Exhibit
99.1
CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED
MARCH
31, 2020 AND 2019
(Expressed in thousands of Canadian Dollars)
(Unaudited)
Northern Dynasty Minerals Ltd.
Condensed Consolidated Interim Statements of Financial
Position
(Unaudited -
Expressed in thousands of Canadian Dollars)
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Non-current
assets
|
|
|
|
Restricted
Cash
|
5(b)
|
$874
|
$805
|
Mineral property,
plant and equipment
|
3
|
150,181
|
138,867
|
Total
non-current assets
|
|
151,055
|
139,672
|
|
|
|
|
Current
assets
|
|
|
|
Amounts receivable
and prepaid expenses
|
4
|
692
|
914
|
Cash and cash
equivalents
|
5(a)
|
7,267
|
14,038
|
Total
current assets
|
|
7,959
|
14,952
|
|
|
|
|
Total
Assets
|
|
$159,014
|
$154,624
|
|
|
|
|
EQUITY
|
|
|
|
|
|
|
|
Capital
and reserves
|
|
|
|
Share
capital
|
6
|
$594,051
|
$587,448
|
Reserves
|
6
|
117,690
|
107,163
|
|
|
(566,821)
|
(556,106)
|
Total
equity
|
|
144,920
|
138,505
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
Non-current
liabilities
|
|
|
|
|
10
|
941
|
934
|
Total
non-current liabilities
|
|
941
|
934
|
|
|
|
|
Current
liabilities
|
|
|
|
Warrant
liabilities
|
7
|
19
|
43
|
Loans
payable
|
8
|
–
|
1,360
|
Payables to related
parties
|
9
|
313
|
1,095
|
|
10
|
12,821
|
12,687
|
Total
current liabilities
|
|
13,153
|
15,185
|
|
|
|
|
Total
liabilities
|
|
14,094
|
16,119
|
|
|
|
|
|
|
|
|
Total
Equity and Liabilities
|
|
$159,014
|
$154,624
|
Nature
and continuance of operations (note 1)
Commitments and
contingencies (note 14)
Events
after the reporting date (note 15)
The accompanying notes are an integral part of these condensed
consolidated interim financial statements.
These condensed
consolidated intertim financial statements are signed on the
Company’s behalf by:
/s/ Ronald W.
Thiessen
|
|
/s/ Christian Milau
|
|
|
|
Ronald W.
Thiessen
|
|
Christian
Milau
|
Director
|
|
Director
|
Northern Dynasty Minerals Ltd.
Condensed Consolidated Interim Statements of Comprehensive (Income)
Loss
(Unaudited -
Expressed in thousands of Canadian Dollars, except for share
information)
|
|
Three months ended
March 31
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
Exploration and
evaluation expenses
|
3, 12
|
$7,234
|
$12,050
|
General and
administrative expenses
|
3, 12
|
2,407
|
2,349
|
Legal, accounting
and audit
|
|
987
|
891
|
|
6(d), (f)
|
447
|
704
|
Loss from operating
activities
|
|
11,075
|
15,994
|
Foreign exchange
(gain) loss
|
|
(333)
|
260
|
Interest
income
|
|
(42)
|
(70)
|
Finance
expense
|
|
39
|
27
|
Gain on revaluation
of warrant liabilities
|
|
(24)
|
–
|
Loss before
tax
|
|
10,715
|
16,211
|
Deferred income tax
(recovery) expense
|
|
–
|
–
|
Net
loss
|
|
$10,715
|
$16,211
|
|
|
|
|
Other
comprehensive (income) loss
|
|
|
|
Items
that may be subsequently reclassified to net loss
|
|
|
|
Foreign exchange
translation difference
|
6(g)
|
(10,773)
|
2,872
|
Other
comprehensive (income) loss
|
|
$(10,773)
|
$2,872
|
|
|
|
|
Total
comprehensive (income) loss
|
|
$(58)
|
$19,083
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share
|
11
|
$0.02
|
$0.05
|
The accompanying notes are an integral part of these condensed
consolidated interim financial statements.
Northern Dynasty Minerals Ltd.
Condensed Consolidated Interim Statements of Cash
Flows
(Unaudited -
Expressed in thousands of Canadian Dollars)
|
|
Three months ended
March 31
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
Net
loss
|
|
$(10,715)
|
$(16,211)
|
Non-cash or non
operating items
|
|
|
|
Depreciation
|
3
|
159
|
163
|
Interest
income
|
|
(42)
|
(70)
|
Interest on credit
facility loans
|
8
|
9
|
–
|
Gain on revaluation
of warrant liabilities
|
7
|
(24)
|
–
|
Share-based
compensation
|
|
447
|
704
|
Unrealized exchange
differences
|
|
(243)
|
(14)
|
Changes in working
capital items
|
|
|
|
Amounts receivable
and prepaid expenses
|
|
227
|
848
|
Trade and other
payables
|
|
(576)
|
2,856
|
Payables to related
parties
|
|
371
|
(215)
|
Net cash used in
operating activities
|
|
(10,387)
|
(11,939)
|
|
|
|
|
Investing
activities
|
|
|
|
Interest received
on cash and cash equivalents
|
|
35
|
42
|
Net cash from
investing activities
|
|
35
|
42
|
|
|
|
|
Financing
activities
|
|
|
|
Proceeds from
issuance of common shares
|
6(b)
|
–
|
15,337
|
Transaction costs
in the issuance of common shares
|
6(b)
|
(10)
|
(1,236)
|
Proceeds from
private placement financings
|
6(b)
|
6,015
|
3,242
|
Transaction costs
for the private placement financings
|
6(b)
|
(95)
|
(112)
|
Proceeds from the
exercise of share purchase options and warrants
|
6(c), (d)
|
–
|
118
|
Payments of
principal portion of lease liabilities
|
|
(96)
|
(92)
|
Repayment of credit
facility loans
|
8, 9(a)
|
(2,523)
|
–
|
Additional costs
paid for issue of special warrants
|
|
–
|
(2)
|
Net cash from
financing activities
|
|
3,291
|
17,255
|
|
|
|
|
Net
(decrease) increase in cash and cash equivalents
|
|
(7,061)
|
5,358
|
Effect of exchange
rate fluctuations on cash and cash equivalents
|
|
290
|
16
|
Cash and cash
equivalents - beginning balance
|
|
14,038
|
14,872
|
|
|
|
|
Cash
and cash equivalents - ending balance
|
5(a)
|
$7,267
|
$20,246
|
Supplementary cash
flow information (note 5(a))
The accompanying notes are an integral part of these condensed
consolidated interim financial statements.
Northern Dynasty Minerals Ltd.
|
Condensed Consolidated Interim Statements of Changes in
Equity
|
(Unaudited -
Expressed in thousands of Canadian Dollars, except for share
information)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1,
2019
|
|
313,417,856
|
$517,327
|
$66,938
|
$38,686
|
$(17)
|
$12,189
|
$–
|
$(486,913)
|
$148,210
|
Shares issued on exercise of
options per option plan
|
6(d)
|
155,000
|
76
|
–
|
–
|
|
|
–
|
|
76
|
Shares issued on exercise of
options not issued per option plan
|
6(c)
|
36,300
|
15
|
–
|
–
|
–
|
–
|
–
|
–
|
15
|
Shares issued upon exercise of
warrants
|
6(c)
|
49,685
|
27
|
–
|
–
|
–
|
–
|
–
|
–
|
27
|
Shares issued pursuant to
restricted share unit plan
|
6(f)
|
85,294
|
117
|
(56)
|
–
|
–
|
–
|
–
|
–
|
61
|
Fair value allocated to shares
issued on exercise of options and warrants
|
|
–
|
99
|
(74)
|
–
|
–
|
(25)
|
–
|
–
|
–
|
Share issued on bought deal
financing, net of transactions costs
|
6(b)
|
17,968,750
|
14,101
|
–
|
–
|
–
|
–
|
–
|
–
|
14,101
|
Share issued on conversion of
special warrants, net of transaction costs
|
6
|
10,150,322
|
8,190
|
–
|
–
|
–
|
(8,190)
|
–
|
–
|
–
|
Share issued pursuant to private
placement, net of transaction costs
|
6(b)
|
3,769,476
|
3,130
|
–
|
–
|
–
|
–
|
–
|
–
|
3,130
|
Share-based
compensation
|
6(d) &
(f)
|
–
|
–
|
661
|
–
|
–
|
–
|
–
|
–
|
661
|
Net loss
|
|
–
|
–
|
–
|
–
|
–
|
–
|
–
|
(16,211)
|
(16,211)
|
Other comprehensive loss net of
tax
|
|
–
|
–
|
–
|
(2,872)
|
–
|
–
|
–
|
–
|
(2,872)
|
Total comprehensive
loss
|
|
|
|
|
|
|
|
|
|
(19,083)
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March
31, 2019
|
|
345,632,683
|
$543,082
|
$67,469
|
$35,814
|
$(17)
|
$3,974
|
$–
|
$(503,124)
|
$147,198
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1,
2020
|
|
422,942,680
|
$587,448
|
$70,150
|
$32,365
|
$(17)
|
$3,972
|
$693
|
$(556,106)
|
$138,505
|
Share issued pursuant to private
placements, net of transaction costs
|
6(b)
|
13,688,823
|
6,613
|
–
|
–
|
–
|
–
|
(693)
|
–
|
5,920
|
Additional transaction costs for
public offering in December 2019
|
|
–
|
(10)
|
–
|
–
|
–
|
–
|
–
|
–
|
(10)
|
Share-based
compensation
|
6(d)
|
–
|
–
|
447
|
–
|
–
|
–
|
–
|
–
|
447
|
Net loss
|
|
–
|
–
|
–
|
–
|
–
|
–
|
|
(10,715)
|
(10,715)
|
Other comprehensive income net of
tax
|
|
–
|
–
|
–
|
10,773
|
–
|
–
|
–
|
–
|
10,773
|
Total comprehensive
income
|
|
|
|
|
|
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March
31, 2020
|
|
436,631,503
|
$594,051
|
$70,597
|
$43,138
|
$(17)
|
$3,972
|
$–
|
$(566,821)
|
$144,920
|
The accompanying notes are an integral part of these condensed
consolidated interim financial statements.
Northern Dynasty Minerals Ltd.
Notes to the Condensed Consolidated Interim Financial
Statements
For the
three months ended March 31, 2020 and 2019
(Unaudited
- Expressed in thousands of Canadian Dollars, unless otherwise
stated, except per share or option)
1.
NATURE AND CONTINUANCE OF OPERATIONS
Northern Dynasty
Minerals Ltd. (the "Company") is incorporated under the laws of the
Province of British Columbia, Canada, and its principal business
activity is the exploration of mineral properties. The Company is
listed on the Toronto Stock Exchange ("TSX") under the symbol "NDM"
and on the NYSE American Exchange ("NYSE American") under the
symbol "NAK". The Company’s corporate office is located at
1040 West Georgia Street, 15th floor, Vancouver,
British Columbia.
The
condensed consolidated interim financial statements ("Financial
Statements") of the Company as at and for the three months ended
March 31, 2020, include financial information for the
Company and its subsidiaries (together referred to as the "Group"
and individually as "Group entities"). The Company is the ultimate
parent. The Group’s core mineral property interest is the
Pebble Copper-Gold-Molybdenum Project (the "Pebble Project")
located in Alaska, United States of America ("USA" or "US"). All US
dollar amounts when presented are expressed in thousands, unless
otherwise stated.
The
Group is in the process of exploring and developing the Pebble
Project and has not yet determined whether the Pebble Project
contains mineral reserves that are economically recoverable. The
Group’s continuing operations and the underlying value and
recoverability of the amounts shown for the Group’s mineral
property interests, is entirely dependent upon the existence of
economically recoverable mineral reserves; the ability of the Group
to obtain financing to complete the exploration and development of
the Pebble Project; the Group obtaining the necessary permits to
mine; and future profitable production or proceeds from the
disposition of the Pebble Project.
During
the three months ended March 31, 2020, the Company raised net
proceeds of $5,920 from private placements of common shares
(note 6(b)).
