ECONOMICS ASSIGNMENT.

The report should be on Mesa Minerals limited

Running head: ECONOMICS ASSIGNMENT 1
Economics Assignment
Student’s name
Institution affiliation
Date

ECONOMICS ASSIGNMENT 2
Introduction to business and general environment
Introduction
The size and scope of mining in Australia depend much on the unique geology of the
landscape in Australia. Australia is richly endowed with natural mineral resources. It is reported
that Australia holds the largest reserves of iron ore and gold in the world (Deloitte, 2017). The
country also boasts of having the second-largest reserves of bauxite and copper and fifth-largest
reserves of black coal. Such significant natural resource endowments form the fundamentals of
Australia’s comparative advantage with regards to the mining industry. Australia’s comparative
advantage has also been facilitated by the fact that there are innovative and competitive factories
that are backed by sound policies and efficient regulatory practices. The Australian economy has
been ranked as a global leader in the production of several minerals such as iron ore, lead, zinc,
gold, and coal. The production of iron ore accounts for over half of the resources extraction
elements of the sector in terms of value addition.
About the company
Lion One Metals Limited has its roots from Canada where it is listed as a development
and exploration enterprise focused on pioneering its 100% owned, low cost and high-grade
underground project in Tuvatu Gold in Fiji (Lion One Metals, 2018). Tuvatu was given the
permission to move on with its prospects for development by the Government of Fiji and issued
with a mining lease after a 21-year agreement regarding surface lease in 2014 (Bloomberg,
2019). The company is governed by a team of management with a robust experience that has a
track record of success in mining ventures and exploration of minerals and came to existence

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following the completion of a reverse takeover between X-Tal Minerals and the American Eagle
Resources in 2011.
The company engages in activities such as exploration and evaluation of minerals in Fiji and
Australia. Lion One Metals explores gold and iron ores. However, the company’s major asset is
the Tuvatu gold project situated in Fiji on the island of Viti Levu. Lion One Metals Limited has
its headquarters in North Vancouver, Canada.
Competitors
The ASX200 lists 26 publicly-listed metals and mining enterprises comprising the
heavily weighted materials industry. The Australian materials sector accounts for more than 18%
of the ASX200 index. The future of the Australian share market just like the total Australian
economy is substantially propelled to the underlying ability of the mining industry. Some of the
robust competitors include BHP, Rio Tinto and South 32.
Rio Tinto
Rio Tinto is a global, dually-listed enterprise and has been ranked as one of the most
prominent mining enterprises in Australia. The company mines a variety of minerals,44% of the
company’s sales are obtained from the extraction and exporting of iron ore (Rodda, 2019). The
company not only mines iron ore but also mine other minerals such as copper and gold among
others. The company apart from benefiting from Australia’s mining boom in the 2000s, its
strategy has been focused on the east with plans to expand its business into Asia. Rio Tinto takes
pride in its market capitalization of $ 27 billion, rendering it Australia’s second-largest miner by
size and among the top 20 largest businesses in Australia.
BHP Billiton

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BHP Billiton is ranked the second largest enterprise and the largest miner on the ASX
using market capitalization. The company has a value of over $97 billion. The company
specializes in the exploration and production of gold, iron ore and coal among others. BHP also
obtains revenue from other activities such as exploration and refining of petroleum. BHP is the
world’s leading commodity producer and has operations headquartered in Melbourne and
London.
South 32
This company has been ranked as the third-largest miner based on market capitalization
in ASX, rallying behind BHP and Rio Tinto (Rodda, 2019). However, this a new enterprise in
the market and was curved out of BHP in 2015 to align the business. The company’s focus is
majorly on base metals, nickel, lead, and zinc. The company operates in Australia, South Africa
and some regions in South America.South32 has less interest in China compared to other miners,
thus getting less than a fifth of revenues from China. The company has thus positioned itself in
markets located in Africa and Europe.
Main customers of gold
For thousands of years, gold has been used to create ornamental objects and jewelry. As
of today, the main buyers of gold are jewelers. It has been reported that 78% of the gold
consumed annually is to manufacture jewelry.
The other main customers of gold are the manufacturers of electronics. Gold being an
efficient conductor is used to move tiny currents and still be free from corrosion. A small
proportion of gold is used in almost all complicated electronic device.

