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Author: ADrumlinDaisy Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 461706  
Subject: 66% OT: Geologist Takes Grantham to the Woodshed Date: 12/1/2012 8:49 PM
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OT CONTENT ALERT: 66% of this post is OT by actual word count.
EXPLANATION: Life lessons for my kids, by gentle osmosis
SUGGESTION: Just read the material after the row of asterisks
COMMENT: Thank you to YodaOrange for consistently fascinating and valuable contributions

Here in West Virginia, the typical fight is a healthy cardiovascular exercise where everyone works up a good sweat and no one is hurt, e.g.:

Clem: “Oh, yeah?”
Gib: “Yeah!”
Clem: “Says who?”
Gib: “Says ME!”

Gib then pushes Clem, who responds with a wild roundhouse swing that misses Gib by about thirty feet, causing Clem to stumble into Larry, who pushes him into Jimmy, and they all fall down and wrestle around for ten or twenty seconds until, everybody being in the approximate physical condition of Jabba the Hut, the action stops and everyone wheezes and laughs and orders beers all around and brags about how he whomped the other guy. So overall it is a positive, team-building experience.

It is different in Britain, as far as I can tell. The style there seems to run more in the direction of the pointed barb and vitriol.

You may recall that Legendary Investor Jeremy Grantham (my personal hero, because he is an environmentalist with a British accent) has predicted that many resources will become scarce in coming years, with two consequences; (i) said resources will become more expensive; and (ii) widespread suffering will result from the scarcity. Grantham identifies potash and phosphate as special cases because they will run out and cannot be replaced.

We now have a response from a fellow named Tim Worstall, who is apparently also British (since he spells “ton” as “tonne,” which is of course a complete waste of two perfectly good letters). Here is the link:

http://www.forbes.com/sites/timworstall/2012/11/16/what-jere...

You can tell right from the start that Worstall is licking his chops:

Oh dearie me, oh my.

I have to stop right here for just a minute, because I know what you are thinking. You are thinking, “Yuck, did a grown man actually say that? Someone should paste this guy right in the kisser just on general principles.”

Now if this guy were from West Virginia, you would be absolutely correct, but these British guys are different. Trust me, I know. They look like beanpoles, they have worse teeth than we do here in West Virginia (and that is saying something), and they sound like complete wimpy-boys. But if you try to poke this guy in the nose, odds are that he will turn out to be the former three-time bare-knuckle champion of East Wentsworth, or a Gold Glove welterweight from Lower Prince’s Abbey, or some such thing.

How do I know this? Let’s just leave it at this. Many years ago, I was standing at a bar in Avalon, on the beautiful island of Catalina, gussied up in my very best shore clothes, including a beautiful orange tie with swirly green bloopy fish on it, when I heard a sissy British voice say, “Hey, mate, I wouldn’t wear that tie to a dog fight.”

I looked over and saw a little guy with really bad teeth, so I just clobbered him right behind the ear, and honestly, that should have been that. But he got right back up and whappity-whap-whap it seemed like about five guys hit me at once, but it was just this one wimpy guy. And when I hit the deck he stepped right back and let me get up, which I kind of admired as I proceeded to do so. And we danced around for a while, me landing one blow in ten, until finally I said, “Seriously, bub, you are looking a bit peaked. Do you need a break?”

And he laughed and said, “Whatever you say, mate.”

I bought him a beer as an apology for wearing out his knuckles that way, and we got to talking, and I learned a lesson or two about these British guys.

So before you are tempted to teach Worstall the rules of manly etiquette, it might behoove you to Google him just in case.

But I digress.

Worstall continues:

This is just a horrible mistake by Jeremy Grantham here. I agree that he’s a vastly better investor than I am, no doubt hugely more intelligent as well. But this really is a basic, schoolboy error.

So we can speculate here that Worstall does not like Grantham. Why? I have no idea – maybe it is because Worstall is a highly intelligent geologist who feels that it is a very unfair world where he is worth thousands while Grantham is worth hundreds of millions, maybe more.

