July 2003 AGGMAN Geology

Such Quantities of Sand, Indeed

Economic factors can make the difference when assessing sand and gravel resources and reserves.

The Walrus and the Carpenter
Were walking close at hand:
They wept like anything to see
Such quantities of sand.
Through the Looking Glass
Lewis Carroll - 1871

Such quantities of sand, indeed. The walrus and the carpenter wondered if seven maids with seven mops could sweep away the sand. They might really start crying if they knew that those “quantities of sand,” gravel, and stone are virtually inexhaustible and cannot be swept away. Nevertheless, there are places that are on the verge of running out of aggregate.
The concerns over inadequate supplies of aggregate relates in part to the difference between a reserve and a resource. These terms are defined differently and sometimes have very specific legal or financial meanings. In general mineral resource economics, the principal distinction between a reserve and a resource is based on current economic availability. Reserves are known deposits from which aggregate can be extracted profitably with existing technology and under present conditions. Resources include not only the reserves but also other deposits — either known or unknown — that may or may not eventually become economic. A simple analogy: The walrus and the carpenter deceived a bunch of young oysters to walk with them on the beach. Those oysters were the reserves who ultimately, like most reserves, were consumed. The resources would be not only the oysters walking with the walrus and the carpenter, but all the rest of the oysters who “did not choose to leave the oyster-bed.”
Many factors determine whether a particular aggregate deposit can be considered a reserve, including the scale of the mining and processing operation, the type and state of repair of equipment, staff expertise, the quarry location in relation to markets, and environmental concerns. Changes in technology, growth of market area, and so forth, can increase the economic viability of a known resource, changing it into a reserve. A simple example — in the past you may have purchased a resource that at the time was far from the nearest community. Transportation to the market was too expensive to make your product competitive with closer producers. Over time, the community grew outward, the transportation distance decreased, and your once-uneconomical resource became an economical reserve.
Equally important, the prevailing supply situation strongly influences whether or not a deposit can be marketed economically. For example, if all nearby reserves are exhausted, or if local demand exceeds the local supply, a more distant resource that may have been uneconomical in the past might become economical. Such was the case during the construction of Denver International Airport, Denver, which required 10 million tons of aggregate during a period of about two years. To meet the entire short-term demand, local producers determined it would require either abandoning their long-term customers or making large capital investments, neither of which made good business sense. Meanwhile, it was recognized that a large, remotely located stockpile of “waste” granite created during the production of railroad ballast could meet the exacting specifications for aggregates for the airport. Consequently, aggregate was shipped about 100 miles by rail to fulfill about 20 percent of the demand. What was once “waste” became an economic reserve. Had the walrus and the carpenter only known, they could have sold the oyster shells for road aggregate.
There is another factor that can convert an uneconomical resource into an economic reserve — the “reversionary value” of the land after the aggregate has been excavated and the land has been reclaimed. For example, in the area around Denver, there are stream deposits along the South Platte River that consist of less than 20 percent gravel. These deposits are marginally economical to work and normally would be ignored in favor of deposits with a higher percentage of gravel. However, storage of water for municipal uses has become a critical issue in the Denver area. Municipalities are desperately seeking places to store water, and the holes left by the mined-out sand and gravel operations along the South Platte have become part of the water storage solution. Today, the value of those holes in the ground commonly exceeds the value of the aggregate extracted from them, and the hole converts the resources to reserves.
Unlike the oysters that the walrus and the carpenter had for a late night snack, aggregate reserves do not always have to be consumed to disappear; other actions can diminish your reserves. For example, the construction of a limited access highway can separate an economically viable operation from its primary market area. The increased transportation costs for aggregate operations located midway between highway overpasses can cause the operation to lose its competitive edge over those operations located closer to the overpasses. In essence, the reserves located away from the overpasses would no longer be economical and they would be downgraded to resources.
In effect, the combination of technology, supply, and economics is a means of “creating” or “destroying” a reserve whereby portions of the earth’s crust are reclassified from uneconomical resources to reserves, or vice versa, as the situation changes.
In summary, all oysters are resources, but only those that have been identified and are economical to harvest are reserves. What a pearl of wisdom!

William H. Langer is a geologist with the Mineral Resources Team of the U.S. Geological Survey.

