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ECONOMICS of mining Minnesota Minerals Education Workshop Hibbing Community College, Hibbing Minnesota June 18, 2013 PowerPoint Presentation
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p resented by Henry (Rick) Sandri , Ph.D., Mineral Economics. ECONOMICS of mining Minnesota Minerals Education Workshop Hibbing Community College, Hibbing Minnesota June 18, 2013. Rick Sandri – Background Education BS – Foreign Service, Georgetown University

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slide2

Rick Sandri – Background

  • Education
  • BS – Foreign Service, Georgetown University
  • MS – Applied Economics, American University
  • PhD – Mineral Economics, Colorado School of Mines
  • Work Experience
  • The World Bank – Economic Analyst
  • American Iron & Steel Institute - Economist
  • Booz Allen & Hamilton – Economic Consultant
  • BehreDolbear & Company – Economic Consultant
  • K & M Engineering & Consulting – Financial Consultant
  • Burlington Northern Inc. – Economist / Planner
  • Inco Limited – Planner – Business Development
  • Select Resources – President
  • Duluth Metals Ltd. – President & CEO
  • Vermillion Gold - President
slide3

Some General Definitions:

  • Economics– Economics is the social science that analyzes the production, distribution, and consumption of goods and services as needed for mankind/ the efficient allocation of scarce resources.
  • Mineral Economics – Mineral Economics is the study of the business and economic aspects of natural resource extractionand use.
  • Natural Resources – Resources that occur naturally within environments that exist relatively undisturbed by mankind.
  • Renewable Natural Resources – Resources that can be replenished naturally, or with limited assistance, i.e. sunlight, air, wind, agricultural crops, timber, animals, etc.
  • Non-Renewable Natural Resources – Resources that form extremely slowly and those that do not naturally form in the environment; i.e. minerals , metals, energy sources, etc.
  • Ore – Any naturally occurring material that can be extracted at a profit, including all costs associated with environmental reclamation & restoration.
slide4

Non-Renewable Mined Metals & Minerals

  • Precious Metals – Gold, Silver, Platinum, Palladium
  • Base Metals – Copper, Zinc, Lead, Tin, Nickel
  • Ferrous Metals – Iron, Columbium, Molybdenum, Chromium
  • Light Metals – Titanium, Aluminum, Silicon
  • Industrial Minerals – Talc, Salt, Gypsum, Pumice, Quartz
  • Fertilizer Minerals – Potash, Phosphate, Sulfur, Vermiculite,
  • Gem Stones – Diamond, Ruby, Garnet, Sapphire
  • Construction Materials – Limestone, Granite, Marble, Sandstone
  • Energy Minerals & Materials – Coal, Peat, Oil Shale
  • Radioactive Minerals & Materials – Uranium, Thorium, Radium
slide5

Economics – The Study Of Choice

As an individual, for example, you face the problem of having limited resources with which to live, as a result, you must make certain choices with your time and money.

You'll probably spend part of your money on rent/ mortgage, energy, food and clothing. Then you might use some of the rest to purchase entertainment or a vacation. Some may go to education or savings.

Economists are interested in the choices you make, and inquire into why, for instance, you might choose to spend your money on a new DVD player instead of replacing your old TV.

They would want to know whether you would still buy a carton of cigarettes if prices increased by $2 per pack, $8 per pack, $20 per pack.

The underlying essence of economics is trying to understand how both individuals and nations behave in response to certain material constraints.

slide6

Economics, including Mineral Economics,

is made up of two basic fields of study:

Micro Economics & Macro Economics

Micro Economics – The study of the economic behavior of individual units of an economy (such as a person, household, firm, or industry) and not of the aggregate economy.

Macro Economics – Study of the behavior of the whole (aggregate) economies or economic systems instead of the behavior of individuals, individual firms, or markets

Natural Resource Economics (including Mineral Economics) – The study of economics as it applies to the natural resource industry and environment, including Micro and Macro Economics.

slide7

The Essence of Economics

Supply, Demand & Price

Supply - A fundamental economic concept that describes the total amount of a specific good or service that is available to consumers. Aggregate supply is the supply from all suppliers.

