Pebble Mine's Economics: Garbage In, Garbage Out

Canadian owner of embattled Bristol Bay mining scheme promises preliminary economic analysis within 45 days to demonstrate financial feasibility of mine predicted to lose billions.
Bristol Bay Region
New Halen River between Nondalton and Iliamna
Credit: Robert Glenn Ketchum

Canadian owner of embattled Bristol Bay mining scheme promises preliminary economic analysis within 45 days to demonstrate financial feasibility of mine predicted to lose billions.

Stop the presses! Canadian exploration company Northern Dynasty Minerals—100 percent owner of the widely-condemned Pebble Mine—has issued another press release

The news? Within 45 days the company intends to issue a Preliminary Economic Assessment (“PEA”) supporting its contention that the Pebble Mine will turn a profit. Rather than waiting to issue the press release when the PEA is actually released for review, Northern Dynasty apparently decided that its promise of a PEA is news enough.

Whatever its thinking, based on the company’s press release and subject to seeing the actual PEA itself, here are some important questions about (1) timing of the seemingly premature release and (2) content of the analysis based on what Northern Dynasty has represented:

Timing of the Release

  • Was the timing of Northern Dynasty’s press release a mere coincidence or a purposeful distraction from other bad news for the project?

Northern Dynasty issued its press release early on September 9ththe very day EPA and other parties (including the State of Alaska) filed a Joint Proposal for next steps in recently reinstated federal litigation. Filed in 2019, the litigation challenges the Trump Administration’s withdrawal of protections under Clean Water Act section 404(c) for portions of the Bristol Bay watershed—headwaters of the world’s greatest wild salmon fishery and the very region threatened with contamination by the Pebble Mine. 

In the September 9th Joint Proposal EPA announced its decision not to defend the Trump Administration’s withdrawal and instead to re-start the 404(c) processunquestionably bad news for the Pebble project, its Canadian owner, and their shareholders.

Contents of the Release

For years, and throughout the Army Corps of Engineers (“Army Corps”) permit process, Pebble has refused to prepare and release an economic feasibility analysis for its 20-year project, claiming variously that it hasn’t the time, the money, or the legal flexibility to do so. Former Rio Tinto environmental permitting manager Richard Borden conducted his own analysis of the project in 2019 and estimated a “net present value” (“NPV”) of negative $3 billion for the 20-year Pebble Mine plan that Northern Dynasty has attempted to permit. Neither Pebble nor the Army Corps chose to consider the issue except to dismiss it, including, for example, this response to Congress from former Pebble Partnership CEO Tom Collier: “If it’s not financially viable, it’s not going to be built. And if it’s not going to be built, what the hell are we doing here today. . . . It’s going to make money going forward.” (Emphasis added.) 

Here, based on the information contained in Northern Dynasty’s press release, are some important questions about the promised PEA:

  • What is a preliminary economic analysis?

A preliminary economic analysis is not a full-blown feasibility study or even a pre-feasibility study. It is, by definition, “preliminary” and, as such, much less accurate than feasibility and pre-feasibility studies. In general, pre-feasibility studies have an accuracy within 20-30%, feasibility studies have an accuracy within 10-20%, and, under Canadian securities law, PEA’s can only be used to demonstrate the potential, not actual, viability of a mineral project. As the press release cautions, the PEA “includes Inferred mineral resources that are considered too speculative geologically to have economic considerations applied to them that would enable them to be categorized as mineral reserves.” (Emphasis added.)

  • Is the PEA being prepared by an independent engineering firm?

No. Unlike common industry practice, Northern Dynasty’s upcoming PEA is not being prepared by a team of fully independent consultants. According to the press release, four of the participants—those responsible for the core disciplines of financial viability (e.g., resource estimation and sampling, geology and exploration, and overall project information)—are “non-independent” (including three from Pebble’s parent company Hunter Dickinson). The four remaining participants contributed information primarily on technical issues (e.g., metallurgy, tailings and water management, open pit mining, and process). 

  • How are project costs estimated?

