Papua New Guinea Mine Watch
6 September 2012
The prospects of Canadian miner Nautilus Minerals delivering its proposed Solwara 1 seabed mine in PNG look increasingly bleak as details emerge of the extent of the dispute between the miner and the PNG government.
The PNG government believes the deal being offered by Nautilus to the people of PNG in return for an investment of $154 million is fundamentally unfair and it has identified a list of terms that it wants to see changed.
Confidential documents reveal the government is insisting Nautilus Minerals must:
- Give PNG a full 30% stake in the mine
- Give PNG a stake in the intellectual property rights arising from the mine
- Give the PNG government a veto in major decision making
- Reveal the full extent of possible future financial liabilities for PNG as a stakeholder
The PNG government also says Nautilus has failed to show it has in place all the required additional financing for the mine. Nautilus was supposed to demonstrate it had all the required $407 million funding secured as long ago as April, but In a letter to the government as late as 29 July Nautilus referred to an outstanding amount of $130 million. Nautilus said it planned to raise this money in two tranches, the first being $75 million.
It is this second issue that is at the centre of the formal dispute between the PNG government and Nautilus Minerals which is due to be heard in an arbitration process overseen by an Australian judge.
A 30% stake
The PNG government is insisting that Nautilus must grant the State a full 30% interest in all the legal and beneficial returns from the mine, including the intellectual property, as it is making an investment equivalent to 30% of all the development costs.
As part of the complex ownership structure for the mining operation Nautilus has set up two joint-venture companies, Nautilus Minerals Niugini Ltd and Nautilus Minerals Singapore Ltd (see illustration below) but it is not offering the State a full 30% stake in both of the companies.
At the same time Nautilus has offered the German ship building company Harren and Partners a 50.1% stake in Nautilus Minerals Singapore while the PNG government believes Harrens should “have zero interest”.
The government also says Nautilus is not offering a fair deal to the people of PNG because it is not giving a 30% stake in the ownership and control of the intellectual property rights. In particular Nautilus wants to shut PNG out from any benefits from future licensing and use of the Seafloor Mining Tools, Riser and Lifting System, the Dewatering plant and the mining vessel.
The National Executive Council has ordered the State Negotiating Team “to secure more balanced terms for the State”.
As a shareholder in Nautilus Minerals Niugini Ltd PNG could be liable to fund any amounts Nautilus Minerals Singapore Ltd is required to pay “its subsidiary or any other person under relevant documents”. The PNG government has asked Nautilus to specify what those liabilities could be but has not received any satisfactory answer.
Although PNG will have a 30% stake in the joint venture companies Nautilus wants all decisions to be made on a simple 51% majority basis, giving PNG no control over major decisions that could adversely affect its interests.
The PNG government is demanding “a 90% threshold to be applied to all major decisions relating to the joint venture” and a 51% threshold “for less material decisions”.
The PNG government is also frustrated that Nautilus has not complied with requests to provide full and complete information and documentation. This applies in particular to unanswered requests for:
- “a full briefing on the current status of construction of the mining vessel” especially given Nautilus have announced they have financing difficulties for the vessel
- “full and complete documentation of the proposed terms on which the vessel is to be made available”, and
- “a full briefing on the current status of construction of the mining plant and equipment, and the provision of all documents relating to the financing of the plant and equipment”
The National Executive Council has also warned the Prime Minister and State Ministers they “should not undermine the State position by making undertakings to Nautilus without first seeking advice from State Team members”.