Role of Clean Air Aet Requirements
In Anaeonda Copper Company's Closure
of Its Montana Smelter and Refinery
ENVIRONMENTAL PROTECTION
AGENCY
REGION VIII
June 24, 1981
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ROLE OF CLEAN AIR ACT REQUIREMENTS
IN ANACONDA COPPER COMPANY'S CLOSURE
OF ITS MONTANA SMELTER AND REFINERY
U.S. Environmental Protection Agency
Region VIII
1860 Lincoln Street
Denver, Colorado
June 24, 1981
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FOREWORD
This report has been prepared by the EPA Region VIII office, Denver,
Colorado, under authority of Section 321 of the Clean Air Act. In response to
several written requests from representatives of workers affected by Anaconda
Copper Company's closure of its Montana smelter and refinery, Region VIII
conducted a thorough investigation of the Company's claim that Clean Air Act
requirements forced the closures.
On March 19, 1981, a preliminary report was issued in order to solicit
public comments and additional information on the proposed findings and
conclusions. Three parties submitted written comments. All comments
(included in an Appendix to this report) were evaluated and clarifying
responses to the comments have been integrated into the body of the report.
Generally, no new information or specific data appeared in the comments that
warrant further investigation or modify EPA's findings and conclusions.
As a result of the investigation, EPA has concluded that Clean Air Act
requirements were not the overriding factor that led to the demise of the
smelter. Rather, a host of economic factors contributed to making the smelter
a marginal operation even in the absence of environmental controls. The
analysis suggests the Clean Air Act requirements have triggered an inevitable
company decision that would ultimately have been made in any event.
Nonetheless, the report points out that many of the problems facing the
Anaconda smelter are symptomatic of problems confronting the industry,
particularly the competitiveness of the U.S. copper industry with foreign
producers.
Mams
Administrator
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TABLE OF CONTENTS
Page
I. Introduction 1
II. Background 1
III. Findings and Conclusions 2
IV. Anaconda's Environmental Problems in Perspective 4
V. Discussion of Basis for Findings and Conclusions 10
A. Efforts to Explore Alternatives with EPA 10
B. Evaluation of Anaconda's Estimates of Costs for
Environmental and Health Requirements 12
C. Anaconda's Internal Environmental Policies 20
D. Economic Factors Affecting the Anaconda Smelter 21
Appendix: Comments Received on Preliminary Report 30
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I. INTRODUCTION
This report presents findings and conclusions from EPA's investigation
and evaluation of the decision by Atlantic Richfield Company (ARCO) and its
subsidiary, Anaconda Copper Company, to terminate operations at its smelter in
Anaconda, Montana and refinery in Great Falls, Montana. Under authority of
Section 321 of the Clean Air Act, EPA's investigation examined the company's
claim that requirements of the Act, as well as other regulatory requirements,
forced the closures.
The report's findings and conclusions are based primarily on information
received from Anaconda Copper Company as well as information contained in the
public domain. During the course of many years of dealing with the copper
industry and the Anaconda smelter in particular, EPA has gathered considerable
relevant information and data. EPA used this experience and recent
information to perform the analysis and formulate its conclusions. The Agency
was aided in the data collection and analysis by independent consultants
knowledgeable in the industry. The information available to EPA and its
consultants has convincingly led to a number of findings and conclusions.
EPA issued a preliminary report on March 19, 1981 in order to solicit
public comments and additional information on its findings and conclusions.
The Agency has evaluated these comments, which are included in the Appendix,
and has included clarifying responses to the comments throughout the report.
No new information or specific data surfaced in the comments that would alter
EPA's preliminary position resulting from the investigation.
II. BACKGROUND
On September 29, 1980, Anaconda Copper Company, a subsidiary of Atlantic
Richfield Company (ARCO), publicly announced the closure of its Anaconda
smelter and Great Falls refinery, affecting approximately 1500 employees at
the two facilities in Montana. The company cited the costs to comply with
State and Federal environmental and occupational health standards at the
smelter as the reason for closing these facilities. Despite efforts by the
Governor, State Legislators, Congressmen, and EPA to have the company
reconsider its decision, ARCO refused to initiate discussions to reopen the
smelter and in December 1980 indicated its decision was "final and
irrevocable." In the meantime, the company made arrangements with a
consortium of Japanese smelters to process the concentrates from its U.S.
mines, including the mine in Butte, Montana. Details of this arrangement have
not been made available by ARCO.
Subsequent to the announcement of the closure, three unions representing
employees at the two facilities requested EPA to conduct an investigation
under authority of Section 321 of the Clean Air Act into the reasons for
terminating the smelter and refinery operations. The unions requesting the
investigation were: 1) Local Lodge #29 of the International Association of
Machinists and Aerospace Workers, 2) Locals 6002 and 16-A of the United
Steelworkers of America (AFL-CIO-CLC), and 3) Local #88 of the
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United Brotherhood of Carpenters and Joiners of America. At the time of
ARCO's announcement, the facilities had been closed for three months due to a
labor strike. Labor-management negotiations continued after the announcement
and a labor settlement was reached in November 1980.
Section 321 of the Clean Air Act empowers EPA to conduct, at the request
of affected employees, a full investigation of cases where industrial
facilities are closed allegedly due to requirements of the Act. The report of
the investigation is to make findings of fact on the role expenditures for air
pollution control played in the closure of the facilities and to make
recommendations. Any affected party can request EPA to hold public hearings
requiring the company and other parties to present information relating to
the effects of these requirements on employment and the detailed reasons or
justification for the company's action. However, if EPA determines there is
no reasonable ground for conducting a public hearing, no hearing need be
held. In connection with the investigation, Section 321 gives EPA the
authority to issue subpoenas for the production of relevant papers, books and
documents and testimony of witnesses needed to reach conclusions on the
reasons for the closure. Nothing in the section is construed to require or
authorize EPA to modify or withdraw any requirement imposed under the Act in
order to keep the facility open. Thus, the investigation itself is likely to
have little impact in reopening a closed facility.
III. FINDINGS AND CONCLUSIONS
During the course of the investigation, EPA assembled and analyzed
publicly available information relating to the Anaconda smelter. Though the
company did not supply all requested data relating to the matter, EPA's review
of the information and the circumstances surrounding the closure has led to a
number of findings and conclusions that are fully supportable by the
information available to the Agency. These findings put the environmental and
health requirements for continued operation of the smelter in perspective and
strongly suggest that other factors were more crucial in affecting the long
term operation of the smelter.
1. While requirements of the Clean Air Act played a role in ARCO's
assessment of the future viability of the smelter, evidence indicates
the requirements were not the overwhelming or even most important
factor influencing the decision. Rather, other economic, operational
and occupational health factors contributed significantly to the
company's decision. In order to understand the context of the
ultimate decision, all factors have to be viewed collectively as
contributing to the weak competitive position of the smelter in the
world market. The Clean Air Act requirements apparently triggered a
decision that would have been made in the near future based solely on
economic considerations.
2. Even in the absence of Federal and state environmental and health
regulations, the smelter was a marginal operation that may not have
been economically viable in the long run due to numerous economic and
operational factors affecting the continued operation of the
facility!These factors include:historically low profitability of
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the company's copper operations; high operating costs associated
primarily with operating energy-intensive technology and processing
low grade concentrates; cost of needed process improvements; high
mining costs; underutilization of smelter capacity resulting from
reduced supply of concentrates; and marketing problems with sulfuric
acid. These factors eroded and would have continued to weaken the
economic position of the smelter to the point that only minimal
investments in pollution control, far short of meeting the Clean Air
Act requirements, were practical from an economic standpoint. If
prospects for future economic and operational parameters had been
more favorable, the company could possibly have afforded the
necessary pollution control investment while maintaining the
competitive position of the smelter.
3. Anaconda's estimated cost of $400 million for complying with Federal
and State environmental and health regulations is misleading and
overstated. The company's cost estimate includes more than just
improvements needed to comply with Clean Air Act requirements. The
estimate also includes the costs of the company's desired process
improvements, costs of the company's internal environmental
requirements, and costs to meet OSHA's occupational health
requirements. EPA believes nearly half of the anticipated plant
modification cost can be attributed to plant process improvements,
while $120-160 million may be attributed directly to the Clean Air
Act.
4. Anaconda's internal environmental and health policies may have
imposed sufficient financial burdens on the smelter to significantly
contribute to the closure decision. The company has conceded the
smelter did not meet its own internal standards and continued
operation of the facility was not in keeping with the company
policies. In particular, concern exists on the part of all
associated with the smelter regarding the potential health hazards of
processing concentrates with a high content of arsenic, a listed
carcinogen. In order to upgrade the facility to protect worker and
public health to a conscionable level consistent with the company's
policies, EPA believes considerable and costly engineering
modifications were needed.
5. Institutional problems confronting the copper industry place domestic
producers at competitive disadvantage with foreign producers and
contribute to the weak economic position of some companies. In
addition to having to compete in a dynamic world copper market, U.S.
producers do not benefit from governmental incentives as do their
foreign counterparts. Some foreign governments support their copper
industry through a variety of institutional incentives. In Japan,
for instance, where environmental requirements are more stringent
than in the U.S., the government aids, its industry with greater tax
benefits, protective tariffs, and low interest loans that allow the
Japanese copper industry to effectively compete in the world market.
Nonetheless, despite the institutional disadvantages confronting
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domestic producers, prospects for the U.S. copper industry look much
improved in the near future because of continued strengthening of
copper prices and reduced excess capacity in the industry.
6. The Clean Air Act Amendments of 1977 recognize the special problems
facing nonferrous smelters like Anaconda's and contain unique
provisions that give companies an extended period of time to comply
with requirements of the Act.Underanonferroussmelterorder
(NSO),asmelterexperiencing difficulties can extend compliance
until January 1, 1988 by committing to make necessary improvements to
meet applicable emission limitations.
7. Within the flexibility granted in administering the NSO provision of
the Act, EPA demonstrated its willingness to explore possible
solutions with Anaconda. However, the company chose not to pursue
this option. Through negotiations EPA believes a workable solution
could have been found whereby the company could have continued
operating the smelter consistent with requirements of the Clean Air
Act. At the same time, the company could have pursued the other
alternatives it was considering.
8. With the economic and operational problems facing the smelter in
Anaconda, ARCO's long-term solution appears to be construction of a
new smelter somewhere in the world. If ARCO decides to build a new
facility, the smelter would probably be a large-scale operation with
state-of-the-art technology, in a location closer to the major
markets for copper and by-products, and accessible to low-cost water
transportation. Up to seven years would be required to plan and
construct such a plant. Consideration of this ultimate long-term
plan influenced Anaconda's decision not to make appreciable capital
investments in the existing smelter.
