Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Three and nine months ended September 30, 2020
Table of Contents
1.1
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Date
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3
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1.2
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Overview
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6
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1.2.1
Pebble
Project
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7
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1.2.1.1
Project Background
and Status
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7
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1.2.1.2
Current Technical
Programs
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11
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1.2.2
Legal
Matters
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12
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1.2.3
Financings
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13
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1.2.4
Market
Trends
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14
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1.3
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Selected Annual
Information
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15
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1.4
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Summary and
Discussion of Quarterly Results
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15
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1.5
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Results of
Operations
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16
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1.6
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Liquidity
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18
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1.7
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Capital
Resources
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19
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1.8
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Off-Balance Sheet
Arrangements
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19
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1.9
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Transactions with
Related Parties
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19
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1.10
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Fourth
Quarter
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21
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1.11
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Proposed
Transactions
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21
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1.12
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Critical
Accounting Estimates
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21
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1.13
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Changes in
Accounting Policies including Initial Adoption
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21
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1.14
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Financial
Instruments and Other Instruments
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21
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1.15
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Other MD&A
Requirements
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23
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1.15.1
Disclosure of
Outstanding Share Data
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23
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1.15.2
Disclosure
Controls and Procedures
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23
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1.15.3 Management’s
Report on Internal Control over Financial Reporting
("ICFR") |
24
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1.15.4
Limitations of
Controls and Procedures
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24
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1.15.5
Risk
Factors
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24
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Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Three and nine months ended September 30, 2020
This
Management’s Discussion and Analysis ("MD&A") should be read in conjunction
with the unaudited consolidated interim financial statements (the
"Interim Financial
Statements") of Northern Dynasty Minerals Ltd.
("Northern Dynasty" or the
"Company") for the three and
nine months ended September 30, 2020, and the Company’s
audited consolidated financial statements for the year ended
December 31, 2019 (the "2019 Financial Statements")
and the annual MD&A for the same period, as publicly filed
under the Company’s 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
November 12, 2020.
All dollar amounts herein are expressed in thousands of Canadian
dollars, unless otherwise specified.
This
MD&A contains certain forward-looking information and
forward-looking statements within the meaning of applicable
Canadian securities laws and forward-looking statements within the
meaning of the United States Private Securities Litigation Reform Act of
1995. Forward-looking statements describe our future plans,
strategies, expectations and objectives, and are generally, but not
always, identifiable by use of the words "may", "will", "should",
"continue", "expect", "anticipate", "estimate", "believe",
"intend", "plan" or "project" or the negative of these words or
other variations on these words or comparable
terminology.
|
Forward-looking
statements contained or incorporated by reference into this
MD&A include, without limitation, statements
regarding:
●
the uncertainties
with respect to the effects of COVID-19;
●
our expectations
regarding the potential for securing the necessary permitting of a
mine at the Pebble Project and our ability to establish that such a
permitted mine can be economically developed;
●
the issuance of the
Record of Decision by the US Army Corps of Engineers ("USACE");
●
our ability to
successfully apply for and obtain the federal and state permits
that will be required to develop the Pebble Project, including
under the Clean Water Act ("CWA"), the National Environmental Policy
Act ("NEPA"), and relevant
legislation;
●
our plan of
operations, including our plans to carry out and finance
exploration and development activities and for working capital
purposes and our expectations regarding our cash and working
capital requirements;
●
our ability to
raise capital for the exploration, permitting and development
activities and meet our working capital purposes;
●
our expected
financial performance in future periods;
●
our expectations
regarding the exploration and development potential of the Pebble
Project;
●
the outcome of the
legal proceedings in which we are engaged; 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.
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Northern Dynasty Minerals Ltd.
Management's Discussion And Analysis
Three
and nine months ended September 30, 2020
|
Key
assumptions upon which the Company’s forward-looking
information are based include:
●
that we will be
able to secure sufficient capital necessary for continued
environmental assessment and permitting activities and engineering
work which must be completed prior to any potential development of
the Pebble Project which would then require engineering and
financing in order to advance to ultimate
construction;
●
that we 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 so that we will be ultimately
able to obtain permits authorizing construction of a mine at the
Pebble Project;
●
that the COVID-19
outbreak will not materially impact or delay our ability to obtain
permitting for a mine at the Pebble Project;
●
that the market
prices of copper, gold, molybdenum and silver will not
significantly decline or stay depressed for a lengthy period of
time;
●
that our key
personnel will continue their employment with us; and
●
that we will
continue to be able to secure minimal adequate financing on
acceptable terms.
Readers
are cautioned that the foregoing list is not exhaustive of all
factors and assumptions that may have been used. Forward-looking
statements are also subject to risks and uncertainties facing our
business, any of which could have a material impact on our
outlook.
Some of the risks
we face and the uncertainties that could cause actual results to
differ materially from those expressed in the forward-looking
statements include:
●
an inability to
ultimately obtain permitting for a mine at the Pebble
Project;
●
an inability to
establish that the Pebble Project may be economically developed and
mined or contain commercially viable deposits of ore based on a
mine plan for which government authorities are prepared to grant
permits;
●
the USACE may be
delayed in issuing its Record of Decision;
●
government efforts
to curtail the COVID-19 pandemic may delay the release by the USACE
of the issuance of its Record of Decision, and may delay the
Company in completion of its work relating to this permitting
process;
●
our ability to
obtain funding for working capital and other corporate purposes
associated with advancement of the Pebble Project;
●
an inability to
complete a partnering transaction on terms satisfactory to the
Company;
●
an inability to
continue to fund exploration and development activities and other
operating costs;
●
the highly cyclical
and speculative nature of the mineral resource exploration
business;
●
the pre-development
stage economic viability and technical uncertainties of the Pebble
Project and the lack of known reserves on the Pebble
Project;
|
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Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Three and nine months ended September 30, 2020
|
●
an inability to
recover even the financial statement carrying values of the Pebble
Project if we cease to continue on a going concern
basis;
●
the potential for
loss of the services of key executive officers;
●
a history of, and
expectation of further, financial losses from operations impacting
our ability to continue on a going concern basis;
●
the volatility of
copper, gold and molybdenum prices and share prices of mining
companies;
●
the inherent risk
involved in the exploration, development and production of
minerals, and the presence of unknown geological and other physical
and environmental hazards at the Pebble Project;
●
the potential for
changes in, or the introduction of new, government regulations
relating to mining, including laws and regulations relating to the
protection of the environment and project legal
titles;
●
potential claims by
third parties to titles or rights involving the Pebble
Project;
●
the uncertainty of
the outcome of current or future litigation;
●
the possible
inability to insure our operations against all risks;
●
the highly
competitive nature of the mining business;
●
our ability to
obtain funding for working capital and other purposes;
●
the potential
equity dilution to current shareholders from future equity
financings; and
●
that we have never
paid dividends and will not do so in the foreseeable
future.
While the effort
was made to list the primary risk factors, this list should not be
considered exhaustive of the factors that may affect any of our
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 and
otherwise contained herein.
Our forward-looking
statements and risk factors 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 appreciate the inherent uncertainty of, and not
place undue reliance on forward-looking information. We do not
undertake to update any forward-looking information, except as, and
to the extent required by, applicable securities
laws.
For more information on the Company, investors
should review the Company’s annual information form and home
jurisdiction filings that are available on SEDAR at
www.sedar.com.
The Company reviews its forward-looking statements on an ongoing
basis and updates this information when circumstances require
it.
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Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Three and nine months ended September 30, 2020
|
Cautionary Note to Investors Concerning Estimates of Measured,
Indicated and Inferred Resources
The following section uses the terms
"Measured
Resources", "Indicated Resources" and “Inferred
Resources”. The Company advises
investors that these terms are recognized and required by Canadian
regulations under National Instrument 43-101, Standards of Disclosure for
Mineral Properties ("43-101"). The United States Securities and Exchange
Commission (the "SEC") has adopted amendments to its disclosure rules
to modernize the mineral property disclosure required for issuers
whose securities are registered with the SEC under the US
Securities
Exchange Act of 1934, effective
February 25, 2019 ("The SEC Modernization
Rules"). The SEC Modernization
Rules include the adoption of definitions of the terms and
categories of resources which are "substantially similar" to the corresponding terms under Canadian
Regulations in 43-101. Accordingly, there is no assurance any
mineral resources that we may report as Measured Resources,
Indicated Resources and Inferred Resources under 43-101 would be
the same had we prepared the resource estimates under the standards
adopted under the SEC Modernization Rules. Investors are cautioned not to
assume that all or any part of mineral deposits in these categories
will ever be converted into reserves.
In
addition, Inferred Resources have a great amount of uncertainty as
to their economic and legal feasibility. Under Canadian rules,
estimates of Inferred Resources may not form the basis of
feasibility or pre-feasibility studies, or economic studies except
for a Preliminary Economic Assessment as defined under
43-101.
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Northern
Dynasty is a mineral exploration company which, through its
wholly-owned Alaskan registered limited partnership, the Pebble
Limited Partnership (the "Pebble
Partnership"), holds a 100% interest in mining claims that
are part of or in the vicinity of the Pebble
Copper-Gold-Molybdenum-Silver-Rhenium Project (the "Pebble Project" or "Pebble") in
southwest Alaska, USA ("US"). The Company’s business in
Alaska is operated through the Pebble Partnership.
The
Pebble Project is an initiative to develop one of the world’s
most important mineral resources. During the quarter, the Company
announced the results of a study designed to assess the rhenium
content of the Pebble deposit, indicating that in addition to being
a significant copper and gold deposit, Pebble contains a globally
significant resource of rhenium. Rhenium is considered a strategic
metal by the US Congress, the US Geological Survey, the US
Department of Interior and the US military. Jet engine and related
military applications currently account for approximately 80% of
current annual US rhenium consumption, and industrial applications
that employ rhenium as a catalyst in the production of such things
as high octane, lead-free gasoline, account for the
remainder.
The
August 2020 estimate of the Pebble mineral resources1 at a 0.30% copper equivalent cut-off
grade comprises:
●
6.5 billion tonnes
in the combined Measured and
Indicated categories at a grade of 0.40% copper, 0.34 g/t
gold, 240 ppm molybdenum, 1.7 g/t silver and 0.41 ppm rhenium,
containing 57 billion pounds of copper, 71 million ounces
of gold, 3.4 billion pounds of molybdenum, 345 million
ounces of silver and 2.6 million kilograms of rhenium;
and
●
4.5 billion tonnes
in the Inferred category at
a grade of 0.25% copper, 0.25 g/t gold, 226 ppm molybdenum, 1.2 g/t
silver and 0.36 ppm, containing 25 billion pounds of copper,
36 million ounces of gold, 2.2 billion pounds of
molybdenum, 170 million ounces of silver and 1.6 million kilograms
of rhenium.
