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Pebble Mine Update

A few hurdles cleared, others remain


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One of the older Pebble deposit test drill sites as it appeared in summer 2017.

Image courtesy of Pebble Limited Partnership

The Pebble Mine project cleared a major legal and regulatory hurdle in May when it reached a settlement with the Environmental Protection Agency (EPA) over pending lawsuits and regulations. But a big economic barrier to mine construction remains: the project needs a new partner.

As of this fall Pebble Mine owners say they’re ready to start filing federal mining permits before the end of 2017, starting the march toward construction. It’s the first movement in years for the huge copper and gold mine project.

However, the Pebble project now has a capital problem that didn’t exist the last time the company was on the verge of filing permits. Then, several large mining companies owned part of the claim. Since 2015, the Pebble Limited Partnership has been a “partnership” of one. It is 100 percent owned by Vancouver, Canada-based Northern Dynasty Minerals, a company with no revenue and a small market capitalization of about $500 million. The company reports it is trying to finding a new partner by the end of 2017.

 

Project History

The Pebble Mine site is the largest undeveloped gold deposit in the world, according to the mining claim’s owner. The deposit is also a rich source of copper and molybdenum.

But it’s not in an easy place to develop. The mine site happens to be in the watershed of the largest sockeye salmon run in the world. If the mine’s tailings aren’t stored properly during the lifetime of the mine and beyond, they could poison the salmon spawning grounds. Mine opponents say that even without a disaster, the mine’s water consumption would degrade the salmon habitat. Even without the risk to salmon, mine development wouldn’t be easy. The mine is in a remote location 200 miles southwest of Anchorage that would require the construction of an expensive power plant and development of port and roads facilities.

The project is named after California’s Pebble Beach Resort because the rolling hills of tundra looked like the famous golf course to a geologist flying over the area in 1988. Northern Dynasty bought the prospect in 2001.

 

EPA Settlement

In 2014—claiming its authority under Section 404(c) of the 1972 Clean Water Act—the EPA attempted to pre-emptively restrict a Pebble-area mine’s ability to put mine tailings into streams and wetlands. Between 2014 and May 2017, Pebble sued the agency several times. The company argued it wasn’t fair to make assumptions about the scope of the mine until it formally filed mining plans. It also accused the government agency of colluding with anti-mine activists to reach its conclusions.

The dispute abruptly changed course with the November 2016 presidential election. President Donald Trump named as his EPA Administrator Scott Pruitt, a man with a history of suing the EPA in his role as Oklahoma’s attorney general.

Under Pruitt’s leadership, the EPA and Pebble reached a settlement in May. Pebble agreed to withdraw its lawsuits and the EPA agreed to not take action to restrict the mine for 2.5 years, or until Pebble formally files for its federal mining permits.

“We are committed to due process and the rule of law and regulations that are ‘regular.’ We understand how much the community cares about this issue, with passionate advocates on all sides,” Pruitt said in a statement.

“The agreement will not guarantee or prejudge a particular outcome, but will provide Pebble a fair process for their permit application and help steer [the] EPA away from costly and time-consuming litigation.”

 

Finding a Partner

The Pebble Partnership lost all of its mining partners in the last six years. Back in 2007, Northern Dynasty teamed up with London-based mining giant Anglo American to form the Pebble Partnership. Under the deal, Anglo American needed to spend about $1.5 billion on developing the project to keep its 50 percent stake in the business. Anglo American walked away in 2013 after sinking half a billion dollars into the project.

Major mining firms Mitsubishi Corporation of Japan and Rio Tinto of Australia also previously owned part of the Pebble project through shares in Northern Dynasty, but sold (in the case of Mitsubishi) or gave away (in the case of Rio Tinto) their shares.

As of September, Pebble Vice President of Public Affairs Mike Heatwole in Anchorage says the company hopes to find a new partner before the end of 2017. However, he could not disclose which companies are interested in Pebble because the company has made non-disclosure agreements.

“Pebble, as very significant mineral asset, is of interest to a wide range of mining companies,” he says. “We’re in active conversations with several parties.”