9. ARCO expedited the closure of the smelter in order to seize the
current opportunity of securing reasonable terms with Japanese
smelters. Even though the smelter could have continued operating for
another two years without making capital investments to install
pollution control equipment, the company chose to close now in order
to take advantage of excess smelting capacity currently in Japan and
to guarantee a place for its concentrates. Anaconda and ARCO
apparently view this as an interim measure that will keep the mines
operating while long-term options are explored. This option is
economically feasible despite Japan imposing more restrictive
environmental controls for copper smelters than found in the U.S.
IV.- ANACONDA'S ENVIRONMENTAL PROBLEMS IN PERSPECTIVE
Like all other copper smelters in the country, Anaconda's smelter was
subject to several requirements established by the Clean Air Act. The Act
represents one of many pieces of environmental legislation Congress has
enacted in response to the public's concern over the environmental and health
effects of pollution.
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The Clean Air Act requires industrial sources to control sulfur dioxide
(S02) emissions to meet health-based ambient air quality standards. Control
of S02 emissions is a major problem at the Anaconda smelter. In 1970 the
State of Montana adopted regulations that required the Anaconda smelter to
achieve 90 percent control of S02 by June 30, 1973. Over the last seven
years, the smelter has operated under variances granted by the State while the
company investigated compliance alternatives.
Soon after the merger of ARCO and Anaconda in 1977, negotiations were
initiated by representatives of ARCO and Anaconda with EPA and the State of
Montana in order to develop emission limitations for the smelter that would
provide for attainment of the S02 ambient standards in the Anaconda area.
As a result of these negotiations, Montana submitted a revised state
implementation plan (SIP) in April 1979 that would meet the objectives of the
Clean Air Act in what was agreed to be a reasonable manner.
In January 1980, EPA approved Montana's SIP revision that included a
schedule for the smelter to comply with S02 emission requirements by
December 31, 1982. The compliance plan would have required Anaconda to
install a continuous control system which would achieve 85 to 90 percent
control of S02 emissions.
When it was operating, the smelter achieved less than 30 percent control
of S02 and was one of the largest sources of S02 emissions in the
country. The smelter caused violations of the 24-hour ambient health standard
45 days in 1979 and 67 days during the first six months of 1980. Violations
increased in 1980 due partly to relocation of ambient monitors around the
smelter. Hourly S02 concentrations exceeded the more stringent emergency
episode warning level 251 times in 1979 and 170 times during the first six
months of 1980. During these episodes, operations had to be curtailed at the
smelter because of the immediate danger to public health.
Like other forms of air pollution, sulfur oxides have been shown through
scientific and epidemiological studies to pose significant harm to human
health and public welfare. High levels of sulfur oxides in the air cause an
obstruction of breathing, a choking effect that doctors call "pulmonary flow
resistance". The amount of breathing obstruction has a direct relation to the
amount of sulfur compounds in the air. Many types of respiratory disease are
aggravated by exposure to oxides: coughs and colds, asthma, bronchitis, and
emphysema. The harmful effects of sulfur pollution are enhanced by the
presence of other pollutants, especially particulates and oxidants. Some
researchers believe that the harm is mainly due not to the sulfur oxide gases
but to other sulfur compounds that accompany the oxides: sulfur acids and
sulfate salts. While there have been significant strides in controlling
industrial air pollution in recent years, there have been catastrophic air
pollution incidents over the last 30 to 40 years that demonstrate the
potential magnitude and severity of air pollution episodes. Marked increases
in respiratory distress cases and fatalities attributable to air pollution
have been evident during episodes in heavily industrialized areas such as
London, New York City, Detroit and the Monongahela River Valley in
Pennsylvania.
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Though the company has made attempts since 1972 to address the smelter's
significant environmental problems, the control efforts have not been adequate
as the smelter remained one of the industry's worst controlled facilities (See
Table 1 and Figure 1). A modernization program undertaken at the smelter in
the mid 1970's that was supposed to enhance pollution control efforts did
little to reduce emissions to necessary levels. Other companies in the
country have made considerable efforts to control emissions at their smelters
and are continuing to take appropriate measures to further reduce emissions.
In the last ten years, three Western smelters in addition to Anaconda
installed more modern smelting technology to replace conventional
reverberatory furnaces. While Anaconda achieved less than 30 percent control,
these other smelters have achieved S02 control levels of 80 to 90 percent.
The Inspiration smelter in Miami, Arizona, which is the only other smelter in
the U.S. to employ electric furnace technology similar to that which existed
at Anaconda, currently achieves close to 80 percent control efficiency.
Of the ten remaining Western smelters that still utilize reverberatory
furnaces, one is achieving close to 90 percent control, seven range in control
from 35 to 70 percent control, and two currently have no control of S02-
Recently two companies operating three of these smelters entered into
agreements with EPA to install control equipment to meet clean air standards.
Phelps Dodge Corporation agreed to install $150 million of pollution control
equipment at its Morenci smelter by January 1, 1985 and to spend $45 million
at its Ajo smelter by the end of 1985. In agreeing to drop its challenge to
the standards, the company conceded that the standards can be achieved
economically with current technology. Asarco, Inc., agreed to spend $133
million at its Hayden smelter to replace existing furnaces with new units that
generate less air pollution. Thus, while most smelters have committed over
the years to make capital investments to control their pollution control,
Anaconda kept delaying the necessary commitment to undertake the modifications
needed for pollution control.
Even though several smelters have made great strides in air pollution
control in recent years, it is significant to note the comparison of control
achievements in the U.S. with that in Japan (see Figure 2). The Japanese not
only have a more stringent ambient standard (0.1 ppm 24-hour value versus 0.14
ppm in U.S.), but several smelters capture and recover greater than 98 percent
of the sulfur in their feed. By combining pollution control improvements with
modernization of the facilities, the Japanese copper smelting industry has
been able to achieve a high degree of environmental control while becoming a
world leader in the production of copper.
While the S02 problems at the Anaconda smelter were considerable, the
smelter was also plagued by arsenic emission problems that might have caused
the smelter to become subject to requirements under Section 112 of the Clean
Air Act to control the emissions. The Butte concentrates that are processed
at the smelter contain extraordinarily high levels of arsenic, which is
emitted with process off-gases during the smelting of the concentrates.
Arsenic was listed as a hazardous pollutant under Section 112 after EPA
determined from scientific evidence that the compound is a carcinogenic air
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Table 1
COMPARISON OF SULFUR CONTROL EFFICIENCY AT WESTERN COPPER SMELTERS
Annual Capacity Percent
of Blister Copper Sulfur Removal
Company/Location (tons)
Anaconda Copper
Anaconda, MT 195,000 . 20%-30%
ASARCO
El Paso, TX 115,000 70%
Hayden, AZ* 180,000 40%
Tacoma, WA 100,000 35%
Inspiration
Miami, AZ 150,000 80%
Kennecott
Garfield, UT 280,000 85%
Hayden, AZ 80,000 90%
Hurley, NM 80,000 60%
McGill, NV 50,000 0%
Magma Copper
San Manuel, AZ 200,000 45%
Phelps Dodge
Ajo, AZ* 70,000 55%
Douglas, AZ 127,000 0%
Hidalgo, NM 140,000 90%
Morenci, AZ* 177,000 55%
*These smelters recently announced plans to upgrade their pollution control
facilities in order to comply with Clean Air Act Standards.
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FIGURE 1
COMPARISON OF WESTERN UNITED STATES COPPER SMELTERS
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LEVEL OF CONTROL CONTAINED
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FIGURE 2
COMPARISON OF JAPANESE COPPER SMELTERS WITH U.S. SMELTERS
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pollutant that poses significant risks to public health. Though regulations
do not currently exist, the Agency is in the process of establishing limits on
arsenic emissions from primary copper smelters. Anaconda's smelter might have
been one of only two smelters, the other being the ASARCO-Tacoma smelter, that
would have been subject to the limitations.
In addition to requirements under the Clean Air Act, the Anaconda smelter
was also subject to standards promulgated in 1978 by the Occupational Safety
and Health Administration (OSHA) for worker exposure to inorganic arsenic.
The regulations require the use of engineering and work practice controls to
limit occupational exposure to 10 ug/rn^, averaged over any 8-hour period.
The 10 ug/m^ limit was exceeded in some work areas at the smelter. These
regulations were challenged in court by Anaconda and the requirement for
engineering controls has been temporarily stayed pending resolution of the
challenge. Nonetheless, in its compliance plan for the smelter Anaconda
included installation of engineering controls to meet the OSHA standards in
its work areas.
V. DISCUSSION OF BASIS FOR FINDINGS AND CONCLUSIONS
A. Efforts to Explore Alternatives with EPA
ARCO's announcement that it was indefinitely suspending operations at
the Anaconda smelter and Great Falls refinery came as a surprise to EPA.
Although public statements by Anaconda officials over the past several years
included speculation that the costs of pollution control could force a
shutdown, EPA's understanding developed through communications with the
company and state officials was that two alternatives were being considered.
The first involved adding air pollution controls to the existing facility; the
second was building a new smelter in Montana. Throughout development of its
compliance plan, Anaconda indicated that the economic feasibility of
compliance would have to be considered prior to making a decision. However,
the determination that compliance was not feasible was first announced at the
same time ARCO announced its decision to suspend operations.
Serious discussions with EPA concerning the prospect of alternatives to
shutdown were never initiated by Anaconda. During discussions with Anaconda
following the shutdown, EPA indicated its willingness to negotiate a
reasonable solution which would permit continued operation of the facility,
but Anaconda was unwilling to explore the options presented. EPA firmly
believes that if Anaconda had come to EPA prior to its final decision and
public announcement, EPA and the company could have explored all alternatives
and found a workable solution through the process.
Within the flexibility contained in the Clean Air Act, Anaconda had three
options for continued operation of the smelter. The most obvious, short-term
approach was the negotiation of a consent agreement that would have permitted
the smelter to operate until the end of December 1982. Under this solution,
the company would have continued using the interim controls it now has in
place and would not have been required to make any capital commitments to add
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pollution control equipment. Anaconda rejected this option since the company
did not consider operation of the smelter for only two more years to be in the
best interests of the company's overall operations. As Anaconda stated in its
comments, the company acted in October 1980 in order to secure a place for its
Butte concentrates, which are high in impurities and difficult to process.
The company did not want to run the risk of not being able to find smelting
capacity for the concentrates two years later.
The other two alternatives involve nonferrous smelter orders (NSOs),
which are unique provisions contained in Section 119 of the Clean Air Act that
allow copper smelters flexibility in meeting air pollution control
requirements. Section 119 authorizes issuance of two NSOs the initial
order could delay compliance until January 1, 1983; the second until
January 1, 1988. In June 1980, EPA issued regulations outlining eligibility
requirements and application procedures for obtaining an initial NSO.
Although copper industry representatives voiced some concerns regarding the
highly detailed application procedures included in these rules, EPA has
received several NSO applications and expects to issue NSOs in the near future.
