Factors in the Financing of Seafloor Massive Sulphide Exploration

Julian Malnic B.Sc Hons MAIMM, June 2000.

Chief Executive Officer of Nautilus Minerals Corporation

1.0 Introduction

With the history of Seafloor Massive Sulphide (SMS)1depositsexploration barely half a decade old and quite embryonic, observations as to how the exploration for this future industry will be financed are more anecdotal than statistical. Furthermore, because of the normal confidentiality that surrounds such early stage activity, detailed knowledge of the industry experience does not extend far beyond the boundaries of each group (we think there are about five potential players.

Nautilus was the first pioneer this new field. Since our beginnings in 1994, we have developed a unique experience base that I will attempt to share with you. I hope that my comments here today are illustrative and inform our workshop about life in this exciting new sector of mining. The reason that we are here is to promote a broad understanding of the challenges we are facing.

I will first outline the traditional capital raising model, which remains the basic platform from which we work. To this I will then add narrative on the factors that are unique to the financing of exploration for seafloor massive sulphides.

Here is a quick reminder of the traditional venture capital raising structure:

  • Seed Capital–Committed and visionary individuals galvanise the play into action from a relatively low capital base by forming the company, applying for rights and bringing together the key skills and personalities that will create success. The promise of very high returns offsets an unquantifiable array of risks.

         The term Seafloor Massive Sulphides (SMS) has been proposed to create a distinguishing label for this new marine variant of a class of deposits normally referred to as Volcanogenic Massive Sulphides.SMS deposits differ markedly in that they are still forming, or have recently stopped forming, and that they will require very different commercial and engineering solutions to VMS in their mining. The term polymetallic is strongly discouraged in labelling or describing SMS deposits (and manganese nodule deposits) because virtually all ores are ‘polymetallic’ before they are processed and thus the word confuses rather than distinguishes.

 

 

  • Development Capital–This interim capital stage uses thoroughly prepared presentational material to solicit capital off-market from individuals or organisations that usually have other investments. Groups incoming at this stage are still quite courageous but they will most likely want to have laid before the man ‘exit strategy’ which limits the time their investment will be exposed to risk. They will want to see a mechanism where they will be able to sell out–perhaps following a public company Initial Public Offering (IPO) and public exchange listing.
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  • Project Capital–This is the lowest risk stage where the largest sum of capital is sought. Accordingly, a detailed prospectus of some type accompanies the investment proposal usually presenting a list of opinions from independent experts into every aspect: accounts, environmental management, the people, estimations of the project’s value and an outline of legal titles and contracts. If a consortium or joint venture is formed to raise the Project Capital such assessments will take the form of a ‘due diligence’ study.

2.0 Defining the purpose of the investment?

One of the most basic rules of capital raising is that one should be able, in a detailed and convincing way, to say what the money raised will be used for and what milestones will, with high probability ,be attainable. So this can be an early Catch 22 in SMS exploration where technical tasks are being done for the first time with the outcomes being less predictable.

 

The traditional project stages that we use in terrestrial mining are:

Reconnaissance exploration

Target definition

Resource definition

Pre-feasibility study

Feasibility study

Decision to mine

Construct and commission

Operate and sell metals

Through centuries of experience, on land, we know exactly what to do in following this staging. In the marine environment, it is difficult to predict, for example, how much ship time will be required to explore 5000 km2 of the Bismarck Sea to a satisfactory reconnaissance level or how good drill core recoveries will be.

It is also important to be structured so that the investor only participates in that part of the business the incoming party is interested in. What business do they become part of? An engineering firm for example may want to invest solely in the technologies and intellectual property assets, while a major mining house will want to invest only in the mineral deposits and the concentrate streams that will flow from them. A regional bank might want to invest say in Papua New Guinea only.

This is why I refer to Nautilus as ‘a group’. It is an international group of companies holding rights to different regions and different elements of the enterprise.

