Northern Dynasty Sinks Like a Rock After First Quantum Drops Pebble

- May 25th, 2018

First Quantum has backed out of an option agreement on Northern Dynasty’s Alaska-based Pebble asset, leaving the project’s future in question.

The Pebble project in Alaska has hit another setback. Northern Dynasty Minerals (TSX:NDM), the company behind the asset, said Friday (May 25) that it could not reach an agreement on a proposed option and partnership deal with First Quantum Minerals (TSX:FM). 

Northern Dynasty took a dive on Friday when the news of First Quantum’s decision not to go forward was announced. The Canadian company’s share price fell as far as 35 percent before recovering to 25 percent below its opening price on the Toronto Stock Exchange.

In a press release, Northern Dynasty says the two sides were “unable to reach agreement on the option and partnership transaction.” The agreement was initially announced last December.

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The partnership would have seen First Quantum complete a staged option payment of US$150 million over four years; once paid, First Quantum would have had the right to earn a 50-percent interest in the Pebble project for US$1.35 billion.

The US$150 million would have been used for permitting for the project.

First Quantum has been lukewarm on the proposed arrangement since it was first announced, praising the project in its own press release at the time, but adding that it is focused on the development of its own copper projects and saying it is “very aware of the environmental and social sensitivity” of Pebble.

First Quantum has been the target of pressure by stakeholders, including the US states of New York and California, which have pointed to environmental concerns about Pebble.

Northern Dynasty has long promoted the Pebble project in Bristol Bay, Alaska as a major — and undeveloped — copper and gold project, with a measured and indicated resource of 57 billion pounds of copper, 71 million ounces of gold, 3.4 billion pounds of molybdenum and 345 million ounces of silver.

The mine has a estimated lifespan that the company simply describes as “a very long time.”

The company has been struggling to find a partner to fund the project since 2013, when major miner Anglo American (LSE:AAL) withdrew, leaving Northern Dynasty on the project alone.

The company has been battling obstacles since the project’s inception, with local opposition, the governor of Alaska and the Environmental Protection Agency (EPA) stalling progress.

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In 2014, the EPA slammed the project, saying in an assessment that Pebble would seriously impact the local environment through routine operation, and warning that accidents and failures at the proposed project would be “catastrophic” for the local ecosystems that support important salmon fisheries.

In the same assessment, the EPA said the Bristol Bay area generates US$480 million in economic activity through fisheries and tourism.

Signs of trouble brewing for Northern Dynasty’s latest lifeline were visible months ago, with the company announcing an extension to the deadline on the option agreement between itself and First Quantum out to May 31. The deadline had been extended once before, with an original deadline of April 6.

First Quantum has not released any information on why it has not gone ahead with the agreement.

Northern Dynasty’s share price was trading at C$0.68, down 26.09 percent, as of 9:00 a.m. PST. Shares in First Quantum were also down, but by a calmer 4.09 percent, to C$19.96

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Securities Disclosure: I, Scott Tibballs, hold no direct investment interest in any company mentioned in this article.

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