TORONTO (Reuters) - Nautilus Minerals Inc NUS.TO expects to resolve an ownership dispute with Papua New Guinea over its Solwara 1 underwater mine after the country’s national elections, which start on Saturday and run for two weeks, the company’s chief said on Thursday.
Nautilus says it also expects to have a financing plan in place within the next month to fund construction of the project’s support vessel after the miner’s European partner scaled back its investment in the ship, which will be the operations base for the seafloor mining project.
Once the ownership and financing issues have been resolved, the copper and gold project will move forward, CEO Stephen Rogers told Reuters, noting that construction of the underwater mining infrastructure is progressing on schedule.
“We’re not anticipating huge delays here,” he said. “We’re not talking a year or anything like that. It’s going to be months.”
Solwara 1 is located in the Bismarck Sea in Papua New Guinea’s territorial waters, and is the world’s first underwater copper-gold mine. It was originally expected to start production in late 2013.
Last year the Papua New Guinea government exercised an option to acquire 30 percent of the project, but earlier this month, Nautilus warned that it could scrap Solwara 1 unless a dispute with the government over development costs is resolved.
Rogers said on Thursday the project would go ahead, though he declined to set an exact timetable for its start-up, saying it would be clearer once the vessel’s financing is in place and the ownership conflict is resolved.
“Our mining leases and permits are not at risk. That’s not what’s being threatened here,” he said. “This is a commercial issue.”
Both partners have filed notice of arbitration, with Nautilus saying the government has not come through on its share of financing, while the government says Nautilus has not fulfilled certain obligations on which the agreement depends.
While Rogers said the company’s talks with the government have been “constructive”, he said the outstanding issues are not likely to be resolved until after the national elections, which come after a year of political upheaval and violence in Papua New Guinea.
The country was a major copper producer in the 1980s and 1990s, but output slowed after Rio Tinto was forced to abandon its Panguna mine on the restive Bougainville Island and BHP Billiton relinquished ownership of its Ok Tedi mine over toxic mine waste claims.
Shares of Nautilus closed down 13 percent at C$1.07 on Thursday on the Toronto Stock Exchange. The stock is down more than 45 percent so far this month.
Nautilus plans to use technology from the offshore oil and gas industry to get at high-grade metal deposits that it says are actually easier to access than typical hard-rock resources, despite lying beneath more than a mile of water
The ore will be cut and collected using remote mining equipment controlled from the support vessel. A slurry of metals, water and waste will then be pumped to the surface through a pipe.
The total capital cost to complete the sea floor production system, including delivery of material to the deepwater port of Rabaul, is expected to be about $407 million.
Solwara 1 is just the first of many underwater projects planned by the company, which does not yet produce any metals. Nautilus holds 600,000 square kilometers (230,000 square miles) of tenements spread across a number of jurisdictions in the South Pacific.
“Once we’ve built our suite of equipment, we can move to other jurisdictions very easily without having to sink more money into infrastructure, because we’ve built our infrastructure and it is mobile,” Rogers said.
Nautilus says the underwater mining equipment will need to be updated every 10 years or so, while the surface vessel, which is a separate capital project worth some 127 million euros ($160.10 million), will last for about 30 years.
Financing that surface vessel, the control center and base for the entire underwater mining operation, is one of the top issues facing the junior mining company right now.
Originally the project was envisioned as a partnership with Germany’s Harren & Partner. The miner now expects Harren to take on just 10 percent of that project.
“The biggest uncertainty for us, at the moment, is just finalizing the finance arrangements on the ship, to get the build of the ship underway,” Rogers said. “And we’ve had some very positive discussions in that regard.”
While he said he is confident that a partner can be found for the vessel, he did not rule out returning to equity markets for part or all of the money needed to fund the ship.
Nautilus currently has about $100 million in cash on hand with Solwara 1 about half complete.
Reporting by Julie Gordon; Editing by Frank McGurty; and Peter Galloway