Tongling is China's largest importer of copper concentrate.
The company has agreed to buy over a million tonnes of ore a year, for 3 years, on a take or pay basis.
First shipments are due to leave PNG at the end of next year and other Pacific countries with similar mineral deposits are watching closely.
Nautilus's Chief Executive Officer says the deal is an exciting development for his company and the region.
Presenter: Pacific Economic and Business reporter, Jemima Garrett
Speaker: Stephen Rogers, CEO of the Canadian company Nautilus Minerals
ROGERS: It is the first time ever that a sales agreement has been signed for seafloor massive sulphide products, and it's a significant milestone for the company.
GARRETT: How much of your expected output from the Solwara 1 mining site will Tongling take?
ROGERS: Approximately one-point-one million tonnes per year. But we do have a tolerance of plus or minus 20 per cent variation allowed on that targetted delivery.
GARRETT: So is that expected to be all the output or just part of it?
ROGERS: It's a significant element to the output. We're targetting around one-point-three-million tonnes per year when we get into production so it is a significant element of our production target.
GARRETT: The price to be paid by Tongling will be based on the quality of the copper concentrate that it produces back in China. How much do you expect Tongling to be paid?
ROGERS: Look I can't really comment on the value, this will ultimately be dictated by the commodity markets. But what I can say that securing this deal where the capital at Nautilus and its partners have to invest is limited to a guarantee amount of 11-and-a-half million dollars. That was a significant driver for Nautilus in negotiating this agreement but to minimise the amount of capital we had to put in, in order to extract value from the Solwara 1 product.
GARRETT: Now that 11-point-one million dollars, that's going to go towards a plant that Tongling is building, is that correct?
ROGERS: The final decision hasn't been made on building a plant. They'll consider modifying an existing plant or building a plant, both of which can be done in the timeframe that we have left before we start production.
GARRETT: Just how much copper, gold or other minerals do you expect Tongling to produce as a result of this deal?
ROGERS: The expected amount once we reach peak production will be in the order of 60 to 75-thousand tonnes of copper per annum. And we would hope to realise value from around 150-thousand ounces of gold approximately.
GARRETT: This sort of mining is new and untested. How much competition did Tongling face to win this contract?
ROGERS: Quite significant, Nautilus conducted a global review of concentrated and smelters around the world. We narrowed the field down into Southeast Asia, and in fact there were three or four parties in the final run before we selected Tongling.
GARRETT: How soon is it likely to be before the Papua New Guinea government starts to see some of the revenue from this deal?
ROGERS: As soon as we move into production we will have to pay a royalty to the Papua New Guinea government, so they'll start receiving that very soon after production starts. And of course the Papua New Guinea government is a 30 per cent partner in the project, and so they'll see proceeds from the sale agreement with Tongling as well.
GARRETT: One-point-one-million tonnes a year is a substantial quantity of material. How will you transfer that from your seafloor mining site to ships bound for China?
ROGERS: The current plan is to transfer the material from the production support vessel into barges. The barges will move the material into a stockpile area in Papua New Guinea, in the port of Rabaul in fact, and once there they're to be uplifted every seven to eight days by bulk carriers and taken off to China for the concentration and treatment process.
GARRETT: What risks do you see in terms of spillages and other environmental impacts as a result of that process?
ROGERS: We have a robust set of procedures that we've put in place and are developing with our newly formed operations group. We'll be adopting world's best practice in everything that we do, and we'll be minimising the opportunity for spillage of materials during the process. One of the positive benefits of the arrangements with Tongling is that there's very little waste at the end of the treatment process. We're able to roast the material in China producing sulphuric acid and gold and remaining material can actually be sold as iron ore fines or for cement manufacturing. So the actual waste at the end of the day is going to be very, very small. This course is consistent with our environmental commitments to minimise impacts to the environment.
GARRETT: The actual mining site of course is very much out of sight of the general public in Papua New Guinea. Will there be independent monitoring of the mining process?
ROGERS: In fact the government through the Mineral Resources authority will have observers onboard the vessel at all times. We have obligations to record everything that we're doing using video cameras. And there will be quite considerable transparency to what's actually happening on the seafloor.
GARRETT: It's still just over a year before you begin commercial mining. What hurdles do you need to get over before then?
ROGERS: The key challenges for us now are to maintain the perfect progress. Our target is to move into production by the end of next year. And as such we have to complete the build of our equipment, integrate it onto the production support vessel, test all of that equipment, and then move into a commissioning program in Papua New Guinea itself.