SR26 Economic Impacts of Rosemont Copper Mine

An Assessment of the Economic Impacts of the Rosemont Copper Project on the Economies of the Cochise/Pima/Santa Cruz Counties Study Area, Arizona, and the United States

by Dr. Madan M. Singh

ARIZONA DEPARTMENT OF
MINES AND MINERAL RESOURCES

An Assessment of the Economic Impacts of the Rosemont Copper Project
on the Economies of the Cochise/Pima/Santa Cruz Counties Study Area,
the State of Arizona, and the United States

Prepared by the
L. William Seidman Research Institute
W. P. Carey School of Business
Arizona State University

An Assessment of the Economic Impacts of the Rosemont Copper Project on the Economies of the Cochise/Pima/Santa Cruz Counties Study Area,
the State of Arizona, and the United States

This report summarizes the results of an economic impact analysis of the Rosemont Copper Project, an open-pit mining operation to be developed on a 15,000 acre site in Pima County about 30 miles southeast of Tucson. The analysis employed the REMI PI+ regional economic forecasting model to estimate the economic impacts of the Project for the Cochise/Pima County/Santa Cruz Counties study area, for the State of Arizona, and for the United States.

This report summarizes the results of an economic impact analysis of the Rosemont Copper Project, an open-pit mining operation to be developed on a 15,000 acre site in Pima County about 30 miles southeast of Tucson. The analysis employed the REMI PI+ regional economic forecasting model to estimate the economic impacts of the Project for the Cochise/Pima County/Santa Cruz Counties study area, for the State of Arizona, and for the United States.

At prices of $1.75/lb. for copper, $15.00/lb. for molybdenum, and $10.00/ounce for silver, combined proven and probable sulfide mineral reserves total nearly 546 million tons grading

0.45 percent copper, 0.015 percent molybdenum, and 0.12 ounces/ton silver. Proven and probable oxide mineral reserves total about 70 million tons grading 0.17 percent copper. Contained metal in the sulfide mineral reserves (proven and probable) is estimated to be 4.9 billion pounds of copper, 161 million pounds of molybdenum, and 65 million ounces of silver. Contained metal in the proven and probable oxide mineral reserves is estimated to be 241 million pounds of copper. The mining operation is projected to produce more than 200 million pounds of copper per year. In addition to copper, it is also projected to produce an average of

4.7 million pounds of molybdenum and 2.7 million ounces of silver per year (M3 Engineering and Technology Corp.).

The total cost of developing the site for mining and construction of the processing facilities will be $897 million (2008$). When in operation, employment will average 406 per year, and total annual production costs will average $301 million per year during the 20-year production period (M3 Engineering and Technology Corp.).

The results of the economic impact analysis indicate that the engineering/construction phase will generate an average annual increase of $96 million in economic activity in the three-county study area (measured in terms of demand for goods and services from local suppliers) and will provide a total of 3,600 person-years of employment for local workers during a four-year engineering/construction period. The jobs and non-labor income (dividends, interest, rent, proprietors’ income, and net profits) produced by the economic activity will also provide an average of $38 million per year in additional income to area residents and $5 million per year in incremental revenues to local governments in the study area. Over the entire engineering/construction period, impacts will total $385 million in additional demand for goods and services, $245 million in gross regional product, $152 million in personal income, and $18 million in local government revenues.

For the State of Arizona, the economic impact analysis estimates that the engineering/construction phase will generate an average annual increase of $122 million in economic activity in the state (measured in terms of demand for goods and services from Arizona suppliers) and will provide a total of 3,900 person-years of employment for Arizona workers during a four-year engineering/construction period. The jobs and non-labor income resulting from the economic activity will also provide an average of $45 million per year in additional income to state residents and $6 million per year in incremental state government revenues. Over the entire engineering/construction period, the impacts will total $489 million in additional demand for goods and services from Arizona suppliers, $317 million in gross regional product, $182 million in personal income, and $23 million in state government revenues.

For the U.S. economy, the engineering/construction phase will generate an average annual increase of $568 million in economic activity in the nation and will provide a total of 11,600 person-years of employment for U.S. workers during a four-year engineering/construction period. The jobs and non-labor income produced by the economic activity will also provide an average of $167 million per year in additional income to U.S. residents and $53 million per year in incremental revenues to the federal government. Over the entire engineering/construction period, impacts will total $2.3 billion in additional demand for goods and services, $1.2 billion in gross domestic product, $668 million in personal income, and $210 million in federal government revenues.

