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.6
MANAGEMENT'S DISCUSSION AND ANALYSIS
YEAR ENDED DECEMBER 31, 2020
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Year ended December 31, 2020
Table of Contents
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1.1
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Date
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3
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1.2
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Overview
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6
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1.2.1 Pebble Project
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9
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1.2.1.1 Project Background and Status
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10
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1.2.1.2 Technical Programs
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14
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1.2.2 Legal Matters
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16
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1.2.3 Financings
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17
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1.2.4 Market Trends
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20
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1.3
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Selected Annual Information
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22
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1.4
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Summary and Discussion of Quarterly Results
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23
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1.5
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Results of Operations
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23
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1.5.1 Results of Operations – Three months and Year ended
December 31, 2020 versus 2019
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24
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1.5.2 Financial position as at December 31, 2020 versus
December 31, 2019
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25
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1.5.3 Plan of Operations
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25
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1.6
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Liquidity
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27
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1.7
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Capital Resources
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28
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1.8
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Off-Balance Sheet Arrangements
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28
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1.9
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Transactions with Related Parties
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28
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1.10
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Fourth Quarter
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30
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1.11
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Proposed Transactions
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30
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1.12
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Critical Accounting Estimates
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30
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1.13
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Changes in Accounting Policies including Initial
Adoption
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30
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1.14
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Financial Instruments and Other Instruments
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30
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1.15
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Other MD&A Requirements
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32
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1.15.1 Disclosure of Outstanding Share Data
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32
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1.15.2 Disclosure Controls and Procedures
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32
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1.15.3 Management’s Report on Internal Control over Financial
Reporting ("ICFR")
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33
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1.15.4 Limitations of Controls and Procedures
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34
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1.15.5 Risk Factors
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34
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Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Year ended December 31, 2020
This
Management’s Discussion and Analysis ("MD&A") should be read in conjunction
with the audited consolidated financial statements (the
"Financial Statements") of
Northern Dynasty Minerals Ltd. ("Northern Dynasty" or the "Company") for the year ended December
31, 2020 as publicly filed under the Company’s profile on
SEDAR at www.sedar.com.
The
Company reports in accordance with International Financial
Reporting Standards as issued by the International Accounting
Standards Board ("IASB") and
interpretations of the IFRS Interpretations Committee
(together, "IFRS"). The
following disclosure and associated Financial Statements are
presented in accordance with IFRS. This MD&A is prepared as of
March 31, 2021.
All dollar amounts herein are expressed in thousands of Canadian
dollars, unless otherwise specified.
This
MD&A contains certain forward-looking information and
forward-looking statements within the meaning of applicable
Canadian securities laws and forward-looking statements within the
meaning of the United States Private Securities Litigation Reform Act of
1995. Forward-looking statements describe our future plans,
strategies, expectations and objectives, and are generally, but not
always, identifiable by use of the words "may", "will", "should",
"continue", "expect", "anticipate", "estimate", "believe",
"intend", "plan" or "project" or the negative of these words or
other variations on these words or comparable
terminology.
Forward-looking
statements contained or incorporated by reference into this
MD&A include, without limitation, statements
regarding:
●
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 (the "ROD") of the United States Army Corps of
Engineers (the "USACE")
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 ("CWA"), the National Environmental Policy
Act ("NEPA"), 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.
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.
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Year ended December 31, 2020
Key
assumptions upon which the Company’s forward-looking
information are based include:
●
that our appeal of
the ROD with the USACE 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;
●
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.
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 ROD 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;
●
an inability to
ultimately obtain permitting for a mine at the Pebble
Project;
●
an inability to
establish that the Pebble Project may be economically developed and
mined or contain commercially viable deposits of ore based on a
mine plan for which government authorities are prepared to grant
permits;
●
we may not be
successful in defending shareholder securities litigation claims
that have been filed against us in the US and in
Canada;
●
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 and the Securities and Exchange
Commission;
●
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;
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Year ended December 31, 2020
●
an inability to
recover even the financial statement carrying values of the Pebble
Project if we cease to continue on a going concern
basis;
●
the potential for
loss of the services of key executive officers;
●
a history of, and
expectation of further, financial losses from operations impacting
our ability to continue on a going concern basis;
●
the volatility of
copper, gold, 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 share purchase options and
warrants to purchase Company’s 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 and home jurisdiction
filings that are available on SEDAR at www.sedar.com.
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Year ended December 31, 2020
|
|
Cautionary Note to Investors Concerning Estimates of Measured,
Indicated and Inferred Resources
The following section uses the terms "Measured Resources", "Indicated Resources" and “Inferred
Resources”. The Company advises
investors that these terms are recognized and required by Canadian
regulations under National Instrument 43-101, Standards of Disclosure for
Mineral Properties ("43-101"). The United States Securities and Exchange
Commission (the "SEC") has adopted amendments to its disclosure rules
to modernize the mineral property disclosure required for issuers
whose securities are registered with the SEC under the US
Securities
Exchange Act of 1934 ("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.
|
|
Northern
Dynasty is a mineral exploration company which, through its
wholly-owned Alaskan registered limited partnership, the Pebble
Limited Partnership (the "Pebble
Partnership"), holds a 100% interest in mining claims that
are part of or in the vicinity of the Pebble
Copper-Gold-Molybdenum-Silver-Rhenium Project (the "Pebble Project" or "Pebble") in
southwest Alaska, USA ("US"). The Company’s business in
Alaska is operated through the Pebble Partnership.
The
Pebble Project is an initiative to develop one of the world’s
most important mineral resources. In 2020, the Company announced
the results of an updated resource estimate, indicating that in
addition to being a significant copper, gold molybdenum and silver
deposit, Pebble contains a globally significant resource of
rhenium. Rhenium is considered a strategic metal by the US
Congress, the US Geological Survey, the US Department of Interior
and the US military: jet engine and related military applications
currently account for approximately 80% of current annual US
rhenium consumption, and industrial applications that employ
rhenium as a catalyst in the production of such things as high
octane, lead-free gasoline, account for the remainder.
The
August 2020 estimate of the Pebble mineral resources1 at a 0.30% copper equivalent cut-off
grade comprises:
●
6.5 billion tonnes
in the combined Measured and
Indicated categories at a grade of 0.40% copper, 0.34 g/t
gold, 240 ppm molybdenum, 1.7 g/t silver and 0.41 ppm rhenium,
containing 57 billion pounds of copper, 71 million ounces
of gold, 3.4 billion pounds of molybdenum, 345 million
ounces of silver and 2.6 million kilograms of rhenium;
and
●
4.5 billion tonnes
in the Inferred category at
a grade of 0.25% copper, 0.25 g/t gold, 226 ppm molybdenum, 1.2 g/t
silver and 0.36 ppm, containing 25 billion pounds of copper,
36 million ounces of gold, 2.2 billion pounds of
molybdenum, 170 million ounces of silver and 1.6 million kilograms
of rhenium.
A
2½-year, intensive federal review process under the NEPA
culminated on July 24, 2020, when the USACE published the final
Pebble EIS. Led by the USACE, the Pebble EIS process also involved
eight federal cooperating agencies (including the US Environmental
Protection Agency and US Fish & Wildlife Service), three state
cooperating agencies (including Alaska Department of Natural
Resources and Alaska Department of Environmental Conservation), the
Lake & Peninsula Borough and federally recognized
tribes.
