“Must Own Pioneer of a New Industry: Undersea Mining”

By Travis Johnson, Stock Gumshoe, June 26, 2008

This company always seems like a science fiction story when I read about them, but you never know … just because we’re not all wearing jetpacks doesn’t mean science fiction can’t come true.

For those of you who aren’t already expert in undersea mining companies, let’s take a moment to examine what this is … and of course, the reason for doing so is that this is a recent teaser stock from Ed Bugos and his free Penny Sleuth letter. He’d like you to pony up for a subscription to Gold & Options Trader, and when you do you’ll find out the name of this company that’s a “must own pioneer of a new industry.”

Or, of course, you can just continue reading my bloviating blather … we’ll get to the company name eventually. Free.

Ed tells us that the offshore oil and gas drillers, with their constant innovation and development of undersea reserves, are the ones who paved the way for this next sector — and that buying this company now is like getting in on the ground floor of that industry in the 1970s, when the energy crisis forced the development of new resources.

Much of that technology developed in the North Sea, the Gulf of Mexico, and elsewhere is the starting point for the technology that this company is using, apparently.

Ed says that we’re about to see “the first major startup in the deep-sea mining industry. If it’s anything like the boom in offshore drilling, you’ll want to be there.”

Some more clues, perhaps?

“The world’s largest gold companies together own over one-third of this company.

“These players are so bullish on the prospects of this industry they all entered into non-competing and anti-dilution clauses just to get a tiny foothold… Teck Cominco and Anglo American have paid millions of dollars for a mere option to participate in a potential future joint venture. And millions more in direct investments.”

Putting aside the fact that “millions of dollars” for Anglo American may be like “the stuff in the handkerchief after you blow your nose” for the rest of us (AAUK had $8 billion in earnings last year), it’s still interesting that these big companies are investing in this sub-sector.

Specifics?

“Anglo and Teck’s investments total more than $50 million … Placer Dome alone spent more than $13 million earning a joint venture interest with this company.”

Ed also shares with us a little bit about the history of mineral discovery in the ocean …

“Outside of a few dredging operations for diamonds off the African coast in recent years, the extraction of minerals from the seafloor is virtually untapped. No one has mined the seafloor, though geologists have long known of its potential…

“For a long while, they thought that these minerals were deposited as sediments from eroding deposits on nearby land. But it was later realized that the source of massive sulfides on land was the ocean, and that hydrothermal events beneath the ocean seafloor precipitated into a mineral deposit upon contact with the water. In fact, in 1985, seafloor massive sulfide systems were discovered off the coast of Papua New Guinea by a research vessel at a site claimed by our company.”

OK, so the clues are piling up. And there’s really only one company doing this kind of stuff as far as I can tell, so I shouldn’t tarry much longer.

Ed says we should buy this because demand for minerals is heating up (really? Golly!), and because undersea mining treaties brought some regulation in the 1990s, but largely because this particular company is leading the pack … as he puts it, profits should follow because of “advances made by our company toward the establishment of the first-ever deep-sea mine this decade.”

So what is this pioneer?

You may well have heard of them before, since everyone loves a good novelty story like this, but the Thinkolator quickly spits out our answer: This company is …

Nautilus Minerals (NUS in Toronto and London, NUSMF on the pink sheets)

This one is indeed partially owned by some mining giants — Teck Cominco and Anglo American both hold small positions (5-7%) and did invest “more than $50 million” (about $65 million, I think) in the company. The founder of Russian iron ore giant Metalloinvest owns about 22% (If you need money for any natural resources project these days, ask a Russian), so together that’s about a third of the company.

The shares are way off their highs of a few years ago, when they flirted with $6, and have been bouncing around between $2 and $3 for much of this year. The company has been in existence, and spending millions of dollars on R&D and exploration for their prospective projects, for many years.

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It seems like now, finally, they might be getting close-ish to doing some actual mining — what they look for are “seafloor massive sulfide deposits”, which I guess are analagous to volcanic sulfide deposits in that they’re prime hunting ground for copper, gold, silver and zinc. This is the first time I’ve typed the word “sulfides” since November, I think — back then it was about Albanian volcaniferous sulfides — that stock, incidentally, enjoyed a brief run but is now back where it started.

But anyway, back on point. Nautilus has a “proposed development timetable” that would have them commissioning their equipment and starting production in 2010 (one would have to guess that they mean the tail end of 2010, as seems always to be the case with these “plans”). Since this is essentially a brand new industry and they’re inventing the production and mining equipment as they go along, it would probably be reasonable to assume there could be snags along the way.

I’m not implying that they’re doing anything wrong, just that they’re doing stuff that no one else has done, particularly on the scale of actual production. They have just recently (this week) signed a contract for the first mining vessel to be built, and they have issued contracts for the seafloor mining equipment and for the raiser/lift system, so all the big parts of the equipment are firmly ordered and, one hopes, well designed, but they’re not yet floating around looking for sulfides to dig up just yet. Most of the work is being done by the same companies that develop and engineer for offshore oil exploration and production, so they ought to at least have a good idea of how this will all work.

The CEO is quoted in a press release as saying that this vessel contract award “keeps Nautilus on track for commencement of production in 2010, subject to timely permitting and approvals.”

And, assuming that the stuff all works fine when they ge