Creating Wealth and Competitivenes in Mining

8/3/2019 Creating Wealth and Competitivenes in Mining

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Draft: December 17, 2002

CREATING WEALTH

AND COMPETITIVENESS IN MINING

by

John E. Tilton1

The ability of companies and countries to mine copper and other mineral

commodities competitively and in the process to generate new wealth depends on their

mineral endowment. Chile, for example, produces and exports copper because it is well

endowed with high-quality, low-cost deposits. This production creates wealth that

benefits mining companies and their stockholders, the government, local communities, as

well as copper consumers around the world.

The widespread perception that mineral endowment must largely determine

competitiveness, or what economists call comparative advantage, must be true at any

particularly moment. Countries with abundant reserves must be competitive. This follows

from the definition of reservesthe quantity of a mineral commodity found in discovered

deposits that are profitable to exploit under current conditions. As a result, it is a

tautology and not particularly interesting. The important question is what causes reserves

to change over time, producing in the process new wealth and shifts in competitiveness?

1William J. Coulter Professor of Mineral Economics at the Colorado School of Mines and at the time someof the research for this article was conducted, Visiting Scholar at the Centro de Mineria of the PontificiaUniversidad Catolica in Chile. I am grateful to Rio Tinto plc for kindly providing access to its MineInformation System. This paper is an updated and expanded version of Tilton (2000) and Tilton (2001b). Itwas prepared for the CRU World Copper Conference: Costs and CapitalImproving Performance in theCopper Industry, held March 19-21, 2002, in Santiago, Chile.

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Three possible answers come readily to mind. First, as mining occurs and the best

(lowest cost) deposits are depleted, mineral commodity prices may rise, permitting the

profitable exploitation of the next best set of deposits. Second, the discovery of

previously unknown deposits may augment reserves. Third, innovation and new

technology may create reserves by allowing previously known but uneconomic deposits

to be exploited profitably.

The prevailing or traditional view of competitiveness and wealth creation focuses

on the first two possible explanations and for the most part ignores the third. What we

can call the alternative view, on the other hand, focuses on the third explanation, and

claims it is as important or more important than the first two, especially over the longer

term.

We know that the first explanation at least in recent years is of little relevance,

because real production costs and prices for copper as well as many other mineral

commodities have fallen, not risen. While exploration and the discovery of previously

unknown deposits are important, are they as important as the innovation and new

technologies that permit the profitable mining of previously known but uneconomic

resources?

Studies that several colleagues and I have conducted over the past few years on

the causes and consequences of labor productivity growth in the copper mining industries

of the United States and Chile spotlight the importance of innovation and new

technology.2 They provide considerable support for the alternative view of

competitiveness and wealth in mining.

2 See Tilton and Landsberg (1999), Aydin and Tilton (2000), Tilton (2000), Garcia and others (2000),Tilton (2001a), Tilton (2001b), and Garcia and others (2001).

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For many closely associated with the mining industry, as well as for a few

observers outside the industry,3 the importance of innovation and new technology has

long been recognized. For the most part, however, government officials and the general

public consider mining to be a mature industry with relatively stagnant technology. In the

world, as they see it, countries that discover new deposits to replace those being depleted

maintain their competitiveness. Countries that fail to do so lose their competitiveness and

the wealth flowing from mining.

Important and quite different policy implications flow from the traditional and

alternative views for both mining companies and mineral producing countries. The

implications of the traditional view are considered next, then the evidence from the

United States and Chile regarding innovation and new technology, and finally the

implications of the alternative view.

The Traditional View

According to the traditional view, the overriding determinant of competitiveness

and wealth creation in mining is the geological legacy a country enjoys along with the

exploration efforts undertaken to uncover that legacy. This view is intuitively quite

appealing, and over time has accumulated quite a large following. It also has a number of

important implications.

First, it suggests that other determinants of competitiveness and wealth creation

are insignificant compared to geologic endowment. The generation and diffusion of new

technology along with other innovations, in particular, are of little or no importance.

3 See, for examples, Adelman (1970) and Trocki (1990).

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There are two, quite different rationales for this position. The first contends that the

technology of mining is mature and stagnant, and that the few changes that do take place

do not greatly affected costs. The second recognizes that advances in technology occur,

but argues they diffuse quickly around the world providing particular mines, companies,

and countries with few opportunities to acquire a cost advantage over other producers.