Oh gee, I need to digress one more time here, which I really regret, but this reminds me of something I want to tell my kids . . . .

After spending about ten years as a lawyer and learning that I really did not like lawyers, including the lawyer that was wearing my shoes, I went back to school to get a Ph.D. in theoretical particle physics. And I became very impressed with a math professor who got his Ph.D. in theoretical physics from Cal Tech and then went on to specialize in all kinds of advanced physics-related math (group theory, differential geometry, etc.).

So my friend and I would go over to this guy’s office and just hang out, talking math and physics. For example, I would say, “Can you prove the Virial Theorem off the top of your head?” and he would respond, “Classical or quantum mechanical?” and then prove both right there, without even blinking. How cool is that?

It was amazing; he knew so many interesting things – so many very deep, very important things. I wondered what it would be like to have my head filled with great ideas like that – how wonderful it would be to spend my time thinking about great concepts.

And then one day, as we were sitting there, his fellow professor walked in and they started talking about a new professor and the office the new guy was getting:

Cal Tech Prof: “I hear they are giving him Alistair’s old office!”
Other Prof: “Yes, which is ridiculous, because that office has two and a half windows!
CT Prof: “Really!!! He is only four years out of his post-doc, and from Iowa, for God’s sake!”
OP: “And you and I both have two-window offices, and we are already here, and have seniority!
CT Prof: “So you are saying he is getting a larger office than we have . . . .”
OP: “AND his office looks out at the quad!”
CT Prof: “This is outrageous! How does he rate an extra half-window and a southern view?”
Etc., etc., blah, blah, blah . . . . .

I could not believe my ears. These two brilliant men, living the life I so much desired, so fortunate to be blessed with great minds and the opportunity to use them to think about anything they wished – they were sitting there talking about how many windows they had, obsessively, childishly, petulantly. And I realized that everyone has feet of clay, in one way or another . . . .

OK, I apologize once again. Now, let us dive right into the meat of this post, which is important, because Worstall goes on to make some very good, very interesting points – the kind of things that are not only useful, but fun to know.

* * * * * * * * * * * * * * * * * *

He tells us:

1. Ore. There are traces of every metal in every patch of dirt. Ore is simply dirt where we know how to extract the metals: and also the value of the metals is higher than the cost of extraction. Ore is an economic concept, not a natural world one . . . what is dirt and what is ore is a constantly changing spectrum. For . . . the technology of extraction changes over time.

2. Reserves. Reserves are the ore, we know where it is, we know we can extract it at current prices, with current techniques, and make a profit doing so. Further, we have also tested and proven all of this to the satisfaction of the stock market listing rules . . . [reserves] are a both legal and economic concept . . . .

3. Establishing Reserves. You’ll not be surprised to learn that drilling and sampling and sending odd hairy geologists over the hill with little hammers is expensive. So we only do this [to establish reserves] with the stuff we’re likely to dig up in the next few decades. I do not know about you, but this sentence really makes me want to be a geologist – an odd hairy man with a little hammer, sort of like Gimli son of Gloin.

4. Known Unknowns -- Resources. Beyond reserves, we have “resources,” reserves –in-waiting. We’ve only bothered to stake out this side of the hill and in a couple of decades we’ll do the same to the other side. We know it’s there, we’ve just not bothered to prove it yet.

5. Unknown Knowns – More Resources. We do know roughly what the geology of many places is. But we’ve sent very few hairy odd men with hammers over it. . . . We’re sure there’s lots out there. Not sure quite where, in what quantities, quite how we’d get it out. . . . OK, admit it – by now, regardless of your gender at the moment, you also want to be a hairy odd man with a hammer going over the hill.

