Smelting Technology

Compared with World Copper Production

I Smelting

I Roast1 Blast furnace reduction ?

Rever beratory furnace Last now uni t

x ‘ -------- -

ox y -fueI

burner

Sprinkle smelting - . . . . . .

1

EIectric furnace

. . .

Outokumpu process

Use of 0 2

INCO process

0 2

Noranda process .

Mitaubiahi process

Top-blown rotary . . . . .

converter process

Piere-Smith convertor

Hoboken convortor

EI Tenlento converter

Mitaubiahi continuous convertor

I Million tonnes

10

*

1 ~

/

Production

, , 0.1+ , , , ,

1900 1920 1940 1960 1980 2000

SOURCE United Nat Ions Industrial Development Organization

tion. The earliest large-scale method of producing copper matte was in blast furnaces, which

could handle ores containing 5 to 20 percent copper. With the decline in ore grades, direct smelting became too expensive, and the industry

shifted to concentration followed by hearth or

reverberatory smelting (see box 6-B). Flash furnaces, which combine roasting and hearth smelting and are more efficient than reverberatories,

were introduced in the 1940s.

In recent years, concerns about the air quality

impacts of reverberatory furnaces have led to the

widespread adoption of electric and flash furnaces in the United States. As table 6-8 shows,

almost all of the domestic smelters that are still

operating upgraded their furnaces from reverberatories to more modern technology within the

last 15 years. Most furnaces that were not upgraded were closed permanently (e.g., Phelps

Dodge’s Douglas, Morenci, and Ajo smelters;

Kennecott’s Ely and Ray smelters; Anaconda’s

Butte smelter; Asarco’s Tacoma plant) .54

Copper matte converting is the final stage in

smelting; it usually is carried out in a Pierce-Smith

converter (figure 6-25), which separates the matte

into blister55 copper (at least 98.5 percent copper) and slag. After the molten matte is poured

into the converter, air is blown into the matte

through nozzles (called “tuyeres”). First, the iron

suIfide in the matte oxidizes into iron oxide and

SO2; silica is added and the iron oxide forms an

iron silicate slag, which is poured off after each

blow. This leaves molten copper sulfide (white

metal or chalcocite, CU2S). The remaining suIfu r

in the white metal is then oxidized to SO2, leaving blister copper. Converter slags contain from

2 to 15 percent copper, and generally are recycled to the smelting furnaces, where their high

iron content often serves as a smelting flux. 56

Continuous production of blister copper has

long been a goal of copper producers. Continuous reactors combine roasting, smelting, and

converting in one operation that produces blister copper directly from concentrates, while taking advantage of the heat generated by the oxidation of sulfides. The benefits of continuous

—.. — ~~The decline in domestic smelter capacity is discussed in ch. four.

‘

5 The term “blister” refers to the bumps on the surface of the

copper created when the oxygen and sulfur that remain dissolved

at high temperatures form gases when the copper is solidified.

~bA flux IS a substance that facilitates the separation of the smelter

charge into matte and slag.
136

Box 6-B.—Smelting Furnaces

The reverberatory furnace (figure 6-21 ) consists of a large, refractory-lined} chamber. Fuel-fired burners

melt the concentrates, forming an upper layer of slag (composed of iron silicate with less than 0.5 percent

copper) and a lower layer of matte (30 to 45 percent copper). The reverberatory furnace was widely favored by the copper industry over the last 50 to 60 years because of its versatility; all types of material,

lumpy or fine, wet or dry, could be smelted. However, the reverberatory furnace has relatively high fuel

requirements, and its sulfur dioxide gas is too dilute for economic conversion into sulfuric acid or treatment with other pollution control methods (see ch. 8).

The electric furnace is an electrically heated hearth furnace (figure 6-22) that is similar in operation

to the reverberatory furnace, but with more advantageous environmental control conditions for the effluent gases. The heat for smelting is generated by the flow of electric current between electrodes submerged in a slag layer. Although electric furnaces use electrical energy efficiently because of low heat

loss, heat generation from sulfide oxidation is limited. The heavy reliance on external energy and the high

price of electricity can result in relatively high energy costs,

In flash furnaces, concentrates are blown, together with oxygen or an air/oxygen mixture, into a hot

furnace. The sulfide particles in the concentrates react quickly with the oxygen and combustion is extremely rapid. This produces enough heat to provide a large proportion of the thermal energy needed

for smelting. As a result, flash furnaces have relatively low fuel costs. Their production rates also are high

due to the rapid rate at which the mineral particles are heated, and the matte is relatively rich (50 to 75

percent copper). Further, their waste gases are rich in SO2, permitting economic pollution control. The

principal disadvantage of flash furnaces is the high copper content of the slag (around 0.7 to 1.0 percent

copper). This means that the furnaces cannot be used efficiently to recover copper from converter slags,

and in some cases, the smelter slag must be recycled through the comminution and beneficiation plants.

There are two basic types of flash furnaces: 1 ) the INCO process (figure 6-23) uses commercial oxygen

and requires no external energy (i.e., is autogenous); 2) the Outokumpu process (figure 6-24) uses preheated air or oxygen-enriched air. The Outokumpu flash furnace can be autogenous if the air is enriched

to about 40 percent oxygen; otherwise it requires external fuel.

1 Refractories are heat-resistant materials, usually made of ceramic.

Figure 6-21 .—Reverberatory Furnace

Concentrate

or calcine

Con

s

Air

Off gas

(to waste

‘s)

Matte Charging

pipes

SOURCE: McGraw Hill Encyclopedia of Science and Technology.
137

Figure 6-22.— Electric Furnace

Legend

1.

2

3.

4.

5.

6.

7.

8.

9.

Drain out taphole 10

Buckstay

Tie-rod 11

Tie-rod spring 12

Electrode openings 13

Furnace Inspect Ion 14

ports 15

Furnace support pi liars 16

Matte tapping blocks

Magnesite refractory bricks

Magnesite hearth and

sub-hearth

Magnesite castable

Fire-clay bricks

Firebrick roof

Slag tapholes

Average slag level

Average matte level

SOURCE A K Blswas and W G. Davenport, Extractlve Metallurgy of Copper

(New York, NY Pergamon Press, 1980)

blister copper production include lower capital

cost, reduced materials handling, low heat losses,

very IOW energy requirements, economical S O2

gas recovery, and the ability to apply online computer controls to the entire copper-making

process.

Two types of continuous reactors are in limited

use: the Noranda process and the Mitsubishi

process. The Noranda reactor (see figure 6-26)

is a single-step process that always contains three

liquid phases–slag, matte, and blister copper.

The Mitsubishi reactor (figure 6-27) has three interconnected furnaces through which matte and

slag flow continuously by gravity.

Neither of these processes has yet proven to

be truly continuous. First, the slag contains as

much as 10 percent copper. Slag from the Noranda reactor is recycled through comminution

and beneficiation. Mitsubishi slag is reprocessed

in the intermediate electric settling furnace. Second, the blister copper from the Noranda reactor

contains more impurity metals (e. g., antimony,

arsenic, bismuth) than blister produced by conventional smelting/converting. This requires either more expensive electrorefining or the restriction of single-step continuous smelting to rather

pure concentrates. Third, while the Noranda reactor operates more efficiently with oxygenenriched air, oxygen levels above about 30 percent greatly increase equipment wear. As a result, the Noranda reactor typically is used to produce a very high-grade matte (70 to 75 percent

copper), which is then treated i n a converter.

Fire refining further purifies blister copper to

produce anodes pure enough for electrorefining.

The residual sulfur is removed by blowing air

through the molten blister (in a furnace similar

to a Pierce-Smith converter) to form SO2, until

the sulfur content has been lowered to 0.001 to

0.003 percent. The oxygen is then removed by

blowing natural gas or propane through the

tuyere until oxygen concentrations have dropped

to 0.05 to 0.2 percent.

The molten copper is then poured into an

anode casting wheel—a circular arrangement that

is rotated to bring the molds u rider the furnace

mouth. The anodes are cooled with water sprays

as the wheel rotates. The critical parameters i n

anode casting are smoothness, straightness, and

uniform thickness to ensure efficient electrorefining.

Recent improvements in pyrometallurgical

processing of copper concentrates have focused

on reducing energy requirements (see ch. 7) and

on producing fewer gaseous emission streams

with higher SO2 concentrations for more costeffective air pollution control (ch. 8). Better quality control of the product to reduce materials rehandling also has been a factor. Most domestic

smelters now have on-line computer controls for

greater throughput with better matte quality and

almost automatic operation.

One area in which further improvements

would greatly assist the United States is continuous smelting, because it would decrease materials handling and therefore increase labor

productivity, would decrease energy use, and
138

Figure 6-23.— INCO Flash Furnace

Concentrates and

10 cm

30-cm

SOURCE: A.K. Blswas and W.G. Davenport, Extractive Mefallurgy of Copper (New York, NY: Pergamon Press, 1980).

Figure 6.24.—Outokumpu Flash Furnace

Concentrate

and sand

/

/

Settler

Slag

Matte

SOURCE: McGraw Hill Encyclopedia of Science and Technology.

Table 6.8.-Smelter Technology in

the United States

Smelter Type

Hayden (Arizona). . . . . . . . . . . . INCO flash furnace —

Inspiration (Arizona) . . . . . . . . . Electric furnace

Morenci (Arizona)* . . . . . . . . . . Reverberatory furnace

San Manuel (Arizona) . . . . . . . . Outokumpu flash furnace

White Pine (Michigan) . . . . . . . Reverberatory furnace

Hidalgo (New Mexico) . . . . . . . INCO flash furnace

Hurley (New Mexico) . . . . . . . . INCO flash furnace

Great Falls (Montana)*. . . . . . . Electric furnace

Copperhill (Tennessee)* . . . . . Electric furnace

El Paso (Texas) . . . . . . . . . . . . . Reverberatory furnace

Garfield (Utah) . . . . . . . . . . . . . . Noranda reactor

‘Not operating,

—

SOURCE Office of Technology Assessment, 1988,

would make environmental control more costeffective. However, installation of an entirely new

smelting system has a high capital cost. Because

most U.S. smelters already installed new furnaces

within the last 15 years, it is unlikely that they
139

would undertake another such investment with- climate. Instead, U.S. companies will increase the

out a clear demonstration of substantial cost ad- proportion of copper they produce with hydrovantages, and without a very favorable

Figure

business metallurgical methods

6-25.—Pierce Smith Converter

Exhaust gas

SOURCE: McGraw HiII Encyclopedia of Science and Technology

Figure 6.26.— Noranda Reactor

Concentrates

and flux

SOURCE. McGraw HiII Encyclopedia of Science and Technology
140

Figure 6-27.— Mitsubishi Continuous Smelting System

Slag granulation

and discard

Concentrates,

Si02

, air, 02

Exit gas

Granulation

SOURCE: McGraw HiII Encyclopedia of Science and Technology.

HYDROMETALLURGY

Hydrometallurgical copper recovery is the extraction and recovery of copper from ores using

aqueous (water-based) solutions. Hydrometallurgical processes are applied mainly to oxide ores,

and to low-grade oxide and sulfide mine wastes. ST

As discussed in the section on mining, above, and

in chapter 4, about 25 percent of domestic copper production is now through the use of solution mining techniques. Once the ore has been

leached, the copper is recovered from the pregnant Ieachate through precipitation or solvent extraction.

5Tchemlca solutions aIso can be used to process copper concentrates. While several of these solutions are commercially avail.

able, their materials and energy costs are higher than for conventional smelting or leaching (see ch. 7).

These processes have several advantages over

pyrometallurgical copper recovery methods, including the ability to treat lower grade ores (even

waste dumps) economically, flexibility in scale

of operations, simplified materials handling,

and good operational and environmental control. Copper can be produced from dump leaching plus solvent extraction and electrowinning for

around 30 cents per pound .58 This is a clear cost

advantage over pyrometallurgical production.

Solvent extraction is still largely confined to

copper oxides. Hydrometallurgical techniques for

~BEcjwarcj E. Malouf, “New Developments in Hydrometallurgy, ”

paper presented at the American Mining Congress Mining Convention, San Francisco, CA, Sept. 22-25, 1985.
141

suIfides and complex ores are being developed. the solution, and the copper, which precipitates

These will greatly aid the United States in over- out of the solution. Cement copper detaches from

coming its low ore grade disadvantage. It should the steel surfaces as flakes or powder under the

be made clear, however, that dump leaching– force of the flowing solution. There are numerexploitation of low-grade mine wastes—is primar- ous precipitator designs and configurations (see,

ily a means of lowering average production costs. for example, the Kennecott cone precipitator

It is not a substitute for conventional copper pro- shown in figure 6-28).

duction by pyrometallurgical or other leaching

methods.

In iron precipitation, or cementation, the pregnant leach solution flows through a pile of scrap

iron/steel, and the copper precipitates onto the

steel surfaces. Precipitation works through an

electrochemical reaction: there is a transfer of

electrons between the iron, which dissolves into

The principal advantage of precipitation is that

virtually all of the copper is recovered from the

Ieachate. Cement copper is still relatively impure,

however, and subsequent treatment is required,

usually through normal smelting/refining. Typically, cement copper contains around 85 to 90

percent copper, 0.2 to 2 percent iron, plus trace

amounts of silica and aluminum oxides, and

oxygen.

Photo credit Manley-Prim Photography, Tucson, AZ

A solvent extraction-electrowinning plant. The pregnant Ieachate flows to the collection ponds upper left). The solvent

extraction tanks are shown at center, and the electrowinning plant at lower right.
142

Figure 6-28.– Kennecott Cone Precipitator

Barren solutionCopper settling .

and

collection zone -

Copper discharge

solution

SOURCE: A K. Blswas and W.G. Davenport, Extractive Metallurgy of Copper

(New York, NY: Pergamon Press, 1980).

In solvent extraction, an organic chemical that

dissolves copper but not impurity metals is mixed

with the pregnant Ieachate from solution mining.

The copper-laden organic solution is separated

from the Ieachate in a settling tank. Sulfuric acid

(H2S O4) is then added to the pregnant organic

mixture, which strips the copper into an electrolytic solution for electrowinning (see below).

Solvent extraction is advantageous in that the

electrolyte has almost no impurities and few environmental problems. Solvent extraction also

makes relatively efficient use of the various solutions used: the spent Ieachate is returned to the

leaching operation, the barren solvent is recycled

to the pregnant Ieachate, and the spent electrolyte to the loaded solvent (see figure 6-29).59

New developments in hydrometallurgy have

resulted primarily from a better understanding of

the chemical and biological processes that occur in leaching; from improved heap and dump

construction methods that speed up the leaching process; from automated controls and improved solvent recycling rates in solvent extraction; and from advancements in electrowinning

(see below).

59Biswas and Davenport, supra note 34.

ELECTROMETALLURGY 60

Electrometallurgy deals with the use of electricity to refine metals. Virtually all primary copper

receives electrolytic treatment, either through

electrorefining of copper anodes or electrowinning of solvent extraction solutions. In essence,

an electric current is used to bring about chemical changes that extract (electrowin) or purify

(electrorefine) the copper.

Refining is the stage of copper production in

which the United States is most cost competitive. . This is due in part to low delivery costs and

in part to major improvements in refinery labor

productivity. More widespread use of automated

controls and materials handling systems should

enhance our refining cost position further. Because refining is only around 8 percent of the total

cost of copper production, however, it provides

little leverage in overall competitiveness.

60The material in this Section is from Biswas and Davenport, Supra

note 34, unless otherwise noted.

Electrorefining virtually eliminates the oxygen,

sulfur, and base metals that are harmful to copper’s properties (e.g., reduce its electrical conductivity) and decrease its value. At the same

time, electrorefining allows the recovery of valuable impurities such as gold and silver. The end

product, cathode copper, is 99.99+ percent

pure, with less than 0.004 percent metallic and

other impurities (including sulfur).

In electrorefining, the fire-refined copper

anodes are hung vertically in between cathode

starter sheets in long tanks, or cells, filled with

an acidic copper sulfate solution. Usually the

cathode starter sheets are themselves thin pieces

of copper, which become incorporated into the

cathode. An electric current is run through the

solution and the copper gradually corrodes from

the anode and plates onto the cathode. The cathode copper is shipped to the rod mill or fabricator for melting and casting.

Electrowinning is the recovery of copper from

the loaded electrolyte solution produced by sol-
143

Figure 6-29.-Flowsheet for Solvent Extraction

Pregnan t

Barren leac h

\

to leac h

Settle r

Load e d

soIvent IIII II

Loade d

eIectroIyte

SOURCE: A. K. Blswas and W.G. Davenport, Extractive Metallurgy of Copper (New York, NY: Pergamon Press, 1980).

vent extraction. The basic difference between

electrowinning and electrorefining is that in the

former, the copper is already in the electrolyte.

Therefore, electrowinning uses inert (non-dissolving) anodes, typically made of lead alloyed with

calcium and tin, or of stainless steel. These react

electrochemically to produce oxygen gas and sulfuric acid, The cathode copper is stripped from

the starter sheets (which are reused), and then

shipped to the rod mill or fabricator. The acid is

recycled to the leaching operation. The cells and

electrical circuitry are otherwise similar to those

used in electrorefining, although voltages are

higher.

Recent innovations in electrorefining and electrowinning have focused on increased produca t e

I

tivity through automation and periodic current

reversal. Automation of electrometallurgy operations includes computer monitoring of cell voltages, infrared scanning of cells to locate and correct short-circuits, robotic cathode stripping,

programmable robotic cranes for automated

anode and cathode handling, and machine

straightening of cathode starter sheets.61 Periodically reversing the direction of the direct current

for a brief period can increase refinery capacity

by as much as 15 percent.62

61 Mineral Systems Inc., supra note 26.

62 Biswas and Davenport, Supra note 34.
144

Photo credit: Manley-Prim Photography, Tucson, AZ

Anode casting wheels.
145

MELTING AND CASTING

Cathode copper is melted and cast into con- . oxygen-free copper, which combines the

tinuous rod or wirebars for wire manufacture, high electrical conductivity of electrolytic

into slabs or biIlets for mechanical use, or ingots tough pitch copper and the weldability of

for alloying. The three major forms of copper are: phosphorus deoxidized copper, for finely-

● electrolytic tough pitch copper (less than

0.001 percent sulfur, 0.0015 to 0.03 percent

oxygen) for wire and other electrical uses;

● phosphorus deoxidized copper (begins with

a 90 percent copper and 10 percent phosphorus alloy, removes the oxygen as P205

,

leaving 99.95 to 99.99 percent copper and

0.01 to 0.05 percent phosphorus) for plumbing, radiators, and other uses requiring welding; and

drawn wire and electronic components.

The cathodes typically are melted in a shaft furnace. They are placed in an opening near the top

of the furnace and melt as they descend the shaft.

The liquid copper flows immediately into a separate gas-fired or induction-heated holding furnace, and then to casting.

Most mills making electrolytic copper now use

continuous casting machines that integrate the

Photo credit Manley Prim Photography, Tucson, AZ

Cathode starter sheets above the electrorefining cells.
146

casting and subsequent fabrication of 5/16-inch

rod in one continuous operation. I n the continuous casting wheel patented by Southwire Corp.,

the liquid copper is poured onto a wheel with

a bar-shaped well in the rim (figure 6-30). As the

wheel turns, a belt covers the copper and it is

partially cooled with a water spray. It exits the

other end of the wheel as a red-hot but solidified continuous bar that then enters a single-pass

rod-rolling mill (see figure 6-31 ). In the mill, the

bar is extruded in several stages until it is the required thickness. When nearly cool, it is coiled

automatically.

Before shipping to customers, the rod is tested

in a metallurgy lab for surface quality, electrical

conductivity, chemical composition, and physical properties such as hardness, tensile strength,

and elongation failure. Any batch that does not

meet standards is remelted and recycled through

the rod mill.

Continuous cast rod–now the industry standard—brought substantial improvements in productivity in melting and casting, through both

automation and significant increases in the quality

of the final product and thus fewer batches that

have to be reprocessed.

Figure 6-30.—Continuous Casting Wheel

Cross section rim mold

for a 35 cm2 bar

SOURCE: A.K. Biswas and W.G. Davenport,

cm Casting

After cooler Pouring spout (removable)

\

Extractive Metallurgy of Copper (New York, NY: Pergamon Press, 1980).

. 3 mm steel band

(removable)

~ Band spray

z Copper casting

wheel rim

(removable)

~ Idler wheel
147

Figure 6-31 .—Continuous Rod Rolling Mill

ASARCO

shaft

Automatic

loading

conveyor Gas

furnace

i red

60 m

*NOTE The numbers refer to sensor positions for automatic control

SOURCE A K Biswas and W G Davenport, Extractive Metallurgy of Copper (New York, NY: Pergamon Press, 1980)
Chapter 7

Energy Use in the

Copper Industry
CONTENTS

Page

Mining . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...............152

Mineral Processing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. ....154

Pyrometallurgical Processes .. .. .. .. .. . $ . . . . . . . . . . . . . . . . . . . ............155

Air Quality Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .................156

Hydrometallurgical Processing . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...,.........157

Electrometallurgy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....................157

Figure

Figure Page

7-l. Open-pit Mine Energy Use..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. ...152

Tables

Table Page

7-1

7-2

7-3

7-4

7-5

7-6

Energy Requirements for Copper Production . ........................151

Hypothetical Copper Operation for Analyzing Energy Use..... . ........152

Effect of Varying Cut-off Grade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. ....153

Energy Requirements for Pyrometallurgical Processes . .................156

Reduction in Fuel Consumption Due to Oxygen Enrichment . . . . . . .. ....156

The Direct and Electrowinning Energy Demand of Selected

Hydrometallurgical Processes for Treating Concentrates . ...............158
Chapter 7

Energy Use in the Copper Industry

All aspects of copper production require energy,

whether i n the form of electricity, explosives, or

hydrocarbon fuels (diesel, gasoline, natural gas,

fuel oil, coal, coke), or as the energy equivalent

of materials consumed (e. g., chemicals and steel

grinding media). In 1977, the primary copper industry purchased 121 trillion Btu of energy, or

around 85 miIlion Btu per short ton of cathode

copper produced. ] This compares to around 15

million Btu/ton for iron mining and steel production, 24 million Btu/ton for lead production, and

64 million Btu/ton for zinc,

Mining uses about 20 percent of the total

energy requirement; milling around 40 percent;

and smelting, converting, and refining the remaining 40 percent. Actual requirements vary

widely depending on the mine characteristics and

type of smelter, however. Table 7-1 shows one

estimate of energy requirements in Btu equivalents for a hypothetical copper operation. It is interesting to note that pollution control equals a

large percentage of the energy demand for smelting. In countries where pollution control is not

required or is less stringent than in the United

States, smelter energy demand could be as much

as fifty percent lower. The significance of this

difference would depend on the comparative

energy costs, and the importance of energy for

the total operating cost (see ch. 9).

A number of technological changes have reduced energy use in recent years. For example,

automatic truck dispatching makes more efficient

use of haulage and decreases diesel consumption. In-pit crushing and conveying can eliminate

the need for truck haulage altogether, substituting electricity for diesel fuel. Computer control

of other processes improves operating efficiency

by maintaining operations as close to the ideal

as possible. Changing from reverberatory to flash

1 M IC h tga n Tech nologlca I U n I \,erslt y, Etlects ot’ /rrcre,;s/ng Co\t\

on the Future Relat/on between Open PIt and Underground Mining, report prepared tor the U, S, Bureau of Mines, December 1982,

vol. 1.

Table 7-1 .—Energy Requirements for

Copper Production

10’ Percent

Operation Btu/ton Total of total

Open-pit mining: . . . . . .

Drilling . . . . . . . . . . . . .

Blasting . . . . . . . . . . . .

Loading . . . . . . . . . . . .

Hauling . . . . . . . . . . . .

Ancillary. . . . . . . . . . . .

Milling: . . . . . . . . . . . . . . .

Comminution . . . . . . .

Beneficiation . . . . . . . .

Smelting: a 

. . . . . . . . . . . .

Electric furnace . . . . .

INCO flash . . . . . . . . . .

Outokumpu flash . . . .

Mitsubishi reactor . . .

Noranda reactor . . . . .

Converting: . . . . . . . . . . .

Electric furnace . . . . .

INCO flash. . . . . . . . . .

Outokumpu flash . . . .

Mitsubishi reactorb 

. .

Noranda reactorb 

. . . .

Gas cleaning: . . . . . . . . .

Electric furnace . . . . .

INCO flash. . . . . . . . . .

Outokumpu flash . . . .

Mitsubishi reactor . . .

Noranda reactor . . . . .

Electrorefining:. . . . . . . .

Electric furnace . . . . .

INCO flash. . . . . . . . . .

Outokumpu flash . . . .

Mitsubishi reactor . . .

Noranda reactor . . . . .

Total . . . . . . . . . . . . .

0.61

3.90

1.85

13.14

0.64

0.16

42.57

22.68

6.27

9.20

12.21

10.41

6.50

0.94

2.13

3.02

1.77

7.73

7.76

8.16

6.25

7,36

5.61

6.29

6.29

6.29

6.29

20.13

42.73

6.2-22.7

0.9-6.5

6.3-8.2

5.6-6.3

81.9 -106.5

19-25

40-52

8-21

1-6

8

6-7

a

lncludes roasting and heat recovery, and all materials

b

lncludes slag cleaning.

SOURCE: Charles H. Pitt and Milton E. Wadsworth, An Assessment of Energy

Requirements in Proven and New Copper Processes report prepared

for the U.S. Department of Energy, contract no EM-78 -S-07.1 743, December 1980.

furnaces cuts total smelting and refining energy

requirements by one-third. The use of leaching

and solvent extraction eliminates smelting and

converting altogether, Further conservation is

possible, however.

This chapter reviews the energy requirements

for the various stages of copper production, in-
152

Table 7-2.—Hypothetical Copper Operation

for Analyzing Energy Use

Vertical depth below rim. . . . . . . . . . . . 750'

Dynamic slope angle of sidewalls. . . . 30°

Average slope of haul roads in pit . . . 6 %

Surface haul to dumps . . . . . . . . . . . . . 2,500 (6% grade)

Surface haul to primary crushers . . . . 2,500 (level)

Overburden/ore body stripping ratio . . 1.25

Mill head value of ore . . . . . . . . . . . . . . 0.55 % Cu

Value of flotation concentrate . . . . . . . 25 % Cu

Value of flotation tails. . . . . . . . . . . . . . 0.069 % Cu

Recovery factor ore to concentrate. . . 87.455 %

Recovery factor concentrate to

cathode copper. . . . . . . . . . . . . . . . . . 98.67%

Recovery factor ore to cathode . . . . . . 86.29%

Primary cathode copper produced

per year. . . . . . . . . . . . . . . . . . . . . . . . . 100,000 tons

SOURCE Charles H. Pitt and Milton E. Wadsworth, An Assessment of Energy

Requirements in Proven and New Copper Processes, University of Utah,

report prepared for the U.S. Department of Energy, contract no

EM-78-S-07-1743, December 1980, p. 25

eluding the type and amount of energy used, the

variables that affect energy demand, and possible means of reducing demand. In each case, the

estimates of energy demand are based on the

hypothetical operation described in table 7-2.2

2Unless otherwise noted, the material in this chapter is drawn

from Charles H. Pitt and Milton E. Wadsworth, An Assessment of

Energy Requirements in Proven and New Copper Processes, report prepared for the U.S. Department of Energy, contract no, EM78-S-07-1 743, December 1980.

The hypothetical open-pit mine described in

table 7-2 uses an average of 20 million Btu of

energy per ton of cathode copper produced, or

about 21 percent of the energy consumed in producing copper (see figure 7-1 ). Approximately

59.7 percent of the energy is in the form of diesel

or light fuel, 36.1 percent electricity, 2.4 percent

gasoline, 1.0 percent natural gas, and 0.7 percent

in some other form.3 Hauling operations account

for around 65 percent of the total energy consumed in open-pit mining, assuming conventional rock hauling by diesel-fueled dump trucks.4

Blasting is the next largest use–about 19 percent

—in the form of explosive energy. Electricity for

shovel loaders and for drilling account for 9 percent and 3 percent, respectively. Finally, ancillary operations use around 3 percent of the total

energy used in open-pit mining; these include

auxiliary mobile equipment that consumes diesel

fuel, gasoline, and lube oil; electrical pumping

for pit dewatering; reclamation equipment such

as scrapers, dozers, and graders, which use diesel

and lube oil; and electrical sprinklers for revegetat ion.

3 L. L. Gaines, Energy and Material Flows in the Copper Industry,

Argonne National Laboratory, prepared for U.S. Department of

Energy, December 1980.

4

This estimate also includes the lube oil used by the trucks.

Diesel

Elect

Gasoline

Nat Gas

Other

Haul

Blast

Load

Drill

Other

Figure 7-l. -Open-pit Mine Energy Use

1.

1

r- 1 , , 1 1 1 1 ! 1 i

0 10 ’20 30 40 50 60 70 80 90 100

% energy use

Underground mines use electricity for generating compressed air, pumping, lighting, ‘ventilation, and hauling miners and materials. They

also use diesel fuel for surface hauling of ore to

the mill. Approximately 155 pounds of explosives

are used for every short ton of copper produced

in underground mines. s

The average grade of the ore mined, the ratio

of overlying dirt and rock (overburden) to the ore

body (stripping ratio), and the depth of the pit

5Gaines, supra note 3.
153

below the surface rim all affect the amount and

form of energy used in open-pit mining (and processing). There is a trade-off between energy conservation and resource recovery. The cut-off

grade6 used in mining determines: 1 ) how much

ore and waste have to be transported, 2) how

much ore is milled or waste is available for dump

leaching operations, and 3) from the ore that is

milled, how much copper is recovered and what

volume of tailings is produced (see table 7-3).

The stripping ratio also affects where and in

what form energy is consumed, because it de6As disusscd In ch 5, the cut-off grade IS the mineral value that

must be present in the ore for it to be mined and processed economically. Material below that grade is left in situ or discarded as

waste.

Photo credit: Jacques LeGross

Hauling accounts for around 65 percent of the total

energy used in open pit mining.

termines how much material is handled as waste.

In general, as the stripping ratio increases, the

amount of mine energy per ton of cathode copper also increases. Similarly, as the pit depth below the surface rim increases, the vertical and

horizontal distances that the waste rock and ore

must be hauled also increases. This increase is

reflected in greater energy use, primarily for

hauling.

Much of the energy consumed in conventional

hauling is used to move the heavy dump trucks,

which are empty 50 percent of the time. Many

mines today are replacing trucks with conveyer

belt systems that run primarily on electricity.

Truck haulage costs are around 4 times those of

belt haulage costs.7 One mine realized an energy

savings of 30 percent with the partial use of conveyer systems.8 Conveyers will not be feasible at

all mines. Because rock hauling accounts for

such a large portion of the energy consumed in

mining, however, it is one area where further

research and development may result in large

savings.

optimization of the use of explosives for fragmentation versus increased crushing or grinding

energy also can minimize energy use and lead

to savings.9

7Assuming diesel fuel cost of 30 cents per Iiter and electricity at

5 cents per kWh.

8Robert J.M. Wyllie, “In-Pit Crushing Still Gaining Ground in Open

Pit Mines,” Engineering and Mining Journal, June 1987, pp. 76-80.

9See the discussion of comminution in ch. 6.

Table 7-3.—Effect of Varying Cut-off Gradea

Cut-off grade Millhead grade Tons milled Million Btu/ton cathode copper produced

(% C u ) (% C u ) (x 10’) Mining Concentrating Refining Total

0.00 0.45 26.600 17.4 53.7 35.2 106.3

0.22 0.50 23.515 18.3 47.5 35.2 101.0

0.29 0.55 21.070 20.1 42.6 35.2 97.9

0.34 0.60 19.086 22.2 38.6 35,2 95.9

0.40 0.65 17,444 24.7 35.2 35.2 95.1

0.45 0.70 16.061 28.1 32.4 35.2 95.8

a

It should be noted that the possible recovery of metal by means of dump Ieaching IS not included in this table.

SOURCE: Charles H. Pitt and Milton E. Wadsworth. An Assessment of Energy Requlrernents in Proven and New Copper Processes, report prepared for the US Department of Energy, contract no. EM-78-S-07-1743. December 1980
154

MINERAL PROCESSING

Grinding and concentration together consume

about 45 percent of the energy used in the production of cathode copper. Assuming an ore

grade of 0.55 percent and a recovery rate of 87.5

percent copper in the concentrate, concentrating 1 ton of copper ore requires over 200 billion

Btu, or approximately 42 million Btu/ton of cathode copper.10 Grinding accounts for roughly 60

percent of the total energy consumed in processing, and crushing 12 percent. Pumping new

and recycled water, operating the flotation equipment, and regrinding and filtering account for the

remainder.

1 0This includes the electrical energy to operate the equipment

as well as the energy equivalent for the flotation chemicals, grinding media, and liners.

Crushing and grinding also consume a considerable amount of steel. The energy equivalent of

these materials is sometimes included in energy

analyses, and is about 6.4 million Btu. Similarly,

flotation chemicals consumed have an energy

equivalent of about 3.18 million Btu.

Two basic parameters affect the energy demand of processing mills: the amount of grinding needed to liberate the metal from the ore,

and the hardness of the ore. The finer the grind,

and the harder the ore, the higher the energy requirements. Hardness also dictates how much

steel or other grinding media is consumed during ore processing.

present crushing and grinding processes are

extremely inefficient in their use of energy. Only

Photo credit: Jenifer Robison

Grinding accounts for approximately 60 percent of the energy used in milling.
155

1 to 2 percent of the energy input is used to create new surfaces on the mineral particles. Methods that could improve energy efficiency include

installing automated controls (to optimize the

throughput at a fixed energy input), using alternative types of grinding mills, and allocating

energy among blasting, crushing, grinding and

regrind ing.

Controlling the size and content of ore entering the plant can improve energy efficiency 5 to

10 percent. Additional improvements could be

realized with better classification devices to avoid

regrinding fine material. Development of integrated control strategies for the entire comminutier-dbeneficiation plant ultimately will lead to savings in both energy use and operating costs,

In some cases, steel grinding media can be

replaced by pebbles or pieces of the ore itself

(autogenous grinding). Pebble and autogenous

grinding save materials costs, but are inefficient

in direct energy use compared to conventional

tumbling mills. The trade-off between materials

conservation and energy efficiency is determined

by the characteristics of the ore being processed

and the difference between the prices of steel and

energy. Therefore, the merits of autogenous or

pebble grinding must be evaluated on a sitespecific basis. Alternative grinding devices such

as attrition mills which might have higher grinding efficiencies need additional research.

PYROMETALLURGICAL PROCESSES11

Energy requirements vary widely for the different pyrometallurgical processes. Table 7-4 compares the energy requirements for seven smelter

types, including the energy equivalents of the materials consumed by each process. Flash furnaces

make the most efficient use of the thermal energy

released during the oxidation of sulfides; they

generate sufficient heat to provide a large proportion of the thermal energy for heating and melting the furnace charge.12 Although electric furnaces use electrical energy efficiently because of

the low heat loss through the effluent gas, they

make limited use of the heat produced during oxidation of the sulfide minerals, and their energy

costs are high because of the high price of electricity.

Continuous smelting processes theoretically

wouId be more energy efficient than conventional smelting and converting because heat loss

in transferring the matte to the converter would

be eliminated. The potential for heat loss in fugitive emissions also would be reduced. As noted

I I p rometd I I u r~lca I rec~~ er) of copper Is It 5 extract 10 n trom ores Y

and corrcentrates through procesje~ em~)loyln~ c hem(cal react tons

,~t elei ated tern perat u res (see c h. 6J.

‘~Chemlc.]1 reactlon~ that produce more he~t than they comume

are termed ‘‘ exot herm ic; smelt I n~ proc-essw that are exot herm IC

a nd do not req u Ire add [t 10 na I e ne r~y once the iu mace h~s been

heated are ( ailed “,]uto~enous. ’

in chapter 6, however, neither the Noranda nor

the Mitsubishi process has yet proven truly continuous in practice. A genuine one-step process

could result in a savings of 10 to 20 percent of

the energy used in smelting and converting.

Although replacing an existing furnace is an expensive proposition, it is the surest way to cut

energy consumption and control emissions. Most

domestic smelters replaced their furnaces in the

last 10 to 15 years, however. Thus, today’s smelting energy conservation techniques rely on incremental improvements in fuel use, and on reducing heat loss.

Increasing the oxygen content of the air in the

furnace is one way of improving fuel efficiency.

oxygen enrichment results in more complete oxidation, and thus a more efficient transfer of heat

from the gas to the charge. This lowers the fuel

requirements for reverberatory, Noranda, and

flash furnace smelters (see table 7-5). Because of

the higher thermal efficiency, less heat is lost

through the stack gases. Oxygen enrichment also

reduces the amount of nitrogen in the combustion air; nitrogen is capable of carrying off about

20 percent of the heat input to a furnace.13

I ~Galnes, supra flOte ~.
756

Table 7.4.—Energy Requirements for Pyrometallurgical Processes (million Btu/ton)

Reverb- Reverb- Electric INCO Outokumpu Noranda Mitsubishi

Process wet charge dry charge furnace flash flash reactor reactor

Materials handling . . . . . . . . 0.73 0.73 0.73 0.57 0.79 0.66

Dry or roast. . . . . . . . . . . . . . 0.66 2.67 1.86 1.23 0.80 1.29

Smelting:

Fuel . . . . . . . . . . . . . . . . . . . . 25.01 14.50 0.80 3.72 6.46

Electricity . . . . . . . . . . . . . . . 0.64 0.64 19.03 0.05 1.26 1.58

Surplus steam . . . . . . . . . . . –10.00 –4,35 –3.43 – 1.82 –8.00

Converting:

Electricity . . . . . . . . . . . . . . .

Fuel . . . . . . . . . . . . . . . . . . . .

Slag Cleaning . . . . . . . . . . . .

Gas cleaning:

Hot gas . . . . . . . . . . . . . . . . .

Cold gas . . . . . . . . . . . . . . . .

Fugitive emissions . . . . . . .

Acid plant . . . . . . . . . . . . . . .

Water . . . . . . . . . . . . . . . . . . .

Anode furnace . . . . . . . . . . .

Materials:

Miscellaneous . . . . . . . . . . .

Oxygen . . . . . . . . . . . . . . . . .

Electrodes . . . . . . . . . . . . . . .

Fluxes . . . . . . . . . . . . . . . . . .

Water . . . . . . . . . . . . . . . . . . .

Anode furnace . . . . . . . . . . .

1.63 1.26 2.92 0.94 0.64 0.37 1,42

0.54 0.32 3.58 0.09 0.25

1.49 1.31 1,35

4.03 2.83 0.78 0.59 0.42 0.69 0.86

0.25 0.40 2.21 0.31 0.21 0.32

3,57 3.57 3.57 3.57 3.57 0.89

2.27 3.87 4.74 3.19 3.86 3.10 4,08

0.10 0.10 0.10 0.10 0.10

5.82 5.82 5.10 5.82 5.82 5.82 5.82

0.04 0.65 0.63

3.53 3.04 3.17 1.29

0.86 0.16

0.04 0.03 0.12 0.02 0.01 0,02 0.06

0.08 0.08 0.08 0.08 0.08

0.47 0.47 0.51 0.47 0.47 0.47 0,47

Total . . . . . . . . . . . . . . . . . . 35.18 30.93 42.52 21,26 18.92 24.01 19.77

SOURCE: Charles H Pitt and Milton E. Wadsworth, An Assessment of Energy Requirements in Proven and New Copper Processes, report prepared for the US Department of Energy, contract no EM-78-S-07-1743, December 1980.

Table 7-5.— Reduction in Fuel Consumption

Due to Oxygen Enrichment

Oxygen Reduction in

Process enrichment fuel consumption

Reverberatory. . . . . . . . . 27% 20%

Outokumpu flash . . . . . . 30-75% autogenous a

INCO flash . . . . . . . . . . . 95.99 % autogenous a

Noranda . . . . . . . . . . . . . 36% 34%

Mitsubishi . . . . . . . . . . . . 58.3% 84% aAutogenous means that no additional fuel is required to maintain the melt. The

furnace uses the heat evolved from the exothermic oxidation of the metal

sulfides to melt the charge, Therefore, fuel is only required initially to start the

oxidation reactions

SOURCE Charles H. Pitt and Milton E. Wadsworth, An Assessment of Energy

Requirements in Proven and New Copper Processes, report prepared

for the U S Department of Energy, contract EM 78-S-07.1743, Dec. 31,

1980

Waste heat is recovered from both flash and

reverberatory furnaces and used to preheat the

combustion air and/or to generate electrical

power (cogeneration) to drive the blowers in the

acid plant and blow air in the converters. Waste

heat also can be used to dry the furnace charge

before smelting, because moisture can carry off

the heat in the furnace and increase fuel requirements. Drying also helps to homogenize the

charge. Dryers usually are fueled with natural gas

or oil and require from 1 to 3 million Btu/ton of

cathode copper; using waste heat could save 0.7

million Btu/ton.

Roasting also dries the charge, and reduces the

fuel requirements and effluent gas volume of the

furnace. Like flash smelting, roasting can be an

autogenous process that uses the exothermic heat

generated by oxidation to continue the roast, so

it does not require additional fuel.

Air Quality Control

Sulfur dioxide emission controls account for 6

to 11 million Btu/ton of cathode copper (see table 7-4). The hot gases from the roaster, smelting furnace and converter are cleaned separately

to recover copper metal entrained in the dust.

The gas streams are then combined and cold gas

cleaning is employed to remove dust that might

foul the acid plant. Methods and energy requirements for controlling fugitive emissions vary

based on the type of furnace and the building
757

enclosure, especially in the area of the converter quirements for acid plants are a function of the

aisle. The Mitsubishi reactor uses the least energy gas volume and sulfur dioxide concentration (see

for controlling fugitive emissions because the ch. 8).

molten matte transfer area is enclosed. Energy reHYDROMETALLURGICAL PROCESSING14

Heap and vat leaching both require removal

of the ore by conventional blasting and haulage

(see ch. 6), and therefore would consume approximately the same amount of energy as mining, plus any electricity needed to pump the leach

solution and the pregnant Ieachate. The main

variables i n the cost of pumping are the concentration of copper in the Ieachate (i.e., how much

has to be pumped), and the vertical and horizontal distances between the Ieachate recovery area

and the precipitation or solvent extraction facility.

Dump leaching exploits the waste remaining

after conventional mining. Assuming that the

costs are charged to the mining operation, dump

leaching will have a relatively low energy cost.

The energy is used primarily to drive the pumps,

but can also include the energy equivalent of the

chemical leaching solutions. Electricity for the

pumps is estimated at around 13.5 million Btu/ton

of cathode copper produced. In situ leaching

energy consumption will vary depending on

whether the ore needs to be drilled or otherwise

fractured to provide enough permeability prior

to pumping of the solution and Ieachate.

In dump leaching, energy savings can be

achieved by optimizing the cut-off grade, taking

into account the trade-off between conventional

processing and leaching. potential energy savings

using this strategy are estimated at 20 to 25 million Btu/ton of cathode copper. Also, improving

aeration, maintaining even fracture and porosity

i n the dump, and making more efficient use of

the natural heat given off during oxidation will

increase leachate-mineral contact and i m prove

oxidation. These steps could save 10 to 20 million Btu/ton of cathode copper by making the

most of each cycle of the Ieachate through the

dump and thus reducing the amount of pumping necessary to recover the copper.

The pregnant Ieachate is processed through either precipitation or solvent extraction. Solvent

extraction’ 5 is an extremely low energy process.

Precipitation of copper on scrap iron consumes

a small amount of electricity (50,000 Btu/ton of

cement copper) for pumping the solution through

the precipitation cell. The scrap iron’s energy

equivalent has been estimated to be 45 million

Btu/ton of cathode copper. The primary difference i n energy cost between the two processes

is that cathode copper can be produced directly

from the electrolyte from solvent extraction, but

cement copper usually must be smelted, converted, and fire refined before it can be refined

into cathodes.

I JI i @ ~ometal I u r~}, IS the reco~ Pry oi copper from ore usl n~ ij Jt(’r

or m ater-baied chemical wlutlons (see ch. 6).

I jsolkentext ractlon USP5 a n act l~,e o r~~ n I( rea~e nt t h Jt ~)rt’t~>rc rl -

tla I Iy extracts copper Ions from the Iedchate I n ordc~r to I nc re, ]w

the concentration of copper ions In the process solution

ELECTROMETALLURGY

Electricity is used to produce copper cathodes, electroplating (elect rorefining). Electrowinning

either by transferring the copper from the elec- uses around 24 million Btu/ton of cathode coptrolyte produced in solvent extraction onto cath- per—the electrical energy required to overcome

ode starter sheets (elect rowinning), or by purify- voltage differences in the electrowinning cells,

ing copper anodes from smelting/converting by allowing copper to deposit on the starter sheets.
158

Electrorefining (including fire refining) requires

approximately 6 million Btu/ton of cathode copper produced.

