Northern Dynasty Minerals: New Ownership Structure Sought For Pebble

Rio Tinto may divest 19.1% of NDM
Rio Tinto, (RIO) has announced it is undertaking a strategic review, including the possible divestiture, of its 19.1% shareholding in Northern Dynasty Minerals Ltd., (NDM) common shares. We are surprised by this action, as we believed Rio Tinto might be interested in increasing its holding in Pebble. NDM is working on securing a replacement for Anglo American as a strategic partner for the Pebble project.

Rio Tinto may divest Northern Dynasty stake
On 23 December, Rio Tinto announced that it intends to undertake a strategic review, including possible divestment, of its 19.1% ownership of NDM common shares. As part of the review, Rio Tinto’s management will consider the fit of the Pebble project with the strategy of investing in and operating long-life and expandable assets and with the strategy for its copper business, which is focused on its four producing assets (Kennecott, Utah Copper, Oyu Tolgoi and its interests in Escondida and Grasberg) and two development projects, La Granja in Peru and Resolution in Arizona.

New ownership structure sought for Pebble
NDM is focused on consolidating the relevant information on its Pebble Project 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 NDM may be able to sign up a new partner by Q314.

Valuation: Resource valuation vs risk profile
As stated in our update note of 19 December, we have not revised our DCF model valuing NDM, as the details of development and timing are uncertain. However, with 100% of the project, 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 American’s exit. For now, we leave our estimates unchanged pending details of a new partner and a new schedule.

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