Name and Location
Solwara 1 seafloor copper/gold project, Papua New Guinea (PNG).

Client
Prospective marine miner Nautilus Minerals formed a joint venture (JV) company with PNG’s nominee, Eda Kopa (Solwara), in December 2014 to mine high-grade polymetallic seafloor massive sulphide (SMS) deposits.

Nautilus formed the JV after receiving $113-million that had been placed into escrow in May 2014, after completing the sale of 15% of its Solwara 1 project to Eda Kopa.

Project Description
Nautilus Minerals is pioneering the concept of mining the ocean bed for copper, gold, zinc and silver.

The company is exploring for high-grade polymetallic seafloor massive sulphide (SMS) deposits at 1 600 m below the surface of the Bismarck Sea, off the coast of PNG, within the Western Pacific Ocean’s Rim of Fire. The operation aims to produce ore at a rate of more than 1.3-million tons a year, with the capacity to ultimately ramp up to 1.8-million tons a year of dewatered ore, which will be delivered to the Port of Rabaul.

As of November 25, 2011, the Solwara 1 project had an indicated mineral resource of one-million tons, grading 7.2% of copper, 5 g/t of gold, 23 g/t of silver and 0.4% of zinc. Its inferred resource comprised 1.54-million tons, grading 8.1% of copper, 6.4 g/t of gold, 34 g/t of silver and 0.9% of zinc.

Net Present Value/Internal Rate of Return
Not stated.

Value
The total capital cost for the system to deliver dewatered ore on board barges to the Port of Rabaul, including a 17.5% contingency, is estimated at $383-million.

The operating cost, excluding contingency, is estimated at $237 000/d, or about $64/t of mined ore, transported to the port based on a production rate of 1.35-million tons a year. Allowing for a 10% contingency, these operating costs become $261 000/d, or about $70/t.

Duration
First production from Solwara is expected in 2016.

Latest Developments
Nautilus has signed a new sales agreement with China-based Tongling Nonferrous Metals Group for the ores extracted from the Solwara 1 deposit, with first delivery expected in the first half of 2018.

The two companies have entered into a new master ores sales and processing agreement (MOSPA), building on the April 2012 binding heads of agreement (HOA) for the sale of the product extracted from the deposit.

Under terms of the new take-or-pay agreement, Nautilus stands to benefit from significant cost savings and reduced business risk while allowing Tongling the freedom to process the Solwara 1 material in a manner which optimises its return, Nautilus has said.

The MOSPA has simplified the arrangements between the parties in several regards and it now operates as a more conventional material sales agreement, where Tongling will pay Nautilus for a fixed proportion of copper, gold and silver contained in the ores.

The copper payment will be for 95% of recoverable copper, as determined by locked-cycle testwork on samples of shipments. The gold payment is fixed at 50% of the contained gold in the mineralised material and represents a premium payment for gold, compared with the HOA. Payment for silver is fixed at 30% of contained silver in the ores. The Asian international copper concentrate benchmark will still be used as the basis for smelter treatment and refining charges related to the recoverable copper.

From Tongling’s perspective, the MOSPA offers greater flexibility over the design and operation of a concentrator to be built specifically for processing Solwara 1 ores. The construction of the concentrator will initially be financed by Tongling, with these costs recovered through a fixed-plant, capital monthly fee payable by Nautilus over the term of the MOSPA.

Nautilus will provide Tongling with a bank guarantee covering 50% of the concentrator capital cost. Tongling now has the exclusive right to market or process any pyrite concentrates produced from the Solwara 1 material, whereas under the HOA the parties were to jointly market any pyrite concentrates and share any profit on a 50:50 basis.

"This new agreement provides improved terms for Nautilus and Tongling and can be truly described as a win-win outcome. The MOSPA gives greater flexibility to Tongling with respect to its operations, while providing Nautilus with certainty and an improved net smelter return. I am delighted to be continuing our relationship with Tongling as a key business partner supporting the development of the world’s first SMS mining project,” Nautilus CEO Mike Johnston has commented.

Meanwhile, Nautilus has advised that the Independent State of Papua New Guinea’s nominee, Eda Kopa (Solwara), the company’s JV partner in the Solwara 1 Project, has chosen not to exercise its option to take up to a further 15% interest in the project and has maintained its fully funded stake at 15%. 

Key Contracts and Suppliers
Soil Machine Dynamics (construction and supply of two remote-operated SMTs); Technip (engineering, procurement and construction management services for the RALS components of the deep-water Solwara 1 mining and extraction system, comprising subsea pumps, a riser pipe, a riser handling system and associated deck equipment); North Sea Shipping Holding (supply of a specialist marine support vessel); Harren & Partner (supply of a platform supply vessel); GE Oil & Gas (supply of a subsea slurry lift and pump); SRK Consulting, Ausenco, Clough Engineering and Mineralurgy (offshore production system definition and cost study); Golder Associates (mineral resource estimate); Parsons Brinckerhoff (dewatering study); and Pells Sullivan Meynink (geotechnical laboratory testing programme and on-board ship laboratory, advice on rock mass and material parameters, as well as slope-stability analysis for mining).

On Budget and on Time?
Not stated.

Contact Details for Project Information
Nautilus Minerals investor relations and communications VP Joe Dowling, tel +61 7 3318 5544 or email jjd@nautilusminerals.com.
Soil Machine Dynamics, tel +44 191 234 2222, fax +44 191 234 0444 or email info@smd.co.uk.
Technip, tel +33 1 47 78 24 00.
North Sea Shipping Holding, tel +47 55 08 88 00.
Harren & Partner, tel +49 421 46 86 0 or fax +49 421 46 86 586.
GE Oil & Gas, tel +1 203 373 2211.
SRK Consulting, tel +1 604 681 4196, fax +1 604 687 5532 or email info@srk.com.
Ausenco, tel +675 3256 033 or fax +675 3250 091.
Clough Engineering, tel +61 8 9281 9281, fax +61 8 9281 9943 or email clough@clough.com.au.
Mineralurgy, tel +61 7 3381 9295.