Estimates of the stock and flow of mineral and energy resources are calculated using a resources valuation model. The direct measures of the service flows of mineral and energy resources (in real terms) are used for productivity estimation. The stock of mineral and energy resources are used for balance sheet estimation.
There are 27 minerals, based on Australia’s Identified Mineral Resources (AIMR) published by Geoscience Australia, which include: antimony, bauxite, black coal, brown coal, cadmium, cobalt, copper, diamonds, gold, iron ore, lead, lithium, magnesite, minerals sands - ilmenite, rutile and zircon, nickel, petroleum products - crude oil, condensate, natural gas and LPG, platinum, rare earths, silver, tin, uranium and zinc. Data by mineral type is presented in the ASNA, Electronic Table 62. Value of Demonstrated Mineral and Energy Resources, by Commodity.
First, for each mineral type, the flows are estimated for each period. This approach involves estimating the value of net income as gross output (price multiplied by quantity extracted) less costs (including a normal return on produced capital) over a year. The difference is taken to be the equivalent of economic rent, as illustrated in Table 1. The real service flows for each mineral type are estimated using the quantity revaluation method. That is, for each mineral type, the quantity extracted over time is multiplied by price and cost held fixed in the reference year. The real service flows for each mineral type are then aggregated to a sum total.
It is commonplace in the literature to assume that the more accessible and higher grade non-renewable resources are extracted first, resulting in less accessible and lower grade mineral deposits that are more difficult and costly to extract in the future (Topp, et al (2008)). While it is desirable to capture the quality change in the real service flows over time, as data are not available, the ABS makes no adjustment. Therefore, it is likely that the quantity revaluation method will overstate real input growth and understate MFP, compared to methods that attempt to capture quality change.
Second, the returns to produced assets are estimated, and they include a reward to cover the cost of risk and uncertainty in exploration and development, and an overall long-term risk premium to cover price volatility and the general level of inflation.
Third, the returns to produced assets are deducted from the total economic rent estimated in the valuation model to obtain the return to non-produced assets. The latter represents the share of economic rent attributable to the resource only (and not returns on produced capital used to extract the resource).
A five-year lagged average was used for prices, costs and production to reduce the volatility in the results. While it is usual to use prices as at June 30, because of the long-term nature of extraction of mineral and energy resources, the ABS has taken the view that short-term price fluctuations are unlikely to affect the behaviour of mining companies to any significant extent.
Balance sheet values for each mineral type are estimated using the NPV approach. This involves calculating the expected future economic rent generated for each mineral type, and then discounting that value by an appropriate real discount rate over the expected mine life to obtain a value in today's dollars. In choosing a real discount rate, the ABS assumes that a company's decision to commit resources is significantly influenced by the cost of borrowing to the mining industry. A real rate of discount is appropriate because the future stream of income is expressed in current dollar terms, and the future income flow is calculated on the basis of current income and costs.