losure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized

LQ~~~~

The Mining Industry and the Developing Countries

-~~~~~~~~~~~~~~~~~~~~~
Substantial benefits can accrue to a develop-
ing country from a properly structured and
administered mineral industry. While pro-
viding foreign exchange earnings, mining
also produces revenue through taxes and
royalties; stimulates development of
depressed regions; improves the profes-
sional and technical skills of nationals; and,
for some countries, provides a nucleus for
economic development.
This study of the world mineral industry ex-
amines its structure, objectives, and opera-
tion, and the major factors bearing on them,
such as the physical characteristics of
mineral resources, economies of scale,
capital requirements, and economic and po-
litical risk. The nature of production, con-
sumption, and trade patterns are surveyed,
together with the industry's effect on devel-
opment and on the potentially volatile
behavior of mineral prices. In examining the
principal problems and challenges facing the
indust-ry, the book reviews the role that
public and private policy can and must
assume to meet the needs of society while
safeguarding the interests of nations,
especially those of developing countries.
Practical prescriptions for action focus on
the truly international character of the in-
dustry and the need for cooperation between
developing and industrialized countries in
order to expand the flow of mineral re-
sources to world markets. Mineral develop-
ment needs physical, financial, and techni-
cal resources from varied sources, and has to
The Mining Industry and
the Developing Countries

A WORLD BANK RESEARCH PUBLICATION

 Rex Bosson The
and Mining Industry
BensionVaron and the
Developing
Countries

Published for Oxford University Press

The World Bank I
 Oxford University Press
NEW YORK OXFORD LONDON GLASGOW
TORONTO MELBOURNE WELLINGTON CAPE TOWN
IBADAN NAIROBI DAR ES SALAAM LUSAKA ADDIS ABABA
KUALA LUMPUR SINGAPORE JAKARTA HONG KONG TOKYO
DELHI BOMBAY CALCUTTA MADRAS KARACHI

© 1977 by the International Bank

for Reconstruction and Development / The World Bank
1818 H Street, N.W., Washington, D.C. 20433 U.S.A.
All rights reserved. No part of this publication may be
reproduced, stored in a retrieval system, or transmitted
in any form or by any means, electronic, mechanical,
photocopying, recording, or otherwise, without the prior
permission of Oxford University Press. Manufactured in the
United States of America.
The views and interpretations in this book are those of the
authors and should not be attributed to the World Bank, to
its affiliated organizations, or to any individual acting
in their behalf.
First printing, June 1977
Second printing, July 1978

Library of Congress Cataloging in Publication Data

Bosson, Rex, 1943-
The mining industry and the developing
countries.
Bibliography: p. 273
Includes index.
1. Mineral industries. 2. Underdeveloped
areas-Mineral industries. I. Varon, Bension,
joint author. II. Title.
HD9506.A2B67 338.2'09172'4 77-2983
ISBN 0-19-920096-3
ISBN 0-19-920099-8 pbk.
Contents

List of appendixes vii

List of figures viii
List of tables x
Acknowledgments xiii
Preface to the Second Printing xv

Introduction and Summary 3

The Pressure of Change 5
Weighing the Contribution of the Industry 6
Attributes and Performance of the Industry 8
Mineral Sector Development in the Developing Countries 12
The Future 17
1 The Nature and Structure of the Industry 24
General Characteristics 24
Stages of Mineral Resource Exploitation 26
Costs and Patterns of Mineral Exploration 31
Technological Change and Economies of Scale 34
Infrastructure and Shipping 38
Concentration of Ownership and Control 40
The Role of Foreign Investment 45
Capital Requirements and Sources of Finance 46
Mineral Prices and Profitability 50
2 Mineral Reserves and Resources 53
Concepts, Measurement, and Interpretation 55
Land-Based Reserves 58
The Distribution of Resources 59
The Dynamism of Resources 62
Ocean Resources 64
Recovery and Recycling 70
3 I Production, Processing, Consumption, and Trade 77
Statistical Problems and Adjustments 80
Global Trends 81
The Concentration of Production and Processing 85
The Structure of Trade 89
The Contribution to National Economies 96

v
 Vi I THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

4 1 Mineral Price Behavior 103

The Role of Mineral Prices 104
The Nature of Price Information 107
Determinants of Prices and Elasticities 110
Price Trends 113
Past Attempts to Influence Prices 120
Issues and Directions 124
5 Problems of Mineral Development in
Developing Countries 132
Interdependence of Developing and Developed Countries 132
Divergent Objectives of Investors and Host Governments 133
The Sources of Conflict 134
The Division of Benefits 140
Government Intervention in Foreign-owned Companies 141
The Importance of Exploration 143
The Pitfalls of Foreign Aid 147
6 Objectives and Policies of Mineral Sector Development 151
The Objectives 152
The Elements of a National Mineral Policy 153
Steps to Implement a National Mineral Policy 156
The Ministry of Mining 157
The Geological Survey 159
A Mining Bank 160
The State-owned Operating Company 161
Marketing 163
Research and Development 165
The Mining Code 165
Mining Taxation 166
Revenue Sharing 170
Other Legislation 173
Dealing with Multinationals 174
Technical Assistance: the Where, What, and How 175
7 Performance, Prospects, and Problems of the Industry 178
The Performance of the Industry 178
Meeting Future Requirements 180
Problems and Challenges 184
The Special Problem of Capital Requirements 185
The Role of Policy 187
There Is No Looking Back 188

Appendixes 193
Bibliography 273
Index 284
Appendixes

A | Mineral Exploration Costs, Expenditures, and Risks:

Selected Examples 195
Canadian Experience 195
United States Experience 199
Implications for Exploration Expenditures in the Developing
Countries 200
B j Expansion of Mineral Capacity 203
C I United Nations Assistance in Mineral Resources
Development 206
Organization and Strengthening of Government Departments
Dealing with Geology and Mineral Resources
Development 207
Mineral Exploration Programs Using Modern Methods 207
Programs in Mining and Mineral Processing 208
Establishment of University Schools of Applied Geology 208
Other Technical Assistance Activities 208
D Past Activities of the World Bank in the Mining Sector 210
E 1Profitability of the Mineral Sector 212
F I Classification and Reliability of Reserves and Resources 215
G I Estimates of Reserves and Adequacy 219
H I Estimates of Production, Consumption, and Trade 227
I The Share of the Developing Countries in
World Mineral Exports 252
J The Experience of the Quebec Mining Exploration
Company. A Case Study 256
Staffing 256
Operations 257
Financing 258
Implications for the Possible Exploration Funds in the
Developing Countries 259
K | Small-scale Mining 261
L A Modern Mining Code 266

vii
Figures

1 Development and Expenditure Chart for a Modern

Large-scale Mining Project 30
2 Annual Exploration Costs as a Function of Annual
Sales for Selected Companies in Canada, 1954-68 33
3 I Comparison of Costs and Size of Operation 36
4j Development of Reserves 57
5 | Entry of Selected Metals into Large-scale Production
and Consumption in the United States 62
6 Forecast of Entries into Nodule Mining, 1976-85 68
7 Comparative Long-range Supply Curves for
Land-based and Ocean Resources 71
8 Growth of Population and Value of World Mineral
Output in Constant (1972) Prices, 1900-70 78
9 Percentage of Processing Conducted for Nine
Minerals in Developing Market Economies, 1970 88
10 I Import Dependence and Source of Net Imports for
Nine Major Minerals, United States, Western Europe,
and Japan, 1950 and 1970 91
11 Distribution of Iron Ore Imports by Type of Importer-
Exporter Relation, for World (1960 and 1968) and for
Major Importers (Most Recent Estimates, circa 1968) 108
12 I Deflated Price Indexes for All Minerals, and for
Copper, Lead, and Pig Iron 113
13 I Index Numbers of Prices of Exports of Minerals and
Metals and all Primary Products from Developing
Countries, and UN Unit Value Index of Exported
Manufactured Goods (1963 = 100) 114
14 j Deflated Prices of Selected Minerals and Metals,
1963-73, and Average (A), High (H), and Low (L)
for 1974 (1973-74 enlarged) 116

viii
 FIGURES I iX

15 Monthly Average Copper Prices and London Metal

Exchange Stocks on the Last Friday of the Month,
1973-74 118
16 j Objectives of Canada's Mineral Policy 153
17 The Effect of Taxation on Mining in British Columbia,
Canada 172
A.1 Canada's Experience in Mineral Exploration: Aggregate
Exploration Expenditures per Five-Year Period 196
A.2 l Canada's Experience in Mineral Exploration: Aggregate
Value of Discoveries per Five-Year Period 196
A.3 Canada's Experience in Mineral Exploration: Value
of Metal Discoveries per Million Dollars of
Prospecting or Exploration Expenditures 197
A.4 Canada's Experience in Mineral Exploration: Number
of Discoveries per Five-Year Period 197
A.5 I Canada's Experience in Mineral Exploration: Average
Exploration Expenditure per Discovery 198
A.6 Canada's Experience in Mineral Exploration: Average
Value of a Discovery 198
A.7 Exploration Expenditures in the Western United States 200
A.8 Gross Value of Ore Deposits Valued at $100 Million
or More Discovered in the Western United States 201
E.1 Annual Earnings on Direct U.S. Foreign Investment in
Mining and Smelting Facilities as a Percentage of Direct
Foreign Investment (Book Value, Year End) 214
F.1 | Classification of Mineral Resources 217
Tables

1 Typical Capital Investment Requirements for Mining

and Processing Facilities 47
2 Profitability of Selected Groups of Companies 51
3 Substitutes for Selected Minerals 60
4 Dynamics of Mineral Reserve Estimates 63
5 I Selected Estimates of Scrap Recovery in the
United States 74
6 Selected Ores, United States and Western Europe:
Production as a Percentage of Consumption 79
7 Estimated Raw Material Value of World Production
of Nine Major Minerals, 1950-70 82
8 j Selected World Mineral Output Statistics, 1971-75 83
9 I Production, Consumption, and Net Trade of Nine
Major Minerals, by Region, 1950-70 84
10 Concentration of Mineral Production Capacity for
Selected Minerals in Principal Producing Countries 86
11 I Degree of Processing Conducted in Different Regions 87
12 Gross Exports and Imports of Selected Minerals,
by Region, 1970 90
13 I Percentage of 1973 U.S. Imports Supplied by Canada
and Mexico 92
14 j Japanese Mineral Imports, 1970, as Percentage of
World Imports and Domestic Consumption 93
15 I Estimates of the Effects of New Taxation on an Actual
Copper Mine in British Columbia 171
B.1 d Mineral Projects under Construction or in Advanced
Stages of Planning 204
F.1 I Apparent Reliability of Data on Eighty-one Mineral
Commodities 218

x
 TABLES Xi

G.1 I Distribution of World Mineral Reserves by Value at

Common State of Transfer in the World Market 220
G.2 I World Reserves of Selected Minerals 222
G.3 Commercially Recoverable Resources of Selected Ores
under Selected Price Assumptions 226
H.1 l Mining Output and Estimated Mine Head Value of
Consumption and Net Trade, by Region, Nine Major
Minerals Combined, 1950, 1960, and 1970 229
H.2 l Mining Output and Estimated Mine Head Value of
Consumption and Net Trade, by Region and by
Mineral, 1950, 1960, and 1970 230
H.3 1Mining and Processing Output and Estimated Final
Product Value of Consumption and Net Trade, by
Region, Nine Major Minerals Combined, 1950, 1960,
and 1970 240
H.4 Mining and Processing Output and Estimated Final
Product Value of Consumption and Net Trade, by
Region and by Mineral, 1950, 1960, and 1970 241
H.5 I Estimated Net Import Requirements as a Percentage of
Consumption, Nine Major Minerals, by Industrialized
Region and by Commodity, 1950, 1960, and 1970 250
H.6 Degree of Mineral Processing Conducted in Different
Regions, Nine Major Minerals Combined, 1950, 1960,
and 1970 251
I.1 Principal Exporters of Selected Minerals among
Developing Countries 253
K.1 Small-scale Mining of Specific Minerals 262
K.2 I Small-scale Mining in Selected Developing Countries,
1960-70 263
Acknowledgments

THIS BOOK HAS ITS ORIGIN in a comprehensive paper on the mining

sector prepared by the staff of the World Bank in 1972 and 1973,
and much of our research for the book was carried out in connec-
tion with that paper. The first persons we wish to thank, therefore,
are Hans Fuchs and Mahbub ul Haq-at once bosses, friends, and
sources of inspiration-who gave us the permission and encourage-
ment to embark on a book. Mr. Fuchs was intimately involved in
all aspects of the original paper and was, in fact, the guiding light
behind it. We would also like to acknowledge Turgut Ozal's
contribution to the original paper, from which we have benefited
greatly.
We are also extremely grateful to Raymond Mikesell of the
University of Oregon and to John Carman and Wolfgang Gluschke
of the United Nations Centre for Natural Resources, Energy, and
Transport for commenting on an early draft of the book and for
their useful suggestions. Mr. Carman's influence represents a
special case. His enormous, lifetime contribution to the mining
field-as an accumulation of facts and perceptions and a standard
of candor-served as a model and a catalyst for our own thinking.
We also wish to thank Barbara Varon for her constant refrain of
"say what you mean."
The very difficult and exacting task of typing the first draft fell
to Mary Shannon and Farida Dossani, and they handled it admir-
ably. Katharine Tait edited the final manuscript, Rachel C. Ander-
son prepared the index, and Brian J. Svikhart directed production
of the book.
Last, we wish to make it clear that this book is in large measure
the product of the opportunities for learning, field experience,
contacts, and open discussion afforded us by the World Bank. Yet
we would not want to attribute any errors in the text to the Bank
or to the individuals whom we have thanked for helping and
encouraging us.
REX BOSSON
BENSION VARON

xiii
Prefaceto the SecondPrinting

THE WORLD MINING SITUATION has, on the whole, deteriorated be-

yond the effects of the world economic recession since the initial
publication of this book. Both economic and noneconomic factors
have caused this deterioration. The inability of developing coun-
tries to curtail production in the face of depressed demand has
contributed to the longest trough in history in the prices of certain
minerals. What has happened in copper, for example-a decline of
nearly 50 percent in real prices since 1970-can be likened to a
severe drought in its devastating effects on producing countries
such as Zaire, Zambia, Chile, and Peru. Action on the part of the
international community to cushion these effects has been negligible.
The international community so far has also failed, after years of
negotiation, to arrive at an equitable regime for the exploitation of
ocean resources. Ocean bed mining, therefore, is not likely to
commence as early as anticipated in the United Nations study
quoted in the first printing of this book. The disappointing record
of law of the sea negotiations has quite destroyed the notion that
an oceans agreement might provide the vanguard for a solution to
similarly complex global problems.
Moreover, exploration continues to be concentrated in a selected
group of developed countries-a situation that will not be helped
by the reality and prospects of political strife in the most important
mining areas of Africa. Expressions of mutual suspicion and even
bitter hostility between developed and developing countries, dating
from the call for a new international economic order, have abated,
and recent bilateral agreements have shown a tendency to accom-
modate the concerns of each side. International arrangements, how-
ever, be they for channeling mineral finance to the developing
countries or for moderating the wide swings in commodity prices,
have been very slow in coming. In light of this, it is normal for
developed as well as developing countries to explore self-reliance

xv
 XVi I THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

in meeting mineral production needs, either for domestic consump-

tion or for export. While this responds to legitimate national con-
cerns, it is ultimately not the kind of climate in which the mining
industry is most efficient. The industry is so international in
character that it is continuously forced to promote international
cooperation on a broad level.
The Mining Industry and
the Developing Countries
Introductionand Summary

THIS BOOK is designed to provide an overview of the world mining

industry-its structure, objectives and operation, and the major
factors bearing on them, such as the physical characteristics of
mineral resources, economies of scale, capital requirements, and
economic and political risk; its production, consumption and trade
characteristics; the behavior of mineral prices; and the industry's
impact on economic growth with particular reference to the devel-
oping countries. The book examines the principal problems and
challenges facing the industry, both in the short term and over
the long run, and the needs and interests of the various players. It
reviews the role that policy, both public and private, can and
must assume to meet the needs of society while safeguarding the
interests of nations, especially those of developing countries. If
the professed goal of greater international economic cooperation
is progress for all, above all the neediest countries, then a vital
sector such as the mining industry must make a positive contribu-
tion toward that goal. We address ourselves to this issue through-
out the book, and especially in chapters 5 and 6, devoted to
mineral sector development in the developing countries.
The analysis is limited to nonfuel minerals and thus excludes
such vital sources of energy as petroleum, natural gas, coal, and
uranium. Although there are many similarities in the basic char-
acteristics and policy implications of fuel and nonfuel minerals,
today's market, with its prospects of massive transformation in
the fuel sector, introduces important differences that warrant
separate treatment. The analysis also excludes construction minerals
such as stone, sand, and gravel. Even though they serve to meet
important needs and account for a large proportion of world
mineral output (measured in value), international trade in them is
insignificant.

3
 4 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

While we cover the centrally planned countries in the statistical

analysis, we do not deal with the particulars of mineral develop-
ment in these countries nor how their experience may relate to
new nations. Nevertheless, in dealing with the institutional and
policy steps to be taken for establishing and administering a mining
sector, we suggest alternative ways of implementing these steps
depending on a country's political and structural preferences. We
do this only within the bounds of the mining sector; that is, we do
not consider the case where the entire economy is centrally planned
and integrated with other centrally planned economies through a
network of commercial and political agreements. Under such
conditions, the determinants-even the definition-of savings,
investment, risk, and profit are significantly different. Furthermore,
the information base for such economies is not nearly as complete
as that obtaining for the market economies. To proceed on a
sketchy basis might lead to wrong conclusions and therefore to an
unjustly distorted profile.
Although we do not hesitate to express opinions, the book's
emphasis is largely on facts, for on this topic there is a plethora
of judgments but a dearth of facts. The adage "knowledge is
power" fits the mining industry like a glove. Understanding of the
fundamentals plays a key role in shaping expectations and harness-
ing bargaining power. National policymakers especially must
recognize and come to terms with the industry's complexity, no
matter how frustrating the process, in order to legislate realistically.
Without such effort, policies as well as international arrangements
are likely to miss their objectives, and their failure would come as
a surprise only to the policymakers. Although the modern age has
increased man's capacity for empirical analysis (especially in re-
sponse to crisis), it has not necessarily increased his ability to make
objective judgments. In the evaluation of the ramifications of the
energy crisis, the grace periods allowed by nonrenewable resource
inventories, and the sharing of benefits between producers and
consumers, identical figures are being used to support different
diagnoses and policies. For some analysts the cup is half empty
while for others it is half full. It is important, under these condi-
tions, to reach agreement on facts as prelude to agreeing on inter-
pretation, before agreeing on solutions.
This book cannot hope to clear up all the confusion about the
mining industry and its role in developing countries. Our objective
is the more modest one of providing a view of the industry as an
organic whole so that the problems posed by the new market
realities can be put in an operational perspective. Though we hope
to be informative in the eyes of all readers, we specifically set out
 INTRODUCTION AND SUMMARY | 5

to address those who, while not experts in the field of mining, are
informed and sympathetic participants in the ongoing debate on
international economic relations and development. The approach
is, therefore, selective with a view to providing these readers with
a manageable information base on which, we feel, our perceptions
and judgments can comfortably rest. We have tried to avoid
inundating the reader with raw data.
Statistical information about the mining industry is incomplete,
difficult to assess, and, particularly for intercountry evaluation,
lacks comparability; in addition, the reliability of the data can at
times be questioned. Much of the difficulty can be traced to meas-
urement problems and incomplete disclosure. While we believe
that our major conclusions are not materially affected, readers
should be cognizant of these shortcomings.

The Pressure of Change

The postwar era has been characterized by the emergence of
new nations with specific sets of needs and urgent demands sum-
marized most clearly in the recent call for a new international
economic order. While some of the excessive rhetoric can be dis-
missed, the root causes for the discontent among developing
nations and the need for reviewing the present configuration of
economic strength cannot.
A review of the income distribution trend during the last three
decades reveals no appreciable closing of the gap either within or
among countries. Clearly, the promise of the postwar period has
not been fulfilled; in the light of this, the workings of the market-
place have to be examined and brought into line with the goals
of fairer income distribution and an improved standard of living
on a worldwide basis.
The foundations for that hoped for improvement include ample
and stable resource supplies-in food, energy, and industrial raw
materials. The first step, then, is to examine who produces what,
how, for whom, and how the answers bode for the ideal of a
growth-sustaining economic environment for all.
This ideal ought to be the yardstick against which we measure
performance. Who are the "we" in this case? First, governments in
their role as participators, stimulators, integrators, and regulators
of economicactivity and, second, the large producers in the private
sector. It is these large, powerful units that can most easily bring
about needed results in response to changing aspirations. The
major part of world economic activity does not take place in the
 6 THE MINING
T INDUSTRY AND THE DEVELOPING COUNTRIES

extremes of either a totally planned or a totally free economic

environment. It is, therefore, in the mixed market situation, where
governments subscribe to broad economic and social goals, that
we must look for answers. In such a situation, each large unit
of production must make a positive contribution to the dynamics
of overall social and economic development and, as a consequence,
the large companies' role has to go beyond the traditional objective
of maximizing company profits.
In the case of the mining industry specifically, the role of the
large companies is crucial in terms of sheer dominance in the field
and their power, therefore, to withhold or extend benefits to the eco-
nomic system in which they operate. These giant companies can be
powerful agents for development in developing countries. Their
incentive to become such agents is determined to a large extent by
how they perceive the success of their ventures in a host country.
Traditionally, they have based their investment decisions on their
assessment of the comparative stability, especially political stability,
of the host country.
In today's world nothing is stable compared to past decades. The
present era is one of fundamental change, when poor countries are
striving for well-realized developed nationhood with all the attend-
ant turmoil; and developed nations are asked to reevaluate their
internal and external economic life. Ironically, at a time when
change is the only viable solution to the ills of a world economically
divided into haves and have-nots, the companies are unwilling to
give up the old yardstick of stability in making investment deci-
sions. For stability to be regained, the changes in perception and
aspiration on the part of the developing countries must first be
accommodated. This accommodation, however, can take place only
with the agents and mechanisms at hand in the marketplace.
These must be brought into a more perfect partnership with the
host countries rather than replaced; for the immediate problem, at
least, would be with what? There is, after all, very little time.

Weighing the Contribution of the Industry

The contribution of the mineral sector to civilization, especially

in the Industrial Age, and to material progress is immeasurable;
all major advances in meeting human needs in the past-for food,
housing, health care, education, jobs, and transport-have been pre-
dicated upon the use of additional minerals, more efficient use of
minerals, or use of better minerals-indeed, very often a combina-
tion of all three. Throughout history, the discovery of a new
 INTRODUCTION AND SUMMARY | 7

mineral, or of a new alloy, or of a new method of extracting or

processing a mineral, or of a new orebody has had a major impact
on industrial growth and consumption. If this crucial function is
not revealed in global or regional measures of the contribution of
mining to gross national product (GNP), industrial production, or
employment, it is because available statistics stop showing the
contribution of minerals once the resources move from the mining
sector to the manufacturing sector. The problem is one of cate-
gories as defined in the present system, which vanishes with his-
torical perspective.
Substantial benefits can accrue to a country from a properly
structured and administered mineral industry. In addition to pro-
viding foreign exchange earnings, mining activity may produce
additional revenue through taxes and royalties; stimulate develop-
ment of depressed regions; improve the professional and technical
skills of nationals; and, for some countries, provide a nucleus
for economic development. In the past two decades, mining has
become a major source of public and private revenue for many
newly emerging nations. Most mineral projects are by and large
independent of the size of the local market; with proper policies
and assistance, the industry can be competitive in any country
suitably endowed with natural resources.
There is no doubt that the mining industry can also have ad-
verse effects, directly or indirectly, on the economy of a develop-
ing country. By their very nature, mineral export projects have re-
mained enclaves, better integrated with the outside world than with
the host economies, and have allowed little backward integration.
The enclave industry label is well deserved. This fact, however,
should not be used in the tradition of the forceful cliche, namely,
that mining is bound to have gross adverse effects in the develop-
ing countries and, therefore, should be given low priority on the
development plan. This would prevent the establishment of a prop-
erly operated, regulated, and economically integrated mining
industry-the only model we advocate on the basis of the un-
acceptability of current experience.
Unfortunately, the enclave character is but one of several nega-
tive features of the mining industry as it now exists. The industry
shows insufficient concern for environmental damage and exhibits
a skewed income distribution. To be sure, these are not charac-
teristic of the mining industry alone (its skewed income distribu-
tion is all but dwarfed by that existing in agriculture as a result
of the unequal distribution of landholdings) but they are the more
glaring in an integrated industry dependent on host countries,
where a responsible and responsive company ethic should be the
 8 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

order of the day. Yet in imagining the ideal contribution of the

industry and the multinationals, one can easily fall into the trap
of asking them to fill a role beyond their purview. It is one thing
to ask an industry not to aggravate the maldistribution of income-
indeed to assist in its correction-quite another to look to it for
a model. That would imply quasigovernmental powers on the part
of the multinational company and the spread of its influence over
other sectors. It is inconsistent to complain about the power of the
companies while deriding their lack of initiative in areas which are
government prerogative. Maximizing the industry's positive con-
tribution to overall economic development requires intelligent co-
operation between governments and companies.

Attributes and Performance of the Industry

The mining industry is extraordinarily complex because of the
physical characteristics of mineral resources: their heterogeneity
and nonrenewability, their uncertain occurrence and often deep
underground location, the remoteness of some sites, and the re-
quirements for processing before mineral ores can be turned into
useful products. Mineral resources have to be discovered and, even
after discovery, the true value of a deposit cannot be known until
the deposit is depleted. The extent, rigor, and cost of preproduction
activities in mineral resource development are far in excess of those
required for the development of other industries. Three distinct
and lengthy stages-broad geological surveys, regional and detailed
exploration, and detailed orebody delineation-have to precede
mine development. The elapsed time between the start of explora-
tion and commercial production can be considerable: on the average
more than ten years and often as much as twenty years.
Although exploration expenditure generally amounts to only a
small part of total project cost, exploration constitutes the high-
risk element of any project, and in most cases the expenditure is
made without proving up a viable deposit. The major investment
in mining itself is made at much lower levels of risk; yet the total
risk in mineral resource development is in most cases considerably
higher than in the manufacturing industry because of the un-
certainty surrounding the results of exploration. Since no returns
can be assured or in some cases even assumed, the funds required
for exploration must be provided strictly as risk capital. In the
past, therefore, the private sector has borne the burden of explora-
tion expenditure.
The mining industry is very capital intensive and is becoming
 INTRODUCTION AND SUMMARY | 9

even more so; the economies of scale that can be realized are
significant; and infrastructure requirements can be enormous in
comparison to most other industries. All this points to extremely
large capital investment requirements which, coupled with attend-
ant risks much higher than for other industries, has led to an
industry structure dominated by corporate giants capable of spread-
ing risks over geographic and commodity areas. Very large mining
companies, international in outlook and sophisticated in financial
and technical analysis and operations, control the mining cycle
from exploration to marketing of the refined mineral, even to
fabrication and production of consumer goods. The continued
presence of the multinationals in all phases of the sector increases
their knowledge and skills through accumulation of experience,
and this gives them a further competitive edge over the small firm.
Detailed analysis does not support the popular notion that the
mining industry is one of high or excessive profits, since the data
offered to support this claim tend to be drawn only from brief
periods of immensely high profits in the larger and more successful
projects, and are not representative of the industry as a whole. If
all exploration expenditures are included, the industry can prob-
ably be said to be one of average-to-above-average profitability,
but also one in which numerous entities too small to spread their
risk have failed. But the profit picture varies from year to year
and by company. In periods of economic buoyancy the mining
companies generally do better than companies in other industries,
but in periods of economic instability and decline the mining in-
dustry generally lags behind other industries. There is no doubt
that highly profitable projects do exist, and that in areas of political
instability mining corporations tend to consider only projects of
high profitability. While there is reason to suggest that profitability
and income returned to parent companies have been higher in
operations in the developing countries than in projects in developed
regions, there is insufficient information on this point by country
and by commodity.

Geographic concentration
World consumption, production, processing, and trade of mineral
commodities are characterized by uneven distribution among eco-
nomic regions and heavy concentration in individual countries.
Developed market economies consume over two-thirds of the world
output and import 90 percent of the exportable surplus in order
to meet 60 percent of their requirements. Developing countries
consume less than 10 percent of the global output; yet they pro-
 10 I THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

duce one-third of that output and supply fully half of the domestic
requirements of the developed market nations. Underconsumption
of raw materials of such proportions is a true indicator of the
severe underdevelopment of the developing countries. Viewed
negatively, the interdependence of developed and developing coun-
tries in mineral resources and their heavy reliance on imports and
exports, respectively, can be considered a source of potential con-
flict. On the other hand, trade in mineral commodities can be an
important tool not only for bridging the gap between the have and
have-not nations, but also for assuring efficient global exploitation
and use of resources.
A cause of gross dissatisfaction on the part of the developing
countries is the heavy concentration of mineral processing facilities
in the developed regions. The current value of developing countries'
mineral output is no more than 30 percent of the potential pro-
duction value had all ore mined been processed through the metal
bar stage there. Although there is great scope for increasing value
added in this sector in the developing countries, progress will be
slow because the major impediment is transfer of technology and
capital rather than limited access to markets. While the latter can
be remedied by governmental action, the other two constitute con-
straints on production that will be difficult to remove. Besides, the
current processing facilities in the developed countries cannot be
dismantled, especially at a time of high unemployment. It is true
that permanent closings in the developed countries took place in
cotton textiles, but mostly in places where the machinery was
nearly a hundred years old. The modern mineral processing
facilities of Japan are a different matter. Furthermore, aside from
the need to have the requisite inputs such as energy, there are
technical factors at play. For example, one reason why the process-
ing of some metals is centered in the developed countries is that
it requires mixing of mineral ores of different grades and composi-
tion and from different origins to produce the necessary inter-
mediate product; another reason is the existence of a skilled labor
force and a tradition of industrial performance. Considerations of
economies of scale, energy, and mixing imply that there is consider-
able scope for cooperation in joint ventures among developing
countries. Some already exist and others are under consideration.
The skewed distribution of production and processing should
be viewed against the backdrop of the geographic distribution of
reserves and exploration expenditures. Developing countries possess
nearly 40 percent of world reserves. Future discoveries are likely
to expand this ratio, since there are large areas which have not yet
been systematically explored, especially in the tropical regions,
 INTRODUCTION AND SUMMARY I 11

whereas exploration saturation is being approached in the developed

regions. Nearly 85 percent of world exploration expenditures have
been channeled to the developed countries. Correcting the mal-
distribution of production, therefore, requires investment of capital,
time, and effort in expanding exploration in the developing regions.

Peformance record
The record of the world mining industry in responding to the
needs of the developing countries is dismal. The industry's total
effort has been directed to obtaining sufficient supplies for the
consuming nations, namely the developed countries-a task in
which the industry has been very effective and innovative. Only
recently has the industry even shown awareness of the needs of
the developing countries, and very few consuming nations and
firms have reacted earnestly to meet the challenge; the record
remains largely uncorrected.
The international companies' pattern of project selection, invest-
ment, location of processing facilities, and revenue-sharing arrange-
ments-while defensible on narrow microeconomic and political
grounds-has not always been consistent with the development
needs, legitimate interests, aspirations, and sensitivities of the devel-
oping countries. The leverage of developing countries over the
mining industry has been kept low by the industry's history of
guarding its knowledge of reserves and resources, technology and
markets, overstressing its complexity to prevent easy intervention.
In a number of instances the multinationals have been less than
candid with regard to the results of exploration, the parameters of
investment and expansion decisions, processing and marketing
properties of the product, technological and economic trends, and
market value. Host countries have thus been deprived of knowledge
about their own resources and of the basic tools with which to
evaluate decisions deeply affecting their self-interest. In a number
of areas the multinationals have themselves been the major source
of the information needed for independent evaluation of their
performance, fostering suspicion and placing them at odds with
host countries and with legislators in their own countries.
The industry has performed reasonably well on the standard
of efficiency. It has provided consumers with an expanding variety
and steady source of mineral raw materials, many of which are
exploited as efficiently as man is able to; but there are some glaring
gaps. For example, the best deposits are not alway brought on
stream first in accordance with the relative economics of alternate
deposits. Political climate has had a major impact in the past on
 12 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

the industry's decision where to mine and has tended to discrimi-

nate against the developing countries. This is particularly apparent
in the distribution of exploration expenditures with their dispro-
portionate allocation to developed regions.
There is also reason to question the industry's efficiency with
respect to use. The proportion in which mineral resources are
exploited and used today does not reflect their relative abundance,
largely because of imperfections in the orientation of research and
in the pricing mechanism. Far from being directed systematically
toward abundant materials, research in end use is sporadic, par-
ticular in its application, and very uneven among minerals and over
time. Often, major breakthroughs have been achieved during and
in response to emergencies (wars) or as a by-product of advances
in other fields (space). Traditionally, mineral prices have been
determined on the basis of capital, operating, and distribution costs
modified by bargaining power. No allowance has been made for
the inherent value of the mineral in the ground. The imperfection
of the pricing mechanism has undoubtedly led to inefficient use,
aside from maldistribution of benefits.

Mineral Sector Development

in the Developing Countries
Both developed and developing countries have a common interest
in cooperating to expand the flow of mineral resources to world
markets. Developed countries will have to rely increasingly on the
supply of minerals from developing economies, although they have
considerable flexibility in slowing down this trend. On the other
side, modern mining and processing methods have become so
capital intensive and the capital requirements of most modern
mines and their attendant infrastructure so large that few of the
developing countries can expect to bring a sizable project into
operation on their own. While over the long run the developing
countries will be able to negotiate their more abundant supply
situation into better leverage over joint exploration and production
ventures, their revolution of expectations and growing absorptive
capacity will intensify the pressure on the development of their
mineral resources. The interdependence of the developed and de-
veloping countries is real and will grow.
At the project level, however, it is unlikely that the objectives of
a multinational firm will coincide with those of the host govern-
ment; in fact, these objectives may diverge considerably. The
multinational company will act to maximize profits and spread the
 INTRODUCTION AND SUMMARY | 13

risks of the company as a whole, not necessarily those of the

affiliate in a particular producing country. In determining the dis-
tribution of production between subsidiaries in different countries,
a mining company will take into account the relative costs (in-
cluding taxes) of the different subsidiaries, the preferential access
to some markets of various suppliers, the need to maintain mini-
mum production levels as specified by contracts, and the degree
of political risk in each country. Companies, moreover, tend to
specialize in commodities experiencing high growth rates and to
shift incremental resources out of a commodity whose growth rate
has fallen off to one with a higher growth rate. The companies
are themselves deeply involved in influencing the growth and dis-
placement of commodities through their large research and develop-
ment establishments, which are constantly putting forward new
products and promoting product uses based on their mineral
resources.
A government, on the other hand, is more concerned with
maximizing total revenues of the subsidiaries operating within its
territory, and especially its share of revenues, with little interest
in overall corporate profits. Governments also seek to influence the
level and geographic pattern of resource development; encourage
backward and forward linkages in the economy; and expand the
processing, refining, and fabrication of raw materials, both for
domestic use and for export.
The divergence of objectives can lead to serious conflict. In a
recent investigation of two copper mining projects, Raymond F.
Mikesell concluded: "The two case studies confirm the generaliza-
tion that conflicts between the host government and the foreign
investor tend to be more or less continuous, and the greater the
profitability of the mine the more intense will be the demand for
renegotiation of the contract on the part of the host government."1
The bargaining position of each party changes according to the
amount of knowledge of the resources to be exploited available at
the time of negotiation, favoring the multinationals in the early
stages of exploration but the host government later, as knowledge
of the mineral increases. This points to a real need to promote
exploration by the host government and requires funds from sources
other than the traditional source of the multinationals. Most devel-
oping countries can ill afford to supply these funds from their own
coffers-which leaves the multilateral and bilateral aid agencies as

1. Foreign Investment in Copper Mining: Case Studies of Mines in Peru

and Papua New Guinea (Baltimore: Johns Hopkins University Press for
Resources for the Future, 1975), p. xxii.
 14 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

possible sources. The use of these sources, however, can have

many pitfalls; developing countries should be cognizant of them
and incorporate the appropriate safeguards. Nevertheless, in our
opinion, a major increase in multilateral and bilateral aid is needed
to promote mineral exploration and development in the developing
countries.
It is also of paramount importance not to overlook the already
significant and expanding opportunities for cooperation between
the developing countries, not only in training and research and
development, where joint facilities may be established, but in all
areas, including processing. Here, too, aid agencies and the UN
Regional Commissions in particular can play a useful role as
catalysts.

Establishing a mineral sector

Mineral sector development in any country, whether developed
or developing, constitutes only one element of total national devel-
opment and must therefore be structured to fit within the frame-
work of the total economic plan. The broad objectives of mineral
development normally include: ensuring optimal use of indigenous
mineral resources; earning or saving foreign exchange; creating
employment, directly or indirectly, often in remote areas; promoting
backward and forward linkages in order to maximize value added
within the country; assuring an adequate supply of raw material
inputs for industry; and stimulating regional development. To
attain these goals, a national mineral policy must be enunciated
and stated clearly, so that all parties with a role to play can move
in the same direction. Formulation, dissemination, and carrying out
of mineral policy is the responsibility of the government.
As a first step in formulating a national mineral policy, the
country must decide whether to develop its mineral sector on the
basis of a private, public, or mixed system. The selection of one
of these options or a combination will depend on political, struc-
tural, and social preferences but must also take into account the
exploration, operating, and marketing characteristics of the sector.
In the case of state-run mineral development, success will depend
wholly on the effectiveness with which the state can plan, commit
financial resources, provide managerial and technical expertise, and
secure markets. Development under the private sector approach
depends for its success on more detailed consideration of the
respective responsibilities, privileges, and obligations of private
companies and the government. These should have as their objec-
tive assuring not only the efficient operation of the sector but also
 INTRODUCTION AND SUMMARY | 15

maximizing its contribution to national well-being on a broad scale,

for example, by encouraging conservation, training of nationals,
and reinvestment of profits in productive activities.
Any plan of action for effective mineral sector development re-
quires a factual basis. An inventory of the mineral resources is
fundamental and, therefore, knowledge of the geology and mineral
occurrences is a prerequisite. In the field, in the laboratory, in the
administration, and in operations, moreover, mineral sector devel-
opment requires highly specialized personnel. Mineral resources can
be of such potential significance to a country that they require spe-
cific legal status. Legislation would include a mining code and a
special taxation regime compatible with existing investment codes
and social legislation. The taxation regime is perhaps the most im-
portant element of any national mining policy, for it constitutes an
important means for realizing many policy objectives.
The government, therefore, needs to set up six or seven admin-
istrative nodes beginning with a policy, planning, and administra-
tive agency; this usually means a Ministry of Mines, although,
depending on the size of the sector, it may be combined with
Energy or, at times, with Transportation or Economic Develop-
ment. An institute for geological surveying is also an early require-
ment; it can be set up as an autonomous agency but under the
direction of the Ministry of Mines. Educational facilities, such as
separate departments in local universities, are also needed. It is
possible that a research and development institute will be required
to undertake research and provide technical assistance to the
sector. In countries where there is a strong national desire to de-
velop mining under the administration of the state, a government-
owned enterprise needs to be established. Often it is also necessary
to provide channels for making financing available to the sector,
especially to medium and small-scale operations. This may entail
setting up a separate mining bank or "opening up a new window"
at the development bank. Finally, the government may wish to
centralize the marketing function to strengthen its role as con-
troller or coordinator, and this may require new institutional
arrangements.
In each of these areas, the actions taken by governments are
often seriously deficient. For example, in many cases, the Ministry
of Mines is a large, bureaucratic, and ineffective institution. It
suffers from overstaffing, low salaries and inability to attract
qualified personnel, inadequate budget, incorrect procedures, lack
of planning and ability to formulate policy or monitor relevant
legislation, and ineffective decisionmaking. Although some of the
staff may have sufficient academic qualifications, it is rare to find
 16 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

many with practical experience as well. In numerous cases, lack of

experience makes it difficult for the staff to relate to the reality
of the industry, and assignment of sector priorities often constitutes
a bewildering task. The linkages between projects are often ig-
nored, as is the dependence of mining and processing operations
on infrastructure. All too often political considerations override
what should be strictly technical considerations in the assignment
of priorities.
The choices open to governments in taking action at every step
are broad. The total ramifications of alternative courses of action
should, however, be properly evaluated. For example, while many
governments' increasing desire to exercise control over marketing
may be justifiable, it should be appreciated that the setting up of a
separate marketing agency for this purpose-whether it is to
market part or all of the production-requires special care and
caution. The marketing of minerals is a highly specialized field
where inexperience can be costly. Besides, the cost of setting up
a fully integrated marketing agency with foreign offices can be
immense. Furthermore, as the principal marketing agents which
have traditionally performed this role have usually been important
sources of finance as well, replacing them by a state monopoly can
retard the growth of the sector. Short of government takeover of
this function, control can be exercised by laying down the ground
rules (for example, in terms of the level of domestic processing
required), including the basis for establishing prices (a particular
international quotation), and exercising the right of prior approval
of all sales contracts. Marketing arrangements for each mineral
should be reviewed independently; arrangements suitable for one
mineral are not necessarily suitable, or even feasible, for another.
Although there can be no single blueprint for the establishment
of a viable mining sector in the developing countries, it is possible
to draw up broad guidelines on the basis of past experience. Even
when such guidelines draw heavily on the experience of the devel-
oped countries, where the modern mining industry is of longer
standing, they need not be viewed with the disfavor attached to in-
discriminate copying, especially in areas where experience has
shown them to lead to efficiency. Efficiency ought not be the pre-
rogative of developed nations; it must inform the actions of any
government involved seriously in mineral development.

Dealing with multinational companies

Unmistakably, control by multinationals will decrease as host
nations, developed and developing alike, assume more of it. Host
 INTRODUCTION AND SUMMARY | 17

governments' right to make basic policy decisions is indisputable;

however, they will have to continue to rely on the large companies
for both execution and such basic inputs as capital, technology,
and management-for it is there that the experience is concentrated
for the time being. Transfer of this experience is a relatively slow
process.
Even with a well-defined mineral policy and legislative system,
a country relying on private foreign capital for development of its
mineral sector should pay particular attention to its policies and
procedures as they apply to the foreign enterprises. The precise
relation between the multinational corporation and the host country
must therefore be clearly defined and a mechanism established
for coordinating and monitoring this relation. These functions are
often widely scattered among various ministries, few of which
are even remotely equipped to deal with the whole range of prob-
lems that may arise, or in a position to play a central role in
developing a consistent set of policies.
A major problem area is that of negotiation between the multi-
nationals and host governments. Most developing countries lack
the expertise to conduct these negotiations so as to ensure that
their interests are protected. Results may vary from giving away
excessive concessions-in order to buy the participation of the
corporation-to a hard line which frightens away potential in-
vestors. Either extreme is unsatisfactory. The negotiators on both
sides must strive for a partnership that is mutually beneficial and
can endure.
Governments must respect their agreements except when na-
tional interest has been grossly, illegally, or unfairly violated. Bel-
ligerence toward companies is bad practice; curtailing excesses is a
sound policy objective. Companies, on their part, must learn to
recognize and respect the needs and aspirations of the countries in
which they operate. Be they national or foreign, they must show
increased social awareness in their economic contribution.

The Future
The world mining industry faces a dynamic future. Continued
population growth and universal demand to improve physical
standards of living guarantee that. While the intensity of use of
nonfuel minerals (the volume of consumption per unit of GNP)
has been declining in the industrially advanced countries and
is bound to bring about a deceleration in the growth rate of world
demand, this need not be fully manifested in the next ten years,
 18 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

constitute an open-ended trend, or imply that the task of meeting

future requirements will become progressively easy-far from it.
In the next five to ten years, world demand for nonfuel minerals
is likely to grow at rates not materially different from those of
the 1960s. The force of declining intensity of use in the large
producers will very likely be felt more strongly in the late 1980s and
the 1990s. Available projections for the year 2000 point to consid-
erably slower growth rates in the last quarter of the century than
in the third quarter. Because of the progressive expansion of the
consumption base, however, additional yearly requirements are
hardly likely to decline in absolute terms and, given the fixed
stock of resources, meeting these requirement will pose a constant
challenge.
With regard to the very long term, it suffices to note that the
deceleration in the growth rate of demand need not last in-
definitely or give way to stable growth rates of unlimited duration.
Not only the hoped-for industrialization of the developing coun-
tries but also programs to eradicate pockets of relative poverty, to
redistribute income, or to reallocate and improve the volume and
quality of mass consumption in the rich countries can revitalize,
even revolutionize, demand for minerals. Therefore, the decelerat-
ing trend in demand may be interrupted by spurts or even sus-
tained periods of rapid growth.
Current expansion plans point to substantial increase in the
supply of several major minerals by 1980, in some cases signifi-
cantly above anticipated levels of demand. Several projects will
inevitably be postponed because of lack of finance, hesitancy
brought about by political instability, and limitations on the
absorptive capacity of the industry. Overall, supply is not likely
to fall below demand in the medium term, although short-term
imbalance cannot be ruled out.
For the longer term, there is little information that permits pin-
pointing with confidence-by year and commodity-shortages and
surpluses of major consequence. Present known reserves for most
minerals are adequate to the year 2000, with only moderate in-
creases in the real price needed to precipitate new mine develop-
ment.
How about the indefinite future? Present knowledge does not
provide an adequate basis for judging how long terrestrial mineral
reserves will be able to keep pace with the rapidly rising exploita-
tion of minerals. It should be emphasized that a reserve or resource
is at best an intelligent guess based on quite limited information
applying only to a brief moment in time; reserve figures are usually
only slightly related to total quantities which may be available in
 INTRODUCTION AND SUMMARY | 19

the future; definition of what constitutes a reserve is extremely

dynamic and, in global terms, changes in reserve estimates have
almost always been upward; the oceans are a true frontier whose
potential yields may be so vast as to make it impossible at this
stage of development to assess definitively their ultimate impact
upon the total supply picture. Nevertheless, it is almost certain
that minerals will be increasingly difficult to discover and the cost
of extraction and beneficiation will increase. Whether, how soon,
and for whom, the availability of mineral resources becomes an
insurmountable problem will depend on advances in resource crea-
tion and use; the application of every tool, such as technology,
recycling, and conservation; the coordinated management of re-
source discovery and exploitation in an atmosphere of cooperation
rather than confrontation; and the realization that there must be
limits to the frivolous consumption of minerals.

Problems and challenges

The principal problems and challenges facing the industry in the
short run are: the business cycle and the excessive volatility of
prices which make planning difficult; the industry's tendency to
overreact to business cycles; the rapidly weakening fiscal stability
of some of the large mineral-producing countries; and rapidly rising
capital and financing costs, coupled with the decreased availability
of finance for mining.
In the long run, the industry faces and has to respond to: changes
in the rules of the game, increased nationalism, and inevitable
changes in ownership; the limited absorptive capacity of the de-
veloping countries for their own mineral development, coupled
with problems of transfer of technology caused by the recalcitrance
of the developed countries as well as the shortsightedness of many
developing countries in not recognizing their own limitations; and
the need to respect the national self-interest of the developing pro-
ducing countries in joint ventures. Energy and pollution should not
prove major problems for the industry except in specific areas or
projects.
The problem of investment and finance has three components:
size of investment, fluctuation, and distribution. With regard to
the first, capital requirements have increased enormously in recent
years, not only because of inflation but also because of greater in-
frastructure costs (as most of the new mines are in remote areas),
and sophistication in equipment which, though leading to high
productivity, formidably increases the investment cost. Total capi-
tal requirements for the next ten years, excluding exploration costs,
 20 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

are estimated at about $100,000 to $120,000 million (in 1975

prices),2 or 50 percent more a year than in the last few years.
Historically, the principal source of such capital has been the
internally generated funds of the large mining companies, but in
the future a large part will have to come from commercial sources,
at high interest, with internal cash flow continuing to play an im-
portant role. Raising this capital is predicated on improving the
profitability of the industry, which requires a recovery of prices
from their present levels, coupled with mechanisms designed to
smooth out the excessive volatility of mineral prices. Assuring
an equitable distribution between the developing and developed
countries necessitates improved political and economic climates in
the former. Investment is already down, especially in the develop-
ing countries, because of the recession and greater risks in the eyes
of the investors, although we do not know by how much. The
situation is reported to be serious enough to threaten large short-
ages seven or eight years from now if it is not soon corrected. This
raises the question of the possible need for an agency to monitor
the flow of investment into mining in order to warn off, and play a
role in, smoothing dangerous cyclical movements. Such an agency
exists for agriculture in the form of the Consultative Group on
Food Production and Investment established jointly in 1975 by the
World Bank, the United Nations Development Programme, and the
Food and Agriculture Organization.

Prices
Perceptions of the determinants and role of mineral prices are
in the process of reevaluation and undergoing fundamental trans-
formation, however without commensurate refinement of the ana-
lytical tools required to evaluate the merits of, and if necessary
assist in, the transformation. Historically, under assumptions of
competition, prices have been viewed principally as a function of
demand and supply in the short run and cost determined in the
long run. Recently, persisting inequality in the global distribution
of income and the view that international economic developments
such as global inflation are working against them have induced
many developing countries, mineral producers among them, to
reexamine the determination and function of prices, moving away
from the market-clearance concept toward a resource transfer con-
cept. Though this new view, implicit in the demands of many

2. All currency figures are in U.S. dollars unless otherwise stated.

 INTRODUCTION AND SUMMARY j 21

nations that produce raw materials, has strong economic and moral
underpinnings, economic theory is unable to provide a means of
optimizing prices by this method.
What characterizes the present scene, therefore, is certainty of
fundamental change-in the very rules of the game, with prices as
a major target-but unpredictability as to the nature, degree, and
extent of the change and the adjustment required, since the out-
come depends on bargaining among political bodies, namely, gov-
ernments. Even though the final destination and conditions of the
journey are not clear, the course has been set and it points toward
the not yet fully explored waters of a massive readjustment of rela-
tive prices, if need be through unilateral action.
In the past, bargaining power has been disproportionate with
consuming industrialized nations, which have enjoyed control over
capital, technology, processing, marketing and shipping. In some
ways, this bargaining power has been increasing (for example,
through vertical and horizontal integration, technological advances,
and regional economic arrangements) rather than decreasing. What
appears to be at issue today, at least in the eyes of developing coun-
tries, is not so much the merits of competition compared to other
forms of market organization in the abstract, as the need to coun-
terbalance the real and substantial power of consuming countries
to influence the terms and rate of exploitation of the world's
scarce natural resources. One thing is certain: a market situation
where competing and unorganized sellers confront a strong buyer
favors sellers least among all possible forms of market configura-
tion. In light of this, and given the successive disappointments on
the part of the developing countries with aid flows, transfer of
know-how, trade liberalization, and especially with attempts at
drawing up international commodity agreements, it is neither an
historical anomaly nor an economic violation for the developing
countries to seek more equitable returns from the exploitation of
their scarce natural resources through producers' alliances.
The prospects for achieving significant and lasting increases in
mineral prices through unilateral action, however, are limited. But
perhaps the issue has been stated the wrong way. In nonfuel
minerals, at least, the objective ought not to be raising prices for
its own sake but rather allowing them to rise-something which
the structure of the industry has not permitted in the past-in
order to ensure a much needed expanded flow of investment,
keeping ahead of costs and inflation, permitting improvement of
working conditions, and adoption of environmental safeguards.
Attacking the structure also promises greater and more lasting
success to the developing countries. Although price-related issues
 22 J
THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

are important, one should not lose sight of the fact that what needs
to be assured is a bigger share of the expanding market for devel-
oping countries. The benefits of this have far greater multiplier
effects and can outweigh those obtained through higher prices
alone. Developing countries need both better prices and a bigger
share, but demands on prices should not be such as to deter
developed countries from relying more on the developing countries.

Goals
With regard to the future, the following observations are justi-
fied. First, the trend toward aggressive attempts to influence prices
seems irreversible. Mineral prices are likely to ascend in the fore-
seeable future, depending on the stance of the producing coun-
tries, yes, but as much, if not more, on global economic trends,
cost factors, technological change, and policy decisions affecting
global investment in exploration, mining, and processing. Second,
while alliances among mineral producers probably cannot go too
far in trying to achieve price increases in the style of the oil-
producing countries, this does not preclude the possibility that
some developing countries can and will benefit from such action-
or that some subsectors in the consuming countries can and will
be hurt by it. Third, stable prices are important for the smooth
functioning and steady expansion of the mining industry, and com-
modity agreements can perform a useful role in this respect. Finally,
it is in the long-term interests of both the developed and develop-
ing countries not to interrupt the flow of investment into the
mining industry. Although some of the acts need changing, the
show must go on.
Minerals have been as much a development agent of civilization
as agricultural products and communication, and a steady supply
of them is essential to its continuation. Though the primary chal-
lenge to the mining industry will continue to be, as in the past, the
provision of adequate supplies, in the coming decades the industry
itself, rather than its product, will have to become a conscious
agent for worldwide economic development. This is admittedly
an enormous task.
All the complex difficulties the industry faces in its normal
course of operations are now compounded by the unrelenting
pressure for additional supplies. Population growth and improve-
ment in individual income translate into one basic imperative:
more! While steadily increasing production, the industry must also
find ways to safeguard the environment in which its activities are
located and to conduct them harmoniously in a more demanding
 INTRODUCTION AND SUMMARY | 23

political and social setting. Governments increasingly seek a role

in the making of decisions or, at the very least, demand compliance
with sectoral goals and guidelines. The world has become fever-
ishly aware of the importance of natural resources for the survival
of civilization and anxious to know how well their providers are
safeguarding the future. A fundamental requirement of the mining
industry, therefore, is to respond to the challenge by planning,
investing-in knowledge and capacity-and operating in such a
way as to inspire confidence in man's ability to manage natural
resources on a global basis and over time.
The mining industry is truly international in character, by
definition and necessity. Mineral development requires the com-
bination of physical, financial, and technical resources from varied
sources, and its products travel across national boundaries. The
industry thrives best in a climate of cooperation among disciplines,
countries, investment sources, the public and private sectors, man-
agement and labor, and the various elements of the research and
information networks. The potential for cooperation will be en-
hanced by the industry's efforts to distribute its investment and
earnings equitably over countries. This accomplishment will re-
quire a continuous resolve on the part of the industry to commit
its vast know-how and in-house resources to international develop-
ment, particularly that of the developing countries.
It is widely argued that the mining industry should shift its
base of operations to the developing countries because the devel-
oped countries are depleting their existing mineral resources. This
has to be pursued systematically, as a matter of policy, both be-
cause, over the long run, intelligent resource planning and manage-
ment must truly cover the globe, and because the strain on
civilization, over the short and medium term, of a world divided
into economic classes-of a standoff between the have and have-not
nations-is insupportable.
I I The Nature and Structure
of the Industry

THE PRODUCTS OF THE MINERAL INDUSTRY are numerous and extremely

diversified. Individual ores and metals widely used today number
more than eighty, of which thirty-five have a world annual output
greater than $100 million each and ten in excess of $1,000 million.
The products obtained and processed by the industry vary in a
number of respects, such as abundance and geological formation;
incidence of undesired elements or impurities; degree and nature of
processing; by-products of processing; physical and end use prop-
erties, including substitutability, destructibility (recycling character-
istics), and the degree to which these can be modified or imparted
to other products through chemical treatment or alloying; and
transportability over long distances. Furthermore, different ore de-
posits of the same mineral, for example, nickel ore, can display
significant dissimilarities in extraction and processing technology,
principal by-products, final products for which they are mined, and
end uses of these products. All the variable physical properties
listed above are translated into economic characteristics which
affect the value of a deposit, investment costs and operating expen-
ditures, size of operation, rate of exploitation, the form in which
the product is marketed, profitability, and prices.
Of course, complexity and diversity make generalization diffi-
cut. Yet there are basic factors underlying the operation of the
mining industry, no matter the specifics of location and product.
We deal with the most important of these in the current chapter
to provide the essential outline from which all variations issue.

General Characteristics
The mining industry has a number of characteristics which dis-
tinguish it from other industries-even from other activities based

24
 THE NATURE AND STRUCTURE OF THE INDUSTRY | 25

on natural resources such as hydropower production, primary agri-

culture, and forestry. Mining involves the exploitation of non-
renewable and finite resources often found in isolated areas, the
development of which requires heavy investment in infrastructure
facilities. The geological unknowns of mineral deposits and the
characteristics of mineral markets and prices cause the industry to
operate at levels of risk-physical, commercial, and political-
which are significantly higher than those for other industries. The
structure and control of the industry have historically been highly
concentrated and display extensive vertical integration from ex-
ploration to marketing of minerals.'
The nonrenewable property of mineral resources requires that
they be exploited and used efficiently as well as equitably. The in-
terests of the nations in which the resources are located must be
given prime consideration where ownership and control of those
resources are involved. It is not surprising that this causes contro-
versy between major parties with fundamentally different interests:
the host country, which can be either a developed or a developing
nation; those who extract the mineral resource, often a multi-
national corporation; and the ultimate users, mainly in the indus-
trialized countries.
The incompleteness of geological knowledge and the difficulty
of geological interpretation always cast doubt on mineral reserve
and grade statistics; generally, the true value cannot be known until
the deposit is depleted. When such a high-risk industry competes
for funds with lower-risk industries it often has to pay higher
financing costs. These and other characteristics of the mining
industry have promoted the growth of large multinational firms
which have been responsible for exploration, extraction, processing,
and marketing and have made it a deliberate policy to spread the
risks not only over geographic regions but also over mineral and
other activities. Furthermore, these firms have been primarily
responsible for technological developments within the industry, as
well as for product development and the stimulation of consumer
demand.
A fundamental aspect of the mineral industry is the unequal

1. Most of these are characteristics of the preproduction stages of mineral

development and have no close parallels in other sectors. Thomas N. Wal-
thier writes, "When the decision is finally made to put the discovered mineral
deposit into production, we enter the phase where mining most resembles
other kinds of heavy industry." See "Problems of Foreign Investment in
Natural Resources" (paper presented at the International Minerals Acquisi-
tion Institute, Denver, October 1974, mimeographed), p. 7.
 26 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

distribution of known mineral resources among countries and conti-

nents, by types of deposits, and by economic usefulness. Demand
for minerals is also unevenly distributed geographically, being
heavily concentrated in the industrialized regions. Minerals are
therefore not only an important factor in world trade and trade
policy, and a source of economic growth, but also the subject of
national and international dispute-as is increasingly evident today.
Changes in conditions of demand and supply, including new dis-
coveries and technological innovation, or the recent energy crisis
and subsequent escalation in transport and equipment costs, to-
gether with increasing nationalism, affect the competitive position
of companies and countries, causing instability as well as structural
changes in the market.

Stages of Mineral Resources Exploitation

Preparation of any project, in mining, manufacturing, agriculture,

or other fields, requires comprehensive study leading to an invest-
ment decision. The extent, rigor, and cost of the preproduction
activities in mineral resource development, however, are far in
excess of those required for the development of other industries. To
emphasize this point, the successive stages leading to mineral
exploitation are briefly summarized below.2

Broad geological surveys

Broad geological surveys consist of regional topographical, geo-
logical, and more recently, geophysical and geochemical surveys, as
well as mapping with the important new tool of space photography.
This stage in mineral exploration, commonly referred to as infra-
structure geology, is designed primarily to identify areas of mineral
potential and should ideally be conducted by government agencies.
Obviously, the step can be and often is omitted in the search for
minerals. Many of the mineral deposits being exploited today were
found quite by accident, by some shepherd tending his flock, some
crew building a road, or a prospector on a hunch. As areas are

2. Experts at the United Nations have been emphasizing the need for a
systematic approach to mineral development for years, although this is still
not fully appreciated by nonspecialists. For a recent account of the stages
leading to mineral production in a specific context, see Sir Ronald Prain,
Copper: The Anatomy of an Industry (London: Mining Journal Books, 1975),
chap. 15.
 TIHE NATURE AND STRUCTURE OF THE INDUSTRY | 27

ever more extensively and intensively explored, however, the need

for a systematic approach in the search for minerals becomes
vitally important. Such an approach allows more efficient use of
scarce exploration funds and provides countries with knowledge
required for incorporating mineral development in their overall
development strategies. While most developed countries had a
well-developed mineral sector before the systematic approach to
exploration, the latter has pushed them even further ahead in
mineral development. Only a few of the developing countries
have made much progress in the modern systematic mapping of
their mineral potential.

Regional and detailed exploration

Areas identified as possessing potential mineral resources need
to be further surveyed and mapped through detailed prospecting
and geophysical and geochemical surveys to single out those with
the highest mineral potential. These activities are generally accom-
panied by preliminary pitting, trenching, and drilling of the deposit,
followed by laboratory testing to ascertain whether the ore can be
processed by available technology. The result, if successful, is the
outline of a potentially economic mineral deposit with estimates
of the size of the deposit, its mineral content, and its other char-
acteristics. A prefeasibility study is completed, reviewing the tech-
nical and financial viability of mining and processing the deposit,
in order to decide whether further exploration and study are
justified.

Detailed orebody delineation and evaluation

Potential orebodies identified in the previous steps are reviewed
in detail to ascertain in precise terms the technical and financial
viability of exploitation. This review requires systematic drilling,
often supplemented by additional pitting, trenching, and tunneling,
accompanied by metallurgical tests in the laboratory and pilot
plants and, in some cases, test marketing of the product. The com-
pletion of this stage is marked by the preparation of a detailed
feasibility study, containing definite extraction plans and cost
estimates, upon which an investment decision is made.