___________________
1 For
further
details see Section 1.2.1, Pebble Project - August 2020
Mineral Resource Estimate.
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Year ended December 31, 2020
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 was submitted in December 2017, and the
permitting process over the next three years 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.
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
compensatory mitigation plan (the "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 valuable aquatic and upland habitats. If adopted, the
Koktuli Conservation Area would preserve 31,026 acres of aquatic
resources within the aquatic resource of national
importance-designated 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.
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Year ended December 31, 2020
On
November 25, 2020, the USACE issued the ROD. The ROD rejected the compensatory mitigation plan
as "noncompliant"
and determined the 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
Clean Water Act.
The
Pebble Partnership submitted a request for appeal of the ROD (the
"RFA") to the USACE Pacific
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 has appointed a Review Officer to oversee the
administrative appeal process. The appeal process will now move to
consideration by the USACE of the merits of the appeal. 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 likely 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 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.
Much of
the work by the Company through the Pebble Partnership in 2020, and
since 2017 has focused on facilitating and providing support to the
federal EIS permitting process. The most recent work is summarized
in section 1.2.1.2
Technical
Programs. The Company also continued to actively engage and
consult with project stakeholders to share information and gather
feedback on the Pebble Project, its potential effects and proposed
mitigation. In 2018, 2019 and 2020, right-of-way agreements were
secured with Alaska Native village corporations and other
landowners whose lands cover portions of several proposed
transportation and infrastructure routes for the Pebble Project.
Opportunities for additional community benefits from development of
the project have also been explored, including the Pebble
Performance Dividend revenue sharing program for full-time adult
residents of Bristol Bay communities, and a Memorandum of
Understanding ("MOU") with
Alaska Peninsula Corporation ("APC") announced in July 2020. These are
further described in section 1.2.1.1
Agreements,
and 1.2.1.1
Other
Initiatives with Alaska Native Village Corporations.
Corporate activities have been directed toward raising capital to
support the EIS process and discussions directed toward securing a
partner with which to advance the overall development of the
project.
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Year ended December 31, 2020
From
2001, when Northern Dynasty’s involvement at the Pebble
Project began, to December 31, 2020, a total of
$979 million (US$883 million) has been invested to
advance the project.2
Plans for 2021
In
2021, the Company’s plans include: continuing with the appeal
of the ROD by the USACE; undertaking additional engineering,
environmental, permitting and evaluation work on the Pebble Project
as required; maintaining an active corporate presence in Alaska and
Washington DC in order to advance relationships with political and
regulatory offices of government, Alaska Native partners and
broader stakeholder groups; (contingent on the appeal of the ROD
and issuance of a permit from the Alaska District), initiating
Alaska state permitting activities; and, seeking potential
partner(s) with sufficient financial resources to further advance
the Pebble Project. This is further described in 1.5.3
Plan of Operations.
Corporate
As at
December 31, 2020, the Company had $42.5 million in
cash and cash equivalents and working capital of
$36.5 million. Financings with gross proceeds of approximately
$82.6 million were completed during the year ended December
31, 2020 (see section 1.2.3
Financings). In addition, the Company received approximately
$12.4 million in proceeds from the exercise of share purchase
options and warrants. As of March 30, 2021, the Company’s
cash balance was approximately $37.8 million
(US$29.9 million, using the closing rate of
C$1.2631).
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. The Company will seek the necessary financing
through any of or a combination of debt and equity and/or
contributions from possible new Pebble Project participants;
however there can be no assurances that it will be successful in
obtaining additional financing. If the Company is unable to raise
the necessary capital resources to meet obligations as they come
due, the Company will at some point have to reduce or curtail its
operations.
On
March 26, 2021, Wayne Kirk was appointed to the Board.
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.
__________________
2 Of this,
approximately $595 million (US$573 million) was provided by a
wholly-owned subsidiary of Anglo American plc, which participated
in the Pebble Partnership from 2007 to 2013, and the remainder was
financed by Northern Dynasty. A major part of the 2007-2013
expenditures were on exploration, resource estimation,
environmental data collection and technical studies, with a
significant portion spent on engineering of possible mine
development models, as well as related infrastructure, power and
transportation systems. The mine-site and infrastructure studies
completed are not necessarily representative of management’s
current understanding of the most likely development scenario for
the project, and accordingly, Northern Dynasty is uncertain whether
it can realize significant value from this prior work.
Environmental baseline studies and data, as well as geological and
exploration information, remain important information available to
the Company to advance the project.
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Year ended December 31, 2020
1.2.1.1
Project Background and Status
The
Pebble deposit was discovered in 1989 by a prior operator,
which by 1997 had developed an initial outline of the
deposit.
Northern
Dynasty has been involved in the Pebble Project since 2001.
Exploration since that time has led to significant expansion of the
mineral resources in the Pebble deposit, including a substantial
volume of higher grade mineralization in its eastern part. The
deposit also remains open to further expansion at depth and to the
east. A number of other occurrences of copper, gold and molybdenum
have also been identified along the extensive northeast-trending
mineralized system that underlies the property. The potential of
these earlier-stage prospects has not yet been fully
explored.
Comprehensive
deposit delineation, environmental, socioeconomic and engineering
studies of the Pebble deposit began in 2004. A Preliminary
Assessment of the Pebble Project completed in 2011, provided
initial insights into the size and scale of project that the Pebble
resource might support. The Pebble Partnership continued to
undertake detailed engineering, environmental and socioeconomic
studies over the next two years.
The
27,000-page Environmental Baseline Document ("EBD") for the Pebble Project was
released to the public in January 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). Both volumes have been
substantively updated since the original EBD was published in 2012.
The data from 2009-2019 was also provided to USACE for the Pebble
EIS process. The wetlands field work conducted in the summer of
2020 was also for the purpose of verifying appropriate wetlands
quality/quantity for the new CMP in the Koktuli
watershed.
In
February 2014, the US Environmental Protection Agency
("EPA") announced a
pre-emptive regulatory action (the “Proposed Determination”) under the
CWA to consider restriction or a prohibition of mining activities
associated with the Pebble deposit. From 2014-2017, Northern
Dynasty and the Pebble Partnership focused on a multi-dimensional
strategy, including legal and other initiatives to ward off this
action. These efforts were successful, resulting in the joint
settlement agreement announced on May 12, 2017, which enabled the
project to move forward with state and federal permitting. Also as
part of the joint settlement agreement, the EPA agreed to initiate
a process to propose to withdraw the Proposed Determination. That
process was initiated in July 2017 but was suspended in January
2018. It was re-initiated by the EPA in late June 2019, ultimately
leading it to its withdrawal in July 2019.
Permitting
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:
●
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:
o
Scoping was
initiated on April 1, 2018 with a 90-day public comment period
concluded on June 29, 2018; and
o
The USACE released
the Scoping Document on August 31, 2018.
Northern Dynasty Minerals Ltd.
Management's Discussion And
Analysis
Year ended December 31, 2020
●
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.
Northern
Dynasty, through Pebble Partnership, has continued to advance
engineering studies to refine the mine design and to support the
EIS process. The results of this work have been reported in updates
to the Project Description.
The
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
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 a number of
positive socioeconomic impacts on local communities.
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Year ended December 31, 2020
The
Pebble Partnership developed the CMP (further described in the
Section 1.2
Overview above) to align with the requirements outlined
by the USACE. The CMP was submitted on November 4,
2020.
