What to make of Trump's deep-sea minerals push

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All right, so it's been a couple of years, I think, since we talked about deep sea mining here. So here's a quick reminder of why it's interesting. At the bottom of the ocean in certain places, there appears to be an enormous volume of these golf ball sized rocks. They are polymetallic nodules, and they appear to be basically a rock full of battery minerals, essentially. Think nickel, cobalt, a lot of manganese and copper.

Um and in some cases rare earths as well. And there are literally trillions of dollars worth of these rocks just waiting to be hoovered up and used to displace terrestrial miners. But for at least four things, one is a regulatory regime that doesn't fully exist yet for exploitation of deep sea mining, at least in some locations. Second is a heated battle over the environmental impacts of extraction.

Third is the actual capex technology and resources it's gonna take to do it. This is mining, it's not cheap. And fourth is what you do with it once you get it, i.e. refining. Anyway, one thing that wasn't on my bingo card when we talked about this a couple years ago was that President Trump, in his second term focus on energy dominance, would find his way to deep sea mining and issue an executive order intended to speed up the market at least.

For the United States. So for this one, I brought on Hans Schmid, who is the president and CEO of Ocean Minerals, one of the companies that is exploring for deep sea minerals in the Cook Islands currently. Here's Hans. Hans, welcome.

to take, you know, positive and proactive action to, you know, help get this off the ground. I think that's the big thing that that executive order has done. And I think the other important thing about the executive order is that it has um stipulated that uh it it's not just US territorial waters, this is international waters as well as

other exclusive zones. So what Trump has come out and said is, you know, let's look at deep sea mining. It's part of the solution. But let's not just focus on US areas. Let's look at all projects and see how we can use them. Uh to solve this problem we have with critical metal.

point of contention, the part about um operating outside of US exclusive economic zones. Maybe that's a good opportunity to step back for a second. Can you walk through the w the different regions where there is deep sea mining exploration or potential production? to be had and where the authority and control over them sits.

And the key difference between the two is during in an exclusive economic zone, uh it's uh the work that anybody does is subject to the rules and the law of that country. When you go into international waters uh back in nineteen eighty four, uh Anklos, which is the United Nations um law of the sea, uh was ratified. Um, and that is um now under the auspices of the United Nations. And I think there are about a hundred and thirty six countries that have signed up to it.

Um, however, the US has not signed up. They have not ratified that. And in the international waters, it has been deemed since the signing of UNCLOS that that would be regulated by the United Nations and specifically the ISA, which is the International Seabed Authority.

uh and you now take responsibility for that area, the onus is on you to execute a certain amount of work on that area. You know, you you cannot just sit and squat on the land. You need to, you know, show that you're making progress. So I think that Um, was why there was a lot of work done in the Claring Clipton zone. Also a lot of that work was funded by governments. So there was uh there was a source of funding that was available to make sure that that work happened.

Uh and that work has been invaluable. You know, since nineteen eighty four, uh there's been a lot of exploration work there, there's been a lot of uh money spent there, the European Union has spent a lot of money developing technology and equipment, so have the Chinese.

So I think in in general it has been incredibly positive and incredibly useful for underwater mining, um, specifically in that region, um, and you know, giving us a good understanding and and serving as a great uh foundation for developing guidelines and and procedures and methods for doing this type of thing.

To the treaty that would make us a part of the International Seabed Authority. And so we're sort of competing with the rest of the world for those resources. Is that the right way to think about it?

In the US, um there hasn't been uh very much, if any, work in the exclusive economic zone of the US, um, but that is due to a regulatory issue um rather than than anything else. And then with the EO saying, um, in international waters as well, this is where things start becoming a little um

a little more vague and a little more challenging. Um, as you would note in the press, um, since that that has been announced and the metals company have indicated that they want to use the EO and apply for licenses through the US laws.

uh to mine in international waters, there's um there's been some surprise and there's also been some resistance to that. And I think, you know, this is something for the lawyers to get into and figure out how Um, you know, the metals company and the the US with the EO are going to go and work in in international waters.

uh without, you know, taking into consideration the the precedent and the and the the regulatory authority of the International Seabid Authority. So I think there's still a lot of stuff to be worked through and a lot of issues to be resolved.

in international waters, but in exclusive economic zones it's it's pretty clear. You know, there there are laws in the US that allow companies uh to go and apply for exploration or mining licenses. However, the the current structure of the legal framework in the US um is not very encouraging. So we as a company, for example, are not inclined to explore in uh US territorial waters.

uh because our investors um are not given the kind of um assurances and rights that we would get in other areas that would allow us to get a return on an investment if we if we were to spend tens of millions of dollars.

It's very rare that that is the occurrence of this type of action. What this action has done, um, is that it's taken DSM and put it into the spotlight. It has brought the world's attention to a a nascent industry that up until the the EO has been in existence, but has kind of been on the sidelines, been in the shadows, so to say. And this has really brought it into the um you know into focus.

