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A Journal of Foreign Policy Issues

The Concern for Exhaustible Mineral Resources

By Eleonora Hagiou, Mining Engineer, Dept of Mineral Resources Evaluation Institute of Geology and Mineral Exploration Dr Werner Hoyer, Minister of State of the Federal Republic of Germany

The increasing use of mineral raw materials from the beginning of the industrial era and the unprecedentedly high rate of mineral production development especially after World War II has often led to great concern that we shall run out of exhaustible resources. Because of this dramatic development price rises were expected.

The fact that minerals are not evenly distributed in the earthÅs crust has generated further concerns. Heavy reliance on imports has been considered a major disadvantage for a countryÅs economic, political and military independence. During the Cold War period a huge National Defence Stockpile was created in the United States, consisting of almost every mineral raw material that was not available in adequate quantities in the countryÅs soil.

The Strategic and Critical Materials Stockpiling Act grants the Department of Defence the authority to maintain a stockpile of so-called strategic and critical materials to supply the military, industrial and civilian needs of the United States for the countryÅs defence.

Similar precautions were taken by all the leading nations around the world. The concept of strategic minerals thus became very popular, not only among military, but also among economic analysts.

EurostatÅs publication ÃEC Raw Materials Balance SheetsÅ, started in the mid 70s, explained in the introduction of the 1975-78 issue that the primary aim of the balance-sheet calculation is to determine the degree of dependence on outside sources of raw materials. Twenty-one minerals were included in this statistical survey; these consisted of major non-ferrous metals (aluminium, lead, zinc, copper, tin), iron and alloying metals (antimony, chromium, cobalt, manganese, molybdenum, nickel, niobium, mercury, tantalum, titanium, vanadium, tungsten, zirconium) and two non-metals (fluorine and phosphate). For all these commodities (except for fluorine) the deficit in the EC countries at that time ranged from 55 to 100%.

JapanÅs dependence on mineral raw material imports was far greater than that of the other two geopolitical zones.

However, if we move beyond the geopolitical blocs and conflicts, it is legitimate to ask whether mankind has at any time ever reached the point of actual depletion of an exhaustible resource.

In the 70s, copper reserves represented 30 years of current production (6.4 Mt). It was questionable whether this resource base could still satisfy the requirements of the telecommunications industry at the end of the century. More intense was the concern for fossil fuels, a fact which led to heavy public investment in nuclear power.

In 1994, world production of copper was almost double (12 Mt) but still the available reserves were enough for another 30 years. The reserve multiple of current production remained the same. Furthermore, a technical innovation during the 80s replaced the expensive copper wires in telephone communications with the more efficient and in practice inexhaustible glass fibre. The physical resource requirements of the telecommunications industry were further reduced during the 90s because of the technical innovations associated with mobile telephony.

Similar constant relationships also apply to all other exhaustible resources. The global production of copper increased more than eightfold between 1925 and 1994. In the case of iron ore, there was a fourfold increase, while aluminium production grew more than one hundred times during this period. Oil and gas production rose by a factor of 20 and 50 respectively. The reserves of each and every one of these raw materials increased at approximately the same rate as the growth of production. Coal production increased less than threefold and so did coal reserves.

This development might appear completely paradoxical if we view ore reserves as gifts of nature. It is easily explicable, however, if we consider ore reserves as capital equipment, resulting from a deliberate investment programme aimed at finding new sources of supply which will secure the long-term growth of mining and energy production.

These reserves act as a buffer, guaranteeing stability in relation to the exploitation of resources and the expansion of production at a rate which corresponds to the growth of demand.

As far as prices are concerned, in the early 80s the following rule was very popular: the real price of finite resources must always rise at the same rate as the real rate of interest. The sharp increase in oil prices during the 70s gave good backing to this theory and all the price forecasts made by experts during this period point steeply upwards.

In spite of such gloomy predictions, costs and prices of practically all of the worldÅs exhaustible resources have clearly fallen over the long term. During the period 1900-1972 the delivery price of oil in real terms - as well as that of metals and minerals - has been falling. At this point the OPEC cartel intervened in the market and raised the oil price. At the same time, the fall in the prices of metals and minerals has tended to accelerate. Between the early 70s and the early 90s the real prices of these raw materials have fallen by almost 50%. Over long periods of time price trends in competitive markets will not diverge significantly from the cost of supply.

