Commodity Market/Mining Suggestions

Kez

The bulk of that coal is mine and I put it there to discourage nitwits from hoarding to create the illusion of a shortage for profit. Again.

Greys

Tahquil said:

Doing my calculations. If I refined and sold off my last haul of gems I could price them at 80g per and still turn a profit.

Would love to see your math. The typical gem mine has around 900 gems in it. A large mine would cost around 65k to build so that is 72 gold per rawgem just in your mine construction. The extraction cost is much bigger than the construction.

Aerek

If a typical gem mine has 900 gems in it, I also could make a profit refining raw gems into gems and selling them at 80 per.

If you're estimating a large mine at 65k, I assume you're calculating cost of comms to build the mine at current market value, which is a great way to skew your numbers badly unless you actually bought those comms from the market, at that price, for that mine. In the beginning, I also calculated mining costs this way, and ran up huge "losses" that discouraged me until I realized my error. Suffice to say, it does not cost me 65k to build a large mine; closer to 20k.

Nazihk

Are you accounting for opportunity cost there?

If you could sell those comms for 65k, then you're basically spending 65k on the mine. 

Bronislav

The comms market is unsatisfactory, in my opinion. Some comms are fine-ish - stone is still doing okay (though many, myself included, stockpile the hell out of it because we'll be using it, dammit), and some are kind of...Okay-ish? But silver is the only comm that is really still exploding with the kind of energy that makes it an 'OMGWTFNEEDTHISNOW' commodity. Ice, obsidian, and platinum are at the 'I can only stockpile these because selling them at the market is a practice of masochism' prices, and some of the others are fast approaching: the only sort of reasonably profitable route for some is to build medium mines, which more or less scream, 'attack me plz'.

I'm trying not to get too pessimistic over it, but it feels broken. I don't presume that there's an easy fix to this, because there really isn't. I don't expect that anyone here is going to solve the problems inherent in the comms market, but that doesn't keep me from grumping hard about it. :frown:

Tahquil

I'm sure everyone would like to see the numbers to reverse engineer my compositions.

I'll just say your numbers are wrong @greys. My mining costs were only slightly above what you quoted but I got far, far, far more commodities out of it than 900.

Aerek

Nazihk said:

Are you accounting for opportunity cost there?

If you could sell those comms for 65k, then you're basically spending 65k on the mine. 

No, this is the mistake that I made in the beginning, and that I suspect some others still make. If you bought stone for 80 per, it doesn't matter if the stone market spikes to 150 per, you still only paid 80 for that stone. Recording market value instead of original cost in this example would massively inflate your perceived cost of mining whatever you produced with that stone, and that would absolutely make it look like everyone else was selling your product at a loss.

Bronislav said:

Some comms are fine-ish - stone is still doing okay (though many, myself included, stockpile the hell out of it because we'll be using it, dammit)

It may not be an easy fix, but bolded is the reason stone is doing okay. The other commodities are either not consumed enough or there's just too much of it in circulation to make the market competitive. Stone is good because it's not too common, and it's consumed in massive quantities on a daily basis.

Sena

Aerek said:

No, this is the mistake that I made in the beginning, and that I suspect some others still make. If you bought stone for 80 per, it doesn't matter if the stone market spikes to 150 per, you still only paid 80 for that stone. Recording market value instead of original cost in this example would massively inflate your perceived cost of mining whatever you produced with that stone, and that would absolutely make it look like everyone else was selling your product at a loss.

What you originally paid is meaningless, the only thing that matters is the current value, because of the opportunity cost of not selling the comms. For a simplified example (stripping away the mining aspect), say you bought 1000 stone for 50k gold in the past, but now it will easily sell for 100k. If I offer you 80k worth of gems at current market prices in exchange for your stone, by your reasoning, that would be a profit of 30k for you. But you could instead sell the stone for 100k. So regardless of what you originally paid for the stone, right now if you made that trade you would be losing value, instead of taking the trade you could sell the stone and buy 80k worth of gems and have 20k left over.

Tahquil

Aerek's calculations don't mark in profits until the actual commodities are exchanged for gold coin. To use the example if it cost him 50k to 100 stone, then he exchanged that for X gems. It's not a 30k profit, it's a 50k lose. 50,000g divided by how many gems you gave him gives him a per comm cost which gives him a bench mark to judge the market at the time.