July 2003 Carved in Stone Such Quantities of Sand, Indeed				Such Quantities of Sand, Indeed Economic factors can make the difference when assessing sand and gravel resources and reserves. By Bill Langer The Walrus and the Carpenter Were walking close at hand: They wept like anything to see Such quantities of sand. Through the Looking Glass Lewis Carroll - 1871 Such quantities of sand, indeed. The walrus and the carpenter wondered if seven maids with seven mops could sweep away the sand. They might really start crying if they knew that those “quantities of sand,” gravel, and stone are virtually inexhaustible and cannot be swept away. Nevertheless, there are places that are on the verge of running out of aggregate. The concerns over inadequate supplies of aggregate relates in part to the difference between a reserve and a resource. These terms are defined differently and sometimes have very specific legal or financial meanings. In general mineral resource economics, the principal distinction between a reserve and a resource is based on current economic availability. Reserves are known deposits from which aggregate can be extracted profitably with existing technology and under present conditions. Resources include not only the reserves but also other deposits — either known or unknown — that may or may not eventually become economic. A simple analogy: The walrus and the carpenter deceived a bunch of young oysters to walk with them on the beach. Those oysters were the reserves who ultimately, like most reserves, were consumed. The resources would be not only the oysters walking with the walrus and the carpenter, but all the rest of the oysters who “did not choose to leave the oyster-bed.” Many factors determine whether a particular aggregate deposit can be considered a reserve, including the scale of the mining and processing operation, the type and state of repair of equipment, staff expertise, the quarry location in relation to markets, and environmental concerns. Changes in technology, growth of market area, and so forth, can increase the economic viability of a known resource, changing it into a reserve. A simple example — in the past you may have purchased a resource that at the time was far from the nearest community. Transportation to the market was too expensive to make your product competitive with closer producers. Over time, the community grew outward, the transportation distance decreased, and your once-uneconomical resource became an economical reserve. Equally important, the prevailing supply situation strongly influences whether or not a deposit can be marketed economically. For example, if all nearby reserves are exhausted, or if local demand exceeds the local supply, a more distant resource that may have been uneconomical in the past might become economical. Such was the case during the construction of Denver International Airport, Denver, which required 10 million tons of aggregate during a period of about two years. To meet the entire short-term demand, local producers determined it would require either abandoning their long-term customers or making large capital investments, neither of which made good business sense. Meanwhile, it was recognized that a large, remotely located stockpile of “waste” granite created during the production of railroad ballast could meet the exacting specifications for aggregates for the airport. Consequently, aggregate was shipped about 100 miles by rail to fulfill about 20 percent of the demand. What was once “waste” became an economic reserve. Had the walrus and the carpenter only known, they could have sold the oyster shells for road aggregate. There is another factor that can convert an uneconomical resource into an economic reserve — the “reversionary value” of the land after the aggregate has been excavated and the land has been reclaimed. For example, in the area around Denver, there are stream deposits along the South Platte River that consist of less than 20 percent gravel. These deposits are marginally economical to work and normally would be ignored in favor of deposits with a higher percentage of gravel. However, storage of water for municipal uses has become a critical issue in the Denver area. Municipalities are desperately seeking places to store water, and the holes left by the mined-out sand and gravel operations along the South Platte have become part of the water storage solution. Today, the value of those holes in the ground commonly exceeds the value of the aggregate extracted from them, and the hole converts the resources to reserves. Unlike the oysters that the walrus and the carpenter had for a late night snack, aggregate reserves do not always have to be consumed to disappear; other actions can diminish your reserves. For example, the construction of a limited access highway can separate an economically viable operation from its primary market area. The increased transportation costs for aggregate operations located midway between highway overpasses can cause the operation to lose its competitive edge over those operations located closer to the overpasses. In essence, the reserves located away from the overpasses would no longer be economical and they would be downgraded to resources. In effect, the combination of technology, supply, and economics is a means of “creating” or “destroying” a reserve whereby portions of the earth’s crust are reclassified from uneconomical resources to reserves, or vice versa, as the situation changes. In summary, all oysters are resources, but only those that have been identified and are economical to harvest are reserves. What a pearl of wisdom! William H. Langer is a geologist with the Mineral Resources Team of the U.S. Geological Survey.