Search for sunken treasure intensifying

VANCOUVER — With big mineral deposits becoming harder to find and even harder to put into production thanks 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 for years been at the forefront of this movement as it steadily advances its Solwara 1 copper-gold-zinc-silver deposit off the shores of Papua New Guinea. But, since Solwara 1 sits just off the shores of PNG it has not escaped political risks, and is now 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 therefore the state can end the agreement.

The two sides have recently agreed on an arbitrator for the dispute, though Nautilus says it is still trying to resolve the matter without going to arbitration. Meanwhile, Nautilus’ share price has dropped 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 then, 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,” said David Heydon by phone. “Nautlius led me offshore and led me to understand the possibilities offshore, what resources were there, and certainly 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 sitting on the sea floor. The potato-sized rocks sit at around 4,500 metres depth, and according to early experimental mining from the 1970s, showed 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 said 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 every night 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 some 60,000 tonnes nickel, 50,000 tonnes copper, and 1.3 million tonnes manganese per year. At this point, however DeepGreen is still working on studies and preliminary testing. In early July the company launched a ship to take a small 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 43-101 resource estimate.

Giving the company greater legitimacy, it managed to sign an off-take 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 said. Glencore is joined by Heydon himself as a major shareholder, and Peter Barnes, co-founder of Deep Green, who was previously CEO of Silver Wheaton (SLW-T, SLW-N).

DeepGreen is hardly the first player to arrive on the Clarion Clipperton though, with hundreds of millions spent on test mining in the late 1970s. There are reports of technical and budgetary problems with the operations, but Heydon insists the biggest barrier to success was that there was no legal structure to provide title to the deposits.

Only in 2000 did the International Seabed Authority clarify title rights in the area, and then only in 2008 did Nauru Ocean Resources, the actual holder of DeepGreen’s title, receive approval to explore the area.

DeepGreen is joined on the Clarion Clipperton by numerous government agencies that have been actively researching the area for years. Countries represented include China, Japan, Korea, France, Germany, and a consortium of soviet-associated states including Bulgaria, Cuba, the Czech Republic, Poland, Russia, and Slovakia. Overall the International Seabed Authority has issued 10 contracts for nodule exploration in the zone between 2001 and 2012.

But Heydon said that DeepGreen, as a private company, has different priorities.

“Other guys out there are countries, not commercial enterprises,” Heydon said. “Commercial means you have a different focus and different timeline, they’re 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 UK, Marawa Research and Exploration, sponsored by the Republic of Kiribati, and G-Tec Sea Minerals Resources NV, sponsored by the Government of Belgium.

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

Japan claims to have 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 deposit could provide one-fifth of current global annual consumption of rare earths.

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 India Ocean. India, not to be outdone, announced in early July that it planned to launch two ships capable of mining to depths of 6,000 metres.

Environmentalist 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 said. “Do you want to rip up rainforests to get your nickel, or do you want to pick it up from the abyssinal plains of the ocean floor where there’s orders-of-magnitude less life?”

Finally, there are, of course, those looking to simply pick up from the sea floor precious metals 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 World War II. The company states that the amount recovers represents roughly 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 considerably.