Santiago, 8 April 2011: Reuters

Production could start up at the world's first off-shore copper mine as early as the second half of 2013, the chief operating officer of Nautilus Minerals said. The Canadian-based exploration company is hoping its flagship Solwara 1 project in Papua New Guinea will transform the mining industry, much as the oil and gas industry was transformed in the 1970s by off-shore drilling.

"It is one of those projects that just caught my imagination," Nautilus Chief Operating Officer Anthony O'Sullivan told Reuters on the sidelines of the CRU Copper Conference in Santiago. "I thought, if you could do this, wouldn't it be fantastic?"

Solwara 1, which is located near the harbor town of Rabaul, will cost $380 million to build and will produce 95,000 tonnes of copper and 220,000 ounces of gold a year.

Since starting exploration in 2005, Nautilus has managed to get an official resource estimate, environmental approvals and a mining lease. The company also has numerous major equipment contracts in place.

"All the components we need to develop the project are in the chain. We just need the final approval from the board," said O'Sullivan. "If things go to plan, and we get an approval in the next few weeks to months. We're looking at the second half of 2013 to be in production."

The last big step before the board can rubber-stamp the project will be to announce a contract for a ship, which O'Sullivan said would happen before the end of the quarter. Once commercial production is achieved at Solwara 1 and underwater mining has been proven feasible, Nautilus will have the first-to-market advantage in an entirely new industry, said O'Sullivan.

"We'll see potentially phenomenal growth," he said, adding that the company has the rights to explore over 500,000 square km (193,000 square miles) of seabed. Long-term plans include developing more projects in Papua New Guinea and around the world.

But critics say that actually building an underwater mine will be too difficult, and that once plans become widely known the company could face a public backlash over environmental concerns. O'Sullivan said the naysayers should look at the company's record so far.

"There's been a whole heap of things that people said we couldn't do," he said. "Each one of those things that people said we couldn't do, we've subsequently done."

MINING THE SEAFLOOR

So how does a Canadian junior become the first in the world to develop underwater mining? O'Sullivan, who previously managed base metal explorations for BHP Billiton, said it is a matter of putting the pieces of the puzzle together.

"We are marrying technologies out of the offshore oil and gas industry with the mining industry," said O'Sullivan. "It is getting all the people you need gathered in a room and having each of them answer to the bit that they could do."

As for the actual mechanics of mining Solwara 1, the company plans to use two mining machines, similar to the type used in coal mining, to cut the ore from the sea floor a mile (1,600 meters) below sea level.

A collection machine, which is modeled after the kind used in diamond mines, will gather up and grind the rock, mix it with water and then pump it to a support vessel on the surface using oil and gas technology.

After separating the ore from the water, it will then be shipped 19 miles (30 km) to shore in a barge to be put into concentrate and then sold to a smelter. With operating costs of around $70 a tonne, the project seems to have good economics to boot.

"The deposits that we're looking to mine are much higher than the typical grades available on land today," said O'Sullivan. "The Solwara 1 deposit ... has grading on average of about 7 percent copper and 7 grams per tonne of gold."

And while Solwara 1 only has a three-year mine life, the plan is to move the "seafloor production system" the company has designed to new underwater deposits every few years.

Nautilus, whose shares rise 57 percent in the last 12 months, is backed by Anglo American and Teck Resources . The government of Papua New Guinea recently took a 30 percent stake in the Solwara 1 project. O'Sullivan said it was proof his decision to leave BHP Billiton for a junior explorer was the right one.

"I spent some time doing my due diligence and thinking there had to be a fatal flaw in there somewhere," he said O'Sullivan. "And when I couldn't find the fatal flaw, I thought well let's give it a go."

Ends --

By Julie Gordon, Reuters - for Commodities Now