A Structural Analysis of the Mining Activities at a South African Vanadium Mine

Natural resource studies have dwindled in recent years with little attention being paid to this industry despite its pivotal role on the worlds financial exchanges and its ability to thrive while the rest of the economy falters. Economics has not developed a model of mining that both captures the economic constraints on mining firms, as well as the geological nature of ore reserves. In this paper I propose a structural model of a firms per period decisions regarding where to mine, how much to produce, and the optimal levels of inventory to maintain. I perform this analysis with the use of detailed firm level data relating to a Vanadium mine in South Africa. This paper is unique in the way that it incorporates both geological and economic uncertainty into the firms decision making process with the use of structural techniques. This paper is the first to develop a framework to consider the inventory behaviour of a firm with endogenous inputs. ∗Mailing Address: Level 7, Economics & Commerce Building, Parkville, 3010, Victoria, Australia. Telephone: +61 45099 7528 Facsimile: +61 3 8344 6899. E-mail: [email protected].