On
November 25, 2020, the USACE issued a ROD rejecting the Pebble
Partnership’s permit application. The Pebble Partnership
submitted a request for appeal of the ROD on January 19, 2021. In a
letter dated February 24, 2021, the USACE confirmed the Pebble
Partnership’s RFA is "complete and meets the criteria for
appeal." Further details for the RFA are provided in Section
1.2
Overview. 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.
Socioeconomic
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 USACE-led EIS
permitting process for Pebble; and
●
facilitate economic
and other opportunities associated with advancement and development
of the Pebble Project for local residents, communities and
companies.
In
addition to meeting with stakeholder groups and individuals, and
providing project briefings in communities throughout Bristol Bay
and the State of Alaska, the Pebble Partnership’s outreach
and engagement program includes:
●
workforce and
business development initiatives intended to enhance economic
opportunities for regional residents and Alaska Native
corporations;
●
initiatives to
develop partnerships with Alaska Native corporations, commercial
fishing interests and other in-region groups and
individuals;
●
outreach to elected
officials and political staff at the national, state and local
levels; and
●
outreach to
third-party organizations and special interest groups with an
interest in the Pebble Project, including business organizations,
community groups, outdoor recreation interests, Alaska Native
entities, commercial and sport fishery interests, 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.
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Year ended December 31, 2020
Agreements and Other Initiatives with Alaska Native Village
Corporations
The
Pebble Partnership’s active program of engagement and
consultation with stakeholders in the area of the Pebble Project
includes discussions to secure stakeholder agreements to support
the project’s development. These discussions have led to
right-of-way agreements and other community initiatives in 2019 and
2020.
Right-of-Way Agreements
The
Pebble Partnership has finalized Right-of-Way ("ROW") agreements with Alaska Native
village corporations and other landowners with land holdings along
proposed transportation and infrastructure routes for the Pebble
Project. Discussions with other landowners continued in
2020.
The ROW
agreements secure access to portions of several proposed
transportation and infrastructure routes to the Pebble Project site
for construction and operation of the proposed mine and represents
a significant milestone in the developing relationship between
Pebble and the Alaska Native people of the region. The Pebble
Partnership believes it will secure the right to use defined
portions of each of the Native village corporations’ lands
for the construction and operation of transportation infrastructure
associated with the Pebble Project in future.
Agreements include
the following provisions:
●
The Pebble
Partnership will make annual toll payments to the Alaska Native
village corporation land upon
whose lands Pebble-related transportation infrastructure is built
and operated, and pay other fees prior to and during project
construction and operation;
●
Village
corporations have been granted ‘Preferred Contractor’
status at Pebble, which provides a preferential opportunity to bid
on Pebble-related contracts located on their lands;
and
●
The Pebble
Partnership has agreed to negotiate a profit sharing agreement with
Alaska Native village corporations that will ensure that the
corporations and their shareholders benefit directly from the
profits generated by mining activity in the region.
Additionally,
transportation and other infrastructure for a mine at Pebble is
expected to benefit Alaska Native village corporations, their
shareholders and villages through access to lower cost power,
equipment and supplies, as well as enhanced economic activity in
the region. Spur roads connecting to local villages will allow
local residents to access jobs at the Pebble mine site and port
site.
The
USACE’s identification of the Northern Transportation Route
as the draft LEDPA for the Pebble Project in 2020 required that the
Pebble Partnership secure additional ROW agreements with Alaska
Native village corporations and other private landowners with land
holdings along the northern route. The Pebble Partnership has
initiated the process of securing these additional ROW agreements,
and believes it will ultimately achieve the access rights required
to build and operate transportation and related infrastructure for
the Pebble Project.
Other Community Initiatives
On June
16, 2020, the Company announced the Pebble Partnership has
established the Pebble Performance Dividend LLP to provide a local
revenue sharing program with the objective of ensuring that
full-time residents of communities in southwest Alaska benefit
directly from the future operation of the proposed Pebble Project.
The intention is for the Pebble Performance Dividend LLP to
distribute cash generated from a 3% net profits royalty interest in
the Pebble Project to adult residents of Bristol Bay villages that
have subscribed as participants, with a guaranteed minimum
aggregate annual payment of US$3 million each year the Pebble mine
operates, beginning at the outset of project construction. Future
payments following capital payback are expected to increase beyond
this initial amount.
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Year ended December 31, 2020
An MOU
between the Pebble Partnership and APC was announced on July 6,
2020. APC is an Alaska Native village corporation with extensive
land holdings proximal to the Pebble site. The MOU envisages that
APC will lead the development of a consortium of Alaska Native
village corporations with land holdings along the Northern
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.
In
2020, technical programs were focused on support of the EIS process
and federal permitting of the Pebble Project, which include
planning and implementing engineering and environmental field
studies and data collection programs. Site programs were directed
toward additional data collection for the pipeline right-of-way
along the Northern Transportation Route and the CMP. Additionally,
in the third quarter, a study of rhenium in the Pebble deposit was
completed and the mineral resource estimate was updated.
Environmental site work in 2020 included environmental monitoring
and collection of additional cultural and wetlands data to support
the EIS process, and maintenance of existing stream gauges and
weather stations and additional fieldwork for the CMP was completed
during the third quarter.
The
Pebble team conducted a comprehensive review of the final Pebble
EIS that was issued in July 2020. The CMP was developed in response
to USACE’s expectations for compensatory mitigation of
wetlands impacts associated with the project, outlined in a letter
to the Pebble Partnership in August 2020. The Pebble Partnership
submitted the CMP to USACE in early November 2020.
On
November 25, 2020, USACE issued a negative ROD for the Pebble
Project. Since that time, the Pebble Partnership and its technical
team focused on developing the RFA, which was submitted subsequent
to the end of the fourth quarter on January 19, 2021, and its
follow up.
Current Mineral Resource Estimate
A
technical report summarizing an estimate of the rhenium resource
and the June 2020 Project Description utilized for the Final EIS
was filed at the beginning of the fourth quarter of 2020. The
technical report was recently updated with information on the
status of the permitting process, the ROD and the Company’s
filing of an RFA, and filed with the Company’s 2020 Annual
Information Form. The updated Technical Report does not include any
update to the previously disclosed mineral resource estimate, which
remain effective as of August 18, 2020.
David
Gaunt, P.Geo., a qualified person as defined under 43-101 who is
not independent of Northern Dynasty, is responsible for the current
mineral resource estimate tabulated below. To complete the
estimate, domains were created for the Pebble deposit based on
geology, alteration and grade distribution; estimation parameters,
including top cuts, search strategy, and variography were developed
for each modelled domain. Rhenium values were interpolated into the
Pebble block model using Ordinary Kriging and classified in the
same manner as previously estimated grades for copper, gold,
molybdenum and silver.
Further
details are available in the 2021
Technical Report on the Pebble Project, Southwest Alaska, USA,
effective date February 24, 2021, by J. David Gaunt, P. Geo., James
Lang, P.Geo., Eric Titley, P.Geo., Hassan Ghaffari, P.Eng., and
Stephen Hodgson, P.Eng., ("2021 Technical Report"), which is
filed under the Northern Dynasty profile at www.sedar.com.
