









Economics, and the economic way of thinking, have had
an important influence on business and government
affairs for at least the last two centuries. The Scottish
author Adam Smith espoused the foundations of
modern economic thought in 1776. His famous volume
– The Wealth of Nations1 – ushered in a revolution in
economic thinking. His ideas formed the basis of the
new academic field of political economy, which writers
such as Jevons (1879, p 8) renamed as economics some
one hundred years later.
In the early pages of his book, The Worldly Philosophers,
Heilbroner (1972) traces the rise of economics to the
emergence of the market system in the wake of the
Industrial Revolution, which began in the middle of the
eighteenth century. Prior to that time, the organisation
and survival of society had largely depended on
tradition and authoritarian rule.
The discipline of economics developed strongly during
the 20th century, with economists applying its principles
to many areas and industries. One of these industries
was mining. For at least the last 50 years, undergraduate
students in mining engineering programs around
the world have taken one or more courses in mineral
economics, or engineering economics, as part of their
curriculum. Graduate coursework programs in mineral
economics have also developed in a number of well-
known universities.
 

At one level MacKenzie (1987, p 2) sees mineral
economics as ‘the application of economics in the study of
all aspects of the mineral sector’.
More recently, Gordon and Tilton (2008, p 4) have
suggested that:
Mineral economics is the academic discipline
that investigates and promotes understanding of
economic and policy issues associated with the
production and use of mineral commodities.
To understand its focus more clearly it is useful to
briefly consider the definition of economics, and its
evolution2.
The ancient Greek scholar, Xenophon, first used the
term economics some 2500 years ago to describe the
field of household management, known today as ‘home
economics’. By using the term political economy,
Smith and the classical economists who followed in his
footsteps over the next century of so, sought to extend
the study to the level of nations by focusing attention
on the production, distribution and consumption of
wealth. As the nineteenth century proceeded, writers in
the field focused also on utility and the discussion of
individual economic welfare.
One of the most widely used early definitions of
economics was that of Alfred Marshall, in his influential
volume, The Principles of Economics (1890, p 1) which
notes that:
POLITICAL ECONOMY or ECONOMICS is
the study of man in the ordinary business of life; it
 
 

  
examines that part of individual and social action
which is most closely connected with the attainment
and with the use of the material requisites of
wellbeing.
Thus it is on the one side a study of wealth; and on
the other, and more important side, a part of the
study of man.
This is a broad definition and, as such, it attracted
debate. In seeking to clarify the nature of the economics
discipline, Robbins (1932, p 16) offered an alternative
perspective with his so-called scarcity definition as
opposed to Marshall’s materialist definition. This was
that:
Economics is the science which studies human
behaviour as a relationship between ends and scarce
means which have alternative uses.
Backhouse and Medema (2009, p 225) note that critics
initially argued that the definition was too broad
because:
social sciences ...
and too narrow because it:
... was too heavily tilted toward theory and left little,
if any, room for empirical analysis, history, and
institutions – and it essentially wrote ethics out of
economics.
Yet most writers of modern principles economics
textbooks have embraced this scarcity definition.
Without scarcity, there would be no need for markets.
Everything would be free and uncontested. It provides a
reference point for new students to consider and digest
the subsequent theories and models of classical and
neoclassical economics, the two major schools of thought.
They present it in a slightly extended version such as:
Economics is the study of how people and
society choose to employ scarce productive
resources to produce goods and services and
distribute them among various groups in society.
(Waud et al, 1996, p 6)
This is, however, not the last word. Non-traditional
economists, such as John Kenneth Galbraith, take an
even broader view. In his volume The New Industrial
State (1978, p 417) Galbraith notes that:
In economics,
Economic theory – the study which deals
with the way prices, output and incomes of
individuals, firms and the economy at large are
decided – is one area of specialisation.
The corporation is another.
Decision theory – how decisions are reached
in complex organisations – is yet another and
more modern field.
Writers in the field of mineral economics such as
MacKenzie (1987), and practitioners more generally,
have tended to embrace a broader definition in the
 
Galbraithian mould. We consider why and how this
has happened in the third section of this chapter. Before
doing so, we consider the place of mineral economics
in the broader context of the study of economics more
generally.

The rise of economics during the twentieth century
occurred in several dimensions. At one level there has
been division of the discipline between microeconomics
and macroeconomics.
Microeconomics is the study of economic decision-
making by consumers, households, firms and
government, and the way in which these relate to the
operation of markets. Its focus has been on areas such
as supply and demand, on the organisation of markets
and on industry regulation. Microeconomics also
informs us about the decision-making activities, not
always benevolent, of government officials.
Macroeconomics, by contrast, is concerned with
the operations of national economies and the world
economy. Its focus has been on measures of economic
performance such as Gross Domestic Product (GDP),
inflation, investment, saving, economic growth, the
balance of payments and the distribution of income
and wealth. It is also concerned with the formulation of
fiscal, monetary and other areas of national economic
policy to manage these variables.
There has also been strong interest in areas such as
international trade and finance, economic development,
financial markets and institutions, public finance,
labour markets, economic systems, urban and regional
economics, natural resource economics, environmental
economics, economic history, law and economics, and
the history of economic thought. Many economists
make their careers by specialising in one of these fields3.
In a rather different way, there has also been a
growing interest in the economics of many major
industries. Fields such as agricultural economics,
transport economics, health economics, communication
economics, tourism economics, cultural economics,
energy economics and mineral economics also are
now distinct subdisciplines.
The study of these areas have emerged because of:
the overall size of these industries
their importance to specific economies and regions
different specific characteristics, which make them
worthy of separate analysis.
In 2010, the minerals and energy sectors accounted for
around US$3000 B of world production. This was about
five per cent of the world’s estimated GDP4. Importantly
 
