Quiz 1: Chap 1 and 2 Flashcards
(151 cards)
1
Q
What is the definition of economics? (Chapter 1)
A
Economics focuses on how individuals, governments, firms, and
nations make choices in allocating scarce resources to satisfy their
unlimited needs.
2
Q
What is macro-economics?(Chapter 1)
A
Macro-economics is the area of economics within a national or international level
3
Q
What is micro-economics?(Chapter 1)
A
Micro-economics is the area of economics on the behaviors of individuals and companies.
4
Q
What is mineral economics?(Chapter 1)
A
Mineral Economics is the study and research of the business and economic aspects of mineral extraction and use.
5
Q
What is a market?(Chapter 1)
A
Market is a place that brings together buyers and sellers.
6
Q
Name the 7 types of markets?(Chapter 1)
A
- Spot (cash or physical) markets
- Internet markets
- Auction markets
- Labor (Job) markets
- Stock markets
- Commodity markets
- Future markets
7
Q
What is the usual name for outcomes of the primary secto?(Chapter 1)
A
Commodities
8
Q
What causes instability in the price of mining commodities?(Chapter 1)
A
demand in mineral commodities.
9
Q
On what are mining commodities dependent?(Chapter 1)
A
mining commodities are dependent on the economic growth of the world.
10
Q
Fill: When the price of oil increases, the _______ for other fuel commodities also tend to increase.(Chapter 1)(Chapter 1)
A
When the price of oil increases, the demands for other fuel
commodities also tend to increase.
11
Q
Transportability of a commodity is highly dependent on what?
A
The transportability of a commodity highly depends on its price.
12
Q
Name a difference of mining commodities compared to other commodities related to the time to bring new capacity.(Chapter 1)
A
Adding capacity or construction of a new mine takes time in the mineral
commodities. This time is typically 3-10 years in the mineral industry.
13
Q
Why does the mining commodities have potential for monopolistic behavior?(Chapter 1)
A
Elasticity of mineral commodities is low in the short-term.
14
Q
What happened to the share of commodities in the total dollar value of global export from 1965 to 2013.(Chapter 1)
A
Even though export quantities commodities increased, goods and services in the tertiary
sector diversified and advanced much more. Therefore, the share of
commodities decreased.
15
Q
As countries develop, how do their industries shift?(Chapter 1)
A
Their industries shift from primary to secondary and tertiary sectors
16
Q
Define demand.(Chapter 1)
A
Demand is the quantity of a good/service that consumers wish to purchase at each different price.
17
Q
Name the 3 factors affecting demand in addition to price.(Chapter 1)
A
- The prices of related goods (substitutes or complements)
- Consumers’ income
- The tastes and preferences of consumers
18
Q
In the context of demand, to what concept does the availability of substitutes leads.(Chapter 1)
A
The availability of substitutes leads to an economic concept called opportunity cost.
19
Q
Describe the demand curve. (Chapter 1)
A
20
Q
Describe the demand curve if there is an Increase in the price of a substitute.(Chapter 1)
A
21
Q
Describe the demand curve if there is an Increase in the price of a complement.(Chapter 1)
A
22
Q
Describe the demand curve if there is a Change in preferences in favor of a good.(Chapter 1)
A
23
Q
Define opportunity cost.(Chapter 1)
A
Opportunity cost is the benefit loss associated with an action when an alternative action is taken.
24
Q
What is the magnitude of opportunity cost related to?(Chapter 1)
A
The magnitude of opportunity cost is related to the availability of substitutes
in the mineral industries.
25
Define supply.(Chapter 1)
Supply defined as the quantity of a good/service brought by producers to market at different sale prices.
26
Name the 3 factors affecting supply in addition to price.(Chapter 1)
1. Input costs
2. Production technology
3. Government regulations
27
Describe the supply curve.(Chapter 1)
28
Describe the supply curve if there is an Increase in input prices.(Chapter 1)
29
Describe the supply curve if there are Improvements in the production technology.(Chapter 1)
30
Describe market equilibrium.(Chapter 1)
A case in which supply of a good is exactly equal to its demand. Since there is neither surplus nor shortage in the market, price tends to remain stable in this situation.
31
Describe the market equilibrium if there is Excess demand.(Chapter 1)
32
Describe the market equilibrium if there is Excess supply.(Chapter 1)
33
Describe consumer surplus in words and graphically.(Chapter 1)
The difference between what customers are willing to pay and what they actually pay is called consumers surplus. This is social benefit accruing customers, who buy the good.
