Economic Impact
of Anticipated Pollution Abatement Costs
Primary Copper Industry
Report to
Environmental Protection Agency
-
Part 3 Economic Impact
Arthur D Little, Inc
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ECONOMIC IMPACT OF ANTICIPATED
POLLUTION ABATEMENT COSTS ON THE
PRIMARY COPPER INDUSTRY
Report to
ENVIRONMENTAL PROTECTION AGENCY
PART III - ECONOMIC IMPACT
Arthur D Little, Inc
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PART III - ECONOMIC IMPACT
TABLE OF CONTENTS
List of Tables and Figures
CHAPTER
PREFACE 1
IX. INTRODUCTION 2
A. PURPOSE AND SCOPE 2
B. APPROACH 2
X. CAPITAL AND OPERATING COSTS TO MEET ANTICIPATED POLLUTION
ABATEMENT REQUIREMENTS 3
A. INTRODUCTION 3
B. ADL APPROACH AND METHODOLOGY 3
C. CAPITAL & OPERATING COSTS 6
XI. PROBABLE PRICES FOR SMELTER DERIVED SULFURIC ACID 14
A. ACID CAPACITY FROM SMELTING 14
B. MARKETS FOR ACID 14
C. PROBABLE MARKET PRICES 17
D. TRANSPORTATION COSTS 19
E. PROBABLE NETBACK PRICES 19
XII. DIRECT IMPACT ON THE PRIMARY COPPER INDUSTRY 27
A. INTRODUCTION 27
B. PLANT SHUTDOWN PROBABILITIES 30
C. IMPACT ON INDIVIDUAL COMPANIES 37
D. EMPLOYMENT IMPACT 40
XIII. INDIRECT IMPACTS 43
A. DOMESTIC MINE PRODUCTION 43
B. FUEL, ENERGY AND RAW MATERIAL AVAILABILITY 43
C. STRATEGIC CONSIDERATIONS 43
D. BALANCE OF PAYMENTS 43
E. ALTERNATE MATERIALS 44
F. MERCHANT ACID INDUSTRY 44
G. FINANCIAL AND TAX ASPECTS 44
APPENDIX A
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PART III - ECONOMIC IMPACT
LIST OF TABLES
Table No. Page
X-l Estimated Capital Investment Necessary to Adapt
Existing Copper Smelters for Air Pollution Abatement 8
X-2 Estimated Direct Operating & Maintenance Costs at
Existing Copper Smelters for Air Pollution Abatement 11
X-3 Estimated Investment Costs for Water Pollution Control
in the Copper Industry 12
X-4 Estimated Direct Operating Costs for Water Pollution
Control in the Copper Industry 13
XI-1 Uncommitted Sulfuric Acid Capacity - 1976 15
XI-2 Projected Markets for Sulfuric Acid - 1976 (Excluding
Leaching) 16
XI-3 Sulfuric Acid Prices (Delivered) - 1976 Low Sulfur Prices 20
XI-4 Sulfuric Acid Prices (Delivered) - 1976 High Sulfur Prices 21
XI-5 Estimated Rail Costs for Sulfuric Acid 22
XI-6 Estimated Netback Prices - 1976 Assuming $15/ST Sulfur on
Gulf Coast 23
XI-7 Estimated Netback Prices - 1976 Assuming $20/ST Sulfur on
Gulf Coast 24
XI-8 Netback Calculations 26
XII-1 Selected Primary Nonferrous Metals Companies Pollution
Abatement Costs 39
LIST OF FIGURES
Figure No. Page
XII-1 Out-of-Pocket Operating Costs and Production of 19
Underground Uranium Mines 28
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PREFACE
This report was prepared in rough draft form during March-May, 1972. At
that point in time, as required by law, the states had submitted their
respective plans for implementation of pollution control (SIP or State
Implementation Plans) but EPA had not decided whether or not these plans
would be acceptable. Because of this, we evaluated the economic impact
of pollution control legislation based on control standards that: were
judged by us to have a high probability of being enforced.
The acceptable SIPs were released by EPA on July 27, 1972 (Federal Register
37, 145, July 27, 1972, pp. 15094-15113). These standards vary significantly
from the standards assumed by us for the "base case" in our economic im-
pact analysis. Because of this, our analysis of economic impact, though
consistent with the assumptions used by us, is somewhat dated. An analysis
of the economic impact of the July 27 regulations would require rewriting
of major portions of this report and the analysis would still be incom-
plete since the requirements for meeting the Secondary Ambient Standards
will not be available for another 18 months. Also, these standards have
been challenged in court by the industry.
In Appendix A, we have included a summary of the major differences between
our assumptions and the July 27 regulations and the general consequences.
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IX. INTRODUCTION
A. PURPOSE AND SCOPE
The purpose of this part of our report Is to analyze the specific impacts
and dislocations that would occur under the assumed pollution control
standards. This analysis draws on the background information on the in-
dustry presented in Part II - Industry Structure. For convenience, the
chapters have been numbered consecutively; Chapters I through VIII being
bound separately as Part II.
Our findings and conclusions are summarized in Part I - Executive Summary.
B. APPROACH
The capital and operating costs for air and water pollution were compiled
on a common basis based on data available from industry and othesr sources.
These data, presented in Chapter X, are based on the selection of a pollu-
tion abatement strategy which would give the necessary results at minimum
cost. The operating costs for a selected strategy were estimated in a
similar fashion. Based on a study of probable netback prices for smelter-
produced sulfuric acid (presented as Chapter XI), we have assumed a uni-
form negative netback for surplus acid produced.
In Chapter XII, the direct impact of pollution abatement costs has been
evaluated for the "local" case - 90% sulfur recovery in Montana, Arizona
and Puget Sound in Washington and lower in other states. This impact was
evaluated plant-by-plant and company-by-company in terms of plant shutdown
probabilities, the impact of the shutdown timing on the domestic mines and
the possibility of a smelter bottleneck, the impact on the financial health
of individual companies, and the impact on employment on a local level.
The indirect impacts on mine production, balance of payments and so on are
presented in Chapter XIII.
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X. CAPITAL AND OPERATING COSTS TO MEET ANTICIPATED POLLUTION
ABATEMENT REQUIREMENTS
A. INTRODUCTION
The capital and operating costs of meeting air and water pollution regu-
lations have been a subject of considerable controversy between the regu-
latory agencies and the primary copper, lead and zinc industries. A number
of early estimates of capital and operating costs were apparently based
on approaches which had little realism in the day-to-day operational as-
pects of smelters and some of these were apparently arrived at without
due consideration of the operational variables inherent in the high tem-
perature and often cyclic operations widely employed in the winning of
these metals from their ores. The reasons for the differences between
several early estimates were presented earlier in Chapter II.
The availability and limitations of technology to remove pollutants from
air and water streams is relatively well known. Of course, the area of
sulfur oxide removal has a surfeit of processes, the greatest majority of
which are unproven on operational scales such as would be required for
these industries. Given the time scale for implementation of pollution
abatement plans, industries would have to rely on proven technologies.
Hence, the industry has a choice between a small finite set of alterna-
tives which were discussed in Chapter. III. The selection of a particular
strategy at a smelter would be based on local factors such as present
smelter configuration and age, raw materials, energy cost and availability,
and by-product or waste stream disposal alternatives.
B. ADL APPROACH AND METHODOLOGY
The basic premise in our approach to estimating the capital investments
required for air and water pollution control was to accept the fact that
the age and physical condition of many of the plants would require a
judicious play-off of capital and operating expenses at each location to
meet air and water quality or emission standards at "minimum" expense and
disruption of an operating facility. The short timetable for achievement
of environmental goals and the unproven nature of some of the SOx recovery
and new smelting technology (and an apparent absence of strong economic
incentives for a rapid change in the favor of the latter) would mean that
in most instances proven add-on pollution control equipment would be uti-
lized. A plant-by-plant approach was used in our analysis since capital
investments and operating costs for air and water pollution control are
highly dependent on the nature of specific plants and there are only
a small number of plants.
Our capital investment estimates were prepared for each plant in the in-
dustry taking into consideration the specific plants and tailoring these
estimates to an equivalent basis and to the present conditions insofar
as possible. For example, we have added $1 to $2 million for in-plant
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emission control at each smelter. These costs tend to be sensitive to
smelter age and layout and might not be representative of actual cost
requirements in all cases. In all cases, costs were normalized through
the use of the Engineering News Record Construction Cost Index to a value
of 1675 (1913 = 100; i.e. approximately the first quarter of 1972) for all
capital investments. In general, the individual costs reported should be
considered to be of the "pre-engineering" type (i.e. prepared by using
scaling factors and without detailed material or energy balances) and
would at best be within + 30% of the actual costs that might be incurred
if the same abatement philosophy is adhered to. All costs are shown as
the total capital investment required. The operating costs reflect the
full impact of the pollution abatement technology after it has been in-
stalled and is operating normally. As mentioned later in Chapter XII,
we expect a shortage of construction labor in areas such as Arizona and
our costs have not been adjusted to reflect this scarcity.
As a result of industry cooperation, we were able to obtain a breakdown
of costs in most instances through personal interviews and/or telephone
conversations. Based on this, we were able to establish the source of
the cost estimates, i.e., company engineering departments, quotations
from vendors, or proposals from architect-engineering-construction firms.
When new process additions were part of a company's estimate of the costs
of attaining compliance with pollution control laws, we were able to
establish if these additions would have any significant effect on opera-
tional capacities and to determine if alternate routes had been considered.
In this way, we developed a common data base which permitted us to make
judgmental decisions as to the probable range of capital expenditure re-
quirements. Thus, the cost estimation procedure was based on the following
sources of information:
1. Information from the industry.
2. Systems Study for Control of Emissions: Primary Non-Ferrous
Smelting Industry - Arthur G. McKee and Company, PB 184 884-6,
June, 1969.
3. Control of Sulfur Oxide Emissions in Copper, Lead and Zinc
Smelting - Bureau of Mines Information Circular 8527, 1971.
4. The Impact of Air Pollution Abatement on the Copper Industry -
An Engineering-Economic Analysis Related to Sulfur Oxide Re^
covery. Fluor Utah Engineers and Constructions, Inc. for the
Kennecott Copper Corporation, 20 April 1971.
5. Study of Technical and Cost Information for Gas Cleaning Equip-
ment in the Lime and Secondary Non-Ferrous Metallurgical In-
dustries by the Industrial Gas Cleaning Institute - 1970.
6. Particulate Control Technology in Primary Non-Ferrous Smelters -
A. P. Konopka, American Institute of Chemical Engineering,
September, 1970.
