UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16
OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
As at May 21, 2015
Commission File Number: 001-32210
NORTHERN DYNASTY MINERALS LTD.
(Translation of registrant's name into English)
15th Floor - 1040 W. Georgia St.
Vancouver, British Columbia
Canada V6E 4H1
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will
file annual reports under cover Form 20-F or Form 40-F.
[ x ]
Form 20-F [ ] Form 40-F
Indicate by check mark if the registrant is submitting the Form
6-K in paper as permitted by Regulation S-T Rule 101(b)(1): [ ]
Indicate by check mark if the registrant is submitting the
Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): [ ]
SUBMITTED HEREWITH
Exhibits
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
|
Northern Dynasty Minerals Ltd. |
|
(Registrant) |
|
|
|
Date: May 21, 2015 |
By: |
/s/ Marchand Snyman |
|
|
Marchand Snyman |
|
Title: |
Director, Chief Financial Officer |
CONDENSED CONSOLIDATED
INTERIM
FINANCIAL
STATEMENTS
THREE MONTHS ENDED
MARCH 31, 2015
(Expressed in thousands of Canadian Dollars)
(Unaudited)
Northern Dynasty Minerals
Ltd.
Condensed Consolidated Interim
Statements of Financial Position
(Unaudited - Expressed in
thousands of Canadian Dollars)
|
|
|
March 31 |
|
|
December 31 |
|
|
Notes |
|
2015 |
|
|
2014 |
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets |
|
|
|
|
|
|
|
Mineral property, plant and equipment |
3 |
$ |
134,896 |
|
$ |
123,608 |
|
Total non-current assets |
|
|
134,896 |
|
|
123,608 |
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
Available-for-sale financial assets |
4 |
|
193 |
|
|
287 |
|
Amounts receivable and prepaid expenses |
5 |
|
604 |
|
|
962 |
|
Restricted cash |
6 (b) |
|
1,276 |
|
|
1,206 |
|
Cash
and cash equivalents |
6 (a) |
|
6,018 |
|
|
9,447 |
|
Total current
assets |
|
|
8,091 |
|
|
11,902 |
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$ |
142,987 |
|
$ |
135,510 |
|
|
|
|
|
|
|
|
|
EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital and reserves |
|
|
|
|
|
|
|
Share capital |
7 |
$ |
393,365 |
|
$ |
389,227 |
|
Reserves |
|
|
94,749 |
|
|
84,031 |
|
Deficit |
|
|
(351,541 |
) |
|
(345,295 |
) |
Total Equity
|
|
|
136,573 |
|
|
127,963 |
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities |
|
|
|
|
|
|
|
Deferred income taxes |
|
|
195 |
|
|
1,514 |
|
Total non-current liabilities |
|
|
195 |
|
|
1,514 |
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
Payable to a related party |
8 (b) |
|
236 |
|
|
383 |
|
Trade
and other payables |
9 |
|
5,983 |
|
|
5,650 |
|
Total current
liabilities |
|
|
6,219 |
|
|
6,033 |
|
|
|
|
|
|
|
|
|
Total
Liabilities |
|
|
6,414 |
|
|
7,547 |
|
|
|
|
|
|
|
|
|
Total Equity
and Liabilities |
|
$ |
142,987 |
|
$ |
135,510 |
|
|
|
|
|
|
|
|
|
Continuance of Operations (note 1) |
|
|
|
|
|
|
|
Commitments (note 12) |
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
condensed consolidated interim financial statements.
These condensed consolidated interim financial statements are
signed on the Company's behalf by:
/s/ Ronald W. Thiessen |
/s/ Peter Mitchell |
|
|
Ronald W. Thiessen |
Peter Mitchell |
Director |
Director |
Page 2
Northern Dynasty Minerals
Ltd.
Condensed Consolidated Interim
Statements of Comprehensive (Income) Loss
(Unaudited - Expressed
in thousands of Canadian Dollars, except for share information)
|
|
|
Three months ended March 31 |
|
|
|
|
2015 |
|
|
2014 |
|
|
Notes |
|
|
|
|
(note 2(b)) |
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
Exploration and evaluation expenses |
11 |
$ |
2,074 |
|
$ |
4,028 |
|
General and administrative expenses |
11 |
|
1,816 |
|
|
2,670 |
|
Legal, accounting and audit |
|
|
3,248 |
|
|
155 |
|
Share-based compensation |
7 (c) |
|
360 |
|
|
2,099 |
|
Loss from operating activities |
|
|
7,498 |
|
|
8,952 |
|
Foreign exchange loss (gain) |
|
|
84 |
|
|
(230 |
) |
Interest income |
|
|
(18 |
) |
|
(241 |
) |
Loss before tax |
|
|
7,564 |
|
|
8,481 |
|
Deferred Income tax |
|
|
(1,318 |
) |
|
(18 |
) |
Loss for the
period |
|
$ |
6,246 |
|
$ |
8,463 |
|
|
|
|
|
|
|
|
|
Other comprehensive (income) loss |
|
|
|
|
|
|
|
Items that may be reclassified subsequently to loss
|
|
|
|
|
|
|
|
Foreign exchange translation gain |
7 (d) |
|
(11,182 |
) |
|
(4,403 |
) |
Decrease in fair value of available-for-sale financial assets |
4 |
|
92 |
|
|
|
|
Other
comprehensive income for the period |
|
$ |
(11,090 |
) |
$ |
(4,403 |
) |
|
|
|
|
|
|
|
|
Total
comprehensive (income) loss for the period |
|
$ |
(4,844 |
) |
$ |
4,060 |
|
|
|
|
|
|
|
|
|
Basic and
diluted loss per common share |
10 |
$ |
0.05 |
|
$ |
0.09 |
|
The accompanying notes are an integral part of these
condensed consolidated interim financial statements.
Page 3
Northern Dynasty Minerals
Ltd.
Condensed Consolidated Interim
Statements of Cash Flows
(Unaudited - Expressed in thousands of
Canadian Dollars)
|
|
|
Three months ended March 31 |
|
|
Notes |
|
2015 |
|
|
2014 |
|
|
|
|
|
|
|
|
|
Cash flows from operating activities |
|
|
|
|
|
|
|
Loss for the period |
|
$ |
(6,246 |
) |
$ |
(8,463 |
) |
Adjustments for items not affecting cash or
operating activities: |
|
|
|
|
|
|
|
Depreciation |
|
|
76 |
|
|
74 |
|
Deferred income tax recovery |
|
|
(1,318 |
) |
|
(18 |
) |
Foreign exchange loss (gain) |
|
|
84 |
|
|
(56 |
) |
Interest received on cash held |
|
|
(18 |
) |
|
(108 |
) |
Interest receivable on loan
prior to settlement |
|
|
|
|
|
(133 |
) |
Loss on disposal of plant and
equipment |
|
|
|
|
|
8 |
|
Share-based compensation |
|
|
360 |
|
|
2,099 |
|
|
|
|
(816 |
) |
|
1,866 |
|
Changes in non-cash working capital items |
|
|
|
|
|
|
|
Restricted cash |
|
|
37 |
|
|
|
|
Amounts receivable and prepaid
expenses |
|
|
364 |
|
|
63 |
|
Trade and other payables |
|
|
68 |
|
|
(670 |
) |
Payable to related party |
|
|
(147 |
) |
|
(158 |
) |
|
|
|
322 |
|
|
(765 |
) |
|
|
|
|
|
|
|
|
Net cash used in
operating activities |
|
|
(6,740 |
) |
|
(7,362 |
) |
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
Acquisition of plant and equipment |
3 |
|
(28 |
) |
|
|
|
Interest received on cash held |
|
|
18 |
|
|
108 |
|
Net cash (used in)
from investing activities |
|
|
(10 |
) |
|
108 |
|
|
|
|
|
|
|
|
|
Cash flows from financing activity |
|
|
|
|
|
|
|
Special Warrants issued, net of issuance costs |
7 (b) |
|
3,406 |
|
|
|
|
Net cash from
financing activity |
|
|
3,406 |
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
(3,344 |
) |
|
(7,254 |
) |
Effect of exchange rate fluctuations on cash
held |
|
|
(85 |
) |
|
85 |
|
Cash
and cash equivalents at beginning of the period |
|
|
9,447 |
|
|
25,795 |
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents at end of the period |
6 (a) |
$ |
6,018 |
|
$ |
18,626 |
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
The Company converted Special Warrants on a one-for-one
basis into common shares at no additional cost to holder (note 7(b)) |
|
|
|
|
|
|
|
The Group received
title to mineral claims in settlement of a loan receivable in 2014 (note
3) |
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
condensed consolidated interim financial statements.
Page 4
NorthernDynastyMineralsLtd.
CondensedConsolidatedInterimStatements of Changesin
Equity
(Unaudited - Expressed in thousands of Canadian Dollars,
except for share information)
|
|
Share capital |
|
|
Reserves |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
settled |
|
|
Foreign |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
share- |
|
|
currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
based |
|
|
translation |
|
|
Investment |
|
|
Special |
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
payments |
|
|
reserve |
|
|
revaluation |
|
|
Warrants |
|
|
|
|
|
Total |
|
|
|
shares |
|
|
Amount |
|
|
reserve |
|
|
(note 7(d)) |
|
|
reserve |
|
|
(note 7(b)) |
|
|
Deficit |
|
|
equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2014 |
|
95,009,864 |
|
$ |
389,227 |
|
$ |
51,417 |
|
$ |
7,234 |
|
$ |
(2 |
) |
$ |
|
|
$ |
(313,948 |
) |
$ |
133,928 |
|
Share-based compensation |
|
|
|
|
|
|
|
2,099 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,099 |
|
Loss for the period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,463 |
) |
|
(8,463 |
) |
Other comprehensive income for the period |
|
|
|
|
|
|
|
|
|
|
4,403 |
|
|
|
|
|
|
|
|
|
|
|
4,403 |
|
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,060 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2014 |
|
95,009,864 |
|
$ |
389,227 |
|
$ |
53,516 |
|
$ |
11,637 |
|
$ |
(2 |
) |
$ |
|
|
$ |
(322,411 |
) |
$ |
131,967 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2015 |
|
95,009,864 |
|
$ |
389,227 |
|
$ |
55,294 |
|
$ |
17,179 |
|
$ |
6 |
|
$ |
11,552 |
|
$ |
(345,295 |
) |
$ |
127,963 |
|
Conversion of Special Warrants into common
shares (note 7(b)) |
|
9,943,589 |
|
|
4,138 |
|
|
|
|
|
|
|
|
|
|
|
(4,138 |
) |
|
|
|
|
|
|
Special warrants issued, net of transaction
costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,406 |
|
|
|
|
|
3,406 |
|
Share-based compensation |
|
|
|
|
|
|
|
360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
360 |
|
Loss for the period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,246 |
) |
|
(6,246 |
) |
Other comprehensive income for the period |
|
|
|
|
|
|
|
|
|
|
11,182 |
|
|
(92 |
) |
|
|
|
|
|
|
|
11,090 |
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2015 |
|
104,953,453 |
|
$ |
393,365 |
|
$ |
55,654 |
|
$ |
28,361 |
|
$ |
(86 |
) |
$ |
10,820 |
|
$ |
(351,541 |
) |
$ |
136,573 |
|
The accompanying notes are an
integral part of these condensed
consolidated interim financial
statements.
Page 5
Northern Dynasty
Minerals Ltd. |
Notes to the Condensed Consolidated
Interim Financial Statements |
For the three months ended March 31, 2015 and 2014 |
(Unaudited
Expressed in thousands of Canadian Dollars, unless otherwise stated,
except per share or option) |
|
1. |
NATURE AND CONTINUANCE OF
OPERATIONS |
|
|
|
Northern Dynasty Minerals Ltd. (the "Company") is
incorporated under the laws of the Province of British Columbia, Canada,
and its principal business activity is the exploration of mineral
properties. The Company is listed on the Toronto Stock Exchange ("TSX")
under the symbol "NDM" and on the New York Stock Exchange-MKT ("NYSE-
MKT") under the symbol "NAK". The Companys corporate office is located at
1040 West Georgia Street, 15th floor, Vancouver, British
Columbia. |
|
|
|
The condensed consolidated interim financial statements
("Financial Statements") of the Company as at and for the period ended
March 31, 2015, include financial information for the Company and its
subsidiaries (note 2(c)) (together referred to as the "Group" and
individually as "Group entities"). The Company is the ultimate parent. The
Groups core mineral property interest is the Pebble
Copper-Gold-Molybdenum Project (the "Pebble Project") located in Alaska,
United States of America ("USA" or "US"). |
|
|
|
The Group is in the process of exploring and developing
the Pebble Project and has not yet determined whether the Pebble Project
contains mineral reserves that are economically recoverable. The Groups
continuing operations, and the underlying value and recoverability of the
amounts shown for the Groups mineral property interest, are entirely
dependent upon the existence of economically recoverable mineral reserves;
the ability of the Group to obtain financing to complete the exploration
and development of the Pebble Project; the Group obtaining the necessary
permits to mine; and future profitable production or proceeds from the
disposition of the Pebble Project. |
|
|
|
As at March 31, 2015, the Group had $6.0 million in cash
and cash equivalents for its operating requirements. The Group has
prioritized the allocation of available financial resources in order to
meet key corporate and Pebble Project expenditure requirements in the near
term. Additional financing will be required in order to progress any
material expenditures at the Pebble Project. Additional financing may
include any of or a combination of debt equity and/or contributions from
possible new Pebble Project participants. There can be no assurances that
the Group will be successful in obtaining additional financing. If the
Group is unable to raise the necessary capital resources and generate
sufficient cash flows to meet obligations as they come due, the Group may,
at some point, consider reducing or curtailing its operations. As such
there is material uncertainty that casts substantial doubt about the
Companys ability to continue as a going concern. |
|
|
|
In July 2014, the United States Environmental Protection
Agency (the "EPA") announced a proposal under Section 404(c) of the Clean
Water Act to restrict and impose limitations on all discharges of dredged
or fill material ("EPA Action") associated with mining the Pebble deposit.
