Nautilus moves closer to undersea mining with US$125M support-ship contract

By Brenda Bouw, The Canadian Press

VANCOUVER - Nautilus Minerals (TSX: NUS.TO) says it is a step closer to becoming the world's first deepwater mining exploration and production company after contracting with a Norwegian shipowner for a support vessel.

The binding agreement with North Sea Shipping Holding AS to provide the ship for the Solwara 1 project off Papua New Guinea is valued at US$125 million over five years.

"There was considerable competition in the market for this vessel, but the structure and offer proposed by North Sea shipping suited, we believe, our shareholders best," Nautilus CEO Stephen Rogers said during a conference call Tuesday.

"We are looking forward to a long and profitable relationship with North Sea shipping."

Rogers said his company and North Sea have a "strong cultural fit."

"This is very important given that we are going to have working relationship of at least seven years with this company," including two years of development before the five-year contract begins.

North Sea, an established operator in the offshore oil and gas industry, will provide the ship on a five-year charter basis with options to extend for a further five years.

Vancouver-based Nautilus had signed a deal last year with Belgium-based dredging company Jan De Nul to build a 191-metre ship, but the agreement fell through last summer before it could be finalized.

The failed deal sank Nautilus shares from a 52-week high of $5.60 on the Toronto Stock Exchange last July. The shares were down four cents at $2.45 on Tuesday, up from a low of $2.01 earlier this year.

Nautilus, which explores the ocean floor for gold and copper, is aiming for production by late 2010.

Its main focus is the Solwara site in the territorial waters of Papua New Guinea in the western Pacific.

Raymond Goldie, an analyst at Salman Partners Inc., said some are skeptical of the company's plans, but large mining firms such as Anglo American PLC, Teck Cominco and Russian firm Epion have signed on as stockholders.

Epion has a 22 per cent stake, while Teck (TSX: TCK-B.TO) recently increased its interest to seven per cent and Anglo holds about six per cent.

Goldie said his concern about the project isn't that the technology won't work, but that the different types of technology may not work together, especially deep in the sea.

"My concern is not using novel technology, but ones that haven't been run together before," said Goldie.

That said, Goldie sees the stock as cheap and has a 12-month target of $5.75.

Nautilus said the building of the hull is underway in Turkey and the vessel will be outfitted in Spain.

The ship is 160 metres long and 30 metres wide with a draft of seven metres and displacement of 14,200 tonnes.

Its features include 21 megawatts of onboard power and a 400-tonne crane capable of working in 2,500 metres of water.

Nautilus said the ship can accommodate 120 people "which is more than adequate for the marine and mining crew" and has a deck area that will accommodate the mining equipment.