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Nautilus targets 2018 undersea production at Solwara


VANCOUVER — It's been a bounce-back twelve months for junior Nautilus Minerals (TSX: NUS; US-OTC:NSUMF), which has overcome a major socio-political hurdle to get back on track to develop the world's first undersea mining operation at its Solwara 1 massive sulphide project 30 km off the coastline of Papua New Guinea (PNG).

Nautilus had to temporarily suspend development at Solwara back in early 2013 when it came to loggerheads with the PNG government over the structure of its partnership agreement. The company managed to negotiate a new deal last May, and received its initial, US$113-million payment in mid-December, which entitles the PNG government to a 15% stake in the project.

The company quickly got to work signing a vessel charter and various supply orders it will need to mine a sea-floor massive sulphide (SMS) deposit 1,600 metres beneath the surface of the Bismarck Sea, and is now targeting first production in early 2018.

Solwara hosts indicated resources of 1 million tonnes grading 7.2% copper, 5 grams gold per tonne, 23 grams silver and 0.4% zinc. Inferred resources add 1.5 million tonnes of 8.1% copper, 6.4 grams gold, 34 grams silver and 0.9% zinc.

"There have been plenty of highlights since our last update roughly six months ago. The major events include the special charter agreement and ship building contract, which triggered the government payment and formation of our joint venture," commented president and CEO Michael Johnston during an investor update on April 14.

"The state has turned out to be a very good partner for us, and that has continued through our recent meetings. We're in the process of commissioning the bulk of the major machinery, and it looks really fantastic," he added.

Sea-floor production is a staged process that essentially requires three pieces of machinery, namely: a bulk cutter, auxiliary cutter and collecting machine.

The auxiliary cutter takes an initial run to prepare the seabed for the powerful bulk cutter. The two machines collect excavated material, while the collecting machine harvests the cut material by drawing in sea-water slurry with internal pumps and pushing it through a flexible pipe to a subsea pump, and on to the production ship using a riser system.

Nautilus expects to receive all three vehicles by the end of the fourth quarter, along with its riser and ancillary equipment. Johnson added that the design and construction of the vessel is the "critical path" at Solwara, however; since it will have the greatest impact on the company's production timeline.

Nautilus entered into an agreement for the charter of a production support vessel (PSV) in early November, which led to a contract with Fujian Mawei Shipbuilding in southeastern China. The PSV will serve as an operational base for the Solwara joint venture, and be chartered to Nautilus for a minimum period of five years for US$199,900 per day, with options to either extend the charter or purchase the vessel at the end of the contract.

“All the companies we've awarded contracts to are significant names in their fields,” Johnston elaborated. “Our goal is to continue that theme through the vessel build, and we're basically aiming to produce is a high-quality Chinese vessel hull with well-designed components around the thrusters, cargo handling, cranes, and power units. These will all be designed by major players in the shipping industry.”

The company put down a US$10 million deposit on the vessel, with another US$18 million due on the commencement of the charter contract. In an odd twist, Nautilus' contractor Marine Assets — located in Dubai — was the victim of a "cyber-attack" that resulted in the initial US$10 million being lost. The company subsequently provided a conditional US$10 million down payment, while an investigation is ongoing.

The incident hasn't impacted Nautilus' timeline, however, and it still expects delivery of the vessel by the end of 2017, which should lead almost directly into production. Johnson acknowledged that the company will have to raise additional funds to during the interim, and said it expects to publish updated capital and operating figures later this year.

“A couple of the key issues in determining those figures include: the government options, negotiations with our processing partner, and the design of the de-watering system,” Johnson continued. “With the vessel build ongoing in China there are clearly significant opportunities for us, and we're in discussions for further partnership opportunities in Asia.”

The PNG government can earn up to an additional 15% in Solwara through a staged process. The state's first 5% option is coming up in June.

The company will also be getting back to exploration later this year, as it announced a contract for a seafloor program on its wholly-owned portfolio in the Solomon Islands. The goal is to define SMS targets using efficient multi-beam echo sounder and plume hunting techniques. Plume hunting is a regional geochemical technique involving the discovery of metal rich plumes of material that are ejected into the water column from prospective areas, by natural geological processes.

"We're really looking to get our exploration moving again and get the pipeline lined up to provide resources for our mining equipment. It's important to look past Solwara I," Johnston concluded. "We're looking for new systems and we're in the process of organizing the program so we can hit a lot of targets. We have some of the highest-quality commercial seafloor mapping equipment outside of the military."

Nautilus has traded within a 52-week window of 20¢ and 79¢, and is up around 132% or 29¢ year-on-year at 51¢ per share at press time. The company maintains 445 million shares outstanding for a $228-million market capitalization, and reported working capital of roughly $100 million to end 2014.


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