Mineral resource economics : uses,

stakes and public policies

Master's degree IGE- Mines ParisTech
Florian Fizaine
Intervention plan
Introduction

A/ What resources? For what purposes?

B/ Issues related to mineral resource management
C/ Levers for action: main measures

Case study: Lithium

B/ The stakes
B/ Issues related to mineral resource management

I. Issues related to the demand for mining resources

1) The identity of IPAT[Impact Population Affluence Technology]
2) Population growth
3) The evolution of per capita wealth
4) Population urbanization and its impact on per capita consumption
5) Inequalities in the consumption of raw materials
II. Problems related to the supply of mining resources
1) Exhaustion
2) Market concentration and geopolitical aspects
3) The question of co-production - mining under production
4) Negative externalities related to mining production and conflicts of use
5) The resource curse and the theme of governance
6) Prospects and availability of human capital in mining
7) Legal issues related to resource sharing
B/ The stakes: the offer
2) Market concentration and geopolitical aspects
 The concentration of a market opens up the possibility of market power being exercised
by its players with a view to increasing their profits in relation to a competitive situation
 2 types of concentration at different scales: vertical and horizontal concentration
 Geographical concentration of production and industrial concentration of the market
 There may be situations of rents seeking even if there is a balanced distribution of market
shares (SQM for lithium)
 The geographical concentration of production does not imply any risk of market power if
the country's deposits are accessible to many companies
 Geographical concentration still raises the question of "country" risk
 There may be concentration phenomena at certain strangulation points in the value chain
 The raising of excessive profits by a sector increases the probability entrance of new actors...
(e.g. OPEC in the 80s, rare earths in 2010-2011)
B/ The stakes: the offer
2) Market concentration and geopolitical aspects
 The omnipresence of Chinese production (1st producer in 60% of cases)

Source: Fizaine (2014)

B/ The stakes: the offer
2) Market concentration and geopolitical aspects
 Current production may be a poor indicator of the future distribution of market power

Source: Angererer et al (2009)

B/ The stakes: the offer
2) Market concentration and geopolitical
aspects
 Some metals remain highly geopolitically sensitive
 The mining rent is more concentrated than the
hydrocarbon rent
 Mining production is now more concentrated than
mining reserves

10%

5%
Point of % above or below

0%
Russia

China
Norway
Ukraine

Mexico

Indonesia

India

Chile
France
Peru

Iran

Brazil
Canada

Australia
South Korea
South Africa

Kazakhstan
United States

-5%

-10%

-15%

Figure Main changes between current production data and reserves data for
metals. Reading: South Africa has a share of world metal reserves that is 8
points higher than its share of world metal rent
Source: Fizaine (2015) Source: Fizaine (2014)
B/ The stakes: the offer
2) Market concentration and geopolitical aspects
Share of fossil fuel reserves held by each country

Share of metal reserves held by each country

Source: Fizaine (2015)
B/ The stakes: the offer
2) Market concentration and geopolitical aspects
 The takeover can take place through direct investments abroad
 Here again, China plays a very active role
 Ex: Rare earths - Attempt to take control of Lynas (Moutain Weld in Australia)

Source: BRGM
B/ The stakes: the offer
2) Market concentration and geopolitical aspects
 China's control strategy aims to secure long-term resources
B/ The stakes: the offer
2) Market concentration and geopolitical aspects
E.g.: Rare earths, production and separation stage of rare earths[Solvay-Rhodia]

Source: BRGM
B/ The stakes: the offer
2) Market concentration and geopolitical aspects
 The distribution of capital gains along the value chain is not identical
B/ The stakes: the offer
3) The issue of co-production - under mining production

 Difference between co-product and sub-product?

