economics

Permitting, Economic Value, and Mining in the United States – Part 2

This is a follow-up to Permitting, Economic Value, and Mining in the United States.

In that post I reported that a new report commissioned by the National Mining Association finds that our current convoluted mine permitting process can cause a mine to lose a third of its value as it waits for the numerous permits needed to begin production. These delays, combined with other risks and costs, cut the expected value of a mine in half. This often makes minerals projects economically unviable and jeopardizes an important feedstock of the manufacturing industry while discouraging investment in the U.S.

The report, produced by SNL Metals & Mining of London, can be downloaded here.

Here I present a 3-minute video featuring Mark Fellows, director of consulting at SNL Metals & Mining. He explains that of all the developed nations, the U.S. is afflicted most severely by protracted delays in obtaining mining permits, impairing and discouraging investments in mineral development projects. Companies need certainty when considering an investment. Currently the permitting process contains many uncertainties and opportunity for delay.

These delays cause manufacturers to become overly reliant on minerals imports, despite a wealth of resources in the U.S. Lawmakers must implement policies that guarantee manufacturers access to the raw materials needed to succeed. Watch to learn more. The video is followed by a new Infographic illustrating the problem.

FINAL_SNL_Infographic_-_NMA-page-001

Permitting, Economic Value, and Mining in the United States

A new report commissioned by the National Mining Association finds that our current convoluted mine permitting process can cause a mine to lose a third of its value as it waits for the numerous permits needed to begin production. These delays, combined with other risks and costs, cut the expected value of a mine in half. This often makes minerals projects economically unviable and jeopardizes an important feedstock of the manufacturing industry while discouraging investment in the U.S.

The report, produced by SNL Metals & Mining of London, can be downloaded here.

The report begins:

“Of all the developed nations, unexpected and often unnecessary delays in obtaining mining permits afflict the U.S. most severely. Despite being blessed with a vast reserve of mineral resources, the U.S. accounts for only 7 percent of world-wide spending on mineral exploration

and production is currently reliant on a population of mature mining projects. The average remaining life of active mines in the U.S. and the share of projects in advance development have also fallen in recent years. Meanwhile, the demand for minerals to supply the defense, advanced energy, high-tech electronics, medical, and transportation industries is rising. The U.S., while leading on the manufacturing of these technologies, is lagging in the production of the minerals needed to make them.”

It also notes:

“In the U.S., the requirement for multiple permits and multiple agency involvement is the norm, as is the involvement of other stakeholders, including local indigenous groups, the general public and non-governmental organizations. As a consequence of the country’s inefficient permitting system, it takes on average seven to 10 years to secure the permits needed to commence operations in the U.S. To put that into perspective, in Canada and Australia, countries with similarly stringent environmental regulations, the average permitting period is two years.”

Three examples cited by the report are examined in detail:

The Rosemont Copper

project in Arizona continues in its attempts to secure permits, five years after the originally planned start date of 2010. Over this period, the value of the project has fallen from $18 billion to $15 billion despite much higher copper prices.

The Kensington gold mine

in Alaska was plagued by permitting issues during development. It commenced production in 2010, nearly 20 years after the originally planned start date of 1993. By the time the mine opened, the capital cost of building the mine had increased by 49 percent, and the company had reduced planned gold production by nearly a third, to focus mining operations on the most profitable part of the deposit only.

Twin Metals Minnesota

is still in a relatively early stage of the permitting process, completing a prefeasibility study in 2014. The developers have acknowledged that the delay in receiving permits, or the possibility of denial, could be a significant business risk to the project.

Another article from NMA, contains comments by Harry Moser, founder and president of the Reshoring Initiative, a program committed to bringing manufacturing back to American soil to accelerate job growth and support a stronger economy here at home.

Moser notes:

“Every manufacturing operation in the U.S. uses minerals—either as the material that they’re producing or the tools they use to produce the material.” As the U.S. manufacturing sector grows, so does the demand for more minerals, and to keep American manufacturing growing it’s important that the U.S. has a secure, stable and reliable mineral supply in place so manufacturers can obtain the minerals they need when they need them.

“My goal is to balance the trade deficit,” Moser adds, “To bring back $500 to $600 billion dollars a year worth of manufacturing. That will increase U.S. manufacturing by 30 percent, which will require about 30 percent more minerals.”

The House Committee on Natural Resources is holding hearings on the “National Strategic Critical Minerals Production Act of 2015.” This bill aims to modernize the current U.S. mine permitting process by improving access to the trillions of dollars worth of mineral reserves, which will boost domestic manufacturing and the American economy.

