ROLE OF CLEAN AIR ACT REQUIREMENTS
IN ANACONDA COPPER COMPANY'S CLOSURE
OF ITS MONTANA SMELTER AND REFINERY
preliminary report
U.S. ENVIRONMENTAL PROTECTION AGENCY
REGION VIII
DENVER, COLORADO
March 19, 1981

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^	FOREWORD
This^report presents preliminary findings and conclusions from EPA's
investigation of Anaconda Copper Company's closure of its smelter in Anaconda,
Montana, and refinery in Great Falls, Montana. Under Section 321 of the Clean
Air Act, the Agency is authorized 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 purpose of the
investigation is to determine the specific role the Clean Air Act played in
the closure. The investigation is not intended to require or authorize EPA to
modify or withdraw any requirement imposed under the Act in order to keep a
facility open.
EPA expects that additional information concerning the validity of the
preliminary findings and conclusions will surface during review of the
report. The report is based on publicly available financial information and
technical data provided by Anaconda related to the proposed environmental
improvements at the smelter. Additional data may be required from Anaconda in
order to properly respond to comments EPA receives on this report.
There will be a two week public comment period to receive reaction and
additional information regarding the report. EPA will use the comment period
to determine the need to hold a public hearing to receive further information
related to the Anaconda closings.
Individuals wishing to furnish comments on the report should do so in
writing by April 3, 1981. Requests for a public hearing should indicate
specific needs which could be satisfied by conducting a hearing. Please
address your comments and/or request for a public hearing to:
Robert A. Simmons
Director, Analytic Center (8M-AE)
U.S. Environmental Protection Agency
1860 Lincoln Street
Denver, Colorado 80295
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;,3a1S!;e:sa2?Jc^^i<=alUbraries
a tildg h'oom 3340
Maiicode 3404T
Constitution Ave NW
Washington DC 20004
202-566-0556

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ROLE OF CLEAN AIR ACT REQUIREMENTS
IN ANACONDA COPPER COMPANY'S CLOSURE
OF ITS MONTANA SMELTER AND REFINERY
Preliminary Report
U.S. Environmental Protection Agency
Region VIII
Denver, Colorado
March 19, 1981

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TABLE OF CONTENTS
Page
I.	Introduction	1
II.	Background	1
III.	Preliminary Findings and Conclusions	2
IV.	Anaconda's Environmental Problems in Perspective	4
V.	Discussion of Preliminary Findings and Conclusions	8
A.	Efforts to Explore Alternatives with EPA	8
B.	Evaluation of Anaconda's Estimates of Costs for
Environmental and Health Requirements	9
C.	Anaconda's Internal Environmental Policies	14
D.	Economic Factors Affecting the Anaconda Smelter	14

