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Alex Barnard: Marine Technology Society membership comes with many benefits, such as access to professional committees, webinar recordings, the MTS journal, and career resources, so check it out. Today's speaker is Phillip Gales. Phillip is a serial deep tech entrepreneur who's built and scaled multiple companies in various heavy industries, including oil and gas, data analytics, cold supply chain, and logistics.

He started his career working offshore on deepwater drill ships, and is now back offshore working in the deep sea mining industry. He runs a deep sea mining industry group, which provides strategy and operations consulting to operators and investors. Phillip is a Y Combinator alumni, has an MBA from Harvard Business School, and a Masters of Engineering from the University of Cambridge.

Phillip, many thanks for joining us here today.

About nine months ago, I saw a picture of the Hidden Gem in an article online, and I said, "Wow, I think I've served on that drill ship! I think I worked on it!" So I started reading, and the industry just fascinated me. I said, "well, I need to learn as much as possible about this industry, about what is going on."

"Wow, I think I've served on that drill ship!"

Thankfully, I have a classmate from business school that had worked in this industry, and published an excellent white paper in it. I've spent the last nine months trying to understand the industry, what is happening, how it is developing. During that time, I've also been documenting it on a website at DeepSeaMining.ac. The more I learned, the more I met with people, and the more I documented, the more I found people were reaching out to me, the more I was uncovering.

This led to Alex approaching me last year and saying, "hey, Phillip, you've got this really interesting resource. Why don't you talk to people about what you're doing, and why?" That is why I'm here. So, first what I'm going to talk about this evening is a little bit of my background

So I hit a bit of a roadblock. Thankfully, my classmate from business school was able to point me in the direction of a lot of different people, a lot of different experts, and a lot of different papers.

What I noticed as I started digging in and trying to answer the questions that I had, is that the information seemed to fall into these two slightly frustrating different camps.

On the one hand, you have excellent books like Rahul Sharma's three books on deep-sea mining, 600-plus pages long, extremely informative, but very deep, technical. The first one's free, which is amazing, but is quite inaccessible because of the technical understanding that's required. There have been a lot of papers written about deep sea mining, and there's a lot of journal articles. I'm indebted to James Hein at the USGS, who sent me a lot of papers and helped me with a lot of information.

Unfortunately scientific work is mostly inaccessible because they are behind paywalls, and they're very technical. They're difficult to understand.

On then at the other end of the spectrum, you have really quite light articles that talk in a very broad-brush manner in the BBC or The Guardian or NGOs' websites. They're super accessible. They're very easy to find. They're shoved in your face.

"there is no McKinsey white paper on what deep sea mining is and how it might develop"

Unfortunately they left me feeling as if I didn't really understand this industry, and I didn't understand where I might fit in. Because between the two of these, there's this real lack of accessible, understandable, third-party technical information that helps you understand the industry and what it might be and how it might develop.

What I mean by that is there is no McKinsey white paper on what deep sea mining is and how it might develop. There is nothing that answers the fundamental finance and business questions that you'd want to answer before you dedicate time to this industry or before you try and invest money in it or before you have a thesis around it. And I tried to solve this by diving into these papers.

If you want to dedicate your career to what seems like an amazing industry, or you are a rich individual and you want to invest one or five or $10 million in a deep-sea mining company, or you are a fund that is excited by this space, these are the questions that need to be answered. But with great respect to the industry for a number of reasons (and we'll talk about them) they are not being answered.

As I said, the reasons I believe are not being answered, and we'll expand upon these, are that this is a relatively new evolving industry, but it's also an industry in which there is a lot of pushback, there is a lot of misinformation, there are a lot of repercussions for talking about it, and we'll dive into that. But what I started to notice when I talked to people in finance is that there's a really tricky issue here, and that's that if you want to invest in this industry, if you are a partner at a private equity fund, and for example you have read about deep-sea mining, you think that there might be an opportunity here, you say, whoa, you know, let's not miss the boat on this one. You might go, you might talk to an associate, you might talk to an analyst, you might say, hey, you know, take a look at this industry, I want to know what's going on.

"...it becomes incredibly difficult to build a thesis because you can't get past the controversy...the result is that money is not flowing in"

I want to know if we're missing something. That analyst and that associate are going to go away, and they're going to do exactly what I've done over the past nine months. They're going to hit exactly the same roadblocks, but they are probably not going to have a friend from business school that can make an amazing array of intros, and they're probably not going to have nine months.

They're going to have nine days, and they're going to end up past midnight on a Thursday or a Friday night going, "what the hell is going on in this industry? I can't understand EEZ versus CCZ versus ISA versus nodules, sulfides, critical metals, which ones are they? Are there rare earths in there? I don't know, but what I do know and what I do here is that there's a lot of controversy, and the controversy is right in my face, and that concerns me." What ends up happening, and I've heard from a number of professionals, is it becomes incredibly difficult to build a thesis because you can't get past the controversy and dig into what is actually happening. And the result is that money is not flowing in when it could, should, potentially must be flowing in.