As at
March 31, 2020, the Group had $7,267 (December 31, 2019
– $14,038) in cash and cash equivalents for its operating
requirements and a working capital deficiency of $5,194. These
financial statements have been prepared on the basis of a going
concern, which assumes that the Group will be able to raise
sufficient funds to continue its exploration and development
activities and satisfy its obligations as they come due. Subsequent
to the reporting period, the Group raised gross proceeds of
approximately $17,313 thorough the completion of an underwritten
public offering and a private placement of common shares
(note 15). For the three months ended March 31, 2020 and
2019, the Group incurred a net loss of $10,715 and $16,211,
respectively, and had a deficit of $566,821 as at March 31,
2020. The Group has prioritized the allocation of its financial
resources in order to meet key corporate and Pebble Project
expenditure requirements in the near term. Additional financing
will be required in order to progress any material expenditures at
the Pebble Project and for working capital requirements. Additional
financing may include any of or a combination of debt, equity
and/or contributions from possible new Pebble Project participants.
There can be no assurances that the Group will be successful in
obtaining additional financing. If the Group is unable to raise the
necessary capital resources and generate sufficient cash flows to
meet obligations as they come due, the Group may, at some point,
consider reducing or curtailing its operations. As such, there is
material uncertainty that raises substantial doubt about the
Group’s ability to continue as a going concern.
The
Group through the Pebble Limited Partnership ("Pebble Partnership")
initiated federal and state permitting for the Pebble Project under
the National Environmental Protection Act ("NEPA"), by filing
documentation for a Clean Water Act ("CWA") 404 permit with the US
Army Corps of Engineers ("USACE") in December 2017. The USACE
published a draft Environmental Impact Statement ("EIS") in
February 2019 and completed a 120-day public comment period on the
draft EIS on July 2, 2019. On July 30, 2019, the US
Environmental Protection Agency ("EPA") announced that it has taken
action to withdraw a Proposed Determination initiated under Section
404(c) of the CWA in 2014 to attempt to pre-emptively veto the
Pebble Project before it received an objective, scientific
regulatory review under NEPA. The Proposed Determination was
ultimately withdrawn in July 2019.
Northern Dynasty Minerals Ltd.
Notes to the Condensed Consolidated Interim Financial
Statements
For the
three months ended March 31, 2020 and 2019
(Unaudited
- Expressed in thousands of Canadian Dollars, unless otherwise
stated, except per share or option)
2.
SIGNIFICANT ACCOUNTING POLICIES
(a)
Statement of Compliance
These
Financial Statements have been prepared in accordance with
IAS 34, Interim Financial
Reporting, as issued by the International Accounting
Standards Board ("IASB") and interpretations issued by the IFRS
Interpretations Committee ("IFRIC"s). They do not include all of
the information required by IFRS for complete annual financial
statements, and should be read in conjunction with the
Group’s consolidated financial statements as at and for the
year ended December 31, 2019 ("2019 annual financial
statements").
These
Financial Statements were authorized for issue by the Audit and
Risk Committee on May 14, 2020.
(b)
Use of Judgments and Estimates
In
preparing these Financial Statements, management has made
judgements, estimates and assumptions that affect the application
of accounting policies and the reported amounts of assets and
liabilities, income and expense. Actual results may differ from
these estimates.
There
was no change in the use of significant estimates and judgments
during the current periods as compared to those described in Note 2
in the Group’s 2019 annual financial statements, other than
as follows:
On
March 11, 2020, the current outbreak of COVID-19 was declared a
pandemic, creating an unprecedented global health and economic
crisis. COVID-19’s impact on global markets has been
significant through March 2020 and subsequent to the date of the
Financial Statements. The situation continues to evolve rapidly. On
March 26, 2020, in accordance with the order of the Governor of
Alaska, the Group’s 100% owned Pebble Partnership, along with
all other nonessential offices in Alaska, closed its offices for
the health and safety of its personnel. Notwithstanding the
closure, the Group has maintained its staff and employees, and
continues to support the NEPA EIS process remotely to help ensure
that the project schedule published by the USACE of a final EIS and
a Record of Decision ("ROD") by mid-2020 remains on track.
Technical review meetings were completed before the implementation
of the Governor’s order in response to COVID-19.
The
Group’s plans to advance the development of the Pebble
Project are dependent upon the continued progress of our approval
and permitting process with the USACE, the EPA and Alaskan state
agencies, as well as our ability to continue the work required in
connection with this process through our employees and our
contractors. While the Group has not been notified of any delay, it
is possible that government efforts to curtail the COVID-19
outbreak will result in delays in our permitting process, including
a possible delay in the release by the USACE of their final EIS and
the progress through to a ROD. In addition, our personnel may be
delayed in completing the required work that we are pursuing in
connection with this process due to quarantine, self-isolation,
social distancing, restrictions on travel, restrictions on meetings
and work from home requirements. The extent to which the
coronavirus 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 the severity of the
coronavirus and the actions taken to contain the coronavirus or
treat its impact, among others. Moreover, the spread of the
coronavirus globally is expected to have a material adverse effect
on global and regional economies and to continue to negatively
impact stock markets, including the trading price of the
Company’s shares. These adverse effects on the economy, the
stock market and the Company’s share price could adversely
impact our 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 our business and results of operations and could
delay our plans for development of the Pebble Project.
Northern Dynasty Minerals Ltd.
Notes to the Condensed Consolidated Interim Financial
Statements
For the
three months ended March 31, 2020 and 2019
(Unaudited
- Expressed in thousands of Canadian Dollars, unless otherwise
stated, except per share or option)
3.
MINERAL PROPERTY, PLANT AND EQUIPMENT
The
Group’s exploration and evaluation assets are comprised of
the following:
Three months ended March 31, 2020
|
Mineral Property
interest 1
|
|
|
Cost
|
|
|
|
Balance December
31, 2019 and Ending balance
|
$112,541
|
$3,018
|
$115,559
|
|
|
|
|
Accumulated
depreciation
|
|
|
|
Beginning
balance
|
–
|
(1,615)
|
(1,615)
|
Depreciation
3
|
–
|
(159)
|
(159)
|
Ending
balance
|
–
|
(1,774)
|
(1,774)
|
|
|
|
|
Foreign currency
translation difference
|
36,121
|
275
|
36,396
|
|
|
|
|
Net
carrying value –March 31, 2020
|
$148,662
|
$1,519
|
$150,181
|
Notes
to table:
1.
Comprises the
Pebble Project, a contiguous block of 2,402 mineral claims covering
approximately 417 square miles located in southwest Alaska, 17
miles (30 kilometers) from the villages of Iliamna and Newhalen,
and approximately 200 miles (320 kilometers) southwest of the city
of Anchorage.
2.
Includes
ROU Assets, which relate to the use of office space, a copier,
hangers, yard storage and one vehicle. The following comprises ROU
Assets:
Three Months ended March 31, 2020
|
|
|
|
Balance December
31, 2019 and Ending
balance
|
$1,591
|
$53
|
$1,644
|
|
|
|
|
Accumulated
depreciation
|
|
|
|
Beginning
balance
|
(411)
|
(9)
|
(420)
|
Depreciation 3
|
(102)
|
(4)
|
(106)
|
Ending
balance
|
(513)
|
(13)
|
(526)
|
|
|
|
|
Foreign
currency translation difference
|
24
|
2
|
26
|
|
|
|
|
Net carrying value – March 31, 2020
|
$1,102
|
$42
|
$1,144
|
3.
For
the three months ended March 31, 2019, total depreciation was $163
of which ROU Asset depreciation was $106. ROU Asset depreciation of
$58 (2019 – $55) is included in general and administrative
expenses. The remainder is included in exploration and evaluation
expenses.
Northern Dynasty Minerals Ltd.
Notes to the Condensed Consolidated Interim Financial
Statements
For the
three months ended March 31, 2020 and 2019
(Unaudited
- Expressed in thousands of Canadian Dollars, unless otherwise
stated, except per share or option)
4.
AMOUNTS RECEIVABLE AND PREPAID EXPENSES
|
|
|
|
|
|
Sales tax
receivable
|
$70
|
$177
|
Amounts
receivable
|
128
|
239
|
Prepaid
expenses
|
494
|
498
|
Total
|
$692
|
$914
|
5.
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
(a)
Cash and cash equivalents
The
Group’s cash and cash equivalents at March 31, 2020, and
December 31, 2019, consisted of cash on hand and was invested
in business and savings accounts.
Supplementary cash flow information
Non-cash investing
and financing activities:
In the
three months ended March 31, 2019:
●
Common shares were
issued on settlement of equity-settled restricted share units (note
6(f)).
●
Special warrants
were converted for no additional consideration (note
6(b)).
The
Group has cash deposited with a United States financial institution
that has been pledged as collateral to the surety provider for a
US$2,000 surety bond placed with the Alaskan regulatory authorities
for a performance guarantee related to any potential reclamation
liability as a condition of the Miscellaneous Land Use Permit
granted to the Pebble Partnership for its ongoing activities on the
Pebble Project. The cash deposit will be released once any
reclamation work required has been performed and assessed by the
Alaskan regulatory authorities. The cash is invested in a money
market fund. For the three months ended March 31, 2020, income
of $2 (2019 – $4) has been recognized which has been
re-invested.
(a)
Authorized Share Capital
At
March 31, 2020, the authorized share capital comprised an
unlimited (2019 – unlimited) number of common shares
("shares") with no par value.
January 2020 Private Placements
In
January 2020, the Group completed private placements of 13,688,823
shares for gross proceeds of approximately $6,708 (US$5,065). Of
this, $6,009 was received in January 2020 on the placement of
12,262,323 shares as the Group received $699 in December 2019 for
subscriptions to 1,426,500 shares. After transaction costs of $95
(of which $6 was incurred in 2019), net proceeds to the Group was
$6,613 (of which $693 was recognized in December
2019).
Northern Dynasty Minerals Ltd.
Notes to the Condensed Consolidated Interim Financial
Statements
For the
three months ended March 31, 2020 and 2019
(Unaudited
- Expressed in thousands of Canadian Dollars, unless otherwise
stated, except per share or option)
March 2019 Bought Deal
The
Group completed a bought deal offering of 17,968,750 shares at
US$0.64 per share for gross proceeds of US$11,500 ($15,337). The
Group incurred transaction costs of $1,236, which includes a 6%
commission paid to the underwriters, and raised net proceeds of
$14,101.
March 2019 Private Placement
The
Group completed a private placement of 3,769,476 shares at $0.86
(US$0.64) per share for gross proceeds of approximately $3,242
(US$2,412). After transaction costs of $112, the Group raised net
proceeds of $3,130.
February 2019 Conversion of Special Warrants
10,150,322 special
warrants issued in a private placement in were converted into
shares on a one-for-one basis for no additional consideration to
the Group. Additional transaction costs of $2 were incurred in the
period.
(c)
Share Purchase Warrants and Options not Issued under the
Group’s Incentive Plan
The
following reconciles outstanding warrants and non-employee options
(options that were not issued under the Group’s incentive
plan (see below)), each exercisable to acquire one common share,
for the three months ended March 31, 2020 and 2019
respectively:
Continuity
|
Cannon Point options
(note
1)
|
Mission
Gold warrants
(note
1)
|
|
Special
warrants
(note
3)
|
|
|
Beg.
Balance
|
327,700
|
3,964,701
|
27,074,399
|
10,150,322
|
–
|
41,517,122
|
Exercised
|
(36,300)
|
(49,685)
|
–
|
(10,150,322)
|
–
|
(10,236,307)
|
Bal.
Mar 31, 2019
|
291,400
|
3,915,016
|
27,074,399
|
–
|
–
|
31,280,815
|
Issued
|
–
|
–
|
466,666
|
–
|
244,000
|
710,666
|
Exercised
|
(68,150)
|
(150,390)
|
–
|
–
|
–
|
(218,540)
|
Bal.Dec
31, 2019 and Mar 31, 2020
|
223,250
|
3,764,626
|
27,541,065
|
–
|
244,000
|
31,772,941
|
Weighted Averages per
option/warrant
|
As
at Mar 31 2020
|
|
|
|
|
|
|
Exercise
price
|
$0.38
|
$0.55
|
$0.65
|
–
|
–
|
$0.64
|
Exercise price US
dollars
|
–
|
–
|
–
|
–
|
$US 0.41
|
$US 0.41
|
Remaining life in
years
|
2.15
|
0.27
|
1.19
|
–
|
0.23
|
1.08
|
As
at Dec 31, 2019
|
|
|
|
|
|
|
Exercise
price
|
$0.38
|
$0.55
|
$0.65
|
–
|
–
|
$0.64
|
Exercise price US
dollars
|
–
|
–
|
–
|
–
|
$US 0.41
|
$US 0.41
|
|
2.40
|
0.52
|
1.45
|
–
|
0.48
|
1.33
|
Northern Dynasty Minerals Ltd.
