Course:ECON372/OK2019WT2/Topic10
Mineral Economics
Due system time (GMT), 07:59, 12 February 2020
Group #1
| Category | Mark | Comments |
|---|---|---|
| Article Source (10) | ||
| Article Relevance (10) | ||
| Summary (20) | ||
| Course Related Analysis (30-50) | ||
| Extended Analysis (0-20) | ||
| Presentation (10) | ||
| Total | 0 |
Group #2
Summary
The article discusses how investing in the mining sector can play a key role in boosting the Indian economy. Firstly, it addresses how despite the huge reliance on the mining industry, an inefficient policy regime has left it with missed opportunities. The writers state that a growing mining industry can create new jobs and increased production. The article shows how the number of non-fuel mines is in decline suggesting that there is a number of issues that needs to be addressed, in order to reap the benefits from the mining sectors potential within India.
In recent years legislation has been amended to ensure funds are being reinvested into the mining sector and not lost to other economic pursuits. For example, mining license holders are required to pay a 2% royalty fee to a non profit trust (NMET) which spends resources on exploration. In 2019, the National Mineral Policy came up with ways in which to boost the production of non-fuel minerals. They intend to do this by ensuring a regulated process for exploration, extraction and management with sufficient monitoring at each stage of these processes. As well as providing the sector with the adequate funds, by collecting taxes, and infrastructure. This will allow India to maximise its potential in the use of mineral resources and reduce its dependence on imports. It will also help to strengthen the overall manufacturing sector which will provide an overall economic improvement.
Analysis
The article puts emphasis on the importance of achieving sustainability in the process of increasing mineral production. Sustainability is vital if they want to produce a long term benefit to the economy from this investment. Chapter 10 highlights the conditions for sustainability to hold, which is total stock of productive capital must be equal to the natural resource capital plus human-made capital. In this situation, in order to compensate for the increase in extraction i.e to “sustain their reserves”, the government have shown an example of investing rents in to alternative forms of capital with the use of royalties.
The article also mentions the provision of new state of the art technology to the mining sector. This means that it will be possible to produce the same output of minerals with fewer resources, increasing the sustainability of the process. This maintains the overall productivity of the industry even though there is a diminishing supply of minerals. Another factor that will offset this diminishing supply is the huge focus the government are putting on the exploration process and the encouragement of it through incentives which again will maintain their mineral reserves. These efforts to ensure sustainability will be of value to the overall impact it has on the economy particularly with the uncertainty of the resource market. If these weren’t in place and the mineral supply eventually depleted, an increase in price as a result of this decreased supply may even result in a boomtown.
| Category | Mark | Comments |
|---|---|---|
| Article Source (10) | 10 | |
| Article Relevance (10) | 10 | |
| Summary (20) | 20 | |
| Course Related Analysis (30-50) | 40 | The authors take a different view of sustainability than we talk about in the text. They are looking at sustaining the contribution of the mining industry to the economy. You point out the role of investment in achieving our class view of sustainability. However, you seem to confuse things in the second paragraph, were you connect exploration to sustainability. Exploration increases known reserves, but it does not create more of the resource, and cannot support the continuation of mining indefinitely on a finite planet. |
| Extended Analysis (0-20) | ||
| Presentation (10) | 10 | |
| Total | 90 |
Group #3
Summary
In the Global Mining Review the article, “ Increasing Demand for Critical Minerals Could Strengthen Canada’s mining industry” published by Elizabeth Cope, claimes that Canada’s future mining industry looks promising and how new commitments such as the Canada-US action plan looks promising. Canada is among the top five countries in the global production of minerals, China being first. In Canada’s new commitment to partner with the United States, both countries are looking to enhance their mining sectors’ competitiveness which provides insight on what successes could occur in the near future in terms of the countries’ position in the industry. Both countries are looking for ambitious ways to provide jobs while expanding their markets and beat out their competitors such as China which currently dominates the industry. While Canada’s mining sector emphasizes sustainability and responsible mining practices and the United States, also sustainably mining through brining together political and governmental policies to safely extract minerals with limited negative environmental impact; both countries have agreed to continue such practices through their collaboration.
Analysis
Publisher, Elizabeth Cope, on Global Mining Review on the Article Increasing Demand for Critical Minerals Could Strengthen Canada’s Mining Industry touches on the role Canada will play in future markets and its competitiveness. It’s no secret that China is one of the US and Canadas largest competitors in the mineral sector but as stated above in the summary there is promise for Canada and the United States on their future prosperity in the mineral industry due to their joint action plan. Canada and the US continue to promise more sustainable and steady extraction processes as substitutes for critical minerals are hard to come by as stated in the text, Natural Resource Economics, written by Barry C. Field.
