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Underwater mining for copper has great potential, and countries are scrambling to ensure that they are in the game. The future of private companies invested solely in the business of deep sea copper mining can easily be swayed by a single deal.
Expectations are high for mining companies digging deep under the sea bed for copper and other metals, and the ocean is seen by many as the final frontier for commodities investors. Although the price of the red metal has lost its edge in recent months, a steady supply of high-quality copper is expected to become harder to come by, and exploring underwater may prove to be part of the solution. The challenge is how and if such operations can win over public opinion and be conducted in a way that has minimal impact on the environment.
At first blush it may seem like underwater mining has taken a step back. Toronto-based Nautilus Minerals (TSX:NUS,LSE:NUS,OTCQX:NUSMF), a rising star in the industry, is staggering from a heavy blow. The company is developing the world’s first seafloor copper and gold project at its Solwara 1 deposit in the Bismarck Sea, Papua New Guinea (PNG). It was expected to begin extracting mineralized material late next year, and had listed on the OTC market in late April to increase access to US capital markets. On June 1, however, the company cautioned that its Solwara project could be delayed or even canceled due to a dispute with the government of PNG over ownership of the undersea mine. Nautilus had signed a deal with PNG in March that would give the government a 30 percent stake in the project in return for paying its share of development costs, estimated at about $24 million. Until the situation is resolved, Nautilus will have to carry all costs itself.
The government of PNG has argued that Nautilus has not met some of its obligations, therefore it too is not meeting its obligations.
Of course, looking to the sea as a source of base metals should come as no surprise, as the ocean covers over 70 percent of the planet and is an obvious source of minerals. Offshore drilling for crude oil has been going on for over a century, and technological advancements have made it more feasible to drill deep into the sea beds to tap into natural resources. The natural hot springs at the ocean’s bottom, around PNG and New Zealand in particular, have concentrated minerals; Nautilus has reported that its copper has a grade of 7 percent, which is high compared to the average land-based copper grade of 0.6 percent.
Yet Nautilus is currently only one of two mining companies focused on offshore exploration for commercial underwater mining, the other being Nevada-based Neptune Minerals, which has acquired control of the UK’s Neptune Minerals and its licensed tenements in New Zealand as well as Japan. Neptune has also acquired control of Hong Kong’s Dorado Ocean Resource, and continues to focus on seafloor volcanogenic massive sulfide (VMS) exploration and extraction.
A major problem faced by both companies is opposition from environmental groups. For instance, Wenceslaus Magun, coordinator of the PNG environmental group Mas Kagin Tapani Association, told Radio Australia last month that PNG should step back from its deal with Nautilus, adding that “we could not rely on our government to tell us that seabed mining is good, is safe.”
Some industry observers also question whether seabed extraction — which would employ robots to break up the ore and pipe the slurry to a surface barge for transport and processing on land — is worth the risk. A 2011 study published in the journal Geology noted that while the sea floor indeed hosts recoverable mineral deposits, they are likely insufficient to meet global demand.
Yet Nautilus signed its first commercial deal with China’s Tongling Nonferrous Metals Group in April, agreeing to sell about 1.1 million tonnes of copper and other minerals per annum over a three-year period.
“The quality of this relationship with China’s largest importer of copper concentrates provides further evidence that there is considerable interest in the high-grade massive sulfides being found by the emerging seafloor resource production industry,” stated Nautilus CEO Stephen Rogers.
Nautilus will be holding a conference call about its future plans and the latest developments regarding the Solwara project later this week. Major shareholders in Nautilus include Anglo American (LSE:AAL) with 11 percent of shares, and Russia’s Metalloinvest, which has a 21 percent stake in the company.
China’s involvement
While few companies contemplate taking the plunge into deep sea mining, it is clear that public interest in the business is increasingly rapidly. China is invested through the Jiaolong deep sea submersible, which is attempting a record dive of 7,000 meters below sea level. The United Nations’ International Seabed Authority gave Beijing the go ahead to explore for minerals in international waters in 2001. Marine expert Song Xiaojun stated that the Jiaolong will be able to access resource-rich zones that can be as low as 10,000 meters, and commented that “China needs the technology to utilize these resources, because energy is the key to the country’s industrialization.”
China is certainly eager to embrace the potential of deep sea mining. In October, the Underwater Mining Institute will be hosting a week-long conference on the challenges of developing marine minerals in an environmentally-sustainable manner at Shanghai’s Tongji University.
“Many private and government-sponsored marine mineral exploration efforts are ongoing in efforts to respond to this increasing demand with new sources minerals. As we anticipate new commercial seabed mining operations in the near term, it is critical to ensure that such activities take place with due consideration for all resources that could be impacted,” the Underwater Mining Institute stated.
Clearly, the ocean remains a largely untapped resource for copper and other metals, and that the next scramble for resources may well be heading out to sea. There could be ample opportunities for mining groups both large and small to enter the market, but for now, investors will be closely following the prospects of Nautilus Minerals for clues about the future of the business.
Securities Disclosure: I, Shihoko Goto, hold no direct investment interest in any company mentioned in this article.