I mentioned some of the different types of investor above. Each of these will require a different structure. An individual speculator will want to be able to trade in and out of your company and would like to see it listed on a stock exchange. In contrast a major engineering firm will want a joint venture of direct equity position that avoids the complications and over heads of running a public company.

There is a lot to understand and a lot of structuring to do before an exploration company like ours can accept investment.

3.0 Understanding the motive of the investor

There is a lot of logical analysis that can go into a decision to invest but the human interest element also can play a very big part in the final decision.

In December 1997, Nautilus made its first press release headlined Nautilus Granted World-first Licences over High-grade Marine Sulphide Deposits. We were nearly bowled over by there sponse. Nearly every major newspaper in the world ran something on it. We were on the front page of the New York Times on Channel 4 ITV Newsin Britain, the Minneapolis Star Tribune, PNG’s Post Courier, The Times of London–you name it.

In the New York Times, science writer Bill Broad said ‘Mining experts familiar with the New Guinea project say it could mark a turning point in the art of metal extraction, especially as growing red tape curbs some terrestrial digs around the world.’ Nigel Hawkes from The Times in London said ‘Mining companies are about to follow the oil giants to the bottom of the sea.

From this we learned that there is a deep human interest in exploring and mining the sea. SMS Exploration is seen by the media and the public as scientific adventure, as the pioneering of inner space. This ground swell of public interest has been very important in raising the private capital that we have raised so far and will be an important driver for Nautilus and its competitors in the future. The sense of ‘getting in on the ground floor’ and actually being part of a pioneering effort can be very attractive to the investor and offsets fears of the unknown and technical risks. Many people responded to the media appearances seeking to invest but regulatory issues prevented us from being able to accept their offers.

Of course, there is only one ultimate measure of the success of an investment and that is the return. Risks assessments also play a big part. I will comment on the analytical aspects of our work further on.

4.0 The importance of grade

Mining higher grades means processing less rock. Grade is the fundamental difference between the manganese nodule resources of the deep abyssal plains, we heard so much about 20 years ago, and SMS deposits. Sulphide deposits such as the TAG deposit on the Mid-Atlantic Ridge have been known and studied for a long time but did not excite a lot of interest because of their low content of valuable metals. The vital discovery of the last five years has been that within the broad family of hydrothermal sulphide deposits on the world’s ocean floors, there is a subset that forms in specific geological environments and contains metal values routinely exceeding US$500/t.

It is the discovery of this new high-grade sub-class that is the key commercial factor. Grade is the primary attraction. Conversely, a lack of grade is the reason that there is no private investment in manganesenodule deposits.

The new high-grade SMS deposits, such as have been extensively observed and sampled in Nautilus’ PACMANUS and SuSu Fields in the Bismarck Sea, have high zinc, copper and gold and will probably also yield silver and barite byproducts. Even during times of depressed gold prices such as now, there is a lot of investor focus on the high gold value seven though the yellow metal comes a clear third in the tally.

The SMS mining operations of the future will have zinc and copper concentrates as their main products. Their flowsheets will most closely resemble those in terrestrial base metal operations mines, with gold being sold off to the smelters contained in the copper and zinc concentrate products.

The gold content is only partially recovered in concentrate processing and the smelters do not credit its full value to the producer. Nonetheless the gold grades we encounter of 15-21 grams per tonne are a multiple of those mined in typical terrestrial mines and always attract attention. The gold content may in the future facilitate the use of gold hedging instruments such as the ‘gold loan’ where gold is forward sold and project capital is repaid in gold.

Both copper and zinc are seen as metals with a special role to play in mankind’s future and demand is expected to continue to grow in the coming decades.

If, as we suspect, metal grades such as those shown in the table below for the Manus Basin are proven by drilling to be sustainable in the three dimensions of the SMS mound, the mining industry will change in another important way. It will enter a new era where the amount of waste products is sharply reduced. I will say more about this later on when I talk about the processing costs and environmental benefits.