Demand - An economic principle that describes a consumer's desire and willingness to pay a price for a specific good or service. Aggregate demand is the demand from all consumers.

Price - A value that will purchase a finite quantity, weight, or other measure of a good or service.

Price Equilibrium - The equilibrium price is the price where the goods and services supplied by the producer equals the goods and services demanded by the customers.

slide8

The Law of Demand

The law of demand states that, if all other factors remain equal, the higher the price of a good, the less people will demand that good.

slide9

Demand & Price

Example: Coffee Demand per Month

slide10

The Law of Supply

The law of supply states that the higher the price of the good, the higher the quantity supplied to the market.

slide11

Supply

Example: Cumulative supply of copper from 10 individual mines

$ per Pound

Supply Curve

slide12

Supply, Demand & Price Equilibrium

When supply & demand are equal the economy is said to be at equilibrium. At this point, the allocation of goods is most efficient because the amount of goods being supplied is exactly the amount of goods being demanded.

slide13

Surpluses & Shortages

Surpluses occur when supply exceeds demand (no longer in equilibrium) and shortages occur when demand exceeds supply (no longer in equilibrium). Over time the market will adjust to equilibrium.

slide14

Demand Curve Adjustment

A movement along the demand curve will occur when the price of the good changes and the quantity demanded changes in accordance to the original demand relationship. In other words, a movement occurs when a change in the quantity demanded is caused only by a change in price, and vice versa.

slide15

Supply Curve Adjustment

A movement along the supply curve will occur when the price of the good changes and the quantity supplied changes in accordance to the original supply relationship. In other words, a movement occurs when a change in the quantity supplied is caused only by a change in price, and vice versa.

slide16

A Change in Supply, Demand & Price

A new equilibrium will be established with a change in supply and demand. This may or may not result in a new equilibrium price.

slide17

The Economics of Mining

This is the traditional view of the competition between Environmental Concerns, Social Needs, and Economic Desires, resulting in a Sustainable Target Area.

slide18

The Economics of Mining

However, this is the newer view of the “nested” competition between Environmental Concerns, Social Needs, and Economic Desires, resulting in much larger Sustainable Target Area.

This is one of the major challenges in Natural Resource Economics.

slide19

The Economics of Mining

Copper – As An Example

  • Crustal abundance – 68 parts per million (0.0068%)
  • First metal mined by humans – 8000 years ago
  • Used in the early development of civilizations
  • the Copper Age (3500 – 2300 BC) – tools & weapons
  • the Bronze Age (3300 – 1100 BC) – tools & weapons
  • Malleable metal used in pipe, wire, sheet and strip
  • Highly prized for its conductivity of electricity
  • Used as a monetary instrument
  • Biofouling& germicide element, prevents growth of biologicals
slide20

The Economics of Mining – Copper

2012 Copper Uses (Demand)

2012 World Copper Demand – 20,000,000 metric tonnes (44 billion pounds) of copper.

slide21

Where is Copper Found?

Numerous countries, but most occurrences are small and uneconomic. Most active copper mines are clustered in geologic formations, such as the Chile-Peru-Ecuador-Colombia Porphyry Copper Belt.

slide22

The Economics of Mining – Copper

2012 Copper Supplies (Sources)

2012 World Copper Supply – 17,000,000 metric tonnes (34.5 billion pounds) of copper from new mines and 3,000,000 metric tonnes (6.6 billion pounds ) from recycling.

slide23

2% Copper – Medium –High Grade Mineralization

2 out of 100 parts (2%) are copper, the other 98 parts (98%) are waste.

This is considered medium to high grade for copper .

