Measuring Competition for Valuable Minerals
The Chart of the Week is a weekly Visual Capitalist feature on Fridays.
Everybody loves a little competition.
It levels the playing field and ensures prices and products are kept affordable and available. But how do you measure and track the competitiveness of specific sectors?
The Herfindahl-Hirschman Index (HHI) is a commonly accepted measurement of market concentration, and in today’s case, we use it to show which mineral sectors have healthy competition between countries, as well as the sectors that are more monopolistic.
What is the Herfindahl-Hirschman Index?
The HHI is calculated by squaring the market share of each competitor and then summing up the resulting numbers. It can range from zero to 10,000.
The closer a market is to a monopoly, the higher the market’s concentration, and the lower its competition. If there were only one company in an industry, that company would have a 100% share of the market, and the HHI would equal 10,000, demonstrating a monopoly.
Conversely, if there were thousands of firms competing, the HHI would be near zero, indicating almost perfect competition.
- HHI below 1,500: a competitive marketplace
- HHI between 1,500 – 2,500: a moderately concentrated marketplace
- HHI of 2,500 or greater: a highly concentrated marketplace
Interestingly, the same technique is also used by the U.S. Department of Justice to look at market competition and potential anti-trust violators, as well.
Global Metal Production
Today’s chart uses data from the World Mining Congress to look at the competition for global minerals between countries. The HHI scores show the minerals most and least exposed to competition, while uncovering opportunities for countries looking to bolster their own mineral production.
Here are 33 minerals ranked, going from highest score (most monopolistic) to lowest (least monopolistic):
|Rank||Mineral||HHI Score||Type of Mineral|
|#1||Niobium (Nb2O5)||8,413||Iron and Ferro-Alloy Metals|
|#2||REE (Rare Earth Elements)||7,219||Non-Ferrous Metals|
|#3||Oil Sands||6,871||Mineral Fuels|
|#4||Tungsten (W)||6,828||Iron and Ferro-Alloy Metals|
|#5||Platinum (Pt)||5,383||Precious Metals|
|#8||Vanadium (V)||3,573||Iron and Ferro-Alloy Metals|
|#9||Coking Coal||3,423||Mineral Fuels|
|#10||Cobalt (Co)||3,184||Iron and Ferro-Alloy Metals|
|#11||Palladium (Pd)||3,163||Precious Metals|
|#12||Aluminum (Al)||3,078||Non-Ferrous Metals|
|#13||Chromium (Cr2O3)||2,942||Iron and Ferro-Alloy Metals|
|#14||Molybdenum (Mo)||2,812||Iron and Ferro-Alloy Metals|
|#15||Boron (B)||2,749||Industrial Minerals|
|#16||Lithium (Li2O)||2,749||Non-Ferrous Metals|
|#17||Steam Coal||2,639||Mineral Fuels|
|#18||Lead (Pb)||2,505||Non-Ferrous Metals|
|#19||Uranium (U308)||2,233||Mineral Fuels|
|#20||Tin (Sn)||2,036||Non-Ferrous Metals|
|#21||Iron (Fe)||2,015||Iron and Ferro-Alloy Metals|
|#23||Zinc (Zn)||1,687||Non-Ferrous Metals|
|#24||Manganese (Mn)||1,627||Iron and Ferro-Alloy Metals|
|#26||Copper (Cu)||1,136||Non-Ferrous Metals|
|#27||Titanium (TIO2)||1,120||Iron and Ferro-Alloy Metals|
|#28||Silver (Ag)||1,015||Precious Metals|
|#29||Salt (NaCl)||982||Industrial Minerals|
|#30||Nickel (Ni)||949||Iron and Ferro-Alloy Metals|
|#31||Natural Gas||884||Mineral Fuels|
|#33||Gold (Au)||557||Precious Metals|
The data here makes it clear that mineral production is not uniformly distributed throughout the world, giving some countries huge advantages while revealing potential supply problems down the road.
Renewables in the Spotlight
While commodities like gold and oil have robust levels of competition around the world, the renewable energy industry relies on more obscure raw materials to make solar, wind, and EVs work.
Rare earth elements (REE) rank #2 on the list with a HHI score of 7,219, while battery minerals such as graphite (#6), vanadium (#8), cobalt (#10), and lithium (#16) also appear high on the list as well.
According to a recent study, the production of rare earth elements is an area of particular concern. Used in everything from electric motors to wind turbines, rare earth demand will need to increase by twelve times by 2050 to reach emissions targets set by the Paris Agreement.
