Volumen I Economics and Markets

Volume I
ECONOMICS AND MARKETS /

SUSTAINABLE DEVELOPMENT, ENVIRONMENT, HEALTH
AND SAFETY

Editors
C. Moscoso
J. Rosales
A. Vio

International Conference Organized by:
The Chilean Institute of Mining Engineers, (IIMCH)
The Metallurgy and Materials Society of the Canadian Institute of Mining Metallurgy and Petroleum of Canada, (METSOC)
The Mining and Materials Processing Institute of Japan, (MMIJ)
Society for Mining, Metallurgy, Resource and Environmental Technology, (GDMB)
The Minerals, Metals and Materials Society, (TMS)
US Society for Mining, Metallurgy, and Exploration, (SME)

Proceedings of Copper 2013
Santiago, Chile

A Publication of
The Chilean Institute of Mining Engineers, (IIMCH).
Encomenderos 260 Of. 31 Las Condes,
Santiago, Chile.
www.iimch.cl

All rights reserved
This publication may not be reproduced in whole or in part, stored in a retrieval system or transmitted in
any form or by any means, without permission from the publisher.

If you are interested in purchasing a copy of this book, or if you would like to receive the latest IIMCh
Publication Catalog, Please contact us (56-2) 2586 2545 instituto@iimch.cl

Santiago, Chile
EDITORS BIOGRAPHIES

Christian Moscoso W, Director of the Minerals Economic program At Universidad de
Chile. PhD in Mineral Economics (c) - Curtin University of Technology 2011 (Australia).
Master of Science in Industrial Engineering - Universit Catholique de Louvain 1986
(Belgium). Civil Mining Engineer - Universidad de Chile 1983.

Jorge Rosales Chacon graduated from Universidad Tcnica Federico Santa Mara, Via
del Mar, Chile, Commercial Engineer, Bachelor of Business Administration. Beginning
1986 and for eight years worked in the Empresa Nacional de Minera (Enami) in the
Finance and Commercial Vice-presidency, responsible for mineral and concentrate supply
to plants and smelters. In 1995, he created the CRONOS Company working as General
Manager for 12 years, developed trading operations and the integration of technology
projects in Latin America and the Caribbean. Since 2007, he has been working as a Senior
Consultant in Strategy and Commercial Planning on the Commercial Vice-presidency in
Codelco - Chile. He teaches economy and copper market at Universidad Adolfo Ibez.

Alejandro Vio Grossi, (avio@koam.cl) Mining Civil Engineer, graduated from
Universidad Nacional de San Juan, Argentina, and accredited by Universidad de Chile.
Mr. Vio has been at the head of different mining projects, such as Quarry and Metallurgical
Lab Manager, Plant Superintendent, Head of Operations, and Administrator of mining
companies.
He has performed as Level 1 Engineer and as Strategic Management Assessment
Director for the Chilean Copper Commission, COCHILCO (1992-2008); Executive
Secretary of the Chile-Argentina mining treaty, Ministry of Mining, Chile (2000-2003);
Deputy Director of Mining; and National Director of the National Geology and Mining
Service, SERNAGEOMIN.
Mr. Vio has also worked as Senior Engineer and Project Manager for the firm
Minera & Medio Ambiente Ltda.
Today, he holds the position of Planning and Development Manager at SITAC
Aguas Industriales S.A. and partner director of KOAM Ltda., specialized in environmental
and sectoral permitting for the mining industry.

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Santiago, Chile
PREFACE
Copper 2013 International Conference is the 8
th
version of the most important
global meeting that brings together leading scientists, researchers, academics, and
executives from different companies and organizations devoted to the areas of economy,
copper processing, metallurgical extraction techniques; environmental compatibility;
copper applications, copper recovery, and waste management and recycling techniques. At
the same time, the challenges faced by different mining projects will be addressed. We
appreciate the work and collaboration from colleagues coming from over 30 countries and
representing more than 300 companies and institutions.
Copper 2013 Conferences find their origin in the joint work conducted between the
Chilean Institute of Mining Engineers (IIMCh) and the Metallurgical Society of the
Canadian Institute of Mining, Metallurgy and Petroleum (METSOC). Since 2007, when
the Copper Conference was held in Toronto, new co-organizer institutions have helped
disseminate the results achieved by the Conferences while granting these a strong global
character in terms of convening power, submittal of papers, and the generation of
collaborative knowledge. We deeply appreciate the disinterested contribution from GDMB
of Germany, MMIJ of Japan, and TMS and SME from USA.
This time, the current global situation is not only a scenario where competitive
prices are being realized but also where strong and serious uncertainties are being handled
in connection with the global economy; energy and key resources prices.
Globally, ore grades have declined to historically low levels and, therefore, the
recycling and recovery of what used to be waste material, nowadays represent great
opportunities for the overall development of new projects. Water uses in production
processes and the solutions applied no doubt represent a source of knowledge for the
community gathered at this venue. Likewise, new long-term and mid-term forecasts to be
made in the future will certainly set their focus on eventual challenges and on mining and
metallurgical development opportunities in the decades ahead.
The total of 330 papers submitted in response to the original call will present the
main changes to take place in metallurgical processes, as well as the state-of-the-art
techniques responsible for providing effective solutions to new challenges posed by
metallurgical processes. The widespread interest generated by innovations, particularly in
the area of pyrometallurgy will undoubtedly occupy a special place in the course of the
Conference, thanks to the research and development of technological solutions conducted
in countries like China, for example.
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Santiago, Chile
The 2013 Conference has issued 7 volumes of Proceedings containing all the papers
and management initiatives presented in each of the 10 symposiums hosted by the
Conference. Among these, we can find:
Volume 1 Economics and Markets / Sustainable Development,
Environment, Health and Safety
Volume 2 Mineral Processing / Process Control and Optimization
Volume 3 (3.1 & 3.2) Nickolas Themelis Symposium on Pyrometallurgy and Process
Engineering
Volume 4 (4.1 & 4.2) Hydrometallurgy
Volume 5 (5.1 & 5.2) Electrowinning and Electrorefining
Volume 6 Downstream Fabrication and Applications / Recycling and
Waste Management
Volume 7 Geometallurgical Challenges in Mining Projects

The Organizing Committee wishes to extend its sincere appreciation to all
professionals and members of co-organizer entities, of Technical Committees, and
Advisory Committees. Our special gratitude to all authors and their papers presented
during symposium sessions.

The Organizing Committee
Copper 2013
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Santiago, Chile
FOREWORD

The Copper Economics and Markets symposium will focus on the key issues for
the copper industry in the medium and long-term, from the past and future perspective. A
Chilean perspective of a long term question is addressed. New developments on the
exploration side and review of major projects. Impact of mine concept on project results,
financial innovation and fundamentals approach from the financial area are among the
highlighted issues.
The Editors

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Santiago, Chile
THE ORGANIZING SOCIETY OF COPPER 2013
IIMCh, Chilean Institute of Mining Engineer
Founded on September 29, 1930, the Chilean Institute of Mining Engineers (IMCh)
is the most prestigious and valued institution in the countrys mining industry.
It mostly gathers mining engineers, although it also enrolls other professionals
working in the mining sector such as metallurgists, chemists, and commercial engineers,
among others.
With more than 80 years of history, it is vastly known for its constant technical,
independent and balanced contributions which main target is to promote growth and
development in the countrys mining activity. It gives technical and professional
cooperation to any initiative and tightening links among professionals that work in mining.

THE CO-ORGANIZING SOCIETIES

Institutos de Ingenieros de Minas de Chile (IIMCH)

The Metallurgy and Materials Society of the Canadian Institute of Mining Metallurgy and
Petroleum of Canada, (METSOC)

The Mining and Materials Processing Institute of Japan, (MMIJ)

Society for Mining, Metallurgy, Resource and Environmental Technology, (GDMB)

The Minerals, Metals and Materials Society, (TMS) and US Society for Mining,
Metallurgy, and Exploration, (SME)

ORGANIZATION
Chair Copper 2013
Diego Hernandez C., CEO Antofagasta Minerals

Technical Committee

Chair
Marco Antonio Alfaro S., Head Mining Engineering School Universidad Ctolica
de Valparaso
Assistant Chair
Fernando Flores M., Technical Department Advisor - Sociedad Nacional de
Minera
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Santiago, Chile

Advisory Committee

Chair
Nelson Pizarro C., Vice-president and General Manager - Minera Lumina Copper
Chile S.A.

Hernn Menares D., Operations Vice-president - Antofagasta Minerals
Ivn Arriagada H., Finance Vice-president - Codelco
Juan Carlos Romn, South Operations Vice-president Anglo American
Marcelo Awad, CEO Millennium Energy Industries
Ricardo lvarez F., Technical manager - MITSUI

Executive Committee

MetSoc Representatives
Jol Kapusta Ph.D. Director Technology, Mining & Metals
Phillip. J. Mackey, Technology Inc.

GDMB Representatives
Jrgen Zuchowski, GDMB General Manager
Norbert Piret, Consulting Engineers Piret & Stolberg Partners

TMS Representatives
Michael Moats, Associate Professor of Metallurgical Engineering Materials
Research Center Investigator, Department of Materials Science and Engineering,
Missouri University of Science and Technology
Tim Smith, Senior Vice President Copper Mining & Metallurgy SNC-Lavalin UK
Limited

SME Representative
Tim Robinson, Executive Vice President of the Republic Green Technology (RGT
) division, Republic Alternative Technologies Company

MMIJ Representatives
Katsuhiko Kaneko, MMIJ President of 2013 and Professor of Hokkaido University
(Faculty of Engineering, Division of Solid Waste, Resources and
Geoenvironmental Engineering)
Susumu Okabe, Executive Director, Secretary General The Mining and Materials
Processing Institute of Japan (MMIJ)

Main Organizer: IIMCh (Chile)

VIII
Santiago, Chile
Chairman
Leopoldo Contreras C., Independent consultant
Vice-president
Marco Antonio Alfaro S., Head Mining Engineering School
Secretary Director
Juan Pablo Gonzalez, Associate Director Golder Chile Associates
Treasurer Director
Manuel Viera F., CEO & Managing Partner - Metaproject
International Coordinator
Ricardo Simian D., Independent Consultant
Manager
Enrique Miranda S.

Regional Co-Chairs

Eduardo Frei R-T Asia, Senator
Julio Aranis V. Americas, Vicepresident North Codelco

TECHNICAL COMMITTEE MEMBERS

Economy and Markets
Jorge Rosales, Senior Consultant in Strategy and Commercial Planning at the Commercial
Vice-presidency, Codelco JRosa004@codelco.cl
Christian Moscoso, Director of the Minerals Economic program, Universidad de Chile
cmoscoso@ing.uchile.cl

Mineral Processing
Jorge Menacho, De Re Metallica Engineering, Consulting Company, drm@drm.cl

Nickolas Themelis symposium on Pyrometallurgy and Process Engineering:
Ricardo Bassa, Project and Services Manager at INCONSULT Company
rbassa@inconsult.cl
Roberto Parra, Professor, Researcher and Metallurgical Consultant rparra@udec.cl
Antonio Luraschi, Consulting Manager at AMEC International Ltd. as Metallurgical
antonio.luraschi@amec.com
Sergio Demetrio, Director and Principal Partner at Smeltec S.A.,
sergio.demetrio@smeltec.cl
IX
Santiago, Chile

Hydrometallurgy
Guillermo Ugarte: Chief Engineer and Hydrometallurgical Consultant at AMEC
guillermo.ugarte@amec.com

Electrowinning and Electrorefining
Rodrigo Abel, Senior Engineer at Codelco rabel@codelco.cl
Carlos Delgado, Independant Consultant delgado.carlose@gmail.com

Sustainable Development
Alejandro Vio, Planning and Development Manager at SITAC Aguas Industriales S.A.
avio321@gmail.com

Process Control and Optimization
Jonkion Font, Senior Enginnering, Codelco JFont@codelco.cl
Katiuska E. Baraona, Senior engineer Consultant kbaraona@outlook.com

Downstream Fabrication and Applications
Jurgen Leibbrandt, Advisor for the Chilean Mining Ministry
jurgen.leibbrandt@gmail.com
Miguel Ignat, Researcher and Associated Profesor of the Mechanical Engineering
Department, Universidad de Chile mignat@ing.uchile.cl

Recycling and Waste Management
Mario Snchez: Head, Metallurgical Engineering Department, Andres Bello University
mario.sanchez@unab.cl

Geometallurgical Challenges in Mining Projects
Hans Gpfert, Mining Engineer Consultant at AMEC Hans.Gopfert@amec.com
Bruno Behn, Consultant and Senior Mining Consultant bbehn39@gmail.com
Victor Encina, Senior Mining Consultant of JRI Ingeniera S.A. vencina@jri.cl

X
Santiago, Chile
TECHNICAL GROUP MEMBERS
You will find full information through internet at www.cobre2013.cl

SHORT COURSES ORGANIZING COMMITTEE
Dr. Roberto Parra, Professor at Concepcion University
Dr. Willy Kracht, Assistant Director of the Mining Engineering Department, University of
Chile
Dr. Michael Moats, Associate Professor of Metallurgical Engineering, Materials Research
Center Investigator, Department of Materials Science and Engineering, Missouri
University of Science and Technology

XI
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XII
Santiago, Chile
TABLE OF CONTENTS

Volume I
Economics and Markets / Sustainable development, Environment, Health and Safety

Economics and Markets
Copper and the Long Term Questions.. 7
P. Meller
Copper Production in Chile: A Look to the Past and Future Perspectives............. 15
A. Leibbrandt
Structure and Forecast of Copper Market... 37
J. Valverde
ICSG Global Copper Market Research in 2007-2012: Lessons Learned and
Challenges for the Future... 53
S. Keung and Carlos Risopatrn
Copper Exploration and Mining Development in Chile: A Forty Years Review.. 95
J. Cabello
Assessment of Multiple Mine Concepts Using Life Cycle Analysis and Diverse
Criteria.............. 103
R.D. Hunt, M. Marinovic and W. Funk
The Impact of Capex in Mining Project Evaluation: A New Paradigm?..................... 119

C. Barros, F. Giadach, J. I. Guzmn
Santiago, Chile
Financial Bartering A Financial Innovation for the Mining
Industry. 131
R.E. Silva and G. E. Dussaillant
Assessment of Some Strategic Risks Facing Cilean Mining Projects.............. 142
R. Torres

Sustainable Development, Environment, Health and Safety
Copper Mining, Generating Innovation in Chile.......... 161
H. Vergara
Flexible Mining Closure Plans: Dealing with Environmental and Social
Regulation Uncertainty..... 173
M. Paredes
Environmental Footprinting of Metallurgical Copper Processing Technology... 181
M.A. Reuter, I. Kojo, A. Roine, M. Jfs, J. Gediga and H. Florin
Commercial Operation of Arsenic Fixation by DMSP.. 195
N. Hashimoto
Risk Study Approach Under ISO 31.000/2009, in the Plant Area, Division
Talcuna, Mining San Gernimo, Coquimbo Region.... 207
F. Torres, F.Contreras, J. Corvetto and A. Opazo
Energy Effectiveness and Sustainability Management at Anglo
American Platinum... 227
O. A. Bascur and M. Halhead
Dynamic Model Proposal for Labor and Environmental Risk. 237
F. Torres and E. Corts
Water, Energy and Labour: Key Critics to Competitiveness of the Chilean
Copper Industry 267
P.Perez
The Use of Microwaves in the Smelting Industrys Thermo Process
Technology... 269
D. Hannemann
Santiago, Chile
New Regulation to Reduce Air Emissions from Copper Smelters in Chile..... 281
C.G. Contreras, P. Ulloa and P. SantEnergy Benefits of Implementing Drill-to-
Mill Strategies in Open-Pit Copper Mines... 295
S. Nadolski, B. Klein, M. Scoble and G. Connaughton
Environmental Hazard Classification of Copper Concentrates 307
P.H. Rodriguez, J.J. Arbildua, P.F. Urrestarazu, M.R. Opazo,
G.Villavicencio, K. Delbeke, J. Liipo and T. Brouwers
Risks in the Copper Mining Industry from a Fire Perspective. 319
Fernando Silva Calonge
Process Innovation by Working Miners: A Case of User Innovation in
Copper Mining Industry... 333
S. Burdiles and J. Giuliano
Breakable Ground Support: A Verification of Mechanical Properties to
Diminish Ferrous Solid Waste in Underground Mining.. 351
V. Barrera, P. Lara, G. Pinilla and E. Arancibia
Experimental Study and Computational Modeling of Particulate
Emissions from Open Pits in Vietnam. 363
K. Aygozhiev, O. Nitzsche and J. B. Pateiro Fernndez
Influence of the Investment Mining Projects in the Municipal District
of Sierra Gorda, AntoFagasta Chile, Case of Study. 377
G. M. Romn
From the Smoke Tragedy to the San Jose Mine Entrapment: 68 years
of Occupational Health and Safety Management in Chile... 379
A. Morales
Incremental vs. Disruptive Innovation, Sense of Opportunity and a Path to Develop
Disruptive and Sustainable Technological Innovation for the Copper
Industry Integrated Objectives Model (IOM)... 381
A. Zolezzi
Engineering a Safer World, 2011. 385
N. G. Leveson

Santiago, Chile

ECONOMICS AND MARKETS

Santiago, Chile
COPPER AND THE LONG TERM QUESTIONS
Patricio Meller
University of Chile
ABSTRACT
The aim of this article is to bring about a national long term debate around
fundamental questions such as where is Chile heading? And how will the future be if the
present economic tendencies do or do not persist?
The national impact of copper production has considerably grown in the last
decades, influencing the design of public policies and the macroeconomic stability of the
country. Thanks to copper, Chile changed. Today it is a country that exports more.
Copper is one of the main resources of income for the national Treasury. It allowed
international reserves to grow significantly and the country today has considerable
reserves to face the future. Moreover, copper made it possible for Chile to be a country
with fewer debts and for its citizens to pay less taxes and have larger incomes.
Summing up, copper has increased the wellbeing of Chilean society and it is
much more important today than formerly. In other words, Chilean society has become
addicted to copper (with prices over US$3 per pound); Chileans consume ever more
imported goods, demand greater public spending in social goods and want to pay less
taxes. Consequently, the need to worry about eventual extreme scenarios in relation to
copper becomes evident. What would happen if the pound of copper reached US$10? Or,
on the contrary, what consequences would there be if the price of copper returned to
US$1 per pound? This last scenario raises complex questions, is there life after copper?
How would the adjustment operate? (Meller [1]).
Considering this, it is worth raising some fundamental questions: Will copper
continue being the motor of Chilean economy?, how long will it play that role?, does the
jump to development depend on this mineral?, which is the best destiny for the huge
surpluses generated by mining, so that they can contribute to future development?, how
can we use these surpluses to avoid the so called trap of the middle income countries?
7
Santiago, Chile
In short, copper has always been considered a kind of milking cow that
produces two kinds of output: foreign currency (dollars) and public resources (pesos).
Can copper perform an additional role and contribute to avoid the trap of middle income
countries? In this scenario, the World Class Providers Program suggests a new role for
copper: the generation of technological innovation with an incorporated mechanism for
its spread. We must remember that technological innovation is the basis to increase
productivity and to become a developed country.

INTRODUCTION
At present, the role of copper is the most meaningful of all its history. Chile is
closer to becoming a developed country. But the expansive copper experience of these
last 20 years is not likely to be repeated. Then, how do we continue from here?
In essence, the mining activity is lengthy, with extensive temporal horizons. First,
the mineral must be found. Then, feasibility studies must be carried out. Later come the
engineering projects. The implementation and carrying out of these projects takes a
number of years. The useful life of the deposits can last more than a century, as we are
seeing in Chuquicamata and El Teniente. Therefore, in mining one must think in terms of
long periods of time.
This contrasts with what one sees at a general level in the country. There is no
long term horizon, nor is there a concern or perception that this might be necessary.
Nevertheless, in the global and interdependent world of the XXIst Century, countries in
general must adopt a fundamental decision: How does the country insert into this global
world?
The aim of this article is to bring about a national long term debate around
fundamental questions such as where is Chile heading? And how will the future be if the
present economic tendencies do or do not persist?
The national impact of copper production has considerably grown in the last
decades, influencing the design of public policies and the macroeconomic stability of the
country. Thanks to copper, Chile changed. Today it is a country that exports more.
Copper is one of the main resources of income for the national Treasury. It allowed
international reserves to grow significantly and the country today has considerable
reserves to face the future. Moreover, copper made it possible for Chile to be a country
with fewer debts and for its citizens to pay less taxes and have larger incomes.
Summing up, copper has increased the well being of Chilean society and it is
much more important today than formerly. In other words, Chilean society has become
addicted to copper (with prices over US$3 per pound); Chileans consume ever more
imported goods, demand greater public spending in social goods and want to pay less
taxes. Consequently, the need to worry about eventual extreme scenarios in relation to
8
Santiago, Chile
copper becomes evident. What would happen if the pound of copper reached US$10? Or,
on the contrary, what consequences would there be if the price of copper returned to
US$1 per pound? This last scenario raises complex questions, is there life after copper?
How would the adjustment operate? (Meller [1]).
Considering this, it is worth raising some fundamental questions: Will copper
continue being the motor of Chilean economy?, how long will it play that role?, does the
jump to development depend on this mineral?, which is the best destiny for the huge
surpluses generated by mining, so that they can contribute to future development?, how
can we use these surpluses to avoid the so called trap of the middle income countries?
In short, copper has always been considered a kind of milking cow that
produces two kinds of output: foreign currency (dollars) and public resources (pesos).
Can copper perform an additional role and contribute to avoid the trap of middle income
countries? In this scenario, the World Class Providers Program suggests a new role for
copper: the generation of technological innovation with an incorporated mechanism for
its spread. We must remember that technological innovation is the basis to increase
productivity and to become a developed country.
DEBATE ON THE LONG TERM
The big difference between developed and developing countries is the existence
of a long term horizon. How can this perspective be introduced into the Chilean debate?
There are copper reserves for a relatively long period. Besides, it is estimated that
there will be a rising future demand for copper. This suggests that the high prices
observed these last years will persist for some time. Chile has an opportunity window
generated by the present copper market conditions, which it has to take advantage in
order to become a developed country.
The bottom question has been present throughout Chilean history over the last
100 years: How can Chile become a developed country? In other words, what must be
debated is not what happens to copper or to mining, the central subject is not of a given
sector. What matters is the transformation of the country into an advanced one. Copper
makes it possible to generate this debate. Moreover, it can perform an important role in a
strategy centered on the generation of technological innovation.
Let us briefly review the prevailing perspective at present. During a good part of
the XXth Century the development strategy was associated to industrialization, with the
State playing a very active role. The structural Neoliberal Reforms of the 70s and 80s
totally modified such a focus
1
. The ideological objective of these structural reforms
was simply to get the State out of the economy. To this effect the Structural Trilogy

1
For a deeper review see Meller [2-3].
9
Santiago, Chile
was implemented: (a) The system of free markets (free prices determined by supply
and demand). This establishes the end of the price control mechanism by the State. (b)
The external sector liberalization or elimination of protectionist barriers of the national
economy. This implies that the relative prices (the fundamental variable for the allocation
of resources) will be fixed in international markets. So, the national productive structure
is determined by comparative advantages. (c) The private sector is the (only) growth
engine of the economy.
The bottom line of this Structural Trilogy is the following: the State does not
intervene in the definition of which sector (or sectors) should lead the economic growth.
There is no election of sectors or activities (picking winners) to be promoted. In other
words, there is no strategy of development, i.e. there is no compass for the country.
What was previously mentioned is the result of leaving all economic decisions to
the action of the free market. The Role of the Market implies the decentralization of all
decisions and each private agent (producers and consumers) autonomously and
independently defines what he does. Therefore, the aggregation of individual decisions
generates growth and defines the direction where the country is heading for. There is no
country vision nor is there a long term nor are they needed.
In line with what was previously said, let us consider the setting in this XXIst
Century with a global and competitive world, with high technological innovation.
Consequently, how does Chile fit into this world considering that other countries have a
vision and a strategy of long term insertion?
The prevalent neoliberal view suffers different conceptual problems. Macro
stability and structural trilogy do not spontaneously generate an increase of growth nor
can they eliminate the existing bottlenecks. The extreme dichotomies of the XXth
century Market or State have been replaced by the present dictum Market and State.
This means that market fundamentalism was substituted by the pragmatism of public
policies, by an increase of a more proactive role of the State, and a complementary
interaction between the public and private sectors.
On the other hand, the growth strategy based on free market and restrained to the
maximization of the economic growth rate (focusing exclusively on the per capita
income) is exhausted. Moreover, the market is shortsighted and has a bias for the short
term. Therefore, this negatively affects the growth pattern in the long term.
Another flaw of the structural trilogy is that it is based on static comparative
advantages; there is a single general equilibrium which is static. But the real world is
dynamic and the long term equilibrium is associated to learning, innovation, generation
of abilities and economic transformation.
In other words, there is enough evidence that shows that comparative advantage
is dynamic; this implies that new comparative advantage can be generated through time.
The central concepts that sustain the principle of dynamic comparative advantage are
10
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(Redding [4]; Rodrik [5]): (i) Economic growth is endogenous; it does not fall from the
sky. (ii) There is a process of learning by doing which is necessary to generate
technological innovation. This is a necessarily experimental process, so one has to
anticipate that mistakes will be made; mistakes are a good learning mechanism.
Empirical evidence, particularly associated to emerging economies, shows that
many countries succeed in developing dynamic comparative advantages. It is the case of
Japan and Korea, countries which have developed a productive capacity in areas in which
the USA had clear comparative advantage (automobiles, electronics). At present, they
compete and have even displaced USA companies in international markets and even in
the USA itself.
In other words, countries can generate dynamic comparative advantage and
competitive advantage, too. This requires articulating a development strategy that
projects Chilean international insertion in this global, competitive world and with
permanent technological innovation. The experience of other countries shows that this
requires a complementary role between the private and public sectors.
Additionally, uncertainty about the future generates a pro statu quo behavior in
enterprises; this is complemented by the fact that businessmen are adverse to risks. This
is underlined in a global world characterized by permanent innovation. Therefore,
businessmen, especially the most adverse to risks, use the business as usual strategy in
their decisions related to the future; more of the same but better. This implies
projecting the Present into the Future; the Future is a repetition of the Present. This
reveals an inability to think or to imagine something different.
That is why a development strategy is needed that breaks the prevalent pro-statu
quo inertia and establishes a route list or compass to define the long term. The global
competitive world requires economic restructuring, productive diversification and
technological dynamism that goes much further than that generated by market forces.
Economic restructuring processes, productive diversification and technological
dynamism are not natural evolutions and can easily get entangled. So, an interactive
process needs to be generated between the different economic agents, private sector,
public sector and civil society that identifies the objectives, the existing restrictions and
overcomes the coordination failures.
The so-called Modern Selective Policy (MSP)
2
can become an adequate
mechanism to generate dynamic comparative advantages. MSP requires a public-
private alliance at a national or regional level. These agreements about a regional (or
national) strategy can constitute a source of real power that can transcend the political
cycle. There are different examples for these public-private alliances in Finland,

2
In the XX Century literature the concept used was Industrial policies; however MSP do not have
necessarily been focused in the industrial sector.
11
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Ireland, Malasia, Czech Republic, Singapour and Sweden (see Devlin and Moguillansky
[6]).
It is said that selectivity in contrast to neutrality is back. Nevertheless, MSP
has permanently been present. In fact, the historical review of the Asian tigers` success
reveals that it is associated to the use of MSP. There are not many historical cases of
countries that have succeeded in closing the income/cap. gap (with the USA) where MSP
was not present. Of 15 poor countries in 1960 that reduced their gap with the US in
more than 10 percentage points, at present (2007) only one (Hong Kong) did not use
MSP (Devlin and Moguillansky [6]). Empirical evidence shows that in a majority of
cases of economic restructuration, there is significant Government support (Rodrik [5]).
State interventions applying MSP consist of: (a) Orthodox view (Lall [7];
Harrison and Rodrguez-Claire [8]): (i) Limited intervention, at arms length, of the
markets autonomous operation. (ii) Intervention must be horizontal or functional eg.
increasing education, infrastructure, information. (iii) Intervention must clarify which
market failure it is solving.
(b) Pro-selectivity MSP vision (Rodrik [5]; Devlin and Moguillansky [6]): (i) To
generate concern and a sense of urgency for the long term. (ii) To institutionalize a
strategic collaboration between the private sector and public sector (in order to detect
information problems with respect to difficulties and opportunities for economic
restructuration). (iii) The focus of MSP should not be sectorial, picking winners, but
rather on activities that generate technological innovation related to real problems. (iv)
To solve coordination failures, e.g., to induce business A to invest j if business B invests
k.
Without any doubt there are problems in the application of MSP (Lall [7];
Harrison and Rodrguez-Claire [8]): (i) The existence of adequate human capital in the
State (ii) Agent and principal problems (iii) Inertia in public policies; it is hard to stop
bad projects (iv) Created sectorial interests and a captured State.
But, as Rodrik [5] says, the application of focused social policies also suffers
problems; States learn from their mistakes and improve their focusing when they achieve
their aim to benefit those that need social expenditure.
Repeating the question of 100 years ago: How does Chile become a developed
country? Does the answer only concern the market, the elected government or the State?
Can large mining enterprises stay out of this debate?
These are complex problems and there is no set prescription. Given the empirical
evidence, it is pertinent to explore different roads. Let us see the possible application of
MSP to natural resources as a bridge to reach development. The strategy followed in
some cases has been the implementation of a development strategy of clusters around
natural resources. This would provide a long term vision of the direction to which our
economy would develop, a sort of navigation chart to coordinate public and private
activities; besides, it is inclusive because it incorporates the regions that produce natural
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resources. This was the proposal suggested by the Chilean Council of Technological
Innovation. The World Class Suppliers Program for Mining is a special variant (Urza
[9]).
On the other hand, the main natural resources have been used as a key sector for
the spread of the modern technology employed, and also for the generation of
technological innovation (World Bank [10]). Natural resources are an asset or wealth for
the country and copper is a proof of that. Therefore, it would be important to have
research and technological innovation oriented to generating new uses for copper and for
the other natural resources abundant in the country.
Finally, in accordance with the idea that institutions can be more important than
policies, there are approaches oriented to the creation of High Quality Institutions.
Institutions are the long term rules of the game. (i) Creation of Sovereign Funds (SF).
These SF constitute a kind of transformation or conversion of the physical wealth of
natural resources into financial wealth. Then there must be a debate about how to
spread natural resources to increase technological innovation and local productivity.
(ii) It is necessary to create public-private instances that can bring about bets in terms of
promotion of activities that generate innovation, as some countries have done with
productivity councils and competitiveness high commissions. The goal requires outlining
what the country would like to achieve in the long term and how to do it. It is a challenge
that concerns both the public and private sectors. Briefly, creating an interactive public-
private Commission to define how the country is to insert itself into the global economy.
There are a number of models to imitate: Finland (Council of Research and Innovation),
Ireland (National Economic and Social Council), New Zealand (Consultant Council on
Growth and Innovation), Czech Republic (Economic National Council), and Singapore
(Council for Economic Development).
To sum up, the country should take advantage of this window of opportunity
which copper is offering to generate a serious debate on how to reach full development.

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Santiago, Chile
REFERENCES
1. P. Meller, La Viga Maestra y el Sueldo de Chile. Mirando el Futuro con los Ojos del
Cobre, UQBAR, Santiago, Chile, 2013.
2. P. Meller, Un Siglo de Economa Poltica Chilena, 1890-1990, Editorial Andrs
Bello, Santiago, Chile, 1996.
3. P. Meller, Dilemas y Debates en Torno al Cobre, Dolmen Ediciones, Santiago,
Chile, 2002.
4. R. Devlin and G. Moguillansky, Alianzas Pblico-Privadas para una Nueva Visin
Estratgica del Desarrollo, CEPAL, Santiago, Chile, 2009.
5. A. Harrison and A. Rodrguez-Claire, Trade, Foreign Investment, and Industrial
Policy for Developing Countries, in Handbook of Development Economics, D.
Rodrik and M. Rosenzweig, Eds., North-Holland, New York, USA, 2010.
6. S. Lall, Reinventing Industrial Strategy: The Role of Government Policy in Building
Industrial Competitiveness, Working Paper No. 111, Oxford University, England,
2003.
7. S. Redding, Comparative Advantage Dynamics and the Welfare Effects of Trade,
Oxford Economic Papers, England, 1999, 15-39.
8. D. Rodrik, One Economics Many Recipes. Globalization, Institutions and Economic
Growth, Princeton University Press, USA, 2007.
9. O. Urza, Emergence and Development of Knowledge-Intensive Mining Services
(KIMS), World Investment Report, UNCTAD, 2007.
10. World Bank, From Natural Resources to the Knowledge Economy, World Bank
Latin American and Caribbean Studies, Washington D.C., USA, 2002.
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COPPER PRODUCTION IN CHILE: A LOOK TO THE PAST AND FUTURE
PERSPECTIVES
Alexander Leibbrandt von Neefe
Codelco Chile
Hurfanos 1270, Santiago, Chile
aleibbra@codelco.cl

ABSTRACT

This abstract offers a historical overview of Chilean copper production from pre-
Columbian times to our days. Likewise, the characteristics of pre-Columbian and
colonial production are analyzed as well as the rise and fall of XIX-century production
are described with special emphasis on aspects associated to logistics and the lack of
innovation. Based on this latter experience, current and future trends of the exported
copper product portfolio are analyzed and a comparison is made with past situations
when dependence from a single buyer caused, in a short time, exports of minerals and
matte to be replaced by copper metal.

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PROLOGUE
Copper processing in America started with the Andean cultures of the current
Peru. Since 2000 BC it is possible to prove copper was used in utensils; and as it
happened in other continents, there was a slow dissemination of metallurgical
experiences to the North and South (Fig. 1). Naturally, it took more than 1000 years to
have copper also produced in the north of Chile, that is, in the zone near San Pedro de
Atacama. From that moment onward, copper production in the Chilean Andes was
expanded and continuously consolidated until transforming that region into the largest
world supplier of this noble metal during the last two centuries, taking advantage of what
nature gave to the Los Andes Mountain Range, with nearly 40% of the worlds copper
reserves. Hence, its no surprise to see that Chile has nearly 35% of the share of the
world`s copper mining production.

Figure 1: Copper usage expansion in America
This geological feature positioned Atacama Desert as copper generator long
before the discovery of America. During the colonial period it supplied the South
American Spanish colonies with copper and crowned Chile as the largest copper
producer after its Independence in mid XIX century. This fact also resulted in the
development of the Chilean mining industry, which is the essential pillar of the countrys
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economy. Therefore, the contribution of the Chilean Mining sector to the countrys
development can be compared to the influence of the German Mining Industry to the
development of Central Europe that started in the Middle Age.

COPPER IN PRE-COLUMBUS TIMES
Different ethnical groups and cultures settled in Chile, through history, namely, in
the western Andean slope. Copper ornaments and tools were known by Chinchorros in
the North (V-II BC) through the settlers of Central Chile, however cooper was unknown
for the inhabitants of the South of Chile. In addition to Chinchorros, the Chilean north
ethnical groups such as Diaguitas (VII-XV AC) and Atacameos had a high cultural
evolution level where copper mining and metallurgy were practiced specially in the case
of the last group mentioned. A silent witness of this culture influenced by Tiahuanaco is
the copper man which was discovered in 1899 in Chuquicamata (Figure 2).

Figure 2: Copper Man. This Atacama Desert miner lived in the VI century (Tiahuanaco). He had an accident in a
Chuquicamata mine drift. The mummy was discovered in 1899 and today it is exhibited in the Natural History
Museum In New York City.

It has been demonstrated that copper exists in Atacama Desert since the I century
BC in Ramaditas and since the III century AC also in San Pedro de Atacama. There are
many abandoned copper mines since that period in that same zone which products were
probably exported to the administrative centres of the Andean cultures of that time to be
processed right there. This manufactured copper later returned to San Pedro de Atacama
as a finished product. This characteristic of being a copper exporting land has not
changed substantially and has evolved until becoming a structural attribute in Chile. For
a better understanding of the development of copper mining and metallurgy, see Figure
3.
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Figure 3: Mining vein-type deposits schematic
A basic attribute of Chilean copper deposits is the frequent occurrence of oxide
and sulphide-rich copper veins, which deeply marked Chilean mining until late XIX
Century. The presence of native copper was not rare, so it is thought that here, as it
happens in other regions in the world, the first copper utensils were made of native
copper. Within this manufacturing, the oxide minerals were melted in small containers
where oxygen was blown by the mouth or through openings in the furnaces where wind
(huayra) entered (Figures 4 and 5).

Figure 4: Copper production in Andean cultures

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Figure 5: Copper production in Andean cultures
The lack of bellows resulted in the production of small amounts of copper. This
would be the reason why the use of copper, different to what happened in other cultures,
and despite the presence of rich deposits, had a small usage that was mainly directed to
ritual objectives.
MINING DURING COLONIAL TIMES
It is generally known that the main interest of Spanish Conquistadores was
centred in gold and silver. The rumours about the existence of rich gold deposits took
Diego de Almagro from Cuzco in year 1536 to Copiapo, and some years later (1541),
Pedro de Valdivia founded Santiago City. Behind the rumours, there were rich gold
placer deposits that made up the first 50 years of main economic branch of the newly
conquered land. However, silver was not mined and copper was only used for local
kitchen utensils and tools. In some isolated cases, copper was exported to Peru to build
cannons.
From the XVIII century, when the rich gold sands deposits started to deplete, gold
started to be mined from high gold-containing veins. That new mining activity not only
contributed to a short-term gold production, but also brought the consequences or
secondary effects of the discovery of high silver content deposits. In mid XVIII, when
copper demand grows and its price increases, we witness the moment when the Chilean
copper enters for the first time to Europe (Spain) (Figure 6).
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Figure 6: Chilean mining in colonial times
Late that century, Chile exported about 500 tons, an amount that corresponded to
nearly 40% of the countrys annual production. Until that moment, copper was
exclusively produced by the reduction of oxide minerals with wood and charcoal in
smelter furnaces developed in Chile (Figure 7).

Figure 7: Copper production in colonial Chile. Cupola Furnace (XVII-XIX centuries)
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These furnaces were relatively small, easy to install and mostly arranged at the
foothills of the mines, provided there was enough wood for fuel.
As until mid XIX century there were no road networks in the Chilean North, the
transportation of minerals with mules or ox-driven carts was difficult or simply was not
profitable. Only metal copper bars partially flanked the high transportation costs from the
mine and from the furnaces to the port to continue from there by sea to Spain.
At that time, no copper sulphide minerals were mined in Chile due to the
enormous availability of oxide minerals that had a much simpler and economical
smelting process. This attribute in Chilean copper deposits (veins) clears up why until
mid XIX century almost no sulphide minerals were smelt.

COPPER PRODUCTION IN THE XIX CENTURY
The Boom
With Chiles Independence, the country was able to practice free trade for the first
time. Not much time elapsed until Europeans, particularly British traders, arrived at the
Chilean coasts to searching for raw material. This in addition to a period with high
copper prices which was influenced by the arrival of the so-called industrial revolution
with its very high demand for metals and a growing European production. The most
important copper producing countries of the XIX century are shown in Figure 8 (as a
percentage of total production). However, this figure only shows four or five of the most
important copper-producing nations.

Figure 8: Most important copper-producers during the XIX century
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This chart clearly shows the increasing Chilean share in the market compared to
the shrinking market share of England, Russia and Japan.
In late XIX century, United States achieved in a short period of time a leading
position in the market while Chiles importance in the world of copper decreased rapidly.
In addition, Spain and Germany gain a significant position as copper producers during
this period.
The Chilean mining started to be known during the XIX century through silver
production (Figure 9): in 1860 Chile produced approximately 15% of the worlds silver
production. The silver-rich Chaarcillo in Copiapo is an indicator of this magnificent
past. On the other hand, the formerly relevant and profitable gold production was
dropping and lost its significance. Copper would follow the silver boom footprints: new
mines located in neighbour zones were explored, the same railways and ports were used
and exports were transported with the same vessels to copper-demanding markets. In
addition, it absorbed all those miners that had formed taking advantage of the silver
production boom.

Figure 9: Chiles copper, gold and silver production (XIX century)
Silver, copper and later nitrate became the backbone of Chilean economy and
impregnated the young republic with the mining spirit. The drop in silver and copper
production in late XIX century didnt cause losses for the state because the progressive
nitrate production was able to offset that drop to become in the short term the most
important economic area in the country.
Figure 10 lists the reasons of this copper industry boom with the details of the
mining and metallurgical innovations.
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Figure 10: Mining in Chile in the XIX century

The most relevant factors for this development were the following:
x We must first mention the adequate conditions in terms of high copper prices
(nearly US$ 11,000 / t un actual adjusted terms) and the existence of many rich
copper mines. To this we must add the access to local coal for mineral smelting
processes and the introduction of the reverberatory furnace in 1830 to melt
sulphide minerals. Until that moment in Chile only oxide minerals found in
copious amounts were melted.
x As the oxides slowly were depleted in the deposits, new veins or the abundant
sulphide minerals of the overlying layer started to be mined (> 30% Cu) and
exported directly. With the introduction of reverberatory furnaces, the copper
matte exports started, which in some years even exceeded the copper bar o
copper mineral exports.
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x The most important reason for this enormous production boom can be
explained through a more efficient and improved logistics. During colonial
times, Chilean copper was not competitive in Europe due to the high sea freight
costs. In addition, Chile lacked roads, so much so that initially, copper bars had
to be transported in mules and later in carts from the mine to the port. That was
a period that witnessed the implementation of the so-called cupola furnace
installed at the mines access.
x The mines continued their production while firewood lasted to melt the metals.
At that time there was full deforestation of the scarce forests north from
Santiago, which results are still perceived today.
x In mid XIX century, larger vessels started to be used and the traditional sail
ships started to be replaced by steamships, therefor sea freight costs dropped
dramatically (Figures 11 and 12). In addition, the independent Chile started
building infrastructure such as roads and ports. Ox carts replaced mules, but the
real revolution would arise with the railroad construction. Since 1852,
productive copper mines connected through railroad lines from the mine to the
port. Private businessmen, mostly from Europe, built them for their exclusive
purposes. These new railroad lines are represented in Figure 13.
x Added to these efforts, the Lota and Coronel coal deposits started their mining
in the south of Chile, ensuring fuel supply for smelters. These mines replaced
the extremely expensive coke that had to be transported from England through
sea freight. Hence, the roads for the construction of many copper smelters were
opened. They were laid out to allow using the transportation system to its
fullest extent with their corresponding cargo. Trains transported metals and
minerals to the ports, where the smelters were located. Ships coming from the
south arrived at those ports loaded with coal and they returned with the mineral
to two modern copper smelters located near the Lota and Lirqun coalmines.
Trains that transported metals and minerals to the ports to the coastal ports and
smelters went back to the mines fully loaded with coal for the smelters that had
been installed near the mines (Figure 13). The availability of local energy
sources was decisive for that development.
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Figure 11: Influence of logistics in the Chilean mining boom in the XIX century

Figure 12: Average tonnage in ships and freight costs in Valparaiso from 1845 to 1880

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Figure 13: Mines, copper smelters and railroads during the second half of the XIX century

International transportation costs reduction together with the construction of road
networks, ports and railroads enabled the sudden growth in the Chilean copper
production that between 1860 and 1870 reached nearly 45% of the worlds production.
That copper production was not only copper bars, on the contrary, at the beginning of
this boom Chile mostly exported copper matte and high-grade minerals. Figure 14 shows
the Chilean copper production during the second half of the XIX century, with the
different exported products. It must be noted that until 1860 the metal bars, the matte and
minerals have a share of about one third of total exports each one. From 1860 there is a
drop in mineral exports; that trend was influenced by low copper prices (Figure 19), by
the drop in the minerals copper content and by the implementation of new smelters in
Chile.
From 1870 this trend also was replicated in copper matte. This was caused by a
complex additional reason: at that time the only market for minerals and matte was
England with its metallurgical industry in Swansea (Wales) where the mineral and matte
were melted and refined, while refined copper was commercialized in the European
market. The Swansea copper refineries dominated in the purchase of minerals and copper
sales, a position that very soon was leveraged by the refineries. At that time the
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abovementioned drop in copper prices started to affect the Swansea refineries good
business. To keep their usual profits, they fixed their smelter treatment charges at a high
level, so for Chilean producers it was not profitable anymore to continue exporting
considering the price drop, the relatively high freight prices and the low copper content
in the minerals. The consequences showed up fast; this meant the erection of new and
modern copper smelters in Chile with the subsequent decline of English smelters and
refineries, which never recovered after that. Figure 15 shows the Chilean copper
production reflecting this situation.

Figure 14: World copper production by products in the second half of the XIX century

Figure 15: Copper production in Chile by products in the second half of the XIX century
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This caused a structural change in the midst of the world copper market; raw
material was not available anymore for England and the Swansea smelter and refinery
monopoly came to an end. The biggest copper producer at that time from that moment
onward was able to sell its copper production freely and directly to different buyers,
mainly from Europe. At that time, the London Metal Exchange was formed and in 1876
and 1883 the copper contract was introduced based on the 80 kg Chilean copper bars (so-
called Chilean Bars). The delivery dates that are currently valid were fixed in three
months, correspondingly with the time that required at that time by a ship to transport
Chilean bars from South America to England.
From the technological viewpoint, the country adapted to the European
development. The local cupola furnace was left behind to be substituted by the English
reverberatory furnace (Figure 16), In addition, the efficient German torch furnace was
also introduced (Figure 17) and in late XIX century the French Manhes converter was
introduced. However, all these smelter innovations couldnt prevent the starting of the
drop in the Chilean copper production.

Figure 16: Reverberatory furnace, XIX century

Figure 17: Matte furnace
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THE FALL OF THE CHILEAN COPPER PRODUCTION
Different crucial factors interacted in parallel to cause the drop in production:
the drop in prices in international stock exchanges,
the cost escalation in the domestic copper production, and
the influence of the nitrate industry.

These factors will be analysed in more detail below:
DROP IN PRICES
Figure 18 shows the actual copper prices since 1850 (in US$/t, in their current
value). The chart clearly shows that in late XIX century the copper price was
approximately 6,000 US$/t and in mid XIX century its price was above 10,000 US$/t.
Initially, the freight costs drop offset the drop in prices, however since 1880 this factor
alone was not enough to offset lower prices and higher production costs.

Figure 18: Actual copper price since 1850
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An important proportion of this drop was due to the high increase of the United
States and Spain copper supply, which, despite the high demand produced by massive
electrification in Europe and United States, produced a copper surplus in the world
market (Figure 19).

Figure 19: copper production in Chile, USA and Spain 1870 1910

COST ESCALATION
The discovery and installation of new mines took the Chilean copper production
to its highest point in 1870. No new major mines were started up in the following years
and the deeper existing mines meant a drop in the minerals copper contents, hence
increasing costs. This was in addition to the low mechanization and lack of major
innovations. Of the 700 mines in production in that period, less than 50 mines had steam
engines and mechanized processing equipment. More than 90% of the mines operated
with manual labour. With the expansion of the nitrate industry in the north of Chile and
the high manpower demand, there was an increase in the miners salary. A very old tax
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law applied taxes to production and not to the companys profits. Hence increasingly
affecting the mines competitiveness in a low-price scenario.

INFLUENCE OF THE NITRATE INDUSTRY
Figure 19 shows the increase in the nitrate industry production in Chile. That new
economic area was much more profitable than the old and declining copper industry;
hence it attracted the best manpower, investments and captured the attention of the
government. This situation was not surprising because the nitrate industry quickly
represented more than 50% of the States revenues. On the other hand, the copper
industry had achieved during its best years a contribution of 20 to 30% of these fiscal
revenues. However, at the end of the century and with a declining production, the copper
contribution to fiscal revenues also dropped to a minimum level.
The booming nitrate exports quickly filled the state treasury and enabled the
construction of many relevant infrastructure projects. The result was a long period of
permanent strengthening of the Chilean peso (with a high fixed exchange rate),
negatively affecting the competitiveness of the already declining copper industry.
If we consider all these factors as a whole, we can understand why in a period of
only 15 years the Chilean copper production was reduced to one half of its original
production.
The traditional high copper content vein mining was reaching its end; new
technologies were required and new investments became necessary to have access to
massive lower grade deposits but with huge reserves. The XX century brought with it
that change; a new age for copper mining was in progress.

EVOLUTION DURING THE XX CENTURY
The turn of the XIX century brought deep changes in copper production at
worldwide level. The high copper content minerals underground mining (veins) couldnt
guarantee the increasing copper demand; therefore, to increase production, it was
necessary to have access to new mineral reserves.
These reserves that up to that moment were not economic to mine were the
Copper Porphyry Ores low copper content reserves found in Los Andes Mountain Range
and especially in Chile. However, it was necessary to invent a new concentration method
to achieve the melting of the mineral; that new method was flotation.
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This new process made it possible to mine minerals with less than 2% Cu in
large-scale open pit mines and to enrich them to nearly 30% Cu, thus facilitating an
efficient melting. For this purpose, it was necessary to modify and adapt the early
conventional mineral direct smelting furnaces, the reverberatory furnace and the torch
furnace to melt the fine particle copper concentrates. In this manner, the reverberatory
furnace was consolidated to produce matte to be later fed to the converter (also
developed in late XIX century) to produce blister copper.
In addition to this, electrolytic refining was invented in a Hamburg refinery. This
brought substantial progress in this area. Another new production method with direct
influence n Chile must be mentioned: leaching and electrowinning. This method was
developed in Rio Tinto Region in Spain during the turn of the century giving that country
an outstanding position in copper production.
These fundamental changes, namely:
mining from copper porphyries deposits by open pit mining,
minerals concentration through flotation,
concentrates melting in reverberatory furnaces and matte conversion in
converters,
electrolytic refining, and
leaching and electrowinning;
facilitated a new awakening of the copper industry in Chile.
Many of these new methods were developed, applied and promoted in United
States.
Large-scale open pit mining required huge capital sums, which were abundant in
United States. Thats why its understandable that US businessmen with their technical
expertise and required capital came to assist the declining Chilean copper mining. The
first major company in that time was Braden Copper Company, owned by William
Braden. It was incorporated to mine El Teniente deposits minerals in 1905. El Teniente
deposit was one of the first plants in the world that introduced the flotation method. The
mineral extraction was made underground. Mining expanded in a different manner in the
north of Chile. There, leaching and electrowinning were used exclusively. In 1927,
Anaconda Copper Company, started mining the old Potrerillos mine, with the relevant
roads, railroad and port and the water and power supply.
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These North American investments again reached Chile to the area of the most
important copper producers, quickly increasing their market share from about 5% to
more than 15% of the worlds copper production (Figure 20), During the Second World
War, it reached a level slightly higher than 20% of the worlds production and it declined
again to 12% mainly due to the disputes between the government and North American
companies about the taxation regime to be applied.

Figure 20: Major copper producers during the XIX and XX centuries
During the Second World War the copper produced by North American
companies was delivered at one third of the market price to the US State. This fact would
ultimately play an important role during the nationalization and Chilenization
processes.
To support local mining companies and small miners still in production, the
Mining Credit Chamber was created in 1927. In 1960 it became the Empresa Nacional de
Minera (ENAMI), still alive today. This state agency supported small and medium
producers buying mineral at market price and processed it to produce concentrates and
cathodes in its processing and leaching plants. ENAMI also bought concentrates from
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medium sized mining companies to continue processing them to produce cathodes in its
own smelters and refineries.
ENAMI also operated as a financing and price stabilising agency for those local
producer groups because during low copper price periods, it paid he small producer a
higher price that they had to reimburse when there were higher copper prices. After the
Second World War pressure increased on the two major copper producers (Anaconda and
Kennecott) until in 1967 the Chilean state bought 51% of the North American
companies. As this was not enough for the Chilean political class, both companies were
completely bought out by the State in 1971. Codelco was incorporate in 1976, which
amalgamated all the large mining companies bought out by the State.
This again resulted in an increased production, backed up by a new law to
promote foreign investments that was approved in 1974. During the last 30 years, copper
production increased to about 5.5 million tons, namely, 34% of the world production
(Figure 20).
New and very rich copper deposits have been discovered and taken with huge
investments to productive maturity. Among the major deposits we have the Candelaria,
Cerro Colorado, El Abra, Escondida, Zaldvar, Radomiro Tomic, Collahuasi, Los
Pelambres and Gaby mines, among others. Through all these projects Chile reached a
copper mining production of 5.5 million tons of copper in 2010; corresponding to 34% of
the worlds production. That production reaches the international marked as cathodes and
copper concentrates. Without any doubt, Codelco leads in the cathodes market annual
negotiations. In the concentrates market, Chilean producers also have an essential
participation in the annual contracts negotiations. In addition, in the area of mining
sciences ad techniques, Chile has grown significantly, something that was clearly
demonstrated through the successful rescue of the 33 miners trapped in the San Jos mine
in Copiap.

FUTURE OUTLOOK AND FUTURE PERSPECTIVES
Chile has one-third of the worlds copper reserves; it has a stable democracy, and
also an efficient and functional economic system. That is why Chile was accepted as an
OECD member in 2010. If these excellent political economic are complemented with
modern infrastructure, short distance to ports, adequate qualified personnel in addition to
relatively abundant and massive deposits, Chile will continue maintaining its position as
the most important copper producer for a long time. This fact is backed up by the large
amount of known projects with which the country should reach a mineral production
higher than 8 million tons of copper in 2020.
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The forecast of the future products portfolio in Chile is not as simple. The trend in
this point is evidently inclined toward copper concentrates (Figure 21). Conditioned by
the current high copper prices and the strong increase in the Chinese and Indian
metallurgical capacity, in the last years the increase in mining production via de
production of concentrates has been the most uneconomical.
If this aspect is considered from a historical perspective, we face a situation that is
similar to 1860, when the direct and matte melting minerals dominated the Chilean
copper exports. At that time nobody was able to warn about the structural changes that
would happen later.
Today, China as a world power plays a significant role in the raw material
consumption, including copper. China has relatively poor deposits and a small amount of
important copper reserves, therefore it depends on the imports of copper raw material
(concentrate, scarp, blister copper and cathodes). Furthermore, China has transformed in
a short period of time into the largest world copper consumer and importer.
Therefore, Chile as the largest producer and China as the largest consumer
unavoidably depend on each other. In particular, on the Chilean side, in the next years
there must be a strong interest to guarantee free trade and access to world markets to its
largest industrial asset and major export product: copper. A guarantee for this production
and trade independence can only be obtained by a close cooperation with China through
strategic alliances or through the production of a Commodity (copper cathodes) that can
always be traded through stock exchanges.
Finally, based on these reflections and taking into account the poor experiences of
the extreme dependences in the past, it can be assumed that due to strategic reasons,
Chile and Chilean companies will try to strengthen the cooperation with China in the
next years that in parallel will be developed slowly based on market conditions
(treatment charges, freight costs, sulphuric acid prices, environmental aspects) and on the
metallurgical capabilities in the country. This forecast will gradually revert the current
trend and will strengthen the development that has already occurred in the past (Figure
21).

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Santiago, Chile

Figure 21: Evolution of the Chilean copper production

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Santiago, Chile

STRUCTURE AND FORECASTS OF THE COPPER MARKET

Jorge Valverde Carbonell
Agustinas 1161, 4th Floor
Santiago, Chile
jvalverd@cochilco.cl

ABSTRACT

This document analyzes the copper market through two different approaches
trying to reconcile the microstructure of the industry and the macroeconomic
environment in which this market evolves. The first objective is to achieve a correct
understanding of the forces that move the market, but also generate a realistic model that
allows a consistent projection of copper price in the long-term.
The first approach is devoted to model the copper market from a macroeconomic
perspective, establishing a structural model that incorporates the dynamics observed in
both supply and demand sides, and the stock at the rock, with the purpose to obtain a
copper price forecast based on market fundamentals.
The transition from the theoretical to the empirical model is made through the
reduced form of the structural model, from where its possible to obtain the long-term
parameters of the system after proving existence of co-integration among the variables.
As a result of this methodology, we obtain the projection of a vector of copper prices
which shows a U-shape from 2013 to 2020.
Thus, the vector shows a value of US$ 3.32/lb. in 2013, reaching minimum values
under US$ 2.80/lb. between 2016 and 2017 and returning to prices above US$ 3/lb. by
the year 2020. The average price for the next seven years is equal to US$ 293 c/lb. This
value could be considered as the long-term copper price using this method.
The second approach also aims to obtain a projection of the copper price from its
fundamentals, but from a microeconomic perspective of the industry, based on forecast
of the market balance in the long-term (2020). The long-term copper price is the
37
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incentive price of the marginal project that allows to close the gap between demand and
supply for 2020.
The price-incentive methodology assumes a given demand which we project
exogenously by the long-term trend obtained by applying a Kalman Filter to world
copper consumption over periods. Meanwhile, the supply is built as a sum of future
production according to profitability criteria obtained from the assessment of investment
portfolio. When supply provides the required demand, the market balance is obtained and
therefore, the incentive price that determines the long-term copper price, which amounts
to US$ 2.95/lb in 2020.

I. INTRODUCTION

To have an accurate forecast of copper price is undoubtedly one of the greatest
achievements in the copper industry, since a reliable projection of the red metal price
allows copper companies to maximize the net present value of their projects determining
an optimal investment and production. However, the importance of having with an
assertive copper price forecast escapes the boundaries of the mining sector due to the
relevance of the metal over public finances through exports and taxes. So, understanding
and trying to predict the behavior of this variable is essential to the economy as a whole.
In concrete terms, in the last ten years copper mining has contributed on average
with 15% of the Chilean Gross Domestic Product, and its exports have accounted for
59% of total Chilean exports in the period. Regarding to the copper impact on fiscal
incomes, mining sector has represented about 20% of government budget during the
same period. Meanwhile, and according to figures from the Foreign Investment
Committee, in the three last decades this sector has contributed with roughly one third of
the total materialized foreign investment in Chile.
Consequently, it is worth noting the systematic importance that copper price has
on the Chilean economy, confirming the importance of having consistent forecasts of
copper prices in the medium and long-terms.
While multiple approaches have been used to address copper price forecast,
among which we can name: price-incentive model (Marshall and Silva, 2001), models of
univariate time series (Engel and Valdes, 2001), structural models (De Gregorio et al.,
2005) and Lopez-Riquelme (2010), there is no unanimity on which provides a greater
predictive capacity. This, basically, because in recent decades new relevant factors have
taken part in determining copper price, such as copper inclusion in securities portfolios,
its use as hedging instruments and its exponentially increasing consumption in China,
among others.
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Therefore, the purpose of this document is to achieve a truthful estimation of the
copper price, while trying to build a consistent structural model that will allow us to
know why the price moves and which are the main determinants of these movements.
Then, Section II shows the theoretical-structural model of the copper market.
Description of the used data set is detailed in Section III. Section IV presents the reduced
form model and its econometric estimation to forecast the copper price, and also the
discussion on its consistency and the main assumptions made. Section V projects long-
term copper price (2020) using the price-incentive methodology. Finally, Section VI
concludes collecting the main points of both methodologies.

II. THEORETICAL-STRUCTURAL MODEL
To forecast the copper price, a structural model of the copper market was
constructed following Lord (1991), Lopez-Riquelme (2010) y De Gregorio-Jaque-
Gonzalez (2005).
The main advantage of this structural model is that it collects both short and long-
term dynamics: short-term dynamics related to the financial world and long-term
dynamics related to real activity. Therefore, we can establish that copper price will be the
result of the balance between demand, supply and stocks, plus the presence of a general
market balance, as it observes in the following equations system:
(1) q
t
d
= o
0
-o
1
p
t
+ o
2
ipinJ
t
-o
3
tcr
t
+ u
t

(2) q
t
s
= [
0
+ [
1
p
t
-[
2
cmg
t
+:
t

(S) stocks
t
= y
0
-y
1
r
t
+ y
2
:ix
t
+ w
t

(4) stocks
t
- stocks
t-1
= q
t
d
- q
t
s

Equation (1) reflects copper demand, equation (2) shows copper supply, equation
(3) indicates the dynamic in copper stocks and equation (4) represents the closure or
market balance.
Consequently, we can see that copper consumption ( q
t
d
) has a negative
relationship regarding to copper price (p
t
) and real exchange rate (tcr
t
), whereas the
industry production (ipinJ
t
) of the main copper consumer countries has a positive impact
on copper demand. On the supply side, copper production (q
t
s
) is positively determined
by the current price (p
t
) of the metal and is negatively affected by production costs
(cmg
t
). Regarding to stocks level (stocks
t
), they are inversely correlated with the real
interest rate (r
t
), since this variable represents the opportunity cost of maintaining copper
stocks. At the same time, copper stocks react positively to vix, since increasing
financial markets volatility causes investors risk aversion, triggering their movement
from the equities and commodities to fixed income assets increasing stocks.
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Finally, it establishes that the market should be always balanced in terms of
stocks in the short-term and flows in the long-term, as indicated in equation (4).
The empirical approach of this model is shown by the estimation of its reduced
form in Section IV, proving its significance and statistical consistency, to finally forecast
the copper price accurately.

III. DATABASE
To estimate and forecast the copper price from the structural model we use
quarterly data starting in 1990 Q1 and ending in 2013 Q1. The time series of the
variables involved in the model were obtained from several sources. However, in the
required cases they were homogenized to ensure the consistency of the database.
Thus, the series of nominal prices were obtained from the London Metal
Exchange (LME), whereas the world production costs of refined copper (
t
) were
acquired from the historical database of Wood Mackenzie. As an impact measure of
global real activity on copper price, an index of industrial production
1
(ipinJ
t
) was
built from the major copper consumer countries PMI fluctuation: China, India, Brazil
and the G-7 countries (United States, Canada, Italy, France, Japan, Germany and the
United Kingdom), which represented 73.5% of worlds copper demand in 2012.
Regarding to inventories (stocks
t
), these correspond to the sum of stocks held in the
London Metal Exchange (LME), the stock of New York (COMEX), and the Shanghai
Stock Exchange.
To capture the behavior of the real exchange rate, the major currencies dollar
index (tcr
t
) was used, which weighs the currencys value of the seven major US
trading partners in regard to the US dollar. The series were obtained from the database
provided by the U.S. Federal Reserve (FED).
About the interest rate, we used the Federal Funds Effective Rate as a proxy of
the real interest rate, which was took from the Federal Reserves database. As an
alternative of investors risk perception in the markets, the Chicago Board Options
Exchange Market Volatility Index (vix) was incorporated, which measures the stocks
market volatility in the US. This index was constructed based on information from
Bloomberg.
Finally, it is important to remark that all variables were worked in logarithms and
the nominal series were deflated by the producer price index for all commodities from
the United States (USA WPI all commodities), obtained from the database of the Bureau
of Labor Statistics.

1
The index construction was based in 1990s first trimester (1990:1=100).
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IV. ECONOMETRIC MODEL
4.1 Methodology
From the structural model exposed in the last section, it is possible to obtain a
reduced form model, estimated by different econometric methods, depending on the
assumptions behind copper market dynamics.
The reduced form model is shown as it follows:
(S) p
t
= 0
0
+ 0
1
ipinJ
t
+0
2
cmg
t
-0
3
tcr
t
+0
4
stocks
t-1
+0
5
r
t
-0
6
:ix
t
+ e
t

Our aim is to discover if there is a long-term relationship between the real copper
price and its determinants, so, we will follow the co-integration method proposed by
Engle & Granger (1987)
2
, basically consisting of two stages: integration order analysis of
the variables and the co-integration equation estimation.
Table N1 shows the stationary analysis of the series by the test of Augmented
Dickey & Fuller (ADF) to prove the presence of unit roots. From this analysis, it
establishes that all the variables, excluding stocks
t
and vix which are I(0), have
unit root, i.e., they are non-stationary. Thereby, it is necessary to test the co-integration
between the variables in order to establish a long-term relationship amongst them.
Table 1 Integration order of the system variables
Variable Integration Order
P I(1)
Ipind I(1)
Cmg I(1)
Tcr I(1)
Stocks I(0)
R I(1)
Vix I(0)

Table N 2 shows the co-integration equation, where the rejection of the null
hypothesis confirms the economic and statistic long-term relationship between the
variables concerned.
Table 2 - Cointegration test

2
Pesaran, Shin and Smith (2001) were also tested, without finding any important statistic differences.
41
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Then, proven the long-term relation between the variables, the reduced form
coefficients of the model are estimated. The results are shown in the table N3,
highlighting the statistical significance of every explicative variable and the model as a
whole, and also the coefficients signs, congruent with the theoretical expected logic.

Table 3 Structural Model of the Copper Market

The estimation was made using the ordinary least squares (OLS), applying the
Whites heteroskedasticity correction, since the series come from different probabilistic
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distributions. Also, is relevant to clarify that the coefficient is not elasticity, it is a mixed
effect that come from the interaction between the elasticity in the demand, supply and
stocks.

The model fit is shown in the next figure. Its accurate adjustment to the past is
clear:

Figure 1- Structural Model Fit

4.2 Copper Price Forecast
Once estimated the reduced form model and tested its consistency, the next step is
to proceed on the projection of the explicatives variables in an independent way to obtain
copper price forecasts until 2020.
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Santiago, Chile
To project each independent variable we used the forecasts made by experts and
recognized institutions (as Wood Mackenzie, OECD, IMF) as inputs, as well as the use
of uniequational models and the individual analysis of key factors in some cases.
Within the main assumption upon the explicative variables, the belief that costs
reached its maximum in the fourth quarter of 2012 is validated, so from now it would be
logic to expect a slight downward trend in the short-term and then a flat behavior in the
long-term. This belief is based on the efforts made by the companies about this item, due
to the progressively narrower margin year by year, as result of the cost increase.
Another important variable is the Nominal Major Currency Dollar Index as
proxy of the real exchange rate, since its depreciation has played a key role in the
coppers price boom and commodities in general. In our view, its extended depreciation
due to quantitative easing (QE) applied by United States is close to finish and this is the
message given by the Federal Reserve of United States. If we also consider the economic
recuperation of the American economy, it would highly possible to have an appreciation
of the currency to average historic levels.
Another variable to be considered is the industry production of the main copper
consumer countries, which provides useful information about their future growth and
therefore, their copper demand. Our forecasting about this variable considers a slowdown
in the Chinese economic growth and a lethargic economic recovery of the developed
countries, which would imply an annual growth rate around 2.5% - 3% in the pondered
average
3
index.
The real interest rate is another important variable to estimate the copper price, as
substitute we use the Federal Funds Effective Rate, which is now in its lower historic
value due to the non-conventional monetary policy boosted by the Federal Reserve of
Unite States. Thus, according to the progressive recovery of the U.S economy, we think
the interest rate should increase to compensate the liquidity excess in money markets and
also on respond to pressure over the prices when the economy finally takes off from the
uncertain context.
Finally,
and vix are predicted by using a univariate model, since these

series are stationary and therefore they converge to the mean.
Once estimated the explicative variables, the forecast of real copper price (at
prices of 2013) through the reduced form model explained in the last section can be
made. Thus, the model shows a future downward trend, which could reach its minimum
around 2016-2017 at levels close to US$2.80/lb (year average), and then it would
increase until reaching prices around US$ 3/lb in 2020.

3
The weights are established by the copper consumption shares
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Figure 2- Forecast of Copper Price

V. INCENTIVE-PRICE MODEL
The incentive price methodology has been widely used in the mining industry in
order to estimate the long-term copper price from its market structure. Its logic is based
on identifying the marginal project price that enables the market balance for a particular
year
4
, given the ex-ante projection of copper demand for the year.
From a theoretical perspective, and consistent with the models developed in the
previous sections, the market balance in the long-term can be modeled by:
(6) q
t
d
= q
t
d

(7) q
t
s
(Pi) = q
t
s
+ q
],t
s
(p
]
)
]=M
]=1

(8) s
t
= u
(9) s
t
-s
t-1
= q
t
s
(Pi) - q
t
d

Such that:
x q
t
d
: Quantity of copper demanded in t.

4
That year is usually the last year for which detailed information is available on the revenues and costs of
the projects. In this case, the year is 2020.
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Santiago, Chile
x Pi: Incentive price or long-term price.
x q
t
s
: Quantity of copper produced in t.

Where equation (6) establishes an exogenous copper demand for year t (t = 2020),
determined by the statistical projection of copper consumption trend through a Kalman
Filter
5
. Equation (7) indicates that copper supply is composed for a fixed term, which
reflects the copper amount produced by ongoing operations plus basis and highly
probable projections for 2020, plus a variable component which collects the sum of
production of probable and possible projects until the marginal project M
6
. Equation
(8) represents a classical condition of steady state of long-term, where the assets
accumulation is equal to zero. Finally, equation (9) represents the market closure,
establishing the balance between production and consumption.
By calculating the previous equations system we obtain:
(1u) q
t
d
- q
t
s
= _ q
],t
s
(p
]
)
]=M
]=1

However, the long-term price is the one that stimulate the entry of the marginal
project M on the market, satisfying equation (10). Therefore, to find the marginal
project and price, all the probable and possible projects are financially assessed,
determining the price that it would encourage its entry to the market. Then, they are
ordered according to this price and their productions are added to the base production in
order to fill the gap between demand and supply. Finally, the long-term price is the price
of the project that makes the market balance equal to zero in a determined year (2020 in
this case). Graphically:

Figure 3- Price-Incentive Model

5
A statistical projection of the curve demand is used, at the expense of a projection based on fundamentals
due to the simplicity and good fit presented by the model.
6
The project M provides the missing of production to meet demand by 2020.

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The assessment of probable and possible projects is done by calculating the net
present value (NPV) of each project, as presented below:
(11) u = -I
]
+_
(p
],t
-C
],t
)
],t
(1+1)
t
n
t=1

So:
x I: Project investment j
x p
]
: Project incentive price j
x C
t
: Project marginal cost j (C
2
as proxy)
x
t
: Equivalent payable copper (Fmt)
x I: Discount rate
So, knowing the projects investment, assuming a rate of return 10% and with a
projection of future production costs, we will be able to solve the el "p
]
" of each project
and thus estimate the incentive price for each thereof.
Then, the projects are sorted in ascending order by the incentive-price and its
productions begin to make added to base production until to find the project that achieves
to totally close the gap between supply and demand. This project is called marginal
project and determines the market price incentive or long-term copper price.
p
]
M
= Pi = PCu IP

5.1 Long-term copper demand
The copper demand was econometric estimated using a Kalman Filter, this
formulation assumes that the consumer follows a linear trend (I
t
state variable) in the
time, which it is contaminated by cyclical disturbances ( c
t
). This trend has an
autoregressive component (I
t-1
) plus a lagged drift (o
t-1
), which in turn, consists of
an autoregressive term (o
t-2
) plus more one disturbance (:
t
). Mathematically:
(12) C
t
= I
t
+c
t

(13) I
t
= I
t-1
+o
t-1

(14) o
t-1
= o
t-2
+:
t

Equations (15), (16) y (17) show the spherical and non-correlated assumption over the
disturbances.
(1S) c
t
~ N(u, o
c
2
)
(16) :
t
~ N(u, o
c
2
)
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(17) co:(:
t
, c
t
) = u
Then, the copper consumption in the long-term (2020) is given by the projection
of state variable (copper consumption trend), which is equal to 24,227 MT for 2020. This
figure is equivalent to an annual growth of copper consumption at a rate of 2.3%, which
is below to the average rate of the present century (2.8%), but it is in line with the decline
in copper consumption by a projected China.
Indeed, China is beginning a reorientation process of its economy that aims to
place domestic demand as a growth motor, at the expense of exports and investment in
infrastructure, which led the Chinese growth since the 90s.

