MNE 697C Basic Concepts in Mineral Economics

Fall Semester 2008

Instructor: Michael Rieber, Emeritus Professor, Economics

Credit: 1 credit, 100%

Grade: A,B,C,D,E

Catalog Description:
This course provides students with an overview of the field of mineral economics, what it holds in
common with other areas of economics and the special requirements of the mineral resources sector.

Course Objectives:

Provide the basis for an understanding of the evaluation of mineral projects from exploration through
processing to product supply.

Understand some of the determinants of profitability at several stages

Provide foundation for follow on courses in mineral economics and mine finance

Topics:

MINING & THE ECONOMY

Importance –GDP, BOP
Current Resource Policy Issues
Infrastructure
Value added-Domestic processing/Import Substitution
Environmental Issues
Sustainability/Resource Exhaustion-Renewable/Substitutable/Non-
Renewable/Environmental
Abundance-curse or blessing?
Role of Government
Property Rights/Environmental/Trades Issues/Taxation

INDUSTRY ORGANIZATION
Forms of Competition-Price/Quantity Results
Market Definitions-Extent/Scope
Cartels/Combines/Commodity Agreements/Mergers and Acquisitions
Bi-lateral Monopoly
The role of Geology, of Transport?

COMMODITY ANALYSIS-METHODOLOGY AND EXAMPLES

Demand/Supply Forecasting
Long-Short Run
Price/Output Volatility
Product Differentiation
Buyers and Producers
Impact on Trade-Exchanges/Dealers/Brokers
Price Formation
Key Product Types-Copper Wire or Brent Crude Oil

MINERAL MARKETS-LONG AND SHORT RUN

Intensity of Use/Embodied Trade
Demand/Supply Substitution
 Stages of Production/Recycle
Price Volatility/Hedging/Output Shifts-Real Options
Stockpiling/Excess Capacity

COST ESTIMATING
Bottom Up-Equipment/Labor/Supplies
Top Down-Bulk, High Value
Optimum Mine Life-Closure (?)

DISCOUNTED PRESENT VALUE-How and Why

By/Co/Joint Primary Products-Revenue or Cost
Interest and Discount Trade Application
Expected Values

FINANCIAL
Revenue Protection-Long-term price trends or short to medium terms.
How long is long or short is short.
Risk-country/commodity/currency/technology.
Hedging/Options/Forward Sales

Grading: Total
Final Exam (60%) 60%
Class contribution (20%) 20%
Paper (20%) 20%
Submit a concise 4-page paper based on one of the topic subheadings, exclusive of tables,
figures, graphs, and references. The paper should be specific to a mineral or mineral commodity.

Grading Policy:
90-100%=A
89-80%= B
79-70%= C
69-60%= D
Less than 60%=E

Required Textbook:
Maxwell, P. and P. Guj (2006), Australian Mineral Economics – A Survey of Important
Issues, Monograph ry, Carlton, Vic, Aus: The Australian Institute of Mining and
Metallurgy.

Bibliography:
nd
Hartman, H. (Sr. Ed.) 1992, SME Mining Engineering Handbook, 2 ., _____,
Sect. 2-Mineral Economics pp. 43-121
Sect. 3-Government Role and Influence in Mining

Runge, I. (1998) Mining Economics and Strategy, SME

Torries, T.E. (1998), evaluating Mineral Projects, Applications and Misconceptions,

SME

USGS, Minerals Yearbook

USGS, Minerals Commodity Summaries
th
Carr, D.C. (Ed.) 1994, Industrial Minerals and Rocks, 6 edition, SME
USGS (1991), Metal Prices in the United States Through 1998, USGCO.

Cavender, B. (1999) Mineral Production Costs, Analysis and Management, SME.

Noabes, M. and T. Lanz (Eds.) 1993, Cost Estimation Handbook for the Australian
Mining Industry, Monograph #20, The Australasian Institute of Mining and
Metallurgy.

Valmin (1994), Mineral Valuation Methodologies, Sidney: The Australasian

Institute of Mining and Metallurgy and the Mineral Industry Consultants
Association.

Auty, R.M. (1993), Sustaining Development in Mineral Economics-The Resource

Curse Thesis, N.Y.: Rutledge.

Hawkins, R., Mansell, R., and J. Skean (1995), Standards, Innovation and Competi-
tiveness, Brookfield, VT.: Edward Elgar Publishing Co.

GENERAL

“Face Value-Jolly Gold Giant”, The Economist, 19 April 08, p. 80.

