The World Copper Industry

Structure and Economic Analysis

Raymond F. Mikesell

• Publisher: RFF Press
• Year: 2013
• Print ISBN: 9781617260568
• eBook ISBN: 9781135996178
• Topic: Business
• Subtopic: Business General
• Index: Business

First Published in 2011.This is Volume 6 of the library collection of seven on Natural Resource Management and gives an analysis of the structure, physical characteristics, economics and a survey of the world copper industry and of the problems with which policy makers and students of the industry are currently concerned. There is heavy emphasis on foreign investment in mining, especially in the Third World copper producing countries.

1
Overview

Brief History of Copper

THE DISCOVERY and use of copper dates from prehistoric times when Stone Age people in the Mediterranean beat the red stones found on the island of Cyprus (from which copper gets its name) into implements. Copper was first used in its pure, natural form without benefit of metallurgy, just as it was used by the native Africans who were visited by Dr. David Livingston,¹ and by the American Indians in the Lake Superior region long before the arrival of the Europeans. Some of the ancient copper ore bodies, such as those in the Timna Valley in Israel—believed to have been the site of King Solomon's mines—have been worked intermittently to the present day. The famous Cyprus mines which supplied the Phoenicians and the Greeks and later the Romans were rediscovered by the American engineer-geologist, D. A. Gunther, early in the twentieth century.²

Another copper region that has been mined intermittently, at least since the second millenium B.C. to the present, is the Rio Tinto in southern Spain—first by the Phoenicians and later by the Romans, who were followed by the Moors, and today by the European company that bears its name, Rio Tinto-Patino. The Romans extracted millions of tons of ore from the Rio Tinto mines, which went to a depth of 1,000 feet. But while their smelting technique was sufficient for oxide ore, it was the Moors who developed the metallurgy for recovering pure copper from the more accessible copper sulfides.³ The Rio Tinto mines were rediscovered by the Spanish in 1556, but owing to bureaucratic delays and poor management, profitable production did not begin until nearly 200 years later. Modern development of the Rio Tinto mines on a substantial scale was initiated by a group of private British capitalists who purchased the mines from the Spanish government in 1873 and organized the Rio Tinto Company.⁴

During the Middle Ages and in the early Modern Period, copper mining, metallurgy, and fabricating were carried on in Europe and the Germans in particular developed new technology for this industry. The use of copper in the manufacture of brass cannon and other military supplies greatly increased the consumption of copper. In the eighteenth century, the center of the world's copper industry shifted to Britain and by the end of the century Britain was the world's largest copper producer, supplying three-fourths of ail metal produced. Much of this copper came from the Cornish and Devon ores, trade in which had been organized by the Phoenicians as early as 1500 B.C.; later the industry was developed by the Romans. The demand for copper exceeded the capacity of British ores so that Britain began importing copper from various parts of the world for smelting. Advances in British smelting technology helped to establish a monopoly which continued until the middle of the nineteenth century, by which time foreign producers began to set up their own smelters, employing such British inventions as the reverberatory furnace.⁵ Today Britain imports most of her refined copper requirements.

In Latin America, both the Aztecs and the Incas used copper and bronze tools, while in North America copper mining began with the Indians, whose copper tools and ornaments were noted by the early explorers. But it was not until the mid-nineteenth century that the rich deposits in northern Michigan from which the Indians obtained their copper were rediscovered, and a modern copper industry established. For several decades northern Michigan was the world's largest source of copper, but later on in the century the output of the Lake Superior region was exceeded by the mines discovered at Butte, Montana. During the 1870s Chile became the world's most important copper exporter, but these early mines tended to be small.

During the second half of the nineteenth century, the growth of electrical energy for power, lighting, and communications led to a doubling of the world demand for copper every few years. In 1860 the annual output of the world's copper mines was only about 100,000 metric tons (mt). By 1912 it had reached a million mt and by 1929, 2 million mt. By 1960 it had doubled again to 4 million mt and by 1974 the world's primary copper production was nearly 8 million mt.⁶ As long as the supply of copper depended upon mining rich vein deposits, world reserves were quite limited in relation to the millions of tons of refined copper per year that would be required to meet industrial demand in the twentieth century. But there were vast quantities of copper in the form of low-grade porphyry deposits⁷ which require large-scale mining methods for profitable operation. Porphyry copper deposits tend to occur in the earth's crust in discontinuous belts, the best known being the belt that runs from northern Canada down through southwestern United States, Mexico, Central America, and western South America through Peru, Chile, and western Argentina. Another belt runs through the Philippines and Papua New Guinea (PNG), and a third belt passes through southeastern Europe, Iran, and Pakistan (see figure 2-1).⁸

Porphyries constitute over 60 percent of presently known copper reserves and account for 45 percent of presently mined copper.⁹ Although the existence of large porphyry ore bodies has been known for a long time, they were not developed until the early 1900s when an American engineer, Daniel C. Jackling, first applied the techniques of mass production to copper mining in 1905 at the Bingham Canyon open-pit mine in Utah where he showed that 2 percent copper porphyry ore could be mined profitably. Since that time, the grade of copper that can be profitably mined has declined to well under 0.5 percent in open-pit mines in the United States and elsewhere. Mass production mining requires large shovels, trucks, and ore crushers, but the development of large-scale mining was also facilitated by technological improvements in concentrating, one of the most important being flotation. In this process the crushed ore is reduced by rotating mills to a powder which is fed into flotation cells where the particles of copper-bearing materials are separated from the noncopper-bearing rock.¹⁰ The flotation process of concentration was developed in Britain about the same time that large-scale mining of porphyries first took place. Technological developments in smelting and refining have also occurred in step with those in mining and milling to permit large-scale mining and processing of the low-grade copper ores. These developments have tended to hold down the real cost of producing copper in the face of a steadily declining average grade of mined ore.

