Asteroid miners hunt for platinum, leave all common sense in glovebox

El Reg metals expert drills into sci-fi biz

The smart choice: opportunity from uncertainty

Analysis Isn't it exciting that Planetary Resources is going to jet off and mine the asteroids? This is every teenage sci-fi geek's dream, that everything we imbibed from Verne through Heinlein to Pournelle is going to come true!

But there's always someone, isn't there, someone like me, ready to spoil the party. The bit that I cannot get my head around is the economics of it: specifically, the economics of the mining itself.

In terms of the basic processing of what they want to do I can't see a problem at all, just as all those authors those years ago could see how it could be done.

Asteroids come in several flavours, and the two we're interested in here are the ice ones and the nickel iron ones. The icy rocks, with a few solar panels and that very bright 24/7 sunshine up there, can provide water. That's the first thing we need in abundance if we're going to get any number of people up off the planet for any appreciable amount of time. And we'd really rather not be sending the stuff up out of the Earth's gravity well for them.

It's also true that those nickel iron asteroids are likely to be rich in platinum-group metals (PGMs). They too can be refined with a bit of electricity, and they're sufficiently valuable (say, for platinum, $60m a tonne, just as a number to use among friends) that we might be able to finance everything we're trying to do by doing so.

All terribly exciting, all very space cadet, enough to bring tears to the eyes of anyone who ever learnt how to use a slide rule and, as the man said, once you're in orbit you're not halfway to the Moon, you're halfway to anywhere.

Except I'm not sure that the numbers quite stack up here. I'm sure that the engineering is possible, I'm certain that it's all worth doing and most certainly believe that we want to get up there and start playing around with other parts of the cosmos over and above Gaia. But, but…

Wrap your eyeballs around these fine figures

Start from the size of the platinum market. This is some 6.2 million ounces a year. 6.5 million ounces of virgin material, that is: given the value of the metal some to all of past usage is recycled as well. At our $2,000 an ounce price guide, that gives us a market value of some $13bn a year. That certainly seems large enough to keep a space programme running. (Do note, I'm ignoring palladium, a similar sized market, and rhodium etc, which are much smaller ones. They don't change the final conclusion by their inclusion or exclusion.)

Except that's not quite how markets work. There are demand curves as well as supply ones: sure, a nice high price will encourage new entrants like Planetary into the market. But in order to shift all this new material, prices will have to decline. The important question therefore is how elastic is the market? How far, if at all, will the price fall if a new supplier enters?

From a recent trade report we've seen recently, an extra 250,000 ounces has come onto the market. This has led to a 25 per cent fall in the price of platinum. Ah! Price is very sensitive to an increase in supply, then. Or, if you prefer, demand is very insensitive to a change in price. They're the same statement, really.

Now it's true that such sensitivities do not stay the same as you move up or down a supply or demand curve. As our little economics lesson for the day, think about the demand for water: if you're getting less than one litre a day you'll pay just about anything at all to get more. When you can have a swimming pool full just by turning on the tap then you'll not pay much for each marginal unit. And such demand curves can invert too: when that pool overflows into the basement you'll happily pay to have the water taken away, a negative demand for water.

But back to PGMs. We have something that we know the demand for, in the short term at least, is relatively insensitive to price. An increase in supply of as little as 250,000 ounces - seven metric tons - will drive the price down by a quarter. So instead of the $500m they were hoping for, our lads would only (yes, I know, “only”) get $375m. Can we run a space programme on that? The more platinum they try to bring down from space the lower the price gets, and so even more has to be brought down to finance the whole shebang.

Given this problem I thought I'd go and ask Planetary what they thought about it. And I got the answer I was hoping not to hear attributed to the organisation's co-founder Eric Anderson:

If it turns out that we are able to bring back many times of the PGMs that are now used annually here, then we can create a situation of abundance. In this case, if the metals become a 100 times cheaper, then perhaps there will be annual sales quantities will be a thousand larger therefore both the market size of PGMs and their value to society will have gone up by a factor of 10.

The utility of PGMs is diverse from medical devices to catalytic convertors to micro-processors, and more - platinum and other PGMs have fabulous electrical properties and would have many, many uses, if only abundant.

You asked if the markets are large enough to support the mining costs - yes, especially if we are able to bring back so much that the price goes from $1,500/ounce to $15/ounce.

Ah, no, really not what anyone in the mining finance industry wants to hear at all. In fact, I ran this argument past a buddy who evaluates mining companies for inclusion in the London Stock Exchange's AIM. After the coughing and splutters had subsided to mere giggles he said that there is no way at all that he would agree to finance on this basis.

The point being that, yes, of course we all know that at some point in time having lots of platinum around will mean that lots of people will use platinum. There will almost certainly be societal benefits from this happening too. But that's not how you finance a company, from societal benefits. You finance a company from that fraction of those societal benefits you can capture.

An economist would go further: our calculation above about prices was looking at the short-term elasticity of demand. The long-term one will be very different indeed. But while we all recall Keynes saying “in the long run we're all dead”, he also said “the market can stay irrational longer than you can stay liquid”. The demand for thousands of tonnes of platinum at $15 an ounce may well come about, but it may well also take 20 to 30 years to arrive. And I'm seriously unconvinced that anyone can finance a space project for that length of time from private pockets while awaiting the arrival of that demand.

To sum up… in fact, I wish these numbers would sum up

As an aside, I know a company trying to finance the production of 80 tonnes a year of a different metal. There's currently demand for about 10 tonnes globally per annum. We can all see a possible further 20 tonnes of demand if supply were available. But they need to produce 80 tonnes at current prices to make the sums add up. Having 50 tonnes a year of oversupply would make the 30 tonnes they could possibly sell worth spit. It's not really a surprise that they are desperately struggling to find finance.

So, as I say, I'm all in favour of the Planetary Resources adventure going ahead. Private enterprise in space, sure! Explore the asteroids, get people up there? You betcha. But I don't think their numbers work at all so I'm very glad they're doing it with their money, not yours nor mine.

I did have one further question for them as well. Space law seems to be under the auspices of the United Nations. We've therefore, obviously, ended up with the normal sort of 1960s peace'n'love hippy nonsense. Anyone's allowed to make commercial use of the place.

But there is no concept of private property. You may discover a nice nickel iron asteroid, but you don't own it. You can't own it, stake it nor claim it. Anyone else who can get there is able to come and mine it with you.

Let's say Planetary is able to get to an asteroid worth mining, despite all of the above, and manage to make out in one piece. But as soon as they've proved it's possible (why, says Mr Apple, “how nice to see you here Mr Samsung!”) then the plucky biz has no legal method of exclusion.

At which point we'll have several outfits shipping hundreds to thousands of tonnes of platinum back and that would really screw the economics of the project.

By the way, Anderson added:

We would welcome competition in the industry, and the legal structure will be evolving.

Guys, I wish you all the luck in this little blue marble of ours, but I do think this is best described as an adventure, not a business. ®

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