Bearing in mind that the economic sulphide minerals chalcopyrite and sphalerite also comprise iron and sulphur, up to 80% the mass of the mineralised rock as it comes from the seafloor can be accounted for by these economic sulphide minerals. This means only 20% of the mined volume will represent unsaleable waste. This is a significant reduction over current terrestrial mines where 95% is a more common waste quotient. Such small volumes may even be cemented and lowered to the seafloor in inert blocks.

A 1.1 tonne chunk of SMS mineralisation recovered in April from Nautilus’ PACMANUS Field in Exploration Licence 1196 assayed 53%zinc. Many zinc concentrates traded on the world market assay 55% zinc.

5.0 Why no rush by the major mining houses?

Since our beginnings, Nautilus has had intimate discussions with perhaps 20 major mining houses and while all of them have expressed admiration, none have committed. With hindsight, Nautilus spent far more time in discussions with them than it should have.

Through this expensive discussion process however we did learn a great deal about the massive paradigm shift that the major mining houses have been jammed through over the last five years. Leading up to mid-1999, metal prices were eroded steadily due to a generally slow world economy out side of the US. The economic ‘meltdown’ of Asia added to the gloom. The technology stocks were starting to fly and mining companies were finding it hard to get global investment fund managers to give them their attention.

This was coincident with another major mining house phenomenon that remains quite inexplicable. Despite big budgets, discoveries of new mineral deposits were eluding the big companies. Somehow they had lost the core skill of mineral discovery. Recent figures compiled by leading exploration veteran David Lowell show that the unit cost of discovery shot up 3-4 fold during the late 80s and 90s.

In a desperate bid to prop up their languishing share prices, the majors slashed their now-unjustifiable exploration budgets by up to 80%.Management turned to mergers and acquisitions as a means of competing for the attention of investors. By now the markets were mostly only interested in dotcom and other technology stocks.

These events have changed the major mining houses forever and they now seem to expect their future discoveries to come from small companies, for discovery also to be ‘outsourced’. They are not the bold risk takers they were when the manganese nodule boom of the early 80s bloomed. Lowell predicts a serious ‘ore shortage crisis’ to emerge in the next two years or so as the strong world economy consumes stocks.

But for now, the majors have lost their nerve for discovery and are now apparently out of the equation as far as SMS exploration is concerned. It has become a sector with a deep-seated fear of being first. A cost-cutting mentality has led to no job being secure and in this climate, no one is prepared to stick their neck out. Corporate cultures have become dominated by negativity and companies are operated far more as mining asset investment portfolios than as they were previously as coherent, integrated units.

We remain in touch with the many major mining houses but do not expect investment to come from that sector until marine mining emerges as a threat to existing businesses.

6.0 Packaging by concept

In our earlier experiences, we tended more to present our group to investors as a single entity with many purposes, and with many different potential dividends. Recently, as we move further into the development capital stage, we have found it far more effective to present it divided by activity, into two sets:

One set of companies owns the titles and applications to minerals and the second, owns intellectual property and a service contract to develop and supply exploration and mining technology and services to the first set.

This is actually how we are structured but previously we did not fully appreciate the sharpness of the cut between the two sets of interests that investors want to see. Increasingly we find they are interested in minerals ownershiportechnology but not in both. Some see the mineral production end as the place to be and others see the technology and know-how as the key.

So what are the areas of technology that appeal to investors? Basically they are the technologies that show promise in finding or mining SMS deposits. Exploration technology, including the Rapid Exploration System, will create a lot of value by surveying large areas, finding new plumes and locating the SMS deposits. Designing the very best mining machine that can break, load, crush and lift the sulphides by pumping them up a riser, will be the most critical factor in making SMS lower cost than terrestrial mining. This will be the key advantage in the race.

The largest capital item is the topside production plant such as the Floating Production Storage Offtake (FPSO), the ore shuttling craft and the refinery (if any). Here ‘ships of opportunity’ and existing systems will be modified and combined. We are conscious of the advantage Nautilus has in having the first titles granted under a mining act. Our exclusive access to this ‘development laboratory’ is an enabling factor for the testing of such designs and of course ultimately for their commercial deployment.

