Resource Characteristics, Extraction Costs, and Optimal Exploitation of Mineral Resources

Abstract

This paper modifies the traditional theories ofnon-renewable resource exploitation where reserve sizeis assumed to be the major determinant of extractioncosts. In a competitive model of resourceexploitation, characteristics of aggregate reservesare considered as a determinant of extraction cost. Then dynamic solutions for the price and exploratoryefforts are developed. Various price paths arefeasible under different assumptions with regard tothe changes in the reserve characteristics over time. Past empirical research shows that there is noconsistent price path for all materials. In fact, itis the quality of newly discovered reserves as well astheir size that has affected material prices. Todemonstrate the complexity of a firm's decision torecover mineral from new deposits, potentials forsubstantial high quality marine mineral resources areevaluated as a substitute for land-based resources.However, several factors including the decreasingtrend in marine mining R & D expenditures and thepotential impact of large-scale marine mining on priceof minerals indicate that mining of mostnon-hydrocarbon marine minerals will not take place inthe near future.