It’s about time.

Related articles:

How NEPA crushes productivity

Pima County versus Rosemont

Jaguars versus the Rosemont mine

Rosemont and the Cuckoo scam

And, by David Briggs:

Congressman Grijalva Attempts To Undermine Our Economy And National Security

Resolution Copper-Setting the Record Straight about Oak Flat

America’s mining industry is vital to our economic and national security

 

Rosemont copper mine would benefit economy and community but is buried in bureaucracy

The proposed Rosemont copper mine to be developed south of Tucson will provide many benefits to the area.  According to studies, the mine will produce over 400 direct jobs and about 1,600 indirect jobs that will provide about $3 billion in increased personal income over the next 20 years.

The mine will provide local governments with tax revenues of about $19 million per year and create $700 million in local economic stimulus in such things as services, real estate, retail purchases, utilities and manufacturing.

The total physical footprint of the Rosemont mine, including the mine itself, the waste and tailings dumps and the physical plant will be about 4,440 acres which is half the size of the Sierrita mine and one-third the size of the Mission mine.   Even thought Rosemont will have a smaller footprint, it will produce more copper than the Mission mine, about 240 million pounds of copper per year versus Mission’s 170 million pounds.  Pima County wasted $13,000 of taxpayer money building its own model of the footprint.

Among the concerns with the Rosemont mine is water use.  Rosemont is projected to use 6,000 acre-feet of water per year.  To put that in perspective, the Mission mine uses about 7,200 acre-feet, the Sierrita mine uses about 29,000 acre-feet, and agriculture near Green Valley, mainly the pecan grove, uses 32,000 acre-feet per year.  According to Rosemont, “The initial source will be groundwater withdrawn from wells in the Upper Santa Cruz sub-basin of the Tucson AMA basin and replenished by Colorado River water delivered by the Central Arizona Project.”  Rosemont has already stored 45,000 acre-feet of water in the Tucson AMA.  Rosemont’s water conservation and recycling techniques should result in the mine using only 50% of the water compared to older, traditional mining and processing methods.

Rosemont submitted a draft environmental impact study (DEIS) to the U.S. Forest Service in mid-2007.  You can read the study at http://www.rosemontcopper.com/ (Click the Studies tab).  The Forest Service had originally planned to release the study in the spring of 2009, but the bureaucracy has produced delay after delay, possibly due in part to opposition from some local politicians and environmental groups.  (See Local Politicians Against Jobs.)

The Forest Service then promised to release the DEIS by the end of last year, but that was not to be.  Just yesterday, buried deeply within an obscure part of the national Forest Service’s website, the Forest Service announced that they will publish the DEIS in the Federal Register in August, 2011, and publish a decision in January, 2012.  After that there is a 90-day period for public comment.  And then the plan must go to and get approval from so-called “cooperating” agencies which includes Pima County and a bunch of state and federal agencies.

Delays such as this are unconscionable but seem to be the norm with the current administration and its policies of putting all possible impediments in the way of developing our natural resources.

The bureaucracy is exacting the cost of lost opportunity upon us at a time when we could have been enjoying the economic stimulus of a new enterprise.

 

Disclaimer: I am a retired geologist who was employed by a major copper mining company, but I have no connection to Rosemont Copper.

Book Review: What Environmentalists Need To Know About Economics

This book is somewhat troubling. The author, Jason Scorse, makes a few good points, shows a complete misunderstanding of some issues, and tends to explore each issue in sometimes exhaustive and exhausting detail. Rather than economic advice, much of the book is a polemic on Scorse’s view of what constitutes an environmental problem; chief among those is anthropogenic caused climate change.

The seven chapters of the first part of the book deal with determining the optimum amount of pollution, tying to put a value on ecosystems, property rights, and jobs.

Scorse’s main points in part one are:

The world’s oceans and atmosphere are devoid of property rights (this is the tragedy of the commons), therefore no one takes responsibility for the sustainability of the resources. He uses the example of fisheries in which, Scorse says, fisherman take as much as they can, as quickly as they can.

Scorse notes that food production and electricity are really two things we cannot do without and both engender some pollution. He says that zero pollution is not feasible and environmentalists must accept this fact. They have to judge the benefit versus cost. Some pollution can be abated at a relatively low cost. “The optimum level of pollution is the amount where the benefits of abating additional pollution are not worth the added cost.” Scorse offers advice on how to judge that optimum point. He also notes that many U.S. environmental statutes, such as the Clean Air Act, Clean Water Act, and many EPA programs specifically mandate that the agencies are not allowed to use benefit-cost analysis.

