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By Roy Lindgren

SINCE the year 1643, when the first blast furnace in America for treating iron ore was built at Saugus, Mass., out of mica schist quarried in the neighboring district, the procurement of a suitable refractory for furnace lining has been a problem of concern to the operators of furnaces. The stacks built of mica schist continued to smelt iron ore until about 1836, when, according to F. H. Norton, the first firebrick were produced1, at Queens Run, Pa. Other writers speak of brick having been molded and burned in Massachusetts about the year 1834. In 1841, Andrew Russell began to produce medium refractory plastic clay brick near East Liverpool, Ohio, that were used for lining blast furnaces1. The well-known Kentucky clay-producing district was not opened up until the year 1871, but since then it has produced a large percentage of the linings for iron blast furnaces. While some strides have been made by the refractories industry during the 100 years that have passed since the first firebrick were produced, it has been only during the last two decades that any real progress has been made towards bettering the product, even though the method of production had improved. Perhaps the fault lies with the user of the brick rather than with the producer, for not sooner demanding a supe-rior product. During the past 15 years the tonnage produced per lining has increased from 500,000 gross tons to 1,000,000 gross tons, and now some furnaces are producing 1,600,000 gross tons and better on a single lining. It is true that enlarged capacity of furnaces and improved practice have accounted for some of this increase in tonnage, nevertheless better quality in firebrick must be given credit for its share. However, we are not yet ready to say that we have reached a maximum life of furnace lining. We believe that a better product can be produced and that the refractories industries of America will, through their extensive research depart-

Jan 1, 1936

By AIME AIME

THE United Electric Coal Companies, operating large strip mines at various points in Illinois, pioneered in developing and perfecting the strip method of mining coal by use of large shovels and drag-lines. Coal stripping was first started on the properties owned by this company near Danville, Ill., in 1885. The first mechanical' excavating machine used for the purpose was really a dredge minus the hull, which had been purchased from the Marion Steam Shovel Co. It was erected on a wood frame supported by wheels and was referred to as a dry-land dredge or stripping machine. Wood was used throughout in the construction of this primitive excavator, even for the boom which was 50 ft. long. A single-cylinder vertical steam engine furnished power to hoist the %-yd. dipper arid swing the boom. 400 cu. yd. of overburden moved in a day was a great record.

Jan 1, 1936

By D. D. Homer, R. H. Cromwell

The Minas de Matahambre No. 2 shaft, vertical, four-compartment lined with steel sets and hardwood lagging, has been sunk 2057 ft. On account of rock structure, over-all cross-section dimensions are 23 by 6 ft. Certain sections have been concreted. Two compartments are for handling ore and men, one for supplies and men, and one for manway, cables and counterweight. Two 250-ton capacity skip pockets with air-operated gates and steel cartridge pockets have been installed underground. A steel "A" headframe, a 250-ton steel receiving bin, and skip-to-man-cage changing equipment have been provided. Skip capacity is 102½ cu. ft. The hoist is a Nordberg double-drum 10 ft. by 6 ft. 6 in. geared, electrically driven, with parallel grooving for 1-?in. cables. Maximum hoisting speed is 1600 ft. per minute. The motor-generator set, control panel, slip regulator and hoist accumulator are housed in the basement of the hoist house. The electrical equipment is General Electric. The direct-current hoist motor is 800 hp. Control is of the Ward-Leonard-Ilgner type. The motor-generator flywheel set, normal speed 720 r.p.m., consists of an 800-hp. induction motor, a 22-ton flywheel (dia. 117 in.) and a 650-kw. generator.

