a new frontier - AnnualReports.com MINERALS INC. ANNUAL REPORT 2009 a new frontier NAUTILUS MINERALS INC. CORPORATE OFFICE 141delaide A Street West, Suite 1702 Toronto, Ontario, Canada

NAUTILUS MINERALS INC. ANNUAL REPORT 2009

a n e w f r o n t i e r

NAUTILUS MINERALS INC.

CORPORATE OFFICE

141�Adelaide�Street�West,�Suite�1702�Toronto,�Ontario,�Canada�M5H�3L5

www.nautilusminerals.com

email:�[email protected]

INVESTOR RELATIONS INQUIRIES

TSX:�NUS

AIM:�NUS


Tel:�+1.416.551.1100�

MEDIA RELATIONS INQUIRIES


Tel:�+1.416.551.1100

n e w v i s i o n n e w w o r l d n e w r e s o u r c e s


NAUTILUS MINERALS ANNUAL REPORT 2009

With its first Seafloor Massive Sulphide project Solwara 1, Nautilus Minerals will unlock the valuable potential of deepwater natural resources for current and future generations.

�� Teamwork;�Bringing�together�people�from�different�backgrounds,�Nautilus�Minerals�has�created�a�motivated�team�focused�on�delivering�a�world-class�seafloor�production�system�on�time,�within�budget,�and�meeting�all�of�our�environmental,�health�and�safety�commitments.

�� Technology;�Adapting�existing�technologies�employed�in�the�deepwater�oil�and�gas�industry,�Nautilus�Minerals�moves�forward�in�the�delivery�of�its�objective�to�extract�copper�and�gold�rich�mineral�deposits�from�the�seafloor,�1,600�metres�below�the�ocean’s�surface.

�� Corporate responsibility;�Nautilus�Minerals�is�setting�the�standards�for�environmental�best�practice�in�this�new�industry.�Our�positive�safety�culture�results�in�a�secure�and�safe�workplace�for�our�people.�With�a�strong�sense�of�responsibility�for�the�communities�within�which�we�work,�Nautilus�is�proving�to�be�the�leader�in�opening�up�this�new�frontier.

Opening a new frontier

“There are no dreams too large, no innovation unimaginable

and no frontiers beyond our reach” John Herrington 1

1 NASA astronaut, and the first enrolled member of a Native American tribe to fly into space as part of a successful space shuttle mission in 2002.

061

Board of DirectorsGeoff�Loudon��Chairman

Stephen�Rogers��President,�CEO�and�Director

David�De�Witt��Director

Russell�Debney��Director

Matthew�Hammond��Director

John�O’Reilly*��Director

Officers and ManagementStephen�Rogers��President�and�CEO

Anthony�O’Sullivan��Chief�Operating�Officer

Shontel�Norgate��Chief�Financial�Officer�and�Corporate�Secretary

Michael�Johnston��VP�Strategic�Development�and�Exploration

Scott�Trebilcock��VP�Business�Development�and�Investor�Relations

Glen�Smith��Chief�Technology�Officer

Mel�Togolo��Papua�New�Guinea,�Country�Manager

Paul�Taumoepeau��Tonga,�Country�Manager

Transfer Agent and RegistrarThe�transfer�agent�and�registrar�for�the�shares�of�the�Company�is�

Computershare,�its�offices�are�located�at:

9th�Floor,�100�University�Avenue�

Toronto,�ON�M5J�2Y1�Canada

Computershare�Trust�Company�Inc.�located�in�Bristol,�UK�is�

acting�as�UK�co-transfer�agent.

Annual Information FormThe�Company�prepares�an�Annual�Information�Form�(“AIF”)�which�

is�filed�with�the�securities�commission�in�Canada.�Copies�of�the�

AIF,�annual�and�quarterly�reports�are�available�at�the�Company’s�

website:�www.nautilusminerals.com

For Shareholder Accounts

Inquiries in Canada:

Telephone:�1.800.564.6253�(toll�free�in�North�America)�

International:�+514.982.7555�

e-mail:�[email protected]

Corporate Information

*�Resigned�effective�April�16,�2010

Or write to:

Computershare�Investor�Services�


Toronto,�ON�M5J�2YI�Canada

Inquiries in the United Kingdom:

Telephone:�0870.702.0003

Or write to:

Computershare�Investor�Services�plc�

PO�Box�82,�The�Pavilions,�

Bridgwater�Road�

Bristol�BS997NH,�United�Kingdom

Nominated Advisor and Broker(AIM)

Numis�Securities�Limited

Investor Relations ContactInstitutional�and�individual�investors�seeking�financial�information�

about�the�Company�are�invited�to�contact�Scott�Trebilcock,�

VP�Business�Development�&�Investor�Relations

Telephone:�+1.416.551.1100��

E-mail:�[email protected]�

Web:�www.nautilusminerals.com

Stock Exchange Listing and SymbolsThe�Company’s�shares�are�listed�on�the�Toronto�Stock�Exchange�

(TSX)�and�on�the�London�Stock�Exchange�(AIM)�under�the�

symbol�NUS.

AuditorsPricewaterhouseCoopers�LLP

BankersCanadian�Imperial�Bank�of�Commerce

ANZ�Banking�Corporation

Annual General MeetingThe�Annual�General�Meeting�of�Shareholders�will�be�held�at�

10.30�am,�June�23,�2010�in�the�Connaught�Room,�2nd�Floor,�

Metropolitan�Hotel,�645�Howe�Street,�Vancouver�Canada�BC�V6C�2Y9.

ContentsVision�and�Strategy�� 2

Chairman’s�Letter� 4

Message�from�the�CEO� 6

Exploration�Overview� 10

Technology�Overview� 14

Project�Development� 16

Corporate�Social�Responsibility� 20

Management�Team� 24

Management’s�Discussion�and�Analysis� 27

Financial�Statements�(in�accordance�with�Canadian�GAAP)� 41

Corporate�Governance� 58

Board�of�Directors�and�Senior�Management� 59

Corporate�Information� 61

01

Nautilus Minerals will create sustainable value through the discovery and development of natural resources from the oceans.

Nautilus senior management team, pictured with 3D model of Solwara 1 Project. Left to right: Shontel Norgate, Anthony O’Sullivan, Stephen Rogers, Scott Trebilcock, Glen Smith, & Michael Johnston.

Profiles of the senior management team are on page 60.

Vision and Strategy

Vision:

02


Acquire the groundOver�458,000�km2�of�tenement�licences�

and�applications�across�the�western�

Pacific�region�provides�Nautilus�with�a�

strong�competitive�advantage.

Explore and build the pipelineAdvancing�exploration�using�technologies�

refined�over�the�last�three�years�

allows�Nautilus�to�build�a�pipeline�of�

opportunities�in�the�extraction�of�high�

grade�mineral�deposits�on�the�seafloor.

Unlock the potential through offshore productionAdapting�existing�technologies�from�the�

offshore�and�mining�industries�Nautilus�

moves�towards�delivering�Solwara�1�to�

production.�The�application�of�best�in�

class�project�delivery�and�production�

technologies�will�unlock�the�vast�potential�

held�on�and�below�the�seafloor�of�the�

world’s�oceans.

Be community accountable, responsible environmentally, and safe (CARES)Ensuring�transparency�and�accountability�

and�applying�the�principles�of�CARES,�

Nautilus�aligns�its�strategy�with�a�strong�

sense�of�corporate�responsibility.

Strategy:

03

Leading new industry

“ In 2009, while operating within the budget, we achieved a number of milestone successes, including eight new discoveries in our prime territory of the Bismarck Sea in PNG.”

CHAIRMAN’S LETTER,�GEOFF�LOUDON


04


MV Fugro Solstice departing Kavieng.

I wish to tell you how proud all of the directors are of the leading role our executives play in unlocking the scientific and technical challenges of extracting

the ocean’s mineral resources.

2009�proved�a�year�in�which�we�successfully�surmounted�many�

challenges�and�paved�the�way�for�a�productive�future.�The�Nautilus�

senior�management�team�and�Board�worked�diligently�to�strike�

a�balance�of�controlling�our�cash�position,�while�advancing�the�

development�activities�surrounding�the�Solwara�1�Project.�Against�

a�backdrop�of�the�global�financial�crisis�we�also�spent�considerable�

effort�introducing�the�Project�to�potential�joint�venture�partners,�an�

initiative�which�has�generated�interest�from�a�number�of�parties.�At�

the�time�of�writing�this�letter�we�are�in�advanced�discussions�with�

several�entities�which�all�are�universally�attracted�to�the�ultimate�

rewards�which�will�flow�from�the�opening�of�this�new�frontier�–�the�

seafloor�resource�production�industry.

A milestone achievementIn�a�milestone�event�for�the�company,�on�29�December�2009�Papua�

New�Guinea�(“PNG”)�granted�Nautilus�an�Environmental�Permit.�This�

outcome�is�testament�to�the�quality�of�the�work�carried�out�by�the�

Nautilus�team�and�the�passion�which�we�attach�to�safeguarding�the�

environment.�Our�team�in�PNG�consulted�with,�and�directly�briefed,�

over�five�thousand�people�in�the�region’s�local�communities.�We�not�

only�shared�with�them�our�plans�and�visions,�but�answered�their�

questions�and�outlined�the�implications�for�the�economy�of�PNG.

We�have�set�a�benchmark�that�will�allow�us�to�grow�our�market�with�

an�increasing�focus�on�social�responsibility.

The projectThe�volatility�of�the�offshore�and�resource�markets�in�2009�has�

delivered�notable�long-term�benefits�to�the�Solwara�1�Project.�

We�took�the�opportunity�to�renegotiate�several�contracts,�thereby�

reducing�capital�and�operating�costs�significantly.�Throughout�the�

year�the�project�team�simplified�production�flowsheets,�consolidated�

engineering�and�reduced�risk�for�our�future�operations.

Performing to budgetAt�the�end�of�2008�when�we�deferred�the�build�of�the�production�

equipment,�the�Board�approved�a�minimalist�budget�sufficient�to�

allow�engineering�and�permitting�to�progress,�and�to�fund�some�

modest�exploration�activities�to�maintain�the�intrinsic�value�of�our�

tenements.�In�2009,�while�operating�within�the�budget,�we�achieved�

a�number�of�milestone�successes,�including�eight�new�discoveries�in�

our�prime�territory�of�the�Bismarck�Sea�in�PNG.�The�achievements�

underscore�the�Company’s�ability�to�consistently�meet�pre-set�

objectives.�We�also�identified�over�thirty�targets�for�testing�in�Tonga,�

which�is�the�next�region�in�our�plan�to�open�up�this�new�frontier.�

Looking forward Despite�the�difficult�business�conditions�encountered�during�the�

year�we�delivered�a�stronger�project�plan�and�a�robust�economic�

proposition.�We�continue�progressing�our�strategic�plan�to�produce�

copper�and�gold�from�the�depths�of�the�Bismarck�Sea,�through�our�

key�project,�Solwara�1.�In�2010�we�will�secure�the�additional�funding�

necessary�to�take�the�Solwara�project�through�to�commissioning�and�

start�up.�The�Board�will�then�sanction�the�project�build,�putting�us�

back�on�track�for�production.

At�the�time�of�writing�this�letter�the�PNG�government�has�announced�

the�final�steps�in�the�process�to�grant�Nautilus�a�Mining�Licence�for�

Solwara�1.�While�some�uncertainty�continues�to�exist�in�relation�to�

the�strength�of�the�global�economic�markets,�we�remain�cash�rich�

with�a�strong�business�proposition.�This�will�be�further�bolstered�

when�we�commence�the�build�of�subsea�equipment�in�2010�as�a�

prelude�to�the�full�commercialization�of�the�Project.

A.�Geoffrey�Loudon

Chairman,�Nautilus�Minerals�Inc.

05

A. Geoffrey Loudon

Chairman, Nautilus Minerals Inc.

New Zealand

Papua New Guinea

Tonga

Solomon Islands

Fiji

Brisbane


Stephen Rogers, President and Chief Executive Officer, Nautilus Minerals Inc.

MESSAGE�FROM�THE�CEO�STEPHEN ROGERS

Success through teamwork and technology

06

“Nautilus has made another major stride towards unlocking this new frontier and heralding in an

entirely new global resource industry.”

By�year�end�we�had�significantly�reduced�uncertainty�in�the�Solwara�

1�Project�through�a�risk-based�engineering�process,�advanced�our�

selection�of�vessels,�and�through�evaluation�and�renegotiation�of�key�

contracts,�added�considerable�value�to�the�Project.�We�also�enjoyed�

considerable�success�in�three�exploration�campaigns�across�Tonga�

and�Papua�New�Guinea�(“PNG”).

Key Environmental Permit grantedBefore�the�end�of�the�year�we�reached�a�significant�milestone�in�our�

quest�to�open�the�new�frontier�of�seafloor�resource�production�with�the�

issue�of�the�Solwara�1�Environmental�Permit.�This�followed�a�tireless�

and�committed�collaboration�between�senior�Nautilus�personnel,�key�

consultants�and�the�scientific�community.�Our�engagement�with�the�

PNG�Department�of�Environment�and�Conservation�(“DEC”)�and�its�

independent�advisors�has�been�based�on�an�open�and�transparent�

technical�dialogue,�supported�by�the�work�undertaken�with�independent�

scientific�groups�during�the�development�of�Nautilus’�Environmental�

Impact�Statement�(“EIS”).�We�are�proud�of�the�contribution�the�EIS�

has�made�to�the�global�scientific�understanding�of�the�seafloor�

in�the�western�Pacific�region�and�intend�to�continue�to�build�this�

knowledge�base�year�on�year�for�the�lasting�benefit�of�current�and�

future�generations.

Exploration successWith�five�of�the�new�discoveries�in�the�Bismarck�Sea�considered�

high�grade�Seafloor�Massive�Sulphide�(“SMS”)�systems,�Nautilus�is�

now�focused�on�assessing�a�total�portfolio�view�across�the�region.�

Our�objective�in�2010�is�to�complete�additional�drilling�to�increase�

the�Company’s�resource�understanding�at�Solwara�1�and�across�the�

Bismarck�Sea.�Significant�advances�have�been�made�in�recent�years�in�

deepwater�subsea�drilling�equipment�and�operations.�Before�the�end�

of�Q2�2010�Nautilus�will�have�selected�the�most�appropriate�equipment�

with�a�view�to�conducting�the�necessary�preparatory�works�on�the�

equipment�in�readiness�for�drilling�in�the�second�half�of�the�year.