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7. Water Pollution Control in the Non-Ferrous Metal Industry, Volume
I, Copper, Zinc and Lead Industires. Battelle Memorial Institute,
Prepared for the Environmental Protection Agency, September, 1971.
EPA Contract No. 14-12-870.
8. Industrial Waste Study of the Basic Non-Ferrous Metal Industries;
Part III: The Lead and Zinc Industries. Unpublished report to
the Environmental Protection Agency by Gurnham and Associates,
Inc., December, 1971.
9. Cost of Conventional and Advanced Technology of Wastewater Treat-
ment, Robert Smith, Cincinnati Water Research Laboratory, Envi-
ronmental Protection Agency, July, 1968.
10. The Economics of Clean Water, Volume III, Inorganic Chemical
Industries Profile, March, 1970.
11. Wastewater Treatment Technology, State of Illinois - Institute
for Environmental Quality, PB-204-521, August, 1971.
12. A Manual of Electrostatic Precipitator Technology, Part II -
Application Areas - PB 196-381.
13. User's Manual Automated Procedures for Estimating Control Costs
and Emission Reductions for Specified Air Pollution Sources -
PB 198-779.
14. Process Costs and Economics of Pyrites Coal Beneficiation,
Report to Department of Health, Education and Welfare., Jan., 1968,
Arthur D. Little, Inc.
15. Treatment-Cost Relationships for Industrial Waste Treatment -
Barnard & Eckenfelder, Technical Report No. 13, Environmental
and Water Resources, Vanderbilt University 1971.
16. Cost of Wastewater Treatment Processes - Report No. TWRC-6,
Robert A. Taft Research Center - 1960.
17. Advanced Wastewater Treatment - Gulp & Gulp. Van Nostrand.
18. Plant Design and Economics for Chemical Engineers, Peters &
Timmerhaus - McGraw-Hill Book Company.
19. Chemical Engineering Costs - Dryden & Furlow - Ohio State
University.
20. Sulphur: A Hidden Asset in Smelter Gases. E/MJ August, 1970.
21. Sulfur Dioxide and Sulfur from Fluosolids Systems - Groves &
Heath, AIME Annual Meeting, February 21, 1967.
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22. Copper Smelting - Current Practices & Future Developments -
Foard & Beck. AIME Annual Meeting 1971.
23. Recovery of Copper from Converter Slags by Flotation, USBM,
Report of Investigations 7562 (Revised) 1972.
24. Arthur D. Little, Inc. Files on Specific Process and Pollution
Control System Experience.
The sources cited above were used for cost estimation in the following
subject categories:
- Roasters 1, 14, 21, 22, 24
- Reverbs 1, 22, 24
- Converters 1, 22, 24
- Converter gas collection 1, 4, 24
- Flues 1, 24
- Slag flotation 23, 24
- Gas cooling & gas cleaning 1, 2, 4, 5, 6, 12, 13, 21, 22, 24
- DMA scrubbing 1, 4, 24
- Lime/limestone scrubbing 4
- Stacks 4, 22
- Field monitoring equipment 1, 24
- Acid plants 1, 2, 4, 14, 21, 24
- Elemental sulfur reduction 1, 2, 24
- Water pollution control 7, 8, 9, 10, 11, 15, 16, 17
The overall cost estimating procedure was as follows:
• Industry costs were verified by comparison with ADL estimates
based on the sources listed above. The McKee report'^' was used
for information on mass-flow rates and off-gas volumes for the
ADL estimates. If the discrepancy between ADL estimates and in-
dustry estimates was less than + 20%, the industry estimates were
used.
• If the discrepancy between industry and ADL estimates was greater
than + 20% and could not be resolved, the ADL estimate was used.
• ADL estimates were used when industry estimates were unavailable.
C. CAPITAL & OPERATING COSTS
The technical literature* contains detailed descriptions of the announced
plans of the individual companies. In several cases, the company plans
are not finalized and because of this the plans of individual companies
are not presented here.
*Engineering and Mining Journal, July, 1971, p. 61-71.
Metals Week, June 21, 1971, p. 16-26.
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The capital costs of air pollution abatement for the 13 western smelters
are shown in Table X-l. The Michigan smelter was not considered since
it already meets Federal ambient primary and secondary standards and the
Cities Service smelter in Tennessee was not considered because the plant
is undergoing extensive modernization and will presumably meet all an-
ticipated requirements after the modernization is completed. Furthermore,
copper production is only a small portion of their overall operation.
A major issue in the copper industry is the question of meeting either
Federal ambient standards or state emission standards in addition, such
as the recovery of 90% of all sulfur entering the smelter. Consequently,
the costs reported in Table X-l are in three categories - Federal Ambient,
"Local" and 90% Sulfur Recovery. The technology selected for meeting
each standard is shown via footnotes.
Technologies for dilution of SOx discharges were included where appro-
priate as a means of meeting ambient standards. The "Local" emission
standards were based on State Implementation Plans which had been sub-
mitted to the EPA. The costs developed under this "local" case have been
used for the financial analysis in Chapters XII and XIII. These assumed
"local" emission standards (which would apply in addition to ambient stan-
dards and dictate the pollution control strategy) are as follows:
Assumed % Sulfur Recovery
State for "Local" Case
Arizona 90
Idaho 0*
Missouri 0*
Montana . 90
Nevada 60
New Mexico 60
Oklahoma 0*
Pennsylvania 0*
Texas 43
Utah 0*
Washington (Puget Sound) 90
*Zero denotes Federal Ambient Standard is more stringent than
local emission standard, or no local emission standard.
The final column is an estimate of capital costs for the uniform 90% sul-
fur recovery standard. These costs are presented for comparison purposes
only and the economic impact analysis considers only those costs listed
as "local". In states requiring 90% sulfur recovery, the "local" cost is,
Subsequent to the writing of this report, Arizona regulations were amended
so that 90% sulfur recovery was not required by the State regulations.
These new regulations have not been approved by EPA.
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TABLE X-l
ESTIMATED CAPITAL INVESTMENT NECESSARY TO ADAPT EXISTING COPPER
SMELTERS FOR AIR POLLUTION ABATEMENT
(millions of $)
For Federal
Ambient Standards
Total Cost with Emission
Standards in Addition
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
Cost
27
134
82
45
36
30
15
23
24
45
20
17
16
Approximate^
% S Recovery
90
0
55
55
65
60
90
60
60
70
55
55
55
"Local"2''
27
-
85
90
46
45
15
23
24
45
20
50
52
90% S Recovery
27
74 (Plant will close)
122
90
46
45
15
35
36
78
33
70
52
Total Capital Investment 393
522
723
Actual recovery might vary + 15% from the number shown.
2
In states with 90% control, local includes alternate technology.
3
Local costs have been considered as the base case in evaluating the
economic impact. "Local" assumes 90% sulfur recovery in Arizona, Montana
and Washington.
>4
Plant output will decrease significantly.
SOURCE: ADL Estimates
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TABLE X-l (Cont'd)
ASSUMED TECHNOLOGY FOR EACH PLANT
PLANT NO.
1. Dust collection, preclpltators, DMA and acid plant
2. Ambient: Roaster, reverb, converter gas handling and gas cleaning, field
monitoring equipment.
90%; Company estimate.
3. Ambient: Reverb modernization (1), converter aisle changes, gas handling and
gas cleaning, acid plants.
Local; Roasters, converter aisle changes, gas handling and gas cleaning, acid
plants, slag flotation.
90% Sulfur Recovery; Closed-in reverbs, waste-heat boilers, gas handling and
cleaning, acid plants.
4. Ambient; Converter gas handling, gas cleaning, dust collection, acid plant.
Local; Roasting, electric furnace, converter gas handling, gas cleaning, dust
collection, acid plants.
5. Ambient: Converter gas handling, gas cleaning, dust collection, acid plant,
neutralization.
Local; Converter gas handling, gas cleaning, dust collection, acid plant,
neutralization, limestone scrubbing.
6. Ambient: Converters, converter gas handling, gas cleaning, dust collection,
acid plant.
Local: Electric furnace, converters, converter gas handling, gas cleaning,
dust collection, acid plant.
7. Ambient: Converter gas handling, gas cleaning, dust collection, slag flotation,
acid plant expansion, monitoring equipment.
8. Ambient: Converter gas handling, gas cleaning, dust collection, acid plant,
neutralization, monitoring equipment.
90%; Ambient plus lime/limestone scrubbers.
9. Ambient: Converter gas handling, gas cleaning, dust collection, acid plant,
tall stack, monitoring equipment.
90%: Ambient plus lime/limestone scrubbers.
10. Ambient; Roasters, converter gas handling, gas cleaning, monitoring equipment.
90%; Roasters, dryer, new furnace (1), converter gas handling, gas cleaning,
dust collection, slag flotation, monitoring equipment.
11. Ambient; Converter gas handling, gas cleaning, dust collection, acid plant,
monitoring equipment.
90%: Ambient plus acid plant expansion, lime/limestone scrubbing.
12. Ambient: Converter gas handling, gas cleaning, dust collection, acid plant,
monitoring equipment.
Local; Ambient plus roasters, acid plant expansion, slag flotation, furnace
modernization.
90%: Ambient plus closed-in furnaces, DMA scrubbers, S0_ plant, elemental
sulfur plant.
13. Ambient: Converter gas handling, gas cleaning, DMA scrubbing, liquid S0_
plant, monitoring equipment.
Local; Ambient plus closed-in reverb, gas cleaning, DMA scrubbing, S02 plant,
elemental sulfur plant.
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in some cases, based on the selection of alternate technology. Emission
standards requiring sulfur recoveries above 90% were not considered.-*-
Particulate control standards considered were those that would require
recovery of particulates of over 99.8% of the throughput (Federal Register,
36-158, August 14, 1971, p. 15495-6). (This standard affects only those
smelters with old Cottrells on their reverb offgases when these gases are
vented directly via the stack.)
Estimated yearly direct operating and maintenance expenses (exclusive of
amortization and debt service charges), are shown in Table X-2. In pre-
paring these estimates, we made allowance for maintenance as a function
of capital investment varying this according to the severity of the op-
erations. Based on a survey of sulfuric acid markets (presented in Chapter
XI) it appears that there will be surplus acid available which would have
to be disposed of by sales to distant customers, limestone neutralization
or oxide ore leaching - its equivalent from an acid disposal viewpoint.
We have assumed a uniform negative netback of $4 per ton of surplus acid.
Although air pollution abatement costs predominate in the copper industry,
investments in water pollution control will be required in mines, smelters
and refineries.
The water pollution standards were assumed to be those based on the re-
moval of suspended solids by settling and permitting a level of residual
heavy metal concentrations in discharge streams that might be obtained
after heavy metal ion removal as the hydroxides. Filtration systems for
removal of suspended solids were not considered.
