"The End of an Era?"

By Viv Forbes (www.carbon-sense.com)

23 May 2011

A personal explanation first:

People seldom recognise major turning points when they occur. At the time they are just another routine event in a crowd of trivial news.

But I was shocked recently by what I believe is a major turning point in Australian industrial history.

Xstrata announced that smelting and refining of Mount Isa copper is to be phased out.

As a young graduate, decades ago, I watched in wonder as men in asbestos suits tapped the glowing copper furnace to release a test sample of molten metal for the metallurgist. I gazed at the huge ladles pouring the molten copper into the casting wheel to form the slabs of blister copper. I saw the heaps of the red metal piled up on the rail siding destined for Townsville. And, as I later walked through the refinery at Townsville, I marvelled at the science, engineering and practical skills under that roof. To see the continuous casting wheel turning molten metal into rod and wire was modern magic.

All of these assets, skills and machinery are about to be scrapped as Australia loses its competitive edge in value adding.

Does Minister Martin Ferguson understand that many of these jobs for technicians, engineers and skilled workmen in minerals processing and refining are under threat from the carbon tax? Does he honestly believe they can be replaced by green jobs such as oiling the gearboxes of wind turbines manufactured overseas by General Electric or washing the dust from solar panels manufactured in China? Can he explain how replacing low cost energy with high cost energy can benefit Australians? If the Minister understands these dangers and delusions, why is he not speaking up? Has he lost his wits or his courage?

This Mount Isa decision is a wake-up call to those who recognise the broad trends of history. The excessive burden put on every industry over a few decades by over-regulation, over-taxation and general featherbedding will be suddenly focussed by talks about a tax on carbon dioxide.

I have personally done many investment analyses working for MIM when it was the biggest company in Australia (those heady days are long past). So I know how professionals like Xstrata do their sums. Decisions are taken not just on today's conditions, but on those expected to prevail in future. Those with the brains to do the sums will see that even talk of a carbon tax may cause a cascade of decisions like the Xstrata one. It is already happening in UK where Tata Steel is mothballing steel plants.

Copper production commenced in a hurry at Mount Isa in 1942 to provide Australia with war-time supplies of copper. In the next global crisis, where will Australia find the skills and machinery to produce the sinews of industry if the refineries and plants producing metals, steel, cement and motor fuels have closed? Where will our smart engineering and science graduates get their jobs. Instead of adding value to our fabulous resources, will they go to live in Asia, or get jobs writing fatuous climate change propaganda for Greg Combet?

Thinking about these matters, I wrote the article below, which I hope may help to convince people of the dangerous policies we are being fed.

Could you please help us to get this message out to every politician, every media person and onto as many web site as possible. Write letters, send emails, make phone calls. We skeptics are out-numbered, out-spent and have the big guns against us. Being right is not sufficient these days – we need to convince 51% of the people we are right, so we need help from our distribution network.

Regards

Viv Forbes

Here is the article (minus pictures):

A print-ready pdf with pictures can be downloaded by clicking:
http://carbon-sense.com/wp-content/uploads/2011/05/value-adding.pdf

Value Adding in Australia

– the Beginning of the End?

News Alert: Smelting and Refining of Mount Isa copper in Queensland to cease.

The first industries of Australia were farming and mining and these two have been the backbone of the nation ever since. Both are threatened by the taxaholics in Canberra.

Shorthorn and Brahman cattle arrived with the first fleet and coal was discovered by convicts at Newcastle in 1791, just three years after the First Fleet arrived. The first Merino sheep arrived in 1797 and coal mining started in 1798. Since then mining and farming have earned the majority of Australia's income.

Wool and wheat, gold and silver, butter and cheese, copper and lead-zinc, leather and tallow, iron and steel, sugar and wine, coal and hydro-carbons, meat and mutton, aluminium and uranium, timber and fish, nickel and titanium – these comprise Australia's Magic Pudding.

But the Gillard/Green/Garnaut Carbon Tax Coalition hate our primary industries because they all depend on carbon fuels and produce the carbon dioxide that feeds our crops. Our backbone industries are seen as dreaded "polluters" and treated like noxious weeds and serpents to be removed from the green Garden of Eden.

Our pioneering squatters and prospectors blazed the trails which Cobb and Co turned into the roads of Australia. Wool from the merinos, almost alone, carried the nation until the 1850's when metals started to create wealth – lead, copper and gold were discovered in the 1840's and 1850's. Mining started soon after and then cattle raising became profitable to feed the miners. Better roads, towns and then railways were built to move our primary products to the smelters, spinners, millers and tanners in Europe. Ever since, our great primary industries and the industries dependent on them have supported all Australians.