Notes to the Condensed Consolidated Interim Financial
Statements
For the
three months ended March 31, 2020 and 2019
(Unaudited
- Expressed in thousands of Canadian Dollars, unless otherwise
stated, except per share or option)
Notes
to tables:
1.
The Group exchanged
options and warrants to purchase shares in the Company, which were
outstanding in Cannon Point Resources Ltd. ("Cannon Point") and
Mission Gold Ltd. ("Mission Gold") on the acquisition of these
companies in October 2015 and December 2015
respectively.
2.
Warrants were
issued pursuant to the June 2016 prospectus financing, July 2016
private placement and and the 2019 non-revolving term loan credit
facility agreement (note 8).
3.
The special
warrants were issued in a private placement at an exercise price of
$0.83 (US$0.62) per special warrant in December 2018.
4.
The Broker Warrants
were issued to the underwriters pursuant to the June 2019
prospectus financing and expire June 24, 2020.
(d)
Share Purchase Option Compensation Plan
The
following reconciles the Group’s share purchase options
("options") issued and outstanding pursuant to the Group’s
incentive plan for the three months ended March 31, 2020 and
2019:
Continuity of
options
|
|
Weighted
average exercise price ($/option)
|
Beginning
Balance
|
24,606,732
|
1.03
|
Exercised
|
(155,000)
|
0.49
|
Balance
March 31, 2019
|
24,451,732
|
1.03
|
Granted
|
6,610,500
|
0.99
|
Expired
|
(4,235,000)
|
1.54
|
Exercised
|
(1,030,666)
|
0.54
|
Forfeited
|
(10,700)
|
0.82
|
Cancelled
|
(33,600)
|
1.10
|
Balance
December 31, 2019
|
25,752,266
|
0.96
|
Forfeited
|
(6,000)
|
0.99
|
|
25,746,266
|
0.96
|
For the
three months ended March 31, 2020, the Group recognized
share-based compensation ("SBC") of $447 (2019 – $651) for
options.
The
following table summarizes information on options as at
March 31, 2020:
Northern Dynasty Minerals Ltd.
Notes to the Condensed Consolidated Interim Financial
Statements
For the
three months ended March 31, 2020 and 2019
(Unaudited
- Expressed in thousands of Canadian Dollars, unless otherwise
stated, except per share or option)
|
|
|
|
|
|
Weighted
average remaining contractual life
(years)
|
|
Weighted
average remaining contractual life
(years)
|
0.48
|
450,000
|
0.96
|
450,000
|
0.96
|
0.49
|
5,105,000
|
1.28
|
5,105,000
|
1.28
|
0.50
|
2,316,666
|
0.56
|
2,316,666
|
0.56
|
0.76
|
5,538,000
|
2.62
|
5,538,000
|
2.62
|
0.99
|
6,604,500
|
4.50
|
3,305,250
|
4.50
|
1.75
|
5,732,100
|
1.85
|
5,732,100
|
1.85
|
Total and weighted
average contractual life per option
|
25,746,266
|
2.45
|
22,447,016
|
2.15
|
The
weighted average exercise price for exercisable options as at
March 31, 2020 was $0.95 (December 31, 2019 –
$0.95) per option.
(e)
Deferred Share Units ("DSUs")
As at
March 31, 2020, a total of 458,129 DSUs were issued and
outstanding (March 31 and December 31, 2019 – 458,129).
There have been no new grants of DSUs since 2017.
(f)
Restricted Share Units ("RSUs")
The
following reconciles RSUs outstanding for the three months ended
March 31, 2020 and 2019 respectively:
Continuity of
RSUs
|
|
Weighted average fair
value ($/RSU)
|
Beginning
Balance
|
196,753
|
1.27
|
Shares
issued
|
(85,294)
|
1.37
|
Withheld
|
(75,582)
|
1.14
|
Balance
March 31, 2019
|
35,877
|
2.23
|
Shares
issued
|
(25,792)
|
1.57
|
Withheld
|
(10,085)
|
1.27
|
Balance
December 31, 2019 and March 31, 2020
|
–
|
–
|
Northern Dynasty Minerals Ltd.
Notes to the Condensed Consolidated Interim Financial
Statements
For the
three months ended March 31, 2020 and 2019
(Unaudited
- Expressed in thousands of Canadian Dollars, unless otherwise
stated, except per share or option)
(g)
Foreign Currency Translation Reserve
Balance January 1,
2019
|
$38,686
|
Loss on translation
of foreign subsidiaries
|
(2,872)
|
Balance
March 31, 2019
|
35,814
|
Loss on translation
of foreign subsidiaries
|
(3,449)
|
Balance
December 31, 2019
|
32,365
|
Gain on translation
of foreign subsidiaries
|
10,773
|
|
$43,138
|
The
foreign currency translation reserve represents accumulated
exchange differences arising on the translation, into the
Group’s presentation currency (the Canadian dollar), of the
results of operations and net assets of the Group’s
subsidiaries with a US dollar functional currency.
As the
Broker Warrants (note 6(c)) have a US dollar exercise price,
they have been treated as cash-settled warrant liabilities. They
were recognized at fair value on date of issue as a financing cost
with subsequent changes in fair value being recognized in loss. The
following table reconciles the change in fair value of the warrant
liabilities:
|
|
|
Beginning
balance
|
$43
|
$–
|
Fair value on issue
recognized as a financing cost
|
–
|
50
|
Fair value gain on
revaluation recognized in loss for period
|
(24)
|
(7)
|
|
$19
|
$43
|
The
fair value at March 31, 2020 was estimated using the Black-Scholes
option-pricing model with the following assumptions:
Assumptions
|
|
Risk-free interest
rate
|
1.22%
|
Expected volatility
1
|
93.74%
|
Expected
life
|
0.2 years
|
Share price
used
|
$0.54
|
Expected dividend
yield
|
Nil
|
Note
1.
Expected volatility
is based on the historical and implied volatility of the share
price on the TSX.
Northern Dynasty Minerals Ltd.
Notes to the Condensed Consolidated Interim Financial
Statements
For the
three months ended March 31, 2020 and 2019
(Unaudited
- Expressed in thousands of Canadian Dollars, unless otherwise
stated, except per share or option)
|
|
|
|
|
|
Beginning
balance
|
$1,360
|
$–
|
Loans provided
during the period
|
183
|
2,317
|
Accrued
interest
|
9
|
14
|
Repayment of
loans
|
(1,364)
|
–
|
Loans transferred
to payables to related parties (note 9)
|
(188)
|
(971)
|
Total
|
$–
|
$1,360
|
|
|
|
In
November 2019, the Group entered into an unsecured non-revolving
term loan credit facility agreement (the "Credit Facility") with a
syndicate of lenders (the "Lenders"), two of whom are related
parties, of up to $3,500. Loans provided by the Lenders earned
interest at 10% per annum and were paid on repayment of the loans
(see below). Pursuant to the Credit Facility, the repayment of the
loans and accrued interest was to occur on a date that is the
earlier of i) May 25, 2020 and ii) the date the Group has
completed one or more equity or debt financings raising an
aggregate of US$20,000.
As
consideration for entering into the Credit Facility, the Group
issued to the Lenders, on a pro rata basis, 466,666 share purchase
warrants, each warrant exercisable into one share at the exercise
price of $0.75 per share until December 2, 2021, of which
153,333 warrants were issued to the two related
parties.
In
January and February 2020, the loans including accrued interest
were repaid to the Lenders. For the three months ended
March 31, 2020, the Group accrued interest of $9, of which $5
(December 2019 – $4) related to the two related parties, and
has been included in the finance expense in the loss for the
period.
9.
RELATED PARTY BALANCES AND TRANSACTIONS
The
components of transactions to related parties is as
follows:
|
|
|
Payables to
related parties
|
|
|
Key management
personnel (a)
|
|
|
Loans
payable
|
$–
|
$971
|
Loans payable
beginning balance
|
971
|
–
|
Provided by key
management personnel
|
183
|
967
|
Accrued
interest
|
5
|
4
|
Repayment of
loans
|
(1,159)
|
–
|
Other
|
87
|
–
|
Hunter Dickinson
Services Inc. (b)
|
226
|
124
|
Total
payables to related parties
|
$ 313
|
$1,095
|
Balances and
transactions between the Company and its subsidiaries, which are
related parties of the Company, have been eliminated on
consolidation. Details between the Group and other related parties
are disclosed below:
Northern Dynasty Minerals Ltd.
Notes to the Condensed Consolidated Interim Financial
Statements
For the
three months ended March 31, 2020 and 2019
(Unaudited
- Expressed in thousands of Canadian Dollars, unless otherwise
stated, except per share or option)
(a)
Transactions and Balances with Key Management Personnel
("KMP")
The
aggregate value of transactions with KMP, being the Group’s
directors, Chief Executive Officer ("CEO"), Chief Financial Officer
("CFO"), Company Secretary, Executive Vice President ("EVP"),
Environment and Sustainability, Vice President ("VP"), Corporate
Communications, VP, Engineering and VP, Public Affairs, and Pebble
Partnership ("PLP") senior management including the PLP CEO,
Executive VP ("EVP"), Public Affairs, Senior VP ("SVP"), Corporate
Affairs, SVP Engineering, VP, Permitting, Chief of Staff and Chair
of Pebble Mines Corp ("PMC Chair"), was as follows for the three
months ended March 31, 2020 and 2019:
Transactions
|
|
|
Compensation
|
|
|
Amounts paid and
payable to HDSI for services of KMP employedby HDSI 1
|
$614
|
$632
|
Amounts paid and
payable to KMP 2
|
1,217
|
1,176
|
Bonuses paid to KMP
3
|
264
|
310
|
Interest payable on
loans received from KMP 5
|
5
|
–
|
|
2,100
|
2,118
|
Share-based
compensation 4
|
297
|
537
|
|
$ 2,397
|
$ 2,655
|
Notes
to previous table:
1.
The Group’s
CEO, CFO, Board Chair and senior management, other than disclosed
in note 2 below, are employed by the Group through Hunter
Dickinson Services Inc. ("HDSI") (refer (b)).
2.
Represents
short-term employee benefits, including director’s fees paid
to the Group’s independent directors, and salaries paid and
payable to the PLP CEO, PMC Chair and PLP EVP, SVPs,
VP and Chief of Staff. The SVP Engineering is employed by the Group
through a wholly-owned US subsidiary of HDSI ("HDUS"). The Group
reimburses HDUS for costs incurred.
3.
In 2020, incentive
bonuses were paid to the PLP CEO, PLP SVP Corporate Affairs and PLP
Chief of Staff. In 2019, incentive bonuses were paid to the CFO,
EVP, Environment and Sustainability, VP, Corporate Communications,
SVP, Engineering, VP, Permitting, and to the Company
Secretary.
4.
Includes cost of
RSUs and share purchase options issued and/or vesting during the
respective periods.
5.
The Group’s
Board Chair and CEO advanced a total of $1,150 to the Group
pursuant to the Credit Facility (note 8), $967 in December
2019, and $183 in January 2020. The Group repaid the loans
including interest accrued in January 2020.
(b)
Transactions and Balances with other Related Parties
HDSI is
a private company that provides geological, engineering,
environmental, corporate development, financial, administrative and
management services to the Group and its subsidiaries at annually
set rates pursuant to a management services agreement. The annually
set rates also include a component of overhead costs such as office
rent, information technology services and general administrative
support services. HDSI also incurs third party costs on behalf of
the Group, which are reimbursed by the Group at cost. Several
directors and other key management personnel of HDSI, who are close
business associates, are also key management personnel of the
Group.