“Critical minerals are rarer than earth elements” claims Gratton, CEO and president of the Mining Association of Canada. Critical minerals include cobalt, copper, uranium, etc. In table 10-1 on page 164 in the text Natural Resource Economics, written by Barry C. Field,for example, in 2011 Copper yielded a quantity much lower than other precious metals mined, at 1,1110 thousand metric tons with a value of 9,960 million dollars; compared to Palladium which isn’t a critical mineral, at 12,400 thousand metric tons with a value of 295 million dollars. This comparison holds Gratton’s claim true, critical minerals are not only rarer than earth elements but are also more valuable. In other words, the more valuable or scarce a resource is the more demand increases, which to an extent can lead to rising resource prices at a competitive level without facing any negative effects, such as a decrease in demand since copper is valuable and scarce. This is an example of the paradox of value concept, where the more useful, easily accessible resource or good yields a lesser value than a diamond which is rare and seen as more valuable. This concept holds true to many resources such as critical minerals compared to earth metals.
| Category | Mark | Comments |
|---|---|---|
| Article Source (10) | 10 | |
| Article Relevance (10) | 10 | |
| Summary (20) | 17 | The industry does not care about providing jobs. It uses the fact that its expansion brings jobs as a way of trying to get government support - either financial or easing approvals. |
| Course Related Analysis (30-50) | 37 | A key motivator for the Canada-US arrangement is securing US access to critical minerals that it would otherwise import from China. This relates to the strategic minerals section in the text. |
| Extended Analysis (0-20) | ||
| Presentation (10) | 10 | |
| Total | 84 |
Group #4
https://www.miningglobal.com/sustainability/japanese-mining-industry-faces-uncertain-future
Summary:
The article “Japanese Mining Industry Faces an Uncertain Future” by Daniel Brightmore, it illustrates how the Japanese mining industry is not growing as much as they used to before, and how Japan is not maximizing their mineral output. Despite the high demand for nonfuel minerals, Japanese mining production is negligible and has been collapsing over the past years. According to the Japanese Metal Mining Agency, the number of operating mines decrease from 246 to 14, and the number of people employed in the mining sector declined from 34,000 to only 405 during this time. The decrement in employment and production have caused a decline in the economic output of Japan’s mining segment. However, Japan has “the highest reserves of iodine in the world at five million tons and is the world’s second-largest producer of the element, behind Chile,” which would produce potential economic growth in the future. Even having this potential growth, the Japanese focuses on a different aspect such as effectively tightening restrictions on the ability of the Ministry of Economy, Trade, and Industry (METI) to award mining permits. The old legislation allows METI to give out permits on a first-come-first-served basis, but the new law makes a distinction between “specified minerals” such as oil and natural gas. These minerals are given priority over non-specified minerals. Ultimately, Japan is said to be ignoring the long-term potential economic growth from iodine reserves (development and exploitation).
Analysis:
The article “Japanese Mining Industry Faces an Uncertain Future” by Daniel Brightmore, the main issue discussed in the article is how the Japanese mining industry are facing the declining stage of its life cycle, and the potential economic growth from iodine reserves. The textbook chapter 10 illustrates the economic issue involved in extracting nonfuel minerals and the classic example of nonrenewable resources which can be used to help future economic growth. Suppose Japan decides to extract iodine for the benefits of Japan, the output of nonrenewable resources (iodine) will be small relative to the total size of the Japanese market. Therefore, “it is expected to be able to sell whatever output it chooses at the going market price”. When considering two-period analysis demand curves for the period 1 and 2 will be effectively horizontal. In addition, the marginal extraction cost curves are expected to be the same due to the same price level on year 1 and year 2. Ultimately, the statistically efficient extraction level of the resource can be defined as price equal to marginal cost. Applying the two-period model will allow the Japanese economy to grow efficiently and effectively. In order for Japan to economically sustain nonrenewable mineral requires finding the substitute that provides the same return as iodine. This will allow Japan to grow even longer economically.
