TIDMNUS
2nd Quarter Results
NAUTILUS MINERALS INC.
Corporate Office:
Suite 801
141 Adelaide Street West
Toronto, Ontario
M5H3L5
NEWS RELEASE
Number 2009-17
Nautilus Maintains Strong Cash Position with $233 Million at End Q2 2009
TORONTO, ONTARIO--(Marketwire - August 14, 2009) - Nautilus Minerals Inc. (TSX:NUS)(AIM:NUS) (the "Company" or "Nautilus") announces the
release of its unaudited consolidated financial results for the second quarter ended June 30, 2009 together with
Management's Discussion and Analysis. Nautilus will hold an investor update conference call before the end of August to
provide details on progress in the year to date.
2nd Quarter 2009 Highlights:
- US$223.5 million (equivalent) in cash and cash equivalents held on deposit with major banks as at June 30, 2009
- Drilling discovers high grade zones near Solwara 1
- Operating cost estimates released
- Mining Warden's Hearing completed
- Exploration success continues with high grades in 2009 Tongan exploration
Stephen Rogers, Nautilus' CEO, commented: "During the second quarter we have maintained appropriate expenditure controls
to preserve our strong cash position. We continue to make progress with the selection process for a production support
vessel. Our Tongan exploration results in the first half of the year have been positive and we expect to build on this
over the coming months in Papua New Guinea."
The Company's Financial Statements, Management's Discussion and Analysis are available from the Company's website,
www.nautilusminerals.com and SEDAR, www.sedar.com.
About Nautilus Minerals Inc.
Nautilus is the first company to commercially explore the ocean floor for gold and copper seafloor massive sulphide
deposits and is currently developing its first project. The Company's main focus is the Solwara 1 Project, which is
located in the territorial waters of Papua New Guinea in the western Pacific Ocean. Nautilus is listed on the TSX and
AIM stock exchanges, and has among its largest shareholders two of the world's leading international resource companies,
Teck (6.8%) and Anglo American (11.1%). Metalloinvest, one of the largest and fastest growing mining and metallurgical
holding companies in Russia, beneficially owns 21.0% of its shares through Gazmetall Holding (Cypress) Limited.
For more information please refer www.nautilusminerals.com or contact:
Investor Relations Australian Project Office
Nautilus Minerals Inc. (Toronto) Tel: +61 (7) 3318 5555
Email: investor@nautilusminerals.com
Tel: +1 (416) 551 1100
Numis Securities Limited
Nominated adviser: John Harrison
Corporate broking: James Black
Tel: + 44(0) 20 7260 1000
Neither the TSX nor the London Stock Exchange accept responsibility for the adequacy or accuracy of this press release.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(US dollars, in accordance with Canadian GAAP)
The following Management Discussion and Analysis ("MD&A") has been prepared as at August 14, 2009 for the six months
ended June 30, 2009. It includes references to United States dollars, Canadian dollars, Papua New Guinea Kina, United
Kingdom pounds Sterling and Euros. All dollar amounts referenced, unless otherwise indicated, are expressed in United
States dollars or $ and the Canadian dollars are referred to as C$, Papua New Guinea Kina are referred to as PGK,
United Kingdom pounds Sterling are referred to as GBP and Euros are referred to as ?.
The MD&A of Nautilus Minerals Inc. (the "Company", "NMI" or "Nautilus") should be read in conjunction with the audited
consolidated financial statements and related for the year ended December 31, 2008. This section contains forward-
looking statements that involve risks and uncertainties. The Company's actual results may differ materially from those
discussed in forward-looking statements as a result of various factors, including, but not limited to those described
under "Forward-Looking Information."
FORWARD-LOOKING INFORMATION
This MD&A contains certain forward-looking statements and information relating to the Company that are based on the
beliefs of its management as well as assumptions made by management and information currently available to the Company.
When used in this document, the words "anticipate", "believe", "estimate", "expect" and similar expressions, as they
relate to the Company or its management, are intended to identify forward-looking statements. Such forward-looking
statements relate to, among other things, regulatory compliance, the sufficiency of current working capital, the
estimated cost and availability of funding for the continued exploration of the Company's exploration properties. Such
statements reflect the current views of the Company with respect to future events and are subject to certain risks,
uncertainties and assumptions. Many factors could cause the actual results, performance or achievement of the Company
to be materially different from any future results, performance or achievements that may be expressed or implied by
such forward-looking statements.
OUR BUSINESS
Overview
Nautilus is the first company to commercially explore the ocean floor for copper, gold, silver and zinc seafloor
massive sulphide ("SMS") deposits, and is well positioned to develop the world's first seafloor massive sulphide
system. The Company's main focus for 2009 is the Solwara 1 Project which is located in the territorial waters of Papua
New Guinea ("PNG") in the western Pacific Ocean. The proposed operations of the Company, subject to permitting and
financing, will be the exploration for and the mining of SMS deposits for copper, zinc, gold and silver where there are
economically viable discoveries.
SECOND QUARTER 2009 HIGHLIGHTS
- US$223.5 million (equivalent) in cash and cash equivalents held on deposit with major banks as at June 30,
2009
- Drilling discovers high grade zones near Solwara 1
- Operating cost estimates released
- Mining Warden's Hearing completed
- Exploration success continues with high grades in 2009 Tongan exploration
US$223.5 million (equivalent) in cash and cash equivalents held on deposit with major banks
Nautilus is in a strong financial position with $223.5 million (equivalent) in cash and cash equivalents held on
deposit with banks holding an S&P rating of A+ or better, as at June 30, 2009.
Drilling discovers high grade zones near Solwara 1
On May 13, 2009, the Company announced that it had discovered a new high-grade base and precious metal zone on its
Solwara 1 Prospect in the territorial waters of Papua New Guinea ("PNG"). A review of recently completed assay work
from its scout drilling program completed in late 2008 (the "Scout Drilling Program"), revealed the new zone with
significant base and precious metal grades. The newly discovered zone (North Zone) lies approximately 250 meters north
of the Solwara 1 Resource and has returned top assay values in respect of each mineral of 30.1% Cu, 22.0% Zn, 26.2 g/t
Au and 580 g/t Ag across holes drilled. The Scout Drilling Program also intersected a high-grade mineralisation at
Solwara 5 (top values in respect of each mineral of 24.3% Cu, 10.35% Zn, 19.3 g/t Au and 299 g/t Ag across holes
drilled). These prospects occur on Exploration License, EL1196 and are subject to Mining Lease Application, MLA154.
They are open at depth and require further definition both laterally and vertically. Recoveries have been reduced from
those achieved in the 2007 drilling campaign with an average 41% recovery across the program in 2008.
2008 Drilling Program
Nautilus completed a 31 hole, 176.40 meter Scout Drilling Program over a 21-day period from November 12, to December 3,
2008. The program was on 100% Nautilus held tenements in the Bismarck Sea, within the territorial waters of PNG.
Drilling was undertaken from MV Nor Sky vessel using a Perry Slingsby built T200 Remote Operated Vehicle ("ROV")
mounted drill rig that was used in 2007 to successfully define the world's first NI43-101 compliant resource estimate
for a Seafloor Massive Sulphide ("SMS") deposit at Solwara 1.
Of the 31 short holes completed, 22 were drilled on EL1196, including four holes at Solwara 5. An additional four holes
were completed at Solwara 4 and 8, and five holes were completed at Solwara 10.
Overall core recovery in the 2008 Scout Drilling Program was 41% which is significantly lower than that achieved in the
2007 program (approximately 60% overall recovery). The reduced recovery is thought to have resulted from the large
number of sites/systems tested, alternating very soft and hard material and the highly fractured nature of the near
surface material. Operator inexperience has also contributed given the short nature of the program relative to 2007.
The 2008 Scout Drilling Program was designed to provide a rapid and cost effective test of a number of relatively weak
Electromagnetic ("EM") anomalies and/or sulphide outcrops identified by various dives in 2007 and 2008. Each dive of
the drill program was generally designed to complete two short "scout holes", with around 8 to 9 meters of rods
available for each hole if drilling/ground conditions allowed.
A ROV mounted EM detection system was developed in 2007 by Nautilus, Teck Cominco and Ocean Floor Geophysics to "map"
shallow copper rich mineral systems. The EM system successfully mapped the copper-rich Solwara 1 system. In 2008, the
Company collected EM data over a number of other systems, including zinc-rich outcrops. The EM system has a depth
penetration of around two to five meters in copper-rich systems, but does not respond to copper-poor systems.
Results
EL1196
A total of 22 short holes were completed on EL1196. At Solwara 1, 18 holes were completed to test a range of targets,
all of these infilling within the previously defined Inferred Resource, and within additional weak EM anomalies outside
the existing resource.