Other hydrometallurgical techniques are used

to process concentrates (rather than leaching

ore). These methods are not competitive with

state-of-the-art smelting/refining on the basis of

energy requirements, primarily due to the difference in energy use in electrowinning versus electrorefining. Table 7-6 shows the total direct and

electrowinning energy demand of various hydrometallurgical methods for processing concentrates, and indicates to what extent electrowinning affects the total energy used.

Reducing the energy required for electrowinning requires decreasing the cell voltage while

simultaneously maintaining a high current efficiency. 16 There is a critical current density at

which an acceptable cathode deposit can be expected. If this value is exceeded, the cathode becomes less dense, less pure, rough, and in general unacceptable as a commercial product. The

critical current density can be increased by bubbling air through the cells (or other means of agitation). 17 Periodically reversing the current also

can improve energy use (see ch. 6).

Electrowinning copper from cuprous (Cu+

) as

opposed to cupric (Cu ++) electrolytes is another

means of reducing the energy demand. Cuprous

electrolytes have shown an energy savings potential of 70 percent. They exhibit performance

problems, however, primarily with regard to

inadequate separation of impurities, and the

cathodes are of lower quality than those from

conventional electrorefining or electrowinning.

‘6W.C. Cooper, “Reduction in the Energy Requlrement5 In Cop -

per Electrowinning,’ Met,]//, vol. 39, No, 11, November 1985, pp.

1049-1055.

I llbid.

l~Alan P, Brown et al., “The Electroretinlng of Copper from a Cuprous Ion Complexing Electrolyte,” )ouml oi A4etah, July 1981,

pp. 49-57, see also Cooper, supra note 16.

Table 7-6.—The Direct and Electrowinning Energy Demand of Selected

Hydrometallurgical Processes for Treating Concentrates

Direct energy Materials energy Electrowinning energy

requirement equivalent requirement Electrowinning energy

(106 Btu/ton (106 Btu/ton (106 Btu/ton as percent of the

Operation or process cathode Cu) cathode Cu) cathode Cu) total energy demand

Arbiter ammonia Ieacha b 

. . . . . . . 37.9 24.2 24.0 38.60/o

Roast leach electrowinac . . . . . . . 28.8 1.6 22.4 73.6

Cymet ferric chloride Ieachc . . . . 23.8 7.1 NA

Sherritt-Cominco c. . . . . . . . . . . . . . 38.7 9.4 24.0 49.8

Nitric-sulfuric acid Ieachb

. . . . . . . 62.4 12.1 24.2 32.4

Electroslurry-Envirotech . . . . . . . . 31.2 8.4 19.4 48.9

Roast/sulfite reduction . . . . . . . . 17.8 5.9 NA

Ferric sulfate acid Ieachb . . . . . . . 39.4 10.1 25.7 51.9

MM = million

NA indicates that electrowinning is not part of the process

aProcesses that have been used Commercially.

bAll hydrometallurgical processes

cCombination processes, using both pyrometallurglcal and hydrometallurgical steps

SOURCE Charles H. Pitt and Milton E. Wadsworth. An Assessment of Energy Requirements m Proven and New Copper Processes, report prepared for the U S Department of Energy. contract no EM-78-S-07-1743, December 1980
Chapter 8

Environmental Aspects of

Copper Production
CONTENTS

Page

Air Quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..................162

Pollutants of Concern and Their Regulation . . . . . . . . . . . . . . . . ............162

Smelter Pollution Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .163

Costs and Benefits of Pollution Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...168

Water Quality and Waste Disposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ......170

Pollutants of Concern . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...............173

Waste Management Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...174

Boxes

Box Page

8-A. Alternative Byproducts From the Control of Strong SO2 Emissions . ......165

8-B. Collecting Converter Gases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ........168

8-C. The Resource Conservation and Recovery Act.... . ...................173

8-D. Factors Affecting the Potential for Contamination . ....................175

Figures

Figure Page

8-1. Environmental impacts of Copper Production . .......................161

8-2. Gas Cleaning in Copper Smelting . . . . . . . . . . . . . . . . . . . . . .............165

8-3. Copper Converter Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .......167

8-4. Air Curtain Control System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .169

8-5. Cost of S02 Removal With an Acid Plant . ...........................171

8-6. Sulfur Dioxide Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............172

8-7. Wasteland Management Practices . . . . . . . . . . . . . . . . . . . . . . . ..........176

Tables

Table Page

8-1.

8-2

8-3.

8-4

1980 Sulfur Dioxide Emissions in the United States . . . . . . . . . . ..........162

State and Federal Primary Ambient SO2 Standards . ...................163

Smelting Technology and Associated Emissions . ......................164

Effluent Limitationson Discharges From Mines, Mills, and

Leach Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ................172
Chapter 8

Environmental Aspects of

Copper Production

Copper production is not an environmentally

benign activity. From mining and milling through

hydro- and pyrometallurgical processing to refining, copper production can have significant adverse impacts on air quality, surface and groundwater quality, and the land (see figure 8-1 ). While

these impacts can be severe when the materials

handled include toxic or hazardous substances

(e.g., ores with a relatively high concentration of

arsenic), they also can be modest due to technological and other pollution controls, and because

of mitigating features of the climate, geology, and

ecology of most copper-producing areas in the

United States.

As with all other industrial activities in the

United States, copper production is subject to

extensive environmental regulation related to air

and water quality, and materials handling and

disposal practices. This regulation has had significant impacts on the mode and cost of domestic copper production. For example, sulfur

dioxide emission limitations resulted in the

replacement of domestic reverberatory smelting

furnaces with flash, electric, or continuous furnaces connected to plants that convert the sulfur dioxide to sulfuric acid. Operation of the acid

plant increases smelter costs. For some domestic producers, the sulfuric acid is a salable byFigure 8-1.-Environmental Impacts of Copper Productio n

Fugitiv e

dus t

Sulfur dioxide,

particulat e

emission s AIR

LAND

Slime s

Solvent

los t

Ground water

intercep t

Leachin g

WATER

SOURCE: Office of Technology Assessment

161
162

product or usable at a nearby mine for leaching.

It also can be a “red ink” item if there are no

markets within an economical transportation

distance.

Operational changes resulting from environmental regulation have conferred significant

(but less easily quantifiable) benefits for human

health and the environment, but also have had

a substantial adverse impact on the competitiveness of U.S. copper producers. Any tightening

of the present air quality or waste management

requirements would result in further closures of

domestic copper operations.

This chapter reviews the environmental aspects

of copper production. It presents a brief overview

of the rationale for regulation, the technological

controls, and the impact of those controls on domestic competitiveness. Further analysis of environmental regulation and its impact on the U.S.

copper industry may be found in chapter 10.

AIR QUALITY

Pollutants of Concern and

Their Regulation

Uncontrolled copper smelting processes emit

large quantities of particulate matter, trace elements, and sulfur oxides, which can have adverse

effects on human health. Sulfur dioxide (SO2),

and the sulfates and sulfuric acid aerosols it forms

in the atmosphere, can be lung irritants and aggravate asthma. Estimates of the magnitude of

health risks and the influence of S02 and secondary pollutants from all emission sources range

from O to 50,000 premature deaths per year in

the United States and Canada.1 Sulfur dioxide

emissions from smelters also have been linked

to visibility degradation and acid deposition.2 Al-

‘U. S, Congress, Office of Technology Assessment, Acid Rain and

Transported Air Pollutants: Imp//cations for Public Policy, OTA-O204 (Washlngton, DC, U.S. Government Printing Office, June 1984),

p. 13.

‘Robert A. Eldred et al, “Sulfate levels in the Southwest during

the 1980 Copper Strike, ” Journal of Air Pollution Control, vol. 33,

.

though fossil-fueled electric powerplants are the

major source of S02 emissions in the United

States, smelters contribute significantly to total

emissions in the sparsely popuIated copper-producing areas of the West (see table 8-l).

Fugitive emissions from furnaces and converters can cause health problems in the work place

and/or result in elevated levels of toxic pollutants

such as lead and arsenic in the immediate vicinity

of the smelter. Generally, employees are exposed

to the highest concentrations of toxic elements

because they work in enclosed areas. However,

No. 2, 1983; John Trijonis, “Visibility in the Southwest–An Exploration of the Historical Data Base, ” Atmospheric Environment, vol.

13, 1979, pp. 833-843, and sources cited therein; see also Robert

Yuhnke and Michael Oppenheimer, Safeguarding Acid Sensitive

Waters in the intermountain West, Environmental Defense Fund,

November 1984; see also “Acid Deposition in the Western United

States, ” Science, July 4, 1986, pp. 10-14.

) Fugitive emissions are those that escape capture by normaI air

pollution control equipment,

Table 8-1 .—1980 Sulfur Dioxide Emissions in the United States

(million metric tonnes)

National East West

Source Tons Percent Tons Percent Tons Percent

Electric utilities. . . . . . . . . . . . . 15.8 65.6 14.6 73.5 1.2 28.6

Nonferrous smeltersa. . . . . . . . 1.4 5.8 0.2 0.8 1.2 29.0

Transportation . . . . . . . . . . . . . . 0.8 3,3 0.5 2.5 0.3 7.3

Other . . . . . . . . . . . . . . . . . . . . . 6.1 25.3 4.6 23.2 1.5 35.1

Total c . . . . . . . . . . . . . . . . . . . 24.1 100.0 19.8 100.0 4.3 100.0

a

lncludes 28 nonferrous smelters, of which 27 were operating in 1980. Sixteen of the 28 are copper smelters—13 are in the

West. Eight of the copper smelters are still in operation b

lndustrial, commercial, and residential sources

c

Totals may not add due to rounding

SOURCE U S Congress, General Accounting Office, Air Pollution Sulfur Dioxide Emissions from Nonferrous Smelters Have

Been Reduced, report to the Chairman, Subcommittee on Oversight and Investigations, Committee on Energy and

Commerce, House of Representatives, GAO/RCED-86-91, April 1986.
contamination of the soil surrounding a smelter

also is of concern. Fortunately, toxic metals are

present only in very small concentrations in most

domestic copper ores.4 Only Asarco’s El Paso

smelter currently treats concentrates that are considered to have high levels of volatile impurities. s

The Anaconda-Butte and Asarco-Tacoma smelters

used to treat such concentrates, but they closed

in 1980 and 1985, respectively,

The Clean Air Act established National Ambient

Air Quality Standards for six pollutants (see table 8-2). The Act requires that these standards be

met throughout the United States, including the

improvement of air quality in “dirty” areas and

the prevention of significant deterioration of air

quality in “clean” areas. These goals are achieved

through emission limitations on various types of

sources (including non-ferrous smelters) that require the use of technology-based controls. The

Act also regulates emissions of hazardous pollutants. Substantial financial penalties are imposed

for non-compliance.

— — — 4State of Arizona, Bureau of Air Quality Control, ThIrd Annual

Report on Arizona Copper Smelter Air Pollution Control Technology, April 1979.

5A “high Ievel of volatile impurities ” means a total smelter charge

containing more than 0.2 percent arsenic by weight, 0.1 percent

antimony, 4.5 percent lead, or 5.5 percent zinc, on a dry basis.

Code of Federal Regulations, Title 40, Part 60.161. July 1, 1986.

Table 8-2.—State and Federal Primary

Ambient S02 Standards

Federal . . . . . . . . . . . . . . . . 0.03 ppm annual average

0.14 ppma

24-hour average

0.50 ppma

3-hour average

Arizona . . . . . . . . . . . . . . . . 0.03 ppm annual average

0,14 ppm 24-hour average

0,50 ppm 3-hour average

Montana . . . . . . . . . . . . . . . 0.02 ppm annual average

0.10 ppmb

24-hour average

0.05 ppmc

3-hour average

New Mexico . . . . . . . . . . . . 0.02 ppm annual average

0,10 ppm 24-hour average

Utah . . . . . . . . . . . . . . . . . . . 0.03 ppm annual average

0.14 ppm 24-hour average

0.50 ppm 3-hour average

KEY: 1 ppm SO, = 2620 ~glm]

ppm = parts per million

~g/m] = micrograms per cubic meter.

NOTE The 3-hour average is an annual geometric mean, to be used in assessment

of plans to achieve the 24-hour standard

aNo more than 1 violation/year

bNo more than 2 violations/year

C

No more than 19 violations/year

SOURCE Federal Code of Regulations, Title 40, Part 57102, July 7 1986

163

Smelter Pollution Control

All stages of pyrometallurgical processing emit

gases of varying content and volume (see table

8-3). Most technological methods of control involve collecting the gases and converting the SO2

to some other product. The characteristics of the

gases dictate the type of control technology,

which in turn determines the kind of byproducts

produced. For example, acid plants–the most

widely used control technology —require a relatively high (at least 4 percent) SO2 concentration

in the off-gas for economical operation and compliance with pollution limitations. Roasters, flash

furnaces, electric furnaces, continuous smelting

furnaces, and converters all produce gases that

can be treated in an acid plant. Weak gases, such

as those from reverberatory furnaces and fugitive

emissions, must be treated by alternate means. b

Strong Sulfur Dioxide Emissions

Acid plants (figure 8-2) convert the sulfur dioxide in emissions to sulfuric acid (H2SO4

). Other

conversions, including to gypsum, elemental sulfur, and liquid SO2 are technologically feasible,

but usually not economically viable (see box 8-A).

In making sulfuric acid, the hot gases are first

collected from the roasters, furnaces, and converters (see box 8-B). The gases are cooled, cleaned

(through three series of dust collection systems)

to recover copper from the dust and prevent fouling of the acid plant, and then treated with sulfuric acid to remove any water vapor. Catalysts

convert the SO2 gas to sulfur trioxide (SO3), which

is absorbed in a circulating stream of 98.5 percent sulfuric acid and 1.5 percent water, and

reacts with the water to form more concentrated

acid.

There are two basic types of acid plants. In single contact/single absorption (SC/SA) plants, the

gas goes through the system once; such plants

average conversion (SO2 to H2S04

) efficiencies

of 96 to 98 percent. Double contact/double absorption (De/DA) plants maximize S02 capture

b I n the conient 10 na I roast I ng- re~erberatory smelt I rig-co ni e rt I ng

~eq ue n c e, f) n [y 50-70 per( c’nt ot the S(IJ prod uceci by the \ me her

c an be ca~)( u red I\It h a n a( Id I)la nt.
164

Table 8-3.—Smelting Technology and Associated Emissions

Off gases

Technology (% S O2 by volume) Fugitive emissions

Multihearth roaster . . . . . . . . . . . .

Fluid bed roaster . . . . . . . . . . . . . .

Reverberatory furnace . . . . . . . . . .

Pierce-Smith converter:

during blowing . . . . . . . . . . . . . .

during charging (change

due to dilution with air) . . . .

Continuous smelting:

Noranda process . . . . . . . . . . . .

Mitsubishi process . . . . . . . . . .

Electric furnace . . . . . . . . . . . . . . .

5-1o

10-12

0.5-2.5

15-21

1-7

16-20

11

5 +

Leakage through the shell and open ports and during the filling of

the transfer car (to transport matte to the furnace).

Emissions escape through openings in the brickwork, during

charging of calcine or green concentrate, during addition of

converter slag, at slag and matte launders during tapping, at uptake

and waste heat boilers.

Emissions escape through the primary hooding system and are

emitted directly from the mouth of the converter during charging

and pouring.

Noranda emissions from between the primary uptake hood and

furnace mouth, from the mouth when in the rolled out position,

around matte tapping, and at the port for feeding concentrates and

fluxes.

Fugitive emissions lower than most reverberatories; if not properly

Flash smelting:

30°/0 oxygen enriched . . . . . . . . 10-20

tonnage oxygen . . . . . . . . . . . . . 70-80

Hoboken Converter . . . . . . . . . . . . 8-9

maintained, brickwork could be a source of emissions. Emissions

may occur during slagging, matte tapping, converter slag return,

around the electrodes, and the calcine handling.

Fugitive emissions at launders and ladles and from leakage through

the furnace walls and roof.

This converter has no primary hood, so any emissions from the

mouth of the converter are fugitive emissions; properly designed,

operated, and maintained, there are minimal fugitive emissions.

Fugitive emissions occur during the hot metal matte charging or

hot blister metal pouring.

SOURCE: Timothy W, Devitt, Control of Copper Smelter Fugitive Emissions, PEDCo-Environmental, Inc , May 1980, p, 14

by returning the gas stream to the converters

through an intermediate absorption tower. These

plants are capable of 99.7 to 99.8 percent conversion efficiencies.7

The design of an acid plant is unique to each

smelter. The key variables affecting the efficiency

and economics of acid production are the total

gas volume; and the SO2 concentration, water

vapor concentration, and free oxygen content of

the treated gases. The physical dimensions and

energy requirements of the acid plant are largely

determined by the maximum volume and minimum concentration of SO2 gas.8

There are several reasons why acid plants are

so widely used by the U.S. copper industry. The

technology is well proven and is the least expen7Charles H. Pitt and MiIton E. Wadsworth, A n Assessment of

Energy Requirements in Proven and New Copper Processes, report prepared for the U.S. Department of Energy, contract no. EM78-S-07-1 743, December 1980.

‘1 bid.

sive method of smelter SO2 control. Sulfuric acid

is used in solution mining, and also is the most

common form in which other industries consume

sulfur; thus it can be a salable byproduct rather

than a waste. However, non-leaching markets for

sulfuric acid generally are a long way from the

smelters in the United States, and the resulting

transportation costs can turn the byproduct credit

into a deficit. Moreover, it often is cheaper for

industrial consumers to buy sulfur and produce

the sulfuric acid themselves than to purchase acid

produced elsewhere.9

In some countries, such as Japan, a very high

level of SO2 control is achieved by copper smelters

as part of a government policy to provide sulfuric

acid for industrial development (see ch. 4). In less

developed areas, such as the copper-producing

countries of Africa and Latin America, there are

9Michael Rieber, Smelter Emissions Controls, The Impact on Mining and the Market for Acid, prepared for U.S. Department of the

Interior, Bureau of Mines, March 1982.
165

Figure 8-2.-Gas Cleaning in Copper Smelting

Smelter

Roaster offga s Converter

off g as off g as

Gas cooler Dust recycled

to smelter

Hot ESP Dust recycled

to smelter

To stack ‘

1 J

I

To stack ,

Scrubber Sludge to

disposal

I

II

Stream Legend

[

Gas

I

Cleaned g a s

to acid plant

SOURCE” Charles H. Pitt and Milton E. Wadsworth, An Assessment of Energy Requirernents in Proven and New Copper Process.

es, report prepared for the U.S. Department of Energy, contract EM 78. S-07-1 743 Dec. 31, 1980

Box 8-A.—Alternative Byproducts From the Control of Strong S02 Emissions

Elemental Sulfur. The reduction of sulfur dioxide to elemental sulfur is technically complex and requires an extremely high concentration of S02 in the off gases. Therefore, elemental sulfur production

is feasible only with the INCO flash furnace, which uses tonnage oxygen (rather than oxygen-enriched

air) and has emissions of up to 75 to 80 percent S02

. This conversion also requires large amounts of hydrocarbon fuel, such as coke, which reacts chemically with the S02 to form elemental sulfur. The fuel is relatively expensive and more than triples the energy requirement of the S02 control system.l However, elemental sulfur can be transported economically much greater distances than either sulfuric acid or liquid sulfur

dioxide, and is more easily stored when demand is low.

Liquid Sulfur Dioxide. Liquid sulfur dioxide production also works best with a highly concentrated

gas stream like that emitted by the INCO furnace. Liquid S02 has a very limited demand in the United

States, but, owing to its relatively high price per unit weight, it can be shipped long distances. It is still

extremely expensive to transport, however, because it requires special pressurized tank cars that usually

return empty. The market is too small to justify cost saving measures such as unit trains or special ocean

tankers. 2

‘ D ,1 5( h LJ 11/ ‘PO Iutlon Control .]nd Enerp,\ Con~umptlon .]t U S. Copper Smelters, /ourn’]1 of MefJl$, Ianuar} 1978, p .?0.

-’NIIc h,](,l Rit,l)er $mf,lter En~IssIon\ Corrfrol, The lmp,i[ t on \fjnlng ,Ind the if,]rkef for 4c-d prep.ired tor U S Department ot the Interior Bu rt>,~u

(N ,\l I nt,< ,i!a r( h 1982.
166

Photo credit: Robert Niblock

Acid plants entail extensive gas collection systems.

few industrial markets for acid, and SO2 control

is minimal (see figure 8-6, below).

It is important to note that not all of the SO2

produced in a smelter is processed in the acid

plant, Some of the sulfur dioxide gas is too weak

to treat in the acid plant and some escapes as fugitive emissions. Gases from the acid plant itself

contain unreacted sulfur dioxide and unabsorbed

sulfur trioxide and usually are treated to remove

acid mist before being vented to the atmosphere.

Weak Sulfur Dioxide Emissions

Weak gas streams, with an SO2 concentration

of less than 4 percent by volume, constitute a

more difficuIt and costly problem than stronger

streams. These include both smelter gases and

fugitive emissions. For smelters, the three available control options are flue gas desuIfurization,

modifying the furnace to produce stronger gas

streams, and replacing the equipment with newer

technology. All but two of the operating domestic smelters chose the third option.

In flue gas desulfurization (FGD), the SO2 is

chemically removed through reactions with lime,

magnesium oxide, ammonia, or dimethylaniline

(DMA, an organic liquid). Regenerative FGD systems upgrade the sulfur dioxide content of the

gases so that they may be further treated in an

acid plant. Non regenerative systems result in a

waste product (scrubber sludge). Although FGD

is a well proven technology in fossil-fueled powerplants, and the Environmental Protection Agency

(EPA) considers it adequately demonstrated in

nonferrous smelters, very few smelters have actually installed scrubbers.10 In early trials, smelters

experienced frequent scaling and plugging problems with scrubbers. Phelps Dodge installed an

experimental DMA system at their Ajo, Arizona

smelter; it was operated intermittently and is no

longer in use.11 Currently, the White Pine, Michigan smelter is using gas scrubbers without an

acid plant, and is in compliance with emission

Iimitations. 12

A broad range of reverberatory furnace modifications are available. The furnace can be sealed

tightly to prevent infiltration of air and the subsequent dilution of the gases. oxygen-enriched

smelting can increase the S02 content of the off

gases while it reduces the overall volume of gas.

Weak or intermittent gas streams can be blended

with stronger gas streams to produce a stream

amenable to S02 control. Supplemental sulfur

can be burned in conjunction with a sulfuric acid

plant to generate a supply of sulfur dioxide that

can be used to beef up weaker gas streams.

Finally, reverberatory furnaces can be replaced

with newer technology, resulting in the greatest

improvements in sulfur capture. Although a complete smelter retrofit involves large capital costs

IOA v slack, “AppllCatjOn of Flue Gas Desulfu rization in the Nonferrous Metal Industry, ” Sulfur Dioxide Control in Pyrometallurgy,

The Metallurgical Society of AlME, Chicago, Illinois, February 1981,

p. 92.

I I Pitt and Wadsworth, supra note 7.

l~)anlce l., W. Jolly and Daniel Edelstein, “Copper,” preprint from

1986 Bureau of Mines Minerals Yearbook (Washington, DC: U.S.

Department of the Interior, 1987).
167

(see ch. 9), the newer furnaces comply more easiIy with air quality standards and are more efficient. Another alternative involves replacing or

augmenting smelting with hydrometallurgical

processes. Leaching and solvent extraction do not

produce sulfur dioxide gas, but they can fall under water quality and waste disposal regulation.

Moreover, only oxide ores and oxidized waste

material currently can be leached economically.

The Pierce-Smith converter is the major source

of fugitive emissions in a smelter building. Fugitives are emitted directly when the converter is

rolled for the addition of matte (figure 8-3). They

escape the primary hood (box 8-B) when it is

moved to provide clearance for the overhead

crane and matte ladle. Significant amounts of

gases also escape from the hood during air injection (blowing). Moreover, the fan in the hood

shuts down during charging, but, before the converter has completely rolled back to the vertical

position and the hood and fan are fully operational, blowing resumes, allowing fugitives to escape. 13

I ~Ti mOth y \${, Deklrr, control ot’ Copper Srne/ter FU<qItIL’~ Em IssIon\, PEDCo-Environ mental, Inc., May 1980, p. 14.

Figure 8-3.—Copper Converter Operation

\

Primary

hood

Photo credit: Manley Prim Photography, Tucson. AZ

Skimming from a converter.

Charging Blowing Skimming

SOURCE: John O. Burckle et al , Evaluation of an Air Curtain Hooding System for a Primary Copper Converter, Vol. 1, Prepared for U S Environmental Protect Ion

Agency, Industrial Environmental Research Laboratory, by PEDCo Environmental, Inc., February 1984
168

Box 8-B.—Collecting Converter Gases

Converter gas streams are more difficult to collect than those from roasters and smelters. A

hood is lowered to the converter mouth to capture the gases and particulate matter that are

emitted while air is being blown into the matte.

The primary hooding system on most converters

consists of a fixed hood with a sliding gate located above and slightly away from the converter (see figure 8-3). During blowing, the gate is

lowered to the converter mouth to help guide

the emissions and reduce the intake of cool ambient air.

Primary hoods are not 100 percent efficient

because the gate does not form a perfectly tight

seal with the converter mouth. At plants where

the gates were retrofitted rather than designed

and installed as part of the original smelter, the

gate often does not completely cover the converter mouth. Contact with the crane and ladles

also can damage the hooding system, and preventive maintenance is required to repair leaks

due to normal wear and tear.

A secondary hood that slips over the primary

hood affords some additional emissions capture

during the critical times of charging and skimming. Double hood systems have exhibited operational problems, however. They can become

warped to the point that they no longer fit over

the primary hood, and at times they do not supply enough draft or are too far from the mouth

of the converter to be effective. }

‘Carl H. Billings, Secortd Annual Report on Arizona Copper Smelter

A/r Pollutlon Control Technology, State of Arizona, Bureau of Air

Quality Control, April 1978, p 40

Methods of capturing fugitive emissions from

converters include secondary hoods, air curtains,

ventilation systems, and alternative converter

technologies. Air curtains use a row of nozzles

to create a stream of air that captures around 90

percent of the gaseous emissions and particulate

over the converter (see figure 8-4). ’4 As with primary hoods, however, contact with cranes and

I qjohn 0, gu rckle, et al., Evacuation of an Air Curtain Hood;ng

System for a Primary Copper Co~verter, Volume It Prepared for

U.S. Environmental ProtectIon Agency, Industrial Environmental

Research Laboratory, by PEDCo Environmental Inc., February 1984,

p. 4.

ladles can damage or misalign air curtains. This

sort of technology could be effective at fugitive

emissions control if design changes could make

it more adaptable to the smelter environment.

Another option for fugitive emissions control

is a total building ventilation and collection system. Such a system did prevent high ambient air

readings at monitoring stations around one smelter

in which it was tried, but created dead spots inside the building where there were increased

concentrations of SO2 and elevated temperatures,

largely due to inadequate fan capacity. Total ventilation may also create heating problems during

cold spells as most of the heat is evacuated with

the emissions.15

Alternative converter technologies include continuous reactors and the Hoboken converter.

Continuous reactors theoretically combine roasting, smelting, and converting in one operation.

In the Mitsubishi continuous reactor, the converter portion is enclosed and the potential for

fugitives should be reduced substantially. The

Noranda reactor both has a hood and typically

is used in conjunction with a Pierce-Smith converter (see ch. 6).

Inspiration Consolidated Copper Company

(ICCC) experimented with an induced draft

Hoboken Converter, which was supposed to control emissions by maintaining a negative draft at

the mouth at all times. Concentrations of 8 to 9

percent SO2 were achieved in early tests–sufficient for treatment in an acid plant. Subsequently,

however, ICCC experienced operational problems, fugitive emissions became progressively

worse, and they replaced the converter. 16

Costs and Benefits of

Pollution Control

Control strategies have resulted in marked improvements in long term SO2 levels in the past

15 years, with substantial benefits for public

health and the environment. According to EPA

statistics, copper smelters reduced their total sulI ~carl H. Bl[lings, Ttr;rci Arrrrua/ Report on Arizona Copper smelter

Air Po//ut)on Contro/ Technology, Arizona Bureau of Air Quality

Control, April 1979, p. 42.

161bid.
169

Figure 8-4.-Air Curtain Control System

Jet side Exhaust side

Air

curtain

jet

BaffI e

waII

Air curtain

----------

-----------

--------------

--- .- . . .- -. ---

------- .-

BaffIe

walI

To suet ion fan and

hood sample locatio n

SOURCE John O Burckle et al., Evaluation of an Air Curtain Flooding System for a Primary Copper Converter, vol. 1, report prepared for U S. Environmental Protection

Agency, Industrial Environmental Research Laboratory, by PEDCo Environmental, Inc., February 1984.

fur dioxide emissions from 3.5 million tons in

1970 to 970,000 tons in 1983—a 72 percent reduction. The percent of input sulfur captured at

domestic smelters is currently 90 percent.17

These gains were not easy. By the very nature

of their operation, smelter and converter emissions are difficult-and expensive—to capture and

control. Before technological means of control

became mandatory, smelters used supplemental and intermittent SO2 controls. 18 While these

17Duane Chapman, “The Economic Significance of Pollution Control and Worker Safety Costs For World Copper Trade, ” Cornell

Agricultural Economics Staff Paper, Cornell Universityr Ithaca, New

York, 1987.

 18Supplemental control systems Include the use of very tall stacks

to disperse pollutants, thus diluting their ambient concentration.

Intermittent control consists of monitoring the ambient weather conditions to identify when wind patterns and termperature inversions

could trap the pollutants near the source instead of dispersing the

plume. Under these conditions, production is cut back to the point

necessary to reduce pollutant emissions to an acceptable ambient

concentration,

methods resulted in lower overall SO2 emissions,

they also reduced production .19 When smelters

had to install technological controls, many closed

because the capital cost of retrofitting the smelter

was too high. The General Accounting Office estimates that between 1970 and 1984, 44 percent

of the reduced emissions from non-ferrous smelters

(including lead and zinc operations) were due to

improvements in control techniques, while 56

percent were due to decreased production .20

(Smelters that closed during 1984 and 1985 had

been responsible for over half of NAAQS violations.)

Although the need to replace reverb with

other furnaces plus pollution control devices

19Rieber, supra note 9.

20U.S. Congress, GeneraI Accounting Office, Air Pollution, Sulphur Dioxide Emissions From Nonferrous Smelters Have Been Reduced, April 1986, p.4.
170

brought social benefits and increased furnace

efficiency, it also cost the domestic industry an

enormous amount of money and contributed

to the closure of significant domestic capacity.

The primary copper industry had capital investments totalling $2.088 billion for air pollution

control between 1970 and 1981, with average annual costs of $3.074 billion .21 Furthermore, adding an acid plant to the production line increases

operating costs without necessarily providing a

byproduct credit. Present levels of control entail

capital and operating costs of between 10 and

15 cents per pound of copper.22

The capital cost of sulfur removal, which includes gas handling of a 4 percent sulfur dioxide

gas stream and the sulfuric acid plant at a 50,000

tonne per year copper facility, has been estimated

at $560 per annual tonne of copper produced.23

This is approximately 20 percent of the total capital costs of the facility. Both the capital investment and the operating cost for S02 removal decrease with increasing concentration of SO2 in

——21 Lawrence J. McDonnell, “Government Mandated Costs: The

Regulatory Burden of Environmental, Health, and Safety Standards

of U.S. Metals Production, ” paper prepared for the conference Public Policy and the Competitiveness of the U.S. and Canadian Metals Production, Golden, CO, January 1987.

22Everest Consulting, Air Pollution Requirements for Copper

Smelters in the United States Compared to Chile, Peru, Mexico,

Zaire and Zambla, 1985.

23Jadgish C. Agarwal and Michael J. Loreth, ‘‘ Preliminary Economic Analysis of S02 Abatement Technologies,: Sulfur Dioxide

Control in Pyrometallurgy, The Metallurgical Society of Al ME, February 1981.

the gas stream because of lower costs associated

with handling a smaller gas volume (see figure

8-5). Fugitive emissions are the most difficult and

expensive to control because they are dilute,

have a large volume, and are not easy to capture.

In comparison, copper smelters in Chile, Canada, Peru, Mexico, Zaire, Zambia and Japan—

our major foreign competitors—are not faced

with similar environmental regulations. I n all but

Japan, if smelter emissions are controlled at all,

it is only to the extent that sulfuric acid is needed

at an associated leaching project. Copper smelters

in these countries capture between O and 35 “percent of the input sulfur; on average only about

one-fifth of the present level of U.S. control (see

figure 8-6). Japanese smelters achieve 95 percent

control as part of government policy to subsidize

sulfuric acid production. Information regarding

the costs of acid production in these countries

is not available.24 However, it is clear that domestic regulation puts U.S. producers at a competitive disadvantage.

Future capital investments in Chile, Peru, Mexico, Zaire, Zambia may be funded in part by the

World Bank (see ch. 3). The World Bank requires

environmental controls as a condition for financing, but they are less stringent than Clean Air Act

standards, and compliance is not monitored .25

24MacDonnell, supra note 21.

25Everest Consulting, supra note 22.

WATER QUALITY AND WASTE DISPOSAL

All aspects of copper production—from mining and leaching to milling, smelting, refining and

electrowinning—have potential impacts on surface and groundwater quality (see figure 8-1).26

Adverse water quality impacts are caused primarily by land disposal practices that fail to contain

wastes, by run-on and run-off controls that are

inadequate to prevent surface water from flow26surface waters include the various terms of water occurring on

the surface of the earth, such as streams, rivers, ponds, lakes, etc.

Groundwater is water that flows or seeps downward, saturating soil

or rock and supplylng springs or wells. The upper level of this saturated zone is called the water table. Aquifers are underground water

sources large enough to be used for public water supplies.

ing through impoundments, or by groundwater

infiltrating surface impoundments.27 In addition,

the large-scale land disturbances associated with

open-pit mining may disrupt the natural flow of

surface and groundwaters, and may lower the

water table in the mine area. Lowering the water

table may cause water shortages, land subsidence, and fracturing; the latter facilitates the

transport of contaminants into and through an

aquifer.

.—— 27 —

SCS Engineers, Summary of Damage Sites from the Disposal of

Mining Wastes, prepared for the U.S. Environmental Protection

Agency, January 1984.
1000

100

10

1

0 1

Figure

171

8-5.-Cost of S02 Removal with an

Acid PIant

miIlions of 1980 dollars

1 I I I I I I I

10000

S 02 input rate (1bs/hr )

Operating cost, millions of 1980 dolIars

T“

.

2% S02

I 1 1 I

t

10000 100000 1000000

S 02 Input rate (lbs/hr)

SOURCE: Jadgish C Agarwal and Michael J. Loreth, “Preliminary Economic Analysis of SO2 Abatement Technologies,” Sulfur

Dioxide Control in Pyrornetallurgy, The Metallurgical Society of AlME, February 1981
172

Figure 8-6.-Sulfur Dioxide Control

AUs t r al I a

Canada

Chile

Japan

Peru

PhiIippines

U.S.

Zaire

Zambia

I I I I I I

1200 800 400 0 25 5 0 75 100

1000 tonnes smelter product ion % sulfur control

SOURCE Duane Chapman, “The Economic Significance of Pollution Control and Worker Safety Costs for World Copper Trade,”

Cornell Agricultural Economics Staff Paper, Cornell University, Ithaca, New York, 1987.

The EPA administers four major legislative programs that could affect water quality control and

waste disposal practices at domestic copper mining operations: 1 ) the Clean Water Act, which imposes effluent limitations on point sources (see

table 8-4) and requires permits for the discharge

of any effluent u rider the National PolIution Discharge Elimination System (NPDES); 2) the Resource Conservation and Recovery Act (RCRA),

which regulates the generation, transport, and

disposal of hazardous and solid wastes (see box

8-C); 3) Superfund, which assigns priorities for,

and oversees the cleanup of, polluted sites; and

4) the Safe Drinking Water Act, which is designed

to protect the quality of public drinking water

supplies. In addition, new or substantially modified copper operations are subject to the National

Environmental Policy Act of 1969 (N EPA), which

requires Federal agencies to prepare an environmental impact statement (EIS) for any major Federal action (e.g., issuing a permit) that will sign ifTable 8-4.—Effluent Limitations on Discharges

from Mines, Mills, and Leach Operationsa

Effluent limitations (mg/l)

Average of daily

Effluent Maximum for values for 30

characteristic any one day consecutive days

TSS . . . . . . . . . . . . 30.00 20.00

Cu . . . . . . . . . . . . . 0.30 0.15

Zn. . . . . . . . . . . . . . 1.50 0.75

Pb . . . . . . . . . . . . . 0.60 0.30

Hg . . . . . . . . . . . . . 0.002 0,001

pH . . . . . . . . . . . . . 6.0-9.0 6.0-9.0

Cd . . . . . . . . . . . . . 0.10 0.05

a

Leaching Operations are expected to achieve zero discharge unless the annual

precipitation exceeds the annual evaporation, in which case a volume of water

equal to the amount exceeding annual evaporation may be discharged subject

to NPDES limitations

SOURCE: Ore Mining and Dressing Point Source Category Waler Pollution Effluent Guidelines, 40 CFR Ch.1 (7.1-85 edition)

icantly affect the environment. Tailings dams also

are subject to Federal design standards to ensure

public safety.

Although water quality control and waste

management have not yet had the same finan-
173

BOX 8-C. —The Resource Conservation and Recovery Act

Future regulation of mine wastes under the Resource Conservation and Recovery Act (RCRA) is of

major concern to the domestic copper industry. Subtitle C of RCRA governs hazardous wastes, while sub -

title D provides guidelines for non-hazardous solid and liquid wastes. In 1986, EPA decided that solid wastes

from the mining and beneficiation of copper ores should not be regulated under Subtitle C of RCRA as

hazardous, even though copper dump leach liquor, copper dump leach wastes, and tailings may exhibit

hazardous characteristics of corrosiveness or Extraction Procedure (EP) toxicity.1 The rationale for this decision was that the large volumes of mine waste would be very difficult to regulate under rules designed

to manage much smaller amounts of industrial and municipal waste. Also, EPA reasoned that Subtitle C

does not allow considerations of environmental necessity, technological feasibility, and economic practicality, which are important given the magnitude of mine waste. z

The cost of mine waste management under Subtitle C of RCRA would result in further closures of domestic mines and mills. EPA believes that concerns about actual and potential releases of hazardous contaminants from mine wastes can be addressed adequately by designing a regulatory program specific to

such wastes under the more flexible Subtitle D solid waste management authority. Subtitle D gives EPA

the authority to set waste management standards intended to protect surface and groundwater quality

and ambient air quality. At the same time, it allows consideration of the varying geologic, hydrologic, climatic, popuIation and other circumstances u rider which different waste management practices assure reasonable environmental protection.3

Critics of this approach argue that Subtitle D regulations do not fully address mine waste concerns,

especially for hazardous wastes. In addition, based on information supplied largely by the mining industry, EPA is uncertain whether current waste management practices can prevent damage from seepage or

sudden Ieaks.4

‘ The E P tox Ic Ity test I> an a nalyllcal techn Iq ue used by EPA to predict the leaching potentla I of wastes

1~1 f En\ lronment~l Prot[,ctlon Ag[,nc} (EPA), II asfes from the f,xfra(-tlon and f?erreflclafion of Meta//tc ores Pho~ph,ite R(x k, A\shestof [)L erhurd~’n Iron]~r,]nlurn\IImrJg and OilShale, Report to Congres\, December 1985, p. ES-13.

I Non-(-(ja I M I n I ng LVa\te< To Be Regu Iated U ncier RCRA, But Not A\ Hazardous, EPA Says, ’ Em fronrnenf Reporter, July 4, 198(,, pp 155-35(>.

‘Rcgu I.it(jr\Dt>term I nat Ion for k%’~ste> from the Ext rac tlon a nri Benet[clat[on ot’ Ore\ and IMI nerals, Federal Register, Iuly 3, 1986

cial or capacity impact on the domestic copper waste. The EPA estimates that, between 1910 and

industry as air pollution control, their costs are

not insignificant. The U.S. nonferrous ore mining and dressing sector had a total capital investment of $667 million in water pollution control

between 1970 and 1981, with average annual

costs of $708 million .28 Copper operations handle much larger amounts of material than other

metal mining industries and generate considerably more solid waste, and a large share of this

cost can be assigned to the domestic copper

industry—perhaps as much as half. Data on foreign water pollution control practices were not

available.

Pollutants of Concern

The mining and beneficiation of copper ore

produces enormous volumes of liquid and solid

1981, all types of metallic ore mining and beneficiation in the United States generated a cumulative total amount of waste of more than 40 billion tonnes. Copper production accounts for

roughly half of this total. In 1980, when U.S. copper mine production was 1 million tonnes, the

domestic industry generated an estimated 282

million tonnes of mine waste, 241 million tonnes

of tailings, and 200 million tonnes dump leach

wastes .29

Most of the copper mined in the United States

comes from sulfide ores such as chalcopyrite and

bornite–mineral compounds characterized by

the linkage of sulfur with the metal(s) (see ch. 5).

“U. S. Environmental Protection Agency (EPA), Wastes from the

Extraction and Beneficiation of Metallic Ores, Phosphate Rock, Asbestos, Overburden from Uranium Mining, and Oil Shale, Report

to Congress, December 1985, p. ES-13.
174

Mining exposes the sulfides to water and air,

causing a reaction that forms sulfuric acid and

iron. The acidic effluents can dissolve and transport heavy and toxic metals from the solid waste

or surrounding ground. Arsenic, lead, and cadmium are the metals of concern most commonly

associated with copper ores. These toxic metals

can accumulate in the environment and concentrate in the food chain, reaching levels that are

toxic to both human and aquatic life. Removal

and fracturing of rock and soil during mining also

speeds up normal weathering processes and increases the load of sediments and fine solids

transported by wind and water.

The EPA conducted a study to determine whether

mine waste facilities leak and, if they do, whether

they release contaminants of concern in significant quantities. Surface and groundwaters were

monitored at eight active metal mine sites. Results indicated that constituents from impoundments do enter groundwater at most sites, but

significant increases in concentrations of hazardous constituents were rarely demonstrated. so

On the other hand, court cases show that runoff and seepage have caused surface and groundwater contamination at active, inactive, and

abandoned mine sites. Much of the damage was

caused by outmoded disposal practices, but the

relatively even distribution among the three types

of facility status indicates that the problem is not

associated solely with abandoned or inactive

mine sites.31 Some sites may have been active for

a long time, however, and while even there the

problematic disposal practices are no longer in

use, their effects may continue.

The potential for contamination of surface and

groundwaters due to the activities of the copper

industry varies widely depending on a variety of

site-specific factors. The considerations discussed

in box 8-D, and the chance that potential problems may not be identified by the current RCRA

characterizations of wastes, led the EPA to believe that entirely different criteria may more

appropriately identify the mining wastes most

likely to be of concern.32

1OR~~u latorY Deterrn i nation for Wastes from the Extraction and

Beneficiation of Ores and Minerals, Federal Register, July 3, 1986.

II SCS Engineers, supra note 27.

~ZFederal Register, supra nOte 30.

Waste Management Practices

In the great majority of cases, potential adverse impacts from copper wastes can be controlled to acceptable levels with established

waste management practices (see figure 8-7).

These practices can be summarized in three main

categories: 1 ) minimization, collection, and treatment of mine drainage, mill process water, and

contaminated surface drainage; 2) handling, storage, and ultimate disposal of tailings and waste

rock; and 3) reclamation of the site to minimize

long-term environmental effects once active mining has ceased. 33 Waste reprocessing and utilization is a fourth method that could offer many

advantages over disposal, but the enormous volumes of waste preclude this from being a viable

alternative to disposal.

Collection and Treatment of

Liquid Wastes

Disposal of liquid wastes is rarely a problem

as most water can be treated (if necessary to remove contaminants that would interfere with its

use) and recycled for drilling, dust control, or

process water at the mill. Indeed, such recycling

can augment water supplies in the arid and semiarid Southwest. Water containing relatively high

concentrations of soluble metals can be used in

the flotation circuits, which will precipitate the

metals. Total suspended solids (including metals)

in wastewater are controlled by building sediment control ponds, in which the water is held

long enough for most of the sediment to settle.

Sedimentation ponds must be designed with respect to predicted frequency and volume of discharge; a series of settling ponds can be used to

improve the entrapment of sediment.

