IHC Merwede submission to ISA survey

IHC Merwede B.V. P.O. Box 204, 3360 AE Sliedrecht 94, Molendijk, 3361 EP Sliedrecht T +31 184 41 15 55 F +31 184 41 18 84 www.ihcmerwede.com

Date 23 May 2014

Reference REP-180-mining

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IHC Merwede submission to ISA survey

stakeholder engagement for developing a regulatory

framework for mineral exploitation in the Area

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Content

1 Introduction to IHC Merwede 3 1.1 IHC Merwede's stakeholder position 3 1.2 Capabilities 3

2 Reply on the relevant parts and questions 9 2.1 Part A: Financial terms and obligations 9 2.2 Part B: Environmental management terms and obligations 15 2.3 Part C: Health, safety and maritime security 20 2.4 Part D: General considerations (stakeholder communication and transparency) 20

3 IHC Merwede general comments, remarks and considerations 22

4 Express consent for publication 23

5 Interest in future contact by the ISA 24

6 IHC Merwede contact details 25

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1 Introduction to IHC Merwede

1.1 IHC Merwede's stakeholder position

IHC Merwede focuses on the continuous development of design and construction activities for the specialist

maritime sector. It is the global market leader for efficient dredging and mining vessels and equipment – with

vast experience accumulated over decades – and a reliable supplier of custom-built ships and equipment for

the oil & gas offshore construction industry. IHC Merwede delivers integrated solutions (a balanced

combination of vessels, equipment, systems and services) to its clients, during every phase of their

operations. IHC Merwede's customers are from dredging, offshore, wet land-based mining, near shore mining

and deep sea mining and renewables industry.

In the Mining market IHC Merwede strongly believes in following this integrated approach throughout the

entire mining life cycle, offering advisory services (ranging from scoping level to bankable feasibility studies),

research and development, engineering and construction and operational support to prolong the Mining

Operation. IHC Merwede has regional offices to promote and offer its range of services. These enable the

company to support and train crew members and build locally, so they will be able to fully operate and

maintain the mining equipment. The company designs, builds and supplies advanced mining vessels and

equipment, ranging from mining dredgers and crawlers, slurry transport systems and mineral separation

plants, to plant automation and control. In every phase environmental awareness, risk mitigation measures

and health and safety are taken into account.

IHC Merwede has gained experience in mining operations due to its service and technology development

(with reference to next paragraph 1.2 "Capabilities"). IHC Merwede also applies an integrated approach to its

own value chain: cooperating with governmental institutions regarding e.g. the establishment of laws and

regulations, and working together closely with its suppliers when developing technical solutions. This approach

enables the company to offer the best commercial solutions to its clients.

This document presents IHC Merwede's opinions on issues that are related to the design and use of deep sea

mining equipment and -systems. Readers are encouraged to interpret IHC Merwede's submission from this

stakeholder position.

1.2 Capabilities

IHC Merwede (The Netherlands, www.ihcmerwede.com)

IHC Merwede has in-house expertise for engineering and manufacturing innovative vessels and advanced

equipment, as well as providing life-cycle support. Its integrated systematic approach has helped to develop

optimum product performance and long-term business partnerships.

The company’s broad customer base includes dredging operators, oil and gas construction corporations,

mining houses, offshore contractors, government authorities and mining operators.

IHC Merwede has over 3,000 employees based at various locations in The Netherlands, China, Croatia,

France, India, the Middle East, Russia, Serbia, Singapore, Slovakia, the UK, South Africa and the USA.

Technological innovation will remain the company’s underlying strength through its continuous investment in

research and development. Moreover, it helps to safeguard a sustainable environment.

http://www.ihcmerwede.com/

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Seven Oceans reel lay vessel Vox Maxima trailing suction hopper dredger

IHC Mining (The Netherlands, www.ihcmerwede.com/mining)

IHC Mining has 300 Years of experience in underwater water excavation and dredge mining. Its roots can be

traced to the end of the 18th Century, with the delivery of two old dredgers to Italy and Russia. The company,

as it is known today, was created by six Dutch shipyards joining forces to build six sea-going tin dredgers for

the Billiton Company, a former Royal Dutch Shell subsidiary. Today IHC Mining builds the innovative vessels

and advanced equipment used for extracting mineral sands, gold, tin, platinum and diamonds up to 200

meters below the surface around the world. The depth of experience among the IHC Mining team consists of

geologists, engineers, technicians and other specialists. Now situated in South Africa (IHC MMP), Australia,

The Netherlands (IHC DSM) and Singapore, IHC Mining is dedicated to developing a regional mining

presence on a global basis. Each office is a dedicated centre of excellence, a one-stop-shop for the regional

market and provides a global network with highly qualified personnel.

The technology focus provided by IHC Mining, together with its sister companies IHC DSM in the Netherlands

and IHC MMP in South Africa, includes:

Deep Sea Excavation systems;

Deep Sea Mining Vehicles (including Launch and Recovery systems);

Vertical Transport Systems;

Dewatering systems;

Waste Water and Tailings return to the sea floor;

Mining Vessels;

Processing plants (in cooperation with a strategic partner); and

System Integration.

Interest in deep sea mining is growing rapidly and the requests for deep sea mining solutions from industry

and other players are increasing significantly. A short reference list for the technology developed by IHC DSM

for this market includes:

Feasibility design of a crawler based mining system for the extraction of iron sands in water depths of

up to 70 m.

