Analysis of the Price Dynamics, Prime Cost and Disproportions in the Subsurface Use

Abstract

In this article the results of researches of the authors according to the state of the mineral and raw complex of Russia are considered. According to the analysis of different data (standard, statistical and expert evaluations and also the other researches, scientific conferences and production reports, etc.) the authors come to a conclusion about a certain imbalance between the pricing and cost in the mineral and raw sector of economy. Some market mechanisms, such as the stock market, pricing on metals, various principles of pricing on mineral resources and also the cost of works and services when forming the cost of production influence on it. Difference in the price policy leads to the loss of reserves of minerals and strengthens the mineral resources exhaustion. On the basis of the logic-structural and complex analysis the authors come to a conclusion that for the mining industry there is important solution of a question of efficiency of use of the resource potential, and the models of management decisions on effective use of the resources actually remain not investigated. Methods of assessment of a ratio of different factors and their influence on the models of management decisions and the elements of organizational and economic mechanism of management are insufficiently developed.

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Analysis of the Price Dynamics, Prime Cost and Disproportions in the
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International science and technology conference "FarEastCon-2019"
IOP Conf. Series: Materials Science and Engineering 753 (2020) 082001
IOP Publishing
doi:10.1088/1757-899X/753/8/082001
1
Analysis of the Price Dynamics, Prime Cost and
Disproportions in the Subsurface Use
I Zhukova1, A Zubarev2
1Far Eastern Institute of Management, Branch of Russian Presidential Academy of
National Economy and Public Administration, 33, M – Amursky str., 680000
Khabarovsk, Russia
2Pacific National University, 136, Tihookeanskaya str., 680035 Khabarovsk, Russia
E-mail: i-6041@yandex.ru, azubarev@pnu.edu.ru
Abstract. In this article the results of researches of the authors according to the state of the
mineral and raw complex of Russia are considered. According to the analysis of different data
(standard, statistical and expert evaluations and also the other researches, scientific conferences
and production reports, etc.) the authors come to a conclusion about a certain imbalance
between the pricing and cost in the mineral and raw sector of economy. Some market
mechanisms, such as the stock market, pricing on metals, various principles of pricing on
mineral resources and also the cost of works and services when forming the cost of production
influence on it. Difference in the price policy leads to the loss of reserves of minerals and
strengthens the mineral resources exhaustion. On the basis of the logic-structural and complex
analysis the authors come to a conclusion that for the mining industry there is important
solution of a question of efficiency of use of the resource potential, and the models of
management decisions on effective use of the resources actually remain not investigated.
Methods of assessment of a ratio of different factors and their influence on the models of
management decisions and the elements of organizational and economic mechanism of
management are insufficiently developed.
1. Introduction
1.1. Relevance of research
For the economic relationship in the mining industry characteristic is participation of the state in
management. It is connected with the fact that subsoil in Russia and in the most foreign states is the
state ownership. Mineral and raw potential causes efficiency of functioning of the other industries and
the level of development of the social sphere that demonstrates the value of mining industry in the
world and national economies.
Finding of mineral raw material resources in the state ownership (except for the popular minerals)
allows consider them the national property, or the mineral source of raw materials of economy. Owing
to such high status they need the special relation directed to careful attitude, protection against the
inappropriate use.
The relevance of research is determined that for a long time in Russia the main condition of
effective use of subsoil isn't implemented. The condition is that timely consecutive studying of subsoil
according to the staging of works isn't carried out. Timely and high-quality geological studying is a