The Company believes that the EPA does not have the statutory authority to
impose conditions on the development at Pebble prior to the submission of
a detailed development plan and its thorough review by federal and state
agencies, including review under the National Environmental Protection Act
("NEPA"). The Pebble Limited Partnership (the Pebble Partnership), a
wholly-owned subsidiary of the Company, along with the State of Alaska and
the Alaska Peninsula Corporation, an Alaska Native village corporation
with extensive land holdings in the Pebble Project area, filed for an
injunction to stop the EPA Action with the US Federal Court in Alaska (the
"Court"). However, the Court has deferred judgment thereon until the EPA
has issued a final determination. The Company has appealed the Courts
decision to the 9th Circuit Court of Appeals. In September
2014, the Pebble Partnership initiated a second action against the EPA in
federal district court in Alaska charging that the EPA violated the
Federal Advisory Committee Act ("FACA"). In November 2014, the U.S.
federal court judge in Alaska granted, in relation to the FACA case, the
Pebble Partnerships request for a preliminary injunction, which, although
considered by the Company as a significant procedural milestone in the
litigation, does not resolve the Pebble Partnerships claims that the EPA
Actions with respect to the Bristol Bay Assessment and subsequent 404(c)
regulatory process violated FACA. The Company expects its legal rights
will be upheld by the Court and that the Company will ultimately be able
to apply for the necessary permits under NEPA. |
Page 6
Northern Dynasty
Minerals Ltd. |
Notes to the Condensed Consolidated
Interim Financial Statements |
For the three months ended March 31, 2015 and 2014 |
(Unaudited
Expressed in thousands of Canadian Dollars, unless otherwise stated,
except per share or option) |
|
2. |
SIGNIFICANT ACCOUNTING
POLICIES |
(a) |
Statement of Compliance |
|
|
|
These Financial Statements have been prepared in
accordance with IAS 34, Interim Financial Reporting, as issued by
the International Accounting Standards Board ("IASB") and interpretations
issued by the IFRS Interpretations Committee ("IFRIC"s). They do not
include all of the information required by International Financial
Reporting Standards ("IFRS") for complete annual financial statements, and
should be read in conjunction with the Groups consolidated financial
statements as at and for the year ended December 31, 2014, which were
filed under the Companys profile on SEDAR at www.sedar.com. Accordingly, accounting policies
applied other than as noted in (e) below are the same as those applied in
the Groups annual financial statements. These Financial Statements were
authorized for issue by the Audit and Risk Committee of the Board of
Directors on May 14, 2015. |
|
|
(b) |
Basis of Preparation |
|
|
|
These Financial Statements have been prepared on a
historical cost basis using the accrual basis of accounting, except for
cash flow information and for financial instruments classified as
available-for-sale, which are stated at their fair value. |
|
|
|
Comparative information in the statement of loss and
comprehensive loss has been adjusted to separately reflect legal,
accounting and audit expenditures incurred by the Group in response to the
EPA`s activities surrounding the Pebble Project. These expenditures were
previously included under general and administrative expenditures. There
is no impact on loss and comprehensive loss for the period or basic and
diluted loss per share. Statements of financial position, cash flows and
changes in equity are not affected. |
|
|
(c) |
Basis of Consolidation |
|
|
|
These Financial Statements incorporate the financial
statements of the Company, the Companys subsidiaries and entities
controlled by the Company and its subsidiaries listed
below: |
Name of
Subsidiary |
Place of
Incorporation |
|
Principal Activity |
Ownership |
0796412 BC Ltd.
|
British
Columbia, Canada |
|
Not active. Wholly-owned
subsidiary of the Company. |
100%
|
3537137 Canada Inc.1
|
Canada
|
|
Holding Company. Wholly-owned subsidiary of
the Company. |
100%
|
Pebble Services Inc.
|
Nevada, USA
|
|
Management and services
company. Wholly-owned subsidiary of the Company. |
100%
|
Northern Dynasty Partnership
|
Alaska, USA
|
|
Holds 99.9% of the Pebble Limited
Partnership ("PLP") and 100% of Pebble Mines Corp. |
100% (indirect)
|
Pebble Limited Partnership
|
Alaska, USA
|
|
Holding Company and Exploration
of the Pebble Project. |
100%
(indirect) |
Pebble Mines Corp.
|
Delaware, USA
|
|
General Partner. Holds 0.1% of PLP. |
100% (indirect) |
Pebble West Claims Corporation 2
|
Alaska, USA
|
|
Holding Company. Wholly-owned
subsidiary of PLP. |
100%
(indirect) |
Pebble East Claims Corporation 3
|
Alaska, USA
|
|
Holding Company. Wholly-owned subsidiary of
PLP. |
100% (indirect) |
U5
Resources Inc.4
|
Nevada, USA
|
|
Holding Company. Wholly-owned subsidiary of the
Company. |
100%
|
Page 7
Northern Dynasty
Minerals Ltd. |
Notes to the Condensed Consolidated
Interim Financial Statements |
For the three months ended March 31, 2015 and 2014 |
(Unaudited
Expressed in thousands of Canadian Dollars, unless otherwise stated,
except per share or option) |
|
Notes to the table above:
|
1. |
Holds 20% interest in the Northern Dynasty Partnership.
The Company holds the remaining 80% interest. |
|
2. |
Holds certain of the Pebble Project claims. |
|
3. |
Holds certain of the Pebble Project claims and claims
located south and west of the Pebble Project claims. In January 2015, two
of the Companys wholly-owned subsidiaries, Kaskanak Inc. and its
wholly-owned parent, Kaskanak Copper LLC, were merged with Pebble East
Claims Corporation, with the latter surviving the merger. |
|
4. |
Holds certain mineral claims located north of the Pebble
Project claims. |
(d) |
Significant Accounting Estimates and
Judgments |
|
|
|
There was no change in the use of estimates and judgments
during the current period as compared to those described in Note 2 in the
Groups Consolidated Financial Statements for the year ended December 31,
2014. |
|
|
(e) |
Amendments, Interpretations, Revised and New Standards
Adopted by the Group |
|
|
|
As of January 1, 2015 the Group has not adopted any new
amendments, interpretations, revised and new standards. |
|
|
(f) |
Accounting Standards, Amendments and Revised Standards
Not Yet Effective |
|
|
|
Effective for the Groups financial year commencing on
January 1, 2016 |
|
|
Amendments to IAS 1, Presentation of
Financial Statements |
|
|
Amendments to IAS 16, Property, Plant and
Equipment |
|
|
Amendments to IAS 27, Separate Financial
Statements |
|
|
Amendments to IAS 28, Investments in
Associates |
|
|
Amendments to IAS 38, Intangible Assets
|
|
|
Amendments to IFRS 10, Consolidated
Financial Statements |
|
|
Amendments to IFRS 11, Joint
Arrangements |
The Group has not early adopted these
revised standards and is currently assessing the impact, if any, that these
amendments will have on the Groups Financial Statements.
Effective for annual periods
commencing on or after July 1, 2016
|
|
Annual improvements to IFRS 2012 2014
Cycle ("AIP 2012-2014") |
The Group anticipates that AIP
2012-2014, which has amendments to five standards, will have no material effect
on the Groups consolidated financial statements.
Effective for annual periods
commencing on or after January 1, 2018
|
|
IFRS 9, Financial Instruments ("IFRS 9"), replaces
IAS 39, Financial Instruments: Recognition and Measurement, in its
entirety. The standard incorporates a number of improvements: a) includes
a logical model for classification and measurement (IFRS 9 provides for
principle-based approach to classification which is driven by cash flow
characteristics and the business model in which an asset is held); b)
includes a single, forward-looking "expected loss" impairment model (IFRS
9 will require entities to account for expected credit losses from when
financial instruments are first recognized and to recognize full lifetime
expected losses on a timely basis); and c) includes a
substantially-reformed model for hedge accounting with enhanced
disclosures about risk management activity (IFRS 9s new model aligns the
accounting treatment with risk management activities). IFRS 9 is effective for
annual periods beginning on or after 1 January 2018 with early adoption
permitted. |
Page 8
Northern Dynasty
Minerals Ltd. |
Notes to the Condensed Consolidated
Interim Financial Statements |
For the three months ended March 31, 2015 and 2014 |
(Unaudited
Expressed in thousands of Canadian Dollars, unless otherwise stated,
except per share or option) |
|
The Group anticipates that the adoption
of IFRS 9 will have no material impact on its financial statements given the
extent of its current use of financial instruments in the ordinary course of
business.
|
|
IFRS 15, Revenue from Contracts with Customers
("IFRS 15"), which was issued by the IASB in May 2014, supersedes IAS
11, Construction Contracts, IAS 18, Revenue, IFRIC 13,
Customer Loyalty Programs, IFRIC 15, Agreements for the
Construction of Real Estate, IFRIC 18, Transfers of Assets from
Customers, and SIC 31, Revenue Barter Transactions
involving Advertising Services. IFRS 15 establishes a single five-step
model framework for determining the nature, amount, timing and certainty
of revenue and cash flows arising from a contract with a customer. IFRS 15
is effective for annual periods beginning on or after January 1, 2017,
with early adoption permitted. On April 28, 2015, the IASB tentatively
decided to defer the effective date of IFRS 15 by one year with a narrow
scope exposure draft to be issued for comment thereon.
|
|
The Group anticipates that the adoption of IFRS 15 will
have no material impact on its financial statements given the extent of
revenue from contracts with customers in the ordinary course of
business. |
|
|
3. |
MINERAL PROPERTY, PLANT AND
EQUIPMENT |
|
|
|
The Groups exploration and evaluation assets are
comprised of the following: |
|
Three months ended
March 31, 2015 |
|
Mineral property |
|
|
Plant and |
|
|
Total |
|
|
|
|
interest |
|
|
equipment |
|
|
|
|
|
Cost |
|
|
|
|
|
|
|
|
|
|
Beginning balance |
$ |
112,541 |
|
$ |
1,155 |
|
$ |
113,696 |
|
|
Additions |
|
|
|
|
28 |
|
|
28 |
|
|
Ending balance |
$ |
112,541 |
|
$ |
1,183 |
|
$ |
113,724 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
depreciation |
|
|
|
|
|
|
|
|
|
|
Beginning balance |
$ |
|
|
$ |
(278 |
) |
$ |
(278 |
) |
|
Charge for the period |
|
|
|
|
(76 |
) |
|
(76 |
) |
|
Ending balance |
$ |
|
|
$ |
(354 |
) |
$ |
(354 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation difference |
|
21,343 |
|
|
183 |
|
|
21,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net carrying value Ending balance |
$ |
133,884 |
|
$ |
1,012 |
|
$ |
134,896 |
|
Page 9
Northern Dynasty
Minerals Ltd. |
Notes to the Condensed Consolidated
Interim Financial Statements |
For the three months ended March 31, 2015 and 2014 |
(Unaudited
Expressed in thousands of Canadian Dollars, unless otherwise stated,
except per share or option) |
|
|
Three months ended March 31,
2014 |
|
Mineral property |
|
|
Plant and |
|
|
Total |
|
|
|
|
interest |
|
|
equipment |
|
|
|
|
|
Cost |
|
|
|
|
|
|
|
|
|
|
Beginning balance |
$ |
106,697 |
|
$ |
1,222 |
|
$ |
107,919 |
|
|
Additions(1) |
|
5,844 |
|
|
|
|
|
5,844 |
|
|
Disposals |
|
|
|
|
(65 |
) |
|
(65 |
) |
|
Ending balance |
$ |
12,541 |
|
$ |
1,157 |
|
$ |
113,698 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
depreciation |
|
|
|
|
|
|
|
|
|
|
Beginning balance |
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge for the period |
|
|
|
|
(74 |
) |
|
(74 |
) |
|
Eliminated on disposal |
|
|
|
|
5 |
|
|
5 |
|
|
Ending balance |
$ |
|
|
$ |
(69 |
) |
$ |
(69 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation difference |
$ |
4,293 |
|
$ |
47 |
|
$ |
4,340 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net carrying value Ending balance |
$ |
116,834 |
|
$ |
,135 |
|
$ |
117,969 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net carrying value Beginning balance |
$ |
106,827 |
|
$ |
1,223 |
|
$ |
108,050 |
|
|
(1) |
Additions to mineral property interest during the
three-month period ended March 31, 2014, represent the transfer to the
Group of a 100% interest in certain mineral claims located north and north
west of the Pebble Project in settlement of a loan to a third
party. |
|
The Groups mineral property represents the Pebble
Project and adjacent mineral claims, located in southwest Alaska, 19 miles
(30 kilometers) from the villages of Iliamna and Newhalen, and
approximately 200 miles (320 kilometers) southwest of the city of
Anchorage. Mineral rights relating to the Pebble Project were acquired by
the Group in 2001. In July 2007, the Group established the Pebble Limited
Partnership (the "Pebble Partnership") to advance the Pebble Project
toward the feasibility stage. The Groups contribution to the Pebble
Partnership was the Pebble Project. Until December 2013, the Pebble
Partnership was under joint control and funded by the Group`s partner who
provided approximately $595 million (US$573 million) in funding. The Group
reacquired a 100% interest in the Pebble Partnership and control of the
Pebble Project in December 2013. |
|
|
4. |
AVAILABLE-FOR-SALE FINANCIAL
ASSETS |
|
|
|
The Groups available-for-sale financial asset is
comprised of investments in marketable securities of Canadian publicly
listed companies. |
|
|
|
March 31 |
|
|
December 31 |
|
|
|
|
2015 |
|
|
2014 |
|
|
Marketable securities |
$ |
193 |
|
$ |
287 |
|
The Group has determined the fair value
of the marketable securities that comprise its available-for-sale financial
assets using their quoted market prices, which are level 1 inputs in the fair
value hierarchy.