Jan 1, 1934

By W. W. Eckles

This paper is presented as a suniniary report of the use of well gas composition correlations obtained from mass spectrometer recordings as a means of identification and determination of reservoir continuity. Conventional methods for detecting composition differences are en-pensive, elaborate, and difficult to obtain. This excludes the use of extensive composition data for most applications. During recent years the mass spec-trometer has come into general use as an analytical tool in petroleum refineries. The use of mass spectrometer composition patterns ir~ characterizing or "finger-printing" the produced gas from a reservoir, presents a novel method for correlatitlg gas samples from well to well. The mass spectrometer provides a trace similar to an electric log. having peaks which represent the abuntlnnce of certaitz hydrocarbons in the well gas sample. Without going further into the detailed analysis the idea has been advanced that these traces or patterns could be used as a means of identifying a particular natural gas. This theory has proven to be essentially correct. The mass spectrometer pattern method is simple and cheap as COi?7pared to other standard methods. It greatly facilitates the solution of reservoir and geological problems in which correlation of well gas Com-positions is a factor. Specific field applications have been made. This paper concerns the results obtained in 465 individual gas analyses from 35 fields and 77 res- ervoirs. In a number of cases it has been found that such data have been extremely valuable in the determination of reservoir continuity. In at least one case, the method was a valuable contribution in tracing a reservoir from sand to sand in a coinplex fnulted field involving n11rnerous gas reservoirs. Field applications are presented to illustrate the possibilities of the method at the present stage of developnient and to stimulate the ernployrnent of this new approach by geologists and petroleum engineers in the industry. INTRODUCTION Identification of producing horizons and the determination of reservoir continuity are often a problem in those areas where dome structures and highly faulted sands are encountered. To complicate the picture further, there may be numerous sands, one on top of the other which dip and diverge in different directions. Even though it may be possible to develop some solutions to the preceding problems on the basis of the geological and reservoir data on hand. it is readily recognized that substantiating data based on independent methods would he extremely valuable. It has been found through field studies that correiation of well gas composition can be used to advantage in the geological and engineering study of a complex reservoir identification problem. METHOD FOR COMPARISON AND CORRELATION OF WELL GAS SAMPLES Since a large number of well gas samples are required in a gas identification or reservoir con- tinuity problem, it is necessary that a method of analysis be employed which can detect differences in composition readily and inexpensively. Although detection would be possible by means of low temperature fractional distillation (POD) analpsis, the method requires a relatively large sample and is comparatively slow and expensive to run. The mass spectrometer affords an inexpensive and precise analysis of small well gas samples taken at the surface which are about 1/300 as large as a POD sample. These samples can be obtained by regular field personnei and shipped to the spectrometer for analysis. It is, therefore, a practical approach to the problem. A typical record from the mass spectrometer is illustrated in Fig. I. The peaks on the record represent the abundance of ions produced from the different hydrocarbon molecules making up the gas sam-ple. In well gas comparisons only five peaks are employed, since the other peaks are formed from the same gas molecules and furnish no additional information. The five peaks used represent the abundance of methane, propane, ethane, butane and heavier, and oxygen. They are referred to respectively as the 16, 29, 30, 43, and 32 peaks. The oxygen peak is used to correct for air content in

Jan 1, 1958

By Frank Firmstone

(Ottawa Meeting, October, 1889. Substituted for the briefer note on the same subject. pre sented at the meeting and subsequently distributed in preliminary pamphlet edition.) Prof. H. Hoefer's theory of blasting was published in the Oesterr. Zeitschrift, xxviii., 1880, and xxix., 1881; and Part 111. in Nos. 15, 16 and 17, xxx., 1882, and subsequent numbers of that

Jan 1, 1890

By J. A. Bartnik, Gerald D. Rose, William H. Benson

New techniques in the magnetite and heavy media beneficiation industries demand more efficient magnetic dispersion and flocculation of the finely ground particles. Demagnetizing coils must produce several major effects, such as improving classification and screening efficiency, decreasing moisture content in filter cake and improving separation selectivity and green pellet properties. Likewise, magnetic flocculators must increase filtering rates and the settling rates of solids, improve magnetite recovery and produce cleaner water. To improve the design of equipment and to conduct tests leading to the optimization of such dispersion and flocculation, a program was initiated at Eriez Magnetics. The major conclusions reached are: 1. Laboratory and plant scale tests conducted on magnetite products show that a demagnetizing force of 450 rms oersteds at 60 cycles for 1/20- second duration will depolarize natural magnetite particles coarser than approximately 10 microns. This has been found satisfactory for most applications. 2. Effective flocculation of magnetite was obtained when a slurry with more than one percent magnetite was exposed for a period of approximately 1/15 second to a 600-gauss field. 3. The cost of demagnetizers (or flocculators) increases rapidly for larger diameter pipes. In order to reduce the cost, narrow rectangular sections are recommended for magnetic flocculators. 4. For minimum operating cost, permanent magnetic flocculators are ideal, chiefly because they do not require any maintenance and have no operating cost. 5. A newly designed electro-demagnetizing coil with high heat dissipation and a nonmetallic core provides high efficiency and long life. 6. To select the correct magnetic flocculator (or demagnetizing coil) the following information is necessary: a. Magnetic product susceptibility b. Magnetic product coercive force c. Percent of magnetic product d. Flow rate e. Viscosity f. Structure of magnetic product

