ndm_ex992
MANAGEMENT'S DISCUSSION AND ANALYSIS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Three
And Nine Months Ended September 30, 2021
Table of Contents
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three
And Nine Months Ended September 30, 2021
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, 2021, and the Company’s
audited consolidated financial statements for the year ended
December 31, 2020 ("2020 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 Interim Financial Statements
are presented in accordance with IFRS. This MD&A is prepared as
of November 15, 2021.
All dollar amounts herein are expressed in 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.
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three
And Nine Months Ended September 30, 2021
|
Forward-looking
statements contained or incorporated by reference into this
MD&A include, without limitation, statements
regarding:
●
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 success of our
appeal of the Record of Decision of the United States Army Corps of
Engineers denying the issuance of certain permits required for the
Pebble Project;
●
our ability to
successfully apply for and obtain the federal and state permits
that we will be required to obtain for the Pebble Project,
including under the Clean Water Act, the National Environmental
Policy Act, and relevant legislation;
●
the outcome of the
US government investigations involving the Company;
●
our ability to
successfully defend against purported class action law suits that
have been commenced against the Company;
●
our plan of
operations, including our plans to carry out and finance
exploration and development activities;
●
our ability to
raise capital for the exploration, permitting and development
activities and meet our working capital requirements;
●
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;
●
the uncertainties
with respect to the effects of COVID-19; and
●
factors relating to
our investment decisions.
Such
forward-looking statements or information related to the
Preliminary Economic Assessment include statements regarding (i)
the mine plan for the Pebble Project, the financial results of the
2021 PEA, including net present value and internal rates of return,
and the ability of the Pebble Partnership to secure the financing
to proceed with the development of the Pebble Project, including
any stream financing and infrastructure outsourcing, (ii) the
social integration of the Pebble Project into the Bristol Bay
region and benefits for Alaska, (iii) the political and public
support for the permitting process, (iv) the ability to
successfully appeal the negative Record of Decision and secure the
issuance of a positive Record of Decision by the U.S. Army Corps of
Engineers and the ability of the Pebble Project to secure all
required federal and state permits, (v) the right-sizing and
de-risking of the Pebble Project, including any determination to
pursue any of the expansion scenarios for the Pebble Project or to
incorporate a gold plant, (vi) the design and operating parameters
for the Pebble Project mine plan, including projected capital and
operating costs, (vii) exploration potential of the Pebble Project,
(viii) future demand for copper and gold and the metals prices
assumed for the financial projections including the 2021 PEA, (ix)
the potential addition of partners in the Pebble Project, and (x)
the ability and timetable of NDM to develop the Pebble Project and
become a leading copper, gold and molybdenum producer. Although NDM
believes the expectations expressed in these forward-looking
statements are based on reasonable assumptions, such statements
should not be in any way be construed as guarantees that the Pebble
Project will secure all required government permits, establish the
commercial feasibility of the Pebble Project, achieve the required
financing or develop the Pebble Project. Such forward-looking
statements or information related to this Preliminary Economic
Assessment include but are not limited to statements or information
with respect to the mined and processed material estimates; the
internal rate of return; the annual production; the net present
value; the life of mine; the capital costs, operating costs
estimated for each of the Proposed Project and three Expansion
Scenarios for the Pebble Project; and other costs and payments for
the proposed infrastructure for the Pebble Project (including how,
when, where and by whom such infrastructure will be constructed or
developed); projected metallurgical recoveries; plans for further
development, and securing the required permits and licenses for
further studies to consider expansion of the operation; and market
price of precious and base metals; or other statements that are not
statement of fact.
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, 2021
|
Key
assumptions upon which the Company’s forward-looking
information are based include:
●
that our appeal of
the Record of Decision with the United States Army Corps of
Engineers will be successful;
●
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 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
will be economically feasible based on a mine plan for which
permitting can be secured;
●
the U.S.
Environmental Protection Agency’s Proposed Determination
process under the Clean Water Act will not have a negative impact
on the ability of the Pebble Partnership to develop 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, silver and rhenium 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 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.
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Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three
And Nine Months Ended September 30, 2021
|
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:
●
we may be
unsuccessful in our appeal of the Record of Decision with respect
to the decision to deny the issuance of many of the permits which
we require to operate a mine at the Pebble Project;
●
the issuance by the
U.S. Environmental Protection Agency of a Proposed Determination
under the Clean Water Act
●
our inability to
ultimately obtain permitting for a mine at the Pebble
Project;
●
our 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;
●
we may not be
successful in defending shareholder securities litigation claims
that have been filed against us in the U.S. and in Canada, and we
may be obligated to indemnify our underwriters in addition to being
subject to liabilities to the plaintiffs;
●
the uncertainty of
the outcome of current or future government investigations and
inquiries, including but not limited to, matters before the U.S.
Department of Justice, a federal grand jury in Alaska and the U.S.
Securities and Exchange Commission (the "SEC");
●
government efforts
to curtail the COVID-19 pandemic 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
continue to fund exploration and development activities and other
operating costs;
●
our actual
operating expenses may be higher than projected;
●
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;
●
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;
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Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three
And Nine Months Ended September 30, 2021
|
●
the volatility of
copper, gold, molybdenum, silver and rhenium 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 including but not
limited to, the appeal of the ROD denying the issuance of permits
required to operate a mine at the Pebble Project;
●
the possible
inability to insure our operations against all risks;
●
the highly
competitive nature of the mining business;
●
the potential
equity dilution to current shareholders due to future equity
financings or from the exercise of outstanding share purchase
options and warrants to purchase the Company’s common shares;
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 for the year ended December
31, 2020, the 2020 Annual MD&A and other continuous disclosure
filings that are available on SEDAR at www.sedar.com,
and the Company’s Annual Report on Form 40-F filed with the
SEC available at www.sec.gov.
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Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three
And Nine Months Ended September 30, 2021
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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 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 U.S. Securities Exchange Act of
1934 ("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 the 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 Minerals
Ltd.
Management's Discussion And Analysis
Three
And Nine Months Ended September 30, 2021
Abbreviations commonly used in the Overview, Permitting and other
sections
|
CWA
|
Clean
Water Act
|
EIS
|
Environmental
Impact Statement
|
EPA
|
U.S.
Environmental Protection Agency
|
NEPA
|
National
Environmental Protection Act
|
ROD
|
The
Record of Decision issued by the USACE on the Pebble Project in
November 2020
|
USACE
|
U.S.
Army Corps of Engineers
|
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 ("U.S."). 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. Pebble has the potential to
produce significant quantities of several minerals the U.S. federal
government considers to be ‘critical’. Copper, in
particular, is considered to be critical for green power and
electrifications technologies, including EVs. Pebble also contains
a globally significant resource of rhenium, which is considered
strategic for its use in jet engines and related military
applications and industrial applications that employ rhenium as a
catalyst in the production of such things as high octane, lead-free
gasoline.
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three
And Nine Months Ended September 30, 2021
The
current 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.
Preliminary
Economic Assessment presents robust projected financial results and
globally significant potential metal production with excellent
optionality
In
September 2021, the Company announced the results of a Preliminary
Economic Assessment ("2021
PEA") of the Pebble Project, providing updated production,
financial and cost estimates for its proposed Pebble Project (the
"Proposed Project") as
described in the Pebble Project permit application and its
amendments, which recently underwent a comprehensive review by the
USACE culminating in their publishing of the Pebble EIS. In
addition to the Proposed Project, the 2021 PEA examines three
potential mine expansion scenarios, and potential alternative
strategies for gold recovery that could form the basis for future
permit applications and review. U.S. dollars and U.S. standard
units are used unless otherwise indicated. All results are
post-tax.
The
Proposed Project detailed in the 2021 PEA is consistent with the
Project Description in the Pebble EIS, published by the USACE in
July 2020. It does not include an onsite gold plant. With the
exception of the Proposed Project, all development alternatives
evaluated in the 2021 PEA are presented to demonstrate the
optionality inherent in the polymetallic Pebble deposit by
presenting a broad range of potential pathways for future mine
development. The 2021 PEA also models other options for potential
development in the future, to show how the project life could be
extended and metal production enhanced through an expansion at
different points in time or via alternative treatment scenarios.
Neither Northern Dynasty nor the Pebble Partnership has proposed or
intends to propose any of these development alternatives in the
near-term for regulatory approval. Any future development options
beyond the Proposed Project would require extensive federal, state
and local permitting processes and approvals before proceeding,
which would be in addition to the initial permits and approvals
required for the Proposed Project.
Summary of Key Projected Results2
Proposed Project
●
20 years of open
pit mining with a processing rate of 180,000 tons per day
("Tpd")
●
At forecast
long-term3 metal prices, Internal Rate of Return
("IRR") of 15.7% and Net
Present Value at 7% discount rate ("NPV7")
of US$2.3 billion
●
At
prevailing4
metal prices, IRR of 23.7% and NPV7 of US$4.7
billion
●
Life-of-mine
("LOM") metal production for
this scenario: 6.4 billion lb copper; 7.3 million oz gold; 300
million lb molybdenum; 37 million oz silver; and 230,000 kg
rhenium
●
Average annual
metal production: 320 million lb copper; 363,000 oz gold; 15
million lb molybdenum; 1.8 million oz silver and 12,000 kg
rhenium
●
Average
co-product C1 Copper Cost of US$1.65/lb CuEq and Gold Cash Cost of
US$753/oz AuEQ5; All-In Sustaining Cost ("AISC") (co-product basis) of US$1.88/lb
CuEq
●
Average annual Net
Smelter Return (" NSR") of
US$1.6 billion and LOM NSR of US$32 billion
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$6.74/ton. All mineral resource estimates, cut-offs and
metallurgical recoveries are subject to change as a consequence of
more detailed analyses that would be required in pre-feasibility
and feasibility studies.
For
further information on analytical, QAQC and data verification, and
the estimate, refer to the Preliminary Economic Assessment 43-101
Technical Report, Pebble Project, Alaska, USA, effective date
September 9, 2021, which is described below.
The
mineral resource estimates contained herein have not been adjusted
for any risk that the required environmental permits may not be
obtained for the Pebble Project. The risk associated with the
ability of the Pebble Project to obtain required environmental
permits is a risk to the reasonable prospects for eventual economic
extraction of the mineralisation and its classification as a
mineral resource.
Mineral
Resources that are not Mineral Reserves do not have demonstrated
economic viability.