The first of these explanations flies in the face of considerable empirical evidence, and

yet in many circles is still widely accepted.

Second, the traditional view sees competitiveness and wealth creation in mining

as largely a transitory gift of nature. Companies and countries with the best deposits are

the most competitive and generate the most wealth. Once their deposits are exhausted,

however, competitiveness will shift to those companies and countries with the next best

set of deposits. New discoveries can also from time to time cause a change in the

distribution of reserves.

Third, there is little managers and workers can do to sustain or improve the

competitiveness of any particular mine. A mine can produce only so long as it has

reserves. Once these are gone, it will close. To remain competitive over the longer run,

companies must replace their depleting reserves by new discoveries or by acquiring new

deposits in other ways.

Fourth, the ability of governments to promote the competitiveness of their mining

industries is similarly limited. While policies that encourage domestic exploration may

delay the inevitable, the depletion of the best deposits and the exploitation of the best

exploration sites will eventually encourage mining companies to search abroad for new

reserves. Through taxation and other means, governments can acquire some of the wealth

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created from their domestic mineral resources and invest it, thereby ensuring that future

generations too benefit from the countrys mineral wealth even after it is gone. What they

cannot do is prevent the depletion of their mineral deposits and the loss of

competitiveness that follows.

The United States

Throughout much of the 20th

century the United States mined more copper than

any other country. By the late 1970s and early 1980s, however, its industry was in

trouble. Between 1970 and 1985, output declined by nearly a third, and its share of

Western world production fell from 30 to 17 percent. Employment dropped by 70

percent. Cash costs declined but not enough to keep pace with the drop in market price.

As a result, very few mines were earning a profit, and many were not even covering their

variable or cash costs.

U.S. copper producers petitioned the government for protection from imports in

1978 and 1984, claiming their survival was at stake. On both occasions, their request was

denied. The media as well lamented the industrys fortunes.Business Weekin the mid-

1980s ran a cover story declaring the death of mining in the United States.

Amoco Minerals, Arco/Anaconda, Cities Service, Louisiana Land and

Exploration, and other companies left the industry. They sold their mines to other

companies, spun them off as independent companies, or simply shut them down. Of the

24 significant copper mines operating in the United States in 1975, six had closed by

1990 and another five had sharply cut back production.

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Yet the industry did survive, staging one of the most spectacular turnarounds in

modern industrial history. By 1995 output was 72 percent above its 1985 level, and even

21 percent above its 1970 level. Western world market share recovered to 23 percent.

Imports were down, and profits up as costs continued to fall while prices recovered.

Innovation, Mineral Endowment, and Competitiveness

Many factors contributed to the recovery of the U.S. copper mining industry,

including a decline in real wages, an increase in by-product revenues, a rise in copper

prices, and the depreciation of the dollar. Among these, however, a dramatic

improvement in labor productivity was more equal than others. As Figure 1 shows, labor

productivity more than doubled between 1980 and 1986. So where two workers were

needed in 1980, one would do six years later. Labor productivity continued to rise after

1986, though at a more modest pace, and by 2001 was three times its 1980 level.

Part of this surge in labor productivity can be attributed to an increase in the

amount of capital, energy, and other factors available per worker. During the 1980s, for

example, Bingham Canyon undertook a $400 million modernization program that helped

the mine quadrupled its labor productivity. Even more important, however, was the

introduction of new technologies and other innovations.

One particularly important development was the increasing use of the solvent

extraction electrowinning (SX-EW) process, which greatly reduced both the operating

and capital costs of producing copper. A better understanding of rock mechanics allowed

new mine plans that reduced stripping ratios and so diminished the amount of waste

generated per ton of ore. Innovative agreements with labor increased the flexibility in

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work rules and manning assignments. Better ore handling systems, larger trucks and

shovels, bigger drills, in-pit mobile crushers with conveyor belts, more cost-effective

explosives, and the computerization of truck schedules and real time process controls in

mills are examples of other new technologies and innovations that the U.S. industry

introduced in its revival efforts.

