Deep sea mining: risk and uncertainty

As we inch closer to potentially unlocking a treasure trove of minerals on the ocean floor, all eyes are on the UN-body International Seabed Authority

Louise Woods, Partner, and Elena Guillet, Associate, at international law firm Vinson & Elkins*, highlight the fact that the ISA faces an extended deadline until 2025 to finalise the rules that will govern deep-sea mining in international waters, known in legal terms as the Area, which is governed by the 1982 United Nations Convention on the Law of the Sea (UNCLOS) framework. The ISA is the authority responsible for developing the rules, regulations and procedures (RRPs) on exploitation. It is not just managing any stretch of the seabed; they're overseeing what is considered "the common heritage of mankind." This immense responsibility means ensuring equitable sharing of financial gains and other benefits from mining the Area's resources. In simple terms, the ISA must create a system that makes both mining companies and broader society stakeholders in this untapped resource.

Payment Mechanisms: A Balancing Act

Contractors – the companies that will execute these high-stakes mining operations – are working within a complex financial regime. Under the proposed rules, they would face several fees: a one-off application charge, an annual reporting fee, a fixed yearly fee, and a royalty on the sale or removal of minerals.

These aren't just token payments; they're critical to how the entire system functions. For instance, royalties would be calculated as a percentage of the average listed prices of the minerals extracted, an attempt to insulate the industry from market volatility.

However, while the payment structure might seem straightforward, its timing could be a puzzle for contractors. The rules aren’t yet clear on whether the royalty is due when the minerals are extracted or when they're sold. This matters because it directly affects a contractor’s cash flow and the economics of a mining operation. Furthermore, it's anticipated that lower royalty percentages will apply in the early years of production, although the exact duration of this initial period remains undecided.

The Frontier Risks

Another area where the draft rules might fall short, say Louise and Elena, is in addressing the unique challenges faced by early contractors. These trailblazers will confront considerable risks from untested technologies, higher developmental costs, and uncertainties around the application of new rules.

Moreover, being a first mover in this fledgling industry comes with financial hurdles. Banks and other funding sources are understandably hesitant to invest in unproven ventures, especially when the regulatory backdrop is still unfolding. This caution is compounded by a broader societal pushback against deep-sea mining, citing environmental, social and governance (ESG) concerns. This aversion could slow down commercial activities in the Area even further.

The Road Ahead

Despite these uncertainties, the promise of abundant resources on the seabed, ranging from precious metals to materials vital for renewable energy technologies, makes deep-sea mining an attractive proposition. The industry's challenge will be balancing the quest for shareholder value with the ethical and sustainable extraction of these underwater riches.

There’s no doubt that early contractors will be taking a leap into the unknown, but the potential rewards are too significant to ignore. Meanwhile, as the clock ticks towards the extended 2025 deadline, stakeholders from all corners will be watching the ISA's next steps keenly.

The coming years promise a complex but crucial dialogue between sustainability and industrial ambition. It's a dialogue that will likely reshape our understanding of mineral resources and could unlock a new frontier in humanity's ongoing quest for sustainable development.

For mining companies, investors, and the world at large, the stakes couldn't be higher.

 

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