The only problem is that China currently controls 84% of global production, which increases the odds of bottlenecks and scarcity as demand rises. This ultimately creates an interesting scenario, where a sustainable future will be at the mercy of a few a producing nations.
Visualizing the Life Cycle of a Mineral Discovery
Building a mine takes time that poses risks at every stage. This graphic maps a mineral deposit from discovery to mining, showing where value is created.
Visualizing the Life Cycle of a Mineral Discovery
Mining legend Pierre Lassonde knows a little bit about mineral exploration, discovery, and development. Drawing from decades of his experience, he created the chart above that has become a staple in the mining industry—the Lassonde Curve.
Today’s chart of the Lassonde Curve outlines the life of mining companies from exploration to production, and highlights the work and market value associated with each stage. This helps speculative investors understand the mining process, and time their investments properly.
Making Cents of Miners: The Stages of a Mineral Discovery
In the life cycle of a mineral deposit, there are seven stages that each offer specific risks and rewards. As a company proves there is a mineable deposit in the ground, more value is created for shareholders along the way.
This stage carries the most risk which accounts for its low value. In the beginning, there is little knowledge of what actually lies beneath the Earth’s surface.
At this stage, geologists are putting to the test a theory about where metal deposits are. They will survey the land using geochemical and sampling techniques to improve the confidence of this theory. Once this is complete, they can move onto more extensive exploration.
There is still plenty of risk, but this is where speculation hype begins. As the drill bit meets the ground, mineral exploration geologists develop their knowledge of what lies beneath the Earth’s crust to assess mineral potential.
Mineral exploration involves retrieving a cross-section (drill core) of the crust, and then analyzing it for mineral content. A drill core containing sufficient amounts of metals can encourage further exploration, which may lead to the discovery of a mineable deposit.
Discovery is the reward stage for early speculators. Exploration has revealed that there is a significant amount of material to be mined, and it warrants further study to prove that mining would be feasible. Most speculators exit here, as the next stage creates a new set of risks, such as profitability, construction, and financing.
This is an important milestone for a mineral discovery. Studies conducted during this stage may demonstrate the deposit’s potential to become a profitable mine.
Institutional and strategic investors can then use these studies to evaluate whether they want to advance this project. Speculators often invest during this time, known as the “Orphan Period”, while uncertainty about the project lingers.
Development is a rare moment, and most mineral deposits never make it to this stage. At this point, the company puts together a production plan for the mine.
First, they must secure funding and build an operational team. If a company can secure funding for development, investors can see the potential of revenue from mining. However, risks still persist in the form of construction, budget, and timelines.
Investors who have held their investment until this point can pat themselves on the back—this is a rare moment for a mineral discovery. The company is now processing ore and generating revenue.
Investment analysts will re-rate this deposit, to help it attract more attention from institutional investors and the general public. Meanwhile, existing investors can choose to exit here or wait for potential increases in revenues and dividends.
Nothing lasts forever, especially scarce mineral resources. Unless, there are more deposits nearby, most mines are eventually depleted. With it, so does the value of the company. Investors should be looking for an exit as operations wind down.
Case Study: The Oyu Tolgoi Copper-Gold Discovery, Mongolia
So now that you know the theoretical value cycle of a mineral discovery, how does it pan out in reality? The Oyu Tolgoi copper deposit is one recent discovery that has gone through this value cycle. It exemplifies some of these events and their effects on the share price of a company.
- Concept: 15+ Years
Prospectors conducted early exploration work in the 1980s near where Oyu Tolgoi would be discovered. It was not until 1996 that Australian miner BHP conducted further exploration.
But after 21 drill holes, the company lost interest and optioned the property to mining entrepreneur Robert Friedland and his company Ivanhoe Mines. At this point in 1999, shares in Ivanhoe were a gamble.
- Pre-Discovery/Discovery: ~3 years
Ivanhoe Mines and BHP entered into an earn-in agreement, in which Ivanhoe gained ownership by completing work to explore Oyu Tolgoi. A year later, the first drill results came out of drill hole 150 with a headline result of 508 meters of 1.1 g/t Au and 0.8%. To get a sense of how large this is, imagine the height a 45-story building, of which a third of story is copper. This was just one intersection of an area that could stretch for miles.
Wild speculation began at this stage, as steadily improving drill results proved a massive copper-gold deposit in Mongolia and drove up the share price of Ivanhoe.