 
 
 
 
   

as well, international minerals trade has consistently
accounted for more than ten per cent of the value of
world merchandise trade since 1960. During the past
decade it has exceeded 15 per cent in two or three years,
when mineral and energy prices were particularly high.
Mineral production and trade is of great significance in
as many as fifty nations, and it is the dominant industry
in many sub-national regions around the world. Some
indication of this importance for selected economies
can be seen in Table 1.1.
The contribution of the minerals and energy sector to
their GDP estimates for 2008 is reported in Table 1.1, as
is their contribution to exports and to total imports.
Notice how the minerals and energy sector as
a percentage of GDP varies from almost zero in
economies such as Japan, Germany and Korea to more
as well as economies such as Botswana and Papua New
Guinea. In several nations mineral exports account for
well over half of total exports, while they are also key
imports in Japan, Korea and many European nations.
Another recent view of the importance of minerals and
energy on a ‘broad’ regional basis appears in Table 1.2,
which contains estimates of mineral and energy ‘value
added’ for each of the world’s continental groupings
for the years 2002 and 2007. This shows the importance
of Asia as the major source of minerals and energy in
recent years. The notable increase in magnitude for
every continent between 2002 and 2007 reflects the
minerals boom, which emerged after 2003.





     

    


     
     
     
     

     
     
     

     
     
     
     
     
     

     
     
     
     
     

     
     
     
     
     
     

 
  



 
    
    
    
    
    
    
    
    

a. These estimates are derived from UN Statistics (unstats.un.org) by subtracting manufacturing (ISIC D) and estimated utilities (notionally

A difference between minerals and many other
commodities is that they are factor inputs rather
than final consumer goods. With one or two notable
exceptions, manufacturers demand them because of the
particular attributes they possess. Desirable qualities of
different minerals may include things such as strength,
durability, chemical and thermal stability, ductility,
heat conductivity, resistance to corrosion, plasticity and
lubricity.
Minerals differ widely in their physical and chemical
characteristics. The standard classification of metals,
non-metals and energy minerals provides one
indication of these differences. An appreciation of
the diversity of minerals produced and consumed is
possible by reviewing relevant webpages of the United
States Geological Survey5. Their analysts regularly
assess the status of at least 50 metals, 50 non-metals and
seven or eight major energy minerals that are mined or
drilled on a regular basis around the world. They vary
widely in value with oil in 2010 being worth perhaps
US$2 trillion, while some of the smaller minerals are
worth perhaps as little as US$10 M each year. Another
useful classification of minerals – that used by the
United Nations Conference on Trade and Development
(2007, p 84) – appears in Figure 1.1.
MacKenzie (1987, p 6) argues that the main special
characteristic of the minerals sector that justifies its
study as a separate sub-branch of economics relates to
the issue of geological endowment. The implications
of a fixed endowment for economic analysis relate to
patterns of optimal use, the optimal timing of this use,
increasing scarcity and conservation.
MacKenzie notes in particular that mineral deposits
are:
initially unknown (they must be discovered)
fixed in size (they are non-renewable)
variable in quality (they often must be extracted
using new technologies)
 
fixed in location (they may be discovered in remote
locations and need to be moved to intermediate- and
end-use markets).
Another supply-side matter of interest is recycling.
While most energy minerals can be consumed only once,
metals and some non-metals can be profitably recycled
using old-scrap and new-scrap sources. Recycling may
also be more environmentally friendly.
Garnaut (1995) adds a further perspective on the
special nature of minerals when he describes five
characteristics of mines that make them a special focus
of government policy and administration. These are:
1. they can generate economic rent6
2.
large scale
3. their development is often highly capital intensive
4. they have unusually large local, environmental,
social and economic impacts
5. their national economic impact varies greatly over
relatively short periods of time.

While one can justify the study of mineral economics
in terms of the rise of the economics discipline,
the emergence of mineral economics has also been
influenced by the development of parallel subdisciplines
such as engineering economics. In their preface to a
successful US textbook in the area, Riggs, Bedworth
and Randhawa (1996, xv) note that:
The curriculums of most professional schools (of
engineering) include a course in applied economics
under such titles as engineering economy, financial
management, managerial economics and economic
decision-making.
These courses typically appear in the latter part of
the undergraduate curriculum. In mining schools, they
          
 
 

 
 
have often been called mineral economics. Though
hardly subdisciplines of economics, they have tended to
define the field of mineral economics in the eyes of many
mining professionals. Their emphasis has typically been
on decision-making at the operational level, usually
with a focus on minimising or optimising costs, in the
context of investment decisions. Where they are taught
well, mining professionals often rank such courses
among the more useful taken in their undergraduate
study. Students completing them also often then
expect that subsequent study of mineral economics will
largely be focused on issues or project evaluation and
related areas of applied financial analysis. While post-
professional programs in mineral economics do tend to
contain a strong emphasis on financial analysis, they
combine this with study of mainstream economic issues,
which arise from the special nature of mineral markets,
and the other features that the geological endowment
constraint places on the study of the discipline.
Gordon and Tilton (2008) trace the origins of the
modern study of mineral economics to a collaborative
effort between the Brookings Institution and the US
Bureau of Mines in 1932. This led to the publication
of an edited volume by Tyron and Eckles (1932) titled
Mineral Economics: Brookings Lectures. After World War
II there was growing concern over the implications
of the geological endowment in the United States for
strategic mineral supply. A parallel development was
the foundation of the first mineral economics program
at the College of Mineral Sciences at Pennsylvania

