Continued investment, new mines will keep Arizona copper

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Continued investment, new mines will keep Arizona copper industry strong

Arizona's vast copper reserves generate billions of dollars of annual revenue. And with continued investment, the state could remain a major producer of the high-demand metal for years to come.

In addition to the current mines in Arizona, which produce 60 percent of the nation's copper, industry experts said it was likely that significant undiscovered copper deposits hide underground, and companies should be encouraged to keep up exploration efforts in the state.

Without continued investment to search for deposits and expand mines, nearly all of the state's large copper mines will run out of their existing reserves in about 25 years.

Most companies digging in Arizona explore enough to replace the copper they dig out each year with new reserves.

What's happening in other parts of the world helps to explain why such efforts are crucial. Mining operations in some regions in South America and Africa, which haven't been explored for as long as Arizona's mining territory, are now tapping into vast deposits that look much like Arizona's did before they had been dug for a century.

For example, Phoenix-based Freeport-McMoRan Copper and Gold Inc., the biggest miner in the state, has a mine in Peru with enough reserves to last until at least 2074, and one in Africa with nearly 50 years of reserves, far more than its Arizona properties.

Grupo Mexico, the parent company of major Arizona miner Asarco, has a mine in Peru with 172 years' worth of copper left and one in Mexico with 124 years' worth.

Arizona still has the copper, but not in large, newly discovered and easy-to-access deposits like those, industry experts said. To keep Arizona's mining industry growing, companies must invest in geologists and drilling rigs to keep searching for new reserves.

Freeport will spend about $120 million on global exploration this year, up from $72 million last year, company officials said. Its spending could double next year.

Mining companies remain cryptic about what exactly goes into the decisions regarding where they will invest next, but Freeport has indicated Arizona expansions were in the works.

"The first thing we want to do is seek investment opportunities," Freeport President/CEO Richard Adkerson said during a recent conference call when asked how the company would spend the profits it is reaping from the current high copper price.

One place in Arizona where the company could explore and one day possibly develop a new project is the Lone Star ore body adjacent to Freeport's Safford mine, he said.

"We are looking at other opportunities in North America," he said. "Our focus is on spending money on very profitable, high-return investments. Clearly with the resources and reserve opportunities we have (near existing mines), that is more advantageous than (new company) acquisitions."

Economic impact

Most copper is used in construction. In addition to demand in developing countries, U.S. trends such as electric cars and wind turbines are expected to create demand.

Last year, the copper industry employed 9,100 in Arizona and contributed $9.3 billion to the economy, according to an annual report compiled for the Arizona Mining Association. The report estimates another 43,400 were employed in Arizona indirectly because of the industry, mostly in services and public schools.

"That is new money coming into the economy," state Mine Inspector Joe Hart said. "The money that the counties make on taxes and everything, it is mind-boggling. The schools and everyone gets a little piece of this pie."

At least three significant new copper mines are proposed in the state, including one - the Resolution Copper Project - that boasts of being the largest copper deposit in the nation. Its output is projected to be more than one-fourth of what the United States produced in 2009.

"That's the good thing about any natural-resource job - farming, ranching, timber," Hart said. "It's money that nobody's seen before. That's what we need now: an influx of money to create ancillary jobs."

Unlike construction, mining doesn't depend on people moving here. The copper already is in the ground.

Unlike manufacturing, mines can't simply move offshore. They have to "mine it where they find it," Hart said.

And unlike some high-tech industries, the demand is not subject to passing trends.

Copper demand is driven by the global economy, and with developing countries such as China making massive investments in infrastructure laden with copper, demand is strong.

Global reserves

Arizona has been a hotbed of copper production for 100 years. And even though major mining companies have identified millions of tons of new copper deposits they could mine here, there is no guarantee that they will.

Those same companies also have discovered significant reserves of copper in Peru, Mexico, Indonesia and parts of Africa, which could just as easily be developed.

"Ultimately, it is where they get the best return on their investment, and that can change," said Nyal Niemuth, chief mining engineer for the state Department of Mines and Mineral Resources.

The department acts as an advocate for new mines and assists companies looking to dig in Arizona.

"They might have higher ore grades and richer deposits (in developing countries) where they can invest, if they determine the Congo is a better investment," Niemuth said.

"But at the same time, they could proportionally expand a reserve in the U.S., and it might only cost half as much because they are not building all the new infrastructure. They just need a conveyor system (to get the ore to their existing production facilities)."

Arizona's mining-industry proponents argue that companies should be encouraged to expand operations here to the greatest extent possible without sacrificing the state's environmental quality.

"These aren't your grandfather's mines," Hart said of the new mines proposed for the state. "These would be good for the economy and good environmentally."

