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What's the Story with Nautilus Minerals (TSX: NUS)?

There's Gold in Them Thar Waters

Written by Geoffrey Pike
Posted December 30, 2015

nmGold enthusiasts may be familiar with the phrase, “There’s gold in them thar hills.” The origins of the saying are not clear, but it likely goes back to the gold rush of the mid 19th century.

There is a Toronto-based company called Nautilus Minerals that wants to change that phrase to, “There’s gold in them thar waters.” The mining company wants to use modern technology to search for gold on the ocean floor.

The company reports that it will use mining robots with varying characteristics in an attempt to mine for gold, silver, and copper deposits in the Bismarck Sea, located near Papua New Guinea, just to the north of Australia.

In order to more easily deploy the sea robots and collect the ore deposits, Nautilus is building a ship that is scheduled to be deployed in 2018.

Like any mining company that is operating overseas – or in this case, in the seas – there are some political hurdles to jump. For example, the company is attempting to gain access to an area with shallow waters in order to test its robots and the process involved.

Like so many small mining companies, we really don’t know what to expect out of Nautilus Minerals. These are extremely risky ventures, where failure is the norm. And when a mining company does strike gold, there are still a lot of variables to deal with, including the mining costs, the price of the metals being mined, and the political risks.

Still, this will be an interesting experiment. And if all goes well for Nautilus, it will likely mean big profits. It may also have ramifications for the gold mining industry and gold in general, but that is harder to say.

If Nautilus is successful in extracting significant amounts of gold (and other) deposits from the sea floor, we won’t know if this is a one-time success or a new trend.

Gold Supplies and Investment Implications

I often write about gold as an investment and also gold’s history as a form of money for thousands of years.

Politically, I believe our society would be better off with money that is backed by gold. Gold has certain characteristics that make it appropriate and useful as a form of money. This is why people used it for thousands of years before our modern-day fiat currencies came along.

Because gold is limited in its supply, and because people must work and expend resources to obtain gold from the ground (or water), it makes it a good form of money. The supply can and will certainly increase, but the increases are severely limited, thus allowing gold to hold its value.

Critics of the gold standard will say that the money supply needs to increase at a rate at least in line with production increases. But why is this true? There is this unwarranted fear of deflationary prices. If prices are falling due to increases in production, this means a higher standard of living. Deflation caused by central banks is a whole other story.

In the 1800s, even during the gold rush, prices gradually declined. This represented an increase in living standards, as production increased at a greater rate than did the money being used.

On the other hand, I have actually heard critics against the gold standard use the opposite argument and say that we would be vulnerable to massive inflation if there were all of a sudden new huge gold supplies discovered. If gold is discovered on the ocean floor, we can be sure we will hear this critique once again.

And it is true that we never know what technology will bring. Maybe robots will make mining easier and cheaper and gold supplies will start to increase significantly.

To be clear though, we shouldn’t have a government-imposed gold standard, although that would still be preferable to our current system. The free market should decide what form or forms of money we use. It is just that the market would likely choose gold as a main form of money. If gold supplies suddenly started spiking dramatically, then the market could choose to switch to another form of money.

In all likelihood, the marketplace would likely use gold for digital transactions and for larger purchases. Silver could be used for smaller purchases. But again, it would be determined by the free market and voluntary individuals.

Still, for some gold standard critics to worry about inflation of the gold supply is like someone in the Arctic worrying about getting too hot. If you are worried about inflation, I like my chances a lot better with gold than with the Federal Reserve.

We will wait and see if Nautilus Minerals finds riches with this technology to search the ocean floor for gold and other metals.

It is a publicly traded company. It is a penny stock and it is a mining company, so you can’t get much riskier than that. Still, if you want a gamble, the rewards could be huge if the company finds what it is looking for in the deep waters of the Pacific Ocean.

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