Mine Water.—Water can accumulate in surface mines and underground shafts due to hydraulic backfill operations; groundwater seepage

into the mine; water use for machine operations

including drilling, dust suppression, cooling, and

air conditioning; sanitation and drinking water;

and direct rainfall. Volumes vary widely dependJ~A]an V. Bel [, ‘‘Waste Controls at Base Metal Mines, .Env;ronr-nenta/ Science and Technology, vol. 10, No. 2, February 1976,

pp. 130-135.
175

Box 8-D. —Factors Affecting the Potential for Contamination

The Location of the Site.—Sites well removed from urban areas, drinking water supplies, surface waters,

and sensitive ecosystems are not likely to pose high risks. Most active U.S. copper operations are in sparsely

populated, arid areas where the transport of contaminants is limited by the scant annual precipitation.

The Climate.–Surface infiltration to groundwater is limited in arid and semiarid regions with little surface water. Almost 80 percent of copper sites are located in areas with a net annual recharge of less than

two inches. ’ However, heavy storms could cause some leaching of the waste and result in acid flushes

to the surrounding area.

The Hydrogeology of the Site.—The geologic structure of subsurface and related surface water systems may prevent contamination by effluents. For example, aquifers may be protected from effluents by

thick layers of alluvium deposits or an impervious clay cap. EPA studies indicate that 70 percent of all

mine waste sites (including copper) have groundwater depths greater than thirty feet, so there is time for

the soil to mitigate any seepage that might occur. Other formations such as bedrock may divert effluents.

The Buffering Capacity of Soil.–Some copper ores in the southwestern United States are embedded

in host rock of sedimentary limestone (calcium carbonate, CaC03

, is the chief constituent of Iimestone).

As the effluent passes over or through limestone formations, it is partially neutralized, the pH increases,

and some of the metals wiII precipitate out of the solution. The buffering capacity of Iimestone degrades

over time. Other copper ores are formed in acid igneous deposits in which calcareous mineraIs are rare

and acid formation potential is correspondingly high.

Removal Mechanisms in Surface Waters.—Alkalinity is described as the ability of water to neutralize

acid. Bicarbonate (HCO3

) and carbonate (CO3

-2) from adjacent limestone and feldspar formations are

the principal sources of alkalinity in most surface waters. Alkalinity also tends to precipitate metals. Conditions may arise later that will re-solubilize the metals, however, and they can become a source of low

level, nonpoint pollution for years to come. The real extent of the pollution is determined by the volume

and velocity of the receiving waters. As with buffering by soiIs, the alkalinity of surface waters is finite.2

Photo credit Jenifer Robison

The arid climate, low population density, and other

features of the Southwest mitigate the potential for

surface and groundwater impacts from copper mining.

ing on mining methods, the climate, and the

hydrogeological characteristics of the region. 34

Excess water usually is stored in natural drainage

areas or in surface impoundments where it evaporates or is later used as process water.

Mill Process Water.–Water use in froth flotation is high (in Arizona, about 126,000 gallons

per ton of copper produced); around 80 percent

is recycled. Occasionally, a buildup of reagents

in the process water will interfere with flotation,

and it becomes necessary to discharge and replace the water. Any discharge is required to

meet effluent Iimitations.

‘~lbld.
176

Figure 8-7.-Wastes and Management Practices

Recycl e

●

NPDE S Othe r M i ne

permitte d on site

discharg e u s e

Off site

Onsit e u s e

u s e

SOURCE: U.S. Environmental Protection Agency, Wastes from the Extraction and Beneficiation of Metallic Ores, Phosphate Rock, Asbestos, Overburden from Uranium

Mining arid Oil Shale, report to Congress, December 1985,

Smelting and Refining.–Guidelines are being

developed for effluents discharged from primary

copper smelters, electrolytic copper refineries,

and metallurgical acid plants. These limitations

aim to control the amount of arsenic, cadmium,

copper, lead, zinc, and nickel in effluents; the

pH of the discharge; and the concentration of total suspended solids. Treatment of wastewater

from these sources is similar to that described

above for mines and mills.

Leachate.–The seepage and leaking of sulfuric

acid solutions could contaminate both surface

and groundwater. However, this potential is offset by the miner’s interest to collect as much of

the copper-bearing Ieachate as possible. Leachate

collection systems include hydraulic draws that

exploit the natural slopes of the area, sumps located beneath the heap/dump, or a more sophisticated pumping system with secondary Ieachate

collection to control contamination, Older operations generally do not have protective liners, and

experience some loss of Ieachate. New leaching

operations use impermeable membranes to confine leach solutions and channel them to a collection pond.35

35Stephen F. Walsh, “The San Manuel Oxide Open Pit Project, ”

Presented to the Arizona Conference of AlME, Dec. 9, 1985.
177

Handling and Storage of Solid Wastes

As noted previously, solid wastes are generated

during mining and milling, as well as smelting and

converting. The primary pollution problem is the

potential for sulfide minerals to form sulfuric acid,

which in turn is capable of leaching metals from

the wastes and the surrounding formations and

transporting them to surface and groundwater

systems.

Mine Waste.–Copper mining generates large

volumes of waste rock and dirt, either from the

material overlying the deposit (overburden), rock

removed from underground mines while sinking

shafts, ore that is too low in grade to be commercially valuable, and the rock interbedded with the

ore body.36 This distinguishes mining from many

other process industries where wastes are a relatively small portion of the total materials used to

produce a final product. indeed, larger mines

handle more material and generate more waste

than many entire industries. 37

Although mine waste makes up the largest fraction of total solid waste from copper production,

it has fewer stability and environmental problems

than other solid wastes.38 The waste typically is

dumped in a pile near the mine site by the truckJ6U ,s. EP A, supra note 29.

~zFederal Register, supra nOte 30.

MG, W, Center et a 1., De~,elopment of Systematic W’dste D;5P0.$c?I

Plans tor Metal and Nonmetal Mines, Goodson and Associates, Inc.,

Aurora, Colorado, Prepared for the Bureau of Mines, June 1982,

p. 14.

Photo credit Jenifer Robison

Copper mining generates large volumes of

waste rock and dirt.

load. This usually produces steep slopes and

some segregation of particle sizes, with the larger

sizes relegated to the bottom of the coarse material. There may be some deliberate segregation

of the waste to stockpile low grade ore for leaching operations.

Leach Waste.–Once leaching is discontinued,

the heap/dump becomes leach waste, which can

release acidic effluents, toxic metals, and total dissolved solids to the surrounding area. If the leach

pile is in a recharge area, groundwater contamination could occur. The liners used in new leaching dumps continue to provide groundwater protection after closure, but older, unlined dumps

may degrade surface and groundwater if steps are

not taken to contain or prevent seepage.

Tailings.–Tailings differ from mine and leach

waste in that they are very fine and they retain

a certain amount of water after disposal. Fine particle sizes tend to liberate more contained toxics

at a faster rate than coarser wastes. If future advances in processing include grinding ore more

finely to increase metal recovery, tailings disposal

will become even more complicated.

Seasonal or intermittent releases due to heavy

rainfall and continuous seepage from groundwater infiltration are the most common mechanisms of tailings transport. Seepage can flush sulfates, dissolved solids, trace metals, and organics

into groundwater. In older tailings, heavy rains

can oxidize pyritic minerals and form an acidic

effluent that is capable of mobilizing residual metals. Arsenic, cadmium, and lead are the toxics

most frequently released from tailings ponds, although other trace metals such as copper, gold,

silver, and zinc also may be released .39

Miscellaneous Sludges and Dusts.–In this

group of wastes, the sludges generated by sulfide precipitation (followed by sedimentation) are

of greatest concern; EPA believes these will be

classified as hazardous under RCRA, and considers the potential control costs achievable.40 Other

3 9SCS Engineers, supra note 27 .

40Nonferrous MetaIs Manufacturing Point SOU rce Category: Effluent Limitations Guidelines, Pretreatment Standards, and New

Source Performance Standards; Final Rule, Federal Register, vol.

49, No. 47, Mar. 8, 1984.
178

Photo credit: Jenifer Robison

Copper tailings have a much finer texture than mine wastes.

miscellaneous wastes include sludges from acid

plants (blowdown) and dusts from converters and

reverberatory furnaces. Volubility tests have found

these can leach copper, lead, zinc, and cadmium.

They also contain antimony, arsenic, chromium,

mercury, nickel, selenium, and silver. Slimes recovered from electrorefining cells tend to be rich

in selenium, tellurium, arsenic, gold, silver, and

platinum. The precious metals are recovered

from the slime, but significant leaching of hazardous constituents from electrolytic refining lagoon sediments is also possible. These sediments

settle from a combined slurry composed of effluents from spent electrolyte as well as contact

cooling of furnaces, spent anode and cathode

rinse water, plant washdown, and wet air pollution control.

Reclamation

Reclamation of tailings and mine waste dumps

attempts to restore the area to a productive land

use after closure and to provide long-term environmental protection. The land use is usually restricted to a self-sustaining vegetative cover that

protects the surface from erosion41 Because most

tailings transport mechanisms depend either

directly or indirectly on water, reclamation techniques often focus on controlling and diverting

water.

— —

41 Richard C. Barth, “Reclamation Technology for Tailings Impoundments Part 1: Containment, ” Mineral and Energy Resources,

vol. 29, No. 1, January 1986, p. 2.
179

Tailings transport due to wind erosion also can

be a serious problem, especially when the tailings are inactive and dry out. Ambient air standards for total suspended particulate have been

violated due to the heavy loading of tailings in

the atmosphere.42 This erosion can be controlled

by watering the tailings, maintaining a vegetative

cover, applying a chemical sealant, or covering

the tailings with waste rock or slag. In arid climates, waste rock covers are more frequently

used because revegetation is difficuIt and expensive.

One reclamation technique common to all tailings and waste dumps is the application of a layer

of topsoil or alluvial material to protect seedlings

from glare and supply essential nutrients and

microorganisms. This technique can be expensive; some topsoiling efforts have exceeded

$65,000 per acre. Asarco has managed to top-

—.. —— — .12Ge[, rge J. SC h(’~’t’, ,~fonltorlng ‘]ncif ,${o~eling An,]lyws ot’ th e

Kennec O(I Corporation Sme/ter in ~1( G///, Ne\ ad,], PEDCO Environmental In( Clnclnnatl, ohlo March 1981,

soil their Arizona tailings successfully for an average cost of $2,500 per acre. 43

Waste Reprocessing and Utilization

Tailings may be reprocessed to recover additional metals. This method may be particularly

rewarding when dealing with older tailing piles

from much less efficient beneficiation processes.

Tailings also may be used onsite for mine backfill. There has been extensive research into the

possibility of upgrading tailings to a salable product such as building materials (e.g., glass and

bricks). However, tailings often are unsuitable for

such materials because they are too fine, have

poor drainage properties, and can be thixotropic

(turn liquid when shaken).44

— 43Stuart A. Bengson, ‘‘Asarco’s Revegetation of Mill Tailings and

Overburden Wastes from Open Pit Copper Mining operations in

Arizona, ” paper presented at the National Meeting for the American Society for Surface Mine Reclamation, Oct. 8-10, 1985, Denver, CO.

44C.G. Down and John Stocks, ‘‘ Positive Uses of Mill TaiIings,

Mining Magazlne, September 1977 pp. 213-223
Part Four

Competitiveness
Chapter 9

Production Costs
CONTENTS

Page

Cost Concepts and Definitions . .........185

Structural Factors Affecting Costs . .......186

Ore Grade . . . . . . . . . . . . . . . . . . . . . . ...186

Byproducts . . . . . . . . . . . . . . . . . . . . . . ..187

Other Geological Characteristics . . . ....187

Scale of Production . ................188

Leadtime and Life Span .. .. ... ... ....191

Capital and Energy lntensities . ........192

Location and Weather . ........,.....192

Infrastructure. . . ....................193

Public Profile. . . . . ..................193

Worker Compensation . ..............193

Costs and Technologies. . ......,........194

Mining Methods . ...................19 4

Smelter Technologies . ...............195

Leaching and Solvent ExtractionElectrowinning. . ..................19 6

Costs of Major Copper Producers, 1986..197

Overview . . . . . . . . . .................197

1986 Producer Profiles . ..............199

Cost Changes in the Early 1980s . .......209

Expansions and Contractions

Byproduct Prices . . . . . . . . . .

Macroeconomic Trends . . . .

Real Cost Improvements . . .

Summary . . . . . . . . . . . . . . . .

Cost Trends and Outlook . . . .

New Project Development .

Real Cost Trends.. . . . . . . . .

Long-Term Availability Costs

Boxes

Box

9-A. Byproduct Accounting. . .

. . . . . . . . . . 210

. . . . . . . . . . 210

. . . . . . . . . . 210

. . . . . . . . . . 211

. . . . . . . . . . 215

. . . . . . . . . . 216

. . . . . . . . . . 216

. . . . . . . . . . 216

. . . . . . . . . . 216

Page

. . . . . . . . . . 187

9-B. Relative Purchasing Power of

Currencies . . . . . . .................212

Figures

Figure Page

9-1.

9-2.

Capacity Profile of Non-Socialist

World Copper Production, 1986.....189

Principal Stages of the Copper

Production Process . . . . . . . . . .......190

Figure Page

9-3. operating Costs of Major Non-Socialist

Copper Producers, 1986 . ..........198

9-4. Corporate Costs of Major Non-Socialist

Copper Producers, 1985 . ..........199

9-5. Costs and Capacity of Non-Socialist

Copper Production, 1981 &1986 ....21O

9-6. Purchasing Power of Currencies

Relative to $U.S., 1981-86..........213

9-7. Corporate Costs of Major Non-Socialist

Copper Producers, 1980& 1985.....215

9-8. Long Term Costs and Capacity of

Selected Producers ....,. . .........217

Table

9-1.

9-2.

9-3.

9-4,

9-5.

9-6,

9-7,

9-8.

9-9.

9-10.

9-110

Tables

Page

Financial Evaluation of Smelter

Alternatives Considered for the

Chino Modernization . ............191

Capital Costs of Copper Projects. ...192

Production Costs of Several Chilean

Copper Smelters . ................195

Production Costs for Major

Non-Socialist Copper-Producing

Countries . . . . . . . . ...............197

Cost and Structural Profiles of Major

Non-Socialist Copper-Producing

Countries . . . . . . . ................200

Major U.S. Copper Mines:

Ownership, Locations, and

Capacities in 1986 . ...,..........202

Vi/age and Electricity Rates in the

Copper Industry . ................204

Byproduct Prices . . . . . . . . . . . ......211

Exchange Rates and Price Levels for

Major Copper-Producing Countries,

1980-87 ........................21 4

Gross Corporate Costs of Major

Copper producers. . ..............214

Operating and Availability Costs

for Major Copper-Producing

Countries . . . . . . . ................218
Chapter 9

Production Costs

Low costs are the fundamental source of competitive strength in the copper industry. They

lead to profitability, which in the United States

is the principal measure of an industry’s competitiveness. 1 High prices also lead to profitability,

but copper prices are established by the marI The term ‘‘competitiveness” also refers to various other measures of industrial health, including domestic market share, world

production share, foreign exchange earnings, exports, sales, employment, productivity, innovative potential, and sensitivity to price

declines (see ch. 10). In other countries, one or more of these goals

may prevail over profitability.

ket and difficult to control.2 Individual copper

producers, therefore, focus on cost reduction as

the primary means to improve their competitiveness. This chapter describes the structural and

technological factors that influence copper production costs, examines the costs of major world

producers as of 1986, analyzes the cost changes

of the early 1980s, and assesses the prospects for

future cost competitiveness.

2

The numerous producers, minimal product differentiation, and

efficient world trading system that characterize the copper market

result in many potential suppliers, and thus competitive pricing,

in most facets of the market.

COST CONCEPTS AND DEFINITIONS

A company’s first concern is keeping its costs

below the prevailing price of copper. Changes

in wages, productivity, and other operating factors make this a constant challenge. An additional

concern is that the costs are held below those

of other producers. Keeping costs comparatively

low improves a company’s prospects of competing during periods of oversupply. Fluctuations in

exchange rates and inflation rates greatly influence a producer’s comparative (or relative) cost

position.

The short-term costs that producers face include operating, administrative, and debt service expenses. Over the long term, there are the

additional expenses of replenishing the resource

and capital bases, and giving the owners and investors a continuing return commensurate with

the risk of their investment. The copper industry

uses several cost measures; the most common

are operating costs, corporate costs, and availability costs.3 Each gives a different picture of the

3

T w0 other important cost measures, avoidable and hard currency costs, are not covered in this chapter because of data limitations. Avoidable (or variable) costs are the corporate costs minus

the fixed charges that would be incurred during a temporary closure. They indicate the price at which a producer might decide

to halt production in the short term. Differing business environments and priorities may cause labor, electricity, or other costs to

be fixed for one producer, but variable for another, This helps to

explain why, when demand declines and prices drop, some copfinancial health of producers, and the prices they

must receive to remain solvent. They also help

to explain producer behavior in the context of

fluctuating prices.

Operating costs are the physical costs of producing copper: the direct and indirect costs incurred in mining, concentrating, smelting, and

refining copper. They include transportation to

the mill, smelter, and refinery, and metallurgical

processing of the byproducts. Some estimates of

operating costs also include the freight charges

for transporting the refined copper to market.4

Direct costs embody direct and maintenance labor, energy, materials, payroll overhead, and utilities. Indirect costs include supervision, site

administration, facilities maintenance and supplies, research, and technical and clerical labor.

Excluded from operating costs are corporate

overhead, deferred expenses, depreciation, insurance, debt interest payments, and taxes. Two

subcategories are used to highlight the role of byper producers cut back while others continue to operate at near

full capacity. Hard currency costs are the portion of corporate costs

that are incurred in currencies that are internationally convertible.

They define the price at which a facility that has foreign exchange

generation as a major goal will shut down in the short term.

4

ln this chapter, the cost data from Brook Hunt & Associates Ltd.

include freight to market, but the data from the Bureau of Mines

do not.

185
186

products, Gross operating costs equal the sum

of all direct and indirect costs, and net operating costs equal these same costs less the revenues

from the sales of byproducts.

Corporate costs are the operating costs plus

corporate overhead, deferred expenses, insurance, debt interest payments, and taxes. They

specify the minimum price at which an operation shows short-term profits (i.e., breaks even).

Availability costs are the corporate costs plus

resource and capital replenishment expenditures

(i.e., depreciation) and the return on the investment of the owners and investors. They define

the price that provides sufficient incentive for sustained production by the firm. Thus, they are a

measure of a producer’s chances for long-term

profitability.

Unless noted, all costs and prices appearing in

this chapter are stated in nominal U.S. dollars ($)

or cents (¢). All ¢/lb cost figures are based on the

amount of refined copper ultimately recovered

from the entire processing sequence. Most are

averages (weighted according to amount of recovered copper) for multiple producers.

STRUCTURAL FACTORS AFFECTING COSTS

Copper production is characterized by capital expenditures that are large and risky, and

production costs that are highly sensitive to ore

grade, energy prices, wage rates, and financing

terms. These features arise from structural factors that are common to many copper and other

base metal projects: 1) low and declining ore

grades; 2) nonuniform distribution of byproducts;

3) variations in other geological characteristics;

4) large and growing scales of production; 5) long

Ieadtimes and life spans of projects; 6) high and

increasing capital and energy intensity of production methods; 7) remote locations with frequently

inclement weather; 8) considerable infrastructure

requirements; 9) high public profiles of the

operations; and 10) high compensation paid to

workers.

Ore Grade

The costs of mining and processing copper are

more closely related to the gross tonnage of the

ore than the net tonnage of copper in the ore.5

A tonne of lean ore requires no more capital,

energy, labor, and supplies to mine than a tonne

of rich ore. However, because the rich ore contains more copper, it requires less of these inputs

per tonne of copper recovered. The gross tonnage basis for costs is particularly important in

the copper industry, because ore grades are very

‘Simon D. Strauss, Trouble in the Third Kingdom (London: Mining Journal Books, 1986).

low (often 0.5 to 2.0 percent Cu). At these low

levels, small differences in ore grade represent

large variations in the tonnages of ore that are

handled for each tonne of copper recovered, and

in turn large variations in the mining and milling

costs.

At most properties, ore is mined and blended

with a view to maintaining a uniform mill-head

grade for efficient milling and concentrating.

However miners can, and do, adjust the grade

in several ways to adapt to changing economic

conditions or technological developments. They

may raise the mill-head grade by selective mining of high-grade areas in a mine.6 They also may

change the cut-off grade (the lowest grade that

is mined and treated). These are very important

decisions in the operation of a mining project.

They must be considered in the context of the

prevailing copper price, the health of the firm,

and the mine plan. Such actions ultimately affect

the overall output of the mine and are therefore

not undertaken capriciously.

Ore grades decline over time, despite occasional discoveries of high grade deposits. This occurs both for the world’s reserves as a whole and

for each mine’s orebody, Richer reserves are exploited first in order to recoup capital investments. Some mines have a cap of high grade ore

bJanice L.W. Jolly, “Copper,” Mineral Facts and Problems, 1985

edition (Washington, DC: U.S. Department of the Interior, Bureau

of Mines, 1985).
187

covering deeper, leaner ores. When possible,

poorer grades are left for later extraction with the

hope they will become viable as technologies improve. The ores mined in the United States in the

late 1800s were approximately 2 percent copper;

today’s grades are closer to 0.5 percent copper.

The upward cost pressure of global and local

ore grade depletion historically has been addressed through larger facilities and equipment

(to spread the fixed charges across a greater output) and improved technology and management.

These responses have more than offset the decline in ore grades, so production costs have

fallen over the long term.

Byproducts

Copper is usually not the only product of copper mines. 7 Often molybdenum, lead, zinc,

gold, or silver, and sometimes nickel or cobalt

are also extracted from copper ore. These minerals can be either byproducts or co-products.

They are co-products if they are so prevalent that

their production depends on their own price, and

byproducts if they are produced regardless of

their own price. In either case, their production

depends to some extent on the price of the primary product, copper. At some mines, it is copper that is the byproduct and produced with little regard to its price. In the remainder of this

chapter, no distinction is made between byproducts and co-products, and the term “byproduct”

is used for both.

Byproduct values fluctuate with their prices

and vary considerably from deposit to deposit.

They play a major role in the economics of many

copper projects, and dramatically affect the

overall world competitiveness picture. Byproducts are a favorable asset to any operation,

despite the extra costs incurred in their separation and processing.

From a cost standpoint, byproduct revenues

are usually considered credits (i.e., negative costs)

(see box 9-A). The analysis presented in the suc-

—..—7Copper-only operations are actually in the minority. According

to Brook Hunt & Associates Ltd. cost estimates, only about 40 percent of Non-Socialist World copper production is from mines where

copper accounts for over 90 percent of revenue.

BOX 9-A. —Byproduct Accounting

When a mine or a plant produces multiple

products, cost allocation becomes a problem.

How much of the cost of mining or processing

is for the copper, and how much is for the gold,

silver, etc. ? Prior to the separation of the various products, the costs are joint. No method of

allocating joint costs to the various products is

universally accepted. The most common method charges all production costs to the copper,

and subtracts the revenues from the sales of the

byproducts from the copper accounts. Thus,

from an accounting viewpoint, copper is very

expensive to produce while the other products

are a windfall. This accounting scheme has the

advantage of simplicity over methods which allocate costs among products based on their

value, but it has drawbacks. First, it yields misleading productivity figures. All the labor,

energy, supplies, etc. that go into minerals extraction (byproducts as well as copper) are attributed to copper. This gives the appearance of

very poor productivity in terms of factor use per

tonne of copper. Second, byproduct revenues

are tied directly to the prices of their respective

commodities and thus fluctuate greatly. Handling the revenues as essentially negative costs

gives the cost picture unwarranted volatility. Factor costs are actually somewhat stable, it is revenues that fluctuate. Considered from a revenue

perspective, byproducts are a type of diversification that should decrease, not increase, the

volatility of a project’s financial picture.

ceeding sections shows that some mines have

very substantial byproduct credits. In 1986, the

average byproduct revenues at mines in Zaire and

Canada offset their gross costs by 49 and 35 percent respectively. Byproduct credits of these magnitudes greatly diminish the influence of copper

market signals, such as price, on those producers’ behavior. Major decisions regarding exploration, investment, expansion, and shutdown become tied to the events in several markets, not

just the copper market.

Other Geological Characteristics

Ore grades and byproducts are not the only

geological features that influence costs. The

amount of waste that must be moved (stripping
188

.

.

Photo credit: John E. Robison

Open pit mining involves moving huge amounts of ore and waste. Moreover, mines grow deeper and/or

wider as they age, increasing haulage costs.

ratio), the hardness of the ore and the complexity of its minerals, and the size of the mine are

also important. Stripping ratios vary from below

1:1 (waste:ore) at some mines to greater than 10:1

at others. This range represents great differences

in the amounts of material that must be moved

and large variations in the costs of operations. An

ore’s hardness and mineral complexity are important factors in the ease of its beneficiation.

Softer ores are easier and less expensive to grind;

simpler ores are more amenable to flotation.

Lastly, both open pit and underground mines

grow larger (wider and/or deeper) as they age.

The increasing size entails moving the material

longer distances. The declining ore grades, higher stripping ratios, and greater haulage distances

that occur over time work to raise operating

costs and mines must find ways to offset these

cost pressures (see ch. 5).

Scale of Production

Although there are many small copper mines,

the major producers are quite large. New projects

are being built larger and existing operations are

being expanded to lower costs by spreading the

fixed charges across greater output. In a recent

Bureau of Mines survey, of 113 copper properties producing in 1986 (accounting for 88 percent

of Non-Socialist World —NSW—production),

almost two-thirds of the operations had capacities in excess of 20 thousand tonnes per year

(ktpy) refined copper8 (see figure 9-1). Nineteen

of the mines in this survey had capacities greater

8Kenneth E. Porter and Paul R. Thomas, “The International Competitiveness of United States Copper Production, ” to be published

in Minerals Issues- 1988 (Washington, DC: U.S. Department of the

Interior, Bureau of Mines, 1988).
189

Figure 9-1.-Capacity Profile of Non-Socialist World Copper

Production, 1986

Cumulative capacity (percent) Capacity (ktpy)

I

~ ---- Cumulative Capacity — Capacit y

Capacity ------ Mines ------ Aggregate Capacity

( ktpy ) ( n u m be r ) ( p e rc e n t ) ( k tpy ) (percent )

Under 2 0 41 3 6 4 4 6 7

20-6 0 2 9 1,08 9 18

b O -100 3 3 1 8 1,43 4 24

100-20 0 1 6 14 2, 164 36

Over 200 3 3 921 l b

Total 1 1 3 1 0 0 8,04 2 1 0 0

/

/

./’

- - -

- - -

---- - ------

0 I— --”------ 1 I `I I

c) 20 40 6 0 8 0 100

Percent of mines

SOURCE” OTA from Bureau of Mines data

than 100 ktpy, the largest being Chuquicamata

(421 ktpy) and El Teniente (293 ktpy) in Chile,

and Nchanga (207 ktpy) in Zambia.9 The largest

U.S. mines are Morenci-Metcalf (172 ktpy) and

San Manuel (108 ktpy). ’”

Mining, milling, smelting, and refining operations of this magnitude handle great amounts of

material and generate large amounts of waste.

A typical 100,000 tonne per year (tpy) copper

operation moves 15 to 35 million tpy of overburden rock, mines and mills about 15 million tpy

of ore, smelts about 300,000 tpy of concentrate,

refines 100,000 tpy of blister, and may process

180,000 tpy of offgas to produce 270,000 tpy of

9

In this chapter, all “ktpy" figures for specific mines relate to their

production at full capacity.

10The Bingham Canyon pit was not included in the Bureau of

Mines survey, because it was closed for much of 1986 for modernization. After modernization, its capacity will be around 200 ktpy.

sulfuric acid11(see figure 9-2). Processing and

handling these vast quantities of material requires

costly equipment and large amounts of energy.

In addition, the mine and mill consume great

amounts of water, and the operation as a whole

generates enormous amounts of waste (overburden, tailings, and offgases). These features can

require costly environmental control (see ch. 8).

11The materials balance of a conventional, open pit copper Production operation is as follows:

Blister Refined = Copper Produced X Refined Grade/

Refinery Recovery /Blister Grade

Concentrates Smelted = Blister Refined X Blister Grade/

Smelter Recovery

Concentrate Grade

Ore Mined & Milled = Concentrates Smelted X Concentrate Grade,’

Mill Recovery

Ore Grade

Overburden Rock Moved = Ore Mined & Milled X Stripping Ratio

Common values for the operating parameters are: Refined Grade

(99.99 percent); Refinery Recovery (99 percent); Blister Grade (98

to 99 percent); Smelter Recovery (95 to 98 percent); Concentrate

Grade (25 to 40 percent); MiII Recovery (75 to 95 percent); Ore

Grade (0.5 to 2.0 percent); and Stripping Ratio (1:1 to 2.5:1).

77- j5 3 0 - 6
190

Figure 9-2.— Principal Stages of the Copper Production Process

r ~ ~ n 1.8 tons of SO2 gas

I I -II 2.7 tons of H2S04

1111111111~ I 1 tonof I

Fabricating

.4:- refine d facilities .. ---- I

“per +&=&]

I -imrvwr

~’

t J

NOTE: Tonnage of residuals IS based on experience in the Southwestern United States assuming an ore grade of O 6 percent copper.

SOURCE: J.F McDivitt and G Manners, Minerals and Men (Baltlmore, MD The Johns Hopkins University Press, 1974)
191

The strategy of expanding existing mines has

limits. The bench width in open pit mines or the

rock strength and drift dimensions in an underground mine may not be able to accommodate

the newer, larger equipment.12 Recently, small

scale leaching and solvent extraction-electrowinning (SX-EW) units have been developed that

make small, short-lived operations possible. However, this equipment is not expected to reverse

the general trend to larger scale projects.

Leadtime and Life Span

Developing new copper production capacity

or expanding existing facilities is not only costly,

but also time consuming. Expansions take a year

or more, and new facilities require 1 to 15 years

of exploration and 2 to 5 years of development.

Once built, facilities typically operate for decades.

Several major domestic mines have been in operation since the early 20th century; Bingham Canyon (1907), Ray (191 1), Chino (191 1), and Inspiration (191 5). Over 80 percent of U.S. capacity in

1986 was built before 1960.

Economic conditions–and the profitability of

a minerals operation—can change drastically during the long Ieadtimes and life span. Longer leadtimes reduce the certainty of project feasibility

and raise the risk.

The uncertain prices and high capital costs encountered over the life of a mine or plant tend

to make managers very conservative in their investment decisions. Managers in the mining industry are noted for their reluctance to invest in

unproven technologies because of their risk.

Moreover, it is extremely difficult to keep successful innovations proprietary. Technology transfers easily and quickly in the copper industry, so

little gain accrues to the operation that tries a new

technology first. ’ 3

Managers also are known for their tendency

to repair, rebuild, and retrofit, rather than replace,

their equipment.14 Equipment replacement is

12William C, Peters, Exploration and Mining Geology (New York,

NY: John Wiley & Sons, 1978).

13The~a5e and speed of technology transfer Comes from the general openness in the industry and the fact that technologies are developed primarily by the equipment vendors (see ch. 10).

“’’The special nature of the metals commodity market, the large

capital investments in existing productive capacity, the high costs

Photo credit: Robert Niblock

Mining equipment is more often repaired rather than

replaced, due to the capital and operating costs of

introducing new technology.

avoided because of the capital costs, startup inefficiencies, and mining and processing plan revisions. More often, worn out or obsolete equipment is repaired, rebuilt, or retrofitted, sometimes

for 40 or 50 years. Retrofitting minimizes risk in

the short term, but can lead to missed cost savings in the long term. Table 9-1 shows the financial evaluation of three plans considered for

modernizing the Chino smelter. The options considered were: 1 ) installing an INCO flash furnace;

2) retrofitting the existing reverberatory furnace;

and 3) shutting down the plant. Installation of the

flash furnace cost $67 million more than retrofitting the reverberatory furnace, but had a much

higher rate of return.

—

and risk of proving new technology on a large scale, the impact

of some restrictive government regulatory policies, and the questionable investment future of the industry resulting from current

(1984) economic conditions have contributed to a conservative industry reliance in its operations on proven uniform technology developed outside of industry. ” U.S. International Trade Commission,

Unwrought Copper, report to the President on Investigation No.

TA-201-52, USITC Publication No. 1549, July 1984.

Table 9-1.—Financiai Evacuation of Smelter

Alternatives Considered for the Chino Modernization

Incremental Incremental

capital rate of return

($ million) (percent)

INCO pIan v. shutdown . . . . . . 99 23

Retrofit v. shutdown . . . . . . . . . 32 17

INCO plan v. retrofit . . . . . . . . . 67 26

SOURCE: R.D. Wunder and A.D. Trujillo, “Chino Mine Modernization,” Mining Engineering, September 1987, pp. 887-872.
-.

192

Capital and Energy Intensities

Mineral mining and processing methods are becoming increasingly mechanized, because of the

cost pressures described in the preceding sections. Newer facilities thus rely more heavily on

capital and energy and less on Iabor.15 Producers are building large-scale, capital-intensive operations that have low variable costs, but high fixed

costs and financial charges.16 The rising capital

requirements not only make new projects or the

modernization of older facilities expensive (see

table 9-2), but accentuate the importance of

financing terms, such as interest rates,. payback

schedules, guarantees, etc. on a firm’s balance

sheet. Discrepancies among various producers’

costs of capital (because of confessional financing from multilateral development banks, loan

guarantees from governments, or interest rate reductions on renegotiated debt) are therefore the

subject of constant industry concern (see ch. 3).

The rising capital intensity also decreases the

avoidable (or variable) costs of the minerals business. This reduces its operating flexibility, and

means that ever lower prices are required to force

production cutbacks.

15 "To achieve a given level of sales revenue, a mining project

requires more capital than a venture of comparable size in either

manufacturing or the retail trade. ” Strauss, supra note 5.

16Kenji Takeuchi et al., The World Copper Industry (Washington, DC: World Bank staff commodity working papers, No. 15,

1987).

The increasing reliance on energy-intensive

production methods accentuates the importance

of oil prices and electricity rates for production

costs (see ch. 7). Energy accounts for about onequarter to one-third of crushing costs.17 in smelting, energy often accounts for over one-half of

production costs. As large users of electricity (and

important sources of revenue for utilities), copper producers can sometimes negotiate concessional rates. Such contracts, however, are often

written on a take-or-pay basis, adding further to

the industry’s fixed costs.

Location and Weather

Geology fixes the location of mineral resources;

economic deposits do not exist everywhere.

Mines must be located where the ores are, and

mills must be nearby to minimize the cost of

transporting the great tonnages of ore. Smelters

need not be close to the orebody, because concentrates contain 25 to 40 percent copper and

are much less costly to transport. 18

Many mines and mills are located in remote

areas, often in the mountains and subject to occasional severe weather conditions. These fea-

—17 — United Nations Industrial Development Organization (UNIDO),

Technological Alternatives for Copper, Lead, Zinc, and Tin in Developing Countries, document ID/WG.470/5, 1987.

18In fact, there is a great deal of trade in concentrates (see ch.

4). Also, the sulfuric acid market is playing an Increasing role in

decisions regarding the location of smelters.

Table 9-2.–Capital Costs of Copper Projects (in nominal $U.S.)

Initial annual

Date of capacity Cost of facilities Cost per ton

Mine Location start up (tonnes) ($ million) of capacity ($)

Mine and mill projectsa

Silver Bell. . . . . . . . . . . . . . . . . .Arizona, U.S. 1953 18,000

Tyrone. . . . . . . . . . . . . . . . . . . . . New Mexico, U.S. 1969 50,000

Andina . . . . . . . . . . . . . . . . . . . .Chile 1970 58,000

Lornex. . . . . . . . . . . . . . . . . . . . . BC, Canada 1972 54,000

La Caridad . . . . . . . . . . . . . . . . . Mexico 1980 140,000

Copper Flat ... , . . . . . . . . . . . . New Mexico, U.S. 1982 18,000

Tintaya . . . . . . . . . . . . . . . . . . . . Peru 1985 52,000

Mine, mill, and smelter projectsb

Toquepala . . . . . . . . . . . . . . . . . Peru 1959 132,000

Cuajone . . . . . . . . . . . . . . . . . . . Peru 1976 162,000

Sar Cheshmeh. . . . . . . . . . . . . . [ran 1982 145,000

aCapacities stated in tonnes of copper content of concentrates.

bCapacities stated in tonnes of copper content of blister,

SOURCE: Simon D. Strauss, Trouble in the Third Kingdom (London: Mining Journal Books, 1986).

$ 18

118

139

138

673

103

326

237

726

1,400

$1,000

2,360

2,400

2,555

4,800

5,720

6,270

1,800

4,480

9,655
193

————.

tures raise the costs of transportation and labor,

and decrease the facilities’ effective capacity.

Transportation is expensive, because of the long

distances and sometimes poor infrastructure, Labor is costly, because of the pay premiums and

extra amenities required to keep skilled laborers

in such settings. Reliable capacity is decreased,

because of the possible closure owing to heavy

snows or flooding conditions. The Andina copper mine in Chile is in a region that has trouble

with avalanches. Its mill is built underground to

help prevent closures.

Infrastructure

Operations located in remote areas incur high

infrastructure costs. A mine may have to build

(or pay for) its own transportation, utilities (electricity and water), communications, housing,

schools, recreation, and medical services. Although there are costs to operating these services, the heaviest burden is the capital outlay prior

to the startup of the facility.

Infrastructure is a semi-public good and governments often get involved in its planning and

funding. This is at times controversial, because

it may be unclear whether a producer has paid

its full share of the costs or has received subsidies.

Public Profile

Minerals facilities are of great importance to

their local economies, and thus the subject of

much local political attention. In addition, they

sometimes receive a great deal of national attention, especially when they account for a large

share of a country’s gross domestic product

(GDP), foreign exchange earnings, and employment. Copper accounts for large percentages of

total export earnings in Zambia (80 to 86 percent),

Zaire (20 to 58 percent), Chile (42 percent), Papua

New Guinea (34 percent), and Peru (17 percent). 19

The high profile of mines and processing facilities (and the infrastructure that supports them)

make them natural focal points for labor disputes,

19International Monetary Fund ( I M F), International Financial Statlstlcs. Data for Zambia are 1984-86; Zaire are 1981-83 (latest pubIished); and Chile, Papua New Guinea, and Peru are 1986.

demonstrations, civil disobedience, and insurrectionist sabotage. Production has at times been

disrupted in Peru and Chile due to protests

against their governments. Zambian copper and

cobalt production shut down in December 1986

when a sharp devaluation of the national currency and the removal of subsidies on cornmeal

triggered unrest.20 During the 1960s and 1970s,

the high profile of minerals facilities made them

the frequent target of expropriation in politically

unstable countries (especially in less developed

countries—LDCs) as governments moved to establish political autonomy and fund development

programs.

Worker Compensation

The mining industry historically has had a very

active labor force due to the high concentration

of workers and the often harsh working conditions. Most minerals facilities have been unionized at one time or another, and the labor disputes have at times been hostile.21 Over the years,

collective bargaining and demanding skill requirements have yielded high pay and benefits for

mine workers relative to other skilled laborers.

Though compensation differs greatly for miners

throughout the world, they are usually among the

highest paid workers in their respective regions.

Miners, on average, are paid 65 percent more

than their countrymen in the LDC copper producers (Chile, Peru, Mexico, the Philippines, lndonesia, and South Africa). In the developed

countries, miners’ wage premiums range from

none (Japan) to 40 percent (United States).** The

high pay is an incentive to mine managers throughout the world to cut the labor input wherever possible, and reinforces the drift to more capital- and

energy-intensive operations.

—.

‘“’’ Unrest Disrupts Zambian Production, ” Minerals and Materials (Washington, DC: U.S. Department of the Interior, Bureau of

Mines, December 1986/January 1987).

21The Bisbee Deportation is one of the more infamous examples.

In 1917, the Shattuck-Denn, Calumet and Arizona, and Copper

Queen Consolidated Mining companies (Phelps Dodge) persuaded

the sheriff of Bisbee, Arizona to force striking miners and their sympathizers out of their homes at gunpoint. Over 1,200 intransigent

miners were placed in railroad boxcars and hauled out of the State.

22Estimate by Resource Strategies Inc., Exton, PA.
194

COSTS AND TECHNOLOGIES

Within the context of the overall cost structure

described in the previous section, production

technologies greatly affect the costs of individual producers. Costs vary among the traditional

mining, milling, and smelting technologies, and

also differ between the traditional and nontraditional production methods (i.e., leaching and

SX-EW).

ever, the makeup of the costs are quite different for these two mining methods. On a gross

tonnage basis, underground mines are much

more costly than surface mines. Working underground requires special systems for ore and personnel transport, ventilation, power transmission,

etc., which add greatly to the cost of production

(see ch. 6). Moreover, underground miners are

Mining Methods considered more skilled and thus are more highly

paid than their surface counterparts. Surface

Surface and underground mines, since they miners’ skills are similar to those of construction

must compete, have roughly similar production workers, so there is potentially a greater supply

costs per pound of recoverable copper. How-

-

of these laborers.

Photo credit: Manley-Prim Photography, Tucson, AZ

Underground mine development and maintenance, including tunneling, rock support, ventilation, electrical systems,

water control, and ore and personnel transport, add significantly to mining costs.
195

The average mining cost for underground

mines ($6.90/tonne of ore) is nearly twice as high

as the average cost for surface mines ($3.80/

tonne), 23 Underground mines, therefore, must

contain richer ores (either in copper or byproducts) to counteract the extra costs. The average ore grade is 1.27 percent copper for underground ores versus 0.75 percent copper for

surface ores.24 About 60 percent of NSW production comes from open pit mines.

Smelter Technologies

Reverberatory furnaces—accounting for approximately half of NSW smelting capacity–are

the most widely used smelter technology. However, use varies greatly among the major copperproducing countries. In Chile and Peru, until very

recently nearly all the capacity used reverberatory furnaces, whereas in Canada most operations

use flash and continuous technologies and less

than 20 percent of capacity is reverberatory.

In terms of factor productivity, reverberatory

furnaces are the poorest performers. On average,

they use several times the labor of the most laborefficient process (INCO), They consume larger

quantities of fossil fuels than do other technologies, and use more electricity than all except

the electric furnace. They also incur the largest

charges for fluxes, refractories, and other

supplies.

At a few reverberatory smelters, the combustion air is enriched with oxygen. This modification improves the factor productivity and reduces

costs by 25 to 28 percent (see table 9-3). Oxygen technologies are especially advantageous to

smelters that can obtain plenty of inexpensive

hydroelectric power to run a tonnage oxygen

plant,25

Electric furnaces, compared with conventional

reverberatories, have higher labor productivity

and substitute electricity for fossil fuels. Electricity use in electric furnaces is nearly double that

of any of the other smelter technologies.

23R.D. ROsenkrantz et al., Copper Availability—Market Economy

Countries, Bureau of Mines Information Circular 8930 (Washington, DC: U.S. Government Printing Office, 1983).

24lbid. 25UNID0, supra note 17.

Table 9-3.—Production Costs of Several Chilean Copper Smelters

($ U.S./tonne of concentrate)

Chuquicamata El Teniente

reverberatory reverberatory

with oxygen with oxygen El Salvador

Smelter furnace injection injection reverberatory

Installed capacity (tpy concentrates) . . . . . . . . 1,000,000 800,000 265,000

Concentrate grade (percent copper). . . . . . . . . 37.8 38.0 34.0

Direct costs:

Variable costs:

Fuels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15.35 $12.06 $29.85

Oxygen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.34 2.76

Refractories . . . . . . . . . . . . . . . . . . . . . . . . .

—

1.83 1.67 0.37

Air. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.17 1.17 0.30

Electric energy . . . . . . . . . . . . . . . . . . . . . . . 1.00 0.42 0.07

Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.42 2.93 21.53

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26.11 21.01 52.12

Fixed costs: . . . . . . . . . . . . . . . . . . . . ., . . . . . 9.92 14.41 4.65

Total direct costs . . . . . . . . . . . . . . . . . . . . 36.03 35.42 56.77

Indirect costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.93 17.51 13.95

Total cost:

($/tonne of concentrate) . . . . . . . . . . . . . . . . . $50.96 $52.93 $70.72

(¢/lb of copper). . . . . . . . . . . . . . . . . . . . . . . . . 6.11$ 6.32 9.43¢

SOURCE United Nations Industrial Development Organization (UNIDO), Technological Alternatives for Copper, Lead, Zinc,

and Tin in Developing Countries, document ID/WG 470/5, 1987,
196

Flash furnaces (INCO and Outokumpu) and

continuous processes (Noranda and Mitsubishi)

are generally the most efficient smelter technologies. Together they account for almost 40 percent of Western world smelting capacity. Most

new smelters use flash furnaces. The Outokumpu

flash smelting process was selected by about twothirds of the smelters constructed around the

world since 1970, and is now considered the

“conventional” smelting process. 26 Flash and

continuous processes each require roughly the

same amount of labor and electricity. Gas and

oil use, however, are somewhat greater for the

continuous processes,

Smelter pollution control costs vary according

to emissions standards and the types of smelters

used. Under stringent standards, the environmental costs for a flash furnace are those of building and operating the acid plant. Controlling

pollution to the same extent at an older reverberatory smelter requires additional capital expenditures for retrofitting the furnace with offgas collection and concentration equipment (see ch.

