1. Resource Extraction, Wealth and
Discovery
Alan Gelb, Kai Kaiser, Lorena Vinuela
Center for Global Development and World Bank
Presentation to Tunis Workshop November 4
2011
ResWPDiscovery A 102111

2. Main Points
• Sub-soil assets are being discovered in Quantity
• Exploration is only part-responsible but critical
• Discovery boosts nations’ wealth above a normal
return to exploration investment
• Countries should encourage exploration while
taxing extraction efficiently
• Providing Geo-Science information seems to be an
efficient way to encourage exploration
– But the evidence needs to be strengthened

3. Sub-Soil Assets are Being Discovered
Imputed Discovery = Extraction +Net Reserve Change
Oil production in SSA has risen to 7 billion bbl, but
imputed discovery has averaged 18 bbl since mid 1990s
Globally, rent value of oil discovered in 2000-2008 = $38 trillion (current prices)

4. Reserves are Growing for Most
Minerals
Copper Proven Reserves
Million tons
600
400
• Copper reserves have grown since the
200 1930s, even as output is continuing to
0
increase.
1930 1935 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
• Imputed discovery for copper over 2000 -
Australia
Indonesia
Canada
Mexico
Chile
Papua New Guinea
China
Peru
Cyprus
Philippines
2008 was 70% of reserves in 2000
Poland South Africa Turkey United States Russia
Kazakstan Zaire/Congo Zambia Other
• For most minerals, imputed Copper Cumulative Production
600,000
discovery over 2000-2008
Thousand tons
averages 40% of 2000 reserves 500,000
• Oil 40%; Cobalt 17%, 400,000
Phosphate 67%, Iron 23% 300,000
• Some reserves have declined
200,000
but this can be due to political
100,000
decisions to declassify reserves
(coal) rather than exhaustion 0
1900 1905 1910 1915 1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

5. Discovery: Extensive and Intensive
• Extensive – new finds. Intensive: improvements in existing
operations (better recovery rates, knowledge, technology)
• Without some prior extensive discovery intensive discovery cannot
take place (you have to play to win)
• Technology is opening options and driving down costs even as
depletion of easy deposits raises costs. It is not clear how this will
play out in future
• There is still a lot to discover. Known reserves per sq.km. in low-
income countries are only about a quarter of those in rich countries
• For some countries, resource discoveries in one year can exceed
GDP (Venezuela).
• Many countries have reserves larger than are now proven. Their
resource industries are far more sustainable than they seem
– Example: oil and gas in the Americas

6. Discovery is Valuable
• Hard minerals: value of imputed discovery (at current
rents) about 17 times exploration costs
• Hydrocarbons: no comparable data but partial
information suggests a similar ratio
– Other valuation methods will reduce ratio but still high
• Why is exploration not pushed to the point where
marginal cost = marginal benefit?
– Earnings are in the future; private sector discounts risk
heavily relative to social discount rate
– Rent taxation reduces upside gains especially at cycle peaks
– Option value of waiting for technology to lower costs
• Argument for favorable treatment of discovery,
especially if have efficient minerals rent tax system

7. Many Countries Do Encourage
Exploration
• Canada: METR exploration/development - 31%
Less negative than for normal R&D -51%
• Australia: high carry-forward rates, etc
• Geo-Scientific data has the longest lead-time to
production – especially disadvantaged
• Also disadvantaged if force concessions to turn
over to induce competition for discovery
– Competition may also be the only way to reveal
resource value for taxation
• Options: tax breaks + extended non-competitive
concessions (patents) or public data + competition

8. Is Providing Geo-Scientific Information
a Good Investment?
• Not enough is known but some interesting
fragments reported:
• Australia: $1 data spending => $ 5 - 15 private
investment
• Canada: $1 data spending =+ $5 private
investment and $125 reserves
• Developing countries (Reedman): cases show
high investment response.
• More rigorous data is needed, including from
World Bank projects ($130 million over last
decade)

9. Conclusion
• Mining is not just about exhausting reserves.
Discovery has been very important.
• Discovery has positive wealth effect over and
above normal exploration returns
• Countries should aim for favorable incentives
for competitive exploration plus efficient rent
taxation
• Public provision of Geo-Scientific data is one
way to reconcile incentives and competition.