UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington,WASHINGTON, D.C. 20549
FORM 20-F
¨[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
x[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year endedDecember 31, 2004 (with other information to March 15, 2005 except where noted)2014
OR
¨[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934
OR
[ ] SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
CIK Number 0001164771
Commission file number0-31224
NORTHERN DYNASTY MINERALS LTD.
(Exact name of Registrant as specified in its charter)
NORTHERN DYNASTY MINERALS LTD.(Translation of Registrant’s name into English)
BRITISH COLUMBIA, CANADA
(Jurisdiction of incorporation or organization)
Suite 1020, 80015th Floor, 1040 West PenderGeorgia Street
Vancouver, British Columbia, Canada, V6C 2V6V6E 4H1
(Address of principal executive offices)
Marchand Snyman, Chief Financial Officer
Facsimile No.: 604-684-8092
15th Floor, 1040 West Georgia StreetCOMMON SHARES WITHOUT PAR VALUEVancouver, British Columbia, Canada, V6E 4H1 (Title (Name, Telephone, E-mail and/or Facsimile number and Address of Class)Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.Act:
Title of Each | Name of each exchange on which |
registered:Not applicable |
Securities registered or to be registered pursuant to Section 12(g) of the Act
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Common Shares without Par Value(Title of Class)shares with no par value
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
Act:None
NumberIndicate the number of outstanding shares of Northern Dynasty's only classeach of the issuer's classes of capital or common stock as onof the close of the period covered by the annual report:
95,009,864 common shares as of December 31, 20042014
47,690,287 Common Shares without Par Value(Indicate by check mark if the number outstanding on March 15, 2005 was 49,316,165).registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [ ] No [X]
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes [ ] No [X]
Indicate by check mark whether Registrantthe registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934during the preceding 12 months (or for such shorter
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period that Registrantregistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
NOT APPLICABLEYes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [ ] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (check one):
Large accelerated filer [ ] | Accelerated filer [X] | Non-accelerated filer [ ] |
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S.GAAP [ ] | International Financial Reporting Standards as issued by the International Accounting Standards Board [X] | Other [ ] |
If "Other" has been checked in response to the previous question, indicate by check mark which financial statement item Registrantthe registrant has elected to follow:
Item 17 x[ ] Item 18 ¨[ ]
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
IndicateIf this is an annual report, indicate by check mark whether Registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d)the registrant is a shell company (as defined in Rule 12b-2 of theSecurities Exchange Act of 1934subsequent to the distribution of securities under a plan confirmed by a court.Act).
NOT APPLICABLE
Currency and Exchange Rates
All monetary amounts contained in this Annual Report are, unless otherwise indicated, expressed in Canadian dollars. On March 15, 2005 the Federal Reserve noon rate for Canadian Dollars was US$1.00:C$ 1.2078 (see Item 4 for further historical Exchange Rate Information).Yes [ ] No [X]
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T A B L E O F C O N T E N T S
Page
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Geological Terms and Mineral Symbols
GENERAL
In this Annual Report on Form 20-F, all references to "we", "Northern Dynasty" or the "Company" refer to Northern Dynasty Minerals Ltd.
The Company uses the Canadian Dollar as its reporting currency. All references in this document to "Dollars" or "$" are expressed in Canadian Dollars ("CAD", "C$"), unless otherwise indicated. See alsoItem 3 – Key Information for more detailed currency and conversion information.
Except as noted, the information set forth in this Annual Report is as of May 11, 2015 and all information included in this document should only be considered correct as of such date.
GLOSSARY OF TERMS
Certain terms used herein are defined as follows:
Alkalic | Igneous rock containing a relatively high percentage of sodium and potassium feldspar; alteration can also introduce alkali minerals. |
Argillic | Hydrothermal alteration of wall rock which forms clay minerals including kaolinite, smectite, illite and other species. |
CuEQ | Copper Equivalent |
Comminution | Reduction of solid materials from one average particle size to a smaller average particle size by crushing, grinding, cutting, vibrating, or other means. |
Deportment | Assessment of how minerals contribute to grade, as each mineral is likely to behave differently to comminution, flotation or leaching. |
Diorite | Grey to dark-grey igneous intrusive rock of intermediate composition, composed principally of plagioclase feldspar along with biotite, hornblende and/or pyroxene. |
Geometallurgy | Practice of combining geology and/or geostatistics with metallurgy. |
Graben | Down-dropped block of land bordered by parallel faults. |
Granodiorite | Medium- to coarse-grained acid igneous rock with quartz (>20%), plagioclase and alkali feldspar, commonly with minor hornblende and/or biotite. |
HDGI | Is a reference to Hunter Dickinson Group Inc. (now renamed 3537137 Canada Inc.) which is the related party corporation which originally held the options to the Pebble Project, and which was acquired by the Company to become a 100% subsidiary in fiscal 2006. |
Hypogene | Processes below the earth's surface which, in mineral deposits, result in precipitation of primary minerals like sulphides. |
Hydrothermal | Any concentration of |
Intrusion (batholith, dyke, pluton) | Medium to coarse grained igneous bodies which crystallized at depth within the Earth's crust. Large intrusive bodies are called batholiths; smaller bodies are plutons and linear bodies are dykes. |
Rock which originally contained mineralization that was subsequently removed due to | |
Locked Cycle Test | A repetitive batch flotation test used in mineral processing laboratories while developing a metallurgical flowsheet. |
Au - Gold; Ag - Silver; Al - Aluminum; Cu - Copper; Fe - Iron; Mo - Molybdenum; Na - Sodium; O - Oxygen; Pb - Lead; S - Sulphur; Zn - Zinc. | |
Monzonite | Igneous intrusive rock with approximately equal amounts of plagioclase and alkali feldspar, and less than 5% quartz by volume. |
National Instrument 43- 101 ("NI 43-101") | The Canadian securities rule which establishes disclosure standards for mineral projects of Canadian resource companies. |
Kriging | A method of estimation of a variable value (such as metal grade) at an unmeasured location from measured values, weighted by distance and orientation, at nearby locations. |
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Porphyry deposit | A type of mineral deposit genetically related to igneous intrusions in which ore minerals are widely |
Potassic | Hydrothermal alteration which results in the production of potassium- bearing minerals such as biotite, muscovite or sericite, and/or orthoclase. |
Pyrophyllite | Aluminosilicate hydroxide mineral that forms as a result of hydrothermal alteration or low grade metamorphism. |
Sodic | In this report, refers to a type of hydrothermal alteration that contains sodium-bearing minerals, most commonly albite feldspar. |
Subduction | Process by which one tectonic plate moves under another tectonic plate. |
Supergene | Refers to processes which occur relatively near the surface of the earth which modify or destroy original (hypogene) minerals by oxidation and chemical weathering. |
Superterrane | A group of physically connected and related geological terranes (group of related rock units). |
Currency and MeasurementCURRENCY AND MEASUREMENT
All currency amounts in this Annual Report are stated in Canadian dollarsDollars unless otherwise indicated (see Item 3A for exchange rate information).
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The following measurements may be used.
Conversionindicated. Approximate conversion of metric units into imperial equivalents is as follows:
Metric Units | Multiply by | Imperial Units |
hectares | 2.471 | = acres |
3.281 | = feet | |
3281 | = feet | |
kilometers | 0.621 | = miles |
grams | 0.032 | = ounces (troy) |
tonnes | 1.102 | = tons (short) (2,000 lbs) |
grams/tonne | 0.029 | = ounces (troy)/ton |
RESOURCE CATEGORY (CLASSIFICATION) DEFINITIONS
The discussion of mineral deposit classifications in this Annual Report adheres to the mineral resource and mineral reserve definitions and classification criteria developed by the Canadian Institute of Mining ("CIM") 2014. Estimated mineral resources fall into two broad categories dependent on whether the economic viability of them has been established and these are namely "resources" (potential for economic viability) and "reserves" (viable economic production is feasible). Resources are sub-divided into categories depending on the confidence level of the estimate based on level of detail of sampling and geological understanding of the deposit. The categories, from lowest confidence to highest confidence, are inferred resource, indicated resource and measured resource. Reserves are similarly sub-divided by order of confidence into probable (lowest) and proven (highest). These classifications can be more particularly described as follows:
Mineral Resource | A concentration or occurrence of solid material of economic interest in or on the Earth’s crust in such form, grade or quality and quantity that there are reasonable prospects for eventual economic extraction. The location, quantity, grade or quality, continuity and other geological characteristics of a Mineral Resource are known, estimated or interpreted from specific geological evidence and knowledge, including sampling. |
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Inferred Mineral Resource | That part of a Mineral Resource for which quantity and grade or quality are estimated on the basis of limited geological evidence and sampling. Geological evidence is sufficient to imply but not verify geological and grade or quality continuity. It has a lower level of confidence than that applying to an Indicated Mineral Resource and must not be converted to a Mineral Reserve. It is reasonably expected that the majority of Inferred Mineral Resources could be upgraded to Indicated Mineral Resources with continued exploration. |
Indicated Mineral Resource | That part of a Mineral Resource for which quantity, grade or quality, densities, shape and physical characteristics are estimated with sufficient confidence to allow the application of Modifying Factors in sufficient detail to support mine planning and evaluation of the economic viability of the deposit. Geological evidence is derived from adequately detailed and reliable exploration, sampling and testing and is sufficient to assume geological and grade or quality continuity between points of observation. It has a lower level of confidence than that applying to a Measured Mineral Resource and may only be converted to a Probable Mineral Reserve. |
Measured Mineral Resource | That part of a Mineral Resource for which quantity, grade or quality, densities, shape, and physical characteristics are estimated with confidence sufficient to allow the application of Modifying Factors to support detailed mine planning and final evaluation of the economic viability of the deposit. Geological evidence is derived from detailed and reliable exploration, sampling and testing and is sufficient to confirm geological and grade or quality continuity between points of observation. It has a higher level of confidence than that applying to either an Indicated Mineral Resource or an Inferred Mineral Resource. It may be converted to a Proven Mineral Reserve or to a Probable Mineral Reserve. |
Mineral Reserve | The economically mineable part of a Measured and/or Indicated Mineral Resource. It includes diluting materials and allowances for losses, which may occur when the material is mined or extracted and is defined by studies at Pre- Feasibility or Feasibility level as appropriate that include application of Modifying Factors, which are considerations used to convert Mineral Resources to Mineral Reserves and include, but are not restricted to, mining, processing, metallurgical, infrastructure, economic, marketing, legal, environmental, social and governmental factors. Such studies demonstrate that, at the time of reporting, extraction could reasonably be justified. The reference point at which Mineral Reserves are defined, usually the point where the ore is delivered to the processing plant, must be stated. It is important that, in all situations where the reference point is different, such as for a saleable product, a clarifying statement is included to ensure that the reader is fully informed as to what is being reported. The public disclosure of a Mineral Reserve must be demonstrated by a Pre-Feasibility Study or Feasibility Study. |
Probable Mineral Reserve | The economically mineable part of an Indicated, and in some circumstances, a Measured Mineral Resource. The confidence in the Modifying Factors applying to a Probable Mineral Reserve is lower than that applying to a Proven Mineral Reserve. |
Proven Mineral Reserve | The economically mineable part of a Measured Mineral Resource. A Proven Mineral Reserve implies a high degree of confidence in the Modifying Factors. |
PART 1CAUTIONARY NOTES TO UNITED STATES INVESTORS CONCERNING MINERAL RESERVE AND RESOURCE ESTIMATES
This Annual Report on Form 20-F uses terms that comply with reporting standards in Canada and certain estimates are made in accordance with Canadian National Instrument 43-101 Standards of Disclosure for Mineral Projects ("NI 43-101"). NI 43-101 is a rule developed by the Canadian Securities Administrators that establishes standards for all public disclosure an issuer makes of scientific and technical information concerning mineral projects. Unless otherwise indicated, all resource estimates contained in or incorporated by reference in this prospectus have been prepared in accordance with NI 43-101. These standards differ significantly from the requirements of the SEC, and resource information contained herein and incorporated by reference herein may not be comparable to similar information disclosed by companies in the United States (“US companies”).
In addition, this Annual Report on Form 20-F uses the terms “measured mineral resources”, “indicated mineral resources” and “inferred mineral resources” to comply with the reporting standards in Canada.
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- 6 -We advise United States investors that while those terms are recognized and required by Canadian regulations, the SEC does not recognize them. United States investors are cautioned not to assume that any part or all of the mineral deposits in these categories will ever be converted into mineral reserves. These terms have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility.
ITEM 1 IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERSFurther, “inferred resources” have a great amount of uncertainty as to their existence and as to whether they can be mined legally or economically. Therefore, United States investors are also cautioned not to assume that all or any part of the inferred resources exist. In accordance with Canadian rules, estimates of “inferred mineral resources” cannot form the basis of feasibility or other economic studies, except in limited circumstances where permitted under NI 43-101.
It cannot be assumed that all or any part of “measured mineral resources”, “indicated mineral resources”, or “inferred mineral resources” will ever be upgraded to a higher category. Investors are cautioned not to assume that any part of the reported “measured mineral resources”, “indicated mineral resources”, or “inferred mineral resources” in this prospectus is economically or legally mineable.
In addition, disclosure of “contained ounces” is permitted disclosure under Canadian regulations; however, the SEC only permits issuers to report mineralization as in place tonnage and grade without reference to unit measures.
FORWARD LOOKING STATEMENTS
The Annual Report on Form 20-F includes or incorporates by reference certain statements that constitute “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995.
These statements appear in a number of places in this Form 20-F and include statements regarding our intent, belief or current expectation and that of our officers and directors. These forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. When used in this prospectus or in documents incorporated by reference in this prospectus, words such as “believe”, “anticipate”, “estimate”, “project”, “intend”, “expect”, “may”, “will”, “plan”, “should”, “would”, “contemplate”, “possible”, “attempts”, “seeks” and similar expressions are intended to identify these forward-looking statements. All statements in documents incorporated herein, other than statements of historical facts that address future production, permitting, reserve potential, exploration drilling, exploitation activities and events or developments that the Company expects are forward-looking statements. These forward-looking statements are based on various factors and were derived utilizing numerous assumptions that could cause our actual results to differ materially from those in the forward-looking statements. Accordingly, you are cautioned not to put undue reliance on these forward-looking statements. Additional forward-looking statements include, among others, statements regarding:
• | 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, and to obtain required operating permits; |
• | our expected financial performance in future periods; |
• | our plan of operations, including our plans to carry out exploration and development activities; and |
• | our ability to raise capital for exploration and development activities. |
Certain of the assumptions we have made include assumptions regarding, among other things:
• | that we will be ultimately able to obtain permitting for a mine at the Pebble Project; |
• | that the market prices of copper and gold will not decline significantly nor for a lengthy period of time; |
• | that we will be able to secure sufficient working capital necessary for the continued environmental assessment and permitting activities and engineering work which are preconditions to any potential development of the Pebble Project, which would then require engineering and financing in order to advance to ultimate construction; |
• | that key personnel will continue their employment with us; |
• | our ability to obtain the necessary expertise in order to carry out our exploration and development activities within the planned time periods; and |
• | our ability to obtain adequate financing on acceptable terms. |
Some of the risks and uncertainties that could cause our actual results to differ materially from those expressed in our forward-looking statements include:
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• | we may never obtain permitting for a mine at the Pebble Project for technical, legal or political reasons; |
• | the existence of concerted opposition to the Pebble Project; |
• | our ability to continue to fund our exploration and development activities; |
• | the costs of development and operation of the Pebble Project may be greater than we anticipate; |
• | the speculative nature of the mineral resource exploration business; |
• | the lack of known reserves at the Pebble Project; |
• | our inability to establish that the Pebble Project contains commercially viable deposits of ore; |
• | our ability to continue on a going concern basis; |
• | our ability to recover the financial statement carrying values of our Pebble Project if the Company ceases to continue on a going concern basis; |
• | our history of financial losses; |
• | the volatility of gold, copper and molybdenum prices; |
• | the inherent risk involved in the exploration, development and production of minerals; |
• | changes in, or the introduction of new, government regulations relating to mining, including laws and regulations relating to the protection of the environment; |
• | the presence of unknown environmental hazards at the Pebble Project; |
• | our inability to insure our operations against all risks; |
• | the highly competitive nature of our business; |
• | litigation risks and the inherent uncertainty of litigation; |
• | the historical volatility in our share price; |
• | the potential dilution to the Company's shareholders resulting from any future equity financings; and |
• | the potential dilution to the Company's shareholders from the exercise of share purchase options to purchase our shares. |
This list is not exhaustive of the factors that may affect any of the Company’s 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.
The Company’s forward-looking statements and information are based on the assumptions, beliefs, expectations and opinions of management as of the date such statements are made. The Company will update forward-looking statements and information if and when, and to the extent, required by applicable securities laws. Readers should not place undue reliance on forward-looking statements. The forward-looking statements and information contained herein are expressly qualified by this cautionary statement.
For the above reasons, information contained in this Form on 20-F herein containing descriptions of our mineral deposits may not be comparable to similar information made public by US companies subject to the reporting and disclosure requirements under the United States federal securities laws and the rules and regulations thereunder.
The Company advises you that these cautionary remarks expressly qualify, in their entirety, all forward-looking statements attributable to Northern Dynasty or persons acting on the Company's behalf. The Company assumes no obligation to update the Company's forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting such statements. You should carefully review the cautionary statements and risk factors contained in this and other documents that the Company files from time to time with the Securities and Exchange Commission.
STATUS AS AN EMERGING GROWTH COMPANY
The Company is an "emerging growth company" as defined in section 3(a) of the Exchange Act, and the Company will continue to qualify as an "emerging growth company" until the earliest of:
(a) | the last day of the fiscal year during which the Company has total annual gross revenues of US$1,000,000,000 (as such amount is indexed for inflation every 5 years by the SEC) or more; |
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(b) | the last day of the Company's fiscal year following the fifth anniversary of the date of the first sale of common equity securities pursuant to an effective registration statement under the Securities Act; |
(c) | the date on which the Company has, during the previous 3-year period, issued more than US$1,000,000,000 in non-convertible debt; or |
(d) | the date on which the Company is deemed to be a "large accelerated filer", as defined in Exchange Act Rule 12b–2. |
Northern Dynasty expects to continue to be an emerging growth company until December 31, 2020.
Generally, a registrant that registers any class of its securities under section 12 of the Exchange Act is required to include in the second and all subsequent annual reports filed by it under the Exchange Act, a management report on internal control over financial reporting and, subject to an exemption available to registrants that are neither an "accelerated filer" or a "larger accelerated filer" (as those terms are defined in Exchange Act Rule 12b-2), an auditor attestation report on management's assessment of internal control over financial reporting. However, for so long as the Company continues to qualify as an emerging growth company, the Company will be exempt from the requirement to include an auditor attestation report in its annual reports filed under the Exchange Act, even if it were to qualify as an "accelerated filer" or a "larger accelerated filer". In addition, auditors of an emerging growth company are exempt from the rules of the Public Company Accounting Oversight Board requiring mandatory audit firm rotation or a supplement to the auditor's report in which the auditor would be required to provide additional information about the audit and the financial statements of the registrant (auditor discussion and analysis).
The Company has irrevocably elected to comply with new or revised accounting standards even though it is an emerging growth company.
ITEM 1 | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS |
Not applicable for an Annual Report.
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ITEM 2 OFFER STATISTICS AND EXPECTED TIMETABLE
ITEM 2 | OFFER STATISTICS AND EXPECTED TIMETABLE |
Not applicable for an Annual Report.
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ITEM 3 KEY INFORMATION
A. Selected Financial Data
ITEM 3 | KEY INFORMATION |
A. | SELECTED FINANCIAL DATA |
The following constitutestables summarize selected financial data for Northern Dynasty Minerals Ltd. (“Northern Dynasty” orderived from the “Company”) for the last five fiscal years ended December 31, 2004,Company's audited financial statements, expressed in thousands of Canadian dollars, presentedDollars, and which have been prepared in accordance with Canadian generally acceptedand using accounting principles (“GAAP”policies in compliance with International Financial Reporting Standards ("IFRS") and United States GAAP.as issued by the International Accounting Standards Board ("IASB"). This selected financial data should be read in conjunction with the Company's audited financial statements for the fiscal years then ended.
Balance Sheet Data | 2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||
Total assets according to financial | $ | 25,440,941 | $ | 3,682,646 | $ | 685,149 | $ | 2,588,367 | $ | 2,644,832 | |||||
statements (CDN GAAP)(1) | |||||||||||||||
Total Assets (US GAAP)(2) | 25,630,081 | 3,682,646 | 685,149 | 2,588,367 | 2,644,832 | ||||||||||
Total liabilities | 3,025,155 | 429,722 | 186,288 | 768,544 | 4,500 | ||||||||||
Share capital | 76,109,561 | 21,064,437 | 11,035,977 | 7,907,717 | 7,273,342 | ||||||||||
Deficit (CDN GAAP) | (61,198,495 | ) | (19,499,848 | ) | (11,200,387 | ) | (6,087,894 | ) | (4,633,010 | ) | |||||
Deficit (US GAAP) | (61,198,495 | ) | (19,499,848 | ) | (11,200,387 | ) | (6,087,894 | ) | (4,633,010 | ) | |||||
Period End Balances | |||||||||||||||
(as at December 31) | 2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||
Working capital | $ | 10,229,064 | $ | 3,240,887 | $ | 496,048 | $ | 1,816,289 | $ | 2,639,000 | |||||
Equipment, net | 398,101 | 12,037 | 2,813 | 3,534 | 1,332 | ||||||||||
Mineral property interests | 11,788,621 | --- | --- | --- | --- | ||||||||||
Shareholders’ equity | 22,415,786 | 3,252,924 | 498,861 | 1,819,823 | 2,640,332 | ||||||||||
Number of outstanding Shares | 47,690,287 | 31,733,186 | 15,515,223 | 9,292,455 | 7,182,455 |
No cash or other dividends have ever been declared.Statements of Financial Position Data
Statement of Operations Data | 2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||
Investment and Other Income (loss) | $ | (244,303 | ) | $ | 130,318 | $ | (10,676 | ) | $ | 108,631 | $ | 157,138 | |||
General and administrative expenses | 2,480,567 | 1,252,986 | 771,881 | 395,121 | 316,033 | ||||||||||
Write-down of mineral property interests and | |||||||||||||||
investments | - -- | - --- | - --- | - -- | - -- | ||||||||||
Exploration Expenditures | 32,594,900 | 5,501,729 | 4,329,936 | 1,168,394 | - -- | ||||||||||
Stock-based compensation | 6,378,877 | 1,675,064 | - --- | - -- | - -- | ||||||||||
Income (loss) according to financial statements | |||||||||||||||
(CDN GAAP) | (41,698,647 | ) | (8,299,461 | ) | (5,112,493 | ) | (1,454,884 | ) | (158,895 | ) | |||||
Income (loss) from continuing operations per | |||||||||||||||
Common Share (CDN GAAP) | (1.04 | ) | (0.35 | ) | (0.41 | ) | (0.20 | ) | (0.02 | ) | |||||
Income (loss) per Share (US GAAP)(2) | (1.04 | ) | (0.35 | ) | (0.41 | ) | (0.20 | ) | (0.02 | ) |
($ 000’s) | 2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||
Mineral property, plant and equipment, net | $ | 123,608 | $ | 108,050 | $ | 1,055 | $ | 1,055 | $ | 1,055 | |||||
Total assets | 135,510 | 141,784 | 132,934 | 145,241 | 144,247 | ||||||||||
Total liabilities | 7,547 | 7,856 | 4,041 | 3,885 | 4,187 | ||||||||||
Working capital | 5,869 | 29,681 | 32,134 | 42,474 | 43,332 | ||||||||||
Share capital | 389,227 | 389,227 | 389,189 | 388,987 | 380,570 | ||||||||||
Reserves | 84,031 | 58,649 | 51,129 | 48,132 | 35,114 | ||||||||||
Accumulated deficit | (345,295 | ) | (313,948 | ) | (311,425 | ) | (295,763 | ) | (275,624 | ) | |||||
Net assets | 127,963 | 133,928 | 128,893 | 141,356 | 140,060 | ||||||||||
Shareholders' equity | 127,963 | 133,928 | 128,893 | 141,356 | 140,060 |
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Statements of Comprehensive Loss (Income) Data
($ 000’s, except per share amounts and number of shares) | 2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||
Interest and other income | $ | (281 | ) | $ | (1,136 | ) | $ | (887 | ) | $ | (944 | ) | $ | (544 | ) |
General and administrative expenses | 17,384 | 6,245 | 6,780 | 6,168 | 4,456 | ||||||||||
Exploration expenditures | 12,877 | 1,991 | 4,461 | 819 | 1,800 | ||||||||||
Share-based payments | 3,877 | 641 | 5,225 | 14,205 | 8,373 | ||||||||||
Other | (221 | ) | (340 | ) | 83 | (58 | ) | – | |||||||
Gain on discontinuance of equity method | – | (5,062 | ) | – | – | – | |||||||||
Deferred income tax | (2,289 | ) | 184 | – | (51 | ) | 30 | ||||||||
Net loss for the year | 31,347 | 2,523 | 15,662 | 20,139 | 14,115 | ||||||||||
Other comprehensive (income) loss | (9,953 | ) | (6,887 | ) | 2,123 | (2,153 | ) | 5,428 | |||||||
Total comprehensive loss (income) | 21,394 | (4,364 | ) | 17,785 | 17,986 | 19,543 | |||||||||
Basic and diluted net loss per share | $ | 0.33 | $ | 0.03 | $ | 0.16 | $ | 0.21 | $ | 0.15 | |||||
Weighted average number of common shares outstanding | 95,009,864 | 95,007,374 | 94,993,717 | 94,851,589 | 93,778,967 |
Currency and Exchange Rates
On March 15, 2005May 11, 2015, the Federal Reserverate of exchange of the Canadian Dollar, based on the daily noon rate for Canadian Dollarsin Canada as published by the Bank of Canada, was US$1.00:1.00 = C$ 1.2078. 1.2107. Exchange rates published by the Bank of Canada, available on its websitewww.bankofcanada.ca, are nominal quotations — not buying or selling rates — and are intended for statistical or analytical purposes.
The following table setstables set out the exchange rates, based on the daily noon buying rates in Canada as posted onpublished by the Bank of Canada website (www.bankofcanada.ca), for the conversion of Canadian dollarsDollars into U.S. Dollars.
Year Ended December 31 (Canadian Dollars per U.S. Dollar) | |||||
2014 | 2013 | 2012 | 2011 | 2010 | |
Rate at end of year | $ 1.1601 | $ 0.9402 | $ 1.0051 | $ 0.9833 | $ 0.9946 |
Average rate for year | $ 1.1046 | $ 0.9711 | $ 1.0004 | $ 1.0110 | $ 1.0303 |
High for year | $ 1.1656 | $ 1.0165 | $ 1.0299 | $ 1.0583 | $ 1.0745 |
Low for year | $ 1.0639 | $ 0.9342 | $ 0.9599 | $ 0.9430 | $ 0.9946 |
Monthly High and Low Exchange Rate (Canadian Dollar per U.S. Dollar) | ||
High | Low | |
May 2015 (to May 11, 2015) | $ 1.2192 | $ 1.2009 |
April 2015 | $ 1.2612 | $ 1.1954 |
March 2015 | $ 1.2803 | $ 1.2440 |
February 2015 | $ 1.2635 | $ 1.2403 |
January 2015 | $ 1.2717 | $ 1.1728 |
December 2014 | $ 1.1643 | $ 1.1344 |
B. | CAPITALIZATION AND INDEBTEDNESS |
Not applicable for an Annual Report.
C. | REASONS FOR THE OFFER AND USE OF PROCEEDS |
Not applicable for an Annual Report.
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D. | 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:
Inability to Achieve Mine Permitting of the Pebble Project
The principal risk facing the Company is that it will be ultimately be unable to secure the necessary permits under United States dollars. These ratesFederal and Alaskan State laws to build a mine at Pebble. There are comprisedprominent and well organized opponents of those in effectthe Pebble Project and the Company may be unable, despite developing solid scientific and technical evidence of risk mitigation, to overcome such opposition and convince mining regulatory authorities that a mine should be permitted at Pebble. If we are unable to secure the necessary permits to build a mine at the endPebble Project, we may be unable to achieve revenues from operations and/or recover our investment in the Pebble Project.
Negative Operating Cash Flow
The Company currently has a negative operating cash flow and will continue to have that 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.
The Company believes it is likely a "passive foreign investment company" which may have adverse U.S. federal income tax consequences for U.S. shareholders.
U.S. shareholders should be aware that the Company believes it was classified as a passive foreign investment company ("PFIC") during one or more previous tax years, and may be a PFIC in the current tax year and possibly in subsequent tax years. If the Company is a PFIC for any tax year during a U.S. shareholder's holding period, then such U.S. shareholder generally will be required to treat any gain realized upon a disposition of common shares, or any so-called "excess distribution" received on its common shares, as ordinary income, and to pay an interest charge on a portion of such gain or distributions, unless the shareholder makes a timely and effective "qualified electing fund" election or a "mark-to-market" election with respect to the common shares. A U.S. shareholder who makes a qualified electing fund election generally must report on a current basis its share of the six months includingCompany's net capital gain and immediately priorordinary earnings for any tax year in which the Company is a PFIC, whether or not the Company distributes any amounts to December 31, 2004its shareholders. A U.S. shareholder who makes the mark-to-market election generally must include as ordinary income each year the excess of the fair market value of the common shares over the taxpayer's basis therein. This paragraph is qualified in its entirety by the discussion below under the heading "Certain United States Federal Income Tax Considerations." Each U.S. shareholder should consult its own tax advisor regarding the PFIC rules and the average exchange ratesU.S. federal income tax consequences of the acquisition, ownership, and disposition of common shares.
The Pebble Project is Subject to Political and Environmental Regulatory Opposition
As is typical for a large scale mining project, the rangePebble Project faces concerted opposition from many individuals and organizations who are motivated to preclude any possible mining in the Bristol Bay Watershed ("BBW"). The BBW is an important wildlife and salmon habitat area. The United States Environmental Protection Agency has gone so far as to suggest that it may peremptorily prevent the Pebble Project from proceeding even before a mine permitting application is filed. 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 Pebble.
Northern Dynasty will require additional funding to meet the development objectives of the Pebble Project.
Northern Dynasty will need to raise additional financing (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 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 and low exchange rates for such periods.
2004 | 2003 | 2002 | 2001 | 2000 | |
End of Period | 1.20 | 1.30 | 1.58 | 1.59 | 1.52 |
Average for Period | 1.30 | 1.40 | 1.57 | 1.55 | 1.49 |
High for Period | 1.40 | 1.58 | 1.62 | 1.60 | 1.56 |
Low for Period | 1.17 | 1.30 | 1.50 | 1.49 | 1.43 |
Monthly Low and High Exchange Rates:
Month | Low | High |
March 2005 | 1.20 | 1.25 |
February 2005 | 1.22 | 1.26 |
January 2005 | 1.19 | 1.25 |
December 2004 | 1.18 | 1.24 |
See Item 17 for accompanying audited year-end financial statements (prepared in accordance with Canadian GAAP) for further details.
B. Capitalization and Indebtedness
Not applicable.levels of dilution to shareholders.
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- 10 -The Pebble Partnership’s mineral property interests do not contain any ore reserves or any known body of economic mineralization.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
Northern Dynasty’s Pebble Property Contains No Known Reserves of Ore.Although there is aare known bodybodies of mineralization on the Pebble Property (see Items 4, 7Project, and 19), and Northern Dynastythe Pebble Partnership has completed a major definition and in-fill core drilling programprograms within, and adjacent to, the depositdeposits to determine measured and indicated and measured resources, to allow for completion of planned feasibility studies, there are currently no known reserves or body of commercially viable ore and the Pebble PropertyProject must be considered an exploration prospect only. Extensive additional exploration work is required before Northern Dynasty or the Pebble Partnership can ascertain if any mineralization may be economic and hence constitute ‘ore”"ore". Engineering, socioeconomic and environmental studies are ongoing. Additional drilling is planned to further define a new zone on the eastern flank of the deposit. Exploration for minerals is a speculative venture necessarily involving substantial risk. If the expenditures
Mineral Resources disclosed by Northern Dynasty makes onor the Pebble Property do not result in discoveries of commercial quantities of ore,Partnership for the value of exploration and acquisition expenditures will be totally lost and the value of Pebble Project are estimates only.
Northern Dynasty stock negatively impacted.has included mineral resource estimates that have been made in accordance with National Instrument 43-101. These resource estimates are classified as "measured resources", "indicated resources" and "inferred resources". Northern Dynasty advises investors that while these terms are mandated by Canadian securities administrators, the U.S. Securities and Exchange Commission does not recognize these terms. 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. It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category. Under Canadian rules, estimates of inferred mineral resources may not form the basis of feasibility or prefeasibility studies, except in rare cases. Investors are cautioned not to assume that part or all of an inferred resource exists, or is economically or legally mineable.
Further Funding Needed to Explore and Retain Rights to Pebble Property. Northern Dynasty’s primary meansAll amounts of generating funds is through the sale of common shares,mineral resources are estimates only, and Northern Dynasty cannot be certain that any specified level of recovery of metals from the mineralized material will needin 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 continue to find buyers for its treasury shares in order to generate sufficient funds to allow the Pebble Project will demonstrate positive economics or feasibility.
Northern Dynasty to conduct further work on the Pebble Propertyhas no history of earnings and completion of the planned explorationno foreseeable earnings, and engineering, socioeconomic and environmental programs. If may never achieve profitability or pay dividends.
Northern Dynasty cannot fund such programs, its share value willhas only had losses since inception and there can be severely negatively impacted.no assurance that Northern Dynasty believes that it will need to raise additional funds to pursue the current level of exploration of the Pebble Property.
Northern Dynasty Has No History of Earnings and No Foreseeable Earnings.Northern Dynastyhas a history of 20 years of losses. Northern Dynasty may neverever be profitable. Northern Dynasty has paid no dividends on its shares since incorporation and does not anticipate paying dividendsincorporation. Northern Dynasty presently has no ability to generate earnings as its mineral properties are in the foreseeable future. A failure to eventually achieve profitability will negatively impact on pre-development stage.
Northern Dynasty’s share value.
Assets May be Subject to Future Write-Downs.Northern Dynasty’sconsolidated financial statements have been prepared assuming Northern Dynasty will continue on a going concern basis.
Northern Dynasty’s consolidated financial statements have been prepared on the basis that Northern Dynasty will continue its business onas a going-concern basis; however unless additional funding is obtained this assumption will have to change and Northern Dynasty’s assets may then have to be written-down from carrying values based on costs to asset prices which are realizable in insolvency or distress circumstances.
Significant Potential Equity Dilution and End of Lock-ups.going concern. At March 15, 2005,December 31, 2014, Northern Dynasty had 49,316,165working capital of approximately $9.4 million. Northern Dynasty has prioritized the allocation of available financial resources in order to meet key corporate and Pebble Project expenditure requirements in fiscal 2015. Additional financing will be required to pursue any material expenditures at the Pebble Project. 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 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.
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As the Pebble Project is Northern Dynasty’s principal 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 4,006,300 share purchase options and 2,925,478 warrants outstanding. reduce its ability to obtain new financing.
The resale of outstanding shares fromPebble Project is, through the exercise of dilutive securities could have a depressing effect on the market forPebble Partnership, Northern Dynasty’s shares. At March 15, 2005, dilutive securities represent approximately 14.1%principal mineral property interest. 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 possibly result in further declines in the trading price of Northern Dynasty’s currently issuedcommon shares. As of March 15, 2005Furthermore, Northern Dynasty had agreedanticipates that its ability to issueraise additional financing to fund exploration of a further 14,002,268 shares, subjectnew property or the acquisition of a new property or project would be impaired as a result of the failure to regulatory approval,establish commercial viability of the Pebble Project.
