Pebble Mine: Northern Dynasty Minerals’ Dark Friday the 13th

Canadian owner of widely opposed Bristol Bay mine sees share value plummet after latest stock offering, reveals source of recent loan as syndicate that includes company’s own CEO and board members.

Following an overnight stock offering last Thursday, Northern Dynasty Minerals’ shares dropped dramatically in value at the opening bell on Friday morning and, despite a temporary halt in trading, continued to fall throughout the day, closing at $0.38 per share. This marks the lowest share value for the embattled company in well over three years—since the first week of July 2016.

It is the latest major downturn in the tortured history of Northern Dynasty Minerals, the small, underfunded owner of the widely condemned Pebble Mine, proposed for construction at the headwaters of the greatest wild sock-eye salmon fishery on Earth. Northern Dynasty, which has no other assets, is the sole remaining member of the Pebble Partnership whose reckless mining scheme has been abandoned over the past decade by four of the largest mining companies in the world – Mitsubishi Corporation (2011), Anglo American (2013), Rio Tinto (2014), and First Quantum Minerals (2018).

In Thursday’s “Overnight Marketing Public Offering of Common Shares,” Northern Dynasty issued 36,500,000 shares (at an issue price of $0.37) to raise an estimated US $13,505,000 (or, with the underwriter’s option for additional shares, US $15,500,000) for operations and permitting, outreach (e.g., lobbying), and other corporate purposes, including a multi-million payment due to its outside lawyers by the end of the year. As the associated prospectus filed with the Securities and Exchange Commission documents, this is only the latest in a long list of share offerings by the company over the past two years to raise funds.

The December 13 prospectus also disclosed that, on November 25, 2019, Northern Dynasty entered into a US $3.5 million loan agreement with a syndicate of lenders – a syndicate that most notably includes, among others undisclosed, Northern Dynasty CEO and board member Ron Thiessen, board member Robert Dickinson, and parent company Hunter Dickinson, Inc. board member Russell Hallbauer. To these and others in the lender syndicate the company issued another 466,666 common share “purchase warrants,” at a price of $0.75 per share.

While it isn’t possible for the rest of us to know the precipitating catalyst for these latest financial maneuvers, it seems likely that they’ve been motivated by continuing financial stress caused by the abandonment of this widely opposed project by its mining partners and by the company’s continuing inability to find another high risk-averse replacement. The company has no existing revenue stream and, “for the foreseeable future,” has a negative-cash flow.

The lengthy list of risk factors associated with the company and the Pebble project, enumerated in its December 13, 2019 Prospectus Supplement (at pp. I-26-I-33), is stunning.

In addition, the costs of the ongoing federal permitting process continue, as the company seeks to fill myriad data gaps in its proposed mine plan in the face of a widespread consensus of criticism of the draft environmental impact statement under consideration by the U.S. Army Corps of Engineers. Finally, its legal and lobbying bills count in the millions every year as the company seeks to persuade regulatory and elected officials that this disaster in the making deserves their blessing.

Whatever the specific cause, it seems obvious that borrowing from your own CEO and board members rather than a credible lending institution can’t be good. This and other signs of financial distress are pervasive and relentless, and they explain why Northern Dynasty (aka the Pebble Partnership) is so intensely focused on getting a permit as soon as possible for its preposterous mining plan despite gaping data gaps in its mine plan and accompanying draft EIS.

To name just a few:

• no catastrophic failure analysis—indeed, no containment failure larger than a seven-inch pipe break;
• no reclamation and closure plan;
• no financial feasibility analysis despite an independent analysis by a former 23-year Rio Tinto mining expert concluding that the project as proposed is “almost certainly not financially feasible,” with a negative NPV of US $3 billion;
• poor and undefined wetlands mitigation, with actual mitigation projects to be named later;
• an unproven, untested water management system of unprecedented complexity beyond any system applied anywhere to such significant anticipated water flows—to operate in perpetuity;
• gross underestimation of air quality emissions due to erroneous air quality modelling;
• inadequate or non-existent cumulative impacts analysis (including mining beyond the ten percent of the resource covered by the permit application), leading unavoidably to measurable, significant and permanent harm to fisheries in the Bristol Bay watershed even if everything were to go according to plan.

While Pebble’s CEO Tom Collier has claimed that “I don’t know that in my career of almost 40 years doing permitting if I’ve ever seen a more positive and unequivocal draft Environmental Impact Statement,” the U.S. Department of Interior has this to say:

the DEIS has major outstanding issues related to an overreliance on qualitative, subjective, and unsupported conclusions. . . . Based on these identified deficiencies, the DEIS is so inadequate that it precludes meaningful analysis. . . . 

While Collier has claimed that the draft EIS “concludes, without question, that this project will not do any damage to the Bristol Bay fishery. Period[,]” the U.S. Environmental Protection Agency has this to say:

this project . . . may have substantial and unacceptable adverse impacts on fisheries resources in the project area watersheds, which are aquatic resources of national importance. . . . [T]he DEIS does not "support a reasonable judgment" that the project will comply with the Clean Water Act.

Meanwhile, seemingly oblivious to Collier’s manifestly incredible assurances, long-suffering Northern Dynasty shareholders remain desperately hopeful of someday recovering their losses. But there can be no denying that the company’s steady and continuing fall from over $21.00 a share in 2011 to $0.38 a share last Friday is a singular history of investment failure that any prudent investor ignores at its peril. To be sure, Friday the 13^th was a bad day for Northern Dynasty. But it was by no means an aberration. As described by New York-based investment firm Kerrisdale Capital in 2017 based on its own thorough financial analysis, the Pebble Mine is “a value-destroying boondoggle.”

The people of Bristol Bay don’t want the Pebble Mine, they don’t need the Pebble Mine, and they will never relent in their fight against it. In support of that effort, it’s a project all of us are determined to stop.