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Year ended December 31, 2020
|
Pebble
Deposit
August 2020
Mineral Resources
|
|
Cutoff
CuEq
%
|
CuEq%
|
Metric
Tonnes
|
Cu
(%)
|
Au
(g/t)
|
Mo
(ppm)
|
Ag
(g/t)
|
Re
(ppm)
|
Cu
Blb
|
Au
Moz
|
Mo
Blb
|
Ag
Moz
|
Re
Kkg
|
|
Measured
|
|
0.3
|
0.65
|
527,000,000
|
0.33
|
0.35
|
178
|
1.7
|
0.32
|
3.83
|
5.93
|
0.21
|
28.1
|
167
|
|
0.4
|
0.66
|
508,000,000
|
0.34
|
0.36
|
180
|
1.7
|
0.32
|
3.81
|
5.88
|
0.20
|
27.4
|
163
|
|
0.6
|
0.77
|
279,000,000
|
0.40
|
0.42
|
203
|
1.8
|
0.36
|
2.46
|
3.77
|
0.12
|
16.5
|
100
|
|
1.0
|
1.16
|
28,000,000
|
0.62
|
0.62
|
302
|
2.3
|
0.52
|
0.38
|
0.56
|
0.02
|
2.0
|
14
|
|
Indicated
|
|
0.3
|
0.77
|
5,929,000,000
|
0.41
|
0.34
|
246
|
1.7
|
0.41
|
53.58
|
64.81
|
3.21
|
316.4
|
2,443
|
|
0.4
|
0.82
|
5,185,000,000
|
0.45
|
0.35
|
261
|
1.8
|
0.44
|
51.42
|
58.35
|
2.98
|
291.7
|
2,271
|
|
0.6
|
0.99
|
3,455,000,000
|
0.55
|
0.41
|
299
|
2.0
|
0.51
|
41.88
|
45.54
|
2.27
|
221.1
|
1,748
|
|
1.0
|
1.29
|
1,412,000,000
|
0.77
|
0.51
|
343
|
2.4
|
0.60
|
23.96
|
23.15
|
1.07
|
109.9
|
853
|
|
Measured +
Indicated
|
|
0.3
|
0.76
|
6,456,000,000
|
0.40
|
0.34
|
240
|
1.7
|
0.41
|
56.92
|
70.57
|
3.42
|
344.6
|
2,615
|
|
0.4
|
0.81
|
5,693,000,000
|
0.44
|
0.35
|
253
|
1.8
|
0.43
|
55.21
|
64.06
|
3.18
|
320.3
|
2,431
|
|
0.6
|
0.97
|
3,734,000,000
|
0.54
|
0.41
|
291
|
2.0
|
0.50
|
44.44
|
49.22
|
2.40
|
237.7
|
1,848
|
|
1.0
|
1.29
|
1,440,000,000
|
0.76
|
0.51
|
342
|
2.4
|
0.60
|
24.12
|
23.61
|
1.08
|
112.0
|
867
|
|
Inferred
|
|
0.3
|
0.55
|
4,454,000,000
|
0.25
|
0.25
|
226
|
1.2
|
0.36
|
24.54
|
35.80
|
2.22
|
170.4
|
1,603
|
|
0.4
|
0.68
|
2,646,000,000
|
0.33
|
0.30
|
269
|
1.4
|
0.44
|
19.24
|
25.52
|
1.57
|
119.1
|
1,154
|
|
0.6
|
0.89
|
1,314,000,000
|
0.48
|
0.37
|
292
|
1.8
|
0.51
|
13.90
|
15.63
|
0.85
|
75.6
|
673
|
|
1.0
|
1.20
|
361,000,000
|
0.68
|
0.45
|
377
|
2.3
|
0.69
|
5.41
|
5.22
|
0.30
|
26.3
|
251
|
Notes:
Copper
equivalent (CuEQ) calculations use metal prices: US$1.85/lb for Cu,
US$902/oz for Au and US$12.50/lb for Mo, and recoveries: 85% Cu,
69.6% Au, and 77.8% Mo (Pebble West zone) and 89.3% Cu, 76.8% Au,
83.7% Mo (Pebble East zone).
Contained
metal calculations are based on 100% recoveries.
A 0.30%
CuEQ cut-off is considered to be appropriate for porphyry deposit
open pit mining operations in the Americas.
The
mineral resource estimate is constrained by a conceptual pit shell
that was developed using a Lerchs-Grossman algorithm and is based
in the following parameters: 42 degree pit slope; metal prices and
recoveries of US$1,540.00/oz and 61% Au, US$3.63/lb and 91% Cu,
US$20.00/oz and 67% Ag and US$12.36/lb and 81% Mo, respectively; a
mining cost of US$1.01/ton with a US$0.03/ton/bench increment and
other costs (including processing, G&A and transport) of
US$6.74/ton.
All
mineral resource estimates, cut-offs and metallurgical recoveries
are subject to change as a consequence of more detailed analyses
that would be required in pre-feasibility and feasibility
studies.
ALS
Global Geochemistry in North Vancouver, Canada (an ISO/IEC 17025
certified facility) is the main laboratory for the analysis of
drill core samples from the Pebble Project. Samples are prepared at
ALS laboratory Fairbanks, Alaska. Drill core samples were analyzed
for Cu, Mo and 31 additional elements by 4 acid digestion of a 0.4
g sample followed by ICP-AES. Au, Pt and Pd were determined by fire
assay fusion of a 30 g sample followed by ICP-AES finish. Cu, Mo,
Ag, Re and 47 additional elements were also determined by 4 acid
digestion of a 0.25 g sample followed by ICP-AES/MS finish. Hg was
determined by aqua regia digestion of a 0.5 g sample followed by
cold vapour AAS.
As part
of a comprehensive Quality Assurance Quality Control
(“QAQC”) program, control samples were inserted in each
analytical batch at the following rates: standards one in 20
regular samples, in-line replicates one in 20 regular samples and
blanks one in 50 regular samples. The control sample results were
then checked to ensure proper QAQC.
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.
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Year ended December 31, 2020
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. The Company is still considering its remedies, if
any, with respect to the creation of these recordings.
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 were believed
to be inconsistent with the testimony of Mr. Collier before the
Committee and demanding production of documents apparently related
to the comments.
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 and the Pebble Partnership are cooperating with the
investigation. The Company is not aware of any civil or criminal
charges having been filed against any entity or individual in this
matter. The Company also self-reported this matter to the US
Securities and Exchange Commission (SEC), and there is a related
informal inquiry being conducted by the enforcement staff of the
San Francisco Regional Office.
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, two
cases were consolidated and a lead plaintiff and counsel were
appointed. The Company, which has yet to be served with the
complaint, intends to defend itself vigorously against this
action.
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) its 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. One of the underwriters has asserted contractual
rights of indemnification against the Company for any loss that the
underwriter may incur in connection with the lawsuit.
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 not been served and intends to defend itself
vigorously.
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Year ended December 31, 2020
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.
Class Action Litigation Relating to Short Seller Investment
Report
On
February 14, 2017, short seller investment firm Kerrisdale Capital
Management LLC published a negative piece (the "Kerrisdale Report")
regarding the Pebble Project. Three putative shareholder class
actions were filed against the Company and certain of its current
officers and directors in US federal courts. Two of the plaintiffs
voluntarily dismissed their claims and were brought into the third
action, captioned Victor Diaz v.
Northern Dynasty Minerals Ltd., et al in the Central
District of California, which was later dismissed by the courts.
