As we mine the Earth for resources, they become scarcer and more difficult to produce. What used to be a low-grade copper mine, in which copper comprised 1 percent of the ore, is now a high-grade copper mine. The same thing can be said about pretty much any other mineral. As a result, it is becoming necessary to search for resources elsewhere. One source is the sea floor, and one company that is preparing to mine the sea floor is Nautilus Minerals (OTCMKTS:NUSMF).
Nautilus Minerals is truly a unique opportunity with incredible upside potential but with limitless downside risk. The company is a pioneer in the mining space in that it holds land leases and explores for resources on the ocean floor. It is also the only major mining company that is involved in exploring the ocean floor. Because of this, there is virtually no demand for ocean floor land, and so Nautilus Minerals has been able to accumulate an unheard of 500,000 square kilometers on which to explore. While it has a market capitalization of just $95 million, the company holds more land on the sea floor off the coast of Australia and Papua New Guinea than most multibillion-dollar mining companies hold on the surface.
Nautilus Minerals has already found a poly-metallic resource on its Solwara property that is far more dense than your typical land mine. It has found 178 million pounds of copper at 7.2 percent, 166,000 ounces of gold at 5 grams per tonne, and trace amounts of silver and zinc. Its Clarion-Clipperton deposit appears to be far bigger, with 1.2 percent nickel ore containing an incredible 12 billion pounds, and ore that is 1.1 percent copper amounting to 11 billion pounds. From these two deposits we can deduce that Nautilus Minerals may be one of the largest — if not the largest — holder of mineral resources of any mining company.
The catch is that deep sea mining has never been tried before. The company, along with General Electric (NYSE:GE), has been developing technology that it believes will enable it to cost-effectively bring mined ore to the surface, where it can be processed and sold into the market. General Electric subsidiary GE Oil and Gas is developing a pump that is similar to those used by deep-sea oil producers that will pump ore in the form of mud to the surface.
It sounds like this might work, but we must keep in mind that even if the technology works, it still has to be cost-effective. We simply don’t know how much it is going to cost to develop a sea-floor mine and how much it will cost to bring ore to the surface. Furthermore, while this is often the case with land mines, we don’t have anything to compare Nautilus’ projects to, and this makes the company especially risky.
From what has been said, we can clearly see that there is seemingly unprecedented opportunity in Nautilus Minerals, although the risk is equally as great. While deep sea mining is very likely going to be a part of the future of mining, we simply don’t know what it is going to look like and which companies are going to lead the way. Still, no company is better positioned than Nautilus Minerals. Therefore I think that it is worth speculating with a small amount of capital in the company’s shares. The stock is down substantially from $3.50 per share in 2011 and $5 per share in 2007 to just 22 cents per share today. While this makes it more difficult to raise capital, it also means that investors today have a chance to own a greater portion of the company than they could have a few years ago.
Given the high risk nature of Nautilus Minerals’ shares I wouldn’t put more than 1 percent of my money into this stock, and I would likely take off half of my position if the stock doubles so that I am playing with the house’s money.