Can Pebble begin permitting in 2017?

Northern Dynasty Minerals (NDM), which owns 100% of the Pebble Limited Partnership (PLP), has signaled investors that it is serious about moving forward with beginning the process of permitting the Pebble mine this year. Its goals for 2017 include the “Three Rs”: resolve litigation with EPA, re-partner, and re-position itself in the public debate by developing “key Alaska and Native partnerships.”

NDM announced in March that it had selected HDR Alaska, a consultant in engineering and environment, to lead permitting efforts for the mine as it looks ahead to moving beyond its problems with the U.S Environmental Protection Agency.

PLP anticipates a favorable outcome in its 3-year litigation with the EPA, which in 2014 had proposed restrictions to large-scale mining operations at the Pebble deposit. “Active discussions between all parties involved have been positive and very constructive,” said Tom Collier, CEO of the Pebble Partnership, in a a March 20 news release.  According to NDM, the company and the EPA are talking directly and need more time to negotiate. Judge H. Russel Holland granted an extension on a previously issued stay of proceedings, and the two parties now have until May 4 to come up with an agreement for how to settle out of court.

Even if the EPA and PLP do not resolve litigation in 2017, a 404 permit application could still be submitted. EPA’s 404(c) process blocks the U.S. Corps of Engineers’ final issuance of a permit, but doesn’t prohibit the permit application from being submitted or processed.

There’s another hurdle to cross, however. Permitting is a costly endeavor, and the existing technical and engineering studies related to development of the mine have “very uncertain and perhaps little value at this time,” according to a recent presentation by NDM.

The company needs to attract a deep-pocketed project partner to help fund permitting (and any new technical studies) and development of the mine. It’s been looking ever since Anglo American announced its departure in 2013. In that time, NDM has employed various methods of staying afloat financially – from cutting PLP staff and selling surplus equipment to issuing common stock.

It still had a deficit of about US$301 million at the end of last year. The latest share offering, in January 2017, raised gross proceeds of about $37.4 million, which it will use to try and advance the project. It plans to allocate $1.11 million of that for further environmental studies to prepare for permitting. Aside from working capital ($11.26 million), the largest amount ($8.05 million) is set aside for “Enhanced outreach and engagement with political and regulatory offices in the Alaska state and U.S. federal government, among Alaska Native partners and broader regional and state-wide stakeholder groups.”

What this means for stakeholder groups in Bristol Bay is yet unclear. However, part of NDM’s strategy to improve local opinion for the project includes incentives for Native groups. According to Mike Heatwole, PLP’s vice president for public affairs, “After we secured funding, we presented a lot of different ideas to the board on ways to more fully demonstrate how we can share the benefit with residents of the region. We are now working on the plans and details to roll out those that were approved.”

2017 is a critical year for NDM, and it has set aggressive goals. If permits can be filed this year, the company predicts entering the construction phase by 2020. NDM’s annual financial filing puts the situation in stark terms, though, noting that it will need additional financing to move ahead with expenditures at the Pebble deposit after this year. That financing could come from additional debt equity or a project partner. But if it’s unable to raise the money, it may have to consider “reducing or curtailing its operations.”

Although the change in federal administration, both at the White House and at the EPA, have some individual investors optimistic about the long-term outlook for the Pebble project, others have raised questions and even divested entirely. A very critical report released in mid-February by Kerrisdale Capital Management caused NDM stock to fall from around $3.29 to $2.27 per share in one day. Today it’s trading at $1.43 per share. The report also spurred several class-action lawsuits against NDM on behalf of investors, seeking recovery of damages for alleged violations of federal securities laws. For its part, NDM is confident the claims are unfounded.

NDM presentation to investors, March 2017

NDM end-of-year financial audit, December 2016