TONGA OFFSHORE MINING LIMITED
31 October 2016
International Seabed Authority
14-20 Port Royal Street
Kingston
Jamaica
Via Email to: [email protected]
Dear Madam/Sir
Re: Working Draft Exploitation Regulations (ISBA/Cons/2016/1)
Please find enclosed the submission prepared by Tonga Offshore Mining Limited and
Nautilus Minerals Inc. regarding the Working Draft Regulations and Standard Contract
Terms on Exploitation for Mineral Resources in the Area.
We have reviewed a number of proposed new pieces of DSM legislation and find this draft a
solid first step to implementing clear and appropriate control over the right to mine the
mineral resources in the Area. Listed below are outstanding areas of concern and
uncertainty.
Should you require we will welcome and be available to assist, in resolving a sustainable
and adaptable solution.
Please kindly acknowledge receipt of the attached submission regarding the Working Draft
Exploitation Regulations.
Yours faithfully
Paul Taumoepeau
Director
Tonga Offshore Mining Limited
Tonga Offshore Mining Limited
2nd floor Kupu House Fatafehi Road
Nuku’alofa Tonga South Pacific
PO Box 893 Nuku’alofa
Tonga South Pacific
[email protected]
T +676 21 733
F +676 21 734
Submission on Working Draft Regulations and Standard Contract Terms on Exploitation
for Mineral Resources in the Area
Tonga Offshore Mining Limited and Nautilus Minerals Inc.
General Comments
Tonga Offshore Mining Limited and Nautilus Minerals Inc. have reviewed a number of
proposed new pieces of DSM legislation and find this draft a solid first step to implementing
clear and appropriate control over the right to mine the mineral resources in the Area. Listed
below are outstanding areas of concern and uncertainty, and we remain available to assist in
resolving a sustainable and adaptable solution.
Your comments and / or suggestions referenced to the relevant part of the working draft.
Preamble: Correct “Resourses” in the last sentence to “Resources”.
Draft Regulation 1(4): The references in paragraph (4) to the freedom to conduct marine
scientific research should be qualified to recognise that, as provided for in Article 240(c) of the
Convention, marine scientific research must not “unjustifiably interfere” with other legitimate
uses such as the exploitation of Resources as governed by this Regulation.
Draft Regulation 2(1): One deficiency in the draft regulatory framework is that it does not
expressly recognise the priority that should be given to an entity that holds an exploration
contract, and has conducted exploration programmes, over the Contract Area. Security of
tenure is critical in financing resource developments and a contractor will find it difficult to
obtain financing for an exploration program if the financiers do not have a high degree of
confidence that an exploitation contract will follow a successful exploration programme. We
recognise that:
•
•
•
Article 10 of Annex III (Basic Conditions of Prospecting, Exploration and Exploitation) of
the Convention expressly provides that an operator with an approved plan of work for
exploration “shall have a preference and a priority among applicants for a plan of work
covering exploitation of the same area and resources”;
Regulation 11(3)(b) appears to provide some regulatory preference and priority to a
qualified entity with a Plan of Work over the area in respect of the same resource
category; and
in practice, an entity that holds an exploration contract and has conducted exploration
work will be in the best position to satisfy the matters assessed by the Commission
pursuant to Regulation 8.
However, we suggest that this priority be given regulatory recognition by, among other
amendments, amending Regulation 2(1) to expressly recognise this priority and preferential
status.
Draft Regulation 4: Please see comments on Annex II, Annex III and Annex IV below.
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Draft Regulation 7: Regulation 7(1) provides that the Commission shall examine applications
in the order they are received which implies that, in the event two broadly comparable
applications are received over the same area or overlapping areas, then priority may be given
to the one lodged first in time. While we note that Regulation 11(3)(b) does appear to provide
some regulatory preference and priority to a qualified entity with a Plan of Work over the area
in respect of the same resource category, we believe the regulations should be written to make
clear that priority is given to the applicant that already holds an exploration contract over the
Contract Area. As currently written, Regulation 7(1) is somewhat inconsistent with that
overarching principal and should be amended to remove any ambiguity.
Further, Regulation 7(1), as presently written, requires the Commission to examine the
applications in the order received which could result in the Commission wasting time, effort and
resources in examining applications that will ultimately not proceed due to matters such as the
priorty given under Regulation 11(3)(b).
Draft Regulation 8: While we acknowledge that there is a need for a level of detail in the
application guidance, we believe that some material in the present text will not help the LTC in
their role of assessment of applicants and plans of work. We suggest that Regulation 8 can be
simplified to read as follows:
Draft Regulation 8 Assessment of Applicants and Plans of Work
1. The Commission shall assess if the Applicant:
(a) Is a qualified applicant per regulation 2;
(b) Has given the undertakings and assurances specified in regulation 4(2) and (3);
(c) Has satisfactorily discharged its obligations in relation to the previous exploration contract
with the Authority over the Contract Area; and
(d) Has the financial and technical capability to carry out the Plan of Work in accordance with
Good Industry Practice and to meet all obligations under any exploitation contract.
