MAC: Mines and Communities

Is it 'Game Over' for Nautilus' Deepsea Mining Experiment?

Published by MAC on 2018-12-13
Source: Statement, Economist (2018-12-11)

With the loss of its key support vessel it looks like the end is nigh for Canadian miner Nautilus' plan for deepsea mining off the coast of Papua New Guinea.

It is excellent to see that the Economist picked up on this story. However, it's a shame their article ends on such an optimistic note; it can hardly be said the situation in international waters is clear when there are no agreed exploitation rules (as pointed out in the IIED Guest Blog published below).

Previous article on MAC: Deep Sea Mining rules debated ... while proposed project sinks

Game Over! Nautilus' Solwara 1 experiment fails

Deep Sea Mining Campaign press release

11 December 2018

PAPUA NEW GUINEA - Nautilus’ aspirations to be the world's first deep sea miner sink to the bottom of the ocean on news that the project support vessel critical to the development of Nautilus’ deep sea mining project in Papua New Guinea has been purchased for repurposing by Indian company MDL Energy.

Dr. Helen Rosenbaum, of the Deep Sea Mining Campaign said: “Nautilus’ Production Support Vessel (PSV) was the centre piece of their model of operation. Without the PSV it's difficult to see Nautilus ever developing its Solwara 1 project. Given Nautilus’ dire financial circumstances it is fair to say the game is over. There seems little chance of them re-paying their bridging loans when these become due in less than a month. The Solwara 1 experiment can be deemed a failure. The people of the Bismarck Sea of Papua New Guinea have hopefully been spared an environmental disaster."[1]

Dr. Catherine Coumans of Mining Watch Canada stated, "If Nautilus sinks, the amazing hydrothermal vents targeted for mining with their unique and diverse life forms will be given a reprieve. As will the marine ecosystems and fisheries of the Bismarck Sea. Local communities have been fighting hard to preserve their way of life and their livelihoods for their children and children's children."

Jonathan Mesulam from the Alliance of Solwara Warriors, says, "My village is located in New Ireland province, only 25 km from the proposed Solwara 1 project. It will be good news for my people if Nautilus goes bankrupt - instead of bankrupting our sea. We will fight this project to the very end."

Mesulam continued, "The Alliance of Solwara launched a legal case in PNG's courts over a year ago.[2] We are concerned that the Papua New Guinean Government has attempted to have our legal case dismissed. We are now talking to our legal team about filing substantive court proceedings against Nautilus and the State to stop the project. One way or another we will chase Nautilus and Solwara 1 from PNG's waters!"

Sir Arnold Amet, former Papua New Guinean Attorney General declared, "I have been warning our Government publicly and privately about the financial mess they will find themselves in when this experimental company fails.[3] The PNG Government invested heavily to purchase 15% of Nautilus and this will now translate into 15% of its bankruptcy and any debts the company owes. Our nation cannot afford this. The Government should now terminate the contract with Nautilus and cancel all permits for the Solwara 1 operation.

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Notes

[1] Canadian company Nautilus Minerals Inc. has been desperately seeking funds for its flagship Solwara 1 deep sea mining project. Commercial operation has been delayed year after year since it received its licence to mine the floor of the Bismarck sea in 2011. In a last-ditch bid to finance Solwara 1, Nautilus's two largest shareholders, Russian mining company Metalloinvest and Omani conglomerate MB Holdings, have formed a new company whose sole job is to secure funding for the Solwara 1 project. However, their attempts have failed. See Nautilus signs funding mandate with major shareholders, Nautilus Minerals press release, 11 October 2017, http://www.nautilusminerals.com/irm/PDF/1929_0/Nautilussignsfundingmandatewithmajorshareholders

[2] ‘Legal action launched over the Nautilus Solwara 1 Experimental Seabed Mine’, media release, Alliance of Solwara Warriors and Centre for Environmental Law and Community Rights (CELCoR), 8 December 2017, http://www.deepseaminingoutofourdepth.org/legal-action-launched-over-nautilus-solwara-1/; ‘Troubled Papua New Guinea deep-sea mine faces environmental challenge’, The Guardian, 12 December 2017, https://www.theguardian.com/world/2017/dec/12/troubled-papua-new-guinea-deep-sea-mine-faces-environmental-challenge;
‘World-first mining case launched in PNG’, Lawyers Weekly, 14 December 2017, https://www.lawyersweekly.com.au/wig-chamber/22429-world-first-mining-case-launched-in-png