Uh and that has been, you know, very clear from my side, for example, um, over the past three weeks, um, once the EO had been um you know been published and um people had time to work through it. I've been getting a lot of uh people phoning, wanting to speak about uh DSM, wanting to better understand what's going on, wanting to see what the prospects are, wanting to understand

you know, what is the real story? Because everything that they've seen prior to this has been predominantly uh dominated by the anti um uh uh contingent who have been out trying to uh get morator in place. And and what this has done is brought the sort of mainstream media and the mainstream interest uh into DSM. And that for me is is a big, big step in the right direction.

Uh and it's also a great opportunity to create visibility because the the issue we've had has been a lack of visibility, a lack of understanding and a lack of context. And the EO certainly does address that. So I think it's valuable in that perspective.

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uh is done by the US government and then based on that interpretation they determine areas of interest that they put out on uh public lease for companies to bid and tender on. Now the issue is with the um with the deep sea mineral space. Is that means the likes of Boam and Noah have to go and do all of this work throughout this massive body of water? And they need to determine where exactly these mineral deposits are.

Pull all the the information together that would make it attractive for a company like us to bid on a on a lease. And the issue that you have is is that this is going to take you know multiple years of just um Exploration, you know, sending ships out there and covering tens of thousands of square kilometers of the ocean. Um and I think this is going to be the the the problem. You know, NOAA's boats are already booked out for the next um two to three years, possibly even the next four years.

So before you can repurpose those vessels to specifically go and address this task, uh, you have these these jobs that they need to do, or you have to go and sacrifice those jobs and refocus them on this. And I think neither one of those is a great idea.

What I would suggest is that the US take a leaf out of what everybody else is doing, where what they do is they put the onus on the person wanting to develop the resource. So if I use the example of the Cook Islands, for example, the government there Has said to exploration companies, we will give you an exploration license that will give you exclusivity over that area for you to do your exploration.

If you find resources within that area, you then have first right of refusal to apply for a mining license over it. So now I have Done a couple of things. One is I've put the onus on companies that specialize in finding minerals to go and do the research and the exploration work in order to find them.

Uh and in return for that, what they are going to get is the right of first refusal to to commercialize that. So the money that they invest, they get paid back uh through the through the the the project becoming commercial. And the benefit of that is you have people that specialize in this. driving the process of doing it. So I think there's an interesting

uh challenge that that the US faces at the moment. If they want to follow through and deliver on the EO, I think there is a need uh for some significant um changes that need to be done with regards to how they're doing it at the moment. And if that is too big of a challenge

Just change the contracting model. Don't rely on NOAA and and Bohm to do it. Um in addition to that, look at uh some way of privatizing that exploration and getting people that specialize in it to to help those agencies get to the point where commercialization of the resource on US territorial waters becomes a reality.

uh under the guidance of the University of Tokyo. Um I think the Cook Islands um are ahead of Japan in the fact that the Cook Islands have the regulatory frameworks in place to go from uh prospecting exploration and um and exploitation uh with a great environmental um requirement and plan in place to make sure that there's no significant harm as a result of that. Uh the Japanese still need to play some catch up there.

So I would say between Japanese territorial waters, Cook Islands, um, they they certainly are, uh, as far as polymetallic nodules are concerned, certainly leading the way as far as uh deep sea minerals are concerned.

uh you have um CIC is the second license holder. Um and then the third license holder is a joint venture between a Belgian company uh and the Cook Islands Investment Corporation, which is a a um a government um company that is focused on developing businesses within the Cook Islands. So those three companies have been awarded exploration licenses. Those licenses are five years in duration, and w the companies are currently in year four.

Um and the the intention and the plan of these organizations and and you know, Mohana Monrels is the company that I work for. Uh the intention is in in the next um uh two years or so to apply for our mining licenses. So we are currently all embarked on the environmental data campaigns, uh collecting all the information so we can make the case for um minimal environmental impact.

Um but we also have our mining systems developed. We in in our case and as well as the um the processing of the nodules. So it You know, putting putting it a different way, we're probably uh two to four years away from first production is is where we are in the cooks.

Um as far as the environmental side is concerned, you know, that's where the ISA comes into the the picture. The the work that the ISA has done over the past um twenty, thirty, forty years um has been massive because it's really helped us uh focus on the specific areas um where the impact would be uh and the technologies have obviously been modernized and updated to uh to further reduce those impacts.

So I think as a whole, um the technology's there. How we apply it is well understood. Uh what we are doing is establishing all the baseline data. You know, to give you an idea, when you uh build a home, one of the things you have to do is look at the environmental impact of building your home. But the benefit you have is all the environmental data that exists. So you are very easily and quickly able to look at what the impacts of building your home would have.

in the deep ocean where we are operating, we don't have that that baseline data. And that is why we spend three, four years collecting that baseline data so that when we make uh the statements in our environmental impact statement talking about what the impacts would look like. We are doing it from a a known data data source and a an and a known reference.

