Into the deep: An increasing number of operations are starting to move offshore

With global demand for petroleum rising, oil companies have been forced to think of more creative ways to tap into new sources of oil to compensate for the rapacious energy needs. A radical concept at the time, one of the more effective solutions was to tap into the two-thirds of the planet covered by water by creating the now ubiquitous offshore oil-drilling industry. More than a century later the same factors of growing demand, high commodity prices, continued depletion of land-based resources and new technology has set the mining industry down the same path.

UNDER WATER: With the vast majority of Papua New Guinea’s landmass already stitched up in terms of mining permits, new mining operations are moving offshore. As of early 2012 four separate offshore mining outfits were operating in the country: Canada-registered Nautilus Minerals, Bluewater Metals of Australia, Bismarck Mining Corporation and Pristine Company. A fifth New Zealand-based company, Neptune Minerals, also investigated some concessions within PNG territorial waters but has since opted out.

Underwater mining sites are proving attractive for investors in specific areas due to their unique geological conditions, which conspire to create a veritable treasure trove of mineral resources. Miners target mineral-rich, high-grade, large-scale sulphide deposits that form on the ocean floor as superheated water laced with metals carried from deep inside the earth mixes with the cold seawater where the minerals then collect en masse. These deposits are similar to the massive high-grade volcanogenic sulphide deposits that have traditionally been mined on land primarily for copper, gold, zinc and silver.

While the concept has been around for decades and is employed regularly throughout the world, mining in deeper-water areas in excess of 1 km was relatively unheard of until recently. Armed with decades of ocean floor research, offshore mining outfit Nautilus Minerals is betting big that it can turn a profit mining precious metals at depths not previously attempted.

The first deep-water site targeted for exploitation is Solwara 1, located on the floor of the Bismarck Sea near the Island of New Ireland. The project is a 70:30 joint venture between the Toronto-headquartered Nautilus Minerals and the PNG government’s resource development arm Petromin. Exploratory drilling was initiated in November 2010 and the company was granted the world’s first deep-sea mining lease (valid for 20 years) in January 2011 for Solwara 1 encompassing an area of 59 sq km. A dispute over ownership issues has recently put the project on hold, but is expected to be resolved soon, according to Nautilus.

CHALLENGING LOGISTICS: While undertaking the untried deep-water mining operations presents inherent challenges such as operating new technology at greater depths and associated logistical difficulties, the estimated quality and concentration of potential resources presents enough incentive to move forward with the project. Core samples taken from drillings in 2011 at the Solwara 1 site have revealed indicated levels of copper at 7.2%, more than 10 times the global mining average of 0.69%. There are also high concentrations of secondary minerals, including gold at 5 grams per tonne (gpt), 23 gpt of silver and 0.4% zinc grade. With a total domain of 1.03m tonnes of seabed to be mined, the estimated indicated yield would include 74,160 tonnes of copper and 165,600 ounces of gold. By comparison, productive onshore mines such as Ok Tedi yield grades of 0.85% copper and 0.91 gpt of gold, according the Mineral Resources Authority.

Previous explorations by various scientific organisations have already identified 19 separate mineralised seafloor systems in the Bismarck Sea. To date, Nautilus has mapped out a total of 12 viable mining sites, named numerically Solwara 1 through Solwara 12. In total, the company expects the Solwara 1 project to be active for three years before it pulls up stakes and moves onto the next location. An exploratory campaign during 2011 has also yielded preliminary findings for another mine site some 25 km north-west of Solwara 1, Solwara 12, which indicate significant inferred mineral deposits, with copper and zinc grades of 7.3% and 3.6%, respectively, as well as 3.6 gpt gold and 56 gpt silver from a total material of 230,000 tonnes.

DOWN TO BUSINESS: With the exploration well under way, permits secured and preparations squared away, the next step for Nautilus is to begin operations in 2013. But operating at a mineralised site measuring approximately 1.3-km-long and 200m-wide sitting 1600 metres below the surface requires an impressive array of cutting-edge technology.