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duty of the owner, i.e. the authorized public authority. The timeliness is determined by existence on
the state balance of explored reserves of mineral in the quantities providing the industry for the term of
the period of optimum reproduction.
In the sphere of circulation of mineral raw materials there was a discrepancy of economic
mechanisms of production of raw materials and the subjective principles of pricing [1, 2]. Rare
researchers spoke about a danger of unbalanced pricing in the subsurface use 20 years ago [3].
However today we observe discrepancy among themselves of the price of mineral and raw products
and discrepancy of price characteristics of the cost of production. Such imbalance is a result of the
non-use of classical technologies of economic calculations in mining and dependence on the market
mechanisms. An example of such dependence is distribution of the prices according to transactions at
the exchanges on the production sphere. It is difficult to present such economic circumstances, which
would influence the change in price of the mineral raw materials several times a day as it occurs at the
exchange. Especially as the price of mineral is important at its studying - deposits, definition of the
qualitative characteristics, development of technology of production, enrichment [4].
1.2. The degree of the problem investigation
Many research teams, including under the leadership of A.I. Vladimirov, E.A. Kozlowskiy, A.E.
Kontorovich, R.M. Ter-Sarkisov were engaged in the research of modern problems of development of
the mineral and raw complex of the country, economic assessment and the forecast of development of
mineral resources of the mining industry.
Problems of reproduction of mineral resources are considered in S.K. Bezhanov, E.A. Kozlowskiy,
E.S. Melekhin, V.V. Ovchinnikov, N.F. Reymers, P.V. Sadovnik's works and others.
Debatable are the questions of use of the innovative instruments in the management sphere in the
mining industry allowing carry out the assessment of mineral resources of the country. Besides, for the
mining industry there is important solution of the question of efficiency of use of the resource
potential, and the models of management decisions on the effective use of resources actually remain
not investigated. Methods of assessment of the ratio of different factors and their influence on the
models of management decisions as the problems of scientific research are rather new to the economy
of mineral raw materials. Possibility of application of these or those methods of cost and geological
and economic assessment of mineral deposits is the most often investigated. But for a long time, the
need for strategic management of the economic systems of higher order – the regional economies,
industries, industrial complexes, proceeding from the conditions to managements of these systems
came. Development of methodology of the complex assessment of mineral resources including both
the cost assessment, and geological assessment is for this purpose necessary.
1.3. Novelty of research and practical significance
It is proved that at implementation of analysis of the state of information provision in the system of
public administration by the mining industry existence of the separated, not standardized information
systems covering only the certain levels of management, or a limited set of management processes is
insufficient for creation of the full-fledged control system. As a result of revealed weak interrelations
and interdependence of different sections of control system the mineral resources are de-balanced.
During the analysis need of its revaluation, need of formulation of new tasks for MR in the changed
situation, search of the adequate methods of their decision and a search of new instruments of
management of the process of subsurface use and reproduction is revealed and proved.
Correctly certain instruments in the management which are most integrated in the operated
(operating) object (mining industry) allow not only develop the optimum innovative model of
management, but also to offer the new elements of the mechanism of integration of the industry into
this or that economic system.
The practical importance of work consists in development of the basic methodological provisions
of the concept of integrated information technological platform in the control system of mining
industry.

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2. Goals
Research objective is identification of the reasons of an imbalance in the pricing of products of the
mineral and raw sector of economy. The solution of such problems is relevant as well because we
observe incompleteness of institutional researches in the sphere of subsurface use.
3. Research methodology
In the article some actions which need to be undertaken for elimination of negative impact of a
problem of pricing in the subsurface use and cost characteristics of mineral raw materials are offered.
Actions are determined on the basis of correlation and regression analysis, the logic-structural analysis
of data and the complex analysis of a task. Systematic monitoring gives to the authors necessary data
for expeditious entering of amendments into the research.
4. Problem analysis
Mineral raw materials have the unique properties – a part of properties has positive character, and a
part of properties of mineral requires systematic attention – as the positive nature of properties in the
absence of attention from the state can change on the negative.
Positive properties of mineral raw materials are connected with extraction of the income at the
expense of subsoil. Transformation of mineral raw materials into the commodity product submits the
rather simple procedure (only - extraction from subsoil and in some cases - enrichment). However, this
commodity product forms a considerable part of the budget of Russia.
And here such characteristics as exhaustibility and non-renderability of mineral raw materials level
the properties of positive character. It is unambiguously known that mineral raw materials will reach a
limit, but it is definitely not known when. But incompleteness of extraction from subsoil, losses at
production and processing (including due to the reduction of price) accelerate this process. The order
of figures gives in to forecasting. Evaluation of possible exhaustion of resources are known by each
type of mineral raw materials across Russia and in general on the world. The Audit Chamber was
interested in provision with the explored reserves [5, 6]. According to the Audit Chamber for 2012,
from 150 considered types of solid minerals only by 60 types since 2008 provision increased or
remained invariable, but production was compensated by a gain only by 19 types, and by 44 types
decrease in production is observed. Provision with the explored reserves of oil in Russia - 23 years, at
the world provision of 45 years (generally at the expense of the OPEC countries which are provided
with the stocks for 85 years). For oil production the world problem is the oil recovery coefficient
(ORC), for example, for Russia actually not exceeding 30-35% (about 70% of oil dissipate in subsoil
in the course of oil production). For example, the oil recovery coefficient (ORC) on the Russian Arctic
Prirazlomnoye field that on the shelf of the Pechersk sea, makes about 26% while on the similar
Norwegian fields this indicator reaches 50%, and sometimes more than 60%. According to the Lukoil
Oil Company, the industry average CEO in Russia doesn't exceed 25%, CEO on the fields with high
degree of clarity in Norway and the USA is in range of 40-50% [7]
Conclusions of different researchers on exhaustion of mineral raw materials in time on the basis of
information from various sources are presented in the table 1 [5, 8, 9, 10].

