Short Seller's Report Based on Misstatements,
Inaccuracies and "Anonymous Sources"
Northern Dynasty's Pebble Project Has Been
Assessed by Independent Experts as a Globally Important Copper/Gold
Asset with Multiple Development Options for Commercial
Success
VANCOUVER, Feb. 17, 2017 /PRNewswire/ - Northern Dynasty
Minerals Ltd. (TSX: NDM; NYSE MKT: NAK) ("Northern Dynasty" or the
"Company") today responded to misleading criticism of its Pebble
copper and gold project in the February 14,
2017 report by Kerrisdale Capital Management LLC
("Kerrisdale" or the "Short Seller1").
The Company and its board have evaluated each of the Short
Seller's claims and believe they are unfounded, contain numerous
errors and unsupported speculation and demonstrate a lack of
understanding of the Company's business. The Company will
consider and vigorously pursue any and all actions and remedies
available to it to protect the interest of its
shareholders.
Summarizing the Short Seller's Claims
The Short Seller, Kerrisdale, would apparently have you believe
that Pebble, as one of the world's largest deposits of copper and
gold, is worthless despite the fact that mining companies are
profitably mining lower grade ore within a few hundred miles of it
as well as at other operations around the world. The Short Seller
would apparently have you believe that Anglo American, a major mining company which
spent some US$600 million on Pebble,
but was ultimately unwilling to spend the full $1.5 billion required to earn a 50% interest in
Pebble, thinks the project is "worthless". The Short Seller would
apparently have you believe that Pebble's challenges from the
US Environmental Protection Agency ("EPA") are deserved, or that it
is the first mining project to face regulatory challenges, despite
what has been described by the Wall Street Journal as the
EPA's regulatory "lawlessness" which they based on "sham" science
(January 23, 2017, WSJ). The Short
Seller would apparently have you rely on anonymous hearsay,
supposedly from employees of Anglo
American, who are making comments at odds with the public
statements of the major mining company's own senior executives.
Investors who read the Short Seller's report should consider the
following:
- Kerrisdale stands to realize significant gains in the event
that the price of the Company's stock declines.
- Kerrisdale is not a mining company and does not disclose any
record of success in mining investments or issuing mining valuation
or investment reports. On the contrary, Kerrisdale has a track
record of aggressive short selling and activism. In contrast,
Northern Dynasty's Pebble team has extensive experience in mining
and a formidable track record of success in developing and
operating mines internationally.
- Kerrisdale relies on anonymous co-authors whose mining
credentials, if any, Kerrisdale has not disclosed and who likewise
may hold or have held short positions in Northern Dynasty.
Specifically, Kerrisdale has not disclosed if these anonymous
authors have any requisite technical qualifications or practical
mining experience to substantiate the claims of the short report.
In contrast, Northern Dynasty publicly files technical reports
which have been certified by named, independent, experienced and
reputable Qualified Persons (as defined by securities laws) who
have certified the accuracy and completeness of these reports. An
internationally recognized engineering firm conducted and compiled
an extensive and independent Preliminary Assessment (also referred
to as a Preliminary Economic Assessment, or "PEA") of the Pebble
Project on behalf of Northern Dynasty. This PEA, published in 2011,
showed the project possesses significant value. While the analyses
of this assessment now require updating, it remains a source of
much useful information and is available for download at
www.sedar.com. The PEA shows the large mineral endowment and
potential of the Pebble Project.
- Kerrisdale's short report purports to develop a zero value
thesis without requesting or having had access to the necessary and
extensive technical, analytical, geological and economic
information that Northern Dynasty's Qualified Persons used. No
Kerrisdale personnel have visited the Pebble Project or had
discussions with Northern Dynasty's technical team or
executives.
- Kerrisdale is apparently a troubled organization, which has
recently been in the news for major client and staff defections and
alleged senior staff personal misconduct.
Consider the Reaction to the Short Seller's Report by
Independent Analysts2:
From TD Securities:
Following the election
of President Trump, [NDM] shares have outperformed the broader base
metal market on the view that the EPA will withdraw its preemptive
objections to Pebble, allowing the project to go through the formal
NEPA permitting process. It is important to note that even prior to
Trump's election, the company had announced planned mediation
discussions with the EPA to resolve its dispute over the FACA case.
