Process and Economic Considerations

in Copper Metallurgy

Frank Crundwell
CM Solutions (Pty) Ltd

January 2006
CM Solutions (Pty) Ltd – what we do

• Consultancy
• Economics
• Metallurgy (autoclave and process sizing and performance)
• Professional Development
• Finance for Professionals
• Professional Development topics
• Technology
• HotHeap™
• Stickibugs™
• Redostat™
• AweSym™
New Technologies in Copper Hydrometallurgy

The Economics of Processing Copper Concentrates

New Technologies in Copper Hydrometallurgy

• Tank and Autoclave Leaching Processes

– Bacterial leaching
• BioCOP - BHP Billiton’s bacterial process developed in joint venture
with Codelco
– Pressure leaching processes
• Phelps Dodge
• Anglo American
• Heap Leaching
– HotHeap™
– Stickibugs™
Tank Leaching Technologies

Bacterial
Leaching
Fairview
South
Africa
The largest BIOX™ operation

960 t/day of
sulphide
concentrate
Capex:
$25 million
Opex: $66/t

Sansu
Ghana
History of BIOXTM

1998: 60 t/d Tamboraque

Commercialisation 1996: 158 t/d Wiluna
1995: 960 t/d Ashanti
1994: 720 t/d Ashanti
1993: 115 t/d Wiluna
Phase

1992: 40 t/d Harbour Lights

1991: 35 t/d Fairview
Demonstration
1990: 100 t/d Sao Bento
1986: 10 t/d Fairview
Pilot Plant
1984: 750 kg/d Pilot

Laboratory

1970 1980 1990 2000

New Tank Leaching Technologies

BioCOP:
Bioleaching
of copper
sulphides at
80°C

The copper
sulphide
itself is the
valuable
product
Heap Leaching

• Used extensively in copper

• South Western USA and Chile
• Oxide ores, using a simple acid reaction
• More recently applied to sulphide ores
• Application of heap leaching and SX/EW is widely regarded
as reviving the US copper industry
• Huge potential for application to copper sulphides
• Cost advantages
• Ore bodies have sulphides underneath them
 C3 cost USc per pound (excluding byproduct credit)

100

10
20
30
40
50
60
70
80
90
110
120
130
140
150
160
170
180
190
200

0
Gunpowder SxEw
Escondida Composite
Toquepala Composite
Radomiro Tomic
Loma Bayes
Cuajone
El Abra
Quebrada Blanca
Girilambone
Chuquicamata Composite
Collahuasi Composite

25%
Morenci Composite
Sanyati
Zaldívar SxEw
Cerro Colorado
Carolina de Michilla
Stafford District
Bwana Mkubwa Project
Capacity

Cananea Composite
50%
Manto Verde
Konkola
Mount Isa Copper
El Teniente Composite
Andacollo SxEw
Chino Composite
Gaspé
Eloise
Los Pelambres Project
Tyrone Composite
Mantos Blancos Composite
Quellaveco
Continental (NM) Minesite
Lo Aguirre
Silver Bell Composite
Cobar - CSA
Cerro Verde Composite
El Tesoro
Tintaya Composite
Pinto Valley Composite
Andina
75%

Mission
Highland Valley Copper
Cyprus Miami Composite
Mufulira
San Manuel Composite
Jabal Al-Said
Florence
Ajo
Huckleberry
Bagdad Composite
Nifty
Cobriza
Ray Composite
O'Okiep
White Pine Composite
San Antonio
Carmacks
Great Lakes
Gibraltar Composite
El Soldado Composite
Salvador Composite
Carlota
Luanshya/Baluba
Haib
Las Cascadas
Los Bronces
Heap leaching offers significant cost advantages

Ivan/Zar
Sipalay
Ojos del Salado
Balcooma
Hindustan Copper
Heap Leaching Operations
New Heap Leaching Technologies

• HotHeap™
– Improve efficiency by getting heaps hot

• StickiBugs™
– Improve efficiency by getting bacterial into the
heap
Energy processes within a heap

