Mining Investment Research Articles

Canadian Mining Investments in Argentina and the Construction of a Mining–Development Nexus

This article explores the relations between Argentina and Canada through the mining sector during the political cycle of Kirchnerism (2003–2015). Mining has been a growing economic sector but also a source of social resistance capable of mobilizing a regulatory agenda that sets restrictions to this activity. State political agency has been central to managing these tensions. How has the state responded to the growth of the mining industry? What has been Canada's role in this process? The claim is that Kirchnerism's response to growing anti‐mining resistance in a context of macroeconomic tensions has been to reframe transnational mining as consistent with a national development outlook. We explore this argument by looking at changes at the material, discursive, and institutional dimensions of the mining–development nexus.

The legal character of mineral rights under the new mining law of Kenya

Kenya enacted a new mining law in May 2016. The law aims to position Kenya as the most attractive destination for mining investment in Africa and to enhance the country’s competitiveness globally. A key feature underpinning the new legal framework is the emphasis on security of mineral rights. Secure mineral rights are considered to be a critical component of a competitive mining investment climate. One aspect of security of mineral rights is the legal character of the mineral rights or titles that may be held by or granted to prospective applicants. The right to explore for and produce a mineral in Kenya is conferred by a mineral right over a defined area and over a period which is granted pursuant to the mining law. In this context, investors are interested in knowing the nature of the mineral rights which the title confers upon them and the circumstances under which the mineral right may be terminated, and the remedy available to the holder. This article discusses the legal character of mineral rights under Kenya’s new legal framework. It focuses, in particular, on the protection that the mining law offers to holders of mineral rights.

Edward Drinker Cope's final feud

A notoriously combative Quaker naturalist, Edward Drinker Cope relished a good fight. His infamous quarrel with Yale palaeontologist Othniel Charles Marsh, which climaxed in 1890 when it became front-page fodder for the New York herald, was one of the great scandals of nineteenth-century American science. But it was not his last. By the 1890s, his once prodigious vertebrate palaeontology research programme was in tatters. Marsh's many triumphs had demoralized him, while a ruinous succession of unlucky mining investments had depleted his family fortune. Cope, the quintessential gentleman-naturalist, was compelled to pawn his fossil collections and seek a paying position in a university or museum. Unfortunately, he lacked the tact and the proper temperament to adapt himself to an increasingly professionalized American scientific establishment. Struggling and dissatisfied professionally, and facing a painful, life-threatening illness, Cope picked one final feud with Chicago's Field Columbian Museum and its embattled director, Frederick J. V. Skiff, over the thorny issue of scientific autonomy versus authority in America's natural history museums.

Real options in metal mining project valuation: Review of literature

This paper presents a literature review of the academic literature that covers real option analysis in the context of metal mining investments. Real options are of growing importance in metal mining, because of increased uncertainty of markets and complexity of new projects. The central promise of real option valuation methods applied to project analysis is to both hedge and enhance expected economic returns. The reviewed literature is sorted on the basis of the valuation approach used and by the type of real options studied. The distinction between real options “on projects” and “in projects” is made and discussed.

The Chilean elite’s point of view on indigenous peoples

ABSTRACTIn Chile, recognition of the country’s indigenous peoples is generally approached from the victims’ point of view, drawing attention to the social, economic, and legal situation of historically excluded communities. Although this is a legitimate approach, this paper proposes another perspective: looking at how the influential members of the elite perceive indigenous peoples and the construction of a plurinational democracy. Recognition of indigenous peoples’ rights depends to a large extent on their relations with other groups and, in particular, on the strategies deployed by the most powerful minorities. In order to ascertain the opinion of those directly concerned with the “Mapuche issue”, we focused on businesspeople with investments in mining, forestry, salmon farming, and the electricity industry, as well as the country’s business associations. Similarly, we paid special attention to political authorities, private-sector and religious leaders, judges, judicial authorities, and government officials from the Araucanía Region. Apart from identifying differences among members of the elite based on their political affiliations, this paper reveals a generalized awareness of discrimination but a widespread reluctance to find concrete solutions.

Optimal extraction policy when the environmental and social costs of the opencast coal mining activity are internalized: Mining District of the Department of El Cesar (Colombia) case study

Several articles have confirmed the social and environmental consequences of opencast coal mining. The main purpose of this study is to simulate the optimal extraction policy of coal mining with and without the internalization of the environmental and social monetary costs that occur in the Mining District (located in the central part of the Department of El Cesar) using discrete dynamic programming (backward recursion, discrete state Markov decision model and Bellman equation). Results indicate that the private optimal of the overproduction policy for the terminal phase of the resource extraction program can be reduced once the negative externalities produced by mining practices are internalized into the cost function of the mining investment companies in Colombia. This means that if there is an increase in the total cost of extraction to offset the environmental and social impacts generated, the negative externalities would be less than or equal to the current level. Likewise, profits would continue being positive for the mining firms at the Mining District.