Our view is that EPA will withdraw its objections, allowing the
project to proceed to permitting by late-2017 or
early-2018.
In terms of the project economics, the Short Seller's report
cites that work completed by Anglo
American and third-party engineers indicated that the
upfront capital cost of Pebble would be roughly US$11-13bln. Importantly, no context around the
project's size and scale was provided with the estimate, which we
view as misleading. The estimate compares with the US$4.7bln in upfront capex outlined in Pebble's
2011 PEA for a 200,000tpd operation. We assume US$6.5bln of capex, with a 10%NAV estimate of
US$1.24bln.
Assuming a resolution with the EPA in H1/17, the next
critical step, in our view, will be the re-establishment of a
partnership, which management is confident can be achieved this
year. We expect the establishment of a partnership to be followed
by the publication of a PFS, which could target a smaller
higher-grade mine development scenario reducing both the capex and
permitting objections.
We maintain our C$5.00 target
price and upgrade our rating to SPECULATIVE BUY from Hold to
reflect our return-to-target of 49%.
- Craig Hutchison, P. Eng, TD Securities Inc.
February 16, 2017
From Stansberry's Investment
Advisory:
Kerrisdale offered no new technical or
scientific evidence. On the call, they labeled themselves as market
generalists with no background in the mining industry. They made
vague references to engineers, but would not disclose their names
or credentials.
One of their main arguments is that mining giant Anglo American and other large miners walked
away from the project because Northern Dynasty's resource is worth
nothing. We disagree.
We think investors should be very skeptical of investment
research that's published by any entity whose business depends on
promoting a position (long or short) after establishing one –
whether it's a hedge fund manager with a history of drug abuse or
an established industry titan. The fact is that having a bunch of
money on the line (like Bill Ackman
with Herbalife) tends to warp investors' judgement.
-
Stansberry's Investment Advisory. February 2017
From Very Independent Research:
The short
seller report was neither a mining technical report nor very much
new.
- John Tumazos Very Independent Research,
LLC. February 15,
2017
SETTING THE RECORD STRAIGHT
Pebble is One of the World's Largest Undeveloped Copper and
Gold Resources
The Company will continue this discussion by reconfirming that
the Pebble Project is one of the world's most important mineral
resources, when measured by aggregate contained metals. The
current estimate of these mineral resources at a 0.30% copper
equivalent (CuEQ)3 cut-off grade comprise:
- 6.44 billion tonnes in the combined Measured and Indicated
categories5 at a grade of 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 in the Inferred category at a grade of
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.
How does this compare to other similar assets?
The Short Seller's contention that Pebble is a "low grade"
deposit is not supported by the data. Pebble has an average
CuEQ grade of 0.71%. Figure 1 shows Pebble in comparison
to other major producing and non-producing copper projects. It
shows that Pebble is in the top quartile of these deposits when
ranked based on CuEQ grade.4
Further, the sheer scale of this immense copper/gold asset has
attracted major mining company interest and continues to do
so. Pebble is the world's largest undeveloped copper and gold
resource in terms of contained metal. The deposit hosts the
9th largest copper resource and the 2nd
largest gold resource in the world, as shown in Figure
2. The contained metal of this one deposit matches the
reported reserves of many of the largest mining companies in the
world. Bringing Pebble into production will be transformative for
its shareholders.
Mine Planning and Economic Assessment
Like many large mining projects, the Pebble Project has had
various owners, partners and major investors over the years such as
Teck Resources, which owned Pebble before the big exploration
successes at Pebble in 2004 to 2007 massively expanded the
resource. Teck Resources continues to hold a royalty interest in
part of the deposit after its 2002 sale of Pebble. With each such
party came different priorities and interests, including with
respect to mine development, timelines, scale and
approach. What has never been denied is the potential and
quality of this unique asset, nor Northern Dynasty's full
commitment to work with interested parties to develop it.