With�every�year,�our�unit�cost�of�exploration�decreases�and�our�

technologies�continue�to�improve.�In�2009�we�evaluated�the�performance�

of�Autonomous�Underwater�Vehicles�(“AUVs”)�which�offer�the�

opportunity�to�undertake�more�productive�and�cost�effective�deepwater�

exploration.�Working�with�industry�partners,�the�optimization�of�this�

approach�is�a�priority�for�our�technology�group�in�2010.

We commenced 2009 with a clearly defined set of priorities required to ensure our vision of becoming the world’s leading seafloor mineral exploration and development company, remained firmly on track. Our strategy for 2009 was built on

discipline, teamwork and a clear focus on a key set of corporate objectives.

07

MESSAGE�FROM�THE�CEO�STEPHEN ROGERS

Solwara 1 ProjectWe�expect�to�secure�a�strategic�partner�within�H1�2010�and�

recommence�the�build�of�equipment.�The�emphasis�in�2009�was�

on�risk�reduction�and�value�enhancement.�This�will�change�in�2010�

as�the�project�execution�is�authorised�and�a�full�team�mobilised.�

A�course�will�be�steered�to�complete�engineering�in�2010,�build�

equipment�in�2011,�integrate�equipment�into�the�vessel�and�

commission�to�achieve�first�ore�in�2012.

A safe and secure work placeAs�we�move�towards�a�more�intense�level�of�activity�in�2010�we�will�

continue�to�vigilantly�maintain�the�safety�of�our�employees�and�

stakeholders.�Project�engineering�efforts�will�focus�on�identifying�and�

reducing�potential�risks�and�hazards�to�people�as�a�key�element�of�

our�future�operating�philosophy.

It�is�significant�that�over�the�last�three�years�our�exploration�

activities�have�been�completed�without�any�lost�time�or�restricted�

work�injuries.�The�positive�safety�culture�embraced�by�the�team�

emphasises�the�importance�of�hazard�identification�in�reducing�the�

occurrence�of�serious�injury�events.�The�use�of�robotic�technologies�

across�existing�and�future�activities�will�undoubtedly�contribute�to�the�

maintenance�of�our�exemplary�safety�record.

The new frontierThrough�the�teamwork�and�dedication�of�our�people,�the�Board�of�

directors�and�the�contractors�and�suppliers�who�have�supported�

us�over�the�past�year,�Nautilus�has�made�another�major�stride�

towards�unlocking�this�new�frontier�and�heralding�in�a�new�global�

resource�industry.�

By�preserving�our�cash�position�and�successfully�adapting�and�

refining�existing�technologies�in�2009,�we�are�strongly�positioned�to�

attract�partners�and�deliver�the�Solwara�1�Project.

I�would�like�to�acknowledge�and�thank�our�shareholders�for�their�

steadfast�support�through�a�challenging�but�rewarding�year.�We�are�

now�increasingly�confident�that�you�will�all�share�in�the�benefits�of�

opening�this�new�frontier�which�will�irrevocably�change�the�business�

of�resource�production�for�generations�to�come.

08


Strengthening our position

“ By preserving our cash position and successfully adapting and refining existing technologies in 2009, we are strongly positioned to attract partners and deliver the Solwara 1 Project.”

LEFT: ROV being launched into water.

RIGHT: Ian Stevenson, Chief Geophysicist, in MV Fugro Solstice control room.

FAR RIGHT: PNG children in coastal community.

BOTTOM: Engineer inspecting ROV sensors.

BOTTOM RIGHT: Ocean chemist filtering water samples.

09

Despite the global financial crisis and the subsequent need to maintain the company’s cash reserves, during 2009 we continued to build and progress our exploration project pipeline in the western Pacific region.

In�2009�Nautilus�continued�to�discover�high�grade�base�and�

precious�metal�mineralized�systems�at�an�impressive�rate�relative�

to�traditional�terrestrial�mineral�explorers.�Through�continually�

improving�exploration�techniques�we�recorded�an�average�of�4.4�

targets�per�week�during�target�generation�activities,�which�were�

converted�to�mineralized�systems�at�an�average�rate�of�more�than�

one�mineralized�system�per�week.

Highlights�of�the�exploration�activity�successfully�completed�during�

the�year�included:�1)�the�confirmation�of�high�grade�mineralization�at�

the�Far�North�Zone�of�our�Solwara�1�Project;�2)�the�discovery�of�eight�

new�mineralized�systems�in�Papua�New�Guinea�(“PNG”);�3)�a�Tongan�

exploration�campaign�which�identified�32�new�targets�for�testing,�

plus�two�high�grade�Seafloor�Massive�Sulphide�(“SMS”)�systems;�and�

4)�the�first�ever�deep�water�commercial�exploration�program�in�the�

Exclusive�Economic�Zone�of�the��Solomon�Islands.

The�addition�of�ten�mineralized�systems�during�2009�brings�the�total�

discovered�to�date�on�Nautilus’�100%�tenements�to�31.

Tonga campaignNautilus’�exploration�campaign�in�Tonga�was�successfully�concluded�

in�July�2009.�Conducted�in�collaboration�with�the�Australian�National�

University�(“ANU”)�and�the�Commonwealth�Scientific�and�Industrial�

Research�Organisation�(“CSIRO”)�on�the�Marine�National�Facility�

research�vessel,�RV�Southern�Surveyor,�our�campaign�comprised�

56�days�of�water�column�sampling,�bathymetric�surveying�and�

opportunistic�rock�sampling.�We�identified�32�new�targets�indicative�

of�prospective�hydrothermal�activity.�Samples�taken�from�two�of�

the�sites,�have�copper�assays�up�to�12.6%,�zinc�assays�up�to�60.9%,�

gold�up�to�34.0�g/t�and�silver�up�to�185�g/t.�These�assays,�together�

with�those�from�our�previous�Tongan�exploration�successes,�and�

the�number�of�targets�that�await�testing,�highlight�the�impressive�

potential�of�our�large�tenement�package�in�Tonga.

PNG campaignOn�30�December�2009,�MV�Fugro�Solstice�completed�a�highly�

productive�132�day�program�of�water�column�studies,�geophysical�

surveying�and�Remotely�Operated�Vehicle�(“ROV”)�mapping�

and�sampling.

The�program�was�contracted�to�Fugro,�a�recognised�global�leader�

in�the�provision�of�specialist�subsea�services.�It�was�successful�in�

strengthening�our�high�grade�SMS�inventory�within�our�100%�owned�

PNG�and�Solomon�Islands�exploration�licences.�In�all,�we�tested�29�

targets�by�ROV�during�the�54�days�of�MV�Fugro�Solstice�program,�

increasing�our�inventory�by�eight�mineralized�systems,�including�

an�additional�zone�of�mineralization�at�Solwara�11�and�new�SMS�

systems�confirmed�to�contain�base�and�precious�metals.�Copper�

assays�up�to�32.4%,�zinc�assays�up�to�52.6%,�gold�assays�up�to�

39.7�g/t�and�silver�assays�up�to�1550�g/t�from�these�grab�samples�

demonstrates�that�the�conditions�required�to�produce�high�grade�

mineralization�at�Solwara�1�are�also�occurring�at�other�mineralized�

systems�in�the�Bismarck�Sea,�PNG.

Target Generation

Predicted A (plume) targets (10.5)

Predicted SMS discoveries (4.75)

PNG* Dea Surveyor (Teck)

Target Testing

Hit

Rat

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onth

12

10

8

6

4

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Tonga

7.5

11.7 11.4

3.5

1.33.2

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8.6 8.6

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Figure 1

EXPLORATION�OVERVIEW

Creating value through an expanding exploration pipeline

Figure

1) Nautilus exploration success rate

010


2010 explorationWe�are�focused�on�evaluating�the�mineralized�systems�defined�

in�the�territorial�waters�of�PNG.�A�drilling�program,�planned�to�

commence�in�2010,�is�designed�to�expand�Nautilus’�mineral�resource�

understanding.�Drilling�is�planned�to�commence�on�Mining�Lease�

Application�154�which�hosts�Solwara�1,�5�and�9�and�then�continue�

on�the�best�of�the�other�mineralized�systems�which�will�include�

Solwara�12.

The�proposed�campaign�will�utilise�a�drilling�system�able�to�drill�

holes�in�excess�of�40�metres,�thereby�enabling�deeper�drilling�at�

Solwara�1,�greatly�enhancing�our�knowledge�of�the�resource.

TenementsOur�status�as�the�leading�company�to�commercially�explore�the�ocean�

floor�for�precious�and�base�metals�has�strongly�positioned�Nautilus�

in�terms�of�the�areas�secured�for�future�exploration.�A�keystone�of�

our�corporate�strategy�is�to�consolidate�our�first�mover�advantage�by�

adding�title�holdings�over�prospective�ground�in�new�countries.

As�at�the�end�of�December�2009,�Nautilus�maintained�183,712�km2�

of�granted�tenements�within�the�Exclusive�Economic�Zones�and�

territorial�waters�of�PNG,�Solomon�Islands�and�Tonga,�where�we�now�

hold�88�granted�tenements.

Commencing�2010,�we�also�have�an�additional�274,422�km2�under�

application,�including�those�within�the�Exclusive�Economic�Zones�and�

territorial�waters�of�New�Zealand�and�Fiji.

Territorial�Waters,�Papua�New�Guinea,�Location�of�Solwara�Prospects

NEW IRELAND

EAST NEW BRITAIN

MANUS ISLAND

ADMIRALTY ISLAND

Tingwon Group

Dyaul Island

TABARISLAND

LIHIRISLAND

Simberi Mine

Lihir Mine

KaviengUmbukul

Konos

Rabaul

Kokopo

150o0’E

0 20 40 60 80 100km UTM Projection. WGS84 Datum.

PAPUA NEW GUINEA

SOLWARA PROSPECTS LOCATION

Sulphate systemSelected SMS system

Gold mine or deposit100% Nautilus tenement

148o0’E

4oS

2oS

BISMARCK SEA

PACIFIC OCEAN

MAPAREA

Solwara 3

Solwara 19

Solwara 17

Solwara 18

Solwara 11Solwara 2

Solwara 9

Solwara 1

Solwara 5

Solwara 13

Solwara 4,6,7,8Solwara 12

Solwara 10

Solwara 16

Solwara 14

Solwara 15MANUS SPREADIN

G CENTRE

011

Figure 2

EXPLORATION�OVERVIEW

PNG, mineralized samples

Prospect Av Cu%* Av Zn%* Av Au g/t* Av Ag g/t* Grab Sample Count

Solwara�2 1.1 24.2 10.8 345 67

Solwara�3 0.5 11.0 30.6 3375 2

Solwara�4 11.1 23.0 14.9 259 54

Solwara�5 6.0 8.3 14.6 282 12

Solwara�6 11.7 18.4 16.1 203 7

Solwara�7 5.1 21.5 15.0 359 8

Solwara�9 6.3 10.6 19.9 296 17

Solwara�10 7.7 15.2 2.5 165 12

Solwara�11 1.6 16.9 1.2 180 26

Solwara�12 7.0 22.6 13.7 425 10

Solwara�13 9.1 30.7 4.7 546 7

Solwara�14 1.4 19.2 3.3 97 14

Solwara�16 2.1 18.6 2.8 105 6

Solwara�17 0.0 0.2 0.1 261 2

Solwara�18 0.3 19.6 0.2 110 2

Solwara�19 0.0 0.3 1.2 6 1

NorthSu 0.1 5.9 7.5 79 1

SouthSu 10.6 4.5 6.6 112 9

Tonga, mineralized samples

Prospect Av Cu%* Av Zn%* Av Au g/t* Av Ag g/t* Grab Sample Count

TahiMoana�1 1.6 31.2 4.2 180 9

TahiMoana�2 0.3 7.6 3.1 129 5

TahiMoana�4 0.0 1.7 12.3 533 1

TahiMoana�5 1.5 12.8 19.9 696 7

TahiMoana�6 0.4 27.0 7.8 230 3

TahiMoana�7 2.5 27.8 10.2 81 19

HineHina 5.7 18.6 5.6 150 11

Maka 5.4 6.0 4.6 62 3

Mariner 3.8 24.2 3.6 80 3

NVFR�Site�2 0.7 23.7 5.7 128 4

NVFR�Site�3 1.8 22.5 3.3 115 12

Pia 4.6 17.6 20.6 191 6

TuiMalila 0.9 21.8 4.0 84 5

Tunu-Sosisi 14.3 8.2 20.3 173 5

Niua 8.1 15.3 13.7 313 3

WhiteChurch 0.6 19.3 3.0 87 6

*�Mean�assay�value�of�surface�grab�samples

012


N e w C a le d o n i a

V a n u a t u

SolomonIslands

Kingdomof Tonga

NewZealand

Australia

Papua New Guinea

Fiji

Nuku'alofa O ffice

Po rtMoresbyO ffice

Auckland

Suva

Sydney

Brisbane Project O ffice

180o0’150o0’E

180o0’

30o0’S30o0’S

150o0’E

0 500 1,000km

Plate Carree Projection. WGS84 Datum.

SOUTHWEST PACIFIC REGION

LOCATION OF TENEMENTSJanuary 2010 © Nautilus Minerals

Tenement - Application SW Pacific Office Locations - Nautilus MineralsTenement - Granted

BISMARCK SEA

SOLOMON SEA

TASMAN SEA

PACIFIC OCEAN

Kavieng Office

Figure

2) Mean value of prospect grab samples.

013

VENTS

SEAMOUNTS

RIDGE

TECHNOLOGY�OVERVIEW

Unlocking new frontiers through technological innovation

Exploration technologiesThe�identification,�application�and�refinement�of�tried�and�proven�

deep�sea�resource�exploration�and�recovery�technologies�remain�a�

core�element�of�Nautilus’�ongoing�success.�

In�2009�through�continued�innovation�and�by�refining�and�improving�

past�processes,�considerable�advancements�were�made�to�our�

already�successful�proprietary�exploration�technologies.

