Precious Metal Markets Are Safe From Asteroid Mining

Includes: GDX, GLD, PALL, PPLT
by: Stocks & Shares

Google (NASDAQ:GOOG) co-founder Larry Page, Google Chairman Eric Schmidt, filmmaker James Cameron, and other notable investors are backing a NEA (near earth asteroid) mining venture called Planetary Resources. Mining in space would involve launch robotic mining equipment and landing it on a small rock which is close to Earth or was lured into Earth orbit. The NEA would then be mined and mineral payloads would be sent back to Earth. The chairman and CEO of Planetary Resources, Eric Anderson, suggested that the most valuable resources from a near Earth object could be harvested in a 10-15 year timeframe.

I am not making this up.

Regardless of how captivating a space-faring mining venture might seem, asteroid mining is not likely to materially impact the supply of precious metals in the foreseeable future. NEA mining ventures are not prudent investments, and they are not meaningful threats to the value of precious metals or traditional, terrestrial mining.

NEA mining has been the subject of scientific interest for decades. Jeffrey Kargel of the US Geological Survey published estimates for recovery of platinum group metals from NEAs in 1994. The concept of a sample return mission from an NEA was proven by the Japan Aerospace Exploration Agency's Hayabusa mission, which successfully delivered 1,500 sample particles from asteroid 25143 Itokawa in 2010. So, technically such an endeavor is possible.

A technical proof of concept does not make such a mission scalable, investable, or a game-changer. The larger question is whether such missions would meaningfully impact precious metal markets in our lifetimes. There are many hurdles:

Extra-planetary mining at meaningful scales has never been done. The largest payloads returned to Earth by unmanned sample return missions have been between 200 grams and 170 grams. Since a Troy ounce is about 31 grams, the biggest payloads have been about 6 troy ounces of material each. Even if the NEA is composed entirely of precious metals - like a gold nugget in space - the return of 6 troy ounces of precious metals would be worth about $10,000. Currently platinum group metals are less valuable, and would be worth even less.

The NEA size and gravity might not match expectations at the launch of the mission. The sizes of NEAs are estimated based on how brightly they reflect sunlight, and are not exact. Selecting an asteroid of the right size is difficult, and the strategy of altering its trajectory or the mechanics of mining will critically depend on its size and gravitational pull.

The composition of the asteroid may not match expectations at launch. The asteroid's precious metal content may end up being below expectations. Today on Earth, miners often dig exploratory holes only to find that the composition is not sufficiently rich in precious metals to economically justify a mine. Miners have the benefit of geological data that is not available for tiny asteroids, most of which are little more than dim lights observed by telescope. Even with clues from surface rocks, information from nearby exploratory mines, and knowledge of the regional terrain and the geological implications they have on a prospect, many exploratory mines fail to prove the value of a site. Proving an NEA mine would likely prove more treacherous since most of the mining budget would be spend to send the mining or testing equipment to the NEA. Exploratory mining would be far more expensive in space than on Earth, and the commitment to mining a site is less flexible.

NEA mining would last many years, confounding investors. The Hayabusa mission itself lasted 7 years, and it's "mining" operation was little more than sweeping a sample of dust. Adding any mineral processing would likely add years to a mission's time frame. Drawing an NEA into Earth orbit is expected to have a 2-6 year timeframe. These are long periods for venture capitalists to wait.

Historically, unmanned sample return missions have had a high failure rate. Many space exploration missions often end in failure. Since much of the costs of a mission would be spent by launch, the real options for recovering costs are limited in such a venture.

Property rights and legal authority are not defined. Many governments and activist groups might not trust a company to lure a large asteroid near Earth. Fear of an impact event could potentially lead to legal barriers, sabotage, or terrorism against ventures which could increase impact risk.

A lack of legal rights might also cause problems for such a venture. Once a firm invests in pulling an NEA into orbit and proving its mineral composition, what would prevent rival companies from landing a rival venture on the other side of the NEA? Are there legal authorities over every nation on Earth capable of hosting a launch into Earth's orbit?

Earth to Planetary Resources

Scenarios where extra-terrestrial payloads expand the supply of platinum group metals are highly unlikely. Investors who are interested in playing the limited supply of noble metals or platinum group metals should instead consider mining companies or holding the physical commodity. Investors can buy shares in SPDR Gold Shares (NYSEARCA:GLD) to play any appreciation in physical gold. Exposure to platinum group metals can be obtained through shares of ETFS Physical Palladium Shares (NYSEARCA:PALL) or through the purchase of ETFS Physical Platinum Shares (NYSEARCA:PPLT).

These are holdings physical, refined, actual metals, and should not be confused with hypothetical, unrefined space dreams. A portfolio of actual gold mining companies with operations, production, and reported earnings can be created by buying shares of Market Vectors Gold Miners ETF (NYSEARCA:GDX). Each of these ETFs has an expense ratio under 1%.

For today's prudent investor, space is for dreaming, and the Earth is for mining.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.