Search for deep-sea treasure intensifying

ng harder to find and even harder to put into production owing to social and political hurdles, a small but growing group of companies are looking to the sea floor as their next source of riches.

Nautilus Minerals (NUS-T) has been at the forefront of this movement for years as it steadily advances its Solwara 1 copper-gold-zinc-silver deposit off the shores of Papua New Guinea. But Solwara 1 has not escaped political risks, and it’s embroiled in a disagreement about a joint venture with the PNG government. Nautilus says the government owes it close to $50 million, representing PNG’s 30% share of project spending to date, while PNG has accused Nautilus of breaching the agreement and says that the state can end the agreement.

The two sides have recently agreed on an arbitrator for the dispute, though Nautilus says it is trying to resolve the matter without going to arbitration. Meanwhile, Nautilus’ share price has been cut in half since the dispute emerged, now sitting at just over a dollar with 196.4 million shares out and, as of April, US$119 million in cash.

The natural evolution from Nautilus is to go further offshore into international waters, as privately owned DeepGreen Resources has done. Started by current DeepGreen chairman David Heydon, who also founded and led Nautilus until 2008, DeepGreen is concentrating its efforts on the Clarion Clipperton zone in the middle of the Pacific Ocean.

“It’s obviously the next step from Nautilus minerals, which I founded in 2002,” Heydon says by phone. “Nautlius led me offshore and led me to understand the possibilities offshore, what resources were there and what equipment service providers and technology was available.”

The Clarion Clipperton zone that the company is focused on hosts a striking concentration of polymetallic nodules on the sea floor. The potato-sized rocks sit at 4,500 metres depth, and according to experimental mining from the 1970s, show average grades of 1.3% nickel, 1.1% copper and 29% manganese.

“You’ve got this bizarre material on the sea floor, there’s no equivalent on land, that is actually three mines in one,” Heydon says of the nodules. “It’s the equivalent of golf balls sitting on a driving range.”

Living on the edge of a golf course, Heydon says that on a nightly basis he sees attendants drive around the course and pick up the balls quickly and efficiently, and that’s exactly what he wants to do on the ocean floor.

The company has envisioned a 5.5-million-tonne per year operation recovering the nodules, from which it could produce 60,000 tonnes nickel, 50,000 tonnes copper and 1.3 million tonnes manganese annually. At this point, however, DeepGreen is still working on studies and preliminary testing. In early July the company launched a ship to take a 5-tonne bulk sample to test metallurgy, while later this year it plans to launch a second ship that will take a 30-million-tonne sample for more extensive metallurgy, as well as a National Instrument 43-101 resource estimate.

The company signed an offtake agreement with Glencore International (GLEN-L) earlier this year for 50% of the nickel and copper it plans to produce. According to Heydon, Glencore has also injected cash into the company.

“Glencore has joined us as a shareholder and invested significantly,” Heydon says. Glencore is joined by Heydon himself as a major shareholder, and Peter Barnes, co-founder of DeepGreen, who was previously CEO of Silver Wheaton (SLW-T, SLW-N).
>But DeepGreen is hardly the first player to arrive on the Clarion Clipperton, with hundreds of millions spent on test mining in the late 1970s. There are reports of technical and budgetary problems with the operations, although Heydon insists the biggest barrier to success was that there was no legal structure to provide title to the deposits.

The International Seabed Authority clarified its title rights in the area in 2000, and in 2008 Nauru Ocean Resources, the actual holder of DeepGreen’s title, received approval to explore the area.

DeepGreen is joined on the Clarion Clipperton by many government agencies that have been researching the area for years. Countries represented include China, Japan, Korea, France, Germany and some soviet-associated states, including Bulgaria, Cuba, the Czech Republic, Poland, Russia and Slovakia. The International Seabed Authority has issued 10 contracts for nodule exploration in the zone between 2001 and 2012.
But Heydon says that DeepGreen, as a private company, has different priorities.

“Other guys out there are countries, not commercial enterprises,” Heydon says. “Commercial means you have a different focus and different timeline, they are mainly driven by science and research institutes as opposed to us, which is absolutely commercial.”

In early June, however, the International Seabed Authority announced several new private applications for licences on the Clarion Clipperton zone, including: UK Seabed Resources, sponsored by the U.K.; Marawa Research and Exploration, sponsored by the Republic of Kiribati; and G-Tec Sea Mineral Resources NV, sponsored by the government of Belgium.

But the search for seabed minerals is by no means limited to the Clarion Clipperton, with the Seabed Authority announcing at the same time that the Republic of Korea has applied to explore for polymetallic sulphides in the central Indian Ocean. IFREMER, sponsored by the French government, has also applied to explore for polymetallic sulphides in the Mid-Atlantic ridge, and Diamond Fields International (DFI-T) wants to recover minerals from the bottom of the Red Sea.

Japan claims to have made discoveries of 80 to 100 billion tonnes of rare-earth deposits in international waters around Hawaii and east of Tahiti in French Polynesia. Reporting in the British journal Nature Geoscience, team leader Yasuhiro Kato wrote that 1 sq. km of the deposit could provide one-fifth of current global annual consumption.

China and India are also busy scouring the seabed. Last September China secured mineral exploration rights for polymetallic sulphide ore over a 10,000 sq. km area in the Indian Ocean. India, not to be outdone, announced in early July its plan to launch two ships capable of mining to depths of 6,000 metres.

Environmentalists have raised concerns over the potential impacts of untested mining techniques on delicate marine ecosystems, but Heydon puts the choice in stark terms.

“We’re just offering the world a choice,” Heydon says. “Do you want to rip up rainforests to get your nickel, or do you want to pick it up from the abyssal plains of the ocean floor, where there’s orders-of-magnitude less life?”

There are also those looking to simply pick up precious metals from the sea floor, already extracted and refined on land.

Odyssey Marine Exploration recently announced it has so far recovered 1.4 million oz. silver, in the form of 1,203 silver bars, from a British cargo ship sunk by a Nazi U-boat in the Second World War. The company states that the amount recovers represents 43% of the insured silver bars, or 20% of the total silver cargo Odyssey Marine believes was on board.

And in Alaska, a federal court recently approved Ocean Mar’s plans to salvage any gold on board the luxury steamer SS Islander that sank in 1901. The ship is rumoured to contain upwards of 192,000 oz. gold, though estimates vary.