The WSJ reports,"two years ago, Freeport-McMoRan Inc. one of the world's top copper miners, paid 69-year-old cowboy Richard Kaler $1.3 million for 280 acres of rocky ranchland in the eastern Arizona desert.
Freeport isn't interested in his minerals. Instead, it wants his rights to fresh water, which it needs to expand production at North America's biggest copper mine, spread across 65,000 acres nearby. Freeport aims to unearth almost one billion pounds of copper a year—37% of current U.S. annual output—at the Morenci, Ariz., mine by 2016.
The success of the Phoenix-based miner, which had profit of $2.7 billion on revenue of $20.9 billion last year, hinges on its ability to secure and maintain water supplies in arid areas where copper is found. It requires heavy spending and delicate negotiations to minimize potential conflicts with local farmers and others who also need water".
"It's not alone. As mining companies probe remote areas for increasingly scarce minerals, they are investing billions of dollars for water. Moody's Investors Service estimates that mining companies spent $12 billion in 2013, three times as much as 2009, on water management, including treatment facilities and pipelines".
"The issue is especially crucial for copper. Around half the world's copper comes from a belt running from Utah to Chile under mountainous, dry areas, and costs for water are expanding. The Chilean parliament is considering forcing mining companies to build desalinization plants, which remove salt from ocean water, rather than use fresh ground and surface water for their operations. BHP BillitonLtd. , another top copper producer, and its partners agreed to build a $3.43 billion desalinization plant for its massive copper mine in Chile's Atacama desert. Freeport in Chile recently completed a $315 million desalinization plant and pipeline. And in Peru, it is building a $340 million sewage treatment plant.
"Water is a critical issue in places like Northern Chile and Southern Peru, and here in New Mexico and Arizona," Freeport Chief Executive Officer Richard Adkerson said in an interview.
Water management costs are adding to pressure on copper miners amid a slide in prices—down 32% since highs reached in 2011—deflated by weaker demand, especially in China. But at about $3 a pound, prices are still higher than Freeport's extraction costs in North America of $1.87 a pound, and up from prices that hovered around $1.50 a pound in the 1990s. Analysts say copper prices are relatively resilient, because quality deposits are limited and the metal is essential to a wide variety of goods, from water pipes to iPhones. Analysts say Freeport isn't at risk of having to close mines for lack of water, but having to increase spending on water could drive up miners' costs.
China, the world's second-largest copper producer at 1.65 million tons a year in 2013, has tripled production since 2003. The country doesn't have water problems in its copper-mining areas. No. 1 producer Chile, at 5.7 million tons a year, has increased output 17% in that time.
Production growth in the U.S., the world's fourth-largest copper producer with 1.22 million tons in 2013, has been flat in the past decade. Two-thirds of that annual output is pulled from Arizona.
Freeport's Morenci mine and its other four mines in Arizona produce 30% of the company's copper output, and all are at risk of losing currently available water supplies. If they do, Freeport would be forced "to curtail operations, preventing us from expanding operations or forcing premature closures, thereby increasing and/or accelerating costs," the company said in a February SEC filing.
In the U.S., mineral extraction consumes around four billion gallons of water a day. For comparison, industry uses 18.2 billion gallons, all domestic households use 29.4 billion and agriculture uses 128 billion gallons, according to the U.S. Geological Survey's most recent survey published in 2009.
Context is important, though. "It's not that mining companies use a lot of water, but they tend to mine in rocky places without a lot of water," said Mike Lacey, the director of water resources for Arizona.
Water is needed to control dust kicked up during open-pit mining and to extract minerals from rock using various flotation methods in which minerals float or sink".
As most available minerals are taken, what is left tends to be of lower grade, meaning that more rocks must be extracted and more water used to process them. "If you extract 100,000 tons of raw copper with 0.2% instead of 2% grade copper, you need 10 times as much rock and 10 times as much water," said Paul Gait, an analyst at Bernstein. "Water is one of the biggest things mining companies have to worry about, and it's going to get worse."