The productive life of the Rosemont Copper Project is projected to be 20+ years. Based on the cost analysis in the feasibility study, the total costs associated with the production/post-production phase of the Project, including reclamation and costs related to closure of the mine will total over $6 billion.

For the three-county study area, production activities will generate an average annual increase of $701 million in economic activity (measured in terms of incremental regional output) and will support an average of 2,100 jobs for residents of the study area. The wages and salaries and non-labor income produced by the economic activity will provide an average of $143 million per year in additional income to area residents and $19 million per year in incremental revenues to local governments in the region. Over the entire expected life of the Project, the overall impacts will be $15 billion in additional output, $8 billion in gross regional product, $3 billion in personal income, and $404 million in local government revenues.

For the State of Arizona, production activities will generate an average annual increase of $907 million in economic activity and will support an average of 2,900 jobs for Arizona workers. The wages and salaries and non-labor income produced by the economic activity will provide an average of $218 million per year in additional income for state residents and $32 million per year in incremental state government revenues. Over the entire expected life of the Project, the overall impacts will be $19 billion in additional output, $11 billion in gross regional product, $5 billion in personal income, and $681 million in state government revenues.

For the nation, production activities will generate an average annual increase of $1.3 billion in economic activity and will support an average of 4,500 jobs for U.S. residents. The wages and salaries and non-labor income produced by the economic activity will provide an average of $387 million per year in additional income to U.S. residents and $128 million per year in incremental federal government revenues. Over the entire expected life of the Project, overall impacts will be $27 billion in additional output, $15 billion in gross domestic product, $8 billion in personal income, and $3 billion in federal government revenues.

All three parts of the economic impact analysis were prepared using the latest version of the REMI regional economic forecasting model. The Seidman Institute previously conducted a similar analysis of the economic impact of the Rosemont Copper Project based on a two-county study area comprised of Pima and Santa Cruz Counties (Seidman Institute 2009). That study did not include impact analyses for the state or for the nation. The earlier analysis employed a different version of the REMI model.

As a consequence of using the new version of the REMI model, the results for the three-county study area are not consistent with the previous estimates reported for the two-county study area. The estimated impacts for the engineering/construction phase are all substantially higher than the numbers reported in the previous study. For the production/post production phase, the employment, income-related, and government revenue numbers are higher, while output and gross regional product are somewhat lower than the earlier estimates.

Regional Economic Models Inc., the builder of the REMI model, has been in business for nearly 30 years and has a policy of continually updating their economic impact models based on the latest available data and advances in economic analysis and econometric methods. The model used for this analysis incorporates many changes to the previous version – including changes to both individual equations and to its overall structure. The parameters in the model have been re-estimated using a modified and updated dataset that included data through 2007. In addition, the economic forecasts incorporated into the new model were updated to reflect more recent views on future economic trends. The sum of these changes has resulted in somewhat different results compared with the previous analysis. The fact that the numbers are different should be interpreted in that context rather than in terms of which numbers are “right.” The results of the current analysis should be taken as reasonable estimates of the economic impact of the Rosemont Copper Project produced by a state-of-the-art regional forecasting model based on the current state of the local, state, and national economies.

The following discussion is based upon economic and financial information contained in the Rosemont Copper Project Updated Feasibility Study (M3 Engineering and Technology Corp.). All dollar-denominated figures in this report are stated in terms of 2008$ to be consistent with the cost/financial data in the feasibility study.

The total cost of construction is estimated to be $897 million. The cost figures for the construction and development of the site for mining as reported in the feasibility study are summarized in Table 1. Expenditures for goods and services, payrolls, and tax payments associated with the engineering/construction phase will total $881 million over a four-year period. Table 2 lists the total and yearly expenditures for the engineering/construction phase.

The productive life of the Rosemont Copper Project is projected to be 20+ years. Based on the cost analysis presented in the updated feasibility study, the total costs associated with the production/post-production phase of the Project, including reclamation and costs related to closure of the mine will total over $6 billion. Table 3 summarizes the cost figures for a representative year during the production phase as reported in the feasibility study. The total cost figure translates to $5.1 billion in expenditures for goods and services, payrolls, and government payments -- or approximately $252 million per year over the 20-year production period. Table 2 lists the total and yearly expenditures during the production/post-production phase of the Project. These figures include spending associated with the mining operations, processing of the ore, maintenance/replacement of facilities and equipment, reclamation, administration, taxes, and other outlays, but do not include accounting cost components such as salvage value and depreciation.