To people with a working knowledge of the current state of marine technology, the development of these technologies is simply an extension of what is already being done in the deep sea environment by the oil & gas, military and communications sectors. To them, marine mining is not only possible, it is a logical extension of past technical achievements. Our experience is that marine technologists and engineering groups are far more inclined to invest than say a major mining house that knows nothing about the sea.

The possibility of developing an SMS mining system is highly attractive to the marine engineer because it offers a clear road to lucrative mining contracts and early returns in the future. The creation of a mining system will prove the feasibility of deep marine mining. The first contractor with this equipment will make the first revenue from SMS mining.

Manganese nodules were effectively test mined from the abyssal plains of the East Pacific rise in nearly 5km of water more than 20 years ago in April 1978. So marine mining, of a most technically-difficult type, has been proven and in era when the available technology was a fraction of what it is today. Despite this the media, the public and investors generally remains quite unaware of the state of marine technology. Those who do know of the manganese nodule history are unimpressed because it was, and remains, a fundamentally commercially ill-conceived resource play because of the water depth, poverty of grade and the scattered nature of the resource.

The question ‘Will it be possible to mine SMS deposits?’ is frequently asked. Nautilus puts a lot of effort into communicating well-illustrated answers to these groups.

7.0 Why SMS mines will be the lower cost

Ask any terrestrial mining company what their most intransigent costs are and the chances are they will give you a long list of factors. In Nautilus’ analysis and spreadsheet modelling, a typical marine mining operations for SMS will face competitive advantages relative to terrestrial operations in virtually all areas.

Current-market metal prices are determined largely by the efficiency of supply from the terrestrial mines. The list presented below summarises the main foundation arguments as to why SMS mining will out-compete terrestrial mines at least in the production of zinc, copper and gold. They are the fundamental logical factors that we see transcending the elements of romance and public interest as the drivers of this new field. The inflexibility of terrestrial cost structures versus the higher flexibility of cost structures and, we project, the higher profitability of marine mining, will see investors make the jump.

The advantage of SMS mining relative to terrestrial mining

  1. Lower discovery costs–live geochemical signatures, visible deposits
  2. Shorter development lead time–ease of sampling, access to the deposit
  3. No landowner disturbance & compensation costs
  4. Exposed deposits–no prestrip or shaft/drive development costs/delays, low-cost trial mining possible
  5. Cheaper beneficiation–superior metallurgy indicated, less grinding and materials handling
  6. No pit-to-port infrastructure–a major capex item in terrestrial mines
  7. Cheaper plant and transport–built in shipyard, sailed to site
  8. FPSO vessel leasable–removes the single greatest capex item
  9. Lower feasibility costs–access to deposit and plant mobility means the entire ‘mine life’ need not be a rigorously proven
  10. Metal price responsive–high zinc or copper deposits targeted as required
  11. One ‘mine plant’ can work many deposits around the world
  12. Little waste–costly to produce and a major environmental liability

Cumulative benefit - low capital and operating costs

The oil & gas sector moved offshore in the late 70s and 80s and is a valuable example of what to expect for the evolutionary course of SMS mining. In the oil & gas sector it took less than a decade for offshore production to move from the sheltered Gulf of Mexico and water depths of 20m to Bass Strait in Australia and the wild conditions of Britain’s North Sea. By April 2000, the fabrication yards around the Gulf of Mexico alone had built 5,500 platforms for hydrocarbon exploration and production.

The marine diamond industry of South Africa and Namibia also sprouted rapidly. In its first ten years the newly-formed De Beers Marine annual production bounded from 29,000 carats to over 500,000 carats with the strongest growth recorded in the first four years. The runaway success of the crawler-mounted Namssol alluvial diamond miner built by Subsea Offshore and operating off the west coast of southern Africa represents the passing of another technological threshold. In some ways the mountainous swells, intense winds and scattered diamond grades of this remote strip of African coastline represent a more difficult developmental environment than do the deeper but calm waters of the Manus Basin. Many lessons are being learned from Africa’s alluvial diamond operations.

