First Quantum Mulls Deal to Back Northern Dynasty’s Pebble

A potential deal could see First Quantum acquire the option to pay US$1.35 billion for a 50-percent stake in Northern Dynasty's Pebble project.

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Northern Dynasty Minerals (TSX:NDM,NYSEAMERICAN:NAK) has tapped First Quantum Minerals (TSX:FM) as a potential partner for its Pebble project. 

In a Monday (December 18) press release, Northern Dynasty said it has entered into a framework agreement that contemplates the execution of an option agreement with First Quantum.

Under the proposed deal, First Quantum would acquire the option to pay US$1.35 billion for a 50-percent stake in Pebble by paying US$150 million in instalments spread across four years. First Quantum will be able to extend the four-year period by up to two years.

Northern Dynasty bills Pebble as the most significant undeveloped copper and gold asset in the world, but has struggled to advance the project. Notably, the US Environmental Protection Agency (EPA) stalled progress at Pebble in 2014 by saying that large-scale mining at the site would “pose risks to salmon and Alaska Native cultures.”

The move set the stage for the organization to invoke a clause of the Clean Water Act to block Northern Dynasty from applying to the Army Corps of Engineers for any project permits. Earlier this year, however, Northern Dynasty reached a settlement with the EPA that paves the way forward for permitting.

Losing partner Anglo American (LSE:AAL) in 2013 was another blow for Pebble — the company pulled out of the project due to low copper and gold prices after spending over $500 million.

Acknowledging Pebble’s history, First Quantum Chairman and CEO Philip Pascall said in a press release, “[w]e are very aware of the environmental and social sensitivity of this project and will utilize the lengthy option period to apply our extensive project development and operating experience to ensure that this project can be developed with the support of stakeholders.”

Analysts at Raymond James said in a note released Monday that they “view this potential deal favorably from [First Quantum’s] perspective.” They added, “[w]e believe it gives [the company] a relatively inexpensive and low-risk option on a large copper/gold deposit without significant capital requirements until well into the next decade.”

They also noted Pebble’s rocky past, but said that because First Quantum won’t have to make a final decision for four to six years it will have adequate time to do its due diligence.

As Reuters notes, however, opponents of Pebble don’t believe the path forward will be easy. “The widespread and diverse opposition to the Pebble Mine should not be underestimated,” Nelli Williams, Alaska director for fishing conservation group Trout Unlimited, told the news outlet.

The option agreement is expected to be finalized and executed early in Q2 2018. Within five days of the execution of the framework, First Quantum will make an early option payment of US$37.5 million; Northern Dynasty said this money will be used to “move the Pebble Project forward to initiate federal and state permitting in the very near-term.”

At close of day Monday, Northern Dynasty’s share price was changing hands at C$2.45 on the TSX, down 12.5 percent. The company’s share price has risen 16.67 percent in the last year.

Don’t forget to follow us @INN_Resource for real-time updates!

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

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Comments
  • Pebble needs to be muchmore attractive to investors in order to be able to raise capital out in the open instead of relying on companies like First Quantum . it is not like we would go ga ga for more copper.. We dont care much about metals unless they re in acute shortages..that seem to stay that way for very long .. Investors and consumers do not respond to commodities until any of them is unavailable to all.

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