Jan 8, 1968

Samuel T. Wellman, Cleveland pioneer steel man, who was often referred to as the "father of the open-hearth process of the United States," died suddenly on July 11, 1919, of heart disease, at Stratton, Me. For more than half a century, he was closely identified with the improvement of equipment used in the making of steel and contributed a number of inventions that virtually revolutionized the industry. Mr. Wellman was born Feb. 5, 1847, at Wareham, Mass., his father at the time being superintendent of the Nashua Iron Co., Nashua, N. H. After attending public school and a year at Norwich University, he served in the Civil War as a corporal of the first New Hampshire Heavy Artillery. He went to Pittsburgh in 1867 and assisted in starting the first crucible steel melting furnace built in America at the works of Anderson, Cook & Co. It melted a ton of steel with an average of 1000 Ib. of nut coal, which cost less than $1, while the melting of a ton of steel in crucibles in the old fashioned coke furnace took three tons of the very best coke, costing from $2 to $3 per ton. This furnace was a great success and in a very few years had driven the coke furnace out of use. From Anderson, Cook & Co., Mr. Wellman went to the Singer, Nimick & Co. works, Pittsburgh, where he built two crucible steel melting furnaces of the same type. After that he spent some time in the office of the Siemens agents in Boston and also at steel works in different parts of the country, starting crucible steel furnaces. He then went to the Bay State Iron Works in South Boston, Mass., where he built the first open-hearth furnace that was a commercial success in the United States. It made steel of a much better quality than had previously been made in this country. The principal use to which it was put in those days was the manufacture of locomotive fire-boxes. From South Boston, he went hack to the old works in New Hampshire where his father was still superintendent, and built for it an open-hearth furnace, a plate mill, and a bar mill. In 1873, Mr. Wellman went to Cleveland to design and build the plant of the Otis Steel Co. He remained with this company for 16 years as engineer and superintendent. During this time he developed the open-hearth charging machine and introduced the electromagnet for handling pig iron and scrap steel. The first charging machine was operated by hydraulic power, and although it was not entirely satisfactory it performed the work fairly well and encouraged its inventor to build another one, which was driven by electric motors. This proved

Jan 1, 1920

The information in Tables 1 and 2, on the operations in the Dutch East Indies and North Borneo, has been kindly furnished to the Institute through the courtesy of Mr. J. August Kessler by Mr. B. H. van der Linden. It affords a very good picture of the situation in that region for the year 1933.

Jan 1, 1934

By Roy A. Lindgren

Since the year 1643, when the first blast furnace in America for treating iron ore was built at Saugus, Mass., out of mica schist quarried in the neighboring district, the procurement of a suitable refractory for furnace lining has been a problem of concern to the operators of furnaces. The stacks built of mica schist continued to smelt iron ore until about 1836, when, according to F. H. Norton, the first firebrick were produced1, at Queens Run, Pa. Other writers speak of brick having been molded and burned in Massachusetts about the year 1834. In 1841, Andrew Russell began to produce medium refractory plastic clay brick near East Liverpool, Ohio, that were used for lining blast furnaces1. The well-known Kentucky clay-producing district was not opened up until the year 1871, but since then it has produced a large percentage of the linings for iron blast furnaces. While some strides have been made by the refractories industry during the 100 years that have passed since the first firebrick were produced, it has been only during the last two decades that any real progress has been made towards bettering the product, even though the method of production had improved. Perhaps the fault lies with the user of the brick rather than with the producer, for not sooner demanding a superior product. During the past 15 years the tonnage produced per lining has increased from 500,000 gross tons to 1,000,000 gross tons, and now some furnaces are producing 1,600,000 gross tons and better on a single lining. It is true that enlarged capacity of furnaces and improved practice have accounted for some of this increase in tonnage, nevertheless better quality in firebrick must be given credit for its share. However, we are not yet ready to say that we have reached a maximum life of furnace lining. We believe that a better product can be produced and that the refractories industries of America will, through their extensive research depart-