6. Unknown Unknowns – Total Global Supply. For potassium and phosphorus, for example, the actual amount . . . that the planet itself contains [is considerable] . . . . Phosphorus being some 0.1% of the lithosphere . . . . Potassium perhaps 2.5%. Given that the lithosphere weighs something like 300 billion, billion, tonnes, I have a very strong feeling that that’s enough for us to be going on with. And here I note that a tonne is about 10% larger than a “ton,” and, more impressively, a British “billion” is 1,000 times as large as our American billion.

7. The Point Being . . . that Grantham discusses scarcity in terms of “reserves,” when in fact the more relevant concept is “resources” or, for the very long run, total global supply. Current resource levels are 250 billion tons (I have no idea why Worstall switches spelling of “tonnes” here) of potash against an annual requirement of 33 million tonnes and 300 billion tons of phosphate rock against an annual requirement of 190 million tonnes. I.e., we have resources sufficient to supply current requirements for 7,000 and 1,500 years, respectively.

And, of course, the barbed British conclusion:

Grantham may indeed know how to make money. But I really would suggest a technical dictionary the next time he wants to talk about mine reserves and the availability of resources. For this is just an awful, schoolboy type, error of his.

I have to say that, despite being a Grantham admirer, I find this discussion compelling.

Rich

A Drumlin Daisy
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Author: WatchingTheHerd Big red star, 1000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 410155 of 461706
Subject: Re: 66% OT: Geologist Takes Grantham to the Wood Date: 12/1/2012 9:02 PM
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After spending about ten years as a lawyer and learning that I really did not like lawyers, including the lawyer that was wearing my shoes...

====================

Worth a rec for this wry, sardonic line alone. The rest of the economic stuff was just gravy...


WTH

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Author: paralwaysgood Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 410157 of 461706
Subject: Re: 66% OT: Geologist Takes Grantham to the Wood Date: 12/1/2012 9:14 PM
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I believe the concept of EROEI, energy returned on energy invested, is relevant here. Both geology and economics concepts are relevant to this important discussion.

With that said, I will read the article.

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Author: PolymerMom Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 410160 of 461706
Subject: Re: 66% OT: Geologist Takes Grantham to the Wood Date: 12/1/2012 9:24 PM
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Drumlin,

The only problem I see with Worstall's analysis is that he doesn't address likely future demand. With developing third world countries aspiring to first world consumption patterns, demand is likely to skyrocket. There's a lot more of them than us...

PM

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Author: PeterRabit Big funky green star, 20000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 410161 of 461706
Subject: Re: 66% OT: Geologist Takes Grantham to the Wood Date: 12/1/2012 9:31 PM
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With developing third world countries aspiring to first world consumption patterns, demand is likely to skyrocket. There's a lot more of them than us...

PM


It is a short-term (21st Century) problem. In the long run there will be many fewer of us and them. Which will solve many problems and introduce some new ones.

Peter

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Author: AdvocatusDiaboli Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 410165 of 461706
Subject: Re: 66% OT: Geologist Takes Grantham to the Wood Date: 12/1/2012 10:48 PM
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The geologist is basically right on the issue of ores - it's the issue of the "resource pyramid".
At the top of the resource pyramid, there's a small amount of very pure ore or even elemental metal. Gold nuggets. That kind of thing.
As you go down the resource pyramid, it broadens rapidly and you have ever-larger amounts of ore which is of ever lower quality.
Over the last centuries, we have depleted the higher quality ores and moved on to the ever lower quality ones. At the same time, resource costs have decreased because production technology has progressed faster than ore quality has declined. The decline has not been a smooth one, of course, but undulating with long bull and bear markets in commodities that reflected the commodity investment cycle.

I see no reason why this mechanic should suddenly have reversed.*
The idea that the cost of extracting mineral resources should have suddenly aborted its centuries old decline, quadrupled, AND embarked on an uptrend with 5+% annual cost increases is not plausible in my view.

It's far more likely that this is a function of the short-term commodity cycle (note that a "short-term" cycle can last 30 years) and that 20 years from now mineral resources at least will be CONSIDERABLY cheaper than they are now as the investments into new capacity finally overwhelm rising demand (note that investments into new mineral commodity production capacity have lead times of OVER A DECADE).