If prices for a related party property acquisition. (See Item 7)
Exploration is a Risky Business. The exploration for mineral deposits involves significant financialcopper, gold and other risks over an extended period of time, which even a combination of careful evaluation, experience and knowledgemolybdenum decline, Northern Dynasty may not eliminate. Few properties thatbe 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 and molybdenum are exploredvolatile, and are ultimately developed into producing mines. Factorsaffected by numerous factors beyond Northern Dynasty’s control will affectcontrol. The level of interest rates, the marketabilityrate of any substances discovered.
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Gold,inflation, the world supplies of and demands for copper, gold and molybdenum 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 improvedof copper, gold and molybdenum have fluctuated in 2004, but had been depressed for severalrecent years, priorand future significant price declines could cause investors to be unprepared to finance exploration of copper, gold and molybdenum, with the result that Northern Dynasty may not have sufficient financing with which to fund its exploration activities
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 may continueproperty acquisition. It requires significant capital, technical resources, personnel and operational experience to fluctuate widely. Even ifeffectively compete in the mining industry. Because of the high costs associated with exploration, is successful (andthe expertise required to analyze a project’s potential and the capital required to develop a mine, deemed warranted),larger companies with significant resources may have a competitive advantage over Northern Dynasty. Northern Dynasty faces strong competition from other mining requires huge capital investment, long capital recovery periodscompanies, some with greater financial resources, operational experience and ittechnical 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.
The Pebble Partnership and Northern Dynasty must comply with stringent environmental legislation in carrying out work on the Pebble Project. Environmental legislation is difficultevolving 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 suspend operations pending a recoverythe Pebble Partnership of prices.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.
RiskChanges in government regulations or the application thereof and the presence of Adverse Government Policies.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 wilderness areas and the right to operate and export minerals 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 our projects. Environmental concerns in general continueObtaining 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 significant challenge for mine at the Pebble Project. Refer to further discussion inItem 8 - A3. Legal Proceedings.
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Litigation
The Company is currently and may in future be subject to legal proceedings in the development 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 may have a material adverse effect of the Company.
Northern Dynasty is subject to many risks that are not insurable and, as theya 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 all exploration companies. Any changespollution, cave-ins or hazards against which it cannot insure. The payment of such liabilities could result in regulations or shiftincrease in political attitude are beyond the controlNorthern 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 may adversely affect its business.
Environmental Risks. Unexpected environmental damage from spills, accidentsthe 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 severe acts of nature such as earthquakes are risks which mayhazards might not be fully insurable against, or Northern Dynasty and if catastrophicthe 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 mean the total loss of shareholders’ equity.incur significant liabilities and costs that could materially increase Northern Dynasty’s operating expenses.
VolatilityThe market price of Northern Dynasty’s Shares Could Cause Investor Loss.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 marketmarkets for resource stocks, the strength of the economy generally, the availability and attractiveness of alternative investments, and the breadth of the public marketmarkets for the stock. The effect of these and other factors on the market price of the Company’s common shares on the TSX Venture 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 seeks liquidity and needs to sell Northern Dynasty shares.
Northern Dynasty’s Directors, Officers and Staff are only Part-Time.Most of Northern Dynasty’s directors and senior officers also serve as officers and/or directors of other resource exploration companies and, as such, are engaged in and will continue to be engaged in the search for additional resource opportunities on behalf of such other companies. In particular, the success ofIf Northern Dynasty and its ability to continue to carry on operations is dependent upon its ability to retainloses the services of the key personnel that it engages to undertake its senior technical and management personnel. (See Item 7.)
Management May be subject to Conflicts of Interest Due to Affiliation With Other Resource Companies.As most ofactivities, then Northern Dynasty’s directors and officers serve as officers and/or directorsplan of other resource exploration companies which are themselves engaged in the search for additional opportunities, situations may arise where these directors and officers are presented with or identify resource exploration opportunities andoperations may be delayed or perceivedbe more expensive to be in competition with Northern Dynasty for exploration opportunities. Such potential conflicts, if any arise, will be dealt with in accordance with the relevant provisions of British Columbia corporate and common law. undertake than anticipated.
Northern Dynasty’s directors and officers expect that participation in exploration prospects offeredsuccess depends to the directors will be allocated between the various companies that they servea significant extent on the basisperformance and continued service of prudent business judgment and the relative financial abilities and needs of the companies to participate. In addition, all of Northern Dynasty’s officers and directors have a financial interest in other resource issuers to which they serve as management and hence may never be financially disinterested in the outcomes of these potential conflict of interest situations. This situation may require that shareholders favorably consider ratification of directors’ decisions where financial conflicts arise resulting in uncertainty with respect to completion of such matters.certain independent contractors, including Hunter Dickinson Services Inc. ("HDSI"). The Company has access to the full resources of Hunter Dickinson Inc. ("HDI"),HDSI, an experienced exploration and development firm with in-house geologists, engineers and environmental specialists, to assist in its technical review of the various opportunities; howeverPebble Project. There can be no assurance that the Company doesservices of all necessary key personnel will be available when required or if obtained, that the costs involved will not haveexceed those that we previously estimated. It is possible that the right to require HDI to bring tocosts and delays associated with the Company all corporate opportunitiesloss of services of key personnel could become such that come to HDI's attention.we would not proceed with the development or operation of a mine at the Pebble Project.
ITEM 4 | INFORMATION ON THE COMPANY |
A. | HISTORY AND DEVELOPMENT OF THE COMPANY |
- 12 -Incorporation
Northern Dynasty’s Management May Not Be Subject to U.S. Legal Process. As Canadian citizens and residents most of Northern Dynasty’s directors and officers may not subject themselves to U.S. legal proceedings, so that recovery on judgments issued by U.S. courts may be difficult or impossible. While reciprocal enforcement of judgment legislation exists between Canada and the U.S., Northern Dynasty’s insiders may have defenses available to avoid in Canada the effect of U.S. judgments under Canadian law, making enforcement difficult or impossible. Northern Dynasty’s management may not have any personal assets available in the U.S. to satisfy judgments of U.S. courts. Therefore, Northern Dynasty shareholders in the United States may have to avail themselves of remedies under Canadian corporate and securities laws for perceived oppression, breach of fiduciary duty and like legal complaints. Canadian law may not provide for remedies equivalent to those available under U.S. law.
Likely PFIC Status Has Possible Adverse Tax Consequences for U.S. Investors. Potential investors who are U.S. taxpayers should be aware that Northern Dynasty expects to be classified for U.S. tax purposes as a passive foreign investment company (“PFIC”) for the current fiscal year, and may also have been a PFIC in prior years, and may also be a PFIC in subsequent years. This status arises due to the fact that Northern Dynasty’s excess exploration funds are invested in interest-bearing, securities creating “passive income” which, while modest and ancillary to the exploration business, is Northern Dynasty’s only source of income. If Northern Dynasty is a PFIC for any year duringmineral exploration company incorporated on May 11, 1983 pursuant to the Company Act of the Province of British Columbia (predecessor statute to the British Columbia Corporations Act in force since 2004), under the name "Dynasty Resources Inc.". On November 30, 1983 the Company changed its name to "Northern Dynasty Explorations Ltd." and subsequently, on October 11, 1997, changed its name to Northern Dynasty Minerals Ltd. Northern Dynasty became a U.S. taxpayer’s holding period, then such a U.S. taxpayer,reporting company in the Province of British Columbia on April 10, 1984 and was listed on the Vancouver Stock Exchange (now the TSX Venture Exchange and herein generally will be required"TSX Venture") from 1984-1987, listed on the Toronto Stock Exchange from 1987-1993, and unlisted but continued to treat any so-called “excess distribution” receivedcomply with its continuous disclosure obligations from 1993 to 1994, and thereupon listed on itsTSX Venture from 1994 to October 30, 2007 when it began trading on the Toronto Stock Exchange ("TSX"). In November 2004, the common shares, or any gain realized upon a disposition of common shares, as ordinary income and to pay an interest charge on a portion of such distribution or gain, unless the taxpayer makes a qualified electing fund (“QEF”) election or a mark-to-market election with respect to the shares of Northern Dynasty. In certain circumstances,Dynasty were also listed on the sumAmerican Stock Exchange ("AMEX"). AMEX was purchased by the New York Stock Exchange ("NYSE") and the Company now trades on the NYSE MKT Exchange ("NYSE MKT").
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Offices
The head office of Northern Dynasty is located at Suite 1500, 1040 West Georgia Street, Vancouver, British Columbia, Canada V6E 4H1, telephone (604) 684-6365, facsimile (604) 684-8092. The Company’s legal registered office is in care of its Canadian attorneys, McMillan LLP, Barristers & Solicitors, at Suite 1500, 1055 West Georgia Street, Vancouver, British Columbia, Canada V6E 4N7, telephone (604) 689-9111, facsimile (604) 685-7084.
The Company’s Alaska mineral resource exploration business is operated through an Alaskan registered limited partnership, the Pebble Limited Partnership (the "Pebble Partnership" or "PLP"), in which the Company (since December 2013) owns a 100% interest through subsidiary entities. A 100% subsidiary of the tax andCompany, Pebble Mines Corp. is the interest charge may exceed the amountgeneral partner of the excess distribution received, orPebble Partnership and responsible for its day-to-day operations. The business address of the amount of proceeds of disposition realized, by the taxpayer. A U.S. taxpayer who makes a QEF election generally must report on a current basis its share of Northern Dynasty’s net capital gain and ordinary earnings for any year in which Dynasty Partnership is Suite 602, 3201 C Street, Anchorage, Alaska, USA, 99503.
Company Development
Northern Dynasty is a PFIC, whether or not Northern Dynasty distributes any amounts to its shareholders. A U.S. taxpayer who makes the mark-to-market election generally must include as ordinary income each year the excess of the fair market value of the common shares over the taxpayer’s tax basis therein. (See also ITEM 10E - Passive Foreign Investment Company.)
For more information about penny stocks, contact the Office of Filings, Information and Consumer Services of the U.S. Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 telephone (202) 272-7440.
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ITEM 4 INFORMATION ON THE COMPANY
SUMMARY
A. History and Development of Northern Dynasty
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B. Business Overview
Northern Dynasty’s Business Strategy and Principal Activities
Pebble Property, Alaska USA - Overview
Northern Dynasty is generally in the business of acquiring, exploring and developing mineral properties.
Since October 2001 its principal focus has been exploration and since 2004, feasibility level engineering studies for all project components, including road access, port and power transmission, of the Pebble Property (“theProject, a copper-gold-molybdenum mineral project. The Pebble Property”) that hosts a large gold copper molybdenum porphyry deposit andProject is located in southwest Alaska, approximately 200 miles (320 kilometers) southwest of the Statecity of Alaska. Comprehensive environmentalAnchorage.
To December 31, 2014, approximately $797 million (US$744 million)1 in expenditures have been incurred on the Pebble Project. Of this amount, approximately $595 million (US$573 million) in funding was provided to the Pebble Partnership by an affiliate of Anglo American plc ("Anglo American") and socioeconomic base line data collection and studies are also underway.
On October 29, 2001,expended from 2007 to December 10, 2013 after which time Northern Dynasty acquired from a related party two options which provided for the right for Northern Dynasty to purchase up to a 100% working (i.e. beneficial)re-acquired Anglo American’s 50% ownership interest in the Pebble Property. The options were granted by Teck Cominco American Incorporated (“Teck Cominco”) (asPartnership on the latter’s withdrawal. Prior to 80%) and Hunter Dickinson Group Inc. (“HDGI”) a related party which retained an interest in the options (see Item 7), (as to 20%, carried) as more particularly described below.
The first of the two options permitted Northern Dynasty to purchase the previously drilled (by Teck Cominco) portionsformation of the Pebble Property on which the majority of the known gold/copper mineralization is known to exist (the “Resource Lands”). The Resource Lands option required the payment of cash or shares during the three year term of the option (as extended by one year) and a balloon option payment at the end of the third year of approximately US$10 million (prior to November 30, 2004) at which time Northern Dynasty would own 80% of the Resource Lands (and HDGI, 20%) The second part of the Teck Cominco option permitted Northern Dynasty to earn a minimum of 40% (and up to 80% with HDGI holding 20%) interestPartnership in the remainder of the Pebble Property which was the area outside of the known mineralization (the “Exploration Lands”) by doing 60,000 feet of exploration drilling by November 30, 2004.
As of November 30, 20042007, Northern Dynasty had completed its option requirementsspent approximately $188 million on exploration activities and had exercised 80% of the Resource Lands and by February 2005, 80% of the Exploration Lands was acquired by exercise of the second option. The right to purchase the final 20% (by then participating working interest)a further $106 million in both Resource Lands and Exploration Lands options was agreed to be exercised by Northern Dynasty and acquired from HDGIacquisition costs on March 14, 2005 (but in respect of which regulatory approval has been applied for and is pending as of March 31, 2005). Upon regulatory approval to complete the acquisition of the final 20% working interest, Northern Dynasty will thereupon own a 100% working interest in the Pebble project subject only to a royalty (2-5% of after pay back net profits) held by Teck Cominco on the Exploration Lands.
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Northern Dynasty’s exploration and feasibility determination program for fiscal 2005 involves exploration drilling of the newly discovered East Zone on the flank of the known Pebble deposit, and the continued collection of environmental and socioeconomic data and ongoing engineering studies required for the completion of a feasibility study and the initiation of the permitting process in 2006. The program encompasses approximately 97,000 feet (30,000 m) of exploration and infill drilling as well as holes for metallurgical testing, and 60 days of rotary drilling for hydrological testing.
The budget for Northern Dynasty’s proposed 2005 program is C$44.5 million. The Company’s working capital as of March 21, 2005 was approximately $36 million, and there were approximately 2.3 million in-the-money warrants (exercisable at $4.15). It will however need to raise funds cover the future exploration programs and ongoing administrative costs. If the equity markets for resource issuers are not receptive to additional financings, Northern Dynasty will likely have to reduce the planned expenditures.Project.
Northern Dynasty does not have any operating revenue, although currently and historically it has had non-material annual interest revenue as a consequence of investing its surplus funds.
Significant Acquisitions, Dispositions and Group Reorganization
Northern Dynasty via 100% owned subsidiaries and other entities holds indirect interests in mineral claims on State land in southwest Alaska, USA. These claims (including certain area claims) form what is referred to as the Pebble Copper-Gold-Molybdenum Project (the "Pebble Project").
Pebble Limited Partnership and Pebble Project
On July 26, 2007, the Company converted a wholly-owned general partnership that held its Pebble Project interests into a limited partnership, the Pebble Partnership. The purpose of the Pebble Partnership is to engineer, permit, construct and operate a modern, long-life mine at the Pebble Project.
1 During the period 2007 to 2013, the Pebble Partnership expended several hundred million dollars on the Pebble Project, a major portion of which was spent on exploration funds pendingprograms, resource estimates, environmental data collection and technical studies, with a significant portion spent on engineering of various possible mine development models, as well as related infrastructure, power and transportation systems. As a consequence of several factors, including the completionEnvironmental Protection Agency (the "EPA") opposition to the Pebble Project, the withdrawal of exploration programs. Although exploration activities canAnglo American plc from the project and the passage of time, technical and engineering studies related to mine-site and infrastructure development are considered to have very uncertain and perhaps little value at this time. Environmental baseline studies and data collection remains a significant legacy asset of the Company from this period.
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Anglo American through a wholly-owned affiliate subscribed for 50% of the Pebble Partnership's equity effective July 31, 2007. To maintain its 50% interest in the Pebble Partnership, Anglo American was required to commit staged cash investments into the Pebble Partnership aggregating to US$1.5 billion. On September 15, 2013, Anglo American gave notice to the Company of its withdrawal from the Pebble Partnership. In December 2013, the Company exercised its right to acquire Anglo American’s 50% interest and consequently holds a 100% interest in the Pebble Partnership and Pebble Mines Corp. (the General Partner of the Pebble Partnership which administers the Pebble Project).
Under the Pebble Partnership Agreement and applicable tax regulations, neither the Company nor its affiliated general partnership will be more challengingentitled to the benefits for tax purposes of the expenditures incurred by the Pebble Partnership from Anglo American’s investment, as these benefits accrued exclusively to Anglo American under the Pebble Partnership Agreement and applicable tax regulations.
2006 Equity Investment by Rio Tinto Affiliate
In 2006, the Company issued 8,745,845 common shares in winter conditions,connection with a share purchase agreement with Kennecott Canada Exploration Inc. ("Kennecott", a subsidiary of Rio Tinto plc) for $10.00 per share for proceeds of approximately $87 million. In January 2007, Northern Dynasty was advised by Galahad Gold plc ("Galahad"), a significant shareholder of the Company that QIT-Fer Et Titane Inc., an affiliate of Rio Tinto, agreed to purchase 9.4 million shares of Northern Dynasty from Galahad at a price of $10.00 per share. The share purchase, which closed February 1, 2007, increased Rio Tinto’s indirect ownership in Northern Dynasty to approximately 19.8% . In early 2014, this holding represented approximately 19.1% of Northern Dynasty’s outstanding and issued common shares. Rio Tinto plc divested of its shares in April 2014.
Special Warrant Financing
In late December 2014 and early January 2015, the Company completed a financing to raise proceeds of $15.5 million through the issuance of 35,962,735 Special Warrants, each convertible into one Common Share without payment of additional consideration. SeeItem 10 - C. Material Contracts.
B. | THE PEBBLE PROJECT |
The Company’s business cannot be saidis the exploration and advancement towards feasibility, permitting and ultimately development of a copper-gold-molybdenum mineral resource in Alaska, USA known as the "Pebble Project".
The Pebble Project is Subject to be significantly seasonalState and Federal Laws
The Pebble Partnership is required to comply with all Alaska statutes in nature. Metals prices have traditionally seen multi-year cycles of higherconnection with the Pebble Project. These statutes govern titles, operations, environmental, development, operating and lower prices, which often impact the availabilitygenerally all aspects of exploration and development fundsof a mine in years with depressed prices.Alaska.
Alaska StatutesStatute 38.05.185 and following establishamong others establishes the rights to mining claimclaims and mineral leases on lands owned by the State of Alaska and open to mineral entry. This group of statutes also covers annual labour, annuallabor and rental requirements, and royalties.
Operations on claims or leases on state owned land must be permitted under a plan of operations as set out in Title 11 of the Alaska Administrative Code, 86.800.Chapter 86, Section 800. This regulation generally provides that the State Division of Mining can be the lead agency in coordinating the comments of all agencies which must consent to the issuance of a plan of operations, and sets the requirements for the approval of a plan of operations.
Environmental conditions are controlled by Alaska Statute 46.08 (prohibits(which prohibits release of oil and hazardous substances), Alaska Statute 46.03.060 and following (sets(which sets water quality standards), and Alaska Statute 46.14 (sets(which sets air quality standards).
Once a decision is made to enter permitting, the Pebble Project will be required to satisfy permitting requirements at three levels: federal, state and local (borough). The Company completedprocess takes approximately 3-4 years to complete and involves 11 regulatory agencies, 60+ categories of permits and significant ongoing opportunities for public involvement. The Alaska Department of Natural Resources Large Mine Permitting Team is responsible for coordinating permitting activities for large mine projects.
To satisfy permitting requirements under the National Environmental Policy Act ("NEPA") and other regulatory statutes, a private placement financingproject must provide a comprehensive project design and operating plan for gross proceedsmine-site and infrastructure facilities; documentation of C$30.5 million in March 2005 included in working capital amounts as noted above. However, it may havedevelopment alternatives investigated; mitigation and compensation strategies, and identification of residual effects; and environmental monitoring, reclamation and closure plans. The first step is to raise additional fundsprovide the required information for an Environmental Impact Statement ("EIS") under NEPA, including a Project Description and Environmental Baseline Document Prepared by a third-party contractor under the direction of a lead federal agency, expected to carry onbe the planned exploration program.
Further ParticularsUS Army Corps of Engineers. The EIS will determine whether sufficient evaluation of the Originsproject's environmental effects and development alternatives has been undertaken. It will also provide the basis for federal, state and local government agencies to make individual permitting decisions.
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Under the U.S. Clean Water Act, Section 404(c), the Administrator of the Pebble Property Options, 2001 Assignment from Related Party
By an Assignment Agreement dated October 29, 2001 between Northern Dynasty as assignee and Hunter Dickinson Group Inc. (“HDGI”Environmental Protection Agency ("EPA") as assignor, (the “HDGI Assignment”) (see Item 7 and Item 19), Northern Dynasty was assignedis given the right to acquire up todisallow the specification (including the withdrawal of specification) of any defined area as a 100% interestdisposal site if he or she determines that the release of such material will have an unacceptable adverse effect on municipal water supplies, local wildlife, spawning and breeding areas of fisheries, shellfish beds, and/or recreational areas. Such decisions made by the Administrator require notice and opportunity for public hearings, and consultation with the Secretary of the Army Corp of Engineers. The Administrator shall set forth in two discrete but interdependent options which were granted towriting and make public his or her findings and reasons for making any determination under this subsection.
Ownership History
In October 2001, Northern Dynasty acquired, through its Alaskan subsidiary, a two-part Pebble Property purchase option previously secured by HDGI byfrom an Alaskan subsidiary of Teck Cominco respectingLimited, now Teck Resources Limited (“Teck”). In particular, HDGI assigned 80% of this two-part option (the Teck Option) to Northern Dynasty while retaining 20% thereof. The first part of the Teck Option permitted Northern Dynasty to purchase (through its 22,582 hectare “Pebble” copper/gold prospect in southwestern Alaska. The two options relate to separateAlaskan subsidiary) 80% of the previously drilled portions of the Pebble Property which are referred to as (a) the “Resource Lands” on which a mineralized body had already been outlined by Teck Cominco, and (b) the “Exploration Lands” which constitute the remaindermajority of the Pebble Property area. In this Annual Report, these two options may be referred to as thethen known copper mineralization occurred (the “Resource Lands Option” and the “Exploration Lands Option” and together they are referred to as the “Teck Cominco Options”). HDGI is a private company owned by certain directors of Northern Dynasty could exercise the Resource Lands Option through the payment of cash and their associates and hence is a related partyshares aggregating US$10 million prior to Northern Dynasty. (See Item 7)
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UnderNovember 30, 2004. The second part of the HDGI Assignment,Teck Option permitted Northern Dynasty was assigned the options at HDGI’s out-of-pocket costs of $586,966 (which includes HDGI’s 2001 exploration and additional property staking costs related to the Pebble Property), an 80%earn a 50% interest in the Teck Cominco Options, together with the right to acquire HDGI’s retained 20% interest which is a “carried” interest up to the point of the termination of the resource Lands Option. HDGI was carried with respect to its retained 20% interest, meaning that Northern Dynasty must incur 100% of all exploration costs and 100% of all underlying option payments to Teck Cominco required by the Teck Cominco Options to the point of exercisearea outside of the Resource Lands Option (assuming Northern Dynasty decided to exercise the Teck Cominco Options)(the “Exploration Lands Option”). Northern Dynasty hadcould exercise the rightExplorations Lands Option by doing some 60,000 ft (18,200 m) of exploration drilling by November 30, 2004, which it completed on time. The HDGI assignment of the Teck Option also allowed Northern Dynasty to purchase (or “call”) HDGI’s carried interest for a 90-day period commencing at the time that, and in the event that, Northern Dynasty exercised the Resources Lands Option which it did on November 23, 2004. The Assignment Agreement provided that the carried interest call price was to be determined as the independently appraised valueother 20% of the carried interest which call amount will be payableTeck Option retained by Northern Dynasty in common shares of Northern Dynasty valued at market at that time.HDGI for its fair value.
OnIn November 26, 2004, Northern Dynasty exercised the Resource Lands Option and acquired 80% option from Teck Cominco onof the Resource Lands by issuing 1.77 million Northern Dynasty common sharesLands. In February 2005, Teck elected to Teck Cominco American Inc., which represents the adjusted final payment of US$10 million (adjusted to US$9.94 million for previous excess proceeds of share resale proceeds received by Teck Cominco). On February 23, 2005, Northern Dynasty acquired an 80%sell its residual 50% interest in the Exploration Lands by acquiring Teck Cominco’s residual interest in the Exploration Lands, consequent upon Teck Cominco’s election, through the issuance of US$4 million into Northern Dynasty common shares at the prevailing market price (approximately 977,795 shares). On March 14, 2005 Northern Dynasty, on the recommendation of an independent committee of its directors, elected to call HDGI’s 20% interest for 14,002,268 shares based on an independent appraisal of the 20% interest and a fairness opinion to separate parties (see item 19).US$4 million. Teck Cominco nowstill retains only a 4% pre-payback netsadvance net profits royalty interest (after debt service) and 5% after-payback net profits interest royalty in any mine production from the Exploration Lands portion of the Pebble Property.property as shown on the figure below.
The Teck Cominco Options provide Teck Cominco with the right to require
In June 2006, Northern Dynasty to in effect guarantee that Teck Cominco will receive cash proceeds equivalent toacquired, through its Alaska subsidiaries, the approximately US$14 million deemed value of the 2,750,520 shares issued to it for exercise of the Resource Lands Option and the Exploration Lands Option. However, in order to avail itself of this right Teck Cominco must permit Northern Dynasty the right to determine the timing and method of resale of the shares. Teck Cominco’s election to require the minimum proceeds guarantee must be made within 180 days of the receipt of these shares (November 23, 2004 as to 1772,725 shares and February 25, 2005 for 977,795 shares). As of March 31, 2005 Northern Dynasty is awaiting Teck Cominco’s determination (to be made by May 23, 2005 and July 25, 2005) as to whether Northern Dynasty will be required to manage the resale of the two tranches of shares. Northern Dynasty’s commitment extends to seeking investors to purchase the shares and by using reasonable efforts to achieve an orderly resale market for these shares. Northern Dynasty is not obligated (nor permitted by law) to re-purchase the shares itself. In the event Northern Dynasty secures purchasers after Teck Cominco’s election, any excess of resale proceeds over the US$14 million will be credited to Northern Dynasty (by way of cancellation of excess shares) and any share resale shortfall must be made up by Northern Dynasty.
Other interim option payments to Teck Cominco were made during 2001 to 2004, including US$250,000 in cash plus 500,000 two-year share purchase warrants (exercisable at $0.75) prior to December 31, 2001 (which consideration was paid on December 31, 2001) and 500,000 shares and 500,000 two-year share purchase warrants (exercisable at $1.15) prior to March 31, 2002 (which consideration was paid on March 28, 2002) and a further 500,000 shares and 250,000 warrants before December 31, 2002 (which consideration was paid on December 19, 2002). Pursuant to an agreement, an additional 200,000 shares
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were issued to Teck Cominco on December 19, 2002 to extend the deadline to purchase the Resource Lands from November 30, 2003 to November 30, 2004.
If Teck Cominco gives notice to Northern Dynasty by May 23, 2005 or July 25, 2005 (respecting the US$10 million and US$4 million share tranches respectively) that it wishes Northern Dynasty to control the resale of the 1,772,725 shares or 977,795 shares respectively, then Northern Dynasty shall manage the resale of those shares so that the return to Teck Cominco is US$9.94 million for the 1,772,725 shares (or applicable portion thereof) if resold within the following 12 months from the date of notice to sell or US$11 million if sold within the following 24 months, but in either case with a minimum requirement of US$1 million per each 3-month period after the notice. Any shares remaining after the required US$9.94 million resale proceeds has been received by Teck Cominco will be returned to Northern Dynasty’s treasury for cancellation, and if there are any deficiencies in the resale proceeds, Northern Dynasty must provide top-up shares or the cash equivalent until the minimum is achieved. If Teck Cominco does not give notice by the notice to sell deadline, there will be no minimum proceeds requirement and Northern Dynasty will have no influence over the timing or manner of any resales of these shares.
On February 25, 2005 Teck Cominco elected to sell its 50% interest in the Exploration Lands to Northern Dynasty and, consequently, Northern Dynasty purchased the interest by paying Teck Cominco US$4 million in 977,795 shares valued at $5.03 and by granting Teck Cominco a net profits royalty on any mine in the Exploration Lands. Prior to the recovery of the capital costs of constructing a mine on the Exploration Lands, the net profits royalty will be based upon the net cash flow from the sale of minerals after operating, marketing, distribution and debt-financing repayments to a maximum of 4% of the net cash flow. Following payback of any mine’s capital costs, the royalty is 5% of net profits.
If Teck Cominco elects to liquidate these 977,795 shares, it may, by notice to Northern Dynasty by July 25, 2005 require Northern Dynasty to manage the resale of these shares with a view to realizing at least US$4 million over the 12-month period after the notice. Any deficiencies from this figure will require Northern Dynasty to provide top-up with shares or cash so that the US$4 million is achieved. Any Northern Dynasty shares remaining unsold after the maximum of US$4 million has been realized will be returned to Northern Dynasty’s treasury for cancellation. If Teck Cominco does not give notice of sale by the notice to sell deadline, there is no resale proceeds protection, and if Teck Cominco elects to sell after the notice to sell deadline, then Northern Dynasty may retain control of the share resale process for a 48-month period with any profit or loss on the share resale (measured from the initial issuance value) which will be for the account of Teck Cominco. Northern Dynasty must direct the resale of the shares in good faith with a view to maximizing Teck Cominco’s proceeds with all such resale activities in compliance with applicable US and Canadian securities laws and the policies of the TSX Venture. All negotiations between Northern Dynasty and Teck Cominco took place in Canada. Teck Cominco American Incorporated is a US holding subsidiary of Teck Cominco Ltd. (whose shares are listed on The Toronto Stock Exchange and bonds are listed on the American Stock Exchange). Securities issued to Teck Cominco are issued relying on the exemption from US registration found in Rule 903(c)(1) of Regulation S to the United States Securities Act of 1933 and are expected to be eligible for resale through the TSX Venture Exchange under Rule 904 to Regulation S.
On March 14, 2005, Northern Dynasty had agreed to exercise its right to acquire theHDGI 20% remaining carried working interest in the Resource Lands portion and Exploration Lands by acquiring HDGI from its shareholders and through its various subsidiaries had thereby acquired an aggregate 100% interest in the Pebble Property, subject only to the Teck net-profits royalties on the Exploration Lands portionLands. At that time, Northern Dynasty operated the Pebble Property through anAlaskan general partnership with one of its subsidiaries.
In July 2007, the Pebble Partnership was created and an indirect wholly-owned subsidiary of Anglo American subscribed for 50% of the Pebble Property for a purchase price consistingPartnership's equity effective July 31, 2007. Each of 14,002,268 Northern Dynasty commonand Anglo American effectively had equal control and management rights in the Pebble Partnership and its general partner, Pebble Mines Corp., through respective wholly-owned affiliates. The Pebble Partnership's assets include the shares of two Alaskan subsidiaries, which represents approximately 20%hold registered title to the claims. To maintain a 50% interest in the Pebble Partnership, Anglo American was required to make staged cash investments into the Pebble Partnership, aggregating $1.5 billion, towards comprehensive exploration, engineering, environmental and socioeconomic programs and, if warranted, development of the adjusted market capitalizationPebble Project. On September 15, 2013, Anglo American gave Northern Dynasty a 60-day notice of withdrawal from the Pebble Project. In December 2013, Northern Dynasty. This is subjectDynasty exercised its right to regulatory approval as ofacquire Anglo American’s interest in the date hereof. There are no resale provisions with respect to these shares (except securities laws of general application). Upon receipt of the approvalsPebble Partnership and issuance of the 14,002,268 common shares, the Company will holdnow holds a 100% interest in the Pebble Partnership.
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On June 29, 2010, Northern Dynasty entered into an agreement with Liberty Star Uranium and Metals Corp. and its subsidiary, Big Chunk Corp. (together, "Liberty Star"), pursuant to which Liberty Star sold 23.8 square miles of claims (the 95 "Purchased Claims") to a U.S. subsidiary of Northern Dynasty in consideration for both a $1 million cash payment and a secured convertible loan from Northern Dynasty in the amount of $3 million. The parties agreed, through various amendments to the original agreement, to increase the principal amount of the Loan by $730,174. Northern Dynasty later agreed to accept transfer of 199 claims (the “Settlement Claims”) located north of the ground held 100% by the Pebble Partnership in settlement of the Loan. These claims are now held by Northern Dynasty’s subsidiary U5 Resources Inc. See Property Description below for current claim holding.
On January 31, 2012, the Pebble Partnership entered into a Limited Liability Company Agreement with Full Metal Minerals (USA) Inc. (“FMMUSA”), a wholly-owned subsidiary of Full Metal Minerals Corp., to form Kaskanak Copper LLC (the “LLC”). Under the agreement, the Pebble Partnership could earn a 60% interest in the LLC, which indirectly owned 100% of the Kaskanak claims, by incurring exploration expenditures of at least US$3 million and making annual payments of $50,000 to FMMUSA over a period ending on December 31, 2013. On May 8, 2013, the Pebble Partnership purchased FMMUSA’s entire ownership interest in the LLC for a cash consideration of $750,000. As a result, the Pebble Partnership gained a 100% ownership interest in the LLC, the indirect owner of a 100% interest in a group of 542 claims located south and west of other ground held by the Pebble Partnership. See Property Description below for current claim holding.
TECHNICAL SUMMARY
The following disclosure is mainly summarized from the “2014 Technical Report on the Pebble Project, Southwest Alaska, USA” by J. David Gaunt, P.Geo., James Lang, P.Geo., Eric Titley, P.Geo., and Ting Lu, P.Eng., effective date December 31, 2014 (“2014 Technical Report”), and updated from Company files. Additional details can be found in the 2014 Technical Report which is filed on the Company’s profile atwww.sedar.com and as a Form 6-K on the Company’s profile atwww.sec.gov.
Introduction
The Pebble deposit was originally discovered in 1989 and was acquired by Northern Dynasty in 2001. Since that time, Northern Dynasty and subsequently the Pebble Limited Partnership (the “Pebble Partnership”, in which Northern Dynasty currently owns a 100% interest) have conducted significant mineral exploration, environmental baseline data collection, and engineering work on the Pebble Project to advance it towards development.
Work at Pebble has led to an overall expansion of the Pebble deposit, as well as the discovery of several other mineralized occurrences along an extensive northeast-trending mineralized system underlying the property. Over one million feet of drilling has been completed on the property, a large proportion of which has been focused on the Pebble deposit.
In light of more recent stakeholder and regulatory feedback, Northern Dynasty initiated a comprehensive review of previous analyses of the Pebble Project in late 2013 and in 2014 commissioned the 2014 Technical Report to update information on the mineral resources and metallurgy for the project.
Property Description and Location
The Pebble Project is located in southwest Alaska, approximately 200 miles southwest of Anchorage, 17 miles northwest of the village of Iliamna, 160 miles northeast of Bristol Bay, and approximately 60 miles west of Cook Inlet.
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Figure 1 Property Location – Pebble Project
Northern Dynasty holds, indirectly through wholly-owned subsidiaries including the Pebble Partnership, a 100% interest in a contiguous block of 2,402 mineral claims covering approximately 417 square miles (Figure 2). This includes 1,718 claims covering 248.2 square miles (including the Pebble deposit) held by Pebble Partnership subsidiaries, Pebble East Claims Corporation and Pebble West Claims Corporation; 464 claims covering an area of 116 square miles held by Pebble Partnership indirect subsidiary, Kaskanak LLC1; and 220 claims covering 52.5 square miles held by Northern Dynasty subsidiary U5 Resources Inc. The details of the mineral claims are provided as Exhibit 15.01.