34
Describe producer surplus in words and graphically.(Chapter 1)
- It is difference between what suppliers sell actually at a price and what they are willing to supply. This is social benefit accruing suppliers, who sell the good.
35
Where is the market most efficient?(Chapter 1)
The market is the most efficient where the consumer and producer surpluses are maximized. At equilibrium, Q, the combined consumer and producer are maximized.
36
What is the name of the sum of consumer surplus and producer surplus?(Chapter 1)
social surplus or economic surplus
37
What is market failure?(Chapter 1)
Market failure occurs when market dynamicsdo not work properly or work in wrong direction. Thus, it will not provide socially optimum quantity of a good
or service. It refers to the case where resources are not allocated optimally.
38
"Theoretically, if the **marginal social benefit** is equal to the **marginal social
cost**, optimal resource utilization is achieved." (Chapter 1)
Define:
-marginal social benefit
-marginal social cost
-Marginal social benefit is the change in benefits when an additional unit of a good or service is consumed.
-Marginal social cost is the change in society's total cost when an additional unit of a good or service is produced.
39
Name the 6 reasons for market failure.(Chapter 1)
1. Lack of competition (monopoly or monopsony)
2. Externalities
3. Public goods
4. Merit Goods and Demerit Goods
5. Asymmetric information – incomplete information
6. Government intervention through price floor or ceiling
40
Explain the market failure of: Lack of competition (monopoly or monopsony).(Chapter 1)
When a market is dominated by a company (or a small group of companies) through setting price power, the competition is distorted. A monopoly may obstruct competition through limiting production
resulting in price increase.
41
Explain the market failure of: Externalities.(Chapter 1)
An externality occurs when the production or consumption of a good or service generates a negative or positive impact on the third parties, which are not part of production or consumption activity. The third party either
receives a benefit or endures cost.
42
Explain the market failure of: Public goods(Chapter 1)
These goods refer to the goods that all the people benefit. After the production, anyone can access these goods for free.
So,
Public goods are associated with a market failure because the consumers do not unveil their true preferences about how much they want to consume.
43
Explain the market failure of: Merit Goods and Demerit Goods give only for **Merit goods** (Chapter 1)
Merit goods are the goods that generate positive externalities. Their benefits are usually underestimated, or it is difficult to calculate the actual value of them. In a free market, they will be under-consumed.
For example, education, health care, free museums, and vaccination. The reason behind that they are
under-consumed is the lack of knowledge of consumers on how they are beneficial.
44
Explain the market failure of: Merit Goods and Demerit Goods give only for **Demerit goods** (Chapter 1)
Demerit goods are the goods that generate negative externalities. They are harmful to consumers. In a free market, they will be over-consumed. For example, smoking cigarettes, junk food, and drugs. Smoking cigarette does not affect a smoker, it also affects non-smokers around the smoker. That’s why it is over-consumed.
45
Explain the market failure of: Incomplete Information – Information asymmetry(Chapter 1)
Producers and consumers have no same information on a product. The lack of information will impact if a trade takes place, and if so, what price it takes place.
46
Explain the market failure of: Government intervention(Chapter 1)
Price floors or price ceilings distort the price mechanism in such a way as
to prevent efficiently allocating resources.
47
Explain the mechanism over time of price ceiling.(Chapter 1)
It sets a maximum price for a good/service.
The short-run supply curve, is fairly steep. So, price variations will not cause big changes in quantity supplied. Then, in the long term, supply will decrease as profitability decreases. Thus, the long-term supply curve will be flatter. As the price ceiling remain in force, excess demand persists.
Black market formation is another consequence.
48
Explain the mechanism over time of price floor.(Chapter 1)
It set a minimum price for a good/service.
Floor will lead to a surplus in quantity.
I can be effective in the short term.
49
In the context, of taxation, describe royalties and mining taxes.(Chapter 1)
Royalties or mining taxes are usage-based payments made by one party (the "licensee") to another (the "licensor") for the right to ongoing use of an asset.
50
Explain the Laffer Curve.(Chapter 1)
The Laffer Curve is a theory related to tax implementation. It purports that there is an
optimal tax rate that maximizes the tax revenues.
