INNOVATIONS IN METALLURGY

WITH A CASE STUDY OF Pb SMELTING IN PERU

Phillip J. Mackey

PERUMIN - 31st Mining Convention

Arequipa, September 16th to 20th, 2013

“Peru is a Mining Country”

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We must not forget that metallurgy is as much a part of mining as

digging ore out of the ground. As you will see in the logos here

developed by our predecessors, smelting is part of the mining cycle.

Peru must be a mining country in the true sense of the word. This

presentation will talk about developing a Pb smelting industry in Peru

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Population growth, with water and food crisis looming

Electric cars gaining further attention

New African opportunities Waning of the climate debate, emergence of sensible climate science

Slow recovery in the U.S. but an overall decline of U.S. world influence

Surge in the economies of China and India

Growing importance of South America

Political conflict and unrest

Some World Trends

All these trends mean change…..

So change is very much part of life, and there is also change

in the mining/smelting industry ……. as will be discussed....

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What are the ten top issues that mining

companies worldwide will face during

the next 50 years?

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1. Loss of market capitalization, lower share prices (market does not buy

the industry’s “long term growth strategy”)

2. Importance of emerging markets (China, India, etc)

3. One critical key to the future will be the ability of a company to bring on

new metal supply through the right projects ( capital discipline)

4. Relentless demand will be there – the % increases in growth may not be

as high as before

5. Balancing productivity and profitability:

Position on cost curve a primary focus (= cost reduction)

Role of technology – technology & innovation can lower

costs (also requires detailed understanding of data and processes)

Some Immediate Issues

Affecting Mining Companies

In part taken from.“ Review of Global Trends in the Mining Induistry-2013, Price Waterhouse, www.pwc.com

…..and a prediction……….

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1. At present, world mining companies send huge amounts of non-ferrous metal concentrates to China for smelting…..copper, zinc, lead……….

2. This large scale “mining-custom smelting model” is likely not sustainable due to issues including….higher labour costs in China, energy costs, environmental controls, possible difficulties/concerns on shipping some materials (like Zn, Pb, etc), other environmental aspects....

3. It is considered that over say about the next decade, concentrates will more and more be treated at the country of origin or another convenient country (but still, China will remain a key player in the industry)

Peru needs to plan now for future changes. This situation will be discussed later in this presentation regarding developing a modern Pb smelting industry in Peru

Latin America Overview

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• Part I - Innovations in metallurgy Important for keeping low on the cost curve

Types of innovation – examples

Discussion

• Part II – Case Study of new Pb smelting industry in Peru Considerations involved, requires some innovative thinking

Plan of action

• Part III- Conclusions

Outline of Presentation

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World Growth in Metals

1800 to 2010

Up until about 1900,

Pb was the most

important non-ferrous

metal

Growth of all metals

will continue

The white curve plots the trend of Cu concentrate

to custom smelters, 1970 to 2010

The box (yellow curve) shows this trend

from 1700 to beyond 2000

1970 1980 1990 2000 2010

0

20

40

60

80

100

YEAR

CU

ST

OM

SU

PP

LY, %

Source: P.J. Mackey

This reveals the trend is cyclical. The same type of trend would also apply to Pb concentrates

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• Different results require different actions

• Different actions require different thinking

• Different thinking requires generous listening

Change……

(e.g., establish a modern Pb smelting industry in Peru)

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To look is one thing

To see is another

To understand what we see is still another

But to ACT on what we understand is really what it’s all about, isn’t it?

* Paul Hersey (1931-2012) – A leading US authority on training and development in leadership

Paul Hersey’s quote*

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All major technical developments in mining and metallurgy

have occurred as a result of successful innovative

developments

This has been carried out by operating companies,

equipment suppliers, research institutes of various types

and universities

There need not be “one best place” to carry out

development….it depends on the strategy and approach of

people involved

What has innovation done for us

What innovation has done for the energy

requirement to produce copper (by smelting)

Since 1900, energy consumption

has dropped by a factor of about

30 times. (flotation, use of large

reverbs, later use of O2)

Energy at present time ~ 12,000

MJ/t Cu, 70-80% is electricity, as

compared to mostly fossil fuel in

the past

Decreasing trend of energy consumption in Cu Smelting over the last

four centuries (as MJ/t Cu - feed to metal)

Source: Coursol et al. Energy in copper smelting, CIM, 2011

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1. Creative-”Flash of Insight”

Examples Noranda Process – 1963 (copper smelting),

Top Smelting Lance - (1971) - ISASMELTTM, Ausmelt

Gravity separator (in mineral processing)

2. Innovative Adaptation (also called “incremental innovation”)

Examples Outokumpu flash smelting -1947 (Cu, Pb and Ni)

SAG milling

Use of oxygen for smelting

Establish a modern Pb smelting industry in Peru

Two Broad Types of Innovation

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1. In the 1960s, the mainstay of smelting was the large reverberatory

furnace, with converter slag returned to the furnace for slag

cleaning

2. The soon-to-be-inventors did ground-breaking tests that showed

returned converter slag had an extremely short residence time in

the furnace, yet slag was still effectively cleaned of copper

3. The inventors deducted that since the slag residence time was low

yet effective, why not combine smelting and converting in the same

vessel and still keep the same short residence time for slag

cleaning

4. Thus was born the Noranda Process, the world’s first commercial

plant for continuous smelting and converting

A Flash of Insight - The Noranda Process

(N.Themelis and P. Spira - 1963)

Innovative Adaptation-Outokumpu Flash Smelting (Bryk et al. - 1947)

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1. The idea “flash smelting” of fine concentrate

in a gas stream had been known and used

since the 1930s

2. Outokumpu in the 1940s, wishing to utilize

the chemical heat of smelting (instead of

using scarce electric power as used pre-war),

chose to adapt the 1930s flash smelting ideas

to their own requirements.

