Teck Cominco sinks US$25M into Nautilus

Vancouver — Nautilus Minerals (NUS-V, NUSMF-O) has secured another major mining company financing, with Teck Cominco (TCK.B-T, TCK-N) putting US$25 million into the seafloor mineral explorer as part of a US$31.1-million private placement.

Teck Cominco will purchase 7.57 million Nautilus shares at US$3.30 (about $3.76) apiece in the non-brokered deal for gross proceeds of US$25 million. The Vancouver-based major will also receive 3 million warrants exercisable at US$5.00 each until June 1, 2008 and will be granted anti-dilution rights to participate in future financings.

Epion Holdings, already a significant Nautilus shareholder, also participated in the recent financing, exercising its anti-dilution rights; it will purchase 1.85 million shares at US$3.30 apiece for proceeds of US$6.1 million. It was also granted 750,000 warrants with the same terms as Teck Cominco’s.

The financing comes just over a month after Anglo American (AAUK-Q, AAL-L) took down US$25 million of a US$68.5-million Nautilus financing priced at US$3.00 per share. Epion, wholly owned by Alisher Usmanov, who is prominent in Russia’s iron ore and steel industries, also participated in the November financing.

Upon closure, Nautilus’s latest financing will boost its treasury to around US$113.5 million.

In addition to its private placement, Teck Cominco also pledged to fund US$12 million in a joint-venture option with Nautilus, US$2 million of that earmarked for acquisitions and maintenance. The lion’s share of the money, US$10 million, is to go to research and development of exploration techniques and tools, and exploration on Teck Cominco approved projects.

To exercise its option, Teck must purchase an additional US$15 million worth of shares by mid-2008, either electing to exercise all of its US$5.00 warrants or subscribing for a private placement at market price. Upon exercise, it will have exclusive 5-year rights to form joint ventures on claims acquired by Nautilus in certain countries since Oct. 20. Teck Cominco can earn a 40% stake in the claims, including those in the Bismarck Sea, Papua New Guinea, the Solomon Sea, Fiji and Tonga, by spending US$25 million in each selected area within two years. Once it has earned a 40% interest, Teck Cominco can boost its ownership to 50.1% in each selected project area (between 100-sq. km and 200-sq. km) by spending US$10 million on each area.

Teck can also earn a 50.1% interest in claims in certain other countries plus an additional 9.9% in selected project areas in these countries for the same amount of spending as above.

Since Nautilus’s initial public offering several months ago, the junior has attracted the attention of a few majors. It was initially partnered with Placer Dome, now part of Barrick Gold (abx-t, abx-n), which spent about US$12.2 million toward a 40% joint-venture interest. However, in mid-2006 Barrick elected to convert the interest into an equity stake.

Teck Cominco, with a 9.2% interest in Nautilus, joins Epion with 19.9%, Anglo American, with 10.1% and Barrick Gold with 5.8%.

Nautilus CEO David Heydon said the arrangement with Teck would allow the company to focus on permitting and developing its 100%-owned Solwara 1 gold-copper project in Papua New Guinea while developing a pipeline of new projects.

Nautilus also recently entered into an agreement with Belgium-based marine engineering firm Jan De Nul Group to build a 191-metre specialized mining vessel for planned development of the Solwara seabed sulphides, located off the coast of Papua New Guinea.

The seafloor metal deposits are formed by “black smokers” — hydrothermal, chimney-like structures formed when ocean water is circulated through porous rock in active volcanic zones and metal- sulphide minerals are dissolved and then re-deposited in sizable accumulations. These occurrences are essentially the modern-day version of the volcanogenic massive sulphide (VMS) deposits that are mined throughout the world.

Following news of Teck’s planned investment, shares of Nautilus rallied over 30% to close up $1.33 at $5.65 apiece on strong volume. The company currently has 72.7 million shares outstanding, giving it a market capitalization of $410 million.