Relying on the traditional view of competitiveness and wealth creation in mining,

we would expect to find behind the revival of the U.S. copper mining industry an

improvement in the mineral endowment being exploitedeither from raising the cutoff

grade at existing mines or from shifting production from high cost to low cost mines. One

looks in vain, however, for much evidence of either.

Trends in copper head grades do show a rise in the early 1980sfrom 0.59

percent in 1980 to 0.68 percent in 1984as presumably some mines with poorer deposits

closed and other mines turned to higher-grade ores to reduce their costs during this

particularly difficult period. However, the rise in head grades was short lived, and over

the entire 1971-1993 period that Tilton and Landsberg (1999, Fig. 4.5) examine grades

drop considerably, from 0.78 percent to 0.60 percent.

We also know that shifts in mine location did not play a dominant role. The new

mines brought on stream during the 1975-1990 period, including Flambeau and Cyprus

Tohono, contributed very little to the countrys total output, under five percent. So the

revival of the U.S. industry came about because existing mines recovered their

competitiveness. In particular, Bagdad, Chino, Morenci, Ray, and Tyrone more than

doubled their output, while Bingham Canyon increased its production by 50 percent.

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These substantial increases raise the possibility that the revival of the U.S.

industry was largely the result of productivity improvements and cost reductions flowing

from a shift in output away from poor high-cost deposits to the good deposits at these

mines. However, when we measure how much of the rise in labor productivity for the

industry as a whole was the result of shifts in output from low to high productivity mines

and how much was the result of individual mines increasing their productivity, we find

that the shift in mine location accounted for only a quarter of the rise in industry

productivity (Aydin and Tilton, 2000). This means that three-quarters of the total increase

came about as a result of improvements in labor productivity at individual mines, where

mineral endowments presumably changed little. These findings suggest that changes in

mineral endowment were of secondary importance compared to innovative activity in the

recovery of the U.S. industry.

Technology Diffusion and Competitiveness

Our research on the U.S. copper mining industry challenges the traditional view

of competitiveness and wealth creation in yet another way. Earlier we noted that

proponents of the traditional view claim that innovation and new technology have little or

no influence on competitiveness because new technology in the global economy diffuses

rapidly around the world. For example, it is argued, there is little or no difference in the

time at which a new and more efficient shovel or explosive is available to mines in the

United States, Chile, Zambia, or elsewhere. So a cost advantage based on new technology

either will not arise at all or will be extremely short lived.

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This conclusion, however, is based on two implicit assumptions. The first is that a

new process or technique is the result of but one innovation. The second is that the effects

on all producers are neutral in the sense the impact on costs is the same. As the solvent

extraction electrowinning (SX-EW) process illustrates, neither of these assumptions may

hold.

Ranchers Exploration and Development Company undertook the first commercial

production of copper using the SX-EW process in 1968 at its Bluebird Mine in Arizona.

Since that time literally hundreds of innovations have improved the processenhancing

the quality of the copper produced, reducing costs, increasing the range of treatable

copper bearing minerals, and extending the weather and other conditions for successful

operation. Moreover, these developments will certainly continue into the future. This

means that companies and countries that stay at the forefront of these efforts can

indefinitely enjoy a cost advantage over their rivals thanks to technology.

In addition, the SX-EW process reduces the costs of some producers much more

than others. Specifically, it favors:

Companies and countries that historically have been important copper

producers, as these producers over the years have accumulated substantial

waste piles of oxide copper minerals. The SX-EW process is particularly

suited to recover the copper from such low-grade ores.

Companies and countries where stringent environmental regulations are

enforced. The sulfur emission recovered from smelting copper provides a low

cost source for the diluted sulfuric acid used in leaching step of SX-EW

processing.

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Companies and countries possessing copper deposits in arid regions. The

leaching step of the SX-EW process is difficult to control where precipitation

is heavy.

Companies and countries with substantial copper reserves that contain few by-

products of value. So far the SX-EW process has not been able to recover

economically gold, silver, molybdenum, and other valuable by-products often

found in copper ores.

These conditions exist particularly in the United States and Chile. This explains

why these two countries account for such a large share of the worlds total SX-EW

copper production, and why in turn the SX-EW process accounts for such a large share of

their total copper output.

