Hibbing Community College, Hibbing Minnesota
June 18, 2013 presented by Henry (Rick) Sandri, Ph.D., Mineral Economics
1

Rick Sandri – Background
Education
• BS – Foreign Service, Georgetown University
• MS – Applied Economics, American University
• PhD – Mineral Economics, Colorado School of Mines
Work Experience
• The World Bank – Economic Analyst
• American Iron & Steel Institute - Economist
• Booz Allen & Hamilton – Economic Consultant
• Behre Dolbear & Company – Economic Consultant
• K & M Engineering & Consulting – Financial Consultant
• Burlington Northern Inc. – Economist / Planner
• Inco Limited – Planner – Business Development
• Select Resources – President
• Duluth Metals Ltd. – President & CEO
• Vermillion Gold - President
2

Some General Definitions:
• Economics – Economics is the social science that analyzes the production, distribution, and consumption of goods and services as needed for mankind/ the efficient allocation of scarce resources.
• Mineral Economics – Mineral Economics is the study of the business and economic aspects of natural resource extraction and use.
• Natural Resources – Resources that occur naturally within environments that exist relatively undisturbed by mankind.
• Renewable Natural Resources – Resources that can be replenished naturally, or with limited assistance, i.e. sunlight, air, wind, agricultural crops, timber, animals, etc.
• Non-Renewable Natural Resources – Resources that form extremely slowly and those that do not naturally form in the environment; i.e. minerals , metals, energy sources, etc.
• Ore – Any naturally occurring material that can be extracted at a profit, including all costs associated with environmental reclamation & restoration.
3

Non-Renewable Mined Metals & Minerals
• Precious Metals – Gold, Silver, Platinum, Palladium
• Base Metals – Copper, Zinc, Lead, Tin, Nickel
• Ferrous Metals – Iron, Columbium, Molybdenum, Chromium
• Light Metals – Titanium, Aluminum, Silicon
• Industrial Minerals – Talc, Salt, Gypsum, Pumice, Quartz
• Fertilizer Minerals – Potash, Phosphate, Sulfur, Vermiculite,
• Gem Stones – Diamond, Ruby, Garnet, Sapphire
• Construction Materials – Limestone, Granite, Marble, Sandstone
• Energy Minerals & Materials – Coal, Peat, Oil Shale
• Radioactive Minerals & Materials – Uranium, Thorium, Radium
4

Economics – The Study Of Choice
As an individual, for example, you face the problem of having limited resources with which to live, as a result, you must make certain choices with your time and money.
You'll probably spend part of your money on rent/ mortgage, energy, food and clothing. Then you might use some of the rest to purchase entertainment or a vacation. Some may go to education or savings.
Economists are interested in the choices you make, and inquire into why, for instance, you might choose to spend your money on a new DVD player instead of replacing your old TV.
They would want to know whether you would still buy a carton of cigarettes if prices increased by $2 per pack, $8 per pack, $20 per pack.
The underlying essence of economics is trying to understand how both individuals and nations behave in response to certain material constraint s.
5

Economics, including Mineral Economics, is made up of two basic fields of study:
Micro Economics & Macro Economics
Micro Economics – The study of the economic behavior of individual units of an economy (such as a person, household, firm, or industry) and not of the aggregate economy.
Macro Economics – Study of the behavior of the whole (aggregate) economies or economic systems instead of the behavior of individuals, individual firms, or markets
Natural Resource Economics (including Mineral Economics) – The study of economics as it applies to the natural resource industry and environment, including Micro and Macro Economics.
6

The Essence of Economics
Supply, Demand & Price
Supply - A fundamental economic concept that describes the total amount of a specific good or service that is available to consumers.
Aggregate supply is the supply from all suppliers.
Demand - An economic principle that describes a consumer's desire and willingness to pay a price for a specific good or service.
Aggregate demand is the demand from all consumers.
Price - A value that will purchase a finite quantity, weight, or other measure of a good or service.
Price Equilibrium - The equilibrium price is the price where the goods and services supplied by the producer equals the goods and services demanded by the customers.
7

The Law of Demand
The law of demand states that, if all other factors remain equal, the higher the price of a good, the less people will demand that good.
8

Demand & Price
Example: Coffee Demand per Month
9

The Law of Supply
The law of supply states that the higher the price of the good, the higher the quantity supplied to the market.
10

$ per Pound
3,5
Supply
Example: Cumulative supply of copper from 10 individual mines
3,0
2,5
2,0
1,5
1,0
0,5
0,0
1 2 3 4 5 6 7 8 9 10
11

Supply, Demand & Price Equilibrium
When supply & demand are equal the economy is said to be at equilibrium. At this point, the allocation of goods is most efficient because the amount of goods being supplied is exactly the amount of goods being demanded.
12