Northern Dynasty Minerals Ltd.
Notes to the Condensed Consolidated Interim Financial
Statements
For the
three months ended March 31, 2020 and 2019
(Unaudited
- Expressed in thousands of Canadian Dollars, unless otherwise
stated, except per share or option)
For the
three months ended March 31, 2020, and 2019, transactions with
HDSI were as follows:
Transactions
|
|
|
Services rendered by HDSI:
|
|
|
Technical
|
|
|
Engineering
|
$73
|
$369
|
Environmental
|
95
|
171
|
Socioeconomic
|
91
|
115
|
|
32
|
61
|
|
291
|
716
|
General
and administrative
|
|
|
Management,
corporate communications, secretarial, financial and
administration
|
539
|
659
|
Shareholder
communication
|
168
|
165
|
|
707
|
824
|
|
|
|
Total
for services rendered
|
998
|
1,540
|
|
|
|
Reimbursement
of third party expenses
|
|
|
Conferences and
travel
|
76
|
66
|
Insurance
|
51
|
–
|
Office supplies and
information technology
|
110
|
96
|
Total
reimbursed
|
237
|
162
|
|
|
|
Total
|
$1,235
|
$1,702
|
10.
TRADE AND OTHER PAYABLES
|
|
|
Current
liabilities
|
|
|
Falling
due within the year
|
|
|
Trade 1
|
$12,543
|
$12,401
|
Lease liabilities
2
|
278
|
286
|
Total
|
$12,821
|
$12,687
|
|
|
|
Non-current
liabilities
|
|
|
|
$941
|
$934
|
Total
|
$941
|
$ 934
|
Notes:
1.
At March 31,
2020 and December 31,2019, trade payables in current liabilities
includes legal fees due to legal counsel of US$5,274, due
December 24, 2020, and US$635 payable on completion of a
partnering transaction.
Northern Dynasty Minerals Ltd.
Notes to the Condensed Consolidated Interim Financial
Statements
For the
three months ended March 31, 2020 and 2019
(Unaudited
- Expressed in thousands of Canadian Dollars, unless otherwise
stated, except per share or option)
2.
Lease liabilities
relate to lease of offices, a copier,
site hangers, yard storage and one vehicle, which have remaining
lease terms of one to 122 months and interest rates of 7.5% –
10.5% over the term of the leases. During the three months
ended March 31, 2020, the Group recognized $30 (2019 –
$27) in interest expense on lease liabilities.
The
following table provides the schedule of undiscounted lease
liabilities as at March 31, 2020:
|
|
Less than one
year
|
$384
|
One to five
years
|
884
|
Later than 5
years
|
352
|
Total undiscounted
lease liabilities
|
$1,620
|
The
Group had short-term lease commitments of less than a year relating
to property leases totaling $93 as of January 1, 2020. During the
three months ended March 31, 2020, the Group incurred
short-term lease commitments of $62 and expensed $65.
11.
BASIC AND DILUTED LOSS PER SHARE
The
calculation of basic and diluted loss per share for the three
months ended March 31, 2020 and 2019 was based on the
following:
|
|
|
Loss
attributable to common shareholders
|
$10,715
|
$16,211
|
Weighted
average number of shares outstanding (000s)
|
434,012
|
326,902
|
For the
three months ended March 31, 2020, basic and diluted loss per
share does not include the effect of employee share purchase
options outstanding (2020 – 25,746,266, 2019 –
24,451,732), non-employee share purchase options and warrants (2020
– 31,772,941, 2019 – 31,280,815), DSUs (2020 –
458,129, 2019 – 458,129), and RSUs (2020 – nil, 2019
– 35,877), as they are anti-dilutive.
During
the three months ended March 31, 2020, the Group recorded
$3,833 (2019 – $3,728) in salaries and benefits, including
share-based payments of $447 (2019 – $651) and amounts paid
to HDSI for services provided to the Group by HDSI personnel
(note 9(b)).
13.
FINANCIAL RISK MANAGEMENT
The
Group 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:
Northern Dynasty Minerals Ltd.
Notes to the Condensed Consolidated Interim Financial
Statements
For the
three months ended March 31, 2020 and 2019
(Unaudited
- Expressed in thousands of Canadian Dollars, unless otherwise
stated, except per share or option)
Credit
risk is the risk of potential loss to the Group if a counterparty
to a financial instrument fails to meet its contractual
obligations. The Group’s credit risk is primarily
attributable to its liquid financial assets, including cash and
cash equivalents, restricted cash and amounts receivable. The Group
limits the exposure to credit risk by only investing its cash and
cash equivalents and restricted cash with high-credit quality
financial institutions in business and saving accounts, guaranteed
investment certificates, in government treasury bills, low risk
corporate bonds and money market funds which are available on
demand by the Group when required. Amounts receivable (note 4)
exclude receivable balances with government agencies and refundable
deposits. The Group’s maximum exposure at the following
reported dates was:
|
|
|
Exposure
|
|
|
Amounts
receivable
|
$128
|
$239
|
Restricted
cash
|
874
|
805
|
Cash and cash
equivalents
|
7,267
|
14,038
|
Total
exposure
|
$ 8,269
|
$15,082
|
Liquidity risk is
the risk that the Group will not be able to meet its financial
obligations when they become due. The Group ensures, as far as
reasonably possible, it will have sufficient capital in order to
meet short to medium term business requirements, after taking into
account cash flows from operations and the Group’s holdings
of cash and cash equivalents and restricted cash, where applicable.
The Group however, has noted material uncertainty that raises
substantial doubt about the Group’s ability to continue as a
going concern (note 1) notwithstanding that it has been
successful in the past in raising funds when needed. The
Group’s cash and cash equivalents at the reporting date were
invested in business and savings accounts
(note 5(a)).
The
Group’s financial liabilities are comprised of current trade
and other payables (note 10) and payables to related parties
(note 9), which are due for payment within 12 months from the
reporting date, and non-current trade payables, which are due for
payment more than 12 months from the reporting date. The carrying
amounts of the Group’s financial liabilities represent the
Group’s contractual obligations.
(c)
Foreign Exchange Risk
The
Company is subject to both currency transaction risk and currency
translation risk: 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 operating results and financial position of the
Group are reported in Canadian dollars in the Group’s
consolidated financial statements. As a result, the fluctuation of
the US dollar in relation to the Canadian dollar will have an
impact upon the losses incurred by the Group as well as the value
of the Group’s assets and the amount of shareholders’
equity. The Group has not entered into any agreements or purchased
any instruments to hedge possible currency risks.
The
exposure of the Group's US dollar-denominated financial assets and
liabilities to foreign exchange risk at the following reported
dates was:
Northern Dynasty Minerals Ltd.
Notes to the Condensed Consolidated Interim Financial
Statements
For the
three months ended March 31, 2020 and 2019
(Unaudited
- Expressed in thousands of Canadian Dollars, unless otherwise
stated, except per share or option)
|
|
|
|
|
|
Financial assets:
|
|
|
Amounts
receivable
|
$270
|
$263
|
Cash and cash
equivalents and restricted cash
|
5,094
|
14,090
|
|
5,364
|
14,353
|
Financial liabilities:
|
|
|
Non-current trade
payables
|
(941)
|
(932)
|
Warrant
liabilities
|
(19)
|
(43)
|
Current trade and
other payables
|
(12,101)
|
(12,426)
|
Payables to related
parties
|
(115)
|
(24)
|
|
(13,176)
|
(13,425)
|
Net
financial liabilities exposed to foreign currency risk
|
$ (7,812)
|
$ (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 $781
(December 31, 2019 – $93) in the reported period. This
sensitivity analysis includes only outstanding foreign currency
denominated monetary items.
The
Group is subject to interest rate cash flow risk with respect to
its investments in cash and cash equivalents. The Group’s
policy is to invest cash at fixed rates of interest and cash
reserves are to be maintained in cash and cash equivalents or
short-term low risk investments in order to maintain liquidity,
while achieving a satisfactory return for shareholders.
Fluctuations in interest rates when cash and cash equivalents
mature impact interest income earned.
Assuming that all
other variables remain constant, a 100 basis points change
representing a 1% increase or decrease in interest rates would have
resulted in a decrease or increase in loss of $27 (2019 –
$43) for the three month period.
The
Group'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 Group consists of
equity, comprising share capital and reserves, net of accumulated
deficit. There were no changes in the Group's approach to capital
management during the period. The Group is not subject to any
externally imposed capital requirements.
The
fair value of the Group’s financial assets and liabilities
approximates the carrying amount.
Financial
instruments measured at fair value are classified into one of three
levels in the fair value hierarchy according to the relative
reliability of the inputs used to estimate the fair values. The
three levels of the fair value hierarchy are:
●
Level 1 –
Unadjusted quoted prices in active markets for identical assets or
liabilities;
●
Level 2 –
Inputs other than quoted prices that are observable for the asset
or liability either directly or indirectly; and
●
Level 3 –
Inputs that are not based on observable market data.
Northern Dynasty Minerals Ltd.
Notes to the Condensed Consolidated Interim Financial
Statements
For the
three months ended March 31, 2020 and 2019
(Unaudited
- Expressed in thousands of Canadian Dollars, unless otherwise
stated, except per share or option)
The
fair value hierarchy gives the highest priority to Level 1 inputs
and the lowest priority to Level 3 inputs. Fair value measurements,
which are determined by using valuation techniques, are classified
in their entirety as either Level 2 or Level 3 based on the lowest
level input that is significant to the measurement.
The
fair value measurement of the warrant liabilities (note 7)
until their expiry are categorized within Level 2 of the hierarchy
as it is exposed to market risk as they employ the quoted market
price of shares and foreign exchange rates.
14.
COMMITMENTS AND CONTINGENCIES
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, specifically the
Central District of California (Los Angeles) and the Southern
District of New York (New York City). The cases are captioned:
Diaz v. Northern Dynasty Minerals
Ltd. et al, Case No. 17-cv-01241 (C.D. Cal.), Kirwin v. Northern
Dynasty Minerals Ltd. et al, Case No. 17-cv-01238 (S.D.N.Y.) and
Schubert v. Northern Dynasty
Minerals, Ltd., et al., Case No. 1:17-CV-02437 (S.D.N.Y.).
The complaints relied on the claims made in the Kerrisdale Report
and alleged damages to a class of investors who purchased shares of
the Company prior to the publication of the Kerrisdale Report and
allege liability for losses pursuant to Section 10(b) of the
Exchange Act of 1934 and SEC Rule 10b-5 thereunder, as well as
control person liability against the individual defendants pursuant
to Section 20(a) of the Exchange Act.
The
plaintiffs in both the Kirwin and Schubert actions voluntarily dismissed
their claims without prejudice. The plaintiffs in the Diaz action continued to litigate and
filed an amended complaint. The Company filed a motion to dismiss
the amended complaint in the Diaz action, which the plaintiffs
opposed. In April 2018, the United States District Court for the
Central District of California (the "California District Court")
granted the Company’s motion and dismissed the
plaintiffs’ amended complaint in full, noting that its
reliance on the sources in the Kerrisdale Report was an
insufficient basis to allege securities fraud. The Court allowed
the plaintiffs an opportunity to amend their complaint, which they
did in June 2018. The Company again moved to dismiss the new
complaint, and briefing on the motion concluded in November
2018.
On
February 22, 2019, the California District Court again dismissed
all of the securities class action claims brought against the
Company and certain of its officers and directors in the
Diaz action, this time
without leave to amend. The Court ruled in favor of the Company and
its officers and directors on all claims and ordered the case
closed.
In
March 2019, the Diaz
plaintiffs filed a notice of an appeal of the district
court’s dismissal order, and their appeal was filed with the
Ninth Circuit Court of Appeals, in California, in June 2019. The
Company filed its response in August 2019 and the plaintiffs
submitted their reply in October 2019, closing the briefing before
the appellate court. Subsequent to the reporting period, in April
2020, the appellate court decided that a hearing was unnecessary
and, on May 8, 2020, the three appellate judge panel issued a
memorandum decision affirming the district court’s dismissal
of the plaintiffs’ claims. The plaintiffs may request a
rehearing by the appellate court in the coming weeks, and if so,
the Company will continue to defend itself vigorously in this
action.