Mine development and plant construction

Following a positive investment decision, financing is sought
and the project implemented. The orebody is developed to expose
 28 JTHE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

the ore for extraction: for open-pit mining this means removal of
overburden; for underground mining it involves the sinking of
shafts and construction of accessways to the ore. Processing plants
are constructed and infrastructure facilities (such as transport,
water, power, communications, townsite, and social facilities) in-
stalled. Management teams are formed, staff and workers trained,
administrative and work procedures established, equipment tested,
markets secured, and operations started Up. 3

Exploitation

The exploitation phase, which is also referred to as the opera-

tional phase, begins with extraction of ore from the orebody. The
ore is transported to a concentrating plant where it is upgraded,
most simply by crushing, sizing, washing, drying, and hand sorting,
or by separating the valuable minerals from the waste by a variety
of methods. 4 The concentrates are either used directly, as is the
case with construction materials and most of the nonmetallic
minerals (asbestos and gemstones, for instance), or submitted to
further processing. For most of the metallics this involves smelting,
whereby the concentrates containing the mineral in its natural
state are subjected to a high temperature and reducing environment
and the metal separated from the oxygen, sulfur, and carbonate to
produce a molten bath of metal which is cast into ingots. Some
concentrates go through a further stage, refining, which involves
the removal of remaining impurities.5 The two stages are more
and more being replaced by a single stage as pyrometallurgical
processes give way to hydrometallurgical processes, whereby the
mineral content of the concentrates is recovered by leaching and
electrolysis. The end product is one with marketable properties;

3. For most large projects, markets are secured before obtaining finance
and before an investment decision is made.
4. These methods include: magnetic separation (separating magnetic and
nonmagnetic minerals); gravity separation (separating minerals according to
density); sizing (separating large from small particles); flotation (causing
some minerals to attach to air bubbles and hence float to the surface of a
tank for recovery); chemical reaction; or heating to drive off impurities,
organics, or liquids.
5. Aluminum is a notable exception to this smelting-to-refining pattern;
bauxite is first refined to produce alumina (an aluminum oxide) and subse-
quently smelted to produce the metal aluminum. Refining can be done
electrolytically by ion exchange, with the impurities dropping to the bottom
of the tank, or by volatilizing the impurities by blowing oxygen or other gas
over the molten metal.
 THE NATURE AND STRUCTURE OF THE INDUSTRY | 29

for metals this product has very small amounts of impurities (99.95
percent pure copper or 99.995 percent pure lead); for nonmetallics
merely a minimum mineral content is required, and often maximum
limits are established for the quantities of impurities contained.
Further processing of this end product (extrusion of copper and
aluminum, acid manufacture, and so on) is considered part of the
manufacturing industry, not of the mineral industry.
The time, risk, and expediture required for each of the five
phases outlined above differ significantly as indicated in figure 1.6
This chart can be considered representative of the industry. The
time between the start of exploration and commercial production
can be considerable, often up to twenty years and only in excep-
tional circumstances less than five years; on the average, more
than ten years are required. Exploration alone can take ten
years, depending on whether the project begins from regional
exploration, accidental discovery, or an already identified deposit.
The construction period may vary from two to five years accord-
ing to the size of the project and the availability of financing. (With
staged construction, this can run to ten years or more, though this
is uncommon today.) The inevitably long period required to develop
a mineral resource has significant implications for both consumers
and producers, but most of all for planners, when viewed against
the backdrop of resource scarcity, bargaining power, and the
broader question of resource management.
Exploration and feasibility work generally account for 5 to 10
percent of total project cost, although this percentage has reached
30 to 40 percent in some recent projects. Mine development, plant
erection, and installation of infrastructure facilities account for the
remainder. Although exploration expenditures generally amount to
only a small part of total project cost, exploration remains the
high-risk element of any project, and in many cases these expendi-
tures are made without proving up a viable deposit. The major
investment in mining itself is made at much lower levels of risk;
yet the total risk in mineral resource development is often con-
siderably higher than in the manufacturing industry because of the
uncertainty of the results of exploration. The dominant feature of
the other stages-mining and processing-is technological change;
together with risk it plays a key role in shaping the ownership
and investment pattern of the industry.

6. See also the timetable drawn by John S. Carman on the basis of UN

experience in "Forecast of United Nations Mineral Activities" (paper pre-
sented to the World Mining Congress, November 3-8, 1974, Lima, Peru).
 FIGURE 1 DEVELOPMENT AND EXPENDITURE CHART FOR A MODERN LARGE-SCALE MINING PROJECT

Investment decision-;J Start-up-*2

100 - - -

Q) 0i

50
>

0)~~~~~~~~~~~~~~~~~~~~~~~~~~~~

z
Mine development IH
10 - - Exploration and fesbiiy adOperations n

I 1f li plant construction
0 1 2 3 4 5 6 7 8 9 10 11 Elapsed time (years)
 THE NATURE AND STRUCTURE OF THE INDUSTRY | 31

Costs and Patterns of Mineral Exploration

Outlining the pattern of exploration expenditures is difficult,

since the results of mineral explorations can constitute a major
asset and are therefore kept confidential by companies. Neverthe-
less, sufficient sources exist to indicate the broad range of costs,
risks, and patterns of expenditure. Data specific to the Canadian
and U.S. industries are present-A in appendix A.
The availability of risk capital for mineral exploration is of
paramount importance-the lack of it can be a barrier to growth
in the mineral industry. During the early 1970s, about $12 million
was spent for each major mine discovery in Australia and $30 mil-
lion in Canada. Average exploration expenditures in the United
States appear to be even higher; for each dollar value of ore
discovered in Canada and the United States they have more than
doubled since 1960. The higher costs of exploration in the United
States and Canada (compared to those in Australia and elsewhere)
indicate the degree of exploration saturation taking place there
as economic reserves become more difficult and costly to find. One
industry spokesman stated several years ago that a five-year ex-
ploration program with annual expenditures of $1 to $3 million is
the minimum for finding an economic deposit. Another claimed this
kind of effort would provide little better than a 50 percent chance
of success.7
Very little comparable data are available on exploration expen-
diture in the developing countries. In the past, announcements of
discoveries in these countries were often withheld and underplayed
to minimize political and marketing risks. Rough estimates indicate
that in the early 1970s approximately $300 to $350 million were
spent annually on nonfuel mineral exploration activity worldwide
(excluding centrally planned economies), compared to $7,000 mil-
lion of annual expenditures for plant during the same period. Ex-
ploration expenditures were heavily concentrated in the developed
countries rather than in the developing countries, the ratio being
85:15 despite the generally higher exploration costs and greater
exploration saturation in the developed countries. About 80 percent

7. A third expert, Thomas N. Walthier, Director, Corporate Exploration,

St. Joe Minerals Corporation (New York), concludedmore recently: "Assum-
ing a capable staff (and this is assuming a tremendous amount), I would
not recommenda mineral explorationprogrammeof a general nature in North
America budgeted at less than an average of 3 to 4 million dollars annually
spread over 4 to 5 years-or smaller amounts for more years (but not vice
versa)." "Problems of Foreign Investment," p. 4.
 32 THE
T MINING INDUSTRY AND THE DEVELOPING COUNTRIES

of all exploration expenditure was in four countries: Australia,

Canada, South Africa, and the United States. This skewed distribu-
tion of expenditure is attributable to the stable political and eco-
nomic climate of the industrialized nations in the eyes of the private
investors rather than to any geological advantages. Countries such
as Chile, Peru, Zambia, and Zaire would receive a much larger
portion of the total exploration budget if allocations were made on
strictly technical grounds. Restrictive changes in mining and taxa-
tion legislation in Australia, Canada, and Ireland may bring about
a major shift of exploration expenditures toward the develop-
ing countries.
Since no returns can be assured (or in some cases even
assumed), the funds required for exploration must be provided
strictly as risk capital. In the past, therefore, the private sector
has borne the burden of exploration. Most exploration activities
are undertaken by large companies, often multinational corpo-
rations. In Canada, for example, during the late 1960s, 20 to
25 percent of all exploration expenditure came from only four
companies. The reason for this is obvious: large exploration pro-
grams (measured in dollar terms) have a higher probability of
success and therefore attract the resources of the larger companies.
In many cases the amount of exploration activity seems to be a
function of company size, as indicated by figure 2.8 Not only can
large companies benefit from the lower risk associated with larger
expenditure, they can also spread their risk over many mining
activities, essentially reducing their exploration decision to one
based on profitability of ongoing operation. For the smaller com-
pany, probability of discovery is the crucial variable, a few un-
successful exploration programs usually meaning financial disaster.
Furthermore, the trend in exploration methods has given the larger
mining company an added advantage. The changing techniques of
exploration have introduced economies of scale into the exploration
process. The use of these techniques is expensive and usually ac-
cessible only to large companies, increasing the absolute cost of en-
gaging in exploration while simultaneously lowering the unit cost
of discovery.
The advantages enjoyed by the large international mining com-
panies can be countered to some extent by government-supported

8. For comparison, in 1954-68, Canadian oil companies spent proportion-

ately ten times more of their sales revenues on exploration than the mining
companies.
 FIGURE 2 1 ANNUAL EXPLORATION COSTS AS A FUNCTION OF
ANNUAL SALES FOR SELECTED COMPANIES IN CANADA,
1954-68
10,000 ,
0.1 percent 1.0 percent

u p
______Enginerin Big mining companies

*TOO ~~~~~~~ *.. 0....

00011101,000x c
1~~~~~~~~~~~~~~
o o eimsz *~~~~~~~~~ml
inn opne

Si
IL** C
0.0 0.1 I 100 1,000*
of
Exploraion coss (millons
anadiandollars

. Kugr,
Souce:F. Minng-Bsmall fo ngy,coMpanies
Pormdiumsizemnl
p. 87.
Engineering ~ ~
(September I969), ~ ~ ~ ~
 34 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

programs. Brazil, for example, has established a public exploration

company which has been successful in exploring on a large scale
and similar steps are being considered throughout the world.
Bilateral and multilateral technical and financial assistance has con-
tributed to expanding the explortion effort of the developing coun-
tries and can be counted on to play a greater role in the future.

Technological Change and Economies of Scale

Technological change has been a powerful force in the develop-
ment of the mineral industry through the ages, especially following
the Industrial Revolution which vastly expanded and diversified
the demand for minerals. Although the most dramatic break-
throughs occurred in the distant past, we shall focus here on devel-
opments in the last ten to fifteen years, in order to illustrate that
technological change is a continuing process and to provide an
overview of the industry's present situation. 9
The past decade has seen a trend toward massive mining opera-
tions which take advantage of the economies associated with large
production capacity and the use of large mining equipment. For
instance, in hard rock mining the typical twenty to forty-ton truck
of 1960 has become the eighty to two hundred-ton truck of 1970;
shovel size increased from two to four to eight to fifteen cubic
yards during the same period. Mines and processing facilities are
becoming heavily capital intensive and labor is becoming a dimin-
ishing factor. In the United States, for example, mine production
of copper has doubled over the past thirty years while, because of
decreasing copper grades, ore handled has increased fourfold, yet
related manhours have decreased by 60 to 70 percent. Nevertheless,
because of continuously rising wage rates, labor costs remain a
significant component. Labor still accounts for 30 to 50 percent
of operating costs throughout the world.
Large open-pit mining and processing technology have reduced
operating costs considerably, making many low-grade deposits
economically exploitable. For example, in the United States, the
average value of metallic ore mined in 1969-70 was about $5 a ton
for open-pit mining, compared to about $12 a ton for underground
mining; roughly the same differences existed for nonmetallic ores.
In the early 1960s, a cutoff grade of about 0.8 percent copper was

9. For a more technical discussion, see United Nations, Proceedings of the

Interregional Seminar on the Application of Advanced Mining Technology,
Ottawa, May 21-June 3,1973 (DP/UN/INT-72-064) (New York, 1975).
 THE NATURE AND STRUCTURE OF THE INDUSTRY | 35

considered the economic minimum for porphyry copper deposits;

by 1970 this was reduced to 0.3 to 0.4 percent copper, despite the
fact that prices increased by only about 20 percent in real terms
over this period. Large open-pit mining methods have also allowed
the exploitation of orebodies with higher overburden-to-mineral
ratios than were previously viable, and have made it possible to
greatly reduce reliance on more expensive underground mining.
Furthermore, technical risks currently are lower for open-pit opera-
tions. As a result, a much greater portion of mineral output is now
being produced in open-pit operations than in the past. It is
estimated that in 1970 some 65 to 70 percent of all ore mined in
the world came from open pits; in the United States the proportion
was as high as 90 to 95 percent.1 0
In addition, the introduction of large equipment to underground
mining has permitted the exploitation of many deep-seated de-
posits previously considered uneconomic. This has served to
increase mineral reserves substantially, a development which in
the long run may affect the distribution of mining between devel-
oping and industrialized areas. The industrial economies, deep in
the process of depleting their higher-grade deposits, will still have
to rely increasingly on the mineral reserves of the developing
countries, but these technological developments may act as a brake
on the speed with which that occurs.
To summarize, there are substantial economies of scale in mining
and ore-concentrating operations with regard to both capital and
operating costs, as illustrated in figure 3. This gives the large pro-
ducer, typically the multinational firm, a significant competitive
advantage over the small operator and explains the history of
corporate mergers within the industry.
The 1960s also brought continued advances in mining and
processing technology, with associated cost reductions. For mining,
these advances can be summarized as follows: general sophistica-
tion of machinery and improved alloys allowing for increased
production rates and longer equipment life; improved rock frag-
mentation technology such as better explosives and blasting
techniques; increased use of automation and remote-controlled
equipment, with lower manpower requirements and increased
productivity, particularly in haulage, hoisting, and loading; and
widespread application of rock mechanics to optimize extraction
and increase the safety of operations. Basically, however, mining

10. The recent energy crisis has led to increases in production costs,
countering the gains achieved by economiesof scale. Output prices contiue
to lag but may catch up in the near future.
 FIGURE 3 COMPARISON OF COSTS AND SIZE OF OPERATION

g2.0- -2.0

Operating costs of underground mine

Eu _ < Capital costs of underground mine

a ~~~~~~~~~~~~~~~~~~~~~
o 0
0
Operating costs of mill, plant, and services 0 e
0.0 t-1.0--- H

a, ~~~~~~~~~~~~~~~~~~~~~
0~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Note: Costbaseofunity:annualmineotCapital costs of mill, plant, and services

'5 0
U ~~~~~~~~~~~~~~~~~~~~~
z

0.0 - _ _ _ _0 0C
100 1,000 5,000 10,000 .
(tons mined a day)
Note: Cost base of unity: annual mine output of 1 million tons a year (3,300
tons a day).
Source: Authors' estimates.
 THE NATURE AND STRUCTURE OF THE INDUSTRY | 37

remains a repetitive process of drilling, blasting, loading, rock

support, and hauling, although considerable progress has been
made in soft rock mining with continuous methods which reduce
manpower requirements to a minimum. Considerably more prog-
ress must be made, particularly in equipment design, before con-
tinuous mining can be applied to hard rock mining on a large
scale.
In mineral processing, developments are characterized by sophis-
tication of traditional equipment; larger scale; increased use of
automatic process control; and introduction of new technologies to
process lower grade and more complex ores, improve recovery
ratios, produce purer products, and reduce pollution. For example,
over the past decade, methods for processing some previously
unexploitable oxide ores have been developed, and the sophistica-
tion of leaching-electrowinning technology has served to increase
the economic viability of several deposits.
For both mining and processing, a point has probably been
reached where further increases in scale can do little to reduce
costs significantly." Nevertheless, some of the new technology
actively studied at present should be able to achieve some cost
reductions, yield economic methods for extracting minerals from
ores not currently exploitable, and diminish the undesirable eco-
logical effects of mineral exploitation. For instance, developments
in on-site leaching technology will assist in solving the ecological
problems of strip mining and underground caving methods. Re-
search to develop new technology has been conducted mainly by
the private sector in the past, but public sector research activity
is increasing." 2
Mineral exploration continues to evolve from a more or less
haphazard scratching of the earth's surface to a systematic exami-
nation of an area's mineral potential. The past decade has seen no
major breakthrough in exploration technology, but rather a refining

tl. It should be noted that, in principle, economies of scale can be

achieved only in the case of ample ore reserves. Since most deposits con-
tain only a limited tonnage of ore amenable to processing, increasing the
production capacity (and reducing the unit cost) results in a shorter life for
the project (and higher capital charges). In contrast, a longer operating life
requires reduced production and higher unit operating expenditure. An opti-
mum solution through incremental financial analysis has to be found.
12. For instance, mining and mineral research and development expendi-
tures by the U.S. Bureau of Mines increased from $28 million in 1966 to
$46 million in 1970. The French government in 1973 provided $10 million
for research in metal extraction and $25 million for research into new uses
of nonmetallic minerals.
 38 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

of existing methods and tools. Improvements in transport (such

as helicopters) have expedited exploration considerably, as has the
use of mobile laboratories, portable sampling equipment, improved
survey devices, and automatic mapping techniques. Also, greater
application of geophysical and geochemical prospecting, space
photography, and radar and other sensing devices has significantly
increased the effectiveness of exploration. Although the new tech-
niques have raised the cost of setting up an exploration program,
they have resulted in important economies of scale, improved
discovery ratios, and lower costs for each exploration target or
area explored. Although most of the exploration effort so far has
been directed to mineral outcroppings at or close to the surface,
there has recently been a concerted search for methods of locating
deeper deposits. Intensive programs are under way to reduce drill-
ing costs by a factor of ten. Considerable interest has recently
been shown in developing methods for use in tropical areas cov-
ered with heavy vegetation and deep overburden; the unsuitability
of existing methods for these areas is reflected in the lack of
mineral development in tropical regions.

Infrastructure and Shipping

Since it has the dual function of making exploitation feasible
and integrating it into the overall economy, infrastructure plays
the central role in mining more frequently than in other industries.
It may form the major part of investment requirements. Large
investments are required for water supply (dams, boreholes, pump-
ing stations, pipelines, treatment plants, recycling and recovery
plants); power supply (generating facilities, hydrostations, thermal
stations, fuel pipelines, oil tank farms, transmission facilities);
transport facilities (rail track, rolling stock, loading and unloading
facilities, storage and stockpile installations, roads, vehicles, air-
craft landing strips, port facilities, piers, waterways, and even
ore ships and tugboats); social and municipal facilities (housing,
schools, hospitals, electricity, filter plants, commercial and recrea-
tional facilities-in short all the services required by any sizable
community); and communication (telephone, two-way radio).
Historically, especially in the developing countries, the mining
companies have borne the cost of building the complete infra-
structure, opening themselves to charges of double control. Cur-
rently, more and more of the infrastructure is being provided by
the host country, reflecting a desire on the country's part to assume
more control over it, to integrate it firmly into other sectors, and
 THE NATURE AND STRUCTURE OF THE INDUSTRY | 39

to increase the government's share of the benefits flowing from the

mining venture.
Perhaps more than the mining activities themselves, the infra-
structure brings the political elements of mining to the fore. Routing
of road, rail, water, or power transmission facilities entails obtain-
ing rights of way or purchasing private property (often fertile
farmlands). It may also mean heeding the needs of other sectors,
regions, and economic activities. Too often in the past these aspects
have been ignored, and the catalytic effect infrastructure investment
could have had on agricultural or industrial development in a
region was lost. The shortest or least expensive route may be
optimum for the mining project itself, but a judicious rerouting
may better serve the total economy without major disadvantage
to the mining project. A small thermal power-generating facility
may serve the mining venture adequately, but a major hydro
development may be better for the total economy, supplying the
mine, tying into the national grid, and saving fuel imports. The
politics of the venture may become international, particularly for
landlocked mineral-producing countries like Bolivia, Rhodesia, and
Zambia, where transport facilities cross national boundaries and
require international treaties.
The heavy infrastructure demands of the mineral sector have
strongly influenced its pattern of development. Base metals and
nonmetallics generally have low transfer charges; hence, isolated
areas may constitute unattractive exploration targets, except when
they contain minerals of high value. Mineral discoveries in such
areas may be shelved for the future, awaiting better prices, or be
exploited on a very large scale to justify the attending large expen-
ditures for infrastructure. Deposits with good mineral content may
be nothing more than worthless rock in such isolated areas. The
term isolation need not be considered only in terms of distance.
The unavailability of power or water (as well as manpower, for
example, in northern Canada) can also make an otherwise good
deposit an uneconomic resource. The location of processing facili-
ties, too, is strongly influenced by the availability and costs of the
infrastructure. For instance, the availability of low-cost power is
a major factor in locating an aluminum smelter and can outweigh
the disadvantage of transporting bauxite over large distances. The
heavy concentration of aluminum smelters in the United States,
Canada, and Europe-far from the bauxite deposits of the Carib-
bean, Guinea, and Australia-illustrates this point. Low-cost power
is also important for zinc, but less so for copper and lead. Lack of
water may prohibit processing altogether or call for the use of
dry processing technology. In many cases, the infrastructure re-
 40 ! THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

quires substantially more time to build than the mining and

processing facilities. In addition, by raising the investment required,
infrastructure-particularly if it is captive to the mine-may
increase the project risk, and this in turn may have a twofold
affect: it may harden the position of the private party negotiating
a concession agreement, and it may increase the cost of financing
as well as the security sought by the financiers from the project
sponsors.
The mining industry has had a significant influence on infra-
structure technology, particularly in transport. For instance, the
use of pipelines to pump slurries has become a viable alternative
to rail transport, even over considerable distances. The use of
very large ore carriers has lowered freight costs considerably, but
has also required deep water ports which in some cases can be pro-
vided only by anchoring a mooring buoy five, ten, or fifteen
kilometers from the shore. Major developments have also taken
place in the recent past in loading and unloading techniques.
With the expansion of mineral trade, marine transport has be-
come a major and generally very lucrative business, though ex-
tremely sensitive to world economic conditions, and subject to
lean years. By 1970, about 2,000 bulk carriers with a deadweight
tonnage of 50 million tons were engaged in mineral transport, some
only part-time. Over 80 percent of the carriers belonged to devel-
oped nations. Many developing countries with large mineral ex-
ports have no marine transportation of their own and little or no
influence on the operation and rate structure of the world shipping
industry.

Concentration of Ownership and Control

The industry shows a major degree of vertical integration and is

oligopolistic in nature. Very large mining companies, international
in outlook and sophisticated in financial and technical analysis and
operations, control the mining cycle from exploration to final
marketing of the refined mineral, even to fabrication and produc-
tion of consumer goods. There has been a significant trend
throughout the century toward larger operations and bigger com-
panies through amalgamation and forward integration into semi-
manufactures. Well over 90 percent of ore production in the market
economy countries is accounted for by operations producing more
than 150,000 tons of ore per year. These operations are conducted
by no more than 1,250 mines-about 600 underground, 450 open
 THE NATURE AND STRUCTURE OF THE INDUSTRY | 41

pit, and 200 alluvial-the majority of which are controlled by as

few as 150 major mining groups and corporations, many with
interlocking directorships. The Canadian industry typifies the in-
dustry structure: in 1965 there were 3,860 mining corporations in
Canada with total assets of $9,000 million, sales of $3,200 million,
and profits of about $650 million; 16 companies, or a mere 0.4
percent of the total, accounted for 37 percent of total assets, 44
percent of sales, and 46 percent of profits."3
In addition to their corporate concentration, the mining groups
depend to a large extent on various banks for loans for new proj-
ects: for example, Kennecott and Asarco on the Guggenheim-
Morgan Bank Group (United States); Amax, Cerro Corporation,
and Rhodesian Selection Trust on the Vogelstein-Sussman Bank
Group; Union Miniere on Soci&e Gen6rale de Belgique; Societe
le Nickel, Pennaroya, and Mokta on Rothschild (Paris); and Rio
Tinto on Rothschild.
When the individual minerals are considered separately, the
concentration of control becomes even more apparent. For many
years International Nickel Company (INCO) supplied more than 60
percent of world nickel output (excluding the centrally planned
countries); it still accounts for some 50 percent, although this
dominance is expected to diminish significantly during the 1970s.
Other examples of virtual monopoly positions are: American Metal
Climax in molybdenum, Rustenburg in platinum, Wa Chang in
zirconium, and De Beers in diamonds. Four firms (one each from
the United States, France, Australia, and Canada) account for 40
percent of the world's primary refined lead production, eight for
60 percent and twenty for 85 percent. Six firms (one each from
Canada, France, and Switzerland, and three from the United States)
dominate aluminum production. Furthermore, in 1969 (before
nationalization), two U.S. companies produced 90 percent of Chile's
copper output; three U.S.-owned companies, again before nation-
alization, mined and smelted virtually all of Peru's copper; two
foreign companies controlled Zambia's copper production before
nationalization; half the Malaysian tin output is controlled by
European firms; nearly all Caribbean bauxite production is con-

13. The breakdown of the rest was as follows: 198 had assets between $5
million and $99 million and accounted for 46 percent of assets, 40 percent of
sales, and 50 percent of profits; 3,646 had assets of less than $5 million and
accounted for 17 percent of assets, 15 percent of sales, and 4 percent of profits.
(Statistical Report tabled in the House of Parliament by Consumer and Corpo-
rate Affairs Minister, Government of Canada, 1969.)
 42 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

trolled by U.S. and Canadian firms; iron ore production in Liberia

is controlled by U.S., German, and Swedish interests and that in
Latin America is dominated by U.S. firms, although there is a
substantial domestically controlled industry. Oligopolistic control is
also very evident in zinc and manganese and, to some extent, in
potash and phosphate rock.
Overall, forward integration into fabricating is substantial, vary-
ing in degree with the particular mineral. Aluminum producers,
for instance, dominate the aluminum-fabricating sector, whereas
significantly less than half the copper-fabricating facilities are
affiliated with copper producers. Forward integration into fabrica-
tion for lead, zinc, and tin is minor, whereas in the steel industry
the process has been reversed, with substantial backward integra-
tion of the steel companies into iron ore, manganese ore, and
coking coal production.' 4 The emergence of the integrated oligo-
polistic firm was an inherent and possibly indispensible part of the
evolution in the scale of production and demand, the level of tech-
nology, and the quantity of capital employed in production. With
large capital commitments, firms had to miminimize risks and
assure full capacity operation by acquiring not only their own raw
material supplies but also their own market outlets. This was par-
ticularly important for a newly emerging mineral such as aluminum,
since responsibility for promotion and development of new uses
lay with the producer and required that all stages of production
and marketing be brought under corporate control. By and large,
control over marketing outlets is significantly more concentrated
than control over production.
The profile of the functions of the multinationals drawn in two
extensive studies by the United Nations is typical of the corpora-
tions operating in the mining field and need not be resketched

14. For an outline of the world aluminum market and the role of the
major companies, see United Nations, Committee on Natural Resources,
annex, "The Structure of the International Aluminum Industry," in Problems
of Availability arid Supply of Natural Resources: The World Mineral Situa-
tion (E/C.7/51) (New York, February 13, 1975). The structure of the iron ore
market and the backward integration of steel companies are illustrated in
Bension Varon and Jacques Nusbaumer, "The International Market for Iron
Ore: Review and Outlook," World Bank Staff Working Paper no. 160
(Washington, D.C., August 1973). An analysis of the structure of the nickel
industry and the concentration of ownership and control can be found in
George Bonar, The Nickel Industry: A Reference Study (Toronto: Canavest
House, 1971), and Bension Varon, "Review of the World Nickel Situation,"
World Bank Staff Working Paper no. 108 (Washington, D.C., July 1971).
 THE NATURE AND STRUCTURE OF THE INDUSTRY | 43

here;"5 illustrations and their implications will be provided through-

out the book. Additional observations are in order, however:
First, the step of exploration, characteristic of this industry,
broadens the already substantial power of the large integrated
firms. As discussed earlier, economies of scale in the use of explora-
tion techniques and the concentration of capital among large mining
companies increase the probability of success of their exploration
programs to a point where these firms are ensured control over
a large proportion of resources. The ability to spread losses over
a wide variety of operations has considerably reduced the risk of
exploration investment for large and integrated mining companies.
Even in successful programs by smaller companies, cost considera-
tions have forced many of these to contract the later stages of
exploration and the production stage to larger mining companies.
Thus, the larger company obtains further reserves with little risk,
although at a higher cost. This means that the immediate existence
of the large integrated firms does not depend on their probability
of success in the exploration sector. Their continued presence in
all phases of the sector increases their knowledge and skills through
accumulation of experience, and this gives them a further com-
petitive edge over the smaller firm.
Second, aside from the question of outright ownership, which
is ultimately a political question, the issue is not the role of the
multinational companies as suppliers of, for example, capital, tech-
nology, and marketing know-how-that they have a role to play
is widely recognized-but rather the way the tasks have been car-
ried out. The international companies' pattern of project selection,
investment, location of processing facilities, and revenue-sharing
arrangements, while defensible on narrow microeconomic and
political grounds, has not always been consistent with the develop-
ment needs, legitimate interests, aspirations, and sensitivities of
the developing countries. The leverage of developing countries over
the mining industry has been kept low by the industry's history of
guarding closely its knowledge of reserves and resources, tech-
nology, and markets, and overstressing its complexity to prevent
easy outside intervention. In a number of instances the multi-
nationals have been less than candid with regard to the results
of exploration, the parameters of investment and expansion deci-

15. See United Nations, Multinational Corporations in World Development

(ST/ECA/190) (New York, 1973); and The Impact of Multinational Corpora-
tions on Development and International Relations (E/5500/Rev.1, ST/ESA/6)
(New York, 1974).
 44 THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES
T

sions, processing and marketing properties of the product, techno-

logical and economic trends, and market value. Host countries have
thus been deprived of knowledge about their own resources and
of the basic tools with which to evaluate decisions deeply affecting
their interests. That the multinationals have often been the major
source of the information needed for evaluation of their perform-
ance has fostered suspicion and placed the multinationals at odds
not only with host countries but also with legislators in their
own countries.
Third, ownership and control do not mean the same thing.
Control of policies can be achieved by less than 50 percent equity
ownership, depending on the distribution of equity holdings, so
that data on the proportion of foreign ownership of firms in a
given country usually understate the proportion of assets controlled
by foreigners. Raymond F. Mikesell reports: "Foreign ownership
in terms of book value in the Australian minerals industry in 1970
has been estimated at 55.5 percent, but foreign control of Austra-
lian mineral firms has been estimated at 67 percent for 1970."1l In
a broader sense, effective control depends also on domination over
technology and markets, as illustrated by the role of the Japanese
firms in the postwar period. As will be discussed more fully in
chapter 3, the Japanese mineral-processing companies, particularly
the well-known giants of the iron and steel sector, have aggress-
ively sought new sources of supply worldwide. They promote joint
ventures among themselves, with other international mining or
manufacturing companies; and also with Japanese trading com-
panies, often taking only a minority holding which is yet sufficient
to exercise control over operations and policy decisions. This,
coupled with the practice of signing long-term purchase contracts
with the operating companies, and the large volume of finance and
technical assistance made available through the mining, manufac-
turing, and trading companies (and the Japanese government as
well) increases the leverage of the Japanese companies immensely
and results in a form of backward integration.
Unmistakably, control by multinationals will decrease as host
nations, developed and developing alike, assume more control
themselves. The right of host governments to make basic policy
decisions is indisputable; they will, however, have to continue to
rely on the large companies for execution and basic inputs, such as
capital, technology, and management-for it is there that the experi-

16. "Nonfuel Minerals: U.S. Investment Policies Abroad," The Washington

Papers, vol. 3, no. 23 (Beverly Hills and London: Sage Publications, 1975),
p. 5.
 THE NATURE AND STRUCTURE OF THE INDUSTRY | 45

ence is concentrated for the time being. Transfer of this experience

is a slow process.

The Role of Foreign Investment

During the industrialization of today's developed countries, raw

materials were obtained mainly from indigenous sources. But with
the accelerating increase in demand-over the past thirty years
more minerals have been produced than for all time before-local
resources became short, and the search for raw materials extended
to the developing countries. This was a logical extension of the
process by which the industry became integrated on a national
scale. As a consequence, most of the large mining operations in
developing countries today originated as foreign investment by
the large multinationals. The following factors contribute to the
continuation of this situation: First, the principal users of minerals
are the industrialized countries; hence the initiative for promoting
production originates with them. Second, the large mining firms
have acquired a monopoly of the various skills and techniques
required to develop and operate the industry. Although engineers,
geologists, and other specialists may be hired, the fully integrated
teams needed to develop large projects can rarely be obtained
without the cooperation of these firms (or, more recently, some
government agencies, such as those of the Soviet Union). Manag-
ing a mining industry, which involves finding new deposits, evalu-
ating them, and designing new mines, is extremely difficult and
few of the developing countries yet have this expertise or can
expect to acquire it in the near future. Third, substantial capital
is required and the risk involved is great. The large international
companies have ready access to capital and are able to spread their
risk by carrying out a number of activities and operating in a
number of regions. Fourth, access to the world market is dominated
by the international firms which have the advantage of an intimate
knowledge of the marketing needs in the industrialized countries.
Moreover, integration to the marketing stage provides important
economies. The integration itself requires major financial resources
and an organization generally outside the capacity of domestic
producers. With the development of several, sometimes sophisti-
cated, marketing organizations in the developing countries, how-
ever, this is becoming less important. Fifth, developing countries
themselves have tended, often under pressure from the large
companies, to grant concessions to a few large firms rather than
encourage the entry of a greater number of companies.
 46 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

Statistics on the volume and distribution of foreign investment

in mining are limited, difficult to interpret, and generally out of date
because of the rash of nationalization, especially in Latin America."7
Only a few indicative figures can be offered as follows: According
to a United Nations study, in 1967 foreign investment by countries
of the Organisation for Economic Co-operation and Development
(OECD) in mining and smelting in the developing countries amounted
to about $3,600 million, of which 57 percent was in the Western
Hemisphere, 36 percent in Africa, and 7 percent in Asia (investment
in the Middle East was negligible).1 8 Mikesell estimated that more
than half that total, $2,100 million, came from the United States.
According to Mikesell again, in 1972 the total amount of direct
foreign investment by the United States in mining and smelting
amounted to about $7,100 million, of which $4,400 million was
in the developed countries (roughly 80 percent of that in Canada
alone) and $2,700 million in the developing countries. Between
1968 and 1972 roughly two-thirds of the additional U.S. foreign
investment in the sector was in the developed countries."9 Simi-
lar figures for investment by OECD countries in 1972 are not
available.

Capital Requirements and Sources of Finance

As has been mentioned, the trend toward massive size has re-
sulted in making investments very large, often above $250 million,
with $500 million and even $1,000 million projects not uncommon.
A list of mineral projects in the market economy countries either in
the process of implementation or at advanced planning stages indi-
cates that while only 25 percent of the projects exceed $100 million
in size, these projects absorb more than 75 percent of the funds
invested (see appendix B). Many of the small projects are merely
expansions of existing plant.
Capital-output ratios vary significantly, from less than 0.2:1 for
a simple electrolytic refinery expansion up to 4:1 for a new, fully
integrated mine-smelter-refinery with the related infrastructure. In-
vestments of up to $250,000 per operator are becoming common-

17. For an account of developments between 1973 and 1975, see United
Nations, Committee on Natural Resources, Permanent Sovereignty over
Natural Resources (E/C.7/53) (New York, 1975).
18. United Nations, Multinational Corporations in World Development
(ST/ECA/190), p. 150.
19. Mikesell, Nonfuel Minerals, p. 4.
 THE NATURE AND STRUCTURE OF THE INDUSTRY | 47

place. In the aftermath of the energy crisis these costs have become
considerably higher. Some typical capital investment requirements
as of 1975 are given in table 1.

TABLE 1 I TYPICAL CAPITAL INVESTMENT

REQUIREMENTS FOR MINING AND
PROCESSING FACILITIES
Capital investment
per metric ton
Mineral and facility of annual output
(U.S. dollars)
Aluminum
Bauxite mining 25-30
Aluminum refinery 200-300
Aluminum smelter 1,000-1,500
Copper
Mining, beneficiating,
smelting, and refining 3,000-5,000
Lead
Smelter expansion 100-500
Nickel
Mining and smelting S,000-15,000
Zinc
Blast furnace and electrolytic
refining expansion 300-700

As discussed earlier, mining projects are frequently required to

bear a substantial part of the infrastructure costs. This is espe-
cially so in developing countries where it is necessary to provide not
only water supply, power interconnection, and some community
facilities, but often power-generating capacity, townsite, full educa-
tion and medical facilities, a communications system, rail and road
access, and port and shipping facilities as well. For example, be-
tween 1960 and 1970, eleven projects were implemented in western
Australia at an investment cost of $800 million, of which $515 mil-
lion (65 percent) was for infrastructure facilities. Aluminum smelt-
ing facilities in Costa Rica would require a total investment of close
to $1,000 million, of which 60 percent would be for infrastructure
facilities, mainly power, but also road, port, and townsite. Nu-
merous other examples could be cited.
As long as it was still on a small scale, the mining industry was
virtually self-financing, obtaining less than 10 percent of its capital
requirements from external sources. Properties were opened up on a
limited scale and progressively expanded out of cash flow. Bank
financing, to the extent that it occurred at all, was principally in
 48 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

the form of unsecured lines of credit for the seasonal needs of manu-
facturing and fabricating subsidiaries. With the present scale of
operations, however, this approach is no longer possible, and the
industry has been forced to rely increasingly on external debt and
equity financing. While many new projects are financed at least
50 percent, sometimes up to 80 percent, by borrowing, the major
companies have nevertheless retained a very conservative capital
structure, with most companies carrying less than 20 percent of
their total capital in the form of long-term debt; only a few have
allowed their debt-equity ratio to rise as high as 1:1. Reflecting this
conservative approach, the U.S. mining industry in 1969 raised
$1,700 million through new mining securities, 79 percent as equity
and 21 percent in the form of bonds, while the U.S. manufacturing
industry in the same year raised $6,400 million, 30 percent as equity
and 70 percent as debt.
Because of the high cost and risk involved, the availability of
funds for mineral exploration has been restricted to two principal
sources: cash flow of the large mining companies and (to a lesser
extent) speculators. Another minor source in the developed coun-
tries is government investment in geological and mineral surveys
and government contributions to domestic exploration funds. In the
context of total worldwide needs, however, government funding is
insignificant. The UN Development Programme (UNDP), with annual
expenditures growing from $5 or $6 million in 1960 to about $20
million in 1970, made a useful contribution to exploration invest-
ment until the introduction of country programming of UNDP as-
sistance in 1971.20 The funds allocated to mineral exploration
projects then dropped considerably as governments gave higher
priority to projects with more readily visible returns. To counteract
this decline in activity, the United Nations has recently established
an exploration fund to assist developing countries in more syste-
matic mineral exploration of their territories. Within its provisions,
mineral operations based on discoveries made by the fund will pay
a royalty to the fund, in the hope that over time the royalty reve-
nues of the fund will match the exploration expenditures and hence
the fund will become revolving (self-sufficient).2 1 Financing for the

20. See appendix C for a description of UN activities in the mineral

sector, especially those in the fields of mineral exploration.
21. The royalty, called officially a replenishment contribution, is set at
2 percent of the annual value of the commodities produced and will be
payable at this rate for a period of fifteen years from the start of commercial
production or until a ceiling is reached. The ceiling is not firmly set in the
 THE NATURE AND STRUCTURE OF THE INDUSTRY | 49

early years of operation will be obtained through voluntary con-

tributions. Commitments and pledges to date (January 1976)
amount to $11.2 million, $8.5 million of it from Japan, and have to
to be considered disappointing. This and the move toward setting
up national exploration funds will help promote exploration in the
developing countries to some degree, but the burden of exploration
will remain with the private sector for a long time.
The sources of finance for mineral exploitation, in addition to the
mining companies themselves, include the following. First, consum-
ers and trading companies: in order to control and assure supplies,
these have been playing an increasing role in mineral financing and
now represent a very important source of finance. Second, financial
institutions in the developed countries: they provide a significant
amount, but generally make it available only to the large mining
companies against the companies' general creditworthiness, al-
though project financing, as opposed to balance sheet financing, is
becoming more important. Third, suppliers' credits: these are being
increasingly extended for mining projects, but are often available
only to the large mining companies, or against a government guaran-
tee. Fourth, speculators, for minor financing directed mainly to
projects in the developed countries. Fifth, government participation
in equity or provision of infrastructure: this remains a negligible
contribution but is expected to increase. Sixth, multilateral and
bilateral aid institutions: these have not yet made any significant
contribution. Up to 1973, they accounted for less than $750 million
altogether or less than $75 million per year. This is less than 1.5
percent of total investment, or 5 percent of the mining investment
in the developing countries. The World Bank has made the most
important contribution, followed by the United States and Japa-
nese Export-Import Banks, Kreditanstalt fir Wiederaufbau in the
Federal Republic of Germany, the European Investment Bank, and
the Inter-American Development Bank. (The activities of the World
Bank are summarized in appendix D.) In most cases mineral sector
loans, including infrastructure, made up less than 3 percent of the
loan portfolios of these agencies, although in some years they
accounted for up to 10 percent.

operational procedures, as there is "insufficent experience" to establish the

level, but it is suggested that "the ceiling will probably be in the region of a
multiple of 15 times the original investment by the Fund, in constant prices."
See uN Development Programme, Governing Council, United Nations Re-
volving Fund for Natural Resources Exploration: Operational Procedures and
Administrative Arrangements (DP/142) (New York, October 24, 1975).
 50 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

Mineral Prices and Profitability

Mineral prices are the subject of much controversy and have a

major influence on the well-being of many towns, regions, and
nations. Wide price fluctuations are the norm rather than the excep-
tion for metals such as copper, silver, and zinc. Not only does this
volatility of mineral prices have an important bearing on the return
on mining investment and the profit margins of mining operations,
but it has a major influence on the balance-of-payments position of
the mineral-exporting countries, particularly those such as Bolivia,
Chile, and Zambia, where minerals make up more than 80 percent
of all exports. National economic planning is made very difficult for
such countries. In chapter 4 we raise the question of the rationale
of the mineral market mechanism and prices. In view of the large
degree of vertical integration and concentration of control in the
industry, many claim that prices are artifically high, higher than
would be required to cover production costs and provide a satis-
factory return on capital. On the other hand, until the recent con-
certed action of the petroleum exporters, there had been no
recognition of the inherent value of the untouched mineral in the
ground.
These questions of mineral pricing have an important effect on
the profitability of the industry. It is commonly believed that the
mining industry is one of high or even excessive profits. The data
offered to support this claim, however, frequently take account of
the larger, more successful projects and companies only and are not
representative of the industry as a whole. If all exploration expendi-
tures are included, the industry can probably be said to be one of
average-to-above-average profitability, but also one in which nu-
merous entities too small to spread their risk have failed. For ex-
ample, of the eighty-eight early gold mines founded during the gold
boom in western Australia, twenty-four repaid capital plus divi-
dends, twenty-eight repaid capital but showed operating losses, and
thirty-six failed to repay capital. The Northern Miner (Toronto)
estimates that less than one percent of the mining companies (in-
cluding venture-capital exploration companies) now incorporated
in Canada pay dividends.2 2 For the profitable Canadian mines, the
average return on investment varied between 2 percent for gold
mines (before the increase in gold prices) and 9 to 10 percent for
nonmetallic mines; the average profitability of the metallic mines
lies somewhere beth . n these levels.

22. See appendix E for further details on Canadian experience.

 THE NATURE AND STRUCTURE OF THE INDUSTRY | 51

A review of annual reports and the statistics provided for Fortune

Magazine's top 1,000 U.S. companies and top 200 non-U.S. com-
panies indicates that the returns of the large mining companies in
terms of net profit (after taxes) on equity, while above the total
industry average, are below those of some individual industries
(pharmaceuticals and tobacco, for instance).2 3 The mining corpora-
tions included in the Fortune Magazine listings showed an average
net profit recorded in table 2.

TABLE 2 | PROFITABILITY OF SELECTEDGROUPS OF COMPANIES

Net profit after taxes
as percentage of
shareholders equity
Company grouping 1969 1970 1972 1973

Mining companies in top 1,000 U.S.

companies 12-14 7-14 8-10 14-15
Nonmining companies in top 1,000
U.S. companies 11 9-10 9-10 12-13
Mining companies in top 200 non-U.S.
companies n.a. 13-14 n.a. 11
Nonmining companies in top 200
non-U.S. companies n.a. 8 n.a. 7
n.a. Not available.
Source: Fortune Magazine.

The returns show a wide range (from -10 to 40 percent), as do

the earnings of the individual companies from year to year. These
figures, of course, refer only to the more successful of the mining
companies throughout the world. In periods of economic buoyancy
the mining companies generally do better than companies in other
industries, but in periods of economic instability and decline the
mining industry lags behind the other industries; in other words, it
is more susceptible to the state of the world economy than most
industries.
There is no doubt that h ighly profitable projects with capital pay-
back periods of four, three, or two years do exist. These help to
attract the large amounts of exploration venture capital required.
At the same time, it must be appreciated that the successful projects
must cover those unable to repay their capital, as reflected in the
operating principles of the UN Revolving Fund, so that the in-
dustry as a whole can be viable.

23. For details, see Fortune Magazine's listing for the years 1970 and 1973.
 52 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

In areas experiencing political instability, mining corporations

tend to consider only projects of high profitability. A study con-
ducted for the U.S. Bureau of Mines shows that, while the average
annual earnings on total U.S. foreign investment in mining fluc-
tuated between 10 percent and 15 percent over the period 1954-67,
this investment returned less than 10 percent in Canada but up to
25 percent in Latin America.24 Furthermore, income returned to the
parent companies, although averaging only 60 percent of earnings
from the Canadian investments, was close to 100 percent of the
earnings on Latin American investment-a fact which lies at the
root of the current controversy over the equitable exploitation of
natural resources. There is insufficient information of this sort by
country and by commodity. Inadequate disclosure by the multina-
tionals is precisely one of the sore points with the developing
countries.

24. See Charles River Associates, Inc., "The Contribution of the Nonfuel
Minerals Industry to International Monetary Flows" (Cambridge, Mass.,
1968), appendix E.
2 Mineral
I Reservesand Resources

BECAUSEMINERALRESOURCES buried
ARENONRENEWABLE, in the ground
and costly to discover, their availability, location, and recoverability
have long been a natural concern of the mining industry and the
industrialized nations. In recent years, the concern has been shared
by development planners in rich and poor countries alike, by poli-
ticians, philosophers, social and natural scientists, conservationists,
and visionaries. The question of mineral resources is no longer nar-
rowly geological or economic, but a matter of broadest public in-
terest, encompassing the allocation of scarce resources, the eco-
nomics of waste, the preservation of the environment, and ethical
as well as aesthetic considerations. This broadening of perspective
has had its price, however: facts have been stretched, grey areas
have been arbitrarily painted black or white, and geologists and
mineral economists have been brushed aside as narrow specialists,
as the debate has become general, fashionable, and heated.
More than by any other single factor, concern over resource
scarcity has been triggered by the unprecedented population growth
experienced since the Industrial Revolution. World population in-
creased from about 750 million around 1770 to nearly 3,700 million
in 1970.' Despite attempts at worldwide population control, and
eventual reductions in the growth rate, enormously high population
levels will have to be supported in the future, putting constant pres-
sure on resources. Beyond this, the idea of equitable consumption of
resources, both within individual nations and among nations, has
become central to the concern over the relation between resources

1. The number of people added to the world population since the In-
dustrial Revolution is nearly ten times greater than the number added in
the preceding 200 years.

53
 54 THE MINING
T INDUSTRY AND THE DEVELOPING COUNTRIES

and economic growth, adding another dimension to the problem.

The development of sophisticated techniques for analyzing and sys-
tematizing the interaction of the many forces affecting economic
growth-population, food, energy, raw materials, pollution, tech-
nology-has brought on a wave of pessimistic predictions; and in
nearly all predictions the specter of mineral resource exhaustion has
figured prominently.
The role of mineral resources in the growth equation was pushed
into prominence by The Limits to Growth, a study sponsored by
the Club of Rome and conducted by a team of systems analysts
from the Massachusetts Institute of Technology, headed by Dennis
L. Meadows, which appeared in March 1972 and dramatized the
constraints placed by nonrewable resource inventories on unchecked
economic growth. The study argued that it is better to establish
conscious limits on future growth than to let nature establish them
for the world in catastrophic fashion-more specifically, that the
salvation of the world lies in moving towards zero growth rates in
population and industrial production by 1975.2Although the initial
excitement generated by the MIT study's zero-growth prescription
has subsided, the advent of the energy crisis, food shortages, and
confusion about the causes of the current inflation have revived
doubts and fostered a feeling of insecurity with regard to all
natural resources. Perhaps not surprisingly, the nonfuel minerals
industry denied the conclusions on the subject, but with little force,
opening itself to accusations of being concerned only with the pur-
suits of high revenues through reckless exploitation.
No matter how tempting the speculations, the ultimate limits of
resource availability cannot be measured; nor are they relevant to
the operation of the mining industry in the predictable future.
Scenarios that venture beyond fifteen to twenty years have little
application to viable planning periods and to mechanisms of man-
agement at man's disposal. Moreover, they tend to detract from
more pressing problems such as those of narrowing the gap be-
tween the rich and poor countries and of averting regional shortages

2. The publication of The Limits to Growth was followed by an avalanche

of reviews, as well as a series of follow-up projects. Among the earliest
ones to question the study's pessimistic assertions on nonrenewable resources
was Report on the Limits to Growth: A Study by a Special Task Force of the
World Bank (Washington, D.C., September 1972), which also summarizes the
initial reaction to the MIT study. For a more recent evaluation, see Wilfred
Beckerman, In Defense of Economic Growth (London: Jonathan Cape, 1974),
and "The No-Growth Society," Daedalus (Fall 1974).
 MINERAL RESERVES AND RESOURCES | 55

of food, energy, and key raw materials. 3 Nevertheless, the question

of resource availability cannot be left out of an analysis of the
mining industry entirely, as it has a bearing not only on the struc-
ture of the industry (location, trade pattern, ownership, and control)
but also on policy. Mineral development occurs in a continuum,
with the resource picture changing all the time. Size of reserves,
need for discovery, cost of discovery, and projection of success are
key inputs into all major policy decisions at the national and com-
pany level. In this chapter, therefore, we examine briefly the raw
material base of the mining industry, including ocean mineral re-
sources and the recovery of metals from wastes, which is referred
to in the industry as mining above ground.

Concepts, Measurement, and Interpretation

Since minerals are nonrenewable, each deposit is subject to tech-

nical and economic depletion. The aggregate supply of mineral
resources can generally be considered continuous over foreseeable
though ultimately limited time, as technology and capital are allo-
cated to finding new resources and mineral and nonmineral sub-
stitutes, as well as to more efficient exploitation and use. But when
the aggregate is broken down on the basis of individual industries,
commodities, and producing regions, the known resource base is
fixed and depletable.
Assessing the quantity and adequacy of mineral resources is a
difficult task posing some very real problems. For a mineral occur-
rence to be classified as a reserve, on the one hand, it must be
economically exploitable at current prices and with available tech-
nology. Reserves are normally classified as proved, probable, possi-
ble, or, alternatively, measured, indicated, or inferred, according to
the degree of measurement or uncertainty. The term resources, on
the other hand, covers not only reserves but also other mineral
deposits that are known but not economically or technologically
recoverable at present, or that may be inferred to exist but have not
yet been discovered. Resources are classified as recoverable, para-
marginal or submarginal, or as conditional, hypothetical, and spec-

3. For a look at the question of ultimate limits in perspective and a dis-

cussion of the limits of knowledge about resources, see Bension Varon,
"Enough of Everything for Everyone, Forever?" Finance & Development
(September1975).
 56 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

ulative, on the basis of certainty of existence or feasibility of re-

covery. (See appendix F.) It should be underlined that reserves do
not exist to be discovered as such but are developed from resources
at a cost and over time, through the application of technology,
capital, and know-how, and in response to changes in price (and
transport), as illustrated in figure 4.
The nature of the industry-whereby companies only prove up
sufficient reserves to assure medium-term production and do not an-
nounce their mineral discoveries immediately-together with the
confidentiality of information on the strategic minerals, cast
doubt on the accuracy of published reserve figures.4 Quantifying
resources is even more difficult, since the concept resource itself is
grossly imprecise. In addition to being always highly speculative,
estimates of resources are seldom addable; global aggregates com-
bine a collection of estimates which vary in coverage, definition,
standards, and accuracy. 5 Furthermore, the interpretation of re-
source estimates cannot be divorced from the context and specific
objective of the inquiry since, given the high cost of mapping and
exploration, no entity has ever had the mandate and means to de-
velop complete, standardized, and accurate global data of a nature
to satisfy the needs of all inquirers. 6
Measuring adequacy of resources, either globally or for a given
country or region, poses even greater problems. It requires judg-
ments and assumptions on wants and requirements, the pace and
structure of growth, income distribution, political climate, vitality

4. Fiscal measures, too, can constitute a disincentive to accurate reporting,

since reserves are considered a part of company assets and are subject to
property and other taxes in some jurisdictions.
5. Recognizingthese shortcomings,the Economicand Social Council of the
United Nations has asked the UN Center for Natural Resources,Energy, and
Transport to prepare a review of definitions and terminology in use in the
field of minerals. Subsequently,the Secretary-Generalis to convene a group
of experts to prepare a report recommendinga common set of definitions
and terminology for the purpose of reporting to the United Nations on
mineral resources. (United Nations, Economicand Social Council, Resolu-
tions and Decisions,July 2-31, 1975, Res. 1954 (LIX,B) in E/5740,supp. no. 1.
6. The problems and pitfalls of estimating reserves and resources have
been articulated and underlined repeatedly by geologists and mineral econo-
mists, but they are not recognizedfully or uniformly by users of the results.
Many investigators and policymakerstreat reserve figures as if they were
population census data. For a compact and frank exposition of the problems
posed by the many geological and economic indeterminants, see Fernand
Blondeland Samuel G. Lasky,"Concepts of Mineral Reserves and Resources,"
in United Nations, Survey of World Iron Ore Resources (ST/ECA/113)(New
York, 1970), pp. 53-58.
 MINERAL RESERVES AND RESOURCES 57

FIGURE 4 | DEVELOPMENT OF RESERVES

Price

Exploration

Science and technology

esources Capital Reserves

\ / ~~~Manpower\

Know-how

Transport

Source: Adapted from Jean-Paul Drolet, "The Demand for Canada's Mineral Re-
sources," paper presented at the International Symposium on Canada's Nonrenewable
Resources, Toronto, March 25, 1974.

of institutions, tolerances with regard to a broad range of economic

and social costs, technology, and even human ingenuity. Fischman
and Landsberg articulated the problem of determining adequacy in
the form of twenty-eight questions, leading to the observation that
the answers to these questions depend on the establishment of
reference standards-ethical, pragmatic, or other-and even dif-
ferent sets of standards for different mineral resources.'
Adequacy is commonly measured in terms of the number of years
for which available resources can meet exponentially rising demand.
Calculating this is a useful first step, but by no means sufficient for
a meaningful or definitive assessment of adequacy. After determin-
ing that available reserves of a given commodity are adequate to
last for X years, it is necessary to ask: Is the commodity essential,
to satisfy what needs, and what are the economic and social costs
of its depletion? An alternative yardstick which has been attracting

7. For an excellent discussion of the problem of defining "adequacy," see

Leonard L. Fischman and Hans H. Landsberg, "Adequacy of Nonfuel Minerals
and Forest Resources," in Ronald G. Ridker, ed., Population, Resources and
the Environment, U.S. Commission on Population Growth and the American
Future (Washington, D.C.: U.S. Government Printing Office, 1972).
 58 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

some attention is that of production rates. In addition to asking,

How much is there? this approach also asks, How much can be
produced annually with a twenty- to twenty-five-year perspective?
-a question of greater interest to policy planners, but difficult to
answer since it involves projecting economic, technological, and
political conditions. 8

Land-Based Reserves

The world mineral reserve position varies significantly from

mineral to mineral as shown in appendix H and summarized here:
Of the twenty-seven minerals surveyed for this purpose, world
reserves for eight (potash, columbium, phosphate, magnesium,
chromium, feldspar, vanadium, and iron, in order of abundance)
are more than sufficient to satisfy cumulative requirements for close
to, or more than, a century. Most of these minerals are known to
form a significant part of the earth's crust; one, magnesium, can be
obtained economically in relatively unlimited quantities from the
sea,' In the case of the most widely used among these, iron, reserves
can be doubled with a price increase of 40 percent or less.
Reserves for another nine minerals (cobalt, manganese, nickel,
molybdenum, asbestos, titanium, antimony, bauxite, and sulfur) are
expected to last for thirty to sixty years. Sulfur and bauxite are
borderline cases. Although reserves of standard sources of sulfur
are not large, huge quantities of the product can be recovered from
gypsum. Moreover, further moves toward the control of air pollu-
tion may yield large quantities of marketable sulfur (from smoke-
stacks and elsewhere) which may flood the market. With regard to
bauxite, estimates of world reserves vary, and the quantities that
can be added to reserves by higher prices are not as great, in rela-
tive terms, as in the case of iron ore. Though it is claimed that there
are very large undiscovered resources, the need for large amounts
of electric power for refining may present a problem.

8. The most articulate proponent of this measure is Jan Zwartendyk of

Canada's Department of Energy, Mines, and Resources, who has been working
to institutionalize it in Canada. See "The Life Index of Mineral Reserves-A
Statistical Mirage," Canadian Mining and Metallurgical Bulletin (October
1974); and "Departmental Technology and Definitions of Reserves and
Resources: Interim Document," Department of Energy, Mines, and Resources,
Ottawa, June 30, 1975.
9. Silicon can be obtained from sand, and its supply, too, is relatively
unlimited.
 MINERAL RESERVES AND RESOURCES | 59

In the case of the remaining ten minerals (copper, tungsten,

barite, bismuth, lead, zinc, tin, fluorspar, silver, and mercury), the
reserve situation is somewhat tight or even critical, reserves being
adequate to meet cumulative demand for thirty years or less. Al-
though its proven reserves are not large, copper is not critically
short because it is now mined from the larger reserves of lower-
grade ore as a result of technological progress, because the size of
minable reserves will definitely be extended through higher prices,
and because there is some potential for accelerated recycling.
The situation is the same for lead and zinc, the other two minerals
with reserve lives of less than thirty years. Among significant
minerals, the only ones whose reserves are assuredly tight or
critical are silver and tin. Intensified explorations have failed to
uncover significant new resources. There are, however, enormous
hoards of silver in private hands which can be brought into the
market by higher prices. In the case of tin, demand growth has
already been forced down to about I percent a year through
substitution. 9
For many of the minerals on the tight or critical list (less than
thirty years supply) there are a number of mineral and nonmineral
substitutes in adequate supply, as shown in table 3. A full explora-
tion of the potential for substitution requires examination of end
uses, costs, technology, and the relative quantities in which the
minerals are currently consumed. The table is designed simply to
show that a number of options are indeed available, and it under-
states the options at that. For example, since aluminum-one of
the most versatile materials-can be produced from widely abun-
dant clays (anorthosite) as well as from bauxite, it could be con-
sidered in ample supply.'0

The Distribution of Resources

On the basis of the value of minerals at the commonly accepted
state of transfer in international marketing" (for example, blister

9. For a more detailed but gloomier analysis of the world reserves

situation see David F. MacInnes, "Estimates of World Metals Depletion:
Background for Metals Policy Planning," Firbank Fell, A Center for the
Study of Alternative Societies, December 1973.
10. The world mineral reserve situation has been scrutinized by innumer-
able national and international commissions and institutes recently. Despite
individual differences, the basic assessment is the same.
11. Weighted average of all minerals with reserves (valued at the com-
monly accepted point of transfer) of more than $1,000 million.
 60 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

TABLE 3 SUBSTITUTES FOR SELECTED MINERALS

Reserves of principal substitute minerals
(years of supply)
Other
substitute
Mineral 100 or more 30 to 60 Less than 30 products
Copper Steel Aluminum Plastics
Lead Cadmium Nickel' Mercury Plastics
Silver
Zinc
Tin Steel Aluminum Copper Glass
Lead Paper
Tungsten Tantalum Cobalt' Molybdenum
Nickel' Titanium
Zinc Cadmium Aluminum Plastics
Magnesium
Steel
a. High concentrations on the seabed may justify classifying as sufficient for
100 years.
Source:Authors' classification,based in part on appendixA.

copper, lead and zinc metal, manganese ore, iron ore, and phosphate
rock), mineral reserves are distributed among the economic regions
as follows:

Estimated
mineral
reserves
Land (percent of
area world total, Reserves:
Region (percent) in volume) area
Developed market economies 26 35 1.35:1
Developing market economies 49 38 0.77:1
Centrally planned economies 25 27 1.05:1
Total world 100 100

The table above indicates that the commonly held opinion that
the developing countries possess almost half the world's mineral
reserves is not an accurate reflection of the position for the nonfuel
minerals. In fact, in aggregate value terms, the developing market
countries can barely be credited with more reserves than the de-
veloped market countries. Although the reserves of phosphate, tin,
sulfur (in petroleum and natural gas reserves), fluorspar, colum-
bium, and cobalt are concentrated in the developing countries,
which also account for about 50 percent of the copper, iron, and
nickel reserves, the reserves of potash, magnesium, titanium,
 MINERAL RESERVES AND RESOURCES | 61

chromium, manganese, zinc, lead, silver, tungsten, vanadium,

bauxite, molybdenum, and mercury are concentrated in the de-
veloped market-economy and centrally planned countries (appen-
dix G). Estimates by the U.S. Bureau of Mines indicate that higher
mineral prices would not significantly adjust the reserve situation in
favor of the developing countries; for many minerals the opposite
would be true. Because of conceptual and measurement differences,
however, reserve estimates and analyses such as that above must be
regarded with caution.
As shown above, mineral reserves in developed market
economy countries, in relation to their areas, are substantially
higher than in developing or centrally planned countries. To at-
tribute this disparity to the developed countries having squan-
dered the resources of the developing countries is fallacious. Rather,
the high ratio of reserves to land in the developed countries and the
substantial increases in mineral reserves in Australia and Canada
over the past two decades, and more recently in Ireland, are directly
related to the extensive exploration activities in these areas, sup-
porting the thesis that reserves are a function of exploration. The
implications of this are obvious: since large areas in developing
countries are still unmapped, it is quite likely that future explora-
tions will uncover greater reserves in those countries than in the
rest of the world. Furthermore, as noted in chapter 1, the cost of
finding new reserves in Canada and the United States has been in-
creasing rapidly. (The low reserve position of the centrally planned
economies is probably a manifestation of low exploration intensity,
incomplete disclosure of the reserve position, and the locational dis-
advantages of the Siberian resources.) Over the next decade the
aggregate value of nonfuel mineral reserves of the developing
countries could indeed increase to more than 50 percent of world
reserves. Nevertheless, for many of the minor minerals, the distri-
bution of reserves is expected to continue to favor the developed
countries.
In appendix G, table G.2 indicates that, for the majority of min-
erals, reserves are concentrated in present producers; these pro-
ducers, who include developed as well as developing countries,
account for a disproportionately large share of world reserves. Of
course, this is not surprising, since large reserves attract develop-
ment capital first and the establishment of production facilities and
infrastructure acts as an incentive to further exploration. Although
new discoveries in unpredicted places can never be ruled out, the
time required for exploration suggests that for many minerals the
geographic structure of production is not likely to change drastically
for a number of years.
 62 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

FIGURE 5 ENTRY OF SELECTED METALS INTO LARGE-SCALE

PRODUCTION AND CONSUMPTION IN THE UNITED STATES

..1880-1900 Copper Lead Manganese Tin Zinc

::. x.-.. x..:.... S

.......:..:.::.. ....

1901-20..... .: Chromium Nickel

1921i-30 :: s ss Aluminum Molybdenum

Cadmium Magnesium Tungsten

=~~~~~~

Beryllium Cobalt Hafnium

[1941-5 ......
.19
......-...... sSelenium Silicon Titanium

X Bismuth Colombium Germanium

195 6 Tantalum Tellurium Vanadium
.. :::::::::::.Zirconium

Source: John McHale and Magda Cordell McHale, "The Timetable Project: An
Assessment of Projected Relationships between Population and Resources," (Center
for Integrative Studies, State University of New York, 1972).

The Dynamism of Resources

The concept resources is itself a dynamic one: as argued elo-
quently by Zimmermann, many things become resources over
time.' 2 Many of the metals in use today were not produced com-
mercially or did not enter large-scale production until less than a
hundred years ago-some not until the postwar period. (See figure
5.) Before technology was developed to reduce bauxite into alumi-
num, it was a relatively useless material. Large-scale use of titanium
alloys (in the aerospace industry) and of zirconium (in nuclear
reactors) is strictly a post-World War II development.

12. W. N. Peach and James A. Constantin, Zimmermann's World Resources

and Industries, 3d. ed. (New York: Harper & Row, 1972), chap. 1.
 MINERAL RESERVES AND RESOURCES | 63

As noted in a UN study, estimates of reserves and resources

tend to be conservative and are almost always revised upwards,
sometimes drastically; "a type of giant leap is frequently in-
volved."'-' (See table 4.) For a number of minerals, reserves have
increased stunningly over the last decades, despite massive and
accelerating consumption. Reserves of iron ore have risen by twelve
times, potash twenty-three times, and chromite six to seven times
since the late 1940s. Although reserves of lead and tin are relatively
small, their projected reserve lives now are much the same as forty
to fifty years ago. Potential resources exceed reserves quite signifi-
cantly in most cases and reserve inventories have increased also.

