Ongoing uncertainty in the resources sector has led Nautilus Minerals to seek refinancing to secure the delivery of its Solwara 1 mining project, located in Papua New Guinea’s Bismarck Sea. President and CEO Michael Johnston tells Business Advantage PNG there will be a delay in the delivery of the project.

Nautilus’ seafloor production tools. Source: Nautilus Minerals

Nautilus Minerals pulled up short on a rights issue in the first quarter of 2016, which hindered the company’s capacity to commit to one of its key contracts. In August, the company announced it had signed a subscription agreement to sell US$20 million in shares to Marawid Offshore Mining and Metalloinvest Holding.

Refinancing of the project is still required to move forward but, despite challenging market conditions. Johnston tells Business Advantage PNG that the company remains confident that it will deliver on Solwara 1.

‘With the main pieces of the kit already built, it is unlikely that they would be left to rust.’

‘We have to restructure the timeline and delivery, and what that means is there will be a small delay; exactly how long we are still working out.’

Fluid

With several moving parts, Nautilus Minerals has been working with its providers and stakeholders to define the plan.

Nautilus Mineral’s Mike Johnston

‘It will be a little fluid and it always is with a project like this. For a small company, capital markets tend to keep you on a short lead,’ Johnston explains.

While there is uncertainty surrounding the project, Johnston says with the main pieces of the kit already built, it is unlikely that they would be left to rust.

‘There remains a lot of interest. With the three bits of kit built, it’s going to happen.’

Earlier this year, Nautilus Minerals completed construction of its seafloor production tools, which are now ready for wet testing.

In March, the mining tools were delivered to Duqm Port, Oman.

Designed and assembled by Soil Machine Dynamics in Newcastle-upon-Tyne, the seafloor production tools are the project’s main pieces of equipment. They will be used to cut and extract high-grade copper and gold from the seafloor.

‘With the equipment that sits beneath the vessel ready, the next step is getting it on to the vessel.’

Last October, Nautilus Minerals confirmed the project’s pump and riser system, another key element, had been completed and factory acceptance testing finalised.

With the equipment that sits beneath the vessel ready, the next step is getting it on to the vessel and integrating the equipment, which Johnston explains is relatively complex.

Integration

To keep the project moving forward, Nautilus Minerals has been evaluating a range of refinancing options.

Water and sanitation opening at Kurumut. Source: Nautilus Minerals

Getting the mix right regarding refinancing of the project is critical, Johnston says.

‘There is a range of options. We have been talking to groups, we’ve had people approach us around debt financing, and we’ve had major shareholders offering additional finance.’

A final decision has yet to be made around the refinancing of the project, and Johnston says with a lot of stakeholders involved, it’s important to get it right.

‘You must make sure you don’t take the project down a certain path, which may not be necessarily good for all stakeholders.’

Nautilus Minerals has been tracking just below budget for Solwara 1.

Talks

Although there is uncertainty around delivery and budget, Johnston remains confident that with project costs coming down, there will be a positive flow-on effect for delivery of Solwara 1.

‘They want to see it managed well, delivered well, and like all public companies they don’t want to see dilution.’

‘Costs have been coming down. We are out of the boom and it’s not a bad place to be in some respects,’ Johnston says.

Feedback from shareholders has been largely supportive, according to Johnston, who plans to meet with more shareholders over the coming months.

‘They want to see it managed well, delivered well, and like all public companies they don’t want to see dilution.’

Dilution

Mindful that dilution results in value destruction, Johnston says the company moved forward with a rights issue in an attempt to keep the value within its existing shareholders.

‘We pulled up short because our existing shareholder base had a lot of other pressures going on in the world of mining, oil and gas, which is understandable.’

Expenditure cuts have been implemented in response to scarce availability of finance.

Uncertainty in the project hasn’t scared off shareholders, with the company’s share price currently trading at the same level when it made the rights issue.

‘If people didn’t support the plan, they would vote with their feet,’ Johnston adds.

Expenditure cuts have been implemented in response to scarce availability of finance.

Discretionary activity such as exploration has been pulled back, as well as moving away from using contractors in a bid to reduce costs.

It is unlikely production will commence in early 2018, as the company seeks to restructure and finalise an updated timeframe, but Johnston remains confident Solwara 1 will commence production after a short delay.