Monday, May 31, 2010

Mining isn't worth it

When the government first proposed digging up our national parks, they talked up the gains, with Gerry Brownlee throwing around figures like $140 billion and $194 billion in an effort to persuade us that if we allowed him to turn the Coromandel into one giant open pit, we'd all be rich (if only in the nominal sense of higher GDP, even though all the profits would be exported offshore). But two independent reports commissioned by Forest & Bird show that this isn't the case. Instead, they show that mining the conservation estate just isn't worth it.

The first report, on Valuing Mineral resources [PDF] shows that the government's numbers for the expected benefit are dubious. They've followed a mining consultant in taking the gross sales revenue (expected resource times current market price), without accounting for the costs of extraction, let alone remediation. The result is "large but economically meaningless". Instead,

The economic value of the nation’s mineral resources is measured correctly by taking the present value of the resource rents that could flow to New Zealand after all costs of mining, including the cost of capital, have been covered. The best estimate of this value, by Statistics New Zealand, is about $1 billion - less than 1% of the MED’s figure. This represents the price which the entire mineral estate would be expected to fetch on sale to the highest bidder.
The minerals under the areas the government wants to open up apparently account for 10% of this figure, or about $100 million. That works out to a one-off payment of less than $36 per voter, or less than $25 per New Zealander. So, the question is: if someone walked up to you on the street and offered you $25 in exchange for being allowed to utterly despoil the Coromandel, Great Barrier Island, and Paparoa National Park, would you say yes? Put like that, almost all Kiwis (apart from people like DPF, who would probably pay $25, and more if he got to watch) would say "no".

The second report, on Mining’s impact on Tourism [PDF] highlights the reliance of our tourism sector on our "100% Pure" brand, and its consequent vulnerability to large shocks to that brand. A decision by the government to dig up national parks, a prime tourist attraction, is such a shock - and its impact is estimated to be on the order of 1% of GDP - equal to the effects of a large recession, and about the same as the total contribution of all mining and quarrying to the New Zealand economy.

So, the government's proposal is that we dig up our national parks, for a one-off gain of $100 million for largely foreign mining interests, at the cost of a between $1.7 and $2.7 billion which will be felt throughout the New Zealand economy. If a business executive proposed this sort of "plan", they'd laughed out of a job. But apparently that's the sort of thing which "makes economic sense" to former woodwork teacher Gerry Brownlee.

Forest and Bird is right. Even if we ignore the environmental values, this just isn't worth it. Instead, it is 100% pure madness.