KGHM Starts Copper Production in Chile
August 29, 2014
Polish copper and silver giant KGHM has began feeding ore into a process plant at its Sierra Gorda mine in Chile, in one of the largest mining projects of its kind in the world.
The Sierra Gorda mine is located in the antofagasta region in the Atacama Desert, which is Chile’s largest copper producing region. Work to commission the key infrastructure components necessary for the production of copper concentrates ended at the end of July. The pre-stripping process at the mine was completed in April, with a total of 192 million tons of material removed, and key processes such as crushing, grinding and flotation plants have been successfully launched at the plant site.
“We and our partners developed this project remarkably quickly, while at the same time maintaining the highest safety and environmental standards,” said Herbert Wirth, President and CEO of KGHM. “It took us only 10 years from exploration drills to actual production. This very fast pace could only be achieved because we have the highest managerial standards.”
The purchase of the mine in Chile is KGHM’s largest investment abroad. In December 2011, the company paid zl.10 billion to buy Canadian company Quadra FNX, which apart from several mines in North America had a 55-percent stake in the Sierra Gorda mine in Chile.
When the mine becomes fully operational early next year, Sierra Gorda will produce 120,000 tons of copper, 50 million lbs. of molybdenum and 60,000 oz. of gold annually. Once phase two of the project is completed, average annual production will reach 220,000 tons of copper, 25 million lbs. of molybdenum and 64,000 oz. of gold over the mine’s 20-year life span. There is additional production potential in the processing of oxide ore. The first copper cathodes have already been produced after initial tests.
“With production from Sierra Gorda, the weighted average cost of copper production in the KGHM group will decrease, thereby enhancing the company’s operational security,” said Jaros³aw Romanowski, Executive Vice President and CFO of KGHM. The company’s cost performance will be influenced by sales of Sierra Gorda’s additional products, including gold and molybdenum, whose prices are at the moment almost a quarter higher than originally envisaged, according to the company.
The first shipments of copper concentrate will leave Sierra Gorda in September. Half of the mine’s copper production will be processed by Japan’s Sumitomo group, which holds a minority stake in the Sierra Gorda mine. The remainder will be sold on other markets worldwide.
Sierra Gorda SCM, operated by KGHM International, is a joint venture between KGHM (55 percent), Sumitomo Metal Mining (31.5 percent) and the Sumitomo Corporation (13.5 percent).
According to Wirth, the cost of commissioning the Sierra Gorda mine was $4.156 billion. The company initially expected the costs to come in at under $2.9 billion, but later the estimate was raised to $3.9 billion. Further information from the company suggested this would be around $4 billion.
KGHM also said that during the first five years, the cost of production in the Sierra Gorda mine will be $1.13 per lb. Maciej Koñski, KGHM director for strategic analysis and raw material deposits, said, “$1.13 per lb. is the current cost when it comes to technical conditions, but that takes into account conservative prices of molybdenum. With the current level of molybdenum prices, this would be less than $1 per lb.”
The molybdenum market has potential for growth. The key buyer is China, which plans to increase its consumption of molybdenum as an additive to steel. On average around the world, steel alloy contains 7 percent molybdenum, while in China the figure is 2-3 percent. China aspires, however, to catch up with the West in terms of quality. Molybdenum consumption in that country is expected to grow, leading to higher prices of this metal.