MINERALS, MINING, MINES AND DEMAND FOR METALS

MINERALS

Natalie Angier wrote in the New York Times: “The human body needs a diet enriched with many ingredients from the periodic table that sound less like food than like machine parts or spare change. We must have iron to capture oxygen, copper and chromium to absorb energy, cobalt to sheathe our nerves and zinc to help finger our genes. Other creatures demand the occasional sprinkling of tin, nickel, platinum, tungsten and even strontium.” [Source: Natalie Angier, New York Times, August 21, 2007]

Most commercially-valuable minerals and metals are found in rocks called ores. Ores are often found in layers called veins or seams. There are two general types of mines: 1) surface mines; and 2) underground (or deep) mines. Once ore is mined it is transported primarily by truck, railroads, river barges, ships and pipeline slurries to places it can be processed.

Before mining can take place, geologists and prospectors must find the a mining site. Some of these sites are found by sheer luck. Most of them are found making observations and taking samples and measurements.

Ore refers to mineralized rock that contains metal. Gold producers mine gold ore and then extract the gold from it using either chemicals, extreme heat, or some other method. There are different types of ores, of which the most common are oxide ores and sulphide ores. Higher quality ore will contain more metal. Generally speaking, oxide ores are better because the rock is more porous, making it easier to remove the metal.

Technologies and techniques used to locate ores include satellite imagery, aerial photography, magnetometers, radioactivity readings, geologic mapping, radar, taking soil and rock samples, planting explosives and taking seismic readings, drilling and taking core samples, and making spectrometer readings of minerals.

Mineral and Energy Production : United States Geological Survey (USGS) Minerals Resources Program minerals.usgs.gov/minerals/pubs/commodity ; Index Mundi indexmundi.com/minerals/ ; Energy Information Administration, Department of Energy eia.doe.gov/emeu/international ; Nationmaster nationmaster.com ; InfoMine.com, the latest news and statistics on mining companies; Mining USA, data and information on mining; Mining Glossary

Websites and Resources on Mining: Mining.com mining.com ; Wikipedia article Wikipedia ; Mining Engineering books.google.com/books ; Geology and Hard Rock Mining rmmlf.org/scitech/ ; Mining technology mining-technology.com ;

Websites and Resources on Minerals: Mineralogy Database webmineral.com ; Minerals and Gemstone Kingdom minerals.net ; Mindat.org mindat.org ; Minerals Atlas mineralatlas.com ;

Metals Industry

The metals industry is not vertically integrated like other industries such as oil and energy. In the metals industry, the companies that mine the gold typically do not refine it, and refiners rarely sell it directly to the public. The industry encompasses three types of firms:

1. Exploration. These companies have very little in the way of assets. They explore and prove that gold exists in a particular area. The only major assets owned by exploration firms are the rights to drill and a small amount of capital, which is needed to conduct drilling and trenching operations.

2. Development. Once a gold deposit is discovered by exploration companies, they either try to become development firms, or they sell their gold find to development firms. Development firms are those operating on explored areas that have prove to be mines. The only real difference between development and exploration is that, for development firms, their area has proved to be a gold deposit.

3. Production. Producer firms are full-fledged mining companies that extract and produce gold from existing mines; this production can range from a hundred thousand ounces to several million ounces of gold production per year.

Each operator in the supply chain has its own strengths and weaknesses. Some companies do well at extracting the metal from the earth, some refine, while others smelt and transform the commodity into a finished product.

Unlike other industries, companies in the mining industry come in all shapes and sizes. Much of the production is done by large blue chip companies, but the exploration side of the industry is full of junior companies looking to hit a home run with a large gold find. The mining industry has plenty of opportunities for speculators and others for income investors.

Surface Mining

About 90 percent of all mining is done by surface mining, which is much cheaper than underground mining. There are several kinds of surface mining: 1) quarrying, the mining of stratified rock deposits such as limestone, sandstone or marble; 2) open-pit mining, the removal of surface layers to get at the ore underneath; 3) strip mining, the taking of coal or other minerals from shallow open pits over a large area; and 4) alluvial mining, the removal of ore from a placer, or sedimentary deposit formed by erosion.

Surface mining generally uses explosives, excavators and bulldozers to strip away the layers of earth and rock above the veins or seams, and use massive building-size steam shovels to scoop up the ore, and deposit it on trucks that take it from the pit.

Describing the machine that digs up the earth in a strip mining operation, Ben Webster wrote in the Times of London, “A giant mechanical digger gouges out a chunk of the topsoil, grass and tree stumps, extending a neat furrow that stretches into the distance. Dozens of similar furrows run parallel with the regularity of a ploughed field.”