Geophysics

In�2009�we�continued�to�use�the�Ocean�Floor�Geophysics�(“OFG”)�

electromagnetic�system�to�map�near-surface�copper-rich�zones�of�

mineralization.�Purpose-built�OFG�magnetometers�were�also�used�to�

map�Seafloor�Massive�Sulphide�(“SMS”)�prospects.��

In�2010,�our�research�and�development�focus�is�to�identify�seismic�

techniques�that�can�better�map�the�depth�of�sulphide�mineralization.�

Seismic�Controlled-Source�Electromagnetics�(“CSEM”)�and�gravity�

techniques�are�both�being�studied�to�improve�our�mapping�of�

sulphide�lenses.

Autonomous Underwater Vehicles (“AUVs”)

We�continue�to�evaluate�and�trial�the�latest�developments�in�AUV�

technology�as�a�way�to�markedly�increase�exploration�efficiency�and�

effectiveness.�AUV�survey�platforms�are�significantly�faster�than�

deep-towed�platforms�and�Remotely�Operated�Vehicles�(“ROVs”).�

Faster�survey�speeds�would�make�it�more�practical�to�collect�data�

over�large�areas�of�the�seafloor,�at�a�resolution�suitable�for�detection�

of�active�and�long�inactive�SMS�systems.�AUV�survey�platforms�are�

anticipated�to�become�one�of�our�primary�exploration�tools�for�target�

generation�and�follow-up�of�water�column�anomalies.

Drilling

In�2007�Nautilus�successfully�completed�a�seafloor�drilling�program�

at�Solwara�1�which�delivered�the�world’s�first�NI�43-101�compliant�

mineral�resource�for�a�SMS�system.�To�build�on�this�success�and�

optimize�our�performance�for�future�programs,�in�2009�Nautilus�

undertook�a�comprehensive�technical�evaluation�of�seafloor�drilling�

systems�available�around�the�world.�This�process�identified�a�number�

of�companies�with�systems�that�offered�enhanced�seafloor�landing�

capability,�ability�to�drill�deeper�(>40m),�improved�core�recovery�and�

designs�that�optimize�drill�hole�completion�cycle�times.�After�further�

evaluation�one�of�these�units�will�be�selected�for�deployment�in�a�

2010�drilling�program.

014


Exploration and seafloor resource production.

This graphic is not to scale.

VENTS

SEAMOUNTS

RIDGE

Geochemistry

In�2009,�we�successfully�advanced�our�“plume�hunting”�or�target�

generation�techniques,�which�rapidly�improves�our�immediate�

assessment�of�an�area’s�prospectivity.�We�are�now�able�to�detect�

“tell-tale”�particle�plumes�in�the�water�column�and�sample�them�

to�analyse�for�metal�content,�chemical�properties�and�helium�

content.�In�2010,�we�will�further�investigate�geochemical�techniques�

for�vectoring�towards�older�systems�that�are�no�longer�affiliated�

with�a�currently�active�plume�in�the�water�column.�This�will�involve�

analysing�sediment�cores�and�real-time�probes�that�have�been�

developed�by�globally�renowned�marine�research�groups.�We�also�

expect�to�further�develop�an�understanding�of�magma�metal�fertility�

through�fundamental�trace�element�characterization�of�regional�

volcanic�samples.

Offshore production technologiesThrough�strategic�partnerships�and�collaboration�with�industry�

leaders�from�around�the�globe,�we�are�maintaining�a�focus�on�

successfully�refining�the�application�of�existing�technologies�for�

seafloor�recovery�operations.�Existing�tried�and�proven�technologies�

from�the�surface�mining�(rock�cutting)�and�offshore�oil�and�gas�

(trenching/ROV’s/drilling)�sectors�are�being�combined�and�adapted�

to�develop�unique�and�efficient�seafloor�mining�tools�and�slurry�

gathering/pumping�systems.

Our�current�focus�remains�on�delivering�a�cost�effective�and�efficient�

system�for�our�first�commercial�development.�We�continue�to�

evaluate�technology�from�the�perspective�of�its�application�to�future�

production�systems�for�our�other�projects,�and�its�capacity�to�meet�

Nautilus’�longer-term�growth�aspirations.�Among�the�key�technology�

areas�that�we�will�continue�to�evaluate�and�develop�are:

� Mobile�ore�transhipment�systems�to�increase�flexibility�and�

reduce�ore�handling�and�transportation�costs.

� Floating�concentrator�facilities�for�use�at�a�sheltered�nearshore�

location�or�ultimately,�for�offshore/on�site�application.

� Real�time�seafloor�mining�productivity�measurement�with�

feedback�automation�capability.

� Improved�efficiencies�in�cutting,�gathering�and�

pumping�equipment.

� Alternate�seafloor�excavation�techniques�for�special�terrain.

015

1,600 metres

Riser and Lifting System (RALS)

Production Support Vessel (PSV)

Seafloor Mining Tool (SMT)

Subsea Slurry Lift Pump (SSLP)


PROJECT�DEVELOPMENT

Delivering Solwara 1

016

2009 – Mitigating riskWe�further�progressed�the�Solwara�1�Project�in�2009�through�

identifying�and�mitigating�potential�risk,�obtaining�key�regulatory�

approvals�and�through�capitalizing�on�global�market�conditions�to�

enhance�the�value�of�the�Project.

Permitting

In�December�2009�the�Solwara�1�Project�Environmental�Permit�was�

issued�by�the�PNG�Department�of�Environment�and�Conservation.�

Granting�of�the�mining�lease�for�Solwara�1�is�now�well�advanced,�with�

the�PNG�Minister�for�Mining�scheduling�the�development�forum�for�

April�2010.

Mining production system

As�a�result�of�hyperbaric�geotechnical�research�conducted�at�the�

Delft�University�of�Technology�in�the�Netherlands,�and�the�in-house�

development�of�a�predictive�proprietary�production�model,�we�have�

significantly�strengthened�our�understanding�of�the�Solwara�1�

resource.�From�insights�gained�in�2009�a�revised�mine�plan�was�

developed�which�involved�modifications�to�the�production�operations�

leading�to�improved�productivity,�machine�availabilty�and�planning�

flexibility.

Riser and Lifting System

The�Riser�and�Lifting�System�(“RALS”)�design�has�changed�little�

through�2009�despite�a�thorough�verification�process.�Work�has�

been�focused�on�better�understanding�likely�wear�and�maintenance�

regimes�for�the�main�subsea�lift�pump,�with�the�commissioning�of�a�

wear�loop�test�regime�managed�by�GE�Oil�and�Gas.

Technip�is�well�advanced�on�the�preparations�to�rebid�the�less�

technology�intensive�riser�components�-�the�surface�mud�pumps,�

derrick�and�draw�works�and�main�riser�pipe�work.

Vessel

We�are�in�the�final�stages�of�vessel�selection,�and�negotiations�

advance�with�three�short-listed�groups.�The�supply�contract�will�

involve�provision�of�the�Production�Support�Vessel,�crew�and�

operations�on�a�charter�basis.��The�vessel�will�be�capable�of�

accommodating�a�crew�of�around�130�personnel�and�providing�all�

the�electrical�power�required�to�run�the�mining�equipment.

Located in the territorial waters of Papua New Guinea (“PNG”), 50 kilometres north of the international port of Rabaul, the Solwara 1 Project is a high grade copper-gold resource that is firmly on track to become the first full-scale deepwater

mineral development project in the world.

LEFT: Artist’s impression of Solwara 1 seafloor resource production system

This graphic is not to scale.

017

“ Our implementation strategy for Solwara 1 harnesses the expertise afforded by world- leading technology partners in the key subsea engineering elements along with highly respected industry leaders for the Project’s above sea components.”

Tried and proven technologies

PROJECT�DEVELOPMENT

Materials handling and port logistics

In�October�2009�Nautilus�signed�a�formal�agreement�with�PNG�Ports�

Corporation�Limited�to�secure�port�handling�rights�for�the�Solwara�1�

Project�at�the�port�of�Rabaul.�The�agreement�provides�Nautilus�with�

port�handling�and�a�stockpile�storage�capacity�for�up�to�1.5�million�

tonnes�of�ore�per�year.�Work�conducted�in�2009�has�defined�a�final�

port�configuration�and�operating�structure�considered�optimal�to�

our�needs.

Processing options

A�global�search�of�potential�mineral�concentrator�plants�to�process�

the�ore�recovered�from�Solwara�1�identified�a�number�of�suitably�

equipped�plants�in�the�Australasia�region.�Technical�and�commercial�

discussions�with�selected�operators�of�these�plants�are�advancing.

2010 – Implementation The�overriding�focus�for�our�team�in�2010�is�to�continue�working�

towards�a�flawless�project�implementation�for�Solwara�1.�The�

strong�core�Nautilus�project�team�that�has�driven�the�substantial�

progress�made�with�Solwara�1�during�2009,�has�been�augmented�and�

strengthened�by�a�number�of�high�calibre�recruits.�

The�implementation�strategy�harnesses�the�expertise�afforded�by�

world-leading�technology�partners�in�the�key�subsea�engineering�

elements�along�with�highly�respected�industry�leaders�for�the�

Project’s�above�sea�components.

The�key�technology�partners�contracted�to�design�and�deliver�the�

critical�elements�for�our�subsea�development�program�are�SMD�for�

Seafloor�Mining�Tools;�Technip�for�the�Riser�System;�and�GE�Oil�and�

Gas�for�the�Subsea�Slurry�Lift�Pump.

018


LEFT: Chimney sample from Solwara 13.

FAR RIGHT: RT1 image courtesy of CTC Marine Ltd.

RIGHT: GE Hydril Positive Displacement Pump image courtesy of GE Hydril Inc.

BELOW RIGHT: Artist’s impression of a Seafloor Mining Tool.

BELOW: Artist’s impression of support vessel and barge loading operations.

019

Solwara 1 Electromagnetic Response Location of Solwara 1

NEW IRELAND

EAST NEW BRITAIN

MANUS ISLAND

ADMIRALTY ISLAND

Tingwon Group

Dyaul Island

TABARISLAND

LIHIRISLAND

Simberi Mine

Lihir Mine

KaviengUmbukul

Konos

Rabaul

Kokopo

150o0’E

0 20 40 60 80 100km UTM Projection. WGS84 Datum.

PAPUA NEW GUINEA

BISMARK AREA PROSPECTS LOCATION

Selected SMS system Gold mine or deposit100% Nautilus tenement

148o0’E

4oS

2oS

BISMARCK SEA

PACIFIC OCEAN

MAPAREA

Solwara 3

Solwara 2

Solwara 1

~60km

Lassul Bay

Solwara 10

MANUS SPREADING CENTRE


CORPORATE�SOCIAL�RESPONSIBILITY

Nautilus CARES

Nautilus Minerals is committed to minimizing the environmental impact of our activities while contributing positively to the sustainable future of the communities in which we work.

LEFT: Greeting by villagers from Kono, New Ireland province, Papua New Guinea

020

The CARES program - a corporate cornerstoneNautilus�CARES�(Community�Accountable,�Responsible�Environmentally,�

Safe)�is�a�fundamental�tenet�of�our�operations�and�the�guiding�

principle�which�governs�our�relationships�with�local�communities,�our�

commitment�to�the�environment�and�our�responsibilities�to�employees.�

Under�CARES,�which�was�launched�in�2008,�we�are�committed�to�

establishing�best�practice�social,�environmental,�health�and�safety�

standards�for�the�seafloor�resource�industry.

Community accountableContributing�positively�to�the�sustainable�future�of�the�communities�

in�which�we�work�is�an�integral�part�of�our�development�strategy.�

As�such�we�are�committed�to�cultivating�long-lasting�and�mutually�

beneficial�relationships.�In�2009�we�continued�to�build�a�foundation�

of�trust�and�respect�among�our�stakeholders,�by�supporting�

community�initiatives�and�ongoing�assistance�programs�in�Papua�

New�Guinea�(“PNG”)�and�Tonga.�

Port Moresby City Mission

Under�a�five�year�program�launched�in�2009,�Nautilus�is�providing�

US$100,000�in�funding�to�assist�and�support�the�critical�role�

played�by�the�Port�Moresby�City�Mission.�Our�funding�is�providing�

disadvantaged�youths�and�young�adults�with�accommodation�and�job�

training,�and�is�opening�up�employment�opportunities�and�assisting�

their�integration�into�society.

Nautilus sponsored Duke Opportunity Bursary

2009�represents�the�second�year�we�have�helped�broaden�scientific�

knowledge�within�PNG�by�financially�supporting�students�studying�

deep�sea�science.�William�Saleu,�from�the�Island�region,�was�the�2008-

2009�recipient�of�the�Nautilus-Duke�University�Opportunity�Bursary,�

which�provides�an�opportunity�to�study�under�the�Duke�University�

(USA)�marine�science�program.�As�part�of�his�course�William�worked�

alongside�Dr.�Cindy�Lee�Van�Dover,�a�world�leading�deep�sea�biologist,�

and�learned�state-of-the-art�techniques�to�study�animals�sampled�

from�Solwara�1�as�part�of�our�environmental�baseline�studies.�In�2009�

he�participated�in�our�MV�Fugro�Solstice�exploration�campaign,�and�

has�since�received�a�grant�from�the�International�Seabed�Authority�to�

continue�research�at�Duke�University.�

Community development

In�line�with�our�commitment�to�fostering�the�development�of�local�

communities,�the�Namatanai�Community�Centre�in�New�Ireland�is�

now�under�construction,�assisted�by�our�donation�of�K100,000�(US�

$37,493.30�equivalent)�from�December�2008.�Upon�its�completion,�

this�centre�will�be�a�“hub”�for�community�development�initiatives�in�

central�New�Ireland�Province.�

Together�with�a�locally�selected�steering�group,�Nautilus�will�manage�

a�Community�Development�Fund�that�will�receive�two�Kina�for�every�

tonne�of�ore�recovered�from�our�Solwara�1�Project.�In�concert�with�

the�Provincial�Government�of�New�Ireland�and�other�island�provinces,�

Nautilus�is�working�with�communities�to�identify�priorities�and�to�

create�opportunities�for�improved�quality�of�life�through�the�provision�

of�health�and�education�services.�

EcoCare Pacific Trust National High School Science Competition

In�2009�Nautilus�continued�to�actively�promote�science�study�in�Tonga�

through�sponsorship�of�the�University�of�Canterbury’s�EcoCare�Pacific�

Trust�National�High�School�Science�Competition.�This�competition�is�

an�annual�event�that�is�advocating�more�wide-spread�participation�by�

high�school�students�and�teachers�in�the�sciences,�and�encourages�

further�study�at�a�tertiary�level.�Maketalena�Male�and�Tatafu�Tatila�from�

Tonga�High�School�and�Lupi�Tukia�from�the�Queen�Salote�College�each�

received�sponsorship�with�the�amount�donated�by�Nautilus�to�the�event�

in�2009�totalling�TOP10,000�(US�$5,284.50�equivalent).