High-grade results were returned from the new North Zone at Solwara 1, Solwara 5 and from within the existing Inferred
Resource.
Solwara 1 - North Zone: Three holes (SD 148, 149, and 162) drilled approximately 250 meters north of the central zone
discovered a new zone of high-grade mineralisation (top values in respect of each mineral of 30.1% Cu, 22.0% Zn, 26.2
g/t Au and 580 g/t Ag across all holes) locally occurring beneath unaltered volcanic rock. The mineralisation is open
at depth, and laterally. All three holes suffered from poor recovery, but ended in high-grade base and precious metal.
Drill holes SD 160 and SD 163 drilled to the immediate north and south of the North Zone did not intersect sulphide
mineralisation, but are not considered an adequate test of the lateral extent. Further work is required to define the
lateral and vertical extent of this new zone of high-grade mineralisation. The drilling also indicates that high-grade
mineralisation does exist, at least locally under volcanic rock as well as sediment cover.
Solwara 1 - Holes drilled within and around the existing Inferred Resource: A number of short holes were drilled in the
margins of the existing Inferred Resource to test the robustness of the existing resource model. Results support the
existing resource model. At this time the resource model has not been re-estimated. Improved core recovery and
significantly greater depth penetration are required to further test the extent of the existing resource model.
Solwara 1 - Holes testing other weak EM anomalies: Drill holes SD 147, 150, 153, 159, and 164 attempted to test weak EM
anomalies near the Inferred Resource. These holes, which are short and demonstrated low recoveries, failed to intersect
any sulphide mineralisation or anomalous material.
Solwara 5: Four holes were drilled at Solwara 5, centred on a small EM anomaly co-incident with mapped chimneys. All
four holes intersected high-grade mineralisation, even in the overlying sediment cover. Copper rich mineralisation was
intersected in the vicinity of the EM "bull's eye", and more zinc and/or gold rich mineralisation appear peripheral to
this in the "step out" holes that were drilled. Results at Solwara 5 are encouraging with top assay values in respect
of each mineral of 24.3% Cu, 10.3% Zn and 19.3 g/t Au and 299 g/t Ag across all holes. Mineralisation is open both at
depth and laterally.
Solwara 10
Five short holes were completed at Solwara 10, where predominately zinc rich chimneys have been observed over a strike
length of approximately 680 meters. The EM response over the prospect is generally weak and irregular. Four of the five
holes intersected zones of zinc +/- silver, gold, copper mineralisation, with a best intersection of 56.5% Zn, 270 g/t
Ag and 3.9 g/t Au being recorded over 0.70m interval. Further work is warranted in this area given its relatively early
stage of exploration.
The style of mineralisation present at Solwara 10 is significantly different from that defined to date at Solwara 1,
being dominated in the drilling by zinc sulphides with relatively lesser copper sulphides. A portion of the intersected
mineralisation occurs in veins and breccias, rather than massive sulphide.
Solwara 4 and 8
Four short holes were completed in the Solwara 4 and 8 area, where patchy low order EM anomalies were defined. Drilling
returned mixed results, with top assay values in respect of each mineral of 25.2% Cu, 13.4% Zn and 27.0 g/t Au across
all holes.
Project update and operating cost estimates released
On May 19, 2009 the Company announced that it had continued to make significant progress on the development of the
Solwara 1 Project in the territorial waters of Papua New Guinea ("PNG")
Over the four months prior to the May 19, 2009 announcement, Nautilus had undertaken a commercial review of its Solwara
1 Project to identify potential capital and operating cost savings presented as a result of the current global
financial downturn. Furthermore, in the announcement Nautilus stated that it was progressing, in parallel with
engineering design and vessel sourcing, an optimisation program to identify technical improvements to the system which
could realise further cost benefits. Significant advances have been made on vessel sourcing and system optimisation.
During this same period, Nautilus has been in discussions with several prospective partners regarding the development
of the Bismarck Sea which includes Solwara 1.
Whilst the Solwara 1 cost reduction and optimisation program is ongoing, highlights of the work completed to date are:
- Shipping market enquiries have outlined a number of Mining Support Vessel ("MSV") options that offer
significant savings and technical benefits to the project. Vessel evaluations and discussions are
progressing and the Company has identified a short list of five vessels from which a final solution will
be selected
- In parallel with the vessel enquiry, a more detailed mooring analysis is in progress to further examine the
viability of utilising a single pre-set deepwater mooring spread to maintain the MSV on station. Now that
the traverse requirements of the Seafloor Mining Tool ("SMT") and the behaviours of the riser system are
better understood, a moored vessel may offer benefits over a dynamically positioned vessel;
- Technip Inc has been commissioned to undertake riser optimisation and cost saving analysis. This work will
examine riser sizing and equipment sourcing to take advantage of the significant drop in global steel
prices. This study is expected to report in Q3 of 2009 albeit savings have already been identified in the
work completed to date;
- A trial and testing program is in place with Soil Machine Dynamics to proceed with planned quarry and
submerged trials of key cutting and gathering components of the SMT, providing valuable operational input
to the final design; and
- Discussions are in progress with GE Hydril to finalise a wear testing program on the Subsea Slurry Lift Pump
to better plan maintenance and sparing regimes.
Overall subsea system engineering is currently about 80% complete.
Permitting has progressed with the Mining Lease Wardens Hearing completed in Q1 2009. An independent review of the
Environmental Impact Statement commissioned by the PNG Government has been completed and a recommendation will be made
shortly.
Market engagement with copper concentrate offtake parties has confirmed a strong interest in Solwara 1 copper
concentrate as determined by the metallurgical test program supervised by Minerallurgy Ltd. and completed by Ammtec
Laboratories in Perth, Western Australia.
Operating Costs
Operating costs for the offshore production system are expected to be in the range US$50 - US$65 / dry ton of ore to
extract and deliver material into a stockpile at the Port of Rabaul. This is based on a targeted production rate of
between 1.2 - 1.6 million tonnes per annum. Fuel is 10% of this cost based on an oil price of $60 per barrel assuming
that a dynamically positioned vessel is finally selected by Nautilus in preference to the pre-set deepwater mooring
spread.
The operating cost guidance is not an economic evaluation or an economic analysis. The current estimate of indicated
and inferred mineral resources [870,000 tonnes of indicated mineral resources with 6.8% copper, 4.8 grams per tonne
gold, 23 grams per tonne silver and 0.4% zinc and 1,300,000 tonnes of inferred mineral resources with 7.5% copper, 7.2
grams per tonne gold, 37 grams per tonne silver and 0.8% zinc using a 4% copper cut-off grade] does not support a mine
life which demonstrates at this time that mining is economically viable.
Exploration success continues with high grades in 2009 Tongan exploration
On July 3, 2009 Nautilus announced that it had successfully completed the 2009 target generation program in Tonga on
100% owned Nautilus prospecting licences. Nautilus' 2009 Tongan exploration program was undertaken in collaboration
with Australian National University ("ANU") and the Commonwealth Scientific and Industrial Research Organisation
("CSIRO"), onboard the Marine National Facility research vessel Southern Surveyor. Work was completed under the
supervision of ANU's Professor Richard Arculus, with input from CSIRO, ANU and Nautilus. The first phase of the program
mobilised from Lautoka, Fiji on April 23, 2009. It focused on Nautilus' granted Tongan tenements in the NE Lau Basin
and was completed in Nuku'alofa, on May 18, 2009. Phase two was undertaken from May 29 to June 25, 2009 and focused on
Nautilus' granted Tongan tenements in the Southern and Central Lau basins. Some of the anomalies discovered in phase
two were identified following interpretation of data from previous marine scientific research surveys.
The assay results from the samples taken during the first phase of the 2009 target generation program in Tonga showed
high grade copper, gold, zinc and silver assays with highest assay results in respect of each element across all the
samples tested of 12.6% Cu, 34.0 g/t Au, 60.9% Zn and 185 g/t Ag.
Twenty samples of SMS material were collected from Tahi Moana 7 and FRSC02 prospects, during phase one of the 2009
Tongan exploration program. Assay results confirm the two systems contain significant precious metals (gold and
silver), as well as high grade copper and/or zinc mineralisation.
Tahi Moana 7 is located on the NE Lau Spreading Centre, in water depths between 1880 to 1940 m and is approximately 14
km NNE of Nautilus' 2008 exploration partner Teck Resources' ("Teck") 2008 Maka SMS discovery. A video camera tow
following up the water column anomaly identified on the NEL5a survey line, defined an approximately 150 m long traverse
containing features interpreted as sulphide outcrops, and other indicators associated with hydrothermal activity. A
subsequent 170 m small dredge sampling line, focused on the area of the interpreted sulphide outcrops, recovered
approximately 150 kg of sample containing a mixture of massive and semi-massive sulphide (25.5 kg) and volcanic rock
(the remainder).
