Mining the depths more than pie in the sky

Mining rock phosphate in the Chatham Rise area presents obvious benefits, but the hurdles are huge, reports James Weir.

Extracting rock phosphate from under 400 metres of water on the Chathams Rise has obvious benefits in that the mineral is a key part of fertiliser for New Zealand farms, but the challenge from a mining point of view is a "steep one", says an analyst's report.

If all goes to plan, Widespread Energy, one of the companies looking at rock phosphate, believes it could start underwater mining as early as 2013, although it faces big hurdles in raising cash overseas and getting government approval to mine.

McDouall Stuart's head of research, John Kidd, says rock phosphate is not "pie in the sky", but a real and valuable resource that could offset phosphate shipments from Morocco.

"Despite the obvious benefits, the challenge would be a steep one," he said, considering that seabed mining presents higher risks than onshore mining, especially considering the mid-water depth of 400 metres. However, seabed mining technology is well established and the challenges of applying it to the Chatham Rise "appear manageable".

However, the project is expected to face opposition from environmental groups.

Also, there is the challenge of mining phosphate at a depth that has never been achieved anywhere else. Still, three different overseas dredging companies believe it can be done and they have mined alluvial diamonds at up to 170 metres, says Widespread managing director Chris Castle.

He estimates that if the project went ahead, it could produce cashflows of between $40 million and $100m a year.

New Zealand Alternative Market minnows Widespread Energy, which holds 90 per cent of the project, and Widespread Portfolios, with 10 per cent, are attempting to raise money to develop a project to mine rock phosphate. They have failed to get much interest from local investors or the two big fertiliser companies in New Zealand, Ravensdown and Ballance.

So Mr Castle, who is essentially a one-man band, is turning to Canada to raise money for the next step: listing Widespread Energy overseas and raising cash.

He has raised about $1.4m from existing shareholders and a couple of overseas investors, including Jim Askew, who will front the capital-raising effort in Canada, probably aiming for about C$20m (NZ$26m).

Mr Askew is chairman of OceanaGold, which mines gold in the South Island.

"We found it impossible to get [New Zealand] investor interest in our shares," Mr Castle says.

Widespread thinks it could start the underwater project with as little as $15m in capital expenditure, using contract dredging. The capital raising includes some "rainy-day money", but that would be for only about half the project, with the balance held by Widespread shareholders.

Others are looking at phosphate mining on the Chatham Rise, such as Seafloor Resources, run by Adrian Fleming. Also holding a licence is mining heavy hitter Geoff Loudon, of L&M Petroleum and Lihir Gold.

Mr Loudon, who is based in Queenstown, is believed to have talked to European dredging companies, but he has not yet pushed the button.

Mr Loudon is also chairman of undersea exploration company Nautilus Minerals, which is looking for massive sulphides at a much greater depth, about 2000 metres, around the Pacific "Ring of Fire", with samples taken near Papua New Guinea. The sulphides are rich in iron, lead, zinc, and copper, with some gold and silver.

Mr Castle believes Widespread has "the best bit" of the Chathams Rise, in an area of about 300 square kilometres. If the project succeeds, the area between the South Island and the Chatham Islands would be the first place in the world where rock phosphate is mined in such deep water.

Widespread is talking to three dredging companies to get competing bids to contract mine the resource.

Although the numbers have yet to be "proved up", one dredging company believes it could mine for between US$90 and US$120 a tonne. Another says it would not cost much more than what it does to freight phosphate from Morocco to New Zealand – about US$70 a tonne.

The world price for phosphate is US$140 a tonne in Morocco, but with freight added, the cost here is US$210 a tonne.

"That's why I'm persevering with this. You could make NZ$40m a year before tax. That's not bad for a project owned by two companies with a market value of NZ$7m," Mr Castle says.

But the world price of phosphate has been through a "boom and bust" cycle in recent years.

In 2006, Morocco, which controls about 40 per cent of the world-traded market, pushed prices up, from US$40 a tonne to US$500 a tonne in 2007.

After the global financial crisis, prices plunged back to under US$100 a tonne, before rebounding to US$140 a tonne.

Mr Castle believes world prices would have to fall to US$30 a tonne, which is less than the US$50-a-tonne cost of mining in Morocco, to make underwater mining uncompetitive. In a couple of months, after pre-feasibility studies have been finished, Widespread intends to choose a dredging company.

It would take another year to finish the mine design, which the company is expecting to be in about March 2012. "By March [2011], we hope to have pre-feasibility studies from three companies and will get an expert to asses if they are realistic," he said.

By March 2012, Widespread will apply for the mining licence, but it was unclear how long that process could take. Mining could start as soon as 2013.

However, Mr Castle fully expects opposition from people who think "mining is evil, especially under the sea".

There are sponges and starfish on the seafloor where the company wants to mine, but no orange roughy fish, which are found at 800 metres to 1200 metres.

Mr Castle says the mining process would not disturb the seabed, but would just extract the rocks of phosphate and leave the sand behind or the sand would be pumped up to a ship before it was returned it to the sea floor. The idea is to minimise the plume of sand underwater.

It is unclear how far the plume would travel and what impact it might have on sea life.

"This will inevitably attract some opposition from environmental groups, and we want there to be complete knowledge about what is there, so we can manage our mining process," he said.

"If there are rare species, we won't go near them."

The area that Widespread is looking at is less than one-tenth of 1 per cent of the Chatham Rise area.

Even then, the company is aiming for the limited "rich patches", rather than strip mining the whole area.

Early this year, Widespread gained a prospecting permit for an area about 600km east of Christchurch, where it says there are "significant" shallow seabed deposits of rock phosphate and other potentially valuable minerals. Past studies suggested there were reserves of about 30 million tonnes in a layer of muddy sand and silt less than a metre deep.

The resource could produce enough phosphate for New Zealand for at least 30 years.

Rock phosphate is a key part of superphosphate, which is used to lift the productivity of soil.

Fertiliser companies, mainly Ravensdown and Ballance, import about one million tonnes a year of rock phosphate, mostly from Morocco, to make fertilisers.

Mr Castle said he had invited Ravensdown and Ballance to invest in the project "and we are still talking".