Consultation with communities in PNG

2009�saw�a�continuation�of�our�extensive�consultation�with�local�

communities,�and�provincial�and�national�governments,�to�ensure�

all�relevant�stakeholders�have�an�in-depth�understanding�of�every�

step�of�our�proposed�development.�To�date�Nautilus�has�engaged�

over�33�villages�and�towns�in�PNG�(refer�map),�and�despite�

their�remote�locations,�many�have�received�multiple�visits�from�

company�personnel.�With�our�proposed�production�site�located�in�

New�Ireland�Province�and�with�the�proposal�to�use�the�international�

021

Best practice “ Under CARES we are committed to establishing best practice social, environmental, health and safety standards for the seafloor resource industry.”

port�of�Rabaul�in�East�New�Britain�Province,�our�2009�community�

engagement�efforts�were�largely�focused�in�these�areas.

Responsible environmentallyThe�Environmental�Impact�Statement�(“EIS”)�for�the�Solwara�1�

Project,�submitted�to�the�PNG�Department�of�Environment�and�

Conservation�(“DEC”)�in�September�2008,�underwent�a�rigorous�

independent�review�by�an�international�consultant�engaged�by�the�

DEC.��The�EIS�received�an�Approval�in�Principle�on�31�August�2009�

by�the�PNG�Minister�for�Environment�and�Conservation�who�publicly�

commended�the�level�of�community�consultation�undertaken�for�the�

Project.�The�Environmental�Permit�for�the�Solwara�1�Project�was�

granted�on�29�December�2009�and�the�next�step�is�to�submit�our�

Environmental�Management�Plans�at�least�three�months�prior�to�

project�commissioning�for�DEC�review.�In�line�with�our�commitment�

to�transparency�and�disclosure,�the�EIS�and�its�supporting�

studies�are�available�for�download�on�our�website:�www.cares.

nautilusminerals.com/Downloads.aspx.

As�the�acknowledged�global�leader�in�the�seafloor�resource�industry,�we�

are�utilizing�tried�and�proven�practices�from�the�offshore�and�resources�

sectors�to�ensure�responsible�development�occurs�at�every�stage�of�our�

project.�We�are�also�implementing�a�rigorous�set�of�impact�mitigation�

strategies�with�the�aim�of�preserving�long�term�ecosystem�health�and�

function�in�the�natural�environments�affected�by�our�operations.��

As�a�result�of�our�environmental�program�to�date,�Nautilus�is�

making�a�significant�contribution�to�the�scientific�knowledge�base�

of�the�world’s�oceans.�We�are�committed�to�sharing�our�intellectual�

knowledge�and�working�collaboratively�with�scientific�partners�

from�around�the�world�to�broaden�global�understanding�of�deep�

sea�processes.�Reflecting�this�commitment�in�2009,�three�research�

papers�-�written�by�leading�scientists�from�findings�made�during�our�

environmental�work�-�were�published�in�peer�reviewed�journals.�A�

further�four�have�been�submitted�for�publication�and�are�undergoing�

peer�review.

A secure and safe workplaceThe�safety,�security�and�wellbeing�of�our�employees�and�contractors�

is�a�fundamental�imperative�for�Nautilus�as�it�opens�up�this�new�

frontier�in�the�resource�industry.�It�is�our�belief�that�through�

collective�leadership,�collaboration�and�training,�workplace�injuries�

are�preventable.�Health�and�safety�performance�in�2009�continued�

to�track�strongly,�consolidating�on�the�initiatives�of�prior�years.�

Leading�indicators,�such�as�hazard�observations�demonstrate�a�very�

strong�and�improving�health�and�safety�culture�exists�across�all�our�

operations�in�Australia,�PNG�and�Tonga.

Testament�to�the�company’s�uncompromising�approach�to�workplace�

health�and�safety,�is�our�record,�as�at�December�2009,�of�completing�

over�500,000�man�hours�with�no�recordable�safety�incidents�at�any�of�

our�onshore�or�offshore�operations.

In�the�last�quarter�of�2009,�Nautilus�completed�the�first�external�

audit�of�the�Corporate�Health�and�Safety�Management�System.�

Key�learnings�from�this�audit�will�be�implemented�to�further�

strengthen�and�improve�our�health�and�safety�management�system,�

and�to�ensure�our�expanding�sphere�of�operations�is�conducted�in�

line�with�international�benchmark�safety�standards.

CORPORATE�SOCIAL�RESPONSIBILITY

022


0

40

60

70

100

120 3,000

2,500

2,000

1,500

1,000

500

0

20

Act

uals

Hazards + Obs Rolling Hazard Reporting Frequency Rates

Freq

uenc

y R

ates

Dec 07

Jan 08

Feb 08

Mar 08

Apr 08

May 08

Jun 08

Jul 08Aug 08

Sep 08

Oct 08Nov 08

Dec 08

Jan 09

Feb 09

Mar 09

Apr 09

May 09

Jun 09

Jul 09Aug 09

Sep 09

Oct 09Nov 09

Dec 09

Target Hazard Reports and Observation Frequency Rates(Nautilus has had zero Lost Time Injuries LTI)

0 0 0 0 0 0

18

91

80

42

52

34

4 0

17

7

51

32

17

2

72

90

121

104

70

599 580 560434

17774

109

992

637

10961194 1225

11661143

11951206

13881537 1602

1390 1454

1727

2100

2412

2706

Number of hazards identified

This�is�one�of�the�many�tools�Nautilus�uses�to�encourage�awareness�and�reporting�of�potential�hazards.�Our�attitude�is�that�we�are�all�responsible�for�correcting�unsafe�behaviours�and�reporting�any�unsafe�conditions.�We�record�the�number�of�safety�observations�and�use�this�as�an�indicator�of�employee�awareness.�While�there�has�been�an�increase�in�trend�of�hazards�identified�this�correlates�with�our�delivery�of�zero�lost�time�incidents�at�year�end.

• Each year there is an increase in frequency of reporting during our offshore campaigns.

Solwara 1 Project, Papua New Guinea, areas visited as part of the Project’s Community Consultation Program

RIGHT: William Saleu 2008-9 recipient of the Nautilus Duke Opportunity Bursary.

FAR RIGHT: EcoCare Pacific Trust National High School Science Competition winners.

BOTTOM LEFT: Community Consultation at Kono, PNG.

BOTTOM RIGHT: Matt White, Chief Geologist - Aboard MV Fugro Solstice.

ADMIRALTY ISLANDS

Torres Strait

P A P U A N E W G U I N E A

S O L O M O N S E A

BISMARCK SEA

Gulf of Papua

Solwara 1

Solwara 1

Port Moresby

Popondetta

Alotau

Madang

Bagabag Island

Wewak

Kimbe

Lassul

KonoMessi

TembinPanaras

PiliwaPanachais

Kimadan

Lae

Kavieng

Lorengau

EAST NEW BRITAIN

NEW IRELANDSee Inset

UTM Projection. WGS84 Datum.Areas visited for stakeholder consultation

EAST NEW BRITAIN

NEWIRELAND

Keravat

Watom Island

Kokopo

Raluana

Rabaul

Vudal

Palabong

Ratubu

RasirikSaraha

Namatanai

Umundu

Kalil

Eratubu

Duke of York Island

I N S E T

023

New Caledonia

Vanuatu

SolomonIslands

Kingdomof Tonga

Australia

Papua New Guinea

Fiji

Nuku'alofa O ffice

Port Moresby Office

Suva

Sydney

Brisbane Project Office

Kavieng OfficeBISMARCK SEA

SOLOMON SEA

TASMAN SEA

PACIFIC OCEAN

Joubert Van WykManagement Systems Manager

Steven JarmanHuman Resources Manager

Jonathan LoweExploration Manager

MANAGEMENT�TEAM

Executing the strategy

024


New Caledonia

Vanuatu

SolomonIslands

Kingdomof Tonga

Australia

Papua New Guinea

Fiji

Nuku'alofa O ffice

Port Moresby Office

Suva

Sydney

Brisbane Project Office

Kavieng OfficeBISMARCK SEA

SOLOMON SEA

TASMAN SEA

PACIFIC OCEAN

Craig RileyDrilling Technology and Safety Manager

Stephen McLayOnshore Project Manager

Samantha SmithEnvironmental Manager

Harvey AskewContracts Manager

Mike HowittOffshore Project Manager

Mel TogoloPNG Country Manager

Paul TaumoepeauTonga Country Manager

Mike FrazerMarine Operations Manager

025


026

(as at December 31, 2009)

FINANCIAL POSITION ($ MILLIONS)

Total assets US$ 241.9

Cash and cash equivalents US$ 209.3

Working capital US$ 201.2

Total long-term debt US$ Nil

Total shareholders’ equity US$ 233.3

Market capitalization (undiluted) C$ 270.7

PER SHARE INFORMATION ($/SHARE)

Cash per share US$ 1.35

Book value per share (net assets) US$ 1.50

Share Price C$ 1.74

NUMBER OF SHARES OUTSTANDING (#’S)

Undiluted 155,558,884

Diluted 170,092,384

Financial Highlights(US DOLLARS, IN ACCORDANCE WITH CANADIAN GAAP)

Contents Management’sDiscussionandAnalysis 27

Auditors’Report 40

FinancialStatements 41

NotestoConsolidatedFinancialStatements 44

CorporateGovernance 58

BoardofDirectorsandManagement 59

CorporateInformation 61

027

The following Management Discussion and Analysis (“MD&A”) has been prepared as at March 31, 2010 for the year ended December 31,

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 $, Canadian dollars are

referred to as C$, Papua New Guinea Kina are referred to as PGK, United Kingdom pounds Sterling are referred to as £ 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 notes for the year ended December 31, 2009. 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 INFORMATIONThis 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 2010 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.

2009 HIGHLIGHTS�� US$209.3 million (equivalent) in cash and cash equivalents held on deposit with major banks as at December 31, 2009

�� Exploration success in PNG with seven new SMS system discoveries in 2009 PNG exploration cruise and a further high grade discovery

at Solwara 11

�� Nautilus granted Environmental Permit for Solwara 1

�� Port capacity at Rabaul, PNG secured

�� Exploration success in Tonga with high grade SMS systems discovered in 2009 Tongan exploration cruise

�� Teck Cominco confirmed Seafloor Massive Sulphide exploration plans

Management’s Discussion and Analysis of Financial Condition and Results of Operations(US DOLLARS, IN ACCORDANCE WITH CANADIAN GAAP)


028


2009 HIGHLIGHTS (continued)

US$209.3 million (equivalent) in cash and cash equivalents held on deposit with major banks

Nautilus is in a strong financial position with $209.3 million (equivalent) in cash and cash equivalents held on deposit with banks holding an

S&P rating of A+ or better, as at December 31, 2009.

Exploration success on PNG exploration cruise

During its 2009 exploration campaign, Nautilus discovered five new high grade SMS systems, designated Solwara 12, 13, 14, 16, and 18.

Copper grades up to 32.4% and zinc grades up to 52.6% were reported from grab samples collected from these discoveries using a hand

held x-ray fluorescence (“XRF”) meter. Final assays on samples collected from Solwara 12 and 13, have also been received, and indicate gold

up to 39.7 g/t and silver up to 682 g/t. Additionally, the Company has made a further high grade discovery at Solwara 11 (11i) in the Western

Bismarck Sea.

The exploration vessel MV Fugro Solstice was successfully demobilised in Singapore on January 12, 2010 after completing a 132 day program

of water geochemistry studies, geophysics, remotely operated vehicle (“ROV”) mapping and ROV sampling. A total of 18 SMS systems have

now been defined within the Bismarck Sea, along with numerous zones of hot water venting, smaller chimney fields, and barite-rich zones.

Final assay results, including gold (“Au”) and silver (“Ag”), on samples collected from Solwara 12 and 13 indicate high precious metal grades,

which is consistent with other SMS systems in the Bismarck Sea. Assays up to a maximum of 39.70 g/t Au and 682 g/t Ag were recorded

from the 10 sulphide samples collected at Solwara 12, and a maximum of 9.23 g/t Au and 1,550 g/t Ag were recorded from the seven samples

collected at Solwara 13.

A further two lower grade systems (Solwara 17 and 19) were also discovered in the Bismarck Sea and one new system (Solwara 15) where

samples were not taken due to an ROV breakdown. Additional exploration work is planned to test these SMS systems in 2010.

Nautilus granted Environmental Permit for Solwara 1

The final Environmental Permit for the development of the Solwara 1 Project was received on December 29, 2009 from the Department of

Environment and Conservation (“DEC”) of Papua New Guinea for a term of 25 years, expiring in 2035.

Working with the appropriate government departments and agencies, the next steps for Nautilus are to negotiate the Development Agreement

required for the grant of the Mining Lease and prepare the draft project Environmental Management Plan.

The Solwara 1 Project represents positive step changes in the environmental and social aspects of copper extraction. With the high copper

grades of SMS systems and minimal overburden, very little waste will be produced. The proposed extraction area is only 0.11 square

kilometres representing a small footprint on the earth’s surface. More importantly, there is no displacement of people from the mine site and

there will be minimal impact on other resource utilisation options as a result of the development.

The Solwara 1 production system is designed to eliminate impact to the surface and mid-layers of the ocean (other than the presence of a

vessel and barges). Nautilus will implement robust operational measures to minimise impact to the seafloor environment and enhance the

time for recovery of the site when operations are complete.

