Reuters reported that a dispute between Papua New Guinea and Canada's Nautilus Minerals threatens to sink plans to mine gold and other metals for the first time from the ocean floor.

It could also work against efforts by the South Pacific country to restore faith in its vast resources potential and entice more foreign companies to follow the likes of Exxon Mobil, Newcrest Mining and Barrick Gold and invest billions of dollars in resource projects.

The groundbreaking undersea venture hopes to use robots operating a mile (1,600 metres) deep to mine the sea floor near hydrothermal vents that deposit copper, gold and other minerals.

Hungry for foreign investment, Papua New Guinea, a nation of 7 million spread over an equatorial archipelago the size of California had agreed in 2011 to pay 30% of the costs to build the Solwara 1 project in the Bismark Sea which Nautilus said amounts to USD 80 million so far.

But in June, the government's investment arm, Petromin, said that it was terminating the agreement. Without the funds, Nautilus says it cannot afford to proceed and the matter is now in arbitration in Australia under The United Nations Commission on International Trade Law.

Mr Michael Johnston CEO of Nautilus said that “Another round of job losses would follow on Friday unless a resolution can be reached. We don't know where we stand at the moment. We're optimistic because we have to be, but we just don't know what Petromin is thinking."