Mineral Economics

B S Choudhary
Department of Mining Engineering
IIT(ISM) Dhanbad

Economic importance of the mineral industry

Mining economy,
Risky nature of the mining industry,
Demand and Supply,
Elasticity of Demand,
National mineral policy.
 In a general sense, economics is the study of production,
distribution, and consumption and can be divided into two broad
areas of study: macroeconomics and microeconomics.
Macroeconomics deals with aggregate economic quantities, such
as national output and national income. Macroeconomics has its
roots in microeconomics, which deals with markets and decision
making of individual economic units, including consumers and
businesses. Microeconomics is a logical starting point for the study
of economics.
 Introduction

India produces as many as 95 minerals, which includes 4 fuel, 10 metallic,

23 non-metallic, 3 atomic and 55 minor minerals (including building and
other materials
The total value of mineral production (excluding atomic, fuel minerals & minor minerals)
during 2021-22 has been estimated at Rs.1,90,389 crores, which shows an increase of about
23.37% over that of the previous year. During 2021-22, estimated value for metallic minerals is
Rs.1,05,092 crores or 55.2% of the total value and non-metallic minerals (including Minor
Minerals) is Rs. 85,297 crores or 44.8% of the total value. I

In 2019, the country was the 4th largest world producer of iron ore; 4th largest worldwide
producer of chromium; 5th largest world producer of bauxite; 5th largest world producer
of zinc;7th largest producer of manganese in the world; 7th largest producer of lead in the
world; 7th largest producer of sulfur in the world; 11th largest world producer
of titanium; 18th largest world producer of phosphate; 16th largest world producer
of gypsum; 5th largest world producer of graphite; 3rd largest world producer of salt. It
was the 11th the world's largest producer of uranium in 2018
 A resource is something that is useful and valuable in the condition in which we find it. In its
raw or unmodified state it may be an input into the process of producing something of value,
or it may enter consumption directly and thus be valued as an amenity
 the major classes of natural resources:
 "...(1) Agricultural land; (2) forest land and its multiple products and services; (3) natural land
areas preserved for esthetic, recreational, or scientific purposes; (4) the fresh and salt water
fisheries; (5) mineral resources that include the mineral fuels and nonfuel; (6) the renewable
non-mineral energy sources of solar, tidal, wind, and geothermal systems; (7) water resources;
and (8) the waste-assimilative capacities of all parts of the environment...“
 mineral resources, as commonly used by mineral industry people, is "...A concentration of
naturally occurring solid, liquid, or gaseous materials in or on the earth's crust in such form
that economic extraction of a commodity is currently or potentially feasible...“
 Reserves (sometimes also called ore) include minerals in deposits fulfilling all three conditions
-- they are geologically known (quantity and grade), their production is economically feasible
at the present, and the technology for their extraction, ore processing, and use is currently
available.
Economic importance of the mineral industry

The mining industry in India is a major economic activity which

contributes significantly to the economy of India.
The GDP contribution of the mining industry varies from 1.75% to
2.5% only but going by the GDP of the total industrial sector it
contributes around 10% to 11%. Even mining done on small scale
contributes 6% to the entire cost of mineral production. Indian mining
industry provides job opportunities to around 700,000 individuals.
Risks in mining
Top 10 business risks and opportunities for mining and
metals in 2021, Paul Mitchell