Surpluses & Shortages
Surpluses occur when supply exceeds demand (no longer in equilibrium) and shortages occur when demand exceeds supply (no longer in equilibrium). Over time the market will adjust to equilibrium.
13

Demand Curve Adjustment
A movement along the demand curve will occur when the price of the good changes and the quantity demanded changes in accordance to the original demand relationship. In other words, a movement occurs when a change in the quantity demanded is caused only by a change in price, and vice versa.
14

Supply Curve Adjustment
A movement along the supply curve will occur when the price of the good changes and the quantity supplied changes in accordance to the original supply relationship. In other words, a movement occurs when a change in the quantity supplied is caused only by a change in price, and vice versa.
15

A Change in Supply, Demand & Price
A new equilibrium will be established with a change in supply and demand.
This may or may not result in a new equilibrium price.
16

The Economics of Mining
This is the traditional view of the competition between Environmental Concerns,
Social Needs, and Economic Desires, resulting in a Sustainable Target Area.
17

The Economics of Mining
However, this is the newer view of the “nested” competition between
Environmental Concerns, Social Needs, and Economic Desires, resulting in much larger Sustainable Target Area.
This is one of the major challenges in Natural Resource Economics.
18

The Economics of Mining
Copper – As An Example
• Crustal abundance – 68 parts per million (0.0068%)
• First metal mined by humans – 8000 years ago
• Used in the early development of civilizations
– the Copper Age (3500 – 2300 BC) – tools & weapons
– the Bronze Age (3300 – 1100 BC) – tools & weapons
• Malleable metal used in pipe, wire, sheet and strip
• Highly prized for its conductivity of electricity
• Used as a monetary instrument
• Biofouling & germicide element, prevents growth of biologicals
19

The Economics of Mining – Copper
2012 Copper Uses (Demand)
33% - Construction
33% - Electronics
13% - Machinery
13% - Transport
8% - Consumer Goods
2012 World Copper Demand – 20,000,000 metric tonnes (44 billion pounds) of copper.
20

Where is Copper Found?
Numerous countries, but most occurrences are small and uneconomic.
Most active copper mines are clustered in geologic formations, such as the
Chile-Peru-Ecuador-Colombia Porphyry Copper Belt.
21

The Economics of Mining – Copper
2012 Copper Supplies (Sources)
27% - Chile
8% - China
6% - Peru
6% - US
5% - Australia
4% - Russia
3% - Zambia
3% - Congo
3% - Canada
3% - Mexico
19% - Other Countries
15% - Recycled Copper
2012 World Copper Supply – 17,000,000 metric tonnes (34.5 billion pounds) of copper from new mines and 3,000,000 metric tonnes (6.6 billion pounds ) from recycling.
22

2% Copper – Medium –High Grade Mineralization
2 out of 100 parts (2%) are copper, the other 98 parts
(98%) are waste.
This is considered medium to high grade for copper .
Mineral Occurrence in the Earth’s Crust verses Mineable Grades
Aluminum 8.2%
Iron 6.3%
Titanium
Nickel
0.6%
49%
25%
2%
0.009% 1%
Copper
Lead
0.007% 0.3%
0.001% 0.1%
Platinum 0.00006% 0.001%
Gold 0.00003% 0.0008%
23

Orebodies Are Not Perfect
You Typically Cannot Mine 100%
The extraction of ore usually results in the extraction of significant waste rock as well. This waste must be handled, and in some cases treated.
24

3:1 Waste to Ore Ratio
3 tonnes to the waste pile, 1 tonne to the plant for processing. This can alter the economics significantly. Higher grade is always preferred.
25

Example Of A Open Pit Copper Model
Whim Creek, Australia
26

Underground Mining
A Possibility If The Grade Is High Enough
Sulphur Springs Deposit in Montana – a new discovery @ +2.5% Cu.
27

Discovering & Opening A Copper Mine
• Acquire Interesting Ground
• Discover Mineralization
• Explore with Sampling & Drilling
• Confirm Size and Grade
• Confirm Geologic Resource
• Test & Confirm Metallurgy
• Conceptualize Mine & Mill
• Preliminary Economic Assessment
• Detailed Mine & Mill Plan
• Initiate Environmental Testing
• Social & Impact Analysis
• Prepare Pre-Feasibility Study
• Labor & Staffing Studies
• Prepare Feasibility Study
• Environmental Impact Statement
• Permit Application & Receipt
• Finance Project Development
• Design and Engineer Mine & Mill
• Build Facilities
• Open Mine & Mill
On a 100 million metric tonne mine – 10 to 20 years and $500 million to
$1 billion expended before the first pound of copper is produced.
28