| Category | Mark | Comments |
|---|---|---|
| Article Source (10) | 10 | |
| Article Relevance (10) | 10 | |
| Summary (20) | 20 | |
| Course Related Analysis (30-50) | 25 | You have strung together assorted ideas, but the relevance to the article issues isn't clear. Japan's government is choosing to regulate the industry in such a way that it is declining. Is this efficient? If the marginal extraction cost in Japan is higher than the price of imports, then it isn't efficient to develop the domestic industry. This is like the backstop technology talked about in the text, except the backstop is the import. Japan's reserves won't disappear for not being developed, so if the price of imports rises in the future, they can then develop their domestic industry. |
| Extended Analysis (0-20) | ||
| Presentation (10) | 10 | |
| Total | 75 |
Group #5
Summary:
Within the article, “Federal government to assess supply, demand for minerals in Canada’s economy” by Jim Bronskill states how the Canadian mining sector can potentially be the main contributor to giving countries, such as the U.S., the necessary metals/minerals they require. Specifically, Canada and the U.S. have created a joint venture to guarantee access to these natural resources and advance future competitiveness of the North American mining industries to defeat China as the country maintains global control within the mining sector for supplying metals/minerals internationally.
The joint venture has created several benefits for both parties participating in the partnership. Canada imported 13 out of the 35 crucial minerals to the U.S. further exemplifying the United States’ dependence on the country for these resources. First, this cooperation invites financial investments to Canadian research and development and drilling programs and the joint venture creates more jobs further increasing economic growth within the country. As well, the minerals supplied are used in the production of national defence, safety and security technologies and various electronics and contribute heavily to creating “green-economy innovations”. Supplying and creating an agreement with the U.S. is more profitable and practical for the Canadian mining industry.
Analysis:
The article covers many factors that are discussed within chapter 10 of the textbook. It starts by talking about the future forecast for the Canadian mining industry, between 2020 and 2030. To do these forecasts on must understand topics such as the geological factors of extraction, and the tradeoffs that are inherent for a business such as minerals. One key section of chapter 10 states that extracting of a resource in the present means that you will have less to extract in the future. With the idea of present value versus future value being one of the most prevalent thoughts in this whole course, it is easy to see the correlation between this article and the economics of extracting minerals.
One of the most interesting parts of this article is the area that talks about China’s usage for a lot of these extracted minerals. As stated in the article some of these minerals “are key to green-economy innovations such as electric-vehicle batteries and renewable energy production and storage” (Bronskill, 2019). This means that while extracting a non-renewable resource today seems like it could have negative impacts, what that resource creates could itself be beneficial. To relate this to the subsection of the textbook titled “Switch to a Substitute”, it states that while a resource is depleted the price will rise, which in turn makes it’s substitute more affordable and naturally bring it into the market. Well it seems here that the depletion and rise of price for some of these minerals could possibly go one step further and physically create some non-renewable resource’s substitutes.
| Category | Mark | Comments |
|---|---|---|
| Article Source (10) | 10 | |
| Article Relevance (10) | 10 | |
| Summary (20) | 17 | |
| Course Related Analysis (30-50) | 30 | A key issue here is the US securing supplies of critical minerals. The US sees itself as vulnerable to supply interruptions if trade wars or hot war interrupts imports. Securing supplies from friendly nations reduces that risk. |
| Extended Analysis (0-20) | ||
| Presentation (10) | 8 | |
| Total | 75 |
Group #6
https://www.highnorthnews.com/en/op-ed-economic-development-and-future-mining-canadian-north
Summary:
By the analysis from Stephen Scott, the mining of natural resources such as oil, gas, and other minerals have a significant influence for many factors of economy in Canada. However, Canada currently discovers a open and underground diamond mines located in Arctic Circle, which mining would be a hard challenge for Canada, Greenland and Alaska. The minerals, oil, and gas extraction will create a huge income for governments. Based on this mining, it can create a vary unstably change in employment market for local people. This project may attract around 50% employee from other mines, which affect the prices other products in the market. According to the report of mining, this mine will affect the rare earth metals market in China because Arctic seems to have similar rare earth metals. Econ- tourism will get a better development as well. A large number of southern people would like do fishing and hunting in Arctic region. The government polices engage local people to develop finishing, which gives a big gap increase in economy by Arctic mines. In the future, there are a large number of untapped economic development opportunities in the Arctic. At the same time, the new northern economy will and must be more diverse.