Prices are clearly connected to the cost of delivery of metals and minerals and not to the depletion of exhaustible raw materials. Falling costs, because of technical innovations in prospecting, mining and transport, provide the principal explanation of these trends. The negotiating position of the OPEC cartel has been steadily undermined by the dramatic reduction in the costs of oil exploitation which has enabled low-quality oilfields in the North Sea and Alaska to become increasingly competitive.

Apart from technical innovation, substitution is another field where human ingenuity offers one more degree of freedom in the dilemma of resource depletion. Copper substitution by glass fibre has already been mentioned; nuclear energy also replaced a great part of fossil fuel consumption in the 60s and 70s. Solar power or other mild sources of energy have actually been making headway in recent years. Access to an advanced, broadly-based technology facilitates the process of substitution. Increased capacity for substitution reduces dependence on each individual exhaustible resource.

As a result of such trends in conjunction with new political conditions (collapse of the Soviet Union, end of the Cold War), the urgency surrounding the security of supply of strategic and critical materials has faded away. It is no wonder that the US Government has stopped acquiring most materials for the National Defence Stockpile (NDS). Moreover, under the Defence Authorisation Act of 1992, the American Government has tried to dispose of excess stockpile inventories. The table opposite shows the development of the NDS for certain minerals.

The Defence Logistics Agency (DLA) controls the National Defence Stockpile. DLA sales in the fiscal year 1995 totalled $ 427 million worth of excess stockpile materials. Stockpile sales were expected to accelerate throughout the end of the century. The only precaution taken is not to disturb market conditions by an abundance of quantities sold. That is why the liquidation of stocks is planned to stretch out until the end of the century.

In May 1996, the Department of Defence submitted its 1995 Report to Congress on National Defence Stockpile requirements. The report stated that changes in national security threats facing the USA had significantly altered NDS requirements. Therefore, the Department of Defence recommended that only three materials be retained in the NDS: iridium, quartz crystal and tantalum.

Pessimistic predictions on the depletion of mineral resources have not been confirmed up to the present. Human ingenuity has so far had the upper hand over resource shortages. However, mankind has to deal with new problems arising from the massive exploitation of natural resources. The key issue, nowadays, is that of environmental conservation.

The mining industry causes immense environmental pollution world-wide. Mining operations shift 28 billion tonnes of material yearly, i.e., more than the quantity moved by all the rivers in the world. Mining generates 2.7 billion tonnes of waste, in part hazardous, an amount which far exceeds the worldÅs total accumulated municipal garbage. Mines and smelters use every year up to one tenth of all the energy used by mankind and pump out into the atmosphere 6 million tonnes of sulphur dioxide, a major cause of acid rain.

Mining, throughout history, has seriously harmed the environment in industrialised and developing countries. Increasing pressure of public opinion has resulted in stricter regulations on mining operations world-wide. Serious efforts towards the solution of environmental problems resulting from mining and processing started in the early 1970s.

Increasing demands are now being made regarding the products (metals and minerals) and their impact on nature and on human health. The recycling of metals has taken on major importance. Recycling solves three problems at the same time: availability of raw materials, less energy consumption and consequently less pollution with minimal environmental impact from waste disposal.

Although it has been shown that there is not a resource depletion dilemma for mankind as a whole, it is still clear that minerals are a wasting asset and therefore every mine must eventually die. This means that unless there is a concerted effort in developing a sustainable economy around a mine during its life, once the resources are depleted the economic structure around it may also die. The most disastrous consequence is the unemployment created through mine downscaling or closure.

Mineral resources can generate substantial wealth but they are depletable and non-renewable. For sustainable development these resources need to be managed in such a way that the wealth they generate can effectively compensate for the depleted mineral asset. This management is especially important in those countries which are largely dependent on minerals for their economic development.

In most countries, for a mining enterprise to be granted a mining licence, a reclamation plan for the fate of the mining area - once the mining operation is over - is required. In some countries, as in Ontario, Canada, companies are required not only to file closure plans for any new mining operation but also to ensure that financial resources are assured for the carrying out of mine rehabilitation. Few governments have yet developed policies or guidelines which require mining companies to file a socio-economic impact closure plan.

Sustainable development and environmental protection for manÅs welfare are the new challenge for human ingenuity. n

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