Nautilus in two separate disputes with PNG government

Could its disputes with the PNG government sink Nautilus’ plans

While Canadian miner Nautilus Minerals continues to seek a settlement with the PNG government in a disagreement over the timing of a 30% investment by the State, Nautilus is trying to hide a far more serious but so far undisclosed dispute that threatens to derail the whole mining project.

The formal and public disagreement is over whether Nautilus Minerals has demonstrated it has all the financing in place for its controversial Solwara 1 mine. This is the trigger for an obligation on the PNG government to release K154 million to buy a 30% stake in the mine.

The PNG government claims Nautilus has as yet failed to prove it has the financing and says, in a letter dated  29 July, Nautilus admitted it had still to raise a further K130 million.

But Nautilus disputes this and says the PNG government has breached its obligation by not releasing the funds. It is this disagreement that has led Nautilus to invoke a dispute resolution clause in its preliminary agreement with the PNG government and send the matter to formal arbitration. An Australian judge has already been appointed to handle the arbitration and determine the question of whether Nautilus has shown it has all the funding in place.

But, well placed government sources and leaked documents, show that under the surface the PNG government and Nautilus Minerals are involved in a much bigger and potentially irreconcilable dispute over the actual terms of what PNG will get for its K154m investment. This dispute has never been publicly acknowledged by Nautilus despite the fact that PNG’s National Executive Committee has twice been involved in the negotiations.

This dispute is NOT part of the arbitration process and will be much more difficult to resolve. The two parties are reported to be oceans apart in their negotiations and if agreement cannot be reached Nautilus will face a further huge shortfall in its financing for the mine.

This second dispute centers on a number of issues, including whether PNG will get a full 30% ownership in the mining joint venture companies, whether PNG will get any rights to future benefits from the intellectual property developed for the mining operation, whether PNG will get a voice in decision making and what are the future financial liabilities that PNG could have to fund.

While the PNG government is keen to ensure a fair and equitable deal in return for investing K154 million of public money, Nautilus does not want to sign away any of its anticipated returns from the successful implementation of its novel mining system. Such a deal would reduce Nautilus’s attractiveness for other investors and reduce the chances of the anticipated bonanza for the existing directors and shareholders which would come with a takeover by a major mining company.

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2 Comments

Filed under Financial returns, Mine construction, Papua New Guinea

2 responses to “Nautilus in two separate disputes with PNG government

  1. Zo

    Back when PNG announced it wanted to exercise it’s right to buy 30% of the JV it promoted the story locally in a way consistent with the argument above, so that spin hasn’t changed. But what is a geographically limited JV other than a bank account for geographically segregated expenses and revenues? What’s the whole point of setting up a JV rather than becoming a corporate partner? Clearly Nautilus has some general corporate partners each of which has been chosen because they bring some technological expertise in addition to some form of funding, and none of which have chosen to limit their partnership just to Solwara or operations in PNG territorial waters. Petromin is not such partner, 30% of the JV is not the same as 30% in Nautilus. I’d love to find out what exactly the JV owns, but unless or until that is made public I think it’s reasonable to assume that the spin about intellectual property rights was nothing more than politicians doing what they always do, so now they’re stuck pointing fingers.

  2. wesely

    That’s the very point Zo.
    The state was advised by its administration that it was entering into a JV over the the lease only.
    It was not taking shares in the company assets outside the tenement or in the equity of the company.
    This was explained again and again to the Minister for Mining and cabinet.
    The State (and the Minister, John Pudari) were clearly and unequivocally made aware by senior staff within the PNG administration that the project was experimental and that entry into the project was uneconomic and inappropriate.
    Likewise, the State of PNG was well aware that no intellectual property rights would attached to the JV.
    This was all clearly documented.
    The reasons for this warning were based on the simple fact that the enormous sunk costs would outweigh any economic value coming from Solwara tenement to the State and in choosing to exercise the 30% option the state would be entering into an entirely irrational and uneconomic agreement.
    The State was advised to take “wait and see” position and perhaps, equity in any subsequent mining JV where there were no sunk costs.
    The reasons for this were clearly explained by senior staff within the administration of PNG and by the company itself.
    This was all logical.
    Despite these very clear, indisputable and unequivocal warnings, from both the administration within PNG government and Nautilus, Pundari and a crony within treasury (its Deputy Secretary) blithely defied fiscal logic, ignored the reality put to them by experts and, and for entirely political reasons, forged on to disaster.
    The people need to blame John Pundari and those who supported his irrational irresponsible shortsightedness for this debacle.

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