TABLE 4 | DYNAMICS OF MINERAL RESERVE ESTIMATES

Published reserves.
(thousands of metric tons)
Percent
Mineral Late 1940s Late 1960s change
Bauxite 1,400,000 5,300,000 +279
Chromite 100,000 775,000 +675
Copper 100,000 279,000 + 179
Iron ore
Actual 19,000,000 251,000,000 +1,221
Potential 57,000,000 531,000,000 +832
Lead 40,000 86,000 +115
Manganese ore (contained) 500,000 635,000 +27
Potash (K 2 0) 5,000,000 118,000,000 +2,360
Tin 6,000 6,600 +10
Tungsten 1,903 1,328 -30
Zinc 70,000 113,000 +61
a. Deep-sea nodules not included.
Source: United Nations, Projections of Natural Resources Reserves, Supply and
Future Demand (E/C.7/40/add.2) (New York, December 1972).

Even where ore grade has deteriorated, no hard evidence is to be

found over an expanded historical span of sharply rising costs. For
example, while the metal content of copper ore is estimated to have
declined from 8 percent in the sixteenth century to less than one
percent (in the United States) at present, copper metal prices have
declined from about $10 a pound four centuries ago to roughly 50
cents in recent years."4 It is also a well-established fact that mineral

13. United Nations, Projections of Natural Resource Reserves, Supply and

Future Demand (E/C.7/40/add. 2) (New York, December 1972).
14. See T. D. Lowell, "Copper Resources in 1970," Transactions of the
American Society of Mining Engineers, June 1970; and Orris C. Herfindahl,
"The Long-Run Cost of Minerals," in Three Studies in Mineral Economics
(Washington, D.C.: Resources for the Future, 1961).
 64 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

grades and mineral resources often have an exponential relation.

If the grade of a mineral that can be exploited is halved, that rarely
means simply a doubling of reserves; they tend to increase by a
factor of ten, a hundred, or more.' 1
Furthermore, because of advances in understanding and altering
the molecular structure and composition of minerals, the range of
combinations in using metals is ever expanding. Consequently, in
terms of use, the aggregate resource base does not have fixed
boundaries. Its physical limits, too, are being pushed outward by
the exploration and anticipated exploitation of the ocean beds' vast
mineral potential.

Ocean Resources

At least thirty common minerals or groups of minerals are known

to exist in the sea' 6 but only a few are exploited currently in sig-
nificant quantities. Marine minerals fall into three groups in terms
of the physical state in which they occur: those that are dissolved or
stand suspended in seawater; those that are associated with bedrock,
that is, with geological formations now buried under the sea; and
those that are superficial (sediments on the ocean floor) and of rela-
tively recent origin. World production of these marine minerals
totaled over $7,000 million in 1969, of which $6,100 million con-
sisted of oil and gas.17
Of the fourteen or fifteen minerals most plentiful in seawater
only three (salt, magnesium, and bromine) are currently recovered
in large amounts. Possibilities for breakthroughs are slim, though
technological progress and expanding requirements will un-
doubtedly raise recovery rates steadily. A major obstacle to large-

15. Recently, this relation has been questioned with regard to porphyry
copper deposits. See D. A. Singer and associates, "Grade and Tonnage Rela-
tionships Among Copper Deposits," U.S. Geological Survey Professional
Paper 907-A,B, 1975.
16. Cement, iron ore, copper, lead, zinc, silver, gold, gypsum, cobalt,
nickel, sand and gravel, diamonds, manganese, phosphate, tin, bauxite, salt,
potash, platinum metals, fluorspar, magnesium, chromite, tungsten, mercury,
bromine, columbium/tantalum, rutile, barite, ilmenite, bismuth, and zircon.
17. The value of offshore production of oil and gas is now more than
$40,000 million a year. Up-to-date estimates of the total value of minerals
(fuel and nonfuel) from the sea are not available. For a description of ocean
resources and recent developments, see United Nations, Mineral Resources
of the Sea (E/4973) (New York, April 26, 1971); and Marine Questions:
Uses of the Sea (E/5650) (New York, April 30, 1975).
 MINERAL RESERVES AND RESOURCES | 65

scale and widespread exploitation is high cost in view of the vast

amount of water that has to be processed. Increased production of
fresh water from seawater, however, and combined minerals and
fresh water production could lead to major reductions in costs and
increase the economic importance of this source of minerals.
Commercial exploitation of mineral deposits within bedrock
(subsurface deposit) is currently limited to oil and gas and a small
group of minerals (among them coal, sulfur, and iron ore) which are
mined conventionally, from shafts on land or artificial islands. The
earth under the sea is probably mineralized in much the same way
as the land and therefore contains a wide variety of minerals in
abundance. Costs and physical difficulties, however, are significant
deterrents to conventional mining of the ocean bottom. It is also
extremely difficult to identify and measure underwater mineral
deposits, except those near land and at limited depth. Nevertheless,
considering the vast size of the oceans and the great length of the
shoreline, even small expansions of the minable boundaries may
open up significant resources.
The superficial deposits currently exploited consist of the so-
called marine placer deposits found in or near beaches and conti-
nental shelf areas, mostly in protected shallow waters and sub-
merged extensions of stream channels. Among deposits of this kind,
those that hold the greatest promise from an economic standpoint
are: the metalliferous muds recently discovered in association with
abnormally hot and saline brines in the Red Sea, which contain
extraordinary concentrations of heavy metals (such as iron, zinc,
copper, lead, silver, and gold) with a possible total value of at least
$2,000 million in 1972 prices;"8 and manganese nodules-the most
important of all superficial deposits and the seabed's resource of the
most immediate commercial significance.' 9
Nodules are metallic objects ranging in size from a pea to a base-
ball, found scattered over large areas of the ocean floor at depths
from roughly 900 to 6,000 meters (3,000 to 20,000 feet). The metal-
lic composition of the nodules varies depending on where they
occur. A typical deposit of commercial interest contains 25 to 30
percent manganese, 1.0 to 1.5 percent nickel, 0.5 to 1.0 percent

18. Investigation of the Red Sea muds has already been undertaken by
a German group in cooperation with the U.S. Geological Survey. The data
suggest that this resource merits economic evaluation and development.
19. The oceans also contain phosphorite nodules which are of secondary
importance because of their low phosphate content, compared to land re-
sources, and the abundance of the latter. Hereafter, the word nodule is
used to refer exclusively to manganese nodules.
 66 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

copper, 0.25 percent cobalt, as well as small quantities of several

other metals. The remainder of the nodule is made up of water and
silica. While all oceans are known to contain nodules, the richest
concentrations, in terms of quantity and quality, are found in the
central east Pacific.
Although the existence of nodules has been known for about 100
years, widespread interest in them is recent and in part a by-product
of growing concern over the possible exhaustion of high-grade
conventional resources. At the same time, there has been rapid
progress in the technology of nodule mining and metallurgy. The
enormous size of the resource has also generated interest in its de-
velopment. F. L. LaQue has estimated that meeting the world's
current needs for manganese and cobalt exclusively from ocean
nodules would require mining an area of about 2,850 square kilome-
ters and 620 square kilometers (1,100 and 240 square miles), respec-
tively, equivalent to only 0.0008 percent and 0.00017 percent of the
ocean bottom.2 0 Furthermore, nodules are renewable, that is, self-
regenerating, albeit at a slow pace.2"
Nodules no longer represent merely an oceanographic curiosity;
they offer solid prospects for exploitation. This is amply demon-
strated by the fact that today no less than thirty to thirty-five major
companies or groups of companies in the United States, Japan, and
Western Europe are actively engaged in exploration, development,
and equipment construction. Technological breakthroughs have
been achieved not only in lifting the nodules through a hydraulic
air suction system or a so-called continuous line bucket system, but
also in winning the metals from the nodules. Much of the prototype
equipment has already been designed, patented, built, and tested.
Although unforeseen difficulties may arise, what is already known
about the technology, as well as the consensus of professional and
technical opinion, indicates that it is almost certainly technically
feasible to obtain large quantities of metals from this source. As
early as 1972, the UN Secretariat concluded that the problems of

20. "Deep Ocean Mining: Prospects and Anticipated Short-Term Bene-

fits," Pacem in Maribus, Center for the Study of Democratic Institutions
Occasional Paper, vol. 2, no. 4 (June 1970).
21. Though a great deal remains to be discovered about the genesis of
the nodules, most scientists believe that nodules are formed and continu-
ously enlarged by precipitation of elements at a rate of 0.01 to 1.0 milli-
meters a 1,000 years in the abyssal ocean floor, but probably much faster
in continental slope areas. Although the average rate of formation is un-
doubtedly slow, the vastness of the resource base implies that many
metals in the manganese nodules, manganese and cobalt in particular, are
accumulating several times faster than they are being consumed by man.
 MINERAL RESERVES AND RESOURCES | 67

exploitation are "no longer technical but foremost legal and

political." 2 2
Less is certain about the economic viability of nodule mining,
however. The hard facts are a closely guarded secret; besides, as
there is no commercial exploitation at present, all estimates are
highly speculative. The cost-benefit estimates available differ widely
and lead to a variety of views ranging from the assertion that the
operation would be totally uneconomic, or at best marginal, to the
claim that it would constitute a highly profitable undertaking. This
uncertainty is partly the result of the peculiar combination of the
minerals found in most nodules in comparison to the present pattern
of consumption. The ratio of copper, nickel, and cobalt currently in
use is 266:27:1 compared to a ratio of 3:4:1 in nodules of average
composition. This discrepancy implies a large potential surplus of
manganese, nickel, and cobalt. Once seabed mining gets started
even on a fairly modest scale, the price of some of these metals and
the output of their present producers may begin to fall sharply.
Numerous additional complications arise from uncertainties about
the marketability of some of the products, particularly manganese,
the interchangeability and joint-product nature (on land) of some
of the metals, the ultimate reaction of land-based producers, and
the inseparability of technological and economic considerations.2 3
Figure 6 gives the most recent estimates by the UN Secretariat of
the entry of firms into nodule mining, based on an assessment of
company plans and programs as of mid-1974. They should be
considered highly speculative and, on the whole, optimistic, since
the resolution of the legal and political problems of who has the
right to mine the seabed and under what conditions-a formidable
task in itself-is tied to reaching agreement on a number of related
issues on, for example, territorial rights, environmental protection,
and scientific research. Progress in resolving the seabed mining

22. United Nations, Projections of Natural Resources Reserves, Supply

and Future Demand (E/C.7/40/add.2) (New York, December 5, 1972), p. 9.
23. For a detailed examination of the factors influencing the economics of
nodule mining, the range of estimates of costs, profitability, and prices, and
their effects on land-based producers, see United Nations, Economic Implica-
tions of Sea-Bed Mineral Development in the International Area: Report of
the Secretary-General (A/CONF.62/25) (New York, May 22, 1974); and its
follow-up report of the same title, (A/CONF. 62/37) (New York, February
18, 1975); UNCTAD, Implication of the Exploitation of the Mineral Re-
sources of the International Area of the Sea-Bed: Issues of International
Commodity Policy (TD/B/C.1/170) (New York, January 8, 1975) and the
UNCTAD case studies on copper, maganese, nickel, and cobalt listed in the
annex to the same document.
 FIGURE 6 | FORECAST oF ENTRIES INTO NODULE MINING, 1976-85
(millions of metric tons of dry nodules) m
Year and output co
Entry order 76 77 78 79 80 81 82 83 84 |85

I I I ~~~~~~I I

[.. ' 13 _ _ _ _ _ _ _ _ _ _ _ _

_ _ , ,~~~~~~~~~~~~~~~~~~. .. .,............... ..... ...

3 z~~~~~

5 2 z0

6 2 _ l H

Total output 1.5 3 4.5 8 12 14 15

Source: UnitedNations,Economic Implications of Sea-Bed Mineral Development in the International Area (A/Conf.62/65)(NewYork, May 22,
1974).
 MINERAL RESERVES AND RESOURCES | 69

issue has been slow despite the priority accorded to it at the Third
UN Law of the Sea Conference. The conference has already met for
four sessions: June to August 1974 in Caracas, March to May
1975 in Geneva, and March to April and August to September
1976 in New York. A fifth session is scheduled to take place in
New York in May to July 1977 .24
The race among rich countries to harvest the mineral wealth of
the seabed is spurred by the following considerations: manganese,
copper, nickel, and cobalt are important industrial raw materials,
some of them indispensable to industrial societies; most of the in-
dustrialized countries are deficient in these metals and rely on
imports for the bulk of their requirements; a nonpolitical source of
supply which cannot spring surprises in the OPECstyle ranks high
among their priorities. Developing countries, on their part, feel they
cannot afford to remain passive because many of them are large
suppliers of the minerals found in the oceans. Some, such as ZaYre
and Zambia, are large exporters of two or more of these minerals
and are heavily dependent on them; many have large and in some
cases newly discovered reserves of these minerals and, particularly
the least developed, cannot afford to lose the opportunity to develop
them. They fear quite justly that large-scale seabed mining may lead
to revenue lost as well as revenue forgone.2 5 While the principle of
sharing in the revenue from the exploitation of the common heritage
of mankind through the payment of a royalty to a central interna-
tional authority is attractive to the developing countries, especially
the landlocked countries, it is by no means certain that the net in-
come of the proposed authority will be sufficient to compensate
them for the potential export earnings they might forgo as a result
of the introduction of seabed mining.2 6
It should be emphasized that land-based resources of the four

24. The Third Law of the Sea Conference has probably generated more
reporting and analysis than any other conference in recent memory. For a
brief review of the issues and an evaluation of the progress made in the first
two sessions, see Bension Varon, "Slow Sailing at Law of the Sea: the Implica-
tions for the Future," Finance & Development (March 1975); and Bension
Varon, "Ocean Issues on the International Agenda," in Guy F. Erb and
Valeriana Kallab (eds.), Beyond Dependency: The Developing World Speaks
Out (Washington, D.C.: Overseas Development Council, 1975).
25. A recent UN report concluded: "The question is not whether mineral
markets will be affected by competition from nodules, but how soon, to
what extent and by how much." Economic Implications of Seabed Mineral
Development (A/CONF.62/37), p. 34.
26. UNCTAD, Implication of the Exploitation of the Mineral Resources
(TD/B/C.1/170), p. 7.
 70 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

minerals found in the nodules are ample. There is no evidence that

obtaining these minerals at lower prices from the oceans would
increase the economic well-being of the developed countries
measurably in the immediate future, nor that, even if this were so,
the benefits of such improvement would spill over to the developing
countries. Since there are no demonstrable immediate large benefits
from seabed mining, there is no demonstrable urgency to institute
arrangements that are less than acceptable to all parties concerned
and equitable in design.2 7
In the very long run, the question takes on an entirely different
perspective. If technological obstacles to large-scale nodule mining
are overcome (or no new obstacles arise), ocean resources can offer
strong cost advantages. Nodules are expected to have a horizontal
cost curve (long-run supply curve) for a great many decades (since
grade does not deteriorate rapidly, as resources are abundant and
the mining ship is not tied to one location), thus offering a distinct
advantage over the steeply rising cost curve of land-based resources.
(Figure 7.) Technological advances may find new uses for metals
obtained from nodules in excess of their projected requirements and
at prices lower than those for land-based minerals. For example, if
manganese metal could be substituted for steel, or nickel for copper
in some uses, this could radically change the relative importance of
this new source. "In that case nodule mining could increase spec-
tacularly and the industry would become a major supplier as well as
the largest source of cobalt, manganese, nickel, molybdenum, vana-
dium, and possibly other metals." 2 8 In that case, too, but only in the
very long run, developing countries might be among the bene-
ficiaries of nodule mining as consumers.

Recovery and Recycling

If the recovery of metals from wastes can be viewed as mining

above ground, it is largely because many of the metals so won
(copper, lead, and aluminum, for example) are equal in quality to
their virgin counterparts. But the parallel does not stop there. Solid

27. Not surprisingly, the developing countries have strong allies within
some of the developedcountries, the United States in particular, in resisting
moves to start seabed mining unilaterally, without awaiting the resolution
of the issues in an international framework.
28. United Nations, Economic Implications of Seabed Mineral Develop-
ment (A/CONF.62/65), p. 44.
 MINERAL RESERVES AND RESOURCES |7

FIGURE 7 COMPARATIVE LONG-RANGE SUPPLY

CURVES FOR LAND-BASED AND
OCEAN RESOURCES
Cost

Supply
Land

Land ores
Supply

-- Plateau interval-r val r Marine

,, Marine nodules

Quantity, Time

Source: Miller B. Spangler, "Deep Sea Nodules as a

Source of Copper, Nickel, Cobalt, and Manganese," in
New Technology and Marine Resources Development, © 1970
by Praeger Publishers.

wastes are a pool of potentially usable material, much like unmined

resources, their transformation into exploitable reserves depending
on technology, investment, infrastructure, quality, and prices.
There are significant differences, however. First, while recycling is
basically an economic process (relative prices influencing the
extent to which consuming industries dig into the reserve), en-
vironmental objectives-which are increasingly subject to public
influence everywhere-play a key role. Second, the success of set-
ting and meeting waste recovery objectives depends, above all, on
the institutional organization of a society; administration and man-
agement are as important as technology and economic incentives.
Third, the volume of ultimately recyclable material is fixed more
rigidly than that of virgin resources and its distribution strongly
favors the industrialized nations. Fourth, the cost of energy has
a direct and varying influence on the incentive for waste recovery
and use.
There are many kinds of exploitable wastes, each with different
problems and prospects, depending on its origin and the recovera-
bility of minerals and metals. Mineral wastes resulting from the
activity of mining itself (including washing and milling) consist
 72 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

mostly of piles (sometimes mountains several hundred feet high) of

residual, low-grade waste material. Beneficiation and chemical treat-
ment of low-grade copper, lead, zinc, phosphate rock, and other ores
and nonmetallic minerals produce vast accumulations of finely
ground tailings. It is estimated that more than 1,500 million tons
of mining, washing, and milling residuals (exclusive of overburden
deposits) accumulated in the United States between 1942 and
1965.29
Industrial waste includes the waste products of processing and
fabricating which either do not leave the plant and are immediately
recovered for reprocessing as home scrap, or come back to the mill
from fabricating plants or dealers as prompt or runabout scrap.
Examples of industrial waste recovery are the remelting of mill-
generated scrap in steel mills, the recovery of aluminum from the
so-called red mud residuals of certain bauxite processing plants, and
the recovery of zinc or sulfur from refinery fumes-although some
of these activities can be considered by-product recovery rather
than recycling.
Postuser or obsolete scrap refers to products discarded by con-
sumers, which revert back to the mills for recycling. While this is
the category most readily identified as scrap in the public's mind, it
is not always the major source of metals recovery, home scrap or
industrial scrap being more important in a number of cases, for
example, in aluminum. Recently, municipal solid wastes have been
included among the potential sources for recovering metals.
Societies have not been oblivious to the potential for saving
through the reuse or reprocessing of products. For most key metals,
a rising long-term trend in recovery can be inferred from the his-
torical figures. For example, whereas world pig iron consumption
increased ten to eleven times between 1900 and 1970, steel produc-
tion expanded by a factor of roughly twenty, reflecting the in-
creased use of scrap. Similarly, world consumption of new copper
rose fourteen times, but use of copper metal increased twenty times
as the proportion of secondary copper expanded from about 10
percent at the turn of the century to 35 percent in 1970. The growth
factor for primary zinc was 11.4, while that for primary lead was
only 4.5, partially as a result of expanded use of scrap lead, which
rose in the United States from 8 percent in 1910 to over 40 percent

29. Frank Austin Smith, "Waste Material Recovery and Reuse," in Ronald
G. Ridker, ed., Population Resources and the Environment, U.S. Commission
on Population Growth and the American Future (Washington, D.C.: U.S.
Government Printing Office, 1972), p. 63.
 MINERAL RESERVES AND RESOURCES | 73

at present. There is, however, some evidence that the rate of post-
user scrap recovery in some metals declined in the United States in
the 1960s, despite the continued expansion of the recyclable base
during this period. This underlines the importance of management
and incentives.3 0
Mineral wastes, especially submarginal tailings dumped near
mining sites, are likely to increase even more in the future since, as
several studies have pointed out, the progressive depletion of high-
grade ore deposits has tied production in industrialized countries to
extractive technologies which generate more mine tailings.31 The
potential for saving through home scrap recovery is small, as over
90 percent of such scrap is already reprocessed. The prospects for
fabricating and especially postuser scrap are better, although they
vary from metal to metal, particularly in the medium term, depend-
ing on current recovery rates, technological constraints, the life
cycles of their end products, and the limits of recovery. (Obviously
not all the virgin metal can be recovered since some of it goes into
such dissipative uses as lead in gasoline and titanium in paints.)
Table 5 gives some estimate of the proportion of U.S. production
met from secondary sources and the proportion of recoverable
material currently recycled.
Unlike the exploitation of nodules, recycling does not involve
conquering a new frontier; the reservoir and experience are there.
It is clear, however, from the simple arithmetic of scrap generation
and metal recovery (the leakage through dissipation and the lag due
to the durability of products) that recycling-no matter how effi-
cient or extensive-cannot provide indefinite relief to a society
whose resource needs are growing at an exponential rate. Yet it can
impart a considerable element of flexibility to long-term resource
management, especially if coupled with measures to dampen de-
mand through conservation. Fischman and Landsberg found that
though considerable potential for conservation in the United States
exists in aluminum and zinc through an active recycling policy, such
a policy would add only a few more years' worth of U.S. reserves,
far less than could normally be expected to be added by technologi-
cal evolution or a modest price rise. They went on to conclude, how-
ever, that the importance of recycling goes beyond the matter of
U.S. reserves; the potential recycling increase in aluminum, as one

30. See National Commission on Materials Policy, Material Needs and the
Environment Today and Tomorrow, final report (Washington, D.C., June
1973), pp. 4D-6.
31. Ibid., pp. 4D-8.
TABLE 5 | SELECTED ESTIMATES OF SCRAP RECOVERY IN THE UNITED STATES

Recoverable
Scrap recovery as percentage of production or consumption material
(percent)'
USBMb NASMI' Smithd EPA' Fischman and Landsberg' Battelle
Metal 1968 1970 1968 1967 Current Possibleg NASMI
Aluminum 17 30 17.5 18.3 17.3 42.6 48
Chromium 10
Copper 45 45 39.8 49.7 44.0 54.4 61
Gold 17
Iron 30 31.2 47.3 48.9
Ferrous metals 21.3
Steel 26
Stainless steel 88
Lead 38 52 40.8 49.6 43.6 47.2 42
Magnesium 14
Merucry 17
Nickel 15 40
Platinum group 24
Precious metals 75
Silver 50
Tin 28 28.3
Titanium 1
Tungsten 3
Zinc 20 20 12.6 16.5 34.6 14
Note: Differences in the estimates are due to differences in the definition of "scrap," year, and method of calculation. The various estimates
are reproduced to underline that, despite differences, most of them are quite comparable and fall within a narrow range.
a. Estimates by Battelle Memorial Institute quoted by NASMI in source given in footnote c below, referring to scrap recovery as a percentage of
recoverable material.
b. U.S. Bureau of Mines, Mineral Facts and Problems, 1970.
c. Presentation by the National Association of Secondary Material Industries (NASMI) in The Economics of Recycling Waste Materials, Hearings
before the Subcommittee on Fiscal Policy of the Joint Economic Committee, 92 Cong. 1 sess. (1971), p. 34.
d. Frank Austin Smith "Waste Material Recovery and Reuse," p. 67.
e. Environmental Protection Agency estimates quoted in National Commission on Materials Policy, Material Needs and the Environment Today and
Tomorrow, final report (Washington, D.C., June, 1973), pp. 4D-6D.
f. Fischman and Landsberg, Resources in America's Future, p. 98.
g. Under an active recycling policy.
 76 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

example, while not making the United States self-sufficient, would

over a period of fifty years save 20 percent of the world's bauxite
reserves and 40 percent of its zinc reserevs.32
Above all, recycling is seen as an attractive alternative by highly
industrialized nations sensitive to charges of reckless resource gob-
bling. It underlines a crucial difference between fuel and nonfuel
minerals. Finally, whereas stipulated limits to growth are unaccept-
able to policymakers in industrialized countries, limits to waste are
attractive on both ethical and economic grounds, since recycling
can serve to reduce dependence on imports of virgin materials.

32. Leonard L. Fischman and Hans H. Landsberg, "Adequacy of Nonfuel

Minerals and Forest Resources," in Population, Resources and the Environ-
ment, p. 98.
3 1Production,Processing,
Consumption,and Trade

CONSUMPTION OF MINERAL RAW MATERIALS on a large scale started

with the Industrial Revolution and has continued to grow at an
extraordinary rate.' World consumption of all mineral commodities
combined increased tenfold between 1750 and 1900, whereas, over
the same period, population expanded by a factor of 2.2 and per
capita consumption by 4.5. During the last seventy years, mineral
consumption has grown by a factor of 12.7, population by 2.4,
and per capita consumption by 5.3. Before the Industrial Revolu-
tion, around 1700, world production of pig iron was about 25,000
tons-less than one ten-thousandth of today's output. In 1800,
world production of copper, one of the time-honored metals, was
still only 16,000 tons, 0.5 percent of current production; aluminum,
world consumption of which amounts to more than 10 million tons
today, was not known; tin production was less than 10,000 tons
(under 5 percent of current output), and zinc production was about
1,000 tons, compared to its present level of about 5 million tons.
For most minerals, large production levels (on the order of 5 to
10 percent of current levels) were not achieved until the second
half of the nineteenth century. The rate of expansion accelerated
in the post-World War II period, as illustrated in figure 8. Growth
rates have been highest in the new metals, especially aluminum,
and in alloying metals, such as nickel, chromite, molybdenum, and
titanium, which are used to improve the properties of iron and
steel.

1. The historical data given here are based on Alexander Sutulov, Minerals
in World Affairs (Salt Lake City: University of Utah Printing Services,
1972); P. Lamartine Yates, Forty Years of Foreign Trade (London: George
Allen and Unwin, 1959); and Metallgesellschaft,Metal Statistics (various
issues).

77
 78 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

FIGURE 8 | GROWTH OF POPULATION AND VALUE OF WORLD

MINERAL OUTPUT IN CONSTANT (1972) PRICES,
1900-70
.500.C

Growth rates,
1950-70
200.0 All minerals 5.9
Fuels 5.4
Base metals 5.6 /
100.0 Nonmetallics 7.2
Population 1.9 _ _

o50.0 _ '
o ~~__ - -7---/
Fuels.

.0~~~~~~~~~~~~~~~~~~~

001,~ ~ ~
5.0 ___ ____ _____ ____i - 4.0

.* _^'* . _2N

10 |Semilogarithmicsc ale l le1.0

1900 1910 1920 1930 1940 1950 1960 1970

Source: Alexander Sutulov, Minerals in World Affairs, (Salt Lake City; University
of Utah Printing Services, 1972).
 PRODUCTION, PROCESSING, CONSUMPTION, AND TRADE j 79

The pattern of world production, consumption, and trade has

undergone significant changes in the last fifty to sixty years as a
result of shifts in industrial centers, progressive depletion of high-
grade reserves in consuming regions, technological change, and
cost-saving advances in transportation. Industrialized countries
have become more and more dependent on imports. The United
States, for example, shifted from being a net exporter of copper,
lead, and zinc, and nearly self-sufficientin iron ore at the beginning
of the century to a net importer position by the early 1950s.

TABLE 6 JSELECTEDORES, UNITED STATESAND WESTERN

EUROPE: PRODUCTIONAS A PERCENTAGE
OF CONSUMPTION

United States Western Europe

Ore 1909-13 1954-55 1972 1909-13 1954-55 1972
Copper 160 80 83 10 5 7
Iron 99 62 68 99 89 63
Lead 104 42 25 52 21 25
Zinc 118 50 45 65 38 39

Source: P. Lamartine Yates, Forty Years of Foreign Trade (London:

George Allen and Unwin, 1959), and national statistics.

The shift illustrated in table 6 started much earlier in the United

Kingdom than in the other industrialized countries, although she
remained a major producer of mineral raw materials for a long
time after the Industrial Revolution. From 1700 to 1850, she mined
over 50 percent of the world's lead; from 1820 to 1840, she pro-
duced 45 percent of the world's copper; and from 1850 to 1890,
she increased her iron ore production from one-third to one-half
of the world output. But the United Kingdom reached her peak of
production for lead in 1856, for copper in 1863, for tin in 1871,
and for iron ore in 1882.2 France, however, produced fully one-
fourth of the world's iron ore and 30 percent of the world's bauxite
as late as 1929, while Hungary supplied another 18 percent of the
bauxite output. The postwar period has witnessed a number of
significant changes in both the exports and imports of minerals, the
most important being the emergence of Japan as the world's lead-
ing importer of mineral raw materials.

2. T. S. Lovering, Minerals in World Affairs (New York: Prentice Hall,

1943), p. 61.
 80 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

Statistical Problems and Adjustments

Published figures on production, consumption, and trade of
mineral commodities have a number of shortcomings and should
be used with caution. These stem not so much from misreporting
as from the fact that mineral commodities are marketed in varying
degrees of processing (ore, concentrate, ingot, and so on). Because
each intermediary product is an input for the next stage, it is
difficult to determine in standardized fashion for all minerals which
stage constitutes final consumption. Statistical sources do not
record production, consumption, and trade at uniform stages of
processing. Therefore, unless properly adjusted, published statistics
do not permit aggregation nor assessment of the degree of process-
ing taking place in different regions.
In order to present a composite picture, we developed two sepa-
rate detailed sets of production, consumption, and trade estimates
for selected minerals in 1950, 1960, and 1970-one set at minehead
value, the other at the final product (metal ingot) stage-using
unit prices applicable to each stage. Since uniform price assump-
tions were used for each period, the estimates thus obtained do
not distort the trend, resulting, in fact, in a comparison of the value
of production, consumption, and trade in constant prices. The prices
used were those judged to reflect the dominant long-term trend
around 1970, not necessarily those actually experienced in any one
year. The purpose of the exercise was to compare relations (inter-
regional, intercommodity, and by-processing stage) rather than to
measure actual market values. The method of adjustment is ex-
plained further in appendix H, which also contains the two sets
of estimates.
The exercise was carried out for the nine major minerals which
account for more than 85 percent of the minehead value of all
nonfuel minerals. (Other minerals were also reviewed when the
major minerals did not appear to be fully representative of the
whole industry.) Listed in order of importance at their commonly
accepted production values, the nine minerals (and their share in
the production value of all minerals) are: copper, blister or matte,
32 to 35 percent; iron ore, 28 to 31 percent; zinc metal, 6 to 7
percent; nickel metal, 4 to 5 percent; phosphate rock, 3 to 4 per-
cent; lead metal, 3 to 4 percent; tin metal, 3 to 3.5 percent; manga-
nese ore, 2 pecent; and bauxite, 1 to 1.5 percent.
The relevance of the adjustment undertaken can be illustrated
as follows: Published production and consumption values indicate
that nonfuel mineral output in the early 1970s has been on the
order of $25,000 to $30,000 million a year. Production at minehead
 PRODUCTION, PROCESSING, CONSUMPTION, AND TRADE | 81

value has been on the order of $2,000 million. If all mineral values
are converted to the common denominator of finished metal ingot,
however, the value increases to $60,000 to $70,000 million a year.
Under this method of valuation, the share of the nine minerals
rises from 85 percent to 95 percent and the order of importance
of the individual minerals changes significantly: steel ingot takes
first place, with 60 to 70 percent; copper falls from first place to
second place with a significantly smaller share (10 to 12 percent);
and aluminum ingot rises to third place with 7 to 8 percent, com-
pared to the ninth place and 1 to 1.5 percent share of bauxite in
the earlier ranking.

Global Trends
The growth in global production (including centrally planned
economies) of the nine major minerals over the period 1950 to 1970
is shown in table 7. World mineral production (and therefore,
apart from inventory changes, consumption) has been increasing
at annual rates of 5 to 6 percent over the past decade, although
increases have varied substantially across the range of minerals. For
example, uranium, nickel, and aluminum have all shown above-
average growth rates of 7 percent or more a year; copper, lead, and
zinc have been growing at 3 to 5 percent; and tin at less than
one percent.
Comparable estimates (in standardized value terms) are not
available for more recent years. The selected output figures for
1971 to 1975 shown in table 8 indicate that after a bad year in
1971 world mineral output recovered rapidly in 1972 and in 1973,
exhibiting above-average growth rates for most minerals in re-
sponse to bullish demand associated with a rare simultaneous busi-
ness expansion in all industrialized countries. As will be argued
more fully in chapter 4, this contributed significantly to the price
boom of 1973 and 1974.
As might be expected, consumption and production have not
expanded evenly in all three economic regions. The following
conclusions can be drawn from the combined experience of the
nine major minerals which is summarized in table 9 (for com-
modity detail, see appendix H).
First, developing market economies have increased their mineral
production faster than developed market economies. This trend is
expected to continue; by 1980 the value of mineral production is
likely to be about equal in the two regions, representing 35 to 40
percent of world mineral output in each case.
TABLE 7 I ESTIMATED RAW MATERIAL VALUE OF WORLD PRODUCTION
OF NINE MAJOR MINERALS, 1950-70
Value Distribution Growth of value
(millions of dollars) (percent) 1950-70
Total Per year
Mineral 1950 1960 1970 1950 1960 1970 (1950=100) (percent)
Bauxite and
Alumina 63 253 726 1.1 2.4 4.3 1,152 13.0
Copper 2,415 4,056 6,080 41.6 38.9 35.7 252 4.7
Iron 1,537 3,337 5,655 26.5 32.0 33.2 368 6.7
Lead 333 469 677 5.7 4.5 4.0 203 3.6
Manganese 184 345 483 3.2 3.3 2.8 262 4.9
Nickel 214 492 960 3.7 4.7 5.6 448 7.8
Phosphate rock 225 407 804 3.9 3.9 4.7 357 6.6
Tin 403 431 540 6.9 4.1 3.1 134 1.5
Zinc 432 648 1,122 7.4 6.2 6.6 260 4.9
Total 5,806 10,438 17,047 100.0 100.0 100.0 294 5.5
Source: Appendix H, Table H2.
 CONSUMPTION,AND TRADE | 83
PRODUCTION,PROCESSING,

TABLE 8 | SELECTED WORLD MINERAL OUTPUT STATISTICS, 1971-75

Item 1971 1972 1973 1974 1975
Index numbers (1970=100)
Industrial production 104 112 122 126 126
Mining 103 107 114 116 114
Metallic minerals 101 102 107 109 106
Manufacturing 104 112 122 127 126
Basic metals 99 107 118 121 114
Metal products 104 113 126 133 133

Volume of output (millions of metric tons)

Crude steel' 557 602 666 674 667
Pig iron and ferro-alloysa 407 431 477 489 485
Iron ore' 403 411 453 472 483

(thousands of metric tons)

Copper, 6,225 6,956 7,473 7,754 7,644
Lead' 3,060 3,210 3,353 3,273 3,226
ZinCa 4,544 4,904 5,017 5,189 5,252
Tinb 186 191 185 179 178
Aluminium' 10,114 10,797 11,905 12,534 12,545
Nickel 619 633 684 746 723

a. Excluding the People's Republic of China.

b. Excluding the German Democratic Republic, Democratic People's Republic of
Korea, and Soviet Union.
Source: United Nations, Monthly Bulletin of Statistics (May 1976) and (June 1976);
World Bureau of Metal Statistics, World Metal Statistics (March 1976).

Second, centrally planned economies have increased their min-

eral output even faster than developing market economies, account-
ing for about 26 percent of total mineral output in 1970 compared
to 14 percent in 1950.
Third, most of the growth in world mineral consumption has
occurred in the developed market economies, with substantial
growth in the centrally planned economies as well. In 1970, devel-
oping market economies which in that year produced about one-
third of the world's mineral output (in value) accounted for less
than 6 percent of world mineral consumption. This picture is not
expected to change much in the next five to ten years; the develop-
ing countries will probably still consume under 10 percent of
world mineral output, compared to 65 percent or more for the
developed market economies and about 25 percent for the centrally
planned countries.
Fourth, per capita consumption has varied widely among the
three economic regions. In 1970 developed market economies
consumed roughly thirty times more mineral raw materials (in
value) per capita than developing countries and 3.5 times more
than the centrally planned economies. Consumption per unit of GNP
 84 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

TABLE 9 PRODUCTION, CONSUMPTION, AND NET TRADE OF

NINE MAJOR MINERALS, BY REGION, 1950-70
Value
($1,000 millions Distribution
of dollars) (percent)
Item 1950 1960 1970 1950 1960 1970

Production
Developed market economies 3.1 4.4 7.3 54 43 41
Developing market economies 1.8 3.5 5.3 32 33 33
Centrally planned economies 0.8 2.5 4.4 14 24 26
Total 5.7 10.4 17.0 100 100 100

Consumption
Developed market economies 4.6 7.0 11.6 80 70 68
Developing market economies 0.2 0.5 0.8 4 5 6
Centrally planned economies 0.9 2.6 4.6 16 25 26
Total 5.7 10.1 17.0 100 100 100

Net trade'
Developed market economies -1.5 -2.6 -4.3 (-33) (-39) (-39)
Developing market economies +1.6 +3.0 +4.5 (+87) (+86) (+83)
Centrally planned economies -0.1 -0.1 -0.2 (-9) (-6) (-2)
Total +0.3
Note: The nine minerals are bauxite, copper, iron, lead, manganese,nickel, phos-
phate rock, tin, and zinc.
a. Net exports (+), net imports (-). Figures in parentheses refer to net imports
as percentageof consumption and net exports as percentage of production.
Source:AppendixH, table Hi.

did not vary as widely, since low mineral consumption is generally

a sign of underdevelopment, that is to say, the level of development
and mineral consumption are related.
Fifth, there is virtually no stable trade in minerals between
centrally planned economies and the rest of the world, with the
exception of trade in minor minerals such as tungsten and anti-
mony. Production in the centrally planned economies just about
equals consumption. Most of the world mineral trade takes place
between developing and developed market economies, although the
situation may change progressively. Both market economy and
centrally planned countries have expressed interest in larger and
more stable two-way trade in minerals.
Sixth, for the developed market economies as a whole, the ratio
of mineral imports to mineral consumption has increased from about
33 percent in 1950 to 39 percent in 1970, and the figure is expected
to rise further. Whereas North America has been able to reduce
its import requirements during the past two decades (mainly be-
cause of major increases in Canada's mineral output) and Australia
and South Africa have become major mineral exporters, Western
Europe and Japan have become highly dependent on mineral im-
 PRODUCTION, PROCESSING, CONSUMPTION, AND TRADE | 85

ports. This trend is expected to continue, so that by 1980 Western

Europe may import more than 80 percent of its mineral needs and
Japan about 95 percent.
Finally, the developing countries produced more than half the
output (excluding that of the centrally planned economies) of
only three of the nine major minerals-bauxite, manganese, and tin.
Since each mineral has special applications, minerals other than
the nine discussed above can be of key importance in meeting
specific needs, even though their production value may be relatively
small. This is true of antimony, asbestos, feldspar, magnesium,
mercury, molybdenum, platinum, potash, titanium, tungsten, and
vanadium, most of which are produced mainly in developed market
economies.
Comparison of the relative shares of production and reserves
during the late 1960s reveals that developed market and centrally
planned economies have depleted their presently known reserves
more rapidly than the developing countries with respect to only
nine minerals (asbestos, feldspar, fluorspar, iron, molybdenum,
nickel, phosphate, sulfur, and tin). Ten minerals (antimony, barite,
copper, lead, magnesium, mercury, potash, titanium, tungsten, and
vanadium) are being depleted in both groups of countries at about
the same rate. Reserves of eight minerals (bauxite, bismuth,
chromium, cobalt, columbium, manganese, silver, and zinc) are
being depleted in the developing countries more rapidly than in the
rest of the world. These facts run counter to the often repeated
observation that the developed countries are rapidly depleting their
supplies and will have to place increasing reliance on supplies from
developing countries. No doubt, over the medium-to-longer term,
with the projected increase in reserves in the developing nations,
supply will tend to shift to those countries, but this is likely to be
a gradual process that will not significantly alter the geographic
pattern of supply in the next five to ten years.

The Concentration of Production and Processing

Mineral production capacity shows extreme geographic concen-

tration as indicated in table 10. This is a manifestation not only
of the uneven geographic ditstribution of mineral resources but
also, to some extent, of the concentration of ownership and control.
Not enough data are available, however, to establish a clear corre-
lation between geographic and ownership concentration. It is signifi-
cant, nevertheless, that 70 to 75 percent of the world mineral output
is produced in only a dozen countries, half of which are developing
market economies, namely: the Soviet Union (18.7 percent), United
 86 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

TABLE 10 | CONCENTRATION OF MINERAL PRODUCTION CAPACITY FOR

SELECTED MINERALS IN PRINCIPAL PRODUCING COUNTRIES
Degreeof
concentration
Number of Principalproducingcountries
Mineral Percent countries in order of importance
Columbium 90 2 Brazil, Canada
Titaniumn 90 2 United States, Japan
Molybdenum 91 2 United States, Canada
Magnesium 73 3 United States, Soviet Union, Norway
Asbestos 88 3 Canada, Soviet Union, South Africa
Vanadium 87 3 United States, South Africa, Finland
Nickel 81 3 Canada, Soviet Union, New Caledonia
Phosphate 79 3 United States, Soviet Union, Morocco
Barite 61 2 United States, Iran
Sulfur 60 2 United States, Soviet Union
Cobalt 72 3 Zaire, Zambia, Canada
Manganese 71 4 Soviet Union, South Africa, Brazil,
India
Antimony 73 4 South Africa, People's Republic of
China, Bolivia, Soviet Union
Tin 66 4 Malaysia, Bolivia, Soviet Union,
Thailand
Silver 69 5 Mexico, Canada, United States,
Sovet Union, Peru
Tungsten 70 5 People's Republic of China, Soviet
Union, United States, Democratic
People's Republic of Korea,
Republic of Korea
Copper 71 5 United States, Soviet Union, Zambia,
Chile, Canada
Bauxite 63 5 Jamaica, Australia, Surinam, Soviet
Union, Guyana
Zinc 59 5 Canada, Soviet Union, Australia,
United States, Peru
Lead 51 4 United States, Australia, Soviet
Union, Canada
Iron Ore 67 5 Soviet Union, France, United
States, Australia, Canada
a. Ilmeniteand rutile.
Source:AppendixG, Table G2.
States (15.9 percent), Canada (11.5 percent), Chile (4.6 percent),
Zambia (4.1 percent), Australia (3.4 percent), China (3.2 percent),
Zaire (2.4 percent), Peru (2.3 percent), South Africa (1.9 percent),
Mexico (1.8 percent), and Brazil (1.6 percent). 3

3. The figures are based on 1968 data and understate the share of Aus-
tralia and Brazil, whose output has expanded greatly since then.
 PRODUCTION, PROCESSING, CONSUMPTION, AND TRADE | 87

Historically, most processing of minerals beyond the concentrate

stage has been done in the industrialized economies. As indicated
in table 11, only about 30 percent of the minerals mined in the
developing countries are processed there. This ratio has remained
relatively constant over the past two decades, suggesting that in-
creases in processing facilities in these countries have merely met
increases in mine capacity. In the industrialized countries (except
Australia and South Africa), increases in processing capacity have
outstripped increases in mining capacity, particularly in Japan. In
both Australia and South Africa, mining capacity has expanded
much more rapidly than processing facilities, with a resultant in-
crease in the quantities of ores and concentrates shipped. Within
the centrally planned economies, processing capacity has been
maintained commensurate with mining capacity.

TABLE 11 I DEGREE OF PROCESSING CONDUCTED IN

DIFFERENT REGIONS
Minerals processed
as a percentage of total minerals
mined in each region'
Region 1950 1960 1970
United States and Canada 146 179 179
Western Europe 250 250 295
Japan 235 381 1,046
Australia and South Africa 89 72 38
Developing market economies 30 28 29
Centrally planned economies 99 102 108
Total 100 100 100
a. Computed as the value produced by mining and processing operations
as a percentage of total value produced, had all ore mined been processed
to metal ingot stage, except for iron ore, manganese ore, and phosphate
rock for which pelletized or sinterized iron ore, ferromanganese, and
superphosphate fertilizer were taken as representing the processed product.
Source: Authors' computations, based on data in appendix H.

As shown in figure 9, :he degree of processing within the

supplying country varies significantly from mineral to mineral.
The relevant factors are the extent of concentration of control and
vertical integration within the industry, the technology required
and the need for energy inputs, as well as the distance between
source of supply and markets.
Although facilities to produce aluminum from bauxite are being
established to a significantly greater extent in the producing devel-
oping nations, only 10 percent of the bauxite mined in those coun-
tries is processed right through to aluminum there. More than
75 percent of copper mined, however, is processed to copper metal
 88 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

FIGURE 9 PERCENTAGE OF PROCESSING CONDUCTED FOR NINE

MINERALS IN DEVELOPING MARKET ECONOMIES, 1970
(weighted average)

29
I . l l
0 25' 50 75 100

T: i .. .......... ... ... ... ... .... :. .:.. s s:ss. :

................ .......................................

