A Mining Startup’s Rush for Underwater Metals Comes With Deep Risks

Bookmark

A seabed mining startup, DeepGreen Metals Inc., has successfully sold itself to investors as a game-changing source of minerals to make electric car batteries that can be obtained in abundance—and at great profit—while minimizing the environmental destruction of mining on land.

But there’s strong scientific evidence that the seabed targeted for mining is in fact one of the most biodiverse places on the planet—and increasing reason to worry about DeepGreen’s tantalizing promises. Bloomberg Green’s examination of corporate and legal filings, regulatory records and other documents raises questions about DeepGreen’s business plans. Previously undisclosed agreements with developing island states in the South Pacific show the company’s political and financial leverage over its partners, who are dependent on its expertise to exploit their seabed resources and obligated to ensure DeepGreen’s compliance with international environmental regulations.

For years, the Canadian-registered startup has been pitching a solution to climate change that can be found 13,000 feet below the sea. That’s where potato-sized polymetallic nodules rich in cobalt, nickel and copper cover the ocean floor by the billions. DeepGreen Chief Executive Officer Gerard Barron calls these nodules “a battery in a rock.”

A Mining Startup’s Rush for Underwater Metals Comes With Deep Risks

The deep ocean holds the world’s largest estimated reserves of minerals, potentially worth trillions of dollars. While seabed mining remains technologically and commercially unproven, rising demand and prices for metals crucial to decarbonization are already unleashing a gold rush to the bottom of the sea. The minerals can be gently extracted, at least according to DeepGreen’s public relations campaign, thus avoiding the toll of terrestrial mining and powering the transition to a clean-energy future. 

In a statement, DeepGreen said it doesn’t view mining on land or underwater as sustainable. “The only path to sustainable metals is to build up enough metal stock to shift away from mined to recycled metals,” says Dan Porras, the company’s head of communications and brand. He added: “Our stated objective is to inject enough primary metal stock into the system to enable this shift… and exit primary extraction as soon as possible.”

Scientists say DeepGreen officials have mischaracterized the ocean floor as less vulnerable to harm from mining. It’s “a very deep, dark, very monotonous kind of place,” the company’s chief ocean scientist, Greg Stone, said in a 2019 podcast interview. “We're not talking about vibrant coral reefs, we're not talking about herds of tuna or whales,”  he said. The impact from nodule mining? “The longer-term disruption, if you can even call it that, would settle down certainly within months.”

The podcast host was skeptical of this light-touch mining. “It sounds like I'm helping you guys brainwash,” he said. “All we got to do is go pick them up? It can’t be like that.”

It isn’t. Scientists have discovered in recent years that deep-sea life where DeepGreen would mine persists on timescales that dwarf human existence. Nodules form over tens of millions of years, accumulating metallic elements that precipitate from seawater. They are worlds onto themselves: a single nodule can be habitat for scores of species, including millennia-old corals, tubeworms and sponges that incubate the eggs of ghost octopuses. 

“Nodules are absolutely central to the functionality of this ecosystem,” says Diva Amon, a deep-sea biologist and scientific associate at the Natural History Museum in London. There’s growing evidence that beaked whales dive 2.5 miles to this region of the abyss to forage for prey, holding their breath all the while. Half the larger species there depend on nodules, researchers say, and only a fraction of those animals, have so far been discovered. 

But DeepGreen executives in public statements tend to focus on the hazards of mining on land while minimizing the harm underwater, as Barron did in April appearance on Bloomberg TV. “Most of statements by DeepGreen are on biomass, not biodiversity,” says Porras, the spokesman, referring to the cumulative weight of living organisms in a given area. “This is why DeepGreen executives describe the abyssal plain as ‘one of the least inhabited places on Earth’ or ‘the equivalent of marine desert.’ ” 

In March, DeepGreen announced plans to go public by merging with a special purpose acquisition company, or SPAC. These lightly regulated companies carry risks for investors. But the risks here are planetary in scope, with scientists warning of the potential destruction of ocean ecosystems that play a little-understood role in the global carbon cycle and climate change.

So far DeepGreen’s success with investors, who have valued its SPAC merger at nearly $3 billion, is a sign of strength for the nascent deep-sea mining industry’s case for nodules. DeepGreen’s SPAC, Dallas-based Sustainable Opportunities Acquisition Corp., raised $300 million last year and institutional and strategic investors have committed $330 million more to the new deal. The combined business, which will be renamed The Metals Company, will be headquartered in Canada.