(b)
Short-term lease commitments
As of
March 31, 2020, the Group has $100 in short-term lease
commitments. These leases have fixed monthly payments for the
remaining term.
Northern Dynasty Minerals Ltd.
Notes to the Condensed Consolidated Interim Financial
Statements
For the
three months ended March 31, 2020 and 2019
(Unaudited
- Expressed in thousands of Canadian Dollars, unless otherwise
stated, except per share or option)
(c)
Pipeline Right-of-Way Bond Commitment
The
Group posted a bond of US$300 with the Alaskan regulatory
authorities for a performance guarantee related to any potential
reclamation liability as a condition for a pipeline right-of-way to
a subsidiary of the Pebble Partnership, the Pebble Pipeline
Corporation. The Group is liable to the surety provider for any
funds drawn by the Alaskan regulatory authorities.
15.
EVENTS AFTER THE REPORTING DATE
On May
13, 2020, the Group closed an underwritten public offering of
14,375,000 shares of the Company at a price of $0.70 per share for
gross proceeds of approximately $10,063. 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 bookrunner, and a syndicate of underwriters
including BMO Nesbitt Burns Inc., H.C. Wainwright & Co., LLC
and TD Securities Inc. (collectively, the "Underwriters"). The
Underwriters were paid a 5% cash commission.
On May
13, 2020, the Group completed a non-brokered private placement of
10,357,143 shares at $0.70 per share for gross proceeds of $7,250.
The shares are subject to applicable resale restrictions, including
a four-month hold period under Canadian securities
legislation.
Exhibit 99.2
MANAGEMENT'S DISCUSSION AND ANALYSIS
THREE MONTHS ENDED MARCH 31, 2020
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Three months ended March 31, 2020
Table of Contents
1.1
|
Date
|
|
|
3
|
|
|
|
|
|
1.2
|
Overview
|
|
|
6
|
|
|
|
|
|
|
1.2.1
Pebble
Project
|
8
|
|
|
|
|
|
|
1.2.1.1
Project
Background and Status
|
8
|
|
|
|
|
|
|
1.2.1.2
Current
Technical Programs
|
11
|
|
|
|
|
|
|
1.2.2
Legal
Matters
|
13
|
|
|
|
|
|
|
1.2.3
Financings
|
14
|
|
|
|
|
|
|
1.2.4
Market
Trends
|
15
|
|
|
|
|
|
1.3
|
Selected Annual Information
|
17
|
|
|
|
|
|
1.4
|
Summary and Discussion of Quarterly Results
|
18
|
|
|
|
|
|
1.5
|
Results of Operations
|
19
|
|
|
|
|
|
1.6
|
Liquidity
|
|
|
21
|
|
|
|
|
|
1.7
|
Capital Resources
|
|
23
|
|
|
|
|
|
1.8
|
Off-Balance Sheet Arrangements
|
23
|
|
|
|
|
|
1.9
|
Transactions with Related Parties
|
23
|
|
|
|
|
|
1.10
|
Fourth Quarter
|
|
26
|
|
|
|
|
|
1.11
|
Proposed Transactions
|
26
|
|
|
|
|
|
1.12
|
Critical Accounting Estimates
|
26
|
|
|
|
|
|
1.13
|
Changes in Accounting Policies including Initial
Adoption
|
26
|
|
|
|
|
|
1.14
|
Financial Instruments and Other Instruments
|
26
|
|
|
|
|
|
1.15
|
Other MD&A Requirements
|
28
|
|
|
|
|
|
|
1.15.1
Disclosure
of Outstanding Share Data
|
28
|
|
|
|
|
|
|
1.15.2
Disclosure
Controls and Procedures
|
29
|
|
|
|
|
|
|
1.15.3
Management’s
Report on Internal Control over Financial Reporting
(“ICFR”)
|
29
|
|
|
|
|
|
|
1.15.4
Limitations
of Controls and Procedures
|
29
|
|
|
|
|
|
|
1.15.5
Risk
Factors
|
30
|
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Three months ended March 31, 2020
This
Management’s Discussion and Analysis ("MD&A") should be read in conjunction
with the unaudited consolidated interim financial statements (the
"Interim Financial
Statements") of Northern Dynasty Minerals Ltd.
("Northern Dynasty" or the
"Company") for the three
months ended March 31, 2020, and the Company’s
audited consolidated financial Statements for the year ended
December 31, 2019 (the "2019 Financial Statements")
and the annual MD&A for the same period, as publicly filed
under the Company’s profile on SEDAR at www.sedar.com.
The
Company reports in accordance with International Financial
Reporting Standards as issued by the International Accounting
Standards Board ("IASB") and
interpretations of the IFRS Interpretations Committee
(together, "IFRS"). The
following disclosure and associated Financial Statements are
presented in accordance with IFRS. This MD&A is prepared as of
May 14, 2020.
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:
●
the uncertainties
with respect to the effects of COVID-19;
●
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 timing of the
completion of the United States Army Corps of Engineers
("USACE") Environmental
Statement ("EIS") and the
issuance of the Record of Decision (“ROD”) by the USACE;
●
our ability to
successfully apply for and obtain the federal permits and state
permits that we will be required to obtain for the Pebble Project,
including under the Clean Water Act ("CWA") and the National Environmental
Policy Act ("NEPA"), and
relevant legislation;
●
our plan of
operations, including our plans to carry out and finance
exploration and development activities and for working capital
purposes and our expectations regarding our cash and working
capital requirements;
●
our ability to
raise capital for the exploration, permitting and development
activities and meet our working capital purposes;
●
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; 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
Three months ended March 31, 2020
|
|
|
|
Key
assumptions upon which the Company’s forward-looking
information are based include:
●
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
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 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 and silver 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 minimal 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:
●
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;
●
the USACE may be
delayed in completing the EIS and issuing its ROD;
●
government efforts
to curtail the COVID-19 pandemic may delay the release by the USACE
of the EIS and/or the issuances of its ROD, and may delay the
Company in completion of its work relating to this permitting
process
●
our ability to
obtain funding for working capital and other coporate purposes
associated with advancement of the Pebble Project;
●
an inability to
complete a partnering transaction on terms satisfactory to the
Company;
●
an inability to
continue to fund exploration and development activities and other
operating costs;
●
the highly cyclical
and speculative nature of the mineral resource exploration
business;
●
the pre-development
stage economic viability and technical uncertainties of the Pebble
Project and the lack of known reserves on the Pebble
Project;
●
an inability to
recover even the financial statement carrying values of the Pebble
Project if we cease to continue on a going concern
basis;
●
the potential for
loss of the services of key executive officers;
●
a history of, and
expectation of further, financial losses from operations impacting
our ability to continue on a going concern basis;
●
the volatility of
copper, gold, molybdenum and silver prices and share prices of
mining companies;
|
|
|
|
|
Northern Dynasty Minerals
Ltd.
Management's Discussion And
Analysis
Three months ended March 31, 2020
|
|
|
|
●
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;
●
the possible
inability to insure our operations against all risks;
●
the highly
competitive nature of the mining business;
●
our ability to
obtain funding for working capital and other purposes;
●
the potential
equity dilution to current shareholders from future equity
financings; 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.
The Company reviews its forward-looking statements on an ongoing
basis and updates this information when circumstances require
it.
|
|
|
|
|
|
|
|
|
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, effective
February 25, 2019 ("The SEC Modernization
Rules"). The SEC Modernization
Rules have replaced historical property disclosure requirements for
mining registrants that were included in SEC Industry Guide 7,
which will be rescinded. 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 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. 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 Minerals
Ltd.
Management's Discussion And Analysis
Three months ended March 31, 2020
1.2
Overview
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 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. The current estimate of these
mineral resources1 at a 0.30% copper equivalent cut-off
grade comprise:
●
6.5 billion tonnes
in the combined Measured and
Indicated2 categories at a grade of 0.40% copper,
0.34 g/t gold, 240 ppm molybdenum and 1.7 g/t silver, containing 57
billion pounds of copper, 71 million ounces of gold, 3.4
billion pounds of molybdenum and 345 million ounces of silver;
and
●
4.5 billion tonnes
in the Inferred category at
a grade of 0.25% copper, 0.25 g/t gold, 226 ppm molybdenum and 1.2
g/t silver, containing 25 billion pounds of copper, 36 million
ounces of gold, 2.2 billion pounds of molybdenum and 170
million ounces of silver.
The
Company and the Pebble Partnership submitted a 404 wetlands permit
application under the CWA for the Pebble Project to the USACE on
December 22, 2017, initiating federal permitting under the NEPA and
the development of an EIS.
Much of
the work by the Company through the Pebble Partnership since that
time has been focused on providing support to the federal EIS
permitting process and engagement and consultation with project
stakeholders to share information and gather feedback on the Pebble
Project, its potential effects and proposed mitigation. Corporate
activities were also 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.
Environmental Assessment Process is Advancing
The
USACE accepted the 404 wetlands permit application for the Pebble
Project as complete in January 2018, and selected AECOM, a leading
global engineering firm, as third-party contractor for the EIS
process in February 2018. The EIS process for Pebble has progressed
as forecast in the USACE timeline, with USACE advancing through the
scoping phase in 2018 and delivering the Draft EIS in the first
quarter of 2019.
1 Mineral resources at
December 2017 as estimated by David Gaunt, PGeo., a qualified
person who is not independent of Northern Dynasty. The resource
estimate is constrained by a conceptual pit that was developed
using a Lerchs-Grossman algorithm using metal prices (USD) of
$1,540/oz for gold, $3.63/lb for copper, $12.36/lb for molybdenum
and $20/oz for silver. A 0.30% copper equivalent ("CuEQ") cut-off
is considered to be comparable to those used for porphyry deposit
open pit mining operations in the Americas. CuEQ calculations use
metal prices (USD) of $1.85/lb for copper, $902/oz for gold and
$12.50/lb for molybdenum, and recoveries of 85% for copper 69.6%
for gold, and 77.8% for molybdenum in the Pebble West zone and
89.3% for copper, 76.8% for gold, and 83.7% for molybdenum in the
Pebble East zone. Contained metal values are based on 100%
recoveries. All mineral resource estimates, cut-offs and
metallurgical recoveries are subject to change as a consequence of
more detailed analyses that would be required in pre-feasibility
and feasibility studies. For additional details, see the
Company’s 2018 Annual
Information Form and 2018
Technical Report, both of which are filed under Northern
Dynasty’s profile at www.sedar.com.
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three months ended March 31, 2020
The
Draft EIS shows:
●
the Pebble
application to be complete, with no substantive data
gaps;
●
there were no new
environmental issues identified; and
●
there were no
impacts identified that cannot be mitigated.
The
USACE initiated a public comment period on the Draft EIS in March,
which closed on July 2, 2019. Public hearings were undertaken in
nine Alaska communities, including seven in the Bristol Bay region
as well as Homer and Anchorage. As part of the EIS preparation
process, USACE is undertaking a comprehensive alternatives
assessment to consider a broad range of development alternatives.
No preferred alternative was identified in the Draft
EIS, which allows USACE to
incorporate public input on various alternatives presented in the
Draft EIS during the
public review process. Northern Dynasty, through the Pebble
Partnership, also continues to advance engineering studies.
Northern Dynasty cautions that the current Project Description may
not be the ultimate development plan for the Pebble Project and
that a final project design has not been selected.
In
2020, the USACE and its consultants continued to advance the
environmental assessment process for the Pebble Project. The USACE
is currently forecasting publication of the Final Environmental
Impact Statement ("Final
EIS") and completion of the ROD in mid-2020. In February
2020, the USACE circulated the preliminary Final EIS to co-operating agencies for
review.
From
2001, when Northern Dynasty’s involvement at the Pebble
Project began, to March 31, 2020, a total of $947 million
(US$859 million) has been invested to advance the
project.3
Corporate
As at
March 31, 2020, the Company had $7.3 million in cash
and cash equivalents available for its operating requirements.