Why mining industry is risky

1. Variation in quantity and
quality of ore
2. Change in shape and size
3. Demand
4. Government policy
5. Hazards and risks
Demand and Supply
 Demand and supply analysis is the study of how buyers and sellers interact to
determine transaction prices and quantities.
 Demand, in economics, is the willingness and ability of consumers to purchase a
given amount of a goods or service at a given price.
 Supply is the willingness of sellers to offer a given quantity of a goods or service for
a given price.
 The demand and supply model is useful in explaining how price and quantity traded
are determined and how external influences affect the values of those variables.
Buyers’ behavior is captured in the demand function and its graphical equivalent, the demand curve. This curve shows both the
highest price buyers are willing to pay for each quantity, and the highest quantity buyers are willing and able to purchase at
each price. Sellers’ behavior is captured in the supply function and its graphical equivalent, the supply curve. This curve shows
simultaneously the lowest price sellers are willing to accept for each quantity and the highest quantity sellers are willing to
offer at each price.
The Demand Function and the Demand Curve
 The quantity consumers are willing to buy clearly depends on a number of different
factors called variables, Perhaps the most important of those variables is the item’s own
price. In general, economists believe that as the price of a goods rises, buyers will
choose to buy less of it, and as its price falls, they buy more.
 Although a goods own price is important in determining consumers’ willingness to
purchase it, other variables also have influence on that decision, such as consumers’
incomes, their tastes and preferences, the prices of other goods that serve as substitutes
or complements, and so on. Economists attempt to capture all of these influences in a
relationship called the demand function. (In general, a function is a relationship that
assigns a unique value to a dependent variable for any given set of values of a group of
independent variables.) We represent such a demand function in Equation 1:

where Qdx represents the quantity demanded of some good X,

Px is the price per unit of good X,
I is consumers’ income, and
Py is the price of another good, Y
 In economics, a demand curve is a graph depicting
the relationship between the price of a certain
commodity and the quantity of that commodity that
is demanded at that price. Demand curves can be
used either for the price-quantity relationship for an
individual consumer, or for all consumers in a
particular market
The Supply Function and the Supply Curve
 The willingness and ability to sell goods or service is called supply. In general,
producers are willing to sell their product for a price as long as that price is
at least as high as the cost to produce an additional unit of the product. It
follows that the willingness to supply, called the supply function, depends
on the price at which the good can be sold as well as the cost of
production for an additional unit of the good. The greater the difference
between those two values, the greater is the willingness of producers to
supply the good.

For simplicity, we can assume that the only input in a

production process is labor that must be purchased in
the labor market. The price of an hour of labor is the
wage rate, or W. Hence, we can say that (for any given
level of technology) the willingness to supply a good
depends on the price of that good and the wage rate.
This concept is captured in the following equation,
which represents an individual seller’s supply
function:
 Elasticity of Demand
 Elasticity of demand is an important variation on the concept of demand. Demand can be
classified as elastic, inelastic or unitary.
 An elastic demand is one in which the change in quantity demanded due to a change in
price is large. An inelastic demand is one in which the change in quantity demanded due
to a change in price is small
 The formula used here for computing elasticity of demand is:

 Midpoint method for elasticity coefficient

 If the formula creates an absolute value greater than 1, the demand is elastic. In other
words, quantity changes faster than price. If the value is less than 1, demand is inelastic. In
other words, quantity changes slower than price. If the number is equal to 1, elasticity of
demand is unitary. In other words, quantity changes at the same rate as price.
 Elastic Demand

The price elasticity of demand is the percentage change

in the quantity demanded of a good or service divided by
the percentage change in the price. The price elasticity
of supply is the percentage change in quantity supplied
divided by the percentage change in price.

 Mid point EC
 When the price decreases from $10 per unit to $8 per unit, the quantity sold
increases from 30 units to 50 units. The elasticity coefficient is 2.25.
Inelastic Demand

 Inelastic demand is shown in Figure 2. Note that a change in

price results in only a small change in quantity demanded. In
other words, the quantity demanded is not very responsive to
changes in price. Examples of this are necessities like food and
fuel. Consumers will not reduce their food purchases if food
prices rise, although there may be shifts in the types of food
they purchase. Also, consumers will not greatly change their
driving behavior if gasoline prices rise.