51
Explain the Laffer Curve.(Chapter 1)
The Laffer Curve is a theory related to tax implementation. It purports that there is an
optimal tax rate that maximizes the tax revenues.
52
Describe the effects of an indirect tax such as a sale tax applied to equilibrium.(Chapter 1)
Consumer will encounter a higher price and demand will reduce. Therefore, suppliers will sell less quantity. Supplier thus receive less than the price paid by consumers.
53
Explain graphically the effect of taxation.(Chapter 1)
Consumers pay a higher price. However, suppliers receive a lower profit and produce less. The government’s tax revenue contains the rectangle CTAB, which is equal to the loss in consumer surplus and the loss in producer surplus.
54
What 2 factors affect the size of the social cost.(Chapter 1)
1. The size of the tax
2. The reduction in the quantity sold
55
In the context of social cost. Fill : The _________ in the quantity sold will depend upon the _______ of demand and supply.(Chapter 1)
The _reduction_ in the quantity sold will depend upon the _elasticity_ of demand
and supply.
56
In the context of social cost. Fill: The ______ elastic demand or supply is, the larger the social cost will be.(Chapter 1)
The _more_ elastic demand or supply is, the larger the social cost will be.
57
Demand analysis helps us to understand the effects of demand determinants. Name 3.(Chapter 1)
1. Price elasticity of demand
2. Cross-price (prices of related goods) elasticity of demand
3. Income elasticity of demand
58
What is the Price elasticity of demand.(Chapter 1)
Price elasticity of demand is the measure of how demand responds to
changes in the own prices of the good
59
Give the price elasticity of demand formula in 3 forms.(Chapter 1)
60
Explain the effect of The effects of price elasticity for price and quantity variations for Elastic demand.(Chapter 1)
Elastic demand: small price change leads to large quantity changes,
61
Explain the effect of The effects of price elasticity for price and quantity variations for Inelastic demand.(Chapter 1)
Inelastic demand: large price change leads to small quantity changes.
62
Give the 3 interpretations of the Price elasticity of demand formula.(Chapter 1)
ABS(𝑒𝑝) > 1 𝑓𝑜𝑟 𝑒𝑙𝑎𝑠𝑡𝑖𝑐 𝑑𝑒𝑚𝑎𝑛𝑑
ABS(𝑒𝑝) = 1 𝑓𝑜𝑟 𝑢𝑛𝑖𝑡 − 𝑒𝑙𝑎𝑠𝑡𝑖𝑐 𝑑𝑒𝑚𝑎𝑛𝑑
ABS(𝑒𝑝) < 1 𝑓𝑜𝑟 𝑖𝑛𝑒𝑙𝑎𝑠𝑡𝑖𝑐 𝑑𝑒𝑚𝑎𝑛
63
What is the cross price elasticity of demand?(Chapter 1)
Cross Price Elasticity of demand measures the responsiveness of demand for a product to a change in the price of other related products.
64
Give the Cross Price Elasticity of demand formula for linear and non-linear cases.(Chapter 1)
65
For substitutes. Fill: An increases in price of good i results in a/an _______ in demand of good j.
A decrease in price of good i results in a/an ________ in demand of good j.(Chapter 1)
An increases in price of good i results in an _increase_ in demand of good j.
A decrease in price of good i results in a _decrease_ in demand of good j
66
For complements, An increases in price of good i results in a/an __________ in demand of good j.
A decrease in price of good i results in a/an _______ in demand of good j.(Chapter 1)
An increases in price of good i results in a _decrease_ in demand of good j.
A decrease in price of good i results in an _increase_ in demand of good j.
67
Give the 2 interpretation of the cross price elasticity of demand formula.(Chapter 1)
If the elasticity is positive, the goods are substitutes
If the elasticity is negative, the goods are complements
68
What is the income elasticity of demand?(Chapter 1)
Income elasticity of demand measures the relationship between a change in quantity demanded and a change in income.