[3] ‘Nautilus Solwara 1 on the verge of bankruptcy as APEC Summit heads to Papua New Guinea’, media release, 12 November 2018, http://www.deepseaminingoutofourdepth.org/nautilus-solwara-1-verges-on-bankruptcy-as-apec-heads-to-png;‘Former Attorney General of Papua New Guinea: The writing is on the wall for Solwara 1 – PNG should withdraw its investment before it’s too late’, media release, 17 January 2018, http://www.deepseaminingoutofourdepth.org/the-writing-is-on-the-wall-for-solwara-1-png-should-withdraw; ‘Former PNG AG attacks deep sea mining project’, Radio New Zealand International, 24 October 2017, https://www.radionz.co.nz/international/pacific-news/342251/former-png-ag-attacks-deep-sea-mining-project


A high-profile deep-sea mining company is struggling

Nautilus has multiple problems, including the loss of an expensive ship

Economist - https://www.economist.com/business/2018/12/06/a-high-profile-deep-sea-mining-company-is-struggling

6 December 2018

AFTER LISTING on the Toronto stock exchange in 2006 Nautilus Minerals became the public face of a daring new industry: deep-sea mining. It planned to pursue riches on the ocean floor, mining metals such as gold, zinc and copper, desired for lustre, alloys and electronics. Robotic machines (pictured) would cut, grind and gather volcanic rock at a site called Solwara 1, located 1,600 metres beneath the surface of the Bismarck Sea near Papua New Guinea (PNG). The resultant rocky slurry would be pumped up to a support vessel, then shipped to a site at which the metals could be extracted. Investors were convinced; Nautilus’s shares doubled from their initial price of C$2 ($1.80) in a few months.

Today a Nautilus share is worth just a few Canadian cents. Three problems have changed sentiment. First, the firm has had substantial contractual trouble with the government of PNG, in whose territorial waters Solwara sits. The two sides wrangled for years over payments that the government owed for its equity stake in the project. The government eventually stumped up, but the row slowed progress.

Second, the idea of using Nautilus’s vast machines to carve and crush underwater volcanoes does not sit well with environmental groups in PNG and around the world. That may have unnerved investors.

Third, uncertainty after the financial crisis of 2008-09 made it harder for Nautilus to fund its untested venture. That has left only two big shareholders: MB Holding, an Omani conglomerate, and Metalloinvest, a Russian steel and mining firm.

Timetables have slipped as a result. The firm states only that mining at Solwara 1 will now be delayed “past” the third quarter of 2019, with no start date offered. Its finances are making a descent. Some $350m is required to get mining going. Nautilus has drawn down half of a $34m credit line that MB Holding and Metalloinvest gave it in January in exchange for the rights to purchase more shares (an arrangement which coincided with the departure of some senior managers and Nautilus’s chairman). The firm is due to start repaying these loans in January but, as of September 30th, only had $200,000 of cash.

To add to these problems, Nautilus appears to have lost the specialised support vessel that it had planned to use. It had chartered a new ship through MAC Goliath, an Emirati shipowner and operator. The vessel was nearing completion at the docks of Fujian Mawei Shipbuilding in Fuzhou in southern China in December 2017 when MAC Goliath defaulted on a payment. Nautilus was given the option to step in and make the missing payment, but was unable to do so. In July the Chinese shipyard found a new firm to take over the contract, MDL Energy, an Indian shipowner that is planning to engage in deep-sea mining explorations for India’s government. Kulpreet Sahni, MDL’s chief executive, confirms that his firm now owns the ship.

On December 2nd Nautilus stated that it was “in negotiations with various parties” about ownership of the vessel; its shares surged in response. But Mr Sahni says his firm terminated negotiations about Nautilus’s continued use of the ship months ago. On December 3rd Mr Sahni wrote to Nautilus’s boss, John McCoach, warning that the firm’s statement was detrimental to MDL Energy, and to Nautilus’s own minority investors, and that it might contact the Toronto Stock Exchange or take legal steps if the matter was not clarified. (In an emailed statement to The Economist, Mr McCoach declined to comment on the specifics of this story but said that some of it was “not accurate from our perspective”.)

If the vessel is gone, that would be a huge blow for Nautilus, for it had been custom-built for the firm’s particular mining methods. It will be near-impossible to replace, especially given Nautilus’s beleaguered finances.

But Nautilus’s travails have offered lessons to the rest of the deep-sea mining fraternity. Gerard Barron, Nautilus’s first financial backer (who sold out of the company years ago), has hired some of Nautilus’s ex-employees for DeepGreen, a new deep-sea mining venture which focuses on harvesting metallic nodules that are scattered across the sea floor in the deep ocean. These contain metals such as cobalt and nickel needed for the batteries and wind turbines that power the clean economy. Having watched Nautilus’s progress, he reckons that hoovering up nodules will be easier than grinding volcanic rock, and that their uses lend such activities a more environmentally-friendly sheen. Other firms have made a similar bet.