Site FRSC02 is located in the Fonualei Rifts area, in water depths between 1640 to 1820 m and 140 km south-southwest of
Teck's 2008 Maka SMS discovery, the nearest known SMS system. A 600 g sample of massive sulphide was recovered from
the camera frame, following one of two video camera tows implemented over a water column anomaly identified on survey
line NEL11a. Two subsequent short small dredge sampling lines did not return further sulphide samples.
Nautilus is rapidly advancing its ability to acquire and interpret water column data, in collaboration with ocean
chemistry expert Gary Massoth and other marine scientific researchers. Preliminary interpretation of water column
survey data, gathered in Tongan waters in June has identified twelve anomalies in total. All water column anomalies
identified have signatures considered analogous with hydrothermal vent systems. Follow up video-tow and small dredge
sampling were attempted over three of the anomalies. Sulphide mineralisation was recovered from two sites (named Tahi
Moana 7 and FRSC02). The collaborative research program with Australian National University ("ANU"), from RV Southern
Surveyor included multibeam swath mapping and water column surveys over key target areas identified by the exploration
team. Eight of the water column anomalies were completely new discoveries. Three of the anomalies were identified
following interpretation of previous NOAA ("National Oceanic and Atmospheric Administration, of the United States of
America") voyage data, and FRSC02 is coincident with an area reported by KORDI ("Korea Ocean Research and Development
Institute, of the Republic of Korea"). Further work is required at each of the twelve sites.
SUMMARY OF QUARTERLY RESULTS (unaudited)
The following table sets out selected unaudited quarterly financial information of Nautilus and is derived from
unaudited quarterly consolidated financial statements prepared by management. The Company's interim consolidated
financial statements are prepared in accordance with Canadian generally accepted accounting principles and expressed in
US dollars.
Income (Loss) and
Comprehensive Income Basic Income Diluted Income
Revenues (Loss) for the Period (Loss) per (Loss) per Share
Period (in millions) (in millions) Share
=-----------------------------------------------------------------------------------------------------
2nd Quarter 2009 Nil $2.7 $0.02 $0.02
1st Quarter 2009 Nil $(8.0) $(0.05) $(0.05)
4th Quarter 2008 Nil $(35.2) $(0.24) $(0.24)
3rd Quarter 2008 Nil $(38.4) $(0.26) $(0.26)
2nd Quarter 2008 Nil $(8.8) $(0.06) $(0.06)
1st Quarter 2008 Nil $0.8 $0.01 $0.01
4th Quarter 2007 Nil $(10.0) $(0.07) $(0.07)
3rd Quarter 2007 Nil $(12.4) $(0.10) $(0.10)
2nd Quarter 2007 Nil $(6.2) $(0.05) $(0.05)
RESULTS OF OPERATIONS
The following discussion provides an analysis of the financial results of Nautilus:
For the six months ended June 30, 2009
Income for the period
Net income
For the six months ended June 30, 2009, the Company recorded a loss of $5.4 million ($0.03 loss per share) as compared
to a loss of $8.0 million ($0.05 loss per share) for the same period in 2008.
Exploration expense
Exploration expense reduced to $5.9 million (six months ended June 30, 2008 - $11.7 million) due to the timing of
exploration programs planned for 2009.
Interest income
Interest income earned on cash and cash equivalents held during the period was $1.2 million (six months ended June 30,
2008 - $6.5 million). The decrease was attributable to the decrease in interest rates and decrease in cash held during
the period. The Company maintains its cash and cash equivalents with banks with an S&P rating of A+ or better.
Non-cash stock based compensation
A total of $2.0 million in non-cash stock based compensation was expensed during the period (six months ended June 30,
2008 - $4.1 million). The decrease is attributable to the increase in the number of options that expired over the
period.
Foreign exchange gains and losses
A foreign exchange gain of $5.4 million was recorded during the period (six months ended June 30, 2008
- gain of $5.2 million). The foreign exchange gain consists of realised and unrealised gains and losses on actual cash
transactions during the period and revaluations of cash denominated in different currencies at balance date.
Depreciation expense
Depreciation expense increased to $0.5 million (six months ended June 30, 2008 - $0.3 million) due to an increase in
property, plant and equipment acquired.
Other general and administrative costs
There has been an overall decrease in other general and administrative expenses since the deferral of the equipment
build announced in December 2008 as the Company focuses its attention on planning for the exploration program scheduled
for later in the year, continuing engineering studies vessel selection activities and partering discussions.
Other general and administrative expenses consist of:
- management fees and salaries of $0.9 million (2008 - $1.0 million), a decrease of $0.1 million as a result of
higher allocation of salaries being included in wages and salaries over the period;
- wages and salaries of $1.4 million (2008 - $0.7 million), an increase of $0.7 million due to less salaries
costs being attributed to exploration costs;
- general administrative expenses decreased to $0.8 million (2008 - $0.9 million)
- shareholder information expenses of $0.1 million (2008 - $0.2 million), a decrease from the same period in
the previous year due the timing of shareholder information being produced during the quarter;
- travel expenses of $0.2 million (2008 - $0.3 million);
- professional fees of $0.3 million (2008 - $0.5 million); and
- listing and filing fees of $0.1 million (2008 - $0.1 million).
Overall, Nautilus' expenses decreased to $6.7 million for the period ended June 30, 2009, down from $14.8 million for
the same period in 2008 which is largely attributable to the timing of the planned exploration programs for 2009 and
the general decrease in administrative expenditure. Engineering work directly related to the purchase of equipment has
been included as assets under construction and is detailed below under Investing activities.
Cash flows
Operating activities
Cash used in operating activities for the six month period ended June 30, 2009 was $16.1 million as compared to cash
flows from operating activities of $10.0 million for the period ended June 30, 2008. The increase in cash used in
operating activities is attributable to the paying down of accounts payable and accrued liabilities and the timing of
exploration activity. .
Investing activities
Cash from investing activities for the six month period ended June 30, 2009 was $3.2 million compared to cash used in
investing activities of $7.3 million for the six month period ended June 30, 2008. The cash from investing activities
was the result of $4.0 million being released from Restricted Cash due to the release of two Letters of Credit relating
to Technip and North Sea Shipping in the quarter.
Financing activities
Cash from financing activities for the six month period ended June 30, 2009 was $Nil as compared to $1.1 million for
the six month period ended June 30, 2008.
For the three months ended June 30, 2009
Income for the period
Net income
For the three months ended June 30, 2009, the Company recorded a profit of $2.7 million ($0.02 profit per share) as
compared to a loss of $8.8 million ($0.06 loss per share) for the same period in 2008.
Exploration expense
Exploration expense reduced to $4.3 million (three months ended June 30, 2008 - $9.4 million) due to the timing of
exploration programs planned for 2009.
Interest income
Interest income earned on cash and cash equivalents held during the period was $0.7 million (three months ended June
30, 2008 - $3.2 million). The decrease was attributable to the decrease in interest rates and decrease in cash held
during the period. The Company maintains its cash and cash equivalents with banks with an S&P rating of A+ or better.
Non-cash stock based compensation
A total of $1.0 million in non-cash stock based compensation was expensed during the period (three months ended June
30, 2008 - $1.9 million). The decrease is attributable to the increase in the number of options that expired over the
period.
Foreign exchange gains and losses
A foreign exchange gain of $9.5 million was recorded during the period (three months ended June 30, 2008 - gain of $1.5
million). The foreign exchange gain consists of realised and unrealised gains and losses on actual cash transactions
during the period and revaluations of cash denominated in different currencies at balance date.
Depreciation expense
Depreciation expense remained consistent at $0.2 million (three months ended June 30, 2008 - $0.2 million).
Other general and administrative costs
There has been an overall decrease in other general and administrative expenses since the deferral of the equipment
build announced in December 2008 as the Company focuses its attention on planning for the exploration program scheduled
for later in the year and continuing engineering studies.
Other general and administrative expenses consist of:
- management fees and salaries of $0.5 million (2008 - $0.5 million), have remained consistent compared to the
same period last year.
- wages and salaries of $0.6 million (2008 - $0.4 million), an increase of $0.2 million due to less salaries
costs being attributed to exploration costs;
- general administrative expenses have decreased to $0.5 million (2008 - $0.6 million)
- shareholder information expenses of $0.04 million (2008 - $0.2 million), a decrease from the same period in
the previous year due the timing of shareholder information being produced during the quarter;
- travel expenses of $0.1 million (2008 - $0.2 million);
- professional fees of $0.2 million (2008 - $0.3 million); and
- listing and filing fees of $0.02 million (2008 - $0.03 million).