A
significant milestone for the Pebble Project was reached on July
24, 2020, when the USACE published the Final Environmental Impact
Statement ("Final EIS") for
the Pebble Project. The Final EIS is the culmination of a 2.5 year
long, intensive review process under the National Environmental
Policy Act. Led by the USACE, the Pebble EIS process also involved
eight federal cooperating agencies (including the US Environmental
Protection Agency and US Fish & Wildlife Service), three state
cooperating agencies (including Alaska Department of Natural
Resources and Alaska Department of Environmental Conservation), the
Lake & Peninsula Borough and federally recognized
tribes.
The
USACE website states the Record of Decision ("ROD") is estimated for fall 2020. Its
Management’s expectation that the ROD will be issued during
this current presidential administration.
Much of
the work by the Company through the Pebble Partnership since 2017
has focused on facilitating and providing support to the federal
EIS permitting process, which led to the release of the Final EIS.
The process and programs are summarized in section 1.2.1.1,
Permitting
and section 1.2.1.2,
Current
Technical Programs.
1 For
further
details see Section 1.2.1, Pebble Project - August 2020
Mineral Resource Estimate.
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Three and nine months ended September 30, 2020
The
Company has continued to actively engage and consult with project
stakeholders to share information and gather feedback on the Pebble
Project, its potential effects and proposed mitigation. In 2018,
2019 and 2020, right-of-way agreements were secured with Alaska
Native village corporations and other landowners whose lands cover
portions of several proposed transportation and infrastructure
routes for the Pebble Project. Opportunities for additional
community benefits from development of the project are also being
explored. During the third quarter in July 2020, the Pebble
Performance Dividend revenue sharing program for full-time adult
residents of Bristol Bay communities, and a Memorandum of
Understanding ("MOU") with
Alaska Peninsula Corporation ("APC") were announced, as further
described in section 1.2.1.1,
Agreements
and Other Initiatives with Alaska Native Village
Corporations.
Corporate
activities have been directed toward raising capital to support the
EIS process and
discussions directed toward securing a partner with which to
advance the overall development of the project. On the strength of
the Final EIS and ROD, Northern Dynasty’s goal is to secure a
major mining company (or consortium of companies) to become a
partner(s) in the Pebble enterprise, and participate in the final
stages of project evaluation, design and permitting. In the
meantime, the Pebble Partnership will continue to advance programs
and partnerships to enhance public and political support for the
Pebble Project in Alaska, and prepare for state
permitting.
From
2001, when Northern Dynasty’s involvement at the Pebble
Project began, to September 30, 2020, a total of
$972 million (US$878 million) has been invested to
advance the project.2
Corporate
As at
September 30, 2020, the Company had $63.1 million in
cash and cash equivalents and had working capital of
$47.5 million. Financings with gross proceeds of approximately
US$43.9 million ($59.3 million) were completed during the
quarter (see section 1.2.3
Financings).
As of the date of this MD&A, the Company’s cash balance
was approximately $54.4 million (US$41.4 million, using
the closing rate of C$1.3143).
Although,
the Company has prioritized the allocation of its available
financial resources to meet key corporate and Pebble Project
expenditure requirements in the near term, additional financing
will be required beyond the twelve-month period for the development
of the project. The Company will seek the necessary financing
through any of or a combination of debt and equity and/or
contributions from possible new Pebble Project participants
however, there can be no assurances that it 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
Pebble Project is located in southwest Alaska, approximately 17
miles from the villages of Iliamna and Newhalen, and approximately
200 miles southwest of the city of Anchorage. Situated in an area
of rolling hills approximately 1,000 feet above sea-level and 60
miles from tidewater on Cook Inlet, the site conditions are
favorable for successful mine site and infrastructure
development.
1.2.1.1
Project Background and Status
The
Pebble deposit was discovered in 1989 by a prior operator,
which by 1997 had developed an initial outline of the
deposit.
Northern
Dynasty has been involved in the Pebble Project since 2001.
Exploration since that time has led to significant expansion of the
mineral resources in the Pebble deposit, including a substantial
volume of higher grade mineralization in its eastern part. The
deposit also remains open to further expansion at depth and to the
east. A number of other occurrences of copper, gold and molybdenum
have also been identified along the extensive northeast-trending
mineralized system that underlies the property. The potential of
these earlier-stage prospects has not yet been fully
explored.
Comprehensive
deposit delineation, environmental, socioeconomic and engineering
studies of the Pebble deposit began in 2004. A Preliminary
Assessment of the Pebble Project completed in 2011, provided
initial insights into the size and scale of project that the Pebble
resource might support. The Pebble Partnership continued to
undertake detailed engineering, environmental and socioeconomic
studies over the next two years.
2 Of this,
approximately $595 million (US$573 million) was provided by a
wholly-owned subsidiary of Anglo American plc, which participated
in the Pebble Partnership from 2007 to 2013, and the remainder was
financed by Northern Dynasty. A major part of the 2007-2013
expenditures were on exploration, resource estimation,
environmental data collection and technical studies, with a
significant portion spent on engineering of possible mine
development models, as well as related infrastructure, power and
transportation systems. The mine-site and infrastructure studies
completed are not necessarily representative of management’s
current understanding of the most likely development scenario for
the project, and accordingly, Northern Dynasty is uncertain whether
it can realize significant value from this prior work.
Environmental baseline studies and data, as well as geological and
exploration information, remain important information available to
the Company to advance the project.
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Three and nine months ended September 30, 2020
In
February 2014, the US Environmental Protection Agency
("EPA") announced a
pre-emptive regulatory action under the CWA to consider restriction
or a prohibition of mining activities associated with the Pebble
deposit. From 2014-2017, Northern Dynasty and the Pebble
Partnership focused on a multi-dimensional strategy, including
legal and other initiatives to ward off this action. These efforts
were successful, resulting in the joint settlement agreement
announced on May 12, 2017, which enabled the project to move
forward with state and federal permitting. Also as part of the
joint settlement agreement, the EPA agreed to initiate a process to
propose to withdraw the Proposed Determination. That process was
initiated in July 2017 but was suspended in January 2018. It was
re-initiated by the EPA in late June 2019, ultimately leading it
its withdrawal in July 2019.
Permitting
In the
latter part of 2017, a project design based on a smaller mine
concept was developed for the Pebble Project. The CWA 404
permit application was submitted to the USACE on December 22, 2017,
initiating federal permitting for the Pebble Project under NEPA.
Significant milestones in this permitting process are summarized
below:
●
On February 5,
2018, USACE announced the appointment of AECOM, a leading global
engineering firm, as third-party contractor for the USACE EIS
process;
●
On March 19, 2018,
USACE published guidelines and timelines for completing NEPA
permitting, and the associated USACE EIS process;
●
Between April and
August 2018, the Pebble Project was advanced through the Scoping
Phase of the EIS process administered by the USACE:
o
Scoping was
initiated on April 1, 2018 with a 90-day public comment period
concluded on June 29, 2018; and
o
The USACE released
the Scoping Document on August 31, 2018.
●
On February 20,
2019, USACE posted the draft EIS (the "Draft EIS") on its website, then
initiated a public comment process on the Draft EIS, which was
completed on July 2, 2019;
●
In February 2020, a
preliminary version of the Final EIS was distributed for comment
and review to cooperating agencies and to tribes participating in
the process;
●
In March 2020,
USACE announced it had decided on a Northern Transportation Route
option as the draft Least Environmentally Damaging Practicable
Alternative ("LEDPA") for
accessing the proposed Pebble mine site, subsequent to which Pebble
Partnership revised its Proposed Project Description to align with
the USACE selection. The Northern Transportation Route includes
adjustments to the port site (location at Diamond Point with
off-shore lightering station) and a road and pipeline route
(located further to the north with no lake crossings or ferry
terminals);
●
In May 2020, the
EPA issued a letter confirming the EIS process for the proposed
Pebble mine led by the USACE is proceeding well, and effectively
addressing all issues and concerns raised by EPA, the US Fish and
Wildlife Service (USFWS) and other cooperating agencies. The letter
reflects the EPA’s decision not to pursue so-called 3(b)
elevation under the CWA 404(q) guidelines; and
●
On July 24, 2020,
the USACE posted the Final EIS on its website.
Northern
Dynasty, through Pebble Partnership, has continued to advance
engineering studies to refine the mine design and to support the
EIS process. The results of this work have been reported in updates
to the Project Description. The Project Description and other
relevant documents related to the EIS process are available on the
USACE website at https://pebbleprojecteis.com.
The
Final EIS analyzes the potential impacts of four action development
alternatives, and a "No Action" alternative. The development option
selected by USACE as the draft LEDPA is described in the June 2020
Project Description. It includes a proposed open-pit mining
operation and associated ore processing facilities in southwest
Alaska, an 82-mile road, pipeline and utilities corridor to a
permanent, year-round port facility on Cook Inlet, a lightering
location in Iniskin Bay, a 164-mile natural gas pipeline from
existing energy infrastructure on the Kenai Peninsula to the Pebble
mine site, a 270 MW natural gas-fired power plant at the mine site
and smaller power generation facility at the port
site.
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Three and nine months ended September 30, 2020
Over 20
years of mining, the Pebble Project as proposed will extract
approximately 70 million tons of mineralized material annually
at the extremely low strip ratio of 0.12:1. A conventional
blast-haul-crush and froth flotation milling process with nameplate
capacity of 180,000 tons per day will be employed to produce, on
average, 613,000 tons of copper-gold concentrate each year
(containing 318 million lb Cu, 362,000 oz Au and 1.8 million oz Ag)
and 15,000 tons of molybdenum concentrate (containing 14 million lb
Mo). The current mine plan proposal encompasses the important
environmental safeguards previously described,
including:
●
a smaller
footprint, consolidating major site infrastructure in a single
drainage.