Anaconda, in particular, may have had some concerns regarding the
practicability of obtaining the initial order because of the legal and
regulatory requirements. In order to qualify for an initial NSO, the
smelter's off-gases from major process equipment must be treated with constant
control technology. Since this is essentially what Anaconda proposed in its
retrofit plan to comply with the Montana SIP, the initial NSO probably offered
little relief for Anaconda's existing smelter. Nonetheless, Anaconda never
approached EPA to discuss flexibility that might exist in administering an NSO.
Even though in its comments Anaconda claims the company "explored all
options presented to it," EPA believes the company did not consider all
options due to a lack of appropriate communication with the Agency prior to
announcement of the closure. Subsequent to Anaconda's announcement, EPA
indicated its willingness to negotiate a solution and brought forth a third
option that would have allowed continued operation of the existing smelter
while the company pursued its long-range plans. Under this option, Anaconda
could have entered into a consent decree until December 31, 1982 and then
applied for a NSO effective until January 1, 1988. Entry of a consent decree
would not have affected Anaconda's ability to apply for that NSO. Even though
specific regulations for the second NSO have not been developed, enough
flexibility is afforded by the Clean Air Act whereby the existing smelter
could have continued operation beyond 1982 with certain conditions. For
instance, if more time was needed to install air pollution controls on the
smelter economically, this could likely have been covered. Alternatively, the
NSO could have permitted continued operation of the existing smelter beyond
1982 without requiring the complete retrofit spending program if Anaconda
committed to build a new smelter at Anaconda or possibly elsewhere in the U.S.
by 1988. Of course, such an NSO would have had to contain a compliance
schedule for the completion of the replacement smelter and its compliance with
applicable air pollution limitations.
1.1
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As indicated previously, Anaconda made no effort to explore this or
similar options with EPA prior to its public announcement of the closure.
Subsequently, attempts by EPA and the Montana Congressional delegation to
negotiate a solution with Anaconda around these options proved fruitless.
Since the company had already initiated its decision to ship the concentrates
to Japan, the company reaffirmed that the smelter and refinery would not be
reopened.
In its comments on the preliminary report, Anaconda did not address the
option of building a new smelter by combining a consent decree with an NSO.
Instead, the company indicated an NSO did not furnish relief from other
environmental requirements, namely current and pending OSHA standards.
However, implementation of the engineering controls that were required as part
of OSHA's arsenic regulations has been stayed. Even though there is still
question as to whether the engineering controls will ultimately be required,
OSHA maintains that such controls would not require the level of expenditure
claimed by Anaconda.
Anaconda's lack of consideration of the consent decree/NSO option
strongly suggests that the company did not view continued operation of the
smelter in Anaconda as a long term option. In addition, Anaconda has stated
publicly that while it is considering building a new smelter it does not
intend to locate the smelter in Montana for a variety of reasons, none of
which are related to environmental requirements. As discussed later in this
report, economic factors dictate that if Anaconda re-enters the smelting
business, its operations would be located in other areas in the United States
or the world.
In summary, even though EPA advanced an option whereby the company could
have maintained its operations in Montana by building a new smelter and
continuing to operate the existing smelter in the interim, the company
obviously did not consider continued operation in Montana a reasonable course
of action for solely economic, and not environmental, reasons.
B. Evaluation of ARCO Estimates of Costs
for Environmental and Health Requirements
1. The $400 Million Cost Claim
ARCO and Anaconda stated publicly when announcing the plant
closure that the cost to retrofit the smelter was approximately $400 million.
This cost figure has its basis in a comprehensive six month engineering study
done by American Lurgi Corporation. Tables 2 and 3 summarize the major
components of the Lurgi system, the corresponding capital cost for the major
areas, and Anaconda's basis for its $400 million estimate.
The Lurgi cost estimate for equipment and installation for the 30 million
pound per month copper smelter was $379 million. Anaconda adjusted the Lurgi
estimate to $358 million by removing the Lurgi contingency estimate of $21
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TABLE 2
SUMMARY FOR LURGI SMELTER MODIFICATIONS
AND ESTIMATED CAPITAL COSTS
Area/Major Equipment Components
Roaster System
. 4 new secondary cyclones
. Afterburner
. Evaporative cooler
. 2 hot ESPs (1 spare)
. ESP natural gas heating
system
. High velocity flue gas
handling system
Electric Furnace System
. 2 evaporative coolers in series
. Mixing chamber
. 2 hot ESPs (1 spare)
. ESP natural gas heating
system
. High velocity flue gas
handling system
Primary Converter System
. 6 water cooled primary hoods
ducting
. 3 hot ESPs (1 spare)
Slag Cleaning,
. Slag feed system
. 2 slag furnaces in parallel
. 2 hot ESPs (1 spare)
ESP natural gas heating
High velocity flue gas
handling system
2 evaporative coolers
ESP natural gas heating
system
Anode Furnace
. 4 afterburners in parallel . Gas handling & cooling
Capital Cost
For Equipment and
Installation
(S millions)
41.4
17.5
62.8
27.9
6.2
Fugitive 'Gas System
A. 1 new baghouse system collecting the following:
55.6
. 6 secondary hoods & ducting
in parallel
. 4 anode furnace canopies
. 2 slag return launder canopies
. 1 skull breaker
. 1 ladle dump area
. 1 new stack
B. Modify existing baghouse system to control following:
. 1 matte tap on electric furnace . 2 slag furnace mat tap
. 1 slag tap on electric furnace . 2 slag furnace slag tap
Met Gas Cleaning System
. 4 venturi scrubbers
. 2 drying towers
. Wet gas coolers and
precipitators in series
Sulfuric Acid Plant
. 2 new acid plants handling
160,000 scfm.
. 2 new acid plant stacks
. 3 new storage tanks
Waste Water Treatment Plant
Utilities
. flux and reverts handling system
. furnace reverts handling system
. cooling water supply and return
Total Equipment and Installation
50.1
59.1
13.6
23.4
357.6
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TABLE 3
SUMMARY OF ANACONDA'S ESTIMATED CAPITAL COSTS
($ Millions)
Total Lurgi equipment, installation, and 357.6
field costs
Plus cost escalation during construction 53.3
Plus owner's cost and construction management 6.3
Subtotal 417.2
Plus Contingency (15%) 62.5
Total 479.7
Subtract "possible" modifications 84.5
to Lurgi system
Total 395.2
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million. Anaconda then added their own estimates of additional cost items
such as escalation and 15% contingency and arrived at a total cost estimate of
approximately $480 million. Anaconda also estimated that approximately $80
million might be saved by the inclusion of possible modifications to the Lurgi
system, resulting in the $400 million publicly reported by ARCO and Anaconda.
Anaconda estimated that an additional $80 million would be required for items
not included in the Lurgi study such as dust treatment, relocation of the flux
system, demolition, zero water pollution discharge, and materials handling.
The zero water discharge cost estimate of $20 million is the only additional
environmental cost item.
2. Other Cost Estimates
Cost estimates for Anaconda smelter plant modifications have been
made over the years and are summarized in Table 4.
In 1977, SRI International completed an analysis for EPA of the economic
impact of environmental regulations on the Anaconda smelter. The capital cost
of compliance with the Clean Air Act and the Water Pollution Control Act used
in the report was $35.8 and $7.8 million, respectively. In its report SRI
International concluded: "...it is highly improbable that Anaconda would
decide to close the smelter and other closely associated facilities, rather
than comply with the EPA regulations".
The 1977-78 Kaiser Engineering study for the Anaconda Company proposed
many alternative control strategies to achieve desired sulfur dioxide emission
characteristics for the main stack at the smelter. The needed emission
characteristics were determined by Environmental Research and Technology,
Inc., and were claimed to be necessary to meet the sulfur dioxide national
ambient standards. Alternative control strategies were developed for various
smelter production levels and ranged in cost from $21 million to $40 million.
In 1978 Anaconda contracted with Fluor Mining and Metals, Inc., and
Furukawa Company, Ltd. and also the American Lurgi Corporation to do separate
engineering studies to develop a modification plan of the smelter and its
operation to comply with EPA's environmental regulations for ambient air
quality and OSHA's regulations for worker exposure to arsenic.
The Fluor-Furukawa study evaluated the most advanced smelter technology
as developed and applied at the Ashio, Toyo, Tamano and Onahama smelters in
Japan. Their January 1979 report estimated the capital cost of the smelter
modification to be $96.6 million (+ 25%). In March 1979, the American Lurgi
Corporation reported on its engineering study and estimated the capital cost
to be $135.8 million (+ 25%).
Anaconda combined elements of the Fluor-Furukawa and Lurgi studies to
come up with a final smelter modification plan. With the modifications to the
studies, contingency and escalation, Anaconda estimated the capital costs for
the system to be approximately $185 million, which was included with the
company's SIP compliance plan submitted to the State of Montana in July 1979.
On the basis of Anaconda's compliance plan, Lurgi conducted a detailed
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TABLE 4
COMPARATIVE HISTORY OF ESTIMATES OF COMPLIANCE COSTS
Date
1977
1977
1978
1978
1979
1979
1979
1979
1980
1980
Estimate
Prepared
For
EPA
ARCO
Anaconda
ARCO
Anaconda
Anaconda
Anaconda
ARCO
Anaconda
ARCO
Source of
Estimate
SRI Report
10-K Report
Kaiser Eng. Report
10-K Report
Fluor-Furukawa Report
Lurgi Report
SIP Compliance Plan
10-K Report
Lurgi II Report
Public Announcement
Cost
$ 43 Million
$ 65 Million
$ 40 Million
$145 Million
$ 97 Million
$136 Million
$185 Million
$200 Million
$378 Million
$400 Million
of Plant Closures
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engineering study of the specific modifications needed at the plant and
estimated the resulting cost. The April 1980 Lurgi report estimated the
capital cost to be $378,987,000 (+ 20%).
3. The Existing Smelter
In order to appreciate the magnitude of the proposed modification
it is necessary to understand the condition of the existing facility. In the
early 1970s, Arthur 6. McKee and Company was requested by the Anaconda Company
to conduct an engineering study to develop a plan to modernize the smelter and
to bring the facility into compliance with a sulfur dioxide emission
regulation adopted by the State of Montana in June of 1970. The McKee smelter
modification plan included a change in smelting technology and installation of
sulfuric acid plant capacity sufficient to capture 90% of the sulfur dioxide.
The Anaconda Company implemented only portions of the McKee
recommendations. The reverberatory furnaces were replaced by a fluid bed
roaster and an electric smelting furnace. The existing process gas handling
system, converters, and remaining smelter process equipment continued to be
used.
Pollution controls added to the smelter since 1971 consisted of a
baghouse and an acid plant. Since the antiquated converter hoods and the
existing gas handling system permitted excessive leakage, the baghouse was
capable of treating only a portion of the process gases. For the same reason,
the acid plant never performed at design capacity. At design capacity, the
acid plant could handle less than 50% of the process gases. However, in
actual operation of this smelter, only 20 to 30 percent of the S02 gases
were controlled.
