Seabed mining regulation speculation

Materials World magazine
1 Feb 2014

Although uncertainty continues to shroud the regulations governing the extraction of minerals from the ocean floor, pointers are emerging as to what form they are likely to take. Guy Richards reports.

Over the next 18 months, the seabed mining industry will enter a new phase, with licences to explore and prospect in international waters beginning to expire and a regulatory framework emerging to govern exploitation of the polymetallic mineral deposits strewn across the ocean floor. The industry is therefore understandably keen to know what form this framework will take. But although regulating body, the International Seabed Authority (ISA), plans to have a framework in place by 2015, there is doubt over whether it can meet this deadline, and some licences are due to expire in 2016.  

So far, the only official indications from the ISA as to how the framework will look are contained in a study it published in February 2013, which describes what the framework might include. At the time of going to press, the ISA had not been able to give more definite details. However, by combing through the study and with the help of expert opinion, some educated guesses can be made. First, to be clear, the framework will apply only to proposed projects in international waters, which incidentally have to be sponsored by the mining company’s home government. In territorial waters, deals are purely between the mining company and the host nation according to its own legal framework, and it is here that early, though not unhindered, progress towards exploitation has already been made.  

However, many of the issues are relevant to both areas. Apart from the need for a legal framework, the industry will also require a social licence from the relevant stakeholders as well as a consensus that the mining is safe and does not adversely affect the surrounding environment. Obtaining the licence and developing the consensus are intertwined, says Wylie Spicer, counsel at the Montreal office of international law firm Norton Rose Fulbright, who adds, ‘I expect the consensus will end up being similar wherever the activity takes place – I doubt that a coastal state will say something is safe if the ISA does not’.  

Assessing impact  
Regarding any environmental impact, recent studies carried out for new entrant UK Seabed Resources Ltd (UKSRL) shed light on how this can be assessed. In March 2013, the company obtained the UK’s first exploration licence area on the eastern edge of the Clarion Clipperton Zone (CCZ), a vast lateral swathe of abyssal plain in the equatorial north Pacific Ocean and the site of almost all the ISA exploration areas so far. In October 2013, UKSRL commissioned the National Oceanographic Centre and the Natural History Museum to carry out an ecological study of its area.  

The research was coordinated by Dr Craig Smith from the Department of Oceanography at University of Hawaii, USA, who was also the chief scientist on the research vessel. Analysis of the results of the study is still at a very early stage – formal findings won’t be available for another several months – but Dr Smith is able to make some general points. ‘In order to manage any environmental impact intelligently, it is essential to develop an understanding of baseline (pre-impact) patterns of biodiversity, population connectivity, species ranges and environmental conditions. We are in the process of collecting such data, according to ISA guidelines, because the UKSRL claims the area has never been ecologically sampled, and the ecology and biodiversity of the CCZ is poorly studied relative to its size.’  

As with other emerging extractive industries – fracking being a topical example – seabed mining is drawing widespread protest from environmental groups, but Dr Smith says their concerns can be allayed in a number of ways. He explains, ‘It is fundamentally important that all results from scientific baseline studies such as ours, as well as impact studies, are freely published and available in the mainstream peer-reviewed scientific literature and other scientific outlets – that was a condition of our contracts with UKSRL.  

‘Also, the potential impacts of mining must be more fully studied and evaluated within the framework of baseline studies such as ours, and all stakeholders – mining entities, academic research scientists, NGOs, regulators such as the ISA, and the general public – must be trained in the decisionmaking process.  

‘It is also imperative that the Precautionary Principle and Ecosystem Based Management be applied to managing the mining impacts,’ he says, explaining that the former is the principle that authorities should act cautiously to avoid damaging the environment or wellbeing of communities in a way that cannot be reversed, in situations where the scientific evidence is not proven but the possible damage could be significant. The latter is an approach that looks at all the links among living and non-living resources, rather than considering single issues in isolation.  

Another key part of the ISA framework will be to develop a taxation/royalty regime to allow a prospective operator to assess its risks. The potential terms for this regime are enshrined in the UN’s Convention on the Law of the Sea (UNCLOS), says Spicer, which requires the ISA to provide for the ‘equitable sharing of financial and other economic benefits derived from activities [in international waters]’, but the mechanisms for this distribution are not yet in place.  