The Raw Materials Convertible into Bonds

Abstract This article is dedicated to the instrument such as raw materials convertible bonds, the application of which in the mining industry can increase the efficiency of mining investments and, consequently, contribute to the improvement of the economic and financial market of mineral resources. Bonds with the option of conversion into raw materials bring relevant benefits to both the investor – the bondholder who buys these bonds, and to the mining company as the issuer. The use of this debt instrument increases the efficiency of mining investments, mainly by lowering the cost of capital in relation to traditional sources and by flexibility of being able to convert the capital debt into raw materials. Due to the fact that the article is illustrative only, and its goal is just to present a relatively new instrument, which are raw materials convertible bonds, the author focused an attention on its possible use in the financing of investments in the mining industry and the potential economic effects of such a solution. In order to identify the likely financial benefits, discussed debt instrument was compared with selected sources of funding, such as ordinary bonds and simple bank loan. Due to this fact, the article doesn’t present the consideration of every aspect associated with the bond that has an option, but is mainly focused on its main attribute, which is the ability to convert debt into raw material. The paper presents the general assumptions regarding the raw materials convertible bonds, the advantages of this solution and the requirements that the issuer of such instrument will have to cope with. The article contains also a diagram showing the use of a raw materials convertible bonds in the tripartite agreement. The final part of the publication shows an example of a calculation comparing the newly presented instrument to the ordinary bonds and bank loans. The summary presents the conclusions of the analysis of the possible use of raw materials convertible bonds as an instrument of financing investments in the mining industry.

Economic Geography of the Australian Mining Industry

AbstractThis paper is a discussion of the economic geography of Australia. It provides a history of foreign investment in mining, and discusses several resources booms that shaped the landscape of the continent and the role of governments (state, federal and territory governments) in this process. The paper presents a chronological account of the development of the Australian mining industry, the primary activities of which are the extraction, and export of unprocessed coal, iron, minerals and increasingly natural gas. The paper analyses the industry's interaction with foreign investment and government assistance (that is, government spending in relation to the industry such as subsidies, loans and infrastructure construction, etc.). Australia's trade and foreign investment environment have long been deregulated. The Australian mining industry has benefited from this deregulation. But its most spectacular period has been the ‘commodities super‐cycle’ of the 2000s–2010s. Overall, its contribution to exports has long typified the mining industry. The discussion herein draws attention to the applicability of the ‘eclectic theory’ in reference to foreign investment in mining. That is, investing mining MNEs (multinational enterprises) have three main types of ‘locational advantages’ in Australia: (i) volume of the availability of resources; (ii) foreign investment regulatory environment; and (iii) government assistance that benefits the mining industry's expansion.

Analyzing operational real options in metal mining investments with a system dynamic model

ABSTRACTThis article presents a detailed system dynamic (SD) model of a metal mining investment that is usable in ex-ante profitability and operations management analysis. We show how the SD model can be used to analyze the profitability effect of three operational real options: the option to temporarily close production, the option to abandon production, and the option to increase production through cutoff grade change. The SD model allows for intuitive modeling of the multiple interactive real options and arriving at results that are difficult, or impossible, to reach with commonly used spreadsheet software. We also analyze the effect of mining project debt ratio to the project value and show that correctly choosing the debt ratio affects project profitability. The effect on the project value of using three different future metal price scenarios with two different stochastic processes is illustrated to highlight the importance of correct process selection in modeling future metal price paths. A realistic case of a high-cost nickel (Ni) metal mine is used as a basis for the presented numerical illustration of the model.

Subsoil abundance and surface absence: a junior mining company and its performance of prognosis in northwestern Ecuador

Spectacle and performance have long characterized global mining investment. In this paper, I examine the performative strategies of a junior mining company called Ascendant Copper in its pursuit of copper in northwestern Ecuador in the mid‐2000s. I focus on Ascendant's contradictory efforts to attract mining investment with imagery of subsoil abundance while also downplaying the scale and significance of mining in the face of local opposition. I approach the company's divergent strategies as reflective of the dual meanings of prognosis, as both forecast and diagnosis. I begin by examining the means through which Ascendant promoted subsoil copper wealth within the framework of resource classification established by the Toronto Stock Exchange. I then analyse the way the company employed discourses of corporate social responsibility to portray its local presence as one defined by conservation and development. In analysing the articulation of a junior company like Ascendant in relation to both subsoil and surface, I not only highlight the materiality of corporate social responsibility, but also underscore the precarious becoming of junior companies, who seldom feature in anthropological accounts of corporations.