The PEA appears to base its capital cost estimates on a 2011 Preliminary Assessment of the Pebble project (called the Wardrop Report)—the last independent publicly available economic assessment—without realistically accounting for the impact of inflation of costs from 2011 to 2021. Disregarding the general 22% net inflation increase since 2011, the PEA estimates only a seven percent increase in capital costs over the 25-year mine scenario in the Wardrop Report, likely resulting in a significant underestimation of capital needed to construct the project.

  • How is potential revenue estimated?

According to the press release, while it may significantly underestimate inflation and capital costs, the PEA aggressively inflates the estimated long-term average annual price of copper and gold. Although copper prices have only risen 5% since 2011, the PEA assumes a 40% increase in value for that commodity; for gold, which has risen just 15% since 2011, the PEA assumes a 50% increase. The PEA’s estimates of mean annual price for these commodities over the 20-year operating life of the project—$3.50 per pound of copper and $1600 an ounce for gold—consistently exceed the mean annual price for both commodities over the past 20 years.

  • How are sustaining capital costs estimated?

The PEA estimates the sustaining capital costs at 40% less than the value assumed in 2011. While they will save some costs due to reduced waste rock stripping from that projected in 2011, these savings should be largely offset by ten years of inflation and other costly design changes mentioned below. 

  • How will infrastructure be funded?

The PEA apparently assumes that $1.7 billion in infrastructure costs for the power plant and access road will be both sufficient and funded by someone else. As a result, and even though that funder (if there is one) is not identified, those significant costs for an essential element of the project have apparently been deducted from the PEA infrastructure cost estimate

  • How are operating costs estimated?

Despite inflation and the possibility of unspecified costs associated with infrastructure leasing, the PEA reduces operating costs from the 2011 Wardrop Report (reduced from $11.16/ton in 2011 to $10.98/ton in 2021). It seems more reasonable to assume that operating costs will increase compared to 2011 as lower waste rock stripping costs are offset by significant increases related to expensive design changes in the tailings dam, wastewater treatment, and other aspects of project design and maintenance.

  • What does the PEA estimate as the project’s net present value?

The PEA focuses primarily on the 20-year mine plan proposed by Pebble for permitting by the Army Corps of Engineers. This mine plan estimates just half of the metal production projected for 25-year mine plan analyzed in the 2011 Wardrop Report—and, further, that estimate assumes a 19 percent lower grade deposit. Nevertheless, even with these significant reductions in the key sources of potential revenue, the PEA projects an NPV only slightly lower than the 25-year scenario in the Wardrop Report—that is, $2.3 billion (2021) versus $2.5 billion (2011). Both of these numbers contrast sharply with former Rio Tinto expert Richard Borden’s 2019 estimate of negative $3 billion for the 20-year mine plan.

  • Why does the PEA discuss mine expansion scenarios?

Although Northern Dynasty asserts again that it has no plans for expansion beyond the 20-year mine plan on which its permit application has been based, that assertion was belied in no uncertain terms by the infamous Pebble Tapes released just a year ago. In those tapes, through the videotaped words of Northern Dynasty CEO Ronald Thiessen and former Pebble Partnership CEO Tom Collier, Pebble made it very clear that its expansive plans for the Pebble Mine—a 180- to 200-year or more mine, ten times the size of their permit application project—were “unstoppable,” repeatedly confirming that “that is the plan.” The company’s continuing denials of any such intention are once again undermined by their focus in the yet-to-be-released PEA on mine plans of significantly increased scale and value.




These are just some of the questions for Northern Dynasty when its promised PEA is completed and released for public review. There will undoubtedly be more questions to come. But if the representations in its premature press statement are borne out by the final product, Northern Dynasty will likely have accomplished nothing but further proof of the well-worn axiom “garbage in, garbage out.”

Not only is the analysis not the product of the independent review that credible economic analysis typically requires (in order to reduce the risk of bias based on an applicant’s financial self-interest), but its financial conclusions will be fundamentally undermined by (1) the aggressive inflation of commodity estimates; (2) the omission of a realistic inflation adjustment in projecting costs for construction, sustaining capital, and operations; and (3) the unexplained “outsourcing” and deduction of $1.7 billion in costs for essential infrastructure.

When Northern Dynasty talks about its Pebble project, it has always been “sensible to be skeptical.” Here we go again . . . .