Supply of crawler based mining systems for the extraction of diamonds in water depths up to 200 m.

Pre-feasibility design of a mining system for the extraction of phosphates in water depths up to 300 m.

Several scoping, pre- and feasibility studies completed for major players in the deep sea mining

industry for water depths of 1,000 - 2,000 m.

Conceptual design of a deep sea mining installation for the extraction of polymetallic nodules at a

water depth of 5,000 m.

http://www.ihcmerwede.com/mining

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Design and manufacturing of a self-carrying fall pipe made from lightweight high-end aluminum. It

allows DP fall pipe rockdumper dredging vessels to cover underwater oil and gas infrastructure and to

conduct seabed preparation.

Full scale deep sea mining installation Fall pipe aluminum coupling

MTI Holland B.V. (The Netherlands, www.mtiholland.com)

MTI Holland BV, IHC Merwede’s Technology Development Centre, is a global leading centre of expertise in

the area of translating knowledge of dredging, mining and deep-sea mining processes into the specification,

design and application of excavation and slurry transport equipment. This incorporates Research and

Development for the business units within the IHC Merwede group and the application of this knowledge to

develop engineering tools and provide consultancy services. With 75 years of experience, MTI has gained

access to a vast network of information and capability resources. MTI Holland offers its Research &

Development, Training, and Advisory Services to companies in the Dredging, Mining and Offshore industry, as

well as government institutions and consultants. In addition, MTI Holland facilitates portfolio-, product- and

knowledge management for the business units of IHC Merwede. Regarding deep sea mining, MTI is working

on research into hyperbaric cutting, vertical transport systems dynamics and slurry transport, the modelling of

deep sea deposits, and environmental research of deep sea environments. This includes participation in the

EU-funded MIDAS project and leading the EU-funded Blue Mining project.

IHC Engineering Business Ltd. (UK, www.ihceb.com)

IHC Engineering Business (IHC EB) delivers bespoke engineering solutions for complex offshore applications

and works with clients across the offshore oil and gas, submarine telecoms and renewable offshore power

industries. IHC EB takes its clients on a full customer journey from concept development, product delivery and

through to life cycle support. The core expertise includes pipe and cable lay for water depths up to 3,000 m

(towers and carousels), subsea trenching (ploughs and tracked vehicles operating in up to 1500 meters water

depth) and offshore handling (A-frames).

IHC EB delivers innovative equipment that provides a commercial and technical advantage; working in

partnership with customers on projects ranging from fully integrated vessel systems to the rapid supply of sub-

systems. Clients include Technip Offshore, Subsea 7, Allseas, Saipem and Acergy amongst others.

http://www.mtiholland.com/

http://www.ihceb.com/

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1500 tonne Capacity J-Lay Tower 500 tonne SWL PLEM Frame

450 tonne Reel Lay Spread Trenching System

IHC Hydrohammer (The Netherlands, www.ihchydrohammer.com)

IHC Hydrohammer designs, manufactures and supplies hydraulic piling hammers, for on- and offshore use,

across energy ranges from 30 to 2.300 kNm, and is known throughout the world for its innovative approach

and high reliability. This innovative approach is not simply confined to the hammers, but also extends to

entirely new piling techniques, foundation equipment and hammer accessories, with a view to making pile

driving more efficient, more controllable, less noisy and more widely usable

The hammer is suitable for all types of piling and foundation works ranging from impact sensitive concrete

piles, conductor installation, to large and long offshore caisson piles and also includes above and underwater

rock breaking at full energy. Equipment is suitable for the arctic region, a harsh environment. With the IHC

Waterhammer® IHC Hydrohammer is taking pile driving into ultra-deep waters.

http://www.ihchydrohammer.com/

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IHC Hydrohammer rock breaking equipment Offshore pile driving

IHC Hydrohammer has the ability to supply a complete package, including; rental of Hydrohammer,

maintenance, mobilisation / demobilisation and operation.

IHC Holland B.V. (The Netherlands, www.ihcmerwede.com/dredging/)

More than half of the world’s dredging contractors rely on IHC Merwede’s unique combination of innovative

vessels, advanced equipment and life-cycle support. This is clear evidence that IHC Merwede has achieved its

overall aim of supplying customers with a greater return on investment, while helping to decrease the

environmental impact of their dredging activities.

IHC Merwede has developed valuable global partnerships with other strategically placed shipyards. It

manufactures custom-built vessels in The Netherlands in close cooperation with the customer, and builds

standard vessels, duplicates and an increasing proportion of equipment at various local production facilities

worldwide.

The wide range of IHC Merwede products incorporates everything from cost-effective standard stationary

dredgers and mechanical dredgers, to the world’s largest custom-built self-propelled dredgers. This broad

spectrum is ideal for the completion of both capital and maintenance dredging projects. With more than 150

years of experience in building dredging equipment and having its own renowned research institute (MTI

Holland) IHC Merwede offers optimal solutions to the challenges of modern dredging techniques.

IHC Offshore&Marine B.V. (The Netherlands, www.ihcmerwede.com/offshore/)

IHC Merwede’s offshore division strives to deliver the best value to its customers. It is a partner of choice for

innovative, sustainable and integrated offshore vessels and equipment. IHC Merwede’s offshore solutions are

reliable, efficient and flexible to the demands of challenging seabed-to-surface oil and gas projects, and the

renewable energy market. With its extensive knowledge and in-house design capabilities, IHC Merwede

ensures compliance with the latest technological developments, strictest safety regulations and most stringent

environmental standards.

http://www.ihcmerwede.com/dredging/

http://www.ihcmerwede.com/offshore/

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IHC Merwede constructs custom-built vessels and equipment – to meet customers’ requirements – or more

standard vessels with a ready-to-build design, the IHC Supporter® class, IHC Packhorse® and IHC

Packhorse® - Maxi.

