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Mineral Resources

Definitions of reserves. Geological reserves: physical quantity in the Earth's crustEconomic reserves: quantity of geological reserves that can be profitably extracted and refined with current extraction technologies. Change in economic reserves. Extraction reduces reservesExploration and discove

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Mineral Resources

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    1. Mineral Resources

    2. Definitions of reserves Geological reserves: physical quantity in the Earth’s crust Economic reserves: quantity of geological reserves that can be profitably extracted and refined with current extraction technologies

    3. Change in economic reserves Extraction reduces reserves Exploration and discovery increase reserves Price increase increases reserves Extraction cost reduction increases reserves Decline in price of inputs Technological improvement in equipment, methods

    4. Taxonomy of mineral reserves

    5. Optimal extraction over time Recall condition for dynamic efficiency: find quantity in each time period t, at which WTP = MTC Where: MTC = MC + UC WTP = market price for a traded commodity Present value of UC is equal in all t In t = 0 then, P0 = MC0 + UC0 Since UC1/(1+r)1 = UC0, UC1=(1+r)1*UC0 In t = 1 then, P 1= MC1 + UC0*(1+r)1 For any t then, P t= MCt + UC0*(1+r)t

    6. Optimal price path For any t then, P t= MCt + UC0*(1+r)t The initial price, P0 and UC0 need to be found to determine the optimal price over time Determining these requires more advanced math but also some assumptions about the resource Possible assumptions include: Availability of a currently more expensive alternative that is either: A renewable backstop technology Another depletable resource The shape of the MC curve as the remaining stock declines The shape of the demand curve

    7. Optimal price path Once determined, the optimal price path may change if economic conditions change. These may include changes in: The extraction cost Demand Economic reserves due to new discoveries Discovery of substitutes (note that increase in price encourages development of substitutes)

    8. Optimal extraction path As price increases over time, the quantity demanded and therefore extracted decreases over time The optimal extraction path is downward sloping Note that: the resource does not suddenly run out There may be a final year, T after which quantity extracted will be 0.

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