By Sonali Paul and Gyles Beckford

MELBOURNE/WELLINGTON (Reuters) - New Zealand decides this week whether to approve an underwater iron-ore operation that would likely become the world's first commercial metals mine at the bottom of the sea.

A green light to allow New Zealand's Trans Tasman Resources Ltd to start iron-ore dredging off the country's west coast will encourage others looking to mine copper, cobalt, manganese and other metals deeper on the ocean floor but worried about regulatory hurdles.

Along the Pacific Rim of Fire, as deep as 6,000 metres underwater, volcano crusts, "black smoker" chimneys and vast beds of manganese nodules hold promise for economic powers like China and Japan as well as many poor island states busy pegging stakes on the ocean floor.

"A lot of people are watching the Trans Tasman Resources outcome," said Michael Johnston, chief executive of Nautilus Minerals, which is working on a deep-sea project off Papua New Guinea and is also in talks with New Zealand.

Other countries in the Pacific looking at underwater mining include Fiji, Solomon Islands, Tonga and Vanuatu, which have all issued exploration licenses. Cook Islands in the South Pacific plans to put seabed exploration licenses up for bids later this year.

In the 750,000 sq km (290,000 square miles) of territorial waters around the Cook Islands are mineral nodules the size of potatoes to lettuce heads and rich in manganese and cobalt, a resource Imperial College marine geoscientist David Cronan estimates at 10 billion tonnes.

"If only 10 percent of that resource can be recovered it will be one of the largest mineral deposits ever discovered. It is a world class mineral deposit," says the Cook Islands National Seabed Minerals Policy, approved on June 10.

The push to explore the ocean is gaining momentum as ore grades on land decline and demand grows for metals in high-tech applications, and is more feasible now with the help of technology developed for the deepwater oil and gas industry.

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Still, there are technological hurdles and fears among scientists and environmentalists that mining could destroy fragile fisheries and exotic creatures at the bottom of the ocean.

"Deep sea mining is coming faster than the scientific community can monitor it," said Carlos Duarte, director of the University of Western Australia's Oceans Institute.

WAITING IN THE WINGS

Trans Tasman Resources, which hopes to start mining in 2016, already has a mining licence but needs a marine consent from New Zealand's Environmental Protection Agency (EPA).

The is the EPA's first test of regulating mining in the country's territorial waters. Its next is an application from Chatham Rock Phosphate Ltd, seeking to mine phosphate several hundred kilometres off the east coast of the South Island.

Others waiting in the wings include Neptune Minerals, with deep sea tenements covering 175,000 sq km off several South Pacific countries, including New Zealand.

While the world's biggest miners have no deep sea mining tenements, Anglo American PLC is keeping an eye on underwater prospects with a 5.95 percent stake in Nautilus.

The biggest backers for Nautilus are Omani oilfield services billionaire Mohammed Al Barwani and Russia's richest tycoon Alisher Usmanov's Metalloinvest Holding Ltd [MTALIM.UL], who together own 40 percent.

The Canadian company aims to dig up a seafloor massive sulphide deposit, Solwara 1, about 1,600 metres underwater off Papua New Guinea, starting from 2017.

Massive sulphide deposits form around deep sea vents that spurt super hot, acidic water with metals dissolved from the earth's crust. The metals drop out when the "black smokers" hit the cooler sea water and form rocky chimneys.

Nautilus plans to use three huge robots, one of which has already been built at a British factory and weighs in at 310 tonnes. These cut into the seafloor with 4-metre wide claws, break the rocks and collect them in a slurry that will be piped 1.6 km to a support vessel.

The remaining water and rock will be sent back down another pipe nearly all the way back to the ocean floor, which CEO Johnston said meant there would be no plumes of sediment travelling long distances, limiting the impact on sea life.

ENVIRONMENTAL IMPACT

It's the potential impact on sea life that could prove a major hurdle in getting projects approved.

For the Trans Tasman project a crawler machine, likened to a giant vacuum, will cut 11 metres into the seabed. Material will be pumped up to a processing plant on a ship, where iron ore will be separated using magnets.

Trans Tasman says its project is very different and less destructive than deep sea mining as it will be operating in depths up to just 100 metres in an area already buffeted by storms and ocean currents.

"Our view, supported by our science experts, is that between five and 10 years you will get almost full recovery of the area that's been mined ... because the organisms and environment are already quite adapted and recover quickly," Chief Executive Tim Crossley told Reuters.

Conservationists and the fishing industry say the EPA should reject Trans Tasman's application.

"There's not enough understanding of the marine environment, what occurs out there physiologically and ecologically, to engage in this activity. We want a moratorium until we understand things better," said Kiwis Against Seabed Mining chairman Phil McCabe.

He says sediment put back in the ocean by Trans Tasman could be carried far and wide by currents in an area through which whales and dolphins migrate and where fish spawn.

Cook Islands is following the advice of the European Union-backed Pacific Deep Sea Minerals project, taking a go-slow approach to set up regulations and monitoring to ensure its pristine waters are protected.

South Korea, which has been spending around $5 million a year on deep sea minerals research, is also taking a precautionary approach, aiming to decide in 2016 whether to seek a mining license from the International Seabed Authority after its exploration licenses expire.

The biggest hurdles to deep sea mining would be tackling the steep rolling seabeds and coming up with technology that limits the impact on the delicate sea floor environment, said Sang-Bum Chi, seabed resources project manager at the Korea Institute of Ocean Science & Technology.

China and Japan, too, are exploring the Clarion Clipperton Zone in the Pacific Ocean, as well as the Western Pacific and the Indian Ocean.

"There is a big technology gap that would need to be bridged before actual commercial harvesting of nodules could take place," said Paul Lynch, Seabed Minerals Commissioner in the Cook Islands.

($1 = 1.1562 New Zealand Dollars)

(Additional reporting by Meeyoung Co in SEOUL; Editing by Michael Urquhart)