Figure 4- Copper Demand Projection by Kalman Filter
5.2 Copper supply in the long-run
Already made the forecast of the demand side up to 2020, the supply is estimated
by the projections of production of existing operations, plus the entry projects from now
to 2020. With this purpose, we used the database of the operations and projects of Wood
Mackenzie (2012 Q4), from where it is obtained projections of: Capex, cash costs,
depreciation and equivalent payable copper to calculate the incentive price of each
project belonging to the subset of potentially marginal projects.
The procedure consists of counting the estimated production of existing
operations until 2020, then the remaining gap shown in equation (10) is filled with
projects in the pipeline, starting with the most likely to be performed and putting in the
last place those less probable projects (either by his VAN or the stage in which they are).
For this report we assumed a base case, which is described below:
It assumes that base production will be equal to: the provided production by
ongoing operations (disruption of 10%), secondary copper production and base projects,
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and highly probable projects, which it amounting to 19,463 MT. Then, it was
incorporated the production from probable and possible projects which should entry to
the market before to 2018, with which the projected production floor for 2020 amounts to
22,925 MT.
Thus, the gap to be covered by the subset of marginal projects (probable and
possible projects with starting date between 2018 and 2020) is 1,301 MT.
Graphically:

Figure 6- Copper Production Decomposition to 2020 (Case N1)

By evaluating the subset of marginal projects, and considering the forecasted
demand, the estimated incentive-price
7
was US$ 2.95/lb.
Figure N7 shows the dynamic of the obtained incentive price:

7
At 2013 prices.
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Figure 7- Forecast of Long Term Copper Price by the Price-Incentive Model
Thus, consistent with the result evidenced in the previous section, the estimated
expected value of the copper price is US$ 2.95 c/lb for 2020, which reflects a negative
trend, although at levels quite above the historical average.
The main reason to explain this price drop is the surplus in the copper market
expected for the coming years, which it would be reversed between 2019 and 2020. This
surplus can be explained both by a slowdown in demand as for greater dynamism in
supply.
On the copper demand side, it is expected a decrease in the consumption growth
rate, mainly due to the moderation in China consumption. This country represents more
than 40% of global consumptions and its consumption growth rate was 14.9% in the last
decade, whereas the projections for the current decade expose only a 4-7%. This
reduction would not be compensated by the increase in the consumption of other
countries before to 2020, mainly because all the other relevant blocks for the copper
demand show a downtrend in their consumption, and the emerging market players still
represent very small amounts to offset the slowdown in China.
Then, by the supply side, it is expected a significant increase in the production
between 2014 -2017 due to the entry of a relevant number of projects. This condition,
and the slowdown in the demand, could generate a surplus condition in the market which
it would push down the prices during next years. However, due to the diminishing returns
of production evidenced by a significant number of long-standing operations, the
production capacity by the end of the decade would decrease again. This situation would
tighten the market again; leading it even to a deficit situation which it would explain
copper price recovery towards the end of the decade (US$ 2.95/lb in 2020).

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VI. CONCLUSIONS
The two main focus addressed by this research were the robust modelation of the
copper market, from the micro and macroeconomic perspectives, and through it the
consistent forecasting of copper price.
So, about the model, is relevant the consistency found between theoretical
framework and empirical results in the macroeconomic model. First, because it has been
proved the existence of a statistical and economic relation within variables via a co-
integration of them, rather than a spurious relationship. And second, because since each
one explicative variable are statistical and economical significant, they approve the
statistical test and also they are consistent regarding to the economic intuition, which is
reflected by the coefficient signs.
In the same line, the modelation from a microeconomic approach through
incentive price methodology, widely used in the mining industry, was really useful to
show the industry fundaments in the long-term. Thus, by assuming an exogenous demand
estimated via a Kalman Filtrer, the attention was focus on the portfolio investment
forecasting, since the production profile of the current operations for the next years is
known
8
.
So, from the industry fundaments is possible to see a U inverted form in the
production profile, which it would imply a surplus in the next four years but a deficit in
the decade end.
In the first case, it was empirically estimated the theoretical model shown in
Section II through its reduced form, from where is possible to appreciate the U form
curve of the copper price towards 2020, averaging US293 c/lb for the next 7 years, figure
that could be used as proxy of the long term copper price. In the second case, it was
estimated the long term copper price via the incentive price model, typically used as the
long term copper price, which estates a price of US$ 2.95/lb.
Then, on the forecasting side highlights the congruence found between these
different approaches to estimate the copper price, since the used variables in both cases
are completely different and the long-term price projected is practically equal.

8
Is the estimation made by Wood Mackenzie.
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Santiago, Chile
REFERENCES

x Arellano. El cobre como palanca de desarrollo para Chile. Revista N127 Cep
Chile. 2005.
x De Gregorio, Gonzales y Jaque. Fluctuaciones del dlar, precio del cobre y
trminos de intercambio. Working Paper N310 - Central Bank of Chile.
February 2005.
x Engel y Valds. Prediciendo el precio del cobre: Ms all del camino
Aleatorio?. Serie Economa N 100. Departamento Ingeniera Industrial,
Universidad de Chile. Marzo 2001.
x Engle and Granger. Co-integration and error correction: Representation,
estimation and testing. Econometrica, Vol. 55, No. 2. (Mar., 1987), pp. 251-276.
x Pesaran, Shin and Smith. Bound testing approaches to the analysis of level
relationship. February 1999. Journal of Applied Econometrics, 16, 289-326.
x Jaramillo y Selaive 2006. Actividad especulativa y precio del cobre. . Working
Paper N384 - Central Bank of Chile. December 2006.
x Lpez y Riquelme. Auge, colapso y recuperacin de los precios de materias
primas entre 2002 y 2010. Qu hay detrs? Economa chilena Santiago. Vol.
13, 2010, p. 129-145.
x Lord. Price formation in commodity markets. Journal of Applied Econometrics.
Volume 6. July/September 1991.
x Marshall y Silva 2001. Determinacin del precio del cobre: un modelo basado
en los fundamentos del mercado. Chapter 6 in Dilemas y Debates en torno al
cobre Patricio Meller.

52

Santiago, Chile

ICSG GLOBAL COPPER MARKET RESEARCH IN 2007-2012: LESSONS
LEARNED AND CHALLENGES FOR THE FUTURE

Susanna Keung and Carlos Risopatron
International Copper Study Group
Rua Almirante Barroso, 38 - 6th floor
1000-013 Lisboa, Portugal
www.icsg.org
risopatron@icsg.org

ABSTRACT

This study covers a review and analysis of the main findings of some of the
research projects developed by ICSG in recent years, including an analysis of findings in
surveys and statistics on copper production, trade, use and stocks in 2007-2012 and
longer. A discussion on the trends observed in industrial use, demand, trade, production,
and capacity of copper across the value chain is presented, looking to identify industry
and regulatory bottlenecks faced downstream and upstream the copper industry in recent
years and in the future. Lessons learned and challenges to improve publicly available
information on market transparency of the global copper market are identified. Opinions
reported in this research are from the authors and in no manner reflect any official
ICSG members view.

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Santiago, Chile

INDUSTRIAL USE OF REFINED COPPER AND SCRAP

Most of the copper that is smelted and refined across the world, same as most of
the copper scrap that is recycled and traded, is sold to fabricators that process cathode,
scrap, ingots and other primary forms of copper as cakes, billets and wire bars. The
industrial users of this copper like to call themselves semi-fabricators, as they sell their
products to manufacturers, usually called end users of copper and copper alloy
products by the semifabricators. The copper alloy products contain important volumes of
tin, zinc, but small volumes of nickel, lead and even silver, so copper scrap plays an
important role in these products, usually processed in factories called brass mills.

In consequence we can distinguish the industrial first use of refined and scrap
copper by fabricators, from the second use by manufacturers of end use products.
There is an increasing degree of integration between both fabricators and end users, so
we have fabricators that use their copper products to manufacture their own end use
product, for example wire and cable from wire rod, or air conditioners from copper tube.
The final use by consumers, is a third step that can happen in a different country than
the one where the fabricated product is end used. This final use of copper has
accelerated with global trade of manufactured products in the last 20 years, so the copper
in end of life products that is becoming available for recycling can be used very far
from the country where the product containing copper was manufactured and fabricated.
There is not much published information of the end use and no research about the
final use of copper.

Estimates about the global and regional use of copper semifabricated products,
castings and powders are produced by consulting firms for industry associations related
to copper miners and fabricators, but details about those methodologies remain restricted
to the general public and are not subject of public debate. Based on ICSG statistics we
know how much refined copper is produced (20.1 million tonnes in 2012) and we have a
close idea of how much copper scrap is direct melted by fabricators worldwide (4.7
million tonnes in 2011). So is difficult that the global industrial use of copper products
had been over 24 million tonnes of copper content a year in previous years, and probably
much lower if we consider the down trend in fabrication statistics ex China and if we
measure only copper content in Chinese fabrication. The increasing stocks of copper
cathode in China and in other locations around the world in recent years and the massive
substitution from copper to aluminium for cost control in many end use products are also
reasons to be cautious about an increasing global end use of copper in 2008-2012. In
consequence the need of more systematic and public research and statistics on copper use
remains a constraint to increase transparency in this market.

The share of international traded brass and wire mill products is small when
compared to all fabricated output data available: global trade of fabricated copper and
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copper alloy products has been falling in recent years from over 5.8 million tonnes in
2010 to 5.5 million tonnes exported in 2012, with over 63% in copper-only products and
the rest from copper alloys. When compared to the reported semifabricated output of
21.4 million tonnes in 2010, is clear that only 27% of the industrial use of copper in
fabricated output is traded internationally, and close to 73% of the industrial copper and
alloyed products are being used in the same country of production.

Country 2007 2012 Oct* Growth Source
Mt Mt %
China 6.3 11.31 79.5% ICSG
United States 2.94 2.17 -26.0% ICSG
Germany 1.85 1.52 -17.7% ICSG
Japan 1.75 1.33 -23.9% ICSG
Korean Republic 1.33 1.06 -20.2% ICSG
Italy 1.75 1.03 -41.2% ICSG
Taiwan (China) 0.85 0.71 -16.4% ICSG
Spain 0.34 0.32 -4.7% ICSG
Poland 0.34 0.23 -31.4% ICSG
France 0.54 0.19 -64.5% ICSG
Slovakia 0.02 ICSG
India 0.71 0.64 -9.6% Industry
Russian Federation 0.80 0.56 -30.2% Industry
Turkey 0.41 0.27 -34.0% Industry
Thailand 0.29 0.27 -5.6% Industry
Brazil 0.37 0.23 -38.4% Industry
Indonesia 0.20 0.22 8.5% Industry
United Arab Emirates 0.00 0.21 100% Industry
Saudi Arabia 0.19 0.21 8.4% Industry
Iran 0.19 0.20 7.5% Industry
Sample of Countries 21.1 22.7 7.4%
* 12 months before November 2012
Fabrication of Copper and Copper Alloyed Products: 2012 Versus 2007
million tonnes gross weight, other alloyed metals included
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Most of copper and alloy fabrication capacity is located close to the industries
that are users of their products. Import duties and other trade barriers set up to protect the
local fabrication industry and employments can be a factor explaining plant location, but
the case of China shows how a less industrialized country can develop their own
manufacturing industry based in the expansion of local copper and alloy fabrication
capacity. Even if there is not an initial local market, but the continuity of demand and
quick delivery of the multitude of different tubes, sheets, wire and cable with pure
copper or alloyed is what it makes the difference between a successful fabrication
industry and a failed case.

The problems of the fabricators of copper and copper alloys are not always
understood by copper miners, recyclers and industrial producers of refined copper and
scrap, as both parties would wish, in part because restrictive trade practices, but also
because of anti-trust laws. The availability of refined copper and copper scrap is the main
concern of a fabricator, except in the case of plants integrated with smelters and
refineries companies under same ownership, and in the case of industries located in
countries buying under a public and private industry agency. In most of cases, the
industrial users of refined copper and scrap obtain their inputs in contracts with refiners
and recyclers, so fabricators need to be very accurate to calculate the demand for their
products in order to minimize the stocks of raw materials they need to finance every year,
in particular in times of high or volatile prices and uncertain end use as has been the case
Refined
Demand Kt-Cu
Semis
Output Kt
Copper in All
Products Kt-Cu
China 959.44 1,247.91 1,284.33
Indonesia 29.01 26.74 26.59
Brazil 20.41 20.49 19.85
Thailand 14.74 15.05 17.01
Sweden 18.71 - 15.03 16.46
Others * 10.79 10.79 10.79
Canada 9.39 9.45 10.21
Mexico 8.13 5.74 8.57
South Africa 16.50 - 5.33 5.70
Rest of the World * 0.02 17.00 - 16.51 -
Finland 10.84 - 5.63 - 5.29 -
Slovakia 5.00 - 5.35 - 5.35 -
Poland 3.79 - 5.85 - 5.80 -
Vietnam 8.99 - 9.26 - 9.26 -
Egypt 13.88 - 13.92 - 13.92 -
France 14.96 - 16.30 - 14.81 -
United States 2.00 17.57 - 19.89 -
Italy 39.51 - 26.29 - 30.21 -
Malaysia 18.98 32.85 - 32.85 -
Taiwan 24.71 - 51.61 - 49.12 -
Japan 18.30 - 65.04 - 62.58 -
Belgium 46.37 - 70.55 - 70.55 -
Korean Rep. 31.60 - 68.02 - 81.21 -
Russian Fed. * 62.59 - 106.20 - 112.80 -
Germany 140.83 - 134.07 - 129.89 -
Net Change
World Volumes 616.32 711.04 739.45
2012-2011 Growth in Copper Demand and Industry Use
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of recent years, but in general the stocks are expected to keep some relation with the size
of the fabricator.

As a fixed part of the fabrication industry capital needs to be in stocks of refined
copper or scrap, the cost of capital, in terms of interest rates charged by banks is a second
but critical factor for fabricators. The perennial discussion of the capital cost sharing with
miners and scrap recyclers has been more active in recent years, in particular in a more
austerity-driven Europe, when compared with more monetary expansive United States or
with the high volumes of credit observed in the Chinese banking systems in 2010-2012, a
trend that may be showing some signs of more conservative behaviour in 2013.

In 2007-2012 ICSG has developed and improved its global database of industrial
first users of copper and copper alloys, identifying most of them in detail and in most of
the plants the fabrication capacity. In 2013 we accounted industrial copper first users in
2,211 plants in 88 countries. Total reported capacity in 2013 was over 51.1 million
tonnes in gross weight, but only 25.4 million tonnes was reported by plants effectively
operational in 2012. This capital intensive industry has been expanding fast: we
identified 6.2 million tonnes of new plant capacity starting operations for the first time in
2012-2013, so more than 29 million tonnes of capacity may be fully operational in 2014.
There are over 2.3 million tonnes of new capacity in feasibility studies and early
construction steps expected to become operational in 2014-2015. But we also observe
over 3.5 million tonnes of plant capacity reported as inactive or closed across the world
in 2012, and no information about the status for 13.4 million tonnes of the global
capacity. The utilization of the global fabrication capacity reported is estimated not much
over 60% worldwide in 2012, with higher use in some countries as China (85% in 2012),
but capacity utilization as low as 55% is estimated in top copper and copper alloy first
users like United States, Germany, Russia, Taiwan, India and Italy, and much lower
utilization rates in Japan, France and Belgium.

The industrial use of copper to produce copper and copper alloy products in
different economies for 2007-2012 has been growing, driven by an extraordinary 80%
growth in China according to official statistics, from 6.3 million tonnes in 2007 to over
11 million tonnes in 2012. But only in a few oil producing economies including Saudi
Arabia, the United Arab Emirates, Iran and Indonesia, the industrial use of copper is
growing from very low initial levels. In the rest of the world ex-China the industrial
copper and alloys fabrication reported by ICSG or estimated from industry data and
statistics, has been falling as much as 27% in the period. The 2007-2012 fall in
fabrication has been over two digits in most of top industrial copper users as United
States, Germany, Japan and Korea and Taiwan, with dramatic falls in copper used in the
industry of France (-65%) and Italy (-41%). The industrial use of copper has been falling
in supposedly dynamic industrializing economies as Brazil (-38%), Russia (-30%), India
(-10%), Turkey (-34%) and Poland (-31%). Even with these very negative and in some
cases irreversible contractions in the industrial use of copper, the global net growth is a
positive 7.4%, driven mainly by the huge expansion in Chinese industrial capacity to
produce wire rod and other products in recent years.
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In the short term (2011-2012) the reported expansion of copper and copper alloy
fabrication continued in 2012, driven by China that reported over 1.2 million tonnes of
new fabricated output versus 2011, with an increasing demand for refined copper, not far
from one million tonnes in 2012. The fabrication growth of copper and copper alloy
products was flat in the USA, EU-27 and North East Asia ex-China in 2012.
Unfortunately all other economies reporting more industrial copper use the annual
additions where small, with less than 27 Kt more in Indonesia, the most dynamic
industrial copper user ex-China followed by lower volumes growth in Brazil, Thailand,
Canada and Mexico in 2012. The industrial use of copper contracted mainly in Germany,
Russia, Korea, Belgium, Japan, Taiwan, same as in Italy, France, Egypt Vietnam and
other small industrial users. In the United States the situation is uncertain, with less
industrial use reported but with a marginal increase in the demand for refined copper in
2012, and a similar situation is observed in Malaysia, meanwhile Sweden and South
Africa reported less demand for refined copper but increasing industrial use of copper. In
2012 both the world industrial use of copper and the world demand for refined copper
increased, but the demand for refined copper and industrial use was falling in most of the
economies, mainly in Europe and in North East Asia ex-China. In China we observed
slow growth of wire rod and alloy output in 2012, with output of copper-only
rod/tube/plates products falling versus 2011. Meanwhile the Chinese demand for refined
copper including stocks increased over 12% or almost a million tonnes in 2012.

Aluminium Substitution of Industrial Uses of Copper. According to information
published by AURUBIS and KME, a large European producer of refined copper
producer and a large EU fabricator of copper products, in the last 10 years close to 4.5
million tonnes of copper wire rod use has been replaced mainly by aluminium wire rod
electric applications. Many copper wire rod applications are at risk of being replaced
with a global oversupply of aluminium output that drove refined aluminium prices below
2,000 tonnes per tonne in recent years. Main copper wire rod applications been replaced
fast by aluminium are medium and high voltage electric cable, magnet wires,
transformers, motors, generators and cables for vehicle harnesses according to the
European industry. New high temperature superconductor cables, cooled by liquid
nitrogen to -200C. can transport five times as much energy than a 110 kV copper cable
and is 2.5 times more expensive than copper cables, but it may be competitive in 2020. In
Sweden, the strict Nordic Environmental Label does not allow the use of copper roofs,
facades or tubes for toxicity reasons, threatening the antimicrobial qualities of copper
approved by the US EPA in recent years. However, the main driver of substitution is not
driven by legislative limits, but by the fact that electric conductors made of copper are 6
to 7 times more expensive than those from aluminium in 2013.

Aluminium Production Overcapacity and Power Subsidies. A world without
energy subsidies would make copper much more competitive versus aluminium. A
bibliographic review on the evidence of electricity and other subsidies to a sample of
aluminium refining industries located in China, South Africa and Australia, found
enough evidence publicly available to justify the argument that electric subsidies may
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have a significant impact in refined aluminium output and drive part of the current
aluminium oversupply and low aluminium prices, creating substitution out of copper
demand. Many countries subsidise electricity prices for various users including the
aluminium industry, and subsidies are very significant in the fossil fuels industry and run
into billions globally, and direct subsidies are common in many industries such as the
global steel industry. Extensive works has been done to examine and report on power
subsidies within the OECD and WTO. Governments who subsidise electricity costs for
aluminium production might do so for a number of reasons, but specifically trying to
help aluminium substitute for copper is not likely to be one of those reasons.

Industrial Capacity and Use of Refined Copper and Scrap in China

The expansion of the Chinese industrial capacity to produce copper and copper
alloy products in recent years is clearly revealed in ICSG database of global plant
capacities: we reported over 12.3 Mt of already existing capacity operational in China in
2012, then we added 1.2 Mt of new plant capacity that started operations in China in
2012 and we identify ~5 million tonnes more of new capacity expected to be operational
in 2013-2016 in China. This expansion may be slower as China control his credit
excesses in 2013, but many projects already financed may continue add to the current
existing capacity of 13.5 Mt. Overcapacity control is being observed in China in recent
years in the copper and alloy fabrication industry: we found over 1.14 million tonnes of
plants that had been closing, are missing or are not operating in 2013. Some of these
plants moved downstream and now are using copper and alloy products as a raw
material. From all the capacity reported in China in different operational status, 65% is
copper wire rod capacity in 2013.

China: Annual Growth of Industrial Use of Copper 2001-2011 %
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Copper Wire, RBS, PSS and Tube Copper Alloy Wire, RBS, PSS and Tube
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ICSG has been producing different industrial surveys to Chinese fabricators and
copper smelters in recent years. The latest was a large survey to wire rod plants in
China published in 2013 that contains information on 220 plants. The survey found 5.28
Mt. of copper wire rod produced in 2012, a 3.7 % annual growth in relation to 2011.
Annual wire rod output growth fell from a peak 15.7% in 2010 to 7.4% in 2011. The use
of direct melt scrap for wire rod output fell 9.3% in 2011 and 13.7% in 2012 when the
scrap direct melted in the wire rod plants was only 368 Kt-Cu due to more quality
control efforts, more expensive scrap and more new technology using only refined
copper. The use of refined copper in the sample increased 17.2% in 2010 versus 2009 it
grew 9.2% in 2011 and only 5.3% in 2012. The survey found 6 Mt of new wire rod
capacity added in China in recent years. An additional 1.4 Mt-Cu in wire rod capacity
expansions was expected to be added in 2012, but the effective addition was below 1 Mt.
The industrial concentration in the Chinese wire rod output is growing fast, with
75% of the output coming from big plants. Wire rod capacity including all operational
and closed capacity was 10.88 Mt of reported wire rod capacity in 2012, with 8.37 Mt of
wire rod capacity operational in 2012 and >2.5 Mt of capacity without output reported or
with the plant closed. Total wire rod capacity in China may have increased from 8 Mt in
2009 to 9.3 Mt in 2012. Imported production lines are gaining market share from
domestic Chinese technology lines in the last 3 years and many Chinese technology plant
closures are reported: a 14% fall in the number of plants reporting with one million
tonnes of capacity closed or missing. The output included in the survey covered 91% of
Chinese wire rod output of 2012. In the survey the production plan is to achieve 5.57 Mt
of wire rod produced in 2013: 5.4% more than in 2012.
The situation of the industrial use of copper in China copper products is much
more positive than the trends observed for copper alloys in brass mill plants that, already
in 2011, revealed zero growth and where expected to fall around 11% in 2012. This is
explained in part by the increasing shortage of high grade scrap and also some lower
grades of scrap, in part for the slowdown in the exports of end use products using
inputs with fabricated copper alloys and in no small part by the slower growth of
construction sector across China. In 2012 a slow growth of wire rod output and copper
alloy output was observed in China,
meanwhile the Chinese refined demand including stocks increased over 12% to 958 Kt
in 2012. The speed of demand for raw materials including concentrates, scrap and
refined copper is different than the speed of industrial copper use in China: stocking and
destocking processes can explain the difference to be discussed in detail in the next
chapter.

GLOBAL DEMAND AND TRADE OF COPPER RAW MATERIALS

The international market for copper raw materials includes copper concentrate,
copper cathode and copper scrap. It is important to note the difference in the concepts of
the demand for copper cathode, which is going to be analysed in this chapter, and the
industrial first use of copper that was discussed in the previous chapter. Readers are
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reminded that refined copper demand is counted as industrial use only when it is
fabricated into another form other than cathode for further manufacturing (wirerod, sheet,
strip, plate, bar, tube etc.); industrial first use is more related to the data reported to the
ICSG database as semis production. Most ICSG refined copper demand data is directly
reported from national official statistic offices, whilst the others are calculated by
subtracting net trade and stocks from production, which is also known as the apparent
usage approach.

The five countries that demanded the most refined copper in 2012 were China,
the United States, Germany, Japan, and the Korean Republic, according to latest ICSG
data. The rankings were largely unchanged over the past few years and their combined
tonnage was more than 65% of total world demand for 2012, compared to 59% in 2008.
Over the period 2008-2012, global demand for refined copper rose from 18.1 million
tonnes to 20.5 million tonnes, exhibiting a compound annual growth rate of around 3%.
It should not be surprising that the growth in demand was slow in 2009 at less than 0.1%
and rebounded to around 7.1% in the year after, given that the copper market was not
immune from the global economic crisis. The regional rankings of demand for refined
copper in 2012 was Asia (13.1 million tonnes), Europe (4.2 million tonnes), the
Americas (2.8 million tonnes), Africa (251,100 tonnes) and Oceania (112,000 tonnes).
One may notice that there was a diverging regional trend over the period 2008-2012,
with most of the countries experiencing a fall in demand but Asia and the Middle East
exhibiting impressive growth.

x China, in particular, saw demand grew 70% from 5.2 million tonnes in 2008 to
8.8 million tonnes in 2012, mainly attributed to favourable government stimulus
package and strong financial demand for copper as collateral. This is a good
example for distinguishing between demand and industrial use of copper. The
official figure for Chinese copper demand was 8.8 million tonnes in 2012 but
different industry analysts had come up with a different estimate of the volume
that was actually melted or consumed as industrial use in the downstream.
Although the exact number is debatable, our industry contacts suggest for that
year alone around 600,000 tonnes of cathode stocks added in the Shanghai
bonded warehouses were related to collateral financing activities.

x In Turkey, refined demand rose by 15% from 375,500 tonnes in 2008 to 431,700
tonnes in 2012. The Turkish wirerod industry is the largest segment within copper
first usage in the country both in terms of production volume as well as
production capacity, as it is now one of the major wire and cable manufacturing
hub for consumption in the local market and exports to Western Europe,
according to a recent ICSG profile study.

x The United Arab Emirates was another bright spot, with demand for refined
copper increasing from a low base of 33,000 tonnes in 2008 to almost 200,000
tonnes in recent years. This increase was largely supported by a rapid expansion
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of copper and copper alloy downstream fabrication capacity in the region, mostly
linked to wire and cable industry.

Looking forward, the consensus view is that the five countries that dominated
refined copper demand in 2012 are likely to continue to have a joint significant share in
the coming five years. However, market participants also believe that the distribution of
growth between China and ex-China countries will be different from that of the last
decade as China now aims to enter a restructuring phase at the expense of growth.

Some are expecting that manufacturing activities will continue to drift away from
China and North East Asia (Japan, the Korean Republic and Taiwan) to lower cost
locations in Asia, such as, Indonesia, Cambodia, the Philippines, Vietnam, India, etc,
whilst the world ex-China has a very different outlook in general, due to investment
flows and cost expectations.

The prediction of future demand for refined copper also requires a clear view on
market developments in the recycling business. A shortage of copper scrap material is
likely to affect both production of cathode from scrap and demand for direct melt scrap
for semis fabrication, which was the case for 2009 and 2010. The most recent ICSG
Annual Recyclable Survey (April 2013) suggests that copper scrap shortages remains an
issue in China since supply was limited by lower copper price and slower industrial
production growth. As a result, Chinese direct melt volume is estimated to have dropped
dramatically in 2012.

The latest ICSG forecast shows that the demand for refined copper is expected to
be flat in 2013 and 3.9% in 2014, with regional split of growth in volumes as follows:
Asia is expected to contribute an addition of 346,000 tonnes, 228,000 tonnes from
Europe, 117,000 tonnes from North America, 91,000 tonnes from Asean-10, 49,000
tonnes from Latin America, 18,000 tonnes from Africa, 5,000 tonnes from Oceania and
3,000 tonnes from the others.

Although one will always have to study trade data with a pinch of salt due to
problems of misreporting and misclassification, the global copper market usually exhibits
a strong link with international trade, as the red metal is extensively traded in all forms,
with trade flows often signalling trends in the underlying market. Taking copper
concentrate (HS code 2603) as an example, the highest transaction volumes are most
likely to be between major copper mining and smelting countries.

Chile, the worlds largest copper mine producer and exporter, exported a total of
7.4 million tonnes of copper concentrates in 2012, with around 2.1 million tonnes
shipped to Japan (the second largest copper smelter producer) and 1.8 million tonnes
shipped to China (the largest copper smelter producer), according to UN Comtrade
database. Similarly, Peru was the second largest concentrates exporter and the worlds
third largest mine producer after Chile and China in 2012, with exports of 3.7 million
tonnes, shipped over 60% of its copper concentrate exports to the same two destinations.
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Australia was the third largest copper concentrate exporter in 2012, with volume of
almost 2 million tonnes of copper concentrates mainly shipped to China and India. At the
fourth place, Canada exported 1.2 million tonnes of copper concentrates, also mostly to
Japan and China in 2012. Indonesia ranked the fifth in 2012 and exported mostly to
Japan, the Korean Republic and India.

The five leading importers in 2012 were China (7.8 million tonnes of copper
concentrates), Japan (5.1 million tonnes of copper concentrates), India (1.9 million
tonnes of copper concentrates), the Korean Republic (1.7 million tonnes of copper
concentrates) and Spain (1.5 million tonnes of copper concentrates).

ICSG reports total volume of global imports of copper ores and concentrates (HS
trade code 2603) was around 22.2 million tonnes of copper concentrates (6.4 million
tonnes of copper content) in 2012 compared to 19.7 million tonnes of copper (5.8 million
tonnes of copper content) in 2008. This also leads us to an interesting trend that the
copper content of both world concentrate imports and world concentrate exports fell
slightly from 29.5% and 30.3% in 2008 to 28.7% and 28.9%, respectively, in 2012,
which coincides with the argument that ore grades has been falling at major copper mines
in the last couple of years. We will discuss the trends in copper mine production and
capacity in more details in the next Chapter of this paper.

The analysis of refined copper trade (HS code 740311, 740312, 740313 and
740319) is not as straightforward as that of concentrates simply because it is more widely
traded and stored in terms of location and also the type of industries that are involved in
transactions. There are three major exchanges in the world that trade copper cathodes
and the derivatives: London Metal Exchange, New York Mercantile Exchange (also
known as COMEX) and Shanghai Futures Exchange. Some refined copper trade
volumes are not recorded officially at customs because cathodes are sent and stored at off
warrant warehouses to be re-exported. This also leads us to an explanation of why it is
on some occasions argued that it is not appropriate estimating a countrys refined copper
consumption based on the apparent consumption approach, which indirectly implies that
imports are for local consumption and exports are indicators of local production.

The leading five importers of refined copper in 2012 were China (3.4 million
tonnes), Germany (701,000 tonnes), United States (630,000 tonnes), Italy (582,000
tonnes) and Taiwan (434,000 tonnes). The rankings were practically unchanged from
five years ago but their combined percentage of total exports increased from 56% to
almost 70%, which suggests refined copper trade became more concentrated.

Around 1.3 million tonnes or 40% of Chinese refined imports in 2012 originated
from Chile, which should be no surprise for anyone as they are the largest copper
producer and consumer in the world. The interesting fact is that this figure was 744,400
tonnes five years ago, which indicates the speed of the significant development between
the two countries as cathode trade partners in recent years. Another important trend is
that China has also expanded its cathode trading network around the world and importing
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more from other countries, with 60% of ex-Chilean trade in 2012 compared to 50% in
2008. German imports mostly originated from Russia (22%), Poland (20%), and Chile
(15%), whilst the United States also imported most from Chile (63%). Chile was the
largest refined copper exporter, with 2.7 million tonnes of exports in 2012.

Global refined copper export volume was reported to be 7.6 million tonnes in
2012, compared to the average of around 8 million tonnes in period 2008 to 2012. The
2012 figure is likely to be revised upwards slightly as some countries have not yet
reported their data. The leading five refined copper exporters in 2012 were Chile, Japan,
Australia, Kazakhstan, and Poland. Comparing the current ranking to that of 2008, it
shows that the five countries that have improved rankings the most over this period were
Austria, the United States, the United Kingdom, Mexico and China. Preliminary export
data is not yet available for Zambia at the time of writing, so the ranking will change
when the country reports its volume.

We have understood that Zambian trade data is a particularly interesting case
while working on its country profile report, which reveals that there is a significant
discrepancy between Zambian reported data for refined copper and concentrates and
derived trade data reported by its trade partners. One should also note that Russia is
another interesting country as its refined export volumes are very sensitive to the
frequent changes in export duty and can fluctuate by a wide range. For instance, Russian
refined exports were around 450,000 tonnes in 2009 and 2010, triggered by the removal
of its export duty on refined copper cathodes initiated at the start of 2009. However, this
dropped to around 200,000 tonnes in 2011 and 2012 as the export duty resumed.

Trade of copper and copper alloy scrap (HS code 7404) is likely to be the most
problematic out of the three in terms of data accuracy and reliability, because shipments
can vary widely in copper content, be easily traded and stored by industry outsiders and
not well recorded in some countries. ICSG data for 2012 suggests that the leading five
copper and copper alloy scrap importers by gross weight were China (4.9 million
tonnes), Germany (646,000 tonnes), Belgium (303,600 tonnes), that Korean Republic
(300,700 tonnes) and India (203,500 tonnes).

Compared to 2008, world scrap import volumes increased by a modest 4% in
2012, with much of this growth attributed to higher Chinese imports. In 2012, China
imported most from the United States (21%), Germany (16%), Australia (8%), the
United Kingdom (6%) and Spain (5%). Germany imported most from Netherlands
(11%), France (10%), United Kingdom (9%), Switzerland (9%) and Italy (7%). Belgium
imported most from France (26%), Germany (23%), Netherlands (13%), the United
States (10%) and Spain (5%). The Korean Republic imported most from the United
States (12%), South Africa (9%), Thailand (8%), Saudi Arabia (7%) and the Philippines
(7%). India imported most from the United Arab Emirates (16%), Finland (14%),
Pakistan (13%), the United Kingdom (9%) and Saudi Arabia (7%).

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This result is consistent with the fact that scrap importers mostly have a large
smelting and/or a large brass mill sector, as the most common uses of copper scrap are
the production of secondary cathode and brass mill products, such as brass rod, bar, wire,
tube, sections and profiles.

We also understand that Fire Refined High Conductivity (FRHC) is a technology
developed and marketed in recent years which uses high grade scrap and is marketed on
the fact that it avoids using cathodes as in conventional Continuous Cast Copper Rod
technology. One of the recently installed FRHC plant is operating in the United States
and has a capacity of 75,000 tonnes per year, which is covered in ICSGs industrial first
use database mentioned in Chapter 1.

Looking at the import volumes above, it is clear to us what to expect when
analysing scrap exports data. The leading copper scrap exporters in 2012 were United
States (1.2 million tonnes), Germany (577,800 tonnes), France (317,100 tonnes),
Netherlands (308,600 tonnes) and United Kingdom (370,800 tonnes). It is also
considered useful to analyse net copper scrap trade, as well since some countries have
both significant import and export volumes.

For example, Germany was both the second largest copper scrap importer and
exporter in 2012 but its net imports in gross weight were 68,200 tonnes, which makes the
country the sixth largest copper scrap net importer in the world. According to our latest
data, the leading five net copper scrap exporters in 2012 were the United States, the
United Kingdom, Japan, France and Mexico. The five largest net importers for the same
year were China, India, Korean Republic, Belgium and Sweden. From this it is
confirmed that the largest transaction in volumes of copper scrap would be between the
leading net trading countries.

We understand that a trade surplus/deficit of copper scrap simply means that a
country exports/imports more copper scrap than imports/exports, but does not give any
explicit information of the local copper industry, because the trade of copper scrap is
influenced by a lot of exogenous factors apart from scrap generation and usage, such as
exchange rate movements, contract terms (quotation period, monthly price), taxes and
trade regulation etc.

There is a possible scope of further analysis of scrap trade data by looking at copper
content and trade values. One may have to sample and examine shipments physically in
order to come up with good estimates of copper content in scrap trade for different
countries as trade data is sometimes distorted.

COPPER MINE PRODUCERS AND THEIR CAPACITIES

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World Copper Mine Producers and Trends. Even in a very volatile environment
for the copper price and for the demand for copper in recent years, the global copper
mine production has reported an increase, year after year, from 15.5 million tonnes in
2008 to over 16.7 million tonnes in 2012. In 2012, the world demand for refined copper
was five million tonnes higher than ten years ago, with the supply provided mainly by
copper miners, but also by copper recyclers. In 2012 the global copper mine production
increased not much over 600, Kt driven by more use in the installed mine capacity. The
consequence record refined copper production in China, but rest of the world produced
less refined copper than in 2011. The joint copper mine production of Chile, China, Peru,
the United States and Australia provided over 61% of the world mine output in 2012.
Chile remains the top copper mine producer with over 5.4 million tonnes in 2012,
followed by China that is achieving 1.5 million tonnes a year, meanwhile Peru copper
miners are approaching 1.3 million tonnes, the United States keep mine production close
to 1.2 million tonnes a year and Australia provides more than 900 Kt pr year.
A second group of middle scale copper mining nations contributes with around
22% of the world copper mining output. This group is leaded by Russia that produced
720 Kt per year in 2012, followed closely by Zambia with 695 Kt of mine production,
Canada that has been stable producing less than 600 Kt in recent year, meanwhile
Mexico mine output is expanding fast over 525 Kt in 2012. Poland and Kazakhstan have
similar levels of mined output over 400 Kt a year meanwhile Indonesia has been
reducing output from almost a million tonnes in 2009 to less than 400 Kt in 2012. A third
group of mine producers is leaded by Iran with 245 Kt, and stable levels at similar
volumes in present years, followed by Brazil with stable mine output around 220 Kt,
meanwhile the emerging Laos was a mine producer of almost 150 Kt in 2012, followed
closely by declining output at Papua New Guinea with 125 Kt and emerging Mongolia
where 120 Kt were produced last year and expectations of more mine output growth are
set for 2013-2015. Bulgaria and the Scandinavian countries are producing exactly the
same volume of copper: 107.9 Kt in 2012. All other countries are reporting mine
production well below 100 Kt a year with the exception of Spain with 98 Kt in 2012 and
Uzbekistan with a flat 80 Kt a year.
World Copper Mine Production Capacity. Looking at the evolution of the Directory
of Copper Mines and Plants, published bi-annually by ICSG, we know of the existence of
more than 1,000 existing and planned copper mines, plants and refineries, including SX-
EW plants. Capacity data reflects production capability and not necessarily production
levels that are lower and affected by operational failures, unforeseen cuts in production and
closures, weather related problems, strikes or by the delay or cancellation of projects. The
most notorious fact is that global copper mine output was just 82% of their capacity and
only 79% of the installed global copper refinery capacity in 2012.
ICSG has been following copper mine production capacity plans for many years
and is clear that just a share of the announced and planned capacity programs will become
copper in the market in the year that these expansions are announced: risk factors including
financial constraints, environmental permits, technical problems and many more issues
affects the expansions and the new mine capacity. Eventually the global copper mine
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capacity is expanded, at a lower rate than plans, but not necessarily will be all used as
observed in the actual low capacity utilization rates. A factor often forgotten by analysts is
the fact that every year many copper mines achieve the end of their productive life and
must be closed, therefore the new capacity not necessarily adds to the existing copper mine
capacity but replaces a part of it. We accounted over 500 Kt old copper mine capacity in
need of replacement by new mine capacity in 2011-2015.

In the latest review of the mine plans for 2013-2016 we found big hopes in new
copper mine capacity, mainly from small mines in the capacity pipeline, but the financial
capital is far from available in most of the projects. In 2012-2014 the capacity of the big
mines with more than 200 Kt of capacity is expected to achieve 9 million tonnes in 2014,
meanwhile mines between 100 to 200 Kt are expected to achieve over 5 million tonnes.
But the capacity in the group of mines with less than 100 Kt is expected to grow from close
to 6.8 Mt in 2012 to almost 8 Mt in 2014: a very ambitious target for small miners in a
market with constrained capital expenditures and volatile copper prices.
In 2012 the global capacity to produce copper concentrate was 15.6 million tonnes
worldwide, and if we add 4.7 Mt of SX-EW capacities the global copper mine capacity was
close to 20.3 million tonnes. Adding all the capacity plans in 2013-2016, the global
portfolio of copper mine capacity may growth to 27.5, with 22 Mt of concentrate capacity
and 5.7 Mt of SX-EW plants. However financial, technical, regulatory and other factors are
delaying the start-up of capacity as happens year after year, this trend to delay projects is
clear when we see that 73% of the capacity expansion (5.3 Mt) is expected to occur in
2015/2016.
Around 35% of the planned world total copper mining capacity increase, around
2.3 Mt will be in South America, mainly in Peru and in Chile. But future mine capacity in
Asia will significantly increase in almost 2 Mt with Iran, China and Mongolia being the
biggest contributors. African copper mining capacity is not short of plans with 1.5 Mt in
projects in the pipeline. So these three regions represent 78% of the future world
additional copper mine producing capacity to come on stream by 2016 and probably
beyond this year. North America is expected to bring an additional 1 Mt copper by 2016
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with the United States being the biggest contributor. Oceania and Europe will contribute to
growth with just 250 Kt each.

Future Copper Mine Capacity Trends

Chile will retain, by far, its position as the biggest copper mine producer in the
world and by 2016 may have a copper mine production capacity of around 6.5 Mt.
Although this will still represent an impressive 23% of the total world mine production
capacity, Chilean copper mine capacity might decline from 31% of world mine capacity in
2012 in the case of capacity plans be delivered in the rest of the word . Peru might overtake
the United States by 2015 as the country with the second largest copper mine capacity with
almost 3Mt by 2016 and 2.3Mt in the United States. Zambia and China are next in the
miners capacity plans with around 2Mt/yr and 1.7Mt/yr installed capacity, respectively,
followed by Australia, the Democratic Republic of Congo and Indonesia. The revival of
the mining industry in DRC might enable copper mine production capacity to around 1.8
Mt. In Mongolia, the major Oyu Tolgoi project and the Tsagaan Suvarga mine to start next
year will increase the countrys production from current to above 750 Kt/yr Cu. New mine
projects may boost Spain and Brazil copper mine production capacity to expected levels of
around 165 Kt/yr Cu and 740 Kt/yr Cu respectively.
Peru is expected to be the country with the fastest expansion in mine capacity with
over 1.6 Mt/yr of additional capacity, followed by Zambia and the DRC with increases of
770 Kt and 500 Kt respectively. Chilean copper concentrate capacity is expected to
increase by around 500kt but Chile SX-EW production will decline by 280 Kt due to the
anticipated closures and declines in production capacity levels of existing mines, so the net
increase in Chile mine capacity can be only around 270kt. Altogether, Peru, Zambia, DRC
and Chile are expected to bring 45% of the growth in the global mine production capacity.
The emerging demand for copper from China whose share of world refined copper
demand grew from 12% in 2000 to more than 40% in 2012, created growing interest in
start copper mining projects in countries that are not mining copper or that had small
outputs. Countries as Bolivia, Dominican Republic, Laos, Mauritania, Oman, Pakistan and
Saudi Arabia started to develop several copper mine projects the last decade. Copper mine
production capacity in these countries increased from zero in 2002 to around 300 Kt/yr of
copper in 2012, and it is expected that new mine projects will come into production in the
future such as the Reko Diq (200 Ktpy Cu) in Pakistan. By 2016, that total annual
aggregated copper mine production capacity might reach 600 Kt, of which around 85%
will be in the form of copper concentrates.
Some countries not producing any mined copper in 2012 might do so before 2016.
These countries are Afghanistan, Ecuador, Eritrea, Fiji, Greece, Israel, Kyrgyzstan,
Panama, Sudan and Thailand where some copper mines are foreseen to come on stream in
this decade and Angola, Albania, and Uganda where some copper projects are currently at
the exploration level. This group of countries copper mine production capacity could be
around 350 Kt Cu in 2016 or beyond, and with further project development, capacity might
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increase to 1.2 Mt copper in the next decade. Three countries are between the most
promising future copper mine producers of this group: Afghanistan, with the Aynak project
capacity between 200-400 Kt/yr Cu, Panama with the Cobre de Panama project currently
being developed with 290 Kt/yr Cu) and Ecuador with several projects including Mirador
60 Kt/yr Cu and Panantza with 180 Kt/yr Cu.
Similar to what happened in the oil industry mining companies are starting now to
look at possible offshore deep-sea minerals exploration. Seabed mining already occurs for
diamonds, gold and tin but at short distances from the shore and at shallow depths. Two
off-shore copper projects could be producing copper: the Clipperton Cu-Ni seafloor
nodules between Hawaii and Mexico the Solwara 1 project located at 1600 metres depth in
the Bismarck Sea, Papua New Guinea.

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COPPER SCRAP AND ALLOY SCRAP RECYCLING, TRADE AND USE

World Copper Scrap Use

One of the regular ICSG activities is the preparation of an annual copper
recyclables survey that attempts to produce regular statistics of copper scrap use by
country, measured in copper content. The copper scrap use statistics obtained from the
survey country by country using different statistical procedures in every country, are
presented to ICSG member countries once a year. Usually the numbers have a lag of two
years, because of the difficulties to get updated copper fabrication output numbers in
many developed countries. Current ICSG numbers available for members are for 2011,
and a forecast for 2012 is provided and then corrected the next year. The latest 2013
survey estimates a global use of scrap below 8.2 million tonnes for 2012 coming from
less than 3.6 million tonnes of copper in the scrap that came to smelters and was
converted in refined copper (secondary refined production) and over 4.7 million tonnes
of copper in the scrap that was directly melted in brass and wire mills, foundries and
ingot makers. These numbers reveal a 4% fall in the global use of copper in the scrap
used by the industry in 2011, after two years of growing scrap use: 2.4% in 2011 and
13.5% in 2010 after a shocking 13.7% contraction in scrap use in 2009 when the global
scrap use fell to mot much more than 7.4 million tonnes.

Historically about one third of the refined copper output comes from scrap, and
one third of copper scrap recovered is converted in refined copper and two thirds goes
directly to fabricators and other users as no- refined scrap or direct melt scrap. In
recent years we note that the scrap use is changing with more of the scrap collected going
to refineries and less scrap being melted directly, after a peak in direct melt observed in
2006 and 2007. The direct use of no- refined scrap fell in 2012 to levels not far of 4.7
million tonnes and probably lower as survey input is not fully available for Europe yet.

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Worldwide most of the scrap is being used in Asia, with China using 2.9 million
tonnes in 2012, Japan reducing its use at levels below 800 Kt a year, Korea unable to
achieve 500 Kt of copper in scrap use, and growing scrap uses in the Middle East well
over 200 Kt in recent years. Scrap use reported in India and the rest of Asia is around 400
Kt but lower to the pre crisis peak of 516 Kt in 2008. The European Union is the second
most important region using copper scrap, with scrap use volumes very volatile in 2009-
2011, but below 1.8 million tonnes a year, well below than the historic use of over 2.1
million tonnes a year in previous years. The Russian Federation was expected to use less
than 300 Kt for the first time in 2012, with historic use more close to 400 Kt a year in
previous years. The use of the scrap in the rest of Europe ex EU and Russia is just close
to 90 Kt per year.

The Americas are the third region with major use of scrap, close to 1.2 million
tonnes used in 2012, well below the peak of 1.54 million tonnes achieved in 2007. United
States is the main user in the region, but its use is no more than 800 Kt per year in both
2011 and 2012, after using much more than one million tonnes a year in 2007 and before.
Mexico is the other important regional user with a volatile use history around 200 Mt a
year in recent years, much higher than the 70 Kt used in Brazil in 2012, meanwhile the
Total Scrap Usage - Cu 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012E
Estimate
Americas 1,377 1,426 1,425 1,498 1,540 1,367 1,225 1,197 1,242 1,203
Brazil 29 45 58 73 77 59 53 70 74 70
Mexico 184 177 179 223 248 181 196 223 254 233
USA 1,043 1,067 1,053 1,072 1,020 944 858 784 801 794
Other America
1)
121 137 135 130 195 182 117 120 113 106
Asia 2,905 3,372 3,564 4,219 4,314 4,768 4,246 4,998 5,260 4,952
China 997 1,425 1,667 2,234 2,354 2,726 2,453 2,925 3,087 2,941
Japan 810 831 771 801 789 779 623 729 756 744
Korean Rep. 363 414 403 410 449 441 347 486 483 425
Taiwan (China) 233 235 234 228 197 130 182 266 253 227
Middle East
2)
181 152 160 208 173 176 177 195 241 237
Other Asia
3)
320 315 330 338 353 516 464 398 440 379
Europe 2,519 2,624 2,440 2,585 2,556 2,445 1,936 2,217 2,102 2,096
EU 27 2,173 2,192 1,971 2,040 2,027 1,954 1,462 1,726 1,677 1,741
Russian Federation 273 338 359 433 413 403 398 404 333 268
Other Europe
4)
73 93 110 112 116 88 76 88 91 87
Africa & Oceania
5)
42 37 37 25 29 24 23 24 33 41
World / Total Scrap Use 6,848 7,464 7,475 8,332 8,448 8,611 7,435 8,442 8,643 8,298
Scrap use Annual Growth -2.7% 9.0% 0.1% 11.5% 1.4% 1.9% -13.7% 13.5% 2.4% -4.0%
Secondary refined production 1,786 2,069 2,161 2,613 2,738 2,823 2,841 3,250 3,470 3,572
Cu content of Direct Melt 5,062 5,394 5,314 5,719 5,710 5,788 4,594 5,192 5,173 4,726
Refined Usage 15,717 16,838 16,674 17,034 18,196 18,053 18,070 19,346 19,830 20,509
Total copper usage 20,779 22,232 21,988 22,753 23,906 23,841 22,664 24,538 25,003 25,235
Recycling Input Rate (RIR) 33.0% 33.6% 34.0% 36.6% 35.3% 36.1% 32.8% 34.4% 34.6% 32.9%
Coverage surveyed countries 65.9% 71.9% 55.7% 52.4% 54.4% 54.3% 52.0% 49.4% 49.7% n/a
1) Argentina, Canada, Chile, Colombia, Ecuador, Peru, Venezuela
2) Iran, Oman, Saudi Arabia, Turkey, United Arab Emirates
3) India, Indonesia, Kazakhstan, Malaysia, Philippines, Thailand, Uzbekistan, Vietnam
4) Norway, Serbia & Montenegro, Switzerland, Ukraine
5) Australia, Egypt, New Zealand, South Af rica, Zambia, Zimbabwe
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scrap use in the rest of the countries of the region is around 100 Kt a year. Africa and
Oceania are marginal scrap users with a total historic use below 40 Kt in previous years,
but a recent expansion from low volumes.

World Scrap Supply and Recycling Efficiency. The copper scrap recycling
industry has demonstrated much greater flexibility to adapt their collection and
processing flows to the needs of the industry using copper than mine producers, whose
production cutbacks create significant economic, political and social problems. In years
of high prices in the period 2002-2012 scrap supply occupied a key role to provide much
needed additional copper to industrial users, in particular to smelters and refineries,
driven by increases in the refined copper prices. But when prices fell as in 2009 and in
2012 the scrap availability quickly collapsed with a consequence in the use of copper
scrap.

When the copper market is oversupplied, hopes are put in the speed of scrap
recyclers to reduce their volumes and sustain the prices, and when the demand for copper
is high hopes are that much more copper will come from the recycling industry, and in
some small extent this hopes have been met by scrap recyclers and traders. Nevertheless,
is the profit margin instead of the refined copper price the main driver of the scrap
business, so the recyclers and scrap traders maximize profits hoarding scrap when the
price is going up, and they tend to get rid of their stocks of scrap when prices start
falling, so not all of them contribute to the stability of the whole copper market as
expected. Large scrap traders holding their expensive scrap stocks when prices were still
high in early 2011 is one recent example, same as scrap being sold in the first half of
2013 when prices were dropping quickly is another example that scrap traders can
behave less contra-cyclically than expected in text books.

Hopes of much higher recycling efficiency are usually mentioned in periods of
mine supply shortages, and decades ago studies had concluded that 100% efficiency in
old scrap collection and treatment may allow scrap to supply up to 75% of copper use,
well beyond that the peak 37% scrap use on total copper use observed in the last 60
years. But most of these expectations ends with a period of copper mine overcapacity
that makes the scrap recycling business less profitable than expected. Environmental
factors related to sulphur and heavy metals emissions in primary smelters are starting to
play a role: a recent ICSG survey to scrap smelters in China found that the main reason
to invest in copper scrap smelters was that the Environmental Impact Assessment was
much more easily approved than for those projects using copper mines concentrate. The
lower value paid by the Chinese importers in 2012 and in the first half of 2013 impacted
scrap exporters in the United States, Germany, the United Kingdom, the Netherlands and
Belgium where the exports of copper and alloy scrap are falling. More exports from
Japan, France and Italy did not compensate the fall in the main exporters. In consequence
the contraction in the global scrap supply associated to lower copper prices in 2212 was
close to 4% and looks to be more severe in 2013, with the European Union exporting not
more than one million tonnes of scrap, mainly alloys with a very low copper content
close to 33% of the total volume.
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Copper Scrap Use in China. Around 3 million tonnes of copper of the around 8
million tonnes of copper in the scrap used worldwide was used in China in 2011 and less
in 2012. Most of the recycled copper use is related to scrap smelted and refined in China:
officially 1.88 million tonnes of secondary refined copper production in 2012. The
remaining 1.1 million tonnes are being used in copper wire rod production (400 Kt in
2013) and mainly in brass mill and foundry production, estimated around 700 Kt in 2012.
ICSG has been regularly surveying 90% of China scrap smelter and refinery output,
including 28 smelters with ~3.1 Mt/year of scrap processing capacity and 24 refineries
with a processing capacity over 2.8 Mt/year. We found that 24 scrap smelters included in
the survey are integrated with refineries, 4 smelters send blister/anode to the owner
company for refining and 13 smelters are State Owned or SOE majority owned
companies. For 2013-2015, the survey found 1.2 Mt of new secondary smelter capacity
in 7 new smelters, 3 of them to be operational in 2013. The survey revealed that the
capacity utilization of the Chinese smelters processing scrap was very low and close to
53% in 2012, meanwhile the main reason to invest in a secondary smelter now is that the
EIA approval is easier to obtain versus the EIA approval for a smelter operating with
concentrate and ores. The average copper content of the scrap was 90-94%, well below
the EU-27 end of waste legislation, allowing only scrap over 98% copper to be traded
without restrictions. The tight copper scrap balance observed in China in the period
2009-2012 coincided with direct melt scrap being replaced by cathode by Chinese wire
rod plants and by other fabricators.

The speed of the Chinese demand for scrap is slowing in recent years: less than
400 Kt of copper in the scrap used to produce wire rod in China and the use of scrap in
brass mills fell around 11% last year in China, so the Chinese copper scrap demand is
having a very volatile time in recent years and spreading industrial overcapacity
problems are moving from copper fabricators to scrap smelters now. Eventually the
demand for copper and alloy scrap in China will recover, driven by a more sustainable
medium-term growth, but it may test the tolerance for the ongoing cyclical downturn in
2014. The availability of scrap may be competing with more copper mine concentrates
and ores available for Chinese copper smelters, if miners deliver as they promised in
2013-2014, so we are living volatile times for the Chinese demand for copper and copper
alloy scrap but a sustained expansion is expected beyond 2015.

Scrap Shortages and Industrial Demand. The main driver of the copper and
copper alloy scrap use is a high refined copper price, so if the main factor restricting the
international trade of copper has been a weaker copper price in 2012 and 2013 and no
significant governments-imposed barriers. Scrap smelting and refining capacity continue
to rise in China in 2013, but high scrap smelter capacity utilization is unlikely to continue
growing: it was around 53% for scrap smelters in 2012, higher in refineries but below
64% in refineries last year.

China has been increasing dramatically their copper scrap smelting and refining
capacity in recent years, and plans are for copper scrap to be 40% of China refined
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production in 2015. The objective of top 10 copper scrap smelters output to be 50% of
China scrap smelter output in 2015 is an ambitious challenge, same as to have 80% of the
copper scrap smelter capacity in major Chinese industrial zones, but is not impossible to
achieve. China is working towards 6-8 new/expansions of copper scrap smelters with 200
kt/y capacity each, 10 new scrap smelters 50-100kt/y each in north, northeast, center and
the Yellow River delta and 2 projects with capacity of 50kt/y each in Northwest China.

Plant managers say that the main reason to invest in scrap smelters in China now
is because the EIA approval is easier for a scrap smelter versus a smelter running on high
sulphur/arsenic, etc copper concentrate smelter, but scrap is getting harder to find. There
is more capacity in the West: a new wire rod plant running on scrap in the USA, a new
scrap smelter operational in Sweden, the Poland copper industry is planning a scrap
smelter now, so it will not be not easy to the China or to any fabricator or smelter to get
low cost copper and alloy scrap to feed their expansion plans. We observe scrap smelters
closing operations because there was not much scrap available in China and also outside
China in the first half of 2013.

In 2013 the Chinese demand for copper concentrate, not the demand for scrap,
has been driving the Chinese and therefore the global copper demand, as miners are
delivering more metal and the scrap supply remains tight. Even when the scrap yards
claims that is not because they are stocking and waiting for better copper prices, We
would like to have some regular statistics coming from the scrap recycling industry, to
report how is the supply side of copper and copper alloy scrap yards is doing monthly.
This information would help to provide the limited scrap market transparency and reduce
uncertainty in this commodity and in its relation with concentrate and refined copper. As
we do not have scrap stocks data we need to look at the spreads between scrap and
refined copper, and they tell us that the global scrap market has been tightening in 2011-
2013 in the USA, the EU and of course in China.

Copper Scrap Trade Barriers. Copper and copper alloy scrap is a very global and
competitive market with spreads slightly higher in the USA because there is more supply,
and very tight in China because there is less domestic and imported supply. Trade
barriers exist as for example in the Russian Federation exports of scrap: close to zero
exports because the export tax makes them impossible. But they will dismantle the
barriers in 2015 as part of their accession to the WTO and many Russian scrap traders
finally will make money, and Russia will collect more taxes than now for scrap trade.
Usually scrap trade barriers are temporary in countries with industrial demand for
copper, and motivated for efforts to control illegal trade as stolen scrap, hazardous
materials and pollution control so these efforts are positive regulatory aspects.

What is a big concern is the case of scrap exporting countries setting barriers to
the international trade of copper scrap. Historically scrap was not allowed to be exported
from the USA in part of the last century, mainly in war times from WWII, the Korean
War and after the Vietnam war so is not a new development. Now there are established
WTO mechanisms to solve these issues. But history shows that a sustainable free trade
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system for recycled copper creates more jobs, income and happiness than trade
restrictions, and would be bad to see the profitable copper recycling industry in the
developed economies affected by trade restrictions. But it happened before and now new
import taxes are being imposes to copper scrap for example in India in 2013, so it can
happen anytime, and if it happens again there will be also a clear winner that will profit
and will pay taxes on it, the global copper mining industry.

GLOBAL COPPER MARKET BALANCE AND STOCKHOLDING

Industrial demand for refined copper and demand for refined copper are two
separate variables that usually are equal only when the copper market is very quiet, but
tend to behave on their own when markets are volatile. So the annual changes in the
stocks of refined copper tend to affect the market more than the simple relation between
stocks and prices can explain. If we add buyers and sellers of this commodity in periods
of lack of confidence in the currencies, and we add that the main users of copper are not
trading this in dollars but in Chinese currency, we have one more reason for volatility in
the stocks of refined copper. If we also consider that the stocks reported by ICSG are a
sample of the real stocks moving between countries we can be cautious to utilize refined
stock data to explain the behaviour of the market.

The closely monitored numbers of ICSG demand for refined copper are including
demand for industrial uses and demand for stocks in many countries, but whatever the
destiny of the measured demand the tightness of the global refined copper balance,
measured by ICSG regularly, has explained most of the volatility in the refined copper
price in the last 40 years, without much role for speculators or unreported stocks driving
the refined copper prices reported by the LME. Between 1974 and 2012, every time that
ICSG has reported a refined copper market deficit, the LME price of refined copper has
increased proportionally to the deficit size. A similar behavior is observed when ICSG
has measured a surplus in most of the years the price of copper tends to be lower than the
previous year and only in 3 years revealed small increases. So in general the LME price
has been a good guide of the tightness in the refined copper market, whatever the reason
of the global balance outcome.

There is one year where the relation between refined balance and price changes
was broken, and this critical year was 2006, where the LME price increased over 80%
and a small surplus (<200 Kt) was registered. According to ICSG statistics, this year was
an increase in copper mine supply and China reduced dramatically their imports as a
consequence of the price hike, so is probable that this was the only year where copper
was not driven by the supply/demand balance but by other factor as for example stock
management skills by traders to reduce market availability. The lesson of this year was
that at any time there must be sufficient supplies available to meet demand, a lesson that
has been driving the Chinese demand for copper in subsequent years and probably in the
future. Instead of seeking to convert liquid dollar reserves in gold to hedge against an
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inflating world economy, some countries are realizing that value can be retained using
commodities as reserve instruments. If any country keep accumulating their excess
supplies of minerals and metals along the global industrial cycle this effort will not only
insulate this nation from emergency conditions but it provides time to prepare for the
kind of economy that can achieve 20 or 30 years from now.

If we add the Chinese copper mine production and the best estimates of copper
content in domestic scrap recycling in China we see that de domestic supply of copper is
achieving over 2.6 million tonnes a year. If we add copper content in the imports of
scrap, imports of refined, concentrate, fabricated products, blister and ingots, and we
discount all the Chinese exports of the mentioned raw materials in recent years we
observe that the copper available in China has been growing probably faster than the
industrial use of copper. In consequence the difference reveals a potential increase of
stocks of copper across the value chain. This oversupply of copper not necessarily will be
available at once a particular year, and the volumes of industrial use of copper reveal that
most of the copper that came to China is part of the stock of copper in use instead of
stocks kept in warehouses.

With copper mine production historically skewed towards Latin America and
Africa, and with China as the single largest country using copper, the price of refined
copper is actually set on exchange floors, often by a host of traders with limited
information about the physical copper markets. Some of the key factors considered by
these traders are the arbitrages between exchange prices and physical transactions,
spreads and open interests in copper futures and options, inventory changes, price
volatility, macroeconomic data and feedstock data on ores, scrap and blister.

The reliance on supply constrained, event-prone developing economies, and the
less than visible scrap, blister and concentrates markets as sources of information create
asymmetry and fragmented information for the traders. Strong sovereign interest and
historical store of value are factors adding to volatility. Unlike zinc, lead and aluminium,
copper smelters credit free operation gives a higher role for traders, so the copper
markets are far from perfectly efficient, with information heavily skewed towards
industry participants on the demand side, where the metals industry is characterised by
insider organisations and a fragmented fabrication base, that makes it difficult for
observers to know the true state of consumption, so forecasts by traders, analysts and
investors are often based on inaccurate or incomplete information.

The main factor driving copper price discovery is expected to be the net addition
to above ground inventory, however this measure is not appropriate if there is no limited
capacity to store and/or to fund inventory, if the exchanges are not the warehouses of
last resort. With more pure paper players that holds commodity exposure for reasons
unrelated to the industry itself and with the expansion of commodities as an asset class,
the copper price discovery process has been complicated.

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ICSG World Refined Copper Balance and
LME Refined Price Annual Growth 1974-2012
-60.0%
-40.0%
-20.0%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
-1,000 -800 -600 -400 -200 0 200 400 600 800 1,000
ICSG Refined Copper Balance in Tonnes
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ICSG only reports a part of the stocks of refined copper and no stocks of other
raw materials as scrap, blister and concentrate are reported. ICSG reports a part of stocks
from producers, merchants and governments but the strategic stockpiles are not
considered in the reported volume of refined copper. Even with these information
restrictions, the reported stock of refined copper is expected to be a sample of the real
stocks and their changes, but not always works like a representative sample. Stockpiling
gluts in transit are not closely tracked, and one example was 2012 when around 800 Kt of
refined copper was reported to remain in Shanghai bonded warehouses, but was not part
of ICSG statistics. The control of warehouses by financial institutions aligns the interest
of non commercial traders and owners of physical exchange traded funds with the
interest of the warehousing business: when big traders have the majority of metal in their
own warehouses, and the back out of this metal is constrained by exchange rules, the
industrial users of copper express more concern. Industry concerns on LME warehousing
volumes unrelated to the normal industrial supply and demand of refined copper had
been recognized by the exchanges.

According to LME representatives, governments have delegated responsibility
with dealing with the aftermath of the financial crisis to central bankers. Central banks
have made money available very cheaply and some of it has ended up financing metal in
LME warehouses in recent years. Low nominal interest rates, improved access to capital
by traders and their agents, surplus markets, along with loose LME warehousing
arrangements, have allowed warehouses to become the marginal users of metal. Holding
this metal is testing the exchanges liquidity. The LME/SHME price arbitrage isnt as
powerful a signal as it used to be as Chinas exchange inventory, included bonded refined
stocks, became over one million tonnes because the global market of refined copper was in an
effective surplus in 2012. LME copper moved to China because of cheaper rent, because it
suited LME trade positioning and to replace some lost tonnages due to disruptions.
ICSG Reported Stocks of Cathode by Source (Kt).
Shanghai Bonded Stocks Not Included
0
200
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2010 2011 2012
Government Merchants Consumers Exchanges Producers
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Meanwhile Chinese stakeholders sought the metal as collateral for a variety of financing
trades, including obtain cheaper funding and to place funds offshore. If China monetary
policy is more relaxed and if the capital accounts is liberalised, the need to use copper and
other metals as collateral will be reduced, but the qualities of copper as store of value
may remain for long time. If China liquidity remains constrained in coming years, the
collateral refined copper demand may survive for long time.

REGULATORY DEVELOPMENTS AFFECTING THE GLOBAL
COPPER INDUSTRY

Every year the ICSG produces a survey of the key regulatory developments
affecting the copper market. The regulatory developments are presented for different
regions of the world. In the 2012 edition we observed some regulatory issues at the
multilateral level, ranging from UN related negotiations as mercury emissions, scrap
pollution controls, marine transport regulations, WTO trade investigations, and proposals
to increase mining taxes.

In China we observed regulation related issues affecting the value chain in the
Chinese copper industry: strategic industries selected to be developed by the State in the
5 years plan are copper intensive. We observe new sector-specific subsidies and tax
reductions to industrial inputs, energy efficient household appliances, small metal
business, affordable housing, rural construction and more efforts to control recycled
copper imports and to consolidate the domestic scrap generation industry. We observed
controlled energy cost increases to metal industries in China, and more strict tax controls
on foreign investments, antidumping actions at the WTO and advances to develop a
Chinese deep sea mining industry. New air and water industrial emission limits are
effective in China this year, with efforts to research soil pollution impacts of the non
ferrous industry. New announcements had been published on the closure of some old
technology and high emissions metallurgy plants including copper smelters and
fabricators. We reported on the London Metal Exchange (LME) acquisition by Hong
Kong Exchanges and Clearing. This decision may have important impacts as LME
activities are moving fast to Hong Kong and a more competitive exchange dynamics is
surging between LME and SHFE in Eastern China ports.

Meanwhile in Europe the European Market Infrastructure Regulation ESMA-
has the mission to enhance the protection of investors and reinforce stable and well-
functioning financial markets in the European Union, but in fact it will be penalising the
ones who require the most protection, albeit inadvertently. For the metals industry this is
especially concerning given that none of the excesses that gave rise to the financial crisis
occurred in the non ferrous market. In response to the justifiable outcry against the
practices against credit default swaps, trading in all swaps is being restricted. So, OTC
metal swaps which form a crucial part of keeping smelters running or just-in-time
delivery chains are now a target for regulators. As a consequence European refined
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copper users may need to finance higher stocks. According to the LME, the European
Market Infrastructure Regulation or EMIR will increase costs, so regulations intended to
increase stability in financial markets may contribute to increase copper prices volatility.

Blanket restrictions on all markets, imposed by European and US governments,
are punishing regulated commodities markets like the LME. EMIR in Europe and the
Dodd Frank Act in the USA will make more expensive to trade and for some, perhaps,
too expensive. Regulations will affect how business is done, traditional products will no
longer be offered, and users will be fewer. EMIR itself does not impose obligations on
the LME; it instead targets customers and brokers. Among the key market changes: every
derivative and OTC in Europe will have to be reported to what are called Trade
Repositories, giant databases of trading data to be overseen by the new regulator in
Europe called ESMA, the European Securities and Markets Authority. Clearing members
of the LME (brokers) will segregate proprietary business from client business with non-
segregated accounts no longer permitted: costs may rise and free credit lines may no
longer be offered to small industrial players. Customers buy or sell metal on a monthly
average and hedge this risk with a broker. EMIR and DFA require that if these contracts
are standard: they must be cleared so long as there are clearing houses able to accept such
trades. The LME will need to make expensive systems changes to facilitate the required
changes to members business. The LME is exploring ways to make the process of
compliance with the new laws easier for members.

The regulatory environment in Africa is changing fast with ongoing
developments mainly in Zambia, the Democratic Republic of Congo and South Africa. In
the case of Zambia government efforts to improve accountability and tax compliance in
the copper industry, new export regulations for copper raw materials including royalty
increases are observed, meanwhile the Democratic Republic of Congo mining code may
include government ownership limits, tax regime, VAT tax law impacts, role for local
communities, institutional developments, all under the IMF advisory role to the sector. A
new ban on the export of copper and cobalt concentrates in DRC is being rejected by
Katanga region, as there is not enough power for smelting at large scale, so DRC efforts
to reduce electric supply constraints affecting investment plans are key for future mine
expansion: the recent US African Power initiative may contribute to the industry supply
expansion.

In South America the financing of State Owned Codelcos investment plan
supported by Ministry of Finance transfers and debt emission is one of the key topics,
same as the implementation of new sulphur and heavy metal emissions in Chile smelters
and new coal power plant projects. Sea transport rules related to concentrate
implemented via the International maritime Organization remains an issue for South
America concentrate export costs. In Brazil the higher royalties and the weakening macro
situation are challenging a higher copper use, meanwhile Colombia definition of strategic
areas for mineral exploration and development, and the low mining royalties approved in
Ecuador regulation may attract investment, at least from the region. The redesign of
Cuban institutions for mining and metal management is an advance; meanwhile efforts of
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Argentina to promote local business links with large mining projects are to be tested by
reality.