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Table 1. Exhaustion of mineral resources over time.
Mineral
resource
The share
of the
distributed
Fund
subsoils',
V %
Year of
depletion of
profitable
operating
reserves,
2009
Year of
depletion of
profitable
operating
reserves, 2006
*
The year
of
exhaustion
of
profitable
exploited
stocks,
2014.
(calculatio
n)
Manganese ore
9
2013
2013
2058
Coal
12
2025*
2025*
2130
Molybdenum
52
2018
2018
2093
Tin
27
2017
2017
2026
Uranium
27
2017
2017
2077
Zinc
32
2014
2014
2048
Phosphate salts
35
2025*
2025*
No data
Sodium salt
40
2025*
2025*
No data
Potassium salt
44
2025*
2025*
2130
Bauxites
50
2025*
2025*
2093
Manganese ore
55
2018
2018
2048
Iron ore
58
2025*
2025*
No data
Lead
60
2013
2013
2034
Copper
62
2018
2018
2048
Alluvial gold
65
2014
2014
2039
Gold indigenous
72
2017
2017
2070
Platinoids
74
2020
2020
2055
Gas
83
2025*
2025*
2115
Magnesite
88
2018
2018
No data
Nickel
92
2018
2018
2037
Oil
92
2022
2022
2060
Graphite
92
2020
2020
No data
Diamonds
95
2015
2015
2035
Chrome ore
100
2015
2015
2064
* Year of completion of the long-Term state program for the study of subsoil and reproduction of
mineral resources, approved by the order of the Ministry of natural resources of Russia 2006/05/15
№112.
Analyzing the table, it is easy to notice that a year of exhaustion of the profitable operated stocks
on a number of minerals passed long ago, but the stocks didn't end. For example, tin, uranium,
manganese, lead. It is connected with the fact that now a considerable part of explored reserves of
main types of minerals is already distributed under the license agreements. However, in operation
there is only a part (by some types of the raw materials - not really big) the distributed fund of subsoil,
and on tin, for example, production actually isn't carried out more than 10 years. Taking into account
the available data on the actual production and alleged consumption data on the time of exhaustion of
the profitable operated stocks were adjusted.
However, the data on a condition of MR which are available today are separated. Information on
consumption, production, stocks [11, 12, 13] is reflected in the state reports submitted to MNR not
completely, information isn't structured and by years doesn't coincide. And this information on
reproduction of SME not of stocks, and, most often, expected resources. Especially this difference in