69
Give the formula for the Income elasticity of demand for linear and non- linear cases.(Chapter 1)
70
Give the 4 interpretations of the result of the Income elasticity of demand formula.(Chapter 1)
𝑒𝑦 > 0 𝑓𝑜𝑟 𝑎 𝑛𝑜𝑟𝑚𝑎𝑙 𝑔𝑜𝑜𝑑
𝑒𝑦 < 0 𝑓𝑜𝑟 𝑎𝑛 𝑖𝑛𝑓𝑒𝑟𝑖𝑜𝑟 𝑔𝑜𝑜𝑑
𝑒𝑦 > 1 𝑓𝑜𝑟 𝑎 𝑙𝑢𝑥𝑢𝑟𝑦 𝑔𝑜𝑜𝑑
𝑒𝑦 < 1 𝑓𝑜𝑟 𝑎 𝑛𝑒𝑐𝑒𝑠𝑠𝑖𝑡y
71
What is the economies of scale?(Chapter 1)
Economies of scale refers to the cost advantages that a business obtains due to capacity increase
72
How is economies of scale primarily achieved in open pit mines.(Chapter 1)
In open pit mines, economies of scale are achieved primarily through the use of larger equipment
73
What are the 4 technical difficulties introduced with the usage of larger mining equipment?(Chapter 1)
1. Complexity
2. Dilution
3. Lost Production
4. Reduced Flexibility
74
Explain graphically the 3 stages of the economies of scale for a growing output.(Chapter 1)
1. Increasing economies of scale : Average cost of producing goods falls as the scale of operation increases
2. Constant economies of scale: Average cost of producing goods remains unchanged as the scale of
operation increases.
3. Decreasing economies of scale: Average cost of producing goods rises as the scale of operation increases.
75
What are fixed costs?(Chapter 1)
Total fixed costs are fixed costs that must be met whatever the level of output, even when output is zero.
76
What are variable costs?(Chapter 1)
Total variable costs are costs that increase with the level of output.
77
What is the marginal cost?(Chapter 1)
The cost of producing each additional unit of output is called the marginal cost. Formally, marginal cost (MC) is defined as the increase in total cost (∆𝑇𝐶) as output increases by one unit (∆Q).
78
Give the marginal cost formula.(Chapter 1)
79
What is the average cost and its formula.(Chapter 1)
the average cost (AC) is defined as total cost (TC) divided by total output (Q).
80
Give the 3 cases of relationship between marginal and average costs.(Chapter 1)
1. 𝑀𝐶 < 𝐴𝐶 → 𝐴𝐶 𝑖𝑠 𝑓𝑎𝑙𝑙𝑖𝑛𝑔
2. 𝑀𝐶 = 𝐴𝐶 → 𝐴𝐶 𝑖𝑠 𝑎𝑡 𝑚𝑖𝑛𝑖𝑚𝑢𝑚
3. 𝑀𝐶 > 𝐴𝐶 → 𝐴𝐶 𝑖𝑠 𝑟𝑖𝑠𝑖𝑛𝑔
81
Give 2 forms of the cost elasticity of production formula and its interpretation.(Chapter 1)
𝑒𝐶 > 1 → increasing returns to scale
𝑒𝐶 = 1 → constant returns to scale
𝑒𝐶 < 1 → decreasing returns to scale
82
Name 5 conditions for a perfectly competitive market.(Chapter 1)
1. Many buyer and seller
2. Free entry and exit
3. Absence of restrictive government regulations
4. Homogenous products
5. Buyers and seller have full information
83
In a perfectly competitive market, what assumptions can be made about Marginal Revenues, Average Revenues and Price.(Chapter 1)
In perfect competition, every unit that the firm produced is sold at the same price. [Because horizontal demand curve]
Additional revenue obtained by supplying additional unit is also equal to price. That is, marginal revenue from the sale of an additional unit is equal to the price.
Average revenue from each unit sold is also equal to price.
84
In a perfectly competitive market, when are profit in-long term equilibrium maximized?(Chapter 1)
To maximize the profit, the firm will increase production up to the level of output at which marginal cost is equal to marginal revenue. [P=MR=MC]
85
What is monopoly?(Chapter 1)
A monopoly occurs when there is one supplier in the industry.
86
What is monopsony?(Chapter 1)
If there is only a single buyer in the industry.
87
Give the formula for the degree of monopoly.(Chapter 1)
88
How will a monopolist maximize his profits?(Chapter 1)
To maximize the profit, the monopolist will choose to produce the level of output in which marginal revenue equals to marginal cost.
89
What is the essential difference between a monopoly and perfect competition regarding their marginal revenues?(Chapter 1)
Essential difference with monopoly is that marginal revenue is not equal to the price. Marginal revenue is always less than price with a downward-sloping market demand curve
90
How are quarry usually monopolistic and what does this allows them to exploit?(Chapter 1)
The quarry company has some monopoly power since consumers tend to prefer to use the nearest quarry to where they live.