State University in 1946. Since that time the study of
mineral economics have moved around the world.
Several governments has established formal interests
in the field and there are a small number of university
programs offered in the United States, Australia, Chile,
South Africa and Europe. A group of consulting firms
also specialise in mineral economic issues.
Many professionals who take mineral economics
courses are seeking to move into more senior
managerial roles. It seems desirable, therefore, that any
comprehensive treatment of the area should address the
strategic, operational and human resource management
issues that relate specifically to resource sector
companies, as well as providing a suitable overview
of the legal environment in which these firms operate.
These elements relate quite neatly to Galbraith’s broader
definition of economics, with its focus on economic
theory, the corporation and decision making.
It is instructive to complete this introductory
discussion by making one further important point.
MacKenzie (1987, p 8) identifies two main requirements
for the practice of mineral economics. They are:
1. knowledge of the principles of economics and
associated analysis techniques
2. understanding of the technical characteristics of
economic viewpoint.
The focus of discussion in this chapter has been on
the first of these issues, but the second point is also

  
important. It is often necessary to appreciate the
technical issues relating to a mining or energy project
to apply economic and other principles to its analysis.
Business, law and economics graduates will find it
difficult to undertake the depth of analysis necessary to
analysis minerals sector issues unless they extend their
technical knowledge in areas such as geology, mining
methods and mineral processing.
A well-trained mineral economist will apply economic
principles, in combination with suitable technical
knowledge, to analyse resources available in a fixed
endowment. She, or he, will consider issues such as
how to use minerals, when to use them, how to mine
them, when to recycle them and how to regulate them.


Writing about mineral economics in 1950, Gordon
and Tilton (2008) identified the key areas of interest
as mineral markets, project evaluation, depletion and
long-run availability of minerals, strategic minerals,
monopoly policy with respect to aluminium and steel,
and international commodity agreements.
In the ensuing 60 years, the mineral economics
‘playing field’ has changed, but many of these topics
remain of great interest and importance. Mineral
market analysis and project evaluation are both still
central areas of focus. These have been joined by topics
such as the relationship between mineral exploitation
and development and the associated concepts of the
‘resource curse’ and ‘Dutch disease’. Other important
areas include mineral taxation and royalties; sustainable
development and mining; minerals trade and transport;
the issue of how mineral rents should be shared between
local communities, regions, nations and companies;
and the economics of innovation in the mining sector.
We address most of these areas in this volume and
after reading it closely, you should be able to answer
the following questions in a professional way.
Does an abundance of mineral resources make a
country rich?
What effects do mineral-based resource booms
have on different economies?
What factors influence the discovery and exploi-
tation of minerals around the world?
What did the discovery of gold do to the Australian
economy?
Why has the resources sector been important to
economies such as Australia, Canada and Chile in
the recent past? Or has it been important?
What factors determine the contribution of mineral
production to sustainable economic well-being?
What influence has greater environmental regula-
tion had on the supply of minerals?
 
What forces have been driving change in mining’s
interaction with local communities?
How important is international trade in minerals
and energy?
What role has major changes in transport costs
played in international minerals trade?
How does recent growth in mineral and energy
trade compare with growth in other areas of
international trade?
What are the sources of competitive advantage of
the Australian minerals sector?
What are the key factors that influence the demand
for different metals?
How important are joint production issues in the
analysis of mineral supply?
How has recycling affected the supply of major
metals in the recent past?

In compiling this monograph, our aim is to provide a
balanced and up-to-date view of the approaches and
techniques that mineral economists use to appreciate
the resources sector. While the bias of this volume is
towards the Australian mineral and energy sector, the
discussion often takes a broader perspective. Mining is
a global industry and if this volume is to provide value
to its readers, it must be internationally focused.
The 16 chapters that follow this introduction are
organised in five main sections. They are:
1. minerals and the world economy (three chapters)
2. minerals: consumption, production and markets
(three chapters)
3.
4. minerals and public policy (three chapters)
5. mining and local communities (four chapters).
Philip Maxwell has played the coordinating role
with the first, second and fifth sections. Pietro Guj is
responsible for the Mineral Finance and Investment
section. The coordination of the minerals and public
policy section has been shared. Our contributions
have emerged from our association with the Graduate
Coursework program in Mineral Economics at
the Western Australian School of Mines7 at Curtin
University.
One of the features that assisted the quality of our
program offerings over the past decade has been the
contribution from colleagues from other institutions,
both in Australia and overseas. It is particularly
appropriate, therefore, that several of these visiting
faculties, together with other selected colleagues, are
also contributing to this volume. They include Rod
Eggert (Colorado School of Mines), Phillip Crowson
 

(University of Dundee), Peter Howie (Nazarbayev
University), Allan Trench (Curtin University and
and the University of Western Australia) and Frank
Harman. Several others have acted as reviewers. Their
insights enhance the quality of the pages ahead. We
thank them for their contributions.