In general, the mines and smelters have excellent water management pro-
grams because these are largely located in arid regions where such practices
are mandatory. On the other hand, refineries are often located in water-
plentiful regions and have not incorporated such good water management
programs. Our estimates for water pollution control are based on very
little data from the industry since, except in a few isolated instances,
the paramount problem in capital and operating costs lies in air pollution
and most of their internal work has been concentrated in that area. The
results of our estimates are shown in Table X-3 and X-4. It is seen that
the investments in water pollution are an order of magnitude less than
for air pollution control.
The July 27, 1972, standards require over 90% sulfur recovery at three
copper smelters.
^It appears that this technique might not be adequate to meet the latest
guidelines from Federal and state agencies in all instances.
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TABLE X-2
ESTIMATED DIRECT OPERATING & MAINTENANCE COSTS
AT EXISTING COPPER SMELTERS FOR AIR POLLUTION ABATEMENT*
Millions of Dollars/Year
Plant
Number
1
2
3
4
5
6
7
8
9
10
11
12
13
Total
Total Costs
For Federal with Emission Standards in Addition
Ambient Standards
1.6
0.4
2.7
3.2
3.9
2.2
1.2
1.9
1.6
2.2
2.4
2.3
0.9
26.9
Local
1.6
5.1
7.6
5.0
2.7
1.2
1.9
1.6
2.2
2.4
3.6
5.7
40.6
90%S Rec.
1.6
- (Plant will close)
7.3
7.6
5.0
2.7
1.2
2.8
2.4
2.9
3.6
6.1
5.7
48.9
SOURCE: ADL Estimates
No indirects, amortization or debt service charges
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TABLE X-3
ESTIMATED INVESTMENT COSTS FOR WATER POLLUTION CONTROL*
IN THE COPPER INDUSTRY
Company Number Millions of Dollars
1. 3.0
2. 10.0
3. 0.5
4. 3.0
5. 4.0
6. 5.5
7. 4.0
8. 0.5
Total 30.5
The technology selected might not be adequate to meet
latest Federal and state guidelines in all cases.
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TABLE X-4
ESTIMATED DIRECT OPERATING COSTS FOR WATER POLLUTION CONTROL*
1.
2.
3.
4.
5.
6.
7.
8.
IN THE COPPER INDUSTRY
Company Number Millions of Dollars /Year
1.50
1.00
0.05
0.50
0.50
0.75
0.50
0.05
Total 4.85
*
No indirects, amortization or debt service charges.
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XI. PROBABLE PRICES FOR SMELTER DERIVED SULFURIC ACID*
Sulfurlc acid is one of the largest volume chemicals produced and
consumed in the United States. Thus, at first glance, it would
appear that there would be ample market for acid produced from smelter
gases. However, sulfuric acid is a fairly low valued product selling
at prices as low as $10-20 per ton delivered. Major consumers attempt
to maintain nearby supplies so as to avoid freight costs. Sulfuric
acid production centers are usually placed adjacent to major consuming
points. Very few of the smelters have large sulfuric acid markets
nearby, and therefore, they will have to ship sulfuric acid great
distances. It is likely that in many instances the freight bill
will equal or exceed the delivered price of the product to the
ultimate customer.
The following analysis provides estimates as to where the Western
smelters will be able to find markets, at what price acid must be
delivered to the markets, and what resulting netback price (price
f.o.b. smelter) will be necessary to sell all of the acid produced.
A. ACID CAPACITY FROM SMELTING
Our projections of excess or uncommitted capacity by smelter in 1976
are presented on Table XI-1. These figures are less than total in-
stalled smelter acid capacity by the amounts of acid which the smelters
believe they can use or sell for leaching or to serve local markets.
Some companies were not certain how much acid could be disposed of
easily, and so the total estimates presented on Table XI-1 are our
estimates of the most likely excess acid available. It is possible that
somewhat less as well as considerably more acid could be available from
these and other smelters.
Given these approximations, we estimate that something over 2.5 million
tons per year of sulfuric acid (100% basis) will be available for sale
other than for leaching and some small local market use. Of this, 1.6
million tons, or more than 60% will be from smelters in southern
Arizona, New Mexico and West Texas.
B. MARKETS FOR ACID
The total non-leaching market for sulfuric acid west of the Mississippi
in 1976 should be about 10.6 million short tons. Acid markets by region
and source are presented on Table XI-2. Of the total, about 3.3 million
tons will be regenerated acid, which market is unavailable to other
* This chapter is identical in the copper, lead and zinc reports.
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TABLE XI-1
UNCOMMITTED SULFURIC ACID CAPACITY - 1976
Locations
Morenci, Arizona
San Manuel, Arizona
Hurley, New Mexico
Garfield, Utah
Hayden, Arizona
Tacoma, Washington
Kellogg, Idaho
Anaconda, Montana
East Helena, Montana
El Paso, Texas
TOTAL
Thousand Tons of 100% Acid
Per Year
TPD ACID (350 Day Basis)
2400 840
800 280
380 133
500 ? 175 ?
750 262
150 53
307 108
1700 595
350 122
300 105
7637 2573
SOURCE: ADL Estimates
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TABLE XI-2
PROJECTED MARKETS FOR SULFURIC ACID - 1976 (EXCLUDING LEACHING)
(Millions of Short Tons)
SOURCE
Elemental Smelter Regenerated Total
PACIFIC COAST 1.1 0.2 0.9 2.2
MOUNTAIN STATES 0.7 0.9* - 1.6
TEXAS & LOUISIANA 2.6 0.2 2.4 5.2
ALL OTHER WEST OF MISSISSIPPI
RIVER 1.4 0.2 - 1.6
*2.5 available
SOURCE: ADL Estimates
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TOTAL 5.8 1.5 3.3 10.6
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suppliers. Petroleum refiners use sulfuric acid in their processing
and return the spent acid or sludge to nearby sulfuric acid plants
for regeneration. This is a closed loop, requiring only small amounts
of makeup sulfur. If new acid were to be used instead, this would
generate significant disposal problems for the acid sludge which is
now being recycled.
This leaves 7.3 million tons in 1976 to be provided by sulfuric acid
produced either from elemental sulfur or from by-product SO?. Except
for the mountain states, we estimate that this amount of sulfuric
acid will be available from smelters and by subtraction, we have de-
termined that amount of sulfuric acid which would be supplied using
elemental sulfur as a raw material. We do not expect recovered acid
from power plant stack gas cleanup to be significant before 1980. In
these other regions, the by-product smelter acid will be small enough
in volume and close enough to markets that it will be able to find
markets in preference to that produced from elemental sulfur.
This situation does not occur in the mountain states. The major con-
sumption of sulfuric acid other than for leaching is in southern
Idaho and northern Utah while the major uncommitted production will
be in southern Arizona and New Mexico. There are no rail linkages
between these areas and to get from the producing area to Pocatello,
Idaho would require moving by rail to El Paso, north to Cheyenne,
Wyoming, and then west to Pocatello, Idaho on three separate railroads,
a distance of some 1370 miles which would cost on the order of $25 per
ton. The other alternative would be to ship west to Los Angeles and
then north to Pocatello via Salt Lake City, a distance of some 1680
miles. Thus, it seems evident that while the Mountain States could
in total absorb nearly all of the available smelter acid, in reality
the material will have to move out of the area to southern California
and perhaps as far east as Houston. This means that in order to move
into these areas it will be necessary to compete directly with pro-
ducers of sulfuric acid from elemental sulfur in California and in
Texas.
C. PROBABLE MARKET PRICES
If it were possible to sell sulfuric acid in relatively small quantities
compared to the size of that market, it would be possible to obtain
delivered prices approximately equaling normal prices. However, in most
cases, markets will not be large enough to easily absorb this new acid
supply. This will mean that in order to supply acid to most markets it
will be necessary to take significant markets away from existing, pro-
ducers of sulfuric acid. In order to maintain these markets, the
existing sulfuric acid producers will reduce their prices as necessary
down to the point where it no longer pays them to keep a plant operating.
This point would be reached when their revenues no longer exceed, their
out-of-pocket costs. Out-of-pocket costs are largely the cost of sulfur
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Arthur D Little, Inc
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itself. Thus, the price at which these plants will stop producing is
approximately the price of sulfur times 0.336 (which is the number of
tons of sulfur per ton of sulfuric acid produced) plus about 50C to
$1.00 per ton.
There is even a further price reduction possibility which could be
brought about by the sulfur producers. If it appears that a number
of sulfuric acid plants will be closed or will have significant pro-
duction cutback, this will reduce the market for sulfur. It may then
be in the best interest of the sulfur producers to reduce the price
of sulfur in order to allow their customers to stay in business. It
is not simple to determine how low sulfur prices are likely to go
under such circumstances. For instance, it may be preferable for
the sulfur producers not to lower their prices at all because by,
lowering prices to benefit the Gulf Coast sulfuric acid producers,
for example, they may have to lower their prices to all customers.
In such a circumstance it may be preferable to lose a part of the
Gulf Coast market rather than lower the price to all customers.
Furthermore, there is much greater variability in the cost of pro-
ducing sulfur between the various producers than there is in cost
of manufacturing sulfuric acid among the various producers. While
some sulfur producers cannot make a profit at $15 per ton of sulfur,
others can at less than $10 per ton.
We have presented two cases of potential sulfuric acid prices based
on two different estimates of sulfur price. In 1971, the average
sulfur price f.o.b. Gulf Coast was about $18 per long ton or $16 per
short ton. The cost to deliver this material to consumers on the Gulf
Coast varies but assuming an average of $2 per short ton, would have
resulted in a price to consumers of $18 per short ton on the Gulf
Coast in 1971. While this is the lowest that prices have been in
many years, the apparent long-term oversupply in sulfur would indicate
that there is very little potential for prices to rise while there
is still potential for prices to fall still further. We have selected
a range of $15 to $20 per short ton delivered on the Gulf Coast which
appears as a reasonable long-term range for prices.
Sulfur prices on the West Coast have even greater flexibility than
those on the Gulf Coast. Sulfur production on the West Coast is from
desulfurization of crude oil and it is necessary for the petroleum
companies on the West Coast to get rid of sulfur stockpiles at any
price. As the price continues downward, however, it will reach a
level where it is advantageous to export sulfur. We have selected
a minimum price on the West Coast of $5 lower than that in Houston
to reflect the likely lower export price on the West Coast. Sulfur
exports from the West Coast go both to Asia and to Europe. The very
large overcapacity in Alberta which is being exported through the port
of Vancouver, assures that not all of the sulfur can be exported to
the more lucrative Asian market and that some would have to be diverted
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ArthurD Little, Inc
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to the less attractive European market in competition with Gulf Coast
sulfur. Prices in Pocatello, Idaho, Kansas City, and northern New Mexico
tend to be influenced by those in Alberta, California, and the Gulf
Coast. We have assumed that they will continue to maintain their
present relationships to these other basing points.