Conducting business in an offshore environment is often turbulent. Technical and financial risks are significant,

and margins are fluctuating. World oil prices are sensitive to political and monetary events. The difference

between profit and loss for an owner or operator of offshore support ships is greatly influenced by the

productivity of these long-term investments. Efficiency, reliability and durability are key factors to success.

IHC Merwede understands its customers’ needs and has the ability to provide innovative and efficient

solutions for a variety of projects, such as pipe- and cablelaying, diving support and pile-driving.

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2 Reply on the relevant parts and questions

Please find in next paragraphs IHC Merwede's reply on ISA's questions.

2.1 Part A: Financial terms and obligations

Issue 1

(questions 1-6)

The payment mechanism: compensation of mankind for the exploitation of the resources

in the Area

Conclusions Q1: In delivering a best revenue opportunity for the ISA and an overall fair and

equitable system, which payment mechanism would you consider preferable for

the ISA and Contractors and why?

Q2: If a royalty mechanism is adopted for reasons of administrative convenience,

how can a royalty mechanism capture, for example, economic rents over the life

of an exploitation contract?

A1&2: The rules for a payment mechanism should be transparent and simple and 1)

create a positive climate and stimulate contractors and their stakeholders to make

reasonable profit, 2) allow sufficient room for contractors to perform the mining

exploitation in line with their defined business case (including higher or lower risk profile)

and 3) stimulate more sustainable exploitation of the mine.

The main principle of the payment mechanism should be a balance of interest of all

parties having an interest in the deep sea exploitation project, such as:

- ISA

- Sponsoring state

- Contractor

- Developing states

- Suppliers of service, equipment, logistics, etc.

- Knowledge institutes

- Governments and all of its institutes (national, regional, continental, international)

- NGO’s

- Banks and investors

- Buyers of raw ore

- Independent consultants and auditors (like customs)

- Social communities

These interests are a complex set of attractive forces which should be reflected in the

chosen mechanism. Therefore contractors should be granted sufficient room to

implement specific investment structures and cost recovery models.

The payment mechanism should stimulate contractors to go for a balanced average

grade which includes both high and low grade extraction. Due to the different business

cases and the different stages of the development of the industry (incubating stage,

mature stage) it will not be feasible and even not fair a to have one uniform payment

mechanism that is based on one single parameter of the exploitation process.

It is suggested the payment mechanism consists of several mechanisms:

- adjusting price mechanism with respect to the risk profile of the stage of development

- payment of a production charge by the contractor to the ISA based on the extracted

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amount (and on-board audited) tonnes of ore (which creates money for the developing

states)

- the grant by the ISA to the contractor an expansion of the exploitation of a portion of

the reserved area together with a developing country based on the mined area (which

reflects the interest of a contractor by creation of an increased reserve area and

supports ISA's interest to exploit the deep seafloor for the Common Heritage of

Mankind)

- payment of a production charge based on the tonnes of minerals per tonnes of ore.

A stimulation factor can be the indexation of the royalties by the accumulated

number/value of minerals and the phase of mine life cycle (such as a low royalty during

start-up of the mine, comparable with patent fee mechanism) and an assurance of a

minimum level of commodity pricing.

Another suggestion is to give a contractor the option to pay the ISA by either: (a) a

production charge; or (b) paying a combination of a production charge and a share of

net proceeds.

Paid royalties could be partly used to fill a restoration/rehabilitation fund (that can be

used in case of unexpected events). Royalties should be kept low during start-up of the

mine and may need indexation during the lifetime of the mine (comparable with a patent

fee mechanism).

All grants and payments should be clear and fixed at grant of the exploitation contract, in

order to have contractors to base its business case on predetermined cost/income. The

ISA should communicate and create awareness on how the royalties will be used for the

Common Heritage of Mankind.

Q3: Are you aware of any alternative payment mechanisms that would merit

consideration by the ISA?

A3: Yes, options are "payment in kind", such as:

- cooperation of contractor with a developing state for the exploitation of the reserved

area,

- public presentation of results after a priority period (comparable with a patent

publication)

- payment schedule that encourages mining of lower grades

Q4: In your view, how frequently should any payment mechanism be reviewed

from a regulatory viewpoint?

Q10: For what term (in years) should an exploitation contract be granted? What

do you consider best practice in terms of renewal periods for the same contract?

A4&10: Deep sea mining has in several respects its own characteristics like the working

conditions, sustainability, risks and investment. Therefore a comparison with other types

of mining should be made with certain caution. Notwithstanding a comparison could be

made with respect to the mine life, which is normally 20-25 years. ISA should grant a

mining license including fixed terms of payment for the full license period (20-25 years),

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in order to provide room for contractors to ensure a stable development of the mine and

create certainty for all stakeholders. For control reasons and to be assured that the mine

is developed for the Common Heritage of Mankind, ISA could apply a 5 year milestone

period for contractors to achieve predetermined results and if so to grant bonuses that

time, and if not to take measures with respect to contractors. Renegotiation of the

payment mechanism could be part of the measures taken. Also the grant of specific

permits (mining, environmental, pilot mine, social) can be used as a control mechanism.