But environmentalists are moving to challenge the merger. In a June 1 letter to the U.S. Securities and Exchange Commission, an environmental group called Deep Sea Mining Campaign asked for an investigation into what it says is a failure to properly disclose potentially catastrophic environmental risks of seabed mining in the SPAC’s S-4 registration statement.

DeepGreen’s drive to brand itself as a company that would mine with what it calls “the lightest planetary touch” is a test case for disputes between investors, regulators and scientists over how to navigate the potential for untested climate solutions. The company seems to know the allure of guilt-free mining. As Barron put it to an interviewer in 2019, “Whether you invest in a company like DeepGreen or not, everyone's a sucker for the story.”

A Mining Startup’s Rush for Underwater Metals Comes With Deep Risks

DeepGreen is one of just 22 entities with permission to prospect for minerals in the deep ocean. It’s the only one soon headed to public stock markets. Licenses are issued by the International Seabed Authority, an autonomous and obscure United Nations organization headquartered in Kingston, Jamaica. The agency is charged with regulating deep-sea mining while, contradictorily, ensuring protection of the marine environment. The ISA is now finalizing regulations that would permit DeepGreen and other companies to apply for licenses to begin mining the seabed.  

Through a partnership with three small and impoverished South Pacific island states—Nauru, Tonga and Kiribati—DeepGreen holds prospecting rights over nearly 90,000 square miles in a vast stretch of the Pacific Ocean between Hawaii and Mexico called the Clarion-Clipperton Zone.

In an extraordinary display of DeepGreen’s influence, Nauru broke UN protocol by ceding its seat to Barron at a February 2019 meeting of the ISA Council in Jamaica, allowing an executive to address the organization’s policymaking body. “Personally, I get very uncomfortable when people describe us as deep-sea miners,” Barron told the delegates, who appeared dumbfounded by the breach of procedure. “We are in the transition business. We want to help the world transition away from fossil fuels with the smallest possible climate change and environmental impact.” 

It’s a message Barron uses frequently as he travels the world to promote “metals for the future.” One day recycling will dramatically reduce demand for mining new minerals, but not until “we build up a stock of billion new batteries,” as he told the ISA delegates.

Part of DeepGreen’s objective is just getting this message out. “While we’ve got a great team of mining people and oil and gas people, this is a communication challenge,” Barron told me at that ISA meeting. “That’s why we hired a head of brand.”

A Mining Startup’s Rush for Underwater Metals Comes With Deep Risks

Scientists, environmentalists, the European Parliament, and some national governments are calling for a moratorium on deep-sea mining until its ecological consequences can be better understood. In March, BMW AG, Google, Samsung Electronics Co. and Volvo Cars endorsed the moratorium and pledged not to use deep-sea minerals. Demonstrations against ocean mining are also heating up. A Greenpeace vessel in April intercepted a DeepGreen ship conducting mining research in the middle of the Pacific. At the June G-7 meeting in Cornwall, England, hundreds of surfers paddled out to demand a ban on seabed mining.

On Thursday, in the hours after this story was published, more than 300 ocean scientists and marine experts from 44 countries released a statement calling for a “pause” in seabed mining “until sufficient and robust scientific information has been obtained” on the environmental impacts. An even stronger call for a mining moratorium came from the Deep Sea Conservation Coalition, an alliance of 80 environmental groups, which credited Bloomberg Green’s investigation for “underlining the risks posed by the emerging deep-sea mining industry.”

Opponents, however, face the dilemma of confronting a company that says it cares about sustainability. “We are with @Greenpeace—we must protect the oceans,” DeepGreen wrote on Twitter in 2019. “If the data shows polymetallic nodules are not a safer solution for the planet and humans, @Greenpeace can count on us to stand with you to stop #DeepSeaMining.”

Arlo Hemphill, a senior oceans campaigner with Greenpeace, calls this “next-level gaslighting.” Greenpeace also says it has concerns about DeepGreen’s business. “They’ve thrown on a green cape and say all the right words but their sole intention is to make money,” says Hemphill.

