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Landslide will cause 50 percent production drop at Bingham mine, Kennecott says

BINGHAM CANYON — The Bingham Canyon Mine will see a dramatic drop in production as a result of the massive landslide that brought operations to a standstill last week.

"Based on what we have seen, our estimated 2013 production will be roughly 50 percent lower than planned in mined and refined copper," Kyle Bennett, Rio Tinto's Utah Kennecott Copper spokesman, said Tuesday.

Bennett didn't immediately know what that means in terms of dollars. He also didn't know how that would effect the future of the mine and its workers. The company has not furloughed or laid off anyone but asked employees Monday to take voluntary vacation or unpaid time off.

"This has had an impact on the operation, there's no question about it. We're going to have to make a lot of challenging decisions moving forward," he said.

Also Tuesday, Kennecott estimated the size of the slide at more than 165 million tons of rock and dirt based on laser scanners and visual observations, he said.

After visual assessments, company officials discovered damage to three 100-ton electric shovels, 14 320-ton haul trucks, along with drills, bulldozers and graders. There appears to be little or no damage to the mine's crusher and conveyor systems, Bennett said.

"The slide didn't behave exactly like we had anticipated, so it traveled a little further down into the pit than we expected. But we know 90 percent of our equipment is not damaged. There may be equipment that's recoverable as well," he said.

The Mine Safety and Health Administration continues to keep Kennecott's geotechnical team out of the open-pit mine to get to fully assess the destruction.

In 2012, Kennecott reported gross revenue of $2.4 billion and $567 million in net earnings. The numbers were much more robust the year before, with gross revenue at $3.4 billion and net earnings at $1.2 billion, according to the company's annual report.

Production levels and ore grades were factors in the drop as was the fluctuating metals market.

"We had a solid production year in 2011 and we had the benefit of strong prices as well," he said.

One analyst estimates cleaning up and repairing the mine could cost Rio Tinto $1 billion in earnings before interest and taxes, depending on how long it takes, said Brian Hicks, a global natural resources fund portfolio manager with U.S. Global Investors in San Antonio.

Pam Perlich, a University of Utah research economist who has done work for Kennecott, said she spoke with company officials Monday.

"The point that I was making to them is that (cleanup) becomes a generator of employment," she said.

"I know that they've got people who are working untold hours right now trying to figure out what to do, what the way forward is, what this would mean for how they would get their operations put back together again and what would be the mitigation-restoration-construction work necessary to get there."

Those are all questions Kennecott said are too early to answer a week removed from the landslide.

"Every day we're assessing the situation. We're trying to make very methodical decisions about the operation to put ourselves in the best position we can moving forward," Bennett said.

Rio Tinto's Utah operations contributed $1.2 billion to the state's economy, including $270 million in salaries and benefits, $765 million in purchases with Utah firms and $140 million in state and local taxes in 2011, according to Perlich's analysis at the U. Bureau of Economic and Business Research.

The company directly employed 2,801 people and 14,971 indirectly that year.

"It's a big footprint not just in the landscape but in the economy here in the state," Perlich said.

Shutting down Kennecott would have significant impact on Utah, she said. In addition to putting people out of work, it would hurt contractors, suppliers and others who provide services for everyday operations at the mine as well as tax revenue for the state.

"If the mine is not operating, I would assume that would mean they would have to have their property taxes re-figured and there would be the obvious reductions in severance taxes and income taxes and the like," Perlich said.


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