No matter what happens to the market, you (in a round about way) spent 50k to generate X gems in your stores. Market can go up or down. You're only still out 50k until you sell up. 

Krypton

Bronislav said:

I'm trying not to get too pessimistic over it, but it feels broken. I don't presume that there's an easy fix to this, because there really isn't.

It's because people are making the poor business decision of continuing to mine the same way now as they did when mining was first introduced, even though the comm availability landscape has totally changed.

In the beginning, it made sense to mine everything, and mine everything constantly. Everyone needed to start collecting all the comms for their own reserves, and that demand meant the supply of comms pouring out of mines had somewhere to go.

But now, everyone has practically more comms than they can use, but the surplus keeps growing because lodes keep generating at high rate, and miners keep mining them at high rate, throwing ever more comms into the system. Generating a supply of something that's not in demand is business folly. Then, unable to create a new demand, or sink, for oversupplied comms, people resort to whacked-out prices to offload the extra comms in any way they can.

Krypton

The opportunity cost is not a deficit. It translates into the profit of the new comm you produce.

If your large mine comms could have sold for 65k, but instead you use it to mine and sell 900 gems at 180gp per, then your 65k iron+stone "profit" now exists as part of the gems profit of 162000gp.

Tahquil

I don't understand this. I could have won 1,000,000 in the lottery but instead I took the ticket and made an origami duck with it. That duck is worth 1.000,00 gold or I'm out 1,000,000?

(I'm not joking or trolling. Sorry)

Greys

While the discussion was interesting (I cost things as the market value as I am comparing selling the iron and stone so it is a cost to me as I could sell those comms thus I am out the potential revenue as essentially I am comparing the value of those comms and that gold (input) to the value of the output) my point was the mining cost to extract the gems is even GREATER than the construction cost. If you know the rate gems are extracted, even discounting the cost of maintaining the mine, it is still on average greater than 80 gold per rawgem in mining costs alone.

Krypton

Tahquil said:

I don't understand this. I could have won 1,000,000 in the lottery but instead I took the ticket and made an origami duck with it. That duck is worth 1.000,00 gold or I'm out 1,000,000?

(I'm not joking or trolling. Sorry)

Supposing you can redeem your ticket for its winnings whenever you want, then yes, the duck is worth $1M.

Just as the comms to build a large mine will always have a value, whether by being sold outright, or invested into mining something else that can be sold.

Note that the ticket DOES cost you something. But it didn't cost you $1M. It cost you $2 at the convenience store you bought it from.

Likewise, the iron+stone has a cost. But the cost is NOT what it could be sold for (65k). The cost is what you actually bought it for (say, a good friend sells it to you for 10k), or the mine operation fees you paid in order to mine the iron+stone. 

Nazihk

Tahquil said:

I don't understand this. I could have won 1,000,000 in the lottery but instead I took the ticket and made an origami duck with it. That duck is worth 1.000,00 gold or I'm out 1,000,000?

(I'm not joking or trolling. Sorry)

You find a lottery ticket on the sidewalk and it wins $1,000,000. You have two choices here. You can turn it in and get $1,000,000 or you can turn it into an origami duck, which for the purposes of this example will ruin the ticket and make it impossible to turn in.

Aerek's logic, applied to this situation, would be that it costs you nothing to choose the duck, because the ticket cost you nothing. In this example, though, it's pretty obvious that he is not correct and that the duck just lost you a million bucks.

Ahmet

Economically speaking, when you made the choice to turn that ticket into a duck, you decided that you valued an origami duck more than one million dollars. So, that duck is of more personal value to you than the million dollar alternative. Economic value is measured by how much you are willing to pay, trade, or in this case, give up, for a particular item.

Now, that doesnt apply to the mining scenario because you cant possibly know what other opportunities youre passing up, but the lottery ticket is a really bad example that really shouldnt be applied to this scenario.