8).27 The economics of the acid plant hinge on

the attractiveness of the sulfuric acid market. If

the market is good and the acid can be sold, part

of the cost of operating the equipment can be

recovered. If, however, the acid must be disposed

of (an added cost), the cost burden of the acid

plant is more substantial. To avoid disposal

charges, U.S. smelters have sometimes sold their

acid at prices that just cover the cost of its freight

to market. Some smelters use their acid for leaching operations. This recovers some, but not all,

of the costs of producing the acid.

26Simon D. Strauss, “Copper,” Engineering and Mining Journal,

vol. 187, No. 3, March 1986, pp. 29-33.

27In the United States, all smelters have either made all the necessary capital expenditures or have shut down. Thus the costs of

pollution control are primarily those of operating the acid plant.

Leaching and Solvent

Extraction-Electrowinning

Leaching and SX-EW have become an important alternative to conventional mining, milling,

smelting, and refining. Leaching, though, is currently viable only for oxide ores and waste materials, not for sulfide and complex ores. Processing waste dump materials to refined copper

by this method is estimated to cost 30 to 40¢/lb

of recovered copper. These estimates do not

cover the costs of mining, so they apply only to

already-mined materials (such as wastes) and in

situ ore in old mine workings.

In the short term, using leaching/SX-EW on

waste dumps and old workings is tantamount to

the discovery of new low-cost ores. Waste dumps

are large, but they are limited and eventually will

be exhausted. When this happens, leaching/SXEW, whether practiced independently or in tandem with a conventional operation, will have to

assume some of the cost of mining and will become more expensive. The cost allocation problems will be similar to those experienced with byproducts.

In situ solution mining of virgin orebodies coupled with an SX-EW plant bypasses the conventional processing route entirely. The costs of this

unproven technique are estimated to be 45 to

55 Q/lb, including the capital expenses, Because

of industry conservatism, in situ mining is not

likely to be used on richer ore bodies amenable

to open pit methods until the process is widely

proven for leaner ores.

Leaching/SX-EW operations are attractive, because of their relatively low costs and short construction times—a few months instead of years.

They also require little supervision and maintenance. 28 Although subject to the same economies

of scale pressures encountered in conventional

operations, leaching/SX-EW is viable at scales

smaller than those necessary for open pit

methods.

28UNlDO, supra note 17.
197

COSTS OF MAJOR COPPER PRODUCERS, 1986

Overview

Cost data on the copper industry are available

from several sources. Table 9-4 shows production cost data compiled by two different organizations: Brook Hunt and Associates Ltd. (from the

World Bank– BH:WB, and from the Canadian

Department of Energy, Mines, & Resources–BH:

EM&R) and the U.S. Bureau of Mines (BuMines).29

Several caveats are in order regarding these data.

First, the sources tabulate their data using dissimilar cost definitions and different mine coverage,

so direct comparison among the data sets is difficult.30 Second, these are average costs–albeit

2 9The data from the Canadian Department of Energy, Mines, &

Resources (BH:EM&R) are actually modified Brook Hunt data.

30The two sets of Brook Hunt data are not directly comparable.

The data published by the World Bank (BH:WB) are based on a

simple cost accounting method (see box 9-A). The data published

by Canada’s EM&R (B H: EM&R) are based on a combination of simple costing and allocated costing.

weighted averages—for the operations in each

country. Considerable variability exists in the

costs at individual mines and processing facilities.

Smelting/refining costs are attributed to the

country in which the ore is mined. Thus, some

countries are shown in this table and subsequent

figures even though they have little smelting/refining capacity. Other countries, such as Japan,

West Germany, and Belgium, that have considerable capacity are not shown because they have

little mine production. The costs of smelting/refining are calculated from either 1 ) actual costs if

a single company mines, mills, smelts, and refines

the copper; or 2) the smelting and refining treatment charges if there is an arms-length transfer

between the milling and smelting stages.

These data show that costs declined in most

countries between the early and mid 1980s. The

Table 9-4.—Production Costs for Major Non-Socialist Copper Producing Countries

(¢/lb refined copper, nominal $U.S.)

1975 1980 1984 1985 1981 1986 1981 1986

Country BH:WB BH:EM&R BuMines

PNG . . . . . . . . . . . . . . . . . . . . . . 23.8 17.9 32.4 43.2 NA 56.9 NA 29.6’

Indonesia . . . . . . . . . . . . . . . . . . 35.5 33.3 46.0 49.7 NA 40.6 NA 29.6’

Chile . . . . . . . . . . . . . . . . . . . . . . 47.2 56.7 48.8 42.2 70 44.7 44.6 29.9

Peru. . . . . . . . . . . . . . . . . . . . . . . 51.1 41.2 56.8 41.2 68 62.2 57.8 36.6

Zaire . . . . . . . . . . . . . . . . . . . . . . 55.1 51.1 45.2 39.8 62 45.9 50.4 38.6

Zambia . . . . . . . . . . . . . . . . . . . . 61.6 84.3 66.0 55.8 84 48.6 67.6 40.5

Mexico . . . . . . . . . . . . . . . . . . . . 27.3 42.1 37.9 79.5 NA 85.9 49.3 44.9

Australia. . . . . . . . . . . . . . . . . . . 38.3 27.6 63.8 51.9 79 42.0 NA 48.9

South Africa . . . . . . . . . . . . . . . 41.3 42.7 45.6 28.6 NA 39.3 NA 49.1

United States. . . . . . . . . . . . . . . 61.6 73.4 78.1 65.3 86 60.4 79.1 54.5

Canada . . . . . . . . . . . . . . . . . . . . 28.4 -9.6 56.1 42.3 68 57.0 49.5 55.9

Philippines . . . . . . . . . . . . . . . . . 38.1 57.3 55.5 85.9 NA 78.1 67.8 69.6

Average . . . . . . . . . . . . . . . . . 48.8 50.0 56.9 50.6 NA NA 62.0 46.0

NA = not available.

aBureau of Mines cost data for PNG and Indonesia are combined to avoid disclosing individual company data

SOURCES:

BH:WB— Brook Hunt & Associates Ltd. data

Source: K. Takeuchi et al., The World Copper Industry, World Bank staff commodity working papers, no. 15, 1987.

Figures for South Africa cover Namibia also.

Direct Costs (mining, milling, smelting, and refining costs, including all freight costs to market, and marketing costs)

plus Indirect Costs (including corporate overhead, research and exploration, and extraordinary charges such as strike reserves, excluding income taxes)

plus Interest Expenses (net of any interest receivable) on short-term loans, long-term loans, overdrafts, commercial paper, etc.

minus Byproduct Revenues (full credit for all properties)

BH:EM&R—Brook Hunt & Associates Ltd. data

BuMines—

Source: Canadian Energy, Mines, and Resources, Mineral Policy Sector , “Copper Cost League”

Figures for South Africa cover Namibia also.

Direct Costs (mining, milling, smelting, and refining costs, including all freight costs to market, and marketing costs)

plus Indirect Costs (including corporate overhead, research and exploration, and extraordinary charges such as strike reserves, excluding income taxes)

plus Interest Expenses (net of any interest receivable) on short-term loans, long-term loans, overdrafts, Commercial paper, etc.

minus Byproduct Revenues (full credit for properties with over 65 percent of their revenue from copper, pro-rated allocation for properties for which copper provides between 30°/0 and 65°/0 of revenues)

Bureau of Mines data

Source: K.E Porter and Paul R. Thomas, “The International Competitiveness of United States Copper Production," to be published in Minerals issues —

1988, Bureau of Mines, US. Department of the Interior, 1988

Figures do not cover the operation at Bingham Canyon, USA (closed in 1986) or the nickel-copper operations of Inco and Falcon bridge, Canada

Direct Costs (mining, milling, smelting, and refining costs, excluding freight costs to market and marketing costs)

minus Byproduct Revenues

Does not Include Interest, corporate overhead, depreciation, and taxes.
198

average cost of producing copper in Non-Socialist

countries decreased 25 percent between 1981

and 1986 (BuMines). The BH:WB data show that

costs fluctuate from year to year. Costs in 1980,

for example, were somewhat lower than other

years because of the high prices of most of copper’s byproducts.31 Despite their differences, the

data sets agree that Chile, Zambia, and Zaire are

lower-cost producers, and that Canada, the

United States, and the Philippines are higher-cost

producers. There seems to be some disagreement

regarding South Africa, Australia, Peru, Papua

New Guinea (PNG), Indonesia, and Mexico.

Figure 9-3 (BuMines data) shows the mining,

milling, and smelting/refining costs and byproduct

credits of the major producers as of January

1986. 32 Chile, PNG, and Indonesia had the lowest

31 In 1980, gold was $611.80/oz, silver was $21.50/oz, lead was

54.5¢/lb, nickel was $2.95/lb, and cobalt was $25/lb.

32Gross operating costs, represented by the total length of the

bar, are the sum of 1) mining, 2) milling, and 3) smelting/refining

charges which include transportation costs (except for delivery of

the refined products to the fabricating mills or other markets) for

copper and byproducts. Net operating costs, depicted on the lower

portion of the bar, equal the gross operating costs less the credits

for byproducts.

net operating costs, 30¢/lb.33 Chile, however, is

definitely the most important of these producers.

It produced 1.39 million tonnes of copper compared with the 242 thousand tonnes (kt) combined production of PNG and Indonesia. Next

lowest were Peru, Zaire, and Zambia with net

operating costs ranging from 37 to 41¢/lb. Mexico, Australia, and South Africa, with net costs

ranging from 45 to 49$/lb, comprised the next

tier of producers. The United States and Canada,

with net costs of 55 and 56¢/lb respectively, were

relatively high cost producers. The Philippines,

with net operating costs of 70¢/lb, was the highest cost producer.

Figure 9-4 (BH:WB data) shows the direct costs,

indirect costs, interest, and byproducts credits of

the major producers in 1985.34 In most countries,

33AII country-specific 4/lb figures are weighted average costs for

that country’s producers and are based on the amount of refined

copper ultimately recovered from entire processing sequence. Bureau of Mines cost data for PNG and Indonesia are combined to

avoid disclosing individual company data.

34Gross corporate costs, represented by the total length Of the

bar, are the sum of: 1) direct costs, 2) indirect costs, and 3) interest

charges. Net operating costs, depicted on the lower portion of the

bar, equal the gross operating costs less the credits for byproducts.

See notes for table 9-4.

Figure 9-3.-Operating Costs of Major Non-Socialist

Copper Producers, 1986

Chile

u s

Canada

Zaire

Zambia

Per u

Mexico

Australia

Philippines

S. Africa

PNG & Indo

o 20 40 60 80 100

(cent s/pound)

@ Mining m Millin g &XRi8 Smelting/refining

- Net costs D By product credits

SOURCE: OTA from Bureau of Mines data, K.E. Porter and Paul R. Thomas, “The International Competitiveness of United States

Copper Production,” to be published in Mineral Issues 1988 (Washington, DC: US. Department of the Interior, Bureau

of Mines, 1986).
199

Chile

U.S.

Canada

Zaire

Zambia

Peru

Mexico

Aus t r a I I a

Philippines

S. Africa

PNG

Indonesia

Figure 9-4.-Corporate Costs of Major Non-Socialist

Copper Producers, 1985

t I I I I I I

o 20 40 60 80 100 120 140

(cents /pound)

= Direct a Indirect Ki$$il Interest

- Net costs m Byproduct credits

SOURCE: OTA from Brook Hunt & Assoc. data, Kenji Takeuchi et al , The World Copper Industry (Washington, DC World Bank

staff commodity working papers, No. 15, 1987).

interest expenses were less than 9$/lb and less

than 10 percent of gross cash costs. The exceptions were the Philippines and Mexico, where interest accounted for 32 and 39 C/lb, respectively.

Indirect costs also contributed rather unevenly

to production costs. These costs averaged 70/lb

for all producers, but were considerably higher

in Canada (12Q/lb), Peru (12Q/lb), Zambia (13¢/

lb), and Mexico (200/lb).

1986 Producer Profiles

Table 9-5 summarizes the costs (BuMines data)

and structural profiles of the major copper producers. Unless noted, all production and cost

figures presented in this section are for 1986.

Chile

Chile, with mine production of 1.39 million

tonnes of copper in 1986, is the largest and most

competitive copper producer in the world. It

achieves this position through low overall gross

operating costs (35 C/lb), with low costs in each

of the major production segments—mining

(19 C/lb), milling (9¢/lb), and smelting/refining

(84/lb). It receives very little credit from byproducts (50/lb), but its net operating costs are

still low (30 C/lb). Mining is the major cost component in Chile, accounting for about half of gross

operating costs.

About 80 percent of Chilean production comes

from four mines run by the government-owned

Corporation Nacional del Cobre de Chile

(CODELCO): Chuquicamata (421 ktpy), El Teniente (293 ktpy), El Salvador (106 ktpy), and Andina (100 ktpy). Chuquicamata and El Teniente

are the two largest copper mines i n the world .35

Another government-owned company, Empresa

Nacional de Mineria (ENAMI), operates a smelter

and refinery to support small and medium-sized

mines. The ENAMI smelter also processes surplus

concentrates from the CODELCO mines.

Chile’s operations are characterized by moderate ore grades (average 1.0 percent), low by35EI Teniente is the world’s largest underground mine of any

mineral.
Table 9-5.—Cost and Structural Profiles of Major Non-Socialist Copper Producing Countries

United South

Chile

Low High

States Canada Zaire Zambia Peru Mexico Australia Philippines, Africa PNG Indonesia (<) (2)

Net operating costs . . . . . . . . . . . . . Low Med Med Low Med Low Med Med High Med Lowa

Low a 40 60

Gross operating costs . . . . . . . . . . . Low Med High High Med Low Med Med High

¢/lb

High Lowa

Byproducts . . . . . . . . . . . . . . . . . . . . Low Low High High

Low a 45 65

Low Low Med Low Med

¢/lb

High Higha High a 10 20 ¢/lb

Wage rates . . . . . . . . . . . . . . . . . . . . Med High High Low Low Med Low High Low Low Low Low 6 12

Electricity rates . . . . . . . . . . . . . . . . Med Med Med Low Low High Med Low High Low High

$/hour

Low 4 10 mils/Kwh

Mining:

Overall cost . . . . . . . . . . . . . . . . . . . . Low Med Med High High Low Low Low High Med Low Low 20 30

Feed grade . . . . . . . . . . . . . . . . . . . . Med Low

¢/lb

Low Very high High Med Low High Low Low Med Low 0.7 1.2 %Cu

Percent surface mining . . . . . . . . . . Low High Med Low b High All None Med Med All High 60 60 %

Milling:

overall cost . . . . . . . . . . . . . . . . . . . . Low High High Med Med Low Med Low High Med High Low 10 20

Percent leaching . . . . . . . . . . . . . . . . Med High Low None High Med High None Low

¢/lb

Low None Low 20 40 0/0

Smelting and refining:

Overall costc . . . . . . . . . . . . . . . . . . . Low Med High High Low Med High High High High High High 10 20

Percent SX-EW (capacity) . . . . . . . . Low High Low None High Low Low None

¢/lb

None None NA NA 10 20

Percent flash or continuous...,.. Low Med High

0/0

None None None Med None All Low NA NA 40 70 0/0

NA = not applicable.

aBureau of Mines cost data for PNG and Indonesia are combined to avoid disclosing individual company data.

bAll Zambia’s mines are underground or combination underground/surface Operations.

CCalculated from either actual costs if a single company mines, mills, smelts, and refines the copper, or the smelting and refining treatment charges if there is an arms-length transfer between the milling

and smelting stages.

SOURCE: Office of Technology Assessment, 1988.
201

products production, and a high proportion

(about half) of underground mine capacity. Competitiveness in Chile is based on the moderately

rich ores and the sophisticated large-scale technologies. There is also a favorable investment

climate, a well-developed mining infrastructure,

and a low paid ($1.60/hour) and highly skilled

workforce. These factors have attracted several

large foreign investment minerals projects. Foreign companies have interests in projects at La

Escondida and Cerro Colorado, and are conducting feasibility studies at Collahuasi. 36

Declining ore grades are a major challenge to

Chile’s long-term competitiveness. Ore grades

are falling faster in Chile than elsewhere in the

world. The ore grade at Chuquicamata was 2.12

percent in 1980, but is projected to fall to between 1.0 and 1.35 percent by 2000. CODELCO

has addressed this decline through capacity expansion and exploitation of oxide resources. The

strategy has been to expand ore processing capacity enough to keep total refined copper output (and market share) constant or expanding.

Central to this plan are the exploitation of oxide

reserves from Mina Sur and the Chuquicamata

pit, plus the leaching of waste dumps and lowgrade sulfide ore stock. 37 The investment has

been substantial; CODELCO reported that it spent

$2.4 billion for capital investments in the past decade. Its average production costs fell from 840/lb

in 7974 to 41 41¢/lb in 1985, but rose slightly to 42¢/

lb in 1986 because of decreases in ore grades. 38

Current investment plans to arrest the cost increases are expected to raise the capacity of Chuquicamata to 800 ktpy by the early 1990s. 39

Chilean copper mines are located at high altitudes and the weather can be severe. The Andina milling operation is underground for avalanche protection.

Until recently, all Chilean smelters used conventional or oxygen-injection reverberatory fur-

—.

36P, Velasco, “The Mineral Industry of Chile, ” Minerals Yearbook,

Volurne III, 1985 edition (Washington, DC: U.S. Department of the

Interior, Bureau of Mines, 1987).

37DrexeI, Burn ham, Lambert, Special Copper Report, December

1983.

38Janice L. W. Jolly and Daniel Edelstein, ‘‘Copper, ’ Minerals Yearbook, Volume 1, 1986 edition (Washington, DC: U.S. Department

of the Interior, Bureau of Mines, 1988).

39Takeuchi et al., supra note 16.

naces. In 1986, CODELCO installed a flash furnace at Chuquicamata. Chile’s high proportion

of oxygen-based furnaces and less stringent environmental regulations give it smelting costs comparable to those in Japan and one-third those in

the United States, Canada, and Europe.40

Chile has a vast reserve of oxide resources and

a climate that tends to oxidize the wastes and tailings from sulfide operations. Thus leaching and

SX-EW have great potential in Chile. Leaching

operations produced approximately 90 kt in

1986; their capacity is expected to triple by 2000.

United States

The United States, with mine production of

1.15 million tonnes of copper in 1986, is the

world’s second largest producer. Gross operating costs in the United States are moderate (63¢/

lb), and evenly distributed among the three

sectors—mining (22 C/lb), milling (244/lb), and

smelting/refining (18~/lb). Net operating costs are

also moderate (55 Q/lb), and byproducts credits

are low (8$/lb).

There are approximately 60 copper mines in

production in the United States. An additional

20 to 30 mines produce copper as a byproduct

of gold, lead, silver, or zinc, but account for only

a small percentage of domestic production .41 The

15 largest producing U.S. copper mines are

shown in Table 9-6.

U.S. copper production is characterized by a

high proportion of surface mines (85 percent)

and a low feed grade (average 0.5 percent). The

number of surface mines, modern technology,

and good management practice make U.S.

mines and mills among the most productive in

the world in terms of workhours per tonne of

ore. However, much of this advantage is lost because of high labor rates and low ore grades.42

——

40UNIDO, supra note 1 i’.

41Jolly and Edelstein, supra note 38.

42’’ The fact that the United States sometimes mined a lower average grade of ore than other countries was in a real sense a reflection of American technical proficiency rather than the poor quality of its deposits. U.S. firms were actually capable of mining a lower

grade of ore and still making a return. ” U.S. Congress, Congressional Research Service (CRS), The Competitiveness of American

Metal Mining and Processing, report to the Subcommittee on Oversight and Investigations of the House Committee on Energy and

Commerce, Committee print 99-FF (Washington, DC: U.S. Government Printing Office, JuIy 1986), pp. 143.
202

Table 9-6.—Major U.S. Copper Mines: Ownership, Locations, and Capacities in 1986

Company Mine State Capacity

Phelps Dodge . . . . . . . . . . . . Morenci/Metcalf Arizona 172 ktpy

Chino New Mexico 95

Tyrone New Mexico 92

Magma Copper . . . . . . . . . . . San Manuel Arizona 108

Pinto Valleya Arizona 64

BP Minerals . . . . . . . . . . . . . . Bingham Canyon Utah 200b

Cyprus Minerals . . . . . . . . . . Sierrita/Esperanza Arizona 91

Bagdad Arizona 47

Asarco . . . . . . . . . . . . . . . . . . . Ray Arizona 74

Mission Complexc Arizona 36

Troy Montana 18

Silver Bell Arizona 21

Montana Resources . . . . . . . Continental (Butte) Montana 89

Copper Range . . . . . . . . . . . . White Pine Michigan 51

Inspiration Resources. . . . . . Inspirationd Arizona 33

Noranda . . . . . . . . . . . . . . . . . Lakeshoree Arizona 11

a

lncludes Pinto Valley and Miami.

bCapacity after expansion.

c

lncludes Mission, Eisenhower, Pima, and San Xavier.

d

lncludes Inspiration and Ox Hide. Acquired and renamed Miami by Cyprus Minerals in 1988.

eAcquired and renamed Casa Grande by Cyprus Minerals in 1987.

SOURCE: U.S. Bureau of Mines.

Although most operations produce at least some

byproduct, with the exceptions of Sierrita/Esperanza (molybdenum concentrate and silver),

Tyrone (silver), and Bingham Canyon (gold), revenues from byproducts are fairly low. This does

not mean that byproducts are unimportant at U.S.

operations. Copper mines account for most of

the domestic primary production of rhenium,

selenium, tellurium, platinum, palladium, and

roughly one-quarter of the molybdenum and

silver.

Smelting in the United States is characterized

by stringent air pollution controls and, until very

recently, an unattractive acid market. A few older

reverberatory smelting furnaces still operate (e.g.,

El Paso and White Pine), and one major electric

furnace (Inspiration —now Cyprus). The electric

furnace has been among the most costly of the

domestic smelters to operate because of high

electricity rates. Flash furnaces are used at Hayden (Asarco), and Chino and Hidalgo (Phelps

Dodge); another is being installed at San Manuel

(Magma).

The costs of the stringent U.S. environmental

regulations are controversial (see ch. 10). The

bulk of air pollution compliance costs are the capital expenses of building an acid plant, plus those

of either building a new smelter or retrofitting an

older smelter with improved gas collection and

cleaning equipment. Domestic smelters have either already spent these monies or have shut

down. So, except for the debt servicing expenses,

the capital costs of environmental compliance

will have little influence on future U.S. competitiveness. Figure 9-4 suggests that the interest portion of the debt expenses is low, and probably

has a limited effect on competitiveness.

There also are operating costs associated with

the pollution control equipment. Here the presence of an acid market is crucial. The acid market in the United States is mostly on the Gulf

Coast. Because of high transportation costs, acid

produced by copper smelters in the Southwest

is not competitive with that produced from sulfur from Frasch mines, sour gas conditioning, and

crude oil refining near the Gulf Coast. The formerly important California market has been lost

to sulfur from local crude oil refining. Smelters

must therefore dispose of the acid or find some

other use for it.

The local market for acid in the Southwest has

improved recently. Acid is being used to leach

copper mine wastes and oxides and gold ores.

The vast quantities of copper oxide deposits and

waste dumps makes leaching especially attractive in this region. Compared with other world

producers, a high percentage of U.S. production

is from leach operations. Leaching copper sul-
203

Photo credit: Jenifer Robison

Sprinklers applying leach solution to mine waste dumps. Markets for sulfuric acid in the Southwest have improved

significantly with increased leach production.

fide minerals is not currently economical, but

may someday become so. In the United States,

leach production is expected to grow, but not

to supplant mining, milling, smelting, and refining as the primary production method.

Wage rates are another major factor in U.S.

cost competitiveness. Table 9-7 shows that wages

in the United States—about $16/hr in 1985—are

much higher than those in the other major producing countries. Wage rates in LDCs typically

are less than $2/hour. Wages in the United States

have been curtailed somewhat in recent years

through union recertification and contract concessions. After the union was broken at Phelps

Dodge (the result of a strike in 1983), and other

producers negotiated labor concessions (in the

midst of the hard times in 1986), wages declined

20 to 25 percent. Several producers have negotiated wage rates that are below the average

union contract rate in order to reopen mines

(e.g., Montana Resources and Copper Range).

Canada

Canada, with mine production of 768 kt of copper in 1986, is the world’s third largest producer.

It has moderate net operating costs (56¢/lb),

high gross operating costs (860/lb), and high byproduct credits (30¢/lb). Mining costs (28¢/lb) are

high because of low ore grades (0.5 percent) and

the large share of underground production. The

costs of milling (28¢/lb) and smelting/refining

(30¢/lb) are high owing to the extra processing

for the byproducts.

Copper is mined primarily from porphyry deposits in British Columbia (BC) and central Canada, and from massive sulfide deposits in eastern Canada. The porphyry deposits contain gold,
204

Table 9-7.—Wage and Electricity Rates in the Copper Industry

(nominal U.S. currency)

Wage rates Electricity rates

($/hour) (mils/kWh)

Country 1980 1985 1981 1985

Developed:

United States . . . . . . . . . . . . . . . . . . . . 11.90 16.00a

28.5 25.1

Canada . . . . . . . . . . . . . . . . . . . . . . . . . 9.60 11.70 8.1 9.2

Australia . . . . . . . . . . . . . . . . . . . . . . . . 10.00 9.80 19.4 20.8

Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.30 6.40 66.6 48.0

Less developed:

Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . 2.70 1.80 51.1 41.0

Chile . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.70 1.60 21.0 15.6

Philippines . . . . . . . . . . . . . . . . . . . . . . 1.90 1.50 56.6 43.8

Peru . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.90 0.70 54.2 42.5

Zambia . . . . . . . . . . . . . . . . . . . . . . . . . . 2.40 0.60 20.4 13.9

a

u.s. wage rates declined 20-25 percent in 1986 as a result of union decertification and contract concessions.

SOURCE: Resource Strategies, inc. Copper lndustry Analysis, November 1987,

silver, and molybdenum. The massive sulfide deposits contain nickel, gold, and silver, or lead and

zinc. Canadian operations are often groups of

small mines. The largest producers are the Kidd

Creek Timmins operations in Ontario (130 ktpy),

the Highland Valley operations in BC (130 ktpy),

and Utah Mines’ Island Copper in BC (62 ktpy).43

A group of nickel-copper mines in the Sudbury

district of Ontario operated by INCO (Copper

Cliff operations) and Falconbridge (Sudbury operations) are also large copper producers.44 Canadian copper output, consequently, reflects the

pressures of the nickel market.

Even disregarding the large nickel operations,

Canadian copper mines generally produce large

quantities of byproducts and rely heavily on the

sales of these commodities to remain profitable. The principal byproducts are: zinc and silver at Kidd Creek, molybdenum concentrates and

silver at Lornex, gold at Bell, Island Copper, and

Afton, and gold and zinc at Ruttan.

Canadian smelters use mostly flash (e.g., Copper Cliff), continuous (Timmins, Home), and electric furnaces (Falcon bridge). Sulfur recovery at

Canadian smelters averages 25-30 percent, compared with 90 percent at U.S. plants. Timmins

is considering plans to raise its SO2 recovery from

40 to 70 percent. A small proportion of copper

43Highland Valley was formed by a merger of Lornex Mining Corp.

Ltd (Cominco), Valley Copper Mines Ltd., and Highmont Mining

Corp.

44These mines are not included in the BuMines cost data; their

economics are difficult to assess because copper is only a byproduct.

production comes from SX-EW (the only operation opened in 1986 in BC with a capacity of 5

ktpy).

As with the other industrialized countries, Canada has high wage rates. At about $12/hour, however, Canadian wage rates are lower than those

in the United States,

Zaire and Zambia

The Central African copper producers, Zaire

and Zambia, are discussed together because they

share many operating characteristics and problems. Zaire, with mine production of 563 kt of

copper in 1986, is the fourth largest copper producer. It has very low net costs (39¢/lb), high

gross costs (764/lb), and very high byproduct

credits (37¢/lb). The costs of mining (374/lb) are

high, despite the very rich Zairean ores, because

of the high proportion of underground production and the high stripping ratios at the surface

mines. The costs of milling (18¢/lb) and smelting/refining (22 C/lb) are high because of the extra processing for the byproducts (primarily cobalt). Zaire is the world’s largest cobalt producer.

Zaire’s principal mines, Dikuluwe/Mashamba

(146 ktpy), Kov(139 ktpy), and Kamoto (97 ktpy),

are run by the State-owned enterprise La Générale des Carrières et des Mines du Zaire (Gécamines). The ores are ,oxides or mixed oxidesulfides (carbonate and silicate minerals) in stratabound deposits. They average 4.1 percent copper and are the richest copper ores being mined
205

in the world. However, Zaire’s gross operating

costs are very high because of the large amount

of underground production (about half of the

country’s capacity), the high stripping ratios at

the surface mines (typically 7:1 or higher), and

the lack of a local fossil fuel source (coal is imported from Zimbabwe). Net operating costs are

kept low with the revenues from cobalt sales,

These low costs are not expected to prompt capacity expansion in the near term, because the

market prospects for cobalt are not bright. As

Zambia, with mine production of 450 kt of copper in 1986, is the fifth largest producer. It has

low net costs (41 Q/lb), low gross costs (484/lb),

and low byproduct credits (8¢/lb). The costs of

mining are very high (304/lb), because of the

high proportion of underground production.

Milling costs are moderate (13C/lb), and smelting/refining costs are low (54/lb), because of the

low labor rates and inexpensive hydroelectric

power.

The major mines in Zambia are Nchanga (207

ktpy), Mufilira (102 ktpy), and Nkana (58 ktpy).

All Zambian copper mines are run by the 60 percent State-owned Zambia Consolidated Copper

Mines Ltd. (ZCCM). The ores are sulfide minerals

in strata-bound deposits. They are very rich in

copper (averaging 2.0 percent), but not nearly

so rich as those in Zaire. Nchanga and Nkana

produce some cobalt, but on average Zambian

mines receive little from byproduct sales. All

Zambia’s mines are underground or combination

underground/surface operations. Stripping ratios

at the open pit portions of the operations are very

high, almost 14:1 .46 Zambia’s developed ore reserves are declining quickly. They are expected

to be depleted by early next century. Large undeveloped reserves exist, however. There is also

an abundance of inexpensive electricity, but

power outages are frequent.

Copper production in Zaire and Zambia must

deal with problems of remoteness. The regional

market for copper is small, so most of it is exported. The distance from the mines to the

seaports is great, and the transportation network

45Takeuchi et al., supra note 16.

46Porter and Thomas, supra note 8.

is cumbersome and unstable. In Zaire, the only

export route entirely within Zaire is the 1600 mileIong National Route. Starting in the Shaba Region

i n southeast Zaire, this route consists of sections

of road, railroad, and the Kasai and Zaire Rivers

to arrive at Matadi on the Atlantic Coast. The

transfers among the different forms of transportation, and between the differing rail gauges, are

time-consuming and costly. Zaire is seeking commitment from multilateral lenders and the

U.S.S.R. to construct a railroad to parallel and replace the barge transport section between Ilebo

and Kinshasa on the Kasai river.47 Copper also

can be exported by railroad through Tanzania,

South Africa via Zambia, or–given peace–AngoIa. Negotiations were underway in 1984 to allow

Zaire the use of the Mozambique port of Beira.48

Besides the costs inherent in the great distances

and cumbersome transfers, there are problems

with the transportation system’s reliability. The

rebellion in Zaire’s Katanga province in 1978 shut

down the railroad.

Zambia’s major copper transportation route is

the Tazara Railroad to Dar es Salaam in Tanzania. Built in the 1970s with Chinese assistance,

the railroad was intended to reduce black southern Africa’s dependence on rail routes through

South Africa. Equipment, track, and maintenance

problems have given it a poor record of reliability. Rehabilitation assistance has come from China

(in the form of an extended grace period on the

loan) and several Western European nations.

Problems at the port of Dares Salaam also cause

delays in shipments.49

Zaire and Zambia also have been plagued with

internal political strife, hard currency shortages,

power outages, and the acute threat of Acquired

Immune Deficiency Syndrome (AIDS). These

factors make it difficult to get and keep skilled

expatriate personnel and to obtain spare parts for

maintenance of the mining equipment. The cash47G .A. Morgan, “The Mineral Industry of Zaire, ” Minerals Yearbook, Volume III, 1986 edition (Washington, DC: U.S. Department

of the Interior, Bureau of Mines, 1988).

48U.S. Congress, Office of Technology Assessment, Strategic Materials: Technologies To Reduce U.S. Import Vulnerability, OTAITE-248 (Washington, DC: U.S. Government Printing Office, May

1985).

49Ibid .

77-353 0 - 7
206

flow problems of Géecamines and Zaire have led

mines to cut costs by deferring their stripping and

drawing down the ore stockpiles. These measures cut costs for only a short time.

Peru

Peru, with mine production of 397 kt of copper in 1986, is the sixth ranked copper producer.

Peru’s mining profile is similar to Chile’s, but

its smelting/refining costs are considerably

higher. It has low net costs (37¢/lb), low gross

costs (41¢/lb), and low byproduct credits (5¢/lb).

Costs are low for mining (13¢/lb) and milling

(9¢/lb), but high for smelting/refining (19¢/lb).

Peruvian production is dominated by the open

pit operations at Cuajone (127 ktpy) and Toquepala (112 ktpy) in southern Peru. These mines

opened in 1976 and 1960, respectively. Both are

owned and operated by the Southern Peru Copper Corporation, which is owned by four U.S.

companies— Asarco (52.31 percent), Phelps

Dodge (16.25 percent), Newmont (10.74 percent), and Cerro (20.70 percent). There are also

numerous smaller mines in Peru, many of which

process complex silver/copper/lead/zinc ores and

derive most of their revenue from silver.

About 90 percent of Peruvian capacity is surface mining. The average ore grade is about 0.80

percent copper, and revenues from byproducts

are very low. Peruvian operations are not so efficient as those in Chile. They have lower wage

rates ($().70/hour), but higher electricity rates

(42.5 mils/kWh). Mines in Peru, like those in

Chile, have trouble with rapidly declining ore

grade. This has been the basis for the expansion

of the Cuajone mine in southern Peru. Japanese

smelters have invested in Peruvian projects to obtain concentrates to feed their plants. Peru’s

moratorium on paying foreign debt is likely to

make foreign investors reluctant to supply capital for further expansion or modernization.

Mexico

Mexico, with mine production of 285 kt of copper in 1986, is the seventh ranked copper producer. Its net operating costs (454/lb), gross

operating costs (584/lb), and byproduct credits

(130/lb) are all moderate. The costs are low for

mining (17¢/lb) and milling (14¢/lb), but are high

for smelting/refining (26¢/lb). Mexican wage rates

(approximately $1.80/hour) are much lower than

those in the developed countries.

There are two major Mexican copper mines,

one at La Caridad (174 ktpy) and the other at

Cananea (151 ktpy). Mexicana del Cobre owns

the former and Industrial Minera Mexico owns

the latter. Both are open pit operations in the state

of Sonora within 100 miles of the U.S. border.

The mines have low feed grades (0.7 percent copper) and the ores contain moderate amounts of

byproducts, gold at Cananea and molybdenum

at La Caridad.

La Caridad’s concentrates are processed at the

Nacozari flash smelter. Cananea has its own

reverberatory smelter. Mexico’s comparatively

less strict pollution control regulations, make

these smelters less dependent than their U.S.

counterparts on the acid market. The different

pollution standards and the issues of transborder

emissions have been the source of contention between Mexico and the United States (see ch. 10).

As the result of a 1987 treaty between the two

countries, an acid plant was installed at the Nacozari smelter.

The debt incurred for the development of La

Caridad is a major contributor to Mexico’s costs.

In 1985, interest expenses at Mexican mines

amounted to 39¢/lb, or 32 percent of gross direct and indirect costs (BH:WB data). Due to inefficient management and operations, neither Cananea nor La Caridad generates sufficient profits

(and thus foreign exchange) to contribute to Mexico’s burgeoning interest payments. As a result,

the Mexican government is trying to sell both

operations to private firms.

Australia

Australia, with mine production of 239 kt of

copper in 1986, ranked eighth among copper

producers. It has moderate net operating costs

(49¢/lb), moderate gross operating costs (52¢/

lb), and very low byproduct credits (3¢/lb). The

costs of mining (18¢/lb) and milling (8¢/lb) are

both low, because of high grade deposits and

efficient operations. The smelting/refining costs

(27¢/lb), however, are quite high.
207

Australian copper production is dominated by

the Mt. Isa mine in Queensland. Mt. Isa is a vast

underground operation that accounts for about

85 percent of Australian capacity. It has very rich

ore (3.3 percent Cu), but generates little byproduct revenues.

The Philippines

The Philippines, with mine production of 223

kt of copper in 1986, is the ninth ranked copper

producer. With net operating costs of 700/lb, the

Philippines is the highest cost major producer.

Its gross operating costs (880/lb) and byproduct

credits (180/lb) are also high. The costs of mining (34¢/lb), milling (32¢/lb), and smelting/refining (22 Q/lb) are high because of low ore grades

and high electricity rates. Mines in the Philippines also have a high debt burden; interest payments amounted to 32¢/lb, about 27 percent of

gross cash costs in 1985 (BH:WB data).

Philippine copper production is dominated by

the Atlas mines– Lutopan (66 ktpy), Carmen (65

ktpy), and Biga (39 ktpy)–and the Sipalay mine

(51 ktpy). Together these mines account for over

60 percent of the country’s capacity. About twothirds of the capacity is at surface mines. The feed

grade is fairly low (0.47 percent Cu), but revenues from byproduct sales, primarily gold, are

substantial.

The Philippines is a major exporter of copper

concentrates (ranked fifth in 1986), but these shipments have declined greatly in recent years. In cent

the early 1980s, nearly all of the Philippines’ production of ores and concentrates was exported.

Japan received about 70 percent of these shipments in 1982. The Philippines now smelts and

refines about half of its concentrate production.

Much of the remainder (approximately 80 percent in 1985) is shipped to Japan.50 Nearly 90 ktpy

of Philippine capacity was affected by temporary

or permanent cutbacks in the early 1980s. In 1982

and 1983, the government introduced support

schemes to prevent further cutbacks. This included the maintenance of a price floor (75¢/lb

in 1982 and 76¢/lb in 1983) and loans of to up

to 50 percent of the value of the mine output. 51

50World Bureau of Metal Statistics (WBMS) data.

51 Drexel, Burn ham, Lambert, Special Copper Report, Dec. 1983.

South Africa

South Africa, with mine production of 184 kt

of copper in 1986, is the tenth ranked copper producer. Production costs in South Africa resemble those of Canada. It has moderate net operating costs (49¢/lb), high gross operating costs

(77¢/lb), and high byproduct credits (28¢/lb). Mining (29¢/lb) and milling (19¢/lb) costs are moderate. Smelting/refining costs are high (29¢/lb),

because the smelting of byproduct lead and zinc

are included.

South Africa has fairly low ore grades (0.64 percent Cu). The major South African producer is

the Palabora operation, a surface mine near the

Mozambique border. Palabora is owned primarily by Rio Tinto Zinc (U. K.) and Newmont Mining Co. (U.S.), and accounts for about 80 percent

of South Africa’s total copper production. It also

produces uranium and zirconium.

Papua New Guinea (PNG) and Indonesia

Papua New Guinea, with mine production of

174 kt of copper in 1986, is the eleventh ranked

copper producer. PNG began producing copper

in the early 1970s. Its capacity was financed in

part by the Japanese in order to feed their

smelters. In 1985, over 40 percent of PNG’s production of ores and concentrates was sent to Japan for processing.52 Currently, the Bougainvillea

mine produces all of the copper in PNG. It is a

surface mine with an ore grade of about 0.4 percent and large amounts of gold and silver. Another

mine, Ok Tedi, has just begun to produce copper. The extensive gold cap that overlaid the primary copper ore has been mined to repay the

project’s capital costs. Ok Tedi is owned by

Amoco (U.S.), Broken Hill Proprietary (Australia), several West German firms, and the government of PNG. Its expected capacity is over 600

ktpy of concentrates, containing 200 ktpy copper.53

Indonesia, with mine production of 96 kt of

copper in 1986, is the twelfth ranked copper producer. Indonesia began production in the 1970s.

52WBMS data.

53Helmut Lüdtke, “Ok Tedi —a new copper giant on the market, ”

Metal Bulletin Monthly, Jan. 1987, pp.18-19.
208

The major property is the Ertsberg mine at

Gunung Bijih in the province of Irian Jaya (the

island shared with Papua New Guinea). It is 85

percent owned by Freeport Indonesia, a subsidiary of Freeport McMoran (U.S.). Ertsberg

produces copper concentrates (233 kt in 1985),

gold (76,000 OZ), and silver (1.11 million oz).54

Mining and milling costs are low, because of the

high ore grade (2.0 percent CU).55 Approximately

three-quarters of Indonesian concentrate production is exported to Japan.56

Together, PNG and Indonesia have low net

operating costs (30¢/lb), high gross operating

costs (67¢/lb), and very high byproduct credits

(37¢/lb).sz Mining costs (20¢/lb) are low to moderate, but the milling (26¢/lb) and smelting/refining (21¢/lb) costs are high. PNG has the lower

net operating costs, but the higher gross operating costs and byproduct credits.

Other Smelting Countries—

Japan and West Germany

Japan (ranked third in 1986) and West Germany (ranked eighth) are major copper smelting

and refining countries. Both countries built their

industries in the 1960s, because of concerns

about dependence on foreign supplies in light

of rising copper consumption early in the decade. 58 They also wanted, as part of their economic development strategies, to capture the

value added in raw materials processing. Official agencies such as the Export-Import Bank of

Japan and the German Kreditanstalt fur Wiederaufbau provided financial assistance to the

growing domestic copper smelting/refining industries to secure overseas supplies of ores and

concentrates. New sources of ores and concentrates arose in the 1960s and early 1970s when

the Japanese and German copper smelting com-

— 54J.C. Wu, “The Mineral Industry of Indonesia, ” Minerals Yearbook, Volurne III, 1985 edition, (Washington, DC: U.S. Department

of the Interior, Bureau of Mines, 1987).

551987/1988 E&MJ International Directory of Mining.

56OTA estimate based on WBMS data.

57Bureau of Mines cost data for PNG and Indonesia are combined

to avoid disclosing individual company data.

58Smelter production in Japan grew from 187 kt in 1960 to 1,000

kt in 1973 and declined to 951 kt in 1986. In West Germany the

production rose from 62 kt in 1960 to 233 kt in 1973 to 246 kt in

1986.

panics offered their long-term purchase contracts

and attractive financing. The non-integrated facilities that were built under these programs,

along with ascendance of State-owned operations, decreased the market power of the established multinational copper companies based in

Europe and the United States.59

Japan’s copper mining industry is very small,

but its smelting/refining industry has been one

of the three largest since 1970. To achieve this

position Japan has had to import enormous quantities of concentrates.60 In 1985, Japanese smelters

imported 3 million tonnes of ores and concentrates (over 98 percent of their consumption). The

major suppliers were Canada (27 percent), the

United States (12 percent), Chile (11 percent), the

Philippines (10 percent), Papua New Guinea (9

percent), Australia (8 percent), and Indonesia (8

percent). Approximately 60 percent of the copper concentrate traded in 1985 was shipped to

Japan. 61

In the 1980s, Japan has sought new joint

projects to counter the tight concentrate markets

and production cutbacks by traditional suppliers.

These new ventures include projects in Colombia and Chile and equity positions in Morenci (Arizona) and Chino (New Mexico). The Sumitomo

Metal Mining Association Inc. began shipping its

15 percent of Morenci’s output to Japan in April

1986. In addition, Japan is expected to receive

300 ktpy of copper (in the form of concentrate)

from the La Escondida project in Chile when it

goes into production.62

Japanese smelters are clustered in four regions;

near Okayama (west of Osaka); near Iwaki (north

of Tokyo), near Niihama (north side of Shikoku

Island), and near Oita (east side of Kyushu Island).

Most, but not all Japanese smelter capacity is on

the coast. This greatly facilitates the delivery of

concentrates, and shipping copper and sulfuric

59Takeuchi et al., supra note 16.