Although the water in the Clarion-Clipperton Zone, a patch of Pacific sea floor in which such firms will operate, is some three times deeper than that at Solwara, the location is out on the high seas. That means it is subject to a clearer set of rules for mining and exploration, which is overseen by the United Nations, thereby reducing the scope for wrangling with national governments. Nautilus holds a concession there, too. But if the firm does not secure a fresh infusion of cash, its machines may never venture further than a dock in PNG.


Mining in the deep-sea bed: are we ready?

Guest blog by Erika Solimeo and Brendan Schwartz

IIED Guest Blog - https://www.iied.org/mining-deep-sea-bed-are-we-ready

12 November 2018

International law designates the deep seabed as the “common heritage of mankind”, but poorly regulated mining could cause irreparable damage to such a fragile ecosystem. Erika Solimeo and Brendan Schwartz argue that the International Seabed Authority needs a moratorium on mining extraction licences.
Deep-sea mining (DSM) is a fast-developing frontier of mineral exploration and, soon, commercial extraction. Improved technologies and an emerging international legal framework could mean large volumes of minerals such as cobalt, manganese and copper will soon be scooped off the ocean floor by robots.

The International Seabed Authority (ISA), which has the mandate to administer and regulate deep-sea mining in 'Areas Beyond National Jurisdiction' (ABJN), has been developing draft regulations (PDF) to govern the extraction of minerals. While deep-sea mineral exploration is taking place within the national jurisdiction of a few countries, to date the ISA has granted 29 exploration licences in the ABNJ to companies hoping to start extraction once the mining code is finalised in 2020.

Do we need deep-sea mining? Competing visions

Pro-mining governments and companies promote deep-sea mining as essential for sustaining our highly digitalised society and the booming market of green technologies (such as solar panels, wind turbines and electric vehicles). As electric cars require nearly 10kg of cobalt per vehicle, and China alone is planning to produce more than four million hybrid cars in the next decades, there will be a significant surge in the demand for new raw materials.

In contrast some governments are more interested in the technological advances generated by deep-sea mining than the actual minerals. Proponents also claim that underground minerals are becoming scarcer and of poorer quality which, coupled with the negative social impacts generated by onshore mineral extraction, makes it worth looking to the deep seabed.

However, growing numbers of academics, conservation groups and some governments remain sceptical about the need for DSM. Two common arguments from this camp emphasise that:

* Stronger policies on industrial product design and recycling would reduce the need for minerals drawn from the deep-sea bed, and
* There is scientific uncertainty (PDF) about the true long-term impacts of DSM, but preliminary evidence suggests that disturbances to deep-sea ecosystems could require “many decades to millions of years” to recover. It might be impossible to remediate negative impacts.

The legal case for a moratorium

The United Nations Convention on the Law of the Sea (UNCLOS), the treaty governing the ABJN, states that resources in the deep seabed are the “common heritage of mankind”. It also sets out an obligation, among others, to conserve the marine environment and equitably share benefits derived from the sea.

These responsibilities have an intergenerational dimension. The trouble is that the world has invested very little scientific research to understand the deep seabed and its role in healthy ocean ecosystems; if DSM went ahead, we would have an insufficient understanding of its true impacts.

The precautionary principle

Given the state of scientific knowledge, it will be difficult for the ISA to implement both its environmental mandate and license deep-sea mineral extraction. Arguably, the application of the precautionary principle would call for a moratorium on DSM in the ABJN until adequate scientific knowledge, suitable legislation and robust institutions can deliver proper oversight of the sector.

"With so much uncertainty, the precautionary approach would benefit everyone and buy time to enable the implementation of a scientifically-informed legal and contractual framework that protects the “common heritage of mankind”

The Law of the Sea is not new to international moratoria, which have managed scientific uncertainties around the potential impacts of ocean fertilisation, mining activities in Antarctica and to combat the depletion of whale stocks. Already, precautionary approaches for deep-sea mining are being considered in the waters of Mexico, New Zealand, Australia, Namibia and the European Union.

Building strong institutions and improving transparency

A moratorium would also allow all actors to assist in building the institutional capacity of the ISA, by means of its strategic plan (PDF), and fine-tune the necessary legal frameworks. Political economy analysis of past attempts to govern natural resource extraction has revealed the importance of 'sequencing' – the idea that strong institutions must be built prior to the commencement of extractives licensing and operations.

While the ISA is taking important steps to improve governance of DSM, evidence from prior experiences suggests that developing capacity to regulate the environmental impacts of mining is a long-term endeavour. There have also been questions about the transparency of rule-making since the legal and technical commission drafting the rules meets in closed-door sessions.

