Thursday, March 22, 2012

"Has The Earth Ever Run Out of a Natural Resource?"

From Resource Investor:
A Monday Morning Musing from Mickey the Mercenary Geologist
“Has the Earth ever run out of a natural resource?” This intriguing question was posed to me nearly two years ago by producer Niall McGee of Canada’s Business News Network (BNN).

Many of you are aware that I am a frequent guest on BNN speaking about supply and demand fundamentals of commodities and evaluation of junior resource companies. At the time I was scheduled to be interviewed on a BNN show, and Niall was working on a special film project concerning natural resources, which unfortunately never made the airwaves. When he asked the question, I said, “Let me think about this and I’ll get back to you soon.” I had an idea but wanted to do some research before sticking my neck out.
The answer that immediately popped into my brain was this:

Throughout human-kind’s history on Earth, we have never exhausted the supply of any mineral or energy commodity, with one notable exception.

But before I make my case, let’s cover some historic background:

Beginning about 10,000 years ago, Modern Mankind evolved from nomadic hunter-gatherer societies into permanent settlements supplied by subsistence farming and made possible by domestication of animals and the use of metal tools.

Man initially exploited the highest grade, simplest to extract, and most easily processed of any given metallic commodity. Nine metals were known and mined during prehistoric times including iron, copper, zinc, silver, tin, gold, mercury, lead, and bismuth. As easily obtained metal supplies were depleted, civilizations have progressively mined lower grades, at greater depths, in more remote areas, and/or from minerals requiring more complex processing.

If there is an inherent demand for a particular commodity, humans have repeatedly discovered a way to supply that demand. Demand provides the incentive for new technological advances that lead to increased supply. To my knowledge we have never completely exhausted the supply of any metal, industrial mineral, agricultural mineral, energy mineral, or energy fluid. That is, with one exception.
But before we go there, a caveat must be added:

Niall’s question was about natural resources, and in that regard, I must restrict this discussion to non-living natural resources, i.e., mineral resources. My reasoning is simple:

Life has existed on the Earth for a minimum 3.5 billion of its 4.5 billion year old history. Very early life forms are documented in the fossil record by stromatolites, a product of blue-green algae. I say “minimum” because there are very few outcrops that are older than this age. Present knowledge of Earth history indicates that our planet’s surface was mostly covered by water by about 4.2 billion years ago. Employing the fundamental geological principle that “the present is key to the past”, where we find water we find life. Therefore, it seems likely that life has existed on the Earth for much longer than 3.5 billion years; we just do not have the rocks to prove it.

Stromatolites are rare today but still form in hypersaline lakes and marine lagoons. With infinitesimal  exceptions (e.g., the aforementioned blue-green algae, horseshoe crabs at 425 million years, lobe-finned fish at about 400 million years, and some 100 million year old primitive animals such as sharks and the ubiquitous cockroach), the Earth’s species have gone or will go extinct. Therefore, depletion and the ultimate demise of life forms is a natural phenomenon, and in only a very few recent instances have they been caused by activities of man.

With that qualifier, and as with all of Mickey the Mercenary Geologist’s many Rules of Thumb, there is at least one exception to the idea that mineral resources are inexhaustible. In this case the exception is indeed the first that came to mind: Guano.

Guano is the Spanish version of a Quechua Indian word meaning “dung.” The term originally referred to huge accumulated deposits of sea-going bird, and to a much lesser extent, bat, and seal droppings along the desert coastal islands of Peru. Guano was used for centuries by the coastal and Andean civilizations of Peru as fertilizer for crops. It was so valued as a fertilizer that the source islands were considered sacred by the Incas, mining was tightly controlled, and trespassers were condemned to death.

In 1804 explorer Alexander Von Humboldt, for whom the ocean current is named, returned to Europe from a voyage to western South America carrying samples of bird guano from these islands. This particular guano source was extraordinarily rich in mineral nutrients and it soon became a sought-after commodity by British farmers. By 1840, world-class guano deposits, mostly from the Chincha Islands near Pisco, were among the most valuable mineral resources in the world:

Chincha Islands, Peru: The Illustrated London News, 1863

We have an odd fascination with guano.
Let me rephrase that.
New York Guano
From our Nov. 2011 post:

 More than you ever wanted to know. First a partial re-post:

Equity Valuation and Forecasting Future Returns and a Gift for our Readers

A subject near and dear to my heart. I may be the only person I've ever met who read every page of The Cowles Commission's Common Stock Indexes 1871-1937.
[you must be a blast at parties -ed]
(links below)...

...That's Prof. Robert J. Schiller's Irrational Exuberance webpage. Here's his Yale homepage. When he took on Efficient Market Hypothesis back in the early '80's I decided I liked the guy. Publishing IE in March 2000 with the Nasdaq hitting 5048 (subsequent low 1114) pretty much convinced me. In addition to his professorships he's on the research staff of The Cowles Foundation for Research in Economics.
Mr. Cowles is quite explicit as to the reasons the Commission didn’t go further back than 1871. (pg. 4)
A big one is the paucity of publicly traded industrials.
My favorite tidbit is the listing, among the pre-1871 industrials, of New York Guano.
Some things never change.
Here’s Yale’s (and my) gift:
It links to a big ‘ol hog of a PDF.
See also:
Does Stock-Market Data Really Go Back 200 Years?
From Cabinet Magazine:
Islands and the Law: An Interview with Christina Duffy Burnett

...Christina Duffy Burnett is a professor of law at Columbia University, where she teaches legal history, immigration, citizenship, and the US Constitution. Much of her work deals with the legal problems that arise at the margins of empire. She spoke with Sina Najafi by phone in June of 2010.

This is a very general question, but let’s take a stab at it anyway: do islands matter in the law?
The best way to get at this may be to start with something quite specific. In the summer of 2003, I stumbled on a 969-page typescript treatise which is kept in the library of the US State Department. Flipping through this great leather-bound brick of onion-skin pages, I gradually absorbed that the whole massive volume had been put together in the 1930s by a lawyer working for the US Government who’d been given a killer assignment. Apparently somebody had walked over to the desk of this poor functionary, scribbling away in some basement office, and said something along the lines of: “You know, we have a bunch of islands in the Pacific and the Caribbean—little islands. How about you figure out what the deal is with all these places, legally speaking.” I was holding the result: The Sovereignty of Islands Claimed Under the Guano Act and of the Northwest Hawaiian Islands, Midway, and Wake.