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converted and operated in order to perform engineering tests on companydeveloped marine mining equipment.
In addition, the company has designed, built and operated' a pilot plant in Virginia which has produced sample quantities of marketable metals from nodules secured from the company's preferred mine site in the Pacific Ocean.
Some 13 domestic patents have been issued, and some 27 domestic patent applications are now being processed on the technology resulting from this demanding work. In addition to this patentable technology, a vast fund of "know-how" has accumulated concerning the performance of productive work at great depths, a less tangible, but equally valuable corporate asset and addition to the nation's technological posture.
As was announced by the company at the Offshore Technology Conference in Houston one year ago, Deepsea, with the concurrence of the Board of Directors of Tenneco, now feels that its technological and commercial base is sufficient to justify the initiation of the next phase of its work—that of defining its mine site in detail and tailoring its engineering designs to the specific physical conditions of that mine site. Tenneco (and now I refer to its financial managers, not its ocean miners) does not feel justified in releasing the major funds required for further major operations due to the lack of security of investment inherent in the legal vacuum existing regarding ore body rights. The following points are crucial to your understanding of these restraints :
(a) Detailed definition of any one of Deepsea's ore body discoveries will entail extensive, costly, and highly visible operations on location, as will future on-site engineering tests. The location of the ore body will inevitably become public information when these operations begin.
(b) The ore bodies Deepsea has located which are of economic interest tend to be limited in area due to local phenomena including topography, concentration, and assay. Candidacy is judged by the requirements of a 40-year operation at one million short tons of dry nodules recovered per year.
(c) The candidate ore bodies differ significantly as to topography and bearing strength of the seabed, depth, current and weather conditions, distance from support bases, and assay, composition, size, weight, and concentration of the nodule population. All of these phenomena significantly affect engineering designs, which must be tailored as early as possible to the particular ore body selected. For example, two ore bodies of equal economic value might, according to Deepsea's experience and technology, require quite different processing plant equipment. The processing plant constitutes the largest single capital cost of the Deepsea ocean mining project.
(d) National and international monitoring of environmental impacts, if any, will require inspections during test and development operations thereby making compulsory disclosure of mine site location likely.
Therefore, the extensive costs associated with the particular mine site must be protected by a preferential right to the selected ore body and that preferential right must vest prior to the time:
(a) The mine site location is compromised,
In conclusion, Mr. Chairman, Deepsea Ventures, Inc. has defined several limited ore bodies which qualify as economic deposits and thus potential mine sites. It is now prenared to register a claim on any one of these ore bodies. Subsequent to registration of a claim on one of these sites pursuant to terms of legislation in substantial conformity to H.R. 13904, Deepsea and Tenneco intend to spend 24 months and $16 million in further defining the specific ore hodr and in refining engineering designs to conform to mine site requirements. Capital construction and commitment of a further $150 million would begin immediately after this 24-month period, with metals being delivered to market within 36 months of the start of capital construcion. This will result in the yearly production of the following approximate quantities of pure metals to domestic and world markets :
500, 000, 000 Nickel
25, 000.000 Copper
20, 000, 000 Cobalt
4, 500,000 Others (including molybdenum, vanadium and zinc)
5, 500, 000 I feel it is necessary to reiterate that Tenneco has, by supporting the ocean mining program of Deepsea, sought to further its corporate objectives and to strengthen the resource base of the nation in a responsible and orderly manner, It has, in pursuit of these objectives, assumed the risks normal to private commercial enterprise in the development of pioneering technology and is prepared to continue to assume those risks. It now asks that Government assume its share of responsibility by taking the steps necessary to assure the orderly development of ocean resources and protection of investment made by U.S. private enterprise in that development. Your constructive consideration of H.R. 13904 will be the first step in that process whereby government may discharge its duty to assure secure and diverse supplies of vital metals for the benefit of the American people. Thank you.