The manganese nodule boom is not analogous. It was short-lived and driven by geopolitical forces stemming largely from the Cold War rather than economics. The 1970s nickel boom and the severe price spike it created had given nickel a commercial status it has not enjoyed since. Personally I believe manganese nodules will not be economic for centuries to come because of their inferior grade and the water depths and mid-oceanic conditions they are found in. Now they must also compete with the abundance of similar-grade nickel laterite resources. Some of the shallower manganese crusts and perched nodule fields may be commercialised sooner. If they are, it will be on the back of break throughs that come from SMS mining.

Nautilus also has an application for exploration licence pending over Conical Seamount, a gold-mineralised, 1050m deep seamount lying 10kmsouth of the island of Lihir. Close to it, Lihir Gold Ltd has a US $760 m gold mine that processes a type of gold-pyrite mineralisation similar to that sampled at Conical Seamount by its discoverer, Professor Peter Herzig of Germany’s Freiberg University. One sample set assays 20-30g/t Au, a grade that could make Conical an important technical staging point in the development of systems to mine in the 1300m to 1900mrange we expect to be typical for SMS mining operations.

In my view, today’s two most intractable threats terrestrial mining faces are land access problems due to indigenous peoples issues and increasing population pressures, and increasing constraints on tailings and mine waste disposal. On both points, marine mining will get the inside running.

Sovereign risk factors are also making terrestrial mining investors nervous. While less developed countries are seen as being increasingly unstable, regulation and intense environmental pressure in the developed nations is also closing mines. In Fiji, the Solomons and West Irian coupsand succession moves have impacted on recently impacted on mining operations there. In the US, mining has been all but outlawed in many areas through overly tough legislation despite the US being the cradle of a booming consumption of mining products

The offshore environment is attractive to resource developers. Apart from offering magnificent transport, excellent equipment availability and convenient topography-free working environment, it has isolation from population pressures and the risks they bring. The 1999 decision by Royal Dutch Shell to spend US$8.0 billion in offshore petroleum exploration and production in Nigeria preceded the country’s first democratic election in years by three weeks. One can only conclude that the offshore environment presented a large comfort factor when Shell was considering the sovereign risk issues.

So with all this sound reasoning, why aren’t we awash with investment offers? The answer is fear of the new. No-one wants to be first and no-one will want to be third. History shows that in minerals, things tend to move in booms. The fundamentals are in place. To our investors westress the limited number of ring-side seats that will be available in this new field.

8.0 Modelling

SMS mining offers scope for a highly compressed development cycle. The time between identifying a plume and tracking down a deposit, and the time of mining the deposit at its source could be very short. With the mobility of the production vessel, test mining can be conducted within a matter of weeks of a discovery. On land, the definition drilling required to justify the cost of a test shaft will typically take two years and then the test shaft will take additional time. With this part of the development cycle shortened, the feasibility study costs are also expected to be significantly lower than for terrestrial mines.

Nautilus has constructed a series of useful spreadsheet models for a hypothetical Manus Basin mining operation using basic assumptions and calculations based on a particular mine design

We regard these models as proprietary assets so I do not intend to present them here in detail. But for the sake of illustration, one base case involved an arbitrary minimum mine size of 1.5Mt and at the rate of 1000tpd, the mine life is 4.5 years. The following chart shows the summary of net cash flow and cumulative net cash flow for this scenario. Capex costs include the acquisition of a ship for US$50m

We think that the cumulative net cash flow draw down could be less than one third of a terrestrial mine with equivalent production. Unit cash costs will also be very low. Of course without the many pages of assumptions and the spreadsheets that support this model, it has limited value. There serve size and mining rate may be quite different. I present the chart here purely as an indication of the methods we use.

9.0 The environment issues and benefits

Proposals to mine zinc, copper and gold from SMS deposits are driven by investor belief that this type of mining will be more profitable than terrestrial mining. Similarly, there is a belief that it may also be competitive in terms of environmental impact

Modern man’s demand for metals and mineral products such as copper and zinc is quite inelastic. It must be satisfied from either terrestrial or marine sources.