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The demand for jewelry has prompted some countries to develop demand for gold such
as India and several Asian countries. Others use gold for financial purposes such as the UK and
China and others use it for industrial applications.
Market structure
The Gold mining industry portrays medium concentration with the four largest
companies approximately accounting for more than 42.3% of the revenue in the industry (IBIS
World, 2019). However, the industry also entails other small gold mining enterprises that each
command a small share of the market. Large players occasionally absorb firms that discover and
initiating developments regarding promising ore enterprises with changes in ownership and
restructuring becoming common in the industry (Garside, 2019).
Competitive environment
Since there are many producers of gold ranging from small producers and many buyers,
the market environment is that of perfect competition. Also, the homogeneity of gold makes this
a perfect company. The price of gold is determined by the forces of demand and supply. Gold
being a normal commodity means it has a demand curve and due to the availability of many
substitutes from other small players in the market, an increase in the price of gold by one firm
would lead to a decrease in demand for that company.
The demand curve for gold is relatively elastic which translates to a meagre rise in the
price of the product would subsequently facilitate a significant decrease in the quantity of gold.
This implies that a mark-up above marginal cost would cause an increment in the price of gold
which will be transferred directly to customers. This will lead to a decrease in demand thus
reducing the quantity demand.

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Exports
The exports overseas form a significant portion of mining in the Australian market. One
salient characteristic of the Australian mining industry is the nature of its exports which are
termed as export-intensive. The minerals and fuel sector accounted for just 17% of the Australian
exports in 1969 as they were curtailed by agriculture (Deloitte, 2017). It is since then that
Australia has experienced exponential growth with sectors such as the minerals and energy
accounting for more than 60% of Australia’s commodity exports by value as of 2015-2016 fiscal
year. The relevance of the mining industry has been propelled by the growing demand for
resources in regions such as Asia due to a stable rate of economic growth and the advent of
urbanization.
Exports have been reported to be a major part of the METS sector with over half of all
enterprises running in the METS industry exporting products or technology to mines across the
globe.
Macro business environment
The mining industry in Australia has increasingly become knowledge focused and free to
the integration of evolving and fast-moving technologies. It has been reported that there are more
than 6500 inventions with regards to the Australian mining that got recorded in the case files
regarding copyrights between 1994 and 2011 (Deloitte, 2017). Australia’s mining technology has
led to it getting exported internationally, with patent filings overseas indicating primary markets
entail the US, Canada, Japan, Brazil, and Europe among others. The Australian mining industry
produces millions of dollars yearly via a span of innovative cooperation with research
institutions. This entails partnership research centers that leverage mining Research and

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Development. The benefits stemming from such collaborations have been substantial ranging
from mine safety, automation, safe environmental practices and protection of biodiversity. Also,
according to the reports by the Department Industry, Innovation and Science, it revealed that
mining contributed for the largest share to the micro-start-up enterprises and has also been one
the most significant factor that has led to job creation from such enterprises over several years.
Research organizations in the mining sector work in close association to advance and
catalyze the use of innovation into international procurement in the mining sector. The Industry
Growth Centre initiative concentrates on aspects such as ability to compete and strategic priority
that seek to foster national action on primary matters such as commercialization, skills and
developing reforms in terms of regulation. There are also spirited works among Suppliers in
Australia’s mining industry with international miners, research centers and providers of
resources to improve the attractiveness and productivity of the mining industry.
Regulations
The mining industry is characterized by regulations that encompass all phases of the
industry operation from the awarding tenure, exploration, processing, transport, and closure of
mines via the relinquishment of tenure. The presence of such a strict code of conduct and
regulations, makes it imperative to facilitate the regulatory requirements that are open when the
benefits associated with efficiency are realized without dismissing the objectives of the
regulation for instance adherence to environmental standards.
For instance, there are sophisticated and repetitive mechanisms for environmental
evaluations and approvals. The Productivity Commission asserted that overlap and repetition that
prevails between the federal and the state mechanisms could be diminished by not reducing the

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quality of environmental results. However, it is argued that inefficient regulatory mechanisms
that fail to facilitate outcomes lead to bureaucratic sanctionable timeframes and delays posing an
unnecessary threat to the sector’s international attractiveness.
It is the uncertainties and inconsistencies in several processes of approval that make
mining costly for firms and the Australian economy in general. The advantages of aligned
project approvals are crucial for instance based on the analysis by the Department of
Environment it was found that aligning federal and state environmental procedures would save
enterprises more than $420 million yearly in Australia. Also, such expenses, uncertainties, and
inconsistencies in sanctioning procedures impact the ability of the industry to strategize for and
invest in future investments.
Moreover, appeals by the third party against legitimate environmental sanctions can
lengthen delays and compliance expenses for primary mining projects that have already been
evaluated to satisfactorily adhere to the environmental standards.
Economic overview
The Australian economy is said to have experienced more than two decades of
continuous economic growth, and it was the only state of the OECD that was lucky not to plunge
into depression following the financial crisis, and Australia recorded the highest rates of growth
with regards to developed economies and the 13th largest economy globally (Transparency
Market Research, 2019). As of 2018, Australia’s GDP rate of growth was reported to be 3.2%.
The Australian economy is propelled by enterprises and government spending, whereas
households and consumer industry strive amidst low growth of wages. The spending from
consumers accounts for approximately 60% of the economy. Australia also benefits from the

