Trash to Treasure: The Business of Extracting Molybdenum From Mine Tailings

Reprocessing mine tailings involves using modern extraction methods to remove minerals that are still present in the waste rock produced by operating or closed mines.

This process lets miners eliminate the cost of mining minerals directly. Reprocessing also often provides an opportunity to clean up toxic tailings sites, reducing their impact on the environment.

Higher resource prices can also spur interest in tailings reprocessing. Today, for example, there is particular interest in recovering gold from tailings. Canadian gold producer Eldorado Gold (TSX:ELD) provides an example: the company is currently working on a facility to extract gold from tailings at its Olympias project in Greece. Eldorado expects to produce more than 230,000 ounces of gold over 3.5 years from these tailings.

Chile is at the forefront of copper/molybdenum tailings reprocessing

One of the longest-running tailings reprocessing efforts is run by Canadian junior copper and molybdenum producer Amerigo Resources (TSX:ARG) at its facility near Chile’s El Teniente, the world’s largest underground copper mine.

Chile is the world’s largest copper producer, and the third largest producer of molybdenum.

Tailings reprocessing started at El Teniente in 1992, after a group of former executives from state-owned mining company Corporación Nacional del Cobre de Chile (Codelco), El Teniente’s owner, founded Minera Valle Central S.A. (MVC) and signed a 20-year contract to reprocess tailings at the site. Codelco, a Chilean state-owned mining company, is the world’s largest copper producer, and the second-biggest producer of molybdenum.

The project had the financial backing of major Chilean construction group Fe Grande. However, Fe Grande put Minera Valle Central up for sale in 1993 because it didn’t see the company as one of its core businesses. MVC was too small to be of interest to Codelco, and was eventually sold to Amerigo for $20 million. Amerigo then expanded the facility, adding a molybdenum facility.

Production on the rise

In addition to the fresh tailings from El Teniente, Amerigo acquired the rights to process 10,000 tonnes of older tailings per day from the Colihues tailings pond, which is adjacent to the facility and should contain enough material to keep the plant running for 20 years.

That was a big plus for Amerigo because these tailings were initially processed using older extraction methods, so they contain more copper and molybdenum than the fresh tailings.

In 2004, Amerigo negotiated a new deal with Codelco that lets it process 45,000 tonnes of tailings per day from Colihues.

The plant’s production continues to rise: in the first quarter of 2012, it produced 6,294 tonnes of copper and 216,292 pounds of molybdenum. These figures – both records – are up from 5,051 tonnes of copper and 212,125 pounds of molybdenum a year ago. For all of 2012, the company expects to produce 50 million pounds of copper and close to a million pounds of molybdenum.

Thanks to the higher volumes, Amerigo’s revenue rose 10.8 percent for the quarter to $50.4 million from $45.5 million, despite lower prices for both molybdenum and copper.

Rising costs threaten profitability

Despite the higher revenue, earnings dropped sharply to $2.3 million from $15.4 million a year ago.

That’s mainly because the company’s cost of sales rose 21 percent. Part of that was due to higher royalties paid to El Teniente on the increased production, $11,684,379 in the latest quarter compared to $10,551,802 a year ago.

However, most of that increase was the result of Chile’s high electricity costs. Chilean power prices have been rising sharply over the last two years because the country has been suffering from a drought that has dramatically reduced hydroelectric generation.

Another disadvantage is that the facility is dependent on Codelco for much of the tailings it needs to produce copper and molybdenum. That hurt the company in 2011, when a strike by workers at El Teniente cut Amerigo’s copper production by six percent, to 19,810 tonnes on the year. Molybdenum production rose just one percent.

How it works

The plant uses mostly second-hand equipment that MVC has repurposed for high-output tailings processing. The entire process uses a gravity flow system to further reduce costs. The fresh tailings come to the plant through a 40 kilometre tailings launder from the El Teniente mine, while the older Colihues tailings are pumped in from the pond.

The facility contains eight mills to regrind the tailings, and uses a flotation process to produce copper concentrate, which also contains molybdenum and a smaller quantity of silver. The molybdenum is then extracted from the concentrate in the additional section of the facility that Amerigo added in the 1990s.

More growth could be on the horizon

Amerigo recently announced that it is negotiating with Codelco to process tailings from another pond, called Cauquenes. The company has already started work on the design, engineering, and environmental permitting for a three-stage expansion that is expected to double the plant’s production capacity.

According to Dr. Klaus Zeitler, the company’s President and CEO, the molybdenum levels in Cauquenes tailings are expected to be equal to or higher than those at Colihues because Codelco only extracted molybdenum from a portion of the tailings it deposited at Cauquenes.

Securities Disclosure: I, Chad Fraser, hold no positions in any of the companies mentioned in this article.