Backhouse, R and Medema, S, 2009. On the definition
of economics, Journal of Economic Perspectives, winter,
23(1):221-233.
Galbraith, J K, 1978. The New Industrial State, third edition
revised (Houghton Mifflin: Boston).
Garnaut, R, 1995. Dilemmas of governance, in Mining and
Mineral Resource Policy in Asia-Pacific: Prospects for the
21st Century (eds: D Denoon, C Ballard, G Banks and
P Hancock), p 61-66, Canberra.
Gordon, R and Tilton, J, 2008. Mineral economics: Overview
of a discipline, Resources Policy, 33(1):4-11.
Heilbroner, R, 1972. The Worldly Philosophers, fourth edition
(Simon and Schuster: New York).

 
Jevons, W S, 1879. The Theory of Political Economy, second
edition (Macmillan: London).
Kuznets, S, 1934. National Income, 1929-1932, 73rd US
Congress, second session, Senate document no 124, p 7.
MacKenzie, B, 1987. Mineral Economics: Decision-Making
Methods in the Mineral Industry, 5-17 July, Adelaide:
Australian Mineral Foundation.
Marshall, A, 1890. Principles of Economics (Macmillan:
London).
Riggs, J L, Bedworth, D B and Randhawa, S U, 1996. Engineering
Economics, fourth edition (McGraw-Hill: New York).
Robbins, L, 1932. An Essay on the Nature and Significance of
Economic Science (Macmillan: London).
Tyron, E G and Eckles, E C (eds), 1932. Mineral Economics:
Brooking Lectures (McGraw-Hill: New York).
United Nations Conference on Trade and Development
(UNCTAD), 2007. World Investment Report: Trans-
national Corporations, Extractive Industries and
Development, Geneva.
Waud, R, Maxwell, P, Hocking, A, Bonnici, J and Ward, I,
1996. Economics, third Australian edition (Longman:
Melbourne).

 















Several processes always occurring within any economy Some natural resource economists have included the
determine the economic wellbeing of its citizens. They environment (or environmental services) in their group
include production, distribution, consumption and of inputs.
trade. Our interest in this volume is with how minerals Recognising the value of each of these alternative
and energy exploitation impinge on these processes. specifications, let us hypothesise here that:
It is typical, initially at least, to think of the ways in
which people use minerals and energy in the process of Economic output = f (land, labour, capital,
producing goods and services. But the distribution of environment)
the proceeds of resource wealth and the consumption
of mineral and energy resources are very important as But what do economists mean by land, labour and
well. Furthermore, the sale and purchase of minerals capital?
and energy through interregional and international
Land refers to all of the natural resources used in
trade plays an important role in increasing people’s
production. As well as land itself it includes water,
welfare.
forests, fisheries, oil, gas and mineral deposits.
Let us begin by taking a production view of things.
Labour denotes the skills and capabilities used by
Over any given period, (eg a year), we can think of humans in the production process.
what an individual, a firm, a region, a nation or the
Capital describes all of the manufactured aids used
world produces in terms of a production function
in the process of production1.
in which the output generated is a function of the
The environment reflects the quality of the natural
economic resources used as inputs. Economists have
world around us. It is responsible for the quality of the
typically denoted these resources as land, labour and
air that we breathe and the water that we drink, and the
capital. The state of technology may also be included
way that we utilise it affects the food that we eat and
as an additional factor but in the short run, this will the materials that we use to build shelter for ourselves.
be reflected in the nature of the capital stock and the
quality of the labour force. In a similar vein, Alfred  
Marshall included organisation as a production factor.  

 
 

The services that the environment provides are also an The discovery and exploitation of minerals brings
input to production. It is also a ‘sink’ for our wastes major new activity to mining regions. Debates typically
and if this aspect is overused, the environment can arise as to:
adversely affect our ability to produce. How much should accrue to investors (often from
Critics argue that most mining and oil companies other places) who have risked their money to
neglected environmental issues until quite recently2. develop new oil wells or mines?
They did so because their main focus was on profits and How much of the windfall should be shared with
dividends to shareholders, and governments did not local and regional residents?
actively regulate pollution. These companies were not How much should government redistribute to
alone in their practices. Many manufacturing firms did citizens in other regions or states?
little to treat wastes, discharging them into the nearby These controversies are often the source of continuing
atmosphere, or into rivers, lakes or the sea with minimal uncertainty. When they are resolved in a satisfactory
treatment. In many parts of Australia and elsewhere, way, all stakeholders can share the returns from new
past and even present farming practices have resulted mineral and energy production.
in erosion and reduced soil fertility. This occurs even Hence one might argue that the great mineral
today in several developing nations. wealth of the Eastern Goldfields, the Pilbara, and the
Over the past 30 years there has been a major change other mining regions of Western Australia have been
in the position of corporations generally and mining distributed effectively over more than a century. It
companies particularly. They have embraced the has enhanced the income and general fortunes of the
principles of sustainable development and corporate average citizen of WA’s mining regions. A large royalty
social responsibility in their treatment of environmental stream, together with payroll tax receipts has assisted
issues and their relationships with the local communities the finances of the Western Australian government.
in which they operate3. Greater individual and company income taxes, as
well as resource rent royalties, have contributed to the
The following statement by McDivitt and Jeffrey, in
welfare of Australians more broadly.
Vogely (1976, p 16), reflects an interesting economic
perspective about the impact of mining on production: Even without the hand of government to redistribute
income and wealth through the fiscal system, many
… mineral development can contribute to the three
past mineral discoveries have brought a more even
major factors of production - land, through bringing
distribution of income. This was the case with the
into action otherwise dormant resources in the
Victorian, New South Wales and Western Australian
country; capital, both through attracting outside
gold rushes in the nineteenth century. Blainey (2003,
investment capital to the country and through p 62) notes that:
providing new money some of which can be used for
local investment; and labor, through upgrading local Gold checked, and for a time, reversed Australia’s
skills and implanting concepts of entrepreneurship. tendency to become a land that favoured the big
man. Whereas Australia’s first natural asset, the
That is, mining uses machines, labour, and minerals sheeplands, was grasped by a few thousand men, its
themselves to produce further capital (buildings,
second rich natural asset, the goldlands was divided
bridges, machinery, etc). In this process, worker skills among hundreds of thousands of men.
are upgraded and innovation takes place, enhancing
the labour pool for mining’s own use or for its use in Where mineral windfalls involve labour-intensive
other sectors. If they were rewriting this passage today, mining activity there is increased opportunity to share
income and wealth more equally4. But as minerals then
the two authors may also have included a reference
become less amenable to labour-intensive mining and
to environmental quality issues and to sustainable
require greater amounts of capital, there is the opposite
development.
tendency for the distribution of income and wealth to
In any economy, the issue of distribution – the way in become more unequal.
which different individuals or groups share production
A continuing issue regarding our future, concerns
– is also important. Issues relating to the fairness or
the way in which production and consumption relate
equity in the distribution of income and wealth usually
to one another. Consumption involves individuals and
generate controversy. This happens within families,
households (the private sector) and also government
smaller regions, states and provinces, and nations, and
using up goods and services.
also between nations on the world stage. Governments
use the proceeds of taxation and royalty collections to If a society consumes less than it produces, (ie spends less
redistribute this income and wealth. than its income) in any given time period, its members
(both the private and public sector) can save the residual
 
