W. R. Gocht H. Zantop R. G. Eggert International Mineral Economics Mineral Exploration, Mine Valuation, Mineral Markets, International Mineral Policies With 46 Figures Springer-Verlag Berlin Heidelberg New York London Paris Tokyo WERNER R. GOCHT, Dr. rer. nat., Dr. rer. pol., Professor and Director of the Research Institute for International Technical and Economic Cooperation Aachen University of Technology D-5100 Aachen, FRG HALFZANTOP, Ph. D., Associate Professor of Economic Geology Dartmouth College Hanover, NH 03755, USA RODERICK G. EGGERT, Ph. D., Assistant Professor of Mineral Economics Colorado School of Mines Golden, CO 80401, USA ISBN-13: 978-3-540-18749-3 e-ISBN-13: 978-3-642-73321-5 DOl: 10.1007/ 978-3-642-73321-5 Library of Congress Cataloging-in-Publication Data. Gocht, Werner. International mineral economics. Bibliography: p. Includes index. 1. Mineral industries. I. Eggert, Roderick G. II. Zantop, H. (Half), 1938-. III. Title. HD9506.A2G63 1988 338.2 88-04892 This work is subject to copyright. All rights are reserved, whether the whole or part of the mate rial is concerned, specifically the rights of translation, reprinting, re-use of illustrations, recita tion, broadcasting, reproduction of microfilms or in other ways, and storage in data banks. Duplication of this publication or parts thereof is only permitted under the provisions of the Ger man Copyright Law of September 9, 1965, in its version of June 24, 1985, and a copyright fee must always be paid. Violations fall under the prosecution act of the German Copyright Law. © Springer-Verlag Berlin Heidelberg 1988 The use of registered names, trademarks etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. Typesetting: Fotosatz & Design, Berchtesgaden 2132/3130-543210 Preface Exploration and mining geologists, while concerned mostly with the geologic aspects of mineral resources, must be able to judge the technical feasibility and to estimate the economic potential of a mineral deposit when recommending detailed exploration. Likewise, mineral economists must recognize the significance of the geologic, technical, and political influences on mining and mineral processing when evaluating the economic potential of a prospective deposit. Mining engineers must un derstand the ways in which geologic, political and economic factors affect the feasibility of a project. In International Mineral Economics, we would like to introduce pro fessionals and students to the essential concepts of mineral exploration, mine valuation and mineral market analysis, and international mineral policies. Although each of these topics is covered in detail in the specialized literature, we have attempted to integrate their most impor tant aspects here, to provide those involved in mineral resources with a broad, interdisciplinary overview. This project grew out of an earlier book by Werner Gocht, in Ger man, Wirtschaftsgeologie und Rohstoffpolitik (1983). We have expanded the coverage of the geologic aspects of mineral occurrence and explora tion methods; thoroughly revised the treatment of the economic analysis of mineral projects and markets; and updated and expanded the analysis of international mineral policies. Werner Gocht, of the Aachen University of Technology, coordinated the project. Half Zantop, of Dartmouth College, wrote the chapters on economic geology, mineral exploration, and mineral development. Roderick G. Eggert, of the Colorado School of Mines, was responsible for the chapters on the economic, institutional and legal framework of mineral development; the economic evaluation of mineral deposits; and mineral market models and forecasts. Werner Gocht wrote the chapters on mineral market analysis and on international mineral policies. Each of us, however, integrated his work with that of the others. All of us are thoroughly familiar with the entire manuscript and feel responsible for it as a team. The book would not have been possible without the assistance