Northern Dynasty’s Last Stand

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Pebble-location

Two experienced mining financiers are making a $4.7 million bet that one of the world’s largest and most controversial minerals deposits is about to turn a major corner.

Frank Giustra and Gord Keep’s Cannon Point Resources (CNP.TSXv) is being acquired by Northern Dynasty Minerals (NDM.T) for a touch over its cash value (C$4.7 million). Pro forma, the deal would give Cannon Point about 8% of Northern Dynasty.

Northern Dynasty owns 100% of the Pebble Deposit in Alaska. The project saw over C$750 million of investment over the past decade and contains a jaw-dropping 107 million ounces of gold, 80 billion pounds of copper, 5 billion pounds of molybdenum, and over 500 million ounces of silver* and showed robust economics at $1050 gold and $2.50 copper in a February 2011 PEA. Pebble is also vehemently opposed by the EPA, which began a process to veto the project in February 2014 and more recently has tried to impose development restrictions.

This is a simple bet on a settlement with the EPA, according to Keep. His advisors, with USA permitting and EPA experience, did due diligence before advising there is a potential likelihood that the EPA will compromise from its previous position.

gordon-keep
Gordon Keep

Through Freedom of Information Act proceedings, Northern Dynasty has obtained thousands of internal EPA documents. Some of the documents suggest potential collusion between the agency and environmental lobbyists (see WSJ, WaPo coverage) leading to allegations the EPA was helping to coordinate local opposition to the mine. Pebble is pursuing multiple legal, administrative, political and media strategies to unblock the threat of a potential veto and or restrictions, which would allow the project to pursue the normal permitting process.

Keep says there’s no guarantees the EPA will settle but feels the risk is justified for the “spectacular upside potential” of one of the world’s largest minerals deposits. A long term thinking major or state-supported end user may be interested in developing Pebble, Keep believes.

And that is just the outcome that Keep will be looking for. He hopes Northern Dynasty will be able to joint venture the Pebble asset favorably in the event the EPA plays ball. He is optimistic both can happen in under one year. It is also possible that a major may want to acquire the asset outright.

Anglo American had invested approx US $585 million of $1.5 billion to earn a 50% interest in Pebble from 2007-2013. It abandoned its interest in late 2013 on the back of a change in the CEO and a re-direction of priorities amid a weakening commodity price environment.

If the EPA is unable to proceed with its veto, the Army Corps of Engineers will conduct Pebble’s Environmental Assessment. Keep expects their science based approach to rule favorable for the project, despite the heavy scrutiny the project will be under. Keep also understands the project has strong social support in the communities closest to it. Of the vast sums invested in Pebble to-date, approximately $150 million was spent on the multi-year Environmental Baseline Document, one of the most comprehensive of its kind in the history of the mining industry.

The deal is a bit unusual for Keep and Giustra in that they are not taking control of Northern Dynasty. Cannon Point will have the right to nominate one board member.

Cannon Point will loan $4.25 million to Northern Dynasty at 15% per annum while the deal closes. Conditional to the deal, Northern Dynasty must raise an additional $10-$15 million.

We reached out to Northern Dynasty CEO Ron Thiessen for comment Thursday but were unable to reach him at press time.

Speculators will note an arbitrage opportunity in Cannon Point (CNP.TSXv) stock currently. The deal with Northern Dynasty values Cannon Point’s shares at a little over 15 cents, which last closed at 12 cents on Thursday. The author purchased some shares in Cannon Point at 12 cents on Tuesday, after the deal was announced, and as a result, is biased.

Follow Northern Dynasty at chat.ceo.ca/NDM and be first to know when our community is talking about the story, or any insider trades take place.

Disclaimer: Always do your own independent due diligence and talk to a licensed investment advisor prior to making any investment decision. This is not investment advice and may contain errors. Additionally, read Cannon Point and Northern Dynasty’s filings on www.SEDAR.com for a full picture of both companies, including their biggest risks.