Surface mining often involves the harvest of ore with very little of the desired mineral. The ores requires expensive processing which produces large amounts of waste rock called tailings. It is not surprise that surface mining cause severe erosion, water pollution and habitat loss for wildlife.

Large Open Pit Mines

Large open pits are composed of large circular terraces organized in a spiral. The terraces provide a flat surface for the machines to work on. The spiraling pattern allow the ore-carrying trucks to reach and leave the places were the ore is being removed.

At the bottom of the pit huge shovels load the ore onto trucks that climb out of the mine on sprawling circulars road. Some pits are so deep they are dark at the bottom much of the day because sun is blocked out by the pit walls and trucks can take half an hour to make the climb from the pit bottom to the top.

The work horses of the surface mining industry are the huge trucks that carry the ore from the mine to the processing area. Trucks like the Caterpillar 797B heavy hauler are over 13 meters tall and can carry 400 ton loads. The cab is seven meters off the ground and requires climbing a ladder or a lift to reach. Elizabeth Kolbert wrote in The New Yorker that someone told her that driving one was “like trying to steer a house while peering out the window of the upstairs bathroom.”

The tires of the Caterpillar 797B are four meters in diameter and weigh almost four tons. They cost around $20,000 each and have to be replaced as often as once a year. The tries are difficult and labor-intensive to make. Sometimes there are shortages of them and trucks have to sit idle for months, costing mining companies millions of dollars. Fixing a flat tire can take two days and cost $2,000.

Underground Mining

Underground mining is more expensive than surface mining and is often cost effective only for finding valuable ores or ores available in large quantities. It can also be very dangerous. Thousands of miners worldwide are killed every year in explosions caused by the igniting of methane or some other gases, the collapse of a shaft or tunnels, loss of oxygen, falls and accidents involving machines.

In underground mines, miners descend to seams in earth by holes and tunnels called shafts, and use machines to break loose the ore and bring it to the surface. The shafts serve two purposes: to provide an access for miners to the seams and provide a means of getting the ore out of the mine. The shafts are lined with concrete or timber to keep them from collapsing. Sometimes ventilation shafts are added to allow fresh air to circulate into the mine and dangerous gases to circulate out.

Most mines have vertical and horizontal shafts. The vertical shafts have elevators or cages that raise and lower the miners and skip hoists that raise and lower the ore. In small mines the miners can reach the ore deposits on foot in the horizontal shafts. In large mines, the miners need cars to reach the deposits.

Underground mining today is highly mechanized. The ores is removed from the walls of the shafts using: 1) car-size mechanical ripper that tears loose ore from the seam; 2) car-size drilling machines that bore 10-foot-deep holes in the seams and shatter the rock with tubes of compressed air inserted into the holes; 3) large hand-operated drills and jackmeters that miners use to loosen the ore from the rock; and 4) explosives that are used to make shafts and loosen the ore. Explosives are used with extreme care in underground mines than surface mines for obvious reasons.

Underground mine vehicles are built low to the ground so they can operate in low-ceiling shafts. Mechanical loaders scoop up the ore and take it to shuttle cars, skip hoists or conveyor belts that carry it to the surface.

The deeper one goes the more dangerous a mine becomes. Mine tunnels are supported by pillars. At a dept of around 600 meters pillars made or coal or some other soft material reach their load-bearing maximum. Retreat mining refers to the practice of mining these pillars to get as much ore as possible, seismic jolts---called bums or bounces---can occur when these pillars compress and are common on very deep mines, These movements can sometimes cause a tunnel to collapse or some other problem.

Ore Processing

After ore is mined and brought to a processing area, it is removed from mud, waste rock and other minerals in a process called dressing that is often done using machines and physical methods in facilities, often near the mine. Dressing often involves cruising, washing, grinding and separating the ore from waste, or tailings.

Crude ore is sometimes sorted by hand. The ore is then crushed with machine called a jaw crusher that breaks the ore-bearing rocks with an oscillating jaw. Cone-type and gyrator crushers break the rock with an eccentrically rotating cone. Afterwards, if necessary, the ore is washed. Some ores don't need to be washed. Then using rotating balls or rods in ball mills or rod mills the ores are crushed into a finer grains with

After the ore is crushed the minerals are removed from the ore using different methods: most notably the gravity, flotation, magnetic separation and sink-float processes. In the gravity process the grains are placed in water and shaken and then sorted according to their specific gravities. In the flotation process the grains are placed in water with some chemical and shaken. Bubbles form. The mineral grains adhere to the bubbles and are skimmed off.

