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

If there is no solution…this is
because there is no problem….
C/ Levers for action

C/ levers for action: main measures

I. Substitution effects (economic, technological, intra-mineral and extra-mineral)

II. The exploration and evolution of discoveries
III. The recycling process
IV. Returns to scale
V. New mining technologies
VI. Non-conventional resources (polar resources, seawater, marine resources, etc.)
VII. Towards the dematerialization of wealth?
C/ Levers for action
1) Substitution effects

 One of the levers to overcome the unavailability of a resource is of course substitution

 Substitution may exist with or without technical progress

The scales of substitution

 It can be carried out at different scales (Altenpohl hierarchy, 1980)*

E.g.: substitute CO2 emissions (Fizaine, 2014)

1) Abandon the mobility company
2) Encourage virtual travel (teleworking, videoconferencing, etc.) rather than physical travel
3) Develop public transit rather than private vehicles
4) Encourage the electric motor rather than the internal combustion engine
5) Produce Lithium-ion batteries instead of lead batteries
6) Choose cathodes using manganese or phosphate rather than cobalt
7) Produce lithium from brines rather than from spodumens

* For more information see Rankin (2011) and Fizaine (2014)

C/ Levers for action
1) Substitution effects

 Constraints to substitution
 Nassar's (2015) work on GM plants
 Documents the substitutes for GM plants by sector and the share of each sector in the demand for GM
plants
 Results: 4 major families of constraints (in decreasing order of importance)

 Technical constraints
Substitutes offer lower technical performance (1 characteristic or more)
No substitute
 Economic constraints
Favourable and stable relative prices. Impact on the cost of the significant product
Material cost and cost trade-off technology change/ variable cost change
Existence of subsidies (Japan for Pt-Au dental operations)
 Availability constraints
Risk of supply disruption / Quantities produced / co-production
 Cultural and historical constraints

* For more information see Rankin (2011) and Fizaine (2014)

C/ Leverages for action
1) Substitution effects

 Excessive constraints and/or inappropriate substitutes are reflected in the price elasticity of demand
 Elasticity price of demand = ∆D/D/∆P/P
 In general negative

Source : Nassar (2015)

Source : Nassar (2015)

C/ Leverages for action
1) Substitution effects

Resistance to change due to high change costs (Messner, 2002):

 Learning effect acquired on the first resource
 The existence of a cooperation network (suppliers/customers)
 Cost of capital rearrangement
 Risk aversion to quality change
 The fluctuation of relative prices
C/ Leverages for action
1) Substitution effects

Three main types of substitution can be imagined in the event of a shortage:

 Intra-mineral substitution of rare metals by abundant metals (Skinner, 1976)
 Substitution of exhaustible resources by renewable resources (Daly's solution)
 Substitution of natural resources by technical capital (Hartwick rule)

100 Biomass
Global extraction (billion of tonnes)

90 Non-metallic ores

80 Metal ores
26%
70 Fossil fuels

60
50
40
30
34%
20
10
0

1970
2017 Fizaine (2018), data according to UNEP (2016)
C/ Levers for action
II) The exploration and evolution of discoveries

 Discovery of new deposits

 Unlike oil, it does not appear that there is no downward trend in the discovery of new mining deposits

Source: Minex consulting

C/ Leverages for action
1I) Exploration and evolution of discoveries

 Unlike oil, there does not appear to be a downward trend in the discovery of new mining deposits.