Using these sulfur prices, we estimated the f.o.b. price necessary to
achieve a 20% pre-tax return on the sulfuric acid facilities to cover
general and selling expenses, profits and income taxes. This should
be the approximate acceptable price for sulfuric acid f.o.b. plant.
Once again, freight from the plant to the customer varies widely, but
in most large producing centers is quite small. Many plants produce
acid for captive uses and the transfer is made by pipeline. In other
cases short truck hauls are required, and some acid is hauled further
distance. We have applied an average freight of $2 per ton of acid
except in Pocatello, Idaho where nearly all of the acid produced is
transferred within the plant complex.
The minimum or marginal price which can be tolerated by a sulfuric
acid producer before he will shut his plant down partially or com-
pletely would be his variable costs which are equivalent to approx-
imately his cost for sulfur, utilities, that labor which can be dis-
pensed with, and freight. These prices as presented on Tables XI-3
and XI-4 are on the order of $4 per ton less than what he would
consider to be an adequate price.
D. TRANSPORTATION COSTS
Accurate rail costs are not really obtainable on large volume shipments
except through negotiation. Standardized rates are based on occasional
car shipments and while available would likely be considerably higher
than those which could be achieved assuming large volume shipments and
negotiated rates. We have looked at a few isolated rates of large-
scale movement and determined that over short distances, sulfuric acid
in large volumes moves for from 2<: to 3
-------
TABLE XI-3
SULFURIC ACID PRICES (Delivered) - 1976
LOW SULFUR PRICES
HOUSTON
WEST POCATELLO KANSAS NORTHERN
COAST IDAHO CITY NEW MEXICO
Sulfur Prices $/ST. Blvd.
15
10a
15
23
20
Variable Costs
Fixed Costs
Total Costs
20% Return
F.O.B. Price
Freight
Delivered Price
5.55
1.50
7.05
2.40
9.45
2.00
3.85
1.50
5.35
2.40
7.75
2.00
5.55
1.50
7.05
2.40
9.45
-
8.25
1.50
9.75
2.40
12.15
2.00
7.20
1.50
8.70
2.40
11.10
2.00
11.45
9.75
9.45
14.15
13.10
Delivered Price to Close Plants
Based on Sulfur b ($/S.T.)
7.55
5.85
5.55
10.25
9.20
a By-product of petroleum refining, value based on its alternate value for export.
° Variable cost plus freight
SOURCE: ADL Estimates
-20-
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TABLE XI-4
Sulfur Price $/ST Dlvd.
Variable Cost
Fixed Costs
Total Costs
20% Return
F.O.B. Price
Freight
Delivered Price
SULFURIC ACID PRICES
HIGH SULFUR
HOUSTON
20
7.20
1.50
8.70
2.40
11.10
2.00
(Delivered)
PRICES
WEST
COAST
15a
5.55
1.50
7.05
2.40
9.45
2.00
- 1976
POCATELLO
IDAHO
20
7.20
1.50
8.70
2.40
11.10
-
KANSAS
CITY
28
9.90
1.50
11.40
2.40
13.80
2.00
13.10
11.45
11.10
15.80
NORTHERN
NEW MEXICO
25
8.90
1.50
10.40
2.40
12.80
2.00
14.80
Delivered Price to Close Plants
Based on Sulfurb ($/S.T.)
9.20
7.55
7.20
11.90
10.90
a By product of petroleum refining. Value based on its alternate value for export.
Variable cost plus freight.
SOURCE: ADL Estimates
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TABLE XI-5
ORIGIN
Hurley, New Mexico
Morenci, Arizona
San Manuel, Arizona
Hayden, Arizona
Garfield, Utah
Kellogg, Idaho
Anaconda, Montana*
East Helena, Montana*
El Paso, Texas
ESTIMATED RAIL COSTS
DESTINATION
Grants , New Mexico
Hous ton , Texas
Los Angeles, Calif.
Pocatello, Idaho
Houston, Texas
Grants , New Mexico
Los Angeles, Calif.
Houston, Texas
Los Angeles, Calif.
Houston, Texas
Kansas City
Pocatello, Idaho
San Francisco, Calif.
Pocatello, Idaho
Kansas City
Seattle, Washington
Pocatello, Idaho
Seattle, Washington
Kansas City
Pocatello, Idaho
Seattle, Washington
Kansas City
Grants, New Mexico
Houston, Texas
FOR SULFURIC ACID
APPROXIMATE RAIL MILEAGE
250
950
735
1370
1040
400
700
1270
670
1240
1250
183
790
527
1495
405
300
660
1360
340
670
1330
300
810
RATE
C/T mile
2.0
1.8
1.8
1.8
1.8
1.8
1.8
1.8
1.8
1.8
1.8
2.2
1.8
1.8
1.8
1.8
2.0
1.8
1.8
1.8
1.8
1.8
2.0
1.8
COST
$/Ton
5.00
17.10
13.25
24.50
18.70
7.20
12.60
22.85
12.10
22.30
22.50
4.05
14.20
9.50
26.90
7.30
6.00
11.90
24.50
6.10
12.00
24.00
6.00
14.60
*Because the freight cost is about the same for these two locations, an average rail cost
has been used for Montana.
SOURCE: ADL Estimates
-22-
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TABLE XI-6
u>
I
ORIGIN
Hurley, New Mexico
Morenci, Arizona
San Manuel, Arizona
Hayden, Ar i z ona
Garfield, Utah
Kellogg, Idaho
Tacoma, Washington
Montana
El Paso, Texas
( ) Indicates negative
SOURCE: Tables XI-4 and XI-5
ESTIMATED NETBACK PRICES - 1976
Assuming
$15/ST Sulfur
($ per short
on Gulf Coast
ton)
DELIVERED PRICE
DESTINATION
Grants , New Mexico
Houston, Texas
Los Angeles, Calif.
Pocatello, Idaho
Houston, Texas
Grants , New Mexico
Los Angeles, Calif.
Hous ton , Texas
Los Angeles, Calif.
Houston, Texas
Kansas City
Pocatello, Idaho
San Francisco, Calif
Pocatello, Idaho
Kansas City
Seattle, Washington
Washington State
Pocatello, Idaho
Washington State
Kansas City
Hous ton , Texas
Grants , New Mexico
FREIGHT
5.00
17.10
13.25
24.60
18.70
7.20
12.60
22.85
12.10
22.30
22.50
4.05
14.20
9.50
26.90
7.30
2.00
6.05
11.95
24.25
14.60
6.00
MARKET
13.10
11.45
9.75
9.45
11.45
13.10
9.75
11.45
9.75
11.45
14.15
9.45
9.75
9.45
14.15
9.75
9.75
9 = 45
9.75
14.15
11.45
13.10
MARGINAL
9.20
7.55
5.85
5.55
7.55
9.20
5.85
7.55
5.85
7.55
10.25
5.55
5.85
5.55
10.25
5.85
5.85
5.55
5.85
10.25
7.55
9.20
F.O.B. PRICE TO MEET
MARKET
8.10
(5.65)
(3.50)
(15.15)
(7.25)
5.90
(2.85)
(11.40)
(2.35)
(10.85)
(8.35)
5.40
(4.45)
(0.50)
(12.75)
2.45
7.75
3.40
(2.20)
(10.10)
(3.15)
7.10
MARGINAL
4.20
(9.55)
(7.40)
(19.05)
(11.15)
2.00
(6.75)
(15.30)
(6.25)
(14.75)
(12.25)
1.50
(8.35)
(3.95)
(16.65)
(1.45)
3.85
(0.50)
(6.10)
(14.00)
(7.05)
3.20
-------
TABLE XI-7
to
4>
ORIGIN
Hurley, New Mexico
Morenci, Arizona
San Manuel, Arizona
Hayden, Arizona
Garfield, Utah
Kellogg, Idaho
Tacoma, Washington
Montana
El Paso, Texas
( ) Indicates negative
SOURCE: Tables XI-4 and XI-5
ESTIMATED NETBACK PRICES - 1976
Assuming
DESTINATION
Grants , New Mexico
Hous ton , Texas
Los Angeles, Calif.
Pocatello, Idaho
Houston, Texas
Grants, New Mexico
Los Angeles, Calif.
Houston, Texas
Los Angeles, Calif.
Houston, Texas
Kansas City
Pocatello, Idaho
San Francisco, Calif.
Pocatello, Idaho
Kansas City
Seattle, Washington
Washington State
Pocatello, Idaho
Washington State
Kansas City
Houston, Texas
Grants , New Mexico
$20/ST Sulfur on
($ /Short Ton)
FREIGHT
5.00
17.10
13.25
24.60
18.70
7.20
12.60
22.85
12.10
22.30
22.50
4.05
14.20
9.50
26.90
7.30
2.00
6.05
11.95
24.25
14.60
6.00
Gulf Coast
DELIVERED
MARKET
14.80
13.10
11.45
11.10
13.10
14.80
11.45
13.10
11.45
13.10
15.80
11.10
11.45
11.10
15.80
11.45
11.45
11.10
11.45
15.80
13.10
14.80
PRICE
MARGINAL
10.90
9.20
7.55
7.20
9.20
10.90
7.55
9.20
7.55
9.20
11.90
7.20
7.55
7.20
11.90
7.55
7.55
7.20
7.55
11.90
9.20
10.90
F.O.B. PRICE TO MEET
MARKET MARGINAL
9.80
(4.00)
(1.80)
(13.50)
(5.60)
7.60
(1.15)
(9.75)
(0.65)
(9.20)
(6.70)
7.05
(2.75)
1.60
(11.10)
4.15
9.45
5.05
(0.50)
(8.45)
(1.50)
8.80
5.90
(7.90)
(5.70)
(17.40)
(9.50)
3.70
(5.05)
(13.65)
(4.55)
(13.10)
(10.60)
3.15
(6.65)
(2.30)
(15.00)
0.25
5.55
1.15
(4.40)
(12=35)
(5.40)
4.90
-------
using elemental sulfur or whether prices will tend more to reflect mar-
ginal costs. It would of course be to the by-product acid producers' ad-
vantage to ship all of his acid to those markets giving him the greatest
netback price. However, in many cases, particularly for those producers
in southern Arizona and New Mexico, the nearby markets are not nearly
sufficient to absorb the amount of acid to be produced. Thus, it: will be
necessary for them to move to more distant markets such as Houston and
Los Angeles in spite of the lower netbacks to be achieved there.