:: :::
~~~~~~~~~~.
. :- ... .:. .:..:
.::::
. .:s.:::. : . . . . . . . . . . . . . . :,: .
.. ---........ _
. . . . . . . .:::. . . . . . . . ............
..............................

Tin
Nickel~~~~~~~~~~~~~~~~~~~
s. ..',, ,.,.,.,.,.s ... ...

,..,:: ,...,,.::~~~~. :-. .,.::. .. ....................

. .. .. .. .. .. .. ....... .... . ......

. . .. .. .. .. .. .. .

Iron ore .. :::::-::

. .. . . . . .. .. .. .. . .. .,

Manganese ore

Phosphate rocki--

Bauxite and aluminum

Note: See footnote a., table 11.

Source: Data in Appendix H.

in the supplying developing countries. There has been a marked

trend toward conducting more tin processing in the developing
countries; but in iron ore the bulk of the new supplies of high-grade
ore from the developing countries has been flowing to consuming
countries with little or no processing, although the situation is
changing.
Both developing and developed countries recognize that there is
great scope for increasing value added through processing in the
developing countries, although this has yet to be translated into
an action program with this as a specific, high-priority objective.4

4. UNCTADhas a number of case studies under preparation which may

provide commodity-by-commodity estimates. Varon has tentatively con-
cluded: "High profits (and external economies) come from processing, since
value can be increased by as much as four times through semiprocessing
 PRODUCTION, PROCESSING, CONSUMPTION, AND TRADE | 89

The insistence on processing is not limited to the developing coun-

tries; it forms a key component of the current resource policies of
both Canada and Australia. How rapidly the shift occurs will de-
pend on the nature of the future partnership between producing
and consuming countries, particularly as it affects transfer of
capital and technology and control of markets and marketing. It
can be argued that tariff restrictions are of secondary importance,
given the current location of processing facilities. Tariffs on ores
and concentrates are negligible for all major minerals in indus-
trialized countries but they rise-sharply in some cases-with de-
gree of processing; in some developed countries, absolute import
restrictions are imposed and subsidies are made available to do-
mestic producers. While these no doubt inhibit the expansion of
processing in developing countries, in today's market, they are
designed primarily to guard against competition from other indus-
trialized countries, as the bulk of processing capacity is located
there. Limited access to processing equipment and technology is
probably a bigger impediment to the further processing of minerals
in developing countries than import restrictions in consuming
countries. 5

The Structure of Trade

As noted earlier, most international trade in mineral commodities

takes place between the developed and developing regions. Ap-
pendix H indicates that in 1970 the net imports of developed

and by as much as 20 times through full processing up to the metal bar stage.
If the entire current mineral output of developing countries were to be pro-
cessed up to this stage, the value of their aggregate output could be as much
as $10-$12 billion higher. This is not to suggest that no progress has been
made toward the local processing of minerals, nor that processing should be
pursued without regard to comparative advantage or investment priorities.
This illustration does portray the difficulties that arise when only one or two
sectors of an economy grow, having little feedback effect on the economy as
a whole which lacks enough internal strength or external support to respond
quickly to the initial stimulus. And it symbolizes the difference in the stages
of development between the developing and developed countries, which, in
turn, affects their trade relationship." See "Enough of Everything for Every-
one, Forever?" Finance & Development (September 1975), p. 20. Some experts
believe that the $10,000 to $12,000 million estimate is too high.
5. For a brief survey of the technological and financial factors affecting
the location of processing facilities, see UN Interregional Workshop on
Negotiation and Drafting of Mining Development Agreements, Processing,
prepared by the United Nations Secretariat (ESA/RT/AC.7/12) (New York,
October 3, 1973).
 90 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

market economies were in the order of $4,300 million; the net

exports of developing market economies came to $4,500 million;
and the small balance ($200 million) represented net imports by
the centrally planned countries. These figures grossly understate
the value of world mineral trade and oversimplify the structure
of trade, since intraregional trade is quite significant. For example,
in 1972, trade between developed countries (in value) accounted
for nearly 60 percent of world trade in nonferrous metals. (In
comparison, trade between developing countries is unimportant-
no more than 2 to 3 percent of the world total in nonferrous
metals.)
The distribution of gross exports and imports by region is shown
in table 12. It shows that developed countries as a group account
for 90 to 95 percent of world imports, as expected, but supply,
in return, roughly 60 percent of world exports.

TABLE 12 | GRoss EXPORTS AND IMPORTS OF SELECTED

MINERALS, BY REGION, 1970
Distribution
Total value (percent)
(1,000 millions Centrally
of dollars) World Developed Developing planned
Exports (f.o.b.)
Ores and
concentrates' 4,179 100 58 41 1
Metalsb 10,470 100 65 31 4
Total exports 14,649 100 63 33 4
Imports (c.i.f.)
Ores and
concentratesa 6,084 100 94 2 2
Metals' 10,513 100 90 8 2
Total imports 16,597 100 91 6 3

a. Iron ore, bauxite, copper ore, nickel ore, manganese ore, zinc ore, chrome
ore, lead ore, tin ore.
b. Copper, tin, nickel, lead, zinc, aluminum.
Source: United Nations, The Significance of Basic Commodities in World Trade in
1970 (A9544/add.1) (New York, April 4, 1974).

Since developed countries dominate world imports so over-

whelmingly, the structure of mineral trade can be examined fruit-
fully from this side. In 1970, the three major industrialized regions,
the United States, Japan, and Western Europe, imported roughly
60 percent of their requirements of the nine major minerals, com-
pared to 55 percent in 1960 and 44 percent in 1950. Roughly 12
percent of their aggregate net imports come from Australia and
South Africa, 16 percent from Canada, and 72 percent from the
 PRODUCTION, PROCESSING, CONSUMPTION, AND TRADE | 91

FIGURE 10 IMPORT DEPENDENCE AND SOURCE OF NET IMPORTS

FOR NINE MAJOR MINERALS, UNITED STATES,
WESTERN EUROPE, AND JAPAN, 1950 AND 1970

Imports as percentage of consumption

Im ports (40) Imports (60)

1950 1970

Source of imports (percentages)

Australia and South Africa (3) Australia and South Africa (12)

Canada (17) Canaada (16)

Devieloping
DeveIoping countries (80)
countries (72)
1950 1970

Source: U.S. Department of the Interior, Bureau of Mines, Mineral Facts and Prob-
lems, 1970.

developing countries. While the share of Canada has remained

stable, that of developing countries has declined in the last twenty
years as a result of the recent emergence of Australia as a major
new supplier. (Figure 10.)
 92 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

Import dependence and source of imports vary by commodity

and by country. For example, at one extreme, the United States
imports only 25 to 30 percent of its aggregate requirements of
nine minerals; it is a net exporter of one (phosphate rock) and
depends heavily on imports only in the case of four (tin, manga-
nese, bauxite, and nickel). A large proportion of its imports comes
from its two mineral-rich neighbors, Canada and Mexico, as illus-
trated in table 13.

TABLE 13 PERCENTAGE OF 1973 U.S. IMPORTS

SUPPLIED BY CANADA AND MEXICO
Mineral Canada Mexico
Nickel 82
Fluorspar 77
Tungsten 61 9
Zinc 60 24
Mercury 59 17
Iron ore 50
Copper 31
Lead 29 17
Source: Council on International Economic Policy, Critical
ImportedMaterials(Washington,D.C., December1974).

Although economies in transportation have been a major factor

in shaping this pattern, the political stability of the two suppliers
and the history of horizontal and vertical integration of the multi-
national corporations have also been influential. It is significant
that the Soviet Union has become a major supplier of some minerals
in recent years. In 1973, it supplied 32 percent of U.S. imports of
chromium, 32 percent of its imports of the platinum group, and
19 percent of its imports of titanium. The first two are metals
traditionally supplied by South Africa and Rhodesia; all three are
considered strategic raw materials.
At the other extreme, Japan obtains about 90 percent of its
mineral requirements from abroad. It depends on imports for almost
100 percent of its needs of five major minerals (bauxite, nickel,
phosphate rock, tin, and iron ore) and for about 95 percent of copper
and manganese ore. This makes Japan the world's largest importer
of minerals and a powerful force in the market. With less than
3 percent of world population and about 6 percent of world GDP,
it accounts for approximately 15 percent of world mineral imports
-more than 35 percent in the case of iron ore and 20 to 25 per-
cent in chrome and manganese ore, as shown in table 14. (Though
its share of world copper and nickel metal imports is about 15
 PRODUCTION, PROCESSING, CONSUMPTION, AND TRADE | 93

TABLE 14 | JAPANESE MINERAL IMPORTS, 1970, AS PERCENTAGE

OF WORLD IMPORTS AND DOMESTIC CONSUMPTION
World Domestic
Mineral imports consumption
Aluminum 6 23
Bauxite and alumina 10 100
Chrome ore 26 100
Copper ore and metal 16 90
Iron ore 36 94
Lead ore and metal 5 76
Manganese ore 23 90
Nickel ore and metal 14 100
Phosphate rock 13 100
Tin ore and metal 14 97
Tungsten ore 9 100
Zinc ore and metal 12 80
Source: United Nations, The Significance of Basic Commodities in World
Trade in 1970 (A/9544/add.1) (New York, April 4, 1974); and Council on
International EconomicPolicy, CriticalImported Materials (Washington,D.C.,
December1974).

percent, it absorbs over 70 percent of world copper ore exports

and over 25 percent of nickel ore exports.)
It should be underlined that a large portion of Japan's raw
material consumption goes into manufactured products destined
for other markets. Japanese import demand, therefore, depends
on economic conditions (and market access regulations) in
third markets-largely, but not exclusively, other industrialized
nations.
The changes in world mineral trade brought about by Japan go
far beyond the reorientation of exports in terms of destination and
merit special attention. Greater participation by Japan in world
mineral trade has played a key role in increasing competition among
importers, altering the pattern of resource development and pro-
curement, diversifying the source of exports, and providing new
oppotunities for suppliers in Asia and Oceania, such as the Philip-
pines, Indonesia, India, and, of course, Australia. Japan's aggres-
sive strategy of securing supply through long-term contracts has
provided a model for other importers and exerted a stabilizing in-
fluence on the market. Through innovations in transport and mar-
keting, Japan played a key role in widening the geography of the
world mineral market, as witnessed by the fact that its imports
originate in five continents: roughly 40 percent in North and South
America, 15 to 20 percent in Europe and Africa, 20 to 25 percent
in Asia, and 15 to 20 percent in Oceania.
The changes fostered by Japan benefited all mineral-producing
 94 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

countries, developed and developing, and some had an especially

favorable impact on resource development in the developing coun-
tries. For example, Japan's vast and expanding need for raw mate-
rials and her policy of diversifying the sources of supply induced
her not to overlook small projects and benefited many small coun-
tries in Africa. The pressure of Japanese competition jolted the
generally conservative European investors into action and shortened
project appraisal and investment decision time in some cases. The
relative security of markets provided through long-term contracts
was instrumental in attracting co-investors. That these benefits
resulted from policies based on self-interest-to gain markets for
her own products and to avoid the opprobrium of neocolonialism-
does not detract from their importance. The pragmatism of Japa-
nese foreign resource development policy emanated from the total-
ity of her import dependence and confidence in the international
resource supply system it helped to forge.6 In retrospect, Japanese
resource policy can be seen to have had some unfortunate side
effects for the developing countries: It favored the import of
mineral ore and maximum processing at home; it made producers
excessively dependent on one economy alone;7 and it led to some
exaggeration of the security provided by long-term contracts. It
would not be surprising, however, if the totality of her import de-
pendence induced Japan in the future to take initiatives to respond
better to the needs of the developing countries, for example by en-
couraging local processing in the producing countries, as advocated
by some influential Japanese experts.8
Although in the last two decades world minerals trade has be-
come geographically more diversified, exports of most individual
minerals continue to be heavily concentrated in a few countries.
With few exceptions, however, no single economic region-devel-
oped, developing, or centrally planned-dominates the export pic-
ture. The recent experience with oil has generated interest in the
share of the market in other commodities controlled by developing
countries. The market power of developing countries and its impli-

6. See Saburo Okita, "Natural Resource Dependency and Japanese Foreign

Policy," Foreign Affairs (July 1974); and Philip Connelly, "Resources: The
Choices for Importers," International Affairs (October 1974).
7. It is surprising that the usually alert research community has not yet
fully studied the implications of a severe slowdown of the Japanese economy
for the developing countries. Long-term forecasts of the Japanese economy
coming out of Japan recently have been lower than those of outside experts;
the implications of these forecasts for mineral-exporting developing countries
are potentially very serious.
8. Okita, "Natural Resource Dependency," p. 131.
 PRODUCTION, PROCESSING, CONSUMPTION, AND TRADE | 95

cations will be discussed in chapter 4. It suffices to note here that

while developing countries' mineral exports exhibit great geographic
concentration, this of itself is not a measure of market power, since
their share of world exports or of industrialized countries' gross
requirements (domestic consumption) varies. For example, although
the five largest exporters of individual minerals among developing
countries account for more than 90 percent of aggregate develop-
ing-country exports in five minerals (copper, tin, zinc, manganese,
and phosphate rock) and 75 to 90 percent in four others, their
share of world exports is under 30 percent in three (iron ore, zinc,
and lead), about half in another three, and 60 to 80 percent only
in two (tin and bauxite), as shown below. (For the identity of the
individual exporters see appendix I.) In 1972 the percentage
export share of the five largest developing country exporters was
as follows:
Total developing
Mineral country exports World exports
Copper 96.4 52.2
Tin 93.6 79.7
Zinc 92.1 20.3
Manganese ore 91.5 51.2
Phosphate rock 91.1 48.9
Bauxite 87.6 63.7
Lead 83.7 17.7
Iron ore 75.8 28.3

For most of these minerals the major competitors of the develop-

ing countries are Canada, Australia, and South Africa. In 1970,
for example, these three countries accounted for over 40 percent of
world exports of iron ore, copper ore, zinc ore, and lead ore.
Some producing countries enjoy competitive advantages in cer-
tain markets because of geographic location and the tailoring of
processing capacity in these markets to the grade and processing
characteristics of the minerals they produce. Examples of such
captive market situations are Morocco in phosphate rock exports
to Western Europe, Caribbean countries in bauxite exports to the
United States, Australia in a number of exports (iron ore and
coking coal, in particular) to Japan, and Canada in nickel and iron
ore exports to the United States. While these factors undoubtedly
give producing countries a bargaining advantage, the advantage
is not always onesided. Proximity of supplier and user and the
gearing of processing technology to the product's processing prop-
erties also mean that the supplier is captive to the importer. Iron
ore sales by Sweden to continental Europe and bauxite shipments
from Jamaica to the United States are examples of such mutual
dependence.
 96 1 THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

The Contribution to National Economies

The contribution of the mineral sector to civilization and material

progress is immeasurable; it is so easily understood that it is un-
necessary to give a detailed account of the historical sequence-
painting the cumulative effect in a few broad strokes suffices.
All major advances in meeting human needs in the past-for
food, housing, health care, education, jobs, and transport-have
been predicated on the use of additional minerals, more efficient
use of minerals, or use of better minerals-indeed, very often a
combination of all three. Throughout history, the discovery of a
new mineral, or a new alloy, or a new method of extracting or
processing a mineral, or a new orebody has had a major impact on
industrial growth as well as on life style. The mineral sector pro-
vided the foundation on which the Industrial Revolution was built,
completely reorganizing modes of living and revolutionizing goods,
foods, transport, and modes of construction as well as destruction
(arms). If this crucial role is not revealed in the orders of magni-
tude we cite below, it is because available statistics stop showing
the contribution of minerals once the resources move from the min-
ing sector to the manufacturing sector. The problem is one of cate-
gories (as defined in the present system) which vanishes with
historical perspective.
What is the significance of the mineral sector globally and for
individual countries today? The answer depends on the yardstick
used (quantitative or qualitative; economic, social, or political),
the degree of disaggregation attempted in the analysis, and how
far one carries out the measurement of the multiplier effects and
external economies of mineral development. Data on a country
basis are skimpy and lack comparability. Therefore, the question
can be answered quantitatively only in broad terms and with re-
gard to the situation in selected large producers.
Although the nonfuel mineral sector plays a crucial role in the
economies of several countries-Australia and Canada, Chile and
Jamaica, Peru and Bolivia, Zaire and Zambia, Liberia and the Re-
public of South Africa-on a global or regional basis, its contribu-
tion to GNP, industrial production, or employment is not significant.
In the developed market economies the nonfuel minerals sector
contributes 0.66 percent of GNP, less than the 0.72 percent of a
decade ago. Even in the developing countries its contribution is
only 1.2 percent of GNP, slightly up from 1.1 percent ten years
earlier. In the centrally planned economies, the figure falls some-
where in between. The contribution of the sector to industrial
 PRODUCTION, PROCESSING, CONSUMPTION, AND TRADE | 97

production 9 comes to 1.9 percent in developed market economies,

5.4 percent in developing countries, and 2.9 percent in centrally
planned economies. On a regional basis, the ratio varies from 7.0
percent in Oceania to 1.4 percent in the European Economic Com-
munity. Globally, the work force employed by the nonfuel minerals
sector amounts to only 3 percent of that employed by the manu-
facturing sector, or about 0.2 percent of population. The figures are,
respectively, 2 percent and 0.3 percent for the developed market
economies, 3 percent and 0.1 percent for developing countries, and
3 percent and 0.35 percent for the centrally planned economies.
While the foregoing suggests that the impact of the mineral
sector is greatest in the developing economies, in terms of value
added per capita, the reverse is true, largely because of the con-
centration of processing facilities in the industrialized nations.
The value added per capita by the nonfuel mineral industry in
U.S. dollars is as follows :0
Region Value added
Developed market economies 12
Developing market economies 2
Centrally planned economies 16

The mineral sector can nevertheless make a very important

contribution to the economies of individual developing countries.
For example, in four developing countries, all of them in Africa,
the sector accounts for more than 30 percent of GDP, in another
eight (half in Africa, half in Latin America) for more than 10
1
percent, and in another six for more than 5 percent. ' In nearly
half of forty developing countries surveyed, estimates of mining
employment are not available. Available statistics indicate, how-
ever, that the mining sector accounts for as much as 15 percent of
total employment in three countries (Zaire, Zambia, and Liberia).
The mining industry of the Republic of South Africa provides em-
ployment for large numbers of migrant workers from neighboring
countries. In some countries, such as Malaysia and Bolivia, employ-
ment in small-scale mining represents a significant proportion of

9. Value added in mining, manufacturing, electricity, and water. Value

added defined as gross value of output less cost of materials, supplies, fuels
and electricity consumed, services purchased, and work contracted out. Based
on UN estimates for 1970, generally at factor cost.
10. Derived from UN Monthly Bulletin of Statistics.
11. These statistics are based on the situation in 1971-72 in most cases
and do not reflect the opening of new mines since then in Papua New
Guinea, Botswana, and the Dominican Republic, for example, which are likely
to have a major impact on national economies.
 98 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

total employment. Even in the industrialized countries, mining and

on-site processing of minerals provide needed employment oppor-
tunities in depressed areas. Coal mining in the Appalachian Moun-
tains region of the United States is an example.
The contribution of the nonfuel minerals industry is most readily
measurable and appears to be greatest with regard to export earn-
ings. Approximately 16 percent of the current exports of the
developing countries consist of nonfuel minerals, compared to 12
percent in the mid 1950s. The mining sector accounts for up to
95 percent of total exports in some developing countries, for more
than 50 percent of exports in eight to ten countries, and for 20 to
50 percent in a dozen countries. In the developed supplier nations
of Australia, Canada, and South Africa, nonfuel minerals make up
approximately 12 percent, 25 percent, and 30 percent, respectively,
of total exports and, except in Canada, these exports are growing
in importance.
Substantial benefits can accrue to a country from a properly
structured and administered mineral industry. Mining activity earns
foreign exchange and produces additional revenue through taxes
and royalties; it may stimulate development of depressed regions,
improve the professional and technical skills of nationals, and
provide a nucleus for economic development. In the past two
decades, mining has become a major source of public and private
revenue for many newly emerging nations. Most mineral projects
are by and large independent of the size of the local market. With
proper policies and assistance, the industry can be competitive in
any country suitably endowed with natural resources. Conse-
quently, once a mineral resource has been discovered, internal
political pressures to develop it tend to be great, especially in
countries not endowed with much else or facing a steep uphill
struggle to become competitive in other sectors.
Quantitative measures such as the share of mining in GDP can
often overstate the contribution of the mining industry to the
economic well-being of a country (although in some cases the bene-
ficial economic and social impact may in fact be greater than is
revealed by such measures). There is no doubt that the mining
industry can have adverse effects, directly or indirectly, on the
economy of a developing country. By their very nature, mineral
export projects have remained enclaves, better integrated with the
outside world than with the host economies, and have allowed
little backward integration. The capital intensiveness of the in-
dustry results in the employment of a relatively small labor force
and a small wage bill. Furthermore, to bid for the scarce resource
of skilled labor and to counter the disadvantage of remote location
 PRODUCTION, PROCESSING, CONSUMPTION, AND TRADE | 99

of operation, the companies pay relatively high wages and establish

quasi-urban areas. These steps encourage wage increases in other
sectors, as well as a move to more capital-intensive methods. They
may lead to a deterioration of the competitiveness of domestic
industrial and agricultural products in regional and world markets.
They also tend to create a labor elite or middle working class, which
leads to increased imports of food and other consumer goods and
directs industry toward the production of middle class goods which
usually have a high import content. This creates problems for the
host government not only in achieving its mineral sector objectives
but also in planning its overall economic development.
In reacting to this situation, however, governments and con-
cerned observers fail to give sufficient credit to: the establishment
of company towns (which, despite their shortcomings, are on the
whole socially beneficial) and the related upgrading of education
and health; the cadre of trained workers created at considerable
cost; and the establishment of economic activities which justify in-
frastructure development and thus contribute to the opening up of
remote areas. Furthermore, there is reluctance to recognize that dis-
appointment of expectations from mineral sector development can in
many cases be attributed to the government's failure to use the in-
dustry's tax contribution effectively to diversify the economic base
of the country. This reinforces the economy's dependence on the
mineral export sector for its imports of consumer goods, and the
standard of living and growth of national income become even more
tied to the performance of the mineral sector.
The basic questions concerning the mineral sector's negative
contribution to national economies can be reduced to three, none
of which lend themselves to generalized answers. They are: First,
to what extent are the adverse effects offset by real benefits? Sec-
ond, are the adverse effects intrinsic to the mining industry? And
third, do these effects vary with the degree of foreign ownership
or control of the sector? There is no reason to assume that mining
activity, even when foreign owned or controlled, is bound to have
net adverse effects on the economy. Unequivocal answers to any
of the three questions require empirical study of specific circum-
stances case by case. One such case study has recently been com-
pleted by Mikesell and suggests some partial answers."2

12. Raymond F. Mikesell, Foreign Investment in Copper Mining: Case

Studies of Mines in Peru and Papua-New Guinea (Baltimore and London:
Johns Hopkins University Press for Resources for the Future, 1975), pp.
100-21. The analysis of the contribution of the second project covered in the
book (the Toquepala Copper Mine in Peru) is not as detailed.
 100 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

Mikesell's evaluation and analysis of the Bougainville copper

mine in Papua New Guinea concludes that the project has had both
positive and negative effects but that, especially when these are
projected over the next fifteen years, the benefits more than offset
the adverse effects. To mention some of the usually overlooked
benefits, the project's contribution to employment has already been
substantial and will continue to be far in excess of the 3,600 work-
ers currently employed directly by the mine. At the peak of the
construction period the total work force of the project amounted
to over 10,000 workers, the majority of whom were formerly un-
employed urban and rural dwellers, not wage and salary earners
leaving previous employment. "It seems likely that the withdrawal
of skilled and experienced workers from other sectors of the econ-
omy (during the construction phase) was more than compensated
for by the training and experience of the workers returned to the
economy."' 3 In the exploitation stage, too, the project will result
in the training of large numbers of workers far greater than the
normal work force of the mine because of the high rate of turn-
over. Between 700 and 800 trained and experienced workers have
already left the mine "many of whom will eventually employ their
skills in other sectors of the- PNG economy [Papua New Guinea].
Even the nonskilled labourers will have acquired an understand-
ing of the disciplines of a modem industrial society. It seems
likely, therefore, that over the years BCL 1 4 will make a significant
contribution to the supply of mechanics, electricians, machinists,
welders, heavy-equipment operators, carpenters, and supervisors
in the PNG economy.""5
In the area of agriculture, although the construction of the
mine resulted initially in a significant loss of cash crop production
and the withdrawal of labor previously available for agriculture,
the increased demand for fruits and vegetables generated by the
mining communities is expected to more than compensate for the
initial loss. The region's major crops, cacao and copra, have already
gained from increased access to markets and ports provided by the
trans-island road built by the company, and by the creation or
upgrading of other roads in the region.
According to Mikesell's analysis, the Papua New Guinea proj-
ect conforms to our profile with regard to the creation of a labor
elite, since the average indigenous worker employed by the mine
received wages over four times those of the average worker in this

13. Mikesell, Foreign Investment, p. 102.

14. Bougainville Copper Limited.
15. Mikesell, Foreign Investment, p. 119.
 PRODUCTION, PROCESSING, CONSUMPTION, AND TRADE | 101

sector and the import content of personal consumption of the

workers at the mine was higher than the average for the region.
Mikesell's analysis also highlights the way the contribution of the
mine to the economy depends on measures to improve output in
other sectors. Mikesell concludes:
The ultimate contribution of the Bougainville mine to both
the national product and to the PNG balance of payments will
depend upon an increase in the domestic value-added content
of market expenditures. For there to be a substantial rise in
real national income beyond the direct contribution, there
must be an increase in investment in agriculture and industry
together with an increase in productivity. Increased invest-
ment should be induced by the increased demand for local
goods and services and the new investment financed by the
additional savings generated by the larger incomes and by
the availability of foreign exchange for imported equipment,
materials, and technology.... If nothing is done to increase
productive capacity and productivity the vast bulk of the
domestic income generated by the mine may simply be used
to purchase additional inputs for consumption. On the other
hand, if investment and productivity rise as a consequence
of the stimulus provided by the increase in domestic purchas-
ing power, the rise in national income could be substantial-
perhaps 50-100 percent of BCL's direct contribution to national
income.'6
To summarize, the enclave industry label is well deserved. But
this should not be used to argue that mining is bound to have
gross adverse effects in the developing countries and therefore
should be given low priority on a development plan. This would
prevent the establishment of a properly operated, regulated, and
economically integrated mining industry-the only model we ad-
vocate on the basis of the unacceptibility of the current experi-
ence. To offer a clich6 of our own, it would be like throwing out
the baby with the bathwater.
Unfortunately, the enclave character is but one of several nega-
tive features of the mining industry as it now exists. Many segments
of the industry show insufficient concern for environmental dam-
ages, tolerate poor working conditions for miners, and exhibit a
skewed income distribution. To be sure, these are not characteristic
of the mining industry alone (its skewed income distribution is all

16. Ibid., p. 11.

 102 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

but dwarfed by that existing in agriculture as a result of the un-

equal distribution of landholdings) but they are more glaring in an
integrated industry dependent on host countries, where a responsi-
ble and responsive company ethic should be the order of the day.
Yet in imagining the ideal contribution of the industry and the
multinationals in particular, one can easily fall into the trap of
asking them to fill a role beyond their purview. It is one thing to
ask an industry not to aggravate the maldistribution of income-
indeed to assist in its correction-quite another to look to it for a
model. That would imply quasigovernmental powers on the part
of the mining company and the spread of its influence over other
sectors. Income redistribution is the responsibility of governments.
In short, it is inconsistent to complain about the power of the
companies while deriding their lack of initiative in areas which are
government prerogative.
4 1Mineral Price Behavior

THE DEVELOPING WORLD'S current call for a new international eco-

nomic order stems in part from gross dissatisfaction with the pat-
tern of mineral production, processing, consumption, and trade
outlined in the preceding chapter. The most direct expression of
this is found in "The Dakar Declaration and Action Programme
of the Conference of Developing Countries on Raw Materials"
which states: "Primary commodities form an area of the world
economy in which structural changes are necessary and inevitable."'
Many of the specific demands accompanying this view concern
prices-prices in relation to, for example, production costs, prices
of imported inputs or food, prices of the final products, prices of
manufactures, and prices of investment goods. The demands, how-
ever, reflect considerable confusion about structural (market)
and price changes: which is means and which is end? To some
extent, the confusion is intentional and understandable. Develop-
ing countries feel they cannot afford to wait for systematic struc-
tural change (moving from the production base up) to yield the
desired changes, nor do they trust the developed countries to set
the process in motion with sufficient speed and determination. In
our view, the confusion of means and ends has its origin also in
confusion on a broader scale, concerning mineral price behavior in
general and the forces affecting market power in particular. In
this chapter, therefore, we begin with a review of the role and
determinants of mineral prices and, after summarizing the price
trends, we focus on attempts to influence prices unilaterally.

1. Guy F. Erb and Valeriana Kallab (eds.), Beyond Dependency: The

Developing World Speaks Out (Washington, D.C.: Overseas Development
Council, 1975), p. 219; the Declaration is also reproduced in United Nations,
(E/AC.62/6) (New York, April 15, 1975).

103
 104 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

The Role of Mineral Prices

The concept of price and its measurementhas a number of
limitationsin the case of mineralsthat must be understoodbefore
proceedingwith an examinationof mineralprice behavior.
In the market system, the role of price is to balancedemand
and supplyby allocatingscarcegoods amongcompetingend uses.
As noted in a recent study, in theory at least, the balancingof
demand and supply deals with three allocationproblemsat once:
which goods will be produced,how (with what combinationof
inputs) they will be produced, and to whom (which users) they
2 In the case of minerals,optimally,prices have
shallbe distributed.
two other allocationfunctions:allocatingconsumptionbetweenthe
present generation and future generations, and distributing the
economicbenefits of exploitation among host countries, foreign
investors,and consumers.The first dealswith the tradeoffsbetween
conservationand income;the seconddealswith the distributionof
income amongcountries.Both defy optimal solution,in each case
because of the imperfections of the market and the limits of
knowledge.
In microeconomics it is assumedthat in the absenceof structural
changeproductionof a good can go on indefinitely.Productionof
mineral resourcesis fundamentallydifferent,however, becauseof
the possibilitythat supplies will somedaybe exhaustedand pro-
duction will stop. This raises the question of rationing consump-
tion amonggenerations.The issue is not too germaneto this book,
as we are dealinghere with nonfuelmineralswhich are recyclable:
use by one generationdoes not precludeuse by future generations.
Since,however, the popular notion of scarcity makes no distinc-
tion betweenrecyclableand nonrecyclableminerals,its implications
for pricing merit attention here.
In the contextof strict economictheory, the problemof allocat-
ing scarce resources among generations is insoluble.The market
processis conceivedof as a bargaining process, with the number
of participantsand their knowledgeabout the market determining
the degree of imperfectionof the market. As it is physicallyim-
possible for future generations to be present at contemporary
bargaining,there is no way for their preferencesto be expressed.
Moreover,the future is a continuuminhabitedby an infinitenum-

2. U.S. Congress, House, Committee on Banking and Currency, Meeting

America's Resource Needs: Problems and Policies, Report of Ad Hoc Com-
mittee on the Domestic and International Monetary Effects of Energy and
Other Natural Resource Pricing, 93d Cong., 2d sess., November1974, chap. 3.
 MINERAL PRICE BEHAVIOR | 105

ber of variables; controlling one-resource availabilities-does

not enable the analyst to predict the total picture. The question
then can be asked, Why bother at all? In answer, it can be assumed
that nations will not consider the possibility of nonsurvival and
will make their political and economic decisions with a view to
the future. It can be argued, however, that past generations have
not left us the present mineral riches because of their concern
for this generation's welfare, but because they did not know how
to exploit them for themselves. Furthermore, as each generation
tends to be materially better off than its predecessor, transfer of
wealth between generations amounts to redistribution from the
poor to the rich and for this reason may be viewed with disfavor.
Obviously, this order of generalizaiton involves gross oversimpli-
fication. What is underlined here is that prices cannot perform
the function of rationing exploitation optimally among generations.
Economics deals with alternatives in which philosophical or very
long-term considerations do not play a role; therefore, the tools
are inadequate to deal with such concerns.
It should be clear from the discussion in the preceding chapters
that mineral exploitation is based on imperfect knowledge of the
extent, availability, and grade of the deposit. The theory of the
second best suggests that there are no criteria for choosing among
suboptimal solutions. It should not therefore be surprising that
there is not yet any universally accepted theory about the pricing
of minerals. What consensus has emerged points toward the
maximization of the present value of the future output of the
mine.3 Even such a generalization requires difficult assumptions
about the physical attributes of the mine as well as about the gen-
eral performance of the economy in determining the proper rate of
discount.
Perceptions of the determinants and role of mineral prices are
in the process of reevaluation and are undergoing fundamental
transformation, though without commensurate refinement of the
analytical tools required to evaluate and assist in that transforma-
tion. Historically, under assumptions of competition, prices have
been viewed as a function of demand and supply in the short run

3. See Harold Hotelling, "The Economics of Exhaustible Resources,"

Journal of Political Economy (April 1931); Robert M. Solow, "The Economics
of Resources or the Resources of Economics," American Economic Review
(May 1974); and Raymond F. Mikesell, "Rate of Exploitation of Exhaustible
Resources: The Case of an Export Economy" (presented at the Second Trans-
Pacific Seminar, Minerals Across the Pacific: Bridge or Barrier? sponsored
by the Australian Society for Latin American Studies, Melbourne, Australia,
June 20-22,1975; mimeographed).
 106 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

and cost determined in the long run. The magnitude and conditions
of recent changes in oil prices have drawn attention to the idea
of availability and cost of substitutes as a benchmark for pricing.
More important, persisting inequality in the global distribution of
income and a sense that international economic developments
are working against them have induced many developing countries
to reexamine the determination and function of prices, moving
away from the market clearance concept toward a resource transfer
concept. Though this new view implicit in the demands of many
raw-material-producing nations has strong economic and moraI
underpinnings, economic theory is unable to provide a means of
optimizing prices by this method. The problems of the industry
with the already high degree of uncertainty and risk of operation
are thus compounded. A recent investigation by the U.S. House
of Representatives notes:
In an era of declining validity in limiting assumptions (hold-
ing certain factors constant) the tenuous art of price fore-
casting has become all the more difficult. Theories calling
for all other factors to be held constant have frequently
proved limited, fallacious, and unworkable in light of cur-
rent developments in the world economy and natural resources
market; the speed at which the outside variables such as
market control, the nature of market concessions, the stability
of foreign investment, and the cost of energy inputs and en-
vironmental protection change has exacerbated the difficulty
of prediction. 4
What characterizes the present scene is the certainty of funda-
mental change-in the very rules of the game, with prices as a
major target-but unpredictability as to the nature, degree, and
extent of the change and the adjustment required, since the out-
come depends on bargaining among political bodies, namely, gov-
ernments. This situation can put severe strains on an industry
such as mining which is capital intensive and where project prepara-
tion and lead times are very extended and require large preinvest-
ment programs. It is, therefore, in the interest of both consumers
and producers to reach accommodation soon and to make the
change smooth so as to avoid costly paralysis of investment
decisions.

4. House Committee on Banking and Currency, Meeting America's Re-

source Needs, p. 62.
 MINERAL PRICE BEHAVIOR | 107

The Nature of Price Information

In viewof the internationalcharacterof this age-old,multibillion

dollarindustry, it may comeas a surprise to the nonspecialistthat
internationalor market prices are difficultto determinein mining.
The reasons are to be found in the structure of the market and
the complexityof the product.
Themarkets for mineralsrangefrom "free commoditymarkets"
(insofar as that term implies a system of transactions between
independentbuyers and sellerson the basis of day-to-day prices)
to highly horizontallyand vertically integrated markets.5 In the
first, measuringmarket pricesposes no major problem,except for
difficultiesassociatedwith qualityor grade; in the second,however,
a market price for a mineral may be almost impossibleto deter-
mine. The markets for most minerals fall between these two ex-
tremes.Typicalis the case of iron ore: it has been estimated that
in the late 1960s roughly 40 percent of world iron ore trade took
place between importers (steel companies) and captive mines
abroad, another 40 percent was transacted under long-term con-
tracts of up to twenty years, and only 20 percent occurred under
conditions approximating a "free market"-in this case, mostly
under short-term (one-year) contracts between Western Europe and
Swedish suppliers. The composition of iron ore trade in this respect
is changing continuously and varies from importer to importer
(see figure 11).
Two points are important in this connection: one, international
trade in most minerals combines each of the three importer-
exporter relationship categories typical of iron ore; two, change is
in the direction of long-term contracts, with the "free market"
shrinking and, in effect, becoming a residual market. Under these
conditions, the analyst is faced with the problem of weighing
prices by the quantities traded in each submarket; frequently he
also faces the problem of finding prices which are representative
of each submarket. The vulnerability of published price estimates

5. Completelyfree markets, where 100 percent of the output is sold under

conditions of perfect competition, are rare in minerals. However, to claim
that no mineral is sold under nearly free market conditions or does not have
large pockets of free market is to ignore the existence of the London Metal
Exchangeand the notorious price fluctuationsin commoditiessuch as copper
which provoke demands for stabilization. Nevertheless, as we are dealing
with minerals in general, putting the term free market in quotation marks
throughout the chapter is justified.
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 MINERAL PRICE BEHAVIOR | 109

to transfer pricing practices is well appreciated. It is less frequently

realized that long-term contract prices, unless carefully scrutinized,
do not provide the basis for building a consistent price series.
Prices depend on the complexprovisions of each contract; contracts
cover not only the terms of marketing but also the terms of in-
vestment and processing, and the mutual concessions agreed upon
are reflected in the agreement on prices.
In practice, for metals such as copper, lead, and tin traded on a
futures market like the London Metal Exchange, quotations based
on this market provide good reference prices. Other metals which
are not traded on a futures market may be so dominated by one
producer that that producer's published selling price is accepted
as the reference price for that metal, even though a small "free
market" may exist alongside. Nickel and molybdenum illustrate
this practice. There are a number of metals, however, which have
neither a futures market nor a producer price, and for these the
prices quoted in such reputable trade periodicals as Metal Bulletin
are commonly used as reference prices. But with many minerals
variations in grade and degree of beneficiation, and especially the
trend toward trading in concentrates, are a major source of difficulty
and confusion. Metal Bulletin, which has wide experience in this
field, has noted: "The pricing of such concentrates has become so
complicated lately that it might need a book to explain all the de-
tails. However, such a book would almost be out of date as soon as
written because practice is changing so rapidly."6
The techniques developed over the years for providing reason-
ably accurate information on prices are of little help where the
mineral is not traded as such because of vertical integration. Very
often minerals leave the host countries as ore or concentrate for
further processing within the same corporate complex. Since there
is no international market for these intermediate products, except
in the case of iron and manganese ores, the real question is how
accurately the intracompany transfer prices reflect costs in the host
countries, and to what extent they are being manipulated to shift
profit centers within the corporation to more favorable tax or risk
areas. Sufficient information is not available for an adequate answer
to this question, but there is strong evidence of price distortion
within the industry. The aluminum industry is a case in point. An
evaluation of this industry indicated that in 1969 and 1970
bauxite prices, f.o.b. host country, varied between $5.3 and $17.6
a long dry ton, and alumina prices between $51.5 and $74.3 a short

6. "The Problem of Reference Prices," Metal Bulletin Monthly (August

1974), p. 30.
 110 I THE MlNING INDUSTRY AND THE DEVELOPING COUNTRIES

ton f.o.b. This considerable variance cannot be accounted for by

production and freight cost differences or by product characteris-
tics. It thus implies some arbitrary assignment of prices.
The problems highlighted above are not unique to minerals-
they are encountered in determining the international or market
prices of many other products, especially manufactured and semi-
manufactured goods-but they are particularly serious in this case
for a number of reasons. First, prices are perhaps the most impor-
tant factor in determining the economic benefit to a host country
from the exploitation of its resources; imperfect knowledge and
access to knowledge on price is a source of potential conflict and an
obstacle to planning. Second, the structural imperfections of the
market which account for the imperfection of information on
prices have distorting influences on the movements of prices them-
selves. For example, in cases where quotations are based on a
major producer's selling price or even on reports from multiple
traders, information may be manipulated to influence the market.
The shrinking of the "free market" results in accentuating price
fluctuations in that market and may give wrong signals to both
consumers and producers. Finally, although long-term trends can
be deduced, despite shortcomings in the measurement of price, the
difficulty of estimating current market value objectively makes it
difficult to evaluate projects and to arbitrate conflict. It is therefore
in the interest of both parties, exporters and importers, to work
toward the improvement of information on prices.

Determinants of Prices and Elasticities

Today, mineral prices are influenced by a wide array of factors.
The basic magnitudes of demand and supply, the general economic
climate, and economic growth rates are of primary importance. Tn-
flation rates play an important role which goes beyond determining
the course of nominal prices: sustained inflation tends to have a
cumulative effect on producer and consumer expectations and is
built into the cost structure. The intensity of use, the extent of ex-
ploration, the growth of productive capacity, and technological
innovation in industries which produce, process, or transport min-
erals affect prices through either demand or supply. Also important
are trends in production costs-labor, capital, energy, transporta-
tion, and environmental control. The degree of competition among
suppliers, specifically the type and degree of market control by
major producers, can determine both the availability of the mineral
 MINERAL PRICE BEHAVIOR I 111

and its price. Changes in protective measures in the market-sub-

sidies, tariffs, price controls-have ramifications for pricing. Finally,
fluctuations in exchange rates affect the prices of internationally
traded resources. 7
The economic complexity of the factors enumerated above is
compounded when they become subject to manipulation and sensi-
tive to political considerations, either domestic or foreign. Further-
more, the very variables generally held constant in making long-
term demand, supply, and price projections in the past-changes in
taste, changes in technology, changes in the organization of the
market, hypothesized rates of economic growth, regulation of the
market through international agreements and the absence of eco-
nomic or political conflict-may themselves be affected by price
developments and expectations. Oil prices, for example, can have a
bearing on the rates of growth of the world economy, while those,
in turn, are at least partial determinants of prices. Although indi-
vidual nonfuel minerals cannot have such power, they can do so to-
gether if price movements are sharp, sustained, and synchronized. It
is not farfetched to suggest that mineral prices are potentially sensi-
tive even to the world food situation and outlook inasmuch as the
latter has a bearing on the volume of savings, the allocation of in-
vestment, the volume and distribution of aid, and, through changes
in relative prices, on the pattern of consumption as well. The grow-
ing complexity of mineral price formation calls for caution in
analysis and projection, and restraint in claiming that one can neatly
sort out all the elements of the problem.
Raw material prices have become planning variables more crucial
and more difficult to project than ever before. This is reflected in the
growing interest in elasticities (which measure, for example, the
ratio between the extent of a price change and the ensuing change
in demand or supply). These are no longer obscure measures of
interest to, and understood by, statisticians and economists alone;
they are measures increasingly relevant to policymaking at the
highest level.
The price elasticities of minerals have peculiar characteristics as-
sociated with the facts that demand for nonfuel minerals is a
derived demand, and expanding supply requires a long time. Both
contribute to making price elasticities low in the short run (relative
to those for other goods and compared to long-term elasticities),

7. U.S. Congress, Meeting America's Resource Needs, p. 49. See same

source for a recent, systematic review of the importance and operation of
these factors.
 112 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

depending on such factors as whether new demand is apt to be met

from the exploitation of already developed resources, the ex-
ploitation of known but undeveloped resources, the discovery of
new resources, or substitutes (with similar questions on their state
of development). 8
Three questions dominate the determination of price elasticities
in the current situation and for the future: the level of prices, tech-
nology, and policy. In principle, estimates of past elasticities are
poor guides to the future when prices reach levels far outside those
observed in the past. Under these conditions, technological change
gains in importance; while its results are inherently unpredictable,
efforts to bring about change are a function of resources and in-
centive. Policy measures can have a direct role in moderating
elasticities. On the supply side, lead times may be cut or output
regulated; on the demand side, both the level and pattern of con-
sumption may be influenced through a variety of measures. It may,
however, be wrong to view consumers as an amorphous mass
reacting in predictable fashion to prices. For example, if traditional
end uses of minerals are in conflict with perceived environmental
or social and moral values, price incentives alone might not over-
come their conscious resistance. On the other hand, if consumers
do not perceive the nature of the problem, they may not respond to
high prices resulting from government policies by curbing their
consumption.
While it would be cynical to suggest that the above considera-
tions justify throwing all estimates of past elasticities out of the
window, it is appropriate to remember that consumers, producers,
and governments-acting individually or in concert-have made
fools of forecasters in the past and may do so again in the future.
In the rest of this chapter, therefore, we dwell on past trends briefly
and concentrate on attempts to influence prices.

8. Although the econometric measurement of price elasticity is a tricky

process leading to different estimates in individual cases, there is little dis-
agreement on the broad point of short-term and long-term price elasticity.
One finds that while the short-run elasticity of world demand for tin has
been in the neighborhood of 0.55, the long-run elasticity is estimated at
about 1.25; and whereas the short-run price elasticity of U.S. demand for
aluminum or copper has been about 0.20, the long-run elasticities are around
1.35 in the case of aluminum and above 2.50 in the case of copper (all figures
are, of course, minus). See, for example, F. E. Banks, "An Econometric Model
of the World Tin Economy: A Comment," Econometrica, vol. 40, no. 4 (July
1972); Charles River Associates, Inc., Economic Analysis of the Copper
Industry (U.S. Department of Commerce Publication, PB 189 927, March
1970); and Charles River Associates, Inc., An Economic Analysis of the
Aluminum Industry (Cambridge, Mass., March 1971).
 MINERAL PRICE BEHAVIOR | 113

Price Trends
The behavior of mineral prices in the past century is illustrated
in the following four charts. Figure 12 depicts the trends in the de-
flated prices of minerals as a group and of selected metals from
1870 to 1957; figure 13 presents the unit values of exports of
minerals and metals from developing countries between 1962 and
1974; figure 14 shows the deflated prices of selected minerals and

FIGURE 12 | DEFLATED PRICE INDEXES FOR ALL MINERALS,

AND FOR COPPER, LEAD, AND PIG IRON
200 . I
Allmineralsal

80 2_ _ __ w X

40

400 Copperb'
300 _ _ _ _ _ _ _ _ _ _ _ _

200 A_____ ______ _

100 _

60 _ V - =

Leadb
100 _ _
80 _ _ _

60 ______

40

806

1870 1880 1890 1900 1910 1920 1930 1940 1950

a. Bureau of Labor Statistics Wholesale Price Index (1954 output weights, 1947-
49 = 100).
b. Bureau of Labor Statistics Wholesale Price Index (1947-49 = 100).
Source: Orris C. Herfindahl, "The Long-Run Cost of Minerals," in Three Studies
in Mineral Economics (Washington, D.C.: Resources for the Future, 1961).
 114 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

FIGURE 13 | INDEX NUMBERS OF PRICES OF EXPORTS OF MINERALS

AND METALS AND ALL PRIMARY PRODUCTS FROM
DEVELOPING COUNTRIES, AND UN UNIT VALUE INDEX
OF EXPORTED MANUFACTURED GOODS (1963 100)
360-

Quarterly data
320 400 - - /' _ -

Minerals and metals

280 300 ----- 4 1 . -

240 200,- .

1200 1001 4
1973
4
1974
_ 1Inu>
7

Manufactured good

C0 _ _ _ _ _-< All primary products

80 -a

1962 1964 1966 1968 1970 1972 19 7 4 a

a. January to September.
Source: National Institute Economic Review (London), and United Nations, Monthly
Bulletin of Statistics.
 MINERAL PRICE BEHAVIOR | 115

metals, 1963 to 1973, and the average (A), high (H), and low (L)
for each product in calender 1974; and figure 15 traces the month-
by-month movement of copper prices and London Metal Exchange
stocks in 1973 to 1974. In this chapter, indeed in this study, we are
not concerned with short-term year-to-year changes; our concern is
with problems and developments of a secular or structural nature
affecting rate of return calculation and investment decisions. How-
ever, the price changes of 1973 to 1974 fall in a special category,
first, because of their special turbulence-sharp rises followed by
sharp declines-and, second, because of the special global context
(hinting at a change in rules of the game) in which they occurred.
In the midst of the current dynamic situation it is difficult to ascer-
tain which elements of the 1974 experience-the highs, the lows, or
the average-are most relevant to reading the future, especially
in light of the fact that neither producers nor consumers were
pleased with 1974; consequently, we expose the reader to the range
of price changes in figure 14 and to the special experience of copper
in figure 15.
The major trends illustrated in the charts can be summarized as
follows:
According to the pioneering analysis by Herfindahl (see figure
12), the long-term trend in mineral prices (in constant dollars)
spanning the last quarter of the last century and the first half of
this century has been either more or less stationary or sloping
gently downward. Under sufficiently competitive conditions the
long-term price trend can be expected to approximate the long-run
cost trend. Although some mineral industries have strong and
sometimes persistent elements of monopoly, for most minerals the
marketing bases are sufficiently diversified to bring about meaning-
ful competition and provide reasonable assurance of a price which
may be termed competitive. Furthermore, the fact that for a fair
number of minerals there are known resources or substitutes which
can be developed if persistent profits appear reinforces the view that,
on the whole, minerals have been competitively priced. (This, how-
ever, applies more to finished products, such as refined metal, than
to intermediate products.) If the above assessment is correct, the
charts in figure 12 support the conclusion that the trend toward
mining lower-grade ore has not been reflected in increased costs-
at least, not until the late 1950s and for the commodities shown-
having been offset by advances in technology. The major minerals
have been produced on a large scale for many decades and are
probably now being mined as efficiently as possible. Since the
1960s, however, there have been signs that the cost trend for most
 116 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

FIGURE 14 J DEFLATED PRICES OF SELECTEDMINERALS AND METALS,

1963-73, AND AVERAGE (A), HIGH (H),AND Low (L)
FOR 1974 (1973-74 ENLARGED)

60 _20 .
Phosphate rock H(6) Iron ore (dollars a metric ton)
(dollars a metric ton)

1965 1970 1965 1970

150 , 40
Copper (cents a pound) _ Lead (cents a pound)
H(4) Hi5)

100 A

501I
LI 12)

iL
1965 1970 1965 1970

Note: Prices deflated by UN unit value index of exported manufactured goods

(1973 = 100). Figures in parentheses refer to month in which high or low was recorded:
January (1), February (2), and so on.
Source: UNCTAD, "An Integrated Programme for Commodities: The Role of Inter-
national Commodity Stocks," (TD/B/Cl/166/supp.1/add.1) (New York, December 13,
1974); and Monthly Commodity Price Bulletin.

minerals has turned upward and is likely to persist in that direction,

as discussed in chapter 7.
In the last ten to twelve years, even stopping short of the 1973
boom year, the unit value of exports of minerals and metals from
developing countries has risen considerably, and faster than the
prices of primary products or the unit value of exports of manu-
factured goods from the developed countries. While prices of min-
 MINERAL PRICE BEHAVIOR | 117

., _, ,- 100
Tin (cents a pound) Zinc (cents a pound) _ _

400 _ _ _ _ _ _ _ _ _ ;H(9) l -I(5)

400 - - I I - I

1200 20

0 -
1965 1970 1965 1970

nriel t(cnts aepound) 40alx

H(12) 0

3 0
150 …A --- A

countries eoAlumium (cents a pound)

100--- -20 I IIII
1965 1970 1965 1970

erals and metals did better than other product groups and improved
in real terms, experience has been mixed and mineral-exporting
countries did not benefit uniformly. The unit value of developing
countries' exports of minerals and metals is heavily weighted by
copper which pushed the index up during most of the 1960s. Real
prices of iron ore and manganese ore weakened throughout the
1960s and prices of tin and phosphate rock in the second half of
the decade. On the whole, more developing countries faced declin-
ing real prices, and for longer periods, than those benefiting from
stronger prices.
All minerals reacted to the conditions setting off the worldwide
commodity boom of 1973 and the first half of 1974, since mineral
118 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

FIGURE 15 MONTHLY AVERAGE

COPPER PRICES AND
LONDON METAL
EXCHANGE STOCKS ON THE
LAST FRIDAY OF THE MONTH, 1973-74
136-

132-
.,
.,
128- e ' 200
124-19 124 - 195
: 190
120_
185
-180
116-
175
112-
* ' ~~~170
165
112-080 ' ' Prices
108- i*
160
decline as 155
104- 00 . . stocks rise 155
*; 100- I'rices rise
U U ~~~~145
-140
as stocks * : 135
96- decline U .
*n
/\ 92- ,* $0>0 . ' t \ e:-125
c 0 \ l0030000
' / 0 \S 0 -120c
U88-~ u 88-
\ t000000000t;
^ / ^ 000-115°

84- ,105
ha 80- 0 40iX U000 t 0|00X0jiQ 100
tJ t;0 00000000 0 J 000Stt ~-95c
U
76- ,' *00000:0000Stt
76-~ / :3K0 -90*
i0000000 j$; , - ^ -~~~~85
72- k 0;;.=80
-E
72:0g::0;N 'S I =
68 - :; 0 QNX*Ef -75
g Price spread 70
threatening 65
64- 00000000;i't$t#000Xf
j producer quote 60
60- 0000 '0 :S 0X0-55
56- tf0000 -00uACSJ2:0i
045

52- 0 0 .. ,,i._5 25
-300

44 -
2
40 -AW>w0i-"lS<.li.4,l&g0+', -15
M A 10-2
AJ S O N D
4AM J FIMIA M J J A S O D
1974 1 1973
_
Canadian producer
London Metal.......
Exchange cash window
London Metal Exchange stocks
Source: Adapted with permission from The Northern Miner (Febru-
ary 6, 1975).
 MINERAL PRICE BEHAVIOR | 119

prices are notoriously sensitive to the business cycle. In a number

of metals, price increases were bolstered by special factors, notably
supply problems and bottlenecks associated with strikes, mine acci-
dents, pollution control problems in the nonferrous metal smelting
industry, and maladjustment of mining and processing capacity.
The upward trend in prices was reversed in the third quarter of
1974. While the downturn had been anticipated, prices contracted
abnormally fast, with potentially serious consequences for the de-
veloping countries. The weakening of metal prices reflects, in addi-
tion to the business cycle, the elimination of the temporary supply
bottlenecks mentioned above; the fulfilling of capacity expansion
plans initiated in response to previous high prices; and the inclina-
tion of certain countries, particularly those heavily dependent on
exports of a given mineral, to produce for export at high capacity
levels in order to cover ever-expanding import and debt-service
costs. Relative prices have changed in the worst possible combina-
tion for the majority of developing countries: the commodity scene
in late 1974 to early 1975 was characterized by rapidly deteriorating
raw material prices, weakening values for many of the beverage
crops and fats and oils, unrelenting increases in cereal prices, ele-
vated oil and fertilizer prices, and continously rising costs of manu-
factures. 9 Even in those ores and metals where producer prices rose
through the commodity cycle, or in those where the decline in price
was arrested before the recession bottomed out, price levels during
1975 were not sufficient to compensate for the decline in export
volume. Besides, price discounts were common, and these develop-
ments took place against a backdrop of increases in the cost of
production of 10 to 15 percent at least. In short, producers of all
major minerals suffered.
Figure 14 shows the highs and lows reached by mineral prices
during 1974 and, in parentheses, the month in which each was
achieved. It thus permits reading at what level each mineral price
series ended the year. It is apparent that those metals for which
supplies and prices are closely controlled by a few major producers
did best and were not harassed by the changed market conditions.
The price of copper illustrates the experience of metals not in this
category. The copper shortages of 1973 gave way quickly to con-
siderable surpluses as recessionary factors cut down consumption
for housing, automobiles, and other uses in the industrialized

9. For a more detailed review of the recent commodity cycle, see Kenji
Takeuchi and Bension Varon, "Commodity Shortages and Changes in World
Trade," Annals of the American Academy of Political and Social Science,
vol. 420 (July 1975).
 120 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

countries. Overstocked refiners in certain industrialized countries,

committed to purchases of concentrates under long-term contracts,
Japan in particular, were unable to finance large stockholdings of
refined metal and had to offload surplus stocks on the open market.
Copper production in some developing countries also increased
greatly. The result was a halving of the copper price within six
months from its all-time peak early in 1974. (Figure 15.)1o
Despite the economic recovery currently in progress in the major
industrialized countrties, mineral markets remain depressed or slug-
gish, first, because the recovery itself has been slow to gather force
and to spread and, second, because the stocks accumulated during
the recession are still overhanging the market. In fact, prices,
though on the upswing at last, are in many cases below their 1971
levels in real terms. The trend has been reversed, but the pace and
strength of the recovery are yet to be revealed.
The turbulence since 1973 has led to the realization that the
old rules of the game are no longer acceptable and the time has
come to change them. In the current atmosphere of heightened
sensitivities, more attention has been paid to the means for changing
them than to the nature and degree of the correction sought. While
the new concerns find strongest expression in the controversy over
prices and pricing, clearly they go beyond prices, indeed beyond
economic issues, into the realm of politics. It makes little sense to
seek solutions by belaboring the issue of whether recent prices have
been too high or too low when all traditional yardsticks are being
questioned, when the whole development problem has been blown
wide open, and when action on multiple rronts has been recog-
nized as a necessity. Even though the final destination and condi-
tions of the journey are not clear, the course has been set and it
points toward the not yet fully explored waters of harnessed price
fluctuations and a massive readjustment of relative prices, if need
be through unilateral action.

Past Attempts to Influence Prices

The power of major companies to influence or control prices

unilaterally was noted in chapter 1. Attempts to achieve this
through coordinated action, which have received wide attention

10. See also United Nations, Committee on Natural Resources, Survey of

Current Problems in the Fields of Energy and Minerals: The World Mineral
Situation (E/C.7/51) (New York, 1975).
 MINERAL PRICE BEHAVIOR 1121

recently, are not new, nor are they limited to initiatives by produc-
ers, and one does not have to go far back in history to find
illustrations. The aluminum industry provides many examples of
interindustry, multicountry cooperation in the form of swap opera-
tions among major producers, primarily for logistic reasons, to
realize savings on freight and tariffs. The so-called Gentlemen's
Agreement made in 1957 by the major aluminum companies sup-
plying the Western European market to absorb the aluminum
exports of the Eastern European countries effectively prevented a
weakening in the price of aluminum, as was intended. Consuming
countries have at various times set up special mechanisms for the
control of supplies and prices of copper on their internal markets,
a notable example being the Groupement d'Importation et de
Repartition des Metaux (Metals Import and Distribution Pool),
generally refered to as GIRM, in France. Steel companies, well aware
of their relatively strong bargaining position in the international
market, have long been acting together in relation to their raw
material suppliers. The British steel industry used to acquire over-
seas supplies through a single body even before the nationalization
of the industry. In the Federal Republic of Germany, two central
purchasing bodies (Rohstoffhandel GmbH. and Erzkontor GmbH.)
centralize purchases and negotiate agreements with iron ore pro-
ducers as well as shipowners." Similar arrangements exist in Bel-
gium, France, Italy, and, of course, Japan, where interindustry
cooperation extends to multiple raw materials. These practices at
the national level are further developed within the framework of
regional or international associations which act, at the very least,
as forums for the exchange of views and possibly for the working
out of common attitudes and policies."2
An example of cooperation, indeed cartelization, on the export
side is provided by Malmexport, a joint sales company entrusted
with selling iron ore on behalf of three different enterprises, the
Swedish state-owned LKAB, the Swedish privately owned Grange-
berg, and LAMcO, a Liberian company with sizable Swedish partici-
pation. Mikdashi concluded in 1971:

11. Another German company, Exploration und Bergbau GmbH., acquires

participation in and operates iron ore, coal, and other mines overseas for
all major German and some Dutch, Italian, and Austrian iron and steel pro-
ducers.
12. Analysis of these cases can be found in the voluminous writings of
Zuhayr Mikdashi of the American University of Beirut, especially in "A
Comparative Analysis of Selected Metal Exporting Industries" (Vienna,
March 1971; mimeographed).
 122 THE
T MINING INDUSTRY AND THE DEVELOPING COUNTRIES

In its 12 years of existence, Malmexport seems to have suc-

cessfully designed a sales strategy convenient to the three
competing companies. It has managed to maintain Sweden's
position as the most important single supplier of iron ore to
Western Europe, despite the severe price competition of ores
coming from overseas. Malmexport has also achieved effective
regional cooperation, though on an informal basis, with the
Norwegian state-owned iron ore company (Sydvaranger) with
a view to averting major ore importers playing off one Scandi-
navian country against the other.13
Governments have often sanctioned or assisted such action in a
variety of ways, most directly through stockpiling policies. While
not necessarily or deliberately designed to manipulate prices or to
serve the interests of specific industry groups, government stock-
piles, especially those of the United States, have been a potent
factor in the market for many minerals for a number of years.
Although developing countries have been among the major pro-
ducers of minerals for many decades, their interest in producer alli-
ances and the developed countries' concern over the implications of
"the new mood, urge, need, or weapon" are relatively recent. Until
the so-called energy crisis, only the copper-producing developing
countries attempted to establish a base for cooperation among
themselves and succeeded in doing so.14 Partly prompted by copper
price weaknesses obtaining in 1966 and the first half of 1967, the
four major copper-producing countries of the developing world-
Chile, Congo (now ZaYre), Peru, and Zambia-formed in June
1967 the Intergovernmental Council of Copper Exporting Coun-
tries (CIPEc, after its French name), which remains in existence.
While informal consultations on other minerals were held by de-
veloping countries from time to time, these fell short of real pro-
ducers' cooperation.
The remarkable success of the Organization of Petroleum Ex-
porting Countries (OPEC) in negotiating contract terms raising oil
revenues dramatically, beginning in 1971, generated the developing
countries' interest in producers' alliances for other minerals or
major agricultural commodities. The link between the energy crisis
and the new mood in nonfuel minerals, however, goes beyond set-
ting an example. For developing countries hurting from high oil
import bills, the incentive to seek better returns from their tradi-
tional exports is no doubt greater. Similarly, for developed countries

13. Mikdashi, A Comparative Analysis, p. 80.

14. The International Tin Agreement, in existence since 1956, includes
as members both consumer-importers and producer-exporters.
 MINERAL PRICE BEHAVIOR |723

facing huge oil import bills, the specter of higher raw material prices
weighs heavier than in the days of cheap oil. The role of OPECmem-
bers in spearheading the demands for better terms of trade for the
developing countries as a group suggests a new era for primary
commodity prices in connection with the energy crisis. Last, but
not least, energy is an important input in the extraction and proc-
essing of minerals, as well as a key determinant of the pattern
of consumption into which metals fit. The new energy prices may
begin a long series of complex technological and economicrelation-
ships, prompting aggressive and defensive action by nonfuel min-
eral exporters and importers, respectively.
The new awareness of the threat and rewards of producers' al-
liances, especially in mineral raw materials, has causes more basic
than the recent energy crisis. On the consumers' side, it follows
from growing realization of the heavy dependence of modern eco-
nomic growth on nonrenewable mineral raw materials and the
increasing import dependence of industrialized countries in min-
erals. On the exporters' side, it mirrors not only their continuing
dependence on exports of primary commodities, in view of the slow
progress in expanding and diversifying their production base, but
also painful disappointment in their efforts to reach international
commodity agreements and accelerate the flow of assistance. To
these, of course, must be added the trend toward national political
and economicindependence. True appreciation of the root causes of
the present situation requires tracing the course of international eco-
nomic and political relations in postwar history, which is beyond
the scope of our inquiry.
Following the energy crisis, steps have been taken by the de-
veloping countries to express their concerns and assert their will,
either through general statement (under the auspices of the United
Nations or in special forums improvised for this purpose) or
through specific action. In the field of nonfuel minerals, specific
action to March 1976 included the following: In March 1974, seven
major bauxite exporters formed the International Bauxite Associa-
tion (IBA).' 5 Subsequently, Jamaica, a leading member of the IBA,
succeeded in quintupling government revenues from its bauxite and
alumina industry by increasing royalties and taxes on bauxite. Other
members have begun to follow suit. So far, actions have been taken
on an individual basis but the foundation is being laid for concerted
action.
Morocco, the world's largest phosphate exporter (with a share of

15. Australia, Guinea, Guyana, Jamaica, Sierra Leone, Surinam, and

Yugoslavia. Haiti, the Dominican Republic, and Ghana joined later.
 124 1 THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

about 35 percent in recent years), started raising its phosphate rock

price in 1973. By October 1974 the price had reached $70 a ton,
representing an overall increase of over 400 percent. Major U.S.
prosphate producers also adjusted their prices upward very sharply,
and other producers followed. These moves, however, have not
taken place under any formal agreement.
Four major copper-exporting developing countries decided
through cIPEc to cut back their exports by 10 percent, beginning in
December 1974, in the face of collapsing copper prices. Indonesia
joined CIPEC in 1975 as a full member and Australia and Papua New
Guinea joined as associate members.
In April 1975, concerned over the unfavorable trend in their
terms of trade and anxious to assure remunerative returns, eleven
iron ore-producing countries drew up the Association of Iron Ore
Exporting Countries (AIEC). The association became formally
established in September 1975 with the signature of the agreement
by seven countries." 6 The objectives of the association include
cooperation and consultation on prices and markets.
In April 1975 several mercury-producing companies from five
countries"7 formed the International Association of Mercury Pro-
ducers (ASSIMER) with the object of curbing wide price fluctuations
and promoting the use of mercury as well as providing technical
assistance to members." 8
What does all this mean for the world mining industry, not just
for one group or another, and what does it augur for the future?
Only tentative answers can be provided in the present fluid situa-
tion, and only by way of adding perspective rather than offering
firm predictions.

Issues and Directions

From the very beginning, the question of producers' alliances has
been politicized by both sides. In developed countries the issue was
not seen as one of the relative market strength of consumers and

16. Algeria, Venezuela,Australia, India, Mauritania, Chile, and Peru.

17. Algeria, Italy, Mexico,Spain, and Turkey.
18. Intergovernmentalor intercompany discussions also took place on a
number of commodities such as lead and zinc, manganese and tungsten,
prompted by concern over extremelyunfavorable market conditions. To give
the impression that these have already resulted in cartels, as in the title
of a recent publication [KennethW. Clarfieldand Associates, "Eight Mineral
Cartels: The New Challenge to IndustrializedNations" (New York: McGraw
Hill, 1975)] is untruthful packaging and analogous to claiming that one who
studies philosophy is automatically a philosopher.
 MINERAL PRICE BEHAVIOR | 125

sellers, but rather as one of a newly emerging political and eco-

nomic force ominously aligned against the consumers, the indus-
trialized nations.1 9 Their feeling of beleaguerment has apparently
caused the industrialized countries to add to their anxiety over the
availability of raw materials a concern for the ideology of those who
control them. Some developing countries, in fact, have recognized
the political possibilities of this tool and have thus reinforced the
power play aspects of the resource control issue. For the most part,
however, developing countries tend to regard arrangements of the
OPEC kind enviously on economic grounds. Both sides have been
guilty of exaggerated negative or positive expectations which hinder
their seeing the issue in a measured historical and economic
perspective.
In the past, bargaining power has been disproportionately with
consuming industrialized nations, which have enjoyed control over
capital, technology, processing, marketing, and shipping. In some
ways, this power has been increasing, through growing vertical and
horizontal integration, technological advances, regional economic
arrangements, and so on. What appears to be at issue today, at least
in the eyes of developing countries, is not so much the merits of
competition versus other forms of market organization in the ab-
stract, as the need to counterbalance the substantial power of con-
suming countries over the exploitation of the world's scarce natural
resources. Producers' alliances are not necessarily the optimal or
only answer; theoretically, the same results could be achieved by
breaking up consumers' alliances where these exist, although this
might be difficult and therefore unrealistic. One thing is certain: A
market situation where competing and unorganized sellers confront
a strong buyer favors sellers least among all possible forms of
market configuration. In light of this, and given the successive dis-
appointments of the developing countries with aid flows, transfer
of know-how, trade liberalization, and attempts to draw up inter-
national commodity agreements, it is neither an historical anomaly
nor an economic violation for the developing countries to seek
more equitable returns from the exploitation of their scarce natural
resources through producers' alliances. While the word cartel has
come to carry a connotation of hostility, it must be remembered that
supply management is a respectable tool of modern economics. No
one can argue that copper-producing developing countries ought

19. The first to sound the warning and the most articulate exponent of
the view that cartels are the wave of the future is Fred Bergsten of the
Brookings Institution. See his "The Threat from the Third World," Foreign
Policy (Summer 1973); "The Threat Is Real," Foreign Policy (Spring 1974); and
"The New Era in Commodity Cartels," Challenge (September-October 1974).
 126 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

to keep operating at full capacity in the face of declining prices,

or have a greater obligation to ignore revenue maximization oppor-
tunities than firms in the industrialized countries.
The issue, then, is not whether developing countries can or can-
not or should or should not act in concert, but rather whether and
to what extent and at what cost they can benefit from such action,
individually and collectively, and over what time frame, and what
this means in terms of the global efficiencyof resource use. While
one can highlight the parameters and speculate on their values, one
cannot predict events so dependent on national decisions-decisions
not purely economic in content and shaped by each country's read-
ing of the future.
The prerequisites for successful action in the OPEC manner in
nonfuel minerals can be usefully grouped into three categories: min-
imum and essential requirements, factors facilitating successful
action, and elements contributing to the net benefits derivable by
the producing countries.
In the first category of minimum and essential requirements,
there is really only one precondition: namely, that demand be price
inelastic (the more inelastic, the better) which, in practical terms,
means that the mineral be an essential input for the manufacture of
an essential good and that neither have a close substitute.
Conditions facilitating successful action include that few coun-
tries (the fewer the better) control a large portion of world produc-
tion (the larger the better) and preferably of reserves and resources
as well; that supply outside the members of the alliance be high
cost and inelastic; that members enjoy political compatibility, com-
munality of interest, and protection from retaliation, that is, that
their economies and economic prospects not be linked inextricably
with the markets and fortunes of the consuming nations.
To benefit from such action both individually and collectively,
developing countries must not be large importers of the commodi-
ties in question or depend heavily on them for employment. Their
initial bargaining strength and the stream of benefits will be greater
the larger the annual-production-to-reserves ratio. Either strong
demand growth or scarcity of resources will tend to enhance the
power of the producing countries.
While none of the above factors need exist at peak force, each
of them must figure considerably in the combination.
These hypotheses, however, are subject to a number of quali-
fications: First, the relative values of short-run and long-run price
elasticities can influence both the size and the duration of benefits;
second, simultaneous action on minerals which are close or potential
substitutes can reinforce the position of each; third, in several min-
erals, participation in the alliance by industrialized country pro-
 MINERAL PRICE BEHAVIOR | 127

ducers can enhance the chances and degree of success; fourth,

significant changes may be achieved short of concerted action
through price leadership, as by Morocco in phosphates, and, fifth,
the availability of financial support to producing countries can be an
important factor.
The prospects for alliances of producers in nonfuel minerals
have been the subject of much attention and contention recently.
While the flow of opinion and studies (the distinction is intentional,
since there has been a dearth of opinion based on systematic study)
gives the impression that assessment falls into two neatly divisible
camps, this is not the case; there are no antagonists and protagonists
as such. Some analysts, chief among them Bergsten, have concen-
trated on whether alliances of producers are feasible and likely and
have concluded that they are. The determination of some coun-
tries, who see this as the only way to rectify wrongs, lends support
to this view. Others have focused on the possible achievements
of such alliances and have concluded that they will vary from
mineral to mineral and are not likely to measure up to oPEcin bene-
fits to developing countries or hardships to consumers. Among the
obstacles are: small share of the market; small share of reserves,
and in some cases even smaller share of potential resources; possi-
bilities for substitution and recycling; the new mineral frontiers of
the oceans; and the onus of existing stockpiles.20
In the final analysis, only future developments in the marketplace
will prove or disprove the validity of the current speculation on
these complex issues. The final question revolves around the risks
of acting or reacting without further homework. We feel there are
risks, especially risks of exaggeration, although we are painfully
aware that for some of the developing countries these are dwarfed
by the risks of starvation and continuing poverty. It is prudent,
nevertheless, to underline that, on the producers' side, the failure
of one cartel may result in strengthening the hand of the con-
sumers on a broad plane for years to come. There are also risks in
failing to recognize that while controlling supply in pursuit of
higher prices is a legitimate tool of revenue maximization, it can
serve the developing countries well only if it is undertaken without
shortshifting the attainment of their overall development goals,
which transcends revenue maximization in one commodity or sector.
On the consumers' side, there is the risk that exaggerated fears of
alliances of producers will be used by diverse interest groups to

20. See Bension Varon and Kenji Takeuchi, "Developing Countries and
Non-Fuel Minerals," Foreign Affairs (April 1974); Raymond F. Mikesell,
"More Third World Cartels?" Challenge (November-December 1974); and
Stephen D. Krasner, "Oil Is the Exception," Foreign Policy (Spring 1974).
 128 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

urge governments to adopt inward-oriented policies-eventually

costly to them-resulting in regressive steps in aid, transfer of tech-
nology, or trade liberalization. There are also risks for third parties
and in terms of global welfare. For example, we are impressed by
the fact that the current debate deals with the current structure of
production as frozen, ignoring the possibility that developing coun-
tries where truly large and low-cost resources might be discovered
will and should enter the market for reasons of national interest and
global efficiency.
The debate on alliances of producers has recently been frustrated
by the lack of real prospects and has been superseded by wide-
ranging discussion of commodity agreements as a vehicle for bal-
ancing the needs and interests of the producing and consuming
countries. At the center of the discussion is UNCTAD'S so-called in-
tegrated commodity program, proposed in 1974, which aims to
stabilize prices through a network of buffer stocks financed through
a common fund, and contains provisions for improving the terms of
trade as well as the gains from trade of the developing countries. 21
The program encompasses twenty-one commodities of major export
interest to the developing countries, ten of which have been desig-
nated as core commodities suitable for buffer stocks. Of the twenty-
one commodities, six are minerals (copper, iron ore, tin, bauxite,
zinc, and lead) but only two of these-tin and copper-are included
in the short list recommended for stocking. Tin, of course, has al-
ready been subject to stocking for twenty years under the Interna-
tional Tin Agreement. So the only truly new element, as far as
nonfuel minerals are concerned, is the proposal to stock copper.
Developed and developing countries now recognize more than
ever before their mutual interest in stabilizing primary commodity
prices, especially in averting the wide swings characteristic of cop-
per prices. Even on the part of the industry there is a sincere desire
to work toward a solution acceptable to all parties and, if not a
consensus, wide recognition that commodity agreements can play a
useful role in this endeavor. This of course is most encouraging. But
the pros and cons of stabilization are not at issue in this chapter.
The question is rather, What role can commodity agreements play
in achieving the new goal of ultimate income redistribution through
a massive upward readjustment of price levels? For after all this is
what the call for a new international economic order-the major
impetus to the integrated commodity program-is all about.

21. See UNCTAD, An IntegratedProgrammefor Commodities:Measuresfor

Individual Commodities (TD/B/L.1/194) (New York, October 1, 1974).
 MINERAL PRICE BEHAVIOR | 129

There is serious doubt in our minds that the present climate is

conducive to achieving the above goal through commodity agree-
ments. For commodity agreements to be reached, both negotiators
must have a reasonable reading of future trends and developments
by which they can assess their interests and possible confluence
of interests. When one cannot read the future well-and present
conditions do not permit a clear reading-one is likely to commit
very little and hedge against very much. The climate of uncertainty
is further compounded by the fact that national governments in
developed and developing countries alike have accepted the possi-
bility of instituting radical new courses of action affecting import
dependence and export strategy, and have thereby expanded the
number of variables at play in assessing one another. Against this
backdrop, the postulated commodity agreement would ask for
assured stability of demand and security of supply at prices agree-
able to producers and consumers over the long term-an object
rarely realized even under conditions of relative political and eco-
nomic stability and with limited commodities and trading partners.
In pointing up the difficulties attending commodity agreements,
we do not mean to write them off. On the contrary, we favor them
on the ground that they can have a positive influence on the lifeline
of the mining industry, namely investment. They can also assist
economic planning in the developing countries and help to make
trade more equitable. But we do wish to make the point that they
are a conventional vehicle insufficient for the radical new goal of
redistribution of wealth. If too much reliance is placed on commod-
ity agreements-indeed, on trade-as an equalizer, there is danger
that the anticipation of exaggerated results may enter the projec-
tions prematurely and obscure the real distance from the goal.22
A new element affecting the outlook for commodity agreements
is the apparent community of interest between oil-exporting coun-
tries and other primary commodity producers in insisting that the
problem of oil be discussed simultaneously with the problem of
nonoil primary commodities, implying that concessions on oil by
OPEC countries ought to be linked to counter-concessions by the de-
veloped countries on raw materials. This no doubt strengthens the

22. "Trade, though imperfect, is still the best vehicle we have to work
through toward this goal. However, to strain it to the point of breakdown
by treating it as the only means for correcting all inequalities among na-
tions-in terms of capital, technology, resources and standard of living-
and all inequalities arising from relative positions of strength, is to obscure
the need to attack the development problem on a broad front." See Takeuchi
and Varon, "Commodity Shortages and Changes in World Trade," p. 57.
 130 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

hand of the developing countries as a group and would have a

major influence on the commodity negotiations if these were held
today. Assuming, however, that commodity by commodity discus-
sions do not take place for one or two years, the outcome becomes
more sensitive to unpredictable developments affecting the world
economy and international political relations. Besides, the linking of
oil and raw materials will at some point open up the complex ques-
tion of the distribution of income among nonindustrialized coun-
tries, since neither the oil-importing developing countries' need for
changes in raw material prices nor developed countries' ability or
disposition to respond to them are independent of oPEc strategies
on oil.
Perhaps, however, the question has been asked the wrong way.
In nonfuel minerals, at least, the objective ought not be to raise
prices for the sake of raising them, but to allow them to rise to
ensure a much needed expanded flow of investment, to keep ahead
of costs and inflation, and to permit, for example, the improvement
of working conditions and adoption of environmental safeguards.
Since the structure of the industry has not permitted this in the
past, attacking it promises greater and more lasting success to
the developing countries. While price-related issues are important,
one should not lose sight of the fact that what needs to be
assured is a bigger share of the ever-expanding market for the
developing countries. The benefits of this will have multiplying
effects and outweigh those obtained only through higher prices.
Developing countries need both better prices and a bigger share;
but the demands on prices should not be such as to deter the de-
veloped countries from relying more on the developing countries.
Looking ahead and sticking strictly to prices, four observations
are in order. First, the trend toward aggressive attempts to in-
fluence prices seems irreversible. Mineral prices are likely to
ascend in the foreseeable future, depending on the stance of the
producing countries, but as much, if not more, on global economic
trends, cost factors, technology, and policy decisions affecting the
pace, distribution, and productivity of global investment in explora-
tion, mining, and processing.
Second, the view that alliances of producers cannot go too far
in achieving increases of the OPEC kind in mineral prices has much
support.2 3 However, this does not preclude the possibility of some

23. This support is sometimes covert. The weight given by the developing
countries and their spokesmen to the integrated commodity program is the
best proof of their skepticism about the feasibility and prospects of producers'
alliances. In the aftermath of OPEC'S action in 1973, much was made of the
 MINERAL PRICE BEHAVIOR | 131

developing countries benefiting from such action-or some sub-

sectors in the consuming countries being hurt by it. While the
values of absolute or relative impact may not be large compared
to the figures we have become accustomed to since OPEC, they may
be significant for individual parties.
Third, stable prices are important for the smooth functioning
and steady expansion of the mining industry, and commodity
agreements can perform a useful role in this respect, especially for
countries heavily dependent on mineral production.
Fourth, it is in the long-term interests of both the developed
and developing countries not to interrupt the flow of investment
into the mining industry. While some of the acts may need chang-
ing, the show must go on. We therefore turn to an examination
of the problems of mineral development in the developing coun-
tries and to a survey of mineral development objectives and
policies in the next two chapters.

possibility that OPEC members might assist in the formation of other cartels,
for example, through financial assistance. This has not been borne out by
experience. In fact, whatever evidence there is suggests that OPEC members,
through their domestic and foreign investments, might add to rather than
help to curtail or control production capacity for nonfuel primary commodi-
ties. This is not a matter of joint policy but the outcome of individual mem-
bers' priorities and programs.
5 1Problemsof A\Iineral Development
in DevelopingCountries

THE MOST CONTROVERSIAL PROBLEMS of mineral development in the

developing countries have to do with their relation to the developed
countries as providers of capital and technology and as consumers
of the minerals produced. In this chapter we consider the growing
interdependence of developed and developing countries and the
problems and conflicts to which this gives rise.

Interdependence of Developing
and Developed Countries

We have suggested that during the next decade developed econo-

mies may rely increasingly on the supply of minerals from devel-
oping economies and, as we discussed in chapter 4, this may make
an important contribution to the future foreign exchange earnings
of the developing economies. Modern mining and processing
methods have become so capital intensive, however, and the capital
requirements of modern mines and their attendant infrastructure
so large that few of the developing countries can expect to bring
a sizable project into operation on their own. Up to now, the large
mining companies have provided most of the funds, technical
know-how, and marketing outlets, although with the recent trend
toward national autonomy, the situation has been changing. Some
developing countries have already managed to produce a cadre
of experts in this field, working through the public and private
sectors. Nevertheless, the remaining gap in skills, finance, and
technology will require continued participation of the large inte-
grated producers in mining development in the developing coun-
tries. Whatever the form of future cooperative arrangements, if
they are to be workable, they must be acceptable to both import-

132
 PROBLEMS OF MINERAL DEVELOPMENT | 133

ing and supplyingnations, reflectingtheir commoninterest in an

expandedflow of resourcesto the world markets.
In the long run the stake of the developingnations in resource
developmentmay be greater than that of developed countries,
sincefor a numberof importantmineralstechnologyis providinga
broad array of options in the form of synthetics,abundant natural
substitutes, and processes for extracting minerals from interna-
tionally availableraw materials.The past advantagesof suppliers
with rich ore reserveshavebeen further reducedbecauseeven low-
grade ores can now be made competitivethrough advancedtech-
nology and large-scaleextraction. Despite increased reliance on
mineral supplies from developingcountries, industrializednations
do not face an immediatelycriticalsupply situation. Over the long
run, however, developingcountrieswill be able to negotiate their
more abundant supply situation into better leverage over, and
larger benefits from, joint exploration and production ventures.
While the positionof the industrializednations may weaken, de-
veloping countries' revolution of expectations and growing ab-
sorptive capacity will intensify the pressure on the development
of their resources.Thus, the interests of the two parties will again
interlock,intersect,and interrelate.

Divergent Objectives of Investors

and Host Governments
Becauseof the major role the large multinationalmining com-
panies have played and must continueto play in the development
of mineral resourcesin the developingcountries-though under
differentrules-their conditionsof operation,positionin the devel-
oping countries, and relationshipwith the various parties in the
host countrieswarrant brief review.
It is unlikelythat the objectivesestablishedfor the exploitation
of any particular mineral deposit by a multinational firm will
coincidewith those of the host government;in fact, these objectives
may divergeconsiderably.The multinationalcompanywill act to
maximizeprofits and spread the risks of the companyas a whole,
not necessarily those of the affiliate in a particular producing
country alone. In determiningthe distribution of productionbe-
tweensubsidiarieslocatedin differentcountries,a mining company
will take into account the relative costs (includingtaxes) of the
different subsidiaries,the preferential access to some markets of
various suppliers,the need to maintainminimumproductionlevels
as specifiedby contracts, and the degree of political risk in each
 134 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

country. Furthermore, intrafirm transfer prices may not be based

on world prices (often a world price does not exist), but may
reflect a concentration of profit in a particular affiliate in order to
minimize taxes or avoid restrictions on transfer of profits.
On the marketing side, companies tend to specialize in com-
modities experiencing high growth rates and to shift incremental
resources from a commodity whose growth rate has fallen off to
one with a higher growth rate. In the copper industry, for example,
the shift has been to a competing commodity, aluminum (as with
Anaconda, Revere, and Kennecott). Countries with marginal de-
posits and an uncertain investment climate may not fare as well as
those with better mineral resources and more favorable investment
conditions. Moreover, the companies themselves are deeply in-
volved in influencing the growth and displacement of commodities
through their large research and development establishments,
which are constantly putting forward new products and promoting
product uses based on their mineral resources. Perhaps most nota-
ble is the demand for aluminum, which has been very significantly
influenced by the aluminum companies themselves.
A government, on the other hand, is concerned with maximizing
total revenues of the subsidiaries operating within its territory,
and especially its share of revenues, with little interest in overall
corporate profits. Governments also seek to influence the level
and geographic pattern of resource development; encourage back-
ward and forward linkages in the economy; and expand the process-
ing, refining, and fabrication of raw materials, both for domestic
use and for export.

The Sources of Conflict

The divergence of objectives can lead to serious conflict and
some form of nationalization or confiscation, as evidenced in the
recent past in Algeria, Bolivia, Burma, Chile, Ghana, Guyana,
Tunisia, Peru, ZaYre, and Zambia. In his recent investigation of
two copper mining projects, Raymond F. Mikesell concluded: "The
two case studies confirm the generalization that conflicts between
the host government and the foreign investor tend to be more or
less continuous, and the greater the profitability of the mine the
more intense will be the demand for renegotiation of the contract
on the part of the host government." 1

1. Foreign Investment in Copper Mining (Baltimore and London: Johns

Hopkins University Press, 1975), p. xxii. See also Mikesell's earlier, authori-
tative work on the subject, Foreign Investment in the Petroleum and Mineral
 PROBLEMS OF MINERAL DEVELOPMENT | 135

A vast confidence gap characterizes the relations between host

government and foreign company from the very beginning. Alun
G. Davies of the Overseas Mining Association, London, described
the problem as follows:
From the point of view of the host country, the mining
company negotiators represent a hard-faced, profit-dominated
negotiator entirely motivated by the capitalistic urge to maxi-
mize advantages and ignore whatever arguments may appeal
to the other party. To the third world, moreover, these nego-
tiators appear as diabolically clever, fully apprised about all
the technicalities of the subject, and prepared to take the other
side for a ride at any time.... From the point of the negotiat-
ing mining company, the other side often seems so suspicious
of motive that it is unable to make up its mind on most sub-
jects, and unable to comprehend the factors which govern
competitive business in this world. Moreover, there is a dif-
ference in time factors, and the important significance which
is attached to prompt decision making. Above all, there is
sometimes a complete lack of mutual confidence, or even of
a recognition that Western world mining companies have a
capacity for objective consideration and a conscientious regard
for the rights of others. . . . Given the desperate needs of
developing countries for outside capital for resource develop-
ment, the existence of a psychological abyss between the two
parties is a tragedy, both from the point of view of develop-
ment in the third world, and from the point of view of en-
couragement of international trade in essential raw materials. 2
John Carman of the United Nations lists among the "inhibiters
of investment" in mining, especially in the developing countries,
"suspicion on the part of governments of the motives, ethics and
methods of the large international mining houses; a suspicion,
incidentally which is more than amply reciprocated when said

Industries (Baltimore and London: Johns Hopkins University Press for

Resources for the Future, 1971). With regard to the Bougainville project in
Papua New Guinea, the remarkably high profitability of the early years which
brought about this pressure was largely due to the outstanding engineering
and administrative performance of the company. A less satisfactory or even
average performance by the company would have resulted in the mine's com-
ing on stream with a long delay, missing the abnormally high copper prices
of recent years, turning in average returns, and reducing government reaction.
2. Alun G. Davies, Taxation and Incentives (paper prepared for the UN
Interregional Workshop on Negotiation and Drafting of Mining Develop-
ment Agreements, Buenos Aires, November 2-18, 1973) (ESA/RT/AC.7/9)
(New York, September 27, 1973), p. 2.
 136 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

houses size up governments." He then adds, "Neither party lacks

justification." 3
The power and spread of the multinational allow it to influence,
directly or indirectly, the policies and actions of home and host
countries, and can at times place countries in interdependent or
dependent positions. Multinational corporations have been known
to cause jurisdictional disputes among governments and some-
times-when they succeed in drawing their home countries into
their own disputes with host countries-bring about political con-
frontations. Traditionally, host countries, and recently some home
countries also, have found that the global context in which corpo-
rations operate and the many options open to them can restrict
the effectiveness of government policies. Social and cultural con-
flict can also arise when nationalistic or reformist forces in the
host country perceive the operations of the corporation as a threat
to the country's traditions and heritage.
Foreign companies sometimes enter the host country under a
concession agreement covering ownership and control of the proj-
ect, including production levels, marketing and export pricing,
exploration requirements, and degree of processing. Alternatively,
they may acquire the mineral rights of domestic enterprises. Con-
flict may arise if either party violates the terms of the concession
or if the government changes legislation, fails to acknowledge
agreements of previous governments, or imposes additional taxes
and conditions.
On an even broader plane, the multinational mining company,
together with the nonmining multinationals, can have a disruptive
influence on the functioning of the international monetary and
trade system. The recent currency crises have focused attention
on hot money movements; the predominance of intracorporation
transactions in trade may, at the very least, render adjustment
mechanisms less sensitive and limit free market operations. In
addition to raising questions relating to the prospects and implica-
tions of nationalization, taxation of multinational corporations
creates a number of difficult problems. The complexities of inter-
country differences in tax rates, definitions of taxable income, and
taxation principles regarding income accruing abroad are com-
pounded by transfer pricing practices which affect income alloca-
tion and government schemes of compensation for taxes paid
abroad. Bilateral tax treaties, mainly among developed market

3. John S. Carman, "Notes on Impediments to Mining Investments in the

Developing World" (prepared for the Meeting of the Association of Geo-
scientists for International Development,Bagauda, Nigeria, September 1975;
processed), p. 18.
 PROBLEMS OF MINERAL DEVELOPMENT | 137

economies, have provided a partial solution, but alternatives need

to be explored, especially with respect to operations in the develop-
ing countries.
An issue central to the conflict between the host country and
the foreign investor is the split of revenues. The arrangements
agreed upon will depend largely on the bargaining strengths of the
two parties at the time of establishing the frame of reference for
the foreign company's activities. The configuration of bargaining
power can vary considerably depending upon the level of develop-
ment of the mineral sector, the extent to which the existence and
economic value of mineral resources are known, the alternative
economic opportunities available to the country, and the changing
relationship between the foreign investor and the host country from
exploration through exploitation. Following is a brief description of
the relative negotiating positions of the parties at different stages
of mineral resource development, preexploration, preexploitation,
and postimplementation.

Preexploration
At the preexploration stage, there is frequently little or no
geological information available on the basis of which to evaluate
the mineral potential of a region. Investment must therefore be
made strictly with risk capital. Governments of developing coun-
tries have little or no surplus resources available for such invest-
ment. Because of the worldwide scarcity of exploration capital and
the number of different areas competing for it, the private firm,
particularly the large multinational firm, enjoys a strong bargaining
position. This position is further strengthened by the firm's ability
to offer scarce exploration know-how.
The major strengths of the host government in this situation lie
in its power to solicit bids from different firms and in the attractive-
ness of its terms and conditions relative to other countries. The
exploration booms of Canada, Australia, South Africa, and Ireland
in the past are attributable not only to the terms and conditions
available there but to the unfavorable terms and conditions of
other countries. The recent hardening of the terms imposed by some
of the provincial governments in Canada has already caused a flight
of exploration capital, a slowdown of the exploration effort, and
the cancellation of several concessions. A similar slowdown was
experienced in Australia around 1974 and 1975 with the hardening
of investment laws, and the cancellation of the twenty-year tax-
exempt period in Ireland has stemmed the flow of risk capital into
that country.
As there is no return on exploration activities alone, the multi-
 138 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

national firms will invariably try to negotiate as many of the

exploitation terms as possible before exploration. Given the high-
risk element of exploration, they must, under the basic rules of
corporate survival, negotiate terms which provide returns suf-
ficiently high to cover not only the successful exploration expendi-
ture, but also unsuccessful exploration activities in the same country
and elsewhere. Most host governments are reluctant to accept the
argument that successful mineral operations within their territories
should subsidize exploration in another country. At the same time,
they fail to recognize that the very exploration expenditures which
located their mineral reserves were subsidized by other successful
operations, possibly in other countries.

Preexploitation
The bargaining position of the government becomes stronger if
exploration conducted by or for it has succeeded in finding and
delineating economic mineral reserves. Although the multinational
firm is still needed for its expertise, marketing outlets and in most
cases capital, its bargaining position is weaker, for the government
will be in a position to invite competitive bidding for the project
by a number of firms. It is even possible (though only in a few
countries) that the government might proceed without foreign
participation. On the other hand, since the risk of investment at
this stage is considerably lower, the cost of capital is also signifi-
cantly lower; consequently, foreign firms may be willing to soften
their negotiating position and agree to enter into joint ventures
with nationals.
This raises the question of whether the economic and social
benefits which may be realized by a country through a better
bargaining position are greater than the cost of upgrading the
country's knowledge of its mineral potential and, if so, the extent
to which it should itself undertake exploration, and by what
method. The spread and hardening of nationalistic sentiments over
the past decade will force the mining firms to soften their terms.
(Many companies have already become more cautious in the
exercise of their power and more sensitive to their social responsi-
bilities.) But it may also stem the flow of exploration funds and
make firms more selective in their choice of areas. This trend has
already been apparent over the past decade, as evidenced by the
concentration of exploration in countries such as Canada and
Australia, although these countries are now following the develop-
ing countries in demanding greater national control over the ex-
ploitation of their natural resources. The reduction in exploration
 PROBLEMS OF MINERAL DEVELOPMENT | 139

funds also means that the developing countries, particularly those

in which there has been little development of the mineral sector,
will have to participate more actively in exploration if they expect
to improve their position in the world mineral markets.
Of perhaps greater importance than physical (geological) risk
is political risk. The high returns sought by foreign companies
coming in at a low level of geological information increase the risk
of potential confiscation and of legislative action designed to re-
duce their share of benefits at some later stage. Where, because
of better geological knowledge, a lower return is acceptable to the
foreign corporation, political risk is reduced and the development
of the mineral sector is facilitated. On these grounds alone, there-
fore, it seems desirable for a country to increase the level of its
geological information.

Postimplementation
After investment has been made and a mine is in production,
the bargaining power of the foreign investor diminishes consider-
ably. Some governments become oblivious to the risks under which
the capital was first invested, may ignore expenditures on unsuc-
cessful ventures, and are prone to look only at the level of company
earnings from successful operations. Often they request renegotia-
tion without taking into account the potential adverse effects of
such action over the long term-for example, the possibility that
it may discourage new foreign investment. The position of the
government is strengthened with the growth of the mining sector,
its increased geological and marketing knowledge, and its expand-
ing cadre of trained local personnel. The options open to the
foreign investors in the event of conflict at this stage are to refuse
to provide capital or managerial, technical, and marketing services;
to withdraw; or to call for support from their own government
in the form of guarantees or economic pressure. A number of gov-
ernments in developed countries insure their private investors
against political risks. The United States, Japan, and the Federal
Republic of Germany have offered such insurance for some years.
Eleven other countries (Australia, Belgium, Canada, Denmark,
France, Japan, the Netherlands, Norway, Sweden, Switzerland,
and the United Kingdom) have recently established insurance sys-
tems. Austria and Portugal have limited schemes. With the increas-
ing tension between host governments and foreign investors, there
has been a surge of interest in such programs. Perhaps the strong-
est weapon is the control of foreign corporations over markets.
For some minerals, this control is absolute, giving the country no
 140 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

alternative outlet for its product, although this situation is rapidly

changing. Because nearly all developing countries are heavily de-
pendent on external aid, however, their governments operate within
severe constraints, though the widespread sensitivity to accusations
of political or economic imperialism has made the threat of re-
prisals less significant than previously. The new sources of finance
from the recently enlarged oil revenues may significantly move
the balance of power in the direction of the developing countries
and away from the multinationals.

The Division of Benefits

The division of benefits between the host nation and the foreign
investor varies widely from country to country, mineral to mineral,
and project to project. The arrangements in any given case depend
on the relative bargaining strength of the two parties at the time
of negotiation, subsequent changes, and the attitude of the host
government towards private, particularly foreign, investment within
its territory. The early investors in mining in the developing coun-
tries managed to secure very favorable terms and conditions be-
cause investment opportunities were plentiful and pressure to
develop resources was low, so that the foreign investor could be at-
tracted only by very high potential returns. Consequently, a large
portion of the profits and revenues went to the foreign companies
and little to the host government. In the 1920s, for example, the
Chilean government's share of pretax profits was only 16 percent.
Furthermore, virtually all supplies were purchased from foreign
sources; a high proportion of the employees were foreign and re-
ceived salaries paid in foreign currency; and much of the output
was shipped as low value-added concentrate.
Over time, countries have sought to increase their revenues. The
first step has often been a change in tax laws, which could fre-
quently be achieved without violating the original concession agree-
ment. Increased taxes and retroactive taxation tend to create a
climate of uncertainty, however, which reduces the level of pro-
duction and the volume of investment. The copper industry in
Chile offers a good example: the government share of pretax
profits increased from 16 percent in 1930 to 28 percent in 1940,
58 percent in 1950, and 69 percent in 1965. During the period 1944
to 1955, Chilean copper production dropped from 540,000 tons
per year to 400,000 tons per year, while over the same period world
copper production increased by 20 percent. In constant prices, gov-
ernment receipts declined, although they rose in current values
 PROBLEMSOF MINERAL DEVELOPMENT| 141

because of the increase in copper prices. Virtually all profits from

the U.S. affiliates in Chile and other Latin American countries
were repatriated in the late 1960s, whereas in Canada, where a
high degree of tax certainty and political stability prevailed, almost
50 percent of earnings were reinvested. Greater tax certainty is
frequently a condition for increased investment, as illustrated in
Chile by the Frei government agreement with the copper companies
in the 1960s which provided a twenty-year guarantee on tax rates
as one of the conditions for considerable additional investment by
the companies. Long-term tax agreements (later abrogated) in Ire-
land resulted in a major influx of mineral exploration and invest-
ment capital.
There is a limit to how far a government can use taxes to in-
crease its share of revenues without becoming involved in the
control of heretofore corporate prerogatives, since the variables
determining the net profits to which the tax is applied are largely
under the control of the corporation itself. The corporation nor-
mally starts out with considerable leeway over the size of deprecia-
tion, depletion, and amortization allowances; the option of either
expensing or capitalizing exploration and development expendi-
tures; and significant control over the price used to value the
production, which is often an accounting item used for tax manipu-
lation purposes. The problems of taxation will be dealt with in
greater detail in chapter 6.

Government Intervention
in Foreign-owned Companies
Most governments are aware that changes in accounting proce-
dures and prices have a significant impact on tax receipts. Hence,
they seek to participate in decisions on production levels, account-
ing practices, pricing, and marketing. In some cases governments
have established an artificial exchange rate for the mineral sector,
which has the effect of imposing an additional tax on the com-
panies. Furthermore, governments may insist on posted prices for
valuing exports and taxes, and require that additional processing
of the raw material be carried out within their territory. Added to
these restrictions on the companies' freedom of operation (as they
perceive it) has been the increasing frequency of labor disruption,
sometimes political in nature.
To reduce investment risks in the developing countries and
sometimes to comply with legislation requiring varying degrees of
domestic participation in resource projects, an increasing number
 142 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

of mining companies have been promoting private domestic parti-

cipation or joint ventures with the government or government
agencies. The object is to facilitate the conclusion of agreements
with governments and to help assure their continued effectiveness
over the long run. An even more recent approach-one that is
particularly designed to minimize friction and disputes over the
split of benefits-is the phaseout investment under which owner-
ship and control by the foreign partner are phased out or sub-
stantially reduced in accordance with an agreed timetable. Mining
companies are adapting to the situation and have recently indicated
their willingness to provide technical and managerial assistance,
principally in return for assured supplies.
The long-term contract approach pioneered by Japan has al-
ready gained wide acceptance; it is attractive to both sides, since
it provides both security of supply and security of demand. Though
seductive in its simplicity, however, the approach delivers less
than it promises, for the security is neither long-term nor of equal
value to the partners. It is unlikely that in a dynamic world the
terms and conditions agreed upon at the time of signature will re-
main satisfactory to both sides for the duration of the contract-
which, in Japanese contracts, can run up to twenty years. For this
reason, long-term contracts have been described as "no more than
gentlemen's agreements to do business together;" 4 both sides must
understand that renegotiation of terms cannot be avoided. Further-
more, experience with such arrangements is limited; although the
current recession has put them to a severe test,5 the big test is
still to come. It remains to be seen how changed secular trends or
structural adjustments-for instance, a significant downward revi-
sion of the growth rate of the Japanese economy, or the urgent
desire to increase processing in the producing countries-will be
reflected in renegotiation of existing contracts. Finally, while the
security provided by long-term contracts goes a long way to reduce
conflict and to accelerate the flow of technology and funds (as
governments are more willing to make or guarantee loans), it does
not address the problem of finding equity participation fully and
directly. This problem and the attendant questions of, for example,

4. Bension Varon, "Coke and Coking Coal Availabilities: A Potential Prob-

lem or Not?" World Bank Staff Working Paper, no. 124 (Washington D.C.,
January 1972), p. 21.
5. Japan's difficulty in taking delivery of contracted quantities, especially
of copper, in the recessionary conditions of 1974-75-despite its sincerity
and vested interest in respecting the agreement-led it to renege on its iron
ore contracts with Australia and to sanction the export of copper metal,
which depressed world copper prices even further.
 PROBLEMS OF MINERAL DEVELOPMENT | 143

equitable return on investment, security of investment, and trans-

fer of earnings have to be addressed and solved simultaneously.
Even achieving the limited objectives of long-term contracts re-
quires prior and explicit agreement on a schedule for renegotiation
and the areas open to renegotiation. It requires, above all, the
narrowing of the confidence gap and the psychological abyss
referred to earlier in the chapter.