For the sake of transparency and certainty for its contractors ISA should fix and agree

the regulations for the license period and list the procedures and control parameters for

the measures that it plans to take at such milestones.

Q5: For activities in the Area, there may be a number of possible valuation points

for the minerals and metals to be exploited. Please would you consider and

advise which valuation point(s) the ISA should consider in determining an arm’s-

length value for the purposes of calculating the fair value of the mineral and metal

resources. From an administrative viewpoint, which valuation point would be the

simplest to determine?

A5: ref A1&2: This question is related to the value chain and where in the value chain is

the point of valuation or sale for the ore or metal – eg, at the vessel, permit boundary,

landed at beach, exit of smelter etc. The valuation points should be restricted to the

auditable results that can be concluded from the contractor's reports

Q6: In connection with any late or overdue payments / returns by Contractors, in

your opinion, what penalty or fine mechanisms should be adopted by the ISA?

A6: ISA should take into account the reasons of overdue payment by the contractor. It

could be a fact that the contractor has to spend (temporarily) extra expenditures for

efficient mining and is therefore suffering an unexpected loss. The fine mechanism

should always aim for stimulation of the contractors to proceed mining the area and

include incentives for "good behavior". On the other hand, the rules and regulations

have to be clear and strict and should at least consist of a grace period for fulfilment of

the obligations.

Issue 2

(question 7)

Whether or not an applicant is financially and technically capable

Conclusion Q7a. In your view what key elements should be considered in respect of

“technical” capability?; and

Q7b. Similarly, in your view what key elements should be considered in respect of

“financial” capability?

A7: Before the grant of an exploitation contract, contractors have performed extensive

exploration work, which includes environmental research, definition of a business case

and development of technology. During exploitation a contractor will even have to spend

more efforts, such as pilot mining, detailed design of the equipment and/or purchase a

complete mining system. That equipment will remain for its complete lifetime at the

same mining area.

Efficient mining of the area is a key factor in order to realize and maintain a feasible

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business case. In order to be assured of an efficient exploitation (mining plan, logistics

and applied technologies), contractors might require a different setup/division of the

contracted vs. reserved Area. Further contractors should be granted sufficient room to

implement specific investment structures and cost recovery models.

Each area has its particular conditions (e.g. ore grade) and boundary limits (e.g.

environmental behaviour). This implies that for different license areas different proposed

mining exploitation methods and business cases will be applicable.

The business case has to work: if it's not feasible to mine an area, stimulation measures

cannot make it fly. So it's best to rely on the contractor's strategic decisions to spend

CAPEX and OPEX. Notwithstanding, a contractor should be stimulated to exploit the

mine in a proper way, preventing devaluation of the low grade areas by disturbance as a

result of the mining method of the other high grade areas. And tax regimes or rewards

(positive incentives) might be used to stimulate proper mining (e.g. for the lower grades).

Capabilities of contractors are not only defined by their own assets (such as knowledge,

experience and resources) but also by all directly involved stakeholders (such as

equipment suppliers and operators). Each link in the chain has its own role and function

and the main role of the contractor will be the control of an efficient exploitation process.

All of these elements should be part of the contractor's business model, including

responsibility matrices and results of formal audits. This should not only cover

technology and finance, but also operational, organisational, commercial (e.g.

consortium) aspects. Deliverables could be certificates (proved training, Factory

Acceptance Test, Onboard Acceptance Tests, Technology Readiness Level of

equipment) annual reports, business case description and CV's of key personnel.

The contractor's operational experience, acceptance level of risks, financial position and

proposed technology will define their optimal business case. Such optimum will differ for

each contractor.

Two examples:

1. Contractor A's experience and risk appetite may lead him to decide to focus on the

development of a balanced extraction process and equipment and develop a pre-

processing plant of the ore on board of the mining vessel. Contractor A agreed to

sell the raw material to another company for further transportation and processing.

2. Contractor B plans to keep the whole extraction ship-to-ship transfer, transport and

processing process under its own control and sells the processed material directly to

the market.

As the mining system and operation both require high capital and operational

expenditures, each contractor will more than likely require external investors (in other

words: the contractor by itself might not be financial capable). Depending on their

strategy, the investors will require a certain guarantee of return on investment, realizing

that deep sea exploitation is a challenging industry (which will define the conditions of

investment and therefor affects the contractor's "financial capability").

The ISA should stimulate a diversity of contractors (including developing countries) and

take care that all potential contractors shall have a fair and equitable chance to apply for

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a license. Contractors should be rewarded and stimulated for innovation and

sustainability: a grace period for financing could stimulate development of technical

capabilities, vice versa. So a combined financial/technological/sustainability capability

mechanism will be helpful.

Issue 3

(question 8)

How to encourage optimum extraction of low grade mineral resources

Conclusion

Q8. In your view, how can the regulatory framework be structured to encourage

optimum extraction of low grade mineral resources?

A8: (Ref Q1&2, Q7) : The business case has to work: if it's not feasible to mine an area,

stimulation factors cannot make it fly (f.e. downtime is very costly and should be avoided

as much as possible). So it's best to rely on the contractor's strategic decisions to spend

CAPEX and OPEX. Notwithstanding, a contractor should be stimulated to exploit the

mine in a proper manner, such as 1) by exploiting a balanced average grade which

includes both high and low grade extraction and 2) preventing devaluation of the low

grade areas by disturbance as a result of the mining method of the other high grade

areas. This can be done by incorporating the value of the mine (which will decrease

during the exploitation period, due to extraction of the ore) in the payment mechanism,

which value is based on the potential tonnes of ore and implement a positive tax regime.

