The Outer Limits [Mining the Moon, Arctic and Underwater]- by Peter Koven (National Post – Apr. 5, 2011)

The National Post is Canada’s second largest national paper. This article was originally published in the Financial Post Magazine on April 5, 2011.

Mining the moon? The Arctic? Underwater? These one-time crazy ideas are fast becoming reality as companies challenge geographical boundaries to find precious commodities.

David Heydon remembers exactly when he was struck by the idea of mining underwater. He was on a flight from New York to his native Australia in 2002. His plans for a dot-com airline venture in the United States had collapsed after the September 11 terror attacks the previous year, and he wasn’t sure what would come next. Trying to get his mind off his failed business, Heydon looked out the window and saw nothing but water. A geologist and mining engineer by training, he couldn’t help but think to himself, “There must be huge mineral potential down there.”

When he pursued the idea, he was met with a lot of blank looks from industry types. Their thinking at the time was that since metal prices were still in the midst of a multi-decade bear market, why would anyone want to look for more minerals underwater? And, if this was such a good idea, why weren’t any of the major mining companies even considering it?

Fast forward nine years and Heydon, 55, looks like a visionary. Demand for many commodities has reached uncharted levels, prices are at or near record highs almost across the board, and the industry admits that grades are declining at the world’s largest mines. Plenty of other companies such as heavyweights De Beers and AngloGold Ashanti are now following Heydon’s lead and positioning themselves for the inevitability of a sea-floor mining sector. ” To meet demand, the mining industry must move offshore as oil and gas did years ago,” Heydon says.

Miners today are pushing into new territories because finding rich new deposits in mining-friendly districts such as Quebec and Nevada is extremely tough. The easy stuff that’s still being mined today was found decades ago, and the lack of new finds has forced mining companies to visit new frontiers such as Mongolia, Ecuador and the Democratic Republic of the Congo over the last decade. Such exploration was a logical progression, though results have been mixed because of political and logistical challenges.

But that hasn’t stopped entrepreneurs from reaching out to even more unlikely jurisdictions: the ocean floor, the farthest reaches of the Arctic, even outer space. Emboldened by high commodity prices and demand, they are proving these projects are more feasible than almost anyone imagined.

Case in point: Nautilus Minerals Inc., the company Heydon joined in 2002. The Toronto-based miner is just a couple of years away from production at Solwara 1, a copper-gold deposit that lies 1,600 metres below the surface of the Bismarck Sea in the territorial waters of Papua New Guinea. Nautilus plans to use machines to break up the rock underwater and then pump the resulting slurry into a surface vessel. It sounds complicated, and it is.

But the appeal of mining the seafloor is clear enough: Solwara 1 sports near-ludicrous grades of 6.8% copper and 4.8 grams per tonne of gold. On land, a copper grade of 0.5% to 1% would be considered normal and worth mining. In mining lingo, high grade means little waste material, which means low operating costs. And mining underwater is actually a lot cheaper than carving an open pit out of, say, the Andes mountains. Nautilus expects to spend about US$385 million to develop Solwara 1, a relative bargain in an industry where multi-billion-dollar developments on land are becoming commonplace.

Add in the fact that there is comparatively minimal environmental impact, mining infrastructure that can easily be moved from site to site, and zero pestering from anti-mining NGOs (unless they can afford a really big boat), and offshore mining begins to look a lot more attractive than wading through the bureaucracy in some of the tougher jurisdictions on land. Just as one-third of oil-and-gas production now occurs offshore, proponents of sea-floor mining see offshore projects as a crucial component of global supply in the future.

The same idea holds true for the Arctic, which is only beginning to emerge as a hotbed of mining activity. The importance of the Far North was highlighted late last year when the world’s most remote iron ore deposit sparked one of the most vicious corporate takeover battles in recent Canadian history. The quality of the Mary River deposit on Baffin Island has been known since 1962, but it has sat untouched because investors were not prepared to commit the necessary billions of dollars to build a mine and all the accompanying infrastructure needed to get the product to customers.

Until now. Iron ore prices have reached unprecedented levels of US$200 a tonne, causing a worldwide scramble to develop new projects. And the Mary River deposit is in play now that steelmaker ArcelorMittal has seized control by winning a prolonged battle for Canadian junior Baffinland Iron Mines. While the Indian steel giant plans to spend US$6 billion or more to bring Mary River into production, the final price tag doesn’t really matter.

In the high-stakes iron ore business, where the Chinese are buying up every tonne they can get their hands on, Arcelor figures that building a high-risk project in the middle of nowhere makes more sense than counting on mining companies to provide it with a reliable supply. The remarkable thing is that no one really disagrees with that thesis. Mary River is one of the most promising projects in the Arctic, though it is just one of many that are primed for development.

“When you get up there and start operating, you realize it’s just waiting to happen,” says John Mair, general manager of Australia-based Greenland Minerals and Energy, which has a rare earth elements project in its namesake country.

You can’t even find many mining experts who question an out-of-this-world idea Greg Baiden is working on: mining the moon.

Don’t laugh. Baiden, a professor at Laurentian University and chairman and chief technology officer of Sudbury, Ont.-based Penguin ASI, has spent more than a decade working on complex optical communications systems and remote-controlled robotics for mining. The technology eventually caught NASA’s attention, and the U.S. space agency is dead serious about using some of it to drill holes in the moon. The mere thought must strike horror in the hearts of environmentalists everywhere.

There is, however, logic behind moon mining. A 2009 NASA mission showed the moon potentially holds massive reserves of water. That could be important because shipping water from earth into outer space is extremely costly — the equivalent of one bottle costs about US$10,000. But with an affordable supply already on location, NASA could then use moon water to re-fuel satellites in orbit or convert the water into oxygen to breathe.

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