A New Dawn for Mining

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Nautilus Minerals is set to be the first company to commercially explore the seafloor for massive sulphide systems, a potential source of high grade copper, gold, zinc and silver. With production due to begin at Solwara 1, a project off Papua New Guinea, in the first half of 2018, CEO, Mike Johnston discusses Nautilus’ position at the forefront of this burgeoning industry.

The Papua New Guinea Government has always been very supportive of the concept of seafloor mining, and saw its transformative potential as far back as 1997, when it was the first government to grant an exploration license. Mike Johnston, CEO of Nautilus Minerals, the recipient company of that first license, explains that they were very visionary in doing this, and acted to legitimise the concept of mining the ocean bed. Since that time, many other licenses have been granted by PNG’s Pacific neighbours, including Fiji, Tonga, the Solomon Islands, Vanuatu and, since 2000, the International Seabed Authority, the Jamaica-based body responsible for administering international waters.

There are enormous resources on the seafloor…(and) we’ve got massive demand that keeps increasing.

With its license secured, Nautilus Minerals was able to get out there and start looking, and moreover, steal a march on its rivals. Fast forward a few years, and the company is now the proud holder of the world’s first granted mining licenses and environmental permit for deep sea mining.

The Nautilus CEO is keen to impress on us how important visionaries and those with an “early adopter” mentality are to the success of a venture such as this. Requiring the support of those inspired by disruptive innovation to create a new market and value network, Johnston explains that, “the people who’ve got involved and taken up share ownership in this company are looking to the future. They realise that there are enormous resources on the seafloor and that we have a pending problem, where we’ve got massive demand that keeps increasing.”

The mould-breaking nature of Nautilus’ work is also evidenced in the type of people attracted to work on the project. Drawn from right across the spectrum of land based underground and open pit mining, offshore and onshore oil and gas and shipping, what unites them is the thirst for a challenge and the desire to make a difference, says Johnston, adding that recruitment and retention has never been an issue for the company.

Nautilus Minerals enjoys the support of major shareholders such as MB, Metalloinvest and Anglo American, as well as the PNG Government, a collective capable of bringing a lot of weight to bear to catalyse the deep sea mining revolution. In this, they have a huge head start, by way of the compelling case that seafloor mining presents. Mike Johnston says he looks at it from the point of view of the benefits, and cites the much reduced CO2 footprint, the small direct environmental footprints, the lack of tailings and the lack of social disruption, “all of which you get on land with projects, whether they be oil or gas or mining. If we’re going to protect the planet, part of the way of protecting it is to step back and to say, what are we saying yes to and what are we saying no to. If we’re saying no to seafloor mining, we’re saying yes to bigger and bigger scale mining on land. Or, are we going to stop mining and go and live in caves?”

As to maintaining its industry-leading status going forward, Nautilus has made sure to patent where it believes it adds value to the company and affords commercial protection. Some of these patents, explains Johnston, are held in partnership with the Papua New Guinea Government and with other developers, such as Soil Machine Dynamics and the French engineering giant, Technip, while others are held 100% by the company. Nautilus also leverages off the huge amount of R&D done by the offshore oil and gas industry, which, for example, directly informs the company’s integral pump and riser system, and which constitutes a lot of the basis of its mining tools. As the CEO puts it, “We capture value everywhere, but we only protect it where it’s needed for our specific purposes.”

If we’re saying no to seafloor mining, we’re saying yes to bigger and bigger scale mining on land.

Regarding the extent to which Nautilus Minerals’ business model is resistant to a global drop in demand for copper, Johnston feels that with demand for copper set to double over the next fifteen years, this turn of events is unlikely, However, should such a state of affairs develop, he remains confident that the company would continue to flourish, thanks to the much higher grade of mineral deposits presented by offshore mining than those offered up on land. With grade largely determining profitability, and technological advances allowing for seafloor mining in a very competitive cost environment, the Nautilus boss explains that its operations should stay firmly on track.

So, while according to Mike Johnston, Nautilus is prepared for any eventuality, with demand from China for all minerals continuing to rise at unprecedented levels, a drop in demand is not something he sees coming to pass anytime soon. He points out that the large Asian economies on the doorstep of Nautilus’ operations represent about half the world’s population, with those governments firmly focused on increasing the standard of living for their people. “When you’re talking about half the world’s population”, remarks Johnston, “improving the standard of living by ten or 20 percent is a massive increase required in a lot of things we just take for granted.”

