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HONG KONG, Aug 12 (Reuters) - Chile's Codelco plans to blend high-arsenic copper concentrate from its Ministro Hales mine with third-party material for sale in China, two sources said, the world's No. 1 copper producer's latest effort to resolve problems with its newest mine.
In a deal agreed with British copper concentrate trader Ocean Partners, Codelco is taking the unusual step of buying clean, standard concentrate and mixing it with material from Ministro Hales at Ocean Partners' blending facility in Taiwan, the sources familiar with the move said.
The first blended concentrate shipment is due to arrive in China by the end of this month, they said. Chile's state-owned copper miner plans to use the mixing facilities for at least two to three years, but could extend that, one source said.
The move comes after the company was forced to cancel some sales to Chinese smelters after problems with equipment at Ministro Hales curbed output.
Codelco told Reuters last month that the roaster, which was installed to remove arsenic from the ore, was operating at 90 percent capacity following launch in December last year. It aims to get Ministro Hales operating at full capacity by September.
But the deal also suggests that the miner is looking for a long-term solution to deal with high arsenic levels in ore from the mine, an issue which has vexed management for some time.
It represents a bold shift in strategy for the company, which to date has mainly used output from its vast resources in Chile, and also underscores the complexity of modern mining as ore grades decline.
Ministro Hales has been a key part of Codelco's ambitious investment strategy, which in the next stage will plough $23 billion to overhaul older mines with depleted ore grades and launch new projects by 2018.
Ocean Partners, which was formed ten years ago out of the former French aluminum producer and non-ferrous concentrates trader Pechiney Group, deals in copper and zinc concentrates and has several blending facilities, according to its website.
Ocean Partners operates in a number of countries, including Canada, China, Mexico, Peru, South Africa, Switzerland, Taiwan, Turkey, United Kingdom, and the United States.
Codelco in Chile did not give an immediate comment. UK-based Ocean Partners did not return calls for comment.
The blending strategy is key for Codelco's business in China, the world's top concentrate buyer, where smelters use concentrates with less than 0.5 percent arsenic.
Ministro Hales, which is expected to produce around 183,000 tonnes of refined copper and 300 tonnes of silver annually once at full capacity, will likely produce copper concentrates with 5-percent arsenic content.
Codelco wants to create a brand of "clean blended concentrate" with a guarantee of quality, said a source who is familiar with Codelco's operations.
To that end, Codelco could mix 10-15 tonnes of clean, standard concentrate with one tonne of Ministro Hales concentrate, the source said. The firm would need to buy the clean material from the international market with the rest supplied from its own mines, the source added.
Five to six large copper smelters in China have agreed to use the Codelco blended concentrates in trial runs this year and one smelter has signed up for term shipments from 2015, the two sources said.
But others are still undecided. A trading manager at a state-owned copper smelter said it wasn't clear if the blended concentrates could be used on a large scale.
An executive at another state-owned smelter in China said the firm was not likely to buy the Codelco blended concentrates next year because the firm expects a supply of clean, standard concentrates to stay plentiful in the international market.
Codelco's buying in the market could tighten supplies of clean, standard term concentrates in 2015, traders said, potentially pressuring treatment and refining charges (TC/RCs).
These are paid to smelters to convert raw material into refined metal and are deducted from the smelters' sale prices.
TC/RCs for Codelco blended concentrates are expected to be about $10 per tonne and 1 cent per pound above the benchmark in Asia for China term shipments in 2015, traders and sources at smelters said.
The benchmark is $92 per tonne and 9.2 cents per pound in 2014 for clean, standard concentrates. (Additional reporting by Fabian Cambero in Santiago, Writing by Rosalba O'Brien; editing by Andrew Hay)