The time period for the plaintiffs to appeal has expired and there
is no further opportunity for the plaintiffs to appeal the district
court’s dismissal order or the appellate court’s
affirmation of that decision.
Public Offerings
July 2020
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$35.3 million. The
offering was completed pursuant to an underwriting agreement dated
July 10, 2020, among the Company and Cantor Fitzgerald Canada
Corporation, as lead underwriter and bookrunner, and a syndicate of
underwriters including BMO Nesbitt Burns Inc., Canaccord Genuity
Corp, H.C. Wainwright & Co., LLC, Paradigm Capital Inc., TD
Securities Inc., Roth Capital Partners, LLC and Velocity Trade
Capital Ltd. (collectively, the "July 2020 Underwriters"). The July 2020
Underwriters were paid a 5% cash commission.
The
July 2020 Offering was completed by way of a prospectus supplement
to the Company’s existing Canadian base shelf prospectus and
related U.S. registration statement on Form F-10 (SEC File No.
333-238933).
May 2020
On May
13, 2020, the Company completed an underwritten public offering of
14,375,000 common shares at a price of $0.70 per common share for
gross proceeds of approximately $10.06 million (the
“May 2020 Public
Offering”). The offering was completed pursuant to an
underwriting agreement dated April 29, 2020 among the Company and
Cantor Fitzgerald Canada Corporation, as lead underwriter and sole
bookrunner, and a syndicate of underwriters including BMO Nesbitt
Burns Inc., H.C. Wainwright & Co., LLC. and TD Securities Inc.
(the "May 2020 Underwriters"). The May 2020
Underwriters were paid a 5% cash commission.
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Year ended December 31, 2020
The
offered shares were offered by way of a short form prospectus in
all provinces in Canada, except Quebec, and in the United States
pursuant to a prospectus filed as part of a registration statement
under the Canada/U.S. multi-jurisdictional disclosure
system.
Private Placements
July and August 2020
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.
May 2020
On May
13, 2020, the Company completed a non-brokered private placement of
10,357,143 common shares at $0.70 per share for gross proceeds of
$7.25 million. The shares issued pursuant to the private
placement were subject to applicable resale restrictions, including
a four month hold period under Canadian securities
legislation.
Use of proceeds
The
following table sets out a comparison of the Company’s
disclosed expected use of net proceeds from the May 2020 Public
Offering and the July 2020 Offering to the actual use of net
proceeds. 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
|
|
Operational
expenditures, including engineering, environmental, permitting and
evaluation expenses associated with the Pebble Project and the
advancement of completion of the Pebble EIS
|
$6,500,000
|
$13,671,000
|
($7,171,000)
|
During
the 2020 permitting process, the USACE informed the Company of two
significant changes to the project: (i) in May 2020, the change in
the Least Environmentally Damaging Practical Alternative (LEDPA)
route from the southern route to the northern route and (ii) the
requirement of an in-kind Compensatory Mitigation Plan (CMP).
Both of these changes were unexpected and added additional cost to
the project.
|
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Year ended December 31, 2020
|
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
|
|
Enhanced
outreach and engagement with political and regulatory offices in
the Alaska state and U.S. federal government, Alaska Native
partners and broader regional and state-wide stakeholder groups and
general and administration costs
|
$8,500,000
|
$8,500,000
|
NA
|
NA
|
|
Current
liabilities associated with our working capital deficiency that
were incurred by us in connection with (i) exploration and
evaluation expenses in connection with the Pebble Project, and (ii)
general and administrative expenses
|
$1,700,000
|
$1,700,000
|
NA
|
NA
|
|
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$3,600,000
|
US$4,166,000
|
US($566,000)
|
Additional
funds paid for Right-of-Way Agreements and other
matters.
|
|
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$10,250,000
|
US$-
|
US$10,250,000
|
State
permitting has not yet been initiated and is pending appeal of the
ROD denial.
|
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Year ended December 31, 2020
|
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
|
|
Maintenance
of the Pebble claims in good standing.
|
US$1,400,000
|
US$1,400,000
|
NA
|
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 – payment of current liabilities
associated with the Company’s working capital
deficiency
|
US$11,627,000
|
US$-
|
US$11,627,000
|
General
corporate expenses incurred through the existing
treasury.
|
In
2020, metal prices overall were impacted significantly by the
downturn in economic conditions and ongoing uncertainty related to
the COVID-19 pandemic.
Copper
prices were variable in 2016, and the average annual price
decreased. Prices were variable to improving in 2017 resulting in
an increase in the average annual price. Prices were variable in
early 2018, trended downward from June to August, then improved
through to the end of the year and into 2019. Prices decreased in
April/May and were slightly variable through September when they
increased, and remained stable until late January 2020 when they
dropped sharply, losing the gain made in late 2019. In March 2020,
prices dropped sharply in response changing economic conditions
related to COVID-19 but rebounded in May and trended upward during
the third quarter. Prices dropped slightly in October 2020, but
have gone up since that time. A recent closing price is
US$3.99/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 dropped a
bit but have stabilized somewhat since that time. Prices have been
variable in 2021, and gone down since February. A recent closing
price is US$1,706/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 have
improved since August and into 2021, with a recent closing price of
US$10.80/lb.
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Year ended December 31, 2020
Silver
prices were variable to improving during most of 2016 and 2017.
Prices declined in late 2017 but recovered in January 2018, and
then were variable for the rest of the year, with a decrease in the
average annual price in 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. In response to
uncertainty about global economic conditions related to COVID-19,
silver prices resumed an uptrend 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. Silver prices
in 2021 have continued the uptrend. A recent closing price is
US$24.83/oz.
Average
annual prices of copper, gold, molybdenum and silver for the past
five years as well as the average prices so far in 2021 are shown
in the table below:
|
|
Average metal price 1,2
|
|
Year
|
CopperUS$/lb
|
GoldUS$/oz
|
MolybdenumUS$/lb
|
SilverUS$/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 March 30)
|
3.85
|
1,797
|
11.33
|
26.32
|
1.
Source for copper, gold, molybdenum and silver (2016-2017) 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
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Year ended December 31, 2020
Selected Annual Information
The
following selected annual information is from the audited
consolidated financial statements, which have been prepared in
accordance with IFRS. Unless otherwise stated, all monetary amounts
are expressed in thousands of Canadian dollars except per share
amounts, which are expressed in Canadian dollars.
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
$180,374
|
$154,624
|
$161,924
|
|
Total
non-current liabilities
|
657
|
934
|
7,194
|
|
Total
current liabilities
|
7,411
|
15,185
|
6,520
|
|
|
|
|
|
|
Exploration
and evaluation expenses
|
39,219
|
53,014
|
50,409
|
|
General
and administrative expenses
|
11,545
|
9,365
|
8,652
|
|
Legal,
accounting and audit
|
2,438
|
2,416
|
2,419
|
|
Share-based
compensation
|
9,342
|
3,970
|
4,734
|
|
Non-refundable
early option price installment
|
–
|
–
|
(48,097)
|
|
Sale of royalty and
royalty income
|
–
|
–
|
(648)
|
|
Other items 1
|
1,328
|
428
|
(1,512)
|
|
Loss for the year
|
$63,872
|
$69,193
|
$15,957
|
|
|
|
|
|
|
Basic
and diluted loss per common share
|
$0.13
|
$0.19
|
$0.05
|
|
Weighted
average number of common shares outstanding
(‘000’)
|
473,668
|
358,343
|
312,265
|
Notes
1.
