Thinking about the “Economics” of Thinking about the “Economics” of Mining: New Mexico Uranium MiningMining: New Mexico Uranium Mining

Thomas Michael PowerThomas Michael PowerResearch ProfessorResearch Professor

Department of EconomicsDepartment of EconomicsThe University of MontanaThe University of Montana

September 2008September 2008

Why Are Mining Towns Not Why Are Mining Towns Not Prosperous?Prosperous?

• Unstable Global Markets

• Labor-Displacing Technology

• Environmental Damage Undermines Amenity Supported Economic Development

Uranium Spot Market Prices: 1987-2007

$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

$200

Mar-87 Mar-89 Mar-91 Mar-93 Mar-95 Mar-97 Mar-99 Mar-01 Mar-03 Mar-05 Mar-07 Mar-09

Dolla

rs p

er P

ound

?

?

www.UXC.com

The Folk Economics of MiningThe Folk Economics of Mining

• Economic Value of a Mining Proposal– Market Price X Quantity in the Ground

• $140 per pound X 500 million pounds = $70 billion• $100 per pound X 315 million pounds = $32 billion

– Employment: 250,000 jobs– Payroll: $14 billion– Taxes: $ 1.6 billion

• An Economic Bonanza!

What’s Missing?What’s Missing?

• Past Economic Performance of Mining

• Labor-Displacing Technological Change

• Incorporating Costs– Economics looks at both costs and benefits!

• Costs of extracting and processing the mineral• Public Costs

– Clean up, environmental, health, public services– Costs of public services– Economic instability

Uranium Oxide Spot Market Prices: Real and Nominal

$0

$20

$40

$60

$80

$100

$120

$140

$160Ju

l-72

Jul-7

4

Jul-7

6

Jul-7

8

Jul-8

0

Jul-8

2

Jul-8

4

Jul-8

6

Jul-8

8

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0

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2

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Jul-0

0

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2

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6

Jul-0

8

Pri

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ou

nd

Real Price (Feb 2008 $s)

Nominal Price

Source: UxC. Deflated using the CPI

Uranium Real Price and NM Uranium Production

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

18,000,000

1972 1974 1976 1978 1980 1982 1984 1986

Ura

niu

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rod

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s)

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$160

Ura

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ea

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New Mexico Uranium Production

Uranium Price

5 yr. Price >$90

Global Uranium MarketsGlobal Uranium Markets

• New Mexico is just one uranium producing region in the United States, with about 1/3rd of the total reserves

• The United States has a small part (7%) of the world’s reserves; NM has about 2%.

• Australia (24%), Kazakhstan (17%), Canada (9%), South Africa (7%), Namibia (6%), and Brazil (6%) have about as much or more.

Unstable Mineral Market DynamicsUnstable Mineral Market Dynamics

• Long period of low uranium prices– Mines and mills shut down and are abandoned– Usage is greater than production; stock piles decline.– Prices begin to rise

• A worldwide race: new mines and mills– Supply increases dramatically– New low cost technologies are deployed– Supply exceeds demand– Price falls: Boom leads to Bust

Copper Mining Productivity and Labor Intensity

0

20

40

60

80

100

120

75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97

Year

Ind

ex o

f L

abo

r P

rod

uct

ivit

y: 1

997

= 1

00

0

20

40

60

80

100

120

Ind

ex o

f L

abo

r In

ten

sity

: 19

75 =

100

Jobs per Unit of Production

Output per Worker

Source: Bureau of Labor Statistics

Type of Mining/Milling Year Labor ProductivityProductivity Compared tolbs/worker/yr 1970-1980

Conventional 1970-1980 avg. 3,500 100%Conventional 1980 2,600 74%Conventional 1993 4,000 114%In Situ Leaching, Wyoming 2006 14,800 423%In Situ Leaching, DOE estimate 1993 20,000 571%In Situ Leaching, NRC estimate 2007 24,000 686%In Situ Leaching, HRI estimate 1997 13,300 380%

Labor Productivity in Uranium Mining and Milling

Rising Labor Productivity in Rising Labor Productivity in Uranium Mining and ProcessingUranium Mining and Processing

• Fewer and fewer workers needed

Can There Be Prosperity without Can There Be Prosperity without Mining? Mining?