In the magnetic separation process the minerals are removed as they pass through poles of strong electromagnets. Iron is often removed this way. In the sink-float process, the ore is fed into a cone-shaped tank containing water and a dense medium such as magnetite. The mixture is agitated with revolving paddles. Materials having a higher specific gravity than magnetite sink to the bottom and are removed with a nozzle at the bottom of the tank.

Metallurgy

Metallurgy refers to the processing of metals. It is divided into chemical metallurgy, physical metallurgy and mechanical metallurgy. Sometimes ore separation is considered a type of metallurgy.

Physical metallurgy refers to treating metals. Making alloys, tempering, galvanizing, heat-treating and plating are examples of this. Mechanical metallurgy is the shaping and working of metals to their desired size by using molds, dies, rollers and welding. Casting, rolling, forging, stamping, drawing, extruding and machining are all examples of mechanical metallurgy

Chemical metallurgy is the melting and refining of metals. There are three main processes: 1) pyrometallurgy; 2) hydrometallurgy; 3) electrometallurgy. Electrometallurgy refers to the use of chemical reaction such as electrolysis, which utilizes electric current to remove metal

Hydrometallurgy refers to is wet process at ordinary temperatures. Among these are: 1) leeching, a process in which a chemical such as sulfuric acid is used to separate the metal from the ore; and 2) amalgamation, the passing of a meal in solution over mercury to form on amalgamation or alloy.

Pyrometallurgy is a chemical reaction produced by heat: 1) Roasting describes the combining of sulfur and other impurities when the ore is heated. 2) Converting is melting metal by blowing oxygen through it to separate different metals. 3) Refining is the removal of impurities from the metal, often using oxidization with a chemical or passing air over it. 4) Distillation is heating the metal until it vaporizes and then collecting it as liquid through condensation.

Smelting is a kind of pyrometallurgy. It refers to melting the ore to separate the metal from the rock. A flux such as lime or silica is added to lower the rock's melting point. The rock and flux combine to form slag, which floats on the molten metal and is skimmed off.

Metals Market

The markets for many metals are notoriously cyclical, often with short periods of high prices followed by long periods of low ones. Often what happens is that prices rise during a spurt in demand and low inventories. Then companies invest to increase production but often by the time these production facilities are on line the prices have dropped and the facilities produce supply gluts that cause low prices that endure for a long time.

Widely consumed and used metals are sold in world commodities markets. Sometimes people buy futures contacts (obligations to buy or sell a commodity at a set price for delivery by a specific date) as a hedge for some unforseen problem or as speculative move to make money. The world prices for commodities are often set as much by speculation as they are by economic fundamentals such as production, demand and supply.

China’s hunger for raw materials has created higher prices around the globe for a number of metals as demand has increased. The increased in prices for raw materials in turn have caused the prices of other things likes appliances to rise

Soaring Prices of Metals in the Late 2000s

During the mid and late 2000s the prices of most metals soared primarily on the back of strong demand from China. The price of nickel rose more than 700 percent between March 2002 and March 2007. The price of lead and copper rose around 300 percent between 2000 and 2009. The price of the rare metal Indium, rose about 850 percent between March 2002 and March 2007. Between March 2002 and March 2005 it rose about 1,500 percent from $70 a kilogram to about $1,000 a kilogram.

“Jack Lipton, an expert on rare minerals, told The Times: “The world where you could get everything for a price is history. And the West has been asleep on this, The level of ignorance about the upstream of mineral supply...is just out of this world.” [Ibid]

Prices of nickel and copper rose so high that U.S. coins using them were worth more melted down. With that the case U.S. mint officials prohibited melting down pennies and nickels. The penalty for doing so is up to five years in prison and a fine of up to $10,000.

Prices came back down during the global economic crisis in 2008 and 2009. By January 2009, metals had lost 60 percent of their value from the previous summer. Barclays Capital estimated that 60 percent of the world’s aluminum output was losing money on a cash basis. For nickel it was 30 percent, for zinc 20 percent and copper 10 percent. Prices picked up one the economic situation improved.

China’s Demand for Resources

China is more remarkable as a consumer of minerals than a producer of them. It is now one of the world’s largest consumers of metals. As of 2005, China is the world’s largest consumer of copper (3,084,000 tons); zinc (2,318, 000 tons); tin (71,700 tons); aluminum, lead, platinum, steel, iron ore and many other resources.