Other items include
interest income, finance expense, exchange gains or losses and
other income.
Discussion on period-to-period variances:
●
The increase in
assets in 2020 vs 2019 is due primarily to the increase in cash and
equivalents due to the increase in proceeds from private placements
and the exercise of share purchase options and warrants. The
decrease in assets in 2019 vs 2018 was due mainly to the decrease
in carrying value of the Company’s mineral property, plant
and equipment as the appreciation of the Canadian dollar in
relation to US dollar resulted in an decrease in the carrying value
in the Company’s reporting currency,
●
Non-current
liabilities decreased in 2020 vs 2019 as the non-current portion of
lease liabilities decreased. Non-current liabilities decreased in
2019 vs 2018 as the final $7,194 installment in legal success fees,
which became payable as a result of the joint settlement settlement
agreement between the Company and the EPA in 2017, was transferred
to current liabilities. However, the Company also recognized $934
as the non-current portion of lease liabilities. Current
liabilities decreased in 2020 vs 2019 as half of the final
installment in legal success fees was paid. Current liabilities
increased in 2019 vs 2018 as it included the final installment in
legal success fees (discussed above), and $2,331 in loans
(including interest) received pursuant to the non-revolving term
credit facility.
●
Exploration and
evaluation expenses ("E&E") decreased in 2020 vs 2019 as
the Company focused on supporting the EIS process and federal
permitting. E&E increased in 2019 vs 2018 as the Company
advanced engineering studies, continued ongoing environmental
monitoring and collection of additional data to support the EIS
process.
●
General and
administrative expenses ("G&A") have fluctuated over the
period due to the level of corporate and financing activities
undertaken.
●
Legal, accounting
and audit expenses were marginally up in 2020 but still in line
with 2019 and 2018.
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Year ended December 31, 2020
1.4
Summary and Discussion of Quarterly Results
All monetary amounts are expressed in thousands of dollars except
per share amounts and where otherwise indicated. Minor differences
are due to rounding.
|
Excerpts from Statements of Comprehensive Loss
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
Exploration
and evaluation
|
$7,183
|
$14,470
|
$10,332
|
$7,234
|
$11,998
|
$14,265
|
$14,701
|
$12,050
|
|
General and
administrative
|
3,139
|
3,272
|
2,727
|
2,407
|
2,122
|
2,723
|
2,171
|
2,349
|
|
Legal,
accounting and audit
|
112
|
701
|
638
|
987
|
780
|
(45)
|
790
|
891
|
|
Share-based
compensation
|
1,288
|
6,992
|
615
|
447
|
455
|
2,149
|
662
|
704
|
|
Other items 1
|
1,218
|
326
|
144
|
(360)
|
235
|
26
|
(50)
|
217
|
|
Loss for the quarter
|
$12,940
|
$25,761
|
$14,456
|
$10,715
|
$15,590
|
$19,118
|
$18,274
|
$16,211
|
|
|
|
|
|
|
|
|
|
|
|
Basic and
diluted loss per common share
|
$0.03
|
$0.05
|
$0.03
|
$0.02
|
$0.04
|
$0.05
|
$0.05
|
$0.05
|
|
Weighted
average number of common shares (000s)
|
508,916
|
499,285
|
451,788
|
434,012
|
387,352
|
371,605
|
346,717
|
326,902
|
1.
Other items include
interest income, finance expense, exchange gains or losses, gain or
loss on revaluation of warrants, and other income.
Discussion of Quarterly Trends
E&E
has fluctuated depending on activities undertaken. In 2019, the
Company focused on planning and deploying site investigations
related to supporting the EIS process and the natural gas pipeline
right-of-way application, and continued to respond to USACE
requests for information relating to the Draft EIS, including the
review thereof and providing comments thereon, for USACE’s
process to advance a final EIS. In 2020, the Company continued its
efforts in support of the EIS process to advance a final EIS, which
was received, and worked on the LEDPA and the CMP. Further details
are discussed in Engineering under Section
1.2.1.2. E&E also includes costs for Native community
engagement, site leases, land access agreements and annual claim
fees.
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") (Q3 2019, Q1, Q2 and Q3
2020), and incentive bonuses paid to certain staff (Q1 2019, Q4
2019 and Q1 2020).
In Q3
and Q4 2019 and Q4 2020, legal, accounting and audit expenses
decreased as the Company recognized insurance refunds for
cumulative securities class action legal costs
incurred.
Share-based
compensation expense ("SBC")
has fluctuated due to the timing and quantum of share purchase
option ("option") grants and
the vesting periods associated with these grants. The Company
granted 6,783,000 and 6,610,500 options in Q3 2020 and 2019,
respectively.
The
following financial data has been prepared from the 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.
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Year ended December 31, 2020
1.5.1
Results of Operations – Three months and Year ended
December 31, 2020 versus 2019
For the
three months, the Company recorded a $2.7 million decrease in
net loss as loss from operating activities decreased by
$3.7 million due mainly to a $4.8 million decrease in
E&E in the current quarter.
For the
year ended, the Company recorded a $5.3 million decrease in
net loss as loss from operating activities decreased by
$6.3 million due mainly to a $13.8 million decrease in
E&E, which was offset by increases in G&A
($2.1 million) and SBC ($5.4 million).
Exploration and evaluation expenses
The
breakdown of E&E for the three months and year as compared to
2019 is as follows:
|
E&E
|
Three months
|
Year
|
|
|
|
|
|
|
|
Engineering
|
$655
|
$1,865
|
$9,171
|
$19,129
|
|
Environmental
|
1,465
|
3,512
|
11,782
|
14,699
|
|
Property
fees
|
2,097
|
1,825
|
2,104
|
1,839
|
|
Site
activities
|
779
|
1,072
|
3,438
|
4,347
|
|
Socio-economic
|
2,050
|
2,481
|
10,451
|
9,637
|
|
Transportation
|
38
|
1,073
|
1,919
|
2,786
|
|
Other activities
and travel
|
99
|
170
|
354
|
577
|
|
Total
|
$7,183
|
$11,998
|
$39,219
|
$53,014
|
E&E
decreased by $4.8 million in the current quarter and by
$13.8 million for the year due to a decrease in engineering
and environmental related activities. In 2019, the Company was
advancing engineering studies and responding to information
requests from the USACE after the release of the Draft EIS to
advance the final EIS.
General and administrative expenses
The
following table provides a breakdown of G&A, and legal,
accounting and audit expenses incurred in the three months and year
as compared to 2019:
|
|
|
|
|
|
|
|
|
|
|
Conference
and travel
|
$43
|
$88
|
$179
|
$448
|
|
Consulting
|
1,024
|
362
|
2,346
|
1,002
|
|
Depreciation
of right-of-use assets
|
58
|
56
|
235
|
223
|
|
Insurance
|
266
|
176
|
848
|
689
|
|
Office
costs, including information technology
|
247
|
201
|
1,132
|
867
|
|
Management
and administration
|
979
|
988
|
5,419
|
4,950
|
|
Shareholder
communication
|
500
|
238
|
1,039
|
917
|
|
Trust
and filing
|
22
|
13
|
347
|
269
|
|
Total G&A
|
3,139
|
2,122
|
11,545
|
9,365
|
|
Legal, accounting and audit
|
112
|
780
|
2,438
|
2,416
|
|
|
$3,251
|
$2,902
|
$13,983
|
$11,781
|
G&A
in the current quarter increased by $1.0 million due primarily
to the increase in consulting fees and shareholder communication
costs, the latter partly due to costs relating to the annual
general meeting which was held in the December 2020. Legal,
accounting and audit expenses decreased by
$0.7 million.