The 1979 ARCO 10K Report on page 22 stated: "Anaconda has invested
million in environmental protection at the smelter since 1971." The Rocky
Mountain News on January 25, 1981 contained an article which stated: "Since
1972, Anaconda has spent $65 million on steps to upgrade environmental and
health performance at the plants. In 1979-80, the firm spent another $15
million on research for technology that would reduce plant emissions to
legally acceptable levels." The $65 or $68 million cost was the result of a
two-phased modification undertaken at the smelter. The Phase I modification
was completed in 1974 at an approximate cost of $29 million. Major
improvements at the smelter consisted of an acid plant (cost of $18 million)
and a baghouse (cost of $11 million). Addition of this pollution control
equipment resulted in some particulate and sulfur dioxide pollution control.
The Phase II modification was completed in 1976 at an approximate cost of $36
million. Major improvements at the smelter consisted of a fluid bed roaster
and an electric furnace. The Phase II modification was primarily a smelting
technology change that resulted in little to no additional pollution control.
The $15 million spent on research and engineering in a worldwide search for
technology consisted of the Fluor-Furukawa and Lurgi studies and also resulted
in no additional pollution controls at the smelter.
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4. Cost Allocation and Perspective
It is often exceedingly difficult to differentiate between
process improvements and pollution control in many industrial facilities,
particularly in metallurgical industries where significant emissions occur
throughout the process and where product recovery is important and
cost-effective. Many process changes will not only make the overall process
more efficient strictly from a metallurgical standpoint, but such changes will
also enhance pollution control efforts by generating less pollution or making
the pollution more amenable to effective control. Likewise, improved
pollution control equipment and practices will many times result in more
efficient operations by reducing the loss of valuable raw materials or by
producing useful by-products.
In instances where pollution control and process improvements are
interrelated, EPA uses Internal Revenue Service regulations for rapid
amortization of pollution control facilities as a guide in the
differentiation. Under Section 169 of the Internal Revenue Code, a pollution
"treatment facility" is defined as one used to abate or control atmospheric
pollution or contamination by removing, altering, disposing or storing of
pollutants, contaminants, waste, or heat. Further, if a facility performs
multiple functions, only the cost "attributable to abating or controlling
pollution" may be amortized. Under Section 169, EPA may not certify that a
modification constitutes a "treatment facility" if the modifications would
significantly (more than 5%) extend the useful life or reduce the operating
costs at the facility.
With this allocation perspective in mind, EPA evaluated the
Anaconda/Lurgi smelter modification plan from the standpoint of what could be
considered controls to meet the Clean Air Act requirements and what
constituted process improvements needed to make the smelting system operate
more efficiently and profitably. Anaconda attributed all of the smelter
improvements in the Lurgi study to environmental and health requirements
without any recognition for the benefit to the metallurgical processing that
would result. EPA, on the other hand, believes that many of. these
modifications were in fact process improvements that would have significantly
extended the useful life of the smelter and resulted in some operating cost
savings that have not been recognized by Anaconda. Admittedly, separation or
allocation of costs between process improvements and pollution is difficult
and influenced by a variety of interrelated factors. Since the company did
not support their claim with the detailed information which would have been
necessary to make such an allocation for rapid tax writeoff, only a coarse
estimate was made from the Lurgi report cost summary.
To meet the Clean Air Act requirements, the smelter would have needed
additional acid plant capacity to control all process off-gas streams. In
addition, control of fugitive emissions from the converters and the electric
furnace matte and slag tap launders would have been required. Thus, costs
associated strictly with pollution control equipment are estimated to be the
total of the Lurgi modification cost for the fugitive, wet gas cleaning,
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sulfuric acid, waste water, and 50% of the utilities areas, with appropriate
modifications (refer to Table 2). First of all, the Lurgi modification
included fugitive control in areas other than the converters and the electric
furnace matte and slag tap launders. EPA estimates that $20 million of the
total cost for this area is not attributable to the Clean Air Act. Instead,
these costs pertain, to equipment needed for either OSHA requirements or simply
the company's desire to improve worker conditions. Further, possible design
changes in the acid plant could reduce the cost. EPA estimates that
approximately $50 million should be deducted from the Lurgi modification cost
estimate for the combined wet gas cleaning and acid plant areas because of
possible design changes.
In the Lurgi report the total equipment and installation cost for the
fugitive, wet gas cleaning, sulfuric acid plant, waste water and 50% of the
utilities was approximately $190 million. EPA's estimate for those items
needed to comply with the Clean Air Act is then $190-$70 million or $120
million. When adjusted for Anaconda's contingency and escalation the
estimated total cost is $160 million.
The remainder of the modifications to the other areas (roaster, furnace,
converters, slag cleaning, and anode furnace) is the source of disagreement
between EPA and Anaconda. In its comments on EPA's preliminary report,
Anaconda argues that "the cost for the roaster, electric furnace and converter
modifications were to transport gases to the acid plant with minimum dilution
in order to maximize S02 recovery," while the slag cleaning and anode
furnace modifications were made to reduce in-plant arsenic emissions.
However, other than the anode furnace, EPA considers these modifications to be
primarily plant process improvements since the changes upgrade deficiencies in
the process equipment instead of adding pollution control equipment.
The existing smelting process had operational and equipment problems that
made metallurgical processing as well as pollution control difficult and
inefficient. The existing ducting was in such disrepair that gas capture was
ineffective and resulted in too much dilution air going to the acid plant for
efficient operation. Anaconda's smelting process did not effectively recover
valuable metals from the flue dust because the process could not separate
arsenic and other impurities. For instance, the use of electrostatic
precipitators after the major process units is obviously for separating
arsenic and other impurities from recoverable metal, even though the ESP's
also aid in the transport of gases to the acid plant. It is EPA's technical
judgement that the proposed modifications for the roaster, furnace, converter,
and slag cleaning areas are not for pollution control purposes but rather for
the purposes of process improvements to lower the cost and to extend the life
of the basic smelting operation. While some of these improvements to the
process may need to be made before the pollution control equipment will
operate properly, EPA believes it is inappropriate to attribute these to
pollution control.
Finally, Anaconda indicates the anode furnace improvements were needed to
achieve compliance with OSHA standards. Of course, this assumes the
engineering controls that have been stayed will in fact take effect. While
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EPA is not in a position to judge whether the modifications would be required
for OSHA compliance, EPA included the cost of the anode furnace modifications
($6 million) with other fugitive controls needed to comply with OSHA standards
or improve worker conditions.
In conclusion, the cost estimates can be summarized as follows:
- Plant process equipment improvements $162 million
- Clean Air Act 120 million
- OSHA/Other Fugitive controls 26 million
- Acid Plant Overdesign 50 million
- Total Equipment and Installation 358 million
for Lurgi modification
- Anaconda Contingency and Escalation $122 million
- Total $480 million
- Anaconda's "possible" modifications to 84.5 million
reduce costs
- Anaconda's publicly announced estimate 400 million
(approximately)
- Anaconda estimate for additional items $83 million
not in Lurgi study
C. Anaconda's Internal Environmental Policies
Public concern over the health and welfare effects of pollution are
well founded in American society today. Significant environmental laws, such
as the Clean Air Act, enacted by Congress in the last decade reflect this
public support for pollution control efforts. Citizens want the environmental
impact of government and corporate actions and decisions factored into the
normal process of conducting corporate and governmental business.
Environmental laws are not mere whims of a few; rather the public has
indicated through its support for environmental control measures that the
costs for minimizing serious environmental impact should be considered as a
necessary cost of doing business. These measures that protect public health
cannot be disregarded during the course of corporate and governmental business.
Many corporations have willingly undertaken considerable and costly
efforts to control pollution and minimize the environmental impact of their
operations. In testimony before the Montana Select Committee on Economic
Problems in December 1980, Anaconda officials indicated the company has its
own health, safety and environmental policies that govern operation of its
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facilities. The officials conceded the smelter at Anaconda did not meet the
company's minimum standards at the time and continued operation of the
substandard facility was not in keeping with the company's policies.
In its comments on EPA's preliminary report, Anaconda recognized
improvements were needed at the plant, but maintained its internal policies
could have been implemented at the smelter without imposing significant
financial burdens. While Anaconda did not analyze the case of retrofiting the
smelter to conform with its policies, the company indicated both engineering
controls as well as intermittent ambient or workplace controls would have been
employed.
Given the significant S02 emission problems and ambient standard
violations around the plant, coupled with the potentially serious health
harzards of arsenic emissions in the plant, it is evident that considerable
improvements were needed at the facility to correct the problems. If
Anaconda's internal policies were in fact adequate to protect health, EPA
doubts whether the environmental and health problems at the facility could
have been satisfactorily corrected to comply with those policies without
making considerable engineering modifications to the plant. EPA believes the
Federal ambient standards are set at a level necessary to protect public
health and the compliance plan for the smelter developed by Anaconda and the
State of Montana represented a reasonable and necessary means to attain and
maintain the standards.
Thus, EPA contends that to protect public health, even to the company's
minimum standards, engineering controls were needed at the smelter to reduce
S02 and arsenic emissions. Contrary to the company's claim, this
undoubtedly would have required some level of capital investment. The already
marginal position of the smelter indicates that this investment, which EPA
believes would have been needed to meet even the company's policies to protect
public and workers health, probably would not have been undertaken at the
smelter. Coupling this with needed process improvements, the capital
investment required for the smelter to continue operations, irrespective of
regulatory environmental requirements, may have been too much for ARCO to
accept. From the company's economic standpoint, additional investment in the
marginal facility was unwarranted.
D. Economic Factors Affecting the Anaconda Smelter
Despite modernization efforts at the Anaconda smelter in the early
i970's, the facility remained a marginal operation economically. Numerous
economic and operational factors which contributed to this weak economic
position made the smelter's future somewhat dubious, even in the absence of
environmental requirements. Collectively, these factors are probably more
significant than regulatory environmental requirements. Whether the capital
costs are $400 million, $120 million, or even much less, these other factors
are of sufficient magnitude that it is doubtful the smelter could become a
cost effective operation over the long run, given other alternatives available
to the company.
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Following Anaconda's announcement of the closure, the Montana Legislature
appointed a special committee to assess the situation as it relates to the
state. The committee was to determine if the circumstances warranted remedial
action by the Legislature. In a report issued April 10, 1981 the committee
came to the following conclusion which is consistent with EPA's findings:
"The Committee found no conclusive evidence that air
pollution restraints were solely responsible for the
closure of the Anaconda Company's facilities at
Great Falls and Anaconda. Rather, the closure appears to
have been the culmination of a long and complex series of
factors including not only environmental laws but also
declining profit levels with resulting reductions in
investment capital available, modernization costs, tax
policies, diminishing quality of ore, and management
decisions on the most fruitful use of capital."
These other economic factors are discussed in further detail below.
