Canadian mining company Nautilus Minerals will accelerate its range of seabed mining projects across the Pacific, after finally signing a US$120 million (K336 million) agreement with the Papua New Guinea government to develop its Solwara 1 mining project in the Bismarck Sea.

The subsea mining machine being assembled in the UK for Nautilus. Credit: Reuters

The PNG Government has paid Nautilus a non-refundable deposit of US$7 million (K19.6 million) for an initial 15% (US$120 million) interest in the project, and can increase its share to 30% in the next 12 months.

The shareholding is held through state entity Petromin PNG Holdings Limited, with the remaining US$113 million (K316 million) due to be paid by 31 July 2014. Mining Minister Byron Chan says the government would have bought a bigger shareholding if it already had some of the income from the PNG LNG project.

Pioneering financial transaction

The Bank of South Pacific is providing the government’s investment, believed to be the first time the PNG-domiciled bank has fully-funded a PNG Government venture of this magnitude.
Colm Lynch, Senior Manager Corporate Banking, says BSP is looking to back further investments in infrastructure, mining and other ventures in PNG and Fiji by the government and other offshore investors.

BSP CEO Robin Fleming (right) sealing the transaction to fund the State’s equity in Solwara 1. Looking on are (from left) Petromin CEO Arun Basu, and Petromin Non-Executive Director Jerry Wemin.

‘We see BSP as a viable local alternative to our competitors which, given our in-country infrastructure, would mean we are a natural partner to work with offshore banks and institutions,’ he told Business Advantage PNG.

‘We did a comprehensive due diligence on the environmental impact and we are comfortable with the work that Nautilus has done,’ he added.

‘It was one of the most important parts of the transaction—ensuring that the environmental approach was correct.’

Everyone ‘happy’

Nautilus’ CEO Mike Johnston

The agreement follows talks after an independent arbitrator ruled in favour of Nautilus, which accused the government of reneging on its share of financing for the project, while the government had accused Nautilus of not fulfilling some of its obligations. The final agreed amount to be paid by the PNG State is US$2 million more than the arbitrator ordered be paid last year.

Nautilus’ CEO, Mike Johnston, has told a briefing in Toronto that everyone is happy with the agreement, which ‘represents a major vote of confidence in Nautilus Minerals and the Solwara 1 Project’. He said the company has ‘strong support’ from the PNG national and provincial governments.

Johnston said the agreement covers only the Solwara 1 project, and any other exploration projects in PNG would require separate mining licences and agreements.

Copper and gold

The controversial project aims to extract ores of copper, gold and other valuable metals from a depth of 1,500m, in the Bismark Sea, which lies in southwestern Pacific Ocean to the north of Papua New Guinea. Nautilus says it intends to produce 80,000 to 100,000 tonnes of copper and 100,000 to 200,000 ounces of gold.

Minerals will be excavated by a fleet of robotic machines steered from a ship at the surface.

Johnston says he hopes to have a suitable vessel ready by the end of 2014, with production to begin within two-to-three years.

Seafloor mining to go Pacific-wide?

The progress of the Solwara 1 seafloor mining project, which will deploy technology previously only used in the oil and gas extraction industry, is being eagerly watched across the Pacific.

While land is in short supply and normally under customary ownership, which makes land mining problematic, the Pacific’s island nations are surrounded by massive Exclusive Economic Zones of ocean. If a method of extracting minerals from the seabed in those zones can be proven, and those nations can develop appropriate regulatory environments for such mining, it will establish a potentially lucrative new source of income.

Nautilus Minerals CEO Mike Johnston says since the PNG deal there has been increased interest by Pacific governments in its proposals, and the company is in discussions with possible joint venture partners from the metals and mining industries.

Nautilus holds a total of more than 500,000 square kilometres of exploration territory, or tenement applications, in Papua New Guinea, Tonga, Fiji, Vanuatu, the Solomon Islands, New Zealand and the Central Pacific.

Nautilus Minerals 100%-owned subsidiary, Tonga Offshore Mining Limited, reported in 2012 it had found ‘significant grades of manganese, nickel, copper and cobalt’ in the Central Pacific.