The SX-EW process is a particularly dramatic example of the impact on

competitiveness and wealth creation that innovation and new technology can have. At the

other end of the spectrum, there are thousand of small innovations that can improve the

performance of individual mines. As every mine is unique, it has its own innovative

opportunities. Although small innovations may individually have little influence on

competitiveness and wealth creation, when aggregated they can be of great importance.

While some of these opportunities extend over several or even many mines, many are

useful only for a given mine with its unique situation. These innovations do not diffuse

rapidly around the world.

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Labor Productivity, Costs, and Mine Survival

The collapse and revival of the U.S. copper mining industry over the 1970-1995

period raises yet another intriguing issue: Why did some mines manage to survive and

even to expand their output over this period, while others shut down?

Table 1 separates the 24 significant copper mines operating in the United States in

1975 into three groups. The 10 expanding mines managed not only to survive but to

increase their output over the following 15 difficult years. The three contracting mines

survived as significant producers, but suffered a loss in output. The 11 non-surviving

mines either stopped production completely or cut back to the point where they were no

longer significant producers.

Economic theory and common sense leads us to expect the expanding mines to

have the lowest cash costs and the highest labor productivity at the start of the period, and

just the opposite to hold for the non-surviving mines. Table 2 provides some support for

these expectations, though there are anomalies. The non-surviving mines, for example,

have lower cash costs in 1975 and higher labor productivity than the contracting mines.

Even more surprising, simple econometric models indicate that the ability of

mines to reduce their cash costs and to increase their labor productivity after 1975 is

actually more important in explaining survival than their starting position in 1975 (Tilton,

2001a). This again suggests that innovative activity played an important role in the

recovery of the U.S. copper industry.

Why were certain mines more successful than others in fostering productivity

growth and in reducing cash costs? While a host of factors were likely involved, Table 2

indicates that the expanding mines produced more and held substantially larger reserves

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than the contracting and non-surviving mines at the beginning of the period. Large mines

with many employees possess more human capital for innovative efforts. Given the

greater number of jobs at risk, they may also be more concerned about survival.

Similarly, mines with many years of reserves are likely to have greater incentives to

invest in new facilities embodying the latest technology since the expected returns can be

realized over a longer time horizon.

Chile

To what extent can we generalize the finding that innovative activity is as

important or more than mineral endowment in the creation of wealth and competitiveness

in mining? There are good reasons to suspect the U.S. situation may be an anomaly.

While the country is a major producer, the development of most new copper mines has in

recent years largely taken place abroad, particularly in Chile. One would expect

exploration and the development of new deposits to play a much more important role in

competitiveness and wealth creation in the latter countries.

Our research on Chile was largely motivated by the desire to see if copper mining

in that county enjoyed a similar jump in labor productivity during the 1980s as in the

United States. And if so, to what extent innovative activity as opposed to the

development of new mines drove the increase.

As Figure 2 shows, labor productivity increased in Chile during the 1980s, but at

a modest pace.4 Chile did experience a jump in productivity similar to that in the United

4It is important to note that labor productivity is measured differently in Figures 1 and 2. In Figure 1, laborproductivity is the copper contained in U.S. mine outputper thousand hours of work by copper companyemployees. In Figure 2, for the reasons indicated in footnote 5, labor productivity is the copper contained inChilean mine outputper copper company employee. So the levels of productivity shown in the two curvesshould not be directly compared. As the hours worked per copper company employee in Chile fell during

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States, but only in the 1990s, a decade after the jump in the United States.5

The 1990s was the decade during which many new mines came on stream in

Chile, suggesting that better deposits rather than innovative activity were largely behind

the surge in labor productivity in that country. Previously, the state mining company

Codelco contributed the lions share of the countrys copper output. In 1990, for example,

its mines accounted for three-quarters of all the copper mined in Chile. Over the decade

that followed, this figure fell to nearly one-third as Escondida, Candelaria, Cerro

Colorado, Zaldivar, El Albra, Collahuasi, and other new mines came on stream,

developed for the most part by private multinational mining corporations.