1. Smelter in the Production Chain
Even though Anaconda Copper Company is an integrated producer that
handles all aspects of copper production (mining, milling, smelting, refining,
and fabricating), the company's main business is mining. For integrated
companies, it is general industry practice to operate smelters and refineries
as service centers to the owned mines by processing the concentrates
essentially at cost. This acts to shift profits of an integrated operator to
the mines where depletion allowances for the ore can be claimed to maximize
profits for the overall operation.
When discussing factors affecting the continued operation of the smelter,
it is important to recognize the role of the smelter in the production chain.
While one could conceivably argue that profits from mining operations or
improvements in future copper prices might be used to subsidize the smelter
operations, Anaconda and ARCO obviously viewed the smelter as a "stand alone"
operation. If the company could find a lower cost alternative to operating
its own smelter and refinery without adversely affecting its mining or
fabricating operations, management would do so on strictly economic grounds in
order to reduce overall costs and maximize profits. Thus, when Anaconda
states in its comments that the pollution control costs were prohibitive, the
company is no doubt looking at the decision in the relative sense and in
comparison with alternatives to operating the smelter in Anaconda. ARCO's
action was strictly a business decision made with full recognition of the
relative position of the existing smelter in the company's copper operations
and with other future smelting alternatives.
2. Financial Condition of Anaconda Copper Company
While an assessment of the economic position of the smelter should
focus on the smelting operation and its position in the overall operation, the
economic viability of the smelter at Anaconda was nonetheless affected by the
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condition of Anaconda Copper Company in particular and the copper industry in
general. Throughout the 1970's Anaconda was in a comparatively worse
profitability position than other companies in the industry. During the
decade between 1966 and 1976, the company consistently exhibited lower net
profit margins and return on net worth than the industry average. Since the
company was bought by ARCO in 1977, independent profitability data has not
been available for the copper operations. However, there is no reason to
believe the company's position in the industry has improved appreciably.
Lower profitability indicates the company had some inefficient operations
resulting in relatively higher costs. In addition, the company suffered
appreciable losses in the early 1970's when Chile nationalized Anaconda's
copper mines, resulting in a weak financial condition for the company. During
merger proceedings in 1976, ARCO management conceded that Anaconda Copper had
some serious problems that required a significant infusion of capital to make
the overall operation viable. Information presented during the Federal Trade
Commission suit to prevent the merger indicated that Anaconda was a marginal
company that, at the time, was unable to compete efficiently and effectively
in the industry. Since the merger, ARCO has been trying to strengthen
Anaconda's position as a mining company.
3. General Industry Problems
Anaconda's internal financial problems were further exacerbated by
the general economic and institutional problems confronting many companies in
the copper industry during the 1970's. These problems included slack demand
for copper, weak and widely fluctuating prices, escalating capital and
operating costs, environmental controls, and foreign competition. Foremost
among the problems is foreign competition, which the International Trade
Commission in a 1978 report concluded seriously threatens the domestic copper
industry. While most foreign producers have higher grade ore bodies and more
modern facilities that result in lower costs of operation, the competitive
advantages that foreign copper producers enjoy also point out the
institutional differences under which U.S. copper companies are operating. In
a 1979 report to Congress, the General Accounting Office concluded that the:
"cumulative effect of U.S. government actions, which although in response to
legitimate public concerns, have tended to discourage investment in domestic
mineral projects. By contrast, many foreign governments encourage development
of their minerals production."
The institutional incentives offered by foreign governments take various
forms. In some countries, less restrictive laws, such as in the anti-trust,
worker safety and health, and environmental laws, place fewer requirements on
companies that make the cost of doing business less. In addition, many
foreign governments support their domestic industry through financial
incentives such as tax benefits, subsidies, and tariffs. In Japan, for
instance, where environmental requirements are more stringent than in the
U.S., the government aids its industry with tax benefits, protective tariffs,
and low interest loans that allow the Japanese copper industry to effectively
compete in the world market.
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Despite the depressed conditions that have confronted the domestic copper
industry for the past few years and thus far in 1981, future prospects for
U.S. producers appear improved. Based on steadily increasing demand for
copper, the price of refined copper, as estimated by EPA for its NSO
regulations, should rise seven percent per annum in real terms between 1981
and 1986. The effect of this should be to increase mining capacity of
domestic and foreign mines and provide necessary capital for smelters to make
environmental and process improvements in order to service increased mine
output. Some additional domestic smelting capacity may also be constructed.
4. Costs of Operation
In testimony before the Montana Select Committee on Economic
Development on December 20, 1980, representatives of Anaconda Copper Company
indicated that 80 to 85 percent of their competitors world-wide produced
copper cheaper than Anaconda's Montana operations. Higher costs of mining at
Butte coupled with relatively higher operating costs at the smelter results in
a competitive disadvantage for the company.
The relatively high cost of the Butte mining operations has an indirect
effect on the continued operation of the Anaconda smelter. Because of the
declining yield of copper from the Butte ores, the costs of mining in Butte
are higher than the costs for most major mines in the country. In order for
the Butte mine to remain competitive, Anaconda -must be able to operate its
smelter and refinery at relatively lower costs to offset the higher costs of
mining, which did not appear possible at the Anaconda smelter. Anaconda has
to look elsewhere for more favorable smelting and refining terms to keep the
Butte mining operations in a competitive posture.
Contributing significantly to the higher cost at the Anaconda smelter is
the electric furnace technology utilized at the smelter. In an assessment of
alternative smelting technologies, EPA's Industrial Environmental Research
Laboratory in Cincinnati has shown electric furnace technology to have many
disadvantages and higher costs. The higher costs are due principally to
higher energy consumption and rising electricity costs.
Another factor influencing the higher operating costs concerns the
operational problems at the smelter resulting in inefficiencies in the
process. Many of the problems are due to the high level of contaminants in
the Butte concentrates. Metallurgical processing of the concentrates is more
difficult and expensive because of the existence of appreciable quantities of
arsenic, bismuth and other impurities. In its comments on EPA's preliminary
report, Anaconda recognizes this point as a problem in operating the smelter.
The presence of these contaminants also results in a lower grade copper that
cannot command as high a price in the market place. In addition, metal
recovery in the process was made exceedingly difficult by these contaminants,
to the extent that copper and other valuable metals and minerals normally
recovered at other smelters were lost in the process, resulting in higher
overall costs of production. As discussed in a previous section of this
report, the smelter needed significant capital improvements in the process to
overcome operational problems and become an efficient operation.
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5. Supply of Concentrates
Also contributing to the unfavorable economic position of the smelter
is Anaconda's supply of concentrates. First of all, over 50 percent of
Anaconda's concentrate supply comes from company-owned mines in Utah and
Arizona. Transportation costs of the concentrates, which are comprised of
65-75 percent waste material, are increasing and result in higher costs of
operation in Montana. In fact, most smelters in the U.S. are close to mines
in order to minimize the transportation costs of the material.
While Anaconda's current supplies of concentrates are adequate to
effectively utilize the capacity of the smelter, the condition will be less
favorable within three years. As a result of merger terms set forth by the
Federal Trade Commision in the merger of Anaconda Copper Company and ARCO,
ARCO must divest of its share of the Anamax Twin Buttes mine in Arizona by
1984. Loss of the Twin Buttes mine would reduce the supply of concentrates to
the Anaconda smelter by 20 percent and would result in only a 70 percent
utilization of the smelter's capacity while utilization of the Great Falls
refinery would be less than 60 percent. A smelter or refinery cannot
generally operate on an economic basis for long periods of time at such low
utilization rates.
Development of new mines is not a near-term option since mines take
several years to develop and require a large capital investment. Anaconda is
not in a good position to secure concentrates from other mines for toll
smelting to make up for the loss of concentrates. In addition to higher costs
of operation, the smelter is not favorably located with respect to receiving
copper concentrates from other parts of the country or overseas. Other toll
smelters in this country can process the concentrates cheaper and are in a
better position to receive concentrates. At one time 40 percent of the
Anaconda's production was toll business, but in recent years the smelter has
had no toll business.
6. Marketing Problems
The smelter's location in Montana also creates marketing problems for
copper and by-products such as sulfuric acid. Since the major markets for
sulfuric acid are in the industralized regions of the country, Anaconda is
unable to compete with other producers since it costs more to ship acid from
Montana to these markets. Acid produced in the major producing area of the
Southeast U.S. commands a price six to eight times higher than the price
Anaconda is able to receive, mainly because of transportation costs. Higher
prices for its acid would mean that the company could recover portions of its
operating costs that would make the operation more economic.
7. Feasibility of a New Smelter
An option under serious consideration by the company is construction
of a new smelter somewhere in the U.S. ARCO has indicated it does not
necessarily want to get out of the smelting and refining business
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permanently. For many of the reasons stated above, Montana is an unlikely
location for a new smelter. Other areas of the country such as the Gulf Coast
offer better access to copper and by-product markets as well as proximity to
low-cost water transportation for receiving concentrates from abroad. A large
smelter will realize economies of scale while more efficient state-of-the-art
technology such as flash furnaces will result in lower operating costs.
With all the problems associated at the existing facility, it appears
that construction of a new smelter is the company's long term solution for
remaining economically competitive in the industry. Even without
environmental expenditures the inefficient existing smelter may have
inevitably succumbed to the competition within a short period of time. The
expenditures required for compliance with the Clean Air Act, whether $120
million or $400 million, forced the company to make a decision that it would
have preferred to postpone, but would ultimately have to be made in any
event. When publicly discussing the prospects for a new smelter, company
officials cite the efficiencies that can be gained without indicating whether
the environmental requirements for a new smelter would be any different than
current requirements. This suggest that these economic factors dictated the
ultimate long range plan, while environmental expenditures for the old smelter
accelerated the inevitable decision. As discussed previously, EPA was willing
to work out a solution with the company whereby the company's long range plans
would be accommodated while continuing to operate the existing smelter with
some modifications.
Of course, construction of a new smelter will require a large capital
investment that will have to be weighed against other alternatives. For this
reason and since a new smelter appears to be a feasible long term economic
solution, ARCO chose not to invest considerable capital in the Anaconda
smelter when the capital can be put to other uses, including building a new
smelter or supporting other corporate investments.
8. Opportunities with Japanese Smelters
Since Anaconda expects it may take up to seven years to build a new
smelter, the company had to find an interim means to have its concentrates
smelted and refined. Since the option of continuing to operate the existing
smelter was discarded, the company investigated many possibilities for having
its concentrates processed on a toll basis elsewhere in the U.S. or abroad.
After months of negotiations, Anaconda finally reached an agreement in
December 1980 with several Japanese smelters to have its concentrates
processed overseas for the next seven years. Historically, Anaconda has
shipped a portion of its concentrates from the Anamax Twin Buttes mine to
Japan for smelting and refining.