Page 10
Northern Dynasty
Minerals Ltd. |
Notes to the Condensed Consolidated
Interim Financial Statements |
For the three months ended March 31, 2015 and 2014 |
(Unaudited
Expressed in thousands of Canadian Dollars, unless otherwise stated,
except per share or option) |
|
5. |
AMOUNTS RECEIVABLE AND PREPAID
EXPENSES |
|
|
|
March 31 |
|
|
December 31 |
|
|
|
|
2015 |
|
|
2014 |
|
|
Sales tax receivable |
$ |
76 |
|
$ |
70 |
|
|
Amounts receivable |
|
86 |
|
|
143 |
|
|
Prepaid expenses |
|
442 |
|
|
749
|
|
|
Total |
$ |
604 |
|
$ |
962 |
|
6. |
CASH AND
CASH EQUIVALENTS AND RESTRICTED CASH |
|
|
(a) |
Cash and
Cash Equivalents |
|
|
|
March 31 |
|
|
December 31 |
|
|
|
|
2015 |
|
|
2014 |
|
|
Business and savings accounts |
$ |
5,700 |
|
$ |
9,130 |
|
|
Guaranteed investment certificates |
|
318 |
|
|
317
|
|
|
Total |
$ |
6,018 |
|
$ |
9,447 |
|
(b) |
Restricted Cash |
|
|
|
At March 31, 2015, restricted cash in the amount of
$1,276 (December 31, 2014 $1,206) was held by the Pebble Partnership for
certain equipment demobilization expenses relating to its activities
undertaken when it was subject to joint control. This cash is not
available for general use by the Group. The Group has a current obligation
(note 9) to refund any unutilized balance upon the earlier of (i) sixty
days from the date of completion of demobilization and (ii) December 31,
2015. |
7. |
CAPITAL
AND RESERVES |
|
|
(a) |
Authorized
Share Capital |
|
|
|
At March 31, 2015, the Companys authorized share capital
comprised an unlimited (2014 unlimited) number of common shares with no
par value. All issued shares are fully paid. |
|
|
(b) |
Special Warrants
|
|
|
|
In December 2014, the Company initiated a private
placement financing (the Private Placement) of 35,962,735 share purchase
warrants (the "Special Warrants") at a price of $0.431 per Special Warrant
for gross proceeds of approximately $15,500, of which $11,905 was received
in December 2014 and $3,595 was received in January 2015. The Group
incurred a total of $542 in advisory, finders, regulatory, and legal fees
on the Private Placement, of which $353 was incurred in December 2014 and
$189 in January 2015. |
Page 11
Northern Dynasty
Minerals Ltd. |
Notes to the Condensed Consolidated
Interim Financial Statements |
For the three months ended March 31, 2015 and 2014 |
(Unaudited
Expressed in thousands of Canadian Dollars, unless otherwise stated,
except per share or option) |
|
|
Continuity of
Special Warrants |
|
Number |
|
|
Balance at January 1, 2015 |
|
27,622,642 |
|
|
Issued January 2, 2015 |
|
1,160,093 |
|
|
Issued January 12, 2015 |
|
7,180,000 |
|
|
Automatic
conversion |
|
(9,943,589 |
) |
|
Balance at March 31, 2015 |
|
26,019,146 |
|
|
Each Special Warrant will convert, without payment of any
additional consideration by the holder, into one common share of the
Company, either at the option of the holder or automatically within a
maximum of a two year period from the issuance date. During the three
month period ended March 31, 2015, the Company issued 9,943,589 of its
common shares upon the automatic conversion of 9,943,589 Special
Warrants. |
|
|
|
The Special Warrants do not confer on their holders any
right as a shareholder of the Company, including but not limited to any
right to vote at any meeting of shareholders or any other proceedings of
the Company, other than meetings by holders of Special Warrants, or any
right to receive any dividend or other distribution. |
|
|
(c) |
Share Purchase Option Compensation
Plan |
|
|
|
The following reconciles share purchase options
("Options") outstanding for the three months ended March 31, 2015 and
2014: |
|
|
|
2015 |
|
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
average |
|
|
|
|
|
|
|
average |
|
|
|
|
|
exercise |
|
|
|
|
Number of |
|
|
exercise price |
|
|
Number of |
|
|
price |
|
|
Continuity of
Options |
|
Options |
|
|
($/Option) |
|
|
Options |
|
|
($/Option) |
|
|
Balance at beginning of period |
|
7,687,000 |
|
|
1.95 |
|
|
3,735,700 |
|
|
4.13 |
|
|
Granted |
|
|
|
|
|
|
|
4,494,600 |
|
|
1.77 |
|
|
Expired |
|
|
|
|
|
|
|
(1,825,100 |
) |
|
5.13 |
|
|
Forfeited |
|
(110,000 |
) |
|
2.53 |
|
|
(500 |
) |
|
1.77 |
|
|
Balance at end
of period |
|
7,577,000 |
|
|
1.94 |
|
|
6,404,700 |
|
|
2.19 |
|
For the Options granted during the
three month period ended on March 31, 2014, the weighted average fair value was
estimated at $0.85 per option and was based on the Black-Scholes option pricing
model using the following weighted average assumptions:
Assumptions
|
|
|
|
Risk-free interest rate |
|
1.50% |
|
Expected life |
|
4.45 years |
|
Expected volatility |
|
68% |
|
Grant date share price |
|
$1.65 |
|
Expected dividend yield |
|
Nil |
|
The following table summarizes
information about Options outstanding at March 31, 2015:
Page 12
Northern Dynasty
Minerals Ltd. |
Notes to the Condensed Consolidated
Interim Financial Statements |
For the three months ended March 31, 2015 and 2014 |
(Unaudited
Expressed in thousands of Canadian Dollars, unless otherwise stated,
except per share or option) |
|
|
|
|
Options outstanding |
|
|
Options exercisable |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Weighted |
|
|
average |
|
|
|
|
|
Weighted |
|
|
average |
|
|
|
|
|
|
|
average |
|
|
remaining |
|
|
|
|
|
average |
|
|
remaining |
|
|
Exercise |
|
Number of |
|
|
exercise |
|
|
contractual |
|
|
Number of |
|
|
exercise |
|
|
contractual |
|
|
prices |
|
Options |
|
|
price |
|
|
life |
|
|
Options |
|
|
price |
|
|
life |
|
|
($) |
|
outstanding |
|
|
($/Option) |
|
|
(years) |
|
|
exercisable |
|
|
($/Option) |
|
|
(years) |
|
|
0.72 |
|
200,000 |
|
|
0.72 |
|
|
4.46 |
|
|
66,667 |
|
|
0.72 |
|
|
4.46 |
|
|
0.89 |
|
1,180,500 |
|
|
0.89 |
|
|
3.95 |
|
|
401,834 |
|
|
0.89 |
|
|
3.96 |
|
|
1.77 |
|
4,412,400 |
|
|
1.77 |
|
|
3.39 |
|
|
4,412,400 |
|
|
1.77 |
|
|
3.39 |
|
|
3.00 |
|
1,757,100 |
|
|
3.00 |
|
|
0.79 |
|
|
1,757,100 |
|
|
3.00 |
|
|
0.79 |
|
|
15.44 |
|
27,000 |
|
|
15.44 |
|
|
0.96 |
|
|
27,000 |
|
|
15.44 |
|
|
0.96 |
|
|
|
|
7,577,000 |
|
|
1.94 |
|
|
2.89 |
|
|
6,665,001 |
|
|
2.09 |
|
|
2.74 |
|
(d) |
Foreign Currency
Translation Reserve |
|
|
|
The foreign currency translation reserve represents
accumulated exchange differences arising on the translation of the results
and net assets of the Pebble Partnership and U5 Resources Inc., which have
a US dollar functional currency, to the Groups reporting currency which
is the Canadian dollar. |
|
|
8. |
RELATED PARTY BALANCES AND TRANSACTIONS
|
|
|
|
Balances and transactions between the Company and its
subsidiaries, which are related parties of the Company, have been
eliminated on consolidation (note 2(c)). Details of transactions and
balance with other related parties are disclosed below: |
|
|
(a) |
Transactions and Balances with Key Management
Personnel |
|
|
|
The aggregate value of transactions with key management
personnel, being directors and senior management including the Senior Vice
President, Corporate Development, Vice President ("VP") Corporate
Communications, VP, Engineering, VP, Public Affairs, Chief Executive
Officer of the Pebble Partnership and Chairman of Pebble Mines Corp. was
as follows: |
|
|
|
Three months ended March 31 |
|
|
Compensation |
|
2015 |
|
|
2014 |
|
|
Short-term employee benefits (i) |
$ |
608 |
|
$ |
993 |
|
|
Share-based
compensation |
|
266 |
|
|
1,487 |
|
|
Total |
$ |
874 |
|
$ |
2,406 |
|
|
(i) |
Short-term employee benefits include salaries, directors
fees and amounts paid to HDSI (see (b)(i)) for services provided to the
Group by certain HDSI personnel who serve as executive directors and
officers for the Group. |
Page 13
Northern Dynasty
Minerals Ltd. |
Notes to the Condensed Consolidated
Interim Financial Statements |
For the three months ended March 31, 2015 and 2014 |
(Unaudited
Expressed in thousands of Canadian Dollars, unless otherwise stated,
except per share or option) |
|
(b) |
Transactions and Balances with other Related
Parties |
|
|
|
The aggregate value of transactions and outstanding
balances with other related parties were as
follows: |
|
|
|
Three months ended March 31 |
|
|
Transactions |
|
2015 |
|
|
2014 |
|
|
Entity with significant influence (i) |
|
|
|
|
|
|
|
Services rendered to the Group |
$ |
1,034 |
|
$ |
1,465 |
|
|
Reimbursement of
third party expenses incurred on behalf of the Group |
|
103 |
|
|
298 |
|
|
Total paid by
the Group |
$ |
1,137 |
|
$ |
1,763 |
|
|
|
|
March 31 |
|
|
December 31 |
|
|
Balances
payable to related parties |
|
2015 |
|
|
2014
|
|
|
Entity with
significant influence over the Group (i) |
$ |
236 |
|
$ |
383 |
|
|
Total |
$ |
236 |
|
$ |
383 |
|
|
(i) |
Hunter Dickinson Services Inc. ("HDSI"), a private
company, provides geological, corporate development, administrative and
management services to the Group and its subsidiaries at annually set
rates pursuant to a management services agreement. HDSI also incurs third
party costs on behalf of the Group which are reimbursed by the Group at
cost. The Group may make pre-payments for services under terms of the
services agreement. Several directors and other key management personnel
of HDSI, who are close business associates, are also key management
personnel of the Group. |
9. |
TRADE AND OTHER
PAYABLES |
|
|
|
March 31 |
|
|
December 31 |
|
|
Falling due
within the year |
|
2015 |
|
|
2014
|
|
|
Trade |
$ |
4,707 |
|
$ |
4,444 |
|
|
Other (note 6(b))
|
|
1,276 |
|
|
1,206
|
|
|
Total |
$ |
5,983 |
|
$ |
5,650 |
|
10. |
BASIC AND DILUTED LOSS PER SHARE |
|
|
|
The calculation of basic and diluted loss per share was
based on the following: |
|
|
|
Three months ended March 31 |
|
|
|
|
2015 |
|
|
2014 |
|
|
Loss attributable to common shareholders |
$ |
6,246 |
|
$ |
8,463 |
|
|
Weighted average
number of common shares outstanding and common share equivalents (000s) |
|
130,082 |
|
|
95,010 |
|
Due to their mandatory conversion
requirements with no additional payments, Special Warrants (note 7(b)) are
included in the calculation of basic loss per share. Diluted loss per share does
not include the effect of share purchase options outstanding as they are
anti-dilutive.