3 Long-term metal prices (US$): copper $3.50/lb;
gold $1,600/oz; molybdenum $10/lb; silver $22/oz; rhenium
$1,500/kg
4 Prevailing metal prices (US$): copper $4.25/lb;
gold $1,800/oz; molybdenum $18/lb; silver $24/oz; rhenium
$1,600/kg
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three
And Nine Months Ended September 30, 2021
Expansion Scenarios
●
90 to 101 year mine
life with a peak processing rate of up to 270,000 Tpd
●
At forecast
long-term metal prices, IRR of 18.1% to 21.5% and NPV7 of US$5.7 to
US$8.5 billion
●
LOM metal
production for these scenarios: 60 billion lb copper; 50 million oz
gold; 2.9 billion lb molybdenum; 267 million oz silver; and 2
million kg rhenium
●
Average annual
metal production: 600 million lb copper; 500,000 oz gold; 29
million lb molybdenum; 2.6 million oz silver and 20,000 kg
rhenium
●
Average C1 Copper
Cost of US$1.54/lb CuEq to US$1.56/lb CuEq and Gold Cash Cost of
US$699/oz to $712/oz; AISC (co-product basis) of US$1.74/lb to
US$1.77/lb
●
Average annual NSR
of US$2.8 to US$3.2 billion and LOM NSR of US$285
billion
Onsite Gold Plant (potential addition at Production year
5)
o
At forecast
long-term metal prices, IRR of 16.5% and NPV7 of US$2.7
billion
o
LOM gold and silver
production for this scenario: 9.0 million oz and 39 million oz,
respectively
o
At forecast
long-term metal prices, IRR of 18.8% to 22.7% and NPV7 of US$6.6 to
US$9.7 billion
o
LOM gold and silver
production for these scenarios: 65 million oz and 289 million oz,
respectively
Additional
information on the 2021 PEA is provided in 1.2.2.1
Preliminary Economic Assessment and in
the report entitled "Preliminary Economic Assessment NI 43-101
Technical Report, Pebble Project, Alaska, USA", effective date
September 9, 2021, by R. Kalanchey, P.Eng., Ausenco, Hassan
Ghaffari, P.Eng., Tetra Tech, Sabry Abdel Hafez, P.Eng., Tetra
Tech, Les Galbraith, P.Eng., P.E., Knight Piesold, J. David Gaunt,
P.Geo., Hunter Dickinson Services, Eric Titley, P.Geo., Hunter
Dickinson Services, Stephen Hodgson, P.Eng., Hunter Dickinson
Services and James Lang, P.Geo., JM Lang Professional
Consulting6,
filed under Northern Dynasty’s profile at www.sedar.com
and www.sec.gov. In
addition, our Material Change Report dated November 1, 2021,
includes the summary section of the Preliminary Economic Assessment
NI 43-101 Technical Report. Investors should review the information
presented in this Q3 MD&A regarding the 2021 PEA in the context
of the full information presented in the Preliminary Economic
Assessment NI 43-101 Technical Report and the summary provided in
the Material Change Report. A CWA 404 Permit Application for the
Pebble Project was submitted to the USACE by the Pebble Partnership
in December 2017, and the federal permitting process under the NEPA
was initiated in January 2018, led by the USACE. Since that time,
most of the activities of the Company, though the Pebble
Partnership, have been focused on support of this process and have
included ongoing technical studies, responses to requests for
information, and stakeholder engagement and
consultation.
The
work continues in 2021 as the Pebble Partnership is appealing a
negative ROD by the USACE (see
1.2.1.1, Permitting,
for more details on the process and aspects of it, including the
EIS, compensatory mitigation and the appeal of the ROD). The USACE
has completed the administrative record for the appeal and provided
a copy to the Pebble Partnership in June 2021. During the quarter,
the Pebble Partnership and its legal counsel reviewed the
voluminous record for completeness and relevance to the
USACE’s permitting decision, and its sufficiency to support a
fair, transparent and efficient review. Additionally, the USACE
informed the Pebble Partnership that a new Review Officer
("RO") has been appointed to
lead the Pebble Project appeal.
Also
during the quarter, the 2021 summer field program was completed at
the Pebble site. The six-week, helicopter-supported program focused
on environmental management, sustainability and regulatory
compliance.
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three
And Nine Months Ended September 30, 2021
Through
the Pebble Partnership, the Company maintains an active corporate
presence in Alaska and Washington, D.C., to engage and consult with
project stakeholders. Other activities have been directed toward
raising capital to support the permitting process and discussions
directed toward securing a partner with which to advance the
overall development of the project.
On
September 9, 2021, the EPA announced they planned to re-initiate
the process of making a CWA Section 404(c) determination for the
waters of Bristol Bay (the "Proposed Determination"), which would
set aside the 2019 withdrawal of that action that was based on a
2017 settlement agreement between the EPA and Pebble Partnership
and the Company believes is supported by the results of the 2020
EIS. The 2019 withdrawal of the Proposed Determination was
contested by Project opponents. In that litigation, the EPA
requested the court vacate the
withdrawal decision and remand the case to the EPA, which would
result in the reinstatement of the Proposed Determination. The
Pebble Partnership filed a response to this request in October,
asking the Court to impose a schedule ensuring that the EPA is not
able to regulate by inaction. On October 29, 2021, the court
granted the EPA’s motion for remand and vacated the
EPA’s withdrawal decision, thus reinstating the Section
404(c) Proposed Determination. The
court declined to impose a schedule on the EPA’s proceedings
on remand. The Company will continue to monitor these developments
closely to determine the possible impacts to the project and
permitting process, as it remains the Company’s position that
the withdrawal of the preemptive veto by the EPA was sound and
appropriate.
From
2001, when Northern Dynasty’s involvement at the Pebble
Project began, to September 30, 2021, a total of
$989 million (US$891 million) has been invested to
advance the project.7
Corporate
As at
September 30, 2021, the Company had $28 million in
cash and cash equivalents and working capital of
$24.9 million. The Company raised net cash proceeds of
$0.82 million from common share issuances and received
approximately $0.93 million in proceeds from the exercise of
share purchase options during the quarter.
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, including the funding of
the appeal of the ROD and other matters addressed in 1.5.3
Plan
of Operations, additional financing will be required
beyond the twelve-month period for the further development of the
project. Although, the Company has in place an At-the-Market
Offering Agreement, whereby the Company can sell through the agent,
common shares having an aggregate gross sales price of up to
US$14.5 million (the "ATM
Facility") (refer 1.2.3
At-The-Market
Offering), the ATM Facility does not restrict the Company
from conducting other financings through any 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.
7 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, 2021
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
generally favorable for the mine site and infrastructure
development.
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.
The
27,000-page Environmental Baseline Document ("EBD") for the Pebble Project was
publicly released in 2012. The 2012 EBD 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 both volumes were
substantively updated since 2012. Data collected through 2019 was
also provided to USACE for the Pebble EIS process. Wetlands field
work was conducted in the summer of 2020 for the purpose of
verifying appropriate wetlands quality/quantity for the new
compensatory mitigation plan (“CMP”) in the Koktuli
watershed.
In
February 2014, the EPA announced the "Proposed Determination under
the CWA to consider restriction or a prohibition of mining
activities associated with the Pebble deposit. A multi-dimensional
strategy, including legal and other initiatives to ward off this
action undertaken by Northern Dynasty and the Pebble Partnership
from 2014-2017 were successful, resulting in the joint settlement
agreement announced on May 12, 2017, and enabling the project to
move forward with state and federal permitting. As part of the
joint settlement agreement, the EPA agreed to initiate a process
that led to the withdrawal of the Proposed Determination in July
2019.
On
April 17, 2020, a US federal district court judge in Alaska ruled
in favour of the EPA by granting a motion to dismiss a case brought
by a collection of litigants opposed to the Pebble Mine that
challenged the EPA's July 2019 decision to formally withdraw its
Proposed Determination under Section 404(c) of the CWA. The ruling
was based on a determination that the litigants had failed to state
a claim upon which relief can be granted. This dismissal was
appealed to the Ninth Circuit Court of Appeals. On June 17, 2021,
the Ninth Circuit Court of Appeals issued an opinion reversing in
part the District Court’s opinion and remanding the case to
the Alaska federal district court to undertake further proceedings
consistent with the decision of the Court of Appeals. Specifically,
the Court of Appeals upheld the District Court’s finding that
the CWA contained no meaningful legal standard for judicial review
in its broad grant of discretion to the EPA, but the Court of
Appeals remanded the case because it found that EPA’s
regulations contain a meaningful legal standard for review. The
case was therefore remanded to the District Court for further
proceedings to determine whether the EPA’s withdrawal of the
proposed determination was arbitrary, capricious or an abuse of
power contrary to law. On September 9, 2021, the EPA announced they
planned to file a motion seeking remand of the withdrawal decision,
which would re-initiate the Proposed Determination. The Pebble
Partnership sought and was granted status as an intervenor and
filed a response to the EPA’s motion in October 2021, asking
the Court to impose a schedule requiring the EPA to issue a final
decision on the 2014 Proposed Determination under the CWA, whether
that be to withdraw or finalize it. On October 29, 2021 the court
granted the EPA’s motion for remand, vacating the EPA’s
withdrawal decision, and thus reinstating the Section 404(c)
Proposed Determination, without imposing any schedule on the
agency.
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three
And Nine Months Ended September 30, 2021
In the
latter part of 2017, a project design was developed for the Pebble
Project. The CWA 404 permit application was submitted to the
USACE on December 22, 2017, initiating federal review for the
Pebble Project under NEPA. Significant milestones in this
permitting process are summarized below:
●
In January 2018,
the Pebble Partnership received notice from USACE that the CWA Act
404 permitting documentation was accepted and that an EIS would be
required to comply with its NEPA review of the Pebble
Project;
●
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 CWA
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, which included
a 90-day public comment period. The Scoping Document was released
on August 31, 2018;
●
On February 20,
2019, USACE posted 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 the
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 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 Pebble EIS on its website.
Publication
of the final Pebble EIS in July 2020 followed 2½ years of
intensive review by the USACE and 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 final Pebble EIS was viewed by the Company as
positive in that it found impacts to fish and wildlife would not be
expected to affect harvest levels, there would be no measurable
change to the commercial fishing industry including prices and
there would be a number of positive socioeconomic impacts on local
communities.
The CWA
404 Permit Application submitted in December 2017, initiated the
permitting process which involved the Pebble Partnership being
actively engaged with the USACE on the evaluation of the Pebble
Project. There were numerous meetings between representatives of
the USACE and the Pebble Partnership regarding, among other things,
compensatory mitigation for the Pebble Project. The Pebble
Partnership submitted several draft compensatory mitigation plans
to the USACE, each refined to address comments from the USACE and
that the Pebble Partnership believed were consistent with
mitigation proposed and approved for other major development
projects in Alaska. In late June 2020, USACE verbally identified
the "significant degradation" of certain aquatic resources, with
the requirement of new compensatory mitigation. The Pebble
Partnership understood from these discussions that the new
compensatory mitigation plan for the Pebble Project would include
in-kind, in-watershed mitigation and continued its work to meet
these new USACE requirements.
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three
And Nine Months Ended September 30, 2021
The
USACE formally advised the Pebble Partnership by letter dated
August 20, 2020, that it had made preliminary factual
determinations under Section 404(b)(1) of the CWA that the Pebble
Project as proposed would result in significant degradation to
aquatic resources. In connection with this preliminary finding of
significant degradation, the USACE formally informed the Pebble
Partnership that in-kind compensatory mitigation within the Koktuli
River watershed would be required to compensate for all direct and
indirect impacts caused by discharges into aquatic resources at the
mine site. The USACE requested the submission of a new compensatory
mitigation plan to address this finding within 90 days of its
letter.
Based on these requirements, the Pebble Partnership developed a new
CMP to align with the requirements outlined by the USACE as
conveyed to the Pebble Partnership. This plan envisioned creation
of an 112,445-acre Koktuli Conservation Area on land belonging to
the State of Alaska in the Koktuli River watershed downstream of
the Project. During the period in which this CMP was developed, the
Pebble Partnership continued to confer with the USACE regarding its
proposed approach to mitigation. An initial draft of the CMP was
submitted to the USACE for an interim review by the USACE in
September 2020. The Pebble Partnership then revised the CMP based
on the input from the USACE. The objective of the preservation of
the Koktuli Conservation Area was to allow the long-term protection
of a large and contiguous ecosystem that contains aquatic and
upland habitats. If adopted, the Koktuli Conservation Area would
preserve 31,026 acres of aquatic resources within the Koktuli River
watershed. The protected resources were designed to address the
physical, chemical, and biological functions highlighted by the EPA
and U.S. Fish & Wildlife Service. Preservation of the Koktuli
Conservation Area was proposed with the objective of minimizing the
threat to, and preventing the decline of, aquatic resources in the
Koktuli River watershed from potential future actions, and
sustaining the fish and wildlife species that depend on these
aquatic resources, while protecting the subsistence lifestyle of
the residents of Bristol Bay and commercial and recreational sport
fisheries. The revised plan was submitted to the USACE on November
4, 2020.
On
November 25, 2020, the USACE issued the ROD. The ROD rejected the compensatory mitigation plan
as "noncompliant"
and determined the Pebble Project
would cause "significant
degradation" and was contrary
to the public interest. Based on this finding, the USACE
rejected Pebble Partnership’s permit application under the
CWA.