Convection Evaporation Radiation

Boundary conditions
Irrigation

Transport processes
Water
within the heap:
conduction, water
Conduction Reaction advection and gas
generates advection
heat in heap Energy generation by
Aeration leaching reaction

Aeration and evaporation Boundary conditions

The accumulation of heat in the heap is determined by the balance of the

leaching rate, the water transport rate and the gas transport rate (combined
with the conditions giving the boundary conditions).
The HotHeap™ control system ensures success

Temperature

Water
HotHeap™
control
system

Aeration

The HotHeap™ control system automatically balances the two

advection processes (water and gas) to maximize the accumulation
of heat within the heap
 HotHeap™ is a process to get heaps hot
Heap temperature profile Chalcocite/Covellite leaching
25 100%
90%

Extent of Leaching
20 80%
70%
Temp (°C)

15 60%
50%
10 40%
30%
5 20%
10%
0 0%
0 1 2 3 4 5 6 0 1 2 3 4 5 6
Depth (m ) Depth (m )

Heap temperature Chalcopyrite leaching

14 1%
12 1%

Extent of Leaching
10
0%
Temp °C

8
0%
6
0%
Average
4
At selected point 0%
2 PLS
0%
0 0 1 2 3 4 5 6
Day 0 Day 50 Day 100 Day 150 Day 200 Day 250 Depth (m )

HotHeap process could make sulphide heap leaching the

preferred process
 HotHeap™ dynamic control gets heaps hot

Heap temperature profile Average heap temperature

100 90
80
80 70
Temp (°C)

60
60
50

°C
40
40
30
20 20
10
0 0
0 1 2 3 4 5 6 7 8 9 101112131415161718 Day 0 Day 100 Day 200 Day 300 Day 400
Depth (m)
StickiBugs™

• Copper sulphide heap leaching has a cost advantage of 10 – 15

US¢/lb Cu over conventional processes

• However, the industry has experienced slow start-up and poor

performance for bioleaching operations:

• The reasons are mainly concerned with bacterial management:

– Inoculation is not practised

– SX raffinates do not contain many active bacteria
– Acid curing sterilises naturally-occurring bacteria
The StickiBugs™ answer

• Bacteria are prepared with limited polysaccharides, so that they

are non-sticky.

• This allows bacteria to be inoculated throughout the heap.

• Once we are sure that there is good penetration, we can easily

change conditions so that polysaccharide production begins
again.
StickiBugs™ Flowsheet

Inoculum solution

StickiBugsTM
Crushed ore
Agglomerated ore
Sulphuric
acid Bio-heap

Agglomeration
drum
SX

Solvent extraction raffinate EW

PLS pond
Benefits of effective inoculation
70
StickiBugs™ simulations:
60 Fe, S & Fe+S oxidisers
Cu extraction (%)

50

40
Industry & Mine
30 Laboratory practice
Sterile control
20

10

0
0 50 100 150 200 250
Time (days)

Copper extraction improved by 5 %

Iron (pyrite) extraction improved by 8 %
Iron & sulphur oxidisers equally effective
Benefits of effective inoculation
40

StickiBugs™ simulations:
30
Fe, S & Fe+S oxidisers
Fe extraction (%)

20
Industry & Mine Sterile control
Laboratory practice

10

0 50 100 150 200 250

Time (days)

Enhanced pyrite oxidation rate has many benefits

Bacterial adhesiveness

100

90 N2 limitation
80

70

60
Baseline for Fe
% not attached

Less adhesive
50
CO2 limitation
40

30 Baseline for S

20

10

0 50 100 150 200 250 300

Time (min)
Summary – New Technologies

• HotHeap™ has the potential to make bioheap

leaching highly efficient and controlled

• StickiBugs™ has the potential to improve the

efficient and more predictable
The Economics of Processing Copper
Concentrates

Economic context

Process Economics

Competition, strategy and research investment

Change in the Industry Structure

• Deep recession in copper industry in early 1980s

• Forced high-cost producersto restructure operations

and cut costs in order to survive:
– Labour costs cut through labour flexibility and multitasking
– Adminstrative costs reduced
– New production technologies, especially hydrometallurgical
processing of oxides (leaching, SX/EW)