and encouragement of many individuals and organizations we wish to acknowledge. Our home institutions provided financial assistance. Bruce Gemmell, Diana K. Ten Eyck, and John Tilton read parts of the manu script. Comments from all of these readers contributed greatly to its VI Preface quality and presentation. Judith Jiitte-Rauhut provided able research as sistance in Aachen. Richard Williams assisted in translating parts of the text on international mineral policies from German to English. We alone, of course, are responsible for any remaining errors or faulty analysis. We encourage comments and criticism from our readers, with the hope that the next edition of the book will benefit from these suggestions. February 1988 WERNER R. GOCHT HALF ZANTOP RODERICK G. EGGERT Contents Introduction 1 Part I Economic Geology, Mineral Exploration, and Mineral Development 1 Mineral Deposits and Metallogenic Concepts 5 1.1 Composition of the Earth and Types of Mineral Resources .................. . 8 1.2 Geologic Cycles and the Formation of Mineral Deposits 10 1.2.1 Mineral Deposits Associated with Magmatic Processes 11 1.2.2 Mineral Deposits Associated with Sedimentary Processes ................... . 14 1.2.3 Mineral Deposits Associated with Metamorphic Processes .............. . 16 1.3 Geologic Models of Mineral Deposits ..... 17 2 Exploration Methods . . . . . . . . . ..... 22 2.1 Development Phases of Exploration and Mining Projects .................... . 23 2.2 Exploration Strategies, Procedures, and Stages 26 2.2.1 Program Design ....... . 26 2.2.2 Reconnaissance Exploration .. 27 2.2.3 Detailed Follow-up Exploration 27 2.3 Exploration Methods 29 2.3.1 Remote Sensing 30 2.3.2 Aerial Photography 32 2.3.3 Geologic Exploration 34 2.3.4 Geophysical Exploration 34 2.3.4.1 Magnetic Surveys . . . . 37 2.3.4.2 Electric Surveys 38 2.3.4.3 Electromagnetic Surveys 40 2.3.4.4 Radiometric Surveys 41 2.3.4.5 Gravimetric Surveys 41 2.3.4.6 Seismic Surveys . . . 43 2.3.4.7 Airborne and Ground Geophysical Surveys 44 2.3.5 Geochemical Exploration ........ . 45 VIII Contents 2.3.5.1 Stream Sediment Geochemical Surveys 47 2.3.5.2 Hydrogeochemical Surveys 48 2.3.5.3 Soil Geochemical Surveys ...... . 48 2.3.5.4 Biogeochemical Surveys ...... . 49 2.3.5.5 Atmospheric and Vapor Geochemical Surveys 50 2.3.5.6 Rock Geochemical Surveys ..... 51 2.3.5.7 Analytical Methods . . . . . . . . . . 51 2.3.5.8 Interpretation of Geochemical Surveys 53 3 Quantitative Assessment of Mineral Potential 57 3.1 Accessing the Ore 57 3.1.1 Trenching and Pitting 58 3.1.2 Drilling ...... . .58 3.1.3 Drill-Hole Geophysics 60 3.1.4 Underground Exploration 61 3.2 Sampling and Assaying of the Ore 61 3.2.1 Sampling ..... 62 3.2.2 Sample Preparation 63 3.2.3 Chemical Assays 63 3.3 Ore Reserve Estimation 64 3.3.1 Geometric Methods of Ore Reserve Estimation 64 3.3.2 Statistical Methods of Ore Reserve Estimation 66 3.3.3 Geostatistical Methods of Ore Reserve Estimation 67 3.3.4 Classification of Reserves and Resources 68 4 Mining and MineraI Processing 74 4.1 Mining ...... . 74 4.1.1 Surface Mining . . . 75 4.1.2 Underground Mining 77 4.1.3 Solution Mining 78 4.1.4 Marine Mining ... 78 4.1.5 Strategies and Trends in Mining 79 4.2 Mineral Processing . . . . . . . 80 Part II Mineral Economics 5 The Economic, Institutional, and Legal Framework for MineraI Development .......... . 85 5.1 Mineral Development as an Economic Activity 85 5.2 Participants in Mineral Development 87 5.3 Mining Law .................. . 90 Contents IX 6 Economic Evaluation of Mineral Deposits 94 6.1 Goals and Strategies .......... . 95 6.2 Methods of Investment Analysis . . . . . 96 6.2.1 Cash Flows and the Time Value of Money 97 6.2.2 Benefit-Cost Analysis ......... . 102 6.2.3 Risk Analysis . . . . . . . . . . . . . . . 102 6.3 Evaluating Exploration Projects and Mineral Deposits 109 6.3.1 Program Design ................. . 109 6.3.2 Reconnaissance Exploration ............ . 