C. Estimated Capital Requirements 



-Equipment. The dredge chosen for this work is a continuous high speed bucket line dredge of 54 cubic 

 feet bucket capacity digging to a depth of 150 feet. The dredge is self-propelled and mounted on a 

 sea-going hull. A diesel electric generating plant provides motive and dredging power. Crew consists of 6 

 officers and 31 men to maintain 24-hour operations. No firm bids have been sought for such a vessel but 

 an authoritative estimate of cost is $32 million, the sea-going requirement elevating cost somewhat 

 beyond that of comparable dredges for inland waters. In open waters, it is also necessary to provide a 

 substantial support vessel for shore liaison, laying anchors, and mining control. The craft envisaged is a 

 70-foot diesel powered vessel adaptable for haulage, survey, and drilling, costing $250,000. 



—Property acquisition costs. Assuming that target location had been previously carried out, a minimum 

 of 5,000 acres would be acquired. An arbitrary purchase cost of $10 per acre is applied, though this may 

 be low. 



—Expenditures for initial exploration and development. Geophysical survey of the eight square mile area 

 is assumed carried out at a cost of $1,000 per square mile. This includes shipborne topographic, 

 subbottom, and magnetometric profiling and interpretation, on a maximum half mile grid spacing. This 

 projection allows 50,000 feet of drilling at $20 per foot; again, this figure may be low. 



The Office of Mineral Exploration could assume 50 per cent of exploration costs for gold at a charge 

 of 5 per cent royalties on production. However, this option benefits principally smaller operations than 

 assumed here and it is not part of the hypothesis. 



—Inventories and receivables. An amount equaUing approximately 3 per cent of major equipment cost is 

 a conservative estimate for spare parts inventories, suppHes held on the dredges and similar items. 



-Working cash balance. A cash balance must be maintained, particularly in an outlying station for 

 emergency requirements and advances in pay. 



-Pre-operating expenses. A number of expenses will be incurred prior to production, in such areas as 

 organization of survey stations, shore stations, and transport of dredge to the site. 



—Start up costs and initial operating losses. It is unlikely that any appreciable production wUl be realized 

 in the early days of the operation; a non-productive period of at least one month should be expected. An 

 arbitrary figure of 25 per cent of the estimated annual operating costs is allowed to cover all items in 5, 

 6, and 7. 



Economic Analysis Tables 1, 2, and 3 which follow tabulate the Capital Requirements, Operating 

 Costs, and ProfitabiUty computed for both Norton Sound and a sheltered coastline where weather is not 

 a major deterrent to operations. Increasing the working time reduces the operating cost considerably, 

 and costs per cubic yard of 22.9 cents are shovm for a 185-day operation, compared wdth 16.5 cents for 

 a 362-day operation. 



Estimation of the annual return on initial investment (ROII) is shown for the two operations. ROII 

 for Norton Sound is 5.4 per cent; the return for the sheltered coast operation is 1 1.7 per cent. Although 

 both operations would pay off within the 20-year life of the dredge, neither of them would be 

 considered an attractive investment commensurate with the high risk involved. Higher values of ore 

 would greatly improve the attractiveness of the operation. 



II. Hypothetical Deep Sea Manganese Operation 



It appears likely that capabihty to exploit manganese nodules from the ocean floor at depths of about 

 15,000 feet is also 10 to 15 years away. Not only are there distinct technical problems in materials 

 handling and mining control at such depths, but it is not yet possible to profitably extract the contained 



VII-179 



