companies turning to seafloor next metals rush

Companies Turning to Seafloor in Advance of Next Great Metals Rush

Posted on: Sunday, 4 May 2008, 03:00 CDT

By Gleason, William M

Nautilus Minerals and Neptune Minerals are betting that the next great metals rush will take place more than 1,500 m (5,000 ft) below the sea. Nautilus is the first company to commercially explore the ocean floor for gold and copper seafloor massive sulfide (SMS) deposits. Its main focus is the Solwara 1 Project, a polymetallic copper, gold, zinc, silver deposit that is under 1,600 m (5,200 ft) of water off the coast of Papua New Guinea in the western Pacific Oceans' Rim of Fire.

Nautilus Minerals, in a joint venture with Placer Dome (now Barrick Gold), began its exploration of what would become the Solwara 1 area in 2005 with side scan sonar and dredge sampling. The dredge and grab sampling confirmed the grade tenor of earlier sampling by scientific research programs. The 45 dredge samples averaged 10.8 percent copper, 3.7 percent zinc, 224 g/t (6.5 oz/st) silver and 13.7 g/t (0.4 oz/st) gold.

Nautilus has since staked out more than 300,000 km^sup 2^ (115,800 sq miles) of tenement licenses and exploration applications in the waters off Papua New Guinea, Fiji, New Zealand,Tonga and the Solomon Islands. That is an area about the same size of the United Kingdom.

Interest in Nautilus and its projects has grown tremendously since its inception. The company is now listed on the Toronto Stock Exchange. It has raised more than $300 million and spent more than $23 million on exploration.

The company has gained the backing of mining majors such as Teck Cominco, Epion, Anglo American and Barrick Gold. It is positioned to become an emerging producer in 2010. Teck Cominco recently agreed to exercise share purchase warrants to acquire three million additional common shares of Nautilus at a price of US$15 million. This will take Teck Cominco's shareholding to approximately 7.2 percent of the issued shares.

Teck Cominco will conduct and manage a ship-based exploration program that will run in addition to the exploration that was already planned for 2008.

Neptune Minerals, based in the United Kingdom, was founded in 1999 to explore, develop and commercialize SMS deposits.

SMS deposits are high-grade hydrothermal deposits rich in copper, zinc and lead with a high gold and silver content, found on the ocean floor.

The company's granted exploration licenses and areas under application are in highly prospective settings of offshore New Zealand and in the Western Pacific and Mediterranean regions.

In 2002, Neptune was granted exclusive exploration rights over known prospective SMS deposit areas within New Zealand territorial waters. It is seeking further SMS deposit mineral rights internationally. Neptune's granted exploration license areas total more than 236,000 km^sup 2^ (91,120 sq miles). Newmont Mineral Holdings is among those backing Neptune and its projects.

Neptune is preparing to lodge its first mining license application in New Zealand to meet its goal of trial mining by 2010. Since October 2005, Neptune has undertaken three exploration programs in the waters off New Zealand, as well as significantly increasing its global tenement holdings.

Neptune's success offshore includes the recent discovery of two new, hydrothermally inactive SMS zones on the Rumble II West seamount, 300 km (186 miles) north of New Zealand's North Island, along the Kermadec Arc seafloor mountain chain. This arc forms part of the Pacific Ring of Fire, which is highly prospective for SMS deposits.

Neptune's New Zealand exploration programs are a result of previous, significant academic research in these waters, which have confirmed numerous, prospective SMS zones. During the past 20 years, New Zealand and international scientists, have documented SMS research along the Kermadec Arc and Havre Back Arc in the area of Neptune's granted tenements.

The firm applied for its initial exploration license in 1999 and it was granted in 2002. Neptune's acreage in the country now includes 63,000 km2 (24,300 sq miles) of granted exploration tenements and three applications over an area of 85,000 km2 (32,800 sq miles).

Growing interest. With the rising price for all commodities and improved technology, much of it borrowed from the oil and gas industry, activity in offshore mining has dramatically increased.

In 2007, Nautilus had a very productive year. It completed its first offshore program with two drilling vessels operating for 200 days, completed a baseline environmental survey at Solwara 1, raised $214 million in equity capital and ended the year with $310 million cash in the bank.

Operationally, Nautilus discovered four new mineralized areas offshore of Papua New Guinea. And Nautilus became the first company to use an electromagnetic (EM) survey on the seafloor.

Nautilus and Teck Cominco also partnered with Vancouver-based Ocean Floor Geophysics Inc. to develop, deploy and protect the intellectual property associated with the deep-ocean electromagnetic technology.

Electromagnetic data is a proven technique for locating and mapping massive sulfide mineralization beneath the land.

The company closed 2007 with the awarding of a contract worth approximately US$66.5 million to Soil Machine Dynamics (SMD) for the design and build of two seafloor mining tools (SMTs).