Jackling's large-scale mining technique was again employed in Ely, Nevada in 1908; and later in 1910 at Miami, Arizona, and subsequently at the other great Arizona mines of Ray, Inspiration, New Cornelia, and Copper Queen; and at Chino in New Mexico. The porphyry copper belt in the southwestern United States extended across the Mexican border and by 1905 the great Cananea mine had been developed in Sonora, Mexico. The rapid development of large copper mines in the southwestern United States greatly increased U.S. production so that by 1910 three-fifths of the world's copper was produced in this country. At about the same time, large-scale copper mining was initiated in South America, largely under American leadership, and in Africa under British and Belgian leadership. Canadian copper mining began in the late nineteenth century in the Lake Superior region and later mines were found in northeastern Canada. By the 1930s Canada was the world's third largest producer behind the United States and Chile. With the opening of the large porphyry mines in British Columbia, Canadian output rose above Chile's in 1972 and 1973, but Canada declined to fourth place behind Chile and the U.S.S.R. in 1974.

Chile and Peru

The Jackling revolution in mine technology led American mining engineers to look for large ore bodies in other countries. Chile was a natural place for exploration since copper had been produced there in colonial times. Prior to the surge in U.S. copper output with the opening of the Butte, Montana and other western mines, Chile was the world's principal source of copper.¹¹ The pioneer in the development of large-scale mining in Chile was the American mining engineer, William Braden, who first went to Chile in 1903 to explore some of the ore bodies that had been worked decades before. In 1904 he obtained an option on El Teniente in central Chile and formed the Braden Copper Corporation (later acquired by the Kennecott Copper Corporation) to develop the mine, which had been abandoned earlier because of the exhaustion of high-grade ore and because of the difficulties encountered in mining at the 12,000 foot level in the Andes. El Teniente began producing in 1910 and was the first large-scale mine to use the flotation process for concentration. Shortly thereafter another Chilean mine, Chuquicamata (which is located in the desert of northern Chile and which had been worked on a modest scale for many years), was developed by the Chilean Exploration Company. This mine, which was initially financed by the Guggenheims and later sold to Anaconda, became the largest in the world and remains so today, with a production capability of over 400,000 mt per year. Chile's mine production rose to over 1 million mt in 1976.

In 1902 an American group formed the Cerro de Pasco Mining Company to develop a copper mine in the Cerro de Pasco district of Peru where silver had been mined for generations. There were many production difficulties and, although the mine was successful, Peruvian output was small compared with that of the mines of the Chilean Gran Mineria (Chuquicamata, El Salvador, and El Teniente) until the completion of the great Toquepala mine in Southern Peru in 1960. In 1961 Peru's copper mine output reached 181,000 mt per year, and with the completion of the Cuajone mine in 1977, Peru became the seventh largest producer in the world; it is the second largest producer in Latin America.

Central African Development

Mineral exploration in Central Africa was initiated toward the end of the nineteenth century by British interests led by Cecil J. Rhodes who organized the British South African Company (BSAC) in 1889 for exploration in northern Rhodesia (now Zambia) and by Belgian interests financed by King Leopold II in the Belgian Congo (now Zaire). A number of prospectors operated in northern Rhodesia under licenses granted by the BSAC, which had administrative control and ownership of mineral rights in the entire region. BSAC granted mineral rights to others in exchange for royalties and shareholdings in the mining companies. The ore grades in northern Rhodesia tended to be low and initially the lack of rail transportation hindered development. Small operations were not profitable, so that there occurred an amalgamation of the smaller mines. Eventually virtually all of the mines came under the control of two groups: Anglo-American Corporation of South Africa, with majority British ownership (and minority American ownership); and Rhodesian Selection Trust, with majority American ownership.

The rich ore bodies in the Katanga region of the Congo came under the control of Union Miniere du Haut-Katanga, with majority Belgian ownership and minority British ownership.¹² Copper production in Katanga was 10.7 thousand mt in 1914, rising to over 90,000 mt in 1925. Copper output of northern Rhodesia remained quite small until 1927 when it ...

Table of contents

• Cover
• Title
• Copyright
• Original Title
• Original Copyright
• Dedication
• Contents
• Preface
• Introduction
• 1 Overview
• 2 The Physical Characteristics of the Copper Industry
• 3 World Markets for Copper: An Institutional Analysis
• 4 Copper Prices and Costs: An Historical Review
• 5 U.S. Demand for Copper: An Introduction to Theoretical and Econometric Analysis
• 6 Quantitative Analysis of Supply
• 7 International Copper Price Stabilization and Cartels
• 8 Investment in the Copper Industry: Practices and Approaches
• 9 Foreign Investment in Copper Mining
• 10 Conflict Resolution in Mine Development Contracts: Some Recent Examples
• 11 Some Economic Issues in Nationalization, Exploration, and the Rate of Exploitation of National Mineral Resources
• 12 World Copper Resources, Mine Capacity, and Future Demand
• 13 Special Problems in the Future Supply of Copper
• 14 Summary and Conclusions
• Index