EPA thinks Pebble is bluffing, wants peek at finances

BRISTOL BAY:

EPA thinks Pebble is bluffing, wants peek at finances

Published: Thursday, March 31, 2016

Vancouver, British Columbia-based Northern Dynasty Minerals Ltd. says it has no plans to back away from one of the planet's richest gold and copper deposits in Alaska's Bristol Bay region despite failing to attract a much-needed big-time investor.

U.S. EPA and Pebble LP, a wholly owned subsidiary of Northern Dynasty, are engaged in a federal court battle over agency actions to pre-emptively limit the mine's development. An Alaska U.S. district judge has put EPA's process on hold, but that doesn't mean the mine can proceed.

Pebble blames EPA for its woes. In new court documents, however, Justice Department attorneys representing the agency suggest Pebble and Northern Dynasty may be bluffing about the company's troubles, and EPA wants a peek at its finances.

Northern Dynasty counts the Pebble deposit -- 57 billion pounds of copper and 70 million ounces of gold -- as its main asset. For years, mine opponents have wondered how the company can stay afloat.

According to filings with Canada's System for Electronic Document Analysis and Retrieval, Northern Dynasty suffered a net loss of 33.8 million Canadian dollars ($26.1 million) in 2015, operating with a CA$379.1 million deficit. Legal, accounting and audit fees cost the company CA$17 million in 2015.

But Northern Dynasty has completed several recent financial maneuvers that will sustain Pebble's barrage of litigation for the long haul, said spokesman Sean Magee.

In recent years, Northern Dynasty announced the placement of almost 36 million special warrants, financial instruments that could convert to company stock. Proceeds were more than $13 million.

A Barbados-based investment company called Stirling Global Value Fund Inc. acquired many of the special warrants, regulatory filings show. Mine opponents have been wanting more information about the investors.

Last year, Northern Dynasty also announced private placements -- nonpublic share offerings -- that generated more than $20 million. Plus, it took over small mining firms Cannon Point Resources Ltd. and Mission Gold Ltd.

Rather than expanding the company beyond Pebble, the main idea was to increase its pool of investors. Cannon executive Gordon Keep and venture capitalist Marcel de Groot joined Northern Dynasty's board, which this year reduced its members to seven.

The company maintains an association with Hunter Dickinson Inc., a Vancouver-based mining group that creates and provides companies with technical and financial expertise. Pebble's executive chairman, Robert Dickinson, is chairman of Hunter Dickinson.

The present focus, Magee said, is to either beat EPA in court or reach a settlement that clears the way for entering the permitting process.

"We have the resources in place to do that, I think, and we continue to have confidence that we are going to see some resolution to the current situation," he said.

Nelli Williams, Alaska program deputy director for Trout Unlimited, a leading mine opponent, said local opposition only intensifies as the struggle drags on, arguing polls have shown a majority of Alaskans oppose Pebble.

"It clearly comes down to how much money they have and how much they want to push back against what local people want," she said during an interview.

Investor search

Ultimately, Northern Dynasty needs to find a partner with deep pockets like the ones it has lost in recent years to not only take Pebble into permitting but also build the mine.

In 2013, mining giant Anglo American PLC pulled out of the 50-50 Pebble partnership (Greenwire, Sept. 17, 2013). A year later, mining giant Rio Tinto PLC gave its nearly 20 percent stake in the Pebble mine to charity (Greenwire, April 7, 2014). Northern Dynasty has failed to find a new partner since.

"There's no doubt it will require a major mining company to be involved to take it into development," Magee said.

Northern Dynasty blames its financial woes on EPA's efforts at blocking or restricting Pebble. First, the agency's watershed assessment said the mine would harm Bristol Bay's valuable salmon fishery. Then EPA followed up with a proposed determination to limit development under Section 404 of the Clean Water Act, which governs dredge-and-fill permits.

Pebble accuses EPA of colluding with mine opponents in violation of the Federal Advisory Committee Act. The agency and its defenders have strongly denied the accusation.

"Executives at some multinational mining corporations -- which have the resources and expertise to responsibly develop this project -- have told me directly that they will not invest in the partnership while EPA is conducting a proceeding to veto it," Northern Dynasty CEO Ron Thiessen stated in a declaration for the case.

EPA turning the tables

EPA "suspects" Thiessen and Northern Dynasty are not telling the real story of why the effort to develop Pebble is facing financial constraints and lost partners (Greenwire, March 28).

This month, in a separate but related case over EPA documents, Judge Russel Holland ordered EPA to re-evaluate redacted papers after ruling the agency had "improperly" withheld others from Pebble (Greenwire, March 22).

EPA turned the tables last week in a court filing. The agency accused Pebble of withholding documents despite EPA's "narrowly and appropriately tailored" requests for correspondence with once and potential investors and local mine advocates.

Pebble has told the court it will only release documents "sufficient to show" the impact of EPA's "unlawful scheme," disputing the relevance of other items.

But the agency says, "Pebble refuses to produce basic financial documents that would provide the broader picture of Pebble's finances that is essential to determine the extent of any financial losses actually incurred by Pebble or whether Pebble's 'dire' financial status can be attributed to EPA's actions or, rather, to factors such as historically low mineral prices."

The mining sector -- both coal and non-coal -- is indeed enduring dark times. Commodity prices have slumped, and company share prices have plummeted.

According to testimony from two industry experts cited by EPA, Pebble's "current economic difficulties are predominantly attributable to the prolonged recession affecting the minerals market and the risk and uncertainty of the Pebble project itself, not action by EPA."

The risks to the mine's future include a devoted cadre of local opponents, including Alaska Natives, anglers and commercial fishermen.

EPA said Pebble's "curated" response glossed over this reality. "Pebble cannot on the one hand claim that financial harm is relevant when it is advantageous to Pebble in obtaining a preliminary injunction, but then argue financial harm is not relevant when it is no longer advantageous," EPA wrote.

EPA also wants Pebble to detail payments made to influential mine proponents, namely Alaska Natives, the region's dominant demographic.

Anti-mining Native corporations lodged the petition that spurred EPA's proposed action, but others have rallied around the mine's potential economic impact in an isolated region where many people still rely on hunting and fishing for subsistence.

EPA singled out potential payments to the Iliamna Development Corp. and Alaska Peninsula Corp., and figures like Iliamna's Lisa Reimers and Trefon Angasan, an Alutiiq leader who submitted a declaration in support of Pebble to the federal court. Pebble has agreed to confirm payments to certain third parties, but not the amounts, say court documents.

Viability

Alannah Hurley, a spokeswoman for the anti-mine United Tribes of Bristol Bay, said local opposition, not EPA, was warding off investors that now see the mine as too high-risk.

"The company realizes that this mine has no social, environmental or economic viability in this region," she said.

But the fight is far from over, she said. "We still have a company that is aggressively harassing and intimidating the people of Bristol Bay in the court system -- that is trying to misconstrue the history here with what's happened to their project."

For Northern Dynasty, Magee said a rebound for the commodity market appears to be on the horizon, promising renewed interest in Pebble.

"We're optimistic we will be partnered," he said. "And we've had some positive and ongoing engagement with a number of companies in recent months."

Investors will then just need regulatory certainty.

"We know and expect that Alaska and the United States is going to enforce very significant environmental standards and a rigorous permitting process," he said.

"I think both Northern Dynasty and the mining industry can accept that. It's really the uncertainty around the pre-emptive veto that has created the challenge."

Twitter: @DylanBrown26 Email: dbrown@eenews.net