The
Pebble Partnership submitted a request for appeal of the ROD (the
"RFA") to the USACE Pacific
Ocean Division on January 19, 2021. The RFA reflects the Pebble
Partnership’s position that the USACE's ROD and permitting
decision are contrary to law, unprecedented in Alaska, and
fundamentally unsupported by the administrative record, including
the Pebble Project EIS. The specific reasons for appeal asserted by
the Pebble Partnership in the RFA include (i) the finding of
"significant degradation" by the USACE is contrary to law and
unsupported by the record, (ii) the USACE’s rejection of the
Pebble Partnership’s compensatory mitigation plan is contrary
to USACE regulations and guidance, including the failure to provide
the Pebble Partnership with an opportunity to correct the alleged
deficiencies, and (iii) the determination by the USACE that the
Pebble Project is not in the public interest is contrary to law and
unsupported by the public record.
In a
letter dated February 24, 2021, the USACE confirmed the Pebble
Partnership’s RFA is "complete and meets the criteria for
appeal." The USACE appointed a RO to oversee the administrative
appeal process at that time and has since assigned a new RO. The
appeal will be reviewed by the USACE based on the administrative
record and any clarifying information provided, and the Pebble
Partnership will be provided with a written decision on the merits
of the appeal at the conclusion of the process. The appeal is
governed by the policies and procedures of the USACE administrative
appeal regulations. While
federal guidelines suggest the appeal should conclude within 90
days, the USACE has indicated the complexity of issues and volume
of materials associated with Pebble’s case means the review
will take additional time. There is no assurance that the
Company’s appeal of the ROD will be successful or that the
required permits for the Pebble Project will ultimately be issued.
The permits are required in order that the Pebble Project can be
developed as proposed by the Company. If the Pebble
Partnership’s administrative appeal of the ROD is successful,
then we anticipate that the permitting decision would be remanded
back to the USACE’s Alaska District in order that the
permitting process would then continue based on the administrative
record and the findings and determinations made by the USACE
Pacific Ocean Division in its appeal decision. There is no
assurance that a successful appeal will ultimately result in the
issuance of a positive ROD by the USACE Alaska District. If the
Pebble Partnership’s administrative appeal is not successful,
the Company may seek judicial review of the ROD in the appropriate
US District Court. There is no assurance that any judicial review
would be successful in overturning an unsuccessful appellate
decision.
On
January 22, 2021, the State of Alaska, acting in its role as owner
of the Pebble lands and subsurface mineral estate, announced that
it had also filed a request for appeal. That appeal was rejected on
the basis that the State did not have standing to pursue an
administrative appeal with the USACE.
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three
And Nine Months Ended September 30, 2021
Northern
Dynasty, through Pebble Partnership, continued to advance
engineering studies to refine the mine design and to support the
EIS process. The results of this work were reported in updates to
the Project Description.
During
the permitting process, a number of transportation infrastructure
routes and alternatives were assessed, and the USACE determined
that the northern corridor route was the most appropriate LEDPA
alternative. It is the Pebble Partnership’s intent to
undertake the actions necessary to acquire the rights to build and
operate the most appropriate transportation and infrastructure
corridor to allow the development of the State’s and Pebble
Partnership’s mineral rights. Information on Right-of-Way
agreements is provided in 1.2.1.3
Socioeconomic.
The
final Pebble 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.
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
●
no gold recovery
plant.
The
proposed project seeks to develop 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 further
comprehensive EIS review process under NEPA. During the NEPA
process, the Pebble Partnership received a Request for Information
("RFI") from USACE for a
description of a concept for an expanded Project. The Pebble
Partnership prepared the description in response to the RFI and
this response is included in the EIS Administrative
Record.
In
September 2021, the Company announced the results of the 2021 PEA,
highlights of which are provided in the Overview
and which is further described in 1.2.1.2
Preliminary
Economic Assessment below. The Proposed Project detailed
in the 2021 PEA is consistent with the Project Description in the
Pebble EIS, and reflects industry-leading tailings, waste and water
management strategies proposed by the Pebble Partnership, as
evaluated by the USACE in the Pebble EIS, as well as power and
transportation infrastructure necessary for developing, operating
and closing the proposed mine.
The
three potential expansion scenarios evaluated in the 2021 PEA are
modelled on a concept identified by the Pebble Partnership in a
submission to the USACE in response to an RFI during the federal
permitting process. The Pebble Partnership’s response to the
USACE RFI is included in the USACE’s administrative record
for the Pebble EIS.
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three
And Nine Months Ended September 30, 2021
During
the quarter, the Pebble Partnership and its technical team and the
Company’s legal counsel have reviewed the administrative
record prepared by the USACE for the RFA.
The
Pebble Partnership continues to prioritize local contracting and
local employment. The 2021 field program was staged out of
facilities owned by Alaska Native village corporations in Iliamna,
Alaska, and employed local residents and Alaska Native corporation
shareholders. The program, which was completed during the quarter,
included:
●
continuation of
select environmental baseline studies;
●
site care and
maintenance, including Pebble Project site, and other facilities in
Iliamna and region;
●
demobilization and
removal of facilities and equipment no longer
required;
●
inspection,
containment and permanent closure of select drill holes and
monitoring wells to maintain compliance with State of Alaska
regulations and permit requirements;
●
support and data
collection for the United States Geological Survey stream gauge
monitoring program on the South and North Fork Koktuli Rivers;
and,
●
support for site
visits.
The
Company has also been focused on advancing engineering,
metallurgical and other technical studies to inform both internal
and external understandings of how the project can be developed
safely and profitably in future, and on September 9, 2021,
announced the results of the 2021 PEA. In October 2021, the
technical report was completed and filed under Northern
Dynasty’s profile at www.sedar.com
and www.sec.gov.
Preliminary
Economic Assessment
The
purpose of the 2021 PEA is to present the projected economics of
the production plan and a corresponding project configuration which
aligns with the June 2020 Revised Project Application (the Proposed
Project), described under 1.2.1.1
Project
Description above. The 2021 PEA also explores potential
expansion scenarios, and potential alternative strategies for gold
recovery that could form the basis for future permit applications
and review for the Project. The 2021 PEA is based on the 2020
Mineral Resource estimate, effective date August 18,
2020.
The
Proposed Project evaluated in the 2021 PEA is a compact open pit
mine feeding a conventional 180,000 Tpd copper flotation
concentrator. It would be capable of processing 1.3 billion tons of
mineralized material over 20 years of mining at a strip ratio of
0.12:1. The Proposed Project reflects industry-leading tailings,
waste and water management strategies proposed by the Pebble
Partnership, as evaluated by the USACE in the Pebble EIS, as well
as power and transportation infrastructure necessary for
developing, operating and closing the proposed mine.
The
three potential expansion scenarios ("Potential Expansion Scenarios") examined
in the 2021 PEA are modeled on a concept identified by the Pebble
Partnership in an RFI submission to the USACE during the federal
permitting process. The first Potential Expansion Scenario
evaluated would expand the Pebble process plant from 180,000 to
250,000 Tpd following the 20-year project life envisioned in the
Proposed Project, with subsequent mining and processing of an
additional 6.3 billion tons of mineralized material. The second and
third evaluated Potential Expansion Scenarios would expand the
Pebble process plant to 270,000 Tpd in Production Year 10 and
Production Year 5 of open pit production under the Proposed
Project, respectively. All three Potential Expansion Scenarios
process the same volume of mineralized material over the life of
mine – 8.6 billion tons.
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three
And Nine Months Ended September 30, 2021
The
Proposed Project and the Potential Expansion Scenarios in the 2021
PEA are preliminary in nature and include Inferred Mineral
Resources that are considered too speculative geologically to have
the economic considerations applied to them that would enable them
to be categorized as Mineral Reserves. There is no certainty that
the 2021 PEA results will be realized. Mineral
Resources that are not Mineral Reserves do not have demonstrated
economic viability, and there is no assurance that the Pebble
Project mineral resources will ever be upgraded to reserves. The
2021 PEA assumes that the Proposed Project will ultimately be able
to obtain the required permits from the USACE and state of Alaska
authorities to enable development of the Proposed Project. Neither
the 2021 PEA, nor the mineral resource estimates on which the 2021
PEA is based, have been adjusted for any risks that (i) the Pebble
Partnership may not be able to successfully appeal the record of
decision issued by the USACE on November 25, 2020, denying the
granting of the required permit under the CWA, or (ii) any action
that may be taken by the EPA in order to reinstate the process of a
CWA Section 404(c) determination for the waters of the Bristol Bay,
each of which could adversely impact the ability of the Proposed
Project to proceed. In addition, the 2021 PEA does not account for
any additional capital or operating costs that may be necessary to
obtain the required federal or state permits, should adjustments to
the operating or environmental mitigation plans be required to be
made in order to secure the required permits.
The
below show forecast life of mine and annual production values with
no gold plant.
Forecast Production - Proposed Project and Potential Expansion
Scenarios (no gold plant)
|
Proposed Project
|
Potential Expansion Scenarios
|
Year 21
|
Year 10
|
Year 5
|
Mineralized Material
|
B
tons
|
1.3
|
8.6
|
8.6
|
8.6
|
|
%
|
0.57
|
0.72
|
0.72
|
0.72
|
Copper
|
%
|
0.29
|
0.39
|
0.39
|
0.39
|
Gold
|
oz/ton
|
0.009
|
0.01
|
0.01
|
0.01
|
Molybdenum
|
ppm
|
154
|
208
|
208
|
208
|
Silver
|
oz/ton
|
0.042
|
0.047
|
0.046
|
0.046
|
Rhenium
|
ppm
|
0.28
|
0.36
|
0.36
|
0.36
|
Waste
|
B
tons
|
0.2
|
14.4
|
14.4
|
14.4
|
Open
Pit Strip Ratio
|
|
0.12
|
1.67
|
1.67
|
1.67
|
Open
Pit Life
|
Years
|
20
|
78
|
73
|
68
|
Life of
Mine
|
Years
|
20
|
101
|
91
|
90
|
Metal Production (LOM)
|
|
|
|
|
|
Copper
|
M
lb
|
6,400
|
60,400
|
60,400
|
60,400
|
Gold
(in Cu Concentrate)
|
k
oz
|
7,300
|
50,400
|
50,500
|
50,500
|
Silver
(in Cu Concentrate)
|
k
oz
|
37,000
|
267,000
|
267,000
|
267,000
|
Gold
(in Gravity Concentrate)
|
k
oz
|
110
|
782
|
783
|
782
|
Molybdenum
|
M
lb
|
300
|
2,900
|
2,900
|
2,900
|
Rhenium
|
k
kg
|
200
|
2,000
|
2,000
|
2,000
|
Metal Production (Annual9)
|
|
|
|
|
|
Copper
|
M
lb
|
320
|
600
|
660
|
670
|
Copper
Concentrate
|
k
tonne
|
559
|
1,000
|
1,200
|
1,200
|
Gold
(in Cu Concentrate)
|
k
oz
|
363
|
500
|
560
|
560
|
Silver
(in Cu Concentrate)
|
k
oz
|
1,800
|
2,600
|
2,900
|
3,000
|
Molybdenum
|
M
lb
|
15
|
29
|
32
|
32
|
Molybdenum
Concentrate
|
k
tonnes
|
14
|
26
|
29
|
29
|
Rhenium
|
k
kg
|
12
|
20
|
22
|
22
|
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three
And Nine Months Ended September 30, 2021
Gold
recovery plants are employed safely at hardrock mines in Alaska
today, and have recently been approved for large-scale new mine
developments in the State. Northern Dynasty and the Pebble
Partnership continue to evaluate multiple technologies to safely
employ secondary gold recovery as doré at the Pebble Project.
Any future plan to incorporate secondary gold recovery would
require extensive federal, state and local permitting processes and
approvals before proceeding.
