Asteroid Mining: Back To Earth

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

This is my final article on NEA (near-earth asteroid) mining, which will investigate the economic assumptions that would undermine such a venture. My first article on the subject catalogued the broad list of problems facing the NEA mining business concept. My second article on the subject informed readers that we do not know the volumes of most NEAs or their compositions with any certainty. This article will sketch out the recovery of NEA mineral payloads delivered to Earth and provide a simple model for conceiving the economic value of such a venture.

Asteroid Mining for Dummies

Here is the simplest plan I can conceive of for NEA mining. (If you wish to patent this, message me. Bear in mind you would pay for the filing fee on such a patent as I would view this as a waste of money.) First, a probe with the ability to test the mineral composition of an NEA would be launched to encounter the NEA. If the mineral content warrants mining, the probe would lure the NEA would be into geosynchronous orbit above a huge, spent strip mine. The cost of shepherding an NEA into orbit has been estimated at $2.6 billion.

Ideally, the mineral contents of the NEA would match the residual mineralization of the depleted mine since materials form the NEA will be used to enhance the mine's composition. There might be some selection for compatible, enormous mines.

Mining robots in geosynchronous orbit above the mine site would then land on the NEA. Since mining and smelting equipment is expensive, it would be best to deliver raw payload to earth using simple, relatively light robots. These robots would resemble catapults more than Caterpillar mining equipment. They need to be powerful enough to bust up the NEA into chunks and then gently fling them toward Earth. The physics of this is tricky because of Newton's Third Law of Motion. Flinging rocks at the Earth will push the NEA further from the Earth. Because of this, there will need to be a few robots working to fling asteroid chunks with promising mineral features toward the Earth while other robots fling mineral-poor chunks away from the Earth. The need for multiple robots is clear even in movement across the surface of the NEA, which could cause it to spin unless it is offset by the force generated by the movement of another robot. (Throwing small clumps of material that have little precious metal content may also be used to help guide the asteroid into geosynchronous orbit in the first place.)

Earth's largest mining sites are often big and remote enough to absorb the impact of small meteorites without negatively impacting neighboring areas. Aeronautical authorities would need to be contacted to warn them when payloads were being dropped on the pit. Drops would take place during mild weather and only after mining personnel and equipment had been sequestered. Onlookers might want to know to so that they could see the meteor showers from many, many miles away.

In a sense, the mining pit would be like a hybrid firing range/strip mine. Again, these applications are consistent with the size and locations of many large strip mines. Asteroid chunks would have to be small enough so that their impact would not be devastating, but large enough so that much of their composition is deposited over a small area. Once tons of materials were deposited in the mine they could be processed using existing mining infrastructure that was developed for the original, earthly resources of the mine.

Though this process is much simpler than a refining operation in space, it is still wrought with problems. What fraction of rocks hurled to earth will burn up? How precisely can the trajectory be controlled? What are the environmental ramifications of dramatically increasing meteorite impacts on Earth?

From Space Excitement to Boring Royalty Trusts

The economic value of such activities would be derived from the enhanced mineral content of a mine. In short, the benefit of returning NEA payloads would be the rejuvenation of an old mining site by enriching it with new materials. It would be the mining equivalent of a collagen injection.

The NEA venture would earn revenues by charging royalties to mining companies in the same way that traditional stakeholders charge royalties for their mineral claims. A high NSR (net smelter return) for precious metals like gold would be 5% of gross revenues, and cash costs for platinum-group metal production as co-products could reasonably be half the market price of each precious metal.

The average platinum-group compositions for meteorites (a potentially biased estimate) and their dollar values are provided below:

Platinum-Group Metal

H-Chondrite (PPM)

LL-Chondrite (PPM)

Price Per Troy Ounce 5.1.2012 (mid of bid and ask)

Ru

5.8

17.8

$ 110.00

Rh

1.1

3.3

$ 1,400.00

Pd

4.5

14

$ 681.50

Os

3.9

12.1

$ 380.00

Ir

3.9

12

$ 1,050.00

Pt

8

24.7

$ 1,573.00

Au

1.1

3.5

$ 1,662.20

Sum (PPM)

28.30

87.4

Weighted Avg Precious Metal $/Troy oz

$891.67

$892.31

Royalty $/Troy oz Metal

$22.29

$22.31

Royalty $/Troy oz Raw Asteroid

$0.00063

$0.00195

Click to enlarge

(Though the concentrations precious metals in H-Chondrites and LL-Chondrites differ considerably, the values of the refined precious metals, once extracted, do not differ much on a per-mass basis.)

Clearly, big chunks of asteroid would need to be hurled at the Earth since the value of each troy ounce of asteroid is worth less than one cent in royalties.

Of 953 potential mission targets that could be accessible by launches between 2015 and 2040, there are as few as seven NEAs to as many as 172 NEAs that could conceivably payback the $2.6 billion initial investment in precious metal royalties. The variance between these counts is based on differences between minimum and maximum diameters as well as the difference between the precious metal content of LL-Chondrites and H-Chondrites. The seven that pass conservative assumptions are presented below:

Object Designation

Min Diameter -Meters

Spherical Volume (m3)

Mass-Grams

Royalty Value ($ Billions)

1943 Anteros (1973 EC)

2300

6.37E+09

2.17E+19

$439.30

136618 (1994 CN2)

834

2.43E+09

8.26E+18

$20.95

35107 (1991 VH)

725

1.6E+09

5.43E+18

$13.76

163899 (2003 SD220)

735

1.66E+09

5.65E+18

$14.34

175706 (1996 FG3)

436

3.47E+08

1.18E+18

$2.99

Click to enlarge

To be fair, these numbers are optimistic since not all NEAs fall into these two meteorite categories. Moreover, payback considerations neglect the time value of money or the high required return that could warrant such a speculative venture. Moreover, this analysis ignores whether the trajectory of an object or its size would prevent it from being maneuverable to a stable orbit.

Astronomical Optimism

The results of this analysis are consistent with that of m previous articles: NEA mining ventures are based on sketchy fundamentals. Such an endeavor has never succeeded or been undertaken, and there is a small number of economically viable NEAs. Retail 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. 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 of physical, refined, actual metals, and should not be confused with hypothetical, unrefined space dreams.

The gold market will also not be affected. A portfolio of actual gold mining companies with operations, production, and reported earnings can created by buying shares of Market Vectors Gold Miners ETF (NYSEARCA:GDX). Each of these ETFs has an expense ratio under 1%. Fund expenses can be avoided through direct investment in attractively valued gold miners, which was discussed in a prior article. Investors can buy shares in SPDR Gold Shares (NYSEARCA:GLD) to play any appreciation in physical gold as a precious metal play.

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

Disclaimer: Please read the article disclaimer here.