Mr. Flipse. This is our third appearance before this committee, the first appearance being intended to dramatize the reality and promise of ocean mining, and the second to explain in detail the commercial considerations which prompted the formulation by industry of interim ocean mining legislation. In this third appearance, it would seem incumbent on us to explain the legislation in a way that will justify the detailed provisions of the bill relating to regulation of the resource activity.
What we have done in H.R. 9 is to draft an ocean mining code where no current domestic or international mining statutes apply, and where international law of the sea negotiations are lagging. The primary private objective of any ocean mining code is to provide a stable, predictable and effective legal framework for profitable mining activities. The public objectives, which are not necessarily contradictory to the private objectives, are to assure that the mining activities take place in a manner consistent with the public interest, within the framework of the fiscal responsibilities of the operator, and in a manner consistent with the minerals and public welfare policies of the legislating governmental entity. These are objectives of H.R. 9.
In order that public objectives and private objectives be met, the mining code must provide the operator with sufficient security of tenure to his ore discovery for a period of time and in a quantity of ore, to provide the return of his investment and a reasonable profit. You have invited the American Mining Congress to testify before this committee on April 3, 1973, and the representatives of that organization will discuss H.R. 9 in depth. I would like today, however, to explain, as far as possible, several aspects of the legislation which seem to have been most seriously questioned by the committee, in the past.
One issue which seems to cause concern is the question relating to minesite size. H.R. 9 would create license blocks totaling 10,000 square kilometers for the purposes of exploitation. It is the opinion of the industry that such a size is barely adequate for a mining operation scaled to the recovery of 1 million tons of dry nodules per year, assuming the nodule concentration of about 2 pounds/ft and à recovery efficiency within the present capability of technology. Realistic estimates of dredging accessibility and efficiency, sweep efficiency, and the cut off grade of actual minesites indicate an overall mining recovery efficiency of well below 50 percent of the nodules on the minesite. Before these committee hearings are concluded, Mr. Chairman, we expect to submit a detailed scientific and engineering analysis to support and explain these figures. Our calculations indicate that a 1 million ton operation is the minimum efficient size to take advantage of existing economies of scale and engineering efficiency.
The bill proposes a licensing system whereby the operator must meet stringent work requirements during the exploration, or development period preceeding actual production. These work requirements are scaled to the maximum of those suggested by the U.S. Draft Seabeds Treaty introduced by the United States to the United Nations in 1970. These requirements, which are, in actuality, minimal in the scale of real costs to be incurred in ocean mining development, are considered by industry sufficient to preclude speculative paperclaim filing but small enough to allow minimum-size operations to meet the legislative requirements.
Many of the provisions of H.R. 9 can be traced directly to the U.S. Draft Seabeds Treaty itself. The minesite sizing just discussed was derived from that Draft Treaty. Similarly, the provision for a 15 year exploration and minesite development period is reflected in the Draft Treaty and can be justified in terms of the actual experience of ongoing ocean mining projects. Both the Tenneco and the Kennecott operations have achieved their first decade of existence and have at least several more years of work to do before ocean derived metals are produced.
Section 10(a) of H.R. 9 is an attempt to redraft article 73, section 6 of the U.S. Draft Treaty which provides that any treaty party which authorizes ocean mining activities prior to the time an international seabeds treaty comes into force shall compensate its existing licensees for any investment losses resulting from later application of the treaty. The redrafting did extend the term of this guarantee to 40 years, which perhaps may be excessive. Section 10(b) creates political risk insurance to insure an operator against losses incurred due to unreasonable interference on the oceans. The U.S. Government has an agency, the Overseas Private Investment Corporation, which is thoroughly familiar with the measurement and insurance of political risks, and I would urge the Congress to seek the advice of this agency on this subject. Industry has the data at its command which, if utilized by OPIC can be transformed into a positive program for rational mineral and oceans development. Some kind of political risk insurance will be required under any future international seabeds treaty. This is an area of immediate productive potential for Government-industry cooperation and is work that should evoke no anguished cries from our Department of State or our U.N. seabeds delegation.