60The tariff structure in Japan (high for refined copper, but low

for concentrates) allows Japanese smelters to outbid other smelt

ing countries for feed concentrates, and has been the source of

trade friction (see ch. 4).

61WBMS data.

62J.C. Wu, “The Mineral Industry of Japan, ” Minerals Yearbook,

Volume lll 1985 edition (Washington, DC: U.S. Department of the

Interior, Bureau of Mines, 1987).
209

acid to their markets. About 60 percent of Japanese capacity uses flash furnaces and most of the

rest use reverberatory furnaces. Compared with

their U.S. counterparts, Japanese smelters pay

roughly half the wage rate (about $6.40/hour),

but double the electricity rate (48.0 mils/kWh).

The major West German smelter is in Hamburg. It is a flash furnace run by Nordueutsche

Affinerie, A.G. (owned by Degussa, Metallgesellschaft AG, and The British Metal Corp.). In 1985,

West German smelters imported 550 kt of ores

and concentrates (over 99 percent of their consumption). The major sources were PNG (33 percent), Mexico (19 percent), Poland (12 percent),

and Chile (11 percent). Approximately 10 percent

of the copper concentrate traded in 1985 was

shipped to West Germany. 63

Other Refining Countries—Belgium

Belgium is a major copper refining country

(ranked sixth in 1986). It imports nearly all its blister or anode copper. Almost one-half comes from

Zaire–its former colony–representing 40 percent of Zaire’s output in 1985. South Africa and

Sweden each account for about 13 percent. 64

63w0M~ data.

64Ibid ,

COST CHANGES IN THE EARLY 1980s65

Copper traditionally has been a cyclical industry. Financial losses in hard times were endured,

because they were outweighed by the profits

earned when prices recovered. This outlook

changed during the early 1980s. Copper prices

hovered near or below the average U.S. production costs for an extended period. Domestic operations, therefore, bore the brunt of the industry’s

operating losses, production cutbacks, and plant

closures. This experience fostered a view of the

industry as one in which prices were expected

to stay flat—and low—for a long time. Those operations that were to survive would have to improve

their operations to be profitable at the prevailing prices.66

Copper producers in the United States embraced this survival mentality and enacted aggressive programs of asset restructuring, cost

reduction, and efficiency improvement. Uneconomical mines and plants were modernized or

closed permanently. High-cost producers in

Canada and the Philippines undertook similar

programs. These adjustments plus shifts in external factors (byproduct prices, exchange rates,

and inflation rates) beyond the control of indi6 5Much of the analysis in this section is drawn from Porter and

Thomas, supra note 8.

6 6

Takeuchi et al., supra note 16.

vidual companies significantly changed the comparative costs of producers in the early 1980s.

The U.S. Bureau of Mines, in a recent study,

examined the relative effects of: 1 ) expansions

and contractions, 2) byproduct prices, 3) macroeconomic trends, and 4) “real” cost improvements on the industry’s cost structure.67 Costs for

properties that produced in 1981 were compared

with those that produced in 1986. For 1981, the

study evaluated 144 operations (in 25 countries)

which produced 5.9 million tonnes of refined

copper. Between 1981 and 1986, 47 mines closed

and 16 new mines opened.68 The 113 operations

(in 29 countries) evaluated for 1986 produced 5.8

million tonnes of copper. The properties evaluated for both 1981 and 1986 accounted for 76

percent of world and 88 percent of NSW copper production in those years.

The industry’s internal changes and the economy’s external effects decreased the NSW average production cost by 26 percent (in nominal

terms) between 1981 and 1986.69 Average production costs declined substantially in the United

67 ——

Porter and Thomas, supra note 8.

68Four countries, Oman, Burma, Iran, and Brazil, that had not

been producers prior to 1981, began production between 1981 and

1986.

69A “nominal” comparison IS based on costs expressed in the

$U.S. of the years they were incurred.
210

States (30 percent), Chile (33 percent), Peru (36

percent), Zambia (40 percent), and Zaire (24 percent); fell slightly in Mexico (9 percent); and increased somewhat in Canada (12 percent) and

the Philippines (3 percent). Comparative costs

also shifted over this period (see figure 9-5). Peru,

Zambia, and the United States moved down the

production cost curve, and Canada moved up

to the high-cost portion of the curve.

Expansions and Contractions

Average costs declined and comparative costs

shifted, to a certain extent, because of industry

rationalization. The closure of some high-cost

producers and the expansion of low-cost operations probably more than offset the opening

of some other higher-cost operations.

The 47 operations (in the Bureau of Mine s

study) that closed had gross operating costs (in

$1981) 20 percent above those that continued

producing. TO The United States had the largest

——.—

70Of the 47 operations that ceased production during the 1981-

1986 period, 28 closed permanently due to exhaustion of reserves

and 19 remain on a care and maintenance status. Those operations on care and maintenance are all in the United States, Canada, and the Philippines, countries in the upper quartile of the production cost curve for 1986 and have reduced production

significantly since 1981.

Figure 9-5.-Costs and Capacity of Non-Socialist

Copper Production, 1981 & 1986

Costs (nominal U S cents/lb)

120 ~

I

1981 U.S.

8 0 -

}’

1 .’~;

ZAMBIA

6 0

P E RU

CANADA ZAIRE

CHILE Us. CANADA

4 0

Ir

1988

PERU ZAIRE ZAMBIA

r

CHILE

20

o~

o 1 2 3 4 5 6 7

Annual capacity (million tonnes)

SOURCE: OTA from Bureau of Mines data, K.E. Porter and Paul R. Thomas, “The

International Competitiveness of United States Copper Production,”

to be published in Mineral Issues 7988 (Washington, DC: U.S. Department of the Interior, Bureau of Mines, 1988).

production decline–25 percent from 1981 to

1986.

The 16 operations that opened have, on average, higher costs, especially at the milling, smelting, and refining stages. They have gross operating costs (in $1 986) 32 percent above operations

that have been producing since 1981. The new

producers do not all have high costs. In the

United States, Canada, and Peru, the new producers are lower-cost operations that accrue significant byproduct credits. In other countries,

such as Brazil, India, Iran, and Oman, higher-cost

operations opened for reasons other than economic competitiveness (e.g., self-sufficiency, employment, or foreign exchange earnings).

Expansion programs at existing operations

helped lower the average production costs. Copper production increased in low-cost countries

such as Chile, Mexico, and Peru.

Byproduct Prices

Shifts in byproduct prices greatly affected the

comparative costs of copper producers in the

early 1980s. The prices of most major copper

byproducts declined between 20 and 50 percent

from 1981 to 1986 (see table 9-8). Only cobalt,

which is important to the central African producers, increased in price. As of early 1988, gold,

silver, lead, and zinc prices showed marked improvement relative to 1986.

Average byproduct credits in Chile, Mexico,

Peru, the Philippines and the United States declined 2 to 4¢/lb of recovered copper, thereby

offsetting some of the cost reduction measures

instituted by producers in those countries. In Canada, with its high proportion of polymetallic deposits, byproduct credits declined by 15¢/lb over

this period. In Zaire, the rise in cobalt price from

$5.00 to $11.70/lb increased byproduct credits

by 19¢/lb. However, most of this gain was lost

when the cobalt price fell to the $7.00/lb range

in 1987.

Macroeconomic Trends

Exchange rates and inflation rates, through their

influence on the relative purchasing power of local currencies, have major effects on copper pro-
217

Table 9-8.—Byproduct Prices (nominal $U.S. per unit)

January January January January

Commodity Units 1981 1986 1987 1988

Cobalt . . . . . . . . . . . . . . . lb 5.00a

11.70 7.00 7.50

Copper. . . . . . . . . . . . . . . lb 0.89 0.69 0.64 1.31

Ferromolybdenum . . . . . lb 4.60a

3.65 3.93 4.05

Gold . . . . . . . . . . . . . . . . . OZ 425.00 345.49 408.26 476.58

Lead . . . . . . . . . . . . . . . . . lb 0.34 0.18 0.28 0.38

Moly conc . . . . . . . . . . . . lb 4.00a

2.90 2.80 2.35

Silver . . . . . . . . . . . . . . . . oz 10.00 6.05 5.53 6.73

Zinc . . . . . . . . . . . . . . . . . lb 0.41 0.33 0.41 0.44

aEstimated

SOURCE: Engineering and Mining Journal, various issues.

duction costs (see box 9-B). These macroeconomic factors also mask changes in “real” costs

of producing copper. Fluctuations in exchange

rates and inflation rates helped rearrange the

cost ranking of the copper producers in the early

1980s. The comparative position of Chile, Mexico, Peru, Zaire, and Zambia improved from large

devaluations of their national currencies relative

to the U.S. dollar.

Between January 1981 to January 1987, macroeconomic shifts helped copper producers i n

Chile, but hurt those in the United States and

Canada. Chile’s real net operating costs declined

by 4¢/Ib, but its nominal costs fell by 23¢/lb.71

U.S. producers reduced their real cost of producing copper by 50¢/lb, but their nominal costs decreased only 34¢/lb owing to the strength of the

dollar. Canadian producers had an even larger

share of their real cost reductions offset by a

strong national currency. Real costs in Canada

declined by 24¢/Ib, but nominal costs dropped

Only 5¢/lb.

The purchasing power of the major copper producers’ currencies (relative to 1980) is shown in

figure 9-6 and table 9-9. Zambia and Zaire both

had extreme devaluations of their currencies.

Zambia’s kwacha devalued from 0.87 per U.S.

dollar in 1981 to 7.3 per dollar in 1986; Zaire’s

currency fell from 4.4 per dollar in 1981 to 60

per dollar in 1986. These large devaluations were

partially, but not totally, offset by high rates of

inflation.

71The “real” comparison is based on costs expressed in January

1981 $U.S. The 1986 costs have been converted to January 1981

$U.S. by removing the combined effect of Inflation differentials and

exchange rate devaluation. The “nominal” comparison is based

on costs expressed in the $U.S. of the years they were incurred.

Real Cost Improvements

The real costs of producing copper declined

in many countries in the early 1980s. T he

preceding section cited Bureau of Mines data

showing that, from January 1981 to January

1987, gross operating costs dropped in the

United States by 50¢/lb, in Canada by 24¢/lb,

and in Chile by 4¢/lb. These conclusions are supported by a World Bank study .72 The World Bank

converted the local portion of each country’s direct and indirect production costs (BH :WB data)

into constant dollars with the Relative Purchasing Power Index (RPPI, see box 9-B). The resuIts

are shown in table 9-10. From 1980 to 1985, real

costs declined in the United States (33 percent),

Canada (18 percent), Peru (16 percent), Mexico

(15 percent), PNG (12 percent) and South Africa/

Namibia (11 percent), but rose in Zaire (51 percent), Australia (29 percent), Indonesia (25 percent), and the Philippines (121 percent).

Real costs have been reduced through productivity improvements and factor price cuts (primarily wage and benefit concessions). From

1981 to 1986, the number of copper industry

workers fell by 42 percent in the United States,

18 percent in Chile, and 20 percent in Canada.

These reductions were due not only to plant

closures and production cutbacks, but also efficiency improvements. Increased use of leaching

and SX-EW techniques, computerized truck dispatching, in-pit crushing, automated processing

controls, and other labor-reducing technologies

have decreased the number of workers (and the

amount of energy) needed to produce copper.

.—72Takeuchi et al., supra note 16.
212

BOX 9-B. —Relative Purchasing Power of Currencies

The relative purchasing power of currencies change constantly as a result of inflation and fluctuating

currency exchange rates. Because significant portions of the factors of production usually are purchased

in local currencies, the relative costs of producing copper throughout the world are very sensitive to inflation rates and currency exchange rates. Any change in the relative price levels (i.e., inflation and deflation)

that are not offset by currency devaluations or appreciation result in shifts in the relative costs among copper producers. For the relative purchasing powers of two currencies to stay constant, the exchange rate

is expected to devalue in the direction of the country with the greater inflation. The balance of inflation

and exchange rates is handled with the following Relative Purchasing Power Index (RPPI),

Inflation (b) 0 to X Exchange Rate (a:b)x

RPPI (a:b) x = x

Inflation (a) 0 to X Exchange Rate (a:b)0

prices (b)x/Prices (b)0 Exchange Rate (a:b)x —— x

Prices (a)x

/Prices (a)0 Exchange Rate (a:b)0

where,

RPPI (a:b)X = Relative Purchasing Power Index of currency A relative to currency B in year X.

The change in the purchasing power of the currency of Country A relative to that

of the currency of Country B from the base year to year X.

Inflation (a) 0 to X = Cumulative inflation in Country A, from the base year to year X

Exchange Rate (a:b)x = Exchange rate of the currency of Country A in terms of the currency of Country

B, in year X

Prices (a)x = General prices (e.g. Consumer Price index) in Country A in year X (assumes similar market baskets of goods and services in index calculations)

Year O = Base year

Year X = Index year

A RPPI of 1 means that the relative buying power of Country A’s currency and Country B’s currency is

the same as it was in the base year. A RPPI greater than 1 means that the relative purchasing power of

Country A’s currency has increased. Thus, when production costs are denominated in a common currency, a RPPI greater than 1 indicates that Country A’s costs have declined relative to those of Country B.

The Bingham Canyon Mine in Utah produced Dodge produced despite a prolonged strike at its

223 kt of copper with 6,637 workers in 1981

(prior to the 1985-86 modernization), but is expected to produce 200 kt with 1,800 workers in

1988.73

Wage rates changed among the major producers during the 1981-86 period. Nominal wages

were cut 17 percent in the United States and 36

percent in Chile, but rose by 12 percent in Canada. Phelps Dodge, which was paying a quarter

of its production costs in the form of wages and

benefits, led the U.S. industry’s drive to lower

wages and relax work rules .74 In 1983, Phelps

..—

73Bingham canyon was not included in the Bureau of Mines study

because it was closed for much of 1986. However, it vividly depicts

the cuts in labor that have occurred at all domestic mines.

74CRU, Copper studies, February 1985.

facilities. Workers at the company’s Arizona

mines (at that time Morenci and New Cornelia)

and El Paso refinery voted against continued

union representation in the fall of 1984.75

With the union decertified at Phelps Dodge and

the market still down, the other major U.S. copper producers (Asarco, Cyprus, Kennecott, Inspiration, Copper Range, Montana Resources) won

wage and benefit concessions of approximately

20 percent (5 to 8¢/lb) in 1986. When Cyprus

Minerals acquired the unionized Sierrita Mine in

1986, it immediately fired all the workers and

later rehired 200 of them without union contracts.

75 The workers at the New Mexico operations, Tyrone and Chino

(purchased from Kennecott in late 1986), still have a labor contract.
213

4

3

2

1

Figure 9-6.-Purchasing Power of Currencies

Relative to $U.S., 1981-86 (Base Year 1980)

4 -

3 -

2 -

1-

ChiIe Canada Zaire Zambia Peru Mexico Australia

:: ::

Philippines S Africa PNG Indonesia Japan WGermany Belgium

SOURCE: OTA from IMF data.
214

Table 9-9.–Exchange Rates and Price Levels for Major Copper Producing Countries, 1980-87

1980 1981 1982 1983 1984 1985 1986 1987

Exchange Rates (currency par $U.S.)

Chile . . . . . . . . . . . . . . . . . . .Peso

Canada . . . . . . . . . . . . . . . . . Dollar

Zaire . . . . . . . . . . . . . . . . . . .Zaire

Zambia . . . . . . . . . . . . . . . . .Kwacha

Peru . . . . . . . . . . ... ... ... .lnti

Mexico . . . . . . . . . . . . . . . ..Peso

Australia . . . . . . . . . . . . . . . .Dollar

Philippines .. .. ... ... ... .Peso

South Africa... ... ... ... .Rand

Papua New Guinea ... ... .Kina

Indonesia .. .. .. .. ... .., .Rupiah

Japan . . . . . . . . . . ... ... ...Yen

West Germany . . . . . . . . ...Mark

Belgium . . . . . . . .. ... ... ..Franc

Consumer Price Indices (1980=100)

United States . . . . . . . . . . . .

Chile . . . . . . . . . . . . . . . . . . .

Canada . . . . . . . . . . . . . . . . .

Zaire . . . . . . . . . . . . . . . . . . .

Zambia . . . . . . . . . . . . . . . . .

Peru . . . . . . . . . . . . . . . . . . . .

Mexico . . . . . . . . . . . . . . . . .

Australia . . . . . . . . . . . . . . . .

Philippines . . . . . . . . . . . . . .

South Africa... . . . . . . . . . .

Papua New Guinea . . . . . . .

Indonesia . . . . . . . . . . . . . . .

Japan . . . . . . . . . . . . . . . . . . .

West Germany . . . . . . . . . . .

Belgium . . . . . . . . . . . . . . . . .

39.00

1.17

2.80

0.79

0,29

22.95

0.88

7.51

0.78

0.67

627.00

226.74

1.82

29.24

100.0

100.0

100.0

100.0

100.0

100,0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

39.00

1.20

4.38

0.87

0.42

24.51

0.87

7.90

0.87

0.67

631.80

220.54

2.26

37.13

110.4

119.7

112.4

134.9

114.0

175.0

127.9

110.0

113.1

115.2

108.1

112.2

104.9

106.3

107.6

50.91

1.23

5.75

0.93

0.70

56.40

0.98

8.54

1.08

0.74

661.40

249.08

2.43

45.69

117.1

131.6

124.6

183.8

128.2

288.0

203.3

122.0

124.6

132.2

114.0

122.9

107.8

111.9

117.0

78.84

1.23

12.89

1.25

1.63

120.09

1.11

11.11

1.11

0.83

909.30

237,51

2.55

51.13

120.9

167.5

131,8

325.5

153.4

609.0

410.2

134.0

137.1

148.4

123.0

137.4

109.9

115.6

126.0

98.66

1.30

36.13

1.79

3.47

167.83

1.14

16.70

1.44

0.89

1,025.90

237.52

2.85

57.78

126.1

200.7

137.5

495.6

184,1

1,280.0

679.0

140.0

206.2

165.7

132.2

151.7

112.3

118.4

134.0

161.08

1.37

49.87

2.71

10.97

256.87

1.43

18.61

2.19

1.00

1,110.60

238.54

2.94

59.38

130.5

262.3

143.0

613.6

253.0

3,372.0

1,071,2

149.0

253.8

192.6

137.1

158.9

114.6

121.0

140.5

193.02

1.39

59.63

7.30

13.95

611.77

1.49

20.39

2.27

0.97

1,282.60

168.52

2.17

44.67

133.1

313.4

148.9

900.3

383.6

5,999.0

1,994.9

162.0

255.7

228.5

144.6

168.2

115.3

120.7

142.3

219.54

1.33

112.40

8.89

16.84

1,378.18

1.43

20.57

2.04

0.91

1,643.80

144.64

1.80

37.33

137.9

375.7

155.4

NA

NA

1,1150.0

4,624.7

176.0

265.4

265.3

NA

183.8

115.4

121.0

144.5

NA = not available.

SOURCE: international Monetary Fund, lnternational Financial Statistics, vol. XLl, No.6, June 1988.

Table 9.10.—Gross Corporate Costs of Major Copper Producers”

(¢/lb at the 1980 relative Purchasing power of currencies)

1975 1980 1984 1985

United States . . . . . . . . . . . . . . .

Chile . . . . . . . . . . . . . . . . . . . . . .

Indonesia . . . . . . . . . . . . . . . . . .

South Africa/Namibia. . . . . . . .

Zambia . . . . . . . . . . . . . . . . . . . .

PNG . . . . . . . . . . . . . . . . . . . . . .

Mexico . . . . . . . . . . . . . . . . . . . .

Australia . . . . . . . . . . . . . . . . . . .

Peru. . . . . . . . . . . . . . . . . . . . . . .

Philippines . . . . . . . . . . . . . . . . .

Canada . . . . . . . . . . . . . . . . . . . .

Zaire . . . . . . . . . . . . . . . . . . . . . .

Average . . . . . . . . . . . . . . . . .

64.5

56.5

36.0

51.5

63.8

48.1

80.5

49.3

88.3

50.2

101.1

94.4

69.7

101.9

76.3

63.9

94.6

89.4

109.1

118.3

77.9

120.7

91.5

152.9

113.0

103.9

83.2

74.7

76.7

99.6

92.3

101.7

105.4

118.7

116.8

102.0

171.8

151.3

107.1

68.6

78.2

79.6

83.9

87.1

96.2

100.2

100.6

101.3

102.3

126.0

171.1

NA

NA = not available.

aGross Costs include Direct Costs and indirect Costs, does not include interest Charges or Byproduct Credits

SOURCE: Kenji Takeuchi et al, The World Copper Industry, World Bank staff commodity working papers, No. 15 (Washington,

DC: 198711975, 1980, and 1984. OTA estimate for 1985.
215

Cyprus employed a similar strategy at the other

mines it bought since 1986. The labor cutbacks

and compensation concessions have resulted in

significant cost savings for U.S. copper producers.

The productivity improvements and wage concessions of the 1980s probably will endure and

improve the long-term competitiveness of the

U.S. industry. Other measures, though, are

likely to be more temporary. Some producers

deferred their repair and maintenance, overburden removal, and advance ore development–

activities that delay costs rather than reduce

them. 76 Stripping ratios in the United States, on

average, declined by almost 0.8 tonnes of waste

per tonne of ore from 1981 to 1986. Companies

76 P.C.F. Crowson, “Aspects of Copper Supplies for the 1990s,”

paper presented at the Copper 87 Conference, Vina del Mar, Chile,

Nov. 30 to Dec. 3, 1987.

modified mine plans so that less expensive ore

was extracted. Head grades were raised, which,

unless coupled with dump leaching, cannot be

practiced for long without ultimately diminishing a mine’s level of reserves. Lastly, mines obtained lower smelting and refining treatment

terms than can be expected in the future. The

concentrate shortage that caused these favorable

terms is ending and spot treatment charges are

already rising. z’

Summary

Figure 9-7 illustrates the effects on operating

costs (BH:WB data) of the changes in real costs,

byproduct credits, and currency purchasing

power between 1980 and 1985. The figure shows

771 bid.

Figure 9-7.-Corporate Costs of Major Non-Socialist

Copper Producers, 1980 & 1985

Ch i I e

u s

Canada

Zaire

Zambia

Peru

Mexico

Australia

Philippines

S. Af r i c a/N a m i b i a

PNG

Indonesia

o 4 0 8 0 120 160

(cents/pound)

How To Read This Figure: For each country, the bars in the foreground show the gross direct

and indirect costs (total length of each bar), along with the byproducts credits and the resulting net costs. The top bar shows these data for 1980 (expressed in 1980 $U.S.), and the bottom

bar shows them for 1985 (in 1985 $U.S.). The bar in the background shows what the gross direct

and indirect costs would have been in 1985 had the relative purchasing powers of the various

currencies held constant from 1980 to 1985 (i.e., 1985 costs in 1980 $U.S.).

SOURCE: OTA from Brook Hunt & Assoc. data, Kenji Takeuchi et al., The World Copper Industry (Washington, DC: World Bank

staff commodity working papers, No. 15, 1987).
216

that external factors (byproduct prices, exchange

rates, and inflation rates) were at least as important, if not more so, as real cost shifts in

reshaping the competitive structure of the copper industry. Nominal gross operating costs declined from 1980 to 1985 in all countries except

Indonesia. The decline in nominal costs was due

primarily to real cost cuts in Canada, Mexico,

Peru, and PNG, and exchange rate movements

and inflation in the other countries. Real gross

operating costs rose, in Chile, Zaire, the Philippines, Australia, and Indonesia. Byproduct credits

declined for all producers. Nominal net operating costs rose in Canada, Mexico, the philippines,

PNG, Australia, and Indonesia, because the declines in nominal gross operating costs were not

great enough to fully offset the losses in byproduct revenues.

COST TRENDS AND OUTLOOK

New Project Development

Mines being developed, or considered for development, that will start production in the early

1990s may alter the comparative costs of current producers. The most important and most

closely watched are: La Escondida in Chile (300

ktpy), Neves-Corvo in Portugal (100 to 115 ktpy),

Roxby Downs (Olympic Dam) in Australia (55

ktpy), and Salobo in Brazil (110 to 123 ktpy). In

addition, the full impacts of copper production

from the Ok Tedi mine (200 ktpy) and the newly

modernized Bingham Canyon operation (200

ktpy) have not been felt.

Real Cost Trends

Ore grades are expected to keep declining

quickly in Chile and Peru, because of the geology of the deposits and the swiftness with which

they are being mined. CODELCO’S average ore

grade is projected to fall to between 1.0 and 1.35

percent by 2000. The strategy to expand production to combat this decline is expected to raise

Chuquicamata’s capacity to 800 ktpy by the early

1990s.78 Large scale leaching and SX-EW operations are planned for Chile. Capacity is expected

to rise to about 290 ktpy by 2000.

In Zambia, the problem is deposit exhaustion.

All currently developed deposits are expected to

be depleted by early next century. Significant reserves remain undeveloped. Obtaining the resources for their development may be difficult,

however, given Zambia’s economic problems.

78Takeuchi et al., Supra note 16.

Long Term Availability Costs

Forecasting the costs of future copper production is difficult. As the preceding section illustrated, external factors beyond the control of the

copper companies can greatly influence costs.

Byproduct prices and macroeconomic factors

fluctuate tremendously and are impossible to predict with any certainty. The outlook for the real

costs of production, however, is somewhat more

stable.

The Bureau of Mines, through its Minerals

Availability Program, compiles and evaluates data

on deposits, mines, and plants that are being explored, developed, or produced worldwide. With

these data, the Bureau estimates the long-term

availability of many different mineral commodities, including copper, at different prices. These

estimates are based on the anticipated cash flows

for the productive lives of each deposit and facility. The cash flows embody information about

known expansions, modernizations, ore grade

depletion, etc. Using discounted cash flow techniques, the Program estimates the price necessary to keep each project in operation. This is the

price a project needs to receive in order to cover

its operating costs, depreciation expenses, and

taxes, excluding those based on profit, over its

lifetime. Cumulating these prices for all deposits

and facilities yields a long-term availability cost

curve (see figure 9-8). The costs developed under this system are not the costs for any particular year, but are the average costs that operations

would see over their lifetime. However, the costs

are denominated in a particular year’s currency,

so there is some benchmark for their magnitude.
217

Figure 9-8.-Long-Term Costs and Capacity of

Selected Producers (January 1985 $U.S.)

Total cost, $/lb

1.8[

16

I

United States

[ 7

SOURCE: “Copper,” An Appraisal of Minerals Availability for 34 Commodities (Washington, DC: Bureau of Mines, Bulletin 692, 1987).

Comparing the actual production costs of 1986

with these long-term availability costs (denominated in 1986 $U. S.) gives an idea of where the

Bureau of Mines thinks costs are headed (see table 9-1 1). Such a comparison does not tell what

the costs will be, it just shows their general direction. it also assumes constant purchasing power

of the currencies (i. e, constant exchange rates

and no international differences in inflation).

and rise in most other major producers, with

significant increases in Canada, Chile, and Peru.

The United States is thus expected to become

more competitive over the long-term. In any

given year, however, the U.S. position may be

significantly weaker or stronger than indicated

by the long-term costs, depending on the prevailing byproduct prices and macroeconomic

factors.

Table 9-11 suggests that production costs are

expected to remain stable in the United States
218

Table 9-11.–Operating and Availability Costs for Major Copper Producing Countries. (¢/lb of refined copper, 1986 $U.S.)

Gross Net Total

Smelting/ operating Byproduct operating Capital availability y

Mining Milling refining costs credits costs Taxes recoverv. costs

PNG & Indonesia:a

1966 . . . . . . . . . . . . . . 19.8

Availability . . . . . . . . NA

Chile:

1986 ..., . . . . . . . . . . 18.5

Availability . . . . . . . . 29

Peru:

1986 . . . . . . . . . . . . . . 13.2

Availability . . . . . . . . 17

Zaire:

1986 . . . . . . . . . . . . . . 36.7

Availability . . . . . . . . 37

Zambia:

1986 . . . . . . . . . . . . . . 30.3

Availability . . . . . . . . 31

Mexico:

1986 . . . . . . . . . . . . . . 17.2

Availability . . . . . . . . NA

Australia:

1986 . . . . . . . . . . . . . . 17.5

Availability . . . . . . . . 20

South Africa:

1986 . . . . . . . . . . . . . . 28.9

Availability . . . . . . . . 31

United States:

1986 . . . . . . . . . . . . . . 21.5

Availability . . . . . . . . 23

Canada:

1986 . . . . . . . . . . . . . 28.1

Availability . . . . . . . . 26

Philippines:

1986 . . . . . . . . . . . . . . 33.6

Availability . . . . . . . . 36

25.5

NA

9.2

16

9.3

18

17.5

18

12.7

14

14.3

NA

7.7

11

18.8

24

23.5

21

27.9

35

31.7

27

21.3

NA

7.6

10

18.7

25

21.5

22

5.3

5

26.4

NA

27.0

33

29.0

27

17.7

19

29.8

42

22.2

22

66.5

NA

35.3

55

41.2

60

75.7

77

48.3

50

57.9

NA

52.2

64

76.7

82

62.7

63

85.8

103

87.5

85

37.0

NA

5.4

6

4.6

5

37.1

40

7.8

9

13.0

NA

3.3

6

27.6

11

8.2

9

29.9

25

17.9

24

29.6

NA

29.9

49

36.6

55

38.6

37

40.5

41

44.9

NA

48.9

58

49.1

71

54.5

54

55.9

78

69.6

61

NA

1

1

8

7

NA

1

—

2

1

6

NA = not available.

aCost data for PNG and Indonesia are combined to avoid disclosing individual company data.

NA NA

6 56

12 68

7 52

12 61

NA NA

7 66

13 85

11 67

12 91

8 76

SOURCE: 1986 data—K.E. Porter and Paul R. Thomas, “The International Competitiveness of United States Copper Production,” to be published in Minerals Issues— 1988

(Washington, DC: Bureau of Mines, U.S. Department of the Interior, 1988). Availability data–J. Jolly and D. Edelstein, “Copper,” Minerals Yearbook, Volume

I, 1986 edition (Washington, DC: U.S. Department of the Interior, Bureau of Mines, 1988).
Chapter 10

Strategies for

Future Competitiveness
CONTENTS

Page

Measures of Competitiveness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .221

Comparative Advantage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..........222

Market Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..............223

Cost of Production. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .................225

Profitability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............225

Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . + . . . . . . . . . . . . . . . ..226

Staying Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...................227

Federal Policies Affecting Competitiveness. . .. .. .. .. .. .. .. .. .. ... . <......228

Federal Tax Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ................229

Trade Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...............231

Defense Policies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...................235

Environmental Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..............237

Research and Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ........242

Industrial Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .................244

Industry Strategies Affectng Competitiveness . ............................246

Future Industry Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .248

Box

1O-A,

1O-B.

10-C,

Table

10-1.

10-2.

10-3.

10-4.

10-5.

10-6.

Boxes

Page

State and Local Assistance and Cost Concessions Obtained by Montana

Resources and Copper Range . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....248

Cooperative Steel/Auto Industry Research . .........................251

Forward Integration in the Aluminum Industry . .....................252

Tables

Page

U.S. Market Share in the Copper industry: 1981-86 . .................224

Mineral Income Tax Comparisons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...230

other Federal Legislation Affecting Copper Operations. . ..............240

Federal R&D Expenditures Related to Mineral Resources and Production .244

Strategies Adopted by U.S. Copper Companies in Response to Economic

Conditions, 1980-87 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...........247

1986 R&D Expenditures in Selected Industrial Sectors. . ...............248
Chapter 10

Strategies for Future Competitiveness

The international competitiveness of firms and

industries refers to the ability of companies in one

country to produce and sell products in rivalry

with those abroad. American industries and companies also compete among themselves for markets, profits, and resources such as investment

capital and quality employees. How an industry

will fare in international competition depends on

factors ranging from technology, to governments’

industrial policies, to the available natural, human, and financial resources.

Shifts in the international competitiveness of industries affect trade balances, foreign economic

policy, and military security, and will determine

quite directly the gross domestic product, and

therefore the standard of living. The linkage between competitiveness and employment is much

looser. By greatly improving their labor productivity, industries can rise in competitiveness while

declining in employment.

In practice, the priorities of countries, industries, and firms vary and they use different measures of competitiveness. These, in turn, determine the government policies and industrial

management strategies used to maintain or increase an industry’s competitive position. Thus,

under adverse market conditions, a developing

country that uses copper exports to finance imports and economic development may subsidize

its copper industry directly. Developed countries

tend to use indirect measures such as trade and

tax policies to assist industries that are perceived

to be disadvantaged due to foreign competition

or market conditions.

Analyzing the competitiveness of the domestic copper industry is further compounded by the

fact that copper is a fungible commodity. Once

established standards have been meant (e.g., the

purity of copper to be used for electrical purposes), there is little to distinguish copper

produced in the United States from copper produced elsewhere other than its price, including

shipping costs.

This chapter discusses the measures of competitiveness that may be applied to the copper

industry. It then reviews legislative and industrial

strategies that could help to maintain or improve

the competitive position of the domestic industry.

MEASURES OF COMPETITIVENESS’

No single measure or statistical indicator is

adequate to capture the complexity and dynamism of industrial competitiveness. The full

panoply of measures might include market share,

profitability, cost of production, comparative

advantage, ability to attract investment capital,

technology and innovative potential, growth rate,

capacity utilization, labor productivity, and/or

closure costs. Which measures are considered

the most important will depend on the firm’s

ownership and on national and corporate goals

‘Much of the material in this section is drawn from previous OTA

reports on industrial competitiveness, including International Competitiveness in Electronics, and U.S. Industrial Competitiveness.

Other sources are referenced as appropriate.

and priorities. Where making money is the top

priority, then short-term concerns will focus on

production costs, profitability, market share, and

labor productivity compared to other companies

making similar products. If the primary goal is to

maintain an industry because its products are important to national security or the economy, then

the near-term concerns are more likely to be market share, capacity utilization, and staying power

in the marketplace (based on avoidable costs),

regardless of profitability. To remain competitive

in the long term, however, all industries must be

concerned about comparative advantage, growth

and innovative potential, and the ability to attract

investment capital.

221
222

Comparative Advantage

International competitiveness is related to what

economists term the global structure of comparative advantage: countries tend to export goods

in which they are advantaged and import others.

Export earnings are used to finance imports. Nations with the lowest average unit costs are likely

to be major exporters.2 Within this context, however, one must distinguish competition between

U.S. firms and those in industrialized countries,

versus those in less developed countries (LDCs).

The potential sources of advantage within the

world copper industry include resources, labor,

capital, markets, and technological capabilities.

The domestic industry is both advantaged and

disadvantaged in its resource base. On one hand,

‘Gary L. Guenther, “Industrial Competitiveness: Definitions,

Measures, and Key Determinants, ” Congressional Research Service, Feb. 3, 1986.

we have 17 percent of the world’s demonstrated

resources of recoverable copper—more than any

other single country except Chile. Our porphyry

ores are suited to large-scale, open-pit mining

with relatively low stripping ratios. We also have

large oxide deposits, which can be extracted with

in situ leaching technology. On the other hand,

our sulfide ores are relatively low-grade, which

leads to higher production costs due to the expense in handling more material to produce an

equivalent amount of copper (see ch. 5).

For porphyry deposits–the majority of world

copper resources—this difference in grade will

average out over time. For example, ongoing

modifications at the Chuquicamata mine/mill in

Chile are primarily to accommodate lower ore

grades. In 15 years, American mines will still be

working approximately the same grade ore they

are today, but Chuquicamata’s ore grade will

have declined more than 50 percent.
223

In newly-industrializing economies, workers

often are available in large numbers at low wage

rates. This can provide a production cost advantage. The trade-off for industrialized economies

is high labor productivity. Domestic copper labor productivity is excellent, and has improved

markedly during the 1980s (see ch. 3). Wage reductions in 1986 plus continuing productivity

gains have improved our cost competitive situation, but labor is still a much higher percentage

of the U.S. production cost than for most foreign

competitors (see ch. 9).

Large markets allowing economies of scale in

production and lower transportation costs can be

a source of comparative advantage. in the copper industry, however, this is largely negated by

the extensive international trade. Moreover, as

the less developed countries (LDCs) become

more industrialized, their domestic markets for

copper will expand.

Access to investment capital is another potential source of comparative advantage. Nongovernmental firms in industrialized countries typically raise capital through loans or sales of equity

shares (stock). Cross-subsidization also can occur within a firm to the extent that profits from

one product or division can be used to help

another division over temporary hard times; this

is one advantage of diversification. Governmentowned copper operations rely more heavily on

debt financing, often through international banking organizations (e. g., the Multinational Development Banks). As LDC debt multiplies, however,

such loans will become more difficult to obtain

(see ch. 3).

Finally, technological capabilities can be a

source of comparative advantage. These include

the employee skills as well as research and development (R&D) investments. While the United

States has some advantage over less industrialized countries in this area, this often is negated

by the speed of technology transfer (see below).

Although comparative advantage theory is a

useful starting point for understanding the resource economics of international competitiveness, it overlooks other important trends. For example, shifting trade patterns are inevitable as

third world countries become more developed.

Yet it is difficult for mature markets to accommodate both established domestic producers and the

development objectives of new market entrants,

or to make the transition for domestic companies less painful. Economically, the problem is

ascertaining the net gains from trade (e.g., to

fabricators and consumers) after deducting adjustment costs for producers. Politically, the problem becomes one of determining how these net

benefits shall be distributed both within a single

economy and between it and its trading partners. j

An additional question is whether government

policy, over time, can influence comparative resource advantages. Such policies might include

worker training, funding for R&D related to unique

resource endowments, or facilitating access to

capital (e.g., through tax incentives).

Market Share

International competitiveness defined in terms

of market share is the definition given at the beginning of this chapter—the ability of firms in one

country to design, develop, manufacture, and

market their products in rivalry with firms and industries in other countries. Market share may refer to a country’s portion of total world production or shipments, it may mean net exports

(value of exports less imports), or it may describe the fraction of the domestic market that

is met by domestic production. A major shortcoming of this measure is that losses in market

share for heavily industrialized countries are inevitable as other nations progress economically.

American copper companies dominated the

world market until the late 1960s. Then came a

wave of nationalizations in Latin America and

Africa. Where foreign governments did not completely take over, they exerted greater influence

on operating patterns. Government ownership

and control of foreign operations meant not only

a loss of assets, but also a loss of market power.

American companies no longer could regulate

foreign production during times of reduced demand. Companies that lost foreign properties also

were no longer able to use low-cost overseas pro3

J0hn Zysman and Laura Tyson (eds. ), American Industry in International Competition: Government Policies and Corporate Strategies (Ithaca, NY: Cornell University Press, 1983).
224

duction to offset curtailed output at higher-cost

domestic mines when prices were Iowa

Table 10-1 compares U.S. market share in 1981

and 1986. Our share of world mine production

declined 6 percentage points from 1981 to 1986,

and the share of primary smelter output and

refinery production dropped 8 points and 3

points, respectively. In contrast, U.S. copper demand as a percent of Western world consumption remained constant. The difference between

production and consumption shows clearly in

the increase in U.S. net import reliance from 6

percent in 1981 to 27 percent in 1986. It should

be noted, however, that the period 1981-1986

was extraordinary. 1980 and 1981 were years of

record consumption and production; they were

followed by the recessionary conditions of 1982-

4“U. S. Industry Responds to Dramatic Changes in World Role, ”

CRU Copper Studies, vol. 14, No. 4, Oct. 1986.

Table 10-1 .—U.S. Market Share in the Copper

Industry: 1981.86 (1,000 metric tonnes)

1981 1986

Measure Tons % of total Tons % of total % change

Mine production:

United States .1,538 23%

World a. . . .6,489 100

Primary smelter production:

United States ,1,317 21

Worl d

a

.6,059 100

Primary refinery production:

United States ,1,227 19

Worl d

a

. . ....6,32 7 100

Refined consumption:

United States ., .. .2,030 27

World a .. .7,252 100

U.S. imports for consumption:

Ore and

concentrate 39

Refine d 331 16C

Unmanufacturedd 438

U.S. exports:

Ore and

concentrate 151

Refined 24

Unmanufactured d NA

U.S. net import

reliance (%) e 6

aMarket economy countries

1,147

6,629

908

6,828

1,073

6,348

2,122

7,672

4

502

598

174

12

442

27

17% –25%

100 2

13 –31

100 12

16 –13

100 <1

27 5

100 6

–89

24 51

36

15

–50

350

‘Copper content.

cPercent of U.S. refined consumption.

dIncludes copper content of alloy scrap.

eAs a percent of apparent consumption; defined as imports - exports + adjustments for Government and industry stock changes.

SOURCE: OTA from Bureau of Mines and World Bureau of Metal Statistics data,

84 and a gradual recovery thereafter. The recovery is expected to continue for mining; the U.S.

Bureau of Mines projects 1988 domestic mine

production at around 1.45 million tonnes–only

6 percent lower than in 1981.5

Although the United States has become a net

importer of refined products, we continue to be

a net exporter of copper concentrates. Domestic mine capacity utilization is relatively high for

those mines considered to be economic properties in the current market (81 percent for mines

operating in 1986). It is unlikely that the domestic industry could supply a much larger share of

the market without reopening mines that have

been closed for most of this decade or developing new capacity.

Smelter output dropped so much during this

period due more to the permanent closure of facilities for environmental reasons than to economic conditions. Further major declines in domestic smelter capacity are unlikely (unless

stricter emissions limitations are imposed), although smelter production is likely to fluctuate

with market conditions. Indeed, domestic smelter

capacity may increase with the addition of one

new smelter, but it probably will be built by a

Japanese firm. Thus it will contribute to domestic market share and employment, but not the

market share or income of U.S. firms (unless they

supply the concentrates).

The fraction of domestic consumption accounted

for by imports reflects domestic versus foreign

production costs (see below), as well as government policies (e. g., export subsidies), corporate

strategies (closing mines, foregoing markets), and

other factors. Export subsidies by LDCs are likely

to continue. If the relative growth rates in U.S.

and world copper consumption over the last 15

years continue over the next 15, with slow growth

in U.S. mine capacity but more rapid growth in

solvent extraction/electrowinning, U.S. refined

production will continue to be about half of domestic consumption.

5Personal communication to OTA from Daniel Edelstein, U.S. Bureau of Mines.
225

Cost of Production

Market share is only indirectly related to the

competitiveness of individual firms, which are

more likely to be concerned with production

costs, Gross costs are determined by wage rates

and labor productivity; the cost of materials,

equipment, transportation, and energy; and the

design of both products and manufacturing processes. Net costs also account for byproduct

credits.

Generalizations about production costs are

possible, but tend to be disproved by site-specific

factors. For labor-intensive technologies such as

underground mining with conventional smelting,

developing countries with an abundance of inexpensive labor normally would be expected to

be the low-cost producers. Yet Canada, with

around 75 percent of its output from underground mines, has high gross costs but low net

costs because of their advantageous byproduct

credits, Moreover, despite the advantage gained

from abundant human resources, developing

countries still can benefit from technologies that

are not labor intensive if they offer low capital

costs and ease of operation (see discussion of

technology transfer, below).

In 1986, estimated average net operating costs

in the United States were 54 cents/lb. The average producer price for that year was 66 cents/lb.

Worldwide, the average net operating cost for

the top 12 producing countries was around 44

cents/lb. The range of costs in 1986 was estimated to be as low as 26 cents/lb and 30 cents/lb

for Papua New Guinea/Indonesia and Chile, and

as high as 70 cents/lb in the Philippines (see ch.

9).

6

The United States is most competitive in refining, with average costs comparable to those of

the rest of the world. Because refining is only

around 7-8 percent of the total cost of production, however, it provides little leverage in overall competitiveness. Domestic mining and milling costs were high, averaging 75 percent of the

operating cost, primarily because of low domes6

Janice L. W. Jolly and Daniel Edelstein, “copper,” preprint ‘rem

1986 Bureau of Mines Minerals Yearbook (Washington, DC: U.S.

Department of the Interior, 1987).

tic ore grades with only moderate byproduct

credits and high labor costs.

Although smelting accounts for only 17 percent

of domestic operating costs, the United States

had the highest smelting costs of all the major

producing countries in 1986 due to labor costs

and the additional cost of acid production for

environmental control (currently around 87 percent sulfur dioxide removal). Adding an acid plant

to the production line increases operating costs

without necessarily providing a byproduct credit.

Furthermore, capital costs of acid plant construction are high. Copper smelters in Canada, Chile,

Mexico, Peru, Zaire, and Zambia–our major foreign competitors—are not faced with similar environmental regulations (see below). T

Profitability

The profitability of an operation or firm is its

real net income. Profitability is largely determined by the difference between the cost of production and the price at which the product is

sold. Other factors can affect profitability, however. For instance, in Mexico, copper is traded

in U.S. dollars, but profits are measured in pesos.