Northern Dynasty's 2011 PEA demonstrated based on certain
assumed mining design parameters (mine plan, mill through put etc.)
that Pebble has a potential net present value measured in the
billions of dollars and a mine life of 40 to 80 years. This
long-lived mining project did not even deplete the full Pebble
resource. The PEA was prepared by Wardrop Engineering Inc.,
now an affiliate of Tetra Tech Inc., an internationally recognized
engineering group. The PEA showed that the commercial potential of
a mine at Pebble is good at many commodity price and cost
assumptions. Like all resource extraction projects, commercial
viability is largely dependent on the outlook for the price of the
commodity. This is especially true where the outlook has to span a
period measured in decades due to the immense size of the mineral
deposit. Northern Dynasty believes in the long-term demand for
copper and gold and is highly confident that Pebble's viability
will be demonstrated when it files the final mine design (as it
evolves through the iterative permitting process) after the
permitting process has been completed.
Contrary to the Short Seller's report, no mine planning scenario
with a US$13 billion capital estimate
was ever finalized, approved or adopted by Northern Dynasty or
Anglo American as its 50% partner in
the Pebble Limited Partnership ("Pebble Partnership"). In fact,
Pebble Partnership staff, led by secondees from Anglo American, recognized the flaws with this
work and continued studying development alternatives. Further,
a review of a preliminary draft US$13
billion mine planning scenario by an independent engineering
firm commissioned by Northern Dynasty identified issues with that
study and identified savings that reduced the preliminary capital
estimate by US$4 billion. As is
well-understood by those with technical knowledge of the industry,
there are a large amount of analyses conducted on very different
assumptions of mine scale and costs to test development
scenarios. The conclusions to be drawn from such work are used
to inform mine planning and design and such work is not intended to
represent the "most likely outcome" case for a mine. It is
important to note that the Pebble Partnership has considered
hundreds of preliminary mine design scenarios with different design
components, operating parameters and scales.
The 2011 PEA is the only formal published report of the Pebble
Project which assesses economics at a preliminary level.
The 2011 PEA was based on an internal Pebble Partnership study,
known as the 2010 Value Seeking Phase study ("VSP") that used
similar mining parameters as the PEA. The PEA projected Pebble to
have significant asset value. Based on the development alternatives
identified in that study, Anglo
American, following completion of the VSP, continued to
invest some US$320 million between
2010 and 2013 in Pebble until its withdrawal from the project in
2013.
Anglo American's
Termination
During the 2013 mining downturn,
Anglo American announced that it was
reconsidering its development project pipeline in light of market
conditions and was unwilling to invest another $900 million to earn a 50% interest in the Pebble
Project and therefore terminated its earn-in option. At the time,
Anglo American faced well-known
capital constraints as a result of the commodity downturn and
negative capital market conditions. In regards to that termination,
newly appointed CEO Mark Cutifani
cited a need to manage capital investment on its pipeline of long
dated projects, while publicly referring to Pebble as "a deposit of
rare magnitude and quality".
Even after its decision to withdraw from the project,
Anglo American maintained a positive
outlook on Pebble. "Our views on Pebble as a mining project
are unchanged. … We wish the project well, and express our thanks
to those who have supported Pebble…. our decision to withdraw from
the project is the result of an internal prioritisation of the many
projects that we have in our portfolio," Anglo American spokesperson James Wyatt-Tilby told Bloomberg on September 30, 2013.
The Short Seller also claims that the Pebble Project was
"pushing the boundaries" of engineering. That is simply
untrue.
While the scale of Pebble engenders a significant,
multi-component project, the scale and the engineering concepts
incorporated in its development are not unique and are based on
multiple similar mine developments around the world. Pebble
sits at approximately 1,000 feet above sea level in rolling
terrain, 60 miles from tide water that is ice-free 11 months of the
year. After more than a decade of detailed investigation and
analysis, no critical engineering issues have been identified with
mine development, ore processing, and infrastructure. Thus, in
fact, the conditions at Pebble are far less challenging than that
faced by mines successfully developed in South America (high elevations, precipitous
valleys, limited water supply), the Canadian Arctic (temperature
extremes and severe logistical challenges), southeast Asia (massive precipitation and excess water
balance conditions), and in northwest Alaska (permafrost, logistics challenges due
to short shipping seasons and temperature extremes). The 2011 PEA
work was based on customary and proven mining technologies.