State mineral claims in Alaska are kept in good standing by performing annual assessment work or in lieu of assessment work by paying $100 per year per 40 acre (0.06 square mile) mineral claim, and by paying annual escalating state rentals. All of the assessment work payment obligations come due annually on August 31. Credit for excess work can be banked for a maximum of five years afterwards, and can be applied as necessary to continue to hold the claims in good standing. The Project claims have a variable amount of work credit available that can be applied in this way and will be applied in 20152. State rentals for 2015 are US$990,390 and are payable no later than 90 days after the assessment work.
The Pebble Partnership currently does not own surface rights associated with the mineral claims that comprise the Pebble Property. All lands are held by the State of Alaska, and surface rights may be acquired from the state government once areas required for mine development have been determined and permits awarded. Permits necessary for exploration drilling and other field programs associated with pre-development assessment of the Pebble Project are applied for each year. There are no existing material environmental liabilities associated with the Pebble Project.
1In January 2015, Kaskanak Inc and its wholly-owned parent, Kaskanak Copper LLC were merged with Pebble East Claims Corporation, with the latter the surviving entity. |
2Annual assessment work obligations for the property of some US$667,700 will be covered by banked credits in 2015. |
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Figure 2 Mineral Claims – Pebble Project
Accessibility, Climate, Local Resources, Infrastructure and Physiography
Current access to the property is by helicopter from Iliamna. There is a modern airfield at Iliamna, with two paved 4,920 ft airstrips, that services the communities of Iliamna, Newhalen and Nondalton. The runways are suitable for DC-6 and Hercules cargo aircraft and commercial jet aircraft.
There are paved roads that connect the villages of Iliamna and Newhalen to the airport and to each other, and a partly paved, partly gravel road that extends to a proposed Newhalen River crossing near Nondalton. The property is currently not connected to any of these local communities by road; a road would be planned as part of the project design.
There is no access road that connects the communities nearest the Pebble Project to the coast on Cook Inlet. From the coast, at Williamsport on Iniskin Bay, there is an 18.6 mile state-maintained road that terminates at the east end of Iliamna Lake, where watercraft and transport barges may be used to access Iliamna. The route from Williamsport, over land to Pile Bay on Iliamna Lake, is currently used to transport bulk fuel, equipment and supplies to communities around the lake during the summer months. Also during summer, supplies are barged up the Kvichak River, approximately 43.4 miles southwest of Iliamna, from Kvichak Bay on the North Pacific Ocean.
A small run-of-river hydroelectric installation on the nearby Tazamina River provides power for the three communities in the summer months. Supplemental power generation using diesel generators is required during winter months.
Iliamna and surrounding communities have a combined population of just over 400 people. As such, there is limited local commercial infrastructure except that which services seasonal sports fishing and hunting.
The property is situated at approximately 1,000 ft above mean sea level in an area described as subarctic tundra. It is characterized by gently rolling hills and an absence of permafrost. The climate is sufficiently moderate to allow a well-planned mineral exploration program to be conducted year-round at Pebble.
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Geological Setting and Mineralization
Pebble is a porphyry-style copper-gold-molybdenum-silver deposit that comprises two adjacent, contiguous, coeval hydrothermal centers called the Pebble East and Pebble West zones. Mineralization in the Pebble West zone extends from surface to depths of at least 3,000 ft whereas higher grade mineralization in the Pebble East zone extends to a depth of at least 5,810 ft but is concealed beneath an east-thickening wedge of unmineralized rock types. An important exploration target is represented by high-grade, but as yet undelineated, mineralization on the far eastern side of the deposit which was dropped 1,970 to 2,950 ft by normal faults into the northeast-trending East Graben.
The Pebble deposit formed about 90 million years ago in response to intrusion of granodiorite magmas generated by subduction of the Pacific Plate beneath the Wrangellia Superterrane. The Pebble deposit is hosted by these granodiorite intrusions and by the sedimentary and volcanic rocks of Jurassic to Cretaceous age, granodiorite and diorite sills and alkalic monzonite intrusions and associated breccias which host them.
Mineralization at Pebble is predominantly hypogene, although the Pebble West zone contains a thin zone of variably developed leached cap and underlying supergene mineralization. Disseminated and vein-hosted copper-gold-molybdenum-silver mineralization, dominated by chalcopyrite and locally accompanied by bornite, is associated with early potassic alteration in the shallow part of the Pebble East zone and with early sodic-potassic alteration in the Pebble West zone and deeper parts of the Pebble East zone. High-grade copper-gold mineralization is associated with younger pyrophyllite- and sericite-bearing subtypes of advanced argillic alteration in the Pebble East zone. The deposit is surrounded by weakly mineralized quartz-sericite-pyrite alteration; in the upper center of the deposit quartz-illite-pyrite alteration is an illite-altered relict of a mostly eroded quartz-sericite-pyrite cap to the deposit.
Exploration
Historical
Cominco Alaska, a division of Cominco Ltd. now Teck (“Cominco (Teck)”) began reconnaissance exploration in the Pebble region in the mid-1980s and in 1984 discovered the Sharp Mountain gold prospect near the southern margin of the current property. Gold was discovered in quartz veins of probable Tertiary age near the peak of Sharp Mountain. Grab samples of veins in talus ranged from 0.045 oz/ton Au to 9.32 oz/ton Au and 3.0 oz/ton Ag. In 1987, examination and sampling of several prominent limonitic and hematitic alteration zones yielded anomalous gold concentrations from the Sill prospect and the Pebble discovery outcrop.
Geophysical surveys were conducted on the property between 1988 and 1997. An IP survey in 1989 at Pebble displayed response characteristics of a large porphyry-copper system. The surveys were dipole-dipole induced polarization (“IP”) surveys which defined a chargeability anomaly about 31.1 square miles in extent within Cretaceous age rocks which surround the eastern to southern margins of the Kaskanak batholith. All known zones of mineralization of Cretaceous age on the Pebble property occur within the broad IP anomaly.
In 1991, baseline environmental and engineering studies were initiated and weather stations were established. A preliminary evaluation was undertaken by Cominco (Teck) in 1991, and updated in 1992. Historical estimates of the mineral resources for the Pebble deposit were completed by Cominco (Teck), most recently in 2000.
Northern Dynasty and Pebble Partnership
Between 2001 and 2006, the entire Pebble property subject onlywas mapped for rock type, structure and alteration at a scale of 1:10,000, providing an important geological framework for interpretation of other exploration data. A geological map of the Pebble deposit was also constructed but, due to Teck Cominco’s net profits interest royaltya paucity of outcrop, was based solely on drill hole information. The content and interpretation of district and deposit scale geological maps have not changed materially from those presented in 2009 and 2010.
A number of geophysical surveys, including IP, magnetic and other survey types were completed by Northern Dynasty and the Pebble Partnership between 2001 and 2010 to test the Pebble deposit and other occurrences on the Pebble property. Between 2001 and 2003, Northern Dynasty collected 1,026 soil samples, outlining high-contrast, coincident anomalies in gold, copper, molybdenum and other metals in an area that measures at least 5.6 miles north-south by up to 2.5 miles east-west, with strong but smaller anomalies in several outlying zones. All soil geochemical anomalies lie within the 31.1 square mile IP chargeability anomaly. Limited surficial geochemical surveys were completed in 2010 and 2011.
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Drilling
Extensive drilling totalling 1,042,218 ft has been completed in 1,355 holes on the Pebble Project. These result from annual drill programs which took place during 19 of the 26 years from 1988 to 2013.
Northern Dynasty and the Pebble Partnership completed drilling for exploration, deposit delineation, engineering and environmental purposes between 2001 and 2013. Highlights from exploration and deposit delineation drilling since 2001 include:
• | in 2002, drill testing of IP chargeability and multi-element geochemical anomalies outside of the Pebble deposit but within the larger and broader IP chargeability anomaly discovered the 38 Zone porphyry copper-gold-molybdenum deposit, the 52 Zone porphyry copper occurrence, the 37 Zone gold-copper skarn deposit, the 25 Zone gold deposit, and several small occurrences in which gold values exceeded 3.0 g/t. |
• | in 2003, drilling took place within and adjacent to the Pebble West zone and outside the Pebble deposit to test for extensions and new mineralization at four other zones, including the 38 Zone porphyry copper-gold-molybdenum deposit and the 37 Zone gold-copper skarn deposit. |
• | in 2004, 147 exploration holes were drilled in the Pebble deposit; the Pebble East zone is identified; the 308 Zone porphyry copper-gold-molybdenum deposit is discovered. |
• | in 2005 and 2006, drilling at Pebble East confirms its large size and higher grades of copper, gold and molybdenum. |
• | in 2007, 34 holes extend Pebble East to the northeast, northwest, south and southeast. |
• | in 2008, 31 delineation and infill holes were drilled at Pebble East. FMMUSA drilled seven exploration holes on land that is now controlled by the Pebble Partnership. |
• | in 2009 and 2010, delineation holes were drilled at the margins of Pebble West and exploration holes were drilled elsewhere on the property. |
• | in 2011 and 2012, holes drilled at the Pebble West zone indicate potential for resource expansion laterally and to depth; exploration targets were tested on the Kaskanak claims to the northwest and south of Pebble, and on the KAS claims further south. |
Drilling for engineering (metallurgical and geotechnical) and environmental (hydrological) purposes began in 2004 and continued through 2013.
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The spatial distribution and type of holes drilled are illustrated below.
Figure 3 Location of Drill Holes – Pebble Project
Most of the footage on the Pebble Project was drilled using diamond core drills. Only 18,716 ft were percussion-drilled from 222 rotary drill holes. Many of the cored holes were advanced through overburden using a tricone bit with no core recovery. These overburden lengths are included in the Exploration Lands.core drilling total.
Since early 2004, all Pebble drill core has been geotechnically logged on a drill run basis. Over 69,000 measurements were made for a variety of geotechnical parameters on 735,000 ft of core drilling. Recovery is generally very good and averages 98.5% overall; two-thirds of all measured intervals have 100% core recovery. Additionally, all Pebble drill core from the 2001 through 2013 drill programs was photographed in a digital format.
All drill hole collars have been surveyed using a differential global positioning system. A digital terrain model for the site was generated by photogrammetric methods in 2004. All post-Cominco (Teck) drill holes have been surveyed downhole, typically using a single shot magnetic gravimetric tool. A total of 989 holes were drilled vertically (-90°) and 192 were inclined from -42° to -85° at various azimuths.
A summary of drilling by various categories (operator, type, year and area) to the end of the 2013 exploration program are compiled in the table below. As shown in Figure 3 and Table 1 (East, West, Main), a large proportion of the drilling has been directed toward the Pebble deposit.
Table 1 Summary of Drill Holes – Pebble Project
No. of Holes | Feet | Metres | |
By Operator | |||
Cominco (Teck)1 | 164 | 75,741.0 | 23,086 |
Northern Dynasty | 578 | 495,069.5 | 150,897 |
Pebble Partnership2 | 606 | 465,957.7 | 142,024 |
FMMUSA | 7 | 5,450.0 | 1,661 |
Total | 1,355 | 1,042,218.2 | 317,668 |
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No. of Holes | Feet | Metres | |
By Type | |||
Core1,5 | 1,132 | 1,023,297.6 | 311,901 |
Percussion6 | 223 | 18,920.6 | 5,767 |
Total | 1,355 | 1,042,218.2 | 317,668 |
By Year | |||
19881 | 26 | 7,601.5 | 2,317 |
19891 | 27 | 7,422.0 | 2,262 |
1990 | 25 | 10,021.0 | 3,054 |
1991 | 48 | 28,129.0 | 8,574 |
1992 | 14 | 6,609.0 | 2,014 |
1993 | 4 | 1,263.0 | 385 |
1997 | 20 | 14,695.5 | 4,479 |
2002 | 68 | 37,236.8 | 11,350 |
2003 | 67 | 71,226.6 | 21,710 |
2004 | 267 | 165,567.7 | 50,465 |
2005 | 114 | 81,978.5 | 24,987 |
20063 | 48 | 72,826.9 | 22,198 |
20074 | 92 | 167,666.9 | 51,105 |
20085 | 241 | 184,726.4 | 56,305 |
2009 | 33 | 34,947.5 | 10,652 |
2010 | 66 | 57,582.0 | 17,551 |
2011 | 85 | 50,767.7 | 15,474 |
2012 | 81 | 35,760.2 | 10,900 |
2013 | 29 | 6,190.0 | 1,887 |
Total | 1,355 | 1,042,218.2 | 317,668 |
By Area | |||
East | 141 | 446,379.3 | 136,056 |
West | 443 | 351,986.7 | 107,286 |
Main7 | 101 | 10,674.7 | 3,254 |
NW | 203 | 45,948.4 | 14,005 |
North | 46 | 25,695.9 | 7,832 |
NE | 10 | 1,097.0 | 334 |
South | 98 | 50,262.5 | 15,320 |
25 Zone | 8 | 4,047.0 | 1,234 |
37 Zone | 7 | 4,252.0 | 1,296 |
38 Zone | 20 | 14,221.5 | 4,335 |
52 Zone | 5 | 2,534.0 | 772 |
308 Zone | 1 | 879.0 | 268 |
Eastern | 21 | 3,105.0 | 946 |
Southern | 153 | 60,442.4 | 18,423 |
SW | 51 | 9,337.8 | 2,846 |
Sill | 39 | 10,445.5 | 3,184 |
Cook Inlet | 8 | 909.5 | 277 |
Total | 1,355 | 1,042,218.2 | 317,668 |
Notes to table:
1. | Includes holes drilled on the Sill prospect. |
2. | Holes started by Northern Dynasty and finished by the Pebble Partnership are included as the Pebble Partnership. |
3. | Drill holes counted in the year in which they were completed. |
4. | Wedged holes are counted as a single hole including full length of all wedges drilled. |
5. | Includes FMMUSA drill holes; data acquired in 2010. |
6. | Shallow (<15 ft) auger holes not included. |
7. | Comprises holes drilled entirely in Tertiary cover rocks within the Pebble West and Pebble East areas. |
Some numbers may not sum exactly due to rounding.
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- 18 -Sampling, Analysis and Security of Samples
The Pebble Property, Alaska, USA - Technicaldeposit has been explored by extensive core drilling, with 80,859 samples having been taken from drill core for assay analysis. Nearly all potentially mineralized Cretaceous core drilled and recovered has been sampled by halving in 10 ft lengths. Similarly, all core recovered from the Late Cretaceous to Early Tertiary cover sequence has also been sampled, typically on 20 ft sample lengths, with some shorter sample intervals in areas of geologic interest. Unconsolidated overburden material, where it exists, is generally not recovered by core drilling and therefore not usually sampled.
Rock chips from the 222 rotary percussion holes were generally not sampled for assay analysis, as the holes were drilled for monitoring wells and environmental purposes. Only 35 samples were taken from the drill chips of 26 rotary percussion holes outside the Pebble deposit area, which were drilled for condemnation purposes.
Analytical work in 2002 and from 2004 to 2013 was completed by ALS Minerals Laboratories of North Vancouver, an ISO 9002 certified laboratory. Analytical work for the 2003 drilling program was completed by SGS Canada Inc. of Toronto, ON, an ISO 9002 registered, ISO 17025 accredited laboratory.
Northern Dynasty maintained an effective Quality Control/Quality Assurance (“QA/QC”) program consistent with industry best practices, which has continued from 2007 to 2013 under the Pebble Partnership. This program is in addition to the QA/QC procedures used internally by the analytical laboratories. The QA/QC program has also been subject to independent review by Analytical Laboratory Consultants Ltd. and Nicholson Analytical Consulting. The analytical consultants provide ongoing monitoring, including facility inspection and timely reporting of the performance of standards, blanks and duplicates in the sampling and analytical program. The results of this program indicate that analytical results are of a high quality, suitable for use in detailed modelling and resource evaluation studies. The QA/QC sample types used in the program are described in the table below.
Table 2 Summary of Quality Control/Quality Assurance Sampling – Pebble Project
QC Code | Sample Type | Description | % of Total |
MS | Regular Mainstream | Regular samples submitted for preparation and analysis at the primary laboratory. | 90% |
ST | Standard (Certified Reference Material) | Mineralized material in pulverized form with a known concentration and distribution of element(s) of interest. Randomly inserted using pre-numbered sample tags. | 5% or 1 in 20 |
DP | Duplicate or Replicate | An additional split taken from the remaining pulp reject, coarse reject, ¼ core or ½ core remainder. Random selection using pre-numbered sample tags. | 5% or 1 in 20 |
SD | Standard Duplicate | Standard reference sample submitted with duplicates and replicates to the check laboratory. | <1% |
BL | Blank | Sample containing negligible or background amounts of elements of interest, to test for contamination. | 1% |
Core was boxed at the rig and transported daily by helicopter to the secure logging facility in Iliamna. Half cores remaining after sampling were replaced in the original core boxes and stored at Iliamna, AK in a secure compound. Crushed reject samples from the 2006 through 2013 analytical programs are stored in locked containers at Delta Junction, AK. Drill core assay pulps from the 1989 through 2013 programs are stored at a secure warehouse in Langley, BC.
Mineral Resources
The current estimate of the mineral resources in the Pebble deposit is based on approximately 59,000 assays obtained from 699 drill holes completed to the end of 2013. The resource tabulated below was estimated using ordinary kriging by David Gaunt, P.Geo., a qualified person who is not independent of Northern Dynasty.
The tabulation is based on copper equivalency that incorporates the contribution of copper, gold and molybdenum. Although the estimate includes silver, it was not used as part of the copper equivalency calculation in order to facilitate comparison with previous estimates which did not consider the silver content or its potential economic contribution. A base case cut-off of 0.3% CuEq is highlighted.
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Cautionary Note to Investors Concerning Estimates of Measured and Indicated
|
Table 3 2014 Estimate of Mineral Resources – Pebble Deposit Measured and Indicated Categories
Threshold CuEq % | CuEq% | Tonnes | Cu (%) | Au (g/t) | Mo (ppm) | Ag (g/t) |
Measured | ||||||
0.3 | 0.65 | 527,000,000 | 0.33 | 0.35 | 178 | 1.66 |
0.4 | 0.66 | 508,000,000 | 0.34 | 0.36 | 180 | 1.68 |
0.6 | 0.77 | 279,000,000 | 0.40 | 0.42 | 203 | 1.84 |
1.0 | 1.16 | 28,000,000 | 0.62 | 0.62 | 302 | 2.27 |
Indicated | ||||||
0.3 | 0.77 | 5,912,000,000 | 0.41 | 0.34 | 245 | 1.66 |
0.4 | 0.82 | 5,173,000,000 | 0.45 | 0.35 | 260 | 1.75 |
0.6 | 0.99 | 3,450,000,000 | 0.55 | 0.41 | 299 | 1.99 |
1.0 | 1.29 | 1,411,000,000 | 0.77 | 0.51 | 343 | 2.42 |
Measured + Indicated | ||||||
0.3 | 0.76 | 6,439,000,000 | 0.40 | 0.34 | 240 | 1.66 |
0.4 | 0.81 | 5,681,000,000 | 0.44 | 0.35 | 253 | 1.75 |
0.6 | 0.97 | 3,729,000,000 | 0.54 | 0.41 | 291 | 1.98 |
1.0 | 1.29 | 1,439,000,000 | 0.76 | 0.51 | 342 | 2.42 |
Cautionary Note to Investors Concerning Estimates of Inferred Resources This section also uses the term "inferred mineral resources". The Company advises investors that while this term is recognized and required by Canadian regulations, the SEC does not recognize it. "Inferred mineral resources" have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of |
Location and AccessTable 4 2014 Estimate of Mineral Resources – Pebble Deposit Inferred Category
Threshold CuEq % | CuEq% | Tonnes | Cu (%) | Au (g/t) | Mo (ppm) | Ag (g/t) |
Inferred | ||||||
0.3 | 0.54 | 4,460,000,000 | 0.25 | 0.26 | 222 | 1.19 |
0.4 | 0.68 | 2,630,000,000 | 0.33 | 0.30 | 266 | 1.39 |
0.6 | 0.89 | 1,290,000,000 | 0.48 | 0.37 | 291 | 1.79 |
1.0 | 1.20 | 360,000,000 | 0.69 | 0.45 | 377 | 2.27 |
The Pebble Property is centered at latitude 59 degrees 53 minutes 54 seconds North and longitude 155 degrees 17 minutes 44 seconds West in the Iliamna region of southwestern Alaska. It is approximately 380 km southwest of Anchorage and 27 km northwest of the village of Iliamna (Figure 1).
Accesstabulated mineral resources are subject to the Pebble Project from Anchorage is via fixed wing aircraft to Iliamna. Iliamna has a state-operated airportnotes below:
These resource estimates have been prepared in accordance with two 1,700 m paved runways. It is serviced by several passenger and cargo flights daily from Anchorage, using Convair, Hercules and DC-6 aircraft, as well as smaller charter aircraft. Current access from Iliamna to the property is by helicopter, a flying distance of 27 km.
The Pebble Property is located 95 km from tidewater. Access to the coast from Lake Iliamna is provided by a 30 km, state-maintained road, which extends from Pile Bay at the eastern end of Lake Iliamna to Williamsport near Iniskin Bay on Cook Inlet. Bulk fuel and heavy freight can also be barged in during the summer months to Lake Iliamna via the Kvichak River. There is currently no road from Iliamna northwest to the Pebble Property.
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Figure 1 Location
Topography and Climate
The climate of the Iliamna area is similar to Anchorage with summer daytime high temperatures range from 10 to 17 degrees Celsius, and low temperatures varying from -10 to -13 degrees Celsius in December through to March. Average annual precipitation is 69 cm. The climate, although periodically harsh, is sufficiently moderate to allow a well-planned mineral exploration program to be conducted year-round.
The Pebble Property lies within an area of rolling hills and low mountains. Valley bottoms are at elevations of 250 m above sea level. The highest point on the property is Kaskanak Peak, at an elevation of 841 m. The currently known mineralized deposit (a mass of naturally occurring mineral material without regard to mode of origin) is situated at the 325 m elevation. Vegetation consists of sparse patches of alder trees separated by expanses of tundra and grass. The area was recently glaciated and glacial soil deposits and hummocky terrain abound. There are numerous streams and small, shallow lakes and ponds in the vicinity of the project, which provide water for exploration drilling.
Mineral Claims Status
The property forms a continuous block consisting of 1,331 located Alaska State mineral claims totaling 39,600 hectares (98,000 acres). Annual rental fees are US$160,295 and annual assessment work obligations are US$245,000.
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Exploration History
In the mid 1980s, Teck Cominco began reconnaissance exploration in the Pebble region and in 1984 discovered the Sharp Mountain gold prospect. Gold occurs in drusy quartz veins of probable Tertiary age that cut Cretaceous rocks near the peak of Sharp Mountain. Grab samples of veins in talus ranged from 1.5 g/t Au to 9.32 oz/ton Au and 3.0 oz/ton silver. No record of further work is available.
Examination and sampling of several color anomalies in 1987 yielded anomalous gold concentrations from the Sill prospect, recognized as a precious-metal, epithermal-vein occurrence,NI 43-101 and the Pebble discovery outcrop, which wasCIM Definition Standards. Inferred resources have a great amount of uncertain affinity. The 1988 exploration program included 24 diamond drill holes at the Sill epithermal gold prospect, soil sampling, geological mappinguncertainty as to their existence and two diamond drill holes at the Pebble target. Drilling at the Sill prospect intercepted mineralization with gold gradeswhether they can be mined legally or economically. It cannot be assumed that justified more work, but the initial Pebble drill holes yielded only modest encouragement. In 1989, an expanded soil sampling program, an IP survey and 12 diamond drill holes were completed at the Pebble target, and 15 diamond drill holes were completed at the Sill prospect. Although limited in scope, the IP survey at Pebble displayed a response characteristic of a large, porphyry-copper system. This interpretation was validated through subsequent drilling by Teck Cominco that intercepted significant intervals of porphyry-style gold, copper, and molybdenum mineralization.
When it became apparent that a significant copper-gold porphyry deposit had been discovered, exploration was accelerated in 1990 and 1991 when 73 additional diamond drill holes were completed. In 1991, baseline environmental and engineering studies were initiated and weather stations were established. A preliminary economic evaluation was undertaken by Cominco Engineering Services Ltd. (“CESL”) in 1991 and subsequently revised in 1992. In 1992, 14 drill holes were completed in the deposit area. In 1993, IP surveying and a 4-hole drilling program were completed at a target 6 km to the south of the Pebble deposit. In 1997, Teck Cominco did IP surveying, geochemical sampling and geological mapping, and drilled 20 holes into and around the Pebble deposit. Preliminary engineering studies carried out by CESL in 1991-1992 indicate several road access options, including a 130 km gravel access road connecting the Pebble project to a deep-draft ocean port site on Iniskin Bay. The State of Alaska has provided significant financial assistance for the construction of similar access roads and ports for major mineral development projects, such as that at the Red Dog Mine in northwestern Alaska. Power required for project development could be provided by natural gas from offshore wells in Cook Inlet, transported by pipeline to the mine site, where natural gas turbines would be situated. The preliminary engineering work also evaluated and selected a number of possible sites for processing facilities, a water source, accommodations, tailings storage, and waste rock disposal.
Preliminary metallurgical testing was conducted on various samples from the Pebble project during the period 1991 through 1994. In 1991, two independent metallurgical laboratories conducted grindability test work on six core samples. In 1992, flotation testing utilized material assaying 0.41% Cu and 0.34 g/t Au, comprised of 1.2% chalcopyrite, 12.3% pyrite and 86.5% host rock with minor amounts of molybdenite. Metallurgical testing in 1994 utilized a 310 kg composite sample of mineralization collected from 8 core drill holes. The holes were a good spatial mix from within the centralall or any part of the deposit.
Grindability test results among the various metallurgical programs were fairly consistent; the metric ballmill work index range is 15.6 to 17.5 kilowatt hours per tonne of mineralization (kWh/t), averaging 17.1 kWh/t. The grindability tests are initial tests and only provide information on the known mineralized area only. Test work comprised bench scale as well as lock cycle testing. A variety of grind sizes, pH conditions, reagent suites and simulated flow schematics were tried. The Pebble sulphide mineralization is fine grained and disseminated throughout the host rock as well as in the veins and veinlets that occur
- 21 -
throughout the deposit. As a result, much of the test work involved optimization of primary liberation size within a wide range.
Flotation (separation of minerals from waste rock in solution) test work was conducted during several programs from 1991 to 1994. The 1992 work utilized rougher, scavenger and cleaner flotation schematics. During the four years of test work, the range of recoveries obtained was 81% to 94% for copper and 60% to 84% for gold. The 1994 flotation results did not achieve the 1992 high results, but coarser grinds and various regrind schemes were investigated. Much of the work in 1994 included pyrite depression and separation, which reduced gold recovery. Results were not conclusive and additional test work will have to be done, including optimization of flotation, regrind and pyrite handling.
In 2001, HDGI staked the PEB claims to cover ground where Teck Cominco had detected a multi-element, soil-geochemical anomaly and high IP chargeability on two, widely spaced, reconnaissance lines. On the new PEB claims, HDGI collected and analyzed 601 soil samples and did 30-line km of IP/resistivity surveying.
During 2002, Northern Dynasty drilled 68 holes totaling 11,306 m exploring for additional porphyry deposits within which to define higher-grade resources. Four new mineral zones were discovered. One of these, the Thirty-Eight Zone, is a till-covered copper-gold porphyry deposit located 12 km south-southwest of the Pebble deposit. Some 86% of Teck Cominco’s drill core from the Pebble deposit (16,000 m) was relogged and a sectional geological model was completed. Based on this model, the Pebble deposit resource was calculated (Snowden, 2003). Surface work included an 18.5 -line-km ground magnetometer survey; a 328-sample soil geochemical survey and a few man-days of geological traverses.
Prior to the 2003 drilling program, Northern Dynasty commissioned an independent mineral resource estimate. Inferred resources in the Pebble deposit were estimatedwill ever be upgraded to be 1.0 billion tonnes grading 0.40 g/t gold, 0.30% copper, and 0.015% molybdenum (0.61% copper-equivalent) above a cut-off grade of 0.30% copper-equivalent, and 271 million tonnes of 0.59 g/t gold, 0.43% copper and 0.018% molybdenum (0.86% copper-equivalent) above a cut-off grade of 0.70% copper equivalent.higher category.
In 2003, Northern Dynasty drilled 58 holes totaling 19,729 m to define higher-grade portions in the Pebble deposit and 9 holes totaling 1,987 m to test four other prospective zones. Limited surface exploration was conducted, consisting of 5 days of geological mapping and collection of 97 samples in three soil geochemical traverses.
Nine holes drilled on the Exploration Lands in 2003 included three holes at the Central IP Anomaly area, three holes at the Northeast IP Anomaly area, one hole at the 38 Porphyry Deposit and two holes at the 37 Skarn Zone. Drilling at the Central IP target intersected weak mineralization, indicating potential for porphyry mineralization at depth but not near to the surface. Drilling at the Northeast IP target indicates good potential for an extension to the Pebble deposit to the northeast. The 2003 drilling continued to indicate the presence of substantial porphyry mineralization at the 38 Porphyry Deposit. Drilling at the 37 Skarn intersected moderate gold and copper values; further work is necessary to fully determine the potential of the skarn mineralization.
Drilling on the Resource Lands in 2003 was designed to test for continuity and extensions of higher-grade zones within and adjacent to the deposit, and to further delineate the extent of the deposit. The program was successful in achieving both of these objectives and a new independent resource estimate was done in February 2004.
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The estimated inferred mineral resource was 2.74 billion tonnes grading 0.55% copper-equivalent1 (0.30 g/t Au, 0.27% Cu and 0.015% Mo above a cut-off grade of 0.30% copper-equivalent), containing 26.5 million ounces of gold and 16.5 billion pounds of copper. In addition, higher-grade material of 435 million tonnes grading 0.49 g/t Au, 0.42% Cu and 0.021% Mo, or 0.84% copper-equivalent above a cut-off grade of 0.70% copper-equivalent was also estimated.
1Copper and gold equivalent calculations use metal prices of US$0.80/$1.85/lb for copper, US$350/$902/oz for gold and US$4.50/$12.50/lb for molybdenum. The containedmolybdenum, and recoveries of 85% for copper 69.6% for gold, and copper represent estimated contained metal77.8% for molybdenum in the groundPebble West zone and have not been adjusted89.3% for copper, 76.8% for gold, and 83.7% for molybdenum in the Pebble East zone.
A 0.30% CuEQ cut-off is considered to be comparable to that used for porphyry deposit open pit mining operations in the Americas.
The resource estimate is constrained by a conceptual pit that was developed using a Lerchs-Grossman algorithm and is based on the parameters set out below:
-27 - |
Parameter | Units | Cost ($) | Value | |
Metal Price | Gold | $/oz | - | 1540.00 |
Copper | $/lb | - | 3.63 | |
Molybdenum | $/lb | - | 12.36 | |
Metal Recovery | Copper | % | - | 89 |
Gold | % | - | 72 | |
Molybdenum | % | - | 82 | |
Operating Cost | Mining (mineralized material or waste) | $/ton mined | 1.01 | - |
Added haul lift from depth | $/ton/bench | 0.03 | - | |
Process | ||||
– Process cost adjusted by total crushing energy | $/ton milled | 4.40 | - | |
– Transportation | $/ton milled | 0.46 | - | |
– Environmental | $/ton milled | 0.70 | - | |
– G&A | $/ton milled | 1.18 | - | |
Block Model | Current block model | ft | - | 75 x 75 x 50 |
Density | Mineralized material and waste rock | - | - | Block model |
Pit Slope Angles | – | degrees | - | 42 |
These mineral resource estimates may ultimately be affected by a broad range of environmental, permitting, legal, title, socioeconomic, marketing and political factors commensurate with the specific characteristics of the Pebble deposit (including its scale, location, orientation and poly-metallic nature) as well as its setting (from a natural, social, jurisdictional and political perspective).
Mineral Processing and Metallurgical Testing
Metallurgical testwork for the Pebble Project was initiated by Northern Dynasty in 2003 and continued under the direction of Northern Dynasty until 2008. From 2008 to 2013, metallurgical recoveries. Adjustment factorstestwork progressed under the direction of the Pebble Partnership.
Geometallurgical studies were initiated by the Pebble Partnership in 2008, and continued through 2012. The principal objective of this work was to account forquantify significant differences in relativemetal deportment that may result in variations in metal recoveries during mineral processing. The results of the geometallurgical studies indicate that the deposit comprises several geometallurgical (or material type) domains. These domains are defined by distinct, internally consistent copper and gold deportment characteristics that correspond spatially with changes in silicate alteration mineralogy.
The first major distinction between domains is characterized by hypogene and supergene mineralization. Hypogene mineralization reflects the copper-, gold- and molybdenum-bearing minerals which precipitated from hot hydrothermal solutions when the deposit initially formed in the Cretaceous Period. In contrast, supergene mineralization represents modifications, mostly to the Cu-bearing minerals present in the near-surface parts of the Pebble West zone, during a much more recent weathering phase of the deposit when it became exposed for a time at the surface of the earth. The second critical influence on metallurgical recoveries is related directly to different alteration assemblages that formed over time in different parts of the Pebble deposit.
These alteration assemblages as listed in Table 5 include sodic potassic, illite-pyrite (described as quartz-illite-pyrite inGeological Setting and Mineralization above), K-silicate (potassic inGeological Setting and Mineralization), QSP (quartz-sericite-pyrite in Geological Setting and Mineralization), QP (pyrophyllite inGeological Setting and Mineralization) and sericite types. Each of these assemblages contains a distinct suite of minerals that precipitated from hydrothermal fluids under different conditions of temperature, pressure and chemical composition, and including, in some cases, differences in the types of copper- and gold-bearing minerals.
Recognition of the relationships between metallurgical behavior and mineralization styles and alteration assemblages provides significant technical advantages to further testwork on the Pebble Project. The samples selected for gold,the comminution, copper-gold-molybdenum bulk flotation, and copper molybdenum separation testing were representative of the various types and styles of mineralization present at the Pebble deposit.
Metallurgical testwork and associated analytical procedures were performed by recognized testing facilities with extensive experience with this analysis, with this type of deposit, and with the Pebble Project.
The test results on variability samples derived from the 103 lock cycle flotation tests indicate that marketable copper and molybdenum will depend uponconcentrates can be produced with gold and silver contents that meet or exceed payable levels in representative smelter contracts. Metal recoveries projected in the completion of definitive metallurgical testing. CuEQ = Cu % + (Au g/t x 11.25/17.64) + (Mo % x 99.23/17.64)
Property Geology
The Pebble property encompasses2014 Technical Report and in the eastern and southern marginstable below are based on the locked-cycle test (“LCT”) results of the approximately 200 square km in size, Late Cretaceous (89.7 Ma) in age, tonalite-granodiorite Kaskanak Batholith (coarse grained igneous rocks of intermediate composition, covering a large area),variability samples, and associated gold leach testwork. The table below provides projected overall recoveries, which include the adjacent Jurassic-Cretaceous sedimentaryflotation and interbedded volcanic rocks that the batholith had intruded. On the east side of the batholith, a northeast-trending structural corridor is marked by a linear cluster of multi-phased, compositionallygold plant recoveries.
