Nautilus Minerals Inc. (TSX:NUS)(AIM:NUS) signed a binding heads of agreement with Tongling Nonferrous Metals Group Co. Ltd ("Tongling") for the sale of the product extracted from the Company's Solwara 1 deposit located in the Bismarck Sea, Papua New Guinea ("PNG").
The agreement provides for the purchase by Tongling of 1.1 million tonnes per annum (subject to +/- 20% variation) of Solwara 1 material for a period of three years on a take or pay basis, commencing upon the first delivery of product from Solwara 1, targeted in Q4 2013 in accordance with a notification mechanism and includes an option to agree an extension of the arrangement.
"The quality of this relationship with China's largest importer of copper concentrates provides further evidence that there is considerable interest in the high grade massive sulphides being found by the emerging seafloor resource production industry," said Nautilus CEO Stephen Rogers.
The material will be imported into China by Tongling and then processed through its facilities in the city of Tongling alongside the Yangtze River. After production of a copper concentrate it will be smelted in Tongling's industrial complex. The purchase price to be paid by Tongling will be based on the quality of the copper concentrate produced.
The agreement includes a mechanism for an early payment of 90% of the price upon loading of the export vessel in PNG. Final payment is based on the recovery of copper, gold and silver reporting to the copper concentrate with deductions for capped logistics and processing costs, smelter treatment and refining charges (TC/RCs), allowances for plant fixed capital recoveries and Tongling's tolling fee on concentrator plant processing costs. TC/RCs are based on Asian International benchmarks with a premium payable for the achievement of target metal recoveries.
The price payable for all metals will be set by the London Metal Exchange (LME) for copper and London Bullion Market Association (LBMA) for silver and gold with the initial payment for all metals based on the average of the month preceding the shipment and final payment on a four month Quotational Period.
Further value may be realised through a 50%/50% profit sharing scheme based on incremental by-product revenue realised in China, including gold bearing pyrite. Material from the process can be roasted in China to produce gold and sulphuric acid and the remaining calcine may be sold to cement manufacturers or as iron ore fines. With minimal waste Tongling's process brings significant benefits consistent with Nautilus' commitment to minimise environmental impacts.
The Company will issue a bank guarantee to Tongling in three stages over nine months, which will not exceed approximately US$11.5 million, as a security for 50% of Tongling's concentrator investment costs commencing at the first order of major equipment.
Nautilus CEO Stephen Rogers said the Company was looking forward to working with Tongling to realise the full potential of the high grade material extracted from Solwara 1. "We have now closed the value chain on the project, established our first customer for seafloor massive sulphides and look forward to building a long term relationship with Tongling," he said.
Nautilus is currently progressing the build of equipment, including the Seafloor Production Tools and Production Support Vessel (as those terms are used in the Company's Annual Information Form), for the Solwara 1 Project.