Page 14
Northern Dynasty
Minerals Ltd. |
Notes to the Condensed Consolidated
Interim Financial Statements |
For the three months ended March 31, 2015 and 2014 |
(Unaudited
Expressed in thousands of Canadian Dollars, unless otherwise stated,
except per share or option) |
|
11. |
EMPLOYMENT COSTS |
|
|
|
The amount of salaries and benefits included in expenses
are as follows: |
|
|
|
Three months ended March 31 |
|
|
|
|
2015 |
|
|
2014 |
|
|
Exploration and evaluation expenses |
$ |
507 |
|
$ |
981 |
|
|
General and administration expenses |
|
1,377 |
|
|
1,497 |
|
|
Share-based
compensation |
|
360 |
|
|
2,099 |
|
|
Total |
$ |
2,244 |
|
$ |
4,577 |
|
12. |
COMMITMENTS AND CONTINGENCIES |
|
|
|
The Group has the following commitments as of March 31,
2015: |
|
|
|
|
2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Post reporting |
|
|
|
|
|
|
|
|
|
|
|
|
|
period) |
|
|
|
2016 |
|
|
|
Total |
|
|
|
|
|
(000s) |
|
|
|
(000s) |
|
|
|
(000s) |
|
|
Anchorage office lease (i) |
US$ |
|
358 |
|
US$ |
|
407 |
|
US$ |
|
765 |
|
|
Anchorage communication lease (ii) |
|
|
48 |
|
|
|
|
|
|
|
48 |
|
|
Pebble Project site lease (iii) |
|
|
65 |
|
|
|
|
|
|
|
65 |
|
|
Total |
US$
|
|
471
|
|
US$
|
|
407
|
|
US$
|
|
878
|
|
|
Total in Canadian dollars (iv) |
$ |
|
597 |
|
$ |
|
516 |
|
$ |
|
1,113 |
|
|
(i) |
Original term of 5 years expires on October 31,
2016. |
|
|
|
|
(ii) |
Lease term expires on July 31, 2015. |
|
|
|
|
(iii) |
Lease for accommodation at site, expires on April 30,
2015. |
|
|
|
|
(iv) |
Converted at closing rate of $1.2666/US$ on March 31,
2015, as per Bank of Canada. |
The Group has a sub-lease agreement in
respect of a portion of the Anchorage office space subject to the operating
lease for an average annual rent of approximately US$218,000 ($277). The term of
the sub-lease expires on October 31, 2016.
Page 15
MANAGEMENT'S DISCUSSION AND
ANALYSIS
THREE MONTHS ENDED MARCH 31, 2015
Northern Dynasty Minerals Ltd.
|
Management's Discussion And
Analysis |
Three months
ended March 31, 2015 |
Table of Contents
1.1
Date
This Managements Discussion and Analysis ("MD&A") should
be read in conjunction with the unaudited interim financial statements ("Interim
Financial Statements") for the three months ended March 31, 2015 and the audited
consolidated financial statements and MD&A of Northern Dynasty Minerals Ltd.
("Northern Dynasty" or the "Company") for the year ended December 31, 2014 as
publicly filed under the Companys profile on SEDAR at www.sedar.com.
The Company reports in accordance with International Financial
Reporting Standards as issued by the International Accounting Standards Board
("IASB") and interpretations of the IFRS Interpretations Committee (together,
"IFRS"). The following disclosure and associated Financial Statements are
presented in accordance with IFRS. This MD&A is prepared as of May 14, 2015.
All dollar amounts herein are expressed in Canadian dollars, unless otherwise
specified.
Page 2
Northern Dynasty Minerals Ltd. |
Management's Discussion And
Analysis |
Three months
ended March 31, 2015 |
This discussion includes certain statements that may be deemed
"forward-looking statements" or "forward looking information" within the meaning
of Canadian and United States securities law. Wherever possible, words such as
plans, expects, or does not expect, budget, scheduled, estimates,
forecasts, anticipate or does not anticipate, believe, intend and
similar expressions or statements that certain actions, events or results may,
could, would, might or will be taken, occur or be achieved, have been
used to identify forward-looking information.
Forward-looking information may include, but is not limited to,
|
our expectations regarding permitting of a mine
at the Pebble Project; |
|
our expected financial performance in future
periods; |
|
our plan of operations, including our plans to
carry out exploration and development activities; |
|
our ability to raise capital for exploration
and development activities; |
|
our expectations regarding the exploration and
development potential of the Pebble Project; and |
|
factors relating to our investment decisions.
|
Forward-looking information is based on the reasonable
assumptions, estimates, analysis and opinions of management made in light of its
experience and its perception of trends, current conditions and expected
developments, as well as other factors that management believes to be relevant
and reasonable in the circumstances at the date that such statements are made,
but which may prove to be incorrect. We believe that the assumptions and
expectations reflected in such forward-looking information are reasonable.
Key assumptions upon which the Companys forward-looking
information are based include:
|
that the Company will ultimately be able to demonstrate
that a mine at the Pebble Project can be developed and operated in an
environmentally sound and socially responsible manner, meeting all
relevant federal, state and local regulatory requirements; |
|
that we will be ultimately able to obtain permitting for
a mine at the Pebble Project; |
|
that the market prices of copper and gold will not
decline significantly nor for a lengthy period of time; |
|
that we will be able to secure sufficient working capital
necessary for the continued environmental assessment and permitting
activities and engineering work which is a precondition to any potential
development of the Pebble Project which would then require engineering and
financing for ultimate construction; |
|
the cost of carrying out exploration and development
activities on the Pebble Project; |
|
that key personnel will continue their employment with
us; |
|
our ability to obtain the necessary expertise in order to
carry out our exploration and development activities within the planned
time periods; and |
|
our ability to obtain adequate financing on acceptable
terms. |
Readers are cautioned that the foregoing list is not exhaustive
of all factors and assumptions which may have been used.
Some of the risks and uncertainties that could cause actual
results to differ materially from those expressed in the forward-looking
statements include:
|
ability to obtain permitting for a mine at the
Pebble Project; |
|
ability to continue to fund the exploration and
development activities; |
|
the speculative nature of the mineral resource
exploration business; |
|
the exploration stage of the Pebble Project;
|
|
the lack of known reserves on the Pebble
Project; |
|
inability to establish that the Pebble Project
contains commercially viable deposits of ore; |
|
ability to recover the financial statement
carrying values of the Pebble Project if the Company ceases to continue on
a going concern basis; |
|
loss of the services of any of the Companys
executive officers; |
|
a history of financial losses; |
|
ability to continue on a going concern basis;
|
|
the volatility of gold, copper and molybdenum
prices; |
|
the
inherent risk involved in the exploration, development and production of
minerals; |
Page 3
Northern Dynasty Minerals Ltd. |
Management's Discussion And
Analysis |
Three months
ended March 31, 2015 |
|
changes in, or the introduction of new, government
regulations relating to mining, including laws and regulations relating to
the protection of the environment; |
|
the presence of unknown environmental hazards at the
Pebble Project; |
|
potential claims by third parties against the Pebble
Project; |
|
inability to insure our operations against all risks;
|
|
the highly competitive nature of the mining business;
|
|
litigation risks and the inherent uncertainty of
litigation; |
|
the historical volatility in the Companys share price;
|
|
potential conflicts of interest relating to the Companys
directors and officers; |
|
the potential dilution to current shareholders due to any
future equity financings; |
|
the loss of services of independent contractors; and
|
|
the potential dilution to current shareholders from the
exercise of share purchase options to purchase the Companys shares.
|
This list is not exhaustive for the factors that may affect any
of the Companys forward-looking statements or information. Forward-looking
statements or information are statements about the future and are inherently
uncertain, and actual achievements of the Company or other future events or
conditions may differ materially from those reflected in the forward-looking
statements or information due to a variety of risks, uncertainties and other
factors, including, without limitation, the risks and uncertainties described
above.
Our forward-looking statements are based on the reasonable
beliefs, expectations and opinions of management on the date of this MD&A.
Although we have attempted to identify important factors that could cause actual
results to differ materially from those contained in forward-looking
information, there may be other factors that cause results not to be as
anticipated, estimated or intended. There is no assurance that such information
will prove to be accurate, as actual results and future events could differ
materially from those anticipated in such information. Accordingly, readers
should not place undue reliance on forward-looking information.
Since Northern Dynasty acquired the Pebble Project in 2001, the
Company and subsequently the Pebble Limited Partnership completed significant
exploration programs, resource estimates, environmental data collection and
technical studies, and engineering of various possible mine development models
and related infrastructure, power and transportation systems. As a consequence
of several factors, including the US Environmental Protection Agency opposition
to the Pebble Project, the withdrawal of Anglo American plc from the project and
the passage of time, previous technical and engineering studies related to
mine-site and infrastructure development are considered to have very uncertain
and perhaps little value at this time. Environmental baseline studies and data
collection remain a significant legacy asset of the Company from this period.
For more information on the Company, investors should review
the Companys annual information form and home jurisdiction filings that are
available on SEDAR at www.sedar.com and the
Companys annual report on Form 20-F filed with the United States Securities
Exchange Commission (the "SEC") at www.sec.gov.
The Company reviews its forward looking statements on an
ongoing basis and updates this information when circumstances require it.
Page 4
Northern Dynasty Minerals Ltd. |
Management's Discussion And
Analysis |
Three months
ended March 31, 2015 |
Cautionary Note to Investors
Concerning Estimates of Measured and Indicated Resources |
The following section uses the terms "measured resources" and
"indicated resources". The Company advises investors that although those
terms are recognized and required by Canadian regulations, the SEC does
not recognize them. Investors are cautioned not to assume that all or
any part of mineral deposits in these categories will ever be
converted into reserves. |
Cautionary Note to Investors
Concerning Estimates of Inferred Resources |
The following section uses the term "inferred resources".
The Company advises investors that although this term is recognized and
required by Canadian regulations, the SEC does not recognize it. "Inferred
resources" have a great amount of uncertainty as to their existence, and
as to their economic and legal feasibility. It cannot be assumed that all
or any part of a mineral resource will ever be upgraded to a higher
category. Under Canadian rules, estimates of inferred mineral resources
may not form the basis of economic studies, except in rare cases.
Investors are cautioned not to assume that all or any part of an
inferred resource exists, or is economically or legally mineable.
|
1.2
Overview
Northern Dynasty is a mineral exploration company which, via
its subsidiaries, holds a 100% interest in mining claims on State of Alaska land
in southwest Alaska, USA ("US") that are part of or in the vicinity of the
Pebble Copper-Gold-Molybdenum Project (the "Pebble Project" or Pebble).
The Pebble Project is an initiative to develop one of the
worlds most important mineral resources when measured by aggregate contained
metals. Current mineral resources in the Pebble deposit at a 0.30% copper
equivalent (CuEQ)1 cut-off grade comprise:
|
6.44 billion tonnes of Measured and Indicated Mineral
Resources grading 0.40% copper, 0.34 g/t gold, 240 ppm molybdenum and 1.66
g/t silver, containing 57 billion pounds of copper, 70 million ounces of
gold, 3.4 billion pounds of molybdenum and 344 million ounces of silver;
and |
|
|
|
4.46 billion tonnes of Inferred Mineral Resources grading
0.25% copper, 0.26 g/t gold, 222 ppm molybdenum and 1.19 g/t silver,
containing 24.5 billion pounds of copper, 37 million ounces of gold, 2.2
billion pounds of molybdenum and 170 million ounces of silver.
|
Over $797 million has been invested to advance the project, of
which approximately $595 million (US$573 million) was provided by a wholly-owned
subsidiary of Anglo American plc which participated in the Pebble Limited
Partnership (the "Pebble Partnership") from 2007 to 20132, and the
remainder from 2001 to mid-2007 directly by Northern Dynasty.
The work has included comprehensive deposit delineation, and
environmental, socioeconomic and engineering studies of the Pebble deposit. A
review of previous analyses of the Pebble Project was initiated in late 2013. In
2014, the Company commissioned a technical report to provide updated information
on the mineral resources and metallurgy for the project.
_____________________________________________
1
For additional details, see section 1.2.1 below.
2 During
the period 2007 to 2013, the Pebble Partnership expended several hundred million
dollars on the Pebble Project, a major portion of which was spent on exploration
programs, resource estimates, environmental data collection and technical
studies, with a significant portion spent on engineering of various possible
mine development models, as well as related infrastructure, power and
transportation systems. As a consequence of several factors, including the EPA
opposition to the Pebble Project, the withdrawal of Anglo American plc from the
project and the passage of time, technical and engineering studies related to
mine-site and infrastructure development are considered to have very uncertain
and perhaps little value at this time. Environmental baseline studies and data
collection remains a significant legacy asset of the Company from this
period.
Page 5
Northern Dynasty Minerals Ltd. |
Management's Discussion And
Analysis |
Three months
ended March 31, 2015 |
In February 2014, the US Environmental Protection Agency (the
"EPA") announced the initiation of a regulatory process under the Clean Water
Act to consider restriction or a prohibition on mining activities associated
with the Pebble deposit. Much of the Companys effort since that time has been
focused around providing information and responses to this action through the
Pebble Partnership.
In 2015, the Company is:
|
engaged in a multi-dimensional strategy, described in
section 1.2.1.2 below, to address the EPAs pre-emptive regulatory process
under Section 404(c) of the Clean Water Act and prepare documentation to
position the Pebble Project to initiate federal and state permitting under
National Environmental Policy Act ("NEPA"); |
|
|
|
continuing to maintain an active corporate presence in
Alaska to advance relationships with political and regulatory offices of
government, Alaska Native partners and other stakeholder groups; and
|
|
|
|
working to advance a potential partner(s) transaction.
|
Maintenance and environmental monitoring activities were
carried out at the Pebble Project site during the quarter and will continue
throughout the year. In addition in January 2015, the Company completed the
final tranche of a $15.5 million financing, of which $11.9 million was closed in
December 2014.