Although Anaconda has not disclosed all the details of this agreement,
apparently the Japanese copper producers will toll-smelt and refine Anaconda's
concentrates. The finished copper may be returned to the United States for
fabrication, but the Japanese firms also have an option to purchase some of
the finished copper.
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Several factors enable Japanese copper smelters to be an economically
attractive alternative to a domestic copper producer with high cost
operations. Even though the cost of transporting concentrates to Japan is
high, the increased cost is offset significantly by lower smelting and
refining charges of the Japanese firms. A major reason is lower costs of
operation, due to the fact the Japanese copper industry has newer and more
efficient facilities than those generally found in the United States. These
smelters incorporate the latest state-of-the-art technology that makes for
efficient operations, while still meeting environmental requirements more
stringent than those in the U.S. A recent article in the Engineering and
Mining Journal (May 1981) reports that most Japanese smelters are extremely
efficient in the recovery of metal and other by-products, aided in large part
by air pollution control equipment. Revenues generated from the sale of
su If uric acid and the recovery of metals from flue dust reduce smelter
operating costs by one-half. Anaconda's existing process, on the other hand,
was unable to realize these savings because of inefficient metal recovery due
mainly to arsenic contamination and inefficient operation of the acid plant.
As a result, Anaconda's net operating costs at its smelter were significantly
higher than those at the more efficient Japanese smelters. Finally, since the
Japanese view the smelting operation as a potential profit center, they strive
to operate their smelters at full capacity in order to reduce unit costs.
Anaconda's smelter did not operate at full capacity and thus unit costs were
affected.
Governmental support of the copper industry also contributes
significantly to the favorable cost situation in Japan. In addition to tax
benefits, Japanese smelters are aided by a high import duty on refined copper
and no duty on copper concentrates coming into the country. The high duty on
refined copper protects the Japanese producers from foreign competition and
allows them to charge artificially high prices for fabricated copper products
within Japan. Thus, Japanese smelters can charge toll customers at a rate
below the actual cost of processing because the loss is covered by the extra
margin of profit realized by charging prices for domestic refined copper at
competitive import levels. The combination of low smelter and refinery costs
with a protective tariff enables the Japanese to offer competitive terms to
foreign suppliers of concentrates.
Anaconda's decision to ship concentrates to Japan indicates the company
believed this alternative was more economical in the interim than retrofitting
and continuing to operate its own smelter. Although the total transportation
and processing costs associated with the Japanese alternative may be somewhat
higher than Anaconda's cost of operations before closure, apparently the
difference does not significantly affect the viability and profitability of
the company's mining operations.
The opportunity to secure reasonable terms with Japanese smelters at this
time accelerated Anaconda's decision to suspend operations at the smelter.
Although the smelter could have remained open for at least another two years
with minimal or no investment in pollution control equipment, the company
apparently acted at this time in order to obtain capacity somewhere in the
world to have its concentrates processed. While there is currently excess
smelting capacity in Japan, Anaconda believes this excess will soon be
consumed by supplies from other U.S. or foreign mining companies.
27
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9. Financial Analysis of Anaconda's Smelter
All the economic and operational factors discussed above contributed
to making the Anaconda smelter a marginal operation, a condition that would
have no doubt continued in the future. The effect of these factors
collectively influenced the smelter's future economic viability and Anaconda's
consideration of options for having its concentrates processed.
In order to gain a better understanding of the baseline financial
condition of the smelter and the relative magnitude of environmental
expenditures for the plant, EPA contracted for a financial analysis of the
smelter's operations based on publicly available information in the absence of
actual data from Anaconda. While the analysis is based upon limited data, the
data are sufficient to produce results that provide insight into the smelter's
financial condition. The analysis employed a discounted cash flow technique
that represents a quantitative method for objective decision-making.
The analysis results in a range of capital investment the company could
make for process improvements or pollution control equipment at the smelter
and still remain competitive with the other alternatives available to
Anaconda. Because of uncertainties surrounding the economic and operational
factors affecting the continued operation of the smelter, the range of
affordable investment does not indicate definitively conclusive results.
As discussed previously, the factors affecting the continued operation of
the smelter do not appear to be favorable. With the smelter underutilized,
with operating costs continuing to escalate, and with more attractive
alternatives for a new smelter and toll smelting in Japan, the analysis
indicates the smelter was an unprofitable or only marginally profitable
operation even in the absence of additional expenditures for process
improvements or pollution control. Under a reasonable and plausible set of
assumptions, the analysis suggests the smelter was marginal to the point that
it could afford little or no investment in process improvements or pollution
control without placing the smelter in an uncompetitive position with
Anaconda's more favorable alternatives. The smelter could possibly afford a
minimal investment of up to $25 million, a level that would be far short of
what would be required for basic process improvements, for Clean Air Act
requirements, or for possibly even the company's own internal environmental
and health requirements.
On the other hand, if all the factors discussed previously were more
favorable for future operation of the smelter, the company could have possibly
afforded up to $200 million in process improvements and environmental controls
at the smelter. This amount would have been sufficient to cover investment
for the Clean Air Act requirements alone, but when coupled with the desired
process improvements the total investment required at the facility was not
warranted on strictly economic grounds. However, for as much as $200 million
to be justified, an unlikely and unrealistic combination of factors would have
to result to make the prospects for continued operation more favorable.
28
-------
In conducting the analysis, all of the non-environmental factors
influencing the smelter were included in the baseline condition of the plant,
with expenditures for process improvments and environmental requirements added
as the last increment. All of these other factors led to the baseline
marginal condition of the smelter in the first place. If not viewed in proper
context, this approach may lead to the erroneous conclusion that the last
factor added was the only basis for the decision to close the smelter. When
so many crucial factors affect the economic viability of the smelter, all
factors have to be viewed as incremental problems contributing collectively to
the weak economic state, without singling out any one factor as being the
primary reason for closing the plant. If other factors were more favorable,
the last incremental factor, which in this case was process improvements and
pollution control, may not have been the deciding factor. For this reason, it
is imprudent to single out environmental requirements as the sole, or even
overriding, reason leading to the closure of the smelter when numerous factors
were involved.
29
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APPENDIX
COMMENTS RECEIVED ON PRELIMINARY REPORT
EPA issued a preliminary report on the results of its investigation on
March 19, 1981. A five-week public comment period followed in order to
receive reaction and additional information regarding the report. Three
parties submitted comments on the report:
. Anaconda Copper Company
. United Steel workers of America
. Mr. Garry L. Preston, Past President, Local Lodge #29,
International Association of Machinists and
Aerospace Workers
The comments are included in this Appendix. EPA has evaluated the
comments and responses to the pertinent points are included throughout the
text of the report. None of the comments offered specific new information
that would cause EPA to alter its findings and conclusions.
Both union representatives urged EPA to conduct a public hearing on the
matter. After carefully considering the requests, EPA has determined there is
no reasonable ground for conducting a hearing at this time. Interested
parties had an opportunity to offer comments and additional information during
the public comment period. Since no new information refuting the findings and
conclusions was received, EPA believes that the report is supported by
currently available information. Therefore, EPA does not see the need to hold
a public hearing on this matter.
30
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ANACONDA Copper Company APR P
555 Seventeenth Street 7 . / <
Denver, Colorado 80217
Telephone 303 575-4302 ' --
J. F. Anderson
Senior Vice President
Research, Engineering and Development
April 24, 1981
U.S. Environmental Protect!on
Agency
Region VHI
1860 Lincoln Street
Denver, Colorado 80295
ATTENTION: Mr. Robert A. Simmons
Director, Analytic Center (8M-AE)
RE: Role of Clean Air Act Requirements in Anaconda
Copper Company's Closure of Its Montana Smelter
and Refinery, Preliminary Report, March 19, 1981.
Dear Bob:
Anaconda would like to make some summary comments on your report for
the record. We are not requesting a public hearing.
Our comments will be confined to those "Preliminary Findings and
Conclusions" which we feel need clarification. We will not attempt to
cover the report line by line.
* While requirements of the Clean Air Act played a role in
ARCO's assessment of the future viability of the smelter,
evidence indicates the requirements were not the
overwhelming factor influencing the decision?
The scope of Anaconda's smelter studies were limited to determining the
capital and operating costs that would have been associated with the
installation of engineering controls required to meet Federal health and
environmental standards. The studies resulted in a capital cost estimate of
some $400MM and increased operating costs of 3.8C/lb of copper
produced. We found that these capital and operating costs to meet the
Federal health and environmental regulations were prohibitive to the
continued operation of the smelter.
2. Even in the absence of Federal and State environmental and
health regulations, the smelter was a marginal operation that
may not have been economically viable in the long run due to
numerous economic and operational factors affecting the
continued operation of the facility.
A-l
<3-V Cooutft Comaanv Division of "r.e ANACONDA Co
-------
Mr. Robert A. Simmons
Page 2
April 3, 1981
Anaconda Copper Company regarded the smelter as one of the process steps in the
production of copper, not as a profit center. As such, the words "marginal
operation" can only refer to the smelter being marginal in comparison to other
treatment facilities available. In its current configuration, without the added
burden of environmental regulation, the Anaconda smelter provided the least
expensive alternative for the smelting and could have continued operating
indefinitely. In other words without new environmental costs, the smelter was the
most economical option available and would have continued operating.
3. Anaconda's estimated cost of $400MM for complying with Federal
and State environmental and health regulations is misleading and
overstated.
EPA states on Page 12 of the report that a "cost estimate for the roaster, electric
furnace, converter, slag cleaning, anode furnace and 50% of utilities areas are
considered to be for plant process improvements since these costs are not for
pollution control equipment". Actually, the cost for the roaster, electric furnace
and converter modifications were to transport gases to the acid plant with
minimum dilution in order to maximize SOo recovery. Slag cleaning was added to
eliminate the practice of returning converter slag to the electric furnace, which
generated high levels of in-plant arsenic emissions. In-plant tests showed that the
anode furnaces had to be hooded and ventilated to achieve OSHA compliance.
The new equipment in the utilities area is all required to support the new pollution
control equipment. Thus, each of the items that EPA characterized as process
improvements were in fact required for environmental reasons.
4. Anaconda's internal environmental and health policies may have
imposed sufficient financial burdens on the smelter to significantly
contribute to the closure decision.
Anaconda's Health, Safety and Environmental Protection policies were developed
for the purpose of protecting workers' health and the environment. We did not
analyze the economics of retrofitting the smelter to conform to these policies.
Because we would have considered both engineering controls as well as other
methods of protection. We doubt that the implementation of these policies would
have imposed significant financial burdens on the smelter.
6. The Clean Air Act Amendments of 1977 recognize the special
problems facing nonferrous smelters like Anaconda's and contain
unique provisions that give companies an extended period of time to
comply with requirements of the act.
This statement refers to the section of the Clean Air Act permitting certain
smelters to be granted a Nonferrous Smelter Order (NSO). Anaconda may or may
not have been able to meet the eligibility requirements for an NSO, but if NSO's
had been applied for and granted, Anaconda still would have been required to
make the complete retrofit capital expenditures.