Copper Mine Project – Operations Example
-2 -1 1 2 3 4 Year
Production - Ore mt/y
Production - Waste mt/y
Production Salable Copper mt/y
5
0
0
0
0
1,200,000
0
500,000
800,000
10,000
1,000,000
1,000,000
20,000
1,000,000
1,500,000
20,000
1,000,000
2,500,000
20,000
1,000,000
4,000,000
20,000
Mining - Ore
Mining - Waste
Crush & Grind
Copper Concentration
Copper Production
Sales
General & Admin
Total Costs
Copper Sales Price
Gross Sales
Royalty
Taxes
Net Profit
Construction Costs
Replacement Capital
Mine Closure Costs
Project Cash Flow
Net Present Value @ 10%
Net Present Value @ 0%
Internal Rate of Return
$/mt
$/mt
$/mt
$/mt
$/mt
$5.00
$/mt $4.00
$/mt $10.00
$6.00
$4.00
$1.00
$2.00
$0 $0 $2,500,000 $5,000,000 $5,000,000 $5,000,000 $5,000,000
$0 $4,800,000 $3,200,000 $4,000,000 $6,000,000 $10,000,000 $16,000,000
$0 $0 $5,000,000 $10,000,000 $10,000,000 $10,000,000 $10,000,000
$0
$0
$0
$0
$0
$0
$0
$0
$3,000,000
$2,000,000
$10,000
$1,000,000
$6,000,000
$4,000,000
$20,000
$2,000,000
$6,000,000
$4,000,000
$20,000
$2,000,000
$6,000,000
$4,000,000
$20,000
$2,000,000
$6,000,000
$4,000,000
$20,000
$2,000,000
$0 $4,800,000 $16,710,000 $31,020,000 $33,020,000 $37,020,000 $43,020,000
$/mt $6,500
3%
30%
$0
$0
$0
$0
$0
$0 $65,000,000 $130,000,000 $130,000,000 $130,000,000 $130,000,000
$0 $48,290,000 $98,980,000 $96,980,000 $92,980,000 $86,980,000
$0 $1,448,700 $2,969,400 $2,909,400 $2,789,400 $2,609,400
$0 $14,487,000 $29,694,000 $29,094,000 $27,894,000 $26,094,000
$0 $32,354,300 $66,316,600 $64,976,600 $62,296,600 $58,276,600
-$10,000,000 -$15,000,000 -$2,500,000
-$250,000 -$2,500,000 -$2,500,000 -$2,500,000 -$2,500,000
-$5,000,000
-$10,000,000 -$19,800,000 $12,894,300 $32,796,600 $29,456,600 $22,776,600 $7,756,600
$41,761,042
$75,880,700
54%
29

The Chocolate Chip Cookie Mine
The following handout is a working example of project that you can bring back to your classrooms using chocolate chip cookies as mines.
The project involves the students to ‘acquire’ land assets (cookies), equipment (toothpicks & paperclips), and mine for ore (chocolate chips), while filling out an economic / financial sheet, similar to the one on slide
25. The handout has instruction for carrying out the exercise.
The example allows the students to conceptualize some of the complexity of mining and finance, while having fun extracting chocolate chips.
30

Economic Of Mining
Question or Comments?
Thank You
This Session is followed by the
Mineral Economics Lightning Round
31

Mineral Economics
Lightning Round
Fun!
32

Titanium -
Principally used in:
Mineral Economics
Lightning Round
1 A
Aircraft
Paints / Plastics
Sporting Goods
33

Titanium -
Principally used in:
Mineral Economics
Lightning Round
1 B
Aircraft
 Paints / Plastics
Sporting Goods
34

Where is the world’s largest un-mined copper nickel deposit?
Mineral Economics
Lightning Round
2 A
United States
Russia
China
35

Mineral Economics
Lightning Round
2 B
United States - Minnesota Where is the world’s largest un-mined copper nickel deposit?

Russia
China
36

Gold -
Largest Producer
Mineral Economics
Lightning Round
3 A
South Africa
United States
China
37

Gold -
Largest Producer
Mineral Economics
Lightning Round
3 B
South Africa
United States

China
38

Oil – What is its
Classification?
Mineral Economics
Lightning Round
4 A
Animal
Mineral
Vegetable
39

Oil -
Classification
Mineral Economics
Lightning Round
4 B
 Animal
 Mineral

Vegetable
40

What is a Picul?
Mineral Economics
Lightning Round
5 A
Tin Weight
Steel Acid Bath
Copper Trading
Derivative
41

What is a Picul?
Mineral Economics
Lightning Round
5 B
 Tin Weight
Steel Acid Bath
Copper Trading
Derivative
42

