Prices of mineral resources like all products are determined by the confrontation of demand and supply. Demand is governed by the utility of products used to satisfy consumer needs in quantity, quality and price. Supply is governed by the adaptation of producers to these needs. But the mining industry has specific features which are related to the nature of mineral resources.
Mineral resources are given by nature - geology - but they are unevenly distributed, geographically, by depth, by quality (grade of ore). Many sites of available resources have to be found, developed and exploited to make up the level of supply needed by consumers and markets. In England at the start of the industrial revolution in the early 19th century, coal was abundant ie. present in many places, as well as nearby iron-ore and limestone. This was one of many favorable factors that led to British hegemony in the 19th century. Resources of lead, tin and zinc were also exploited. But when demand grew worldwide, national resources were insufficient to meet demand. Today, mining comanies must have global asset baskets of projects to sustain their operations and existence.
The example of copper will illustrate the mechanisms of prices. To produce 16 million tonnes of copper annually for the world market8, a great number of mines are required. They all produce to meet market demand, but with differents costs. There are low cost high revenue mines and higher cost and lower revenue mines. The lowest revenue mine, that with highest cost contributes marginally to the total production, but that producer is required. So the price of copper adjusts to the marginal producer. When demand slackens due to slow growth or bear markets, marginal producers are not in a good position.
But here, comes again the strategy of minin companies with their global asset portefolio. Marginal copper producers also produce by products, like gold and silver.
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Put on line 17/11/2014 for Mines Ceseco 2015