   
   

 

and invest it to ensure production continuing in the
future. Saving and investment are important additional
concepts in the economist’s lexicon. Saving refers to the
amount generated from abstaining from consumption
in any given period, while investment is spending on
capital formation, both physical and human.
New investment, that increases a nation’s or region’s
physical and human capital, typically provides the
basis for further economic growth and development.
If citizens consume what they produce, or more than
they produce by borrowing against future expected
production, their capital stock will fall and so will
production, if other things are equal. We typically are
impressed with the ‘economic miracle’ nations whose
strong growth and development is attributable to
domestic saving, which finances wise investment in new
physical and human capital. The economic performance
of Japan, Korea, Taiwan, Singapore, Hong Kong and
now China in the latter part of the twentieth century
have drawn great praise from most commentators.
Where nations have large mineral and energy
resource endowments, much of which may have only
recently been discovered, there also seems considerable
potential to invest the profits from its exploitation.
Such endowments form part of a natural capital base.
Some natural capital is renewable, while some is
not. It is normal to think of agricultural land, forests,
fisheries and solar, wind and tidal energy as renewable
resources, and to classify minerals and many other
energy sources as non-renewable resources. Despite
their finite nature, and as we have already noted, it is
possible to recycle many minerals in a profitable way.
If minerals are produced, and consumed, and they
cannot be recycled, their stock will decline5. As we shall
see, how the citizens of a country or region allocate the
proceeds of mineral exploitation to current consumption
and investment is an issue, which is of interest to many
people. We typically see such debate in discussions
about minerals and sustainable development.
The final key concept in this section is trade. Trade
takes place because it makes individuals, companies
and nations better off. By specialising in the things they
can do best, these groups can exchange part of their
production for a variety of goods and services that will
enable them to reach a higher standard of living than
without trade. Trade takes place:
within regions (eg a nickel miner in the Western
Australian Goldfields town of Laverton sells ore or
concentrate to the Kalgoorlie nickel smelter)
between regions (eg a silver, lead and zinc mining
company operating in Broken Hill, New South
Wales, rails zinc concentrate for refining to the Port
Pirie smelter in South Australia)
between nations (eg a mining company operating
in New Caledonia ships its lateritic nickel ore to
 
 

 
the Yabulu nickel refinery near Townsville, North
Queensland in Australia).
As we saw in the final two columns of Table 1.1 and
and energy play an important part in increasing the
economic and social welfare of many nations. Perhaps
fifty countries have significant mining industries and
many of these are significant international exporters.
The remaining nations depend on key mineral and
energy imports to supply their factories, build their
general infrastructure and facilitate their housing and
other building construction.
Mineral exports were particularly important in
Australia from the early 1840s until the beginning of
World War I. Subsiding dramatically after 1914, mineral
trade again rose dramatically after 1960. Sustained
international competitiveness in many parts of the
industry underpinned Australia’s strong economic
performance in the last part of the twentieth century and
in the first decade of the new millenium. This situation
seems certain to continue for many more decades.
In a complementary way, countries such as Japan and
Korea, that produce few minerals, depend on a secure
and reasonably priced minerals and energy supply.
This is critical to the downstream industries on which
these nations depend for the prosperity of their citizens.


Following the widespread adoption and use of national
accounting frameworks throughout the world after
1950, it has become standard practice to measure
economic production by estimating Gross Domestic
Product, commonly known as GDP.
First suggested in 1933 by the Harvard University
professor, Simon Kuznets, Gross Domestic Product is a
measure of the market value of final goods and services
produced in an economy during a given period6. It is
most usual to discuss GDP estimates for a year.
Each nation’s central statistical agency computes
official estimates of its GDP, typically in terms of
its national currency. In the case of Australia, this
organisation is the Australian Bureau of Statistics.
Australia’s officially estimated GDP in the 2010 - 11
financial year was around $A1300 B. This meant that
GDP per capita for each of Australia’s 22.3 million
inhabitants in that year was a little more than $A58 000.
between nations, the established practice is to convert
estimates in terms of national currencies into $US,
using prevailing exchange rates. These estimates appear
again in Table 2.1 for 2008.
 