Since the netbacks by shipping to the West Coast will be higher than those
for shipping to the Gulf Coast, we have assumed that the southern Arizona
and New Mexico producers would emphasize shipment to the West Coast. An
approximate distribution of sales by each of the producers is presented
on Table XI-8. It can be seen that in order to achieve such a distribution,
it will be necessary to take a very large proportion of the West Coast
market away from existing acid producers. It will not be possible to do
this without forcing the closure of many sulfuric acid plants on the West
Coast; and therefore, it will not be possible to do this unless delivered
prices are such that an acid producer cannot cover his marginal costs as
defined earlier. Even with this enormous shipment to the West Coast it
will still probably be necessary to ship some material to the Gulf Coast
at substantial losses. Even though shipments to the Gulf Coast are small
compared to the total acid available from these producers, it will amount
to almost 20% of the total Gulf Coast consumption. We have assumed in the
Table that this too will force some of the Gulf Coast producers in a mar-
ginal cost situation, although this may be too severe an assumption to make.
If instead Gulf Coast sales are possible at more reasonable levels of about
$4 higher than we have indicated on Table XI-8, this would result in weighted
average netback prices for the Arizona companies of about $1 per ton higher.
It can be seen from the Table that the weighted average netback prices are
significantly below zero for most of the smelters. The Garfield, Utah
smelter may be able to obtain a positive netback price because of the re-
latively short rail transport costs to consumers in Geneva, Utah and Pocatello,
Idaho. Similarly the Tacoma, Washington and El Paso, Texas producer might
be able to dispose of his sulfuric acid in the relatively near vicinity.
However, the Tacoma situation is very sensitive to movement of acid out of
Montana.
The prices presented on Table XI-8 assume the lower sulfur price of $15 per
short ton delivered on the Gulf Coast. If the higher price of $20 per short
ton delivered is used, this would represent an increase in the sulfuric acid
price of about $1.65 per ton. This would help the smelters, of course, but
would still result in negative prices at the plant for most of the producers.
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TABLE XI-8
NETBACK CALCULATIONS !
DESTINATION MARGINAL PRICE — $/ST
SOURCE
Hurley, New Mexico
Morenci, Arizona
San Manuel, Arizona
Hay den, Arizona
Garfield, Utah
Kellogg, Idaho
:y>
i Tacoma, Washington
Montana
El Paso, Texas
TOTAL MKT.
ACID
AVAILABLE
(OOOT)
133
840
280
262
175
108
53
717
105
2573
MTN.
(000 T)
50
150
30
30
175
50
400
40
965
1600
W. COAST
(OOOT)
83
390
150
132
58
53
47
913
1300
GULF COAST MIDWEST MTN. W. COAST
(OOOT) (OOOT)
4.20
300 3.20 (7.40)
100 3.20 (6.75)
100 3.20 (6.25)
1.50
(3.95) (1.45)
3.85
270 (0.50) (6.10)
65 3.20
565 270
2800 1600
GULF COAST WTO. AVERAGE*
(9.55) (4.40)
(11.15) (6.85)
(15.30) (8.70)
(14.75) (8.40)
1.50
(2.60)
3.85
(14. OO)2 (5.95)
(7.05) (3.14)
•'"Assumes the lower sulfur price ($15/ST delivered on the Gulf Coast). If the higher price ($20/ST) is used these
prices will be about $1.65 higher.
2
iiidwest shipment.
SOURCE: Tables XI-1, XI-2 and XI-6
-------
XII. DIRECT IMPACT ON THE PRIMARY COPPER INDUSTRY
A. INTRODUCTION
The cost of production of nonferrous metals, as is the case with most
natural resource based commodities, can vary over a wide range within
the industry. The smelters, presently based on similar operating prac-
tice, have similar costs and are essentially "service operations" for
transforming the concentrates to the primary metal. The major varia-
tions in production cost occur at the mines and mills.
As an illustration of the magnitude of this variation, we include
Figure XII-1 which shows out-of-pocket operating costs of 19 uranium
mines plotted versus cumulative production of UJDR. The mines have
been ranked so that the lowest cost mines are on the left. Figures
such as this can be read in two ways:
• to find the probable production when the price is fixed by
external factors; and
• to determine the costs associated with a certain level of
production; for example, when production is to be increased,
the price has to rise to at least cover the costs of the
highest cost producer.
Cost data for individual mines and mills in the primary copper industry
are proprietary and were not available to us directly from the industry
and could not be estimated by us in detail within the scope of this
study. (Based on our knowledge of the industry, we were able to class-
ify the mines into high, medium and low cost categories, and isolate
those mines that would be sensitive to increased operating costs; see
Table IV-3). Had these cost data been available for the nonferrous
industry, a figure similar to Figure XII-1 would have been obtained.
Recently, security analysts have indicated! that copper production costs
(from mining to primary metal) vary from about 33c/pound to 50c/pound
for the major copper companies. These reported costs are composites
for the major companies and wide variations in production cost can oc-
cur at the individual mines operated by a major producer. For example,
in the case of Phelps Dodge (the lowest cost producer) , the costs are
the lowest at Morenci, are somewhat higher and about the same as the
average cost at all PD mines at Ajo and Tyrone and by far the highest
at Bisbee.
R. Shorr, "Copper Industry," Dean Witter &Co., Inc., New York (1971)
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Arthur D Little, Inc
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OUT-OF-POCKET
OPERATING COST
($/lb U0)
r
PRODUCTION (MM Ib
FIGURE XII-1; OUT-OF-POCKET OPERATING COSTS AND PRODUCTION
OF 19 UNDERGROUND URANIUM MINES
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The industry-wide capital and operating costs for pollution control
were presented in Chapter X. It should be noted that only those costs
reported for meeting the "local" standard have been used in this chap-
ter. These costs were estimated on a plant-by-plant and company-by-
company basis. As might be expected, our estimates show that these
costs do not fall equally or "fairly" on all the firms or facilities.
The age and condition of existing facilities, vagaries of nature inso-
far as the richness of an orebody and the kinds and amounts of con-
tained impurities, weather and location factors, determine how hard a.
particular mine and mill, smelter, refinery or corporate entity will
be hit.
A major portion of the cost of pollution control occurs at the smelters.
However, as shown in Chapter IV, the smelters are "service operations"
and, because of the current structure of the industry, can only reflect
back these costs to the mines. When these costs are reflected back to
the mines, again a figure similar to Figure X-l would be obtained and
the impact of these costs on the industry would have to be analyzed
from two viewpoints: one representing an excess of supply over demand
(which would not permit a price increase) and an excess of demand over
supply, in which case, a price increase would permit a complete pass
on of pollution costs. Copper prices are sensitive to the imbalance
between supply and demand and a relatively small difference between
these two large numbers (supply and demand) can have a major impact on
price. Factors such as accidents, natural catastrophes, rumors of po-
litical changes, strikes, large purchases by Eastern Block countries
and Red China, and so on, have shifted the supply-demand balance in
the past and have had a major impact on the price. Thus, based on
past market behavior, we would expect both types of supply-demand im-
balance to occur at different times through and beyond 1976 and hence
have considered both types of imbalances to be equally likely and have
addressed ourselves to the implications of these alternatives in each
case. The two cases which we have considered for the impact analysis
can be described as:
• Full pass on, i.e., the market price is increased enough to
cover the cost experienced by the marginal producer who has
the highest overall cost; i.e., lies on the right-hand extreme
of a figure such as Figure X-l; and
• Zero pass on, i.e., all pollution abatement costs are absorbed
by the primary producers.
Conceptually, the consequences of the full pass-on assumption would be
a decrease in consumption (as predicted by long-term elasticity of de-
mand) , substitution by other materials (the cross elasticity phenomenon),
increased profits for the lower cost producers and a disruption in the
traditional trade pattern (imports of primary copper, recently at about
57o of primary consumption, would increase if overseas prices are lower
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Arthur D Little, Inc
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than domestic prices). Also, the increased price would affect the fabri-
cators, the major consumers of primary copper and this impact would have
to be analyzed in the context of their ability to absorb or pass on these
increased costs.
On a more practical level, the following factors appear to be more sig-
nificant. Based on information developed in Chapter X, it appears that
the full pass on assumption would require the major marginal or high
cost copper producer to increase the price by about 4-5
-------
In the absence of this information for the entire industry, our judgments
have to be necessarily qualitative. However, we believe that we have iso-
lated the areas where the maximum impact would occur under the zero pass-
on assumption.
2. General Considerations
The increase in the generalized cost of air pollution control with in-
creasing degrees of sulfur recovery at the smelter was discussed earlier
in Chapter III. It was indicated that about 83% of the sulfur in the
feed could be recovered by utilizing modern roasters, properly hooded
converters, proper gas collection systems, and an acid plant utilizing
both roaster and converter gases. The costs for recovering higher per-
centages of sulfur increase rapidly above this level.
The estimated costs of pollution control (presented in Chapter X) for
individual smelters were examined t'o see whether the variations in in-
cremental costs resulted from the age of the smelter, inclusion of
extraneous repairs not related to pollution control or from differences
in assumed "local" regulations. It was found that the maximum cost in-
crease occurs at smelters when 90% sulfur recovery or more is required.
(Because of poor location, one or two smelters might have to approach
907» sulfur recovery to meet Federal ambient standards or utilize pro-
duction curtailment under adverse weather conditions which could re-
sult in a significant reduction in output.) We find that only one
Arizona smelter will have low incremental costs. The reason for this
is that this particular smelter has been moving in the direction of
increasing sulfur recovery for many years and a major portion of the
funds necessary for achieving 90% sulfur recovery have already been spent.
The increased costs at the smelter have to be considered in the context
of the mine-mill-smelter interrelationship and, generally, this increased
cost has to be passed back to the mines since we have assumed zero pass-
on to the consumer*. Under these conditions, the general alternatives
open to the mine management (of both independent or integrated companies)
are:
a. divert concentrates to a smelter offering better netbacks;
b. absorb the increased costs;
c. shut down because the increased costs cannot be absorbed;
It should be noted that even if we make the questionable assumption
that the smelters forego all profit (estimated at less than 10% of
their operating margin) in order to decrease the pass-back to the
mines, this does not provide significant relief to the mines -- the
pass-back decreases by less than 10% in the case of an "average"
smelter and by about 5% in the case of a high (incremental) cost
smelter.
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d. selectively mine high grade portions of the ore, if pos-
sible (this decreases reserves and mine life);
e. significantly increase the capacity to take advantage of
the economies of scale.
The mines can also be affected by decisions at the smelter; for
example:
f. The shutdown of marginal mines or diversion of concentrates
to other smelters can leave a smelter with insufficient feed
materials and lead to a smelter shutdown. This, in turn,
can result in closing of mines that cannot ship their concen-
trates to more distant smelters.
g. If mine production is in excess of smelting capacity, mines
have to curtail production or shut down because of the ab-
sence of a concentrate outlet.
