Page 24 - Introduction to Mineral Exploration

1: ORE, MINERAL ECONOMICS, AND MINERAL EXPLORATION 7

industry and supply expands. On the other formulating a company’s mineral exploration
hand if consumers do not want a particular strategy. A useful recent discussion of mineral
product its price falls, producers make a loss, markets can be found in Crowson (1998).
and resources leave the industry.
Forces determining prices
World markets
Demand and supply
Modern transport leads to many commodities Demand may change over a short period of
having a world market. A price change in one time for a number of reasons. Where one com-
part of the world affects the price in the rest of modity substitutes to a significant extent for
the world. Such commodities include wheat, another and the price of this latter falls then the
cotton, rubber, gold, silver, and base metals. substituting commodity becomes relatively
These commodities have a wide demand, are expensive and less of it is bought. Copper and
capable of being transported, and the costs of aluminum are affected to a degree in this
transport are small compared with the value of way. A change in technology may increase the
the commodity. The market for diamonds is demand for a metal, e.g. the use of titanium in
worldwide but that for bricks is local. jet engines, or decrease it in the case of the
Over the last few centuries formal organized development of thinner layers of tin on tinplate
markets have developed. In these markets buy- and substitution (Table 1.3). The expectation of
ing and selling takes place in a recognized future price changes or shortages will induce
building, business is governed by agreed rules buyers to increase their orders to have more
and conventions and usually only members are of a commodity in stock.
allowed to engage in transactions. Base metals Supply refers to how much of a commodity
are traded on the London Metal Exchange will be offered for sale at a given price over a set
(LME) and gold and silver on the London period of time. This quantity depends on the
Bullion Market. Similar markets exist in many price of the commodity and the conditions
other countries, e.g. the New York Commodity of supply. High prices stimulate supply and
Exchange (Comex). Because these markets investment by suppliers to increase their out-
are composed of specialist buyers and sellers put. A fall in prices has the opposite effect and
and are in constant communication with each some mines may be closed or put on a care-
other, prices are sensitive to any change in and-maintenance basis in the hope of better
worldwide supply and demand. times in the future. Conditions of supply may
The prices of some metals on Comex and the change fairly quickly through: (i) changes due
LME are quoted daily by many newspapers and to abnormal circumstances such as natural dis-
websites, whilst more comprehensive guides to asters, war, other political events, fire, strikes
current metal and mineral prices can be found at the mines of big suppliers; (ii) improved
in Industrial Minerals, the Mining Journal, and techniques in exploitation; (iii) discovery and
other technical journals. Short- and long-term exploitation of large new orebodies.
contracts between buyer and seller may be
based on these fluctuating prices. On the other Government action
hand, the parties concerned may agree on a Governments can act to stabilize or change
contract price in advance of production, with prices. Stabilization may be attempted by
clauses allowing for price changes because of building up a stockpile, although the mere
factors such as inflation or currency exchange building up of a substantial stockpile increases
rate fluctuations. Contracts of this nature are demand and may push up the price! With a
common in the cases of iron, uranium, and substantial stockpile in being, sales from the
industrial minerals. Whatever the form of sale stockpile can be used to prevent prices rising
is to be, the mineral economists of a mining significantly and purchases for the stockpile
company must try to forecast demand for, and may be used to prevent or moderate price falls.
hence the price of, a possible mine product well As commodity markets are worldwide it is
in advance of mine development, and such con- in most cases impossible for one country act-
siderations will usually play a decisive role in ing on its own to control prices. Groups of