Sunday, April 29, 2012

Pricing an Asteroid

... unless the price of platinum, cobalt, iron and nickel goes down to account for all of the additional minerals on the market.  Via Xan, I came across this description of untold riches buried in the asteroid clouds of space.  The author of the article makes the concession that offloading the platinum on the market at once would crash the world price for platinum, but then offers this gem of a quote:
Of course, there’s a catch. You couldn’t offload all those metals on the world market at once, for fear of crashing their prices. But the company would still own that much in equity, which would allow them to borrow against it. They would be that wealthy, to all intents and purposes. That’s just how capitalism works.
No.  As Xan pointed out, there is no reasonable sense in which the asteroid is actually worth $20 trillion (current market price times current asteroid quantity).  Set aside the issue of whether anyone has $20 trillion to capitalize into an asteroid.  Here are some questions to consider before slapping a $20 trillion price tag on your newly found asteroid:
  1. Who would agree to finance $20 trillion for something that cannot be sold for $20 trillion for fear of crashing the market price?  On the revenue side, the asteroid's value should be the net present value of what the minerals can fetch on the market.  In other words, you need to account for the cost of waiting to sell the minerals (which is a cost), as well as the cost of depressing the price by selling so much platinum.
  2. How much will it cost to extract these minerals and transport them back to Earth?  Surely, this space mineral exploration venture is not zero cost, and these costs should be netted out (again in net present value) in determining the overall value of the enterprise.
These questions are the writer of the article (and anyone else who thinks of this as a $20 trillion company), not Planetary Resources itself unless they've said the silly things mentioned in the article, elsewhere.

The promotional video makes the enterprise seem more sensible.


After all, as far as space mining goes, asteroids make sense because they cost less to mine than planets or moons -- it is easier to dock on an asteroid  than to land on a planet.  The fact that it won't take a lot of fuel partially addresses my Question #2, and there's a lot of talk among the Planetary Resources team about doing this "at lower cost," and "operating more efficiently," which is what it makes this possible.  In sum, I'm looking forward to seeing the "robotic arms" of Planetary Resources hug this asteroid, but it will take the discovery of a lot of platinum-infused asteroids before Planetary Resources is more valuable than Apple is today.

1 comment:

  1. Hi was wondering something random can ordinary (Marshallian) demand be more inelastic than Compensated Demand?


Please feel free to share your ideas about this post in the open forum. Be mindful that comments in this blog are moderated. Please keep your comments respectful and on point.