Scorse spends many pages bashing the market system, but then he says “Market-based mechanisms have the benefit of allowing firms multiple pathways to compliance, thereby allowing them to choose the cheapest. Market-based mechanisms are also generally much better at promoting innovation because they create incentives for the development of new cleaner technologies.”

Some conflicting statements: As a result of environmental regulations “many forestry industries have experienced significant employment declines” (page 73). “There is no evidence that, overall, environmental regulation leads to job losses” (page 74).

In Part 2, Scorse takes another seven chapters to deal more specifically with climate change, forest and biodiversity conservation, agriculture, chemical pollution, fisheries, population growth, and “demand side interventions”. Scorse says that it is critical that private land owners be provided positive incentives to conserve natural resources. He advocates ending agricultural production subsidies saying these are “a colossal waste of taxpayer money.”

In discussing the ban on DDT, Scorse makes a foolish generalization: “Almost forty years have passed and there is virtually no one in the United States who believes that the ban was the wrong direction.” Apparently Scorse is not familiar with many studies which showed that the ban was unnecessary and has doomed many people, especially children in Africa, to death by malaria. (See 100 things you should know about DDT , The Excellent Powder, and DDT, A Case Study of Scientific Fraud.)

Some other points from the book: “The population issue is largely a distraction.” “The example of ethanol subsidies should be environmentalists’ Exhibit A of how not to craft government policy.”

As I said at the top, this book is troubling, many of Scorse’s economic recommendations are ambiguous platitudes rather than specifics. On the other hand (and Scorse uses many “on-the-other-hands”), “economic theory does not offer black and white answers…”

The author: Jason Scorse received his Ph.D. in Agricultural & Resource Economics, 2005 and M.S., Agricultural & Resource Economics, 2003, from UC-Berkeley and , M.S. in Applied Economics & Finance, 2001 and B.A. in Environmental Studies, 1991, from University of California, Santa Cruz.

The book is available at Amazon.com. I received a free copy from the publisher.

Capitalism is not a zero sum game

In game theory, a zero sum game is one in which the gains of one are exactly balanced by the losses of another. In economics, a zero sum game is aptly described by the saying, “As the rich get richer, the poor get poorer.” Many assume that our “economic pie” is static, so that if some take more of the pie, there is less for others to share. But capitalism increases the size of the pie, and although some may get bigger pieces than others, all gain.

Wealth is not money. In the economic sense, wealth is created from natural resources to produce capital goods and services. The more goods available to a society, the wealthier that society is. Reasonably unfettered capitalism is the best engine to produce those goods. In a capitalist society, even the poor are better off than those in non-capitalist countries; just compare the U.S. with some African countries.

Many politicians, including the current crop, think the economy is a zero sum game. Hence they attempt to “redistribute the wealth” in the name of fairness. But this attempt to make things “fair” just decreases the size of the economic pie, to the detriment of all.

The federal government, and some state governments, are hindering creation of wealth through a myriad of regulations that make creation of capital goods, and hence wealth, much more difficult than it could or should be.

About 80% of the U.S. economy is now in the service sector. While many services are valuable and may help producers of wealth; services, themselves, are not intrinsically wealth producers. In our economy, about 71% of GDP is made up of consumer spending which is highly sensitive to job creation, personal wealth, and after tax income. As the real wealth creators, the manufacturing and energy sectors decline, the service sector will feed on itself and eventually our economy will become a zero sum game.

The best way out of our economic mess is to unfetter and unleash the capitalists so that our “economic pie” becomes bigger. Government is currently a large part of the problem. It should just get out of the way.

When is a mine “mined out”?

Most mineral deposits are just curiosities. Those that make mines are extraordinary and rare. Some people insist on reclamation of a mine soon after it is mined out. For some kinds of mines, such as a coal mine, it is obvious when the mineral is gone and the mined land can be reclaimed. However, metal mines, particularly large copper mines, can have many lives and be “mined out” many times. For these mines, wholesale reclamation such as filling in an open pit is uneconomic, wasteful, and unsound environmental practice, because it takes less to to reopen an old mine than to construct a new one. This story concerns the large copper deposits of southern Arizona and New Mexico; mines which produce about 66% of the nation’s domestically mined copper; mines which have many lives.