And this is a process that will continue going on way beyond um, you know, commencing off this this operation. We have this plan called adaptive management. uh where we continually uh update the data we're collecting and this how the systems operate and we keep refining and improving.

you extract them from the ocean floor, they contain a mixture of valuable minerals. They contain nickel and cobalt and copper and manganese. And, you know, our existing mineral refining, which we do from terrestrial mining, is not really set up for that because we don't have these polymetallic nodules in the same way um on on the ground or under the ground rather. And so what we have right now is is a a big refining industry set up to basically extract a single mineral, generally speaking.

So does this mean that you are gonna end up having to or having to find somebody set up some new refining infrastructure? Is that new technology? Like what does that look like downstream of extraction?

Yes, we have a polymetallic resource. So we have, as you mentioned, nickel, copper, cobalt, manganese and in the case of the Cook Islands nodules, rare earths as well, which is another thing everybody's hot about. Um but the only part that we've had to crack and unlock

is not the separation or the refining, because the separation and refining that exists with all these other mining industries is exactly the same technology that we're going to use to to pull out those specific metals out of the nodes. So It's actually a benefit for us that all this knowledge and e and technology exists for selecting all those different metals.

What is different for us is two things. The first one is the nodule um is in the form of a of a golf ball size rock. And what we have to do is we have to get all those metals um into we refer to it as into solution. Best way to explain it is if you take table salt and you pour it into um into water and you dissolve it.

Uh it goes from uh sodium chloride, which is salt, and when you dissolve it it becomes sodium ions and chloride ions in water. We do exactly the same thing, but instead of using water we use acid. Uh and what we do is we crush the nodules and we use acid and we

dissolve all the metals. Now all the metals are floating around in this liquid and we apply all those existing technologies to strip them out. The only difference is we need to figure out in what sequence to pull them out to get the best result. So, yeah.

But instead of having to invent a new process, we build an existing facility and we go to these different industries and we just gonna take that building block that they've used and we put it into our plant. And this is all chemistry. So you know what you're talking about is is big tanks, uh, with pumps and circulatory circuits. And what you do is you either use electrolysis or you use uh chemistry to cause the metals to sink or to float and it's easy to separate them out or you you just um

have them precipitate. In other words, you dry them out. So there's nothing unique, strange, or different about what we're doing. It's just again like we did with the mining system, we're using different technologies that exist and we are just putting them together in a different sequence. And yes, we'll have to build a new processing facility. Um, but that is no different to any mine. If you go to any mine on land,

The processing facility is going to be built in order to meet the uniqueness of the chemistry of that particular mine. So every process plant that you go to is normally tied to some mine or some supply and there's uniquenesses to it. It doesn't make us any different.

Uh and in our case, yes, we have got these ships that are going to sea and they are operating in the ocean. Um and it is deemed to be expensive because we work in at great depth. However, we don't have all the big capital costs of infrastructure, power lines, roads, rails, dams, etcetera.

Uh, which means the the cost of capital for us is going to be lower. You know, we we are going to spend less money building a a uh a ship to go mining than what you will do perhaps building a a brand new infrastructure in in some outback area. Uh so that's one aspect of it. The other thing to consider is that we are bringing up one ton of material and in that one ton of material we are producing the same amount of metal as you would need to have anywhere between three and five land based mines.

So for them to get the same amount of metal that we're getting because of our high grade and and the fact that they multimetal, you could end up moving anywhere between uh four and eight times the tonnage of raw.

uh, you know, the processing plant probably around two billion dollars. Uh but what for that investment do you get in return for your project? So, you know, our project is uh in anywhere between three and four billion dollar project. uh that's going to yield any r in the region of five hundred million dollars of free cash flow per year. Uh put that in front of any land based miner and they'll be falling over you to to fund that project, you know, with with IRRs in the thirties, forty percent.

um from an environmental impact perspective, from a cost perspective, from a uh just an overall impact of this um generally and and just look at what we are gonna get from it. I think um they'll be pleasantly surprised.

you know, rather than being subject to a single s volatile commodity, you're you've at least got multiple. So you could imagine prices for s for manganese spiking and nickel crashing at the same time and you end up in a wash or something like that. So it's sort of beneficial in that context. But obviously we're uh, you know, particularly with nickel, we've seen prices low recently, um, relative to history.

How how do you think about the sort of the volatility of those commodities? Obviously, copper probably being the least volatile, but also probably a small portion of the value stack, I would expect, for for a given Polyometallic nodules. So what what matters? Which minerals matter the most? And how do you think about price volatility? Well

Our project remains profitable. And the reason it's profitable because of the manganese. The manganese is by far the biggest component of what we're doing. And the manganese market is so massive um that it's um that it has a certain amount of robustness just due to its its sheer volume and size. The other thing we hear from people is are we going to come into production and we're going to have a negative impact on the market because of the volumes we bring to the market.

That's not going to happen with the manganese market either. So what we have is manganese is a great stabilizer. And it allows us to be able to ride through the the fluctuations we see in in the nickel and cobalt prices. But at the recent um low prices, the project has remained profitable. And at the prices we're projecting at the time that we go into production, uh obviously it it makes it really, really interesting as to um the kind of returns that this project can yield.