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Year ended December 31, 2020
In the
year to date, G&A increased by $2.1 million due primarily
to higher management and administration costs, as discretionary
performance and incentive bonuses were paid to certain staff and
the former PLP CEO, respectively, and higher consulting fees.
Legal, accounting and audit costs remain in line with the prior
year as in both years costs were reduced by insurance proceeds for
cumulative securities class action costs incurred.
SBC has
fluctuated 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. In 2020, 6,783,000 (2019 –
6,610,500) options were granted with an estimated fair value of
$1.58 (2019 – $0.56) per option.
For the
year, the Company recognized a net loss of $204 on the revaluation
of the warrant liabilities, which were exercised in the second
quarter.
Financial position as at December 31, 2020 versus
December 31, 2019
The
total assets of the Company increased by $25.7 million due
largely to the increase in cash balances due to the increase in
proceeds from private placements and the exercise of share purchase
options and warrants, which was offset by the decrease in carrying
value of the Company’s mineral property, plant and equipment
as the appreciation of the Canadian dollar in relation to US dollar
resulted in an decrease in the carrying value in the
Company’s reporting currency.
Our
business objectives for the balance of 2021 are to:
●
continue with the
appeal of the Record of Decision (RFA) by the USACE;
●
continue with
engineering, environmental, permitting and evaluation work on the
Pebble Project as required;
●
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
Year ended December 31, 2020
|
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
project
|
Ongoing
through 2021
|
$4,100,000
|
|
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 February 2022
|
$4,600,000
|
|
Pebble
claims maintenance
|
Continue
to maintain the Pebble claims in good standing.
|
Ongoing
through February 2022
|
$1,400,000
|
|
Pebble
partnering process
|
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.
|
2021/2022
2
|
$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
|
Ongoing
through 2021, February 2022
|
$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.
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Year ended December 31, 2020
The
Company’s actual plan of operations and expenditures for 2021
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 ROD and its ability to successfully appeal the ROD.
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.
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
December 31, 2020, the Company had cash and cash equivalents
of $42.5 million, which is an increase of $28.4 million
from December 31, 2019. In 2020, the Company raised gross
proceeds of approximately $82.6 million from financings (see
1.2.3
Financings).
The Company employed $57.8 million in its operating activities
in the year ended December 31, 2020 and repaid
$2.5 million of funds drawn from the unsecured non-revolving
term credit facility agreement that it had entered into with
certain parties including two related parties, in November 2019.
The Company has prioritized the allocation of its available
financial resources to meet key corporate and Pebble Project
expenditure requirements in the near term, being the next 12
months, as outlined above under 1.5.3
Plan
of Operations). There can be no assurances that the
Company will be successful in obtaining additional financing at
that point. If the Company is unable to raise the necessary capital
resources to meet obligations as they come due, the Company will
have to reduce or curtail its operations at some
point.
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Year ended December 31, 2020
At
December 31, 2020, the Company had a working capital of
$36.5 million as compared to a working capital deficiency of
$0.2 million at December 31, 2019. The Company has no
lease or any other long-term obligations other than those disclosed
below:
The
following commitments and payables (expressed in thousands) existed at
December 31, 2020:
|
|
|
Payments due
by period as of the reporting date
|
|
|
|
|
|
|
|
Trade and other
payables 1
|
$6,304
|
$6,304
|
$–
|
$–
|
|
Payables to related
parties
|
848
|
848
|
–
|
–
|
|
Lease commitments
2
|
1,204
|
337
|
604
|
263
|
|
Other commitments
3
|
355
|
355
|
–
|
–
|
|
Total
|
$8,711
|
$7,844
|
$604
|
$263
|
Notes
to table
1.
Includes legal fees
due to legal counsel of US$2,578, accrued interest thereon of
US$83, and US$635 payable on completion of a partnering
transaction.
2.
Relates to the
undiscounted lease payments to be made by the Company over the
remaining lease terms.
3.
The Company has a
remaining commitment of US$279 to fund improvements to camp
facilities.
4.
US dollar amounts
have been converted at the closing rate on December 31, 2020, of
$1.2736 / 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 December 31,
2020, other than noted in 1.6
Liquidity, the Company has no other long-term debt and no
commitments for material capital expenditures.
The
Company has no lines of credit or other sources of
financing.
Off-Balance Sheet Arrangements
As at
December 31, 2020, the Company had no off-balance sheet
arrangements.
Transactions with Related Parties
Transactions with Hunter Dickinson Services Inc.
("HDSI")
Hunter
Dickinson Inc. ("HDI") and
its wholly owned subsidiary, HDSI are private companies established
by a group of mining professionals engaged in advancing and
developing mineral properties for a number of private and
publicly-listed exploration companies, one of which is the
Company.
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Year ended December 31, 2020
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
Hodgson3, 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.
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 has an office use agreement with HDSI whereby the Company
rents a specified office from HDSI for its sole use.
Transactions during the Reporting Period and Balances with HDSI at
the end of the Reporting Period
Disclosure
as to transactions with HDSI and any amounts due to or from HDSI is
provided in Note 9 in the notes to the Financial Statements
which accompany this MD&A and which are available under the
Company’s profile at www.sedar.com.
_______________
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Year ended December 31, 2020
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
Financial Statements which accompany this MD&A and which are
available under the Company’s profile at www.sedar.com.
Discussed
in Section 1.5.1
Results of Operations – Three months and Year ended December
31, 2020 versus 2019
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
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
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 year ended December 31, 2020. Amounts receivable
include receivable balances with government agencies, prepaid
expenses and refundable deposits. Management has concluded that
there is no objective evidence of impairment to the Company’s
amounts receivable.
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Year ended December 31, 2020
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.
There
has been no change in the Company’s objectives and policies
for managing this risk, except for the changes in the carrying
amounts of the financial assets exposed to foreign exchange
risk. The
Company’s exposure to foreign exchange risk is as
follows:
|
|
|
|
|
US dollar
denominated financial assets and liabilities (in Canadian
Dollars)
|
|
|
|
Financial
assets:
|
|
|
|
Amounts
receivable
|
$649
|
$263
|
|
Cash and cash
equivalents and restricted cash
|
23,624
|
14,090
|
|
|
24,273
|
14,353
|
|
Financial
liabilities:
|
|
|
|
Long term
payables
|
(657)
|
(932)
|
|
Warrant
liabilities
|
–
|
(43)
|
|
Payables to related
parties
|
(650)
|
(24)
|
|
Trade and other
payables
|
(6,170)
|
(12,426)
|
|
|
(7,477)
|
(13,425)
|
|
Net financial
assets exposed to foreign currency risk
|
$16,796
|
$928
|
Based
on the above net exposures and assuming that all other variables
remain constant, a 10% change in the value of the Canadian dollar
relative to the US dollar would result in a gain or loss of $1,680
(2019 – $93) in the reported period. This sensitivity
analysis includes only outstanding foreign currency denominated
monetary items.
Interest rate risk
The
Company is subject to interest rate risk with respect to its
investments in cash and cash equivalents. There has been no change
in the Company’s objectives and policies for managing this
risk and no significant change to the Company’s exposure to
interest rate risk during the year ended December 31,
2020.