Real options decision framework: Strategic operating policies for open pit mine planning

This paper presents a first approach towards the development of a dynamics decision-making tool (DDMT) for open pit mine planning projects. In this paper, a decision framework, the so-called real option decision framework (RODF), is developed based on a real-options approach with practical applicability to a mining investment project. Four strategic operating options namely, deferral options, maintain options, expand options, and shutdown options, are assumed for mining operations. We illustrated the proposed framework and developed methods for a hypothetical gold mine. The standard discounted cash flow (DCF) method was carried out to analyze the project values without options. The real option valuation (ROV) approach was calculated for the deferral and expand options. We used a system dynamics (SD) modeling method to solve real options problems and the discrete-event simulations were used to simulate the potential values of the projects. The findings are that investors are prone to lose an opportunity to invest if relying on traditional DCF-NPV rules as they suggest accepting the project if and only if NPV is greater than zero. However, results obtained from real options suggest that the project has a value to an investor across different time horizons. The insight is that it is of paramount importance to find an optimal time to exercise a strategic option. It is indicated that strategic options such as the deferral option may yield a higher value than the base case (DCF-NPV) mine option because project risks can be hedged, whereas the expand option may also offer additional value to mine operators. However, such extra-additional values can only be captured through managerial flexibility.

Symmetrical component filter based on line condition monitoring instrumentation system for mine winder motor

As the capital investment in underground coal mining is huge enough by the standards of any conventional industry hence coal production process has to be very efficient to make commercially viable. In a situation of intensive and massive investment, the economics of production would primarily depend on machine utilization indicated by machine availability. Thus machine available time i.e. the time that a machine is available to do productive work, has to be maximized, for best returns on capital invested and utilization of manpower.In this present research work an online condition monitoring instrumentation system has been developed for condition monitoring of mine winder motor. The instrumentation system has been developed based on current monitoring technique. The symmetrical current component present in the unbalanced motor current is sensed with the help of current transformer, current to voltage converter, all pass filters and adders. Any electrical fault in mine winder motor will produce unbalancing in the motor circuit and will cause for the development of symmetrical current component. The type of electrical fault can be determined by sensing the symmetrical current component. One important advantage of this condition monitoring technique is that the instrument can be made hand held and the same hand held instrument may be used for the fault diagnosis of other motors also.A novel condition monitoring instrumentation system based on symmetrical component filter has been developed for on-line condition monitoring of mine winder motor. The instrumentation system would be able to diagnose various incipient faults of mine winder motor and will increase the safety as well as availability of mine winder.The result obtained from symmetrical current component filter based motor diagnostic technique has been verified with the result obtained by axial leakage flux based motor diagnostic technique for similar simulated motor fault condition to pinpoint the exact faulty of condition of the model mine winder motor.

Killing the goose that laid the golden egg? Australia's resource policy regime in comparative perspective

ABSTRACTA common criticism of the minerals resource rent tax (MRRT) was that it would ‘kill the goose that laid the golden egg’ for the Australian economy. Mining companies, their industry associations, and the Liberal–National Coalition all argued the MRRT would reduce Australia's attractiveness for mining investment, and lead to ‘capital flight’ as resource firms shifted towards lower-taxing competitors. To evaluate this claim, it is necessary to compare Australia's resource policy regime – including, but not limited to, its taxation elements – against those of its principal competitors. This article undertakes such an evaluation by comparing Australian resource policies with those of nine of its major mineral and energy competitor countries. This survey reveals that Australia's comparatively high mining tax rates are partially offset by its ‘non-interventionist’ approach to resource policy, and that it has retained good rankings on international political risk surveys. There is some evidence of short-term market response to the mining tax, but there is little evidence of sustained capital flight occurring due to the MRRT. These data collectively suggest that the MRRT did not significantly undermine Australia's attractiveness for international mining investment, despite widespread perceptions to the contrary.