Regarding Nautilus Minerals’ growth strategy, the CEO explains that they are an offshore minerals development company, and that’s where they are intent on staying, with a particular focus on metalliferous minerals, such as copper, gold, zinc and nickel. As he puts it, “There’s a huge resource base out there on the seafloor waiting to be exploited. Our business model is quite simple and very modular. You can just bolt on another boat and another production system. They’re relatively cheap to build and we’ve protected the technology around them.”

He reminds us that this is not an option readily available to terrestrial-based mines, where companies are usually fighting to get two or maybe three deposits, and are always battling to find more. Moreover, Mike Johnston notes that they can make the model fit whatever growth strategy they want, either by highly leveraging the company and borrowing to undertake multiple projects, or alternatively doing it off cash flow. “Whatever our shareholders want to see happen, is what we’ll do”, states the CEO.

As to when the Nautilus boss anticipates the company will become profitable, he explains that because the grades are so high, once they get on site and start producing, they should be cash flow positive relatively quickly. Shareholders, he says, are principally focused on the company getting into production, and getting things bedded down and into a steady state.

Commencing production in the first half of 2018 is largely determined by getting the seafloor production vessel, being built in China by Fujian Mawei Shipyards, completed on time. The CEO is, however, pleased to report that everything is on schedule at present, with progress continuing to be monitored very carefully. The other two components of the Solwara 1 offshore production project, namely the mining tools themselves, and the riser and lifting system, are on track to be delivered over the next months, ready for pre-production testing.

Our business model is quite simple and very modular.

Johnston gets especially enthused when discussing the vessel’s specialist equipment, in particular its “DP2”, or “Dynamic Position 2” status, which means it has dual redundancy. In layman’s terms, this means it boasts two whole computer systems, so that, “if one goes down, the other one just kicks in and the ship is still functioning. It stays on station.”

Downtime is also cut to a minimum by virtue of the Solwara 1 project being located in the Bismarck Sea, in an area known as “the doldrums”. This band around the equator misses out on extreme weather events, such as cyclones, explains Johnston, while the Bismarck Sea is also extremely well protected from the ravages of the Pacific Ocean by New Ireland and Manus Island, as well as the mainland of New Guinea to the South. This affords Solwara 1 an almost inland sea quality, with very calm conditions for the vast majority of the time. Yet, the vessel, some 230 metres long and 40 metres wide, can take extreme weather events at other locations in its stride, if needs be, as the Nautilus Minerals CEO describes. “What you’re able to do in those situations is change the configuration of the riser system at the top so it’s not rigid and under tension. That allows you to have some movement in the ocean and tolerate higher Sea States, so you can operate in extreme weather events.”

On the subject of which of the company’s achievements Mike Johnston is most proud of to date, he firstly cites having coming up with a system with such a small environmental and social footprint, pointing out that such considerations have, historically, been quite foreign to the mining and oil and gas industries. Despite local communities onshore not being directly impacted by Nautilus’ operations, some 30km offshore, he draws our attention to the company’s proactive efforts with the provincial and national governments of Papua New Guinea to deliver benefits, as part of the project, to local people. Johnston explains that on a recent visit, “we opened simple things that we take for granted. We’ve been putting toilets and running water into schools, and when you see these kids turn on a tap, and for the first time they’ve got water, rather than having to walk up the road for half an hour to go to the local river or creek, it’s a big game changer. Those sorts of things give you a real lift, because you’re delivering without impacting their life, you’re actually improving it.”

Given that Nautilus is the clear frontrunner in the field, and that seabed mining has the capacity to revolutionise so many Pacific island states’ fortunes, Mike Johnston was asked whether he felt the weight of responsibility on his shoulders to make sure it happens, and happens right.

While the native New Zealander cedes that, “there’s a little bit of that”, he’s also keen to point out
that the R&D has been so thorough, the grades of the ore so high, the demand so strong, and the environmental impacts so small in comparison to land based mines, that there’s no need to be overly anxious. “It’s going to happen”, he says.

Watch Global Island News’ interview with Nautilus Minerals’ CEO, Mike Johnston. This hones in on the opportunity that seafloor mining provides to secure high quality minerals at lower cost, both economically and environmentally, in comparison to terrestrial mines, to meet increasing demand.

For more information, visit nautilusminerals.com.