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Table 5 Projected Metallurgical Recoveries1 – Pebble Project
Domain | Flotation Recovery to Concentrate2 | Gold Plant Recovery3 | Overall Recovery | ||||||||
Cu Con | Mo Con | SART | Dore | ||||||||
Cu % | Au g/t | Ag g/t | Mo % | Cu % | Au g/t | Ag g/t | Cu % | Au g/t | Ag g/t | Mo % | |
Supergene: | |||||||||||
Sodic Potassic | 74.7 | 60.4 | 64.1 | 51.2 | 1.5 | 16.0 | 6.0 | 76.2 | 76.4 | 70.2 | 51.2 |
Illite Pyrite | 68.1 | 43.9 | 64.1 | 62.6 | 3.9 | 26.8 | 6.0 | 72.1 | 70.7 | 70.2 | 62.6 |
Hypogene: | |||||||||||
Illite Pyrite | 86.4 | 43.9 | 64.1 | 73.2 | 1.9 | 26.1 | 6.0 | 88.3 | 70 | 70.2 | 73.2 |
Sodic Potassic | 86.2 | 60.4 | 64.1 | 76.6 | 1.4 | 16.7 | 6.0 | 87.6 | 77.1 | 70.2 | 76.6 |
K Silicate | 90.3 | 61.3 | 64.1 | 82.3 | 0.7 | 13.8 | 6.0 | 91 | 75.1 | 70.2 | 82.3 |
QP | 94.3 | 65.0 | 64.1 | 80.1 | 1.4 | 14.4 | 6.0 | 95.6 | 79.4 | 70.2 | 80.1 |
Sericite | 86.4 | 39.2 | 64.1 | 73.2 | 1.9 | 26.7 | 6.0 | 88.3 | 65.8 | 70.2 | 73.2 |
QSP | 86 | 31.6 | 64.1 | 82.5 | 2.1 | 32.1 | 6.0 | 88.1 | 63.7 | 70.2 | 82.5 |
Notes to table:
1. | Silver recovery projection based on a dataset of 10 LCT samples |
2. | Flotation recovery to concentrate refers to metal recoveries to copper concentrate (Cu Con) and to molybdenum concentrate (Mo Con). |
3. | Gold plant recovery refers to copper recovery to SART – sulphidization, acidification, recycling, and thickening process tests to recover copper from leaching circuit residue, as well as gold and silver recoveries to dore bar. |
Environmental and texturally variable, irregular stocks, sills, dikes and breccia bodies (igneous bodies that are relatively small and circular, flat-lying, linear and structurally shattered, respectively) that are associated with and formed at the same time as the batholith. Numerous gold and copper-gold mineral occurrences, including the large Pebble and Thirty-Eight porphyry copper-gold-molybdenum deposits, are related to this diverse group of intrusions (coarse grained igneous rocks).Socioeconomic
The Pebble deposit is a calc-alkalic porphyry (hosted by igneous rocks with potassium feldspar), encompassing four small granodiorite-quartz monzodiorite (coarse grained igneous rocks of intermediate composition) stocks and related sill-like intrusions. These stocks intrude folded and previously hornfelsed (metamorphosed) volcaniclastic (eroded and re-deposited volcanic rocks) sedimentary rocks that host earlier diorite sill-like intrusions, and later intrusion breccias (composed of angular fragments of intrusive rocks).
Mineralization
Mineralization consists principally of pyrite, chalcopyrite and molybdenite (common sulphide minerals of iron, iron-copper and molybdenum, respectively), occurring in and disseminated adjacent to stockworks (crosscutting network of veins) of fine veins in intrusive and sedimentary host rocks. Gold is present with the sulphides in a ratio of approximately 1 g/t gold to 1% copper. Mineralization is strongest within and around the upper parts of the granodiorite stocks and is associated with strong secondary potassium-silicate alteration and development of quartz vein stockworks. The deposit mineralization occurs over an area of at least 2.8 km by 2.2 km, and to a depth of 500 m, and is unconstrained to the east under Tertiary cover, to the south, southwest, and to depth. A phyllic and propylitic alteration envelope (potassic, phyllic and propylitic alteration consists of assemblages of minerals that are commonly associated with porphyry mineralization; they occur in successive zones or envelopes in the deposit), up to 5.5 km by 2.5 km in area, is present around the deposit and contains gold concentrations exceeding 100 parts per billion (ppb).
Primary copper-gold-molybdenum mineralization occurs throughout the zone of potassic alteration and is concentrated in and surrounding the upper parts of the granodiorite stocks. Copper occurs in chalcopyrite as disseminated grains and along sulphide-rich veins. Most gold grains are a few microns in diameter and occur near grain boundaries of pyrite and chalcopyrite. The pyrite content is low in the zone of potassic alteration. The overall ratio of gold grade (in g/t) to copper grade (in %) is about one. Molybdenite commonly occurs in quartz + pyrite veins and veinlets. The central higher-grade portions of the deposit contain >200 parts per million (ppm) molybdenum.
The intrusive complex is defined by widely spaced drilling, extending south from the southern edge of Pebble deposit for 1.5 km and with a widthlocated on the order of 600 m. Relatively sparse drilling defines persistent low-grade (0.2 to 0.3 g/t Au and 0.07 to 0.1% Cu) mineralization in this intrusion breccia. It is not clear if this mineralization is related to additional granodiorite stocks at depth (none have been encountered in drilling) or if it is related genetically to one or more of the older intrusive phases. High copper concentrations occur where the intrusive complex was intruded by the granodiorite; this might be
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related to a subordinate copper/gold contribution from one or more of the earlier intrusive phases, combined with the main copper mineralizing phase related to the later granodiorite.
Gold mineralization, in the range 0.5 to 1.5 g/t, is widespread in the zone of phyllic alteration bordering the zone of potassic alteration and propylitic alteration zone in diorite/gabbro to the northwest of the deposit (Hole 1 Gold Zone). Copper concentrations are very low in these areas. Gold mineralization is also associated with phyllic and locally k-feldspar alteration zones, up to a few metres wide, cutting across the major potassic alteration zone. Some of the phyllic zones are envelopes of quartz-pyrite-(sericite-chlorite) veinlets and veins. Some crosscutting zones of phyllic alteration contain strongly anomalous concentrations of zinc, lead, and silver; some also contain strongly anomalous concentrations of gold. These zones represent a later, lower-temperature phyllic alteration that was superimposed on earlier, higher-temperature potassic alteration.
Exploration in 2004
The 2004 program involved collection of engineering, environmental and socioeconomic data required for the completion of feasibility studies and the commencement of preparation of permitting applications. The program encompassed approximately 130,000 feet (40,000 m) of drilling, including holes to establish measured and indicated resources and others to collect geotechnical, metallurgical and hydrological data to use for mine planning for the Pebble deposit. Some exploratory drilling for new zones and unexplored targets was also done and enabled the Company to complete the 60,000 feet of drilling required exercise its option on the Exploration Lands (67,651 feet had been completed to September 30, 2004).
In 2004, core drilling by Northern Dynasty was targeted primarily in and adjacent to the Pebble deposit where 132 geology holes, totaling 32,826 m, and 26 metallurgy holes, totaling 6505 m, were completed in the Resource Lands, and 15 holes, totaling 7177 m, were completed in the Exploration Lands to test for continuity and extensions of higher-grade zones. One hole, totaling 263 m, was drilled in the southwestern part of the Exploration Lands to test an IP/resistivity anomaly. Various sites for proposed tailings and waste disposal were tested by 53 engineering holes, totaling 2,778 m.
This drilling identified a significant, new porphyry centre (the East Zone) on the eastern side of the Pebble deposit beneath a cover of Tertiary rocks that apparently thickens to the east (Figures 2 and 3). The characteristics of the East Zone indicate a setting proximal to a thermal and fluid centre. These include intense biotite (potassic) alteration, a high density of early-stage quartz veins, the extent to greater depth of strong Au-Cu-Mo mineralization and alteration, the presence of numerous granodiorite sills and dykes at depth, and the weakness of late-stage, lower-temperature alteration overprints. The source of heat and fluids for the East Zone may be a stock of granodiorite below and/or to the east of the current drilling. The East Zone is unconstrained to the east, northeast and southeast under Tertiary cover, and to depth. Considerable additional drilling will be necessary to adequately assess its full extent.
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Figure 2 Drill Hole Plan Pebble Deposit
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Figure 3 Cross Section Pebble Deposit
In the Pebble deposit, potentially economic mineralization extends over a known area of 3 km by 2.2 km and to a depth of 600 m in the Central zone, and to a depth of 800 m in the East Zone. A phyllic alteration envelope around the deposit is up to 5.5 km by 2.5 km in area and contains abundant gold concentrations over 100 ppb (0.1 g/t).
The intrusive and intrusive breccia complex that extends south for more than 1.5 km from the presently defined southern edge of the deposit has been tested mainly by shallow and widely spaced holes. Alteration assemblages indicate that is a prospective area for exploration for another porphyry copper-gold centre. The margins of the intrusive complex are zones that may have undergone multiple stages of dilation, intrusion and hydrothermal activity, which could be conducive to formation of higher-grade copper-gold mineralization; these also warrant further drill testing.
In 2004, a drill hole in the southwestern part of the Exploration Lands intersected a 247-m long zone of porphyry-style mineralization in an arm of the Kaskanak batholith that extends southwest from the main batholith into a broad area of hornfelsed, andesitic sedimentary rocks, which on surface contains 2-5% disseminated pyrite. This 308 Zone is similar in character and grade to the Thirty-Eight Zone a few
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kilometers to the east-northeast. To determine the extent and grade of the 308 Zone will require further drill testing.
Estimates of Mineralization – Pebble Deposit
Subsequent to year end in March 2005, a new resource estimate based on diamond drilling programs by Northern Dynasty up to and including 2004 and previous drilling by Teck Cominco through to 1997, was announced. The estimate, completed by Roscoe Postle Associates, Inc., shows that Pebble deposit contains a Measured and Indicated Mineral Resource of 3.03 billion tonnes grading 0.28% Cu, 0.32 g/t Au, and 0.015% Mo (0.56% copper equivalent2), with an additional Inferred Mineral Resource of 1.13 billion tonnes grading 0.24% Cu, 0.30 g/t Au, and 0.014% Mo (0.50% copper equivalent) above a cut-off grade of 0.30% copper equivalent. The Measured and Indicated Resource contains 31.3 million ounces of gold 18.8 billion pounds of copper and nearly 1 billion pounds of molybdenum. A higher-grade Measured and Indicated Mineral Resource core consists of 569 million tonnes grading 0.46% Cu, 0.50 g/t Au, and 0.021% Mo (0.88% copper equivalent) above a cut-off grade of 0.70% copper equivalent. A technical report by independent qualified persons D.W. Rennie, P.Eng., and R.M. Srivastava, P.Geo., can be found at www.sedar.com.
Mineral resources that are not mineral reserves do not have demonstrated economic viability.2Copper-equivalent calculations use metal prices of US$1.00/lb for copper, US$400/oz for gold, and US$6.00/lb for molybdenum. CuEQ = Cu % + (Au g/t x 12.86/22.06) + (Mo% x 132.28/22.06) . Copper-equivalent has not been adjusted for metallurgical recoveries. Adjustment factors to account for differences in relative metallurgical recoveries for gold, copper and molybdenum will depend upon the completion of definitive metallurgical testing.
Sampling, Analysis, Security and Quality Assurance/Quality Control Procedures
During the period 1988-1997, several phases of soil geochemical surveys in the northeastern part of the property were completed with a total of 7,337 samples collected. As well, a total of 164 core drill holes were completed prior to 2002. Samples of the NQ (6.3 cm diameter) drill core generally consisted of 3.05 m (10 ft) lengths of half core that was split using a mechanical core splitter. Holes within the Pebble deposit were sampled from top to bottom whereas in some outlying holes, sampling was more selective and related to mineralized intervals.
All Pebble deposit core samples were analyzed for gold (Au). Copper (Cu) assays were done for samples from Hole 4 onward. Molybdenum assays were done on some drilling campaigns, representing 83.7% of the assay database in the Pebble deposit. Multi-element Inductively Coupled Plasma (ICP) analysis was also done on every sample beginning with hole 15. In the Sill area, samples from selected core intervals were analyzed for Au and silver (Ag).
The 1997 drill core samples were prepared by drying, then crushing to 10 mesh (<2mm); a 250 g portion was pulverized to 200 mesh (<75 microns). The sample was analyzed for Cu using an Aqua Regia (AR) digestion and Inductively Coupled Plasma Atomic Emission Spectroscopy (ICP-AES). Au was analyzed using Fire Assay (FA) on a one assay ton sample with an Atomic Absorption Spectrometry (AAS-AES) finish. Trace elements were also analyzed by AR digestion and ICP-AES. One blind standard was inserted for every 20 samples analyzed. One duplicate sample was taken for each ten samples analyzed. The 1997 drill hole samples were check analyzed with excellent correlation for Cu and good correlation for Au. Every 40 soil samples analyzed included four random repeats, one standard and one blank sample. There was excellent correlation for Cu among these samples and good to adequate Au correlation.
Northern Dynasty personnel or agents collected all samples during the 2001-2004 programs. A total of 658 analytical results were received for soil samples from 601 locations in 2001, and 374 analytical results for soil samples from 341 locations in 2002. The results included 30 lab duplicates and 60 lab
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standards. In 2001, samples were air dried, then shipped by airfreight from the project site to Acme Analytical Laboratories (“Acme”) in Vancouver, B.C. via Anchorage, Alaska. At Acme, the soils were dried and sieved through an 80-mesh screen and then analyzed for 32 elements using two methods. Au content was determined to the 0.2 ppb level using the Acme Group 3A wet digestion method. A 10 g sample was digested in AR, and analyzed by Graphite Furnace Atomic Absorption Spectroscopy or Inductively Coupled Plasma Mass Spectroscopy (ICP-MS) finish. The Acme Group 1D multi-element method was used on a minimum one gram pulp to determine other elements and gold to the ppm level. In this method, the samples were digested in hot AR and analyzed by ICP-AES.
For all Northern Dynasty drilling programs, core is boxed at the drill rig and transported daily by helicopter to the secure core logging facility in Iliamna, Alaska, where it is geologically logged and digital photographs of each box of core taken prior to sampling. These images were archived on electronic data storage disk, and provide an indication and record of the core recovery and rock quality. Sampling is performed by mechanically splitting the core in half lengthwise. The remaining half core was returned to the core boxes and is stored at a secure Iliamna warehouse. Samples were placed in bags and stored in a locked aircraft hangar prior to shipping via twice-weekly scheduled air service to Anchorage. From Anchorage, the samples are taken by commercial surface transport to sample preparation laboratories at Fairbanks, Alaska.
A total of 2,467 core samples, averaging 3.9 m in length, were taken from the 68 NQ2 (5.02 cm diameter) core holes drilled during 2002. All core drilled was sampled, except for 170 m of overlying Tertiary volcanic rocks in holes 2036 and 2040. In 2002, sample preparation was done at ALS Chemex’s Fairbanks laboratory. Each sample bags was verified against the numbers listed on the shipment notice. The entire sample of drill core was dried, weighed and crushed to 70% passing 10 mesh (1.7 mm), then a 250 g split was taken and pulverized to 85% passing 200 mesh (75 micron). The pulp was split, and approximately 125 g shipped by commercial airfreight for analysis at ALS Chemex, North Vancouver, British Columbia, an ISO 9002 certified laboratory. The remaining pulps were shipped to the Company’s secure warehouse at Port Kells, BC. The coarse rejects were held for several months at the Fairbanks laboratory until all Quality Assurance/Quality Control (QAQC) measures were completed, then discarded.
All 2,467 samples taken during the 2002 program were analyzed for Au by FA and for 34 elements, including Cu and molybdenum (Mo), using a standard multi-element geochemical method. In addition, several drill holes exhibiting copper-gold porphyry style mineralization were subject to Cu assay level determinations, and a few Mo assay level determinations were also performed. Au content was determined by 30 g FA fusion with lead as a collector and an AAS finish. The four samples that returned Au results greater than 10,000 ppb (10 g/t) were re-analyzed by 1 assay ton FA fusion with a gravimetric finish. All samples were subject to multi-element analysis for 34 elements, including Cu and Mo, by AR digestion with ICP-AES finish. A total of 1,822 samples from 31 holes drill holes exhibiting porphyry-style mineralization were assayed for Cu by four-acid (total) digestion with an AAS finish to the ppm level. For Cu assays >10,000 ppm, another total digestion-AAS finish analysis was performed to the percent level. A further 61 samples from drill hole 2034 were assayed for Mo by four-acid digestion-AAS finish to the ppm level.
As part of Northern Dynasty’s analytical QAQC program, Cu-Au-bearing or Au-bearing standard reference samples were inserted with the regular samples. The 118 analyses of these standards represent over 5% of the total samples analyzed. For drill holes 2044 through 2068, an in-line reject duplicate was made and analyzed with the regular samples. The 65 analyses of duplicates, represents 4% of the total number of samples in this series. These standards and duplicates are in addition to the laboratory’s internal quality control work. Inter-laboratory analysis included a total of 25 pulp duplicates analyzed for gold, and 13 reject duplicates analyzed for gold and four ¼ core reject splits assayed for metallic gold by Acme in Vancouver.
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In 2003, SGS Minerals Services (“SGS”) laboratories completed all analytical work. A total of 6,443 drill core samples, averaging 3.3 m in length, were taken from the 19,552 m drilled in this program. At SGS in Fairbanks, the sample bags were verified against the numbers listed on the shipment notice. The entire sample was dried, weighed, crushed to 75% passing 2 mm (10 mesh), a 400 g split taken and pulverized to 95% passing 75 micron (200 mesh). The pulp was split and 125 g shipped by commercial air freight. In June 2003, 96 soil samples were taken, expanding the surface geochemical survey coverage. These samples were sent to SGS in Fairbanks Alaska, dried at 60° C and sieved through an 80-mesh screen. All samples were shipped to SGS Canada Inc., an ISO 9002 registered ISO 17025 accredited laboratory in Toronto, Ontario, for AR digestion ICP-AES and Cu analyses. Au was determined by one assay ton (30 g), lead collection FA fusion with an AAS finish at the SGS laboratory in Rouyn, Québec.
Gold was determined at the SGS laboratory in Rouyn, Québec, by one assay ton (30 g), lead collection FA fusion with an AAS finish. Ten samples with Au results greater than 2,000 ppb (2 g/t) were reanalyzed by 30 g FA fusion with a gravimetric finish. All samples were subject to multi-element analysis, for 33 elements including Cu and Mo, by AR digestion ICP-AES finish. Total Cu content was determined for all 6,226 drill core samples taken from porphyry-style deposits. Samples were fused with sodium peroxide, digested in dilute nitric acid and the solution analyzed by ICP-AES, results reported in percent. Five drill holes were not assayed for Cu by peroxide fusion: hole 3103 drilled on the Hole 5 Zone, holes 3088 and 3090 drilled on the 37 Skarn Zone, and holes 3107 and 3109 drilled on the North IP Anomaly target. Copper results for these holes are by multi-element ICP. The remaining pulp was shipped to the Company’s Port Kells warehouse. The coarse reject is stored at the Fairbanks laboratory.
Drilling, sampling and QAQC are supervised by qualified persons employed by Northern Dynasty. Core samples were logged and identified in the field with consecutively numbered sample tags, on which the analytical QAQC designations for standards and duplicates were pre-marked. In the 2003 program, Au-Cu-bearing or Cu-bearing standard reference samples were inserted with the regular samples. The 331 blind analyses of standards represent over 5% of the total samples analyzed. A total of 381 reject duplicates samples were also prepared and analyzed at the ALS Chemex, representing a further 6% of the total. The program is separate from the internal procedures used at the analytical laboratory.
In 2004, NQ2 (5.02 cm), HQ (6.35 cm) and PQ (8.31 cm diameter) core was drilled. The drill core was boxed at the drill rig and transported daily by helicopter to Northern Dynasty’s secure logging facility at the village of Iliamna, AK. Between May and October 2004, 49,533 m (162,510 feet) were drilled in 227 holes. The 13,208 samples taken in this Phase averaged 3 m (10 feet) in length.
The 2004 drilling program included 26 large diameter holes for metallurgical testing. A total of 1990 samples were taken from these holes for analysis. Samples were taken by cutting an off-center slice representing 20% of the core volume, which was submitted for analysis. The remaining 80% was used for metallurgical purposes.
ALS Chemex laboratory in Fairbanks, Alaska, performed sample drying and crushing. ALS Chemex Laboratories of North Vancouver, an ISO 9001:2000 registered laboratory pulverized the samples and performed the analytical work for the 2004 drill program. All 13,208 samples were analyzed for 25 elements, including copper (Cu) and molybdenum (Mo), by a four acid digestion multi-element method. All samples, except for 188 Tertiary waste rock characterization samples, were analyzed by fire assay for gold (Au).
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Gold content was determined by one assay ton (30 g) lead collection Fire Assay (FA) fusion with an Atomic Absorption Spectroscopy (AAS) finish, with results reported in parts per million (ppm). One sample which returned Au results greater than 10 ppm was re-analyzed by 30 g FA fusion with a gravimetric finish, with results reported in ppm. Total copper content was determined by four acid (HF-HNO3-HClO4-HF-HCl) digestion and the solution analyzed by Inductively Coupled Plasma – Atomic Emission Spectroscopy (ICP-AES) with results reported in ppm. All samples were subject to multi-element analysis for 25 elements, including Cu, Mo and S, by four acid digestion with an ICP-AES finish.
Coarse rejects are stored at Delta Junction, Alaska. Remaining pulps have been shipped for long term storage to Northern Dynasty’s secured warehouse at Port Kells, B.C.
Drilling, sampling and QAQC are supervised by qualified persons employed by Northern Dynasty. Core samples were logged and identified in the field with consecutively numbered sample tags, on which the analytical QAQC designations for standards and duplicates were pre-marked. In the 2004 program, Au-Cu-bearing standard reference samples and unmineralized blank samples were inserted with the regular samples. The blind analyses of 688 standards and 167 blanks represent over 6% of the total samples analyzed. A total of 658 reject duplicates samples were also prepared and analyzed at the Acme Analytical Laboratories in Vancouver, BC, representing a further 5% of the total. The program is separate from the internal procedures used at the analytical laboratory.
Engineering Studies in 2004
Preliminary Assessment
In November, 2004, a preliminary economic assessment of the Pebble project was done based on an early 2004 resource estimate. The following is a summary of the technical report, entitled “Preliminary Assessment of the Pebble Gold-Copper-Molybdenum Project, Iliamna Area, Alaska, USA” November 2004 by qualified persons Derek J. Barratt, P.Eng., and Peter G. Beaudoin, P.Eng., filed onwww.sedar.com.
The Preliminary Assessment was prepared in order to quantify the Pebble project’s cost parameters and to provide guidance for the ongoing engineering work that will ultimately define the optimal scale of production. Preliminary forecasts and estimates in the report were developed to an order of magnitude level and are not based on systematic engineering studies. As is normal at this stage of a project, data is incomplete and estimates were developed based on the expertise of the engineers involved.
The Preliminary Assessment indicates that the Pebble gold-copper-molybdenum porphyry deposit would be developed by conventional, large-scale, open pit mining methods. Four open pit stages were designed using the block model of the Pebble deposit established for the February 2004 resource estimate. Processing of mill feed from the open pit would produce a flotation copper sulphide concentrate with gold and silver values as well as a separate molybdenum sulphide concentrate. Targeted metal recoveries of 88% for copper, 76% for gold and silver, and 60% for molybdenum were utilized in the financial modeling. These estimates are based upon on-going testwork by Northern Dynasty, and are in-line with other comparable large gold-copper porphyry mines. In the Preliminary Assessment, copper concentrate was estimated to grade 28% copper, 26.6 g/t gold, and 100 g/t silver, whereas molybdenum sulphide flotation concentrate was estimated to grade 50% molybdenum.
The Preliminary Assessment examined three production rate scenarios: 100,000 tonnes per day, 200,000 tonnes per day, and a phased expansion from 100,000 tonnes per day to 200,000 tonnes per day in year six. Construction capital costs, sustaining capital, operating costs, and off-site charges (such as concentrate transportation and smelter/refining charges) as well as revenues were all estimated in 2004 US dollars. Capital and operating cost estimates for the three production scenarios were developed from
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initial estimates by the major company which was the previous operator, as well as site specific data, current major equipment costs and reported costs at similar operating mines throughout the world. Capital cost estimates range from US$1.0 billion for a 100,000 tpd facility (Case 1) to US$1.5 billion for a 200,000 tpd facility (Case 2). Life of mine sustaining capital estimates range from a total of US$276 million for a 100,000 tpd project (Case 1) to a total of US$197 million for a 200,000 tpd project (Case 2). Operating cost estimates range from US$5.06 per tonne milled for a 100,000 tpd production rate (Case 1) to US$4.36 per tonne milled for a 200,000 tpd production rate (Case 2).
Financial models were developed on a pre-tax, 100 percent equity financed basis for each of the three production rates assessed. For the Preliminary Assessment, long-term average metal prices were estimated to be US$0.95/lb copper, US$395/oz gold, US$5.00/oz silver, and US$5.00/lb molybdenum. In addition, for each production rate scenario, financial analyses were completed over a range of metal prices. Although a capital cost of US$103 million was estimated for construction of the sea port and access road for the Pebble project, the financial analyses in this Preliminary Assessment do not include these costs on the assumption that the State of Alaska will parallel the implementation of its Southwest Alaska Regional Transportation Plan with project development. The results of financial analyses for the three production rates under consideration indicate that at the long-term average metal prices used in the Preliminary Assessment, the Pebble project could generate an Internal Rate of Return (IRR) of between 15.3% and 20.3%, and a Net Present Value (NPV), discounted at 5%, of between US$1.047 billion and US$2.091 billion. At recent metal prices of US$1.25/lb Cu, US$415/oz Au, US$7.00/oz Ag, and US$15/lb Mo, the IRR would increase to between 33.0% and 40.8% and the NPV, discounted at 5%, to between US$3.511 billion and US$5.972 billion.
These financial analyses are preliminary in nature and were based entirely on the inferred mineral resources estimated in February 2004 (see Exploration History and the Company's 2003 Form 20-F). A Preliminary Assessment is defined under Canadian Securities Administrators National Instrument 43-101 as an economic evaluation that uses inferred resources. Inferred resources are considered too speculative geologically to be categorized as mineral reserves and to have economic considerations applied to them. There is no assurance that the operating and financial projections in the Preliminary Assessment will be realized.
All information contained in the Preliminary Assessment, including but not limited to statements of the Pebble project's potential and information under the headings "Production Parameters," "Capital Costs, Sustaining Capital Costs, and Operating Costs," "Production Summary," “Off-site Costs,” and "Financial Analyses," are "forward looking statements" within the definition of the United States Private Securities Litigation Reform Act of 1995. The information relating to the possible construction of a port, road, power generating facilities and power transmission facilities also constitutes such "forward looking statements." The Preliminary Assessment was prepared to broadly quantify the Pebble project's capital and operating cost parameters and to provide guidance on the type and scale of future project engineering and development work that will be needed to ultimately define the project's likelihood of feasibility and optimal production rate. It was not prepared to be used as a valuation of the Pebble project nor should it be considered to be a pre-feasibility study. The capital and operating cost estimates which were used have been developed only to an approximate order of magnitude based on generally understood capital cost to production level relationships and they are not based on any systematic engineering studies, so the ultimate costs may vary widely from the amounts set out in the Preliminary Assessment. This could materially and adversely impact the projected economics of the Pebble project. As is normal at this stage of a project, data is incomplete and estimates were developed based solely on the expertise of the individuals involved as well as the assessments of other persons who were involved with previous operators of the project. At this level of engineering, the criteria, methods and estimates are very preliminary and result in a high level of subjective judgment being employed. The Preliminary Assessment uses only inferred mineral resources which are considered too speculative geologically to be categorized as mineral reserves and to have economic considerations applied to them. There can be no assurance that the operating and financial projections contained in the Preliminary Assessment will be realized.
The following are the principal risk factors and uncertainties which, in management's opinion, are likely to most directly affect the conclusions of the Preliminary Assessment and the ultimate feasibility of the Pebble project. The mineralized material at the Pebble project for the Preliminary Assessment was classified as an inferred resource and it is not a reserve. The mineralized material in the Preliminary Assessment is based only on the inferred resource model developed in February, 2004. That model includes only assay information from drilling up to the end of 2003. Considerable additional work, including in-fill drilling, additional process tests, and other engineering and geologic work will be required to determine if the mineralized material is an economically exploitable reserve. There can be no assurance that this mineralized material can become a reserve or that the amount may be converted to a reserve or the grade thereof. Final feasibility work has not been done to confirm the pit design, mining methods, and processing methods assumed in the Preliminary Assessment. Final feasibility could determine that the assumed pit design, mining methods, and processing methods are not correct. Construction and operation of the mine and processing facilities depends on securing environmental and other permits on a timely basis. No permits have been applied for and there can be no assurance that required permits can be secured or secured on a timely basis. Data is incomplete and cost estimates have been developed in part based on the expertise of the individuals participating in the preparation of the Preliminary Assessment and on costs at projects believed to be comparable, and not based on firm price quotes. Costs, including design, procurement, construction, and on-going operating costs and metal recoveries could be materially different from those contained in the Preliminary Assessment. There can be no assurance that mining can be conducted at the rates and grades assumed in the Preliminary Assessment. The project requires the development of port facilities, roads and electrical generating and transmission facilities. Although Northern Dynasty believes that the State of Alaska favours the development of these facilities and may be willing to arrange financing for their development, there can be no assurance that these infrastructure facilities can be developed on a timely and cost-effective basis. Energy risks include the potential for significant increases in the cost of fuel and electricity. The Preliminary Assessment assumes specified, long-term prices levels for gold, copper, silver and molybdenum. Prices for these commodities are historically volatile, and Northern Dynasty has no control of or influence on those prices, all of which are determined in international markets. There can be no assurance that the prices of these commodities will continue at current levels or that they will not decline below the prices assumed in the Preliminary Assessment. Prices for gold, copper, silver, and molybdenum have been below the price ranges assumed in Preliminary Assessment at times during the past ten years, and for extended periods of time. The project will require major financing, probably a combination of debt and equity financing. Interest rates are at historically low levels. There can be no assurance that debt and/or equity financing will be available on acceptable terms. A significant increase in costs of capital could materially and adversely affect the value and feasibility of constructing the project. Other general risks include those ordinary to very large construction projects including the general uncertainties inherent in engineering and construction cost, the need to comply with generally increasing environmental obligations, and accommodation of local and community concerns.
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Other Engineering Studies
In 2004, the focus of the Pebble project made a transition from exploration to comprehensive studies designed to collect the necessary resource, engineering, environmental and socioeconomic data to complete a feasibility study and application for permits for a large scale open pit mining operation. Engineering studies for all project components, including road access, port and power transmission, as well as comprehensive environmental and socioeconomic base line data collection and studies took place through out 2004 and are continuing in 2005.
AMEC Americas Limited was selected in December 2004 as the lead engineering contractor for preparation of the Pebble Project Feasibility Study. As well, in association with the local Alaskan power utility, Homer Electric Association, Power Engineers Ltd has been retained to undertake the detailed investigation of power supply to the proposed mine location. Knight Piesold Ltd. was contracted to collect geotechnical and hydrogeological data required for a feasibility level open pit slope design.
Geotechnical
The 2004 program consisted of eight oriented drill holes, totaling 3,065 m, 50 overburden holes (GH-series), and test pitting. A comprehensive geotechnical database was developed that includes results from both laboratory and field strength tests on point load and direct shear. In situ packer permeability testing was completed in the deeper, more competent rock in the geotechnical holes. Standpipe piezometers were installed in some exploration holes to characterize hydrogeological characteristics of the rock mass. The overburden holes and test pits were done to investigate the geotechnical and hydrogeological characteristic of overburden material in order to select suitable areas for storage of waste rock and mill tailings. The oriented holes were drilled to obtain structural information required for the design of a Stage-1 open-pit. The oriented holes were oriented outwards to intersect the proposed pit walls. The intact strength of the rock mass at Pebble is fair to good, with some poor sections in the Tertiary sedimentary rocks and upper parts of intrusions. Steeply dipping faults and shears are present and will affect the pitwall design. The groundwater table is near the surface and moderate groundwater flow is expected at the interface between overburden and bedrock. The permeability of the rock mass generally is low.
The study concluded that the intact strength of the rock mass at Pebble is fair to good, with some poor sections in the Tertiary sedimentary rocks and upper parts of intrusions. Steeply dipping faults and shears are present and will affect the pitwall design. The groundwater table is near the surface and moderate groundwater flow is expected at the interface between overburden and bedrock. The permeability of the rock mass generally is low.
Vein orientations were measured and analyzed from cores of the oriented holes to identify vein sets and significant structural orientations. The data show a strong cluster of veins whose dips are oriented inwards from the northwest and southeast sides of the zone, a pattern that is consistent with the interpretation of the Pebble deposit as occupying the core of a broad anticline trending east-northeast. The veins are interpreted to occupy preferentially fractures in zones of dilatent stress on the limbs of the anticline. Patterns are generally similar for veins of all ages. The data may be biased because the preferred orientation in all holes was subperpendicular to the axis of the hole.
Metallurgical
In November 2004, 85 tons (77 tonnes) of samples from 27 PQ (85 mm diameter) and HQ (63.5 mm diameter) drill holes in the Pebble gold-copper molybdenum deposit were shipped to SGS Lakefield Research Limited (“SGS Lakefield”) in Ontario, Canada for metallurgical test work. At SGS Lakefield’s research facilities, the drill core will be prepared into a number of composite samples for testing variability in the crushing, grinding and processing properties of the mineralization and different rock types in the Pebble deposit. These composites will be selected to accurately define the metallurgical variances across the deposit in rock masses of sufficient tonnage to impact daily, monthly and yearly production schedules. These detailed studies will provide a thorough understanding of the Pebble deposit in terms of power requirements for crushing and grinding as well as the expected metal recoveries and product quality during flotation. All reject products from the process will be characterized for the most suitable manner of disposal so that appropriate conventional waste management facilities can be designed.
These metallurgical studies are part of ongoing testing of drill core materialstate land that has been underway since mid 2004. Work on the new composite samples will commence upon receipt by SGS Lakefield,specifically designated for mineral exploration and is expected to continue to mid 2005.
Infrastructure
Infrastructure requirements for the Pebbledevelopment. The project are being defined and significant progressarea has been made on specific infrastructure development plans. Developmentthe subject of a mine at Pebble will requiretwo comprehensive land-use planning exercises conducted by the constructionAlaska Department of a 138-kilometer (85 mi) road to connectNatural Resources (the “ADNR”), the project to tidewater at Cook Inlet and a deep sea port facility. The State of Alaska’s Southwest Regional Transportation Plan includesfirst in the construction of transportation facilities from Cook Inlet to the town of Iliamna, 27 km (17 miles) from the Pebble project. Northern Dynasty1980s and the State aresecond completed in discussion to integrate this sector of the State’s plan with the Pebble project’s potential development schedule. A recent transportation corridor analysis, commissioned by the State’s Department of Transportation and Public Facilities,2005. The ADNR identified a preferred road corridor and port option.
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Pre-feasibility level engineering studies for the port site and the road transportation corridor have now been commissioned by the State, with results expected to be reported in early 2005. Northern Dynasty’s environmental consulting team is collecting the necessary data for road and port permit applications on a year-round basis. The State and Northern Dynasty plan to continue their co-operation under a Memorandum of Understanding to be negotiated in the coming months.
A number of options for the provision of electric power to the project and neighboring villages have been identified and are currently being evaluated. These options include connection to the State’s existing power transmission grid, either through a 66-km (41 miles) submarine connection to the Kenai Peninsula or an overland route on the west side of Cook Inlet. An alternative to a transmission grid connection would involve the establishment of new generation facilities close to the mine or port area. Homer Electric Utility and Northern Dynasty are jointly funding a feasibility study of a power development plan to connect the deposit site to the State of Alaska’s Railbelt electrical grid.