2. The Commission shall assess if the proposed Plan of Work:
(a) Optimizes the recovery and extraction of the Minerals;
(b) Reflects the economic life of the Exploitation project;
(c) Provides for effective protection of the Marine Environment through the application of Good
Industry Practice and a precautionary approach [including, but not restricted to, the impact on
biodiversity, the protection and conservation of the Natural Resources of the Area, the
protection of vulnerable marine ecosystems and cumulative effects of the Exploitation
Activities through an Environmental Management and Monitoring Plan and Environmental
Management Systems and Closure Plan];
(d) Provides for the effective protection of human health and safety;
(e) Provides for Exploitation Activities to be carried out with reasonable regard for other activities
in the Marine Environment, including navigation, laying of submarine cables and pipelines,
fishing and scientific research; and
(f) Includes an Emergency Response and Contingency Plan in accordance with Good Industry
Practice.
3. The Commission shall consider the extent to which the proposed Plan of Work is consistent with:
(a) The policies set out in Article 150 of the Convention;
(b) The production policy of the Authority prepared in accordance with section 6 of the
Agreement; and
(c) Any other relevant policies established by the Assembly.
4. The Commission shall assess whether appropriate public review and consultation has been
undertaken, in accordance with the Environmental Regulations, and must take into account relevant
submissions received as a result.
5. If the Commission finds that the Application does not adequately comply with these Regulations, it
shall notify the Applicant in writing, through the Secretary-General, indicating its reasons. The
Applicant may, within 45 Days of such notification, modify and re-submit its Application.
Draft Regulation 10: It is not clear why this is required as:
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(a) it appears that the Environmental Regulations will likely contain a requirement for an
Applicant to lodge a Financial Guarantee or Security for environmental matters (as
implied by draft Regulation 10(3)) and, in practice, the types of matters that compel a
regulatory authority to draw on a financial guarantee for a mining project are normally
environmental matters; and
(b) the Commission has the option to suspend or terminate the contract in the event of
unpaid royalties and that should be a sufficient incentive for an Applicant to meet its
obligations.
If the decision is to retain the ability to require the deposit of a Financial Guarantee, then we
suggest that the amount should be fixed in advance to reduce uncertainty (e.g. a proportion of
the royalties expected in a year’s production).
Draft Regulation 11: As noted throughout our comments, it is critical that priority for the grant
of an exploitation contract be given to the holder of an exploration contract and Regulation
11(2)(a) goes some way to providing that comfort. However, we suggest that the following
phrase be added at the end of paragraph (a) to make the link clearer:
“unless the Applicant is also the Contractor for that approved plan of work for
Exploration.”
Draft Regulation 14: We note that the draft regulation 14(1) has specified a maximum 20 year
initial period as being “indicative . . . until a better understanding of business models and
operations is achieved”. Good quality ore-bodies on land sustain production over many
decades; also mining projects in the deep sea may take considerable time to ramp up to
commercial production thus the initial term should be much longer (e.g. 40 years) and, given
that renewal is on the basis of an ongoing win-win relationship, there is no reason for the
renewal to not be the same length of time.
Further, the requirement in Regulation 14(1)(a) that the “resource category is recoverable
annually in commercial quantities” (emphasis added) may not be feasible in a period of depressed
commodity prices. The Contractor should be entitled to renew the Exploitation Contract and
then suspend operations for a reasonable period until commodity prices (or other relevant
factors) allow economically feasible operations to resume.
We understand that there will be opportunity at the London workshop for participants to put
forward their views on likely development and production timeframes and to discuss the reality
of bringing a project into commercial production.
Draft Regulation 15: A six month period may be insufficient to obtain an alternative sponsor
and develop a sustainable relationship. We suggest that the Regulation be rewritten so that:
(a)
(b)
if another sponsor does not submit a certificate of sponsorship within 12 months, then
the Exploitation Contract is suspended; and
if another sponsor does not submit a certificate of sponsorship within 5 years, then the
Exploitation Contract may be terminated at any time thereafter at the sole election of
the secretariat.
Draft Regulation 16(4): We suggest that this section be removed as it would be difficult to
administer and would hinder financing unnecessarily. Debt to equity ratios are properly a
matter for the Contractor and its financiers and should not be subject to regulation by the
Authority.
Draft Regulation 17(7): As noted above in relation to our comment on Regulation 10, we
question whether Financial Guarantees are necessary or appropriate (other than in the case of
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environmental matters). If, as suggested, Regulation 10 is deleted, then Regulation 17(7)
should also be deleted.