*There's one issue, and that is the price of oil and gas. These are not mineral resources, and for (conventional) oil and gas the resource pyramid is turned on its head. Large amounts of cheap oil, small amounts of expensive oil. Since oil is a significant input into mineral resource production, rising oil prices drive the cost of other commodities.
However, there are unconventional sources of oil (tar sands, coal and NG liquefaction) which I expect to drive the price of oil down again to perhaps 60-80 dollars within the next two decades.

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Author: tim443 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 410166 of 461706
Subject: Re: 66% OT: Geologist Takes Grantham to the Wood Date: 12/1/2012 11:01 PM
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You were doing well towards a rec until you used the misnomer "tar sands". Tar hardens oil sands doesn't.

A tremendous amount of diesel fuel is used to mine and transport coal by truck, rail and ship. A huge number of mines are inconveniently located away from existing grid and must burn diesel to produce electricity. Even delivering fuel to many isolated locations can be horrendously expensive (imagine using aircraft to fly it into small airstrips followed by slinging barrels of fuel under helicopters to the mining sites?). The lucky finds are close enough to tidewater that fuel can be brought in by ship during the summer when the ice clears. Much more but it is bedtime here.

Tim

I see no reason why this mechanic should suddenly have reversed.*

...

*There's one issue, and that is the price of oil and gas. These are not mineral resources, and for (conventional) oil and gas the resource pyramid is turned on its head. Large amounts of cheap oil, small amounts of expensive oil. Since oil is a significant input into mineral resource production, rising oil prices drive the cost of other commodities.
However, there are unconventional sources of oil (tar sands, coal and NG liquefaction) which I expect to drive the price of oil down again to perhaps 60-80 dollars within the next two decades.


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Author: paralwaysgood Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 410167 of 461706
Subject: Re: 66% OT: Geologist Takes Grantham to the Wood Date: 12/1/2012 11:05 PM
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I just realized I am arguing geology with a man named Drumlin. That's all.

drum·lin (drmln)
n.
An elongated hill or ridge of glacial drift.

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Author: warrl Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 410174 of 461706
Subject: Re: 66% OT: Geologist Takes Grantham to the Wood Date: 12/1/2012 11:49 PM
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Rich, I came across another interesting description one time.

You love pistachios (I hereby decree for the sake of this description - if you didn't like them before, you can resume not liking them in a bit).

I've prepared a room, let's say ten feet square, with equipment to keep it at absolutely perfect conditions for storing pistachios. And I've filled that room to a depth of 3 feet with pistachios in the shell.

There's a little platform about 4 feet off the floor, with a door leading to it. And a nice long scoop. A person can stand on the platform and scoop up a couple dozen pistachios from anywhere in the room with that scoop. Somehow it can even deal with corners.

As I said, you love pistachios. And this room is now YOURS.

But there's one absolute rule. And that is, you can NEVER EVER take a single pistachio shell out of the room.

How long will it be until you eat the last pistachio in that room?

The answer is, you never will.

Every time you eat a pistachio, the shell goes back into the pile on the floor. Progressively there are more and more empty shells, and fewer and fewer pistachios.

By the time you have to use the scoop ten times to get one pistachio, you will have given up on getting pistachios from that room; it'll be easier and less bother to run to the store and buy a bag.

And every other resource that man mines is the same way. As it takes more and more effort to get the resource, alternatives look relatively more attractive.

So - we will NEVER run out of crude oil; we'll just hit the point where, even though we know there's more somewhere, it isn't worth hunting for. Maybe we'll even be pretty sure we know where it is, but it won't be worth drilling to get out.

And we'll NEVER run out of anything else either.

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Author: MadCapitalist Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 410181 of 461706
Subject: Re: 66% OT: Geologist Takes Grantham to the Wood Date: 12/2/2012 12:50 AM
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So - we will NEVER run out of crude oil; we'll just hit the point where, even though we know there's more somewhere, it isn't worth hunting for. Maybe we'll even be pretty sure we know where it is, but it won't be worth drilling to get out.

