BHP, Japanese Smelters Set Lower Mid-Year Copper Fees

By Jae Hur and Yasumasa Song

July 23 (Bloomberg) -- Japanese copper smelters and BHP Billiton Ltd., the world’s biggest mining company, settled mid- year processing fees at a 33 percent discount compared with contracts started six months earlier, an industry group said.

The smelters agreed to fees of $50 a metric ton for smelting and 5 cents a pound for refining for the year that began July 1, Masanori Okada, chairman of the Japan Mining Industry Association, told reporters today in Tokyo. That compares with $75 a ton and 7.5 cents for calendar 2009 fees.

Processing fees for immediate delivery have slumped this year because lower ore grades and declining mine output cut raw material supplies. The so-called treatment and refining charges, or TC/RCs, usually drop when there is a shortage of raw material and smelters have to compete for deliveries.

“The fees were concluded below the level needed to make profits” because of lower production at BHP’s Escondida project and Teck Resources Ltd.’s Highland Valley mine, said Okada, also president of Nippon Mining & Metals Co.

Miners and smelters set annual processing fees twice a year, with the July contracts covering about 10 percent to 20 percent of the total volumes processed in Japan.

Year Earlier

Last year’s mid-year deals were at $42.50 a ton and 4.25 cents, according to data compiled by the industry association. Copper smelters buy concentrate, a semi-processed form of ore used as a feedstock, at a price based on the London Metal Exchange benchmark minus processing fees.

Pan Pacific Copper Co., Japan’s largest smelter of the metal, is 66 percent owned by Nippon Mining & Metals Co., a unit of Nippon Mining Holdings Inc.Mitsui Mining & Smelting Co. holds the remaining share. Sumitomo Metal Mining Co. is Japan’s second-biggest smelter, ahead of Mitsubishi Materials Corp.

Teck Resources, Canada’s largest diversified mining company, cut its 2010 copper production forecast 13 percent because of “geotechnical issues” at its Highland Valley mine.

Total copper output may be 755 million pounds next year, down from a previous forecast of 870 million pounds, Vancouver- based Teck said June 24. It cut its 2009 production forecast for the Highland Valley mine in Canada by 12 percent to 258 million pounds and its 2010 estimate by 38 percent to 187 million pounds.

Production at Escondida, the world’s largest copper mine, will be 30 percent lower this year because of repairs to a mill, Diego Hernandez, president of BHP Billiton’s base metals division, said June 8. Escondida will shut a faulty mill for 45 days during July and August, Hernandez said.

To contact the reporters on this story: Jae Hur in Singapore at jhur1@bloomberg.net; Yasumasa Song in Tokyo at ysong9@bloomberg.ne