Northern Dynasty Minerals’ 2018 Annual Report Reveals “Substantial Doubt,” Net Loss, Low Cash, and an Urgent Need for an Investor
Financing for a proposed gold and copper mine in the headwaters of Bristol Bay, Alaska is looking more precarious by the day.
Junior Canadian mining company Northern Dynasty Minerals (NAK) filed its 2018 and 2017 Consolidated Financial Statements with the Securities and Exchange Commission (SEC) last week. A note by the auditor, Deloitte, on the first page speaks volumes:
“[T]he Company incurred a consolidated net loss of [C]$16 million during the year ended December 31, 2018 and, as of that date, the Company’s consolidated deficit was [C]$487 million. These conditions, along with other matters…, raise substantial doubt about its ability to continue as a going concern.” (emphasis added)
Northern Dynasty is the sole proponent of the mine proposed for construction at the headwaters of the world’s greatest wild salmon fishery. Alaskans overwhelmingly oppose the mine, and it has been condemned internationally as one of the most reckless projects anywhere. Four major investors have pulled out: Mitsubishi Corporation (2011), Anglo American (2013), Rio Tinto (2014), and First Quantum Minerals (2018).
Over the past year, shares of Northern Dynasty dropped by -44% (or -$0.49) from its last recorded high of $1.12.
Its most recent financial report reveals additional woes: little cash and a net loss. According to the report:
“As at December 31, 2018, the Group has [C]$14,872 [US$11,175] in cash and cash equivalents for its operating requirements. For the years ended December 31, 2018 and 2017, the Group incurred a net loss of [C]$15,957 and [C]$64,865, respectively, and had a deficit [C]$486,913 as at December 31, 2018.”
Then this dire warning about the urgent need to obtain additional financing:
“Additional financing will be required in order to progress any material expenditures at the Pebble Project and for working capital requirements. Additional financing may include any of or a combination of debt equity and/or contributions from possible new Pebble Project participants. There can be no assurances that the Group will be successful in obtaining additional financing. If the Group is unable to raise the necessary capital resources and generate sufficient cash flows to meet obligations as they come due, the Group may, at some point, consider reducing or curtailing its operations. As such, there is material uncertainty that raises substantial doubt about the Group’s ability to continue as a going concern.” (emphasis added)
Northern Dynasty clearly needs an investor. A tall order when a handful of the world’s largest mining companies have already walked away. Former longtime Rio Tinto mine permitting expert Richard Borden questioned the project’s economic feasibility last month in a letter to the U.S. Army Corps of Engineers.
Noting with concern Pebble’s continuing refusal to submit a preliminary financial assessment in support of its permit application, Borden prepared his own assessment, and found that the project as proposed is “almost certainly not economically feasible” and is “likely to have a strongly negative net present value (NPV)” of -$3 billion.
Borden is exceptionally well-suited to assess mining economics and feasibility, having served over 23 years with Rio Tinto – including over seven years as Head of Environment for Rio Tinto’s Copper, Copper & Diamonds and Copper & Coal Product Groups. During that time, he participated in more than twenty financial and technical assessments of new major capital projects and potential acquisitions, as well as performed environmental and permitting work at over fifty mines, projects and operations.
Borden found that the mine would lose 3 billion over its 20-year lifespan. Pebble vehemently denied that, but then admitted this to the SEC:
“The Group is in the process of exploring and developing the Pebble Project and has not yet determined whether the Pebble Project contains mineral reserves that are economically recoverable.” (emphasis added)
“All mineral resource estimates, cut-offs and metallurgical recoveries are subject to change as a consequence of more detailed analyses that would be required in pre-feasibility and feasibility studies.” (emphasis added)
That’s not what Northern Dynasty is telling the Army Corps.
By submitting a permit application, Northern Dynasty conveyed to the Corps that it has a feasible plan to actually build the Pebble Mine. That’s a far cry from its disclosure to the SEC that it has “not yet determined whether the Pebble Project contains mineral reserves that are economically recoverable.”
Northern Dynasty can’t have it both ways. Either it has a viable, economically feasible plan, or it doesn’t.
When the Corps asked for the economics of the project, Pebble said it couldn’t give it to them without risking a violation of a Canadian securities regulation intended to prevent misleading or fraudulent information about mining.
Pebble is saying two different things to two different agencies: while it dodges requests from the Corps to provide an economic feasibility study, it’s telling the SEC that a feasibility study is needed before making promises to investors.
Northern Dynasty is trying to jam its fantasy of a mine through the permitting process.
We can’t allow a cash-starved Canadian company to jeopardize Bristol Bay, its $1.5 billion annual commercial fishery that supports 14,000 jobs, and the salmon that have sustained Alaska Native peoples for millennia.