In the period through 1976, we believe that there will be little or
no excess smelting capacity; instead there is a strong possibility of
a smelter bottleneck (discussed separately). Under these conditions,
mine-to-smelter concentrate flows would tend to freeze and alternatives
(a), (e) and (f) have a low probability of occurrence.
3. Smelter Closings
Assuming the requirements of 90% sulfur recovery, we believe that the
Douglas, Arizona smelter of Phelps Dodge and the Tacoma, Washington
smelter of Asarco will be severely affected and might shut down.. Al-
though the impact on the remaining smelters will be less severe and is
not expected to lead to a smelter shutdown under the present assumption,
more stringent standards could have a severe impact on these remaining
smelters and the mines supplying them. For example, recent Kennecott
testimony in Nevada indicates that any standard requiring over 60% sul-
fur recovery at the McGill smelter (and therefore requiring other tech-
nology in addition to acid manufacture from converter off-gases) would
push the mine-smelter complex into a sub-marginal situation and lead
to the termination of the Nevada operations.
Douglas is in part a custom smelter but it also smelts material from
Phelps Dodge's Bisbee and other mines. (The open pit Bisbee mine is
scheduled to close in 1973 due to exhaustion of reserves) . Phelps
Dodge believes that this smelter could be modified to meet ambient stan-
dards (by permanent reduction of sulfur input plus intermittent cur-
tailment of operations), but feels that conversion of the smelter for
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SO- recovery, as would be required for emission standards, is not. jus-
tified. Therefore, this smelter would remain open only if an emission
standard is not imposed in Arizona.* The imposition of an emission
standard in this case would hasten the demise of an old smelter which
otherwise has years of available operating life. Phelps Dodge has
announced plans for a new smelter in Hidalgo County, New Mexico, which
is being sized to meet Phelps Dodge's mine output in Tyrone. Thus,
the closing of the Douglas smelter would not affect PD's capability
for smelting its own concentrates in the long term but only affect its
toll and custom smelting customers (Pima and others) and Phelps Dodge
mine expansion plans.
The other smelter in danger of shutdown (again, as a result of emission
control regulations) is the Tacoma smelter of Asarco. This decision-
making process is complicated by the fact that Asarco as the major cus-
tom smelter is dependent on outside sources for smelter feed, cannot
participate directly in decisions affecting its supply of concentrates,
and has to compete in an international market for them. For example,
about 35% of Tacoma's intake of copper in 1970 was imported. Already
Asarco cannot compete for certain concentrates out of British Columbia
because Japanese smelters offer better netbacks to the Canadian mines.
With increased pollution abatement costs **, we expect Asarco to be
even less competitive internationally for concentrates, except perhaps
the high arsenic concentrates unacceptable to other smelters. Also,
because of Tacoma's urban location, some of the lower cost pollution
abatement technologies, such as acid production and neutralization or
lime/limestone scrubbing, might not be usable because of Tacoma's urban
location and possible solid & liquid waste disposal problems.
Based on discussions with Asarco's management, we believe that the de-
cision regarding the Tacoma smelter will not be reached before the end
of 1973 and a major factor will be whether or not a 90% emission stan-
dard will be imposed in the Puget Sound area.
Tacoma is the only processor of arsenical materials in the U. S. The
concentrates or residues from lead, silver and copper producers in the
northwest contain arsenic. The economics at these plants are strongly
dependent on obtaining a credit for values contained in the arsenical
stream and this is presently possible since Tacoma accepts these materials
*
The latest Arizona regulations do not impose such a standard, but the
regulation has not been approved by the EPA.
**
Asarco is sharing the costs of pollution abatement measures already
undertaken with the mines by requiring a "pollution surcharge" of
l-1.5
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(see Table IV-11). Thus Tacoma's arsenic handling capacity is irre-
placable and should Tacoma close, an arsenic treatment facility similar
to Tacoma's would have to be provided. In general, these arsenical resi-
dues contain soluble arsenic compounds and cannot be disposed of except
by covered storage such as silos.
If an arsenic treatment facility is not available, a severe impact would
be felt by the Montana smelter of Anaconda and a large portion of the
northern Idaho mines*. (In the remainder of this discussion, we assume
that in the event that Tacoma closes, an alternative arsenic treatment
facility will be constructed and will be available to the northwestern
producers.)
4. Capacity Impact
As indicated in Chapter V, there appears to be a theoretical surplus of
both worldwide and U. S. mine capacity over consumption between the period
1972-1976, and perhaps beyond until 1980. Accidents such as slides, cave-
ins, shortages of essentials, unscheduled delays, strikes, etc. can re-
duce the magnitude of these surpluses and the industry in general has ad-
equate flexibility and maturity in planning so as not to produce substan-
tially excess amounts of metals that cannot be sold readily. Hence, these
surpluses reflect the capability for increasing mine production in the
short term in response to increased demand. In line with the basic as-
sumption of a 470 real growth in GNP which has been used for thiss study,
we would expect copper consumption to grow at about 3% per year during
the same period. During the recent past, production and consumption in
the U. S. have been more or less in equilibrium and imports of refined
metal contribute a small portion of the domestic consumption of refined
metal. If we assume that the volume of imports does not change signifi-
cantly, the question then becomes one of examining whether the domestic
smelting and refining capacity is adequate to process the incremental
mine production to fulfill the demand.
We believe that a shortage of smelting capacity in the U. S. would occur
if the two smelters — Douglas and Tacoma -- are closed. This loss in
smelting capacity would be for "custom smelting" and the non-integrated
mines would suffer a major impact since the new smelter (Phelps Dodge in
New Mexico) will primarily treat the output of PD's Tyrone mine. Because
*
It should be noted that the high silver copper concentrates containing
arsenic and antimony from several northern Idaho mines are smelted at
Asarco's East Helena lead smelter in order to prevent problems caused
by high silver concentrations during electrorefining of copper. By
treating these concentrates in the lead smelter, silver is retained at
East Helena while the copper arsenide-antimonides and sulfides (speiss
and matte) are transferred to Tacoma. Thus the East Helena lead smelter
is also part of the link between northern Idaho miners and Tacoma.
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of this potential shortage, the non-integrated mines have recently pro-
posed to form a consortium to consider the building of a new smelter.
Except for the PD smelter, we do not expect serious consideration of
other smelter construction plans until after all uncertainties relating
to Douglas and Tacoma have been resolved.
It should be noted that acid leaching of oxide ores, waste dumps or
tailings might substantially increase the domestic production of pri-
mary copper. This would tend to maintain the equilibrium or narrow
the gap between the demand and domestic production. However, this
would not directly solve the problem confronting the independent: mines—
finding a smelter for treating their sulfide concentrates. On the other
hand, if the increased production of copper from oxide ore leaching
(with surplus acid) by the major producers is able to satisfy all the
increased demand, the independent mines might be forced into a marginal
situation. In the absence of detailed data on leachable ore reserves
or information on plans for exploiting these reserves, the possible in-
crease in domestic copper production from this source cannot be esti-
mated.
In recent years, the export of concentrates (and the accompanying pol-
lution) to foreign smelters and reimport of primary copper has been
proposed as a solution to domestic environmental problems. The im-
plications of this suggestion are discussed in the next section.
5. Mine Impact
As mentioned under "General Considerations," when the lack of excess
smelter capacity freezes mine-to-smelter concentrate flow patterns, an
impact can occur on a mine from two general causes: pass-back of in-
creased smelter costs, and absence of concentrate outlets.
The economic impact on the mines was evaluated by utilizing the mine
and mill costs estimated by us on the basis of published information
(Table IV-3) and by reflecting back the pollution abatement cost at
each smelter using the flow pattern of concentrates between mines and
smelters shown in Table IV-5. This, of course, assumes that the flow
of concentrates between the mines and smelters will not change.
We believe that the mines of Duval Corporation (who ship their concen-
trates to Asarco) and of the Anaconda Company will suffer a large im-
pact. This impact arises primarily from the fact that the concentrates
produced by these mines would be treated at smelters with higher-than-
average incremental pollution control costs because these smelters would
have to recover 90% of the sulfur under the basic assumptions, and be-
cause the mines are medium to high cost mines. We believe that these
increased costs alone will not be severe enough to cause mine closings.
The other mine is the Ruth, Nevada mine of Kennecott that can suffer a
potentially severe impact if more stringent standards are imposed in
Nevada.
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There are many small mines that might also be affected but nothing is
known about their operating costs or operating margins. Data from the
Census Bureau indicate that these mines produce less than five percent
of the domestic mine output of copper and employ less than five per-
cent of the total employment in copper mining. Thus even if this seg-
ment were eliminated completely, the impact on mine production or total
industry employment will not be severe.
We believe that the proposal for large-scale export of concentrates
(and pollution) abroad is not realistic over the short term for several
reasons. The only country with a reservoir of excess smelting capacity
at the present time is Japan, the excess capacity being a result of de-
creased copper consumption from a slowdown in Japan's industrial acti-
vity. In the past, the Japanese smelters have been able to offer better
terms for concentrates because of lower labor costs and because they
obtained positive netbacks from acid sales. The latter is no longer
true. Also, the Japanese smelters are faced with pollution regulations
as stringent as the United States and would be reluctant to import pol-
lution above and beyond what is unavoidable in obtaining copper for
its internal use. The expansion of Japanese smelting capacity has been
undertaken as a means of assuring the supply of copper for their domes-
tic fabricating industry. A significant amount of new mine capacity
in the world results from tie-ins or long-term contracts with Japan
and these projects would have priority over U. S. concentrates for toll
smelting. Thus, we believe that it will be easy to sell concentrates
to Japan when their domestic demand is high and reimport semifinished
or finished, high value-added products but that Japanese smelters will
undertake only a minimal amount of toll smelting (i.e., returning sig-
nificant quantities of lower value-added primary metal).
The transportation costs involved in shipping Arizona concentrates to
Japan and reimporting the copper are of the order of 3-4
-------
when compared to the air pollution costs and are not expected to have any
significant impact. Furthermore, the impact is more or less uniform
within the industry.
C. IMPACT ON INDIVIDUAL COMPANIES
In general, the capital and operating costs to achieve pollution abatement
would not be incurred by the companies in the absence of pollution abatement
regulations, i.e., they cannot be justified on the basis of conventional
return-on-investment criteria.