 
 
 
 

 

Notice the dramatic differences in the size of the community organisations. For example in a study
economies in Table 2.1 as shown in their GDP estimates. using 1997 data, the Australian Bureau of Statistics
The United States accounted for more than 20 per cent of (2000) estimated that unpaid work in Australia could be
the world’s GDP – which was more than $US60 trillion valued at about 48 per cent of GDP.
in 2008. Australia’s GDP was about six per cent of the Estimates of actual GDP per capita, and GDP per
US total, and it was about 100 times the size of the GDP capita at Purchasing Power Parity (PPP) for our
of Papua New Guinea. selected economies also appear in Table 2.1. GDP per
 capita gives one measure of the standard of living of
 the average citizen of each nation. With an average

citizen in oil rich Norway appears dramatically better
    off than citizens of any other nation in the table. The
   average Ghanaian, with per capita income of $739 in
 2008, seems the poorest. Citizens of the US, Germany,
    Australia, Canada and Japan all did well in terms of this
    measure.
    The PPP adjustment in GDP per capita takes account
    of cost of living differences between nations. It is based
on continuing activities associated with the work of the

International Comparison Program of the World Bank.
   
The benchmark for the PPP measure is the cost of living
    in the USA. GDP per capita in the US was $US47 393
    in 2008. Its GDP per capita at PPP was, of course, also
 $US47 393.
    Compare this with the situation in Australia. Over the
    past two decades, most would judge that the cost of
living in Australia has been higher than in many other
   
nations. While estimated GDP per capita in Australia in
   
2008, at $US48 950, was higher than in the US, it fell to
    $US38 396 after PPP adjustment. This was well below
    the US figure. On this basis, the standard of living of the
 average US citizen seemed considerably higher than his
    or her Australian colleagues.
    In the case of countries such as Chile and South Korea,
living costs in 2008 were lower than in the United States.
   
This shows up in higher GDP/ capita at PPP levels with
   
these nations, than their GDP per capita estimates. For
   
 capita at PPP was $14 592. In South Korea, GDP per
    capita was $19 162 and GDP per capita at PPP was
    $27 681. Low living costs in developing nations may
double or even triple the GDP per capita estimate at
   
PPP. Notice how GDP per capita at PPP is higher than
    GDP per capita for each of the small developing mineral
    economies in Table 2.1.
    Notwithstanding the significant contributions to
overall production of volunteer groups and stay at
The GDP measure has several limitations. Importantly home partners in a country such as Australia, the size of
it does not include adjustments for capital consumption, the informal economy is of considerably greater relative
depreciation of natural capital, or environmental importance in developing nations. Hence, even after
degradation. It fails, also, to include estimates of the adjusting for Purchasing Power Parity, it is still likely
value of non-market goods such as work at home. that any comparison of living standards using GDP per
Hence the contributions to production of women and capita at PPP between an affluent developed nation,
men who are homemakers and raise families are not such as Australia or Japan, and a poorer developing
included. Also excluded is the work of volunteers mineral economy in Africa will overstate the difference
who contribute generously to the functioning of many between them.

 
  

While it is clear, therefore, that the average citizen of


a nation such as Ghana is poor, his or her production
will in reality exceed the estimate of $1518 in Table 2.1 

by a higher percentage than it does for the average
Australian citizen. GDP per capita at Purchasing Power    
Parity comparisons between nations are at best only an   
approximate indicator of economic welfare differences.   
The limitations of GDP and its associated measures  
have stimulated a number of alternative approaches 
and adjustments to reflect a country’s economic size    
and stage of development in a more effective manner7.    
But this statement itself begs the question of what
   
development really means.
   
 
When commentators discuss the economic growth of a    
nation, a region or the world, they usually are referring    
to the percentage rate of growth in total production    
over a given period such as a year (or a quarter).

On some occasions, however, they may alternately
   
refer to:
   
the percentage rate of growth in per capita production
   
of the average citizen over a given time period, and
more recently    
the rate of growth of productivity, or output per    
worker.    
Yet, since about 1960 it has become standard practice 
to measure economic growth by computing percentage    
changes in real Gross Domestic Product. We use the
   
term ‘real’ to indicate that the GDP has been adjusted
for changes in the rate of inflation. National statistical    
agencies use the GDP deflator, based on the level of    
prices of all new domestically produced final goods    
and services in an economy in a given period to make 
this adjustment.
   
Some estimates of average annual growth rates, based
   
on simple averages, for the periods 1981 to 1999 and
2000 to 2009, appear in Table 2.2.    