Mr. Chairman, in closing, I would like to express my opinion that the State Department, in its testimony before this committee on March 1, 1973, has done no more than ask the Congress to be patient for 2 or 3 more years in the hope that the United Nations will meet its schedule. We can all remember past years when 1973 was the projected time frame of international law of the sea agreement. This has now slipped to 1974 and 1975. Next year, it will probably become 1976 or later. We ask that Congress not tie itself to this moving target, but rather produce effective legislation that is timely and responsive to the requirements of the national minerals policy and the ocean mining technology which can provide a significant part of our minerals requirements.
Mr. Chairman, I was planning to show a 12-minute film on ocean mining, but in order to save time for the other witnesses, I would like to suggest that this be shown at the end of today's hearing, if that be
wish. Mr. DOWNING. Well, the committee thanks you for your indulgence on the film.
Suppose we hold the film until after the last witness has testified, and then the members can have the opportunity to see it.
It is an excellent film which depicts the deepsea mining technology and is something which would be very valuable, I think, for the information of the members.
Thank you very much for your statement, Mr. Flipse. We are very pleased to have our very able chairman this morning with us again, Mrs. Sullivan.
Did you have a question?
I would like to ask Mr. Flipse this. You indicate in your rationale for the bill that the development companies need the legislation in order to get some reasonable assurance of an exclusive site for the utilization of the equipment that you were going to develop.
In considering the fact that whatever we do would perhaps be subject to a consummated Law of the Sea agreement, and while we have delayed that consummation by, say, a year of 2 years, that it is foreseeable that we will consummate the agreement over the next few years, would it be your idea that the legislation we would enact would make certain guarantees which would pierce the law of the sea agreement, or would it be the floor for the law of the sea agreement? How could we guarantee industry a proper format for development at this time and still maintain flexibility for the Law of the Sea Conference?
Mr. FLIPSE. The question, I think, can best be answered this way.
We sincerely believe that operation under H.R. 9 for an ocean mining venture would provide very valuable guidance both in a technical and experience sense, in terms of operational control, and so on, to the drafters of this international treaty.
The precise protection that we would expect would be one where a negotiation took place, a law was passed, and assurance was given regarding the investments prior to coming into force of the treaty.
The United States would then guarantee the investor against certain losses during that time. It is a financial obligation, but in my opinion it should not deter negotiators from working toward å worthwhile international agreement.
I think we all believe we would be more comfortable under an international agreement that is well established, and I think our principal reason for needing H.R. 9 is because of the serious time delays that we see before this international protection would be available.
Mr. LEGGETT. Besides Hughes Tool and Tenneco, who do you estimate would get into this business under this legislation?
Mr. FLIPSE. American operators would probably include Kennecott. Inco and several other foreign companies are probably prepared to move ahead at this time.
Mr. LEGGETT. And you indicate that the 40 year projected term under this agreement might be a negotiable item?
Mr. FLIPSE. I think 40 years was chosen originally because, based upon Internal Revenue Code, financial commitments were going to be written off on pier facilities, buildings, main plant facilities, over a 40-year period. This was the basis for this number being selected for the guarantee. I feel that some of us are ready to accept a lesser period although the drafters and the Mining Congress still feel that the 40 years is a reasonable time period, based upon the durability of a fair proportion of this equipment.
Mr. LEGGETT. If Hughes is doing this research and development program without the bill, why do the other three large companies need the bill?
Mr. FLIPSE. Well, we have done much of our development and research without the bill, too, sir, but we feel that the protection is now essential because we have to disclose the location of our selected minesite. It is an area where we have made voyages over the past 4 or 5 years. We have spent many millions of dollars investigating this area, and we hate to put it out as general information to the public which would happen by the establishment of a heavy work program in the specific area. Therefore the timing of the bill, for us, is essential.
Our ship has been returned to Gloucester Point in Virginia since last September, and is being outfitted and made ready to go to wo but we are reluctant to put it out there without some licensing protection.