Well Sorta Like

A small point:

The explanation lies in a deal struck in 2005 whereby Mr Mugabe handed over to China his country\’s mineral rights, including the world\’s second largest reserves of platinum, worth £250 billion.

It\’s sorta right and sorta very wrong indeed.

To get to something like that figure you have to use the gross value of all the metal if it were mined…..but then apply that valuation to the metal as it lies still in hte ground.

There are a couple of comparisons to this method of valuation. One is the police when they intercept some drugs. They always take a high end valuation of street prices (say, £50 a gramme or whatever) and then multiply that up to tonnage weights. Even when the stuff they\’ve caught is actually on a boat in the Caribbean, not in eighths in Bermondsey. They\’re ignoring the point that drugs change in value dependent upon location (most especially which side of a border they are….which is really rather why people smuggle them) and all the other things, packaging, quantity etc.

The second is the way in which firms wail about the cost of counterfeiting. The biggest whiners are the software industry….$squiddley billions are lost each year by Chinese copies and so on. They value each copied licence at full retail. When it\’s blindingly obvious that not everyone who has a 50 cents knock off would be willing to pay $400 for a legitimate copy. At least, if the economists are correct about demand curves sloping downwards they\’re not (umm, while we might indeed regard Microsoft software as an inferior good, we wouldn\’t regard it as a Giffen Good).

This valuation of the metals resources above is wrong in the same way. The impression given is that there\’s £250 billion in profit to be had…..which really ain\’t the case. That\’s the value being assigned to the total possible production, when produced….without subtracting the costs of doing the producing.

Think of it this way….I\’ll bet you that the tin in Cornwall is worth $5 billion. So why is no bugger mining it? Because it\’ll cost more than $5 billion to get it out of the rock.

Perhaps when this blogs\’ mining engineer correspondent returns he\’d like to elucidate further?

It\’s not that the £250 billion figure is wrong so much as it\’s terribly, terribly misleading.

3 thoughts on “Well Sorta Like”

  1. The second is the way in which firms wail about the cost of counterfeiting. The biggest whiners are the software industry….$squiddley billions are lost each year by Chinese copies and so on.

    Like the way the film studios claim that video piracy “costs” the film industry x-billions per year, by multiplying the number of knock-offs by the HMV retail price and assuming the resulting value is snatched from their top line.

  2. The minions are still trying to reconstruct how Mr Booker arrived at his 250 billion squids number; it’s rather difficult without knowing from where he derived the figure. But it does appear that Mr Booker has fallen into the familiar trap of confusing resources and reserves (see here for my famous explanation of the difference).

    It also appears that he’s then compounded the error by applying the current (high) spot price for platinum to in situ metal without taking cognisance of recoveries, costs etc.

    I’ve left a note in the comments to his article asking for an explanation as to how he came to the 250 billion number, but I have to say I suspect the co-author of Scared to Death has made the same mistake for which he’s excoriated others for making.

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