I'm indebted to a lot of time that's been spent with a couple of people recently. I can't say whom, but thank you so much for your time. There's a very, very good reason that this nascent young industry does not look like some of the other nascent young industries I've worked in previously in tech. I think part of it is the monsters that are in the title, that as humans, we understand that the deep sea is alien and terrifying and inhospitable, and we cannot survive there. We will be crushed. We will be, it is freezing cold. We are unable to exist there.

Frankly, a lot of the animals that live there look like monsters, and Hollywood has played on these fears. There is a deep, visceral fear of the unknown.

There's a whole wonderful genre of B-movies that talk about or have protagonists who are literally deep sea mining or deep sea drilling, and some catastrophe happens. It really speaks to that visceral fear, but also the fact that the deep sea is utterly inaccessible to most of the regular public. It's extremely remote and difficult to get to even for scientists.

That's simply because the deep sea is so far away from land in almost all cases. And if you want to go and study it, you have to get specialized equipment like UAVs, ROVs, et cetera. The actual amount of time you can spend on the bottom is very limited. Surveys are extremely expensive.

The result is that any information from research tends to be little misconstrued snippets, which are distorting. Then when you add into that the last few decades of growing public mistrust in corporations and particularly offshore events like the Deepwater Horizon blowout in Macondo, or even Fukushima - the consequence of a nuclear plant being hit by a tidal wave - what you start to see is an industry that is unknown, where there's a visceral fear, and where there's a conflation of risks from other industries, which it doesn't really have.

"...there's a conflation of risks from other industries, which doesn't really have"

Then what you start to get is myths. Now, I want to start with two reasonably good sources here. These are recent articles that came out on the top left, mining.com. If you thought my analogy to Hollywood was silly and over the top, then take a look at the picture that mining.com put out at the top of their article.

It literally is the set from the film Abyss. What is going on? That does not represent deep sea mining! The seabed there does not represent deep sea mining! This is insane.

The Reuters's article underneath it, okay, at least the harvester looks a little bit better, but there's a lovely lot of floating around. There's a ton of stuff on the seabed. It doesn't really represent exactly what's going on, and it's very, very misleading. This lack of understanding, this inaccessibility leads to myths, and those myths lead to the public really fundamentally not understanding what is going on.

I love the comment that was posted at the bottom of this writer's article. In your video, the protection of the seabed in corals is not obvious at all. Your animation shows the seabed as if it was only flat and made of sand only.

This is not realistic, but the problem is if you are in the Clarion-Clipperton Zone, and you are harvesting polymetallic nodules, that's almost exactly what it looks like. It is realistic! The myths mean that the public misunderstand.

"The myths mean that the public misunderstand."

Public trust is low. The conflation of risks is low, and what you get are significant repercussions. Significant repercussions from NGOs, significant pushback from the public, and I've heard privately that some of these repercussions are serious.

It is not just Greenpeace, frankly, risking their own and the MV Coco's crew safety and lives around this protest, but I've heard of much worse overt and covert threats coming from this. The real issue I have there is that if this industry is going to go ahead, then there needs to be a properly informed, educated debate that ensures that both sides are heard accurately and correctly, otherwise it is just distorting. These repercussions are a serious, serious issue.

From my side, what I find is the real challenge or sad thing here is that compared to deep oil, oil and gas, which is in many ways a terrible industry, the opportunity here is huge. Deep sea mining has the potential to provide metals that are crucial for the green transition. Rare earth metals for batteries, of course, but also for motors, for generators, for solar cells, etc.

Many of these metals have very limited supply. There are projected huge supply gaps, and deep sea mining has the potential to drive this green transition by providing them at potentially a low impact, a low cost, and in jurisdictions where you do not have human rights issues, you do not have the problems of, for example, cobalt mining in the Democratic Republic of Congo, and where the likely environmental impact is a fraction of that of terrestrial mining. Here's where we look at some of the fundamentals of deep sea mining, that because you have high oil grades, you have nodules with extremely high percentages of cobalt, manganese, lithium, copper, titanium, rare earths, etc.

Because you have no overburden to remove, you potentially have far, far less waste, far, far less pollution, and potentially have a far, far lower impact on the world and ecosystems than other sources of mining. And as a capitalist, one of the things I love is that the fixed infrastructure that is required for a terrestrial mine is not there. You have a production support which can mine a particular mine site and simply sail to the next site.

It effectively recycles itself. And underlying this, you then have the unfortunate era that we are in, where we have significant geopolitical tensions, particularly with the war in Ukraine, with war in Israel, and with tensions between major powers that have realized that the critical components they rely upon for their economy, for the main products they generate, and also, unfortunately, for their military, rely upon global supply chains, which often root via other countries, including their direct competitors. So you have an opportunity here to diffuse this huge geopolitical risk by critical metals or critical minerals from international waters, which is more secure and potentially more cost effective.

There's a huge opportunity here which warrants good informed debate. I do not believe that debate is happening because of the challenges of talking about it as an industry. So I would like to provide some answers, but I'm going to caveat this with I am learning, and there are likely a number of mistakes in this.

