Analysis of the effect of payment mechanism on exploitation of polymetallic nodules in the area

Abstract

The international seabed area (i.e., the “Area”) is rich in mineral resources. According to the United Nations Convention on the Law of the Sea (UNCLOS) and the relevant implemented agreements, in 2012, the International Seabed Authority (ISA) began to develop the regulations for the exploitation of mineral resources in the Area. The most important part of the regulations involves determining the distribution of benefits from the exploitation of mineral resources in the Area between the ISA and the contractors. The establishment of a financial model to evaluate the economic benefits and compare the distribution scheme was the basic method relied on in the cur-rent study of payment mechanism. According to the characteristics of the exploitation project of mineral resources in the Area, the discounted cash flow method was selected to construct the financial model. Taking China’s deep-sea mineral resources development project in the Area as the back-ground, the main parameters of the model were determined. A comparative study of similar financial models with Massachusetts Institute of Technology (MIT) and other foreign countries was car-ried out, in addition to a sensitivity analysis of parameters. On the basis of the assurance that the contractor’s internal rate of return was not lower than the level of the land mining enterprise, the financial model was used to calculate the internal rate of return and the revenue of royalty under different payment mechanisms and rates. The advantages and disadvantages of different payment mechanisms in the exploitation of mineral resources in the area were analyzed. Lastly, the possible impacts of deep-sea polymetallic nodule mining on Terrestrial metal markets were highlighted.