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Kennecott teaches survival: taking important risks.


Kennecott Corp. has come to symbolize industry in Utah. Its crown jewel, the Bingham Canyon Mine, is the largest open-pit copper mine in the world. And in weathering the ups and downs of the mining industry, the company has emerged as a competitive leader emulated by diverse businesses worldwide.

Global Competition

One of the largest and oldest mining companies in the United States, Kennecott produces more than 15 percent of this country's copper supply and 3.5 percent of the world's mine output of the ubiquitous metal. Kennecott's major foreign competitors in the copper market include mines in Chile (it has the highest-grade copper), Peru, Zambia, and Zaire.

Copper, the great conductor of electricity, is used in our homes, automobiles, communications equipment, and many other aspects of our daily lives, including the penny. The majority of Kennecott's Bingham Canyon copper is sold to U.S. businesses for building-wire, telecommunications, and automotive applications.

Kennecott's roots extent to 1906, when Daniel Jackling set out to show the mining industry how to make a profit mining low-grade ore with large-scale production. Jackling started the process that converted what was once a mountain of rock on the eastern slopes of the Oquirrhs into one of the largest excavations on earth.

In the 85 years since large-scale mining began, Bingham Canyon has produced 13 million tons of copper - more than any single mine in history - as well as 16 million ounces of gold and 1.7 billion tons of ore. Its importance as an industrial icon has earned the mine a designation from the United States Department of the Interior as a National Historic Landmark.

Overcoming Tough Times

The cost of production is a key factor in staying competitive in the global copper market. In little more than a decade, Kennecott's Utah copper operations have undergone major changes to become one of the most competitive and productive producers in the world. The process has often been painful - the company has shaved its workforce from 7,200 in the early 1980s to a current 2,500, and the Bingham Canyon Mine was forced to shut down for a brief period in 1985. Kennecott has emerged as a case study in successful cost reduction.

President and chief executive officer Frank Joklik took the helm at Kennecott 11 years ago and has been instrumental in propelling the company through its most momentous changes. In 1980, when copper prices were down and the market depressed due largely to oversupply from Third World production, Kennecott was one of the highest-cost producers of the metal.

To survive, Joklik said, it was necessary to reduce costs per unit of production, a plan originally undertaken without capital investment. The company revised its mining plans, pressured suppliers to drop prices, and implemented other hardball measures, including a drastic reduction in personnel at all levels which cut total employment from 7,200 to 4,300.

"That was the period of real heartache," Joklik observed. "Many of these people we knew, liked, and respected but were forced to let go. It was a difficult time for everyone, from the hourly workers on up to the highest levels of management."

Despite such strenuous measures, Kennecott was forced to close the Bingham mine in 1985, doing so with the promise it would make every effort to reopen. The company held to its word, aided by a renegotiation of labor contracts that substantially reduced per-hour labor costs and other benefits. "The commitment of our employees had much to do with our reopening," Joklik said. "There were tremendous sacrifices made on the part of the hourly workers - sacrifices that had already been made on other levels."

Kennecott reopened the mine in 1986, armed with plans for a $400-million modernization project that would bring the Utah copper operation to the forefront of state-of-the-art technology. Outdated equipment was replaced with the most modern crushing, conveying, grinding, flotation, and filtration apparatus available.

Success and Diversification

Today, the operation produces 250,000 tons of refined copper per year, the highest rate in history. The by-product rich mine also produces 400,000 ounces of gold, 3.1 million ounces of silver, and 11 million pounds of molybdenum each year. Other modernization projects are in the works, and by 1992 a $227 million expansion will increase annual copper production by 30,000 tons.

Kennecott has also broadened and diversified its mining interests over the past three years, Joklik said. Four new mines have been brought on line - the Barney's Canyon gold mine just north of Bingham Canyon; gold mines in South Carolina and Nevada; and a silver mine on Admiralty Island, Alaska, that is the largest silver mine in the U.S.

In addition, the company has three new mines under development in the United States and Papua New Guinea, and it is involved in "vigorous exploration" of other potential mines in the U.S., Canada, Mexico, the Caribbean, and Papua New Guinea, he noted.

What does the future hold for Bingham Canyon? It still has a minimum active working life of 25 to 30 years, and after that it may be transformed into an underground, rather than open-pit, mine.

Though Kennecott's Utah copper operations now employ little more than a third of previous levels, the company's impact on the Utah economy is undeniable. For every worker on Kennecott's payroll, three or four positions are generated in support industries, most of which are in manufacturing and supply and generate above-average pay levels.

Environmental Controls

While cost reduction has been a cornerstone of Kennecott's rise to competitive excellence, one area on which the company has spent "hundreds of millions" with no expectation of return is environmental controls.

"We take great care to mitigate our impact on the air, surface water, and underground water - employing a large, highly skilled environmental staff," Joklik noted. "We recognize that Kennecott's operation used to be a long way from Salt lake - but now people are living closer and closer, and we must do our best to address those issues. Kennecott has become one of the leaders in environmental control among major mining companies in the U.S."

Kennecott's most recent environmental project will reduce peak sulfur dioxide emissions from its Utah smelter by another 70 percent and carries a $200 million price tag. This plan will result in improved sulfur capture, from 92 percent to 96 percent, at the Utah smelter. The new double-contact acid plant will be completed by 1994, and in the interim additional equipment will be installed and operating procedures altered to improve smelting-furnace gas collection.

Innovative Strategies

What has been Kennecott's most innovative strategy in its endeavor toward profitability? Joklik gives a trio of answers: cost reduction, modernization, and diversification. "We got cracking on reducing costs before any of our competitors," he said. "Our methods have been adopted by other industries as well, helping to improve the United States' overall competitive position in world market."

Joklik also pointed to the company's recognition that modernization is an integral part of the process and that diversification would help offset the effects of a fluctuating copper market. Overall, it's a formula and philosophy that insures Kennecott's stability and success well into the 21st century.

Teresa Browning-Hess is co-publisher of Business Source and specializes in writing about business topics.
COPYRIGHT 1991 Olympus Publishing Co.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991 Gale, Cengage Learning. All rights reserved.

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Title Annotation:a profile of Kennecott Corp., a Utah copper mining company
Author:Browning-Hess, Teresa
Publication:Utah Business
Article Type:company profile
Date:Sep 1, 1991
Previous Article:Mining in Utah: past, present, and future.
Next Article:Longyear: one hundred years of business.

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