At March 31, 2015, Northern Dynasty has $6.0 million in cash
and cash equivalents available for its operating requirements. The Company
continues to seek additional financing and has prioritized the allocation of
available financial resources in order to meet key corporate and Pebble Project
expenditure requirements in the near term. Additional financing may include any
of or a combination of, debt, equity and/or contributions from possible new
Pebble Project participants. Additional financing will be required to progress
any material work programs at the Pebble Project. There can be no assurances
that the Company will be successful in obtaining additional financing. If the
Company is unable to raise the necessary capital resources to meet obligations
as they come due, the Company will at some point have to reduce or curtail its
operations.
1.2.1 Pebble
Project
The Pebble property ("Pebble") is located in southwest Alaska,
approximately 17 miles (27 kilometers) from the villages of Iliamna and
Newhalen, and approximately 200 miles (320 kilometers) southwest of the city of
Anchorage. The property consists of 2,402 mineral claims. Situated approximately
1,000 feet above sea-level and 65 miles from tidewater on Cook Inlet, the site
conditions are favorable for sound mine site and infrastructure development.
Mineralization indicating the presence of the Pebble deposit
was discovered by a prior operator in 1987, and by 1997 an initial outline of a
deposit of copper, gold and molybdenum had been identified.
Northern Dynasty acquired the right to earn an interest in the
Pebble property in 2001. Exploration since that time has led to an overall
expansion of the Pebble deposit, including the discovery of a substantial volume
of higher grade mineralization in the eastern part of the deposit. Another
porphyry copper-gold-molybdenum deposit, a porphyry copper zone, a gold-copper
skarn occurrence and gold showings have been identified along the extensive
northeast-trending mineralized system that underlies the property.
Page 6
Northern Dynasty Minerals Ltd. |
Management's Discussion And
Analysis |
Three months
ended March 31, 2015 |
1.2.1.1 Technical
Programs
As a part of the overall review of the Pebble Project, in 2014
the Company commissioned a Technical Report in accordance with National
Instrument ("NI") 43-101 (the "2014 Technical Report") to provide updated
information on the mineral resources and metallurgy for the project. The
technical report, entitled "2014 Technical Report on the Pebble Project,
Southwest Alaska, USA, "authored by J. David Gaunt, PGeo., James Lang, PGeo.,
Eric Titley, PGeo., and Ting Lu, PEng., is filed under the Companys profile at
www.sedar.com.
Other technical work was focused on technical studies or site
activities, including property and facilities maintenance, environmental
monitoring and community engagement.
Mineral Resources
The estimate of the mineral resources in the Pebble deposit
incorporated in the 2014 Technical Report is based on drilling to the end of
2013, and includes approximately 59,000 assays obtained from 699 drill holes.
The resource was estimated using ordinary kriging by David Gaunt, P.Geo., a
qualified person who is not independent of Northern Dynasty.
The mineral resource tabulation, as shown below, uses copper
equivalency that incorporates the contribution of copper, gold and molybdenum.
Although the estimate includes silver, it was not used as part of the copper
equivalency calculation in order to facilitate comparison with previous
estimates which did not consider the silver content or its potential economic
contribution. A base case cut-off of 0.3% CuEq is highlighted.
Pebble Resource Estimate 2014
Cut-off
CuEq % |
CuEq
% |
Tonnes |
Cu
(%) |
Au
(g/t) |
Mo
(ppm) |
Ag
(g/t) |
Cu
Blbs |
Au
Moz |
Mo
Blbs |
Ag
Moz |
Measured |
0.3 |
0.65 |
527,000,000 |
0.33 |
0.35 |
178 |
1.66 |
3.83 |
5.93 |
0.21 |
28.13 |
0.4 |
0.66 |
508,000,000 |
0.34 |
0.36 |
180 |
1.68 |
3.80 |
5.88 |
0.20 |
27.42 |
0.6 |
0.77 |
279,000,000 |
0.40 |
0.42 |
203 |
1.84 |
2.46 |
3.77 |
0.12 |
16.51 |
1.0 |
1.16 |
28,000,000 |
0.62 |
0.62 |
302 |
2.27 |
0.38 |
0.56 |
0.02 |
2.04 |
Indicated |
0.3 |
0.77 |
5,912,000,000 |
0.41 |
0.34 |
245 |
1.66 |
53.42 |
64.62 |
3.20 |
315.50 |
0.4 |
0.82 |
5,173,000,000 |
0.45 |
0.35 |
260 |
1.75 |
51.31 |
58.21 |
2.97 |
291.05 |
0.6 |
0.99 |
3,450,000,000 |
0.55 |
0.41 |
299 |
1.99 |
41.82 |
45.47 |
2.27 |
220.71 |
1.0 |
1.29 |
1,411,000,000 |
0.77 |
0.51 |
343 |
2.42 |
23.95 |
23.14 |
1.07 |
109.79 |
Measured + Indicated |
0.3 |
0.76 |
6,439,000,000 |
0.40 |
0.34 |
240 |
1.66 |
56.76 |
70.38 |
3.40 |
343.63 |
0.4 |
0.81 |
5,681,000,000 |
0.44 |
0.35 |
253 |
1.75 |
55.09 |
63.92 |
3.17 |
319.62 |
0.6 |
0.97 |
3,729,000,000 |
0.54 |
0.41 |
291 |
1.98 |
44.38 |
49.15 |
2.39 |
237.37 |
1.0 |
1.29 |
1,439,000,000 |
0.76 |
0.51 |
342 |
2.42 |
24.11 |
23.60 |
1.08 |
111.97 |
Inferred |
0.3 |
0.54 |
4,460,000,000 |
0.25 |
0.26 |
222 |
1.19 |
24.55 |
37.25 |
2.18 |
170.49 |
0.4 |
0.68 |
2,630,000,000 |
0.33 |
0.30 |
266 |
1.39 |
19.14 |
25.38 |
1.55 |
117.58 |
0.6 |
0.89 |
1,290,000,000 |
0.48 |
0.37 |
291 |
1.79 |
13.66 |
15.35 |
0.83 |
74.28 |
1.0 |
1.20 |
360,000,000 |
0.69 |
0.45 |
377 |
2.27 |
5.41 |
5.14 |
0.30 |
25.94 |
Notes to above table:
These resource estimates have been prepared in accordance with
NI 43-101 and the CIM Definition Standards. Inferred Mineral Resources are
considered to be too speculative to allow the application of technical and
economic parameters to support mine planning and evaluation of the economic viability of the
project. Under Canadian rules, estimates of Inferred Mineral Resources may not
form the basis of feasibility or pre-feasibility studies, or economic studies,
except for Preliminary Economic Assessments as defined under 43-101. It cannot
be assumed that all or any part of the Inferred Resources will ever be upgraded
to a higher category.
Page 7
Northern Dynasty Minerals Ltd. |
Management's Discussion And
Analysis |
Three months
ended March 31, 2015 |
Copper equivalent calculations used metal prices of $1.85/lb
for copper, $902/oz for gold and $12.50/lb for molybdenum, and recoveries of 85%
for copper 69.6% for gold, and 77.8% for molybdenum in the Pebble West zone and
89.3% for copper, 76.8% for gold, 83.7% for molybdenum in the Pebble East zone.
Contained metal calculations are based on 100% recoveries.
A 0.30% CuEQ cut-off is considered to be appropriate for
porphyry deposit open pit mining operations in the Americas.
All mineral resource estimates, cut-offs and metallurgical
recoveries are subject to change as a consequence of more detailed economic
analyses that would be required in pre-feasibility and feasibility studies.
The resource estimate is constrained by a conceptual pit that
was developed using a Lerchs-Grossman algorithm and is based on the parameters
set out below:
|
Parameter |
Units |
Cost ($) |
Value |
Metal Price |
Gold |
$/oz |
- |
1540.00 |
Copper |
$/lb |
- |
3.63 |
Molybdenum |
$/lb |
- |
12.36 |
Metal Recovery |
Copper |
% |
- |
89 |
Gold |
% |
- |
72 |
Molybdenum |
% |
- |
82 |
Operating Cost |
Mining (mineralized material or
waste) |
$/ton mined |
1.01 |
- |
Added haul lift from depth |
$/ton/bench |
0.03 |
- |
Process |
Process cost adjusted by total
crushing energy |
$/ton milled |
4.40 |
- |
Transportation |
$/ton milled |
0.46 |
- |
Environmental |
$/ton milled |
0.70 |
- |
G&A |
$/ton milled |
1.18 |
- |
Block Model |
Current block model |
ft |
- |
75 x 75 x 50 |
Density |
Mineralized material and waste
rock |
- |
- |
Block model |
Pit Slope Angles |
|
degrees |
- |
42 |
Environmental and Socioeconomic
Environmental Baseline Studies
Extensive environmental baseline data has been collected since
2004, with close and ongoing attention given to designing and planning a project
that protects clean water, healthy fish and wildlife populations and other
natural resources in the region.
In January 2012, the Pebble Partnership publicly released the
27,000-page Environmental Baseline Document ("EBD") for the Pebble Project,
characterizing a broad range of environmental and social conditions in southwest
Alaska including climate, water quality, wetlands, fish and aquatic habitat,
wildlife, land and water use, socioeconomics and subsistence activities.
The EBD provides information and analysis on baseline physical,
chemical, biological and social conditions based upon data collection by the
Pebble Partnership environmental study team from 2004 to 2008. Its purpose is to
provide the public, regulatory agencies and the Pebble Partnership with a
detailed compendium of pre-development environmental and socioeconomic conditions in the project area.
Research for the Pebble EBD was conducted by more than 40 respected independent
research firms, utilizing over 100 scientific experts and engineering groups,
laboratories and support services. Researchers were selected for their specific
areas of expertise and Alaskan experience, with cooperating government agencies
participating in several studies. Information for the EBD was gathered through
field studies, laboratory tests, review of government records and other
third-party sources, and interviews with Alaska residents. The EBD study is
available at www.pebbleresearch.com.
Page 8
Northern Dynasty Minerals Ltd. |
Management's Discussion And
Analysis |
Three months
ended March 31, 2015 |
The Pebble Partnership facilitated a four-day workshop with
federal and state regulatory agencies in January 2012 to present the EBD
findings. The workshop was broadcast publicly via the Internet. A series of
public presentations was also coordinated in more than 20 communities throughout
southwest Alaska and elsewhere around the State to present the EBD findings.
Public and expert review of the EBD was facilitated under the Keystone
initiative3.
Environmental baseline data reports through 2014 are being
integrated with the database from the EBD so that this information can be shared
with state/federal agencies and the public as part of the future permitting
process under NEPA. Environmental monitoring at reduced levels is planned to
continue in 2015.
Community Engagement
An active program of stakeholder outreach has also been
undertaken at Pebble, which has included community meetings, stakeholder visits,
presentations and event appearances, as well as stakeholder tours to the Pebble
Project site and to operating mines in the United States and Canada. The focus
of these outreach activities was to update stakeholders on the Pebble Project,
to receive feedback on stakeholder priorities and concerns and to advise
participants about modern mining practices.
Stakeholder outreach and community engagement is ongoing,
although at a reduced scale commensurate with other project activities. As the
Pebble Project advances toward the completion of a Project Description and
preparation for project permitting under NEPA, it is expected that the Pebble
Partnership will initiate further stakeholder engagement programs to involve
stakeholders in the planning process.
1.2.1.2 Legal Matters
i) Environmental Protection Agency and
Bristol Bay Watershed Assessment
In February 2011, the EPA announced it would undertake a
Bristol Bay Watershed Assessment study focusing on the potential effects of
large-scale mine development in Bristol Bay and, specifically the Nushagak and
Kvichak area drainages. This process was ostensibly initiated in response to
calls from persons and groups opposing the Pebble Project for the EPA to
pre-emptively use its asserted authority under Section 404(c) of the Clean Water
Act to prohibit discharges of dredged or fill material in waters of the US
within these drainages; however, evidence exists that EPA had been considering a
Section 404(c) veto of the Pebble Project at least as far back as 2008 two
years before it received a petition from several Alaska Native tribes.
The EPAs first draft Bristol Bay Watershed Assessment ("BBWA")
report was released on May 18, 2012. In the Companys opinion after review with
its consultants, the draft report is a fundamentally flawed document. By the
EPAs own admission, it evaluated the effects of a "hypothetical project" that
has neither been defined nor proposed by the Pebble Partnership, and for which
key environmental mitigation strategies have not yet been developed and, hence
would not yet be known. It is believed by the Company that the assessment was
rushed because it was based on studies conducted over only one year in an area
of 20,000 square miles. In comparison, the Pebble Project has studied the
ecological and social environment surrounding Pebble for nearly a decade. The
EPA also failed to adequately consider the comprehensive and detailed data that
the Pebble Partnership provided as part of its 27,000-page Environmental
Baseline Document.
____________________________________________
3 An
independent stakeholder dialogue process concerning the Pebble Project initiated
in late 2010 by the Keystone Center a non-profit organization specializing in
facilitating stakeholder-driven consultation processes concerning contentious,
science-based issues.
Page 9
Northern Dynasty Minerals Ltd. |
Management's Discussion And
Analysis |
Three months
ended March 31, 2015 |
The EPA called for public comment on the quality and
sufficiency of scientific information presented in the draft BBWA report. In
response, the Pebble Partnership and Northern Dynasty made submissions on the
draft report. Northern Dynasty made a presentation highlighting these
shortcomings at public hearings held in Seattle, Washington, on May 31, 2012 and
in Anchorage, Alaska, on August 7, 2012. In July 2012, the Company also
submitted a 635-page critique of the draft report in response to the EPAs call
for public comment, and has called upon the EPA to cease such unwarranted
actions until such time as a definitive proposal for the development of the
Pebble deposit is submitted into the rigorous National Environmental Policy
Act (NEPA) permitting process.
