Resource characteristics, extraction costs, and optimal exploitation of mineral resources

This paper modifies the traditional theories of non-renewable resource exploitation where reserve size is assumed to be the major determinant of extraction costs. In a competitive model of resource exploitation, characteristics of aggregate reserves are considered as a determinant of extraction cost. Then dynamic solutions for the price and exploratory efforts are developed. Various price paths are feasible under different assumptions with regard to the changes in the reserve characteristics over time. Past empirical research shows that there is no consistent price path for all materials. In fact, it is the quality of newly discovered reserves as well as their size that has affected material prices. To demonstrate the complexity of a firm's decision to recover mineral from new deposits, potentials for substantial high quality marine mineral resources are evaluated as a substitute for land-based resources. However, several factors including the decreasing trend in marine mining R & D expenditures and the potential impact of large-scale marine mining on price of minerals indicate that mining of most non-hydrocarbon marine minerals will not take place in the near future.