Nautilus Minerals' plan to open a new frontier of seafloor resource production has taken a major step forward, with the formation of a strategic partnership with German shipping company Harren & Partner. A joint venture company is to be formed to own and operate a production support vessel which will serve as the operational base for Nautilus to produce high grade copper and gold ore at its first development project, Solwara 1, in the Bismarck Sea of Papua New Guinea (PNG).
The vessel will be the floating platform for the mobilisation and remote operation of production machinery operating on the seafloor at water depths of approximately 1600 metres. The seafloor production tools will cut and gather ore which will be pumped in slurry form to the Production Support Vessel, where it will be processed through a dewatering plant before transfer to barges for transport and subsequent treatment.
Under the terms of the strategic partnership, Harren will design and construct the vessel at a cost of approximately €127 million (US$167 million), with delivery scheduled for the first half of 2013.
On delivery, the vessel will be sold to the Vessel JV in which Harren will hold a 50.01% interest. The remaining 49.99% of the Vessel JV will be controlled by Nautilus through a holding company in which the PNG government owns a 5% stake through its wholly owned company Petromin PNG Holdings Ltd ("Petromin").
The Vessel JV will charter the vessel to the mining joint venture (the "Mining JV"), in which Nautilus holds a 70% stake and Petromin holds a 30% stake, to carry out its seafloor production operations, for a period of eight years, at an average daily rate of US$70,000. Harren will provide crewing, logistics and ship management services to the Vessel JV which will be on charged at a daily rate of US$10,000 to the Mining JV. The Mining JV will provide a charterer's guarantee to the Vessel JV for an initial value of US$10 million reducing over a five year period to US$2.5 million.
Funding for the Vessel JV will include approximately €75 million (US$99 million) in bank debt to be procured by Harren, which also will contribute €16 million (US$21 million) in equity and loans. Nautilus will contribute approximately €32 million (US$42 million) in equity and loans, and Petromin will contribute the remaining €4 million (US$5 million).
"This transaction is a major step forward in the development of the seafloor resources industry," said Nautilus CEO Stephen Rogers.
"Through this joint venture with Harren, we will secure a state of the art vessel to operate on this ground-breaking project. This will ensure that we have the best available equipment and the greatest operational efficiency and flexibility in bringing Solwara 1 into production."
"It brings to the project the extensive shipping expertise and experience of Harren, which operates a fleet of 56 vessels around the world. In addition, an important aspect of the transaction is that it provides access to bank funding through the joint venture vehicle, enhancing capital flexibility for the project," he said.
Harren Chairman, Peter Harren said the company was very familiar with international strategic partnerships, which have been a foundation of its business during its 20 years of operation. "During the course of our negotiations with Nautilus, we have built a strong relationship and believe that working together we can make a major contribution to this exciting project in Papua New Guinea," he said.
Harren has completed preliminary design for the vessel, a multi-purpose dry cargo ship classed by Germanischer Lloyd. It has a length of 208m, beam of 40m, a deadweight capacity of approximately 18,800 tonnes and a speed of 17 knots. (See links 1 and 2 below for pictures of the vessel).
The vessel will house generator sets producing 30MW of power for the vessel, seafloor production tools and associated pumping machinery, and will have on-board accomodation for up to 160 people, including 30 maritime crew. The vessel is to be built at a German shipyard.
In addition to the Production Support Vessel, the other major pieces of equipment to be built prior to the start of operations include:
- The Seafloor Production Tools. Three remotely operated machines - an auxiliary cutter, a bulk cutter, and a collecting machine - are in the final stages of design by UK company Soil Machine Dynamics. The design of these machines is based on technologies that are tried and proven in the oil and gas, trenching, marine dredging and mining industries. Key contracts are now in place for cutting heads, tracks and the launch and recovery system.
- The Riser and Lifting System, which pumps the slurry from the seafloor to the Production Support Vessel. The design, being carried out by a US subsidiary of French group Technip, is close to finalisation with component testing now under way.
These items of equipment are scheduled for delivery in early 2013 and will be wholly-owned by the Mining JV.
Total capital cost estimate to complete the offshore production system for the Solwara 1 project have been reviewed in light of the Harren transaction. The total capital cost for the extraction of ore from the seafloor and delivery to the Port of Rabaul is now estimated to be approximately US$407 million. The US$167 million cost of the Production Support Vessel is treated as a capital cost of the Vessel JV and not as part of the capital cost of the Solwara 1 project.
In conjunction with entering into the Harren transaction Nautilus has decided to charter, rather than purchase, ore transport barges, resulting in an associated reduction of capital costs for these items to the project capital cost estimate and an associated addition to project operating costs of barge charter costs.
This has resulted in Nautilus' estimated vessel charter costs (including both the support vessel and the barges) increasing by 33% above the respective cost estimates used in the Cost Study. Charter costs represented 34% of the total estimated operating costs per tonne under the Cost Study. (See the Cautionary Statement Regarding the Cost Study at the end of this news release regarding risks associated with the information in the Cost Study.) Nautilus will indirectly recover certain of these costs in the form of charterparty fees through its interest in the Vessel JV. There have been no changes to the basic equipment configurations outlined in the Cost Study and the anticipated daily production rate remains at an average 3710 tonnes (1.35Mtpa) excluding site initiation and shutdown.
These changes to costs have been compiled under the supervision of Nautilus Minerals Project Manager - Offshore, Michael Howitt. Mr Howitt is a qualified Chartered Engineer and a Member of the Institute of Marine Engineering, Science and Technology (MIMarEST). Mr Howitt has reviewed and approved the disclosure regarding costs contained in this news release.