Key points
- Tongling will purchase 1.1 million tonnes per year (plus or minus 20 per cent) of Solwara 1 material for three years on a take-or-pay basis, starting with first delivery targeted in the fourth quarter of 2013.
- The deal includes early payment of 90 per cent of the price upon loading the export vessel in PNG, with final payment based on copper, gold and silver recovery less logistics, processing, smelting and refining charges.
- Metal prices will be set by the London Metal Exchange for copper and the London Bullion Market Association for gold and silver, with a 50/50 profit-sharing scheme on incremental byproduct revenue including gold-bearing pyrite.
- Nautilus will issue a bank guarantee to Tongling in three stages over nine months, not exceeding approximately $11.5 million (U.S.), to secure 50 per cent of Tongling’s concentrator investment costs.
Nautilus Minerals Inc. has signed a binding heads of agreement with Tongling Nonferrous Metals Group Co. Ltd. for the sale of the product extracted from the company’s Solwara 1 deposit located in the Bismarck Sea, Papua New Guinea.
The agreement provides for the purchase by Tongling of 1.1 million tonnes per year (subject to plus/minus-20-per-cent variation) of Solwara 1 material for a period of three years on a take-or-pay basis, commencing upon the first delivery of product from Solwara 1, targeted in fourth quarter 2013, in accordance with a notification mechanism and includes an option to agree an extension of the arrangement.
“The quality of this relationship with China’s largest importer of copper concentrates provides further evidence that there is considerable interest in the high-grade massive sulphides being found by the emerging seafloor resource production industry,” said Nautilus chief executive officer Stephen Rogers.
The material will be imported into China by Tongling and then processed through its facilities in the city of Tongling alongside the Yangtze River. After production of a copper concentrate it will be smelted in Tongling’s industrial complex. The purchase price to be paid by Tongling will be based on the quality of the copper concentrate produced.
The agreement includes a mechanism for an early payment of 90 per cent of the price upon loading of the export vessel in PNG. Final payment is based on the recovery of copper, gold and silver reporting to the copper concentrate with deductions for capped logistics and processing costs, smelter treatment and refining charges (TC/RCs), allowances for plant fixed capital recoveries, and Tongling’s tolling fee on concentrator plant processing costs. TC/RCs are based on Asian international benchmarks with a premium payable for the achievement of target metal recoveries.
The price payable for all metals will be set by the London Metal Exchange for copper and London Bullion Market Association (LBMA) for silver and gold with the initial payment for all metals based on the average of the month preceding the shipment and final payment on a four-month quotational period.
Further value may be realized through a 50-per-cent/50-per-cent profit sharing scheme based on incremental byproduct revenue realized in China, including gold-bearing pyrite. Material from the process can be roasted in China to produce gold and sulphuric acid, and the remaining calcine may be sold to cement manufacturers or as iron ore fines. With minimal waste Tongling’s process brings significant benefits consistent with Nautilus’s commitment to minimize environmental impacts.
The company will issue a bank guarantee to Tongling in three stages over nine months, which will not exceed approximately $11.5-million (U.S.), as a security for 50 per cent of Tongling’s concentrator investment costs commencing at the first order of major equipment.
Mr. Rogers said the company was looking forward to working with Tongling to realize the full potential of the high-grade material extracted from Solwara 1. “We have now closed the value chain on the project, established our first customer for seafloor massive sulphides and look forward to building a long-term relationship with Tongling,” he said.
Nautilus is currently progressing the build of equipment, including the seafloor production tools and production support vessel (as those terms are used in the company’s annual information form), for the Solwara 1 project.
About Tongling
Tongling, together with its subsidiaries, engages in the copper smelting, copper ore mining, processing of copper products and other related businesses primarily in the People’s Republic of China and has a revenue in excess of $11.2-billion (U.S.). It is one of the world’s leading copper and zinc smelting groups. The company produces gold concentrates containing silver, copper, sulphur and other elements; iron concentrates; sulphur fine sand products; single-sulphide, iron ore and iron pellets; copper cathodes; copper flat wires; oxygen-free copper rods; phosphor copper anodes; precision brass sheets and strips; copper sheets and strip classes; lead frame strip classes; phosphor bronze tins; brass rods; self-adhesive and lubricating cables; and resistant wires. It also offers sulphuric acid, copper sulphate and nickel sulphate. The company was formerly known as Anhui Tongdu Copper Co., Ltd. and changed its name to Tongling Nonferrous Metals Group Co., Ltd. in September, 2007. Tongling Nonferrous Metals Group Co., Ltd. was founded in 1992 and was listed on Shenzhen Stock Exchange in 1996. It is headquartered in Tongling City, China. Tongling is one of the companies with the most complete industry chain in China. In 2011, the copper contained in the self-produced copper concentrate is 48,500 tons, the copper cathodes produced is 854,400 tons, the sulphuric acid produced is 2,067,000 tons and the gold produced is 11.15 tons. The core business of Tongling is copper smelting. As of the end of 2011, Tongling has total assets of $5,117-million (U.S.), net assets of $1,814-million (U.S.), sales revenue of $11.218-billion (U.S.) and total profits of $296-million (U.S.).
