Image for Mt Lyell re-opening likely within two to three years

*Pic: The Mt Lyall mine ...

*Pic: Copper ... in its raw state ...

The Tasmanian government is now sure that the Mt Lyell copper mine at Queenstown will not, as previously feared, be closed down and flooded. And the prospects for a re-opening within two to three years have substantially improved.

The owner, the Indian multinational Vedanta, has promised the government to keep the mine in a care and maintenance state until the copper price recovers from its present slump. The mine will then return to production and re-employ hundreds of workers.

Meanwhile, a widespread reassessment by experts of the medium-term prospects for copper, and a more optimistic view of China’s economic recovery, have given new hope for the mine’s medium-term future.

Operations at Mt Lyell were suspended almost two years ago after three deaths but production has remained suspended because of low world copper prices. It was a major blow to Queenstown and the West Coast, with hundreds of employees thrown out of work.

In response to a conditional $25 million tax relief offer by the State Government, Vedanta and its local subsidiary, Copper Mines of Tasmania, have committed to the mine’s future. They have not put a date on the re-opening.

The copper price is at six-year lows and was yesterday (Tuesday) trading at $US4,968 a tonne. Its peak, in February 2011, was above $US10,100 a tonne. Those high prices attracted major new production which is now partly responsible for over-supply. Much higher-cost production has now left the market.

The world’s copper inventory has also slumped and now amounts to around only 13 days’ global supply.

The other major factor driving the copper price is the slowdown in Chinese demand as its economy moves from being dependent on investment and export manufacturing towards domestic consumption. China consumes over 40% of the world’s copper production.

But many international experts believe the Chinese economy is recovering its appetite for copper more quickly than previously thought. Vicky Binns, BHP Billiton’s Singapore-based vice-president of marketing for copper, told the Financial Review that global demand would exceed supply by 2019.

‘We see a crossover in supply and demand,’ she said. ‘At that time there will be a sizeable deficit emerging into the new decade, the 2020s, that really underpins our positive view on copper.

‘You suddenly have your supply going down and demand going up ‒ not aggressively, but enough ‒ from a very big base. You have a total under-supply situation,’ Ms Binns said.

Rio Tinto non-executive director Megan Clark told a conference in Sydney last week that changes in China’s urbanisation would probably be good for copper ‒ though not for iron ore, the Sydney Morning Herald reported.

‘There’s no question that as we look at the Chinese economy, not everyone is rising on the same tide. We see it more on a sector base,’ she said.

‘The transition from manufacturing to the services, which has probably been a bit more bumpy than has been heralded by the [Chinese] government. But if you look at the long-term picture for copper, with urbanisation, the use of electricity ‒ particularly renewable energy ‒ you still see the demand growing there.’

Renewable energy generation consumes much more copper than coal-fired power stations. Wind turbines contain two tonnes for every megawatt of output.

Mt Lyell’s re-opening would be likely to anticipate the price rise, rather than following it, both to take advantage of the rising price and to end the costly and unproductive care-and-maintenance process. A substantial lead time would be needed to return the mine to a fully operational state and to re-employ large numbers of skilled mineworkers.

Four other factors are in the mine’s favour: high copper grades, international exchange rates, the State Government’s tax-relief package and the environmental remediation costs of walking away from the project.

Unlike many other copper mines, Mt Lyell produces high-quality ore which makes it a relatively cheaper operation. According to BHP’s Vicky Binns, many miners are having to shift more and more dirt to get at the same amount of metal.

Metals contracts are usually written in US dollars ‒ and it is the appreciation of the American currency that is driving much of the apparent price slump. Vedanta is an Indian company with its headquarters in London and a mine in Tasmania. The Mt Lyell output is processed at Vedanta’s smelters in India.

Commodity prices which look uneconomic in US dollars are far more likely to be viable when translated into Australian dollars, Indian rupees or British pounds.

The Tasmanian government’s deal with Vedanta is for $25 million in payroll tax and royalty relief over five years, on the condition that the mine returns to production.

‘One of our oldest and most important mines, Mt Lyell, has been under care and maintenance since early last year, and has faced the very real prospect of closure,’ Resources Minister Paul Harris said.

‘This decision [to close the mine] would result in the flooding of the mine and the end of any realistic possibility of reopening.’

The company said the deal was crucial to its decision to keep Mt Lyell open.

‘Without the government’s support it may not have been possible to keep the mine active and ready for a start when prices recover,’ site manager Jared DeRoss said.

The company says it has spent $68 million to ‘maintain the mine and to carry out environmental projects, exploration and design of the new project’.

The fourth reason for keeping Mt Lyell ready for production is the substantial cost of environmental remediation if Vedanta pulled the plug. As discussions between the government and the company were continuing recently, the Environmental Protection Authority issued a pointed warning in the form of a background note.

Historic mine practices have created an environmental disaster in the area, with the denudation of nearby hills and massive pollution of the Queen River, which flows into Macquarie Harbour.

‘Copper Mines of Tasmania is not responsible for the environmental damage caused by, or resulting from, previous operations,’ the EPA note said. ‘However CMT has continued to be involved in the active management of acid drainage from the site, to the extent permitted by their current operations.’

CMT contain their tailings in a dam, in line with modern practice. But while the bulk of environmental repair will accrue to the Tasmanian taxpayer, the costs to the company of preparing for total and permanent closure would be substantial.

It would also be likely bring an end to Queenstown and the smaller communities that rely on the mine. That threat, for the foreseeable future, appears now to have been avoided.

• Pilko in Comments: Marty Goddard talks up a Labor & Liberal pet industry & guess what? The character assassinations from the usual Lib/Lab lackeys aren’t forthcoming this week? Where is the Lukester? I’ve scoured social media & there is zip, nada, zilch, not a bad word to be said about Martyn.