In South East Asia, the value added efforts to produce more refined metal in
Indonesia are notorious, the 2012 law to improve mining industry value added and the
limits to foreign ownerships are under implementation, same as the mineral ore export
ban and some smelter capacity projects, but the profitability of these investments is
questioned by US miners operating in Indonesia. The Philippines Executive Order to
ensure utilization of mineral resources and environmental protection are followed by
administrative orders to implement the new regulations for mining in the Philippines.
The first Myanmar Mining Summit 2012 revealed a vast potential for exploration. Indias
process to implement new royalties and include local communities in the benefits of tax
laws remains a challenge. The progressive refined copper exports duty introduced in
2012 for the Russian Federation may be recovering less than expected, meanwhile
Russian copper scrap recyclers organize in new association to comply with the
implementations of WTO rules. In Mongolia we observe a ban of new special mining
licenses for 5 years, meanwhile advances of the Afghanistan Ministry of Mines to
develop a business plan and new mineral regulation need to field implementation of risk
prone investors.

In Australia we observed new mining taxation affecting mainly energy generation
and a new carbon emissions tax; and a review of Western Australia royalties effective
2013. In the United States we observed legislation efforts to avoid copper mining
projects being indefinitely delayed by lawsuits, also some State approvals of copper
fabrication plants, advances in the discussion of the Strategic and Critical Minerals
Production Act and the implementation of the Conflict Minerals Act. We reported new
US regulations related to trade, as import tariffs raised for some copper intensive
manufactured imports as wind power turbines and solar panels imports, and also some
import tariffs on auto parts. Copper futures regulators are strengthening enforcement
capacities and targeting high frequency trade to implement a stricter regulatory
environment affecting investment demand for copper; as well as regulations approving
trading of physical copper ETFs. New EPA greenhouse emission controls may also affect
manufacturers. In the United Kingdom we observe that the Metal Theft Bill proposed by
the government was rejected

The Free Trade Agreement (FTA) signed between the European Union and the
Korean Republic, one of the most copper intensive economies of the world may increase
the competitiveness of copper users. EU new rules on telecommunication network access
limiting copper network replacement by fibber optics are reported, and also the EU
digital agenda has consequences on copper use. Recent proposals for an EU resource
efficiency roadmap and potential resource use taxes and other policy options are
expected to be implemented in Europe in 2013-2014. The European Union anti dumping
investigation on imported solar panels and the new copper mining tax in Poland are
factors affecting usage. The new Waste Electric and Electronic Directive (WEEE-2)
include provisions affecting copper recycling that may increase copper scrap availability
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in Europe in coming years. The EU proposal for guidelines on infrastructure investment
in Europe may increase the use of copper in the region.

ROLE OF THE INDUSTRY AND THE STATE IN THE COPPER
MARKET

The exact size of the private and public sector in the globalized copper mining,
smelting and refining industry has not been subject of a detailed attention by the analysts,
even when the information is available, so this is an area of research to be explored in the
future. What we can recognize is that countries with more mineral wealth are obviously
better positioned to transform this natural wealth in human and financial capital versus
those countries that do not have identified mineral resources. But is clear that this
situation can change with exploration, in particular in areas of the world where the
security conditions show improvement and there is less conflict.

There is an extensive bibliography and regular surveys, usually linked to the
country risk analysis think tanks that study where the capital for new copper mines and
plants capacity is going and why. Usually the development of local institutions is one
factor affecting the allocation of capital to the copper industry. Capital resources to invest
in the copper industry had been usually in short supply in recent decades, particularly
after the credit crisis started in 2008. ICSG has been working on the relation between
regulation and capital investment in the copper industry with consultants in recent years,
and a well known fact has been proved once more in this research: capital goes where the
best copper mines are located, and not necessarily where the best regulation is. But if you
have a country with very good geology and miner-friendly institutions, for sure you will
find a copper mine there. In the other extreme are countries where there is no evidence of
important mineral resources and less developed human resources and public institutions.
In consequence, discounting the existence of copper in a country or region, probably the
human factor is the key factor to explain how governments and the copper industry
behave and interact across different countries.

As financial capital, also the human capital in the form of skills to run big and
profitable copper mining, smelting and refining operations, had been most of the time in
short supply in the past decades and across the world. So to attract the best talent and
skills, payment has to be good enough to reflect the productivity added, with no
repatriation restrictions, plus a certain minimum levels of personal security and working
environment standards. The best human resources with knowledge and experience
usually do not go to operations with old technology, backward machinery or heavily
polluted operations, except for clean up projects. So one critical factor is to have rich
mineral resources in the country, but without capital and industry specific human capital
a country will not host a profitable copper mining industry.

The role of the state in the copper industry is an outcome of the interaction
between mineral resources, human and financial capital in an increasingly interdependent
world. Accelerated globalization and cross border trade has allowed a faster movement
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and interaction of capital and skills to places where the mineral copper wealth is located,
and is also changing the relation between local institutions and local and foreign copper
producers. The governmental institutions in charge of minerals and metal policies are
facing the challenge of developing their upstream copper industries more like a
collective creation of public and private efforts to attract the interest of scarce capital
resources to their projects, than as a conflict between capital rich foreign corporations
and less developed human resources. Nevertheless this trend is not evenly distributed
across the world, and is evident that countries with lower incomes per capita and mineral
resources are moving fast to increase the domestic value added of their copper industries
via export restrictions of lower value added commodities as copper ore, concentrate and
eventually scrap. This is not an unexpected development as a follow up of the trade
policy model for industrial raw materials in industrialized economies decades ago.

Instead of disruptive expropriation without agreed compensation, as observed in
the past in this industry, the current trend to restrained economic nationalism focused in
more local value added, is observed in the mineral policy of less developed and mineral
rich economies. This pattern has been a consequence of the globalization of human and
capital resources with two examples in the case of Indonesia and the Democratic
Republic of Congo in recent years. When the local mining, smelting and/or refining
industry of copper acquire more local technical skills, more local management expertise
and the government start accumulating more capital, the need of having long term
agreements with foreign corporations to develop their copper resources starts to be less
evident, and pressures to take a majority holdings of the local mineral resources are
revealed. Partnerships between foreign investors and governments are probably more the
rule than the exception in many copper mine related investments in recent years, not only
with private foreign investment companies but also with State owned corporation, in
particular when bilateral agreements on investment protection agreements had been
achieved, as is the case of Chile and Peru with a long number of foreign copper
producers in the last decade.

Globalization of copper end use will continue shaping the upstream side of the
copper industry. Now the copper industry is a provider of raw materials for fabricated
products that are part of a global network of supply chains, producing goods in a few
locations from where these products are distributed worldwide. Regional monopolies
associated to specific fabricated products used by clusters of manufacturers protected
from external competition, had seen their profits squeezed by competition of lower costs
end products. The outcome has been the emigration of the industrial chains including
manufacturers and fabricators to places with friendly currencies, lower energy and labour
costs and more openness to trade.

The copper mining industry, private and State owned, has the responsibility to
meet this long term growth in copper demand and to avoid any global shortage of copper
availability assuming technical, economic and political risks. But governments are
equally responsible to cooperate with the copper industry to reduce those risks, providing
respect to the contracts agreed, keeping the right amount of control on industrial
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operations to protect public goods as health and environment, and specially helping to
ease constraints to the flow of cross border human and financial capital flowing across
the global copper industry value chain.

The Copper Market in 2013

After the financial crisis of 2008-2009 the global demand for copper experienced
a volatile episode with increasing but volatile demand driven not only by expanding
Chinese use, but also by high credit volumes driving up the Chinese demand for stocks of
refined copper.

After two periods of Chinese stocking of refined copper in 2009 and in 2011-
2012, the Chinese demand for refined copper has been falling in 2013, but the fall has
been compensated in part by commercial operations of warehouses owned by financial
institutions ex-China and by investment demand for cathode to fund collateral credit
operations between Chinese private economic groups, after the adjustment of the
inflationary credit oversupply in China in 2009-2011. At the same time, an increasing
copper ore supply, based in significant mine capacity expansion investments funded in
2011-2012, allowed the copper industry in China to reduce their need for recycled copper
inputs in 2013, and to expand the domestic production of refined copper, based mainly
on imported and domestic copper ores. With over 3 million tonnes not going to industrial
uses in China it does not means that those stocks will be available for the industry, as part
remains as collateral for loans, part remains stocked for strategic reasons and part has
been stocked by companies and individuals as savings with the hope of outperform yield
of bank deposits. Meanwhile in 2013 the falling LME refined copper price is the main
global constraint to generate more supply of copper and copper alloy scrap in 2013, and
the limited supply of copper and alloy scrap in Europe is a consequence of the austere
fiscal policies of 2012 in most of Europe, that set a limit to the global trade of recycled
copper raw materials in 2013.

In recent years the price - elastic supply of copper scrap was not enough to
compensate failing mine capacity utilization rates, limited funding for copper mining
projects, and an increasing investment demand for copper in recent years. A non -
industrial demand for refined copper was driven in part by financial institutions
controlling most of the global warehousing infrastructure, in part by strategic stockpiling,
and in part by commodity trading corporations. Trading houses obtained profits from
arbitraging limited refined copper stocks with an increasing Chinese investment demand,
sustained by fast growing use of refined and scrap copper in industrial copper products as
wire rod, copper semis and brass mill products to sustain China increasing industrial
activity.

With Chinese endemic copper demand shortage problem solved by more copper
concentrates supply in 2013, the increasing premiums over the LME refined copper
prices offered by warehouse owners finally attracted the attention of regulators in USA
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and in the EU in 2013, so significant changes may be ahead in the area of warehousing
ownership. As observed in 1974-2012, the scarcity of refined copper remains the main
driver of copper price volatility in the exchanges, even when official public statistics on
the copper market does not allow us distinguish the demand for copper for industrial uses
from the demand for copper for more speculative actors. Nevertheless direct surveys to
different industry actors implemented by ICSG in recent years (fabricators, smelters,
scrap traders) allow us to conclude that the global industrial demand for copper has been
growing below the global demand for refined copper, and well below official fabrication
statistics in some key developing countries using copper in recent years. More direct
surveys are needed in order to improve and update the global copper data reporting
system.

The future of the demand for copper remains tied not only to the long term
expansion of the global industrial production, to be driven mainly by urbanization of
developing economies, but also to the cost of capital. Copper mine and warehousing
ownership played a safer store of value for wealth and for savings than most of
currencies and deposits in financial institutions in recent years. If the savings of the
public are not rewarded in real terms, no regulation will avoid that those savings be
invested in copper mines or stored in non ferrous metal warehouses. Exchanges unable to
reveal the real value of copper and other metals will be replaced by more efficient
institutions, or reallocated to locations where the scarcity of the physical copper be
rewarded proportionally.

Looking Into The Future of the Copper Market

Past attempts to produce medium and long term forecasts of the evolution of the
copper market are not famous for their accuracy. The United Nations Study Copper:
The Next Fifteen Years, published in 1979, predicted correctly a conservative global
expansion of secondary copper output in the 1980s, but overestimated the global demand
for refined copper in this decade. The World Bank Study on the World Copper Industry,
published in 1987, in the middle of a period of global oversupply, produced pessimistic
forecasts for the copper market in the 1990s and under estimated the mine production
expansion observed in the decade of the 1990s. Another World Bank study An
Econometric Analysis of the World Copper Market published in 1987, overestimated
the importance of fibber optics substitution and predicted a global fall in copper use for
the 1990s, same as an excessive global copper mine capacity in this decade. None of the
three studies devoted a chapter to the expansion of the Chinese copper demand in their
forecasting horizons. In consequence if someone needs to forecast the copper market is
better forecast it very often: ICSG produce next year refined supply and demand
forecasts twice a year.

The statistics on industrial use of copper are not showing an increased appetite for
copper everywhere except in China and in a few oil producing economies in the recent
five years. Historic copper users as Germany, USA and Japan are using much less copper
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than 5 years ago. The new Chinese authority has put priorities on tackling their structural
problems and this policy change is creating volatility. But every year ICSG updates twice
a survey with all copper mine capacity projects in the world, and every year in the last 5
years we observed mining projects being delayed for the future for different reasons,
mainly lack of financial resources. This year we observe around 2 million tonnes in new
mine capacity expected to enter in the production pipeline in 2013-2014. From this total,
probably over a million tonnes will be copper content in the market at the end of 2014,
but at the same time 500 Kt in old mine capacity is being put out of operations because
the mines are old. A number the big mine capacity expansion has been delayed once
more, this time by top private mining corporations delaying some important mega-
projects. So the new capacity is mainly replacing aging mines and the net supply
expansion may be is not so massive beyond 2015, when the mine supply might tighten
again and we might see the need of much more scrap to be recycled and traded
internationally.

The world demand for refined copper per capita is approaching 3 kg per person in
this decade (2.94 kg/person in 2012), well over the 1.9 Kg per person achieved in 1974.
This long term growth is well over 50%, but well below the global population growth
growing over 70%, so is clear that of there is economic growth there will be significant
world demand for copper in the future, in particular looking at the fast population and
economic growth in developing regions in Africa and South East Asia. Meanwhile
slowing population growth in the OECD countries and in China is not expected to reduce
the demand for copper dramatically in the long term.

In the last ten years the market has been driven by the relocation of industrial
output to China and the Chinese urbanization and a limited but proportional supply
response of miners and recyclers, so is difficult to expect a future global copper
oversupply as observed in the world in the 1980s and 1990s without a significant
slowdown of the Chinese economy.

In the exception that a financial crisis affect China and discounting a large
government of bank debt default in a developed economy, the need of inputs to produce
refined copper and the use of scrap in fabricated products will be a function of three
factors: emerging economies urbanization and industrialization, the global credit
conditions and the new electric and electronic uses of copper worldwide. With more than
500 million people still in the rural areas of China, almost 300 million people with no
electricity in India and many more millions of people improving their standards of living
across central Africa and the rest of ASEAN, copper miners and recyclers with a long
term perspective may survive and profit any cyclical slowdown driven by over-indebted
financial systems and governments.

The main challenge for the industry is how to survive the ongoing transformation
of the public sector and the financial sectors in the developed world and the return to
profitable times in the State Owned Corporate sector in China, in particular the role of
private wire rod and brass mill producers, and the transition from a State Owned industry
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to one owned by the local householders as happened in many industrializing economies
with higher income per capita. A challenge for the copper demand is how China
authorities will face the structural problems of an exporting manufacturer economy with
a falling export demand and overcapacity in their metal transformation industry. China
may help to recover external demand for copper at the same time that supports more
domestic demand, but not so much to lose control to domestic inflation: sustainable
growth in China and elsewhere is the key for the healthy development of the global
copper industry.

In relation to the role of investors in the copper market, in the LME week of 1973
Mr. Mac.Gregor, Chairman of AMAX Inc. said something that deserves to be
remembered when we try to look at the future of the copper market speculative actors:
Instead of seeking to convert liquid dollar reserves into reserve supports such as gold
or Special Drawing Rights, should we not perhaps use other commodities as reserve
instruments to form a kind of world commodity bank? If my forecasts are true, these
commodity reserves will have many of the characteristics of monetary reserves; they will
retain their value in the face of an inflating world economy. Perhaps members of the
OECD should now anticipate the next downturn of the world economic cycle and
prepare during that period to invest the liquidity they have achieved in acquiring
reserves of minerals from the less developed producing countries and even from the USA,
to be held by a fund controlled by the OECD and producers.

Forty years after a volatile market time, the increase in the value of copper, well
above average production cost in the last 40 years, is an evidence that Mr. MacGregor
forecast was finally correct, and even when OECD didnt followed his advice, the
fortunate investors in the copper mining, in the copper recycling industry and even non
commercial investors in copper did very well, and probably the next 40 years they will
do even better, even with the market volatility, driven by excess of demand and
temporary oversupply episodes in the copper market. Instead of the creation of a
commodity bank, the private sector, including pension funds and financial institutions
clients from Shanghai to London had been long term investors in the copper market, and
in part for the same reasons, the strategic stockpiles and their bureaus in some developing
economies continue actively involved in the copper market, in particular during
downturns in the industrial demand for copper, even when is far from fully accounted in
ICSG statistics.

The future of the copper recycling industry is the last factor to consider in the
outlook. There are many ways to increase recycling and facilitate international trade.
Unfortunately there are much ways to reduce the international trade of recycled metals.
Legislations are a function of the will of the authorities of each region to increase or to
reduce profitable international business as is the case of non ferrous metal scarp. The
USA and the UK are doing efforts to keep the scrap being exported to China, India or
whatever non ferrous scrap demand is growing. In continental Europe, where still there is
significant industrial demand for scrap, the legislation to export scrap is expected to be
more restrictive, but no much as in the USA in the 1950s.
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What Europe will do with all the waste if their industrial copper production
continues its falling trend remains to be seen: the EU used over 6 million tonnes of
copper in 2006; now refined copper use in Europe is well below 4 million tonnes and
falling. Even when Europe can be an even more efficient recycler, if their end use of
copper is not recovering, restrictions on scrap trade will not change this trend, so is a
matter of what industrial policy the EU is capable to develop in 2014-2020 and beyond.
In the case of China we see a fast improvement in the quality of their scrap recycling
statistics. Currently we witness more and improving numbers from the Chinese copper
and copper alloy semifabrication industry than more developed trading partners: a trend
that may continue in the future. Small fabricators (<20 Kt) and small smelters using scrap
(<20 Kt) are not economical and environmentally friendly, so they will close across
China in 2015, with no significant impact in the Chinese demand for copper, exactly as
happened in most of the OECD in previous decades. The main challenge for copper
recyclers is well known: no more than 1% of copper theft is causing serious reputational
damage to the 99% of honest recyclers and scrap traders around the world. Probably the
most challenging effort for metal scrap recyclers is to convince government authorities
and the public that they can cope with this problem by themselves and without additional
regulation and more enforcement.

CONCLUSIONS

a) In recent years the global demand for copper has been driven mainly by a volatile
Chinese industrial activity and the growth of Chinese fabrication capacity, driven
by the expansion of credit across China economic sectors. The global industrial
use of copper to produce copper and copper alloy products has been growing,
driven by an extraordinary 80% growth in fabrication in China according to
official statistics. But only in a few oil producing economies the industrial use of
copper is growing. In the rest of the world the industrial copper and alloys
fabrication has been falling as much as 27% in the period 2007-2012.

b) The fall in industrial use of copper has been over two digits in most of top
industrial copper users. The industrial use of copper has been falling two digits in
supposedly dynamic industrializing economies. Even with these very negative
contractions in the industrial use of copper ex-China, the global net growth is
over 7% for the last five years, driven mainly by the huge expansion in Chinese
industrial capacity to produce wire rod and other products in recent years. In the
short term we observe slow growth of wire rod and alloy output in China with
output of copper-only rod/tube/plates products falling, nevertheless the Chinese
demand for refined copper including stocks was growing almost a million tonnes
in 2012. Copper fabrication overcapacity control is being observed in China in
recent years with the closure of over one million tonnes, with some ex fabricators
using now copper and alloy products as a raw material.

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c) A world without energy subsidies would had made copper much more
competitive versus aluminium, but the reality is that very low energy costs has
driven a global oversupply of aluminium that is driving massive substitution out
of copper in industrial uses. In the last 10 years close to 4.5 million tonnes of
copper wire rod use had been replaced mainly by aluminium wire rod electric
applications and there are increasing pressures for more substitution in copper
end uses according to the industry.

d) Recent ICSG surveys in China confirm that the speed of Chinese demand for raw
materials including concentrates, scrap and refined copper is different than the
speed of industrial copper use in China, with stocking and destocking processes
explaining the difference.

e) Over 2008-2012, global demand for refined copper rose 2.1 million tonnes to 20.5
million tonnes, an annual growth rate of around 3%. A shortage of copper scrap
material is likely to affect both production of cathode from scrap and demand for
direct melt scrap for fabrication of copper and alloy products. Copper scrap
shortages remains an issue in China since supply was limited by lower copper price
and slower industrial production growth. As a result, Chinese direct melt volume is
estimated to have dropped dramatically in 2012. The latest ICSG forecast shows
that the demand for refined copper is expected to be flat in 2013 and 3.9% in 2014.

f) In 2012, the world demand for refined copper was five million tonnes higher than
ten years ago, with the supply provided mainly by copper miners, but also by
copper recyclers. Global copper mine output was just 82% of the mine capacity and
only 79% of the installed global copper refinery capacity in 2012. Chile, China,
Peru, the United States and Australia provided over 61% of the world mine output
of 16.7 million tonnes.

g) Mine capacity plans for 2013-2016 are ambitious, with 8 million tonnes of
additional new capacity to come from small mining projects, 5 million tonnes from
medium mines and 9 million tonnes from big mines, but the falling capital
expenditure observed in 2012 and 2013, plus technical, regulatory and other factors
are delaying the start-up of capacity and 73% of the capacity expansion (5.3 Mt) is
expected to occur in 2015/2016 and probably beyond these dates.

h) Close to 78% of the future world additional copper mine producing capacity to
come on stream by 2016 will come from South America (2.3 Mt), Asia (2 Mt) and
Africa (1.5 Mt) plus one million tonnes expected to come from mines in the United
States. Chile may retain its position as the biggest copper mine producer in the
world by 2016 with mine production capacity around 6.5 Mt, but Peru might
overtake the United States as the country with the second largest mine capacity
with 3Mt by 2016. Zambia and China are next in miners capacity plans with around
2Mt/yr and 1.7Mt/yr installed capacity, respectively, followed by Australia, the
Democratic Republic of Congo, Indonesia and Mongolia.
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i) The increasing demand for copper from China created growing interest in start
copper mining projects in countries that are not mining copper or that had small
outputs as in Bolivia, Dominican Republic, Laos, Mauritania, Oman, Pakistan and
Saudi Arabia. Some countries not producing any mined copper in 2012 might do so
in the future, including Afghanistan, Ecuador, Eritrea, Fiji, Greece, Israel,
Kyrgyzstan, Panama, Sudan and Thailand. Panama, Ecuador and Afghanistan are
the most promising new producers in the medium term. Similar to what happened
in the oil industry mining companies are starting now to look at possible offshore
deep-sea minerals exploration, but mineral prices should remain strong to sustain
high cost projects.

j) The ICSG survey on use of recycled copper estimates a global use of scrap below
8.2 million tonnes for 2012, with over 3.5 million tonnes of copper in the scrap
going to smelters and converted in refined copper (secondary refined production)
and over 4.7 million tonnes of copper in the scrap directly melted in brass and
wire mills, foundries and ingot makers. This is a 4% fall in the global use of
copper in the scrap used by the industry in 2011, after two years of growing scrap
use.

k) Historically about one third of the refined copper output comes from scrap, and
two thirds goes directly to fabricators and other users as direct melt scrap. After
2007 and increasing share of the scrap collected worldwide was going to
refineries and less scrap was melted directly. The direct use of no- refined scrap
should be much lower than 4.7 million tonnes in 2012. In years of high prices
~copper scrap supply occupied a key role to provide much needed copper inputs
to industrial users, but when prices fell the scrap availability quickly collapsed.

l) Is the profit margin instead of the refined copper price the main driver of the
scrap business, so many recyclers and scrap traders maximize profits hoarding
scrap when the price is going up, and they tend to get rid of their stocks of scrap
when prices start falling, so not all of them contribute to the stability of the whole
copper market as expected. Large scrap trading houses holding their expensive
scrap stocks in early 2011 is one recent example, same as copper scrap being sold
in the first half of 2013 when prices were dropping is another example that scrap
traders can behave less contra-cyclically than expected in text books.

m) Recycling efficiency remains low worldwide and lower scrap values paid by
Chinese importers have impacted scrap exporters in developed economies in
2012-2013, in consequence the contraction in the global scrap supply associated
to lower profits for recyclers and scrap processors is more severe, with the
European Union exporting not more than one million tonnes of scrap to China,
mainly alloys with a very low copper content close to 33% of the total volume.

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n) In China officially 1.88 million tonnes of refined copper production came from
scrap in 2012. The remaining 1.1 million tonnes was used in copper wire rod
production (400 Kt in 2013) and mainly in brass mill and foundry production,
estimated around 700 Kt in 2012. Capacity utilization of Chinese smelters
processing scrap is very low now and most of the capacity closures planned for
2013 is related to scrap processors. The tight copper scrap balance observed in
China coincided with direct melt scrap being replaced by cathode by Chinese
wire rod plants and by other fabricators. The availability of scrap is competing
with more copper mine concentrates and ores available for Chinese copper
smelters. The objective of top 10 copper scrap smelters output to be 50% of
China scrap smelter output in 2015 is an ambitious challenge, even when is not
impossible to achieve.

o) There is more copper scrap processing capacity in the West in 2013 with new
wire rod plant running on scrap in the USA, new scrap smelter operational in
Sweden, and with Poland copper industry planning a scrap smelter. So to get low
cost copper and alloy scrap to feed Chinese expansion plans is becoming harder.

p) Usually scrap trade barriers are temporary in countries with industrial demand for
copper, and motivated for efforts to control illegal trade as stolen scrap,
hazardous materials and pollution control so these efforts are positive regulatory
aspects. Trade barriers exist as for example in the Russian Federation exports of
scrap: close to zero exports because the export tax makes them impossible, but
accession to the WTO may allow Russian scrap traders to make profits, and more
taxes may be collected for scrap trade. Now new import taxes are imposed in
India. The impact of trade barriers to scrap trade tends to transfer more benefit to
the global copper mining industry more than to the counties imposing barriers.

q) Regular statistics coming from the scrap recycling industry, to report how is the
supply side of copper and copper alloy scrap yards is doing monthly would help
to improve the limited scrap market transparency and reduce uncertainty.
Industrial use for refined copper and demand for refined copper are two different
variables. The stocks of refined copper reported by ICSG are a sample of the real
stocks moving between countries. Nevertheless ICSG refined market balance is
relevant to explain most of the behaviour of the market price volatility in the last
40 years with the only notable exception of 2006, when the market apparently
was driven mainly by other factor as stock management skills by traders.

r) Copper available in China has been growing probably faster than the industrial
use of copper in recent years. The difference reveals a potential increase of stocks
of copper across the value chain and not only unreported refined stocks: most of
the copper that came to China is part of the stock of copper in use in China and in
exported manufactured products, instead of refined stocks kept in warehouses, so
even when strategic stocks are expected to be higher than before 2008, those
stocks main remain out of the market in normal circumstances.
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s) The price of refined copper is actually set on exchange floors, often by a host of
traders with limited information about the physical copper markets. The reliance
on mine supply constrains and the less than visible market flow of scrap, blister
and concentrates create asymmetry and fragmented information for the traders.
Strong sovereign interest and historical store of value of copper are factors adding
to volatility. Copper smelters credit free operation gives a higher role for traders,
so the market of these copper raw materials is far from efficient, with information
skewed towards insider organisations. This situation makes it difficult for
observers to know the true state of consumption, so market forecasts are often
based on inaccurate or incomplete information.

t) Central banks have made money available very cheaply and some of it has ended
up financing metal in LME warehouses in recent years. Industry concerns on
LME warehousing volumes unrelated to the normal industrial supply and demand
of refined copper had been recognized by the exchanges. With more players
holding exposure to copper for reasons unrelated to the industry itself and with
the expansion of commodities as an asset class, the copper price discovery
process has changed in recent years with some institutions facing unlimited
capacity to store or to fund inventory, and with premiums risking the role of
exchanges as warehouses of last resort.

u) The regulatory environment is becoming more restrictive for the global copper
industry with multiple regulatory issues reported by ICSG at the multilateral
level, ranging from UN related negotiations as mercury emissions, scrap pollution
controls, marine transport regulations, WTO trade investigations, and
governments efforts to increase mining and trading taxes. In China we observe
new regulation affecting the value chain of the Chinese copper industry: strategic
industries selected to be developed by the State in the 5 years plan are copper
intensive. Sector-specific subsidies and tax reductions to industrial inputs are
observed for example in energy efficient household appliances, small metal
business, affordable housing, rural construction and more efforts to control
recycled copper imports and to consolidate the domestic scrap generation
industry. Controlled energy cost increases to metal industries in China are
observed. The London Metal Exchange (LME) acquisition by Hong Kong
Exchanges and Clearing may have important impacts as LME activities are
moving to Hong Kong and a more competitive exchange dynamics is surging
between LME and SHFE in Eastern China ports.

v) Globalization is changing the role of the State in the industry, with less space for
expropriations and a restrained economic nationalism focused in more local value
added. Partnerships between State owned and private foreign investors and
governments are probably more the rule than the exception in copper mine related
investments in recent years, bilateral agreements on investment protection
agreements are being achieved between consumer and producing countries.
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Globalization of copper end use continue shaping the upstream side of the copper
industry, with regional monopolies associated to specific fabricated products
challenged by the emigration of complete industrial chains. The copper mining
industry, private and State owned, has the responsibility to avoid any global
shortage of copper availability assuming technical, economic and political risks.
Governments are equally responsible to cooperate with the copper industry to
reduce those risks.

w) Past attempts to produce medium and long term forecasts of the evolution of the
copper market have failed for different reasons. ICSG produce next year refined
supply and demand forecasts twice a year. Around 2 million tonnes in new mine
capacity is expected to enter in production pipeline in 2013-2014, but some big
mine capacity expansion had been delayed once more, and the new capacity need
to replace aging mines. The net mine supply expansion might tighten again in
2015-2016 and we might see the need of much more scrap recycled and project
finance. The world demand for refined copper per capita is approaching 3 kg per
person in this decade, over the 1.9 Kg per person achieved in 1974. This growth
is much lower that the global population growth, so if there is economic growth,
there will be significant world demand for copper in the future, in particular
looking at current and expected population and economic growth in Africa and
South East Asia. Slowing population growth in the OECD countries and in China
is not expected to reduce the demand for copper dramatically in the long term.

x) In the last decade the market has been driven by the relocation of industrial output
to China and the Chinese urbanization and by a proportional supply response of
miners and recyclers, so a global copper oversupply as in the 1980s and 1990s is
difficult without a slowdown of the Chinese economy. Long term copper demand
will be a function of emerging economies urbanization and industrialization,
global credit conditions and the new electric and electronic uses of copper
worldwide. With much more than a billion people with no electricity, copper
miners and recyclers with a long term perspective may survive any cyclical
slowdown driven by over-indebted financial systems and governments. The main
challenge for the copper industry is how to survive the ongoing transformation of
the public sector and the financial sectors in the developed world. The economic
transition of Chinese wire rod and brass mill producers, will play a key role for
the global demand for copper, so a sustainable rate of growth for copper demand
in China and elsewhere is the key for the healthy development of the global
copper industry.

y) Investors in the copper mining, in the copper recycling industry and even non
commercial investors in copper did very well in the last decade, and probably the
next 40 years they will do even better, with strategic stockpiles actively involved
in the copper market in particular during downturns in the industrial demand for
copper. A limited, economical and environmentally friendly regulatory approach
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for mining, recycling, processing and stocking should allow avoiding copper
shortages and gluts, more effectively connect market players located in different
regions of the world.

z) The future of the copper recycling industry is a factor of concern, with increasing
regulations and trade restrictions. No more than 1% of copper theft is a cause of
damage to the 99% of honest recyclers and scrap traders around the world. The
challenge for metal scrap recyclers is to convince the public that they can cope
with this problem by themselves and without additional regulation and more
enforcement.

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COPPER EXPLORATION AND MINING DEVELOPMENT IN CHILE:
A FORTY YEARS REVIEW.

Jos Cabello
Director
Mineralium Consulting Group Ltd.
cabello.lechuga@vtr.net

ABSTRACT

The most important country for both current copper production and future growth in
the global mining industry is Chile. In 2012 the country produced 5,334,000 t of fine copper.
This corresponds to 32% of world production.

Over the last four decades mining production of copper increased by 738%. And
during this decade, copper production is expected to growth in another 42%. Numerous facts
explain this large increase in copper production, with a key one being the success of
exploration over the last forty years. This lead to the discovery of several worldclass
copper deposits which when developed into mines, account for much of the production
increases.

This review condenses the accomplishments of basic exploration carried out during
the last four decades in Chile. The analysis is constructed on data available in different
specialized mining books or magazines. It predominantly comprises those discoveries
important at a world or regional scale, not the lesser discoveries significant at the local scale.
The financial influence of these discoveries is presented here regarding the value of the
mineral resources recognized, the funds and metals production generated.

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I. INTRODUCTION

Chile is the most important country for both current copper production and future
growth in the global mining industry. In 2012 produced 5,334,000 tons of fine copper with
an estimated market value of US$ 42, 4 billion. This corresponds to 32 % share of world
production
The rate of growth of Chilean copper production has indeed been impressive. Over
the last 40 years it has shown the biggest annual increase (4.7 million ton) compared with
other metals produced, with output rising by more than 738 %. Several facts explain this
large growth in production, with a key one being the success of exploration over the last
forty years. That resulted in the discovery of several worldclass deposits which when
developed into mines, account for much of the production increases.

This paper summarizes the successes of basic copper exploration carried out during
the last four decades in the Chile. The review is based on data published in different
specialized mining books or magazines as shown by several researchers [1-5]. It mainly
includes those discoveries significant at a world or regional scale (minimum gross in situ
value of US$1,000 million), leaving aside smaller findings which are important at local scale
only. The economic impact of these large discoveries is presented here concerning the value
of the mineral resources identified, the investments and metals production generated.

II. EXPLORATION EXPENDITURES AND MAIN DISCOVERIES

During the last 40 years, it can be calculated that some US$ 8, 12 billion ware
invested in basic exploration in Chile. It is estimated that about 65% (US$ 5.3 billion) have
been spent in copper exploration and the difference (35%) was devoted to the search of
precious metals and other base metals deposits.

Fifty copper discoveries are included in this review (Table 1). The main ones are La
Escondida District, Collahuasi District, Los Pelambres, San Enrique, Sulfatos and
Candelaria.

The fifty deposits reviewed here (Table 1) were all discovered and subjected to their
main periods of exploration during the last four decades, although an appreciable number
were first identified as old mines or prospects during earlier times. Seventeen are in
production; several others are being prepared for production or are at the feasibility stage.

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Table 1 - Chile Main Copper Discoveries 1973-2012 *

Resource Mill
(t) Grades
Discovery
Year
Estimated Past
Investment
Estimated
Future
Investment
Current Future
Ore Model

t f Cu Cu% Cu Prod Cu Prod
Copaquire Porph Cu 423000000 634500 0,15 1973 774 11000
Cerro Colorado Porph Cu 1138000000 7397000 0,65 1973 331 200 73000
Quebrada Blanca Porph Cu 836000000 7942000 0,95 1976 360 5590 65000 135000
Collahuasi District Porph Cu 3108000000 25485600 0,82 1991 1800 6500 280000 720000
M Hales/M Mina Porph Cu 614000000 6631200 1,08 1989 3435 170000
Toki Porph Cu 800000000 3600000 0,45 1999 600 70000
Genoveva Porph Cu 480000000 1920000 0,40 1999
Quetena Porph Cu 140000000 672000 0,48 2002 244 60000
Opache Porph Cu 341000000 1534500 0,45 1997
Galenosa/Tovaku Porph Cu 200000000 600000 0,30 2002 600 40000
Antucoya Porph Cu 642000000 2247000 0,35 1989 1900 45000
Spence Porph Cu 2119000000 15256800 0,72 1996 1000 200 167000
Sierra Gorda Porph Cu 109000000 763000 0,70 1992 3900 158000
Gabriela Mistral/Gaby Porph Cu 700000000 3430000 0,49 1996 977 133000
Tesoro Exotic Cu 762000000 3886200 0,51 1991 200 250 105000
Esperanza Porph Cu 1200000000 5400000 0,45 1992 2170 550 163000
Esperanza Sur/Telgrafo Porph Cu 2400000000 9120000 0,38 1992 3500 160000
Encuentro/Caracoles Porph Cu 1350000000 5670000 0,42 2007 4100 140000
Centinela Porph Cu 137000000 643900 0,47 1979 100
Polo Sur Porph Cu 345000000 1587000 0,46 1989 150
Lomas Bayas I&II Porph Cu 2088000000 6264000 0,30 1991 543 1600 75000
Zaldvar Porph Cu 1000000000 5300000 0,53 1981 600 131000
Escondida N Porph Cu 1472000000 12953600 0,88 1981 400
Pampa Escondida Porph Cu 7378000000 34676600 0,47 2007 380
Escondida Porph Cu 4860000000 47142000 0,97 1981 3350 4021 1000000
Casualidad/Virgo IOCG 400000000 2400000 0,60 2003 70000
Franke IOCG 73000000 511000 0,70 1997 308 15000
Santo Domingo IOCG 486000000 1555200 0,32 2004 1800 60000
Chimborazo Porph Cu 236000000 1416000 0,60 1986 274
Damiana Exotic Cu 390000000 1326000 0,34 1992 60 50000
Manto Verde IOCG 600000000 3000000 0,50 1969 180 61000
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Resource Mill
(t) Grades
Discovery
Year
Estimated Past
Investment
Estimated
Future
Investment
Current Future
Ore Model

t f Cu Cu% Cu Prod Cu Prod
Inca de Oro Porph Cu 300000000 1500000 0,50 2004 600 50000
Kozan IOCG 50000000 800000 1,60 1989 130 12500
Candelaria IOCG 1619000000 9552100 0,59 1987 870 250 123000
Caserones Porph Cu 1350000000 4455000 0,33 1993 3000 180000
Relincho Porph Cu 150000000 1050000 0,70 1994 3900 190000
D de Almagro IOCG 85000000 510000 0,60 2000 597 22000
Productora IOCG 165000000 990000 0,60 1999 700 50000
Cerro Casale Porh Au Cu 990000000 2178000 0,22 1998 6000 115000
El Morro Porh Cu Au 479000000 3065600 0,64 1992 3900 150000
Los Pelambres Porph Cu 8248000000 51962400 0,63 1969 1370 7000 400000
Frontera Porph Cu 700000000 3640000 0,52 2006
Tres Valles Stratabound Cu 30000000 450000 1,50 2005 161 18500
El Espino IOCG 155000000 961000 0,62 1993 624 40000
Vizcachitas Porph Cu 1087000000 3913200 0,36 1993 800 63000
West Wall /Lagunillas Porph Cu 750000000 4050000 0,54 2000
Sur Sur Porph Cu 100000000 1000000 1,00 1980 55
San Enrique Porph Cu 3000000000 21000000 0,70 2008 1000
Sulfatos Porph Cu 1200000000 17520000 1,46 2009 2000
Escalones Porph Cu 420000000 1722000 0,41 1998
Total 351284400 15245 70659 2872000 2699000
(1) Sources: Riquelme & Frraut [3]; Cochilco [7]; Sernageomin [8] and Editec [9].

From an ore model standpoint, most of the discoveries correspond to porphyry
coppers or porphyry copper-gold (41). Also were discovered six iron oxides-copper-gold
(IOCG), two exotic coppers and one stratabound deposit.

III. DEVELOPMENT, PRODUCTION AND ECONOMIC RESULTS

Seventeen copper deposits have been developed and put into production through
December 2012 (Table 2). To reach that stage US$ 14.9 billion was invested. To put into
production the remaining undeveloped deposits and to expand the new existing operations
will require an estimated US$74.6 billion (Table 3). From this group of new mines, the first
one to start production was Sur-Sur in Chile in 1980 followed by La Escondida in 1990.
Since those years metals production generated by these deposits are: 44.9 million t of
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copper, 161 t of gold and 4,486 t of silver all together valued in some US$ 369,700,000
billion.

Table 2 - Estimated Production Since Start-up Chile Main Copper Discoveries 1973 - 2012

Copper Discoveries Copper Mill Ton Gold Ton Silver Ton Production
Period
Investment US$
Mill
Cerro Colorado 1,74 --- --- 1994-2012 331
Collahuasi 6,23 --- --- 1998-2012 1.880
Quebrada Blanca 1,33 --- --- 1994-2012 360
Spence 0,98 --- --- 1996-2012 1.000
El Tesoro 1,08 --- --- 2001-2012 200
Esperanza 0,26 9,7 --- 2011-2012 2.170
Gaby 0,58 --- --- 2008-2012 977
Lomas Bayas 0,85 --- --- 1998-2012 543
Zaldvar 2,31 --- --- 1995-2012 600
Escondida 19,59 91,3 3.335 1990-2012 3.750
Franke 0,05 --- --- 2009-2012 308
Manto Verde 0,95 --- --- 1995-2012 180
Candelaria 3,18 60,0 1.152 1994-2012 870
Atacama Kozan 0,26 --- --- 2003-2012 125
Los Pelambres 4,61 --- --- 1999-2012 1.370
Tres Valles 0,03 --- --- 2011-2012 161
Sur - Sur 0,91 --- --- 1980-2012 55
Total 44, 161, 4.487
Production Value US$ Bill 356.643.840 8.636.701 4.493.343
Total Prod. Value US$ Bill 369.773.884
(1) Sources: Cochilco [7]; Sernageomin [8] and Editec [9].

The resulting exploration effort (Table 3) has delineated in-ground resources
exceeding 351 million t of metallic copper with an estimated gross in situ value of US$
369,000,000 billion. This is simply a measure of the value of metal in the ground, not taking
into account the cost or economic viability of extraction, processing and sales. Moreover
but not considered here, there are also important gold, silver and molybdenum resources
included in the discovered deposits. In addition were identified buy-in expenditures totalling
at least some US$ 10 billion.

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Table 3 - Chile Copper Deposits Discovery Summary 1973 2012

Exploration Funds: US$ Bill 5.3
Main Discoveries: 50
Gross in situ value: Copper US$ Bill 351
Estimated buy in expenditures US$ Bill 10.0
Estimated past investments US$ Bill 14.9
Estimated future Investments US$ Bill 74.6
Current Annual Production Value US$ Bill 2,8
Future Annual Production Value: UIS$ Bill 2,7

Past Production Value (1980-2012): Copper US$ Bill 356,643,840
Gold US$ Bill 8,636,701
Silver US$ Bill 4,493,343
Total Production Value (1980-2012) US$ Bill 369,773,884

A simplified way of measuring the economic productivity of mineral exploration in
the Chile during the 1973 - 2012 period can be performed by comparison of the total
exploration funds with the related past and future development investments, as well as with
the past production value and the resources in-situ value (Table 4). On this basis every
dollar spent in basic exploration has generated $ 2, 8 in past investments and could generate
another $ 14.1 if projected future investment is completed. Moreover, the same dollar has
discovered and delineated a metal resource with a nominal in-ground resource value of US$
66.2.Thus each exploration dollar returns some US$ 69,000,000 billion in production during
the 1980-2012 periods.

Table 4 - Exploration Investment Multiplication Effect
Chile Main Copper Deposits Discoveries
1973 2012

US$ 1 ( exploration funds ) generated = US$ 2,8 ( Past Investments )
US$ 1 ( exploration funds ) generated = US$ 14,1 ( Future Investments )
US $ 1 ( exploration funds ) generated = US$ 66,2 ( Resources Gross in situ Value)
US$ 1 ( exploration funds ) generated = US$ Bill 69,768,657 ( 1980-2012 Metals Production
Value)

All economic figures were calculated using nominal 2012 US$ dollar and average
estimated metals price valid for the same year as follow: copper US$ 7,936 per t (US$ 3.6
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per pound); gold US$ 53,627,451 per t (US$ 1,668 per ounce) and silver $ 1,001,495 per t
(US$ 31,1 per ounce).

IV. FUTURE TRENDS

Viewed in perspective, these copper exploration activities have generated significant
increase in Chiles copper, gold and silver resources as well as in production levels with the
significant creation of new jobs. It has also improved technological and service capabilities,
as well as the related infrastructure (access roads, metallurgical plants, smelters, port
facilities and so forth). Mine development has expanded Chiles knowledge about water
resources and has facilitated the development of environmental policies.

Also of particular relevance has been the development of international treaties to
facilitate mining activities at the border areas by using infrastructure created in neighboring
countries.

In spite of the current somehow depressed metals market it can be predicted that
Chile will remain as one of the most important countries regarding copper exploration
activities for the foreseeable future. Investments will continue to materialize into the
country stimulated by the tremendous success of past exploration and related mining
developments. The appeal is based on several factors: excellent geological prospectivity,
size and grade of deposits viable with critical metals price cycles, balanced environmental
laws coupled with gradually improving infrastructure conditions and adequate political-
economic stability.

As copper prices remain broadly stable or improve, it can be expected that the
country discovery record over the next decade will be important at a global scale. And the
already discovered resources will remain as one of the key elements affecting worldwide
copper production rates and price.

V. AKNOWLEDGEMENTS

The author would like to thank the support given to this research by the Mineralium
Consulting Group. The co-operation received from Ximena Prieto during the stage of data
collection is greatly appreciated. The manuscript benefited from reviews by Toms Astorga.

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VI. REFERENCES

1. Cabello, J., Exploration Discoveries in Chile: The Last Three Decades: Proceedings
PACRIM 99 Conference, Bali, Indonesia, 1999, p. 207-210.

2. Cabello, J., A, Note on Copper Exploration in the Central Andes. Minerals &
Energy, 2004 Vol.19, n.2, p.28-31.

3. Riquelme, R., Frraut, R., Economic ranking of Copper Mining Projects at
Exploration and Early Engineering Stages ,MININ June 2010, 10 p.

4. Sillitoe, R.H., Exploration and Discovery of Base and Precious Metal Deposits in the
Circum-Pacific Region during the last 25 years: Metal Mining Agency of Japan,
1995, 127p.

5. Sillitoe, RH, Exploration and Discovery of Base-and Precious Metals in the Circum-
Pacific Region- A Late 1990s Update. Resource Geol Spec issue, 2000, 21: 65 p.

6. Sillitoe, RH, Exploration and Discovery of Base-and Precious-Metal Deposits in the
Circum-Pacific Region A 2010 Perspective. Resource Geology Special Issue,
2010, No. 22. 139 p.

7. Cochilco, Inversin en la Minera Chilena, Cartera de Proyectos 2013-2021,
Comisin Chilena del Cobre, Direccin de Estudios, 2013, 66 p.

8. SERNAGEOMIN , Anuario de la Minera Chilena, 2012, 206 p.

9. EDITEC, Compendio de la Minera Chilena 2013 Editec S.A., 626 p.

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ASSESSMENT OF MULTIPLE MINE CONCEPTS USING LIFE CYCLE
ANALYSIS AND DIVERSE CRITERIA

R.D. Hunt
WorleyParsons
Av. Apoquindo 4501, Piso 15
Las Condes, Santiago, Chile
Roy.Hunt@worleyparsons.com

M. Marinovich and W. Funk
WorleyParsons
Suite 400, 10201 Southport Rd SW
Calgary, Canada
Wes.Funk@WorleyParsons.com

ABSTRACT

This paper outlines a novel approach for the identification, framing, and
assessment of conceptual mine options that are acceptable according to economic and
socio-environmental criteria. This method was applied to a base metals mine being
developed in a high altitude, harsh environment. The concept options were subject to a
variety of technical challenges as well as non-technical risks, all of which have the ability
to strongly affect the project outcomes. Through the comparison of these diverse options
according to complex criteria and considering a range of risks, an optimal concept and
strategic measures were identified.

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INTRODUCTION

EcoNomics Assessment is a method of evaluating the financial, social and
environmental implications of decisions and quantifying (in monetary terms) the
sustainability of a course of action or options. If a project or option is economic (NPV
positive when all issues are included), it is by definition sustainable. Options which are
not economic are also not sustainable because society does not receive enough overall
benefit to justify the cost of the option. DELT
is a robust economic modeling tool

which incorporates private financial and social and environmental external costs and
benefits, and allows examination of the effects of a range of possible future trajectories
for all sensitive parameters. In this way, uncertainty about the future becomes decision-
making strength, allowing identification of options which are robustly economically
superior over a wider range of possible scenarios and elimination of those which are
clearly uneconomic.

Assessment Process Overview

WorleyParsons proprietary EcoNomics Assessment is a formalized and
structured process, contained within our core corporate business and enterprise system.
This process involves the following steps:

x Framing workshop: a formalized workshop process, carried out with the customer
(and other stakeholders as required and agreed) to frame the assessment overall;
x Environmental and social risk analysis;
x Data collection and consultation;
x DELT
modeling;
x Draft presentation of results, customer feedback; and
x Incorporation of findings into engineering and project decision making.

The methodology presented here is based on processes developed by
WorleyParsons to deal with decisions involving complex trade-offs (Hardisty 2010). The
process explicitly describes and measures sustainability in economic terms, by
monetizing external costs and benefits and adding these to the conventional internal or
private costs and benefits of a proposed project or action. This model, described below in
more detail, is the basis upon which the analysis of the project options has been carried
out.

Theoretical Basis

Within an EcoNomics Assessment, both the financial and external parameters
of a project are evaluated. The financial component of the analysis evaluates the private
or internal costs and/ or benefits that accrue to the project owner along with a discount
rate that corresponds to their capital availability. This rate is determined by the cost of
capital or rates of return from alternative investments in the private sector. The
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economic component of the analysis looks at the external benefits and risks which accrue
to society as a whole. These costs are considered external as they are not compensated
by, or paid to, the problem holder.
Through the EcoNomics Assessment process the decision maker is able to
compare the overall costs of action, with the overall benefits of action. To find net
benefits, we deduct the flow of costs from the flow of benefits. Thus, the present value of
the net benefits (NPV) (benefits minus costs) of the selected project or action in any year
is given by:

Figure 1 - Net Present Value from a full Economic Perspective

In order to present all criteria in the model they must all be presented in currency
terms. Many criteria are not commonly traded in markets, and will not have an obvious
monetary value. This requires the application of specialist techniques commonly
employed by economists. This is the critical step in establishing a common evaluation
basis. For environment services or natural resources, the Total Economic Value is
defined as the sum of one or more of:
x Direct Use Value - Use as an input to societal production or consumption;
x Indirect Use Value - Role in the functioning of ecosystems or societal support
function;
x Option Value - Potential future uses or preserved value.

These may be estimated using market values (when available), or a variety of
other economic valuation techniques. Although not described here, these techniques are
published, peer-reviewed, and commonly accepted. The methodology for monetizing
each of the criteria is documented and referenced thoroughly for full transparency.
Monetization of non-financial criteria may not be complete in many cases, and so is often
considered as a threshold value: we know that it is worth at least this much, and likely
more.

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DELT Modeling

Economic modeling is performed using the proprietary DELT
tool within
which financial, risk and social/ environmental analyses are combined to produce a
single outcome, quantified in dollar terms. The tool can be used at any stage of a project
to assist in choosing the most viable project options, both from the traditional internal
perspective, and from the wider external societal perspective.
DELT
is capable of a traditional purely financial assessment (NPV from the

company/agencys perspective alone), a financial assessment including risks to and from
the project, or a full social economic assessment with or without risk. Implicit in this
process is the recognition that over time, external impacts are progressively internalized
through regulation, and thus eventually impact the bottom line. The sensitivity analysis
capability within DELT
allows probabilistic analysis of the sensitivity of the

economic results to all variables.
FRAMING

The assessment process began with a framing workshop in which the owner
assembled their key internal stakeholders in the project, and they were joined by
WorleyParsons engineers and the workshop facilitators. The purpose of the framing
workshop was to define the following points:

x Define and agree upon the objective of the study, including definition of the
scope, stakeholders, and boundaries of the project.
x Determine a list of options to be assessed. These are discussed to determine a
final list of options to be assessed and compared, including the Base Case.
x Identify, challenge, and understand the constraints of the investigation, for
example technical or compliance constraints.
x Agree upon the assessment criteria including all key financial parameters,
external environmental and social parameters, technical and non-technical risks.

In order to effectively achieve the objectives of the Framing Workshop, input
must be received from as wide a cross-section of stakeholders in the area of essential
services provision as possible. This provides a wide appreciation of the concerns that are
relevant in the field, as well as an appreciation of which ones are most important to the
stakeholders. This also serves to maximize consensus on the objectives, motivates the
stakeholders to participate, and encourages buy-in (endorsement) to the eventual
decisions.

Objective

Together the group agreed on the objective of the study: To develop a project
option that is economical and socio-environmentally acceptable, implemented within a
period to deliver the best value with an acceptable level of risk and generate a social
balance.
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Options

The initial framing was discussed in relation to multiple options including a base
case scenario. Further discussion related to the options resulted in a total of thirteen (13)
options for comparison that varied according to several configuration criteria. The main
criteria are stated in the across the header row of the table below. Option 5 was identified
as the base case option (indicated with grey shading in the table).

Table 1 Project Options
#
Capacity (kTPD)
Primary
Crushing
Location
Ore
Transport
Method
Processing Plant
Location
Tailings Dam
Location
L
o
w

M
e
d
i
u
m

H
i
g
h

S
u
r
f
a
c
e

(
x
1
)

C
a
v
e
r
n

(
x
1
)

C
a
v
e
r
n

(
x
3
)

L
o
c
o
-
m
o
t
i
v
e

C
o
n
v
e
y
o
r

A
r
e
a

1

-
S
u
r
f
a
c
e

A
r
e
a

1

-
C
a
v
e
r
n

A
r
e
a

2

-
S
u
r
f
a
c
e

A
r
e
a

3

-
S
u
r
f
a
c
e

A
r
e
a

1

A
r
e
a

2

A
r
e
a

3

1 3

2 3

3 5

4 5 +5

5

10

6

10

7

10

8

10

9

10

1

10

1

10

1

13
1

16

Evaluation Criteria

Following discussion of the objectives, and the project options, the factors
influencing the success of those options were discussed. A full lifecycle from project
inception to closure was discussed from a variety of perspectives. Workshop participants
were encouraged to be exhaustive rather than exclusive in raising the criteria as
subsequent evaluation determines which criteria are relevant to the current decision. The
workshop participants identified key criteria for consideration in the subsequent
assessment including:

x Stakeholders, mapped according to their rights and influence (12 total);
x Financial capital cost components (10 total);
x Financial operating costs components (12 total);
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x External costs / impacts and benefits (14 total);
x Risks classified according to political, economic, legal, social, technical, and
environmental categories (28 total).

OPTIONS DEVELOPMENT

The project options were developed by WorleyParsons, including conceptual
design and subsequent estimation of the financial costs associated with each option.
Discussion related to subsequent development of the criteria for option evaluation, their
base values, and the ranges for sensitivity are included in the following sections. The
respective costs are input into the model as estimated, and without contingency. The risk
associated with accuracy of the costs is accounted for by applying a range of values
within the subsequent model.

Table 2 Basis for Financial Criteria
Criteria Description
Capital Cost Estimates based on a detailed breakdown of components. For clarity
these costs were separated into different areas of the project including
the Mine, Processing Plant; General Infrastructure, and Tailings
Facility. The majority of these costs are incurred during the
construction phase of the asset, however additional costs are incurred
through the lifecycle of each option including; capital replacement of
machinery and equipment, and mine closure costs.
General OPEX Based on a detailed breakdown of OPEX inputs, inclusive of all of the
operating costs including those identified in the framing workshop
(except those which are dealt with separately below). The OPEX is
built up on a unit basis (cost per tonne mined) for each option.
Environmental
and Community
Programs
Based on the predicted annual value according to legislation. It is built
up on a unit basis (cost per tonne mined) for each option, which is
subsequently multiplied by the projected throughput for each option.
Transport The transport costs associated with moving the concentrate from the
facility to the point of sale. Based on the amount of concentrate
produced for each option for each year.
Electricity The General OPEX value for each option includes an assumed cost of
electricity per unit of production. The electricity criteria represent the
impact of an increase in electricity rates over the base assumption.
The electricity consumption for each option was estimated based on
amount of throughput (Norgate 2002).
Fuel The General OPEX value for each option includes an assumed cost of
fuel per unit of production. In addition, the transport costs also include
an assumed cost of fuel per unit of concentrate shipped. The fuel
criteria represent the impact of an increase in fuel costs over the base
assumption. Fuel consumption for each option was estimated based on
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benchmarked fuel consumption values related to facility throughput
(Norgate 2002) and road hauling efficiency.
Revenue The revenue associated with the options is also based on the
concentrate production estimates. This is multiplied by the value of
the concentrate, based on the projected value of the various metals
within the concentrate. The Revenue value is input into the model as
estimated, including deductions (ex. Port charges) but excluding taxes.

Table 3 Risk and External Criteria
Criteria Description
Social Value of
Water
At this phase in the project, a sufficiently detailed understanding
of the sources or abundance of water is not available. A high
level method of estimating the water related risks has been used
based on a surrogate market technique where a substitution value
for water has been used. The amount of water for each option
has been estimated based on a predicted amount of water use per
tonne and a make-up rate (Cochilco 2009).
Social Risk A method has been applied which considers the vulnerability of
each option and the potential impacts of a wide variety of social
risks. For each option the loss of value will be proportional to
the duration of the disruption or delay, where revenues are lost
but operation costs are largely fixed. The advice provided by the
Owner is that certain districts are less receptive or accustomed to
mining development. Accordingly for these options the period of
vulnerability to disruption is increased.
Environmental
Impacts
Within the applied methodology, a surrogate market technique
has been applied using environmental service values / societal
values associated with different habitats and land uses. This
method assumes that changes in land use will produce a negative
value proportional to the existing land use and area disrupted.
This negative value will persist until the facility is closed and the
land has been reclaimed.
Local Benefits The local benefits are generally seen as value that accrues to the
local and regional economy as a result of the facility
expenditures. The methodology applied assumes that the
proportion of expenditures that accrues to the local / regional
economy represents a positive effect.
Greenhouse Gases The greenhouse gas emissions associated with the project have
been estimated based on the consumption of electricity generated
offsite assuming a grid intensity (IEA & OECD 2012) and
consumption of fuel within the facility operations and transport.

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ASSESSMENT RESULTS & DISCUSSION

The following section presents the results of both the financial and economic
models. The financial model results represent only the internal costs and benefits
applicable to the Owner for each option. The economic model includes the financials but
in addition it also includes the broader societal costs and benefits accrued as a result of
each option, also termed externalities. When examining the following models and
figures, it is important to consider the relative values of the options rather than the
absolute values. The output values are not intended to reflect the actual cash accruals to
the project owner because some common criteria have been omitted.

Base Case (Financial Model)

For the base case, the financial criteria are input into the model at their predicted
median values. In addition a financial discount rate of 10% per annum is used for future
cash flows. The following figures represent the comparative financial results.

Figure 2 - Cumulative Cash Flows over a 30 Year Period

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Figure 3 Net Present Financial Value of All Options through Life Cycle

It is also useful to view the values of the options in relation to the base case
option (Option 5). In this view, all NPV values are stated as relative to the base case
(Option 5) which has a zero value, so does not appear. Note that this view will be used
for the remainder of the case comparisons.

Figure 4 - Marginal Net Present Financial Value of Options Compared to Base Option
(5)

Base Case (Economic Model)

The following table summarizes the input to the base case (Economic Model). In
this case, median values are assumed for several of the external cost/benefit and risk
categories. In addition, a reduced discount rate is used to reflect the rate of return for
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social investments and values (HM Treasury, 2002). The following figure represents the
relative value of the options when these risks and external factors are integrated into the
model.

Table 4 - Base Case Economic Model Input Values
Parameter Type Units
Case
Value
CAPEX Mine Financial % of Base Value 100%
CAPEX Plant Financial % of Base Value 100%
CAPEX - Infra Financial % of Base Value 100%
CAPEX Tailings Financial % of Base Value 100%
General OPEX Financial % of Base Value 100%
Env and Com Prog Financial % of Base Value 100%
Transport Financial $ / tonne 30
Electricity Financial $ / MWh above General OPEX 0
Fuel Financial $ / tonne fuel above General OPEX 0
Ore Value Financial % of Base Value 100%
Water Social Value
External
Risk
$ / m3 5.0
Social Risk
External
Risk
% production lost in year 50
Environmental
Impact
External
Risk
% of Base Value 100
Local Benefits
External
Risk
% of CAPEX + OPEX 25
Greenhouse Gas
External
Risk
$ / tonne CO2eq 50
Escalation Rate
% per annum applied to Gen
OPEX
0
Discount Rate % per annum 3.5

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Figure 5 - Marginal Net Present Economic Value of Options Compared to Base Option
(5)

From this figure it is observed that the inclusion of risk and external cost/benefit
factors affects the higher throughput options in a negative manner. As a result, their
financial advantage is negated by risks, resulting in Option 5 emerging as the superior
option. The breakdown of the contributing costs is shown in the following figure.

Cumulative Distribution

This section examines the variability (sensitivity) of the various option NPVs to
variations in the criteria. All criteria are subject to uncertainty including financial criteria.
The valuation and estimation of external benefits and certain costs are subject to even
larger variations, owing to inherent limits in understanding. The key to the analysis is to
reveal not absolutes, but better and worse options overall, compared to the full range of
options that can be chosen. By varying key evaluation criteria over a wide but reasonable
range, the implications of a range of possible futures can be examined. The ranges of
values for key parameters for this assessment are presented in the table below.

Table 5 - Base Case Financial Model Input Values
Minimum
Value
Maximum
Value
CAPEX Mine Financial % of Base Value 90% 125%
CAPEX Plant Financial % of Base Value 90% 125%
CAPEX - Infra Financial % of Base Value 90% 125%
CAPEX Tailings Financial % of Base Value 90% 125%
General OPEX Financial % of Base Value 90% 125%
Env and Com Prog Financial % of Base Value 90% 125%
Transport Financial $ / tonne 30 50
Electricity Financial $ / MWh increase 0 200
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Minimum
Value
Maximum
Value
Fuel Financial $ / tonne fuel increase 0 1000
Ore Value Financial % of Base Value 90% 110%
Water Social Value
External
Risk
$ / m3 0 5
Social Risk
External
Risk
% production lost 0 100%
Environmental
Impact
External
Risk
% of Base Value 0 200%
Local Benefits
External
Risk
% of CAPEX +
OPEX
0% 50%
Greenhouse Gas
External
Risk
$ / tonne CO2eq 0 85
Escalation Rate % applied to OPEX 0 5%
Discount Rate % per annum 3.5% 10%

A tornado analysis was undertaken to determine the parameters which strongly
influence the overall NPV for each option. This tornado analysis assesses the behavior
of each option for all the possible variables for the parameters within the sensitivity
range. The figure below demonstrates the visual impact of tornado analysis where the
relative strength of influence of variables is apparent. The figure shows that there are a
wide variety of financial, risk, and external criteria with a potential material impact on
the project results. In particular issues related to water, disruption of project due to social
factors, local benefits, escalation in OPEX, escalation in electricity costs, and variations
in ore value are capable of influencing the viability of options.

Figure 6 - Tornado Diagram of Parameter Range Influences
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The following figures examine the overall variability of the options across the
full range of criteria input values. The figure is produced through the application of
Monte-Carlo Assessment techniques, where random combinations of criteria values
(within the sensitivity ranges) are input, resulting in an NPV output for each option.
When this is repeated over many trials, a full range of potential NPV for each option is
produced. In addition, the model is able to estimate over which percentage of scenarios a
particular option is superior.

Figure 7 - Best Outcome Makeup Over Sensitivity Ranges

CONCLUSIONS

Based on the results of the assessment presented above, the following conclusions
can be made:
x Option 5, the base case option is confirmed as a consistently optimal strategy for
the development of the project. It performs well from a financial perspective
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while not being as sensitive to the risk factors and producing fewer external
impacts.

x Options 12 & 13, which have a higher throughput perform well financially but are
more vulnerable to risk factors. These options could be considered further if these
risks could effectively be controlled and/or if the life of mine can be extended.

x Option 3, a low throughput option represents the best outcome over a small range
of future scenarios corresponding to the lower end of NPV, and a negative
financial result. This option may be eliminated for failing to meet financial return
requirements.

x Options 1 & 2 do not meet financial performance criteria and may be eliminated.

x Options 6,7,9,10,11 have alternate configurations such as above ground
crushing/processing facilities or facilities located in other districts. The intention
of assessing these options was to determine if the potential savings in financial
costs, (CAPEX in particular), was sufficient incentive to pursue them further.
Based on this result, all of these options have inferior outcomes in the financial
case and potentially larger inferior outcomes if additional risk factors affect them,
and may be eliminated.

x Option 8 has very similar outcomes to the recommended Option 5 as the
differences between them are subtle at this stage of the project development. The
following phase of project development will deal with a wide variety of
optimization issues. Accordingly, there is no justification for eliminating the
consideration of alternate underground configurations, as exemplified by this
option.

x Within the assessment, a variety of financial, social, and environmental risk
factors were material to the results. Subsequent technical decisions will highly
influence the projects exposure to these non-technical and/or external risks.

x These same criteria may be used to guide and critique decision making in areas of
the project which they are associated with. This has the potential to create
significant value and/or reduce risks for the project. For example, making design
decisions which reduce water consumption and decrease effluent emissions will
reduce the water related risk proportionately and controlling a key project risk.

x The level of understanding of the project in relation to the financial, social, and
environmental context is limited at this early phase. As additional understanding
is gained, the current model can be enhanced and adapted to incorporate more
specific criteria and/or other criteria which emerge.
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REFERENCES

Cochilco, 2009. Best Practices and Efficient Use of Water in the Mining Industry,
Chilean Copper Commission, Santiago.

Hardisty, P.E., 2010. Environmental and Economic Sustainability, CRC Press, NY, NY.
HM Treasury, UK, 2003, Online at: www.hm-treasury.gov.uk

IEA & OECD 2012, CO2 Emissions From Fuel Combustion , IEA Statistics, Paris

Norgate, T. E. & Rankin, W. J., 2002. An Environmental Assessment of Lead and Zinc
Production Processes, CSIRO, Australia

Stern, N, 2006. Stern Review on the Economics of Climate Change, UK Government.

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THE IMPACT OF CAPEX IN MINING PROJECT EVALUATION: A NEW
PARADIGM?

C. Barros, F. Giadach and J. I. Guzmn
GEM | Gestin y Economa Minera Ltda.
Marchant Pereira 367, Of. 803
Providencia, Santiago, Chile
cbarros@gem-ing.cl

ABSTRACT

OPEX used to be the most critical variable for copper projects until the early
2000s, and it was the main factor for discriminating between good and bad projects.
With ever decreasing ore grades worldwide, nowadays most copper projects have similar
quality ore deposits and, since a projects OPEX is highly dependent on the deposits
quality, a large number of projects have now very similar OPEX. This is reflected in the
flattening of the cash costs curve, which shows that projects in the second and third
quartiles are much more similar now than they used to be a decade or more ago. In this
new scenario, differences in the projects CAPEX become much more relevant in their
evaluation. This phenomenon, coupled with large recent increases in many copper
projects CAPEX and their resulting financing problems, have lately put many projects
on hold for reevaluation. This paper discusses the increased importance of CAPEX in
project evaluation, the structural and cyclical reasons of the recent CAPEX increases, and
some evaluation considerations that mining companies should account for. With the new
CAPEX paradigm looming over current copper projects, it is clear that mining
companies should evaluate projects differently by incorporating more sophisticated tools.

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INTRODUCTION

The current commodities supercycle, particularly in copper, has not only allowed
the mines in operation to achieve historical results, but it has also caused a large OPEX
increase. While the price of copper increased 238% in real terms in the 2000-2012
period, the industrys average cash costs increased 168%. Since 2012 this increase in
cash costs has triggered significant efforts from the mining companies to reduce their
costs, efforts that have intensified in 2013. However, a large part of this increase seems
to be cyclical (i.e., it is correlated to the copper price) and therefore if the copper price
decreases many mining companies will experience a similar decrease in OPEX (although
possibly with some delay).

More worrisome for the mining industry than the OPEX increase of recent years,
however, is the industrys cash costs curve evolution. This curve has flattened over time,
suggesting a homogenization of the mineral resources of the different producers in the
copper industry. A short-term impact of this flattening is that currently is not unlikely for
an operation to quickly change its status within the industrys cost quartiles. This is why,
for example, a particular mine could move from the second cost quartile to the fourth
quartile in just one year, without even being in the third quartile (situation that would
have been unthinkable in the past). The most important long-term impact is that it has
become increasingly harder to distinguish between a good and a bad project before
committing to it based solely on OPEX. In fact, the basic rule used in the 1980s and
1990s of looking into which cost quartile a project belongs to does not work as a good
rule of thumb anymore.

As the cash costs of different projects become more similar to each other, NPV
has become more important than ever as a discrimination rule between those projects that
are profitable and those that are not. The problem is that in recent years most of the
projects NPV has been either marginally positive or even negative. The main reason
behind this is not, however, higher than estimated OPEX (which is in fact compensated
by higher copper price expectations) but the projects high CAPEX. CAPEX includes all
investments required to facilitate the operation of a mine site, and it usually increases
with every additional engineering study of a project. While less covered than OPEX, this
article shows that CAPEX is indeed one of the main causes of the detention or
reevaluation of copper projects in recent years, and unlike OPEX there are intrinsic
reasons to believe that a significant part of this increase is structural and not cyclical.
This, in addition to a future in which copper ore will be increasingly more homogeneous
predicts a necessary shift in paradigms regarding the role of CAPEX in the evaluation of
copper projects.

A commonly used indicator to compare copper projects is the unit CAPEX, which
is the cost of installing an annual productive capacity of 1 ton of fine copper (measured
in US$/ton). In this line, Auger & Guzmn [1] show that copper projects that started
production in the 1950-2000 period invested on average 5,900 US$2012/ton, while GEM
recently estimated the average investment for a project starting operations in 2000 in
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5,100 US$2012/ton. On the other hand, GEMs copper project database shows that the
industrys average investment for projects under study in 2012 and 2013 is
approximately 12,500 US$2012/ton, although there is a high variability among them. In
fact, some projects double this amount while others only require half of it.

The data show that in the 2000-2013 period the industrys unit CAPEX has
increased in 145%, which has further intensified the industrys dependence on capital.
GEM estimates that in the same period of time the average costs of the inputs required to
materialize investments have increase 89% worldwide. This means that besides the
increase in the input costs, an additional 30% increase in their average required quantity
must be considered to explain the CAPEX increase. This agrees with other market
analysts view, who state that copper projects CAPEX has increased above input prices.

Why has the amount of inputs increased? While a cyclical effect cannot be
discarded, for example due to a labor increase caused by a decrease in productivity
during the period of economic boom, there are structural reasons that suggest the cyclical
component of the input amount increase is less relevant. In particular, the amount of
inputs required has increased as a result of the growing complexity in accessing,
extracting and processing copper ore resources. For example, a significant share of
projects under development in 2012 and 2013 require desalination plants to guarantee
their water supply, which considerably increases the amount of inputs required to
materialize the investment compared to the situation in the early 2000s (when no project
considered this technology). Additionally, it is not uncommon for projects today to
include major infrastructure investments (especially critical in Africa and developing
countries in general), energy or sustainability, which would have not been considered in
the early 2000s.

