Over the past few years, Nautilus has been exploring beneath the ocean and is intent on pushing forward the seafloor resource production industry.

The Toronto listed company is a pioneer in the industry and has identified numerous high grade deposits of copper, gold, silver and zinc on the seafloor across the western Pacific, and is now poised to move to development and into production operations.



Its first project, Solwara 1, is located in the Bismarck Sea in Papua New Guinea, where the company was recently granted a mining lease by the PNG government - one of the first deep sea mining leases granted anywhere in the world.

At Solwara 1, the company has established a NI 43-101 resource, including an indicated resource of 870,000 tonnes of copper at an extremely rich grade of 6.8% and 4.8 grams per tonne gold.

Nautilus president and chief executive Steve Rogers told RESOURCESTOCKS that the company was well advanced in the development of equipment and methods to cut and extract ore from the deposit, which sits on the sea floor at a depth of 1600 metres below the surface of the ocean.

"Using equipment developed in the oil and gas industry, the company is refining methods to use remote operated machinery to recover the high grade material and transfer it to a support vessel positioned overhead, where it is dewatered and then transferred to land for eventual processing," Rogers said.

This has never before been done with this type of deposit.

"The grades of the material are much higher than seen in most land-based mines. Grades of ore in land-based projects are moving lower over time as high grade deposits are depleted around the world, and are now typically less than 1 per cent copper."

Nautilus' share price jumped more than 30% since the news of the mining lease was announced in January.

At current prices for copper and gold, the contained metal per tonne of ore from Solwara 1 is worth approximately $US900, compared with an estimated landed cost of approximately $70 per tonne before export shipping and treatment.

"The margins are potentially high, and the economics compelling," Rogers said.

Nautilus' drilling program, currently underway, has found that the mineralisation in Solwara 1 is more extensive than initially identified, with a number of intercepts exceeding 20% copper.

"Our recent drilling program continues to expand the knowledge of the deposit at Solwara 1 and the vessel will also undertake scout drilling at other discoveries in the region as part of this $20 million program.

Having been granted the mining lease, the company is on the verge of moving to full development mode, which will then take approximately 30 months to reach production.

Beyond Solwara 1 there are numerous other sites where preliminary drilling has indicated high grade deposits in the Bismarck Sea.

"When granting the mining lease, the PNG government indicated that it may take a stake of up to 30 per cent in the Solwara 1 project, and if adopted will contribute cash of up to $25 million initially to secure that holding, and it will then contribute to future capital requirements in proportion to its holding," Rogers said.

"This represents a major vote of confidence in the project, which promises to contribute strongly to the PNG economy over time."

"With respect to financing we are continuing to negotiate with strategic partners to assist in funding the project and to provide technical skills and support."

Nautilus is already well capitalised, with more than $C150 million in cash on the balance sheet. The total capital cost of the offshore components for the Solwara 1 project is $US385 million.

Nautilus expects Solwara 1 to be in production in the second half of 2013, assuming it secures the additional funding in the near future.

"We plan to produce initially at an annual rate of 1.3 million tonnes of ore containing approximately 80,000 tonnes of copper and 150,000 to 200,000 ounces of gold," Rogers said.

"And we are working to finalise the design and construction schedules for the Seafloor Production Tools [SPTs], the pumping system to bring the ore to the surface vessel, and the design of the integration for the production equipment into the production support vessel."

Engineering is well advanced on critical equipment components including the SPTs and the slurry pumping system. Procurement of long lead components for the SPTs is already underway.

"We have a very knowledgeable, highly skilled and creative team that has, with the help of our global partners, created the world's first deep ocean seafloor production system," Rogers said.

"Collectively our team has many decades of experience in the mining and oil & gas sectors.

"Given how much of the technology is transferable the task of creating the world's first deep ocean mine, while not without challenges, has proved to be entirely possible, which we will demonstrate in due course."

There will be three major pieces of machinery on the sea floor - one to create terraced benches, one to cut the rock at higher production rates over the benches, and a third to gather the broken material and produce a slurry for pumping to the surface through a vertical riser system.

Rogers said the production systems utilised three distinct remotely operated tools, the auxiliary cutter, the bulk cutter and the collecting machine to cut and gather the ore, an approach analogous to surface mining systems.

"The riser and lift system, meant to lift the mineral ore to the surface vessel, is ingenious," Rogers said.

"The subsea slurry lift pump [SSLP], a positive displacement type, provides the energy to lift the slurry from the collecting machine up the steel riser pipe to the surface.

Once on the production support vessel the ore is dewatered, solids transferred to a barge, and the return water is pumped down another riser pipe to the SSLP where it drives the slurry pump before finally being discharged at a depth close to where it was collected.

"This is an environmentally friendly solution allowing the cold return water to be discharged at depth without upsetting the warmer surface waters."

In addition to the action at Solwara 1, Nautilus has secured highly prospective exploration acreage in Tonga and elsewhere in the Pacific to develop a pipeline of projects for the future.

Altogether, the company holds more than 500,000 square kilometres of exploration acreage in PNG, Tonga, Vanuatu, The Solomons and New Zealand, all in highly prospective territory.

The investment case for Nautilus is simple. If a land-based miner planned production of 80,000tpa of copper and 150,000-200,000ozpa of gold, it would be a hot stock.

Combined with the expert knowledge and first-mover advantage in the field, Nautilus provides a perfect pre-production investment.

"While we still face challenges, Nautilus continues to build its knowledge base of these seafloor systems each year and move the project closer to production," Rogers said.

"If we can successfully move to production mode in the coming years, the potential rewards for investors will be significant.

"Furthermore, our large tenement holding in geologically prospective ground across the western Pacific places it with a strong first mover advantage."

*This report, first published in the March 2011 edition of RESOURCESTOCKS magazine, was commissioned by Nautilus Minerals