Regulatory stability and DSM – a catch-22

The provision of broad regulatory stabilisation guarantees – a common practice in the mining industry, intended to create a predictable investment climate for DSM contactors – could backfire. The ISA’s working draft on standard mining contract terms includes clauses (sections 5 and 6) that could be interpreted to allow for the ISA to revise environmental standards over time.

But other provisions (section 39 and draft regulation 59) state that, if applying new rules involves revising contract terms, this can only be done with the consent of the mining company. Depending on how these provisions are interpreted, the application of new environmental rules could depend on the goodwill of each individual company.

Given the dynamic nature of technological change and scientific knowledge, it is highly likely that the ISA will need to regularly update DSM environmental regulations, and it is important that stabilisation commitments do not get in the way.

Buying valuable time

With so much uncertainty, the precautionary approach would benefit everyone and buy time to enable the implementation of a scientifically-informed legal and contractual framework that protects the “common heritage of mankind” while creating a sound investment climate for private companies.

There is also a strong case for ensuring the legal regime is flexible enough to allow for standards to be adjusted in light of our evolving understanding of this precious ecosystem.

About the author

Erika Solimeo is a LLM (Master of Laws) candidate at the University of Strathclyde

Brendan Schwartz (brendan.schwartz@iied.org) is a senior researcher in IIIED's Natural Resources research group


Former Attorney General of Papua New Guinea: Nautilus Solwara 1 on the verge of bankruptcy as APEC Summit heads to Papua New Guinea

Press release

12 November 2018

PAPUA NEW GUINEA - On 17-18 November, 21 heads of state will come to Port Moresby for the Asia-Pacific Economic Cooperation (APEC) summit. Set against a backdrop of debts and a declining economy the Nautilus Solwara 1 project speaks volume to another PNG Government failed investment that will be a further economic burden to the country.

Sir Arnold Amet, former Papua New Guinean Attorney General and Minister for Justice Papua New Guinea, “Nautilus is propped up by USD 15 million in loans from its two major shareholders, it's been forced to reduce its workforce and to terminate contracts for the construction of equipment."[1]

"Even the production support vessel crucial to Nautilus operations has had to be shelved due to failure to pay the shipyard constructing it.[1] And Nautilus is now virtually worthless with its shares at a new record low of less than 10 cents each."[3]

Canadian company Nautilus is still desperately seeking funds for its flagship Solwara 1 deep sea mining project. Commercial operation has been delayed year after year since it received its licence to mine the floor of the Bismarck sea in 2011. In a last-ditch bid to finance Solwara 1, Nautilus's two largest shareholders, Russian mining company Metalloinvest and Omani conglomerate MB Holdings, have formed a new company whose sole job is to secure funding for the Solwara 1 project [4]. However, their attempts have failed.

Sir Amet continued, "Nautilus is due to repay the USD 15 million loans to Metalloinvest and MB Holdings on 8 January. How will it achieve this? There's no likelihood of production starting until the end of 2019 or even later."

"I'm really worried that the PNG Government invested heavily to purchase 15% of a company that will be a burden to our economy. Our country's over-extended finances may have to contend with a 15% stake in Nautilus' bankruptcy."

Sir Amet emphasised, "Wiser investors such as Anglo American and Loews Corporation got rid of their shares early this year to reduce their exposure to risk[5]. The PNG Government should terminate its contract with Nautilus now before it sacrifices even more of our nation's funds."

“In light of PNG hosting the APEC Summit at the end of thisweek it is important to highlight risky commercial ventures such as Nautilus Solwara 1 project that have used scarce public funds over environmental safeguards, regulatory frameworks and the livelihoods of our coastal peoples.”


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Notes

[1] Management Discussion and Analysis of Financial Condition and Results of Operations, Nautilus Minerals, 10 August 2018 http://www.nautilusminerals.com/irm/PDF/2056_0/MDAfortheperiodendedJune302018

[2] 'Nautilus notified of rescission of shipbuilding contract', media release, Nautilus Minerals, 4 July 2018, http://www.nautilusminerals.com/irm/PDF/2049_0/Nautilusnotifiedofrescissionofshipbuildingcontract; 'Nautilus Minerals tanks on shipbuilding contract cancellation', Mining.com, 4 July 2018 http://www.mining.com/nautilus-minerals-tanks-shipbuilding-contract-cancellation/

[3] https://ramumine.wordpress.com/2018/11/05/nautilus-minerals-sets-new-1-year-low/

[4] Nautilus signs funding mandate with major shareholders, Nautilus Minerals press release, October 11 2017, http://www.nautilusminerals.com/irm/PDF/1929_0/Nautilussignsfundingmandatewithmajorshareholders

[5] ‘Anglo American to exit stake in deep sea mining company’, Financial Times, 5 May 2018 https://www.ft.com/content/ad58aee6-4fad-11e8-a7a9-37318e776bab

 

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