Already materials such as hydrocarbons, diamonds, mineral sands, building sands and aggregates have shown the ability to substitute marine sources for terrestrial sources. To this extent, mining has already started in the marine environment and learning about its relatively low environmental impact is already well advanced. Substituting a marine source for a terrestrial source may become a way to limit the net environmental impact of winning at least in the winning of some of some essential metals.

SMS mining can reasonably be expected to have at least two major environmental advantages. First, high grades mean a low proportion of waste will be produced. This small proportion might even be returned to the dynamic environment where it formed. Terrestrial mines, the alternative source of the metals, produce increasingly high proportions of waste and by far the greatest amount of liability faced by terrestrial miners is the result of the large volumes of tailings produced and consequent mismanagement disasters. Acid mine drainage from mines and waste dumps is another hazard avoided in the marine environment

Secondly, in active SMS deposits, it has been shown hundreds of tonnes of mineralisation are likely to regenerate every year in the wake of mining. As long as the heat and fluid emissions continue to provide anoasis in this cold dark world, life will return to it. The more that we understand deep vent fauna, the more we see that it depends primarily on the presence of heat, H2S and fluid emissions, rather than the presence of the SMS mound. The spatial and temporal discontinuity of the production of these life-sustaining nutrients has encouraged vent fauna to evolve into voracious survivors. They live with a transient community focus and can survive major catastrophes even where sudden cooling or a lava flow wipes out large numbers of individuals.

But perhaps only the cold and relatively lifeless deposits will be most economically attractive to us. With every year come new discoveries adding to our growing archive of active vent sites and the perception that these are far more frequent marine assemblages than was once imagined, has developed. Sites have also been found where life is quite sparse, in contrast with some of the hydrothermal sites first observed on the Mid Atlantic Ridge.

Because exhalative SMS deposits are not covered by sediment, any fine sediment produced in mining will comprise mostly sulphide. Density will aid the rapid settling of silt particles thus reducing the amount of fugitive silt. Compared with mining manganese nodules where vast areas would be disturbed, SMS mining operations can be expected to be highly focussed, simplifying the job of mining, monitoring and remediating. SMS mines are expected to operate typically in less than 40% of the water depth of manganese nodule operations, simplifying the tasks of environmental management and monitoring.

Green house advantages may also be increasingly recognised. Terrestrial mining operations are great consumers of fossil fuels and are already under pressure to cut emissions from the Greenhouse lobby and face the prospect of carbon tax. Australia’s Western Mining Corporation (WMC)has done some number crunching with respect to this matter and, based on an assumed $30 per tonne carbon tax, the company found it will be up for more than US$100 million a year, off the bottom line. Broken Hill Proprietary (BHP) has gone through a similar exercise and my understanding is that their number is about US$600 million a year

10.0 Nautilus’ proposal of a Code for Environmental Management

The emerging marine minerals exploration and mining industry is currently focused mainly on the technical elements required for its success such as exploration and mining technologies. However, in one sense, the technical challenges are quite solvable whereas those arising in the fields of the environment and public opinion could present this new generation of miners with problems that are far more difficult to overcome.

One need only look at the issues currently faced by mining projects on land to see how powerful the new forces of ‘civil society’ can be inretarding or stopping mineral developments in many countries. From the geographic viewpoint, there are many countries but there is just one ocean, so any negative impact experienced by any one (perhaps rogue)operation are likely to have pervasive repercussions throughout the industry. A well-oiled NGO development protest lobby will see leverage in resisting this new industry by focusing on the worst case examples.

The Australian Minerals Industry has established a voluntary Code for Environmental Management. It provides an active and valuable model for satisfying the ‘court of public opinion’ and in delivering economic results to industry that satisfy the concept of sustainability. This is the reason behind the Code for Environmental Management being voluntarily subscribed to by 44 companies representing more than 300 operations and85% of Australia’s sizeable mineral production. Participants see it as a means of underwriting the future wealth of their shareholders. At the 30thAnnual Meeting of the Underwater Mining Institute in Hawaii this year, Nautilus proposed the Code for Environmental Management for adoption by the marine mining industry and the proposal won general support of the meeting.

