International Mineral Economics

Since 1974, profound changes have taken place in world mineral markets, the full extent and effects of which can only now be assessed. The mineral price increases that followed the oil price rises of 1973/74 and, particularly, 1979/80, brought about a mood of euphoria among mineral exporting countries and mineral politicians at the U.N. Conference on Trade and Development. Price rises brought about extensive exploration programs for many mineral resources in the late 1970s. Simultaneously, a new awareness of the importance of mineral resources led to more rational use, to more widespread recycling of metals, and to the development of new plastic, ceramic and glass materials which substitute for some of the traditional mineral resources.

A geologist defines a mineral as a naturally occurring, crystalline solid of specific chemical composition, structural arrangement of component atoms, and physical properties, e.g., quartz, pyrite, diamond. Minerals combine to form rocks, defined as naturally occurring accumulations or mixtures of minerals formed by geologic processes, e.g., granite, limestone, oil shale. In the context of mineral economics, the term “mineral resources” is commonly used to denote all solid, liquid, or gaseous geologic materials exploitable for use.

The methods used to find and evaluate mineral resources are resource-specific. This is very apparent, for example, in the differences of exploration approaches and costs between the search for metallic ores and for petroleum, as illustrated in Figs. 2.1, 2.2, and 2.3. Likewise, the exploration for different metallic resources, for instance volcanogenic massive sulfide deposits of copper, lead, and zinc on the one hand, and vein deposits of gold and silver on the other, require fundamentally different methods of exploration.

Previous sections have dealt with regional reconnaissance exploration and the identification of mineral targets by geologic, geophysical, and geochemical follow-up surveys. We now turn to the next step in the search of an ore deposit: the search for the source of an anomaly, and, if it is an ore body, the determination of its ore grade and tonnage by systematic sampling. This type of assessment may also take place, without prior regional exploration, in areas of known mining or exploration history which become attractive because of rising commodity prices, cost reductions in mining and processing, improvements in recovery by more effective processing technology, or the recognition of new geologic models which warrant renewed exploration. This quantitative stage of exploration represents a transition from the investigation of secondary and primary dispersion halos to ore; from indirect exploration to direct target definition; from relatively low cost to high cost in absolute terms and per unit area; and from the geologic domain of exploration and grade-tonnage assessment to the engineering and economic domains of mining, mineral processing, financial evaluation, and marketing studies. Because of the large expenses involved in these evaluations without assurance that a project will be profitable, this is the highest-risk stage of geologic exploration and the stage at which vigorous management support is most needed. Exclusive exploration and exploitation rights are secured to protect the investment, and access and land use is negotiated with surface owners.

Successful exploration leads to the development of a mine for extraction of the ore and of a processing facility to transform the ore into a marketable product. The evolution toward this stage, and some of the costs involved in developing a mine, are discussed in Chapter 2 and illustrated in Figures 2.1, 2.2, and 2.3.

This chapter discusses important economic, institutional, and legal aspects of mineral development, broadly defined to include exploration as well as actual deposit development. It begins by considering mineral development as an economic activity, and then discusses the roles that various types of people and organizations play in mineral development. The chapter concludes by reviewing important aspects of mining legislation.

Economic geology and mineral economics encompass a variety of activities. One important aspect of these disciplines is the identification and evaluation of mineral deposits. Part of this work is largely technical in nature. Explorationists, for example, use the tools of geology, geochemistry, geophysics, and other fields to identify mineral deposits. They then study the deposits to determine if they exhibit the physical and chemical characteristics typical of similar deposits that have been developed into mines; and, in the case of a new type of deposit, to draw inferences on the basis of new scientific knowledge. Other parts of this work, however, are largely economic in nature. Economists, engineers, and others work together to evaluate a mineral deposit’s economic potential by comparing the expected revenues from mine production with the associated expected costs of further exploration, development, and production. It is their task to determine if the expected revenues from developing a deposit will be sufficiently in excess of costs to provide investors with an adequate return on their investment. Still other parts of the work may be socio-economic in nature, if a government is involved; the concern here is how the development of a deposit will affect the overall economic and social development of a region or country.

A “market” is a hypothetical place where buyers and sellers of a given commodity meet to determine price. Mineral markets are material goods markets, and many are regarded as world markets because of the easy negotiability of the traded commodities.

Mineral policies significantly influence the environment in which mineral production occurs, the level of distribution of international mineral trade, and the optimum use of scarce mineral resources.

Most European industrialized countries and Japan depend on substantial imports of minerals. Owing to this, the supply aspect of mineral policy has in recent years been given such emphasis that the term mineral supply policy has emerged.

In recent years, developing countries rich in mineral resources have clearly formulated their joint mineral policy goals at an international level (see Sect. 8.1.1). The major concern of each of these countries is to gain greater control over the exploitation of its natural resources and to derive maximum benefit from them. This is understandable: for many developing countries control is vital because these raw materials are indispensable as a basis for economic development. These countries depend at the same time on the assistance of the industrialized nations for the know-how and capital needed to prospect for and open up deposits. The maintenance of this assistance must thus constitute one of the goals of commodity policy in developing countries. These two goals are difficult to reconcile with one another; the conflict can only be resolved by means of a compromise. Attempts to arrive at such a compromise are evident in national mining legislation, which contains very disparate features.