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.