Overall, Nautilus' expenses decreased to $7.5 million for the three months ended June 30, 2009, down from $10.8 million
for the same period in 2008 (excluding foreign exchange gains) which is largely attributable to the timing of the
planned exploration programs for 2009 and the general decrease in administrative expenditure. Engineering work
directly related to the purchase of equipment has been included as assets under construction and is detailed below
under Investing activities.
Cash flows
Operating activities
Cash used in operating activities for the three month period ended June 30, 2009 was $5.0 million as compared to cash
flows from operating activities of $7.1 million for the three month period ended June 30, 2008. The decrease in cash
used in operating activities is attributable to the decrease in exploration expenditure over the period.
Investing activities
Cash from investing activities for the three month period ended June 30, 2009 was $3.7 million as compared to cash used
in investing activities of $6.7 million for the three month period ended June 30, 2008.
Financing activities
Cash from financing activities for the three month period ended June 30, 2009 was $Nil as compared to $1.0million for
the three month period ended June 30, 2008.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial objective is to ensure that it has sufficient liquidity in the form of cash and/or debt
capacity. Nautilus' goal is to finance its ongoing requirements to support the Company's strategy the first company to
commercially extract gold, copper, silver and zinc from the seafloor.
Key financial measures
The Company uses the following key financial measures to assess its financial condition and liquidity:
June 30 December 31
2009 2008
Debt to Equity Nil Nil
Current Ratio 43.4 to 1 16.7 to 1
Working Capital $218.8 million $218.5 million
Cash and Cash Equivalents $223.5 million $231.1 million
Under the Company's Investment Policy, must be held on deposit with banks with an S&P credit rating of A+ or better.
Outlook and capital requirements
The Company's known contractual obligations at June 30, 2009, are quantified in the table below:
June 30
2009
$
a) Non- cancellable operating leases
Not later than 1 year 272,276
Later than 1 year and not later than 2 years 101,891
Later than 2 years and not later than 3 years 15,943
Later than 3 years and not later than 4 years 2,792
Later than 4 years and not later than 5 years -
Later than 5 years -
--------
392,903
--------
b) Non-cancellable development agreements
Not later than 1 year 599,603
--------
599,603
--------
Total Commitments 992,505
--------
--------
The Company is involved in mineral exploration which is a high risk activity and relies on results from each exploration
program to determine if areas justify any further exploration and the extent and method of appropriate exploration to be
conducted.
The Company has budgeted to spend approximately $13 million for exploration work in 2009 on the Solwara 1 Project and
other regional exploration programs. If exploration results and engineering studies are positive, the Company may
consider committing additional funds to finance further engineering and exploration studies. In addition, the Company
may consider further increases in staffing levels.
In order to maintain the exploration leases, licenses and permits in which the Company is involved, the Company is
expected to fulfill the minimum annual expenditure conditions under which the tenements are granted. These obligations
may be varied from time to time, subject to approval, and are expected to be fulfilled in the normal course of
operations of the Company. The exploration commitments are based on those exploration tenements that have been granted
and may increase or decrease depending on whether additional applications are granted, relinquished or form joint
ventures in the future.
On December 17, 2008 the Company announced it had decided to adopt a more cautious strategy and to preserve its cash
position by delaying the construction of the equipment for the Solwara 1 mining system. As a result all contracts
relating to the Solwara 1 mining system have been terminated or suspended, depending on their criticality to the revised
development program. All of the supplier agreements contained provisions for termination without penalty.
The contracts that have been suspended will not incur any additional costs, unless instructed by the Company to continue
with engineering studies, until those contracts are reactivated. The value of the suspended contracts is $77.3 million.
The suspended contracts also contain provisions allowing the Company to cancel at any time. The vessel agreements with
North Sea Shipping Holding AS ("North Sea Shipping") to provide a mining services vessel was also terminated.
The Company will need to obtain significant additional capital to develop any of its exploration properties, including
Solwara 1, and debt financing may not be obtainable for a project such as that contemplated. The Company may need to
rely on the equity markets for future financing of the Company's development of Solwara 1 in the form of joint ventures,
leasing options and offtake agreements which may not be obtainable for the project as contemplated.
Nautilus expects that the cash and cash equivalents will be sufficient to pay for the continued budgeted exploration,
capital expenditure and general and administrative costs of the Solwara 1 Project for the next 12 months. Depending
upon future events, the rate of expenditures and other general and administrative costs could increase or decrease.
Other than as disclosed above, the Company has not formally sought to secure sources of additional financing to fund
future expenditures.
Nautilus' opinion concerning liquidity and its ability to avail itself in the future of the financing options mentioned
in the above forward-looking statements are based on currently available information. To the extent that this
information proves to be inaccurate, future availability of financing may be adversely affected. Factors that could
affect the availability of financing include Nautilus' performance (as measured by various factors including the
progress and results of its exploration work), the state of international debt and equity markets, investor perceptions
and expectations of past and future performance, the global financial climate, metal and commodity prices political
events in the south Pacific, obtaining approvals from the PNG government for the Solwara 1 Project, drilling and
metallurgical testing results, results from environmental studies, engineering studies and detailed design of equipment.
Foreign currency exchange rate risk
The Company's operations are located in several different countries, including Canada, Australia, PNG, Tonga, Solomon
Islands, Fiji and New Zealand and require equipment to be purchased from several different countries. Nautilus has
entered into key contracts in United States dollars, British Pounds sterling and Euros. Nautilus' future profitability
could be affected by fluctuations in foreign currencies relative to these countries' currencies. The Company has not
entered into any foreign currency contracts or other derivatives to establish a foreign currency protection program but
may consider such transactions in the future.
Foreign exchange risk is mitigated by the Company maintaining its cash in a "basket" of currencies that reflect its
current and expected cash outflows to take advantage of natural hedges.
As at June 30, 2009 the Company held its cash in the following currencies:
Currency % of total cash in
Denomination US$ terms held
USD 66
Euro 8
CAD 3
GBP 19
AUD 4
------------------
100
------------------
------------------
Interest rate risk
The Company holds cash and cash equivalents which earn interest at variable rates as determined by financial
institutions.
For the period ending June 30, 2009, with other variables unchanged, a 1% increase (decrease) in the interest rate would
have increased (decreased) our net earnings by $1.1 million. There would be no significant effect on other
comprehensive income.
Credit risk
The Company places its cash only with banks with an S&P credit rating of A+ or better.
Our maximum exposure to credit risk at the reporting date is the carrying value of cash and cash equivalents and other
receivables.
Liquidity risk
The Company manages liquidity by maintaining adequate cash and short-term investment balances.
In addition, the Company regularly monitors and reviews both actual and forecasted cash flows.
The exposure of the Company to liquidity risk is considered to be minimal.
CRITICAL ACCOUNTING POLICIES
The details of the Company's accounting policies are presented in Note 2 of the audited consolidated financial
statements for the year ended December 31, 2008. The following policies are considered by management to be essential
to understanding the processes and reasoning that go into the preparation of the Company's financial statements and the
uncertainties that could have a bearing on its financial results:
Resource properties
Acquisition and exploration costs are expensed as incurred since the Company is in the process of exploring its mineral
tenements and has not yet determined whether these properties contain ore reserves that are economically recoverable.
If and when the Company's management determines that economically extractable resource have been established, the
subsequent costs incurred to develop such property, including costs to further delineate the ore body will be
capitalised.
Adoption of new accounting standards
The Canadian Institute of Chartered Accountants ("CICA") has issued one new standard which affect the financial
disclosures and results of operations of the Company for interim and annual periods beginning January 1, 2009. The
Company adopted the requirements commencing in the three month period ended March 31, 2009. The adoption of this new
standard has not had any material impact on the Company's financial results.
Section 3064 - Goodwill and Intangible Assets
This Section establishes revised standards for the recognition, measurement, presentation and disclosure of goodwill
and intangible assets. The standard is effective for our fiscal year beginning January 1, 2009. Adoption of this
standard did not have a significant impact on our financial statements.
EIC 173 - Credit Risk and Fair Value of Financial Assets and Liabilities
This EIC provides guidance on how to take into account credit risk of an entity and counterparty when determining the
fair value of financial assets and financial liabilities, including derivative instruments. This standard is effective
for our fiscal year beginning January 1, 2009 with retrospective application. The application of this EIC did not have
a significant effect on our financial statements.
EIC 174 - Mining Exploration Costs
This EIC provides guidance on accounting for capitalization and impairment of exploration costs and is effective for
our fiscal year beginning January 1, 2009. The application of this EIC did not have a significant effect on our
financial statements.