Port capacity at Rabaul, PNG secured

On October 7, 2009 the Company announced that it has entered into a Port Upgrade and Operations Deed (“Deed”) with PNG Ports

Corporation Limited (“PNGPC”) that provides Nautilus with a secure right to port handling capacity for 1.5 million tonnes of ore per year for

three years with an option to commence operations as early as January 1, 2012. The Deed also provides Nautilus with the exclusive right to

enter into a licence agreement to use the hardstand area of the Rabaul port for the Solwara 1 ore stockpiles. When Nautilus commences

production from its Solwara 1 project, recovered ore will be shipped from the offshore site to Rabaul for temporary stockpiling prior to

shipment for treatment overseas.

029

2009 HIGHLIGHTS (continued)

Port capacity at Rabaul, PNG secured (continued)

Nautilus and PNGPC entered into discussions in early 2008 and later commenced joint studies into the port’s capability to unload the incoming

barges, store the ore securely and re-load the ore onto outgoing export ships, while maintaining quality and environmental standards. These

studies included an analysis of existing and future port usage, shoreline geotechical studies, port berth strength capabilities, and risk analysis.

The Deed provides for a methodology to jointly define the scope and contracting strategy required to deliver the required port upgrades to the

stockpile hardstand areas, support infrastructure, mobile stacking and shiploading equipment. Operations covering ore unloading, stevedoring

services, ore stacking, reclaiming and ship loading will be managed by PNGPC.

Exploration success continues with high grade SMS systems discovered 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

RV 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 mineralization.

Nautilus is 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 2009 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 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

in Tonga.

Teck Cominco Confirmed Seafloor Massive Sulphide Exploration Plans

On February 17, 2009 Teck Cominco Limited (“Teck”) confirmed its exploration expenditure in PNG and Tonga during 2008 to be US$14.8

million. This exceeded the minimum expenditure required for Teck to earn the right to form a joint venture with Nautilus in the countries of

PNG and Tonga which was set at US$12 million. Despite this expenditure in 2008, Teck elected not to participate further in PNG and Tonga

where it would have been required to meet a US$25 million expenditure commitment in each country over the next two years. Teck also

advised that it wished to retain the right to joint venture with Nautilus in Fiji, New Zealand, Japan and Northern Marianas, subject to grant of

title to the tenements under application to Nautilus.


030


SELECTED ANNUAL INFORMATIONThe following table sets out selected annual financial information of Nautilus and is derived from the Company’s audited consolidated

financial statements per the periods ended December 31, 2009, 2008 and 2007. The information set out below should be read in conjunction

with the MD&A and consolidated financial statements and related Notes prepared as of March 16, 2009 for the year ended December 31, 2008.

Amounts are expressed in US dollars unless otherwise indicated.

2009 2008 2007

Sales $Nil $Nil $Nil

Loss for the year $27,108,044 $81,589,489 $31,258,557

Loss per share (basic and diluted) $0.17 $0.55 $0.24

Total assets $241,866,547 $269,983,346 $327,096,020

Total long-term liabilities $216,141 $Nil $Nil

Dividends declared $Nil $Nil $Nil

Loss for the year

There was a general decrease in the level of expenditure in 2009 as the Company focused on preserving cash and concentrated on engineering

for its Solwara 1 Project and a minimalist exploration program. The decrease in the net loss for the year was primarily attributable to an

increase in the foreign exchange gain compared to the substantial foreign exchange loss in the prior period. 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. The net gain on cash transactions and balances for the period was $5.2 million.

Total assets

The decrease in total assets for the year is primarily attributable to a decrease in cash and cash equivalents from $231.1 million in 2008 to

$209.3 million in 2009.

RESULTS OF OPERATIONSThe following discussion provides an analysis of the financial results of Nautilus:

For the quarter ended December 31, 2009

Income for the period

Net income

For the quarter ended December 31, 2009, the Company recorded a loss of $14.4 million ($0.09 loss per share) as compared to a loss of $35.2

million ($0.24 loss per share) for the same period in 2008.

Exploration expense

Exploration expense reduced to $9.9 million (2008 - $10.4 million) due to a reduction in the size of the exploration programs carried out in

2009 when compared to 2008.

Interest income

Interest income earned on cash and cash equivalents held during the period was $0.4 million (2008 - $2.2 million). The decrease was

attributable to the significant 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 $1.3 million in non-cash stock based compensation was expensed during the quarter (2008 - $0.8 million). The increase is

attributable to the higher number of options issued over the same period.

031

RESULTS OF OPERATIONS (continued)

Income for the period (continued)

Foreign exchange gains and losses

A foreign exchange loss of $0.4 million was recorded during the quarter (2008 – loss of $24.1 million). The foreign exchange loss 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 (2008 - $0.2 million).

Other general and administrative costs

There was an overall increase in other general and administrative expenses in the quarter, due to an increase in staff numbers compared to

the same period last year. Since the deferral of the equipment build announced in December 2008 as the Company focused its attention on a

minimalist exploration program reduced in scale from 2008, engineering, vessel selection activities and partnering discussions related to its

Solwara 1 development.

Other general and administrative expenses consist of:

�� management fees and salaries of $0.5 million (2008 - $0.3 million), an increase of $0.2 million due to an increase in the size of the

executive team;

�� wages and salaries of $1.5 million (2008 - $0.5 million), an increase of $1.0 million due to an increase in staff numbers compared to the

same period last year;

�� general administrative expenses increased to $0.7 million (2008 - $0.6 million);

�� shareholder information expenses of $0.03 million (2008 - $0.2 million), a decrease from the previous quarter due less shareholder

information being produced during the quarter;

�� travel expenses of $0.2 million (2008 - $0.3 million);

�� professional fees of $0.2 million (2008 - $0.2 million); and

�� listing and filing fees of $0.02 million (2008 – $0.01 million).

Overall, Nautilus’ expenses, excluding foreign exchange gains and losses increased to $14.4 million for the quarter ended December 31, 2009, up

from $13.4 million in 2008 which is attributable to an increase in staff numbers when compared to the same period last year. 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 quarter ended December 31, 2009 was $3.7 million as compared to cash flows from operating

activities of $18.1 million for the quarter ended December 31, 2008. The decrease in cash used in operating activities is attributable to the

smaller exploration program undertaken in 2009 and the movement in accounts payable over the period.

Investing activities

Cash used in investing activities for the quarter ended December 31, 2009 was $4.3 million compared to cash used in investing activities of

$4.7 million for the quarter ended December 31, 2008. The decrease in cash used in investing activities is due to a decrease in the amount of

equipment purchased.

Financing activities

Cash from financing activities quarter ended December 31, 2009 was $Nil as compared to $10.4 million for the quarter ended December 31,

2008. The $10.4 million in 2008 related to the exercise of an anti-dilution right held by Anglo American.


032



For the year ended December 31, 2009

Income for the period

Net income

For the year ended December 31, 2009, the Company recorded a loss of $27.1 million ($0.17 loss per share) as compared to a loss of $81.6

million ($0.55 loss per share) for the same period in 2008.

Exploration expense

Exploration expense reduced to $20.4 million (2008 - $38.7 million) due to a reduction in the size of the exploration programs carried out in

2009 when compared to 2008.

Interest income

Interest income earned on cash and cash equivalents held during the year was $2.1 million (2008 - $11.7 million). The decrease was

attributable to the significant 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 $4.6 million in non-cash stock based compensation was expensed during the year (2008 - $6.7 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 $5.2 million was recorded during the year (2008 – loss of $39.2 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 $0.9 million (2008 - $0.7 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 focused its attention on a minimalist exploration program reduced in scale from 2008, engineering, vessel

selection activities and partnering discussions related to its Solwara 1 development.

Other general and administrative expenses consist of:

�� management fees and salaries of $1.9 million (2008 - $2.2 million), a decrease of $0.3million as a result of decreasing the use of

management consulting firms;

�� wages and salaries of $3.5 million (2008 - $2.3 million), an increase of $1.2 million due to less salaries costs being attributed to

exploration costs;

�� general administrative expenses decreased to $1.9 million (2008 - $2.1 million);

�� shareholder information expenses of $0.1 million (2008 - $0.6 million), a decrease from the previous year due to less shareholder

information being produced during the year;

�� travel expenses of $0.5 million (2008 - $0.7 million);

�� professional fees of $0.7 million (2008 - $0.9 million); and

�� listing and filing fees of $0.1 million (2008 – $0.2 million).

033


Income for the period (continued)

Overall, Nautilus’ expenses, excluding foreign exchange gains and losses decreased to $34.5 million for the year ended December 31, 2009,

down from $55.0 million in 2008 which is attributable to the shorter duration of the exploration programs in 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 year ended December 31, 2009 was $21.0 million as compared to cash flows from operating activities

of $38.7 million for the year ended December 31, 2008. The decrease in cash used in operating activities is attributable to the smaller

exploration program undertaken in 2009 and the release of $4.1 million being released from Restricted Cash due to the release of two Letters

of Credit relating to Technip Inc. and North Sea Shipping Holding AS (“North Sea Shipping”) during the year.

Investing activities

Cash used in investing activities for the year ended December 31, 2009 was $5.9 million compared to cash used in investing activities of

$13.8 million for the year ended December 31, 2008. The decrease in cash used in investing activities is due to a decrease in the amount of

equipment purchased.

Financing activities

Cash from financing activities year ended December 31, 2009 was $Nil as compared to $11.5 million for the year ended December 31, 2008.

The $11.5 million in 2008 related to the exercise of an anti-dilution right held by Anglo American.

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.

PeriodRevenues

(in millions)

Income (Loss) and Comprehensive

Income (Loss) for the Period (in millions)

Basic Income (Loss) per Share

Diluted Income (Loss) per Share

4th Quarter 2009 Nil $(14.4) $(0.09) $(0.09)

3rd Quarter 2009 Nil $(7.4) $(0.05) $(0.05)

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


034


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 of becoming the first company to commercially extract gold, copper, silver and zinc

from the seafloor. On December 17, 2008, the Company announced it had decided to take a more cautious strategy and to preserve its strong

cash position by delaying the construction of the equipment for the Solwara 1 mining system. The decision was driven by both the challenges

and opportunities presented by the unprecedented speed and severity of the global economic downturn and the uncertainty in the financial and

commodity markets. The Company has continued to move forward with permitting of its Solwara 1 project, as well as with various engineering

and testing activities. In addition, the Company has continued with its focused exploration program to increase its resource base.

To preserve capital, contracts have been suspended or terminated depending on their criticality to the revised development program. All of

the supplier agreements contain provisions for termination without penalty. The Mining Support Vessel agreement has also been terminated.

Key financial measures

The Company uses the following key financial measures to assess its financial condition and liquidity:

December 31 2009

December 31 2008

Debt to Equity Nil Nil

Current Ratio 25.9 to 1 16.7 to 1

Working Capital $201.2 million $218.5 million

Cash and Cash Equivalents $209.3 million $231.1 million

Under the Company’s Investment Policy, cash and cash equivalents 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 December 31, 2009, are quantified in the table below:

December 31 2009

$

Non-cancellable operating leases

Not later than 1 year 355,446

Later than 1 year and not later than 2 years 184,048

Later than 2 years and not later than 3 years 49,742

Later than 3 years and not later than 4 years 676

Later than 4 years and not later than 5 years -

Later than 5 years -

589,912

Non-cancellable exploration agreements

Not later than 1 year 2,000,000

2,000,000

Non-cancellable development agreements

Not later than 1 year 607,163

607,163

Total Commitments 3,197,075

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.

035

LIQUIDITY AND CAPITAL RESOURCES (continued)

Outlook and capital requirements (continued)

The Company has budgeted to spend approximately $20 million for exploration work in 2010 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, licences 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 if the Company forms 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 Project equipment 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.

At December 31, 2008, an estimate was made based on all available information for costs incurred and not yet settled in relation to subsea

equipment under construction. All terminated contracts relating to the construction of the subsea equipment have now been settled. The

actual settled amount was US$2.6 million below the estimated amount included in subsea equipment under construction at December 31,

2008 and the associated cost was adjusted during the year.

The contracts that have been suspended will only incur additional costs as instructed by the Company to continue with engineering studies or

long term testing, until those contracts are reactivated. The value of the suspended contracts is $77.4 million. The suspended contracts also

contain provisions allowing the Company to cancel at any time. The vessel agreement with 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 or alternate financing 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.


036


LIQUIDITY AND CAPITAL RESOURCES (continued)

Foreign currency exchange rate risk (continued)

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 December 31, 2009 the Company held its cash in the following currencies:

Currency Denomination % of total cash in US$ terms held

USD 58

Euro 8

CAD 3

GBP 20

AUD 11

100

Interest rate risk

The Company holds cash and cash equivalents which earn interest at variable rates as determined by financial institutions.

For the year ending December 31, 2009, with other variables unchanged, a 1% increase (decrease) in the interest rate would have increased

(decreased) the Company’s net earnings by $2.2 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.

TRANSACTIONS WITH RELATED PARTIESIncluded in management fees is $Nil (2008 - $46,350) for management fees paid to a company controlled by a director.

Included in accounts payable and accrued liabilities is $Nil (2008 - $15,094) for amounts owed to a company controlled by a director of the

Company for management and consulting fees.

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, 2009. 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 capitalized.

037

CRITICAL ACCOUNTING POLICIES (continued)

Resource properties (continued)

Although the Company has taken steps to verify title to mineral properties in which it has an interest, in accordance with industry standards

for the current stage of exploration or development of such properties, these procedures do not guarantee a clear title. Property title may be

subject to unregistered prior agreements and regulatory requirements. The Company is not aware of any disputed claim of title.

Adoption of new accounting standards

The Canadian Institute of Chartered Accountants (“CICA”) has issued one new standard which affects 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 the fiscal year beginning January 1, 2009. Adoption of this standard did not have a significant impact on the

Company’s 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 the fiscal year beginning January 1, 2009 with

retrospective application. The application of this EIC did not have a significant effect on the Company’s financial statements.

EIC 174 – Mining Exploration Costs

This EIC provides guidance on accounting for capitalization and impairment of exploration costs and is effective for the fiscal year beginning

January 1, 2009. The application of this EIC did not have a significant effect on the Company’s financial statements.

Future Accounting Pronouncements

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 DATAThe following is a summary of the Company’s outstanding share data as of March 31, 2010.

Common shares

A total of 155,558,884 common shares are outstanding.

Convertible securities

The Company now has 14,083,500 options outstanding.

