Mining News: Another major ponders Pebble options

Following Anglo American’s exit, Rio Tinto execs consider what to do with a 20 percent stake in massive Alaska copper-gold project

Shane Lasley

Mining News

Is Rio Tinto about to take out Northern Dynasty Minerals Ltd. and gain 100 percent of the enormous Pebble copper-gold-molybdenum project in Southwest Alaska? That is among the options management and directors will have to consider as they carry out a strategic review of the company’s share holdings in the Vancouver, B.C.-based junior.

Rio Tinto, through a wholly-owned subsidiary, owns 18.15 million common shares of Northern Dynasty, representing roughly 19.1 percent of the 95 million shares issued by the Pebble owner.

“We have a shareholders rights plan in place and Rio is right on the cusp, so they can’t really buy any more stock at any price without having to make a full takeover bid,” Northern Dynasty President and CEO Ron Thiessen explained during a Dec. 23 conference call to field questions about Rio Tinto’s announcement.

So, aside from a buyout bid, the potential outcomes of Rio Tinto’s strategic review are to hold it’s nearly 20 percent stake in Northern Dynasty or sell all or a portion of its interest in the Pebble project.

Rio Tinto has been unwilling to show its hand, only disclosing “it intends to undertake a strategic review, including a possible divestment, of its shareholding in Northern Dynasty.”

“They haven’t made up their mind – divestiture was an option but when I tried to push for clarity; ‘are you a seller?’ they fell back on a very legalistic sentence about undertaking a strategic review which might include a divestiture,” the Northern Dynasty CEO informed investors on Dec. 23.

Rio Tinto’s announcement of the strategic review came just 10 days after the finalization of Anglo American’s withdrawal from the Pebble Partnership – a move that returned 100 percent ownership of Pebble to Northern Dynasty and, by proxy, doubled Rio Tinto’s stake in the world class copper project.

With Anglo American’s exit complete, Northern Dynasty is concentrating on compiling the technical data, engineering work and permitting documentation from more than US$700 million invested in Pebble into a data room, with the goal of securing a new partner to finish what Anglo American started.

"Our primary focus is to select the right partner for Northern Dynasty and the right investor for Alaska, a company with sufficient financial resources and technical capabilities, working experience in the United States and a shared commitment to environmentally sound and socially responsible development,” Thiessen said upon the Dec. 13 completion of the Anglo withdrawal. “We have little doubt that Pebble will attract major mining company interest in the months ahead."

Rio Tinto, a company with a foothold in Northern Dynasty and the means to develop a mine on the scale of Pebble, was considered by many to be a top contender to fill the void left by Anglo American.

Complete surprise

The Northern Dynasty leader described the potential divestment in Northern Dynasty as “out of character with everything they had communicated prior to that point and time.”

Though Thiessen understands why Rio Tinto might want to conduct a strategic review of its interest in Northern Dynasty, he is baffled as to why a global miner with a market cap of roughly US$100 billion would put out a press release announcing the strategic review of a US$25-million investment.

“That would obviously be an immaterial amount to Rio, so I was at a loss to understand why they were announcing it publically,” he observed.

“The only reasoning they gave to me is that they were of the view that they needed to make this announcement so that there wouldn’t be speculation about their review should there be leakage,” the Northern Dynasty CEO informed investors.

Thiessen observed that proclaiming its intent to sell its stake in Northern Dynasty prior to making the sale would not be “self-serving on their part.”

“It certainly does not create an opportunity for them to get value back from their investment should they decide to divest of us,” he added.

This leads some to speculate that Rio Tinto may be considering that buying out Northern Dynasty, with a market capitalization currently hovering around C$145 million, as the most economical way to gain full ownership of the Pebble Project.

“Our market cap isn’t lost on people,” Thiessen responded to one such query. “Somebody can make a bid for us; they can make that bid hostile, they can make it friendly.”

So Rio Tinto directors and management will have the option of selling off their stake in Northern Dynasty and the Pebble project for US$25 million; attempt to buy the balance of Northern Dynasty shares valued at US$120 million; or ride out its investment and see if it pays a larger dividend as the Pebble project advances into permitting.

Rio Tinto executives informed Thiessen that they do not have any preconceived notions about which way the strategic review will go.

“I’m challenged a bit with that because they have been paying very close attention to Northern Dynasty and Pebble since the Anglo announcement,” the Northern Dynasty leader said.

As to how long the remaining 81 percent of Northern Dynasty shareholders will have to wait to see what Rio Tinto does with its interest in the company, Thiessen could only answer, “They did not give us any indication and they were disinclined to tell us.”