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IOP Conf. Series: Materials Science and Engineering 753 (2020) 082001
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assessment of a condition of MNR of Russia is noticeable if to bring together information from the
sources of the ministries and departments (MNR, the Audit Chamber) and also information which is
available in the territorial departments of the ministry of natural resources of Russia, information of
the independent experts. Such assessment is given in the table 2 for one of the federal districts of
Russia – the Far-Eastern federal district [14].
Table 2. Expert assessments of the state of mineral resources potential of the Far Eastern Federal
district.
Kind of
mineral
Share in
Russia's
proven
reserves, %
Share in forecast
resources of the
Russian Federation,
%
Inventory
security, years
Gold
33,
More than 8,5
Up to 25 (ore);
1,5–5 (placer)
Platinum
Around 0,5
Р1 – 2%, Р2 – 5%
Up to 5 (ore Pt)
Up to 5 (placer Pt)
Around 20
-
-
Platinoids
More than 30
More than 80
Up to 35
Silver
24,0
-
-
Rare earth
element
Around 81
More than 40
1,5–30
Diamonds
0,8
Р2 – More than 14%
-
Copper
Around 92
100
Around 35
Tin
Around 23
Around 60
5–10
Tungsten
8,3
27,4
Not more than 15
Lead
3,7
15,9
Not more than 15
Zinc
4,3
-
-
Manganese
7,9
-
-
Iron ore
Around 11
1,5–150
Coal
Around 3,0
-
-
Oil
2,8
-
-
Natural gas
-
-
More than 200
Bohr
51,4
-
11–30
Fluorspar
Around 50
-
10–18
Antimony
-
-
40–50
Brucite
Around 11
-
-
Comparing indicators of the tables 1 and 2 it is possible to see divergences both on the expected
stocks, and on the time of exhaustion of stocks in the operated fields. It is possible to draw the only
conclusion - there is no uniform information base actually in Russia today. And the situation with the
unity of information base about subsoil is aggravated as the last time results of monitoring about the
complex assessment of the state of MR by the Ministry of natural resources of Russia are presented in
2006 [10].
One more feature of the mineral raw materials is that depending on its price, there is its quantity,
possible for extraction: at the fix price on subsoil it is possible to mark out a certain quantity at the
corresponding quality, and by reduction of the price there are the off-balance stocks remaining in
subsoil and the quantity of the economically profitable for production stocks decreases. Understanding
of this circumstance induces the owner of subsoil, i.e. the states, to hold the price invariable, or even to
increase it to stimulate completeness of extraction from subsoil. In table 3 the average prices on some
metals widespread in Russia, first of all - are given in the Far East of Russia [15, 16].

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Table 3. Average metal prices during the period 2008-2018.
Change
metal prices by
year, USD
Gold,
for 1 g
Copper,
over 1
ton
Tin,
for 1 ton
Lead,
for 1
ton
Zinc,
for 1 t
2008
28.6
7309
19713
2372
2104
2009
31.27
5150
13562
1719
1655
2010
39.38
7130
22156
2268
2208
2011
50.53
7365
32654
1815
2200
2012
53.66
9861
23698
2010
2100
2013
45.37
8321
22654
2005
1950
2014
40.72
6998
23754
2014
2144
2015
36,83
5731
10100
1688
1932
2016
37,30
4761
17638
1819
2102
2017
39,90
5975
19990
2309
2815
2018
40,78
6481
19941
2295
2877
In the table 4 the cost characteristics of production of one of the most popular metals in the planet -
gold with other production expenses are given for comparison [17, 18, 19].
Table 4. Mining cost of gold including operational expenses.
The cost of production
of gold (USD for 1
gram)
2008
2010
2013
2015
2017
2018
The cost of production
(Russia, Khabarovsk kr.)
21,9
29,46
34,65
34,13
35,50
26,78
Cost of production
(Australia)
11
19,24
32,73
30,64
31,87
33,20
The cost of production
(South Africa)
16
23,29
35,69
34,15
34,92
34,06
The picture presented in the table 3 doesn't reflect any objective economic processes. It is the
sphere of business activity at which implementation interests of MR aren't considered in any way. The
mining enterprises make those mineral and raw products, the price for which is formed not taking into
account the cost of production, and at the exchanges and therefore the process of pricing infringes on
their interests. But the authors pay attention to the other party: all this time the mining enterprises
worked on the standards based on the lower price of metals (exchange is 2-5 times lower) [20, 21]. It
means, in subsoil the standard at the ore prices specified in the table are left. Material inputs of the
process of production are criterion of reference of the reserves of mineral raw materials to the
profitable. If the cost of production is higher than the cost of mineral raw materials, the stocks aren't
profitable for production. In the table 4 it is possible to see – the cost of gold mining with the other
production expenses (transport, tax and so forth) grows. In the table 3 – the gold price formed at the
exchange by speculative transactions – falls.
At the expense of difference of the established price of metal and the price put in the project of the
mountain enterprise (in standard) we have a loss of ore in subsoil.
But assessment of the mineral raw materials which are available in subsoil is extremely
contradictory.
There is the most capacious information. The cost of the explored and previously evaluated stocks
of Russia is about 29 trillion dollars with the prospect to remain at this level for decades. The main
value is made by the hydrocarbon raw materials (gas, oil and condensate, coals), making together