Jan 1, 1937

By W. P. Sykes

IN CONNECTION with a study of tungsten steels, Honda and Murakami1 reported an investigation of the system iron-tungsten. This report included a tentative equilibrium diagram, photomicrographs of various alloys in the series, and qualitative measurements of hardness and magnetic properties. The present investigation originally had as its object the study of the hardness and tensile properties of a series of carbon-free iron-tungsten alloys. But, as the work progressed it became evident that the system possessed other features of interest, so the scope of the investigation was enlarged. MATERIALS The iron powder used in preparing the alloys was obtained as follows: Iron oxalate was precipitated from a ferrous-sulfate solution by the addition of a solution of oxalic acid. This oxalate, after thorough washing, was ignited to iron oxide, which after reduction in hydrogen at about 1000° C. yielded iron powder containing but about 0.2 per cent. iron oxide and about 0.005 percent. carbon. Tungsten metal in the form of powder, such as is used in the manufacture of filaments for incandescent lamps, was the other constituent. This material analyzed 99.8 per cent. tungsten and contained no carbon, The metal powders, in the desired proportions, were mixed by tumbling and formed, under pressure of 20 tons per sq. in., into rods 3/8 by 3/8 by 10 in. To form the alloys without contamination, sections of the pressed rods were placed on alundum slabs and heated in an alundum tube wound with a tungsten resistor and packed in heat-insulating material. While the resistor was heated, a stream of hydrogen was continually passed through both the tube and the case containing it. The tungsten winding on the tube, as well as the material heated within the tube, was thus protected from oxidation. Such a furnace will operate constantly

Jan 2, 1926

By J. E. Johnson

(Cleveland Meeting, October, 11,1912.) THE subject of blast-furnace slag is one which has had much consideration, particularly from the scientific standpoint, and several years ago technical literature contained many learned discussions on the oxygen-ratio of the acids and the bases, all on the assumption that acids and bases must be present in a ratio depending on molecular weight and chemical valency. Much work has also been done, sometimes in conjunction with the former, on the total heat and the temperature of initial fusion or softening of various slags. A wider knowledge of the blast-furnace now enables us to say that for practical purposes this work has been of almost no value. It is now generally admitted that on the physical side the important point of a given slag is neither its total heat of fusion nor its softening-point, but its free-running temperature, since this is the critical temperature of the furnace. This temperature bears no definite relation to the softening-temperature, as determined by Seger cones, for instance, because some slags melt relatively like ice, with a very short viscous-range, while others melt relatively like tar, with a very long viscous-range. In one the difference between the softening- and the free-running temperature may be very small, as little as 100° F., while in another this difference may easily be 200° or 300°. The importance of this difference is so great in practice as to destroy completely the value of exhaustive investigations, even such as those of 0. Boudouard, published a few years ago.1 * Presented also at the Joint Meeting of the Institute with Section IIIa, Metallurgy and Mining, of the Eighth International Congress of Applied Chemistry, New York, September, 1912. 1 It may not be amiss at this point to call attention to the excellent suggestion of Woolsey McA. Johnson, made several years ago, for determining the temperature at which different slags have the same practical fusibility. This suggestion

Oct 1, 1912

By O. M. Schaus

REDUCED activity of mining, because of the business recession, had the effect of lowering working time, hence of reducing exposure to accidents, so it is probable that 1938 will be found to have had a lesser number (both fatal and nonfatal) though the accident rate may remain about the same as in 1936 and 1937. During periods of re-employment, such as occurred during 1936, 1937, and 1938, the new men entering the industry are less experienced and not as well trained in accident prevention as are the older, more experienced men and are frequently subject to more accidents. This situation should tend to correct itself as the new employees be- come better trained.