In Arizona's favor

Arizona's copper fortunes rise and fall with the price of the commodity, but most experts agree the metal's current high price will stick around for a while.

Copper traded last week for more than $4 a pound, up from about $1.30 a pound in late 2008 after a rapid crash. Prices have risen even as the U.S. economy wavered.

"All indications are that we will need lots more copper going into the future," said Daniel Edelstein, copper-commodity specialist for the U.S. Geological Survey in Reston, Va.

"Arizona copper is not competing with Indonesian copper. It is competing with the global demand balance. What that balance will be in 20 years is hard to say, but at this point, more people are anxious about supply shortfalls than they are surpluses."

Edelstein said Arizona has "tremendous" potential for new copper discoveries.

"The Rosemont project (in Pima County) hadn't been considered reserves until recently," he said. "There is a lot remaining around Morenci (the state's largest mine) that have not been fully explored or developed. It is all incremental."

Proposed projects

The biggest project proposed in Arizona is the Resolution Copper Project, an underground joint venture with Rio Tinto (55 percent) and BHP-Billiton (45 percent). The plans are contingent on a federal land swap that Congress has been considering for five years.

Resolution has fought to settle critics worried about the environmental impact of the project, which would eliminate a federally protected campground, and the project has won the support of the Tucson-based Sonoran Institute.

The other big Arizona proposal is from Vancouver, British Columbia-based Augusta Resource Corp., which plans to open the Rosemont Copper open-pit mine south of Tucson.

The Rosemont plan doesn't have the environmental support that Resolution does, but Arizona's industry supporters, including Hart and Niemuth, endorse it.

"That's the one getting the most controversy," Hart said. "It is the most modern reclamation plan we've ever seen in Arizona. We passed a mining bill in 1997 that will require better reclamation. Mining is not the way it used to be. It's done with a lot of environmental consciousness and dedication to good science."

A newer proposal comes from Curis Resources Ltd., a Vancouver-based company associated with Hunter Dickinson Inc., which hopes to open a new "in-situ" mine in Florence. In-situ mining leaves the ore in place, and uses chemicals to soak through the ground and strip out the metal, which is collected through underground pipes.

In addition to these efforts, nearly every major mine in the state has geologists prospecting its fringes for additional ore that can be mined when the current ore reserve runs out.

Predictions difficult

It is difficult to predict where mining companies will make their next move. Big operators such as Freeport-McMoRan have reserves around the globe, and constantly are balancing the cost of mining that copper against the metal's market price, along with a variety of other factors, such as how deep the metal ore is buried and how much is there.

Many Canadian companies and smaller operators are looking to start up new mines in Arizona, often picking up mining claims that major companies dumped when prices were low.

"Even though Freeport is the 800-pound gorilla, part of the future lies in these other companies with new mines," Niemuthsaid. "There are a number of majors and juniors conducting exploration. Even in a well-explored province like Arizona, we can be pleasantly surprised with new discoveries."

One example is the Johnson Camp Mine southeast of Tucson, which Nord Resources Corp. reopened recently. The copper deposit has been mined since the 1800s, and different companies operated a large open pit at the site in the 1970s, '80s and '90s. Nord executives saw an opportunity to run a profitable mine with minimal investment.

From 1999 to 2003, a subsidiary of Nord produced copper from the existing leach pads, or large stacks of ore that are treated with acid to remove their copper. With stronger copper prices, the company decided to dig for fresh ore on the project again. The mine has two pits, and Nord began digging and stacking new ore piles in 2009. It has now temporarily stopped digging to raise $15 million to build a new leach pad to more efficiently produce copper. That would allow the company to increase its staffing from about 42 people at the mine today to more than 80, Vice President and Chief Financial Officer Wayne Morrison said.

Nord already has invested about $45 million in new equipment and upgrading the copper-processing facility, which still is making about 100,000 pounds or more of copper a week from the existing ore stacks.

"Arizona is a favorable environment," Morrison said. "It has an experienced workforce, normalized conditions - it's not in the middle of a Third World country, and the political environment is good. It also has good infrastructure and roads."

Niemuth said that the stable operating environment in Arizona was a big plus when weighed against other places where copper is abundant.

"Cost is one thing," Niemuth said. "Risk is another."

In August, illegal miners looted Freeport's mine in the Democratic Republic of Congo. In October, when Freeport and its partner announced an extension of their contract at the mine, the country's government-run mining company increased its stake in the project.

"I haven't heard of the state government taking over any portion of operations here in Arizona," Niemuth said.



Read more:  http://www.azcentral.com/arizonarepublic/busi...z2Mwk1klfQ

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