World’s largest copper mine slashes production by 10%

A serious fall in the demand for copper has caused BHP Billiton (BHP-N) to reduce production at the Escondida and Tintaya operations in South America by an estimated 170,000 tonnes on an annualized basis.

“The physical end use demand of copper has fallen very materially, particularly post-September 11,” states Brad Mills, president of the base metals division. “In the current environment of rapidly rising inventories, it makes no sense to produce copper for which there are no end-users. Combined LME-Comex stocks are at 940,000 tonnes and growing.”

John Crofts, vice-president of marketing, agrees: “There has been a precipitous fall, particularly in the Western World, and there are predictions of surpluses of 400,000 to 600,000 tonnes of metal coming on top of the 900,000-plus tonnes that are in Comex and LME warehouses already.”

Production at the Escondida copper mine in northern Chile will be reduced, effective immediately, by 10%, which is equivalent to 80,000 tonnes per annum.

During the curtailment period, the mill’s head grade will be reduced by selective mining at a lower cutoff grade. Higher-grade ore will be preserved for processing for when market conditions improve. The 10% cut is in addition to the natural decline of production that occurs because of declining head grades.

BHP will suspend sulphide production at the Tintaya copper operations in southern Peru, effective Jan. 8, removing an additional 90,000 tonnes per year from the marketplace.

“We will review all of those decisions at the end of our fiscal year [June 30],” says Mills, “and we will look at conditions in the marketplace and determine whether it’s appropriate to continue with those cuts or to take additional action or to restore production at that time depending on market conditions.”

No Escondida employees will be affected by the reduction, whereas the employee workforce at Tintaya will be maintained on a stand-by basis until the end of June.

BHP says it will continue with the US$1.04-billion phase-4 expansion at Escondida, along with sulphide leach development and the potential development of Escondida Norte. Together, these actions have the potential to add more than 450,000 tonnes of copper production annually at a cash cost of under US40 per lb. Escondida is currently averaging cash costs of about US42 per lb.

BHP Billiton is the operator and owns a 57.5% interest in the open-pit mine, which is 160 km south of the port town of Antofagasta. The remaining interest is divided among Rio Tinto (rtp-n), with 30%, a Japanese consortium that includes Mitsubishi, Mitsubishi Materials and Nippon Mining & Metals, with 10%, and International Finance Corp., with 2.5%. Escondida is the world’s largest copper mine, producing copper contained in concentrate and in cathode.

Total production for the year ended June 30, 2001, was 871,000 tonnes, down from 920,000 tonnes in 2000. Production of copper concentrate was 7.2% lower than a year earlier, owing to declining head grades and the closure of a mill in June 2001. Cathode production was 4% higher, the result of improved productivity and efficiency of the oxide plant, which increased annual capacity by 11,000 tonnes to 150,000 tonnes.

As ore grades decline, annual copper production after 2003 is expected to decrease to about 700,000 tonnes. A fourth phase of expansion, approved by BHP Billiton and its partners, will offset this decrease by increasing production to 1 million tonnes of copper contained in concentrate from 2003 onward. This will be achieved by adding a 110,000-tonne-per-day concentrator.

Escondida contains proven and probable sulphide reserves of 1.6 billion tonnes grading 1.22% copper, of which BHP’s share of recoverable copper amounts to 16.6 million tonnes. An additional, lower-grade component stands at 474 million tonnes grading 0.62% copper, while oxide reserves are pegged at 246 million tonnes grading 0.64% copper.

The 99%-owned Tintaya open-pit operations produced 88,000 tonnes of copper contained in concentrate in fiscal 2001. Tintaya is producing copper at cash costs of about US60 per lb. An approved US$138-million oxide expansion program will include a new solvent extraction-electrowinning plant, which will initially add 34,000 tonnes of cathode copper per year from the middle of calendar 2002. Both the Tintaya oxide project and Escondida’s phase-4 expansion are roughly half-constructed.

At June 2001, proven and probable sulphide reserves at Tintaya stood at 64 million tonnes grading 1.41% copper and 0.26 gram gold, equivalent to 793,000 tonnes of recoverable copper. Oxide reserves totalled 35 million tonnes grading 1.57% copper, or 325,000 tonnes of recoverable copper.