Citywire Selector - For Professional Investors

Register to get unlimited access to Citywire’s fund manager database. Registration is free and only takes a minute.

Deep sea gold rush is a 'game-changer', says Templeton's Land

Deep sea gold rush is a 'game-changer', says Templeton's Land

After years of negotiations and false starts the controversial deep sea mining initiative is close to a breakthrough after a deal was struck with Papua New Guinea.

Canadian company Nautilus Minerals has entered a partnership with the country to start digging up areas of the seabed off its shoreline at a depth of 1,500 metres to extract ores of copper, gold and other precious metals.

Mining expert Stephen Land of Franklin Templeton says the advances being made in this industry will prove significant for precious metal supply and for mining investors.

‘It has the potential for real exploration and development upside compared with onshore areas where everything has been picked over fairly well,’ says Land, who runs the Franklin Gold & Precious Metals fund alongside Fred Fromm.

‘It’s not to say there won’t be new onshore discoveries but you are unlikely to find a whole systematic game-changer like this,’ Land says.

Rising from the abyss

The United Nations’ International Seabed Authority has now granted 30 exploration licences, most recently to state-owned and private companies from the UK, Germany, Brazil, Singapore and Russia, opening massive new regions of the ocean floor to potential development.

In this race Nautilus Minerals, a company Land has been invested in for several years, is the closest to begin excavating.

‘They are still a couple of years away from production but the advantage that these deep deposits have is that the grade is significantly higher. There is a lot more copper and gold per ton of rock, upwards of 10 or 20 times higher, than what we are chasing onshore at this point.'

'The other fascinating part is that we are operating often at over 2,000m of water depth and many of the onshore gold mines are working at 2,000m deep in the ground.’

The challenges of using equipment at such depths are relatively similar for both types of operation, he says, and the oil and gas industry has already pioneered many techniques which the deep sea miners are using, such as remotely operated underwater vehicles (ROVs).

‘But the real advantage to deep sea mining is you can come in, mine a relatively small area, get the best of the highest payback and move to another location. Onshore you have a deep shaft that is pretty much stuck there and you can only target the mineralisation around that shaft.’

Environmental impact

The major stumbling block for the development of deep sea mining over the past few decades has been its undisputed environmental impact. Numerous studies have been conducted to better understand the role the deep sea plays in our global environment and how mining could disrupt this.

A recent report published in academic journal Biogeosciences on the importance of the deep ocean entitled ‘Ecosystem function and services provided by the deep sea’, says mining is a major threat to this fragile environment. The report stated that large mining machines may directly impact large swathes of the sea floor, including hydrothermal vents essential to deep sea life, and send up a sediment plume that could potentially affect an even larger area.

Land is aware of the controversy surrounding these new projects but says companies like Nautilus Minerals have been working alongside environmental groups to limit their impact as much as possible.

‘They are operating under a microscope but they have also done a good job of inviting the environmental groups out on the exploration runs and there have been a lot of partnerships with them.

‘There certainly are some unknowns that you tackle when you move into an area like deep water mining, but the environmental impact is actually very shallow, you are really just touching the surface material on the ocean floor.

‘When you compare it to the risks that are present in the oil and gas industry you could argue they are considerably less.’

The California-based manager also said deep sea mining offers an interesting trade-off to onshore projects including open air mega pits.

‘It is very costly to move a lot of material from those water depths so they are really just targeting the surface deposits. As a result the footprints of these deep sea mines are going to be very small, shallow pits within tightly constrained areas because the economics forces these companies to be very selective.

‘This compares very favourably with where the mining companies are heading onshore in the next 20 years. They are excavating giant pits chasing after very low grade material, removing tons and tons of waste using lots of water, exposing rock that has strange mineralisation with the potential of it leaking out into surface water. Sub-sea mining as an alternative has some real appeal.’

This article originally appeared in the September issue of Citywire Global magazine

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.
Events
  • Citywire DACH 2016

    Citywire DACH 2016

  • Citywire Alt Ucits 2016

    Citywire Alt Ucits 2016

  • Citywire Italy 2016

    Citywire Italy 2016

  • Citywire Berlin 2016

    Citywire Berlin 2016

  • Citywire Milan 2016

    Citywire Milan 2016

  • Citywire Switzerland 2016

    Citywire Switzerland 2016

  • Citywire Thailand 2016

    Citywire Thailand 2016

  • Citywire Paris Alt Ucits 2016

    Citywire Paris Alt Ucits 2016

  • Citywire Deutschland 2016

    Citywire Deutschland 2016

  • Citywire Amsterdam 2016

    Citywire Amsterdam 2016

  • Citywire Montreux 2016

    Citywire Montreux 2016

  • Citywire Latin America 2016

    Citywire Latin America 2016

  • Citywire Milan 2016

    Citywire Milan 2016

  • Citywire Munich 2016

    Citywire Munich 2016

  • Citywire Zurich Alt Ucits 2016

    Citywire Zurich Alt Ucits 2016

  • Citywire Paris 2015

    Citywire Paris 2015

  • Citywire Paris 2015

    Citywire Paris 2015

  • Citywire Global New Ideas 2015

    Citywire Global New Ideas 2015