Navigating the depths

The deep sea has been found to contain significant mineral deposits. While the idea of mining the seabed is not a new one, the recent surge in global demand for critical minerals driven by the energy transition has led to renewed interest from both governments and private sector developers. However, it remains highly controversial, given the technical challenges and potential environmental impacts involved.

Regulatory framework – international vs national waters

International waters

The International Seabed Authority (ISA) was established in 1994 under Part XI of the United Nations Convention on the Law of the Sea. The main functions of the ISA – which comprises 168 member states plus the EU (notably the US is not a full member, although it is afforded observer status) – are to adopt regulations for exploration and exploitation activities in international waters and consider/approve contract applications.

The ISA has to date:

• Adopted regulations for the exploration of: (i) polymetallic nodules, (ii) polymetallic sulfides, and (iii) cobalt-rich ferromanganese crusts.
• Granted over 30 exploration contracts to mining and exploration companies permitting the exploration of around 1.5 million km² of international seabed for deep-sea mining purposes.

However, importantly, these regulations and contracts only cover exploration activities – they do not permit exploitation. Despite work on draft regulations (including following a formal request from Nauru in 2021), the ISA is yet to adopt exploitation regulations or award any exploitation contracts.

National waters

Deep-sea mining in territorial waters (known as exclusive economic zones (EEZs)) is regulated by relevant state legislation. Only a handful of countries have adopted/propose to adopt legislation permitting deep-sea mining activities in their EEZs.

In 2022, the Cook Islands granted a number of permits for deep-sea mining exploration activities within its EEZ. The country has not issued any extraction permits to date.

In January 2024, the Norwegian Parliament approved deep-sea mining exploration in a designated part of its EEZ and allowed mining companies to apply for an exploitation permit, which will be approved by the Norwegian Parliament on a case-by-case basis (no exploitation permits have so far been issued).

The Responsible Use of Seafloor Resources Act was introduced to the US Congress in March 2024, which would offer financial, diplomatic, or other kinds of assistance for collecting, processing and refining seafloor nodules (if sourced in accordance with regulations).

Technical challenges and limiting environmental impacts

Polymetallic nodules are currently thought to be the most promising deep-sea resource of critical minerals, as compared to sulphides and crusts. However, given that they exist at depths of approximately 4000 – 6000 m, exploiting this resource at a commercially reasonable cost is a current hurdle.

Other technical challenges faced include managing the pressures associated with operating at extreme depths and discharging by-products safely.

As available technology, such as artificial intelligence, and understanding of marine ecosystems improve, developers will aim to mitigate potential environmental impacts.

The technical expertise required for deep-sea mining (e.g. mapping and robotics) crosses over with ultra-deepwater oil and gas projects; services companies in that sector may play an important role as deep-sea mining projects develop.

Funding

In the early stages of exploration, companies look to seed and venture capital to secure funding. As has happened in the wider critical minerals sector, there may be appetite from national governments seeking to diversify supply chains. Royalty agreements and convertible equity may also be an attractive source of development capital. After private capital, public equity markets are likely to be the go-to source of funding for deep-sea miners.

If exploitation licences are issued, the next logical step will be to employ financing from commercial banks, export credit agencies, and development finance institutions. The potential for limited recourse financing will be determined by the capital expenditure and cashflow profile. It is too early to tell whether a deep-sea mining project would be best suited to an asset-based financing, where equipment is used across multiple exploitation zones, or a reserve base model, where the resource from a particular licence area is financed. Any debt financing will ultimately boost returns to equity.

The experience of the space industry may also be relevant to deep-sea mining, as it has overcome technical certain challenges and now utilises multiple funding sources – including limited recourse asset-based financing – to maintain high levels of capital expenditure whilst preserving returns for investors.

Conclusion

Deep-sea mining regulation is progressing at a rapid pace. The race for critical minerals and the energy transition is driving this industry's development. It is likely that regulatory changes and technology improvements will be closely followed by innovation in the available sources of funding.

Read the article online at: https://www.globalminingreview.com/mining/23042024/navigating-the-depths/