Anglo American owns 44 per cent of the Collahuasi open pit mine.The Globe and Mail
Two enormous holes in the ground are driving the merger of Vancouver’s Teck Resources Ltd. TECK-B-T and Anglo American PLC NGLOY of London.
The holes are in the high-altitude desert of northern Chile and produce vast amounts of copper. They are known as Quebrada Blanca (QB) and Collahuasi and they are less than 15 kilometres from one another. QB is 60-per-cent owned by Teck; Anglo owns 44 per cent of Collahuasi.
For years, the two mining houses and their partners have dreamed of putting the operations together. The scenario stands a good chance of happening now that Teck and Anglo have agreed to merge in the name of “synergies” – business jargon for cost-cutting aimed at boosting profits.
On paper, operating the two mines as one looks easy. In practice, doing so could turn into a technological and haggling ordeal, all the more so since Anglo and Teck have four partners at the mines, including Glencore, one of the world’s biggest resources companies, which also owns 44 per cent of Collahuasi. They will all want their say.
Why are the QB and Collahuasi mines propelling the Anglo-Teck merger?
Because fortunes can be saved and made by operating them together, sharing everything from the ore bodies and the mills to the trucks and the loading ports on the Chilean coast. Anglo and Teck last week said that putting the mines together would boost collective pretax operating earnings by US$1.4-billion a year.
What are the two mines’ similarities and differences?
Their main similarity is that they both produce copious amounts of copper, a “critical” metal that is used in everything from car batteries and electricity transmission lines to hearing aids and plumbing. The main difference is relative size and ore grade.
Joly says Anglo American promises around Teck takeover don’t go far enough
With a pit that is 3.5 km across and 1 km deep, Collahuasi is the second-biggest copper mine in the world; it produces some 550,000 tonnes of the metal a year, or more than double that of QB. Collahuasi also has much longer reserve life.
Crucially, one tonne of ore blasted from the Collahuasi pit contains, on average, 0.96-per-cent copper, or almost double QB’s 0.52 per cent, according to the companies. The relatively rich ore makes it far easier for Collahuasi to produce sustained positive cash flow and profits than QB.
How would the mines be merged?
The idea is to build a conveyor belt – cost estimate not disclosed – that would take Collahuasi’s high-grade ore to the QB mill for processing. Doing so would allow the QB and Collahuasi mills to both operate at higher capacity, in turn allowing Collahuasi to increase its ore extraction.
Between the extra ore production, and Collahuasi’s higher grade, Anglo and Teck say the combined mine could boost copper output by 175,000 tonnes a year. “To process the high-grade ore from Collahuasi in the QB plant would almost double annual QB copper production,” said Jeffrey Franzen, a retired Vancouver mining consultant. “That would be a needle-mover for the joint operation of these world-class, side-by-side mines.”
Carney told Anglo American to move headquarters to Canada for Teck deal approval, sources say
The question is whether the QB mill can efficiently process Collahuasi’s ore. While the two mines are neighbours, they have different ore bodies. Feeding Collahuasi ore into QB’s mill is bound to create teething problems, not only because the former’s ore is richer, but also because it is softer and has a somewhat different makeup of, for instance, copper sulphides.
Oil refineries have similar issues. A refinery built to process heavy crude from Alberta cannot automatically process light crude from Texas shale deposits. The mining engineers will work the copper processing out, but it could take some time and add expense.
Does it make any sense to keep QB’s mining-pit operations going if the two mines merge?
Glencore insiders say it makes no sense to feed QB’s low-grade ore into QB’s mill when ample quantities of high-grade Collahuasi ore are a conveyor belt away. Anglo and Teck insiders say that the QB mill will probably use a mix of both ores, allowing the QB mine to keep going, though probably at lower intensity.
Egos and face-saving may come into play. The price of expanding QB (turning it into QB2, as it’s known) went from US$5.2-billion to US$8.8-billion, covering the cost of the enlarged port, the oceanside water desalinization plant, the mill and related infrastructure, the bigger pit and the trucks and other hardware used in it. To shutter the key part of that industrial chain – the hole in the ground – might be too much for Teck’s executives to bear after years of intense work and soaring costs. The engineers and cost accountants may or may not have the final say.
If the Anglo-Teck merger fails, are the QB and Collahuasi mines doomed to remain separate?
Not necessarily. Virtually the same synergies could be produced by shunting the mines into a joint venture that would be pro-rata owned by Teck, Anglo, Glencore and the smaller Chilean and Japanese partners. Doing so would make Teck and Anglo partners in the JV but preserve their corporate independence – and Teck’s Canadian identity. That may be the fallback strategy if Teck’s class B shareholders, who were offered no premium by Anglo, do not approve the merger.