With the extraction of SMS minerals will come the recovery of some biomass from the seafloor. It is possible that valuable biological by products will also result.

11.0 Competition with Marine Scientific Research

Many MSR workers are very conscientious about how they conduct their work in the Territorial Waters and EEZ of the Coastal State but others are operating as mavericks. A draft Suva Protocol for the collaboration of licence holders and MSR workers has been agreed but is not being adhered to by some who are party to it. This has lowered the professional tone in all sectors, MSR, government and industry, and could under mine vital aspects of security of mining title by allowing commercial information to leak to public capital markets.

The French Manautecruise to Nautilus’ EL 1196 in May 2000 made submersible dives and sampled sulphides. Nautilus was not notified and it seems neither was the PNG Government. Such violations by major nations against developing nations seek to disadvantage the host nations by isolating them from scientific findings in their waters, by removing samples of potentially valuable biological materials and by lowering the security of title with the effect of discouraging foreign investment.

Reporting guidelines have been flaunted by many nations meaning that Nautilus cannot access information gathered from its areas. This attitude by the developed nations who conduct MSR reflects very poorly on their humanitarian outlook and United Nations and international pressures hould be brought to bear on such unscrupulous acts.

Given the chance, Nautilus has found many ways to collaborate with MSR groups and to assist them in their objectives. The Suva Protocolen titles Nautilus to be represented in all MSR work within its licence areas. Since the Manaute incident, Nautilus has been forced to consider the possibility of direct legal action against such intrusions and may treat them as trespass in order to maintain security of title.

12.0 Managing success

The way in which entrepreneurship is applied to the capital raising is critical. While Nautilus seeks to recruit the best brains to its management, there are still a myriad of critical judgements that need to be got right. Like baking the most elaborate dish, building a marine exploration company requires an ingredient approach. Too aggressive an approach will mean unsustainable performance or the severe dilution of shareholder equity. Too gentle an approach could mean a loss of momentum and the all important confidence of stakeholders. Either way the corporate plot can get lost. Inevitably timing and luck will also play a role.

We have learned that tackling new things does not appeal to some people. A deep personal commitment and courage in the face of low budgets helps! We offer people who work with us two books: Skunk works by Ben Rich which describes the incredible development of the Blackbird and the Stealth Bomber by the Lockheed; and Ship of Gold and the Deep Blue Sea by Gary Kinder which describes the recovery of 15 tonnes of gold from a sunken paddle steamer, the Central America from 2500m of water off east coast USA

In both of these factual stories people routinely achieve what others think is impossible. We see that the dynamic interaction of personalities and management of the work environment is critical. There are also many very good people who are simply drawn to Nautilus’ challenge and we have a long list of people who have recruited themselves to our cause. Showing such a list of high quality profiles to investors generates additional confidence in the most critical area of people

13.0 Conclusion

I am often asked when mining will commence and have learned to let this question pass by when it appears. I will however predict that there will be a boom in SMS exploration within the next five years as the amount of metal resources discovered on the seafloor passes a point where the world economy can no longer ignore it

Given free access to the entire ocean, I am confident that on current data20 million tonnes of SMS mineralisation could be aggregated right now. Given that this has been discovered mostly within the last five years, the figure could easily exceed 200 million tonnes in the next five, given the accelerated levels of activity by MSR and commercial explorers. At some point intense commercial interest will ignite and large amounts of capital will be raised with relatively little effort. Commercial efforts will then outweigh MSR efforts in reverse proportions.

At the Underwater Mining Institute in Hawaii in January this year there were five marine mineral players lining up for the race, including Nautilus. Many more will arrive as this adventure gets under way. The unique attributes of the enterprise environment for SMS exploration and the very alternative route that I have outlined for its capital raising, is likely to present a pivotal point in the history mineral production.

Thank you