Northern Dynasty Has One Foot in the Grave

Just over a week after Northern Dynasty Minerals announced it had regained full control over its controversial copper and gold Pebble mine in Alaska following its partner's decision to back out of the project, the miner found out its largest investor was also considering dumping the near-20% stake it held in the company.

Drillers at Pebble. Source: Northern Dynasty Minerals

Rio Tinto said it told Northern Dynasty's management "it intends to undertake a strategic review, including a possible divestment," a decision that took the miner unawares since Rio had apparently been telling Northern something different up till then. Considering Rio's stake is a relatively inconsequential amount, just $25 million in what is otherwise a $100 billion company, Northern Dynasty's CEO Ron Thiessen said the public disclosure of the review caught him by "complete surprise".

A few years back, when there was a lot more hope surrounding the project's advance, Northern Dynasty put its then-50% ownership of Pebble on the block, hoping it would get bought out as it really needs a mining major to bring it to fruition -- but it couldn't find any takers. Thus relying on little more than dogged determinism to see it through, Northern Dynasty has run into one hurdle after another, and each successive one seemingly higher than the last.

At a time when miners everywhere are trying to conserve capital by focusing on their most promising projects, quixotic campaigns like Pebble are increasingly difficult to justify. 

Anglo American pulled out of the project last week and tolled what seemed to be the death knell, though Northern Dynasty put up a bold front by saying it was looking forward to triggering federal and state permitting in the first quarter of 2014. The latest development from Rio Tinto suggests the grave has been dug for this project and Northern Dynasty has one foot in it.

Located on Bristol Bay at the headwaters of a major spawning ground that sees 40 million salmon swim in every year, Pebble is the single largest undeveloped copper-gold-molybdenum deposit in the world, with the potential to produce as much as 55 billion pounds of copper, 67 million ounces of gold, and 3.3 billion pounds of molybdenum over its near-80-year life. It would create some 4,700 jobs in Alaska during construction and another 2,900 over a 30-year production cycle while adding some $2.4 billion annually to the economy and $9 billion in new state and federal tax revenues.

But because of its location on sensitive environmental areas, opponents, including local people as well as environmentalists and a diverse roster of corporations, fear it would create catastrophic harm to fish, bear, moose, and caribou populations. The EPA has all but said it officially opposes its development, so Northern Dynasty's optimistic target dates for permitting seem overly hopeful.

Rio Tinto is already under pressure to bring its costs under control, and last week received a letter from California's state controller and New York City's comptroller urging the miner to divest its holdings of Northern Dynasty. The two offices control hundreds of billions of investment dollars and cited their own large holdings in Rio when pointing out the environmental, regulatory, and, perhaps more importantly, reputational risks the miner faces in moving forward.

That suggests Rio Tinto won't have an easy time unloading its stake too. As Pebble becomes a mining community pariah, there are few majors that are willing to step up and risk their own corporate images on it, making it seem all but certain Northern Dynasty is dead and about to be buried.

Better luck next year
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