3. Thus was born the Outokumpu Flash Smelting Process, the world’s first commercial plant for smelting to a medium grade of matte and utilizing the heat for smelting

St Jacques furnace, 1930s

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“ The reasonable person adapts himself to the world.

The unreasonable person tries to adapt himself to the

world.

All progress comes from the unreasonable man.”

George Bernard Shaw

British Writer (1903)

The Path to Progress (e.g., establish a modern Pb smelting industry in Peru)

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Note: Mine production

represents about 44%

of output, bal. is recycled Pb

Peru provides about

5 % of world mined Pb

but no Pb metal*

Source: Hassall et al, Pb-Zn 2010, CIM/TMS

Global Pb Production

With Cerro re-starting,

this is a simplification

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Ranking of Pb mine output

by country

Source: USGS, Washington, USA, 2012

Metal price trends

Highly volatile since 2005

Metal price trends - highly volatile

since 2005,will likely remain so

Long Term Pb price ~US$2,100/mt

Lead

Source: ILZSG, 2012

Pb mine output in China increasing

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Source: ILZSG, 2012

Falling Pb and Zn Ore Grades

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Source: ILZSG, 2012

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All lead metal used in Peru is imported metal*

Chances are that 1 car in 20 in Peru has lead in the battery originally

mined in Peru, the concentrate was shipped elsewhere for smelting

and then the metal was re-imported in the battery. A case could be

made for some Pb smelting in a modern plant to be done in Peru.

Such a plant could also treat secondary Pb (batteries)

* With Cerro re-starting, this is a simplification

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It requires some 50 Litres of fuel oil to

ship 1 tonne of Pb concentrate to China

thereby adding unnecessarily to greenhouse

gas emissions

The typical Peruvian Pb miner receives

much less than 100% of conc. value

Considerations Regarding a

Modern Peruvian Pb Smelting Industry

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Economics of any new plant to be in the first quartile of the cost curve

This requires world-class technology for a new plant, start small

Benefits include:

Security of processing (refer to news report last month that Yunnan will

halt Pb smelting – next slide)

Labour costs are on the rise in China, Smelting Charges will likely

increase in future. Storage of concentrates at the ports can be problematic

Shorter payment period

Saves on freight costs (which will likely increase in future), shipping will

increasingly require stringent environmental safeguards seriously affecting

the present “mining-custom smelting model”

Reduces industry greenhouse gases - it requires ~50 Litres fuel oil to ship

1 tonne of Pb concentrate from Peru to China

China’s Yunnan Tin Will Halt Lead Smelting

After Price Declines

(Bloomberg News - Aug 23, 2013 )

Chinas Yunnan Tin Co said it would idle its lead smelter because lower

prices for the metal have made it unprofitable.

The plant, with 100,000 metric tons of annual capacity, will stop operating

this month, according to a statement from the company, which is based in

Kunming, Yunnan province. Output this year from the smelter will drop to

about 60,000 tons from a previous estimate of 90,000 tons, Board Secretary

Pan Wenhao said today by phone.

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Create an industry - Government “Pb Task Force” Essential to have industry support, market driven Group to carry out benchmarking survey- Industry trends Role of China (growth, but… trend of increasing costs, etc,

concerns over shipping Pb, storage at ports, etc) Technology Review (Top Lance, SKS, other….) Economics, financial and country issues, possibility of a

Japanese style JV plant in Peru, etc Consideration given to also processing secondary Pb (batteries) Consider Peru setting up a Canadian “CANMET-like Government metallurgical laboratories (to retain Government expertise) Prepare recommendations

Possible steps Peru can take to

establish a world class Pb smelting industry

Leadership and Expertise Applies to a company as well as a country

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“ Obviously, our leadership does not and should not necessarily have the technical expertise needed to make some of the decisions we need to make.

However, we have people who do have the expertise and top management needs to ask the right questions of these people to understand

the technical implications of our decisions.”

Roger Ackerman, Corning Chairman and CEO, 1998

Generous listening

Comfort with uncertainty

Prioritization

Turning complexity into simpler parts and most

importantly……….

Capacity to enlist others into action

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Critical Thinking Components (in looking at a new “mining-smelting” model)

Modern Pb smelting Technologies (all these technologies are environmentally clean)

Top Smelting Lance (Australia)

ISASMELTTM

Ausmelt/Outotec

Flash Smelting (Finland)

SKS/Bottom Oxygen Blowing (China)

Kivcet (Russia)

QSL (USA)

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ISASMELTTM Pb Smelting

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Source: Xstrata Technology brochure, 2012

SKS/Bottom Blowing under consideration at Port Pirie, Australia

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Source: Port Pirie web site

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Schematic flow diagram

Pb Smelting

Some new/re-opened Pb smelters

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Source: ILZSG, 2012

Conclusions

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1. Since successful introduction of “innovation” requires

an “atmosphere of change”, openness to new approaches

is essential ( for setting up a modern Pb smelting industry)

2. There is potential for an innovative approach to Pb

smelting in Peru. Issues and considerations as regarding

achieving this were outlined in the presentation

3. A number of modern Pb smelting technologies are now

available for clean, environmentally safe operations

4. A tentative “Plan of action” was developed for discussion

One last thought

Strategies and technologies only deliver promises.

People and processes deliver results.

Deloitte & Touche Advertising

“Peru is a Mining Country”

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Acknowledgements

I wish to acknowledge the support of Bertrand

De Windt, ICM-Peru Chair and also Perumin in

helping to make this presentation possible

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MUCHAS GRACIAS

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