Denver — The dramatic rise in electricity costs for mining operations in the western U.S. continues to threaten the industry. Blackouts are again keeping Californians in the dark, and deregulation gone haywire has sent costs skyrocketing.
Mining first felt the pinch in the fourth quarter of last year, particularly in Arizona and New Mexico.
Phelps Dodge reported no material changes in electricity costs for the first quarter of 2001, though it did report that total cash costs per pound were 10 higher than in the corresponding period of the previous year, with most of the increase coming from energy-related costs.
Some employees at the company’s operations in New Mexico and Arizona have been laid off, and shutdown warnings are still in effect.
The cost increases have put further strain on an already-depressed industry. Moreover, prices for the red metal are down to around US75 per lb. at a time when the U.S. economy is foundering. If the country slips into a recession, copper usage would fall further.
Meanwhile, the Federal Reserve has systematically cut interest rates in an attempt to stave off recession, while the Bush administration has tried to bolster power generation. It is also promoting increased oil and gas drilling in an effort to combat high prices for fossil fuels.
Mines are doing whatever they can to contain the spreading power problem.
Golden Sunlight
In Montana,
Open-pit mining should be completed by the end of June, after which time the company will process lower-grade stockpiles. Production should reach 173,000 oz. in 2001, though if Placer cannot secure power for another year, it may have to shut down the operation.
In Nevada,
Barrick has considered other sources of power but is dismayed at the state of the market. “The power is there, but at pretty exorbitant prices,” laments John Carrington, the major’s chief executive officer.
Mining, along with the gaming industry, is one of Nevada’s largest consumers of power. Newmont and Barrick represent the two largest private users.
BPA frustrated
The power crunch is having an even harsher impact on the aluminum industry. Producers in the northwestern states are being cajoled into shutting down smelters for up to two years in an effort to free up electricity for individual consumers.
The Bonneville Power Administration, which controls much of the region’s hydroelectric power, wants to renegotiate recently signed long-term contracts with
The aluminum industry, represented by 10 smelters and more than 6,000 jobs, is balking at the proposal, claiming it is being blamed for the problem. Like copper prices, aluminum prices too are depressed. Local operators have enjoyed cheap power for the past 50 years, but reopening the smelters at current rates may be impossible.
Not all big power users in the northwest are unhappy about rising electricity costs. Across the border, in British Columbia,
Spot prices have increased more than ten-fold in the past year to US$350 per MW-hr. in first quarter of 2001, up from US$24 in the initial three months of the previous year.
In fact, Cominco has increased its curtailments of zinc production in lieu of selling the power several times this year. It expects to cut production by as much as 100,000 tons, with a big chunk of that coming during August and September, when the smelter will be closed for maintenance.
To date, Cominco has not needed to lay off any employees at Trail, having engineered the curtailments around employee vacation time.
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