Impact of price uncertainty on nickelextraction with environmental effects –when to close a mine?
Anni Huhtala and Olli Ropponen
KT-päivät, 10.2.2017, Jyväskylä
Focus of this paper
Exploration Project development Production Closure Cleanup completed
Motivation – why study closing of a mine?
Troubled Finnish nickel mine says could still avoid closure, Reuters 7.11.2016
YLE News 8.4.2013 11:42 | updated 8.4.2013 19:05
New waste leak at Talvivaara
Literature in economics on the extraction of non-renewable resources under uncertainty
• Textbook: Dixit and Pindyck (1994)
• Stochastic dynamic optimization models byBrennan and Schwarz (1985), Mason (2001), Muehlenbachs (2015), Insley (2015) etc.
Approach chosen here
Simulations, i.e., no optimization, but first attemptto illustrate the impacts of
1) price uncertainty and
2) learning period before full-scale production
on the profitability of a mine
Note: environmental impacts not modeled explicitly here, butmaterialized as lost output due to problems in production(caused by leakage and water management)
Simulations carried out for net present value of mining activities vs. closure
expected price and quantity developments important
Annual prices (real 2010 USD)
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
US
D/
me
tric
to
n
COPPER
NICKEL
ZINC
Quarterly nickel extraction in Talvivaara
Simulated price changes – as random draws from pricedevelopment in 1960-2015
Simulated ”learning-by-doing” in production(dashed line)
Results
• given our parameter values loosely based on nickelmarkets and experiences with heap leachingtechnology, nickel extraction turns out unprofitable
• only when operating costs are rather low or nickelprice constantly higher than the current price itpays off to continue mining activities
Conclusions
• Adopting new technology to bring unconventional nickel resources into production is challenging and may turn out unprofitable
policy implications - gov’t supportCaveat: we do not have the same information on costs etc. that the Ministry of Economic Affairs and Employment has
• Extensions:- co-production (zinc, copper etc.)- stochastic environmental damage- investment in abatement technology possible
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