Consumption of copper increased 21 percent in 2001, 13 percent in 2002 and 10 percent in 2003. China accounted for two thirds of the global increase in nickel in 2002. In 2003, demand from China doubled the world price for alumina, the raw material for aluminum.

China’s hunger for raw materials to make cars and appliances, build railroads and high rises has created higher prices around the globe as demand has increased. Prices for lead, copper and nickel more than tripled in just a few years. The increased in prices for raw materials in turn has caused the prices of other things likes appliances to rise

The hunger for resources has created shortages of cargo ship and cargo trains to carry them and this has caused the price of transporting bulk freight to double. At any given time one fifth of the world’s freighters carry resources for China. Shipyards across the world have enough orders created by Chinese demand to keep them busy for several years. Even shipyards in Vietnam are busy taking raw materials for China.

China faces severe resource shortages despite aggressive efforts to increase production at home and purchases resources overseas. Its hunger for resources is tied to growth of industries that use a lot of resources such and appliance making and automobile manufacturing and to the shift from light industry to heavy industry. What is particularly alarming is that China’s appetite for resources is increasing and will increases even more in the future,

China has been accused of turning its back on human rights and coddling to dictators in its pursuit of resources.

Impact of China’s Demand for Resources

Chinese hunger for resources has been great for poor cash crop farmers in Africa and Latin American and mineral-rich countries like Australia and Chile. The windfall for miners, oilmen and farmers has been so big that the term “bull market” falls short and a new word “supercycle” has been coined. Chinese demand for resources is expected to do more to life people out of poverty than Western aid schemes.

The high prices for copper, iron and other raw materials caused by increased demand from China has created boom markets in producing nations such as Brazil, Australia and Chile and forced producers in these countries to work over time to meet the demand. Chinese demand for steel and has played a major role in lifting Japan steel industry out of its economic slump.

Scrap metal dealers scour junk wards and warehouses across the country for heaps of metal measures in tons, One man describe in the Los Angeles Times often traveled hundreds of kilometers from his home to secure scrap in everything from old typewriters to spent missile casings. He then sends the scrap home to his wife, who sorts it and sells it to processors. They earn around $25,000 a year, more than many Chinese doctors and lawyers. One of the main centers for scrap collectors in Yongkang, home to 10,000 hardware businesses and a legendary haven for tinkers who mended pots and pans, in Zhejiang Province.

The demand has also created a market for stolen scrap. In China, metal is taken from houses and public buildings. In Buenos Aires bronze plaques are taken from historic buildings and copper wires are taken from utility companies. India, Japan, Russia and Malaysia are among the countries suffering from this problem.

Mining Companies

Mining is dominated by large multinationals---based mostly in Canada, Australia, the United States, South Africa, and Brazil---that have the resources to develop large deposits and build the necessary infrastructure and “juniors”---small companies that hunt for minerals and then sell the rights to bigger companies that can afford to develop them.

In recent years the mining industry has grown as demand has increased but at the same it is controlled by a fewer number of very powerful conglomerates that are now in positions to set prices rather be slaves to them.

Precious Metals

The precious metals industry is very capital intensive. Constructing mines and building production facilities requires huge sums of capital. Long-term survival requires heavy expenditures to finance production and exploration. Technology has played a big role in the computer and internet industry, but it has also greatly changed the mining industry. Gold is the most popular precious metal for investors. As you may know, gold is a commodity, and, as such, the price for gold fluctuates on a daily basis in the commodity markets.

Bullion denotes gold and silver that is refined and officially recognized as high quality (at least 99.5 percent pure). It is usually in the form of bars rather than coins. When you hear of investors or central banks holding gold reserves, it is usually in the form of bullion.

The difference between production costs and the futures price for precious metals equals the gross profit margins for mining companies. Therefore, the second place you want to look is the cost of production. The main factors to look at are: location, ore quality and mine type.

Where is the gold being mined is an important consideration. Political unrest in developing nations has ruined more than one mining company. Developing nations might have cheaper labor and mining costs, but the political risks are huge. If you are risk averse, then look for companies with mines in relatively stable areas of the world. The costs might be higher, but at least the company knows what it's getting into.

Image Sources: Wikimedia Commons

Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, The Guardian, National Geographic, The New Yorker, Time, Newsweek, Reuters, AP, AFP, Wall Street Journal, The Atlantic Monthly, The Economist, Global Viewpoint (Christian Science Monitor), Foreign Policy, Wikipedia, BBC, CNN, NBC News, Fox News and various books and other publications.

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© 2008 Jeffrey Hays

Last updated August 2012

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