SIC 1021
COPPER ORES



This category includes establishments primarily engaged in mining, milling, or otherwise preparing copper ores. This industry also includes establishments primarily engaged in the recovery of copper concentrates by precipitation and leaching of copper ore.

NAICS Code(s)

212234 (Copper Ore and Nickel Ore Mining)

Industry Snapshot

A global commodity business, copper mining and milling is subject to swings in both prices and production levels, depending on world markets and individual companies' operating strategies. World demand for copper has grown steadily since the late 1970s, but in the late 1990s ambitious copper producers, including many located in Chile, the world's largest copper-producing country, ramped up new mining capacity faster than the market could absorb their production. In addition, economic weakness in Asia and Latin America in the late 1990s left global demand growth at a slower pace than some producers anticipated.

As a result, copper supplies ran heavy, and copper prices slumped by as much as 50 percent in the latter half of the 1990s, especially during 1998 and 1999, reaching Great Depression-era levels when adjusted for inflation. Soft prices decimated copper companies' profits and triggered a frantic round of consolidation among major producers. Continuing into the 2000s, soft prices, weak demand, and rising inventories remained problematic for the industry.

The United States is the world's second largest copper producer and a net importer of copper, obtaining a record 37 percent of refined copper from abroad at the turn of the twenty-first century. In 2000 U.S. mines turned out 1.44 million metric tons of recoverable copper valued at $2.8 billion or approximately 11 percent of world production of 13.2 million metric tons. The U.S. Geological Survey estimated net U.S. consumption of unmanufactured copper materials in 2000 at more than 3 million metric tons along with 1 million metric tons of copper recovered from copper-base scrap.

Organization and Structure

Stages of Production. Copper extraction and processing involves several stages, which vary with the kind of ore and technology being used. Integrated producers are involved in all stages, including ones that are considered outside the scope of this industry classification. Also, because copper ores are recovered along with a variety of other useful minerals, most copper-mining companies also have side businesses to handle other metals, such as gold, silver, and molybdenum.

Copper ore, which may be mined underground or, more commonly, at the surface in an open pit, is unearthed with digging equipment or explosive devices. The material is then transported by conveyor or by truck to a mill or plant, often on site, that crushes and grinds the ore into a powder.

In the next step, called concentrating, the powder is mixed with water and chemicals, which cause copper sulfide ores to float to the top, where they may be separated from some of the other minerals. Once the copper is skimmed, the copper mix, or concentrate, may be piped as slurry to another site for additional processing, or it may be dried and transported via truck or ship.

Meanwhile, the leftover liquid, known as tailings, can be processed further for copper oxide ores and other useful minerals. This material can be broken down further by treating with acid, known as leaching, and applying one of several methods to separate the copper from other substances.

Concentrate must be purified and refined before it yields copper that is ready for manufacturing applications. While for classification purposes this advanced processing is the domain of SIC 3331: Primary Smelting and Refining of Copper, in practice many of the major copper-mining firms are involved to some degree in these activities. Many mines have smelters or refineries on site.

Copper Sales and Markets. Large copper producers typically sell their products in two ways: by contract and on-the-spot markets. Contracts are usually for one to three years and may involve selling copper ores or concentrates at various points in the production process, depending on the client's needs and capabilities. While many manufacturers require copper in a state that's ready to go directly into their products, and thus purchase it as refined cathode, rod, or wire, others buy concentrate and do their own smelting, refining, shaping, and so forth.

Copper is also sold on the open market. Major world markets, such as the London Metal Exchange, provide a large and efficient medium for financial transactions relating to the copper trade. Transactions may take the form of spot contracts, in which the parties arrange for the physical transfer of copper or futures/options contracts, which are market instruments that enable financial hedging against adverse price movements, but no physical exchange occurs. A variety of copper trading firms and brokerages also act as intermediaries for bringing together buyers and sellers.

Copper Use by Sector. According to the U.S. Geological Survey, building construction uses the largest share of copper in the United States, representing 39 percent of consumption in 2001. Single-family homes in the United States use an average of 422 pounds of copper in their construction. Copper products are used in a variety of building construction materials, and they hold a 92-percent market share of electrical wiring in building (8 percent aluminum). Plumbing and heating components are the second largest building industry use of copper, but this sector faces increasing competition from improved plastic materials.

Electric and electronic products accounted for 28 percent of copper consumption. Copper's electrical conductivity properties enable it to be widely used for telephone and power lines. Other notable sectors that consume copper include transportation equipment, industrial machinery and equipment, and consumer products, each accounting for 11 percent of the market share. Cars, trucks, and vans use copper in their electrical systems and have been increasing their use of copper—about 56 pounds were used per car in 1998, as opposed to 30 pounds in 1981. The popularity of larger models, like sport-utility vehicles, and the growth of electronic features in cars have contributed to copper's success in the transportation sector.

The greatest opportunities for increasing copper sales include new home wiring as well as retrofitting existing homes with up-to-date wiring for digital and cable capacities. Copper, which tends to be more expensive than other materials, boasts excellent energy efficiency, reliability, and strength.