Environmental Considerations
The local communitiesfive land parcels (including Pebble) within the Bristol Bay districtplanning area as having “significant mineral potential,” and where the planning intent is to accommodate mineral exploration and development. These parcels total 2.7% of southwesternthe total planning area (ADNR, 2005).
Environmental standards and permitting requirements in Alaska are reliant on the commercial salmon-fishing industry, the recreational sports fishing industry,stable, objective, rigorous and subsistence hunting and fishing. Although, the region is searching for waysscience-driven. These features are an asset to diversify, economically, it is importantprojects like Pebble that potential mineral development in the area is designed in such a way as to ensure that surface and groundwater quality standards will be maintained.
Accordingly, a wide variety of comprehensive and multi-disciplinary base-line environmental and socioeconomic studies where begun in 2004. The studies are being conducted at the project site, along the road and at the potential port site include:
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There are 24 different consulting companies providing experts and more than 80% are Alaskans. Along with the surveys of the wetlands; spring stream surveys, marine studies, and summer fisheries studies are also ongoing.
This comprehensive environmental and socio-economic studies program began in 2004 and will garner the scientific and traditional knowledge that provides the foundation for:
The 2004 program of studies will be continued in 2005 to ensure that an adequate baseline of environmental and socioeconomic data is available to support the permitting phase of project development. Approximately $20 million has been allocated for the 2005 study program.
An extensive community relations program has been initiated involving local residents in Iliamna, Newhalen, Nondalton, Pedro Bay and 14 other Bristol Bay native communities. Northern Dynasty have been assigned to visit these communities on a regular basis in order to establish meaningful relationships with community leaders, provide specific information to the communities as a whole and solicit information from them regarding their desires and concerns for responsible mineral development. The Company is also initiating, with local and state authorities a workforce development strategy for the project moving forward.
Integrated Project Design Process
In order to facilitate the project permitting process, a project design process has been initiated to integrate the environmental baseline information with the engineering factors needed to develop a viable project. The process is designed to address the environmentalmeet U.S. and socioeconomic factors at an early stage.
Planinternational best practice standards of Operation - Exploration, Engineering and Environmental Programs in 2005
A $44.5 million program is planned for 2005.
The core drilling portion includes 30,000 m (97,000 feet) of exploration and infill drilling, focused on the East Zone, and 2,700 m (9,000 feet) of metallurgical drilling in the Pebble deposit. In addition, 60 days of reverse circulation drilling to collect further hydrological data throughout the site is also planned.
Comprehensive engineering, environmental, and socioeconomic programs, designed for the completion of a feasibility study and permit applications will continue in parallel with the drill program.
Waste and Water Management System Assessment
The waste and water management system assessment will be continued for incorporation in the feasibility study. This work will include additional data collection for seepage control, foundation design and waste and water characterization. The facility layouts will continue.performance.
Metallurgical Testwork
The metallurgical testwork, which commenced in 2004, will continue to mid 2005. In addition, as a result of the expansion of the resource to the east, additional testwork requirements were identified. A second
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suite of samples, based on a combination of existing drill core and a series of new drill holes, will be collected and the tests on these samples added to the program.
The goal of the metallurgical program is two-fold. First, the data generated will be adequate to support the feasibility level design of the process plant. Second, the response of the ore within the plant – i.e. grindability, metal recovery, reagent consumption, etc. – will be defined to permit to the proper estimate of operating costs and financial returns.
TransportationEnvironmental Baseline Studies
The transportation studies also have two components. The first is to support the State in its assessment of the Southwest Alaska transportation system. The second is to determine the transportation requirements for the project. This latter task includes evaluating concentrate transport alternatives, developing a project logistics plan, and determining the costs for the feasibility study.
Power Studies
Northern Dynasty will continuebegan an extensive field study program in 2004 to support Homer Electriccharacterize the existing physical, chemical, biological, and social environments in its assessment of the capacity ofBristol Bay and Cook Inlet areas where the Railbelt electrical grid to supply power toPebble Project might occur. The Pebble Partnership compiled the project.
Feasibility Study
The basic objective ofdata for the feasibility2004-2008 study will be to consolidate the results of the various engineering studiesperiod into a comprehensive document that defines the costs and financial returns of the project. The work specific to the study will be to complete mine planning based on the new resource estimate, complete a feasibility-level plan for the process plant and associated infrastructure, and to estimate the costs of these facilities.multi-volume Environmental Baseline Document1. These studies have been designed to:
Fully characterize the existing biophysical and socioeconomic environment; | ||
Support environmental analyses required for effective input into Project design; | ||
Provide a strong foundation for internal environmental and social impact assessment to support corporate decision-making; | ||
1Baseline data collecting and monitoring has continued since that time. The program data from 2009 to 2014 is being integrated with environmental baseline data reports from 2004 to 2008 so that this information can also be shared with state/federal agencies and the public as part of the future permitting process under NEPA.
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The baseline study program includes:
surface water | wildlife |
groundwater | air quality |
surface and groundwater quality | cultural resources |
geochemistry | subsistence |
snow surveys | land use |
fish and aquatic resources | recreation |
noise | socioeconomics |
wetlands | visual aesthetics |
trace elements | climate and meteorology |
fish habitat – stream flow modeling | Iliamna Lake |
marine |
Potential Environmental Effects and Proposed Mitigation Measures
The application of sound engineering, environmental planning and best management practices, including compliance with existing U.S. federal and state environmental laws, regulations and guidelines, will ensure that all of the environmental issues associated with the development and operation of the Pebble Project can be effectively addressed and managed.
The major environmental components include air, water and terrestrial resources. During the preliminary stages of the Pebble Project, Northern Dynasty identified key environmental issues and design drivers that have formed the basis of baseline data collection, environmental and social analysis and continuing stakeholder consultations influencing the Pebble Project design. The effects assessment has confirmed these as important issues and design drivers, and has identified mitigation measures for each. The key mitigation strategies for these drivers include:
• | Water: development of a water management plan that maximizes the collection and diversion of groundwater, snowmelt and direct precipitation away from the mine site; |
Wetlands: avoidance and minimization of project effects on wetlands and implementation of a water management plan (in accordance with US Army Corp of Engineers guidelines and regulations) to reduce wetland impacts; | |
Aquatic habitats: development of a water management plan and habitat mitigation measures that includes strategies to effectively manage the release of treated water in compliance with anticipated regulatory requirements to sustain necessary downstream flows and to protect downstream fish habitat and aquatic environments; | |
Marine environment: minimize the port facility’s footprint in the intertidal zone, particularly in soft sediment intertidal areas; and | |
Compensatory mitigation measures to ensure compliance with the Clean Water Act. |
Direct integration of these and other appropriate measures into the Pebble Project design and operational strategies are expected to effectively mitigate possible environmental effects and minimize residual environmental effects associated with the construction, operation and eventual closure of any proposed mine at the Pebble Project.
Community Consultation and Stakeholder Relations
Since 2004, the Company has undertaken a comprehensive stakeholder relations and community outreach program. In addition to ensuring that relevant stakeholder groups and individuals receive early notification of all work programs, the objectives of the Pebble Partnership’s stakeholder and community relations program are:
• | To provide regular progress updates on project-related activities, opportunities and planning; | |
To seek input on stakeholder priorities, issues and concerns, and provide feedback on how they are being addressed; | ||
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• | To maximize economic and community benefits associated with the Pebble Project, both in the exploration and development phase and during mine operations; and, |
• | To provide opportunities for two-way dialogue and the development of long-term, respectful and mutually beneficial relationships. |
- 35 -The Pebble Partnership has developed a dedicated and knowledgeable stakeholder relations team to implement this program. In addition to stakeholder relations staff in Anchorage, the team includes two representatives living in Bristol Bay communities. The Pebble Partnership has provided ongoing training for all of its community relations personnel.
ITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTSStatus of Project Engineering and Previous Mine Planning Work
Overview
Northern Dynasty’s business strategy isDuring the period 2007 to acquire, explore and conduct preliminary engineering and economic analyses of mineralized deposits, which have large tonnage and multi-year production potential. This work is done with a view to enhancing2011, the value of the mineral prospect. As an active junior resource issuer, Northern Dynasty does not consider it likely that even if project economics warrant commercial production that Northern Dynasty as it is presently constituted would have the financial and manpower resources to placePebble Partnership expended several hundred million dollars on the Pebble Project, into commercial production entirelya major portion of which was spent on exploration programs, resource estimates, environmental data collection and technical studies involving engineering of various possible mine development models, as well as related infrastructure, power and transportation systems. During this period, the Pebble Partnership was funded by itself, as such operations require large corporate,the international mining company Anglo American through an affiliate which had acquired a 50% interest in the limited partnership which owns the Pebble Project contingent on the provision of $1.5 billion in funding for project costs. These studies informed a preliminary assessment of the project released by the Company in 2011. As a consequence of several factors, including EPA opposition to the Pebble Project discussed underItem 8 – A3. Legal Proceedings, the withdrawal of Anglo American from the project and the passage of time, technical and financialengineering studies related to mine-site and infrastructure development are considered to have very uncertain and perhaps little value at this time. Environmental baseline studies and data collection remains a significant legacy asset of the Company from this period. The 2014 Technical Report does not attempt to build on this previous engineering work given that, unless and until there is some visibility in excessthe litigation with the EPA in regards to the possibility of Northern Dynasty’s present capacities.permitting any kind of mine at Pebble, it is not appropriate for the technical report authors to use or build upon previously posited mine models or to make large dollar recommendations in furtherance of assessing the technical or economic feasibility of a potential mine at Pebble.
Plans for 2015
• | Advance a multi-dimensional strategy to address the EPA’s pre-emptive regulatory process under Section 404(c) of the Clean Water Act to ensure the Pebble Project can initiate federal and state permitting under NEPA unencumbered by any extraordinary development restrictions imposed by the EPA. This includes litigation related to the EPA’s statutory authority to act pre-emptively under the Clean Water Act, potential violations of the Federal Advisory Committee Act and Freedom of Information Act, as well as facilitation of various third-party investigations of EPA actions with respect to the Pebble Project, including by the independent Office of the EPA Inspector General. |
• | Maintain an active corporate presence in Alaska to advance relationships with political and regulatory offices of government, Alaska Native partners and broader stakeholder relationships. |
• | Maintain the Pebble Project and Pebble claims in good standing and continue environmental monitoring as per the Recommended Program from the 2014 Technical Report. |
• | Continue general and administration costs to maintain the Company in good standing and advance a potential partner(s) transaction. |
C. | ORGANIZATIONAL STRUCTURE |
Structure as at December 31, 2014:
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In January 2015, Kaskanak Inc and Kaskanak Copper LLC were merged with Pebble East Claims Corporation, with the latter the surviving entity.
D. | PROPERTY, PLANT AND EQUIPMENT |
The Company’s principal property is the Pebble Project, as discussed above in Item 4.B.
The Company has approximately $972,000 in plant and equipment primarily at the Pebble Project site located in Iliamna.
The Company, through the Pebble Partnership, has leased premises in Anchorage and at the Pebble Project site and as result the Company has lease commitments which have been disclosed underItem 5 –F. Tabular Disclosure of Contractual Obligations.
ITEM 4A | UNRESOLVED STAFF COMMENTS |
There are none.
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ITEM 5 | OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
OVERVIEW
Northern Dynasty’s resultsDynasty is a mineral exploration company which, via its subsidiaries, holds a 100% interest in mining claims on State of operationsAlaska land in southwest Alaska, USA ("US") that are economically evaluated by investors on an “event driven” basispart of or in thatthe vicinity of the Pebble Copper-Gold-Molybdenum Project (the "Pebble Project" or “Pebble”).
None of the Company's properties have any mineral reserves or have been proven to host mineralized material which can be said to be "ore" or feasibly economic at current metals prices. The Company incurs significant exploration expenditures yield information onas it carries out its business strategy. As Northern Dynasty is an exploration stage company, it does not have any revenues from its operations to offset its exploration expenditures. Accordingly, the nature, extent and statistical confidence (primarily from core drillingCompany's ability to continue exploration programs) in a mineralized deposit’s size and continuity which information is not contained in financial statements. Thus, it is difficult to evaluate the success of operations in a fiscal year by reference to the financial statements given that results are more appropriately measured by an evaluation of the minerals discovered and/or confirmed. Northern Dynasty’s operating activities do not occur on a regular or periodic basis and are subject to the economic realities of metals prices and equity financing conditions for natural resource exploration issuers. Accordingly, it may not be meaningful to seek observable trends in financial operating statistics although liquidity statisticsits properties will be important. Northern Dynasty calculates an annual loss per share (which has varied over a rangecontingent upon the availability of $0.35 to $0.41 over the last three fiscal years), but is of the view that Northern Dynasty’s share price does not vary in accordance with the loss per share statistic. Rather Northern Dynasty share prices vary with the outlook for its mineral projects and the price of the underlying market for gold and copper and the outlook for these metals.additional financing.
Northern Dynasty’sDynasty's financial statements are prepared on the basis that it will continue operations as a going concern. Given thatThe Company has incurred losses since inception and the ability of the Company to continue as a going concern depends upon its ability to continue to raise adequate financing and to develop profitable operations. Northern Dynasty has no source of significant revenue this assumption is always subjectDynasty's financial statements do not reflect adjustments, which could be material, to the further assumption that there will continue tocarrying values of assets and liabilities, which may be investment interest in equity funding exploration to seek large tonnage metal deposits. Northern Dynasty can give no assurance that it will continue to be able to raise sufficient funds and,required should itthe Company be unable to continue as a going concern.
The following discussion should be read in conjunction with the audited annual financial statements for the years ended December 31, 2014, 2013, and 2012, and the related notes accompanying this Annual Report ("2014 Financial Statements"). The Company prepares and presents its financial statements in accordance with International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board.
Critical Accounting Policies and Estimates
The preparation of the 2014 Financial Statements requires management to do so,make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the end of the reporting period presented and reported amounts of expenses during said reporting period. Actual outcomes may differ from these estimates.
Areas where significant estimates exist include:
i. | the inputs into the Black Scholes calculation for the estimation of the fair value of share purchase options granted, |
ii. | the value of the Settlement Claims (refer to note 5 of the 2014 Financial Statements), |
iii. | assumptions used in the determination of the provision for deferred income tax expense (recovery). |
Areas where significant judgments exist include:
i. | assessing the indicators for testing the Company's mineral property interest ("MPI") for impairment, |
ii. | determining the functional currencies of the Company and its subsidiaries, |
iii. | concluding that going concern was an appropriate basis for the preparation of the 2014 Financial Statements. |
Further discussion can be unablefound in note 2 of the 2014 Financial Statements which form Item 18 of this Annual Report.
Financial Instruments and Other Instruments
The Company has no derivative financial assets or liabilities.
A. | RESULTS OF OPERATIONS |
The following selected annual information is from the audited consolidated financial statements which have been prepared in accordance with IFRS. The 2013 figures include the Pebble Partnership on a consolidated basis with effect from December 10, 2013. Unless otherwise stated, all monetary amounts are expressed in thousands of Canadian dollars except per share amounts, which are expressed in Canadian dollars.
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December 31 | December 31 | December 31 | |||||||
Excerpts from Statements of Financial Position | 2014 | 2013 | 2012 | ||||||
Total assets | $ | 135,510 | $ | 141,784 | $ | 132,934 | |||
Total non-current other liabilities (non-financial) | 1,515 | 3,803 | 3,632 | ||||||
Total current liabilities | 6,033 | 4,053 | 409 |
Year ended | Year ended | Year ended | |||||||
December 31 | December 31 | December 31 | |||||||
Excerpts from Statements of Comprehensive Loss (Income) | 2014 | 2013 | 2012 | ||||||
Exploration and evaluation | $ | 12,877 | $ | 1,991 | $ | 4,461 | |||
General and administrative | 17,384 | 6,245 | 6,780 | ||||||
Share-based compensation | 3,877 | 641 | 5,225 | ||||||
Other items(i) | (2,791 | ) | (1,292 | ) | (804 | ) | |||
Gain on discontinuance of equity method(ii) | – | (5,062 | ) | – | |||||
Loss for the year | $ | 31,347 | $ | 2,523 | $ | 15,662 | |||
Basic and diluted loss per common share | $ | 0.33 | $ | 0.03 | $ | 0.16 | |||
Weighted average number of common shares outstanding (‘000’) | 95,009 | 95,007 | 94,995 |
(i) | Other items include interest income, exchange gain and loss and deferred income tax. |
(ii) | Represents a gain recorded upon discontinuance of equity method for accounting for the investment in the Pebble Limited Partnership when the Company reacquired control in Q4 of 2013. |
Year Ended December 31, 2014 versus Year Ended December 31, 2013
The Company recorded an increase in loss of $29.4 million due primarily to realizethe increase in Exploration and Evaluation expenses ("E&E"), general and administrative expenses ("G&A") and share-based compensation ("SBC"). In 2013, the Company recorded a $5.1 million gain on the carryingdiscontinuance of the equity method in accounting for the Pebble Partnership.
E&E increased by $10.9 million as the Company funded all exploration and evaluation work on the Pebble Project and included the updating of information on mineral resources (discussed underItem 4 – Technical Summary), other technical studies, site activities including payment of annual fees for claims, site leases and land access agreements, environmental monitoring and Native community engagement. E&E comprised mainly of the following for the year as compared to 2013, expressed in thousands of dollars:
Exploration and evaluation expenses ("E&E") | 2014 | 2013 | ||||
Engineering | $ | 1,440 | $ | 853 | ||
Environmental planning and testing | 2,322 | 270 | ||||
Site activities | 4,297 | 401 | ||||
Socio-economic | 4,324 | 26 | ||||
Other activities and travel | 494 | 441 | ||||
$ | 12,877 | $ | 1,991 |
Until December 10, 2013, the Pebble Project was under joint control with Anglo American with the latter funding exploration and evaluation work on the Pebble Project. Pursuant to the agreement with Anglo American, the distribution of losses funded by Anglo American were to be allocated 100% to Anglo American until satisfaction of Anglo American’s earn-in expenditures, and as a result Northern Dynasty did not recognize any share of the losses.
G&A increased to $17.4 million from $6.2 million in 2013 due to the inclusion of the Pebble Partnership’s management, administration, and office expenses for the full year and increased legal costs which were incurred in response to the EPA’s activities during the year (seeItem 8 – A3. Legal Proceedings).
The following table provides a breakdown of G&A incurred in the year as compared to 2013, expressed in thousands of dollars:
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General and administrative expenses ("G&A") | 2014 | 2013 | ||||
Conference and travel | $ | 323 | $ | 340 | ||
Consulting | 782 | 836 | ||||
Insurance | 384 | 342 | ||||
Legal, accounting and audit | 8,326 | 275 | ||||
Office costs | 1,963 | 670 | ||||
Management and administration | 4,610 | 2,572 | ||||
Shareholder communication | 772 | 983 | ||||
Trust and filing | 224 | 227 | ||||
Total | $ | 17,384 | $ | 6,245 |
SBC increased to $3.9 million from $0.6 million in 2013 as the Company granted 5.9 million share purchase options in the current year (2013 – no options were granted).
The Company recognized an exchange gain on translation of subsidiaries which have a U.S. Dollar functional currency of $9.9 million (2013 – $6.9 million) in other comprehensive income with the result that the Company recorded comprehensive loss for the year of $21.4 million as compared to a comprehensive gain of $4.4 million in 2013.
Cash Flows for the Year Ended December 31, 2014 versus 2013
Net cash used in operations increased to $27.8 million in 2014 from $7.8 million in 2013, due to the increase in the Company’s operating activities as discussed above. The source of cash and cash equivalents during 2014 included the Company’s cash resources and cash received from the issue of special warrants in a private placement late in December 2014.
Financial position as at December 31, 2014 versus December 31, 2013
Total assets decreased by $6.3 million to $135.5 million. This decrease was due mainly to the utilization of the Company’s cash and cash equivalents in its operating activities.
Year Ended December 31, 2013 versus Year Ended December 31, 2012
The Company recorded a decrease in loss of $13.1 million due mainly to the decrease in E&E, SBC and a gain recognized on discontinuance of the equity method for accounting for the investment in the Pebble Partnership.
E&E decreased by $2.5 million as the Company’s work on technical studies wound down.
G&A decreased to $6.2 million from $6.8 million in 2012 due mainly to a reduction in consulting fees paid and conference and travel costs. In 2012, in response to EPA’s initiatives such as the Bristol Bay Watershed Assessment, the Company retained US political and scientific representatives and consultants to assist, consult and represent the Company; such costs were lower in 2013. This was offset by increased shareholder communication in 2013 as the Company focused more resources in the area of investor relations and shareholder communication.
The following table provides a breakdown of G&A incurred in the year as compared to 2012, expressed in thousands of dollars:
G&A | 2013 | 2012 | ||||
Conference and travel | $ | 340 | $ | 566 | ||
Consulting | 836 | 1,761 | ||||
Insurance | 342 | 343 | ||||
Legal, accounting and audit | 275 | 255 | ||||
Office costs | 670 | 702 | ||||
Management and administration | 2,572 | 2,095 | ||||
Shareholder communication | 983 | 830 | ||||
Trust and filing | 227 | 228 | ||||
Total | $ | 6,245 | $ | 6,780 |
SBC decreased to $0.6 million from $5.2 million in 2012 due mainly to the Company not granting share purchase options in 2013. In 2012 the Company granted 2.2 million options and recognized an additional $0.5 million expense for options that were cancelled voluntarily. Although over 2.0 million options were cancelled voluntarily in 2013, they were fully vested, and there was no impact on SBC as the Company had previously recognized SBC thereon.
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The Company recognized an exchange gain on translation of the Pebble Partnership, which has a US dollar functional currency, of $6.9 million (2012 – loss of $2.2 million) in other comprehensive income, with the result that the Company recorded comprehensive income for 2013 of $4.4 million as compared to a comprehensive loss of $17.8 million in 2012.
Cash Flows for the Year Ended December 31, 2013 versus 2012
Net cash used in operations decreased by $2.7 million to $7.8 million in 2013 due mainly to the decrease in Company corporate activities.
The Company contributed a further $1.0 million to the Pebble Partnership before the change in control of the Pebble Partnership on December 10, 2013. On assumption of control, the Company’s cash resources increased by $6.5 million.
The Company received $0.6 million in interest on cash balances as compared to $0.4 million in 2012 as the Company’s funds were invested at higher rates. For the 2013 year, the Company had a net decrease in cash of $1.7 million (2012 – $9.9 million).
Financial position as at December 31, 2013 versus December 31, 2012
The Company’s total assets increased by $8.9 million to $141.8 million. The increase was mainly the result of consolidating the assets and liabilities of the Pebble Partnership as a result of assuming control thereof. In respect to non-current assets, the Company recognized the Pebble mineral property and plant and equipment as it discontinued the equity method of accounting for the Pebble Partnership, which including a foreign exchange gain on translation amounted to an increase of $7.7 million. Current assets increased by $1.2 million as the Company consolidated amounts receivable and prepaid expenses, certain restricted cash ($1.2 million) and cash and cash equivalents from the Pebble Partnership. The additional cash and cash equivalents reduced the decrease in cash and cash equivalents utilized for the year to $1.7 million. Other changes included the change in value of the resource project. amounts receivable due to accrued interest ($0.3 million) and foreign exchange gain on translation ($0.5 million).
The net realizable value could be materially less than Northern Dynasty’s liabilities with a potentialPebble Partnership under Joint Venture
Until the change of control on December 10, 2013, the Company accounted for total loss to Northern Dynasty shareholders.its investment in the Pebble Partnership under the equity method.
Northern Dynasty does not believe that it is significantly impactedExpenditures incurred by the effects of inflation nor currency moves asPebble Partnership on the Canadian dollar has fluctuatedPebble Project were funded by Anglo American in a relatively narrow bandorder to retain its 50% interest in the United States dollar during the last three years. Northern Dynasty’s principal property is located in Alaska and most on-site property related expenses will be transacted in United States dollars. Northern Dynasty will monitor exchange rates and buy US dollars at the most favorable rates available to mitigate the effectsPebble Project. Anglo American’s total contributions from inception of the United States/Canadian dollar exchange rate on its business. For additional details respecting the five year historical exchange rates, see Item 3A. Northern Dynasty has not been significantly affected by government economic, fiscal, monetary or political policies and the outlook for Northern Dynasty’s assets primarily relatePebble Partnership to the results of exploration and the outlook for copper and gold.
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Operating Results
Fiscal 2004 Compared with Fiscal 2003
Loss for the year ended December 31, 2004, increased2013 total $594.9 million (US$573.2 million). For the period ended January 1 to $41,698,647, comparedDecember 10, 2013, the Pebble Partnership incurred losses of $68.8 million (December 31, 2012 – $102.9 million). E&E costs decreased to a loss of $8,299,461 in the previous fiscal year. Included in the loss for the current year was stock-based compensation expense of $6,378,877.
Expenses, excluding stock-based compensation, foreign exchange, interest and write down of marketable securities increased to $35,075,467$58.5 million from $6,754,715 in the previous year.
Exploration costs increased by $27,093,171 to $32,594,900, from $5,501,729 spent in the previous year. The main exploration expenditure during the year was for environmental (2004 - $9,806,864; 2003 – nil) for planning and carrying out a variety of environmental test work. Other significant exploration costs are:
Office and administration costs increased by $861,429 to $1,382,986 from $521,557$93.3 million in the previous year as additional activities have been requiredthe Pebble Partnership focused on various programs to advance the completion of a prefeasibility study for the Pebble Project and the completion of a Project Description to support work atthe permit application under NEPA. In Q1 of 2012, the Pebble site. Shareholder communication expenses decreased from $578,476 spent in previous year to $471,032 in fiscal 2004.
Stock-based compensation of $6,378,877 was charged to operations during 2004 fiscal year, compared to $1,675,064 inPartnership released the previous year. The increase in stock-based compensation expense in the 2004 fiscal year is related primarily to the increase in the share price of the Company during the year. The share price is a significant component of the value of stock-based compensation for unvested options to non-employees.
Fiscal 2003 Compared with Fiscal 2002
The Company recorded a loss of $8,299,461 over the 2003 fiscal year, compared to a loss of $4,502,094 over the first nine months of 2003 and $5,112,493 in the prior fiscal year. The expenditures for 2003 ($8,429,779) are higher than in the previous fiscal year ($5,101,817) and this is largely attributed to higher exploration costs (2003 - $5,501,729; 2002 - $4,329,936), stock-based compensation (2003 - $1,675,064; 2002 - $13,271), and shareholder communication (2003 - $578,476; 2002 - $164,031).27,000-page Environmental Baseline Document.
The main exploration expenditure was for drilling (2003 - $2,700,068; 2002 - $1,142,867). During the 2003 fiscal year, 21,713 metres (71,238 feet) of drilling were completed. Other significant explorationE&E costs for the year were (2003 - $632,331; 2002 - $601,641) for helicopter and fixed wing for transportation to site and drill moves, (2003 - $723,326; 2002 - $497,291) for site activities that include local support services and supplies and (2003 - $622,183; 2002 - $629,082) for geological wages for planning and supervising the drill program and for logging core from the program. Increased assay and analytical costs of $290,771 (2002 - $118,948) were also paid during the year.
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Office and administration costs increased from $454,190 spent in the 2002 fiscal yearperiod ended January 1 to $521,557 in the 2003 fiscal year. Shareholder communication expenses increased from $164,031 spent in the previous year to $578,476 in fiscal 2003, and reflect the increased level of corporate and investor relations activity.December 10, 2013, were:
• | engineering (2013 – $10.6 million; December 31, 2012 – $19.1 million); |
• | environmental planning and testing (2013 – $13.9 million; December 31, 2012 – $20.0 million); |
• | site activities (2013 – $18.8 million; December 31, 2012 – $36.6 million); |
• | corporate affairs (2013 – $13.7 million; December 31, 2012 – $16.5 million); and |
• | business development (2013 – $1.5 million; December 31, 2012 – $1.1 million). |
B. | LIQUIDITY AND CAPITAL RESOURCES |
Fiscal 2002 Compared with Fiscal 2001Liquidity
The Company writes off as expenses all of its resource expenditures hence it recorded a loss of $5,112,493 over the 2002 fiscal year as compared to a loss of $4,120,331 over the first nine months of 2002 and $1,454,844 in the prior fiscal year. The expenditures for fiscal 2002 year ($5,101,817) are higher than in the prior fiscal year ($1,563,515), and this is largely attributed to higher exploration costs (2002 - $4,329,926; 2001 - $1,168,394) incurred at the Pebble Project. Administrative costs were also higher in 2002 (2002 - $771,881; 2001 - $395,121) because of additional support for the exploration programs and securities reporting and registration activities. Expenses increased in 2002 over 2001 in all areas except for management and consulting fees and property investigation costs. The latter 2001 costs were related to the technical review and development of a qualifying report, and negotiation and completion of agreements on the Pebble Project.
Expenses decreased in the fourth quarter to $988,986 as compared to $1,564,462 in the third quarter, due mainly to a decrease in exploration expenditures (December 31, 2002 - $737,287; September 30, 2002 - $1,425,595). This decrease was partially offset by an increase in shareholder communication costs (December 31, 2002 - $97,672; September 30, 2002 - $17,872). Shareholder communication costs increased due to a wide distribution of information to potential investors during the quarter. Exploration expenditures decreased as site work was completed in the third quarter.
The highest exploration expenditures in the fourth quarter were option payments (December 31, 2002 - $420,000; September 30, 2002 - nil) for the Pebble property; geological wages (December 31, 2002 - $89,798; September 30, 2002 - $245,012) for compilation of the results from drilling and re-logging programs; site activities (December 31, 2002 - $74,424; September 30, 2002 - $199,071) which involved final payments for the third quarter work at site; and assays (December 31, 2002 - $48,204; September 30, 2002 - $53,216) for completion of analytical work on the drill core samples.
Hunter Dickinson Inc. (“HDI”) of Vancouver, British Columbia is a private company with certain directors in common that carries out geological, corporate development, shareholder communications, administration and other management activities for, and incurs third party costs on behalf of, the Company. HDI is reimbursed on a full cost recovery basis. In fiscal 2002, Northern Dynasty paid $1,227,425 to HDI, as compared to $333,142 in fiscal 2001. The Company also paid $28,698 to Hunter Dickinson Group Inc., a decrease from $586,966 paid in fiscal 2001. (See also “Related Party Transactions”.)
Northern Dynasty has no legally committed capital resources or otherCompany's major sources of debt or equity capital. Northern Dynasty generally secures funding by presenting resource projects to a network of exploration investors including individual, institutional and brokerage firms. Northern Dynasty’s ability to fund projects is contingent on not only the perceived merits of its prospects but also on conditions generally in the exploration venture capital markets.
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B. Liquidity and Capital Resources
Overview
Historically, Northern Dynasty’s source of funding has been the saleissuance of equity securities for cash, primarily through private placements to sophisticated investors and insidersinstitutions and their associates. Northern Dynasty hasthe issue of common shares pursuant to the exercise of share purchase options. The Company's access to financing is always uncertain. There can be no assurance of continued access to significant equity funding. Northern Dynasty believes it has sufficient working capital to meet
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As at December 31, 2014, the Company’s cash and cash equivalents were $9.4 million, down from $25.8 million at December 31, 2013 as the Company used $27.9 million of its cash in its operating requirements to December 31, 2005 depending on the level of activity it pursues. In March, 2004 Northern Dynasty completed a Cdn$30.8activities and raised net $11.3 million financing by issuing shares and warrants (together as Units) for Cdn$4.25 per Unit. Equity funding was secured in February 2002 and January 2003, an aggregate of $1.3 million. Contingent on positive results from the exploration program, Northern Dynasty will require additional financing to cover future exploration programs and ongoing administrative costs. The Company is actively sourcing additional funding however; there can be no assurance that Northern Dynasty will be able to raise the additional funds, and should it be unsuccessful, the Company would be required to scale back its operations.
Northern Dynasty has no legally committed capital resources or other sourcesissuance of debt or equity capital. Northern Dynasty generally secures funding by presenting resource projects to a network of exploration investors including individual, institutional and brokerage firms. Northern Dynasty’s ability to fund projects is contingent on not only the perceived merits of its prospects but also on conditions generally in the exploration venture capital markets.
Fiscal 2004 Compared with Fiscal 2003
On March 16, 2004, the Company completed a private placement by issuing 2,750,000 units at $8.00 each, for net proceeds of approximately $21.9 million. Each unit was comprised of a common share and one half warrant. Each whole warrant entitles the holder to purchase one common share27,622,642 special warrants at a price of $9.00 until March 16, 2005. The TSX Venture Exchange subsequently consented to the reduction of the exercise price of 821,875 of these warrants to $4.65.
On August 5, 2004,$0.431 per special warrant in a private placement. In January 2015, the Company completed a $10 millionthe private placement of a further 8,340,093 special warrants for gross proceeds of $3.6 million (seeItem 10 – C. Material Contracts). The Company has prioritized the allocation of available financial resources in order to meet key corporate and Pebble Project expenditure requirements in the near term. Additional financing consisting of 2,816,902 units ofwill be required to pursue any material work programs at the Pebble Project. There can be no assurances that the Company 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 have to reduce or curtail its capital at $3.55 per unit. Each unit consisted of one common share and one share purchase warrant exercisable to purchase an additional common share at a price of $4.15 until August 5, 2005.operations.
At December 31, 2004, Northern Dynasty2014, the Company had working capital of approximately $10.2$5.9 million as compared to $3.2$29.7 million at the end of the 2003 fiscal year. Working capital increased as a result of the March 2004 $21.9 million private placement, the August 5, 2004 $9.8 million private placement and $10,987,764 received in cash from the exercise of options and warrants during the year. Northern Dynasty had 47,690,287 common shares issued and outstanding at December 31, 2004.2013. The Company has no long term debt, capital lease obligations, operating leases or any other long term obligations other than those disclosed below (referF. Tabular Disclosure of Contractual Obligations).
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 other claims and routine office leases.
Capital Resources
The Company’s capital resources consist of its cash reserves. As of December 31, 2014, the Company had no long term debt or commitments for material capital expenditures asother than what has been disclosed in below inF. Tabular Disclosure of December 31, 2004.Contractual Obligations.
The Company has no lines of credit or other sources of financing which have been arranged but as yet unused.or utilized.
DuringRequirement of Financing
North Dynasty does not earn any revenues and has historically had, and will continue to have for the period November 2004foreseeable future, negative cash flows. Historically, Northern Dynasty's sole source of funding has been provided by the sale of equity securities for cash, primarily through private placements to March 2005, the Company acquired a 100% working interest (subjectsophisticated investors and institutions. Like all exploration stage companies, Northern Dynasty will need to a 4-5% net profits royalty) inraise additional financing to pursue any material work programs at the Pebble property (see Item 1.2 of this MD&A). The Company will useProject and to meet its capital resources primarily to continue to conduct an exploration and development program on the Pebble property.
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Subsequent to the year end, the Company completed a $30.8 million private placement equity financing, consisting of 7,247,000 shares and 7,247,000 warrants. Assuming the exercise of in-the-money dilutables, the Company has sufficient capital to execute its 2005 work programs.
Fiscal 2003 Compared with Fiscal 2002
On July 31, 2003, the Company completed a private placement consisting of 6,944,445 units at a price of $0.72 per unit. Each unit was comprised of one common share and one warrant exercisable to purchase an additional common share at a price of $0.90 until June 12, 2004. All shares issued pursuant to the private placement financing and upon the exercise of the warrants have a hold period expiring July 31, 2004.