The CAPEX increase of the last decade has silently hit the copper industry, and
explains a large portion of the price increase that has been seen in this supercycle. This is
because the high CAPEX has discouraged the investment in capacity, which has
maintained a long copper deficit globally. This disincentive to invest is explained on one
hand because the high CAPEX turns many projects into marginal ones, while on the
other hand investors perceive projects as riskier as they expect CAPEX will be higher as
construction progresses than the engineering studies initially estimated.

Both effects explain a large number of projects being put on hold. In fact, GEM
estimates that between September 2012 and June 2013 high CAPEX has been one of the
three main reasons behind the copper projects put on hold worldwide (the other two
reasons are economic uncertainty and social and environmental sustainability problems).
The projects put on hold due to high CAPEX have a combined annual capacity of 1.47
million tonnes of fine copper. Of the projects still active worldwide, those considered at a
high risk of being stopped due to high CAPEX, and defined as those with an equivalent
uniform annual investment greater than or equal to 80 cUS$/lb, have an additional
combined annual capacity of 2.08 million tonnes of fine copper. This means that just
because of CAPEX issues there could be projects put on hold with a combined annual
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capacity of over 3.5 million tonnes of fine copper.

In the next section the reasons behind the resource homogenization and the
consequent higher relevance of CAPEX in the decision making process in mining are
explored. In the following section the main consequences and copper project economic
evaluation (and decision making) considerations are presented. Finally, the consequences
of a potential future CAPEX increase and the considerations that mining companies
should include in their investment evaluations are discussed.

CAPEX: A NEW PARADIGM?

The copper ore homogenization can be explained by the theoretical distribution of
copper in the earths crust. Different geologists sustain that in the earths crust the
elements, including copper, are distributed according to their quality or grade in such
way that there are large quantities of medium grade resources and small quantities of
high grade resources, according to Skinners seminal thesis [2]. It should be noted that in
this case ore grade is used as a proxy for resource quality even though it is not
necessarily the only variable explaining it, however it should be sufficient to illustrate the
argument.

While there are, to the authors knowledge, no consensus or studies regarding the
exact distribution of copper ore grades in the earths crust, the most accepted hypothesis
is that it should be either unimodal or bimodal, with both distributions shown in Figure 1.
This figure conceptually represents the current progress of mining, which theoretically
should move from the extraction of higher ore grade resources to lower ore grade
resources. This assumes, however, that on one hand there is absolute certainty about the
resources location and size (which is evidently incorrect, as exploration would be
unnecessary otherwise), and on the other hand the extraction and processing of different
resources is economically similar (CAPEX). Both assumptions could be included in the
theory if the copper ore grade in Figure 1 is assumed to consider the discovery of new
deposits and the development CAPEX of the already known deposits.

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Figure 1 Relationship between ore grade and mineral

Considering this simplification, it is not hard to imagine that as copper extraction
increases over time (mining moves towards the extraction of the deposits on the left of
the charts in Figure 1) a higher amount of resources become susceptible to being
extracted. This way, it should be expected that future operations extract resources with
increasingly similar ore grades, tending towards the homogenization of the resources
extracted.

The resource homogenization described here implies that in the future mines
should extract abundant resources of similar quality, with the exceptions of potential new
high ore grade deposit discoveries and CAPEX differences in already known deposits.
For this reason the industrys cash cost curve is expected to flatten over time, as shown in
Figure 2, which illustrates the cash cost curve in a time period
. In
it is evident
that there are some operations more economical than others and the most important
reason behind this cost difference is assumed to be their resources quality or ore grade.
In a time period
sufficiently distant from
, however, the mining industry has

exhausted the known high ore grade resources and therefore, despite new discoveries, it
increasingly starts to extract resources with lower ore grades. Because of their abundance
it is possible to extract a higher quantity of them, which explains the flattening of the
cash costs curve over time (although there are still fractions of the production with ore
grades higher and lower than the abundant average).
Unimodal
Amount of
mineral at a
given grade
Current
Mining
Current
Mining
Amount of
mineral at a
given grade
Bimodal
Grade (%) Grade (%)
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Figure 2 Cash costs curve evolution

The copper industrys cash costs curve evolution shows that the flattening trend
has intensified in recent decades, and especially in the last one. While this evolution does
not necessarily guarantee that the flattening will continue every year (this situation could
change, for example, with several discoveries of high ore grade deposits), in the long-
term it is expected that an increasingly higher proportion of the worlds copper
production will have a low ore grade differentiation. This is why discriminating copper
projects in the future based on their cash costs should be harder and perhaps even useless.

In order to illustrate the growing amount of lower copper ore grade resources with
an example, a unimodal curve with a lognormal ore grade distribution can be assumed.
To keep the example simple one can assume discovery and development rates, as well as
metallurgical recoveries, equal to the historical averages. With these assumptions, and
using historical data, it is possible to reconstruct the theoretical distribution curve of
copper in the earths crust. According to Gmez et al. [3] and using a production update
made by GEM for the 2006-2013 period, GEM estimates that by 2008 in the history of
mankind over 300 million tonnes of fine copper had been extracted, with an average ore
grade of 0.77% that year according to Crowson [4]. Assuming that the average
worldwide grade in 1990 was 0.83% according to Crowson [4], and according to Gmez
et al. [3] there had been 159 million tonnes of fine copper extracted until then, it is
possible to estimate the theoretical lognormal distributions parameters. Despite the fact
that the results are undoubtedly sensitive to the data points selected, a sensibility analysis
with different pairs of historical data points shows that the results are robust.

With the previous estimation one can extrapolate these results and estimate the
amount of copper that could be extracted in the future as the mining industry moves
towards lower ore grades. With this, until the average worldwide ore grade is 0.6%, 400
million tonnes of additional fine copper could be extracted starting in 2013. Considering
that this amount is higher than all the copper produced in the history of mankind until
Cash
Costs
Cumulative
Production
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2012 (which GEM estimates in 365 million tonnes), a small reduction in the average
copper ore grade (which in 2012 was 0.71%) would make available a huge amount of
copper (although assuming a production growth rate of 3% this amount would only last
until 2031!).

In a copper ore grade resource homogenization scenario, the two variables that
become critical to discriminate between projects are the possession of higher ore grade
deposits and the access cost for the extraction and processing of these resources. While
the former involves exploration expenses and technology, the latter is fundamentally
related to CAPEX. The role of CAPEX in the future of mining projects evaluation should
then be critical, and only in those cases in which a significantly better resource in terms
of ore grade is available its effect could be relegated to the background when making
decisions.

EVALUATION CONSIDERATIONS

The copper ore grade homogenization hypothesis might be, alongside the
substitution of copper by another material, the most relevant threat for the industry. This
is because it seems to predict a future in which not only the copper industry produces a
commodity, but one in which the industry itself is commoditized, with a level of
competition unseen in the past.

Copper producers today have two alternatives to face this threat. They can adopt a
passive stand, in which case the market volatility should significantly increase because it
will be uncertain which projects will be profitable and which ones will not be yet
(eventually they will all be profitable), which could either cause a copper flood into the
market or instead a supply shortage. The second possible stand is an active one, and it
includes the search for opportunities against this potential threat. The key between these
two alternatives resides in the leveraging of CAPEX as a differentiation element among
projects, given that probably there will be little room for improvement at the OPEX level
while evaluating projects (when the mine is in operation there should be a constant
search to improve productivity).

The mining industry has understood in the last couple of decades that one way to
achieve this CAPEX differentiation among projects is to use the concept of economies of
scale. These refer to that, under certain conditions and for some projects, the unit
CAPEX required to materialize an investment is a decreasing function of the production
capacity to be installed. This should not be confused, however, with economies of scale
in OPEX, which are mainly responsible for the trend of increasing the average installed
capacity in every copper operation, as it is evidenced in Crowson [5]. Even though
economies of scale in OPEX have justified larger investments in the past and present of
certain projects, in a world with homogeneous resources these economies of scale should
tend to disappear due to the abundance of resources (a large amount of projects could
materialize at a very large scale), and to the possibility that over a certain size of installed
capacity the economies of scale can be lost, according to Guzmn and Fujiono [6].
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The economies of scale in CAPEX, while described in the literature (for example
see OHara and Suboleski [7]) and undoubtedly reasonable for some investments, have
not entirely proved to be achievable during the last decade. Despite this, GEM
acknowledges that this argument is usually used precisely as an answer to copper
projects that at a smaller scale seem marginal. In this solution, however, resides not only
the not always justifiable assumption of economies of scale, but also an even worse
weakness in the deterministic way in which most project evaluations are done today.

This weakness refers to the fact that during times of economic boom (as the last
decade) mining companies expect the copper price to tend to a lower long-term price.
With everything else constant, and using NPV as the main evaluation rule, it is not
surprising to conclude that if more copper can be produced at the beginning of the
operation, thus taking advantage of the higher price, the project will have a higher NPV.
The problem of choosing a higher production capacity to maximize NPV based on these
first years of operation is that the decision results will critically depend on the copper
price materializing in their expected values (which by definition has a zero probability of
occurrence!)

Another key aspect that should be considered in a projects economic evaluation
with regards to CAPEX is the risk asymmetry that it generates, as time has taught
investors to expect final investments higher than those initially calculated in the
engineering stages. GEM [8] found that, for a sample of projects that started operations
in the 2000-2010 period, the final investment value was on average 49% higher than the
investment value estimated during the pre-feasibility and feasibility stages. The
previously mentioned risk asymmetry is caused, then, by the small probability that the
projects CAPEX is lower than that estimated in its engineering stages. The CAPEX
uncertainty will then increase its importance in the investment decision making process
in the copper industry, especially if the total CAPEX amount is not entirely cyclical and
therefore a large part of the increase observed in recent years is expected to remain over
time (even at low copper prices).

In order to incorporate the CAPEX uncertainty (and other risk variables such as
copper price) in the decision making process, decades ago the copper industry
incorporated the cash flow sensitivity analysis, however it is a static analysis in which the
companys decisions do not change as a result of the future materialization of the
uncertainties (which is unrealistic). In addition, the sensitivity analysis assumes total
independence among the variables with uncertainty, which is generally a bad assumption,
particularly regarding the relationship between CAPEX and copper price (GEM [9] finds
a correlation of 0.63 between both variables for a representative sample of projects in the
last few decades).

Another advance that some copper mining companies have used in the last decade
is the stochastic cash flow. In this type of analysis several variables can be represented by
probability distributions or stochastic processes including the correlations among them.
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This analysis is, however, static in nature, since in general the probability distributions
generated as a result of the Monte Carlo simulations used do not consider changes that
would probably occur over time to respond to the uncertainties. For this reason, this
analysis in general not only generates large cash flow variability, but it also
underestimates the tails of the NPV distribution thus showing high value generation
scenarios.

Dynamic cash flow is an evaluation technique that has gained popularity since the
beginning of this decade because it solves the aforementioned problem. In this type of
analysis the decisions that are taken over time respond to the materialization of the
uncertainties in an optimal way. This technique is also known as Real Options analysis,
and its academic origin is well known and accepted since the 1970s. GEM has applied
Real Options analysis in multiple copper projects during the last 5 years (GEM [9, 10]),
proving in practice the theoretical benefits of this tool. While these benefits go beyond
the decision of choosing the production capacity, Real Options analysis can show the
value of the flexibility of constructing modular investments in those mines where this is
possible, and thus keeping CAPEX under control.

Modular investments recognize extraction and/or processing capacity additions in
the future, but depend on the initial investment in a first module. In copper mining, the
most typical modular investments are the concentration capacity increases through the
addition of concentration modules, as well as the extension of the life of an oxides mine
by extracting sulphides afterwards. Modular investments are usually the best alternative
when considering CAPEX and copper price uncertainties, so much that sometimes even
considering economies of scale in CAPEX it is still more convenient to develop a project
as a set of modules, so as only the first module must be committed when deciding to
invest. This way additional modules only need to be committed if in the future it is
established that it is optimal to invest in them, which will strongly depend on the
evolution of the CAPEX and copper price uncertainties.

Some of the halts and additional studies to which many projects have been
subjected to in recent years could have been avoided if they were evaluated using Real
Options analysis, which could have countered capacity (and therefore CAPEX) increases
aiming to take advantage of economies of scale by incorporating the concept and value of
modularity.

THE ROAD AHEAD

The increasing importance of CAPEX in the copper industrys decision making
process generates, according to GEM, at least three challenges that should be considered
by the mining companies.

The first challenge refers to the copper industrys competition in the future. On
one side, an increase in CAPEX requires a higher future margin between copper prices
and OPEX. Because probably resources will be increasingly homogeneous in the future,
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ensuring a price higher than the OPEX is in itself good news. On the other side, a higher
CAPEX should increase the barriers of entry to the industry, mainly due to the access to
financing. However, the abundance and heterogeneous geographic distribution of
resources will generate an increase in competition to obtain higher quality resources or
those with lower access costs. In a future scenario with homogeneous resources the
strongest competition should indeed occur in terms of the access to resources and
therefore those owners of resources with lower associated unit CAPEX or higher future
flexibility would be the winners. The problem of shifting competition from production to
installed capacity is the increase of the business risk. In fact, from an investment point of
view the historic situation of the copper industry is quite healthy, as shown by Auger &
Guzmn [1]. In that study the authors show that from a representative sample of projects
that started operations in the second half of the 20
th
century, in only 20% of projects the
investment was not recovered and the investor did not obtain their minimum expected
return (in other words, their NPV was negative). The homogenization of resources should
tend to increase the share of projects with negative NPV, thus increasing risk for
investors.

A second challenge is the social impact that the investments in deposits with
increasing CAPEX would generate. In particular, this problem deals with the fact that
increasing CAPEX could cause deferrals in the payment of income taxes, and the higher
competition in the industry could even produce a scenario in which a group of mines
would never pay taxes. This situation is particularly delicate in an industry like copper, in
which there is government pressure to maximize fiscal tax collections from this non-
renewable resource. With operational profits possibly guaranteed, but without income tax
payments, the operations would become more susceptible to expropriations.

A third challenge, that in itself is part of the solution to the previous challenges, is
the inclusion of economic evaluation techniques that recognize the uncertainty in
CAPEX, copper price and other variables specific to each project. The use of Real
Options analysis justifies smaller capacity investments as economically optimal, which
could reduce the current pressure to create white elephant projects (although there are
several in the copper industry, possibly the most well-known is Olympic Dam in
Australia). Companies incorporating these techniques early in their evaluations will have
a differentiating element that will help them create value in their investments, which
could become a valuable competitive tool given the current and future scenario of copper
resource homogenization. The challenge for the mining companies, then, lies in shifting
the way they think and evaluate projects, in other words changing their paradigm, which
could take time and effort.

REFERENCES

1. F. Auger and J.I. Guzmn, How rational are investment decisions in the copper
industry?, Resources Policy, Vol. 35, No. 4, 2010, 292-300.
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2. B.J. Skinner, A second iron age ahead?, American Scientist, Vol. 64, No. 3,
1976, 258-269.

3. F. Gmez, J.I. Guzmn and J. Tilton, Copper recycling and scrap availability,
Resources Policy, Vol. 32, No. 4, 2007, 183-190.

4. P. Crowson, Some observations on copper yields and ore grades, Resources
Policy, Vol. 37, No. 1, 2012, 59-72.

5. P. Crowson, Mine size and the structure of costs, Resources Policy, Vol. 29,
No. 1-2, 2003, 15-36.

6. J.I. Guzmn and H. Fujiono, What determines cash costs in the copper
industry?, Working Paper, Division of Economics and Business, Colorado
School of Mines, Golden, Colorado, USA, 2006.

7. T. OHara and S. Suboleski, Costs and cost estimation, In SME Mining
Engineering Handbook, Second Edition, edited by H. Hartman, Littleton,
Colorado, USA, 1992.

8. GEM, Reporte del mercado del cobre: perspectivas 2011-2020 y pronsticos de
largo plazo, Santiago, Chile, 2011.

9. GEM, Opciones Reales para la evaluacin de proyectos mineros, Santiago,
Chile, 2012.

10. GEM, Evaluacin econmica de proyectos mineros, Santiago, Chile, 2012.

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FINANCIAL BARTERING - A FINANCIAL INNOVATION FOR THE MINING
INDUSTRY

Rene E. Silva and Gaston E. Dussaillant
Country Manager-Suppliers Manager
The eNetDollar Corporation
Isidora Goyenechea 3000, 24th floor
Santiago, Chile
1900 University Avenue 5th Floor,
East Palo Alto, USA
rsilva@ereddollar.com

ABSTRACT

The eNetDollar Corporation, founded in Palo Alto, California, presents a
revolutionary financial product for the worldwide mining industry: eRedDollar Financial
Bartering. We have Leasing to finance new assets, now we have Financial Bartering to
sell used assets and profit from this sale. Benefits for mining companies who structure
Financial Bartering operations are transforming an illiquid asset into a liquid asset with
multiple uses, increased profit and reduced operational costs when purchasing products
and services. Benefits for mining suppliers who participate in operations are increased
sales and loyalty, accessing new customers and markets and improving customer-
supplier relationships. Equipment suppliers who participate reduce the risk of receiving
used equipment as part of payment in sales. Financial Bartering is a win-win proposition
for the mining industry, reducing transaction costs, promoting strategic relationships and
accelerating technological adoption, making it more efficient and profitable. The
background elements of Financial Bartering will be described, such as accounts
receivables, derivatives, forward contracts, complementary currencies, bartering and
loyalty marketing strategies. Then we will present it and the necessary steps to structure
an operation, followed by some application cases and a discussion about its challenges
and potential as a win-win solution for mining companies, their suppliers and the
industry.

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INTRODUCTION
Financial Innovation: From Leasing to Derivatives to Financial Bartering

Financial Innovation has been around since the beginning of civilization, with
numerous examples of novel financial products and services that were once unthought of
and are now part of our everyday lives. Perhaps one of the first examples of financial
innovation is Leasing, dating back to 2,000 B.C. to the ancient Sumerians, who
documented the lease of farming equipment, land and livestock in clay tablets [1].
Leasing had then and still has a clear goal: to finance new equipment or resources
for investment opportunities in a better way. Similarly, Financial Bartering, the financial
innovation we will present in this paper, also has a clear goal: to sell used equipment and
surplus materials in a better, easier and more profitable way.
Cost and Productivity Problem in the Mining Industry

The copper industry in Chile faces the double challenge of higher costs per pound
of copper, and the prospect of a decrease in the commodity price during the next few
yeras. Operational costs of the industry as a whole were US$ 24.421 million in 2012, or a
full 49% of all cash flow generated by the companies grouped in the Consejo Minero,
(Association grouping Chiles biggest private and public mines). Average cash cost has
increased from 43.0 c/lb in 2002 to 172.0 c/lb in 2012, a 4 times increase [2].
That makes cost reduction one of the main priorities for mining companies in
Chile. Measures such as contract reviews, own energy generation and supply
optimization are being taken. By helping mining companies optimize their customer-
supplier relationships, renegotiating contracts and thus lowering costs, Financial
Bartering can help them achieve their cost reduction goals.

Used Equipment and Surplus Materials Problem
Used mining equipment and surplus materials are inevitable by-products of a
mining operation. Traditionally, they are sold using transactional methods such as direct
sales or auction service providers. However, these methods have problems, such as
having a selling price that is subject to the economic cycle, selling assets with incorrect
depreciations and incurring in financial losses or the hidden space and human resource
costs supported when these assets are not sold immediately.
The fact that the leading auction provider has a relatively small participation in
the used asset transaction market, and that about half of the estimated US$200 billion in
equipment transactions that take place every year occur on a private treaty suggest that
auctioning is not the perfect solution for everyone, and theres plenty of underutilized
value for mining companies [3]. Financial Bartering allows mining companies to sell
their used equipment and surplus materials in a better, easier way, and realize a profit
from underused value.
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Presenting a Solution: eReddollar Financial Bartering

So what exactly is Financial Bartering? Its an innovative financial product that
combines aspects of accounting, financial derivates, hedging, forward contracts,
bartering, complementary currencies and loyalty marketing strategies. Although it seems
complex, in essence its an alternative for mining companies to sell their used equipment
and excess materials in a simple and profitable way, and at the same time obtain
important cost savings and improve their strategic relationships with select suppliers.
In this paper we will explore how each one of these background concepts lends
elements to Financial Bartering, how the model works and the necessary steps to
structure an operation. We will then present some real-world examples and finish with a
discussion on the merits and challenges of Financial Bartering.

LITERATURE REVIEW OF BACKGROUND ELEMENTS OF FINANCIAL
BARTERING

Before we get into the details of Financial Bartering, it is useful to identify and
define the elements from which it was inspired.
Accounts Receivables

Accounts receivable are a legally enforceable claim for payment to a business by
its customers/clients for goods supplied and/or services rendered in execution to the
customers order [4]. At its core, Financial Bartering involves the exchange of used
mining equipment or excess materials for a special type of accounts receivable, called
eRedDollar. This asset eRedDollar is issued by the company structuring the Financial
Bartering operation, in this case the eNetDollar Corporation, from now on eNetDollar.
What makes them special is that they are only chargeable to determined mining suppliers
of the mining company - in the form of additional discounts - through contracts.
Financial Derivatives

Financial derivatives, like eRedDollars, are financial instruments that are
basically a promise, whose market value depends mainly on two factors. First, on the
strength of the promissors, in this case eNetdollars, ability to perform, i.e. to deliver the
expected benefits of the Financial Bartering operation in the form of additional discounts
from select suppliers over a period of time, explicitly in contracts. Second, on the value
of the underlying asset or variable, in this case the value of the used assets given in
exchange by the mining company. eNetdollar delivers eRedDollars whose expected
value exceeds the value of the used assets, normally by a factor of 20-50%. Unlike
normal derivatives though, the eRedDollars value does not change over time, as its
value is defined at the moment the operation is structured [5].

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Forward Contracts and Hedging

A forward contract is a non-standardized contract between two parties to buy or
to sell an asset at a specified future moment at a fixed price [6]. eRedDollar customer-
supplier contracts are similar in the sense that they are contracts between mining
companies and mining suppliers where the latter accepts eRedDollars as a percentage of
their sales in the form of discounts, for a pre-determined period of time ranging 1-2
years, in exchange for specific supplier benefits such as increased sales, new product
adoption, loyalty, among others.
The main goal of eNetDollar customer-supplier contracts is to hedge the
customers risk in a Financial Bartering operation, because the total amount of
eRedDollars given to the mining company in exchange for their used assets is exactly the
same as the amount expected to be received by suppliers through discounts, explicit in
the forward contracts. Once the initial operations have been successful and the scope and
number of useful suppliers has increased, the mining company can choose to take some
risk in the form of unhedged eRedDollars.
Bartering and Complementary Currencies

Bartering is the act of trading goods and services between two or more parties
without the use of money [7]. A complementary currency is a currency meant to be used
as a complement to another currency, typically a national currency [8]. eRedDollar
Financial Bartering has aspects of both.
First, it involves the exchange of the accounts receivable asset eRedDollar
previously described, from eNetDollar to a mining company in exchange of another
asset, normally used equipment or machinery. Second, it involves the barter of the
eRedDollar, from the mining customer to specific suppliers, who receive eRedDollars as
a % of the payment, in exchange for commercial benefits, such as, increased sales, new
customer acquisition, new product introduction, loyalty, among others.
The eRedDollar also acts as a complementary currency, since it is essentially
liquid and can be used to buy different products and services from any supplier that
accepts it as a % of payment. It closely resembles Token Currencies such as frequent
flyer miles, where customers (resembling the mining company) can use them to buy
services at a discount from select air travel companies (resembling the mining suppliers).
As with eRedDollars, flow is always unidirectional from the customer to the supplier,
since the eRedDollars are taken out of the market after the supplier receives them, and
the goal is also customer loyalty and increased sales [9].
Loyalty Marketing Strategies

Loyalty programs are structured marketing efforts that reward, and therefore
encourage, loyal buying behavior behavior which is potentially beneficial to the firm
[10]. A Financial Bartering operation, from the suppliers viewpoint, is essentially a
loyalty program, not very different from coupons, gift cards and loyalty points. These
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instruments, like the eRedDollar, share a common objective: to influence purchase
decisions by equipping mining companies with incremental spending power, in the form
of eRedDollars or discounts, for specific products and services from selected suppliers.
This concept behind Financial Bartering allows it to be a win-win relationship both for
customers and select suppliers.

FINANCIAL INNOVATION FOR THE MINING INDUSTRY: FINANCIAL
BARTERING

So what exactly is Financial Bartering?

Financial Bartering is an innovation involving many elements but surprisingly
simple at the same time. First and foremost, for mining companies it is a profitable
solution for a problem that didnt have one: selling used equipment and assets. By
changing the problem from selling used assets, with all its challenges, to buying with
eRedDollars, the mining company can focus on an activity it does every day and is at the
core of their business and thus is much more proficient at it. Additionally, it allows them
to reduce operational costs and obtain a profit while buying.
Second, for mining suppliers it is a marketing instrument through which they can
get closer to their customers and achieve their commercial goals. Financial Bartering is
completely flexible, allowing suppliers to use the instrument according to their specific
needs, from increasing sales, to increasing loyalty, overcome a competitor, access new
customers and markets, improve their customer-supplier relationship and introduce new
products and services. Specifically for mining equipment suppliers, a Financial Bartering
operation can lower their risk when receiving used equipment as part of payment from a
mining company and it reduces their budget for this purpose, thus improving their
profitability in new equipment sales.
Third, it is a win-win proposition for the mining industry. eNetDollar created an
online business network that provides greater transparency and effciency, by reducing
transaction and information costs between mining companies and their suppliers [11].
How does Financial Bartering work?
The figure below is a model of a Financial Bartering operation. Above,
eNetDollar trades eRedDollars for used assets. Then, the mining company uses
eRedDollars ($eRD) to pay for a percentage of their purchases from a set of suppliers,
thus saving cash. Finally, over two years the sum of the cash savings, or eRedDollars,
used to purchase from suppliers equal the eRedDollars ($eRD) the mining company had
originally received for their used assets.
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Figure 1 eRedDollar Financial Bartering model

Figures 2 and 3 show an example of a normal used asset financial cycle, compared to one
that uses eRedDollars ($eRD). Note the additional profit obtained at the end of the
second year in the Financial Bartering financial cycle.

Figure 2 Financial cycle of fixed asset with normal sale
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Figure 3 Financial cycle of fixed asset with Financial Bartering sale, showing
additional 20% annual profit or US$ 480.000 obtained because of the operation

Stages of a Financial Bartering Operation

To better understand how this operation works, it is useful to explore the
necessary steps to structure a Financial Bartering operation.
Stage 1: Used Assets Evaluation and Offer

eNetDollar carries out a thorough analysis of the used equipment and assets that
the mining company wants to sell, estimating their commercial value. Next, eNetDollar
makes an offer in eRedDollars for a multiple of their estimated commercial value, if their
commercial value is adjusted to their accounting value, so the mining company can
realize a profit. In case the asset was wrongly depreciated, or the market price went down
faster than expected, eNetDollar can make an offer close to book value to minimize the
resulting loss. The $eRD profit rate depends on the assets liquidity, with higther
liquidity commanding higher profit rates.

Figure 4 Used assets evaluation and offer to be acquired through financial bartering
operation.

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Stage 2: Financial Bartering Operation Potential

eNetDollar analyzes the mining companies consumption across all its suppliers.
The product or service categories, and the suppliers in each one that will participate in
the operation, are determined together with the mining company. Then the total potential
acceptance of eRedDollars in a two year period is estimated. Some of the factors to
consider are consumption volumes, product or service margin characteristics, contract
negotiation dates, prior discounts, supplier replaceability.

Figure 5 Product and service category consumption analysis for financial bartering
operation potential determination

Stage 3: Working Together with Suppliers

The mining company analyzes existing eNetDollar suppliers in the online supplier
network www.eRedDollar.net, selects the ones that comply with its criteria, and then
selects the new suppliers to participate in the operation. Then, together with the mining
company, eNetDollar develops a work schedule to visit each supplier. Bilateral meetings
are held, where the mining company and suppliers negotiate the percentage of
eRedDollars($eRD) that the supplier will accept in the next 2 years and any other
specific conditions in the agreement. Customer-supplier forward contracts are signed,
allowing the customer and eNetDollar project the total amount of eRedDollars that will
be consumed.

Figure 6 Example of product category analysis and specific supplier strategy in Step 3:
working with suppliers

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Stage 4: Exhange of Used Assets for eRedDollars

eNetDollar and the mining company sign a trading agreement of eRedDollars for
used mining equipment or surplus materials. The total amount of eRedDollars given to
the mining company will be equal to projected sum of eRedDollars consumption.

Figure 7 After customer-supplier forward contracts are signed eRedDollar consumption
potential is adjusted

Stage 5: eRedDollar Consumption

eNetDollar activates a checking account for the mining company in its virtual
bank, www.eRedBanking.com for the total of eRedDollars. The mining company then
consumes the eRedDollars($eRD) according to the contracts, during the next two years,
extendable for one more year upon exceptions. After that period, the mining customer
will have realized the implicit profit or avoided the accounting loss of selling the used
assets thanks to Financial Bartering.

REAL-WORLD APPLICATION OF FINANCIAL BARTERING

eRedDollar Financial Bartering is a work in progress and its full potential is still
to be seen. However, so far it has proven remarkably flexible, providing us with various
examples of how it can help both mining companies and participating suppliers with their
business goals.
Customer Case: Avoid important losses in Used Asset sales

Challenge: Important differences between commercial and accounting value of around
10 used mining machinery would lead to an estimated US$1m loss if sold through
traditional alternatives.
Solution: eRedDollar Financial Bartering operation where assets were bought at book
value, giving the possibility to avoid all the, previously inevitable, financial loss.
Status: Operation in progress. Around 10 suppliers added to network and the first
eRedDollars are been consumed on a monthly basis.
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Supplier Case: Deepen relationship with Existing Customer

Challenge: Strengthen relationship with customer, overcome competitive threats.

Solution: eRedDollar Financial Bartering gave this supplier the opportunity to use the
instrument as a loyalty program, effectively strengthening the relationship with the
customer, closing access to the competition and increasing monthly sales.

Status: eRedDollars are being consumed based on a customer-supplier contract
consisting of a staged table of eRedDollar percentages, ranging from 4 to 5.5%, related
to sales volume.
Supplier Case: Acquire new Customer

Challenge: Acquire new customer, historically difficult to sell to because of entrenched
competitor.
Solution: Through eRedDollar Financial Bartering, and after the negative of the
incumbent supplier to participate in the operation, the customer offered the opportunity
to a new supplier. Taking the opportunity, the supplier concentrated all sales in specific
product categories in the next two years.
Status: The supplier has greatly increasing his sales volume with minimal sales and
marketing effort, accepting up to 30% eRedDollars in select high-margin products.

DISCUSSION
The Value is in the Network
Financial Bartering strives to create value for each participant - its a win-win-win
proposition for mining companies, suppliers and the industry. However, we recognize
that the greatest value we can deliver is through the network of mining companies and
suppliers that we are forming. Each new mining company for whom we structure a
Financial Bartering operation, and thus has eRedDollars to use, will make it more
valuable to be an eNetDollar supplier. On the other hand, each new supplier that joins the
network will give more depth to the eRedDollar, increasing its liquidity and thus its
value.
Teamwork and Customer Alignment Challenge
One of the biggest challenges of Financial Bartering is to achieve the necessary
level of alignment between the different areas of a mining company for whom we are
structuring an operation. For an operation to reach its potential, it needs a great level of
teamwork between acquisitions managers and technical personnel, and alignment from
accounting, finance and upper management.
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More so, it is highly recommended that the board of directors make the Financial
Bartering operation a company policy. For that purpose, eNetDollar is designing a
special incentive instrument, to compensate for the effort of achieving this alignment.
This incentive instrument will be very similar to airline points, and its purpose is that the
mining company has an additional way to keep their personnel alligned with their
eRedDollar consumption goals and the companys interests.
Opportunity for the Industry
We believe that there is a special opportunity for a complementary currency such
as eRedDollar in the mining industry. There are unused resources that can be linked with
unmet needs, which the established currency and system is not serving. eNetDollar
leverages unused assets to improve overall efficiency in the industry through Financial
Bartering [12].
There is also an increasing realization of the need for industrial buyers of goods
and services, like mining companies, to develop and maintain long-term relationships
with their suppliers. The eRedDollar can be the catalyst they need to get closer to their
suppliers, and work towards a common goal in a win-win relationship. Customer-
supplier efficiency is one of the non-structural factors that can help the industry
improve its overall productivity [13].
Finally, another important opportunity is in that the eRedDollar can help with the
testing and adoption of new technologies and innovations. Either from established
suppliers, who can introduce them as part of their forward contracts, or from startup
companies, whom we can introduce to mining companies, if new technology adoption is
accelerated the mining industry can further increase its productivity [14]

SUMMARY AND CONCLUSIONS
We have presented eRedDollar Financial Bartering, a financial innovation
inspired from accounting, contracts, bartering, complementary currencies and loyalty
marketing. Even though this paper may be the first time you come in contact with this
concept, we believe that its merits as a win-win-win proposition for mining companies,
their suppliers and the industry will make it commonplace in the industry. To summarize,
as Thomas Edison wisely said, Theres a way to do it better find it. We believe
eRedDollar Financial Bartering is one of those ways to do it better.

141

Santiago, Chile
REFERENCES

1. The History of Leasing, Canadian Finance & Leasing Association, Canada,
2007
2. Minera en Cifras, Consejo Minero, Chile, 2013
3. Annual Information Form For the Year Ended 31, 2012, Ritchie Bros.
Auctioneers Incorportated., Vancouver, Canada, 2013
4. Belverd E. Needles, Marian Powers, Susan V. Crosson, Financial and
Managerial Accounting, 2010, p. 373
5. Financial Derivates: A Supplement to the Fith Edition of Payments Manual,
The International Monetary Fund, 2000
6. John C Hull, Options, Futures and Other Derivatives (6th edition), Prentice
Hall: New Jersey, USA, 2006, 3
7. O'Sullivan, Arthur; Steven M. Sheffrin, Economics: Principles in Action.
Pearson Prentice Hall, 2003, p. 243.
8. Robert Costanza et al., "Complementary Currencies as a Method to Improve
Local Sustainable Economic Welfare", University of Vermont, 2003
9. Timberlake, Richard H. The Significance of Unaccounted Currencies. The
Journal of Economic History [Electronic Version] 41.4, 1981, p. 853-66
10. Sharp, Byron and Anne Sharp, "Loyalty Programs and Their on Repeat-Purchase
Loyalty Patterns", International Journal of Research in Marketing, 1997 14 (5), p.
473-86.
11. Siems, Thomas F., B2B E-Commerce: Why the New Economy Lives,
Southwest Economy, 2001
12. B. Lietear and J. Dunne, Rethinking Money: How New Currencies Turn Scarcity
into Prosperity, BK Currents, 2013
13. Competitividad de la Industria Minera, Exponor 2013, Thomas Keller,
Executive President Codelco, 2013, p. 23
14. J T Jordaan and C Hendricks, The Challenge of Technology Adoption and
Utilisation in the Mining Industry A Focus on Open Pit Mining Technologies,
The Southern African Institute of Mining and Metallurgy Base Metals
Conference, 2009
142
Santiago, Chile

ASSESSMENT OF SOME STRATEGIC RISKS FACING CHILEAN MINING
PROJECTS

Ricardo Torres S.
Mining consultant
Consultant on Technical and Economic Risks

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SUSTAINABLE DEVELOPMENT,
ENVIRONMENT, HEALTH AND SAFETY

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COPPER MINING, GENERATING INNOVATION IN CHILE.

Horacio VERGARA ARANCIBIA
Master and Innovation and MBA International
And Mining Engineer
Innovation Challenge Latam.
Nueva York 53, office 61.
Santiago of Chile
hvergara@ichallenge.cl

Enric Barba
Telecommunications PhD and
Master in business management and organization
University Polytechnic of Catalonia /Barcelona Spain

Carlos Baradello
PhD, Electrical Engineering, Carnegie Mellon University,
MSc, Electronic Engineering , Eindhoven University of Technology, Holand
Electrical Electronic Engineering Degree University Catholic of Crdoba, Argentina

ABSTRACT

The Chilean mining has been marked by many milestones in the development of it. In
this descriptive character study, we analyzed three moments that we considered
relevant, of which we have partnered for character technological innovation in
technology and management, deliver it from a series of data of relevance to the
international mining industry, that can serve as a guide and catalyst to advance in a
contemporary world where connectivity has taken a major role.
We have concluded and believe that Chilean society must use the knowledge
generated by industry, mining in general and from them advance value creation. They
should think about transforming the country and its economy, in another direction,
but moving forward with the information and knowledge generated in and by the
mining industry in Chile, as at the time was made by gold mining in the United States
during gold Rush.

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INTRODUCTION

In this descriptive study will analyze the period from 1810 to 2011, in the
history of copper mining in Chile. For this study we have identified three relevant
moments are the focus of this research:

1. Year 1810, copper production for the year reached 19,000 tons. This amount
of produced, placed Chile as a major player in the copper generation industry.
It is in this starting period where the substantial improvements "in process" to
optimize production.
2. Year 1911, Chile saw its copper production from one third of world
production to 4% of the same scale production. From this period begins a
process of incorporating technology into the different processes.
3. Year 2011, The value of a pound of copper reached $ 3.99. This is the highest
value in history. From the year 2011, we began to identify a difersificacion
services industry this leads to GDP growth, a phenomenon similar to what
occurred during the Gold Fibre in San Francisco California (now Silicon
Valley).

In 2007, the OECD published a study on innovation policy which states "...
the Chilean culture has traditionally relied on exports of natural resources.
Consequently it is common behavior based on the capture of rents. Often technology
and Innovation is seen as tools that can easily be imported to obtain such income "

Chilean Currently, there has been a growing industry development knowledge
or the development of knowledge management delivered by the industry, for this
study highlight two world-class companies export to the case of:

1. Zyght, company that has developed a platform or social network which lets
you get to the development of risk management.

2. Innovation Challenge Latam, company that has incorporated open innovation
(crowdsouring) to local industry, with this has done or paradigm shift costs
mining companies contributing to these in the optimization and racioalizacion
of their costs, pemtiendo the interaction with the mudial talent at prices and
operated by those seeking the solution

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EXPERIMENTAL

Chile began exporting copper long before the American and Australian
companies, which came to dominate the industry. By 1810, Chile has an output of
19,000 tons of copper, between 1820 and 1900; Chile produced 2 million tons of
copper. For a time were the largest producer and exporter. In September 1884 he
founded the mining company, an entity that had been dropped by 1911 the global
share of production of copper from one third to less than 4%, and even as early as
1884 the Society of Mining openly wondering if perhaps the Chilean copper mines
come to survive at all.
The twentieth century offered opportunities for rapid growth based on natural
resources, Latin America systematically missed. Even when it was found that
countries with abundant natural resources have experienced relatively slow growth.
The most recurrent question is, because some of them: Australia, Canada and the
Scandinavian nations, for example, was developed successfully, while others did
likewise. From this basis we can postulate that the causes of poor performance of
some countries can be found in the resistance to the adoption and innovation, which
would originate in a deficient learning capacity. "The Chilean economy experienced
one of the most acute crisis during the First World War, was there when Germany
began producing synthetic copper, and when it starts the decline of nitrate production
in Chile.

In asking why the success of some countries in mining, we can see that the
U.S. "experienced a phenomenon of collective learning ...."Embodied in intellectual
networks that links the University of Mining with the Government and Private
Investigation. These features are also on the basis of Australia's current success. In
1886 Australia and metallurgical engineers recruited from the U.S., thus establishing
a strong link in the country with the innovations generated in the U.S. In 1819
Charles Lambert, a representative of a British mining company in the city of La
Serena fur who observe primitive mining practice, scarce knowledge of minerals and
iron inefficient. The Polish mining engineer Ignacio Domeyko was one of the
pioneers in Chile and who helped establish a small school in 1841; the University of
Chile began offering engineering career in 1847. But at this point in Chile and was 80
years behind the first school of mines in Germany and Europe, and 50 years late to
the school of mines in Mexico.

The OECD study on Innovation Policy Chile 2007, states: Chilean culture has
traditionally depended on natural resource exports. Consequently it is common
behavior based on the catch of income. Often, technology and innovation are seen as
tolos that can easily be imported to obtain such income. "In the business community
and society in general, still can not install a culture of innovation that display
technology and knowledge as major sources of sustainable wealth creation. The
OECD Economic Survey of Chile 2005 makes some international comparisons
suggest that Chilean companies focus on adaptation, instead of creating new
technologies. This skirt capacity, coupled with little interest in research generates an
effect of lack of people to mining, in 2010 the Institute of Mining Engineers of Chile,
held an event called "Innovation and trends", where exhibitors validate this theory
stating that there is "lack of people to the mining and lack of professionals in the
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163
mining industry", to which projects a shortage of professionals in the mining of
copper for 2015.

In reviewing the "Yearbook of Chilean Mining 2009" document developed by
the National Service of Geology and Mining (SERNAGEOMIN), we can see in your
chart N 34 "Rate of Doom", which was a decrease when comparing the results
obtained 1980 and 2009, but also shows that in the past five years this value has
remained almost static. In the same document as a graph No. 35 we can see, it is in
the client company which has produced the largest number of workplace deaths, to
investigate the segment of business to which they belong can be seen that the largest
number of fatalities is for companies mineral constituents that are small scale.
The same trend is seen since 1990 and was only in 2002, where there was equality
between constituent companies and contractors. In the same document in its graph
No. 41 shows that the year 2001 compared to 2009, there has been almost a doubling
of people who have worked for mining, in 2009 there were 174. 125 people, up 6%
compared to 2008.

In order to validate this, we analyzed exhibited a series of data records and
from this, we have developed a chart that shows the behavior of a copper production
in Chile during the period 1800-1840

Own elaboration.

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Copper Produccion in Chile
Tons
Santiago, Chile
164
Now that we have data regarding
governmental and regulatory
leaders in this sphere on a regional scale
Goverment Evolution of Chile Mining.

Owm elaboration.
regarding copper production in Chile, we discuss the development and
atory structuring of Chilean mining. Way to become
on a regional scale.
Goverment Evolution of Chile Mining.
the development and
Way to become pioneers and

Santiago, Chile
165

Copper Production and Innovation in Mining .

In Chile, during the period 1992-2011 , copper production increased 2.7 times . In
1992 reached 1932.7 ( Miles TM thin) and in 2011 reached 5262.8 ( TM Thousands
fine ) . Figure xx , you can observe the evolution of the percentage increase in copper
mine production worldwide, in the last two decades .
Moreover, the level of Chilean copper production has experienced an
impressive expansion over time, in 1960, annually producing more than 500,000 tons
of copper , took 15 years to double the annual production of one million tons.
Then , it took nearly 15 years for the annual copper production will increase in other
500.00 tons. In the 90's , in just 10 years , Chilean copper production increased by
three million tons , this means that , on average, every two years of the 90's , the
Chilean copper production grew more than observed in periods in the past 15 years.
Chile currently produces annually 5.27 million tons of copper which accounts
for about 35 % of global copper production. Before 1990, Chile's participation in
global copper production was less than 18 %.

Graphic.
Chilean Copper Mine Production, Production Base Percentage in world.

Source. World Metal Statistics

The above assertion, the validated with a study by a investiador, University of
Tokyo Japan. This study shows the relevance of Chile as a country, in the production
of copper worldwide.

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166
Source. The roles of Asia and Chile in the world copper market. Takashi Nishiyama
Universidad de Tokio.

Another phenomenon of this period of analysis is: persons employed in
Mining direct and indirect.
In the period 1992 - 2011, almost tripled the production of copper, with a
decrease of direct personnel, engaged in mining. The following figur, shows the
behavior in the last two decades of direct personnel engaged in mining.
Figure, Number of people working in metal mining.

Own source.

Outsourcing is a nationwide phenomenon, mining has not been immune to this
phenomenon. "In the mid-nineties about 40% of the total force employed in the sector
was external, in 2008 this proportion had increased to 65%. That is, if in 1996 for
each worker's own contract workers was 0.68, a decade later there were nearly 2
0
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30000
60000
70000
1990 1993 2000 2003 2010 2013
Cantidad Personas Trabajan en la
Minera Metalica Chilena
CanLldad ersonas Llneal (CanLldad ersonas)

Number of people working in Metal
Mining in Chile
Santiago, Chile
167
foreign workers per worker himself. "We might attribute this trend to the entry into
force of the Law of subcontracting in 1997.
Outsourcing is a tool used worldwide, as is the behavior of subcontracting in
other mining countries, with Canada and Australia countries with values close to 25%
of subcontracting, values well below 65%, which is reflected in Chile.

Viability in copper prices over time.

In 2011, the mining sector benefited from extraordinary copper prices. The price of
copper reached an average of U.S. $ 3.99 a pound. The highest value of the last 44
years in real terms and the largest in its history when measured nominally. While
these good prices are positive for the development of the sector and country, the
mining industry has faced various obstacles that test in order to remain competitive.
Observing Figures.

The innovation in copper mining.
In Chile , it is known from economic crises . Let us look at its history , inthe
early 1900s were experienced a number of episodes due to the fall in the price of salt ,
even to " tragedies " as fuel for the masecre of san gregorio . Then in 1945 or are
experiencing one of the most memorable events in mining mudial " tragedy " of
smoke , 355 people died here . No doubt this latest event was a major catalyst"
innovation" in Chilean mining.
Innovation At present , it is important for the future of " the country's
economy ." Below we analyze relevant aspects as innovation drives in Chile.
Fiscal Incentives in Chile, for expenses Innovation Since 2008 there is a tax incentive
aimed at companies that develop 20,241 Research and Development Act . The
taxpayers subject to tax first category of the Law on Income Tax , to declare their
actual income through full accounting shall be entitled to a credit
tax in the exercise equivalent to 35 % of payments made in cash , under research
contracts and Development , held in research centers in the Register of Research
Centers , and duly CORFO certified ( in 2012 it amended the Ley8 ) . That R & D
activities not directly related with the main line of the company , not an impediment
to access this loan . Regarding the amount that does not constitute
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168
Inversin en I+D
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credit , ie 65 % of the value of contract R & D certificate, you stoop by the company
as a necessary expense to produce income .
With the amendment of the law, is deleted the requirement for annual gross
income ceiling and the ceiling is increased to 15000 UTM (U.S. $ 1.2 million). The
objective of this incentive is , among other things, significantly increase spending on
R & D as a percentage of GDP from the current 0.7 % 9 to
2.5% in 2020 . That is, sustaining an average growth of 1.3 % year on year. If this
reversal was effective could project derives from this investment as a decrease in the
mortality rate or fatality 2020 , which would reach levels of developed countries such
as France ( 3.5 ) and in an ideal scenario , similar to the rate of Germany (2.8) .
European countries currently have a range of tax incentives and / or money to the
private sector to increase the expenditure on R + D + i, Chile only has a tax tool
transformed into Law, which sought or had as one of its objectives to bring the
expenditure on R & D as a percentage of GDP from the current 0.7 % to 2.5% in
2020 . That is, sustaining an average growth of 1.3 % year on year, what a year 2010
is not seen as a tool that can have an impact on the private sector.

Here we show a graph, which provides information on a global scale,
including Chile, and how this made the expenditure on R & D (private investment,
and public investment).

Own source.

Santiago, Chile
169

DISCUSSION

Through this study, we have observed that the Chilean mining, operated from
before other countries which currently are leaders in this field. Here we see one of the
possible causes "Lack of courage" to manage and exploit the talent and knowledge
developed by the industry.

Finland currently has virtually no mining, because its reserves were
exhausted, and yet has gained a leading position in technology for the sector. Finnish
companies for mining technology, among which may be mentioned Metso and
Outotec , originated in the early twentieth century with the opening of new mines.
This led to the development of metallurgy. These companies have become companies
exporting technology and services for mining virtually worldwide. Metso has today
more than 27,000 professionals worldwide, includes not only mining but also
solutions for areas of forest products and energy. Outotec employs more than 3,000
professionals. Both companies have grown up with their own technological
development which have been added in recent years acquiring other companies that
complement their areas of expertise. That way they can deliver a wide range of
technology services to mining companies.

Example of inadequate knowledge management in Chile are:

The Smithsonian Institution in Washington and academics studying it as " a lesson for
the future " in leadership , and held one year after the event with an exhibition called :

"Against all odds "

Students Crisis Management course in the MBA at Wharton, University of
Pennsylvania , as a case study will be the story of the rescue of the 33 . The analysis
will be led by Professor Michael Useem , and will be attended by videoconference
from Chile teachers of the P. Catholic University and Rodrigo Jordan Koljatic Matko

CONCLUSIONS

Based on the study reported in Larrain, Sachs and Warner 1999. "Copper
adversely affects long-term growth of the Chilean economy, Copper, does not and
generates links to Technological Innovation" This assertion can be certain, but we
should consider that innovation is not only technology, but also in technology and
management.
Chilean Mining has been known for quite Innovate in technology, this has allowed
the development of the sector and increased production certainly must increase
innovation efforts in management, this is one of the opportunities in the sector.

"Chile should not think reinvent and become a different country, but work on the
exploitation of knowledge generated in the industry. Most research on copper, belong
Santiago, Chile
170
to foreign researchers. It is not reasonable that knowledge can be managed more
Chilean copper in foreign universities rather than colleges and universities Chilean

"The mining industry in Chile has to continuously innovate to increase their
competitiveness waiting for the next global economic recovery. Should review its
business model to focus on improving their operational costs while progress in
improving safety. He has the talent and technology to be world leaders and achieve
these goals in the coming years". Enric Barba. Best Manager Award, 2011. ENBIS

The treatise "The Coal problem" Stanley Jevons (1865) argues:
"That the projection to one hundred years of growth in coal mining from 1861
( at a rate of 3.5% ) involved a move of 84 million tons per year to 2,600 , and that it
was physically impossible and economically unfeasible".
The economist Angus Maddison (see Maddison 2007 ,pp. 352-353) , one of
the leading experts in the analysis of long-term economic series , these forecasts " a
hundred years from now " marked contrast sharply with the facts. The annual coal
consumption peaked in the United Kingdom in 1913 (292 million tons ) and to fall
gradually to 26 million in 2003. In fact , this year the energy consumption in the UK
was 370 million tons of coal equivalent , well below forecasts of Jevons , who
despised the availability of substitutes and potential improvements in energy
efficiency.

Julian Simon, I propose the following thesis in the seventies:

" The emergence of technological improvements and prevented price increases that
are predicted"
This afimacion is fulfilled in the Obre contemporary Chilean mining. This
should not be an element harmful to the economic development of country, provided
that it is interpreted in a corect.
Chile is currently in the best time you can submit syu economy, to invest and
develop suppliers for mining, which agreagen value technologic development and
innovation.
This is not just about working on post of the search for new applications of copper,
but to develop the technological and service industry in post mining. With the
progress of time, will experience the phenomenon of "Silicon Valley, today, which
have their roots in the Gold Rush, to 1848-1855".

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171
ACKNOWLEDGEMENTS
REFERENCES

1. Results of Surveys for Innovation and R & D 2007-2008. Published in August
2010, the Ministry of Economy of Chile
2. Chilean Mining Yearbook 2009; Published by the SERNAGEOMIN.
3. OSLO Manual Third Edition 2008 _ Frascati Manual 2002
4. Green Paper on Innovation
5. OECD 2009 interim report on the OECD Innovation strategy; An agenda for
action on innovation policy.
6. OECD Science, Technology and Industry.
7. Expansion of the Border, Globalization and Inequality in Chile during the
nitrate boom (1880- 1910). Economic History Association of Uruguay -
Montevideo Sixth Research Conference, 9 and 10 July 2009
8. Tax incentives for R & D in the OECD: A Comparative Study OECD
Economic Surveys: Chile 2005. by OECD
9. Innovation and Competitiveness Agenda Chile 2010 2020.
10. Analysis and evaluation of mining cluster in Chile 2003.
11. Occupational health and safety management systems "OHSAS 18001:2007"
12. BS 8800:2004. British Standard "Occupational health and safety management
systems
13. UNE 166002:2006. "Requirements Management System I + D + I"
14. OISS (American Social Security Organization), Security Strategy Report and
Occupational Health, April 2009.
15. R & D and Innovation in Spain; Improving the policy mix. Written by OECD
- Organisation for Economic Co-operation and Development
16. R & D + I. R & D and Innovation Activities 2007- 2013
17. Mining and Metallurgy in the modern age, written by Julio Snchez Gmez.
18. Effects of R & D on corporate growth. Authors Juan Vicente Garcia-Miguel
Manjarrez European University Miguel.
19. Mechanisms for technology transfer and industrial property between the
University and the Public Research and Innovation Technology and Business.
Author Antonio Hidalgo
20. Law 20241 establishes a tax incentive for prvate investment in research and
development.

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Santiago, Chile

FLEXIBLE MINING CLOSURE PLANS: DEALING WITH ENVIRONMENTAL
AND SOCIAL REGULATION UNCERTAINTY

Miguel Paredes Sadler
Massachusetts Institute of Technology (MIT)
290 Vassar Street Apt. E6
Cambridge, MA 02139, USA
mparedes@mit.edu

ABSTRACT

The future is inherently uncertain. This reality has large implications for the
mining closure phase, which requires making many assumptions about future conditions.
However, the uncertainties of some areas are vastly ignored in closure plans, such as
environmental and social regulatory uncertainty, placing mining companies in a
disadvantageous and risky situation under certain unexpected scenarios. Given the
inability of mining companies to precisely forecast the set of social and environmental
regulations that will be in place after the extraction and processing of their mine, their
closure plans fail to propose strategic interventions that would allow them to manage
future uncertainty. Drawing from the Peruvian example which mirrors the mining
industry as a whole, we highlight social and environmental issues not currently being
addressed in mining closure plans due in part to government regulatory silence on these
matters, and which leave mining companies vulnerable to future scenarios of more
stringent social and environmental regulation. Through a combination of Monte Carlo
simulations, Real Options, and Scenario Exploration techniques, we demonstrate how a
more rigorous representation of future social and environmental regulatory uncertainties
could warrant strategic investments today social and environmental real options -
granting mining companies the flexibility to manage future uncertainty.

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INTRODUCTION

Planning for the future is inherently uncertain [1-4, 7]. This reality is very often
poorly dealt with when planning and designing mining closure investments and
interventions, resulting in closure plans that mainly aim to appease current environmental
and social regulatory demands - assuming that these demands will remain relatively
unchanged throughout the mines lifespan while offering little foresight about future
changes and almost no strategic planning to manage this uncertainty. This neglect of
uncertainty can lead to closure plans not sufficing more stringent regulatory conditions
that might arise in the future, placing the mining companys revenues, operation and
reputation at risk.

This lack of strategic planning in the closure phase arises from a range of reasons,
such as lack of saliency, heavy reliance on and habitual use of deterministic decision-
making methods (e.g. cost-benefit analysis and other project appraisal tools), government
regulatory silence on certain environmental and social issues at the time of elaborating
the closure plan, poor knowledge of regulatory uncertainties, and weak organizational
capabilities. In this paper we demonstrate how a more rigorous treatment of uncertainty
can help in engineering flexible closure plans, which lead to mining operations that are
more robust and resilient to unknown future conditions. By modeling and simulating
social and environmental regulatory uncertainty in Peru, we show the limitations and
risks of current mining closure plans, investments and interventions, while exploring how
incorporating flexibility into the design of these closing plans could strategically position
the company to manage future unknowns.

In this paper we first lay out the environmental and social regulatory context in
which mining companies must operate in Peru and the general requirements that they
must fulfill. We then explore some of the specific interventions and investments
commonly proposed in closure plans and the estimated budgets that are allocated for
these means. Following the revision of closure plans, we discuss potential sources of
uncertainty in the environmental and social spheres and how these could trigger changes
in regulation. Subsequently, we consider how incorporating flexibility into closure plans
through real options [1,3] could strategically position mining companies to be more
resilient to regulation changes. Finally, we proceed to model and represent the
uncertainties through Monte Carlo simulations [5,6] and compare traditional and flexible
closure plans on different dimensions. We conclude discussing the potential benefits,
limitations, and next steps in this line of research.

ENVIRONMENTAL AND SOCIAL REGULATION IN PERUS MINING
SECTOR

Peru has become a major attraction for investments in mining given the countrys
vast mineral resources, its favorable economic and regulatory changes put in place in the
early 1990s to foster mining investment, and the outstanding economic growth
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Santiago, Chile
experienced in the past decade (average of 6.3% according to the IMF), all of which have
led many of the worlds largest and most important mining companies to invest heavily
in Peru. However, given the industrys relative youth, its government regulations have
constantly been evolving to incorporate best practices in the field, lessons learned from
its mining, an increasing concern for environmental issues, and social considerations.
These two issues have been the main drivers for updating regulations, especially due to
the social unrest that has frequently been present in Peru due to mining operations, many
times fueled by environmental concerns. These social and environmental problems have
placed the Peruvian government in a challenging position of attending to local population
requests for higher distributions of benefits and better environmental management, and to
attend to mining companies requirements for stable laws and regulations. This tension
will not dissipate, and will contribute significantly to future regulatory conditions in
addition to natural changes that would occur in other countries with lower social and
environmental challenges.

Perus Ministry of Energy and Mines (MEE) has been solely in charge of
establishing the legal and technical requirements for mining investments in Peru and
approving any of their required studies until recently, when in 2008 the Ministry of the
Environment (ME) was created. Despite the MEs creation and its establishment of some
environmental rules and regulations for mining companies, these have not yet been
adopted entirely, mainly because of lack of enforcement and legal specificity. While
some of the MEs regulatory instruments will be mentioned, this work will focus mainly
on current environmental and social regulatory requirements as mandated by the MEE.
As it should become clear to the reader, the strengthening and maturing of the ME, and
its subsequent regulations, are an important source of uncertainty for the mining industry.

The main studies required for approval to initiate operations in a mine are the
Environmental Impact Assessment (EIA) study, which includes a Social Impact
Assessment (SIA) component and a conceptual Closure Plan (cCP), and the detailed
Closure Plan (CP) to be submitted up to 1 year after the EIAs approval but before
operations begin. Both the EIA and the CP must be updated throughout the mines
operating life to reflect any design or operational changes. Given that the CP is meant to
regulate the environmental and social aspects during the closure phase, we will not focus
on the EIA, as it is understood that the CP will be consistent with it while providing more
details relevant to the closure phase.

Closure Plan Requirements

The purpose of the CP is to propose investments and interventions that deal with
the permanent changes that mining operations have on the environment and on local
populations. Specifically, the focus of Perus CP regulation is on anticipating and
rectifying expected negative environmental impacts on water bodies and land surfaces to
ensure their post-mining usability, and mitigating and managing future negative social
impacts. Therefore, the CP is forward-looking in nature, and this approach is reflected in
its requirement for investments and interventions in four different phases and scenarios:
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progressive (when components of the mining operation are no longer needed or
operational), temporal (if and when mining activities must be halted, but they are
expected to resume), final (at the end of the mines operating life), and post-final
(activities after the closing of the mine such as monitoring of environmental quality or
social programs). We now proceed to look at a list of typical investments and
interventions from closure plans in Peru.

CLOSURE PLAN INTERVENTIONS AND INVESTMENTS

As previously mentioned, the CP must propose investments and interventions that
address and rectify environmental and social impacts that were generated during the
development and operation of a mine, ideally returning the mining site to its original
state. There are 8 components that need to be addressed in the CP, which are summarized
in table 1.

Table 1 Mining Closure Components
Closure Component Description
1. Mine (Physical properties) Topography, open pits, water bodies, etc.
2. Processing Installations Leaching plants and dumps, etc.
3. Solid Waste Management Installations Residual deposits and dumps, human waste, etc.
4. Water Management Installations Reservoirs, tanks, treatment plans, pipes, etc.
5. Material inputs Areas Buffer zone and infrastructure for inputs
6. Other Project related Infrastructure Office buildings, other complexes, stock areas, etc.
7. Housing and services for employees Housing complexes, medical services, etc.
8. Labor force and acquisitions Salaries, training, benefits, materials, etc.

In addition to these 8 components, there are 9 general activity areas defined for
interventions proposed in the CP, which are summarized in table 2.

Table 2 Mining Closure Activity Phases
Closure Activity Phase Description
1. Dismantling Removal of all equipment, infrastructure, etc.
2. Demolition and Recuperation Demolish facilities and reestablish to original state
3. Physical stability Interventions to ensure physical stability
4. Geochemical stability Interventions to ensure geochemical stability
5. Water Management Interventions to ensure water quality and access
6. Land surface and Habitat rehabilitation Reinstate original habitat and superficial conditions
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7. Re-vegetation Reinstate original vegetation
8. Aquatic habitat rehabilitation Reinstate original aquatic habitat
9. Social Programs Interventions to support local populations

Investments and interventions in these 8 components and 9 activities must include
a detailed budget and are to address specific impacts and contribute to the objective of
returning the site to its original state. The problem with defining these interventions ex-
ante is that there are many sources of uncertainties that will definitely require changes.
While this reality is inescapable and should not be used as an excuse to forgo future
closure and propose rectifying interventions, a more rigorous treatment of future
uncertainties is needed to reduce the risks that lack this lack of foresight might produce.
We now look at these sources of uncertainty.

UNCERTAINTIES IN THE CLOSURE PHASE

Despite the foresight nature of CPs and its acknowledgement of the inherently
uncertain future, there are no indications or guidelines regarding how future changes in
environmental or social aspects will be dealt with or regulated. This regulatory void
generates, in many cases, interventions that are a mere formality, as it is understood that
both the operation of the mine and the external conditions where the mine operates
(environmental and social) will require changes to the CP. From the point of view of the
mining company, not knowing what requirements will be solicited or how stringent
future regulation will be exposes them to unmanaged risk. For example, investments in
environmental measures might be insufficient to comply with future requirements. While
we acknowledge that in some way this is an unavoidable problem (the future will never
be known ex-ante), a more rigorous treatment and reflection about the different types and
sources of uncertainty could benefit mining companies, reduce their risk, and position
them to take advantage of opportunities that could increase their value. Therefore,
understanding the different types and sources of uncertainties revolving around
environmental and social regulation is of paramount importance to mining companies,
especially in relatively nascent mining industry like Perus.

Sources and Types of Environmental and Social Uncertainties

There are many types and sources of environmental and social uncertainties,
which is the main reason a more rigorous treatment of the matter is not usually
undertaken by public and private organizations involved in the mining industry.
However, many types and sources are not hard to imagine, and some methods exist to try
to represent them in a reasonable manner either quantitatively or qualitatively.
Identifying the main uncertainties

Some of the main environmental uncertainties that could potentially change
regulation are the level of understanding and available knowledge regarding the long-
term effects of large mining investments as it is currently practiced, the specific
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interactions and resulting outcomes of mining activities on the ecosystems, the
prevalence of certain chemicals throughout time, and the cumulative effects of mining
operation on environmental elements that in short-term periods and in discrete
expositions would otherwise be harmless.

Some of the main social uncertainties that could foster changes in closure plan
regulation are the medium to long term socioeconomic effects of displacement on
compensated peoples groups, the cumulative health effects of mining operations on
communities that are downstream or wind-born to mining sites, the governments ability
to foster economic development and social inclusion, and the general perception and
tolerance of the population at-large with mining investments and operations.

INCORPORATING FLEXIBILITY INTO CLOSURE PLANS

The passive approach to uncertainty that is frequently taken when elaborating CPs
creates two problems for a mining company: it exposes them to future risks and prevents
them from capitalizing on future opportunities had they taken a more strategic approach.
The following section describes an approach to address these two problems by
incorporating flexibility in the design of the CP and its investment and interventions
through Real Options.

SIMULATION MODELS

In order to demonstrate the value of our proposed approach, we develop a flexible
closure plan portfolio of investments and interventions based on a traditional closure plan
portfolio and simulate future scenarios through a Monte Carlo approach that incorporates
some of the sources and types of uncertainties previously discussed.

Forecasts are always wrong; in part because point-estimates or historical average
values are traditionally use to convey what is considered the most likely value [3]. This
common practice leads to what is known as the flaw of averages, which is the
misconception that averages are good predictors of outcomes [2,3]. In reality, only when
the studied system is linear will the systems expected value or outcome be equal to the
value or result that would be reached if using average values [2,3]. As is easily deduced,
mining operations are far from linear systems and are better represented as complex large
interconnected and open sociotechnical systems [8].

In order to demonstrate the value of our proposed approach, we develop two
financial models. The first one represents a traditional closure plans portfolio of
investments and interventions while the second one represents a flexible closure plan that
incorporates real options. After simulating the models 10,000 times, we interpret,
compare, and discuss the results in light of the shortcomings of traditional closure plans
and our proclaimed benefits of a flexible approach to closure plans.
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CONCLUSIONS

Closure plans have ultimately become more of a formality than a strategic
management tool to many mining companies in Peru. This is largely due to a relatively
lax and maturing regulatory environment that does not incentivize more innovative and
though out plans, and to a lack of a more rigorous treatment of uncertainty and the future
by mining companies, which leads them frequently to comply with the minimum
regulatory requirements. The evolving nature of the environmental and social regulations
in Peru highlights the uncertain reality about future regulation, and poses a potential
threat to mining companies. However, as we have shown, these future environmental and
social uncertainties can also provide mining companies with a unique opportunity to
strategically place itself to mitigate and capitalize over these unknowns.

Different CP interventions and investments from mining companies in Peru were
explored in addition to some of the more important sources and types of uncertainties.
While many of these uncertainties cannot be anticipated or properly represented, some
key ones can and should, and while the precision of this estimation might not be ideal,
the main benefits lie in aiding the decision maker in understanding how unknown future
conditions might affect their operations and objectives, and in assessing whether a more
strategic approach to designing the CP a flexible design with Real Options might
bring higher value.

We developed two simple financial models to test the value of incorporating
flexibility and as a proof of concept for our real options approach. The first model
(traditional) was based on real life CP investments and interventions, and the second
model (flexible) incorporated real options, or investments and interventions that granted
the mining company the right, but not the obligation, to exercise certain actions in the
future that would otherwise not been possible to implement due to path dependency and
lock-in due to other choices or prohibited costs. A clear example of this is the potential
social grace gained through more than minimal interventions.

Further research will employ more complex and sophisticated versions of closure
plan models and expand on the financial aspects that were the core focus in this paper.
Additionally, a historical analysis of all regulatory changes related to environmental and
social issues in Peru is currently being elaborated, as well as an analysis of the changes
that have occurred in the most important mines in Peru as documented in their closure
plan updates. The public nature of both regulations and closure plans will enable us to
complement and improve our current sources and types of uncertainty, as well as the
probabilities used to model them.

Finally, we conclude by stating the obvious: a closure plan, and any other plan, is
exactly that, a plan for something that will occur in the future. Therefore, if mining
companies can better characterize future regulatory scenarios, despite the complexity of
the endeavor, they will produce better closure plans and be better placed to manage
future uncertainty.
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REFERENCES

1. R. Dixit, and R. S. Pindyck, Investment under uncertainty. Princeton University
Press, 2008.

2. G. Morgan, and M. Henrion, Uncertainty: a guide to dealing with uncertainty in
quantitative risk and policy analysis. Cambridge University Press, 1992.

3. R. de Neufville, and S. Scholtes, Flexibility in Engineering Design. The MIT Press,
2011.

4. H. Raiffa, Howard, and R. Schlaifer, Applied Statistical Decision Theory. Harvard
Business School Publications, 1961.

5. Robert, Christian, and George Casella. Introducing Monte Carlo Methods with R.
Springer, 2009.

6. R. Rubinstein, Simulation and the Monte Carlo method. Vol. 190. Wiley-
interscience, 2009.
7. S. Savvides, "Risk analysis in investment appraisal." Project Appraisal 9, no. 1
(1994): 3-18.
8. J. Sussman, R. Dodder, J. McConnel, A. Mostashari, and S. Sgouridis, "The
CLIOS process: a users guide." Course materials for ESD. 04J Frameworks and
Models in Engineering Systems, Spring 2007 (2007).

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ENVIRONMENTAL FOOTPRINTING OF METALLURGICAL COPPER
PROCESSING TECHNOLOGY
-Linking GaBi to HSC Sim-

M.A. Reuter, I. Kojo, A. Roine and M. Jfs
Outotec Oyj
Riihitontuntie 7
Espoo, Finland 02201
markus.reuter@outotec.com

J. Gediga and H. Florin
PE-International
Hauptstrae 111-113
Leinfelden-Echterdingen, Germany 70771

ABSTRACT

This paper will discuss the use of HSC Sim (www.outotec.com/hsc) and GaBi
(www.pe-international.de) for foot-printing process technology and complete plant and
larger system solutions (e.g. recycling chains). In a recent development together with
PE-International, HSC Sims simulation functionality has been expanded to create files
that can be exported in a format that can be directly loaded into GaBi to create a GaBi-
model from a complete HSC Sim flowsheet and subsequently produce an environmental
assessment locally positioned wherever the plant is situated. This is very useful for the
evaluation of existing industrial plants represented by suitable HSC Sim flowsheets, as
well as the evaluation of various scenarios to estimate the impact of newly designed
solutions based on the rigor of metallurgical flowsheeting (mass and energy balances)
and associated process models. It goes without saying that this connection enables the
access to highly detailed process information through HSC Sim and thence providing a
rigorous basis on which to perform environmental impact assessment and identify the
best process options for each site based on the local conditions and energy footprints. In
addition to this LCA analysis, HSC Sim has also been expanded to include exergy,
which is rather useful to also understand the entropy flows in systems permitting
evaluating systems on a more fundamental basis.

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INTRODUCTION

Metals are an essential and critical component of todays society: a moments
reflection on their ubiquitous presence in virtually all energy and material production
processes, products, infrastructure, confirms this. Metals play a key role in Enabling
Sustainability through societies various high-tech applications. However, the resources
of our planet are limited, as is the strain to which we can subject it in terms of emissions,
pollution, and disposal of waste. For these reasons, finding ways to lower the
environmental footprint of our collective existence and therefore lowering greenhouse
gas emissions and help mitigate climate change is a vital priority [1-2].

The maximization of resource efficiency [3-4] is the underlying theme of this
contribution. It will be shown what depth and detail that is required to systemically fully
understand resource efficiency in the context of material use and copper metal
production. Design for Resource Efficiency is elaborated on with on the basis of physics
rather than simplistic material flow analysis approaches which provide no basis to
improve resource efficiency as is the usual methodology in environmental impact
assessment. In support of this, the detailed data that are required, the technological
understanding and design that impact on resource efficiency is reflected by Figure 1.
The highlighted aspects in Figure 1 are among others implicitly and explicitly discussed
include multi-physics modeling within a feasible techno-economic framework.

Figure 1 Resource Efficiency and how it relates to metal production
in its systemic complexity.
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The metal and material interactions in the system can be rather complex if one
considers not only primary but also secondary resource as reflected in by the complex
designed copper minerals in end-of-life products in Figure 2.