Jan 1, 1939

By Eugene McAuliffe

NO physical impairment can be more serious than the partial or complete loss of sight. With reasonably good eyesight, a person is equipped to care for life and I limb, provided a rational measure of t caution is manifested. When the sight of one eye is lost or badly impaired, one-half of this God-given asset is gone, and extreme care must be taken to prevent the tragedy of total darkness that closes out the beauty of sky, field and mountain, the faces of relatives and friends, and either removes entirely or in part one's capacity to produce and earn. During 1933, The Union Pacific Coal Co., operating ten coal mines in Wyoming, decided to undertake a visual survey of all of its mine operating officials and employees. Although the cost of workmen's compensation paid because of eye injuries was material, the management was more deeply concerned with the social loss and the suffering resulting from the many eye injuries. As every element of coal production cost must be scrutinized, accurate data on all accidents, with the workmen's compensation paid therefor, are carried forward monthly. The number of accidents to eyesight and the resultant compensation paid are shown in Table 1 for nine calendar years:

Jan 1, 1934

By A. Patton, F. N. Speller

The use of roll scale in the Bessemer process dates back, to the best of our knowledge, at least 20 years. It was first used by the Ohio Steel Go., Youngstown, Ohio (now the Ohio Works of the Carnegie Steel Co.) under the direction of Sam McDonald, Superintendent of the Bessemer Department at these works. Two 10-ton vessels and one blowing engine capable of blowing one heat at a time were employed. The object of using the scale was to shorten the length of the blow, or in other words, to increase the production with the same equipment. Various means were tried out for introducing the roll scale into the bath of molten iron: It was shoveled into the vessel before the heat was charged, so that the metal would flow over the scale; it was shoveled into the bath after the vessel was turned up; it was dumped into the empty iron ladle by the wheelbarrow-load, and at times was dumped on top of the molten metal in the iron ladle. But the practice of introducing the scale into the iron ladle had to be abandoned on account of danger from explosions and of skulling the ladles. It was soon learned that the proper place to charge the scale was in the empty vessel, so that when the molten iron was poured into the vessel it flowed over the scale, causing a considerabIe reaction to take place before the heat was turned up. Eventually, cylindrical chutes similar to those now in use were installed. Into these chutes the scale is dumped and carried into the empty vessel. Before this convenient means of introducing the scale was adopted, the Ohio Works had satisfactorily demonstrated that roll scale would increase production, by blowing 107 heats in one 12-hr. turn (1,087 tons) with one blowing engine, blowing one heat at a time; whereas, prior to the use of scale, the best practice at these works was about 80 heats under the same conditions. In using roll scale and other oxides of iron to facilitate and control the refining of pig iron in the converter, the Bessemer plant has borrowed one of the most active agencies used in the open-hearth process with, as would be expected, much the same results. The effect of such additions to the Bessemer charge may be discussed as to the influence of this practice on quality, production and cost.

Jan 1, 1917

By Henry S. Drinker

(Canal Zone Meeting, November, 1910.) FEW men reach middle life without having had the experience of failure in one or more undertakings; and most of us can look back with gratitude to help or advice given us by friends at critical periods of our lives. If, as men, we ask and take the benefit of such aid, why should we expect our sons to be stronger? A parent can make no greater mistake than to send a boy, however steady and intelligent he may be, off' to school or college, and expect the boy always to cope successfully with all the new conditions and new difficulties that may confront him. This is undoubtedly more the case with a freshman, in his first year at college, than in later years, or than it is with a boy at day- or boarding-school, where the boy receives a greater degree of care and oversight than can be given to the young man entering college; of all periods in life, the youth in his freshman year-fresh from the overshadowing care of home and school-may need judicious advice and timely aid. The change from the restraint of home and school to the freedom of college life is sudden and marked, and it is in this the first year of the boy or young man of 17, 18, or 19 years of age, that some tactful, judicious aid should be near him in his work and course. Some boys go to college so well prepared that they become careless and finally fall behind in their work from over-confidence. Others meet trouble from ambitiously trying to do more than their previous preparation, or physical or mental strength, can sustain. Others fall behind from illness-from injuries-from natural inability to grasp at first, without more aid than comes to them in the regular course of instruction, the higher mathematics-or mayhap the modern languages, or other subjects presented by the advanced curriculum of the present day. When a boy or youth begins to

