The timing of Nautilus Minerals' C$40 million rights offering, announced a week ago, may have come as a surprise. Nautilus is in the midst of a battle with the Papua New Guinea government over their partnership in the Solwara 1 underwater mining project that has punished its shareprice in the past year.
Meantime Nautilus President and CEO, Michael Johnston, has also recently said resolution to the PNG-Nautilus dispute may be on the horizon. Indeed, in a conference call for investors on Thursday, Johnston gave his firmest indication yet possible resolution could come and pretty soon; sometime around the third quarter this year, he said.
See: “Nautilus CEO opens up on PNG dispute”
In an ideal world, Nautilus might hope to raise cash after the crisis has been resolved. Since the news of the dispute came to the fore mid-last year Nautilus' shareprice has sunk from over $2 to well under C$0.50, where it has stayed for the better part of the past five months. Presumably a resolution of the dispute would help mend such shareprice damage and ease financing options.
But this is not an ideal world.
The need to finance now comes down to a matter of keeping suppliers happy – invoices paid – and thus key contracts alive that would otherwise fall to the wayside, causing multi-year delays. This, according to Nautilus, is due to uncompromising order schedules of its subsea-equipment builders.
To conserve cash Nautilus cancelled what it saw as non-critical contracts late last year. These, Johnston noted, would be easy to restart.
But it signalled at the time, as Johnston reiterated Thursday, that it would enter talks with other suppliers – who primarily build equipment for the oil and gas industry – about whether it could easily stop and restart these other contracts.
“We maintained discussions with those suppliers because of the heated nature of the oil market and our concern that those particular contracts if stopped would be very difficult to start again,” Johnston said.
In short, the message from such suppliers was: if you delay the contracts, you risk being shunted to the back of the line.
“Slots are pretty much taken up for the next few years on construction of these sorts of tools,” Johnston said, adding it was “very important that we maintain those slots.”
Such a state of affairs factored large in Nautilus ongoing pursuit of the awkwardly-timed C$40 million financing through a rights offering comprising 200 million more shares @ C$0.20, which, as a rights offering, will mostly be available to existing shareholders.
It also has some firm backing on the financing that could see an already significant shareholder gain a greater stake in Nautilus. Nautilus has said MB Holdings, which owns about 16.9 percent of Nautilus shares, agreed to pick up any stock other shareholders do not take via the rights offering.
“It gives us a lot more certainty,” Johnston said, speaking to the timing of the financing more generally. “Getting resolution is one thing. Getting money in the bank is another. So that's one of the reasons why we've gone for the rights issue now.
“The other thing is the timing. It does take time to put together and fully close an offering like this. So if we were to wait until resolution was achieved, formerly, then we would still have, roughly, a two month closure process, which would potentially leave us hanging out in the wind a bit.”
Apart from MB Holdings, Nautilus also counts Metalloinvest, Anglo American and Teck as significant shareholders with about 21 percent, 11 percent and 5 percent of Nautilus' stock, respectively. It was not clear if any of these three intended to pick up additional shares in the rights offering. They had not responded to an emailed request for comment at presstime.