Figure 2 Improving resource efficiency relies on detailed knowledge on the interaction
of all elements in primary as well as secondary recycled resources as depicted by
Figure 1 copper metallurgy is a key metal for enabling recycling of
e-Waste [4].

Figure 3 Some Outotec technology for the smelting of secondary resources (e.g. e-
waste, copper containing materials and recyclates) applied in closing the loop in
Figure 1.
It would be self evident that the environmental impact studies for primary and
secondary/recycling metals production must consider this non-linear detail to ensure that
Chalcopyrite CuFeS
2
and
>15 minors e.g. Au, As, Ag, Se etc.
Designer Copper Minerals
>40 elements complexly linked
Material combinations and
Designed Consumer Minerals
Material
connections
Joined
Materials
Company Location Technology
Production from
secondary Cu (tpa)
Dowa Mining Kosaka, Japan Ausmelt TSL 25,000
Korea Zinc Onsan, ROK Ausmelt TSL Unknown
Global Resources & Materials Danyang, ROK Ausmelt TSL 25,000
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all aspects of the impact are well understood. If for example recycling is considered, the
detailed metallurgical processes occurring in furnaces such as shown in Figure 3, that
distribute the various compounds and elements in Figure 2 to various phases, should be
included in the evaluation. This would provide a complete and more detailed picture of
the complete material cycle and therefore provides insight into how resource efficiency
can be improved. It also ensures that data collected for these systems are in a format that
can be used and applied in rigorous process simulation as required by for example HSC
Sim type of process simulation including all minerals, phases etc.

Rigorous process simulation as shown Figure 4 [5,6] is very helpful to close the material
balance for all the included process and hence be a valuable tool to minimize the losses
as reflected in Figure 1. This figure shows the processing of end-of-life products,
inclusive of dismantling as well as final metal production (inclusive of refining).

Figure 4 A process flowsheet for End-of-Life products using HSC
Sim.

EXPLORING THE FUNDAMENTAL PROCESS BENCHMARK

It is clearly evident from the above that in order to fully understand the
environmental impact of metallurgical processes requires deep knowledge of the various
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aspects of the whole material chain. A detailed environmental impact evaluation of Best
Available Technique (BAT) without considering all the mentioned detail for example in
a typical copper flow sheet as shown by Figure 6 would not help to innovatively
improve the fundamental benchmark of the industry as depicted by Figure 5.

Figure 5 Improving Resource Efficiency by systemically approaching
the fundamental techno-economic limits of metal production
systems (yellow dots) i.e. the ultimate attractor of a resource
efficient copper industry (BAT: Best Available Technique).
Figure 5 depicts the ambition of the copper industry to get closer to the techno-
economically feasible resource efficiency, by quantifying all losses and therefore better
understanding which aspects impact most the migration to the ultimate operating point
for the copper industry. Also possible innovation may lower the ultimate achievable
operating point that will increase resource efficiency even further. In this paper we will
briefly discuss how rigorous process tool can be used for example to evaluate typical
copper plants as shown in Figure 6 (for example). To assist in this also environmental
impact the GaBi software will be used that has been linked to HSC Sim as shown in
Figure 7.
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Present
Time (Years)
Fundamental Cu Process and System Benchmark
Techno-economic based
New Cu Process Benchmark
Technology and Systemic Innovation (Digitalization)
System Integrated Copper Processes
Driving Cu-processes ever closer to their systemic, technological and
hence physics based limits, while decreasing product variability. hence phy ts, ng pro phy ts, ng pro
The ultimate benchmark of Copper industry sector
Fundamental Cu
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Figure 6 A primary copper flow sheet for the smelting of copper
concentrate depicting various Outotec technologies inclusive
of Flash Converting and Kaldo.
LCA software as shown on the right in Figure 7 generally relies on average
process data for the various metals to assess their impact when used in product design
and applications. As there are variations in any flowsheet as well their application of
BAT in addition to processes being situated at different locations globally, impacts due
to changing energy mixes, resource impacts, and transport, and etc., environmental
impacts for a specific plant can vary significantly around the average. It can therefore be
very useful to evaluate the impact of specific processes at specific locations to assess
their real impact as well as reveal true potential for process improvement. This rigorous
link provides some obvious and very useful benefits, which include:

Maximizing the strengths of each software platform and their respective
databases (thermochemical and environmental respectively) to evaluate
systems. At the same time this rigorous link will also reveal weaknesses
which would then provide the true points which have to be improved to
ensure that resource efficiency can be realized to its techno-economic limits.
All streams are mapped in detail including all compositional data not only as
elements but also as compounds as a function of a unique concentrate feed
suite (e.g. LCA databases detail only a few slag types, while in fact each
process has its unique slag) or recyclate and residue suite for secondary
processing.
Flue dusts and other fugitive emissions can be quantified and/or characterized
at least to understand their full impact.
Preciou
s Metals
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Rigorous closed mass and energy balances for each element are given. In
many cases the average LCA databases do not provide consistency in this
regard.
HSC Sim can also provide exergy data. Therefore combining exergy and
LCA type information can help much to further drive copper production to its
techno-economic limits.
Harmonizing the LCA and the metallurgical process simulation community
has enormous advantages.
The simulation component provides the total freedom to create whichever
process and impact it, obviously if appropriate environmental data is present
in the GaBi database that can be mapped to the flows in the simulator.

Figure 7 The linking of rigorous simulation and design tool HSC Sim
(www.outotec.com) and PE-Internationals (www.pe-
international.com) GaBi software. The example links
concentrator, smelting and refining inclusive of sulfur
capture to GaBi to provide the shown environmental impact
bottom right.

Due to the unique situation that exists at each industrial facility, we do not
present specific data in this paper as it would not be representative. Simulating BAT
with HSC Sim and calculating an impact with GaBi must be done separately for
different industrial facilities, because average values may lead to incorrect conclusions
and in the end do not show what has to be truly improved at each facility. This is a
rigorous goal to strive for i.e. to get the lowest impact for each facility with its unique
OTs HSC Sim 7.1x
(>19,000 licences www.outotec.com)
BAT, Flow Sheets & Recycling System Maximizing
Resource Efficiency Benchmarks
$US / t Product (CAPEX & OPEX)
Recyclability Index (based on system simulation of whole cycle)
GJ & MWh / t Product (source specific) and Exergy
kg CO2 / t Product
kg SOx / t Product
g NOx / t Product
m
3
Water / t Product (including ions in solution)
kg Residue / t Product (including composition)
kg Fugitive Emissions / t Product
kg Particulate Emissions / t Product
Etc.
PE-Internationals GaBi
(www.PE-International.com)
Environmental Indicators based on BAT
Driving Benchmarks of Industry
Global Warming Potential (GWP)
Acidification Potential (AP)
Eutrification Potential (EP)
Human Toxicity Potential (HTP)
Ozone Layer Depletion Potential (ODP)
Photochemical Ozone Creation Potential (POCP)
Aquatic Ecotoxicity Potential (AETP)
Abiotic Depletion (ADP)
Etc...
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technology and feed suite, which will obviously lower the footprint of the complete
industry.
RESOURCE EFFICIENCY QUANTIFIED BY RIGOROUS SIMULATION

Figure 8 forms the basis of all the data and simulations that are used in this
discussion. This figure shows a typical flash smelting furnace and Peirce-Smith
converters as well as sulfuric acid and refining plants. Also some mass flow data in kg/h
are shown as well as some data for the FSF slag stream.

Figure 8 A HSC Sim 7.1 simulator version of Figure 6 with some
detail of the slag stream shown on the right hand side
window. This model is the basis for the discussion example
in this paper, noting that converting is done in Peirce-
Smiths.

The software link depicted by Figure 7 makes it possible to create GaBi
processes from the HSC Sim process simulation models for complete plants or reactors
as shown in Figure 8. These processes can now be used to create any GaBi process. The
next figures depict some of the software steps using the LCA functionality within HSC
Sim including among others the following:

After creating a simulation model as shown in Figure 8 all streams can be
collected depicted by Figure 9. Following the various tasks as shown on the
bottom tab (Mapping, Normalize, Export, Get Indicators, Save, Close),
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manual mapping is performed that links all the HSC Sim flows (which can
have arbitrary names) to equivalents in the GaBi database. The structure and
data names tags are duplicated in HSC Sim as shown. The mapping also
indicates if streams flow to the environment or the techno-sphere for
example. This selection obviously also has an effect on the final
environmental impact thus careful selection is required by knowledgeable
individuals.

The product is selected as shown Figure 9, which is the flow around which
all other streams are normalized in this case blister copper is the pivot.

Subsequently data is normalized by using the appropriate action in HSCs
LCA functionality tool after various manual input are entered that do not
appear in the simulation such as blowers, launder gas burners etc. This is
depicted by Figure 10.

Figure 10 also shows that all similar streams from the GaBi point of view are
collated i.e. all streams with the same GaBi name allocation are added.
Subsequently these data can be exported to GaBi to produce a process as also
reflected by Figure 10.

This process is now saved in the GaBi databases (appears as a HSC sub-
directory in GaBi collecting all HSC processes) and can be used for example
as a BAT copper production process, with a fully consistent mass and energy
balance. This is interesting if for example Original Equipment Manufacturers
(OEMs) are considering selecting the environmentally cleanest possible
materials in their products in the environmental evaluations.
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Figure 9 The LCA-Functionality in HSC Sim showing how variables
in the simulator and their names are collected and
subsequently mapped to the GaBi database variables with a
mapping tool that contains the GaBi variable database listing
(right window)

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Figure 10 After the mapping as shown in Figure 9, data is normalized
to GaBi variables (i.e. all mappings with same GaBi variable
name are collected) and subsequently can be exported to be
directly imported as a process as shown by the right hand
figure from GaBi

QUANTIFYING RESOURCE EFFICIENCY & SUSTAINABILITY

From Figure 10 it would be clear that a complete flowsheet is summarized
(crunched) into one black-box GaBi-process and can now be used in GaBi. As
mentioned all flows are balanced, which is not necessary the case in the usual
environmental databases. If required an LCA can be done for a reactor, or a complete
production site or a complete system as shown by Figure 2 and Figure 4, hence the
approach is totally scalable and hence extremely useful for process benchmarking.
Figure 11 shows three processes simulated with HSC and exported to GaBi and
subsequently used within GaBi to produce a GaBi plan that links mined material to final
refined cathode. Once this GaBi-plan has been created as depicted by Figure 11 various
other analyses can be done such as showing the Sankey energy flows for the selected
inputs (which vary in this case from a Finnish energy mix, to GaBi specific data for the
production of the materials as well as German Oxygen production data, EU fuel
production impact data the user can select from various in the GaBi database).
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Figure 11 The energy Sankey diagram for the given processes in
copper production as simulated with HSC Sim and presented
by GaBi, starting with flotation and ending with refined
copper product via flash smelting and Peirce-Smith
converting.

Figure 12 A GaBi impact assessment based on the HSC Sim
simulation of the flowsheet in Figure 8 showing the Global
Warming Potential (GWP), Acidification Potential (AP),
Eutrophication Potential (EP) and the Ozone Depletion
Potential (ODP).

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Each process that has been extracted from HSC Sim is a consistent black-box of
that process only revealing the major in- and outflows. This is extremely powerful to
disseminate consistent data for all copper making processes which support the usually
more average data found in the environmental databases.

The concise results documented above make clear that each selection of inputs of
materials will provide a new answer, hence making more detailed results than the
generalized Figure 12 (from which quantitative results have been removed) rather
impossible to present, lest a biased picture is presented. Nevertheless, Figure 11 shows
that electricity generation has the major impact in the first 3 categories shown and
oxygen production in the fourth for the given simulated BAT technology and plants and
the indicated input suite.

The rigor of the HSC Sim process simulation makes it also possible to evaluate
the exergy flows [5] of the system as shown for example by Figure 13, from which it is
clear where the biggest losses take place. These obviously will and are being addressed
for the copper industry to approach the attractor (yellow dots) in Figure 5.

Figure 13 The exergy flow diagram for a typical copper smelting
plant.
CONCLUSIONS

This paper briefly shows that the combination of rigorous process simulation
(that produces closed mass and energy balances as well as exergy flows) and
environmental impact software can provide a very useful basis to evaluate complex
material flow and metal production plants and systems.

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This combination also provides an unbiased basis for benchmarking technologies
and plants while at the same time also revealing strengths and weaknesses not only in
technology but also in assessment platforms and tools. This provides a rigorous basis to
drive innovation and Quantify Sustainability; it reveals what can be done to improve
rather than just showing how bad industry is, it enables sustainability by suggesting
also solutions.

In addition this HSC Sim and GaBi link renders transparent environmental
computations and impact assessments and opens the dialogue between the different
actors which includes process metallurgical simulation, the usual basis in any discussion
in the process metallurgical world. This link will also help to bring thermodynamics and
process physics more rigorously into policy discussions around environmental
legislation. This was also recently mentioned on the European Commissions Resource
Efficiency platform website [7].

REFERENCES

1. B.D. Santer et al., A search for human influences on the thermal structure of the
atmosphere, Nature, Vol. 382, 4
th
July, 1996, 39-46.

2. IPCC, Climate Change 2007: Synthesis Report Synthesis Report, An
Assessment of the Intergovernmental Panel on Climate Change, This underlying
report, adopted section by section at IPCC Plenary XXVII (Valencia, Spain, 12-
17 November 2007), represents the formally agreed statement of the IPCC
concerning key findings and uncertainties contained in the Working Group
contributions to the 4
th
Assessment Report (2007).

3. UNEP, Metal Recycling: Opportunities, Limits, Infrastructure, A Report of the
Working Group on the Global Metal Flows to the International Resource Panel.
Reuter, M. A.; Hudson, C.; van Schaik, A.; Heiskanen, K.; Meskers, C.; Hagelken,
C., 2013, 316p.
http://www.unep.org/resourcepanel/Publications/MetalRecycling/tabid/106143/Default.aspx

4. EUROPEAN COMMISSION, Brussels, 20.9.2011, SEC(2011) 1067 final,
Roadmap to a Resource Efficient Europe, {COM(2011) 571 final} {SEC(2011)
1068 final}, 2011.

5. M.A. Reuter, Limits of Design for Recycling and Sustainability: A Review,
Waste and Biomass Valorisation, Vol. 2, 2011, 183-208.

6. M.A. Reuter, The simulation of industrial ecosystems, Minerals Engineering, Vol.
11(10), 1998, 891-917.

7. European Commission
http://ec.europa.eu/environment/resource_efficiency/news/up-to-date_news/02052013_en.htm, 2013.
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COMMERCIAL OPERATION OF ARSENIC FIXATION BY DMSP

N. Hashimoto, M. Abumiya and H. Yatsuhashi
Dowa Metals & Mining Co., Ltd.
60-1 Otarube
Kosaka, Akita 017-0202 Japan
hashimn2@dowa.co.jp

K. Matsumoto and T. Sugawara
Kosaka Smelting & Refining Co., Ltd.
60-1 Otarube
Kosaka, Akita 017-0202 Japan

ABSTRACT

Dowa Metals and Mining Co. Ltd. has developed and proposed a unique
scorodite synthesis technology (DMSP) for arsenic fixation to solve problems
originating from constant increase of impurities, especially arsenic, in copper
concentrates. This scorodite is well crystallized and the least soluble, then it has much
smaller problems with disposal and stockpile. The DMSP plant at Kosaka Smelter has
been producing crystalline scorodite from copper intermediate materials and it has started
commercial operation since December 2011. During the entire operation, process
management has been fairly stable: fixing 3050 arsenic-MT/month, recovering copper,
safe disposal and effluent treatment allocation with existing system. Although
characteristics of raw materials have sometimes changed by circumstance, the scorodite
generated in the plant has had excellent dissolution stability, almost as same as one in
laboratory experiment. This means solid success in commercial application of DMSP.
It is expected that more and more arsenic will be contained in copper concentrate, then it
is concerned that many non-ferrous smelters in the world would suffer from large
amounts of arsenic in processes near future. The authors believe that DMSP will have
an important role in efficient use of resources and safe control of harmful elements.

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INTRODUCTION

Currently, non-ferrous smelters are facing serious problems with a debasement of
ores and concentrates, containing large amounts of various impurities. This phenomenon
is particularly obvious in copper smelting caused by the continuous upward trend in
arsenic content of concentrates, which makes adjustment for smelting conditions difficult
and increases costs for recovery of metals. On the other hand, regulation for pollutants
emitted from industries is becoming stricter all over the world in order to protect the
health of people. Therefore, it is considered to be an urgent issue to establish a reliable
method for the management of arsenic.

There are three types of widely known arsenic-bearing intermediate products in
copper smelting processes. 1) Arsenic sulfide: precipitate of effluent at sulfuric acid
plants. 2) Liberation slime: by-product in processes of copper electrolyte purification.
3) Flue dust from smelting furnaces. These intermediates, also containing large amounts
of copper, are usually recycled into furnaces in order to recover copper. Along with the
recycling, arsenic, by contrast, has been accumulated in processes and, to make matters
worse, the degradation of copper concentrates increases the amounts of the intermediates.
Focused on treatment for the intermediate products, some studies have been reviewed
and performed [13]. However, more secure and reliable technology for extracting,
fixing, and disposing of arsenic is strongly desired by copper smelters for the purpose of
ensuring effective utilization of natural resources and protecting the global environment.

As mentioned in Copper 2010, Dowa Metals & Mining Co. Ltd. has developed a
unique process, named and patented as DMSP, to treat the copper smelter intermediate
materials as starting materials. In DMSP, arsenic is separated from copper by leaching
and the arsenic dissolved in the solution is transformed into crystalline scorodite
(FeAsO42H2O) by reaction with ferrous ion and O2 gas in the solution [46]. The
scorodite is considered to be the least soluble arsenic compound ever known. Based on
the achievement on the plant tests, DOWA has started commercial operation to prove
industrial capability of the plant with nearly 50 MT/month of arsenic at a maximum and
secure landfill as final disposal. The authors report recent commercial operation of the
DMSP plant in this paper.

PLANT OPERATION

The DMSP plant in Kosaka was designed to leach arsenic in copper
intermediate products without environmental loads, recovering copper simultaneously,
and then to stabilize the arsenic as scorodite.

Process Overview

Not only a scorodite synthesis process but also pre-treatment processes are
important to obtain well crystallized and insoluble scorodite. Complete batch processes
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were adopted for the purpose of ensuring monitor, traceability, and feedback. Operation
under atmospheric pressure enables equipment for reaction and filtration to be
conventional.

DMSP mainly consists of three processes. The first process is leaching;
specifically, extracting arsenic from raw materials to obtain concentrated arsenic solution
for crystallization while copper is remained in residue as sulfide. In order to separate
arsenic and recover copper in one step, two kinds of raw materials are carefully blended.
Ahead of leaching process, block objects in raw materials are crushed for uniform
reaction through a perspective of chemical engineering. Management of pH, temperature,
and oxygen flow rate is important to achieve proper leaching. The essential reaction is
represented by Equation 1. Arsenite is partly oxidized to arsenate at the same time.
(Equation 2)

Cu3As + As2S3 + 9/4O2 + 3/2H2O 3CuS + 3HAsO2 (1)

HAsO2 + 1/2O2 + H2O H3AsO4 (2)

The second process is oxidation of arsenite existing in the leaching solution. In
this process, almost all of arsenite in the solution is converted into arsenate by hydrogen
peroxide because As(V) is needed for the production of the scorodite. Oxidized solution
is assayed for As(III) concentration by chemical analysis in order to judge whether
oxidation is completed or not. The reaction in this process is expressed by Equations 3.

HAsO2 + H2O2 H3AsO4 (3)

The third process is crystallization; fixing the arsenic in the oxidized solution by
synthesizing scorodite, reacting with ferrous and O2 gas in atmospheric conditions. As
reported in Copper 2010, superiority in scorodite by DMSP, insolubility, productivity,
and so on, is a result of large particle size and high crystallinity, hence operation
conditions such as temperature, pH, oxygen flow rate, and agitation power, which all
affect crystallization, are always monitored and carefully controlled. The solution is
assayed for arsenic concentration by ICP (Inductively-coupled plasma) to judge
end-points of crystallization. This process is expressed by Equation 4.

2H3AsO4 + 2FeSO4 + 1/2O2 + 3H2O 2FeAsO42H2O + 2H2SO4 (4)

The wastewater, still containing dilute arsenic, is purified in an existing effluent
treatment plant and the scorodite is conscientiously washed in a filter press and a
washing tank, and then landfilled. Figure 1 summarizes the flow of these processes.

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Figure 1 DMSP flow diagram

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Raw Material

Three kinds of copper intermediate materials have been utilized at the plant as
raw materials: fresh arsenic sulfide, stored arsenic sulfide, and liberation slime. Stored
arsenic sulfide is stocked for a long period and partly oxidized. Table 1 displays
component concentrations of raw materials.

Table 1 Assay of raw materials
Contents Fresh
Arsenic Sulfide
Stored
Arsenic Sulfide
Liberation
Slime
(wt%) (wt%) (wt%)
Cu 1525 1525 4050
As 2535 2535 2030
S 3035 3035 <1.5
Moisture 5060 20-30 515

Figure 2 shows XRD (X-ray diffraction) spectra of fresh (upper) and stored
(lower) arsenic sulfide. Fresh arsenic sulfide mainly consists of arsenic sulfide and, by
contrast, stored one chiefly consists of arsenic oxide and copper sulfate, as a result of
oxidation. This caused pH decrease when the combination of stored arsenic sulfide and
liberation slime was utilized as raw materials at the first brush. Additionally, shortage of
insoluble sulfur made it difficult to prevent copper elution. However, adjustment of
mixture fraction, base, and additives has enabled stable operation. DOWA has succeeded
in rendering arsenic in these intermediates insoluble with capable technology.

Figure 2 XRD spectra of raw materials
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Operational Result

Figure 3 shows trends of monthly intermediate treatment and cumulative arsenic
treatment at the DMSP plant. The operation had been experimental until 2009 and has
been commercial since December 2011. The maximum monthly weight of the
intermediate materials treated at the plant is approximately 50 MT and the total arsenic
amount in the intermediates has reached 680 MT. Although variation of the treatment has
been caused by circumstances of a supplier, maintenance, and so on, stable and safety
operation has been achieved over an entire period.

Figure 3 Operational results of the DMSP plant

Figure 4 shows actual variations of arsenic extraction efficiency for the leaching
process and arsenic concentration of the leachate. The efficiency had become relatively
lower for a time but recovered afterward, both were caused by the change of the raw
material characteristics.

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Figure 4 Arsenic extraction efficiency for the leaching process
and arsenic concentration of the leaching solution

Transition of arsenic fixation ratios in the crystallization process is shown in
Figure 5. Monthly average precipitation ratios have been from 95 to 97% in most months,
thus majority of arsenic in copper intermediate materials has been enclosed in scorodite.

Figure 5 Arsenic precipitation ratios in the crystallization process

SCORODITE AND ITS DISPOSAL

Characterization

Figure 6 presents trends of raw materials treatment and SEM (scanning electron
microscope) images of scorodite generated at every stage of commercial operation. The
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SEM images are scorodite generated from the combination of fresh arsenic sulfide and
liberation slime on the left, stored arsenic sulfide and liberation slime at normal
proportion in the middle, and mainly liberation slime on the right, respectively. Although
ratios of aggregate are slightly different, the appearances are quite similar to one another.
XRD spectra of scorodite have not contained spectral peaks representing jarosite or other
impurities. Regardless of changing raw materials, all the data declare that all scorodite is
almost the same.

Figure 6 Transition of raw materials treatment and SEM images of scorodite

Figure 7 shows a trend of arsenic solubility of the scorodite manufactured at the
plant. The solubility is evaluated by the method prescribed by Japanese Ministry of the
Environment, Notification No.13 [7]. Although the values of arsenic solution met the
permissible limit enough, it was relatively high during a year from the onset. The arsenic
solubility value gradually descended with improvement of the operation; adjustment of
starting pH and agitation power in the crystallization process, and enhancement of
scorodite washing function.

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Figure 7 Arsenic solubility of scorodite produced at the DMSP plant

All the scorodite generated by DMSP meets all the TCLP criteria, including
arsenic, as well as Japanese environmental standards. Table 2 shows results of scorodite
solubility test by TCLP. Not only arsenic but also the other toxic elements such as
mercury, lead, and cadmium have been dissolved less than standards.

Table 2 Solubility analysis of scorodite by TCLP
Metals Sample1 Sample2 Sample3 Sample4 Sample5 RDL Regulation
(mg/L) (mg/L) (mg/L) (mg/L) (mg/L) (mg/L) (mg/L)
Hg ND ND ND ND ND 0.001 0.2
As ND ND ND ND 0.3 0.2 5
Ba ND ND ND ND ND 0.2 100
Cd 0.06 ND ND ND ND 0.05 1
Cr ND ND ND ND ND 0.1 5
Fe ND ND ND ND ND 1
Pb ND 0.1 ND ND ND 0.1 5
Se ND ND ND ND ND 0.1 1
Ag ND ND ND ND ND 0.01 5

In preparation for industrial final disposal, long-turn solubility test of stocked
scorodite was conducted. Figure 8 indicates a trend of arsenic solubility of the stockpiled
scorodite. The arsenic solubility had been below the environmental standard for years.

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Figure 8 Arsenic solubility of stockpiled scorodite

Permanent Disposal

The scorodite has been safety landfilled in a controlled final disposal site of
Greenfill Kosaka Co., Ltd; Dowas group company. The scorodite produced at the plant
is packed in flexible container bags, delivered to the disposal field, and finally landfilled
with religious care. Outflow water from the site is collected in pits and monitored. A
photograph of the site is given in Figure 9.

Figure 9 Photograph of the final disposal site

Wastewater form the DMSP plant is purified at an existing hydrometallurgy
plant at Kosaka Smelting & Refining by conventional iron coprecipitation method.
Effluent from other plants is also gathered into the hydrometallurgy plant. This central
control enables careful effluent management and environmental protection.

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CONCLUSIONS

DMSP has been developed for the purposes of not only copper recovery but
also arsenic extraction from intermediate materials in copper smelters, arsenic
insolubilization, and safety landfill. The DMSP plant has accepted a variety of arsenic
sulfide and liberation slime as starting materials and has treated in various proportions
with them. The DMSP plant has a capability of approximately 50 MT arsenic treatment
per month. The arsenic leach rate in the leaching process has been about 90% and the
efficiency of arsenic sedimentation in the crystallization process has been higher than
95%. The scorodite produced at the plant has been landfilled in the special disposal site
after verifying its insolubility.

Furthermore, in test plant experiments, DMSP was applied to smelting furnace
flue dust and combination of the flue dust and liberation slime, and generated scorodite
met all the TCLP standards, not only arsenic. This result verifies versatility of DMSP
on arsenic treatment. Further investigation will enable the DMSP process to be
adaptable to most of arsenic-bearing intermediate materials in copper smelters.

This industrial achievement of the appropriate commercial treatment of arsenic;
extraction, insolubilization, and safety landfill, in addition to copper recovery is
significantly important from the viewpoint of the fixation of hazardous elements and the
efficient use of limited natural resources. DMSP, considered to be a revolutionary
arsenic treatment methodology for the global environmental conservation with a high
affinity for existing copper smelting processes, is expected to further progress and
develop in the future.

ACKNOWLEDGEMENTS

For their remarkable contributions to the success in developing this process and
commercial operation at this plant, the authors thank to all of the members of KOSAKA
SMELTING & REFINING, DOWA HOLDINGS, DOWA ECO-SYSTEM, and DOWA
METALS & MINING, who also supported the work to complete this report.

REFERENCES

1. N.J. Welham, K.A. Malatt and S. Vukcevic, The Stability of Iron Phases
Presently Used for Disposal from Metallurgical SystemsA Review, Minerals
Engineering 13 (89), 2000, 911931.

2. P.A. Riveros, J.E. Dutrizac and P. Spencer, Arsenic Disposal Practices in the
Metallurgical Industry Canadian Metallurgical Quarterly 40 (4), 2001,
395420.

3. B. Harris, The Removal of Arsenic from Process Solutions: Theory and
Industrial Practice, In: C. Young, A. Alfantazi, C. Anderson, A. James, D.
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Dreisinger and B. Harris, (Eds.), Hydrometallurgy 2003 Proc. 5th Intl.
Symposium. TMS, Warrendale, 2003, pp. 18891902.

4. T. Fujita, R. Taguchi, M. Abumiya, M. Matsumoto, E. Shibata and T.
Nakamura, Novel Atmospheric Scorodite Synthesis by Oxidation of Ferrous
Sulfate Solution. Part I, Hydrometallurgy 90 (24), 2008, 92102.

5. T. Fujita, R. Taguchi, M. Abumiya, M. Matsumoto, E. Shibata and T.
Nakamura, Novel Atmospheric Scorodite Synthesis by Oxidation of Ferrous
Sulfate Solution. Part II. Effect of Temperature and Air, Hydrometallurgy 90
(24), 2008, 8591.

6. T. Fujita, R. Taguchi, H. Kubo, E. Shibata and T. Nakamura, Immobilization of
Arsenic from Novel Synthesized ScoroditeAnalysis on Solubility and Stability,
Materials Transactions 50 (2), 2009, 321331.

7. Ministry of the Environment, Determination of Metals and Other Substances
Contained in Industrial Waste, Ministry of the Environment Notification No. 13,
Ministry of the Environment, Tokyo, February 17, 1973. (in Japanese)
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RISK STUDY APPROACH UNDER ISO 31.000/2009, IN THE PLANT AREA,
DIVISION TALCUNA, MINING SAN GERONIMO, COQUIMBO REGION
F. Torres, F.Contreras, J. Corvetto and A. Opazo.
Universidad Catolica del Norte.
Larrondo #1281.
Coquimbo, Chile.
ftorres@ucn.cl

ABSTRACT

The evolution of the processes, technologies and cultural changes, makes us
reflect on methodologies for risk analysis and assessment. The level of uncertainty in
these new complex scenarios the challenge of creating new tools. In this paper, we
propose the design of a risk management tool based on ISO 31000/2009, for Talcunas
Plant of Minera San Geronimo, located in the Region of Coquimbo, Chile. It develops a
comprehensive tool from the selection of different methodologies to contextualize,
analyze, evaluate and address the risk according to ISO 31000, for the area of plant
concentrate Talcuna Division, generating a systematic view of risk, reducing uncertainty
and an important contribution to decision making.

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INTRODUCTION

Today mining in Chile is one of the areas that have a higher growth rate, where
one of the most important concepts applied to their processes are the components of
safety, quality and environment.

The current dynamic society presents a changing environment and competitive.
Companies tend to focus on short-term financial criteria rather than criteria long- term
safety in a dynamic environment where modern society is immersed. This means that
optimal risk management in the process industries, to maximize the benefit of your
business, involves the risk of crossing the limit when it comes to making decisions.
(Rasmussen, 1997; Dojo & Park, 2003).

Operational processes, interaction with people and the organization, not only have
effects and impacts on business - security system work, but it can also be outsourced to
other levels. (Shakirudeen and Haight, 2010).

The Safety Management, as defined, is the management process to achieve a state
of no unacceptable risk of harm. This security management is implemented through the
organization and production system. The security management system is reflected by
documented vision, through policies, regulations, risk assessments and procedures for the
control and management of the system and its risks. This acts as a formal system of
control over the activities and working methods. The security management has its roots
in the field of quality management and the "plan-do- check-act" cycle derived from
quality management (Mohaghegh and Mosleh, 2009).

When a risk analysis is performed , it is important to realize that decisions about
accepting risk is a very complex issue , and not only consider the technical variables , but
also economic , environmental , related to comfort worker , political , psychological and
social acceptance which play an important role (Suddle, 2008).

The analysis techniques and risk assessment mainly used so far in the country to
meet demand in terms of the depth and extent of the risk. The main problems associated
with these types of methods are: the difficulty in identifying all potential risk factors,
problems with uncertainties, problems to determine cause-effect relationships, among
others.

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A wide range of tools for analysis and risk assessment, both quantitative and
qualitative. In the present study we decided to use the most suitable, best and cost in
relation to the reality of the company.

Compania Minera San Geronimo (CMSG) was born in 1963 as an initiative of the
Lords John and Dalivor Rendic. For over 40 years, the Company has focused his work on
the exploration and development of copper and silver mines in the IV Region of
Coquimbo.

The year 2008 was very important to Minera San Geronimo. This year began the
expansion plan of the Company, which has allowed him to consolidate a position as
mining producer relevant to regional and national level.

In Division Talcuna is Talcunas Plant dedicated to process copper concentrate;
itself consists of two floors, each floor, the No. 1 and No. 2 consists in separately and
independently of a line of crushing, grinding and flotation may interact with each other to
some degree, if so required.

The aim of this paper is to study Talcunas Plant risk, for which we used different
methodologies of analysis and risk assessment.

METHODOLOGY

Literature review was conducted using data collected from different services, the
chilean government agencies, databases and journals (SERNAGEOMIN, BCN, IST,
Science Direct, etc.). Information was then selected what category was focused mainly
medium mining and mine safety, giving great emphasis to the legislation in line with
plant processes Talcuna sector. In addition to information relevant to accident rate
statistics in the mining sector and enterprise, finally a literature review of the
methodology of analysis and risk assessment related to ISO 31.000/2009.

There were 10 visits to the plant under a general and particular knowledge of the
plant, were recognized and relevant critical areas in order to focus the processes and
work activities. Preliminary information from the company and its processes was
analyzed in depth, together with environmental factors that may be affected by the
activities of the company, all to achieve the identification and evaluation of the
relationships between them. In this way it was possible to define the system and its
processes Plant Area, this will be the basis for the implementation of the various risk
management methodologies.
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First, we made a selection of the methodologies used to achieve a specific risk
assessment. This was done based on the criteria established in the ISO 31000 and 31.010.
Analysis tool and risk assessment for the sector Talcuna division plant in general is
carried out through a sequence of steps, within which were chosen and modified for each
specific methodologies. The first step was the initial or preliminary analysis;
subsequently performed the identification and assessment of risks, with these data we
conducted an evaluation and classification of the magnitude of these with specific
multidisciplinary methodological criteria, so finally select and deliver measures control
critical risks that may constitute causes of impacts, economic, labor, social and
productive.

RESULTS

Background Analysis of the mining sector, regulatory, risk bibliographic studies
and information of Compania Minera San Geronimo.

The selection and analysis of legal atingente the purpose is to publicize a
summary of the respective laws and decrees that govern our particular case a mineral
processing plant in the subject security.

The mining industry background relevant to the study were collected according to
the relationship that they had with the Coquimbo Region. The statistics of the mining
accident in 2010, correspond to mining sites are properly regularized operating an
approved project. During 2010, there were 41 fatal accidents in mining operations in the
country, which killed 45 workers, 29 of these companies were from constituents and 16
contractors. Where 12 were in the Coquimbo Region.

The fatality rate has remained almost constant over the last 10 years in Chile, as
shown in the graph in Figure 1. But the production, labor and projects increased
considerably.

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Figure 1. Fatality rate, from 1981 to 2010. Source: SERNAGEOMIN, 2010.

The most common type of accident for both contractors and mining companies
constituents is beaten by or against, then what is the tight, low or in between. The type
most common dangerous condition for both constituents contractors and housekeeping is
poor, then it is missing or inadequate fortification tools and defect respectively.

Definition of the system and its processes

Talcunas Plant currently benefiting minerals from underground mines
surrounding the plant, and Mina Mina 2001 21. It also processes ore from the open pit
mine Tugal located about 22 kilometers northwest of the plant. The process is via
flotation concentration of copper sulphide ores containing silver. The staffing company
that includes ground, Mina Mina 2001 and 21, consists of about 322 workers.

Talcunas Plant itself consists of two floors; each floor, the No. 1 and No. 2 (see
Figure 4) consists in separately and independently of a Line of crushing, grinding and
flotation, can interact with each other to some degree, yes so required. Each floor is
provided with a pair thickener and filter, which is used interchangeably for the handling
of the concentrates of the two plants, which for reasons of handling laws and impurities
mixed in the equipment should thickener.

In our study mainly Talcunas Plant was considered as a whole, as it was very
recurrent interaction of the two plants that make up the whole system. This due to the
ongoing expansion of one of them. Expansion works are not considered in the study.

Identified stages or macro-plant processes, generally shown schematically in
Figure 2.
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Figure 2. Schematic diagram of the current plant processes performed in
Talcuna. Source CMSG, 2010.

The figure above shows that the plant can be summarized in four major stages or
processes. The crushing, grinding, flotation and filtration.

Risk Management sector Talcuna division plant, CMSG.

Selection methodologies and risk assessment analysis.

Analysis tool and risk assessment for plant sector Talcuna division consists of
several methodologies for this purpose and these were selected after analysis by ISO
31010, this was done in order to achieve an efficient task and in each one of the main
stages of a risk assessment.

Already selected and distributed methodologies obtained a general tool for the
study of risk consists of the following evaluation methods:

Below in Figure 3 shows a schematic chart the outcome of the model:
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Figure 3. Risk management model based on ISO 31.000/2009, for Silver
Talcuna, Minera San Geronimo.

Risk management

a) Characterization of the stage

Checklist atingente legislation

The diagnosis was made through a checklist, these were for the main legal bodies
atingentes Talcuna of CMSG Plant; specifically discussed 11 documents which were
chosen to deliver information relevant to the characterization step scenario in our study.

The checklist was evaluated very simply, to each selected law assigned items of
importance to the plant. Each selected article was assessed as conformity. If the
requirement was in place and functioning, was considered "in compliance; if the request
was in process of implementation was not implemented at all or just no information on
this was considered "Non-compliance or implementation" in the final evaluation of
percentages.

To be finally evaluate the level of compliance of each checklist, was calculating
the percentage of conformity and nonconformity to the number of items evaluated. It
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does show that the level of compliance in most evaluated checklist was 100%, but four
regulatory checklists.

Historical analysis of accidents / incidents

Were obtained graphical representations of key statistical indices enterprise
security Talcuna between 2009 - 2010, these are shown plotted from Figures 4 and 5
respectively. These statistical indices are presented below in the following graphs.

Figure 4. Graphing the accident rate Talcuna
slaughter in 2009-2010. Source: CMSG, 2011

Figure 5. Graphing the slaughter rate Talcuna
Claims in 2009-2010. Source: CMSG, 2011.

They managed to have clear, detailed data mostly from accidents in 2007 and
2010, with whom they worked an array of data collection based on a modification of the
structure of MHIDAS.

Fault Tree and event tree.

Fault Tree.

The fault tree methodology, adjusted to the most frequent situation living each
process, on the ground Talcuna. This was achieved by first performing a process based
scheme that allowed their corresponding order sub-processes.

The central idea is to facilitate the delivery of information, optimize the search for
the most common faults in each plant process and coordinate with sub-processes, to
reach the final root causes that has direct relation to the error or failure inicial.Ya defined
these points mentioned above proceeded to develop methodology taking into account the
four most important processes as shown in figure 6. For purposes of presentation only
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consider the grinding process to all other processes were applied the same
methodologies.

It takes into account the information gathered in each of the sub-processes and
their possible errors or failures already mentioned. In the case of grinding was discussed
with maintenance managers and processes to coordinate the types of errors and more
frequent failures and a high degree of risk in the area. Leaving put, a fault tree with initial
unwanted event, possible intermediate events and finally the root causes that affect
directly to the initial event. A clear example is the tree of failure or error, this process
being as follows as expressed in Figure 6.

Figure 6. Tree Grinding process failure. Source: Authors.

The basic causes or events most frequently are those that are marked (orange),
these two cases are the most include:

Basic Cause "5": hydrocyclone parts failure.

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Basic Cause "6": Failure of shell structure and seal.

Both are the result of operational failure of the milling process and are related to
the human process equipment maintenance issues, mechanical control and coordination
of work procedures, in the most critical area.

Therefore it is essential to note that these two causes, are the most risky and
criticism in the milling process. For this, the importance of safety procedures to prevent
both the operators and in the critical area of the process. In order that all lines of
command, have the ability to be informed and to contribute with suggestions and
information to improve grinding system procedures.

Event tree

The event tree methodology (like fault tree), had to adjust to the situation and
living closer reality each of the processes, ground Talcuna. This was achieved first in the
fault tree development, which allowed order it with their corresponding sub - processes,
in terms of their root causes, undeveloped events and intermediate events.

It was also felt significantly, the incorporation of HAZOP design concepts and
system related failures of valves, pumps and pipes, as the event tree methodology, works
directly with these concepts and events, therefore all processes and threads, have which
incorporate fluid flow, together. The objective of this methodology is the delivery of
information, optimize the search for faults, frequently in each plant process and
coordinate with sub - processes to get to the root causes short, that has direct relation to
the event or baseline. I defined these points mentioned, proceeded to develop the
methodology mentioned taking into account the relevant processes.
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Figure 7. Event tree milling process. Source: Authors.

Quantification of grinding process.

To quantify and calculate the grinding process is necessary to identify the initial
event "Failed spill control and potential points. Already identified the event, we proceed
to verify the following error or fault this initial event, in this case the second failure is
related to valve and pump system.

To do this, it is essential to assign probabilities if the event occurs or not, in the
event of the event continues, to find the true causes the initial problem. In the case that
no event occurred is terminated and in some cases, are granted and preventative control
measures in order to leave a residual risk in a long run.

The second ruling has 2 likely to occur or not. In case they are not, or no
consequence risk for staff assigned probability 0.02. In the event of the probability is
0.98 continuing with the next event or suceso.El third error is "Failure of the control to
the water in tanks" there is a 0.61 probability that the event occurs, continuing progress
towards another event. In the case of the probability not occur 0.39 oscillates turn is
granted control measures in the process of the pump and valve system. The fourth error is
"Malfunction distillation tanks" there is a 0.96 probability of occurrence of the event
continuing progress towards another event. In the case of the probability not occur varies
by 0.04 turn is granted control measures to check the design of the material and the level
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of corrosiveness tanques.El fifth error is "failed equipment maintenance and mechanical"
there is a 0.82 probability of occurrence of the event continuing progress towards another
event. In the case of the probability not occur varies by 0.18 turn is granted control
measures aimed at the area of maintenance and repair. It is essential that teams have their
corresponding checklist and that a spare parts when the equipment is defective. The sixth
error is "human procedure failed" there is a 0.74 probability that the event occurs. If you
were to realize the possibility of accident or the worst loss of life. In the case of the
probability not occur varies by 0.26 turn is granted control measures aimed at the
working procedure and certain critical areas.

Suggestions to the grinding process

Improve the system and do a check valve to the pump constant.
Increase staff training and operators an eventuality.
Improve work processes and identify critical areas.
Coordination of all lines of command, to inform workers to a risk that is of
consideration.
The area of maintenance and repair has to have the right parts for the equipment and the
operator must be trained.

Analysis and Diagnosis

HAZOP

Were made for site visits in the area of plant Talcuna of Compania Minera San
Geronimo, in order to gather the necessary information to carry out HAZOP
methodology.

With the information gathered, analyzed deeply the various processes, sub
processes and scenarios is currently the plant. Subsequently revised risk matrices that the
company, which is focused on processes and threads in different areas of the plant, as are
the areas of pre - crushing, crushing, grinding, flotation and filtration, in order to raise
awareness of the processes that have the greatest likelihood of risk to people, equipment
and environment.

For Phase I of the HAZOP methodology, information was gathered the risks
which are associated with the plant, either, risks to people, community, processes,
property and the environment, in order to perform the risk matrix for Phase I of the
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HAZOP methodology. Resulting matrix is shown in Table I which is an example of the
methodology HAZOP in the milling process.

Table 1: "HAZOPs matrix in the milling process. Phase II HAZOPs methodology"
Source: Authors.
Tarea
Descripcin
General
Palabras
Guas Desviacin Posibles Causa Consecuencias
Acciones
Recomendada
Bomba
relavera
Operacin
bomba
relavera
NO NO CAUDAL
1.Tanques
intermedios vacos
Perdida de carga al
espesador
1.1 Instalar alarmas
de bajo nivel en el
espesador
1.2 Asegurar buena
comunicacin con el
operador del
operador de
espesador y
operador de
prensado y
desmolde
2. Fallos de las
bombas relavera (fallo
de motor, rotura de
bomba, etc.)
Igual que 1 Cubierto por 1.1
3. Lnea bloqueada,
vlvula manual
cerrada o vlvula de
control cerrada por
algn tipo de fallo.
Igual que 1 y
sobrecalentamiento de
bomba
3.1 Instalar
recirculacin a las
bombas y
comprobar diseo
de filtros
4. Rotura de lnea
Igual que 1 descarga de
producto en
proximidades de va
publica
Cubierto por 1.1-4.1
Establecer
frecuentes
inspecciones de la
lnea

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Quantification of risk

ALARP

Were made for site visits in the slaughter plant area Talcuna Minera San
Geronimo Company. In situ and information on safe working procedures are analyzed
deeply the various processes, sub procesos.Se selected critical tasks in the areas of pre -
crushing, crushing, grinding, flotation and filtration. Which were evaluated through
ALARP matrices of this evaluation was obtained a thorough analysis of about 148
relevant hazards throughout the plant, which could break down a myriad of risks.

Subsequently obtained a summary ALARP; which 20 were significant dangers
resulting from the sum of all analyzed processes in the plant. The 20 hazards considered
in the abstract ALARP were subsequently evaluated by Bow - tie for further analysis and
to better focus and control measures over them. From Matrix evaluation through critical
tasks ALARP can synthesize processes with more hazards and risks therefore are
classified as ALARP Milling with 35%, the filtrate with 30%, crushing to 25 % and
finally the flotation prechancado and 5% respectively. Notably, all three hazard
evaluation were in the level of priority 3, bordering ALARP priority 2 (90) Therefore,
these have a higher degree than similar criticality evaluated. These were related directly
to the issue of conveyor belts (2) and power (1). Dangers Most risks ALARP and
therefore related to them, were largely direct relationship with electricity by 43 %,
followed the related structures and equipment moving at 29%, then the related vehicles
of all kinds, to wit trucks, heavy machinery and trucks with 19% and finally the height
was less related to 9%.

Critical Risk Management

BOW TIE

Bow - tie goes along with the results of analysis through ALARP matrices. Were
evaluated in depth each of the critical tasks of each process, ie those who threw in their
activities hazards / risks ALARP level 30 or higher. All this for corrective action and / or
recommendations that lower the risk under the concept of ALARP.

First task was reassessed every hazards / risks ALARP, this under the same
parameters of severity and probability levels to ALARP matrix methodology. Breaking
down each task was performed in one or more risks, hazards or situations, depending on
the degree of criticality, these are called "events" and are evaluated separately thus
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reaching impact risk factor more prevalent within the task, allowing and guidance to
better control measures taken at the end of the evaluation.

The assessment by Bow - tie allowed to determine the causes which can generate
an event impacts. Besides the same could be obtained the preventive and mitigating
existing respectively; was broken is mostly subject to the severity factor related to each
event, and finally got an economic index of loss, according to this worst according
severity.

Assessments were performed 28 schemes Bow - tie for all processes except the
flotation plant, just to have levels of hazard / risk ALARP in Industrial Cleaning
activities. Of these newly appointed 28 Bow -tie patterns 17 are considered important for
their average risk assessment, the remaining 11 did not require further analysis in the
final result. Importantly, the critical task of "Industrial toilet" was present in all
processes, except prechando process and therefore was considered as a separate activity
to be evaluated in Bow - tie, obviously with direct impact on all the process.

Below are Bow analysis schemes - tie, which are represented in Figure 8 as an
example of the methodology applied in the grinding process in the event 1.

Figure 8: Bow Outline Example - tie; event N 1 for the grinding process.
Source: Authors.

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DISCUSSION AND CONCLUSIONS

The need to understand the risks and opportunities is unavoidable when it comes
to achieving the progress of any company. Provide strategic direction to a business,
means understanding what drives value creation and what destroys it. This means that
finding alternative opportunities must require understanding of risks to take and the risks
to avoid. Therefore, the growth of any business risk assessment requires.

All activities of an organization involve risks should be managed. The risk
management process helps make decisions taking into account the uncertainty and the
possibility of future events or circumstances (planned or unplanned) and their effects on
the agreed objectives. To reach a profound change in theme occupational health and
safety, you must perform tactics or techniques.

The main objective of risk studies performed herein, was the review and risk
assessment Talcunas Plant, all this through the concept of synergy, which is achieved by
complementing the various tools of analysis and risk assessment creating a
comprehensive tool for risk management Talcuna silver.

In the absence of legally binding rules specific to various topics related to risk,
this should not be an obstacle to the implementation of the necessary measures to prevent
or control harmful exposures to remain at tolerable level.

To define methodologies for risk analysis and assessment took into account the
three basic dimensions that make up a global organization: processes, people and
technology, not forgetting that the most important people, which makes processes and
technology work.

The Limitations of the methodologies of analysis was the time factor for
implementation, the total coordination of command lines, personnel with the ability to
understand the methodologies and are specialized in matters related to these. Also the
ability to adjust the tool to the complexity of the scenario of the company to try and
finally possessing uncertainty in implementation methodologies.

The study of risk began taking a snapshot of the current state of safety of the plant
and its infrastructure capacity to respond to security threats. Finishing in the proposed
guidelines and recommendations to mitigate the risks identified / assessed, in order to be
a guide when making operational decisions, strategic and business.
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The task has greater interest is the Industrial Cleaning, this is present in all
processes, and analysis in their activities as is the vast majority of the most critical risks
evaluated for plant, such as, electrical contact, caught and fall from height.

This tool can become a strategic competitive advantage if it is used to identify
specific actions to improve performance and optimize risk. This can also influence
business strategy by identifying potential adjustments related to opportunities and
previously unidentified risks. The tool becomes a tool to help the organization to redirect
its focus, rather than respond to crises through proactive risk assessment.

It is important that senior management has knowledge and a solid grounding in all
such concepts, from falling into error to delegate such decisions or untrained projects,
thereby causing a gap between business strategy and management of risks.

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ENERGY EFFECTIVENESS AND SUSTAINABILITY MANAGEMENT AT
ANGLO AMERICAN PLATINUM

Osvaldo A. Bascur
OSIsoft, LLC, Houston, TX, USA.
Osvaldo@osisoft.com

Michael Halhead
Anglo American Platinum,
Johannesburg, RSA.

ABSTRACT

Large Metallurgical Complexes are large users of Energy, Water and Assets.
There are 1000 thousands of meters to manage the information at the local and enterprise
level. To improve the effectiveness of energy and assets the quality of the data and events
becomes a paramount for real time operational management. The lack of resources at the
local operations and at the enterprise to process the sea of information becomes
impossible and many projects have failed. As such, a novel approach for implementation
of continuous improvements at the local level and innovations at the strategic level was
implemented at all operating plants at AngloPlats. The new capability of an enterprise
real time monitoring and diagnosis software infrastructure was available to implement
many business strategies in tandem.

A manufacturing services strategy was built to support operations and reduce
operational costs at the local and at the enterprise level. This paper will highlight the
required data hierarchies approaches for adaptive reporting, condition based event
management and proactive notifications. The results based on the integrated and
collaborative team efforts will be presented for a targeted reduction in energy
consumption of 15% by 2014.

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INTRODUCTION

One major challenge to sustainability is the need for collaborative, enterprise data
management of real-time and historical data not only within an organization, but also
between businesses such as a mining company and the local water and energy utilities.
Easily accessible real-time data and information is a key enabler to optimize decision
making, and to achieving sustainability.
Major corporations are improving ways to design and manage their industrial
complexes incorporating Dynamic Information Management Systems Barrios et.al.
(2003), Rusev (2013), Hanneman (2008), Rojas (1998) and Lobo, Paredes, (2007) to
reduce water consumption and environmental impact, real-time data and analytical tools
are needed to promote collaboration between domain experts in the company. To achieve
positive results, a continuous improvement and innovative management strategy is
imperative Bascur and Kennedy (2001) and Bascur, Hertler, Wong, (2011) discussed the
requirements for building a collaborative enterprise environment to enable collaboration
between the operational and strategic teams. These teams currently do not have access to
the detailed information which allows them to identify long term initiatives and
recommend new strategies (innovations) for changing. This collaborative and
benchmarking strategy is fuelled by dynamic performance monitoring and a proactive
environment that promotes situational awareness. Early adoption and incorporation of the
operational design can be incorporated in the process object information models.

Sustainability is an opportunity for innovation. It requires data (timely &
accurate) plus a common decision making infrastructure. It is best approached as a
continuous improvement process. In summary, It is just good business for today and
tomorrow!

Sustainability
is NOT a project
is NOT a product
is NOT achieved (in the long term) with disjointed efforts

Figure 1. Manufacturing Services for Sustainability Management
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Figure 1 shows the several functions of an integrated manufacturing services
infrastructure. In the early stages of operational management only production and
quality are implemented. As the requirements for overall process effectiveness and
regulatory compliances increases the environmental and safety functions are required to
converse with production and quality. The real time horizontal integration of the
production chain supply in an industrial plant and the enterprise are incorporated
(Bascur, 1991). Implementation of strategic manufacturing services for sustainability
management incorporates asset optimization and operational costs on line calculations
based on event frames. This sustainability strategy is based includes the maintenance and
operating costs pillars required for sustainability management. Local systems focus on
production and quality management while the strategic manufacturing services focus on
historical analysis for building the predictive algorithm for notifications based on
statistical and BI tools.

ANGLO AMERICAN PLATINUM CASE STUDY

Anglo American Platinum is the worlds premier Platinum Group Metals (PGM)
producer, supplying approximately 40% of the worlds newly refined Platinum. It has 14
concentrators, 3 Smelters, 1 Converter, 2 Refineries, 9 geographic operating areas. The
Platinum process has a long value chain in comparison to most minerals. It is a
technically complex and comparatively low volume but high value products. It has a
significant material pipeline and Energy and water consumption intensive.

Anglo American Platinum has multiple energy sources: Electrical, Diesel and
Steam from coal fired boilers. Electrical energy is the initial focus. Anglo Platinum is a
large consumer of electricity. The electrical system in Republic of South Africa became
constrained in year 2008 leading to nationwide load shedding. The electrical system is
still constrained; this is likely to remain constrained for the next couple of years.
Electricity is becoming increasingly expensive. Anglo Platinum is targeting a 15%
reduction in power consumption by 2014. Process division accounts for the bulk of the
discretionary electrical power.

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Figure 2 - Enterprise real time integration for operational business support
The major challenges are: lack of power measurements, numerous SCADA
Subsystems implemented via independent projects and large quantities of data. So, a
companywide integrated approach to energy savings is required. The necessary
information to develop these plans is becoming available only now.

The first step is to implement a robust software infrastructure to build many
business strategies on a common and simple one to maintain enterprise dynamic real time
information system.

The first business challenge can be described of having large number of
instruments across the group; approximately 100,000. They have large amount of data;
approximately 1,000,000 tags (process, equipment and laboratory variables) are logged
in addition to all operating and equipment events gathered required for data validation,
gross error detection and transformation into operating information. Mineral processing
plants are a harsh environment for instruments. Certain instruments are critical to safety
management. The quality of the data leads to better quality information. In summary,
Anglo American required a mechanism to monitor the quality of the instruments/data and
clean/reconstruct the data where practical.

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This leads to the implementation of distributed information architecture, primarily
due to limited network bandwidth as shown in Figure 2. Each operation has a complete
PI System implementation. Key calculations are performed at the level they are used;
primarily of the local sites. Selected data is rolled-up to a Central PI System. A master PI
AF (Asset Framework, object database) and replicated to site. The PI Central System is
used as a Competence for Manufacturing Services. It is used for Group wide operational
management analysis, single point of integration to certain business systems, maintain a
standard operational metrics for all assets, industrial plants and chain supply analysis.

A generalized plant model has been built with common way to provide context to
the data. There are many context opportunities to be given to the data depending on the
business needs. One of the best practices is the S95/S88 standards; however, we have
found additional simple one, which makes the collaboration between the local plants and
the strategic enterprise team much more effective to communicate improvements and
provide easier diagnostics.

The Common Structure Models are consistent across all sites. The object
structures are maintained on the central PI System and are replicated to the sites. One of
the main preliminary activities conducted for the deployment of the Enterprise PI System
was to standardize in the data validation methods. There are benefits and maintenance
issues, depending on the amount of complexity. The traditional data validation methods
can be classified according to the degree of maintenance required; these are gross error
detection, filters, statistical methods and model based data reconciliation. These methods
are not mutually exclusive. Gross error detection (GED) is normally the basis of all data
validation techniques (Bascur et.al 2011). The implementation costs increase with
complexity. The more sophisticated techniques are typically reserved for a small
collection of instruments/data. GED can be applied with minimum effort to a variety of
cases.

The GED method detects data errors on simple metrics using simple, fast
mathematical algorithms. No models are implied or used, therefore there is very little
maintenance. The only model used in the standardized time based algorithm to estimate
the time series evaluation of time derived metrics in the PI System subset of algorithms
(Min, max, rate of change, mode, standard deviation range at a certain interval for the
assets (Such the pulse on a human). Each data point can have a single state. The data is
then classified into the following states: Missing Data, Not Running, High, Low, Not
Updating, High rate of change, Simulated, BAD Data (Bascur, Hertler, Wong, (2011)).
The bulk in the GED calculation is handled by a customer data reference and a formula
data reference in the object oriented data based called PI Asset Framework (Bascur and
Kennedy, 2001).

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Figure 3 - Gross Error Detection and Data Classification Example.

The benefits of an enterprise data validation and instrument monitoring and
diagnosis are the key for implementing energy, asset monitoring, environmental and
safety monitoring at the enterprise. At the local level, improve production, quality, and
costs reductions. These events are then used to perform analysis using Business
Intelligent tools using Real Time Data from the operations at the original resolution.

The standard GED implementation contributes to a broader vision, supports the
One version of truth, better quality of information and most importantly a standardize
method for alerting, predictive alerts and overall continuous improvements and diagnosis
for optimization. The solution makes the instruments availabilities unequivocal. Faulty
and simulated instruments have resulted in serious equipment failures in the past. The
visibility highlights these issues in proactive manner avoiding costly stoppages and
repairs. Figure 3 shows an example of the analysis using Real Time Data and Operating
and Equipment events.

REAL TIME ENERGY MANAGEMENT AT THE MANUFACTURING
SERVICES LEVEL
A companywide integrated approach to energy savings is required. The necessary
information to develop these plans is becoming available only now. This approach
requires both a new strategy in building a reliable multi-functional systems as well as a
change the operational culture required for continuous collaboration at the local and
enterprise strategic organization and systems. It is human behavioral change as well as a
new computer and software integration (Halhead, (2011)).
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A central energy measurement and management sub system (CEMMS) was
installed in 2009/2010. Now, Anglo Platinum has online measurements of its power
consumption. Top level power consumption has been available but lacks granularity for
costs avoidance and losses of energy. The precious metal refinery was used as a pilot
site. This subsystem was integrated to the WAN and it was done with as fault tolerant
system using standard interface for better support and NOC monitoring.

The PI Asset Framework is used to provide the connections of validated
information into the right context to analyze the information in multiple ways. Think of a
real-time multidimensional data cube where the organized real time information by
UNITS and AREAS can be filtered by operational states, equipment operation states,
type of products and raw materials for any time and for one plant or many plants.

Figure 4 - Daily energy consumption analysis by process unit

The key to Energy reduction has been empowering people to act with
information. The most important factors are: Present the information in an easy to
understand manner, develop high level metrics linked to production and raw material
resources. You cannot control what dont measure and UNDERSTAND The
Understand is the value of implementing a common currency scale model (PI AF
Context and transformation of time of derived metrics) for actionable information. This
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strategic implementation makes the difference of just providing data out of context and
not scaled properly. Now, people can assign value to the performance metrics for
effectiveness integrating asset availability, environmental impact, energy and water
specific consumption all process plants, areas based on type of products. As such, clearly
identifying products losses, resources consumption and improving process safety.

The granular break down of the power consumption in an easy format makes it
possible to take action, to evaluate very quickly the 80/20 Paretto analysis to get the
problem very fast rather than wasting hours in finding the 20% important things to do
that will contribute to the 80% of the savings. As such, the implementation of a
continuous improvement and strategic innovation has proven to be the WHAT, WHERE
and HOW to work with todays technologies and collaboration at the LOCAL and
Strategic teams. Figure 6 shows to the whole enterprise the online interactive online
reports using Microsoft SharePoint 2010 with Excel Services using PowerPivot and the
PI Webparts.

Figure 4 shows some the multiple types of Energy Analysis enabled by the PI
System at the Enterprise. As such, Anglo American Platinum is geared to meet their
objective to reduce their Specific Energy Consumption by continuous improvements and
innovations which are critically identified by collaboration at the local and enterprise
levels of the organization. The integration of all sites and all type of relevant information
with event data classification is a must to build a solid robust sustainable operation
management strategy.

Actionable information becomes available to define the next step for root cause
analysis or for the strategic team to make an economical assessment of the big picture
(Energy Management, Environmental Management, Asset Optimization, Training, and
Collaboration). The real specific energy consumption is commonly evaluated to look for
improvements in the short term. Using this approach PI Notifications is used to
proactively alert if getting closer to minimum or maximum constraint based on the real
time calculations of rate of change, min, max, totals, standard deviation, mode and
averages.

CONCLUSIONS

One major challenge to better sustainability is the need for collaborative,
enterprise data management of real-time and historical data not only across an
organization, but also between businesses such as a mining company and the local water
utility. Easily accessible real-time data and information is a key enabler to decision
making, optimization and sustainability.

Despite the advances in automatic data collection and archiving, business
decision makers face the problem of exploiting the information that is relevant for plant
operations and the sustainability the business enterprise. Providing the data at the original
resolution and add-in GED using a Model Tool to add context to the data based on event
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and Enterprise Best Practices based on a common currency state makes the main
difference. This novel strategy improves collaboration and gives real time feedback on
decisions made at all levels in the organization. The efficient use of water, energy, and
resources is critical and the best approach is to have the infrastructure in place to be able
to conduct small focused projects, collaborate between different teams in the
organization, and understand that this is a continuous improvement process.

Off the shelf technologies are available today to optimize the business while
dealing with water and environmental constraints. They generate high quality
performance information from process data. The synergy of combining process data with
transactional data provides a deeper understanding of the data for continuous
improvement and innovation. With this knowledge and examples provided, opportunities
for better water and environmental management must be realized in the mining and metal
industry to ensure long term sustainable business. Collaboration within and between
businesses, government, and citizens to achieve cleaner mining practices is a necessity to
maintain and to improve the overall quality of life.

The OSIsoft Enterprise Agreement (EA) allowed for the deployment of a
consistent PI System infrastructure across the enterprise. Anglo American Platinum uses
a variety of OSIsoft products including: PI Server, PI ACE, PI AF, PI DataLink, PI
DataLink for Excel Services, PI ProcessBook, PI WebParts, and PI OLEDB Enterprise.

REFERENCES

1. Barrios, P., Alonso, A., & Rick, C. Plant Information System at the Atlantic
Copper Smelter and Refinery, In Proceeding of EMC2003, European Metallurgical
Conference, GDMH, Germany, pp. 1-11, 2003.
2. Bascur, O.A. & Kennedy, J.P. Real Time Information Management for Asset
Optimization, Mineral Processing Plant Design, Mular et al. (eds.), Society of
Metallurgical Engineers Publication, Littleton, CO. www.smenet.org, 2001
3. Bascur, O.A. and Kennedy, J.P., Are You Really Using Your Information to In-
crease the Effectiveness of Assets and People?, In Plant Operator Proceedings,
E.C. Dowling and J.I. Marsden, (eds.), SME, Littleton, CO: pp. 47-62.
www.smenet.org, 2004.
4. Bascur, O.A., Vogus, C.B., and Bosler, W.H., Long Term Knowledge Integration
with OSHA PSM, in NPRA Proceedings, Capitol Hilton Hotel, November 16-18,
Washington, DC, 1992.
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5. Bascur, O.A. Hertler C. and Wong, G. Improving Sustainability Strategies in
Industrial Complexes: Integration and Collaboration, In Proceedings of the EMC
2011, Dusseldorf, Germany, 2011.
6. Halhead, M., Data Validation with PI AF at Anglo American Platinum, In Users
Conference 2011 Proceedings, OSIsoft, LLC, San Francisco, CA,
www.osisoft.com, 2011.
7. Hanneman D., and Lubbe, J., Corporate Sustainability, In Proceedings of Copper
2010, Hamburg, Germany, June, 2010.
8. Rusev, A. Energy Management in Copper Industry Using OSIsoft PI System at
Aurubis AG, Hamburg, OSIsoft, LLC., EMEA UC, 2013.
9. Lobo, J and Paredes, R, ENDESA Center for Monitoring and Diagnostics, In PI
System Regional Seminar, Santiago, www.osisoft.com, 2007.
10. Rojas, H. & Valenzuela, H.M., Strategic Plan for Automation and Process
Management at the CODELCO Chuquicamata Mine, In Bascur, O.A. (ed.) Latin
American Perspectives: Exploration, Mining and Processing, Society of
Metallurgical Engineers, Littleton, CO, pp. 281-292. www.smenet.org, 1998.

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DYNAMIC MODEL PROPOSAL FOR LABOR AND ENVIRONMENTAL RISK

F. Torres and E. Cortes.
Universidad Catolica Del Norte.
Larrondo #1281.
Coquimbo, Chile.
ftorres@ucn.cl

ABSTRACT

The evolution of the processes, technologies and cultural changes, makes us
reflect on methodologies of analysis and risk assessment. The level of uncertainty in
these new complex scenarios posed the challenge of creating new tools. In this paper, we
propose the design of a risk management tool based on a dynamic model of risk, through
a mathematical formulation to understand the issues facing companies today, is created
considering the state of the art , establishing the principles, variables and factors that
constitute it. The Dynamic Model mathematically integrates Risk factors influencing
variables Probability, Consequences and Risk Control to set the state of a system risk.
The design of the risk management tool is based on the development of an algorithm that
defines risk, provides data entry, processing and analysis results. The model provides an
innovative vision regarding the interrelation of operational variables, organizational,
social and environmental consideration in decision making for risk management.

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INTRODUCTION

The company now has a variable environment dynamic and competitive.
Companies tend to focus on short-term financial criteria rather than criteria long-term
safety in a dynamic environment, where modern society is immersed. This means that
optimal risk management in the process industries, to maximize the benefit of your
business, involves the risk of crossing the limit when it comes to making decisions.
(Rasmussen, 1997; Dojo & Park, 2003).

Organizations today are under stress from a number of dynamic factors in the
environment, such as technological change, globalization and market conditions. Modern
socio-technical systems are characterized by increasing complexity and coupling
between the different dimensions of risk, which means as a result it increasingly more
difficult to control and manage. Based on these arguments, there is a need for further
discussion and research on the development of new tools to be added to the toolbox of
management labor and environmental safety. Examples of areas to explore are the main
indicators, risk maps and understand normal operations (work actually done),
improvements in workers' compensation models and approaches to accident investigation
focused both workplace and environmental ( Levenson, 2011 (a) (b); Hovden et al.,
2010; I et al., 2009; Mohaghegh et al., 2009; Mohaghegh & Mosleh, 2009 to, B;
Leveson, 2004; Rasmussen & Svedung, 2000).

Operational processes, interaction with people and the organization, not only have
effects and impacts on the business-system safety, but also can be outsourced to other
levels, such as the environment where accidents and operational failures impact the
different environmental aspects that interact with the company for example: air, water,
soil, flora and fauna. Therefore the security control is transverse to labor and
environmental. (Shakirudeen and Haight, 2010).

In most modern industries, labor and environmental security is a stated objective
in the same priority level as the efficient and economical production. However, it is still
witnessed in large-scale systems, negative impacts and loss of life due to serious
accidents. Many of these cases have no simple explanation or full, especially those that
have an important contribution human behavior and organization. (Harrison & Legendre,
2003; Suddle, 2008; Hovden et al., 2010).

Successful management of health, safety and the environment requires a
systematic approach. In this must include decision making as a process, with a solid,
objective, open and transparent, so that interested parties can participate and see how it
achieves the objectives of risk management. (Leveson, 2004; Leveson, 2011). The
Management of Security, As defined, is the management process to achieve a state of
freedom from unacceptable risk of harm. This security management is implemented
through the organization and production system. The security management system is
reflected by its documented vision, through policies, regulations, risk assessments and
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procedures for the control and management of the system and its risks. This acts as a
formal system of control over the activities and working methods. The security
management has its roots in the field of quality management and the "plan-do-check-act"
cycle derived from quality management (Mohaghegh and Mosleh, 2009).

When a risk analysis is performed, it is important to realize that decisions about
accepting risk is a very complex issue, and not only consider the technical variables, but
also economic, environmental, related to comfort worker, political, psychological and
social acceptance which play an important role (Suddle, 2008).

Controlling the risk of accidents, requires supervisors responsible for the operation
incorporating a risk prevention program against accidents, occupational diseases and
environmental impacts, having to implement all necessary measures to prevent and / or
occupational accidents and minimize environmental damage. These risk management
activities lack of standardized methodologies for different types of risks and thus become
poor management. With proper selection of qualitative, quantitative and semi-quantitative
risk assessment, adding social risk levels can be established for risk management of them.
(Carter et al., 2003).

Given the need to build risk analysis models that include technical and social
complexity and the dynamics of enterprises, develops a mathematical model (Model
Dynamic Risk MDR) considers these conditions as a basis to generate a proposal risk
management tool focused on decision-making, from the theoretical basis not including the
steps of model calibration and validation.

METHODOLOGY

A review of the state of the art risk modeling, both environmental and labor issues
in order to establish guidelines for the investigation. It established the context of risk
modeling and its scope was used to define the principles and guidelines determined
boundary conditions to build the model.

For the definition of the principles of dynamic model drawing up a risk matrix,
which is defined by: Principle established, description of the principle and source. The
principles set performing a conceptual schematic model which explains the relationships
and interactions of the principles in the model.

Schematic model proposed and conducted the literature review, which are
established in the relevant variables change in risk status and dynamics. It schematization
by a herringbone casuistic analysis, the relevance of the interaction of the variables and
factors in the variation of the risk status.

With the variables and factors identified was formulated, the mathematical
relationship representing the state of risk and its dynamics. The dynamics are represented
by a state change, expressed as a differential equation. This state change is then
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integrated mathematically by means of the sum of the variations in the factors that
comprise the variables of incidence risk model proposed.

Defined the mathematical model of dynamic risks, sets its applicability through a
conceptual schematic model. Subsequently, we analyze the scope and implementation
strategy. This describes an algorithm generating representing the operation of the risk
management tool based on the MDR. (Khan & Abbasi, 1998; Khan & Abbasi, 1999 (a)
(b); Khan & Abbasi, 2000).

RESULTS

Principles and variables that constitute the dynamic model risk.

Below are the steps for defining the principles and variables that conform the
proposed mathematical model risk (MDR)

General definition of MDR.