Concerns about the reasonableness of the basis of risk
assessment in the draft EPA report were stated by many of the independent
experts on the peer review panel assembled to review the BBWA, as summarized in
a report entitled "External Peer Review of EPA's Draft Document: An
Assessment of Potential Mining Impacts on Salmon Ecosystems of Bristol Bay,
Alaska" released in November 2012. In a wide-ranging critique of the draft
report's methodology and findings, many peer review panellists called the EPA's
effort to evaluate the effects of a "hypothetical mining scenario" on the water,
fish, wildlife and cultural resources of Southwest Alaska "inadequate",
"premature", "unreasonable", suspect" and "misleading".
On April 26, 2013, the EPA released a revised draft of the BBWA
report and announced another public comment and Peer Review period. The Pebble
Partnership and Northern Dynasty made submissions on the revised draft. In late
May 2013, Northern Dynasty filed a 205-page submission which describes the same
major shortcomings as the original report published in May 2012.
In mid-January 2014, the EPA released the final version of its
BBWA. The report still reflects many of the same fundamental shortcomings as
previous drafts.
On February 28, 2014, the EPA announced the initiation of a
regulatory process under Section 404(c) of the Clean Water Act to consider
restriction or a prohibition on mining activities associated with the Pebble
deposit in order to protect aquatic resources in southwest Alaska. In late April
2014, the Pebble Partnership submitted a comprehensive response to the EPAs
February 28, 2014 notification letter.
In late May 2014, the Pebble Partnership filed suit in the U.S.
District Court for Alaska and sought an injunction to halt the regulatory
process initiated by the EPA under the Clean Water Act, asserting that, in the
absence of a permit application, the process exceeds the federal agencys
statutory authority and violates the Alaska Statehood Act among other federal
laws. The State of Alaska and Alaska Peninsula Corporation, an Alaska Native
village corporation with extensive land holdings in the Pebble Project area,
later joined in the Pebble Partnerships lawsuit against the EPA as
co-plaintiffs (the "plaintiffs"). On September 26, 2014, U.S. federal court in
Alaska granted EPAs motion to dismiss the case. This ruling did not judge the
merits of the statutory authority case, it only deferred that hearing and
judgment until after a final Section 404(c) determination has been made by the
EPA. If or when the EPA action is deemed "final", the Pebble Partnership will
pursue the underlying case. The Company has also appealed the decision to grant
the motion to dismiss to the 9th Circuit Court of Appeals. The 9th Circuit Court
of Appeals has agreed to an expedited hearing of the Pebble Partnerships
appeal.
On July 18, 2014, EPA Region 10 announced a Proposed
Determination to restrict the discharge of dredged or fill material associated
with mining the Pebble deposit in a 268 square mile area should that disposal
result in any of the following: loss of five or more miles of streams with
documented salmon occurrence; loss of 19 or more miles of streams where salmon
are not documented but that are tributaries of streams with documented salmon
occurrence; the loss of 1,100 or more acres of wetlands, lakes, and ponds that
connect with streams with documented salmon occurrence or tributaries of those
streams; and stream flow alterations greater than 20 percent of daily flow in
nine or more linear miles of streams with documented salmon occurrence. Northern
Dynasty management does not accept that the EPA has the statutory authority to
impose conditions on development at Pebble, or any development project anywhere
in Alaska or the US, prior to the submission of a detailed development plan and
its thorough review by federal and state agencies including development of an
Environmental Impact Statement ("EIS") and review under NEPA.
Page 10
Northern Dynasty Minerals Ltd. |
Management's Discussion And
Analysis |
Three months
ended March 31, 2015 |
On September 19, 2014, the Pebble Partnership submitted a
comprehensive legal and technical response to EPA Region 10s Proposed
Determination. Northern Dynasty and the Pebble Partnership believe the Proposed
Determination is unsupported by the administrative record as established by the
Bristol Bay Assessment, and is therefore arbitrary and capricious.
On September 3, 2014, the Pebble Partnership initiated a second
action against EPA in federal district court in Alaska charging that EPA
violated the Federal Advisory Committee Act ("FACA") due to its close
interactions with, and the undue influence of Environmental Non-Governmental
Organizations ("ENGOs") and anti-mining activists in developing the Bristol Bay
Watershed Assessment, and with respect to its unprecedented pre-emptive 404c
regulatory process under the Clean Water Act. On September 24, 2014, the US
federal court judge in Alaska released an order recognizing that the EPA agreed
not to take the next step to advance its 404(c) regulatory process with respect
to southwest Alaskas Pebble Project until at least January 2, 2015.
However, in advance of that date on November 24, 2014, the U.S.
federal court judge in Alaska granted the Pebble Partnerships request for a
Preliminary Injunction ("PI") in relation to the FACA case. While the PI does
not resolve the Pebble Partnerships claims that the EPA actions with respect to
the Bristol Bay Watershed Assessment and subsequent 404(c) regulatory process
violated FACA, the decision permits the further discovery process of the
underlying facts to enable the court to issue a final decision on the merits of
the FACA case. The Pebble Partnership expects it will take several months for
the case to run its course.
The Pebble Partnership will now have an opportunity for
extensive depositions and discovery to determine if there was any EPA
misconduct. That the PI was granted also reflects the US federal court judges
view that the claimant has a likelihood of success on the merits. Should the
Pebble Partnership prevail in its FACA litigation against the EPA, the federal
agency may be unable to rely upon the Bristol Bay Watershed Assessment as part
of the administrative record for any regulatory action at the Pebble
Project.
Northern Dynasty has submitted numerous letters to the
independent Office of the EPA Inspector General ("IG") since January 2014
raising concerns of bias, process irregularities and undue influence by
environmental organizations in the EPA's preparation of the Bristol Bay
Watershed Assessment. In response to Congressional and other requests, on May 2,
2014, the IGs office announced that it would investigate the EPAs conduct in
preparing An Assessment of Potential Mining Impacts on Salmon Ecosystems of
Bristol Bay, Alaska. A team of IG investigators is now in place and a full
investigation is underway "to determine whether the EPA adhered to laws,
regulations, policies and procedures in developing its assessment of potential
mining impacts in Bristol Bay, Alaska."
The Pebble Partnership is advancing a multi-dimensional
strategy to address the EPAs pre-emptive regulatory process under Section
404(c) of the Clean Water Act, and is working to position the Pebble Project to
initiate federal and state permitting under NEPA unencumbered by any
extraordinary development restrictions imposed by the EPA. This strategy
includes three discrete pieces of litigation against the EPA as set out below:
|
challenging the EPAs statutory authority to
pre-emptively impose development restrictions at the Pebble Project under
Section 404(c) of the Clean Water Act prior to the Pebble Partnership
submitting a proposed development plan for the project or the development
of an EIS under NEPA; |
|
|
|
alleging that the EPA violated FACA in the course of
undertaking the Bristol Bay Watershed Assessment and subsequent Section
404(c) of the Clean Water Act regulatory process; and |
|
|
|
alleging that the EPA is unlawfully withholding relevant
documentation and other information sought by the Pebble Partnership under
the Freedom of Information Act ("FOIA"). |
The Pebble Partnerships strategy to address the EPAs
regulatory process under Section 404(c) of the Clean Water Act also includes
undertaking research, including technical and legal investigations, to
facilitate various investigations of EPA actions with respect to the Pebble
Project, including one by the EPA Inspector General.
Page 11
Northern Dynasty Minerals Ltd. |
Management's Discussion And
Analysis |
Three months
ended March 31, 2015 |
On March 24, 2015, it was announced that Former Defense
Secretary William S. Cohen and his firm, The Cohen Group, assisted by law firm
DLA Piper, had been retained by the Pebble Partnership to conduct an independent
review of whether the EPA acted fairly in connection with its evaluation of
potential mining in the Bristol Bay watershed. Secretary Cohen will evaluate the
fairness of EPA's actions and decisions in this matter based upon a thorough
assessment of the facts and relying on his experience as Secretary of Defense as
well as his 24 years as a member of the US House of Representatives and Senate.
He will have full discretion as to the means and manner of carrying out this
review to ensure that it is thorough and unbiased.
While the litigation process is inherently uncertain, and it is
difficult to predict with confidence the length of time that each of the legal
initiatives described above will take to advance to specific milestone events or
final conclusion, Northern Dynasty expects the following to occur in 2015:
|
the 9th Circuit Court of Appeals is expected to fully
hear and issue a decision in 2015 on the Pebble Partnerships appeal of a
lower courts decision that its statutory authority case is not ripe and
cannot be heard until such time as the EPA has taken final regulatory
action under Section 404(c) of the Clean Water Act. If the Pebble
Partnership prevails, the case will be returned to federal court in Alaska
for a final determination on its merits; if the EPA prevails, the
statutory authority case will be heard at a later date should the federal
agency proceed to issue a final regulatory decision under Section 404(c)
of the Clean Water Act; |
|
|
|
a final decision by a federal court judge in Alaska on
the Pebble Partnerships FACA case is expected in the latter half of the
year; |
|
|
|
a decision in the Pebble Partnerships FOIA litigation
against the EPA is expected in the latter half of the year; and |
|
|
|
the independent Office of the EPA Inspector General is
expected to complete its investigation and publish a final report on EPA
actions with respect to the Bristol Bay Watershed Assessment and the EPAs
subsequent regulatory process under Section 404(c) of the Clean Water Act
in the second or third quarter of 2015. |
Northern Dynasty cannot predict the outcome of its various
challenges to what it sees as improper, preemptory attempts by the EPA to
prevent or otherwise restrict mineral development at Pebble. If these challenges
all fail and the EPA continues to oppose the Pebble Project by all legal means,
it may have a material adverse effect on the Company.
ii) Nunamta Aulukestai
In October 2011, a lawsuit filed in July 2009 by the Trustees
for Alaska (an environmental law firm) on behalf of Nunamta Aulukestai an
organization established and funded to oppose development of the Pebble Project
- was rejected by the Anchorage Superior Court. The lawsuit alleged that the
Alaska Department of Natural Resources had violated the state constitution by
granting exploration and temporary water use permits to the Pebble Partnership,
and exploration activities had caused harm to vegetation, water, fish and
wildlife. The Pebble Partnership actively participated in the trial proceedings
after being granted intervener status. Superior Court Judge Aarseth denied each
of the allegations made by Nunamta Aulukestai, and ruled that no evidence of
environmental harm was presented. The plaintiffs have filed an appeal that is
now pending before the Alaska Supreme Court.
iii) Lake and Peninsula Borough
In November 2011, voters in southwest Alaskas Lake &
Peninsula Borough approved, by a narrow margin, a ballot measure sponsored by
anti-Pebble activists that proposed to restrict future development that affects
more than one square mile of land within the 31,000 square mile borough. The
initiative was opposed by a broad spectrum of Alaskan interests. The Pebble
Partnership and the State of Alaska filed legal challenges to the ballot
initiative in the Alaska Superior Court, and on March 19, 2014 the court issued
a permanent injunction barring the law from going into effect. The court ruled
in favor of the Pebble Partnership, agreeing that the Alaska constitution and
Alaska statutes preempted local governments from interfering with resource
development on State lands. The ballot sponsors have appealed to the Alaska
Supreme Court, which will hear oral argument on May 19, 2015 and issue a
decision sometime thereafter.
Page 12
Northern Dynasty Minerals Ltd. |
Management's Discussion And
Analysis |
Three months
ended March 31, 2015 |
1.2.2 Financing
In the first quarter of 2015, Northern Dynasty completed a
private placement financing (the Private Placement) which had been initiated
late in the 2014 fiscal year. The Private Placement consisted of 35,962,735
share purchase warrants (the "Special Warrants") priced at $0.431 per Special
Warrant, for gross proceeds of $15.5 million. Pursuant to the Private Placement,
the Company issued 27,622,642 Special Warrants in December 2014 and 8,340,093
special warrants in January 2015. Under the terms of issuance of the Special
Warrants, the Company filed a prospectus in certain Canadian provinces to
qualify the conversion of the Special Warrants and a registration statement with
the SEC in the United States to qualify the resale of common shares in the
Company ("Common Shares") by U.S. investors. The Special Warrants will convert
on exercise into Common Shares on a one-for-one basis, subject to certain
restrictions, without payment of any additional consideration. The Special
Warrants are subject to automatic conversion provisions, which depend on the
country of residence of a holder of the Special Warrants and the total number of
the Common Shares that a holder of the Special Warrants will own after such
conversion, and, in any event, all outstanding Special Warrants will be
automatically converted on the second anniversary of their issuance date.
The Special Warrants do not confer on their holders any right
as a shareholder of the Company, including but not limited to any right to vote
at any meeting of shareholders or any other proceedings, other than meetings by
holders of Special Warrants, of the Company or any right to receive any dividend
or other distribution.
As of the date of this MD&A, 9,943,589 Special Warrants had
automatically converted into the same number of Common Shares (see 1.15.1 Disclosure of Outstanding Share
Data).
1.2.3 Market Trends
Copper prices increased from early 2009 until late 2011. From
that time, prices have been variable and weakened overall. The recent closing
price is US$2.90/lb.