Shifts in the exchange rate affect the amount of

profit at a given price. In recent years, exchange

rates in market economy countries have been

free to adjust to prevailing market conditions.

One consequence of more flexible exchange

rates is that domestic industries may be competitive at one time but not another solely because

of exchange rate shifts.

For a nongovernmental corporation, profitability directly determines whether a company or facility will continue to operate, and for how long.

Profitability controls the ability to obtain debt and

to attract equity investors. it also determines the

amount of money available for maintenance and

capital improvements. Government-owned operations in developing countries are concerned

more with generating foreign exchange than with

7

Lawrence J. McDonnell, “Government Mandated Costs: The

Regulatory Burden of Environmental, Health, and Safety Standards

of U.S. Metals Production, ” paper prepared for the conference Public Policy and the Competitiveness of the U.S. and Canadian Metals Production, Golden, CO, January 1987.
226

profitability, and can sustain operating losses for

a longer period.

Domestic copper companies lost a lot of money

during the depressed conditions of the early

1980s. Amoco Minerals lost nearly $60 million

on copper from 1981 to 1985, when they spun

off their copper properties to Cyprus Minerals;

Phelps Dodge lost $400 million between 1982

and 1984; and Kennecott lost over $600 million

between 1982 and 1985. Anaconda–for decades

the giant of the world mineral industry—went out

of business. This situation began to change in

1985, and has continued to improve since, as costs

declined while demand and prices increased. All

the major domestic companies except Magma

had a positive net income in 1987, and Magma

expects to be profitable when their smelter furnace replacement is complete.

Technology

The definitions of competitiveness discussed

above are based on either market or resource

economics. Other definitions are technologybased, and refer to superior product and process technology. The types of definitions are not

necessarily unrelated—superior process technology is one way to achieve low costs; superior

products are one way to increase market share.

The role of technology is less important in determining competitiveness in the copper industry than in, say, electronics, for two reasons. First,

technology transfer among companies and countries is rapid. Second, copper is a fungible commodity with well-established standards for purity,

so distinguishing among companies’ products is

difficult.

Technology transfer is the interchange of technological innovations among companies and

countries. When one company or country develops a new process that either reduces costs,

improves productivity, or exploits new resources,

it enjoys a competitive advantage as long as the

innovation remains secret or is protected by patents. The innovation is then transferred to other

countries or companies through licenses under

the patent, and the licensee pays royalties. Over

time, incremental changes remove even patent

protection, and the innovation is adopted universally where it can bestow some benefit. This process may occur quickly, or it may take years.

In the copper industry, technology transfer is

almost instantaneous. This occurs for several reasons. First, most major technological advances

in copper mining and processing are developed

and introduced by equipment vendors rather

than copper producers. The vendors have a financial interest in seeing rapid and widespread

adoption of their innovations. The value of this

trade by domestic vendors is important for our

balance of payments. Exports accounted for

around 33 percent of U.S. mining and mineral

processing machinery shipments in 1982, while

imports were only 7 percent of domestic consumption. While other countries are beginning

to make inroads on world market share in mining and processing machinery, the United States

remains a net exporter in this area. B

In contrast, modern smelting furnaces and the

latest advances in electrowinning (the Mt. Isa

process) were developed in other countries. Yet

American copper producers also benefit economically from the productivity gains and cost

reductions brought by foreign technological advances.

Other innovations are adapted from other metals sectors. For example, the earliest concentration techniques were developed based on methods used on gold ore. The solvent extraction/

electrowinning (SX/EW) process originated with

uranium processing. Moreover, because each ore

body is unique, copper companies typically need

to engineer an innovation to suit their own situation. These multiple, incremental changes largely

negate the purposes of patents.

Finally, porphyry ore bodies–which have been

the focus of copper exploration and development

for much of this century–are very similar all over

the world. Their similarities have helped to standardize mining and metallurgical strategies for their

exploitation, and thus facilitate rapid technology

transfer.

81 International Trade Administration (ITA), A Competitive Assessment of the U.S. Mining Machinery Industry (Washington, DC: U.S.

Government Printing Office, 1986).
227

In searching for a competitive advantage

through technological innovations, therefore,

domestic companies need to emphasize either

technologies that are unattractive to developing countries or that apply to a limited range

of resource conditions. Developing countries are

attracted to technologies that: 1 ) require minimal

capital, 2) can be built quickly, 3) can be amortized rapidly, 4) have low operating costs (including low energy consumption), and 5) require minimal technical skills and supervision.9 This

implies, for instance, that developing countries

with resources suited to SX/EW processing will

favor this technology over pyrometallurgical

methods, because relatively simple mixers and

settlers replace grinding mills, classifiers, flotation

cells, smelters, and all their controls, and recyclable organic solutions supplant grinding media

and flotation reagents. More importantly, SX/EW

is very flexible in its applications and can be run

practically at any scale, which makes it very convenient for application in developing countries.

It’s few environmental control requirements also

may become increasingly important outside the

United States.

Although SX/EW is a technology that transfers

easily, domestic copper companies still may gain

from its use in situations not applicable in other

countries. For example, while all porphyry ore

bodies tend to have oxidized caps suitable for

SX/EW methods, the United States maybe unique

in having a large resource of previously uncataloged oxide ore bodies (apart from the porphyry

caps) particularly amenable to SX/EW treatment.

Such oxide ore bodies are one resource that

could provide a domestic competitive advantage

relatively immune to subversion through technology transfer in the short-term. Small-scale SX/EW

plants also are very attractive for leaching old,

“worked-out” mines and waste dumps, also

prevalent throughout the Western United States.

New domestic operations in the near future are

more likely to exploit smaller, relatively highgrade (e.g., 3 percent) deposits, while overseas

operations that wish to capitalize on foreign ex9United Nations Industrial Development Organization (UNIDO),

Technological Alternatives for Copper, Lead, Zinc and Tin in Developing Countries, report prepared for the First Consultation on

the Non-ferrous Metals Industry, Budapest, Hungary, July 1987.

change will prefer large ore bodies. The technology transfer advantages here depend on the type

of operation and the goal of copper production.

For in situ leaching, this may confer an advantage on U.S. greenfield operations, which will

emphasize small deposits until the technology is

proven.

For sulfide ores, foreign and domestic operations will remain dependent on pyrometallurgical processing in the near-term. While the United

States has a clear advantage here in the productivity of their operations, this is largely negated

by lower foreign labor costs and the difference

in environmental control requirements. Any imposition of air quality control regulations in foreign countries would benefit domestic companies in several ways, including a “leveling of the

playing field” on environmental control costs,

their advantage in acid plant operating experience, and the ability to market control technology.

The rapidity of technology transfer in the copper industry does not mean that we should stop

investing in innovation. I n the period before an

innovation becomes standardized, its developer

enjoys a competitive advantage. I n addition to

direct investments, a variety of other policies–

such as tax policies on capital income, depreciation policies, and policies to support R&D—may

influence the pace of technological change and

hence competitive advantage.

Staying Power10

A final measure of competitiveness is termed

staying power: the ability to survive in the marketplace over the long-term despite short-term

losses of cash or market share. Staying power

stems from low current operating costs and/or

high exit barriers, including perceived and actual

costs of closure. 11 A high-cost mine that also has

high closure costs or operators willing to subsidize losses exhibits greater staying power. Its persistence in a depressed market also may exert

10Barbara J, Evans, “How To Assess the Staying Power of World

Copper Mines,” Engineering & Mining Journal, April 1986.

11closure costs at 10 large open-pit copper mines in the Western United States that closed between 1981 and 1983 were between

$0.20/lb and $0.22/lb of lost copper production during a 12-month

closure period.
228

downward pressure on the price to a level that

forces competitors with less staying power to

close. Thus it is more the staying power of competitors than their profitability that affects a company’s relative outlook.

Competitive rankings based solely on cost of

production distort the relationship between competitive strength and profitability. Competitive

strength is the ability to maintain a position in the

market. This ability is a prerequisite, but not a

guarantee of profitability. Competitive strength

and profitability depend on different cost considerations. The former is a function of operating cost and price, while the latter depends not

only on earnings, but also on exit barriers. Only

when operating earnings drop below the cost of

withdrawing from the market does a facility stand

to lose its staying power.

Comparing staying power in governmental

operations is more difficult. Closing a Stateowned mine is touchy—it creates unemployment

and degrades foreign exchange. Operating losses

can be sustained so long as mineral sales generate enough foreign currency to cover the foreigncurrency portion of operating costs. But many

State-owned mines that operated throughout the

recent recession did not have to be subsidized

because they are strong, low-cost competitors.

In other cases, subsidization was a sound business decision to endure operating losses to avoid

even greater direct closure costs. To determine

the staying power of operations with persistent

subsidization, overall closure costs can be set

equal to the country’s debt capacity, as a worstcase measure, As noted previously, debt will become a more important consideration for future

capital investments at copper operations in LDCs.

FEDERAL POLICIES AFFECTING COMPETITIVENESS

Federal policy toward an industry can be expressed in legislation, executive orders, treaties,

rulings of commissions, government participation

in international organizations, etc. There is no

comprehensive national industrial policy, let

alone a national minerals policy. Depending on

the philosophy of individual administrations,

measures directly related to competitiveness

(such as trade relief) often meet with little success. Similarly, the policies with the most far-

-reaching impacts on the competitiveness of the

U.S. copper industry may have been instituted

for reasons totally unrelated to copper markets

(e.g., environmental regulation).

Current Federal policies with potential impacts on the competitiveness of the domestic

copper industry include those related to taxation, trade, defense, the environment, R&D, industrial development in general, and foreign

aid. This section reviews all of these policy areas

except foreign aid, which is discussed in ch. 3.

The effects of these policies on the U.S. copper industry vary. Decisions under various trade

initiatives generally have gone against the industry. When coupled with U.S. contributions to international loans that contributed to gluts in the

copper market, trade and foreign policy have had

significant adverse impacts on competitiveness.

On the other hand, government denial of trade

relief during the 1980s forced the copper industry to pull itself up by its own bootstraps—in part

through investments in new technology and increased productivity. These efforts are discussed

in the following section.

Environmental regulation also has been very

costly to the industry (although beneficial to society as a whole). Even here, however, the primary impacts (smelter closure or the capital cost

of new smelters) have run their course. Barring

any further changes in environmental control requirements, the remaining burden is in slightly

higher operating costs compared to countries

without similar environmental controls.

Other policy measures, such as tax policy, can

be very beneficial, depending on a company’s

capital structure and investments. Still others,

e.g., defense policy and the present modest Federal investments in R&D and industrial incentives

related to education and training, are neutral or

provide small benefits.
229

Federal Tax Policy

Governments have long used tax provisions to

further objectives such as raising revenues, promoting economic development, and conserving

resources. For capital intensive industries like

mining, the tax regime can make or break a particular project. Thus, taxation relative to that of

other producing nations is an important element

in the domestic copper industry’s competitive

position.

The major copper producing countries have

different tax regimes, which include income taxes

as well as sales, social security, capital, and severance taxes, and royalties. In the United States,

Canada, and Australia, copper companies also

are subject to State or Provincial taxation. Of all

these taxes, national income taxes probably are

the most critical in determining an industry’s international competitiveness. Moreover, income

taxes are the favored tax route for providing benefits to a specific industrial sector. The effects of

specific tax provisions on an industry also can

vary widely over time depending on economic

variables such as the price of the goods produced,

the age of capital investments in plant and equipment, inflation rates, etc.

A 1986 study (i.e., before the Tax Reform Act

of 1986) of the structure of international mineral

income tax systems found the U.S. tax regime

very competitive.12Based on a hypothetical 20-

year copper/gold mine in British Columbia, that

study examined the top marginal income tax

rates, capital cost recovery, investment-related incentives (e.g., investment tax credits, depletion

deductions) and other deductions, and the resulti ng tax base as a percentage of discounted operating cashflow for 8 major copper producing

countries. 13 In addition, the study discussed the

sensitivity of effective tax rates to changes in profitability, inflation rates, and product price cy -

‘

2 Keith Brewer et al, “Fiscal Systems, ” paper presented at the

Conference on Public Policy and the International Competitiveness

of North American Metal Mining, Golden, CO, January 1987.

13Australia, Canada, Chile, Peru, Papua New Guinea, South Africa,

United States, and Zambia.

cles. 14 Although the U.S. minerals industry had

the second highest marginal tax rate, they had

the second lowest income tax base, primarily due

to generous investment incentives and other

deductions (see table 10-2),

According to the Congressional Budget Office

(CBO), before tax reform the U.S. mining industry benefited more than any other sector from

preferences that reduced its taxes.15 The two

most important tax provisions targeted specifically

at the mining industry are depletion allowances

and expensing of exploration and development

costs, both continued under the 1986 Act. Other

pre-1 986 tax benefits applicable to all industries

included the accelerated cost-recovery system

( ACR S) and the investment tax credit.

The depletion allowance enables mineral producers to deduct a percentage of taxable net income based on either investment cost or a specified fraction of gross sales from the minerals

extracted, whichever is higher. In recent years,

the depletion allowance has been limited to 50

percent of taxable net income. In theory, Congress intended this allowance to stimulate exploration and thus provide for the replacement of

depleted mineral properties. In effect, a mineral

property usually is so long lived that the company

is able to write off its original investment several

times over. CBO estimated the excess of percentage depletion over cost recovery for non-fuel

minerals to be $300 million in FY 1984.16 Because

the allowance is tied to revenues, it will vary depending on the health of the industry, however.

The minerals industry also may deduct a maximum of 70 percent of the cost of exploration and

development in the year incurred, and capitalize the remaining 30 percent over a 5-year straight14The United States was not included in the sensitivity analyses

for profitability and inflation, but our pre-reform tax regime was

similar to Canada’s and the results should be comparable.

15U.S. Congress, Congressional Budget Office, Federal Support

of U.S. Business (Washington, DC: U.S. Government Printing Office), January 1984.

16Ibid. see also pa u I R. Thomas et a 1., The Depletion Allowance

and Domestic Minerals Availability: A Case Study in Copper (Washington, DC, U.S. Bureau of Mines, Information Circular 8874), 1982.

77-353 0 - 8
230

Table 10.2.—Mineral Income Tax Comparisons

Total deductions Profitability Inflation

Top marginal Capital cost and investment Low High Cyclical

Country rate recovery incentives Tax basea Base case (5% IRR) (23% IRR) 5% prices

Australi a

b 

. . .

Canada c

. . : :

Chile ..,,,..., .: :.. .

Peru, ., . . . . : : : ., ... . .

PNG d 

......., . . .

South Africa .,. . .

United Statese

Zambia .,,.. . :::::::’:::’,,,::

49.0%

45.3

40.0

57.0

35.0

46.2

54.2

45.0

51.0%

50.7

53.0

52.0

48,0

53.0

48.5

53.0

73.0%

74.7

56.7

64.0

48.0

60.5

76.5

15.5

27.2 % 100

25.3 100

40.6 100

35.5 100

52.0 100

37.3 100

23.5 100

16.5 100

333

144

174

178

211

128

NA

o

77 104 105

120 127 97

93 113 102

97 110 97

85 113 102

100 114 98

NA NA 91f

175 175 75

aAs a percent of operating cashflow; calculations based on a 15 pre-tax IRR mining project over a period of 20 years. Cashflows and tax bases are discounted at 5°/0.

bBased on Queensland.

cArithmetic average of results of Quebec, Ontario, Manitoba, and British Columbia. Only Federal and provincial income taxes are considered,

dPNG tax system has a top marginal rate of 70% which is triggered only at a very high profitability level.

eArithmetic average for States of Utah and Alaska, only Federal and State taxes are considered. Based on tax code before tax reform of 1986.

‘For Alaska only.

SOURCE” Keith Brewer et al. “Fiscal Systems, ” paper presented at the Conference on Public Policy and the International Competitiveness of North American Metal

Mining, Golden, CO, January 1987.

line depreciation schedule.17 This defers a portion of income taxes until the deductions have

been taken. For development expenditures, only

the amount that exceeds the net receipts of the

mine for a given year may be included, CBO estimated that expensing and depreciation under the

old 80/20 formula amounted to $60 million for

the non-fuel minerals industries in FY 1984.18 The

minerals industry notes that other industries receive similar benefits through tax credits for research and deductions for new product development.

While the Tax Reform Act of 1986 reduced the

top corporate tax rate from 46 percent to 34 percent, it also set the minimum tax at 20 percent

and significantly reduced investment incentives

and other deductions. In addition, the 1986 law

limited the use of foreign tax credits, repealed

ACRS and the investment tax credit, and changed

the depreciation schedule for mining equipment

from 5 years at 150 percent to 7 years at 200 percent. The percentage depletion allowance and

expensing of exploration and development costs

were retained.

With the possible exception of effects on financing foreign operations, U.S. minerals companies do not view the new tax regime as bring17 These are the allowances under the Tax Reform Act of 1986.

Previously, industry was allowed 80 percent expensing, with 20

percent capitalizing.

18CBO, supra note 15.

ing major changes for them. Their current focus

on restructuring and modernization, rather than

expansion, does not raise any immediate concerns about the tax changes. Those expansions

that are planned are primarily solvent extraction

and electrowinning facilities, with a low capital

cost compared to smelters. Smelting and refining are capital intensive, and new facilities will

be less attractive under the new tax system. Companies face so many other problems with a new

smelter (such as environmental costs), however,

that it is unlikely that taxation would be the deciding factor, Mining is more oriented toward labor

and equipment costs than capital investment and

may gain a slight tax advantage.19

Instead, it is the conditions the U.S. economy

and its minerals industry might face in the next

5 to 10 years that may raise questions about tax

policy. The lower top tax rate benefits profitable

projects more than marginal ones.20 While this

rewards success, and thus sends appropriate market signals, it also can significantly reduce government revenues, and budget pressures may

lead to a rate increase once again.

Accelerated depreciation allowances minimize

the effect of cyclical prices on effective tax rates.

19 John J. Schanz, Jr. and Karen L Hendrixson, ‘‘Impact of Existing Federal Policies on the Copper Industry, ” Congressional Research Service report prepared at the request of the Subcommittee on Oversight and Investigations of the Committee on Energy

and Commerce, U.S. House of Representatives, July 1986.

20 Brewer et al, supra note 12.
231

Firms are able to claim greater amounts of depreciation during periods of higher profits. The

capital cost recovery system for the U.S. minerals

industry did not change significantly, so the industry’s taxes should remain relatively sensitive

to cyclical prices. A switch toward more rigid

depreciation schedules similar to the accounting

treatment of capital costs would result in higher

effective tax rates for mining. This change was

discussed extensively in the debate over the Tax

Reform Act of 1986, but was not included in the

final package.21

The repealed investment incentives and deductions also are less valuable to the more profitable projects. The investment tax credit primarily

provided inflation protection for capital intensive

ventures. During periods of low inflation, this

fixed investment incentive can result in very low

effective tax rates. Thus, while its removal should

increase government revenues over the short

term, it also makes the current tax regime relatively insensitive to inflation. A return of high inflation rates could lead to heavy industry pressure to reinstate the credit or other investment

incentives. 22 Incentives also could be used to encourage investment in heavy industry and new

technology to increase productivity in the event

of a recession.

pressure to raise revenues in order to decrease

the U.S. budget deficit may lead to higher tax

rates for industry i n the short term. Obvious targets would include increasing the maximum tax

rate, and adjusting the depletion allowance and

expensing of exploration and development costs,

which represent the greatest amount of foregone

revenues from the minerals industry.

A final aspect of tax policy that might be considered affects copper consumers. If the conditions that occurred during the early 1980s–

lower-cost imports taking over an increasing

share of the domestic market and a significant decline in U.S. copper production—were to recur,

tax incentives could be used to stimulate the purchase of domestic copper. Thus, consumers who

paid more for U.S. copper might be subsidized

through a tax deduction or credit tied to the

2 ‘ Ibid.

22Ibid

difference in cost between foreign and domestic copper.

Trade Policy

International trade and financing activities in

the copper industry have been highly contentious

in recent years. The U.S. industry has been severely critical of some foreign operations’ refusal to curtail production in light of the oversupply conditions existing in the world market.

Domestic producers have sought to curb these

foreign activities through legislation, appeals to

the International Trade Commission, and other

political and legal means, but have been largely

unsuccessful.

Because global copper trading, pricing, and

financing are highly developed and integrated,

few market activities have single, isolated effects.23 Instead actions in one part of the market

are quickly felt throughout the world. The high

level of U.S. imports subjects domestic producers to constant competitive pressures from the

world market. 24 During the past decade, as imports gained an increasing share of the domestic market, the U.S. copper industry requested

on several occasions that the Federal government

relieve the foreign pressure through a variety of

trade measures. Some of the requests claimed

that the domestic industry needed trade relief in

order to restructure and modernize. Others complained that differing business environments in

the United States and abroad result in advantages

for foreign producers.25 A few charged that foreign activities violate international trading codes

(such as the General Agreement on Tariffs and

Trade, GATT) and their counterparts in U.S. law.

Section 201 Cases

The most publicized copper industry complaints were the Section 201 cases filed in 1978

23The copper market is characterized by high Ievels of trade ( I n

1985, trade accounted for 23, 11, and 40 percent of NSW production of ores and concentrates, blister, and refined copper, respectively), a very mature world pricing system, and a high level of international Investment (see ch, 3),

24The United States is the world largest importer of refined copper. In 1986, U.S. imports totaled 502,000 tonnes of refined copper, accounting for almost a quarter of consumption (see ch. 4).

‘

; The catch phrase used in this argument is that an “uneven playing field" exists in the copper industry.
232

and 1984. Sec. 201 of the Trade Act of 1974 (also

called the Escape Clause) is designed to provide

temporary import relief to domestic producers

seriously injured by increased import competition. 26 The relief is to be used for economic adjustment programs, such as restructuring and

modernization. The fairness of trading practices

(e.g., dumping or subsidization) is not at issue in

Sec. 201 cases; those matters are handled in antidumping and countervailing duty cases (see

below).

Sec. 201 requires that an industry convince

both the International Trade Commission (ITC)

and the President that it merits trade relief. First,

the ITC determines whether imports have caused

the domestic industry serious injury, and if so,

recommends trade actions to prevent or remedy

the injury. 27 The remedies that the ITC may recommend are limited to tariffs, quotas, tariff-rate

quotas, and trade adjustment assistance for workers. If the ITC finds serious injury, the President

must review the case, and either provide import

relief or determine that doing so is not in the national economic interest. Whereas the ITC’s determination centers on imports and the health of

the domestic industry, the President’s decision

is based on a broader concept of economic interest that also includes the well being of workers and consumers and strategic concerns. If the

President decides that relief is appropriate, it can

take the form of the ITC’s recommendations; a

different package of tariffs, quotas, and tariff-rate

quotas; or negotiation of orderly marketing agreements (bilateral agreements to restrict imports

into the United States).

26A concise description of Section 201 as well as other aspects

of U.S. trade law appears in, U.S. House of Representatives Committee on Ways and Means, Subcommittee on Trade, Overview

of Current Provisions of U.S. Trade Law, USGPO WMPC:98-40

(Washington, DC: 1984).

27The ITC must “determine whether an article is being imported

into the United States in such increased quantities as to be a substantial cause of serious injury, or the threat thereof, to the domestic

industry producing an article like or directly competitive with the

imported article. ” Substantial cause is defined as “a cause which

is important and not less than any other cause. ” If the ITC makes

an affirmative injury determination, it must (1) find the amount of

the increase in, or imposition of, any duty or other import restriction which is necessary to prevent or remedy the injury, or (2) if

it finds that adjustment assistance can effectively remedy the injury, recommend the provision of such assistance.

In 1978 and again in 1984, the ITC found that

rising imports were causing serious injury to the

domestic copper industry and recommended

that the president remedy the injury.28 In both

instances, the president denied import relief because it was deemed not in the national economic

interest. In the 1984 case, the ITC’s findings were

sent to the President 2 months before the presidential election. Such timing is usually a political advantage for the domestic industry because

of the voting power and campaign contributions

of those who may benefit from trade relief. Despite this pressure, President Reagan ruled that

import relief was not in the national economic

interest due to the potential damage to copper

fabricators (which have more employees than the

mining and processing industry), and the inconsistency of such relief with the President’s free

trade philosophy. The existence of the Carbon

Steel Sec. 201 case, on which the President had

to decide shortly thereafter, was probably an additional reason for denying help. If the copper

industry were granted trade relief, the steel industry would have merited equally generous

measures.

Although trade relief was denied in the 201

cases, the proceedings’ publicity yielded some

secondary benefits. The attention brought to the

industry’s plight by the 1984 case probably helped

producers negotiate wage and benefit concessions from labor unions and rate decreases from

electric utilities. The cases also highlighted the

problem of access to markets. Some foreign companies’ production strategies are now more likely

to consider the impact on U.S. competitors in order to avoid conflicts.29

Unfair Trading Cases (Antidumping and

Countervailing Duty)

Antidumping cases allege selling prices of less

than fair value. Countervailing duty cases claim

subsidization. These tend to be narrower in scope

and usually are publicized less than Sec. 201

28Both cases covered unwrought, unalloyed refined copper. The

1984 case also covered black copper, blister copper, and anode

copper.

29Jose Luis Mardones and Isabel Marshall, “Lobbying by ExPorters:

The 1984 Copper Import Case, ” paper presented at the Copper

87 Conference, Vina del Mar, Chile, Nov. 30 to Dec. 3, 1987.
233

cases. The fabricated copper products industry

has filed several of these unfair trading cases. In

1986, the ITC and the Commerce Department

found that the brass sheet and strip producers

were being injured by imports from Brazil, Canada, South Korea, France, Italy, Sweden, and

West Germany that either were subsidized or

sold at less than fair value (i. e., dumped).

Copper Trade Legislation

Because of the industry’s troubles, copper trade

has been the subject of a number of bills considered by Congress in the early 1980s. The proposed legislation has dealt primarily with the

oversupply situation in the copper market. An example is the Trade Act of 1984, which contained

a nonbinding clause stating that the U.S. government should negotiate with foreign copper producers for lower copper production in order to

raise the price. President Reagan denied this request, citing the infeasibility of negotiating the required agreements (Chile in particular showed

signs of being uncooperative); potential antitrust

violations in getting the required cooperation

among U.S. producers; and the negative effects

of increased costs for consumers. Congress included a binding version of this clause as an

amendment to the Textile and Apparel Trade Enforcement Act of 1985, but that bill was vetoed

by the President.

Another example is the Minerals and Materials Fair Competition Act of 1987 (S. 1042), which

has yet to be reported out of the Senate Finance

Committee. This legislation would amend many

U.S. trade statutes to recognize subsidized excess

foreign capacity as a source of injury to producers of nonagricultural fungible goods (including

copper) .30 In addition, the Act would establish

that a principal U.S. negotiating objective within

GATT would bean agreement imposing sanctions

against providing subsidies for excess capacity.

Furthermore, the bill instructs U.S. representatives to the International Monetary Fund (IMF)

to ask for a ban on loans or other financing assistance from the Compensatory Financing Facility

(CFF) to countries that do not agree to adjust pro30 Ma, or statutes that wouId be amended by the Minerals and Materials Fair Competition Act of 1987 Include Section 301, Section

201, and antidumping and countervailing duty provisions,

duction and to refrain from adding further capacity. In the absence of an overall IMF ban, the U.S.

representatives are to vote against all CFF loans

to countries that do not agree to adjustments.

An excess capacity subsidy provision also was

included in the Senate version of the Omnibus

Trade and Competitiveness Act of 1987. The provision classified as an unreasonable trade practice foreign subsidization of industries that produce non-agricultural goods for which worldwide

production exceeds demand. This provision did

not make it into the conference report that was

passed by both houses of Congress in 1988.

In 1984 and 1985, Congress also considered

bills to increase the duty on imported copper in

an amount that wouId offset the cost to the domestic industry of complying with environmental

regulations. In 1984, legislation was passed that

suggested that copper be given higher priority

within the stockpile, and added a ‘ ‘Buy America” clause to the stockpile.

U.S.-Canada Free Trade Agreement

The United States and Canada signed an accord in January 1988 that seeks to liberalize trade

and investment between the two countries. This

bilateral agreement would eliminate all tariffs on

goods trade by 1998, reduce nontariff trade barriers, establish rules for bilateral investment, and

create a dispute settlement mechanism .31 To be

enacted, the U.S.-Canada Free Trade Agreement

(FTA) must be approved by the U.S. Congress and

the Canadian Parliament.

The FTA is opposed by several major copper

producers, represented by the Non-Ferrous Metals Producers Committee (NFMPC),32 primarily

because it fails to prohibit some Canadian subsidization practices. They are concerned that

3 1 The ac cord also deals with serif ices trade, b~l II llt’~~ t r<~i [’[, (’nerg}(

and natlona! secu rlty concerns, and ~ome out ~la nd I ng t rad (J I i~LJ(l\

l~The Non. FerrOus M@aIS prod u c er~ cc) m 111 Itlt’t>( N F IN! P~- I I \ ,1

trade association whose members are Asa rc o Phc’ii)\ D(dH(I ,] nc{

the Doe Run Co. (a lead procju( er based In St. Lou15, ,Mc)) Tht, ir

pos[tlon on the FTA 1~ c)utllnd In th{~ statement by Robert J. Mut h,

President, before the ,Mlnlng and Ndtu ral Resources Subcommittee ot the I nterlor anci I nsu Iar Attalrs Com rn Ittee o{ the U.S. House

ot Repre~entatl\ es, Nfa rc h 10, 1988. I n add It Ion to su bsld ies, the

N F,MPC IS ag,~l nst the FTA k au~eIf m eaken~ ludlcial re~ Iem in

u nta I r trade [ ,]w~s and t~ll m I n.lte~ tht~ ta rlrt on I m Imrts of Ca nad l,) n

copper.
234

Canadian copper companies are using belowmarket-rate capital from various national and

provincial government assistance programs to

modernize facilities. As an example, the NFMPC

cites the C$83 million loan from a government

acid rain program for modernization and pollution control at Noranda’s copper smelter at

Rouyn, Quebec. Noranda does not have to repay the loan through monetary reimbursement;

it may substitute “additional investments aimed

at maintaining its commitment to Quebec’s copper industry.”33 There also have been suggestions

that subsidies may be made available to reopen

Noranda’s Gaspe copper mine in Murdockville,

Quebec (closed in April 1987 because of a fire),

and to the Hudson Bay Mining and Smelting Co.

copper smelter at Flin Flon, Manitoba. These subsidies are especially disturbing to the U.S. producers because half of the increase in copper

imports since 1985 came from Canada. Moreover, even after modernization, Canadian smelters will control less than half as much sulfur dioxide as U.S. smelters.

The FTA does not actually sanction the subsidization programs, but leaves their legality to be

resolved by a bilateral working group established

to iron out the differences between U.S. and

Canadian unfair trade law. Until the group finishes its work (up to 7 years), both countries

would apply their own antidumping and countervailing duty laws to any disputes that may arise.

For cases under these laws that are investigated

during this interim period, the FTA comes into

play at the end of the proceedings, after the ITC

and the Commerce Department (or their Canadian counterparts) have made their final determinations. Independent binational panels would

review contested determinations for their consistency with the laws of the country that made

them; national courts currently undertake such

review .34

33"Copper,” Metals Week, vol. 59, No. 20, May 16, 1988.

34 In the United States, an unfair trade case can be concluded once

the ITC and the Commerce Department have made their findings.

Quite often, however, the determinations of these agencies are challenged before the U.S. Court of International Trade.

Miscellaneous Domestic Trade

Developments

The Generalized System of Preferences (GSP)

program allows certain products to be imported

duty-free into the United States from LDCs to promote their economic development. In December 1987, Chile’s benefits under the GSP program

were rescinded because it was determined that

Chile consistently denies its workers basic labor

rights. 35 This, however, does not cover a great

deal of copper trade because blister, anode, and

refined copper from Chile were already excluded

from the GSP program.

Miscellaneous International Trade

Developments

In 1984, the European Economic Community

(EEC) complained to the GATT Council that Japanese tariffs were pushing European companies

out of the copper ore and concentrates markets.

Japanese tariffs are high for refined copper, but

low for concentrates (see discussion of trade in

ch. 4). The EEC claimed that this tariff schedule

allowed Japanese copper smelting and refining

firms to consistently pay higher prices for concentrates than European firms could afford, thus

assuring raw material supplies for themselves to

the detriment of European competitors.36 Some

domestic copper producers also had protested

the Japanese practices to the U.S. government

since their inception in the late 1960s and early

1970s, but without avail.

In 1984, a working group was created within

GATT to study international trade problems affecting nonferrous metals and minerals. The

group is to identify measures taken by importing and exporting countries that hamper world

trade, and make recommendations on how trade

might be liberalized.

Since 1985, the United States has been working with other copper producing countries to

35Under authority of the Generalized System of preferences

Renewal Act of 1984.

36Janice L.W. Jolly and Dan Edelstein, ‘‘Copper, ” 1984 Minerals

Yearbook, Volurne /, (Washington, DC: U.S. Department of the

Interior, Bureau of Mines, 1986).
235

establish a Producer/Consumer Forum patterned

after the International Lead Zinc Study Group.

This organization will compile copper statistics,

develop quantitative information on existing capacities and end-uses, and provide a forum for

discussions about the problems and opportunities of the copper industry. 37 It will play only a

minimal role in market development activities

such as advertising and promotion. The Forum

will be autonomous rather than meet under the

auspices of United Nations Conference on Trade

and Development (UNCTAD).38

Intergovernmental Council of Copper

Exporting Countries (CIPEC)

Most of the major world copper producing

countries (Chile, Peru, Zambia, Zaire, Indonesia,

Australia, Papua New Guinea, and Yugoslavia)

belong to the Intergovernmental Council of Copper Exporting Countries (CIPEC). Established in

1967, this trade association conducts marketing

studies, disseminates information on copper developments, and seeks to promote expansion in

the industry. During 1974-76, in the wake of

OPEC’s success in raising oil prices, CIPEC attempted to establish itself as a cartel. It tried, but

failed, to stabilize then falling copper prices

through production cutbacks. The group has discussed price stabilization numerous other times

but has been unable to agree on a program, and

CIPEC’s power to manage supply and stabilize

markets has never been established.

Defense Policies

Copper is a strategic material—one that is essential in the production of equipment critical

to the U.S. economy and the national defense.

In 1986, the United States imported around 27

percent of its refined copper consumption. This

is more than the total amount used by the electrical and electronics industry in 1986. The principal sources of imports were Chile (40 percent),

17JaniceL,w. Jolly, “Copper,“ 1985 Minerals Yearbook, Volume

/, (Washington, DC: U.S. Department of the Interior, Bureau of

Mines, 1987).

38Creation Of the group was first proposed at an ad hoc meeting

convened by UNCTAD to review copper market conditions

Canada (29 percent), Peru (8 percent), Zambia

(7 percent), and Zaire (6 percent).39

While neither political instability nor hostility

is a major concern about the security of supplies

from these countries, their imports can be subject to disruption. For example, one of the most

disruptive interruptions in U.S. materials supply

in the last 30 years was the loss of nickel from

Canada during the 4-month labor strike against

the Canadian nickel industry in 1969. At that

time, Canada supplied 90 percent of U.S. primary

nickel supplies .40 A similar occurrence in Canada’s

copper industry would cut off U.S. imports equivalent to the amount used for consumer goods,

military applications, and chemicals in 1986.

Moreover, supplies do not actually have to be

interrupted to have significant economic impacts on U.S. mineral markets. A rebel invasion

of Zaire’s mining country in 1978 led to fears of

a cobalt shortage that stimulated panic buying.

Prices went through the roof, and domestic users

turned to cheaper substitutes and recycling where

possible. However, mining and processing facilities were closed only briefly, and cobalt production in Zaire and Zambia actually increased 43

percent in 1978 and 12 percent in 1979.41 The

transportation routes from the mining districts in

Zaire and Zambia are considered very insecure

because the rail lines pass through Angola,

Mozambique, or South Africa.

Potential supply interruptions of imported copper are not considered as critical as those for metals such as chromium and cobalt, which are not

produced in the United States and do not have

readily available substitutes. The economic consequences of a supply shortfall could be severe

for U.S. industry, however. The price of copper

and its substitutes would increase dramatically.

It would take anywhere from 6 months to sev39Janice L. W. Jolly and Daniel Edelstein, ‘‘Copper, Mineral Commodity Summaries: 1987 (Washington, DC: U.S. Department of

the Interior, Bureau of Mines) 1987.

40U.S. Congress Office of Technology Assessment, Strategic Materials: Technologies To Reduce U.S. Import Vulnerability (Washington, DC: U.S. Government Printing Office, OTA-ITE-248) May

1985.

41 I bid.
236

eral years to bring U.S. idle mine capacity and

unexploited reserves into full production. Companies would not be willing to incur the capital

investment to do so without assurances that production would continue for long enough to recoup the investment. Moreover, most imports are

i n the form of refined and unmanufactu red copper. Replacing these would require either drastic increases in SX-EW capacity, or the reopening of currently idle smelter capacity (and thus

substantial capital investment in new furnaces

and pollution control), or a massive recycling

effort.

The United States has long had legislative policies designed to provide either supplies of copper or additional productive capacity in the event

of a supply interruption that threatens national

security. This legislation includes the Strategic and

Critical Materials Stock Piling Act of 1946 and the

Defense Production Act of 1950.

The National Defense Stockpile

Congress first authorized stockpiling of critical

materials for national security in 1939. World War

II precluded the accumulation of stocks, and it

was not until the Korean War that materials stockpiling began in earnest. Since then, U.S. stockpile policy has been erratic and subject to periodic, lively debate over the amount of each

commodity to be retained and over the disposal

of stockpiled items for budgetary reasons.

Stockpile goals are currently based on having

a 3-year supply of materials needed to meet national defense and industrial needs in a defense

emergency. 42 A transaction fund dedicates revenue from Federal sales of stockpile excesses to

the purchase of materials short of stockpile

goals. 43 In 1986, the total stockpile inventory was

valued at approximately $10 billion. If the stockpile had met all goals, it would have been valued at about $16,6 billion in 1986.44

Copper is a strategic commodity in the National Defense Stockpile. The current goal is 1

million short tons, with a 1986 inventory of

22,297 tons of copper, plus 6,751 tons of copper contained in 9,645 tons of brass.45

Over the years stockpile acquisitions and releases have affected copper supply and price.

In 1954, market shortages due to a labor strike

led to the release of 40,000 tons. From 1959 to

1963, stockpile acquisitions combined with copper labor strikes and strong economic expansion

to push prices upward.46 The most significant releases–550,000 tons–occurred in 1965-66 under

a declaration of national emergency due to the

Vietnam War. These releases occurred at a time

of growing demand, disturbances affecting overseas production, and rising domestic prices. Consumers welcomed the resultant downward pressure on prices, but others alleged that the

stockpile was being used as an economic buffer

rather than for defense. Q’

In the early 197os, the overall stockpile objectives were reduced to a 1 -year supply, and the

copper target was reduced to zero. Virtually all

of the copper remaining in the stockpile was sold

during the commodity price boom of 1974. In

1979, Congress reinstated the 3-year planning

period for defense emergencies, and the copper

goal was set at 1 million tons,

Most recently, legislation was introduced in the

98th Congress (1 983-84) to purchase copper for

the National Defense Stockpile to prod the sluggish markets, Opponents argued that the acquisitions wouId have been insufficient to reopen

any shutdown operations, and would have established a precedent of allowing economic considerations to supersede defense needs.

Bringing the stockpile up to its goal of 1 million tons would require the purchase of almost

971,000 tons of copper. This is equivalent to 90

percent of 1986 U.S. primary refinery production, and 13 percent of Western world production. Even if spread over several years, such purchases would exert significant upward pressure

45lbid.

46U.S. Department of the Interior, Bureau of Mines, Minerals Yearbook, varlous years,

~’~c hd nz and t {end rlxson, su pra note 19.
237

on copper prices during periods of low demand

or excess supply. While this could help the U.S.

industry weather a market slump, it also could

send false market signals to foreign producers,

and encourage overbuilding of capacity.

The Defense Production Act

The Defense Production Act of 1950 (DPA) provides several mechanisms for assuring availability of materials and industrial capacity needed for

national security. Title I authorizes the setting of

government priorities for materials allocation in

a national emergency or war. Title Ill provides

loans or loan guarantees for corporate activities

that would expedite production in the event of

a national emergency. These include expansion

of capacity, development of technological processes, or the production of essential materials, including exploration, development and mining of

strategic metals. Under DPA, the government

also may purchase metals and minerals for government use or resale.

In the 1984 reauthorization of DPA, Congress

established new procedures for authorization of

Title ill projects in the absence of a national emergency or war.48 The law requires the President

to determine that Federally-supported projects

meet essential defense needs and that the Federal support offered wouId be the most “costeffective, expedient, and practical alternatives for

meeting the need. ” Industrial resource shortfalls

for which Title III assistance is sought must be

identified in the budget submitted to Congress.

Numerous DPA contracts and agreements were

established between 1951 and 1956, when copper was in short supply. These involved government loans, direct purchases, subsidies of otherwise uneconomical output, and accelerated

amortization for income tax purposes. Between

1951 and 1958, the Defense Minerals Exploration

Administration offered loans of up to 50 percent

government participation for copper exploration.

In 1967, when copper was again in short supply,

the Duval Company’s Sierrita mine received a

$56 million loan. The DPA has not been used

to support the domestic copper industry since

1969, when the last copper exploration participation contract expired.49

Although DPA provisions generally have been

used to encourage mining of strategic minerals,

the law also could be used to ensure adequate

smelting and refining capacity to meet domestic

national security needs, and to develop advanced

technologies considered desirable for enhancing

the security of domestic resources.

Environmental Regulation

The copper industry is subject to numerous

Federal and State regulatory requirements related to environmental protection and worker

health and safety. These range from the preparation of an environmental impact assessment

prior to initiating a mining project, to the control of air and water pollution during mining and

processing, to the reclamation of tailing piles and

dumps when an operation closes. Throughout,

operations are scrutinized by the Mine Safety and

Health Administration and the Occupational

Health and Safety Administration. Other types of

legislation either regulate the location of mines

on public lands or withdraw those lands from

mining altogether.

This section briefly reviews the major Federal

programs and discusses their effects on competitiveness; the pollutants of concern and technologies for their control are described in chapter

8. It is important to note that individual States also

may have relevant legislation (especially related

to groundwater protection) that imposes additional standards and permitting, inspection, and

enforcement requirements.

The National Environmental Policy Act

The National Environmental Policy Act of 1969

(NEPA) requires, for “major Federal actions significantly affecting the quality of the human environment” (e.g., leasing Federal land for mining),

that an agency prepare a statement that describes

possible environmental impacts, any adverse effects that cannot be avoided (including irreversible commitments of resources), and alternatives

to the proposed action and their impacts,

48Public Law 98-265, 49Schanz and Hendrixson, Supra note 19.
238

New copper mines are opened infrequently in

the United States, and copper companies rarely

have to go through the NEPA process. When they

do, however, it can be time consuming and expensive to provide all of the data needed by the

agency preparing the environmental impact statement (EIS). Moreover, because of the extensive

public participation in the NEPA process, it is

often the largest source of delay in any new venture that comes under its aegis.

The Clean Air Act

The Clean Air Act sets standards for both ambient concentrations of pollutants and emissions

from individual sources. The National Ambient

Air Quality Standards (NAAQS), which address

ambient concentrations, include primary standards designed to protect human health and secondary standards to safeguard public welfare. The

Environmental Protection Agency (EPA) has set

primary and secondary standards for sulfur oxides, particulate matter, nitrogen dioxide, hydrocarbons, photochemical oxidants, carbon monoxide, ozone, and lead.

Every major new source of emissions (e.g., a

new smelter furnace) is required to undergo a

preconstruction review to ensure it will not violate NAAQS. Sources in dirty-air areas, or at the

opposite extreme, those where the air is already

much cleaner than the standards require, are subject to more stringent permitting requirements for

new sources. In addition, operating sources are

required to use technological controls to meet

emission limitations, which set quantitative limits

on the amount of pollutants that can be released

to the atmosphere.

At copper operations, the primary concerns are

sulfur dioxide (SO2), particulate, and fugitive

emissions from smelting and converting; and fugitive dust from tailings piles and waste dumps

(see ch. 8). At most smelters, meeting the emission limitations has meant completely changing

smelting technology, including installing a new

furnace, collecting the various gas streams, and

treating them, first in an electrostatic precipitator to remove the particulate, and then in an acid

plant to convert the sulfur dioxide to sulfuric acid.