Saving or destroying the local community? Conflicting spatial storylines in the Greenlandic debate on uranium

A downturn of economic activities the last four years has intensified the debate on mineral resources in Greenland. This paper undertakes a discourse-centered examination, focusing on key storylines about uranium mining in Greenland; here conflicting spatial storylines about “saving” or “destroying” the local community often appear. The analytical focus on storylines and frontier stories reveals that considerable power is embedded in structured ways of seeing, which causes certain things to seem fixed and important, while other elements appear to be problematic or absent. The production of storylines has facilitated a discursive paradigm shift which has turned mining in Greenland into mining for Greenland, as well as stabilized an argument about mining as the primary road to development. This article argues that investments in mining are also investments into different spatial development futures for local communities co-constructed by politicians, the media, NGOs, the mining sector as well as the local stakeholders. The analysis incorporates knowledge and experiences from a continuing ethnographic case study in Narsaq, a community close to Greenland’s potentially biggest mine of rare earth elements and uranium, and also includes insights from the public debate on uranium taking place at various locations.

How resource-poor countries in Asia are securing stable long-term reserves: Comparing Japan's and South Korea's approaches

Securing stable long-term supplies of raw materials is vital for industrialized nations. China, Japan and South Korea are three countries in East Asia which import large quantities of raw material, especially metals and petroleum products. Unlike the other two, China has large mines and oilfields and so can use this expertise to exploit resources overseas. In contrast Japan and South Korea are resource-poor countries that lack domestic petroleum and mining industries.This paper compares the ways in which these two countries secure supplies. Japanese trading companies and industrial groups invest in mining and petroleum projects run by international groups with the active support from the Japanese government through the Japan Bank for International Cooperation (JBIC). In contrast, the Korean government has set up two state run corporations: the Korea Resource Corporation, KORES, for minerals, and the Korean National Oil Corporation KNOC for oil and LNG, which usually take a leading role in choosing projects, though they do work in partnership with large Korean private sector groups. After his election in 2008, President Lee Myung-bak put pressure on public sector entities to speed up investments in mining and petroleum projects, which resulted in unsuitable projects being financed and public money being wasted. We argue that three lessons can be learned from this: firstly, building up a solid basis of natural resources takes decades and should not be rushed; secondly, project finance in the sense of non-recourse funding provides better checks and balances than direct acquisitions do and thirdly more transparency is required when spending taxpayers' money.

Problems of regulatory governance in the mining sector in Asia

This paper analyses the governance of foreign mining investment in the Asia-Pacific region. After surveying relevant literature on regulatory regimes, the paper draws on the seminal work by Stern and Holder (1999) to evaluate the regulatory issues in China, India, Indonesia, Papua New Guinea and the Philippines. Our analyses indicate six key regional challenges: regulatory overlap, regulatory capture and a lack of independence from government, lack of impartiality, lack of transparency, inadequate stakeholder engagement and access to regulator, and a lack of institutional capacity. These issues are more pronounced in some countries than in others. Finally, policy implications which may aide regional governments to improve governance infrastructure in their mining sectors are outlined.

The impact assessment of quality parameters of coal and waste rock on the value of mining investment projects – hard coal deposits

Streszczenie Artykuł stanowi próbę oceny wpływu parametrów geologicznych i górniczych na poziom przychodów, kosztów oraz wartość przedsięwzięć inwestycyjnych w górnictwie węgla kamiennego. Teza pracy wiąże się z przekonaniem autora, iż w obszar czynników istotnie współokreślających ocenę przychodów, kosztów i efektywność eksploatacji należy wpisać, obok parametrów jakościowych węgla, także uzysk kopaliny. Pomijanie lub pobieżna ocena parametrów jakościowych węgla w pokładach oraz wpływu uzysku na postęp i koszty wydobycia może istotnie zniekształcać ocenę potencjału konkretnych aktywów geologiczno-górniczych. Dotyczy to w szczególności wydobycia w nowych rejonach wydobywczych lub też nowych złożach. Do badań symulacyjnych zbudowano dedykowany model oceny pozwalający skwantyfikować kierunek i siłę wpływu wartości opałowej, zawartości popiołu i siarki oraz współczynnika uzysku węgla netto (UWN) na poziom i zmienność łącznych przychodów, kosztów i ostatecznie wartość projektów geologiczno-górniczych. W tym celu opracowano również autorskie formuły szacowania kosztów stałych i zmiennych w funkcji zmiennego UWN. Rezultaty badań przedstawiono ostatecznie w konwencji analizy scenariuszowej. Uzyskane wyniki wskazują na istotny wpływ wartości opałowej i ilości skały płonnej mierzonej zmiennością uzysku węgla netto na poziom generowanych przychodów, kosztów oraz prognozowane miary oceny działalności operacyjnej hipotetycznej kopalni węgla kamiennego. Wykazano, że zmiana o 1 GJ wartości opałowej może powodować od 3,57% do 4,76% wzrostu/spadku łącznych przychodów. W przypadku złóż węgla kamiennego, dla których realny uzysk węgla może wahać się w przedziale 60–80% można oczekiwać zmiany kosztów wydobycia węgla nawet o 53,0% w tym zakresie. Błąd oszacowania NPV, przy zmienności wartości opałowej w przedziale 21–27 GJ/Mg, może wahać się w przedziale 0–78%, natomiast spadek uzysku węgla o 18 pkt. może obniżać wycenę działalności operacyjnej kopalni nawet o 872,4%, co wynika z cech metody NPV i opracowanego scenariusza bazowego (NPV ≈ 0). W publikacji nie wyczerpano zakresu analizowanej problematyki. Artykuł stanowi część większej całości prac nad sformułowaniem wytycznych (wskazówek) pozwalających właściwie szacować wartość aktywów geologiczno-górniczych w warunkach zmiennych parametrów geologicznych i górniczych, biorąc pod uwagę dodatkowo błędy oszacowania wartości średnich cech jakościowych wydobywanej kopaliny.

