The Mining Valuation Handbook: Mining and Energy Valuation for Investors and Management, 4th Edition

Chapter 4: Commodity values and forecasting

Different commodities trade at different prices. The relative price difference between mineral commodities is a reflection not just of the current level of demand and supply, which has an impact on inventory levels and hence short-term price movements, but also of the relative scarcity of that mineral.

The scarcity — or, to put it a better way, the grade of materialisation — and to some extent the metallurgical complexity (and hence the cost to extract the commodity) are the major driving forces. Demand obviously plays a part as well. If the price is driven too high in the short term there will be substitution by other, cheaper commodities that can do the job, although perhaps not as well. If demand ...