Ylijohtaja, ympäristötaloustieteilijä Anni Huhtalan esitys Kansantaloustieteen päivillä Jyväskylässä 10.2.2017. Esitys kuuluu KT-päivien sessioon 4a: Environmental and Industrial Economics. KT-päivien koko ohjelma: http://www.taloustieteellinenyhdistys.fi/wp-content/uploads/2017/02/KTpaivat-1.pdf

1. Impact of price uncertainty on nickel
extraction with environmental effects –
when to close a mine?
Anni Huhtala and Olli Ropponen
KT-päivät, 10.2.2017, Jyväskylä

2. Focus of this paper
Exploration Project development Production Closure Cleanup completed

3. Motivation – why study closing of a mine?
Troubled Finnish nickel mine says could still avoid closure, Reuters 7.11.2016
YLE News 8.4.2013 11:42 | updated 8.4.2013 19:05
New waste leak at Talvivaara

4. Literature in economics on the extraction of non-
renewable resources under uncertainty
• Textbook: Dixit and Pindyck (1994)
• Stochastic dynamic optimization models by
Brennan and Schwarz (1985), Mason (2001),
Muehlenbachs (2015), Insley (2015) etc.

5. Approach chosen here
Simulations, i.e., no optimization, but first attempt
to illustrate the impacts of
1) price uncertainty and
2) learning period before full-scale production
on the profitability of a mine
Note: environmental impacts not modeled explicitly here, but
materialized as lost output due to problems in production
(caused by leakage and water management)

6. Simulations carried out for net present value of
mining activities vs. closure
 expected price and quantity developments important

7. Annual prices (real 2010 USD)
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
USD/metricton
COPPER
NICKEL
ZINC

8. Quarterly nickel extraction in Talvivaara

9. Simulated price changes – as random draws from price
development in 1960-2015

10. Simulated ”learning-by-doing” in production
(dashed line)

11. Results
• given our parameter values loosely based on nickel
markets and experiences with heap leaching
technology, nickel extraction turns out
unprofitable
• only when operating costs are rather low or nickel
price constantly higher than the current price it
pays off to continue mining activities

12. Conclusions
• Adopting new technology to bring unconventional
nickel resources into production is challenging and
may turn out unprofitable
 policy implications - gov’t support
Caveat: we do not have the same information on costs
etc. that the Ministry of Economic Affairs and
Employment has
• Extensions:
- co-production (zinc, copper etc.)
- stochastic environmental damage
- investment in abatement technology possible