Mining is largely a materials handling operation, and it needs a lot of energy for mining, crushing, grinding, smelting, refining and transport.

The first copper mines extracted only high grade surface ore. They mined it selectively using human muscle power, packed it to the coast using camels, donkeys, horses and bullocks, and shipped it on sailing clippers to smelters in Europe. All stages used politically correct "green" energy.

But "green" transport moves slowly. Some loads of ore that looked profitable when they left the Peak Downs Copper Mine in central Queensland on donkeys, were sold at a loss, months later, when they landed at the copper smelter in Wales. Mining was thus an intermittent business – booming when metal prices were high, closing when prices fell.

But the high grade surface ores never last long, and the deeper primary ore is generally much lower grade. It was OK to send 40% copper ore from Cloncurry to the coast using horses and drays, but ore containing just 2% copper would not cover the costs.

So the first metal processing started with primitive on-site smelters (often using wood and charcoal, both "green" energy). Smelters removed most of the impurities leaving crude metal with +95% copper which was exported to overseas refineries. Later, Australians developed the flotation process to produce metal concentrates to feed the smelters. And trucks and trains started to carry value-added products to the coast.

The great Mount Isa Mine was discovered in 1923 - lead smelting started in 1931 and metal smelting at Mount Isa has continued ever since – 80 years of value adding in Australia.

Early in World War II, Australia found itself short of copper and Mount Isa was asked if it could produce copper. A crash program took place to convert the lead smelter to producing copper and the first blister copper was poured at Mount Isa in1942. Refining of blister copper started in Townsville in 1959.

Mines can only be where the deposits are found. But smelters and refineries can be located anywhere between the mine and the ultimate customer for the metals. And just three factors dictate where metal processing is located – political costs, processing costs and transport costs. The political cost (tax burden) depends on the common sense of the electorate and their knowledge of where the real wealth is created. The processing and transport costs depend mainly on the local costs of wages and energy.

The first trains and power stations all used steam engines burning low cost local coal. Then came cheap diesel transport for trucks and trains. Now electric trains are again running on cheap Australian coal. This low cost carbon energy supported our high wages and ensured that mineral processing became a big business in Australia – iron and steel, lead-zinc-silver, copper, nickel, aluminium, gold, uranium, limestone, coal, oil and gas are all processed to some extent in Australia.

There is no point introducing a carbon tax that does not increase the cost and thus reduce the use of coal and diesel energy. Mining and mineral processing and transport probably consume over 50% of Australia's electricity, which is mainly coal powered with minor gas. And they are huge users of diesel for utes, trucks, shovels, dozers, scrapers, mobile power and drilling rigs. Therefore, no matter what they say, all of Australia's mineral processing advantages are threatened by their carbon tax.

The recent Xstrata decision to phase out their world class copper smelting and refining operations in Australia tells us that the taxes, processing, transport and energy costs that Xstrata expects in Australia are already uncompetitive.

The dreamers in the Canberra cocoon always drool about "value adding". Their carbon tax will surely cause all mineral processing plants in Australia to lose value, and some will surely close. Low cost coal and diesel power will no longer support our high wages. The value adding will take place in Asia.

We are watching a slow tragedy unfold - the end of an era. Once the mineral processing plants leave, they will never come back. We will be back to the pioneering era of mining – dig it out and ship it off.

And the final tragic irony of the Isa story is this – sending partly processed copper concentrate overseas, instead of smelting it at Mount Isa, will about triple the transport burden and do the same to carbon dioxide emissions.

Viv Forbes
May 2011

Reference – Xstrata to phase out copper smelting and refining:
http://au.ibtimes.com/articles/147308/20110518/xstrata-to-phase-out-copper-smelting.htm

Viv Forbes is a geologist, mineral economist and farmer. He has spent a lifetime working in government, mining and farming in Queensland and NT, from field geologist in the Bowen Basin, to uranium exploration at Rum Jungle,  to mill clerk at Mount Isa, to mining investment analyst in Sydney and Brisbane and to company director of gas, oil and coal companies. He should be retired but refuses to. He and his wife Judy live at Rosevale harvesting solar energy from natural pasture using beef cattle and meat sheep. He can be contacted at forbes@carbon-sense.com

Viv Forbes