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.
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Year ended December 31, 2020
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.
1.15.1
Disclosure of Outstanding Share Data
The
capital structure of the Company as of March 30, 2021, is as
follows:
|
|
|
|
Common shares
issued and outstanding
|
512,790,198
|
|
Share options
pursuant to the Company’s incentive plan
|
25,432,500
|
|
Deferred share
units
|
458,129
|
|
Restricted share
units
|
–
|
|
Warrants and
non-incentive plan options1,
|
17,230,198
|
Note to
table:
1.
Non-incentive plan
options make up 131,600 of the total. These were issued on the
acquisition of Cannon Point in October 2015. Warrants make up the
balance and were issued pursuant to the, prospectus financings in
June 2016 and 2019, a private placement financing in July 2016 and
the Credit Facility.
1.15.2 Disclosure
Controls and Procedures
The
Company’s management, with the participation of its CEO and
CFO have evaluated the effectiveness of the Company’s
disclosure controls and procedures. Based on that evaluation, the
Company’s CEO and CFO have concluded that, as of the end of
the period covered by this report, the Company’s disclosure
controls and procedures were effective to provide reasonable
assurance that the information required to be disclosed by the
Company in reports it files is recorded, processed, summarized and
reported, within the appropriate time periods and is accumulated
and communicated to management, including the CEO and CFO, as
appropriate to allow timely decisions regarding required
disclosure..
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Year ended December 31, 2020
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.
The
Company’s management assessed the effectiveness of the
Company’s ICFR as of December 31, 2020. In making the
assessment, it used the criteria set forth in the Internal Control‐Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission. Based on their assessment, management
has concluded that, as of December 31, 2020, the Company’s
ICFR was effective based on those criteria.
There
has been no change during the three months and for the full year in
the design of the Company’s ICFR that has materially
affected, or is reasonably likely to materially affect, the
Company’s ICFR.
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Year ended December 31, 2020
The
Company’s ICFR as of December 31, 2020, has been audited by
Deloitte LLP, Independent Registered Public Accounting Firm, who
also audited the Company’s consolidated financial statements
for the year ended December 31, 2020. Deloitte LLP, as stated in
their report that immediately precedes the Company's audited
consolidated financial statements for the year ended December 31,
2020, expressed an unqualified opinion on the effectiveness of the
Company’s ICFR.
1.15.4 Limitations of
Controls and Procedures
The
Company’s management, including its CEO and CFO, believe that
any system of disclosure controls and procedures or ICFR, no matter
how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are
met. Furthermore, the design of a control system must reflect the
fact that there are resource constraints and the benefits of
controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, they cannot provide
absolute assurance that all control issues and instances of fraud,
if any, within the Company have been prevented or detected. These
inherent limitations include the realities that judgments in
decision-making can be faulty and breakdowns can occur because of
simple error or mistake. Additionally, controls can be circumvented
by the individual acts of some persons, by collusion of two or more
people, or by unauthorized override of controls. The design of any
system of controls is also based in part upon certain assumptions
about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated
goals under all potential future conditions. Accordingly, because
of the inherent limitations in a cost effective control system,
misstatements due to error or fraud may occur and not be
detected.
The securities of Northern Dynasty are highly speculative and
subject to a number of risks. A prospective investor or other
person reviewing Northern Dynasty for a prospective investor should
not consider an investment in Northern Dynasty unless the investor
is capable of sustaining an economic loss of their entire
investment. The risks associated with Northern Dynasty’s
business include:
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
Pebbel 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
investors will be able to recover their investment in the
Company.
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Year ended December 31, 2020
Inability to Ultimately Achieve Mine Permitting and Build a Mine at
the Pebble Project.
The
Company may ultimately be unable to secure the necessary permits
under United States federal and Alaskan State laws to build and
operate a mine at the Pebble Project. There is no assurance that
the EPA will not seek to undertake future regulatory action to
impede or restrict the Pebble Project. In addition, there are
prominent and well-organized opponents of the Pebble Project and
the Company may be unable, even if 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. Although the
Company received a denial of its CWA 404 permit from the
USACE, the Company has submitted an appeal of the ROD, and should
the appeal be successful, the Company will still be required to
secure the full range of permits and authorizations from multiple
federal and state regulatory agencies, which will take several
years. After all permits necessary to begin construction are in
hand, a number of years would be required to finance and build a
mine and commence operations. During these periods, the Company
would likely have no income and so would require additional
financing to continue its operations. Unless and until 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.
If Northern Dynasty is Unable to Defend the "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 several "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.
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.
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Year ended December 31, 2020
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 US 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 has had and will continue to 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. 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 Record of Decision, 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.
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.
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.
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Year ended December 31, 2020
The Pebble Project is Subject to Political and Environmental
Regulatory Opposition
The
Pebble Project faces organized opposition from certain individuals
and organizations who are motivated to preclude any possible mining
in the Bristol Bay Watershed (the "BBW"). The BBW is an important wildlife
and salmon habitat area. Accordingly, one of the greatest risks to
the Pebble Project is seen to be political/permitting risk, which
may ultimately preclude construction of a mine at the Pebble
Project. Opposition may include legal challenges to exploration and
development permits, which may delay or halt development. Other
tactics may also be employed by opposition groups to delay or
frustrate development at Pebble, included political and public
advocacy, electoral strategies, media and public outreach campaigns
and protest activity.
The Pebble Partnership’s Mineral Property Interests Do Not
Contain Any 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 not supported by any
preliminary economic assessment or 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 and shareholders
may not be able to recover their investment in the
Company.
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.
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Year ended December 31, 2020
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. 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.
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 paid no dividends on its shares since incorporation.
Northern Dynasty presently has no ability to generate earnings from
its mineral properties as its mineral properties are in the
pre-development stage.
Northern Dynasty’s Consolidated Financial Statements have
been Prepared Assuming Northern Dynasty will continue on a Going
Concern Basis
Northern
Dynasty has prepared its Financial Statements on the basis that
Northern Dynasty will continue as a going concern. At
December 31, 2020, the Company had a working capital of
$36.5 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 2020
and beyond as a result of the fact that it does not have revenues
from mining or any other activities. In addition, as a result of
Northern Dynasty’s business plans for the development of the
Pebble Project, Northern Dynasty expects cash flow from operations
to continue to be negative until revenues from production at the
Pebble Project begin to offset operating expenditures, of which
there is no assurance. Accordingly, Northern Dynasty’s cash
flow from operations will be negative for the foreseeable future as
a result of expenses to be incurred s in connection with
advancement of the Pebble Project.
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Year ended December 31, 2020
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 rhenuim 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.
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.
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Year ended December 31, 2020
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.
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.
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Year ended December 31, 2020
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.
The
market price of a publicly traded stock, especially a resource
issuer like Northern Dynasty, is affected by many variables in
addition to those directly related to exploration successes or
failures. Such factors include the general condition of markets for
resource stocks, the strength of the economy generally, the
availability and attractiveness of alternative investments, and the
breadth of the public markets for the stock. The effect of these
and other factors on the market price of the Company’s common
shares suggests Northern Dynasty’s shares will continue to be
volatile. Therefore, investors could suffer significant losses if
Northern Dynasty’s shares are depressed or illiquid when an
investor needs to sell Northern Dynasty shares.
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.