Copper Production. The United States has two major copper-producing regions: the Butte district of Montana and a region composed of Arizona, New Mexico, Utah, and Nevada. In 2000 just 14 U.S. mines supplied more than 99 percent of national copper output. Arizona is the largest copper-producing state, generating 64 percent of the total U.S. output as of 2000.

Copper is a relatively homogeneous product. Copper mined and processed in Arizona is in essence the same as copper mined and processed in Chile. Therefore, success in the copper industry depends on keeping production costs low compared to market prices. Major production costs for U.S. producers include labor costs, environmental regulations, and energy costs. New technical processes have also been central to keeping costs down.

Background and Development

Copper has been mined since ancient times. The Egyptians, for example, mined copper 5,000 years ago. In the United States, significant copper mining began in 1845, when the Pittsburgh and Boston Company started a mine in Michigan's Upper Peninsula. According to Hildebrand and Mangum, there were 25 mining companies located in the Upper Peninsula by 1850. The Calumet and Hecla Mining Company, founded in 1870, quickly became a dominant copper producer. Michigan's Upper Peninsula was the only significant copperproducing region during this period. In the late 1870s, Butte, Montana, experienced a mining bonanza. The copper mines in Butte were the largest underground copper source ever found. The vast Western copper deposits eventually eclipsed the original Michigan mining operations.

Technological innovations changed the nature of copper mining. The early mines were underground operations. Innovations like nitroglycerin, power drills, electric power, and steam shovels increased the productivity of copper mining. Eventually massive open-pit operations replaced underground mines. Milling and smelting technology also improved.

The industry eventually recognized that economies of scale were the key to efficient and profitable copper mining. Hildebrand and Mangum point out that this major innovation resulted from a combination of smaller technological breakthroughs like gravity separation, the Chilean mill (for grinding separated ore), and the steam shovel. In addition, copper mining companies eventually recognized that large initial fixed costs became insignificant, when a copper mine produced a huge output. Following World War II, massive open-pit mining and the consolidation of large integrated companies became the norm in the industry. By the 1990s the U.S. copper industry, dominated by a handful of industry leaders, was the world's second largest copper producer.

With copper prices at historic lows in the late 1990s, a wave of consolidation swept through the U.S. industry, highlighted by several prominent shutdowns and mergers. Australia-based Broken Hill Proprietary, operating as BHP Copper Co. in the United States, had closed all of its U.S. copper operations by 1999, after acquiring them in its ill-timed purchase of Magma Copper Co. just four years earlier. BHP's mines had produced around 10 percent of U.S. copper output, but the company was not one of the low-cost producers and was hit especially hard when copper prices plummeted. Other companies closed individual mines in an effort to cut their losses and ease the glut of copper on the market.

Mergers have been another legacy of rock-bottom copper prices. In 1999 Asarco Inc. and Cyprus Amax Minerals Company began merger talks to form what would have been the world's second largest copper company. The parties estimated that a merger would save some $200 million a year in operating costs between the two. Then, in a surprise move, the largest U.S. copper firm, Phelps Dodge, made bids for both Asarco and Cyprus, proposing a three-way merger that would have created the world's largest copper concern. The targeted firms, however, balked at Phelps Dodge's offer on grounds that it was too little and shortchanged their shareholders. While executives at Asarco and Cyprus were determined to fend off Phelps' overtures, some shareholders of the respective companies opposed the Asarco-Cyprus deal. Meanwhile, Phelps continued to make its case aggressively, threatening a lawsuit and a proxy battle and, eventually, increasing its offering price.

As relations between Asarco and Cyprus began to cool, a fourth company, Grupo Mexico S.A. de C.V., entered the fray. Grupo Mexico, a diversified mining company, offered to merge with Asarco at more attractive terms than either of the earlier offers. Phelps chose not to match the new offer. In the end, two mergers were inked: Phelps with Cyprus, and Asarco with Grupo Mexico.

The production cuts during this period of consolidation were expected to help shed the oversupply of copper, although certain producers outside the United States have proven more reluctant to curtail their output. Still, as demand revived in depressed areas like Asia, copper consumption was forecast to catch up with supply. After a devastating first six months of 1999, when copper averaged $0.65 a pound, prices rebounded modestly in the latter part of the year, to the mid-70 cent range, after several of the closures had been announced.

Current Conditions

Domestic mine production continued a downward trend in 2000 with 1.44 million metric tons and in 2001 with 1.34 million metric tons, representing a 30 percent decrease since 1997. Despite the decline in copper production in the United States, world mining of copper increased by 2 percent in 2001. Although this represents a slowdown from the rapid expansion of copper mining activities during the 1990s, world copper consumption dropped by over 2 percent, thus contributing to the problem of surplus supply that has kept the price of copper depressed. U.S. production of copper is expected to continue to decrease.