Material is cheap therefore as less transportability.
So,
The quarry company with no nearby competitors can therefore charge higher prices.
91
What is Oligopoly?(Chapter 1)
Oligopoly refers to an industry in which only a few firm compete against each other. These firms are interdependent, so that the action of each firm can affect the behaviour of other firm, as with rival player in a dynamic game.
92
What is oligopsony? (Chapter 1)
The market structure in which there are only a few buyers is known as oligopsony.
93
What is a form of rivalery among oligopolistic firms. (Chapter 1)
Price wars. In this form, the price is aggressively cut to maintain market share. In some extreme case, the firms sell their product in loss.
94
What is Valuation?
Valuation focuses on determining financial worth of an asset (e.g., company or equipment)
95
What is Evaluation?
Evaluation focuses on determining performance or worth of something (e.g., person or project).
96
Name the 11 factors affecting value of a mineral deposit
1. Ore grade and reserves
2. **Commodity prices [Encompasses a lot]**
3. Size and shape of mineral deposit
4. Geometallurgical or process mineralogy characteristics
5. Undesirable substances
6. Ore type and characteristics
7. Environmental considerations
8. Social license to operate and community relations
9. Taxation and royalties
10. Mining Law
11. Country, political and sovereignty risks
97
What is the ore grade?
The concentration of a metal in a deposit is called grade
98
What is Mineral Reserve?
Mineral reserve is that portion of mineral resources on which technical and
economic studies have been carried out to demonstrate that it can justify
extraction at the time of the determination and under specified economic
conditions.
99
What are the 10 factors included in Commodities prices?
1. Demand and supply of mining products
2. Government action
3. Recycling
4. Markets of related commodities
5. Derivative markets
6. New technology
7. Price cycles
8. Market structure
9. Speculation and manipulation
10. Political factors
100
What are the 6 factors affecting the Demand and supply to mining products?
1. Substitution effect : When the price of a commodity rises, the demand for substituting commodity/product rises.
2. Need for infrastructure: Developed countries, which completed the main infrastructure, do not have
important demand.
3. Population growth: Even if the main infrastructure is completed, there can still be demand due to
population increase.
4. Innovation: Changes in technologies can increase or decrease the demand for a mineral resource.
5. Extreme events: Natural disasters, fire, strikes at the mines of big suppliers. War and other political events can also affect supply.
6. Discovery and production of big new orebodies: These can cause a sudden increase in supply
101
Name 2 examples of government actions that can be taken to influence Commodity prices.
1. Governments can influence the prices by changing regulations.
2. Governments (or group of countries) can aim to stabilize or increase prices by forming stockpiles
102
What are the 3 benefits of recycling mineral commodities?
1. prolongs life and reduces mining wastes and smelter effluents
2. provides partial immunity from price rises and protection from cartel behavior
3. recycling requires much lower energy for material treatment
103
What is new scrap and its 3 characteristics.
New scrap: the scrap that arises in the course of producing new goods.
➢New scrap is easy to collect, easy to identify, and normally of high quality.
➢Recycling costs are low, almost all new scrap is recycled.
➢The supply of recycled metal produced from new scrap is inelastic.
103
What is old scrap and its 3 characteristics.
Old scrap: the scrap that arises when products come to the end of their useful life.
➢The costs of recycling old scrap vary significantly.
➢Some old scrap is largely recycled regardless of the price of metal like new scrap.
➢Some old scrap is expensive to recycle due to high collection costs or poor quality.
104
What are the 2 types of Markets of related commodities?
Substitutes and Complement
105
What are the derivatives markets?
The derivatives market contains financial instruments, such as futures, forwards, swaps, and options*, which are derived from other forms of assets.
106
How can derivatives markets be utilized by mining compagnies. Name 2.
1. hedging through price stabilization, to some extend.
2. shaping price in short term at least.
107
How can new technology impact mining commodity prices?
New technology leads to cheaper operational costs.
108
Why do mines keep operating even in low mineral price periods?
Mining operations require high fixed costs, which force mining companies to keep mines operating even during low points in price cycles. Otherwise, the costs of shutting down and re-opening operations can be
extremely expensive.