Future Accounting Pronouncements
International Financial Reporting Standards ("IFRS")
In February, 2008 the Canadian Accounting Standards Board confirmed that International Financial Reporting Standards
will replace Canada's current generally accepted accounting principles for publicly accountable profit oriented
enterprises effective January 1, 2011. The transition date of January 1, 2011 will require the restatement, for
comparative purposes, of amounts reported for the year ended December 31, 2010. The Company is presently evaluating the
effect these standards will have on its consolidated financial statements.
Sections 1582, Business Combinations, 1601 Consolidated Financial Statements and 1602 Non-controlling interests
Sections 1582, Business Combinations, 1601 Consolidated Financial Statements and 1602 Non-controlling interests will
replace the former Sections 1581 Business Combinations, 1600 Consolidated Financial Statements and establish a new
section for accounting for a non-controlling interest in a subsidiary. Section 1582 is effective for business
combinations for which the acquisition date is on or after January 1, 2011 and Sections 1601 and 1602 apply to
consolidated financial statements relating to years beginning on or after January 1, 2011.
OUTSTANDING SHARE DATA
The following is a summary of the Company's outstanding share data as of August 14, 2009.
Common shares
A total of 155,558,884 common shares are outstanding.
Convertible securities
The Company now has 15,543,500 options and 3,257,907 warrants outstanding.
Stock Options
A total of 15,543,500 stock options are issued and outstanding, with expiry dates ranging from September 5, 2009
through to June 30, 2013. The weighted average exercise price for all stock options is C$3.06. All stock options
entitle the holders to purchase common shares of the Company.
Warrants
A total of 3,257,907 warrants are issued and outstanding, with each warrant entitling the holder to purchase one common
share of the Company with an expiry date of November 26, 2009 at a price of C$3.80.
INTERNAL CONTROLS
Internal control over financial reporting
The Company's management is responsible for establishing and maintaining adequate internal control over financial
reporting. Any system of internal control over financial reporting, no matter how well designed, has inherent
limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with
respect to financial statement preparation and presentation.
There have been no changes in the Company's internal control over financial reporting during the period ended June 30,
2009 that have materially affected, or are reasonably likely to materially affect, internal control over financial
reporting.
International Financial Reporting Standards
In January 2006, the Canadian Accounting Standards Board ("AcSB") adopted a strategic plan for the direction of
accounting standards in Canada. In February 2008, as part of its strategic plan, AsSB confirmed that Canadian publicly
accountable entities will be required to report under International Financial Reporting Standards ("IFRS"), which will
replace Canadian GAAP for years beginning on or after January 1, 2011. Financial reporting under IFRS differs from
Canadian GAAP in a number of respects, some of which are significant. IFRS on the date of adoption is also expected to
differ from current IFRS due to new IFRS standards and pronouncements that are expected to be issued before the
changeover date. We plan to prepare our financial statements in accordance with IFRS for periods commencing as of
January 1, 2011.
The following information is presented pursuant to the October 2008 recommendations of the Canadian Performance
Reporting Board relating to pre-2011 communications about IFRS conversion and to comply with Canadian Securities
Administrators Staff Notice 52-320, Disclosure of Expected Changes in Accounting Policies Relating to Changeover to
International Financial Reporting Standards. This information is provided to allow investors and others to obtain a
better understanding of our IFRS changeover plan and the resulting possible effect on our financial statements.
Readers are cautioned, however, that it may not be appropriate to use such information for any other purposes. This
information also reflects our most recent assumptions and expectations; circumstances may arise, such as changes in
IFRS, regulations or economic conditions, which could change these assumptions or expectations.
IFRS Changeover Plan
We have developed a plan for our changeover to IFRS comprised of three related phases:
- Review and Assessment
- Design
- Implementation
Phase 1: Review and Assessment Phase
The objective of this phase is to identify the required changes to our accounting policies and practices resulting from
the changeover to IFRS to determine the scope of the work effort required for the Design and Implementation phases.
Phase 1 involves:
- A detailed review of all relevant IFRS standards to identify differences with our current accounting policies
and practices
- The separate consideration of one-time accounting policy alternatives that must be addressed at the
changeover date, and those accounting policy choices that will be applied on an ongoing basis in periods
subsequent to the changeover to IFRS
- The prioritization of those differences that could have a more than inconsequential impact on our financial
statements, business processes or IT systems
- The identification of internal stakeholders and business areas that may be affected by the changeover.
Phase 2: Design Phase
Phase 2 will result in the design and development of detailed solutions to address the differences identified in the
first phase of our changeover plan. These solutions will result in certain necessary changes to our internal business
processes and financial systems to comply with IFRS accounting and disclosure requirements.
Phase 2 activities include:
- The evaluation of accounting policy alternatives
- The investigation, development and documentation of solutions to resolve differences identified in Phase 1,
reflecting changes to existing accounting policies and practices, business processes, IT systems and
internal controls
- The implementation of a change management strategy to address the information and training needs of internal
and external stakeholders
Phase 3: Implementation Phase
In the third and final phase of our changeover plan, we will implement the changes to affected accounting policies and
practices, business processes, systems and internal controls. These changes will be tested prior to the formal
reporting requirements under IFRS to ensure all significant differences are appropriately addressed in time for the
changeover.
Progress towards Completion of our IFRS Changeover Plan
We have commence Phase 1 of our changeover plan to indentify the differences between Canadian GAAP and IFRS that impact
our financial statements. Our analysis to date as determined that our accounting policies are largely aligned with IFRS
requirements in many key areas. Phase 1 is expected to be completed by September 30, 2009.
Appropriate resources have been identified to complete the changeover in a timely manner according to our plan
milestones. We have also ensured training needs are met and will continue to be addressed throughout the changeover
period.
At this time the impact that the future adoption of IFRS will have on our financial position and results of operations
is not reasonably determinable or estimatable, however, such impact may be material. Additional information will be
provided as we move towards the changeover date.
ADDITIONAL SOURCES OF INFORMATION
Additional sources of information regarding Nautilus Minerals Inc. are on SEDAR at www.sedar.com and is on the
Company's website www.nautilusminerals.com.
Nautilus Minerals Inc.
(an exploration stage company)
Interim Consolidated Balance Sheets
(expressed in U.S. dollars)
(unaudited)
=---------------------------------------------------------------------------------------------------------------------
June 30 December 31
2009 2008
$ $
------------------------------
Assets
Current assets
Cash and cash equivalents 223,502,159 231,143,802
Prepaid expenses and advances 432,135 1,230,705
------------------------------
223,934,294 232,374,507
Restricted cash (note 5) 389,071 4,398,936
Property, plant and equipment (note 6) 21,307,744 20,996,536
Mineral properties (note 7) 12,213,367 12,213,367
------------------------------
257,884,476 269,983,346
------------------------------
------------------------------
Liabilities
Current liabilities
Accounts payable and accrued liabilities 5,154,870 13,891,578
------------------------------
Non-controlling interest (note 10) 221,766 243,134
------------------------------
Shareholders' Equity
Share capital (note 9a) 343,598,701 343,598,701
Contributed surplus (note 9b) 38,137,194 36,144,187
Deficit (129,268,055) (123,894,254)
------------------------------
252,467,840 255,848,634
------------------------------
257,844,476 269,983,346
------------------------------
------------------------------
Commitments and contingencies (note 12)
Subsequent events (note 13)
On behalf of the Board:
Signed: "Russell Debney"
Signed: "Stephen Rogers"
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS
Nautilus Minerals Inc.
(an exploration stage company)
Interim Consolidated Statements of Loss and Comprehensive Loss and Deficit
(expressed in U.S. dollars)
(unaudited)
=---------------------------------------------------------------------------------------------------------------------
Three months Three months Six months Six months
ended ended ended ended
June 30 June 30 June 30 June 30
2009 2008 2009 2008
$ $ $ $
----------------------------------------------------
Expenses
Exploration costs (note 7) 4,263,718 9,424,637 5,868,488 11,744,927
Stock-based compensation 964,304 1,915,495 1,993,007 4,087,230
Wages and salaries 627,237 437,722 1,429,245 721,464
Management fees and salaries 555,205 524,793 895,671 1,040,110
General administrative 478,737 561,774 782,223 903,799
Professional fees 206,578 290,144 303,876 506,566
Depreciation 242,627 179,010 494,148 320,639
Travel 113,165 229,440 170,733 306,994
Shareholder information 35,394 163,947 60,711 248,405
Listing and filing fees 16,670 28,198 96,433 130,593
Foreign exchange loss (gain) (9,479,326) (1,454,140) (5,442,469) (5,184,197)
----------------------------------------------------
(1,975,691) 12,301,020 6,652,066 14,826,530
----------------------------------------------------
Other Income (Expense)
Interest income 664,477 3,228,109 1,238,463 6,506,015
Rent and other income 10,855 9,453 18,459 19,462
Loss on sale of fixed assets (25) (20,978) (25) (20,978)
----------------------------------------------------
675,307 3,216,584 1,256,897 6,504,499
----------------------------------------------------
Income (Loss) and comprehensive income
(loss) before non-controlling interest 2,650,998 (9,084,436) (5,395,169) (8,322,031)
Non-controlling interest 1,095 306,645 21,368 306,645
----------------------------------------------------
Income (Loss) and comprehensive income
(loss) 2,652,093 (8,777,791) (5,373,801) (8,015,386)
Deficit - Beginning of period 131,920,148 41,542,360 123,894,254 42,304,765
----------------------------------------------------
Deficit - End of period 129,268,055 50,320,151 129,268,055 50,320,151
----------------------------------------------------
----------------------------------------------------
Income (Loss) per share -- basic and diluted 0.02 (0.06) (0.03) (0.05)
----------------------------------------------------
----------------------------------------------------
Weighted average number of shares
outstanding - basic and diluted 156,264,536 146,157,100 155,558,884 146,041,363
----------------------------------------------------
----------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS
Nautilus Minerals Inc.
