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Oil and gas suppliers to join DeepGreen Metals' deep sea mining initiative

Private company DeepGreen Metals Inc. is set to announce in April two major oil and gas offshore service companies as investors as part of a US$100 million equity raising to use their offshore expertise to extract polymetallic nodules from the Pacific Ocean floor.

The two oil and gas service companies will join Maersk Supply Service A/S and Glencore PLC as shareholders of DeepGreen as part of a process currently being run by Macquarie Bank and Fearnley Securities to raise US$100 million of fresh equity for the explorer which will close in June.

DeepGreen had previously raised US$77 million in equity, including US$25 million from Maersk, and is also talking to car makers —which need battery minerals for electric vehicles for processing partnerships that could see them take equity at either a company or project level.

DeepGreen CEO Gerard Barron, previously an investor in another Canadian sea bed explorer, Nautilus Minerals Inc., told the International Mining and Resources Conference in Melbourne, Australia, in October 2018 that DeepGreen estimates a net present value, with a 10% discount, of US$4.09 billion for a single-plant project, with the potential to scale up to three to four plants.

Resources in the Clarion Clipperton Zone located between Hawaii and Mexico, where DeepGreen is planning to operate, are estimated at 34 billion tonnes of nodules including 6 billion tonnes of manganese, 270 million tonnes of nickel, 234 million tonnes of copper and 46 million tonnes of cobalt.

He told S&P Global Market Intelligence that while the involvement of oil and gas suppliers' expertise and technology could reduce capex, DeepGreen could not undertake such an enormous task on its own.

It also gives the oil and gas suppliers a new future use for their assets, which are looking at less activity as the world steers away from fossil fuels.

A May 2018 DeepGreen technical report for its NORI Clarion-Clipperton Zone project estimated US$5 million expenditure from 2017 to 2021, though that could change depending on the next phase of engineering work.

NORI, an abbreviation for its subsidiary Nauru Ocean Resources Inc., was formed in 2011 with the Republic of Nauru, the first time a developing state had partnered with a corporation to access the minerals of the International Seabed Area as designated by the International Seabed Authority, or ISA.

In September 2018, DeepGreen announced a high-grade 900-million-tonne inferred resource estimate grading 1.3% nickel, 29.2% manganese, 1.1% copper and 0.2% cobalt, with an average nodule abundance of 13 kilograms per square meter.

DeepGreen expects that one integrated project could produce 4.8 million tonnes per annum of polymetallic nodules comprising 1.46 million tonnes of manganese, 63,000 tonnes of nickel, 55,000 tonnes of copper and 6,000 tonnes of cobalt.

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Pioneering partnerships

Barron said DeepGreen's strategy is to partner with the oil and gas suppliers in collecting and shipping the nodules, for which its own team is designing the collector vehicles for them.

Then a riser — a pipe oil and gas suppliers use that connects an offshore floating production structure or drilling rig to a subsea system — would take the nodules to the surface then shipped for processing onshore.

Several processing locations are under consideration, depending on negotiations with contractors and/or governments who would invest in the facilities. Potential locations include Mexico, China, North America and possibly Europe or the Middle East.

It is understood DeepGreen is in the advanced term sheet stage with the two lead equity participants, which Barron said reflects "just how big resource is, and how big a category it will be for the oil and gas industry."

DeepGreen is building its investment case around the "night and day" difference in carbon footprint between terrestrial and seabed mining.

Barron said in an address at the ISA Council's Annual Session at its Kingston, Jamaica headquarters Feb. 27 that every kilogram of nickel comes with 23 kilograms of carbon dioxide, 7 kilograms of carbon dioxide for cobalt and 2 kilograms of carbon dioxide for manganese.

Thus producing metals from land ores would add 50 more years of carbon emissions, he said. In the case of nickel and copper, falling ore grades means larger amounts of processed ore to obtain the same kilogram of metal, which requires more energy and capital.

Meanwhile, DeepGreen's life cycle sustainability analysis shows current technology will emit less than 2 kilograms of carbon dioxide for every kilogram of metal produced from nodules, which also contain almost no deleterious elements. In addition, 100% of the nodule material is usable, so ideally, processing plants will generate no toxic tailings or waste.

This means that DeepGreen would end up with a seven times smaller carbon emissions than if the same resources were sourced from land.

Barron told S&P Global Market Intelligence that while investors will not pay a premium for commodities despite the environmental benefits, the nodules' high grades will put DeepGreen in the bottom quartile of costs.

"That's why we're focused on the industrial customers on the processing side, because car companies' consumers care about climate change," he said.