The acid plant adds significantly to operating

costs. The sulfuric acid may be salable and provide a byproduct credit, but at most operations

it is a red ink item. While the furnace types that

are amenable to sulfur dioxide control are more

efficient than the old reverberatory furnaces, the

gain in efficiency is offset by the capital and

operating costs of control. One copper company

estimates the capital cost of modifying its smelter

for pollution control at $154 million, with a net

gain of perhaps 1 cent/lb lower operating costs.

The Clean Water Act

The Clean Water Act establishes water quality

standards that focus on the uses of the waters involved, including public water supplies, fish and

wildlife, recreation, and agriculture. The standards generally are achieved through effluent limitations that restrict the quantities, rates, and concentrations of chemical, physical, biological, and

other types of discharges from individual sources.

In general, the Act requires all categories of

sources (including copper mines, mills, smelters,

and refineries) to apply the best practicable control technology currently available in order to

meet the effluent limitations.

Effluent limitations and water quality standards

are implemented through State certification programs and through the National Pollutant Discharge Elimination System (NPDES). All point

sources must obtain State certification that their

operations will not violate any effluent limitations,

water quality standards, or new source performance standards. They also must obtain a NPDES

permit, which requires a demonstration that the

discharge will meet all applicable water quality

requirements. NPDES permits are issued under

EPA-approved State programs.

Effluent limitations for copper mines, mills, and

leach operations cover discharges of copper,

zinc, lead, and cadmium, as well as total suspended solids and pH. Arsenic and nickel are not

specifically mentioned in the standards because

they are adequately controlled by the removal

of other metals found in the discharges. Leaching operations generally are expected to achieve

zero discharge unless the annual precipitation exceeds annual evaporation (rare in the arid and

semi-arid copper-producing areas of the West-
239

ern United States). Guidelines are being developed for effluents discharged from primary copper smelters, copper refineries, and acid plants.

These limitations aim to control the amount of

arsenic, cadmium, copper, lead, zinc, and nickel

in effluents; the pH of the discharge; and the concentration of total suspended solids.

Safe Drinking Water Act

Congress enacted the Safe Drinking Water Act

in 1974 to ensure that water from public drinking supplies is healthful. so Primary standards, or

maximum contaminant levels (MCLs), are set

based on the contaminant concentrations at

which no known or anticipated adverse effects

on human health occur, modified by the best

available treatment technology (considering cost).

Secondary standards set goals for contaminants

that primarily affect the aesthetic qualities of

drinking water.

The Safe Drinking Water Act also protects sole

source aquifers, or those aquifers that supply 50

percent or more of the drinking water for an area,

from contamination due to projects above the

aquifer. It requires States to establish “well head

protection areas” around public wells to prevent

pollutants from entering underground supplies.

EPA has designated the groundwater systems of

the Upper Santa Cruz Basin and the Avra-Altar

Basin of copper-producing Pima, Pinal, and Santa

Cruz counties in Arizona as a sole source aquifer.51

Resource Conservation and Recovery Act

The EPA regulates hazardous and other solid

wastes under the Resource Conservation and Recovery Act (RCRA). Subtitle C of RCRA establishes

regulations for the generation, transportation,

treatment, storage, and disposal of materials identified by EPA as hazardous. Subtitle D provides

Federal guidelines for EPA-approved State or Regional solid waste plans. These address the regulation of landfills, dumps, and ponds handling

non-hazardous solid and liquid wastes. Box 8-C

in chapter 8 discusses the EPA decision that solid

W’ ‘Public” supplles are those drinking water systems serving 25

or more people, or 15 serilce connections.

‘1 Donald V. Fellclano, “Sole Source Aquifers and Related Congrwslonal Di$trlcts, ” Congressional Research Ser\lce, March 1984.

wastes from the mining and beneficiation of copper ores should be regulated under Subtitle D of

RCRA as non-hazardous solid waste. The rationale for this decision was that the large volumes

of mine waste would be very difficuIt to regulate

under rules that had been designed to manage

much smaller amounts of hazardous industrial

and municipal waste. EPA also reasoned that Subtitle C does not allow considerations of environmental necessity, technological feasibility, and

economic practicality, which are important given

the magnitude of mine waste, The cost of mine

waste management under Subtitle C of RCRA

would result in closures at domestic mines and

mills with very large amounts of waste material.

Comprehensive Environmental Response,

Compensation and Liability Act

(Superfund)

Superfund allows the EPA to respond to actual

or threatened leaks from inactive hazardous

waste treatment, storage, and disposal faciIities,

and to notify the public of such releases. It also

provides the authority and framework for cleanup

of orphaned hazardous waste sites. Although

mining wastes are exempt from RCRA Subtitle C

regulation, EPA has made it clear that such materials are not exempt from Superfund. The EPA’s

policy on the continuing availability of the mining waste exclusion for inactive or closed facilities will affect the extent to which Superfund liabilities and obligations may arise from the closure

Photo credit’ Vickie Basinger Boesch

The Douglas, Arizona smelter, which was built in 1904,

closed permanently in 1987 because it would have been

too costly to rebuild to bring into compliance

with air quality standards.
240

of a facility .52 Therefore, when considering closure, the potential application of immediate or

future hazardous waste regulatory scrutiny must

be evaluated.

Worker Health and Safety

Mining activities come under the aegis of the

Federal Mine Safety and Health Act of 1977,

which regulates on the theory that a safe mine

is a productive mine. The Act sets mandatory

standards and requires training for new employees plus annual refresher training for all mine

workers. The Occupational Safety and Health

Act, which covers mills, smelters, and refineries,

is similar.

Other Federal Legislation

In addition to the specific requirements of the

Federal and State laws discussed above, a wide

‘*Lester Sotsky, “Closing of a Facility–Legal Concerns, ” paper

presented at American Mining Congress, Annual Mining Convention, San Francisco, CA, 1985.

range of other laws affect the operations of the

domestic copper industry. These are listed in table 10-3. They fall into two main categories: laws

that regulate mining activities on public lands,

and laws that withdraw public lands from mining. A third group comes into play only when special circumstances arise, such as finding archaeological relics on a mine site, or having protected

species located on or near a facility.

Effects of Environmental Regulation

on Competitiveness

In general, the more developed a country is,

the more detailed and comprehensive are its

environmental controls. In developing countries,

any environmental regulation usually is the result of negotiated agreement between the host

country and the would-be investor. Increasingly,

mining agreements now include various provisions regarding environmental protection. Although there seems to be a trend toward more

stringent environmental controls in LDCs, their

Table 10-3.—Other Federal Legislation Affecting Copper Operations

Public lands Withdrawals Other

Act of September 28, 1976: Provides Wilderness Act of 1964: Provides for Antiquities Act of 1906: Regulates

for the regulation of exploration and

mining within, and repeals the

application of mining laws to, the

National Park System

Forest and Rangeland Resources

Planning Act of 1974: Provides for a

comprehensive system of land and

resource management planning for

National Forest System lands

Multiple Use-Sustained Yield Act of

1960: Requires management of

National Forests under principles of

multiple use so as to produce a

sustained yield of products and

services

National Forests Management Act of

1976: Provides for a comprehensive

system of land and resource

management planning for National

Forest System lands

Federal Land Policy and Management

Act of 1976: Provides for

comprehensive, multidisciplinary land

use plans for Bureau of Land

Management lands, including multiple

use of lands and resources and

protection of areas of critical

environmental concern

SOURCE: Office of Technology Assessment, 1988.

establishment of wilderness reserves;

requires preservation of wilderness

areas in an unimpaired condition

Wild and Scenic Rivers Act: Provides

for preservation of certain rivers or

portions thereof in their natural state

National Trails System Act: Provides

for establishment and protection of

trails

Endangered Species Act of 1973:

Protects endangered and threatened

species and critical habitats affected

by Federal actions

antiquities excavation and collection,

including fossil remains

Archaeological and Historical

Preservation Act of 1974: Provides for

recovery of data from areas to be

affected by Federal actions

Bald Eagle Protection Act of 1969:

Protects bald and golden eagles
241

impact on mining is considerably less than in

developed countries such as the United States.53

With the exception of air quality control, few

data are available on the costs of meeting all environmental and health and safety requirements in

the United States. Even fewer data are available

on the extent to which foreign operations protect public and worker health and safety or the

costs of doing so.

Such regulation in the United States has brought

enormous—but unquantifiable—benefits, from

fewer fatal mining accidents, to fewer premature deaths due to air pollution, to cleaner lakes

and streams. The costs to the U.S. industry also

have been large, with substantial negative impacts on competitiveness and capacity.

In 1970, when the Clean Air Act first imposed

emission limitations on smelters, EPA estimated

the total cost of compliance in the entire nonferrous industry at $45 million. This grossly underestimated the capital cost of acid plants. Because technological means of control were not

yet mandatory, most smelters used supplemental and intermittent SO2 controls54 instead, which

avoided the large capital costs but reduced production. When technological controls were imposed in 1977, EPA estimated that, if all smelters

were assumed to progress toward full compliance

by 1988, the total capital cost would be $1.9 billion for the period 1974-87, with total operating

costs of $1.1 billion (1974 dollars). If, on the other

hand, 3 smelters (Douglas, McGill, and Tacoma)

were assumed to close in 1983, the EPA estimates

of total capital and operating costs for 1974-87

declined slightly to $1.7 billion and $1.05 billion,

respectively (1974 dollars). 55

In reality, the primary copper industry had capital investments totalling $2.1 billion for air pol53MacDonnell, supra note 7.

54 Supplemental control systems use very tall stacks to disperse

pollutants, thus diluting their ambient concentration. Intermittent

control consists of monitoring the ambient weather conditions to

identify when wind patterns and temperature inversions could trap

the pollutants near the source instead of dispersing the plume. Under these conditions, production is cut back to the point necessary to reduce pollutant emissions to an acceptable ambient concentration.

55Arthur D. Little, Inc., Economic Impact of Environmental Regulations on the United States Copper Industry (Washington, DC:

U.S. Environmental Protection Agency, January 1978).

Iution control between 1970 and 1981 (in 1981

dollars), with total annual costs of $3.1 billion

over the same period. Estimated capital costs for

1981-1990 are $387 million, with total annual

costs for that decade of $3.64 billion (also 1981

dollars). 56 Eight copper smelters closed permanently from 1979-86, some because of age or

cutbacks in domestic mine production, but

some because the cost of installing a new furnace and adding an acid plant was too great.

Additional investments have been made since,

and the remaining 8 smelters are in compliance

with the Clean Air Act. Present levels of control

entail capital and operating costs of between 10

and 15 cents per pound of copper. 57

In comparison, copper smelters in Canada,

Chile, Mexico, Peru, Zaire, and Zambia—among

our major foreign competitors—are not faced

with similar environmental regulations. If smelters in these countries are controlled at all, it is

only to the extent that sulfuric acid is needed for

leaching. Thus these countries achieve from O to

around 15 percent capture of the input sulfur,

or about one-fifth of the present level of U.S. control. Japanese smelters achieve 95 percent control as part of government policy to subsidize sulfuric acid production to supply the Japanese

chemical industry. 58 Information regarding the

costs of acid production in these countries is not

available. 59 Future capital investments in Chile,

Mexico, Peru, Zaire, Zambia may be funded in

part by the World Bank (see ch. 3). The World

Bank requires environmental controls as a condition for financing, but the standards are less

stringent than those in the Clean Air Act. Go

Costs also were incurred by the domestic industry because of changes in the emission limitations and allowable means of control, and the

deadlines for meeting them. Several smelters installed technologies that seemed promising at the

time, but later failed either in producing copper

56Mac Donnell, supra note 7.

57Everest ConsuIting, Air Pollution Requirements for Copper

Smelters in the United States Compared to Chile, Peru, Mexico,

Zaire and Zambia, 1985.

58CRU Copper Stud\ es, supra note 4; see discussion of trade in

ch. 4.

59MacDonnell, supra note 7.

60 Everest ConsuIting, supra note 57.
242

or in controlling emissions (e. g., the Hoboken

converter at Inspiration Consolidated Copper

Company, and the Arbiter process at Anaconda’s

Butte smelter). Without major technological advances, further environmental regulation (e.g.,

the suggested 1-hour sulfur dioxide standard or

mine waste management under Subtitle C of

RCRA) could bring further reductions in domestic mining and smelting capacity.

Given the health and safety implications of reducing the number of environmental regulatory

requirements in the United States, that is an unlikely option. However, introduction of similar

requirements in foreign copper-producing countries could “level the playing field” and reduce

the impact of domestic regulation on competitiveness. It also would improve the quality of the

environment in those countries. While the

United States government has no direct control

over foreign environmental regulation, we can

have indirect influence through trade and

financing, as well as treaties.

For example, U.S. participation in international

financing of foreign copper projects (through the

World Bank and its affiliate banks) could be used

to apply pressure for environmental controls.

One example would be to provide incentives

through variable interest rates tied to the degree

of control. Tariffs on imported copper also could

be tied to the degree of control in the country

of origin, although at present there are too few

data to make this workable.

Treaties related to border issues also can influence foreign control. The difference in level of

control is one issue in the U.S.-Canada Free Trade

Agreement. The United States and Mexico signed

an agreement January 29, 1987, to control air pollution caused by copper smelters along their common border. Under the agreement, Mexico guaranteed that, by June 1988, SO2 emissions at the

Nacozari smelter will not exceed 0.065 percent

by volume during any 6-hour period. This is identical to the U.S. standard for new sources. In the

interim, ambient SO2 concentration levels will not

exceed 0.13 parts per million over a 24 hour

period (the U.S. standard is 0.14 ppm).61

Research and Development

Research and development could result in

process and product technologies that would

significantly improve the competitive position

of the domestic copper industry. Technological

innovations developed and implemented within

the last 10 years helped the industry reduce their

costs of production and increase productivity.

Additional R&D, especially in areas where the

United States is at a competitive disadvantage or

has unique resource endowments, could provide

further boosts to competitiveness. For example,

domestic mines haul larger amounts of ore

greater distances, making improvements in

haulage productivity especially advantageous in

the United States. Similarly, in situ solution mining would enable U.S. companies to exploit large

oxide ore resources without having to haul the

ore. This section reviews Federal R&D funding

mechanisms; private initiatives are discussed

below.

There is no comprehensive Federal policy

toward R&D. Legislation intended to further specific policy goals may authorize expenditures for

R&D (although actual appropriations may fall

short of the authorization). For example, the National Materials and Minerals Policy, Research

and Development Act of 198062 was intended to

provide a basic coordinating framework for executive branch materials policy decisions. The

Act encompasses all materials related to industrial, military, and essential civilian needs. It emphasizes, however, strategic materials for which

the United States is heavily import-dependent but

could augment supplies through substitution,

recycling, and conservation. The Act also emphasizes the importance of government support for

R&D in addressing materials problems.

The Act required the President to formulate a

materials and minerals program plan. President

Reagan submitted this plan to Congress in April

1982. His report focused primarily on minerals

availability issues associated with Federal lands

and on management of the stockpile; it placed

little emphasis on R&D. The plan assigned responsibility for coordination of national materials policy to the Cabinet Council on Natural Resources

61 “U. S., Mexico Agree to Control Pollution from Copper Smelters

Near Common Border, ” Environment Reporter, vol. 17, No. 42,

Feb. 13, 1987, p. 1738. ‘

2P. L. 96-479.
243

and the Environment. Coordination of R&D not

involving policy questions was assigned to the Interagency Committee on Materials (COMAT),

under the direction of the White House Office

of Science and Technology Policy.

Although President Reagan’s plan has been criticized heavily both in concept and implementation,63 strategic materials R&D funding has fared

fairly well. In addition, initiatives have been undertaken that were not specifically identified in

the plan, such as creation of a National Strategic

Materials and Minerals Program Advisory Committee within the Department of the interior.b4

R&D funding for minerals and materials also

may be provided as part of an agency’s overall

program responsibilities. For copper production

and related technologies, this would include primarily R&D sponsored by (and often actually carried out by) the Bureau of Mines and Geological

Survey, both within the U.S. Department of the

Interior (see table 10-4).

The Bureau of Mines conducts basic and applied research on all types of minerals to improve

understanding of the principles of mining and

mineral processing and to reduce associated

health hazards. Their R&D budget for FY 89 is

expected to decrease by $10 million to $86 milIion. 65 The proposed decrease was in applied research, which the Reagan Administration believes

is the responsibility of private industry.66

The Geological Survey undertakes research on

the extent, distribution, and character of mineral

and water resources; on geologic processes and

principles; and on the development and application of new technologies, including remote

sensing, for mapping. Their total R&D budget for

G JSee, e.g., U .S, General Accounting Office, /mp/ementdt;On of

the IVationd/ M\nera/s and Mater\. ?/s Po/Icy Needs Better Coordirratlon and Focus (Washington, DC: U .S, General ,Accou nting Oft’Ice, Mar, 20, 1984), GAO/RCED-84-63.

mOTA, supra note 40.

GJThe total Federal expenditures for R&D in 1986 were $14 billion, Although the United States spends more on R&D than any

other country, it continues to lag behind some of its competitors

in the share of gross national product devoted to cwlllan R&D. While

Japan spends nearly 3 percent of Its GNP on R&D, the U.S. share

IS only sllghtly above 2.5 percent. see “R&D SC ore board,” Business L$’eek, June 22, 1987

GGOffice of Management and Budget, Specia/ Ana/y-$es: Budget

of the LJnited States Government, Fiscal Year 1989 (Washington t

DC: U.S. Government Prlntlng OttIce, 1988).

FY 89 is projected to be $224 million, a decrease

of $12 million from FY 88.

67

Some Federal (and private) R&D money goes

to support research programs at u diversities, including the State mineral institutes and the Bureau of Mines mineral technology centers. The

mineral institutes originally were administered by

the Office of Surface Mining; responsibility subsequently was transferred to the Bureau of Mines.

proposals to abolish the institutes have been included in almost every budget request since

1982. Special legislative initiatives also have provided for research centers, such as the 1 -year

grant for the new Center for Advanced Studies

in Copper Research and Utilization at the University of Arizona, whose mandate focuses primarily on copper product applications (such as superconductors), but also includes research on

process technologies (e.g., in situ solution

mining).

Research funding for universities not only

provides a valuable source of technological innovation for the minerals industry, but also supports education and training for the next generation of industry employees. Enrollment in

mining and other engineering disciplines historically has been cyclical, and currently is low due

to the poor economic performance of the minerals industry during the early 1980s. In 1978,

3,117 undergraduate students were enrolled in

26 mining engineering programs in the United

States. By 1987, the number of programs had

dropped to 19, with additional closings and

mergers expected. As a resuIt, significant shortages of mining engineers are predicted at least

through 1992.68 Evidence of Federal support for

truly innovative R&D could salvage some university programs and attract high quality students.

More specialized research on applications for

copper is funded by the National Bureau of

Standards (e.g., specialty alloys) and the Department of Energy (for example, materials for transmission lines or solar energy systems). The National Aeronautics and Space Administration also

funds some research on remote sensing that

could be applicable to mineral exploration. The

‘

7

1 bid.

b8 E, Ieen Ashki(jrt h, “Where Hake All the Graduates Gone, ’

L,4,NDAL4RC, January/February 1988.
244

Table 10-4.– Federal R&D Expenditures Related to Mineral Resources and Production (1,000 current dollars)

Bureau Percent Percent Bureau Percent Percent

Year and budget category of Mines of total USGS of total Year and budget category of Mines of total USGS of total

1974, total budget:

Geological and mineral resource

surveys and mapping

Metallurgical research

Mining researcha

1975, total budget,

Geological and mineral resource

surveys and mapping

Metallurgical research

Mining researcha

1976, total budget:

Geological and mineral resource

surveys and mapping

Metallurgical research

Mining researcha

1977, /eta/ budget:

Geological and mineral resource

surveys and mapping

Metallurgical research

Mining researcha

1978, total budget:

Geological and mineral resource

surveys and mapping

Metallurgical research

Mining researcha

1979, total budget:

Geological and mineral resource

surveys and mapping

Mineral resources and technology

1980, total budget”

Geological and mineral resource

surveys and mapping

Mineral resources and technology

1981, total budget:

Geological and mineral resource

surveys and mapping

Mineral resources and technology

1982, total budget:

Geological and mineral resource

surveys and mapping

Minerals and materials research

Mineral institutes

$81,689

15,779

39,267

148,820

17,995

50,437

158,818

21,744

87,279

133,611

22,593

33,329

138,200

25,023

46,431

148,476

33,680

134,033

29,727

142,319

24,883

150,602

32,003

9,244

19%

48

12

34

14

55

17

25

18

34

22

17

21

6

- -- -- --- . -. . . --- ---- -- .

$172,324

43,340

254,146

76,268

272,836

102,203

320,433

96,870

375,899

112,708

418,519

131,640

469,862

143,039

516,056

160,027

507,846

163,706

25%

30

37

30

29

31

30

31

32

1983, total budget:

Geological and mineral resource

surveys and mapping

Minerals and materials research

Mineral institutes

1984, total budget:

Geological and mineral resource

surveys and mapping

Minerals and materials research

Mineral institutes

1985, total budget:

Geological and mineral resource

surveys and mapping

Minerals and materials research

Mineral institutes

1986, total budget:

Geological and mineral resource

surveys and mapping

Minerals and materials technology

Mining technology

Mineral institutes

1987, total budget.

Geological and mineral resource

surveys and mapping

Minerals and materials technology

Mining technologya

Mineral institutes

1988, total budget:b

Geological and mineral resource

surveys and mapping

Health, safety and mining

technology

Minerals and materials science

Mineral institutes

1989, total budget: b

Geological and mineral resource

surveys and mapping

Health, safety and mining

technology

Minerals and materials science

Mineral institutes

$144,568

29,680

9,152

136,855

32,754

9,350

135,959

31,944

7,822

127,711

30,692

12,808

7,677

140,412

32,208

18,598

7,642

146.398

53,167

27,092

9,160

126,605

37,735

23,440

0

21‘YO

6

24

7

23

6

24

10

6

23

13

5

36

19

6

30

19

0

$371,784

159,096

377,672

164,289

416,368

169,595

412,306

169,356

431,193

168,656

447,997

176,430

425,253

167.767

42%

43

40

41

39

39

39

alncludes research related to environment and health and safety.

bAll 1988 and 1989 figures are estimates.

SOURCE: Office of Management and Budget, Budget of the United States Government (Washington, DC: US. Government Printing Office, various years)

U.S. Environmental Protection Agency is respon- ever, industry can interpret it broadly with corsible for R&D on pollution control technologies. responding high revenue losses.

Finally, the Department of Defense conducts research on materials for ordnance, weapons systems, etc. Industrial Policy

Federal tax policy also can affect private fund- “industrial policy” was the political philosoing for R&D, e.g., by providing tax deductions pher’s bromide of the early 1980s, as “competitor credits for R&D expenditures or for demon- tiveness” has become the catchword for the midstration projects featuring unproven technology. 80s. Development of a coherent and consistent

Unless “R&D” is defined very narrowly, how- Federal policy toward industry, and then toward
245

improving domestic industrial competitiveness,

was widely touted as the solution to industrial ills.

Such an integrated policy scheme is still absent

in the United States.

Instead, current Federal competitiveness policy is to rely primarily on private initiatives and

the market. When the importance of a particular industry (e.g., for national security) or the

extraordinary scope of market changes seems to

merit public intervention, there are few policy

instruments for actively promoting domestic competitiveness. Instead, government actions have

focused on trade protection, including Orderly

Marketing Agreements (bilateral agreements to

restrict imports into the United States), ad hoc

agreements, and tariffs.

Protectionist policies insulate American producers from incentives to adjust to foreign competition. They also can distort markets in ways

that require increasing protection. For instance,

although Orderly Marketing Agreements usually

are intended to give American firms time to adjust to changing market conditions, the restrictions on imports from one country can encourage

new producers in other places. Moreover, limiting the volume of imports can induce U.S. fabricators to shift to other materials, and foreign producers to shift to higher-value goods to preserve

their foreign exchange. 69

Other policies that introduce market distortions

include direct or indirect subsidies, and dumping (selling exports at prices less than charged in

domestic markets, or at less than cost). Policies

of promotion and subsidy pursued by LDCs are

a particular problem. While they may reduce the

cost of goods to domestic consumers, they also

disadvantage domestic producers. In addition, as

discussed in chapter 4, the Japanese smelting industry receives direct and indirect subsidies to

promote sulfuric acid production. The Canadian

smelters also receive government assistance in

financing pollution control. Of course, domestic companies also have obtained direct subsidies

(see box 10-A, below).

Although the domestic copper industry survived the economic vagaries of the early 1980s

~[~zy~man ancj Tyson, su pra note ~.

without significant government assistance, they

lost a lot of money and capacity in the process.

Their ability to survive a similar slump within

the next 5-10 years could depend on government support now to actively promote domestic competitiveness. One of the keys to continuing competitiveness is the ability to innovate,

which in turn is dependent on capital formation,

or investment in plants and equipment embodying new, more efficient technologies; education

and job training programs; and the development

of new commercial products and processes .70

Thus, policy support for continuing competitiveness would have to include both micro- and

macroeconomic policies. The former includes

anti-trust, trade, defense, patent, tax, job training and education, environmental protection,

and R&D policies. These are considered macroeconomic because each policy directly or indirectly affects ability of companies to compete

with foreign-based companies in domestic and

key export markets). The second group covers

fiscal and monetary policies. Fiscal policy is important because it establishes the level of overall output, inflation, and employment; and because government borrowing to finance deficits

influences interest rates, both for industry itself,

and for primary and secondary consumers. 7

1

A consistent and integrated set of government

policies can gradually turn a temporary comparative disadvantage in capital- or educationintensive commodities into an advantage. Seen

i n this light, the growing comparative advantage

of Japan72 and the declining share of U.S. producers result to no small degree from different

national investment efforts influenced by different government policies.

Although a well-designed and supportive industrial policy is not by itself sufficient to build competitiveness in a given economic sector, government policies may tip the balance. The United

States can expect no more than very limited success in negotiations with other nations aimed at

minimizing the impacts of those countries’ indus-

“JGuenthvr ~upra note 2

“ I hld

“-’japanew sok ernment IxJIIcles IOL$ ard dekeloprnent (~t the’lr

\melt I ng I nd u~try are de~( rl hed I n the W( t [on on Trade i n c h 4.
246

trial policies. Better prospects for strengthening ings). Coinage reform has been proposed for sevthe U.S. position would come with the adoption eral years, including increased copper content

of more effective industrial policies of our own. of the penny (which is currently 95 percent zinc—

A third option is to provide direct product mostly imported) and a copper dollar coin. While

support. This might include increased use of do- such measures may be small potatoes in terms

mestic copper in coinage, or mandated use of of overall copper demand, they are symbolically

domestic copper products in governmental activ- important in demonstrating Congressional supities (e.g., plumbing and wiring in Federal build- port for domestic products.

INDUSTRY STRATEGIES AFFECTING COMPETITIVENESS

Domestic copper companies undertook a

number of initiatives from 1980-1987 in order

to reduce their costs of production and improve

their competitive position. These are summarized in table 10-5. Aside from direct cost reductions such as those obtained in the labor negotiations of 1986, these actions can be grouped

in three rough categories—actions that resulted

in significant corporate restructuring, those that

required capital investment, and those that reduced production and/or capacity. Two companies also received significant local government

support and renegotiated labor and service contracts in order to re-open mines (see box 10-A).

Most companies invested in new technology

for mines, mills, smelters, and refineries, or added low-cost SX-EW capacity. For example, automated controls at all stages of copper production

provide increased operating efficiency and are

now installed at almost all operations. Those companies that had not yet modernized their smelters

and/or furnaces did so. In addition, at least one

operation—Kennecott—underwent major mine

modification, including the addition of in-pit

crushing and conveying equipment. PD also converted its Morenci mine from rail to truck haulage

and plans to install in-pit crushing and conveying.

A few companies actually expanded their

operations by either purchasing developed copper properties, or increasing the capacity of their

existing mines or processing facilities. Copper

Range improved mine and mill efficiency and

thereby substantially increased throughput. For

Asarco and PD, expansion was part of a strategy

to improve the balance between mining and

processing capacity. In Asarco’s case, such a strategy was needed because they historically were

not a mining company and wished to acquire a

secure supply of feed for their smelters. For PD,

a mine acquisition replaced mining capacity shut

down or soon to be depleted. Cyprus also bought

significant new capacity, in part to fill out their

operations after they were spun off by Amoco

Minerals, and in part to replace properties that

were closed during this period.

Other companies cut back production in response to the decreased demand and increased

imports of the early to mid-1980s. Partial capacity utilization is a sub-optimal policy for many

mines, however. Full closure may be more advantageous if the closure costs are less than the

mine’s anticipated operating losses during the

period of depressed prices. 73

Several firms either sold or spun off all of their

copper operations, and are no longer in the copper business in the United States. After purchasing Cyprus Mines in 1979, Amoco Minerals spun

off this subsidiary to the shareholders in 1985.

Similarly, Newmont Mining spun off 80 percent

of Magma Copper (including Pinto Valley) in

1986. Newmont still owns shares in foreign copper properties. Arco/Anaconda, Cities Service,

and Louisiana Land sold or closed permanently

and wrote off all of their domestic copper operations. 74

TJEvans, supra note 10.

zqLouisiana Land sold the Copper Range refinery to Echo Bay,

which plans to sell it to Northern Copper Co. (operating as Copper Range) within the next couple of years.
247

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x

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x

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x x x :xXx “ x

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x x x .xX x . x

x

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x

x

“ x “ x

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“ x :Xx

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248

Box 10-A.—State and Local Assistance and Cost

Concessions Obtained by Montana Resources

and Copper Range

In 1985, Washington Construction, a Montanabased firm, purchased the assets of Anaconda’s

Butte operations for $7 million intending to salvage

them for scrap. After conferring with Anaconda’s

former general manager, however, Washington

Construction determined that the mine and mill

could reopen profitably. The State and local governments, eager to see the operation contributing to the economy once again, quickly granted

the necessary permits. The State also procured

a $12 miIlion Iine of credit to underwrite startup

costs. The county granted an $8 miIIion tax cut.

The company obtained a 12 cent/lb reduction

in the transportation and refining costs Anaconda

had paid to ship the concentrate by rail to California and have it processed in Japan. The local

power company granted lower rates for electricity. Finally, the number of workers was cut

almost 50 percent, and the top wage went from

$22/hrto$13/hr. As a result, when the East Berkeley Pit reopened early in 1986 as Montana Resources, Inc., it was reportedly mining copper

for 58 cents/lb, compared to Anaconda’s 97

cents/lb. 1

Louisiana Land purchased Copper Range (the

White Pine, Michigan mine) in 1977, but closed

the high-cost underground operation in 1982 to

cut losses, In 1984, Echo Bay acquired most of

the assets of Copper Range as part of the purchase of a Nevada gold mine. A year later,

Northern Copper–a newly-formed firm consisting primarily of former White Pine managers and

employees—bought the mine and smelter for

$32 million. The financing was arranged by Salomon Brothers. The State of Michigan provided

a $4. s million loan and about $3 million in training and grants. Before the mine reopened, a new

labor contract was negotiated that brought total labor costs to below $12/hr, about $3/hr less

than at other union mines.2

‘‘ ‘There’s J Gleam In the Eye ot Copper Producer\, Buslnesj

tt’eclx 1986

“‘U S Industry Responds to E)r.]rnatlc Change\ In world Role, ’

C-RLI Copper .SIdle$, VOI 14, No 4, oct 198 6

Future Industry Options

As a result of actions taken during the early

to mid-1980s, the domestic copper industry is

now competitive in world markets, although at

the cost of production capacity and market

share. However, next time the price drops—

whether due to a recession or new producers creating an oversupply—it is likely to go lower than

it did in 1984 (perhaps as low as 40 cents/lb), and

stay low longer. To be competitive at that price,

domestic producers will need entirely new process technologies (e. g., in situ solution mining) or

a captured market. This will require investments

in R&D now, as well as new ways of thinking

about their product.

Research and Development.–Direct R&D

spending in the primary copper industry is low,

averaging less than 1 percent of sales in 1986.75

This compares to an overall average for the metals and mining industry of almost 2 percent of

sales (see table 10-6), and a national industrial

average of 3.5 percent of sales. ’G The mining in7Jl~ exploration expenditures were included, this fraction would

be higher,

T6Bu$lness Week, supra nOte 65.

Table 10-6.—1986 R&D Expenditures in Selected

Industrial Sectors

R&D expenditures as a

Sector percent of sales

Aerospace ., ., 4.5%

Automotiv e 3.7

Chemicals 4.1

Drugs ~ ~ 7.8

Electrica l 3.3

Electronic s 4,4

Fuel 0.8

Information Processing–Computers ... 8.3

Information Processing–Software 7.7

Instruments and Controls ~ 6.7

Machinery–Industrial and Mining 3.3

Metals and Mining , . 1.8

Semiconductors. ~ ~ ~ 12.2

Stee l 0.5

Telecommunications 5.1

Textile s , , , 0.8

SOURCE “R&D Scoreboard, ” Business Week, June 22, 1987.
249

dustry considers exploration to be research, and

traditionally has sought better deposits rather than

better technology. Members of the copper industry argue that most innovations are developed by

equipment vendors, yet the Industrial and Mining Machinery sector also lags behind the national

average in R&D expenditures. Further, the U.S.

mining machinery industry has consistently lost

market share to foreign competitors throughout

the 1980s, and currently is operating with substantial excess capacity. 77 If this trend continues,

their R&D expenditures can be expected to decline. Further shifts of R&D to overseas also will

shift the research’s focus to solving foreign

problems.

One option for increasing the level of R&D

on production technology is for the domestic

copper industry to actively pursue cooperative

research ventures involving copper companies,

vendors, universities, and government agencies.

Anti-trust and patent concerns about such ventures were addressed in the National Cooperative Research Act of 1984 (P. L. 98-462). In the

past, cooperative research has been limited to

vendors or the Bureau of Mines borrowing plant

space for small but time-consuming development

and demonstration projects—often the most expensive aspect of R&D. Within the last year, all

these groups have begun to explore avenues for

cooperative research in an organized way. One

concern is the continuity of funding from all parties once a project is underway.

New Copper Products.-The domestic copper

industry is still faced with competition for markets, both from foreign imports and from other

metals and materials (e.g., aluminum). If they

want to offset further market losses, two basic

options are available—expand sales in current

markets or develop new products and uses for

copper and market them aggressively.

The companies argue that marketing for expansion would be futile because they already are sell771TA, supra note 8.

ing all the copper they produce. In the same

breath, they complain about idle capacity and

low prices due to excess supplies. Simultaneously

developing new markets and capturing a larger

share of them could address both problems.

One key to expanding sales is marketing based

on product differentiation. Superior quality may

command higher prices in the marketplace, making production costs less significant.78 Although,

copper traditionally has been considered a nondifferentiable commodity of uniform quality, at

least one domestic company prides itself on the

quality of its final product–copper rod. That

company brags that its final metallurgical testing

is good enough to produce a zero rate of rejects

during wire manufacture. indeed, if a wire customer complains about breakage or other failures, the company sends consultants to visit the

wire plant to trace the source of the problem

there. Yet this company advertises neither the superior quality of its product nor its backup services. product differentiation based on quality is

likely to become more important as specialty copper alloys and high-technology applications such

as superconducting materials occupy an increasing share of the end-use market.

Similarly, copper has properties that make it

superior to the materials that often are substituted

for it. When faced with direct market threats (e.g.,

aluminum wiring in houses), copper industry

associations have publicized the disadvantages

of the substitute material. Yet neither individual

companies nor their associations regularly advertise copper as part of a consistent strategy of market development. In contrast, one of copper’s

major competitors—the aluminum industry—

regularly advertises both its product and its innovative research programs in the trade press.

zBNote also the difference in table 10-6 for R&D expenses for the

two extractive industries (fuel and metals/mining), which see little

opportunity for product differentiation, \’ersus the remaining manufacturing and processing industnes, wh~ch can profit from differentiation.
250

Where Muriel

Gets Her

Muscle

Mighty Muriel can lift 1,000 aluminum beverage

can bodies.

No mirrors No invisible wires It’s all done with a series

of technological breakthroughs that have thinned the

walls of the latest can bodies down to 0038:"

Early beverage cans were steel, 1000 empties weighed

over 100 pounds. By 1975, new aluminum alloys had reduced the load to 43.5 pounds And today?

What Muriel is demonstrating is brains, not brawn. It’s

now practical to get 1,000 bodies out of 25 pounds of

metal–because Alcoa scientists developed remarkably

tough alloys for rigid container sheet the automated

processing to keep thin sheet consistent in properties

and gauge, and a whole family of new lubricants to

adapt these ultra-thin gauges to high-speed processing

by canmakers and beverage companies.

And now, for an encore...

These same advances plus a few more have made

aluminum competitive not only for beverage cans but

for food cans as well. And we’ve been working on new

laminates. composites, and polymers that will figure

prominently in the comingage of aseptic and highbarrier food packaging.

We’re out to make a material difference,

and our progress is accelerating.

For a closer look at what’s happening

at Alcoa Laboratories, send for

our book, The Material Difference.

Write to Dr. Peter R. Bridenbaugh,

Vice President–Research &Development,

Box One, Alcoa Laboratories,

Alcoa Center, PA 15069.

Photo credit: Engineering and Mining Journal

An aluminum company advertisement highlighting product research.
251

Another aspect of product differentiation

through marketing is based on the advantages of

purchasing from domestic producers. For example, orders can be filled more quickly. In the past,

fabricators and manufacturers often heId large

stockpiles as hedges against price increases

and/or supply shortfalls. In today’s tight economy,

this can be disadvantageous to cash flow. Many

consumers already have changed their purchasing policy to smaller stockpiles; using domestic

supplies facilitates this policy. Reliance on

domestically-produced copper also would make

return and replacement of defective products

simpler.

Finally, a “Buy American” campaign backed

up with ads about the problems faced by the domestic copper industry could be very effective—

especially if aimed toward the effects of imports

on domestic capacity and employment. Purchasing foreign products and components means not

only losses of present domestic employment and

market share, but also the advancement of foreign manufacturing expertise and thus future market share. This includes larger volumes over

which to spread manufacturing, tooling, and R&D

costs; an accelerated learning curve; and expanded opportunities for innovation, and process development and demonstration. ’g

R&D for developing new products and uses

for copper shares a common problem with research on mining and processing technologies—

the primary copper industry assumes the consumers (including the government) will take the

initiative. Associations representing the primary

copper industry regularly publicize promising

new applications, but do little direct research. Yet

other metals in decline have found cooperative

R&D with major consumers on new products

very promising. Box 10-B presents an example

from the steel industry.

79K. K. Kappmeyer, “Steel/Auto Partnership: A Blueprint for Competitive Advantage, ” Materia/s and Society, \ol. 11, No. 2, 1987.

Box IO-B.—Cooperative Steel/Auto Industry Research1

In the early 1980s, the steel industry began to take an active role in dealing with trends related to

substitution of materials, and foreign capture of markets, for steel parts in the automotive industry. This

began as a defensive move and gradually shifted to aggressive action to create a domestic competitive

advantage.

The American Iron and Steel Institute (AISI), the trade association for the North American steel industry, has an Automotive Applications Committee that sets priorities for, and commissions original research

on, the use of steel in the automotive industry. It also educates the U.S. automotive industry about the

effects of materials substitution on domestic competitiveness (i e., the Japanese auto industry is more competitive with steel parts than the domestic industry is with plastics and composites).

Recognizing that the competitive futures of the American steel and auto industries are intertwined,

the steel industry began seeking solutions that would help both. An early initiative was seminars for steel

industry executives; the speakers were advanced product engineers in the auto industry. The aim was

to discuss differences between what the steel industry was producing (under 30-year old process and product

standards) compared with what the auto industry needed.

The seminars resulted in three major projects: 1 ) a design manual prepared by a task force of 9 steel

company representatives, 13 auto company advisors, and a wide variety of outside consultants in, e.g.,

welding and computerized structural design; 2) a commissioned study of the relative tooling costs for steel

and plastics to determine what influences steel tooling costs and to initiate steps to lower them; and 3)

analyses of gauge specifications, materials characteristics and uniformity, and manufacturing costs and

their relationships to product uniformity, intended to reduce auto manufacturing costs.

In addition, this steel/auto partnership established a University Steel Resource Center at Northwestern

University. The Center aims to bring steel producers and consumers together to work on common technical and institutional issues. AISI provides direct funding; Northwestern obtains State and local support.

) K K Kappmeyer, ‘ ‘Steel Auto P.]rtner\hlp A F3[ueprlnt for Competttl\ e ,4dvantage, ’ tl.~terI.?/s ,Jnd .$OC Iet) , \ 01 11 no 2 198 7
252

The chief advantages of the strategies described

in box 1O-B are knowing the needs of the consumers and being able to find ways of serving

those needs with copper rather than alternative

materials. Attempts to ascertain customer needs

also create a positive external image that would

be useful in designing marketing and promotion

policies.

One difference between the steel industry example and the copper industry is that very exacting standards for particular uses of copper

have existed for some time (e.g., electrolytic copper, oxygen-free copper; see ch. 6). However,

steel industry studies will produce analyses of “as

received” variability, which could support marketing based on product quality. In the copper

industry, similar analyses could examine the extent to which delivered products met established

standards (e,g, based on percentage of product

returns for failures during fabrication or manufacturing), and therefore consumer costs associated with such failures.

A second approach to giving more attention

to demand is modeled on the aluminum industry’s strategy. Trends in aluminum originally were

similar to those in copper. Aluminum production

expanded into a global business, and the U.S.

share of world capacity dropped. Although most

ore had always come from overseas mines, they

were controlled by U.S. firms. Then many foreign mines were nationalized, and a growing percentage of new capacity is government-controlled.

The LME and COMEX began trading aluminum

ingot, and prices became volatile. Scrap emerged

as a growing source of supply. Expanding foreign

trade meant the United States became a net importer of ingot and increasingly of semi-fabricated

aluminum products. Profits dropped and some

companies went out of the aluminum business.

Others pursued strategies to ensure their positions

as viable aluminum producers with long-term

profitable growth. These strategies were much the

same as those followed by copper producers

(plant modernizations, renegotiated contracts,

etc. ) with one major exception—the aluminum

industry expanded into more value added aluminum products and related businesses (see box

1 o-c).

Box IO-C.—Forward Integration in the

Aluminum lndustry1

To maintain profitability, many of the major

aluminum companies have undertaken strategies of forward integration into value added

products and/or diversification into non-aluminum (but mostly materials-related) businesses.

Alcoa has done both simultaneously. In the

value added products area, Alcoa is now producing aluminum memory disks for the computer industry instead of just aluminum blanks.

Alcoa hopes to have 25 percent of sales from

non-aluminum products by 1990, up from 10

percent in 1984. They have acquired a defense

materials research company, and are applying

what they know about aluminum to other materials to aid in ventures in structural ceramics,

chemical separations, and polymer packaging.

Reynolds is continuing to pursue fabricated

and value added aluminum products. They introduced a new line of aluminum can sizes plus

a new nitrogen technology for packaging. Also,

combining aluminum and plastic, Reynolds has

developed a lightweight meal pouch for military

use.

Kaiser already was very diverse, including oil

and gas ventures, and real estate. They have now

forward-integrated into aluminum memory disks.

Alcan entered the U.S. market by purchasing

Arco’s aluminum assets. They are developing the

new business through new projects, joint ventures, and acquisitions in the areas of aerospace,

packaging materials, electronics, and communications and transportation markets.

‘Joseph J. Trlbendls, “The U.S. Aluminum Industry: Into Its Second Century, ” Materials and Society, vol. 10, no. 2, 1986.

A significant difference between the two industries is that copper historically has experienced

demand growth from electricity and communications. Thus investment strategies focused on

production rather than consumption. As the

number of copper producers grew, the companies dis-integrated vertically. The technologies

associated with fabrication and manufacture of

copper products became standardized, which led

to numerous independent fabricators.
253

In the aluminum industry, in contrast, early

high prices limited use and cheaper and more

abundant metals captured markets. When the

aluminum price did come down with the invention of electrolytic processing, the major companies adopted aggressive market expansion as their

central policy. They integrated vertically toward

production of consumer products, created new

applications through R&D, and undertook an intensive campaign to publicize and promote the

advantages of their products. This strategy made

it possible to charge lower prices for products

competing with those manufactured from copper, steel, brass, pewter, or glass, and thus capture a significant share of those markets.80

Aluminum’s success highlights the advantages

of integrating operations forward to create demand. Yet during the copper industry’s recent

restructuring, significant further dis-integration

occurred. Although most major U.S. copper

80Jose Luis Mardones et al, “The Copper and Aluminum lndustnes: A Review ot’ Structural Changes, ” Resources Po/icy, March

1985,

refineries also produce continuously cast rod,

most ties between copper mines and wire and

brass mills have been severed. Historically, these

ties were valuable to ensure low-cost, secure supplies of copper. With the changes in pricing, and

the increased supply of foreign copper and scrap,

however, the traditional reasons for strong ties

between mining and fabrication have disappeared. For example, in 1980, PD had 15 mills

and plants producing tube, brass and bronze alloy products, cable wire rod, and other manufactured products. As part of their asset restructuring program, PD has since sold all of their

downstream fabricating and wire business except

magnet wire.

