Allocating mineral valuations using unit record data

Statistics New Zealand

Introduction

• Statistics New Zealand’s role• Stats NZ’s environment statistics programme• New Zealand’s mineral asset valuation• Methodological issues• Data issues• Alternative valuation method – using unit

record data• Discussion

Broadly speaking, Statistics NZ’s role is to:• Lead New Zealand’s Official Statistics

System

• Be the key contributor to the collection, analysis and dissemination of official statistics relating to New Zealand’s economy, environment and society

Statistics New Zealand’s role with regard to environment statistics is to:

• Provide a leadership role in producing environment statistics at a national and subnational level.

• Other agencies collect data that contributes to the natural resource accounts

• Ministry for the Environment, Ministry of Economic Development, Department of Conservation, and others.

Development of NRAs in NZ

• SEEA was chosen as framework• Since 2001, Accounts developed for:

– Energy and emissions– Fish– Forestry– Freshwater– Non-energy minerals– Environmental Protection Expenditure

NZ’s minerals account

• Monetary and physical stock account developed in 2003.

• Encompassed NZ’s major non-energy minerals

• Developed along SEEA guidelines• Provided valuations of major mineral

commodities

The NZ mining industry

• Dominant minerals are aggregates (used for roading, construction etc.) and gold.

• Aggregate mining is characterized by a large number of producers.

• Gold mining is dominated by a small number of large producers.

Source: Crown Minerals and the Institute of Geological and Nuclear Sciences

Source: Crown Minerals

Minerals account - data sources• National Accounts

– Net Operating Surplus from the Annual Enterprise Survey (AES)

– Capital Stock from capital stock model

• Crown Minerals, Ministry of Economic Development– Mineral Production Data

• Annual Enterprise Survey (AES)– Unit record data for this study

Minerals account - methodology• Perpetual Inventory Model

– Net present value of calculated resource rent (resource rent is treated as constant into the future)

• Rate of return and Discount rate– Fixed rate of return of 8%– Discount rate of 4%– 3 year symmetric moving average– Chosen based on international precedent

• Total value disaggregated to individual mineral values by share of monetary output

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1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

$million

Gold Aggregate Limestone Ironsand Other

Minerals account - asset valuation

• Volatile time series

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1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

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Gold Aggregate Limestone Ironsand Other

Mineral account – asset valuation

• Aggregate minerals have highest value– Aggregate is an abundantly available, low

value, high volume commodity.

• Concern that the ‘output share’ method may be undervaluing NZ’s gold resource– Gold is a scarce, low-volume, high value

commodity

Methodological issues

• Fixed rate of return to produced capital creates volatility in calculated mineral asset values

• Potential improvement:– Floating rate of return to produced

capital(?)

Methodological issues - Variable rate of return

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1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

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Gold Aggregate Limestone Ironsand Other

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1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

$million

Gold Aggregate Limestone Ironsand Other

Standard valuation including a 4% discount rate, an 8% rate of return to capital and a 3 year symmetric moving average

Alternative valuation including a 4% discount rate, and a variable rate of return to capital

= rate of return to produced capitalr = typical real rate of return (8% Eurostat)

n = nominal rate of return of the industry (NOS/V)N = typical nominal rate of return (NOS/V)

N

nr

Overall values seem a little to high when using a variable rate of return

Other methodological issues

• Difficult to disaggregate asset value to specific minerals– No commodity-level data available via

Statistics NZ’s business surveys– Mineral commodity production data

available from Crown Minerals– NPV calculated for ‘other mining’ industry– Allocated to individual commodities based

on share of industry output

Data issues

• Design of AES– Not designed to produce data at the level of detail

required

• Capital Stock Model– Not designed to produce estimates of capital stock

at this level– Inconsistencies with consumption of fixed capital

data from AES at this level.

Proposed alternative method

• Use AES unit record data to calculate proportions for allocating overall NPV

• Hoped to increase accuracy of allocation

• Expectation that the asset value of gold would be higher using this method

NPV - Unit Re cord Allocation

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1997 1998 1999 2000

$million

Gold Other Aggregate Limestone Ironsand

Results

NPV -Output Share Allocation

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1997 1998 1999 2000

$million

Gold Aggregate Limestone Ironsand Other

Results

NPV - Unit Re cord Allocation

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1997 1998 1999 2000

$million

Gold Other Aggregate Limestone Ironsand

NPV -Output Share Allocation

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1997 1998 1999 2000

$million

Gold Aggregate Limestone Ironsand Other

Results

• Unit record method yielded similar results• Dominance of aggregate even more

pronounced– Against expectations

• Explanation:– Regional scarcity of aggregate– International price fluctuation of gold

Recommendations from study

• Given:– The relative difficulty of unit record basis– Questionability of AES data at such a low industry level– The similarity of results

• It was recommended that the output share method be retained for future updates of the minerals account

Discussion - Methodology

• Is the output share method appropriate for such economically different commodities?

• Can the volatility of the current NPV method of asset valuation provide a useful time series in the short run?

Discussion - SEEA framework

• What minimum level of commitment/investment is required before the benefits of the SEEA framework are realised– What it is the value of having a partial set

of accounts?– What length of time-series will yield

meaningful results?

Discussion - communication

• How to communicate the value of the SEEA, and its limitations, to users of the data?– More information in upcoming SEEA to

empower countries to do this.– A process of regular review of the

proposed SEEA to incorporate countries’ experiences.