The private placement financing was made by Shambhala Gold Limited (“Shambhala”), a subsidiary of Galahad Gold plc, and received shareholder approval at the annual and extraordinary general meeting of shareholders of the Company on July 14, 2003. Shambhala Mining Corp., a wholly owned subsidiary of Shambhala incorporated under the laws of the Yukon, at June 1, 2004 held approximately 20% of the issued shares of Northern Dynasty. Shambhala has the right to participate in any equity financing by the Company to maintain its pro rata interest in the Company as long as Shambhala controls 20% or more (undiluted) of the Company’s issued and outstanding shares (the “Cooperative Period”). During the Cooperative Period, Shambhala is entitled to and did nominate two directors to Northern Dynasty’s board, namely Brian Mountford and Ian Watson. Shambhala has agreed that it will vote its shares in favour of resolutions recommended by the Company’s board of directors. If at any time during the Cooperative Period, Northern Dynasty elects to exercise its right to purchase the area of the Pebble Property known as the Resource Lands, financed by way of equity, Shambhala has a right of first refusal to subscribe for securities of Northern Dynasty to finance all or part of the exercise amount. The initial proceeds of the financing were allocated for the 2003 drilling program and the remainder (and potential additional proceeds from the exercise of warrants) to further advance the Pebble project.
The main activity in 2003 was drilling. All of the anticipated exploration expenditures were comparable to those proposed in the budget, except for site activities and miscellaneous. Site activities and miscellaneous are lower because the drilling program was completed in a shorter time than was anticipated. Administrative costs are higher mainly due to increased financing and shareholder communications activities.
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At December 31, 2003, Northern Dynasty had working capital of $3,240,887, as compared to $496,048 at the end of the previous fiscal year. Working capital increased as a result of the Shambhala financing, the July 2003 private placement, and $4,239,257 in cash received from the exercise of options and warrants during the year. Northern Dynasty had 31,733,186 common shares issued and outstanding at December 31, 2003.
Subsequent to the year-end, on March 16, 2004, the Company completed a private placement by issuing 2,750,000 units at $8.00 each. Each unit was comprised of a common share and one half warrant. Each whole warrant entitles the holder to purchase one common share at a price of $9.00 until March 16, 2005.
Fiscal 2002 Compared with Fiscal 2001
On July 29, 2002, the common shares of Northern Dynasty commenced trading on the OTC Bulletin Board (“OTCBB”) in the United States. The Company now trades on the TSX Venture Exchange (symbol NDM) and the OTC-BB (symbol NDMLF).
On August 27, 2002, the Company closed a private placement of 197,548 units at a price of $1.05 per unit for net proceeds of $190,815. Each unit is comprised of one common share and one share purchase warrant. Each share purchase warrant entitles the holder to purchase an additional common share at a price of $1.15 until December 27, 2003. The share purchase warrants are subject to a four-month hold period and an accelerated expiry. If the closing price of the common shares as traded on the TSX Venture Exchange is greater than or equal to $1.73 for ten consecutive trading days, warrant holders will be given notice that the warrants will expire in 45 days.
On January 14, 2003, Northern Dynasty completed a private placement by issuing 1,300,000 flow-through units and 400,000 non flow-through units at $0.50 each. Each flow-through unit is comprised of a flow-through common share and a two-year non flow-through share purchase warrant. Each warrant entitles the Investor to purchase one common share at a price of $0.60 for two years after the issue date. The non flow-through units are comprised of one common share and a two-year share purchase warrant with the same warrant terms.
At December 31, 2002, Northern Dynasty had working capital of $496,048, as compared to a working capital deficit of $77,575 at the end of the previous quarter.
Fiscal 2001 Compared with Fiscal 2000
At December 31, 2001, Northern Dynasty has a positive working capital position of $1.82 million (excluding the $400,000 private placement announced December 13, 2001 and the $1.0 million placement announced March 6, 2002), compared to $2.64 million at the end of 2000. At December 31, 2001 Northern Dynasty has 9,292,455 issued and outstanding shares.
In July 2001, the Company closed a private placement of 2,100,000 units at a price of $0.30 of which 1,900,000 were placed to insiders of the Company and/or their associates. Each Unit issued on conversion of the Special Warrants comprised of one common share and one share purchase warrant exercisable to purchase an additional share at a price of $0.40 for a two-year period from the date of issuance. The offering closed July 17, 2001. Proceeds, some $630,000, from the placement will be used for working capital.
On December 13, 2001, the Company announced that it had reached agreement in principle for a private placement to insiders. The placement comprises 1,176,470 units at $0.34 each. Each unit will consist of one common share and a share purchase warrant exercisable to purchase an additional common share at a price $0.45 for a two-year period, subject to a four-month hold period. Proceeds will be used for working capital and for the advancement of exploration of the Pebble Project. The offering closed February 20, 2002.
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On March 6, 2002 and subsequent to year-end, the company announced that it had reached agreement in principle with certain private investors to privately place 2,000,000 Units at a price of $0.50 per Unit. Each Unit will comprise one share and one share purchase warrant exercisable to purchase an additional share at a price of $0.62 for a two year period from the date of issuance. The Company will pay placement fees in accordance with TSX Venture Exchange Policies on a portion of the private placement. The offering closed April 19, 2002. Proceeds from the placement were used for working capital and the advancement of the Pebble Project.business objectives.
Financial Instruments
Northern DynastyThe Company has no derivative financial assets or liabilities and has the following non-derivative financial assets and liabilities.
• | Marketable securities |
• | Amounts receivable |
• | Cash and cash equivalents |
• | Trade and other payables, and |
• | Amounts payable to a related party. |
The Company keeps its financial instruments denominated in US and Canadian dollars andDollars, depending on expected needs in each currency. The Company does not engage in any hedging operations with respect to currency.currency or in-situ minerals. Funds which are currently in excess to Northern Dynasty’sDynasty's current needs are invested in short term near cash investments pending the need for the funds.short-term near-cash investments.
Northern Dynasty does not have any material, commitments forlegally enforceable obligations requiring it to make capital expenditures and accordingly, can remain relatively flexible in gearing its activities to the availability of funds. As
C. | RESEARCH EXPENDITURES |
Northern Dynasty does not carry out any research or development activities. Please refer to Item 3 and Item 4 above for a discussion of the fiscal 2004 year-end, Northern Dynasty estimatesexploration expenditures that the costCompany has incurred in connection with the exploration of maintaining its corporate administrative activities at approximately $100,000 per month. Accordingly, Northern Dynasty’s management estimates that approximately $1.2 million will be needed to maintain its corporate status and assets over the ensuing one-year period excluding Pebble Property activities. Northern Dynasty had current working capital of approximately $10.2 million as of December 31, 2004, and completed a $30.8 million private placement in March 2005, and expects to be able to raise sufficient capital to fund the cost of the next two years administration and exploration programs. There is, however, no assurance that Northern Dynasty will be able to raise the required funds.mineral properties.
Northern Dynasty will consider raising, if possible, further funds for the Pebble Property contingent on the outcome of the first phase of exploration.
C. Research Expenditures
Northern Dynasty is a natural resource exploration expenditure based corporation and does not have a program of intellectual property development or patenting or licensing.
D. Trend Information
As a natural resource exploration company, Northern Dynasty’s activities are mainly event-driven, that is based on exploration successes and failures than seasonal, but it may be seen to be affected by the cyclic nature of metal prices.
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D. | TREND INFORMATION |
Copper is a commodity metal used extensively in the housing and automotive industries and accordingly demand for copper varies directly with general economic conditions. The copper price has increased substantially, averaging US$0.81/lb in 2003 and approximately US$1.25/lb in 2004 and is in the US$1.50/lb range as of March 15, 2005.
Gold prices continued an overall uptrend in 2004, averaging US$410 per ounce, compared to US$364 per ounce in 2003. At March 15, 2005, the gold price was in the range of US$425/oz.
Molybdenum oxide prices increased from US$7.60/lb early 2009 until late 2011. From that time, prices have been variable and weakened overall. The recent closing price is US$2.89/lb.
The average annual gold price steadily increased from 2008 to 2012. Gold prices trended lower in 20042013, and have been variable but weakened overall in 2014 and 2015. The recent closing price is US$1,189/oz.
Molybdenum prices were variable, but improving in 2010 and 2011, variable in 2013, and then began an uptrend that extended through the end of June 2014. Prices have been on a downtrend since that time with a recent closing price of US$7.76/lb.
An upward trend in silver prices began in 2010, and continued to late September 2011; prices reached as high as $43/oz in 2011, resulting in the highest average annual price since 2008. Prices ranged between $26/oz and $35/oz between October 2011 and December 2012. Prices trended downward in 2013. They have been variable in 2014 and 2015, with an overall decrease in the average price. The recent closing price is US$34.00/lb by year end.16.39/oz.
Average annual prices since 2010 as well as the average prices so far in 2015 for copper, gold, molybdenum and silver are shown in the table below:
Average Prices | ||||||||||||
Copper | Gold | Molybdenum | Silver | |||||||||
Year or Period | US$/lb | US$/oz | US$/lb | US$/oz | ||||||||
2010 | 3.42 | 1,228 | 15.87 | 20.24 | ||||||||
2011 | 4.00 | 1,572 | 15.41 | 35.25 | ||||||||
2012 | 3.61 | 1,669 | 12.81 | 31.16 | ||||||||
2013 | 3.32 | 1,410 | 10.40 | 23.80 | ||||||||
2014 | 3.14 | 1,276 | 11.91 | 19.08 | ||||||||
2015 (to the date of this 20F) | 2.68 | 1,212 | 8.31 | 16.60 |
Source: LME Official Cash Price as provided at www.metalprices.com
E. | OFF-BALANCE SHEET ARRANGEMENTS |
Northern Dynasty has no off-balance sheet arrangements.
F. | TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS |
The following commitments and payables (expressed in thousands) existed at December 31, 2014:
Payments due by period | ||||||||||||
Total | ≤ 1 year | 1-5 years | > 5 years | |||||||||
Trade and other payables | $ | 5,650 | $ | 5,650 | $ | – | $ | – | ||||
Payable to related parties | 383 | 383 | – | |||||||||
Lease commitments | 1,424 | 952 | 472 | – | ||||||||
Total | $ | 7,457 | $ | 6,985 | $ | 472 | $ | – |
The Company had no long-term debt obligations, no capital (finance) lease obligations, no operating lease obligations (other than noted above), no purchase obligations, or other long-term liabilities.
G. | SAFE HARBOR |
The safe harbor provided in Section 27A of the Securities Act and Section 21E of the Exchange Act applies to forward-looking information provided pursuant to Item 5.E and Item 5.F above.
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ITEM 6 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management
ITEM 6 | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
DIRECTORS AND SENIOR MANAGEMENT |
The names and municipalities of residence of the directors and officers of the Company, their principal occupations during the past five years, and the period of time they have served as directors or officers of Northern Dynasty are presented in the table below. Except where indicated, each director and senior officer of Northern Dynasty has held the same or similar principal occupation with the organization indicated or a predecessor thereof for the last five years.
Name | Year born | |||
Position | Director | or Officer Since | ||
Scott D. Vancouver, BC, Canada | 1964 | Director | June 1996 | |
Robert A. Lions Bay, BC, Canada | 1948 | |||
Chairman of the Board and Director | ||||
Gordon J. West Vancouver, BC, Canada | 1953 | Director | July 2004 | |
Russell E. Hallbauer West Vancouver, BC, Canada | 1954 | Director | ||
Wayne Orcas Island, WA, USA | 1943 | Director | July 2004 | |
Peter Mitchell Chicago, IL, USA | 1955 | Director | ||
Chemainus, BC, Canada | 1947 | September 2013 | ||
West Vancouver, BC, Canada | 1967 | |||
Chief Financial Officer and Director | ||||
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Ronald W. West Vancouver, BC, Canada | 1952 | President, CEO and Director | November 1995 |
Vancouver, BC, Canada | February 2008 | ||
Bruce Jenkins Vancouver, | 1950 | June 2004 | |
Stephen Hodgson Vancouver, BC, Canada | 1954 | Vice President Engineering | March 2005 |
Sean Magee North Vancouver, BC, Canada | 1966 | Vice President Public Affairs | October 2006 |
Vancouver, BC, Canada | 1958 | Vice President Corporate Communications | June 2012 |
To the best of the Company's knowledge, none of such persons has any family relationship with any other and none were elected as a director or appointed as an officer as a result of an arrangement or understanding with a major shareholder, customer, supplier, or any other party. |
Notes
DAVID J. COPELAND, P.Eng. - Director
David J. CopelandThe following is a geological engineer who graduated in economic geology from the University of British Columbia. With over 30 years of experience, Mr. Copeland has undertaken assignments in a variety of capacities in mine exploration, discovery and development throughout the South Pacific, Africa, South America and North America. His principal occupation is President and Director of CEC Engineering Ltd., a consulting engineering firm that directs and co-ordinates advanced technical programs for explorationbiographical information on behalf of Taseko and other companies for which Hunter Dickinson Inc. provides services. He is also a director of Hunter Dickinson Inc.
Mr. Copeland is, or was within the past years, an officer and/or directoreach of the following public companies:Amarc Resources Ltd., Director (September 1995persons listed above. Where indicated in the reference to present);Anooraq Resources
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Corporation, Director (September 1996"CEO" refers to present); Farallon Resources Ltd., Director (December 1995“Chief Executive Officer” and “CFO” to present); Great Basin Gold Ltd., Director (February 1994 to present); Continental Minerals Corporation (formerly Misty Mountain Gold Limited), Vice-President, Project Development (June 1995 to February 1996 and June 1997 to June 1998) and Director (November 1995 to present); Northern Dynasty Minerals Ltd., Director (June 1996 to present); Taseko Mines Limited, Director (January 1994 to present) (including Director of Gibraltar Mines Ltd., a private mining company, which is a wholly owned subsidiary of Taseko Mines Limited); Casamiro Resource Corp., Director (February 1995 to August 2002).
SCOTT D. COUSENS - Director“Chief Financial Officer”:
Scott D. Cousens – Director
Scott Cousens provides management, technical and financial services to a number of publicly traded companies. Mr. Cousens’ focus for the past 14 yearssince 1991 has been the development of relationships within the international investment community. SubstantialThrough substantial financings and subsequent corporate success, Mr. Cousens has established strong ties with North American, European and Asian investors. Mr. Cousens is a director of HDI and HDSI.
Mr. Cousens is, or was within the past five years, an officer and/or director of the following public companies:Amarc Resources Ltd., Director (September 1995 to present);Anooraq Resources Corporation, Director (March 1994 to September 1994) and (September 1996 to present);Farallon Resources Ltd., Director (December 1995 to present);Great Basin Gold Ltd., Director (March 1993 to present);Continental Minerals Corporation(formerly Misty Mountain Gold Limited), Director (June 1994 to present);Northern Dynasty Minerals Ltd., Director (June 1996 to present);Rockwell Ventures Inc., Director (November 2000 to present); andTaseko Mines Limited, Director (October 1992 to present).
Company | Name of Market | Positions Held | From | To |
Northern Dynasty Minerals Ltd. | TSX, NYSE MKT | Director | June 1996 | Present |
Amarc Resources Ltd. | TSX-V, OTCBB | Director | September 1995 | Present |
Continental Minerals Corporation | TSX-V, OTCBB | Director | June 1994 | April 2011 |
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Company | Name of Market | Positions Held | From | To |
Heatherdale Resources Ltd. | TSX-V | Director and Chairman | November 2009 | Present |
Northcliff Resources Ltd. | TSX | Director | June 2011 | February 2012 |
Director | May 2012 | Present | ||
Quartz Mountain Resources Ltd. | TSX-V, OTCBB | Director and Chairman | November 2012 | Present |
Rathdowney Resources Ltd. | TSX-V | Director | March 2011 | Present |
Taseko Mines Limited | TSX, NYSE MKT | Director | October 1992 | July 2014 |
ROBERTRobert A. DICKINSON,Dickinson, B.Sc., M.Sc. – Chairman of the Board and Director
Robert A.Mr. Dickinson is an economic geologist who serves as a member of management of several mineral exploration companies, primarily those for whom Hunter Dickinson Inc. provides services. He holds a Bachelor of Science degree (Hons. Geology) and a Master of Science degree (Business Administration - Finance) from the University of British Columbia. Mr. Dickinson has also been activeactively involved in mineral exploration and mine development for over 3645 years. He is Chairman of HDI and HDSI as well as a director and member of the management team of a number of the public companies associated with Hunter Dickinson Inc. He is also President and Director of United Mineral Services Ltd., a private investmentresource company.
He also serves as a Director of the Britannia Mine Museum and a Trustee of the BC Mineral Resources Education Program. Mr. Dickinson is, or was within the past five years, an officer and/or director of the following public companies:Amarc Resources Ltd., Director (April 1993 to present), Chairman (April 2004 to present), Chairman (September 2000 to April 2004), President (September 1995 to September 2000), Chief Financial Officer (September 1995 to September 1998) and Chief Executive Officer (September 1998 to September 2000);Anooraq Resources Corporation, Director (November 1990 to present), Chairman (April 2004 to present), Chairman (September 2000 to April 2004), President (September 1996 to September 2000), Chief Financial Officer (September 1996 to February 1999) and Chief Executive Officer (February 1999 to September 2000);Farallon Resources Ltd., Director (July 1991 to present), Chairman (April 2004 to present), Chairman (September 2000 to April 2004) and Chief Executive Officer (December 1995 to September 2000);Great Basin Gold Ltd., Director (May 1986 to present), Chairman (April 2004 to present), Chairman (September 2000 to April 2004), President (May 1986 to September 2000), Chief Executive Officer (November 1998 to September 2000), Chief Financial Officer (May 1986 to June 1998);Continental Minerals Corporation(formerly Misty Mountain Gold Limited), Director (November 1995 to February 2001), Chairman (September 2000 to February 2001), President (November 1995 to September 2000), Chief
Company | Name of Market | Positions Held | From | To |
Northern Dynasty Minerals Ltd. | TSX, NYSE MKT | Director | June 1994 | Present |
Chairman | April 2004 | Present | ||
Amarc Resources Ltd. | TSX-V, OTCBB | Director | April 1993 | Present |
Chairman | April 2004 | Present | ||
Continental Minerals Corporation | TSX-V, OTCBB | Director | June 2004 | April 2011 |
Curis Resources Ltd. | TSX | Director | November 2010 | November 2012 |
Chairman | November 2010 | December 2010 | ||
Heatherdale Resources Ltd. | TSX-V | Director | November 2009 | Present |
Northcliff Resources Ltd. | TSX | Director | June 2011 | Present |
Chairman | June 2011 | January 2013 | ||
Rathdowney Resources Ltd. | TSX-V | Director and | March 2011 | December 2011 |
Chairman | ||||
Quartz Mountain Resources Ltd. | TSX-V | Director | December 2011 | Present |
Chairman | December 2011 | November 2012 | ||
Taseko Mines Limited | TSX, NYSE MKT | Director | January 1991 | Present |
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Financial Officer (June 1993 to June 1998), Chief Executive Officer (June 1998 to September 2000); Northern Dynasty Minerals Ltd., Director (June 1994 to present), Chairman (April 2004 to present), Chairman (November 2001 to April 2004), Chief Executive Officer (May 1997 to November 2001); Rockwell Ventures Inc., Chairman and Director (November 2000 to present); Taseko Mines Limited, Director (January 1991 to present), Chairman (April 2004 to present), Chairman (September 2000 to April 2004), President (January 1991 to September 2000), Chief Financial Officer (January 1991 to November 1998), Chief Executive Officer (November 1998 to September 2000), (including Chairman and Director of Gibraltar Mines Ltd. a private mining company, which is a wholly owned subsidiary of Taseko Mines Limited).
DAVID M.S. ELLIOTT, CAGordon J. Fretwell, B.Comm. LLB. – Director
David Elliott hasGordon Fretwell holds a strongBachelor of Commerce degree and diverse background as a public accountant and corporate executive. He graduated from the University of British Columbia in 1979 with his Bachelor of Law degree. Formerly a partner in a large Vancouver law firm, Mr. Fretwell has, since 1991, been a self-employed solicitor (Gordon J. Fretwell Law Corporation) in Vancouver practicing primarily in the areas of corporate and securities law.
Mr. Fretwell is, or was within the past five years, an officer and/or director of the following public companies:
Company | Name of Market | Positions Held | From | To |
Asanko Gold Corp. (formerly Keegan Resources Inc.) | TSX-V, AMEX | Director | February 2004 | Present |
Auryn Resources Inc. | TSX-V | Director | October 2013 | Present |
Bell Copper Corporation | TSX-V | Secretary | March 2001 | May 2011 |
Director | June 2001 | April 2011 | ||
Benton Capital Corp. (formerly Benton Resources Corp.) | TSX-V | Director | July 2003 | July 2013 |
Secretary | December 2003 | Present | ||
Benton Resources Inc. | TSX-V | Director | November 2011 | March 2014 |
Secretary | November 2011 | Present | ||
Canada Rare Earth Corp. | TSX-V | Secretary | June 2009 | Present |
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Company | Name of Market | Positions Held | From | To |
Curis Resources Ltd. | TSX | Director | January 2011 | November 2014 |
Coro Mining Corp. | TSX | Director | January 2009 | Present |
ICN Resources Ltd. | TSX-V | Director | July 2004 | August 2010 |
Lignol Energy Corporation | TSX-V | Director | January 2007 | Present |
Meritus Minerals Ltd. | TSX-V | Director | June 2007 | November 2012 |
Secretary | August 2009 | Present | ||
Northern Dynasty Minerals Ltd. | TSX, NYSE MKT | Director | June 2004 | Present |
Sokoman Iron Corp. (formerly Golden Dory Resources Corp.) | TSX-V | Secretary | August 2008 | Present |
Quartz Mountain Resources Ltd. | TSX-V, OTCBB | Director | January 2003 | Present |
Secretary | January 2003 | December 2011 | ||
Rockwell Diamonds Inc. | TSX-V, OTCBB, JSE | Secretary | September 2012 | Present |
Russell E. Hallbauer, P.Eng. – Director
Mr. Hallbauer graduated from the Colorado School of Mines with a BachelorB.Sc. in Mining Engineering in 1979. He is a Registered Professional Engineer with the Association of Commerce degreeProfessional Engineers of British Columbia. He has been a member of the Canadian Institute of Mining and acquiredMetallurgy since 1975 and is a Chartered Accountant designation in 1973 with KPMG LLP.director and former chairman of the Mining Association of B.C. Mr. Elliott joined BC Sugar Company in 1976, working in a number of senior positions before becomingHallbauer is currently the President and Chief OperatingExecutive Officer of the operating subsidiary, Rogers Sugar, in 1995. Taseko Mines Limited.
In 1997,1983, he joined Lantic SugarTeck Corporation’s Bullmoose mine, advancing through Engineering and Supervisory positions to become Mine Superintendent in Toronto as Executive Vice President. He has served as Chairman1987, and in 1992, became General Manager of Quintette. In 1995, he assumed new responsibilities in Vancouver when he was appointed General Manager, Coal Operations, overseeing Teck’s three operating coal mines in British Columbia. In 2002, he was appointed General Manager, Base Metal Joint Ventures, responsible for Teck Cominco’s interests in Highland Valley Copper, Antamina in Peru, and Louvicourt in Quebec. Mr. Hallbauer is a director of HDI and HDSI.
Mr. Hallbauer is, or was within the past five years, an officer and/or director of the Canadian Sugar Institute. He became President and Chief Operating Officer of the International Group based in St Louis Missouri in 1999, a company which was involved with food distribution as well as manufacturing and distribution of pet and animal feed. For the past 2 years, he has been working with companies developing e-mail and data management services.following public companies:
Company | Name of Market | Positions Held | From | To |
Northern Dynasty Minerals Ltd. | TSX, NYSE MKT | Director | April 2008 | Present |
Curis Resources Ltd. | TSX | Director | November 2010 | November 2014 |
Chairman | December 2010 | September 2012 | ||
Co-Chairman | September 2012 | November 2014 | ||
Taseko Mines Limited | TSX, NYSE MKT | Director, President and CEO | July 2005 | Present |
Mr. Elliott currently serves on the boards of theBC Cancer Foundation and theUniversity of BC Alumni Association, and of Great Basin Gold Ltd.,Taseko Mines Limited andNorthern Dynasty Minerals Ltd.
WAYNE KIRK,Wayne Kirk, LLB – Director
Wayne Kirk is ana retired attorney and consultant. He holds an undergraduateWith over 35 years of professional experience, Mr. Kirk also has over 9 years of senior executive experience in the mining industry.
Mr. Kirk is a citizen of the United States and is a resident of the state of Washington. A Harvard University graduate, Mr. Kirk received his law degree in economics from the University of California, Berkeley, and a law degree from Harvard University. He was called1968. From 1992 to the bar in California in 1969.2001 Mr. Kirk was an associate and partner in the San Francisco law firm of Thelen, Marrin, Johnson & Bridges from 1969 until 1992, specializing in corporate and mining law. He was Vice President, General Counsel and Corporate Secretary of Homestake Mining Company from 1992 until Barrick Gold Corporation's acquisition of Homestake in December 2001. Mr. Kirk was a director of Prime Resources Group Inc. (gold mining) (TSX; AMEX) from February 1996 until January 1999. From March 2002 untilCompany. Prior to his retirement in JulyJune 2004 he was special counsel tospent two years as Special Counsel for the New York/San Francisco law firm, of Thelen Reid & Priest, LLP.in San Francisco.
Mr. Kirk currently serves on the boards ofGreat Basin Gold Ltd.,Taseko Mines Limited andNorthern Dynasty Minerals Ltd.
JEFFREY R. MASON, CA – Chief Financial Officer, Secretary and Director
Jeffrey R. Mason holds a Bachelor of Commerce degree from the University of British Columbia and obtained his Chartered Accountant designation while specializing in the mining, forestry and transportation sectors at the international accounting firm of Deloitte & Touche. Following comptrollership positions at an international commodity mercantilist and Homestake Mining Group of companies including responsibility for North American Metals Corp. and the Eskay
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Creek Project, Mr. Mason has spent the last several years as a corporate officer and director to a number of publicly-traded mineral exploration companies. Mr. Mason is also employed as Chief Financial Officer of Hunter Dickinson Inc. and his principal occupation is the financial administration of the public companies to which Hunter Dickinson Inc. provides services.
Mr. Mason is, or was within the past five years, a director of the following public companies:
Company | Name of Market | Positions Held | From | To |
Northern Dynasty Minerals Ltd. | TSX, NYSE MKT | Director | July 2004 | Present |
Atlatsa Resources Corporation | TSX-V, NYSE MKT, JSE | Director | July 2005 | September 2011 |
Gabriel Resources Ltd. | TSX | Director | June 2008 | Present |
Great Basin Gold Ltd. | TSX, NYSE MKT, JSE | Director | July 2004 | January 2012 |
Luna Gold Corp. | TSX, OTCQX | Director | May 2012 | Present |
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Company | Name of Market | Positions Held | From | To |
Taseko Mines Limited | TSX, NYSE MKT | Director | July 2004 | June 2014 |
Peter Mitchell, CA – Director
Mr. Mitchell is currently the Senior Vice President and Chief Financial Officer of Coeur Mining, Inc. in Chicago, Illinois. He is a graduate of the University of Western Ontario with a Bachelor of Arts in Economics as well as a graduate of the MBA program of the University of British Columbia. Mr. Mitchell is a Chartered Accountant and worked most recently as the Chief Financial Officer of Taseko Mines Limited. Prior to that he held senior roles in three private equity portfolio companies including President of Florida Career College based in Fort Lauderdale, Florida, President and CEO of Vatterott Education Centers in St Louis, Missouri and Vice Chairman and CFO of Von Hoffmann Corporation, also based in St Louis, Missouri.
Mr. Mitchell is, or was within the past five years, an officer and or director of the following public companies:Amarc Resources Ltd., Secretary
Company | Name of Market | Positions Held | From | To |
Northern Dynasty Minerals Ltd. | TSX, NYSE MKT | Director | May 2011 | Present |
Coeur Mining, Inc. | NYSE, TSX | Senior Vice President and CFO | June 2013 | Present |
Northcliff Resources Ltd. | TSX | Director | June 2011 | Present |
Taseko Mines Limited | TSX, NYSE MKT | CFO | September 2008 | May 2013 |
Ken Pickering – Director (September 1995 to present), Treasurer (September 1995 to September 1998) and Chief Financial Officer (September 1998 to present);Anooraq Resources Corporation, Director (April 1996 to present), Treasurer (September 1996 to February 1999), Chief Financial Officer (February 1999 to present), Secretary (September 1996 to present);Farallon Resources Ltd., Secretary (December 1995 to present), Chief Financial Officer (December 1997 to present) and Director (August 1994 to present);Great Basin Gold Ltd., Director (February 1994 to present), Secretary (February 1994 to present), Chief Financial Officer (June 1998 to present), Treasurer (February 1994 to June 1998);Continental Minerals Corporation(formerly Misty Mountain Gold Limited), Secretary (November 1995 to present), Treasurer (November 1995 to June 1998), Chief Financial Officer (June 1998 to present) and Director (June 1994 to present);Northern Dynasty Minerals Ltd., Secretary (June 1996 to present), Director (June 1996 to present), Chief Financial Officer (June 1998 to present), Treasurer (May 1997 to June 1998);Rockwell Ventures Inc., Chief Financial Officer and Director (November 2000 to present);Taseko Mines Limited, Secretary (March 1994 to present), Chief Financial Officer (November 1998 to present), Director (March 1994 to present), and Treasurer (March 1994 to November 1998), and (including Chief Financial Officer, Secretary and Director of Gibraltar Mines Ltd., a private mining company, which
Mr. Pickering is a wholly owned subsidiaryProfessional Engineer and mining executive with 40 years of Taseko Mines Limited).
BRIAN MOUNTFORD, P. Eng, C Eng – Director
Brian Mountford is a UK-educated mining engineer with professional affiliations in Canada (P.Eng) and the UK (C Eng). Since emigrating to Canada in 1968, he has obtained a diverse experience in a variety of capacities in the miningnatural resources industry. He has combined his mining expertise with the initiation and financing of new companies. He has been involved as a principal inled the development, construction and operation of several explorationworld-class mining projects that were progressed through to commercial production. Typical examples are the Montana Tunnels Mine, where he was President of Centennial Minerals Ltdin Canada, Chile, Australia, Peru and the Britannia Mine (President of High River Gold). Others include Las Torres, Pinson, PrebleUnited States, focusing on operations, executive responsibilities and Gilt Edge. Mr. Mountford is also a General and Technical Reviewer for the Association of Professional Engineers of British Columbia. In this capacity he evaluates the work of other licensed engineers. During the last five years he has been, President and Director of Aldridge Resources Ltd (1995 to 2003) a publicly traded company.
WALTER T. SEGSWORTH, P.Eng. – Director
Walter T. Segsworth has been an active and respected member of the international mining industry for over 30 years. He has an excellent track record in employee safety, environmental excellence and turn around production situations. During Mr. Segsworth’s tenure as President, Chief Operating Officer and Director at Homestake Mining Company, the Company set a 125 year gold production record and its operating costs reached 25 year lows. Mr. Segsworth is a past Director and Chairman of the Mining Associations of Canada and British Columbia, and was voted British Columbia Mining Industry Person of the Year in 1996. He is a member of the Canadian Institute of Mining, Metallurgy and Petroleum and until recently, was part of the Mining Curriculum Advisory Board of the Michigan Technological University, from which he earned his degree in Mining Engineering.
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Mr. SegsworthPickering is, or was within the past five years, an officer and/or director of the following public companies:Cumberland Resources
Company | Name of Market | Positions Held | From | To |
Northern Dynasty Minerals Ltd. | TSX, NYSE MKT | Director | September 2013 | Present |
Endeavour Silver Corp. | TSX, NYSE | Director | August 2012 | Present |
THEMAC Resources Group Limited | TSX-V | Director | March 2011 | Present |
Pan Aust Minerals | ASX | Director | October 2011 | Present |
Enaex Chile | IPSA | Director | May 2011 | Present |
Marchand Snyman, CA (SA), CA (Aust.) – Director, (MayChief Financial Officer
Marchand Snyman is a member of the Institute of Chartered Accountants in Australia and of the South African Institute of Chartered Accountants. He is a director and Chief Operating Officer of HDI and a director of HDSI.
With over 17 years of progressive experience in the mining sector, Mr. Snyman was a director of Muratie Investments Pty Limited between 2003 and 2006, an Australian mining consultant providing advisory services to businesses in Australia, China, South Africa and the USA. Mr. Snyman was General Manager Corporate Finance and Development for Anglo Platinum Limited, the world's premier platinum producer from 1999 – 2002, responsible for managing diverse projects including joint venture negotiations, corporate tax structures and offshore corporate operations, having joined Anglo Platinum in 1996 as Corporate Finance Manager. Prior to present), Expatriate Resources Ltd., Director (February 2001 to present), Great Basin Gold Ltd. Director (January 2003 to present); Homestake Mining Company, President, COO (April 1999 to February 2002), Director (February 2001 to December 2001); Homestake Canada, Inc., President, CEO, and Director (April 1998 to April 1999); Newhawk Gold Mines Ltd., Director (April 1998 to September 1999); Novagold Resources Inc., Director (May 2002 to November 2002); Prime Resources Group Inc., President, CEO and Director (April 1998 to December 1998); UEX Corporation, Director (March 2002 to Present); Westmin Resources Ltd., President, CEO and Director (May 1990 to January 1998), Anooraq Resources Corporation (2004).that, he was a senior financial advisor for a multi-modal transportation company in South Africa.
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RONALDMr. Snyman is, or was within the past five years, an officer and/or director of the following public companies:
Company | Name ofMarket | Positions Held | From | To |
Northern Dynasty Minerals Ltd. | TSX, NYSE MKT | Director | August 2008 | Present |
CFO | August 2008 | Present | ||
Continental Minerals Corporation | TSX-V, OTCBB | CFO | January 2008 | April 2011 |
Heatherdale Resources Ltd. | TSX-V | CFO | November 2009 | April 2012 |
Northcliff Resources Ltd. | TSX | Director and Chairman | January 2013 | Present |
Ronald W. THIESSEN,Thiessen, CA – Director, President and Chief Executive Officer and Director
Ronald W. Thiessen is a Chartered Accountant with professional experience in finance, taxation, mergers, acquisitions and re-organizations. Since 1986, Mr. Thiessen has been involved in the acquisition and financing of mining and mineral exploration companies. Mr. Thiessen is employed by Hunter Dickinson Inc.,a director of HDI and HDSI, a company providing management and administrative services to several publicly-traded companies and focuses on directing corporate development and financing activities. He is also a director of Hunter Dickinson Inc.