Todaro (1989, pp 86 - 87) points to traditional views    
that development or economic development takes    
place over an extended period (of say ten years or    
more) when an economy is able, following a period of
mediocre economic performance, to: But the Todaro view also seems implicitly to assume
bring about annual rates of growth exceeding that, during a significant development period,
five per cent the structure of an economy will change, with the
generate consistent growth in its real GDP per capita. emergence of major new and competitive industry
Hence, according Table 2.2, we might argue that, sectors (eg mining, manufacturing, services, etc). The
between 1980 and 1999, nations such as China, South achievements over a longer period of Japan, China,
Korea, India, Indonesia, as well as the two mineral South Korea and Singapore, and more recently of
rich nations of Botswana and Chile all experienced Thailand, India, Indonesia and Vietnam provide
significant economic development. examples of significant economic development taking
China, India, Ghana, Russia and Nigeria all met this place. Nations such as the United States, Britain,
criterion between 2000 and 2009. Germany, France, Canada and Australia have also
 
experienced economic development surges in this way.
  In each of these later cases, the mineral sector made a
  significant contribution to this development.

 
 

During the 1970s, a broader view emerged concerning 

the dimensions of the concept of economic development. 
Writers began to consider economic development in 
terms of reducing poverty, income inequality and
      
unemployment when an economy was experiencing 
consistently strong real GDP growth over an extended 
period.

In his extended definition, Todaro (1989, p 88) argues
      
that:
      
Development must … be conceived as a
      
multidimensional process involving major changes
in social structures, popular attitudes and national       
institutions, as well as the acceleration of economic 
growth, the reduction of inequality, and the       
eradication of absolute poverty.
      
Associated with this interest in a broader definition
      
of economic development, several economists have
proposed the use of socioeconomic indicators to 
measure development. One of the notable early       
measures in this area was Morris’s Physical Quality       
of Life Index (based on life expectancy at age one,       
infant mortality and literacy). Following this approach,
      
the United Nations Development Programme began
reporting estimates of the Human Development Index       
(HDI) in its annual Human Development Report8, which       
first appeared in 1990. The HDI measure is based 
equally on:       
… a country’s average achievements in three basic       
aspects of human development: health, knowledge,
      
and income (United Nations Development
Programme, 2011).       

It can range between zero and one. The UNDP provides       
further details concerning the recent computation of 
this measure on its web site. Estimates of the Human       
Development Index for our selected economies in 2010       
appear in Table 2.2 and movements in the HDI from
      
1980 to 2010 are reported in Table 2.4.
      
       

      
 
   Indonesia, Botswana, Chile, Peru and Saudi Arabia
after 1980. With the exception of South Korea, each of
 
these nations is a significant minerals producer. Mineral
  exploitation was apparently consistent with increasing
   life expectancy9, better education and higher incomes in
these countries over this three-decade period. By contrast,
In its Human Development Report 2010, the UNDP the significance of HDI increases in countries such as
classified 169 countries as shown in Table 2.3. South Africa, Russia, Papua New Guinea, Zambia and
It is notable that Norway (a major oil and gas exporter) Venezuela was less impressive. South Africa and Zambia
had the highest HDI value of any nation in 2010, while faced particular difficulties with the HIV/AIDS epidemic
Australia (a major mineral exporter) ranked second. that adversely affected life expectancy, while Russia
Another key minerals and energy exporter, Canada, was struggled with its transition to the free enterprise system.
the eighth ranked nation. Major change in HDI levels In an era when the minerals and energy sector has
occurred in nations such as China, South Korea, India, become a more global industry, the HDI is a useful initial

   
   

 

measure to assess the likely operating environment a
mining company might face if it commences operations
in a new nation. Recent increases in a country’s HDI
may also indicate greater potential for the profitability
of new mineral projects in a previously difficult
jurisdiction.
Other things being equal, it should be more attractive
to invest in a more developed nation, but making
a judgment about development should involve
assessing several other issues. Consistent with the
Todaro definition above, such things as social and
institutional stability and honesty, income and wealth
distribution trends, and poverty levels interact with the
status of mineral policy and the extent of a country’s
mineral endowment in doing this in an effective and
professional way.

Minerals and energy have played a major role in the
history of the world. This is apparent simply by noting
that many periods have been characterised by material
or energy names. Reflecting the role of changing
technology, the use of key minerals as a principal
ingredient of tools, or power, in periods bearing their
names brought improvement in terms of human
wellbeing, as measured by population growth and
other indicators.
This shows up clearly in Table 2.5, a summary table
adapted from Wilson (1994, p xi). Wilson (1994, p xiii)
also argues that:
The history of metals is the history of civilisation.
The two are inseparable; each depends on the other
for its development; when one stumbles the other
falters. Ever since Neolithic man learned the secret of
winning metals from ore-bearing rock, metals have



















 
dominated the world’s political, social and economic
evolution. For 5000 years they have been the major
factor in the flowering of a people’s culture, the key
to their industrial power and their influence in world
affairs.
There seems much to this argument, though modern
oil and gas producers would also associate themselves
with these views.
A brief review of ancient history illustrates how
members of the prominent civilisations effectively used
new technologies in processing metals such as copper,
iron, gold, silver and tin as a basis for enhancing both
the quality of life of their citizens, as well as their
military strength.
The emphasis on the latter area seems to have
been of central importance in the domination of
surrounding populations. This applied in varying ways
to the Sumerian, Babylonian, Assyrian, Persian, Greek,
Carthaginian, Roman and Chinese civilisations. With
the fall of the Roman Empire around 450 AD, the use of
metals dwindled as the world of Europe and the Middle
East descended into the ‘Dark Ages’ period.
Though new uses of minerals and energy began
slowly emerging after 1500, it was the arrival of the
Industrial Revolution in the United Kingdom from
about 1750 that heralded the widespread modern
uses of minerals and energy. The establishment of
heavy industry, the widespread use of coal and more
recently oil and gas as its major energy sources, and
the rise of materials such as steel, aluminium and a
range of more exotic metals, have all been part of this
picture. The Industrial Revolution has led to consumer
societies in which minerals and energy are used in
ways and at levels that were previously unimaginable.
Associated with this have been major technological
advances in exploration, mining and particularly
mineral processing. Advances in transport technology
have also created a global minerals economy, and as
we shall see in the next chapter, this has hastened the
 economic development of nations such as Australia in
 a dramatic way.