- Feasibility/Orphan Period: ~2 years
In 2004, the drilling results contributed to the development of the first scoping study. This study offered a preliminary understanding of the project’s economics.
Using this study, the company needed to secure enough money to build a mine to extract the valuable ore. It was not until two years later, when Ivanhoe Mines entered into an agreement with major mining company Rio Tinto, that a production decision was finalized.
- Development: 7 years
By 2006, the Oyu Tolgoi mineral deposit was in the development phase with the first shaft headframe, hoisting frame, and associated infrastructure completed. It took another two years for the shaft to reach a depth of 1,385 feet.
Further development work delineated a resource of 1.2 billion pounds of copper, 650,000 ounces of gold, and 3 million ounces of silver. This first stage of development for Oyu Tolgoi made Mongolia the world’s fastest growing economy from 2009 to 2011.
- Startup/Production: Ongoing
On January 31, 2013, the company announced it had produced the first copper-gold concentrate from Oyu Tolgoi. Six months later, the company stated that it was processing up to 70,000 tonnes of ore daily.
- Depletion: Into the Future
The Oyu Tolgoi deposit will last generations, so we have yet to see how this will affect the value of the mine from an investment perspective.
It’s also worth noting there are still other risks ahead. These risks can include labor disruptions, mining method problems, or commodity price movement. Investors will have to consider these additional conditions as they pan out.
The More You Know
Mining is one of the riskiest investments with many risks to consider at every stage.
While most mineral discoveries do not match it perfectly, the Lassonde Curve guides an investor through what to expect at each stage, and empowers them to time their investments right.
Visualizing 200 Years of Systems of Government
At the start of the 19th century, less than 1% of humanity lived under democratic rule. See how systems of government have changed over the last 200 years.
Visualizing 200 Years of Systems of Government
Centuries ago, most of our ancestors were living under a different political paradigm.
Although democracy was starting to show signs of growth in some parts of the world, it was more of an idea, rather than an established or accepted system of government.
Even at the start of the 19th century, for example, it’s estimated that the vast majority of the global population — roughly 84% of all people — still lived under in autocratic regimes or colonies that lacked the authority to self-govern their own affairs.
The Evolution of Rule
Today’s set of charts look at global governance, and how it’s evolved over the last two centuries of human history.
Leveraging data from the widely-used Polity IV data set on political regimes, as well as the work done by economist Max Roser through Our World in Data, we’ve plotted an empirical view of how people are governed.
Specifically, our charts break down the global population by how they are governed (in absolute terms), as well as by the relative share of population living under those same systems of government (percentage terms).
Classifying Systems of Government
The Polity IV data series defines a state’s level of democracy by ranking it on several metrics, such as competitive and open elections, political participation, and checks on authority.
Polity scores are on a -10 to +10 scale, where the lower end (-10 to -6) corresponds with autocracies and the upper end (+6 to +10) corresponds to democracies. Below are five types of government that can be derived from the scale, and that are shown in the visualization.
A territory under the political control of another country, and/or occupied by settlers from that country.
Examples: 🇬🇮 Gibraltar, 🇬🇺 Guam, 🇵🇫 French Polynesia
A single person (the autocrat) possesses supreme and absolute power.
Examples: 🇨🇳 China, 🇸🇦 Saudi Arabia, 🇰🇵 North Korea
- Closed Anocracy
An anocracy is loosely defined as a regime that mixes democratic and autocratic features. In a closed anocracy, political competitors are drawn only from an elite and well-connected pool.
Examples: 🇹🇭 Thailand, 🇲🇦 Morocco, 🇸🇬 Singapore
- Open Anocracy
Similar to a closed anocracy, an open anocracy draws political competitors from beyond elite groups.
Examples: 🇷🇺 Russia, 🇲🇾 Malaysia, 🇧🇩 Bangladesh
Citizens exercise power by voting for their leaders in elections.
Examples: 🇺🇸 United States, 🇩🇪 Germany, 🇮🇳 India
A Long-Term Trend in Question
In the early 19th century, less than 1% of the global population could be found in democracies.
In more recent decades, however, the dominoes have fallen — and today, it’s estimated that 56% of the world population lives in societies that can be considered democratic, at least according to the Polity IV data series highlighted above.
While there are questions regarding a recent decline in freedom around the world, it’s worth considering that democratic governance is still a relatively new tradition within a much broader historical context.
Will the long-term trend of democracy prevail, or are the more recent indications of populism a sign of reversion?
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