What Two Metals
Have Distinct
Colors?
Mineral Economics
Lightning Round
6 A
Aluminum & Nickel
Iron & Platinum
Gold & Copper
43

What Two Metals
Have Distinct
Colors?
Mineral Economics
Lightning Round
6 B
Aluminum & Nickel
Iron & Platinum

Gold & Copper
44

What New
Mineral/Metal
Discoveries Are
Significant For
Minnesota?
Mineral Economics
Lightning Round
7 A
Platinum, Titanium
Nickel, Cobalt
Copper, Gold
45

What New
Mineral/Metal
Discoveries Are
Significant For
Minnesota?
Mineral Economics
Lightning Round
7 B
 Platinum, Titanium
 Nickel, Cobalt

Copper, Gold
46

Elemental
Concentration in the Crust –
Highest Metal
Concentration
Mineral Economics
Lightning Round
8 A
Boron
Iron
Silicon
47

Elemental
Concentration in the Crust –
Highest Metal
Mineral Economics
Lightning Round
8 B
Boron
Iron

Silicon
48

Which metal/mineral is the largest produced in
Minnesota?
Mineral Economics
Lightning Round
9 A
Iron Ore
Building Stone
Sand & Gravel
49

Which metal/mineral is the largest produced in
Minnesota?
Mineral Economics
Lightning Round
9 B
Iron Ore
Building Stone

Sand & Gravel
50

What is the best metal for conducting electricity?
Mineral Economics
Lightning Round
10 A
Bismuth
Copper
Silver
51

What is the best metal for conducting electricity?
Mineral Economics
Lightning Round
10 B
 Bismuth
Copper

Silver
52

Cobalt is named for what?
Mineral Economics
Lightning Round
11 A
Blue Color
Discovery in Kobal, Germany
Gremlin Metal
53

Cobalt is named for what?
Mineral Economics
Lightning Round
11 B
Blue Color
Discovery in Kobal, Germany

Gremlin Metal
54

What is the principle use of
Garnets?
Mineral Economics
Lightning Round
12 A
Grinding Media
Gem Stone
Counter Tops
55

What is the principle use of
Garnets?
Mineral Economics
Lightning Round
12 B
 Grinding Media
Gem Stone
Counter Tops
56

Which metal/mineral liquid in its natural state?
Mineral Economics
Lightning Round
13 A
Mercury
Nacholite
Molybdenum
57

Mineral Economics
Lightning Round
13 B
Mercury Which metal/mineral liquid in its natural state?

Nacholite
Molybdenum
58

What is man’s oldest mined metal?
Mineral Economics
Lightning Round
14 A
Gold
Copper
Iron
59

What is man’s oldest mined metal?
Mineral Economics
Lightning Round
14 B
Gold
 Copper
Iron
60

What has the highest melting point?
Mineral Economics
Lightning Round
15 A
Tungsten
Nickel
Chromium
61

What has the highest melting point?
Mineral Economics
Lightning Round
15 B
 Tungsten
Nickel
Chromium
62

What percent of world’s diamonds are used for gems?
Mineral Economics
Lightning Round
16 A
5%
35%
20%
63

What percent of world’s diamonds are used for gems?
Mineral Economics
Lightning Round
16 B
5%
35%

20%
64

What is (probably) the most important industrial mineral/metal?
Mineral Economics
Lightning Round
17 A
Sulfur
Limestone
Iron Ore/Iron
65

Mineral Economics
Lightning Round
17 B
Sulphur What is (probably) the most important industrial mineral/metal?
 Limestone
Iron Ore/Iron
66

What minerals/metals is
Minnesota known for?
Mineral Economics
Lightning Round
18 A
Granite, Iron Ore, Aggregate
Iron Ore, Copper, Gold
Frac Sands, Iron Ore, Peat
67

What minerals/metals is
Minnesota known for?
Mineral Economics
Lightning Round
18 B
 Granite, Iron Ore, Aggregate
Iron Ore, Copper, Gold

Frac Sands, Iron Ore, Peat
68

Early prospectors in
Minnesota explored for Gold, but what did they find?
Mineral Economics
Lightning Round
19 A
Copper
Silver
Iron Ore
69

Early prospectors in
Minnesota explored for Gold, but what did they find?
Mineral Economics
Lightning Round
19 B
Copper
Silver

Iron Ore
70

What is (probably) the most dangerous chemical?
Mineral Economics
Lightning Round
20 A
Sulfur Dioxide
Di-hydrogen Monoxide
Carbon Monoxide
71

Mineral Economics
Lightning Round
20 B
Sulphur Dioxide What is (probably) the most dangerous chemical?
 Di-hydrogen Monoxide
Carbon Monoxide
72

Mineral Economics
Lightning Round
73

Mineral Economics
Lightning Round
74