To understand how a mineral deposit can have many lives, we must appreciate the difference between mineralization and ore. “Ore” is that part of the mineralization which can be extracted at a profit. The term “ore” is purely economic and at any given time, it depends on the price of the commodity, the current technology, the costs of extraction and beneficiation, and the regulatory climate. A particular volume of mineralization can be classified as ore or removed from that classification. Government regulation is adding more and more cost, thereby decreasing “ore”, the amount of mineralization than can be made available to us.

The history of each large copper mine in the Southwest is unique, but their stories are similar. This essay, a composite of those histories, concerns the Copper King mine, a fictional name based on a medium-sized “porphyry” copper deposit. Commonly, large mineral deposits experience mining in some form over long periods of time, more than 125 years so far for the Copper King. The ability to provide raw materials over such a long time span is possible because different parts of the deposit are mined in response to changing economy and technology.

The Copper King
For hundreds of years, aboriginal people mined small quantities of the decorative green and blue oxide minerals and native copper at the Copper King mine site. Eventually, however, they could no longer extract material using their primitive tools. For them, the site became mined out.

Modern recorded activity began in the 1870s when turquoise attracted attention of local ranchers. Turquoise was mined with hand tools from small pits on veins, but production was spotty due to the remoteness of the mine and frequent attacks by aborigines. As time progressed, prospectors found the rich veins of chalcocite (a copper sulfide) which also were exploited with hand tools and primitive machines. Activity remained on a small scale, however, because only the richest mineralization could pay for the cost of transportation to the distant smelters by pack mule and wagon. Chalcocite ore mined at this time had a copper content of 30% copper per ton of rock and it was soon exhausted. The mine was mined-out.

In the 1890s, a newly constructed railroad, part of the transcontinental system, provided a more economical means of getting bulk ore to market. Lower transportation costs made lower-grade mineralization “ore” and allowed several mining companies to exploit the rich veins by costlier underground mining methods. The rock mined at this stage had a copper content of 4% to 10% copper per ton. Some companies prospered; others did not. Eventually, one company bought out all others and consolidated the mining camp into one operation for more efficient production. Underground mining of veins continued until the early 1920s, providing copper for the war effort in World War I. After the war, copper prices plunged and the mines closed. The remaining veins were not rich enough or numerous enough to support the cost of mining and processing. Again the mine was mined out.

During the ensuing years, geologists were at work in other areas creating ideas about disseminated mineral deposits, those with mineralization dispersed throughout the rock rather just confined to veins. Mining companies developed equipment enabling bulk mining of large, low-grade deposits with copper grades of 1% or less.

Floatation and Smelting

One key advance was the development of concentrating low-grade ore minerals by flotation extraction milling. This is a process where the mined rock is crushed to a consistency of talcum powder, and then transferred to large tanks which contain a stirring arm, much like a slow-speed blender or food processor. This same equipment is now used in some paper pulp mills. Within the tank, a mixture of powdered rock, water and pine oil is injected with air to form bubbles. The rock material, or gangue, sinks to the bottom of the tank. The ore minerals become attached to the bubbles through chemical attraction and surface tension, and float to the top where they are skimmed or “floated” off. The skimmed material, called concentrate, contains about 30% copper produced from rock originally containing 1% copper or less. The concentrate is dried, then sent to a smelter. Some by-product metals, such as molybdenum, lead or zinc, can be extracted in the concentrator through separate circuits. Other metals, such as gold and silver remain with the copper and are extracted in the refinery.

In the late 1940s, geologists thought these “new” techniques could be applied to the Copper King. During the 1950s and early 1960s, the low-grade disseminated chalcocite and chalcopyrite (CuFeS2) mineralization was explored with over 1000 drill holes. Finally, in the mid-1960s, the drilling had delineated mineralization of sufficient quantity and grade that it could be classified as ore based on new bulk mining and milling techniques. The exploration work and new technology lead the Copper King Mining Company to justify expenditure of several hundred million dollars for construction of an open pit mine, a concentrator, and purchase of equipment including large trucks and power shovels. Mining of this new, lower-grade chalcocite and chalcopyrite began in the 1960s.

Solvent Extraction

By the late 1980s, however, mineralization grading over 0.4% copper per ton, the minimum required for the concentrator, was getting scarce and the Copper King was facing the end of its current stage of economic life. Again, it would become mined out. However, during the last years of mining, a new process was perfected: electrowinning-solvent extraction (SX/EW). This process allowed recovery of copper from even lower-grade chalcocite and, for the first time, economic extraction of copper from oxide mineralization which could not be processed by flotation. However, this method could not deal with the primary chalcopyrite.

