Northern Dynasty tumbles on First Quantum’s Pebble pull-out

VANCOUVER (miningweekly.com) – The TSX-traded stocks of base metals producer First Quantum Minerals and Northern Dynasty Minerals tumbled on Friday following an overnight joint announcement that the companies have terminated a 2017 framework accord that envisioned the partners closing an option and partnership transaction to develop the controversial Pebble copper/gold project, in south-eastern Alaska.

Vancouver-based Northern Dynasty’s equity lost about 36% in value on Friday morning, to a new 52-week low of C$0.58 a share, while that of First Quantum fell 4.8% to C$19.80 apiece.

First Quantum in December breathed new life into the highly controversial development project – believed to be one of the largest undeveloped copper deposits in the world – when it signed a framework agreement with Northern Dynasty to complete due diligence and receive the required regulatory nods before it can sign a formal option agreement.

Estimates show that the Pebble deposit is one of the largest low-grade undeveloped mine projects in the world, comprising measured and indicated resources of 5.94-billion tonnes, grading 0.78% copper equivalent and containing 55-billion pounds of copper, 67-million ounces of gold and 3.3-billion pounds of molybdenum. The deposit also has 4.84-billion tonnes of inferred resources, grading 0.53% copper equivalent and containing 26-billion pounds of copper, 40-million ounces of gold and 2.3-billion pounds of molybdenum.

Aside from the project’s environmental and permitting woes, Northern Dynasty – a unit of mining house Hunter Dickenson – has suffered several major setbacks in recent years, most notable being Rio Tinto giving away its 19.1% holding in the company to two Alaskan charities in April 2014, following a strategic review. This was short on the heels of Anglo American pulling out in September 2013, as part of its plan to cut the cost of future options.

Under the terms of the December framework agreement, a subsidiary of First Quantum would have worked towards signing an option agreement with Northern Dynasty and paying $150-million, staged over four years, to acquire the option to acquire half an interest in the Pebble Limited Partnership for $1.35-billion.

First Quantum would have had the choice to extend the option period for up to two years by making payments to be agreed upon which amounts will be offset against the $1.35-billion additional investment amount. First Quantum already paid an early option payment of $37.5-million after signing the framework agreement to Northern Dynasty.

Northern Dynasty’s TSX-listed equity benefitted from market speculators early in 2017, as investors bet that the incoming administration of US President Donald Trump would provide an easier path to development under a more ‘pro-business’ agenda. However, this optimism soon waned, when new Environmental Protection Agency (EPA) boss Scott Pruitt prompted a 46% selloff of the company’s stock in January following an apparent reversal of position by the EPA regarding the Pebble project, with administrator Pruitt stating that "it is my judgment, at this time, that any mining projects in the region likely pose a risk to the abundant natural resources that exist there".

The EPA suspended its process to withdraw its proposed determination under Section 404(c) of the Clean Water Act (CWA) to pre-emptively veto the project, thereby clearing the way for Pebble to apply for a CWA 404 permit with the US Army Corps of Engineers (USACE), leaving the proposed restrictions in place while the EPA collects more information on the proposed mine's impact on the region's world-class fisheries and natural resources.

The USACE will facilitate a formal consultation and public comment process following publication of the Pebble draft EIS – expected sometime in 2019. The Corps' current timeline estimates the final EIS for the Pebble project to be completed within 24 months.

The Corps announced in February that it had appointed a third-party contractor to undertake the EIS.

It is unclear whether the USACE environmental process will continue, and requests for comment by Mining Weekly Online were still outstanding from a Hunter Dickenson spokesperson by the time of publication on Friday.

Nongovernmental organisation Earthworks' Northwest programme director Bonnie Gestring hailed the announcement.

"It is great news that First Quantum decided to forgo their investment in the proposed Pebble mine, in Alaska’s Bristol Bay. First Quantum is the latest in a string of investors to recognise that it’s a bad idea to put North America’s largest openpit mine in the spawning grounds of the world’s largest remaining wild sockeye salmon fishery.

“We hope First Quantum’s decision convinces EPA to follow through on its initial plan to protect the Bristol Bay watershed from industrial scale mining."