Source: Fizaine (2013)

Source: Redlinger and Eggert (2015)
 Consequence of by-product extraction?
The joint production of metals is not adjusted according to the demand (price) of the by-product but in
relation to the demand for the primary product(s)
 Can by-products become primary products?
Yes, if their prices increase sufficiently. For rare metals: factor 10 to 1000 required
B/ The stakes: the offer
3) The issue of co-production - under mining production

 Which metal associations?

Source: Veroef et al (2004)

B/ The stakes: the offer
3) The issue of co-production - under mining production

 What are the risks associated with metal underproduction?

If demand for a metal exceeds its abundance in the production flow of primary metals, then there is a risk of
rationing and price increases without a reaction from primary supply in the medium term (zero price
elasticity)

Source: Fizaine (2013)

B/ The stakes: the offer
4) Negative externalities related to mining production and conflicts of use

Mining production produces intense and numerous negative externalities

 An externality is a phenomenon that occurs when an individual or a company does not bear all the costs
(negative externality) or does not receive all the gains (positive externality) associated with its action. An
externality must be corrected because it underlies the existence of a market failure and the failure of the
price signal as an appropriate signal. See Stglitz & Walsh, Principles of Modern Economics, 2004.
 E.g.: when a mining company produces copper, it generates CO2 via the fuels it uses. However, the cost of
CO2 is not included in its total cost. If this effect had been internalized, the copper cost would have been
higher and production lower.
 The spatial dimension of externalities can vary from a local effect (e.g. lake pollution) to a regional (acid rain)
or even global (greenhouse gases) impact.
 The wider the scope, the more difficult it is likely to be to internalize
B/ The stakes: the offer
4) Negative externalities related to mining production and conflicts of use
What types of externality can mining production produce?

 Degradation of the quality of water, rivers and groundwater via acidification, heavy metal contamination,
fine particles, etc.
 Degradation of air quality, (heavy metals, carbon monoxide, sulphur dioxide, and nitrogen oxide)

 Noise pollution
 Accelerated soil degradation (erosion, heavy metals) making it unsuitable for agricultural use
 An impact on fauna, flora and the ecosystem through the degradation, fragmentation and loss of their initial
natural habitat
 An effect on social values by pushing for the displacement and resettlement of local populations through
conflicts over water, land and forest resources. The degradation of water, air and soil quality also has negative
consequences on the human health of workers and local populations.This deterioration in health takes the form
of increased mortality, morbidity and the number of people with disabilities.
 Temporary or permanent destruction of cultural resources (sacred lands, recreational and tourist areas, etc.)
either directly (mining site) or indirectly (access infrastructure, vandalism by non-local populations, etc.)
 Emission of greenhouse gases directly (production and transformation) and indirectly (deforestation)
B/ The stakes: the offer
4) Negative externalities related to mining production and conflicts of use
B/ The stakes: the offer
4) Negative externalities related to mining production and conflicts of use
It takes energy to extract rocks and concentrate the elements present in them.....
And energy emits greenhouse gases...

Source: UNEP (2013)

 B/ The stakes: the offer
4) Negative externalities related to mining production and conflicts of use

GHG emissions will depend on the mine's energy

mix

Source: Mudd (2010)

B/ The stakes: the offer
4) Negative externalities related to mining production and conflicts of use
Mining production also requires water... and generates waste...

Source: Norgate and Johanshi (2011)

Source: UNEP (2013)

B/ The stakes: the offer
4) Negative externalities related to mining production and conflicts of use
Not all metals generate the same amount of externality per tonne produced....

Source: UNEP (2013)

B/ The stakes: the offer
4) Negative externalities related to mining production and conflicts of use
 A number of major resource sectors are interconnected (water, energy, metals, land)

 And often... reducing pressure on one sector contributes to increasing pressure on another...

 The exponential consumption of resources and the interdependence of sectors can contribute to the
development of positive feedback loops that lead to non-linear dynamics

Energy

Metals Exhaustion Wate

r
Biofuels
Crop changes, food patterns,
global warming

Source: Fizaine & Court (2015)

Land, spaces and soils