The solvent extraction part of the SX/EW process is very similar to the natural process which formed the chalcocite and oxide mineralization. Rock is mined and placed in large, tabular heaps, usually 25 to 50 feet high, covering several acres. Slightly acidic water is sprayed on the heaps and allowed to percolate downward. The water dissolves copper in the rock. The copper-rich water is collected and piped to the extraction plant where copper is first stripped from the water using an organic solvent such as kerosene. The water is recycled. Copper-rich solution is pumped to a tank house. The tanks are like large automobile batteries, but run in reverse by applying electricity causing the copper to plate out on one of the “battery” electrodes. The SX/EW method is much less costly than the concentration process because it produces copper of sufficient purity for market without going through a concentrator or smelter. The SX/EW process is also more environmentally friendly. There are trade-offs, however. SX/EW cannot recover by-product metals such as molybdenum, gold and silver, nor can it recover copper from chalcopyrite.

SX/EW processing began during the later stages of mining at the Copper King and supplemented the concentrator ore, and continued alone after the concentrator closed. Because SX/EW can process lower-grade chalcocite and oxide minerals, it led to more geological investigation and exploration drilling which identified hundreds of millions of tons of formerly worthless rock which could now be classified as ore using the new process. Now all chalcocite, rich veins and low-grade disseminations alike, containing as little as 0.3% copper per ton could be mined. In addition, all the oxide material, which could not previously be exploited on large scale, could be mined to grades as low as 0.1% copper per ton.

High-temperature Pressure Leaching
 

 In about 2003, a mining company perfected a method of leaching chalcopyrite in real time. This made possible the relatively inexpensive extraction of lower-grade chalcopyrite (more mineralization became “ore”) and it also eliminated the need for expensive smelting.

Under the new technology, the sulfide slurry from the concentrator is pumped into a pressure tank at 600 psi and heated to 225 C. Addition of oxygen causes the sulfides to break down according to this formula: Chalcopyrite + oxygen + water becomes aqueous copper sulfate + hematite + sulfuric acid. The reaction is written: 4 CuFeS2 + 17 O2 + 4 H2O = 4 CuSO4 + 2 Fe2O3 + 4 H2SO4.

Pyrite undergoes a similar reaction to produce hematite and sulfuric acid: 4 FeS2 + 15 O2 + 8 H2O = 2 Fe2O3 + 8 H2SO4. These reactions are similar to the natural weathering process which occurs over thousands of years. Pressure leaching does it in one hour.

By-product gold and silver, if any, stays with the hematite and can be recovered through conventional cyanidation leaching after the solids are removed from the reaction vessel. The sulfuric acid can be used to leach oxide copper ores. The aqueous copper sulfate goes to the solvent extraction – electrowinning (SX/EW) plant.

The Copper King mine will continue into the future, but what then? All mining since 1870 or any that will occur in the next few decades will have exploited only the top 1000 feet of the 7000-foot thick mineral deposit. Most of the remaining material is low-grade chalcopyrite (about 0.3% copper or less), material not economically extractable now. At that time, will the mine finally be mined out? No! New technological processes will be developed to economically extract some or much of the remaining copper.

One such process under development is the dissolution of chalcopyrite using sulfur-eating bacteria which can exist only in the environment of the sulfide mineralization. When this method is fully developed, it could allow leaching of chalcopyrite in situ (in place underground) and give the mine another life. It could also allow leaching of very low grade mine tailings left from previous mining operations.

The Copper King mine has had a long life, often marked by periods of inactivity: periods awaiting changes in economics or technology, periods awaiting a development which will turn mineralization into ore. Those who say that we should fill in open pits are short sighted because that activity may make a mine uneconomic at the outset and could make future mining based on new technology impossible. It is more environmentally sound to find ways to continue mining at an existing mineral deposit than to find and exploit a new deposit on virgin ground.

Mining is a risky business which requires huge up-front expenditures. It ultimately depends on economics. The engineering factors, such as deposit geometry and cost of equipment can be calculated with reasonable certainty. Other costs, especially that of ever-changing government regulation in the form of royalty schemes or environmental laws, make mining risky indeed and may actually waste a portion of the natural resource by drastically decreasing the amount of mineralization that can be called ore.