Adjustments to the Bust and Adjustments to the Bust and RecoveryRecovery

Metal Mining and Other Jobs in New Mexico

-

200,000

400,000

600,000

800,000

1,000,000

1,200,000

Jo

bs

Ou

tsid

e o

f M

etal

Min

ing

-

2,000

4,000

6,000

8,000

10,000

12,000

Met

al M

inin

g J

ob

s

+517,000 non-metal-mining jobs1979-2006

-10,000 metal mining jobs1979-2006

Metal Mining Jobs: Copper, Uranium,

etc.

Jobs Outside of Metal Mining

Industry Change in Employment1990-2006

Construction 37,000Retail Trade 29,000Real Estate 22,100

Professional &Technical Services 23,600Administrative Services 30,400

Health Care 54,300Food Service & Drinking Places 23,600

Other Services 18,000Local Government Employment 35,000

All Other Industries 59,600Total Change 332,600

Source: US Dept. Comm., BEA, Regional Economic Information System.

Sources of Job Growth in New Mexico 1990-2006

Indices of Economic Vitality: Cibola, Valencia, and McKinley Counties, NM

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Ind

ex o

f C

ha

ng

e:

1969

= 1

.0

Mining Real Payroll: -90% 1979-2005

Aggregate Real Income: +90%

Jobs: +80%

Population: +40%

Real Per Capita Income: +38%

Recovery Trends: 1982-2005

Mining and Long-Run Sources of Growth in Real Income:McKinley, Cibola, and Valencia Counties, NM

$-

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

$1,400,000

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

Re

al

Inc

om

e (

$1

,00

0s)

Retirement & Investment Income

Government

Trade & Services

Manufacturing and Construction

Mining

Source: BEA REIS US Dept. Comm.

The Impact of Commuting Miners on Local Earnings: McKinley County, NM

$(300,000)

$(200,000)

$(100,000)

$-

$100,000

$200,000

$300,000

$400,000

No

min

al

Inc

om

e (

$1

,00

0s

)

Real Metal Mining Earnings from Mines in McKinley County

Real Earnings Flowing Out ofMcKinley County with Commuters

Metal Mining Income Adjusted for Commuter Outflow

Source: BEA REIS US Dept. Comm.

Why Was the Impact So Modest?Why Was the Impact So Modest?

• Diversification away from Mining– Recreation, Gaming, Medical Services, Other

Professional & Technical Services, Prisons

• Amenity-Supported Economic Vitality– Retirement and Investment Income

• Cibola and Valencia are retirement destination counties

– In-migration of new residents • Construction, local services, etc. supporting them

Export Base Export Base V. V. Amenity View Amenity View

• The Economic or Export Base View– The more dependent an area is on export-oriented

industries, the more prosperous it will be.– Instability, “company town” syndrome, powerless in

the face of external forces

• The Amenity View– People and firms care where they live and act on

those preferences, relocating economic activity– “Attractiveness” is part of local economic base

Mining and the Rest of the Economy: Economic Base Versus Actual: Real Personal Income: Cibola, McKinley, & Valencia Ctnys

$-

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

$3,500,000

$4,000,000

Re

al

Inc

om

e (

$1

,00

0s

)

Economic Base Prediction of Impact on the Rest of the Economy

Actual Impact on the Rest of the Economy

Change in Mining Payroll

The Public Costs of Uranium The Public Costs of Uranium Mining and ProcessingMining and Processing

• The High Legacy Costs– The health of miners, mill workers, and residents– The cost of cleaning up abandoned mines, polluted

waters, waste deposits, etc.– Economic instability: boom and bust

• Future Costs– The long-lived nature of radioactive waste– Extensive waste from mining low grade ore– In Situ Leaching and Water Pollution– The next boom and bust

But We Are So Poor!But We Are So Poor!We Don’t Really Have a Choice We Don’t Really Have a Choice

but to Embrace Mining.but to Embrace Mining.

• Size of Place and Pay

• Cost of Living, the Value of Amenities, and Pay

• Real Differences in Well Being

• Who will get the mining jobs? How many?

Making Careful ChoicesMaking Careful Choices

• You are not desperate beggars who cannot afford to be good choosers

• Look at costs as well as benefits• Be realistic about NM’s place in worldwide

competition to supply cheap uranium• Directly face the boom-bust and labor-

displacing character of the industry• Relatively short run gains. Near

permanent losses.

Sacrificing the permanent, Sacrificing the permanent, unique and irreplaceable for the unique and irreplaceable for the

common and temporary?common and temporary?

Thank You!Thank You!Questions?Questions?

tom.power@mso.umt.edutom.power@mso.umt.edu