We hypothesize a dynamic model with a risk approach and principles similar to
those used to study the evolution of a thermodynamic system (Johansen, 1989; Deen,
1998). The feature "dynamic" refers to a state change in time (Solojentsev, 2005; Molak,
1997), according to which:

1. Risk status change over time without any interaction with the surrounding system.
2. Risk status over time change existing system interaction with the environment.
3. Risk status is stationary (no system interaction with the environment)
4. Risk status is balance (with system interaction with the environment).

Having defined the borders and the state in which the system is located, it is
necessary to determine how the risk is distributed or migrating from one system to
another or how it behaves in the same (Solojentsev, 2005; Slattery, 1999, Cha, et al.
2000) . The transfer will be set at the beginning of transience which is determined by a
partition coefficient of the concentration of risk from one system to another (Slattery,
1999). The speed with which this happens is determined by the specific properties of the
risk, which will establish the kinetic equations that model the risk transfer speed (Giraldo
& San Jurjo, 2003; Slattery, 1999; Browm, 2006; Tiemeyer, B. et al., 2006; Jovero &
Luyando, 2006).

For the description of the systems, and definition of the variables that states
establish their respective risk, systems theory is used (ISO, 2001, ISO, 2000; Johansen,
1989).

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Thus, it is possible to identify at first glance a general system, that encompasses
all those constituent parts of subsystems and each subsystem. Classification is proposed,
from a macro level to a micro level through a hierarchical key, from the most generic to
the most specific, seeking to determine the specific risks of each part of the system
(Dym, 1980; Johansen, 1989; Dym, 1994). This approach is intended to have a micro
interpretation of risk for each job (job niche) and a macro interpretation to the global
system (organization). (Molak, V, 1997; Solojentsev, 2005, Specht, M. et al., 2006)

The model has a biological, ecological specifically, it can be busy in a systemic
model of management. Systemic models of management have long used the concepts of
ecology to function and structural organization of its elements. This, as systemic model is
no exception. (Bartley, et tol., 2006; Mnkemller And Johst, 2006)

The interactions between the constituent elements are addressed with an
ecological approach precisely because of the advantages of the ecology, the study of
relationships between populations of organisms (among and within populations of these),
which approach is most useful for conceptual studies in operational systems to be
analyzed and predicted. Is that conceptual review that part of the model is developed by
relating the following: niche stressor exposure pathway, border, and recipient organism.
(Carson and Cobelli, 2001; And Mnkemller Johst 2006; Tiemeyer, et al., 2006.)

The order of these concepts is not random, as an important part of this proposed
model is based on the correct order of information. For example, the niche, the physical
space in which they occur ecological relationships between organisms in our case is
interpreted as a "niche business". The main characteristic of the niches is that they have
abiotic characteristics, in which organisms are adapted to exploit them, efficiently.
Knowing the requirements which must be adapted organisms is possible to determine all
those stressors (energy requirements, etc.) That interfere with the characteristics of the
niche. (And Mnkemller Johst,. 2006; Carson and Cobelli, 2001; Johansen, 1989; Bate
et al., 2006; Broker, 2006 (a) (b))

The principles of the MDR.

Establishing a set of general principles of organization for the development of
causal frameworks occupational and environmental safety. This provides a classification
of the proposed principles, grouped into two categories. These principles cover the basics
of model building process and the essential characteristics of the resulting model. For the
definition of principles arises a multidisciplinary approach. The principles discussed are
fundamental to the development of theories of organization and security analysis to
provide a conceptual orientation of theoretical models which seek to develop integrated
security frameworks for specific industries and organizations. The categories of the
principles of MDR are defined by:

Principles of MDR, based on the properties of Risk:
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1. The risk can be expressed as a mathematical function.
2. The risk is multidimensional.
3. The risk is multilevel.
4. The risk is transferable.
5. Risk is dynamic.
6. The risk can be identified and classified by taxonomy.

A breakdown of the description of the principle and the associated references, are
presented in the following table.
Table 1: Bibliographic description and justification of the principles that define
the risk, Source Prepared.
Beginning Description Source
The risk can be
expressed by a
mathematical
function
The risk can be expressed
mathematically as R: f(x)
Attwood et al, 2006 (a) (b) 2006. Carter et al, 2003; I
et al, 2010. Mengolini & Debarberis, 2008; Seo,
2005. ; Arunraj & Maiti, 2009; Hu et al, 2007; Sari et
al. 2009, Mojtahedi et al, 2010. Shakioye & Haight,
2010; Rosqvist & Touminem, 2004. Suddle, 2009;
Mohaghegh et al, 2009.Mohaghegh & Mosleh, 2009
(a) (b); Li et al, 2010
The risk has a
Multidimensional
nature
According to the system under
study and to assess the risk this
presents multidimensional as
characterization and the study
objective. Example labor
dimension, environmental,
organizational, physical chemistry,
etc..
Kujath et al., 2010; Sorensen, 2002. Mengolini &
Debarberis, 2008; Arunraj & Maiti, 2009; Ale et tol,
2008; Mojtahedi et al, 2010; Flin, 2007; Mohaghegh
et al, 2009; Mohaghegh & Mosleh, 2009 (a) (b);
Rasmussen, 1997
The risk has a
multilevel nature
This can occur by organizing or
structuring different levels. From
Unity to different types of clusters,
as the objective of risk study.
Example: workers, supervisors,
management, company, category,
company.
Kujath et al, 2010; Attwood et al (b), 2006, Carter et
al, 2003, Sorensen & Debarberis 2002.Mengolini,
2008. Arunraj & Maiti, 2009; Ale et al, 2008;
Mojtahedi et al, 2010; Flin, 2007; Mohaghegh et tol,
2009.Mohaghegh & Mosleh, 2009 (a) (b) Rasmussen,
1997.
The risk is
transferable from
one system to
another
The risk can be transferred from
one system to another and this
transfer, through a thermodynamic
approach, which can be explained
by the transience between system.
Abdolhamidzadeh et al, 2010; Ale et al, 2008; Kujath
et al, 2010, Grabowski et al, 2009. , Mohaghegh &
Mosleh, 2009 (a) (b); Slattery, 1999.
The system is
dynamic.
The system is dynamic state change
generated by the variables defining
the risk. The risk is dynamic over
time. And the risk is dynamic
decisions regarding social-
technological complex system.
Rasmussen, 1997; Slattery, 1999; Seo, 2005; Sari et
al. 2009. Mojtahedi et tol, 2010; Shakioye & Haight,
2010; Kang & Jae, 2005; Grabowski et al., 2009;
Mohaghegh et al, 2009,. Mohaghegh & Mosleh, 2009
(a) (b); Kujath et al, 2010.
The risk is so
taxonomic
systems
The risk can be presented in
different ways, which is due to its
classification and definition; this
could be through different
taxonomic tools for defining the
types of risks in the studio system
Rasmussen, 1997. , Attwood et al, 2006, Carter et al,
2003. , He et al, 2010. Arunraj & Maiti, 2009. Lee,
2006. , Mojtahedi et al, 2010. , Kujath et al, 2010.
Shakioye & Haight, 2010. Kang & Jae, 2005;
Rosqvist & Touminem, 2004. Mohaghegh et al, 2009.
Mohaghegh & Mosleh, 2009a.
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The first six principles state how the risk can be defined, this condition gives us
great importance to establish risk behavior and design criteria based on which the
mathematical model.

Principles of MDR, based on the properties of the system at risk.

7. The system of risk has a holistic approach and processes.
8. The system risk is governed by the law of causality. (Cause and effect).
9. The system risk is defined as a complex socio-technological system.

A breakdown of the description of the principle and the associated references, are
presented in the following table

Table 2: Bibliographic description and justification of the principles that define
the system risk. Source: Authors.
Beginning Description Source
The
system has a
holistic and
Process
The system presents
recursion "system of
systems", which are related
and interrelated. Was also
based on the process
approach, the system has
inputs, outputs and a
transformation of matter.
Kujath et al, 2010; Attwood et al, 2006 (a) (b);
Carter et al, 2003; I et al, 2010; Sorensen, 2002. Mengolini
& Debarberis, 2008; Seo, 2005; Arunraj & Maiti, 2009; Hu
et al, 2007 Sari et al, 2009, Lee, 2006; Ale et al, 2008.
Mojtahedi et al, 2010; Aven & Kristensen, 2005; Flin, 2007;
Kang & Jae, 2005. , Grabowski et tol, 2009; Rosqvist &
Touminem, 2004. , Suddle, 2009; Hsieh & Wang, 2010;
Moriyama & Ohtani, 2009
The
system is
governed by the
theory of
Causality
Interactions in the
system is presented and the
risk as such is governed by
the law of cause and effect.
Abdolhamidzadeh et al, 2010; Attwood et tol, 2006
(a) (b); Elvik, 2006; Mengolini & Debarberis, 2008; Ale et
al., 2008; Bijleveld, 2005.Rosqvist & Touminem, 2004;
Mohaghegh et al, 2009.Mohaghegh & Mosleh, 2009 (a) (b);
Ersdal & Aven, 2008; Moriyama & Ohtani, 2009
Is
defined as the
socio-
technological
complex
It is a system in
which inter-relate and
equipment, raw materials,
facilities, people and
organizations in different
dimensions and levels, in a
given time.
Li et al, 2010; Hovden, 2010., Sorensen, 2002.
Mengolini & Debarberis, 2008., Seo, 2005; Dejoy et al,
2010, Lee, 2006. Ale et tol, 2008; Aven & Kristensen, 2005.
Grabowski et al, 2009. , Suddle, 2009; Mohaghegh et al,
2009. , Mohaghegh & Mosleh, 2009 (a) (b); Rasmussen,
1997

The principles of the number 7 to 9, describe and stipulate the conditions of how
the system is defined risk and guidelines to perform analysis.

Conceptual schematic model.
As discussed in the MDR through its principles, the system is open to the
environment, where their interactions generate changes in both directions within the
company and in its environment, addressing different dimensions defined by: The Policy,
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The economy, the processes, the environment (environment) and security. The scope and
influence of the analysis will depend on what level you perform this, whether focused on
workers, the company, the community, the environment, a simplified view of MDR is
presented in Figure 1.

Both the external (E) and internal (I) define the conditions of risk system, which
we will call labor niche. The niche job as the factors that influence it generates a type of
risk where the probability and magnitude of the consequence of risk depends on how you
present the factors E and I of the system.

Variables Externas:
Polticas y Normativa.
Economa.
Mercado
Fiscalizacin
Tecnologa
Cultura Organizacional.
Polticas
Sistema de gestin
Procedimientos y
registros
Control y seguimiento.
I
Procesos
Nicho Laboral.
Variables Internas :
-Fisicas.
-Quimicas.
-Biologicas.
-Fisiologicas.
-Ergonomicas.
Puesto de trabajo
Medio Ambiente:
Variables Externas.
-Climticas.
-Fsicas.
-Ecolgicas.
-Evolutivas.
-Calidad de vida.
E
Figure 1. Conceptual scheme Risk Dynamic Model. Source:
Authors.

Variables MDR.
According to the literature, risk is defined by the probability of occurrence of an
event and the consequence of this, some authors state that prevention and risk mitigation
decrease the magnitude of the risk. (Attwood et al, 2006 (a) (b), Carter et al, 2003, I et
al, 2010. Mengolini & Debarberis, 2008; Seo, 2005; Arunraj & Maiti, 2009; Hu et tol,
2007. Sari et al. 2009, Mojtahedi et al, 2010, Shakioye & Haight, 2010; Rosqvist &
Touminem, 2004; Suddle, 2009; Mohaghegh et tol, 2009; Mohaghegh & Mosleh, 2009
(a) (b); Li et al, 2010).
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In the diagram in Figure 2, show a cause-effect diagram, which sets the variables
that affect the magnitude of risk: Probability, Consequence and Risk Control, associated
with these variables are presented as examples of influence factors in each variable.

Figure 2, cause and effect diagram considering risk factors affecting the
change of variables. Source: Own.

Risk dynamic model

The dynamic model is represented mathematically risk through its principles,
which were defined by the characteristics of the risk and its system. There is established
as the variables are influenced by various factors for influencing the analyzed system,
which results in the variation of the magnitude of risk.

The risk is expressed in terms of probability (P) and the result (C) of an unwanted
event. It is interpreted that the uncontrolled pure risk is directly proportional to P and C,
as expressed in the following equation. (Carter et al., 2003. Mohaghegh et tol, 2009;
Mohaghegh & Mosleh, 2009 (a) (b); Suddle, 2009).

C P R = ec. (1)

However, the risk can try to control through prevention and risk minimization,
which are represented by the variable (Cr), called risk control. By definition Cr seeks to

Risk = R
Risk Control = Cr
Probability = P Consequences = C
Operational Control
Elements
Personal Protection
Protection of machinery
Procedures and instructions
Emergency plans ge
Training ng
Barriers
In-situ measurements
Inspections
Observations
Maintenance
Death Death
Diseases
Fines
Lost Time
Loss of raw materials Loss of raw materials
Loss of equipment and machinery
Closures
Image Loss
Loss of Production Lo f Prod ti
Demands
Internal Context
and outer
New Worker
New Process
Frequency of Exposure
Shutter speed

Energy
Force
Toxicity
Concentration
Intensity
Shutter speed
Multiple Exposures
Levels Levels
No. exposed
Environmental Damage
Facilities Damage
Loss of neighbors
Insurance
Accident rate
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diminish the magnitude of risk R, for which the author states the simplest function that is
the inverse proportionality. After considering the three variables is postulated that:

Cr
C P
Cr C P R R

= = ) , , (
ec. (2)
Called hazard function where:
R: Risk.
P: Probability.
C: Consequence.
Cr: Risk Control.

The dynamics in the evolution of risk can be expressed in terms of a "change of
status of the risk." These are, from an initial state to a final state R0 R1. According to Eq.
1 This means that:

0
0 0
0
Cr
xC P
R =
ec. (3)

called risk status 0 and

1
1 1
1
Cr
xC P
R =
ec. (4)
called risk status 1.

The change in risk is obtained from:

0 1
R R R - = D
ec. (5)

For optimal decision making in risk management, from a current situation
diagnosed, ideally requires knowledge of the evolution of risk. This evolution depends on
the behavior and evolution of the variables that determine risk. These are:

P P P D + =
0 1
ec. (6)
C C C D + =
0 1
ec. (7)
Cr Cr Cr D + =
0 1
ec. (8)

Bringing Eq. 4 becomes:

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) (
) ( ) (
0
0 0
1
1 1
1
Cr Cr
C C P P
Cr
xC P
R
D +
D + D +
= =
ec. (9)

This focuses on the problem to know dependency or functions relating the
variables P, C and Cr with those factors which affect their change Ap, C and Cr.
Mathematically, this means that if:

) ......... , , (
3 2 1 n
x x x x P P =
ec. (10)

) ......... , , (
3 2 1 n
y y y y C C =
ec. (11)

) ......... , , (
3 2 1 n
z z z z Cr Cr =
ec. (12)

Where
Xi: Factors ith impact on the probability
Yi: impact factors ith the consequences
Zi: Factors ith incidence in risk control.

Then
= D
1
0
dP P
ec. (13)
= D
1
0
dC C
ec. (14)
= D
1
0
dCr Cr
ec. (15)

The time dependence on the variation of intrinsic factors xi, yi and zi time. If
these is expected to remain constant P, C and Cr do not change the state of risk and is
maintained over time.

Whereas risk management should be a continuous and systematic practice within
each organization can be expected to always be possible to find two risk states close
together so that a 1st order approximation is valid to quantify the change in variables.
Then, for the three variables:

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......
3
0
3 ;
3
2
0
2 ;
2
1
0
1 ;
1
+
=
= = =
dx
x
P
dx
x
P
dx
x
P
dP
j cte x j cte x j cte x
j j j

=
=
= = D
1
0
1
0
;
1
0
n
i
i
i j cte x
i
dx
x
P
dP P
j
ec. (16)

......
3
0
3 ;
3
2
0
2 ;
2
1
0
1 ;
1
+
=
= = =
dy
y
C
dy
y
C
dy
y
C
dC
j cte y j cte y j cte y
j j j

=
=
= = D
1
0
1
0
;
1
0
n
i
i
i j cte y
i
dy
y
C
dC C
j
ec. (17)

......
3
0
3 ;
3
2
0
2 ;
2
1
0
1 ;
1
+
=
= = =
dz
dz
dCr
dz
dz
dCr
dz
dz
dCr
dCr
j cte z j cte z j cte z
j j j

=
=
= = D
1
0
1
0
;
1
0
n
i
i
i j cte z
i
dz
z
Cr
dCr Cr
j
ec. (18)

Thus, for each type of risk, is required to determine the mathematical functions
(Ec 10 to 12) to obtain the respective partial derivatives.

Finally, having determined Dp, C and Cr in terms of the partial derivatives
with respect to risk factors, replacing in Eq. (9) is obtained by Eq. 19 that:

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+
=
=
=
=
=
=
=
1
0
1
0
;
0
1
0
1
0
;
0
1
0
1
0
;
0
n
i
i
i j cte z
i
n
i
i
i j cte y
i
n
i
i
i j cte x
i
dz
z
Cr
Cr
dy
dy
C
C dx
x
P
P
R
j
j j

This makes it possible to quantify the evolving threat from a reference state.
Normally, for decision-making, said reference state is the current state.

Risk management tool based on an MDR.

The risk management tool, is based on the mathematical model developed and
the principles underlying it, to generate a system-software interface MDR in which once
defined the system performs a definition of this, later to establish the identification of
hazards and risks in the system. After building the list of risks in the system selects a risk
study to be analyzed by the management tool. To select different criteria can be used as
qualitative matrices or multivariate statistical methods.

After selecting the risk to study, define the variables P, C and Cr, through their
factors, entering this data from historical databases, read real-time data and qualitative
surveys. This represents an integration of quantitative and qualitative information such as
temporal multidimensional. The data collected from different sources are input to the
software containing the MDR mathematical model and will indicate the status of the risk,
which we analyze the evolution of the state of risk and make decisions about risk and the
system being analyzed. A simplified graphical representation of the risk management
tool using the approach MDR, shown in Figure 3 and the developing step of the
algorithm of the risk management tool is present in Figures 4 and 5.

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EMPRESA
BASE DE DATOS
HISTRICA
BASE DE DATOS
DE EVALUACIONES
PERIDICAS
CUALITATIVAS
BASE DE DATOS.
CUANTITATIVOS
TIEMPO REAL
INGRESO DE DATOS
INFORMES DE RIESGO
EN TIEMPO REAL Y
PROYECCIONES DE
RIESGO
TOMA DE DECISIONES

Figure 3: Simplified schematic of the risk management tool based on the MDR.

Algorithm and software structure of the MDR

To enter data in the MDR program, you first have to follow a series of steps
aimed at the definition of the system variables and factors, which are detailed in Figure 4.
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Inicio
Definicin del
sistema
Factores Externos: Climticos, fsicos,
ecolgicos, territoriales, evolutivos, etc.
FACTORES OPERACIONALES
Factores Internos:Fsicos, qumicos,
Biolgicos, ergonmicos, produccin,
mantencin, etc.
FACTORES ORGANIZACIONALES
Factores Externos:Poltica, normativa,
fiscalizacin, Mercado, economa,
tecnologas, etc.
Factores Internos: Cultura organizacinal, poltica
y objetivos, sistema de gestin, procedimientos,
registro, control y seguimiento, capacitacin, etc.
Identificacin de peligros y
riesgos
Taxonoma de Riesgos
Seleccin del riesgo a evaluar
Determinar variables y factores del
riesgo seleccionado
Frecuencia.
Magnitud de la Perdida.
Criticidad cualitativa, etc.
CRITERIOS DESELECCIN
Probabilidad Consecuencia Control del Riesgo

) ......... , , (
3 2 1 n
x x x x P P =

) ......... , , (
3 2 1 n
y y y y C C =

) ......... , , (
3 2 1 n
z z z z Cr Cr =
Ingreso de Datos
1

Figure 4 Algorithm establishing the system definition study on risk
management tool based on an MDR labor. Source: Own.

Once the steps to risk selection to study in the system, the algorithm sets the state
of risk and analysis products such as risk status, projections and graphs related risk
factors with the variables at a time determined is shown in the following figure.

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Integracin de las derivadas parciales
de los factores que componen las
variables P, C y Cr.

=
=
1
0
1
0
;
n
i
i
i j cte x
i
dx
x
P
j

=
=
1
0
1
0
;
n
i
i
i j cte y
i
dy
y
C
j

=
=
1
0
1
0
;
n
i
i
i j cte z
i
dz
z
Cr
j
Ingreso de Resultados de integracin de las
variables en la ecuacin:

) (
) ( ) (
0
0 0
1
1 1
1
Cr Cr
C C P P
Cr
xC P
R
D +
D + D +
= =
Estado del riesgo
Reportes
Estado y variacin del
riesgo en el tiempo
Proyecciones del riesgo
Grficos Factores v/s
Variables v/s Tiempo
Toma de Decisiones
Re-evaluacin del riesgo
Fin
1

Figure 5. Algorithm that sets the state and risk analysis of the system under
study. Source: Authors.

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DISCUSSION

The risk is essential relevance of character in world today. Communications and
impact analysis is necessary to give better responses to different environmental accidents
and occupational nature. In these terms those carrying out analyzes, studies and risk
management should be aware of the most accurate and precise methodologies, miminizar
to uncertainties for decision making. (Aven, 2011 (a) (b); Ramli et al, 2011; Aven, 2009
(a) (b), Aven, 2008).

Today in risk management has necessitated a change, not how management is
done with focus classic Deming PDCA, but as a way to perform risk studies (Analysis
risks risk assessment). At present there is no established standard methodologies for
these studies. Thus these studies are the basis for planning, considerable levels of
uncertainty would, ultimately affecting the management of risks. That is why in 2009
ISOPublished the ISO 31000 series of standards, which are aimed to standardize the
process and to establish guidelines for risk studies. This standard is born ISO 31010,
which performs an analysis of the different methodologies of risk assessment analysis
and providing information relevant to their complexity, uncertainty levels of resources
and methodologies. (Aven, 2011 (a) (b); Ramli et al, 2011; Swuste et al, 2010; Aven,
2008; Rouhiainen & Gunnerhed, 2002; Svedung & Rasmussen, 2002)

The current complexity of business, economic and social context in which they
develop, their processes and their organization, make it a challenge to effectively manage
risks. That is why one-dimensional approaches do not represent fully the nature of the
risks, the current analysis models are based on a multidimensional view of risk and that
delimits system. The proposed tool in this paper rescues this problem by integrating the
characteristics of the organization under study and incorporates dimensions and factors
that contribute to the understanding of the real complexity in which the risks are
developed in the current company. (Ramli et al, 2011; Chen et al., 2010; Chourdhry et
al., 2007; Reiman & Oedwald, 2007; Sorensen, 2002).

In this paper, as the risk difference principle risk state that supports it. This
creates a vision in which he reveals the variables that influence the risk characterization
also describes the behavior of the risk to their nature. Additionally, the risk is also
analyzed dynamically from the perspective of the temporal variation of the elements of
the system. (Bassetto et al, 2011; Leveson, 2011 (a) (b); Torner, 2011; Marais et al,
2006; Leveson, 2004).

The literature defines security as a state, which are eliminated or controlled
variables and impact factors in an accident. This approach is performed by controlling
the hazards and risks, which influences when making a decision on how to manage risk.
This means that not only must assess the risk from the perspective of the danger, but also
from the perspective of how it is being controlled, and giving a differentiation from other
risk management models. (Leveson, 2011 (a) (b); Aven, 2009 (a) (b), Leveson, 2004).

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The model adopts risk control as an independent variable, unlike other models,
which consider it within the variable probability or simply do not see the risk include
pure and without control. Considering risk control to evaluate not only with a more
realistic approach but allows the model to measure the impact of control measures and
their evolution over time. (Levenson, 2011 (a) (b); Strove et al, 2011, Aven, 2009 (a) (b)
& Oedwald Reiman, 2007).

This model incorporates two approaches to the definition of MDR: one
corresponds to the definition of risk system and the principles that define it, and the other
approach corresponds to consider the nature of risk. Firstly the definition of system risks
is fundamental to define the elements and interactions of the system but also is critical to
building the knowledge base of the system being analyzed (Lamb et al, 2010; Flin, 2007;
Mosleh & Chang, 2004). Moreover although the mathematical model is based on the
expression of the possibility of occurrence of an undesirable event in their ontogeny
longer ranges not only represents a risk defining a probability of occurrence, but also as a
quantitative model risk status and description of this. This last feature is crucial model
system definition of risk, which is an important contribution to the knowledge of the
system itself. (Aven, 2011 (a) (b); Levenson, 2011, Aven, 2009 (a) (b); Yang & Haimes,
2010; Aven, 2008 (a) (b); Diaz et al, 2007; Leveson, 2004).

The mathematical model in its ontogeny and epistemological point of view, not
only sets the state of risk, but also has the potential to set the security level of the system.
Thus, it is necessary to define uncertainty and risk status of system security. This model
founded on the basis of the principles of system and type of risk, you can define the
elements of uncertainty and knowledge of the system under study. (Aven, 2011 (a) (b);
Leveson, 2011 (a) (b); Moller & Hanson, 2008; Leveson, 2004)

Moreover, the definition of both the likelihood, consequences and risk control are
analyzed and entering the MDR. On one side is considered a stochastic system which is
governed by chance, and on the other hand this vision including the evaluator is
subjective, reinforcing the knowledge of the system under study. (Aven, 2011 (a) (b);
Creedy, 2011; Groth et al., 2010; Aven, 2009 (b); Mosleh & Chang, 2004).

In particular, these approaches help to better manage the system and to define the
risk that establishing the elements interact and influence on the risk status. Or failing
elements that control the risk and therefore deliver the level of system security. Thus,
control is clarified and management effectiveness in the system involved. (Aven, 2011
(a) (b); Leveson, 2011, Aven, 2009 (a) (b); Aven, 2008 (a) (b); Leveson, 2004)

The risk status of a multidimensional system is therefore the variables and factors
are defined by that feature, currently the new theories of complex socio-technical
systems can meet the challenge of representing the risk with a comprehensive view. The
application of the model is based on three sources of information to establish the risk
status of the system which are: Historical (occurrence statistics, frequency, severity,
etc..), The qualitative and quantitative (Leka et al, 2011, Jeerawongsuntorn et al, 2011;
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Antonioni et al, 2009) A significant contribution of the model is that the sources are
independent from each other, for the application to work. The multidimensional feature
of the proposed model allows it to assess the risk from different approaches such as:
Health, Safety, Environment, Quality, etc.. (Aven, 2011 (a) (b); Creedy, 2011; Leveson,
2011; Khanzode et al, 2011; Torner, 2011; Aven, 2009 (a) (b); Aven, 2008 (a) (b);
Marais et al, 2006; Leveson, 2004).

An accident or risk not only explains the chain of events, if not for all the factors
that affect the underlying. Within the dimensions to be considered for risk analysis are
production processes, operational processes, organizational and social processes.
Understanding communication processes and coupling of these dimensions that interact
and coexist in the system, it is vital to understand the effectiveness of control measures
and the planning of these. (Bassetto et al, 2011; Leka et al, 2011; Celik et al, 2010;
Kujath et al, 2010; Reniers et al, 2009) With the above model representanta a
methodology for the investigation of accidents and to analyze the variables and factors
that influenced the event investigated. (Aven, 2011 (a) (b); Levenson, 2011; Kujath et al,
2010; Aven, 2009 (a) (b); Aven, 2008 (a) (b); Marais et al, 2006; Leveson, 2004, Le Bot,
2004)

The definition of risk and risk status of the system through the principles of the
proposed model, not only to visualize the relationships that can be generated once
defined the system, but to identify and understand the variables and factors affecting
change risk status and the dynamics of the system. This produces projections and risk
scenarios in time considering the change of variables and factors, that the value added to
identify the factors that influence the effective and efficient management of risk.
Knowledge of the dynamics helps to control and monitor variables and risk factors that
affect the state. So you can also measure the performance of the dynamically control or
mitigation measures involved in the system, as well as the influence and impact on the
various factors. (Ferjencik, 2011; Groth et al, 2010; Cozzani et al, 2005)

Among the main contributions of the model is the definition of the risk status of
the system, and that through its principles for structuring and identify variables and
factors that constitute it, obtaining a graphical representation of the levels, dimensions
and interrelationships between components. This has an advantage over other models
because it considers the system, from conception of the event, its quantitative modeling
and risk description, providing a holistic view of risk that is different from the current
models. Additionally it is able to integrate qualitative and quantitative views of the
system. (Bassetto et al, 2011; ien et al, 2011 (a) (b), Stunt et al, 2008; Hoivik et al,
2009)

The definition of risk status, is supported from conceptualization mathematical
model which shows the relationship between the variables P, C and Cr This allows to
characterize the state of any business venture, and that the model adapts to any
organization since its systemic structure. The risk status or level of risk is represented by
the variation of the factors are the variables that define it, and under the same approach
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brings to describe the level of system security. In order to establish the confidence level
of estimated risk would be necessary to include the uncertainty as a variable in the
model. (ien et al, 2011 (a) (b); Groth et al, 2010; Moller & Hanson, 2008 Aven, 2009
(a) (b); Samson et al, 2009; Kalantarnia et al, 2009)

Although the model requires a large amount of information, and this could
influence the costs associated with the removal of this, it is not restricted to the
application of the model as its structure and conceptualization has flexibility in its
application. This is possible since the model characterizes not only the risk but also
displays the structure of the business risk. The impact can cause a lack of data is reflected
in the level of uncertainty of estimated risk. (Khanzode et al, 2011; Yan & Haimes, 2010;
Groth et al, 2010; Roed et al, 2009; Cozzani et al, 2005)

The model has the ability to adapt both to the particular requirements of each
organization, as well as their levels of complexity. This scenario can be intervened by
directing the system towards continuous improvement, through the dynamic approach of
the model, as it can go and interrelaciando iterating variables and factors that make up
the model structure and the level of security to the customer needs . This approach is
accomplished by generating sustain risk indicators which can generate the analysis of
system elements and their temporal correlations. Thus, one can control and monitor the
status of the system over time, as well as improvements measures analysis and its
influence on the risk status of the system. (Khanzode et al, 2011; Skogdalen et al, 2011;
Podofillini et al, 2010; Flin, 2007)

A distinguishing feature is that the model adopts Cr as independent variable and
unlike that described in the literature where not considered explicitly (Aven, 2011 (a) (b);
Aven, 2009, Aven, 2008; Haimes, 2009). In the implementation of this model is relevant
because not only can see how the variables behave, but also look at the factors that
influence their evolution. (Aven, 2011 (a) (b); Cowing et al, 2010; Aven, 2009 (a) (b);
Cozzani et al, 2005).

The tool bases its operation since the beginning of the mathematical model. First
principles are used to define the structural system and its component elements together
with their interrelationships, followed by identifying the factors that influence the
variables and then characterize the risk of the system through its mathematical formula.
This mathematical formalism is consistent with a holistic view of risk, without losing the
possibility to interrelate relevant factors that influence the behavior of risk status. So, to
set the system evolution. (Meng & Weng, 2011; Keren et al, 2010; Hoivik et al, 2009)

The tool is able to handle large amounts of information and data, which allows
you to enter information from the different dimensions in which the system is structured.
This is due to that once defined the system to study the structure alone can systematize
information. Furthermore, the information that enters the model is of a quantitative and
qualitative enriching and increasing the knowledge of the system under study (Leka et al,
2011, Jeerawongsuntorn et al, 2011; Tauseef, 2011; Chen et al, 2010). To this we must
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consider an integration methodology of measurement which can be a hybrid of the
quantitative and qualitative. In the context of the model handles a lot of information and
a lot of factors that affect the behavior of the variables: P, C and Cr, the model makes no
filter and incorporated in its entirety, though it would possible to make a series of
multivariate statistical analysis to select the critical impact factors are that influence the
behavior of the risk. (Creedy, 2011; Meng & Weng, 2011; Skogdalen et al, 2011; Fan &
Sun, 2010; Groth et al, 2010; Flin, 2007; Cowing et al, 2004; Cozzani et al, 2005)

The algorithm describes the operation of the tool is simple, then it is feasible to
develop according to the capabilities of existing software programming and also take
advantage of the series of technological advances such as remote sensing and wireless
connectivity benefits of the Internet to collect data Quantitative and qualitative field and
these are managed in real time in the field. (Creedy, 2011; Fan & Sun, 2010;
KONGSVIK et al, 2010; Khan & Abbasi, 2000; Khan & Abbasi, 1999 (a) (b); Khan &
Abbasi, 1998)

The application of this tool provides the decision maker not only risk information
and projections unless a current picture of the structure of the system being analyzed.
Therefore, it has the possibility to optimize the effectiveness of the decisions to be able to
know what system elements that interact and are of relevance in risk status. Is thus
obtained, a range of alternatives for adapting decision making levels of complexity
present in your company. This makes the tool is flexible in its application and
implementation. (Kongsvik et al, 2010; Wu et al, 2010).

CONCLUSION

Companies today are immersed in a complex where the difficulties are coupled
operation, organizational structure, social change and environmental influences where
they compete and develop. For these scenarios, new strategies are needed to control risks
and one of these is to capture this complexity by means of mathematical models.

The model proposed tool presents a vision and operation, different models
currently used for risk management, incorporating the variable Cr which helps determine
the real state of enterprise risk and simultaneously studied the security level of this.

The model is able to integrate and represent the system from a quantitative and
qualitative point of view, which allows you to generate a mathematical relationship
between events and consequences, risk modeling and describe quantitatively.

The model by its constitution and holistic systemic risks can set different study
objectives as: environment, safety, occupational health and quality.

You need to include the variable in the model uncertainty in order to have the
degree of reliability of the model. It is also considered that in the decision making.

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The management tool provides flexibility for operation, which can incorporate
quantitative and qualitative measurements.

In the tool you need to consider statistical filters to select the factors most
frequently in the risk behavior of the system, before a possible large number of factors
and this contribution information entropy.

The risk management tool based on an MDR, has the ability to adapt to a variety
of peripheral hardware to collect data and information from both quantitative and
qualitative. With the advantage of continuous and systematic upgrades to improve the
effectiveness of information tool and risk management.

Accordingly: From theoretical considerations of the state of a dynamic system
achieving develop a mathematical formulation to represent the state of the same risk.
The concept of risk variables based on probability, consequence and risk control
allows it to be applicable in the labor and environmental dimension.

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WATER, ENERGY AND LABOR: KEY CRITICS TO COMPETITIVENESS OF
THE CHILEAN COPPER INDUSTRY

Patricio Prez Oportus
Economista
Universidad de Valparaso
prperez@puc.cl

Patricio Rojas Alfaro
Ingeniero Civil Industrial

ABSTRACT

Mining is important for Chile, is the main productive sector of our economy,
which contributes more in terms of tax revenue, and which leads the flow of direct
investment received from abroad. On average, the mining activity will provide during
2013 more than 37 million pesos per minute, which translates into a contribution close to
55 billion pesos per day.

However, mining is not without challenges. Three critical themes for their
competitiveness in the long run, are the costs of energy, labor and availability of water.

This document analyzes and quantifies the participation of these 3 - critical inputs
in the sector-level cash costs (C1) and net costs (C3), see the impact that have these
elements in operating costs and impact on the competitive position of the Chilean copper
industry. Finally, it makes policy recommendations to address and move forward on
these challenges.

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THE USE OF MICROWAVES IN THE SMELTING INDUSTRYS
THERMO PROCESS TECHNOLOGY

Dirk Hannemann
AURUBIS AG
Hovestrasse 50
20539 Hamburg, Germany
d.hannemann@aurubis.com

ABSTRACT

Microwaves have gained acceptance as a technology for heating materials in
many industrial sectors. However, there have not been any applications in the smelting
industry yet. There are nevertheless several applications that seem that they could benefit
from the use of microwaves, in particular in situations where smelter materials have to be
heated to remove moisture or to dry them. Initial trials have shown that microwaves are
well suited to heating moist metal-bearing materials. Moist flue dust pellets can be com-
pletely dried without damage to any of their properties. For technical slimes, measure-
ments were taken for decisive parameters which indicate the suitability of microwave
heating. These tests were performed with various microwave frequency bands to assess
their effects on the slimes. These base results are encouraging and set the course for addi-
tional trials with a continuous laboratory trial microwave. This article presents the poten-
tial of microwave drying compared to established drying equipment. The section on fun-
damentals of microwaves demonstrates material-dependent correlations for energy in-
take. The basic structure of a microwave oven is described. Trials to determine the suita-
bility of microwaves for heating flue dust pellets and technical slimes are presented and
concluded with an initial indication for an industrial dryer.

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INTRODUCTION

At the Aurubis site in Hamburg, dry input materials are a condition for efficient
processes in pyrometallurgical production and in the recycling of waste products. With-
out drying, there are difficulties in the production process that affect efficiency, profita-
bility, occupational safety and environmental protection. The most important physical
method for drying a material is heating. Water is discharged from moist material by
evaporation.

Water removal via drying

The general definition of drying is the removal of liquid from a material by evap-
oration, the use of drying agents or other chemical or technical methods. Drying is char-
acterized by a decrease in the moisture content and therefore the weight, as well as a de-
crease in the volume and a change in the appearance of the solid material. Drainage oc-
curs prior to this, primarily through runoff of the liquid or through mechanical methods.
Compared to drying, water removal is less intensive with regard to specific energy con-
sumption.

Water exists in the material in different types of fluid binding, which determines
the moisture removal process. The effort to discharge water via mechanical removal up
to thermal drying increases in this order: pore water adsorption water inner capil-
lary water water of crystallization [1].

Drying intermediate products before using them in pyrometallurgical facilities is
a prerequisite for safe operation. If the water content is too high, this can lead to condi-
tions similar to an explosion, with material ejection and damage to the refractory lining.
In the pyrometallurgical process, released water is discharged with the off-gas and can
lead to corrosion damage to pipelines and off-gas cleaning equipment after condensation.
This is the case with off-gases containing SO2 in particular. Drying waste products re-
duces their weight and prevents moisture leakage after they have been sitting for a long
time.

Drying facilities at Aurubis Hamburg

In the simplest case, only heat is required to evaporate liquids, which is a thermal
separation process. Different drying facilities are used for this in operations at Aurubis
Hamburg, depending on the properties of the material being dried. These facilities can be
described as follows with respect to their advantages (A) and disadvantages (D):

Belt dryer: convection dryer for flue dust pellets. A: no emissions, automatable,
continuous operation. D: insufficient drying due to hot gas short circuits, sticky
conveyor belts with insufficient hot air permeability, high maintenance require-
ments
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Vacuum superheated steam dryer: convection dryer for slimes. A: no emissions,
automatable, fast. D: large machine park, intermittent operation, high mainte-
nance requirements
Heatable vacuum membrane filter press: contact dryer for slimes. A: no emis-
sions, automatable, low energy needs, no gas scrubbing required. D: intermittent
operation, filter disruptions interfere with drying process
Drum dryer: contact dryer for copper concentrates. A: continuous operation, high
throughput, automatable. D: inefficient heat transfer, steam leakage leads to long-
er standstills.

All four drying facilities have been in operation for many years and have been op-
timized with regard to heat utilization, maintenance requirements and automation. Re-
gardless, they still have certain weaknesses that require better heating and drying tech-
nologies to be considered.

The following well-known but less suitable heating technologies are alternatives
to heating intermediate and final products:

Resistance heating: slow, annealing can ignite materials being heated
Electric arc: concentrated in a small area, plasma formation
Induction: extensive equipment requirements, only small processing quantities,
intermittent operation
Fossil fuels: environmental impact, danger of igniting materials being heated.

For all of the technologies mentioned, there is a fundamental danger that the sur-
faces will melt and that larger agglomerates will form as a result, without all of the mate-
rial being completely heated and dried. The reason for this is that the dry material is
heated from outside, a process which has to be maintained until the heat has been com-
pletely transported into the material and the moisture is evaporated from the material.
This process is hindered by internal heat and material transport resistance, however,
which leads to a strong decrease in drying speed. This stands in the way of quick and
efficient drying.

Therefore, a heating technology is required that functions without direct contact
with a hot surface or a hot gas, does not have any glowing components, does not require
auxiliary units to support drying, only produces small amounts of off-gas, is in a position
to process large inputs and can be used for different input materials.

This is possible with radiation drying via microwaves! Their operating principle
is fundamentally different from the procedures used in practice and offers potential that
cannot be evaluated yet due to a lack of knowledge and process understanding.

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r
e
MICROWAVES

Microwaves are known to most people as a quick and energy-efficient option to
heat materials containing water (household microwave). Furthermore, microwave
equipment is used to heat and dehydrate food, to dry ceramic elements, in woodworking
and as medical therapy devices [2][3].

Fundamentals of microwaves

Microwave heating is a technology from the group of electric heating techniques.
It can be operated alone but also in combination with other heating technologies.

Every dielectric material (electrically weak or non-conductive material whose
carriers generally cannot be moved) can absorb energy in the form of high-frequency
electromagnetic waves. The microwave spectrum is in the range of 300 MHz to 300
GHz. Radio waves fall beneath this spectrum, while the infrared range of the optical
spectrum lies above it. There are several frequency bands that were allocated to industrial
use. The most important frequencies are 896 MHz (915 MHz in the US) and 2,450 MHz,
for which the necessary equipment can be purchased easily. In this frequency range,
there are two physical mechanisms with which energy can be transferred to a non-
metallic material. In the lower microwave frequency range, currents which transfer ener-
gy from the microwave field to the material through the movement of ionic components
(e.g. salts) flow within the material. On the other end of the microwave spectrum, energy
intake is primarily related to the existence of permanent dipole molecules that tend to
reorient themselves under the influence of the microwave field. The energy intake during
this reorientation is based on the molecules inability to follow the extremely fast rever-
sal of the electric field.

Considered from a physical point of view, the material being heated rests between
the plates of a capacitor that is connected to a high-frequency generator [4]. The capacity
of a capacitor depends on the relative dielectric constant , which is prescribed by the
material being heated. The higher it is, the more charge can be absorbed:

l
A
C
r
e e
0
=
The capacitors power consumption is determined by the frequency f and the dis-
sipation factor tand :

d p tan 2
2
U C f P=

Hence, high power levels can only be produced with high frequencies. The di-
mensionless dielectric dissipation factor tand measures how much energy the material
being heated absorbs in an alternating field and how much is converted into heat. High
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values indicate a high absorption level. The relative dielectric constant and dissipation
factor vary with the frequency and temperature.

Moist materials absorb a larger effective power than in their dry state due to wa-
ters high dielectric constant, i.e. dry materials are heated more in moist areas and very
little in dry areas (leveling effect). This leads to a balanced temperature profile without
overheated areas [5].

Heating from microwaves takes place inside the material being heated. Surfaces
only melt if the material is completely dry, and then only when the radiations penetra-
tion is very low and the surfaces absorb microwaves. Apart from the material properties,
the shape and size of the material also play a role. Spheres with a small diameter heat up
most near the center, while large spheres tend to heat up in their outer areas [6]. The
temperature profile can be homogenized if heating from microwave energy is simultane-
ously coupled with heating from conventional energy. This is referred to as hybrid heat-
ing [7].

Microwaves behave similarly to visible light and follow the laws of optics. There-
fore, they can be reflected, pass through or be absorbed by materials with which they
interact [8]. This can be useful when transferring microwaves from the place they are
produced to the place they are used, for example.

The microwave radiation can be transferred to the material being heated in either
an untargeted or a targeted way. The most frequent type of microwave oven is the multi-
mode type, which accounts for much more than 50 % of industrial systems. The micro-
waves produced reflect multiple times within the enclosure and ensure that areas of high
radiation power vary constantly due to overlapping. The material being heated is not ide-
ally irradiated in this case. The risk of damage to the microwave transmitter due to coun-
ter-radiation is low. In contrast, the single mode type produces a stationary wave pattern
that is optimally defined in the space due to the overlapping of the occurring and reflect-
ed waves. This requires precise positioning of the material being treated in the area with
the maximum electric field. A disadvantage of this type of microwave oven is the rela-
tively low material throughputs, which have prevented the oven from becoming wide-
spread in the industry [9].

A typical industrial microwave oven for batch operation is made up of several
components (see Figure 1):

The decisive component is the magnetron, which produces microwaves with the
desired frequency band and radiates them via an antenna. A control circuit opti-
mizes the radiation path and regulates the total power

The applicator (vessel) is another important component that optimally exposes the
material to the intensive radiation field. The applicator can be evacuated to sup-
port drying processes
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Measuring instruments constantly record the temperature (contact-free or in con-
tact) and the sample weight.

1 Pyrometer
2 Fiber-optical temperature measurement
3 Microwave antenna
4 Pressure measurement
5 Circulator
6 Magnetron with control circuit
7 Vessel
8 Load
9 Wall heating

Figure 1 - Microwave trial plant [10]

EXPERIMENTAL WORK

For trials to assess the use of microwaves to heat intermediate and final products
in the smelter industry, several materials (whose specific features are well-known in the
smelter industry) were analyzed:

Flue dust pellets: Pb 33 %, Cd 3.5 %, Cu 3 %, As 1.2 %; particle size: 3-20 mm
(average: 8 mm); moisture content: 10-12 %
Slime from water treatment: As 15.5 %, CaSO4 3 %, NaF 0.5 %; moisture con-
tent: 60-70 %
Anode slime: Pb 25 %, Sb 7 %, Ag 17 %, Sn 5.5 %; particle size: 5-30 mm; mois-
ture content: 25-30 %.

Feasibility pre-trial

To determine whether microwaves can fundamentally be used to heat and dry
smelter residues, a sample of flue dust pellets was placed in a microwave dryer (Pschner
Microwave Power Systems, type WaveVac0150-lc) in the drum applicator with a rotary
plate. This intermittently operating microwave facility is equipped with a 200 l container,
functions with a 1.0 kW/2450 MHz magnetron and has all of the necessary measuring
equipment to track the temperature (using pyrometry) and the sample weight continuous-
ly. The data for the heating profile is saved and analyzed in a data logger.
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Figure 2 shows the effect of the microwaves on the temperature and weight of the
trial sample during microwave heating. The sample temperature rises slowly for the first
few minutes but increases significantly after being irradiated for a longer period. When
the irradiation is turned down, the temperature drops again. The measured weight loss
starts shortly after the temperature increases but then continues in an almost linear fash-
ion and also behaves comparably when the irradiation level is changed. A consistent
sample weight indicates the end of the drying process. Specific, excessively strong heat-
ing was avoided to ensure that the sample was homogenously heated. Otherwise, the flue
dust pellets burst and start to glow as drying progresses. The analysis of the treated sam-
ples moisture level shows that it is nearly moisture-free. The recalculation of the weight
loss shows a 6.9 % decrease. This value coincides with the proportional moisture con-
tents of pellets removed from a pelletizing process. The shape and condition of the sam-
ple was unchanged in a dry state. This pre-trial shows that moist flue dust pellets contain-
ing metal can be completely dried with the help of dispensed microwaves without im-
pairing the quality of the material being dried.

Figure 2 - Temperature progression and weight loss when heating
flue dust pellets with microwaves

Analysis of technical slimes microwave absorption

Technical slimes differ fundamentally from the flue dust pellets used in the pre-
trial. They are considerably moister and paste-like. The dielectric parameters of anode
slime and slime from water treatment were determined in in-depth analyses.

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Analysis of anode slime

Anode slime was tempered in a sample container in a compartment dryer accord-
ing to the measuring routine over several weeks and the dielectric constants and dielec-
tric losses were metrologically recorded in regular intervals. The materials temperature
was recorded using a fiber optic temperature measurement system made of non-metallic
components.

The temperature-dependent changes to the electromagnetic field surrounding the
material sample were analyzed (Agilent Technologies, Dielectric Probe Kit 85070E) and
the relevant assessment parameters were calculated from them.

To clarify the frequency-dependent effect of microwaves, a series of trials was
carried out at 915 MHz, 2.45 GHz and 5.8 GHz. Figure 3 shows the dielectric constants
for 915 MHz and 2.45 GHz. Flawless measurements of the dielectric parameters could
only be taken up to 140 C, as the measured values above this temperature were strongly
distorted due to strong fissuring and drying of the sample material. Furthermore, electri-
cally conductive layers developed, which hindered the electromagnetic waves from pene-
trating the material further. In order to prevent similar difficulties in practice, the heated
material should be repeatedly turned in a mixing unit.

Figure 3 - Dielectric parameters for anode slime
at different frequency bands

For the relative dielectric constant
r
e there is a uniform progression between 2.7
and 5.7 at 915 MHz within the temperature range relevant to drying (70-110 C). The
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dielectric losses tand drop from ca. 1.0 to 0.1 as the amount of water in the material de-
creases. These values illustrate the potential of microwave drying. For 2.45 GHz, the
dielectric parameters reflect a fundamentally similar progression to 915 MHz. The rela-
tive dielectric constant
r
e shows the same scale, whereas the dielectric losses tand are
nearly twice as high in a moist state. This points to a much higher adsorption capability
of higher-frequency microwave radiation for anode slime and is also confirmed by the
measurement results of the analysis with 5.8 GHz. This uniform material behavior can be
extrapolated from the laboratory scale for the development of industrial facilities.

Analysis of slime from water treatment

Slime from water treatment was analyzed using the same method as anode slime.
The upper end of the applicable trial results is 130 C.
A series of trials at 915 MHz, 2.45 GHz and 5.8 GHz were carried out for this
material as well. Figure 4 shows the dielectric constants for 915 MHz and 2.45 GHz.

Figure 4 -Dielectric parameters for slime from water treatment
at different frequency bands

For the relative dielectric constant
r
e there is a uniform progression between 3.0
and 4.5 at 915 MHz within the temperature range relevant to drying. The doubling of the
dielectric losses tand between 55 and 73 C, which was established for all of the ana-
lyzed frequencies, is based on an interaction between the electromagnetic wave and an
unknown ionized molecule that exists in this temperature range. This excessive increase
would lead to an accelerated increase in temperature in the case of microwave heating,
which would go back to the previous level again after the reaction subsided. The dielec-
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tric parameters for 2.45 GHz also show a fundamentally similar progression as 915 MHz.
The relative dielectric constant
r
e shows values between 9.5 and 11.5 up to 75 C and
drops to 2.5 after passing through the temperature range characterized by excessive in-
creases. In contrast, the dielectric losses in a moist state are about half as large as at 915
MHz and then also decrease to values around 0.15. The basic material behavior is also
apparent at a microwave operating frequency of 5.8 GHz. The intensive drying of this
slime causes it to completely lose its shape. The compact, pasty condition is gone and a
fissured, slightly disintegrating format takes its place.

Conclusion

The dielectric losses are at a high level for both of the technical slimes analyzed.
They are therefore well suited to microwave heating.

Table 1: Overview of key data related to dielectric parame-
ters for anode slime and slime from water treat-
ment
Anode slime
915 MHz 2.45 GHz
at 50C at 120C at 50C at 120C
r
e tand
r
e tand
r
e tand
r
e tand
3.75 0.89 2.70 0.13 3.30 1.75 2.49 0.10

Slime from water treatment
915 MHz 2.45 GHz
at 50C at 120C at 50C at 120C
r
e tand
r
e tand
r
e tand
r
e tand
3.80 0.80 2.60 0.35 8.90 0.42 2.40 0.30

The microwave energy tends to be coupled in moister areas of the slimes. Drying
cracks form as the materials continue to dry, which make measuring the dielectric prop-
erties more difficult. Moreover, the appearance of electrically conductive layers was ob-
served, which hamper microwave drying. These difficulties can be eliminated by thor-
oughly mixing the material.

On the basis of the gathered data, an initial power estimate can be made for an in-
dustrial drying facility for slime from water preparation. According to this estimate, an
energy demand of 400 kW of microwave power is calculated for an industrial 915 MHz
facility for a material throughput of 15 t of slime per day. Additional conventional heat-
ing of 50 kW is required to support the drying process.

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PROSPECT

After performing the encouraging trials drying the flue dust pellets and determin-
ing meaningful parameters for assessing microwave drying, the next step is treating dif-
ferent materials in a continuously operating laboratory microwave. In this pilot facility
which should be viewed as a precursor to an operational drying facility the combination
of continuous conveying and heating with microwaves should be tested and the results
should be transferred to detailed planning for an industrial facility. Furthermore, an anal-
ysis should be carried out to see whether intermediate products can be depleted by criti-
cal, volatile components through microwave treatment. Finally, the practical feasibility
related to installation engineering, space requirements, environmental protection, occupa-
tional safety and efficiency should be discussed.

CONCLUSIONS

The advantages of microwave technology for heating intermediate and final
products in the smelter industry compared to existing drying equipment are found in the
penetration of the radiation that starts heating the materials being dried from the inside,
the selective heating of moist areas, the contact-free and mechanically gentle heating of
the materials and not the furnace construction, and the lack of a required medium for heat
transfer.
Initial trials have proven that moist flue dust pellets can be treated with regulated
radiation until they are completely dry without damage to their shape and condition.
More extensive analyses of the relative dielectric constants of technical slimes depending
on their moisture level indicate a good coupling of the microwaves. The dielectric losses
are at a high level, which predestines these materials for microwave heating. Areas that
are drier, which make the heating process more difficult, have to be balanced for efficient
drying by mixing the material thoroughly. After these promising initial trials, pilot trials
with a continuous laboratory microwave are now being performed, which should assist in
evaluating the practical suitability of this particular heating technology.

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ACKNOWLEDGEMENTS

The author would like to thank Pschner GmbH & Co. KG for carrying out the
feasibility pre-trials and the Technical University Bergakademie Freiberg, Institute for
Thermal Technology and Thermodynamics for the tests on the microwave absorption of
technical slimes.

REFERENCES

1. H. Schubert, Aufbereitung fester mineralischer Rohstoffe, Band III, VEB
Deutscher Verlag fr Grundstoffindustrie, Leipzig, Germany, 1984

2. Singh and S. Verma. Fundamentals of Microwave Engineering, PHI Learning
Private Lim., New Delhi, India, 2009

3. D. W. Moeller, Environmental Health, Harvard College, USA, 2005, 301

4. W. Vauck and H. Mller, Grundoperationen chemischer Verfahrenstechnik, 11.
Auflage, Deutscher Verlag fr Grundstoffindustrie, Stuttgart, 2000

5. J. Monzo-Cabrera, A. Diaz-Morcillo, J. M. Catala-Civera and E. de los Reyes,
Selective Heating and Moisture Levelling in Microwave-Assisted Drying of
Laminar Materials: An Explicit Model, 8
th
International Conference on Micro-
wave and High-Frequency Heating, M. Willert-Porada, Springer-Verlag, Berlin,
Germany, 2006, 234-242

6. D. Gehrmann, G. Esper and H. Schuchmann, Trocknungstechnik in der
Lebensmittelindustrie, B. Behrs Verlag, Hamburg, Germany, 2009, 87-95

7. L. Robak, Mikrowellenuntersttze Wrme- und Stoffbertragung beim Trocknen
und Entbindern von Technischer Keramik, Ph.D. Thesis, Technische Universitt
Bergakademie Freiberg, Freiberg, Germany, 2005

8. H. G. Hirschberg, Handbuch Verfahrenstechnik und Anlagenbau, Springer
Verlag Berlin, 1999, 1046

9. A. C. Metaxay and R. J. Meredith, Industrial Microwave Heating, Peter Pere-
grinus Ltd., London, United Kingdom, 1993, 130

10. P. Pschner, Microwave Vacuum Drying for Advanced Process Technology,
document for information, 2006, 3

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NEW REGULATION TO REDUCE AIR EMISSIONS FROM COPPER
SMELTERS IN CHILE

Carmen Gloria Contreras, Priscilla Ulloa
Environment Ministry
cgcontreras@mma.gob.cl
pulloa@mma.gob.cl

Pedro Santic
Chilean Copper Commission
psantic@cochilco.cl

ABSTRACT

Since the 1990s, copper smelters in Chile have been regulated by controlling their
air emissions of particulate matter (PM), arsenic (As) and sulphur dioxide (SO2).
Nevertheless, copper smelters remain the principal source of emissions of the
contaminants SO2 and As, and social and environmental conflicts persist in areas where
they are located.

In 2010, priority was given to the drafting of a new emissions standard. The new
regulation focuses on having an effective, efficient standard, while maintaining the
smelting and conversion technologies currently used in the smelters; these processes
produce the largest proportion of air emissions. The cost-benefit assessment of the
regulation showed that there was a large potential for reducing emissions by introducing
available technology and improving operating practices, which would also indirectly
achieve a reduction in secondary and fugitive emissions from the smelting and
conversion processes. The standard establishes annual emissions limits for SO2 and As
for each smelter, and chimney emissions limits for important individual operations such
as concentrate driers, slag-cleaning furnaces, refining furnaces and acid plants.

When the information available for drafting the standard is considered, it is
concluded that implementation in Chile of a regulation such as is proposed is technically
and economically feasible, as well as being socially beneficial.

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DIAGNOSIS OF COPPER SMELTERS IN CHILE

Chile has seven copper smelters: five are owned by the State and two by private
companies. In 2010 the CODELCO smelters, namely Chuquicamata, Potrerillos,
Caletones and Ventanas, presented the greatest smelting capacity, with 67.3%. They
were followed by Altonorte, owned by Glencore Xstrata, with 17.8%; Chagres, owned by
Angloamerican, with 9.4%; and the Hernn Videla Lira (HVL) smelter owned by
ENAMI with 5.5% (Table 1).

Table 1- Copper Smelters in Chile
Region Smelter Company Year of
start-up
Smelting capacity
2010, thousand tons of
Cu concentrate
II Chuquicamata CODELCO 1952 1,650
II Altonorte GLENCORE XSTRATA 1993 1,160
III Potrerillos CODELCO 1927 680
III HVL ENAMI 1952 357
V Ventanas CODELCO 1965 450
V Chagres ANGLO AMERICAN 1960 610
VI Caletones CODELCO 1922 1,600

In the international context, Chile's smelting capacity in the same year was 8.2%
of world capacity, putting the country in third place. China was first, with 21.4%,
followed by Japan with 11%. Given the importance of this economic activity for Chile,
the future emissions standard must reconcile the objectives of the economic activity with
environmental objectives, seeking to avoid placing barriers to trade or inducing the
closure of any smelters.

In simplified terms, a copper smelter produces copper anodes and sulphuric acid.
The process consists in subjecting concentrate, which contains approximately 30%
copper, first to drying and then to smelting and conversion to obtain the anode (99.6%
copper). The copper anodes are then transformed into cathodes (99.99%) in the
refineries. The three refineries in Chile belong to CODELCO and are located at the
Chuquicamata, Potrerillos and Ventanas smelters.

The Chagres and Chuquicamata smelters use a different smelting technology
from that of the other smelters. This technology uses continuous, confined furnaces,
which are more efficient in capturing process gases [1]. The smelting technologies of the
other smelters use tilting bath furnaces, which generate significant fugitive emissions of
SO2 and toxic substances such as As, Hg, etc. [2]. All the smelters use the same
conversion technology, i.e. Pierce Smith Converters (PSC), with discontinuous
operation. The gases captured in the hoods are mixed with the gases captured from the
smelters and treated in the acid plant to produce sulphuric acid.

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The acid plants of the Altonorte, Chuquicamata, Potrerillos, HVL and Caletones
smelters are single contact plants; only Ventanas, Chagres and Altonorte have double
contact acid plants. In all the smelters of the sector to be regulated, the SO2 emissions
declared by the acid plants exceed 355 ppm (1,000 mg/m3-N). In relative terms, the SO2
emissions of the three acid plants at Chuquicamata for example are equivalent to 1.5
times the total SO2 emissions of the whole HVL smelter, and 2.3 times the total SO2
emissions from Chagres.

All the smelters have particulate matter (PM) control equipment in their driers.
However, the PM emissions exceed 35.5 ppm (100 mg/m3-N), evidence of an important
loss of concentrate and deficient operating and maintenance practices.

The smelters treat the slag in slag-cleaning furnaces, in order to increase the
volume of copper recovered at the smelter, generating PM emissions which principally
contain As, as well as other toxic substances. The exception is the Altonorte smelter,
which processes the slag in a floatation plant, generating no air emissions. At present,
five smelters indicate that their investment plans consider eliminating the slag-cleaning
furnaces and replacing them with floatation plants, thus eliminating these emissions. The
smelters which would maintain their slag-cleaning furnaces are Ventanas and HVL.

With respect to the environmental regulations, five of the copper smelters have
decontamination plans [3-7] drawn up at the beginning of the 1990s. The plans establish
annual limits for PM and SO2 emissions. By applying the plans, the smelters were able to
increase sulphur capture from 19% to 80% by 2012 [8]. The principal measures
implemented by the smelters consisted in changing reverberatory furnaces for Teniente
converter furnaces (TC), optimizing gas capture and incorporating acid plants.

All smelters are subject to the arsenic emissions standard [9], which establishes
emissions limits in tons per year for each smelter. During the period 1998 to 2001,
arsenic emissions were reduced from 4,600 tons to 2,064 tons, equivalent to 55%, by
application of the environmental standard [10].

Both the emissions limits established in the decontamination plan and those in the
arsenic standard have been complied with since 2003. Despite the reductions achieved,
smelter activities are still the cause of the bulk of SO2 and As emissions, and need to be
reduced further [11].

Air emissions impact of copper smelters

A copper smelter can have four types of impact from its air emissions: a) Impacts
produced by SO2 and SO3 acid mist, caused by puff emissions from the acid plant or
unexpected turns of Teniente converters; b) Impacts produced by fugitive emissions from
smelting and conversion, principally of As and SO2; c) Impacts produced by chimney
emissions from individual operations, such as the drier (PM), refining furnace (PM, SO2),
slag-cleaning furnace (PM, As) and the acid plant (SO2, As, Hg); and d) Impacts
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produced by particles picked up from the concentrate collection and storage areas (PM,
As).

The area impacted may be local up to Regional. For example, it is considered
possible that emissions from the Caletones smelter may be transported to the bowl of the
Metropolitan Region, where they contribute to the air quality [12-15]; while emissions
from Altonorte may have an impact on the air quality in Antofagasta [16].

There is ample evidence of the risks of adverse effects on human health and the
environment associated with the contaminants produced by the smelters [17].

TECHNOLOGY AVAILABLE TO IMPROVE THE ENVIRONMENTAL
PERFORMANCE OF COPPER SMELTERS

Technological Alternatives for Controlling Emissions of Sulphur Dioxide (SO2)

Various alternatives for controlling emissions of sulphur dioxide (SO2) have been
available since the 1970s. These alternatives were analysed, considering criteria such as
gas flows, investment costs, operating and maintenance costs, efficiency in removing
SO2, possibilities of upscaling the process, degree of complexity of the process,
flexibility in handling fluctuations in the SO2 content of the gases, and maturity of the
application of the technology. These alternatives are described briefly below [18].

Dilute Gas Treatment (concentrations 1% SO2)

This category includes tail gases from chimneys of acid plants and secondary and
fugitive gas treatment systems. The following processes for SO2 abatement were
identified: wet-bed scrubbing of gases with lime or caustic soda (NaOH); activated
carbon treatment; scrubbing of gases with hydrogen peroxide (H2O2); scrubbing of gases
with sea water; dry adsorption; and regeneration processes.
a. Limemilk Scrubber or Caustic Scrubber. Wet-bed scrubbing of gases with lime or
caustic soda is a non regenerative process for abating SO2 from a gas flow, based on
the principle of absorption. A liquid solution of lime (Ca(OH)2), calcium carbonate
(CaCO3) or caustic soda (NaOH) is used as an absorbent flow, usually in
countercurrent to the gas flow. The technology and the process are simple, requiring
simple construction and installations; operation is easy, the operating costs are low
and it produces a by-product which is reusable. The process is used for treating gases
with wide ranges of SO2 concentration.
b. Activated Carbon Treatment. Gas treatment with activated carbon is a regenerative
process which generates no waste and produces dilute sulphuric acid. After the gases
have cooled and been saturated in water, they are processed in a reactor with
activated carbon. The sulphur dioxide molecules are absorbed on the carbon, where
the reaction occurs to produce sulphuric acid.
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c. Gas scrubbing with hydrogen peroxide (H2O2). This is a regenerative process which
produces sulphuric acid at a defined concentration, ready for use. It is known
commercially as the Super
ox
process.
d. Seawater flue gas scrubbing process. This process consists of two stages: the first is
the absorption of the SO2 on sea water and the second is the treatment of the sea
water prior to disposal. The main installation is the absorber, where the gas flow
comes into contact with the sea water to allow the SO2 to be transferred to the liquid
phase. In the second stage, the flow of sea water from the absorber is mixed with
fresh sea water to raise its pH value; then air is injected to oxidise the absorbed SO2
to SO4 , which is disposed of in the sea.
e. Dry Absorption. The dry absorption process implies a solid-gas reaction of the SO2,
eliminating it from the gas flow. The solid material, in the form of particles, is
eliminated by filtration. An absorbent material, CaCO3, is injected into the gas flow.
The intense mixture of the gaseous and solid compounds allows absorption and
reaction of the molecules on the surface of the solid to generate CaSO4. The solid
material generated in the filtrate systems is confined.
f. Regenerable Desulphurisation. In the regenerable desulphurisation process, the SO2
from the gases is separated by a chemical absorption process using an amine. The
amine reacts with the SO2 to form a stable salt. This process is available
commercially under the name Cansolv [19].

Concentrated Gas Treatment (concentrations > 5% SO2)

Concentrated gases are mainly treated in single or double contact acid plants.
Double contact acid plants are the best technology available, since they are able to
operate autogenously with SO2 concentrations greater than 5%. The conversion
efficiency of a double contact acid plants varies from 99.5% to 99.9%, with an output
concentration of between 500 ppm and 100 ppm SO2 (1400 to 300 mg/m3-N), depending
on the starting conditions of the gas and the design of the acid plant. Single contact plants
can be converted to double contact by installing an additional conversion unit.

The double contact acid plants which exist in Europe report a conversion
efficiency greater than 99.6% with SO2 emissions between 36 ppm and 390 ppm (100
and 1100 mg/m3-N) [20]. It should be noted that 4-stage double contact acid plants
reported by the European Union have achieved SO2 emissions of 160 ppm (450 mg/m3-
N) [20]. Since 1996, double contact acid plants which have introduced the HaldorTopsoe
VK-69 catalyst report SO2 emissions lower than 100 ppm (300 mg/m3-N) [21].

In Chile, the SO2 emissions from new acid plants have been regulated by the
Environmental Impact Evaluation System, for example in the case of the Mejillones
sulphuric acid plant belonging to NORACID, with a maximum SO2 emissions limit of
350 ppm (987 mg/m3-N) [22].

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Capture of Fugitive Gases

In a smelter configured with TC and PSC there are several sources of fugitive
emissions: White Metal and slag discharge from the TC, slag loading into the slag-
cleaning furnaces, flows of White Metal and slag from the slag-cleaning furnaces, and
loading into the mouths of the PSC. The systems for capturing these gases include the
installation of hoods, ducts and extractors, and their configuration depends on the
configuration of the individual smelter and the volumes of gases to be captured.

The object of installing secondary hoods in TC and PSC is to capture the fugitive
gases which escape the primary hoods at the start and finish of blowing, during blowing
and when the converter is swivelled to introduce a load into the mouth for blowing.

Mechanised feeding of cold loads into PSC uses a circulating feed system with
closed transport which enters directly through the hood. Installing this system avoids the
need to open the door of the PSC to add cold loads during blowing, thus reducing
fugitive emissions [18].

Hydrometallurgical Slag Treatment

Hydrometallurgical slag-cleaning starts with cooling of the slag, in ladles or pits,
by adding water. Cooling can be controlled depending on the time allocated. The cooled
slag is then broken up mechanically for feeding into the treatment plant.

The first treatment stage is size reduction to obtain a slag with the grain size
required for the floatation process. The milled slag passes through a classification step,
from which the coarse fraction is returned for further milling and the fine fraction goes
on to floatation. The concentration stage, in a floatation process, involves primary, re-
pass and cleaning steps to obtain concentrate, and tailings which go for disposal. The
concentrate is thickened and filtered for processing in the smelter or for sale. The
advantage of this process from the point of view of gas generation is that it significantly
reduces the handling of hot liquids in ladles in the smelter, thus reducing gas emissions
and simplifying smelter operation [18].

Technological Alternatives for Controlling Emissions of Particulate Matter and
Arsenic

The processes for transforming SO2 into sulphuric acid require the gas to be free
of particulate matter (PM) and, in the case of treatment in acid plants, free of impurities
such as arsenic which may damage the catalyst. Electrostatic precipitators are therefore
normally used.

Concentrate driers and slag-cleaning and refining furnaces emit particulate matter
which must be treated in control equipment such as dry or wet electrostatic precipitators
or sleeve filters, which have a particle removal efficiency higher than 99%, resulting in
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PM emissions between 1 and 5 mg/m3-N [20]. It should be noted that by reducing PM
emissions, emissions of arsenic are also reduced, since it is among the contents of the
particle emissions.

CRITERIA AND STAGES FOR DRAFTING THE EMISSIONS STANDARD
FOR COPPER SMELTERS

The criteria used for drafting the emissions standard were based on the principles
which underlie the environment law [23] and the regulation for the drafting of emissions
standards [24]. Further principles adopted in drafting the emissions standard were to
avoid the closure of any smelter, not to impose barriers to economic activity, and to
reconcile operation with environmental objectives. As a result, the standard must be
effective in reducing contaminants emissions, and efficient in applying procedures for
compliance with the obligations by the regulated industry, and by the State as regulator
and inspector.

Thus the objective of the standard is to protect human health and the environment
throughout the country, by reducing air emissions of sulphur dioxide (SO2), arsenic (As),
particulate matter (PM) and mercury (Hg).

The criteria for drafting the standard are summarised below:
- Cost effective evaluation of emissions reduction measures which do not imply the
closure of any source of emissions.
- No measures were evaluated for changing the smelters (the majority use Teniente
Converter technology) and conversion furnaces (Pierce Smith) in existing sources,
giving preference to optimising gas capture and subsequent fixing or abatement.
- The baseline adopted was the nominal smelting capacity declared in 2010, with three
regulation scenarios setting different levels of SO2 and As capture and fixing.
- Due to the variability of the S and As concentrations, the average over the last 5 years
was taken to estimate emissions.
- Annual SO2 and As emissions limits were established per plant, and chimney
emissions limits on SO2, As, PM and Hg for important individual processes. Different
limit values were established for new and existing sources.
- The periods evaluated for compliance with environmental requirements by existing
sources took into account the emissions mitigation plans of each smelter.
- In the case of new sources, the requirements of the standard will apply from the
moment when they come into force.
- New emissions sources will enter with the best technology available.
- Environmental performance indicators were incorporated, such as kg SO2/t fine Cu
and g As/t fine Cu.