When the price decreases from $12 to $6 (50%), the

quantity of demand increases from 40 to only 50 (25%).
The elasticity coefficient is .33
Unitary Elasticity
 If the elasticity coefficient is equal to one, demand is unitarily elastic as
shown in Figure 3. For example, a 10% quantity change divided by a 10% price
change is one. This means that a 1% change in quantity occurs for every 1%
change in price.
 National Mineral Policy (NMP)
• Minerals are a valuable natural resource being the vital raw material for the
core sectors of the economy. Exploration, extraction and management of
minerals have to be guided by national goals and perspectives, to be
integrated into the overall strategy of the country’s economic development.
Endeavour shall be to promote domestic industry, reduce import
dependency, and feed into Make in India initiative.
• National Mineral Policy, 2019 has been approved by the Union
Cabinet, on 28th February 2019.
Minerals are a major resource for the core sectors of the
economy. There is a huge demand for minerals in view of the
rapid urbanization and the projected growth in the
manufacturing sector. With the thrust on Make in India
initiative the demand for minerals is likely to grow at a rapid
pace. Extraction and management of minerals has to be guided
by long-term national goals and perspectives and integrated
into the overall strategy of the country’s economic
development.
 The aim of National Mineral Policy, 2019 is to have a more effective,
meaningful and implementable policy that brings in further transparency,
better regulation and enforcement, balanced social and economic growth
as well as sustainable mining practices.
 The National Mineral Policy, 2019 includes provisions which will give
boost to Mining Sector such as,
 Introduction of Right of First Refusal for RP/PL holders,
 Encouraging the Private Sector to take up exploration,
 Auctioning of virgin areas for composite RP-cum-PL-cum-ML on revenue
share basis,
 Encouragement of merger and acquisition of mining entities
 Transfer of mining leases and creation of dedicated mineral corridors to
boost Private Sector mining areas.
 Recommends to grant status of industry to mining activity to
boost financing of mining for Private Sector and for
acquisitions of mineral assets in other countries by Private
Sector
 Recommends to auction mineral blocks with pre-embedded
clearances to give fillip to auction process.
 Propose to make efforts to harmonize taxes, levies & royalty
with world benchmarks to help Private Sector
 To ensure more effective regulation. It will lead to sustainable
Mining Sector development in future while addressing the
issues of project affected persons especially those residing in
tribal areas.
Scope of NMP  Conservation and Mineral Development
 Scientific Methods of Mining
 Exploration  Mining Machinery and Mineral Beneficiation Equipment
 Tax concession  Human Resource Development
 Production  Infrastructure Development
 Utilization  Financial Support for Mining
 Land use  Welfare of Project Affected Persons
 Small Deposits  Relief & Rehabilitation of Displaced and Affected Persons
 Beach Sand Minerals  Devolution of Mining Benefits to Project Affected
 Protection of Environment Persons

 Sustainable Development in  Welfare of Tribal Communities

Mining Sector  Mine Closures
 Safety of mines and mine-workers
 Mineral Security
 Research in Mining Methods
 Mineral Processing and Beneficiation
 Development of Automated Equipment
 Deep Sea Mining
 Production of Materials of High Purity
 Coordination of Research Organisations
 Information system
 Human resource development
Foreign Trade And Foreign Investment
 Attracting foreign investment in the mining
sector will be encouraged by appropriate
mechanism. Efforts shall be made to export
minerals in value added form as far as
possible. The indigenous mineral industry shall
be attuned to the international economic
situation in order to derive maximum
advantage from foreign trade by carefully
anticipating technology and demand changes Long term Import Export policy and FDI
in the international market for minerals.
A long term export-import policy for the mineral sector would
provide stability and prove to be an incentive for investing in
large scale commercial mining activity. Assurances, through
such a policy for minerals, will be a key factor for investment
decisions, particularly Foreign Direct Investment (FDI) decisions
in the sector.
RESEARCH AND DEVELOPMENT

Research and development in the mineral sector has to cover

the entire gamut of activities from geological survey,
exploration, mining, beneficiation, concentration of minerals to
development of materials. Efforts will be directed towards the
development of new technologies for conversion of existing
mineral resources into viable economic resources.
Objectives of NMP
 To explore for identification of mineral in the land and in off-shore areas
 To develop mineral resources taking into account the national and strategic
considerations and to ensure their adequate supply and best use keeping in
view the present and future requirements
 To promote necessary linkages for smooth and uninterrupted developments of
the mineral industry to meet the needs of the country
 To promote R&D in minerals
 To ensure establishment of appropriate educational and training facilities for
human resources development to meet the manpower requirements of the
mineral industry
 To minimize adverse effects of mineral development on the forest,
environment and ecology through protective measures
 To ensure conduct of mining operations with due regard to safety and health
of all concerned.
Thank you