(an exploration stage company)
Interim Consolidated Statements of Cash Flows
(expressed in U.S. dollars)
(unaudited)
=---------------------------------------------------------------------------------------------------------------------
Three months Three months Six months Six months
ended ended ended ended
June 30 June 30 June 30 June 30
2009 2008 2009 2008
$ $ $ $
-----------------------------------------------------
Cash flows from (used in) operating
activities
Income/(Loss) for the period 2,652,093 (8,777,791) (5,573,801) (8,015,386)
Items not affecting cash
Stock-based compensation 964,304 1,915,495 1,993,007 4,087,230
Non-controlling interest (1,095) 329,590 (21,368) 329,590
Depreciation 242,627 179,010 494,148 320,639
Unrealised FX Loss/(Gain) (9,484,111) (1,483,074) (5,263,290) (5,228,857)
Change in non-cash working capital items
Prepaid expenses and advances 89,835 152,306 798,570 549,614
Accounts payable and accrued liabilities 539,703 2,880,694 (8,736,708) (1,983,385)
-----------------------------------------------------
(4,996,644) (4,803,770) (16,109,442) (9,940,555)
-----------------------------------------------------
Cash flows from financing activities
Share capital issued, net of share issuance
costs - 998,842 - 1,041,875
Loans payable - 23,838 - 23,838
-----------------------------------------------------
- 1,022,680 - 1,065,713
-----------------------------------------------------
Cash flows from (used in) investing
activities
Restricted cash 4,014,055 (1,555,169) 4,009,865 (1,624,239)
Purchase of equipment (314,268) (5,138,022) (805,356) (5,712,411)
-----------------------------------------------------
3,699,787 (6,693,191) 3,204,509 (7,336,650)
-----------------------------------------------------
Unrealised FX Gain/(Loss) 9,484,111 1,483,074 5,263,290 5,228,857
Increase (decrease) in cash and cash
equivalents 8,187,254 (8,991,207) (7,611,643) (10,982,635)
Cash and cash equivalents - Beginning of
period 215,314,905 307,977,717 231,143,802 309,969,145
-----------------------------------------------------
Cash and cash equivalents - End of period 223,502,159 298,986,510 223,502,159 298,986,510
-----------------------------------------------------
-----------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS
Nautilus Minerals Inc.
(an exploration stage company)
Notes to Interim Consolidated Financial Statements
June 30, 2009
(expressed in U.S. dollars)
(unaudited)
=---------------------------------------------------------------------------------------------------------------------
1. Basis of Presentation, Operations and Subsidiaries
Basis of Presentation
These interim consolidated financial statements have been prepared in accordance with Canadian Generally Accepted
Accounting Principles ("Canadian GAAP").
These interim consolidated financial statements are presented in United States Dollars ("USD"), the functional and
presentational currency of the Company.
Nature of Operations
Nautilus Minerals Inc. (the "Company", "Nautilus" or "NMI") is engaged in the exploration of the ocean floor for
gold and copper seafloor massive sulphide deposits. The Company is an enterprise in the exploration stage. The
exploration activity involves exploration of underwater gold and copper seafloor massive sulphide deposits in the
western Pacific Ocean. The Company's main focus for 2009 is the Solwara 1 Project in Papua New Guinea in the
western Pacific Ocean. The proposed principal operations of the Company subject to permitting will be the mining
of copper, zinc, gold and silver deposits where there are economically viable discoveries.
Subsidiaries
Subsidiaries, which are those entities in which the Company has an interest of more than one half of the voting
rights or otherwise has power to govern the financial and operating policies, are consolidated. The existence and
effect of potential voting rights that are presently exercisable or presently convertible are considered when
assessing whether the Company controls another entity.
Intercompany transactions, balances, income and expenses are eliminated on consolidation.
These interim consolidated financial statements include the accounts of the Company (Canada) and all of its
subsidiaries. The significant subsidiaries include Nautilus Minerals Niugini Limited (Papua New Guinea), Nautilus
Minerals Oceania Limited (Vanuatu), Nautilus Minerals Pacific Proprietary Limited (Australia), Nautilus Minerals
(Tonga) #1 Limited (Tonga), Nautilus Minerals Solomon Islands Limited (Solomon Islands), Nautilus Minerals
Singapore Limited (Singapore), and United Nickel Inc. (Canada).
2. Significant Accounting Policies
Basis of Presentation
These unaudited interim consolidated financial statements have been prepared in accordance with accounting
principles generally accepted in Canada and follow the same accounting policies and methods of their application
as the most recent annual financial statements, except as noted below. These unaudited interim financial
statements do not contain all the disclosures required by Canadian GAAP for annual financial statements and should
be read in conjunction with the audited consolidated financial statements as at December 31, 2008.
3. New Accounting Pronouncements
The CICA has issued new standards which are effective for the Company for interim and annual periods beginning
January 1, 2009. The adoption of these new standards has not had any material impact on the Company's financial
results.
Section 3064 - Goodwill and Intangible Assets
This Section establishes revised standards for the recognition, measurement, presentation and disclosure of
goodwill and intangible assets. The standard is effective for our fiscal year beginning January 1, 2009. Adoption
of this standard did not have a significant impact on our financial statements.
EIC 173 - Credit Risk and Fair Value of Financial Assets and Liabilities
This EIC provides guidance on how to take into account credit risk of an entity and counterparty when determining
the fair value of financial assets and financial liabilities, including derivative instruments. This standard is
effective for our fiscal year beginning January 1, 2009 with retrospective application. The application of this EIC
did not have a significant effect on our financial statements.
EIC 174 - Mining Exploration Costs
This EIC provides guidance on accounting for capitalization and impairment of exploration costs and is effective
for our fiscal year beginning January 1, 2009. The application of this EIC did not have a significant effect on our
financial statements.
Future Accounting Pronouncements
International Financial Reporting Standards ("IFRS")
In January 2006, the Canadian Accounting Standards Board ("AcSB") adopted a strategic plan for the direction of
accounting standards in Canada. In February 2008, as part of its strategic plan, AsSB confirmed that Canadian
publicly accountable entities will be required to report under International Financial Reporting Standards
("IFRS"), which will replace Canadian GAAP for years beginning on or after January 1, 2011. Financial reporting
under IFRS differs from Canadian GAAP in a number of respects, some of which are significant. IFRS on the date of
adoption is also expected to differ from current IFRS due to new IFRS standards and pronouncements that are
expected to be issued before the changeover date. We plan to prepare our financial statements in accordance with
IFRS for periods commencing as of January 1, 2011.
The following information is presented pursuant to the October 2008 recommendations of the Canadian Performance
Reporting Board relating to pre-2011 communications about IFRS conversion and to comply with Canadian Securities
Administrators Staff Notice 52-320, Disclosure of Expected Changes in Accounting Policies Relating to Changeover to
International Financial Reporting Standards. This information is provided to allow investors and others to obtain
a better understanding of our IFRS changeover plan and the resulting possible effect on our financial statements.
Readers are cautioned, however, that it may not be appropriate to use such information for any other purposes.
This information also reflects our most recent assumptions and expectations; circumstances may arise, such as
changes in IFRS, regulations or economic conditions, which could change these assumptions or expectations.
IFRS Changeover Plan
We have developed a plan for our changeover to IFRS comprised of three related phases:
- Review and Assessment
- Design
- Implementation
Future Accounting Pronouncements (continued)
International Financial Reporting Standards ("IFRS") (continued)
Phase 1: Review and Assessment Phase
The objective of this phase is to identify the required changes to our accounting policies and practices resulting
from the changeover to IFRS to determine the scope of the work effort required for the Design and Implementation
phases.