●
a more conservative
Tailings Storage Facility ("TSF") design, including enhanced
buttresses, flatter slope angles and an improved factor of
safety;
●
separation of
potentially acid generating ("PAG") tailings from non-PAG bulk
tailings for storage in a fully-lined TSF;
●
co-storage of PAG
waste rock within the PAG TSF and transfer of the PAG tailings and
waste rock to the open pit at closure;
●
no permanent waste
rock piles; and
Topline
findings from the Final EIS Executive Summary include:
●
On subsistence fish and wildlife resources:
“Overall, impacts to fish and
wildlife would not be expected to impact harvest levels. Resources
would continue to be available because no population-level decrease
in resources would be anticipated.” (ES 51)
●
On commercial fishing: “There would be no measurable
change in the number of returning salmon and the historical
relationship between ex-vessel values and wholesale values. In
addition, there would be no changes to wholesale values or
processor operations expected…. Under normal operations, the
Alternatives would not be expected to have a measurable effect on
fish numbers and result in long-term changes to the health of the
commercial fisheries in Bristol Bay.” (ES-87)
●
On water quality:
“An Alaska
Pollutant Discharge Elimination System (APDES) permit stipulation
requires treated water quality monitoring, to ensure discharged
water meets applicable water quality criteria. Assuming these
protections are adopted, direct and indirect impacts of treated
contact waters to off-site surface water are not expected to
occur.”
(ES-70)
●
On local
communities and socioeconomic impacts: “The increase in job
opportunities, year-round or seasonal employment, steady income,
and lower cost of living described above would have beneficial
impacts on the EIS analysis area, especially for communities in the
LPB, during construction and operations of the
project.”
(ES-54)
“The project could reduce or
eliminate the current local population decline because of the
increase in employment opportunities and indirect effects on
education and infrastructure; it could also lead some prior
residents to return to communities.” (ES-48)
The
next step in the federal permitting process for Pebble is the ROD,
which the USACE website states is estimated for fall 2020. Its
Management’s expectation that the ROD will be issued during
this current presidential administration. The Pebble Partnership
must also secure a number of permits issued by the State of Alaska,
a process expected to take 2 – 3 years.
The
proposed project uses a portion of the currently estimated Pebble
mineral resources. This does not preclude development of additional
resources in other phases of the project in the future, although
any subsequent phases of development would require extensive
regulatory and permitting review by federal, state and local
regulatory agencies, including a comprehensive EIS review process
under NEPA.
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Three and nine months ended September 30, 2020
Agreements and Other Initiatives with Alaska
Native Village Corporations
The
Pebble Partnership carries out an active program of engagement and
consultation with stakeholders in the area of the Pebble Project in
parallel with its technical work, and includes discussions to
secure stakeholder agreements to support the project’s
development.
Right-of-Way Agreements
The
Pebble Partnership has finalized Right of Way ("ROW") agreements with Alaska Native
village corporations and other landowners with land holdings along
proposed transportation and infrastructure routes for the Pebble
Project. In other cases, discussions with landowners continue to
progress toward final agreements.
The ROW
agreements secure access to portions of several proposed
transportation and infrastructure routes to the Pebble Project site
for construction and operation of the proposed mine and represents
a significant milestone in the developing relationship between
Pebble and the Alaska Native people of the region. The Pebble
Partnership is confident it will secure the right to use defined
portions of each of the Native village corporations’ lands
for the construction and operation of transportation infrastructure
associated with the Pebble Project.
Agreements include
the following provisions:
●
The Pebble
Partnership will make annual toll payments to the Alaska Native
village corporation land upon
whose lands Pebble-related transportation infrastructure is built
and operated, and pay other fees prior to and during project
construction and operation;
●
Village
corporations have been granted ‘Preferred Contractor’
status at Pebble, which provides a preferential opportunity to bid
on Pebble-related contracts located on their lands;
and
●
The Pebble
Partnership has agreed to negotiate a profit sharing agreement with
Alaska Native village corporations that will ensure that the
corporations and their shareholders benefit directly from the
profits generated by mining activity in the region.
Additionally,
transportation and other infrastructure for a mine at Pebble is
expected to benefit Alaska Native village corporations, their
shareholders and villages through access to lower cost power,
equipment and supplies, as well as enhanced economic activity in
the region. Spur roads connecting to the local villages will allow
local residents to access jobs at the Pebble mine site and port
site.
The
USACE’s identification of the Northern Transportation Route
as the draft LEDPA for the Pebble Project in 2020 has required that
the Pebble Partnership secure additional ROW agreements with Alaska
Native village corporations and other private landowners with land
holdings along the northern route. The Pebble Partnership is in the
process of securing these additional ROW agreements, and is
confident it will ultimately achieve the access rights required to
build and operate transportation and related infrastructure for the
Pebble Project.
Other Community Initiatives
On June
16, 2020, the Company announced the Pebble Partnership has
established the Pebble Performance Dividend LLP to provide a local
revenue sharing program with the objective of ensuring that
full-time residents of communities in southwest Alaska benefit
directly from the future operation of the proposed Pebble Project.
The intention is for the Pebble Performance Dividend LLP to
distribute cash generated from a 3% net profits royalty interest in
the Pebble Project to adult residents of Bristol Bay villages that
have subscribed as participants, with a guaranteed minimum
aggregate annual payment of US$3 million each year the Pebble mine
operates, beginning at the outset of project construction. Future
payments following capital payback are expected to increase beyond
this initial amount.
An MOU
between the Pebble Partnership and APC was announced on July 6,
2020. APC is an Alaska Native village corporation with extensive
land holdings proximal to the Pebble site. The MOU envisages that
APC will lead the development of a consortium of Alaska Native
village corporations with land holdings along the northern route
("Northern Transportation
Route ", see section 1.2.1). It is contemplated that the
consortium would provide road maintenance, truck transport, port
operations and other logistical services to the Pebble Project
should that development of the mine proceed. The MOU is consistent
with the Company’s strategy of ensuring the development of
the Pebble Project will benefit local Alaska communities and
people. The MOU is not a binding final contract. Any final
contracts with APC or other Alaska Native village corporations will
require further negotiation of commercial terms and negotiation of
definitive contracts. There is no assurance that these contracts
will be concluded or that the Alaska Native village corporations
will support the Pebble Project.
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Three and nine months ended September 30, 2020
1.2.1.2
Current Technical Programs
In
2020, technical programs have mainly been focused on support of the
EIS process and federal permitting of the Pebble Project, which
include planning and implementing engineering and environmental
field studies and data collection programs. Additionally, in the
third quarter, a study of rhenium in the Pebble deposit was
completed and the mineral resource estimate was
updated.
The
Company has continued to engage and consult with project
stakeholders to share information and gather feedback on the Pebble
Project.
Site Programs
Geophysical
and geotechnical surveys and studies for a right-of way of the
marine portion of the natural gas pipeline route to Amakedori were
completed in 2019. Additional survey work for the pipeline route
across Cook Inlet that connects with the Northern Transportation
Route described in the Project Description was done in 2020. The
application for the pipeline right-of-way was submitted in the
third quarter.
The
Pebble team conducted a comprehensive review of the Final EIS for
the Pebble Project in July 2020. USACE’s expectations for
compensatory mitigation of wetlands impacts associated with the
project were outlined in a letter to the Pebble Partnership in
August 2020. The Compensatory Mitigation Plan ("CMP") is part of the permitting process
and necessary to receiving a federal ROD. As described under
Environment below, site surveys to collect data for the CMP were
part of the summer 2020 program. The Company announced that the
Pebble Partnership had submitted the CMP to USACE in November
2020.
2020 Mineral Resource Estimate
To
complete the mineral resource estimate, domains were created for
the Pebble deposit based on geology, alteration and grade
distribution; estimation parameters, including top cuts, search
strategy, and variography were developed for each modelled domain.
Rhenium values were interpolated into the Pebble block model using
Ordinary Kriging and classified in the same manner as previously
estimated grades for copper, gold, molybdenum and
silver.
David
Gaunt, P.Geo., a qualified person as defined under 43-101 who is
not independent of Northern Dynasty, is responsible for the mineral
resource estimate, which has an effective date of August 18, 2020.
Further details are available in the 2020 Technical Report on the Pebble Project,
Southwest Alaska, USA, by J. David Gaunt, P. Geo., James Lang,
P.Geo., Eric Titley, P.Geo., Ting Lu, P.Eng., and Stephen Hodgson,
P.Eng., ("September 2020 Technical Report"), which is filed
under the Northern Dynasty profile at www.sedar.com.
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Three and nine months ended September 30, 2020
Pebble
Deposit
August 2020
Mineral Resources
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.3
|
0.65
|
527,000,000
|
0.33
|
0.35
|
178
|
1.7
|
0.32
|
3.83
|
5.93
|
0.21
|
28.1
|
167
|
0.4
|
0.66
|
508,000,000
|
0.34
|
0.36
|
180
|
1.7
|
0.32
|
3.81
|
5.88
|
0.20
|
27.4
|
163
|
0.6
|
0.77
|
279,000,000
|
0.40
|
0.42
|
203
|
1.8
|
0.36
|
2.46
|
3.77
|
0.12
|
16.5
|
100
|
1.0
|
1.16
|
28,000,000
|
0.62
|
0.62
|
302
|
2.3
|
0.52
|
0.38
|
0.56
|
0.02
|
2.0
|
14
|
|
0.3
|
0.77
|
5,929,000,000
|
0.41
|
0.34
|
246
|
1.7
|
0.41
|
53.58
|
64.81
|
3.21
|
316.4
|
2,443
|
0.4
|
0.82
|
5,185,000,000
|
0.45
|
0.35
|
261
|
1.8
|
0.44
|
51.42
|
58.35
|
2.98
|
291.7
|
2,271
|
0.6
|
0.99
|
3,455,000,000
|
0.55
|
0.41
|
299
|
2.0
|
0.51
|
41.88
|
45.54
|
2.27
|
221.1
|
1,748
|
1.0
|
1.29
|
1,412,000,000
|
0.77
|
0.51
|
343
|
2.4
|
0.60
|
23.96
|
23.15
|
1.07
|
109.9
|
853
|
|
0.3
|
0.76
|
6,456,000,000
|
0.40
|
0.34
|
240
|
1.7
|
0.41
|
56.92
|
70.57
|
3.42
|
344.6
|
2,615
|
0.4
|
0.81
|
5,693,000,000
|
0.44
|
0.35
|
253
|
1.8
|
0.43
|
55.21
|
64.06
|
3.18
|
320.3
|
2,431
|
0.6
|
0.97
|
3,734,000,000
|
0.54
|
0.41
|
291
|
2.0
|
0.50
|
44.44
|
49.22
|
2.40
|
237.7
|
1,848
|
1.0
|
1.29
|
1,440,000,000
|
0.76
|
0.51
|
342
|
2.4
|
0.60
|
24.12
|
23.61
|
1.08
|
112.0
|
867
|
|
0.3
|
0.55
|
4,454,000,000
|
0.25
|
0.25
|
226
|
1.2
|
0.36
|
24.54
|
35.80
|
2.22
|
170.4
|
1,603
|
0.4
|
0.68
|
2,646,000,000
|
0.33
|
0.30
|
269
|
1.4
|
0.44
|
19.24
|
25.52
|
1.57
|
119.1
|
1,154
|
0.6
|
0.89
|
1,314,000,000
|
0.48
|
0.37
|
292
|
1.8
|
0.51
|
13.90
|
15.63
|
0.85
|
75.6
|
673
|
1.0
|
1.20
|
361,000,000
|
0.68
|
0.45
|
377
|
2.3
|
0.69
|
5.41
|
5.22
|
0.30
|
26.3
|
251
|
Notes:
Copper
equivalent (CuEQ) calculations use metal prices: US$1.85/lb for Cu,
US$902/oz for Au and US$12.50/lb for Mo, and recoveries: 85% Cu,
69.6% Au, and 77.8% Mo (Pebble West zone) and 89.3% Cu, 76.8% Au,
83.7% Mo (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.