And implementation of a positive tax regime and a reward mechanism to stimulate

proper mining.

Issue 4

(question 9)

incentive mechanisms encouraging investment in the Area and support best

environmental operating practices

Conclusion

Q9: Do you have any suggestions for incentive mechanisms that would

encourage investment in the Area and / or support best environmental operating

practices?

A9: To encourage contractors and all other stakeholders (such as investors) to go for

and proceed with high risk deep sea exploration and exploitation (high and low grade

areas) the rules and regulations should consist of items that are adding value to the

Contractors' interests. An indication:

- transparent and clear rules & regulations

- predetermined costs

- valuation of the license

- profit mechanism

- risk management mechanism

- a bonus system with respect to the results of the mining operation (e.g. by extension

of the mining permit and reduction of interest rates)

One of the stimulation factors could be the fixation of the regulations for the term of the

license period by the ISA. A stakeholder interest survey could help to define all

stimulating factors.

Issue 5

(question 10)

The term of exploitation license and terms of renewal guarantying best operation and

environmental practices

Conclusion

Q10: For what term (in years) should an exploitation contract be granted? What

do you consider best practice in terms of renewal periods for the same contract?

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A10: ref A4&10: ISA should grant a mining license for a period comparable to a normal

mine life (20-25 years), in order to provide room for contractors to ensure a stable

development of the mine and create certainty for all stakeholders. For control reasons

and to be assured that the mine is developed for the Common Heritage of Mankind, ISA

could apply a 5 year milestone period for contractors to achieve predetermined results

and if so to grant bonuses that time, and if not to take measures with respect to

contractors.

Issue 6

(question 11)

The optimum size of exploitation areas within a contract area

Conclusion

Q11: In your view, what criteria should Contractors / the ISA consider in

connection with the optimum size of exploitation areas within a contract area?

A11: If the size of exploitation it is not large enough there may not be enough resource

at the correct average grade to sustain a mine life. An average grade should be

determined to guarantee a 20-25 business case. On the other hand the total area should

be sufficient for a 100 – 150 years in order to allow for viable and long term deep sea

mining business.

Further the criteria are very dependent of the type of deposit. An area of polymetallic

nodules with a low abundance cannot be compared with an area of the same size with

high grade polymetallic sulphides

Issue 7

(question 12)

Whether contractors may be subject to other penalty regimes beyond that of the ISA

(e.g. by sponsoring states under the terms of domestic licenses or permits)

Conclusion

Q12a. In your view, what penalty mechanisms should be adopted in the regulatory

framework and imposed specifically by the ISA? For example this could be fixed

penalties in connection with the breach of procedural obligations, including

environmental procedural obligations;

Q12b. In addition, do you have any recommendations as to the classification

(seriousness of the violation, duration etc) of violations and a range of penalty

amounts?

Q12c. Finally, your recommendations on the use of any penalty amounts collected

by the ISA? For example, should these amounts be directed toward an inspection

regime only?

A12: It's very difficult to define the penalty mechanism as the violation can have different

reasons, backgrounds and mitigation plans by contractors.

Issue 8

(question 13)

Whether contractors are required to have specialised insurance policies or products and

what kind of insurances those should be

Conclusion

Q13. The Exploration Regulations require Contractors to maintain appropriate

insurance policies that are in accordance with generally accepted maritime

practice. Do you have any recommendations as to any specific insurance

products that should be reflected in the exploitation regulatory framework?

A13: Vessels and other floating objects around should be in Class of some sort (Lloyds,

ABS, etc.). It should be assessed if there are feasible rules or if there is a need to

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develop a special set for this type of operation, consisting of:

- Class

- People's insurance (health and safety and social)

- ILO regulations

- Liability

Issue 9

(question 14)

Whether to have an environmental guarantee or bond

Conclusion

Q14 What are your recommendations for including such a guarantee or cash

contribution in the exploitation regulatory framework? Please advise on the

nature of any guarantee, the quantum of the guarantee (its calculation

methodology), its use and rationale (for example, for restorative obligations,

agreed penalty amounts) and the suggested duration before release / return.

A14: The above mentioned guarantees are very well known in the conventional mining

industry, and may contain useful concepts for exploitation of the Area. It's important to

know how such a guarantee fund needs to be filled: by a yearly payment schedule

(which might be preferable) or by a full payment in advance of exploitation. This and

other characters will affect the more high risk non-conventional mining industry. And as

emphasized in other replies of this survey, a stimulation mechanism and the

appreciation of stakeholders' interests and risk profiles are essential principles to be

covered while setting up rules and regulations for such guarantees.

Issue 10

(question 15)

Whether to establish a trust fund in the event an environmental liability gap arises

Conclusion Q15: Your comments would be welcome therefore on the setting up of a general

environmental trust fund under the exploitation regulatory regime on the basis of

the “polluter pays” principle. Please also provide your comments on how any

contribution to the fund should be calculated and suggested, specific uses of

trust monies.

A15: Not addressed by IHC Merwede

2.2 Part B: Environmental management terms and obligations

Issue 1

(question 16)

What should be the general recommendations for prevention of damage to the marine

environment

Conclusion

Q16: Please describe any general recommendations that the ISA should consider

in developing rules, regulations and procedures on the prevention of damage to

the marine environment from activities in the Area;

A16: Occurrence of damage is in general terms inevitable for seabed mining activities.

