1) Substantial new oil, gas, and mineral discoveries have been made globally over the past few decades through both extensive exploration and intensive improvements in existing operations. 2) Discovery boosts national wealth well above normal returns to exploration investment, providing an economic argument for countries to encourage exploration through favorable tax policies while still efficiently taxing resource extraction. 3) Providing geoscience data to explorers seems an efficient way to do this, stimulating private investment, though more evidence is still needed on the size of these impacts.

1. Resource Extraction, Wealth and
Discovery
Alan Gelb, Kai Kaiser, Lorena Vinuela
Center for Global Development and World Bank
Presentation to Tunis Workshop November 4
2011
ResWPDiscovery A 102111

2. Main Points
• Sub-soil assets are being discovered in Quantity
• Exploration is only part-responsible but critical
• Discovery boosts nations’ wealth above a normal
return to exploration investment
• Countries should encourage exploration while
taxing extraction efficiently
• Providing Geo-Science information seems to be an
efficient way to encourage exploration
– But the evidence needs to be strengthened

3. Sub-Soil Assets are Being Discovered
Imputed Discovery = Extraction +Net Reserve Change
Oil production in SSA has risen to 7 billion bbl, but
imputed discovery has averaged 18 bbl since mid 1990s
Globally, rent value of oil discovered in 2000-2008 = $38 trillion (current prices)

4. Reserves are Growing for Most
Minerals
Copper Proven Reserves
Million tons
600
400
• Copper reserves have grown since the
200 1930s, even as output is continuing to
0
increase.
1930 1935 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
• Imputed discovery for copper over 2000 -
Australia
Indonesia
Canada
Mexico
Chile
Papua New Guinea
China
Peru
Cyprus
Philippines
2008 was 70% of reserves in 2000
Poland South Africa Turkey United States Russia
Kazakstan Zaire/Congo Zambia Other
• For most minerals, imputed Copper Cumulative Production
600,000
discovery over 2000-2008
Thousand tons
averages 40% of 2000 reserves 500,000
• Oil 40%; Cobalt 17%, 400,000
Phosphate 67%, Iron 23% 300,000
• Some reserves have declined
200,000
but this can be due to political
100,000
decisions to declassify reserves
(coal) rather than exhaustion 0
1900 1905 1910 1915 1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

5. Discovery: Extensive and Intensive
• Extensive – new finds. Intensive: improvements in existing
operations (better recovery rates, knowledge, technology)
• Without some prior extensive discovery intensive discovery cannot
take place (you have to play to win)
• Technology is opening options and driving down costs even as
depletion of easy deposits raises costs. It is not clear how this will
play out in future
• There is still a lot to discover. Known reserves per sq.km. in low-
income countries are only about a quarter of those in rich countries
• For some countries, resource discoveries in one year can exceed
GDP (Venezuela).
• Many countries have reserves larger than are now proven. Their
resource industries are far more sustainable than they seem
– Example: oil and gas in the Americas

6. Discovery is Valuable
• Hard minerals: value of imputed discovery (at current
rents) about 17 times exploration costs
• Hydrocarbons: no comparable data but partial
information suggests a similar ratio
– Other valuation methods will reduce ratio but still high
• Why is exploration not pushed to the point where
marginal cost = marginal benefit?
– Earnings are in the future; private sector discounts risk
heavily relative to social discount rate
– Rent taxation reduces upside gains especially at cycle peaks
– Option value of waiting for technology to lower costs
• Argument for favorable treatment of discovery,
especially if have efficient minerals rent tax system

7. Many Countries Do Encourage
Exploration
• Canada: METR exploration/development - 31%
Less negative than for normal R&D -51%
• Australia: high carry-forward rates, etc
• Geo-Scientific data has the longest lead-time to
production – especially disadvantaged
• Also disadvantaged if force concessions to turn
over to induce competition for discovery
– Competition may also be the only way to reveal
resource value for taxation
• Options: tax breaks + extended non-competitive
concessions (patents) or public data + competition

8. Is Providing Geo-Scientific Information
a Good Investment?
• Not enough is known but some interesting
fragments reported:
• Australia: $1 data spending => $ 5 - 15 private
investment
• Canada: $1 data spending =+ $5 private
investment and $125 reserves
• Developing countries (Reedman): cases show
high investment response.
• More rigorous data is needed, including from
World Bank projects ($130 million over last
decade)

9. Conclusion
• Mining is not just about exhausting reserves.
Discovery has been very important.
• Discovery has positive wealth effect over and
above normal exploration returns
• Countries should aim for favorable incentives
for competitive exploration plus efficient rent
taxation
• Public provision of Geo-Scientific data is one
way to reconcile incentives and competition.