China’s Tongling Nonferrous Metals Group has signed an agreement to purchase 1.1 million mt/y, subject to a plus or minus 20% variation, of material mined by Nautilus Minerals at its Solwara 1 seafloor mining project in the Bismarck Sea, Papua New Guinea. Tongling will process the material into a copper concentrate at facilities in the city of Tongling, alongside the Yangtze river, and then smelt the concentrate at its smelting facilities. The purchase price to be paid by Tongling will be based on the quality of the copper concentrate produced. The agreement covers a period of three years, beginning with the first delivery of product from Solwara 1, targeted for the fourth quarter of 2013.

The agreement includes a mechanism for an early payment of 90% of the price upon loading of the export vessel in Papua New Guinea. Final payment is based on the recovery of copper, gold and silver reporting to the copper concentrate, with deductions for capped logistics and processing costs, smelter treatment and refining charges, allowances for plant fixed capital recoveries, and Tongling’s tolling fee on concentrator plant processing costs.

The price payable for copper will be based London Metal Exchange copper prices, and the price payable for silver and gold will be based on London Bullion Market Association prices. Further value may be realized through a 50%:50% profit-sharing scheme based on incremental byproduct revenue realized in China, including gold-bearing pyrite. Material from the process can be roasted in China to produce gold and sulphuric acid, and the remaining calcine may be sold to cement manufacturers or as iron ore fines. “With minimal waste, Tongling’s process brings significant benefits consistent with Nautilus’ commitment to minimize environmental impacts,” the company said.

Nautilus will issue a bank guarantee to Tongling in three stages over nine months, which will not exceed approximately $11.5 million, as a security for 50% of Tongling’s concentrator investment costs, starting with the first order of major equipment.

Nautilus is currently progressing the build of equipment, including the seafloor production tools and production support vessel, for the Solwara 1 project. Nautilus CEO Stephen Rogers said the company is looking forward to working with Tongling to realize the full potential of the high-grade material extracted from Solwara 1. “We have now closed the value chain on the project, established our first customer for seafloor massive sulphides, and look forward to building a long-term relationship with Tongling,” he said.