Nautilus Minerals has concluded quasi-secret negotiations with project partners over intellectual property rights in the hopes of resolving what has emerged as a major point of contention for the Papua New Guinea government in a broader dispute over the Solwara 1 underwater mining project and the state's 30 percent equity interest in it.
Speaking in a conference call on Thursday, Michael Johnston, Nautilus president and CEO, said that Nautilus has been willing to provide Papua New Guinea ownership of intellectual property rights. But the problem, as Johnston told it, was that many of the deeds covering proprietary technology and subsea mining methods, which Nautilus and several partners developed over the years, did not contain clauses allowing for a third party, such as the Papua New Guinea government, to come on board as an additional partner and owner of the intellectual property rights.
Thus, Johnston described sensitive negotiations over the past few months in which Nautilus had to go to its partners, “household names” in the dredging business he gave as examples, to convince them to redraw the deeds to allow the Papua New Guinea government to gain direct 30-percent ownership of the intellectual property rights.
Now, Johnston said, Nautilus has redrawn the deeds with its partners and delivered the new terms to the Papua New Guinea government. Johnston said he had hoped to hear back from the government last week on its view of the new deeds, but that Nautilus has yet to be contacted by Papua New Guinea officials.
Nonetheless, Johnston, who said he had just returned from a trip to Papua New Guinea on the morning of the conference call, stated that he has high hopes about an overall resolution to the dispute. "We had a number of very good meetings with senior politicians and I'm quite confident that we will get resolution to this dispute in the not too distant future."
Apology to investors
While not a secret, hitherto Nautilus had not publicly explained in any great depth the importance of the intellectual property rights issue to the Papua New Guinea government. Thus, responding to a question from a private investor, Johnston was apologetic in describing why Nautilus had needed, in his view, to be tight-lipped about negotiations with its technology partners.
“It’s always very hard,” Johnston said. “When we’re negotiating with the other third parties involved on the IP (intellectual property) you can imagine it’s very difficult for us having conference calls, update calls like this. If I was to tell people that that particular piece of IP is quite critical to us closing this agreement, you can imagine someone’s ears would prick up.
“I apologize if we’ve come across as being a little secretive, if you like...but it has been commercially difficult for us to be able to tell people exactly what was going on with that IP.
“But now...we believe those deeds are sorted out and we’re now quite open about what those issues were. And, as I said, it goes right back to those design challenges that we had in the very early stages to develop and come up with the best system for seafloor mining. And, unfortunately, during that process we didn’t think at the time we would require another party’s name on the deeds.”
By getting rights to the subsea mining technology, the Papua New Guinea government will be allowed to use the same methods as Nautilus intends to employ at Solwara 1 on its own non-Nautilus projects. This fact raised the question of whether Papua New Guinea could then go and license the technology to potential competitors (assuming Papua New Guinea consents to the new deeds).
In response, Johnston said, the terms of the renegotiated deeds required approval from Nautilus and its partners were such a situation to arise. Further, Johnston noted that as part of the redrawn deeds, were the Papua New Guinea government to employ the technology on its own or through an approved partner Nautilus would get royalty payments from any other mining project.
30 percent participating interest
There also remains the issue of an outstanding bill of roughly $80 million that Nautilus maintains the Papua New Guinea government owes it for work on the Solwara 1 project.
Last year, as the dispute between Nautilus and the Papua New Guinea government escalated, the parties initiated a dispute resolution mechanism for arbitration on the matter, with the Papua New Guinea government alleging Nautilus had not met contractual obligations.
Johnston said a hearing date would be made in mid April, at which point there could be final resolution on the outstanding bill - a key reason why Nautilus has put the Solwara project on hold.
While Johnston would not comment on the matter, some participants on the conference call wondered if the resolution on intellectual property rights - not in the bag yet but seemingly closer than ever - might expedite an ultimate solution.
On this Johnston would only say that the arbitration process is “firmly underway in parallel with discussions, without prejudice, with the state."
Takeover, financing
Meantime, Johnston threw cold water on the takeover and financing proposals made by Ottawa businessmen Michael Bailey in early January that, as covered in these pages, contained numerous discrepancies. (See: Discrepancies, denials in C$238m hostile bid for Nautilus Minerals and “Ottawa businessman shifts tactic from takeover to financing in Nautilus bid.”)
“No formal bid was ever received by Nautilus during this process,” Johnston said. “None of our major shareholders were ever contacted. And then on the 15th of January Mr. Bailey proposed an equity line finance facility. On reviewing those terms it was obvious that they did not comply with TSX or Canadian corporate laws. And the takeover just quietly seems to have gone away.”
But that quiet may soon be broken. Bailey said in an interview Thursday that it was news to him that Nautilus had rejected the financing proposal, which he argued was in the best interest of Nautilus shareholders. He also maintained that, as previously stated in a press release, he intended to go ahead with a takeover, which he has previously claimed is fully funded by unnamed sources, if Nautilus did not agree to the equity line financing for $80 million.
"The whole situation is exactly how it reads in the news,” Bailey said. “If they don't proceed with the financing then we're going to proceed with the takeover.”
He then said, “We're in discussions with them about the financing."
Such discussions were not recent according to Nautilus chief financial officer Shontel Norgate. Norgate said in an email on Friday that “We have had no communication with Mr. Bailey since mid January.”