Resource competition: space or waste?

Why miners should be more aware of recycling than of asteroid mining

The ideas to set up commercial asteroid mining companies have received a lot of media attention over the past year. Several high-profile investors have started backing entrepreneurs who aim to ‘mine’ natural resources in space. Although these plans should certainly not be dismissed as pure science fiction, the substitution effect of recycling will be much more important to mining in this century.

Miners are not in the mining business; they are in the business of supplying natural resources. If sufficient quantities of natural resources can be provided in ways other than mining, mining is not needed. Although this appears to be trivial, it will have big impact on the mining industry in the 21st century. The market share of mining firms in the supply of many natural resources is gradually decreasing. Because the demand for natural resources is growing rapidly, the mining industry too is growing, despite this declining market share. However, the combination of slowing long-term growth of the world population and slowing resource intensity growth will lead to a point where the demand for mined natural resources actually starts to decrease. This development will not be driven by asteroid mining, but by the ever-increasing importance of supply of natural resources from recycling.

Asteroid mining became the centre of attention in April of last year when Planetary Resources, backed by Google founder Larry Page, presented its plans to start ‘mining’ platinum, iron, nickel, water and rare earths from asteroids. They envision a spacestation serving as a base to collect small asteroids, which often have much higher concentrations of commodities than available on earth. Although the presented timeline of having a space-based exploration station active by 2020 seems aggressive, the idea is not utterly unrealistic. Cost estimates to start producing are in the order of magnitude of two- to eight-billion dollars, a number similar to the investment required for a large copper mine. A poll on the mining business blog The Business of Mining revealed that, although half of the readers do not see asteroid mining realised before 2040, only 24% of readers completely dismiss the feasibility of the concept. The challenge for the space miners is bringing large quantities of material back to earth. Consequently, asteroid mining is unlikely to be feasible for commodities for which the world requires large quantities, such as iron and copper.

The growth of recycled supply of raw materials will have much larger, albeit slower, impact on the mining industry. Recycled supply has been gaining market share versus mined supply for a long time, but few miners are aware that for many metals, including copper, aluminium and iron, more than 30% of the current supply comes from scrap. The International Council of Mining and Metals (ICMM) states: “Primary metal production fills the gap between the availability of secondary material and total demand”. That implies that in the ideal world we do not need mining. However, not all materials can be recycled, and as long as the world economy grows, mining will be needed to supplement the recycled material stream.

Recycling does not work for materials that are destroyed by using them, most notably energy commodities. The full demand for coal and uranium will need to be satisfied by mining. However, especially for these materials, a quest for substitutes is ongoing – looking for alternative or renewable sources of energy. In the recently released report ‘Business risks facing mining and minerals’ by Ernst & Young, the ‘threat of substitutes’ debuted this year in the top 10 of risks.

For the miners of commodities that can be recycled, the concepts of the recycling time lag and of the recycling efficiency are key. Once copper is used in a cable, or iron is turned into a steel structure, it will likely not be available for recycling for several decades. As a result, the stock of metals available for recycling lags the size of demand by several decades. Furthermore, the challenge of collecting scrap and the efficiency or reclaiming the materials currently introduce a large ‘loss’ of material. The United Nation’s International Resource Panel is working on a project to assess the current state of global recyclable stocks and process efficiencies. As long as the demand for a commodity increases and recycling is not perfect, mining will be needed to fill the gap between demand and recycled supply. However, driven by slowing global growth, increasing global above-the-ground stocks of metals, increasing recycling efficiency, and increasing mining costs relative to recycling costs, recycling will take care of a larger and larger share of natural resource supply.

Given this rise of recycling, how big will the mining industry be in 2100? Macro-economic modeling suggests that the peak of demand for mined iron, aluminium and copper will be around 2040. From then on, the production of the mining industry will slowly decrease. Without the emergence of wildcard substitutes, large-scale asteroid mining or economic shocks, the industry at the end of the century will likely be of similar in size to the industry at the start of the century.

No reason for panic, but certainly food for thought for mining executives.

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