Aerek

Sena said:

What you originally paid is meaningless, the only thing that matters is the current value, because of the opportunity cost of not selling the comms. For a simplified example (stripping away the mining aspect), say you bought 1000 stone for 50k gold in the past, but now it will easily sell for 100k. If I offer you 80k worth of gems at current market prices in exchange for your stone, by your reasoning, that would be a profit of 30k for you. But you could instead sell the stone for 100k. So regardless of what you originally paid for the stone, right now if you made that trade you would be losing value, instead of taking the trade you could sell the stone and buy 80k worth of gems and have 20k left over.

You're not wrong about opportunity cost, but you (and Nazihk) are applying it incorrectly. Opportunity cost/alternative cost theory is a tool for financial analysis and planning, not for accounting. Opportunity cost is not GAAP, and you should never see items marked on any accounting balance sheet in this manner. When you convert cash into tangible assets, the asset's value can fluctuate, but the cost in cash you paid for it does not, and thus if you convert that asset (or even another asset you manufactured from it) back into cash, it's the original cost of that asset that determines your profit or loss on its sale, not current market value. I could sell something for below market value and still net a profit, as long as my revenues exceeded my original expenses. OC/AC calculations just show you what's "ideal".

Example: I buy 1000 stone for 50 per. 50K gold leaves my bank account. The market spikes to 100 per. Instead of selling, I use that 1000 stone to to mine 3000 more stone. Ignoring everything else for simplicity, 50K/3000 is 16.6 cost per unit for the 3000 stone. I sell that 3000 stone for 25 per to a friend. Even though I have sold my stone at a price vastly below market value, 3000*25=75K, so 75K gold goes into my bank account. I may have lost "opportunity" or "potential profit", but I did not lose cash out of my pocket; I still made a 25K profit. However, if you try to use opportunity cost as an accounting principle you would account for a 100K "loss" on the original stone, so 100K/3000= 33.3 cost per unit for the stone, and selling it all to that friend for 25 per (still 75K into your bank account) would report a loss of 25K. This is the inaccuracy I'm pointing out. This method says you "lost" 25K, when in fact you started with 50K and now have 75. If you make this mistake, you will consistently overstate your costs any time the market rises, and understate your costs any time the market dips.

Now, what opportunity cost does tell me is that I should have just sold my 50 per stone for 100 per and put 100K revenue/50K profit into the bank. I'm not denying this at all, opportunity cost exists as a tool to help you make wise choices. I of course tracked market value of my current assets closely when I was active, and knowing opportunity costs guided me to make profitable decisions. When planning purchases or investments, you should absolutely use OC/AC calculations, but when calculating production costs and determining profit margins for assets already purchased, you have to stick to what you actually spent, not what you could have made. (They are not Schrodinger's commodities!)

If many others are making this mistake, it is no surprise to me that large swathes of the markets appear to be "selling at a loss". On the contrary, I could beat most prices currently on CM LIST and still turn a (tiny) profit for myself. Worth it? No, I'd be making pennies on the dollar. I agree the mining market is not very lucrative right now, but I don't think nearly as many people are taking losses as folks might think.

Edit:

Nazihk said:

Aerek's logic, applied to this situation, would be that it costs you nothing to choose the duck, because the ticket cost you nothing. In this example, though, it's pretty obvious that he is not correct and that the duck just lost you a million bucks.

Aerek's logic says that you spent $1 for a lottery ticket and it's worth $1,000,000, but until you actually turn it in, there is neither $1,000,000 in your bank account, nor have you lost $1,000,000 by folding it into a duck. You could trade that ticket for a house worth $600,000. Did you "lose" $400,000? No, you never had $400,000. You spent $1 and through the conversion of assets got a $600,000 house, a $599,999 profit.

Opportunity cost is about maximizing profits, but just because you did not maximize your profit, does not mean you actually suffered a loss out of pocket.

Krypton

Ahmet said:

Now, that doesnt apply to the mining scenario because you cant possibly know what other opportunities youre passing up, but the lottery ticket is a really bad example that really shouldnt be applied to this scenario.

No, there's still a mining equivalent to this analogy.

If the point is that the origami duck can't be turned in for $1M anymore, then turning a valuable ticket into a worthless duck is equivalent to taking your 230iron+550stone, and building a large mine on a small coal.

Greys

@Aerek Again, my main point was the construction of the mines for gems is the cheaper part of extracting them. The gold that goes into the miners comes to even more regardless of how you cost out the cost of the mine's construction.