We assessed the factors affecting the individual plants during our con-
sideration of plant shutdown probabilities. In this section, we assess
the impact on the corporate entities of the decision to invest in the
pollution abatement facilities. Independent analysis of what a proposed
venture or program of expenditures might do to the firm in the eyes of the
financial community can be undertaken with more confidence (as opposed to
predictions of plant shutdowns) by securities analysts and investment
bankers, for there are usually somewhat analogous situations from which
to draw inferences and because such inferences can be drawn from data of
the kind generally supplied to such individuals and organizations and to
the SEC. In general, we would assume that a large industrial corporation
which is clearly viable, profitable, and is acknowledged to have strong
managerial and technical resources, has access to substantial capital—in
the form of debt or equity or both. However, there exist practical limits
on the rates of debt to total capitalization; as a rule, the stability or
predictability of earnings and the coverage of fixed charges are factors
in determining the financial community's limits on that debt and what the
interest charges will be. Furthermore, each company has its own philosophy
in the extent to which it will employ debt as opposed to equity (including
retained earnings) for financing.
In a plant-by-plant and company-by-company analysis of pollution abatement
impact, two viewpoints have to be considered. The availability of capital
for pollution abatement equipment at each plant has to be viewed from the
standpoint of the resources available to the entire corporation. However,
the justification for spending this capital at a particular plant would
result from a study of that particular plant's economics which would take
into account alternatives such as the cost of production from a refitted
plant, shifting production to other plants, and most important, the
probability that this particular plant will remain a profitable entity.
The impact on individual companies was analyzed by aggregating the company-
by-company capital expenditures and operating and maintenance cost require-
ments for the "local" case for meeting air and water pollution abatement
standards. These were then compared with each company's sources of revenues,
earnings, cash flow, debt-equity structure, and record of performance in
terms of operating margin, return on equity, capital expenditure, etc.
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Background information on the financial structure of each of the major
companies was presented earlier in Tables VIII-1 and VIII-2. Table XII-1
places future pollution abatement costs in the perspective of total company
operations. These costs estimated by us for copper, lead and zinc were
adjusted to reflect post-1972 costs by deducting the amount already spent
and reported in sources such as individual company annual reports. It
should be noted that Table XII-1 compares the magnitude of pollution
abatement costs derived in Chapter X with each company's operating income
and capital spending rate. The purpose of this is to highlight those
companies which appear to be most impacted by pollution control costs in
relation to their normal pattern of earnings, capital spending arid financial
position. There are other incremental costs confronting the primary non-
ferrous industry such as Occupational Safety and Health. The table should
not be interpreted to imply that the pollution abatement costs shown cover
the entire spectrum of increased costs facing the industry.
A short discussion of the impact on the major copper companies follows
based on the information presented in Table XII-1.
• Asarco: The impact on Asarco is a result of expenditures
necessary for pollution abatement at its copper, lead and zinc
facilities. The impact of pollution abatement equipment operating
costs, exclusive of fixed charges, could be large in the absence
of the ability to pass back the cost increases. Asarco has, so
far, instituted a 1-1.5 cents/lb surcharge on copper concentrates
it receives for smelting, to defray a portion of the costs of its
pollution abatement facilities installed to date.
The capital expenditures necessary for pollution abatement are
large in comparison to Asarco's average capital spending rate.
Presumably, Asarco's extremely low debt-to-equity ratio and its
earnings record will enable the company to raise long-term debt
if it so chooses.
• Inspiration; Inspiration (27%-owned by Anaconda) has arranged
financing, including $13 million from a toll customer, for its
copper smelter pollution abatement program. The financial
requirements of this program (a major reconstruction of the
smelter) are quite large compared to Inspiration's past earnings
record but are not expected to have a deleterious impact in the
long term on the company.
• Anaconda; Anaconda has been a source of some concern because of
its Chilean property loss and the high emission standards* affecting
a significant portion of its remaining production. The financial
impact of the cost of pollution abatement to Anaconda is affected
by the accounting for the 1971 expropriation of its Chilean
properties; this had the effect of creating a massive deficit for
the year, establishing a large tax loss carryforward and increasing
its debt-to-equity ratio.
*The procedures related to the imposition of the high emission standards in
Montana have been challenged in the courts.
Arthur D Little Inc.
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TABLE XII-1
i
w
VD
:r
-i
D
SELECTED PRIMARY NONFERROUS METALS*
COMPANIES POLLUTION ABATEMENT COSTS
[From perspective of total company operations]
Annualized Probable
Base Level or Avg. Rate as Oper. & Maint.
1971 "Normal" Capital Cum. Capital Percent of Costs of
Sales Level Operating Spending Outlay for PA Avg. Capital Pollution
X Income Rate 1972-1975 Spending Abatement Equip
1968-71 Ava. Pre-Tax 1968-71 (Estimated) f4 = % $MM/Year
AMAX
ASARCO
Anaconda
Gulf Resources &
Chem.
Inspiration
Kennecott
National Zinc
Newmont
Phelps Dodge
St. Joe Minerals
Operating Margin
757 x 13.6%
657 x 11.0%(a)
947 x 15.47.
115 x 10.0%
66 x 28.1%
1,053 x 24.4%
N.A.
198 x 39%
704 x 20.7%
194 x 22.8%
$MM/Year
103
72
146
11.5
19
257
0.2-2.0**
77.4
146
44
$MM/Year
103
42
102
7
10
157
<1.0
95.0
82
15
$MM
9.3
119.6
93.0
5.0
45.5
111.0
clO.8
40.5
90.5
10.9
$MM/Year
2.2
30.0
23.3
1.25
11.4
27.8
•£2.7
10.1
22.6
2.7
(Rounded)
2
71
23
18
114
18
large
10.6
27
18
(Rounded)
0.8
14.5
7.0
0.2
2.8
7.4
1.4
4.9
7.5
1.0
O&M Cost
As Percent
of Norma 1
Base
OP Income
%
(Rounded)
1
20
5.0
2
15
3
large
6.4
5.1
2
Annual PA
O&M + 10%
Outlay 7
Normal OP
Income
%
1.8
37
11.2
6.1
39.0
7.2
large
11.7
11.6
4.8
' The ratio of net income to sales was used as a more meaningful figure for ASARCO in this context.
*For a discussion of New Jersey Zinc Company, a subsidiary of Gulf and Western Industries, see text.
**Estinv»ted.
SOURCE: The information presented above has been obtained from company annual reports and SEC filings, statistical services,
financial manuals, and other sources believed to be reliable but its accuracy and completeness are not guaranteed.
ADL estimates.
O
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However, indications are that with the Chilean and related write-
offs and reserves behind it, and under current industry conditions,
Anaconda will return to profitability in 1972 and remain so in the
future; a consequence in part of a major reorganization and with-
drawal from certain industry sectors; e.g., zinc, lead and forest
products.
The cash flow from operations and its borrowing power (including
industrial revenue bond financing) should enable Anaconda to
finance pollution abatement expenditures in addition to "normal"
operations and debt repayment.
• Duval; Duval Corporation, a wholly-owned subsidiary of Pennzoil
United, Inc., could be affected over the next three years to the
extent its mine output and/or costs are affected by changes in copper
concentrate smelting arrangements—particularly at Asarco arising
from pollution abatement programs in Arizona and Washington.
• Kennecott; A major impact on Kennecott would occur if more
stringent requirements in Nevada lead to the closing of the Ruth,
Nevada mine and the McGill smelter. In the absence of this, the
impact is not severe.
• Newmont; The impact of Newmont is not expected to be severe.
• Phelps Dodge; Because of the construction of a new smelter in New
Mexico, the closing of the Douglas smelter will not have a major
impact on Phelps Dodge's capability to smelt its own concentrates.
Thus, the impact on the company is not expected to be severe.
Thus, while individual plants may close, indications are that there will be
no corporate bankruptcies or substantial involuntary reorganizations arising
from pollution abatement expenditures. On the other hand, environmental and
other considerations in the U.S. can be expected to influence the direction
of new capital expenditures and growth of the copper industry worldwide and
the changing role of the U.S. copper companies.
D. EMPLOYMENT IMPACT
1. Employment Loss
• Smelters
The closing of the Tacoma smelter would directly affect its
employees, estimated at 600, and indirectly affect 1200 other
jobs (on the assumption of a 2:1 multiplier). If the. electro-
lytic refinery in Tacoma is closed with the smelter, a total
of 1000 employees and indirectly 2000 other jobs would be af-
fected. Because of Seattle-Tacoma's urban environment, the
local impact would be diffuse.
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The closing of the Douglas smelter (employment of 650) will
have a major impact on the immediate surrounding area since
(after the Lavender Pit closes in 1973 due to exhaustion of
reserves) it would be the remaining major industry in the
towns of Douglas (population 12,000) and Bisbee (population
10,000). The economic impact will be especially severe on
service industries in these towns since we can expect a sizable
portion of mine employees to move away from the area and find
alternative employment in Arizona's mining industry. Depending
on the timing of the closing of Douglas, a portion of the
employees might find employment at Phelps Dodge's new smelter
in New Mexico.
• Mines
An employment impact could occur with respect to the smaller
mines either as a result of a smelter capacity bottleneck and/or
small mine closing as a result of passback of increased smelting
costs. (For the purposes of this discussion we define small
mines as those not listed separately in Table IV-3.) We find that
the employment in the small mines in the western base metal
industry (copper, lead and zinc) is about 2800. Of these, about
1500 employees (in Arizona, Colorado, New Mexico and Utah) might
be susceptible should the small mines close in these states.
The closing of the Tacoma smelter and the loss of the arsenic
handling capability can affect both the larger and smaller mines
in the northwest and potentially affect 3000-4500 miners in Idaho,
Montana and Washington.
• Acid Plants
Our survey of sulfuric acid markets in Chapter XI indicated
that a large surplus of sulfuric acid will be available in the
west which would have to be disposed of by a variety of methods—
neutralization, leaching or sales to distant customers. If it
becomes cheaper to haul the acid to the market, the merchant
acid plants might be forced to shutdown. We have not: examined
the implications of this move on employment in the sulfuric acid
industry.
2. Employment Gains
There are two types of employment gains that will result from pollution abate-
ment procedures at smelters and refineries. The first will be an increase in
operating and maintenance labor required by the added pollution abatement
equipment. We have not made detailed plant-by-plant estimates of the increased
employment but believe that on the average, plant employment would increase
from 25 to 60 employees at each plant or 330 to 780 employees industry-wide.
(This would lead indirectly to 660 to 1560 more jobs.) Most of these increases
will occur at smelters rather than refineries.
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The other impact of pollution abatement requirements would be temporary
but can have a major bearing on some of the costs presented in this report.