Analysis:
According to the textbook, minerals appear to fit the classic definition of the non-renewable resource. For a given deposit, the quantity of material would appear to be strictly nonreplenishable, hence one that can only be drawn down over time. As the mineral storage is decreasing or the global demand for the mineral decreases, mining industry in the Arctic in Canada would be affected. These days, some mineral deposit are diminishing, workers in the north might lose their jobs easily and the economy is dependent to the mining industry and fragile. Also, Northern local mining companies aren’t able to compete with the companies from the south, which means that the revenues often flow out of the regions and do not create the expected local multiplier effects. The future of the Arctic economy needs to be more sustainable. For example, ecotourism and commercial fishing can be a new way to develop the Arctic economy.
| Category | Mark | Comments |
|---|---|---|
| Article Source (10) | 10 | |
| Article Relevance (10) | 7 | Less about mining than about northern development generally. |
| Summary (20) | 8 | Summary is in places wrong, and in other places confuses article content. |
| Course Related Analysis (30-50) | 20 | The article focuses on the role of mining and of other industries in the arctic. Mining imposes costs on local culture, costs which are externalities. The efficient amount of mining would account for these costs. The sustainable approach would involve investing profits earned into things that substitute for the depletion of the resource, such as green building, etc. These are mentioned in the article and text, but largely missing from your analysis. |
| Extended Analysis (0-20) | ||
| Presentation (10) | 10 | |
| Total | 55 |
Group #7
Summary:
This article by The Economist magazine’s Business Analysis section is titled “Copper-bottomed: Mongolia seeks better terms for its vast mining project” and it examines the Mongolian Oyu Tolgoi mine’s economic impact on the country. The mine, that will also yield gold, is the world’s third-largest copper mine and it has led to the “biggest foreign investment ever made in the country.” Nevertheless, the poor and resource-rich country of Mongolia only has an expected 2020 GDP of $13.5bn, while the unfinished mine has already cost $11.9bn.
When the multi-billion-dollar mining project began in 2009, Mongolia expected it to boost the economy; estimating average annual GDP growth of 5% between 2013 and 2020. Although the mine has since added significant value to Mongolia’s economy – it being the country’s largest taxpayer and directly employing over 15,000 people – it has not yet lived up to its expectations.
The joint venture to build the mine, is run by Turquoise Hill Resources, of which the Mongolian government owns a 34% stake, while Rio Tinto, a London based mining company holds a 51% stake in the project. The government is not expected to receive dividends until 2030. Moreover, so far, the project has faced legal challenges by the Mongolian courts, as well as allegations of corruption and increasing costs, due to delays and decreasing global copper prices. The price of copper has also decreased by 50% between 2011 and 2015. Nevertheless, the mine is both Mongolia’s and Rio Tinto’s largest resource excavation project, giving them incentive to work together.
Analysis:
This article touches on several topics covered in Chapter 10 (Mineral Economics) of the course textbook: Geological factors of extraction, extraction economics for a known stock, resource exploration and development, invest rent, as well as price instability and boomtowns.
According to Turquoise Hill, the company that will operate Oyu Togloi, the mine will yield 550,000 tonnes of copper and 450,000 ounces of gold annually between 2025 and 2030,[1] both of which the textbook classifies as non-renewable, nonfuel minerals, and metals. Copper is classified as a transition metal that is “widely distributed throughout the world.”[2] Although copper is readily available in the earth’s crust, one can infer the concentration of copper in the ore at the location of the Oyu Togloi mine is high enough “that it can be extracted and refined at reasonable cost with current technologies.”[3]
While economic models of extraction of a known stock suggest an expected increase of resource prices over time,[4] the article points out that copper prices have decreased significantly between 2011 and 2015. The textbook indicates that this could occur with the discovery of new deposits and technological improvements to extraction and refinery. However, despite the fact that minerals, such as copper and gold, are classified as non-renewable, the market “does not see quantitative restrictions”[5] to the price in these minerals.
The article also touches on the topic of invest rents, by pointing out the distribution of ownership over operation of the Oyu Togloi mine. The private mining firm, Rio Tinto, owns 51% of the mine’s operations, while the Mongolian government only owns 34%. However, net incomes coming from the mine’s operations, have led to alternative forms of capital for the Mongolian government – notably, through human capital and taxes.
