On the Economics of Mining DOC LandMarch 16th, 2010
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At yesterday’s Post cabinet press conference [video], Prime Minister John Key repeated the government’s current defensive position on the proposal to extend mining within our national parks. He claimed there had been a ‘hysterical’ reaction in the media to Forest and Bird’s recent revelations about the likely sites under consideration – and said that when ‘in due course’ the government released its formal position for public discussion, he would be striking a proper balance between the possible economic benefits to New Zealand of further mining activity, and the need for environmental protection.
Key’s claimed search for balance raises an obvious question. Who, I asked, is providing the government with its estimates of the potential economic benefits – and is that assessment being done independently by the government, or will it be relying on estimates from the mining industry as to the possible value of extended mining activity? Primarily the former, Key replied.
Certainly, we need to see just how independent that economic advice has been – and how the Ministry of Economic Development or Crown Minerals or some other agency have gone about assessing the likely economic benefits to the nation. Despite asking Key twice just when the government’s much delayed (and reportedly, much revised) discussion paper will finally be released – weeks ? months? – all Key would repeat to me was that it would be ‘in due course.’ It took an added question by Barry Soper to prise out of Key that ‘in due course’ meant a matter of a few more weeks.
For obvious reasons, it is crucial that any estimates of the value of mining Crown land – especially the controversial Schedule Four land of special conservation value – are reliable, and independent. The mining industry will be wanting to talk up the value of the El Dorado waiting beneath DOC land. So, the discussion document will need to set out just how MED, Crown Minerals or some other credibly independent agency went about arriving at the figures.
To date, the media has relied on an estimate of $140 billion for the minerals potentially up for grabs – a figure derived from a March 2008 paper by the Auckland consulting geologist Richard Barker. In media report after media report during 2009 and on into 2010 that figure has taken on a life – and authority – of its own, and is described here by RNZ as originating from an “independent” report. In this ODT report last year from the mining industry conference, Energy Minister Gerry Brownlee recycled Barker’s figures:
Minister of Energy and Resources Gerry Brownlee said the resource sector would be a key element in the economic recovery of the country, with $140 billion of minerals and $100 billion of lignite remaining in the ground.
In its report on the conference, the mining industry organisation Staterra also cited the $140 billion figure and attributed Brownlee’s figures to the Barker paper from 2008. As the NZ Herald’s Geoff Cumming said in this extensive and highly recommended piece last year, “Energy and Resources Minister Gerry Brownlee and Prime Minister John Key have been quoting Barker’s back-of-the-envelope calculations as if plucking nuggets from a Coromandel stream.”
Given that Barker has been driving the government’s economic calculations it is worth examining just how ‘ independent” Barker may be. Would this be the same Richard Barker who on this page is listed as an office-holder within the NZ branch of the Australian Institute of Mining and Metallurgy – the mining industry’s think tank and lobby group? As this edition of the AusIMM newsletter reports, Barker also co-wrote the opening pep talk for the mining industry’s 2006 conference:
Investment banker Tony Haworth provided delegates at last month’s AusIMM conference in Christchurch with what was in effect a report card on the New Zealand mining industry in 2006, and the message was loud and clear: Could do better. The reality is that “decision-makers, the financial community and the public in this country” don’t really appreciate New Zealand’s exploration potential, Haworth said in presenting a paper jointly written with consultant geologist Richard Barker, as a scene-setter at the conference’s opening session.
Barker’s proximity to the mining industry of course, need not invalidate his views. Yesterday though, Key was claiming that the estimates of economic value he would be relying on when making his balancing call on environmental risk would be derived ‘primarily’ from independent analysis. Well, that would mark a fresh departure – since hitherto, Key, Brownlee and the mainstream media have been almost entirely reliant on the figures supplied by someone who is not only an office holder in the industry, but one of its regular boosters. Here, for an added example, is Barker’s advocacy of more mining in Northland.
How reliable are the Barker 2008 figures that appear to have set the framework for the entire debate ? As mentioned, Geoff Cumming in the Herald, did call them ‘ back of the envelope’ estimates – and reports that they considered the potential worth of seven minerals, including gold, copper, iron and the molybdenum used in alloys.
