OPINION — U.S. capital moves overseas for copper

A large amount of capital is moving out of the U.S. to foreign countries, particularly Chile, for exploration and development of copper mines.

During the past 10 years, American producers have spent enormous sums to modify and expand existing mines, mills and smelters in the U.S. In doing so, they have lowered their position on the world cost curve from the upper end down to a level where their operating costs are above only 65%-80% of the competing world’s production.

Nonetheless, at this time there is only one true grassroots copper mining project slated for development in the U.S. and its production rate will be a relatively modest 25,000 tons of the red metal per year.

The economic criteria driving investment decisions in copper mining are the usual net present value and internal rate of return, as well as — and this is extremely important — the projected position of the project on the curve of competing production costs.

The copper assay of ore mined and fed to the process plant, whether a concentrator or a heap-leach, solvent extraction-electrowinning (SX-EW) plant, is normally the principal determinant of operating costs. Thus, the high grades of ore deposits in Chile, Indonesia and other countries offer the promise of costs substantially lower than those of most domestic mines. It is a strong incentive to move capital overseas. American producers will have to use all of their engineering and financial ability to avoid moving back up the cost curve.

Environmental regulations and permitting have also contributed significantly to the trend. The issue is as much about political power as it is about environmental protection.

Radical socialists in the leadership of the environmental movement understand the implications of controlling natural resources as a means of influencing the economy and directing social change. The radical environmentalists are natural allies of the current administration in Washington which is catering to their views.

The climate of uncertainty created by these environmentalists (and contributed to by our government) is absolutely discouraging exploration and development of new mines in the U.S. There is no question that it is also contributing to the departure of capital and jobs from the country. In addition to the economic and environmental factors discussed above, the demise of the former Soviet Union has also been an influence in the movement of capital abroad. The tensions which existed for decades between communist and non-communist countries caused polarization which was inimical to investment in many parts of the world.

These are only three of the factors behind the movement of mine exploration and development capital and jobs out of the U.S. There are, of course, others. For example, new mining and processing technologies can compensate for some logistics problems that were once considered truly formidable. We will soon see a single 40-ft.-diameter, semi-autogenous grinding mill equipped with 20,000 hp and capable of grinding more than 50,000 tons per day. The savings in construction costs from this technology, in relation to costs associated with multiple crushing and grinding lines, are most important in remote regions.

The adaptability of modern SX-EW technology is another example. It is hoped that the American government will come to its senses and help restore a climate in which the opportunity to apply new technologies and create jobs in the U.S. will be as inviting as it currently seems to be in other parts of the world.

— John Dorsey is with The Winters Company. This article appeared in a recent issue of “Copper Talk,” the magazine of The American Copper Council.