Permitting the Pebble Project
Every mining project has opponents. However, Pebble enjoys
considerable support for its efforts to advance the Pebble Project
in Alaska today, including among
elected officials, business interests, and regional and Alaska
Native communities. The Short Seller tries to focus attention
on the project's opponents while deliberately neglecting to mention
the significant support the Pebble Project has had in Alaska, including opposition to what has been
widely regarded as unfair efforts by the EPA to stall the project.
Importantly, the State of Alaska
was a co-plaintiff in PLP's 'statutory authority' case against the
EPA.
Permitting and developing Pebble will be a multi-year process
with multi-decade or multi-generational payoff. We are
entirely committed to advancing the political and public consensus
necessary to support a positive permitting outcome. The Company is
advancing a comprehensive strategy to address EPA actions and
stakeholder concerns through potential changes in project design,
enhancing strategic partnerships with key constituencies and
ensuring the project delivers significant benefits to the people of
Bristol Bay and Alaska. What is
absolutely clear is that many Alaskans are concerned about the
EPA's pre-emptive actions, and they want the project to be fully
but fairly evaluated through a comprehensive federal/state
permitting process under the US National Environmental Policy Act
("NEPA").
The Company believes it will have the opportunity to
appropriately respond to concerns raised by regulators, and to
demonstrate that its final design will satisfy all federal and
state environmental regulations and permitting requirements.
The EPA
Northern Dynasty and its technical advisors
will provide full support to the lead federal regulatory agency to
ensure that the Environmental Impact Statement ("EIS") completed at
Pebble will be a rigorous scientific assessment of the
environmental impact of a mine design that will incorporate robust
engineering and environmental approaches and technologies. This
will clearly demonstrate to the agencies and stakeholders that
Pebble meets and exceeds all relevant federal and state
environmental standards.
The Short Seller has no basis to predict that any future
Democrat administration would seek to veto the Pebble Project,
before or after the Pebble Project has received a positive Record
of Decision following a comprehensive EIS process.
Northern Dynasty's financial position
Northern Dynasty is in a strong financial position having
recently completed a C$47 million
oversubscribed bought deal financing, contrary to the claim by the
Short Seller.
The Company believes that its Pebble Project has a high
likelihood of success. The Company further believes the Short
Seller report is misleading as it contains numerous misstatements,
comments attributed to "anonymous sources" and deliberate
inaccuracies. It demonstrates that the Short Seller has no
understanding of or experience in the mining industry or the
development process of a mining project.
As typically results after a short report, various law firms
have announced investigations into, or lawsuits against, Northern
Dynasty. Management believes any such suits will prove equally
baseless and they will be vigorously defended against.
Endnotes
|
1.
|
Short selling is the
practice of selling borrowed shares and subsequently repurchasing
them. In the event of an interim price decline, the short seller
will profit, since the cost of repurchase will be less than the
proceeds which were received upon the initial short
sale.
|
2.
|
Permission to quote
from the reports was neither sought nor obtained. The Company does
not necessarily adopt the statements and opinions set forth by the
analysts, and investors should review all information available to
them.
|
3.
|
Copper equivalent
(CuEQ) calculations use metal prices of US$1.85/lb for copper (Cu),
US$902/oz for gold (Au) and US$12.50/lb for molybdenum (Mo), and
recoveries of 85% for Cu, 69.6% for Au, and 77.8% for Mo in the
Pebble West zone and 89.3% for Cu, 76.8% for Au, 83.7% for Mo in
the Pebble East zone. Contained metal calculations are based on
100% recoveries. The estimate includes 527 million tonnes of
Measured resources grading 0.33% Cu, 0.35 g/t Au, 178 ppm Mo and
1.66 g/t Ag and 5.9 billion tonnes of Indicated resources grading
0.41% Cu, 0.34 g/t Au, 245 ppm Mo and 1.66 g/t Ag. David
Gaunt, PGeo., a Qualified Person who is not independent of Northern
Dynasty is responsible for the estimate. For further details see
the December 2014 Technical Report which is available at
www.sedar.com.
|
4.