The installation of pollution abatement equipment and repairs would increase
the demand for specific types of construction labor and specific types of
engineering design and construction skills. Again, because of the limited
timescale in which these repairs have to be made, the repairs and installation
would have to go on concurrently at all smelters and serious labor shortages
would occur in the west, especially in Arizona. This shortage of skilled
labor can be expected to considerably increase construction costs, cause
construction delays and so on and could significantly increase the capital
costs above those estimated in this report.
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XIII. INDIRECT IMPACTS
A. DOMESTIC MINE PRODUCTION
The direct impact resulting from cost passback and/or a smelter bottleneck
was discussed earlier. In the long-term, the cost of pollution abatement
at smelters and refineries decreases the netbacks available to the mines and
we can expect a decrease in netbacks to inhibit exploration and the develop-
ment of new mines. We believe, however, that government policy in other
areas (See Chapter VI) will be a much more serious consideration in future
mining activity in the U.S. than reduced netbacks resulting from pollution
abatement. Current trends in government policy impact these industries at
many levels and, in general, these impacts tend to be additive.
B. FUEL, ENERGY AND RAW MATERIAL AVAILABILITY
Copper smelters normally generate sufficient electricity from waste-heat
boilers on reverberatory furnaces for all their in-plant use plus a small
surplus. The increased energy consumption resulting from pollution abate-
ment requirements would result in a net power consumption as high as 80-
100 megawatts for the entire copper industry. The predicted natural gas
shortage would affect the smelters. All (except one) presently use natural
gas for firing their reverbs though alternate fuels are being considered.
Similarly, should the demand for limestone for use in S0« recovery in power
plants affect its cost and availability, an impact can occur on the primary
copper industry.
C. STRATEGIC CONSIDERATIONS
Since copper is a strategic material which is stockpiled, any factor that
decreases the domestic production of copper has strategic implications.
We believe that the pollution abatement costs is only one input out of several
others resulting from government policies which affect the mine production
of copper in the U.S.
D. BALANCE OF PAYMENTS
In recent years the imports of refined copper into the U.S. have averaged
around 130,000 tons per year. During the same period over 200,000 tons
per year of blister copper was imported primarily for Chile, Peru and South
Africa. More or less an equivalent amount of refined copper has been exported
in the same period so it can be assumed that copper entering the United
States as blister has not been consumed locally. An adverse change in the
balance of payments situation can occur if the consumption increases at a
rate of 3% as assumed in the previous discussions and this increase in
demand cannot be satisfied from increased domestic production but by im-
porting refined copper. This particular scenario is realistic only if we
assume that Tacoma and Douglas smelters are shut down before new smelting
capacity is available and domestic mine capacity is stagnant. The additional
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copper that would have to be imported under these conditions (and assuming
that domestic production is not increased by other hydrometallurgical
methods) could be as much as 400,000 tons. Thus the premature shutdown of
Douglas and Tacoma would result in' a balance of payment deficit of up to
$400 million per year. If the Tacoma and Douglas smelters were not closed,
and the availability of cheap acid or new processes increases non-smelter
copper production, we believe the impact on the balance of payments resulting
from increased imports of copper will be minimal.
It should be noted that the balance of payment deficit can be larger than
shown if copper is imported in the form of higher value-added semi-finished
or finished goods.
E. ALTERNATE MATERIALS
Plastics and aluminium are considered substitutes for copper. These industries
are also being severely impacted by changing raw material costs, increases in
other operating costs and new pollution abatement costs. In the absence of
detailed comparative impact studies on the latter commodities, we are unable
to reach firm conclusions regarding the possibilities of substitution of
copper by these materials.
F. MERCHANT ACID INDUSTRY
As discussed under "Employment Impact", our survey of sulfuric acid markets
indicates that the acid has a negative value at the smelter and in some
instances neutralization of smelter acid would be cheaper than sale in
direct competition with merchant acid production. The leaching of oxide
copper ores, waste piles and tailings is an attractive alternative to
neutralization with limestone and would be pursued wherever possible since
this approach (besides disposing the acid) has the potential for increasing
copper production. Should the demand for limestone (for S0~ removal and
other purposes) substantially increase its price and the smelter acid is not
all used up for leaching, the sale of smelter acid would force the closing
of the western merchant acid industry.
G. FINANCIAL AND TAX ASPECTS
If the "passing-back" of the pollution abatement cost were to either
decrease the value of the concentrate or raise the cost of mining, this
could have the effect of lowering the amount of depletion allowed for tax
purposes. Other things being equal, this would have the effect of further
reducing net after tax income from mining and decreasing the cash flow.
To the extent that effective tax rates are relatively low for the major
primary nonferrous metal companies, they may have more incentive to use
investment tax credit provisions than rapid amortization for pollution
abatement facilities.
Industrial development bonds could be advantageous for the financing of
pollution abatement equipment since they allow a corporation to conserve
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cash over the short term (by taking advantage of the leasing provisions
typically incorporated) and serve as a source of "off-balance-sheet"
financing. The tax-exempt feature generally means a lower effective
interest cost; one to two percentage points less than regular commercial
financing. At this point in time, it is not clear what percentage of
total pollution abatement cost could be financed in this fashion.
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APPENDIX A
IMPACT OF EPA REGULATIONS OF JULY 1972
The purpose of this appendix is to assess qualitatively the effects of the
new regulations promulgated by EPA in July 1972. (See Federal Register -
July 27, 1972, Volume 37, No. 145, Part III).
These new regulations have the following features:
• The regulations are of the "emission type", i.e. they limit S0? emissions
from each smelter (in Ib. SOo/hour) to a specified amount. Thus, they
require the recovery of a substantial fraction of sulfur in the feed
materials when the smelters are operating at capacity and/or require a
production curtailment.
• We understand that the permissible S0« emission rates for each smelter
were calculated on the basis of available air quality data and atmos-
pheric dispersion models. We also understand that "emission type" regu-
lations were adopted because EPA believes that other S02 control
philosophies such as "closed-loop" control (based on measuring ambient
S02 concentrations and utilizing this information to control the smelter
operating rate), might be more difficult to enforce and would lead to
degradation of air in areas where air quality is superior to the Federal
standards. However, recent conversations with EPA indicate that it would
accept a "closed-loop control" scheme if it can be shown that these sys-
tems are workable.
• The proposed regulations are for achieving Primary or health-related
ambient air quality standards only, and EPA believes that these would be
achievable by the utilization of acid plant technology and production
curtailment. If the standards cannot be met by this technology but
require scrubbers, a two-year extension, until July 31, 1977, is available.
• An 18-month extension has been granted to the states for submitting
implementation plans acceptable to the EPA for meeting the Secondary ambient
air quality standards. Presumably, these standards would be more stringent
and might be based on the further utilization of then available technology
(e.g., scrubbers) and production curtailment.
• All SO™ emissions have to be captured and vented via a stack. This
presumably includes low level emissions such.as "converter aisle emissions."
A. GENERAL CONSEQUENCES
In general, the adoption of fixed emission standards is more expensive because
it eliminates certain lower cost strategies which could be used for meeting
ambient standards. For example, tall stacks and preheated dilution air can
no longer be used even in cases where they might be the lowest cost strategy
for meeting the Federal ambient standards.
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The other aspect of these fixed emission standards is that in most cases
they require sulfur recoveries considerably in excess of those achievable
by using acid plants and would require scrubbers and/or a permanent production
curtailment. This is because under a fixed emission standard, the smelter
cannot increase its operating rate under favorable weather conditions. The
closed-loop control approach, on the other hand, provides such a mechanism
so that a smelter can make up to some extent the production lost during un-
favorable weather.
The regulation on low level emissions can have a major impact if they are
interpreted to apply to all low level emissions. For example, if converter
aisle emissions are included, the air in the aisles will have to be collected
and vented via a stack.
A detailed and complete analysis of the impact of these regulations is not
possible with the scope of the present effort. Furthermore, such an analysis
would be incomplete since new and presumably more stringent standards would
be passed in 18 months for meeting Federal Secondary Ambient standards. Also,
because of litigation and the fact that the specific approach for meeting
the secondary standards has not been delineated, the smelters could not
properly plan their compliance schedules.
We have evaluated the extent of the permanent production curtailment required
at each smelter by the new regulations under the assumption that scrubbers
are not used and this has been presented in Table A-l. The table shows the
percent SO- recovery required when the plant is operating normally, the
approximate sulfur recovery that might be achieved by using acid plants
(using converter gases and roaster gases if roasters are already present)
and an estimate of the extent of the permanent production curtailment.
In our opinion, permanent production curtailments of greater than about
10-15% are serious and, if enforced, indicate a high probability of plant
shutdown.
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TABLE A-I
% SOx Recovery ut
Normal Plant Throughput
Required by
New Regulations
% SOx Recovery
Achievable with
Acid Plants
Estimated Degree
of Production
Curtailment - %
Copper Smo.Lters
1. Phelps Dodge, Douglas, Ariz.
2. Phelps Dodge, Morenci, Ariz.
3. Phelps Dodge, Ajo, Ariz.
4. Kennecott, Garfield, Utah
5. Kennecott, Hayden, Ariz.
6. Kennecott, McGill, Nev.
7. Kennecott, Hurley, N.M.
8. Asarco, Hayden, Ariz.
9. Asarco, El Paso, Texas
10. Asarco, Tacoma, Wash.
11. Anaconda, Montana
12. Newmont, San Manuel, Ariz.
13. Inspiration, Ariz.
Lead Smelters
1. St. Joseph Minerals, Mo.
2. Missouri Lead, Mo.
3. Asarco, Mo.
4. Asarco, El Paso, Texas
5. Asarco, E. Helena, Mo.
6. Bunker Hill, Idaho
Zinc Plants
1. Asarco, Corpus Christi, Texas
2. Bunker Hill, Idaho
3. Amax, E. St. Louis, 111.
4. National Zinc, Bartlesville, Okla.
5. Asarco, Amarillo, Texas^
6. Amax, Blackwell, Okla.^
7. New Jersey Zinc, Pa.
8. St. Joseph Minerals, Pa.
90
90
70
76
96.7
60
60
96.7
43
90
89
94.5
73
-
55-60
NA
65-70
90
60
60
55
55
55-60
55-60
65
NA
4
100
15-25
0
5-10
5-8
0
0
35-45
0
20-30
30-35
25-30
0
751
751
751.
A.P.'
87
96
A.P.
96
A.P.
85;
85-
75"
756
756
NA
70-80
70-80
85-95
85-95
85-95
80-90
85-95
85-95
0
0
0
0
10-20
15-25
0-10
Estimated; regulations for 2000 ppm of SOx
2
A.P. - acid plant will be adequate
Estimated; regulations for 500 ppm of SOx
4
Plants will close
N.A. - not applicable - plant modified for a higher recovery
Acid plants modified
SOURCE: ADL Estimates.
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