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I. INTRODUCTION
This document consists of EPA's findings to date and preliminary
conclusions resulting from its investigation and evaluation of the decision by
Atlantic Richfield Company (ARCO) to terminate operations at its smelter in
Anaconda, Montana and refinery in Great Falls, Montana. The purpose of this
report is: 1) to present the results of EPA's investigation of the role the
Clean Air Act played in closing the smelter and refinery, 2) to solicit
additional information about the validity of EPA's preliminary findings and
conclusions, and 3) to determine the public interest in holding a hearing to
receive and disclose further information related to the Anaconda closings.
The findings and conclusions included in this report are preliminary. By
raising basic questions and concerns surrounding the closure of the smelter,
EPA expects that additional data will surface that may affect the ultimate
findings and conclusions reached in the investigation. Before EPA can make
recommendations and reach final conclusions regarding the role of Clean Air
Act requirements in the closure, additional analysis of all available
information will be required.
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 yet 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 #2 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 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.
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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. As a final point, 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.
Ill. Preliminary Findings and Conclusions
In the course of the investigation, EPA has assembled and analyzed
publicly available information relating to the Anaconda smelter. Though the
company has not yet supplied 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 preliminary findings and conclusions. These findings put
the environmental and health requirements for continued operation of the
smelter in perspective and strongly suggest that other reasons may have
prompted ARCO to close the smelter and refinery at this time.
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 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.
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
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
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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 only $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.
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
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.
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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. Under a nonferrous smelter order
(NSO), a smelter experiencing 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, tne 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.
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 take advantage of
excess smelting capacity currently in Japan in order 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.
The Clean Air Act requires industrial sources to control sulfur dioxide
(SO2) emissions to meet health-based ambient air quality standards. Control
of SO2 emissions is a major problem at the Anaconda smelter. In 1970 the
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State of Montana adopted regulations that required the Anaconda smelter to
achieve 90 percent control of SO2 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 SO2 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 SO2 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 SO2 emissions.
When it was operating, the smelter achieved less than 30 percent
control of SO2 and was one of the largest sources of SO2 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 SO2 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). 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 SO2 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 10 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, and two currently have no control of
SO2. While most smelters were making capital investments to control their
pollution problems, Anaconda kept delaying the necessary commitment to
undertake the modifications needed for pollution control.
If the Anaconda smelter had remained in operation, it might also have
been subject to requirements under Section 112 of the Clean Air Act to
control arsenic 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 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/m^, 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
affected industries 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.
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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%
ASARC0/E1 Paso, TX
115,000
70%
Hayden, AZ
180,000
35%
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
65%
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V. Discussion of Preliminary 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. 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.
The most obvious, short-term approach was the negotiation of a consent
agreement which would have permitted the smelter to operate until the end of
December, 1982. Under this solution, the company would not have been
required to make any capital commitments to add pollution control
equipment. Anaconda rejected the option without exploring its feasibility
with EPA.
The second alternative was for the company to apply for a nonferrous
smelter order (NSO) under the unique provisions in Section 119 of the Clean
Air Act which allows 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 the first final order
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 (e.g., demonstration that controls beyond what is
reasonably available are needed to achieve compliance; constant and
supplementary control system requirements). However, Anaconda never
approached EPA to discuss flexibility that might exist in administering an
NSO.
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In any event, Anaconda could have entered into a consent decree for the
same time period covered by the initial NSO and avoided the capital
investments which might have been necessary under the initial NSO. Entry of
a consent decree would not have affected Anaconda's ability to apply for the
second NSO. Although regulations for the second NSO have not yet been
developed, EFA indicated its willingness to negotiate a solution, consistent
with the flexibility afforded by the Clean Air Act, which could have
permitted continued operation of the existing smelter beyond 1982 under
certain circumstances (e.g., if a new smelter was being built or if
additional time was needed to install air pollution controls on the existing
smelter). However, Anaconda made no effort to explore this alternative with
EPA. Instead, the company affirmed that the smelter and refinery would not
be reopened.
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. 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 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 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 2.
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".
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Date
1977
1977
1978
1978
1979
1979
1979
1979
1980
1980
TABLE 2
COMPARATIVE HISTORY OF ESTIMATES OF COMPLIANCE COSTS
Who
Source
Cost
EPA
SRI Report
$43 Million
ARCO
10-K Report
$65 Million
Anaconda
Kaiser Eng. Report
$40 Million
ARCO
10-K Report
$145 Million
Anaconda
Fluor-Furukawa Report
$97 Million
Anaconda
Lurgi Report
$136 Million
Anaconda
SIP Compliance Plan