|
Resource and reserve
data informing this chart, which is for illustrative purposes only,
is based on public and third party sources believed to be accurate
but this cannot be warranted, and it may contain information which
in some cases may be several years old. Where available, proven and
probable reserve grades have been used to calculate copper
equivalence values. For those projects which have not
declared a reserve, measured and indicated grades have been
employed. Copper equivalence has been calculated by summing
the revenue for all payable metals and dividing this figure by the
revenue of 1% copper. Commodity prices used in this
calculation are: Cu = 2.88/lb, Au = 1200/oz, Ag = 18/oz, Mo = 10/lb
(all prices in US$).
|
5.
|
Notes on Mineral
Terminology: Mineral Resources and Reserves are defined terms
derived from Canadian Institute of Mining definitions. Similar
terminologies are in use in elsewhere and are being considered for
adoption in the United States. Mineral resources do not have
demonstrated economic viability, but have reasonable prospects for
eventual economic extraction. They fall into three categories:
measured, indicated and inferred. Measured and indicated mineral
resources can be estimated with sufficient confidence to allow the
appropriate application of technical, economic, marketing, legal,
environmental, social and governmental factors to support
evaluation of the economic viability of the deposit. For measured
resources: we can confirm both geological and grade continuity to
support detailed mine planning. For indicated resources: we can
reasonably assume geological and grade continuity to support mine
planning. Mineral reserves are the economically mineable part of
measured and/or indicated mineral resources demonstrated by at
least a preliminary feasibility study. The reference point at which
mineral reserves are defined is the point where the ore is
delivered to the processing plant. Mineral reserves fall into two
categories: a) proven reserves: the economically mineable part of a
measured resource for which at least a preliminary feasibility
study demonstrates that economic extraction is justified; and b)
probable reserves: the economically mineable part of a measured
and/or indicated resource for which at least a preliminary
feasibility study demonstrates that economic extraction is
justified. Northern Dynasty does not classify any of its
mineralized material as reserves at this time. United States
investors are advised that while "Measured" and "Indicated"
resources are recognized and required by Canada and other
countries, the United States Securities and Exchange Commission
does not recognize them. United States investors are cautioned not
to assume that all or any part of Measured or Indicated Mineral
Resources will ever be converted into Mineral Reserves.
|
Qualified Persons
Stephen
Hodgson, P.Eng., is an executive of Northern Dynasty and the
Qualified Person who assumes responsibility for the scientific and
technical discussion in this document.
About Northern Dynasty Minerals Ltd.
Northern Dynasty is a mineral exploration and development
company based in Vancouver,
Canada. Northern Dynasty's principal asset is the Pebble
Project in southwest Alaska, USA,
an initiative to develop one of the world's most important mineral
resources.
For further details on Northern Dynasty and the Pebble Project,
please visit the Company's website at www.northerndynasty.com or
contact Investor services at (604) 684-6365 or within North America at 1-800-667-2114. Review
Canadian public filings at www.sedar.com and U.S. public filings at
www.sec.gov.
On behalf of the Board of Northern Dynasty Minerals Ltd.
Ronald W. Thiessen
President & CEO
Forward Looking Information and other
Cautionary Factors
This disclosure document contains "forward-looking information"
within the meaning of applicable Canadian securities legislation,
and "forward-looking statements" within the meaning of the United
States Private Securities Litigation Reform Act of 1995
(collectively referred to as "forward-looking information"). The
use of any of the words "expect", "plan", "update" and similar
expressions are intended to identify forward-looking information or
statements. These statements include expectations about the
size, nature and/or ultimate economics of the Pebble Project, the
success of the Company's multi-dimensional strategy to address the
pre-emptive action of the EPA, the ability of the Company to
proceed with permit applications for the development of the Pebble
Project and the ability of the Company to obtain the necessary
federal and state permits for the development of the Pebble
Project. Though the Company believes the expectations expressed in
its forward-looking statements are based on reasonable assumptions,
such statements are subject to future events and third party
discretion such as regulatory approval. For more information on the
Company, and the risks and uncertainties connected with its
business, Investors should review the Company's home jurisdiction
filings at www.sedar.com and its filings with the United States
Securities and Exchange Commission at www.sec.gov.
No securities regulatory authority assumes any responsibility
for the contents of this disclosure.
SOURCE Northern Dynasty Minerals Ltd.