7. Within the flexibility granted in administering the NSO provision of
the Act, EPA demonstrated its willingness to explore possible
solutions with Anaconda.
A-2
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Mr. Robert A. Simmons
Page 3
April 3, 1981
In a letter to Senator Melcher dated October 28, 1981, EPA stated that possible
extension of the compliance date could be attained in two ways either through a
consent decree or a Nonferrous Smelter Order. Under a consent decree, the EPA
stated that "the smelter would have to post a bond assuring that it would shut
down by December 31, 1982". Under an initial NSO, if granted, "a smelter's off-
gases for major process equipment must be treated with constant control
technology." One method proposed by EPA would have required shutting down at
the end of 1982, and the other would have required the complete retrofit spending
program. Anaconda explored all of the options presented to it, but none of them
provided any new alternatives that had not already been considered. In any event,
even if an NSO or a consent decree were available, neither of these avenues would
have provided relief from Federal Ambient Standards, nor from other major
environmental requirements OSHA lead and the pending OSHA arsenic and sulfur
dioxide standards.
9. ARCO expedited the closure of the smelter in order to seize the
current opportunity of securing reasonable terms with Japanese
smelters.
Under EPA's consent decree option, Anaconda apparently could have operated
until the end of 1982 without fully complying with the Clean Air Act. However,
we then would have faced the question of when to shut down during that two year
period. As we have stated on several occasions, the Butte concentrate has a high
level of impurities and is a difficult concentrate to process in a smelter. Thus, we
decided to attempt to place this concentrate now rather than run the risk in two
years of not being able to find smelting capacity and thus having to shut down the
Butte mining operations as well.
Although the purpose of your inquiry is only to ascertain to what extent the
requirements of the Clean Air Act were responsible for the closure of the smelter,
we think it important to reiterate that the impact of the entire array of
environmental and workplace regulations, and not the Clean Air Act alone,
dictated the shutdown decision. Thus, although some of the avenues of relief
under the Clean Air Act which your report enumerates may have been available to
Anaconda, they would not have enabled us to keep the smelter open because of the
continued requirements of other environmental regulations.
Clearly, there may be some conflicts between our beliefs and EPA's; however,
Anaconda concurs with EPA in its conclusion that "this report should be used to
help refocus our attention away from this one smelter to the problems of the
copper industry".
Yours sincerely,
, Anderson
J. F
JFA/pjn
A-3
-------
o
Phone: (412) 562-2400
APR 24 1931
FIVE GATEWAY CENTmVJjPMsBWlpGH, PA. 15222
April 23, 1981
Mr. Robert A. Simmons, Director
Analytic Center (8M-AE)
U. S. Environmental Protection Agency
1860 Lincoln Street
Denver, Colorado 80295
Re: Anacojida^ Copper Company
Dear Mr. Simmons:
Attached are the comments of the United Steelworkers of
America, AFL-CIO, on the preliminary report of EPA covering the
role of the Clean Air Act in the shutdown of Anaaonda's Montana
smelter/refinery operations.
Based on our review of the report and the preliminary economic
impact assessment of JACA Corp., it is our position that EPA must
pursue this matter further before a final report is issued by
obtaining, through subpoena if necessary, the specific information
noted in our comments that Anaconda has not provided. This matter
of plant closures being blamed on environmental costs is always a
matter of concern, but it is of even greater concern given the
Reagan administration's fixation on economics and regulatory relief.
If Anaconda refuses to comply with the request for the necessary
information thereby making a final report impossible or useless, we
would renew our initial request for a public hearing at which time
the company would be subject to a request to produce the requested
information and be subject to cross-examination.
We request that if EPA decides not to act on our request for
seeking additional information with or without a hearing that we
be provided with a written statement of reasons for that denial.
If you have any questions, please let me know.
Sincerely,
~ 6k .
Mary-Win 0'Brien
MWOrlmb Assistant General Counsel
, Five Gateway Center
Attacnment Pittsburgh, Pennsylvania 15222
cc: Frank McKee Telephone: 412-562-2531
Jack Sheehan
Ed Ayoub
Linus Wampler
Robert Petris «^^>«
Barney Rask
A-4
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USWA COMMENTS
I. Introduction
Based on our review of the EPA preliminary report, it is
clear that EPA has concluded that..."the smelter was an unprofitable
or only marginally profitable operation even in the absence of
additional expenditures for process improvements or pollution control."
(p. 20) This conclusion is fully supported by the JACA economic
analysis. (p. 67)
However, on April 8, 1981, J. F. Anderson, senior vice-
president for Anaconda and the corporate contact with EPA, stated in
a letter to the Montana legislature the following: "Without new
environmental costs, the smelter was the most economical option
available and would have continued operating." (See attached article).
It appears, therefore, that the information available to EPA
to date has not reached to the heart of this matter so that the workers
and the public can know with a reasonable degree of certainty whether
the closure was in fact due to pollution control regulations or to a
more general economic decay in the copper industry that hit Anaconda
particularly hard by reason of the nature of its mining and smelting
operation.
It is the Steelworkers.1 position that there is only one way
to get at the truth in this case and that is to include in the
analysis the actual data available to and used by Anaconda but not
provided to EPA.
Agencies such as EPA and OSHA continue to rely on contractor
A-5
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studies based on publicly available data plus selective data
supplied by industry and unverified assumptions about industry
decision-making. Inevitably this approach leaves the agencies
vulnerable to charges that the analysis understates the impact on
industry, especially when the agency makes conservative assumptions
to counter the uncertainty in the data base.
Given the current revolutionary change to regulatory relief
and reliance on cost/benefit analysis by the Reagan administration,
it is even more imperative that companies such as Anaconda be com-
pelled to provide the assumptions and supporting data that they rely
upon for decision-making. When such evidence is not forthcoming,
the lack of cooperation must be clearly and publicly stated so that
any subsequent company claims that dispute the agency's conclusions
can be discredited in terms of both legal and public relations'
challenges.
II. Specific Comments
A. JACA Analysis
1. Lack of Specific Data
/
Throughout the report the consultants note that they do
not have specific data from Anaconda for the smelter and refinery.
This is a serious, if not fatal, deficiency and was directly counter
to Anaconda's assurances of full cooperation as set out in your
exchange of correspondence with Ralph Cox, president of Anaconda,
of November 4 and 7, 1980.
- 2 -
A-6
-------
As JACA states:
"6. The analysis of affordability depends upon
limited data and leaves considerable doubt
as to the true financial health of the smelter.
To improve the assessment of financial health
and effect of Clean Air Act expenditures, actual
operating data from Anaconda would be needed,
covering production costs, revenue, capital
expenditures, salvage value, and terms of the
Japanese smelting contract. To date, this data
has not been supplied by Anaconda." (p~ x)
(a) The specific information that is covered by this
statement is listed at p. 68 of the -report and it appears that in
order to be of value, it must relate to the smelting and refining
operations and not be company-wide as is the case with the 10K
reports or annual reports. (p. 11 and p. 40)
(b) Transportation costs must also be included since they
appear to play an important role in the options available to Anaconda.
(p. 44, 50-51)
(c) In addition, the reason why Anaconda lost its toll
smelting contracts and who they were with should be provided since
that is an important source of the decrease in the smelter's utiliza-
tion rate. (p. 45)
(d) With regard to the terms of the Japanese contract,
information must also be provided on when the negotiations started.
Since Anaconda, as part of Anamax, already has such a contract, we
would assume that these negotiations were interrelated to some extent.
(p. 45-46)
(e) It v/ould also be important to note if Anaconda uses the
discounted cash flow method for its analysis (p. 53) along with what
the corporate accounting method is. (p. 63)
- 3 -
A-7
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2. Foreign Competition
There are several areas where the report states that other
countries have an advantage over domestic producers. The main example
given is the protective tariff in Japan. (p. 52) The report (at p.
viii) also mentions more lenient environmental standards. We believe
that for a full assessment of the impact of the control expenditures
on Anaconda the foreign standards, especially those for Japan, should
be included along with a discussion of compliance in those other
countries.
Besides pollution control, it is also important to assess
the efficiency of the Japanese smelters in recovery of other metals
besides copper. It is our understanding that most copper smelters
also recover gold, for example. If the Japanese smelters are better
at this recovery and if Anaconda benefits from this under the terms
of its contract with the Japanese, then that could also explain why
that option was chosen. (p. 48)
3. ARCO/Anaconda
Given the large sale and profit base of ARCO (p. 29), it
is important to know just how much of ARCO's funds were used by Ana-
conda since the merger in 1977 to cover any expenses, such as mineral
exploration. This information is necessary to determine if ARCO was
willing only to provide Anaconda with funds for production and not
for the internalization of other costs, such as pollution control.
(p. 40) See the attached article on the relationship between oil and
copper companies.
- a -
A-8
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4. Smelter Compliance Status
The comparison to other smelters in terms of compliance
with EPA requirements should be expanded to include the recently
signed consent decrees with ASARCO and Phelps-Dodge.
B. EPA Preliminary Report
1. Allocation of Costs
Given the dispute between EPA and Anaconda about which
improvements are for production versus pollution control (.see attached
article), the final report should include both listings so that the
worker and the public will know precisely what items are being in-
cluded in each category and the associated cost. As the report makes
clear, there has been a continuing dispute over this matter going back
over the past three years. (pp. 9-10) We realize that EPA has
attempted to present its allocation of these items, but we would also
suggest that Anaconda provide EPA with specific information and reasons
where EPA's allocation is disputed.
2. Internal Policies
In the April 8, 1981 letter Anaconda denies that its
internal safety and health and pollution control policies contributed
to the closure. These policies should be provided with detailed
verifiable cost estimates based on actual implementation wherever
possible. (p. 14)
3. Conclusions
As set out in our introduction, in the absence of
specific data from Anaconda to justify its position, EPA is obligated
- 5 -
A-9
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to take a very strong public position that environmental costs
were not the key factor in the plant closure. Further, under
321(a) EPA should recommend that Anaconda be required to retract
its continued assertions that environmental costs caused the. plant
shutdown and to send such retraction to all former employees of
the affected facilities, to the press (.local and national), and to
the State and Federal legislatures.
~ 6
A-10
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^c//spu#es;vc/osurs; reports
Standard State Bureau
'HELENA -'A
legislative report on
closure of the Anaconda
smelter and Great .Falls
refinery was released
Wednesday, but may
already be 'outdated
'; because of a letter from an
,;Anaconda Copper Co...
official received, too late
for inclusion.
T-be study by -the
Legislature's Select
Committee on .Economic
Problems, appointed last
fall in the wake of the
. closure, -"found no-
conclusive evidence that
air. pollution restraints
were solely responsible .
but also declining profit
"levels with resulting
} reductions in investment
capital available,
; modernization costs;, tax
policies, diminishing
" quality of ore, and
' management decisions on
the most: fruitful use of
capital." - . '
In that regard, the
committee conclusion was
> much like- a recent
1 Environmental Protection
Agency report which
downplayed the effect of
'environmental regulations
and said a combination of
[ factors were behind the
1 closure. - *
. But appended to the
': committee report is an
April 8 letter to the
committee from J.F.
