St. LOUIS () -- Northern Dynasty Minerals Ltd. [AMEX:NAK; TSX-V:NDM] announced late yesterday that Anglo American [Nasdaq:AAUK; LSE:AAL] will pay $1.425 billion for a 50% ownership in the massive Pebble copper-gold-molybdenum project in Alaska. NDM shareholders less than applauded the deal, sending stock prices down 13%.
Shares had gained 16% in last three days leading up to the news, posting a new 52-week high of $15.61 yesterday. But shareholders sold hard on Wednesday, perhaps let down that there wasn't a full takeover in the works.
Frank Holmes, CEO of US Global Investors, which holds about a 2.4% stake in NDM, told RI that investors were disappointed in just that. But he added that some shareholders may have been concerned about the timeline of the development schedule as well.
According to the agreement, Anglo must first commit $125 million to complete a pre-feasibility study by the end of 2008, and then commit a further $325 million for a feasibility study by 2011. Upon the decision to develop a mine, Anglo must pay $975 million for a total of $1.425 billion to retain its 50% interest.
If the feasibility study is completed after 2011, Anglo's overall funding requirement increases to US$1.5 billion. Any further expenditure will be funded on a 50-50 basis, and NDM will assess its 50% share of any project debt financing when a production decision is made.
Holmes said the deal is financially rewarding for the company, but "people don't like the uncertainty" that comes with of adding more time to the schedule. The company previously estimated construction to begin in 2011 and production in 2013.
The Pebble property is massive, totalling 153 square miles in southern Alaska. The projects key assets are the near surface, 4.1 billion tonne, open pit style Pebble West deposit and the deeper and higher grade 3.4 billion tonne Pebble East deposit.
Bruce W. Jenkins, COO of Northern Dynasty Minerals told RI that the company had previously estimated Pebble West to cost around $2 billion to develop, but halted the pre-feasibility study to include Pebble East. He could not yet estimate the total capex for the entire project, but said it would be "in the billions."
Jenkins said in six years of exploration and development, the company has spent about $200 million on the project, with $96 million slated for this year alone.
At Pebble West, drilling to date has revealed total in-situ resources of 24.7 billion pounds of copper, 42.1 million ounces of gold and 1.35 billion pounds of molybdenum at a 0.30% copper equivalent cut-off grade. Pebble East is estimated to host 42.9 billion pounds of copper, 39.6 million ounces of gold and 2.7 billion pounds of molybdenum at a 0.60% cut-off grade.
Even at conservative estimates of 49 billion pounds of copper, 64 million ounces of gold and 2.9 billion pounds of molybdenum, Pebble is the world's second largest copper-gold deposit.
Despite shareholder unrest today, NDM has always hinted that it might need help to develop so a big project. Therefore, analysts have long noted Pebble as an acquisition target, both in part and as a whole.
"It is almost a foregone conclusion that a project as attractive as Pebble will ultimately be acquired by a major. It is just a matter of when," he said.
This is now the second major mining firm to concurrently endorse Pebble. Last year, Rio Tinto acquired about a 20% stake by buying about half of Galahad Gold's 21% interest. The rest of Galahad's stake was subsequently sold into the market.
Peter Grandich, editor of , and long-time shareholder of NDM, has often said NDM would be fully taken out or some sort of partnership would be done. He said no fewer than 16 companies had signed confidentially agreements with NDM prior to the deal with Anglo.
"While it's early, it wouldn't come as a surprise to me to later learn that NDM has hired bankers to explore the sale of their remaining ownership, especially once new drill results are released," said Grandich in an e-mailed update today.
He said a consortium "still can't be ruled out," and Rio's near 20% ownership may be incentive enough for others parties to buy into Pebble.
"For far too long, NDM was an orphan among the institutional community but with Anglo as a partner and Rio as a major shareholder, I fully anticipate NDM vaulting towards the top of most mining share institutional shopping lists," he added.
But even Grandich admitted that the deal by "no means makes NDM a slam-dunk or without risk." The company must still overcome strong environmental opposition, which has plagued the project since its inception.
Local stakeholders and environmentalists are concerned, amongst other things, about its potential impact on salmon fishing in the Bristol Bay watershed. The and the have been covered in depth by RI in the past.
Ron Thiessen, President and CEO of Northern Dynasty, noted in a statement today that Alaska's environmental standards and permitting requirements are among the most stringent in the world.
"Northern Dynasty's experienced, largely Alaskan based, mine development team has been undertaking thorough and balanced technical, environmental and social assessments to ensure that the Pebble project is developed in a manner that protects the environment and traditional ways of life," he said.
He said the mine would bring direct benefits to the local communities and serve as a catalyst for sustainable economic development in the region and across the State.
NDM has continued with its extensive environmental programme; out of a total investment of $56 million this year 38% of it ($21 million) has been on environmental and socioeconomic projects.
Shares of Northern Dynasty fell $2.04 or 13.4% to close at $13.13 on AMEX on heavy volume of more than 2 million shares. But despite the selloff today, NDM stock is up more than 77% so far this year.
Holmes concluded in saying he like the deal going forward as a shareholder, and August is historically a very good time to buy gold shares.