109
Explain the 9 steps of the mining cycle mechanism.
1. Heathy market: supply is a bit over demand
2. Demand begins to grow. Supply cannot react to demand growth immediately. Thus, price begins to increase.
3. Thanks to attractive price, possible capacity addition is supplied.
4. Price decreases
5. However, demand still continue to increase.
6. When demand surpasses supply, price increase speeds up
7. Price reaches a peak in a short time. Due to high price, demand decrease and some consumers direct substitutes. For new capacity, mining companies are in rush through construction.
8. Demand decreases. Price decreases much faster the its increase.
9. Process 1 and 2 is repeated and new cycle starts.
110
Why does the mining industry tend to be monopolistic?
Due to high risks
111
What is speculation?
Speculation refers to involving in risky financial investments to make profit from short- or medium-term volatilities in the markets. Speculation is a legitimate and useful activity that allows market participants to hedge some risks. It increases liquidity in markets.
112
What is manipulation?
Manipulation is an illegal activity that refers to altering statistics, financial tables, and
outlook such that someone can take advantage of the alteration. Manipulation results in an artificial price, not reflecting market dynamics.
113
Name some political factors affecting commodity prices.
Political instabilities (e.g., strikes, riots, coups or civil war), resource nationalization, the
changes in taxation policies and mining regimes, and tension between countries.
114
Explain why the size of the deposit is important.
Since high-grade orebodies have been exploited over the years and hard to discover new ones, large
and low-grade deposits start extracting. Low grades can be profitable with very high production rates thanks to economies of scale.
115
Explain why the shape of the deposit is important.
Orebodies with regular shapes have cheaper extraction costs than irregular orebodies. Shape affects the amount of overburden and waste to be removed.
116
Explain why the orientation of the deposit is important.
Dip and strike of deposit affect the selection of mining and hauling methods
117
What is one of the most important critical characteristic to decide on the mineral processing design? and why?
Hardness, a surface characteristic, is one of the most critical characteristics to decide on mineral
processing design. Griding a rock with high strength such as high silica contained material, will consume more energy and lead to frequent part/item replacement and maintenance.
118
Explain why undesired substances might affect the economic feasibility of a deposit.
Some deposits with high grades may not be economical due to potential problems in
the downstream process, such as the presence of deleterious elements or unwanted
material in the vicinity of the deposit.
119
Explain why the Ore type or mineralogic form might affect the economic feasibility of a deposit.
**The mineralogical structure also profoundly affects processing costs. **
A critical characteristic of evaluating an ore deposit depends on whether the ore has metal in an oxide or sulfide form:
Processing and metallurgical cost are generally cheaper than sulfide ores. However, Sulfide ores can cause environmental problems in the metallurgical process.
120
What is sustainability?
Sustainability, a.k.a sustainable development, seeks a balance between the demands
of present and future generations such that the life in the earth crust continues in its
dynamics.
121
Name the 3 aspects of sustainability.
1. Environmental sustainability
2. Social sustainability
3. Economic sustainability
122
What is the difference between strong and weak sustainability?
Strong: If there is no biosphere, there is no economy (econosphere) or society (sociosphere).
Weak : Weak sustainability purports that there is substitutability between the economy (i.e., manufactured capital) and the environment (i.e., natural capital).
123
What is the aim of a circular economy?
The main aim of circular economy is to cope with environmental problems, such as climate change, loss of biodiversity, and environmental pollution.
124
What are the 3 principles of circular economy?
1. To eliminate waste and pollution,
2. To preserve the resources for future generations,
3. To regenerate natural systems
125
Describe the Environmental Kuznets curve?
In the pre-industrial period, the economy is based on the primary sector. In the industrial period, the secondary sector is large, and in the post-industrial period, the tertiary sector dominates the economy.
126
Name 7 Environmental considerations.
1. Damage to land
2. Release of toxic substances
3. Acid mine drainage
4. Health and safety of workers
5. Dust
6. Noise
7. Acid rains
127
What is a social License to Operate (SLO)
The social license to operate (SLO) refers to the level of acceptance or approval (or the beliefs, opinions, and perceptions) of local communities and stakeholders (broader civil society) regarding a mining project.
128
Why is an SLO important?
If a project is not approved by the communities, it is canceled. This risk is called “social risk” and is considered the most important risk for mining projects.
129
What are the 5 main opposition points of local communities towards mining mining operations?