Keep in mind when reading the following extract from Cumming’s article last year, the Forest and Bird’s leaked Cabinet paper of a few weeks ago said the Government is planning to allow mining in 7000ha of high-value conservation land in the West Coast’s Paparoa National Park, Great Barrier Island and the Coromandel Peninsula. In earlier documents, the half million hectares of DOC land potentially up for grabs by the mining industry included the eastern side of Kahurangi, all of Stewart Island, and parts of Mt Aspiring national park.
Consultant geologist Richard Barker estimates New Zealand’s molybdenum resources have a potential value of $33.7 billion. But with supplies plentiful overseas, low prices have deterred past exploitation in New Zealand and, since 1997, the main deposits have been off-limits: they are in Kahurangi National Park.
Barker admits his is a ballpark figure but with the Kahurangi also prospective for copper, tungsten, tin, zinc and rare earth elements, molybdenum could conceivably be extracted as a byproduct if access to Schedule Four conservation land was eased.
That’s a very big maybe for a very precise figure. The ballpark nature of these figures is again underlined by the fact that when in 2002, NZIER carried out the same process as Barker, it ended up with a figure of only $85.5 billion for the mineral worth of New Zealand – and not his figure of $140 billion. Neither survey, it is worth noting, considered how much of that wealth would be retained in New Zealand, by New Zealanders – a relevant factor, given that our mining industry is dominated by foreign multinationals who would be sending offshore any profits they make from mining the irreplaceable aspects of our natural heritage. Nor has there been a comprehensive cost/benefit analysis of the value of mining within DOC lands, as opposed to the potential impacts on our tourism industry from that activity.
Some of the NZIER vs Barker variation reflects the subsequent swings in market prices for the minerals concerned – and this, again, underlines the elusive nature of the balance that Key is proposing to strike. Mining changes the natural environment forever, in the pursuit of a market return that keeps fluctuating in unpredictable fashion. Arguably, our natural heritage should not be bartered away at all – and certainly not for a market price prone to such substantial variation. As Cumming says, one GNS factsheet had the market value of the so called ‘rare earth’ elements used in superconductors and other high end Silicon Valley products as ranging from US$6/kg to US$5700/kg ($8.7 to $83,000).
Monazite is found in Nelson, Westland, Fiordland and Stewart Island while other rare earth elements are found in Paparoa and Mt Aspiring national parks and in the Nelson lakes district. Trace elements are found in West Coast ilmenite sands and in gravel deposits in Buller….
Barker’s 2008 study into New Zealand’s natural resources also points to the potential for platinum in northwest Nelson and northern Fiordland and titanium in West Coast beach sands to generate extra billions .His report has been seized on by industry lobbyists and politicians including Prime Minister John Key and Resources Minister Gerry Brownlee. But it comes with several riders that the politicians have glossed over: the estimates are not predictions of what is achievable in future and are based on the probability of finding deposits of specific geological types.
“Finding economic deposits of gold is like looking for a needle in a haystack,” says Barker. “Technological advances mean we can find high-grade concentrations more effectively than in the past. But in the end, the only way you can test is to drill holes.”
Drill holes. Survey. Then make your back-of-the-envelope calculations of what said minerals may be worth by the time you have extracted them. That is what the government is now planning to do. The survey process it is now proposing will cover all of New Zealand’s mineral deposits. Yet the government discussion paper, Key signaled yesterday, will not now concern itself only with the high-conservation value Schedule Four DOC lands.
Decoded, that statement probably signals that National’s recent focus group results have told the government just how politically unpalatable its plans to open Schedule Four lands for mining would be. The government is plainly running scared off from being seen as a writing a blank cheque for the wholesale plundering of our national parks. Problem is, licensing a little bit of pillage and plundering isn’t much better. “OFF LIMITS” is the only sellable political slogan. The mining industry may have to be satisfied with relaxed regulations elsewhere, with respect to wider (and less contentious) aspects of the conservation estate.
Those details will come later, as Key says, ‘ in due course.” We have been waiting since last August for concrete information on what the government is actually proposing to do about its intention to mine DOC land. We have only a few more weeks to see just how the Key government plans to get out of the yawning, open cast hole it has dug for itself on this issue.