01 | The ‘Area’ – non-territorial waters and the governing regime

Under the United Nations Convention of the Law of the Sea (UNCLOS), the seabed and subsoil thereof beyond the limits of national jurisdiction is designated as the ‘Area’.

UNCLOS states that the Area and its resources, including all minerals, are the common heritage of mankind, with governance of the Area being vested in the International Seabed Authority (ISA).

ISA is the body responsible for granting prospecting, exploration and exploitation licenses for all mining activities in the Area.

02 | Mineral ownership and licenses

Prior to the award of any license, all minerals in the Area are the common heritage and ownership of mankind.

A prospecting license provides no resource rights, however, allows for a reasonable quantity of minerals to be recovered for testing.

Exploration licenses are granted by ISA for a 15 year term in respect of reserved areas, providing for the collection of minerals for analysis and testing to determine whether a reserved area may be viable for commercial exploitation.

Exploitation licenses shall grant the right to the license holder to commercially exploit a specified area and to benefit from such mining activities. The ISA is considering a permitting regime for exploitation involving an initial three year ‘pilot’ license, followed by a long term tenured license. Such long term mining license will be subject to ISA approval, to be granted where the feasibility and bankability of a project can be shown from the results of the three year pilot phase activities.

03 | Mineral types

Deep sea ocean floor mineral resources are divided into three primary categories, being polymetallic nodules (also referred to as manganese nodules), seafloor massive sulphides (SMS) and cobalt rich crusts, with each resource having different mineral compositions, including rare earth elements.

  • Polymetallic nodules – manganese, iron, copper, cobalt, magnesium, titanium.
  • Cobalt Rich Crusts – cobalt, nickel, platinum, titanium, tungsten, cerium.
  • Seafloor Massive Sulphides – copper, lead, zinc, silver, gold.

04 | Geographic distribution

Polymetallic nodules are located in all oceans and have been found in fresh water lakes. However, nodules concentrated to amounts to be of economic interest are located in the centre

of the north central Pacific Ocean, the centre of the north Indian Ocean and the Peru Basin in the south-east Pacific Ocean.

Cobalt rich crusts occur throughout the Pacific on seamounts, ridges and plates, with the central equatorial Pacific region offering more economically viable conditions and distributions.

Seafloor massive sulphides have to date been found to occur in the greatest abundance at the East Pacific Rise, the Northeast Pacific Rise and the Southeast Pacific Rise.

05 | Contracting parties

The following entities are permitted under UNCLOS to engage in mining related activities:

  • The ‘Enterprise’ – a proposed ISA body to carry out mining activities for ISA;
  • States Parties (UNCLOS member states) in conjunction with ISA;
  • Private entities of a State (contractors) – when sponsored by a State Party.

For private entities to be able to secure the sponsorship of a State Party, that entity must be either a natural or juridical person possessing the nationality of such State or be subject to the effective control of the sponsoring State or its nationals.

06 | Applicable laws and security regime

Due to the unique geographic and jurisdictional location of deep sea mining (being in non-territorial waters overseen by the ISA), the contractual framework for the financing and development of a deep sea mining project will include a particularly complex set of agreements subject to various governing laws.

Exploration and exploitation contracts between project company (contractor) and ISA – governed by the Law of the Sea and, where relevant, international law.

Sponsorship Agreement – under the jurisdiction of the sponsoring State.

Financing documentation – determined on a project/lender basis (likely to be governed by English law).

Security documentation – given the nature and location of deep sea mining projects situated beyond territorial waters, a varied security regime will apply (including flag state ship mortgages and fixed and floating charges) to provide security over surface vessels, submersibles and ROVs, sea floor dredgers and extraction equipment operating on the ocean floor.

Operation agreements, charters, project contracts – governed by the contracting parties’ relevant jurisdictions (or English law).

07 | Royalty and tax regime

There is currently no regulatory framework in place to provide for commercial mining activities in non-territorial waters nor a royalty or tax regime in relation to such. However, Article XI and Annex III of UNCLOS provide that commercial operators shall pay financial contributions to the ISA in relation to their mining activities and this reflects the overarching principle that the minerals of the Area are of the common heritage of mankind. ISA has indicated the need for putting in place such a framework and is working towards this, given certain exploration licenses are due to expire in 2016. The ISA Technical Study No. 11 (published February 2013) provides for several potential royalty and taxation regimes and while no exact revenue collection method has been established as yet, the Technical Study recommends that when formulated this be reflective of onshore mining practices.

08 | Environmental considerations – Sponsoring State and contractor liabilities

Article 139 of UNCLOS stipulates that State Parties are responsible for ensuring activities carried out in the Area by contractors (entities a State has sponsored) conform to the convention. This is further clarified under Annex III of the convention, whereby a Sponsoring State will not be liable for environmental damage resulting from a contractor’s activities where that state has adopted laws and regulations and taken administrative measures reasonably appropriate for securing a contractor’s compliance with the convention. The Advisory Opinion of the Seabed Disputes Chamber published in February 2011 stated the obligation of a Sponsoring State in this regard was one of both conduct and due diligence and that states should apply a precautionary approach and best environmental practice. To comply with these requirements and to protect against liability, it may well be in most instances that Sponsoring States will need to pass specific and appropriate legislation to regulate sponsored contractors and their activities.

As noted, there is currently no regime in place with respect to commercial mining activities, however, with respect to exploration activities, the Polymetallic Exploration Regulations require contractors to apply necessary measures to prevent, reduce and control pollution and other hazards to the marine environment.

The Advisory Opinion clarified that the liability of a Sponsoring State and a private contractor exist in parallel and that liability shall be for the actual amount of damage caused. It is likely that a similar liability regime is incorporated into the exploitation regulations when these are completed, although the Seabed Disputes Chamber noted that the standard of liability for exploration may not be applicable for exploitation.

Aside from the ISA, the importance of the role of regional agencies with respect to regulating and protecting against the potential environmental impacts of deep sea mining should be noted. In the Pacific region the SPREP (Secretariat of the Pacific Regional Environment Programme) and SOPAC (Secretariat of the Pacific Community’s Applied Geoscience and Technology Division) are active in assisting Pacific Island peoples in making informed decisions about their future, the utilisation of resources and environmental and social considerations regarding offshore mining.

09 | Application process

All activities proposed to be carried out in the Area are first submitted to the Legal and Technical Commission (LTC) for consideration. The LTC is the ISA technical body responsible for reviewing formal written plans of work for operations in the Area. The LTC may then recommend a plan of work to the Council (the executive body of the ISA) and it is the Council which is responsible for approval of plans of work.

10 | Current applications and licenses

To date, the ISA has entered into exploration contracts of a fifteen year tenure with eleven different contractors. The majority of these contracts are for exploration for polymetallic nodules in the Clarion-Clipperton Fracture Zone (in the Equatorial North Pacific Ocean south and southeast of Hawaii), with two contracts for exploration for seafloor massive sulphides in the South West Indian Ridge and the Mid Atlantic Ridge. There are another four contracts currently in the process of being completed with the ISA.