During the quarter, the Company completed private placements for
sale of common shares for gross proceeds of $6.7 million and
repaid $2.5 million of funds drawn pursuant to the unsecred
non-revolving term credit facility agreement that it had entered
into with certain parties including two related parties, in
November 2019 (the "Credit
Facility"). As at March 31, 2020, the Company had a working
capital deficiency of $5.2 million. In May 2020, the Company
completed an underwritten public offering and a private placement
of common shares for gross proceeds of approximately
$17.3 million. The Company has prioritized the allocation of
the available financial resources in order to meet key corporate
and Pebble Project expenditure requirements in the near term
however, in order to advance its programs and continue to meet
working capital requirements, additional financing will be
required. 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.
3 Of this,
approximately $595 million (US$573 million) was provided by a
wholly-owned subsidiary of Anglo American plc, which participated
in the Pebble Partnership from 2007 to 2013, and the remainder was
financed by Northern Dynasty. A major part of the 2007-2013
expenditures were on exploration, resource estimation,
environmental data collection and technical studies, with a
significant portion spent on engineering of possible mine
development models, as well as related infrastructure, power and
transportation systems. The mine-site and infrastructure studies
completed are not necessarily representative of management’s
current understanding of the most likely development scenario for
the project, and accordingly, Northern Dynasty is uncertain whether
it can realize significant value from this prior work.
Environmental baseline studies and data, as well as geological and
exploration information, remain important information available to
the Company to advance the project.
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three months ended March 31, 2020
1.2.1 Pebble
Project
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
favorable for successful mine site and infrastructure
development.
1.2.1.1 Project
Background and Status
The
Pebble deposit was discovered in 1987 by a prior operator,
which by 1997 had developed an initial outline of the
deposit.
Northern
Dynasty acquired the right to earn an interest in Pebble in 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 was completed in 2011, which
provided 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.
In
February 2014, the US Environmental Protection Agency
("EPA") announced a
pre-emptive regulatory action 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, suspended by former EPA Administrator,
Scott Pruitt, in January 2018, and then re-initiated by the EPA in
late June 2019. The Proposed Determination was ultimately withdrawn
in July 2019.
Permitting
In the
latter part of 2017, a project design based on a smaller mine
concept was developed for the Pebble Project, as described in the
Project Description which is part of the application for a
CWA 404 permit. The CWA 404 permit application was
submitted to the USACE on December 22, 2017, initiating federal
permitting 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 NEPA
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.
●
On February 20,
2019, the USACE posted the draft EIS (the "Draft EIS") on its website, then
initiated a public comment process on the Draft EIS, which was
completed on July 2, 2019.
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three months ended March 31, 2020
The
Project Description and other relevant documents are available on
the USACE website at https://pebbleprojecteis.com.
As
mentioned in the Overview,
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, which are reflected
in the Draft EIS.
The
Draft EIS envisages the project developed as an open pit mine and
processing facility with supporting infrastructure, a significantly
smaller development footprint than previously envisaged, and other
additional environmental safeguards as described in the Project
Description. It assesses the access route described in the Project
Description as well as other alternatives.
The
current Project Description proposes that the Pebble deposit would
be developed as a 180,000-ton per day open pit mine with associated
on and off-site infrastructure that includes a 270-megawatt power
plant located at the mine site; a transportation corridor from the
mine site to a permanent, year-round port facility on the west side
of Cook Inlet; and a natural gas pipeline from the Kenai Peninsula
to the Project site.
Following
four years of construction activity, the proposed Pebble mine will
operate for a period of 20 years as a conventional
drill-blast-shovel operation. The mining rate will average 70
million tons per year, with 66 million tons of mineralized material
going through the mill each year (180,000 tons per day, a total of
1.3 billion tons), with a low life-of-mine waste to ore ratio of
0.12:1. Forecast average annual production would be approximately
613,000 tons of copper-gold concentrate containing approximately
318 million lb copper, 362,000 oz gold and 1.8 million oz of
silver; and approximately 15,000 tons of molybdenum concentrate
containing approximately 14 million lb of molybdenum.
In
response to stakeholder concerns, the current mine plan proposal
has a smaller footprint, consolidating major site infrastructure in
a single drainage. Other new environmental safeguards
include:
●
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
A
preliminary version of the Final EIS (known as the "PFEIS") was completed in February 2020
and distributed for comment and review to cooperating agencies and
to tribes participating in the process. The PFEIS includes
evaluation of various alternatives to the proposed project so that
the environmental impacts of the alternatives can be
compared.
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three months ended March 31, 2020
A copy
of the PFEIS Executive Summary was made public by certain media
outlets in February 2020. The draft document and the project
proposed in it, is subject to input from cooperating agencies,
which will be considered prior to finalizing the EIS. In addition,
once published, the USACE will receive public comments on the Final
EIS. As a result, the Company cautions that the plan described
above may not be the final development plan for Pebble. A final
development design has not been selected.
During
the fourth quarter of 2019, the Company advanced its Compensatory
Mitigation Plan for the Pebble Project to address impacts to
wetlands as required by the Clean Water Act. This plan was
submitted to the USACE during the current quarter. Five projects
were delineated – sewer system improvements in three
communities near the project, removal of marine debris, which poses
hazards to wildlife along the beach near the site of the proposed
port at Amakdedori, and culvert upgrades to remove Pacific salmon
fish passage barriers.
The
proposed project uses 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 comprehensive EIS review process
under NEPA.
Right-of-Way Agreements
The
Pebble Partnership carries out an active program of engagement and
consultation with stakeholders in the area of the Pebble Project in
parallel with its technical work, and includes discussions to
secure stakeholder agreements to support the project’s
development. Right-of-way agreements established to date are
described below. These agreements cover land access routes for
infrastructure alternatives proposed in the EIS
documents.
Agreement with Alaska Peninsula Corporation
In
November 2018, the Pebble Partnership finalized a Right-of-Way
Agreement with Alaska Peninsula Corporation ("APC"), securing the right to use
defined portions of APC lands for the construction and operation of
transportation infrastructure associated with the Pebble Project.
APC is an Alaska Native village corporation with extensive land
holdings proximal to the Pebble site.
The
Right-of-Way Agreement secures access 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 APC lands
addressed in the Right-of-Way Agreement mirror the transportation
corridor alternatives identified in the Project Description as
submitted to the USACE to initiate the federal EIS permitting
process and was also identified by the USACE as a potential
transportation corridor in the Draft EIS that was released in
February 2019. It includes land south of Lake Iliamna to link a
port site on Cook Inlet to a ferry landing site west of the APC
village of Kohkanok, as well as land north of Lake Iliamna to link
a ferry landing site west of the APC village of Newhalen to the
site of the proposed Pebble mine.
The
agreement includes the following provisions:
●
The Pebble
Partnership will make annual toll payments to APC, and pay other
fees prior to and during project construction and
operation;
●
APC will be granted
‘Preferred Contractor’ status at Pebble, which provides
a preferential opportunity to bid on Pebble-related contracts
located on APC lands; and
●
The two parties
have agreed to negotiate a profit sharing agreement that will
ensure APC and its 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 APC, its 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
the villages of Newhalen and Kokhanok will allow local residents to
access jobs at the Pebble mine site, port site and ferry landing
sites.
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three months ended March 31, 2020
Agreement with Iliamna Natives Limited
In May
2019, the Pebble Partnership finalized a Right-of-Way Agreement
with Iliamna Natives Limited ("INL"), securing the right to use defined
portions of INL lands for the construction and operation of
transportation infrastructure associated with the Pebble
Project.
The INL
lands addressed in the Right-of-Way Agreement reflect one of the
transportation corridor alternatives identified in the Draft EIS.
Specifically, it includes a ferry landing site east of the village
of Iliamna at Eagle Bay, as well as road and pipeline corridors and
associated material borrow sites to link the Pebble mine site to
the Iliamna airport, and to the Eagle Bay ferry landing
site.
To
secure its right to use defined portions of INL land for the
construction and operation of transportation infrastructure, the
Pebble Partnership will make annual toll payments to INL, and pay
other fees prior to and during project construction and operations.
In addition, INL will be granted ‘Preferred Contractor’
status at Pebble, which provides a preferential opportunity to bid
on Pebble-related contracts located on INL lands.
The
transportation infrastructure associated with the proposed Pebble
mine is expected to benefit INL, its shareholders and local
residents of Iliamna through access to lower costs for power,
equipment and supplies, as well as enhanced economic activity in
the region. Roads connecting to the villages of Iliamna and
Newhalen will allow local residents to access jobs at the Pebble
mine site and associated infrastructure sites.
The two
parties have also agreed to negotiate a profit sharing agreement
that will ensure INL and its shareholders benefit directly from the
profits generated by mining activity in the region.
1.2.1.2
Current Technical Programs
In
2020, technical programs will continue to be focused on support of
the EIS process and federal permitting of the Pebble Project.
Activities in this regard are expected to include completing a
comprehensive review of the Final EIS, providing responses to
Request for Information from the USACE, and planning and
implementing engineering and environmental field studies and data
collection programs. In addition, the Company will continue to
engage and consult with project stakeholders to share information
and gather feedback on the Pebble Project.
Geophysical
and geotechnical studies for a right-of way survey of the marine
portion of the pipeline route, designed to provide the data
required by federal regulators to support the application for the
natural gas pipeline right-of-way and port construction were
completed in 2019. Additional work was also undertaken to support
minor modifications to the road route in response to information
collected from environmental and cultural surveys.
Environmental and Socioeconomic
Environmental Baseline Document and Supplemental Environmental
Baseline Document
The
27,000-page Environmental Baseline Document ("EBD") for the Pebble Project was
released to the public in January 2012. The purpose of the EBD and
Supplemental EBD (see further details below) is to provide the
public, regulatory agencies and the Pebble Partnership with a
detailed compendium of pre-development environmental and
socioeconomic conditions in the project area. The EBD is based on
extensive environmental baseline data that has been collected since
2004 with the goal to design and plan a project that protects clean
water, healthy fish and wildlife populations, and other natural
resources in the region. The work involved more than 40 respected
independent research firms, utilizing numerous scientific experts
and engineering groups, laboratories and support services.
Researchers were selected for their specific areas of expertise and
Alaskan experience, with cooperating government agencies
participating in several studies. Information for the EBD was
gathered through field studies, laboratory tests, review of
government records and other third-party sources, and interviews
with Alaska residents.
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three months ended March 31, 2020
The
2012 EBD, available at http://pebbleresearch.com/,
characterizes a broad range of environmental and social conditions
in southwest Alaska – including climate, water quality,
wetlands, fish and aquatic habitat, wildlife, land and water use,
socioeconomics and subsistence activities during the period
2004-2008 and from some disciplines in 2009. Data from the
2009-2013 period was compiled into the Supplemental EBD (2009 to
2013), and transmitted to USACE. The full EBD, as well as all
Supplemental EBD chapters that were substantively updated since the
original EBD was published in 2012,
are available on the USACE Pebble EIS website. Wetlands, aquatic
resources, marine studies and wildlife monitoring data collected in
2019 has also been provided to USACE.
Environmental
site work for 2020 will encompass ongoing environmental monitoring
and collection of additional cultural data to support the EIS
process, and maintenance of existing stream gauges and weather
stations.
Community Engagement
Pebble
Project technical programs are supported by stakeholder engagement
activities 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, 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
Three months ended March 31, 2020
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 later filed
against the Company and certain of its current officers and
directors in US federal courts, specifically the Central District
of California (Los Angeles) and the Southern District of New York
(New York City). The cases were
captioned: Diaz v. Northern Dynasty
Minerals Ltd. et al, Case No. 17-cv-01241 (C.D. Cal.); Kirwin v.
Northern Dynasty Minerals Ltd. et al, Case No. 17-cv-01238
(S.D.N.Y.); and Schubert v. Northern Dynasty Minerals, Ltd., et
al., Case No. 1:17-CV-02437 (S.D.N.Y.). The complaints relied on claims made in
the Kerrisdale Report and alleged damages to a class of investors
who purchased shares of the Company prior to the publication of the
Kerrisdale Report and alleged liability for losses pursuant to
Section 10(b) of the Exchange Act of 1934 and SEC Rule 10b-5
thereunder, as well as control person liability against the
individual defendants pursuant to Section 20(a) of the Exchange
Act.
