Northern Dynasty Minerals

NDM acquires 100% of Pebble
Northern Dynasty Minerals (NDM) exercised its right to acquire Anglo American’s 50% interest in the Pebble Project on 13 December, increasing its ownership to 100%, and is working on securing a new partner. All Anglo American representatives have resigned from the NDM board. Pebble is the world’s largest undeveloped copper-gold project.

Exercises option to buy out Anglo
On 13 December, Northern Dynasty exercised its option to acquire Anglo American’s 50% interest in the Pebble Project. Anglo had contributed US$556m for the advancement of Pebble through to September 2013 and, although it has not officially been made public, Edison estimates that final expenditure will have been US$560-570m. NDM committed minimal funds to exercise its option to reacquire the 50% interest in Pebble.

New ownership structure sought
NDM is focused on consolidating all of the technical, engineering work and permitting documentation related to Pebble into a data room, with the goal of qualifying and securing a new partner for the project in 2014. We believe there will be material interest in joining the project by major global-mining companies and that it is possible that NDM may be able to sign up a new partner by Q314.

Project may be scaled back
At 30 September 2013 Northern Dynasty had C$22.5m in cash and no debt. We estimate spending by NDM on Pebble will now be C$12-17m in 2014 vs US$70-80m when Anglo was a partner. We estimate it would have cost US$300m to secure environmental permits by 2017 if Anglo were funding the spending. The February 2011 preliminary assessment estimated Pebble’s capital budget at US$6.0bn. Management has indicated it may reduce the scope of the Pebble Project.

Valuation: Resource valuation vs risk profile
We have not revised our DCF model valuing NDM as the details of development and timing are up in the air. With 100% of the project however, NDM’s resource multiple is currently just 0.17 US cents per lb copper in-situ (US$3.75/t), compared to a global average for explorers of 6.7c/lb (US$147/t). As such, NDM represents a cheap way of buying copper and gold in the ground, although investors need to be aware of the altered risk profile in the light of Anglo’s exit. For now we leave our estimates unchanged pending details on a new partner and a new schedule.

To Read the Entire Report Please Click on the pdf File Below.