The
table below shows the forecast life of mine production from the
2021 PEA with a gold plant.
Forecast Production (with gold plant)
|
Proposed Project
|
Potential Expansion Scenarios
|
Year 21
|
Year 10
|
Year 5
|
Concentrate (LOM)
|
|
|
|
|
|
Copper
|
M
lb
|
6,500
|
61,200
|
61,200
|
61,200
|
Gold
(in Cu Concentrate)
|
k
oz
|
7,300
|
50,400
|
50,500
|
50,500
|
Silver
(in Cu Concentrate)
|
k
oz
|
37,000
|
267,000
|
267,000
|
267,000
|
Molybdenum
|
M
lb
|
300
|
2,900
|
2,900
|
2,900
|
Rhenium
|
k
kg
|
200
|
2,000
|
2,000
|
2,000
|
Gold Plant (LOM)
|
|
|
|
|
|
Gold
(as Doré)
|
k
oz
|
1,800
|
14,500
|
14,500
|
14,400
|
Silver
(as Doré)
|
k
oz
|
2,600
|
22,600
|
22,600
|
22,500
|
Total Production (LOM)
|
|
|
|
|
|
Gold
|
k
oz
|
9,000
|
65,000
|
65,100
|
64,900
|
Silver
|
k
oz
|
39,000
|
289,000
|
289,000
|
289,000
|
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three
And Nine Months Ended September 30, 2021
Capital and Operating Costs
For the
Proposed Project and the Potential Expansion Scenarios, the 2021
PEA considers the impact on each of financial results of third
parties owning and financing the construction of key transportation
and power infrastructure, as is commonly the case in Alaska. It is
assumed these third parties would either construct the facilities
through their own resources or they would be included in overall
project construction management. The Pebble Partnership would
lease, operate and maintain the facilities as part of overall mine
operations, with lease payments set to provide a market rate of
return to lessors.
Estimated
initial capital cost for these components, including indirect
costs, owners’ costs and contingency are:
●
transportation
infrastructure (marine terminal/related facilities and access
road): US$784 million
●
power supply (mine
site power plant and natural gas pipeline): US$896
million
Financial
results presented in the 2021 PEA and in the results table below
also incorporate the impact of gold streaming. The calculation
assumes that 30% of gold production at Pebble would be streamed at
a delivery price of US$500/oz in consideration for an estimated
upfront payment of US$1.3 billion.
Infrastructure
outsourcing, gold streaming and the addition of an onsite gold
plant have been examined in the 2021 PEA because Northern Dynasty
believes this to be the most likely development outcome for the
Pebble Project over time. Northern Dynasty does not have any
arrangements or commitments for infrastructure or gold streaming in
place, and any arrangements or commitments secured may ultimately
be on different terms than those assumed in the 2021 PEA. While
transportation and power infrastructure outsourcing agreements have
not yet been negotiated for the Pebble Project, it is considered to
be a realistic potential outcome. These arrangements are presented
for the Proposed Project as the Base Case. A Full Capital Case,
without the benefit of the precious metal stream financing and
third-party infrastructure participation, was also evaluated for
the Proposed Project.
Forecast
initial capital costs for the Proposed Project are US$6.0 billion,
and do not include the projected costs of any of the Expansion
Scenarios as these options are evaluated in the 2021 PEA as
extensions of the Proposed Project. Additional capital expenditures
would be required to facilitate the addition of an onsite gold
plant and development of the various Expansion Scenarios. The
US$6.0 billion capex estimate below includes US$1.7 billion in
estimated costs for transportation infrastructure and power supply,
which are expected to be outsourced.
The
2021 PEA also incorporates annual costs for the closure plan
described in the Pebble Project Final EIS. The peak estimated value
of the Pebble closure fund will be $1.4 billion for the Proposed
Project and between US$3.1 and US$3.3 billion for the Expansion
Scenarios.
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three
And Nine Months Ended September 30, 2021
All currency values
in US$
|
Proposed
Project
|
Potential Expansion
Scenarios
|
Base Case
|
Full Capital
|
Year 21
|
Year 10
|
Year 5
|
Costs
|
|
|
|
|
|
|
Total
Initial Capital Cost
|
$billion
|
6.05
|
6.05
|
6.05
|
6.05
|
6.05
|
Infrastructure
Lease
|
$billion
|
1.68
|
-
|
1.68
|
1.68
|
1.68
|
Net
Initial Capital Cost
|
$billion
|
4.37
|
6.05
|
4.37
|
4.37
|
4.37
|
Sustaining
Capital Cost
|
$billion
|
1.52
|
1.54
|
16.9
|
17.0
|
17.2
|
Life of
Mine Operating Cost10
|
$/ton
|
10.98
|
8.31
|
12.46
|
12.14
|
12.21
|
|
$/lb
CuEq
|
1.65
|
1.32
|
1.56
|
1.53
|
1.54
|
AISC
(Co-Product Basis)
|
$/lb
CuEq
|
1.88
|
1.56
|
1.77
|
1.74
|
1.74
|
Gold C1
Cost
|
$/oz
AuEq
|
753
|
605
|
712
|
699
|
702
|
Closure Funding
|
|
|
|
|
|
|
Annual
Contribution
|
$million/yr
|
34
|
34
|
9
|
10
|
11
|
Life of
Mine Contribution
|
$billion
|
0.83
|
0.83
|
1.00
|
0.97
|
1.01
|
Life of
Mine Bond Premium
|
$billion
|
0.16
|
0.16
|
1.14
|
0.78
|
0.85
|
|
$billion
|
1.4
|
1.4
|
3.2
|
3.3
|
3.1
|
|
|
|
|
|
|
|
Alaska
Mining License
|
$billion
|
0.69
|
0.76
|
8.16
|
8.34
|
8.32
|
Alaska
Royalty
|
$billion
|
0.30
|
0.33
|
3.61
|
3.68
|
3.68
|
Alaska
Income Tax
|
$billion
|
0.75
|
0.87
|
10.20
|
10.46
|
10.40
|
Borough
Severance & Tax
|
$billion
|
0.49
|
0.53
|
4.34
|
4.33
|
4.34
|
Federal
Income Tax
|
$billion
|
1.38
|
1.61
|
18.94
|
19.42
|
19.31
|
|
|
|
|
|
|
|
Alaska
Mining License
|
$million
|
34
|
38
|
81
|
92
|
93
|
Alaska
Royalty
|
$million
|
15
|
17
|
36
|
41
|
41
|
Alaska
Income Tax
|
$million
|
38
|
44
|
101
|
115
|
116
|
Borough
Severance & Tax
|
$million
|
25
|
26
|
43
|
48
|
47
|
Federal
Income Tax
|
$million
|
69
|
81
|
188
|
213
|
215
|
Financial Results
Long-term
metal prices used are:
●
Molybdenum:
US$ 10 / lb
●
Rhenium: US$ 1,500
/ kg
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three
And Nine Months Ended September 30, 2021
An
economic model was developed to estimate annual pre-tax and
post-tax cash flows and sensitivities of the Proposed Project and
Potential Expansion Scenarios based on a 7% discount rate. By
convention, a discount rate of 8% is typically applied to copper
and other base metal projects, while 5% is applied to gold and
other precious metal projects. Given the polymetallic nature of the
Pebble deposit and the large contribution of gold to total
revenues, a 7% blended discount rate was selected and is considered
appropriate for the purposes of discounted cash flow analyses. The
NPV is calculated by discounting cash flows to start of
construction.
The
economic analysis for all Potential Expansion Scenarios included
third party infrastructure and precious metal streaming
partners.
Calendar
years used in the economic analysis are provided for conceptual
purposes only. Permits still must be obtained in support of
operations and approval to proceed is still required from Northern
Dynasty’s Board of Directors.
Financial Results – Proposed Project and Potential Expansion
Scenarios
All currency values
in US$
|
Proposed Project
|
Potential Expansion Scenarios
|
Base Case
|
Full Capital
|
Year 21
|
Year 10
|
Year 5
|
|
|
|
|
|
|
|
Annual
Gross Revenue
|
$million
|
1,700
|
1,800
|
3,100
|
3,400
|
3,500
|
Life of
Mine Gross Revenue
|
$million
|
35,000
|
37,000
|
312,000
|
312,000
|
312,000
|
Realization Charges
|
|
|
|
|
|
|
Annual
Charges
|
$million
|
150
|
150
|
270
|
300
|
310
|
Life of
Mine Charges
|
$million
|
2,900
|
2,900
|
28,000
|
28,000
|
28,000
|
Net Smelter Return
|
|
|
|
|
|
|
Annual
NSR
|
$million
|
1,600
|
1,700
|
2,800
|
3,100
|
3,200
|
Life of
Mine NSR
|
$million
|
32,000
|
34,000
|
285,000
|
285,000
|
285,000
|
|
|
|
|
|
|
|
Financial Model Results
|
|
|
|
|
|
|
Post
Tax IRR
|
%
|
15.7
|
11.2
|
18.1
|
19.5
|
21.5
|
Post
Tax NPV7
|
$million
|
2,300
|
2,000
|
5,700
|
7,300
|
8,500
|
Payback
|
Years
|
4.8
|
6.1
|
4.4
|
4.4
|
5.0
|
The
gold plant included in the potential expansion scenarios was based
of metallurgical testwork results for a specific gold recovery
technology. However, other technologies may be applicable for the
Pebble deposit. Further, the addition of a gold plant under any
scenario will require additional testwork and engineering and will
require the receipt of pertinent Federal and State permits prior to
implementation. The onsite gold plant would process the pyrite
concentrate in conjunction with the gravity concentrate to produce
a precious metal doré. In all but the Year 5 scenario, the
gold plant capacity would match the 180,000 tons per day process
plant capacity. In the Year 5 scenario, it would match the expanded
plant capacity while in the Year 10 and Year 21 scenarios, it would
be expanded with the process plant.
Financial Results – Proposed Project and Potential Expansion
Scenarios with Gold Plant
All currency values in US$
|
Proposed Project
|
Potential Expansion Scenarios
|
Year 21
|
Year 10
|
Year 5
|
IRR
|
%
|
16.5
|
18.8
|
20.3
|
22.7
|
NPV7
|
$million
|
2,700
|
6,600
|
8,400
|
9,700
|
Payback
|
Years
|
4.9
|
4.6
|
4.5
|
5.0
|
The
results of the 2021 PEA forecast a robust project that has the
potential to add substantially to the Alaska economy, and could
provide the U.S. with substantial amounts of domestically-produced
copper, silver and gold, which it will need to help achieve its low
carbon energy future. The Project could potentially provide more
than US$8 billion to the Southwest Alaska region through the Pebble
Performance Dividend and the Lake and Peninsula Borough severance
tax over the life of the Potential Expansion Scenarios. This is in
addition to the other significant benefits that could flow from the
existing and possible future agreements with Alaska Native Village
Corporations.
Page | 20
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three
And Nine Months Ended September 30, 2021
Community Engagement
Pebble
Project technical programs are supported by stakeholder engagement
activities undertaken by the Pebble Partnership 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 regulatory 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 have included:
●
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, and 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. This
program of engagement and
consultation also includes discussions to secure stakeholder
agreements to support the project’s development.
Right-of-Way Agreements and Other Community
Initiatives
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. 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. Transportation and other infrastructure for a mine at
Pebble is expected to benefit Alaska Native village corporations,
their shareholders and villages through toll payments and user
fees, contracting opportunities, and improved access to lower cost
power, equipment and supplies, as well as enhanced economic
activity in the region.
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three
And Nine Months Ended September 30, 2021
On June
16, 2020, the Company announced the Pebble Partnership has
established the Pebble Performance Dividend LLC ("PPD LLC") 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 PPD LLC 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.
A
Memorandum of Understanding ("MOU") between the Pebble Partnership and
APC was announced on July 6, 2020. The Alaska Peninsula Corporation
("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 Transportation Route. It is
contemplated that the consortium would provide road maintenance,
truck transport, port operations and other logistical services to
the Pebble Project should the 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.
