Minister explains Solwara 1 project

The Solwara 1 project has been the subject of public debate for over a decade. In a recent Parliament sitting, Northern Governor Gary Juffa suggested that the project be discontinued. Below, Attorney-General and Justice Minister PILA NININGI provides some information on the project.

The project
The Solwara 1 deep-sea mining project is to mine polymetallic sulphide deposits located on the seabed about 50 kilometre north of Rabaul and 30km west of New Ireland. The project’s environment plan was approved on Dec 29, 2009, and the Mining Lease 154 on Jan 13, 2011.

Arbitration
On June 19, 2012, after negotiation between the State and the developer, Nautitus Minerals Niugini Limited, the dispute on whether “financial close’’ had been achieved, and if so, whether the Sate was liable, was referred to arbitration.
On Oct 7, 2011, Nautilus advised the State that it had achieved financial close, which required the State to back the project, in accordance with a State Equity Option Agreement with Nautilus executed on March 29, 2011.
But the State argued that Nautilus had not raised enough money to satisfy the financial close obligation.
On Oct 2, 2013, the arbitrator handed down a partial award in favour of Nautilus in respect to the financial close issue.
On Oct 23, 2013, Nautilus issued a notice to complete the purchase of 15 per cent (an agreed variation from 30 per cent) interest in the project.
On Jan 23, 2014, Nautilus issued a second notice to complete and indicated damages of US$118 million (about K430 million) for lost cash flow and costs.
Based on these occurrences, the National Executive Council authorised the State’s participation in the project through the acquisition of a 15 per cent interest.

State participation
The project is structured as an unincorporated joint venture between Nautilus Minerals Pacific Pty Ltd, a wholly-owned subsidiary of Nautilus Minerals Inc, with an 85 per cent interest, and Eda Kopa Solwara, a wholly-owned subsidiary of Kumul Minerals Holdings Ltd (KMHL) nominated as the State’s entity to hold its 15 per cent interest.
Eda Kopa financed its participation in the project by way of a K375 million loan (about US$120 million) from the Bank of South Pacific Financial Group Ltd on April 24, 2014.
It was due for repayment on April 24, 2021.
The State issued a Deed of Indemnity, in favour of both BSP and KMHL, in relation to the BSP loan, and any interest thereon dated April 24, 2014.
Eda Kopa’s capital injection of US$120 million (about K437.2 million), along with a previous equity contribution of US$1.8 million (about K6.5 million), represent its total cash contribution to the joint venture.
Funds were used to prepay its 15 per cent interest in the project, which itself had an approved budget of US$793 million (about K2.8 billion), and a US$2.7 million (about K9.8 million) Eda Kopa capital charge.
The prepayment of the State’s total contribution limited its exposure to project capital risk with Eda Kopa not required to bear any share of additional construction costs associated with project delay.
First production was expected in 2017.
But construction activities continued to be delayed by the lack of funds from Nautilus Minerals, resulting in a further delay of project start-up.
This in turn affected Eda Kopa’s ability to repay its liabilities with BSP.
In 2019, in view of the State’s indemnity in favour of BSP and KMHL, and to isolate KMHL from the impact of a potential collapse of the Solwara 1 project, the 15 per cent equity in project was transferred off the balance sheet of KMHL to the State.

Nautilus Minerals ownership
Nautilus Minerals Inc. is a public company listed on the Toronto Stock Exchange.
As at November 2018, it had a market capitalisation of around 50 million Canadian dollars (K135 million).
Its major shareholders are MB Group (30 per cent) and Metalloinvest Holdings (20 per cent). Both were major shareholders in 2013 when the State was pressed by Nautilus to participate in the project.
Nautilus has since undergone significant changes in key personnel.
The chairman resigned in December 2017, and the chief executive officer resigned in August 2018 (or were terminated) over disagreements in funding strategy.
There had been significant turnover in senior project staff members over the years.

Current project status
The Solwara 1 project construction is still incomplete.
Both the Exploration Licence and Mining Lease are still current.
Recently, the Deep Sea Mining Finance Ltd and SM2 acquired the assets of Nautilus Minerals Niugini Ltd.
The new developers of the Solwara 1 project have not approached Eda Kopa for further funding.
But they are continuing its operations in acknowledgement of Eda Kopa’s 15 per cent interest in the project.
The new developers of the project have developed new mining methods more efficient with minimal environment disturbance and low risk for the Solwara 1 project.
The new developers have lodged work programme variations to effect the changes in mining methods, which will be considered by the Mining Advisory Council.
Since the transfer of the 15 per cent interest in Eda Kopa from KMHL to the State, the Treasury Department has undertaken the repayment of Eda Kopa’s loan with BSP.

Questions that need answers
Has there been any confirmation that the new developers accept the contribution by Eda Kopa into the project as a complete purchase of 15 per cent interest into the project?
Or, in light of the change in mining methods, have the new shareholders requested Eda Kopa to make additional payments?
With the introduction of new methods to be used in the project, will the new developers advise on the environmental management plan?