Stock options

A total of 14,083,500 stock options are issued and outstanding, with expiry dates ranging from March 28, 2010 through to June 30, 2013.

The weighted average exercise price for all stock options is C$3.03. All stock options entitle the holders to purchase common shares of

the Company.


038


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 for the year ended December 31, 2009 that have

materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

In accordance with the requirements of National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, the

Company’s management, including the Chief Executive Officer and Chief Financial Officer, acknowledges responsibility for the design and

operation of disclosure controls and procedures and internal controls over financial reporting, and the requirement to evaluate the effectivess

of these controls on an annual basis.

Management evaluated the effectiveness of these controls at the end of the reporting period and based on this evaluation concluded that the

Company’s internal controls over financial reporting and the disclosure controls and procedures were effective as at December 31, 2009.

During the year an independent review was undertaken incorporating disclosure controls and procedures (“DC&P”) and internal controls over

financial reporting (“ICFR”). The review determined that no material weaknesses or limitations of scope design of ICFR and DC&P are apparent.

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, AcSB 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. The Company plans to prepare its 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 the Company’s IFRS changeover plan and the resulting possible effect on its

financial statements. Readers are cautioned, however, that it may not be appropriate to use such information for any other purposes. This

information also reflects the Company’s 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

The Company has developed a plan for the changeover to IFRS and it is comprised of three related phases:

�� Review and Assessment

�� Design

�� Implementation

039

INTERNAL CONTROLS (continued)

IFRS Changeover Plan (continued)

Phase 1: Review and Assessment Phase

The objective of this phase is to identify the required changes to the Company’s 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 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 the Company’s 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 the

changeover plan. These solutions will result in certain necessary changes to the Company’s 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 the changeover plan, the Company 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

The Company has completed Phase 1 and 2 of its changeover plan to indentify the differences between Canadian GAAP and IFRS that

impact the financial statements. Management’s analysis to date has determined that the accounting policies are largely aligned with IFRS

requirements in many key areas.

Appropriate resources have been identified to complete the changeover in a timely manner according to the plan milestones. Management

has 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 the Company’s financial position and results of operations is not

reasonably determinable or estimatable, however, such impact may be material. Additional information will be provided as the Company

moves towards the changeover date.

ADDITIONAL SOURCES OF INFORMATIONAdditional sources of information regarding Nautilus Minerals Inc. including its AIF, can be found on SEDAR at www.sedar.com and on the

Company’s website www.nautilusminerals.com.


040

Auditors’ ReportDECEMBER 31, 2009 AND 2008 (EXPRESSED IN U.S. DOLLARS)

To the Shareholders of Nautilus Minerals Inc.

We have audited the consolidated balance sheets of Nautilus Minerals Inc. (the “Company”) as at December 31, 2009 and

2008 and the consolidated statements of loss, comprehensive loss and deficit and cash flows for each of the years in the

two year period ended December 31, 2009. These consolidated financial statements are the responsibility of the Company’s

management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we

plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement.

An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.

An audit also includes assessing the accounting principles used and significant estimates made by management, as well as

evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the

Company as at December 31, 2009 and 2008 and the results of its operations and its cash flows for each of the years in the two

year period ended December 31, 2009 in accordance with Canadian generally accepted accounting principles.

Chartered Accountants

Vancouver, BC

March 16, 2010

041

ConsolidatedBalanceSheets(EXPRESSED IN U.S. DOLLARS)

December 31 2009

$

December 31 2008

$

ASSETS

Current assets

Cash and cash equivalents 209,339,066 231,143,802

Prepaid expenses and advances 415,383 1,230,705

209,754,449 232,374,507

Non current assets

Restricted cash (note 7) 342,308 4,398,936

Property, plant and equipment (note 8) 19,556,423 20,996,536

Mineral properties (note 9) 12,213,367 12,213,367

32,112,098 37,608,839

241,866,547 269,983,346

LIABILITIES

Current liabilities

Accounts payable and accrued liabilities (note 10b) 8,113,708 13,891,578

Non current liabilities

Accounts payable and accrued liabilities 216,141 -

Non-controlling interest (note 12) 209,972 243,134

SHAREHOLDERS’ EQUITY

Share capital (note 11a) 343,598,701 343,598,701

Contributed surplus (note 11b) 40,730,323 36,144,187

Deficit (151,002,298) (123,894,254)

233,326,726 255,848,634

241,866,547 269,983,346

Commitments and contingencies (note 14)

On behalf of the Board:

Stephen Rogers Russell Debney

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS


042

ConsolidatedStatementsofLossandComprehensiveLossandDeficit(EXPRESSED IN U.S. DOLLARS)

Year Ended December 31

2009 $


2008 $

EXPENSES

Exploration costs (note 9) 20,371,730 38,712,903

Wages and salaries 3,478,506 2,322,492

Stock-based compensation 4,586,136 6,659,210

General administrative 1,943,533 2,092,266

Depreciation 893,691 725,363

Professional fees 653,693 900,523

Travel 473,817 659,659

Listing and filing fees 139,991 172,549

Shareholder information 118,867 550,557

Management fees and salaries (note 10a) 1,857,446 2,250,067

Foreign exchange loss (gain) (5,282,610) 39,240,192

29,234,800 94,285,781

OTHER INCOME (EXPENSE)

Interest income 2,074,473 11,725,514

Rent and other income 19,146 27,129

Recovery of exploration costs - 571,894

Loss on sale of fixed assets (25) (22,846)

2,093,594 12,301,691

Loss before non-controlling interest 27,141,206 81,984,090

Non-controlling interest 33,162 394,601

Loss and comprehensive loss for the year 27,108,044 81,589,489

Deficit - Beginning of year 123,894,254 42,304,765

Deficit - End of year 151,002,298 123,894,254

Loss per share – basic and diluted 0.17 0.55

Weighted average number of shares outstanding – basic and diluted 155,558,884 147,555,319


043

ConsolidatedStatementsofCashFlows(EXPRESSED IN U.S. DOLLARS)


2009 $


2008 $

CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES

Income/(Loss) for the year (27,108,044) (81,589,489)

Items not affecting cash


Non-controlling interest (33,162) 241,634

Depreciation 893,691 725,363

Unrealised FX Loss/(Gain) (5,121,875) 37,768,456

Restricted cash 4,056,628 (4,197,500)

Change in non-cash working capital items

Prepaid expenses and advances 815,322 (356,392)

Accounts payable and accrued liabilities 899,775 2,017,419

(21,011,529) (38,731,299)

CASH FLOWS FROM FINANCING ACTIVITIES

Share capital issued, net of share issuance costs - 11,504,219

- 11,504,219

CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES

Purchase of equipment (5,915,082) (13,829,807)

(5,915,082) (13,829,807)

Unrealised FX Gain/(Loss) 5,121,875 (37,768,456)

Increase (decrease) in cash and cash equivalents (21,804,736) (78,825,343)

Cash and cash equivalents - Beginning of year 231,143,802 309,969,145

Cash and cash equivalents - End of year 209,339,066 231,143,802

Cash 4,548,289 9,574,302

Cash equivalents 204,790,777 221,569,500

Cash and cash equivalents – End of year 209,339,066 231,143,802

Supplemental Schedule of Non-Cash Financing Transactions



NotestoConsolidatedFinancialStatementsDECEMBER 31, 2009 AND 2008 (EXPRESSED IN U.S. DOLLARS)


044


1. Basis of Presentation, Operations and Subsidiaries

Basis of Presentation

These consolidated financial statements have been prepared in accordance with Canadian Generally Accepted Accounting Principles

(“Canadian GAAP”).

These 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. To date the Company has not earned significant revenues and is considered to be 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 was 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 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), United Nickel Inc. (Canada) and Nautilus Minerals USA Inc.

2. Significant Accounting Policies The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below. These policies

have been consistently applied to prior periods, unless otherwise stated.

Cash and Cash Equivalents

For purposes of reporting cash flows, the Company considers cash and cash equivalents to include amounts held in banks and highly

liquid investments with maturities at time of purchase of 90 days or less.

Mineral Properties

The Company expenses all exploration and evaluation expenditures until management conclude that a future economic benefit is more

likely than not of being realised. In evaluating if expenditures meet this criterion to be capitalized, management utilize several different

sources of information depending on the level of exploration. While the criteria for concluding that an expenditure should be capitalized is

always probable, the information that management use to make that determination depends on the level of exploration.

Costs relating to property acquisitions are capitalised as mineral properties.

Costs for a producing prospect are amortised on a unit-of-production method based on the estimated life of the ore reserves, while those

costs for the prospects abandoned are written off.

The recoverability of the amounts capitalised for the undeveloped mineral properties is dependent upon the determination of economically

recoverable ore reserves, confirmation of the Company’s interest in the underlying mineral claims, the ability to obtain the necessary

financing to complete their development, and future profitable production or proceeds from the disposition thereof.

045

2. Significant Accounting Policies (continued)

Mineral Properties (continued)

The Company assesses the recoverability of its capitalised resource property costs when events or changes in circumstances suggest

they are potentially impaired. Estimated undiscounted future net cash flows for properties are calculated using estimates by reference

to the timing of exploration and development work, work programs proposed, the explorations results achieved to date and the likely

proceeds receivable if the Company sold the properties to third parties. If the estimated undiscounted future net cash flows are less than

the carrying value, the estimated fair value is calculated using the discounted future net cash flows and the asset is written down to the

fair value with an impairment charge to operations. For the purposes of assessing impairment, assets are grouped at the lowest level

for which there are separately identifiable cash flows. In the event that we have insufficient information about an exploration property

to estimate future cash flows, the exploration property would be assessed for impairment by comparing the fair value to the carrying

amount, without first performing a test for recoverability.

Property, Plant and Equipment

Equipment is carried at cost less accumulated depreciation. Depreciation is calculated over the estimated useful life of the assets on a

straight-line basis as follows:

Estimated useful life (in years)

Leasehold improvements 3

Plant and equipment 3 – 15

Office equipment 1 – 20

Computer hardware 3

Computer software 2.5

Tradeshow display equipment (Canada) 4

Motor vehicles 6 - 8

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from

the continued use of the asset. Gains and losses on disposals are determined by comparing the proceeds received with the carrying

amount of the asset and are included in the income statement.

Repairs and maintenance are charged to the income statement during the financial period in which they are incurred. The cost of major

renovations is included in the carrying amount of the asset when it is probable that future economic benefits in excess of the originally

assessed standard of performance of the existing asset will flow to the Company. Major renovations are depreciated over the remaining

useful life of the related asset.

Impairment of Non-current Assets Other than Mineral Properties

Property, plant and equipment and intangible assets (excluding goodwill), are reviewed for impairment whenever events or changes in

circumstances indicate that the carrying amount may not be recoverable.

If the estimated undiscounted future net cash flows relating to an asset is less than the carrying value, the estimated fair value of the asset is

calculated using the discounted future net cash flows and the asset is written down to the fair value with an impairment charge to operations.

For the purposes of assessing impairment, assets are grouped at the lowest level for which there are separately identifiable cash flows.

Management’s Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make

estimates and assumptions that affect the reported amounts of accrued liabilities, share capital, contributed surplus, share issuance

costs and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of stock-based

compensation during the reported periods. Actual results could differ from those estimates.



046


Foreign Currency Translation

Functional and presentational currency

The consolidated financial statements are presented in United States Dollars, which is the functional and presentational currency of

Nautilus Minerals Inc.

Transactions and balances

Foreign currency transactions are accounted for at the rates of exchange ruling at the date of the transaction. Monetary assets and

liabilities are translated at year-end exchange rates. Non-monetary items are translated at historic exchange rates. Gains and losses

arising on settlement of such transactions and from the translation of foreign currency monetary assets and liabilities are recognized in

the income statement.

Income Taxes

Future income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and

liabilities and their carrying amounts in the financial statements. Future income tax is measured at tax rates that are expected to apply in

periods in which the temporary differences reverse based on tax rates and law enacted or substantively enacted at the balance sheet date.

Future tax assets are recognised to the extent that it is more likely than not that future taxable profit will be available against which the

temporary differences can be utilised.

Future income tax is provided on temporary differences arising on investments in subsidiaries, associates and joint ventures, except where

the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in

the foreseeable future.

Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing income (or loss) attributable to common shareholders by the weighted average

number of common shares outstanding during the period. The computation of diluted earnings per share assumes the conversion,

exercise or contingent issuance of securities only when such conversion, exercise or issuance would have a dilutive effect on earnings

per share. The dilutive effect of outstanding stock options and warrants and their equivalents is reflected in diluted earnings per share by

application of the treasury stock method which assumes that any proceeds from the exercise of share options or warrants would be used

to purchase common shares at the average market price during the period. During years when the Company has generated a loss, the

potential shares to be issued from the assumed exercise of options and warrants are not included in the computation of diluted per share

amounts since the result would be anti-dilutive.

Share Capital

Ordinary shares are classified as equity.

Incremental external costs directly attributable to the issue of new ordinary shares, other than in connection with business combinations,

are shown in equity as a deduction, net of tax, in share capital.

Stock Based Compensation

Equity-settled transactions

The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted and

is recognised as an expense over the vesting period.

None of the Company’s equity-settled transactions have any market based performance conditions.

Fair value for equity-settled share based payments is estimated by use of the Black-Scholes pricing model.

047


Stock Based Compensation (continued)

The stock based compensation expense is calculated based on management’s best estimate of the number of equity instruments that will

ultimately vest.

Where an equity-settled award is cancelled by the Company, it is treated as if it had vested on the date of cancellation and any cost

not yet recognised in the income statement for the award is expensed immediately. Any compensation paid up to the fair value of the

award at the cancellation or settlement date is deducted from equity, with any excess over fair value being treated as an expense in the

income statement.

The proceeds from the exercise of stock options and warrants, in addition to the estimated fair value attributable to those options and

warrants exercised, are recorded as share capital in the amount for which the options or warrants were exercised.

Segment Reporting

A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns

that are different from those of other business segments.

A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks

and returns which are different from those of segments operating in other economic environments.

Due to the nature of the Company’s operations, the Company has one business segment, which operates in two different geographic

locations, being Australasia and North America.

