Prof. D.Galsandorj, Mining Consultant, Director of Mineral Development Center of Mongolia
For companies and professionals working in the minerals sector, the term “mineral economics” is the study of determining the optimal engineering process. In other words to optimize geological exploration through advanced technology and furthermore, to reduce the cost of mining, processing and manufacturing through all stages, from mining to manufacturing stages.Some economists might refer to it as financing, capital and investment of new mine sites, plants, smelters and refiners.
Others may refer to it as the process of calculating the economic feasibility and cashflow, extraction, processing and trading.
Although the above three definitions have some truth, it is not a complete and comprehensive definition of the term mineral economics.
Therefore, inevitably the question arises as to what is the definition of “mineral economics”, what is the role of a “mineral economist”, in what field such professionals work in and why is this topic so vital today.
Looking back through history:In order to answer this question, let us go back several decades up to the first half of the last century. During the first half of the 20th century, the foundations were laid for the extraction and processing of mineral resources, including international trade of minerals, concentrates, precious and non-precious metals. At the same time, trade of fuel such as coal, oil and petroleum further grew.
Some economist and theorists concluded that mineral resource reserves, particularly underground natural reserves are scarce and non-renewable and throughout the world there will be depletion of resources at some point in time. In fact, this point is true. So, how do we go about calculating this from the perspective of mineral economics? Are there ways to explore further and prevent from such an outcome? Around 75 years ago, this topic was talked about a lot. Even today, people are discussing and debating their views. Of course, many people are concerned about the scarcity of natural resources.
Over 40 years ago, the Club of Rome predicted that growth could not continue indefinitely because of the limited availability of natural resources. Due to technological developments, new mineral deposits and low-grade ore have been extracted cost-effectively to produce minerals and metal.
In particular, one the key area where economics must put their focus on is to make optimal investment and technological decisions to rehabilitate the land mining areas after the mining mineral reserve has been depleted. There is no such thing as completely extracting reserves of a particular mineral. At some point, the mining process must be halted when it is determined that the economic feasibility of continuing the extraction process is deemed uneconomical. Modern management techniques must be utilized to make mine closure decisions. New deposits should be identified to increase mineral production and supply.
During the 18th century, the United Kingdom began the industrial revolution, where many economic changes were made. English economists during that era including David Ricardo, David Hume and Adam Smith distinguished mining into a separate sector from agriculture. Agricultural economics and mineral economics are similar in many respects. Until the 20th century, mineral and natural resources were not considered as separate.
First phase:American economist Harold Hotelling was one of the first to recognize that natural resources are non-renewable and therefore categorized it as a separate economic sector in itself. He was born in Minnesota in 1895. A gifted mathematician from a young age, together with Kenneth Arrow, they received the Nobel Prize in 1972 and served as mentors to many economists to follow.
While working as Professor at Columbia University, New York, he wrote what is considered as one of the first studies on mineral economics entitled “economics of non-renewable resources”, which was later printed in “Political and economical science” journal, but it did not receive much attention.
Mineral economics:Let us compare a geological economist from a mineral economist. Although they might sound similar, they are completely different. Geological economics is the study of up-to-date technology used in geological exploration, extraction of ore and optimal processing from a geological perspective. Geological economics is a part of geological studies.
However, “mineral economics” covers a wider area. Not only does it include the geology, mining and metallurgical sectors, it also includes other scientific fields, including engineering. But, for people working in the field of mineral economics, it is vital that they are proficient in other sectors, as mentioned above.
Mineral economics is the scientific study of economics. In brief, mineral economics studies the most optimal and economically-efficient methods of extraction, processing and manufacturing, and international trading of metals, non-metals as well as fuel to produce final products, re-processing, financing of new mining projects, on a theoretical level. Mineral economics can be used to apply appropriate policy and present solutions for private sector decision-making.
Where do mineral economists receive training?Many educational institutions in the West provide training and specially-devised programme and curriculum for the study of mineral economics.
McGill University, British Columbia University, University of Colorado, Columbia University, University of Arizona, West Virginia University and other universities in the UK and Australia provide certified courses. Usually during the first semester, courses are taught by professors in the field of natural environment. Since the 1960s, professors in the field of economics started to teach mineral economics and currently the faculty comprises of professors specializing in many fields.
Where do mineral economists work?Professional economists have opportunity to work and teach in varies institutions, including the government, government policy implementing agencies, mining sector, banking and financial institutions and freight forwarding companies. Many work as economists in public institutions and private companies in the mining sector. For example, many work as market analysts and mineral market forecasting experts in multinational companies involved in various minerals including Rio Tinto, BHP Billiton, BP,Samsung and Sumitomo and etc.
National policy:We have looked at the history and practice of mineral economics from business and operational point of view. This is only one aspect. Mineral economists are also involved in and are key decision-makers in developing, implementing policies and legislation for the mining sector, coordinating and inspecting the activities of companies operating the sector, developing and negotiating inter-governmental mining agreements, reviewing its implementation and exploitation of new deposits. Maintaining neutrality of interests of government and companies is key, which involves an array of issues, including revenue tax, shareholding, royalties, customs tax and specific tax. Recently, central government and local government have implemented policies on revenue sharing from mineral sector activity. Budget by government and mining companies on schools, hospitals, housing and other infrastructure areas external to mineral processing have been included in economic calculation of mining projects.
Conclusion:Like other economic sectors, the mineral sector has potential to develop progressively same as other sectors. Over 70 years ago, Harold Hotelling made efforts to analyse and determine the reserves of non-renewable resource through utilizing economic models, analysis and mathematical methodology. Since then, several in-depth studies and analysis have been concluded, with the aim for companies to used such studies to optimize their output. Later, these studies have been applied to macro-economic issues including environmental rehabilitation, social and political decision-making. As a result, the need to use mineral economic theories and practices to apply it to Mongolian mineral sector policies, in terms of mineral extraction, processing for strategic mining projects, concluding mining agreements and increasing competitiveness of mining companies have become further pressing.