The SMT is a gigantic crab-like mining robot, with multiple claws, capable of digging out 100 m3/h (3,500 cu ft/hour) of rock at the SMS deposits. It will be used at the deep-sea chimneys, called black smokers, that are formed when magma-heated water shoots up through the earth's crust, bringing with it gold, silver, copper and zinc. The magma cools in the seawater and the minerals form at the base of the vents, creating the black smokers that were first discovered in 1977 near the Galapagos Islands.

The crushed material will then be pumped to the surface as a slurry through miles of pipe.

"It's mainly a technology transfer from the oil and gas industry," said Nautilus vice president Scott Trebilcock. Similar machines to the mining robot are already being used to dig pipe trenches for moving oil and gas to shore from deep-sea wells.

The SMT contract is the first of the three contracts. It was awarded after a four-month competitive tendering process that involved several other major offshore remote operated vehicle (ROV) and mining equipment supply contractors.

These advancements follow the agreement Nautilus made earlier in 2007 with Jan De Nul Group, one of the world's leading dredging companies, for the construction of Jules Verne, a 191-m (626-ft) vessel to be used at the Solwara 1 project.

Steel fabrication was scheduled to begin in November 2007 and the construction is estimated for completion third quarter 2009. As part of the contract, the shipyard will be responsible for equipping the vessel with special subsea mining equipment and the associated handling systems necessary for the recovery of ore material from a water depth of up to 1,700 m (5,577 ft).

The Jules Verne will be capable of deploying mining equipment, pumps and riser pipes for the operations at Solwara 1. The plan calls for the copper and gold material to be dredged from the seafloor and pumped to the mining vessel where it would be transferred to barges for transport to a land-based concentrator.

Jan De Nul will build, own and operate the mining ship. The company will also provide barges, tugs and operational capability in its role as mining contractor for the Solwara 1 Project. Nautilus will provide the capital (budget estimate US$120 million) for two subsea miners, power umbilicals, pumps, 1,800 m (5,900 ft) riser pipe and related handling equipment. Jan De Nul will reimburse Nautilus over time for this capital by rebating 6.5 percent of each monthly contract mining invoice, effectively purchasing the equipment from Nautilus.

Neptune is planning a program of continuous exploration, called Project Trident in New Zealand.

The company has been in discussions with major contractors to commission dedicated survey and sampling vessels to focus on the New Zealand tenements during the next two years.

Negotiations are advanced with potential partners to farm into Neptune's New Zealand licenses and fund Project Trident through a joint venture. The company now has 278,000 km^sup 2^ (107,300 sq miles) of granted tenements in New Zealand, Papua New Guinea, the Federated States of Micronesia and Vanuatu, with a further 434,000 kmz (167,600 sq miles) under application in New Zealand, Japan, the Commonwealth of Northern Marianas Islands, Palau and Italy.

Environmental concerns. Nautilus president and chief executive officer David Heydon has been quoted as saying that the advantages of offshore mining are environmental and societal.

The mineral deposits that Nautilus is exploring do not have tons of overburden to remove and no waste rock. There is no shaft to sink and native people will not be displaced by mining operations.

However, environmental concerns about mining the ocean floor continue.

Both companies anticipate that mining could be done more precisely and without blasting.

Nautilus Minerals addressed the issue on its Web site with a statement that reads, "as part of an environmental study, the volcanic structures and other features that are of interest to the exploration scientists are being carefully assessed. Environmental authorities and mining regulators are being kept fully appraised. Marine biologists from James Cook University (Australia), University of Toronto, Canada and the college of William and Mary in Virginia, were on board the DP Hunter and documented more than 3,000 geological and biological observations during the first phase of ROV exploration, which included over 65 dives." Neptune Minerals has also been cautious in its approach to offshore mining.

The firm is undertaking a baseline environmental impact assessment of the Kermadec area and is awaiting results from a conceptual, engineering scoping study, commissioned in October 2007. The report will review and assess existing marine equipment and technologies for validity, operational reliability, capacity and environmental issues. Neptune said it will evaluate this report with a view to proceeding to pilot testing and a mining prefeasibility study.

"Being the first company to attempt development of SMS in New Zealand waters, it is important to ensure we work with government authorities to establish the appropriate operational guidelines to protect the environment," said Neptune director and chief executive officer Simon McDonald. "Neptune is committed to a transparent process that ensures the appropriate stakeholders are fully engaged on Neptune's mininglicense applications."

The company recently hired environmental manager Glenn Creed to liaise with stakeholders and environmental experts, such as New Zealand's National Institute of Water and Atmospheric Research (NIWA), to work through the mining-license application process in a consultative manner.

William M. Gleason, Associate Editor

Copyright Society for Mining, Metallurgy, and Exploration, Inc. Apr 2008

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