In the longer run, joint venture and phaseout agreements and
management contracts may become more common as the only
effective and feasible solutions acceptable to both sides. However,
they require that developing countries accept a much greater share
of the responsibility and risks and contribute more of their own
resources than they have in the past. A substantial degree of cau-
tion will also be required if the benefits hoped for are to outweigh
the additional economic costs. Additional funds must be made
available to host countries for private and public mineral invest-
ment, and the host country must know well in advance that it can
count on these funds when it needs them. The source of these
funds can be multilateral or bilateral aid agencies; the oil reve-
nues of the OPEC countries could be used to this end if suitable
channels can be established; and the banking and financial institu-
tions may be willing to provide funds given satisfactory returns
and guarantees. The policies of all these parties are not yet clear
and need to be ascertained. Some compromises definitely need to
be worked out in altering past policies, which attached greater
importance to the financial strength of the multinational sponsor
than to the viability of the project or the creditworthiness of the
host government. This would strengthen the domestic bargaining
position of developing countries and should result in agreements
fair to both parties, not only at the time of negotiation but over
the life of the agreement.

The Importance of Exploration

An important conclusion to be drawn from an analysis of the
split of benefits and the terms of concession agreements is that
geological knowledge of the country and the deposit is crucial.
Improved geological knowledge reduces the technical uncertainties
and provides the parties with a better basis for negotiating a fair
and long lasting agreement. Though the desirability of helping the
developing countries improve their knowledge of their mineral
resource base is clear, the flow of exploration funds to many of
the developing countries has been blocked by the hardening of
 144 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

nationalist sentiments over the past decade. From 1970 to 1973

more than 70 percent of exploration expenditure in the market
economies was concentrated in four countries: Australia, Canada,
South Africa, -and the United States. With the accentuation of
nationalism and the increasingly onerous tax legislation introduced
in Australia, Canada, and Ireland, however, there has been a
noticeable drop in exploration expenditure in these countries be-
tween 1971 and 1974. The only countries with increased expendi-
ture appear to be Brazil, the Philippines, and South Africa, and
the consensus is that total exploration expenditure in the non-
communist world has dropped since 1970, despite the increased
demand for minerals and the near certainty that additional demand
in the next decades can be met only by substantial new discoveries.
A large number of these discoveries will have to be made in the
developing countries and these countries, particularly those in
which there has been little development of the mineral sector, will
have to participate much more actively in exploration if they
expect to improve their position in the world mineral markets.
How does a country go about doing this? If it has a well-de-
veloped mineral sector, it can perhaps stimulate exploration by the
domestic private sector through a government share in the explora-
tion risk, perhaps through establishment of an exploration fund
which makes finance available to operating companies, getting re-
paid in successful exploration projects and absorbing the loss in
others. Some countries with well-developed mineral sectors, such
as the United States, Canada, Australia, and Brazil, have already
made use of such funds; so have other countries where the sector
is developing rapidly, such as Morocco and the Philippines. Bolivia,
Iran, and Thailand have been considering setting up such funds.
These national funds have different objectives: some are designed
primarily for the benefit of the small local prospector or company;
some conduct their own exploration; and others facilitate explora-
tion by large domestic and foreign mining companies. The tech-
nique has met with varied success but, if carefully planned, it can be
a direct and workable vehicle for encouraging exploration in devel-
oping and developed countries alike. One approach is to start from
the exploration fund concept and expand into full-fledged produc-
tion operations. Alternatively, countries with national operating
entities can direct revenues into exploration activities, or the gov-
ernment may allocate revenues obtained from the sector to the
funding of its own exploration program.
One of the more successful exploration promotion efforts is that
of the Quebec provincial government. After reviewing the various
alternative practices elsewhere in the world, the government of
 PROBLEMS OF MINERAL DEVELOPMENT | 145

Quebec established the Quebec Mining Exploration Company

(Societe Quebecoise d'Exploration Miniere, or SOQUEM) as a joint
stock company intended to promote mineral exploration and devel-
opment through direct participation in exploration activities on its
own account, for others, and in joint ventures. SOQUEM is a state
entity with full autonomy, operating in full competition with
and under the same legislation as the private mining companies.
In the ten years between 1966 and 1975, SOQUEM participated in
more than 200 exploration ventures, privately and in joint venture,
making four significant discoveries and acquiring three other pro-
spective properties. It should become a self-sufficient, revenue-gen-
erating entity by early to mid-1980s. Additional details on the
experience of SOQUEM are presented in appendix J.
In addition to increasing the exploration effort, a national ex-
ploration fund in a developing country will serve to introduce new
technology and know-how in exploration and in developing mining
operations, spur interest in exploration by local and foreign com-
panies, familiarize local mining companies with new management
techniques, and provide some coordination of the exploration
effort and assist in establishing a long-term development philoso-
phy for the sector.
A lesson to be learned from this and other experience is that
an aggressive approach to promoting exploration and follow-up
development through a fund of this kind may be superior to the
use of government subsidies. A program that operates jointly and
in competition with bona fide mining companies provides better
results than a government monopoly, and it is essential that the
entity be fully autonomous, with the ability to engage staff under
conditions fully competitive in the industry. A major problem,
however, is that in the majority of cases the developing country
has neither the funds nor the expertise to conduct its own explora-
tion program. It is important to point out that Can$45 million
was allocated from the government budget to sOQUEM. This points
to the need for financial institutions, bilateral and multilateral, to
provide assistance, including assistance in establishing adequate
institutional arrangements to monitor the sector. Governments
should be aware, however, that unless they can carry out the
exploration as efficiently as private entities, their direct participa-
tion at this early stage may result in lower returns to the country.
There are many pitfalls in the use of foreign aid for promoting
mineral exploration.
A novel approach now used in Peru and Bolivia for petroleum
exploration and in Indonesia and Iran for mineral exploration is
exploration by private parties, often the large multinationals, under
 146 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

contract to the government. The mining companies have indicated a

willingness to do this. One company offered to undertake the full
exploration and feasibility work on a deposit at its own expense in
return for assurances of a management contract (if a project results)
and a portion of the mineral output. More and more concessions are
negotiated in two stages: the first for exploration only, with broad
guidelines for the terms of exploitation; and the second for exploita-
tion of any deposit discovered, negotiated with full knowledge of
the mineral resource, often only after completion of a detailed
feasibility study. But the approach is only applicable to countries
with a well-established mineral sector or considerable geological
information. Countries with little geological data and an unde-
veloped mineral sector have considerable difficulty in interesting
foreign private capital in exploration of their territories. The basic
geological mapping (infrastructure geology), and grass roots ex-
ploration will remain the responsibility of the state.
In most of the poorer developing countries and those with little
mineral sector development, there has been little or no exploration
activity. These countries, given their limited financial resources and
the competing demands upon these resources, cannot afford to
invest in the risky business of mineral exploration. Revenues from
mineral production could enable some of these countries to make a
quantum jump in economic growth. Yet the present state of knowl-
edge of their mineral resources is limited; foreign mining com-
panies will not go in without some indication of the existence of
significant occurrences of minerals of special interest to them; and
the governments themselves are unable to take the necessary first
steps.
Some assistance has been extended to these countries since the
war through bilateral programs and, since 1961, from the United
Nations through the UN Development Programme. The latest at-
tempt to supplement this assistance is the creation of a UN Natural
Resources Exploration Fund, mentioned in chapter 1, which should
help accelerate the exploration effort of the developing countries.
However, the ultimate efficacy of the fund is very uncertain. It
still has not been possible to solicit significant financial support, and
even if the targeted level of expenditure of $20 million a year were
achieved, this program and the present levels of bilateral assistance
will fall far short of meeting the future exploration needs in the
developing countries. Their needs are estimated to be considerably
more than $100 million a year (for the nonfuel minerals) and will
require significant increases not only in multinational, bilateral, and
national expenditures but also in private risk capital expenditures of
 PROBLEMS OF MINERAL DEVELOPMENT | 147

the foreign and domestic mining companies. Mineral policy, both

national and international, as well as the attitudes of consuming
countries, must be directed toward this end.

The Pitfalls of Foreign Aid

Expanded aid programs are clearly required because of the major
exploration gap in the developing countries. While there are many
examples of excellent past or ongoing aid programs by multilateral
and bilateral agencies, however, some of the aid now provided is
inefficient and ineffective. Some of it is poorly designed and planned
and even more poorly implemented; lack of coordination between
the various aid agencies is common, duplication of effort noticeable,
and costs frequently unnecessarily high.
The shortcomings of aid programs have been the subject of regu-
lar attention by the UN Committee on Natural Resources which has
had "the coordination of programs within the United Nations sys-
tem in the field of natural resource development" as a permanent
item on its agenda for several sessions. While considerable progress
in this area is reported, "drawing a comprehensive plan of action"
for this purpose-a long-standing objective-has eluded the com-
mittee so far.6 There are encouraging signs that the problems are
becoming widely recognized by technical experts from both donor
and recipient countries and, equally important, that the experts are
willing to talk about them candidly. A recent example is provided
by the International Workshop on Earth Science Aid to Developing
Countries held at Memorial University, St. John's, Newfoundland,
in May 1974.7
Many experts at the workshop pointed out that response to re-
quests for assistance is generally not as rapid as it should be because
of red tape in donor and recipient organizations. Delays of several
years between initial requests and inception of programs are far too
common. Many of the aid programs are being handled by agencies
"locked into the format of their own paperwork." The earth scien-
tists who work with them should be constantly trying to adapt to

6. See United Nations, Committee on Natural Resources, Report on the

Fourth Session (March 24-April 4, 1975) (E/5663, E/C.7/56) (ESCOR, 59th
sess., supp. no. 3), p. 32.
7. For the proceedings, see A. R. Berger (ed.), Geoscientists and the Third
World: A Collective Critique of Existing Aid Programs, Geological Survey
of Canada, Paper 34-57, 1975.
 148 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

new changes in Third World conditions "otherwise we are trying to

solve what are really tomorrow's problems with yesterday's tools,
and worse yet with yesterday's paperwork!" 8
Effectiveness of the aid is sometimes diluted by actions of the
recipient. The use of counterparts to supplement the foreign experts,
frequently required for external or internal reasons, can have a
major influence. Equipment may be badly treated and operated,
geologists may introduce ploys to avoid going to the field, misin-
terpret data, and do substandard work. The reason generally is not
laziness, as is often claimed, but lack of motivation (because of
inadequate pay which forces professionals to hold down two or
more jobs), lack of opportunity to gain experience and competence,
lack of equipment and facilities, and especially the social norms of
some host countries. A clean hands attitude in many countries
makes the job of sweating up a ladder as a shift boss or braving the
elements as a field geologist unattractive. This is a major problem,
since efficient exploration requires highly qualified and experienced
geologists in the field; a good geologist can make the difference be-
tween a discovery and an unsuccessful exploration program. Fur-
thermore, the selection of counterpart staff may be based more on
political than technical grounds.
The training part of the aid is often overplayed and misdirected.
Too often it provides fellowships for graduate study by profes-
sionals, most of whom would be better served with practical on-
the-job training. Many fellows do not return home, and those
countries with the greatest need for a cadre of experts have no
candidates qualified for the fellowship programs as designed. Re-
structuring the training to serve the long-term needs of the sector
rather than the immediate project requirements would ensure better
use of the funds. Practical training of skilled labor and subprofes-
sionals can have immense long-term benefits.
The unavailability of counterpart financing and contribution in
kind causes significant delays in aid programs. This touches on the
real objectives of some of the aid programs as perceived by the
donor. In many cases aid has been provided without regard to the
benefits to, or the aspirations of, the recipient. The construction of
uneconomic, small-scale smelters, the development of underground
deposits in place of more competitive surface deposits, and explora-
tion programs geared to specific minerals (often those needed by the
bilateral donor) rather than a broader program more useful to host
governments are all examples of less than honest aid programs.

8. Ibid., p. 7.
 PROBLEMS OF MINERAL DEVELOPMENT | 149

By and large, insufficient care is given to adapting the aid pro-

gram, particularly the technology, to local conditions. To illustrate,
in many of the developed countries the large-scale geological map
has often provided the takeoff for detailed exploration. For the
poorer nations, however, such maps are a luxury they cannot afford
and accelerators have to be sought which, though perhaps not tech-
nically as satisfactory, can develop sufficient data to attract the
needed capital fairly quickly. Similarly, making airborne geophysi-
cal measurements over very large areas is entirely reasonable in a
developed country with plentiful capital, but to do so over tropical
rainforest burdens the government with the impossible and ex-
pensive task of follow-up work on the ground, without which the
airborne data cannot be interpreted and would go to waste. Groups
often promote major regional geophysical surveys without mention
of the time-consuming and costly follow-up work required.
Under most of the aid programs the cost of expertise is very high,
sometimes up to three times what the expert earns at home. Hence,
since most programs are financed by loan, even though on soft
terms, the developing country often does not get a bargain. In fact,
exploration costs in the developing countries are often considerably
higher than in the developed ones. Many programs also seem more
geared to providing the expert with data for a doctoral thesis than
to mineral development.
This raises the question whether some of the aid agencies are as
deficient as the multinationals in social consciousness. As empha-
sized above, many of the former's aid programs are ill conceived and
designed for phases so preliminary that the end product cannot
support economic development decisions. The multinationals are
much more investment oriented. The aid agencies, bilateral and
multilateral, are often too rigid in their approach and their pro-
cedures too bureaucratic to service the needs of the developing
country.
Vast improvements in aid to the developing countries for mineral
sector development can be realized by coordinating the activities of
the various parties, the bilateral and multilateral agencies, the multi-
nationals, the national agencies, and local mining industry. This re-
quires preparation of a sector development strategy, a conscious
determination by the host government to implement this strategy,
and good administration. Many developing countries unfortunately
do not have the expertise or resources to prepare, implement, or
administer such strategy. One of the other parties therefore has to
take the lead in a professional, unbiased manner.
Mineral sector development, especially the promotion of explora-
tion by the host government, requires funds from sources other than
 150 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

the traditional multinationals. Most developing countries can ill

afford to supply these funds from their own coffers-which leaves
the multilateral and bilateral aid agencies as possible sources. The
use of these sources, however, can have many pitfalls; developing
countries should be cognizant of them and incorporate appropriate
safeguards. Nevertheless, in our opinion, a major increase in multi-
lateral and bilateral aid is needed to promote mineral exploration
and development in the developing countries.
It is also of paramount importance not to overlook the already
significant opportunities for cooperation among the developing
countries, not only in training and research and development, where
joint facilities may be established, but in all areas, including process-
ing, where economies of scale and similarity of problems or com-
munity of interests may make them logical long-term partners.
Other opportunities for such cooperation will be cited in the next
chapter. Here, too, aid agencies and the UN regional commissions
can play a useful role as catalysts.
Finally, both bilateral and multilateral programs have a role to
play, and each has its different advantages. As noted in the proceed-
ings of the St. John's Workshop, bilateral programs often give
more control over projects to the recipient country and are thus
especially useful in aiding institutions. On the other hand, they are
more subject to the political views of the donor's country; tied to the
donor's products, equipment, or personnel; and too little concerned
with the follow-up stage. Multilateral programs are bound to be
relatively apolitical and thus perhaps best suited to large mineral
exploration projects, but a common criticism is that they are often
less precise and well-planned than bilateral projects and suffer from
the differences in background of the team members. Obviously,
"there can be no single blueprint for aid to developing countries."'

9. Ibid., p. 4.
6 Objectivesand Policies
of Mineral Sector Development

IN THIS CHAPTER we set forth the institutional and policy steps we

believe should be taken for establishing and administering a min-
ing sector. The rather ambitious and many-faceted plan we describe
raises two questions. One concerns the ability of any emerging
country to deal with its mining sector on such a sophisticated level;
this may, by extension, lead to questioning the relevance of the
whole plan. The other concerns the appropriateness of describing
a system as if it can be divorced from the political and ideological
framework with which it will ultimately interact.
We would like to point out first that establishing a mining sector
is a difficult undertaking whose requirements cannot be scaled
down arbitrarily to fit the limited resources of a developing country
if the operations are to be competitive in the long run-for mineral
development is a long-term investment whose benefits to the coun-
try stretch far into the future. Second, our blueprint is in the nature
of guidelines which have been shown to lead to efficiency. Efficiency
ought not to be the prerogative of developed nations; it must
inform the actions of any government involved seriously in mineral
development no matter what the specific political context.
We are painfully aware of our failure to describe the particulars
of mining development in centrally planned countries and the way
their experience might be applicable to new nations. But in our dis-
cussion below, while being didactic on what steps should be taken,
we do also deal with alternative ways of implementing these steps,
depending on a country's political and structural preferences. We
do so, however, within the bounds of the mining sector. While we
do address ourselves to the requirements for establishing and op-
erating a successful mining industry under central planning and
state ownership or control, we do not consider the case where

151
 152 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

the entire economy is centrally planned and integrated into other

centrally planned economies through a network of commercial and
political agreements. Under such conditions, the determinants (even
definition) of savings, investment, risk, prices, and trade are sig-
nificantly different. The overwhelming reason for excluding the
centrally planned economies from the analysis in this chapter,
however, is that the information base is not nearly as complete as
that obtaining for the market economies. To proceed on a sketchy
basis might lead to wrong conclusions about the nature and per-
formance of the mining industry in centrally planned countries and
therefore to an unjustly distorted profile.
One further clarification is needed: many of the areas for action
outlined below have been highlighted individually by others before,
perhaps more effectively. What we hope to achieve by bringing
them together here is an outline of the total role that public and
private policy must assume in developing a viable mining sector.
We wish to emphasize that, in addition to thoughtful action at each
step, a concert of steps is required.

The Objectives
Mineral development in any country, whether developed or de-
veloping, constitutes only one element of total national development
and must therefore be structured to fit into the total economic de-
velopment plan. The broad objectives of mineral development can
be categorized as follows: to ensure optimal use of available mineral
resources; to earn or save foreign exchange; to create employment
(direct or indirect), often in remote or depressed areas; to promote
backward and forward linkages (service and supply industries and
processing of raw material) in order to maximize value added within
the country, to the extent that it is economically sound; to ensure an
adequate supply of raw material inputs for industry; and to stimu-
late regional development, often in remote areas.
Figure 16 is a diagrammatic presentation of the mineral policy
objectives of Canada by that country's Assistant Deputy Minister
for Energy, Mines, and Resources. We are including it here not as a
model-the sectoral objectives appropriate to individual countries
depend on national economic, social, and political goals which
transcend those of one sector alone-but to illustrate that there are
many basic objectives shared by all producing countries, developed
or developing, in terms of sovereignty, economic growth, and
quality of life.
 OBJECTIVES AND POLICIES 153

FIGURE 16 | CANADIAN MINERAL POLICY OBJECTIVES

< 9\ \\ contribution of / -1.\

/ 2-Relate \mnrl to /ontribt s
S /ur>,: inera l
mean
D\oee h andf ordera' Mnrl Rsuc,"a
The
Elemntsofae eNl ational mineral
Polic

o developin
mineralpolicy.eto in te madevelopr ontres n
/ /adverse \ \ /arketingsl-er 8 \
p has bffets
f minera t d are mid tion in ho b
and development on the efen
mineral rad
directed,o inment fe b develof e ene
polic.Obtain optimum
As
afirststep in thbebe f C ofr
nefit anad a Harmonize l
mmrlsctor lfrom present and resoultipe l
j future use of development
mineralsl I
\ S~~trengthen improve
\ knowledge < inrl 7 /
\ base for Mosrvto

\ decisio- /Incrae \and use ,

\ makin/Esr the \Realizeoppr /
\w / ~~miea retr tunities
\ V supply for Candia furtherm er//
\ national / from .
\X needs / exportable\processin X

Source: Jean-Paul Drolet, "The Demand for Canada's Mineral Resources," paper
presented at the International Symposium on Canada's Nonrenewable Resources,
Toronto,March25, -1974.

The Elements of a National Mineral Policy

To attain the goals illustrated in figure 16, a nation must have a

nmineralpolicy. Yet in the majority of developing countries no such
policy has been formulated; decisions are made on an ad hoc basis
and development of the mineral sector is often sporadic and ill-
directed, at times even forfeited by the absence of a clearly defined
policy.
As a first step in the formulation of a national mineral policy,
 154 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

the country must decide whether to develop its mineral sector on

the basis of a private, public, or mixed system. The selection of one
of these options, or a combination, should take into account not
only political and social considerations but also the exploration,
operating, and marketing characteristics of the sector. In practice,
political judgments may prevent policymakers from considering
anything but political factors, regardless of the long-term conse-
quences. This can present an unfortunate obstacle to effective
development of the mining sector unless there is scrupulously good
management. While national sovereignty over natural resources
is the governing principle, the nation can choose to exploit its re-
sources in many different ways between the two absolutes of gov-
ernment monopoly and all-private development. In the case of state
development, effectiveness will depend wholly on the ability and
effectiveness with which the state can plan, provide technical and
managerial expertise, commit financial resources, and secure mar-
kets. Development under the private sector depends for its success
upon more detailed considerations, given its more fragmented situa-
tion. These include consideritions of the following nature, many of
which also apply to the state monopoly situation.
First, there should be a clear definition of the terms and condi-
tions of operating practices, employment, training, ecology, safety,
fiscal and legal requirements, and land tenure, under which a min-
ing company-domestic or foreign, public or private-will be ex-
pected to function.
To help assure maximum returns to the country from a given
mineral resource, the relative economics of processing the mineral
domestically and exporting the raw material should be carefully
evaluated.
Expansion of domestic ownership and control of mineral re-
source industries is the prerogative of a country, but it should take
place on a clearly defined and well-publicized basis in order to maxi-
mize the country's share of the benefits derived from its mineral
resources. The rate of such expansion will depend on the need for,
and extent of reliance on, foreign technology, management know-
how, capital, and markets.
Mineral policy should provide for mineral conservation measures,
increasing orebody recovery and minimizing waste. The fiscal
regime can have an important influence on the efficiency of the
sector and the extent of resource waste.
Provision should be made in the formulation of mineral policy
for procurement, maintenance, and dissemination of geological and
mineral resource data. Such information is expensive; it should be
 OBJECTIVES AND POLICIES | 155

carefully collected and used to prevent the duplication of explora-

tion activity.
Mineral policy should encourage land reclamation and the elimi-
nation or control of air and water pollution. Environmental control
in mining is of increasing public concern; it is generally accepted
that the cost of that control is a component of operating costs, and
therefore can be passed on to the consumer. While this may not be
the case yet, over the long term, countries imposing reasonable eco-
logical requirements are not expected to be at a disadvantage when
competing for investment capital and markets.
Mining can often, on the one hand, serve as a basis for regional
development, and provision may be made for it in mineral policy
(through tax allowances as investment incentives, for instance), par-
ticularly in countries with wide regional disparities. On the other
hand, mineral deposits by their very nature become exhausted, and
the facilities and communities which came into existence because of
them may cease to have a purpose. This has often led to community
pressures to keep submarginal mines in operation, at great cost
to the country, with inefficient use of labor, and a decline in the
overall efficiency of the industry. Mineral policy should provide
for programs to ease severe dislocations and to facilitate adjustment
to change in case of mine closures.
Being frequently situated in remote areas, mineral projects often
have significant new infrastructure needs such as housing and com-
munity facilities, roads, water power, railway, and ports. Mineral
policy should provide guidelines for determining whether responsi-
bility for the infrastructure lies with government, the private sector,
or both. The government may wish to supply it in order to maintain
control over public utilities, freight, and social services, and to in-
crease its share of project benefits through rent on facilities. Often
the responsibility is shared by the investor and the government.
Project evaluation should take account of the cost of associated in-
frastructure and of the catalytic effect of such infrastructure on
regional development apart from mineral development.
Mineral exploitation should be accompanied by adequate pro-
vision for training and employment of indigenous personnel.
Mineral policy should ensure that mining provides the host
nation with an equitable share of the revenue from such activities.
Furthermore, the nonrenewable nature of mineral resources makes it
essential that government revenues from mineral resources ex-
ploitation be channeled into continuing productive investment in
industry, agriculture, and supporting infrastructure. In many cases,
the foreign exchange earnings from mineral exports go into the
 156 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

purchase of consumer goods; mineral tax revenues are used to sup-

port the government's current budget; and alternative productive
capacity or revenue-earning facilities are not installed to take over
from the depleted reserves.

Steps to Implement a National Mineral Policy

In contrast to the past, when multinational companies took the

lead in setting standards for mineral policy, particularly in the de-
veloping countries, the host government is now considered to have
primary responsibility for carrying out national mineral policy.
Government action includes determining and executing policy
through the preparation and promulgation of legislation and estab-
lishment of institutions and administrative framework to carry
out mineral sector development. Mineral resources are of such sig-
nificance for the national economy of many countries that they
require specific legal status. Legislation for them should include a
mining code and a special taxation regime compatible with existing
investment codes and social laws. Exceptions should be clearly
legislated.
Any plan of action for effective mineral sector development re-
quires a factual basis. An inventory of the mineral resources is
fundamental; hence, knowledge of the geology and mineral occur-
rences is a prerequisite. One of the first tasks, therefore, is to pre-
pare a geological map of the entire country. Systematic geological
surveys should be carried out and detailed mapping undertaken.
The preparation of basic documentation of geologic and related data
should be the responsibility of the state. Documentation of non-
geological mining sector data is also required to keep abreast of
activities within the country for supervision, planning, and control,
and also of worldwide technological trends and devolpments. Labo-
ratories for testing and analysis of rock and mineral samples are
an early requirement. Research and development facilities are gen-
erally a subsequent and more advanced need.
In the field, in the laboratory, in the administration, and in opera-
tions, mineral resource development requires highly specialized per-
sonnel. The growth of the industry calls for a continuing flow of
geologists; mining, metallurgical, mechanical, and other engineers;
and financial and other technical men keyed to the industry. Any
deficiency of trained personnel will compound the difficulties of the
industry. Foreign experts may be hired to train local personnel,
teach in local universities, and undertake actual field work. Mining,
metallurgical, and geological education may be provided in the
 OBJECTIVES AND POLICIES | 157

country, preferably by a shortened university term followed by a

period in the field to provide a blend of theory and practice.
Scholars may be sent abroad for post-graduate and specialized
studies. A technological institute may be established at far less cost
than a university or college to produce in a much shorter time a
larger number of semiprofessionals for positions of secondary re-
sponsibility. Education in specialized fields may be provided with
the assistance of multilateral and bilateral agencies.
The government, therefore, needs to set up six or seven admin-
strative nodes. First, a policy, planning, and administrative agency is
required. This usually means a Ministry of Mines, although it may
be combined with Energy or with Transport or Economic Develop-
ment. Second, an institute for geological survey is needed, often set
up as an autonomous agency but under the direction of the Ministry
of Mines. Third, educational facilities are a vital requirement.
Separate departments need to be established and staffed in the local
universities. Fourth, a research and development institute may be
required to undertake research and provide technological assistance
to the sector. Fifth, in countries where there is a strong desire to
develop mining under the administration of the state, government-
owned enterprise is the logical arrangement. Sixth, it is often neces-
sary to provide channels for financing the sector. This may entail
setting up a separate mining bank, or opening a "new window" at
the development bank. Seventh, the government may also wish to
centralize the marketing functions to strengthen its role as con-
troller and coordinator.
Let us now examine each of these administrative structures in
greater detail.

The Ministry of Mining

The Ministry of Mines or Mining is often a large, bureaucratic,

and ineffective institution. It may suffer from overstaffing, low
salaries leading to an inability to attract qualified personnel, inade-
quate budget, incorrect procedures, lack of planning and inability to
formulate policies or monitor relevant legislation, and ineffective
decisionmaking.'
Whether mineral development is through a private, public, or
mixed system, an effective Ministry of Mines is needed. Planning

1. The description applies to other ministries as well. Normally a change

is possible only on a national scale.
 158 T
IHE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

and coordinating current operations and future development should

be among its primary responsibilities. Yet these are the functions
most commonly lacking, usually because of poor staffing. To plan
correctly, a highly qualified multidiscipline staff is required. The
staff should be capable of: assessing mineral potential; identifying,
preparing, and evaluating projects; establishing priorities; formu-
lating long-term plans, including all technical, financial, and
managerial aspects; and implementing and supervising such plans.
People with such qualifications are scarce worldwide, and the few
in the developing countries can command much higher remunera-
tion in the private sector or in senior government administrative
positions (often outside the mineral sector), particularly in view of
the low salaries offered by the ministries. Staffing of the planning
units which do exist is generally inadequate. Although some of the
staff may have sufficient academic qualifications, it is rare to find
many with sufficient practical experience. Lack of experience fre-
quently makes it difficult for the staff to relate to the reality of the
industry, and the assignment of sector priorities may appear a be-
wildering confusion. The linkages between projects are often
ignored, as is the dependence of mining and processing operations
on infrastructure. All too often political considerations override
what should be strictly technical considerations in the assignment
of priorities.
Planning for mineral sector development must be coordinated
with the development of other sectors in accordance with set
priorities. This requires a team approach. A group of mining engi-
neers alone will not suffice; engineers in mining and metallurgy,
financial analysts, and economists are needed; to complete the team,
transport, power, water, and ecology experts are also needed.
Though mounting a full, integrated team can be justified for a large
country or one with an important mineral sector, for a small coun-
try or one with a small sector, this is obviously more difficult.
Regional cooperation or heavy reliance on technical assistance is
often required.
Apart from the planning function, effective documentation of
data is often absent. Of course, many of the developing countries
cannot afford the expensive electronic data-processing facilities
used by some of the ministries in industrialized countries; but sim-
ple and workable methods can be established-and with relatively
low-cost clerical help. Up-to-date and accurate data can provide a
very large payoff in terms of improved planning, better decision-
making, and control. Regrettably, the establishment of a docu-
mentation center is often viewed as a way of establishing a library
 OBJECTIVES AND POLICIES | 159

rather than a data base; where a data base is established, an effec-

tive retrieval system may be lacking. Care must be taken to ensure
that documentation does not become an end in itself; it is justified
only to the extent that it is useful in establishing policies and
monitoring the sector.
Supervising compliance with the mining legislation is an im-
portant and, sometimes, the only function of a mining ministry
but, sadly, one which is often neglected. Exercising this function
properly entails issuing exploration and exploitation licenses,
policing safety and health regulations, ensuring observances of laws
relating to the use of surface facilities, collection of royalties, issu-
ing export licenses, and carrying out all other requirements of the
mining code and related legislation.
The organization of a Ministry of Mines must be designed to fit
the functions assigned to the ministry and the structure of the
sector as a whole. It is not advisable to generalize beyond noting
that a smaller staff is often preferable to a larger one (the problems
of countrywide unemployment need other solutions) and decen-
tralization of decisionmaking and authority is preferable to centrali-
zation, although a strong coordinating mechanism is a must. In
several instances one is confronted with a situation where the
sector and the ministry are administered on the premise of mistrust
-a situation which can lead to excessive centralization and in-
tolerable work conditions. Good people will not stay long under
these circumstances. Drawing up or reviewing the organizational
structure of the ministry requires careful consideration.

The Geological Survey

Beyond doubt, it is the responsibility of the government to sup-
ply basic geological data and maps, and to carry out the infrastruc-
ture geology without which detailed exploration surveys will be
retarded. Since mineral deposits are a consequence of their geologic
environment, a geological survey of an area can give a good
understanding of the broad characteristics of its mineral resources.
Good knowledge of the geologic environment of the country pro-
vides an appropriate framework for planning.
Most countries with a mineral sector of any significance have
an established agency for geological surveying, commonly referred
to as the Geological Survey. The Geological Survey should carry
out a continuing program of background survey work and, in addi-
tion, collate the geological data obtained from surveys by private
 160 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

parties or other public agencies. Evaluation of mineral resources

starts in the field and proceeds to the laboratory, requiring facilities
to undertake tests and analyses. Such laboratories must be staffed
by competent personnel and have modern equipment. Apart from
engaging in basic geologic surveys and mapping (geological, topo-
graphical, and metallogenic maps), the Geological Survey should
also act as a repository for all geological information available
within the nation. It may also have a department for conducting
mineral exploration on behalf of the government, or under contract
for third parties, public or private. This, however, is a responsibility
better delegated to another agency, if possible; if not, it must not be
allowed to interfere with the basic function of a Geological Survey,
namely, mapping.
Generally, the problems of staffing a Geological Survey are less
formidable than those encountered by the Ministry of Mines. There
are more suitably qualified geologists; the jobs tend to provide
greater satisfaction; and the alternatives-except in an area under-
going an exploration boom-are not as many or as lucrative in rela-
tion to the number of available professionals. Nevertheless, agencies
still suffer from the clean hands attitude discussed in the previous
chapter, making it difficult to recruit good field geologists.

A Mining Bank

Large-scale mining projects have such large capital requirements

that financing must come from international sources. Medium and
small-scale mining operations, however, encounter difficulties when
trying to tap these sources and often can be financed only from
within the country. While the commercial banks will provide fi-
nancing for working capital, they are not usually prepared to extend
credit for capital investment. In some countries this gap may be
filled by the development bank, if one exists, or alternatively, by a
mining bank set up for this purpose.
Too often, the mining bank becomes a political pawn which loses
sight of its objectives. Confusion arises over whether the bank is a
source of finance for sector development or a channel for govern-
ment subsidies to the small-scale mining operations. To assume the
latter is wrong. A mining bank should be a financially viable entity
with a well-qualified staff, autonomous both financially and mana-
gerially. Recipients of loans should be creditworthy companies
with technically and financially viable operations and projects. If,
on company and project grounds, a subsidy element is called for,
the government should seriously review the economic justification
 OBJECTIVES AND POLICIES | 161

for supporting what may amount to a nonviable proposition. If the

government nevertheless wishes to extend assistance on political
and social grounds, this should be done by means other than the
lending operations of the mining bank.
By its very nature, medium- and small-scale mining may need a
significant technical assistance input to justify financial support.
Hence, the mining bank will have to be organized and staffed to
assist in project preparation and evaluation, to conduct in-depth
project and company appraisals, to introduce new managerial and
financial control systems, to supervise project implementation, and
to provide the small mine with continuing technical assistance.2
A mining bank is not an absolute necessity. If an efficient devel-
opment bank already exists, opening up a "mining window" within
this bank can serve the mining industry just as effectively and
probably at much less cost. Commercial banks, too, may be pre-
pared to channel capital funds into the small-scale mining sector,
although they will not provide the necessary technical assistance.
Care must be taken not to inundate a country with too many spe-
cialized banks.

The State-owned Operating Company

If the state wishes to form a state monopoly to exploit its mineral

resources, or to participate in the exploitation with the private
sector, it can set up a wholly government-owned but autonomous
company. In free enterprise nations, this entity would be most
effective if established as a stock company operating under the same
rules and regulations as a private company. The company pays taxes
as any other company, transfers earnings to the government only
as dividends, is free from political interference in its day-to-day
operations, recruits staff on a professional basis, and is headed by
people who, though they may be political appointees, bring high
professional competence to the job. The company should be ac-
countable to its board (made up of representatives of the govern-
ment) for its profitability, investment program, and production per-
formance, as any private entity would. A rigorous cost-accounting
and budgetary system should be implemented. Salaries should be
competitive with the private sector (if it exists) and job motivation
fostered.

2. The particular characteristics and problems of the small-scale mining

sector are given more attention in appendix K.
 162 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

A state company can function in several ways: it can operate

as an individual producer; it can operate in partnership with a
private company (joint venture), taking a majority or minority
position with an active or passive role in management; it can func-
tion as a holding company with the operating units set up as
wholly or partially owned subsidiaries; or it can purchase equity
interest in the mining companies on the capital markets (this
alternative is available only in the industrialized or more advanced
developing countries).
Obviously, as nations move toward national control of natural
resource development, state companies will become more prevalent.
This raises the crucial issue of forming and staffing the companies
correctly. In cases where the companies are formed by nationalizing
the multinationals, every effort should be made to keep on the
essential staff and minimize attrition. If a large number of expatri-
ates are among the staff of the nationalized company, their phase-
out should not be premature, but planned over a sufficiently long
period to allow the training of nationals. Another means is to con-
tract a firm to manage the operations under a management con-
tract on the basis of a phaseout arrangement providing for the
training of nationals.
Political pressure often prohibits the use of expatriates or
foreign management teams which works to the detriment of the
new company. Going it alone becomes a costly exercise in terms
of incorrect project design; incorrect process selection; two-, three-,
four-, and even five-year delays in project implementation; sub-
stantial cost overruns; and even project failures-all this because
of the refusal to accept foreign technical and managerial assistance
when it is truly required. Some countries have suffered considerable
economic harm in consequence. Even when foreign experts are
brought in, they are often confined to advisory positions and are
unable to influence the operations, with the result that they are
ineffective through no fault of their own. Foreign experts must
have the full support of the management and, if necessary, be
assigned to line functions. For some tasks it may be necessary to
engage a team of experts to establish functional units dealing with,
for example, cost accounting and budgeting, project preparation
and planning, or specific technical problems. Foreign experts can
also be engaged on a retainer basis as idea men and problem
solvers. Of course, many problems can be avoided through joint
venture operations where the partner, often with minority interest,
is assigned full management responsibility. Again, a phaseout
operation should be encouraged in the long-term interest.
 OBJECTIVES AND POLICIES | 163

A state-owned company must have managerial and financial

autonomy.3 Employment policies must be competitive with the
private sector; otherwise the entity may prove merely a costly
training ground for the private sector.

Marketing
The role of the state in the marketing of minerals will vary
according to the economic system of the country. Even in the
private enterprise system, however, the state generally plays a
role in marketing the mineral products, particularly from the
small-scale producers, who are widely dispersed and too small to
conduct more than elementary beneficiation of the ore. The state
can play an important part by providing regional or mobile con-
centrating plants, setting up a network of collection points and
the necessary infrastructure to get the product to the marketplace.
While medium and large-scale producers are generally adept at
marketing their own products, governments are increasingly de-
manding a role in the marketing functions, even to the extent of
setting up a state marketing monopoly through which all mineral
sales transactions are handled. The rationale for this trend is the
state's desire to exercise fuller control over its export earnings and
over foreign exchange flows. But the ramifications of this ought to
be taken into account. It should be remembered, for example, that
the marketing agents who have traditionally performed this role
have usually also been important sources of short- and medium-
term finance for the small- and medium-scale mines. To replace
these with a state monopoly can mean drying up this source of
finance, which may retard the growth of the sector unless substitute
sources are found. In addition, the viability of many large-scale
projects depends upon the captive markets or market infrastructure
provided by the project sponsors; financing of many large projects
is often tied to special marketing arrangements, reciprocal agree-
ments, repayment in kind, and firm marketing contracts. The taking
over of marketing by the state is not a viable proposition in every
case. Short of government takeover of this function, control can
be exercised by laying down the ground rules (in terms of the level
of domestic processing required) including the basis for establish-
ing prices (London Metal Exchange quotation, and Metals Bulletin

3. The government of course retains the final say since it appoints the
top managers.
 164 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

or Metals Week quotations, for instance), and by exercising the

right of prior approval of all sales contracts. 4
Setting up a state marketing agency, whether it is to market part
or all of the production, requires special care and caution. The
marketing of minerals is a highly specialized field where inexperi-
ence and mistakes can be very costly. Simple mistakes can bring
penalties many times higher than the charges of the international
marketing agents. The cost of merely setting up a fully integrated
marketing agency with foreign offices can be immense. A less costly
and often more practical approach is to subcontract some of the
marketing responsibilities or employ commission agents in the
principal markets. The marketing arrangements for each mineral
should be reviewed independently, since arrangements suitable
for marketing one mineral are not necessarily those most suitable
for another. Before taking any steps toward setting up a state
marketing agency, therefore, an in-depth study is required. Market-
ing proposals should be analyzed on technical, financial, managerial,
and economic grounds, much as a project is evaluated. In most
cases foreign experts will be needed to assist in such a study and
in the establishment and early operation of the agency.
In setting up a marketing agency, several pitfalls must be
avoided. Transition from a free marketing system to one under
state control should be gradual and planned. This may mean taking
over the marketing of one mineral at a time. During the transition
period, the private companies already in the country may maintain
the marketing responsibility under contract to the agency to ensure
continuity. The agency should be an autonomous and separate
entity, not a division of the Ministry of Mines or a department
of the mining bank. Marketing is a business, not a civil service
function; the job philosophy is quite different. If borrowers from
the mining bank have to rely on the bank for the sale of their
product, this will lead to mistrust and a breakdown of relations

4. For every example of successful government control over or participa-

tion in marketing, there is a dramatic illustration of well-intended actions
resulting in a step backward. A good example is the beach sand industry,
which Australia dominates, accounting for a major part of world supply of
ilmenite, rutile, zircon, and so on. Minimum prices were established in the
boom year of 1973-for zircon, for example, at A$200 a ton. Subsequently,
the market value dropped to A$130 a ton, yet the Australian producers were
not allowed to sell at this price. Not being able to get the zircon they needed,
consumers in Europe and Japan turned to cheaper substitutes of magnesite.
While the new government has rescinded some of the legislation and reduced
the minimum price to world market level, it remains to be seen if the sub-
stitution proves permanent.
 OBJECTIVES AND POLICIES | 165

between the producer and the bank. A compromise approach may

be to assign the marketing responsibility to the sales department
of the state mining company, if one exists, particularly if the
private sector produces only one or two minerals also produced
by the state company.

Research and Development

Research and development institutes serving the mining sector
throughout the world are generally accessible to outside parties,
domestic or foreign, public or private. Therefore, developing coun-
tries should not be too hasty in setting up an R&D institute of their
own. When they do, the institute should be set up with a specific
objective in mind and its facilities should be geared to the char-
acteristics of the mineralogy of the country. Considerable savings
can be realized through regional cooperation in R&D.
It must be borne in mind that the major asset of an R&D institute
is its personnel. The expertise required for quality research is
scarce worldwide and particularly in the developing countries;
without it, equipment is of little value. Several R&D facilities are
underused for this very reason; after they have been set up with
extensive and expensive technical assistance, these institutions
reduce their contribution as the experts withdraw. Establishing
R&D in a country means acquiring the expertise and training, not
building extensive facilities. One of the crucial requirements is the
ability to identify problems and ascertain the type of research
needed. When proper guidance is available, the physical testing
can be readily subcontracted. This should not be interpreted as
an effort to dissuade developing countries from establishing R&D
facilities but as an attempt to stress the need to establish R&D only
after serious planning and for specific objectives.

The Mining Code

After the government has determined its mining policy, the
policy has to be translated into a legal framework. This is com-
monly expressed in a mining code. If a decision has been made to
allow private capital to invest in mining activity, the code must
provide the legal framework defining the relations between the
investor and the government. It should cover the preconditions for
investment, land tenure, rights and obligations of the operator, as
well as investment and tax provisions. Without a mining law, no
mining right can be established; without a right who would ven-
 166 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

ture to risk his capital? A bad mining law can be as bad as no

mining law at all, if not worse. For instance, it may grant rights
without the corresponding obligations concerning exploration work
and, at the same time, prevent others from doing the work. Con-
versely, it might be so restrictive and impose such heavy explora-
tion obligations without commensurate rewards as to frighten off
sound enterprising investment.
Mining legislation will create a feeling of confidence in the
investor if the needs and requirements of the government and the
rights and obligations of the operator are set out in clear and
definite terms. Confidence is not built when laws and regulations
cause needless delays to operators who have tied up large invest-
ments. Procedures must be laid out clearly. It is not enough to
formulate and promulgate a mining code; careful preparation of
the regulations for the mining code are necessary to eliminate
ambiguity and prevent bitter controversy. It is helpful if the in-
vestor can deal with only one agency, the Ministry of Mines. In
one country, obtaining mining exploitation rights requires obtain-
ing approvals and agreements from no less than nine ministries and
government agencies. This situation is so frustrating to the investor
that he will divert his attentions to other countries if he is foreign,
or to other sectors if he is a national.
It must be emphasized that there is no model code suitable for
all countries. In each case the code has to be constructed in rela-
tion to the country's economic and political system. Also, the code
has to be flexible and dynamic enough to adjust to changes in the
economic and political situation. Yet it must remain reasonably
stable if it is to instill confidence in the investor. While changes
do become necessary from time to time and are legislated through
supplementary laws, this procedure should not be carried to the
extreme; periodically, it may be prudent to incorporate all into
a revised mining code. The components of a modern mining code
are outlined in appendix L.

Mining Taxation'
The fiscal regime applied to the mining sector is of major im-
portance for the realization of many other policy objectives. A

5. The problems are too complex to deal with adequately here. For addi-
tional detail, see UnitedNations, Taxation and Incentives (ESA/RT/AC.7/9)
(New York,1973); and John S. Carman,"Fiscalite des EntreprisesMinieres,"
trans.PierreLegoux,Annales des Mines (December1971).
 OBJECTIVES AND POLICIES | 167

basic premise of all mineral policy is that the returns from mining
activities should benefit the country under various forms: local
expenses, salaries, reinvestment, taxation, and so on. With a wholly
public-owned sector, the contribution to the economy depends on
the efficiency of operations and the terms at which the required
financial and technical assistance are available. With private partici-
pation the question is more complex. On the one hand, investors
must be allowed a normal return on their capital-too heavy
taxation will discourage investment and may jeopardize existing
mines. On the other hand, governments are entitled to revenue
from the exploitation of their nonrenewable resources.
A fiscal regime governing the mineral sector will contain many
of the following nine elements. The first element comprises admin-
istrative fees, which are charges for services rendered by the gov-
ernment, such as granting exploration or mining rights, conducting
mineral assays, providing property valuations, and registering docu-
ments. The fees are generally small and arbitrary, but should be
calculated with a view to covering the costs of the service.
The second element is surface taxes-alternatively referred to as
land rental, exploration, or exploitational tax-which are charges
for the exclusive right to explore or exploit a specific area. The pri-
mary purpose of the tax is to ensure continuous and effective de-
velopment work on the property in question. Even though the
purpose of the tax is not to produce revenue, the rate charged is
often too low. Though a high tax rate is resented by investors, it
discourages the locking up of large areas for speculation and makes
them available for serious exploration. An alternative to high tax
rates may be a relatively low tax base and a minimum level of ex-
ploration expenditure a year for each unit area. If the minimum
level is not reached, the difference between that and actual expendi-
ture is levied as an additional tax. Neither alternative is without
pitfalls: the high tax rate may encourage selective mining whereby
the concessionaire high grades the deposit;6 the second alternative
can lead to padding or superfluous expenditures. Increasing the tax
with the age of the concession will provide incentive to conduct
intensive exploration and to relinquish areas considered less prom-
ising. Any area with delinquency in the payment of surface tax
should automatically be deemed abandoned, thus lessening the
administrative burden on the government. Since the surface tax is
not a revenue-raising device but only an inducement to explore and

6. High grading refers to mining the richer parts of the orebody without
regard to possible future exploitation of the lower-grade parts, which may
be rendered uneconomic. The minerals may therefore be lost to the nation.
 168 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

produce minerals, its usefulness ends with the start-up of produc-

tion. At this stage, it may be offset by a royalty or, preferably,
eliminated.
Third is royalties, the payments made to the government or the
owner, discoverer, or developer of the deposit for the privilege
of exploiting a mineral deposit. Generally, royalties are set as a
percentage of the gross, market, or minehead value of the mineral
extracted. They may be fixed as a flat rate or a graduated rate,
depending upon the value and grade of minerals. The rates may
be specifiedin the tax codes or negotiated project by project. Royal-
ties are simple to administer but have several drawbacks. They
represent a charge on production and, as such, are treated as a
pretax charge on the mining operations. Any such charge running
on top of the costs of production increases the fixed costs faced by
the mine and hence reduces the maximum production costs the
mine can support, thereby making it more vulnerable to world
market changes; or it may increase the minimum treatable grade
of ore, thus shrinking total reserves. All these dangers are real
unless the royalty remains well within the taxable capacity of the
operation.
Fourth, export taxes, like royalties, are simple to administer
but have the same disadvantage: they are merely different forms
of pretax charges and may directly weaken the country's competi-
tive position. In some cases it may be necessary to limit exports in
order to meet domestic demand preferentially, because further
processing is considered in the best interests of the nation, or for
strategic reasons. This can be better accomplished, however, by
the licensing of exports than by export taxes.
The fifth element comprises artificial exchange rates, whereby
the foreign exchange earnings of the mining enterprises are con-
verted into local currency by the central bank at a pegged rate
artificially lower than the free market or official rate. These are
in effect export taxes but have even more far-reaching effects. For
example, they can make domestic inputs (including labor) more
expensive than imports and hence have a negative impact on the
consumption of local goods, thereby favoring capital-intensive over
labor-intensive methods.
Sixth, import taxes, in most countries, are very low or nil in
the case of imported mining equipment and supplies. Since modern
equipment for mineral resources development in the developing
countries is almost always lacking, it ought to be in the national
interest to encourage the import of specialized equipment, machin-
ery, and spare parts for the mining industry. Though import fees
should be low for this purpose, excessively low import duties
 OBJECTIVES AND POLICIES | 169

can discourage local manufacturing of equipment and again favor

capital-intensive over labor-intensive methods.
Seventh is income taxes, based on the profitability of an opera-
tion, avoid many of the difficulties encountered in the use of
royalties and export taxes. But the absence of clearly definable
world market prices and standardized accounting and valuation
procedures present measurement problems. That exploitation of a
mineral deposit leads to depletion of a nonrenewable source has
been used to justify a depletion allowance as a tax deductible item.
This supposedly allows the operator to retain a portion of income in
order to "replace" the nonrenewable resource, or to provide funds
to search for additional reserves. With increased government owner-
ship of mineral resources, this rationale is becoming less and less
acceptable. Accelerated depreciation is often permitted to lighten
the tax burden in the early years of operation when technical
risks are highest. Mining development, preproduction expenses,
and even exploration are frequently capitalized and amortized
over several years; in some cases, the operating company may have
the option of writing off the expenditures as incurred. Many
developed countries allow only income taxes to be taken as tax
credits by the multinational firm, an important factor to be con-
sidered in designing a tax code. Superprofit taxes may become
increasingly used as a way of avoiding an undue burden on a
mining company in times of low mineral prices while assuring a
more equal sharing between host country and mining company
when mineral prices are buoyant.
Eighth, tax concessions are among the most widely used in-
centives to attract investment and promote mineral sector develop-
ment. The question of tax payments weighs heavily in investment
decisions since an investor's decision is very much influenced by
his after-tax earnings. Initial tax holidays are commonly used to pro-
vide the mine with an opportunity to recover a large part of the
capital expenditures before taxes are imposed, or for relief during
the first few years of operation when low cash flows with high debt-
servicing obligations and starting problems are faced. This en-
courages the stripping of high-quality ores and high extraction
rates. Moreover, since these incentives are seldom accompanied by
special tax credits in the investors' countries, they may result
merely in a transfer of tax revenue from the developing nations to
the developed nations.
Payments in the form of subsidies may be introduced to main-
tain production, particularly of vital and strategic minerals, which
 170 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

otherwise would have to cease because of the increasing production

cost or fixed government prices for the mineral. The objective may
be to supply local raw materials to industries using minerals, to con-
tinue production of valuable minerals, or to enable indigenous
minerals to compete in external markets. One other important con-
sideration is the support of key centers of population dependent
upon the mineral project. Subsidies may also be used to promote
exploration. 7
Finally, repatriation of capital and earnings is of prime concern
to a foreign investor. It is natural and reasonable for foreign capi-
tal to return home, and it is only fair that it be released in a
straightforward and timely manner. The legal framework should
provide for repatriation of capital plus interest and profits. Many
projects have experienced considerable delays in reaching a solu-
tion to this problem. The reinvestment of earnings (or recouped
capital), which may contribute significantly to the development of
the sector, is worth consideration in formulating a tax policy. Tax
deductions on reinvested earnings can help to promote such
reinvestment.

Revenue Sharing

Some governments tend to concentrate on revenue sharing con-

siderations to the detriment of other important issues when develop-
ing a mineral policy. While this does increase the government's
share of revenues from existing investment, further investment may
be discouraged and revenue to the host country be reduced over the
long term. Such shortsightedness is evident throughout the world.
For decades, mining development took place in the United States,
Canada, and Australia by preference because of more stable politi-

7. Several developed countries give tax credit for certain taxes paid to
developing countries. This enables the latter to raise tax rates to levels close
to those prevailing in the developed countries without loading extra burdens
on the investor. Other tax measures in the developed countries tend to work
at cross purposes with the policies in the developing countries. For example,
the fact that the United States allows a depletion allowance of 15 to 18
percent on mining activities for U.S. companies operating abroad encour-
ages operation as a U.S. subsidiary rather than a foreign subsidiary. Further-
more, the tax laws of the developed countries often make no allowance
for incentives offered by developing countries to encourage reinvestment
of earnings. The incentive may thereby be nullified. There is a need for
developed countries to review their tax policies in terms of their impact
on operations in the developing countries.
 OBJECTIVESAND POLICIES | 171

cal and fiscal climates. The recent legislative action in Canada high-
lights the importance of an equitable taxation system. With the in-
troduction of high taxes, exploration efforts in the country are
reported to have declined by almost 75 percent. A serious retarda-
tion in the growth of Canada's mineral sector appears inevitable.
When preparing a fiscal regime for the mineral sector, it is wrong
to consider the short-term split of revenues only; the long-term pic-
ture is all important. Following the revolutionary tax changes a few
years back in British Columbia, 8 J. B. Evans, head of the Depart-
ment of Mineral Engineering, University of British Columbia, esti-
mated for an actual mine, the effect of the new taxes on federal
government revenue, mine life, salaries, equipment-supplier reve-
nues, company cash flows, and British Columbia government gain.
Although these changes are reported to have been relaxed, and in
some aspects reversed, in 1976, Professor Evans's calculations are
still of interest because they throw light on the direction and mag-
nitude of the impact that such changes can have and because they
may have influenced the change in policy. The estimates, which
are presented in table 15 and illustrated in figure 17, indicate that

TABLE 15 | ESTIMATES OF THE EFFECTS OF NEW TAXATION ON

AN ACTUAL COPPER MINE IN BRITISH COLUMBIA

(millions of Canadian dollars)
Copper price assumption
(dollars a pound)
Item 74 cents 90 cents $1.25
Loss in mine life (years) -6.0 -7.7 -2.0
Loss in total wealth
generated by mine -163.0 -224.0 -30.0
Loss in wages -47.0 -54.0 -9.0
Loss in equipment supplier
revenues -54.0 -62.0 -9.0
Loss in company cash flow -0.5 -21.0 -50.0
Loss in federal government
revenue -0.2 -8.0 -20.0
Loss (-) or gain (+) in British
Columbia government revenue -6.0 -17.0 +62.0
Source: J. B. Evans, "How Bill Thirty-one Will Affect an Actual Copper Mine,"
The Northern Miner (June 6, 1974).

8. A net royalty equal to 5 percent of the net value, that is, the world
selling price less 25 cents per pound of copper produced, and a super royalty
equal to 50 percent of the difference between the world selling price and 66
cents per pound of copper produced.
 172 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

FIGURE 17 | THE EFFECT OF TAXATION ON MINING

IN BRITISH COLUMBIA, CANADA

World copper selling price a pound

$1.25 $1.00 75 cents
2 +60- British Columbia Government
gain direct from mining
o company
Gains

0
0 -a

E '. \ a. Lostfederaltax
m-60 Losses incurred by others
mneo \ direct from the
e. Lost
mining company
-90 ~~ ~ ~ ~ ~ ~ ~ ~ ~~~~
~b. Wages lost by
mining company
-~~~~~ ~~ ~ ~ ~ ' ~~~~
employees
Xc. Sales lost to mine
-120 Changes in wealth generated suppliers
directly by the mine operation d. Lost freight and
ZA- 180- smelting
0 ~~~~~~~~~~~~~~~revenues
Source: . vas,"Hw
J. il Tiry-neWil ffctanAcuae. Lost mining
The
Nortlzern
j Minecompany profits
World copper selling price a pound
$1.25 $.075 cents

30- Net loss

-0d
a
0

90-

a ~~~Net
loss of wealth fo igemn
150-

Z 180-

Source: J. B. Evans, "How Bill Thirty-one Will Affect an Actual Copper Mine,"
The No-rthern Miner (June 6, 1974).
 OBJECTIVES AND POLICIES | 173

the legislation would have had very serious implications for the
operation.
These estimates do not cover all the consequences; an important
consequence would have been the reduction in investment for new
projects. In fact, the mere threat of the legislation was enough to
cause a major curtailment in investment programs.
A possible tax system that takes into account many of the prob-
lems associated with the mineral industry and eliminates many of
the disadvantages of current tax systems could be structured in
the following way: The government could provide that taxes
would be applied to profits only after the mine had earned a dis-
counted yield equivalent to the minimum return the management
required a project to show before it decided to invest. This could be
done simply by allowing all expenditure to be charged for tax pur-
poses in the year in which it was incurred and carrying forward any
outstanding loss to the following year, with a percentage increase
equivalent to the discounted cash flow return the mine is allowed to
earn free of tax. By this means, the discounted cash flow on the
original sum invested will have been obtained when the unrecouped
expenditure is reduced to zero. Subsequent profits would be taxable
at a standard rate. This system does not form an obstacle to invest-
ment; there is no waste of revenues to the state if profits are higher
than expected; and the tax rate could be fixed at what the investors
would bear-which is probably significantly higher than the rate
for ordinary income tax, and may be either fixed or progressive.
This type of tax structure enables the government to control the
flow of investment to the mining industry by adjusting two varia-
bles: the discounted cash flow return allowed tax free, and the sub-
sequent tax rate. Perhaps the most important feature of the system
is that the interests of the two parties are considered openly, as com-
pared to other systems which contain large elements of smoke
screen. The system does, however, have the major disadvantage that
while the revenues accruing to the state may be greater over the
long term, they are received at a later stage in the development of
the mine. Consequently, the tax rate must be higher to reach the
same present value.

Other Legislation
Other forms of legislation besides the mining and tax codes im-
pinge in the mining sector. For example, in a country where private
capital, local or foreign, is used to develop the sector, an enlightened
investment code and guarantees are required. These may include
 174 1 THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

the following: freedom of establishing commercial activities and

free movement of people, capital, and goods; respect for the right of
property, officialprotection of private investment, and fair compen-
sation on expropriation, convertible into the recipients' national
currency; freedom of employment, hiring, and firing; free choice of
suppliers and contractors (subject to local preferences); cooperation
from public agencies; tariff or quota protection; stability concern-
ing the juridical, economic, financial, fiscal, labor, and health laws
in force; provisions and procedures for settlement of disputes; and
guarantees for the provision of infrastructure.
On the other hand, several undertakings or commitments have to
be sought from the private investors. These may include: implemen-
tation of the project within an agreed time frame; pricing pro-
cedures, local and foreign; giving domestic consumers right of first
refusal; giving domestic supplier preferences at comparable prices
and qualities; employing nationals preferentially or providing train-
ing; reinvestment of part of earnings; transfer of stock to local
investors; provision of necessary social and educational facilities
for employees; and compliancewith all legislation.

Dealing with Multinationals

Even with a well-defined mineral policy and legislative system,
a country relying upon private foreign capital for development of
its mineral sector should pay particular attention to its policies and
procedures as they apply to the foreign enterprises. The precise re-
lationship between the multinational corporation and the host
country must therefore be clearly defined and a mechanism estab-
lished for coordinating and monitoring this relationship. These
functions are often widely scattered among various ministries, few
of which are even remotely equipped to deal with the whole range
of problems that may arise or are in a position to play a central
role in developing a consistent set of policies. One solution is to
set up a coordinating body which can gradually develop a nucleus
of people who are capable of understanding the operations of the
multinational corporations and of conducting negotiations with
them. Such people are very scarce in the developing countries. In
countries where some form of participation in the decisionmaking
of the multinationals is aimed at, this can be done through joint
ventures, majority or minority ownership. This has the advantage
of working from the inside so that cumbersome procedures are
avoided. Both sides need to know who they are dealing with-
 OBJECTIVESAND POLICIES | 175

there should be no ambiguity and the lines of communication

should be drawn clearly.
A major problem area is that of negotiation between the multi-
nationals and host governments. Most developing countries lack
the expertise to conduct these negotiations in a manner to ensure
that their interests are protected in seeking agreement. Results may
vary from giving away excessive concessions (in order to buy the
participation of the corporation) to a hard line which frightens
away potential investors. Both extremes are equally unsatisfactory.
Implementation of a good project has in many cases been delayed
years and years, at great cost to both the host country and the
multinational. The negotiators on both sides must consider them-
selves as entering a partnership which has to be mutually satis-
factory. Countries should not hesitate to engage experts to assist
in such negotiations.

Technical Assistance: the Where, What, and How

In the majority of developing countries there is unquestionable
need for substantial technical assistance. Assistance may be needed
in assessing the country's mineral potential; defining the role that
the mineral sector should play in the country's economic develop-
ment; preparing and assisting in formulation of policy for mineral
sector development; preparing and advising on promulgation of
legislation governing the mineral sector; reviewing the administra-
tive set-up for the sector and establishing an action plan for im-
proving it; reorganizing and strengthening the institutions servic-
ing the sector; training and educating nationals in all aspects of
sector administration and operation; increasing exploration activity;
negotiating with the multinationals and other foreign private in-
vestors; and identifying, promoting, and implementing projects in
both the public and private sectors.
Even those developing countries with reasonably well-developed
mineral sectors can use large technical assistance inputs. Many,
however, refuse to recognize or accept this fact and persuade them-
selves that they have sufficient internal capability. Technical assist-
ance is particularly resisted in the area of formulating policy and
legislation, since it involves political decisions. Often a team or
commission of semiqualified people is set up to review existing
policies and legislation and prepare new legislation, which may
then be kicked around as a political football before becoming
effective. A better approach would be to seek full technical assist-
 176 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

ance at the outset; develop policy and legislation on strictly techni-

cal grounds; test them within the political framework; and, only
then, if the issues they raise are considered politically sensitive,
make political adjustments.
Individuals and groups capable of providing good technical
advice on policy and legislative matters are scarce, although a great
many claim such qualifications. This expertise can be found in
bilateral and multilateral aid agencies, individual consultants, con-
sulting firms, state agencies in the developed countries, universities,
and the mining industry itself. Few single individuals are capable
of providing a full complement of advice to governments, and a
team approach is to be recommended. One may hear a lawyer,
economist, mineral economist, or engineer claim to be an expert
in mineral policy or legislation, with broad capabilities. Some may
truly be so, but a country is often better off paying more and
getting a team of specialists. Establishing a mineral policy requires
expertise in such subjects as development strategy and legislation,
geology, exploration, mineral economics, macroeconomics, public
organization and administration, mining and mineral processing,
mineral marketing, law, and taxation regimes. Any country con-
templating a major policy and legislative reform should therefore
seek proposals for assistance. These proposals bear scrutinizing
carefully before selection is made. Ironically, many countries do not
have the expertise even to prepare documents inviting proposals
or to evaluate those received. An expert is needed even for this step.
The aid agencies could play an important role by providing per-
sonnel for this first step.
Another area requiring a team approach is assistance to the
governments in evaluating the proposals of, and negotiating con-
cession contracts with, the multinationals. An individual advisor
can perform a useful but not complete function. These services
are better provided by several public and private sector consulting
groups.
More specificexpertise is required for strengthening the adminis-
trative ability of the government, which might include complete
reorganization of the public sector. Many countries have an admin-
istrative framework but lack qualified staff and procedures. Dupli-
cation of effort and responsibilities is common, and coordination
and cooperation between agencies is generally lacking. Individual
experts can assist in rectifying the problems, provided the adminis-
tration steers them to the heart of it. Often, however, the adminis-
tration is too weak to monitor the activities of the sector or imple-
ment the experts' recommendations. In such a case, the team, while
reporting to the very highest levels of the administration, might
 OBJECTIVES AND POLICIES | 177

take over some implementation functions and train nationals to

carry out these tasks at a later date. Too often, a good technical
assistance program is wasted because a proper course of action is
not carried through.
Project identification and preparation, including investment plan-
ning, is an essential function often inadequately carried out in
developing countries by either the government, the state-owned
companies, or the private sector. Because of it, one often comes
across situations where projects are justified solely on technical
grounds; financial and economic considerations may be ignored
or not understood; and the need to arrange for the requisite infra-
structure is overlooked. Consultants and operating companies
may prove the best source for assistance in this vital area.
A final word of caution: While it is understood that the most
reliable expertise resides with reputable firms and agencies, coun-
tries seeking assistance would be well advised to question the
qualifications of each individual expert assigned to them. For, in
practice, it is the individual who provides the assistance, not the
agency.9

9. One African official is reported to have observed, "Just two months ago
I had some experts from . . . and they could jolly well have been my first
year students. I had to take them in the field to show them what they were
supposed to be advising on." See A. R. Berger (ed.), Geoscientists and the
Third World: A Collective Critique of Existing Aid Programs, Geological
Survey of Canada, Paper 34-57, 1975.
7 j Performance,Prospects,and Problems
of the Industry

IN THE PRECEDING SIX CHAPTERS we have examined the raw material

base, structure, and operation of the world mining industry and
focused on the problems of mineral sector development in the
developing countries. In tracing the various stages of mineral
development we 1-;ve tried to define policy objectives, identify
operational problems, outline choices of approach, note the most
common misconceptions, and warn against the most costly mis-
takes. In this final chapter we summarize our assessment of the
overall performance of the industry, its future direction, and the
major problems along the way.

The Performance of the Industry

There .% no objective or universally applicable criteria for judg-

ing the performance of the world mining industry. The needs and
interests of consuming nations and the developing exporting nations
vary widely. Developed countries are primarily interested in secur-
ity of supply at reasonable prices, though price is secondary to
security; reasonable prices might be defined as the lowest possible
levels that guarantee secure sources and a steady supply. Develop-
ing countries wish to promote mineral development and at the same
time to extract a significant rent. Their needs and interests include
ensuring the reinvestment of the proceeds from mineral exploita-
tion in other productive activities, gaining greater control over the
planning and operation of the industry, increasing value added in
the country, and promoting greater employment. All these needs
are accentuated by their level of underdevelopment.
These basic differences notwithstanding, the dichotomies between
groups of nations should not be overemphasized, since nations are

178
 PERFORMANCE, PROSPECTS, AND PROBLEMS | 179

not neatly categorizable into consumers and producers along lines

of economic development. As shown in chapter 3, a number of
developed countries figure prominently among the world's large
producers and exporters of nonfuel minerals; they have common
interests with developing countries that are mineral producers and
they are susceptible to some of the same mistakes. Furthermore,
in a dynamic world, the factors that shape self-interest can change
rapidly. For example, although the process of becoming a large
consumer of minerals through development is undoubtedly slow,
populous countries like India, Brazil, Nigeria, and Pakistan, al-
ready possessing or planning to establish a large manufacturing
sector, can find their raw material requirements swell swiftly.
What affects the size of mineral demand is the absolute size of
the industrial sector, not the country's degree of industrialization.
Are there, then, economic interests which all nations share or
which transcend national self-interest? In the case of the mining
sector, the obvious common interests are adequate supplies at
equitable yields and a distribution favoring the developing coun-
tries without interfering with global efficiency. If the professed
goal of international economic and development cooperation is
progress for all, the mining industry must be expected to play a
role in fulfilling the aspirations of the developing countries. Pro-
posing this as one of the standards of the industry's performance
means taking seriously the importance of a global commitment to
narrowing the gap between the rich and the poor countries.
The record of the world mining industry in responding to the
needs of the developing countries is dismal. The industry's total
effort has been directed to obtaining sufficient supplies for the con-
suming nations, who are predominantly the developed countries;
that is a task in which the industry has been highly effective and
innovative. Only recently has the industry even shown awareness
of the needs of the developing countries, and very few consuming
nations and firms have reacted earnestly to meet the challenge; the
record remains largely uncorrected.
The industry has performed reasonably well in terms of
efficiency. It has provided consumers with an expanding variety
and steady source of mineral raw materials, many of which are
exploited as efficiently as man is able, though with some glaring
omissions, such as failure to bring the best deposits on stream
first. Political climate has had a major impact on the industry's
decisions on where to mine and has tended to discriminate against
the developing countries. This is particularly apparent in the
disproportionate allocation of exploration expenditures to developed
regions.
 180 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

There is also reason to question the industry's efficiency with

respect to use. The proportions in which mineral resources are
exploited and used today do not reflect their relative abundance,
largely because of imperfections in the orientation of research and
in the pricing mechanism. Far from being directed systematically
towards abundant materials, research in end use is sporadic, ad hoc,
and very uneven among minerals and over time. Often, major
breakthroughs have been achieved during and in response to emer-
gencies (wars) or as a by-product of advances in other fields
(aerospace). Mineral prices have traditionally been determined on
the basis of capital, operating, and distribution costs, modified by
bargaining power, with no allowance made for the inherent value of
the mineral in the ground. A more appropriate yardstick (if adopted
by all mineral producers) might be the price just below that of the
closest substitute or the cost of secondary (recycled) material. The
difference between this price and that based on costs can be taken
to represent the intrinsic value of the mineral in the ground which
ideally should accrue to the host country. The imperfection of the
pricing mechanism has undoubtedly led to inefficient use, aside
from maldistribution of benefits.
A related question is how much government interference has
hindered or helped the industry. It is hard to draw general conclu-
sions from past experience, since government action has tended to
be irregular in degree and quality. At times it has been completely
irrational and has aborted efficient mineral development; in numer-
ous cases it has been so tentative as to be virtually ineffective. With
regard to worldwide resource use and production efficiency, of
course, nonuniform tax burdens and tariffs and other government
barriers to trade and processing lead to inefficiency compared to
the ideal economic model. But an ideal model exists only in a
vacuum; the usefulness of such a measure is nullified by the reality
of political and economic divisions and inequalities.
Despite the shortcomings listed above, our conclusion is that on
strictly technical grounds the industry has not performed too badly
in the past.

Meeting Future Requirements

The world mining industry faces a dvnamic future. Continued
population growth and universal demand to improve physical
standards of living guarantee that. While the intensity of use of
nonfuel minerals (the volume of consumption per unit of GNP) has
been declining over the long term in the industrially advanced
 PERFORMANCE, PROSPECTS, AND PROBLEMS | 181

countries and is bound to bring about a deceleration in the growth

rate of world demand, this need not be fully manifested in the
next ten years, constitute an openended trend or imply that the
task of meeting future requirements will become progressively
easy-far from it.
In the next five to ten years, world demand for nonfuel minerals
is likely to grow at rates not materially different from those of
the sixties (4 to 5 percent a year). The factors combining to sustain
growth rates over this period, despite the steady decline in intensity
of use in a major consumer like the United States, include: differ-
ences in the structure of demand, in accumulated stocks, or reser-
voirs (physical structures or goods with long life cycles); the
redistribution of income under way through adjusted oil prices,
particularly the capital intensiveness of many of the projects under-
taken or financed by OPEC countries with a surplus of resources;
and pent-up demand everywhere resulting from the combination
of recession and inflation.
The force of declining use by the large producers will very
likely be felt more strongly in the late 1980s and the 1990s. Avail-
able projections for the year 2000 point to considerably slower
growth rates in the last quarter of the century than in the third
quarter. Because of the progressive expansion of the consumption
base, however, the amount of additional yearly requirements is
hardly likely to decline in absolute terms and, given the fixed
stock of resources (at least of superior grades), meeting these re-
quirements will pose a constant challenge.
With regard to the very long term, it suffices to note that the
deceleration in the growth rate of demand need not last indefinitely
nor give way to stable growth rates of unlimited duration. Not only
the hoped-for industrialization of the developing countries but also
programs to eradicate pockets of relative poverty, to redistribute
income, or to reallocate and improve the volume and quality of
mass consumption in the rich countries can revitalize, even revolu-
tionize, demand for minerals. Therefore, it is not farfetched to
suggest that the S-shaped curve of the relation between mineral
consumption and economic growth over time-historically verified
and theoretically anticipated-may be followed by another and
another similar curve.
In short, world demand for minerals is likely to continue to
expand rapidly in the next ten years, at decelerating rates there-
after, but with spurts or even sustained periods of rapid growth
again.
What about the product mix of future consumption? It would
be sheer folly to speculate on it at a time when the world is facing
 182 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

major readjustments in relative prices, when the impetus for tech-

nological change is getting stronger, and when policies of self-
sufficiency, even at the cost of changing the product mix, have
obvious appeal. Available projections do not point to any significant
change in the mix in the foreseeable future: the metals growing
fastest in the past (aluminum and nickel) still top the list in terms
of projected growth rates, with tin at the bottom, and copper and
iron in the middle. Most of these projections were made before
the energy crisis, however, and do not take into account, for
example, the implications of new forms of energy generation or of
energy-saving adjustments in consumption patterns for specific
minerals.
It is even more difficult to predict the future supply of minerals
product by product, though some estimates exist on short- to
medium-term expansion plans worldwide, the most comprehensive
being those published annually by the Engineering and Mining
Journal. Even these are subject to wide margins of error,1 and can
at best be used to provide orders of magnitude on new capacity,
investment requirements, and location of new investment.
The Engineering and Mining Journal list of projects forecast
to come on stream between 1975 and 1980, published in January
1975 (modified here by the authors on the basis of their personal
knowledge of specific projects), indicates that among the major
minerals, aluminum, copper, iron, and nickel are all forecast to
have very substantial increases in supply over the next five years.
Even after refinements resulting in significant downward adjust-
ments in the figures, the projected increase in capacity between
1975 and 1980 comes to 40 to 50 percent, or 6 to 8 percent
annually. Except in the case of aluminum, this is significantly
higher than the growth rate forecast for demand and would tend
to indicate surpluses, at least in the medium term.2 Several projects
will inevitably be postponed because of lack of finance, hesitancy
in the face of political instability, and limitations on the absorptive

1. For example, there is a considerable amount of double counting since

different stages of production located in separate places are treated as
separate projects. Also, it is almost certain that the Engineeringand Mining
Journal survey significantlyunderestimates new investments in the centrally
planned countries.
2. In an analysis of the outlook for twenty-seven commodities,Takeuchi
and Varon concluded: "The anticipation of more surpluses than shortages,
while comforting to the consuming nations, suggests that our concerns are
skewed in the wrong direction." Kenji Takeuchi and Bension Varon, "Com-
modity Shortage and Changes in World Trade," Annals of the American
Academy of Political and Social Science, vol. 420 (July 1975), p. 56.
 PERFORMANCE, PROSPECTS, AND PROBLEMS | 183

capacity of the industry. In any case, supply is not likely to fall

below demand in the medium term although short-term imbalances
cannot be ruled out.
For the longer term, thc .e is little information available which
permits predicting with confidence shortages or surpluses of major
consequence. Nevertheless, as pointed out in chapter 2, presently
known reserves for most minerals appear adequate to the year
2000, with only moderate increases in the real price needed to
precipitate new mine development. The most notable exceptions
appear to be silver, tin, and zinc. However, data on ore reserves are
even less reliable than those on investment in new projects, and to
attempt to draw more than indicative conclusions from them is
hazardous.
Future discoveries of major importance are sure to occur, par-
ticularly if we consider the relatively large areas which remain
virtually unexplored and the progress being made with new explora-
tion techniques and the increasing awareness of many nations of
the need to promote exploration in their territories. The Earth
Resources Technology Satellite (ERTS) program is already having
some far-reaching effects on the exploration for minerals. It has
identified major fault zones, previously undetected, and provided
a new direction to exploration in several areas. To date, the poten-
tial exploration benefits from the ERTS program have barely been
tapped. New and more sophisticated exploration techniques are
leading to further significant discoveries in areas previously heavily
explored. A major breakthrough is needed, however, to assist in
finding orebodies at depth. Up to now most orebodies discovered
have been located at or relatively close to the earth's surface. The
development of new exploration techniques for tropical areas could
also provide substantial mineral discoveries, as shown by the dis-
covery of major iron ore and bauxite deposits in the Amazon
region.
Although we can expect new discoveries to be adequate for the
long-term demand for minerals, the matter of timing is far from
clear. Can we expect a sufficient acceleration in exploration effort
to meet the exponential growth in demand? To what extent will
mineral prices have to increase (in real terms) to attract the neces-
sary funds? With the increased trend toward national control, many
of the traditional sources of exploration capital have dried up.
With increasing worldwide acceptance of national sovereignty
ovcr natural resources, will these sources open up again? If so,
will they be sufficient to meet the world-.ide exploration needs?
To what extent will new sources of exploration capit;4l be re-
quired? From where will the new funds come? We are dealing
 184 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

here with worldwide problems not easily solved within national

contexts; while national self-interest may be a legitimate starting
point, national self-sufficiency would be a dubious goal, in no way
ensuring a balanced worldwide satisfaction of requirements.

Problems and Challenges

The principal problem and challenge facing the industry in the

short run is most definitely the business cycle and the excessive
volatility of prices which makes planning difficult, followed by the
industry's tendency to overreact to business cycles, the rapidly
weakening fiscal stability of some of the large mineral-producing
countries, and rapidly rising capital costs and increased costs of
finance, coupled with the decreasing availability of finance for
mining.
In the long run, the industry faces and has to respond to:
changes in the rules of the game, increased nationalism, and in-
evitable changes in ownership; the limited capacity of the develop-
ing countries to absorb their own mineral development, coupled
with problems of transfer of technology caused by the inflexibility
of the developed countries and the blindness of many developing
countries to their own limitations; and the need to swing back to
a more realistic balance between national control and joint ven-
tures. Energy and pollution should not prove to be major problems
for the industry overall.
The increases in energy prices were at first expected to have an
important bearing on the future location of mining and mineral-
processing facilities. It is not now so certain that, given time for
the situation to stabilize, the higher energy costs will lead to radi-
cal changes. Of course, transport costs have already increased
significantly, making the processing of minerals closer to the
mine more attractive. Deposits and process technologies requir-
ing less energy have also become more attractive. With the higher
energy prices, greater attention will no doubt be given to economiz-
ing on the use of energy, for example through greater use of
waste-heat boilers, modification of plant design, minimizing of
heat losses, and better harnessing of the heat generated from
exothermic reactions. Turning to geothermal steam as a source of
energy will bring more attention to recovering minerals from the
steam and geothermal brines. It is far too early at this stage to
determine whether or not the energy crisis will have a significant
influence on the competitiveness of different minerals, promoting
or retarding substitution of one mineral for another.
 PERFORMANCE, PROSPECTS, AND PROBLEMS | 185

Following the implementation of the first rigorous environmental

protection legislations in the industrialized countries, a tendency
developed to relocate mineral-processing facilities, that is, to export
pollution-a trend welcomed by the developing countries since
it meant greater value added within their territories. While in-
creased environmental awareness initially had a disruptive influence
in terms of mineral production (for example, by forcing the closure
of smelters and modifications of strip mining design), it is not
expected to affect radically the future distribution of production
capacity. Research into the means by which environmental require-
ments are met has resulted in the development of new processes
and new by-product uses with some economic return, thereby
lessening what had earlier been feared as a major investment with
no return. For instance, the recovery of sulfur dioxides from the
gases of smelters has led to the production of significant quantities
of sulfuric acid which are used in many cases to leach the minerals
from the waste dumps or areas of lower-grade ores, thereby in-
creasing recovery of the orebody. In addition, the developing coun-
tries are now following the developed ones in imposing antipollution
controls, which may slow the trend to relocate smelting and refining
capacity. On the other hand, these countries' demands that the
mineral mined in their territories be processed at least to the metal
ingot stage will persist. Although what may be called an initial
overreaction in favor of environmental protection is being brought
back more into balance (responding to the need to remain com-
petitive), several projects will continue to be hindered by environ-
mental considerations, some perhaps rightly, but quite a number
unjustifiably.

The Special Problem of Capital Requirements

The lack of capital can be a major barrier to mineral develop-

ment. It is now apparent that a capital shortage of significant
proportions exists in the industry. The rash of expropriations, the
uncertainties of future energy supplies and costs and of future
environmental legislation, as well as the recent radical changes in
mineral industry taxation, even in countries thought to be stable,
have all added to the already high risk factors of the industry, and
these uncertainties have affected the industry's ability to raise debt
or equity financing. The increase in project size and the effect of
rapid inflation on capital costs has made it increasingly difficult to
finance projects from internal cash flow and has forced companies
to turn more and more to external sources of finance. MacGregor
 186 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

and Vickers show that for the twelve leading producers of base
metals, ferroalloys, and industrial minerals in North America, de-
teriorating financial conditions between 1966 and 1972 have led to
a drop in return on sales from nearly 14 percent to about 8 percent;
an increase in the average debt-to-equity ratio from 9:91 to 26:74;
and a decrease in the coverage of fixed capital requirements from
operations from 84 percent to 62 percent. Over a similar period, the
debt-to-equity ratio for U.S. nonferrous mineral producers as a
group increased from 29:71 to 50:50.3
As pointed out at the beginning of this chapter, the demand for
nonfuel minerals is projected to increase significantly between 1975
and 1985; the world productive capacity in existence-the result
of cumulative investment over almost three-quarters of a century-
must be increased by as much as 50 percent in ten years or so. For
most minerals sufficient projects appear to have been identified to
meet this demand into the early 1980s (if all projects are carried
out). What is not clear, however, is the availability of sufficient
capital to finance these projects. According to the figures in the
Engineering and Mining Journal survey of January 1975, the capital
requirements for projects up to 1980-81 are in the order of $55,000
million, or extrapolating this through to 1985, $90,000 million,
equivalent to $8 to $9 million a year. In 1974, MacGregor and Vick-
ers, by using past ratios of assets to sales, estimated investment
requirements for the period 1972 to 1985 at $50,000 to $100,000
million, or an average of $4 to $7 million a year. Industry
spokesmen have recently mentioned figures in the range of
$100,000 to $120,000 million (in 1975 prices) for the period 1975
to 1985, or $14,000 to $15,000 million a year by the mid-1980s. We
favor the higher estimates, fully recognizing the financial limitations
that may force the lower estimates to come true; this would cause
serious supply shortages unless a major worldwide effort at con-
servation were to lower significantly the rate of demand-an event
we see as possible but not probable.
On the basis of historical ratios and various assumptions about
future worldwide taxation policies and environment requirements,
MacGregor and Vickers estimated that $35,000 to $70,000 million
would be available for capital investment from internal cash gen-
eration by the mining industry itself. This would leave $30,000
to $60,000 million to be sought from outside sources. Where will
this financing come from? A look at the past indicates that while

3. See Wallace MacGregor and Edward L. Vickers, "Capital and the U.S.
Resources Crunch," Engineering and Mining Journal (September 1974).
 PERFORMANCE, PROSPECTS, AND PROBLEMS | 187

substantial amounts have been provided by the banking system

in the developed countries and significantly smaller amounts by
the insurance companies, bilateral and multilateral institutions, and
export-credit agencies, these contributions, in aggregate, still fall
far short of the future needs. This leaves public issues of bonds
and equity, a source with very definite limitations. It also raises the
question of the debt-carrying capacity of the industry as a whole
and of individual companies in particular. To raise all this addi-
tional capital as debt would distort the capital structure of the
industry, tearing it away from its historically conservative stance
to a position probably unacceptable to bankers used to considering
the risks of the industry. Furthermore, it appears unlikely that
sufficient amounts of new equity can be raised to alleviate this
problem. The industry faces a financial crunch-a situation which,
in a few years, through the resultant supply shortages, may force
significant and longlasting increases in mineral prices.
The developing countries, which require much more than half
the capital of the nonsocialist world, will experience most of the
financial shortages because the financiers associate higher political
and fiscal risks with them than with the industrialized countries.
Though it is quite possible that significant amounts of oil revenues
will be channeled into mining projects in the developing countries,
unless much of it is in the form of equity, it will not alleviate the
problem and may merely replace capital available from other
sources. With the current spate of nationalism, the multinationals
hesitate to pour significant amounts of equity into the developing
countries and are asking the nationals to increase their equity
participation. This appears to be one of the most crucial problems
in the future financing of the nonfuel mineral sector. Where is
the equity base for development in the developing regions to come
from? A change in the policies of the aid agencies may be war-
ranted. On the other hand, to help secure supplies, we may see
more and more consumers willing to provide small amounts of
equity finance, a trend already apparent in recent years.

The Role of Policy

The problems of the nonfuel mineral sector are only some of the
many facing the world community in these troubled times. What
sort of priority do they deserve and why? Obviously, they fall
below the problems of food, nutrition, family planning, and the
prevention of armed conflict. But they must come next. Industriali-
zation and social advancement as measured by the standard of
 188 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

living relate to material wealth, which is based on minerals. Non-

fuel minerals, together with energy, are the foundation of the ever
widening assortment of goods and services. Without minerals
societies would still be physically in the Stone Age.
What is the role that public and private policy must assume to
safeguard the interests of nations and the industry? The first
requirement is that all public policies affecting the mining sector
directly or indirectly be clearly defined. Unambiguous and stable
investment and tax codes are a must. Also needed is a clear defini-
tion and delineation of the public and the private sectors, a realistic
assessment of the ability of each country to go it alone, and an
appraisal of the need for outside assistance, financial, technical,
and commercial. Policy must start with identifying objectives so
that all parties with a role to play can move in the same direction.
It must be accompanied by the creation of adequate mechanisms
and agencies to monitor and administer the sector. Finally, govern-
ments must respect their agreements except when national interest
has been grossly, illegally, or unfairly violated. Bullying companies
is bad practice; curtailing excess is a sound policy objective.
Companies, on their part, must learn to recognize and respect
the needs and aspirations of the countries in which they operate.
Be they national or foreign, they must show increased social aware-
ness, increased willingness to participate in joint ventures, and
increased readiness to train nationals as well as to promote local
processing, and hence domestic value-added, where economic.

There Is No Looking Back

The mining industry is facing fundamental changes. The root
cause of these changes and the need to adjust to them have been
stated as follows in a Mining Journal editorial, and we can hardly
improve on it:

The old world order, in which the industrially developed

countries of the West had considerable political and economic
mastery over much of the rest of the globe, has passed into
history. So, too, has their power to secure largely unfettered
access to raw materials overseas. These facts are recognized
publicly by the international mining industry, both through
utterances of its leaders and in the many changes in mining's
corporate structure over the past two decades.
Nevertheless, there are some in the industry who have not
yet come to terms with the changing world for mining. There
 PERFORMANCE, PROSPECTS, AND PROBLEMS | 189

still lingers in some quarters a nostalgia for times past when

mining overseas was, from today's viewpoint, far less onerous
and frustrating. To look back in this mood is natural and
might be harmless. On the other hand, such indulgence may
subconsciously lead to policy decisions which are touched by
deep-rooted dismay and the rejection of an evolution that is
almost certainly irreversible.
At a personal level, it has to be recognised that attitudes
moulded over many years may sometimes become too rigid
for any real change of basic outlook to be possible. For others,
willingness to modify long-cherished concepts will always be
half-hearted in private, although not in public. If elements of
the international mining industry can be viewed as having an
Achilles Heel in this respect, they are no more fallible than
many governments which have often been myopic about the
fundamental changes in the world's social, political and eco-
nomic structure.
Certainly, it must be unwise, in the longer term, for the
mining industry to react to economic nationalism in the devel-
oping world merely by taking rearguard or otherwise purely
defensive actions. That this has so often seemed to have hap-
pened is understandable, however. It has usually appeared to
be the only response possible in the extremely complex situa-
tion now facing the mining industry and its operations in the
Third World. Quite apart from the tensions involved in work-
ing out conditions under which mining corporations and the
new mineral owners in the developing countries can co-exist,
there have been the serious distractions of changing govern-
ment policies towards mining in the more developed of the
resource-rich nations. Again, there is the confusing factor that
the Third World countries themselves are not wholly sure
of where they are going and how best they should obtain
greater benefits from the extraction of their mineral resources.
... Even if the tide of economic nationalism has begun to ebb
a little in some parts of the world, the social, political and
economic conditions under which metals and minerals were
won from overseas in the not too distant past will certainly
never return. 4

The mining industry has always been long-term future oriented

-more so than other industries-because of the high cost of

4. Mining Journal (November 22, 1974).

 190 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

exploration, the high capital intensiveness of exploitation, and the

exhaustible character and location-bound nature of mineral re-
sources. But from this point on planning for the future has to go
beyond meeting the micro and purely economic objectives of the
firm and be responsive to larger concerns which are at once macro
(contribution to national economies), social (resource creation,
environmental protection), political (harmonizing international
relations), and even moral (safeguarding the interests of the poor
countries). The industry must reform. It now operates in a climate
of suspicion and hostility on the part of the public and policy-
makers, the result of past abuses and transgressions. But if the
industry is to meet the expanded tasks, chastisement must give way
to intelligent guidelines and fair-minded supervision.
The time for international resource planning, covering both
exploitation and use, is here. Increased international cooperation
and commodity agreements taking careful account of the needs and
aspirations of both producers and consumers is a must if major and
unpredictable disruptions to the world economy and trade are to be
avoided. The problem of international cooperation becomes evident
when the question of the exploitation of the seabed's mineral re-
sources is considered. Not in the short term but possibly in the
medium term, and almost certainly in the longer term, the oceans
will become a significant factor in mineral supply, as discussed in
chapter 2. Past attempts to reach international agreement on the
terms for exploiting this potential have been unsuccessful. No doubt
the question of exploitation of ocean resources is extremely com-
plex, with important ramifications for both consumers and pro-
ducers; but future commodity agreements may prove just as
complex. A greater commitment to expanding the benefits to the
developing countries from the development of their mineral re-
sources will be important to a continued smooth flow of minerals
to the marketplace and will improve the climate for international
cooperation.
Minerals have been as much a development agent of civilization
as agricultural products and communication, and a steady supply of
them is essential to its continuation. Though the primary challenge
to the mining industry will continue to be, as in the past, the pro-
vision of adequate supplies, in the coming decades the industry
itself, rather than its product, will have to become a conscious agent
for worldwide economic development. This is admittedly an enor-
mous task.
All the complex difficulties the industry faces in its normal
course of operations are now compounded by the unrelenting
pressure for additional supplies. Population growth and improve-
 PERFORMANCE, PROSPECTS, AND PROBLEMS | 191

ment in individual income translate into one basic imperative:

more! While steadily increasing production, the industry must also
find ways to safeguard the environment in which its activities are
located and to conduct them harmoniously in a more demanding
political and social setting. Governments increasingly seek a role in
the making of decisions or, at the very least, demand compliance
with sectoral goals and guidelines. The world has become fever-
ishly aware of the importance of natural resources for the survival
of civilization and anxious to know how well their providers are
safeguarding the future. A fundamental requirement of the mining
industry, therefore, is to respond to the challenge by planning,
investing-in knowledge and capacity-and operating in such a
way as to inspire confidence in man's ability to manage natural
resources on a global basis and over time.
The mining industry is truly international in character, by defini-
tion and necessity. Mineral development requires the combination
of physical, financial, and technical resources from varied sources,
and its products travel across national boundaries. The industry
thrives best in a climate of cooperation among disciplines, coun-
tries, investment sources, the public and private sectors, manage-
ment and labor, and the various elements of the research and
information networks. The potential for coopera4ion will be
enhanced by the industry's efforts to distribute its investment and
earnings equitably over countries. This will require a continuous
resolve on the part of the industry to commit its vast know-how
and in-house resources to international development, particularly
that of the developing countries.
It is widely argued that the mining industry should shift its
base of operations to the developing countries because the devel-
oped countries are depleting their existing mineral resources. This
has to be pursued systematically, as a matter of policy, both be-
cause, over the long run, intelligent resource planning and manage-
ment must truly cover the globe, and because the strain on civiliza-
tion, over the short and medium term, of a world divided into
economic classes-of a standoff between the have and have-not
nations-is insupportable.
Appendixes
A Mineral ExplorationCosts,Expenditures,
and Risks: SelectedExamples

BEcAusE OF THE CONFIDENTIALITY of mineral exploration, data on

costs and risks are incomplete and available for only a few coun-
tries. Data are perhaps more complete for Canada than for any other
nation. The Canadian experience, while not typical of exploration in
the rest of the world, is outlined below as an example and illustrated
in a series of charts. The Canadian data are followed by some esti-
mates for the United States and the implications of this experience
for the developing countries.

Canadian Experience

Exploration expenditure in Canada has increased substantially in

the postwar years :1 from an average of Can$12 million a year in the
late 1940s to Can$80 to 90 million a year in the late 1960s to early
1970s, in constant 1971 Canadian dollars (figure A.1). Over the
same period, the value of the mineral discoveries also increased, but
to a much lesser extent (figure A.2), and exploration costs per ton
of metal doubled (figure A.3). Between 1945 and 1970, the number
of ore discoveries a year declined (figure A.4); hence, the average
exploration expenditure per discovery increased significantly,
namely, from Can$2 million in the periods 1946-50 and 1951-55, to
about Can$6 million in the periods 1956-60 and 1961-65, Can$15
million in 1966-70 (figure A.5) and an estimated Can$25 to 30 mil-
lion in 1971-72. (The figures for the recent periods may be arti-
ficiallyhigh, since companies often do not announce discoveries for

1. See D.A. Cranstone and H. L. Martin, "Are Ore Discovery Costs In-
creasing?" Canadian Mining Journal (April 1973); and P. Going, "An Indus-
trial Analysis of Exploration Activity," Canadian Mining Journal (April 1973).

195
196 THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

FIGURES A.1-A.6 I CANADA'S EXPERIENCE IN

MINERAL EXPLORATION

FIGURE A.1 AGGREGATE EXPLORATION

EXPENDITURES PER FIVE-YEAR PERIOD
500

400 -

-~300-
r 300 ~~~~~~~~~~~~~.. ... .. ... .:
o X g ~~~~~~~~~~~~..'' ...'.,''
c ~~~~~~~~~~~~~~. .. . . . . . . . ..............
0 200 -
v ~~~~~~~~.:
:: ::' '.:.:.:.:. ::.:.:....
100 _ f.''':.:'~~~~. ...... . .... ..':.'.
E ... .. .. .....
100
ES_~~~~~~~~~.
.. , _.,_,'-....
C
1946- 1951- 1956- 1961- 1966-
50 55 60 65 70

FIGURE A.2 AGGREGATE VALUE OF DISCOVERIES

PER FIVE-YEAR PERIOD

40

30-
0

0 0 -
';°. 20 _ .....

010

1946- 1951- 1956- 1961- 1966-

50 55 60 65 70

Additional inferred ore and

Cgunannounced discoveries
* Ore discoveries not yet in production

El Past and present producers

 APPENDIX A 197

FIGURE A.3 VALUE OF METAL DISCOVERIES PER

MILLION DOLLARS OF PROSPECTING
OR EXPLORATION EXPENDITURES

200 -

180 _
,,160 -1
O140 _- .

0 X120 - .

60

60
20

1946- 1951- 1956- 1961- 1966-

50 55 60 65 70

FIGURE A.4 | NUMBER OF DISCOVERIES PER

FIVE-YEAR PERIOD
100
90 _
80 -
70-
60

° 50

D 40 _ . .....

30
20
10
0 ..
1946- 1951- 1956- 1961- 1966-
50 55 60 65 70

E Ore discoveries not yet in production

Past and present producers

198 THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

FIGURE A.5 | AVERAGE EXPLORATION

ExPENDITURE PER DISCOVERY
20

10

1946- 1951- 1956- 1961- 1966-

50 55 60 65 70

FIGURE A.6 AVERAGE VALUE OF A DISCOVERY

2,000 -

< 1,600 -

v1,00

800

400

° g g7 ,., 1 ..,.....
1946- 1951- 1956- 1961- 1966-
50 55 60 65 70

Note: Dollars are constant 1971 Canadian dollars through-

out .

Source: Mineral Resources Branch, Canadian Department

of Energy, Mines, and Resources.
 APPENDIX A | 199

several years.) However, this notable increase in discovery costs per

deposit was compensated considerably by the greater value of the
average discovery, which increased from an estimated Can$245
million in 1946-50 to at least Can$750 million in 1966-70 (figure
A.6).
The experience of Cominco, Ltd., a major mining company
formerly known as the Consolidated Mining and Smelting Co. of
Canada, provides some insight into the relation of cost to risk in
exploration in Canada. In the 1937-69 period, Cominco spent
more than Can$300 million on exploration. Over 1,000 properties
were examined (all in Canada), of which 78 warranted major pro-
grams, with capital investments ranging from Can$100,000 to
Can$75 million. Eventually, only 7 of the 1,000 properties became
profitable mines.

United States Experience

The past fifteen years have seen a significant increase in the costs
of exploration in the United States. 2 At least three times as many
people are being used in the search for metallic minerals in the
western part of the United States today as in 1955. In addition,
exploration technology has become considerably more sophisticated
and expensive; the cost of putting a prospecting team in the field has
increased to an estimated $100,000 a year for each geologist. These
two factors-manpower and technology-have combined to in-
crease the total expenditures of the mining industry, stated in terms
of 1970 dollars, by about 2.5 to 3.0 times between 1955 and 1969.
(See figure A.7.)
The number of discoveries more than doubled between the
1955-59 and 1965-69 periods but the average gross value of each
discovery in the 1965-69 period was only about 60 percent of the
average ten years earlier. The estimated gross value of all dis-
coveries in the western United States increased by a factor of only
about 1.5 (figure A.8). Therefore, even though increased explora-
tion activity has brought about an increase in the number of de-
posits discovered, the cost of finding $1,000 worth of product was
about twice as great in the latter period. This corresponds closely
with the Canadian experience.
Although forty-seven significant deposits were discovered from
1955 through 1969, only sixteen of these are currently under ex-

2. See "U.S. Exploration Is Very High Risk, Development More Costly,"

World Mining (November 1971).
 200 | THE MINING INDUSTRY AND THE DEVELOPINGCOUNTRIES

FIGURE A.7 EXPLORATION EXPENDITURES IN THE WESTERN

UNITED STATES
500

400 _. .................
t ...
'.'...,
'..'.. ..: .'.
~~~~~~~~~~~~~~~.............
W ~~~~~~~~~~~~~~~~...
.......
t
0N
~~~~~~~~~~~~~~~............
~~~~~~~~~~~~~~~. ....,..:.:..:':..
........ .'.' .:..'
':
o 300 ..

