Homer Alaska - Business

Story last updated at 8:52 PM on Wednesday, April 27, 2011

Northern Dynasty looks to sell Pebble stake

By Andrew Jensen

One half of the Pebble Limited Partnership is looking to sell.

The CEO of Northern Dynasty Minerals Ltd. told Bloomberg News March 8 it expects to divest its 50 percent stake in the Pebble mine prospect "anytime later this year or next year."

"I could see it being either one of the diversified majors singly or a partnership of a major mining company and perhaps an Asian metals trading-slash-smelting company, like a Mitsubishi, Mitsui or Sumitomo, or even one of the Chinese groups," Northern Dynasty CEO Ron Thiessen told Bloomberg.

Since the Feb. 23 release of a preliminary assessment of Pebble's value conducted for Northern Dynasty that ruffled feathers with partner Anglo American Plc of London, the Vancouver-based junior mining company has been on an aggressive sales push touting the prospect.

At the BMO Capital Markets 2011 Global Metals & Mining Conference in Hollywood, Fla., Northern Dynasty executive chairman Robert Dickinson said March 1 he expected the Pebble prospect to attract an array of suitors.

"Given the state of the current industry, the competition in the industry and the commodity market conditions we believe that going forward there will be competitive interest in Pebble from a broad range of potential acquirers," said Dickinson, according to a report in Mining News.

Thiessen also mentioned Rio Tinto as a potential buyer for its Pebble stake. Rio Tinto already owns 19.9 percent of Northern Dynasty, giving it just less than a 10 percent stake in Pebble.

Rio Tinto also owns Bingham Canyon mine in Utah, which supplies 20 percent of the nation's copper and is a deposit similar to Pebble's geology.

Anglo American, which has paid $325 million in expenses at Pebble since becoming a 50 percent partner in 2007 and plans to spend another $91 million in 2011, was not pleased at the timing of Northern Dynasty's release or the information it included. Anglo American is obliged to spend between $1.425 billion and $1.5 billion to secure its 50 percent ownership in the claim.

The Pebble Partnership has not yet released its environmental baseline document based on more than six years of intensive research at the prospect, nor its official prefeasibility study that will give more detail on the size and design of the project. The prefeasibility study isn't expected until 2012; the baseline document is expected to be released sometime in 2011.

A key part of the public relations strategy for the controversial Pebble project has been to caution against judgment until a mine plan is released. Further, any proposal will be presented to stakeholders through an outreach program to consider changes before the project is taken to the permitting process.

The Northern Dynasty preliminary assessment lays out a number of details, such as describing the tailings dam to contain mine waste as eventually reaching 450 feet tall on its northern embankment.

According to Northern Dynasty's annual report released March 29, Anglo American "has alleged that the news release contained confidential information which is the property of the Pebble Partnership and was not authorized to be released, and Anglo American reserves all rights to claim that the release has damaged Anglo American and/or the Pebble Partnership."

The Northern Dynasty report goes on to state it believes Anglo American's allegations are "without merit" based on its legal advice, and asserts the preliminary assessment changed the material position of the company and it was required by both U.S. and Canadian law to disclose the results.

As a junior mining company, Northern Dynasty always planned to sell its stake in Pebble.

In Anchorage March 3 at a breakfast meeting of the Resource Development Council, Anglo American CEO Cynthia Carroll said she wanted to be "clear" that the Northern Dynasty preliminary assessment was "just one view" of the possibilities.

"Northern Dynasty feels they need to provide information about the project to their shareholders even though that information is still preliminary," Carroll said. "The Pebble Partnership will only publish a detailed plan once that has been properly developed and approved by Pebble's board. The fact is that the Pebble Partnership is still studying multiple options as it works towards completion of a pre-feasibility study in 2012."

The preliminary assessment conducted for Northern Dynasty by Waldrop Engineering Inc. analyzed the "payback" on three scenarios for Pebble: a 25-year, 45-year and 78-year mine life.

Each scenario envisioned a $4.7 billion construction cost, with internal rates of return differing based on mine life and alternate commodity prices for the vast copper, gold and molybdenum deposit. The Pebble deposit is estimated to be worth about $400 billion and has attracted intense opposition to development from environmental groups and fishing interests for the potential risk it poses to the Bristol Bay watershed.

Using prices of $2.50 per pound for copper, $1,050 per ounce for gold, $13.50 per pound of molybdenum and $15 per ounce of silver, the preliminary assessment of the 45-year scenario estimated Northern Dynasty's stake at an 18 percent pre-tax internal rate of return, a 5.3-year post-tax payback on construction costs of $4.7 billion and a $3.6 billion pre-tax net present value.

Using current prices ($4 per pound of copper, $1,350 per ounce of gold, $15 per pound of molybdenum and $28 per ounce of silver), the rate of return for Northern Dynasty's stake jumps to 30.2 percent pre-tax with a 3.1-year post-tax payback and a net present value pre-tax of $8.3 billion.

The Northern Dynasty preliminary assessment also speaks to just how vast is the Pebble deposit. Even under the 45-year mine life scenario, just 32 percent of the deposit would be recovered. In the 78-year scenario, about 55 percent of the deposit would be mined.

Dickinson called Pebble a "game-changer" for global minerals markets as the fifth-largest copper deposit ever discovered and the world's single largest deposit of gold.

"As management, we believe there is an opportunity for Northern Dynasty to capture the longer term value of our interest in this project in the months ahead," Dickinson told the conference according to Mining News.

Pebble Partnership CEO John Shively said he didn't expect any sale of Northern Dynasty's stake to impact the project.

"Anybody that would buy would be interested in development," he said. "I wouldn't anticipate a major change in our strategy if there was a purchase."

Shively said he hasn't seen any change in attitude about Pebble by Anglo American, noting the company will spend about $20 million more in 2011 than it did in 2010.