And we'll NEVER run out of anything else either.


That reminds me of the Simon–Ehrlich wager:

Julian L. Simon and Paul Ehrlich entered in a famous scientific wager in 1980, betting on a mutually agreed-upon measure of resource scarcity over the decade leading up to 1990. Simon had Ehrlich choose five commodity metals. Copper, chromium, nickel, tin, and tungsten were chosen and Simon bet that their prices would decrease, while Ehrlich bet they would increase.[note 1] Ehrlich ultimately lost the bet, and all five commodities that were selected as the basis for the wager continued to trend downward during the wager period.

http://en.wikipedia.org/wiki/Simon%E2%80%93Ehrlich_wager

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Author: telegraph Big funky green star, 20000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 410226 of 461706
Subject: Re: 66% OT: Geologist Takes Grantham to the Wood Date: 12/2/2012 1:28 PM
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"
Julian L. Simon and Paul Ehrlich entered in a famous scientific wager in 1980, betting on a mutually agreed-upon measure of resource scarcity over the decade leading up to 1990. Simon had Ehrlich choose five commodity metals. Copper, chromium, nickel, tin, and tungsten were chosen and Simon bet that their prices would decrease, while Ehrlich bet they would increase.[note 1] Ehrlich ultimately lost the bet, and all five commodities that were selected as the basis for the wager continued to trend downward during the wager period."





nice thoughts..

Here's copper...since then.....quadrupled in price...

http://www.infomine.com/investment/metal-prices/copper/all/



tin prices

https://www.itri.co.uk/index.php?option=com_mtree&task=a...

Need I show you oil prices, that have gone from $10/bbl to $115/bbl in 25 years?


China and India have risen as the major drivers of growth. China now consumers 55% of all coal mined and grows that at several percent a year. Their oil usage goes up 3-5% a year.

Gold is up 5 fold. Silver the same. SHouldn't that bring on massive new mines? Heh heh.... there isn't any gold available at 300 an ounce...it costs 3 times that or more to mine an oz of gold these days. Deeper and deeper, more hostile environments. 8000 feet down in South Africa...120 degree ambient temperatures...... and on and on.



t.

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Author: MadCapitalist Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 410240 of 461706
Subject: Re: 66% OT: Geologist Takes Grantham to the Wood Date: 12/2/2012 3:19 PM
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nice thoughts..

Here's copper...since then.....quadrupled in price...

http://www.infomine.com/investment/metal-prices/copper/all/

tin prices

https://www.itri.co.uk/index.php?option=com_mtree&task=a......

Need I show you oil prices, that have gone from $10/bbl to $115/bbl in 25 years?

China and India have risen as the major drivers of growth. China now consumers 55% of all coal mined and grows that at several percent a year. Their oil usage goes up 3-5% a year.

Gold is up 5 fold. Silver the same. SHouldn't that bring on massive new mines? Heh heh.... there isn't any gold available at 300 an ounce...it costs 3 times that or more to mine an oz of gold these days. Deeper and deeper, more hostile environments. 8000 feet down in South Africa...120 degree ambient temperatures...... and on and on.




Was ignoring Simon's quote at the link intentional?

"More people, and increased income, cause resources to become more scarce in the short run. Heightened scarcity causes prices to rise. The higher prices present opportunity, and prompt inventors and entrepreneurs to search for solutions. Many fail in the search, at cost to themselves. But in a free society, solutions are eventually found. And in the long run the new developments leave us better off than if the problems had not arisen. That is, prices eventually become lower than before the increased scarcity occurred."
—Julian Simon


The vast majority of the increases in price happened in the last decade. This should provide an increased incentive to search for solutions. We will see if Simon's belief is true. It certainly seemed to come true for natural gas. Natural gas prices have plummeted.

We also need to be careful about not being confused by nominal prices. The Fed can easily drive nominal prices up even if real prices decline.