z ,, ~~~~~~~~~~~~~.,,:.....
.... .....
. ,...... .,,.:,
. . .
100 _ ,, ,,,,,,~~~~~~.,...,.,.,, .....
,,,.........
C: 200
300 _-...... ..... .. .... :::.
0
E .. . ~ ~ ~ .........

~ ~ ~
0 F : . . ..........
20 : .s.:.s.::.s.:.ss...:ss:s:.s.'

1955-59 1960-64 1965-69

Years

Source: "U.S. Exploration is Very High Risk: Development More Costly," World
Mining (November 1971).

ploitation. Exploration expenditures in the western United States

over the period 1955-69 averaged $18 million per significant dis-
covery, but $60 million per mine brought into production.

Implications for Exploration Expenditures

in the Devreloping Countries

Very little quantitative information is available on exploration

expenditures in the developing countries and much of what is avail-
able is unreliable. To put the Canadian and the United States ex-
perience in the context of exploration costs in the developing
countries, it is important to note the following:
The results obtained in these two countries depend to a very
 APPENDIX A | 201

FIGURE A.8 I GROSS VALUE OF ORE DEPOSITS VALUED AT $100

MILLION OR MORE DISCOVEREDIN THE WESTERN
UNITED STATES
24 -
_ 22 -

20 _ ....
E ~~~~~~~~~~................
...........
Q 16
e 16 _ ..... .... ... ~~~~~...............
o 14 ...... ...
.. ... .. ............
:::::::

°U 12 _o .... , , , , ., .... . ~~~.

.............
,.. .....
1 6 . . . . . . . . . .::. :.:..
o ,, ......... ~~~~. . . ..,,...., .
'0 10 _ :: ,. .. I. . .........
C 8 _ ~~~~~~~~~. .. ,. ...
.............. , .............
6 _ j ....~~~~..............:::
i i ~~~~~~~~~~. .. . .. , . ..:'''
' '...
o ~~~~~~~~~~~...... ... , .:

12

10
o 4- . . .. ..........
O .+ ................

1955 59 1960-64 1965-69

Years

Source: "U.S. Exploration is Very High Risk: Development More Costly," World
Mininig (November 1971).

large extent on the geological maps and surveys already substan-

tially completed. Such information is generally not available in the
developing countries, which would make costs significantly higher.
On the other hand, Canada and the United States have been thor-
oughly explored, and new mines are becoming more difficult to find,
while costs are increasing. This is reflected in the age of the mines
currently in operation: 50 to 60 percent of Canada's current produc-
tion comes from mines discovered before 1910, 25 percent from
1910 to 1920, and 11 percent from 1920 to 1930; of the 150 to 200
mines started or restarted since 1955, more than 50 percent were
discovered before 1950 and 20 percent before 1920.
Exploration costs and risks in the developing countries will, of
course, vary considerably from country to country but can be ex-
pected to be considerably lower than in Canada and the United
States, especially in countries with known potential such as Bolivia,
 202 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

Peru, Chile, Brazil, and Zambia. Overall, taking into account the
large areas unexplored in the developing regions, exploration costs
and risks there can be expected to be considerably below those in
Canada and the United States.
B I Expansionof Mineral Capacity

THE FOLLOWINGTABLE summarizes the investment costs of announced

projects for the mining of bauxite-alumina-aluminum, copper, iron
ore, lead and zinc, nickel, and other metallic and nonmetallic
minerals on the basis of 1973 data in most cases. Since then, infla-
tion and escalation have raised costs considerably-in some cases,
to almost double the original estimate. In copper projects, for
example, the increase in 1974 alone was about 15 percent on the
average and as high as 25 percent in some countries. Furthermore,
postponements or cancellations are common. Taking copper again
as an example, in 1974 net additions (expansions minus closures)
of some 500,000 tons were projected for 1976 by one reputable
source. In 1975 the estimate was reduced by half of the original
projection, and now it appears that even the revised estimates will
not be achieved.

203
TABLE B.1 MINERAL PROJECTS UNDER CONSTRUCTION OR IN ADVANCED STAGES OF PLANNING

Projects
for
which
no
Total cost
numnber estimates Total Size of investments (millions of dollars)
of were reported
Project projects provided investment 0-9 10-49 50-99 100-150 150-199 200 +
Bauxite, alumina, and aluminum
industry
Number of projects 62 32 30 3 10 4 2 6 5
Percentage of reported projects 100 52 48 5 17 6 4 10 8
Total reported investmentsa 3,564 19 319 274 241 1,027 1,690
Percentage of total reported investment 100 0 9 8 7 29 47
Copper mining, beneficiating, smeltin2g,
and refining
Number of projects 84 42 42 3 12 11 8 1 7
Percentage of reported projects 100 50 50 4 14 13 10 1 8
Total reported investments' 5,629 19 297 796 850 180 3,487
Percentage of total reported investment 100 0 5 14 15 15 62
Iron mining, beneficiating, and
pelletizing
Number of projects 41 19 22 1 3 6 0 1 11
Percentage of reported projects 100 47 53 2 7 15 0 2 27
Total reported investments' 4,676 8 107 419 0 190 3,952
Percentage of total reported investment 100 0 2 9 0 4 84
Lead and zinc mining, berieficiating,
smelting, and refining
Number of projects 50 22 28 8 15 5 0 0 0
Percentage of reported projects 100 44 56 16 30 10 0 0 0
 Total reported investmentsa 680 37 329 314 0 0 0
Percentage of total reported investment 100 5 48 46 0 0 0

Nickel mining, beneficiating, smelting,

and refining
Number of projects 31 14 17 1 6 3 2 3 2
Percentage of reported projects 100 46 54 3 18 9 6 9 6
Total reported investments' 1,621 6 161 207 237 490 520
Percentage of total reported investment 100 0 10 13 15 30 32

Other metallic minerals, mining, bene-

ficiating, smelting, and refining'
Number of projects 70 38 32 17 7 5 2 0 1
Percentage of reported projects 100 55 45 24 10 7 3 0 2
Total reported investments' 1,041 74 96 306 265 0 300
Percentage of total reported investment 100 7 9 30 25 0 29

Total metallic minerals

Number of projects 338 167 171 33 53 34 14 11 26
Percentage of reported projects 100 49 51 10 16 10 4 3 7
Total reported investments' 54 17,211 163 1,309 2,316 1,593 1,887 9,949
Percentage of total reported investment 100 1 8 13 9 11 58

Nonmetallic minerals, mining, bene-

ficiating, and processing'
Number of projects 56 30 26 10 12 2 0 0 2
Percentage of reported projects 100 54 46 18 21 4 0 0 4
Total reported investments' 938 55 348 135 0 0 400
Percentage of total reported investment 100 6 37 14 0 0 43
Du Note: The majority of these projects is scheduled to start up in 1975, 1976, or 1977, although a few are scheduled to start up as late as 1980.
a. In millions of dollars.
b. Includes antimony, bismuth, magnesium, platinum, silver, titanium, tungsten, and uranium.
c. Includes phosphate, potash, asbestos, fluorspar, salt, sulfur, soda ash, strontium, and diamonds.
Source: Engineering and Mining Journal, 1974 International Directory of Mining and Mineral Processing Operations.
C UnitedNations Assistancein
Mineral ResourcesDevelopment

OPERATIONAL ACTIVITIESin the mineral sector have been conducted

mainly by the United Nations Resources and Transport Division,
now called the Centre for Natural Resources, Energy, and Trans-
port, on behalf of the United Nations Development Programme
(UNDP). Over 100 full-scale mineral resource development projects
have been undertaken with cooperation and joint financing by the
recipient governments. These programs, which started in the early
1960s, generally combine the search for ore deposits with the estab-
lishment or strengthening of national mineral resources depart-
ments. Nonoperational activities include dissemination of informa-
tion on technological developments through seminars, research
studies, and working groups on a worldwide basis, the results of
which appear as United Nations publications. While the overall
program focuses primarily on land-based mineral resources, near-
shore and offshore surveys are also undertaken in certain coun-
tries with mineral potential in that environment.
The major thrust of the program has been operational activities
which have embraced virtually all aspects of mineral resources de-
velopment-geological survey and mineral resources department
organization; geological mapping; photogeology; mineralogy and
petrology; mineral exploration using all modern methods such as
geochemical prospecting, exploration geophysics (airborne, ground,
and offshore), diamond and other types of drilling, analytical chem-
istry and assaying, economic feasibility studies, mining, mineral
processing and metallurgical extraction, and mining legislation. The
following paragraphs set out briefly the sectors covered and give
some indication of the magnitude of the program as of January 31,
1972.'

1. For additional details, see United Nations, Comprehensive Plan of

Action for the Co-ordination of Programmes Within the United Nations in the

206
 APPENDIX C | 207

Organization and Strengthening of Government

Departments Dealing with Geology and
Mineral Resources Development

In essence, virtually all projects executed assist in the organiza-

tion and strengthening of government institutions, and training of
national personnel at all levels is an important part of that effort. A
number of projects, however, have as their primary objective the
establishment or strengthening of institutions, while concurrently
carrying out the geological, mineral exploration, or other field sur-
veys required by the development program of the recipient country.
They, too, encourage mineral resources development, the Geologi-
cal Survey Institute project in Iran being a case in point.
Total funding in this sector amounts to $5.1 million in UNDP
financing and $5.0 million in recipient government contributions.
Projects have been or are being executed in Benin, Ethiopia, Guinea,
Mauritania, Iran, and Jordan. A number of others are anticipated,
notably in Burma.