 

Stock Value

Northern Dynasty’s value on the New York Stock Exchange fell off a cliff in the 2010s, dropping from a 2011 high of $21 to a low of $0.22 in 2016 as the EPA threatened restrictions and partners pulled out.

The stock value surged after the presidential election, quadrupling in value from its Election Day valuation of $0.75 to a high of $3.36 in February on expectations that the federal government under President Trump would be more likely to permit the mine.

In February, hedge fund Kerrisdale Capital Management of New York shorted the company’s stock and wrote an article that challenged the narrative that the mine is any more likely to get built under a more pro-development EPA. Kerrisdale, which as a short-seller benefits by the stock losing value, accused Northern Dynasty of vastly under-representing how much it would cost to develop the mine. The stock value fell sharply but rebounded slightly over the summer. As of late fall, the stock was more than twice its pre-election price.

 

State Regulations and Public Opinion

Since the last time the Pebble Partnership planned to file for permits, there’s a new obstacle to mine development within Alaska—a potential Alaska legislature veto of the project.

In 2014 Alaska voters, by an overwhelming margin, passed Ballot Measure 4, known by supporters as “Bristol Bay Forever.” The ballot measure requires any large mine in the Bristol Bay area to receive approval from the state legislature in addition to state permitting offices.

With the legislature tied to any permitting decision on Pebble mine, public support in Alaska is key to the project’s ability to move ahead.

Pebble’s Heatwole says the company conducted research that shows there is “significant support” for the project. However, the company hasn’t released its polling numbers.

Heatwole says public opinion has swung in the mine’s favor as Alaska’s economy has deteriorated because the mine would be a major employer.

“I generally describe the public opinion as: a pretty set number of people for it, a pretty set number of people against it, and a very fluid middle,” he says. “Alaska’s economy is in a recession right now; it’s a little sluggish and I think people are interested in knowing what opportunities are out there on the horizon.”


Workers hike to a camp at the Pebble deposit.

Image courtesy of Pebble Limited Partnership


A Smaller Mine?

When the EPA issued its restrictions on the Pebble mine in 2014, the agency studied a hypothetical Manhattan Island-sized project that would cover 13.5 square acres between the mine’s pit, waste rock, and tailings storage facility. The pit in the mine considered by the EPA would have been three-quarters the depth of the Grand Canyon. Those figures were based Northern Dynasty’s descriptions of the project in a filing to the Securities and Exchange Commission in 2011.

The EPA concluded that even the smallest mine Northern Dynasty described in 2011 could “result in unacceptable adverse effects on fishery areas.”

One of Northern Dynasty’s main complaints about the EPA is that it used the old 2011 figures when evaluating the environmental costs of the company’s plans. In recent years, Northern Dynasty has said it plans to build a significantly smaller mine than first envisioned.

On October 5, the Pebble Partnership released details of its smaller mine plan at a presentation for Alaska’s Resource Development Council. The new plan for the mine includes a 5.4 square-mile footprint for the pit, waste rock, and tailings storage facility. That covers an area that’s 40 percent the size of the facilities studied by the EPA.

In addition, the company scaled back its road construction plans by replacing part of an access road with a ferry on Iliamna Lake. The company said it would keep mine tailings in only one of the two main river valleys near the mine site.

Mine opponents such as Bristol Bay fishermen and Alaska Native governments haven’t been mollified by talk of a smaller mine.

Alannah Hurley is the director of the United Tribes of Bristol Bay, a consortium of fourteen Native governments in the Bristol Region that was formed to fight Pebble mine construction. Hurley says her organization opposes even a “small” mine in the Bristol Bay Watershed.

“Mines expand over time to extend their lifetime. This is a tried and true tactic of mining companies. They’ll apply for this quote unquote smaller mine to get their foot in their door,” she says.

“It doesn’t make sense that out of one side of its mouth Pebble Limited Partnership is literally telling their shareholders and investors that they are looking to develop one of the world’s largest deposits and then out of the other side of their mouth telling Alaskans that they’re looking at a smaller project.”


This article first appeared in the November 2017 print edition of Alaska Business Monthly.

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