Our research indicates that the shift in mine output, particular toward new mines,

accounts for about two-thirds of the jump in labor productivity during the 1990s (Garcia

and others 2001). This still leaves a surprisingly large portion of the jumpnearly a

thirdattributable to increases in labor productivity at old mines. Chiquicamata,

Salvador, El Teniente, and AndinaCodelcos traditional minesincreased labor

productivity by 37, 70, 70, and 84 percent respectively between 1990 and 1997. A host of

different innovative efforts largely created these impressive improvements.

the 1970-1997 period from over 2000 to under 1500, the labor productivity figures shown in Figure 2 forChile would have to be reduced by 33 to 50 percent to reflect output per copper company employee.5The increasing tendency in recent years for copper producers in Chile to outsource to third parties manyeconomic activities raises the possibility that the growth in labor productivity shown in Figure 2 is

overestimated. To assess this possibility we corrected the productivity figures shown in the figure for fourknown shortcomingsthe growing use of outsourcing and contract employees, the decline in the averagenumber of hours mining company employees work per year, changes in the quantities of byproductsproduced, and changes in the extent to which ore is processed domestically. The results show that thereadily available measure of output per company employee closely tracks the corrected figures (Garcia andothers 2000). While the errors introduced by outsourcing are significant, they are for the most partcancelled out by the decline over time in the average number of hours that company employees workannually. Errors arising from the other two sources examined are small by comparison. Thus, the almostfour-fold increase in labor productivity in the copper mining industry in Chile over the 1978-1997 period isreal, and not just an artifact of outsourcing or the way productivity is measured.

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Moreover, when we examine labor growth over a longer periodfrom 1978 to

1997we find innovative activities at the level of individual mines to be even more

important. Their contribution to the rise in labor productivity was 45 percent, compared

to 55 percent for the shift in output from low to high productivity mines.

We had expected the development of new mines to account for all or almost all of

the growth in labor productivity in Chile, and so were surprised by these figures. They

indicate that innovation and new technology as well as the discovery and development of

new deposits have played an important role in enhancing Chiles competitiveness in the

world copper industry. Without innovation, many of Chiles older mines would no longer

be producing, Codelco would not be the worlds largest copper producer, and copper

exports from Chile would be a third or so below their current levels.

The Alternative View

According to the traditional view, a countrys geologic legacy and exploration

determine its ability to compete and create wealth in mining. Aside from finding and

developing new high quality deposits, there is little government, management, and

workers can do to reduce the relative costs of their mining activities or to extend the

working lives of their operating mines. The pressing policy questions that emerge from

this view are:

How long will our mineral endowment last?

How should wealth (or what are commonly called rents) created by mining be

divided among workers, companies and their shareholders, the state as a

whole, and other interested parties?

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How much of the wealth or rents should the state invest in other forms of

capital, to ensure that future generations continue to benefit from the countrys

geologic legacy after the mines are shut?

These questions lead inevitably to concerns over sustainability, intergenerational equity,

and the intricacies of green accounting.

On the other hand, if the traditional view is wrong or incomplete, if innovation

and new technology are important sources of competitiveness and wealth creation in

mining as suggested by the alternative view, the set of important policy issues changes.

The whole process becomes much more internally driven. There is still wealth created

and rents to be captured, but they are not predetermined gifts of nature, fixed in size, that

producersfirms and countriescan effortlessly gather up. They are instead created by

the mining companies that succeed in the global competition to reduce production costs.

Mining becomes much more of a high tech industry than generally recognized,

where managers and workers are not helpless bystanders watching external forces

unravel their predetermined fate. Instead, they are crucial players who through their

innovative efforts influence their own destinies. While every mine eventually runs out of

reserves, innovation and new technology may extend the path to extinction by decades.

The role of government shifts from ensuring that society as a whole gets its fair

share of the wealth created by mining and that it is used in a manner that achieves

intergenerational equity, to creating an economic climate conducive to the innovative

activities of firms and individuals. In short, public policy focuses more on how to

increase the benefits flowing from mining, and less on how best to divide them.

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Now, human ingenuity can keep the real costs and therefore prices of copper and

other mineral commodities falling indefinitely. This in turn reduces concerns about

sustainability and intergenerational equity.

The copper industry in the United States provides considerable support for the

alternative view of the sources of competitiveness and wealth in mining. During its

dramatic turnaround in the 1980s, it greatly reduced its production costs, not by

discovering new and better deposits, but by a variety of innovative activities that

substantially reduced costs and more than doubled labor productivity.