Mineral Occurrence in the Earth’s Crust verses Mineable Grades

Aluminum 8.2% 49%

Iron 6.3% 25%

Titanium 0.6% 2%

Nickel 0.009% 1%

Copper 0.007% 0.3%

Lead 0.001% 0.1%

Platinum 0.00006% 0.001%

Gold 0.00003% 0.0008%

slide24

Orebodies Are Not Perfect

You Typically Cannot Mine 100%

The extraction of ore usually results in the extraction of significant waste rock as well. This waste must be handled, and in some cases treated.

slide25

3:1 Waste to Ore Ratio

3 tonnes to the waste pile, 1 tonne to the plant for processing. This can alter the economics significantly. Higher grade is always preferred.

slide27

Underground Mining

A Possibility If The Grade Is High Enough

Sulphur Springs Deposit in Montana – a new discovery @ +2.5% Cu.

slide28

Discovering & Opening A Copper Mine

  • Acquire Interesting Ground
  • Discover Mineralization
  • Explore with Sampling & Drilling
  • Confirm Size and Grade
  • Confirm Geologic Resource
  • Test & Confirm Metallurgy
  • Conceptualize Mine & Mill
  • Preliminary Economic Assessment
  • Detailed Mine & Mill Plan
  • Initiate Environmental Testing
  • Social & Impact Analysis
  • Prepare Pre-Feasibility Study
  • Labor & Staffing Studies
  • Prepare Feasibility Study
  • Environmental Impact Statement
  • Permit Application & Receipt
  • Finance Project Development
  • Design and Engineer Mine & Mill
  • Build Facilities
  • Open Mine & Mill

On a 100 million metric tonne mine – 10 to 20 years and $500 million to $1 billion expended before the first pound of copper is produced.

slide30

The Chocolate Chip Cookie Mine

The following handout is a working example of project that you can bring back to your classrooms using chocolate chip cookies as mines.

The project involves the students to ‘acquire’ land assets (cookies), equipment (toothpicks & paperclips), and mine for ore (chocolate chips), while filling out an economic / financial sheet, similar to the one on slide 25. The handout has instruction for carrying out the exercise.

The example allows the students to conceptualize some of the complexity of mining and finance, while having fun extracting chocolate chips.

slide31

Economic Of Mining

Question or Comments?

Thank You

This Session is followed by the

Mineral Economics Lightning Round

slide32

Mineral Economics

Lightning Round

Fun!

Excitement!

Prizes!

slide33

Mineral Economics

Lightning Round

1 A

Aircraft

Paints / Plastics

Sporting Goods

Titanium -

Principally

used in:

slide34

Mineral Economics

Lightning Round

1 B

Aircraft

Paints / Plastics

Sporting Goods

Titanium -

Principally

used in:

slide35

Mineral Economics

Lightning Round

2 A

United States

Russia

China

Where is the world’s largest un-mined copper nickel deposit?

slide36

Mineral Economics

Lightning Round

2 B

United States - Minnesota

Russia

China

Where is the world’s largest un-mined copper nickel deposit?

slide37

Mineral Economics

Lightning Round

3 A

South Africa

United States

China

Gold -

Largest Producer

slide38

Mineral Economics

Lightning Round

3 B

South Africa

United States

China

Gold -

Largest Producer

slide39

Mineral Economics

Lightning Round

4 A

Animal

Mineral

Vegetable

Oil – What is its

Classification?

slide40

Mineral Economics

Lightning Round

4 B

Animal

Mineral

Vegetable

Oil -

Classification

slide41

Mineral Economics

Lightning Round

5 A

Tin Weight

Steel Acid Bath

Copper Trading Derivative

What is a Picul?

slide42

Mineral Economics

Lightning Round

5 B

Tin Weight

Steel Acid Bath

Copper Trading Derivative

What is a Picul?

slide43

Mineral Economics

Lightning Round

6 A

Aluminum & Nickel

Iron & Platinum

Gold & Copper

What Two Metals Have Distinct Colors?

slide44

Mineral Economics

Lightning Round

6 B

Aluminum & Nickel

Iron & Platinum

Gold & Copper

What Two Metals Have Distinct Colors?

slide45

Mineral Economics

Lightning Round

7 A

Platinum, Titanium

Nickel, Cobalt

Copper, Gold

What New Mineral/Metal Discoveries Are Significant For Minnesota?

slide46

Mineral Economics

Lightning Round

7 B

Platinum, Titanium

Nickel, Cobalt

Copper, Gold

What New Mineral/Metal Discoveries Are Significant For Minnesota?