The
mineral resource estimate is constrained by a conceptual pit shell
that was developed using a Lerchs-Grossman algorithm and is based
in the following parameters: 42 degree pit slope; metal prices and
recoveries of US$1,540.00/oz and 61% Au, US$3.63/lb and 91% Cu,
US$20.00/oz and 67% Ag and US$12.36/lb and 81% Mo, respectively; a
mining cost of US$1.01/ton with a US$0.03/ton/bench increment and
other costs (including processing, G&A and transport) of
US$6.74/ton.
All
mineral resource estimates, cut-offs and metallurgical recoveries
are subject to change as a consequence of more detailed analyses
that would be required in pre-feasibility and feasibility
studies.
ALS
Global Geochemistry in North Vancouver, Canada (an ISO/IEC 17025
certified facility) is the main laboratory for the analysis of
drill core samples from the Pebble Project. Samples are prepared at
ALS laboratory Fairbanks, Alaska. Drill core samples were analyzed
for Cu, Mo and 31 additional elements by 4 acid digestion of a 0.4
g sample followed by ICP-AES. Au, Pt and Pd were determined by fire
assay fusion of a 30 g sample followed by ICP-AES finish. Cu, Mo,
Ag, Re and 47 additional elements were also determined by 4 acid
digestion of a 0.25 g sample followed by ICP-AES/MS finish. Hg was
determined by aqua regia digestion of a 0.5 g sample followed by
cold vapour AAS.
As part
of a comprehensive Quality Assurance Quality Control
(“QAQC”) program, control samples were inserted in each
analytical batch at the following rates: standards one in 20
regular samples, in-line replicates one in 20 regular samples and
blanks one in 50 regular samples. The control sample results were
then checked to ensure proper QAQC.
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Three
and nine months ended September 30, 2020
Environmental and Socioeconomic
Environmental Baseline Document and Supplemental Environmental
Baseline Document
The
27,000-page Environmental Baseline Document ("EBD") for the Pebble Project was
released to the public in January 2012. The purpose of the EBD and
Supplemental EBD (see further details below) 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. The EBD is based on
extensive environmental baseline data that has been collected since
2004 with the goal to design and plan a project that protects clean
water, healthy fish and wildlife populations, and other natural
resources in the region. The work involved more than 40 respected
independent research firms, utilizing numerous 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
2012 EBD, available at http://pebbleresearch.com/,
characterizes 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 during the period
2004-2008 and from some disciplines in 2009. Data from the
2009-2013 period was compiled into the Supplemental EBD (2009 to
2013), and transmitted to USACE. The full EBD, and all Supplemental
EBD chapters (substantively updated since the original
EBD was
published in 2012), are available on the USACE Pebble EIS website.
Wetlands, aquatic resources, marine studies and wildlife monitoring
data collected in 2019 has also been provided to
USACE.
Environmental
site work in 2020 has included environmental monitoring and
collection of additional cultural and wetlands data to support the
EIS process, and maintenance of existing stream gauges and weather
stations. Additional fieldwork to support the mitigation plan was
completed during the third quarter.
Community Engagement
Pebble
Project technical programs are supported by stakeholder engagement
activities in Alaska. The objective of stakeholder outreach
programs undertaken by the Pebble Partnership are to:
●
advise residents of
nearby communities and other regional interests about Pebble work
programs and other activities being undertaken in the
field;
●
provide information
about the proposed development plan for the Pebble Project,
including potential environmental, social and operational effects,
proposed mitigation and environmental safeguards;
●
allow the Pebble
Partnership to better understand and address stakeholder priorities
and concerns with respect to development of the Pebble
Project;
●
encourage
stakeholder and public participation in the USACE-led EIS
permitting process for Pebble; and
●
facilitate economic
and other opportunities associated with advancement and development
of the Pebble Project for local residents, communities and
companies.
In
addition to meeting with stakeholder groups and individuals, and
providing project briefings in communities throughout Bristol Bay
and the State of Alaska, the Pebble Partnership’s outreach
and engagement program includes:
●
workforce and
business development initiatives intended to enhance economic
opportunities for regional residents and Alaska Native
corporations;
●
initiatives to
develop partnerships with Alaska Native corporations, commercial
fishing interests and other in-region groups and
individuals;
●
outreach to elected
officials and political staff at the national, state and local
levels; and
●
outreach to
third-party organizations and special interest groups with an
interest in the Pebble Project, including business organizations,
community groups, outdoor recreation interests, Alaska Native
entities, commercial and sport fishery interests, conservation
organizations, among others.
Through
these various stakeholder initiatives, the Company seeks to advance
a science-based project design that is responsive to stakeholder
priorities and concerns, provides meaningful benefits and
opportunities to local residents, businesses and Alaska Native
corporations, and energizes the economy of Southwest
Alaska.
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Three and nine months ended September 30, 2020
On
February 14, 2017, short seller investment firm Kerrisdale Capital
Management LLC published a negative piece (the "Kerrisdale Report") regarding the Pebble
Project. Three putative shareholder class actions were filed
against the Company and certain of its officers and directors in US
federal courts, specifically the Central District of California
(Los Angeles) and the Southern District of New York (New York
City). The cases were captioned: Diaz v. Northern Dynasty Minerals Ltd. et al,
Case No. 17-cv-01241 (C.D. Cal.); Kirwin v. Northern Dynasty Minerals Ltd. et al, Case No.
17-cv-01238 (S.D.N.Y.); and Schubert v. Northern Dynasty Minerals, Ltd.,
et al., Case No. 1:17-CV-02437 (S.D.N.Y.). The complaints
relied on claims made in the Kerrisdale Report and alleged damages
to a class of investors who purchased shares of the Company prior
to the publication of the Kerrisdale Report and alleged liability
for losses pursuant to Section 10(b) of the Exchange Act and SEC
Rule 10b-5 thereunder, as well as control person liability against
the individual defendants pursuant to Section 20(a) of the Exchange
Act.
The
plaintiffs in both the Kirwin and Schubert actions voluntarily dismissed
their claims without prejudice. The plaintiffs in the Diaz action continued to litigate and
filed an amended complaint. The Company filed a motion to dismiss
the amended complaint in the Diaz action, which the plaintiffs
opposed. On April 30, 2018, the US District Court for the Central
District of California dismissed the plaintiffs’ amended
complaint in full, noting that its reliance on the sources in the
Kerrisdale Report was an insufficient basis to allege securities
fraud. The court allowed the plaintiffs an opportunity to amend
their complaint, which they did in June 2018. The Company again
moved to dismiss the new complaint, and briefing on the motion
concluded in November 2018. On February 22, 2019, the US District
Court for the Central District of California again dismissed all of
the securities class action claims brought against the Company and
certain of its officers and directors in the Diaz action, captioned Victor Diaz v. Northern Dynasty Minerals Ltd.,
et al., Case No. CV 17-1241 PSG (SSx), this time without
leave to amend. The Court ruled in favor of the Company and its
officers and directors on all claims and ordered the case closed.
In March 2019, the Diaz plaintiffs filed notice of an appeal of the
district court's dismissal order, and their appeal was filed with
the Ninth Circuit Court of Appeals, in California, in June 2019.
The Company filed its response in August 2019 and the plaintiffs
submitted their reply in October 2019, closing the briefing before
the appellate court. In April 2020, the appellate court
decided that a hearing was unnecessary and, on May 8, 2020, the
three appellate judge panel issued a memorandum decision affirming
the district court's dismissal of the plaintiffs' claims in full.
The plaintiffs did not request a rehearing before the Ninth
Circuit, and apparently have not appealed to the US Supreme Court.
That deadline recently passed, but the recording of filings has
lagged and allowances are being made on many deadlines due to the
pandemic. If a further appeal is made, the Company will continue to
defend itself vigorously in this action.
Public Offerings
July 2020
On July
15, 2020, the Group completed a bought deal offering ("July 2020 Offering") of 24,150,000
common shares of the Company at a price of US$1.46 per share for
gross proceeds of approximately US$35.3 million. The offering
was completed pursuant to an underwriting agreement dated July 10,
2020, among the Company and Cantor Fitzgerald Canada Corporation,
as lead underwriter and bookrunner, and a syndicate of underwriters
including BMO Nesbitt Burns Inc., Canaccord Genuity Corp, H.C.
Wainwright & Co., LLC, Paradigm Capital Inc., TD Securities
Inc., Roth Capital Partners, LLC and Velocity Trade Capital Ltd.
(collectively, the "July 2020
Underwriters"). The July 2020 Underwriters were paid a 5%
cash commission.
The
July 2020 Offering was completed by way of a prospectus supplement
to the Company’s existing Canadian base shelf prospectus and
related U.S. registration statement on Form F-10 (SEC File No.
333-238933).
