Deep-sea mining to wipe out millions in public revenue from land mines: Koinon

The emerging deep-sea mining industry is likely to cost governments more than it could generate in public revenue for technical, operational, oversupply and social risks involved, according to an economic analysis by natural resource governance-focused Koinon Consulting.

The premise of an existing deep-sea mining project suggests this is a worthwhile activity: its environmental disruption will be minimal, while there will be immense benefits to the world through revenue streams coming to sponsoring states and the International Seabed Authority (ISA), which it will redistribute for the greater good of humanity, Johnny West, the founder and director of Berlin-based Koinon Consulting, said in an interview with Platts, part of S&P Global Energy.

Testing that premise was the main scope of his analysis. The study presents the first numbers comparing public gains from the recovery of seabed minerals with potential losses in land-based mining revenue, he said.

Loss-making for public treasury

The first conclusion is that deep-sea mining could result in a net loss of mining tax revenues worldwide at any level of production.

"At all levels of production, you are likely to get a deterioration in tax revenue from land-based mining, which is twice as much as the revenue the ISA would collect for benefit sharing," West said. "You could see losses of hundreds of millions of dollars a year in particular countries, which are major producers of some of the four minerals found in polymetallic nodules."

If the extraction of seabed minerals reaches 36 million metric tons/year of raw materials, Indonesia, with more than a 60% share of global nickel production, could forgo $460 million/year in tax revenue. South Africa and the Democratic Republic of Congo, the world's largest manganese and cobalt producers, could lose $270 million and $250 million, respectively, as additional production would weigh on manganese, cobalt and nickel prices, reducing tax revenue from land-based mining.

Polymetallic nodules — mineral rocks that lie loose on the ocean floor and serve as the primary target resources for deep-seabed mining — are estimated to contain 28%-30% of manganese, 1%-1.4% of nickel, 1%-1.3% of copper and 0.2%-0.7% of cobalt.

"In terms of composition, it's mostly manganese, and its amount dwarfs everything else," West said.

The extra supply from deep-sea mining will not be a significant factor in the copper market, given the minor presence of copper in nodules versus 23 million mt/year of land-mined copper output and copper concentrate shortages, but it would transform the manganese market, while being tangible for nickel and cobalt, according to Koinon.

His consultancy estimates that extra supply from 36 million mt/year of nodules could make copper only about 1% cheaper but erode nickel and cobalt prices by 10.7% and 17%, while potentially causing a slump of up to 45.5% in the price of manganese.

"It's not at all clear if there is demand for that much production of that form of manganese — manganese silicate — which you would get at the end of the industrial process," West said. "You cannot choose not to produce manganese. You harvest 1 million metric tons of these nodules, you're going to get 300,000 mt of manganese, whether you want it or not."

Multiple risks

Aside from the impact on the mining industry's tax contributions of a deep-sea operation at full scale, Koinon's study identifies several serious challenges at the pre-ramp-up stage.

"A deep-sea mining project faces a degree of risk across multiple dimensions, because no one has done this before," West said. He added that investors would expect a 25% return on such high-risk ventures, while, in his estimate, a deep-sea mining project would yield 4% at best, which falls far short of conventional extractive projects, which typically benchmark at a 15% internal rate of return.

Deep-seabed mining faces a geological risk. The nodules are clearly present in large numbers in the Clarion-Clipperton Zone, but collecting even the majority of them may well be impossible.

"The history of commodities isn't about how much stuff is there. The rate of oil production from an oilfield before the company shuts it down used to be 25%," West said. "They left 75% of oil in the ground. They knew it was there, but could not get it cost-effectively. That ratio has gone up a lot; it's now over 50% in the North Sea, but 50% is a historically high figure."

Companies looking to tap into seabed resources face significant construction risks, as both nodule processing and harvesting infrastructure represent multi-billion-dollar megaprojects, according to West.

"It's not just the refining facility, because it's large and visible, but all of the engineering and technology things required to raise a few million tons of nodules in the middle of the Pacific Ocean are also a megaproject. You might think it doesn't feel like it because what you see on the surface is a ship, and how difficult can a ship be?" West said, adding that there has been no scaled human engineering at 5,000-meter depths, where the pressure is 500x that at the surface.

Finally, West discussed the issue of deep-sea mining lacking public consent and how this may affect access to capital. Projects of this scale normally cannot do without institutional-level finance, he said, but investment banks will not put money in unless the project has insurance.

"For an insurance company, the question of social license is absolutely relevant," he said. "Is it prepared to insure a decades-long operation that is an outlier in terms of geopolitics and social license, with no guarantee of market acceptance anywhere other than the US?"

The ISA's US counterpart, the National Oceanic and Atmospheric Administration, which is responsible for processing exploration and exploitation licenses for US citizens and companies, does not have a mandate to redistribute deep-seabed tax revenue globally; once it begins collecting royalties, those are likely to remain domestic against the UN Convention on the Law of the Sea (UNCLOS) explicitly designating the international seabed and its mineral resources as the common heritage of mankind. And this is just one of many issues that emerging entrepreneurship has so many critics.

Koinon's analysis was commissioned by a group of five NGOs, all backing a deep-sea mining moratorium.

Flavor of the day

"Will deep-sea mining still go ahead? It's difficult for me to know," West said. "Obviously, it's the flavor of the day, it's in the news; raising a lot of money without the discipline of institutional finance could still be possible."

The US track is more likely, in his view, as the ISA has not yet finalized a mining code for commercial exploitation of seabed resources, while this US administration has a very proactive stance on securing mineral supplies, and may support the nascent industry, drawing on Project Vault, a $12 billion reserve launched in 2026 to stockpile critical minerals for American manufacturing, even though nodules contain minerals, none of which are in critically short supply.

"However, the application process in the US is highly political," West said. "Even if this government guarantees everything, a deep-sea mining project would go through at least five election cycles. What is the policy stability at the federal level in the US over 20 years — is a big open question that absolutely affects insurance, which absolutely affects project finance."