1. The Economics of Processing Copper Concentrates
The value of research in hydrometallurgy
Frank Crundwell
CM Solutions (Pty) Ltd
15 September 2005

2. Introduction
A large number of new processes have been announced in the last 5 years.
BHP Billiton and Codelco have teamed up under the banner of Alliance Copper to develop BioCOP.
Phelps Dodge and Placer have teamed up to develop a pressure leaching facility at Bagdad, Arizona.
Outokumpu, the developer of the industry’s leading technology, flash smelting, has announced the piloting the HydroCopper.
In addition, there are at least 15 other processes, each with slightly different conditions and chemistry.
Can these processes compete with smelting?
Why invest money in research in hydrometallurgy?

3. Processing routes for copper concentrates
Miners (concentrators) compete with each other on basis of ore quality and quantity.
Since independent smelters that currently destroy value, processing cannot be basis for competition between miners.

4. Trade in copper concentrates
Concentrate sold on basis of toll contract called TC/RC contract (treatment and refining charges)
TC/RC is the earnings to the smelters
Negotiated between copper miners and independent smelters
Not correlated with copper prices
TC/RC prices are generally low
Smelters seeing an increasing price volatility
Difficult environment to invest in smelting, particularly in the West

5. How do you make an investment decision?
Invest if the asset generates more cash than the cost of the investment.
Need to account for the time value of money by using net present value (NPV)

6. Capital costs
Smelters are generally more capital intensive

7. Operating costs
Smelters are generally more energy efficient

8. Net Present Value
Neither smelters nor the competing hydromet processes are economically viable

9. Competition
Non competitive between miners, hence co-operation and collaboration
Highly competitive between miners and smelters
Why would a miner develop a concentrate process?
Competition between miners on basis of ore quality and tonnage

10. Real options valuation
Strategic net present value – or real options
Attempts to account for uncertainty (or volatility) in market projections, and values the options that management has to determine strategy.
Options are to change your mind, defer decision, mothball operation, re-open operations etc

11. Strategic value
Due to uncertainty in prices, option approach says there is value in doing research.
However, it also says that investment is highly unlikely – prices should go to 60 c/lb before investing
300
300
Exercise price
Exercise price
250
250
200
200
Value (US c/lb pa)
150
150
100
100
Option, or
Option, or
strategic
strategic 50 50
value
value
Project value
Project value 10 10 20 20 30 30 40 40 50 50 60 60 70 70
TC/RC (US c/lb)
TC/RC (US c/lb)

12. Lots of strategic value in research
The value in research is due to high volatility and low prices – which favour miners and not smelters.
The research is not meant to be implemented – it is meant as a competitve weapon in the negotiation of TC/RC prices
300
300
250
250
200
200
Project value
Project value
Value (US c/lb pa)
150
150
100
100
Research value
Research value 50 50 10 10 20 20 30 30 40 40 50 50 60 60 70 70
TC/RC (US c/lb)

13. Implications for hydrometallurgical research
Unlikely that hydrometallurgy will compete with smelting on clean concentrates.
Developers of hydrometallurgical processes should focus on processes that do not require the production of concentrates, which are saleable intermediates.
Hydrometallurgical processes should focus on whole ore processing – such as bio-heap leaching.