Draft Regulation 17(10)(a): While a transfer fee may be appropriate to cover the Authority’s
administrative costs, the amount of the transfer fee should be limited to, say, to a proportion of
the Annual Contract Administration Fee.
Draft Regulation 21: We suggest that the Annual Contract Administration Fee be reviewed
every 5 years so that all reviews are done together in a balanced and co-ordinated manner.
We also suggest that if no decision is reached on a new fee level, then the existing fee level
will prevail annually until such decision is made then the new fee will stand for the balance of
next five year period.
Draft Regulation 22: This fee should be fixed for the first period as soon as possible and for as
little as possible to encourage development into commercial production.
Guidance should be provided that the level of this fee should reflect the mineral intensity of the
deposit type (e.g. nodules have much lower intensity than sulphides). Otherwise contractors
might optimise development around minimising fees which could reduce flexibility and impact
environmental closure planning (waste resources).
We suggest that the Annual Fixed Fee be reviewed every 5 years coincident with the review of
the Annual Contract Administration Fee (Regulation 21(2)) so that all reviews are done
together in a balanced and co-ordinated manner. We also suggest that, if no decision is
reached on a new fee level, then the existing fee level will prevail annually until such decision is
made then the new fee will stand for the balance of the next five year period.
Draft Regulation 24 (2): Given the complexity around valuing polymetallic deep sea deposits,
we suggest that in the first instance a simple dollars per wet tonne FOB based royalty be
considered. While this might undervalue some high grade deposits, it will not prohibit the
development of other low grade deposits. This general condition can then be superseded on a
deposit-by-deposit or commodity-by-commodity basis e.g. CCZ nodules can have their own
specific formula and sub-clause. Such a situation often exists on land where materials of
strategic use or challenged industries get special royalty rates.
Draft Regulation 28(1)(b): Remove the words “and value”.
Draft Regulation 28(1)(c): Add the words “in-situ” in front of “value”.
Draft Regulation 29(2): We suggest that the royalty payments be fixed in USD to insulate the
Authority from currency exchange risk.
Draft Regulation 34(6): Correct “to exhaust” to “exhausting”.
Draft Regulation 53(2): As with royalty payments under Regulation 29(2), we suggest that fee
payments be fixed in USD to insulate the Authority from currency exchange risk.
Draft Regulation 59(5): We suggest that the 5 years is a suitable period for reviews (see also
comments above regarding Regulations 21 and 22).
Annex II, item 1: Replace “must” in the first sentence with “should” as this will allow some
flexibility to applicants to tailor the feasibility study to best address issues which today we do
not fully appreciate. Annex II may include Annex III and Annex IV for example. Also only
include the headings at the Capital Letter level.
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Annex III: This can be simplified significantly by requesting a “Life of Mine Plan including a
Long Term Mine Plan covering the first 10 years” as these are pretty standard plans used
routinely in the mining industry.
Alternatively, we suggest that an introductory sentence be included along the lines:
“A Mining Plan should cover the following subject matters (as appropriate to the
particular project):”
and particular items that do not belong in mining plans should be amended or deleted. For
example, item 8 refers to “Performance guarantees” which do not form part of a typical mining
plan and should be deleted.
Annex IV: Replace “must” in the first sentence with “should”
Annex VII: section 34: Changes of control are a regular occurrence in the resource sector
and an unrestricted right of the Authority to suspend or terminate an Exploitation Contract will
severely limit the capacity of a Contractor to obtain funding or to undertake normal corporate
activities. There will need to be limitations placed on the Authority exercising any rights to
suspend or terminate a contract. An obligation to “act reasonably” would be insufficient comfort
given the inability of a third party (such as a financier) to seek a remedy against the Authority.

Any other general and / or specific comments you wish to make on the development of
the regulatory framework.
Administrative and governance transparency should be the priority of the ISA, not the release
of Contractor information, which is a matter of Contractor transparency. Public information
should be limited to the basic conditions of the Exploitation Contract and basic annexures and
schedules. Everything else should remain confidential unless consent is provided by the
Contractor. If consent is not provided, then the information should remain confidential for the
life of the contract, including renewals. The ISA needs to simplify this to avoid significant
administrative burden

A list of any supporting documents accompanying your submission, together with
website links where applicable.
 Your express consent to make your personal details and submission publicly available.
The Authority may make our submission publically available and attributed to us in whole or in
part.
 Your contact details clearly identified.
Paul Taumoepeau
Director TOML
2nd Floor Kupu House Fatafehi Road
Nuku’alofa
Kingdom of Tonga
John Parianos
Manager Exploration and Polymetallic Nodules
Nautilus Minerals Inc.
Level 3, 33 Park Road, Milton, Queensland, 4064
Australia
[email protected] +67 6 21 733
[email protected] +61 7 3318 5511
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