Various environmental impacts and effects are expected from the extraction of seabed

resources that can be considered as environmental damage. Adoption of various

environmental control and mitigation measures should however result in the prevention

of pollution from different sources of the mining installation and its operation.

Relevant definitions on environmental impact such as damage and maximum

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acceptable damage, should be scientifically defined within the ISA legal framework.

With this consideration, general recommendations for the control of damage and the

prevention of pollution to the marine environment are:

- It is necessary to acknowledge that the knowledge of the nature and scale of impacts

is very limited at the moment. Therefore it is necessary to develop a learning

mechanism that favours the understating of the impacts and furthermore the

development of mitigation and management alternatives.

- Governing principle for exploitation of seabed resources should be the ‘precautionary

principle’ in such a way that the ISA guarantees the protection and preservation of the

entire marine environment as recognised by the UN Law of the Sea of 1982

(UNCLOS).

- Instituting Best Environmental Practices for the exploitation of seabed resources.

- Maximum prevention of the occurrence of major accidents, limiting their

consequences and therefore increasing the protection of the marine environment.

- Establishment of minimum conditions for safe and environmentally sound exploration

and exploitation of seabed resources, taking into consideration the environmental

sensitivity of different regions.

- It is recommended to the ISA to establish broad ocean governance policies that

include consultation and coordination with states’ policies on the exploitation of

seabed resources.

- First exploitation project will have large uncertainty regarding the environmental

impacts, especially on the broader marine ecosystem. The EIA should include an

uncertainty assessment.

- Specific legislation is needed to address the major hazards following a major accident.

Issue 2

(question 17)

What general restorative or rehabilitative obligations should be incorporated

Conclusion

Q17: The Exploration Regulations do not reflect any restorative or rehabilitative

obligations in the marine environment. In your view, under an exploitation

framework, what general restorative or rehabilitative obligations should be

incorporated?

A17: This does depend on the uniqueness of the eco-system under consideration, the

restorative capabilities of the ecosystem and the significance of the eco-system on other

systems.

Issue 3

(question 18)

What procedural steps should be incorporated to evaluate Environmental Impact

Assessments (EIA) and Environmental Management Plans (EMP)

Conclusion

Q18: As part of the approval process for exploitation, Environmental

Assessments and Environmental Management Plans will be required.1 What

procedural steps should be incorporated into the regulatory framework to

evaluate Environmental Assessments and Environmental Management Plans?

What independent verification procedures should be adopted by the LTC in

reviewing Environmental Assessments and Environmental Management Plans?

1 See also Content of the Environmental Impact Statement in ISA Environmental Management Needs for Exploration and

Exploitation of Deep Sea Minerals Technical Study: No. 10 at 17.

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A18:

- It is recommended to ISA to strengthen capacity for conducting the review of the EIAs

and EMPs. Capacity could be strengthened by means of appointing an independent

technical council.

- EIA’s evaluation criteria should include the characteristics of the project (e.g. size, use

of natural resources, production of waste, risk of accidents); geographical location

(e.g. existing seabed use, the abundance, quality and recovery capacity of natural

resources and ecosystems in the area); and the characteristics of the potential impact

(e.g. extent, magnitude, probability and uncertainty).

- It is recommended that the ISA adopts a common and acceptable framework for

selecting and assessing optimal and appropriate impact indicators. The indicators

should serve the formulation of a systematic evaluation framework that 1) provides

maximum useful information about deep sea systems in a practical, time- and cost-

effective manner and 2) detects and measures change. EIA and EMP indicators will

need to be flexible to adapt to rapidly changing engineering, technological and

legislative setting.

- The EIA of a seabed mining project should include a comprehensive life cycle study of

the project in such a way that the global scale of the expected impact is also

addressed (e.g. use of energy and resources for the proposed mining installation).

Economic social and environmental benefits of the prospective project should be

assessed on a global scale perspective.

Issue 4

(question 19-20)

What kind of advance response strategies to conservation, restoration and natural

remediation of biological diversity and ecosystem functioning

Conclusion

Q19: As to any damage to the marine environment following the removal of a

substrate (e.g. polymetallic nodules) what do you consider the most appropriate

advance response strategies to conservation, restoration and natural remediation

of biological diversity and ecosystem functioning? Is remediation best achieved

by the development of Areas of Particular Environmental Interest2 and

Preservation Reference Zones3 envisaged by the Exploration Regulations?

A19:

- Development of Areas of Particular Environmental Interest within the mining

concession.

- Levels of biological diversity and environmental quality, should be conserved in the

Areas of Particular Environmental Interest.

- Identification of critical ecosystem functions to be restored as part of the evaluation of

the EMPs.

- The EMP shall include a chapter on monitoring, control and response measures for

particular environmental effects mainly caused by e.g. substrate loss, operational

plume dispersion and re-suspension as well as the tailings plume. Ecological

indicators shall be designed for the assessment of the effects (e.g effects on

ecosystem components of pelagic and benthic fauna or those localised along the

2 See ISA Environmental Management Plan for the Clarion-Clipperton Zone, ISBA/17/LTC/7, available at

http://www.isa.org.jm/en/mcode 3 Under the exploration regulations, Preservation Reference Zones are areas in which no mining is to occur to ensure

representative and stable biota of the seabed.

http://www.isa.org.jm/en/mcode

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water column).