110 6.3.3 Detailed Exploration and Initial Target Evaluation 111 6.3.3.1 Minimum Acceptable Reserves - Tonnage and Grade 111 6.3.3.2 Cutoff Grade . . . . . . . 113 6.3.3.3 Optimal Scale of Operation 113 6.3.3.4 Cash-Flow Analysis 115 6.3.3.5 The Prefeasibility Study 117 6.3.4 Detailed Target Evaluation and the Feasibility Study 119 6.3.4.1 Legal Factors . . . . . . . 122 6.3.4.2 Fiscal Regimes ..... . 122 6.3.4.3 Environmental Regulations 123 6.4 Financing ..... . 124 6.4.1 Exploration Projects 126 6.4.2 Mine Development 127 7 Mineral Markets 132 7.1 Market Structures 133 7.1.1 Determination and Alteration of Market Structures 134 7.1.1.1 The Tin Market 135 7.1.1.2 The Aluminum Market . . . . . . . . . . . . . 137 7.1.1.3 The Gold Market . . . . . . . . . . . . . . . . 138 7.1.2 Market Shares of International Mining and Oil Companies ..... . 141 7.2 Market Organizations ......... . 142 7.2.1 Producer Associations ......... . 144 7.2.1.1 Petroleum Associations (OPEC, OAPEe) 145 7.2.1.2 Copper Associations (CIPEC and Others) 150 7.2.1.3 Bauxite Association (IBA) .. 153 7.2.1.4 Iron Ore Association (APEF) 155 7.2.1.5 Tungsten Association (PTA) 156 7.2.1.6 Uranium Association (UI) .. 157 7.2.1.7 Other Producer Associations 158 7.2.2 International Commodity Agreements 160 7.3 Mineral Pricing . . . . . . . . . . . . 166 7.3.1 Determination of Mineral Supply 168 7.3.1.1 Factors Determining Production Trends 168 7.3.1.2 Special Supply Factors ..... . 168 7.3.2 Determination of Mineral Demand 173 x Contents 7.3.3 Competitive Prices ..... . 174 7.3.4 Producer Prices . . . . . . . . 177 7.4 Market Models and Forecasts 179 7.4.1 Types of Mineral-Market Models 180 7.4.2 Forecasting . . . . . . . . . . . 184 Part In International Mineral Policies 8 Policies and Cooperation Programs of Inter- national Organizations ......... . 189 8.1 General Problems and Objectives 189 8.1.1 Objectives of Mineral Exporting Countries 192 8.1.2 Objectives of Mineral Importing Countries 193 8.1.3 Conflicting Aims and Possible Solutions . 194 8.2 Mineral Policy of International Organizations 195 8.2.1 The League of Nations 195 8.2.2 The United Nations ........ . 196 8.2.2.1 UNCTADI-VI 197 8.2.2.2 Integrated Program for Commodities 198 8.2.2.3 United Nations Conventions on the Law of the Sea 200 8.2.3 The International Energy Programme of the Organization for Economic Cooperation and Development . 205 8.2.4 The European Community . 207 8.2.4.1 Lome I Convention . . 208 8.2.4.2 Lome II Convention . 209 8.2.4.3 Lome III Convention . 210 8.3 International Cooperation in Mineral Exploration and Exploitation ................. . 210 8.3.1 Cooperation Programs of International Institutions . 212 8.3.2 The UNDP and the UN Revolving Fund . 214 8.3.3 The World Bank ..... . 216 8.3.4 The European Community . . . . . 217 9 Policies in Industrialized Countries 219 9.1 Government Programs . . . . . . . . . . . . 222 9.1.1 Programs for the Preservation and Enhancement of Domestic Mineral Production .222 9.1.2 Promoting Mineral Exploration .223 9.1.3 Promoting Mining Investments .225 9.1.4 Stockpile Programs . . . . . .226 9.1.5 Promoting Mineral Trade .229 9.1.6 Promoting Mineral Research 229 9.2 Policies of Mining Companies 231 9.2.1 Investment Strategies . . . . . 231 9.2.2 Improvements in Mineral Utilization 233 Contents XI 10 Policies and Special Problems in Developing Countries . 234 10.1 Concession Policy · 235 10.2 Participation Policy .236 10.3 Fiscal Policy .238 10.4 Marketing Policy . · 239 10.5 Importance of Small-Scale Mining in Developing Countries .................... . .240 10.5.1 Definition and Characteristics of Small-Scale Mining .240 10.5.2 Production of Small-Scale Mining ......... . · 241 10.5.3 Advantages and Disadvantages of Small-Scale Mining .243 10.5.4 Forms of Technical Cooperation in Small-Scale Mining .245 10.6 Effects of Mining in Developing Countries .246 10.6.1 Primary Effects . .247 10.6.2 Secondary Effects · 247 References .253 Index ... .263