• Cost cutting strategy and new production technology

has re-structured the industry

• Massive impact on flattening the cost curves

Cost curves
Impact of flat cost structure

• Consolidation
– Five main producers accounted for 39% of
production in 1990
– By 2001 the top five accounted for 50%

• Mergers and acquisitions

• Anglo/Minorco/Desputada
• Phelps Dodge/Cyprus Amax
• BHP/Billiton/RioAlgom
• Noranda/Falconbridge
Declining real prices
Overall, the cost strategy has destroyed value

Value margin = ROIC – Cost of Capital

Economic context

Process Economics

Competition, strategy and research investment

 Processing routes for copper concentrates

Leaching
SX & EW

Sulfide Copper Cathode

Concentration
Resources to Market

Intermediate market:
Concentrate may be
sold to custom
smelters or traders.
Smelting and
Refining

• Miners (concentrators) compete with each other on basis of

ore quality and quantity.
• Because there are independent smelters, processing is not
basis for competition between miners.
Trade in copper concentrates
• Concentrate sold on basis of toll contract called TC/RC contract
(treatment and refining charges)
• TC/RC is the earnings to the smelters
• Negotiated between copper miners and independent smelters
• Not correlated with copper prices
40

35
TC/RC prices are
TC/RC Price (US c/lb)

30 generally low
25
Smelters seeing an
20
increasing price
15
volatility
10
Difficult environment
5
to invest in smelting,
0
particularly in the
1970 1975 1980 1985 1990 1995 2000 2005
West
Date
Making an investment decision

• Invest if the asset generates more cash than the cost

of the investment.

• Need to account for the time value of money by using

net present value (NPV)

∑ (1 + discount rate)
Cash Flow i
NPV = ti
− Investment
i =1
Capital costs
300
Capital costs (US c per lb pa)

250

200 Smelters
are
Smelter
150 generally
more
100
capital
Hydromet
intensive
50

0
0 50 100 150 200 250 300 350
Copper Production ('000 tpa)
Operating costs

45

40
Operating costs (US c/lb)

35

30 Smelters
25 are
Hydromet
generally
20
more
15 Smelter energy
10 efficient
5

0
0 50 100 150 200 250 300 350
Copper Production ('000 tpa)
 Net Present Value

0
Smelter
-50
Hydromet
-100 Neither
NPV (US c per lb pa)

-150 smelters nor

the
-200 competing
-250 hydromet
processes
-300
are
-350 economically
viable
-400
0 100 200 300

Copper Production ('000 tpa)

NPV strategy space for a particular project

40

36
Operating Costs (US c/lb)

Net Value
32
150-200
100-150
28
Leaching 50-100
BioCOP 0-50
24 BioCOP and
and
SX/EW -50-0
SX/EW -100--50
20 Smelting
-150--100
and
Smelting
-200--150
16 refining
-250--200
12 -300--250
-350--300
8

4
0 40 80 120 160 200
Capital (US c/lb pa)
Considerable uncertainty in prices

• High volatility in TC/RC prices

• Is the NPV methodology sufficient?

• What about more sophisticated analysis?

Economic context

Process Economics

Competition, strategy and research investment

Two sides of Uncertainty

Economic uncertainty
Correlated with economy
Exogenous - learn by waiting
Delays investment (NPV>0?)

Technical uncertainty
Not correlated with economy
Endogenous - learn by doing
Incentives for starting business (NPV<0?)

Bad ‘news’ Good ‘news’

Investment:: Governed by the ‘bad news’ principle - desire to avoid the

consequences of bad news (fear)
Abandonment: Governed quantitatively by the ‘good news’ principle (hope)
Decision Making on Allocation of Capital using Real Options

Options are contingent decisions

Yes - Invest
Present time
Own real
option
No - do nothing
An opportunity to Future Event
make a decision Did the price go
after events unfold up or down?

Yes – Build mine

time
Invest in
feasibility study
No - do nothing

Wait and see Is the FS

if the FS is favourable?
favourable
Uncertainty → Volatility

Cone of Uncertainty Probability

Value

Time

“The future will be better tomorrow” - George W Bush

What is a Real Option?

