PALM BEACH, Fla., Nov 13 (Reuters) - Rio Tinto's Kennecott copper smelter may toll third-party concentrate on a large scale for the first time next year, as the second-biggest U.S. copper producer tackles falling output due to low ore grades from its mine, five sources said.
The Utah plant has bought external concentrate, an intermediate product that smelters use to make refined metals, on occasion in the past, but this would be the first formal effort to treat third-party concentrate that many traders can remember.
The move would be a big shift for Rio's biggest smelter, which turns ore from its nearby century-old Bingham Canyon mine into refined metal. The reasons for the low-grade ore at Bingham, the world's biggest open-pit, are not known.
The Kennecott marketing team discussed the proposal with traders and market participants at the American Copper Council annual gathering on Wednesday, sounding out their interest. Traders said they would be keen to supply the concentrate.
"It makes sense as the North American market is long concentrates and the smelter is operating under capacity," said one U.S. trader who had met with the company.
Tolling would take place for about six months early next year, according to a source familiar with the plan.
Spokespeople for Rio and Kennecott declined to comment.
Last year, the company was forced to buy in the spot market for about six months to replace lost internal feed after a devastating landslide shut Bingham.
This time, the tolling deals would supplement Kennecott's own output and income as it would get paid to turn third-party concentrate into refined copper. The customers would then sell the finished product, three traders said.
The second major producer struggling with low ore grades, Rio's scheme underscores the complexity of modern mining as big producers look for new ways to deal with weaker ores.
The move could add further strain on supplies of standard-grade concentrates, potentially pressuring refining charges, just as Codelco starts to blend high-arsenic material from its new Ministro Hales mine in Chile with cleaner material.
Miners pay smelters to convert raw material into refined metal. The fees come out of the smelters' sale prices.
In 2013, the mine produced 213,000 tonnes of copper, 192,300 ounces of gold, 2.2 million ounces of silver and 6,300 tonnes of molybdenum. (Reporting by Josephine Mason; Editing by Alden Bentley)