When Commodities Analysts Should Stick To Commodities

Some analysts at Barclays attempt to understand the business case for Planetary Resources, and massively fail:

Their calculations are based on Nasa’s forthcoming OSIRIS-REx mission, which aims to launch a probe in 2016 to pluck samples from an asteroid called 1999 RQ36 and bring them to Earth.

The mission’s acronym stands for “Origins-Spectral Interpretation-Resource Identification-Security-Regolith Explorer” and Nasa hopes it will be home by 2023, with a couple of ounces of dirt. By then, the cost will have reached $1-billion – made up of $800-million for the vehicle, plus another $200-million for the rocket launch.

Since that outlay will return just a couple of ounces of material, the Barclays’ analysts say they could use it as a baseline to estimate break-even prices for asteroid mining. Using the metrics proposed by Barclays, the Financial Times commodities team estimates that copper prices would need to skyrocket from today’s $3.81 per ounce to $476-million for a similarly-funded space mining project to cover its costs. [Emphasis added.]

Ummmmmm…no.

First, this is a NASA mission, and NASA costs are always a poor proxie for how much it would cost private enterprise to accomplish something similar. For instance, SpaceX has spent about a billion dollars total developing two new launch vehicles and a reusable return capsule that it flew in late 2010, and is planning to fly to ISS next week. The Falcon 9 rocket itself cost the company about $300M. But conventional NASA/Air Force cost models predicted that it should have cost somewhere between $1.7B and $4B if developed under a traditional government contract. That is to say, it might have cost an order of magnitude more.

Also, this is a science mission, and not one optimized for maximum asteroidal material return for the buck. If it had been you can be sure that it wouldn’t have cost $8B to return ten times the amount. Such an extrapolation is simply nonsensical to anyone who understands space technology (which apparently doesn’t include Barclays commodity analysts). The sample return hardware was a small part of the total payload — it has several sensors, including multiple cameras and spectrometers and an altitude radar. Any mission to do asteroid mining will bear little resemblance to OSIRIS-REx — a lot of spectroscopy will be done from earth orbit prior to sending anything out, and it will be a spacecraft designed to not scoop out a couple ounces, but to actually grapple and move the entire asteroid back to the vicinity of earth orbit, perhaps using the water on it as rocket propellant (water, not earthly commodities, is the first thing that the company plans to mine). No one knows right now how much this will cost, but the SpaceX Falcon Heavy will probably be operational by then, and it will be able to deliver over fifty tons of payload to low earth orbit for a little over a hundred million dollars, and this should be sufficient mass for such a mission if it uses local resources for the delivery. Let’s go nuts and say that the hardware will cost a billion dollars or even ten billion (I think that both are a very high estimate).

If the asteroid returned is similar to OSIRIS-REx’s target, the carbonaceous chondrite 1999 RQ36, it will be about 300 meters in diameter, with a volume of over a hundred million cubic meters. It’s not a stony asteroid, so it’s not high density (it’s about 20% water) — only 2.2 grams per cubic centimeter — so it would only mass about 250 billion kilograms or half a trillion pounds, or eight trillion ounces. Divide a billion by eight trillion, and you get about a hundredth of a cent per ounce of asteroid delivered, not Barklays’ ridiculous number of almost half a billion dollars. Suppose that it’s a tenth of a percent of platinum by weight. That’s only eight billion ounces of platinum, which on the current market ($1600/oz) would only be worth about fourteen trillion dollars (of course, dropping that much platinum on the market would depress the price somewhat, which is actually one of the company’s goals). And that’s just the platinum. So ignore any other valuable commodities, that seems like a pretty good return to me, even if you assume that it costs ten billion instead of one.

[Weekend update]

Someone pointed out to me that I made a math error — I cubed the diameter instead of the radius to compute the asteroid volume. So either knock down all the numbers by a factor of eight — it doesn’t change the point — or just assume a 600-meter diameter asteroid. There are plenty of them.