Environmental, Social & Governance Report
In
April 2021, the Company published an Environmental, Social &
Governance ("ESG") Report
for the Pebble Project which addresses the broad range of
progressive principles, practices and commitments employed at
Pebble by the Company and the Pebble Partnership over the past two
decades to advance the project.
Grand Jury Subpoena
On
September 23, 2020, the Company announced that Tom Collier, the
former Chief Executive Officer of the Pebble Partnership, had
submitted his resignation in light of comments made about elected
and regulatory officials in Alaska and the Pebble Project in
private conversations covertly videotaped by an environmental
activist group. Conversations with Mr. Collier, as well as others
with Ron Thiessen, Northern Dynasty’s President and Chief
Executive Officer, were secretly videotaped or audiotaped by
unknown individuals posing as representatives of a Hong Kong-based
investment firm, which represented that it was linked to a Chinese
State-Owned Enterprise (SOE). The Company understands that a
Washington DC-based environmental group, the Environmental
Investigation Agency, released portions of the recordings online
after obscuring the voices and identities of the individuals posing
as investors.
Following
the release of the recordings, the USACE issued a statement that,
following a review of the transcripts of the recordings, they had
“identified inaccuracies and
falsehoods relating to the permit process and the relationship
between our regulatory leadership and the applicant’s
executives”. Further, the Pebble Partnership received
a letter from the Committee on Transportation and Infrastructure of
the United States House of Representatives on November 19, 2020,
stating that the comments made by Mr. Collier and Mr. Thiessen
regarding the expansion, capacity, size and duration of the
potential Pebble mine were believed to be inconsistent with the
testimony of Mr. Collier before the Committee and demanding
production of documents apparently related to the comments. The
Company has been producing documents in response to those requests.
The Company also responded to the Committee by letter denying and
refuting that there was any inconsistency as raised in the
Committee’s November 19, 2020 correspondence.
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three
And Nine Months Ended September 30, 2021
On
February 5, 2021, the Company announced that the Pebble Partnership
and Tom Collier, the former Chief Executive Officer of the Pebble
Partnership, had each been served with a subpoena issued by the
United States Attorney’s Office for the District of Alaska to
produce documents in connection with a grand jury investigation.
The Company is not aware of any criminal charges having been filed
against any entity or individual in this matter. The Company also
self-reported this matter to the SEC, and there is a related
inquiry being conducted by the enforcement staff of the SEC’s
San Francisco Regional Office. The Company and the Pebble
Partnership are cooperating with each of these
investigations.
Class Action Litigation relating to the USACE’S Record of
Decision
On
December 4 and December 17, 2020, separate putative shareholder
class action lawsuits were filed against the Company and certain of
its current and former officers and directors in the U.S. District
Court for the Eastern District of New York regarding the drop in
the price of the Company’s stock following the ROD by the
USACE regarding the Pebble Project. These cases are captioned
Darish v. Northern Dynasty
Minerals Ltd. et al., Case No. 1:20-cv-05917-ENV-RLM, and
Hymowitz v. Northern Dynasty
Minerals Ltd. et al., Case No. 1:20-cv-06126-PKC-RLM.
Each of the complaints was filed on behalf of a purported class of
investors who purchased shares of the Company’s stock from
December 21, 2017, through November 25, 2020, the date the USACE
announced its decision, and seeks damages allegedly caused by
violations of the federal securities laws. On March 17, 2021, the
two cases were consolidated and a lead plaintiff and counsel were
appointed. A consolidated and amended complaint was filed in June
2021, naming the Company’s CEO and the Pebble
Partnership’s former CEO as defendants. The Company intends
to defend itself vigorously and
has filed a motion to dismiss the complaint on behalf of all
defendants.
On
December 3, 2020, a putative shareholder class action lawsuit was
filed against the Company, certain of its current and former
officers and directors, and one of its underwriters in the Supreme
Court of British Columbia regarding the decrease in the price of
the Company’s stock following the USACE’s November 25,
2020 decision regarding the Pebble Project. The case is captioned
Haddad v. Northern Dynasty
Minerals Ltd. et al., Case No. VLC-S-S-2012849. The claim
was filed on behalf of a purported class of investors, wherever
they may reside, who acquired common shares of the Company’s
stock between December 21, 2017 and November 25, 2020, and seeks
damages for (i) alleged misrepresentations in the Company’s
primary market offering documents and continuous disclosure
documents, and (ii) allegedly oppressive conduct. The Company has
been served the claim and intends to defend itself vigorously. The
underwriter has asserted contractual rights of indemnification
against the Company for any loss that the underwriter may incur in
connection with the lawsuit.
On
February 17, 2021, a putative shareholder class action lawsuit was
filed against the Company, certain of its current and former
officers and directors, and certain of its underwriters in the
Supreme Court of British Columbia regarding the decrease in the
price of the Company’s stock following (i) the USACE’s
August 24, 2020 announcement that the Pebble Project could not be
permitted as proposed, and (ii) the USACE’s November 25, 2020
decision regarding the Pebble Project. The case is captioned
Woo v. Northern Dynasty Minerals
Ltd. et al., Case No. VLC-S-S-211530. The claim was filed on
behalf of a purported class of investors, wherever they may reside,
who purchased securities of the Company between June 25, 2020 and
November 25, 2020, and seeks damages for (i) alleged
misrepresentations in the Company’s primary market offering
documents and continuous disclosure documents, (ii) allegedly
oppressive conduct, (iii) alleged unjust enrichment, and (iv)
negligence. The Company has been served and intends to defend
itself vigorously. The underwriters have asserted contractual
rights of indemnification against the Company for any loss that
they may incur in connection with the lawsuit.
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three
And Nine Months Ended September 30, 2021
On
March 5, 2021, a putative shareholder class action lawsuit was
filed against the Company, certain of its current and former
officers and directors, and certain of its underwriters in the
Ontario Superior Court of Justice regarding the decrease in the
price of the Company’s stock following the USACE’s
November 25, 2020 decision regarding the Pebble Project. The case
is captioned Pirzada v. Northern
Dynasty Minerals Ltd. et al., Case No. CV-21-00658284-00CP.
The claim was filed on behalf of a purported class of investors,
wherever they may reside, who acquired securities of the Company
between June 25, 2020 and November 25, 2020, and seeks damages for
(i) alleged misrepresentations in the Company’s primary
market offering documents and continuous disclosure documents, (ii)
allegedly oppressive conduct, and (iii) alleged negligence. The
Company has been served and intends to defend itself vigorously.
The underwriters haves asserted contractual rights of
indemnification against the Company for any loss that they may
incur in connection with the lawsuit.
Indemnification Obligations
The
Company is subject to certain indemnification obligations to both
present and former officers and directors, including Mr. Collier,
in respect to the legal proceedings described above. These
indemnification obligations will be subject to limitations
prescribed by law and the articles of the Company, and may also be
subject to contractual limitations.
In June
2021, the Company entered into an At-the-Market Offering Agreement
(the "ATM Agreement") with
H.C. Wainwright & Co. (the "Agent"). Under the ATM Agreement,
the Company will be able, at its discretion and from time-to-time
during the term of the ATM Agreement, to sell, through the Agent,
as sales agent, common shares of the Company (the "Common Shares") having an aggregate
gross sales price of up to US$14.5 million (the "Offering" or "ATM Facility"). Sales of the Common
Shares will be made in "at the market distributions", as defined in
National Instrument 44-102, directly on the NYSE American stock
exchange or on any other existing trading market in the United
States. No offers or sales of Common Shares will be made in Canada
on the Toronto Stock Exchange or other trading markets in
Canada.
The
Company will determine, at its sole discretion, the date, price and
number of Common Shares to be sold under the ATM Facility. The
Common Shares will be distributed at market prices or prices
related to prevailing market prices from time to time. The Company
is not required to sell any Common Shares at any time during the
term of the ATM Facility, and there are no fees for having
established the ATM Facility. The ATM Agreement does not restrict
the Company from conducting other financings. The Company will pay
the Agent a placement fee for Common Shares sold under the ATM
Agreement and will reimburse certain expenses of the
Agent.
In
September 2021, the Company sold 1,212,805 Common Shares under the
ATM Facility at an average share price of US$0.567 for gross
proceeds of approximately US$0.69 million
($0.87 million). The Group paid Agent fees of
US$0.02 million ($0.02 million). After transaction costs
of $0.05 million, net proceeds to the Company were
$0.82 million.
The
Company intends to use the net proceeds of the Offering at the
discretion of the Company, for (i) the appeal of the ROD by the
USACE, (ii) continued engineering, environmental, permitting and
evaluation work on the Pebble Project, (iii) maintenance of
Company’s corporate presence in Alaska, (iv) maintenance of
the Pebble Project mineral claims, (v) pursuit of the partnering
process for the Pebble Project, (vi) preparation of engineering
reports on the Pebble Project, and (vii) general corporate
purposes.
On July
15, 2020, Northern Dynasty 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$35.26 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).
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three
And Nine Months Ended September 30, 2021
On July
30, 2020, and August 6, 2020, Northern Dynasty 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 were subject to applicable resale restrictions, including
a four-month hold period under Canadian securities
legislation.
The
following table sets out a comparison of the Company’s
disclosed expected use of net proceeds from the July 2020 Offerings
to the actual use of net proceeds as at September 30, 2021. The net
proceeds were used to advance the Company’s business
objectives and milestones as follows:
Intended Use of Net Proceeds of 2020 Offerings
|
Actual Use of Net Proceeds from 2020 Offerings
|
Variance – (Over)/Under Expenditure
|
Explanation of Variance and impact on business
objectives
|
Ongoing
work with Alaska and federal regulatory agencies in support of the
issuance of the EIS and the Record of Decision for the Pebble
Project
|
US$1,000,000
|
$–
|
US$1,000,000
|
Expenses
yet to be incurred.
|
Maintain
an active corporate presence in Alaska by continuing to build
relationships with both federal and Alaska state governments and
agencies and Native Corporations and communities in connection with
advancement of the Pebble Project
|
US$4,515,231
|
US$4,515,231
|
–
|
NA
|
Commence
the Alaska state permitting process for the Pebble Project,
contingent upon issuance of a positive EIS and Record of Decision
for the Pebble Project and management determinations as to
timing
|
US$17,750,000
|
US$-
|
US$17,750,000
|
State
permitting has not yet been initiated and is pending appeal of the
ROD denial. Will be funded by existing treasury. Funds allocated to
general corporate purposes below.
|
Maintenance
of the Pebble claims in good standing.
|
US$1,400,000
|
US$1,400,000
|
–
|
NA
|
Ongoing
discussions and possible negotiations to secure a project
partner(s) with the financial resources to advance development of
the Pebble project
|
US$1,000,000
|
US$-
|
US$1,000,000
|
Expenses
yet to be incurred.
|
General
corporate purposes in connection with the advancement of the Pebble
Project
|
US$16,205,819
|
US$29,691,802-
|
US$(13,485,983)
|
Shortfall
funded by reallocation from state permitting above.
|
Total
|
US$41,871,050
|
US$35,607,033
|
US$6,24,017
|
|
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three
And Nine Months Ended September 30, 2021
Copper
prices were variable in 2016. In 2017 prices were variable to
improving 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 of 2019 and were slightly variable
through September, then 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 to
changing economic conditions related to COVID-19 but rebounded in
May and trended upward during the third quarter. Prices dropped
slightly in October 2020, then increased. In 2021, prices were
variable to improving through to May, dropped in June and then were
stable until October when they again began to show some
variability. On November 12, 2021, the closing price was
US$4.47/lb.
Gold
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 decreased
before stabilizing for the remainder of 2020. Prices were variable
in 2021, but began to increase in October. On November 12, 2021,
the closing price was US$1,860/oz.
After
being relatively flat in 2016, molybdenum 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 the most part in 2020 but increased,
beginning in August 2020, and have largely continued to do so 2021.