Essentially, the copper producers consider vertical integration to be competing with their customers. Demand growth is no longer rapid, however, and coupling forward integration with the

development of new products and uses could be

effective in helping the domestic copper industry retain their market share.
— u

a

Q

x

CD

u)
Appendix A

Acronyms and Abbreviations

ACRS —accelerated cost-recovery system

AD —antidumping

AIDS —acquired immune deficiency

syndrome

AZ –Arizona

BC –British Columbia

BH:EM&R –Brook Hunt cost data published by

the Canadian Department of Energy,

Mines, and Resources

BH:WB –Brook Hunt cost data published by

the World Bank

BP –British Petroleum

Btu –British thermal unit

BuMines –U.S. Bureau of Mines

CBO –Congressional Budget Office

C

3

I —command-communication-controlintelligence systems

CDA –Copper Development Association

CFF –Compensatory Financing Facility

CIPEC –intergovernmental Council of Copper

Exporting Countries

cm —centimeter

CODELCO –Corporation Nacional del Cobre de

Chile

COMAT –Committee on Materials

COMEX –Commodity Exchange of New York

CRS –Congressional Research Service

Cu2S —chalcocite

Cu —copper

CVD —countervailing duty

DC/DA –double contact/doubIe absorption

DMA –dimethylaniline

DPA –Defense Production Act

E&MJ –Engineering and Mining Journal

EEC —European Economic Community

EIS —environmental impact statement

ENAMI —Empresa Nacional de Mineria

EPA –Environmental Protection Agency

Fe —iron

FGD –flue gas desulfurization

FTA –U.S.-Canada Free Trade Agreement

GAO –General Accounting Office

GATT –General Agreement on Tariffs and

Trade

Gécamines –La Générale des Carrières et des

Mines du Zaire

GNP –gross national product

GSP –Generalized System of Preferences

H2S 04 —sulfuric acid

ICCC —Inspiration Consolidated Copper

Company

IFI

IMF

IRR

ITA

ITC

kt

ktpy

kWh

I

lb

LDC

LME

MEC

M I

mt

MT

mtpy

NA

NAAQS

NCCM

NEPA

NFMPC

NM

NPDES

NSW

NV

NYPP

OP

OTA

PD

PNG

R&D

RCCM

RCRA

ROW

RPPI

s

SC/SA

Si

SO*

SX-EW

tpy

tr oz

Us.

—international financial institution

–International Monetary Fund

—internal rate of return

–International Trade Administration

—International Trade Commission

—thousand metric tonnes

—thousand metric tonnes per year

–kilowatt-hour

–liter

–pound

–less developed country

–London Metal Exchange

—market economy country

—milligrams

–Michigan

—metric tonnes

–Montana

—metric tonnes per year

—not available or not applicable

–National Ambient Air Quality

Standards

–Nchanga Consolidated Copper

Mines, Ltd.

–National Environmental Policy Act

–Non-Ferrous Metals Producers

Committee

–New Mexico

–National Pollution Discharge

Elimination System

–Non-Socialist World

–Nevada

–New York producer price

—open-pit

–Office of Technology Assessment

–Phelps Dodge

–Papua New Guinea

—research and development

–Roan Consolidated Copper Mines,

Ltd.

–Resource Conservation and Recovery

Act

—rest-of-world (i.e., non-U. S.)

—relative purchasing power index

—sulfur

—single contact/single absorption

—silicon

—sulfur dioxide

—solvent extraction-electrowinning

—tonnes per year

—troy ounce

–United States

257
258

UG —underground USGS –U.S. Geological Survey

μ —micrometer UT –Utah 

UNCTAD –United Nations Conference on Trade WBMS —World Bureau of Metal Statistics

and Development ZCCM —Zambia Consolidated Copper Mines

UNIDO –United Nations Industrial Ltd.

Development Organization
Appendix B

Glossary

ADIT: Underground mine entrance.

ALLOY: A material composed of two or more metals

(or a metal and nonmetal).

ALLUVIUM: Deposits of silt or silty clay laid down

during floods in relatively recent times (geologically).

ANODE COPPER: The product of fire refining, termed

anode because it is the positive terminal in the electrolytic cell for electrorefining.

AUTOGENOUS: Occurring or produced without external influence or aid; ore grinding is said to be

autogenous when it is done using pieces of ore without the use of steel balls or rods or other grinding

media.

AZURITE: A deep-blue to violet-blue mineral:

CU3

( C O3,(OH)2. A common secondary mineral

associated with malachite in the upper (oxidized)

zones of copper veins.

BENEFICIATION: Improvement of the grade of ore

by milling, flotation, or other processes.

BLISTER COPPER: The product of smelting, called

“blister” because the residual sulfur and oxygen

form bubbles on the surface as the metal cools.

BORNITE: A mineral, Cu5FeS4, isometric, reddishbrown, readily tarnishing to iridescent blue or purple “peacock ore”.

BRASS: An alloy of copper and zinc.

BRONZE: An alloy of copper and tin.

BYPRODUCT: A metal (e.g., molybdenum, gold, silver, cobalt) or other substance (such as sulfuric acid)

produced in addition to the principal product, and

whose value is substantially less than that of the

principal product.

CALCINE: The partially oxidized copper resulting

from roasting.

CARBONATES: Mineral compounds characterized by

the fundamental anionic structure of C033

-2

.

CATHODE: The product of electrorefining, the most

common primary copper product.

CHALCOCITE: A black or dark lead-gray mineral:

CU2S.

CHALCOPYRITE: A bright brass-yellow tetragonal

mineral: CuFeS2 (copper pyrite).

CHRYSOCOLLA: A mineral, (Cu,Al)2H2Si205

(OH) 4.

nH2O, that usually occurs as green to blue-green

incrustations and thin seams in the oxidized zone

of copper sulfide deposits.

COMMINUTION: The reduction of ore to a fine powder (pulverization) to prepare it for further processing.

CONCENTRATE: The valuable fraction of ore that is

left after worthless material is removed in processing. In copper production, concentrates are the result of beneficiation, and are sent to the smelter for

further processing.

CONDUCTIVITY: The quality or power of conducting or transmitting, usually heat or electricity.

ELECTRICAL CONDUCTIVITY: The ratio of the electric current density to the electric field in a material.

MASS CONDUCTIVITY: The measurement of electrical conductivity based on the mass of the conducting material.

VOLUMETRIC CONDUCTIVITY: The measurement

of electrical conductivity based on the volume of

the conducting material.

CONGLOMERATE: A coarse-grained rock composed

of fragments larger than 2 mm in diameter set in a finegrained matrix of sand or silt; the consolidated equivalent of gravel.

CONVERTING: The chemical conversion, using heat,

of matte to blister copper, slag, and sulfur dioxide.

COPPER: A reddish or salmon-pink isometric mineral,

the native metallic element Cu.

CO-PRODUCT: A metal (e.g., molybdenum, gold, silver, cobalt) or other substance (such as sulfuric acid)

produced in addition to the principal product, and

whose value is roughly equal to that of the principal

product.

COUNTRY ROCK: The rock enclosing or traversed by

a mineral deposit or vein, or by an igneous intrusion.

COVELLITE: An indigo-blue hexagonal mineral: CuS.

It is a common secondary mineral and an ore of

copper.

CUPRITE: A red isometric mineral CU2O.

DENSITY: The mass or quantity of a substance per

unit volume, usually expressed in grams per cubic

centimeter.

DEPOSITION: The laying down of rock-forming material by any natural agent, such as the settling of

sediment from water.

DRIFT: A horizontal underground passage driven

along a mineral vein.

DUCTILE: Said of a rock that is able to sustain 5-10

percent deformation before fracturing or faulting.

ELECTROMETALLURGY: The branch of process

metallurgy dealing with the use of electricity for

smelting or refining of metals. The electrochemical

effect of an electric current brings about the reduction of metallic compounds, and thereby the extraction of metals from their ores (electrowinning) or

the purification of the metals (electrorefining).

ELECTROREFINING: A purification process in which

an impure metal anode is dissolved electrochemically in a solution of a salt of the metal being re259
260

fined; the pure metal is recovered by electrodeposition at the cathode.

ELECTROWINNING: The recovery of a metal from

its ore by dissolving a metallic compound in a suitable electrolyte and reducing it electrochemically

through passage of a direct electric current.

EXOTHERMIC: Pertaining to reactions that generate

heat.

EXPLORATION: The search for and discovery of new

mineral deposits, plus the evaluations necessary to

make a decision about the size, initial operating

characteristics, and annual output of a potential

mine.

FAULT: A fracture or fracture zone along which there

has been displacement of the sides relative to one

another and parallel to the fracture.

FLOTATION: The separation of materials by agitation

in a chemical solution.

GANGUE: The valueless rock or mineral aggregates

in an ore; that part of an ore that is not economically desirable but cannot be avoided in mining. It

is separated from the ore minerals during concentration.

GEOBOTANY: The visual study of plants and their distribution as indicators of soil composition and

depth, bedrock Iithology, the possibility of ore bodies, and groundwater conditions.

GEOCHEMISTRY: The study of the distribution and

amounts of the chemical elements in minerals, ores,

rocks, soils, water, and the atmosphere.

GEOLOGIC MAP: A map on which is recorded the

distribution, nature, and age relationships of rock

units and the occurrence of structural features.

GEOLOGIC STRUCTURE: The attitude and relative

positions of the rock masses of an area; the sum total of structural features resulting from such processes as faulting, folding, and igneous intrusion,

GEOPHYSICS: Study of the physical properties of the

earth (e.g., magnetism) by quantitative physical

methods. The geophysical properties and effects of

subsurface rocks and minerals that can be measured

at a distance with sophisticated electronic equipment include density, electrical conductivity, thermal conductivity, magnetism, radioactivity, elasticity, specific gravity, and seismic velocity.

GEOSTATISTICS: The use of statistical methods to describe or analyze geological data.

GLANCE: A mineral that has a splendid luster.

GOSSAN: An iron-bearing weathered product overlying a sulfide deposit. Gossan is formed by the oxidation of sulfides and the leaching-out of the sulfur and most metals, leaving hydrated iron oxides

and, rarely, sulfates.

GREEN FIELD: A new project or facility.

HALO: A circular or crescent-shaped distribution pattern about the source of a mineral or ore. A halo

is encountered principally in magnetic and geochemical surveys.

HOST ROCK: Rock that is older than rocks or

minerals introduced or formed within it.

HYDROCYCLONE: A centrifugal device for separating materials according to weight or size.

HYDROMETALLURGY: The extraction and recovery

of metals from their ores by processes in which

aqueous solutions play a predominant role. Two distinct processes are involved in hydrometallurgy:

transferring the metal values from the ore to solution via leaching; and recovering the metal values

from solution.

HYDROTHERMAL ALTERATION: Alteration of rocks

or minerals by the reaction of hot water.

IGNEOUS: Describing a rock or mineral that solidified from molten or partly molten material, i.e., from

a magma; also, applied to processes relating to the

formation of such rocks. Igneous rocks constitute

one of the three main classes into which rock as

classified, the others being metamorphic and

sedimentary.

INTRUSIVE: 1) Describing the emplacement of

magma in pre-existing rock, or the rock mass so

formed; 2) describing an injection of sedimentary

material under abnormal pressure, or a rock or

structure so formed.

LEACHATE: A solution obtained by leaching.

LEACHING: 1 ) The extraction of soluble metals or

salts from an ore by means of slowly percolating solutions; e.g., the separation of copper by treatment

with sulfuric acid. 2) The dissolving of soluble constituents from a material by the natural action of percolating water; e.g., the leaching of metals from

mine wastes.

LINEAMENT: A linear topographic feature of regional

extent that is believed to reflect the underlying structure of the earth’s crust.

LITHOLOGY: The description of rocks on the basis

of characteristics such as color, mineralogic composition, and grain size; the physical character of

a rock.

MALACHITE: A bright green mineral, CU2C O3

(OH) 2.

A common secondary mineral associated with

azurite in the oxidized zone of copper sulfide deposits.

MALLEABLE: Capable of being extended or shaped

(e.g., by pressing with rollers or beating with a

hammer).

MASSIVE SULFIDE DEPOSITS: Any mass of unusually

abundant metallic sulfide minerals.

MATTE: The molten product of smelting.

METALLURGY: The science and art of separating metals from their ores and preparing them for use, as

by smelting and refining.

METRIC TONNE: A unit of weight equal to 1000 kilo-
261

grams. 1 metric tonne = 1.1 short tons = 2204.6

pounds.

MOLYBDENITE: A lead-gray hexagonal mineral:

MoS2

. It is the principal ore of molybdenum, MoIybdenite generally occurs in foliated masses or scales,

and is found disseminated i n porphyry.

MOLYBDENUM: An element, Mo, often produced as

a byproduct of copper mining.

ORE GUIDES: Associations of geologic and other factors such as rock types, geologic structures, or alteration zones that may indicate the presence of an

ore body.

OUTCROP: That part of a geologic formation or structure that appears at the surface of the earth.

OXIDATION: The addition of oxygen to a compound

or the removal of an electron from an atom, ion,

or element (opposite of reduction).

OXIDE: A mineral compound characterized by the

linkage of oxygen with one or more metallic elements, such as cuprite (CU2O).

OXIDIZE: To add oxygen to a compound, or otherwise cause an atom, ion, or element to lose an electron (opposite of reduce).

PHENOCRYSTS: One of the relatively large and ordinarily conspicuous crystals of the earliest generation in a porphyritic igneous rock.

PHOTOGEOLOGY: The geologic interpretation of

aerial photographs.

PORPHYRY: An igneous rock of any composition that

contains conspicuous phenocrysts in a fine-grained

ground mass.

PORPHYRY COPPER DEPOSIT: A large body of rock,

typically porphyry, that contains disseminated chalcopyrite and other sulfide minerals. Such deposits

are mined in bulk on a large scale, generally in open

pits, for copper and byproduct molybdenum. Supergene enrichment has been very important at

most deposits, as without it the grade would be too

low to permit mining.

PREGNANT LEACHATE: Leachate laden with mineral

values and ready for further processing.

PROSPECT: An occurrence of minerals of potential

value before that value has been determined by exploration and development.

PUDDING-STONE: A conglomerate consisting of

well-rounded pebbles whose colors are in marked

contrast with the surrounding matrix.

PYROMETALLURGY: The extraction of metals from

ores and concentrates through processes employ -

ing chemical reactions at elevated temperatures.

REAGENT: A substance used because of its chemical

or biological activity, such as the reagents used in

froth flotation to make the copper minerals water

repellent (hydrophobic) without affecting the other

minerals.

RECONNAISSANCE: A general, exploratory examination or survey of the main features of a region.

REDUCE: To remove oxygen from a compound, or

otherwise cause an atom, ion, or element to gain

an electron (opposite of oxidize).

REDUCTION: The removal of oxygen from a compound or the addition of an electron to an atom,

ion, or element (opposite of oxidation).

ROASTING: In pyrometallurgical processes, the treatment of ore or concentrates to dry and/or preheat

the material prior to smelting, and/or to partially oxidize the sulfur content to suIfur dioxide for environmental control. In hydrometalIurgical processing, roasting converts sulfide minerals to more easily

leachable oxides and sulfates, and generates sulfuric

acid for leaching. The product of roasting generally

is called calcine.

SEDIMENTARY: Pertaining to or containing sediment,

or formed by its deposition.

SEMI-AUTOGENOUS: Occurring or produced with

only partial external influence or aid; ore grinding

is said to be semi-autogenous when it is done using

pieces of ore mixed with a minimal amount of pebbles, steel balls or rods, or other grinding media.

SHAFT: A vertical passage drilled to gain access to a

mineral deposit or vein for underground mining.

SILICATES: Compounds whose mineral structure contains SiO4 tetrahedral, either isolated or joined

through one or more of the oxygen atoms to form

groups, chains, sheets, or three-dimensional structures with metallic elements.

SMELTER: A plant or section of a plant where roasting (optional), smelting, and converting take place.

SMELTING: The chemical conversion, using heat, of

copper concentrates or calcines to matte, slag, and

sulfur dioxide.

SOLUTION MINING: The dissolving of mineral components from an ore (i.e., leaching). In situ solution

mining leaching solution trickles downward through

the fractured ores or old mine workings to a deeper

collection point.

SOLVENT: A usually liquid substance capable of dissolving or dispersing one or more other substances.

SOLVENT EXTRACTION: The separation of materials of different chemical types and solubilities by

selective solvent action (some materials are more

soluble in one solvent than in another, hence there

is a preferential extractive action).

STOPE: An underground excavation formed by the

extraction of ore.

STOPING: Extraction of ore in an underground mine

by working laterally in a series of levels in the plane

of a vein.

STRATA-BOUND: Mineral deposits confined to a single stratigraphic unit. The term can refer to a strati-
262

form deposit, to variously oriented orebodies contained within the unit, or to a deposit containing

veinlets and alteration zones that may or may not

be strictly conformable with bedding.

STRATIFORM: Having the form of a layer or bed.

SULFIDES: Mineral compounds characterized by the

linkage of sulfur with one or more metals (e.g.,

galena–PbS; pyrite–FeS2

; chalcocite–Cu2S).

SUPERGENE ENRICHMENT: The near-surface processes of mineral deposition, in which oxidation

produces acidic solutions that leach metals, carry

them downward, reprecipitate them, thus enriching sulfide minerals already present.

THERMAL CONDUCTIVITY: The rate of heat flow by

conduction per unit area per unit temperature

gradient.

TROY OUNCE: A unit of weight. 12 troy ounces =

1 pound.

WEATHERING: The physical disintegration and

chemical decomposition of rock through exposure

to atmospheric agents, producing an in-place mantle of waste and preparing sediments for transportation.
Appendix C

Acknowledgments

We are grateful to the many individuals who shared their special knowledge, expertise, and information

about the copper industry, copper markets, and production technology with the OTA Staff in the course of

this study. Others provided critical evaluation and review during the compilation of the report.1

Robin Adams

Resource Strategies Inc.

Jon K. Ahlness

U.S. Bureau of Mines

T S Ary

U.S. Bureau of Mines

Kenneth J. Barr

Cyprus Minerals Inc.

Aldo Barsotti

U.S. Bureau of Mines

Gary Baughman

Colorado School of Mines

Julie Beatty

Resource Strategies Inc.

Harold Bennett

U.S. Bureau of Mines

John Bennett

U.S. Bureau of Mines

Sandy Blackstone

University of Denver

James Boyd

Newmont Mining Corp.

John Breslin

U.S. Bureau of Mines

Keith Brewer

Canadian Department of

Energy, Mines and Resources

David Brown

U.S. Bureau of Mines

Charles S. Burns

Phelps Dodge Corp.

Audrey B. Buyrn

Office of Technology

Assessment

Duane Chapman

Cornell University

David Cole

Colorado Mining Association

James Cooney

British Columbia Office of the

Federal Economic

Development Coordinator

John Cordes

Colorado School of Mines

Philip Crowson

Rio Tinto Zinc Corp.

James W. Curlin

Office of Technology

Assessment

Roger Dewey

Denver, Colorado

Denny Dobbin

U.S. Public Health Service

Phil Drury

U.S. Department of Commerce

Daniel Edelstein

U.S. Bureau of Mines

Roderick Eggert

Colorado School of Mines

Herman Enzer

U.S. Bureau of Mines

Brian E. Felske

Brian E. Felske & Associates

Ltd.

Frank Fisher

U.S. Bureau of Mines

Patricia Foley

CRU Consultants Inc.

Michael Fraser

Cyprus Minerals Inc.

R.J. Fraser

AM&S Mining Pty., Ltd.

Robert Friedman

Office of Technology

Assessment

Bernard Gelb

Congressional Research Service

David Glancy

U.S. Department of Commerce

John Gracey

JACA Corp.

William Grant

Utah International Inc.

Sidney Green

TerraTek

Dorothy Gusler

AMAX inc.

Graham Haclin

Brook Hunt and Associates,

Ltd.

Frank Harris

Magma Copper Co.

George M. Hartley

Copper Development

Association

Thomas Henrie

Salt Lake City, Utah

Clifford Hicks

Arizona Department of Mines

and Mineral Resources

James Hill

New Mexico Department of

Energy and Minerals

Dale Huff man

Cyprus Minerals Corp.

Simon Hunt

Brook Hunt and Associates,

Ltd.

Garret R. Hyde

U.S. Bureau of Mines

Wayne Jackson

U.S. Bureau of Mines

Kenan Jarboe

Office of Senator Bingaman

Warren Jenkins

Copper Range Co.

1 AttI I I at Ion gI\ en I\ that ~t the time o? consu Itatlon wit h OTA statt

263
264

Jeremy Johnson

Chase Manhattan Bank

Janice Jolly

U.S. Bureau of Mines

Dan Kimball

National Park Service

Keith Knoblock

American Mining Congress

Frank Kottlowski

New Mexico Bureau of Mines

and Mineral Resources

Judy Kowalski

Office of Technology

Assessment

Jerry Krim

U.S. Bureau of Mines

Philip Lapat

Newmont Services Ltd.

Gordon Lister

BP Minerals America

David Litvin

The Standard Oil Co

John Mclver

Magma Copper Co.

Stanley Margolin

Network Consulting

Chuck Marshall

JACA Corp.

Dan Maxim

(Ohio)

nc.

Everest Consulting Associates

Inc.

Joe Mayer

Copper and Brass Fabricators

Council

P.K. Rana Medhi

Cyprus Johnson Copper Co.

Stanley Miller

U.S. Bureau of Mines

Gordon Miner

U.S. Bureau of Mines

Paul Musgrove

Noranda Inc.

Richard Newcomb

University of Arizona

Nyal Niemuth

Arizona Department of Mines

and Mineral Resources

Anthony Oprychal

U.S. Bureau of Mines

AlIan Oshiki

Magma Copper Co.

F. Taylor Ostrander

AMAX Inc.

Krishna Parameswaran

Asarco Inc.

David Parker

Asarco Inc.

David Parker

Government of Western

Australia

Jack Parry

Magma Copper Co.

Richard Pendleton

Phelps Dodge Corp.

Kenneth Porter

U.S. Bureau of Mines

Tom Probert

BP Minerals America

R.J. Pursley

Arizona Mining Association

Paul Queneau

Hazen Research Inc.

Martin Robbins

Colorado School of Mines

Foundation, Inc.

Elizabeth Robinson

Morgan Guaranty Trust Co.

Emil Romagnoli

Asarco Inc.

Matthew ScanIon

Phelps Dodge Corp.

Tom Scartaccini

Asarco Inc.

John J. Schanz, Jr.

Congressional Research Service

Randall Scott

Pincock, Allen & HoIt, Inc.

William Shafer

House interior Committee

Monte B. Shirts

U.S. Bureau of Mines

Pamela Smith

U.S. Bureau of Mines

Louis Sousa

U.S. Bureau of Mines

Richard Sparks

Inspiration Consolidated Copper

co.

William Stewart

U.S. Bureau of Mines

David Stonfer

U.S. Department of Commerce

Simon D. Strauss

New Rochelle, New York

George Swisko

U.S. Bureau of Mines

Paul Thomas

Economics Institute

Gordon Thompson

Cominco Ltd.

John E. Tilton

Colorado School of Mines

Jake Timmers

Inspiration Consolidated Copper

co.

Al Tittes

Inspiration Consolidated Copper

co.

Thomas Terries

Terries & Associates

William A. Vogely

The Pennsylvania State

University

John L. Way

EXXON Minerals Corp.

Alfred Weiss

Mineral Systems Inc.

Dan Welker

Phelps Dodge Corp.

Robert Wilson

National Critical Materials

Council

J. Burgess Winter

BP Minerals America

Harry J. Winters, Jr.

Tucson, Arizona

Brian R. Woolfe

Magma Copper Co.

Robert Yuhnke

Environmental Defense Fund

Klaus Zwilski

National Materials Advisory

Board
Indexes

General Index

Acid markets, 202-203

Acid plants, 20, 163-166, 196

Acquired Immune Deficiency Syndrome (AIDS), 20, 75,

205

Advertising, 32-33, 249

Africa, 97, 99, 164

Air quality

Control costs, 20, 31, 168-170

Controls, 20, 31, 156-157, 163-168

Impacts, 162-163

Regulation, 27, 163, 206, 238, 241-242

Alaska, 49, 98

Albania, 85

Alcan, 252

Alcoa, 252

Aluminum, 9, 11, 32, 59-60, 79, 91, 250, 252-253

American Mining Congress, 32

American Society of Mechanical Engineers, 32

Amoco, 5, 50, 207, 226, 246-247

Anaconda Minerals, 5, 48, 49, 50, 52, 113, 163, 226,

242, 246-248

Angola, 205, 235

Arco Corporation, 50, 246-247, 252

Argentina, 92

Arizona, 12, 29, 40, 47, 48-50, 67, 69, 97, 133, 175,

179, 239, 243

Ajo, 49, 113, 166

Bisbee, 48, 49, 74, 109, 112, 193

Casa Grande, 126

Claypool, 50

Clifton/Morenci, 49, 112

Douglas, 13

Globe, 48-49, 113

Miami, 113

Arizona Copper Company, 49

Asarco, 5, 41, 42, 49, 50, 52, 163, 179, 202, 206, 212,

233, 246-247

Australia, 19, 39, 67, 70, 74, 92, 97, 197-201, 204,

206-207, 213-214, 215, 218

Automated controls, 19-20, 41

Automobile industry, 33, 76, 79, 251

Belgium, 70, 78, 83, 209, 213-214

BP Minerals America, 40, 50, 66, 202

British Metal Corp., 209

Brass mills, 27, 78

Brazil, 70, 74, 210

Broken Hill Proprietary, 207

Bulgaria, 85

Byproducts and co-products, 7, 92-94, 99, 202, 210-211

Arsenic, 162-163

Bismuth, 94

Cadmium, 94

Cobalt, 94, 210

Costs, 187

Elemental sulfur, 165

Gold, 92-94

Gypsum, 163

Iron, 94

Lead, 94

Liquid sulfur dioxide, 165

Molybdenum, 92-94

Nickel, 94

Silver, 92

Sulfuric acid, 20, 31, 81, 161-170, 196

Zinc, 94

Calumet & Arizona Mining Company, 49

Canada, 13, 20, 25, 26, 31, 39, 65, 67, 68, 70, 73-74,

82, 83, 92, 170, 197-201, 203-204, 210, 213-215,

217-218, 233-234

Capacity, 65-66, 188-189, 210, 216

Mine, 5, 39, 47, 53-54, 58, 74

Smelter, 20, 69

Refinery, 70

Capacity Utilization, 5, 19, 66

Centromin Peru S. A., 52, 69

Cerro, 206

Chile, 13, 15, 17, 19, 20, 39, 47, 49, 51, 52, 53, 54, 64,

65, 67, 69, 70, 72, 74, 75, 78, 81, 82, 83, 84, 92,

97, 170, 193, 197-201, 204, 210, 213-218, 234

CIPEC (Intergovernmental Council of Copper Exporting

Countries), 19, 31, 39, 235

Cities Service, 50, 246-247

Clean Air Act, 81, 82, 163, 170, 238, 241

Clean Water Act, 172, 238-239

CODELCO, 17, 51, 52, 67, 199-201

Coinage, 11, 27, 31, 246

Colombia, 208

Cominco, 204

Committee on Materials, 243

Commodity Exchange

Commodity Exchange of New York (COMEX), 54-56

London Metal Exchange (LME), 54-56

Pricing, 54-56

Comparative advantage, 222-223

Competitiveness, 15-16, 221-253

And staying power, 227-228

And technology, 16, 19-20, 226-227

Effects of environmental regulation, 240-242

Industry strategies, 246-253

Measures of, 221-228

Comprehensive Environmental Response, Compensation

and Liability Act (Superfund), 172, 239

Congressional Budget Office, 25, 229-230

Congressional Copper Caucus, 6

Construction industry, 10, 58, 76-77

Consumer goods, 10, 76-77

Consumption, 13, 16-19, 39-41, 63-65, 76-78

Converting, 135-137, 167-168

Copper

Anode, 7

As a byproduct, 11, 65, 67, 97-98, 99, 201

Blister, 7

Cathode, 7

267
268

Concentrate, 7

Fabricated and semi-fabricated products, 78

Matte, 7

Properties, 5, 9, 60, 76-77

Quality, 32, 60

Refined products, 7

Scrap, 11, 69, 70, 78

Uses, 5, 10-11, 13, 76-77

Copper Development Association, 79

Copper Ore, 91-100, 186-188

Carbonates, 91

Cut-off grade, 41-42, 99-100, 153, 186

Grade, 6, 9, 15, 40-41, 47, 98-100, 186-187, 216

Massive sulfide deposits, 92

Oxides, 7, 15, 28, 58, 91

Porphyry deposits, 15, 49, 92, 112-113

Resources and reserves, 9, 15, 94-98

Silicates, 91

Strata-bound deposits, 92

Sulfides, 7, 15, 91-92

Copper Producer/Consumer Forum, 31, 234-235

Copper Range Company, 12-13, 50, 202, 212, 246-248

Costs, 185-218, 225, 241

Capital, 45, 47, 48-49, 108-109, 169-170, 173, 192

Concepts and Definitions, 185-186, 197

Production, 15-16, 19, 41-42, 72-74, 185-218

Crushing and grinding (comminution)

Costs, 127

Energy use, 154-155

Technology, 41, 127-129

Cuba, 85

Cyprus, 92

Cyprus Minerals Company, 42, 50, 126, 202, 212-213,

226, 246-247

Czechoslovakia, 85

Defense policy, 25, 27, 235-237

Defense Production Act, 27, 236-237

Degussa, 209

Demand growth, 16-19, 20, 23, 39-41, 58-59, 63-65,

76-80

Detroit Copper Company, 49

Diversification, 19

Doe Run Co., 233

Duval Corporation, 50, 231

Education and training, 24, 29-31

Electrical and electronics industry, 10, 58, 76-77, 79

Electrorefining, 7, 70, 142, 157-158

Electrowinning, 7, 70, 142-143, 157-158

ENAMI, 52, 199

Energy

Costs, 19, 67, 192, 204

Use, 41, 127, 151-158, 192

Environmental regulation, 24-25, 31, 41, 47, 161-162,

202, 237-242

Equipment vendors, 13

Exchange rates, 19, 23, 31, 60, 64, 210-211

Exploration

costs, 114

Technology, 113-115

EXXON, 50

Falconbridge, 197, 204

Financing, 16, 52-54, 56-57, 192

Finland, 65

Fire refining, 70, 137

Flotation (beneficiation)

costs, 131-133

Energy use, 154-155

Technology, 130-133

Flue gas desulfurization, 166

France, 78, 83

Freeport McMoran, 208

Fugitive emissions, 162, 167-168, 170

Gecamines, 17, 52, 68

General Accounting Office, 169

General Agreement on Tariffs and Trade (GATT), 31,

231

German D. R., 85

Germany, F. R., 65, 70, 78, 80-81, 83, 84, 208-209,

213-214

Gross national product (GNP), 5, 9, 58-59

Health and safety, 41

Hecla Mining Company, 126

Highland Valley, 204

Highmont Mining Corp., 204

Hudson Bay Mining and Smelting Company, 50, 234

Hungary, 85

Hydrometallurgy, 7

Costs, 140, 196

Energy use, 157

Technology, 140-142

In-pit crushing and conveying systems, 28-29, 41

INCO, 197, 204

India, 210

Indonesia, 19, 39, 92, 94, 197-201, 207-208, 213-214,

215, 218

Industrial machinery and equipment industry, 10, 76-77,

226, 249

Industrial policy, 244-246

Inflation, 210-211

Infrastructure, 47, 193

Inspiration Consolidated Copper Company, 42, 50, 113,

168, 202, 212, 247

Interest rates, 16, 53, 64, 192

Intergovernmental Council of Copper Exporting

Countries (CIPEC), 19, 31, 39, 235

International financing institutions, 19, 52-54, 192, 223,

242

Inter-American Development Bank, 53

International Monetary Fund, 31, 53, 54, 233

World Bank, 16, 53, 170, 241-242
269

International Trade Commission, 231-233

Inventories, 13-15, 16-19, 20, 23, 39-41, 53-54, 57,

63-65

Investment risk, 45-47, 53, 186, 191

Iran, 92, 210

Iron precipitation, 7, 141

Israel, 103

Italy, 78, 83

Japan, 20, 65, 70, 72, 78, 80-81, 83, 164, 170, 204,

208-209, 213-214, 234

Kaiser, 252

Kennecott Corporation, 5, 42, 49, 50, 66, 69, 212, 226,

246-247

Kidd Creek, 204

Korea D. P.R., 85

Labor

Numbers of employees, 12, 40

Productivity, 6, 15, 28, 31, 40, 41, 67, 212

Strikes, 16, 65, 68, 193, 212

Wages and salaries, 6, 19, 41, 64-65, 67, 193, 203,

204, 212

Leaching (solution mining), 7, 15, 28, 41, 58, 72-74,

99-100, 112, 118-119, 126, 157, 196

Leadtimes, 45, 191

Less-developed countries (LDCs), 15-16, 23, 25, 31, 39,

46, 47, 50-52, 52-54, 58, 63, 193, 204, 222-223

Life span, 191

Location, 192-193

Louisiana Land & Exploration, 50, 246-248

Lornex Mining Corp., 204

Magma Copper, 42, 50, 69, 202, 226, 246-247

Marine anti-fouling (bottom paint), 10, 79-80

Market share, 15, 26, 223-224

Marketing, 249

Marmon Group, 52

Melting and casting, 145-147

Metallgesellschaft, 209

Mexico, 17, 20, 49, 51, 52, 67, 74, 75, 92, 97, 170,

197-201, 204, 206, 213-214, 215, 218

Miami Copper Company, 50

Michigan, 13, 48, 67, 69, 97, 107

Minerals policy, 242-243

Minero Peru, 52, 65, 69

Mining

Costs, 116-118, 185-218

Energy use, 152-153

Open pit, 7, 118

Plans, 41-42, 67, 75, 99

solution, 7, 15, 28, 41, 58, 72-74, 99-100, 112,

118-119, 126, 157

Technology, 41, 116-126

Underground, 7, 118

Mining and Excavation Research Institute, 32

Mining and Mineral Policy Act of 1970, 27, 29

Minnesota, 98

Mitsubishi Corporation, 81

Montana, 48, 50, 67, 97, 98, 107, 115

Montana Resources Inc., 202, 212, 247-248

Mozambique, 205, 235

Namibia, 197, 199, 215

National Bureau of Standards, 243

National Cooperative Research Act of 1984, 32, 249

National Defense Stockpile, 13-15, 27, 236-237

National Environmental Policy Act (NEPA), 172, 237-238

National Materials and Minerals Policy, Research and

Development Act of 1980, 242-243

National Strategic Materials and Minerals Program

Advisory Committee, 243

Nationalization, 17, 46-47, 52

Nevada, 49, 50, 113

Nevada Consolidated Company, 113

New Mexico, 20, 47, 49, 67, 69, 74, 75, 97, 113

Newmont Mining Company, 50, 52, 206, 207, 246-247

Non-Ferrous Metals Producers Committee (NFMPC),

233-234

Noranda, 50, 68, 126, 202, 234

Nordueutsche Affinerie, 209

North America, 39, 92, 97, 99

Occidental Petroleum, 50

Office of Technology Assessment, 6

Oil companies, 50

Oman, 210

Ownership

Changes in, 48-52, 58, 223-224

Government, 50-52, 223-226, 228

Pakistan, 92

Papua New Guinea (PNG), 19, 39, 74, 81, 83, 92, 94,

98, 193, 197-201, 207-208, 213-214, 215, 218

Pennzoil, 50

People’s Republic of China, 85, 92

Peru, 13, 17, 19, 39, 47, 49, 52, 67, 69, 70, 74, 75, 83,

92, 97, 170, 193, 197-201, 204, 206, 210, 213-218

Phelps Dodge Corporation, 5, 48-50, 52, 57, 66, 69, 74,

81, 82, 112, 113, 166, 202-203, 206, 212, 226, 233,

246-247, 253

Philippines, 54, 67, 70, 81, 92, 94, 98, 197-201, 204,

207, 213-214, 215, 218

Poland, 85

Portugal, 74

Price

Byproducts, 64, 198, 210-211

Copper, 5, 6, 11, 15, 16-20, 23-24, 39-42, 63-65, 185

Structure, 54-60

Production, 16-19, 39-41, 63-65, 224

Capacity, 5, 65-66

Mine, 5, 11, 20, 66-69

Refinery, 11, 70-72

Scale, 188-191

Smelter, 11, 69-70, 82

Profitability, 15, 20, 42, 185, 225-226

Public profile, 193

Pyrometallurgy, 7, 133-140, 155-157
270

Refining, 7

Costs, 142, 185-218

Energy use, 157-158

Technology, 142-143

Relative purchasing power, 211-216

Research and development

Federally-funded, 29, 243-244

Corporate, 32, 248-252

Policy, 24, 29-31, 242-244

Resource Conservation and Recovery Act (RCRA), 172,

173, 239

Reynolds, 252

Rio Tinto Zinc, 207

Roan Consolidated Copper Mines Ltd.

Roasting, 134, 156

Romania, 85

Safe Drinking Water Act, 172, 239

Shell Oil Company, so

Smelting

Costs, 133-134, 185-218

Energy use, 155-157

PoIlution control, 20, 135, 156-157, 163-168, 238, 241

Technology, 20, 133-140

SOHIO, 50

Solid and liquid wastes (see water quality)

Solvent extraction-electrowinning (SX-EW), 7, 11, 19,

20, 25, 28, 41, 58, 72-74, 142, 157, 196, 226-227

South Africa, 70, 75, 92, 197-201, 207, 213-214, 215,

218, 205, 235

South America, 92, 95-97, 99, 164

South Korea, 70

Southern Peru Copper Company (SPCC), 52, 54, 69,

206

Spain, 65, 83

Steel industry, 33, 151, 251-252

Strategic materials, 13, 76-77

Stripping ratio, 41-42, 153, 187-188

Subsidization, 25, 26, 27, 47, 52-54, 192-193, 245

Substitution, 11, 32, 59-60, 64, 76, 79

Sumitomo Corporation, 57, 81, 208

Superconducting materials, 58, 80

Superior Oil, 50

Superfund (Comprehensive Environmental Response,

Compensation and Liability Act), 172, 239

Tanzania, 205

Tax

Policy, 25-27, 229-231

Rates, 230

Tax Reform Act of 1986, 229-230

Technological innovation, 26, 79-80, 115, 119, 128-129,

131-133, 137-139, 142, 143, 151

Technology transfer, 28-31, 227-228

Telecommunications, 76, 79

Tennessee Copper, 50

Tintaya, 52, 69

Trade, 80-84

Anode, 83

Blister, 83

Exports, 12

Imports, 11, 13

Net import reliance, 11, 15, 82

Ores and concentrates, 83

Policy, 25-27, 231-235

Refined products, 84

Trade Act of 1974, 25, 231-232

Transportation

Costs, 19, 67, 153, 185

Industry, 10, 58, 76-77

Union of Soviet Socialist Republics, 85

United Kingdom, 78, 83

United Nations Conference on Trade and Development

(UNCTAD), 234-235

U.S.-Canada Free Trade Agreement, 25, 26, 233-234,

242

U.S. Department of Commerce, 234,

U.S. Department of Energy, 243

U.S. Department of the Interior

Bureau of Mines, 29, 51, 53, 64, 66, 85, 94-95, 118,

126, 188-189, 197-198, 209-218, 243

Geological Survey, 29, 94-95, 243

U.S. Environmental Protection Agency, 166, 168-169,

172-174, 177, 237-240, 244

Utah, 40, 69, 97, 98

Utah Copper Company, 112, 113

Utah International Corporation, 74

Utah Mines, 204

Valley Copper Mines Ltd., 204

Water quality, 170-179

Control costs, 172-173, 179

Controls, 174-179

Impacts, 170, 173-174

Regulation, 171-172

Weather, 47, 65, 192-193

Yugoslavia, 19, 39

Zaire, 13, 17, 19, 20, 39, 47, 52, 54, 65, 67, 68, 70, 75,

78, 83, 92, 94, 97, 98, 170, 193, 197-201, 204-206,

210, 213-215, 217-218, 235

Zambia, 13, 17, 19, 20, 39, 47, 51, 52, 54, 65, 67,

68-69, 70, 74, 75, 78, 84, 92, 94, 170, 193,

197-201, 204-206, 210, 213-218, 235

Zambia Consolidated Copper Mines Ltd. (ZCCM), 17,

51, 52, 68
271

Copper Properties Index

Afton, 204

Andina Mine, 192, 193, 199, 201

Ansil property, 74

Atlanta claim, 48, 49

Atlas Mines, 207

Bagdad Mine, 202

Bell, 204

Biga Mine (Atlas), 207

Bingham Canyon Mine, 6, 40, 49, 50, 66, 67, 98, 112,

189, 191, 197, 202, 216

Bougainvillea Mine, 92, 207

Butte smelter, 163, 242

Cananea Mine, 49, 51, 52, 74, 206

Cananea smelter, 206

Carmen Mine (Atlas), 207

Casa Grande Mine, 126, 202

Cerro de Pasco, 17, 49, 52

Cerro Verde, 17, 52

Chambishi Mine, 69

Chino Mine, 49, 50, 69, 74, 81, 113, 191, 202, 208,

212

Chino Smelter, 191

Chuquicamata, 49, 74, 189, 195, 199, 201, 216, 222

Cliff Mine, 107

Continental Mine (East Berkeley Pit), 67, 202, 248

Copper Cliff, 204

Copper Flat Mine, 47, 192

Copper Queen Mine, 49, 112

Cuajone Mine, 192, 206

Dikuluwe/Mashamba Mine, 204

Douglas smelter, 13, 48-49, 50, 69, 112, 241

Eisenhower Mine, 202

El Paso smelter, 163, 202, 212

El Salvador, 195, 199

El Teniente, 49, 189, 195, 199

Ertsberg Mine, 94, 208

Esperanza Mine, 202

Flin Flon smelter, 234

Garfield smelter, 69

Gaspe Mine, 234

Hayden smelter, 202

Hidalgo smelter, 202

Highland Valley, 204

Highmont, 68

Home smelter, 68, 204

Inspiration Mine, 191, 202

Inspiration smelter, 202, 242

Irish Mag Mine, 49

Island Copper, 204

Kamoto Mine, 204

Kansanshi Mine, 69

King Solomon’s Mines, 103

Konkola Mine, 69

Kov Mine, 204

La Caridad Mine, 17, 49, 51, 52, 192, 206

La Escondida, 52, 74, 208, 216

La Oroya smelter/refinery, 52

Lakeshore Mine, 126, 202

Lornex, 68, 192, 204

Lutopan Mine (Atlas), 207

Maria Mine, 74

McGill smelter, 241

Miami Mine, 48, 202

Mina Sur, 201

Mission Mine, 41, 202

Morenci Mine, 57, 74, 81, 189, 202, 208, 212, 246

Morenci smelter, 81

Mount Isa Mine, 207

Mufilira Mine, 205

Nacozari smelter, 206

Neves Corvo Mine, 74, 216

New Cornelia Mine, 49, 212

Nchanga Division Mines, 189, 205

Nkana Division Mines, 205

Ok Tedi Mine, 74, 94, 207, 216

Old Dominion Mine, 48-49, 113

Olympic Dam (Roxby Downs), 74, 216

Ox Hide Mine, 202

Palabora Mine, 207

Pima Mine, 202

Pinto Valley Mine, 50, 202

Prieska Mine, 75

Ray Mine, 49, 50, 113, 191, 202

Rio Tinto{ 1 0 3

Rouyn smelter, 234

Roxby Downs (Olympic), 216

Ruttan Mine, 68, 204

Salobo Mine, 74, 216

San Manuel Mine, 133, 189, 202

San Manuel smelter, 69, 202

San Xavier Mine, 202Sar Cheshmeh, 192

Sierrita Mine, 202, 212, 237

Silver Bell Mine, 47, 192, 202

Sipalay Mine, 207

Sudbury (Falconbridge), 204
272

Tacoma smelter, 163, 241

Timmins, 204

Tintaya, 192

Toquepala Mine, 192, 206

Troy Mine, 202

Tyrone Mine, 20, 49, 50, 74, 75, 113, 192, 202, 212

United Verde Mine, 48

Valley Copper Mine, 68

White Pine Mine, 13, 50, 202, 248

White Pine smelter, 69, 166, 202