May 2020
On May
13, 2020, the Company completed an underwritten public offering of
14,375,000 common shares at a price of $0.70 per common share for
gross proceeds of approximately $10.06 million. The offering
was completed pursuant to an underwriting agreement dated April 29,
2020 among the Company and Cantor Fitzgerald Canada Corporation, as
lead underwriter and sole bookrunner, and a syndicate of
underwriters including BMO Nesbitt Burns Inc., H.C. Wainwright
& Co., LLC. and TD Securities Inc. (the "May 2020 Underwriters"). The May 2020
Underwriters were paid a 5% cash commission.
The
offered shares were offered by way of a short form prospectus in
all provinces in Canada, except Quebec, and in the United States
pursuant to a prospectus filed as part of a registration statement
under the Canada/U.S. multi-jurisdictional disclosure
system.
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Three and nine months ended September 30, 2020
Private Placements
August 2020
On July
30, 2020, and August 6, 2020, the Group completed two tranches
of a non-brokered private placement (outside of the United States)
of 5,807,534 common shares and 100,000 common shares, respectively,
at US$1.46 per share for gross proceeds of US$8.6 million. The
shares issued pursuant to the private placement will be subject to
applicable resale restrictions, including a four-month hold period
under Canadian securities legislation.
May 2020
On May
13, 2020, the Company completed a non-brokered private placement of
10,357,143 common shares at $0.70 per share for gross proceeds of
$7.25 million. The shares issued pursuant to the private
placement are subject to applicable resale restrictions, including
a four month hold period under Canadian securities
legislation.
Use of proceeds
The
proceeds from the July and August 2020 financings are anticipated
to be used for the following purposes: (i) to fund ongoing work
with Alaska and federal regulatory agencies, (ii) to maintain an
active corporate presence in Alaska, (iii) to prepare for the
commencement of the Alaska state permitting process, (iv) to
maintain the Pebble claims in good standing, (v) to facilitate
ongoing discussion and possible negotiations to secure a potential
project partner or partners, and (vi) general corporate
purposes3.
The
proceeds from the May 2020 financings are anticipated to be used
for: (i) operational expenditures, including engineering,
environmental, permitting and evaluation expenses associated with
the Pebble Project and the advancement of completion of
USACE’s EIS; (ii) ongoing outreach and engagement with
political and regulatory offices in the Alaska state and US federal
government, Alaska Native partners and broader regional and
state-wide stakeholder groups; and (iii) for general corporate
purposes such as payment of current liabilities associated with the
Company’s working capital deficiency at that
time.
In
2020, metal prices overall were impacted significantly by the
downturn in economic conditions and ongoing uncertainty related to
the COVID-19 pandemic.
Copper
prices were variable in 2015 and 2016, and the average annual
prices decreased. Prices were variable to improving in 2017
resulting in an increase in the average annual price. Prices were
variable in early 2018, trended downward from June to August, then
improved through to the end of the year and into 2019. Prices
decreased in April/May and were slightly variable through September
when they increased, and remained stable until late January 2020
when they dropped sharply, losing the gain made in late 2019. In
March 2020, prices dropped sharply in response changing economic
conditions related to COVID-19 but rebounded in May and trended
upward during the third quarter. Prices dropped slightly in
October. A recent closing price is US$3.13/lb.
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Three and nine months ended September 30,
2020
Gold
prices were variable in 2015, with a decrease in the average annual
price from the prior year. Prices trended upward for most of 2016.
In 2017, prices were variable to increasing, but then dropped late
in the year. After rebounding in January 2018, prices were
relatively stable for several months, until dropping in the third
quarter of 2018. Prices trended upward in the latter part of 2018
and through most of 2019 before stabilizing from September to
December 2019. Gold prices trended upward from January to March
2020, when they dropped sharply, then resumed the upward trend in
response to uncertainty about global economic conditions related to
COVID-19. Prices reached record highs in late July and early
August, then dropped a bit but have stabilized somewhat since that
time. A recent closing price is US$1,875/oz.
Molybdenum
prices trended downward through the end of 2015. After being
relatively flat in 2016, prices increased in 2017 and through most
of 2018, and were steady from September to December 2018. Prices
had varied only slightly in 2019, before dropping from October
through to mid-January 2020. Molybdenum prices were on a downtrend
for most part in 2020 but have improved since August, with a recent
closing price of US$9.20/lb.
Average
annual prices of copper, gold and molybdenum for the past four
years as well as the average prices so far in 2020 are shown in the
table below:
|
|
Year
|
|
|
|
2015
|
2.49
|
1,160
|
6.73
|
2016
|
2.21
|
1,251
|
6.56
|
2017
|
3.22
|
1,272
|
7.26
|
2018
|
2.96
|
1,269
|
11.94
|
2019
|
2.72
|
1,393
|
11.36
|
2020 (to November
12)
|
2.71
|
1,758
|
8.60
|
1.
Source for copper, gold and molybdenum (2013-2017) is Argus Media
at www.metalprices.com
LME Official Cash Price for copper and molybdenum
(2013-2017)
LBMA PM Price for gold
2.
Source for 2018-2020 prices for molybdenum is Platts
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Three and nine months ended September 30, 2020
Selected Annual Information
Not
required for an 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 Comprehensive Loss
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
Exploration
and evaluation
|
$14,470
|
$10,332
|
$7,234
|
$11,998
|
$14,265
|
$14,701
|
$12,050
|
$9,114
|
General
and administrative
|
3,272
|
2,727
|
2,407
|
2,122
|
2,723
|
2,171
|
2,349
|
2,470
|
Legal,
accounting and audit
|
701
|
638
|
987
|
780
|
(45)
|
790
|
891
|
1,074
|
Share-based
compensation
|
6,992
|
615
|
447
|
455
|
2,149
|
662
|
704
|
741
|
Other items
1
|
326
|
144
|
(360)
|
235
|
26
|
(50)
|
217
|
(902)
|
|
$25,761
|
$14,456
|
$10,715
|
$15,590
|
$19,118
|
$18,274
|
$16,211
|
$12,497
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per common share
|
$0.05
|
$0.03
|
$0.02
|
$0.04
|
$0.05
|
$0.05
|
$0.05
|
$0.04
|
Weighted
average number of common shares (000s)
|
499,285
|
451,788
|
434,012
|
387,352
|
371,605
|
346,717
|
326,902
|
314,449
|
1.
Other items include
interest income, finance expense, exchange gains or losses, gain or
loss on revaluation of warrants, and other income.
Discussion of Quarterly Trends
Evaluation
and exploration expenses ("E&E") has fluctuated depending on
activities undertaken. In 2018, the Company focused on
environmental monitoring, engineering studies to support permitting
and responding to USACE requests for information in the EIS scoping
process. In 2019, the Company focused on planning and deploying
site investigations related to supporting the EIS process and the
natural gas pipeline right-of-way application, and continued to
respond to USACE requests for information relating to the Draft
EIS, including the review thereof and providing comments thereon,
for USACE’s process to advance a final EIS. In 2020, the
Company continued its efforts in support of the EIS process
including costs associated with LEDPA and the compensation
mitigation plan. Further details are discussed in Engineering under Section
1.2.1.2. E&E also includes costs for Native community
engagement, site leases, land access agreements and annual claim
fees.
General and
administrative expenses ("G&A") have fluctuated depending on
financing activities undertaken by the Company. In addition,
G&A has been impacted by the payments of bonuses including
discretionary performance based bonuses paid to the Pebble
Partnership CEO ("PLP CEO") (Q4 2018, Q3 2019, Q1, Q2
and Q3 2020), and incentive bonuses paid to certain staff (Q1 2019,
Q4 2019 and Q1 2020).
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Three and nine months ended September 30, 2020
In Q3
and Q4 2019, legal, accounting and audit expenses decreased as the
Company received insurance proceeds for cumulative securities class
action legal costs incurred, which offset expenses in each of these
quarters. In Q4 2018, legal fees included a bonus payment of
approximately US$0.3 million relating to securities law advice
provided during the year by the Company’s US legal
counsel.
Share-based
compensation expense ("SBC")
has fluctuated due to the timing and quantum of share purchase
option ("option") grants and
the vesting periods associated with these grants. The Company
granted 6,783,000 and 6,610,500 options in Q3 2020 and Q3 2019
respectively.
The
following financial data has been prepared from the Interim
Financial Statements, and is expressed in thousands of Canadian dollars unless
otherwise stated.
The
Company’s 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
– Three and nine months ended September 30, 2020
versus 2019
For the
three months, the Company recorded a $6.6 million increase in
net loss as loss from operating activities increased by
$6.3 million due mainly to a $4.8 million increase in SBC
in the current quarter.
For the
nine months, the Company recorded a $2.7 million decrease in
net loss as loss from operating activities decreased by
$2.6 million, which is driven by a $9.0 million decrease
in E&E which was offset by increases in G&A
($1.2 million) and SBC ($4.5 million).
Exploration and evaluation expenses
The
breakdown of E&E for the period as compared to 2019 is as
follows:
E&E
|
|
|
|
|
|
|
|
Engineering
|
$2,120
|
$4,065
|
$8,516
|
$17,264
|
Environmental
|
4,403
|
4,227
|
10,317
|
11,187
|
Property
fees
|
7
|
14
|
7
|
14
|
Site
activities
|
1,849
|
2,083
|
2,659
|
3,275
|
Socio-economic
|
4,149
|
2,171
|
8,401
|
7,156
|
Transportation
|
1,831
|
1,465
|
1,881
|
1,713
|
Other activities
and travel
|
111
|
240
|
255
|
407
|
Total
|
$14,470
|
$14,265
|
$32,036
|
$41,016
|
E&E
increased by $0.2 million in the current quarter and by
$9.0 million for the nine month period due to a decrease in
engineering related activities offset by an increase in
socio-economic activities due to outreach and engagement programs.
In 2019, the Company was advancing engineering studies and
responding to information requests from the USACE prior to the
release of the Draft EIS.
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Three and nine months ended September 30, 2020
General and administrative expenses
The
following table provides a breakdown of G&A, and legal,
accounting and audit expenses incurred in the period as compared to
2019:
|
|
|
|
|
|
|
|
Conference
and travel
|
$5
|
$150
|
$136
|
$360
|
Consulting
|
556
|
230
|
1,322
|
640
|
Depreciation
of right-of-use assets
|
58
|
55
|
177
|
167
|
Insurance
|
235
|
173
|
582
|
513
|
Office
costs, including information technology
|
333
|
221
|
885
|
666
|
Management
and administration
|
1,894
|
1,789
|
4,440
|
3,962
|
Shareholder
communication
|
161
|
199
|
539
|
679
|
Trust
and filing
|
30
|
(94)
|
325
|
256
|
Total G&A
|
3,272
|
2,723
|
8,406
|
7,243
|
Legal, accounting and audit
|
701
|
(45)
|
2,326
|
1,636
|
|
$3,973
|
$2,678
|
$10,732
|
$8,879
|
G&A
in the current quarter increased by $0.5 million due primarily
to the increase in consulting fees, trust and filing and management
and administration, the latter due in part to a discretionary
performance bonus being paid. Legal, accounting and audit expenses
increased by $0.7 million as in 2019, the Company received
insurance proceeds for securities class action costs
incurred.
