CHAPTER 1 THE MINING PROCESS: FROM SEVERANCE TO SALEABLE PRODUCT
| Jurisdiction | United States |
(Mar 1985)
THE MINING PROCESS: FROM SEVERANCE TO SALEABLE PRODUCT
ASARCO Incorporated
New York, New York
Introduction
Ore in the ground by conventional definition is mineral which has the potential to be mined with the reasonable expectation of making a profit.
In its raw state in the ground, ore will be found in bodies exhibiting a great range of geometric shapes and sizes. We can have tabular shapes either standing on end forming veins or sheets or lying flat, like beds. We can have vague disseminations with indefinite boundaries, or solid lenses with borders as sharp as the edge of a knife. Whatever its shape or size, an orebody will be housed or enveloped in a three dimensional geologic setting or environment. If any part of an orebody has been turncated by downward erosion of the earth's surface, it is said to outcrop; if no part of an orebody is exposed at bedrock surface it is said to be blind; if part of an orebody is truncated by the bedrock surface but the outcrop is nonetheless hidden from view by gravel or other forms of extraneous surface debris, it is said to have a covered sub-outcrop.
As you all know, there are many ways of mining an orebody. The particular method chosen will obviously be that particular practical and technically feasible method which is perceived to be the cheapest, taking into account capital and operating costs as well as inevitable losses and dilution inherent in all methods but in widely varying degrees.
Within the broad categories of open pit and underground methods, we have many sub-categories. Generally, the choice of underground methods will be dictated or restricted in the first instance by the physical characteristics and strength of the ore and of its enclosing walls. As a rule, the greater the amount of support needed during the extraction process and its aftermath, either because of weak ore, weak walls, or both, the more expensive will be the process. Some methods, however (for example, block caving), will exploit the natural weakness of an orebody to economic advantage by relying on gravity to break ore, rather than on explosives.
But that is enough about mining. The legal issues surrounding the commercialization of the products of orebodies, not the mining of them, constitute the subject matter of this Special Institute.
The commercialization of minerals can start with ore in the ground before it is mined, or even with mineral in the ground which never will be mined. An unexploited orebody can itself be a marketable product and we occasionally see examples of ore reserves being sold for cash or notes. Such transactions are much less common with hard minerals than with hydrocarbons, no doubt because of the heavy capital costs and risks associated with installation of production facilities for hard minerals.
Far more commonly than for cash, minerals in the ground can be sold, optioned, or leased through the media of exploration and development agreements. In such transactions the real consideration may be the assumption by the buyer of contractual exploration and development obligations and risks. Ultimately these transactions can lead to payment of royalties on gross revenues, on net cash flow, or the division of products in kind, all in the unlikely case that mineral production actually eventuates. Legal issues arising from exploration and development agreements have been the subject of previous Institutes and I will not dwell on that aspect of
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marketing, other than to point out the obvious: on very rare occasions exploration projects do evolve into mines. In such event, the parties to the original agreement will have to live with the marketing and other operating provisions which may have been tacked on almost as an afterthought at the time of agreement by persons now long departed from the stage, all during the state of romantic euphoria which commonly surrounds the doing of an exploration deal.
Marketing of Ore Products
The papers on your program today and tomorrow deal with the marketing of what we may conveniently call downstream products derived from an orebody or orebodies. The process of getting from an orebody to a readily saleable downstream product or products will always involve a chain of spatial movements of mineral material as well as physical, and in some cases, chemical transformations of such material. These transformations will lead to successive concentrations of the valuable elements of an ore, and the concurrent separation and disposal of the waste components.
These chains of movements and transformations may be short and simple. One example would be the classic Yukon prospector who digs and pans stream gravels during the day, moving and transforming a volume of auriferous gravels into separate components: a pile of waste and a handful of gold dust. He then transports the gold dust to the local town that same evening, where he sells it for goods or services, thus completing the chain from severance to market.
Alternatively, the chain of spatial movements and transformations from ore to saleable product can be long and complex, as for example with copper. Not only is the chain from ore in the ground to pure copper long, but the final copper product can be one of several marketable forms which may attract premiums or discounts. Further, several intermediate products in the chain, copper concentrates or blister copper for example, can be and are in themselves marketable products with their own peculiar commercial complications. Also, significant economic values will typically be represented by small amounts of potential by-product metals in the ore. These will generally be recovered from slimes left after the final copper refining stage but may also be commercialized as a separate marketable concentrate at an intermediate stage as is often the case with molybdenum.
Changes of ownership can take place at various stages of the copper transformation chain. Each such change of ownership will bring with it all the complications of any commercial transaction, and may also afford an arm's length pricing mechanism which can be used as the basis for calculating royalty payments or taxes. In such transactions, trace metal by-products contained in the intermediate product may have a realizable value for the buyer, but such value may not be realized by the seller. Indeed some of these by-products may be deleterious to the further processing and represent an additional cost to the downstream processor which he may pass back to the seller as a penalty, even though the particular metal may eventually be recovered in marketable form and sold for cash. If royalties or taxes are calculated on the value of a particular transaction somewhere in the chain, obvious legal issues can arise if the pricing transaction is less than arm's length as it may well be. Indeed, the possibilities for complications all down the line are numerous and a broad understanding of the technical aspects of each link in the chain will be
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useful in the avoidance or understanding of legal complications.
The two examples mentioned, placer gold and copper, illustrate that the chain of events from severance to saleable product can be very simple or very complex depending on the particular mineral or metal and type of orebody we are dealing with. As a corollary, each particular metal or form of ore giving rise to a given mineral product will have its own unique peculiarities, which makes it really impossible to describe a general case applicable even to a given metal, much less to all metals or to metals and non-metallic products. The fact is that we must study each metal or mineral separately, at the same time recognizing that there are classes of chains or alternative chains for each metal: generalizations are rarely applicable.
If one recognizes the problem of diversity of detail at the outset, it will be sufficient for purposes of this presentation to trace a few typical transformation chains to illustrate this diversity, leaving it up to you to consult the available technical handbooks and texts for the details you may require in specific cases as they arise. What follows then, is intended to be...
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