Jan 1, 1911

By R. E. Wagner

MISSOURI's famous lead area, in what is known as Southeast Missouri, is locally termed the "Lead Belt." These deposits are in the Bonne Terre dolomite of late Cambrian age which has a thickness of nearly 400 ft. Underlying this is the La Motte sandstone which varies in thickness from 0 to 400 ft. The La Motte beds are deposited directly on the ancient erosion surface of Pre-Cambrian porphyries and granites of probably Algonkian age. The buried igneous peaks extend up into the Bonne Terre in several areas within the Lead Belt. Overlying the Bonne Terre are shales and siliceous dolomites of late Cambrian and early Ordovician age. Within the Lead Belt these have a thickness of from 0 to 500 ft. The district is bounded in general on the southwest by the Sims Mountain fault, on the northwest and north by the Big River fault, and on the

Jan 1, 1947

By Earl Oliver

IN times like these, the A. I. M. E. and similar societies have their greatest usefulness. . . . Individuals and companies acting alone in the development of public opinion are merely voices crying in the wilderness. United and organized they make a great force that can and does influence public action. . . . What part, if any, then, shall the A. I. M. E. take in these great stabilization processes of civilization? Shall it help to give direction and force to scientific knowledge which comes within its field of activity or shall it merely develop more of it? . . . Is it the A. I. M. E.'s function to help bring system, order and direction out of this situation so that the world can again have forward economic movement, or should it rest on its oars until other agenciess develop that public understanding and direction so necessary for economic progress? As we understand the functions of the A. I. M. E. Petro¬leum Division, they are to discover and promote knowl¬edge for the benefit of society on the mining of oil and gas. To the individual member of the Petroleum Division, there are certain advantages of social and professional contacts, but the collective purpose is that described. And the individual is benefited by membership only as the Division measures up to the purposes of its existence. Consequently, the welfare of this Division and that of its members depends on the extent to which it keeps pace with the needs of society on matters relating to the mining of oil and gas.

Jan 1, 1932

By R. E. Boni, G. Derge

Application of surface tension measurements has been made to molten silicates in order to determine the effect of sulphur upon the surface tensions of synthetic blast furnace slags. In melts with the same molar ratios of AI2O3 + SiO2 to the basic oxides BaO, CaO, and MgO, the surface tensions increase in the order of oxides listed. Sulphur lowers the surface tensions of the basic BaO, basic CaO, acid BaO, acid CaO, and acid MgO slags in that order; and the concentration of excess sulphur at the slag surface increases in this same order of slags. The rate and amount of desulphurization of iron by these slags is favored by a low excess surface sulphur in the slag. IN a previous paper,1 the authors discussed the applications of surface tension measurements of molten silicates to problems of metallurgical interest. Of major importance is the aid that such studies lend to forming a working concept of slag structure. Since the ability of a slag to desulphurize metal depends strongly upon its composition,2"4 fundamental information about the structural differences between various slags which contain sulphur should aid the development of better desulphurizing media. For that reason, the present investigation concerns the effect of sulphur upon the surface tensions of synthetic blast furnace slags. Experimental Procedure , The maximum bubble-pressure method was used to measure the surface tensions of synthetic blast furnace slags in the temperature range 1300° to 1600°C. The method is based upon the equation which was developed by Schrödinger5 from a consideration of the forces of hydrostatic pressure and surface tension of a liquid which oppose bubble formation when a gas is forced through a tube immersed in the liquid. where y is the surface tension between argon and slag in dynes per centimeter; g is the gravitational constant, centimeters per second2; H is the manometer reading in centimeters; s2 is the density of manometer fluid in grams per cubic centimeter; S1 is the density of the medium in grams per cubic