Source: Minex consulting

C/ Levers for action
1I) Exploration and evolution of discoveries

 On the other hand, exploration costs are up for some metals

Source: Minex consulting

C/ Levers for action
1II) Recycling

 Recycling can be used to reduce the impact of metal depletion and/or unavailability
 Metals can theoretically be recycled indefinitely
 Recycled metals are more virtuous from an energy and environmental point of view

Source : UNEP (2013)

C/ Levers for action
1II) Recycling

In reality, several forms of recycling:

 The material can also be reintroduced directly into the production circuit of the product from which it is
itself produced => closed-loop recycling
 if too degraded material no longer meets the technical conditions of the original product, can be used as
an input into the production process of a less demanding product => subcycling / open recycling loop
 In some situations the only form of recycling used is the combustion of the material in order to recover
its energy potential => energy recycling
C/ Levers for action
1II) Recycling
 The level of recycling varies greatly depending on the metal studied:

Rate of recycled elements in the input stream

Recycling rate of the element at the end of its life
Source : UNEP (2011)
 C/ Leverages for action
1II) Recycling
 Trade-off between shortened lifespan/recycling vs. product preservation

Source : Ashby (2013)

Energy consumption during use and during the manufacturing phase vs. technical progress
Energy angle vs. mineral resources angle?
Here no economy and no rebound effect on other sectors consuming PM....
C/ Levers for action
1II) Recycling

Constraints on metal recycling (see Fizaine, 2018ab):

 Second principle of thermodynamics (loss on fire) EOL recycling <100%

 If demand growth and transit time is not zero => impossible to complete
 Downcycling => some uses prevent metals from being reused in the same use
 Recycling versus dematerialization => reduces potential profits at source, increases costs
 Recycling versus product diversity
 Recycling versus product complexity
 Recycling versus reduction of the technological life of products
 …
C/ Levers for action
1V) Returns of scale

 Returns of scale have been used in the past to reduce the amount of manpower and energy
required to produce one tonne of metal

Source : African Development World Group Source : Mining Association of Canada (2005)
C/ Levers for action
1V) Returns of scale

 What are the main costs associated with mining?

Source : ICMM (2012)

C/ Levers for action
1V) Returns of scale

 The machines have considerably evolved in size

 They are more energy efficient and require fewer people per quantity of metal extracted

3600 ch - Poids 200 t - transport

en 400 t
C/ Levers for action
1V) Returns of scale

 The deposits are becoming increasingly important in order to maximize economies of scale
C/ Levers for action
V) New mining technologies

There are two main trends that partly explain the decline in mining costs
 The switch from pyrometallurgical track[hot track] to hydrometallurgical track[cold track]
 The decline in the share of underground mines in favour of open-pit mines

Switch from hot track (pyro-metallurgy) to wet track (hydrometallurgy) under a certain grain size
 Reasons: Pyrometallurgy is generally more efficient if the size required for grinding remains large, which is why if in addition to the
decrease in grade the size of the grains in the ore also decreases, hydrometallurgy becomes more efficient. Be careful, however,
depending on the type of ore (sulphides, oxides, carbonates), and leaching (in place and in heaps) suffers from a lower recovery rate
(55%-65% compared to 90-95% for pyro-metallurgy). Possibility of leaching in heaps under pressure to increase the recovery rate
(85%)

Source: Norgate and Jahanshahi (2010)

C/ Levers for action
V) New mining technologies

 Hydrometallurgy: has low capital costs

 Creating more jobs
 But requires more time to extract metals from ores
 Consumes more water and involves risks of contamination

Ortiz Gold mine, Heap leaching

Source: NEA Red Book Retrospective (2003)
C/ Levers for action
V) New mining technologies

 The open-pit mine is gaining ground over underground mines and now accounts for 70-80% of the tonnage

Source: Shahriar et al, (2007)

Open pit mining

Underground mining Source : Rankin (2011)

C/ Levers for action
VI) Non-conventional resources

 A way to postpone unavailability and consider the exploitation of unconventional resources

 Today most of these non-conventional sources (known since the 1970s) are not exploitable and the few
demonstration processes have not succeeded in proving themselves either for technical and/or economic
reasons
 What are unconventional resources?
 These are generally very low-grade mineral resources

 Sea Water
 Brines
 Air and underground gases
 Living organisms (phytomining)
 Coal ash, hydrocarbons
 The seabed

Source: Laznicka (2006)

