Sufficient Capital Until Production?

[maui4marko]

In Vessel cargo handling equipment contract awarded scampoco asked about this statement in the Nautilus press release: 

The vessel will first serve as the operational base to extract and transport high grade copper and gold material from the Project site, in the Bismarck Sea of Papua New Guinea, after funding is obtained for completion of the development of the Project. 

 

This was recently discussed on the yahoo board, see this link for the original discussion started Sufficient Capital Until Production? 

laxmidi99 • Feb 27, 2015 10:25 AM  

Sufficient Capital Until Production? 

Does NUSMF have enough cash to last until ore production begins? Is the $113 million from PNG sufficient? Will they have to issue more stock? What are your thoughts? 

There was follow-up discussion on yahoo in Short Form Base Shelf Prospectus, New Issue February 11, 2015. 

Bottom line, Nautilus is a junior miner and even though they got the $120M for PNG 15%, they are in a capital intensive business.  The good news is unlike mining on land, Nautilus will be able to take all the equipment to the next mine site.  That's one reason they will be able to operate 6 times cheaper, per the CEO.

In the follow-up yahoo discussion we talked about what they need funding for: 

The Company has four key elements to its strategy: 

1) Identify prospective exploration territory and secure licenses; 

2) Demonstrate that seafloor resource development is commercially viable and environmentally sustainable subject to the risks as described under "Risk Factors"; 

3) Undertake further exploration to identify additional mineral resources and create a project pipeline; and 

4) Add value for shareholders by expanding operations and bringing on stream duplicated seafloor production systems. 

 

All four of these items will require large amounts of capital. Essentially they want to return to exploration to identify a continual stream of new deposits to mine ("project pipeline" ) and expand their operations capacity to bring on stream "duplicated seafloor production systems". 

 

Possible sources of funds are debt, equity, or my personal favorite royalty firms/streamers: 

Basically the royalty companies "pre-purchase" an amount of minerals in advance, providing the miner a cash infusion and providing the royalty company a "stream" of minerals as they are produced (at a predetermined price). 

 

Here's an article that provides an overview. Look at RGLD and SLW for two excellent examples (both of which are great investments in their own right): http://www.nasdaq.com/article/precious-metals-royalty-and-streaming-companies-a-qualitative-analysis-cm340881/

[maui4marko]

Not a new article, but does provide some parameters on the funding requirements...

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PDAC 2015: Nautilus on track to seafloor production, but funding challenge remains

PDAC 2015: Nautilus on track to seafloor production, but funding challenge remains

Peter Koven | March 3, 2015 | Last Updated: Mar 3 1:09 PM ET

More from Peter Koven | @peterkoven

Nautilus Minerals via Bloomberg NewsA "hand" of a remote operated vehicle, ROV, picks up a piece of rich gold-copper ore recovered from the seafloor in 1,700m of water in the Bismarck Sea offshore New Ireland, Papua New Guinea in April, 2006.

The investment community has always been a bit skeptical of Nautilus Minerals Inc. When you’re trying to be the first company to ever mine minerals off the ocean floor, it’s only natural that some people won’t believe it until they see it.

But that day should be coming soon, chief executive Mike Johnston said in an interview. Nautilus settled a key dispute with the government of Papua New Guinea (PNG) last year, and since then,  progress has moved quickly on the Solwara 1 project. The company expects to have all its undersea mining tools ready to go by the middle of next year. It has also entered a charter agreement for a massive mining vessel, which it expects to receive in late 2017. After that, Nautilus expects to start digging up copper and precious metals almost right away.

“As soon as we’re happy everything has been incorporated onto the vessel and it’s working as it should, we’ll bring it straight down to PNG. The government’s very eager to get the vessel as early as we can and get the mine in production,” Mr. Johnston said.

Related

• Nautilus Minerals Inc says it’s poised to begin undersea mining following dispute settlement
• Nautilus looks for ocean mining partner

Raising that amount through equity, if it can be done, would be extremely dilutive. But Mr. Johnston maintained the company has a number of other options. Royalty and streaming companies were interested in Solwara 1 before the government dispute, and he thinks they might get interested again now that it is settled. The state of Papua New Guinea has an option to boost its stake in the project, and the company is looking at potential joint ventures with mining companies, service providers, or offshore oil and gas firms. Of course, one big barrier remains: capital. Nautilus has spent about US$180 million to date, but will need significantly more money – potentially around $200 million. That is almost as much as the company’s current market capitalization.

There is still skepticism out there, but Mr. Johnston said the PDAC crowd is getting genuinely excited about his story.

“It’s a lot more exciting than going to Caterpillar and buying some trucks,” he joked.

[seascandive]

Great stuff, Marko.

[scampoco]

Marko - thanks for the concise recap. I guess until product is in their hands to bring actual revenue there will need to be cash flow to keep the project moving forward. Is my understanding correct that streaming companies are an advantage in that the there is an automatic purchase of product but at a potentially reduced rate so a lower income but no ultimate long term dilution therefore a win win to us shareholders? How does this impact the deal with the Chinese company already in place who will take delivery and process the ore? (Tongling)

Sorry for asking you to educate me but you seem to be the best at this.

[cmilteer3]

Indeed, thanks M4M ... Appreciate the notice about the new (at least new to me) venue for discussion, too.

[maui4marko]

scampoco - yes I like the streamers because they offer a win/win situation. The miner gets capital and the streamer gets a stream of metal with almost no overhead costs. Look at Royal Gold (RGLD) as a good example. Your question about the impact on the Tongling deal is a good one. We need to hear it from the company, hopefully in the upcoming AGM.

cmilteer3 - good to see you here! If you will start a new thread and post the link to that ramu mine blog (no "DOT"s required lol) I'd like to respond to each of their points here on SHU.

[Monk3]

Hi Gents. Thanks for the invite Mark. A lot of good stuff here. It will be nice if this works. It is a serious pain dealing/not-dealing with Yahoo trolls and Yahoo's ridiculous censorship bot.
Go NUS go!!!
Best of luck to everyone this year.
M