Before deleting his Linkedin profile, former DeepGreen environmental scientist Jason Michel Smith wrote a post in late 2020 warning people not to trust the company. He said he was fired after conflicts with executives and “combating an anti-science private agenda on the daily.” Recent attempts to reach him were unsuccessful. 

“The company has minimal respect for science, marine conservation, or society in general,” Smith wrote. “Don’t let them fool you. Money is the game. It’s business in their eyes, not people or the planet.”

Porras of DeepGreen says the company retained a third party to independently investigate Smith’s allegations, an inquiry in which he says Smith declined to participate. “While the report is privileged and cannot be publicly shared, the statements have been independently confirmed to be without merit.”

A Mining Startup’s Rush for Underwater Metals Comes With Deep Risks

At 54, Barron sports the look of an aging rock star—long hair, graying beard, and a unvarying uniform of jeans, boots, T-shirt and leather jacket worn whether addressing the ISA Council or taking an Instagram selfie with surfing champion Kelly Slater holding pair of polymetallic nodules.

The SPAC registration statement describes Barron as a “seasoned entrepreneur with a track record of building global companies in battery technology, media and future-oriented resource development.” His mining career started with a lucky investment. 

In 2001, Barron founded Adstream, an Australian ad tech company that would grow to $100 million in annual revenues, according to the registration statement. That same year he invested in Nautilus Minerals, an early deep-sea mining company headed by fellow Australian David Heydon. “I originally invested in Nautilus not because I knew mining but because I just sort of thought it sounded cool, and I sold out at the right time,” Barron told me in Kingston.

In 2017, the trade publication Mining.com reported that Barron walked away with $31 million on his $226,000 stake after the Canadian-registered company went public in a reverse merger in 2006. Heydon departed in 2008, and then three years later founded DeepGreen in Canada.

Other Nautilus investors didn’t fare as well. The company filed for bankruptcy in February 2019 after burning through $686 million without mining an ounce of metal. That left the poverty-stricken South Pacific island nation of Papua New Guinea out the $120 million it had invested in a joint venture with the company to excavate hydrothermal vent fields for copper, gold and silver.

Barron’s background with DeepGreen also includes murky fundraising relationships. 

Between 2015 and 2020, for example, DeepGreen raised at least $75 million by selling securities directly to private investors, Canadian and U.S. securities filings show. In a December 2017 offering, DeepGreen sold $17.6 million worth of securities and paid a sales commission of $252,288 to a company called Victorem Ventures Limited. The same company also earned a $102,500 finder’s fee on a securities DeepGreen offered in the U.S. in late 2017, according to an SEC filing.

The Canadian securities filing, which was signed by Barron as DeepGreen’s CEO, declared that Victorem had no relationship to any DeepGreen insider. But corporate records in the U.K. show that Barron incorporated a company called Victorem Ventures Limited in 2015 and served as the sole director and shareholder until it was dissolved in October 2018. The Canadian securities filing listed Victorem’s address as a villa in Dubai, but did not provide a phone number or email address. DeepGreen subsequently submitted an amended filing that used Barron’s DeepGreen email address and his U.K. phone number as contacts for Victorem.

DeepGreen’s Porras says that while Barron was CEO of the startup when the securities were sold, he didn’t hold that position when Victorem performed the services that earned it the commission and finder’s fees. The registration statement says Barron served as a strategic advisor to DeepGreen from 2013 to 2017.

As DeepGreen tries to go public, it has mounted a vigorous campaign to raise funds. In the SPAC registration statement, DeepGreen pegged total capital costs for a single deep-sea mining operation and an onshore metals processing plant at $10.6 billion with annual operating costs of $1.8 billion after 2030. Barron, who earns a $565,000 salary running DeepGreen, which has 24 employees and contractors, would own up to 6.9% of the merged company’s shares.

Matthew Gianni, a founder of the Deep Sea Conservation Coalition, fears the SPAC could unleash a wave of capital investment in deep-sea mining. He notes that an independent unit of shipping giant A.P. Moller-Maersk A/S holds a significant stake in DeepGreen. The company did not respond to a request for comment. “Barron is a wildcatter who may provide the political and financial impetus for the big players to jump into deep-sea mining,” says Gianni, a longtime observer of the ISA.

