Deep Sea Mining- Uncertainty or Opportunity?

Deep sea refers to marine areas at depths greater than 200 meters, which accounts for c90% of total ocean area. We are among the first on the street to focus on harvesting mineral resources from deep sea, leveraging on our proprietary models on deep sea mineral resource reserves and mining cost analysis. Our key findings include: 1) we estimate USD 177trn worth of mineral resources are hidden in the deep sea, with USD 287trn in our upside scenario; 2) technological advancements will likely bring down the unit cost of deep sea metal mining, making cost parity with terrestrial mining may be achievable by 2033E; and 3) significant equipment capex requirements: we estimate offshore oil & gas E&P (Exploration & Production) capex reaches ~USD 2.5trn for the next decade, and deep sea metal mining equipment capex will surge from USD 150bn for the next decade to USD 1.5trn in 2036-50E.

We see three reasons explaining the renewed interest in harvesting deep sea mineral resources: 1) supply constraints of terrestrial mineral resources; 2) abundance of mineral resources in the deep sea; and 3) higher grade for some mineral resources in deep sea. We think these will drive an acceleration of deep sea mineral resource collection over the next decade.

Demand for critical metals, including copper, cobalt, nickel, and rare earths, is increasing with the transition to green energy and the rise of emerging high-tech industries such as electric vehicles, data centers, photovoltaics, satellites and robotics, etc. At the same time, after a few centuries of terrestrial mining, land supply of some critical metals is peaking out following mineral depletion. Furthermore, geopolitical tensions are exacerbating supply pressures, especially when production is concentrated in a few countries.

The rising importance of offshore oil & gas extraction brings USD 119/132bn market for the drilling & completion and Engineering, Procurement, Construction and Installation (EPCI) segments in 2035E. Among which, we see Floating Production, Storage and Offloading (FPSO) supply chain (USD 300bn market size for the next decade) and deepwater rigs (semi-subs and drillships) as likely key beneficiaries, as extraction goes deeper into the sea. Deep sea mining is at a much earlier application stage vs. offshore oil & gas extraction, but we think existing FPSO supply chain companies and deep sea equipment (e.g. underwater robotics) makers could benefit in the long run, with TAM reaching USD 1.7trn in 2026-50E, albeit more back-end loaded.

The market has little expectation for the commercialisation of deep sea mining in the next 5-10 years, reflecting concerns on 1) environmental and biodiversity protection; 2) lack of regulatory developments from International Seabed Authority (ISA); and 3) elevated deep sea mining costs with technology hurdles. However, pioneers in deep sea mining have announced commercialisation from Q427; and acceleration of US regulation on deep sea mining is challenging the ISA's slow approval process. Our proprietary deep sea mining cost analysis indicates potential cost parity against terrestrial mining to be achieved by 2033E.