Staying strong in copper

A raft of major investments made in 2006 will ensure that Rio Tinto remains a leading long term supplier of copper. Significantly, the Group now has interests in four world class undeveloped copper deposits.

Interests were acquired in La Granja in Peru, which is undergoing a US$95 million prefeasibility study, Oyu Tolgoi (Turquoise Hill), the largest undeveloped copper-gold deposit in the world, and the Pebble project in Alaska, a large body of mineralisation whose size estimates continue to increase. These projects join Resolution Copper in the US to form a robust long term development portfolio.

Copper has benefited more than most non ferrous metals from the acceleration in world economic growth. Record prices are an indication of the strength in metals and minerals demand in the US and Asia. China has been prominent but markets in Japan and elsewhere have also strengthened.

In 2006, the Copper group accounted for 49 per cent of Rio Tinto’s underlying earnings. So, taking the past decade as a guide, these are truly exceptional times for the copper sector. But while the long term requirement for copper remains positive, high quality, long life mineral resources, the basis of good financial returns, are relatively scarce. Moreover, large new discoveries are becoming harder to find and also to mine. Harder because the orebodies are deeper, their metallurgy is more complex with lower grades of ore, and they occur in more difficult operating environments.

The Copper group has responded vigorously to this challenge by funnelling an impressive list of projects into its pipeline. In Mongolia, Rio Tinto has bought into Oyu Tolgoi, a copper-gold complex in the South Gobi region. First production from the mine, using an open pit operation, is planned for the end of the decade and will be followed several years later by an underground mine, subject to the timely completion of a long term investment agreement with the Mongolian government. The discovery is conveniently situated only 80 kilometres from the border with China, a country whose hunger for copper has led the current surge in demand.

Rio Tinto’s interest in Oyu Tolgoi was acquired by taking a 9.95 per cent stake in the Canadian company Ivanhoe Mines. This holding will rise to 19.9 per cent upon the completion of a long term investment agreement with the Mongolian government. The Group has an option to increase its stake in due course to 33.35 per cent, and potentially take it up to 40 per cent via open market transactions.

Evaluation is progressing at La Granja (Rio Tinto: 100 per cent) in Peru. Instead of looking at La Granja as a conventional milling operation producing concentrates for export, the prefeasibility study is seeking to demonstrate recovery of copper metal using sulphide bioleaching with the aid of bacteria, followed by electrowinning. First production is at least seven years away.

Pebble in Alaska is another long term project still in its early stages. Initial evaluations suggest the copper deposit may be even more promising than was originally thought. In February 2007 Rio Tinto increased its interest in Northern Dynasty Minerals, which owns Pebble, to 19.8 per cent.

At Resolution (Rio Tinto: 55 per cent) in Arizona, preliminary shaft sinking will begin soon. However, significant expenditure will not take place until Congress approves the land exchange needed to give full access to, and allow industrial development of, the land above the potential mine. The deposit lies two kilometres below the surface. Much work remains to be done to obtain a thorough understanding of its configuration in order to decide how best to develop it and also to carry out the relevant environmental impact assessments. Resolution is not expected to go into production before 2015 – an indication of the long lead times for challenging projects.

The Copper group’s long term development plans are not just confined to its principal product. Rio Tinto has a number of nickel development opportunities which are currently being evaluated. Demand for the metal is forecast to continue growing by four per cent a year until at least the end of the decade and the market offers favourable economic returns. At the small, high grade Eagle nickel deposit (Rio Tinto: 100 per cent) in Michigan in the US, feasibility studies have been undertaken and a decision on developing the deposit is expected in 2007.

As well as all these major new mining ventures, a number of other projects at existing mining operations are either under way or in preparation. Prominent among these is a study to extend copper and molybdenum operations at Bingham Canyon in Utah through either a further pushback of the open pit or a transition to underground mining. At Northparkes in Australia, a US$160 million block cave mining project has been approved that will extend the mine’s life until 2016.

By developing large new projects on a broad base of operations which are performing well today, the future production profile of the Copper group looks assured for years to come.