Copper smelter `bottleneck’ likely to continue

Arizona-based Magma Copper (NYSE) plans to increase its smelter capacity by up to 20% to take advantage of a growing worldwide “smelter bottleneck,” vice-president Bradford Mills told the Toronto Society of Financial Analysts (TSFA) recently in Toronto.

Magma, which has almost doubled to more than US$9 since listing on the New York Stock Exchange in February, is the second largest producer of refined copper in the United States. Its Arizona smelter processed more than one million tons of new copper concentrates in 1991, or about 25% of U.S. smelting capacity.

Mills told his audience that the number of copper smelters worldwide has declined steadily since the 1970s even as copper concentrate production has increased.

Attempts to build new smelters have been thwarted by environmental concerns. This month, Mitsubishi Materials withdrew plans to construct a copper smelter in Texas (T.N.M., Apr. 13/92) after a 5-year, unsuccessful attempt to obtain an environmental permit. Outokumpu of Finland has also abandoned plans to build an $880-million smelter in Portugal, citing environmental problems and excessive capital costs.

“We think a couple of smelters will get built, but they will barely meet demand,” Mills said.

As a result, copper smelting charges are skyrocketing. In early 1990, the average smelting and refining charge was 15 cents per lb. Now smelters are charging about 35 cents per lb. for custom processing. Peter Miller of Yorkton Securities says the charges are unlikely to decline until mid-1995 “at the very earliest,” when Metallgesellschaft’s Gresik project in Indonesia and Kennecott’s Bingham Canyon expansion are completed.

To take advantage of this trend, Magma hopes to increase its smelting capacity by 5%, or 30 million pounds, this year. Magma is also examining the feasibility of constructing a new acid plant that could increase smelting capacity by another 15%.

Today, more than one quarter of Magma’s copper production is derived from custom smelting and refining. The company has the lowest smelting and refining costs in the United States.