The average annual gold price steadily increased from 2008 to
2012. Gold prices trended lower in 2013, and have been variable but weakening
overall in 2014 and 2015. The recent closing price is US$1,225/oz.
Molybdenum prices were variable, but improving in 2010 and
2011, variable in 2013, and then began an uptrend that extended through the end
of June 2014. Prices have been on a downtrend since that time with a recent
closing price of US$7.85/lb.
An upward trend in silver prices began in 2010, and continued
to late September 2011; prices reached as high as $43/oz in 2011, resulting in
the highest average annual price since 2008. Prices ranged between $26/oz and
$35/oz between October 2011 and December 2012, and trended downward in 2013.
Silver prices have been variable in 2014 and 2015, with an overall decrease in
the average price. The recent closing price is US$17.40/oz.
Average annual prices since 2010 as well as the average prices
so far in 2015 for copper, gold, molybdenum and silver are shown in the table
below:
Page 13
Northern Dynasty Minerals Ltd. |
Management's Discussion And
Analysis |
Three months
ended March 31, 2015 |
Year |
Average metal price |
Copper
US$/lb |
Gold
US$/oz |
Molybdenum
US$/lb |
Silver
US$/oz |
2010 |
3.42 |
1,228 |
15.87 |
20.24 |
2011 |
4.00 |
1,572 |
15.41 |
35.25 |
2012 |
3.61 |
1,669 |
12.81 |
31.16 |
2013 |
3.32 |
1,410 |
10.40 |
23.80 |
2014 |
3.14 |
1,276 |
11.91 |
19.08 |
2015 (to the date of the MD&A) |
2.69 |
1,212 |
8.30 |
16.60 |
Source: LME Official Cash Price as provided at
www.metalprices.com
1.3 Selected Annual
Information
Not required for interim MD&A.
1.4 Summary and
Discussion of Quarterly Results
All monetary amounts are expressed in thousands of dollars
except per share amounts and where otherwise indicated. Minor differences are
due to rounding.
Excerpts from Statements of |
|
Mar 31 |
|
|
Dec 31 |
|
|
Sep 30 |
|
|
Jun 30 |
|
|
Mar 31 |
|
|
Dec 31 |
|
|
Sep 30 |
|
|
Jun 30 |
|
Comprehensive Loss (Income) |
|
2015 |
|
|
2014 |
|
|
2014 |
|
|
2014 |
|
|
2014 |
|
|
2013 |
|
|
2013 |
|
|
2013 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration and evaluation |
$ |
2,074 |
|
$ |
3,461 |
|
$ |
2,436 |
|
$ |
2,952 |
|
$ |
4,028 |
|
$ |
1,076 |
|
$ |
270 |
|
$ |
246 |
|
General and administrative |
|
1,816 |
|
|
2,118 |
|
|
2,120 |
|
|
2,150 |
|
|
2,670 |
|
|
1,596 |
|
|
1,510 |
|
|
1,485 |
|
Legal, accounting and audit |
|
3,248 |
|
|
4,933 |
|
|
1,957 |
|
|
1,281 |
|
|
155 |
|
|
214 |
|
|
42 |
|
|
10 |
|
Share-based compensation |
|
360 |
|
|
522 |
|
|
557 |
|
|
699 |
|
|
2,099 |
|
|
|
|
|
|
|
|
217 |
|
Other items (i) |
|
(1,252 |
) |
|
(1,109 |
) |
|
(982 |
) |
|
(211 |
) |
|
(489 |
) |
|
(412 |
) |
|
(120 |
) |
|
(440 |
) |
Equity accounting adjustment (ii) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,062 |
) |
|
|
|
|
|
|
Loss (income) for the quarter |
|
6,246 |
|
|
9,925 |
|
|
6,088 |
|
|
6,871 |
|
|
8,463 |
|
|
(2,588 |
) |
|
1,702 |
|
|
1,518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss (income) per common share |
$ |
0.05 |
|
$ |
0.10 |
|
$ |
0.06 |
|
$ |
0.07 |
|
$ |
0.09 |
|
$ |
(0.03 |
) |
$ |
0.02 |
|
$ |
0.02 |
|
(i) |
Other items include interest income, exchange gain and
loss, and deferred income tax. |
|
|
(ii) |
Represents a gain recorded upon discontinuance of equity
method for accounting for the investment in the Pebble Limited Partnership
when the Company reacquired control in Q4 of 2013. |
Discussion of Quarterly Trends
Exploration and evaluation expenses ("E&E") increased from
Q4 of 2013 as the Company commenced funding 100% of evaluation work on the
Pebble Project following the withdrawal of the project partner in late December
2013 (discussed in Section 1.2.1.1 Technical
Programs). E&E included costs for Native community
engagement, select environmental monitoring programs, annual fees for claims,
site leases for accommodation, land access agreements and technical studies.
General and administrative expenses ("G&A") have fluctuated
based on the level of corporate activities undertaken. In 2013, G&A trended
lower until Q4 2013, when the added costs associated with the management and
administration of the Pebble Partnership was borne by the Company as a result of
project partner withdrawal. From Q1, 2014, G&A has been higher due to the
inclusion of the management and administration of the Pebble Partnership and the additional costs associated with ongoing
activities around the EPAs initiatives as discussed in Section 1.2.1.2 Legal Matters.
Page 14
Northern Dynasty Minerals Ltd. |
Management's Discussion And
Analysis |
Three months
ended March 31, 2015 |
Share-based compensation expense ("SBC") has fluctuated due to
the timing of share purchase option grants and the vesting periods associated
with these grants. In 2013 and 2015 there were no new grants and as such SBC
related to the graded vesting of share purchase option grants from prior years.
In 2014, SBC related to new grants by the Company and the graded vesting of
these share purchase options during the year.
1.5 Results of
Operations
The following financial data has been prepared in accordance
with IFRS effective for the period ended March 31, 2015.
The Companys operations and business are not driven by
seasonal trends, but rather are driven towards the achievement of project
milestones relating to the Pebble Project such as the achievement of various
technical, environmental, socio-economic and legal objectives, including
obtaining the necessary permits, the completion of pre-feasibility and final
feasibility studies, preparation of engineering designs, as well as receipt of
financings to fund these objectives along with mine construction.
1.5.1
Results of Operations for the Three Months Ended March 31, 2015 vs. 2014
The Company recorded a decrease in loss of $2.3 million to $6.2
million from a loss of $8.5 in 2014.
E&E decreased by $2.0 million as the Company prioritized
the allocation of available financial resources in order to meet key corporate
and Pebble Project expenditure requirements relating to ongoing activities
around the EPAs initiatives as discussed in Section 1.2.1.2 Legal Matters. E&E activities during
the first quarter of 2015 included Native community engagement, environmental
monitoring and site leases for accommodation.
The following table provides a breakdown of E&E incurred
during the period:
E&E (expressed in thousands of dollars) |
|
Three months ended March 31 |
|
|
|
2015 |
|
|
2014 |
|
Engineering |
$ |
72 |
|
$ |
929 |
|
Environmental planning and testing |
|
286 |
|
|
628 |
|
Site activities |
|
570 |
|
|
1,082 |
|
Socio-economic |
|
1,102 |
|
|
1,281 |
|
Other activities and travel |
|
44 |
|
|
108 |
|
Total |
$ |
2,074 |
|
$ |
4,028 |
|
G&A including legal, accounting and audit increased to $5.1
million from $2.8 million in 2014 primarily due to increased legal costs
incurred as the Company, through the Pebble Partnership, advances key legal
objectives to address the EPAs pre-emptive regulatory process under Section
404(c) of the Clean Water Act (see Section 1.2.1.2
Legal Matters).
Page 15
Northern Dynasty Minerals Ltd. |
Management's Discussion And
Analysis |
Three months
ended March 31, 2015 |
The following table provides a breakdown of G&A incurred
during the period:
G&A (expressed in thousands of dollars) |
|
Three months ended March 31 |
|
|
|
2015 |
|
|
2014 |
|
Conference and travel |
$ |
86 |
|
$ |
110 |
|
Consulting |
|
162 |
|
|
68 |
|
Insurance |
|
96 |
|
|
107 |
|
Office costs |
|
410 |
|
|
658 |
|
Management and administration |
|
721 |
|
|
1,381 |
|
Shareholder communication |
|
184 |
|
|
205 |
|
Trust and filing |
|
157 |
|
|
141 |
|
General and administrative |
|
1,816 |
|
|
2,670 |
|
Legal, accounting and audit |
|
3,248 |
|
|
155 |
|
Total |
$ |
5,064 |
|
$ |
2,825 |
|
SBC decreased to $0.4 million from $2.1 million in 2014 as the
Company did not grant any options in the current period (2014 5.9 million
options were granted).
1.6 Liquidity
The Company's major sources of funding has been the issuance of
equity securities for cash, primarily through private placements to
sophisticated investors and institutions and the issue of common shares pursuant
to the exercise of share purchase options. The Company's access to financing is
always uncertain. There can be no assurance of continued access to significant
equity funding.
As at March 31, 2015, the Companys cash and cash equivalents
were $6.0 million, down from $9.5 million at December 31, 2014 as the Company
used $6.7 million of its cash in its operating activities (see Section 1.5.1)
and raised $3.4 million from the portion of the Private Placement that closed in
2015 (see Section 1.2.2
Financing). The Company has prioritized
the allocation of available financial resources in order to meet key corporate
and Pebble Project expenditure requirements in the near term. Additional
financing will be required to pursue any material expenditure at the Pebble
Project. There can be no assurances that the Company will be successful in
obtaining additional financing. If the Company is unable to raise the necessary
capital resources to meet obligations as they come due, the Company will at some
point have to reduce or curtail its operations.
The Company has no "Purchase Obligations", defined as any
agreement to purchase goods or services that is enforceable and legally binding
on the Company that specifies all significant terms, including: fixed or minimum
quantities to be purchased; fixed, minimum or variable price provisions; and the
approximate timing of the transaction. The Company is responsible for
maintenance payments on the Pebble Project claims (see Section 1.2.1 Pebble Project) and routine office and
site leases.
1.7 Capital
Resources
The Companys capital resources consist of its cash reserves.
As of March 31, 2015, the Company had no long term debt or commitments for
material capital expenditures other than what has been disclosed in the
Financial Statements.
The Company has no lines of credit or other sources of
financing.
Page 16
Northern Dynasty Minerals Ltd. |
Management's Discussion And
Analysis |
Three months
ended March 31, 2015 |
1.8 Off-Balance
Sheet Arrangements
There are none.
1.9
Transactions with Related Parties
Transactions with Hunter Dickinson
Services Inc. ("HDSI")
Hunter Dickinson Inc. ("HDI") and its wholly owned subsidiary,
HDSI are private companies established by a group of mining professionals
engaged in advancing and developing mineral properties for a number of private
and publicly-listed exploration companies, one of which is the Company.
Many of the current directors of the Company namely, Scott
Cousens, Robert Dickinson, Russell Hallbauer, Marchand Snyman and Ronald
Thiessen are active members of the HDI Board of Directors. Other key
management personnel of the Company Doug Allen, Stephen Hodgson, Bruce
Jenkins, Sean Magee and Trevor Thomas are members of HDIs senior management
team.
The business purpose of the related
party relationship
HDSI provides technical, geological, corporate communications,
regulatory compliance, administrative and management services to the Company, on
an as-needed and as-requested basis from the Company.
HDSI also incurs third party costs on behalf of the Company.
Such third party costs include, for example, directors and officers insurance,
travel, conferences, and technology services.
As a result of this relationship with HDSI, the Company has
ready access to a range of diverse and specialized expertise on a regular basis,
without having to engage or hire full-time experts. The Company benefits from
the economies of scale created by HDSI.
The measurement basis used
The Company procures services from HDSI pursuant to an
agreement (the "Services Agreement") dated July 2, 2010 whereby HDSI agreed to
provide technical, geological, corporate communications, administrative and
management services to the Company. A copy of the Services Agreement is publicly
available under the Companys profile at www.sedar.com.
Services from HDSI are provided on a non-exclusive basis as
required and as requested by the Company. The Company is not obligated to
acquire any minimum amount of services from HDSI. The fees for services is
determined based on an agreed upon charge-out rate for each employee performing
the service and the time spent by the employee. The charge-out rate also
includes overhead costs such as office rent, information technology services and
administrative support. Such charge-out rates are agreed and set annually in
advance.
Third party expenses are billed at cost, without any markup.
Ongoing contractual or other commitments
resulting from the related party relationship
There are no ongoing contractual or other commitments resulting
from the Companys transactions with HDSI, other than the payment for services
already rendered and billed. The agreement may be terminated upon 60 days
notice from either the Company or HDSI.
Page 17
Northern Dynasty Minerals Ltd. |
Management's Discussion And
Analysis |
Three months
ended March 31, 2015 |
The following summarizes the transactions with HDSI for the
three month period ended March 31:
Transactions
(expressed in thousands of dollars) |
|
2015 |
|
|
2014
|
|
Services rendered by HDSI |
$ |
919 |
|
$ |
1,465 |
|
Technical |
|
302 |
|
|
553
|
|
Engineering |
|
102 |
|
|
188 |
|
Environmental |
|
173 |
|
|
184 |
|
Socioeconomic |
|
|
|
|
85 |
|
Other technical services |
|
27 |
|
|
96
|
|
General and administrative |
|
617 |
|
|
912
|
|
Management, financial & administration |
|
445 |
|
|
739 |
|
Shareholder communication |
|
172 |
|
|
173
|
|
|
|
|
|
|
|
|
Reimbursement of third party expenses |
|
218 |
|
|
298
|
|
Conferences and travel |
|
42 |
|
|
91 |
|
Insurance |
|
50 |
|
|
63 |
|
Office supplies and other |
|
126 |
|
|
144
|
|
|
|
|
|
|
|
|
Total paid by
the Company |
$ |
1,137 |
|
$ |
1,763 |
|
Key Management Personnel
The required disclosure for the remuneration of the Companys
key management personnel is provided in Note 8(a) in the notes to the Financial
Statements which accompany this MD&A and which are available under the
Companys profile at www.sedar.com.
