In yet another apparent setback for Northern Dynasty Minerals (TSX: MDM; NYSE-MKT: NAK) and its controversial Pebble copper-gold-molybdenum project in Alaska, Rio Tinto (NYSE: RIO; LSE: RIO) is giving its 19.1% stake in the company to two local charities.
Rio Tinto owns just over 18 million shares in the company, and will divide them equally between the Alaska Community Foundation and the Bristol Bay Native Corporation, after a December 2013 review that concluded that the massive project no longer fit its strategy.
The move follows Anglo American’s (LSE: AAL; US-OTC: AAUKY) withdrawal from the project in September 2013. Anglo American had entered a 50:50 partnership with Northern Dynasty in 2007 to develop Pebble by funding US$1.5 billion of work. When it walked away last year, it had spent about US$556 million on the project.
The troubled project suffered yet another blow in February, when the U.S. Environmental Protection Agency initiated a process under the Clean Water Act in order to “identify appropriate options to protect the world’s largest sockeye salmon fishery in Bristol Bay, Alaska, from the potentially destructive impacts of the proposed Pebble mine.”
The EPA went on to say that the Pebble project has the "potential to be one of the largest open pit copper mines ever developed and could threaten a salmon resource rare in its quality and productivity.” According to the EPA, Bristol Bay produces nearly half of the world’s wild sockeye salmon, with runs averaging 37.5 million a year.
Pebble is situated in the Bristol Bay region, about 320 km southwest of Anchorage and 65 km from tidewater on the Cook Inlet in southern Alaska.
In response to the EPA, Northern Dynasty president and chief executive Ron Thiessen said in a prepared statement that “for a wide range of reasons, we remain confident that final decisions about Pebble will be made by federal and state regulators working within the rigorous National Environmental Policy Act (NEPA) permitting process, and not unilaterally and preemptively by EPA.”
Tom Meyer, executive director of institutional equity research at CIBC World Markets and a base metals analyst, noted in a research report released on April 8 that “the EPA’s actions in this instance appear out of line with existing procedures.”
“This is to be a review of a potential process and it is important to note that Northern Dynasty’s 100%-owned Pebble copper-gold-molybdenum project has not entered the permitting process,” he wrote. “The details of the project’s scope have yet to be revealed to the respective state and federal agencies. Thus, the EPA discussion is in the domain of hypotheticals and not project specifics. The National Environmental Policy Act (NEPA) dictates a rigorous process of study, evaluation and balancing of alternatives to ensure environmental effects are properly weighed in a proposed project.”
In May 2012, the U.S. EPA released its draft Bristol Bay Watershed Assessment, which outlined serious concerns over mine development. A subsequent panel of independent experts who reviewed the document, however, found it “inadequate, premature and misleading.”
Pebble is the largest undeveloped copper-gold project in the world by resource, with 5.9 billion measured and indicated tonnes containing 55 billion lb. copper, 67 million oz. gold and 3.3 billion lb. molybdenum. Inferred resources add 4.8 billion tonnes containing another 26 billion lb. copper, 40 million oz. gold and 2.3 billion lb. moly.
A 2011 preliminary economic assessment for Pebble estimated development costs of US$4.7 billion.
News of Rio Tinto’s divestment on April 7 sent Northern Dynasty's share price down 8¢ to 96¢. Over the last year shares have traded within a range of 90¢ (March 3, 2014) to $3.50 per share (April 8, 2013). The company has 95 million shares outstanding.
In a statement responding to Rio Tinto’s divestment, Thiessen said management looked forward to meeting with the leadership of the Alaska Community Foundation and the Bristol Bay Native Corporation Education Foundation “to better understand their long-term goals and aspirations.”
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