Hunters Comb Globe for a Hot Metal
Last year, Rio Tinto chief executive officer Tom Albanese sent an email to his staff of mineral and metal explorers around the world. The gist: Pick up the pace.Thousands of miles away, Torsten Danne got the message. With the help of two guides, horses, donkeys, a dog and several pounds of equipment, Mr. Danne has spent the past few years searching for copper in this remote region of the Peruvian Andes. "The day-to-day pressure is a lot more than it used to be," says Mr. Danne, who spends his days sifting through river sediment and chipping away at rocks.Mr. Danne and thousands of explorers like him are the bedrock of a global mining industry struggling to keep up with booming demand. As demand soars in China and other emerging economies, the world is clamoring for minerals and metals to build everything from sewer systems to power plants.That's putting immense pressure on the geologists, engineers and modern-day Indiana Jones-type explorers who are tasked with finding the next big reserves. Adding to the pressure on Rio Tinto is a takeover bid by BHP Billiton, an Anglo-Australian mining company, valued at $147 billion.Mr. Albanese says he hopes to help fend off BHP by capturing more reserves quickly. That could boost Rio Tinto's net worth -- or at the very least, persuade BHP to pay a higher price. He has hired more explorers and dispatched them to places like Southern Africa, Siberia and Peru. The company now employs about 950 explorers world-wide and is spending about 15% more on exploration than it did five years ago. The new discoveries have to be "big enough to move the needle," says Mr. Albanese.Global mining companies are playing catch-up after a long period of underinvesting in exploration for new mines. But because it can take years to find and get a new mine up and running, there's some question about whether they're now too late to the game -- and whether prices for these commodities can continue to climb indefinitely. Prices could drop if the U.S. enters a prolonged recession and demand for materials for construction and infrastructure falls.Last week, a potential merger between Brazilian mining giant Companhia Vale do Rio Doce and the Anglo-Swiss company Xstrata PLC collapsed in part because Vale was skittish about paying too much for Xstrata. Vale CEO Roger Agnelli said on Tuesday that talks could still restart.But many analysts say that commodities are far from their peak because China in particular is growing so fast. Spot prices for iron ore reached a record $200 to $225 trading range at the end of last year and have stayed within $10 to $20 of that number through this year. Copper futures on the New York Mercantile's Comex division closed Thursday up 2.40 cents at $3.90 a pound, its highest level since March 7.Marius Kloppers, chief executive officer of BHP Billiton, says his company has boosted its exploration budget by 15% in the past five years, hoping to lure the world's top explorers. BHP, which has about 1,100 explorers, is circling Rio Tinto in part to combine costly exploration efforts.Xstrata invested $250 million to search for new mines in 2006, four times what it spent five years earlier. "The industry underinvested for years," says Thras Moraitis, executive general manager for strategy at Xstrata. "Now we need to spend more money."As with crude oil, most of the accessible reserves, where the minerals are close to the surface and relatively easy to extract, have already been found. The remaining reserves are deeper in the ground and more expensive to extract. They are often in politically unstable countries or countries where the infrastructure is old or inadequate. Power outages in parts of Russia, Africa and South America routinely interrupt the discovery and flow of minerals out of the ground and to railroads, ports or factories.Before Rio Tinto dispatches a team of explorers to one of these remote areas, it uses satellite imagery of the earth's crust to look for certain rock formations that indicate mineral deposits. Once a site is pinpointed, the company meets with government officials to get permission to explore.The company won approval for its largest Peruvian copper project, an area called La Granja, in December 2005, after agreeing to pay the government $22 million on top of a $60 million investment in the exploration work itself. In addition, Rio Tinto is funding social programs in Peru and hiring local residents.During the negotiations, it sent a team to meet with locals around La Granja and explain what the explorers would be doing. Rio Tinto says these goodwill missions have become a critical part of the exploration process. About 10 years ago, a group of explorers in southern Peru working for a now-defunct mining company were held hostage by a local tribe and were only released after a ransom was paid. After that, Rio Tinto says it stopped sending groups unannounced.Although satellite imaging is critical in the early stages of exploration, it isn't foolproof. "Geologists like to think that we know where everything is on earth. We don't," says Eric Finlayson, who heads the global exploration team for Rio Tinto. As in the gold rush of the 1880s in the U.S., exploring today takes a degree of old-fashioned, on-the-ground boot leather and luck.That's where Mr. Danne comes in. The 43-year-old German geologist speaks three languages. He has explored across Turkey and South America, and recently got engaged to a fellow geologist who is also employed by Rio Tinto.Mr. Danne joined Rio Tinto a few years ago, first heading up exploration at El Peón, adjacent to La Granja copper project. He says he has found traces of copper in El Peón, but hasn't yet determined where the greatest concentrations are or whether they are readily accessible. More than most nonferrous metals, copper has benefited from the global commodities boom. Copper is selling for about $8,500 a metric ton, up from about $7,300 a metric ton this time last year.On a recent excursion, Mr. Danne and his small caravan of animals and guides set out at daybreak, loaded with picks, compass, magnets, protractors, maps, reams of maps and data-recording sheets, and two Global Positioning System devices. One uses satellite imaging to locate rocks worth sampling, and the other acts as a backup and helps the main office track his whereabouts.Twice a day, he used his code name "Tigre 3" to report back to his boss at "Zorro-3" to give his location and progress. Code names are used to keep competitors who might be listening in on the airwaves in the dark about copper finds.They walked through rutted paths, past orange trees and fields of cilantro, beans and potatoes, and small adobe houses where pigs, dogs and cows congregated. The landscape grew lusher as the climb continued into the cloud forest, so named because of the mountain peaks piercing through passing clouds.In the field, Mr. Danne keeps his eyes peeled for chalk-colored rocks that may have pockets of copper embedded inside. The presence of the dark gray or black mineral tourmaline in a rock is often a sure sign that there is copper nearby.A few years ago; he might take days, following his gut, to poke around an area looking for traces of minerals. Today, he says he has to move more quickly and explain to his superiors why he's going in a particular direction by documenting every single find with detailed descriptions and map coordinates. "It's no more gut feeling. You need more facts," he says.His Peruvian assistant, who goes by the name Segundo, led the way, using a sickle to hack vegetation and create a path. He was followed by another local, Oscar Ruiz, who guided two donkeys loaded with equipment down into a steep ravine and the river below. They talked little and did so in Spanish, which Mr. Danne picked up since coming to South America several years ago.Mr. Danne stepped knee-deep into the river. He rolled up the sleeves of his tan shirt and plunged his forearms into the frigid water, scooping up sediment at the bottom of the river with a metal bowl-like device. A mesh netting helped filter big, unwanted chunks of rock from promising, smaller particles.He emptied the collected sediment into plastic bags for testing later, and moved upriver to a large reddish-brown rock. Based on the coloring, he thought there might be copper on the rock and surrounding area.
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