The South Manchurian Railway Company and the Mining Industry: The Case of the Fushun Coal Mine

Following the Japanese victory over Czarist Russia in the Russo-Japanese War and the signing of the Treaty of Portsmouth in 1905, the southernmost section of the southern branch of the China Far East Railway (Changchun–Port Arthur) was transferred to Japanese control. A new, semi-privately held company, the South Manchuria Railway Company (SMR, Mantetsu, was established with 85.6 percent capitalization by the Japanese government and foreign bonds to operate the railroad and to develop settlements (including highways, public health facilities, educational institutions,) and industries (coal mines, harbor facilities, electrical power plants, shale oil plants, chemical plants, and restaurants) along its route. SMR nonetheless emphasized railway and mining investment. The centerpiece of its mining interests was the Fushun Coal Mine. Starting in 1917, SMR began to prosper, with most profits coming from its coal mines, and it soon spun off subsidiary companies. In this sense, although the factors that influenced development of the Fushun Coal Mine in each period were different, this development still shows continuity of the business management.

Uncertainty and investment: Evidence from the Australian mining industry

Using Australian firm data, this study constructs an error correction model of capital stock adjustment to examine the uncertainty–investment relationship in the mining industry. As indicated, with firm features, the effect of demand uncertainty on the short run investment response to demand shocks is positive, while the effect of demand uncertainty on investment is negative. In addition, changes in exchange rate costs and Chinese ownership promote investment. More specifically, separating the sample period into before and after 2003, the estimation suggests that only after 2003 with the negative effect of Chinese GDP growth uncertainty, Chinese ownership had a positive effect on Australian mining investment. This suggests that rising Chinese demand after 2003 has a large impact on Australian mining investment.

Drilling Down on Royalties: How Canadian Provinces Can Improve Non-Renewable Resource Taxes

From coast to coast, non-renewable-resource taxation is a key source of provincial government revenue – and political rancour. Alberta has recently started a comprehensive review of its oil and natural gas extraction tax system. Newfoundland and Labrador is looking at a redesign of its royalty system. And British Columbia has set up a new tax on liquefied natural gas production. These provinces can all improve their current resource tax systems to raise more money without jeopardizing investment. The key problem with current resource taxes in Canada is not the tax rates, but the design of the taxes. Canadian policymakers should be looking at international best practices in resource tax design. Australia and Norway have best-in-class resource taxes that are based on the cash flows of resource production. That better design means that resource companies in those countries pay a high tax rate on cash flows but still have a strong incentive to invest. Western Canadian provinces instead rely on economically distorting gross-revenue royalties for most onshore oil and gas taxation. These provinces should change their gross-revenue royalties to more efficient cash-flow taxes. Cash-flow taxes are a better way of reflecting the cumulative costs that resource companies face to extract energy than are gross revenue royalties. Although Alberta’s oil sands cash-flow tax and Newfoundland and Labrador’s offshore royalty follow many international best practices, both have room for improvement. Those provinces should rethink the rules around how companies pre-pay gross revenue royalties, the limits on the kinds of expenses companies can deduct, and having a royalty rate that fluctuates with oil prices. British Columbia’s mining tax hits many of the right notes. However, the province’s tax on liquefied natural gas exports would be unnecessary if it changed its gross-revenue royalties on natural gas extraction to cash-flow taxes. Likewise, the federal government should consider reforms to its own corporate income tax system to tax cash flows, not profits. Canadian provinces have collected about $79 billion in resource-specific tax revenues from 2009 to 2013. But the provinces can collect more while not harming investment in mining and oil and natural gas extraction if they change their distortive gross-revenue royalties into better designed cash-flow taxes.