Sena

@Aerek I understood the topic to be planning rather than accounting, which is why I was talking about decision making prior to mining the comms rather than calculating profits after they're mined. Looking back at the posts, that was probably a misunderstanding.

Still, I prefer to look at the net worth of your assets (which changes over time regardless of your actions) rather than pure gold. If I have 50k gold, and I buy 1000 stone for 50 per with it when the current market price of that stone is 100 per, the value of my assets (comms+gold) just increased by 50k. If I then turn around and sell that stone for 60 per while the market value is still 100 per, rather than counting that as a profit of 10k gold (which I agree would be accurate), I'd consider it to be a 40k reduction in net worth.

Ahmet

You're calling the lost commodities a casualty of opportunity cost instead of investment, when they're an investment. Opportunity cost would be comparing what you made to the revenue you could have made if you'd waited a day and built on a large iron instead, which would have been impossible to account for as you would have no foreknowledge of it. Opportunity cost would be the revenue you lost because you passed up a stone mine for an iron during the week iron dropped and stone rose.

Now you can -technically- argue that the lost commodities fall under opportunity cost, but given that commodities can be exchanged for gold quite freely in almost any quantity that would apply to the situation, enough so to be treated as a currency, treating the upfront investment of commodities as an investment makes much more sense.

Tl;dr: Stop saying opportunity cost unless you're referring to other lodes you could have mined.

Nazihk

Aerek said:
Aerek's logic says that you spent $1 for a lottery ticket and it's worth $1,000,000, but until you actually turn it in, there is neither $1,000,000 in your bank account, nor have you lost $1,000,000 by folding it into a duck. You could trade that ticket for a house worth $600,000. Did you "lose" $400,000? No, you never had $400,000. You spent $1 and through the conversion of assets got a $600,000 house, a $599,999 profit.

This is why it is called opportunity cost and not just cost.

That cost of choosing the duck was the value of the opportunity to get a million dollars.

Tahquil

I hate the phrase opportunity cost. We use potential profit as it's a hell of a lot clearer on what it means.

Opportunity cost. Should only be factored in into the equation when you are considering to sell or not. Not into the calculations of mine cost. 

Example.
COM A is produced by you at a rate of 25g per unit. COM A is currently selling on the market for 27g per unit.

You decide not to sell to the open market and use 1000 for a mine.

You should be calculating your mine cost simply as 25x1000. That mine costs you 25000g.

What it sounds like is people are using opportunity cost and 'selling' the gold to themselves using 27x1000 and calculating their cost higher than they are at 27000g.

But they forget this is technically a sale and don't mark in their 'profit' of 2000g which they deduct from their mine cost.

Bronislav

I'm curious: if the lodes for specific comms, such as...Hell, most of the market...Were reduced, to compensate for how much they're used, would that solve the problem in any meaningful way?

Krypton

It should, but A) most comms will take a while for the surplus to be sufficiently depleted, and all the miners will start experiencing mining withdrawal from the lode reductions, haha

Cooper

A lot of these posts were painful to read and I really don't know where to begin to respond.

Opportunity cost - ie: the gold you didn't make from the comms you didn't sell but could have, is a real thing and should 100% be calculated into your mining costs.

I don't think people are reading my post and taking everything suggested in before they are responding. Pretty much every issue brought up was already addressed in my first post.

I would expect commodity prices for some things to go up (coal, iron, obsidian, platinum, bone, ice) and some things to go down (silver, stone, gems) if my suggestions were put in. The whole idea is to put the market in equilibrium - where supply roughly matches demand, and most comms are available for sale instead of people being able to hoard.

Re: the cost of specific comms. Here are all of the lodes that you will lose money on, assuming 14 miners in large mines and current market prices that might change before you decide to reply to this post:

Small carbon, all iron, all obsidian, small gold, small platinum, small coal, medium coal, large coal, small bone, medium bone, small ice, medium ice, large ice, small stone.

Yes, this assumes you put maximum miners in every single type of mine and open yourself up to easy attacks and get the maximum miner bonus that isn't reasonable to assume. If you DON'T assume that, and don't put max miners in every single mine, you're losing money on just about every lode size and type that isn't silver, stone, or gems.