1. Environmental concerns
2. Possible relocation of local communities due to mine expansion in the future
3. Increase in population and cost of living due to the mining operation
4. Housing speculation
5. Cultural reasons
130
What are the 3 central parts of the Social License to Operate?
1. Legitimacy
2. Credibility
3. Trust
131
What are the special treatments provided to mining compagnies regarding taxation in Canada?
This special treatment includes **deductions, allowances, and credits** that may be claimed against the income from the mining operation, either in the year of expenditure or, sometimes, in a prior or subsequent year.
132
In Canada what are provincial/territorial mining taxes, mining royalties, and mining land taxes are based more on?
Net production profits instead of net smelter return.
133
In summary, name the 4 main things that allows the taxation system of the mineral industry.
1. A mining corporate recovers its investment before paying important amount of taxes.
2. The income tax regulations provide flexibility for loss carry-over in such a a way as to mitigate the adverse effect of low prices due to cyclicality.
3. Exploration and other intangible mining expenses are treated.
4. Mining corporates are encouraged to continue the investment in mining
134
What is the carbon tax?
The tax rate for gasoline is an amount of dollar given to the government based on tons of CO2 produced.
135
In the carbon tax system explain the cap-and-trade system.
Cap:
Trade:
Cap: Governments set a maximum amount of emissions.
Trade: Governments sell, or issue permits to emitters of greenhouse gases per year.
These permits/issues are traded between the companies.
136
Who holds the surface rights and who holds mineral rights?
Surface rights can be held by private owners and refers to the rights attributed to the surface
area of lands.
Mineral rights are held by the provincial governments
137
What happens if the if the surface right owner and mineral right holder do not agree?
The Expropriation Act may be applied.
138
Name the 4 aspects of a mining act. (2 sub for 1 aspect)
1) Ownership
a. Licensing
b. Expropriation
2) Rights and obligations
3) Regulations
4) Payment and penalties
139
Explain the 4 main points of the Environmental Financial Assurance (EFA).
1. Provincial mining acts in Canada requires mining companies to submit reclamation plans for affected resources (e.g., water, soil, cultural values, etc.) to issue a permit.
2. After mining operations are completed, the affected areas must be brought as close as possible to its natural state through reclamation.
3. Environmental legislations in Canada state that a mining company is liable for
pollution costs associated with its operation.
4. In the case of the default of a mining company, the funds are used to reclaim or
restore the affected areas.
140
What are the 3 aims of the environment financial assurance?
1. Force mining companies to comply with environmental legislation during
operations and upon completion,
2. Make sure that the burden of pollution is not transferred to the citizens,
3. Accumulate sufficient fund to restore environment if the company fails to
coincide with its liability.
141
What is the "Polluter Pays Principle"?
“Polluter Pays Principle is the principle that users and producers of pollutants and wastes should bear the responsibility for their actions. Companies or people that pollute should pay the costs they impose on society“
142
What is the country risk?
The country risk refers to the risk that companies and investors face when investing in a specific foreign country
143
How can accessing the country risk for a mining project go beyond the country the project is in?
The project may involve with different companies from different jurisdictions.
144
What is resource nationalism?
Resource nationalism refers to the inclination of a country to control over natural resources located on its territory.
145
Name 3 possible from of actions that might encountered when exploiting a deposit from a foreign jurisdiction.
1. the confiscation of assets
2. Excessive taxes
3. Additional benefit from the company’s investment
146
What captures Sovereign ratings?
Sovereign ratings capture the risk of a country defaulting on its commercial debt obligations
147
How is the riskiness of a mining projects often expressed?
Riskiness of projects is often expressed through discount rate, giving a required return on investment (ROI) to compensate for the risk taken on by investors.
148
How can you quantify the risk associated with a country? Name 2.
1. To quantify the risk associated with a country, the country’s rating and credit default swaps (CDS) can be used.
2. Various rating agencies (S&P, Moody's, Fitch, etc.) grade the countries
149
Name 3 grading criterion of country risks done by agencies?
1. Interest coverage ratio: whether debt buyer can cover the interest payments,
2. Recoverability: a measure of how easily the buyer covers any outstanding debt,
3. Seniority: the buyer paid before the others.
150
How do you calculate the Credit Default Swap of a country easily?
The CDS is calculated directly from the difference in government bond yields between a country and the United States Government.