In Chile, we find, as we expected, that the discovery and development of new

mines contributed greatly to that countrys rising labor productivity, particularly during

the 1990s. More surprisingly, we find that innovation and new technology also played an

important role in sustaining that Chiles competitiveness and in contributing to the wealth

created by the industry.

While the stunning revival of the copper mining industry in the United States

during the 1980s may be exceptional, the experience of the successful copper mining

firms in that country and Chile is not all that unusual. New technologies have radically

affected competitiveness and wealth creation in the gold, nickel, and other metal

industries. Around the world, mining companies are continually searching for new

technologies and other innovations to reduce costs. The discovery and development of

new deposits is only one of many possible ways of enhancing competitiveness and wealth

creation by reducing costs, and often not the most important.

This, as we have seen, greatly alters the policy agenda for mining.

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References

Adelman, M. A. 1970. Economics of exploration for petroleum and other minerals,Geoexploration 8, pp. 131-150.

Aydin, H., and J. E. Tilton. 2000. Mineral endowment, labor productivity, andcomparative advantage in mining,Resource and Energy Economics 22, pp. 281-293.

Crowson, P. 2001. Mining and public policy: an alternative view: a comment,NaturalResources Forum 25, pp. 67-69.

Garcia, P., P. F. Knights, and J. E. Tilton. 2000. Measuring Labor Productivity in Mining,Minerals and Energy 15, pp. 31-39.

Garcia, P., P. F. Knights, and J. E. Tilton. 2001. Labor productivity and comparativeadvantage in mining: the copper industry in Chile,Resources Policy 27, pp. 97-105.

Tilton, J. E. 2000. Mining and public policy: an alternative view, Natural ResourcesForum 24, pp. 49-52.

Tilton, J. E. 2001a. Labor productivity, costs, and mine survival during a recession,Resources Policy 27, pp. 107-117.

Tilton, J. E. 2001b. Mining and public policy: an alternative view: reply,NaturalResources Forum 25, pp. 71-72

Tilton, J. E., and H. H. Landsberg. 1999. Innovation, productivity growth, and thesurvival of the U.S. copper industry, in R. D. Simpson (ed.)Productivity inNatural Resource Industries: Improvement through Innovation (Washington, DC:Resources for the Future).

Trocki, L. K. 1990. The role of exploration in iron and copper supply,Resources andEnergy 12, pp. 321-338.

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Figure 1. Labor Productivity in the U.S. Copper Industry, 1975-2001

(Tons of copper contained in mine output per thousand man-hours

by copper company employees)

0

15

30

45

60

75

90

Source: U.S. Geological Survey; U.S. Mine Safety and Health Administration.

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Figure 2. Labor Productivity in the Chilean Copper Industry, 1970 -2001

(Tons of copper contained in mine output per copper company employee)

0

20

40

60

80

100

120

140

Note: Figures for 1998-2001 are estimates.

Source: Comisin Chilena del Cobre, Servicio Nacional de Geologa yMinera, and Consejo Minero.

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Table 1. Output and Labor Productivity for 24 U.S. Copper Mines, 1975 and 1990a

Outputb

Productivityc

Mines _________________________ _______________________

1975 1990 Growth 1975 1990f

Growthf

Expanding Minesd

Bagdad 20 136 590 20 102 414Chino 53 145 172 60 91 51Morenci 125 324 158 53 95 78Ray 49 112 129 44 68 55Tyrone 75 155 106 51 95 87Bingham Canyon 247 371 50 31 153 394Pinto Valley 66 88 34 59 77 31San Manuel 109 142 30 22 36 63

Cyprus Miami 45 57 28 42 52 24Sierrita 132 137 4 35 57 61

Contracting Minesd

Butte 91 90 -2 43 123 184Missione 106 79 -26 28 62 122White Pine 71 51 -29 13 24 82

Non-Surviving Minesd,f

Silver Bell 19 4 -80 45 44 -1Mineral Park 27 2 -93 34 14 -59

Superior 44 3 -94 18 15 -18Yerlinton 31 2 -94 35 30 -14Bisbee 13 1 -96 44 35 -20Esperanza 24 0 -99 38 49 30Continental 16 0 -100 32 22 -32Ajo 33 0 -100 42 29 -31Battle Mountain 20 0 -100 30 21 -31Ruth McGill 31 0 -100 16 14 -12Sacaton 20 0 -100 39 45 16