Mineral Exploration Programs Using Modern Methods

The largest single operational sector involves exploration using

modern methods, since the direct search for ore deposits (along with
simultaneous training of national personnel in modern methods)
has been the prime motivation for the bulk of the projects assisted
by the UNDP. Institute strengthening is inherent in all these pro-
grams through training, equipment financing, and other provisions.
Some sixty-five projects have been or are being executed in fifty-five
countries, thirty of them in Africa. The extent of the funding totals
about $55.0 million of UNDP resources and $45 million contributed
by recipient governments. The operations have involved all appro-
priate methods of ground, airborne, and offshore surveying.
This sector also contains a number of combined mineral and
groundwater projects-in Madagascar, Somalia, Togo, Upper Volta,
and Cyprus-which involve UNDP inputs totaling $7.3 million, with
some $5.7 million of counterpart contributions.

Field of Natural Resources Development, Report of the Secretary General,

Addendum on Mineral Resources (E/C.7/47/add. 2) (New York, February 10,
1975).
 208 I THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

Programs in Mining and Mineral Processing

Mineral processingactivitieshave figuredin severalof the min-
eral explorationprojectslistedabove.The reasonfor this is obvious;
mineral deposits identifiedin these programs cannot be evaluated
without establishingthat the ore can in fact be beneficiatedeco-
nomically.It is not unusual for mineraldepositsof otherwisesatis-
factory tonnage and grade to be consideredunworkablebecauseof
mineral processingdifficulties.Processingmust therefore be taken
into accountin establishingeconomicfeasibility.
There are, however, a number of projects in which mining and
mineral processing investigationsform the major part of opera-
tions, that is, projects not necessarilytied to explorationactivities
but rather designedto meet the needs of an existing mining in-
dustry. Projects of this kind have been executedin Burma and
Bolivia.

Establishment of University
Schools in Applied Geology
The emphasisplaced by certaindevelopingcountrieson applied
rather than purely scientificuniversitytraining has resultedin sev-
eral projects providing such training. They were executed jointly
with national universities, usually in close cooperation with national
geological or mining organizations which will be employing a
number of the specialists turned out. Training has centered on
mineral exploration techniques, taught at the postgraduate level or
after a grounding in basic sciences through undergraduate courses;
it combines academic course work with concentrated practical field
training in the physical, geological, and metallogenetic environ-
ment of the students' home country. While the field training pro-
grams may not have the location of mineral deposits as a primary
objective (instead focusing on applied research and development of
exploration methods in different environments), positive explora-
tion results are by no means neglected in these programs, as has
been demonstrated by the "Institute of Applied Geology" project
in the Philippines.

Other Technical Assistance Activities

In addition to the larger-scale projects dealt with above, consider-
able assistance on a more modest scale has been given to developing
 APPENDIX C | 209

countries in the form of individual experts assigned to advise gov-

ernments or to meet specific needs, but usually not charged with
assuming operational responsibility, as in the case of full-scale
projects. To indicate the nature and extent of these services, it may
be noted that 353 man-years of expert services were provided dur-
ing 1966-74; for general exploration and economic geology (135);
mining and mineral processing (82); geological and mining institute
organization (35); mineral economics (22); drilling (23); mining
legislation (14); chemists, mineralogists, and other laboratory work
(28); geophysics (10); and geochemistry (4).
D Past Activitiesof the World Bank
in the Mining Sector

THE WORLD BANK has been actively engaged in the financing of min-
eral resource development for many years.' From 1957, when it
made its first loan in this sector, through FY75, the IBRD and IDA
financed eighteen projects for a total of $610 million, and IFc par-
ticipated in nine projects with total investment of $119 million.
The total cost of mineral projects financed by the Bank through
June 30, 1973, was in the order of $2,500 million, and the Bank
contribution (approximately $570 million) came to about 23 percent
of total project costs. While its own direct contribution to mineral
sector investment in developing countries has been only 1 to 1.5
percent, the Bank participated in projects accounting for 6 to 8
percent of total mineral sector expenditures in these countries.
Roughly 45 percent of the commitments through FY73 were made
in Africa (Botswana, Congo, Gabon, Guinea, and Mauritania); 37
percent in Latin America (Brazil, Chile, Dominican Republic, and
Mexico); 9 percent in India; and the remainder in Greece, Israel,
and the Philippines. The largest recipients were Brazil and Mauri-
tania, with $148 million and $66 million, respectively. In two coun-
tries, Botswana and the Dominican Republic, projects financed by
the Bank accounted for more than 80 percent of total mineral sector
investments and made a major contribution to national product and
export earnings.
The twenty-two projects financed by the Bank between FY57 and
FY73 display differing characteristics. By and large, financing has
been limited to the exploitation stage, although some technical

1. Here and throughout the World Bank is understood to comprise the

International Bank for Reconstruction and Development (IBRD) established
in 1945, the International Development Association (IDA) established in 1960,
and the International Finance Corporation (IFc) created in 1956.

210
 APPENDIX D | 211

assistance lending has also been extended for the final stages of
exploration and for the preparation of feasibility studies. The loans
themselves have been made not only for the mining and beneficiation
facilities but also to build townships, road and rail transport facili-
ties, port-loading facilities, and electric power generation. Eleven
loans financed production facilities, four loans financed infrastruc-
ture facilities, and the remainder covered both production and infra-
structure. IBRD loans involved the production of iron ore, nickel,
manganese ore, potash, bauxite, aluminum, and coal; iFc investments
were for the mining and production of copper, nickel, aluminum,
and iron ore. All iFc finance was for private enterprises, in accor-
dance with the corporation's charter; IBRD loans went about equally
to the private and the government sectors.
While the main thrust of its effort has been directed toward the
financing of production and infrastructure facilities, the Bank has
also been active in assisting governments in reviewing the mineral
sectors of their economies. This has been done through special
sector or subsector surveys undertaken at its own initiative or at
the request of member governments. As of June 1973, twenty-five
such surveys had been undertaken or were planned; these ranged
from an assessment of the mineral potential of Bolivia and Upper
Volta to a brief review of the investment needs for geological sur-
veys of a group of African countries. In some cases the objective of
these surveys has been to collate the geological knoMledge of min-
eral resources within the country to determine its mineral potential
and to identify promising projects. In other cases, such surveys
have assisted governments in assessing the effectiveness of admin-
istrative arrangements, policies, and legislation in the sector. Many
of these surveys, however, have been exploratory in nature so far.
The importance of the mining industry to the economies of many
of its member countries has led the Bank to engage regularly in
studies of the long-term prospects and problems of individual min-
erals, especially those of current or potential export interest to the
developing countries, both for internal use and for the benefit of its
constituents.
E I Profitabilityof the Mineral Sector

THE DATA are not sufficient for a full analysis of the earnings ex-
perience of the mineral sector as a whole. In this appendix, some
isolated available statistics are presented in order to provide some
background.
In Canada, for example, more than 3,500 mines are currently
registered, of which 1,000 are quoted on the Canadian Stock Ex-
change. Of these stocks, quoted since 1956, only fifty to sixty have
paid dividends for any one year; that is, less than 1 percent of all
incorporated mining companies pay dividends. A review of the
mines making a profit indicated that return on investment has been
generally low, ranging from 2.2 percent for gold mines to 9.7 per-
cent for nonmetallic mines.'
A survey of mines conducted by the Financial Post showed that
between 1894 and 1967, 283 Canadan mines paid dividends totaling
Can$5,000 million. The largest, INCO, paid more than $1,000 million
and INCOwith seven others (Cominco, Noranda, Hudson Bay Min-
ing, Hollinger, Falconbridge, McIntyre-Porcupine, and Lake Shore)
accounted for two-thirds of total payout. Seven mines paid divi-
dends for over fifty years and account for two-thirds of the total
payout, whereas 106 of the 283 paid dividends for one year only.
In 1969, the U.S. Bureau of Mines contracted with Charles River
Associates, Inc., for a study on "The Contribution of the Nonfuel
Minerals Industry to International Monetary Flows." This study
indicated that average annual earnings on U.S. foreign investment
fluctuated between 10 and 15 percent of net investment for the
period 1954 to 1967. Broken down by region the investment re-

1. F. C. Kruger, "Mining: A Business for Professionals Only," Mining

Engineering (September 1969), p. 85.

212
 APPENDIX E | 213

turned less than 10 percent in Canada but up to 25 percent in Latin

America. (See figure E.1.) Furthermore, income returned to the
parent companies, although averaging 60 percent of earnings from
the Canadian investments, was close to 100 percent of earnings on
the Latin American investment. This is clearly indicative of the
additional return required by the companies to compensate for the
higher political risks.
Fortune Magazine's tables on the top 1,000 U.S. corporations
and top 200 non-U.S. corporations for 1970 and 1973 provide a brief
overview of how the larger and more successful of the mining com-
panies fare compared to the large companies in other sectors. Of the
top 1,000 U.S. corporations only about thirty are mining companies
(twenty in the top 500 and ten in the second 500). When we look at
industry medians we find that mining companies clearly display the
highest return in terms of profit on sales, the ratio varying between
10 and 15 percent. The return for individual companies varied up to
35 percent, with a few at less than one percent.
On the other hand, as mining is a capital intensive industry, re-
turns in terms of profits on assets, or profits on equity, compare
much less favorably. In recent years, profits on total assets, while
remaining slightly above the average for all industries, have been
well below those of many industries. Furthermore, the very con-
servative debt to equity ratios maintained by most of the mining
companies has meant that mining is barely able to maintain a re-
turn (profit on equity) above the average for all industries. Some of
the individual companies display a return on equity of up to 20
percent, but rarely up to the 30 and 40 percent common in com-
panies of other industries; in most cases, returns lie between 10 and
15 percent, and for a notable number they lie below 5 percent.
 FIGURE E.1 ANNUAL EARNINGS ON DIRECT U.S. FOREIGN INVESTMENT IN MINING AND SMELTING FACILITIES
AS A PERCENTAGE OF DIRECT FOREIGN INVESTMENT (BOOK VALUE, YEAR END)
30

Latin America and Caribbean *

c20
20~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ______*jH' C

. . , -''*'All areas
cu~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~'
bIt

a '00canada
10 __

a~~~~~~~~~~~~~~Ya * ~~~~~~~~~

1954 1956 1958 1960 1962 1964 1966

Year
Note: Earnings defined as the sum of the U.S. share in net earnings (or losses) of foreign corporations and branch profits after foreign taxes and
before U.S. taxes.
Source: U.S. Department of Commerce, Office of Business Economics, Survey of Current Business (October 1968), p. 26; and Balance of Payments
Statistics Supplement, pp. 190, 193, 212, and 215.
F I Classificationand Reliability
of Reservesand Resources

WITHIN THE INDUSTRY, mineral resources are classified into reserves

-proven, indicated, and inferred-and resources. Several varia-
tions of this classification exist, such as: measured, indicated, in-
ferred; or proven, probable, possible. A mineral resource is not
classified as a reserve or, more specifically, an orebody until there
is sufficient indication that its size and grade are sufficient for it to
be economically exploitable. The common distinction among the
subgroups is explained below.
Proven reserves: These are reserves that have been blocked out
or delineated in three dimensions, with sufficient sampling intensity
and accuracy to allow the exploration crew to estimate size and
grade of the deposit with a reasonable degree of certainty. Reason-
able degree of certainty is a commercial term which varies between
operator, mineral, and type of orebody. Hence, a level of knowledge
sufficient to classify reserves as proven in one deposit may not be
sufficient for another deposit.
Indicated reserves: These are reserves that have been partially
delineated and computations of quantity and grade made by extra-
polation from assay and sampling results. Before being classified as
proven, they require additional sampling and perhaps the collection
of bulk samples to verify sampling and measurement methodology.
Inferred reserves: These are reserves inferred from limited geo-
logical and sampling information. They may be inferred by extra-
polating from proven or indicated reserves solely on the basis of
knowledge of continuous rock structures. The degree of certainty
with which the quantity and grade of the reserves can be computed
is very low.
In its most recent appraisal of U.S. and world resources,' the

1. U.S. Department of the Interior, United States Mineral Resources,

Geological Survey Paper no. 820 (Washington, D.C., 1973).

215
 216 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

U.S. Geological Survey has adopted a new classification which di-

vides resources into three categories-conditional, hypothetical, and
speculative. Conditional resources are defined as specific identified
mineral deposits whose contained minerals are not profitably re-
coverable with existing technology and economic conditions. Hypo-
thetical resources are undiscovered mineral deposits, whether of re-
coverable or subeconomic grade, that are geologically predictable as
existing in known districts. Speculative resources are undiscovered
mineral deposits, whether of recoverable or subeconomic grade, that
may exist in unknown districts or in unconventional form.
Unlike earlier definitions, the classification outlined above places
less emphasis on levels of economic recoverability and more empha-
sis on evaluating the undiscovered, because of the conviction that
the long-range potential lies in resources that have not yet been
discovered. The relation of the four principal categories under this
classification is illustrated schematically in figure F.1.
Published reserves have no uniform classification and are not
uniformly reliable. Some entities announce only those reserves that
are proven, others those that are proven and indicated, and still
others announce all three categories proven, indicated, and inferred.
In some cases announcements are highly speculative (a recent an-
nouncement in Australia, for instance, referred initially to enor-
mous, very high-grade uranium deposits, but the assessment was
later discounted and modified to medium size, slightly above average
grade). In other cases the announcements are extremely conserva-
tive. The latter is often the case for operating companies, which
often announce only proven reserves, yet restrict their exploration
activity to proving up sufficient reserves for adequate mine plan-
ning. Some governments require a minimum rate of exploitation
based upon the size of the reserves; hence, companies purposely
understate reserves. Other factors of equal importance when re-
viewing published reserves are the mineral price and technology as-
sumptions used in the computation of reserves. Whether a mineral
occurrence is regarded merely as an occurrence or a reserve will
depend upon the economic feasibility of exploiting the reserves. In
some cases, what is merely an interesting mineral occurrence (but
under existing prices and technology is noneconomic) is announced
as a reserve.
All these factors point to the extreme caution that must be used
when using published reserves to draw regional and global con-
clusions. It is relevant to note that a 1971 survey of eighty-one min-
eral commodities by the U.S. Bureau of Mines indicated that
roughly four-fifths of the data on reserves (even on U.S. reserves)
 APPENDIX Fr 217

FIGURE F.1 JCLASSIFICATION OF MINERAL RESOURCES

Lower costs
(largely
through
research and
development)

o Additional I Additional
o a resources resources
°u ur Demonstrated
but not vet Both undiscovered
oeconomic |r I and not yet economic

Discoveries
Through exploration and
so u research and development
S 7 Rese~rves
sa Demonstrated and
//presently economic Additional
//////resources' resources
Undiscovered

Demonstrated
A1if but economic
found
Undiscovered

Increasing degree of certainty of existence

Source: Jean-Paul Drolet, "The Demand for Canada's Mineral Resources," paper
presented at the International Symposium on Canada's Nonrenewable Resources,
Toronto, March 25, 1974.

are poor, having a confidence level of 65 percent. (See table

F.1 )2

2. This account barely scratches the surface. For a comprehensivereview

and analysis, see Resourcesfor the Future, John J. Schanz, principal investi-
gator, Resource Terminology: An Examination of Concepts and Terms and
 218 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

TABLE F.1 I APPARENT RELIABILITY OF DATA ON

EIGHTY-ONE MINERAL COMMODITIES

Data classification
Good' Fairb Poor'
(number of (number of (per-
Item commodities) commodities) centage)
United States
Supply
Production 54 2 25 31
Stocks 34 6 41 51
Imports 54 0 27 33
Exports 37 4 40 49
Reserves 13 2 66 81
Demand
Consumption by end use 28 3 50 62
Total consumption 54 3 33 41

Rest of the World

Supply
Production 6 48 27 33
Reserves 4 10 67 83
Demand
Total consumption 2 29 50 62

a. Amount estimated, less than 15 percent; confidence level greater than 85 percent.
b. Amount estimated, less than 35 percent; confidence level greater than 65 percent.
c. Amount estimated, more than 35 percent; confidence level less than 65 percent.
Source: U.S. Congress, Hearings before the Joint Committee on Defense Pro-
duction, Potential Shortages of Ores, Metals, and Minerals, Fuels and Energy Re-
sources, etc. 92nd Cong., 1st sess., August 2, 1971, p. 61.

Recommendations for Improvement (Palo Alto, California: Electric Power

Research Institute, August 1975). The study reproduces and reviews several
classifications, including the joint U.S. Geological Survey-Bureau of Mines
classification recently adopted in a landmark agreement. A good exposition of
the complexities of the subject can be found in Jan Zwartendyk, "Problems
in Interpretation of Data on Mineral Resources, Production, and Consump-
tion," Natural Resources Forum 1 (October 1976): 7-15.
G I Estimatesof Reservesand Adequacy

THE RESERVE AND OUTPUT ESTIMATES in the following tables are from
the U.S. Bureau of Mines, Mineral Facts and Problems, Bulletin 650,
1970; Commodity Data Summaries, 1971; Minerals Yearbook
(various issues); and Metal Statistics, 1971. Volume estimates were
converted into value terms solely for the purpose of estimating
regional distribution and to permit aggregation. As noted in the
text, the true value of a deposit cannot be determined until all the
ore is mined.
The demand assumptions used in measuring adequacy (reserve
life) are from Leonard L. Fischman and Hans H. Landsberg, "Ade-
quacy of Nonfuel Minerals and Forest Resources," in Ronald G.
Ridker, ed., Population, Resources and the Environment (Washing-
ton, D.C.: U.S. Government Printing Office, 1972). The Fischman
and Landsberg estimates for projected growth in world consumption
compare with the following 1970 growth estimates from the U.S.
Bureau of Mines (all differences reflect differences in the estimates
for the United States):
U.S. Bureau of Mines' Fischman and Landsberg
Mineral 1968-2000 1968-2020
(percentage per year)
Bauxite 6.4 6.4
Chromium 2.6 2.7
Cobalt 1.5 1.9
Copper 4.6 4.6
Iron 1.8 2.3
Lead 2.0 2.3
Manganese 2.9 2.9
Molybdenum 4.5 4.7
Nickel 3.2 3.2
Silver 2.7 2.7
Tin 1.1 1.2
Tungsten 2.5 3.5
Zinc 2.9 3.0
a. Average of high and low estimates.

219
TABLE G.1 I DISTRIBUTION OF WORLD MINERAL RESERVES BY VALUE
AT COMMON STATE OF TRANSFER IN THE WORLD MARKET
Value of reserves by region
Centrally
Developed Developing planned
World reserves countries countries economies
Unit Gross value Percent Percent Percent
value US$1,000 US$1,000 of US$1,000 of US$1,000 of
Mineral Quantity (dollars) million million world million world million world
Iron ore 100,000 million short tons of
recoverable iron 15' 1,500 525 35 450 30 525 35
Phosphate rock 21,800 million short tons of
P content 50' 1,090 340 31 570 53 180 16
Aluminum 1,200 million short tons of
Al content 500' 600 210 35 330 55 60 10
Potash 1,310 million short tons of
K,O content 25' 325 154 47 21 7 ISO 46
Copper 320 million short tons of
Cu content 1,000o 320 109 34 160 50 51 16
Asbestos Not accurately delineated 100' 250-350 b _b _b _b _b _b

Magnesium 2,600 million short tons of

Mg content 75' 195 15 8 4 2 176 50
Nickel 147,000 million pounds of
Ni content 1.25' 184 69 38 88 48 27 14
Titanium 147 million short tons of
Ti content 900g 132 79 60 31 23 22 17
Diatomite 2,000 million short tons 58' 116 _d_ _d _d _d _d

Chromium 775 million short tons of

Cr content 100- 77 53 75 18 23 1 5
 Columbium 20,500 million pounds of
contained Co 2.6' 53 6 12 29 54 18 34
Manganese 728 million short tons of
Ma content 55' 40 19 47 12 31 9 22
Zinc 124 million short tons of
Zn content 300' 37 24 66 6 16 7 18
Sulfur' 2,100 million long tons of
contained S 30' 62 13 21 37 60 12 19
Lead 95 million short tons of
Pb content 270' 26 18 68 5 21 3 11
Tin 4.3 million long tons of
contained Sn 3,750' 16 1 4 12 80 3 16
Silver 5,500 million troy ounces
of Ag content 2.2k 12 4 35 4 29 4 36
Feldspar 1,000 million long tons lot 10 __ d _ d 5d

Fluorspar 39 million short tons of

fluorine content 100 4 _h _h _h __h

Tungsten 2,800 million pounds of WO- 045' 1.4 negligible 5 negligible 5 1 90

Total minerals 1,639 35 1,787 38 1,249 27
Total minerals (excltuding iron ore) 1,114 35 1,337 42 724 23
Total metallic minerals (excluding iron ore) 607 36 710 42 382 22
Total metallic minerals (excluidinsg iron ore, copper, and aluminum") 288 37 220 28 271 35
Note: Value of reserves is based upon estimated long-term price of the mineral, at the commonly used points of transfer in the international market.
A more representative price would be international market price of ore or concentrates. However, data are inadequate to compute all values in
these termns.
a. Per short ton.
b. No details available, but major reserves in South Africa.
c. Per pound.
d. No details available, but United States alone has sufficient reserves to supply total world needs for more than thirty years.
e, Includes petroleum and natural gas as sources.
f. Per long ton.
g. Per ounce.
h. No details of distribution available, but main reserves are in Mexico and Europe.
 222 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

TABLE G.2 I WORLD RESERVES OF SELECTED MINERALS

Value
of
world
Major Major output,
reserves producers' 1968b
(millions
of
Mineral (percent of world total) dollars)
Minerals with ample reserves

Reserve life 150 years plus

Columbium Latin America (45) Brazil (6) 29
Soviet Union (35) Canada (26)
Africa (10) Nigeria (12)
Canada (10)
Phosphorus Morocco(42) United States (42) 835
United States (31), Soviet Union (24)
Soviet Union (12) Morocco (13)
Potash Centrallyplanned Centrally planned 370
economies (45) economies (19)
Canada (38) Canada (17)
Germany, Fed. Western Europe (27)
Rep. of (7) United States (15)

Reserve life 120 to 150 years

Magnesium China, People's Rep. United States (45) 115
of (53) Soviet Union (22)
North Korea (31) Norway (16)
New Zealand (6)

Reserve life 100 to 110 years

Chromium South Africa (74) Centrally planned 190
South Rhodesia (22) economies (40)
South Africa (23)
Philippines (9)

Reserve life 90 to loo years

Feldspar not available- United States (30) 55
widespread Europe (35)
Soviet Union (12)
Iron Soviet Union (32) Soviet Union (26) 6,190
South America (19) Western Europe (17)
Canada (12) United States (11)
Australia (10) Australia (8)
Canada (6)
Vanadium Soviet Union (59) United States (49) 60
South Africa (20) South Africa (25)
Australia (15) Finland (13)
 APPENDIX G | 223

TABLEG.2 | Continued.
Value
of
world
Major Major output,
reserves producers' 1968b
(millions
of
Mineral (percentof world total) dollars)
Reservespresentingno seriousproblem
Reserve life 50 to 60 years
Cobalt Zaire (31) Zaire (59) 110
New Caledonia (18) Zambia (9)
Zambia (16) Canada (8)
Morocco(4)
Nickel Cuba (24) Canada (40) 1,100
New Caledonia (22) Soviet Union (22)
Canada (14) New Caledonia (19)
Soviet Union (14)
Reserve life 40 to 50 years
Asbestos not available- Canada (50) 323
widespread Soviet Union (30)
South Africa (8)
Manganese South Africa (38) Soviet Union (38) 475
Soviet Union (25) South Africa (12)
Gabon (12) Brazil (12)
India (9)
Molybdenum United States (58) United States (70) not
Soviet Union (18) Canada (21) avail-
Chile (16) able
Reserve life 30 to 40 years
Antimony China, People's Rep. South Africa (25) 66
of (50) China,People'sRep.
South Africa (6) of (20)
Soviet Union (6) Bolivia (18)
Soviet Union (10)
Bauxite Guinea (34) Jamaica (20) 340
Australia (34) Australia (15)
Surinam (11) Surinam (11)
Jamaica (5) Soviet Union (10)
Soviet Union (3) Guyana (7)
Sulfur Near East and United States (39) 710
South Asia (45) Centrallyplanned
Eastern Europe (16) economies(21)
United States (12) Canada (20)
Titanium Norway (20) United States (60) 60
United States (17) Japan (30)
Canada (17)
Soviet Union (17)
 224 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

TABLE G.2 I Continued.

Value
of
world
Major Major output,
reserves producers' 1968b

(millions
of
Mineral (percentof world total) dollars)
Reservesthat aretight or critical
Reserve life 20 to 25 years
Barite United States (40) United States (23) 35
China, People'sRep. Western Europe(33)
of (13) Centrally planned
Other centrally economies(6)
planned econo-
mies (15)
Germany,Fed.,
Rep.of
Bismuth Japan (45) Latin America (48) 28
Latin America (21) India (18)
United States (13) Canada (8)
Centrally planned
economies(10)
Copper United States (28) United States (23) 7,740
Chile (19) Soviet Union (15)
Soviet Union (13) Zambia (13)
Zambia (10) Chile (12)
Peru (8) Canada (8)
Tungsten China, People'sRep. China,People's Rep. 105
of (74) of (24)
United States (7) Soviet Union (20)
Korea,Rep. of (4) United States (13)
North Korea (7)
Korea,Rep. of (6)
Reserve life 15to 20 years
Lead United States (37) United States (14) 775
Canada (13) Australia (14)
Australia (12) Soviet Union (14)
Canada (9)
Tin Thailand (32) Malaysia (32) 750
Malaysia (14) Bolivia (13)
Indonesia (12) Soviet Union (12)
Bolivia (10) Thailand (9)
Zinc United States (27) Canada (22) 1,450
Canada (20) Soviet Union (12)
Western Europe(11) Australia (10)
Eastern Europe (11) United States (9)
Peru (6)
 APPENDIX G | 225

TABLEG.2 | Continued.
Value
of
world
Major Major output,
reserves producers' 1968h

(millions
of
Mineral (percent of world total) dollars)

Reserves that are tight or critical (continued)

Reserve life under 15 years
Fluorspar not available- Mexico (27) 81
reservesmainly in Western Europe(27)
Mexicoand west- Centrallyplanned
ern Europe economies(20)
Thailand (7)
United States (6)
Mercury Centrally planned Western Europe(50) 125
economies(35) SovietUnion (17)
Spain (31) United States (11)
Italy (22) China, People'sRep.
of (9)
Silver Centrally planned Mexico (15) 595
economies(36) Canada (15)
United States (24) United States (14)
Mexico (13) Soviet Union (13)
Canada (12) Peru (12)
a. In the late 1960s.
b. At the commonlyacceptedpoint of transfer in world markets.

Several revised estimates of some components of the demand

and supply picture have appeared recently. In most cases, especially
on the demand side, the revisions have been minor. While major
new resource discoveries have been reported (especially in the
Amazon region of Brazil, Oceania, Siberia, and south central
Africa), these have not yet been reflected in the official statistics.
Some sources give nickel and bauxite figures significantly higher
than those in tables G.1 through G.3. Most mineral prices are higher
than in 1970, despite the recession; some (like phosphate rock)
having attained what appear to be new plateaus. On this score
alone, many of the reserve estimates can be considered conservative.
 226 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

TABLE G.3 I COMMERCIALLY

RECOVERABLE
RESOURCESOF
SELECTEDORES UNDER SELECTEDPRICE ASSUMPTIONS
Reserves
Cen-
Devel- Devel- trally
oped oping planned
coun- coun- econo-
Mineral Price' Indexb World' Indexb tries tries mies
Bauxite 0.27 100 3,280 100 38.1 56.6 5.3
0.31 115 3,420 104 37.8 56.2 6.2
0.34 126 3,705 113 37.5 55.0 7.5
0.37 137 4,695 143 35.9 52.7 11.4
Copper 0.50 100 296 100 37.3 47.2 15.5
0.60 120 332 112 38.5 47.3 14.2
0.80 160 402 136 36.8 50.1 13.1
1.00 200 516 174 38.8 49.5 11.5
Iron ore 15.65 100 97 100 35.6 29.1 35.3
18.65 119 129 133 34.8 32.2 33.0
21.65 138 206 212 40.1 28.7 31.2
n.a.d n.a. n.a. n.a. n.a. n.a. n.a.
Tin' 1.64 100 4,180 100 3.7 79.2 17.1
2.00 122 5,492 131 4.7 72.3 23.0
2.50 152 7,465 179 6.1 68.3 25.6
3.00 183 9,133 218 6.5 66.5 27.0

a. Prices in dollars a pound, constant 1969 dollars.

b. First price assumption equals 100.
c. Volume (metal content) in millions of short tons, except tin.
d. n.a. means not available.
e. Volume in thousands of long tons.
H Estimatesof Production,
Consumption,and Trade

THE DATA presented in the following tables were compiled from sta-
tistics in various issues of Metallgesellschaft A.G., Metal Statistics;
United Nations, Statistical Yearbook; United Kingdom Overseas
Geological Survey, Mine Resources Division, Statistical Summary
of the Mineral Industry; United Nations, Yearbook of International
Trade Statistics; and World Bank, Commodity Price Trends. The
estimates cover nine major minerals: bauxite and aluminum, copper,
iron ore, lead, manganese ore, nickel, phosphate rock, tin, and zinc.
Tables H.1 and H.2 give mine production and estimates of con-
sumption and net trade in terms of minehead value (value of the
ore and concentrate). Tables H.3 through H.5 give mining plus
processing output and estimates of consumption and net trade in
terms of the value of the final product.
Table H.6 presents estimates of the degree of processing con-
ducted in individual regions, defined as the ratio of the value of
mineral produced over the value of mineral mined if processed
through to its final stage, namely, metal ingot. The ratio was com-
puted as:

Degree of processing = A B X 100,

where A = value produced (mining and processing value); B

mine value of production; and C - value produced, had all ore
mined been processed to refined metal or product, except that iron
ore upgraded to be suitable for blast furnace feed (sinterized or pel-
letized), ferromanganese, and superphosphate fertilizer were taken
as representing the processed product.

227
 228 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

The minerals produced, consumed, and traded are not uniform in

grade and quality. In addition, for a number of minerals there is no
international market price as such, and no prices approximating
mine value. Therefore, rough estimates had to be used in a num-
ber of cases.
 TABLE H.1 I MINING OUTPUT AND ESTIMATED MINEHEAD VALUE OF CONSUMPTION AND NET TRADE, BY REGION,
NINE MAJOR MINERALS COMBINED, 1950, 1960, AND 1970a
Net exports
Production Consumption (imports)

Region 1950 1960 1970 1950 1960 1970 1950 1960 1970

($1,000 millions of dollars)

Developed market economies 3.1 4.4 7.3 4.6 7.0 11.6 (1.5) (2.6) (4.3)
Developing market economies 1.8 3.5 5.3 0.2 0.5 0.8 1.6 3.0 4.5
Centrally planned economies 0.8 2.5 4.4 0.9 2.6 4.6 (0.1) (0.1) (0.2)
Total 5.7 10.4 17.0 5.7 10.1 15.56 0.3

Developed market economies (percent)

United States and Canada 39 27 25 47 29 26 (17) (5) (1)
Western Europe 11 10 7 30 34 27 (65) (71) (73)
Japan 1 2 1 1 5 12 (17) (71) (89)
Australia and South Africa 3 4 8 2 2 3 32 47 60
Total developed 54 43 41 80 70 68 (33) (39) (39)

Developing market economies 32 33 33 4 5 6 87 86 83

Centrally planned economies 14 24 26 16 25 26 9 6 2

Total 100 100 100 100 100 100

a. See explanation at the beginning of the appendix.

N)
X, TABLE H.2 I MINING OUTPUT AND ESTIMATED MINEHEAD VALUE OF CONSUMPTION AND NET TRADE, BY REGION
AND BY MINERAL, 1950, 1960, AND 1970a
(millions of dollars)
Production Consumption Net exports (imports)
Item 1950 1960 1970 1950 1960 1970 1950 1960 1970
Bauxite and alumina
United States and Canada 10 15 16 42 129 302 (34) (114) (286)
Western Europe 9 26 41 10 62 199 ( 1) ( 36) (158)
Japan 0 4 0 1 8 43 ( 1) ( 4) (43)
Australia and South Africa 0 1 158 0 0 45 0 1 113
Total developed market
economies 19 46 215 53 199 589 (34) (153) (374)
Developing market
economies 34 168 443 0 25 98 34 143 345
Centrally planned
economies 10 39 68 10 38 66 0 1 2
Total 63 253 726 63 262 753 0 9 ( 27)
Distribution (percentage)'
Developed 30.2 18.2 29.6 83.9 76.0 78.2 ( 5.4) (76.8) (63.4)
Developing 54.0 66.4 61.0 0 9.5 13.0 100.0 85.1 77.8
Centrally planned
economies 15.8 15.4 9.4 16.1 14.5 8.8 0 0 2.9
Total 100.0 100.0 100.0 100.0 100.0 100.0

Growth rates (percentage)

Developed 9.2' 1 6 .8 d 14.6' 1 1 .5d
Developing 17.1 10.0 0 14.9
Centrally planned
economies 14.9 6.0 14.8 6.1
Total 15.0 11.2 15.5 11.3

Copper
United States and Canada 1,018 1,318 2,075 1,119 1,020 1,772 (101) 298 303
Western Europe 109 124 201 748 1,548 2,089 (639) (1,424) (1,888)
Japan 38 85 114 12 233 698 26 ( 148) ( 584)
Australia and South Africa 47 153 315 38 83 133 9 70 182

Total developed market

economies 1,212 1,680 2,705 1,917 2,884 4,692 (705) (1,204) (1,987)
Developing market
economies 975 1,778 2,239 108 169 224 867 1,609 2,015
Centrally planned
economies 228 598 1,136 283 702 1,229 ( 55) ( 104) ( 93)
Total 2,415 4,056 6,080 2,308 3,755 6,145 107 302 ( 65)

Distribution (percentage)"
50.2 41.6 44.5 83.0 76.9 76.4 (36.7) (41.7) (42.3)
Developed
Developing 40.4 43.8 36.8 4.7 4.5 3.6 89.0 90.4 89.9
Centrally planned
economies 9.4 14.6 18.7 12.3 18.7 20.0 (24.1) (17.5) ( 7.5)

Total 100.0 100.0 100.0 100.0 100.0 100.0 4.5 7.5 ( 1.0)

a. See explanation at the beginning of the appendix.

b. Net exports as a percentage of production, net imports as a percentage of consumption.
c. Growth rate 1950-60.
d. Growth rate 1960-70.
TABLE H.2 I Continued.
Production Consumption Net exports (imports)
Item 1950 1960 1970 1950 1960 1970 1950 1960 1970
Copper (continued)
Growth rates (percentage)
Developed 33C 5.0d 4.2' 48d
Developing 6.2 2.6 4.6 3.0
Centrally planned
economies 10.1 6.6 9.5 5.4
Total 5.3 4.1 5.0 5.1
Iron ore
United States and Canada 671 767 1,014 714 989 1,027 (43) (222) ( 13)
Western Europe 367 675 689 384 865 1,339 (17) (190) (650)
Japan 7 21 13 16 118 858 ( 9) (845) (702)
Australia and South Africa 27 65 494 27 59 104 0 6 390
Total developed market
economies 1,072 1,528 2,210 1,141 2,031 3,328 (69) (503) (1,118)
Developing market
economies 127 657 1,339 59 150 221 68 507 1,118
Centrally planned
economies 338 1,152 2,106 338 1,156 2,106 1 4 0
Total 1,537 3,337 5,655 1,538 3,337 5,655 0 0 0
Distribution (percentage)b
Developed 69.7 45.8 39.1 74.2 61.0 58.9 (6.0) (24.8) (33.5)
Developing 8.3 19.7 23.7 3.8 4.5 3.9 54.0 77.4 83.4
 Centrally planned
economies 22.0 34.5 37.2 22.0 34.5 37.2 0 0.3 0
Total 100.0 100.0 100.0 100.0 100.0 100.0 0 0 0

Growth rates (percentage)

Developed 3.6' 3.7d 5.9c 5.1d
Developing 17.8 7.2 9.8 4.0
Centrally planned
economies 13.0 6.2 13.0 6.3
Total 8.1 5.4 8.1 5.4

Lead
United States and Canada 107 81 172 168 135 174 (61) (54) ( 2)
Western Europe 51 73 91 130 217 267 (79) (144) (176)
Japan 2 8 13 5 20 41 (3) (12) (28)
Australia and South Africa 44 62 104 11 13 18 33 49 86
Total developed market
economies 204 224 380 314 385 500 (111) (161) (120)
Developing market
economies 97 129 125 18 18 54 79 111 71
Centrally planned
economies 32 116 172 37 113 196 ( 5) 3 ( 24)
Total 333 469 677 369 516 750 (36) ( 47) ( 73)

Distribution (percentage)'
Developed 61.2 47.7 56.1 85.0 74.5 66.7 (35.4) (42.0) (24.0)

a. Seeexplanationat the beginning of the appendix.

co b. Net exports as a percentageof production, net imports as a percentageof consumption.
X c. Growth rate 1950-60.
d. Growthrate 1960-70.
TABLE H.2 I Continued.
Production Consumption Net exports (imports)
Item 1950 1960 1970 1950 1960 1970 1950 1960 1970
Lead (continued)
Developing 29.2 27.5 18.5 4.9 3.5 7.2 81.2 86.0 56.8
Centrally planned
economies 9.6 24.8 25.4 10.1 22.0 26.1 (15.5) 2.4 (12.2)
Total 100.0 100.0 100.0 100.0 100.0 100.0

Growth rates (percentage)

Developed 0.9 4 .8d 2.1' 3 0d
Developing 3.2 0 0 12.0
Centrally planned
economies 13.9 4.2 11.7 5.6
Total 3.5 4.0 3.4 4.1

Manganese
United States and Canada 4 3 3 62 71 104 ( 58) ( 68) (101)
Western Europe 1 2 2 30 66 102 ( 29) ( 64) (100)
Japan 3 7 5 5 13 100 ( 2) ( 6) (95)
Australia and South Africa 20 28 94 3 4 0 ( 17) ( 24) 94
Total developed market
economies 28 40 104 100 154 306 ( 72) (114) (202)
Developing market
economies 72 124 168 2 7 7 70 107 161
 Centrally planned
economies 84 181 211 83 173 179 1 8 32

Total 184 345 483 185 344 492 1 1 ( 9)

Distribution (percentage)b
Developed 15.1 11.7 21.5 53.9 44.8 62.2 (72.0) (74.1) (66.0)
39.2 36.0 34.8 1.1 4.8 1.4 97.4 86.9 95.8
Developing
Centrally planned
45.7 52.3 43.7 45.0 50.4 36.4 1.5 4.0 15.1
economies
Total 100.0 100.0 100.0 100.0 100.0 100.0

Growth rates (percentage)

Developed 4.1' 9
.2 d 4.6 6.4d
Developing 5.6 3.2 23.5 0
Centrally planned
economies 8.0 1.5 7.7 0.3
Total 6.5 3.3 6.5 3.7

Nickel
163 297 420 135 148 225 28 149 195
United States and Canada
1 3 7 48 136 252 (47) (133) (245)
Western Europe
0 0 0 1 25 142 (1) (25) (142)
Japan
7 81 259 1 3 14 6 78 245
Australia and South Africa
Total developed market
economies 171 381 686 185 312 633 (14) 69 ( 53)

a. See explanationat the beginningof the appendix.

b. Net exports as a percentage of production, net imports as a percentageof consumption.
tJi c. Growth rate 1950-60.
d. Growth rate 1960-70.
&,TABLE H.2 I Continued.
TABLE H.2 Continued. Production Consumption Net exports (imports)
Item 1950 1960 1970 1950 1960 1970 1950 1960 1970
Nickel (continued)
Developing market
economies 0 22 106 0 2 12 0 20 94
Centrally planned
economies 43 89 168 43 107 187 0 (18) ( 19)
Total 214 492 960 228 421 832 (14) 71 128
Distribution (percentage)'
Developed 80.0 77.5 71.5 81.2 74.2 76.1 (7.4) 17.9 (11.5)
Developing 0 4.5 11.0 0 0.5 1.4 75.0 89.0 89.1
Centrally planned
economies 20.0 18.0 17.5 18.8 25.3 22.5 (1.4) (16.5) (10.7)
Total 100.0 100.0 100.0 100.0 100.0 100.0 (6.4) 14.3 ( 0.6)
Growth rates (percentage)
Developed 8.4' 6.2d 5.4C 7.2d
Developing 0 16.4 19.1 17.8
Centrally planned
economies 7.6 6.7 9.5 6.0
Total 8.7 6.9 6.4 7.0
Phosphate rock
United States and Canada 106 167 327 93 129 250 13 38 77
Western Europe 1 0 1 68 117 180 (67) (117) (179)
Japan 0 0 0 11 23 29 (11) ( 23) ( 29)
 Australia and South Africa 0 2 12 23 30 27 (23) ( 28) ( 15)

Total developed market

107 169 340 195 299 486 (88) (128) (146)
economies
Developing market
91 161 250 4 30 93 87 131 157
economies
Centrally planned
economies 27 77 214 27 79 225 1 ( 2) ( 11)
225 407 804 226 408 804 0 0 0
Total

Distribution (percentage)'
47.5 41.6 42.3 86.3 73.2 66.2 (44.8) (43.2) (30.0)
Developed
40.4 39.6 31.1 1.7 7.4 6.0 96.0 81.0 62.8
Developing
Centrally planned
economies 12.1 18.8 26.6 12.0 19.4 27.8 0 2.7 ( 5.1)

Total 100.0 100.0 100.0 100.0 100.0 100.0

Growth rates (percentage)

4,7c 7.0" 4,4c 505d
Developed
Developing 5.9 4.6 22.5 12.0
Centrally planned
economies 10.9 11.0 11.5 11.3
Total 6.1 7.1 6.1 7.0

Tin
0 0 0 175 128 133 175 (128) (133)
United States and Canada
6 5 6 125 155 156 119 (150) (150)
Western Europe
a. See explanation at the beginning of the appendix.
w b. Net exports as a percentage of production, net imports as a percentage of consumption.
c. Growth rate 1950-60.
d. Growth rate 1960-70.
TABLE H.2 I Continued.
Production Consumption Net exports (imports)
Item 1950 1960 1970 1950 1960 1970 1950 1960 1970
Tin (continued)
Japan 1 2 2 11 33 58 (10) ( 31) ( 56)
Australia and South Africa 6 8 25 9 14 14 ( 3) ( 6) 11
Total developed market
economies 13 15 33 320 330 361 (307) (315) (328)
Developing market
economies 362 299 392 29 33 39 333 266 353
Centrally planned
economies 28 117 115 39 93 140 ( 11) ( 24) ( 25)
Total 403 431 540 388 456 540 15 ( 25)
Distribution (percentage)b
Developed 3.2 3.5 5.6 82.5 72.4 67.4 (95.8) (95.5) (92.0)
Developing 89.7 69.4 72.9 7.5 7.2 7.9 91.9 88.6 88.7
Centrally planned
economies 7.1 27.1 21.4 10.0 20.4 24.7 (27.1) (20.0) (17.4)
Total 100.0 100.0 100.0 100.0 100.0 100.0 3.7 ( 5.9) ( 4.5)
Growth rates (percentage)
Developed 1.6c 8.ld negli- 1.od
gible'
Developing negli- 2.8 1.5 2.0
gible
Centrally planned
economies 15.2 0 9.2 4.1
Total 0.6 2.4 1.6 1.7
 Zinc
United States and Canada 180 160 340 203 177 248 ( 23) ( 16) (108)
58 91 153 142 229 321 ( 84) (138) (168)
Western Europe
Japan 10 29 59 11 40 131 ( 1) ( 11) ( 72)
36 56 112 14 25 35 22 30 77
Australia and South Africa
Total developed market
economies 284 336 664 370 471 735 ( 86) (135) (171)
Developing market
economies 95 160 216 14 42 77 81 118 139
Centrally planned
53 152 242 52 134 220 1 18 22
economies
Total 432 648 1,122 436 647 1,032 ( 4) 1 ( 10)

Distribution (percentage)'
65.9 51.8 59.2 84.6 72.8 71.2 (23.5) (28.7) (23.2)
Developed
21.9 24.7 19.2 3.3 6.5 7.5 85.0 74.4 64.6
Developing
Centrally planned
economies 12.2 23.5 21.6 12.1 20.7 21.3 7.7 11.8 9.1
100.0 100.0 100.0 100.0 100.0 100.0 ( 1.3) 0 2.6
Total
Growth rates (percentage)
Developed 1.70d 7 2.50 4 .6d
Developing 5.4 2.9 11.4 6.5
Centrally planned
economies 11.2 4.7 9.9 5.0
Total 4.2 5.7 4.0 4.8

,-i a. See explanation at the beginning of the appendix.

wO b. Net exports as a percentage of production, net imports as a percentage of consumption.
c. Growth rate 1950-60.
d. Growth rate 1960-70.
TABLE H.3 I MINING AND PROCESSING OUTPUT AND ESTIMATED FINAL PRODUCT VALUE OF CONSUMPTION AND NET TRADE,
BY REGION, NINE MAJOR MINERALS COMBINED, 1950, 1960, AND 1 9 7 0 a
Value of mining and processing
output Consumption Net exports (imports)
Region 1950 1960 1970 1950 1960 1970 1950 1960 1970
(thousand millions of U.S. dollars)
Developed market economies 6.3 10.1 16.9 8.1 12.9 21.4 (1.81) (2.81) (4.5)
Developing market economies 2.4 4.5 7.0 0.4 0.8 1.9 2.0 3.6 5.11
Centrally planned economies 1.6 4.7 8.3 1.7 4.9 8.4 (0.11) (0.1) (0.1)
Total 10.3 19.3 32.2 10.2 18.6 31.7 0.07 0.72 0.5
Developed market economies
(percentage)
United States and Canada 41.8 31.4 28.5 46.9 29.5 27.9 (11.0) 6.2 1.9
Western Europe 14.9 14.6 13.1 28.7 32.5 26.6 (47.9) (55.1) (50.5)
Japan 1.4 2.6 4.7 1.5 4.9 10.9 (4.8) (46.9) (57.4)
Australia and South Africa 3.1 3.6 5.7 2.4 2.4 3.0 22.9 32.9 47.1
Total developed 61.2 52.2 52.0 79.5 69.3 68.4 (22.9) 24.7 (21.0)
Developing market economies 23.1 23.2 22.2 3.7 4.6 5.4 84.0 80.4
(percentage)
Centrally planned economies 15.7 24.6 25.8 16.8 26.1 26.2 (7.0) (5.8) (1.1)
(percentage)
Total 100.0 100.0 100.0 100.0 100.0 100.0

a. See explanationat the beginningof appendix.

TABLE H.4 I MINING AND PROCESSING OUTPUT AND ESTIMATED FINAL PRODUCT VALUE OF CONSUMPTION AND NET TRADE,
BY REGION, AND BY MINERAL, 1950, 1960, AND 1 9 7 0 a
(millions of dollars)
Production Consumption Net exports (imports)
1950 1960 1970 1950 1960 1970 1950 1960 1970
Aluminum, alumina, and bauxite
United States and Canada 546 1,299 2,148 528 1,084 2,000 18 215 148
Western Europe 141 459 929 132 709 1,484 9 (250) (555)
Japan 12 67 369 5 78 531 7 ( 11) (162)
Australia and South Africa 0 6 260 11 42 118 (11) ( 36) 142
Total developed market
economies 699 1,831 3,706 676 1,913 4,133 23 ( 82) (427)
Developing market economies 36 265 757 57 158 462 (21) 107 295
Centrally planned economies 120 494 933 120 453 736 0 41 197
Total 855 2,590 5,396 853 2,524 5,331 2 66 65

Distribution (percentage)'
Developed 81.8 70.7 68.7 79.2 75.8 77.5 3.3 (4.3) (10.3)
Developing 4.2 10.2 14.0 6.7 6.3 8.7 (36.8) 40.3 39.0
Centrally planned economies 14.0 19.1 17.3 14.1 17.9 13.8 0 8.3 21.1
Total 100.0 100.0 100.0 100.0 100.0 100.0

a. See explanation at the beginning of appendix.

b. Net exports as a percentage of production, net imports as a percentage of consumption.
TABLE H.4 I Continued.
Production Consumption Net expDrts (imports)
1950 1960 1970 2950 2960 1970 1950 1960 1970
Growth rates (percentage)
Developed 10.11 73d 11.0 8.Od
Developing 22.0 11.0 11.0 11.0
Centrally planned economies 15.1 9.7 14.2 5.0
Total 11.8 8.0 10.2 7.7

Copper
United States and Canada 1,487 1,958 2,884 1,598 1,457 2,374 ( 111) 501 510
Western Europe 215 278 434 1,068 Z,211 2,628 ( 853) 1,933 (2,914)
Japan 53 162 348 17 332 977 36 ( 170) ( 629)
Australia and South Africa 66 197 413 54 119 146 12 78 267
Total developed market
economies 1,821 2,595 4,079 2,737 4,119 6,125 ( 916) (1,524) (2,046)
Developing market economies 1,292 2,347 2,973 154 241 392 1,138 2,106 2,581
Centrally planned economies 334 871 1,648 404 1,003 1,949 ( 70) ( 132) ( 301)
Total 3,447 5,813 8,700 3,295 5,363 8,466 152 450
Distribution (percentage)"
Developed 52.8 44.6 46.9 83.1 76.8 72.3 (33.5) (36.3) (33.4)
Developing 37.5 40.4 34.2 4.7 4.5 4.6 88.1 89.7 86.8
Centrally planned economies 9.7 15.0 18.9 12.2 18.7 23.1 17.4 13.1 (15.4)
Total 100.0 100.0 100.0 100.0 100.0 100.0 4.4 7.7
 Growth rates (percentage)
Developed 3.6' 4,6 d 4.20 4 0d
Developing 6.1 2.4 4.6 4.7
Centrally planned economies 4.0 6.7 9.5 6.8
Total 5.3 4.1 5.0 4.7
Iron ore
United States and Canada 934 1,132 1,409 977 1,355 1,422 (43) ( 223) ( 13)
Western Europe 508 994 1,204 525 1,184 1,854 (17) ( 190) ( 650)
Japan 12 65 343 21 162 1,118 ( 9) ( 97) ( 845)
Australia and South Africa 37 87 534 37 80 144 0 7 390
Total developed market
economies 1,491 2,278 3,490 1,560 2,781 4,608 (69) ( 503) (1,118)
Developing market economies 149 712 1,424 80 205 306 (69) 507 1,119
Centrally planned economies 463 1,579 2,916 463 1,582 2,916 0 ( 3) 0
Total 2,103 4,569 7,830 2,103 4,568 7,830
Distribution (percentage)b
Developed 70.9 49.9 44.6 74.2 60.9 59.9 ( 4.4) (18.1) 24.2
Developing 7.1 15.6 18.2 3.8 4.5 6.3 46.2 71.3 78.5
Centrally planned economies 22.0 34.5 37.2 22.0 34.6 34.7 0 0.3 0
Total 100.0 100.0 100.0 100.0 100.0 100.0
Growth rates (percentage)
Developed 4.3' 4,.4d 6.0' 5.2d
Developing 7.1 9.8 6.1
Centrally planned economies 13.1 6.3 13.0 6.3
Total 8.1 5.5 8.1 5.5
w4 b. Net exports as a percentageof production, net imports as a percentage of consumption.
c. Growth rate 1950-60.
d. Growth rate 1960-70.
 A
TABLE H.4 Continued.
Production Consumption Net exports (imports)
1950 1960 1970 1950 1960 1970 1950 1960 1970

Lead
United States and Canada 189 163 298 280 226 330 ( 91) ( 63) ( 32)
Western Europe 117 186 253 217 362 452 (100) ( 176) ( 199)
Japan 4 18 44 8 33 68 (4) (15) (24)
Australia and South Africa 70 89 140 19 22 24 51 67 116
Total developed market
economies 380 456 735 524 643 874 (144) ( 187) ( 139)
Developing market economies 140 178 184 30 30 82 110 148 102
Centrally planned economies 54 191 294 62 188 291 ( 8) 3 3
Total 574 825 1,213 616 861 1,247 ( 42) ( 36) ( 34)

Distribution (percentage)b
Developed 66.1 55.2 60.2 85.0 74.6 70.1 (27.4) (29.1) (15.2)
Developing 24.4 21.5 15.2 4.9 3.5 6.6 78.4 83.2 55.4
Centrally planned economies 9.5 23.3 24.2 10.1 21.9 23.3 (13.2) 1.6 1
Total 100.0 100.0 100.0 100.0 100.0 100.0 ( 6.8) ( 4.2) ( 2.7)
Growth rates (percentage)
Developed 1.8' 4.7 d 2.0' 3'Id
Developing 2.4 0.5 0 11.0
Centrally planned economies 4.3 11.7 4.6
Total 3.6 3.9 3.4 3.7
 Manganese
United States and Canada 179 196 168 246 284 289 ( 67) ( 88) ( 121)
Western Europe 101 195 340 120 265 440 ( 19) ( 70) ( 100)
Japan 18 51 239 19 54 339 ( 1) ( 3) ( 100)
Australia and South Africa 28 51 174 11 16 53 ( 17) ( 35) 121

Total developed market

economies 326 493 921 396 619 1,121 ( 70) ( 126) ( 200)
77 184 237 8 66 71 ( 69) 118 166
Developing market economies
332 701 807 331 693 772 1 8 35
Centrally planned economies
735 1,378 1,965 735 1,378 1,964 1
Total
Distribution (percentage)'
44.2 35.8 46.9 53.9 44.9 57.1 (17.8) (20.2) (17.8)
Developed
10.5 13.4 12.1 1.1 4.8 3.6 89.8 64.1 70.0
Developing
45.3 50.8 41.0 45.0 50.3 39.3 0.4 1.0 4.3
Centrally planned economies
Total 100.0 100.0 100.0 100.0 100.0 100.0

Growth rates (percentage)

Developed 4.3c 6 .4 d
4.6' 6.1
Developing 9.1 2.8 0 0.5
Centrally planned economies 8.6 1.5 7.6 1.1
Total 6.5 3.6 0 3.6

b. Net exports as a percentage of production, net imports as a percentage of consumption.

c. Growth rate 1950-60.
d. Growth rate 1960-70.
I'.
TABLE H.4 I Continued.
Production Consumption Net exports (imports)
1950 1960 1970 1950 1960 1970 1950 1960 1970
Nickel
United States and Canada 242 431 619 225 246 367 17 185 252
Western Europe 34 78 96 79 227 413 (45) (149) (317)
Japan 0 18 98 2 42 238 ( 2) ( 24) (140)
Australia and South Africa 8 93 296 1 6 19 7 87 277
Total developed market
economies 284 620 1,109 307 521 1,037 (23) 99 72
Developing market economies 0 36 156 1 4 14 ( 1) 32 142
Centrally planned economies 71 148 291 72 178 312 ( 1) ( 30) ( 21)
Total 355 804 1,556 380 703 1,363 (25) 101 193
Distribution (percentage)'
Developed 80.0 77.1 71.3 80.8 74.2 76.1 ( 7.4) 16.0 ( 12.0)
Developing 0 4.5 10.0 0.2 0.5 1.0 (71.4) 89.4 87.5
Centrally planned economies 20.0 18.4 18.7 19.0 25.3 22.9 1.3 (16.4) ( 10.8)
Total 100.0 100.0 100.0 100.0 100.0 100.0 ( 6.4) 12.7 ( 1.6)
Growth rates (percentage)
Developed 8.1' 6.0" 5.4c 6.9d
Developing 20.2 15.5 14.5 12.2
Centrally planned economies 7.6 7.3 9.4 6.0
Total 8.5 6.8 6.4 6.8
 Phosphate rock
United States and Canada 346 519 921 332 460 741 14 59 180
Western Europe 183 308 473 244 419 636 (61) ( 111) (163)
Japan 27 61 77 38 81 95 (11) ( 20) ( 18)
Australia and South Africa 57 78 111 81 106 150 (24) ( 28) ( 39)
Total developed market
economies 613 966 1,582 695 1,066 1,622 (82) ( 100) ( 40)
Developing market economies 95 215 408 14 108 328 81 107 80
Centrally planned economies 98 275 811 98 283 843 1 ( 8) ( 32)
Total 806 1,456 2,801 807 1,457 2,793 0 1 8

Distribution (percentage)'
Developed 76.1 66.3 56.4 86.2 73.2 58.1 (11.7) ( 9.3) ( 2.5)
Developing 11.8 14.8 14.6 1.7 7.4 11.7 85.4 49.6 19.6
Centrally planned economies 12.1 18.9 29.0 12.1 19.4 30.2 0 ( 2.7) ( 3.8)
Total 100.0 100.0 100.0 100.0 100.0 100.0

Growth rates (percentage)

Developed 4.6c 5.3d 49' 4 .3 d

Developing 8.6 6.8 22.8 12.0

Centrally planned economies 11.0 11.3 11.2 11.6
Total 6.1 6.8 6.1 6.8

b. Net exports as a percentage of production, net imports as a percentage of consumption.

c. Growth rate 1950-60.
d. Growth rate 1960-70.
TABLE H.4 I Continued.
Production Consumption Net exports (imports)
1950 1960 1970 1950 1960 1970 1950 1960 1970

Tin
United States and Canada 52 22 0 292 214 236 ( 240) ( 192) ( 236)
Western Europe 101 83 66 209 258 258 ( 108) ( 175) ( 192)
Japan 1 5 5 18 56 110 ( 17) (51) (105)
Australia and South Africa 9 12 36 16 24 27 ( 7) ( 12) 9
Total developed market
economies 163 122 107 535 552 631 (370.8) ( 430) ( 524)
Developing market economies 477 429 597 48 56 68 428.8 373 529
Centrally planned economies 47 195 190 65 155 232 ( 17.5) 40 ( 42)
Total 687 746 894 648 763 931 40.5 ( 17) ( 37)
Distribution (percentage)b
Developed 23.8 16.2 12.0 82.6 72.3 67.8 (69.4) (78.1) (83.0)
Developing 69.4 57.7 66.8 7.4 7.3 7.3 89.9 87.1 88.6
Centrally planned economies 6.8 26.1 21.2 10.0 20.4 24.9 (27.1) 20.1 (18.1)
Total 100.0 100.0 100.0 100.0 100.0 100.0 5.9 ( 2.3)
Growth rates (percentage)
Developed 00 od 0.3' 1.2d
Developing 0 3.4 1.4 3.0
Centrally planned economies 15.2 0 10.9 4.2
Totat 0.8 1.7 1.6 2.0
 Zinc
United States and Canada 321 304 555 338 294 409 ( 17) 10 146
Western Europe 139 215 343 237 382 529 ( 98) ( 167) ( 186)
Japan 17 55 153 18 66 221 ( 1) ( 11) ( 68)
Australia and South Africa 47 72 152 23 42 59 26 30 93
Total developed market
economies 524 646 1,203 616 784 1,218 ( 92) ( 138) ( 15)
Developing market economies 108 191 268 24 70 129 84 121 139
Centrally planned economies 87 252 397 87 224 359 0 28 38
Total 719 1,089 1,868 727 1,078 1,706 ( 8) 10 162

Distribution (percentage)b
Developed 72.9 59.4 64.4 84.8 72.8 71.4 (15.0) (17.7) ( 1.2)
Developing 15.0 17.5 14.3 3.3 6.4 7.6 78.0 63.6 51.2
Centrally planned economies 12.1 23.1 21.3 11.9 20.8 21.0 7 11.1 9.6
Total 100.0 iOG.0 100.0 100.0 100.0 100.0 ( 1.1) ( 1.0) 8.7

Growth rates (percentage)

Developed 2.1' 6 .5d 2.4' 4.5d
Developing 5.9 3.5 11.4 6.0
Centrally planned economies 11.2 4.6 10.0 4.8
Total 4.2 5.5 4.0 4.7

b. Net exports as a percentage of production, net imports as a percentage of consumption.

c. Growth rate 1950-60.
d. Growth rate 1960-70.

's0
TABLE H.5 I ESTIMATED NET IMPORT REQUIREMENTS AS A PERCENTAGE OF CONSUMPTION, NINE MAJOR MINERALS, BY
INDUSTRIALIZED REGION AND BY COMMODITY, 1950, 1960, AND 1970a
1950 1960 1970

United Western' United Western' United Western'

Mineral States Europe Japan States Europe 7apan States Europe Japan
Bauxite and alumina 74 14 100 86 35 100 93 51 100
Copper 23 85 8 92 63 4 89 83
Iron ore 6 4 58 33 22 83 35 40 98
Lead 51 61 56 65 66 60 46 67 67
Manganese ore 93 97 33 95 98 45 96 98 91
Nickel 99 99 100 88 98 100 89 97 100
Phosphate rock 99 100 100 100 C 100 100
Tin 100 95 94 100 97 94 100 96 97
Zinc 38 59 10 50 60 28 62 62 60
Total for all nine minerals 32 65 17 31 72 72 27 73 89
a. See explanation at the beginning of the appendix.
b. Excludes intra-Western European trade.
c. Net exporter.
 APPENDIXH | 251

TABLE H.6 I DEGREE OF MINERAL PROCESSING CONDUCTED

IN DIFFERENT REGIONS, NINE MAJOR MINERALS
COMBINED, 1950, 1960, AND 1970a
Percentage of mine production
Region 1950 1960 1970
United States and Canada 146 179 179
Western Europe 250 250 295
Japan 235 381 1,046
Australia and South Africa 89 72 38
Developing market economies 30 28 29
Centrally planned economies 99 102 108
Total 100 100 100
a. Seeexplanationat the beginningof the appendix.
I I The Share of the DevelopingCountries
in World Mineral Exports

TABLE 1.1 PRESENTS DATA on the value and share of exports of nine
major minerals from the five most important exporting developing
countries. Whereas one single developing country accounts for
about 30 percent or more of world exports of bauxite, phosphate
rock, and tin, all developing countries together account for less than
one-fourth of world exports of lead and zinc, and less than two-
fifths in the case of iron ore. It should be underlined that these
data are for 1970-72 and that the configuration can change both in
the short or medium term and in the long run. Changes in the short
or medium term can be brought about by closure or expansion of
existing facilities (expansions do not require as much time as the
development of new mines) as well as by increased processing
within the exporting countries, which tends to raise the revenue per
unit and affect both the export share and rank of individual coun-
tries. The potential dynamism of shares over the long run in some
cases stems from the wide distribution of unexploited or not fully
exploited resources-for example, copper-and the even wider dis-
tribution of unexplored areas or insufficiently delineated or ap-
praised resources. In short, it is misleading to view the distribution
of mineral production and exports as static for physical reasons
alone. While the location of mineral resources is fixed for eternity,
man's knowledge of this location is very far from complete. We
have come to associate copper with Chile, and vice versa, as a con-
ditioned reflex. But the constraints on the location of production
imposed by terrain and climate-in the case of coffee or cocoa, for
example-make the market structure of certain agricultural com-
modities more rigid, and rigid for a longer period, than that of
mineral commodities.