On November 12, 2021, the closing price was
US$18.90/lb.
Silver
prices were variable to improving during most of 2016 and 2017.
Prices declined in late 2017 but recovered in January 2018, but
were variable the rest of 2018. Prices were variable in 2019, but
stabilized in November and December and the annual average price
increased in 2019. After increasing in early January 2020, silver
prices fell to US$12.00/oz in March 2020. Silver prices resumed an
uptrend in in response to uncertainty about global economic
conditions related to COVID-19, and reached a high in mid-August in
excess of US$27.00/oz, then decreased to around US$23.00/oz and
then continued on an uptrend for the remainder of the year,
resulting in an increase in the average annual price in 2020.
Silver prices in 2021 have become more variable but the average
annual price to date has increased. On November 12, 2021, the
closing price was US$24.96/oz.
Average
annual prices of copper, gold, molybdenum and silver for the past
five years as well as the average prices so far in 2021 are shown
in the table below:
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three
And Nine Months Ended September 30, 2021
Year
|
Average metal price 1,2
|
Copper
US$/lb
|
Gold
US$/oz
|
Molybdenum
US$/lb
|
Silver
US$/oz
|
2016
|
2.21
|
1,251
|
6.56
|
17.14
|
2017
|
3.22
|
1,272
|
7.26
|
16.49
|
2018
|
2.96
|
1,269
|
11.94
|
15.71
|
2019
|
2.72
|
1,393
|
11.36
|
16.21
|
2020
|
2.80
|
1,769
|
8.68
|
20.54
|
2021
(to November 12)
|
4.21
|
1,798
|
15.53
|
25.44
|
1.
Source for copper, gold, molybdenum (2016-2017) and silver is Argus
Media at www.metalprices.com
LME Official Cash Price for copper and molybdenum
(2016-2017)
LBMA PM Price for gold
London PM fix for silver
2.
Source for 2018-2021 prices for molybdenum is Platts
Selected Annual Information
Not
required for the interim MD&A
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
|
$2,907
|
$3,345
|
$3,286
|
$7,183
|
$14,470
|
$10,332
|
$7,234
|
$11,998
|
General
and administrative
|
2,405
|
2,480
|
2,462
|
3,139
|
3,272
|
2,727
|
2,407
|
2,122
|
Legal,
accounting and audit
|
3,124
|
1,916
|
2,287
|
112
|
701
|
638
|
987
|
780
|
Share-based
compensation
|
244
|
1,286
|
1,322
|
1,288
|
6,992
|
615
|
447
|
455
|
Other items
1
|
(14)
|
197
|
162
|
1,218
|
326
|
144
|
(360)
|
235
|
Loss for the quarter
|
$8,666
|
$9,224
|
$9,519
|
$12,940
|
$25,761
|
$14,456
|
$10,715
|
$15,590
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per common share
|
$0.02
|
$0.02
|
$0.02
|
$0.03
|
$0.05
|
$0.03
|
$0.02
|
$0.04
|
Weighted
average number of common shares (000s)
|
528,470
|
516,077
|
511,259
|
508,916
|
499,285
|
451,788
|
434,012
|
387,352
|
1.
Other items include
interest income, finance expense, exchange gains or losses, gain or
loss on revaluation of warrants, gain on lease term modification,
and other income.
Discussion of Quarterly Trends
Exploration
and evaluation expenses ("E&E") has fluctuated depending on
activities undertaken. In 2019, the Company focused on supporting
the EIS process, including responding to USACE requests for
information, review of the Draft EIS and providing comments
thereon, to advance a final EIS. In 2020, the Company continued its
efforts in support of the EIS process to advance a final EIS, which
was received, and worked on the LEDPA and the CMP. In Q1 2021, the
Company focused on the review of the USACE ROD and the submission
of an administrative appeal thereof. In Q2 and Q3 2021, the Company
advanced engineering work to complete a preliminary economic
assessment, the results of which were published in Q3 2021. In Q3
2021, the Company also completed a summer field program. Further
details are discussed in Section 1.2.1.2
Technical
Programs. E&E also includes costs for Native
community engagement, site leases, land access agreements and
annual claim fees.
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three
And Nine Months Ended September 30, 2021
General
and administrative expenses ("G&A") in 2020 was higher on average
than 2019 as the Company incurred higher consulting fees and was
impacted by the payments of bonuses including discretionary
performance based bonuses paid to the former Pebble Partnership CEO
("PLP CEO") (Q1, Q2 and
Q3 2020), and incentive bonuses paid to certain staff (Q1 2020).
G&A in 2021 are lower on average than 2020 in part due to no
bonuses being paid.
Legal,
accounting and audit expenses have fluctuated in response to legal
fees incurred in relation to class action lawsuits and the grand
jury investigation (in 2021). In Q4 2019 and 2020, the Company
received insurance refunds for costs incurred which reduced legal,
accounting and audit expenses. In 2021, the Company incurred
additional costs relating to the 2020 year end integrated audit,
and for the preparation and response to the grand jury
investigation.
Share-based
compensation expense ("SBC")
has fluctuated due timing (affects the estimate of fair value
determined) of share purchase option ("option") grants, the quantum of option
grants and the vesting periods associated with these option grants.
The Company granted 6,783,000 and 6,610,500 options in Q3 2020 and
2019, respectively. No option grants have been issued in
2021.
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.
Results of Operations – Three and
nine months ended September 30, 2021 versus 2020
For the
three months, the Company recorded a $17.1 million decrease in
net loss as loss from operating activities decreased by
$16.8 million due to a $11.6 million decrease in E&E
and a $6.7 million decrease in SBC. However, this was offset
by an increases in legal, accounting and audit expenses of
$2.4 million.
For the
nine months, the Company recorded a $23.5 million decrease in
net loss as loss from operating activities decreased by
$23.8 million as a result of a $22.5 million decrease in
E&E and a $5.2 million decrease in SBC in 2021. This was
offset by increases in legal, accounting and audit expenses of
$5.0 million.
Exploration and evaluation expenses
The
breakdown of E&E (in thousands of dollars) for the period as
compared to 2020 is as follows:
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three
And Nine Months Ended September 30, 2021
|
Three
months
|
Nine
months
|
|
2021
|
2020
|
2021
|
2020
|
Engineering
|
$737
|
$2,120
|
$3,384
|
$8,516
|
Environmental
|
553
|
4,403
|
1,833
|
10,317
|
Property
fees
|
6
|
7
|
6
|
7
|
Site
activities
|
653
|
1,849
|
1,761
|
2,659
|
Socio-economic
|
499
|
4,149
|
1,899
|
8,401
|
Transportation
|
411
|
1,831
|
511
|
1,881
|
Other activities
and travel
|
48
|
111
|
144
|
255
|
Total
|
$2,907
|
$14,470
|
$9,538
|
$32,036
|
E&E
decreased by $11.6 million in the current quarter and by
$22.5 million for the nine month period due to a decrease in
engineering, environmental and socio-economic related activities.
In 2020, the Company was supporting the federal permit application
process, which included ongoing technical studies, responses to
requests for information, and stakeholder engagement and
consultation, and culminated in the issue of the final EIS. The
Company also worked on the required compensatory mitigation plan
(see Permitting
under 1.2.1.1 Pebble Project and
Status).
General and administrative expenses
The
following table (in thousands of dollars) provides a breakdown of
G&A, and legal, accounting and audit expenses incurred in the
period as compared to 2020:
|
Three
months
|
Nine
months
|
|
2021
|
2020
|
2021
|
2020
|
Conference
and travel
|
$38
|
$5
|
$93
|
$136
|
Consulting
|
558
|
556
|
1,116
|
1,322
|
Depreciation
of right-of-use assets
|
53
|
58
|
166
|
177
|
Insurance
|
440
|
235
|
979
|
582
|
Office
costs, including information technology
|
166
|
333
|
627
|
885
|
Management
and administration
|
914
|
1,894
|
3,013
|
4,440
|
Shareholder
communication
|
223
|
161
|
1,115
|
539
|
Trust
and filing
|
13
|
30
|
238
|
325
|
Total G&A
|
2,405
|
3,272
|
7,347
|
8,406
|
Legal, accounting and audit
|
3,124
|
701
|
7,327
|
2,326
|
|
$5,529
|
$3,973
|
$14,674
|
$10,732
|
G&A
in the current quarter decreased by $0.9 million. There were
decreases in office cost and management and administration offset
by an increase in insurance and shareholder communication. With the
latter, the increase was partly due to timing as the Company
incurred costs for the annual general meeting held on June 30,
2021, however, in 2020, the annual general meeting was held on
December 17 of that year due to COVD-19.
Legal,
accounting and audit expenses increased by $2.4 million in the
current quarter due to new class action lawsuits and the grand jury
investigation.
In the
year to date, G&A decreased by $1.1 million due primarily
to discretionary performance and incentive bonuses paid to certain
staff and the former PLP CEO in the nine months ended
September 30, 2020. In the current period, shareholder
communication increased due to the 2020 annual general meeting
being deferred to December of that year due to COVID-19. Legal,
accounting and audit costs increased by $5.0 million due to
the ongoing class action lawsuits and the grand jury
investigation.
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three
And Nine Months Ended September 30, 2021
The
Company recognized a decrease in SBC of $6.7 million in the
quarter and $5.2 million in the nine-month period. SBC
fluctuates due to the timing of when options, RSUs and DSUs are
granted, as well as the quantum thereof, and the vesting periods
associated with these grants.
Financial position as at September 30, 2021 versus December 31, 2020
The
total assets of the Company decreased by $14.3 million due
largely to the decrease in cash and cash equivalents as the
Company. The Company also recorded a decrease in in carrying value
of the Company’s mineral property, plant and equipment as a
result of the appreciation of the Canadian dollar in relation to US
dollar however, this was offset by an increase in amounts
receivable and prepaid expenses.
Our
business objectives for the balance of 2021 are to:
●
continue with the
appeal of the ROD by the USACE;
●
continue with
engineering, environmental, permitting and evaluation work on the
Pebble Project as required, including the completion of engineering
reports;
●
maintain an active
corporate presence in Alaska to advance relationships with
political and regulatory offices of government (both in Alaska and
Washington, D.C.), Alaska Native partners and broader stakeholder
relationships;
●
contingent on a
successful appeal of the RFA, initiate Alaska state permitting
activities;
●
maintain the Pebble
Project and Pebble claims in good standing;
●
continue to seek
potential partner(s) with greater financial resources to further
advance the Pebble Project; and
●
continue general
and administrative activities in connection with the advancement of
the Pebble Project.
The key
milestones in the development of the Company’s business is
presently the successful completion of an appeal of the
ROD.
The
USACE’s ROD has had a material impact on the Company’s
previously disclosed plan of operations. Accordingly, the Company
has altered its intended business activities and milestones to be
completed over the next 12 months to focus on the appeal of the
ROD. The Company’s present business objectives and milestones
are anticipated to generally include the following activities over
the next 12 months:
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three
And Nine Months Ended September 30, 2021
Milestone/Business Objective
|
Business Activity within Next 12 Months
|
Timeframe for Completion 1
|
Anticipated Budget during Next 12 Months
|
Continue with
engineering, environmental, permitting and evaluation work on the
Pebble Project as required
|
Work
includes ongoing site maintenance to remain in compliance with
permitting and demobilization of field equipment as required,
additional engineering and evaluation of the Pebble
Project
|
Ongoing
through next twelve months
|
US$5,600,000
|
Maintain an active
corporate presence in Alaska
|
Continue to build
relationships with:
● both federal and
Alaska state governments and agencies;
● Native
Corporations and communities, an example being the establishment of
the Pebble Performance Dividend, which is intended to provide a
direct benefit to the people of Bristol Bay;
● Right-of-Way
Payments to various Native Corporations
|
Ongoing
through next twelve months
|
US$3,900,000
|
Pebble
claims maintenance
|
Continue to
maintain the Pebble claims in good standing.
|
Ongoing
through next twelve months
|
US$940,000
|
Pebble
partnering process 1
|
Ongoing
discussions and possible negotiations to secure a project
partner(s) with the financial resources to advance development of
the Pebble project. Management will continue to seek suitable
partner(s) with the objective to maximize shareholder value through
2021.2
|
Ongoing
through next twelve months
|
US$1,000,000
|
General corporate purposes, including appeal of
the ROD by the USACE on Pebble, defence of Class Action Lawsuits,
settlement of historical liabilities, handling of grand jury
investigation
|
Pursue
successful appeal of the ROD and defense of legal
proceedings
|
Ongoing
through next twelve months
|
US$6,400,000
|
Notes
1.