Anderson, senior vice
president of the Anaconda
Copper Co., which states:
:* "Without new
environmental costs, the
smelter was the most
economical option
available and would have
continued operating."
Rep. Joe Quilici, D-
Butte^chairman of the
- select committee, said the
letter was received too late
to be worked into the main
ireportit ; .. -.;
Quiljci requested
Anderson to write when the
EPA report contained
some findings that Quilici
believe did not square
with w at the committee
had bee'i told in a series of
public-Bearings.
: In oiw finding, the EPA
stated; /'Even in the
absenc^ of:, federal and
state-xjeivironmental and
health| regulations, the
smelter was a marginal
operati m that may .not
have-:'.b:en economically
viableii i the "long run due
to numJE rous economic and
operatii nal. factors....."" .: '
'..-. Ande rson wrote the
commit ;ee: "In its current
configuration, without the
addedj .burden of
environmental regulations,
the Anaconda .smelter
provided the least
expensive - alternative for
the sn elting and could
have v.o mtinued operating
indefinitely."
The'EPA also said the
company's? claim that it
would|have cost $400
million} to comply with
federal and state
environmental and health
regulations was
"misleading and
overstated."
Anderson, however, said
the EPA reached that
conclusion by contending
that some of the items
Anaconda listed as
pollution control costs
were'Actually simple
improvements in the plant.
And he.. said, the federal
agencyjmade a mistake in
that regard. "Each of the
items that EPA
characterized as process'
improvements were in fact
required for environmental
reasons," he wrote.
Anderson also took issue
with other EPA findings:
That the company's
own internal-
environmental and health.
policies may have
contributed to the closure.
"We doubt that the
'- implementation of ; these
.policies would . have
imposed -significant
financial burdens on the
v smelter," Anderson wrote,
adding the company ''did
.not analyze the economics
of retrofitting the smelter
to conform* to these
: policies."; % .: 'I'.
1 That the federal Clean
Air - Act; Amendments of
Atfn provided - companies
like Anaconda extra time
to meet the clean-air rules.
H1 Anderson responded the
; company "may or may not
have been able to meet the
eligibility requirements"
for the extra time, but even
-.if- it had, it still "would
:' ha ve been required: to
make the complete retrofit
capital expendituhat bad
not already been
considered." And the
options would not have
.provided "relief from
federal ambient (air)
standards, nor from other
.major environmental
requirements OSHA
lead and the pending OSHA
arsenic and sulfur dioxide
standards," Anderson
wrote.
That the company
"expedited" the closure of
the smelter in order to
seize the chance to secure
"reasonable terms" with
Japanese smelters, to
. where the ore formerly
smelted in Anaconda now
- is being shipped.
Anderson responded the
"Butte concentrate has a
high level of impurities and
is a difficult concentrate to
process in a smelter. Thus,
we decided to attempt to
place this concentrate now,
rather than run the risk in
two years of not being able
to find smelting capacity
and thus having to shut-
,'down the Butte mining
operations as well." ~ i
Anderson,.in concluding.
his letter, said "it is
important to reiterate that
the impact-of the entire
array of environmental
and workplace regulations,
and not the Clean Air Act
alone, dictated the
shutdown decision. Thus,.
although some of the.
avenues of relief under the
Clean Air Act which the
EPA report enumerates
may have been available to
Anaconda ,\ they would not
have enabled us to keep the
smelter open because of
the ; continued
requirements of other
environmental X": * r;:;V
regulations,^ .v>;,^ X.^-^::
'*"'-=:-"" "-* -£
A-ll
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y
'
O -f"> /H
HliU-
By SIMON D.'STTRAUSS *
J£';?3HE ancient saw is that one can't
I'i mix cii ujd water. How about oil
£i and ccppe'r? The question is espe-
cially relevant now. Standard Oil of
Ohio plans :o zierge with the Kennecott
Corporation. Standard Oil of California
seeks to accuirs ^.-.e SO percent of Aznax
shares it ci>=5 sot now own. These huge
acquisition involve billions of dollars
and also buiicns of tons of mineral re-
serves cornicing many millions of
.u-tonsofmstai. .
>" These are ±e latest developments in
. a process that started in 196? when'
V;.Cities Service acquired the Tennessee
'-Corporation, controlling copper mines
-in Tennessee and Arizona. Subse-
"quently four other domestic copper-
imining companies have been absorbed
, :by oil companies . : '/
,£' Should the Kennecott and Amax
(. .deals be completed, more than 55 per-
^'cant of domestic copper-mining ca-
^pacity..will be in oil-industry hands
l about 1.15 million tons a year out of
^ something over 2 million tonSjt
:,"' Two qv.esticrs naturally arise: Why
'./did it happ-si? Is it a good or a bad
. .'thing? ' . -;". ~-
'".. The first question is easily answered.
;.. Shares of copper companies have been
'.. selling at low prices in relation to re-'
". placement ccst. Oil companies are
.. strong financially; They see an pppor-
'".tunity to gain control of e.Ttensiveinin-
' eral resources at a fraction of the cost
'.. of finding and developing comparable
capacity in a business they believe to
be compatible with their own experi-
,". enca and experMse.
Why have copper shares sold at a
large discount from asset value? The
industry is highly cyclical. Its earnings
fluctuate sharply in response to the
price of copper. Although the copper
price is normally determined by world
market conditions, during recent boom
periods United Staf.ss producers have
. h«en unable to hen^flc ircm high prices
. c^cause.oi Gov^r^.rt-.ent policies an
. actual price .Tee?? in ;he 1971-74 peri-
c."!; restrnint 'liro-.igh "jawboning"
during the soaring -markets of the late
1C50'3.
Moreover, co.srly environmental
rc-ijuiHtions havs irncosed a heavy
-rain on the iniluscry's lir-.ancial
D. .Verses; is a dirsctar of
sa.'co Inc.. a ip^dir.g producer o/cop-
r~^T^ rr:^ ^i
J^ ~, * ^4^_> »,* , .^ \.»^^, _ ^_. ,^^j
?-;
tt
DuvalCorp,
Fennzoil
Copper Bang 9-
Lcubiana Lanji&;
a.- n/ti l^>V.Jka.
iroA-rraxeaci
eqt»a {/ Hcvie/e/ ureJer FTC decree Araco.iaa mu-»t cf vast ;tse'J
of «te by ^9£5
"'Prooosed
iiwr^-K^-i,
strength. In the late 1360's a govern-
msnt agency study estimated the cost
{to domestic nonferrous smelters of con-
. t trolling air pollution at 560 million to
| 380 millionln capital expense. To date
I the copper industry has actually made
jl capital investments exceeding 31.25 bil-
\\ lion and as yet is unable to comply fully
\V.with the standards.
Phelps Ccdge in late March an-
nounced it would spend S195 million
more at two of its smelters and might
I/have to close a third plant. Another
leading domestic producer. Anaconda
O'ATied by Atlantic Richfieid
closed .its smeltar and refinery in Mon-
tana last ysar rather than spend an
estimated .>.!
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'discouraged by the low price-or copper
(expressed in constant dollars). -. ..
-'/ If demand for copper resumes the
/ growth shown in the 1950's and LftW's,
new productive capacity will be need-.
I ed. But since 1974 no major nsvv oopprsr-
i mine project had been definitely
' started anywhere in the non-Corarna-
\ r.ist world, with one exception: the Ok
\JTedi project in Papua, New Guinea, in
which Standard Oil of Indiana has: a 30
percent interest. That decision was fa-
cilitated by the gold content of the rock
overlying the copper ore body. .
..Most, of the major new copper;
projects initiated prior to 1974 were
conceived of and financed by'mining
companies not oil companies. This
includes Bougainville in Papua, New
Guinea, Lornex in Canada; Cuajone in
Peru; Ertsberg in Indonesia; Caridad
in Mexico, and Anamax, Tyrone and
Metcalf in the United States.
Despite some similarities, there are
major differences between oil and cop-
per. For decades world demand for oi!
grew at a fairly constant rate, little jn-
fiuenc^d by cyclical economic swings.
V/orld demand for copper may fluctu-
ate by as much as 20 percent from one
year to the next with the tides of busi-
ness sentiment.
Copper prices are fundamentally
determined on. commodity exchanges,
cpen to anyone to trade and subject to
immediate and sharp .movements re- .1
suiting fron* unexpected political or ;
military developments. Oil prices are i
administered originally by major oil
companies, now by the Organization of
Petroleum Exporting Countries..
Copper is an enduring material; it
ccvn te recycled, time after time. Scrap
supplies, moving through the hands of
an astute: coterie of dealers, play a
major role in influencing the copper,
;r;uie. Only a tiny fraction of cii sup-i.
piiss can be recycled and the oil mar-1
ikKer has little reason :o calculate thej
' market influence from salvage. . |
s To have the copper industry com-i
.^pietely under :he influence of chief ex^j
,' hiouciv" officers whose main concern is'
(-. ;i-vill, i.Tjny judgmeni.'undermiheChe:
'l}-j:?msstitivs .posture- of the Up.itsdi
| ::.ci:i?5 p'roducsrs. in other countries,!
:'r.z copper industry is managed by cop- \
~3r miners not by oil men. They";
rr\\
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Garry L.Prestoa
4034 Wynne Avenue
Butte, Montana 59701
Phone (406) 494-4396
2? March, 1981
vi "
Mr. Rodger L. Williams Regional Director
United States Environmental Protection Agency
Region VIII
1860 Lincoln Street
Denver, Colorado 80295
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Rodger L. Willaims (2) 27 March, 1981
I have also become very aware of some highly compliant research people in the
Eastern Seaboard who now question the validity of the damage done by the so
called acid rains and 302 problems. As these become better known, and the
research more complete, the viability of the harsh 302 requirements may be
exposed as unnessisary. Time will tell, but much of the standards are arbitrry
and not based on sufficant research. While your techinical staff will say they
have the fixed proof, I feel they may find themselves with some problems they
cannot answer.
I do feel there should be a public hearing in the City of Anaconda, I am not
certain if you will do such. Or if I could be there, as my employment keeps
me on the road. Nevertheless, your report is not complete, and is rather a
brief of apologetics on the part of The EPA.
I cannot feel that any agency can justify itself when our country is loosing
so much of its ability to compete with other nations. Not only is our national
economy become caotic, but our ability in national defence in these hard days
has droped far too much.
I therefore ask for a public hearing for the city of Haaconda,Montana by the EPA.
With Respect, I remain yours
Carry L. Preston
Past President Local Lodge #29 International Association of Machinists and Aerospace
Workers International AFL/CI07CLC
A-15
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