Simple answer is yes and no. Mineral resources are finite, however, the resource pool is so vast that it tends to feel like infinite. Reserves are finite at FIXED level of price; FIXED level of input cost, FIXED level of technology, and a fixed level of SOCIETAL demand. Since all these components are continuously changing, the equilibrium between resource and reserve keeps changing. So several economic components affect the “global reserve” of any mineral or any natural resource.
– by Dr. Amit Tripathi
These questions were asked by our students Varun Shastri of Sagar University and T. Gokul of Annamalai University. So special thanks to them for inspiring this article
These questions feed into a broader question of “Are mineral resources finite?”
Simple answer is yes and no. Mineral resources are finite, however, the resource pool is so vast that it tends to feel like infinite. At this point we should start making a distinction between resource and reserve. Often, when we say resource in common conversation, we actually are referring to reserve. Reserve is economically recoverable resource. Reserve is a subset of resources and is a lot more finite than resource. Economically recoverable means that, global reserve is finite at a particular price point. As soon as we bring economics in to the equation things start becoming exponentially more complex. Economics is governed by several variables that are continuously changing. Consequently, resources get converted to reserves and vice-versa. For example, it is possible that if you analyze a bag of soil from your backyard you may find traces of gold! However, it is also likely that to extract gold from that soil will cost more than the present price of that gold. However, in the scenario that gold prices rise significantly you may be able to economically recover this gold. But such increasing availability would also cause downward pressure on the gold prices and thus slowing the price rise or cause them to decline!
Reserves are, therefore, finite at FIXED level of price; FIXED level of input cost, FIXED level of technology, and a fixed level of SOCIETAL demand. Since all these components are continuously changing, the equilibrium between resource and reserve keeps changing. So several economic components affect the “global reserve” of any mineral or any natural resource. Lets discuss them one by one:
- Reserve Depletion increases price and therefore ADDS to reserves: This may seem counter intuitive, but as we start depleting reserves we would disturb the demand- supply equilibrium and the prices start incresing. When prices increase, lower grade resource or “difficult to mine” resource suddenly becomes viable thus adding to the global supply. A good example would be the petroleum situation. From 1980s to 2000 oil prices were stable and stayed within $15 -$25/barrel range. Considering that price range, many people project that the world will run out of oil by 2020. Now, in 2020, we use a lot more oil than 1985. As the prices started creeping up the “tough to extract oil” that was uneconomic at $25 suddenly became economic at $35. As the prices kept creeping up, shale gas became viable above $50 and massive capacities started developing. Around those prices the massive tar sands of Canada also became viable fueling a boom in Alberta as oil prices sustained above $90 during 2010-2014. The prices have since corrected but at present we see an oil supply glut rather than a resource depletion.
- Technology increases conservation. It ADDS and also REDUCES the reserve pool: Continuous changes in technology continuously disturbs the resource-reserve equilibrium. Technology adds to efficiency and thus ADDS to the reserve. For example, sealed bearings do not need frequent lubrication, advent of LED lights reduced power consumption for large consumers and therefore ADDED to the fuel reserves. For small users however the higher price of LED does not make economic sense and thus significantly increased the availability of less efficient devises at lower prices. Use of technology is not a new phenomenon. About a century back lots of whales were killed and all over the western world, whale fat and oil was used for lamps, soap and lubricants. Discovery of petroleum largely replaced whale oil and (thankfully!) reduced whale slaughter.
The resource-reserve equilibrium is not only measured in financial costs but also ecological costs. Ecological costs often SUBSIDIZE financial costs. Not having to pay for environmental cleanup and burning of fossil fuels keeps energy prices low. Green energy also has significant ecological costs. The wind turbines and solar panels are hugely subsidized by ecological costs in China. Production of Rare Earth Metals – critical for green energy – have created huge toxic dumps in China. These metals are artificially subsidized by Chinese producers not having to pay for environmental cleanups. So essentially the environmental costs are just being moved elsewhere. When technology sufficiently evolves to make green energy abundant, the fossil fuels – coal and oil – will likely lose their value and regress from reserve to resource! Ecological enthusiasts oft mention quotes like“we must preserve our natural resources for future generation” which is absolutely true. What is also true is that petroleum was not a reserve over century back and will possibly no longer be a reserve when technology evolves to other energy sources. If not used now, it will not have any value in future. Similarly burning wood was the dominant global energy source about 200 year back but now it is no longer so. While it is important for our generation to preserve the ecology, it is also important to use the available reserves to give a good foundation to the next generation so they can build upon it using future reserves. Another interesting story is about iron ore. Till about 30 years back blast furnaces could only use iron ore pieces between 6mm and 40mm (called lumps). As mined blocks were a lot bigger they had to be crushed to become smaller than 40mm. During crushing several pieces became smaller than 6mm (fines) and had to be rejected as waste although they also contained iron. As technology evolved, it became possible to use these fines for the newer design steel plants. Millions of tonnes of waste suddenly became “reserve.” Several large iron ore mines actually started reworking their waste dumps, recover fines, and were selling more than their mine production through 1990s and 2000s.
- Replacement ADDS and also reduces RESERVES: Replacement minerals having similar properties, and artificial material having similar properties can sometimes replace a mineral. Such replacements and artificial material have relatively narrow price zones and become viable when the mineral price starts to rise. Sometimes these replacements can create new commercial categories and reduce the demand for the original mineral. One example can be artificial stone tiles, these come in various fancy colours and sizes and have successfully created a new category in building material. These are sold alongside natural granite and marble and cushion price volatility. In South India, hundreds of granite units have shut shop due to various reasons and artificial stones have partially filled the demand. They have ADDED to the reserve base of construction material and offered wider choice to consumers while also REDUCED the reserve base of high end granite while the high end granite units are struggling with permitting and creeping taxes.
- SOCIETAL pressures and public opinion: Public opining is a strong force and has been successfully used to alter the resource – reserve equilibrium. Non-financial criteria can affect demand and hence prices. Ecological awareness, certification of sustainable and responsible production affects consumer behaviour. For example, the concept of blood diamonds prompted diamond industry to initiate the process of certificate of origin – the Kimberley Protocol. Under this system EVERY diamond comes with a certificate of origin that ensures the proceeds of the sale is not used to fuel wars and promote weapon purchases by warlords in Africa. Such consumer awareness and use of buying power by end-users REDUCED the reserve pool of diamonds, increased the average prices, financed exploration in safe areas, and caused peace in many conflict areas. Similarly certificate of origin for tin from non-conflict areas fetches almost double the price of uncertified tin and is continuously encouraging responsible mining. This certification REDUCED the reserve base, increased the prices and rewarded the companies doing responsible mining.
To conclude we can say that in theory mineral resources are finite, however, the resource pool is extremely large. A middle path of sustainable, ecologically and socially responsible mining with conservation can hugely add to our well being and prosperity. How to achieve that, needs to be discussed and debated in detail.
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