Financial Instruments

Financial assets are classified, as appropriate, as financial assets at fair value through profit or loss; loans and receivables; held to

maturity investments or as available for sale. The Company’s financial instruments consist of cash and cash equivalents, restricted cash,

prepaid expenses and advances and accounts payable and accrued liabilities. Unless otherwise noted, it is management’s opinion that

the Company is not exposed to significant interest or credit risks arising from the financial instruments. The fair value of these financial

instruments approximates their carrying value due to their short-term maturity or capacity of prompt liquidation.

The Company determines the classification of its financial assets at initial recognition. When financial assets are recognised initially, they

are measured at fair value, normally being the transaction price plus, in the case of financial assets not at fair value through profit or loss,

directly attributable transaction costs. The subsequent measurement of financial assets depends on their classification, as follows:

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market,

do not qualify as trading assets and have not been designated as either fair value through profit or loss or available-for-sale. Such

assets are initially measured at fair value and subsequently carried at amortised cost using the effective interest method. Gains and

losses are recognised in the income statement when the loans and receivables are derecognised or impaired, as well as through the

amortisation process.

Financial liabilities

When a financial liability is recognised initially, the Company measures it at its fair value plus, in the case of a financial liability not

measured at fair value with changes in value through profit or loss, transaction costs that are directly attributable to the issue of the

financial liability. Financial liabilities include trade payables, other payables and accrued liabilities.

Fair values

The fair value of quoted investments is determined by reference to appropriate market prices at the close of business on the balance

sheet date. Where there is no active market, fair value is determined using valuation techniques. These include using pricing models and

discounted cash flow analyses. Otherwise assets are carried at cost.



048

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.

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 the fiscal year beginning January 1, 2009. Adoption of this standard did not have a significant impact

on the 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 the fiscal year beginning January 1,

2009 with retrospective application. The application of this EIC did not have a significant effect on the financial statements.

EIC 174 – Mining Exploration Costs

This EIC provides guidance on accounting for capitalization and impairment of exploration costs and is effective for the fiscal year

beginning January 1, 2009. The application of this EIC did not have a significant effect on the financial statements.

Section 3862 – Financial Instruments - Disclosures

During 2009, CICA Handbook Section 3862, Financial Instruments – Disclosures was amended to require disclosures about the inputs

to fair value measurements, including their classification within a hierarchy that prioritizes the inputs for fair value meansurement. The

three levels of the fair value hierarchy are:

Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities

Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly

Level 3 – Inputs that are not based on observable market data.

The required disclosures are included at Note 5.

Future Accounting Pronouncements

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. Capital Disclosures The Company is involved in mineral exploration which is a high risk activity. The Company’s financial objective is to ensure that it has

sufficient liquidity in the form of cash and/or debt capacity. In order to facilitate the management of the Company’s capital requirements,

management prepare annual expenditure budgets and continuously monitor and review actual and forecasted cash flow. The annual and

updated budgets are approved and monitored by the Board of Directors.

Currently the Company has no external debt, and under the Company’s Investment Policy, cash cannot be invested for more than 90 days

and must be held on deposit with banks with an S&P credit rating of A+ or better.

The Company is listed on the Toronto and London AIM stock exchanges, and must comply with their listing rules.

049

5. Financial Instruments - Disclosures The Company’s financial instruments consist of cash and cash equivalents, accounts receivable and accounts payable. Unless otherwise noted,

it is management’s opinion that the Company is not exposed to significant interest or credit risks arising from the financial instruments. The

fair value of these financial instruments approximates their carrying value due to their short-term maturity or capacity of prompt liquidation.

For the years ended December 31, 2009 and 2008, the Company:

�� did not hold financial instruments or liabilities for trading except for cash and cash equivalents;

�� has not reclassified a financial asset;

�� has not transferred financial assets;

�� has not pledged collateral for a liability or contingent liability;

�� has no financial assets impaired by credit losses;

�� has not issued an instrument that contains both a liability and an equity component;

�� had total interest income on financial assets of $2,074,473 (2008: $11,725,514); and

�� incurred no defaults or breaches on loans.

The following table illustrates the classification of the Company’s financial instruments within the fair value hierarchy as at December 31, 2009:

Financial assets at fair value as at December 31, 2009

Level 1 $

Level 2 $

Level 3 $

Total $

Cash and cash equivalents 209,339,066 - - 209,339,066

209,339,066 - - 209,339,066

There were no fair value financial liabilities as at December 31, 2009. There were no transfers between levels during the year.

The nature and extent of risks arising from financial instruments to which the entity is exposed at the balance sheet date are detailed below:

Interest rate risk

The Company holds cash and cash equivalents which earn interest at variable rates as determined by financial institutions.

For the year ending December 31, 2009, with other variables unchanged, a 1% increase (decrease) in the interest rate would have

increased (decreased) the Company’s net earnings by approximately $2,196,826. There would be no significant effect on other

comprehensive income.

Foreign exchange risk

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 is mitigated by the Company maintaining its cash in a “basket” of currencies that reflect its current and expected

cash outflows. As at December 31, 2009 the Company held its cash in the following currencies:

Currency Denomination% of total cash in US$

terms held

USD 58

GBP 20

AUD 11

EUR 8

CAD 3

100



050

5. Financial Instruments - Disclosures (continued) Credit risk

The Company places its cash only with banks with an S&P credit rating of A+ or better. The Company’s 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.

6. Income Tax a) A reconciliation of income taxes at statutory rates with the reported taxes is as follows:

2009 $

2008 $

Loss before income taxes (27,108,044) (81,589,489)

Canadian statutory tax rate 30.00% 31.00%

Expected income tax (recovery) (8,132,413) (25,292,742)

Adjustments to tax deductible amounts from prior years 1,820,241 1,212,505

Difference in foreign tax rates 151,108 804,787

Reduction in long term Canadian income tax rates 236,753 315,707

Non-deductible expenses 2,482,532 4,214,576

Non-deductible foreign exchange losses (6,907,150) 13,152,480

Change in valuation due to foreign exchange on reporting currencies (1,746,280) 964,382

Change in valuation allowance 12,095,209 4,628,305

- -

Represented by:

Current income tax - -

Future income tax (recovery) - -

- -

b) The significant components of the Company’s future income tax assets and liabilities are as follows:

2009 $

2008 $

Future income tax assets

Non-capital losses 11,261,649 7,141,995

Capital losses 3,134,513 195,353

Unamortized share issue costs 1,688,897 2,329,057

Unrealized foreign exchange losses and other 9,669,927 16,254,516

Tax value of resource properties and plant and equipment costs in excess of net book value of resource property and plant and equipment 23,101,410 19,240,514

Total future income tax assets 48,856,396 45,161,435

Less: Valuation allowance (41,223,005) (29,127,796)

Net future income tax assets 7,633,391 16,033,639

Future income tax liabilities

Unrealised foreign exchange gains and other 7,633,391 16,033,639

Future income tax liabilities 7,633,391 16,033,639

Future income tax liability, net - -

051

6. Income Tax (continued) c) The Company has non-capital loss carry forwards of $33,925,722 that may be available for tax purposes. The loss carry forwards

expire as follows:

Canada $

Australia and Tonga

$

Papua New Guinea

$

2018 - - 18,294

2019 - - 4,867

2020 - - 7,680

2021 - - 9,950

2022 - - 55,834

2023 - - 43,578

2024 - - 12,552

2025 97,287 - 192,755

2026 3,396,477 - -

2027 4,138,249 - -

2028 185,317 - -

2029 4,478,346 - -

Not limited - 21,284,536 -

Total non-capital losses 12,295,676 21,284,536 345,510

7. Restricted Cash $342,308 (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.

8. Property, Plant and Equipment Details are as follows:

December 31, 2009 December 31, 2008

Cost $

Accumulated Amortization

$

Net Book Value

$Cost

$

Accumulated Amortization

$

Net Book Value

$

Leasehold improvements 604,677 530,397 74,280 595,649 331,946 263,703

Plant and equipment 661,569 132,760 528,809 651,428 60,209 591,219

Office equipment 301,765 61,921 239,844 259,466 31,038 228,428

Computer hardware 729,905 484,741 245,164 665,269 264,088 401,181

Computer software 1,029,275 656,528 372,747 887,418 296,087 591,331

Tradeshow display equipment 3,876 3,676 200 3,876 3,590 286

Motor vehicle 90,391 14,667 75,724 69,017 4,686 64,331

Land 30,101 - 30,101 30,101 - 30,101

Subsea equipment under construction 17,989,554 - 17,989,554 18,825,956 - 18,825,956

21,441,113 1,884,690 19,556,423 21,988,180 991,644 20,996,536

At December 31, 2008, an estimate was made based on all available information for costs incurred and not yet settled in relation to Subsea

equipment under construction. All terminated contracts relating to the construction of the subsea equipment have now been settled. The

actual settled amount was US$2.6 million below the estimated amount included in Subsea equipment under construction at December 31,

2008 and the associated cost was adjusted in the year ended December 31, 2009.



052

9. 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.

Although the Company has taken steps to verify title to mineral properties in which it has an interest, in accordance with industry standards

for the current stage of exploration or development of such properties, these procedures do not guarantee a clear title. Property title may be

subject to unregistered prior agreements and regulatory requirements. The Company is not aware of any disputed claim of title.

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. The value of

the shares issued to Barrick was $12,213,367, which was capitalized as mineral property acquisition costs in 2006.

Exploration Expenditures


2009 $


2008 $

Assaying and sampling 72,595 377,924

Boat charters and fuel 9,157,890 16,104,637

Engineering services 1,757,193 4,616,500

Environmental consulting 268,885 1,968,951

General 1,281,875 3,384,447

Geological and field expenses 842,947 975,002

Maps, reports and data 29,713 23,605

Mineral property fees 981,991 2,188,328

Supplies 169,431 605,402

Travel 1,054,922 1,968,507

Wages and salaries 4,754,288 6,499,600

20,371,730 38,712,903

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 December 31, 2009, total

rental commitments are $3.8 million and total expenditure commitments are $23.1 million over the life of the licenses which extend to a

maximum of two years.

053

10. Related Party Transactions Related party transactions for the year ended December 31, 2009 are as follows:

a) Included in management fees is $Nil (2008 - $46,350) for management fees paid to a company controlled by a director.

b) Included in accounts payable and accrued liabilities is $Nil (2008 - $15,094) 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.

11. Share Capital

a) Details of share capital

Authorized:

Unlimited common shares without par value

Shares Amount $

Balance – December 31, 2007 145,923,471 331,406,593

Shares issued for cash – private placement 8,933,702 10,475,460

Shares issued on exercise of options 653,100 945,934

Shares issued on exercise of warrants 48,611 72,644

Options exercised - 689,389

Share issue costs - 8,681

Balance – December 31, 2008 and 2009 155,558,884 343,598,701

Private placements

On November 14, 2008, the Company completed a private placement to a wholly owned subsidiary of Anglo American plc of 5,177,066

shares at C$1.33 for gross proceeds of C$6,885,498 ($5,830,855 on date of transaction) and 3,756,636 at C$1.46 for gross proceeds of

C$5,484,689 ($4,644,605 on date of transaction) pursuant to an anti-dilution right granted to it in its original subscription agreement dated

October 20, 2006. The agreed price of the issue was based on a formula linked to the volume weighted average price of the Company’s

common shares over the month of October 2008.

b) Details of contributed surplus

Amount $

Balance – December 31, 2007 30,174,366

Stock-based compensation 6,659,210

Options exercised (689,389)


Stock-based compensation 4,586,136


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.



054

11. Share Capital (continued)

c) Share purchase options (continued)

The changes in share purchase options outstanding are as follows:

Number of options

Weighted average exercise price

C$

Contractual weighted average

remaining life (years)

Balance – December 31, 2007 13,750,270 3.93 2.9

Granted 1,820,000 2.41

Exercised (653,100) 1.47

Expired/cancelled (904,864) 2.83


Granted 6,101,000 1.30

Exercised - -

Expired/cancelled (5,579,806) 3.25


The following table summarizes information about stock options as at December 31, 2009:

Total options outstanding Exercisable options

Range of exercise price

C$Shares

Weighted average remaining

contractual life (years)

Weighted average exercisable price

C$Shares


C$

0.00 – 0.99 550,000 2.0 0.99 110,000 0.99

1.00 – 1.99 6,126,000 2.7 1.35 980,200 1.35

2.00 – 2.99 975,000 1.4 2.85 585,000 2.85

3.00 – 3.99 1,342,500 0.9 3.20 1,334,500 3.20

4.00 – 4.99 1,625,000 0.5 4.73 1,470,000 4.74

5.00 – 5.99 3,660,000 2.8 5.34 100,000 5.10

6.00 – 6.99 255,000 0.5 6.38 255,000 6.38

14,533,500 2.2 3.08 4,834,700 3.41

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

Options Issued In 2008

Expected dividend yield Nil Nil

Expected stock price volatility 72.48% 77.25%

Risk-free interest rate 1.41% 2.92%

Expected life of options in years 3 3

The weighted average fair value of the options granted was C$0.51 (2008 – C$2.41).

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.

055

11. Share Capital (continued)

d) Warrants

The changes in share price warrants outstanding are as follows;

Number of warrants


(in C$)

Contractual weighted average

remaining life (in years)


Exercised (48,611) 1.10

Expired/Cancelled (935,000) 5.63


Expired/cancelled (14,898,086) 5.12

Balance – December 31, 2009 - - n/a

As at December 31, 2009, there were no share purchase warrants outstanding.

12. Non-controlling Interest On May 18, 2008 the Company acquired a 51% equity interest in United Nickel Inc., a company associated with David Heydon, formerly

director and CEO of the Company, with a $1.3 million seed capital investment.