252
 APPENDIX I | 253

TABLE 1.1 | PRINCIPAL EXPORTERS OF SELECTED MINERALS AMONG

DEVELOPING COUNTRIES
(Five largest exporters in descending order of value)
Country share of
Value of
exports, Total
average developing
1970-72 country World
Commodity, SITc' number, (millions of exports exports
rank, and country dollars) (percentage) (percentage)
Bauxite (283.3)
1. Jamaica 89.4 44.3 32.2
2. Surinam 46.0 22.8 16.6
3. Guyana 19.2 9.5 6.9
4. Dominican Republic 15.3 7.6 5.5
5. Sierra Leone 6.9 3.4 2.5
Other developing 25.0 12.4 8.9
Total developing 201.8 100.0 72.6
All others 76.1 27.4
World total 277.9 100.0

Copper (283.1/682.1)
1. Zambia 765.0 31.5 17.0
2. Chile 731.0 30.1 16.3
3. Zaire 449.0 18.5 10.0
4. Peru 208.3 8.6 4.6
5. Philippines 187.0 7.7 4.2
Other developing 90.3 3.6 2.0
Total developing 2,430.6 100.0 54.1
All others 2,064.4 45.9
World total 4,495.0 100.0

Iron ore (281)

1. Brazil 226.0 22.7 8.5
2. Liberia 165.0 16.5 6.2
3. India 153.7 15.4 5.8
4. Venezuela 139.7 14.0 5.3
5. Mauritania 73.3 7.3 2.8
Other developing 240.2 24.1 9.1
Total developing 997.9 100.0 37.7
All others 1,650.9 62.3
World total 2,648.8 100.0

Manganese ore (283.7)

1. Gabon 39.0 35.8 20.1
2. Brazil 31.9 29.3 16.5
3. India 15.2 14.0 7.9

a. Standard International Trade Classification.

 254 [ THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

TABLE 1.1 | Continued.

Country share of
Value of
exports, Total
average developing
1970-72 country World
Commodity, SITC' number, (millions of exports exports
rank, and country dollars) (percentage) (percentage)
4. Ghana 7.6 7.0 3.9
5. Zaire 5.9 5.4 3.0
Other developing 9.2 8.5 4.7
Total developing 108.8 100.0 56.1
All others 85.2 43.9
World total 194.0 100.0
Lead (283.4/685.1)
1. Peru 32.0 30.7 6.5
2. Mexico 21.3 20.5 4.3
3. Morocco 13.3 12.8 2.7
4. Namibia 13.2 12.7 2.7
5. Bolivia 7.3 7.0 1.5
Other developing 17.0 16.3 3.4
Total developing 104.1 100.0 21.1
All others 389.6 78.9
World total 493.7 100.0
Phosphate rock (271.3)
1. Morocco 124.9 54.5 29.2
2. Gilbert, Ellis Is. 32.1 14.0 7.5
3. Tunisia 21.4 9.3 5.0
4. Togo 16.6 7.3 3.9
5. Senegal 13.9 6.1 3.3
Other developng 20.2 8.8 4.7
Total developing 229.1 100.0 53.6
All others 198.0 46.4
World total 427.1 100.0
Tin (283.6/687.1)
1. Malaysia 318.3 49.9 42.6
2. Bolivia 102.3 16.0 13.7
3. Thailand 77.3 12.1 10.3
4. Indonesia 63.3 9.9 8.5
5. Nigeria 36.3 5.7 4.9
Other developing 40.6 6.4 5.4
Total developing 638.1 100.0 85.4
All others 109.3 14.6
World total 747.4 100.0
a. StandardInternationalTradeClassification.
 APPENDIX I | 255

TABLE I.1 I Continued.

Countryshare of
Value of
exports, Total
average developing
1970-72 country World
Commodity,SITc' number, (millionsof exports exports
rank, and country dollars) (percentage) (percentage)
Zinc (238.5/686.1)
1. Peru 54.7 32.2 7.1
2. Mexico 49.7 29.2 6.4
3. Zaire 25.3 14.9 3.3
4. Bolivia 14.0 8.2 1.8
5. Zambia 13.0 7.7 1.7
Other developing 13.3 7.8 1.7
Total developing 170.0 100.0 22.0
All others 602.9 78.0
World total 772.9 100.0
a. Standard International Trade Classification.
Source: World Bank, Commodity Trade and Price Trends, August 1974.
J The Experienceof the Quebec
Mining ExplorationCompany:
A Case Study

THE MINERAL EXPLORATION and development experience of Soci6te

Quebecoise d'Exploration Miniere (soQuEM) is extremely instructive,
as it demonstrates that success can apparently be achieved quite
quickly, when the objectives, policies, functions, and operations of
the company are essentially those of a private mining company,
even though the government owns all the issued share capital.
The Quebec Mining Exploration Company was founded in No-
vember 1965 as a joint stock company. Its main objectives, as em-
bodied in its charter, are three: (a) to carry out mining exploration
by all methods; (b) to participate in the development of discov-
eries, including those made by others, with power to purchase and
sell properties at various stages of development and to associate
itself with others for such purposes; and (c) to participate in
bringing mineral deposits into production either by selling them
outright or by transferring them in return for a participation.

Staffing

SOQUEMbegan operating on November 1, 1965, with three officer-

directors and two geologists. The first five months of operation
were spent hiring personnel and planning the exploration program
for the next season, and by April 1966 the company was fully
operative.
On the date of the first annual report, July 8, 1966, the presi-
dent described the technical staff as nearly complete. Of twenty-

1. Subsections(b) and (c) defining the objective of the company seem to

have been drafted so as to adopt a low posture, emphasizing the dominant
role to be accorded to private firms at all stages beyond exploration.

256
 APPENDIX j | 257

four permanent employees, twelve were geologists or geological

engineers, three were prospectors, and two were in charge of labora-
tories. The summer seasonal field staff numbered eighty-eight-
university professors and students, engineers engaged in post-
graduate studies, and prospectors.
Of the approximately eighty university students, about half had
no previous experience. SOQUEM had to face the fact, as many
mining and exploration companies are doing today, that techni-
cal personnel are scarce. From two training camps organized in
the Eastern Townships it embarked on a program of training
inexperienced students and prospectors and familiarizing them
with all modern geochemical sampling and processing techniques,
geophysical instrument handling, and interpretation. The training
program, which started about May 1 and lasted from two to six
weeks, supplied enough men to form fourteen field groups. During
this period SOQUEM was aided by several mining companies, espe-
cially the Anglo-American Corporation of Canada, Ltd., which
provided training crews and equipment.
On the date of the second annual report, July 17, 1967, the
permanent staff had grown to thirty including nine geologists and
engineers, and there were eleven temporary employees including
nine geologists and engineers. More than one hundred seasonal
employees were recruited from among university professors and
students.
The third annual report does not give information on staff in
the same format. However, the August 1969 publication "soQuEM
-General Information" gives the backgrounds of twenty non-
clerical personnel. Besides the officers, these include five geologists,
one geophysicist, one geophysical technician, three geochemists,
one geochemical technician, two mining engineers of whom one is
an oredressing specialist, two accountants, one lawyer as legal
counsel, and a public relations man. Five of the staff, including the
president and vice president, hold Ph.Ds. Turnover, to date, has
been rather low.

Operations
On November 4, 1966, in an article entitled "SOQUEM Looks for
Partners in Exploration Endeavours," the president of SOQUEM, after
reviewing the company's first year activities, quoted the company's
three objectives as stated in the charter and said: "Two of these
three tasks call for participations and joint ventures." We may note
that the two tasks referred to were development and bringing
 258 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

deposits into production, rather than exploration, so that the com-

pany's decision to invite private participation in exploration as well
represented a genuine initiative, based on the desire to "spread
. . . exploration budgets over a greater number of targets in order
to increase the chances of discovery."
"Needless to say," the president went on, "the company has
been flooded with all sorts of proposals from prospectors, amateur
or professional, and mining syndicates or companies." (According
to the Third Annual Report, by March 1968 the company had
received 316 proposals and accepted 27.) "However, offers to join
in far-reaching exploration programs have been scant and came
mostly from French-controlled international concerns used to deal-
ing with government-sponsored companies."
During the first eight years of its activities, SOQUEM has made
four discoveries and acquired properties that are either revenue-
producing at present or likely to be so in the future.

Financing
SOQUEM'S charter provided the company with an authorized
capital of Can.$15 million divided into 1.5 million shares of a par
value of Can.$10 each to be purchased out of the consolidated
revenue fund by the Minister of Finance at the rate of 150,000
shares (Can.$1.5 million) per year each year for ten years.
Between incorporation on July 15, 1965, and the balance sheet
date of March 21, 1966, the minister subscribed Can.$625,000 for
62,500 shares. The company, which was just getting organized,
spent Can.$111,000 on administrative expenses and Can.$37,000
on furniture and equipment and held just over Can.$490,000 in
cash and short-term deposits at the end of the period.
During fiscal 1966-67, the minister subscribed the full Can.$1.5
million; again the company spent less than the amount subscribed
(Can.$92,000 for mining rights, Can.$882,000 on exploration, and
Can.$188,000 on administration) and ended the year with
Can.$744,000 in cash and short-term deposits.
During fiscal 1967-68, the minister again subscribed Can.$1.5
million, and this and more were spent (Can.$1.25 million on mining
rights and exploration, Can.$237,000 on administration, and about
Can.$100,000 on furniture and equipment) so that at the end of
the year the company's cash and short-term deposits were down
to some Can.$440,000.
The same situation persisted during fiscal year 1968-69. Bor-
rowing was no answer, as, under its charter, the company can
 APPENDIX j 259

contract loans without prior authorization by the lieutenant-

governor in Council only if these new loans do not increase its
total outstanding borrowings to more than $500,000. The company
found it difficult for a while to put up the necessary share of
joint venture money required to uphold its interest in projects at
the advanced development and bringing into production phase.
Exploration funds had to be used for this purpose, leaving less
available for exploration and early development. Eventually, in
1971, the share capital and the annual share purchases tempo were
both increased, which alleviated the situation to some extent.
The annual budget is now Can.$2.75 million and total share
capitalization has been increased from Can.$15 million to Can.$45
million. The original budget figure of Can.$1.5 million had been
established as follows: In 1960, 50 percent of all mining explora-
tion in Canada was carried out by only thirteen companies, with
an average expenditure of Can.$1,675,000 each. Inflation alone,
however, required an additional Can.$300,000 a year. Furthermore,
total exploration expenditures in Canada almost doubled from 1960
to 1966, International Nickel's share going from Can.$5 million
to Can.$11 million. It is understandable that SOQUEM wished to
keep pace.
Under the percent financing scheme, it is anticipated that
SOQUEM will be able to self-finance the new yearly expenditure of
Can.$2.75 million by 1985, twenty years after incorporation. Fur-
thermore, the curve of earnings is such that SOQUEM could increase
its exploration activities beyond Can.$2.75 million yearly under
its own steam. In fact, SOQUEM could possibly beat the 1985
date. This would involve discovering or acquiring and putting
in production one or two mines between now and 1985, which
is feasible if the new discoveries or acquisitions present no crucial
problems.

Implications for the Possible Exploration

Funds in the Developing Countries
The success story of SOQUEM calls for a number of comments
relevant to the establishment of similar organizations elsewhere.
First, the company is truly autonomous, and the various provisions
of the charter regarding the composition of the board and the code
of ethics applicable to its members have assured the independent
character of the company's decisions.
Next, none of the operations normally carried out by ministries
or geological surveys has been undertaken by SOQUEM (except for
 260 } THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

one occasion, where a reconnaissance geological survey operation

was performed out of urgent necessity).
Last, the difficulties experienced by SOQUEM in obtaining addi-
tional funds suggest that programs of this kind should be planned
in such a way that additional funds are available from government
or other sources, under the form of an accelerated purchase of
shares accompanied by an increase in authorized share capital,
when heavy advanced development expenditures jeopardize the
normal exploration and early development program.
K Small-scale Mining

A NUMBER OF MINERALS are produced predominantly on a small

scale or have an important small-scale mining component, as indi-
cated in table K.1.
The prevalence of small-scale mining is influenced by geological
factors, although the end uses and value of the mineral play an
important role. For instance, construction materials may be found
in very large deposits, but economic considerations (especially the
high cost of transport, for example, in the case of stone and gravel)
dictate serving only limited, local markets and hence small-scale
operations.
A rough idea of the geographic and commodity distribution of
small-scale mining can be obtained from table K.2, which lists
those developing countries with a small-scale sector in one or more
minerals. Since intermittency of operations is characteristic of
small-scale mining, a specific mineral commodity may be shown
in the table if production occurred during only one or more years
of the past decade. The information shown is known to be incom-
plete: In many instances, even the countries themselves do not
attempt to collect, collate, and verify data in the face of the over-
whelming difficulties these activities present.
Small-scale mining can vary from a one-man operation, involv-
ing handpicking of minerals from a waste dump, to a highly
mechanized and efficient operation with good management. Such
mining is generally characterized by labor intensive and inefficient
work methods, inefficient exploitation of deposits, substandard
work conditions, poor management, and undependable output.
Nevertheless, small-scale mining can make an important contribu-
tion to the economy-if not of the country, of a province-by pro-
viding employment, very often in remote areas with no alternative
sources of employment. Often, however, the small-scale mines are

261
 262 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

TABLE K.1 j SMALL-SCALE MINING OF SPECIFIC MINERALS

Important
Usually small-scale
Mineral small-scale component
Barite x
Beryl x
Bismuth x
Chromite x
Copper x
Diamond x
Feldspar x
Fluorspar x
Gemstones, precious stones x
Gold x
Graphite x
Lead x
Lithium x
Magnesite x
Mercury x
Mica x
Rare earth minerals x
Silver x
Strontium minerals x
Talc, soapstone
Tin x
Tungsten x
Uranium x
Vermiculite x
Construction & industrial materials x
Source: United Nations, Small-Scale Mining in the Developing Countries, (ST/
ECA/155) (New York, 1972).

viable only because of their lower wages. When the price of the
mineral drops, the miner tightens his belt or ceases operation and
diverts his attention to agriculture.
The major problems of small-scale mining are nine: Excessive
fragmentation of the land prohibits the rational exploitation of the
mineral resources. Primitive and inefficient mining methods often
mean mining only higher-grade ores and poor recovery of the ore-
body, leading to a substantial wastage of the nation's resources.
Operations are generally too small to justify the provision of ade-
quate infrastructure facilities, and often, because of their widely
dispersed nature, the cost of inputs and marketing expenses is
high. Collecting data and monitoring the sector are difficult; small
operations require a large administrative staff and are expensive,
so coordination of planning is virtually impossible. Work conditions
and health standards are often appalling, and policing compliance
 APPENDIX K | 263

TABLE K.2 I SMALL-SCALE MININGIN SELECTED

DEVELOPING COUNTRIES, 1960-70
Country Mineral subject to small-scale mining
Africa
Algeria Antimony, barite, bentomite, diatomite, mercury, zinc
Central African
Republic Diamonds,gold
Ethiopia Gold, manganese,platinum
Gabon Gold
Ghana Diamonds,gold
Kenya Beryl, copper, gemstones, gold, silver, vermiculite,
wollastonite
Lesotho Diamonds
Liberia Diamonds,gold
Madagascar Bismuth,colombite,gold, rare earth minerals,tantalite
Morocco Antimony,barite, lead,manganese,tin, zinc
Nigeria Asbestos, barite, colombite, gold, lead, tantalite, tin,
zinc
Rhodesia Antimony, beryl, chromite, copper, gemstones, gold,
lithium, manganese,mica, silver,tantalite
Rwanda Beryl,gold, tin, tungsten
Sierra Leone Diamonds
Tunisia Lead, mercury,zinc
Tanzania Diamonds,gold, magnesite,mica, precious stones, tin,
tungsten
Uganda Beryl,bismuth, tungsten
Asia
Burma Antimony,manganese,tin, tungsten
India Barite,borax, iron, manganese,mica, tin
Iran Barite,copper,lead, zinc
Malaysia Gold, iron, manganese,tin, tungsten, zinc
Turkey Chromite,copper,lead, magnesite,mercury, zinc
Latin America
Argentina Antimony,asbestos,beryl, bismuth,columbite,lithium,
mercury,tantalite, tungsten, vermiculite
Bolivia Antimony, copper, gold, mercury, silver, sulphur, tin,
tungsten, zinc
Brazil Beryllium,chromite,columbium,gold, precious stones,
tin, titanium
Chile Barite,copper,gold, lead, manganese,mercury,sulfur
Colombia Antimony,chromite,emeralds, iron ore, lead, mercury,
preciousstones, zinc
Cuba Copper,manganese,pyrite
Dominican Republic Gold
Guatemala Antimony,lead, manganese,mica,tin, wolfram
Mexico Fluorspar,mercury,sulfur, tin, uranium
Peru Antimony, bismuth, copper, diatomite, lead, manga-
nese, molybdenite,silver, tin, zinc
Venezuela Asbestos, diamonds,gold
 264 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

with the mining code is extremely difficult because of the large

number and wide dispersal of the mines. Large deposits may be
fragmented into several unrelated operations, preventing medium-
or large-scale development and therefore resulting in significantly
lower output, lower revenues, and lower foreign exchange earnings.
Small-scale mining generally has very high technical and financial
risks; funding the operations is hence difficult and expensive. The
people operating much of the small-scale sector lack technical and
managerial skills; any upgrading of the operations therefore must
be accompanied by training. The grossly inadequate accounting
procedures typical of small-scale mines render the application of
an income tax nonviable and often make it necessary to depend on
production royalties or export taxes as a vehicle for collecting gov-
ernment revenues.
Though it has many problems, the small-scale mining sector
cannot be ignored. On the contrary, it requires special attention
when formulating policies and drafting mineral and fiscal legisla-
tion, when staffing the ministries, and when preparing a mining
sector development plan. Some of the special measures needed are
mentioned in the following paragraphs.
A special agency is often required to collect the output from the
small operating mines distributed over a wide area. This involves
setting up a network of collection points, a related communication
and transportation system, and institutional arrangements to mar-
ket the product (a marketing agency).
Since limited scale often prohibits beneficiation of the ore by the
miner, his product may be a hand-sorted raw ore. With few excep-
tions, this has to be upgraded to a concentrate or a refined product
before it can be sold. The marketing agency may therefore have to
install processing facilities to treat the ore. Two more useful ap-
proaches are: first, to establish regional concentrators to treat the
ore from all the small operations within a specified area (this, of
course, requires collection and transportation of the ore to a central
plant); or, second, to set up mobile concentrators which can be
readily moved from mine to mine. The ore can be custom treated
for the miner who is then free to sell his upgraded product, or it
can be purchased by the concentrator on its own account.
A further step in this direction is to install a smelter and refinery
to treat the concentrates and ores from the small-scale producers.
In several cases, the government has a monopoly in smelting opera-
tions, requiring that' all minerals produced be sold to the domestic
smelters. Again, the smelter can custom treat the ore or purchase
it on its own account.
Because of the very high risk associated with small-scale mining
 APPENDIX K | 265

operations, finance may not be available on favorable terms. The

government may therefore have to take the lead by establishing
special credit facilities for the sector. This can be done by setting
up a special mining bank or by opening a "mining window" in
the national development bank. Other arrangements may include
the provision of government guarantees on commercial financing
(local and foreign).
Technical assistance to train the miners in mining methods,
management techniques, and planning functions is essential. This
often requires a major effort. A special agency can be established
to perform this function, or a new department could be formed in
the Ministry of Mines. Generally, the preferred approach is to
form a technical group in the financing agency, the area with which
developing countries have the most difficulty. Qualified people are
not available in the numbers required, and this leads to undertaking
extensive training programs and the use of foreign consultants.
The role of the financing agency in evaluating and supervising the
projects cannot be neglected.
Many of the small mines are too small to justify the purchase
of equipment for exploration drilling and mine development. Access
to such equipment can be very beneficial, however, in terms of
cutting costs and expediting development of the mine. Establishing
an equipment pool from which the equipment can either be rented
out or contracted out with an operator deserves consideration.
This could be a government operation, a joint venture with the
private sector, or a fully private enterprise.
Many countries with small-scale mining have a very large num-
ber of mines which are widely dispersed. Policing the mining code
can require a very large staff and even additional regional offices
of the Ministry of Mines. Although expensive, this may be in-
dispensable to ensure the health and safety of the workers. Data
collection from the small-scale operators is especially difficult and
requires additional documentation facilities and staff.
Lack of exploration by the small miners may necessitate explora-
tion assistance from the government in the form of subsidies, con-
tract exploration, equipment lending, and so forth.
Policies and legislation must take into account the requirement
of the small-scale mining sector for a much greater administrative
input from the government than the large-scale sector.
L A Modern Mining Code

OWNERSHIP OF OPERATIONmust be clearly spelled out in a mining

code, together with the requirements for state participation and
rules governing maximum foreign ownership, phase-out investment
requirements, and corporate capital structure.1 Areas that need
definition, if not clarified under a separate investment code, include
methods of accounting, valuing inventories, valuing assets, permis-
sible dividend payouts, depreciation allowances, writeoffs for capital
development or preinvestment, and so on. Of course, the applicable
tax regime should be described under the mining code, if not
covered under separate tax legislation. Beyond these fundamentals,
a modern mining code should address itself to the following points:
First, a classification of minerals should be adopted for determin-
ing the different types of mining licenses, leases, and concessions.
The categories adopted will depend very much on the individual
country's basic economic and political philosophy and may be predi-
cated upon relative values, mode of occurrence (placer, vein, or
lode), end use, strategic importance, and methods of mining. Gen-
erally, because of their very different characteristics and end uses,
building materials (stones, gravel, sand, clay, possibly also lime-
stone, granite, marble) are separated as a category. Other cate-
gories such as strategic minerals, vital minerals, and all other
minerals may be appropriate, the two former categories being
placed under more rigid government control, or being assigned the
responsibility of the central government rather than the state gov-
ernments. For obvious reasons, nuclear minerals generally fall under
special legislation. Coal and lignite, or petroleum, natural gas, and

1. This appendix draws heavily on United Nations, Proceedings of the

Seminar on Mining Legislation and Administration (E/CN11/I and NR/L90)
(Manila, 1969).

266
 APPENDIX L | 267

asphalt can also justifiably be placed under separate legislation. A

special category may also be assigned to minerals on the continental
shelf. In drafting mining legislation, each country should care-
fully establish categories that fit its policies and objectives.
The question of mineral ownership should be clearly defined. The
accession system, where mineral ownership is linked to land owner-
ship, is outdated and has generally been replaced by the domanial
system, whereby mineral ownership is distinctly separated from
surface ownership. Mineral ownership could be in private hands,
but it is being increasingly treated as the prerogative of the state.
This raises the question of separation of mineral ownership from
mining rights in cases where mineral ownership rests in the state
and the minerals are mined by private parties under license. This
obviously provides the rationale for production royalties.
There is need for a clear definition of the procedures for the
granting of prospecting and exploration rights. These may be sep-
arate or combined. The administrative burden (a real problem in
developing countries) is reduced by combining the two into a
single right. The alternatives are: first, grant to the discoverer;
second, grant to the first occupier or first applicant; or third, grant
at the government's discretion.
Grant to the discoverer. This is difficult to apply: who is the dis-
coverer? By what legal criteria can he be recognized?
Grant to the first occupier (indicated by staking a claim) or first
applicant (with or without staking a claim). This is generally the
favored approach. It promotes interest in exploration and avoids
conflict, although it does lead to fragmentation into blocks which
are too small to be viable and may spoil the deposits through lack of
expertise, machinery, and finance by high grading. 2 For there is no
guarantee that the holder will be technically and financially compe-
tent and this may result in undue speculation. Such problems can be
countered to some extent by establishing prequalification standards
and minimum expertise and financial requirements, though this
tends to favor the large enterprise. On the other hand, grant to first
occupiers hinders large-scale surveys of large areas by modern
prospecting techniques and does not give the government adequate
means to direct the country's mineral development.
Grant at the government's discretion. This gives the state tighter
control so that it can select from among applicants who are con-

2. High grading refers to mining the richer parts of the orebody without
regard to possible future exploitation of the lower-grade parts, which may
thus be rendered uneconomic. The minerals may therefore be lost to the
nation.
 268 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

sidered technically and financially fully competent. The selection

should be based on clearly defined rules and procedures for seeking
and evaluating proposals and applied by an expert team. If such a
team is not available from within the state administration, it could
be subcontracted.
As to prospecting and exploration, exclusive rights should be
awarded. To discourage speculation, however, minimum work pro-
grams and reporting requirements should be established. It is also
necessary to allow an adequate period of time for prospecting so
that the preliminary survey can be as complete and accurate as
possible. One or two years are bound to be insufficient, except when
a very small area is involved; longer periods with renewals are ad-
visable. The prospecting and exploration license may cover large
areas, with specified relinquishments at specified periods. The
license should clearly specify all rights and obligations of the
holder and detail the causes for termination and forfeiture.
The holder of a prospecting license must be guaranteed automatic
mining rights (exploitation title) with the discovery of an economic
ore deposit, provided he has met all his obligations under the license.
Without such assurances the licensee is unlikely to spend large sums
of risk capital exploring for minerals. Furthermore, he must be as-
sured of full possession of the granted rights as long as he meets
the legal and agreed obligations. The rights and obligations of the
holder must be clearly delineated, and a development and produc-
tion schedule should be agreed upon to prevent speculation and
tying up of good mineral deposits. The schedule must be realistic,
making full allowance for the nature of the orebody. The duration
of the mining right should be fixed. Twenty- or thirty-year periods,
with right of option to renew, are normal and desirable. Inactivity
is cause for forfeiture. The obligation of the mineral rights holder
would include his periodic submission of production, financial, and
statistical reports, as well as maps. To maintain the miners' trust,
the government should keep a clear separation between information
which is confidential and that which may be published.
The government may wish to reassess the technical and finan-
cial competence of the licensee, taking into account the nature of the
deposit to be exploited, and specify steps to be taken (the need to
take in partners, for instance, or to obtain technical and managerial
assistance) to meet minimum requirements. The government's right
to reevaluate the licensee should be agreed upon in the prospector's
license.
Mining rights may also be granted by public auction, tender, or
special contract. This is generally valid only if the government is
disposing of mining properties under its control through expiration
 APPENDIX L | 269

or forfeiture of a previous concession, or for particular minerals

reserved for the state, or when detailed exploration conducted either
by the state or on its behalf by a third party results in a discovery.
Granting of mining rights by special contract is becoming more
frequent and can be expected to become even more so in the future
as the incidence of exploration done by and for the state increases.
The main feature of such a contract is its bilateral and limited
aspect, in contrast to the mining code whose objective is to estab-
lish general rulings for across-the-board application. However, to
prevent conflict, the code must make provision for rules governing
special contracts, and the terms of the contract must fit within the
code framework. The code may require that a contract be annexed to
each mining right, specifying the terms and conditions of exploita-
tion, so that granting by special contract differs in approach only.
The code should clearly specify the degree of processing required
for each mineral. Beneficiation is generally regarded as a part of the
mining activity. In some countries, smelting and refining are con-
sidered as industrial activities regulated by the general legislation-
governing industry. A few countries have provided for special li-
censes for smelting and refining in their mining codes, though these
activities are increasingly becoming state functions.
Ecological and environmental requirements should be specified in
the code, detailing for example the measurements needed, maximum
level of pollutants, and reforestation. If separate laws have been
promulgated to cover all industry, a cross-reference to this law will
suffice. The obligations of the departing miner, after the closing
down of facilities or the expiration of mining title, need defining;
they include safety measures, rehabilitation of the surface, and
removal of structures.
The code should spell out safety requirements and standards, for
example, for protective clothing, equipment, work procedures, blast-
ing procedures, special equipment designs, atmospheric and ventila-
tion levels, lighting requirements, and minimum noise levels. Regu-
lations governing the storage, transport, and use of explosives may
also come under the mining code.
Guidelines concerning the conservation of resources are advisa-
ble. Legislation can cover the efficient exploitation of a mineral
deposit by avoiding premature abandonment of parts of the deposit,
fixing the cutoff grade at the lowest level compatible with the
economic situation, and good recovery rates in the beneficiation of
ores.
Employment policies must be incorporated in the law; they
should include guidelines for phasing out expatriates, training na-
tionals, hiring and termination practices, equality clauses, health
 270 | THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

and social facilities, and the general minimum terms of employment.

Marketing responsibilities and rights of the operator must be
defined. Any requirements to sell through a state monopoly, to
obtain prior approval of sales contracts, to report details of sales
transactions, and to sell preferentially to domestic purchasers
should be listed and the procedures spelled out.
The use rights to water, forests, and other natural resources
should be defined, together with the procedures for obtaining such
rights.
Rights to the use of public infrastructure-rail, roads, power,
communications, housing, schools, and hospitals, for example-
need defining. The obligation to make captive infrastrucure avail-
able for public use should similarly be defined.
Reference should also be made to the rights and conditions of
exploiting minerals on the continental shelf, to overflight privileges
for aerial photography, geophysical work, the availability of maps
and geological data from government agencies, the provision of
technical assistance by the government, and to all other legislation
affecting the mining industry.
Bibliography and Index
Bibliography

THE BIBLIOGRAPHY comprises works cited in the text and its ap-
pendixes, plus selected publications which offer good supplementary
reading to these works in the context in which they were cited. The
bibliography is designed to facilitate further reading but, by and
large, with the same balance among topics reflected in the body of
the book. In a survey that covers as much ground as the present one,
it is impossible to anticipate the needs for depth and predict the
curiosities of every reader. Guiding the reader halfway through the
many specific alleys such as resource availability, processing, min-
eral legislation, corporate finance, taxation, and the maze of com-
modity and national problems requires a bibliography easily ten
times longer. Specialized bibliographies are available on certain sub-
topics (commodities and marine resource, for instance) or by agency
(UNCTAD, the United Nations) and can be found attached to some
of the authoritative works cited. In addition to consulting these,
readers who wish to delve deeper into the subject may benefit from
a few observations.
The best information of an impartial character on the problems
of mineral resource development in the developing countries is in
the archives of the international agencies with long operational
experience in this field, such as the United Nations, the UN Develop-
ment Programme, and the World Bank. Declassifying and systema-
tizing the information will open to the student a vast storehouse of
knowledge.
The best sources of information on developed country policies
include the annual reports of the large mining companies and, in the
United States, the records of Congressional committee hearings.
If the voluminous output of the U.S. Geological Survey and
Bureau of Mines is the standard source for factual information on
reserves and resources as well as on technological trends, even for

273
 274 j THE MINING INDUSTRY AND THE DEVELOPING COUNTRIES

the developing countries and the centrally planned economies, it is

because in most cases there is nothing better. UN efforts in this area,
though expanding, are grossly inadequate.
Meetings, seminars, and symposia organized by the United Na-
tions or professional societies, especially those of an international
character, such as the World Mining Congress, provide a rich
source of analytical information on specific problems and juxtaposi-
tion of views, as well as for state-of-the-art surveys. Regrettably,
some of these are published with a long delay and slide immedi-
ately into obscurity.
An indispensable source-but one frustrating to follow and diffi-
cult to use on an ad hoc basis-is the daily, weekly, and monthly
professional (mining, engineering, and commercial) press. Its news
character reduces bias and provides a running account of develop-
ments without prejudgments. It is interesting to note that although
much of it is directly or indirectly subsidized by the industry,
editorially some of the press has been ahead of the industry in
recognizing the need for, and advocating a change in, the rules of
the game in favor of the developing countries.
No true understanding of the problems and operations of the
mining industry can be gained without access to the best source of
all-people. An unfortunate gulf separates the policymaker in gov-
ernment from the man in the industry-and by that we do not mean
the private mining company, but the man working in this sector
or studying it in government, business, universities, or the United
Nations. One reason for this is that the latter, perhaps with the
exception of the university professor, has seldom the motivation,
even less often the time, and rarely the forum to communicate his
experience and views. Some of them retire-some are forced to
retire-without having occasion to do so, though this should be an
obligation, not just an optional service.
Analytical information on the problems of mineral resource de-
velopment in the developing countries and work by analysts from
the developing countries is limited and will remain so for some time.
Much of the information is one-sided; yet, with careful study, a
discerning analyst can find in it the basis for independent judgment
on a number of issues.
Recognition of the inadequacy of the information base, coupled
with an unprecedented explosion in the need for information, has
led to an avalanche of proposals for institutional arrangements de-
signed to improve the collection, dissemination, and analysis of
information at both the national and international levels. Two bills
on a new natural resources information system are pending before
the U.S. Congress. Similar proposals for an expanded flow of infor-
 BIBLIOGRAPHY | 275

mation on the multinational corporations, technology, and natural

resources are under implementation or consideration at the United
Nations. These efforts merit international support. Their success re-
quires mutual trust, collective action, and emphasis, from the very
beginning, on quality rather than quantity.

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Index

Africa: imports to, 93; projects in, Asphalt, 266-67

207, 210; resources in, 94, 225; ASSIMER. See International Associa-
surveys in, 211. See also specific tion of Mercury Producers
countries Association of Iron Ore Exporting
Agencies, 15, 16, 157, 163-65, 264 Countries (AIEC), 124
Agreements, 128-31, 136, 142-43, Australia, 44, 93, 124n, 139, 142,
149, 190. See also Alliances 164n, 170-71; economy of, 96;
Agriculture, 100, 101 exploration in, 31, 32, 137, 138,
Aid, development: bilateral and 144; exports from, 84-85, 95, 98,
multilateral, 13-14, 34, 49, 149- 123n, 124; imports to, 90-91; in-
50, 206-09; for education, 148; vestment in, 47; processing by,
financing and, 148, 157, 161; pit- 89; production in, 85-87; resources
falls of, 147-50 in, 39, 41, 50, 61, 216
AIEC. See Association of Iron Ore Austria, 121n, 139
Exporting Countries
Algeria, 124n, 134 Backward integration, 42, 44
Alliances: among countries, 14, 122, Banks, 20, 41-42, 49, 160-61, 210-11
150; between developing and in- Bargaining power, 21, 125, 137-40
dustrialized countries, 10, 12, 16- Barite, 59, 76, 85
17, 23, 132-33; exporters', 123; Bauxite, 39, 62, 72, 123, 227; ex-
interindustry, 121, 122, 124, 190, ports, 95, 252; imports, 92; mine-
191; between private sector and head value, 80; prices, 109-10;
government, 45, 141-42; produc- processing, 28n, 41-42, 87; pro-
ers', 41-43, 120-28, 130-31 duction, 79, 85, 211; reserves, 58,
Aluminum, 39, 41, 62, 81, 134, 227; 59, 60-61, 85, 225; stockpiling, 128
investment in, 47, 203; orebody Beckerman, Wilfred, 54n
(see Bauxite); prices, 109-10, 112n, Belgium, 121, 139
124; processing, 28n, 87; produc- Benin, 207
tion, 42, 77, 81, 182, 211; recovery Berger, A. R., 147n, 177n
of, 70, 72; recycling of, 73, 76; Bergsten, Fred, 125n, 127
reserves, 59 Bismuth, 59, 85
American Metal Climax, 41 Blondel, Fernand, 56n
Anaconda Company, 134 Bolivia, 39, 97; confiscation in, 134;
Anglo-American Corporation of economy of, 96; exploration and,
Canada, Ltd., 257 144, 145-46, 201; exports and, 50;
Anorthosite, 59 projects in, 208; surveys in, 211
Antimony, 58, 84, 85 Bonar, George, 42n
Asarco Inc., 41 Botswana, 97, 210
Asbestos, 58, 85 Bougainville copper mine, 100-01,
Asia, 93. See also specific countries 135n

284
 INDEX | 285

Brazil, 179; exploration in, 34, 144, Clarfield, Kenneth W., 124n
202; production in, 85-86; pro- Club of Rome, 54
jects in, 210; resources and, 225 Coal, 98, 121n; coking, 42, 95; de-
British Columbia, 171, 173 posits, 65; legislation for, 266-67;
Bromine, 64-65 production, 211
Burma, 134, 207, 208 Cobalt, 65-66, 67, 69, 70; reserves
of, 58, 60-61, 85
Columbium, 58, 60-61, 85
Cacao, 100 Cominco, Ltd., 199, 212
Canada, 139, 141, 152, 170-71, 212; Commodities, 13; agreements on,
corporations in, 41, 144-45, 256- 128-31, 190; cycle, 117, 119. See
60; economy of, 96; exports and, also specific commodities
95, 98; imports and, 90-92; in- Companies, mining, 41, 144-45, 161-
vestment and, 46, 50, 52, 212-13; 63, 256-60. See also specific com-
processing by, 41-42, 84-86, 89; panies
reserves in, 39, 41, 61 Confiscation, 134, 139-40
-, exploration in, 138, 256-60; capi- Conservation, 154, 155, 185, 269
tal for, 31, 137; expenditures for, Constantin, James A., 62n
32, 195, 199, 200-01; promotion Consultative Group on Food Produc-
of, 144-45 tion and Investment, 20
Canadian Stock Exchange, 212 Consumption, 7; per capita, 83-84;
Capital: access to, 45; repatriation estimates of, 80-81, 227-28;
of, 170; requirements, 9, 12, 19- growth rate of, 17-19, 81, 83; pat-
20, 46-50, 185-87; risk, 31, 32, tern of, 72-73, 76, 77-79, 164n, 181
137; sources: 20 Contracts, 17, 142-43, 176
Capital-output ratios, 46 Control. See Ownership
Caracas, 69 Cooperation. See Agreements; Alli-
Caribbean, 39, 41-42, 95. See also ances
specific countries Copper, 81, 128, 134, 142n, 227;
Carman, John S., 29n, 135-36 consumption, 72-73, 79; exports,
Cartels. See Agreements; Alliances; 95, 124; imports, 92-93; invest-
specific organizations ment in, 203; nodules and, 65-66,
Centrally planned countries, 4, 83, 67, 69; production, 34-35, 41, 42,
84, 90, 121; mineral contribution 77, 79, 81, 182; profits, 140-41;
by, 96-97; mineral development recovery of, 70; recycling of, 72
in, 151-52; production in, 83, 87; - orebody: blister, 59-60; deposits,
reserves in, 60-61, 85. See also 39, 41, 65, 99n, 100-01, 124; mine-
specific countries head value of, 80; porphyry, 64n;
Cerro Corporation, 41 processing of, 28-29, 87-88; purity
Charles River Associates, Inc., 112n, of, 63; reserves, 59, 60-61, 85, 252
212 - prices: elasticity of, 112n; fluc-
Chile, 124n; confiscation and, 134; tuations in, 50, 63, 107n, 115; fu-
copper in, 41, 122, 252; economy tures market and, 109
of, 96; exploration expenditures Copra, 100
in, 32, 202; exports and, 50; pro- Corporations, 41, 144-45, 161-63,
duction in, 85-86; profits and, 256-60. See also specific corpora-
140-41; projects in, 210 tions
China, People's Republic of, 85-86 Costa Rica, 47
Chrome, 92 Costs: exploration, 195, 199-202;
Chromite, 63, 77 financial, 40; infrastructure, 47;
Chromium, 58, 60-61, 85, 92 production, 35n, 37n; project, 29,
cIpEc. See Intergovernmental Coun- 210-11, 265; trend in, 115-16
cil of Copper Exporting Countries Cranstone, D. A., 195n
 286 | INDEX

Credits, 49 Exchange rates, 168

Cyprus, 207 Expenditures: research and develop-
ment, 37n; taxes and, 167
Davies, Alun G., 135 -, exploration, 31-34; concentration
De Beers Consolidated Mines Ltd., of, 144, 195, 199-202, 259; risk
41 and, 8, 29
Demand: discoveries and, 144, 183- Exploitation, 104-05; funds for, 49;
84; distribution, 26; future, 180- multinationals and, 137-38; nego-
84; growth in, 17-19, 179, 186; tiations for, 146; stages of, 26-30
supply and, 104, 110-11, 178 Exploration, 29, 43; capital, 119, 201-
Denmark, 139 02; costs, 195, 199-202; expendi-
Deposits, 8, 9-11, 39; bedrock: 65; tures, 8, 29, 31-34, 144, 259; fu-
marine, 64-67, 68-70. See also ture, 183; importance of, 143-47;
specific minerals licenses, 268; for petroleum, 145-
Developed countries. See Industrial- 46; programs, 32, 34, 144-47, 207;
ized countries; specific countries rights, 267, 268; risk, 119, 201-02;
Developing countries, 11, 13, 21; taxes on, 167
cooperation among, 14, 122, 150; - funds, 13-14, 143-45, 259-60; re-
and cooperation with industrial- duction of, 138-39; risk capital
ized countries, 10, 12, 16-17, 23, and, 32; small-scale mining and,
132-33; mineral contribution by, 265
96-98. See also specific countries Exploration und Bergbau GmbH.,
Diamonds, 41 121n
Dividends, 212 Export-Import Bank (Japan), 49
Dominican Republic, 97, 123n, 210 Exports, mineral: concentration of,
94-95; distribution of, 90; earn-
Earnings, 9, 98, 140-41, 170, 212-13 ings, 98; Eastern European, 121;
Earth Resources Technology Satel- share of, 252; taxes on, 167; value
lite (ERTS), 183 of, 116-17. See also specific coun-
Ecology, 154, 155, 185, 269 tries
Economies of scale, 32, 34-38, 42-43
Education, 15, 148, 157, 208, 265 Fabrication. See Production
Employment: geological survey and, Falconbridge Nickel Mines Ltd., 212
160; policies, 269-70; provision of, Fees, 167
10, 97-98, 156-57, 158; in small- Feldspar, 58, 85
scale mining, 100-01, 261-62; state Final product (metal ingot) value,
companies and, 162, 256-57 80-81, 227
Energy fuels, 3, 106, 111, 184. See Financial institutions, 20, 41-42, 49,
also Coal; Natural gas; Petro- 160-61, 210-11
leum; Uranium Financing: cost, 40; and division of
Erb, Guy F., 69n, 103n benefits, 140-41; external debt and
ERTS. See Earth Resources Technol- equity, 48; problems, 19-20; pro-
ogy Satellite ject, 210-11, 265; shortages in,
Erzkontor Ruhr Gmbh., 121 136-87; sources of, 15, 46-50, 258-
Ethiopia, 207 59. See also Aid, development;
Europe, Eastern, 121. See also Cen- Funds
trally planned countries Fischman, Leonard L., 57n, 73, 76,
Europe, Western: imports and, 84- 219
85, 90, 93, 121; investors and, 94; Fluorspar, 59, 60-61, 85
monopolies by, 121-122. See also Food and Agriculture Organization,
specific countries 20
European Economic Community, 97 Forward integration, 42
Evans, J. B., 171, 173 France, 37n, 41, 79, 121, 139
 INDEX | 287

Funds: availability of, 48; exploita- IBRD. See International Bank for Re-
tion, 49; exploration, 13-14, 32, construction and Development
138-39, 143-45, 259-60; Japanese, IDA. See International Development
49; United Nations, 207. See also Association
Aid, development IFc. See International Finance Cor-
poration
Gabon, 210 Ilmenite, 164n
Geneva, 69 Imports: dependence on, 92-93; dis-
Gentlemen's Agreement, 121 tribution of, 90-91; European, 84-
Geological Survey Institute, 207 85, 90, 93, 121-22; Japanese, 79,
Germany, Federal Republic of: 42, 84-85, 90, 92-93; North Ameri-
121-22, 139 can, 84-85, 90-92, 93; taxes on,
Ghana, 123, 134 167-68
GIRM. See Groupement d'Importa- Imports-consumption ratio, 84
tion et de Repartition des Metaux INco. See International Nickel Com-
-Mutual Import and Distribution pany
Pool Income, 3, 7-8, 101-02, 128-30, 169
Going, P., 195 India, 93, 124n, 179, 210
Gold, 50, 65 Indonesia, 93, 145-46
Government: division of benefits Industrialized countries: and co-
and, 140-41; fees, 167; foreign in- operation with developing coun-
vestor and, 134-40, 141-43; mar- tries, 10, 12, 16-17, 23, 132-33;
keting agencies, 15, 16, 163-65; mineral contribution by, 96-98.
mineral policy, 14, 153-57, 175- See also specific countries
76; private sector and, 16-17, 41- Industrial Revolution, 77, 79, 96
45, 174-75; role of, 5-6, 14-16, Industry. See Mining industry
134, 187-88, 207; strengthening Inflation, 110
of, 176-77. See also specific bu- Infrastructure, 38-40, 47, 155, 270
reaus; specific ministries Infrastructure geology. See Surveys,
Grangesberg Company, 121 geological
Great Britain, 121 Ingot (final product) value, 80-81,
Greece, 210 227
Groupement d'Importation et de Re- Integration, 40-42, 44, 107, 109
partition des Metaux (GIRM), 121 Inter-American Development Bank,
Guggenheim-Morgan Bank Group, 49
41 Interdependence. See Agreements;
Guinea, 39, 123n, 207, 210 Alliances
Guyana, 123n, 134 Intergovernmental Council of Cop-
Gypsum, 58 per Exporting Countries (CIPEC),
122
International Association of Mercury
Haiti, 123n Producers (ASSIMER), 124
Herfindahl, Orris C., 63n, 115 International Bank for Reconstruc-
Hollinger Mines Ltd., 212 tion and Development (IBRD), 210,
Horizontal integration, 107 211. See also World Bank
Hotelling, Harold, 105n International Bauxite Association
Hudson Bay Mining and Smelting (IrA), 123
Company, Ltd., 212 International Development Associa-
Hungary, 79 tion (IDA), 210. See also World
Hydrometallurgy, 28 Bank
International Finance Corporation
IBA. See International Bauxite Asso- (Irc), 210, 211. See also World
ciation Bank
 288 | INDEX

International Nickel Company Landsberg, Hans H., 57n, 73, 76, 219
(INCO), 41, 212, 259 Lasky, Samuel G., 56n
International Tin Agreement, 122n, Latin America, 42, 52, 97, 210, 212-
128 13. See also specific countries
International Workshop on Earth Lead, 73, 227; consumption, 72-73,
Science Aid to Developing Coun- 79; exports, 95, 252; investment
tries, 147-48, 150 in, 203; prices, 109; producers'
Investment, 6, 101, 131, 173; agri- alliances and, 124n; production,
cultural, 101; benefits and, 94, 41, 42, 79, 81; recovery of, 70;
140-41; code, 173-74, 266; costs, recycling of, 72; stockpiling of,
40, 203; foreign, 45-46, 48, 52, 128
134-40, 141-43; incentives, 169; - orebody: deposits of, 39, 65;
in infrastructure, 38-40; phaseout, minehead value of, 80; reserves,
142-43; problems, 19-20, 137-38; 59-61, 63, 85; smelting, 28-29
returns, 9, 50-52, 140-41, 170, Legislation: compliance with, 159;
212-13. See also Capital; Funds investment, 173-74, 266; mining,
Iran, 144, 145-46, 207 156, 166; national mineral policy
Ireland, 32, 61, 137, 144 and, 156; special, 266-67; tax,
Iron ore: control of, 42, 121-22; 167-70; technical assistance and,
pig, 72-73, 77 175-76
- orebody, 42, 227; consumption Liberia, 42, 96, 97, 121
of, 79; contracts and, 142n; de- Liberian American-Swedish Min-
posits, 65; exports, 95, 252; im- erals Company (LAMCO), 121
ports, 92; interindustry coopera- Licenses, 268, 269
tion and, 122, 124; investment in, Lignite, 266-67
203; market, 109; minehead value Limits to Growth, The, 54
of, 80; prices, 117, 121-22; pro- IKAB. See Luossavaara-Kiirunavaara
cessing of, 88; production of, 42, A.B.
79, 211; reserves, 58, 59-61, 63, London Metal Exchange, 107n, 109,
85; stockpiling of, 128; trade, 107 115
Israel, 210 Lovering, T. S., 79n
Italy, 121, 124n Lowell, T. D., 63n
Luossavaara-Kiirunavaara A.B.
Jamaica, 95, 96, 123n (LKAB), 121
Japan, 44, 49, 139, 142-43, 164n; ex-
ports and, 95, 120; imports by, 79,
84-85, 90, 92-93; and interindus- MacGregor, Wallace, 185-86
try cooperation, 121; processing Maclnnes, David F., 59n
facilities of, 10; seabed mining McIntyre Mines, Ltd., 212
and, 66; trade and, 93-94 Madagascar, 207
Jordan, 207 Magnesite, 164n
Magnesium, 58, 60-61, 64-65, 85
Kallab, Valeriana, 69n, 103n Malaysia, 97
Kennecott Copper Corporation, 41, Malmexport [mineral sales com-
134 pany], 121-22
Krasner, Stephen D., 127n Manganese: exports, 95; imports,
Kreditanstalt fiir Wiederaufbau, 49 92; nodules, 65-67, 68-70; pro-
Kruger, F. C., 212n ducers' alliances and, 124n; pro-
duction of, 85, 211
LaQue, F. L., 66 - orebody, 42, 227; control of, 42;
Lake Shore Mines, Ltd., 212 market, 109; minehead value of,
LAMCO. See Liberian American-Swed- 80; prices, 117; reserves, 58, 59-
ish Minerals Co. 61, 85
 INDEX | 289

Marketing, 16, 45, 134, 163-65, 264, Multinational corporations. See Pri-
270 vate sector
Markets, 6, 28n, 45, 109, 110; hori- Mutual Import and Distribution Pool
zontally integrated, 107; vertically (Groupement d'Importation et de
integrated, 40-42, 107, 109. See Repartition des MWtaux-GIRM),
also Exports; Imports 121
Martin, H. L., 195n
Massachusetts Institute of Technol-
ogy, 54 Natural gas, 60-61, 65, 266-67
Mauritania, 124n, 207, 210 Negotiations, 17, 142-43, 176
Meadows, Dennis L., 54 Netherlands, The, 121n, 139
Mercury, 59, 60-61, 85, 124 Nickel, 42n, 227; exports, 95; im-
Mexico, 85-86, 92, 124n, 210 ports, 92-93; investment in, 203;
Mikdashi, Zuhayr, 121n monopoly, 41; nodules and, 65-
Mikesell, Raymond F., 13, 46, 99- 66, 67, 69, 70; orebody, 58, 60-61,
101, 105n, 127n, 134-35 80, 85, 225; prices of, 109; produc-
Minehead value, 80-81, 227 tion of, 77, 81, 182, 211
Mineral sector development, 12-17; Nigeria, 179
benefits and, 140-41; contribution Nodules, 65-67, 68-70, 190
of, 96-102; efficiency of, 16; fi- Noranda Mines, Ltd., 212
nancing for, 15, 210-11; objectives North America, 84-85, 93. See also
of, 14, 133-34, 151-52; perform- Canada; United States
ance of, 178-80; planning, 158; Norway, 122, 139
policy for, 14, 153-57, 175-76; Nusbaumer, Jacques, 42n
problems of, 132, 134-40, 184-85;
profitability of, 212-13 Oceania, 93, 97, 225
Minerals, 155, 164n, 203; classifica- OECi. See Organisation for Eco-
tion of, 266; grades of, 25, 63-64, nomic Co-operation and Develop-
167, 267; rights to, 136, 165-66, ment
267-69. See also specific minerals Oil. See Petroleum
Mining industry: benefits of, 7, 98; Okita, Saburo, 94n
characteristics of, 24-26, 101-02; OPEC. See Organization of Petroleum
codes for, 156, 165-70, 265, 266- Exporting Countries
70; contribution of, 3, 6-8; de- Operational phase. See Exploitation
velopment of, 27-28; effects of, 6- Orebodies, 27, 28. See also specific
8, 98-102; hard rock, 34, 37; open- minerals
pit, 34-35; performance of, 8-12; Organisation for Economic Co-oper-
problems of, 19-20; programs, ation and Development (OECD), 46
208; rights of, 136, 165-66, 267- Organization of Petroleum Export-
69; seabed, 65-67, 68-70, 190; ing Countries (OPEC), 122-23,
small-scale, 100-01, 160, 161, 261- 130n-131n, 181
62, 264-65; technological change Overseas Mining Association, 135
in, 29, 34-38; underground, 34-35 Ownership, 136, 154, 176, 267; con-
Ministry of Mines, 15-16, 157-59, centration of, 40-45, 85-87; and
166 price control, 120-24
Mokta, 41
Molybdenum: monopoly on, 41;
price of, 109; production of, 77, Pacific Ocean, 66
85; reserves, 58, 60-61, 85; sea- Pakistan, 179
bed mining and, 70 Papua New Guinea, 97n, 100-01,
Monopolies, 41, 45. See also specific 124, 135n
minerals Peach, W. N., 62n
Morocco, 95, 123-24, 144 Pennaroya, 41
 290 | INDEX

Peru, 124n; confiscation in, 134; 39; profits from, 88-89; pyro-
copper in, 41, 99n, 122; economy metallurgical, 28; safety require-
of, 96; exploration in, 32, 145-46, ments in, 269; by smelting, 28-29,
202; production in, 85-86 39, 264
Petroleum: crisis, 122-23; deposits, Producers, 41-43, 120-23, 124-28,
60-61, 65; exploration, 145-46; 130-31, 185-86
legislation for, 266-67; revenue, Product mix, 181-82
140 Production: charges, 48-49, 168,
Philippines, 93, 144, 208, 210 171n, 267; control of, 40-45, 85-
Phosphate, 227; control of, 42; ex- 87, 267-68; costs, 35n, 37n; dis-
ports, 95, 123-24, 252; imports, tribution of, 9-11, 13, 133-34, 185-
92; minehead value of, 80; nod- 86, 201; estimates of, 227-28;
ules, 65n; price of, 117, 123-24; growth of, 81, 83; and ingot value,
recycling, 72; reserves, 59-61, 85, 80-81, 227; integration and, 42,
225 44; and minehead value, 80-81,
Phosphorous, 58, 92 227; pattern of, 79; product mix
Platinum, 41, 85, 92 and, 181-82; reserves, 85. See also
Pollution control, 154, 155, 185, 269 specific minerals
Portugal, 139 Profits, 9, 98, 140-41, 170, 212-13
Potash: control of, 42; production Programs: for exploration, 32, 34,
of, 85, 211; reserves, 58, 60-61, 144-47, 207; integrated commod-
63, 85 ity, 128, 130n-31n; for processing,
Power sources, 28, 39 208; stockpile, 128; of United Na-
Prain, Ronald, 26n tions, 206-09
Prefeasibility studies. See Surveys Projects, 29, 150, 177, 182-83; financ-
Price: changes, 63, 113, 115-17, ing for, 29, 210-11, 265; postimple-
119-20, 135n; control, 120-24; de- mentation, 139-40; preexploita-
mand, 126-27; determinants, 12, tion; 138-39; preexploration, 137-
110-12, 180; dissatisfaction, 103; 38; and risk, 40, 45; of United Na-
elasticities, 110-12; of energy, 106, tions, 206-09
111, 184; goals, 22; inelasticity, Prospecting. See Exploration
126; information, 107, 108-10; Pyrometallurgy, 28
issues, 124-31; output, 35n; and Quebec, 144-45
profitability, 50-52; of raw ma- Quebec 144-45
terial, 111; role of, 104-06; share Quebec Mining Exploration Coi-
of, 20-22; stable, 22, 131; supply paniociniQeeoisE d4E-
and demand, 110-11, 178; trans- 45, 256-60
fer, 134 4~266
Private sector, 8, 11, 47; corpora- Recovery, 70-76
tions in, 41, 144-45, 256-60 (see Recycling, 70-76
also specific corporations); and Red Sea, 65
economies of scale, 32, 34-38, 42- Refining. See Processing
43; governments and, 16-17, 41- Repayment, 50
45, 174-75; objectives of, 12-15, Replenishment contribution. See
133-34; ownership by, 44-45; role Royalities
of, 5-6, 9, 25, 187-88; and United Research and development (R & D),
Nations, 42-43 15, 37n, 165
Processing, 208; in Canada, 41-42, Reserves, 25, 85, 215-16; classifica-
84-86, 89; concentration of, 87- tion of, 215-16, 218; control of
89; degree of, 269; facilities, 10, (see Alliances); estimates of, 55-
27-28, 89, 264; hydrometallurgi- 58, 219, 225; future, 18-19; land-
cal, 28; by leaching, 37; licenses, based, 58-59. See also specific
269; nature of, 37; power for, 28, minerals
 INDEX | 291

Resources, 9-11, 24-25, 216; ade- Societe Quebecoise d'Exploration

quacy of, 57-58; allocation of, Miniere (soQuEM), 144-45, 256-60
104-05; classification of, 215-16, Solow, Robert M., 105n
218; conservation of, 269; de- Somalia, 207
velopment, 8, 25, 26-27, 93-94, SOQUEM. See Societe Quebecoise
207; discoveries of, 199-202, 225; d'Exploration Miniere.
distribution, 26, 41-42, 59-61, 215- South Africa, 92, 96, 97; explora-
16, 218; economic growth and, 53- tion in, 32, 137, 144; exports and,
54; economic properties of, 24; 84-85, 95, 98; imports and, 90-91;
estimate of, 55-58; management production in, 85-87
of, 22-23; ocean, 64-70, 225; plan- Soviet Union, 45, 56, 61, 85-86, 92,
ning for, 188-91; transfer concept 225
of, 20-21; use of, 12, 62-64, 180. Spain, 124n
See also Deposits; Reserves; spe- Statistical information, 5, 25, 154-
cific minerals 55, 158-59, 227
Revenues, 7, 98, 137; oil, 140; from Steel, 42, 44, 72-73, 81, 121
seabed mining, 69; taxes and, 171, Stockpiles, 122, 128
173 Subsidies, 169-70
Revenue sharing, 141, 155-56, 170- Sulfur: deposits, 65; dioxides, 185;
71, 173 recovery of, 72; resources of, 58,
Revere, 134 60-61, 65, 85
Rhodesia, 39, 92 Sulfuric acid, 185
Rhodesian Selection Trust, 41 Suppliers' credits, 49
Ridker, Ronald G., 72n Supplies, 92, 93, 182, 190-91
Rights, mineral, 136, 165-66, 176, Supply and demand, 104, 110-11,
267-69 178
Rio Tinto, 41 Surinam, 123n
Risk: capital, 31, 32, 137; develop- Surpluses, 182-83
ment, 25, 29; exploration, 199, Surveys: constraints on, 149; geo-
201-02; political, 134, 139-40, logical, 26-27, 156, 159-60; train-
141-43, 170-71; project, 40, 45 ing for, 157; by World Bank, 211
Rohstoffhandel GmbH., 121 Sutulov, Alexander, 77n
Rothschild, 41 Sweden, 42, 95, 121-22, 139
Royalties,: 48-49, 168, 171n, 267 Switzerland, 41, 139
Rustenburg Platinum Mines, Ltd., 41 Sydvaranger, A/S, 122
Rutile, 164n
Takeuchi, Kenji, 119n, 127n, 129n,
Safety requirements, 269 182n
St. Joe Minerals Corporation, 31n Tariffs, 89
Salt, 64-65 Taxes, 136-37, 140-41, 166-70, 171,
Scrap, 72-73, 76 173
Shanz, John J., 218n Technical assistance, 175-77, 206-09,
Shipping, 39-40 265
Siberia, 56, 61, 225 Thailand, 144
Sierra Leone, 123n Tin, 128, 227; exports, 95, 252, im-
Silica, 65-66 ports, 92; monopoly on, 41; prices,
Silicon, 58n 109, 112n, 117; processing, 88;
Silver, 50, 59, 60-61, 65, 85, 183 production, 42, 77, 79, 81, 85, 182
Singer, D. A., 64n - orebody, minehead value of, 80;
Smelting, 28-29, 39, 264 reserves, 59, 60-61, 63, 85, 183
Smith, Frank Austin, 72n Titanium, 62, 73; imports, 92; pro-
Soci6ti Generale de Belgique, 41 duction, 77, 85; reserves, 58, 60-
Societe le Nickel, 41 61, 85
 292 | INDEX

Togo, 207 U.S. Geological Survey, 65, 215-16,

Toquepala Copper Mine, 99n 218n
Trade, 49, 107, 129n; estimates of, U.S. House of Representatives, 106
80-81, 227-28; pattern of, 79, 84, Upper Volta, 207, 211
89-96 Uranium, 81
Training, 15, 148, 157, 208, 265
Transport, 39-40 Value added, 88-89, 97
Tungsten, 59, 60-61, 84, 85, 124n Vanadium, 58, 60-61, 70, 85
Tunisia, 134 Varon, Bension, 42n, 55n, 69n, 88n-
Turkey, 124n 89n, 119n, 127n, 129n, 142n, 182n
Venezuela, 124n
UNCTAD. See UN Conference on Trade Vertical integration, 40-42, 107, 109
and Development Vickers, Edward L., 186
UNDP. See United Nations Develop- Vogelstein-Sussman Bank Group, 41
ment Programme
Union Miniere, 41 Wa Chang, 41
United Kingdom, 79, 139 Walthier, Thomas N., 25n, 31n
United Nations, 42-43, 46, 48, 135- Wastes, 70-76
36, 206-09 Water, 65, 270; deposits in, 64-67,
UN Centre for Natural Resources, 68-70; mining from, 65-67, 68-
Energy, and Transport, 56n, 206- 70, 190
09 World Bank, 20, 49, 210-11
UN Committee on Natural Resources,
147
UN Conference on Trade and De- Yates, P. Lamartine, 77
velopment (UNCTAD), 128 Yugoslavia, 123n
United Nations Development Pro-
gramme (UNDP), 20, 48, 146, 206- Zaire: confiscation in, 134; copper
09 alliances and, 122; economy of,
UN Economic and Social Council, 56n 96; employment in, 97; explora-
UN Law of the Sea Conference, tion expenditures in, 32; produc-
Third, 69 tion in, 85-86; projects in, 210;
UN Natural Resources Exploration seabed mining and, 69
Fund, 48-49, 51, 146-47 Zambia: confiscation in, 134; copper
UN Secretariat, 66-67 in, 41, 122; economy of, 96; em-
UN Secretary-General, 56n ployment in, 97; exploration ex-
United States: consumption in, 72- penditures in, 32, 202; exports
73, 76, 79, 181; control by, 41-42; and, 50; production in, 85-86;
employment and, 98; exploration seabed mining and, 69; transport
in, 31, 32, 61, 144, 195, 199-201; facilities and, 39
exports and, 95; financing and, 41- Zimmermann, Erich Walter, 62
42, 48; imports and, 90-92; invest- Zinc, 124n, 128, 227; consumption,
ment and, 46, 49, 52; mining by, 72-73, 79; control of, 42; exports,
34-35, 66, 70n; political risk and, 95, 252; investment in, 203; prices,
139, 170-71; prices and, 112n; 50; production, 42, 77, 81; re-
production in, 185-86; resources covery of, 72; recycling of, 72, 73,
in, 199-202, 215-16, 218; smelters 76; stockpiling of, 128
in, 39; stockpiles in, 122; taxes - orebody: deposits, 39, 65; rnine-
and, 170n head value of, 80; reserves, 59,
U.S. Bureau of Mines: expenditures 60-61, 85, 183
by, 37n; investment and, 52, 212; Zircon, 164n
prices and, 61; reserves and, 216, Zirconium, 41, 62
218, 219 Zwartendyk, Jan, 58n, 218n
move products across national boundaries.
The industry thrives best in a climate of
cooperation among disciplines, countries,
investment sources, the public and private
sectors, management and labor, and the
various elements of its research and infor-
mation networks. The potential for coopera-
tion will be enhanced by the industry's
efforts to distribute its investment and earn-
ings equitably over countries. This ac,-
complishment will require a continuous
resolve on the part of the industry to commit
its vast know-how and internal resources to
international development, particualrly that
of the developing countries.
Rex Bosson is forrnerly a mining engineer in
the Industrial Projects Department of the
World Bank and now assistant general man-
ager of Chase NBA-New Zealand Group,
Ltd. Bension Varon, formerly a senior econ-
omist in the Policy Planning and Program
Review Department of the World Bank, now
serves as assistant director for policies and
projections of the United Nations Centre for
Natural Resources, Energy, and Transport.

Cover photo by Tomas Sennett for the World Bank. A mining

shovel strips iron ore from the Aguas Claras mine in Minas
Gerais, Brazil, Under the terms of a $50 million loan from the
World Bank, Brazil is developing these rich iron ore reserves
into a mnajorexport. To comply with the Bank's environmental
policy, extensive measures were built into this project to ensure
proper land reclamation and water resources management.

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