Jan 1, 1957

By AIME

ENGINEERS have long pondered the answer to the question of "How am I doing?" and in large measure the answer from the economics angle is provided by the 1946 survey of the engineering profession now being published by the Engineers Joint Council as an eighty-page bulletin entitled "The Engineering Profession in Transition." The survey, based upon a completely precoded mail questionnaire, aimed at three major objectives: (1) to determine the general impact of World War II upon the profession in the period 1939 through 1946; (2) to obtain re- R liable data from which valid findings could be derived to predict how active the profession would be after 1946; and (3) to determine if the war's upheaval had changed materially the pattern of professional activities, education, background, and earnings from those which existed prior to 1939. Abundant data on the economic status of the engineer based upon years of experience in his particular field, the specific branch of the industry in which he served, and his educational background are presented. Relationships between years of experience

Jan 1, 1947

By James L. Poole

INTRODUCTION Companies in the mining industry are subjected at times to currency exchange rate risks and interest rate risks. The former occurs any time a firm deals in more than one currency. The latter occurs anytime a firm is financing itself with borrowings that have a floating interest rate (although a fixed rate can be a problem at times). FOREIGN EXCHANGE RISKS There are two general reasons why exchange rate risks (FX risk) can occur: First, a firm may be building a mine or plant in another country where financing for the plan is denominated in funds other than the country hosting the plant. For example, if a Canadian firm is building a smelter in another country which is being financed with Canadian dollars, the C$100 million for labor, which must be paid in the local currency, has subjected the firm to a C$100 million FX exposure risk. If after the cost estimates were made the local currency appreciates 30% against the Canadian dollar, the cost of labor has increased to C$130 million. (Of course, the local currency could also devalue during this period making the labor cost component less than estimated.) The other reason exchange rate risk arises is due to the fact that the costs of production in one country producing minerals may be incurred in one currency while the production is sold in another currency, such as coal being exported from Canada to Japan under contracts denominated in Yen. In this example, the Canadian firm is exporting coal to Japan and being paid in yen in 30 days at a contract price of 100 Y per ton. Furthermore, assume that the mining firm anticipates a depreciation of the yen against the Canadian dollar of 5% in the next 30 days. Therefore, the mining firm stands to lose 5% of the value of its shipment in a month's time not including carrying costs. In both cases, the mining company risks an adverse change in the exchange rate, that is, the currency the company holds may decrease in value relative to the other currency. There are a number of ways to mitigate the exposure to foreign exchange which can be utilized by the mining company. Optimally, a company should try to match all their inflows and all their outflows in the same currency. For example, if a Canadian firm has mining costs and debt service costs both denominated in Canadian dollars then 100% of their receipts would need to be in Canadian dollars. If a Canadian firm has 70% of its cash outflows in Canadian dollars and 30% of its cash outflow in American dollars in the form of a loan amortization then their receipts would need to be 70% in Canadian dollars and 30% in U.S. dollars. This general principle of matching cash receipts and cash costs in the same currency works fine in a perfect world but what of the real world when these cannot be matched? In actual practice, however, the financial markets have developed a number of ways in which foreign exchange risks can he managed or reduced. FORWARD MARKETS One method is to use the forward markets which are made on a world-wide basis by the commerical banks for foreign exchange. If a firm wanted to lock in the current exchange rate for the receipt of a foreign currency at some point in the future, they could do so by contracting on the forward market with a bank selling that foreign currency at the current rate at the future date. For example, assume that a Canadian firm is exporting coal to Japan which would pay yen in 90 days. If a firm wanted to lock in today's exchange rate they could contract with a bank to sell on the forward market yen in 90 days. When the yen was received the contract would be executed by selling the yen to the bank and receiving the previously agreed upon number of Canadian dollars. Generally speaking, the forward market can be used to sell forward about 12 months. The costs of selling (or buying) forward

Jan 1, 1985