Q20: In connection with question 19 above, what ecosystem functions are critical

to restore and / or what levels of biological diversity should be conserved at

regional levels, local scales and over what time periods?


Issue 5

(question 21-22)

What are best practices for emergency orders (emergency response)

Conclusion

Q21: The Exploration Regulations (and the Convention) envisage an emergency

response (known as “emergency orders”) where an incident has caused, is

causing or poses a threat of serious harm to the marine environment. Please

describe any recommendations you have in the light of best practices on the

measures and procedures that should be adopted in connection with an

emergency response.


Q22: A number of international and domestic legal instruments, including the

Exploration Regulations, incorporate terms such as “serious harm” or

“vulnerable marine ecosystems” in connection with the protection of the marine

environment. How do you think these terms should be better defined and

interpreted in the exploitation regulatory framework?


Issue 6

((question 23)

How to most useful promote and encourage the use of best practice (including

technology advances and scientific research) for protection of the environment during

exploitation operations

Conclusion

Q23: How can the ISA most usefully promote and encourage the use of best

practice (including technology advances and scientific research) to better protect

the environment during exploitation operations?

A23:

- The ISA could establish a special working group that includes states working on deep

sea mining to contribute their experience and lessons learned, especially on best

practice in developing national legislative frameworks. This will facilitate a global

dialogue on governance of deep sea mining.

- ISA could encourage the use of best practice by incorporating this as a

requirement/assessment criteria in the application process for the mining license.

- Other instruments, such as databases, conferences and meetings could be used to

keep record of the latest technological and scientific developments on best

environmental practices.

- ISA could adopt a technology readiness level system comparable to that implemented

in NASA or the oil and gas industry. Technology readiness could incorporate the

advance in best environmental performance and safety. Technology readiness

descriptors could also include the likeness, tested and proven level to meet specific

environmental and safety objectives.

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- In the granting of a licence the ISA should take into consideration qualitative points

and the track record of the applicant. The use of new and potentially better technology

should be encouraged Priority should be given to technology and operation methods

that integrate scientific knowledge on the execution of works and the conditions of the

local environment.

Issue 7

(question 24)

Whether to create/consider other fees or levies to promote environmental compliance

Conclusion

Q24: Are there any other fees or levies that the ISA should consider to promote

environmental compliance?


Issue 8

(question 25)

What monitoring obligations should be placed on contractors

Conclusion

Q25: For the monitoring of activities in the Area, the Exploration Regulations

provide for an inspection regime. Additionally, Sponsoring States may also

undertake monitoring of Sponsored Contractor activities in the Area through

inspection.

a. In your view what monitoring obligations should be placed on

Contractors operating in the Area and included in the exploitation

regulatory framework?

b. Please list the key measures and characteristics of what should be

considered in establishing a supervision programme to verify

compliance of Contractors with the rules, regulations and procedures,

particularly compliance with their monitoring obligations above. In

your view, how should such an ISA regime be structured and

implemented, including the frequency of inspection, by whom and how

should an inspection regime be funded?

A25: Monitoring requirements could include a comprehensive comparison of

environmental status and characteristics in the mining areas compared to those at the

Areas of Particular Environmental Interest. A systematic evaluation is recommended for

monitoring and compliance purposes.

Issue 9

(question 26)

What procedural obligations should be adopted under the precautionary approach best

environmental practices and adaptive management

Conclusion

Q26: What specific procedural obligations should be adopted under the

precautionary approach best environmental practices and adaptive management?

Are there any best practice risk management approaches (for example in an oil

and gas or fisheries context) that could usefully be adapted to deep seabed

mineral exploitation activities?


Issue 10

(question 27)

What internationally-accepted environmental management standards should be

reflected in the exploitation regulatory framework

Conclusion Q27: In considering environmental procedures above, what internationally-

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accepted environmental management standards should be reflected in the

exploitation regulatory framework?

A27: Given that offshore seabed mining operations in the Area could have adverse

environmental effects in any particular state, it is necessary to establish and apply

specific provisions in accordance with the UN/ECE Convention on Environmental Impact

Assessment in a Transboundary Context.

2.3 Part C: Health, safety and maritime security

Issue 1

(question 28)

What general and specific duties and obligations should be placed on contractors

Conclusion

Q28. In considering health, safety, labour and maritime security, can you suggest

the general and / or specific duties and obligations that should be placed on

Contractors under the exploitation regulations? Please also consider any further

specific obligations toward other users of the marine environment.

A28: In the rules and regulations of the ISA it should be included that IMO, SOLAS and

MARPOL regulations apply. The vessel and installations used should have a Class

designation (ABS, DNV, Lloyds, etc.) and stay in Class. That way the overall ships

safety is secured.

Other considerations for the ISA are:

- Safety zone

- Emergency planning Risk Assessment Training Responsibility and liability

- Conflict with other marine activities, e.g. fisheries, shipping lanes, other minerals, oil

and gas, environment tourism

- Decommissioning of mining operation

ISA should also look at other regulations from international organisations for health and

safety including:

- IFC regulations

- ILO regulations

2.4 Part D: General considerations (stakeholder communication and transparency)

Issue 1

(question 29-30)

How the ISA can best develop a communications and consultation strategy that secures

transparency, efficiency and providing for the needs of a broad stakeholder base

Conclusion

Q29. How can the ISA best develop a communications and consultation strategy

which both secures transparency, efficiency and provides for the needs of a

broad stakeholder base? It would be helpful to include specific examples of

successful communication and consultation approaches.

