Deep Sea Silver

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There's ample truth to the oft-cited statistic that humans have explored more of the surface of the moon than the bottom of the ocean.  As we run out of space and resources on dry land, however, that ratio will very quickly swing back in favor of the watery deeps.  The mining industry has come around to realize what the oil industry happened upon a full century ago: the resources below the waves can be just as plentiful as those above the waves, provided we can engineer a way to find them.  One of the pioneering deep-sea mining efforts, the Solwara Project, has generated more buzz than perhaps any other metal excavation.  Solwara will plumb the depths off the coast of Papua New Guinea for a trove of metals including copper and gold but most especially focusing on silver.  The rich fields in the Bismarck Sea (named for the Prussian leader thanks to a brief spell of German colonization in the late 1800s) could be among the richest silver deposits in the entire world -- if initial finds prove correct.

The Nitty Gritty

Papua New Guinea sits to the north of Australia, sharing a border with Indonesia.  The nation's stretch extends into a chain of dozens of islands throughout Oceania, giving it one of the lowest population densities in the world with only fifteen people living in each square kilometer.  That's ample reason enough to set up shop and start mining in the country, but it's not the land of the islands that's gained so much attention.  Papua New Guinea came to the attention of miners because the Australian continental plate pushes up against the Pacific Ocean plate in a motion that leads to the creation of new islands every few million years or so.  The consistent upheaval of rock as crusts rub one another into the Earth's outer mantle leads to rich, fresh deposits of metal that sink through the lighter carbon-based soil.  Such metal erupts from the mantle up to the surface in the vent tubes that you see blind crabs and shrimps living around on nature documentaries.  The vents make metal easy pickings -- provided you have a way to get through the mile of water separating the ocean shelf from the surface and breathable air. 

The Long Haul

Geologists understand the availability of minerals in deep-ocean vents, but going from understanding to harvesting requires a rather significant step.  Nautilus Minerals took the first such step in 2007 when the company acquired a tenth of a square kilometer of ocean floor (an area around the size of a dozen football fields) with the intention of surveying the sea floor and prizing up the contents.  When the deal went down, a team of engineers and geologists began to inspect the company's newest purchase using remote-operated underwater vehicles (ROVs).  Man-operated underwater vehicles (MOVs) can go deep enough to give a close-up view of the region in person, but the cameras installed on the exterior of the vehicles have a far greater viewing radius as view holes must be very small to withstand the deep-sea pressure.  What's more, ROVs can do more than just take pretty pictures -- they can analyze the surface of the sea floor in inky darkness.  A bathymetric scanner functions similar to sonar, sending out high-frequency pulses that bounce back whenever they encounter a ridge of shelf on the ocean floor.  The first scanners on the Solwara surveying team reported very good news: a high density of vent cores jettisoning minerals out into the near-freezing ocean floor.  The next step step would be to test drill to create sample cores.  While such drills only reach about 100 feet into the ground, they turned up more than enough silver to justify the hype.  How much?  In a word, a lot: the samples turned up 580 grams of silver per ton, about as much as the Turquoise Ridge mine in Nevada.  That brought the green light on bright and ready.  The last step now for Solwara is to be vetted by the Papua New Guinea Department of Mineral Policy, whose Secretary Shadrach Himata stated should be completed by the conclusion of 2015 or the start of 2016.  After that, it will be only a month before the first quantities of silver ore land on the market and begin to depress prices.

  • The Takeaway: silver has been going through a minor surge in the past three months, which has given most investors a lot of confidence about buying back into the precious metal.  While silver remains an excellent long-term growth mechanism for any portfolio, the short-term value should be declining within the next six to twelve months as the Solwara Project begins to return its dues and provide the market with new supply.  Short-sell silver for delivery during the span of 2016 in order to capitalize on this trend and make money off of the price decline. 
  • While the Solwara Project also turned up gold, it did so in much less quantity -- only about 26 grams per ton, which likely isn't lucrative enough to facilitate larger-scale mining or to disrupt the gold market.  While silver usually follows the price of gold, the Solwara Project should affect silver and not gold (or other precious metals).  Don't be discouraged if you hold gold in your investment portfolio.

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