The principal stages in developing the standard are described below [24]:
a. Formation of a technical group responsible for drafting the standard: consisting
of professionals from the Chilean Copper Commission representing the Mining
Ministry; and professionals from the Environment Ministry. Once the drafting process
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was started, a public consultation was opened to bring together all the technical,
economic and administrative information applicable to the process [25].
b. Definition of the emissions sources and contaminants to be regulated: the standard
regulates existing and new sources, namely copper smelters and sources of arsenic
emissions which have a process input of 0.05% As. The priority in defining the
contaminants was to include toxic substances such as arsenic (As), mercury (Hg),
sulphur dioxide (SO2) and particulate matter (PM). Important emitting processes
which form part of smelter operations were identified in order to establish chimney
emissions limits, and a limit was applied to the total emissions of the source. Roasting
plants, which process concentrates with a high arsenic content as an individual
operation prior to smelting, were included.
c. Analysis of emissions from the source: a review was carried out for each smelter of
the technologies used in the emitting processes, and the SO2 and As emissions, for the
period 1990 to 2010. To do this, a survey of the industry was carried out: the smelters
were visited and work meetings were held with representatives of the seven smelters.
Some priority issues studied were: improving the mass balances of SO2 and As,
reducing emissions of contaminants through good operating and maintenance
practices, identifying technological improvements in processes and emissions control,
etc. Based on the diagnosis, the environmental performance of the different smelters
could be compared.
d. Identification and evaluation of the technology available for reducing emissions:
interviews and work meetings were held with the distributors of the technologies, in
order to evaluate the potential for improving gas capture. Information was collected
on environmental regulations in countries which have smelters and acid plants, in
order to establish the feasibility of achieving reductions below the values established
in environmental requirements. In particular, consideration was given to the
guidelines on copper smelters of the International Finance Corporation (IFC) of the
World Bank, which are based on scientific research and consultation with specialists,
the industry, governments and society [26].
e. Estimation of the potential for reducing emissions: the potential corresponds to the
technical and economic feasibility of reducing emissions, considering both the
smelting and conversion technologies used by the smelters, and the technologies
available for diminishing, capturing and reducing the emissions generated by the
various individual processes. To estimate the potential for reducing emissions, two
models were constructed based on the configurations of the smelters: one model
corresponds to those smelters which have bath equipment (Teniente Converter) for
smelting and Pierce Smith converters for conversion (Ventanas, Potrerillos, Hernn
Videla Lira, Caletones and Altonorte); the other corresponds to the smelters with flash
smelting equipment (Outokumpu Flash Furnace) and PSC for conversion (Chagres).
The Chuquicamata smelter, which operates two smelting equipments with different
technologies Teniente Converter and Outokumpu Flash Furnace was addressed
separately [27].
f. Design of three regulatory scenarios and analysis of cost effectiveness: three
regulatory scenarios were evaluated with different levels of SO2 and As capture and
fixing (95%, 96% and 97%), each including annual emissions limits for the smelter
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and per chimney. Preference was given to the use of proven emissions prevention and
control technologies and practices, the technical feasibility of installation, operation
and maintenance, and restricting increases in the costs for capital investment and
operation and maintenance to acceptable levels [27]. The result obtained was a
package of cost-effective measures which achieve the potential for emissions
reductions.
g. Analysis of the period for compliance with future requirements: the period
required for implementing each measure was evaluated. The times required for
carrying out pre-investment studies, obtaining environmental and sectorial permits,
construction and start-up were all included.
h. Analysis of the benefits of the regulation: an air quality model was applied which
enabled an estimate to be made of the improvement in air quality resulting from the
reduction in emissions from each scenario. The reductions were then evaluated in
terms of benefits for society, placing an economic value on the health costs avoided.
The side benefits of controlling fugitive emissions and gases from individual
processes, such as SO2 and PM, include the reduction of sulphates and other toxic
substances contained in the tail gases, and these benefits were also considered [28].
i. Analysis of the social evaluation: a social economic evaluation was carried out,
considering an analysis of the cost-effective measures and evaluation of the benefits
of each regulatory scenario. The regulatory proposal adopted was the scenario which
presented a social NPV in which the economic activity was compatible with the
environmental objectives proposed in the standard [29].
j. Public consultation on the pre-project for the emissions standard: the pre-project
for the standard was submitted to public consultation, and some 300 enquiries were
received from different interest groups. The remarks addressed the following
principal issues: i) Justification of the emissions limit value of 800 ppm SO2 for acid
plants, since evidence exists that 200 ppm is achievable; ii) Explanation of the
reasons for not intervening in smelting and conversion; iii) Establishing Hg limits for
existing sources; iv) Request that the sources should report PM and Hg emissions;
and v) Request to review the compliance periods considering the proximity of some
smelters to population centres [30].
k. Drafting of the definitive project for the standard: on conclusion of the public
consultation, the pertinence of the observations was analysed and a definitive project
for the emissions standard was drawn up; this was presented, and approved by the
Council of Ministers [31]. The standard will come into force once it is published in
the official gazette (Diario Oficial).

CONTENTS AND REQUIREMENTS OF THE EMISSIONS STANDARD FOR
COPPER SMELTERS

Requirements of the Standard for Existing Sources

The requirements for existing sources are: i) Annual emissions of SO2 are frozen
from the date of publication of the standard; ii) Annual SO2 and As emissions limits are
established for each smelter, and the smelters must also comply with SO2 and As capture
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greater than or equal to 95%. Both requirements must be verified using mass balances;
iii) Chimney emissions limits are established for important individual operations such as:
drier (PM), slag-cleaning furnace (PM, As) and acid plant (SO2); iv) The period
established for compliance with the emissions limits are 2 years for smelters which
have double contact acid plants and 5 years for smelters which have single contact acid
plants.

The emissions limits for existing sources of SO2 and As are shown in Table 2;
Table 3 shows the chimney emissions limits for existing and new sources:

Table 2- SO2 and As emissions limits under the standard for each smelter
Smelter SO2 limit (t/y) As limit (t/y)
Hernn Videla Lira 12,880 17
Ventanas 14,650 48
Chagres 13,950 35
Potrerillos 24,400 157
Altonorte 24,000 126
Caletones 47,680 130
Chuquicamata 49,700 476

Requirements of the Standard for New Sources

The requirements for new sources correspond to SO2 and As capture greater than
or equal to 98%, and chimney emissions limits for individual operations: drier (PM),
slag-cleaning furnace (PM, As) and acid plant (SO2, Hg).

Both new and existing sources must implement measures to improve operating
practices in order to reduce the risk of short term contamination events, e.g.: i) Report the
starting and stopping of the acid plant and the smelting furnace, and the duration of
stopped periods, to the inspection body; ii) Maintain visual inspection of the smoke from
the refining furnace chimney(s) in order to maintain opacity less than or equal to 4%; iii)
Have an operating and maintenance plan for the SO2 and PM emissions capture system;
and iv) Minimise PM emissions from concentrate transport and storage.

Table 3- Chimney emissions limits for emitting processes in new and existing sources
Chimney Contaminant Existing source
Emissions limit
New Source
Emissions limit
Acid Plant SO2 600 ppm 200 ppm
As 1 mg/m3-N 1 mg/m3-N
Hg Not applicable 0.1mg/m3-N
Drier and
1.1 Slag-cleaning furnace
PM 50 mg/m3-N 30 mg/m3-N
Slag-cleaning furnace As 1 mg/m3-N 1 mg/m3-N

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Results of the Application of the Standard

The application of the standard will achieve:
- A 53% reduction in total SO2 emissions from the average emitted by the smelters
during the last five years (2007 to 2011), and a 37% reduction in total As emissions
from the levels declared for 2011.
- Reduction in the hourly SO2 emissions of acid plants, with the resulting reduction in
short term contamination events.
- Improvement in the environmental indicators associated with the production of fine
copper.
- The intervention in acid plants and gas treatment systems opens up the possibility of
incorporating heat recovery systems, thus improving the energy performance of the
smelters.
- There will be an increase in the production of sulphuric acid, which in present market
conditions will result in increased revenues for the smelters.
- Modifying the slag-cleaning process to slag floatation may lead to an increase in the
amount of copper recovered and productivity increases in the smelting equipment,
and will also simplify the transfer of hot liquids.

CONCLUSION

The object and the challenge of the emissions standard for copper smelters is to
maintain the smelting and conversion technologies currently used by the smelters. The
evaluation of non structural measures showed that there is great potential for reducing air
emissions by implementing emissions controlling technology, while at the same time
introducing improved operating practices, which contribute indirectly to reducing
secondary and fugitive emissions.

The design of the standard included the steps and procedures contemplated in
Chilean law and regulations. One of the most important steps is the cost-benefit
evaluation of the three regulatory scenarios. Finally, a recommendation was made to
decision-makers to include annual emissions limits for sulphur dioxide and arsenic for
each smelter, and chimney emissions limits for sulphur dioxide, particulate matter,
arsenic and mercury for individual operations. Implementation of the proposed regulation
in Chile is technically and economically feasible, and socially beneficial.

ACKNOWLEDGEMENT

The authors thank Adolfo Lpez of COCHILCO, Marcelo Fernndez of the
Environment Ministry, the whole COPRIM and GEOAIRE consultants group, in
particular Claudio Dodds and Pedro Sanhueza, and the members of the Operations
Committee for their contributions.

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Santiago, Chile

REFERENCES

1. Rozas, I. Gua de Apoyo al proceso de fiscalizacin de la norma de emisin de
arsnico al aire. Mejoras a la Metodologa de aplicacin de la norma de emisin de
arsnico al aire. Para la Comisin Nacional del Medio Ambiente (CONAMA),
Octubre 2003. Available at: www.sinia.cl/1292/articles-29185_GuiaCONAMA.pdf

2. Rozas, I y Wiertz. J. Mejoras a las metodologas de aplicacin de la norma de
emisin de arsnico al aire. Comisin Nacional del Medio Ambiente, 2003. Available
at: http://www.sinia.cl/1292/articles-29185_Informe_Final.pdf

3. D.S. N 252, de 1992, del Ministerio de Minera. Aprueba plan de descontaminacin
del complejo industrial Las Ventanas propuesto conjuntamente por la Empresa
Nacional de Minera, Fundicin y Refinera Las Ventanas y la Planta Termoelctrica
de Chilgener S.A.

4. D.S. N 180, de 1995, del Ministerio Secretara General de la Presidencia de la
Repblica. Aprueba plan de descontaminacin de la Fundicin Hernn Videla Lira de
Enami.

5. D.S. N 81, de 1998, Ministerio Secretaria General de la Presidencia de la Repblica.
Establece plan de descontaminacin para el rea circundante a la Fundicin de
Caletones de la Divisin El Teniente de Codelco Chile.

Repblica. Establece plan de descontaminacin para la zona circundante a la
Fundicin de Potrerillos de la Divisin Salvador de Codelco Chile.

Repblica. Establece nuevo plan de descontaminacin para la zona circundante a la
Fundicin Chuquicamata de la Divisin Chuquicamata de Codelco Chile.

8. Comisin Chilena del Cobre, 2004. Mercado del cobre y desarrollo sustentable en la
minera. Cap. Normativa ambiental internacional para las fundiciones de cobre: el
caso de las normas de calidad y emisin al aire.
9. D.S. 165/1999 Norma de emisin para la regulacin del contaminante arsnico
emitido al aire; y su modificacin sobre la metodologa de arsnico contenida en el
D.S. 75/2008, del Ministerio Secretara General de la Presidencia de la Repblica.

10. COCHILCO, 2003. Normativa ambiental internacional para las fundiciones de cobre:
el caso de las normas de calidad y emisin al aire. Expediente pblico de la norma de
fundiciones de cobre y fuentes emisoras de arsnico, folios 150 VTA a 175 VTA.
Available at: http://www.sinia.cl/1292/articles-52008_Exp_150VTA_175.pdf
292
Santiago, Chile

11. OCDE CEPAL, 2005. Evaluaciones del desempeo ambiental CHILE. Available
at: http://www.eclac.org/publicaciones/xml/2/21252/lcl2305e.pdf

12. Gallardo L., Olivares G., et al. 2002. Coastal lows and sulfur air pollution in Central
Chile. Atmospheric Environmental. Vol 36: 3829-3841.

13. Olivares G., Gallardo L., et al. 2002. Regional dispersion of oxidized sulfur in
Central Chile. Atmos. Environ. Vol 36: 3819-3828.

14. Mager J., Hanne M., 2006. Evaluacin del impacto de las emisiones de SO2
producidas por la fundicin Caletones en la calidad del aire de Santiago, Tesis para
obtener el ttulo de Ingeniero Civil en Geografa, Universidad de Santiago.

15. Gidhagen L., Kahelin H., Schmidt-Thom P., and Johansson C. 2002. Anthropogenic
and natural levels of arsenic in PM10 in Central and Northern Chile. Atmospheric
Environmental. Vol 36: 3803-3817.

16. Mella y Meza. 2008. Evaluacin del impacto de las emisiones generadas por la
fundicin Altonorte y la Cementera INACESA en la calidad del aire de Antofagasta.
Tesis para obtener el ttulo de Ingeniero Civil en Geografa, Universidad de Santiago.
17. Hunt, A. (2011), Policy Interventions to Address Health Impacts Associated with
Air Pollution, Unsafe Water Supply and Sanitation, and Hazardous Chemicals,
OECD Environment Working Papers, No. 35, OECD Publishing. Available at:
http://dx.doi.org/10.1787/5kg9qx8dsx43-en

18. Universidad de Chile, 2010. Antecedentes tcnicos y econmicos para elaborar una
norma para fundiciones de cobre. Para la Comisin Nacional del Medio Ambiente.

19. Cansolv, 2012. Leading Class Regenerable SO2 Scrubbing. Expediente pblico de la
norma de fundiciones de cobre y fuentes emisoras de arsnico, folios 783 a 813.
http://www.sinia.cl/1292/w3-article-52008.html

20. IPPC (December 2001), Reference Document on Best Available Techniques for the
Non-Ferrous Metals Industries, pages 137-139, http://eippcb.jrc.es/reference/

21. Interview with experts from Haldor Topsoe in Haldor Topsoe Environmental
Seminar, Hotel Atton, Santiago, 24 March 2011.

22. Resolucin de calificacin ambiental proyecto Planta de cido sulfrico Mejillones,
Resolucin Exenta N 110 de 20 de Marzo de 2008, Antofagasta, in number 4.2.1.
Emisiones atmosfricas en 4.2.1.1. Dixido de azufre.

23. Mensaje de la Ley 19.300 de Bases Generales del Medio Ambiente.

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Santiago, Chile
24. D.S. 93/95 Minsegpres. Reglamento para la dictacin de normas de calidad ambiental
y de emisin.

25. Expediente pblico de la norma de fundiciones de cobre y fuentes emisora de
arsnico. Available at: http://www.sinia.cl/1292/w3-article-52008.html

26. Gua sobre medio ambiente, salud y seguridad para la fusin y refinado de metales,
2007. Available at: http://www.ifc.org
27. COPRIM, 2012. Evaluacin de costos de escenarios regulatorios para una norma de
emisin de fundiciones de cobre. Para el Ministerio del Medio Ambiente. Available
at: http://www.sinia.cl/1292/w3-article-52008.html

28. Geoaire, 2012. Evaluacin de Beneficios de una norma de emisin para fundiciones
de cobre. Para el Ministerio del Medio Ambiente. Available at:

29. Ministerio del Medio Ambiente, 2012. Anlisis General del Impacto Econmico y
Social de la norma de emisin.Expediente pblico de la norma de fundiciones de
cobre y fuentes emisoras de arsnico, folios 746 a 764. Available at:

30. Ministerio del Medio Ambiente, 2012. Respuesta a las observaciones del
anteproyecto de la norma de emisin para fundiciones de cobre y fuentes emisoras de
As. Expediente pblico, folios 1500 a 1617. Available at:

31. Acuerdo del Consejo de Ministros para la Sustentabilidad N8/2013. Se pronuncia
favorablemente sobre el proyecto definitivo de la Norma de Emisin para
Fundiciones de Cobre y Fuentes Emisoras de Arsnico. Available at:
http://www.mma.gob.cl/1304/w3-article-51182.html
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Santiago, Chile

ENERGY BENEFITS OF IMPLEMENTING DRILL-TO-MILL STRATEGIES IN
OPEN-PIT COPPER MINES

S. Nadolski, B. Klein and M. Scoble
NBK Institute of Mining Engineering
The University of British Columbia
5
th
Floor, 6350 Stores Road,
Vancouver, Canada V6T 1Z4
stefan@alumni.ubc.ca

G. Connaughton
Huckleberry Mines Ltd.
1030 - 999 Hasting Street West,
Vancouver, Canada V6C 2W2

ABSTRACT

Over the last 10 years the benefits of optimizing both blast designs and operation
of crushing and grinding processes, also known as drill-to-mill optimization, have been
shown at a number of mining operations. Significant improvements in production and
revenue potential are typically associated with the successful implementation of drill-to-
mill strategies. Less information is available on the impact of energy intensity with
respect to all fuels used.

To address the technical challenges of implementing drill-to-mill strategies, an
energy study was carried out for a Canadian open-pit copper mine. In addition to
quantifying improvements in energy intensity and impact on carbon footprint, the
associated cost benefits due to increased production are also presented.

For many existing and future operations, the implementation of carbon taxes in
their respective jurisdictions and increased energy unit costs have provided more
economic incentive to reduce the energy intensity of mining processes. For this reason it
is of interest to determine the impact of modifying blast designs on the overall energy
intensity of an operation.
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INTRODUCTION

Rock fragmentation achieved through blasting is considered to be one of the more
energy efficient and most cost effective forms of comminution being practiced at mining
operations. The concept of managing both blast fragmentation and crushing / grinding
processes has gone through waves of popularity in the industry. Recent evolutions
include selective blasting practices, monitoring of blast movement and the roll out of
high energy bulk explosives onto the market all of which have the potential to lead to
significant operational opportunities.

Improvements in revenue, throughput and electrical energy consumption due to
optimization of blasting and crushing/grinding have been well reported, however there
has been little information released on the impact of increasing blasting effort on the
overall energy intensity of an operation. This is particularly relevant as drill-to-mill
strategies typically involve increasing the energy intensity of blast designs, while
decreasing the electrical energy consumption of mechanical crushing and grinding
equipment; effectively implementing a fuel switch. For this reason an energy study has
been carried out at an open-pit copper-molybdenum mine located in British Columbia,
Canada. An all-fuels approach was taken to determine the net change in energy intensity
due to modification of blast and crush/grinding methods.

BACKGROUND

The comminution efficiency of blasting is considered to be about 13 to 20%,
whereas the fragmentation efficiency of conventionally used equipment, such as semi-
autogenous (SAG) mills and ball mills, is in the order of 1 to 2% [1]. Therefore it is of no
surprise that consciously expanding the role of drilling and blasting from an excavation
process to also a comminution process has netted positive results for operations.

For hard rock mining operations, the implementation of drill-to-mill strategies has
shown to be almost exclusively carried out for SAG mill based comminution circuits.
Primarily this is due to the sensitivity of SAG mill performance to feed size, particularly
the f80, defined as the sieve size through which 80% of the feed mass will pass, and the
content of fines, which in many SAG optimization studies is defined as being
approximately 10 mm [2]. Therefore considerable potential exists to improve the
operation of SAG mill and conventional based comminution circuits through blast
modification.
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CASE STUDY: BLAST MODIFICATION AT HUCKLEBERRY COPPER-
MOLYBDENUM MINE

A drill-to-mill study was carried out at an open-pit copper-molybdenum
operation, Huckleberry mine, which is located in British Columbia, Canada. The
principal objective was to quantify cost and overall energy benefits through the following
comprehensive approach:

Assessment of the rock mass through review of drill core data, images and
Point Load Index (PLI) testing
Review of current blast practices and analysis of muckpile fragmentation
through use of image based software
Energy baselining of the comminution circuit through sampling of
material streams and analysis of plant data
Fitting of blast fragmentation models and crusher / SAG mill models to
existing operational parameters
Prediction of plant performance through the use of fitted models and
modification of equipment parameters
Evaluation of overall energy intensity and costs for each of the proposed
blast patterns

Description of the Rock Mass and Muckpile

The Huckleberry main ore zone is described as a classic porphyry copper-
molybdenum deposit. The exposed rock mass, in the vicinity of the inspected blasted
muckpile, was primarily andesite rock with mafic dykes of 1 to 10 meters width visible
in some sections of the pit wall. Corresponding core logs showed Rock Quality
Designation (RQD) values ranging from 0 to 40% with a median value of 29%,
indicating a rock mass of poor quality. Point Load Index (PLI) tests were carried out on
36 samples and an Is(50) value of 2.9 MPa was determined. This corresponds to a Uniaxial
Compressive Strength (UCS) of approximately 75 MPa.

In order to determine the size distribution of the muckpile, WIPFRAG image
based software and sieve results of the SAG mill feed were used. A characteristic photo
of the muckpile is shown in Figure 1. Through comparing WIPFRAG results with the
size distribution of the SAG mill feed, it was found that the image based fragmentation
data was reliable down to a size of 100 mm, while the content of finer sizes was
underestimated.
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Figure 1 A photo of the muckpile in the Huckleberry main zone extension (MZX) pit
The determination of the content of -10 mm material, a size that will pass through
the SAG mill grates and product screen, was considered to be of particular importance to
accurately model the process flowsheet. Although fines correction factors are available in
WIPFRAG software, sieve results of the SAG mill feed and the JKSimMet crusher
model were used to estimate the content of -10 mm particles in the muckpile.

Table 1 Huckleberry ore & muckpile characteristics
Description Units Value
Point Load Index, Mean IS(50) MPa 2.9
UCS MPa 75
Specific Gravity - 2.72
Muckpile top size m ~0.8
F80 m 0.263
% Passing 10 mm % 19.7

Blasting and Fragmentation at Huckleberry

With respect to the range of bulk explosives currently available in North America,
a relatively high strength bulk explosive was being used on site. Specifications of the
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blast pattern are shown in Table 2. Good wall control techniques are practiced at
Huckleberry and include the use of pre-split and buffer rows. Detonators are of an
electronic type and SAG mill pebbles, sized 12 to 40 mm, are used for stemming.

Table 2 Huckleberry blast design
Burden x spacing m 8 x 8
Powder factor kg/m
3
0.62
Hole diameter mm 251
Explosive RWS % 118
Velocity of Detonation (VOD) m/s 5200
Bench height m 12
Charge length m 8
Sub-drill depth m 1.3
Inter-row delay ms 98
Inter-hole delay ms 19

Energy Performance of the Comminution Circuit

Figure 2 shows the comminution flowsheet of the Huckleberry operation and also
represents the boundary limits of the energy study.

Figure 2 Huckleberry mine: comminution flowsheet
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A summary of the surveyed circuit performance is shown in Table 3. In order to
quantify the energy used during blasting, the explosive energy was converted to an
electrical energy equivalent, kWhe, using the conversion factors published in the 2012
B.C. Best Practices guidelines [3]. A total specific energy consumption of 18.9 kWhe/t
was attributed to blasting and crushing/grinding equipment for this survey.

Table 3 Survey comminution parameters
Blast - specific energy kWhe/t 0.29
Nominal throughput mtph 792
Primary crusher F80 size mm 263
Primary crusher nominal power kW 278
SAG mill power kW 6,863
Pebble circuit throughput mtph 85
Ball mill total power (2) kW 7,615
Ball mill circulating load ratio % 378
Material handling equipment &
pebble crusher
kW 833
Ball mill cyclone overflow P80 size m 155

Material streams, including SAG mill feed, were sampled and analyzed at the
laboratories of the University of British Columbia in order to gauge the performance of
the circuit and provide data for fitting JKSimMet comminution models. A description of
Huckleberry ore characteristics is shown in the table below.

Table 4 Huckleberry ore characteristics
Bond ball mill work index kWh/t 18 22
Dropweight parameters Axb - 31.3
Abrasion parameter ta - 0.59

Comminution Modeling

Blast fragmentation modeling techniques were used to predict the size
distribution of the muckpile for each of the considered blast patterns. After review of
literature and discussion with experts in the field, two models were considered for
predicting the muckpile size distribution at Huckleberry: 1) The Kuznetsov
Cunningham Ouchterlony model [4] and 2) The Kuznetsov 2005 model coupled with
the Crushing Zone Model (CZM) proposed by Kanchibotla [5].

Comparison of model predictions showed that the 2
nd
model, which will be
referred to as the KUZ-CZM model, provided a significantly more accurate prediction of
the content of -10 mm sized material in the muckpile. Two alternative blast patterns, both
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providing a higher powder factor than the current design, were put forward for the drill to
mill study. The current burden and spacing distances of 8 metres, representing the
distances between rows of blast holes and the distances between holes located in the
same row respectively, were shortened in the model order to achieve a greater energy
input level for each tonne of blasted rock mass. The proposed burden and spacing
distances were 6.5 x 7.5 and 5.9 x 6.8 metres.

The Kuz-Ram model of Cunningham 2005 [6] was used to predict the coarse
component of the size distribution, ranging from the 50% to the 100% passing sieve
sizes. The Crusher Zone Model (CZM) of Kanchibotla [5] was used to predict the finer
half of the size distribution. The combination of these two models has been shown to
provide good results for a number of researchers. Predicted and measured size
distributions are shown in Figure 3.

Figure 3 Predicted and measured size distributions of the muckpile
and SAG mill feed

Comminution Circuit Modeling

JKSimMet was used with the results of blast fragmentation models to determine
the potential improvements in circuit performance. Analysis of Huckleberry plant data
during sampling showed that the circuit was ball mill limited. Since feeding finer
material, which has a higher content of -10 mm particles, to the SAG mill would further
exacerbate the ball mill bottleneck, initial modeling looked at the throughput potential of
the circuit should both SAG and ball mills be operating close to their installed power.
This was primarily carried out through reducing the SAG mill product screen size and
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adjusting media and grate parameters accordingly. In order to take advantage of the finer
blasted material, the following major equipment variables were modified:
SAG mill ball load increased
SAG mill product screen cut-point reduced
SAG mill pebble port size reduced
SAG mill and ball mill media size reduced to address finer feed

Ball mill performance was predicted through use of the phantom cyclone method
and Bond ball mill power formulas. Rowlings ball mill sizing factors were used to
correct the final ball mill energy values and final pinion power was inflated by 5% to
account for motor losses. A summary of results is shown below in Table 5.

Table 5 Actual and predicted circuit performance
Description Units Actual Optimized Blast design #1 Blast design #2
Burden x spacing mxm 8x8 8x8 6.5 x 7.5 5.9 x 6.8
Powder factor kg/m
3
0.62 0.62 0.81 0.99
Throughput mtph 792 970 1035 1085
Primary crusher f80 mm 263 263 158 132
SAG pebble port width mm 35 35 20 18
SAG mill ball load % 12 13.5 13.8 13.5
SAG screen cut-point mm 10 5.5 3.8 3.5
SAG mill power kW 6860 7675 7760 7800
Ball mill power kW 7615 7840 7875 7870
Final product size
cyclone O/flow
m 155 155 155 155
Specific energy of
SAG & ball mills
kWh/t 18.3 16.0 15.1 14.4

As can be seen in Table 5, with the current blast design, the model shows that
throughput could be considerably improved by making equipment and media changes to
the process circuit and subsequently utilizing more of the available SAG mill power. For
the purposes of quantifying the net improvement attributed to implementing the proposed
blast designs, circuit performance for the optimized case was compared to predicted
values for blast designs #1 and #2. Therefore, it was posited that changing from the
current 8x8m to a 6.5x7.5m blast pattern, a minimum net throughput increase of 65 mtph
would result as long as appropriate changes to the equipment and grinding media would
be carried out. Similarly for Design #2, a 110 mtph increase in throughput was
considered as the potential improvement in production.

Energy and Cost Comparison

In order to gain an understanding of the impact of modifying the blasting and
crush/grinding configuration on energy performance, the energy intensity associated with
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the proposed blasting scenarios was assessed on an all fuels basis, shown below in Table
6. Diesel and explosives were converted to their electrical energy equivalent values. The
results show that the energy consumption per tonne of ore milled can be reduced by over
7% through implementation of blast design #2.

Table 6 Drill / Blast design and effects on energy
performance
Description Unit Optimized
Plant
Blast Design
#1
Blast Design
#2
Burden x spacing m x m 8 x 8 6.5 x 7.5 5.9 x 6.8
Drilling (diesel) kWhe/t 0.047 0.059 0.070
Blasting (Heavy ANFO) kWhe/t 0.24 0.31 0.38
Electricity kWhe/t 17.70 16.81 16.22
Total energy intensity kWhe/t 17.99 17.18 16.67

The greenhouse gas emissions (GHG) associated with each of the drill and blast
designs were calculated according to the 2012 BC guidelines which were published by
the Ministry of the Environment [3]. Since electricity supplied to the Huckleberry mine is
generated by hydroelectric power plants, the GHG emissions associated with electrical
energy consumption are very low. As a result, in this case only a slight reduction in GHG
emissions was found for higher energy blast designs, as shown in Table 7. In most
mining jurisdictions, GHG emissions per unit of electrical energy are considerably higher
and a significant reduction in overall GHG emissions would result.

Table 7 Drill / Blast design: impact on GHG
emissions per tonne of ore milled
Description Unit Optimized
Plant
Blast Design
#1
Blast Design
#2
Drilling (diesel) kgCO2eq/t 0.011 0.013 0.015
Blasting (Heavy ANFO) kgCO2eq/t 0.042 0.055 0.066
Electricity (Hydro) kgCO2eq/t 0.443 0.420 0.405
Total kgCO2eq/t 0.496 0.488 0.486

Based on a review of mine unit costs, a cost comparison was determined for the
operation and is shown in Table 8. Currently, the Huckleberry operation has a nominal
throughput of 17,544 tonnes per operating day at 92.1% mill availability. Since only the
blast pattern for blasting of ore, not waste, would be modified, the strip ratio did not have
an impact on the cost analysis. Cost calculations were based on a copper grade of 0.32%,
90% copper recovery and a copper price of $2.90 per lb.
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Table 8 Drill / Blast design: influence on unit costs & revenue
Description Unit Current
Plant
Blast Design #1 Blast Design #2
Unit Costs:
Drill and blast $/t 0.58 0.64 0.71
Electricity * $/t 1.06 1.01 0.97
SAG and ball mill
media
$/t 2.77 3.00 2.87
Total $/t expenses $/t 4.41 4.65 4.55
Ore milled per month tonnes 491,473 535,175 565,430
Copper in concentrate
per month
(000s) lbs 3,121 3,398 3,590

Net monthly revenue $1000/month $ 6,882 $ 7,367 $ 7,839
* Electricity unit costs for material handling and crushers/mills were accounted
for

It has also been recognized that finer ore fragmentation would have the following
positive impacts:
Increased shovel and haulage productivity
Decreased wear rates of shovel components
Decreased wear rates of primary crusher and rock breaker wear
components

The above benefits were not accounted for in the cost analysis as their correlation
to fragmentation is difficult to quantify. Results of the cost analysis showed that
implementing a drill-to-mill strategy has considerable potential for improving
profitability of the Huckleberry operation. For example, by adopting blast design #2, the
net improvement in monthly revenue was found to be $956 thousand dollars.

DISCUSSION & CONCLUSIONS

The variation of two blast design variables, burden and spacing distances, was
considered in the approach to increasing the powder factor, representing the mass of
explosive per volume of rock mass. There are many other variables available to blast
engineers for varying blast fragmentation such as drill diameter, stemming height,
explosive strength etc. However, the resulting increase in powder factor is considered to
have the greatest influence on the overall energy and costs presented in this study.

The results of this paper showed that the overall energy intensity of an operation,
on an all fuels basis, can be improved significantly through specifying higher energy
blasts and adjusting equipment parameters appropriately. Unlike continuous
comminution processes such as crushers and mills, drilling and blasting are batch
processes that offer a significant range of fragmentation performance for the same fleet
of drill rigs and loading trucks. Comminution is limited primarily by the characteristics
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of the rock mass, explosives specification and technology and skill sets of on-site
practitioners. Therefore, in many cases, the capital investment for higher performance
blast fragmentation has already been made by the mine.

At the time of writing, explosives manufacturers are introducing bulk products to
the North American market that have considerably higher relative bulk strengths (200+
RBS) than currently available products. Their implementation is already challenging
engineers to reassess approaches to stemming and blast pattern designs. Undoubtedly a
great opportunity presents itself to shift more comminution effort towards energy
efficient blasting and improve energy performance and profitability through innovative
comminution circuit design and continuous optimization.

ACKNOWLEDGEMENTS

Many thanks to Enkhbold Tsagaankhuu for assistance with processing images of
the muckpile and support with mineral processing / rock mechanics laboratory testing.
Permission from Huckleberry Mines Ltd. to publish this information and assistance
received from on-site personnel is gratefully acknowledged.

REFERENCES

1. S. Sadrai, Energy Efficient Comminution Under High Velocity Impact
Fragmentation, Minerals Engineering. 2011, vol. 24, 1053-1061.

2. S. Esen, D La Rosa, A. Dance, W Valery and A Jankovic, Integration and
Optimisation of Blasting and Comminution Processes, EXPLO Conference,
Wollongong, NSW, September 2007, 1 10

3. 2012 B.C. Best Practices Methodology for Quantifying Greenhouse Gas
Emissions, Ministry of Environment. Victoria, BC. September, 2012

4. F. Ouchterlony, The SWEBREC
Function: Linking Fragmentation by Blasting

and Crushing, Institute of Materials, Mining Technology, Minerals and
Metallurgy and Australasian Institute of Mining and Metallurgy. 2005, vol. 114,
A29 A44

5. S. S. Kanchibotla, S. Morrell, W. Valery and P. OLoughlin, Exploring the
Effect of Blast Design on SAG Mill Throughput at KCGM, Mine to Mill
Conference, Brisbane, Qld, October 1998

6. C.V.B., Cunningham, The Kuz-Ram Fragmentation Model 20 Years On,
Brighton Conference Proceedings, R. Holmberg et al, European Federation of
Explosives Engineers, 2005, 201-210

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ENVIRONMENTAL HAZARD CLASSIFICATION OF COPPER
CONCENTRATES

P.H. Rodriguez, J.J. Arbildua, P.F. Urrestarazu,

M.R. Opazo and G. Villavicencio
Center for Ecotoxicology and Chemistry of Metals, Universidad Adolfo Ibaez
Av. Diagonal Las Torres 2700, Santiago, Chile
patricio.rodriguez@uai.cl

K. Delbeke
European Copper Institute
Avenue de Tervueren 168 b10, B-1150, Brussels, Belgium
katrien.delbeke@copperalliance.eu

J. Liipo
Outotec Research Center
P.O Box 69 Kuparitie 10, FIN-28101, PORI, Finland
Jussi.liipo@outotec.com

T. Brouwers
ECTX-Consult bvba
Havenstraat 46/0.01, B-3500, Hasselt, Belgium
Tony.Brouwers@ectxconsult.be

ABSTRACT

Copper concentrates are complex metal bearing substances, whose composition
varies depending on the geology of the ore body. The environmental hazard
classification of such substances presents particular difficulties and depends, among
other things, on the bioavailability of copper, arsenic, cadmium, cobalt, lead, nickel and
zinc; metals which are relevant from a regulatory standpoint and are frequently found in
the concentrates. A read across procedure was developed to classify copper concentrates
using transformation / dissolution (T/D) test results of pure minerals, and their elemental
and mineralogical composition. Validation of the procedure for copper involved
contrasting T/D results of 10 copper concentrates against the predicted bioavailability
values for the metal contained in the pure minerals. A correlation coefficient of (R
2
) 0.73
was found for these 10 concentrates. Then, a sample of 122 copper concentrates with
known elemental and mineralogical composition was assessed, representing most of the
product transported globally, following the United Nation Globally Harmonized
Classification and Labeling System of Chemicals (GHS).
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INTRODUCTION

Copper concentrates are considered, from a regulatory point of view, to be a
naturally occurring substance of variable composition. The variable nature of this
substance, due to the heterogeneity of its mineral composition, makes copper
concentrates hazard classification particularly difficult. EU CLP guidance [1] gives the
following recommendation for the environmental classification of the substance:

More complex metals or metal compounds containing inorganic substances like
e.g. ores and concentrates are not simple mixtures of metals or metal compounds.
Justified by their intrinsic properties, the solubility properties can differ substantially
from what is observed for each individual constituent of that complex substance (e.g. the
rate and extent of metals release from e.g. ores/concentrates are different from the ones
from simple metals). All these materials are typically not readily soluble in any aqueous
medium. In addition, these materials are often heterogeneous in size and composition on
a microscopic/macroscopic scale. Therefore, adequate amounts of the material could be
used to evaluate the extent to which the substances can be dissolved, i.e. its water
solubility and/or the extent to which the metals can react with the media to transform to
water soluble forms e.g. through Transformation/Dissolution tests or possibly the Water
Accommodated Fractions/loading concept.

Annexes 9 and 10 of the Globally Harmonized System of Classification and
Labelling of Chemicals (GHS) (http://www.unece.org/trans/danger/publi/ghs/) [2]
provides detailed guidance on the environmental hazard classification of sparingly
soluble inorganic substances. The approach includes as first step the determination of the
substance identity which, in the case of concentrates, corresponds to their mineralogical
and elemental composition. The second step involves measuring the bioavailable fraction
of each metal, according to the transformation / dissolution (T/D) protocol [3,4]. Finally,
each bioavailable metal fraction is compared with the ecotoxicity reference value (ERV)
of the soluble metal ion, for 7 days acute and 28 days chronic endpoints. Based on these
comparisons, the GHS criteria for acute and chronic hazard classification are applied.

The additional characteristic of the substance, relevant for the environmental
hazard classification is persistence. If a substance persists in the environment it is
considered more hazardous than rapid degradable substances. In such case, a more severe
hazard classification should be assigned (GHS, 2011 Table 4.1.1.). Historically, the
degradability criterion was developed for organic substances, and it does not apply to
metals (GHS, Annex 9, A9.7.3.1, 2011). However, metals may be removed from the
water column by various physico-chemical processes, which can be used as a proxy for
degradability considerations. For instance, some metals form compounds that precipitate
(Fe, Al, Sb, Sn and Cr.), while others (Cu, Zn, Ni and Pb) may bind to Acid Volatile
Sulfides in the sediments. The rate of such reactions will determine the rate of removal of
the metal from the water column. Evidence about the potential for rapid loss from the
environment has been obtained for these metals, when sediment mineralization /
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remobilization of metal ions has been evaluated. [5, 6]. According to this evidence: Cd,
Cu, Ni, Pb, Sb and Zn can be considered as rapidly degraded.

The present article proposes an approximation for the environmental hazard
classification of copper concentrates, using mineralogical composition and T/D results of
pure copper minerals and several reference copper concentrates.

EXPERIMENTAL

Materials and Methods

Minerals

Pure ground minerals were purchased from different sources during 2009.
Samples from each mineral were crushed in an agate mortar and sieved in a U.S.A.
Standard Testing Sieve N 270 (A.S.T.M.E. 11 specification) under 60 m (0.0021
inches), systemically cleaned and dried between samples.

Reference Copper Concentrates

Ten representative copper concentrates with average particle size (d90) below 100
m were tested as received. Mineral composition of the concentrates range between: 2
and 80% for Chalcopyrite (CP); below detection limit (BDL) to 9.7% for Covellite (CV);
BDL to 42.1% for Bornite (BN); BDL to 0.66% for Enargite (EN); BDL to 1.5% for
Tennantite (TN); BDL to 8.61% for Chalcocite (CC). Reference copper concentrates
were used to validate the classification approach presented in the current article.

Copper Concentrates Database

The European Copper Institute (ECI) has developed a database of 122 copper
concentrates with known elemental and mineralogical compositions, representing most of
the product been transported globally. Elemental composition of the concentrates include
metal contents of: copper between 14 and 51%; arsenic between below detection level
(BDL) and 7.5%; zinc between BDL and 9.3%; lead between BDL and 12.7%; nickel
between BDL and 1.0%; silver between BDL and 1.9%; cadmium between BDL and
0.07% and cobalt between BDL and 0.2%. The environmental hazard classification
approach was carried out using this dataset.

Determination of Copper and Arsenic in Minerals

Metal content of minerals was determined following the EPA 3051A protocol. In
summary, acid digestion of the samples was performed with a mix of: hydrochloric acid
(30%), nitric acid (65%) and hydrofluoric acid (40%). The digestion was performed in a
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Labstation Ethos D microwave by Milestone. Metal quantification was carried out in an
ICP-MS Perkin Elmer, model ELAN 9000. All the reagents used were Merck Suprapur
quality or equivalent; calibration and quality control standards were purchased from
High-Purity Standards for ICP-MS (Charleston, South Carolina, USA).

Chemical Characterization of Reference Copper Concentrates

Copper concentrate samples were divided with a rotary splitter into representative
aliquots, one to perform mineralogical studies and another for chemical characterization.
The sample for chemical assays was ground to analytical finesses. Total dissolution and
sequential dissolution analysis were performed using: water, sulfuric acid, cyanide and
nitric acid leaching. Based on this method different chemical species can be
distinguished: copper sulfates, copper oxides and silicates, secondary copper sulfides,
(i.e. Covellite and Bornite) and primary sulfides (i.e. Chalcopyrite) [9,10]. Elemental
composition of the different fractions was quantified by ICP-OES, using three particular
systems: 1) for solid digested and low matrix samples an axial-radial Thermo Scientific
Iris Intrepid XDL II instrument was used; 2) for samples with low to medium matrixes an
axial-radial Thermo Scientific Iris Intrepid I was used; and 3) for high matrix samples a
radial Thermo Scientific ICAP 6000 was used. All spectra were checked for any
overlapping signals; if high matrix effects were present additional standards were used.
Calibrations were performed with AccuTrace multi-elemental reference standards.

Silicon oxide was analyzed colorimetrically. Sulfur and carbon contents were
determined by Eltra CS 2000 analyzer, according to standard ASTM E1915. Sulfates
were quantified using ion exchange chromatography.

Mineralogical Characterization of Reference Copper Concentrates

The mineralogy was determined by X-ray diffraction. Also, a section of the
sample was polished and prepared for detailed microscopical analysis, using optical and
electronic instruments. A Bruker D8 DFocus serie 2, X-ray diffractometer was used to
analyze the concentrates, according to Lipson et al., 1970. Optical microscopy analysis
[11] was performed with a Zeiss Axioplan 2 instrument, equipped with AxoCam ERc5s
digital camera. Scanning electron microscopy and microanalysis [12] was performed
with a JEOL 7000F instrument, equipped with Energy Dispersive Spectrometry (EDS)
and Wavelength Dispersive Spectrometry (WDS) analyzers, from Oxford Instruments.
Sample analysis was performed after the polished section was coated with carbon, using
JEOL JEE 420 vacuum evaporator. The imaging and both analysis, EDS and WDS, were
performed under routine conditions using 20 kV acceleration voltages and 1 nA beam
current for EDS analysis; and 15 nA beam current for WDS analysis. Standards of pure
metals and minerals were used.

The mineral composition of copper concentrates was determined based on
information and observations from: a) X-ray diffraction, b) optical microscopy, c)
scanning electron microscopy, with EDS and WDS for the identification of phases and
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minerals, and d) chemical analysis; as input variables to HSC-Geo mass balance
calculation software, version 7.0.

Transformation / Dissolution (T/D)

Transformation / dissolution tests were performed in accordance with Annex 10
of GHS document [2] and following the detailed SOP prepared by CANMET and LISEC
for the OECD Validation Management Group (VMG) [13]. In summary, tests were
performed in modified OECD 203 medium [14], at pH 6 with 1 mg/L sample loading and
100 rpm agitation rate. The laboratory setup involved the use of an orbital shaker with a
capacity for 16 vessels of 3 L each. A full loading shaker includes four copper
concentrates with 3 vessels (replicas) each and a set of 3 blank vessels (only OECD 203
medium) under the same CO2 atmosphere. To account for metal contamination in the test
samples or blanks vessels due to the introduction of the pH and oxygen electrodes, an
additional (16
th
) vessel with test media was incorporated.
The tests begin when 1 mg/L loading of copper mineral or copper concentrate
was added to the OECD medium, already equilibrated at the desired pH and temperature.
Samples were taken by triplicate at times: 0, 2, 6, 24, 48, 96, 168, 336, 504 and 672
hours. Collected samples were immediately centrifuged for 6 minutes at 3400 x g, and
the supernatant filtered through 0.2 m PTFE pore size membranes. Samples were
acidified with nitric acid 65% (Merck Suprapur) to a pH below 2, and stored at 4 C until
metal determination was carried out. Dissolved metal concentration was measured in a
Class 1000 clean room using an ICP-MS Perkin Elmer model ELAN 9000 system.
Metals detection limit were calculated from the blank samples. Quality assurance and
quality control measurements every ten samples, were performed.

Results

Principles for Hazard Classification

Copper concentrates are naturally occurring substances of variable composition.
In order to classify these substances without going through an expensive and time
consuming testing program, a read across approach, aligned with GHS and CLP guidance
for metals, was proposed. The approach used the T/D results of pure ground minerals
usually found in copper concentrates: Bornite (BN), Chalcocite (CC), Chalcopyrite (CP),
Covellite (CV), Digenite (DG), Enargite (EN) and Tennantite (TN); From these T/D
results a predictor for soluble metal fraction in copper concentrates, based on their
mineralogical content, was derived.

Transformation / Dissolution (T/D) of Pure Minerals

Transformation / dissolution (T/D) results of pure minerals showed a broad range
of copper releases, with values under 10 g/L, after 28 days of test for CP and EN;
values between 10 and 25 g/L for CV, DG and TN; a value of 37.8 g/L for BN; and
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142.9 g/L for CC. All T/D time courses of copper minerals except for DG, can be
adjusted with a second order model, indicating the participation of at least two metal
species in copper dissolution [2]. Results of DG fit a linear model (not shown). A
comparison between time courses of the less soluble mineral, CP, and the most soluble
one, CC, is shown in Fig. 1.

Figure 1 Time course of copper release from pure ground minerals. Hollow symbols
correspond to copper release from CC mineral; filled symbols correspond to
copper release from CP mineral. Dashed and dotted lines correspond to the fit
of a second order model to the experimental data

Minerals acute and chronic endpoints derived from T/D results at 1 mg/L loading,
are presented in table 1. Checking both endpoints against the acute and chronic ERV
values for copper and arsenic, results in no environmental classification for CP, DG, CV
and EN; a classification of chronic aquatic toxicity category 3 for TN, BN and CC. Also
CC mineral classified as acute aquatic toxicity category 1 (Table 1). This classification
assumes rapid removal from the water column of these metals.

Copper bioavailability solubility factors (BSF) for the 7 and 28 days endpoints of
each mineral, were determined from the T/D results at1 mg/L loading. Values, in
percentage, of: 0.800.1% and 0.900.1% were determine for Chalcopyrite; 0.800.1%
and 2.700.2% for Digenite; 1.300.2% and 2.200.2% for Enargite; 0.900.04% and
2.200.3% for Covellite; 3.400.2% and 5.800.5% for Tennantite; 4.400.2% and
7.000.4% for Bornite and 9.900.4% and 20.900.6% for Chalcocite.

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Table 1 Aquatic hazard classification of pure ground minerals. Acute and chronic
endpoints derived from T/D results at pH 6 and 1 mg/L sample loading were compared
against acute and chronic Ecotoxicity Reference Values (ERV) of the soluble metal ions,
as obtained from the EU CLP inventory and the REACH dossiers of the corresponding
metals
Mineral Metal *ERV, g/L
7 days acute
endpoint, g/L
28 days chronic
endpoint, g/L
Aquatic hazard
classification
BN Cu 25/20 23.9 37.8 Chronic 3
CC Cu 25/20 67.8 142.9 Acute 1, chronic 3
CP Cu 25/20 2.7 3.0 Not classified
CV Cu 25/20 5.7 14.5 Not classified
DG Cu 25/20 5.3 18.7 Not classified
EN As 430/40 - 1.2 Not classified
Cu 25/20 5.9 10.0 Not classified
TN As 430/40 1.8 5.13 Not classified
Cu 25/20 13.3 22.8 Chronic 3
* Acute / chronic ERVs.

Transformation / Dissolution (T/D) of reference copper concentrates

Ten copper concentrates, labeled C1 to C10, were submitted to 28 days T/D test
at pH 6 and 1 mg/L sample loading. Copper content in the samples ranged from 14.0 to
34.4%. Other metal contents were: lead, 0.01 - 12.5%; zinc, 0.01 - 9.0%; arsenic, 0.008 -
0.36%; nickel, BDL 0.05%, cadmium, BDL 0.06%, cobalt, BDL 0.12% and silver,
BDL - 1.9%. Experimental results of the 7 days acute and 28 days chronic endpoints are
summarized in table 2.

Copper release was detected in 8 of the 10 concentrates analyzed. In 4 samples
released Cu levels were below 5 g/L and in 4 samples Cu concentrations were under 15
g/L, after the 28 days T/D test. Highest dissolved copper concentration was found for
C5, 27.9 g/L, corresponding to a solubility of 9.6%. Lead release was detected in 5
samples, with values up to 52.7 g/L for C2, corresponding to a solubility of 53.3% of
the total metal content. Minor releases of metals like cobalt and arsenic were also
detected.

Time course of copper releases followed similar to that of the pure mineral
samples, fitting a second order model (results not shown).

Copper Concentrate Read-Across Validation

The proposition of the present article is to classify copper concentrates based on a
readacross procedure, where copper bioavailability is predicted from the elemental and
mineralogical composition of the concentrates and the Bio-Solubility Factors (BSFs)
determined from pure minerals. To validate the read-across approach, experimental
bioavailability of copper concentrates, obtained from the T/D results of the 10 reference
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Table 2 Acute (7 days) and chronic (28 days) endpoints from T/D tests of 10 reference
copper concentrate (CuC). Test conditions include pH 6, 1 mg/L sample loading,
temperature of 22 C and an agitation rate of 100 rpm. Dissolved metal concentration is
expressed in g/L and are the results of the average of 3 replica measurements taken
from 3 independent sample vessels (9 samples)
CuC
7 days T/D results, g/L
Cu As Pb Ni Co Cd Zn Ag
C1 1.8 <0.06 1.1 <0.2 <0.03 - <2 <0.02
C2 <0.7 <0.06 26.1 <0.1 <0.01 - <5 <0.02
C3 <0.1 <0.06 10.4 <0.4 <0.05 - <2 <0.009
C4 10.5 0.17 19.1 <0.4 0.14 - <2 -
C5 16.8 <0.05 <0.08 <0.04 <0.007 <0.008 <1 -
C6 8.9 <0.05 <0.08 <0.04 <0.007 <0.008 <1 -
C7 8.4 0.24 0.59 <0.04 <0.007 <0.008 <1 -
C8 8.2 <0.05 <0.08 <0.04 <0.007 <0.008 <1 -
C9 11.6 0.08 <0.03 - - - <0.6 -
C10 1.3 <0.1 <0.1 <0.1 <0.1 <0.01 <0.5 <0.002
CuC
28 days T/D results, g/L
Cu As Pb Ni Co Cd Zn Ag
C1 1.9 <0.06 1.3 <0.2 <0.03 - <2 <0.02
C2 <0.7 <0.06 52.7 <0.1 <0.01 - <5 <0.02
C3 <0.1 0.07 26.4 <0.4 <0.05 - <2 <0.009
C4 19.2 0.51 20.0 <0.4 0.36 - <2 -
C5 27.9 <0.05 <0.08 <0.04 <0.007 <0.008 <1 -
C6 12.2 <0.05 <0.08 <0.04 <0.007 <0.008 <1 -
C7 14.1 0.49 1.16 <0.04 <0.007 <0.008 <1 -
C8 16.5 <0.05 <0.08 <0.04 <0.007 <0.008 <1 -
C9 24.1 0.16 <0.03 - - - <0.6 -
C10 4.1 <0.1 <0.1 0.15 <0.1 <0.01 <0.5 <0.002

concentrates (at 1mg/L and pH6) , were compared against predicted values for the same
concentrates. Predicted values were calculated as indicated in equation (1):

Where BSF = copper Bio-solubility factor (7 or 28 days) of mineral i (g dissolved Cu/L
/ % copper in mineral); [CuMineral] = copper concentration in mineral i (%) and;
[Dissolved CuConcentrate] = predicted dissolved copper concentration in the concentrate
(g/L).

The plot in Figure 2 shows the relationship between the experimental and the
predicted metal releases, for the reference copper concentrates, at 7 days (acute) and 28
days (chronic) endpoints. The dashed line corresponds to a linear regression through the
data points, characterized by a slope of 0.84 and a correlation coefficient (R
2
) of 0.73.

Copper bioavailability of each concentrate is only part of the input needed for
classification. Classification of a substance or mixture under either the acute or chronic
[ ] [ ]
e Concentrat
i
i Mineral i
Cu Dissolved Cu BSF - =
*
(1)
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hazard category depends on all of its components, and it is determined by an additive
approach, using the added Toxic Units. A toxic unit is the concentration ratio of
bioavailable metal to the corresponding ERV [2].

In copper concentrates, other metals usually found in minor quantities are: Cd,
Co, Ni, Pb, Zn and Ag. Their acute and chronic endpoints could not be predicted from
mineral release rates since either the corresponding minerals were not available or the
amounts released were too small for detection. Instead, a conservative approach was
adopted, using the highest experimental solubility observed in the T/D tests of the
reference concentrates. A BSF for every metal was derived, in acute (7 days) and chronic
(28 days) conditions, except for Ag where no release above the detection limit was
observed. For arsenic, the amount of dissolved metal compared to the total amount of
arsenic in the concentrate, submitted to the TDP test were 5.0% and 14.7% for 7 days
and 28 days, respectively; 9.8% and 10.0% for cadmium; 11.7% and 30.0% for cobalt;
7.3% and 29.3% for nickel; 50.3% and 53.3% for lead and 9.1% and 11.6% for zinc.

Figure 2 Validation of read-across procedure for copper release in concentrates. Copper
releases from experimental T/D results of concentrates against predicted
copper releases from BSFs of pure minerals and the elemental and
mineralogical information of the concentrates. Circles symbols represent the
acute endpoints and triangle symbols the chronic endpoint. Dashed line
corresponds to the linear regression of the data

The European Copper Institute (ECI) has developed a database of 122 copper
concentrates with known elemental and mineralogical compositions, representing most of
the product that is transported globally. Using the aquatic hazard classification approach
presented in this article, the classification summarized in Table 3 was obtained. All the
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proposed classifications considered Cu, Cd, Ni, Pb and Zn as readily degradable (readily
removed from the water column).

Table 3 Distribution of environmental hazard classification of copper concentrates in
ECI database, according to GHS and EU CLP
Aquatic Hazard
Classification
GHS EU CLP
Acute 1 4 4
Acute 2 101 Undefined
Acute 3 17 Undefined
Chronic 1 - -
Chronic 2 - -
Chronic 3 37 37

DISCUSSION

Copper concentrates are naturally occurring substance, characterized by a copper
content in the range of 14 to 51% , and the presence of minor quantities of other metals,
important from a regulatory viewpoint, such as As, Zn, Pb, Ni, Ag, Cd and Co. The
heterogeneity of concentrate composition makes their experimental environmental
classification a difficult and expensive task. In the present article, we have proposed a
methodology to classify the concentrates based on their elemental and mineralogical
composition and a set of T/D solubility factors (BSF) derived from pure copper minerals
and reference concentrates.

The transformation / dissolution (T/D) results of pure minerals show a broad
range of copper releases, where Chalcopyrite showed low levels of bioavailable copper,
less than 5 g/L, and Chalcocite more than one order of magnitude higher release (Figure
1). Using copper release rates of pure minerals to predict the metal release in a set of 10
reference concentrates, with different mineralogical composition, results in a linear
correlation with R
2
= 0.73 and a slope of 0.84 (Figure 2). A closer analysis of the points
close to the origin, corresponding to concentrates rich in Chalcopyrite, conclude that
there is an over prediction for poor copper release concentrates; however, the magnitude
of the over prediction is small. On the other hand, concentrates rich in Chalcocite do not
show a systematic bias in the prediction, but the magnitude of the error is more
important. For the other metals, worst case bio-solubility factors, obtained from testing
reference copper concentrate samples are used for predicting worst case release rates and
assessing classification needs. If over/under-classification of a concentrate is suspected,
it is recommended to perform the T/D test on the actual concentrate.

The criterion of rapid degradability is a source of uncertainty in the chronic
environmental hazard classification of concentrates (a factor of 10 in Equation 2), since
there is not yet agreement among experts about the removal from the water column of:
Cu, Zn, Ni, Cd and Pb; nevertheless more up to date evidence [5,6] suggest these metals
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are removed (more than 70%) from the water column before 28 days, and this evidence
has been included in the approach used in this study.

When the current classification approach was applied to a database of 122 copper
concentrates, only 4 of them classified as aquatic acute category 1, due to the presence of
high content of Chalcocite mineral and or a combination of high Chalcocite and Bornite.

CONCLUSIONS

The results of reference copper concentrate T/D tests demonstrate a direct
relationship between metal-specific release rates and their mineralogical composition,
where Chalcopyrite rich concentrates release low levels of copper compared to
Chalcocite rich concentrates. Base on this correlation, a methodology to predict metal
bioavailability for concentrates is proposed.

Environmental hazard classification of 122 copper concentrates highlights
Chalcocite as the main factor driving acute aquatic toxicity classification.

ACKNOWLEDGEMENTS

The authors are grateful to Dr. Juan Carlos Torres for their critical reading of the
manuscript. This work was supported by International Copper Association (ICA), USA
and Comisin Tcnica Asesora Cobre, Salud Humana y Medio Ambiente (CTA), Chile.

REFERENCES

1. [EU] European Union. Guidance on Labelling and Packaging in Accordance with
Regulation. EU CLP Guidance, 2008, N 1272/2008.

2. [UN] United Nations. Globally Harmonized System of Classification and Labelling
of Chemicals (GHS), revision 4: 2011. New York and Geneva.
ST/SG/AC.10/30/Rev.4.

3. J.M. Skeaff, V. Ruymen, D.J. Hardy, T. Brouwers, C. Vreys, P.H. Rodriguez and M.
Farina. The Standard Operating Procedure for the Transformation / Dissolution of
Metals and Sparingly Soluble Metal Compounds. Division Report MMSL 06-085
(TR), CANMET, Natural Resources Canada, Ottawa, Canada, 2006.

4. J. Skeaff, W.J. Adams, P. Rodriguez, T. Brouwers and H. Waeterschoot. Advances
in Metals Classification under the United Nations Globally Harmonized System of
Classification and Labeling. Integr Environ. Assess. Manag. 7, 2011: 559-576.

5. K. Rader. Assessment of Time-Variable Solutions for Copper in the Unit World
Model for Metals in Lakes. Belgium: European Copper Institute (ECI). Project
EUCI.002; Report 001, submitted to the European Chemicals Agency (ECHA), 2013.
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6. K. Rader. Metal Classification using a Unit World Model. Belgium: Eurometaux
report, submitted to the European Chemicals Agency (ECHA), 2013.

7. J.C. McGeer, K.V. Brix, J.M. Skeaff, D.K. DeForest, S.I. Brigham, W.J. Adams and
A. Green. Inverse Relationship between Bioconcentration Factor and Exposure
Concentration for Metals: Implications for Hazard Assessment of Metals in the
Aquatic Environment. Environmental Toxicology and Chemistry 22(5), 2003, 1017-
1037.

8. W.J. Adams, D.K. DeForest and K.V. Brix. Evaluating Copper Bioaccumulation in
Aquatic Risk Assessments. In: Proceedings Cobre 2003; 30-3 December, Santiago,
Chile, 2003: Symposium p 1-11.

9. M. Lundstrm, J. Liipo, J. Karonen and J. Aromaa. Dissolution of Six Sulfide
Concentrates in the Hydrocopper environment. Fifth Southern African Base
Metals Conference; Date 27-31 July. Kasane, Botswana, 2009.

10. T. van der Meer, J. Liipo and J. Leppinen. An Experimental Approach for Studying
Chalcopyrite leaching and Passivation in Column Bioleaching. Advanced Materials
Research 71-73, 2009: 381-384.

11. H. Lipson and H. Steeple. Interpretation of x-ray powder diffraction patterns.
London, England: McMillan and co, 1970, 335 p.

12. J. Goldstein, D. Newbury, P. Echlin, D. Joy, A. Romig, C. Lyman, C. Fiori and E.
Lifshin. Scanning Electron Microscopy and x-ray Microanalysis, 2
nd
edition. New
York NY, USA: Plenum press. 1992, 820 p.

13. [OECD]. Organization for Economic Cooperation and Development. The Standard
Operating Procedure for the Transformation / Dissolution of Metals and Sparingly
Soluble Metal Compounds, Version of February 2004. Prepared by CANMET in
cooperation with LISEC under supervision of the Validation Management Group
(VMG), 2004.

14. [OECD] Organization for Economic Cooperation and Development. Fish, acute
toxicity test. OECD Guideline for Testing of Chemicals 203, 1992. Available from:
http://www.oecd.org/dataoecd/17/20/1948241.pdf

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RISKS IN THE COPPER MINING INDUSTRY FROM A FIRE PERSPECTIVE

Fernando Silva Calonge
Mining Civil Engineer, Universidad de Chile, actually Professor.
Fire-Stop Systems USA and their subsidiaries, President, Rafaela Mining Co, S.A.
President, NFPA (Latino America) Past- President.
Zeus Capital, Investment Manager.
1201 La Dehesa Av., Apt. 214, North Building, Lo Barnechea, Chile
Off: (56-2) 33216811
Cell: (56-9) 2306235 (1-713-8925232, USA)
fsilvac@firestop.cl

ABSTRACT

Copper Mining is an industrial venture characterized by serious fire risks, is the
main cause of accidents in the past 50 years. The main source of fire is primarily
represented by mobile equipment, whether mechanical failure, electrical, among others.
Electrical failures are the secondary source of fire. The third source of fire in a mine
come from the "hot works", like welding operations.

Before a fire breaks out, three fundamental conditions must be met: presence of
oxygen, combustible element and temperature. There are two principles to interrupt the
cycle of fire: active and passive fire protection. Active fire protection is activated to
break the cycle of a fire when this has already begun. Passive fire protection stays intact
once the fire has begun, and allows to protect human lives both as elements or
components. Priorities are mainly determined by the consequences a fire would bring
about in terms of human life safety.

Some additional recommendations to prevent fires: Keep garbage clean
environment, prohibit smoking in underground mining, or enable smoking areas. Keep
track of fire and fire hazards, this helps to implement corrective actions. Inspecting all
facilities, with emphasis on the existing passive protections in place.

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INTRODUCTION

The present work describes risks in the copper mining industry from a fire
perspective.

Different myths exist in the worldwide industry in relation to fire protection of
industrial installations and Chile is not an exception. Historically, fire protection has been
focused on active systems, such as sprinklers, gases, detectors, among others. With time,
passive fire protection, together with the arrival of new elements or materials against fire
propagation, have been given new applications and, based on their performance, have
been taking the place of active fire protection systems in different scenarios.

Likewise, this work defines some criteria for both active and passive fire
protection systems. Additionally, some risk levels are defined in relation with damages
caused by the occurrence of a potential fire.

Over the past years, the domestic mining industry has sustained at least two
serious fires, with important damage to fixed assets and a number of interruptions to
production cycles, followed by extensive damage to company property and financial
results. Additionally, fires jeopardize the lives and physical integrity of all employees
and executives that work for that company.

This work offers different designs, programs, and methodologies to help not only
reduce fire effects but to prevent their occurrence.

CONCLUSIONS

It may be concluded that most of mine operations in Chile do not have passive
fire protections in place. One of the main reasons is that these technologies are of
relatively recent appearance. This is why fire engineering companies, suppliers, and
especially final users are completely unaware of the existence of these elements. The fact
that fires are not recurrent events is a characteristic that further contributes to lose
continuity of the main issue.

The specific issues of fire require a pro-active attitude. Inadequate fire protection,
from the point of view of passive protection, adds an important risk variable for the
mining business which can be easily overcome.

On the other hand, it can be concluded that minor fire hot spots can cause great
damage to equipment, interrupt production processes, and jeopardize the life of people
working in those operations.

The economic analysis revealed that fire protection is a good business and that
investments are low when compared to the losses resulting from this type of event.
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Serious fires occurred in the domestic mining industry may have been prevented,
or damages significantly reduced, with adequate passive fire protection.

Once the knowledge is acquired, passive fire protection becomes a simple matter.
The warning sign to be read is that, if our mining industry continues to receive this level
of attention, awareness, and protection, fires will be a continuous occurrence.

It is of key importance also that company leaders become aware of these issues
and more involved in their solution.

SITUATION ANALYSIS

Mining is an industrial venture characterized by serious fire risks. Last century,
mine fires have claimed human lives, caused the loss of fixed assets, and production
impairment unparalleled in other industrial areas.

Between 1880 and 1940, considered as the peak mining production period in the
USA, more than 10,000 people lost their lives. To these days, federal agencies
responsible for mining activities maintain the most comprehensive databases on fire
events. Between the 60s and 70s, federal authorities in charge of mining safety received
reports for an average of 50 fires per year. Non-reported fires are estimated to be 200 per
year (defined as those of less than 30-minute duration, no injured people). Between 1968
and 1984, mine fires in the USA claimed the lives of more than 180 people. Even though
half of the fires broke out in open-pit mines, over 90% of deaths occurred in underground
mines where toxic gases and smoke are the main threats to human life.

Most common causes of accidents in the last 50 years

The most common causes of workplace accidents in the last 50 years can be
found in fires, as shown in the chart below:

0
10
20
30
40
50
60
fire
explosion
wind
others

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Ignition sources responsible of mine fires

Ignition source Underground
mine
Open-pit
mine

Electricity 35.7 16.2
Friction 8.9 4.7
Spontaneous combustion 8.3 -----
Explosives 1.8 ------
Hot areas (engines) 14.9 24.6
Welding and oxy-cutting 13.7 17.3
Other unknown sources 16.7 37.2

Percentage of equipment units involved in mine fires

Table 1 - Production processes and each unitary operation conducted in the mining
activity pose different fire risks.
Type of equipment involved Underground
mine
Open-pit
mine
Stationary electrical equipment units 14.9 5.2
Mobile equipment units 32.7 30.9
Other equipment units 38.1 38.7
None or unknown 14.3 25.1

All fire risks are associated to fixed assets, equipment, and others.

The main source of fire is primarily represented by mobile equipment over any
other type of unit. Causes can be as diverse as electrical failures, sparks, overheating by
friction, or the hot areas of engines and turbos. Liquid fuels, such as hydraulic oils,
diesels, and lubricants, represent the highest risks. However, cable jackets, tires, and fuel
residues also constitute sources of fire.

Fires occurring onboard huge mobile equipment units used in open-pit operations
constitute a serious threat. Fires on diesel-powered machines generally triggered by
electrical components cause hydraulic hoses to leak, spilling a highly combustible hot
liquid over an ignition source as, for example, an exhaust pipe or a turbo.

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Electrical failures are the secondary source of fire. These can occur in electrical
power substations, cable tunnels, electrical rooms, transformers, loaders, drilling
machines, trucks, and others.

The third source of fire to be found at mine sites is oxy-cutting and welding
operations (hot works).
Among the main equipment and elements to be found in mine operations are
electrical equipment in metallurgical plants; namely, electrical power substations, cable
tunnels, cable trenches, electrical switchboards, cable trays, electrical power rooms,
electrical control rooms, communication and control shafts, electrical pumps,
transformers, crushers, grinders, flotation cells, filters, agglomerator, solvent extraction
plants, electrowinning, and others.

Among the main equipment units found at mines are: drilling machines, hydraulic
jumbos, drilling towers, DTH equipment, ground support and ventilation machinery,
explosive loading machinery, ore loading and haulage machines, such as electrical and
hydraulic excavators, front loaders, spreaders, scoops, trucks, railways, and conveyor
belts. Other elements are compressed air, electrical, and ventilation networks. There are
also support equipment units, such as tank trucks, pumps, bulldozers, cable conveyors,
service and transport vehicles, and fuel and lubricant supply vehicles.

Finally, most of the operations conducted in smelters pose high risks of fire;
especially in furnaces, forming areas, electrical rooms, cable trays, transformers, and all
related electrical areas where works are carried out.

Origin of fires

Before a fire breaks out, three fundamental conditions must be met:

Presence of oxygen
Combustible element
Temperature

Absence of any of these elements will prevent the occurrence of a fire and,
therefore, its consequences.

There are two principles to interrupt the cycle of fire: active fire protection and
passive fire protection.

As its name indicates, active fire protection is activated to break the cycle of a fire
when this has already begun. Additionally, the system is activated by the fire itself or by
the elements generated by it, such as smoke, temperature, flames, etc. Historically, fire
protection has been mainly focused on active systems as extinguishers, sprinklers, gases,
detectors, etc.

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As opposed to the above, passive fire protection stays intact once the fire has
begun; this means it will protect both facilities and equipment without previous
activation.

This presentation will be focused on passive fire protection since, over the years,
greater knowledge has been gained on fire protection and new materials against fire
propagation have been introduced which have led to the development of new applications
and, based on their performance, have been taking the place of active systems in different
scenarios.

Thus, passive protection is aimed at protecting different elements or components
with systems or products that serve their main purpose of retarding fire. This protection
generates a number of effects. First, it totally eliminates the risk of fire. Second, it
contains fire to prevent its propagation. Third, it prevents facilities and equipment from
being damaged by the action of fire.

Fire protection prevents the fire or its propagation, does not require human
intervention, is maintenance-free, has long life cycles, provides 24-hr protection, and its
action does not depend from an actuator, water, or another element.

Advantages of passive protection vs. active protection against fire

Passive protection has been unanimously accepted by specialists, as opposed to
CO2 flooding systems, for example.
Passive protection prevents the fire, in contrast to active systems that warn or
fight a fire.
Passive protection does not need human intervention while, for instance, portable
extinguishers will not serve its purpose without human involvement.
Passive protection is maintenance-free, as opposed to all active systems.
Passive protection does not have and expiration date, as opposed to extinguishers,
CO2, etc.
Passive protection is free from mechanisms likely to fail, as is the case of
detectors.

Basic principles in fire retardant elements

Fire resistance curve that fire retardant materials must describe:

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Figure 1 - Fire resistance curve that fire retardant materials

What the NFPA standards say

The NFPA standards (National Fire Protection Association, a worldwide leading
entity in fire protection), make many recommendations on fire passive protection and, in
general, they say the following:

Openings and cable passages adjacent to fire-retardant electrical penetrations,
with fire retardant walls, partitions, floors, and ceilings must have firewall seals, using
rated methods to ensure fire retardant resistance. Each opening must be protected to
constrain fire propagation and restrict the smoke from moving from one side of the
barrier to the other. Fire barriers separating different areas must provide a minimum of 2
hours of fire retardant. Consideration should be given to the use of fire retardant in
electrical cables. Standard on fire tests methods for doors and others. Standard on fire
tests methods for windows and glass assemblies. Standard methods for material fire
resistance tests.