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massive scope of exports of agricultural commodities and the rigorous financial sector. It is
anticipated that the Australian economy in 2020 will record GDP growth of 2.7% and it
anticipates the consumption from the household to rebound after a consistent strengthening in
Australia’s labor market.
As of 2018, the rate of inflation was approximately 2.2% and in 2019 it was expected to
be around 2.3% and in 2020 around 2.5%. Australia’s current balance reveals a moderate deficit
of -1.2% of GDP. Thus, an increase in the prices of commodities helped cushion the increasing
gap of the deficit and kept public debt levels moderate wherein 2018, the total government debt
reached 40.5% of GDP. Following the winning of elections by Malcolm Turnbull for the seat of
the Prime Minister by a narrow margin meant that he had to make concessions to satisfy the
Conservative Party which is also a member of the ruling coalition and was thus compelled to
mitigate his liberal agenda. The Government was aiming to increase national appeal with regards
to its Asian competition in global trade. Consequently, to boost its economy, Australia is
diversifying its economic integration to encompass the Asia-Pacific region particularly China
and Europe which Australia have signed trade agreements while still holding preferential
relations with the U.S. The economy of Australia relies on China following a free trade deal
between the two states. Thus, irrespective of the economic integration, Australia is reliant on
investments from China.
Gold is the main product in this context. The prices of gold rise by a significant amount
during the recession and a good illustration are during the 2008 economic catastrophe when the
price of gold skyrocketed. Following this logic makes gold an inferior good. The reason for the
increase in the price of gold is due to people distrusting currencies and opt for tangible
commodities which can be easily stored without the fear of declining value. During the 2008

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recession, many states borrowed money and this led to the likelihood of monetary inflation
adding to the prevailing level of inflation to repay the debts. Thus, many individuals turned to
gold and other precious metals for safety.
The rate of unemployment in Australia is low as it is approximated at 5.3% as of 2018.
Records from the Australian Bureau of Statistics indicate that roughly 720,000 Australians are
unemployed and the rate is declining. ABS also found that underemployment, where individuals
want to work more, was rising (Transparency Market Research, 2019). The number of
underemployed stood at 1.1 million a component of the international trend that is impending
growth on wages. However, Australia will have to grapple with an aging population and the
effects of climate change, for instance, the loss of 20% of the Great Coral Reef due to a
catastrophic bleaching scenario. Australia has also been ranked as one of the largest polluters in
the world (DFAT, 2011). International pressure has compelled Australia to develop nuclear
energy to reduce greenhouse gas emissions.
` The macroeconomic environment of Australia provides a perfect ground to enable Lion
One Metals to operate smoothly. With unemployment rates being low means that the country
boasts of a high standard of living which means that there will be a ready market for Lion One
Metals. The inflation rate is low at 2.2% and expected to rise to 2.3% in 2020 means that
commodity prices will increase, this will lead to price commodities from Lion One Metals
increasing. The government’s efforts to improve trade relations with countries such as China
means gold mining companies such as Lion One Metals will benefit from export deals.
Production costs and scale

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Fixed costs
Mining like any other enterprise has to incur costs that do not vary depending on the level
of output. Such expenses have to be incurred by the company, autonomous of any mining gold
production.
Bulk-material conveyors are fixed costs
A good example of fixed costs is the long-underground bulk-material conveyors are a
basic fixed cost for ore conveyance in a protected and economically efficient manner (Burgess,
2009). Also, choosing the relevant electrical, instrumentation and automation equipment directly
affects the performance, flexibility of operation, efficiency, and the total lifecycle cost of the
conveyor system.
Land containing gold ore
Land being a factor of production is also a fixed factor that cannot be varied where output
is confined within.
Fixed costs and greenfield logistics
Gold mining projects which can be linked to the least fixed cost Greenfield logistics
remedy in terms of per ton transported will have the benefit of assuming first movers. The
economies of scale have a role in lowering per ton cost of transportation, where the larger
projects are best suited to experience competitive pit to port transport tariffs. Consequently, such
projects establish a logistic infrastructure that is usable by smaller gold mines to facilitate access
to adequate infrastructure.
Variable costs