 An option on a non-traded asset, such as an investment project, or

a mine, or an oil exploration lease where the decision is contingent

 Options in capital budgeting

Delay a project (wait and learn)
Expand a project (follow-on investments)
Abandon a project

 Real options allow managers to add value by acting to amplify good

fortune or to mitigate loss
Real options to invest in process plant

• A firm must make an irreversible decision to invest in a project.

• The value of the project is uncertain: volatility in TC/RC prices.

• Should the investment be made, and when?

• The opportunity to invest is an option – the firm has the right, but
not the obligation, to decide to invest in the project.

• The opportunity is not available to all market players, and

therefore has value.

• The value is derived from the flexibility the firm has to make
decisions based on its own opportunities.
Option value and project value

300

Exercise price
250
Value (US c/lb pa)

200

150

Strategic value
100
Project value

50
Option value
Project value
0
0 10 20 30 40 50 60 70

TC/RC (US c/lb)

Decision making

150

125 Buy option but do not invest

100
While the option
$)

method often
75 Invest seems lenient on
Value (US

when price the decision to

50 hits here acquire the
Only spend this
much on the option, it is very
option NPV tough on the
25 decision to
acquire the
0 project!
0 10 20 30 40 50 60
(b)
Price, P (US $)
Strategic value

Due to
300
uncertainty in
Exercise price
250
prices, option
approach says
Value (US c/lb pa)

200 there is value in

doing research.
150
However, it also
100
says that
Option, or
strategic
investment is
50 value highly unlikely –
Project value prices should go
0 to 60 c/lb before
0 10 20 30 40 50 60 70
investing
TC/RC (US c/lb)
Real options valuation

• Strategic net present value (real options)

– Attempts to account for uncertainty (or volatility) in market

projections, and values the options that management has to
determine strategy.

Strategic NPV = NPV + options

– Options are to change your mind, defer decision, mothball

operation, re-open operations etc
Sources of competition and cooperation

• A large number of new processes have been announced in the last 5

years.

• BHP Billiton and Codelco have teamed up under the banner of Alliance Copper to develop
BioCOP.

• Phelps Dodge and Placer have teamed up to develop a pressure leaching facility at Bagdad,
Arizona.

• Outokumpu, the developer of the industry’s leading technology, flash smelting, has announced
the piloting the HydroCopper.

• In addition, there are at least 15 other processes, each with slightly

different conditions and chemistry.

• Can these processes compete with smelting?

• Why invest money in research in hydrometallurgy?

Lots of strategic value in research

The value in
300
research is due
to high volatility
Value (US c/lb pa)

250
and low prices –
200 which favour
Project value miners and not
150 smelters.
The research is
100
not meant to be
50
Research value implemented – it
is meant as a
0 competitive
0 10 20 30 40 50 60 70 weapon in the
negotiation of
TC/RC (US c/lb) TC/RC prices
Competition
Leaching
SX & EW

Sulfide Copper Cathode

Concentration
Resources to Market

Intermediate market:
Concentrate may be
sold to custom
smelters or traders.
Smelting and
Refining

Competition between Non competitive between miners,

miners on basis of ore hence co-operation and collaboration
quality and tonnage Highly competitive between miners
and smelters
Why would a miner develop a
concentrate process?
Swing production – the switch option

40

35
Re-activate Price Monte Carlo
30
TC/RC Price (US c/lb)

simulation
25 showed that this
strategy had
20
Mothball Price significant value,
but is very
15
dependent on
10 the mothballing
Price
and re-activation
Operating period
5 costs
0
0 2 4 6 8 10 12 14 16 18 20 22
Years
Concluding remarks

• There does not appear to be a new processing technology for

concentrates that is a clear winner from an economic
perspective.

• In spite of this, there is significant value in mining companies

doing hydrometallurgical research.

• The origin of the value of hydrometallurgical research is from its

competitive threat to smelting operations.

• Real options analysis complements NPV analysis. This shows

that capital investment decisions should be delayed until the
price is P*. This is much more stringent than the NPV > 0 rule.

• Heap leaching is not the same because we do not produce a

concentrate.