Insatiable demand for base and precious metals is generating a groundswell of exploration worldwide, pushing miners back into Earth’s final frontier – the ocean.
A few years ago, a handful of companies around the world were looking to commercially mine metal from the ocean floor.
Although the oil and gas industry had been extracting crude from the depths of the abyss for decades, the mining industry was a newcomer.
David Heydon, often considered the father of modern deep-sea mining, said the industry regarded these companies as “quirky” investment stories.
At the time, Heydon was founder and president of Nautilus Minerals (TSX:NUS), which was based in Vancouver and at the forefront of the sector.
But then the Great Recession hit, capital flows dried up and the oceans were forgotten as miners hunkered down to ride out the economic storm.
Now, emerging nations are demanding resources, metal prices are reaching for the stars and, after a failed attempt at retirement, Heydon has plunged back into the water.
“The big opportunity, the huge opportunity is offshore. It has to be,” a passionate Heydon said during a telephone interview from his home in Australia.
His new company is DeepGreen Resources, a private outfit looking to go public and set up shop in Vancouver this fall.
The company is focused on one project – Clipperton, a copper-nickel deposit on the abyssal plains between Hawaii and Mexico.
Heydon has no problem talking about the “millions and millions” of tonnes of ore he believes Clipperton contains, but he’s more apt to explain why the future of mining is underwater.
It’s a compelling tale, one not shy on ideas about dredging submerged deposits to protect biodiversity on land.
But for investors the more captivating part of the story is that underwater deposits appear to have much higher ore grades than their land-based counterparts, where most of the large, well-endowed projects have already been developed.
“Where do you go to find the next 300 million tonnes? The major mining companies already have their foot on the big deposits,” Heydon explained. “If you’re one of the other 98% of companies in the world, where do you go to find them? Clearly, people are recognizing this is the place.”
Although Nautilus remains one of the leading companies in the sector, a number of others have begun to pop up.
IHC Merwede, a Dutch supplier of ships and mining equipment, recently teamed up with Belgium dredger DEME to jointly explore for phosphates in New Zealand territorial waters.
Mining giants Rio Tinto (NYSE:RTP) and Fortescue Metals Group (ASX:FMG) are surveying shallow-water iron sands projects off the coast of New Zealand.
Australia’s Minemakers (ASX:MAK) is working on a feasibility study for a phosphate project off the coast of Namibia, where Montreal’s Afri-Can Marine Minerals (TSX-V:AFA) wants to mine diamonds. Vancouver’s Diamond Fields International (TSX:DFI) has successfully pulled diamonds out of Namibia’s waters, but these days the company is focused on a zinc-copper-silver project in the Red Sea.
“We have, probably, the largest database of any known marine deposit on the planet,” said Diamond Fields chairman Wayne Malouf.
The company has joint-ventured with Saudi Arabia to develop the project, and interim president and CEO Ian Ransome hopes to have it in production by 2014.
The company already has a deep-sea metal mining licence, but more exploration needs to be done before the deposit can be put into production.
Meanwhile, Nautilus has forged ahead with its Solwara I project in the waters off Papua New Guinea. Three weeks ago, the company, which is now run out of Toronto, said the Papua New Guinea government would take a 30% stake in the project.
President and CEO Stephen Rogers called the deal a “really strong vote of confidence” in the project.
Solwara I is a prime example of the kinds of high-grade mineral deposits that can be found on the ocean floor, Rogers said. The project contains an indicated resource of 870 kilotonnes grading 6.8% copper, 4.8 grams of gold per tonne and 23 grams of silver per tonne.
“This is the start of the new frontier,” Rogers said. “People are recognizing that the grades are becoming more and more depleted on land, we’re having to disturb more and more of the pristine wilderness areas in the world to get at the low-grade material that’s left.”
The project has also attracted interest from some of the world’s major miners.
Anglo American (LSE:AAL) owns 11.1% of Nautilus, Vancouver’s Teck Resources (TSX:TCK.B) has a 6.8% stake and Gazmetall Holding (Cyprus) Ltd. owns 21%.
A few years ago, Teck had explored the seafloor with Nautilus, but the financial meltdown forced it to take a step back.
Colin Joudrie, Teck’s director of business evaluations, said although the company isn’t as active with the project as it once was, it still holds monthly face-to-face meetings with a variety of businesses in the marine mining sector.
Vancouver analyst David Coffin believes Nautilus has the technology to take marine mining from concept to reality. But from an investment point of view, he said it’s still too early to say when or if the sector will pay off for shareholders.
“The question is whether it’s something that has any staying power … and that’s an open question.”
Heydon, however, believes recent movement in the sector is proof that the next frontier is already upon the industry.
“There’s a groundswell, or an ocean swell is probably a better word.”
Toronto
CEO: Stephen Rogers
Employees: 54
Market cap: $415.5m
P/E ratio: N/A
EPS: ($0.25)
Sources: Stockwatch, TSX, globe investor