In the
year to date, G&A increased by $1.2 million due primarily
to discretionary performance and incentive bonuses paid to certain
staff and the PLP CEO respectively, and higher consulting fees
being incurred. Legal, accounting and audit costs increased by
$0.7 million, as costs in the prior year were reduced by the
receipt of insurance proceeds for cumulative securities class
action costs incurred.
SBC has
fluctuated due to the timing and quantum of option grants, RSUs and
DSUs and the vesting periods associated with these grants. In the
current quarter 6,783,000 options were granted (2019 –
6,610,500 options were granted) with an estimated fair value of
$1.60 (2019 – $0.56) per option.
For the
year, the Company recognized a net loss of $204 on the revaluation
of the warrant liabilities which were exercised in the second
quarter.
1.5.2
Financial position as at September 30, 2020 versus December 31,
2019
The
total assets of the Company increased by $52.7 million due
largely to the increase in cash balances as a result of the July
2020 financings and proceeds from the exercise of warrants and
options, and the increase in carrying value of the Company’s
mineral property, plant and equipment as the depreciation of the
Canadian dollar in relation to US dollar resulted in an increase in
the carrying value in the Company’s reporting
currency.
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Three and nine months ended September 30, 2020
The
Company's major sources of funding have been the issuance of equity
securities for cash, primarily through private placements and
prospectus offerings to sophisticated investors and institutions,
and proceeds pursuant to the exercise of options and
warrants. The
Company's access to financing is always uncertain. There can be no
assurance of continued access to equity funding.
As at
September 30, 2020, the Company had cash and cash equivalents
of $63.1 million, which is an increase of $49.1 million
from December 31, 2019. In the nine months ended September 30,
2020, the Company raised gross proceeds of approximately
$82.6 million from financings, of which $59.3 million was
raised in the current quarter (see 1.2.3
Financings). The Company employed $37.7 million in
its operating activities for the nine months ended
September 30, 2020 and repaid $2.5 million of funds
drawn from the unsecured non-revolving term credit facility
agreement that it had entered into with certain parties including
two related parties, in November 2019. The Company has prioritized
the allocation of its available financial resources to meet key
corporate and Pebble Project expenditure requirements in the near
term, being the next 12 months. There can be no assurances that the
Company will be successful in obtaining additional financing at
that point. If the Company is unable to raise the necessary capital
resources to meet obligations as they come due, the Company will
have to reduce or curtail its operations at some
point.
At
September 30, 2020, the Company had a working capital of
$47.5 million as compared to a working capital deficiency of
$0.2 million at December 31, 2019. The Company has no
lease or any other long-term obligations other than those disclosed
below:
The
following commitments and payables (expressed in thousands) existed at
September 30, 2020:
|
|
Payments due
by period as of the reporting date
|
|
|
|
|
|
Trade and other
payables 1
|
$15,835
|
$15,835
|
$–
|
$–
|
Payables to related
parties
|
933
|
933
|
–
|
–
|
Lease commitments
2
|
1,348
|
354
|
700
|
294
|
Total
|
$18,116
|
$17,122
|
$700
|
$294
|
Notes
to table
1.
Includes legal fees
due to legal counsel of US$5,155 and accrued interest to September
30, 2020 of US$120 due December 24, 2020, and US$635 payable
on completion of a partnering transaction.
2.
Relates to the
undiscounted lease payments to be made by the Company over the
remaining lease terms.
3.
US dollar amounts
have been converted at the closing rate of $1.3323 US
dollar.
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 and payment of annual toll payments and
fees pursuant to the right of way agreements (see Right-of-Way
Agreements under Section 1.2.1.1 Project Background and
Status). In addition, the Company has payments relating to routine
site and office leases, which is included in the table
above.
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Three and nine months ended September 30, 2020
The
Company’s capital resources consist of its cash reserves,
which include its cash and equivalents. As at September 30,
2020, other than noted in 1.6
Liquidity, the Company has no other long-term debt and
no commitments for material capital expenditures.
The
Company has no lines of credit or other sources of
financing.
Off-Balance Sheet Arrangements
As at
September 30, 2020, the Company had no off-balance sheet
arrangements.
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.
Current
directors of the Company namely Robert Dickinson and Ron Thiessen,
Board Chair and Chief Executive Officer of the Company
resepectively, are active members of the HDI Board of Directors.
Mark Peters, the Company’s Chief Financial Officer
("CFO"), is the CFO of HDSI.
Other key management personnel of the Company – Adam Chodos, Sean Magee, Stephen
Hodgson4, Bruce Jenkins, Mike Westerlund and
Trevor Thomas – are active members of HDI’s 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 Company’s 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.
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Three and nine months ended September 30, 2020
Ongoing contractual or other commitments resulting from the related
party relationship
Other
than noted below, there are no ongoing contractual or other
commitments resulting from the Company’s transactions with
HDSI, other than the payment for services already rendered and
billed. The agreement may be terminated upon 60 days’ notice
from either party.
In an
addendum to the Services Agreement between HDSI and the Company,
dated October 10, 2015, following a change of control, the Company
is subject to termination payments if the Services Agreement is
terminated. The Company will be required to pay HDSI
$2.8 million, and an aggregate amount equal to six months of
annual salaries payable to certain invidual service providers under
the Services Agreement and their respective employment agreements
with HDSI.
The
Company has an office use agreement with HDSI whereby the Company
rents a specified office from HDSI for its sole use.
Transactions during the Reporting Period and Balances with HDSI at
the end of the Reporting Period
Disclosure
as to transactions with HDSI and any amounts due to or from HDSI is
provided in Note 9 in the notes to the Interim Financial
Statements which accompany this MD&A and which are available
under the Company’s profile at www.sedar.com.
Key Management Personnel
The
required disclosure for the remuneration of the Company’s key
management personnel is provided in Note 9 in the notes to the
Interim Financial Statements which accompany this MD&A and
which are available under the Company’s profile at
www.sedar.com.
Not
applicable
There
are no proposed asset or business acquisitions or dispositions,
other than those in the ordinary course, before the Board of
Directors for consideration.
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Three and nine months ended September 30, 2020
1.12
Critical Accounting Estimates
The
required disclosure is provided in Note 2 in the notes to the
Interim Financial Statements which accompany this MD&A and
which are available under the Company’s profile at
www.sedar.com.
Changes in Accounting Policies including Initial
Adoption
The
required disclosure is provided in Note 2 in the notes to the
Interim Financial Statements which accompany this MD&A and
which are available under the Company’s profile at
www.sedar.com.
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:
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 Company’s credit risk is primarily
attributable to its liquid financial assets, including cash and
cash equivalents and restricted cash and amounts receivable. The
Company limits the exposure to credit risk by only investing with
high-credit quality financial institutions in business and saving
accounts, guaranteed investment certificates, government treasury
bills, low risk corporate bonds and money market funds, which are
available on demand by the Group as and when required or mature in
timeframes appropriate to the needs of the Company. There has been
no change in the Company’s 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 Company’s exposure to credit risk
during the three and nine months ended September 30, 2020.
Amounts receivable include receivable balances with government
agencies, prepaid expenses and refundable deposits. Management has
concluded that there is no objective evidence of impairment to the
Company’s 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 Company’s objectives and policies for managing
this risk. The Company’s liquidity position is discussed
further in Section 1.6
Liquidity.
Foreign Exchange Risk
The
Company is subject to both currency transaction risk and currency
translation risk: Group entities, the Pebble Partnership, Pebble
Services Inc. and U5 Resources Inc., have the US dollar as
functional currency; and certain of the Company’s 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
Company’s assets as the Company’s 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.
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Three and nine months ended September 30, 2020
There
has been no change in the Company’s objectives and policies
for managing this risk, except for the changes in the carrying
amounts of the financial assets exposed to foreign exchange
risk. The
Company’s exposure to foreign exchange risk is as
follows:
|
|
|
US dollar
denominated financial assets and liabilities (in Canadian
Dollars)
|
|
|
Financial
assets:
|
|
|
Amounts
receivable
|
$251
|
$263
|
Cash and cash
equivalents and restricted cash
|
43,557
|
14,090
|
|
43,808
|
14,353
|
Financial
liabilities:
|
|
|
Long term
payables
|
(756)
|
(932)
|
Warrant
liabilities
|
–
|
(43)
|
Payables to related
parties
|
(715)
|
(24)
|
|
(15,633)
|
(12,426)
|
|
(17,104)
|
(13,425)
|
Net financial
assets exposed to foreign currency risk
|
$26,704
|
$928
|
Based
on the above net exposures and assuming that all other variables
remain constant, a 10% change in the value of the Canadian dollar
relative to the US dollar would result in a gain or loss of $2,670
(December 31, 2019 – $93) in the reported period. This
sensitivity analysis includes only outstanding foreign currency
denominated monetary items.
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 Company’s objectives and policies for managing this
risk and no significant change to the Company’s exposure to
interest rate risk during the three and nine months ended
September 30, 2020.
Commodity price risk
While
the value of the Company’s Pebble Project is related to the
price of copper, gold, molybdenum and silver 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.
Copper,
gold, molybdenum and silver 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.
Capital Management
The
Company’s policy is to maintain a strong capital base to
maintain investor and creditor confidence and to sustain future
development of the business. The capital structure of the Company
currently consists of equity, comprising share capital and
reserves, 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.
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Three and nine months ended September 30, 2020
1.15
Other MD&A Requirements
Additional
information relating to the Company, including the Company’s
2019 Annual Information
Form, is available under the Company’s 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 as follows:
|
|
Common shares
issued and outstanding
|
509,046,631
|
Share options
pursuant to the Company’s incentive plan
|
28,481,500
|
Deferred share
units
|
458,129
|
Restricted share
units
|
–
|
Warrants and
non-incentive plan options1,
|
17,924,765
|
Note to
table:
1.
