China set to dominate deep sea mining or is it; The Metals Company
Currently doing some work with The Metals Company (TMC US) when this very relevant article came out from the Washtington Post 19 October 2023
https://www.washingtonpost.com/world/interactive/2023/china-deep-sea-mining-military-renewable-energy/
The article sets out how China is seeking to dominate the field for both commercial and military advantage. It is being allowed to do so because other countries are being restricted by having to make concessions to ESG concerns or in the case of the US because it doesn’t have a policy on the sector.
China is set to dominate the deep sea and its wealth of rare metals
Deep sea mining is the collecting polymetallic nodules; which are rich in manganese, cobalt, nickel and copper; metals needed for everything from electric cars to advanced weapons systems and that lie on the sea floor about 18,000 ft down. Worth remembering that 71% of the earth is water covered and hence the sea bed holds more resources that the land does.
China is not just working out how to physically extract the resources but it is also working on setting the rules for mining and has a permanent delegation at the headquarters of the United Nations’ seabed regulator; the International Seabed Authority (ISA) in Kingston. An organisation that the US is not a member of. Giving China the opportunity to dominate the rules; as it has done in 5G and 6G, the Internet of Things and Solar Technology and effectively in Electric vehicles and their batteries.
China already holds five of the 30 exploration licenses that the International Seabed Authority (ISA) has granted to date — the most of any country and covers an area of 92,000 square miles (about the size of the UK) out of a total 540,000 square miles.
Licences, issued by the International Seabed Authority fall into 3 types and they have issued 30 in total. Covering less than 1% of the international sea bed.
Polymetallic nodules Potato-shaped rocks rich in manganese, cobalt, nickel and copper that lie on the seafloor. 19 licences issued
Polymetallic sulfides Chimney-like mounds found near hydrothermal vents in the ocean, containing copper, zinc, gold and silver. 7 licences issued
Cobalt-rich crusts. Hardened layers of rock on seamounts that have high concentrations of cobalt, manganese and nickel. 4 licences issued
The licences are in 3 areas;
Indian Ocean (focus for India, S Korea, Germany and China).
Pacific Ocean the Clarion-Clipperton Zone the largest area (Focus for Germany, Jamaica, Cook Islands, China, Japan, Belgium, S Korea, France, Bulgaria, Cuba, Czech Rep., Poland, Russia, Slovakia, Kiribati, Nauru, Singapore, Tonga, Britain and Russia
Mid Atlantic Ridge (Focus for Poland, Russia and France)
Of all those countries China holds the most licences and in doing so could further dominate the sector where it already has control over 95% of the world’s supply of rare-earth metals and produces three-quarters of all lithium-ion batteries. If unchecked than China could weaponise the resources in the same way that the US has done with advanced tech.
Considering the importance of these critical metals it is amazing that the US has not signed up and is only an observer. 'critics say Washington lacks a clear plan on how to compete in this new industry.’ Which may well be true but considering the position of Tesla you would think they would be paying more attention but at present U.S. companies do not have any exploration contracts.
That sets out the current position, The Metals Company, which is US listed does have licences and the technology to take advantage of the current situation.
The article continues China’s ‘slowly and surely’ approach pays off
Which explains how 'The ISA is under pressure to come up with rules after the Pacific island of Nauru, partnering with Canadian firm The Metals Company, in 2021 triggered a provision that requires the organization to allow mining within two years, even if a regulatory code is not in place.’
At the same time China is keen to move things along faster and is using it influence through various channels to achieve that; including being 'the biggest contributor to the organization’s administrative budget, the ISA said.’
It is clear that China is seeking to dominate the ISA and the code that it eventually sets out.
Another section of the article Mastering technology, minimizing environmental risk. Which starts with;
'For China, deep-sea mining has never been entirely about natural resources. It has also been about overturning the traditional international order dominated by the West.
Rich countries like the United States wanted to operate on a first-come, first-served basis while China, a developing country, sided with Global South nations and said the spoils should be shared. China’s side won, and the U.N. Convention on the Law of the Seas (UNCLOS), agreed upon in 1982, has been ratified by most countries. The United States recognizes the convention but has not ratified it, in part because of opposition to its provisions on seabed mining.’
Obviously a position that the US should now realise needs to be rectified. In the meantime China has been developing the sector.
'In 2001, the country’s first deep-sea mining contractor, China Ocean Mineral Resources Research and Development Association, or COMRA, won China’s first license to explore for polymetallic nodules.
China is now home to at least 12 institutions dedicated to deep-sea research — one of them, a sprawling campus in Wuxi, Jiangsu province, plans to hire 4,000 people by 2025. Dozens of colleges have sprung up to focus on marine sciences.’
It goes onto explain how a key issue is ESG and not damaging ocean ecosystems and species, and certainly not in the way the mining for these resources on the land has done.
At this stage environmentalists are against deep sea mining but without any data to back up their opposition. But certainly is China track record on rare earth mining/refining environmental regulations to date has not been good and so if it is setting the rules then there is reason to be concerned.