slide47

Mineral Economics

Lightning Round

8 A

Boron

Iron

Silicon

Elemental Concentration

in the Crust – Highest Metal Concentration

slide48

Mineral Economics

Lightning Round

8 B

Boron

Iron

Silicon

Elemental Concentration

in the Crust – Highest Metal

slide49

Mineral Economics

Lightning Round

9 A

Iron Ore

Building Stone

Sand & Gravel

Which metal/mineral is the largest produced in Minnesota?

slide50

Mineral Economics

Lightning Round

9 B

Iron Ore

Building Stone

Sand & Gravel

Which metal/mineral is the largest produced in Minnesota?

slide51

Mineral Economics

Lightning Round

10 A

Bismuth

Copper

Silver

What is the

best metal for conducting electricity?

slide52

Mineral Economics

Lightning Round

10 B

Bismuth

Copper

Silver

What is the

best metal for conducting electricity?

slide53

Mineral Economics

Lightning Round

11 A

Blue Color

Discovery in Kobal, Germany

Gremlin Metal

Cobalt is named for what?

slide54

Mineral Economics

Lightning Round

11 B

Blue Color

Discovery in Kobal, Germany

Gremlin Metal

Cobalt is named for what?

slide55

Mineral Economics

Lightning Round

12 A

Grinding Media

Gem Stone

Counter Tops

What is the principle use of Garnets?

slide56

Mineral Economics

Lightning Round

12 B

Grinding Media

Gem Stone

Counter Tops

What is the principle use of Garnets?

slide57

Mineral Economics

Lightning Round

13 A

Mercury

Nacholite

Molybdenum

Which metal/mineral liquid in its natural state?

slide58

Mineral Economics

Lightning Round

13 B

Mercury

Nacholite

Molybdenum

Which metal/mineral liquid in its natural state?

slide59

Mineral Economics

Lightning Round

14 A

Gold

Copper

Iron

What is man’s oldest mined metal?

slide60

Mineral Economics

Lightning Round

14 B

Gold

Copper

Iron

What is man’s oldest mined metal?

slide61

Mineral Economics

Lightning Round

15 A

Tungsten

Nickel

Chromium

What has the highest melting point?

slide62

Mineral Economics

Lightning Round

15 B

Tungsten

Nickel

Chromium

What has the highest melting point?

slide63

Mineral Economics

Lightning Round

16 A

5%

35%

20%

What percent of world’s diamonds are used for gems?

slide64

Mineral Economics

Lightning Round

16 B

5%

35%

20%

What percent of world’s diamonds are used for gems?

slide65

Mineral Economics

Lightning Round

17 A

Sulfur

Limestone

Iron Ore/Iron

What is (probably) the most important industrial mineral/metal?

slide66

Mineral Economics

Lightning Round

17 B

Sulphur

Limestone

Iron Ore/Iron

What is (probably) the most important industrial mineral/metal?

slide67

Mineral Economics

Lightning Round

18 A

Granite, Iron Ore, Aggregate

Iron Ore, Copper, Gold

Frac Sands, Iron Ore, Peat

What minerals/metals is Minnesota known for?

slide68

Mineral Economics

Lightning Round

18 B

Granite, Iron Ore, Aggregate

Iron Ore, Copper, Gold

Frac Sands, Iron Ore, Peat

What minerals/metals is Minnesota known for?

slide69

Mineral Economics

Lightning Round

19 A

Copper

Silver

Iron Ore

Early prospectors in Minnesota explored for Gold, but what did they find?

slide70

Mineral Economics

Lightning Round

19 B

Copper

Silver

Iron Ore

Early prospectors in Minnesota explored for Gold, but what did they find?

slide71

Mineral Economics

Lightning Round

20 A

Sulfur Dioxide

Di-hydrogen Monoxide

Carbon Monoxide

What is (probably) the most dangerous chemical?

slide72

Mineral Economics

Lightning Round

20 B

Sulphur Dioxide

Di-hydrogen Monoxide

Carbon Monoxide

What is (probably) the most dangerous chemical?

slide73

Mineral Economics

Lightning Round

And The Winner Of

The Lightning Round Is?

slide74

Mineral Economics

Lightning Round

All Of You!

Thank you Again