Northern Dynasty: EPA’s Final Determination Blocks Pebble Mine

The Environmental Protection Agency [EPA] dealt Northern Dynasty Minerals (NYSE:NAK) another blow by issuing a Final Determination under the Clean Water Act that will prevent the development of the Pebble Project. Pebble already faced a number of other obstacles and this result was widely expected, so it doesn’t much change the very low odds that Pebble will one day become a mine.

Northern Dynasty has no other mining assets, so it is essentially forced to appeal this latest decision. Northern Dynasty should have enough cash on hand to last until 2024 without raising more money. I am keeping my estimate of Northern Dynasty’s value at approximately US$0.10 per share, reflecting its roughly US$0.04 per share in cash on hand, plus a small amount of hypothetical value for Pebble.

This report uses US dollars unless otherwise noted.

The Final Determination

As widely expected, the EPA issued a Final Determination under the Clean Water Act to prohibit and restrict the disposal of mining waste in various parts of the Bristol Bay watershed. This is the third time in the last 30 years that the EPA has used its Section 404[C] authority. This decision will prevent the development of the Pebble Project as well as any other potential mining projects in the area. The restricted/prohibited sections cover a much larger area than the Pebble Project itself.

Northern Dynasty’s Potential Actions

Northern Dynasty is expected to appeal the EPA’s decision. Northern Dynasty doesn’t really have any other choice than to continue the fight to develop Pebble since it has no other mining assets that it can focus on. It does have a modest amount of cash (approximately US$19 million at the end of Q3 2022) and could theoretically issue shares as well to attempt to acquire other mining assets. However, Northern Dynasty’s market cap still attributes over US$100 million in value to Pebble, so it can’t give up on the project despite all the setbacks.

Conservation Easements

In addition to the EPA decision, another roadblock to Pebble is the December 2022 completion of the deal between the Pedro Bay Corporation and The Conservation Fund. This deal placed conservation easements on approximately 44,000 acres near the northeastern part of Lake Iliamna. The Conservation Fund raised $20 million to purchase these easements and the conservation easements would effectively ban the development of the favored northern mining road route for Pebble. The southern route, involving a ferry across Lake Iliamna, was seen as having a greater impact on the environment.

Pebble’s Future Prospects

Pebble technically isn’t permanently dead since there theoretically is always a chance that Northern Dynasty could prevail in the courts and/or a future administration could seek to undo the EPA’s Final Determination. However, the obstacles in front of Pebble are quite huge. Both the EPA’s Final Determination and the U.S. Army Corps of Engineers’ permit denial would need to be reversed. It would also need to use a less favorable route for the mining road, and find $4+ billion in funding (challenging given the controversy over the project) for its expected share of the initial capital costs. If it does make some legal progress, opponents are likely to appeal those rulings as well. Finally, there is significant local opposition to Pebble as well.

There is an argument that denying resource development projects in the United States just results in the US needing to import more resources from countries with a minimal amount of environmental protection laws. While there is some truth in this, I don’t see that argument making much difference to the chances of Pebble becoming an operational mine. There are quite a few other projects in the US that are likely to be approved before Pebble ever gets approval.

Conclusion

Over the last couple months the EPA made a Final Determination restricting/prohibiting the disposal of mining waste in Bristol Bay, while conservation easements were put into place along the proposed mining road to Pebble. These events were widely expected to occur, but they do reinforce the idea that Pebble has a very low chance of ever becoming an operational mine. Northern Dynasty has no other mining assets, so it is forced to continue to fight for Pebble no matter what the odds of success are. It does appear to have enough cash to last until 2024 currently, so it can avoid raising additional funds for now.

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