Phase 1 involves:
- A detailed review of all relevant IFRS standards to identify differences with our current accounting
policies and practices
- The separate consideration of one-time accounting policy alternatives that must be addressed at the
changeover date, and those accounting policy choices that will be applied on an ongoing basis in periods
subsequent to the changeover to IFRS
- The prioritization of those differences that could have a more than inconsequential impact on our financial
statements, business processes or IT systems
- The identification of internal stakeholders and business areas that may be affected by the changeover.
Phase 2: Design Phase
Phase 2 will result in the design and development of detailed solutions to address the differences identified in
the first phase of our changeover plan. These solutions will result in certain necessary changes to our internal
business processes and financial systems to comply with IFRS accounting and disclosure requirements.
Phase 2 activities include:
- The evaluation of accounting policy alternatives
- The investigation, development and documentation of solutions to resolve differences identified in Phase 1,
reflecting changes to existing accounting policies and practices, business processes, IT systems and
internal controls
- The implementation of a change management strategy to address the information and training needs of internal
and external stakeholders
Phase 3: Implementation Phase
In the third and final phase of our changeover plan, we will implement the changes to affected accounting policies
and practices, business processes, systems and internal controls. These changes will be tested prior to the
formal reporting requirements under IFRS to ensure all significant differences are appropriately addressed in time
for the changeover.
Progress towards Completion of our IFRS Changeover Plan
We have commence Phase 1 of our changeover plan to indentify the differences between Canadian GAAP and IFRS that
impact our financial statements. Our analysis to date as determined that our accounting policies are largely
aligned with IFRS requirements in many key areas. Phase 1 is expected to be completed by September 30, 2009.
Appropriate resources have been identified to complete the changeover in a timely manner according to our plan
milestones. We have also ensured training needs are met and will continue to be addressed throughout the changeover
period.
At this time the impact that the future adoption of IFRS will have on our financial position and results of
operations is not reasonably determinable or estimatable, however, such impact may be material. Additional
information will be provided as we move towards the changeover date.
Sections 1582, Business Combinations, 1601 Consolidated Financial Statements and 1602 Non-controlling interests
Sections 1582, Business Combinations, 1601 Consolidated Financial Statements and 1602 Non-controlling interests
will replace the former Sections 1581 Business Combinations, 1600 Consolidated Financial Statements and establish
a new section for accounting for a non-controlling interest in a subsidiary. Section 1582 is effective for
business combinations for which the acquisition date is on or after January 1, 2011 and Sections 1601 and 1602
apply to consolidated financial statements relating to years beginning on or after January 1, 2011.
4. Financial Instruments - Disclosures
Interest rate risk
The Company holds cash and cash equivalents which earn interest at variable rates as determined by financial
institutions.
For the period ending June 30, 2009, with other variables unchanged, a 1% increase (decrease) in the interest rate
would have increased (decreased) our net earnings by $1.1 million. There would be no significant effect on other
comprehensive income.
Foreign exchange risk
All of the Company's activities are located in several different countries, including Canada, Australia, Papua New
Guinea, Tonga and Singapore and requires equipment to be purchased from several different countries and
currencies. Nautilus has entered into key contracts in United States dollars, British Pounds sterling and Euros.
Nautilus' future profitability could be affected by fluctuations in foreign currencies. The Company has not
entered into any foreign currency contracts or other derivatives to establish a foreign currency protection
program.
Foreign exchange risk
Foreign exchange risk is mitigated by the Company maintaining its cash in a "basket" of currencies that
reflect its current and expected cash outflows. As at June 30, 2009 the Company held its cash in the
following currencies:
Currency % of total cash in
Denomination US$ terms held
USD 66
GBP 19
EUR 8
AUD 4
CAD 3
-------------------
100
-------------------
-------------------
5. Restricted Cash
$389,071 (December 31, 2008 - $4,398,936) has been provided as security for leases, tenements held in Papua
New Guinea, superannuation bank accounts held on behalf of employees, and electricity and information
technology deposits.
During the period two letters of credit for $1.5 million and $2.55 million held by Australia and New Zealand
Banking Group in favour of Technip Inc and North Sea Shipping respectively were returned and the cash held
as security for the letters of credit was released and is now included as cash and cash equivalents.
6. Property, Plant and Equipment
Details are as follows:
June 30, 2009 December 31, 2008
Accumulated Net Book Accumulated Net Book
Cost Amortization Value Cost Amortization Value
$ $ $ $ $ $
Leasehold improvements 603,031 480,431 122,600 595,649 331,946 263,703
Plant and equipment 652,119 96,184 555,935 651,428 60,209 591,219
Office equipment 264,002 45,274 218,728 259,466 31,038 228,428
Computer hardware 687,916 376,952 310,964 665,269 264,088 401,181
Computer software 965,356 473,114 492,242 887,418 296,087 591,331
Tradeshow display equipment 3,876 3,633 243 3,876 3,590 286
Motor vehicle 72,202 9,558 62,644 69,017 4,686 64,331
Land 30,101 - 30,101 30,101 - 30,101
Subsea equipment under
construction 19,514,287 - 19,514,287 18,825,956 - 18,825,956
----------------------------------------------------------------------------
22,792,890 1,485,146 21,307,744 21,988,180 991,644 20,996,536
----------------------------------------------------------------------------
----------------------------------------------------------------------------
7. Mineral Properties
The Company has titles granted and applications lodged that provide the Company with rights to explore for
minerals in offshore Papua New Guinea, Tonga and Solomon Islands. In addition, the Company has lodged exploration
or prospecting applications in the exclusive economic zones of Fiji and New Zealand.
Acquisition of Mineral Properties
In 2006, the Company entered into an agreement with Barrick Gold Inc., following its acquisition of Placer Dome,
to terminate the farm-in agreement and convert its joint venture interest into an equity interest in the Company.
Pursuant to the terms of this termination agreement, Nautilus Minerals Niugini Ltd. acquired the remaining
interest which Barrick held in the PNG Licences in return for Barrick being issued with Common Shares in the
Company. The Company thereby secured a 100% interest in all the PNG Licences. In addition, pursuant to the terms
of the termination arrangements, Barrick transferred all of Placer Dome's expertise, intellectual property and
know-how in relation to the farm-in, together with, access to key consultants and relevant business relationships
to the Company, allowing the Company to itself thereafter manage and operate the Solwara Projects. The value of
the shares issued to Barrick was $12,213,367, which was capitalized as mineral property acquisition costs in 2006.
Exploration Expenditures
Three months Three months Six months Six months
ended ended ended ended
June 30 June 30 June 30 June 30
2009 2008 2009 2008
$ $ $ $
------------------------------------------------
Assaying and sampling 5,116 10,595 31,738 111,821
Boat charters and fuel 2,026,860 1,096,918 2,163,154 1,198,143
Engineering services 18,193 1,609,893 63,678 1,814,013
Environmental consulting 111,616 1,061,278 226,620 1,182,977
General 566,926 1,476,726 837,166 1,928,616
Geological and field expenses 75,398 227,887 119,411 309,931
Maps, reports and data 7,898 1,378 14,111 6,360
Mineral property fees 124,614 1,172,307 379,497 1,176,804
Supplies 52,210 174,349 73,898 220,087
Travel 233,109 593,142 336,843 830,979
Wages and salaries 1,041,778 2,000,164 1,622,372 2,965,196
------------------------------------------------
4,263,718 9,424,637 5,868,488 11,744,927
------------------------------------------------
------------------------------------------------
In order to maintain the exploration leases, licenses and permits in which the Company is involved, the Company is
expected to fulfil the minimum annual expenditure conditions under which the tenements are granted. These obligations
may be varied from time to time, subject to approval, and are expected to be fulfilled in the normal course of
operations of the Company. The exploration commitments are based on those exploration tenements that have been granted
and may increase or decrease depending on whether additional applications are granted, relinquished or form joint
ventures in the future. Based on tenements granted at June 30, 2009, total rental commitments are $3.8 million and
total expenditure commitments are $22.7 million over the life of the licenses which extend to a maximum of two years.
8. Related Party Transactions
Related party transactions for the six month period ended June 30, 2009 are as follows:
a) Included in management fees is $Nil (2008 - $26,768) for management fees paid to a company
controlled by a director.
b) Included in accounts payable and accrued liabilities is $Nil (2008 - $13,664) for amounts owed to a
company controlled by a director of the Company for management and consulting.
These transactions are in the normal course of operations and are measured at the exchange amount, which is the
amount of consideration established and agreed between the related parties.