C/ Levers for action
VI) Non-conventional resources
C/ Levers for action
VI) The dematerialization of wealth
Abondanscists (cornocupian) like J. Simon have put arguments to remove the natural
limits to growth
Paradigm of opportunity cost versus fixed stock paradigm (Tilton, 2003)
 People do not consume natural resources
 They consume material and immaterial wealth (goods and services)
 It is "enough" to create ever-increasing quantities of wealth with ever-
weakening support from natural resources
J. L. Simon,
 Natural resource prices can rise...if fewer resources are not used to produce
Economist
them...the cost of natural resources in goods and services will remain stable
 Fable for Bigger cakes with fewer ingredients for new Malthusians and ecologists
 Intangible services and NICTs have a very important base in natural resources
(Ayres, 2007)
 Links with material efficiency/material intensity
 Environmental Kuznets curve?
 Empirical evidence?

P. R. Honest,
biologist
 C/ Levers for action
VI) The dematerialization of wealth

Three possible analyses concomitant with the dematerialization of wealth:

 Dematerialization of wealth?
 Evolution of the price of resources?
 Evolution of the cost of resources in the wealth created?
Dematerialization: global study to avoid the effects of international trade and country specialization

0,20
0,60
0,18
Kg of industrial metals per $1990

0,18
0,51 0,54
0,16 0,50

Kg the matériaux the

construction par $1990
0,14
0,13 0,40
0,12
0,11 0,34
0,10 0,30
0,08
0,06 0,20
0,04
0,10
0,02
0,00 0,00
1900 1920 1940 1960 1980 2000 1900 1920 1940 1960 1980 2000

Source : Krausmann (2009)

Source : Krausmann (2009)
 C/ Levers for action
VI) The dematerialization of wealth

 No dematerialization on certain resources but at the general level of resources

 This makes plausible the hypothesis of dematerialization in conjunction with transmaterialization (Labys and
Waddel (1989))
 More efficient economy at the global level of resources....
 But internal substitution between materials to create market wealth

4,00 Total raw material

0,6

3,50 3,61 Biomass

-63%

gramm of copper per $1990

0,5
kg of resources per $1990

Fossil energy fuels

3,00
Ores and minerals
0,4
2,50 Construction minerals

2,00 1,98 0,3

1,50
1,32 0,2
1,00
0,1
0,50

0,00 0
1900 1920 1940 1960 1980 2000 1800 1850 1900 1950 2000

Source : Krausmann (2009)

Source: Fizaine data (2016)
 C/ Levers for action
VI) The dematerialization of wealth

 Are natural resources more expensive?

300

Aluminium
250 Chrome 140

Index the actual price of raw materials

Cobalt
120
200 Or 115
Plomb 100
150 Argent
Etain 80 79

Tungsten R² = 0,634 R² = 0,0875

100 60
Zinc
Cuivre 40
50
Moyenne
20
Mediane
0
Linéaire (Mediane) 0
1955
1900
1905
1910
1915
1920
1925
1930
1935
1940
1945
1950

1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010

1960 1970 1980 1990 2000 2010 2020

Source: Fizaine (2014) Source: World Bank data (2016)

C/ Levers for action
VI) The dematerialization of wealth

 Has the share of natural resources gradually decreased in the flow of wealth created?

0,45%

0,40%
Copper expenditures as share of GWP

0,35%

0,30%

0,25%

0,20%

0,15%

0,10%

0,05%

0,00%
1820 1840 1860 1880 1900 1920 1940 1960 1980 2000 2020

Source: Fizaine data (2016)

C/ Levers for action
VI) The dematerialization of wealth

 Wealth is dematerialized at the global level... but...

 At a pace that is not fast enough in relation to the wealth created....
 So we are still consuming more and more natural resources...and...
 The cost of natural resources in products seems relatively stable...but...
 Does not bode well for the future....
 Doubt about the perpetuation of a downward trend in material intensity because....
 This would mean that the amount of raw materials behind a dollar would tend towards 0!