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TABLE OF CONTENTS Jan 21 - 27, 2013 Volume 98 Number 49 - 0 comments

Nautilus' Solwara 1 deep-sea project in limbo

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By: Adrian Pocobelli
2013-01-16

After last year’s funding dispute with the government of Papua New Guinea (PNG), Nautilus Minerals (NUS-T) is continuing to suspend development of its erstwhile flagship Solwara 1 deep-sea mining project. 

The company had been developing a high-grade, copper-gold deposit at 1,600 metres depth in the Bismarck Sea, within the territorial waters of PNG. The sea floor massive sulphide (SMS) deposit has an indicated resource of 1.3 million tonnes grading 7.2% copper, and an inferred resource of 1.5 million tonnes at 8.1% copper.

Production had been scheduled for late 2013, but in June 2012, Nautilus announced that the government had not met its contractual agreement to cover 30% of development costs, a figure that had reached US$23.5 million in January 2011. The PNG government countered that Nautilus had failed to meet its obligations under the agreement, meaning it could cancel the contract.

Few specifics of Nautilus’ alleged shortcomings were made public, apart from the company saying that the dispute concerned an equity-options agreement. An email sent to PNG’s Mineral Resources Authority seeking comment was not answered.

Nautilus continued developing Solwara 1, despite the government’s stance that the joint-venture partnership had been nullified, and later claimed a further US$51.5 million for costs that were incurred up to September 2012, resulting in an estimated US$75 million in unpaid liabilities. Although the company sought to negotiate a settlement, the PNG government opted for arbitration, and appointed former Australian Chief Justice Murray Gleeson to oversee the dispute.

On Nov. 13 Nautilus changed course, announcing in a conference call that it had stopped building new equipment for Solwara and laid off 60 staff to preserve capital.

In a telephone interview, interim president and chief executive Mike Johnston said that Nautilus still hopes for a positive outcome. “We are committed to Papua New Guinea and the Solwara 1 project, and we’re confident that this dispute will be resolved. But having said that, we have a number of options around the world that we can look at.”

The company says the project is more than halfway finished, with pumps, subsea connectors and a half-built riser and hoister. Johnston estimates offshore development would cost $450 million, and notes that the equipment, which is wholly owned by the company, is portable, meaning the company can recoup some of its losses if Solwara 1 remains in limbo.

Following news of the postponement, Nautilus’ share price dropped from 72¢ to 35¢ and bottomed at 27¢ on Dec. 7. On Jan. 7, the stock bounced back to 58¢ in response to a threatened, semi-serious 97¢ per share bid by disgruntled shareholder Michael Bailey. Major shareholders include Metalloinvest Holding, Anglo American (AAL-L), MB Holding and Teck Resources (TCK-T, TCK-N).

Nautilus has $90 million in cash with further assets in Tonga, where it plans to mine polymetallic nodules the size of golf balls — rich in copper, nickel, manganese and cobalt — that lie at depths below 4,500 metres. The company is also continuing an exploration program with funding from the Tongan government.

Nevertheless, the disappointment of Solwara 1 is a setback for deep-sea mining, with industry observers taking note of the project’s economic viability.

Solwara 1 faces opposition from environmentalists, who believe deep-sea mining could pollute surrounding waters, poison food supplies and harm the ecosystem. A report by Helen Rosenbaum for the Deep Sea Mining campaign states that “Foremost in people’s minds is the fear that PNG is being used as a laboratory for the experiment of seabed mining, and that insufficient research has been conducted on deep-sea ecosystems and the impacts of seabed mining on marine species and coastal communities.”

The Solwara 1 project is 30 km from the coast of PNG, while the proposed extraction area stretches 110 metres. The PNG government granted the company an environmental permit in December 2009 and a mining lease in January 2011.

Nautilus has responded to concerns about the environmental impact, but opposition is growing from activists, who appear to have been encouraged by local politicians.

Johnston is still optimistic about the company’s prospects and the emerging industry. “We firmly believe in deep-sea mining,” he says. “There are an enormous number of resources on the sea floor. Seventy percent of the planet is covered in water. Reports conducted by the International Seabed Authority (ISA) put the tonnage of metal in the ocean on par with all the known reserves on land.”

ISA is an international organization that was established by the United Nations in 1982 to manage rights to mineral resources on the ocean floor, establishing contracts with governments and private enterprises to explore the ocean seabed. On Oct. 31, Russia signed a 15-year contract with ISA to search for polymetallic sulphides in the Atlantic Ocean, while on Aug. 31, companies from China and Japan applied for similar exploration permits in the western Pacific Ocean.

Johnston believes Canada could do more to encourage deep-sea mining at home. “We consider ourselves the leader,” he says. “We’re a little disappointed by the Canadian government and their [hesitance] to support companies like us. Canada is the leading light of the industry, and it needs to take some of that leadership offshore.”



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Photos

An exploration vessel at Nautilus Minerals' Solwara 1 underwater project in 2010. Source: Nautilus Minerals
An exploration vessel at Nautilus Minerals' Solwara 1 u...

Properties in This Story

Solwara 1 Project



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