 

As economic development has proceeded there has
 been a significant rise in mineral consumption. This has
 been particularly the case over the past half century.
 With world population and real GDP now standing

at or near their highest levels, the production and
consumption of most minerals are now also at record

levels.

Some estimates of the consumption of key minerals

for selected years between 1960 and 2009 appear in
 Table 2.6. The ratios shown in the final row indicate
 the extent of change in mineral consumption since

 

 key minerals in index terms are reported in Table 2.7 on

 a decade by decade since 1960.
 As any nation becomes more developed it initially uses
        minerals with higher degrees of intensity. Poor nations
       use minerals and energy at relatively low rates. But as
        they emerge in a major development push, they build
        roads, airports, railways, houses, public buildings and
factories and their citizens buy new cars, televisions,
       
air conditioners, computers, refrigerators and many
       
other goods. Their intensity of use of minerals expands
        dramatically. By the time they become developed
        economies, they derive larger amounts of income
 from service industries, which do not use minerals so
      
 intensively, and their minerals intensity of use tends to
decline slightly. Sometimes posited as an ‘inverted U’,
1960. Notice that aluminium has easily the greatest Figure 2.1 describes the likely shape of the curve relating
rate of increase, followed by copper and nickel. The a nation’s (or region’s) stage of economic development
rate of increase in steel, oil and zinc has been relatively to its minerals and materials intensity of use.
more subdued. Yet with the emergence of China and
Intensity
India as leading economic powers, the growth of iron of use
and steel use has been notably strong since 2000. Even
unfashionable lead, which is now used much less than
previously in paint and gasoline, increased by more that
150 per cent over the period, with its major application
now being in motor vehicle batteries.
In considering the relationship between mineral
consumption and economic development the concept
of intensity of use has been used by several authors.
Suggested by Wilfred Malenbaum in 1975, its formula
is:
Stage of economic development



It is possible to compute the intensity of use of all Developed nations have climbed a steep intensity of
minerals. To facilitate comparisons between minerals use hill and then their intensity of minerals use tends
IU, it is useful to state each in index form, setting the gradually to subside. Western Europe, the USA, Canada,
value to 100 in a selected base year. So, using data Japan, Australia and New Zealand have experienced
from Table 2.6, while the actual IU of steel moved from that phase. The United Kingdom, Germany and France
(347 Mt/$US13 440 B = 0.0258 Mt/$US B in 1960) to began the process during the 19th century and are now
595 Mt/$US$18 960 = 0.0314 Mt/$US B in 1970, this shows well past their peaks. The United States started a major
up as an increase in intensity of use from 100 in 1960 development surge in the latter part the 19th century
to 121.6 in 1970. By comparison aluminium grew from and is now also well beyond its IU summit. South Korea
100 to 174.7 over the same period, while lead moved began a major development surge after 1970 and has
only from 100 to 103.1. Estimates of IU movements if recently reached a peak. Australia experienced an initial
development surge after its Gold rushes in the latter
 half of the 19th Century and then after 1945. The recent
 surge in the Gulf States (UAE, Qatar, etc) is another

example of nations experiencing the climb.
        China has been undergoing the climb since 1978 but
        still does not seem to have reached the top of its ‘hill’.
        India is also ascending but is at a lower point. The
dramatic rise in mineral consumption over the past
       
decade has been linked to the major populations in these
       
nations. The position of the IU-development curve may
        also shift between different time periods because of the
        effects of technology on mineral use.

 
  

 the competitive behaviour of mineral producers and

 purchasers
effects of mineral development on indigenous
  populations
  the environmental impact of mining and its

 mitigation.
 We discuss the relevance of each of these issues in the
  coming chapters – often on more than one occasion.
  Table 2.8 provides a brief guide, should you require it.
 
 

Australian Bureau of Statistics, 2000. Unpaid work and the
 
Australian Economy, 1997, Catalogue no 5240.0, Canberra.
Blainey, G, 2003. The Rush that Never Ended, fifth edition
(Melbourne University Press: Melbourne).

Hilson, G, 2012. Corporate social responsibility in the
 extractive industries: Experiences from developing
A variety of factors make the study of mineral countries, Resources Policy, 37(2):131-137.
production, mineral consumption and mineral International Council on Mining and Metals, 2012. Available
economics generally more complex but also more from: <www.icmm.com>.
interesting. As we have noted already in this chapter, McDivitt, J and Jeffrey, W, 1976. Minerals and the developing
one of these is the non-renewable nature of minerals economies, in Economics of the Mineral Industries, third
edition, pp 3-32 (AIME: New York).
and energy resources. Others include:
Todaro, M, 1989. Economic Development in the Third World,
the fixed locations of deposits (often in remote areas) fourth edition (Longman: New York).
the economic rent that they generate United Nations Development Programme, 2011. The human
the impact of technological change on both the development index [online]. Available from: <http://hdr.
undp.org/en/statistics/hdi/>.
supply and demand side
Wilson, A J, 1994. The Living Rock (Cambridge: Woodhead).

 