'For the entire last week of the meeting, China single-handedly blocked debate on maritime protection, including discussion of a moratorium on deep-sea mining, a proposal that is now supported by 22 countries concerned about environmental damage.’
Key to finding a good solution is ‘that deep-sea mining is the world’s only industry to be regulated before it exists and that it is necessary for the electric cars and other technologies that will help avert climate disaster.’
The article notes 'Contractors like The Metals Company — the only firm to test a full deep-sea mining system in the Clarion-Clipperton Zone — are ahead in the technology race, but Chinese companies are catching up.
“They are starting to build momentum,” said Gerard Barron, CEO of The Metals Company, referring to the three Chinese firms in control of China’s exploration claims. “We are seeing, certainly, an increase in activity. They now have substantial budgets that they didn’t have two years ago.”'
It then goes onto Mining technology with military applications which is an obvious link and like so much in China today; it seeks to combine the two for its overall advantage. 'The research needed to prepare for deep-sea mining — measuring the acoustics or temperature of currents, mapping the topography, and developing equipment that can operate under high pressure at low visibility — is the same as that needed for underwater warfare.’
So how is The Metals Company affected by all of this?
It is a NY listed stock code TMC US. They have demonstrated that mining polymetallic nodules that lie on the Pacific seabed at a depth of 4000 meters is possible.
Background
Originally founded in 2011 as Deep Green Metals. TMC listed on the NYSE in 2021 after a business combination with Sustainable Opportunities Acquisitions Company (SPAC) at a pro forma valuation of USD 2.9 bln. It currently trades at USD 350m. It recently raised USD 27 m in a direct offering at USD 2 a share representing a 82% premium to the share price on August 11th.
TMC Assets
The company owns three contract exploration areas (CEA) in the CCZ of which two represent the #1 & #2 largest undeveloped nickel projects in world. These are respectively the NORI and the TOML licences. The licences that TMC holds means that it is poised to become the world’s largest miner and processor of metals critical to the electric vehicle (EV), energy storage, and renewable energy generation industries, such as nickel, cobalt, copper, and manganese.
Current Position
It is currently working within and contributing to the regulatory framework of the International Seabed Association (ISA). TMC is expecting to start commercial mining operations by Q425 once the ISA rules are in place.
Outlook
EV Batteries and Metals Demand longer term.
A 75KWh EV battery (like the one in your Tesla) requires 85kg Cu, 56kg Ni and 7kg each of Co and Mn. This represents a 6x increase in the current use of these metals in traditional internal combustion engines (ICE). Extrapolating current demand based on current supply by 2030 there will be 40% deficit in Ni and 35% deficit in Cu.
At present Nickel production and reserves are primarily in Russia and the processing/refining of these minerals primarily in China. TMC would thus represent a private and western friendly supply with the added benefit of being considered part of the Free Trade Agreement thus making it’s product complaint for US EV Tax credits as per the provisions of Inflation Reduction Act.
ESG Environmental
Greenpeace/WWF are generally against deep-sea mining and are advocating for an indefinite moratorium. But at the same time they are not engaging in any kind of debate or cost benefit analysis of the alternative sources of the EV battery minerals needed to achieve net zero targets.
The facts are that deep-sea mining is less pollutive and has much lower environmental impact than traditional land based mining in terms solid waste produced, water use, toxic runoffs/by products and crucially CO2 released in the atmosphere. At present Western Countries mining permits take years and significant capex to come to market because companies have to comply with those regulations, which are notably slacker in China.
In countries where such minerals are currently produced and likely source of future supply there are strong “S” and “G” concerns. Congo the largest global producer of Cobalt has serious governance issues amongst which the involvement of the Wagner Group in mining operations as well as “S” issues with the use of child labour. Countries like Indonesia that account for 36% of global nickel production have very high “E” costs as deposits are located in rainforest environments.
TMC has been collecting environmental data since Q32022 alongside its “feasibility-collecting” tests in the NORI-D area. It has also committed to not submitting a mining application until it has completed its comprehensive environmental impact assessment, which is currently underway.
Implementation
TMC will start with developing the NORI-D. This is a section that represents 41% of NORI and 22% of NORI + TOML CEAs. This is called Project 0 and started in July this year. It was the first integrated collection trial since the 1970 - and it works as you can see from the video below:
TMC & Allseas - First Integrated Collection System Trial Since 1970s:
Important to note here is the partnership with Allseas actually retrofitted an existing vessel (the Hidden Gem in featured in the video) for USD 200m vs the expected cost of USD 1.2bln for a new vessel. This demonstrates the capability of TMC to transform capex which is calculated at USD 7 bln for the concession into operating expenses by awarding tolling contracts to strategic partners.
TMC is now in the process of moving onto Project 1 and looking to start mining operations by Q4 2025
Stock Price
TMC closed at US$0.8610 on 25 October 2023 (Day’s range 0.835 - 0.861)
Contact for more information
The company is currently undertaking a number of roadshows and in August released the presentation below which goes into more detail.
If you would be interested in knowing more or having a call with Gerard Barron the Chairman and CEO or Craig Shesky the CFO please reply to this post.
