This from a recent email Charles sent through to Notes HQ:

I’m a big believer in emerging markets – especially Brazil, which has some of the most resilient consumers in the world. It has also kept inflation at bay, while improving its balance sheet. And it’s set to become the Saudi Arabia of offshore oil, with finds of over 30 billion barrels of oil equivalent in just one field. You can buy into Brazil by going long shares of the iShares Brazil ETF (NYSE:EWZ). Since March, this ETF has risen 83.5%. I wouldn’t be surprised if it went up another 100% or more in the coming months.

They are the safest bet. And heaven knows, in these uncertain times we don’t want to bend the rules too much. But rules are also there to be broken.

So when Erin and I heard that Nautilus Resources was making steady progress with mining the seabed for gold, silver and copper, our ears pricked up.

It’s not the first time minerals have been mined offshore. Oil, diamonds, titanium and chromium have all been successfully extracted. But significant amounts of gold and silver (the stuff we’re interested in!) have remained below the dark depths of the ocean. That is clearly an opportunity if you consider that 71% of the world’s surface is covered by water!

Needless to say, Nautilus is not the only company to take the plunge. UK quoted Neptune Mining is another, but for the moment at least it is in shallower waters.

Avast! Big boys take the plunge

So Nautilus has first mover advantage in developing so-called seafloor massive sulphides (SMS). These are said to hold significant, high-grade concentrations of gold and silver, not to mention lead, copper and zinc.

The latter probably explains the interest from zinc giant Teck Cominco. Late last year it upped its stake to 7.2%, with a $15m investment. Interestingly this deal happened six months earlier than originally planned.

Then it exercised a $12m option to enter into a joint venture with Nautilus. In March, Nautilus and Teck began in exploring in the waters off the coast of Papua New Guinea (PNG).

Teck will explore up to four areas located in PNG, New Zealand and Tonga. Just for the record, Nautilus’s Solwara 1 to 8 projects are excluded from the deal with Teck, as are exploration licences in Tonga and Fiji. Nautilus still owns 100% of these.

Teck may be a mining heavyweight, but it is not Nautilus’s biggest shareholder. In fact, Epion Holdings, a company owned by Russian oligarch Alisher Usmanov, holds 22.4%. Mr Usmanov, we might add, happens to be the 18th richest man in Russia and 142 nd in the world!

Continues below

Recommended

Cash in on the loophole Google doesn’t want you to know about!

Imagine cash filling your bank account – on autopilot… Imagine how great life would be if you claimed a guaranteed income each month – with NO day to day work!

Now it’s possible: Just take advantage of the loophole Google doesn’t want you to know about! This is a lucrative, LEGAL ‘crack’ in the Internet… In fact, ANYONE with half a brain can cash in…

Would you like to?

Negotiating stormy seas

There may have been a tidal wave of support from mining majors, but it has not all been plain sailing. Initially Nautilus thought that it would be producing gold by 2009. But then an agreement with Belgian dredger Jan de Nul turned sour when it required Nautilus to cough up development costs. That news took the shine off the share price and pushed back production deadlines.

So it was back to the drawing board to find other marine contractors for mining services.

In the past few months, Nautilus has awarded a raft of contracts necessary to meet 2010 production targets at its flagship project, Solwara 1, which is located in PNG’s Bismarck Sea.

In December a £33m contract for seafloor mining tools (SMT) went to Soil Machine Dynamics of Newcastle upon Tyne. Then a US$116m contract went to Technip USA for engineering procurement and construction management services.

Most recently, Nautilus closed a deal with Canyon Offshore. Canyon will provide the vessel, remote operated vehicle and drilling equipment for the exploration and environmental programmes in the 100% owned PNG and Tonga titles.

So clearly Nautilus has been busy. And it would seem that it is now out of choppy water. Not only is Nautilus actively exploring, it reckons it could be producing gold and copper from Solwara 1 in the third quarter of 2010.

Sink or swim… can Nautilus inspire investor confidence?

Let us be clear though, all Nautilus has are inferred and indicated resources. And there is no guarantee that resources will translate to reserves and then tangible gold.

But the good news is that Nautilus’s resource is the world’s first to comply with something called the National Instrument 43-101. This is a mineral resource classification which has been developed to prevent companies making wild claims, and so protect investors. To make this grade meant 111 core drill holes, surface mapping and sampling 133 times. Not to mention backing this up with supporting information from 35 core holes drilled in 2006.

Another concern is, of course, the potential impact mining the seafloor could have on the environment. And this is something that Nautilus takes seriously. A detailed environmental impact statement (“eis”) for the Solwara 1 Project is nearing completion and will be submitted to the PNG government later this year.

Going forward then, Nautilus must do more than just tread water! But with US$310m in the bank, it is well financed to take Solwara 1 to production and continue with its active exploration programme. Management looks strong and in the second quarter will shed light on future operating and capital costs.

So if nothing else this is a fascinating, trailblazing story. And one we will be watching with interest.

Keep diving,

Erin and Isabel

PS Make sure you don’t miss out on getting all the latest industry news in one daily hit with a brand new free eletter from Fleet Street Publications.