$185 Million
ARCO
10-K Report
$200 Million
Anaconda
Lurgi II Report
$378 Million
ARCO
Public Announcement
$400 Million
of Plant Closures
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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 current 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
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 G. 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.
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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, due to
problems with the process and operation of the smelter, only 20 to 30 percent
of the SO2 gases were controlled.
The 1979 ARCO 10K Report on page 22 stated: "Anaconda has invested $68
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 to $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 or 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.
4. Cost Allocation and Perspective
The smelter modifications in the Lurgi study included costs that are
not attributable to controls to meet the Clean Air Act requirements. To
better appreciate the total smelter modification cost estimate, it is
necessary to allocate the modification cost according to purpose. Included in
the Anaconda/Lurgi smelter modification plan are significant process
improvements needed to make the smelting system operate efficiently and more
profitably and to provide for effective pollution control. Separation or
allocation of cost between process improvement and pollution control is
difficult and therefore only a coarse estimate was made from the Lurgi report
cost summary.
The Lurgi modification cost estimates 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. Total equipment and installation cost for these
areas is $168 million. Using Anaconda's estimates for contingency and
escalation, the total cost for plant process improvement is approximately $225
mi 11i on.
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To meet the Clean Air Act requirements, additional acid plant capacity
and control of fugitive emissions from the converters and the electric furnace
matte and slag tap launders are required. Costs associated with pollution
control equipment are estimated to be the total of the Lurgi modification cost
for the fugitive, wet gas cleaning, sulfuric acid, waste water, and 50% of the
utilities areas. Total equipment and installation cost for these areas is
$190 million. The Lurgi modification included fugitive control in areas other
than the converters and the electric furnace matte and slag tap launders. EPA
believes that $20 million of the total cost estimate 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, 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 acid plants. The resulting
cost estimate for those items needed to comply with the Clean Air Act is then
$190-$70 million or $120 million for equipment and installation. When
adjusted for Anaconda's contingency and escalation the estimated total cost is
$160 million.
In conclusion, the cost estimates can be surrmarized as follows:
-	Plant process equipment improvement
-	Clean Air Act
-	OSHA/Other Fugitive controls
-	Acid Plant Overdesign
-	Total for Lurgi modification
-	Anaconda Contingency and Escalation
-	Total
$168 mi
120 mi
20 mi
50 mi
358 mi
$122 mi
llion
11 ion
llion
llion
llion
llion
$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
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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
facilities. The officials conceded the smelter at Anaconda did not meet the
company's minimum standards and continued operation of the substandard
facility was not in keeping with the company's policies. Given the magnitude
of the environmental problems at the smelter, it is not certain whether the
company would have even undertaken the investment needed to upgrade the
smelter to its own internal standards. Coupling this with needed process
improvements, the investment required for the smelter to continue operations,
irrespective of regulatory environmental requirements, may have been too much
for ARCO to accept. The already marginal position of the smelter made
additional investment unwarranted from the company's economic standpoint.
D. Economic Factors Affecting the Anaconda Smelter
Despite modernization efforts at the Anaconda smelter in the early
1970'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 and are of sufficient
magnitude that it is doubtful the smelter could become a cost competitive
operation, given other alternatives available to the company. These
alternatives included building a new large-scale, efficient smelter at a
location closer to major markets for sulfuric acid by-product and within
proximity to low-cost water transportation; and toll smelting its concentrates
at other domestic or foreign smelters. While Anaconda has chosen the latter
option as an interim measure, the company is still considering the possibility
of building a new smelter somewhere in the world. Factors other than
environmental regulations are discussed in further detail below.
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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. If a company can find a lower cost
alternative to operating its own smelter and refinery it would have reason to
do so on strictly economic grounds without adversely affecting its mining or
fabricating operations.
2.	Financial Condition of Anaconda Copper Company
The economic viability of the smelter at Anaconda was affected by the
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 has 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
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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.
Despite the institutional disadvantages confronting the domestic copper
industry, 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 mines 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 worldwide 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
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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. The presence of these contaminants
also results in a lower grade copper that cannot conmand 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.
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. The smelter is not
favorably located with respect to receiving copper concentrates from other
parts of the country or overseas and there are other toll smelters in that
area which can process the concentrates cheaper. At one time 40 percent of
the Anaconda's production was toll business, but in recent years the smelter
has had no toll business.
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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 still open to 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 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. 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 money 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. In addition, 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.
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.
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.
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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
results nonetheless 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 necessary
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.
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
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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, ft
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.

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