Mr. Thiessen is, or was within the past five years, an officer and/or director of the following public companies:Amarc Resources Ltd., Director (September
Company | Name ofMarket | Positions Held | From | To |
Northern Dynasty Minerals Ltd. | TSX, NYSE MKT | Director | November 1995 | Present |
President and CEO | November 2001 | Present | ||
Amarc Resources Ltd. | TSX-V, OTCBB | Director | September 1995 | Present |
CEO | September 2000 | Present | ||
President | September 2000 | November 2014 | ||
Atlatsa Resources Corporation | TSX-V, JSE NYSE MKT | Director | April 1996 | June 2011 |
Continental Minerals Corporation | TSX-V, OTCBB | Director | November 1995 | April 2011 |
Co-Chairman | January 2006 | April 2011 | ||
Detour Gold Corporation | TSX | Director | July 2006 | May 2012 |
Farallon Mining Ltd. | TSX | Director | August 1994 | January 2011 |
Chairman | December 2005 | January 2011 | ||
Great Basin Gold Ltd. | TSX, NYSE MKT, JSE | Director | October 1993 | June 2013 |
Chairman | November 2006 | June 2013 | ||
Quartz Mountain Resources Ltd. | TSX-V | President, CEO and Director | December 2011 | Present |
Taseko Mines Limited | TSX, NYSE MKT | Director | October 1993 | Present |
Chairman | May 2006 | Present | ||
Trevor Thomas, LLB – Secretary
Trevor Thomas has practiced in the areas of corporate commercial, corporate finance, securities and mining law since 1995, to present), President and Chief Executive Officer (September 2000 to present);Anooraq Resources Corporation, Director (April 1996 to present), President and Chief Executive Officer (September 2000 to present);Farallon Resources Ltd., Director (August 1994 to present), President and Chief Executive Officer (September 2000 to September 2004), Co-Chairman (September 2004 to present);Great Basin Gold Ltd., Director (October 1993 to present), President and Chief Executive Officer (September 2000 to present);Continental Minerals Corporation(formerly Misty Mountain Gold Limited), Director (November 1995 to present), President and Chief Executive Officer (September 2000 to present);Northern Dynasty Minerals Ltd., President and Chief Executive Officer (November 2001 to present), Director (November 1995 to present);Rockwell Ventures Inc., President and Chief Executive Officer (November 2000 to present);Taseko Mines Limited, Director (October 1993 to present), President and Chief Executive Officer (September 2000 to present), (including Director of Gibraltar Mines Ltd., aboth in private mining company, which is a wholly owned subsidiary of Taseko Mines Limited.);Casamiro Resource Corp., President and Director (February 1990 to August 2002).
IAN WATSON – Director
Ian Watson is a financier with a backgroundpractice environment as well as in mining finance and investment banking. His principal occupation is Chairman and Managing Director of Galahad Gold plc. Galahad is quoted on the AIM Market of the London Stock Exchangehouse positions and is the largest single shareholder in Northern Dynasty Minerals Ltd. Previously,currently general counsel for HDI. HDI, he was a consultant to American Barrick, now Barrick Gold Corporation and was one of the founders of Centennial Minerals Ltd. and was its Chairman until 1985. Three years after it started, Centennial's success was reflected in a friendly, recommended take-over by Pegasus Gold Corporation.
served as in-house legal counsel with Placer Dome Inc. Mr. WatsonThomas is, or has beenwas within the past 5five years, an officer and or a director of the following public companies:Shambhala Gold Limited, Shambhala Gold Corp., Advisie NV, Northern Dynasty Minerals Ltd., Institute
Company | Name ofMarket | Positions Held | From | To |
Northern Dynasty Minerals Ltd. | TSX, NYSE MKT | Secretary | February 2008 | Present |
Amarc Resources Ltd. | TSX-V, OTCBB | Secretary | February 2008 | Present |
Atlatsa Resources Corporation | TSX-V, JSE, NYSE MKT | Assistant Secretary | November 2007 | March 2011 |
Continental Minerals Corporation | TSX-V, OTCBB | Secretary | February 2008 | April 2011 |
Curis Resources Ltd. | TSX | Secretary | June 2013 | November 2014 |
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Company | Name ofMarket | Positions Held | From | To |
Farallon Mining Ltd. | TSX | Secretary | December 2007 | January 2011 |
Heatherdale Resources Ltd. | TSX-V | Secretary | November 2009 | September 2010 |
June 2013 | Present | |||
Northcliff Resources Ltd. | TSX | Secretary | June 2011 | Present |
Quartz Mountain Resources Ltd. | TSX-V | Secretary | June 2013 | Present |
Rathdowney Resources Ltd. | TSX-V | Secretary | March 2011 | Present |
Rockwell Diamonds Inc. | TSX, OTCBB, JSE | Secretary | February 2008 | September 2012 |
Taseko Mines Limited | TSX, NYSE MKT | Secretary | July 2008 | Present |
Bruce Jenkins – Senior Vice President, Corporate Development
Bruce Jenkins is an environmental and government relations executive with more than 40 years of Noetic Sciences, Global Light Telecommunicationsexperience in project and corporate management. He supports the Pebble Partnership and helps guide environmental studies, mitigation planning and permitting activities. Mr. Jenkins is also Executive Vice President of Environment and Sustainability for Hunter Dickinson Inc.,
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Global ThymeStephen Hodgson – Vice President, Engineering
Stephen Hodgson is a professional engineer with over 35 years of experience in mine operations, mine development and project engineering. He is also Executive Vice President of Engineering for Hunter Dickinson Inc., GST Mextel, Inc., Un Limited, Brightstar Limited, Eclipse Limited, Bestel, S.A. de C.V, Bestel USA Inc., Highpoint Telecommunications Inc., Pilot Limited, Thyme Limited, Global Fibernet NV, Vitacom Corporation, Datamax Telemanagment Corporation, Highpoint Carrier Services Inc., Highpoint International Telecommunications Inc., Highpoint Carrier Services Europe Limited, Peach Technologies (Europe) Limited, Aduronet Transport Limited, Highpoint Telecommunications Europe Limited, Kast Telecom Europe BV, Forgiveness Project Inc., NeTrue Communications Inc., Vine Telecom Limited, Axxon Holding Company BV, Kast Telecom Europe SA, Axxon Telecom BV, NACT Telecommunications Inc.
B. Compensation
Ronald W. Thiessen, President and Chief Executive Officer, and Jeffrey R. Mason, Chief Financial Officer and Secretary, and Brian Mountford are “Named Executive Officers” of Northern Dynasty forMr. Hodgson is, or was within the purposespast five years, an officer of the following disclosure.public companies:
Company | Name of Market | Positions Held | From | To |
Rathdowney Resources Ltd. | TSX-V | Director | December 2011 | August 2014 |
Sean Magee – Vice President, Public Affairs
Sean Magee is a former journalist and speech writer with more than 20 years of natural resource industry communications experience. Mr. Magee has had a working relationship with Hunter Dickinson Inc. for more than 15 years and is currently HDI's Executive Vice President of Strategic Communications and Public Affairs.
Doug Allen – Vice President, Corporate Communications
Doug Allen is an asset management industry specialist with more than 30 years of experience on both the sell-side and the buy-side of the investment industry. His experience includes extensive investment work in the mining industry. Mr. Allen serves as the primary liaison between the broker-dealer and asset management industries and the Company.
B. | COMPENSATION |
Named Executive Officers
In this section “Named Executive Officer” (or "NEO") means each of the following individuals:
• | the Chief Executive Officer ("CEO"); |
• | the Chief Financial Officer ("CFO"); |
• | each of the three most highly compensated executive officers, or the three most highly compensated individuals acting in a similar capacity, other than the CEO and CFO, at the end of the most recently completed financial year whose total compensation was, individually, more than $150,000 for that financial year; and |
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The following disclosure sets out the compensation that the Board intended to pay, make payable, award, grant, give or otherwise provide to each NEO and director for the financial year ended December 31, 2014.
The compensation paid (or accrued) to each of the Named Executive OfficersNEOs during Northern Dynasty’sthe Company’s three most recently completed financial years ended December 31 is as set out below:below and expressed in Canadian dollars unless otherwise noted:
Name and | Year | ||||||||
($) | based awards ($) | ($) | ation ($) | Total compens- ation ($) | |||||
Annual incentive plans ($) | Long-term incentive plans ($) | ||||||||
Ronald Thiessen President & CEO | 2012 | Nil | Nil | Nil | Nil | 371,750 | |||
CFO | 2012 | 186,750 | Nil | Nil | Nil | Nil | Nil | ||
Peter Robertson(8) PLP Senior VP Corporate Affairs | 2014 2013 2012 | 458,409(1) Nil Nil | 58,750(5) Nil Nil | Nil Nil Nil | Nil Nil Nil | Nil Nil Nil | 17,231(10) Nil Nil | 534,390 Nil Nil | |
Sean Magee(9) VP Public Affairs | 2014 2013 2012 | 272,748 192,989 162,989 | 167,000(4)(6) Nil 119,000 | Nil Nil Nil | Nil Nil Nil | Nil Nil Nil | Nil Nil Nil | 439,748 192,989 281,988 | |
Notes:
1. | Salaries except for Messrs. Collier and Robertson are paid in Canadian dollars. An annual average exchange rate of Cdn$1.00 = US$0.9053 has been applied for the period of January 1, 2014 to December 31, 2014 for figures reported for Messrs. Collier and Robertson |
2. | Salary for Messrs. Thiessen, Snyman and Magee is paid through HDSI. The compensation amount shown is the amount paid by HDSI directly to Messrs. Thiessen, Snyman and Magee based on the estimated amount of time spent providing services to the Company, including the Pebble Partnership. |
3. | Messrs. Thiessen and Snyman do not serve the Company solely on a full time basis, and their salary from the Company is allocated based on the estimated amount of time spent providing services to the Company. For 2014, Mr. Thiessen spent 78% (2013-78%, 2012-41%), and Mr. Snyman spent 54% (2013-54%, 2012-38%) of their estimated amount of time on providing services to the Company. |
4. | The options were granted in February 2014 pursuant to the Corporation’s share option plan. For compensation purposes, the Black-Scholes option valuation model has been used to determine the fair value on the date of grant using the following assumptions: expected life of 5 years, expected volatility of 65.79%, expected dividend yield of 0%, and risk-free interest rate of 1.62%. The Black-Scholes grant date fair value for these awards was Cdn$0.89 per option which was 50% of the option exercise price. |
5. | The options were granted in April 2014 pursuant to the Corporation’s share option plan. For compensation purposes, the Black-Scholes option valuation model has been used to determine the fair value on the date of grant using the following assumptions: expected life of 5 years, expected volatility of 67.44%, expected dividend yield of 0%, and risk- free interest rate of 1.64%. The Black-Scholes grant date fair value for these awards was Cdn$0.47 per option which was 53% of the option exercise price. |
6. | The options were granted in September 2014 pursuant to the Corporation’s share option plan. For compensation purposes, the Black-Scholes option valuation model has been used to determine the fair value on the date of grant using the following assumptions: expected life of 5 years, expected volatility of 67.42%, expected dividend yield of 0%, and risk-free interest rate of 1.69%. The Black-Scholes grant date fair value for these awards was Cdn$0.39 per option which was 54% of the option exercise price. |
7. | Mr. Collier was appointed to the position of CEO of the Pebble Limited Partnership on February 1, 2014. Mr. Collier is employed and paid through a subsidiary of the Company. |
8. | Mr. Robertson holds the position of Senior Vice President of Corporate Affairs of the Pebble Limited Partnership. Mr. Robertson is employed and paid through a subsidiary of the Company. |
9. | Mr. Magee does not serve the Company solely on a full-time basis, and his salary from the Company is allocated based on the estimated amount of time (93%) (2013-80%, 2012-63%) spent providing services to the Company and the Pebble Partnership. In 2014, 100% of the total base salary shown for Mr. Magee was paid for by the Company. In 2013 and 2012 the total base salary shown was paid as follows: a) by the Company (2013-54%, 2012-66%) and b) by the Pebble Partnership (2013-46%, 2012-34%). |
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10. | A subsidiary of the Company has a 401(k) retirement savings plan for U.S. employees whereby employees are able to contribute a portion of their pay and receive a dollar for dollar Company match up to 6% of their pay, subject to IRS limitations. |
Incentive Plan Awards
Outstanding Share-based Awards and Option-based Awards
The Company currently only has an option-based awards plan and does not have any share based awards plan. The following table sets out the option-based awards outstanding as at December 31, 2014, for each NEO:
Option-based Awards | ||||
Name | Number of securities underlying unexercised options (#) | Option exercise price ($) | Option expiration date m – d – y | Value of unexercised in-the- money options(1) ($) |
Ronald Thiessen President and CEO | 480,000 | 1.77 | Feb-26-2019(2) | Nil |
Marchand Snyman CFO | 480,000 | 1.77 | Feb-26-2019(2) | Nil |
Thomas C. Collier CEO PLP | 750,000 | 0.89 | Apr-16-2019(2) | Nil |
Peter Robertson Senior VP Corporate Affairs | 125,000 | 0.89 | Apr-16-2019(2) | Nil |
Sean Magee VP Public Affairs | 200,000 100,000 100,000 | 0.72 1.77 3.00 | Sep-15-2019(2) Feb-26-2019(2) Jun-29-2017 | Nil Nil Nil |
Notes:
1. | The value is the difference between the closing price of $1.40 per Common Share on the TSX at December 31, 2014 and the exercise price of options. |
|
LONG-TERM INCENTIVE PLANS AWARDS
Long term incentive plan awards (“LTIP”) means “a plan providing compensation intended to motivate performance over a period greater than oneDuring the most recently completed financial year, whether performancethe Company awarded an aggregate of 5,874,600 options. The following is measured by reference to financial performancea summary of the Company or an affiliate, or the price of the Company’s Shares. The Company did not award any LTIPs to any Named Executive Officeroptions awarded during the most recently completed financial year.year:
1. | On February 26, 2014, the Company granted 4,494,600 options with an exercise price of $1.77 per Common Share to directors, employees (including HDSI employees who are seconded to the Company) and consultants of the Company. Of the options granted, an aggregate of 3,050,000 options were awarded to directors and officers of the Company. The options have either a three or five year term and vest in two equal tranches: one half vested on date of grant, the remaining half will vest in 12 months from the grant date. |
2. | On April 16, 2014 the Company granted 1,125,000 options with an exercise price of $0.89 per Common Share and a five year term to employees of the Pebble Partnership, which is now a wholly owned subsidiary of the Company. Of the options granted, 1,000,000 options vest in three equal tranches: one third vested on date of grant, one third vest in 12 months from the date of the grant and the remaining one third vests 24 months following the date of the grant. The remaining 125,000 options vest in five equal tranches: one fifth vested on date of grant, one fifth vest on February 1, 2015, one fifth vest on February 1, 2016, one fifth vest on February 1, 2017, and one fifth vest on February 1, 2018. |
3. | On April 24, 2014 the Company granted 55,500 options with an exercise price of $0.89 per Common Share and a three year term to employees of the Pebble Partnership. The options vest in three equal tranches: one third vested on date of grant, one third vests 12 months from the grant date and one third vests 24 months following the grant date. |
4. | On September 15, 2014, the Company granted 200,000 options with an exercise price of $0.72 per Common Share to an officer of the Company. The options have a five year term and vest in three equal tranches: one third vested on date of grant, one third vests 12 months from the grant date and one third vests 24 months following the grant date. |
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Share OptionsIncentive Plan Awards – Value Vested or Earned During the Year
The Company has in place a stock option plan dated for reference June 23, 2004 (the “Plan”). The Plan has been established to providefollowing table sets out all incentive to qualified parties to increase their proprietary interest in the Company and thereby encourage their continuing association with the Company. The Plan is administered by the directors of the Company. The Plan provides that options will be issued to directors, officers, employeesplans (value vested or consultants of the Company or a subsidiary of the Company. All options expire on a date not later than five years after the date of grant of such option.
The share options were granted to the Named Executive Officersearned) during the financial year ended December 31, 20042014, for each NEO:
Name | Option-based awards – Value vested during the year(1) ($) | Non-equity incentive plan compensation – Value earned during the year ($) |
Ronald Thiessen President and CEO | Nil | Nil |
Marchand Snyman CFO | Nil | Nil |
Thomas C. Collier CEO PLP | Nil | Nil |
Peter Robertson Senior VP Corporate Affairs | Nil | Nil |
Sean Magee VP Public Affairs | Nil | Nil |
Note:
1. | Represents the aggregate dollar value that would have been realized if options under the option-based award had been exercised on the 2014 vesting date determined by taking the difference between the market price of the shares subject to the option at date of vesting and the exercise price of the option. |
Compensation
Philosophy and Objectives
The main objective of director compensation is to attract and retain directors with the relevant skills, knowledge and abilities to carry out the Board’s mandate.
Director Compensation Table
The compensation provided to the directors, excluding a director who is included in disclosure for an NEO, for the Company’s most recently completed financial year of December 31, 2014 is:
Name | Fees earned ($) | Share option- based awards ($)(4) | Non-equity incentive plan compensatio n ($) | Pension value ($) | All other compensation ($) | Total ($) |
Scott Cousens(2) | 40,500 | 186,900 | Nil | Nil | Nil | 227,400 |
Robert Dickinson(2) | 165,000 | 427,200 | Nil | Nil | Nil | 592,200 |
Gordon Fretwell(1) | 44,000 | 133,500 | Nil | Nil | Nil | 177,500 |
Russell Hallbauer(2) | 40,500 | 186,900 | Nil | Nil | Nil | 227,400 |
Wayne Kirk(1)(3) | 84,500 | 240,300 | Nil | Nil | Nil | 324,800 |
Peter Mitchell(1) | 49,200 | 133,500 | Nil | Nil | Nil | 182,700 |
Ken Pickering | 40,500 | 133,500 | Nil | Nil | Nil | 174,000 |
Stephen Scott(5) | Nil | Nil | Nil | Nil | Nil | Nil |
Notes:
1. | Messrs. Fretwell, Kirk, Mitchell and Pickering provided services independently of HDSI. Each director of the Company who provided service independently of HDSI, and who is not an executive officer, was paid an annual director’s fee of: a) $40,500 Base Fee; b) $8,700 for Chairman of the Audit and Risk Committee; and c) $3,500 for the Chairman of the Compensation Committee and the Chairman of the NG Committee. |
2. | Fees for Messrs. Cousens, Dickinson and Hallbauer are paid through HDSI. The fee amounts shown are the amounts paid by HDSI directly to Messrs. Cousens, Dickinson and Hallbauer based on the estimated time spent on the Company’s activities. For 2014, Mr. Cousens’ spent 12%, Mr. Dickinson spent 48% and Mr. Hallbauer spent 6% of their estimated amount of time on providing services to the Company. |
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3. | Mr. Kirk is sole member and Chairman of the Pebble Partnership Oversight Committee which is authorized to oversee the Company’s interest in the Pebble Partnership. The Pebble Partnership Oversight Committee Chairman received an annual fee of $40,500. |
4. | The options were granted in February 2014 pursuant to the Corporation’s share option plan. For compensation purposes, the Black-Scholes option valuation model has been used to determine the fair value on the date of grant using the following assumptions: expected life of 5 years, expected volatility of 65.79%, expected dividend yield of 0%, and risk-free interest rate of 1.62%. The Black-Scholes grant date fair value for these awards was Cdn$0.89 per option which was 50% of the option exercise price. |
5. | Mr. Scott resigned from the Board on February 20, 2014. |
Outstanding Share-based Awards and Option-based Awards
The following table sets out all option-based awards outstanding as follows:at December 31, 2014 (as mentioned previously the Company does not have a share-based awards plan) for each director, excluding a director who is already set out in disclosure for an NEO for the Company:
Market Value of | |||||
% of Total Options | Securities | ||||
Securities Under | Granted to | Exercise or Base | Underlying Options | ||
Options Granted | Employees in | Price | on the Date of Grant | ||
Name | (#) | Financial Year | ($/Security) | ($/Security) | Expiration Date |
Ronald W. Thiessen | 115,000 | 5.0% | $5.00 | $5.00 | November 30, 2006 |
Jeffrey R. Mason | 115,000 | 5.0% | $5.00 | $5.00 | November 30, 2006 |
Brian Mountford | 200,000 | 8.7% | $5.00 | $5.00 | November 30, 2006 |
Option-based Awards | ||||
Name | Number of securities underlying unexercised options (#) | Option exercise price ($) | Option expiration date m – d – y | Value of unexercised in- the-money options(1) ($) |
Scott Cousens | 210,000 | 1.77 | Feb-26-2019(3) | Nil |
Robert Dickinson | 480,000 | 1.77 | Feb-26-2019(3) | Nil |
Gordon Fretwell | 150,000 | 1.77 | Feb-26-2019(3) | Nil |
Russell Hallbauer | 210,000 | 1.77 | Feb-26-2019(3) | Nil |
Wayne Kirk | 270,000 | 1.77 | Feb-26-2019(3) | Nil |
Peter Mitchell | 150,000 | 1.77 | Feb-26-2019(3) | Nil |
Ken Pickering | 150,000 | 1.77 | Feb-26-2019(3) | Nil |
Stephen Scott(2) | Nil | Nil | Nil | Nil |
Notes:
1. | The value is the difference between the closing price of $1.40 per Common Share on the TSX at December 31, 2014 and the exercise price of options. |
2. | Mr. Scott resigned from the Board on February 20, 2014. |
3. | Options were granted during the year ended December 31, 2014. |
Incentive Plan Awards – Value Vested or Earned During the Year
The share options exercised by the Named Executive Officersfollowing table sets out all incentive plans (value vested or earned) during the financial year ended December 31, 2004 and2014, for each director, excluding a director who is already set out in disclosure for an NEO for the values of such options at the end of such year were as follows:Company:
Name | Option-based awards – Value vested during the year(1) ($) | Non-equity incentive plan compensation – Value earned during the year ($) |
Scott Cousens | Nil | Nil |
Robert Dickinson | Nil | Nil |
Gordon Fretwell | Nil | Nil |
Russell Hallbauer | Nil | Nil |
Wayne Kirk | Nil | Nil |
Peter Mitchell | Nil | Nil |
Ken Pickering | Nil | Nil |
Stephen Scott(2) | Nil | Nil |
Notes:
1. | Represents the aggregate dollar value that would have been realized if options under the option-based award had been exercised on the vesting date, determined by taking the difference between the market price of | |||
2. | Mr. Scott resigned from the Board on February 20, 2014. |
COMPENSATION ACTIONS, DECISIONS OR POLICIES MADE AFTER DECEMBER 31, 2014
Given the evolving nature of the Corporation’s business, the Board continues to review and redesign the overall compensation plan for senior management so as to continue to address the objectives identified above.
CEASE TRADE ORDERS, BANKRUPTCIES, PENALTIES OR SANCTIONS
No director or officer of Northern Dynasty is, as of the date of this Annual Report, or has been within the ten years before the date of this Annual Report, a director or officer of any company that while that person was acting in that capacity, was the subject of a cease trade order, penalties, sanctions or bankruptcy, during the time the individual was a director or within a one year period thereafter, or was a director or officer of a company during the time in which an event occurred which led to a cease trade order, penalties, sanctions or bankruptcy subsequent to the individual ceasing to act as a director or officer. This information has been provided by each director or officer, as the Company is unable to verify these statements independently.
As publicly disclosed atwww.sedar.com in September, 2012, Great Basin Gold Ltd. ("GBG"), a company for which Mr. Thiessen was at the time a director, and for which Mr. Wayne Kirk was at that time a former director, having resigned as a director in January 2012, filed for creditor protection under the Companies’ Creditors Arrangement Act ("CCAA") in Canada, and as well, GBG’s principal South African subsidiary Southgold Exploration (Pty) Ltd. ("Southgold"), filed for protection under the South African Companies Act business rescue procedures. These companies continued to be subject to the insolvency proceedings at the time that Mr. Thiessen resigned.
Pine Valley Mining Corporation became subject to an order under CCAA in October 2006 during the year following Mr. Fretwell’s resignation as a director of that company.
On August 22, 2014, as publicly disclosed atwww.sedar.com, Lignol Energy Corporation, a company for which Mr. Fretwell is a director, was placed into receivership.
C. | ||||
BOARD PRACTICES |
No share options were repriced on behalfAll of the Named Executive Officers duringCompany's directors were elected at the financial year ended December 31, 2004.
Defined Benefit or Actuarial Plans
There are no defined benefit or actuarial plans in place.
Terminationannual general meeting of Employment, Change in Responsibilities and Employment Contracts
There are no compensatory plans or arrangements with respect toshareholders held on June 19, 2014. All directors have a term of office expiring at the Named Executive Officers resulting from the resignation, retirement or any other termination of employmentnext annual general meeting of the officer’s employmentCompany's shareholders. All officers have a term of office lasting until their removal or from a changereplacement by the board of the Named Executive Officer’s responsibilities following a changedirectors (the "Board").
Except as disclosed above in control.
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Compensation of Directors
ThereItem 6.B, there were no arrangements, standard or otherwise, pursuant to which directors were compensated by Northern Dynasty for their services in their capacity as directors, or for committee participation, involvement in special assignments of for services as consultants or experts during the most recently completed financial year or subsequently, up to and including the date hereof. See also Item 7 regarding the potential value of the retained carried interest in the Pebble Property which, although it is not compensation, will benefit to the families of certain directors. Subsequent to year end Northern Dynasty resolved to compensate each independent director with a $35,000 annual retainer with $3000-5000 additional for committee chairmen.
Securities Held By Insiders
As of March 15, 2005 the directors and officers of Northern Dynasty and their affiliates held as a group, directly and indirectly, own or control an aggregate of 1,306,584 common shares 2.6% of outstanding common shares). Insiders also held 2,143,647 options to acquire additional common shares. To the knowledge of the directors and executive officers of the Company, at March 15, 2005, only the following persons or corporations beneficially own, directly or indirectly or exercised control or direction over, Shares carrying more than 10% of the voting rights attached to all outstanding Shares of the Company:
Shareholder Name | Number of Shares Held | Percentage of Issued Shares |
Shambhala Gold Limited, a wholly owned | 16,254,695 | 33.0 |
subsidiary of Galahad Gold plc (1) |
Shambhala Gold Limited and Galahad Gold plc, at March 15, 2005, also held 1,610,180 warrants each exercisable to purchase one additional common share.
Galahad Gold plc was also a subscriber to 1,176,500 units in a private placement in the Company that closed after March 15, 2005, which are not included in the above tables. Each unit consisted of one common share and one warrant exerciseable at $5.00.
The above information was supplied to the Company by www.sedi.ca.
C. Board Practices
All directors were re-elected at the June 2004 annual general meeting and have a term of office expiring at the next annual general meeting of Northern Dynasty scheduled for June 2005. All officers have a term of office lasting until their removal or replacement by the Board of Directors.
There were no arrangements, standard or otherwise, pursuant to which directors were compensated by the Company or its subsidiaries for their services in their capacity as directors, or for committee participation, involvement in special assignments ofor for services as consultants or experts during the most recently completed financial yearyear.
Mandate of the Board of Directors
The Board has a formal mandate as outlined in the Corporate Governance Policies and Procedures Manual (the "Manual"), dated December 1, 2014. The Manual mandates the Board to: (i) assume responsibility for the overall stewardship and development of the Company and monitoring of its business decisions, (ii) identify the principal risks and opportunities of the Company’s business and ensure the implementation of appropriate systems to manage these risks, (iii) oversee ethical management and succession planning, including appointing, training and monitoring of senior management and directors, and (iv) oversee the integrity of the Company’s internal financial controls and management information systems. The Manual also includes written charters for each committee and it contains a code of ethics, policies dealing with issuance of news releases and disclosure documents, as well as share trading black-out periods. Further, in the Manual the Board encourages but does not require continuing education for all the Company’s directors. A copy of the Manual is available for review on the Company’s website under Corporate Governance atwww.northerndynastyminerals.com.
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Composition of the Board of Directors
Applicable governance policies require that a listed issuer’s board of directors determine the status of each director as independent or subsequently, upnot, based on each director’s interest in or other relationship with, the Company. Applicable governance policies recommend that a board of directors be constituted with a majority of directors who qualify as independent directors (as defined below). A board of directors should also examine its size with a view to determining the impact of the number of directors upon the effectiveness of the board of directors, and the board of directors should implement a system which enables an individual director to engage an outside advisor at the expense of the corporation in appropriate circumstances. The Company’s policies allow for retention of independent advisors for members of the board of directors when they consider it advisable.
Under the policies, an "independent" director is one who "has no direct or indirect material relationship" with the Company. Generally speaking, a director is independent if he or she is free from any employment, business or other relationship which could, or could reasonably be expected to materially interfere with the exercise of the director’s independent judgment. A material relationship includes having been (or having a family member who has been) within the last three years an employee or executive of the Company or employed by the Company’s external auditor. An individual who (or whose family member) is or has been within the last three years, an executive officer of an entity where any of the Company’s executive officers served at the same time on that entity’s Compensation Committee is deemed to have a material relationship as is any individual who (or whose family members or partners) received directly or indirectly, any consulting, advisory, accounting or legal fee or investment banking compensation from the Company (other than compensation for acting as a director or as a part time chairman or vice-chairman).
The Board has nine (9) directors, four (4) of whom can be considered "independent" directors. The "independent" directors are Peter Mitchell, Wayne Kirk, Gordon Fretwell and Ken Pickering. These directors are considered independent by virtue of not being executive officers of the Company and having received no compensation other than in their role as directors. The non-independent directors (and the reasons for that status) are: Scott Cousens (provides capital finance and investor communications services), Robert Dickinson (Chairman of the Board and geological consultant for the Company), Russell Hallbauer (provides engineering services), Marchand Snyman (Chief Financial Officer), and Ronald Thiessen (President and Chief Executive Officer).
All directors other than Mr. Pickering and Mr. Kirk serve together on boards of directors of other publicly traded companies associated with Hunter Dickinson Inc. ("HDI"), a private company. Messrs. Cousens, Dickinson, Hallbauer, Snyman and Thiessen are directors of HDI. As described in Item 7 below, HDI is the parent company of HDSI, which provides geological, corporate development, administrative and management services to, and incurs third party costs on behalf of, the Company. HDSI employs members of the executive management of some of these public companies (of which the Company is one) and in turn invoices those companies for their share of these services, pursuant to annually set rates.
The Board’s Nominating and Governance Committee (the "NG Committee") formalizes the process of ensuring high caliber directors and proper director succession planning. The NG Committee considered and recommended re-election of the current Board. The NG Committee currently consists of Wayne Kirk (Chair), Gordon Fretwell, and Ken Pickering, all of whom are independent (discussed above). The Board monitors the activities of the senior management through regular meetings and discussions amongst the Board and between the Board and senior management. The Board is of the view that its communication policy between senior management, members of the Board and shareholders is good. Meetings of independent directors are not held on a regular scheduled basis but communications among this group occurs on an ongoing basis and as needs arise from regularly scheduled meetings of the Board or otherwise. The number of these meetings has not been recorded but it would be less than five in the financial year that commenced on January 1, 2014. The Board also encourages independent directors to bring up and discuss any issues or concerns and the Board is advised of and addresses any such issues or concerns raised thereby. The Board has appointed Gordon Fretwell as Lead Director, and as such, Mr. Fretwell’s mandate includes ensuring that the Board carries out its responsibilities effectively and independent from management.
The Board believes that adequate structures and processes are in place to facilitate the functioning of the Board with a sufficient level of independence from the Company’s management. The Board is satisfied with the integrity of the Company’s internal control and financial management information systems.
Committees of the Board of Directors
Applicable regulatory governance policies require that (i) the Board’s Audit and Risk Committee be composed only of independent directors, and the role of the Audit and Risk Committee be specifically defined and include the responsibility for overseeing management’s system of internal controls, (ii) the Audit and Risk Committee have direct access to the Company’s external auditor, (iii) other committees of the Board be composed of at least a majority of independent directors (iv) the Board expressly assume responsibility, or assign to a committee of directors responsibility, for the development of the Company’s approach to governance issues, and (v) the Board appoint a committee, composed of a majority of independent directors, with the responsibility for proposing new nominees to the Board and for assessing directors on an ongoing basis. The Audit and Risk Committee currently consists of Gordon Fretwell, Wayne Kirk and Peter Mitchell.
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As well as an Audit and Risk Committee, the Board also has a Compensation Committee, a Nominating and Governance Committee and a Pebble Partnership Oversight Committee. For information concerning the Audit and Risk Committee please see the Company's website atwww.northerndynastyminerals.com.
Compensation Committee
The Board’s Compensation Committee currently consists of Gordon Fretwell (Chair), Ken Pickering and Peter Mitchell.
The Compensation Committee recommends compensation for the directors and executive officers of the Company. See further disclosure under the heading, Statement of Executive Compensation. The Compensation Committee charter is included in the Manual and is available for viewing at or can be downloaded from the Company’s website under Corporate Governance, atwww.northerndynastyminerals.com.
The function of the Compensation Committee includes review, on an annual basis, of the compensation paid to the Company’s executive officers and directors, review of the performance of the Company’s executive officers and making recommendations on compensation to the Board.
The Compensation Committee administers the Company’s share option plan and periodically considers the grant of share options. Share options have been granted to the executive officers and directors and certain other service providers, taking into account competitive compensation factors and the belief that share options help align the interests of executive officers, directors and service providers with the interests of shareholders.
Nominating and Governance Committee ("NG Committee")
The Board’s NG Committee currently consists of Wayne Kirk, (Chair), Gordon Fretwell, and Ken Pickering. The charter for the NG Committee is included in the Manual and is available for viewing at or can be downloaded from the Company’s website under Corporate Governance, atwww.northerndynastyminerals.com.
The NG Committee has been given the responsibility of developing and recommending to the Board the Company’s approach to corporate governance and of assisting members of the Board in carrying out their duties. The NG Committee also reviews with the Board the rules and policies applicable to governance of the Company to assure that the Company remains in full compliance with proper governance practices.
The nominating function of the NG Committee is to evaluate and recommend to the Board the size of the Board and persons as nominees for the position of director of the Company. The Company has formal procedures for assessing the effectiveness of Board committees as well as the Board as a whole. This function is carried out annually under the direction of the NG Committee and those assessments are then provided to the Board.
Pebble Partnership Oversight Committee
The Board has a Pebble Partnership Oversight Committee, the sole member of which is currently Wayne Kirk. This committee’s function is to oversee the operations of the Pebble Limited Partnership on behalf of the Board.
Board of Directors Decisions
Good governance policies require the Board of a listed corporation, together with its chief executive officer, to develop position descriptions for the Board and for the chief executive officer, including the date hereof. Duringdefinition of limits to management’s responsibilities. Any responsibility which is not delegated to senior management or to a Board committee remains with the full Board. The Board has approved written position descriptions for the Chairman of the Board and the Chairmen of the Board Committees.
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Recruitment of New Directors and Assessment of Board of Directors Performance
Good governance policies require that (i) the board of directors of every listed corporation implement a process for assessing the effectiveness of the Board and its committees, and the contribution of individual directors, (ii) every corporation provide an orientation and education program for new directors, and (iii) every board of directors review the adequacy and form of compensation of directors and ensure that the compensation realistically reflects the responsibilities and risks involved in being an effective director.
Please see the discussion concerning the Nominating and Governance Committee above under the heading, Committees of the Board of Directors.
The following table sets forth the record of attendance of Board, Audit and Risk, Compensation and NG Committee meetings by Directors for the 12 month period ended December 31, 2014:
Director | Board of Directors Meetings | Audit and Risk Committee Meetings | NG Committee Meetings | Compensation Committee Meetings |
Scott D. Cousens | 3 of 3 | |||
Robert A. Dickinson | 3 of 3 | |||
Gordon Fretwell (1) | 3 of 3 | 4 of 4 | 2 of 2 | N/A |
Wayne Kirk (2) | 3 of 3 | 4 of 4 | 2 of 2 | N/A |
Russell Hallbauer | 3 of 3 | |||
Ken Pickering | 3 of 3 | 2 of 2 | ||
Marchand Snyman | 3 of 3 | |||
Ronald W. Thiessen | 3 of 3 | |||
Peter C. Mitchell (3) | 3 of 3 | 4 of 4 | N/A | |
Stephen Scott (4) | N/A |
Notes:
1. | Current Compensation Committee Chairman. |
2. | Current NG Committee Chairman. |
3. | Current Audit and Risk Committee Chairman. |
4. | Mr. Scott resigned from the Board on February 20, 2014. |
Orientation and Continuing Education
The Company has traditionally retained experienced mining people as directors and hence the orientation needed is minimized. When new directors are appointed, they generally are acquainted with the Company’s mineral project(s) and the expectations of directors, or they would receive orientation commensurate with their previous experience on the Company’s properties, business, technology and industry and the responsibilities of directors. Board meetings generally include presentations by the Company’s senior management and project staff in order to give the directors full insight into the Company’s operations.