13. Segmented Information The Company has one operating segment, being exploration. Details on a geographical basis are as follows:

Australasia $

North America $

Total $

December 31, 2009

Total assets 234,531,337 7,335,210 241,866,547

(Income)/Loss for the year ended December 31, 2009 27,000,545 (107,499) 27,108,044

December 31, 2008

Total assets 170,888,847 99,094,499 269,983,346

(Income)/Loss for the year ended December 31, 2008 13,506,670 68,082,819 81,589,489



056

14. Commitments and ContingenciesDecember 31

2009 $

December 31 2008

$

a) Non-cancellable operating leases

Not later than 1 year 355,446 290,158

Later than 1 year and not later than 2 years 184,048 87,752

Later than 2 years and not later than 3 years 49,742 54,034

Later than 3 years and not later than 4 years 676 5,471

Later than 4 years and not later than 5 years - 522

Later than 5 years - -

589,912 437,937

b) Non-cancellable consulting agreements

Not later than 1 year - 84,947

- 84,947

c) Non-cancellable exploration and vessel agreements

Not later than 1 year 2,000,000 -

2,000,000 -

d) Non-cancellable development agreements

Not later than 1 year 607,163 -

607,163 -

Total Commitments 3,197,075 522,884

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 only incur any additional costs, as instructed by the Company to continue with engineering

studies, until those contracts are reactivated. The value of the suspended contracts is US $77.4 million. The suspended contracts also

contain provisions allowing the Company to cancel at any time.

057

14. Commitments and Contingencies (continued)

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.

Contingencies

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 EL1196 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.


058

Nautilus is committed to the pursuit of high standards of corporate

governance, reflecting not only applicable legal and regulatory

requirements but also having regard for global developments in

relation to corporate governance best practice. We have adopted

an approach of continuous improvement to review and develop

appropriate policies and supporting systems to ensure transparency

and the integrity of our business practices.

Mandate of the Board of Directors

�� Setting Nautilus’ strategic objectives;

�� Evaluating corporate risks and opportunities;

�� Approving annual budgets;

�� Monitoring performance against such budgets;

�� Promoting ethical and responsible corporate conduct;

�� Addressing succession planning;

�� Evaluating Board needs and performance; and

�� Fostering a system of effective, accurate and timely

public disclosure.

Board CompositionMr. Matthew Hammond joined the Board as a Non-Executive Director

in October 2009 following the resignation of Mr. Farhad Moshiri. Mr.

Hammond is the Group Strategist at Metalloinvest Holding, one of

Russia’s largest iron ore and steel groups. At Metalloinvest he has

responsibility for part of the non-core asset portfolio and advises the

Board on strategic acquisitions, disposals, investments and strategy.

Prior to joining Metalloinvest, Mr. Hammond was a Director at Credit

Suisse, where he worked for 12 years.

Overview of Committee MandatesSpecific responsibilities have been delegated to two Board

Committees which have access to independent expertise at the

Company’s expense.

Audit CommitteeThe function of the Audit Committee is to assist the Board in fulfilling

its responsibilities associated with the preparation and independent

audit of the Company’s accounts, its external financial reporting,

its internal control structure, risk management systems and audit

function. The Audit Committee operates in accordance with a charter

adopted by the Board. The Audit Committee consists of three Board

members who are all independent.

Nomination and Remuneration CommitteeThe Nomination and Remuneration Committee is responsible

for, among other things, reviewing the remuneration of the Chief

Executive Officer and other senior executives, establishing criteria

for membership of the Board and its committees, and processes for

the identification of suitable candidates, and reviewing management

succession.

Corporate Governance

059

Board of Directors and Senior ManagementDirectors

Geoff Loudon, Chairman

Mr. Loudon is a resource professional with

qualifications in geology and engineering. His

international experience is extensive and covers

resource exploration development, production and finance. Mr.

Loudon has worked in Australasia, Asia, the Americas and Europe.

Mr. Loudon was founder and Chairman of Niugini Mining, discoverer

of the Lihir gold deposit in PNG, which was developed by Rio Tinto

in 1995. Mr. Loudon remains a founding Director of Lihir Gold

Limited, listed on the NASDAQ, TSX and Australia Stock Exchange

and is chairman of L&M Petroleum Limited, listed on the Australian

Securities Exchange and the New Zealand Stock Exchange. Mr.

Loudon is also a fellow of the Australasian Institute of Mining

and Metallurgy.

Stephen Rogers, President, Chief Executive Officer and Director

Mr. Rogers has been the President and CEO of

the Nautilus Minerals Group since June 2008. Mr.

Rogers joined Nautilus in 2007 as Chief Development

Officer, responsible for the definition and execution of the Solwara

1 Development Project in Papua New Guinea. He has 30 years of

experience in the offshore industry with a background in corporate

and project management.

David De Witt, Director

Mr. De Witt is a founder and the chairman of

Pathway Capital Ltd., a private venture capital firm,

and is involved in all aspects of its investment activity

including analysis of investment opportunities, negotiation and

structuring of transactions and fundraising activities.

Prior to forming Pathway Capital Ltd., Mr. De Witt was a partner

in a venture capital corporation where he was involved in strategic

planning, acquisitions and investment decisions. Mr. De Witt also

spent 15 years as a practicing lawyer specializing in corporate and

securities law, initially with Clark Wilson in Vancouver and thereafter

as a founding partner in his own law firm.

He was previously a Director and Corporate Secretary of Arequipa

Resources, which was acquired by Barrick Gold in 1996. Additionally,

Mr. De Witt was a founder of and Director of Peru Copper, which was

acquired by the Aluminium Corporation of China in 2007. Mr. De Witt

is currently a Director of Bear Creek Mining Corp.

Russell Debney, Director

Mr. Debney was Chairman of Nautilus prior to

listing. He has been actively involved in Nautilus’

development strategy, almost since inception. He is

based in Sydney, Australia and is a lawyer as well as a director of a

number of companies in the mining and resources industry.

Mr. Debney has extensive experience in the management, financing

and structuring of resource companies and projects, particularly in

the offshore environment.

John O’Reilly*, Director

Mr. O’Reilly joined the Board in December 2007. Mr

O’Reilly holds a BSc in Metallurgy and MSc in Mineral

Process Design. He has over 40 years experience in

the international mining industry including 19 years with Rio Tinto

plc (Rio Tinto), where he was head of technology and head of gold

and other minerals. He was also seconded to the Lihir Management

Company as Managing Director and was the inaugural Chief

Executive Officer of Lihir Gold Limited in Papua New Guinea, a plus-

40 million ounces gold resource, where he was responsible for the

design, engineering, construction and initial operation of the US$900

million Lihir mine, plant and associated infrastructure. He retired as a

Non-Executive Director of Lihir Gold Limited at the end of 2006.

Matthew Hammond, Director

Mr. Hammond is the Group Strategist at

Metalloinvest Holding, one of Russia’s largest

iron ore and steel groups. At Metalloinvest he has

responsibility for part of the non-core asset portfolio and advises the

Board on strategic acquisitions, disposals, investments and strategy.

Prior to joining Metalloinvest, Mr. Hammond was a Director at Credit

Suisse, where he worked for 12 years.

* Resigned effective April 16, 2010


060

Stephen Rogers President and Chief Executive Officer

Mr. Rogers has been the President and Chief

Executive Officer of the Nautilus Minerals Group

since June 2008. Mr. Rogers joined Nautilus in

2007 as Chief Development Officer, responsible for the definition

and execution of the Solwara 1 Development Project in Papua New

Guinea. He has 30 years of experience in the offshore industry with a

background in corporate and project management.

Anthony O’Sullivan Chief Operating Officer

Mr. O’Sullivan was appointed Chief Operating

Officer in January 2006 and has over 20 years

of industry experience. A member of the BHP

Billiton Exploration Management Team between 2001 and 2006, he

managed the company’s base metal and bulk commodities (iron

ore, coal, bauxite) exploration effort. Mr O’Sullivan has been involved

in the discovery and development of iron ore, base metal, coal and

tantalite deposits.

Shontel Norgate Chief Financial Officer and Corporate Secretary

Ms. Norgate has been the Chief Financial Officer of

Nautilus Minerals since September 2006. She has 14

years commercial experience within the resources

industry in debt and equity finance, financial reporting, project

management, corporate governance, commercial negotiations and

business analysis. Ms. Norgate is a qualified Chartered Accountant

and a member of the Chartered Secretaries of Australia.

Michael Johnston VP Strategic Development and Exploration

Mr. Johnston was formerly General Manager for

Exploration with Placer Dome where he oversaw

Placer Dome’s exploration efforts in Australia

and Asia. Prior to this role, Mr. Johnston was Technical Services

Manager for Placer Dome at the massive Porgera Gold Mine in the

highlands of Papua New Guinea. He joined Nautilus in May 2006 in

his current capacity.

Scott Trebilcock VP Business Development and Investor Relations

Mr. Trebilcock has over 13 years of experience in

the metallurgical, mining and materials industries.

He was a process engineer with Hatch Associates

from 1994 to 1997. Mr. Trebilcock moved to Noranda Inc. where

he marketed for the zinc and copper assets. After completing an

MBA in 2001, Mr Trebilcock joined PRTM, a boutique management

consulting firm, working with Fortune 500 industrials worldwide. Mr.

Trebilcock joined Nautilus in September 2007 as Vice President of

Investor Relations.

Glen Smith Chief Technology Officer

Mr. Smith joined Nautilus as Chief Technology

Officer in January 2009. Mr. Smith has over 22

years experience primarily in the offshore oil and

gas industry comprising 11 years with Technip (Perth/Paris) and

5 years with both Single Buoy Moorings (Monaco) and Clough

Engineering (Perth). He has extensive project experience involving

the development and use of innovative design and construction

techniques to execute offshore projects in challenging and

remote environments.

Senior Management Team


With its first Seafloor Massive Sulphide project Solwara 1, Nautilus Minerals will unlock the valuable potential of deepwater natural resources for current and future generations.

�� Teamwork;�Bringing�together�people�from�different�backgrounds,�Nautilus�Minerals�has�created�a�motivated�team�focused�on�delivering�a�world-class�seafloor�production�system�on�time,�within�budget,�and�meeting�all�of�our�environmental,�health�and�safety�commitments.

�� Technology;�Adapting�existing�technologies�employed�in�the�deepwater�oil�and�gas�industry,�Nautilus�Minerals�moves�forward�in�the�delivery�of�its�objective�to�extract�copper�and�gold�rich�mineral�deposits�from�the�seafloor,�1,600�metres�below�the�ocean’s�surface.

�� Corporate responsibility;�Nautilus�Minerals�is�setting�the�standards�for�environmental�best�practice�in�this�new�industry.�Our�positive�safety�culture�results�in�a�secure�and�safe�workplace�for�our�people.�With�a�strong�sense�of�responsibility�for�the�communities�within�which�we�work,�Nautilus�is�proving�to�be�the�leader�in�opening�up�this�new�frontier.


“There are no dreams too large, no innovation unimaginable

and no frontiers beyond our reach” John Herrington 1

1 NASA astronaut, and the first enrolled member of a Native American tribe to fly into space as part of a successful space shuttle mission in 2002.

061

Board of DirectorsGeoff�Loudon��Chairman

Stephen�Rogers��President,�CEO�and�Director

David�De�Witt��Director

Russell�Debney��Director

Matthew�Hammond��Director

John�O’Reilly*��Director

Officers and ManagementStephen�Rogers��President�and�CEO

Anthony�O’Sullivan��Chief�Operating�Officer

Shontel�Norgate��Chief�Financial�Officer�and�Corporate�Secretary

Michael�Johnston��VP�Strategic�Development�and�Exploration

Scott�Trebilcock��VP�Business�Development�and�Investor�Relations

Glen�Smith��Chief�Technology�Officer

Mel�Togolo��Papua�New�Guinea,�Country�Manager

Paul�Taumoepeau��Tonga,�Country�Manager

Transfer Agent and RegistrarThe�transfer�agent�and�registrar�for�the�shares�of�the�Company�is�

Computershare,�its�offices�are�located�at:


Toronto,�ON�M5J�2Y1�Canada

Computershare�Trust�Company�Inc.�located�in�Bristol,�UK�is�

acting�as�UK�co-transfer�agent.

Annual Information FormThe�Company�prepares�an�Annual�Information�Form�(“AIF”)�which�

is�filed�with�the�securities�commission�in�Canada.�Copies�of�the�

AIF,�annual�and�quarterly�reports�are�available�at�the�Company’s�

website:�www.nautilusminerals.com

For Shareholder Accounts

Inquiries in Canada:

Telephone:�1.800.564.6253�(toll�free�in�North�America)�

International:�+514.982.7555�

e-mail:�[email protected]

Corporate Information

*�Resigned�effective�April�16,�2010

Or write to:

Computershare�Investor�Services�


Toronto,�ON�M5J�2YI�Canada

Inquiries in the United Kingdom:

Telephone:�0870.702.0003

Or write to:

Computershare�Investor�Services�plc�

PO�Box�82,�The�Pavilions,�

Bridgwater�Road�

Bristol�BS997NH,�United�Kingdom

Nominated Advisor and Broker(AIM)

Numis�Securities�Limited

Investor Relations ContactInstitutional�and�individual�investors�seeking�financial�information�

about�the�Company�are�invited�to�contact�Scott�Trebilcock,�

VP�Business�Development�&�Investor�Relations

Telephone:�+1.416.551.1100��

E-mail:�[email protected]�

Web:�www.nautilusminerals.com

Stock Exchange Listing and SymbolsThe�Company’s�shares�are�listed�on�the�Toronto�Stock�Exchange�

(TSX)�and�on�the�London�Stock�Exchange�(AIM)�under�the�

symbol�NUS.

AuditorsPricewaterhouseCoopers�LLP

BankersCanadian�Imperial�Bank�of�Commerce

ANZ�Banking�Corporation

Annual General MeetingThe�Annual�General�Meeting�of�Shareholders�will�be�held�at�

10.30�am,�June�23,�2010�in�the�Connaught�Room,�2nd�Floor,�

Metropolitan�Hotel,�645�Howe�Street,�Vancouver�Canada�BC�V6C�2Y9.


a n e w f r o n t i e r

NAUTILUS MINERALS INC.

CORPORATE OFFICE

141�Adelaide�Street�West,�Suite�1702�Toronto,�Ontario,�Canada�M5H�3L5

www.nautilusminerals.com


INVESTOR RELATIONS INQUIRIES

TSX:�NUS

AIM:�NUS


Tel:�+1.416.551.1100�

MEDIA RELATIONS INQUIRIES


Tel:�+1.416.551.1100

n e w v i s i o n n e w w o r l d n e w r e s o u r c e s


Documents

a new frontier - AnnualReports.com MINERALS INC. ANNUAL REPORT 2009 a new frontier NAUTILUS MINERALS INC. CORPORATE OFFICE 141delaide A Street West, Suite 1702 Toronto, Ontario, Canada