Due to the COVID-19
pandemic, some due diligence activities that a partner may usually
undertake such as site visits have been slower than
anticipated.
2.
There is no
assurance that these discussions or possible negotiations will
result in any binding agreement with any partner for the
development of the Pebble Project. See 1.15.5
Risk
Factors.
The
Company’s actual plan of operations and expenditures for the
next twelve months may vary depending on future developments and at
the discretion of the Company’s board of directors and
management.
The
Company will require additional financing beyond its current cash
and working capital in order to carry out these further business
activities. The Company believes that its ability to obtain
additional financing has been and will continue to be negatively
impacted by the Record of Decision and its ability to successfully
appeal the ROD. Other than the ATM Facility, the Company does not
have any arrangement in place for any future financing, and there
is no assurance that the Company will be able to achieve the
required additional financing when required. In addition, the
Company cautions that while a successful appeal of the ROD will
reduce one of the significant risk factors faced by the Pebble
Project, significant risk factors will remain for the development
of the Pebble Project, as described in 1.15.5
Risk
Factors.
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three
And Nine Months Ended September 30, 2021
In the
event that appeal of the ROD is unsuccessful, the Company will be
required to re-assess its options for advancing the development of
the Pebble Project. These options may include a re-assessment of
the scope of the Pebble Project and the submission of a revised
permit application. While the Company is unable to assess the full
impact of any adverse appellate result of the ROD at this time, the
Company anticipates that such a negative result on appeal of the
ROD will have a negative impact on the Company’s ability to
achieve additional financing, and will most likely limit the
Company’s financing options to further issuances of the
Company’s equity securities.
The
Company may also attempt to reduce the amount of additional
financing required by entering into a potential joint venture or
other partnership arrangement for advancement of the Pebble
Project. The Company is continuing to evaluate the availability of
long-term project financing options among mining companies, private
equity firms and others, utilizing conventional asset level
financing, debt, royalty and alternative financing options. There
is no assurance that Northern Dynasty will be able to partner the
Pebble Project or secure additional financing when
required.
To the
extent that Northern Dynasty is unable to raise additional
financing, it will have to curtail its operational activities,
which will ultimately delay advancement of the Pebble
Project.
Northern
Dynasty’s inability to successfully appeal the ROD may
ultimately mean that it will be unable to proceed with the
development of the Pebble Project as currently envisioned or at
all.
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, 2021, the Company had cash and cash equivalents
of $28 million, a decrease of $14.4 million from December
31, 2020. The Company employed $27.1 million in its
operating activities in the nine months ended
September 30, 2021. 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, as outlined above under 1.5.3
Plan
of Operations. Other than the ATM Facility, the Company
does not have any arrangement in place for any future financing.
There can be no assurances that the Company will be successful in
obtaining additional financing when required. 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, 2021, the Company had a working capital of
$24.9 million as compared to a working capital of
$36.5 million at December 31, 2020. 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, 2021:
|
|
Payments
due by period as of the reporting date
|
|
|
|
|
|
Trade and other
payables 1
|
$4,936
|
$4,936
|
$–
|
$–
|
Payables to related
parties
|
514
|
514
|
–
|
–
|
Lease commitments
2
|
977
|
190
|
581
|
206
|
Other commitments
3
|
544
|
184
|
360
|
–
|
Total
|
$6,971
|
$5,824
|
$941
|
$206
|
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three
And Nine Months Ended September 30, 2021
Notes
to table
1.
Includes 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.
Includes payments
due on a short term lease and payments for the use of offices and
shared space from a related party.
4.
US dollar amounts
have been converted at the closing rate on September 30, 2021, of
$1.2683/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.
The
Company’s capital resources consist of its cash reserves,
which include its cash and equivalents. As at September 30,
2021, 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, 2021, 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 ("CEO"), respectively, are active members
of the HDI Board of Directors. Mark Peters, the Company’s
Chief Financial Officer ("CFO"), is also the CFO of HDSI. Other
key management personnel of the Company – Adam Chodos, Stephen
Hodgson16, Bruce Jenkins, Sean Magee, Trevor
Thomas and Mike Westerlund – 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.
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three
And Nine Months Ended September 30, 2021
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.
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 individual service providers
under the Services Agreement and their respective employment
agreements with HDSI.
The
Company had an office use agreement with HDSI which expired on
April 29, 2021. Pursuant to the agreement, the Company rented a
specified office from HDSI for its sole use.
In
April 2021, the Company entered into an office use agreement with
HDSI, whereby HDSI is providing two offices and a non-fixed space,
on as needed basis, for a five-year term commencing May 1, 2021,
and ending April 29, 2026. Pursuant to this agreement, the Company
has a remaining undiscounted commitment of $0.5 million, which has
been disclosed in the table under section 1.6
Liquidity. The commitment is a flow through cost at
market rates.
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
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three
And Nine Months Ended September 30, 2021
There
are no proposed asset or business acquisitions or dispositions,
other than those in the ordinary course, before the Board of
Directors for consideration.
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.
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 Company 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, 2021.
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, 2021
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 thousands of
Canadian Dollars)
|
|
|
Financial
assets:
|
|
|
Amounts
receivable
|
$123
|
$649
|
Cash and cash
equivalents and restricted cash
|
5,596
|
23,624
|
|
5,719
|
24,273
|
Financial
liabilities:
|
|
|
Long term
payables
|
(596)
|
(657)
|
Payables to related
parties
|
(216)
|
(650)
|
Trade and other
payables
|
(4,471)
|
(6,170)
|
|
(5,283)
|
(7,477)
|
Net financial
assets exposed to foreign currency risk
|
$436
|
$16,796
|
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 $44
(December 31, 2020 – $1,680) 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, 2021.
Commodity price risk
While
the value of the Company’s Pebble Project is related to the
prices of copper, gold, molybdenum, silver and rhenium 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, silver and rhenium 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.
Additional
information relating to the Company, including the Company’s
2020 Annual Information
Form, is available under the Company’s profile on
SEDAR at www.sedar.com.
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three
And Nine Months Ended September 30, 2021
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:
|
Number
|
Common
shares issued and outstanding
|
529,741,788
|
Share
options pursuant to the Company’s incentive plan
|
20,825,500
|
Deferred
share units
|
477,711
|
Warrants
and non-incentive plan options1,
|
331,599
|
Note to
table:
1.
Consists of 199,999
warrants, issued pursuant to the non-revolving term credit facility
in November 2019, and 131,600 non-incentive plan options, issued on
the acquisition of Cannon Point in October 2015.
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.
1.15.3
Management’s Report on Internal Control over Financial
Reporting ("ICFR")
The
Company's management, including the 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.
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three
And Nine Months Ended September 30, 2021
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:
Northern Dynasty May be Unsuccessful in Appealing the Record of
Decision and may ultimately not be able to Obtain the Required
Environmental Permits for the Pebble Project.
The
USACE’s ROD issued on November 25, 2020, has denied Northern
Dynasty’s environmental permit for development of the Pebble
Project under the CWA. This environmental permit is required for
Northern Dynasty to proceed with the development of the Pebble
Project. While the Pebble Partnership is appealing the ROD, there
is no assurance that Northern Dynasty’s appeal of the ROD
will be successful. Even if the appeal is successful, there is no
assurance that a positive ROD will ultimately be obtained by the
Pebble Partnership or that the required environmental permit will
be obtained. Northern Dynasty’s inability to successfully
appeal the ROD will mean that Northern Dynasty cannot proceed with
the development of the Pebble Project as presently envisioned.
There is no assurance that Northern Dynasty will be able to
redesign the Pebble Project in a manner that addresses the
"significant degradation" finding reached by the USACE or
ultimately develop any compensatory mitigation plan that the USACE
accepts as appropriately addressing the "significant degradation"
determination or that will change the USACE’s position that
environmental permitting of the Pebble Project under the CWA is
against the public interest. Northern Dynasty’s inability to
address these issues may mean that the Company is ultimately not
able to secure the environmental permits that are required to
develop the Pebble Project. Accordingly, there is no assurance that
Northern Dynasty will ever be able to proceed with the development
of the Pebble Project and that investors will be able to recover
their investment in the Company.
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 it presents 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 through the Pebble Partnership filed a CWA 404 permit
application with the USACE, which triggered an EIS process under
NEPA and ultimately resulted in the issuance by the USACE of the
ROD. As discussed in this MD&A and in our 2020 AIF, 2020 Annual
MD&A and Q1 2021 MD&A, the Company’s permit
application has been denied by the USACE and there is no assurance
that the Company will be able to successfully appeal this decision
or ultimately be able to advance with development of a mine at the
Pebble Project. The uncertainty of the USACE appeal process casts
doubt as to whether the Company will ever be able to obtain these
permits for the Pebble Project as currently planned or within the
timeline envisioned. If the Company is ultimately able to secure
all permits required to begin construction, a number of additional
years would be required to finance and build a mine and commence
operations and there is no certainty as to this time frame. During
these periods, the Company would likely have no income and will
accordingly require additional financing to continue its
operations. There is no assurance that this financing will be
available to the Company. Unless and until the Company builds a
mine at the Pebble Project, it will be unable to achieve revenues
from operations and may not be able to sell or otherwise recover
its investment in the Pebble Project, which would have a material
adverse effect on the Company and an investment in the
Company’s common shares.
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three
And Nine Months Ended September 30, 2021
The Current Mine Plan
for the Pebble Project in the 2021 PEA is Not Supported by Any
Preliminary or Final Feasibility Study.
The
current mine plan that is included in the Project Description for
the development of the Pebble Project is supported by the 2021 PEA
but is not supported by any preliminary or final feasibility study.
Accordingly, there is a substantial risk that the Company will not
be able to proceed with the development of the Pebble Project, that
the Pebble Project cannot be economically mined or that
shareholders may not be able to recover their investment in the
Company. The 2021 PEA is preliminary in nature and includes
Inferred Mineral Resources that are considered too speculative
geologically to have the economic considerations applied to them
that would enable them to be categorized as Mineral Reserves. There
is no certainty that the 2021 PEA results will be
realized. Mineral
Resources that are not Mineral Reserves do not have demonstrated
economic viability, and there is no assurance that the Pebble
Project mineral resources will ever be upgraded to mineral
reserves. The 2021 PEA assumes that the Proposed Project will
ultimately be able to obtain the required permits from the USACE
and state of Alaska authorities to enable development of the
Proposed Project, however there is no assurance that these permits
will be obtained. Neither the 2021 PEA, nor the mineral resource
estimates on which the 2021 PEA is based, have been adjusted for
any risks that (i) the Pebble Partnership may not be able to
successfully appeal the record of decision issued by the USACE on
November 25, 2020 denying the granting of the required permit under
the CWA, or (ii) any action that may be taken by the EPA in order
to reinstate the process of a CWA Section 404(c) determination for
the waters of the Bristol Bay, each of which could adversely impact
the ability of the Proposed Project to proceed. In addition, the
2021 PEA does not account for any additional capital or operating
costs that may be necessary to obtain the required federal or state
permits, should adjustments to the operating or environmental
mitigation plans be required to be made in order to secure the
required permits. For these reasons, there is significant risk that
the economics for the Pebble Project indicated in the PEA,
including production forecasts, capital costs, operating costs,
revenues from operations, net present values and internal rates of
return, will not be achieved should the Pebble Project be
developed. The 2021 PEA should be viewed in this context and should
not be considered a substitute for a preliminary or final
feasibility study.