9. Share Capital
a) Details of share capital
Authorized:
Unlimited common shares without par value
Shares Amount
$
Balance - December 31, 2008 and June 30, 2009 155,558,884 343,598,701
------------------------
------------------------
b) Details of contributed surplus
Amount
$
Balance - December 31, 2008 36,144,187
Fair value of stock-based compensation 1,993,007
-----------
Balance - June 30, 2009 38,137,194
-----------
-----------
c) Share purchase options
The Company has established a share purchase option plan whereby the board of directors may, from time to
time, grant options to directors, officers, employees or consultants. Options granted must be exercised no
later than five years from the date of grant or such lesser period as determined by the Company's board of
directors. The exercise price of an option must be determined in accordance with the share purchase option
plan. The board of directors must determine the vesting period in accordance with the share purchase option
plan.
The changes in share purchase options outstanding are as follows:
Contractual
weighted
Weighted average
average remaining
Number of options exercise price life
C$ (years)
Balance - December 31, 2008 14,012,306 3.92 2.2
Granted 6,101,000 1.30
Exercised - -
Expired/cancelled (4,569,806) 3.36
----------------------------
Balance - June 30, 2009 15,543,500 3.06 2.5
=---------------------------------------------------------------------------
=---------------------------------------------------------------------------
The following table summarizes information about stock options as at June 30, 2009:
Total options outstanding Exercisable options
=-------------------------------------------------- -------------------
=-------------------------------------------------- -------------------
Weighted
average Weighted Weighted
Range of remaining average average
exercise contractual exercisable exercise
price Shares life price Shares price
C$ (years) C$ C$
=-------------------------------------------------- -------------------
0.00 -- 0.99 550,000 2.5 0.99 - 0.00
1.00 -- 1.99 6,126,000 3.2 1.35 115,000 1.60
2.00 -- 2.99 1,685,000 1.1 2.62 1,100,000 2.50
3.00 -- 3.99 1,542,500 1.2 3.20 1,526,500 3.20
4.00 -- 4.99 1,675,000 1.0 4.72 1,175,000 4.74
5.00 -- 5.99 3,710,000 3.4 5.34 80,000 5.10
6.00 -- 6.99 255,000 1.0 6.38 204,000 6.38
---------- ---------
15,543,500 2.5 3.06 4,200,500 3.59
---------- ---------
---------- ---------
The fair value of the options granted is estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions:
Options Issued
In 2009
---------------
Expected dividend yield Nil
Expected stock price volatility 72.48%
Risk-free interest rate 1.41%
Expected life of options in years 3
---------------
---------------
The weighted average fair value of the options granted was C$0.51.
Option pricing models require the input of highly subjective assumptions including the estimate of the share price
volatility. Changes in the subjective input assumptions can materially affect the fair value estimate, and therefore,
the existing models do not necessarily provide a reliable single measure of the fair value of the Company's stock
options.
d) Warrants
As at June 30, 2009, the following share purchase warrants were outstanding:
Number Price per Share Expiry Date
=-----------------------------------------------------------------------------
3,257,907 C$3.80 November 26, 2009
=---------
3,257,907
=---------
=---------
The changes in share purchase warrants outstanding are as follows:
Contractual
weighted
Weighted average
Number of average remaining
warrants exercise price life
(in C$) (in years)
------------------------------------------
-----------------------------
Balance - December 31, 2008 14,898,086 5.12 0.3
Expired/cancelled (11,640,179) 5.49
-----------------------------
Balance - June 30, 2009 3,257,907 3.80 0.4
------------------------------------------
------------------------------------------
10. Non-controlling Interest
On May 18, 2008 the Company acquired a 51% equity interest in United Nickel Inc. (UNI), a company associated with David
Heydon, formerly director and CEO of the Company, with a $1.3 million seed capital investment.
11. Segmented Information
The Company has one operating segment, being exploration. Details on a geographical basis are as follows:
Australasia North America Total
$ $ $
-----------------------------------------
June 30, 2009
Total assets 207,895,361 49,949,115 257,884,476
(Income) Loss for the three months ended June 30, 2009 2,598,864 (5,250,957) (2,652,093)
(Income) Loss for the six months ended June 30, 2009 8,745,509 (3,371,708) 5,373,801
June 30, 2008
Total assets 190,778,882 129,604,963 320,383,845
(Income) Loss for the three months ended June 30, 2008 3,077,634 5,370,567 8,448,201
(Income) Loss for the six months ended June 30, 2008 4,752,098 2,933,698 7,685,796
12. Commitments and Contingencies
June 30 June 30
2009 2008
$ $
c) Non-cancellable operating leases
Not later than 1 year 272,276 558,899
Later than 1 year and not later than 2 years 101,891 166,386
Later than 2 years and not later than 3 years 15,943 122,107
Later than 3 years and not later than 4 years 2,792 19,107
Later than 4 years and not later than 5 years - 3,346
Later than 5 years - -
------------------------
392,903 869,845
------------------------
d) Non-cancellable consulting agreements
Not later than 1 year - 194,455
------------------------
- 194,455
------------------------
c) Non-cancellable exploration and vessel agreements
Not later than 1 year - 9,766,617
Later than 1 year and not later than 2 years - 2,500,000
Later than 2 years and not later than 3 years - 31,025,000
Later than 3 years and not later than 4 years - 31,025,000
Later than 4 years and not later than 5 years - 31,025,000
Later than 5 years - 34,520,815
------------------------
- 139,862,432
------------------------
c) Non-cancellable development agreements
Not later than 1 year 599,603 -
------------------------
599,603 -
------------------------
Total Commitments 992,505 140,926,732
------------------------
------------------------
In order to maintain the exploration leases, licenses and permits in which the Company is involved, the Company is
committed to fulfil the minimum annual expenditure conditions under which the tenements are granted. These
obligations may be varied from time to time, subject to approval, and are expected to be fulfilled in the normal
course of operations of the Company. The exploration commitments are based on those exploration tenements that
have been granted and may increase if applications are granted in the future.
On December 17, 2008 the Company announced it had decided to adopt a more cautious strategy and to preserve its
cash position by delaying the construction of the equipment for the Solwara 1 mining system. As a result all
contracts relating to the Solwara 1 mining system have been terminated or suspended, depending on their
criticality to the revised development program. All of the supplier agreements contained provisions for
termination without penalty.
The contracts that have been suspended will not incur any additional costs, unless instructed by the Company to
continue with engineering studies, until those contracts are reactivated. The value of the suspended contracts is
US $77.3 million. The suspended contracts also contain provisions allowing the Company to cancel at any time.
The vessel agreements with North Sea Shipping to provide a mining services vessel were also terminated.
The occurrence of settlement amounts in relation to these contracts is not yet determinable and an amount cannot
be reasonably estimated at this time.
Contingencies
CSIRO
In addition to the above, the Company is a party to a contract with the Commonwealth Scientific and Industrial
Research Organisation ("CSIRO") whereby the Company would pay A$500,000 when its Net Income first exceeds A$10
million; and a further A$500,000 when Net Income first exceeds A$20 million.
Milestone based shares
Nautilus has entered into an agreement with a consulting group, who are providing services to the Solwara 1
Project, where part of the consideration for services, are the issue of up to 300,000 fully paid common shares in
the Company in stages subject to the achievement of each of the following project milestones:
i) Signing of a project development agreement between Nautilus and the Government of PNG - 60,000 common
shares;
ii) Obtaining unencumbered title to the area of land where Nautilus decides to locate the processing plant -
60,000 common shares;
iii) The required agencies of the government of PNG approve the Environmental Impact Statement for the Solwara 1
Project - 60,000 common shares;
iv) The grant of a mining lease over the Solwara 1 resource within E1196 on terms acceptable to Nautilus
Minerals - 60,000 common shares; and
v) Commercial Completion of the Solwara 1 Project which is defined as being the point at which commissioning
is complete and the operation has been producing concentrate at a rate of at least 70% scheduled rate for a
period of 3 months - 60,000 common shares.
13. Subsequent Events
Exploration Contracts
On July 28, 2009 the Company entered into agreements with Fugro to provide exploration services for Nautilus' 2009
programs in Papua New Guinea ("PNG") and the Solomon Islands. The vessel MV Fugro Solstice will be used to expand
Nautilus' Seafloor Massive Sulphide ("SMS") prospect inventory within its 100% owned Bismarck, Woodlark (Papua New
Guinea) and Solomon Islands exploration licenses.
The contract with Fugro is for 124 days of services, mobilising from Singapore on approximately August 10, 2009.
Nautilus has options to extend this initial period by up to 98 days. During this time, Fugro will conduct target
generation and target testing work. Target generation consists of regional geophysical and geochemical surveys.
The primary objective of this program is to discover further mineralised systems to support this business model.
The total commitments under the contracts are US$4.5 million excluding the option to extend.
Nautilus Minerals Inc.
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