Industry Watchdog Alleges Northern Dynasty Misled Investors

(Bloomberg) -- An industry watchdog has filed a complaint to U.S. and Canadian securities regulators alleging that Northern Dynasty Minerals Ltd. misled investors about its controversial Pebble mining project in Alaska.

Northern Dynasty -- whose plan to develop a copper and gold mine near Bristol Bay faces staunch environmental opposition -- issued incomplete and misleading information in an attempt to drum up cash, Washington-based Earthworks said in a statement.

The Vancouver-based miner says that Pebble’s known mineral resources -- including measured, indicated and inferred estimates -- amount to roughly 11 billion tons with the "potential for expansion," according to its latest project fact sheet. Still, the fine print below the presentation said “investors are cautioned not to assume that any part or all 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 existence, and economic and legal feasibility.”

Permitting documents showed Northern Dynasty is seeking approval for a mining plan that would extract only 1.4 billion during the project’s 20-year life.

Earthworks called that a misrepresentation in letters sent to the U.S. Securities Exchange Commission and Canada’s British Columbia Securities Commission. The company’s plan would fill the mine pit with tailings, waste rock and water after the initial extraction, making the remaining resource too costly or difficult to pull out, Earthworks said, citing the opinion of a geologist, David Chambers, who is also founder of the Center for Science in Public Participation.

“We have been clear and consistent that the permit application currently being evaluated by the US Army Corps of Engineers only seeks to develop a portion of the total Pebble mineral resource,” a Northern Dynasty spokesman said in an email.

“Northern Dynasty has not had an opportunity to fully review and respond to JCAP’s allegations. However, on initial review we find them to be baseless and untrue, and meant only to damage the reputation of Northern Dynasty Minerals Ltd.,” the spokesman said, referring to the Justice and Corporate Accountability Project that filed the complaint on behalf of Earthworks.

Northern Dynasty, whose one and only exploration project is Pebble, peaked with a market value of almost $2 billion in 2011 before tumbling spectacularly as partners Anglo American Plc and Rio Tinto Group abandoned the project, while U.S. regulatory roadblocks appeared to leave it for dead.

In a sudden revival, its shares jumped more than fivefold from mid-October 2016 to a peak in February 2017 amid speculation that U.S. President Donald Trump’s administration would allow Pebble to move ahead. A flood of stock promotion newsletters began recommending Northern Dynasty, one describing it as "Trump’s Gold." At a January 2017 Vancouver mining conference attended by thousands of retail investors, local mining maverick Frank Giustra rued having sold his early stake in the company: "I left a lot of money on the table. It was very sad. It sucks to be me."

Earthworks said Northern Dynasty has used overly promotional language to hype Pebble’s potential. In the company’s project overview, which cites the larger resource figures of 11 billion tons, Northern Dynasty calls Pebble "one of the greatest stores of mineral wealth ever discovered, and the world’s largest undeveloped copper and gold resource." In a presentation this month, it described it as a "world class" resource that’s "Tier 1 by every measure" and presents a "generational opportunity" to investors.

The Canadian Securities Administrators has cautioned miners in the past about overly promotional or misleading statements terms such as "world-class." In November, the B.C. regulator warned miners against disclosing details that suggest a property holds high potential "without direct evidence from sampling or exploration."

Earthworks said Northern Dynasty’s claims aren’t supported by preliminary economic assessment, pre-feasibility or feasibility study.

"A project that does not have support for its potential economic viability, and that bases its claims on accessibility to ten times the volume of mineral resources it is actually seeking permits for, is would seem to be misrepresenting the opportunity with unjustified promotional language," Earthworks said in its letter.

Northern Dynasty has lost more than 80 percent since its Trump-induced surge in late 2016. Shortseller Kerrisdale Capital Management LLC called Pebble worthless in a February 2017 report, saying it would cost too much to develop to be worthwhile. Last May, Northern Dynasty’s plans to raise money to fund Pebble’s lengthy permitting fell through when First Quantum Minerals Ltd. walked away from a deal. Northern Dynasty was trading at 70 cents in Toronto Monday.

©2019 Bloomberg L.P.