Applying passive protection against fire

The specific application of these system allows for different and multiple uses;
namely, electrical cables, hydraulic hoses, joists and columns, doors and windows, cable
passages in floors and ceilings, in penetrations, ducts and ceilings, in walls and partitions,
in equipment cabinets, in hot components of equipment, constructive joint systems, etc.

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Figure 2 - Protection of metallic structures & Joint and seam seals

Priorities are mainly determined by the consequences a fire would bring about in
terms of human life safety. After that, we should consider the level of confinement that
has been granted as well as what the losses would be in case of fire and for how long
their effect would linger (that is, how much money is involved).

Apart from the consequences a fire may have, the level of risk or the likelihood of
an accident must also be considered. To this respect, priorities should be defined on the
basis of places containing a large number of cables, places with high temperatures, and
places with a background of fire occurrence. Other risks to be considered are: the
presence of trash, hot or cold weather, presence of oxygen and welding, short circuits,
electrical switchboards, etc.

The danger of fire in electrical cables

Electrical cables pose high risks of fire since the high temperatures they can reach
might start an internal fire which would spread across highly flammable cable jackets.
Likewise, an external fire might break out; this would start on cable jackets and spread to
other cables.

By protecting cables the occurrence of fires is prevented, human life is secured,
the damage of high-cost strategic points is maintained (ie., CCM, Control), the
propagation of hazardous smoke and gases is prevented, no time is wasted in rewiring,
and production processes are kept running.

Some cables are supplied with flameproof coating (ie., PVC, Hypalon, ethylene-
propylene, AAA, etc.). These must be protected from radioactive feedback and heat re-
entries. Flameproof coating cables are significantly more expensive than conventional
cables.
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Figure 3 - Cable arrangement according to standard IEEE-358

Figure 4 - Normal cable distribution

How to protect electrical cables

Electrical cables can be protected with fire retardant products, like heavy paints
that will suppress oxygen from feeding the combustion source, inhibit the combustion
process in the proximity of cable isolation, thus reducing heat propagation to protected
cables. Moreover, the set of cables must be protected whenever they pass through an
opening so that electrical equipment, environments, and elements are separated and
protected against fire, smoke, wind, toxic gases, and water. This is how fire spread and
internal fires are prevented.

Type of fire retardant material to be used

Materials recommended by experts should meet some conditions. Firstly, cables
must be rated for the purpose they claim to serve. This test should be conducted by a
reliable fire laboratory, with extensive experience on the subject. The material must be
compatible with the life cycles of cables, trays, and other neighboring elements. The
material must not loosen up or break; new cables must be easily introduced or removed;
cable isolation or their performance must not be affected; environmental regulations must
be complied with; human health must not be affected, and it should last for, at least, 30
years.

No heat re-entry and no
radioactive feedback

Heat re-entry and
radioactive feedback
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As to the adequate chemical properties a fire retardant product should offer, this
must be a water-based product, non-combustible, free of asbestos and chlorinated
hydrocarbons; comply with OSHA and EPA obligations; have excellent bonding while
its drying time should be 0,2 to 4 hours; it must be easy to clean; must have thixotropic
properties; it must be tested for thermal shock; and be salt-water resistant.

Its installation should not be a concern though some defective installations have
been observed that can affect its performance. Thus, a good product will not work as
expected when required. This is why the installation must be done in a quick and easy
way by qualified specialists who will use adequate equipment and tools without de-
energizing the place or reducing its electric power. Finally, it must be easily removable to
incorporate new cables.

Figure 5 - Seals in cable passages & Cable protection in electrical room

Loss prevention and the economics of fire protection for electrical cables

A small cable tray may play a dramatic role in the operation of any mine site.
Electrical cables are the most vulnerable elements because they are exposed to damages
as a result of rapid fires and repairing them to bring them back to normal operation can
take a long time. Normally, these two elements combined can cause important losses due
to the interruption of production cycles by the action of small fires that can be put out in
15 minutes or less. For example, lets take the case of a large-size mine operation of
500,000 ton copper/year, with US$ 2 billion revenues/year. As recently seen in the
domestic mining industry, a fire that could be extinguished in 15 minutes or less might be
destructive enough to cause damages and time losses for US$ 20M, as a minimum, as a
result of the disruption of production processes. The insurance, if coverage applies to this
type of event, will indemnify US$ 6M. This incident should by no means be taken as an
isolated case. Other fires affecting only a few meters of cable have been disastrous
enough to cause multi-million business losses due to operations shutdown.

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Short circuits caused by fires take but a few minutes to break out and, most of the
times, it takes several minutes to put them out. It is for this reason that fire protection for
electrical cables can be measured in units of time (minutes).

In the presence of fire, unprotected electrical cables can short-circuit between 2
and 10 minutes, depending on the fire intensity and the type of cables being used.
Therefore, the case will translate into cable damage and a very onerous electric
transmission shutdown of unprotected electrical cables, before a small fire can be
extinguished.

Several factors should be considered in determining the number of minutes of fire
protection required. Some examples can be found below.

A.- If a cable fire is caused by small pieces of welding material, this will cause switch
year failure or a short circuit and unprotected cable jackets are likely to be the only
combustible source in the fire. Probably, this type of fire can be extinguished in an
average of 12 minutes o less from the moment it is detected.

B.- If the fire breaks out from an external combustible source and comes in contact with
unprotected cables located in a medium size area and this fire can be brought under
control in a few minutes from the moment water hoses and other implements are put in
operation. Probably, this type of fire can be extinguished in an average of 12 to 15
minutes or less, from the moment it is detected.

C.- If the fire is caused by external combustible materials and, due to its intensity, the
situation cannot be controlled within 30 minutes, then the cables and other equipment
will be completely destroyed. In spite of the above, one can still wander: how long will
this shutdown last in terms of cable supply and rewiring.

FIRE CASES IN THE MINING INDUSTRY OF CHILE

In the past calendar year, at least two serious fires have affected the Chilean
mining industry with considerable damage to fixed assets and production-cycle
shutdowns, and the ensuing damage to company property and financial results.

After a detailed explanation in the previous chapter, below are some fires cases
occurred in the local mining industry:
Case 1: Fire in Electrical Room and Transformer

A failure in an electrical substation caused the electrical power transformer to
catch fire.

Not only seals were in place but the substation room was seal-coated in cable
passages and in all lower areas of the room.
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The problem arises because the type of seals used, though very good at serving
their purpose, were not of the fire-retardant type but, on the very contrary, they
vigorously promote a fire. This case reveals lack of information, sloppiness, and failure
to assess adequately the risk of fire. The area was equipped with active protection which
failed to go off due to damage of cables that were expected to warn of the incident.

Had passive protection been in place and correctly installed, damages would have
been limited to the transformer only. But the doubt will always remain as to whether the
seals were specified as dust seals and not as fire seals (which would be a specification
mistake), or as fire retardant seals. Whatever the case, when the product was procured,
specifications were not followed strictly.

Case 2: Fire in Crusher and Other

Repair works were underway in a crusher unit using welding and oxy-cutting
equipment. The fire broke out when operators had gone home after a normal day of
work. Pieces of incandescent material generated by the welding and/or oxy-cutting
activities were flung into the cable trays that feed the power and control to the crusher.
The fire spread rapidly and caused great damage to cables and to the continuity of
production cycles. Financial losses were very important. Protected fire cables would have
prevented the fire because the protective elastomer (coating) is designed to withstand
these temperatures for a minimum period such that the fire source is extinguished.

Case 3: Fire in Truck and Others

During mineral haulage operations, a tire exploded. A fire broke out which spread
to the truck and to all unprotected combustible elements onboard the truck. The fire also
reached the electricity, air, and ventilation networks at the mine. The fire produced very
high temperatures causing great material damage. One fatality is reported and the mine
halted operations for one month.

From the point of view of fire passive protection, the right steps to take were: all
hydraulic hoses, electrical cables, and other hot areas should have been protected. Thus,
these elements would not have helped promote the fire. Likewise, the electricity,
ventilation, and compressed air networks should have been protected with fire retardant
material. Had this been the scenario, the fire would have happened all the same but with
much less damaging consequences and production would have been resumed on the
subsequent shift.

Just as the three cases mentioned above, many other examples exist of fires in the
national mining industry both in equipment and areas, such as electrical rooms, cable
distribution rooms, conveyor belts, high-tonnage trucks, compressors, stackers, front
loaders, cable tunnels, cable trenches, scoops, drilling jumbos, fans ,etc.

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RECOMMENDATIONS

There is a number of basic recommendations, namely:

Maintain a high standard housekeeping to prevent the accumulation of trash, oily
rags, fine coal dust, and other combustible material. Moreover, smoking should be
forbidden in underground mines or especial smoking rooms should be implemented for
such purpose.

Conduct an assessment whenever the 3 elements required to start a fire are likely
to concur and create an action plan.

Keep a record of fires and fire threats occurred. This register will help us
implement corrective actions.

Inspect and audit all installations with special interest on existing passive
protections in place. This is because many installations in place are provided with pseudo
fire retardant materials which not only fail to meet that characteristic but
vigorously promote a fire. An example of this is Case 1 as described above.

Conduct conceptual, basic, and detail engineering for fire passive protection
projects.

Use passive protection in areas that require such protection and make sure it is
correctly applied, in general, in all the elements above described.

Once the decision to implement passive protection has been made, assess the
products intended to be used and verify whether these have been properly rated by a
reliable fire laboratory.

REFERENCES

1. NFPA standards, codes of 2002, 2003, 2005, 2007, 2009 and 2011.

2. Loss Prevention and the Economics of Fire Protection for Electrical Cables, Mr.
Hank Bryan, Houston, Texas, USA, 1983.

3. Internal report Fire-Stop Systems, USA, 2006

4. Internal Report Fire-Stop Systems, Chile, 2007

5. Equipment and Methods in Mining, William H. Pomroy, 1998

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PROCESS INNOVATION BY WORKING MINERS:
A CASE OF USER INNOVATION IN COPPER MINING INDUSTRY
FOR THE EIGHTH INTERNATIONAL COPPER 2013 CONFERENCE
SUSTAINABLE DEVELOPMENT, ENVIRONMENT, HEALTH AND SAFETY

Juan Giuliano
CODELCO Divisin Andina
Avda. Santa Teresa 513
Los Andes, Chile
Juagiul@codelco.cl

Sergio Burdiles O.
Sloan School of Management
Massachusetts Institute of Technology
50 Memorial Dr.
Cambridge, MA, USA
sburdile@sloan.mit.edu

ABSTRACT

Employees are known to develop and use key process improvements. In this
work, we explore innovation by mining employees working in Codelco, a Chilean
mining company. The data on these innovations come from a contest sponsored by mine
management at the Andina division of Codelco. This contest encourages workers to
come forward and reveal the improvements they have made.

The research method used for this case study is based on data and information
collected from interviews with managers, workers and members of the contest organizing
committee. In addition, a survey was given to more than 50 workers involved in the
current version of the contest, to evaluate and analyze their interests and motivation
drivers to participate in the contest.

One of the main findings is that more than 10% of total workers do behave as
user innovators, and 85% of the surveys participants have created at least two
innovations at Andina. For the workers, the main reasons to participate in the contest are
making a contribution to the company, to develop a deeper knowledge in a specific topic,
and also to be recognized by family, colleagues and managers.

The key lessons of this work are that user innovations in the copper mining
industry do happen, and creating the right incentives for workers to innovate and share
their innovations, can increase their safety, the environmental impact, their motivation,
performance evaluation and add value to their company and the industry.
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Industry Background

The copper mining industry is affected by the volatility of copper prices. When
the price is high, there is a higher gross profit. In addition, new explorations, new
projects, expansions and reopenings are activated, and the main concern is to reach the
highest levels of productivity. On the other hand, when the price is low, there is a
decrease in gross profit, as well as investments in explorations, postponement of projects,
and closing of high-cost operations, with the main focus on keeping the costs under
control.

Copper demand estimations are increasing, and the main focus is on raising
production levels and productivity, avoiding failures, interruptions or distractions in
the process. This emphasis reduces the possibilities of encouraging a trial and error
culture, and of supporting creative ways to solve operational problems by the miners.

The largest producer of copper in the world is the Chilean state-owned
corporation, Codelco. It is the largest company in Chile and plays a key role in the
country's economy and development. In 2011, they produced 1,735,000 tmf equivalent to
10.7% of the world mining production. Codelco has 6 operations: Chuquicamata,
Radomiro Tomic, Salvador, Andina, El Teniente, and Gabriela Mistral. Andina Division
accounts for 13% of Codelcos production and in 2011 with 234,000 tmf and it was the
division with the highest increase in production equivalent to 24% y/y (Codelco Results
January-December 2011). With the new expansion of its operation, it is expected to
produce more than 650 thousand tmf by 2016. Currently they have approximately 5,500
workers, composed of 1,500 of their own workers and 4,000 contractor workers.

Innova Award Contest

Description of the Contest

Since 2004, the Andina Division of Codelco has been running the Innova Award,
an annual contest that aims to generate opportunities for all the people, who work in the
Division to improve their processes continually and creatively, with a focus on working
quality, safety, care for the environment, cost reduction, increased productivity, and
automation of duties. Innova is a way to encourage a culture of innovation within the
entire organization.

Innovation starts with the workers and contractor workers, even before they have
been invited to participate in the contest. To tackle problems in their daily work, with
their own resources, they develop a solution that aims to produce a significant impact on
the organization and operation of the mine. During this period, they go through a trial-
and-error process until they find an acceptable solution, and then they implement it. In
parallel, they share their ideas and improvements with their units manager.

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The contest started in 2004 with 93 projects submitted for evaluation. In 2011,
they reached 185 projects, and by 2012, they expect to have 244 projects presented for
evaluation. In the case of each project innovating workers, with the support of a mentor,
prepare a presentation about their operating innovation project. This presentation has a
defined structure and includes the authors of the innovations project, and the area; the
required inputs, the unit responsible of the operation, expected results and KPIs; a
definition of the problem they are facing, considering the impact on the results of the
operation and KPIs; definition of possible solutions, and selection of the final one; and
the impact and results after developing and deploying it.

A management jury, composed by the manager of the area (e.g. mine, plant,
infrastructure, etc.), management staff and joint committees of the area, select the final
participating projects. Then a divisional jury, composed by the general manager of the
division, the executive committee, unions representatives, and joint committees
representatives, evaluate the projects. For every 10 projects presented by each area, the
jury selects one that best accomplishes the evaluation criteria.

The evaluation of the jury is based on four criteria: creativity and innovativeness,
value added to the business, sustainability, and preparation and presentation. After this
evaluation, the best projects from each area go to the second and final stage.

In this stage, the workers gather more information regarding the impact of the
project and present their work, showing economic, safety and environmental impacts,
and other relevant results to the divisional jury, which selects the four best projects,
which are the winners of the contest.

Usually the first stage runs from January to June, and the second stage goes from
July to October.

The contest finishes in November with a celebration dinner for all the participants
of the contest where the winners are presented. Each of the winners receives a paid one-
week vacation in a set place within Chile, for himself and his partner. Although this prize
is exceptionally well recognized, workers main motivations to participate in the contest
is to have the opportunity to be recognized for their work, sharing it with key people of
the organization, especially with higher management, with whom do not interact
frequently.

This contest is an opportunity to facilitate innovation by end users, allowing them
to share the problems they have, and the solutions they built, as well as the value they are
adding to the company; they also value receiving recognition for their contributions. In
addition, it allows them to understand their needs and the problems and restrictions of a
feasible solution. Once most of the workers have participated in the contest, they want to
apply again, using the contest to communicate their contributions to the business, with
recognition and new career development opportunities.

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During the 8 years of the Innova contest, 750 projects have participated,
involving more than 2,200 workers, and generating an estimated value of $ 100 million
for the division.

How the Contest Works

Aligned with Andina Divisions perspective, the Innova contest aims to generate
opportunities for all the workers, by improving their processes continually and creatively,
with a focus on working quality, safety, care for the environment, cost reduction,
increase productivity, and automatization of duties.

In this sense, this division has worked to improve workers safety, and in 2011, it
achieved the lowest accidents frequency rate of 0.93 accidents over 1 million worked
hours in all Codelcos divisions. In addition, Andina is the division with the lowest direct
CO2 emission levels, reaching 82,000 metric tons per year.

What the Innova contest has done is to position this focus and challenge every
worker at Codelco Andina.

It has helped to involve and include everyone in the organization to think of their
problems, and then take the lead to find ways to solve them. Considering that Andina
Division has approximately 5,500 workers, in the last two years more than 10% of the
workers have participated in the contest, and 2,200 workers have been part of the history
of the contest. There is no evidence in the mining sector in Chile of a similar or higher
participation rate with deployed projects.

The information about projects and participants of the Innova contest, in its 8
years of operation, shows a high number of projects the first two years. In the next four
years the number of participants decreased considerably, but in the last two years, they
quadrupled the number of projects. The detailed evolution in the number of projects and
participants of the contest is shown in the following table.

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Table 1: Innova Contest

Year N of Projects N of Workers Involved
2004 93 280
2005 80 240
2006 51 153
2007 57 171
2008 45 135
2009 41 123
2010 197 585
2011 185 555
Total 749 2,242

The average number of participants for each project is three workers. In most of
the cases, they are from different units within an area, for instance, operations,
maintenance and safety.

At the beginning of each contest, the general manager sets the number of projects
for the following version of the contest. In order to align this number with the deal flow
of projects, the managers of the areas are responsible to provide a minimum distributed
number of projects based on the defined total number of innovations. In 2011, the
number of projects was 185, and for 2012, the expected number of projects is 244.

Components of the Contest

In every project, there must be a leader position who is responsible to define,
articulate and execute the projects steps. The Innova contest is no exception. This person
is one of the key components for its success. Therefore, the leader of the contest has to be
well known and has a well connected network within the company. He knows the
organizations structure and the stakeholders recognize his position in the contest.

He is responsible for reaching the target number of innovation projects,
articulating the different participants of the contest to play their role at the right time. He
is in charge of promoting the contest, coordinating the activities and setting the time to
present and evaluate the projects, together with the final awards ceremony. Lastly, he
defines and arranges the prizes for the winners of the contest. He is permanently
engaging workers to participate in the contest.

The leader who has been responsible for the Innova contest since 2004 is Juan
Giuliano. He has worked for Codelco in Andina division for 31 years. For the contest, he
reports directly to the general manager and the manager of the Health and Safety Area.

Another key component of the contest is the general manager and managers of
the areas (represented by mine, plant, projects, services, and sustainability). Considering
the hierarchical structure of the organization, if the general manager is committed and
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involved in the contest together with the rest of the managers, then the rest of the
organization is more open and interested in being part of it. Analyzing the history of the
contest, the participation and follow up performed by the managers of the areas is
directly related to the number of projects presented by their units. The same situation
occurs when the general manager shares the importance of the contest and requests
updates from the managers about participation in their areas.

Unions and joint committees play a decisive role by supporting the contest and
promoting it in their activities with the workers. In addition, their representatives are part
of the evaluation committee. Their support is a key factor for the success of the contest.

Supervisors and contest area leaders are in charge of finding and collecting the
potential participant projects, and encouraging the workers to take the lead. They have
direct communication with the contest leader to inform him about the participants, and
the questions from the workers, and to suggest actions to increase participation in each
area. In addition, they participate as tutors of projects by helping the workers build and
prepare their presentation for the contest.

Workers are the central component of the contest. Although they voluntary apply
to the contest, they commit with themselves to find and build a solution for their
problem, and then commit with the company to prepare and share their experience and its
contribution. By word of mouth, they promote the contest with other workers and their
feedback allows improvements for the contest and its process.

During the process of the contest, there are elements that help give it a positive
outcome. The first of these elements is the evaluation process and selection of projects. It
has to be explicitly explained to all the participants and be clearly understood by them.
Any doubts or weaknesses of the process can damage the credibility and reputation
gained.

A second element is to define and deploy a permanent strategy of promotion of
the contest, targeting the workers as the main audience. This promotion keeps alive the
interest in the contest and helps to trigger the problem-solving approach with the
workers.

The last element is to collect the comments and experiences of the workers.
Generally, the final result of this task is the creation of a book with all finalist projects
and authors, including messages from the different stakeholders, and a promotional video
that is shared within the organization in different social activities.

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Innovation Examples

The following examples represent a selection of innovations that have been part
of this contest.

Portable Metal Detector

In most of the mining operations, the machinery that picks the large rocks has
buckets with teeth that grip the rocks (Figure 3). The problem is that these teeth can
break during operation, and then they fall with the rocks into the crushing process. As
the teeth are much harder than rocks, they can then stop the crushing machines from
working properly and so produce losses for the operation.

To prevent damage to the crushing machines, the mine had installed large metal
detectors that would automatically stop the belt when they identified metal in the rock
stream moving past them. The problem that remained was that these stationary detectors
did not indicate precisely where the metal was so that it could be found by workers and
taken off the belt. So the belt operator had to search for the metal and find it to make the
belt work. This situation resulted in a loss of 3 hours per day of operation of the belt.

To solve this problem, operators looked for current solutions to detect ferrous
elements and locate them within mining operations. They were able to find a metal
detector for mining belts for almost $2,000. The restriction of the machine was that it
required maintenance every two months. Then, they realized that a portable metal
detector like the ones used in airports, could solve the problem remarkably quick, since it
did not require maintenance and or specialized training, and economically, since its cost
was 95% lower than to the total cost of the mining detector.

They tried the device, and it performed well. They reduced the time of belt stops
to 1.5 hours per day, which is equivalent to $4 million in savings over five years.

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Figure 3: Missing tooth in Shovels bucket

Larynx Microphone in Crusher Plant

Workers are frequently exposed to harsh environmental conditions, particularly
dust, when they are within mining operations. This exposure in the long run can increase
the probability of suffering silicosis. In order to avoid this risk, it is necessary to use a
respirator mask.

In addition, the operation requires that workers stay in communication constantly,
but the use of the respirator does not allow them to use the radio communication, forcing
them to take off the mask to talk.

There is a tradeoff between staying protected from dust and communicating with
other workers. The operation team at the primary crusher of the plant decided to find a
way to keep the respirator on and talk at the same time. They searched in the market, but
they did not find a respirator that had a communication system integrated. So they
decided to build one, and the solution they found was to use a larynx microphone
connected to the radio.

The main benefits are improving health and safety conditions for operators. They
can avoid breathing dust, can be more focus on the tasks they are performing, and
increase the use of the respirator in polluted places.

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Figure 6: Worker wearing
the respirator
Figure 7: Worker talking
without the mask

Figure 8: Worker with the
larynx microphone
Figure 9: Worker talking
with the respirator mask

Replace time reduction of gyratory crusher concaves

The crushing process is divided in three stages: primary, secondary and tertiary
crusher. The first stage crushers take the mineral ore rocks and reduce them to a size
small enough to be taken by the next (secondary) crusher in the process.

Usually the primary crusher is a gyratory one, and it is composed of a vertical
spindle, the foot of which is mounted in an eccentric bearing within a conical shell
(Figures 10 & 11).

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Figure 10: Gyratory Crusher
(Picture:ThyssenKrupp AG)
Figure 11: Gyratory Crusher in
operation (Picture: Metso)

With a normal operation of this crusher, the walls (concave) need to be replaced
avery eight months to be effective in crushing the mineral. For each crusher, there are 72
concave units with a total weight of 22 metric tons. Based on research with experts and
manufacturers representatives there was no evidence of practices that allowed a
reduction in the replacement time, and the total time to do it was 32 hours, not
satisfactory for an autonomous operation.

By reducing the number of concave units, they could minimize the replacement
time. Previously the gyratory crusher had 4 rows with 72 concave units (Figure 12), and
after different trials, they could use 48 concave units in 3 rows (Figure 13).

Figure 12: Previous Gyratory
Crusher
Figure 13: Current Gyratory Crusher

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This reduction in the number of concave units accelerated the replacement
process but in addition required an improvement in the concave mounting system (Figure
14). In addition, to improve the alignment system and reduce the assembly time, they
added centering guide "pins" (Figure 15).

Figure 15: Improved concave
mounting system
Figure 16: Improved alignment
system

To extend the durability of the concave units, they incorporated a new design
profile increasing the thickness of the wall (Figure 17).

Figure 17: Thicker concave wall
design profile

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All these improvements helped to reduce the replacement time in 30%, from 32
hours to 24 hours. The new concave mounting system reduced the associated risk to the
replacement. The process was autonomous between crushers detentions and SAG mill
stops. They improved use of steel in 95% and generated annual savings of $ 618,000.

Impacts of the Innova Award Contest

The Innova Award contest allows users to be recognized as people who are not
only thinking about problems but creating, building and executing solutions that benefit
the company. It encourages users to go through a trial and error process, and understand
the value of learning by doing. The elapsed time to develop their innovation was within
one year for 89% of the workers. These projects focus on a problem and provide a
solution in a short time.

In addition to workers, contractor companies, whose employees work directly in
the operations of the mine, can also participate in the contest, and have been among the
winners. Most of the interviewees mentioned that many innovations are built together by
the mine's own workers and contractor workers.

Because of the close involvement of contractor companies and contractor workers
in the mines operations, we consider their employees to be the equivalent of employees
of the mining company itself. They are also users who can identify problems and needs,
and with the right tools from their own company or the mine, they are able to innovate.

ANALYSIS OF USER INNOVATION IN INNOVA CONTEST

It has long been known that even workers who are not technically trained can
create important improvements on the processes they work with. Thus, Adam Smith
(1776, 17) indicated a great part of the machines made use of in those manufactures in
which labor is most subdivided, were originally the invention of common workmen,
who, being each of them employed in some very simple operation, naturally turned their
thoughts towards finding out easier and readier methods of performing it. This is
known to be true today, via quantitative research conducted by innovation scholars
(summarized in von Hippel 2005). As that work explains, users innovate when they have
a need or problem, and they use their own resources to find a creative solution, with the
purpose of using it, and freely share their experience and work.

Making a Contribution to the Company

Operations in mining gather many people from different backgrounds and with
different profiles. Engineers from different disciplines (mining, mechanical, civil, and
industrial), technical and maintenance specialists, risk and safety professionals,
operators, human resource and administrative staff, all work to achieve their goals and
key metrics regarding safety, production and uptime. They need to make the operation
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run as smoothly as possible. They face challenges and problems that require evaluation
and prioritization, which must be solved in order to keep or improve their results.
Frequently, those problems can be understood only by working in the operation every
day and night. Thus, thinking of ways to solve the problems requires a deep
understanding of the need and restrictions of the solution.

Therefore, the workers find ways to solve the problems and contribute to
improving the results and quality of their work, their unit, and the company.

Based on the interviews performed with the workers, belonging and working for a
public company makes them think that if they can perform better, then it will have a
positive impact on the results of the company, and thus on the country and its people.
The information published by Codelco regarding its contribution in 2011 to the Chilean
government budget accounts for $ 4.9 billion. Codelcos tax obligation along with the
first category income tax equivalent to 20% for 2011, has an additional commitment
following the presidential decree D.L. 2398 (1978), to annual payments of 40% as
complementary income tax.

Considering that 88% of the studied group have been working in the company for
more than 5 years and 68% for more than 10 years, the innovators also view their
contribution to the company as delivering a legacy for the workers to come.

Personal Learning

In the case of the interviewed miners, 94% of them indicate an interest in
developing a deeper knowledge of an area. The purpose of this learning process is to give
them an opportunity to think about their problems, identify and gather the necessary tools
to evaluate and build a feasible solution, and most importantly, use this solution in their
work.

Through their innovations, workers also want to learn about others experiences
and topics. Innovators frequently received feedback and information from other workers
about innovations developed by workers from different units, who operated within a
common area. They are challenging themselves to build working teams and learn to
understand others work as well as their own.

Workers who innovate in mining have incentives similar to those identified
among software developers working on open source projects by Hertel et al. (2003), and
Lakani and Wolf (2005). These volunteer code contributors were strongly motivated by
the pleasure and learning they found in working on their innovation projects.

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Recognition

The sense of being recognized by family, colleagues and the company, is
perceived by the worker as a necessary component to encourage them to develop
innovations.

As Bassett-Jones and Lloyd (2005) conclude, a positive reinforcement and
recognition of work could outweigh economic incentives for workers. It is a way to
validate the importance of their work and the impact it has on the unit and company
results. At the same time, it gives the opportunity to those people close to them to express
a sense of admiration for their work. Sharing their work with other colleagues and
people inside and outside the organization fuels this recognition expectation.

During the development of their innovation, they show it to co-workers and
supervisors. Once they complete their work, they share their project and results inside
and outside the company. When they were asked about their willingness to share their
work with other colleagues outside the company, 96% of them expressed their interest.

What they like the most about the Innova contest is the opportunity to show their
work to colleagues. As Raymond (1999) and Lerner and Tirole (2002) elaborated, free
revealing of innovation-related information can lead to benefits such as an increase in the
workers value on the job market, or even an increase in a firms profits if the revealed
innovation is to some degree specific to assets owned by the innovator (Hirschleifer
1971).
The results of collected answers show that recognition accounts as one of the top
four reasons to apply to the contest, by 63% of the workers.

Winning the Contest

According to workers, when they have been recognized in the contest they feel
this opportunity is a way to prove to themselves that they have solved a problem,
thinking about and implementing it in a new way that no one else in the company has
done before.

After applying once to the contest, they are willing to apply again to it. This was
confirmed by analyzing the participation results of previous years, and validating them
with the information gathered from the survey, showing that 85% (n=50) have developed
two or more innovations.

When they are participating in the contest, they consider it is an opportunity to
share their problems, and what they have done with their own resources or limited
resources from their units to solve them, to show their work and how they have
contributed to the company, and lastly to prove they are valuable assets for the
organization. In addition, each area wants to show that they want to improve operational
results, and how they are doing it with these innovations.
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Lastly the winners of the contest feel recognition from everyone in the
organization, which keeps them motivated to continue creating innovations.
DISCUSSION AND CONCLUSIONS

Chile is the main producer of copper in the world accounting for 34% of the
world mine production (United States Geological Survey Mineral Commodity
Summaries, January 2012). It is estimated that, in the next 20 years, the world will
consume more copper than the accumulated consumption over the entire human history
(World Metal Statistics, March 2010 and Yearbook 2008 World Production. Comisin
Chilena del Cobre Chile Production. Mineria Chilena, Anuario 2010). In order to fulfill
this pace of demand, it will be necessary to rethink the conventional way to produce
copper, and propose innovative solutions.

The origin of products and services innovations in this industry may come from
external and internal sources. Among external sources are equipment manufacturers,
third-party companies that are involved in mining operations processes, and research and
development initiatives. In contrast, the main internal sources are research and
development centers and specialists.

Although miners have direct participation in all these innovations, they are not
necessarily considered as a source of innovation, even though they are the ones who
define the problems, propose different solutions, suggest modifications to the developed
solutions, and finally approve or reject the innovation they are testing.

Chile is at a stage of development in innovation policy to move from public
support to innovation governance (OECD Reviews of Innovation Policy, 2007). In 2005,
the Chilean Innovation Council was created to offer a coherent overall governance of the
innovation system. It was a better coordination of the public initiatives to support
innovations focused on research and development and technology transfer for mining and
other sectors.

International mining companies that have operations in Chile have their research
and development centers located in other countries. BHP Billiton has its R&D in
Australia, Anglo-American in South Africa, Freeport-McMoran in the United States, Rio
Tinto in Australia, Canada, the United Kingdom and recently in India. In addition, one of
the biggest producers of Copper in Chile and worldwide, Corporacin Nacional del
Cobre (National Copper Corporation) - Codelco, a Chilean government-owned
corporation that has the only R&D Center (Instituto de Innovacion en Minera y
Metalurgia IM2) in the country.

In addition to these efforts, it can become an attractive opportunity for these
companies that being close to their main operations, have a better understanding of their
problems and work toward the best solutions that meet their real needs with right people.
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Users (miners) are key participants and developers of innovations. It can be
beneficial for the industrys stakeholders to understand what these users have done up to
date, and how they can be included, encouraged and supported into the innovation
strategy, to become key producers of innovations.

Mining users have a clear and specific problem, and with their own resources,
they find a a way to solve it. Within Codelco Andina, more than 85% of their workers are
open and willing to share with others what they have done. They tend to develop
functionality novel innovations, and a key component of this development process is the
possibility to try and fail as many times as necessary to succeed. Within one year, 89% of
the participants build innovations going through a learning-by-doing process, to use and
validate the efficiency, applicability, and impact of their solution.

In 2004, Codelco Andina division created the Innova contest to generate
opportunities for all workers to improve their processes continually and creatively, with a
focus on working quality, safety, care for the environment, cost reduction, productivity
improvement, and automation of duties. After 8 years, almost 750 projects have been
developed and presented, and more than 2,000 participants have been part of the contest,
with an estimated contribution to the company of $ 100 million.

The main drivers for these workers to apply to the contest are: having the
opportunity to make a contribution to the company; developing experience and deeper
knowledge in a topic; being recognized by their family, their co-workers, and the
company; and winning the contest. The Innova contest has helped to involve and include
everyone in the organization to think of their problems, and then take the lead to find
ways to solve them.

Exogenous factors such us seasonal climate and copper price can impact the
normal mine operation and, therefore, influence workers to innovate. In addition,
endogenous factors such us organization culture, labor motivation, and accident rate, to
name few, also influence the willingness of workers to think about their problems and
build solutions.

By analyzing the elements that the Innova contest has defined and used to
encourage a culture of innovation with its workers, we show that users are innovating in
this industry, and those innovations create a positive ecosystem for the workers and the
company.

According to the Chilean Geology and Mining National Service - Sernageomin
(2011), in Chile, the total number of workers in mining is 197,000. Although large
mining operations account for 89,000 workers, if initiatives like the Innova contest were
implemented in other large mining operations in Chile, it might trigger a significant
number of innovations from the workers of this sector.

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Defining an innovation strategy and creating the incentives to encourage a culture
of innovation from workers to manufacturers, providers and academia, can become the
key component to increase total factor productivity and face the future challenges of this
industry.

REFERENCES

1. Baros, Mara Celia (2010). Ro Blanco y Andina visin de chilenos.
http://www.codelco.cl/prontus_codelco/site/artic/20111107/asocfile/2011110719
1236/libro_andina.pdf

2. Beckel Jorge, Buitelaar Rudolf (2002). Aglomeraciones Mineras y Desarrollo
Local en Amrica Latina. Chapter V. Una innovacin tecnolgica en la minera
cuprfera en Chile. http://web.idrc.ca/en/ev-62205-201-1-DO_TOPIC.html

3. British geological Survey (2012). World mineral production 2006-10. (Keyworth,
Nottingham: British Geological Survey.)

4. Comisin Chilena del Cobre (2005). Resea de la Innovacin Tecnolgica en la
Minera del Cobre: El Caso Codelco. DG/12/05.

5. Danus Vsquez, Hernan (2007). Crnicas Mineras de medio siglo (1950-2000).
Santiago, RIL Editores.

6. Denise S Fernandez, Dawn S Carlson, Lee P Stepina, and Joel D Nicholson.
"Hofstede's country classification 25 years later" The Journal of Social
Psychology 137.1 (1997): 43-54. ABI/INFORM Global, ProQuest.

7. Edelstein, Daniel L. (2012). U.S. Geological Survey, Mineral Commodity
Summaries, January 2012, Copper.

8. Foix, Cristian y Weber, Richard. Pronstico del precio del cobre mediante redes
neuronales, Revista Ingeniera de Sistemas Volumen XXI, 2007

9. Hertel, Guido, Sven Niedner, and Stefanie Herrmann (2003) Motivation of
software developers in Open Source projects: an Internet-based survey of
contributors to the Linux kernel. Research Policy, Vol 32, Issue 7, July, Pages
11591177

10. Hofstede, Geert, The Cultural Relativity of Organizational Practices and Theories
(June 1983). Journal of International Business Studies, Vol. 14, Issue 2, pp. 75-
89, 1983.

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11. Nigel Bassett-Jones, and Geoffrey C Lloyd. "Does Herzberg's motivation theory
have staying power?" The Journal of Management Development 24.10 (2005):
929-943. ABI/INFORM Global, ProQuest.

12. OECD (2011), Skills for Innovation and Research, OECD Publishing.
http://dx.doi.org/10.1787/9789264097490-en
13. Oliveira, P., and E. Von Hippel. "Users as Service Innovators: The Case of
Banking Services." Research Policy 40.6 (2011): 806-18. SCOPUS.

14. Patricio Garcia, Peter F. Knights, John E. Tilton, Labor productivity and
comparative advantage in mining:: the copper industry in Chile, Resources
Policy, Volume 27, Issue 2, June 2001, Pages 97-105, ISSN 0301-4207,
10.1016/S0301-4207(01)00010-1.

15. Ramrez Mndez, Gabriel A. "Development of the Technological Innovation in
Chile: Precedents and Strategic Challenges". Universidad & Empresa (2010):
107-132.

16. Servicio Nacional de Geologa y Minera (SERNAGEOMIN), 2011. Anuario de
la Minera de Chile. Servicio Nacional de Geologa y Minera, 208 pginas.
Santiago, Chile.

17. "Users are transforming innovation: [LONDON 1ST EDITION]. " Financial
Times 11 Jul 2007,ABI/INFORM Global, ProQuest.

18. von Hippel, E. (2005). Democratizing Innovation. Cambridge, MA: MIT Press.

19. von Hippel, E. (1986). "Lead Users: A Source of Novel Product Concepts,"
Management Science. 32 (7) 791-805.

20. von Hippel, E. and P. Oliveira (2009). The major role of users in hospitality
services,! MIT Sloan School of Management Working Paper forthcoming
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BREAKABLE GROUND SUPPORT, A VERIFICATION OF MECHANICAL
PROPERTIES TO DIMINSH FERROUS SOLID WASTE IN UNDERGROUND
MINING

V. Barrera and P. Lara
Instituto de Innovacin en Minera y Metalurgia, IM2 CODELCO
Ahumada #341, 7
th
Floor
Santiago, Chile
plara001@im2.codelco.cl

G. Pinilla and E. Arancibia
GTI- CODELCO
Hurfanos #1270
Santiago, Chile

ABSTRACT

The current elements used to support rock mass in underground mining are made
from ferrous alloys. They serve their purpose in order to help the rock mass self-
supporting but they also cause unwanted interruptions due to its high ductility, becoming
in solid wastes (SW). In Codelco underground mines, unscheduled downtime is caused in
crushing and transport in straps; due to this, the mineral gets stuck. For this reason,
IM2s Geomining Area is conducting a research on possible alternatives for the
replacement of ferrous elements with a technical point of view, thus making the system
supports not further considered SW. At least 3 support technologies have been found
with the potential to be breakable: fiber reinforced polymers, synthetic fibers and thin
spray on liner. These elements are subjected to various statics tests to study its technical
feasibility (to the reinforcement support: tensile, shear and pull out tests were performed;
to containment support, energy absorption test were made). This paper presents a review
of these tests and their results.

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INTRODUCTION

The passage of ferrous unbreakable support elements, at the mineral transport
lines and comminution circuits in underground mining operations, introduces
disturbances in the continuity of the production process. This may result, in detentions
which represent a risk to fulfill the commitments stipulated in production planning. Thus
these conventional ferrous ground support elements become solid wastes (SW).

Figure 1- The unbreakable ferrous support elements at transport and crusher lines

IM2s Geomining area is conducting an investigation to get a replacement for
unbreakable ferrous elements. The elements for the rock mass support has been
considered that can be classified into 2 groups, Stacey [1], called Reinforcement or
Retention (Rockbolt-Nut-Plate and Cable-Barrel Systems) and Support or Containment
(Shotcrete, Mesh and Thin Spray on Liner). In this search IM2 has conducted tests on
three technologies that could reach the required mechanical performance and still be
breakable: fiber reinforced polymers, synthetic fibers and thin spray on liner (TSL).

The analysis of the multiple mechanical stresses to which the support systems are
exposed is simplified in this study. As a first approximation, considering that these can
be decomposed into a combination of tensile and shear for the reinforcement elements
and the energy absorption tests for the supporting elements. The laboratory-scale static
tests allow the determination of these attributes. However, dynamic testing will be
needed in order to determine the mechanical boundary damning to these alternative
technologies.

EXPERIMENTAL

We briefly describe the tests to which are subjected these two groups of elements.

Reinforcement Elements

The reinforcement elements are jointly working with the movement of rock mass
around an excavation as they are physically inserted inside. These elements interacting
formed a structural beam (interaction zone Figure 2) on the periphery of the cavity.
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Figure 2- Structural beam in the interaction zone

In this case, the reinforcement elements are rockbolts built of glass fiber
reinforced polymer (GFRP). To determine the properties of these elements are
considered three types of tests: tensile, shear and pull out in the universal testing
machine.

Tensile test

One of the basic requirements for these elements is to provide an adequate tensile
strength. As common practice, the industry establishes a minimum level of resistance for
these elements. In the case of the GFRP elements NCh2577 Chilean Standard [2] sets
quality criteria in terms of mechanical and physical properties that shall be met.

Table 1- Properties for a GFRP bar 70/30 (70% glass fiber, 30% resin % in weight)
Strength 520 MPa; Modulus 42 GPa; Elongation 3.5-5.0%; Density 1.5-2.0 kg/m
3

The standard test for GFRP rockbolts is the uniaxial tensile test. In this case, as it
is made of polymeric nature materials, the ASTM D7205 [3] was applied.

Figure 3- Tensile test and GFRP based specimen
In order to measure the load at break of the nuts and plates it was also used the
universal testing machine. For this, a pull out test was made with the help of steel
rockbolt.

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Shear test

The shear strength of the GFRP rockbolt was determinate using a double shear
test based on ASTM D7617 [4]. To generate it, a piece specially designed for this
purpose was used which is assembled in the universal testing machine.

Figure 4- Parts and montage for GFRP rockbolt double shear test

Pull out test

The pull out test in the universal testing machine was designed to measure the
strength of assembly rockbolt-nut-plate.

Figure 5- Assembly and samples for pull out test in universal testing machine

Support Elements

The support elements, in this case synthetic meshes (PVC and PET) and TSL, are
located on the periphery of the excavation, and they work by inhibiting the rock mass
movement. Some mechanisms that allow these elements to perform such purpose can be
seen in Figure 6.

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Figure 6- Working mechanisms of support elements: block lock, basket effect and
retention of slabs

One way of determining the mechanical performance of these elements is to
measure the capacity of energy absorption when they are used as reinforcing shotcrete
panel.

Energy absorption test

To determine the capacity of absorbing energy a test is performed using a round
panel according to ASTM C1550 [5]. In this test, the support elements are located as
reinforcement into the panel to be tested and the shotcrete is projected or casted onto
(Figure 7). After the setting times (21 days) the reinforced panel is tested on a press
equipped with instrumentation to measure the load and deformation.

Figure 7- Reinforced panel and energy absorption test

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RESULTS

Reinforcement Elements

Tensile test

In the case of GFRP rockbolt, the tensile test got the following results.

Table 2: Mechanical properties for GFRP rockbolt (20 test)
Strength 506 MPa; Modulus 7.62 GPa; Elongation 7.31%; Density 0.709 kg/m
3

Then, the average tensile load was 187.7 kN (19.14 Ton) for a 22 mm nominal
diameter GFRP rockbolt. The Figure 8 shows the brittle fracture of GRFP rockbolts.

Figure 8- GFRP rockbolt after tensile test

Figure 9- Break tensile load histogram for GFRP rockbolts

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A tensile test of steel rockbolt yields maximum load of 274.6 kN (28 Ton).

In the case of GFRP plates, they achieved an average load 140.14 kN (14.29 Ton)
and failure mode can be seen in Figure 10. The break originates the couplings between
the constituent parts of the piece.

Figure 10- GFRP plates after test

In the case of nuts it was achieve an average load of 42.27 kN (4.31 Ton). It is
observed that the thread, of nuts and rockbolts, is the origin of the element failure. The
destruction of the nut in the picture on the right at Figure 11 shows that the nuts failure
is due to a rectangular opening that acts as the core of the failure.

Figure 11- Nuts after test

Shear test

The average shear strength for 20 tests was 158 MPa with a load of 60.11 kN
(6.13 Ton). After the test rockbolts may be seen in Figure 12.

Figure 12- GFRP rockbolts after shear test
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Figure 13- Break shear load histogram for GFRP rockbolts

A shear test of steel rockbolt yields a maximum load of 192.4 kN (19.62 Ton).

Pull out test

The average pull out load was 63.25 kN (6.45 Ton) at universal testing machine,
yields a maximum pull out load of 102.1 kN (10.41 Ton)

Figure 14- GFRP assembly tested

The photograph in Figure 14 confirms the fact that the threads, the nuts and
rockbolts, are the primarily responsible for the failure of the GFRP assemblies.

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Figure 15- Pull out maximum load histogram for GFRP assemblies

The pull out test with steel assembly yields a load of 222.3 kN (22.67 Ton).

Support Elements

Energy absorption test

Two types of synthetic mesh, PVC and PET, and a cement-based TSL was tested.
Their properties can be seen in Table 3.

Table 3: Properties of support elements tested
Element Composition Description
Unreinforced Shotcrete
Synthetic Mesh 1 Shotcrete + PVC Opening 40 x 33 mm, 3.1 mm
Synthetic Mesh 2 Shotcrete + PET Opening 40 x 40 mm, 3.2 mm
TSL Shotcrete + TSL Width 5 mm (cement-based TSL with
fibers)

The shotcrete panels failure modes can be seen in Figure 16.

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Figure 16- Shotcrete round panel fracture after test

Table 4 shows the maximum energy absorption achieved by different
reinforcements used in shotcrete panels.

Table 4: Energy absorption by different reinforcements in shotcrete panels
Element Max. Load
kN
Energy J
(40 mm displacement)
Energy J
(80 mm displacement)
Unreinforced 14.81 18.70 .
Synthetic Mesh 1 14.12 214.5 241.6
Synthetic Mesh 2 8.83 202.0 518.5
TSL 16.28 31.20

In the case of unreinforced shotcrete and TSL, displacement was not reached
above 40 mm. However, TSL 5 mm disk projected on shotcrete allowed the reaching of
higher loads.

Shotcrete panels reinforced with welded wire mesh were tested yielding 440.9 J
and 418.4 J of energy absorption for 40 and 80 mm offset respectively.

CONCLUSIONS

Upon completion of the tests on GFRP rockbolts it was observed that its
maximum load tensile average was of 187.7 kN being lower than that shown by steel
rockbolts, but in the same order of magnitude. Regarding the shear resistance the result
of 60.11 kN, was considered poor compared to steel (~ 33% of that presented by the
latter material). As for the maximum load of the GFRP assembly (rockbolt-nut-plate) it
reached a maximum load of 102.1 kN (~ 46% of steel assembly) and an average of 63.25
kN (~ 28% of steel assembly), which can be explained by the weakness showed by the
threads in the nuts and rockbolts, resulting in a significantly lower tensile strength
observed on the GFRP assembly. That is, it should be improve the interaction nut-
rockbolt thread to promote this kind of products.

The use of shotcrete reinforcement using steel mesh, PVC and PET generated a
significant increase of energy absorption during the tests (above a ~ 1000% over
unreinforced). The reinforcement with 5 mm of cement-based TSL, projected on panels,
achieves a performance similar to unreinforced but improves slightly the load achieved.
It is also noted that for large deformations (80 mm) PET based synthetic mesh absorbs
more energy than steel (~ 118%).

Despite not equate to all performance achieved by ferrous support systems, the
results obtained by the breakable elements tested show still an interesting potential to be
explore in this field the possibility of enhancement. Proposing a challenge no less to
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supplier market, considering that at least in Codelco underground mines the exploitation
areas under current levels with ferrous support systems will be a problem and a cost that
can be avoided in new projects supported with breakable underground support.

ACKNOWLEDGEMENTS

IM2 would like to thank BASF, B&N MINING, DSI, IVS, JENNMAR,
MINOVA and SIKA, companies that kindly provided the products and specimens with
which this investigation was conducted. It also acknowledges the assistance for the
implementation of the tests to professors R. Moffat, J. Beltran and R. Herrera (FCFM, U.
DE CHILE) and to C. Segovia (SIMET-USACH Test Laboratory). P. Lara is also
grateful to the administrative management of V. Olguin and technologist B. Ceron for
their help in this research.

REFERENCES

1. T.R. Stacey, Review of membrane support mechanisms, loading mechanisms,
desired membrane performance, and appropriate test methods, The Journal of
SAIMM, No. 101, 2001, 343-352.

2. INN Chile (2001), NCh2577, Construction - Glass fiber, carbon fiber and aramid
fiber - Reinforced bars Requirements.

3. ASTM International (2006), ASTM D7205, Standard Test Method for Tensile
Properties of Fiber Reinforced Polymer Matrix Composite Bars.

4. ASTM International (2011), ASTM D7617, Standard Test Method for Transverse
Shear Strength of Fiber-reinforced Polymer Matrix Composite Bars.

5. ASTM International (2010), ASTM C1550, Standard Test Method for Flexural
Toughness of Fiber Reinforced Concrete (Using Centrally Loaded Round Panel).

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EXPERIMENTAL STUDY AND COMPUTATIONAL MODELING OF
PARTICULATE EMISSIONS FROM OPEN PITS IN VIETNAM

K. Aygozhiev, O. Nitzsche, J. B. Pateiro Fernndez
Brenk Systemplanung GmbH
Heider-Hof-Weg 23
52080 Aachen, Germany
k.aygozhiev@brenk.com

ABSTRACT

Major air pollutants due to opencast mining are total suspended particulate matter
and respirable particulate matter whereas concentration of SO2 and NOX is negligible.
The primary sources of fugitive dust at fully operational surface mine operations may
include overburden removal, blasting, mineral and coal haulage, mechanical handling
operations, mineral and coal stockpiles, and wind erosion. The location and extension of
each major dust source was included in this project in the numerical dust dispersion
model LASAT (Lagrangian Simulation of Aerosol-Transport). For each of the dust
sources, emission factors are used to characterize time depending dust emissions. These
factors are based on own experimental investigations and values from literature.
Meteorological data for the model were measured directly at the open pit area over a
period of more than one year. The highly variable morphological structure of the open pit
mine was included into the model by a 10 m discretization. An analytic model run was
done to simulate dust dispersion over a one year period and compared with measured
dust concentrations on certain places. With prognostic model runs, various dust
mitigation methods have been analyzed and dust reduction potentials have been
estimated.

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INTRODUCTION

In 2005, the Research Association Mining and Environment (RAME) and the
Vietnam National Coal - Mineral Industries Group (VINACOMIN) have signed a
collaboration agreement to develop environmental concepts and measures for Quang
Ninh hardcoal mining areas. A part of the agreement was to perform an extended dust
monitoring in the area following the production chains of the coal. This subproject
focused on the fugitive dust emission problems at the open-pit coal mines operated in Ha
Long Bay by the Nui Beo Coal Joint Stock Company (NBCC) and it included open pit
mines, large waste rock dumps, coal and waste rock transport routes, coal screening areas
and a coal processing plant. The mining site is located very close to residential areas of
Ha Long City which are especially sensitive to dust emissions. Particulate matter is the
main air pollutant in mining regions [1], [2]. The knowledge of ambient air quality in the
vicinity of the mining activities (e.g. the open pits of NBCC) plays an important role in
assessing the environmental scenario of the region Ha-Long. Apart from affecting
surrounding flora and fauna a large amount of dust generated causes safety and health
hazards such as poor visibility, failure of mining equipment, increased maintenance cost
which ultimately lowers the productivity.

The above-mentioned case study involved the following issues:
The quantification of particulate material mass emitted into the
atmosphere by open-pit mining activities
Measure of the defined dust sources and assessment of the source intensity
by direct and indirect methods.
Measure and assessment of the real time weather data (i.e. wind speed,
wind direction, turbulence parameters)
Mathematical modeling of the particle dispersion in the air
Analysis and assessment of results

DISPERSION MODEL AND MODEL APRROACHES

Dust emitted into atmosphere is dispersed by movements of air that carry it from
the sources and diffuse it into large volumes of air by turbulent eddies. To determine the
concentration of dust in the atmosphere and its deposition on surface a Lagrangian
mathematical model is used. The Lagrangian model tracks point-like particles
representing dust on their path through the atmosphere. The particles dont interact with
each other and travel with the mean wind and are additionally subjected to the influence
of turbulence. The effect of the turbulence is modeled by adding an additional random
velocity to the mean motion for each particle. This random velocity, which is derived
from a Markov process, is a function of the turbulence intensity and is different for each
particle. The concentration distribution is determined by counting the particles in given
sampling volumes and expressed as mean values over the volume elements and time
intervals. The Lagrangian mathematical model is implemented in a computer program
LASAT (Lagrange Simulation of Aerosol-Transport) [3]. The LASAT Program is an
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episode-based model, the temporal evolution of the substance concentration is calculated
within a given simulation area and all parameters important for the dispersion process are
defined in form of a time series.

Input parameters of the model are
meteorological data,
geometry of 3D-terrain, and
spatial location and time-dependent intensity of the dust sources.

The emission inventory of the total suspended particle (TSP) was divided into
three groups of particulate matter (PM50, PM10 and PM2.5) in which the same
aerodynamic diameter, the deposition velocity and the sedimentation velocity are used.
Meteorological data and time-dependent intensity of the dust sources were defined in
form of time series (hourly means over one year).

Meteorological data

The meteorological data wind speed, wind direction, wind shear velocity, stability
parameter (i.e. Monin-Obukhov length) were measured directly at the NBCC open pit
area at two locations (called USA1 and USA2) over a period of more than one year.
Precipitation data were taken from the municipal meteorological station at Bai Chai
(about 3 km south of the mine).

The analysis of the wind data (see Figure 1) shows northeast direction of wind for the dry
season (November 2011 - April 2012) and southeast direction of wind for the rainy
season (May 2011 - October 2011).

Figure 1 - The main wind directions for the rainy and dry season (2011 - 2012).

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The precipitation data (see Figure 2) also show the seasonal change of rainfall in
the region. Between May and September the monthly amount of precipitation exceeds
200 mm, whereas between November and February less than 50 mm per month are
observed. October and March / April are transition state periods between dry and rainy
season.

Figure 2- The precipitation data for 2011 - 2012

Modeling approach: Terrain

The highly variable morphological structure of the Ha-long Peninsula (including
the Nui-Beo open pit mine, see Figure 3) provided by NBCC has been included into the
model as nested-grid domains. It implies the use of three nested computational domains
(50 m, 100 m und 200 m discretization respectively). The reason for nesting
procedures is to span a set of spatial and temporal scales that ranges over a maximum of
three orders of magnitude from 0.05 to 12 km, or from 0.1 to 100 h. The nesting
procedures are usually adopted, where a larger-scale model output is used to provide the
initial and lateral atmospheric boundary conditions necessary to drive a smaller-scale
model. This procedure allows better accommodating !ne-mesh resolutions while
simultaneously using long integration periods.

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Figure 3 - Transformation of 3D Data of the Nui Beo mining area (GIS-Data) in nested-
grid domain for dispersion calculations

Spatial locations source strengths of emissions

Dust generating activities at the NBCC open-pit coal mining area have been
subdivided into product and waste process chain related activities due to the different
materials handled in each chain, i.e. coal and dump material respectively, that have
different physical characteristics and hence dispersion mechanisms when emitted as dust.
The considered dust generating activities, i.e. dust sources, within product and waste
process chain activities at the NBCC mining area are given in Table 1.

Table 1- Dust generating activities at NBCC mining area

Product Chain Waste Chain
Coal
extraction
Shoveling
Overburden
removal
Drilling and blasting
Loading of extracted coal
Loading of
overburden
Coal
haulage
Haulage of extracted coal to
coal preparation plants Overburden
haulage
Haulage of
overburden to
dumping site
Haulage of processed coal to
harbor for market transport

Coal
preparation
Coal Unloading Overburden
dumping/storage
Unloading of
overburden
Coal preparation Overburden storage

The location and extension of each major dust source have been included in the
numerical dust dispersion model separately.
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For each of the dust sources, emission factors are used to characterize time
depending dust emissions. These factors are based on own experimental investigations
and values from literature. Coal and overburden haulage are defined in the model as line
sources (see Figure 4), whereas the other dust activities are specified as area sources (see
Figure 5).

Figure 4 - Coal and Overburden Haulage: the main roads as line sources

Figure 5 - The dust sources as area sources (for the product and waste chain)
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Dust production on exposed soils caused by wind erosion was estimated by the
method presented in [4] and [5]. The method has the following main features:
Wind erosion and dust emission occur when the erosivity of the wind,
typically quantified as the wind shear velocity, u*(cmc
-1
) exceeds the
erodibility of the surface, typically quantified as a threshold shear velocity
[4], [5].
Threshold shear velocity depends on soils and is determined
experimentally [5].

The assessment of dust production is based on the located wind shear velocities,
which depend on the real-time measured weather data and have been calculated by the
wind field model implemented in the LASAT program.

Model Validation

The validation of the model consisted of the following steps:
Comparison of the measured and calculated wind fields
Comparison of the measured and calculated dust concentration

The measured data of the second meteorological station (USA2) are used for
benchmarking and validation of calculated wind fields (see Figure 6), where a good
correlation between computational results and experimental data was found.

Figure 6 - The correlation between the measured and the calculated wind directions at
USA2

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For the validation of calculated dust, concentration measurements from the
installed dust monitoring system were used. The aim of the monitoring system is to
determine the cumulative levels of dust generated by the mining activities and the
weather conditions affecting the dust emission and dispersion. The monitoring points
were selected regarding to the position of the mining activities, the prevailing wind
directions over the mining area and the convenience of the installation of the monitoring
devices. In total for particulate matter levels were installed in 2010 in the mining area.
These four monitoring locations in the mining area are shown in Figure 7.

Figure 7 - The positions of the aerosol spectrometers at the Nui-Beo open pit area.

The measurements of particulates (PM10), which took place at the Nui-Beo
mining area, are presented in Figure 8. As illustrated in Figure 8, there are a lot of gaps
without concentration measurements. For that reason a frequency distributions of the
concentrations have been analyzed for time periods, when the measurements took place,
and the comparison of the computational and experimental results for the four aerosol
spectrometers has been performed.

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Figure 8 - Measured concentration of PM10 at the Nui-Beo open pit area.

Results of these comparisons are presented as representative example for Loc. 4
in Figure 9. According to Figure 9 the computational model calculates in average higher
concentration of PM10 than measured. The discrepancy between measurements and
results of the model can be explained taking into account the following considerations:

The computational results, which are used for verification, do not consider any
dust mitigation methods. Still NBCC carried out dust mitigation measures to
reduce the release of dust from transport (especially if enough water was
available during the rainy season). This means that the model tends to have higher
calculated concentrations of dust then measured.
Verification of the wind field calculations show the model tends to low wind
speeds and thus lowers dilutions. This also means that the results of the model
tend to have higher concentrations of dust then measured.
The factor, which influences also on dispersion modeling, is the total emission
inventory of total suspended particles. The uncertainty by deriving the intensities
of the various dust sources and its time dependences play an important role.
Although the intensities of dust sources were derived from experiments, the time
dependences of source intensities were analyzed and derived from the annual
production values. It has also an impact on the computational results.

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Figure 9 - Frequency distribution of hourly concentrations. The comparison between the
measured and the calculated concentration of PM10 at Loc.4

Under the above-mentioned considerations of the model limitations it can be
assumed that the computational dust distribution model moderately overestimates the real
dust concentration. However, in terms of the statement to mean and maximum expected
concentration of particulate matter, for estimating spatial distribution of dust and for
estimation of dust mitigation method efficiency, the presented model is applicable.

MODEL RESULTS

A diagnostic model run was done over a one year period (i.e. from February 2011
to April 2012) with an hour time discretization. For this time period the temporal and
spatial distributions of dust concentration (i.e. PM2.5, PM10 and PM50) with hourly
frequency have been obtained. No dust mitigation methods were considered. The average
annual concentration of TSP without any mitigation method is presented in Figure 10.

Taking into account the dust mitigation methods proposed by RAME partners a
prognostic model run was done to estimate the mitigation method efficiency. The
reduction potential for average annual concentration of TSP is shown in Figure 11.

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Figure 10 - Spatial distribution of TSP concentration (annual average) without
any mitigation methods

Figure 11 - Spatial distribution of TSP concentration (annual average),
considering dust mitigation methods
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Figure 12 shows the effect of dust mitigation methods at two locations. One
location (Ort 14) is situated near the main emission sources, one (Ort 18) is situated
800 m west of the main emission sources. The proposed methods will potentially reduce
the average TSP concentration by a factor of 2 at both locations. Reduction will be higher
the coarser the fraction is, especially at a distant location.

Figure 12 - Reduction potential of the mitigation methods at two locations

SUMMARY

The computational program LASAT [3] based on a Lagrangian air quality model
was used to simulate the temporal and spatial distribution of particulate matter in the
atmosphere by incorporating the location and extension of the dust sources, the real-time
weather data and the information about terrain of open mining. An analytic model run
was done to simulate dust dispersion over a one year period and the model-predicted
concentrations have been compared with observations on certain places. Comparisons
show that simulated PM10 concentrations are usually higher than measured, but in terms
of statement to mean and maximum expected dust concentration the presented model is
applicable for the conservative estimation of expected dust concentration. With
prognostic model runs, various dust mitigation methods have been analyzed and dust
reduction potentials have been estimated.

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REFERENCES

1. Ghose, M.K., S.R. Majee, S.R. (2000): Assessment of dust generation due to
opencast coal mining an Indian case study. Environmental Monitoring and
Assessment 61 (2): 257-265.

2. Ghose, M.K., S.R. Majee (2001): Air pollution caused by opencast mining and its
abatement measures in India. Journal of Environmental Management 63 (2): 193-
202.

3. Janicke, U (2010): Dispersion Model LASAT: Version 3.1: Reference Book.
Janicke Consulting

4. Gillette D.A., Passi R. (1998): Modeling Dust Emission Caused by Wind
Erosion. Journal of Geophysical Research 93 (D11): 14233-14242.

5. Gillette, D.A. (1988): Threshold Friction Velocities for Dust Production for
Agricultural Soils. Journal of Geophysical Research 93 (D10): 12645-12662.

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INFLUENCE OF MINING PROJECTS IN SIERRA GORDA

Gina Roman,
Master of Business Administration & Bachelor of Biology

ABSTRACT

How is the transition from the evaluation of environmental impacts by project to a
holistic approach on the impacts achieved?

In the Region of Antofagasta, 263 projects have been submitted during the last 15
years to the Government Agencies for environmental approval. Twenty significant
mining project applications are located in the Sierra Gorda.

Sierra Gorda is one of the most vulnerable of the nine districts in the Region, with
a population of 3,700 habitants. It is a rural community with basic health and education
services, characterized by high population in transit searching for employment
opportunities.

This investigation will discuss the relationship of three projects in the area with
the governments development of community plans, in order to seek synergies that
mitigate or compensate the most sensitive socio environmental issues in the area.

The preliminary analysis of the information reveals that: i) sensitive socio
environmental issues are properly identified, ii) similar mitigations are proposed for
material emissions and management of water resources that can affect the community,
and iii) the government development of community plans are addressed descriptively but
still without action plans or programs that could promote sustainable development of the
community.

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FROM THE SMOKE TRAGEDY TO THE SAN JOSE MINE ENTRAPMENT.
68 YEARS OF OCCUPATIONAL HEALTH AND SAFETY MANAGEMENT IN
CHILE

Alex Morales
Mutual de Seguridad CChC - Chile
Quebec 424 Providencia
Santiago, Chile
amorales@mutual.cl

ABSTRACT

In June 1945 a fire inside El Teniente mine, the world largest underground copper
mine in the world killed 355 miners. This event changed the way Occupational Health
and Safety (OHS) in mining was managed in our country. It also brought changes in our
OHS legislation. At El Teniente the accident lead to a shift towards a preventive
approach that has persisted over time and has generated a OHS risk management model
in mining that has been trend setting in our country. Not surprisingly, when a new
mining accident struck our country in 2010 leaving 33 miners trapped in the San Jose
mine in northern Chile, a rescue team from El Teniente was convened to bring them back
to the surface alive. This paper describes the evolution in Chile and worldwide of the
strategies to control risk in mining, from the classic pyramid of Heinrich-Bird to Risk
Management Systems, to the new perspectives from behavior based safety and from
leadership and safety culture.

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INCREMENTAL VS. DISRUPTIVE INNOVATION,
SENSE OF OPPORTUNITY AND A PATH TO DEVELOP DISRUPTIVE AND
SUSTAINABLE TECHNOLOGICAL INNOVATION FOR THE COPPER
INDUSTRY
INTEGRATED OBJECTIVES MODEL (IOM)
COPPER 2013 CONFERENCE

A. Zolezzi
AIC- CHILE
Calle Limache 3405 Of 63
Via del Mar, Chile
alfredo.zolezzi@aicchile.com
@AlfredoZolezzi

ABSTRACT

The working and operating context of large corporations during the next decades
will develop under high-complexity economic, social and environmental scenarios. This
entails combining a large number of external variables, hence increasing conflicts. We
coincide that currently these processes have not considered enough in the regular space
for decisions that must be faced by such corporations, resulting in successive crises that
cause high mass media impact and unsuspected economic consequences.

Lately, Barrick Golds Pascua Lama Project with an investment of about US$ 8.5
billion has announced its temporary shutdown. Will we lose this investment? The Latin
American Mining Conflicts Observatory (OCMAL) claims that there are 196 conflicts at
Latin American level involving 205 projects and affecting some 295 communities. These
figures include 34 conflicts in Peru, 33 in Chile, 28 in Mexico and 26 conflicts in
Argentina, representing 62% of that total. These figures make us understand that its
necessary to progress in developing new capabilities to successfully face the challenges
imposed by the presence of such variables in the productive, economic, social and
environmental landscapes. This happens because different from what happened in the
past the progress in the operations of large mining projects doesnt happen and wont
happen due to the exclusive control of the corporations. This makes us look to the future
with a perspective that is totally different to the current one. For the first time, the key
decision elements wont be the capital, the technology or the business profitability;
actually, they will be the capacity to operate with all these factors simultaneously. In fact,
in the Chilean Mining Industry Competitiveness Diagnosis (Mc Kinsey, 2012), high risk
factors are the following: energy costs in Chile, lack of water resources in the north of
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the country, on-going increase in salaries and a complex and uncertain environmental
regulations system.

In that sense, mining projects and projects based on the natural resources
exploitation will face huge challenges in addition to the common economic issues, a
reality that we are starting to see today. Currently, one fifth of the worlds population
lives in water scarcity areas. It has been forecasted that in 2025, two third of the worlds
population could face water stress conditions. In face of this, the natural resources
management and transformation has gained a critical value for society, which will
require better quality responses, with innovation and commitment, from the corporations.
Can we continue using water in mining in the manner we do today?

Currently, the innovative look on the mining business technical and inherent
problems has resulted in relevant results. They effectively show that responses have been
developed mostly based on incremental development, with a permanent focus on the
industrys productive processes. However, todays challenges require responses
associated to environmental and social issues; and the restrictive regulations that will be
put in force, and the deposits low grades make the model to be increasingly and
inevitably more complex. Today those variables are not only visualized in the near
future, but they will also have a higher relative weight. In this scenario, forecasts
establish that this incremental innovation developed by the industry wont be able to give
an answer to those challenges, bringing with it, consequences such as the ones reviewed
before, resulting in project delays or cancellation.

Hence, we must wonder, is incremental innovation the key to face these new
challenges? Which is its cost? In an environment of multiple variables, constantly
changing and with a high demand for transformation, the capacity to think out of the
box to find new paths becomes the tool that can be used by organizations, because it
allows having an open and evolutionary look with the capability to face the unforeseen.
To ensure the highly demanded global sustainability, it is necessary to decouple
the corporations growth from the intensive use of resources. This is only possible
through the addition of disruptive innovation lines oriented to the development of
distributed value (corporations, environment and community). AIC Chile appropriates
these principles by defining its Integrated Objectives Model (IOM). This model merges
community and corporate interests based on the principle that the main hurdles for the
development and adoption of innovations in the future wont be the technical problems.
Instead, the major hurdles will be the environmental, social and cultural problems that
require creating new structures that go beyond the boundaries of the corporations and
that allow aligning their objectives with the communities objectives. This condition is
the one that has allowed us to develop sustainable technologies that can change the rate
in which we fight against poverty in industries as diverse as the oil and water purification
industries.
In that sense, we are convinced that it is possible to harmonize the private and
public value creation without affecting corporate development, working in anticipating
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disruptive innovation programs that search for the feasibility not only of these projects,
but also ensuring the environmental, human and talent sustainability of the stakeholder
communities.

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ENGINEERING A SAFER WORLD, 2011

Nancy G. Leveson
Professor of Aeronautics and Astronautics and Engineering Systems at MIT

ABSTRACT

Engineering has experienced a technological revolution, but the basic engineering
techniques applied in safety and reliability engineering, created in a simpler, analog
world, have changed very little over the years. In this groundbreaking book, Nancy
Leveson proposes a new approach to safety--more suited to todays complex,
sociotechnical, software-intensive world--based on modern systems thinking and systems
theory. Revisiting and updating ideas pioneered by 1950s aerospace engineers in their
System Safety concept, and testing her new model extensively on real-world examples,
Leveson has created a new approach to safety that is more effective, less expensive, and
easier to use than current techniques.

Arguing that traditional models of causality are inadequate, Leveson presents a
new, extended model of causation (Systems-Theoretic Accident Model and Processes, or
STAMP), then shows how the new model can be used to create techniques for system
safety engineering, including accident analysis, hazard analysis, system design, safety in
operations, and management of safety-critical systems. She applies the new techniques to
real-world events including the friendly-fire loss of a U.S. Blackhawk helicopter in the
first Gulf War; the Vioxx recall; the U.S. Navy SUBSAFE program; and the bacterial
contamination of a public water supply in a Canadian town. Levesons approach is
relevant even beyond safety engineering, offering techniques for reengineering any
large sociotechnical system to improve safety and manage risk.

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The I I MCh wishes to thank the group of students from Universidad de Chile,
Universidad de Santiago de Chile and Pontificia Universidad Catlica de Chile, who
have worked for many hours editing the manuscript of these proceedings
Specially to: Marcela lvarez, J oaqun Bernier, Valentina Buscaglione, Rodrigo
Ladrn de Guevara, J ean Pierre Legu, Matas Painepn, Erika Polanco, Carola
Quiroz, Alejandro Rubio, Gabriel Tapia, Macarena Valenzuela and Sibila Valds

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Volume I

ECONOMICS AND MARKETS /

and vix are predicted by using a univariate model, since these

: Quantity of copper produced in t.

is a robust economic modeling tool

is capable of a traditional purely financial assessment (NPV from the

allows probabilistic analysis of the sensitivity of the

sufficiently distant from

, however, the mining industry has

Function: Linking Fragmentation by Blasting

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