Nautilus Delays Seafloor Mine Development

The turmoil in the world markets has prompted Nautilus Minerals (NUS-T, NUS-l) to delay construction of the mining system for its Solwara 1 seafloor copper-gold-zinc-silver massive sulphide deposit, off the coast of Papua New Guinea.

Instead, the company will hold on to its cash — it had US$266.6 million as of Sept. 30 — until the markets stabilize.

“The continued uncertainty in the financial markets now forces us to take a more cautious approach,” said Nautilus CEO Stephen Rogers during a conference call. “The project requires further funding to take this project comfortably to its startup and commissioning cycle.”

The company had planned to bring the underwater mining operation into production by the fourth quarter of 2010, but no new date has been set.

During the conference call, one analyst asked how much more money Nautilus needed to fund the project and whether it might be better to liquidate the company and return all the cash to shareholders.

Rogers said the delay in advancing the project is temporary and that shareholders will get a return on their investment eventually.

He wouldn’t say how much more money the company needs to bring the project into production — just that management have decided Nautilus wouldn’t be able to get a good financing deal because of the volatility in the markets.

“We’ve been reluctant to declare capital expenditures in the event that it provides too much information to the contract community,” Rogers explained. “It’s fair to say we did not believe we had sufficient funding; now we have an opportunity to bring costs down and secure additional funding.”

Nautilus wants to build the world’s first seafloor copper-gold mine in the Bismarck Sea, off Papua New Guinea, 50 km north of Rabaul Twp.

The company holds 521,000 sq. km of exploration concessions in the territorial waters of PNG, Fiji, Tonga, the Solomon Islands and New Zealand along the western Pacific Ocean’s Rim of Fire.

Rogers says the company will continue with its mining licence application, engineering designs and exploration.

“I want to emphasize that the project is not being stopped or halted,” Rogers said.

He said the company will still have in excess of US$200 million at the end of 2009.

Another analyst asked Rogers if the company was a takeover target.

“What is to prevent someone from coming in and raiding you for your cash?” the analyst asked.

Rogers said management, directors and three major shareholders hold around 45% of the company.

“So that will help fend off any undesirable attempts to take our cash,” Rogers said. “We’ll be watching that as we go forward.”

Teck (CK. B-T, TCK-n) holds a 6.8% interest in Nautilus, Anglo American (AAUK-Q, AAL-l) holds 11.1% and Gazmetall Holding, a subsidiary of the Metalloninvest Group, one of Russia’s largest iron ore producers, has 22.4%.

In the event of a takeover attempt, all three have agreed to accept any offer that the Nautilus board recommends or to make a higher bid.

Rogers says debt-ridden Teck hasn’t indicated that it wants out of the project. The company, which is struggling to pay off its US$10-billion debt, recently cancelled its annual dividend, slashed spending and abandoned or sold its interests in two major projects.

Rogers says Nautilus will receive more news from Teck on its status in the new year.

Nautilus trades at 86¢ and has 156 million shares outstanding, for a market capitalization of just $134 million — or about 40% of its current cash position.