COSTING
WHAT MINERS NEED TO KNOW ABOUT SMELTER CHARGES F
Costmine explains how fluctuating treatment fees can erode the value of base metals projects By Sam Blakely
rom the miner’s perspective, smelter associated costs look similar for most base metal smelters. The primary charge is a base treatment charge (or smelter charge) upon the number of dry tonnes of concentrate or ore treated. Assay and price adjustments are made upon the metals paid for as well; assay values of the feed, and associated payments made to the miner, are reduced based upon the percentage of recovered metals the smelter will pay for. Typically, 85-98% of the value of the contained metals are paid for by the smelter, bringing down the value received by the miner. Assessments for excess deleterious elements can also lower the returned value. If the metals recovered re uire further purification, a refining charge will also be assessed in dollars per unit of metal (typically pounds). Finally, some smelting contracts (but not all) include price participation, or escalation or de-escalation of charges based on metal price fluctuations. Net smelter receipts, or the values returned to the miner, are thus calculated by determining the value of the concentrate based upon the percentage of metal paid for by the smelter and subtracting for treatment and refining charges and deductions for deleterious elements. Unfortunately for the miner, these charges and deductions can severely diminish the value of a mining project. Once a project is evaluated using a smelter schedule, it is not uncommon for miner to find that his or her pro ect s ore or concentrate value has been reduced by as much as half.
14 | CANADIAN MINING JOURNAL
The good news for miners is that global smelting capacity has been climbing over recent years, primarily in China and India where new smelters are being built or existing smelters expanded. The bulk of global smelting capacity is controlled by China where, for example, about 20 million tonnes of annual copper and copper alloy fabrication capacity is located, about two thirds of global capacity. But this competition from Asia has resulted in the closure of multiple North American smelters, such as Xstrata’s Kidd smelter, Hudbay Minerals’ Flin Flon smelter and Glencore’s Brunswick smelter over the last decade or so, though global smelting capacity continues to grow overall.
Smelting contracts
There are generally two types of smelting contracts. Long-term contracts are typically negotiated on an annual basis between well-known miners and smelters. Spot smelting contracts are short term, usually apply to a single lot or ship load and tend to be more sensitive to the forces of competition. Many miners secure a mixture of both spot and long-term contracts as part of their business strategies. melter treatment and refining charges are heavily influenced by the forces of competition. When concentrates are in short supply, or smelter furnace capacity is high, smelters tend to charge lower treatment and refining charges as they compete for concentrates. When concentrate supply is plentiful, or
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