MINING AND THE ECONOMY

Davis, G.A. and J.E. Tilton, “Why the Resource Curse is a Concern,” Mining Engineering, 4/08,
pp. 29-32.
Adelman, M.A. and G.C. Watkins, “Reserve Prices and Mineral Resource
Theory,” The Energy Journal,” Special Issue, 2008, pp. 1-16. See also the
bibliography.
“Just Good Business-A Special Report on Corporate Social Responsibility”, The Economist, 19
January 08.
“Putting a Value on Nature’s Services”, Resources (Special Edition), Resources for the Future,
Spring 07, No. 165.
“Australia’s Water Shortage-The Big Day”, The Economist, 28 April 07, pp 81-84.
Howard, A., “New Expectations of the Mining Industry”, Mining Engineering,
12/06, pp 21-25.
Hodge, R.A., “Tracking Progress Toward Sustainability: Linking the Power of Measurement and
Storey”. Mining Engineering, 9/06 pp 63-68.
Larosa, J. Ariail, J. and K. Larsen, “Integrating Community Capacity Building and Reuse Planning
Into the Reclamation of American Mine Lands: How U.S. Regulators are Cleaning Up With Communities”,
Mining Engineering, 3/06, pp 59-64.
Barker, J.M. and V. McLemore, “Sustainable Development and Industrial Minerals,” Mining
Engineering, 12/05, pp 48-52.

COMMODITY ANALYSIS-METHODOLOGY AND EXAMPLES

“A Ravenous Dragon-a Special Report on China’s Quest for Resources”, The Economist, 15
March 2008.
“Aggregate Production was Down in 2007”, Mining Engineering, 1/08, p. 10.
Loesbry, R.E., “Molybdenum Supply Forecasting”, Mining Engineering, 7/07, pp 27-36.
“Industrial Minerals 2006”, Mining Engineering, 6/07, p 19-64.
 “Molybdenum Projects Could Come On Line in Australia and Asia”, Mining Engineering, 1/07, p.
12.
Tilton, J., “Outlook for Copper Prices-Up or Down?”, 8/06, pp 16-20.
“Mining Review-Annual Review”, Mining Engineering, 5/06.
Ellis, T. “Advance in Global Classification Standards for Minerals and Petroleum”, Mining
Engineering, 4/06, pp 27-28.
McCartan, L., Menzie, W., Morse, D.l, Papp,J., Plenkert, P. and Pui-Kwan, Tse, “Effects of
Chinese Mineral Strategies on the U.S. Minerals Industry”, Mining Engineering, 3/06, pp 37-42.
Yennberg, W., “Heavy Minerals Activity on the Rise Worldwide”, Mining Engineering, 1/06, pp 33-
36.

INDUSTRY ORGANIZATION

“War Eagle Sets It’s Sights On Becoming A Leading Germanium Producer”, Mining Engineering,
2/08, pp 39-43.

COST ESTIMATING

Dagdelen, K. and K. Kawalata, “Value Creation Through Strategic Mine Planning and Cut-Off
Grade Optimization”, Mining Engineering, 1/08, pp 39-45.
Garfunkel M., Gulen G., Volkov, D., and M. Foss, “Historical Data Provide Low-Cost Estimating
Tool”, Oil and Gas Journal, 11/20/06, pp 64-68.

DISCOUNTED PRESENT VALUE

Fleischhanderl, A. and T. Baum, “ZEWA-A New Metallurgical Process for the Treatment of
Residues Primarily From the Steel Industry to Generate Valuable Products”, Iron and Steel Technology,
4/06, pp 117-124.
Urbaez, E., “Optimizing Reserves in Complex Multiple-blend Products”, Mining Engineering, 8/06,
pp 46-47.
Goonan, T., “Material Flows Generated by Pyromet Copper Smelting”, Mining Engineering, 8/05,
pp 21-26.

MINERAL MARKETS – LONG AND SHORT RUN

“The Truth About Recycling”, The Economist (Technology Quarterly), 9 June 07, pp. 22-25.
Rothwell, G., “A Real Options Approach to Evaluating New Nuclear Power Plants”, The Energy
Journal, Vol. 27 No 1, 20006, pp 37-53.
Russo, t., Miller, T., Repasek, J., Sheth, N. and M. Trapp, “Economic Optimization of BOF Raw
Materials Consumption in a Volatile Scrap Market and with Limited Hot Metal Availability”, Iron and Steel
Technology, 11/05, pp 89-99.
Sohn, I., “No Fuel Minerals Projections-Why They Were Wrong”, Mining Engineering, 9/05, pp 22-
28.

FINANCIAL

“Nevada Remains Best Place to Invest in Mineral Projects, According to Fraser”, Mining
Engineering, 5/06, p 16.
Ellis, T., “Implementation of the International Valuation Standards”, Mining Engineering, 2/06, pp
62-64.
Gavelan, Z., and S. Dessureault, “Probabilistic Approach to Project-Specific Political Risk
Analysis for Mineral Projects”, Mining Engineering, 1/06, pp 43-49.
“Marking the Dealer’s Cards”, The Economist, 26 November 05, p 92.

Recommended Prerequisites:
Familiarity with engineering economics or micro economics and industrial organization