The
plaintiffs in both the Kirwin and Schubert actions voluntarily dismissed
their claims without prejudice. The plaintiffs in the Diaz action continued to litigate and
filed an amended complaint. The Company filed a motion to dismiss
the amended complaint in the Diaz action, which the plaintiffs
opposed. In April 2018, the United States District Court for the
Central District of California (the "California District Court")
granted the Company's motion and dismissed the plaintiffs’
amended complaint in full, noting that its reliance on the sources
in the Kerrisdale Report was an insufficient basis to allege
securities fraud. The Court allowed the plaintiffs an opportunity
to amend their complaint, which they did in June 2018. The Company
again moved to dismiss the new complaint, and briefing on the
motion concluded in November 2018.
On
February 22, 2019, the California District Court again dismissed
all of the securities class action claims brought against the
Company and certain of its officers and directors in the
Diaz action, this time
without leave to amend. The Court ruled in favor of the Company and
its officers and directors on all claims and ordered the case
closed.
In
March 2019, the Diaz
plaintiffs filed notice of an appeal of the district court's
dismissal order, and their appeal was filed with the Ninth Circuit
Court of Appeals, in California, in June 2019. The Company filed
its response in August 2019 and the plaintiffs submitted their
reply in October 2019, closing the briefing before the appellate
court. In April 2020, the appellate court decided that a hearing
was unnecessary and, on May 8, 2020, the three appellate judge
panel issued a memorandum decision affirming the district court's
dismissal of the plaintiffs' claims. The plaintiffs may request a
rehearing by the appellate court in the coming weeks and, if so,
the Company will continue to defend itself vigorously in this
action.
Underwritten Offering
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 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 “Underwriters”). The Underwriters
were paid a 5% cash commission .
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.
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three months ended March 31, 2020
Private Placements
May 2020
On May
13, 2020, the Company completed a non-brokered private placement of
10,357,143 common shares for gross proceeds of $7.25 million.
The common shares were issued at $0.70 per share. Common shares
issued pursuant to the private placement are subject to applicable
resale restrictions, including a four month hold period under
Canadian securities legislation.
January 2020
In
January 2020, the Company completed a non-brokered private
placements 13,688,823 common shares of the Company for gross
proceeds of approximately US$5.1 million ($6.7 million). The common
shares were issued at $0.49 (US$0.37) per share. Common shares
issued pursuant to the private placements are subject to applicable
resale restrictions, including a four-month hold under Canadian
securities legislation.
Use of proceeds
The
proceeds from the May 2020 financings are anticipated to be used
for (i) operational expenditures, including engineering,
environmental, permitting and evaluation expenses associated with
the Pebble Project and the advancement of completion of
USACE’s EIS, (ii) ongoing outreach and engagement with
political and regulatory offices in the Alaska state and US federal
government, Alaska Native partners and broader regional and
state-wide stakeholder groups, and (iii) for general corporate
purposes such as payment of current laibilitites associated with
the Company’s working capital deficiency.
The
proceeds from the January 2020 private placements together with the
2019 financings were used to advance the Company’s business
objectives and milestones that encompassed the above which remain
ongoing due to the pending release by the USACE of the EIS and the
issuance of its ROD. The Company also repaid $2.5 million of
funds drawn from the Credit Facility.
It
remains one of the Company’s goals to partner the Pebble
Project.
1.2.4 Market
Trends
In
2020, metal prices are being impacted significantly by the downturn
in economic conditions related to the COVID-19
pandemic.
Copper
prices were variable in 2015 and 2016, and the average annual price
decreased. Prices were variable to improving in 2017 resulting in
an increase in the average annual price increase. 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 have rebounded somewhat since
that time. A recent closing price is US$2.34/lb.
Gold
prices were variable in 2015, with a decrease in the average annual
price from the prior year. 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 early 2019, started a strong uptrend in May before stabilizing
from September to December 2019. Gold prices trended upward from
January to March 2020, when they dropped sharply to US$1,474/oz,
but prices have rebounded and continued the uptrend since that
time. A recent closing price is US$1,708/oz.
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three months ended March 31, 2020
Molybdenum
prices trended downward through the end of 2015. After being
relatively flat in 2016, 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 rebounded somewhat
but have been on a downtrend for the most part in 2020, with a
recent closing price of US$9.00/lb.
Silver
prices varied, and the average annual price decreased in 2015.
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
increased since late May and again in September, then trended
downward, then stabilized in November and December. Silver prices
increased in early January 2020, stabilized, then spiked again in
late February 2020. Silver prices decreased significantly in March
2020 to US$12.00/oz, but have rebounded since mid-March. A recent
closing price is US$15.56/oz.
Average
annual prices of copper, gold, molybdenum and silver for the past
four years as well as the average prices so far in 2020 are shown
in the table below:
Year
|
Average metal price 1,2
|
CopperUS$/lb
|
GoldUS$/oz
|
MolybdenumUS$/lb
|
SilverUS$/oz
|
2015
|
2.49
|
1,160
|
6.73
|
15.68
|
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
(to May 14)
|
2.48
|
1,616
|
9.31
|
16.55
|
1.
Source for copper, gold and silver and molybdenum (2013-2017) is
Argus Media at www.metalprices.com
LME Official Cash Price for copper and molybdenum
(2013-2017)
LBMA PM Price for gold
London PM fix for silver
2.
Source for 2018-2020 prices for molybdenum is Platts
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three months ended March 31, 2020
1.3 Selected Annual
Information
Not required for an interim MD&A.
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
(Income)
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
Exploration
and evaluation
|
$7,234
|
$11,998
|
$14,265
|
$14,701
|
$12,050
|
$9,114
|
$16,847
|
$16,727
|
General
and administrative
|
2,407
|
2,122
|
2,723
|
2,171
|
2,349
|
2,470
|
1,909
|
1,992
|
Legal,
accounting and audit
|
987
|
780
|
(45)
|
790
|
891
|
1,074
|
697
|
1
|
Share-based
compensation
|
447
|
455
|
2,149
|
662
|
704
|
741
|
2,284
|
873
|
Non-refundable
option installment 1
|
–
|
–
|
–
|
–
|
–
|
–
|
–
|
(48,097)
|
Other items
2
|
(360)
|
235
|
26
|
(50)
|
217
|
(902)
|
210
|
(1,075)
|
Loss (income) for the quarter
|
$10,715
|
$15,590
|
$19,118
|
$18,274
|
$16,211
|
$12,497
|
$21,947
|
$(29,579)
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss (income) per common share
|
$0.02
|
$0.04
|
$0.05
|
$0.05
|
$0.05
|
$0.04
|
$0.07
|
$(0.09)
|
Weighted
average number of common shares (000s)
|
434,012
|
387,352
|
371,605
|
346,717
|
326,902
|
314,449
|
312,491
|
312,062
|
1.
The Company
recognized the Non-refundable Option Installment received in Q4
2017 as income on termination of the framework agreement in Q2
2018.
2.
Other items include
interest income, finance expense, exchange gains or losses, gain or
loss on disposal of financial assets and plant and equipment, gains
and loss on revaluation of warrants and non-core asset royalty
income.
Discussion of Quarterly Trends
Evaluation
and exploration expenses ("E&E") has fluctuated depending on
activities undertaken. In 2018, the Company focused on
environmental monitoring, engineering studies to support permitting
and responding to USACE requests for information in the EIS scoping
process. 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
for USACE’s process to develop a final EIS. With the latter
Draft EIS, the Company completed its review and submitted its
comments to USACE. In the first quarter of 2020, the Company
continued its efforts in support of the EIS process and toward
federal permitting of the Pebble Project. 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.
General
and administrative expenses ("G&A") have fluctuated depending on
financing activities undertaken by the Company. In addition,
G&A has been impacted by payments of discretionary bonuses: in
Q4 2018, Q3 2019 and Q1 2020 performance based bonuses was paid to
the Pebble Partnership CEO ("PLP CEO"); and in Q1 2019, Q4 2019
and Q1 2020, incentive bonuses were paid to certain
staff.
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three months ended March 31, 2020
In Q3
and Q4 2019, legal, accounting and audit expenses decreased as the
Company received insurance proceeds for cumulative securities class
action legal costs incurred, which offset expenses in each of these
quarters. In Q4 2018, legal fees included a bonus payment of
approximately US$0.3 million relating to securities law advice
provided during the year by the Company’s US legal
counsel.
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 6,610,500 options and 5,635,000 options in Q3 2019 and
2018, respectively. Grants of RSUs also affect SBC of which the
most recent grants were in Q3 2018 (125,000 RSUs).
1.5 Results of
Operations
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.
1.5.1 Results of
Operations – Three months ended March 31, 2020 versus
2019
For the
three months ended March 31, 2020, the Company recorded a
$5.5 million decrease in net loss. Loss from operating
activities decreased by $5 million to $11.1 million due
mainly to an decrease in E&E of $4.8 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
|
|
|
|
|
Engineering
|
$1,305
|
$4,961
|
Environmental
|
3,034
|
4,017
|
Site
activities
|
416
|
476
|
Socio-economic
|
2,357
|
2,430
|
Transportation
|
12
|
52
|
Other activities
and travel
|
110
|
114
|
Total
|
$7,234
|
$12,050
|
E&E
decreased by $4.8 million in the current quarter due to the
decrease in engineering and environmental. In 2019, the Company was
advancing engineering studies and responding to information
requests from the USACE prior to the release of the Draft
EIS.
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three months ended March 31, 2020
General and administrative expenses
The
following table provides a breakdown of G&A, and legal,
accounting and audit expenses incurred in the three months ended
March 31, 2020 as compared to 2019:
|
|
|
|
|
Conference
and travel
|
$97
|
$142
|
Consulting
|
305
|
221
|
Depreciation
of right-of-use assets
|
58
|
55
|
Insurance
|
172
|
170
|
Office
costs, including information technology
|
189
|
203
|
Management
and administration
|
1,183
|
1,126
|
Shareholder
communication
|
199
|
196
|
Trust
and filing
|
204
|
236
|
Total G&A
|
2,407
|
2,349
|
Legal, accounting and audit
|
987
|
891
|
|
$3,394
|
$3,240
|
G&A
in the current quarter increased marginally by $58,000 due
primarily to the increase in management and administration costs,
as discretionary performance and incentive bonuses were paid to
certain staff and the PLP CEO respectively, and higher
consulting fees were incurred. This was offset by the decrease in
conference and travel expenses due in part to the COVID-19 pandemic
later in the quarter. Legal, accounting and audit expenses
increased by $0.1 million.
SBC has
fluctuated due to the timing and quantum of option grants, RSUs and
DSUs and the vesting periods associated with these
grants.
1.5.2 Financial
position as at March 31, 2020 versus December 31,
2019
The
total assets of the Company increased by $4.4 million due
largely to the increase in carrying value of the Company’s
mineral property, plant and equipment as the depreciation of the
Canadian dollar in relation to US dollar resulted in an increase in
the carrying value in the Company’s reporting
currency.
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 the issue of common shares 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
March 31, 2020, the Company had cash and cash equivalents of
$7.3 million, which is a decrease of $6.8 million from
December 31, 2019. In 2020, the Company completed private
placement financings for gross proceeds of approximately
$6.7 million (US$5.1 million) (see 1.2.3
Financings), $0.7 million of which was received in
December 2019. The Company employed $10.4 million in its
operating activities in the three months ended
March 31, 2020. The Company also repaid $2.5 million
of funds drawn from the Credit Facility. The Company has
prioritized the allocation of its available financial resources to
meet key corporate and Pebble Project expenditure requirements in
the near term. As additional financing will be required to progress
any material expenditures at the Pebble Project including the
finalizing of permitting and for working capital, in May 2020, the
Company completed an underwritten public offering and a private
placement of common shares for gross proceeds of approximately
$17.3 million. However additional financing will be needed in
the future. 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
Three months ended March 31, 2020
At
March 31, 2020, the Company had a working capital deficiency
of $5.2 million as compared to a working capital deficiency of
$0.2 million at December 31, 2019. The Company has no
lease obligations or any other long-term obligations other than
those disclosed below:
The
following commitments and payables (expressed in thousands) existed at
March 31, 2020:
|
|
Payments
due by period as of the reporting date
|
|
|
|
|
|
Trade and other
payables 1
|
$12,543
|
$12,543
|
$–
|
$–
|
Payables to related
parties
|
313
|
313
|
–
|
–
|
Lease commitments
2
|
1,620
|
384
|
884
|
352
|
Total
|
$14,476
|
$13,240
|
$884
|
$352
|
Notes
to table
1.