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more than 70% (and it is about 20 trillion dollars), ferrous metals (about 7%), the non-ferrous and rare
metals follow further (also about 7%), precious metals and diamonds (about 1%), about 15% falls on
the other types of important ore and nonmetallic minerals. Figures are great, but they are presented to
us underestimated. In 2013 a number of researchers noted a negative tendency of currency revenue to
the growth, specifying that in an annual gross product the mineral raw materials make about 38% of
cost and about 80% of the export revenue [22].
There are different approaches to evaluation of the actual specific weight of mining activity. The
authors are imposed by the approaches considering formation of industrial complexes both the mining
enterprises providing the activity and using their products to a large extent. According to the financial
statements it is possible to evaluate integrated influence of the mineral raw complex on the gross
product of 70-80%.
According to the Ministry of natural resources, the cost of reserves of oil and gas in Russia exceeds
to the few 50 trillion rubles, and the cost of gold and diamonds reaches 1 trillion rubles. Such data
contain the documents of MNR of Russia which for the first time evaluated in the value terms the
reserves of minerals in the country [23]. Assessment is made as of the end of 2017 and has to be
updated annually. MNR evaluated the total value of all mineral and energy resources in subsoil of
Russia, including oil and gas, gold and diamonds, copper, iron ore, steam and brown coal at 55.2
trillion rubles.
In 2017 it made 60% of GDP of Russia. Oil reserves in Russia are evaluated in 39.6 trillion rubles.
The cost of reserves of gas was 11.3 trillion rubles. Reserves of diamonds are evaluated in 505 billion
rubles, and gold — in 480 billion rubles. According to MNR, reserves of the coked coal are evaluated
almost in 2 trillion rubles, and iron ore — in 808 billion rubles. The stocks were evaluated on the
official statistical methodology of assessment of reserves of minerals, approved in September, 2017 in
natural and cost measurements [24]. The stocks in a section of subsoil plots on which licenses for the
use of natural resources were granted and on which "there are an engineering design approved in
accordance with the established procedure and the other project documentation on performance of
work" were evaluated on it. It means that the reserves of minerals evaluated by MNR there are less
than the total volume of explored reserves. The ministry estimated the general reserves of oil for the
end of 2017 at 9.04 billion t, gas — at 14.47 trillion cube m, gold — at 1407 t, diamonds — at 375
million metric carats (how to compare rubles and tons?).
We see the difference between evaluation of the Audit Chamber and of the ministry of natural
resources of Russia. Meanwhile, there are also the other evaluations of mineral resources of Russia.
For example, the proved oil reserves in Russia for the end of 2017 made, according to BP (Bee-Pi, till
May, 2001 British Petroleum — the multinational oil and gas company with the headquarters in
London), 14.5 billion t, natural gas — 35 trillion cube m. According to the United States Geological
Survey, the proved gold reserves in subsoil of Russia for the end of 2017 equaled 5500 t [25].
5. The Results of the study
5.1. Reason of different assessment of mineral raw materials
The problem of different assessment consists in distinction of the principles of pricing for the mineral
raw materials which is established at the exchange, and the cost of goods, works and services which
the mining enterprises use by production of a commodity product. The costs are determined randomly
by an example of natural monopolies (more precisely after them - power engineering specialists,
transport workers). In this case there are in subsoil "unprofitable" stocks because of higher growth
rates of cost of works and services in comparison with the price of metals.
We will consider the influence of two market mechanisms on the state of mineral resources:
1) determination of the price of mineral raw materials at the exchange,
2) ratio of growth rates of the prices of mineral raw materials and the cost of goods, works and
services.

