CHAPTER 2.
economics of the
Minerals industry
Phillip C.F. Crowson
Mining is like any other economic activity in that its contribu-
tion to the gross domestic product (GDP) is measured by its
value added—that is, its worth based on the sum of wages, sal-
aries, rent, royalties, direct taxes, interest payments, and gross
profits involved in producing its final products. However, its
modest share of the global gross product greatly understates
its importance. Like other primary industries, it produces the
raw materials that form the essential basis of all other eco-
nomic activities. Mineral products perform the same function
for the global economy as the vitamins and trace elements in
the human diet. Without their continuing supply, economic
activity would gradually wither and die.
BounDARieS
The minerals industry embraces a wide range of different
products with differing methods and structures of production
and with diverse markets. Its boundaries are conventionally
defined to exclude petroleum, natural gas, and water, although
hard-rock mineral fuels such as coal and uranium are included.
Distinctions are also drawn between mining and quarrying for
sand, gravel, and construction materials, although those share
the characteristics of other mineral products. The downstream
boundaries of the industry are imprecise as it merges, in many
instances, into processing and manufacturing industry. That is
especially true of some industrial minerals, particularly those
used in chemical manufacture, but it also applies to metallic
minerals.
Where the division is made is largely one of convention.
The production of pig iron and steel, for example, is regarded
as manufacturing, so the boundary with mining is the output
of iron ore. For copper the division is less clear-cut, with some
mines producing copper metal on-site and others selling ores
and concentrates. Conventionally primary nonferrous met-
als are grouped as mineral products, but their semifabricated
shapes and wrought products are grouped as manufactures.
That raises questions about a metal like aluminum, for which
the major input is not the mineral raw material but energy.
Mines produce ores rather than finished salable products.
With few exceptions, most run-of-mine output requires some
Phillip C.F. Crowson, Hon. Prof. & Professorial Research Fellow, Centre for Energy, Petroleum & Mineral Law & Policy, University of Dundee, Scotland
39
degree of processing before it can be sold. In some instances
that may be no more than simple washing and sorting, but, at
the other extreme, complex metallurgical or chemical process-
ing may be necessary. Mineral producers aim to maximize the
profitability of their operations and will balance the costs of
additional processing against any advantages gained from
selling higher-value products.
DeMAnD
Few mineral products are demanded for their intrinsic worth
but instead for their various properties. Most are intermedi-
ate goods used as raw materials or processing aids for more
finished products. The main exceptions are precious gems and
precious metals in some but not all of their uses. Whereas each
mineral has a specific set of properties, whether physical or
chemical, few of those properties are unique to any one min-
eral product. End users of the finished product may be com-
pletely unaware of what minerals are used in its manufacture
and are merely interested in whether the product meets their
needs satisfactorily. In short, demand for minerals is derived
from demand for finished products, and in many instances the
minerals used account for a relatively small proportion of the
product’s total cost.
This derived nature of demand means that it is difficult
for producers of many mineral products to differentiate their
material from that of other suppliers, except concerning its
inherent properties. While the properties of a specific min-
eral product may make it ideally suited for some end uses,
most uses will normally have substitutes of varying degrees of
effectiveness. The fertilizer minerals are a partial exception in
that regard, because growing plants require potash, phosphate,
and nitrogen in varying combinations, but even the consump-
tion of fertilizers is dictated by the demand for agricultural
products and by farmers’ cost structures. Demand for mineral
products is always at the mercy of fashion, of technological
changes in end-use markets, of governmental regulations,
and, above all, of relative prices. These characteristics are not
unique to mineral products but set them apart from the general
run of manufactures.