Includes legal fees
due to legal counsel of US$5,274, due December 24, 2020, 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.
US dollar amounts
have been converted at the closing rate of $1.4065/ 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), and has payments relating to routine site and office
leases (which is included in the table above).
1.7 Capital
Resources
The
Company’s capital resources consist of its cash reserves,
which include its cash and equivalents. As at March 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.
1.8 Off-Balance
Sheet Arrangements
As at
March 31, 2020, the Company had no off-balance sheet
arrangements.
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three months ended March 31, 2020
1.9 Transactions with Related
Parties
Transactions with Hunter Dickinson Services Inc.
("HDSI")
Hunter
Dickinson Inc. ("HDI") and
its wholly owned subsidiary, HDSI are private companies established
by a group of mining professionals engaged in advancing and
developing mineral properties for a number of private and
publicly-listed exploration companies, one of which is the
Company.
Current
directors of the Company namely Robert Dickinson and Ron Thiessen,
who is also Chief Executive Officer of the Company, are active
members of the HDI Board of Directors. Mark Peters, the
Company’s Chief Financial Officer ("CFO"), is the CFO of HDSI. Other key
management personnel of the Company – Doug Allen, Stephen
Hodgson4, Bruce Jenkins and Trevor Thomas –
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.
The
Company has an office use agreement with HDSI whereby the Company
rents a specified office from HDSI for its sole use.
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three months ended March 31, 2020
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.
Key Management Personnel
The
required disclosure for the remuneration of the Company’s key
management personnel is provided in Note 9 in the notes to the
Interim Financial Statements which accompany this MD&A and
which are available under the Company’s profile at
www.sedar.com.
1.10 Fourth
Quarter
Not
applicable
1.11 Proposed
Transactions
There
are no proposed asset or business acquisitions or dispositions,
other than those in the ordinary course, before the Board of
Directors for consideration.
1.12 Critical
Accounting Estimates
The
required disclosure is provided in Note 2 in the notes to the
Interim Financial Statements which accompany this MD&A and
which are available under the Company’s profile at
www.sedar.com.
1.13 Changes in
Accounting Policies including Initial Adoption
The
required disclosure is provided in Note 2 in the notes to the
Interim Financial Statements which accompany this MD&A and
which are available under the Company’s profile at
www.sedar.com.
1.14 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 Group as and when required or mature in
timeframes appropriate to the needs of the Company. There has been
no change in the Company’s objectives and policies for
managing this risk except for changes in the carrying amounts of
financial assets exposed to credit risk, and there was no
significant change to the Company’s exposure to credit risk
during the three months ended March 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.
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.
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three months ended March 31, 2020
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. As a
result, the Company’s exposure to foreign exchange risk has
decreased as follows:
|
|
|
US dollar
denominated financial assets and liabilities (in Canadian
Dollars)
|
|
|
Financial
assets:
|
|
|
Amounts
receivable
|
$270
|
$263
|
Cash and cash
equivalents and restricted cash
|
5,094
|
14,090
|
|
5,364
|
14,353
|
Financial
liabilities:
|
|
|
Long term
payables
|
(941)
|
(932)
|
Warrant
liabilities
|
(19)
|
(43)
|
Payables to related
parties
|
(115)
|
(24)
|
|
(12,101)
|
(12,426)
|
|
(13,176)
|
(13,425)
|
Net financial
liabilities exposed to foreign currency risk
|
$(7,812)
|
$ (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 $781
(December 31, 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 three months ended March 31,
2020.
Commodity price risk
While
the value of the Company’s Pebble Project is related to the
price of copper, gold, molybdenum and silver and the outlook for
these minerals, the Company currently does not have any operating
mines and hence does not have any hedging or other commodity based
risks in respect of its operational activities.
Copper,
gold, molybdenum and silver 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.
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three months ended March 31, 2020
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.
1.15 Other MD&A
Requirements
Additional
information relating to the Company, including the Company’s
2019 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 as of the date of this
MD&A, is as follows:
|
|
Common shares
issued and outstanding
|
462,414,209
|
Share options
pursuant to the Company’s incentive plan
|
25,746,266
|
Deferred share
units
|
458,129
|
Restricted share
units
|
–
|
Warrants and
non-incentive plan options1
|
30,722,378
|
Note to
table:
1.
Non-incentive plan
options make up 223,250 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 acquisition of Mission Gold
in December 2015, 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 has disclosure controls and procedures in place to provide
reasonable assurance that any information required to be disclosed
by the Company under securities legislation is recorded, processed,
summarized and reported within the applicable time periods and that
required information is accumulated and communicated to the
Company's management so that decisions can be made about the timely
disclosure of that information.
1.15.3 Management’s Report on Internal Control
over Financial Reporting ("ICFR")
The
Company's management, including the Chief Executive Officer
("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:
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three months ended March 31, 2020
●
pertain
to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of
the assets of the Company;
●
provide
reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with IFRS,
and that receipts and expenditures of the Company are being made
only in accordance with authorizations of management and directors
of the company; and
●
provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company's
assets that could have a material effect on the consolidated
financial statements.
There
has been no change in the design of the Company’s internal
control over financial reporting that has materially affected, or
is reasonably likely to materially affect, the Company’s ICFR
during the period covered by this MD&A.
1.15.4 Limitations of Controls and
Procedures
The
Company’s management, including its CEO and CFO, believe that
any system of disclosure controls and procedures or ICFR, no matter
how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are
met. Furthermore, the design of a control system must reflect the
fact that there are resource constraints and the benefits of
controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, they cannot provide
absolute assurance that all control issues and instances of fraud,
if any, within the Company have been prevented or detected. These
inherent limitations include the realities that judgments in
decision-making can be faulty and breakdowns can occur because of
simple error or mistake. Additionally, controls can be circumvented
by the individual acts of some persons, by collusion of two or more
people, or by unauthorized override of controls. The design of any
system of controls is also based in part upon certain assumptions
about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated
goals under all potential future conditions. Accordingly, because
of the inherent limitations in a cost effective control system,
misstatements due to error or fraud may occur and not be
detected.
1.15.5 Risk Factors
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:
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 our business and results of operations and the
operations of contractors and service providers. The outbreak has
now spread to the United States and Canada where we conduct our
principal business operations. Our plans to advance the development
of the Pebble Project are dependent upon the continued progress of
our approval and permitting process with the USACE, the EPA and
Alaskan state agencies, as well as our ability to continue the work
required in connection with this process through our employees and
our contractors. While we have not been notified of any delay, it
is possible that government efforts to curtail the COVID-19
outbreak will result in delays in our permitting process, including
a possible delay in the release by the USACE of their Final EIS and
the progress through to a ROD. In addition, our personnel may be
delayed in completing the required work that we are pursuing in
connection with this process due to quarantine, self-isolation,
social distancing, restrictions on travel, restrictions on meetings
and work from home requirements. The extent to which the
coronavirus 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 the severity of the
coronavirus and the actions taken to contain the coronavirus or
treat its impact, among others. Moreover, the spread of the
coronavirus globally is expected to have a material adverse effect
on global and regional economies and to continue to negatively
impact stock markets, including the trading price of our shares as
well as mineral commodity prices. These adverse effects on the
economy, the stock market and our share price could adversely
impact our 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 our business and results of operations and could
delay our plans for development of the Pebble Project.
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three months ended March 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 we present 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 likely size. Accordingly, there is no assurance
that the Company will obtain the required permits. The Company has
filed a CWA 404 permit application with the USACE, which triggered
an EIS process under NEPA. The EIS process under NEPA and the
requirement for the Company to secure a broad range of other
permits and authorizations from multiple federal and state
regulatory agencies 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 we build a mine at the Pebble Project,
we will be unable to achieve revenues from operations and may not
be able to sell or otherwise recover our investment in the Pebble
Project, which would have a material adverse effect on the Company
and an investment in the Company’s common shares. 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.
Risk of Secure Title or Property Interest
There
can be no certainty that title to any property interest acquired by
the Company or any of its subsidiaries is without defects. Although
the Company has taken reasonable precautions to ensure that legal
title to its properties is properly documented, there can be no
assurance that its property interests may not be challenged or
impugned. Such property interests may be subject to prior
unregistered agreements or transfers or other land claims, and
title may be affected by undetected defects and adverse laws and
regulations.
The
Pebble Partnership’s mineral concessions at Pebble are
located on State of Alaska lands specifically designated for
mineral exploration and development. Alaska is a stable
jurisdiction with a well-developed regulatory and legal framework
for resource development and public lands management, a strong
commitment to the rule of law and lengthy track record for
encouraging investment in the development if its land and natural
resources.
The Pebble Project is Subject to Political and Environmental
Regulatory Opposition
As is
typical for a large-scale mining project, 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.
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three months ended March 31, 2020
The Pebble Partnership’s Mineral Property Interests Do Not
Contain Any Ore 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 and the Pebble Project must be considered
an exploration and feasibility evaluation project 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".
Northern
Dynasty has not completed any feasibility study or pre-feasibility
study on the Pebble Project to date. The "preliminary economic
assessment" completed by the Company on the Pebble Project in 2011,
as referred to in the 2017 Annual Information Form, did not contain
the level of mine plan or costing detail that would be included in
either a preliminary feasibility study or a final feasibility study
that would be necessary to make a determination of the existent of
mineral reserves or for a production decision for the Pebble
Project. Further, neither the cost information nor the development
scenario contemplated in the 2011 preliminary economic assessment
are current.
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 with the adoption of the SEC Modernization Rules, 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. Investors
are cautioned not to assume that any part or all of mineral
deposits classified as "measured resources" or "indicated
resources" will ever be converted into ore reserves. Further,
"inferred resources" have a great amount of uncertainty as to their
existence, and economic and legal feasibility. Under Canadian
securities law, estimates of "inferred mineral resources" cannot
form the basis of feasibility or prefeasibility studies, except in
rare cases.
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.
Negative Operating Cash Flow
The
Company currently has a negative operating cash flow and will
continue to operate this way 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 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 Minerals
Ltd.
Management's Discussion And Analysis
Three months ended March 31, 2020
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
March 31, 2020, the Company had a negative working capital of
$5.2 million. Although Northern Dynasty completed an
underwritten public offering and a private placement of common
shares raising gross proceeds of approximately $17.3 million,
additional financing may be required in order to achieve the
Company’s business objectives in 2020 and also continue these
objectives in 2021. 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.
As the Pebble Project is Northern Dynasty’s only Mineral
Property Interest, the 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.
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three months ended March 31, 2020
If prices for copper, gold, molybdenum and silver 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 and silver 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 and silver 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 and
silver have fluctuated in recent years, and future significant
price declines could cause investors to be unprepared to finance
exploration of copper, gold, molybdenum and silver, 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.
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.
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three months ended March 31, 2020
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 our 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 we
previously estimated. It is possible that the costs and delays
associated with the compliance with such standards and regulations
could become such that we 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 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 we 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 itself
against such liabilities due to high premium costs or other
reasons, in which event Northern Dynasty could incur significant
liabilities and costs that could materially increase Northern
Dynasty’s operating expenses.
If Northern Dynasty Loses the Services of the Key Personnel that it
Engages to Undertake its Activities, then Northern Dynasty’s
Plan of Operations May Be Delayed or be More Expensive to Undertake
than Anticipated
Northern Dynasty’s success depends to a significant extent on
the performance and continued service of certain independent
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 that we previously estimated. It is
possible that the costs and delays associated with the loss of
services of key personnel could become such that we would not
proceed with the development or operation of a mine at the Pebble
Project.
Northern Dynasty Minerals
Ltd.
Management's Discussion And Analysis
Three months ended March 31, 2020
The Market Price of Northern Dynasty’s Common Shares is
Subject to High Volatility and Could Cause Investor
Loss.
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.
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.