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It is necessary to prove minimization or a complete elimination of their influence on the mineral
resources. It is possible as follows:
a) it is necessary to fix on the basis of detailed geological and economic calculations the cost of
mineral raw materials for the terms comparable to duration of a cycle of reproduction of mineral
resources (about 10-15 years).
b) to fix for this term the rate of national currency on the level of provision with the liquid mineral
raw materials.
The authors realize possible difficulties in realization of similar intentions, but at the same time are
convinced of need of their fastest and inevitable permission.
5.2. Resources of growth of profitability from use of a mineral and raw complex
The basis of MR which structure includes the mining industry by the mineral deposits, which are in
subsoil of Russia including those which aren't opened yet, and are assumed. Now in Russia the
property rights to the resources involved in the mining industry are distributed as follows:
1) the natural resources (subsoil and minerals in them) – property of the state;
2) the capital (investment into the search, investigation, production) – the property of mining
operators (subsoil users);
3) the labor (extraction of minerals from subsoil) – the property of hired workers.
To make products (to carry out production), it is necessary to unite all three resources in the course
of production. The motive which moves participants of such association - maximizing the net income.
Here it must be kept in mind that we don't evaluate the cost of minerals. This motive is defined as
follows:
- for the state – difference between the receipts in the budget from the mining industry and the
costs of search, protection and metering of the mineral raw materials (in the presence of such
expenses);
- for the mining operators - subsoil users – difference between the sales proceeds of got and the
costs of mining;
- for hired workers – difference between the salary (including privileges) and the costs of
maintenance of the existence.
Benefits for the state are defined here as follows. The state receives taxes from the economic
activity in the mining industry and payments regarding the use of natural resources. The less expenses
has the state for performance of the functions at the same time, the more the state receives the income.
For businessmen in the mining industry benefits are connected directly with the production process.
The less investments are in production and implementation of new technologies of production, the
income is more. Thus, the less expenses connected with extraction of the useful component from
subsoil the profit at the mining operator - the subsoil user is more.
For the hired workers benefits in a size of salary, compensation of a number of expenses connected
with the costs of the existence, a large number of social guarantees. At last, the specifics of production
allow get the corresponding professional education and skills at the expense of the enterprise.
It is necessary to notice that each of owners of the resource incurs charges of this resource.
Therefore, the income of each owner has to cover his cost from participation in the production process
– for ensuring simple reproduction, or to exceed them – for the expanded reproduction. Comparison of
the income and expenses of each participant of the process of production, including and the owner,
allows determine profitability of use of mineral resources in production.
6. Conclusions
By the results of research it is possible to draw the following conclusions.
1. Extremely negative impact has the process of distribution of operations on the stock exchange
directly on the mining production. Free pricing for works and services isn't connected neither with the
exchange processes, nor with the so-called inflation. Such pricing has the negative effect on economic
relations of production and actually destroys them.

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2. The economic system of production in the mineral and raw sector is dis-adjusted, there is no
firm, reference indicator. The capital is created and formed not in the sphere of production, but in the
sphere of distribution. MR doesn't make personal growth, and is in search of the investors.
3. For elimination of imbalance the pricing not only has to be regulated, but also has to be the
subject to the strict state control. Continuous state regulation has to be realized both in the sphere of
creation of commodity product, and in the economy services industry.
4. The main minerals in the region are in the distributed fund of subsoil. Reduction of mineral
resources of the country is a direct consequence of decrease in financing of the exploration works. In
the mining industry there is a gradual replacement of the fields leaving operation put by the rich ores,
large, and often huge fields of the poor ores.
As the mineral raw materials are not filled and not renewing the natural resource, it will reach the
limit sooner or later. Therefore it is necessary to carry out monitoring of the state of MR. The lack of
monitoring influences national security of the state.
7. References
[1] Bakulin Yu I, Zhukova I V 2009 The objective regularities of development Introduction to the
problem Publishing house of the Pacific National University (Khabarovsk)
[2] On the state geological study of subsoil and reproduction of mineral resource base (to the
government hour in the framework of the 355-th meeting of the Council of Federation of the
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International science and technology conference "FarEastCon-2019"
IOP Conf. Series: Materials Science and Engineering 753 (2020) 082001
IOP Publishing
doi:10.1088/1757-899X/753/8/082001
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