As Spicer explains, ‘Part of the complexity of crafting the required rules is that, under the UNCLOS, minerals produced from international waters are required to be for the benefit of mankind, and the ISA will have to reach an arrangement with companies’ home countries on a royalty deal.’  

Although some of these issues will translate over from land-based mining, others will differ significantly. For example, the geological risk of development will tend to be lower because the resource potential has already been studied extensively. Also, illegal mining will be difficult because of access and technical challenges, infrastructure will need far less development and integration, and traditional land-based mining communities will not exist.  

Standardising procedure  
Taken together, these make it likely that an operator will need to work only with the ISA, rather than the various levels of local, regional and national authorities on land-based projects. This should entail fewer licences, permits, taxes and fees, as well as fewer regulatory variables. The ISA is therefore suggesting a predominantly statutory framework, along with a limited and standardised contract to detail terms specific to the site, contractor and sponsoring state.  

That sounds reasonable to Steve Palmer, a senior associate in Norton Rose Fulbright’s London office, who says, ‘It may be that the ISA elects to follow the example of its existing exploratory regime, whereby fairly standardised terms of contract are used against a regulatory backdrop. While not as flexible as contracts to be heavily negotiated on a case-by-case basis, this would provide for more uniformity between different offshore mining projects.’  

That still leaves the question of what operators at the exploration stage are going to do when, or if, they want to proceed to the exploitation stage. Here the ISA suggests that before its exploration licence expires, an operator should first apply for a provisional mining licence based on a pre-feasibility study and work plans to undertake a detailed, bankable feasibility study on a pilot project. This provisional licence could last for three years.  

So, despite the many regulatory issues that have yet to be resolved, some clarity is now emerging, and even if the full ISA framework is not in place by 2015, operators wanting to move to the extraction phase should at least be able to do so on a provisional basis. Environmental issues are being carefully addressed as well, helping to counter concerns about possible damage to ecosystems that are still not fully understood. And with the ISA estimating that the CCZ alone may host up to 7,000Mt of manganese, 340Mt of nickel, 290Mt of copper and 78Mt of cobalt, the commercial rewards look set to be staggering.  

Case study - Not all plain sailing for Solwara 1  
Since the exact form the exploitation framework will take for ISA-regulated areas is still in doubt, many industry observers expect projects in territorial waters to make the initial running. A pioneering example is Nautilus Minerals’ Solwara 1 project in the Bismarck Sea, off the coast of Papua New Guinea (PNG).  

With Solwara 1, Nautilus obtained the world’s first seabed mining licence, from the PNG Government in 2011. Lying at a depth of 1.6km, it is a massive polymetallic seafloor sulphide deposit with an indicated mineral resource of 1.03Mt at 7.2% copper, 5.0g/t gold, 23g/t silver and 0.4% zinc.  

The plan is to break up the seafloor rock using two robotic continuous cutting machines. The first, the auxiliary cutter, will deal with rough terrain and create benches for the second machine, the bulk cutter, which will have a higher cutting capacity. Both will leave cut rock for another robot, the collecting machine, which will draw in the rock as a seawater slurry and pump it to a riser and lifting system. This in turn will pump the slurry to a support vessel on the surface where it will be dewatered and loaded onto a transportation barge. The used seawater will then be pumped back to the seafloor.  

Much of the equipment for the project is nearly built, says Nautilus spokesman Jon Elias, but there has been a hold-up. The PNG Government has a 30% stake in the project, but it reneged on its agreement to pay for this stake, at a total cost of about US$118m. Without that money, Nautilus cannot build the support vessel – that, Elias says, will take a further 24–36 months. Nautilus took the issue to arbitration, which found in its favour in October 2013, and although the PNG Government has yet to honour its part of the bargain, Elias says, ‘We have been meeting with state officials on a regular basis and are confident we will receive the funds’. Both the industry and the many minerals-rich and revenue-hungry Pacific island nations in the region will be keeping a close eye on the next sequence of events.