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Author: billfaust One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 410280 of 461706
Subject: Re: 66% OT: Geologist Takes Grantham to the Wood Date: 12/2/2012 7:38 PM
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MadCapitalist: That reminds me of the Simon–Ehrlich wager:

Grantham addressed the Simon/Erlich wager in his July letter.

[Begin quoting]

While still on the topic of resources, there are a few points I’d like
to make on the subject of the famous bet made between Paul Ehrlich and
Julian Simon in 1980, which is so often mentioned by opponents of any
ideas regarding resource limits.

[Snip description of bet where he also points out Simon was funded by
Cato Institute and Koch family]

The essence of the bet was that Ehrlich believed that compound growth
could not be sustained in a world of ?nite resources, and therefore the
real price of raw materials would rise. Simon argued that, regardless of
the rate of growth, real prices would fall. Of course, the spirit of
this bet has no time limit – 40 years is better than 10, and 100 is
better than 40. But a bet like this between humans of middle age is one
that both would like to collect on. So, the bet was set at 10 years and
?ve commodities were chosen by mutual agreement. Here again, all
commodities would have represented the spirit of the bet better than
?ve, but ?ve was easier to monitor. Simon won all ?ve separate bets fair
and square at the 10-year horizon. But let’s admit that this is a very
unsatisfactory time period for the rest of us who are really interested
in this contest of ideas. So, let’s take an equally arbitrary but much
more satisfactory bet: from then, 1980, until now, and include all of
the most important commodities. Simon would have lost posthumously, and
by a lot! (Even of the original ?ve, he is only one for ?ve, having won
the least signi?cant of the ?ve: tin.) So, please “Cornucopians,” let’s
not hear any more of the Ehrlich-Simon bet, which proves, in fact, both
that man is mortal and must make short-term bets, and, more importantly,
that Ehrlich’s argument was right (so far).


[End quoting]

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Author: brucedoe Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 410336 of 461706
Subject: Re: 66% OT: Geologist Takes Grantham to the Wood Date: 12/3/2012 11:47 AM
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As a retired geologist, I can tell you that ore is a matter of price and technology. A good gold ore deposit has maybe as much as one part per U.S. million of gold (i.e. 0.0001%). A good copper ore has to have a copper content of maybe 0.5%. Lead and zinc have to be even higher if mined as primary ore. So, yes, dirt contains traces of copper, but it is far, far from being economic as far as the eye can see. There is a combination open pit and underground deposit in Indonesia (Grasberg in Papua and majority owned by McMoRan Copper and Gold) that is known as a copper deposit (World's third largest), but it is also the world's largest gold producer as a by-product. It is a major producer of several other elements such as silver. (http://en.wikipedia.org/wiki/Grasberg_mine)

Shale gas from fracking becomes economic somewhere between $4 and $5 per unit (mcf) (I believe) whereas it is now selling at less than $4/unit (today at $3.61/unit) in this country (by the way each well consumes more than a million gallons of water with most consuming millions of gallons). Thus shale gas is being produced at a loss (http://www.publicpower.org/newsletters/ppmagazinedetail.cfm?...). In reality it is not economic at current prices and has not been for a long time. But sometimes such production is done with the expectations of higher prices in the future.

For some decades the Mt. Isa lead-silver-zinc-copper deposit in Australia was operated at a loss during the depression and WW-II with the expectation that eventually it would be economic with the development cost behind them. This proved to be true. (Incidentally during the wet season, trains could not get to Mt. Isa nor could planes land as the area was flooded, and they survived on food dropped from airplanes. As I recall, the city and suburbs had a population of something like 50,000 people.) You can see more details at http://en.wikipedia.org/wiki/Mount_Isa.

brucedoe

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Author: FreethinkerKW Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 410364 of 461706
Subject: Re: 66% OT: Geologist Takes Grantham to the Wood Date: 12/3/2012 2:29 PM
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Nicely done, warrl.

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