I know that there's a mixture of very, very deep technical people in this audience. And I also know that there are audience members with a lighter understanding. I do not want to patronize or present anything that everyone already knows, but forgive me, let's just start with a few of the facts.

Fundamentally, we're talking about two different sets of jurisdictions when it comes to deep sea mining. We have international waters, and then we have the Exclusive Economic Zones, which at this point in time is primarily the Cook Islands and Norway. There is also activity in Papua New Guinea, arguably Sweden, and a number of other Pacific Islands that potentially may grant licenses.

In International Waters, contracts are issued by the International Seabed Authority, the ISA, under remit from the UN, under UNCLOS, and the majority of that activity, about 60% of the activity, has been exploration contracts for polymetallic nodules in the Clarion-Clipperton Zone.

The ISA has issued 31 exploration contracts to date. Startin in 2001 the ISA has issued contracts for polymetallic nodules, seabed massive sulphides, and cobalt-rich crusts in a variety of different areas. The contracts have mainly been for polymetallic nodules in the CCZ, but they have also issued contracts in the prime crust zone, and mid-Indian Ocean ridge, along with other areas.

The key point here is that these are all exploration contracts. They are not mining contracts.

Turning to the EEZs, the exclusive economic zones, we're talking at this point about the Cook Islands and Norway. These are national jurisdictions and exclusive economic zone, which are roughly defined as about 200 nautical miles out to sea. There are some caveats around that definition, but we're talking about a nation-state issuing licenses, like the Cook Islands via the Cook Islands Seabed Minerals Authority, or the proposal from Norway to issue licenses via the Norwegian Offshore Directorate.

The Cook Islands has a large amount of polymetallic nodules, excellent grades, excellent abundances, and to date, it has issued three exploration licenses. It started to issue those in 2022. In Norway, we're talking about cobalt-rich crusts and seabed massive sulfides, and there's a proposal to begin issuing exploration licenses via the Norwegian Offshore Directorate.

Now, when we talk about who is doing this, it's very easy when you search for deep sea mining to think that there is only The Metals Company. We'll talk about search volumes in a little bit, but it's almost got to the point where as Hoover is to vacuum cleaners, The Metals Company is to deep sea mining, and I think they're a wonderful company. They have some amazing people.

They have a large amount of talent, et cetera, and I think that's great, but behind them, there are a whole host of industry participants, and they're doing a whole range of different things. I think this is also something the public is very much unaware of, and I can understand many of these participants not wanting to put their head up above the parapet and potentially get shot by an NGO for saying that they're doing this, but I also think it really undermines the industry if the perception is it is just The Metals Company, and maybe it's The Metals Company and Allsseas because there's a lot more interest, and there's definitely a lot more companies beyond this who are interested and intrigued and want to understand what is happening here because they see a large potential to transfer their technology expertise, et cetera, into this industry if it picks up, but it does no one any benefit for us to all think it's just The Metals Company and Allseas, but these various participants are organizing and structuring themselves in really rather interesting ways, and two caveats here. This is a business ecosystem diagram.

I'm saying that because it's so bloody complicated. I don't know if you can actually tell what is going on, and the second caveat is that this is a definite draft work in progress, and what I have tried to do here, and I've provided again on deepseaminer.ac, is to map out what each player roughly does within this industry, and the reason this is critically important is that if you have, for example, a thesis around wanting to invest in oil, you are a fund, a private equity fund, and you are ignoring climate change, and you want to invest in oil stops, then you have a plethora of different options to invest in oil, everything from buying oil as a commodity through to an exchange traded fund through to buying directly into an oil company like Shell or a drilling contract like Transocean or into a services company like Schlumberger or Halliburton, and they all do different things, and they all have different risk profiles, and there are a variety of options, but if you are sat looking at the deepsea mining industry, and you have two million dollars that you want to invest, it is not obvious what anyone does and where they're going to and why, but what I started to see, and again, please, this is a draft, give me feedback on this, is that fundamentally, the core of the industry seems to be rotating a lot around the license holders. Those license holders, like The Metals Company, GSR, etc., are contracting production support vessels from a couple of players.

They are bringing specialist contractors. They are bringing specialist services, and from this regard, this part of the industry starts to look very much like the deepwater oil and gas industry, and that if you want to think about how it might evolve, then the likes of The Metals Company, Moana, OML, etc., look something like an oil and gas major like Shell or BP or Exxon. They have the license, they're a project manager, they bring together various contractors, and they are trying to optimize production of nodules, etc., and then similarly, you have a series of production support vessel contractors like Transocean Oil Seas, and they look like, frankly, rig companies.

They look like Transocean, they look like Sea Drill, they look like the sort of companies that own drill ships and Shell comes along, and that is a very, very different business. It's a very different return. It's a very different risk profile, and then finally, you have a lot of specialist contractors who look somewhat like Schlumberger and Halliburton, specialist contractors like Harvester, Surveys, etc., and Schlumberger and Halliburton have built some massively valuable and very, very intriguing