Mergers and consolidation of the industry that began in the 1990s resulted in the emergence of three companies that produce over 95 percent of U.S. copper: Phelps Dodge, Inc., Asarco, Inc. (owned by Grupo Mexico S.A. de C.V.) and Kennecott Utah Copper Corp. (owned by Reno Tinto PLC of the United Kingdom). Falling prices, rising inventory, and decreased demand have prompted copper producers in the United States to cut back operations. Following the terrorist attacks of September 11, 2001, the already struggling industry responded by closing facilities and reducing production amounts. For example, Phelps Dodge closed two of its plants in 2002 and halved production in two others. Mine closings and restructuring continue to negatively affect the amount of copper production in the United States, as the full impact of the changes has yet to be realized.

Industry Leaders

Phelps Dodge. With Cyprus Amax Minerals under its umbrella, Phelps Dodge Corporation is by far the largest copper producer in the United States and second largest in the world. The Phoenix-based company was founded in 1834 as a partnership between Anson Greene Phelps, William Dodge, and Daniel James. The company purchased two copper mines in the 1880s. By 1906 the company's copper mining and smelting operations had become so successful that it moved exclusively into the copper industry. Today, Phelps' Morenci mine, at Greenlee, Arizona, is the largest in the United States. Revenues from all Phelps operations totaled more than $4 billion in 2001.

Grupo Mexico. Asarco was founded in 1899 by Henry Rogers and Adolph Lewisohn. Originally named the American Smelting and Refining Company, Asarco concerned itself primarily with copper, lead, and silver smelting and refining. By the 1990s Asarco had become a fully integrated copper mining and processing organization, producing an estimated 294,000 metric tons of copper in the United States during 1998. The company's consolidated revenues that year were approximately $2.3 billion.

Grupo Mexico actually had historical ties to Asarco, originating as Asarco's Mexican operations and later taking the name Asarco Mexicana. The company gradually gained majority control of Mexican business concerns and grew through a series of mergers and acquisitions. In addition to its mining activities, Grupo Mexico operates two railroads by agreement with the Mexican government. Some observers speculated that Asarco's stake in a Peruvian mining company was a major reason for Grupo Mexico's bid for Asarco.

Rio Tinto PLC. Though not a U.S. based company, London-based Rio Tinto PLC is noteworthy within the U.S. copper industry both as the parent company to several U.S. copper concerns and as a major world copper producer. Its biggest U.S. holding is Kennecott Utah Copper, which operates Bingham Canyon, near Salt Lake City, one of the largest copper mines in the United States. The site also includes a major smelting and refining operation that can accommodate all of the mine's output. Among its other global interests, Rio Tinto has a 30 percent stake in Chile's Escondido mine, the world's largest copper mine. Rio Tinto likewise has a minority stake in Freeport-McMoRan Copper & Gold, a U.S. based holding company with large copper operations in Indonesia.

Workforce

The U.S. copper industry employed an average of 10,000 people in 2001, down slightly from 2000 and reflecting a general downward trend over the previous decade. The United Steelworkers Union represents most employees. Major occupations in the U.S. copper industry include mining managers, mining geologists, valuation engineers, mining engineers, design engineers, shift bosses, blasters, miners, and construction equipment operators. The mean hourly wage in 2001 was $19.59, according to the U.S. Department of Labor's Bureau of Statistics.

America and the World

Chile is the world's largest producer of copper, mining 35 percent of the world supply or 4.60 million metric tons of copper output in 2000. Chile's production increased by 85 percent from 1995 to 2000, and worldwide production of cooper grew 3.5 percent in 2000 and 35 percent between 1995 and 2000. Having relinquished the role as the world's leading copper producer to Chile in the 1990s, the United States was the second largest producer in 2000 with 1.44 million metric tons. Based on U.S. Geological Survey statistics, other major producers in 2000 included Indonesia (1.01 million metric tons), Australia (829,000), Canada (634,000), Russia (570,000), and Peru (554,000). Kazakhstan, which increased production capabilities by more than 40 percent since 1996, produced 430,000 metric tons in 2000. In Chile and in other nations, government ownership of mines is commonplace.

Research and Technology

A notable advance in copper mining technology is the solvent extraction-electrowinning (SX-EW) method of production. The SX-EW process involves saturating copper-bearing ores with sulfuric acid solutions. The sulfuric acid dissolves the copper and then recovers it by the electrowinning process, in which the dissolved copper is deposited onto charged cathodes. The process is significantly less expensive than traditional methods because it involves fewer steps. It also reduces air pollution control costs because it avoids the smelting process. Currently, only oxide and secondary sulfide ores can be processed with the SX-EW process. These ores are located close to the surface, where they have been exposed to oxygen. It is estimated that only 15 percent of world copper reserves and 13 percent of U.S. copper reserves can be processed via the SX-EW method. However, coupled with other new lower-cost processing methods, use of the SX-EW process can significantly reduce production costs, and thus large U.S. producers have been quick to adopt it.

Further Reading

Copper Development Association. Annual Data: Copper Supply and Consumption, 1981-2001. Available from http://marketdata.copper.org .



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