Non-incentive plan
options make up 211,500 of the total. These were issued on the
acquisition of Cannon Point in October 2015. Warrants make up the
balance and were issued pursuant to the, prospectus financings in
June 2016 and 2019, a private placement financing in July 2016 and
the Credit Facility.
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 accumulated and communicated to the Company's
management so that decisions can be made about the timely
disclosure of that information.
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Three and nine months ended September 30, 2020
1.15.3
Management’s Report on Internal Control over Financial
Reporting ("ICFR")
The
Company's management, including the Chief Executive Officer
("CEO") and the CFO, is
responsible for establishing and maintaining adequate ICFR. ICFR is
a process designed by, or under the
supervision of, the CEO and CFO 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.
There
has been no change in the design of the Company’s internal
control over financial reporting that has materially affected, or
is reasonably likely to materially affect, the Company’s ICFR
during the period covered by this MD&A.
1.15.4 Limitations of
Controls and Procedures
The
Company’s 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.
The securities of Northern Dynasty are highly speculative and
subject to a number of risks. A prospective investor or other
person reviewing Northern Dynasty for a prospective investor should
not consider an investment in Northern Dynasty unless the investor
is capable of sustaining an economic loss of their entire
investment. The risks associated with Northern Dynasty’s
business include:
Risks Associated with the Novel Coronavirus
("COVID-19")
The
current outbreak of COVID-19, and any future emergence and spread
of similar pathogens, could have a material adverse effect on
global and local economic and business conditions, which may
adversely impact our business and results of operations and the
operations of contractors and service providers. Our plans to
advance the development of the Pebble Project are dependent upon
the continued progress of our approval and permitting process with
the USACE, the EPA and Alaskan state agencies, as well as our
ability to continue the work required in connection with this
process through our employees and our contractors. While we have
not experienced a COVID-19 related delay to date, it is possible
that government efforts to curtail the COVID-19 outbreak will
result in delays in our permitting process, including the progress
through to a ROD. In addition, our personnel may be delayed in
completing the required work that we are pursuing in connection
with this process due to quarantine, self-isolation, social
distancing, restrictions on travel, restrictions on meetings and
work from home requirements. The extent to which the coronavirus
impacts our operations will depend on future developments, which
are highly uncertain and cannot be predicted with confidence,
including the duration of the outbreak, new information that may
emerge concerning the severity of the coronavirus and the actions
taken to contain the coronavirus or treat its impact, among others.
Moreover, the coronavirus has spread globally. The actions of most
governments to control the spread have included closing boarders,
which has made it difficult for us to effectively pursue a partner
program. The spread is expected to have a material adverse effect
on global and regional economies and to continue to negatively
impact stock markets, including the trading price of our shares as
well as mineral commodity prices. These adverse effects on the
economy, the stock market and our share price could adversely
impact our ability to raise capital, with the result that our
ability to pursue development of the Pebble Project could be
adversely impacted, both through delays and through increased
costs. Any of these developments, and others, could have a material
adverse effect on our business and results of operations and could
delay our plans for development of the Pebble Project.
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Three and nine months ended September 30, 2020
Inability
to Ultimately Achieve Mine Permitting and Build a Mine at the
Pebble Project.
The
Company may ultimately be unable to secure the necessary permits
under United States Federal and Alaskan State laws to build and
operate a mine at the Pebble Project. There is no assurance that
the EPA will not seek to undertake future regulatory action to
impede or restrict the Pebble Project. In addition, there are
prominent and well organized opponents of the Pebble Project and
the Company may be unable, even if we present solid scientific and
technical evidence of risk mitigation, to overcome such opposition
and convince governmental authorities that a mine should be
permitted at the Pebble Project. The Company faces not only the
permitting and regulatory issues typical of companies seeking to
build a mine, but additional public and regulatory scrutiny due to
its location and potential size. Accordingly, there is no assurance
that the Company will obtain the required permits. The Company has
filed a CWA 404 permit application with the USACE, which triggered
an EIS process under NEPA. The receipt of the ROD following the
issuance of the Final EIS may take several months and the
requirement for the company to secure a broad range of other
permits and authorizations from multiple federal and state
regulatory agencies will take several years. After all permits
necessary to begin construction are in hand, a number of years
would be required to finance and build a mine and commence
operations. During these periods, the Company would likely have no
income and so would require additional financing to continue its
operations. Unless and until we build a mine at the Pebble Project,
we will be unable to achieve revenues from operations and may not
be able to sell or otherwise recover our investment in the Pebble
Project, which would have a material adverse effect on the Company
and an investment in the Company’s common shares. The current
mine plan that is included in the Project Description for the
development of the Pebble Project is not supported by any
preliminary economic assessment or any preliminary or final
feasibility study.
Risk of Secure Title or Property Interest
There
can be no certainty that title to any property interest acquired by
the Company or any of its subsidiaries is without defects. Although
the Company has taken reasonable precautions to ensure that legal
title to its properties is properly documented, there can be no
assurance that its property interests may not be challenged or
impugned. Such property interests may be subject to prior
unregistered agreements or transfers or other land claims, and
title may be affected by undetected defects and adverse laws and
regulations.
The
Pebble Partnership’s mineral concessions at Pebble are
located on State of Alaska lands specifically designated for
mineral exploration and development. Alaska is a stable
jurisdiction with a well-developed regulatory and legal framework
for resource development and public lands management, a strong
commitment to the rule of law and lengthy track record for
encouraging investment in the development if its land and natural
resources.
The Pebble Project is Subject to Political and Environmental
Regulatory Opposition
As is
typical for a large-scale mining project, the Pebble Project faces
organized opposition from certain individuals and organizations who
are motivated to preclude any possible mining in the Bristol Bay
Watershed (the "BBW"). The
BBW is an important wildlife and salmon habitat area. Accordingly,
one of the greatest risks to the Pebble Project is seen to be
political/permitting risk, which may ultimately preclude
construction of a mine at the Pebble Project. Opposition may
include legal challenges to exploration and development permits,
which may delay or halt development. Other tactics may also be
employed by opposition groups to delay or frustrate development at
Pebble, included political and public advocacy, electoral
strategies, media and public outreach campaigns and protest
activity.
The Pebble Partnership’s Mineral Property Interests Do Not
Contain Any Ore Reserves or Any Known Body of Economic
Mineralization
Although
there are known bodies of mineralization on the Pebble Project, and
the Pebble Partnership has completed core drilling programs within,
and adjacent to, the deposits to determine measured and indicated
resources, there are currently no known reserves or body of
commercially viable ore and the Pebble Project must be considered
an exploration and feasibility evaluation project only. Extensive
additional work is required before Northern Dynasty or the Pebble
Partnership can ascertain if any mineralization may be economic and
hence constitute "ore".
Northern
Dynasty has not completed any feasibility study or pre-feasibility
study on the Pebble Project to date. The "preliminary economic
assessment" completed by the Company on the Pebble Project in 2011,
as referred to in the 2017 Annual Information Form, did not contain
the level of mine plan or costing detail that would be included in
either a preliminary feasibility study or a final feasibility study
that would be necessary to make a determination of the existence of
mineral reserves or for a production decision for the Pebble
Project. Further, neither the cost information nor the development
scenario contemplated in the 2011 preliminary economic assessment
are current.
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Three and nine months ended September 30, 2020
Mineral
Resources Disclosed by Northern Dynasty or the Pebble Partnership
for the Pebble Project are Estimates Only
Northern
Dynasty has included mineral resource estimates that have been made
in accordance with 43-101. These resource estimates are classified
as "measured resources", "indicated resources" and "inferred
resources". Northern Dynasty advises United States investors that
although with the adoption of the SEC Modernization Rules, the SEC
now recognizes estimates of "measured mineral resources",
"indicated mineral resources" and "inferred mineral resources",
there is no assurance any mineral resources that Northern Dynasty
may report as "measured mineral resources", "indicated mineral
resources" and "inferred mineral resources" under 43-101 would be
the same had Northern Dynasty prepared the resource estimates under
the standards adopted under the SEC Modernization Rules. Investors
are cautioned not to assume that any part or all of mineral
deposits classified as "measured resources" or "indicated
resources" will ever be converted into ore reserves. Further,
"inferred resources" have a great amount of uncertainty as to their
existence, and economic and legal feasibility. Under Canadian
securities law, estimates of "inferred mineral resources" cannot
form the basis of feasibility or prefeasibility studies, except in
rare cases.
All
amounts of mineral resources are estimates only, and Northern
Dynasty cannot be certain that any specified level of recovery of
metals from the mineralized material will in fact be realized or
that the Pebble Project or any other identified mineral deposit
will ever qualify as a commercially mineable (or viable) ore body
that can be economically exploited. Mineralized material, which is
not mineral reserves, does not have demonstrated economic
viability. In addition, the quantity of mineral reserves and
mineral resources may vary depending on, among other things, metal
prices and actual results of mining. There can be no assurance that
any future economic or technical assessments undertaken by the
Company with respect to the Pebble Project will demonstrate
positive economics or feasibility.
Negative Operating Cash Flow
The
Company currently has a negative operating cash flow and will
continue to operate this way for the foreseeable future.
Accordingly, the Company will require substantial additional
capital in order to fund its future exploration and development
activities. The Company does not have any arrangements in place for
this funding and there is no assurance that such funding will be
achieved when required. Any failure to obtain additional financing
or failure to achieve profitability and positive operating cash
flows will have a material adverse effect on its financial
condition and results of operations.
Northern Dynasty Has No History of Earnings and No Foreseeable
Earnings, and May Never Achieve Profitability or Pay
Dividends
Northern
Dynasty has only had losses since inception and there can be no
assurance that Northern Dynasty will ever be profitable. Northern
Dynasty has paid no dividends on its shares since incorporation.
Northern Dynasty presently has no ability to generate earnings from
its mineral properties as its mineral properties are in the
pre-development stage.
