At the forefront of growing interest in deep-sea mining

As global demand for precious metals and other minerals presses mining companies to seek out new deposits in remote locations, the next phase of the mining growth story could well take place beneath the oceans. Recent technological advances have brought the industry to a point where regulatory hurdles, rather than technical abilities, are the primary barrier to embarking on a new wave of subsea mines, much as the petroleum industry opened up vast new reserves with the advent of offshore drilling. Once the domain of fiction, the commercialisation of underwater mineral deposits via the utilisation of a fleet of tank-like robots is now on the verge of becoming a reality.

Attractive

As large-scale commercial mines mature into production phases characterised by declining grades and rising costs due to isolated locations and challenging social and political environments, the untapped potential of seabed mining is becoming a viable alternative. Initially most of these efforts are focused on identifying and monetising low-hanging fruit. This consists of high-grade deposits found in seafloor massive sulphides (SMS), which contain mineral grades up to 15 times higher than those generally found on land. By targeting only these precise areas, undersea mining operations are able to operate within a very small locality and thus produce a fraction of associated waste material, while delivering a high ratio of material from a low volume of input.

Other challenges associated with land-based operations will also be forgone such as no displacement of indigenous people, ease of transportation by shipping directly from the site, reusable equipment and higher workers safety due to the fact that mining operations are carried out remotely.

Solwara 1

Although a number of countries have been aggressive in offshore exploration of potential mineral resources, Papua New Guinea has already situated itself on the frontline of underwater mining development and has issued numerous offshore mining exploration permits. More tangibly, the country is home to the Solwara 1 deep-sea mining project, which is already in an advanced stage of development after being awarded environmental permits and mining leases in 2009 and 2011, respectively, and has already completed the construction of much of the specialised equipment necessary for the project.

Operated by Toronto-listed Nautilus Minerals, the project employs proprietary, advanced technology to carry out low-impact operations yielding high-grade ore at a site located off the coast of New Ireland and East New Britain Provinces. Just the second deep-sea mining lease issued in the world, the project targets SMS (or “black smokers”) that form along seabed ridges in water depths ranging between 450 and 5000 metres to harvest concentrated deposits of gold, copper, silver and zinc from the Bismarck Sea.

Specifics

A fraction of the size of traditional land-based mines, at approximately 0.11 sq km and a depth of 1500 metres, Solwara 1 deposits will be worked by robotic seafloor-production tools supported by a production vessel on the surface, according to Nautilus.

Three types of custom-built production tools, essentially remote-control robots weighing up to 300 tonnes, will be employed in the cutting and materials collecting operations. These consist of the auxiliary cutter, featuring an 11.6-metre boom used to level off the seafloor into more manageable benches, the bulk cutter; which will grind up large swaths of the targeted material; and the collecting machine which will suck up the material and transport it to the sub-sea slurry lift-pump and then up to the surface. Built by Soil Machine Dynamics in the UK, the three tracked robots are powered by a cable connected to the surface-support vessel and controlled using cameras and 3D sonar sensors.

Upon arrival at the surface-support vessel water is removed from the slurry and transferred to storage holds. Lastly, ore is transferred to export vessels for transportation to shore facilities for further processing.

Core samples taken from drillings in 2011 at the Solwara 1 site have revealed indicated levels of copper at 7.2%, more than 10 times the global mining average of 0.69%. There are also high concentrations of secondary minerals, including gold at 5 grams per tonne (g/t), 23 g/t of silver and 0.4% zinc grade. With a total of 1.03m tonnes of seabed to be mined, the estimated yield would include 80,000-100,000 tonnes of copper and 100,000-200,000 ounces of gold – equivalent to that of a modest onshore mine, but with much shorter time-frame of around three years.

Stumbling Blocks

While the development of the support infrastructure for the project has continued uneventfully, the regulatory and financial aspects stemming from the partnership deal that Nautilus and the PNG government signed in March 2011 to jointly develop the site have fared less well.

The original projected deadline to begin mining operations came and went due to disagreements between the project’s two partners. The primary source of disagreement arises from the government’s resistance to contributing its $118m share of developmental costs incurred as a result of its 30% equity stake in the project, for which Nautilus initiated the agreement’s dispute resolution mechanism in 2012. The PNG government subsequently began a process of international arbitration to help resolve the dispute.

Nautilus was ultimately awarded damages of some $118m by the international arbitrator in early October 2013, but delays to payment led Nautilus to terminate the existing agreement and file for damages in February 2014. One month later, in March, the company announced work on the Solwara 1 project was advancing and that seafloor production tools being built for the project were 90% finished and that the pump and the riser system were roughly 50% completed.

For its part, the government as a whole remained largely silent on the issue, although the minister of mining, Byron Chan, did tell the local reporters in March 2014 that the delay over payment was due to pressure by environmental groups and landowners seeking a more favourable financial position from the contract.

Chan also addressed a mining conference held in Port Moresby in December 2013 regarding the issue and noted that government officials had been working with local communities in New Ireland, nearby to where the Solwara 1 project is to be carried out. This is in order to conduct awareness initiatives regarding the development of the offshore mining policy and its implications under the current and the proposed legislations. He went on to elaborate that these talks were carried out with the support and cooperation of New Ireland’s provincial government and various other local-level governments, Nautilus and the relevant national government departments in collaboration with the South Pacific Commission, specifically via the South Pacific Geoscience Commission (SOPAC).

Michael Joyner, investor relations executive at Nautilus, left the door open for further cooperation with the government, telling the press in March 2014 that, “We are currently negotiating with the government in terms of an amount they are going to put into the company.” By the following month, a new agreement had been made between Nautilus and the government, which saw the state take a 15% stake in the project with the option of increasing its holdings to 30% For its initial stake, the government paid a non-refundable $7m deposit and, according to the new agreement, was required to secure an additional $113m before July 31, 2014. Full payment was made into an escrow account in May 2014, effectively solidifying the new agreement and leading to the dismissal of the previous dispute. Nautilus also has a number of other potential mine sites within PNG waters where it could relocate operations upon completion of Solwara 1. In total, the company has mapped out a dozen viable mining sites, named sequentially Solwara 1 through Solwara 12, for which it has obtained exploratory licences.

Big Picture

Perhaps the most technically challenging aspect of underwater mining in PNG is the formulation of new regulations, given that the country would be among the first in the world to carry out deep-sea mineral production. The government has indicated that seafloor mining regulations will be included in its new mining act when it comes into effect starting in 2015 and development of an offshore mining policy is under way. Much of the groundwork for underwater mining regulations has already been laid out under the Madang Guidelines, which were formulated in December 1999 in a cooperative effort involving the governments of Pacific Islands countries, the Metal Mining Agency of Japan, the Pacific Islands Forum Secretariat and SOPAC. Since then broader cross-border efforts have been formed to keep up with sector developments. These include moves by the UN’s International Seabed Authority (ISA) to formulate a global standard for mining – a prudent move considering that more than half of the world’s ocean floor lies outside generally recognised territorial boundaries.

Although formal international regulation will not be completed by the ISA for at least two to three years, the authority had already issued 17 exploration permits as of July 2014, with two more due to be signed.