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These costs change with the level of output, where an increase in the output increases, the
need for labor, transportation, and storage also increases. Such costs can be classified as
operating costs that vary based on a firm’s production volume; they rise as production increases
and fall following decreases in production.
Variable costs of gold mining operation entail
Wages
According to ABS, the mining industry continues to remunerating the highest level of
wages to workers in Australia (Heber, 2013). The hourly rate of the mining industry was
recorded to be $52.30. However, iron and gold mining require many workers, during peak when
the production goes up, the number of workers also goes up and this means wages will also
increase.
Materials
An increase in the materials required for the production of Gold or iron translates to an
increase in the costs of production. Thus, the materials vary with the level of production. When
production increases, materials needed will also increase.
Fuel and electricity needed to mine an ore
Fuel and electricity are needed in the processing of gold right from the extraction to the
final product. Costs associated with fuel and electricity increase with the increase in the
production of gold.
Sunk costs

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The economic decisions depend on the marginal cost and the marginal benefit of the
proposed project, the main feature of fixed cost is that their marginal cost is equated zero,
irrespective of the level of fixed costs. Such costs are thus considered to be sunk costs. Based on
the fact that in the short-run numerous variable costs will be identical to the fixed cost they have
thus sunk costs with regards to the future. Sunk costs in this respect are financial resources that
have irretrievably been accrued.
Comment
In this case the fixed costs will be high as they entail establishing premises, drilling
equipment, purchasing land that has gold ores, obtaining mining and environmental licenses.
However, variable costs for the company will be less compared to the fixed costs. Thus, the due
to the nature of the activity which is mining, the size of the firm will be medium.
In conclusion, the market for gold in Australia is lucrative. This has been made better by
the comparative advantage of producing minerals in Australia. The political environment in
Australia is positive with favorable regulations that support miners to conduct their operations
smoothly.
References

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Bloomberg. (2019). Lion One Metals Ltd. Retrieved from Bloomberg:
https://www.bloomberg.com/profile/company/LIO:CN
Burgess, L. (2009, November 27). High Production Costs May Buoy Gold Prices for Decades. Retrieved
from Gold Mining Production Costs: https://www.wealthdaily.com/articles/gold-mining-
production-costs/84990
Deloitte. (2017). Mining and METS: engines of economic growth and prosperity for Australians. Retrieved
from Deloitte: https://www2.deloitte.com/content/dam/Deloitte/au/Documents/Economics/
deloitte-au-economics-mining-mets-economic-growth-prosperity-engines-170317.pdf
DFAT. (2011). Australia’s gold industry:trade,production and outlook. Retrieved from DFAT:
https://dfat.gov.au/about-us/publications/Documents/australias-gold-industry-trade-
production-and-outlook.pdf
Garside, M. (2019, August 9). Distribution of global gold demand by industry in 2017. Retrieved from
Statista: https://www.statista.com/statistics/299609/gold-demand-by-industry-sector-share/
Heber, A. (2013, February 1). Mining industry pays highest wages. Retrieved from Australian Mining:
https://www.australianmining.com.au/news/mining-industry-pays-highest-wages/
IBIS World. (2019, March). Gold Ore Mining - Australia Market Research Report. Retrieved from Industry
Reports: https://www.ibisworld.com.au/industry-trends/market-research-reports/mining/gold-
ore-mining.html
Lion One Metals. (2018, December 31). Management's Discussion and Analysis. Retrieved from Lion One
Metals: http://member.afraccess.com/media?id=CMN://6A920597&filename=20190220/
LLO_02077601.pdf
Rodda, K. (2019, January 3). What is mined in Australia. Retrieved from IG:
https://www.ig.com/au/news-and-trade-ideas/shares-news/mining-in-australia-190102
Santander. (2019). Australia economic and political outline. Retrieved from Trade Portal:
https://en.portal.santandertrade.com/analyse-markets/australia/economic-political-outline?
&actualiser_id_banque=oui&id_banque=0&memoriser_choix=memoriser
Transparency Market Research. (2019). Gold Market-Global Industry Analysis,size,share,Trends and
Forecast 2014-2020. Retrieved from Gold Market:
https://www.transparencymarketresearch.com/gold-market.html