With a pressure 155 times that of the earth’s surface and temperatures nearing freezing, work in this inhospitable environment can only be carried out by remote-operated vehicles. Nautilus has developed three seafloor production tools to carry out the extraction. Designed to disaggregate seafloor material, the first two machines are the auxiliary cutter, which employs a boom-mounted drill apparatus to prepare rough terrain into a level working bench in which the second, higher-capacity bulk cutter can then chew up the seafloor at a more rapid rate. After these machines have ground out the targeted area, the third collecting machine gathers up the loose cut material in a seawater slurry and pumps it to the riser and lifting system, or RALS.

Powered by a large pump built by GE Hydril of Houston, Texas, the RALS pushes the slurry to the surface through a solid vertical pipe, or riser, that is attached to the production support vessel (PSV) above. The PSV serves as a base for dewatering the slurry, which is subsequently transferred to transport barges moored alongside the vessel. Starting in 2013, these barges are expected to transport some 1.3m tonnes of material annually to the Port of Rabaul some 50 km away. Once collected in Rabaul, the mineralised material will then be shipped for concentrating and smelting. In April 2012 Nautilus announced an agreement with Tongling Nonferrous Metals Group for the sale of product extracted from the firm’s Solwara 1 deposit.

TREADING LIGHTLY: While the economic attraction of highly concentrated mineral deposits is the primary diver for the project, a number of other facets of the offshore mining operations are also more advantageous to their onshore counterparts. Despite the often negative perceptions associated with offshore resource extraction (fuelled recently by the well-publicised 2010 deep-water oil rupture at a BP Horizon oil rig in the Gulf of Mexico), offshore mining operations generally have much less of an impact on the surrounding environment than on onshore sites. “There are minimal environmental impacts for several reasons,” Mel Togolo, PNG country manager for Nautilus, told OBG. “First, the high grade means that less overall material is extracted, which in turn leads to less wastage.”

Where traditional pit mines extract millions of tonnes of material containing just trace amounts of valuable mineral that is profitable only when processed in large amounts, offshore deposits employ a quality-overquantity methodology requiring a fraction of the input raw material. In total, the Solwara 1 site measures just 0.11 sq km. Mining such a miniscule site is possible because the maximum amount of top layer to be removed is only around 15-20 metres. While Solwara 1 will remove and process just over 1m tonnes of material annually, this is a fraction of the material removed from a large-scale terrestrial mine such as PNG’s Lihir gold mine with extracts some 50m tonnes per annum.

Togolo also noted that because the drilling is done from a floating offshore rig, the project’s footprint is also much smaller than land-based operations, which require massive expanses for pit mining in addition to access roads and other on-site facilities and infrastructure. The impact on indigenous sea life is also negligible due to the methodology employed in extraction. Endemic tuna and mackerel fish and their supporting ecosystem subsist primarily in the first 250 metres of water, while the work site will be more than a kilometre deeper at a depth of 1600 metres. Because the lifting technology utilises a sealed pipeline to pump the slurry from the sea floor directly to the surface, there should be no impact at any other depths. Temperature variations of the seawater associated with different depths are also mitigated by returning the colder seawater from the sea floor used in slurry extraction to its original depth via return pipes.

FURTHER BENEFITS: As well as the environmental and social benefits implications of offshore resource development, it also substantially eases logistical operations as the rig can simply be moved to a new location when starting the next mining operation. Given the limited road access throughout most of the country and high costs of airfreight as well as associated security issues, this represents sizeable savings for offshore sites. This also allows Nautilus and other offshore operations to largely avoid one of the most delicate and complicated problems associated with resource extraction – the issue of land ownership and usage. With social impacts limited only to a small number of fishermen claimants from coastal communities, the operation’s permission and compensatory obligations are drastically reduced.

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The Report: Papua New Guinea 2012

Mining chapter from The Report: Papua New Guinea 2012

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