Northern Dynasty’s Consolidated Financial Statements have
been Prepared Assuming Northern Dynasty will continue on a Going
Concern Basis
Northern
Dynasty has prepared its Financial Statements on the basis that
Northern Dynasty will continue as a going concern. At
September 30, 2020, the Company had a working capital of
$47.5 million. Although Northern Dynasty completed two
financings in the current quarter raising gross proceeds of
approximately $53.9 million, additional financing may be
required in order to continue to achieve the Company’s
business objectives from mid 2021. Northern Dynasty’s
continuing operations and the underlying value and recoverability
of the amounts shown for mineral property interest are entirely
dependent upon the existence of economically recoverable mineral
reserves at the Pebble Project, the ability of the Company to
finance its operating costs, the completion of the exploration and
development of the Pebble Project, the Pebble Partnership obtaining
the necessary permits to mine, and on future profitable production
at the Pebble Project. Furthermore, failure to continue as a going
concern would require that Northern Dynasty's assets and
liabilities be restated on a liquidation basis, which would likely
differ significantly from their going concern assumption carrying
values. Refer also to discussion
in 1.6
Liquidity.
Northern Dynasty Has A History Of Negative Cash Flow From
Operations Which Is Anticipated To Continue For The Foreseeable
Future
Northern
Dynasty experiences negative cash flow from operations and
anticipates incurring negative cash flow from operations for 2020
and beyond as a result of the fact that it does not have revenues
from mining or any other activities. In addition, as a result of
Northern Dynasty’s business plans for the development of the
Pebble Project, Northern Dynasty expects cash flow from operations
to continue to be negative until revenues from production at the
Pebble Project begin to offset operating expenditures, of which
there is no assurance. Accordingly, Northern Dynasty’s cash
flow from operations will be negative for the foreseeable future as
a result of expenses to be incurred s in connection with
advancement of the Pebble Project.
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Three and nine months ended September 30, 2020
As the Pebble Project is Northern Dynasty’s only Mineral
Property Interest, the Failure to establish that the Pebble Project
Possesses Commercially Viable and Legally Mineable Deposits of Ore
may cause a Significant Decline in the Trading Price of Northern
Dynasty’s Common Shares and reduce its ability to obtain New
Financing
The
Pebble Project is, through the Pebble Partnership, Northern
Dynasty’s only mineral project. Northern Dynasty’s
principal business objective is to carry out further exploration
and related activities to establish whether the Pebble Project
possesses commercially viable deposits of ore. If Northern Dynasty
is not successful in its plan of operations, Northern Dynasty may
have to seek a new mineral property to explore or acquire an
interest in a new mineral property or project. Northern Dynasty
anticipates that such an outcome would adversely impact the price
of Northern Dynasty’s common shares. Furthermore, Northern
Dynasty anticipates that its ability to raise additional financing
to fund exploration of a new property or the acquisition of a new
property or project would be impaired as a result of the failure to
establish commercial viability of the Pebble Project.
If prices for copper, gold and molybdenum decline, Northern Dynasty
may not be able to raise the additional financing required to fund
expenditures for the Pebble Project
The
ability of Northern Dynasty to raise financing to fund the Pebble
Project will be significantly affected by changes in the market
price of the metals for which it explores. The prices of copper,
gold, molybdenum and silver are volatile, and are affected by
numerous factors beyond Northern Dynasty’s control. The level
of interest rates, the rate of inflation, the world supplies of and
demands for copper, gold and molybdenum and the stability of
exchange rates can all cause fluctuations in these prices. Such
external economic factors are influenced by changes in
international investment patterns and monetary systems and
political developments. The prices of copper, gold and molybdenum
have fluctuated in recent years, and future significant price
declines could cause investors to be unprepared to finance
exploration of copper, gold and molybdenum, with the result that
Northern Dynasty may not have sufficient financing with which to
fund its activities related to the advancement of the Pebble
Project.
Mining is Inherently Dangerous and Subject to Conditions or Events
beyond the Company’s Control, which could have a Material
Adverse Effect on the Company’s Business
Hazards
such as fire, explosion, floods, structural collapses, industrial
accidents, unusual or unexpected geological conditions, ground
control problems, power outages, inclement weather, seismic
activity, cave-ins and mechanical equipment failure are inherent
risks in the Company’s exploration, development and mining
operations. These and other hazards may cause injuries or death to
employees, contractors or other persons at the Company’s
mineral properties, severe damage to and destruction of the
Company’s property, plant and equipment and mineral
properties, and contamination of, or damage to, the environment,
and may result in the suspension of the Company’s exploration
and development activities and any future production activities.
Safety measures implemented by the Company may not be successful in
preventing or mitigating future accidents.
Northern Dynasty Competes with Larger, Better Capitalized
Competitors in the Mining Industry
The
mining industry is competitive in all of its phases, including
financing, technical resources, personnel and property acquisition.
It requires significant capital, technical resources, personnel and
operational experience to effectively compete in the mining
industry. Because of the high costs associated with exploration,
the expertise required to analyze a project’s potential and
the capital required to develop a mine, larger companies with
significant resources may have a competitive advantage over
Northern Dynasty. Northern Dynasty faces strong competition from
other mining companies, some with greater financial resources,
operational experience and technical capabilities than Northern
Dynasty possesses. As a result of this competition, Northern
Dynasty may be unable to maintain or acquire financing, personnel,
technical resources or attractive mining properties on terms
Northern Dynasty considers acceptable or at all.
Compliance with Environmental Requirements will take Considerable
Resources and Changes to these Requirements could Significantly
Increase the Costs of Developing the Pebble Project and Could Delay
These Activities
Northern
Dynasty and the Pebble Partnership must comply with stringent
environmental legislation in carrying out work on the Pebble
Project. Environmental legislation is evolving in a manner that
will require stricter standards and enforcement, increased fines
and penalties for non-compliance, more stringent environmental
assessments of proposed projects and a heightened degree of
responsibility for companies and their officers, directors and
employees. Changes in environmental legislation could increase the
cost to the Pebble Partnership of carrying out its exploration and,
if warranted, development of the Pebble Project. Further,
compliance with new or additional environmental legislation may
result in delays to the exploration and, if warranted, development
activities.
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Three and nine months ended September 30, 2020
Changes in Government Regulations or the Application thereof and
the Presence of Unknown Environmental Hazards on Northern
Dynasty’s Mineral Properties May Result in Significant
Unanticipated Compliance and Reclamation Costs
Government
regulations relating to mineral rights tenure, permission to
disturb areas and the right to operate can adversely affect
Northern Dynasty. Northern Dynasty and the Pebble Partnership may
not be able to obtain all necessary licenses and permits that may
be required to carry out exploration at the Pebble Project.
Obtaining the necessary governmental permits is a complex,
time-consuming and costly process. The duration and success of
efforts to obtain permits are contingent upon many variables not
within our control. Obtaining environmental permits may increase
costs and cause delays depending on the nature of the activity to
be permitted and the interpretation of applicable requirements
implemented by the permitting authority. There can be no assurance
that all necessary approvals and permits will be obtained and, if
obtained, that the costs involved will not exceed those that we
previously estimated. It is possible that the costs and delays
associated with the compliance with such standards and regulations
could become such that we would not proceed with the development or
operation of a mine at the Pebble Project.
Litigation
The
Company is, and may in future be subject to legal proceedings,
including with regard to actions discussed in 1.2.2.
Legal
Matters in the pursuit of its Pebble Project. Given the
uncertain nature of these actions, the Company cannot reasonably
predict the outcome thereof. If the Company is unable to resolve
these matters favorably, it will likely have a material adverse
effect of the Company.
Northern Dynasty is Subject to Many Risks that are Not Insurable
and, as a Result, Northern Dynasty will Not Be Able to Recover
Losses through Insurance Should Such Certain Events
Occur
Hazards
such as unusual or unexpected geological formations and other
conditions are involved in mineral exploration and development.
Northern Dynasty may become subject to liability for pollution,
cave-ins or hazards against which it cannot insure. The payment of
such liabilities could result in increase in Northern
Dynasty’s operating expenses, which could, in turn, have a
material adverse effect on Northern Dynasty’s financial
position and its results of operations. Although Northern Dynasty
and the Pebble Partnership maintain liability insurance in an
amount which we consider adequate, the nature of these risks is
such that the liabilities might exceed policy limits, the
liabilities and hazards might not be insurable against, or Northern
Dynasty and the Pebble Partnership might elect not to insure itself
against such liabilities due to high premium costs or other
reasons, in which event Northern Dynasty could incur significant
liabilities and costs that could materially increase Northern
Dynasty’s operating expenses.
If Northern Dynasty Loses the Services of the Key Personnel that it
Engages to Undertake its Activities, then Northern Dynasty’s
Plan of Operations May Be Delayed or be More Expensive to Undertake
than Anticipated
Northern Dynasty’s success depends to a significant extent on
the performance and continued service of certain independent
contractors, including HDSI (refer 1.9
Transactions with Related Parties). The Company has access to the full
resources of HDSI, an experienced exploration and development firm
with in-house geologists, engineers and environmental specialists,
to assist in its technical review of the Pebble Project. There can
be no assurance that the services of all necessary key personnel
will be available when required or if obtained, that the costs
involved will not exceed those that we previously estimated. It is
possible that the costs and delays associated with the loss of
services of key personnel could become such that we would not
proceed with the development or operation of a mine at the Pebble
Project.
The Market Price of Northern Dynasty’s Common Shares is
Subject to High Volatility and Could Cause Investor
Loss.
The
market price of a publicly traded stock, especially a resource
issuer like Northern Dynasty, is affected by many variables in
addition to those directly related to exploration successes or
failures. Such factors include the general condition of markets for
resource stocks, the strength of the economy generally, the
availability and attractiveness of alternative investments, and the
breadth of the public markets for the stock. The effect of these
and other factors on the market price of the Company’s common
shares suggests Northern Dynasty’s shares will continue to be
volatile. Therefore, investors could suffer significant losses if
Northern Dynasty’s shares are depressed or illiquid when an
investor needs to sell Northern Dynasty shares.
Northern Dynasty Will Require Additional Funding to Meet the
Development Objectives of the Pebble Project.
Northern
Dynasty will need to raise additional financing (through share
issuances, debt or asset level partnering) to achieve permitting
and development of the Pebble Project. In addition, a positive
production decision at the Pebble Project would require significant
capital for project engineering and construction. Accordingly, the
continuing permitting and development of the Pebble Project will
depend upon Northern Dynasty’s ability to obtain financing
through debt financing, equity financing, the joint venturing of
the project or other means. There can be no assurance that Northern
Dynasty will be successful in obtaining the required financing, or
that it will be able to raise the funds on terms that do not result
in high levels of dilution to shareholders. If we are unable to
raise the necessary capital resources, we may at some point have to
reduce or curtail our operations, which would have a material
adverse effect on our ability to pursue the permitting and
development of the Pebble Project.