Almost two years ago, Toronto-based Nautilus Minerals (TSX:NUS,LSE:NUS,OTCQX:NUSMF) advised investors that development of its Solwara 1 seafloor copper-gold-silver project could be delayed or even halted entirely due to a dispute with Papua New Guinea (PNG).
Essentially, states a June 2012 press release, the country exercised its option to acquire a 30-percent interest in Solwara 1, but said that Nautilus had “not met certain obligations on which completion [was] dependent.” In turn, Nautilus initiated the dispute resolution process provided for in the original agreement.
Last week, the two parties finally resolved their differences, reaching an agreement that will allow Solwara 1 to “move forward toward production with the full support of the State.” Under the agreement, PNG has paid Nautilus a non-refundable deposit of US$7 million for an initial 15-percent stake in Solwara 1; it has the option to increase that interest to 30 percent within 12 months of the agreement becoming unconditional.
The agreement is conditional upon PNG securing an additional $113 million — its share of the capital required to bring the project through to first production — by July 31, 2014. The funds will be placed in escrow and released to Nautilus, as well as an unincorporated joint venture between the company and PNG, “if within 6 months of the funds being placed in escrow Nautilus secures the charter of a Production Support Vessel and secures for the State certain intellectual property rights,” as per a statement from Nautilus.
Mike Johnston, Nautilus’ CEO, is understandably pleased with the development. BBC News quotes him as saying, “[i]t’s taken a taken a long time but everybody is very happy. There’s always been a lot of support for this project and it’s very appealing that it will generate a significant amount of revenue in a region that wouldn’t ordinarily expect that to happen.”
The company’s next steps will be to secure a “suitable vessel arrangement … while also undertaking a tender process with shipyards experienced in building offshore construction vessels,” Johnston also said. A vessel solution should be in place by the end of the year.
As Nautilus asserts on its website, it is the first company to explore for polymetallic seafloor massive sulfide deposits; it was also granted the first mining lease for such deposits at Solwara 1. While of course the company is notable for leading the pack, that lack of precedent raises the question of how exactly mining will take place.
In answer to that question, BBC News explains that Solwara 1 will be “excavated by a fleet of robotic machines steered from a ship at the surface.” That may sound futuristic, but the largest machine, a Bulk Cutter that weighs 310 tonnes, has already been built by UK-based Soil Machine Dynamics. Its purpose is to cut up the sea floor so that ore can be “pumped up as a slurry” by another machine that has not yet been built, Reuters states in a recent article.
All in all, Reuters notes, Nautilus intends to produce 80,000 to 100,000 tonnes of copper and 100,000 to 200,000 ounces of gold. That’s about as much as a “modest onshore mine” would produce.”
Why go underwater?
Given that result, many — particularly environmentalists — wonder why Nautilus is bothering to go underwater at all. BBC News, for instance, quotes Richard Page, oceans campaigner for Greenpeace, as saying, “[t]he emerging threat of seabed mining is an urgent wake-up call for the need to protect the oceans. The deep ocean is not yet mapped or explored and so the potential loss of fauna and biospheres from mining is not yet understood.”
Reuters, however, raises a couple of good counterpoints: “easy-to-reach minerals onshore” are being depleted and offshore mining can bring metals that are “fifteen times the quality of land deposits.” More importantly, the United Nations’ International Seabed Authority is unconcerned about the process; Nii Odunton, the organization’s secretary general, told Reuters, “I believe the grades look good, the abundance looks good, I believe that money will be made.”
No word yet on when Nautilus will finally achieve production, but it’s clear that when it does, it will be ushering in a new era of mining.
At close of day on Friday, shares of Nautilus were selling for $0.48 each, up 104 percent from where they were prior to last week’s announcement.
Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.
Get Our Expert Guide to Copper Investing FREE!Download this FREE Special Report, From LME Copper to Copper ETFs: Understanding Today’s Copper Price for Investing in Copper.