Q30. What forms of engagement best enable you to make contributions and

receive appropriate feedback? Please provide comments on any specific

initiatives, including digital initiatives, that would be productive together with any

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observations on the structure and content of the current ISA website

(www.isa.org.jm).

A29&30: We propose a communication structure revolving around workgroup meetings,

backed up by good information sharing. The workgroups allow for efficient

communication with feedback and the sharing of information for transparency. Both

would be the needs of a broad stakeholder base (i.e. direct contact on in depth

stakeholder specific topics and transparent knowledge sharing on other subjects).

These workgroups should have a good mix of stakeholders. The ISA should therefore

create room and stimulate a diversity of stakeholders (including developing countries)

and create a fair and equitable chance for them to share their interests. The direct

contact between stakeholders allows for the easy transferal of ideas between different

stakeholders and allows for consensus building among all stakeholders.

Conference calls (via services like Vitero.eu) can easily be set up, however virtual

conferences will only work when the topics are well defined and when there is a clear

structure. Sharing information is also vital, but discussing this information is better.

Otherwise, parties will only take stance on the shared information.

Issue 2

(question 31-32)

What transparency guidelines and initiatives should be implemented

Conclusion

Q31. What information on activities in the Area do you consider most important to

make available publicly? How should this information be shared?

Q32. What aspects of the EITI do you think should be reflected in the exploitation

regulatory framework?

A31&32: Information that is important to make available publicly is information about the

license area, reserved area, marine protected area, the tonnes of minerals mined,

royalties paid to the ISA and royalties received by the ISA. Environmental plans and

reports should be made publicly available in order to allow for sharing of best practices

and lessons-learned. Furthermore, information gathered during exploration about the

environmental conditions such as currents, temperatures, waves, etc should also be

made public. This information can be shared via the ISA-website. Also the transparency

initiative of the EITI can be included in ISA regulations.

http://www.isa.org.jm/

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3 IHC Merwede general comments, remarks and considerations

In the text above IHC Merwede replies to the ISA survey. We do however feel that some issues are not

addressed by this survey. IHC Merwede believes that the following issues should be considered by the ISA in

preparation of the regulatory framework.

1. First of all, the ISA survey focusses on regulation, but regulation is not the only way to shape the deep

sea mining future landscape. A focus on where opportunities lie for stakeholders, could assist in

guiding the future of deep sea mining.

2. Secondly, ISA should focus more on the available technology:

a. address where technology should still be developed for deep sea mining.

b. to support the advancement in deep sea mining technology, it is vital to test equipment. The

next step from exploration towards exploitation should be the possibility to have a pilot mining

operation running in the Area.

3. Thirdly, we like to address that issues can arise from the fact that the Contractor’s fleet could

potentially sail under a different flag than the flag of its Sponsoring State. Therefore, we suggest that

all deep sea mining vessels should be in Class and stay in Class while working in the Area.

4. Fourthly, the role of insurance with respect to classification of mining equipment is not

mentioned/underestimated. There may also be other entities that indirectly play an important role. It is

suggested ISA takes note of this issue and defines a categorized list of all other relevant stakeholder.

5. Fifthly, the interest of the stakeholders responding to this survey is probably very different. Publication

of the results of this survey without care can expose these different views and can lead to fierce

reactions and stakeholders taking stance against each other: a situation that is not beneficial for all

stakeholders. The survey is intended for gathering the thoughts of the different stakeholders and

coming up with the best possible regulatory framework. Therefore, the results of this survey should be

used for consensus building and should be published in a way that supports this process.

6. Sixthly, the survey does not address what the specific interests of the stakeholders are. The

regulations should reflect the interests of the different stakeholders. It is suggested that ISA should

perform an assessment of the stakeholders interests for deep sea mining in the Area.

7. Seventhly, the role and interest of the developing countries are evident, however it's not clear how the

results of the exploitation will be related with the development of these countries.

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4 Express consent for publication

With much interest IHC Merwede has prepared its submission to this survey. The analysis of all stakeholders'

replies will not be simple process, but we are convinced that the submissions will help the ISA forward in

developing a framework.

IHC Merwede is pleased to give express consent to ISA for publication of its submission. Meaning the full right

to publish trade name and details of the submission. ISA is granted a user's right to use the details of our

submission for the definition of general conclusions.

IHC Merwede is looking forward to the final results of the survey and would like to be informed about these

results.

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5 Interest in future contact by the ISA

IHC Merwede is interested and willing to support ISA with further assistance on mining issues. Especially in

supporting ISA with knowledge and experience concerning the feasibility and operational parameters of deep

sea mining operations as well as technology development and assessment of the mining equipment. In case

ISA considers to set up targeted or working groups, IHC Merwede is willing to become a member of such

groups.

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6 IHC Merwede contact details

This survey has been prepared by consultation of several specialist within IHC Merwede. In case of any

questions our point of contact is:

M. Schouten

Managing Director - IHC Mining

T +31 78 692 17 45

M +31 6 51 57 23 93

[email protected]

P.O. Box 9, 2960 AA Kinderdijk

Smitweg 6, 2961 AW Kinderdijk

The Netherlands

T +31 78 691 03 22

F +31 78 691 03 31

www.ihcmerwede.com

Documents

IHC Merwede submission to ISA survey