When the UN Convention on the Law of the Sea established the ISA in 1994, it declared the seabed to be “the common heritage of mankind,” with rich and poor nations to share equally in any spoils of seabed mining. Previously confidential agreements between DeepGreen and Nauru and Tonga show the company’s influence over the countries.

Mining contractors must secure sponsorship from an ISA member state that is required to exert “effective control” over the contractor and is responsible, along with the ISA, for its compliance with environmental regulations. Sponsoring states in turn can collect royalties and fees.

Most sponsoring states work with government-run mining contractors or companies headquartered in their countries and controlled by their citizens. Western startups like DeepGreen, however, have also sought sponsorship from tiny countries that have access to mining concessions the ISA reserves for developing nations. Over the past decade, mining concessions from South Pacific microstates have traded hands among a small coterie of Barron associates, corporate filings and ISA records show.

One of DeepGreen’s mining contracts is sponsored by Tonga, which has a population of 106,000. Tonga’s sponsorship agreement with DeepGreen’s wholly owned subsidiary, TOML, was previously held by Nautilus and before that by a company controlled by Heydon, the former Nautilus CEO. The sponsorship agreement, which was disclosed in the SPAC registration statement, allows DeepGreen to unilaterally assign the mining contract to another party and declares the agreement is governed by Canadian law. Any disputes must be arbitrated in British Columbia, 5,700 miles from Tonga.

The nation of Nauru is involved in a similar arrangement with DeepGreen. The license was originally acquired by a Nauruan-registered company called NORI, founded in 2008 by Heydon before subsequently being bought by Nautilus. The cost of securing the mining concession in 2011 was a $250,000 fee paid to the ISA. DeepGreen became the owner of NORI the same year.

DeepGreen now estimates it will earn $95 billion from one area of the Nauru concession over 23 years of production, according to the registration statement. The startup expects to pay 7.6% of those revenues in royalties to Nauru and the ISA.

Just as was the case in Tonga, the sponsorship agreement between DeepGreen and Nauru shows the government exercises little control. It permits DeepGreen to transfer the mining contract to another entity “without reason and without prior consultation.” The sponsorship agreement also bars Nauru from nationalizing NORI or expropriating its assets and requires the government to guarantee the transfer overseas of NORI’s earnings.

“DeepGreen’s subsidiaries’ local operations are regulated by our sovereign partners under their national laws,” Porras says. “Our subsidiary companies have negotiated and agreed with our relevant partners to a neutral jurisdiction to govern certain relationships for the benefit of both parties.”

Nauru is an 8-square-mile island with a population of 11,000 people that had been ravaged from decades of phosphate mining overseen by the U.K., Australia, and New Zealand. Long plagued by corruption, Nauru’s revenues chiefly come from hosting an Australian refugee detention center, though that income has fallen dramatically recently. DeepGreen’s last round of funding exceeded Nauru’s GDP. The government of Nauru did not respond to a request for comment.

“How could a small country like that have effective control over a multinational company?” asks Pradeep Singh, who studies the ISA as a research associate at the Institute for Advanced Sustainability Studies in Potsdam, Germany.

He notes that Nauru and Tonga could be potentially liable if a seabed mining disaster happens on their watch. “What wasn’t really anticipated by the Law of the Sea was that multinational companies would go out on their own and partner with the developing countries.”

A Mining Startup’s Rush for Underwater Metals Comes With Deep Risks

That’s where DeepGreen’s promotion of its robotic nodule collector might offer reassurance. A new rendering shows a sleek design created by a Danish architecture firm. The curvy DeepGreen collector resembles a cross between an Apple computer mouse and a Roomba, in stark contrast to mining machines from rival contractors that roll across the seabed on tank-like treads. Porras says the collector is under construction and testing is expected to begin later this year or early 2022.

“Directing a jet of seawater across the tops of the nodules, the collector gently frees them from sediment and lifts them on compressed air bubbles to a production vessel at the surface,” DeepGreen says on its website.

The reality would likely be far harsher. All marine life on nodules would be killed, says Amon, the biologist. Microbial life in the sediment would also be in peril. “The bacteria are probably one of the most important components of this ecosystem,” she says. “Even if they were able to delicately remove the sediment, that is still where the majority of the animals live and constitute a massive part of the seabed’s biodiversity, including many rare species.” 

“This is completely unproven technology,” Amon says. “It seems like science fiction.”

©2021 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.