So yeah, the majority of people who are mining are losing gold and probably don't even know it.

Sena

Tahquil said:

But they forget this is technically a sale and don't mark in their 'profit' of 2000g which they deduct from their mine cost.

In my case, that "profit" (again, treating comms and gold as basically equivalent instead of comms being valueless until they're exchanged for gold) came when I first acquired the comms. To put it more simply, considering how easy it is to trade comms for gold and vice versa (for most comms at least), it makes sense to treat them as different currencies that can be freely exchanged, rather than only treating comms as a product to be sold.

There are also real world situations (it seems pretty common in agriculture, for example) where accounting is done by recognising revenue when production is completed (using prices that can be reasonably assumed) even though no sales have been made. It's done in cases where you can reliably sell a fungible product with a fairly predictable price, and there's little cost to making a sale (which is exactly what we have with mining and the commodity market).

Tahquil said:

I hate the phrase opportunity cost. We use potential profit as it's a hell of a lot clearer on what it means.

Opportunity cost. Should only be factored in into the equation when you are considering to sell or not. Not into the calculations of mine cost.

It should be used when considering whether or not to mine a particular comm (or whether or not to mine at all), what size mine to use, whether or not to sell or buy, and what price to sell or buy at. Basically, it's a good idea to consider the opportunity cost for any economic decision you plan on making.

It should not be used when dealing with things that are already done (like recording costs and sales in your accounting).

---

I don't have accurate mining numbers on-hand, so I'll just use an entirely made up (and simplified) example to show why I wouldn't use your profit calculations to set the price of a comm (or for any decision-making, really). Say a mine costs 100 stone and a total of 10000 gold to produce 200 stone. I found 100 stone lying on the ground, so my costs for that stone were 0. If I mine the 200 stone and sell it for the current market price of 60 gold each, I would make a profit of 2000. If, instead of mining, I just sold my original stone for 60 each, I could make a profit of 6000 and it would be faster and risk-free. So if that's all I can sell my stone for, I should definitely not mine it even though it would be profitable.

Most importantly if I do decide to mine, despite making a profit on paper, I'm effectively losing gold because I'm essentially buying 100 stone at 100 gold each (I'm paying 10k gold to increase the amount of stone I own from 100 to 200) to sell at 60 gold each. The stone I already owned didn't cost me anything, but it still has value, and I'm spending (or investing, either way) that value in exchange for more comms. Any "profit" I'm seeing is only there because I'm effectively converting my existing assets into gold along with the comms I've mined, and adding that to my mining profits. It's a perfectly accurate accounting of costs, expenses, and sales, but it doesn't realistically reflect the profit from that specific mining operation, and as such it shouldn't be used to set prices for the mined comms. This is probably the biggest reasons it makes a lot more sense to consider net worth (at the current value of your comms, or at least what you could easily sell them for) and not just gold profits. This is a simplified example where I'm spending stone to mine just more stone, but adding the rest of the complexities doesn't fundamentally change the results or the problems involved.

Tahquil

You're agreeing with me on a lot of things. but I think the thing we are disagreeing on is how we calculate if we are making a profit overall.

You like to use net worth. The comms in your stores represent a positive gold value. So if you mine and never actually sell anything you can still see your net worth as being a profit. I don't like this as it will fluctuate day to day and is subjected to the whims of the commodity market.

I do it the other direction. The comms I mine out and are sitting in my inventory have a negative value. I don't count them as a profit until I've actually moved them and have gold in my hot little hand. The profit I get from them is stationary. No matter if the comms crash or rise, my overall profit is going to stay the same.

This is why I think after you make the decision not to sell that 1000 wood you're no longer factor in the potential profit because you no longer have the potential to profit from it. Yes it's not the wisest choice in this scenario and potential to profit should certainly be taken into account when decided to sell straight away or to reinvest but once the choice is made you should deal with the real costs involved.

Sena

What about the part where I spend 10k gold to increase my supply of stone by 100, then decide to sell 200 stone and use that to determine whether or not a particular price per stone would be profitable? I understand counting it as profit if gold is what you care about, but do you consider that to be a reasonable way of setting prices?

Tahquil

It's still 2k that you didn't have at the start of the transaction. So yes, it is still a profit, just not the optimal profit.