1.10
Fourth Quarter
Not applicable.
1.11
Proposed Transactions
There are no proposed asset or business acquisitions or
dispositions, other than those in the ordinary course, before the Board of
Directors for consideration.
1.12
Critical Accounting Estimates
There was no change in the use of estimates and judgments
during the current period from those described in Note 2 in the Groups
Consolidated Financial Statements for the year ended December 31, 2014 available
under the Companys profile at www.sedar.com.
1.13
Changes in Accounting Policies including Initial Adoption
The Company has disclosed information and potential impact
thereof in Note 2 in the notes to the Financial Statements which accompany this
MD&A.
1.14
Financial Instruments and Other Instruments
The Company is exposed in varying degrees to a variety of
financial instrument related risks. The Board approves and monitors the risk
management processes, inclusive of documented investment policies, counterparty
limits, and controlling and reporting structures. The type of risk exposure
and the way in which such exposure is managed is provided as follows:
Page 18
Northern Dynasty Minerals Ltd. |
Management's Discussion And
Analysis |
Three months
ended March 31, 2015 |
Credit Risk
Credit risk is the risk of potential loss to the Company if a
counterparty to a financial instrument fails to meet its contractual
obligations. The Companys credit risk is primarily attributable to its liquid
financial assets, including cash and cash equivalents, restricted cash and
amounts receivable. The Company limits the exposure to credit risk by only
investing its cash and cash equivalents and restricted cash with high-credit
quality financial institutions in business and saving accounts, guaranteed
investment certificates, and in government treasury bills which are available on
demand by the Group as and when required. There has been no change in the
Companys objectives and policies for managing this risk except for changes in
the carrying amounts of financial assets exposed to credit risk, and there was
no significant change to the Companys exposure to credit risk during the year
ended December 31, 2014. Amounts receivable include receivable balances with
government agencies and refundable deposits. Management has also concluded that
there is no objective evidence of impairment to its amounts receivable.
Liquidity Risk
Liquidity risk is the risk that the Company will not be able to
meet its financial obligations when they become due. There has been no change in
the Companys objectives and policies for managing this risk. The Companys
liquidity position has been discussed in Section 1.6
Liquidity.
Foreign Exchange Risk
The Company is subject to both currency transaction risk and
currency translation risk: the Pebble Partnership and U5 Resources Inc. have the
US dollar as functional currency; and certain of the Companys corporate
expenses are incurred in US dollars. The fluctuation of the US dollar in
relation to the Canadian dollar has an impact upon the losses incurred by the
Company as well as the value of the Companys assets and total shareholders
equity as the Companys functional and presentation currency is the Canadian
dollar. The Company has not entered into any agreements or purchased any
instruments to hedge possible currency risks at this time.
There has been no change in the Companys objectives and
policies for managing this risk, except for the changes in the carrying amounts
of the financial assets exposed to foreign exchange risk, and there was no
significant change to the Companys exposure to foreign exchange risk during the
year ended December 31, 2014.
Interest rate risk
The Company is subject to interest rate risk with respect to
its investments in cash and cash equivalents. There has been no change in the
Companys objectives and policies for managing this risk and no significant
change to the Companys exposure to interest rate risk during the period ended
March 31, 2015.
Commodity price risk
While the value of the Companys Pebble Project, held through
its interest in the Pebble Partnership, is related to the price of gold, copper
and molybdenum and the outlook for these minerals, the Company currently does
not have any operating mines and hence does not have any hedging or other
commodity based risks in respect of its operational activities.
Gold, copper, and molybdenum prices have fluctuated widely
historically and are affected by numerous factors outside of the Company's
control, including, but not limited to, industrial and retail demand, central
bank lending, forward sales by producers and speculators, levels of worldwide
production, short-term changes in supply and demand because of speculative
hedging activities, and certain other factors related specifically to gold.
Page 19
Northern Dynasty Minerals Ltd. |
Management's Discussion And
Analysis |
Three months
ended March 31, 2015 |
Capital Management
The Company's policy is to maintain a strong capital base so as
to maintain investor and creditor confidence and to sustain future development
of the business. The capital structure of the Company consists of equity,
comprising share capital, reserves and special warrants, net of accumulated
deficit.
There were no changes in the Company's approach to capital
management during the period. The Company is not subject to any externally
imposed capital requirements.
1.15 Other
MD&A Requirements
Additional information relating to the Company, including the
Company's 2014 Annual Information Form, is available under the Companys
profile on SEDAR at www.sedar.com.
1.15.1 Disclosure of Outstanding Share Data
The capital structure of the Company as of the date of this
MD&A is shown in the following table:
|
|
Total |
|
Common shares issued and outstanding |
|
105,018,453 |
|
Special Warrants (see 1.2.2
Financing) |
|
25,954,146 |
|
Share options (weighted average exercise price per option:
$1.94) |
|
7,567,200 |
|
1.15.2 Disclosure Controls and Procedures
The Company has disclosure controls and procedures in place to
provide reasonable assurance that any information required to be disclosed by
the Company under securities legislation is recorded, processed, summarized and
reported within the applicable time periods and that required information is
gathered and communicated to the Company's management so that decisions can be
made about timely disclosure of that information.
1.15.3 Managements Report on Internal Control over
Financial Reporting
The Company's management, including the CEO and the CFO, is
responsible for establishing and maintaining adequate internal control over
financial reporting. Internal control over financial reporting ("ICFR") is a
process designed by, or under the supervision of, the Company's principal
executive and principal financial officers and effected by the Company's Board
of Directors, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
consolidated financial statements for external purposes in accordance with IFRS.
The Company's ICFR includes those policies and procedures that:
-
pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets
of the Company;
-
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with IFRS, and that
receipts and expenditures of the Company are being made only in accordance
with authorizations of management and directors of the company; and
-
provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company's assets that
could have a material effect on the consolidated financial statements.
Page 20
Northern Dynasty Minerals Ltd. |
Management's Discussion And
Analysis |
Three months
ended March 31, 2015 |
1.15.4 Changes in Internal Control over Financial Reporting
There has been no change in the design of the Companys ICFR
that has materially affected, or is reasonably likely to materially affect, the
Companys ICFR during the period covered by this MD&A.
1.15.5 Limitations of Controls and Procedures
The Companys management, including its CEO and CFO, believe
that any system of disclosure controls and procedures or ICFR, no matter how
well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Furthermore, the
design of a control system must reflect the fact that there are resource
constraints and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, they cannot
provide absolute assurance that all control issues and instances of fraud, if
any, within the Company have been prevented or detected. These inherent
limitations include the realities that judgments in decision-making can be
faulty and breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, or by unauthorized override of
controls. The design of any system of controls is also based in part upon
certain assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under all
potential future conditions. Accordingly, because of the inherent limitations in
a cost effective control system, misstatements due to error or fraud may occur
and not be detected.
1.15.6 Risk Factors
Please refer to "Risk Factors" discussed in Item 5 in
the Companys 2014 annual information form for the year ended December
31, 2014 filed under the Companys profile on SEDAR at www.sedar.com.
Page 21
NORTHERN DYNASTY MINERALS LTD.
Form 52-109F2
Certification of Interim Filings - Full Certificate
I, Ronald W. Thiessen, President and Chief Executive Officer of
Northern Dynasty Minerals Ltd., certify the following:
1. |
Review: I have reviewed the interim financial
report and interim MD&A (together, the interim filings) of Northern
Dynasty Minerals Ltd. (the issuer) for the interim period ended March
31, 2015. |
|
|
|
|
2. |
No misrepresentations: Based on my knowledge,
having exercised reasonable diligence, the interim filings do not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated or that is necessary to make a statement not
misleading in light of the circumstances under which it was made, with
respect to the period covered by the interim filings. |
|
|
|
|
3. |
Fair presentation: Based on my knowledge, having
exercised reasonable diligence, the interim financial report together with
the other financial information included in the interim filings fairly
present in all material respects the financial condition, financial
performance and cash flows of the issuer, as of the date of and for the
periods presented in the interim filings. |
|
|
|
|
4. |
Responsibility: The issuers other certifying
officer and I are responsible for establishing and maintaining disclosure
controls and procedures (DC&P) and internal control over financial
reporting (ICFR), as those terms are defined in National Instrument
52-109, Certification of Disclosure in Issuers Annual and Interim
Filings, for the issuer. |
|
|
|
|
5. |
Design: Subject to the limitations, if any,
described in paragraphs 5.2 and 5.3, the issuers other certifying officer
and I have, as at the end of the period covered by the interim
filings |
|
|
|
|
|
(a) |
designed DC&P, or caused it to be designed under our
supervision, to provide reasonable assurance that |
|
|
|
|
|
|
(i) |
material information relating to the issuer is made known
to us by others, particularly during the period in which the interim
filings are being prepared; and |
|
|
|
|
|
|
(ii) |
information required to be disclosed by the issuer in its
annual filings, interim filings or other reports filed or submitted by it
under securities legislation is recorded, processed, summarized and
reported within the time periods specified in securities legislation;
and |
|
|
|
|
|
(b) |
designed ICFR, or caused it to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with the issuers GAAP. |
|
|
|
|
5.1 |
Control framework: The control framework the
issuers other certifying officer and I used to design the issuers ICFR
is the Internal Control Integrated Framework 2013 published by The
Committee of Sponsoring Organizations of the Treadway
Commission. |
|
|
|
|
5.2 |
ICFR material weakness relating to design:
N/A |
|
|
|
|
5.3 |
Limitation on scope of design: N/A |
|
|
|
|
6. |
Reporting changes in ICFR: The issuer has
disclosed in its interim MD&A any change in the issuers ICFR that
occurred during the period beginning on January 1, 2015 and ended on March
31, 2015 that has materially affected, or is reasonably likely to
materially affect, the issuers ICFR. |
Date: May 15, 2015
/s/ R.W. Thiessen
_______________________
Ronald
W. Thiessen
President and Chief Executive Officer
2
NORTHERN DYNASTY MINERALS LTD.
Form 52-109F2
Certification of Interim Filings - Full Certificate
I, Marchand Snyman, Chief Financial Officer of Northern Dynasty
Minerals Ltd., certify the following:
1. |
Review: I have reviewed the interim financial
report and interim MD&A (together, the interim filings) of Northern
Dynasty Minerals Ltd. (the issuer) for the interim period ended March
31, 2015. |
|
|
|
|
2. |
No misrepresentations: Based on my knowledge,
having exercised reasonable diligence, the interim filings do not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated or that is necessary to make a statement not
misleading in light of the circumstances under which it was made, with
respect to the period covered by the interim filings. |
|
|
|
|
3. |
Fair presentation: Based on my knowledge, having
exercised reasonable diligence, the interim financial report together with
the other financial information included in the interim filings fairly
present in all material respects the financial condition, financial
performance and cash flows of the issuer, as of the date of and for the
periods presented in the interim filings. |
|
|
|
|
4. |
Responsibility: The issuers other certifying
officer and I are responsible for establishing and maintaining disclosure
controls and procedures (DC&P) and internal control over financial
reporting (ICFR), as those terms are defined in National Instrument
52-109, Certification of Disclosure in Issuers Annual and Interim
Filings, for the issuer. |
|
|
|
|
5. |
Design: Subject to the limitations, if any,
described in paragraphs 5.2 and 5.3, the issuers other certifying officer
and I have, as at the end of the period covered by the interim
filings |
|
|
|
|
|
(a) |
designed DC&P, or caused it to be designed under our
supervision, to provide reasonable assurance that |
|
|
|
|
|
|
(i) |
material information relating to the issuer is made known
to us by others, particularly during the period in which the interim
filings are being prepared; and |
|
|
|
|
|
|
(ii) |
information required to be disclosed by the issuer in its
annual filings, interim filings or other reports filed or submitted by it
under securities legislation is recorded, processed, summarized and
reported within the time periods specified in securities legislation;
and |
|
|
|
|
|
(b) |
designed ICFR, or caused it to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with the issuers GAAP. |
|
|
|
|
5.1 |
Control framework: The control framework the
issuers other certifying officer and I used to design the issuers ICFR
is the Internal Control Integrated Framework 2013 published by The
Committee of Sponsoring Organizations of the Treadway
Commission. |
|
|
|
|
5.2 |
ICFR material weakness relating to design:
N/A |
|
|
|
|
5.3 |
Limitation on scope of design: N/A |
|
|
|
|
6. |
Reporting changes in ICFR: The issuer has
disclosed in its interim MD&A any change in the issuers ICFR that
occurred during the period beginning on January 1, 2015 and ended on March
31, 2015 that has materially affected, or is reasonably likely to
materially affect, the issuers ICFR. |
Date: May 15, 2015
/s/ M. Snyman
_______________________
Marchand
Snyman
Chief Financial Officer
2
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