If Northern Dynasty is Unable to Defend the Proposed Class Action
Lawsuits against it, there is No Assurance that Northern Dynasty
will not be Subject to Judgements for Damages against
it.
Northern
Dynasty is the subject of proposed class action lawsuits against it
that assert liability against Northern Dynasty on behalf of a
purported class of shareholders under securities laws, both in
Canada and in the United States. While Northern Dynasty intends to
vigorously defend these claims, there is no assurance that Northern
Dynasty will be successful in defending all claims made against it.
Should Northern Dynasty not be successful in defending these
claims, it may be subject to judgements against it and be required
to pay substantial amounts in damages to the plaintiffs under these
judgements. These damages could result in a material and adverse
impairment to Northern Dynasty’s financial condition and
capital resources, and may further impair its ability to pursue the
development of the Pebble Project.
In
addition, Northern Dynasty is required under the terms of the
indemnification agreements that it has entered into with
underwriters in connection with Northern Dynasty’s public
financings to indemnify the underwriters for any losses that they
incur. As certain of Northern Dynasty’s underwriters have
been named as defendants in certain of these class action lawsuits,
Northern Dynasty may be required to indemnify and pay monies to the
underwriters for any losses that they suffer and expenses that they
incur. In addition, Northern Dynasty may be required to indemnify
certain of its officers and directors for any losses that they
suffer or expenses that they incur.
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three
And Nine Months Ended September 30, 2021
There
is no assurance that Northern Dynasty’s existing insurance
policies will respond and be sufficient to cover any amounts that
it may be required to pay to the plaintiffs in these class action
lawsuits, or the underwriters under our indemnification
obligations. We may also be required to indemnify certain of our
officers and directors who have been named as party to these
lawsuits. These damages could result in a material and adverse
impairment to our financial condition and capital resources, and
may further impair our ability to raise additional financing and
pursue the development of the Pebble Project.
Grand Jury Investigation and Related Matters.
The
Company is cooperating with a grand jury investigation involving
the United States Attorney’s Office for the District of
Alaska, and an SEC inquiry, as described above under 1.2.2
Legal
Matters. The Company is not able to provide investors
with guidance as to the outcome of the grand jury investigation or
SEC inquiry, or whether either of them will result in any charges
or other claims against the Company, the Pebble Partnership or
their associated individuals. The Company does anticipate, however,
that it will incur substantial expenses in connection with the
grand jury and SEC matters, including legal fees and expenses
related to the collection, review, and production of documents,
among other things. Any adverse civil or criminal proceedings could
have a material adverse impact on Northern Dynasty’s
prospects and ability to advance development of the Pebble Mine
project.
In
addition, Northern Dynasty and the Pebble Partnership may face
ongoing and further inquiries, demands or allegations concerning
future plans for the Pebble Project from the U.S. Congress’
House Committee on Transportation and Infrastructure. Again, any
adverse civil or criminal proceedings relating to the
Committee’s investigation could have a material adverse
impact on Northern Dynasty’s prospects and ability to advance
development of the Pebble Project. In addition, these inquiries or
any possible resulting civil or criminal proceedings could erode
any existing political support for the Pebble Project, which may
reduce the likelihood of the Pebble Project obtaining the required
environmental permitting.
The Record of Decision May have an Ongoing Adverse Impact on
Northern Dynasty’s Ability to Finance the Pebble
Project.
Northern
Dynasty believes that the USACE’s ROD has had a material
adverse impact on its ability to finance its operations and will
continue to adversely impact its financing options for so long as
the ROD remains outstanding. Appealing the ROD in any future
litigation will require a substantial amount of our current cash
and financial resources. As Northern Dynasty does not have any
revenues, and does not anticipate revenues in the foreseeable
future, Northern Dynasty will require additional financing to
continue its operations. If Northern Dynasty is unsuccessful in its
appeal of the ROD, Northern Dynasty’s financing options may
be substantially limited and it may not be able to generate the
necessary financing to enable continued operations without a
substantial reduction or restructuring of the Pebble Project. The
Company’s inability to secure this additional required
financing will negatively impact the ability of shareholders to
recover their investment in the Company.
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 Northern Dynasty’s business and results of
operations and the operations of contractors and service providers.
The extent to which the COVID-19 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 its severity and the
actions taken to contain the virus or treat its impact, among
others. The adverse effects on the economy, the stock market and
Northern Dynasty’s share price could adversely impact its
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 the Company’s business and results of operations
and could delay its plans for development of the Pebble
Project.
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three
And Nine Months Ended September 30, 2021
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.
The
Pebble Project faces concerted 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, and have been, employed by opposition groups to delay
or frustrate development at Pebble, included political and public
advocacy, electoral strategies, media and public outreach
campaigns, attempting to purchase intervening land rights, and
protest activity. These efforts could materially increase the cost
and time for development of the Pebble Project and the related
infrastructure, or require changes to development plans, which
could adversely impact project economics.
The Pebble Partnership’s Mineral Property Interests Do Not
Contain Any Mineral 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. Accordingly, the Pebble Project must be
considered an exploration prospect 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".
The
current mine plan that is included in the Project Description for
the development of the Pebble Project is supported by a preliminary
economic assessment but is not supported by any preliminary or
final feasibility study. Accordingly, even if permitting is
achieved, there is a substantial risk that the Company will not be
able to proceed with the development of the Pebble Project, that
the Pebble Project may not be proven to be economically mineable
and shareholders may not be able to recover their investment in the
Company. See discussion above under “The
Current Mine Plan for the Pebble Project in the 2021 PEA is Not
Supported by Any Preliminary or Final Feasibility
Study.”
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three
And Nine Months Ended September 30, 2021
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 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. Further, "inferred resources" have a great
amount of uncertainty as to their economic and legal feasibility.
Under Canadian securities law, estimates of "inferred mineral
resources" cannot form the basis of feasibility or prefeasibility
studies, or any
economic study except a Preliminary Economic Assessment as
prescribed under NI 43-101.
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.
The
mineral resource estimates contained herein have not been adjusted
for any risk that the required environmental permits may not be
obtained for the Pebble Project. The risk associated with the
ability of the Pebble Project to obtain required environmental
permits is a risk to the reasonable prospects for eventual economic
extraction of the mineralisation and their definition as a mineral
resource.
There Is No Assurance That Northern Dynasty Will Be Able To Partner
The Pebble Project.
One of
Northern Dynasty’s business objectives is to enter into a
joint venture or other partnership arrangement with a third-party
partner to fund the advancement of the development of the Pebble
Project. There is no assurance that Northern Dynasty will be able
to enter into an arrangement with a partner for the development of
the Pebble Project, and the negative impact of the ROD and the
investigations regarding the Pebble Project may negatively impact
the Company’s ability to enter into any arrangement. To the
extent that Northern Dynasty does not enter into any agreement to
partner the Pebble Project, it will continue to be required to fund
all exploration and other related expenses for advancement of the
Pebble Project, of which there is no assurance.
Negative Operating Cash Flow.
The
Company currently has a negative operating cash flow and
anticipates that it will continue to do so 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 additional 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 never declared or paid any dividends on its common
shares. Northern Dynasty intends, for the foreseeable future, to
retain its future earnings, if any, to finance its exploration
activities and its operations. 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 Minerals
Ltd.
Management's Discussion And Analysis
Three
And Nine Months Ended September 30, 2021
Northern Dynasty’s Consolidated Interim Financial Statements
have been Prepared Assuming Northern Dynasty will continue on a
Going Concern Basis.
Northern
Dynasty has prepared its 2020 Financial Statements and its Interim
Financial Statements on the basis that Northern Dynasty will
continue as a going concern. At September 30, 2021, the
Company had a working capital of $24.9 million. Northern
Dynasty has prioritized the allocation of its financial resources
to meet key corporate and Pebble Project expenditure requirements
in the near term, including the funding of the appeal of the ROD.
Additional financing will be required to progress any material
expenditures at the Pebble Project and for working capital.
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 2021
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.
As the Pebble Project is Northern Dynasty’s only Mineral
Property Interest, any 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, Molybdenum, Silver and Rhenium 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, silver and rhenium 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, molybdenum, silver and rhenium 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, molybdenum,
silver and rhenium have fluctuated in recent years, and future
significant price declines could cause investors to be unprepared
to finance exploration of copper, gold, molybdenum, silver and
rhenium, 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.
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three
And Nine Months Ended September 30, 2021
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.
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 the Company’s 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 the Company previously estimated. It is possible that
the costs and delays associated with the compliance with such
standards and regulations could become such that the Company would
not proceed with the development or operation of a mine at the
Pebble Project.
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three
And Nine Months Ended September 30, 2021
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 an 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 they 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
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 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 previously estimated. It is possible
that the costs and delays associated with the loss of services of
key personnel could become such that the Company 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 and Expose
Northern Dynasty to the Risk of Litigation.
Northern
Dynasty’s common shares are listed on the TSX and NYSE
American Exchanges. Securities of mining companies have experienced
substantial volatility in the past, often based on factors
unrelated to the financial performance or prospects of the
companies involved. These factors include macroeconomic
developments in North America and globally, currency fluctuations
and market perceptions of the attractiveness of particular
industries. The price of the Company’s common shares is also
likely to be significantly affected by short‐term changes in
gold, silver, molybdenum and copper prices or in Northern
Dynasty’s financial condition or results of operations as
reflected in its quarterly earnings reports.
As a
result of any of these factors, the market price of Northern
Dynasty’s common shares at any given point in time may not
accurately reflect their long‐term value. Securities class
action litigation often has been brought against companies
following periods of volatility in the market price of their
securities. Northern Dynasty has been and may in the future be the
target of similar litigation. Securities litigation could result in
substantial costs and damages and divert management’s
attention and resources.
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three
And Nine Months Ended September 30, 2021
The Volatility of Northern Dynasty’s Common Shares Can Expose
Northern Dynasty to the Risk of Litigation.
Northern
Dynasty’s common shares are listed on the TSX and NYSE
American. Securities of mining companies have experienced
substantial volatility in the past, often based on factors
unrelated to the financial performance or prospects of the
companies involved (see previous risk). These factors include
macroeconomic developments in North America and globally, currency
fluctuations and market perceptions of the attractiveness of
particular industries. The price of Northern Dynasty’s common
shares is also likely to be significantly affected by short-term
changes in copper, gold, molybdenum, silver and rhenium prices or
in Northern Dynasty’s financial condition or results of
operations as reflected in quarterly earnings reports.
As a
result of any of these factors, the market price of Northern
Dynasty’s common shares at any given point in time may not
accurately reflect their long-term value. Securities class action
litigation often has been brought against companies following
periods of volatility in the market price of their securities.
Northern Dynasty is, and may in the future be the target of similar
litigation. Securities litigation could result in substantial costs
and damages and divert management’s attention and
resources.
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.
Stephen
Hodgson, P.Eng, and David Gaunt, P.Geo., qualified persons who are
not independent of Northern Dynasty, have reviewed and approved the
scientific, technical, and economic information contained in this
MD&A.
1.15.7 U.S. Securities Matters
The
Company is a "foreign issuer" under the U.S. Exchange Act and
entitled to file continuous disclosure reports with the SEC under
the Multi-Jurisdictional Disclosure System ("MJDS") between Canada and the United
States, and to provide disclosure on our mineral properties,
including the Pebble Project, in accordance with NI 43‐101
disclosure standards and CIM Definition Standards. For this reason,
information contained in this Q3 MD&A in respect of the Pebble
project may not be comparable to similar information made public by
United States companies subject to the reporting and disclosure
requirements under the United States federal securities laws and
the rules and regulations thereunder.