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 Billitons 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

Phase

1993: 115 t/d Wiluna

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
80C

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)

Gunpowder SxEw

200
190
180
170
160
150
140
130
120
110
100
90
80
70
60
50
40
30
20
10
0
Stafford District

Hindustan Copper

Balcooma

Ojos del Salado

Sipalay

Ivan/Zar

Los Bronces

Las Cascadas

Haib

Luanshya/Baluba

Carlota

Salvador Composite

El Soldado Composite

Gibraltar Composite

Great Lakes

Carmacks

San Antonio

White Pine Composite

O'Okiep

Ray Composite

Cobriza

Nifty

Bagdad Composite

Huckleberry

Ajo

Florence

Jabal Al-Said

San Manuel Composite

Mufulira

Cyprus Miami Composite

Highland Valley Copper

Mission

Andina

Pinto Valley Composite

50%

Tintaya Composite

El Tesoro

Cerro Verde Composite

Cobar - CSA

Silver Bell Composite

Lo Aguirre

Continental (NM) Minesite

Quellaveco

Mantos Blancos Composite

Tyrone Composite

Los Pelambres Project

Eloise

Gasp

Chino Composite

Andacollo SxEw

El Teniente Composite

Mount Isa Copper

Konkola

Manto Verde

Cananea Composite

Bwana Mkubwa Project

25%

Carolina de Michilla

Cerro Colorado

Zaldvar SxEw

Sanyati

Morenci Composite

Collahuasi Composite

Chuquicamata Composite

Girilambone

Quebrada Blanca

El Abra

Cuajone

Loma Bayes

Radomiro Tomic

Toquepala Composite

Escondida Composite

Heap leaching offers significant cost advantages

Capacity
75%

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
Water
Conduction
Aeration

Reaction
generates
heat in heap

Aeration and evaporation

Transport processes
within the heap:
conduction, water
advection and gas
advection
Energy generation by
leaching reaction

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

HotHeap
control
system

Water

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

Extent of Leaching

25

Temp (C)

20
15
10
5
0
0

3
Depth (m )

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

3
Depth (m )

Chalcopyrite leaching

Heap temperature
1%

12

1%

Extent of Leaching

14

10

Temp C

0%

0%

6
Average

At selected point
PLS

0%
0%
0%

0
Day 0

0
Day 50

Day 100 Day 150

Day 200 Day 250

3
Depth (m )

HotHeap process could make sulphide heap leaching the

preferred process

HotHeap dynamic control gets heaps hot

Average heap temperature

Heap temperature profile

90

100

80
70
60
60

Temp (C)

80

40

50
40
30

20

20
10

0
0 1 2 3 4 5 6 7 8 9 101112131415161718

Depth (m)

Day 0

Day 100

Day 200

Day 300

Day 400

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:

Cu extraction (%)

60

Fe, S & Fe+S oxidisers

50
40
Industry & Mine
30

Laboratory practice
Sterile control

20
10
0
0

50

100

150

200

Time (days)

Copper extraction improved by 5 %

Iron (pyrite) extraction improved by 8 %
Iron & sulphur oxidisers equally effective

250

Benefits of effective inoculation

40

StickiBugs simulations:

Fe extraction (%)

30

Fe, S & Fe+S oxidisers

20
Sterile control

Industry & Mine

Laboratory practice
10

0
0

50

100

150

200

Time (days)

Enhanced pyrite oxidation rate has many benefits

250

Bacterial adhesiveness
100
90

N2 limitation

80

60

Baseline for Fe

50
CO2 limitation

40

Baseline for S

30
20

Less adhesive

% not attached

70

10
0
0

50

100

150
Time (min)

200

250

300

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
Resources

Copper Cathode
to Market

Concentration
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

TC/RC Price (US c/lb)

35

TC/RC prices are

generally low

30
25

Smelters seeing an
increasing price
volatility

20
15
10
5
0
1970

1975

1980

1985

1990

Date

1995

2000

2005

Difficult environment
to invest in smelting,
particularly in the
West

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)
N

NPV =

(1 + discount rate)
i =1

Cash Flow i

ti

Investment

Capital costs
Capital costs (US c per lb pa)

300

250

Smelters
are
generally
more
capital
intensive

200

Smelter

150

100

Hydromet
50

0
0

50

100

150

200

250

300

Copper Production ('000 tpa)

350

Operating costs

Operating costs (US c/lb)

45
40
35

Smelters
are
generally
more
energy
efficient

30
25

Hydromet

20

Smelter

15
10
5
0
0

50

100

150

200

250

Copper Production ('000 tpa)

300

350

Net Present Value

0

Smelter

-50

NPV (US c per lb pa)

Hydromet
-100

Neither
smelters nor
the
competing
hydromet
processes
are
economically
viable

-150
-200
-250
-300
-350
-400
0

100

200

Copper Production ('000 tpa)

300

NPV strategy space for a particular project

40

Operating Costs (US c/lb)

36

Net Value

32
28

Leaching
BioCOP
and
and
SX/EW
SX/EW

BioCOP

24
20
16

Smelting
and
Smelting
refining

12
8
4
0

40

80

120

Capital (US c/lb pa)

160

200

150-200
100-150
50-100
0-50
-50-0
-100--50
-150--100
-200--150
-250--200
-300--250
-350--300

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

Investment::

Good news

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
Own real
option

time

An opportunity to
make a decision
after events unfold

Future Event
Did the price go
up or down?

No - do nothing

Yes Build mine

Invest in
feasibility study

time

No - do nothing

Wait and see Is the FS

favourable?
if the FS is
favourable

Uncertainty Volatility
Probability

Value

Cone of Uncertainty

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

Value (US c/lb pa)

250

200

150

Strategic value
100

Project value

50

Option value
Project value

0
0

10

20

30

40

50

TC/RC (US c/lb)

60

70

Decision making
150

Buy option but do not invest

125

Value (US

$)

100
75
50

Invest
when price
hits here

Only spend this

much on the
option

25

NPV

0
0
(b)

10

20

30

Price, P

40
(US $)

50

60

While the option

method often
seems lenient on
the decision to
acquire the
option, it is very
tough on the
decision to
acquire the
project!

Strategic value
Due to
uncertainty in
prices, option
approach says
there is value in
doing research.

300

Exercise price

Value (US c/lb pa)

250

200

150

100

Option, or
strategic
value

50

Project value
0
0

10

20

30

40

50

TC/RC (US c/lb)

60

70

However, it also
says that
investment is
highly unlikely
prices should go
to 60 c/lb before
investing

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 industrys 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
research is due
to high volatility
and low prices
which favour
miners and not
smelters.

Value (US c/lb pa)

300
250
200
Project value
150
100
Research value

50
0
0

10

20

30

40

50

TC/RC (US c/lb)

60

70

The research is
not meant to be
implemented it
is meant as a
competitive
weapon in the
negotiation of
TC/RC prices

Competition
Leaching
SX & EW

Sulfide
Resources

Copper Cathode
to Market

Concentration
Intermediate market:
Concentrate may be
sold to custom
smelters or traders.

Competition between
miners on basis of ore
quality and tonnage

Smelting and
Refining

Non competitive between miners,

hence co-operation and collaboration
Highly competitive between miners
and smelters
Why would a miner develop a
concentrate process?

Swing production the switch option

40
35

Monte Carlo
simulation
showed that this
strategy had
significant value,
but is very
dependent on
the mothballing
and re-activation
costs

TC/RC Price (US c/lb)

Re-activate Price
30
25
20

Mothball Price

15
10

Price
Operating period

5
0
0

10

12

Years

14

16

18

20

22

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.