Nonetheless, the large mining operation in Oyu Togloi is likely to create price instability and boomtowns at the local level, with the town economy becoming dependent on resource deposits. The article points out the remoteness of the mining operation, pointing to its distance from the Mongolian capital, Ulaanbaatar, and it being location in the Gobi Desert. A lack of alternative sources of income for communities living around Oyu Togloi, is likely to create a boomtown, “where the local economy will expand and contact in response to local pulses in resource extraction.”[6] To escape the cycle of the boomtown, communities that flourish around the Oyu Togloi mine need to develop alternative export sectors.
| Category | Mark | Comments |
|---|---|---|
| Article Source (10) | 10 | |
| Article Relevance (10) | 10 | |
| Summary (20) | 20 | |
| Course Related Analysis (30-50) | 43 | One important additional issue is the political battle. In developing countries in particular, legal institutions are not that strong, allowing corruption to flourish, and battles over control of resource rents are particularly serious. |
| Extended Analysis (0-20) | ||
| Presentation (10) | 10 | |
| Total | 93 |
Group #8
https://www.arabnews.com/node/1613731/business-economy
Summary:
The article presents and reports on an ongoing policy case in Egypt, aimed at increasing incentive for the private sector to expand mineral production within the country. The article presents a recent law change waiting to be implemented which reduces the amount of royalties needed to be payed to public sector when engaged in joint ventures. The Egyptian government is willing to reduce these royalties with the hopes that particularly extraction of gold will skyrocket. The article further presents a study carried out by the US Geological Survey, stating that neighbouring Sudan had become Africa’s third biggest producer of gold with 93 tons in 2018.
In addition to reducing royalty payments, the cabinet statement also states that the Egyptian Mineral Resources Authority had the right to form joint ventures with a minimum state ownership of 25%; however, this is not necessary when private mining companies’ mining agreements were ratified by law. As a result, private mining companies are less reliant on the state and more easily secure a profitable mining production.
The requirements for joint ventures are as of today still in effect and private mining companies are still waiting for the regulations that will soon have them eliminated, making this case well worthwhile to keep an eye on in the foreseeable future.
Analysis:
The article on Egypt issuing new mining law regulation touches upon many ideas that are discussed in Chapter 10. Gold as discussed in the article comes under the category of non-fuel mineral which can be further subdivided into metals and industrial minerals, gold being part of the former. The law intends on eliminating the need for joint ventures and state royalties to a maximum of 20 percent with the Egyptian government. This is a benefit for the private sector as one of the main aims of a private firm are profit. It will allow them to be more efficient and effective without the existing constraints and become profitable to explore and exploit resources.
This article, revolves around the fact that in order for private markets to be profitable, they need minimal interaction with governments and limit state royalties, which are charges levied on extraction operations directly. All the revenue generated due to the new policy can and should be spent towards safe and efficient extraction. If, all policies discussed in the article are implemented then Egypt will be on its way towards success as more Multi-National exploration firms would be willing to invest in the extraction of resources especially gold.
Another perspective that we can think from is that due to this policy if more extraction in minerals such as gold is done, market supply of the metal will substantially increase, helping to decrease the market price of gold for people of Egypt.
From a social economic liberal perspective this policy weakens governments ability to govern maintain and sustain to the extraction and exploitation of its natural resources.
| Category | Mark | Comments |
|---|---|---|
| Article Source (10) | 10 | |
| Article Relevance (10) | 10 | |
| Summary (20) | 18 | |
| Course Related Analysis (30-50) | 37 | One basic idea of resources is that the rents should belong to society. The owner of the mineral rights did not create the minerals, they are 'gifts of nature'. As such, they should belong to the nation, and the nation is therefore entitled to the returns, above the fair return to the mineral rights owner for its investment and costs related to developing the resource. Of course, mining companies don't want a fair return, they want the highest return they can get, so will pressure governments by threatening to go elsewhere if governments try to capture the resource rents. |
| Extended Analysis (0-20) | ||
| Presentation (10) | 10 | |
| Total | 85 |
- ↑ "Welcome to Turquoise Hill Resources". Turquoise Hill Resources.
- ↑ Field, Barry C. (2016). Natural Resource Economics: an Introduction. Long Grove, IL: Waveland Press. p. 163.
- ↑ Field, Barry C. (2016). Natural Resource Economics: an Introduction. Long Grove, IL: Waveland Press. p. 164.
- ↑ Field, Barry C. (2016). Natural Resource Economics: an Introduction. Long Grove, IL: Waveland Press. p. 170.
- ↑ Field, Barry C. (2016). Natural Resource Economics: an Introduction. Long Grove, IL: Waveland Press. p. 171.
- ↑ Field, Barry C. (2016). Natural Resource Economics: an Introduction. Long Grove, IL: Waveland Press. p. 178.