All Other Minesh 75 98 30 g g g

Total Industryh

1542 1995 29

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Notes:

aAll U.S. copper mines whose 1975 output equaled or exceeded 10,000 tons or

more of contained copper equivalent in concentrates are included in this table withthe exception of Twin Buttes. Although Twin Buttes 1975 output was 13,800 tons ofcontained copper, it was excluded because its 1975 production was abnormally low,causing its productivity for that year to be unusually low as well.

bOutput is measured in thousands of tons of copper equivalent contained inconcentrate production. Output growth is the percent change in output between 1975and 1990.

cProductivity is measured in tons of copper equivalent contained in concentrateproduced per thousand manhours of labor input. Productivity growth is the percentchange in productivity between 1975 and 1990.

dExpanding mines survived the recession in the copper market during the 1975-

90 period and even managed to increase their output. Contracting mines survived therecession but suffered a decline in output. Non-surviving mines ceased to besignificant producers in the sense that their output fell below 4,000 tons of copperequivalent.

eThe Mission mine also includes the Pima mine.

fLabor productivity reported for non-surviving mines for 1990 is actually for

their last normal year of operation: 1975 for Ruth McGill and Bisbee, 1976 for BattleMountain, 1977 for Yerington, 1980 for Mineral Park, 1981 for Silver Bell, Superior,Esperanza, and Continental, and 1983 for Ajo and Sacaton.

gProductivity data for All Other Mines are not available.hOutput for All Other Mines is the contained copper in concentrate production,

and does not include the copper equivalent of byproduct output. Productivity for AllOther Mines is measured in tons of copper contained in concentrate per thousandmanhours of labor input, and does not take into account the copper equivalence ofbyproduct output. Total Industry Output includes the copper equivalency ofbyproducts for all mines except those included under All Other Mines.

Sources: Brook Hunt and Associates; Rio Tinto Mine Information System; U.S. MineSafety and Health Administration.

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Table 2. Average Output, Labor Productivity, and Cost Performance for

Expanding, Contracting, and Non-Surviving U.S. Copper Mines, 1975-1990a

Performance Expanding Mines Contracting Mines Non-Survivorsd

__________________________________________________________________________

Output Growth 81 -18 -961975-90 (percent). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1975 Productivity 36 24 28(tons/1000 hours)

Productivity Growthd

125 124 -191975-90 (percent). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1975 Cash Costsb 154 165 160(cents per pound)

Cash Costs Growthb,d -42 -19 231975-90 (percent)

1975 Breakeven Costsc 116 146 116

(cents per pound)

Breakeven Costs Growthc,d -29 -26 -61975-90 (percent). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1975 Average Outputa 92 89 25(thousands of tons)

1975 Average Reserves 558 126 34(millions of tons)

1975 Average Reserve Life 47 10 9(years)e

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Notes:

aSee Table 1 for an explanation of how output and productivity are measured. Thistable also defines expanding, contracting, and non-surviving mines, and identifies themines in each of these groups.

b

Cash costs are in real (1997) U.S. cents per pound. As noted in the text, they coverall the expenses of mining and processing through to the refined metal stage minuscapital costs (specifically, depreciation, amortization, and interest on external debt). Cashcosts typically include expenditures for labor, materials, energy, and contract services ofthird parties.

cBreakeven costs are also in real (1997) U.S. cents per pound. They are actuallyadjusted breakeven costs, which are cash costs minus any revenues received forcoproducts and byproducts, minus the difference, if any, between a mines reportedrevenues per pound of copper and the world copper price.

dData for 1990 reported for labor productivity, cash costs, and breakeven costs for

non-surviving mines are actually for their last normal year of operation: 1975 for Ruth

McGill and Bisbee, 1976 for Battle Mountain, 1977 for Yerington, 1980 for MineralPark, 1981 for Silver Bell, Superior, Esperanza, and Continental, and 1983 for Ajo andSacaton.

eReserve life for each mine is calculated by dividing the product of its reserves andthe grade of its reserves by its 1975 output.

Sources:

Output and productivity data: Table 1 and the sources cited there.Cash costs, adjusted breakeven costs, reserves, and grade of reserves: Rio Tinto Mine

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