To enable each director to better perform his or her duties and to recognize and deal appropriately with issues that arise, the Company will provide the directors with appropriate education programs and/or suggestions to undertake continuing director education, the cost of which will be borne by the Company.
Ethical Business Conduct
The Board has a formal ethics policy which is contained in the Manual and which is available for download from the Company’s website under Corporate Governance atwww.northendynastyminerals.com. In addition, the Board has implemented an annual procedure whereby directors and officers sign off on and ratify that they have read and understand the Company’s code of ethics and that they are unaware of any violations thereof. The Board has found that the fiduciary duties placed on individual directors by the Company’s governing corporate legislation and the common law and the restrictions placed by applicable corporate legislation on an individual director’s participation in decisions of the Board in which the director has an interest have been sufficient to ensure that the Board operates independently of management and in the best interests of the Company.
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Nomination of Directors
The Board considers its size each year when it considers the number of directors to recommend to the shareholders for election at the annual meeting of shareholders, taking into account the number required to carry out the Board’s duties effectively and to maintain a diversity of views and experience. The NG Committee recommended to the Board the nine directors as nominees for election in 2014. See the description of the NG Committee above under the heading, Committees of the Board of Directors.
Assessments
The Board monitors the adequacy of information given to directors, communication between the Board and management and the strategic direction and processes of the Board and its committees. The NG Committee oversees an annual formal assessment of the Board and its three main committees namely the Audit and Risk Committee, Compensation Committee and NG Committee. The Board is satisfied with the overall project and corporate achievements of the Company and believes this reflects well on the Board and its practices.
Audit Committee
Audit and Risk Committee ("Audit Committee") Charter
The Audit Committee has adopted a charter that sets out its mandate and responsibilities. A copy of the Audit and Risk Committee Charter, which is included as part of the Company’s Governance Policies and Procedures Manual, is available for download from the Company’s website atwww.northerndynastyminerals.com.
Composition of the Audit Committee
The Audit Committee currently consists of Peter Mitchell (Chair), Wayne Kirk, and Gordon Fretwell. Mr. Mitchell is the Chairman of the Audit Committee. The Committee reviews all financial statements of the Company prior to their publication, reviews audits performed, considers the adequacy of audit procedures, recommends the appointment of independent auditors, reviews and approves the professional services to be rendered by them and reviews fees for audit services. The Audit Committee Charter has set criteria for membership which all members of the Audit Committee are required to meet consistent with National Instrument 52-110 and other applicable regulatory requirements. The Audit Committee, as needed, meets separately (without management present) with the Company’s auditors to discuss the various aspects of the Company’s financial statements and the independent audit.
Each Audit Committee member is an independent director and is financially literate. Both Mr. Kirk and Mr. Fretwell are experienced securities lawyers. Mr. Mitchell, the Audit Committee Chairman is a Chartered Accountant and is a financial expert.
Relevant Education and Experience
As a result of their education and experience, each member of the Audit Committee has familiarity with, an understanding of, or experience in:
• | the accounting principles used by the Company to prepare its financial statements, and the ability to assess the general application of those principles in connection with estimates, accruals and reserves; |
• | reviewing or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the Company's financial statements, and |
• | an understanding of internal controls and procedures for financial reporting. |
See disclosure regarding biographical information in Item 6.
Reliance on Certain Exemptions Available in NI 52-110
The Company’s auditor, Deloitte LLP, has not provided any material non-audit services during the most recently completed fiscal year, $112,000 were paid or accruedyear.
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Pre-Approval Policies and Procedures
The Company has procedures for the review and pre-approval of any services performed by its auditor. The procedures require that all proposed engagements of its auditor for audit and non-audit services be submitted to the Audit Committee for approval prior to the beginning of any such services. The Audit Committee considers such requests and, if acceptable to a private company controlledmajority of the Audit Committee members, pre-approves such audit and non-audit services by Brian Mountforda resolution authorizing management to engage the Company’s auditor for engineeringsuch audit and project managementnon-audit services, with set maximum dollar amounts for each itemized service. During such deliberations, the Audit Committee assesses, among other factors, whether the services requested would be considered "prohibited services" as contemplated by the regulations of the US Securities and Exchange Commission, and whether the services requested and the fees related to such services could impair the independence of the auditors.
Principal Accountant Fees and Services
The Audit Committee has reviewed the nature and amount of the audit and non-audit services provided by him,Deloitte LLP to the Company to ensure auditor independence. Disclosure of fees incurred with Deloitte LLP for audit and $158,000 was paidnon-audit services in the last two fiscal years are outlined in Item 16.C.
From time to Galahad Gold plctime, management of the Company recommends to and requests approval from the audit committee for audit and non-audit services to be provided by the Company's auditors. The audit committee routinely considers such requests at committee meetings, and if acceptable to a majority of the audit committee members, pre-approves such audit and non-audit services by a resolution authorizing management to engage the Company's auditors for such non-audit services, with set maximum dollar amounts for each itemized service. During such deliberations, the audit committee assesses, among other factors, whether the non-audit services requested would be considered "prohibited services" as contemplated by the US Securities and Exchange Commission, and whether the non-audit services requested and the fees related to such services could impair the independence of the auditors.
Code of Ethics
The Company has adopted a code of ethics that applies to all directors, officers and employees of the Company. A copy of the Code of Ethics, which is included as part of the Company’s Governance Policies and Procedures Manual, is available for download from the Company’s website atwww.northerndynastyminerals.com and under the Company’s profile on SEDAR atwww.sedar.com.
Potential Conflicts of Interest
Directors of Northern Dynasty also serve as directors of other similar companies involved in natural resource development. Accordingly, it may occur that properties will be offered to such other companies. Furthermore, those other companies may participate in the same properties as those in which Northern Dynasty has an interest. As a result there may be situations which involve a potential conflict of interest or issues in connection with the doctrine of "corporate opportunity". In that event, a financially interested director would not be entitled to vote at meetings of directors in respect of Mr. Mountford's services, which payments are believed to reflect market rates.
During the fiscal year, 1,290,000 incentive options (115,000 to each of six directors and 100,000 to each of four directors and 200,000 to one director) to purchase shares were granted to the directors at an average exercise price of $5.00 per share. The options expire in November 2006. The options were
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issued pursuant to the Company’s Share Option Plan. The Share Option Plan was approved by disinterested shareholders at the Company’s annual general meeting held in June 2004.
Commencing January 1, 2004, each director ofa transaction involving the Company was paid an annual director’s feeif it evokes any such conflict. The directors will attempt to avoid dealing with such other companies in situations where conflicts or corporate opportunity issues might arise and will at all times use their best efforts to act in the best interests of $2,400 ($600 paid quarterly)Northern Dynasty.
D. | EMPLOYEES |
At December 31, 2014, the Company and an additional feeits subsidiaries had 13 full time employees. Employees of $600 for each directors' meeting attended. Each director who is a member of a committee receives $2,400 ($600 paid quarterly) for each committee of which he or she is a member, and a further fee of $600 for each committee meeting attended. Commencing January 1, 2005, the compensation was amended for independent directors, who now receive $35,000 per annum ($8,750 paid quarterly). Each director who is a chairman of a committee receives an additional $3,000HDSI are seconded to $5,000 (depending on the committee) per annum. No attendance fees shall be paid.
D. Employees
At March 15, 2005, Northern Dynasty had no direct full-time employees, but rather it ordinarily contracts staff from Hunter Dickinson Inc. and with Alaskan-based employment agencies on an as-needed basis. Northern Dynasty’s functions are primarily administered through Hunter Dickinson Inc.and as-requested basis (see Item 7)7 - Major Shareholders and Related Party Transactions).
E. | SHARE OWNERSHIP |
E. Share Ownership - Stock OptionsSecurity Holdings of Directors and Senior Management
As at March 15, 2005,May 11, 2015, the directors and officers of Northern Dynasty, and their respective affiliates, directly and indirectly, own or control as a group an aggregate of 4,006,3007,463,561 common shares have been reserved for issuance pursuant(7.11%), or 12,123,561 (11.05%) on a diluted basis.
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As at May 11, 2015, the Company's directors and senior management beneficially owned the following number of the Company's common shares:
Name of Insider | Number of common Shares Beneficially Owned or Controlled(1) | As a % of the outstanding common shares |
Scott D. Cousens | 6,000 | 0.01% |
Robert A. Dickinson(2) | 4,070,083 | 3.88% |
Gordon J. Fretwell | Nil | - |
Russell E. Hallbauer | 106,600 | 0.10% |
Wayne Kirk | 130,000 | 0.12% |
Peter Mitchell | Nil(3) | - |
Ken Pickering | 116,000 | 0.11% |
Marchand Snyman | 120,000(4) | 0.11% |
Ronald W. Thiessen | 2,578,878 | 2.63% |
Trevor Thomas | 10,000 | 0.01% |
Bruce Jenkins | 10,000 | 0.01% |
Stephen Hodgson | 136,000 | 0.13% |
Sean Magee | Nil | - |
Doug Allen | Nil | - |
Thomas C. Collier | Nil | - |
Peter Robertson | Nil | - |
Notes:
(1) | The information as to the number of Common Shares beneficially owned or controlled is not within the knowledge of management of the Company and has been furnished by the respective nominees as filed on SEDI. |
(2) | Certain of these common shares are beneficially owned through a private company controlled by Mr. Dickinson, and a Registered Retirement Saving Plan (RRSP) owned by Mr. Dickinson. |
(3) | Mr. Mitchell has 60,000 Special Warrants that will convert into common shares on a one for one basis. |
(4) | Certain of these common shares are beneficially owned through a Registered Retirement Saving Plan and a Tax Free Savings Account owned by Mr. Snyman. |
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As at May 11, 2015, the Company's directors and senior management beneficially held the following number of share purchase options (“options”). All share purchase options relate to the following director, executive officer and service provider stock options:Company's common shares:
Name of Insider | Number of options | Exercise price | Expiry date |
Scott D. Cousens | 210,000 | $1.77 | Feb-26,2019 |
Robert A. Dickinson | 480,000 | $1.77 | Feb-26,2019 |
Gordon J. Fretwell | 150,000 | $1.77 | Feb-26,2019 |
Russell E. Hallbauer | 210,000 | $1.77 | Feb-26,2019 |
Wayne Kirk | 270,000 | $1.77 | Feb-26,2019 |
Peter Mitchell | 150,000 | $1.77 | Feb-26,2019 |
Ken Pickering | 150,000 | $1.77 | Feb-26,2019 |
Marchand Snyman | 480,000 | $1.77 | Feb-26,2019 |
Ronald W. Thiessen | 480,000 | $1.77 | Feb-26,2019 |
Trevor Thomas | 75,000 70,000 | $3.00 $1.77 | Jun-29-2017 Feb-26,2019 |
Bruce Jenkins | 100,000 100,000 | $3.00 $1.77 | Jun-29-2017 Feb-26,2019 |
Stephen Hodgson | 100,000 100,000 | $3.00 $1.77 | Jun-29-2017 Feb-26,2019 |
Sean Magee | 100,000 100,000 200,000 | $3.00 $1.77 $0.72 | Jun-29-2017 Feb-26,2019 Sep-15-2019 |
Doug Allen | 100,000 100,000 | $3.00 $1.77 | Jun-29-2017 Feb-26,2019 |
Thomas C. Collier | 750,000 | $0.89 | Apr-16-2019 |
Peter Robertson | 125,000 | $0.89 | Apr-16-2019 |
(a)Incentive Options
Date | Expiry | |||
Option holder Status | Number of Shares | Exercise Price | of Grant | Date |
Directors and Officers | 257,500 | $2.35 | August 14, 2004 | July 29, 2005 |
of Northern Dynasty | 595,000 | $5.00 | October 30, 2003 | November 30, 2005 |
400,000 | $5.00 | June 29, 2004 | November 30, 2006 | |
790,000 | $5.00 | September 27, 2004 | November 30, 2006 | |
100,000 | $5.00 | September 20, 2004 | November 30, 2006 | |
2,100,000 | ||||
Employees and | 5,000 | $0.75 | May 8, 2003 | May 9, 2005 |
Consultants | 50,000 | $0.94 | July 8, 2003 | July 29, 2005 |
7,500 | $2.30 | September 18, 2003 | September 19, 2005 | |
776,300 | $5.00 | October 30, 2003 | November 30, 2005 | |
38,000 | $5.05 | December 4, 2003 | November 30, 2005 | |
852,000 | $5.00 | June 29, 2004 | November 30, 2006 | |
350,000 | $5.00 | September 27, 2004 | November 30, 2006 | |
2,078,800 | ||||
4,006,300 |
In fiscal 2004, 309,249 options were exercised with proceeds of $323,045 at an average price of $1.04 per share. In fiscal 2005 to March 15, 2005, 193,534 options were exercised, at an average price of $2.34, with proceeds of $453,835.
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(b)Share IncentiveOption Plan
In order to provide incentive to directors, officers, employees, management and others who provide services to the Company to act in the best interests of the Company the Company has adopted a Share Option Plan (the “Plan”). At May 11, 2015, 7,567,200 options were outstanding pursuant to the Plan, described below, and an aggregate of 2,934,645 common shares remained available for issuance pursuant to the Plan. A description of the Plan is provided below.
Under the Plan, options may be granted in particular duringan amount up to 10% of the expanded feasibility, developmentoutstanding shares. As outstanding share options are exercised, additional share options may be granted to replace the exercised options. In addition, as the number of issued and potential production phases, managementoutstanding Common Shares of the Company proposed at its 2004 Annual and Extraordinary General Meeting, held June 23, 2004 that shareholders approve a resolution to amend and restateincreases, the existingnumber of share option plan as the "2004 Plan". The "2004 Plan" was approved by shareholders at the Company’s annual general meeting held on June 18, 2003. Under the share option plan (the “2003 Plan”), a total of 7,000,000 shares of the Company were reservedoptions available for share incentive options to be granted at the discretion of the Company’s board of directorsgranting to eligible optionees (the "Optionees").will increase. As at March 15, 2004, from the totaldate hereof there are share options outstanding to purchase an aggregate of 7,000,000 under the 2004 Plan, 1,851,033 had been exercised, 4,006,300 were outstanding, leaving 1,142,667 available to grant under the 2004 Plan.
Eligible Optionees
Under the policies7,567,200 Common Shares representing approximately 7% of the TSX-V, to be eligible for the issuance of a stock option under the Plan an Optionee must either be a director, officer, employee, consultant or an employee of a company providing management or other services to the Company or to a subsidiary at the time the option is granted.
Options may be granted only to an individual or to a company that is wholly-owned by individuals eligible for an option grant. If the option is granted to a non-individual, the company must provide the TSX-V with an undertaking that it will not permit any transfer of its securities, nor issue further securities, to any other individual or entity as long as the incentive stock option remains in effect without the consent of the TSX-V.
Material Terms of the PlanCommon Shares outstanding.
The following is a summary of the material terms of the Plan:
(a) | Persons who are directors, officers, employees, or consultants to the Company or its affiliates, or who are employees of a management company providing services to the Company are eligible to receive grants of options under the Plan. |
(b) | Options may be granted only to an individual or to a company that is owned by individuals eligible for an option grant. If the option is granted to a company, the company must undertake that it will not permit any transfer of its shares, nor issue further shares, to any other individual or entity as long as the incentive stock option remains in effect without the consent of the TSX. |
(c) | All options granted under the Plan may be exercisable only by the Optionee to whom they have been granted and the options are non-assignable and non-transferable, except that in the case of the death of an Optionee, any vested option held by the deceased Optionee at the date of death will become exercisable by the Optionee’s lawful personal representatives, heirs or executors until the earlier of (1) one year after the date of death of such Optionee and (2) the date of expiration of the term otherwise applicable to such Option. |
(d) | Vesting of options is determined by the Board and subject to the following: |
where an Optionee has left the Company’s employ/office or has been advised his or her services are no longer required or his or her service contract has expired, subject to other provisions set out in the Plan, vested options expire on the earlier of the expiry date of the option or 90 days after the date the Optionee ceases to be employed by, provide services to, or be a director or officer of, the Company, and all unvested options immediately terminate without right to exercise same;
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• | in the case of the death of an Optionee, any vested Option held at the date of death will become exercisable by the Optionee’s lawful personal representatives, heirs or executors until the earlier of one year after the date of death of such Optionee and the date of expiration of the term otherwise applicable to such Option; | |
• | in the case of an Optionee being dismissed from employment or service for cause, such Optionee’s options, whether or not vested at the date of dismissal, immediately terminate without right to exercise same; | |
• | in the event of a change of control occurring, options granted to directors and officers which are subject to vesting provisions are deemed to have immediately vested upon the occurrence of the change of control; and | |
• | in the event of a director not being nominated for re-election as a director of the Company, although consenting to act and being under no legal incapacity which would prevent the director from being a member of the Board, options granted which are subject to a vesting provision are deemed to have vested on the date of Meeting upon which the director is not re-elected; |
(e) | All options granted under the Plan are |
(i) | the Optionee remaining employed by or continuing to provide services to the Company or any of its subsidiaries and affiliates as well as, at the discretion of the Board, achieving certain milestones which may be defined by the Board from time to time or receiving a satisfactory performance review by the Company or its subsidiary or affiliate during the vesting period; or | |
(ii) | remaining as a director of the Company or any of its subsidiaries or affiliates during the vesting period. |
A “blackout period” is any period of time during which a participant in the Plan is unable to trade securities of the Company as a consequence of the implementation of a general restriction on trading by an authorized Officer or Director pursuant to the Company’s governance policies that authorize general and/or specific restrictions on trading by service providers in circumstances where there may exist undisclosed material changes or undisclosed material facts in connection with the Company’s affairs. The term of an option will expire on its Expiry Date as defined in the Plan unless the Expiry Date occurs during a blackout period or within five business days after the expiry of the blackout period, in which case the Expiry Date for that Option will be the date that is the tenth business day after the date the blackout period expires.
(f) | The exercise price of the option is established by the Board at the time the option is granted, provided that the minimum exercise price shall not be less than the weighted average trading price of the Company’s shares on the TSX for the five trading days preceding the date of the grant. |
The number of common shares that may be issuable to directors who are independent directors of the Company, | |
Subject to |
(i) | make amendments which are of a | |
change the vesting provisions of an | ||
(iii) | change the | |
(iv) | add a cashless exercise feature payable in cash or Common Shares; | |
(v) | make amendments necessary as a result in changes in securities laws applicable to the Company; | |
(vi) | make such amendments as may be | |
(vii) | make such amendments as reduce, and do not increase, the benefits of the Plan to Optionees. |
(i) | The Plan has the following additional restrictions: |
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(i) | Common Shares to be issued to Insiders under the Plan, when combined with all of the Company’s other share compensation arrangements, may not exceed 10% of the outstanding Common Shares in any 12 month period; | |
(ii) | Common Shares being issuable to independent directors under the Plan, when combined with all of the Company’s other share compensation arrangements, may not exceed 1% of the outstanding Common Shares of the Company from time to time; and | |
(iii) | a reduction in the exercise price of an option granted hereunder to an Insider or an extension of the term of an option granted hereunder benefiting an Insider, would require the approval of the disinterested shareholders (defined below) of the Company. |
Disinterested Shareholder approval shall be required in respect of:
a. | any amendment which reduces the Exercise Price of an Option; | |
b. | any amendment to extend the term of an option granted to an Insider; | |
c. | amendments to increase any of the limits on the number of Options that may be granted; | |
d. | any amendment that may permit an increase to the proposed limit on independent director participation; | |
e. | any amendment relating to the transferability or assignability of an Option; and | |
f. | any amendments required to be approved by shareholders under applicable law. |
The Plan provides for the granting of Options that meet the definition of Incentive Stock Options under the United States Internal Revenue Code. The Plan provides that, subject to adjustment for general changes to the Common Shares, the total number of Common Shares which may be issued pursuant to such Incentive Stock Options is limited to 5,000,000 Common Shares.
Definitions:
A "disinterested shareholder" means a shareholder that is not an Insider eligible to receive options under the Plan, and who is not an Associate of an Insider.
An "Insider" is a director or an officer of the Company, a director or an officer of a company that is itself an Insider or a subsidiary of an Insider, or a person that has beneficial ownership of and/or control or direction, either directly or indirectly, over, securities of the Company carrying more than 10% of the voting rights attached to all the Company’s outstanding voting securities.
The following table sets out equity compensation plan information as at the end of the financial year ended December 31, 2014.
Equity Compensation Plan Information
Number of shares to be issued upon exercise of outstanding share options, warrants and rights (1) | Weighted-average exercise price of outstanding share options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | |
Plan Category | (a) | (b) | (c) |
Equity compensation plan approved by security holders (the Share Option Plan) | 7,687,000 | $1.95 | 1,813,986 |
Equity compensation plans not approved by security holders | – | – | – |
Total | 7,687,000 | $1.95 | 1,813,986 |
Notes:
1. | The Company has only share options issued and outstanding. No warrants or rights have been issued by the Company under the plan. |
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ITEM 7 | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |
A. | MAJOR SHAREHOLDERS |
Major Shareholders
Northern Dynasty is a publicly-held corporation, with its shares held by residents of Canada, the United States of America and other countries. To the best of Northern Dynasty's knowledge, other than as noted below, no person, corporation or other entity beneficially owns, directly or indirectly, or controls more than 5% of the common shares of Northern Dynasty, the only class of securities with voting rights. For these purposes, "beneficial ownership" means the sole or shared power to vote or direct the voting or to dispose or direct the disposition of any security.
Name | Number of common Shares Beneficially Owned or Controlled | As a % of the outstanding common shares1 |
Kopernik Global Investors, LLC2 | 6,519,135 | 6.21% |
Mackenzie Financial Corporation | 6,757,300 | 6.43% |
Stirling Global Value Fund Inc.3 | 12,900,000 | 12.28% |
Notes:
1. | Based on shares outstanding as of March 25, 2015. See below. |
Kopernik Global Investors holds 18,714,146 special warrants issued pursuant to the financing discussed underItem10 – C. Material Contractswhich can be |
As required by the policies of the TSX Venture Exchange, Northern Dynasty obtained "disinterested" shareholders' approval because of the Plan. Disinterested approval means the approval by shareholdersone-for-one basis at no additional cost.
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excluding the votes of any shareholder who is a member of management and could benefit from the Plan. The disinterested approval was required because:
Stirling Global Value Fund holds 7,180,000 special warrants issued pursuant to the | |
- 54 -As at May 11, 2015, Northern Dynasty had authorized unlimited common shares without par value, of which 105,018,453 were issued and outstanding. Northern Dynasty has 25,954,146 special warrants outstanding which are exercisable on a one-for one basis into common shares at no additional cost to the holder.
ITEM 7 MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONSAll of the common shares have the same voting rights.
A. MajorGeographic Breakdown of Shareholders
As of May 11, 2015, Northern Dynasty’sDynasty's register of shareholders indicates that Northern Dynasty's common shares are held as follows:
Location | Number of registered shareholders of record | Number of shares | Percentage of total shares |
Canada | 87 | 99,126,939 | 94.4% |
United States | 179 | 5,607,143 | 5.3% |
Other | 25 | 284,371 | 0.3% |
TOTALS | 291 | 105,018,453 | 100.0% |
Shares registered in intermediaries were assumed to be held by residents of the same country in which the clearing house was located.
Northern Dynasty's securities are recorded on the books of its transfer agent, (Computershare Trust Company of Canada,Computershare Investor Services Inc., located at 510 Burrard Street, Vancouver, B.C. V6C 3B9Canada (604) 661-0215)661-9400 in registered form, however,form. However, the majority of such shares are registered in the name of intermediaries such as brokerage houses and clearing houses (on behalf of their respective brokerage clients). Northern Dynasty does not have knowledge or access to the identities of the beneficial owners of such shares registered through intermediaries. Based on information provided pursuant to Northern Dynasty’s search of intermediaries, as of March 15, 2005, shares registered in intermediaries were assumed to be held by residents of the same country in which the clearing house was located. To the best of its knowledge,
Control
Northern Dynasty is not directly or indirectly owned or controlled by any other corporation, by any foreign government or by any other natural or legal person, severally or jointly, other than as noted above under Major Shareholders. There are no arrangements known to Northern Dynasty which, at a corporation or foreign government. For information on the holdings of insiders see Item 6B.
As of March 31, 2005:
Number of registered | Percentage of total | ||
Location | shareholders of record | Number of shares | shares |
Canada | 130 | 34,307,098 | 69.6 % |
United States | 156 | 5,475,935 | 11.1 % |
Other | 30 | 9,533,132 | 19.3 % |
316 | 49,316,165 |
As of March 15, 2005, the only registered holders of 5% or more of the current issued and outstanding common sharessubsequent date, may result in a change in control of Northern Dynasty are:Dynasty.
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The shareholdingsInsider Reports under the Securities Acts of British Columbia and Alberta and Ontario
Since the Company is a reporting issuer under the Securities Acts of British Columbia and Alberta and Ontario, under National Instrument 55-104 – Insider Reporting Requirements and Exemptions, as adopted by the CSA , certain "insiders" of the individualCompany (including its directors, are listed in Item 6A. The voting rightscertain executive officers, and persons who directly or indirectly beneficially own, control or direct more than 10% of the major shareholders do not differ from the voting rights of other Northern Dynasty shareholders.
Under the British ColumbiaSecurities Actinsiders (generally officers, directors, holders of 10% or more of Northern Dynasty'sits common shares) are generally required to file insider reports of changes in their ownership in the first 10 days of the month following a trade in Northern Dynasty's securities.common shares within five days following the trade. Copies of such reports are available for public inspection at the offices of the British Columbia Securities Commission, 9th Floor, 701 West Georgia Street, Vancouver, British Columbia V7Y 1L2, (phone (604) 899-6500)899-6500 or at the British Columbia Securities Commission web site, (www.bcsc.bc.ca)www.bcsc.bc.ca. Commencing in June 2003 inIn British Columbia, all insider reports must be filed electronically 10within five days following the date of the trade.trade atwww.sedi.ca. The public is able to access these reports at www.sedi.ca.www.sedi.ca.
B. | RELATED PARTY TRANSACTIONS |
B. Related Party Transactions
No director or senior officer, and no associate or affiliate of the foregoing persons, and no insider has or has had any material interest, direct or indirect, in any other transactions, or in any other proposed transaction, which in either such case has materially affected or will materially affectExcept as disclosed below, Northern Dynasty or its predecessors during the year ended December 31, 2004 or in any pending transaction except as follows:
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(a)Management Contracts
The Companyhas not, since April 1, 2012, and does not have full-time management or employees as these services are provided to the Company by Hunter Dickinson Inc. (“HDI”) pursuant to a geological, corporate development, administrative and management services agreement dated for reference December 31, 1996. HDI is a private company owned equally by nine publicly traded exploration companies (one of which is the Company) and is managed by persons, the majority of whom are also directors of the Company. HDI is one of the largest independent mining exploration groups in North America and as of December 31, 2004, employed or retained on a substantially full-time basis, 20 geoscientists, including six with advanced degrees (four Ph.D.’s and two M.Sc.’s), eight professional geologists, and four professional engineers (PEng.); three engineers (two mining engineers and one civil engineer, all with professional engineer designations); one biologist (MSc.), eight accountants (including four Chartered Accountants, one CMA and one CGA) and fifteen administrative and support personnel. It has supervised mineral exploration projects in Canada (British Columbia, Manitoba, Ontario, Québec, Yukon and Northwest Territories) and internationally in Brazil, Nevada, Mexico and South Africa. HDI allocates the cost of staff input into projects such as the Pebble project based on theat this time records of involved personnel. Costs of such personnel and third party contractors are billed to the participating public companies on a full cost recovery basis (inclusive of HDI staff costs and overhead) for amounts which are considered by the Company management to be at a cost that is competitive with arm’s-length suppliers. The shares of HDI are owned by each of the participating public corporations (including the Company) for as long as HDI’s services are being retained by such participating company, however a participant surrenders its single share of HDI at the time of termination of the standard form of services agreement. The agreement can be cancelled on 30 days’ notice. The amounts billed by HDI for its services rendered and reimbursement of expenses were approximately $2,002,148 in 2004 (2003 - $1,257,404).
(b)Pebble Property Options Assignment
By Assignment Agreement dated October 29, 2001 between Hunter Dickinson Group Inc.(“HDGI”) and Northern Dynasty respecting the Pebble Property Option (see Item 4A and Item 19 - Exhibits). Northern Dynasty was assigned 80% of HDGI’s interests in the Teck Cominco Options in respect of the Pebble Property. HDGI is a private company which seeks to source and secure rights to mineral prospect opportunities for its own account and for purposes of involving public companies by way of option, joint venture or assignment of all or a part of HDGI’s rights. HDGI has assigned prospect interests to both arm’s length and non-arm’s length companies. HDGI will generally risk its own funds on preliminary exploration costs before assigning its interest in a prospect on terms negotiated with the transferee company. Such assignments generally require the acceptance by the relevant regulatory authorities and in some cases the shareholders of the public company (by approval of a majority of the disinterested shareholders of the transferee. The directors of HDGI and its shareholders include Messrs. R.A. Dickinson, R.W. Thiessen, J.R. Mason, D.J. Copeland, S.D. Cousens, D.S. Jennings, each of whom is a director of Northern Dynasty, except D.S. Jennings. HDGI is the corporate trustee of six family trusts to which such named directors and their family members are beneficiaries. Northern Dynasty received disinterested shareholder approval for the Assignment Agreement at its June 28, 2002 annual shareholders meeting.
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(c)Participation in Private Placements
To the knowledge of management of the Company, no insider or nominee for election as a director of the Company had any interest in any material transaction during the year ended December 31, 2004, or has any interest in any material transaction in the current year other than as set out herein.
During the year ended December 31, 2004, directors and officers of the Company (including companies owned or controlled by such person) participated in the following private placements as follows:propose to:
enter into any transactions which are material to Northern Dynasty or a related party or any transactions unusual in their nature or conditions involving goods, services or tangible or intangible assets to which Northern Dynasty or any of | |||
(2) | make any loans or guarantees directly or through any of its former subsidiaries to or for the benefit of any of the following persons: |
enterprises directly or indirectly through one or more intermediaries, controlling or controlled by | |||
associates of Northern Dynasty (unconsolidated enterprises in | Northern Dynasty; | ||
individuals owning, directly or indirectly, shares of Northern Dynasty that gives them significant influence over Northern Dynasty and close members of such individuals families; | |||
(d) | key management personnel (persons having authority in responsibility for planning, directing and controlling the | ||
(e) | enterprises in which a |
(d)DirectorsHunter Dickinson Services Inc. ("HDSI")
Hunter Dickinson Inc. ("HDI") and Officersits 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.
DirectorsA number of the current directors of the Company, namely Scott Cousens, Robert Dickinson, Russell Hallbauer, Marchand Snyman and Ron Thiessen are active members of the HDI Board of Directors. Other key management personnel of the Company – Doug Allen, Stephen Hodgson, Bruce Jenkins, Sean Magee and Trevor Thomas – are 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 Northern Dynastythis 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.
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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
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 timeeither the Company or HDSI.
Transactions | 2014 | 2013 | ||||
Services rendered by HDSI | ||||||
Technical | $ | 1,745 | $ | 1,241 | ||
Engineering | 540 | 612 | ||||
Environmental | 686 | 383 | ||||
Socioeconomic | 277 | 85 | ||||
Other technical services | 242 | 161 | ||||
General and administrative | 3,181 | 2,940 | ||||
Management, financial & administration | 2,542 | 2,245 | ||||
Shareholder communication | 639 | 695 | ||||
Services rendered by HDSI | $ | 4,926 | $ | 4,181 | ||
Reimbursement of third party expenses | 779 | 828 | ||||
Conferences and travel | 196 | 234 | ||||
Insurance | 71 | 57 | ||||
Office supplies and other | 512 | 537 | ||||
Total paid by the Company | $ | 5,705 | $ | 5,009 |
Key Management Personnel
The required disclosure for the remuneration of the Company’s key management personnel is provided in note 8(a) of the notes to time servethe Financial Statements which accompany this Annual Report and which are available under the Company’s profile atwww.sedar.com.
C. | INTERESTS OF EXPERTS AND COUNSEL |
J. David Gaunt, P.Geo., James Lang, P.Geo., Eric Titley, P.Geo., of Hunter Dickinson Services Inc., and Ting Lu, P.Eng., Tetra Tech are persons:
(a) who are named as directorsin a report described in a filing, or referred to in a filing, made under National Instrument 51-102 by the Company during, or relating to, the Company’s most recently completed financial year; and
(b) whose profession or business gives authority to the report made by each of them.
Messrs. Gaunt, Lang and have an interest, eitherTitley hold interests in the common shares of the Company, directly or indirectly, or through share purchase options, representing less than 1% of the Company's outstanding share capital. Ms. Lu holds no interest in other companies involved in natural resource exploration and development. As a result, a director of Northern Dynasty may be presented, from time to time, withthe Company.
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ITEM 8 | FINANCIAL INFORMATION |
A1. | FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION |
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situations, which give rise to an apparent conflictItem 18 of interest. On any conflict situation, a director may abstain from voting on resolutions ofthis Form 20-F contains Northern Dynasty's audited annual financial statements as at and for the Board of Directors that evoke such conflict in order toyears ended December 31, 2014, 2013 and 2012. These financial statements have the matter resolved by an independent Board, or the situation may be presented to the shareholders of Northern Dynasty for ratification. In any event, the directors of Northern Dynasty must,been prepared in accordance with IFRS, as issued by the corporate law and common law of British Columbia, act honestly and in good faith and in the best interests of Northern Dynasty, and must exercise the care, diligence and skill of a reasonably prudent person in dealing with the affairs of Northern Dynasty.IASB.
A2. | DIVIDEND POLICY |
(e)See also, Item 6B - Compensation of Directors regarding cash compensation and Item 6E re Options.
C. Interests of Experts and Counsel
Not applicable.
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ITEM 8 FINANCIAL INFORMATION
A. Statements and Other Financial Information
See “Item 17 Financial Statements” and pages 2 to 4.
Legal Proceedings
Northern Dynasty is not involved in any litigation or legal proceedings and to Northern Dynasty’s knowledge, no material legal proceedings involving Northern Dynasty are to be initiated against Northern Dynasty.
Dividend Policy
Northern DynastyThe Company has not paid any dividends on its outstanding common shares since its incorporation and does not anticipate that it will do so in the foreseeable future. All funds of Northern Dynasty are being retained for exploration of its Projects.projects.
A3. | LEGAL PROCEEDINGS |
(i) | Environmental Protection Agency and Bristol Bay Watershed Assessment |
In February 2011, the EPA announced it would undertake a Bristol Bay Watershed Assessment study focusing on the potential effects of large-scale mine development in Bristol Bay and, specifically the Nushagak and Kvichak area drainages. This process was ostensibly initiated in response to calls from persons and groups opposing the Pebble Project for the EPA to pre-emptively use its asserted authority under Section 404(c) of the US Clean Water Act to prohibit discharges of dredged or fill material in waters of the US within these drainages; however, evidence exists that EPA may have been considering a Section 404(c) veto of the Pebble Project at least as far back as 2008 – two years before it received a petition from several Alaska Native tribes.
B. Significant ChangesThe EPA’s first draft Bristol Bay Watershed Assessment ("BBWA") report was released on May 18, 2012. In the Company’s opinion after review with its consultants, the draft report is a fundamentally flawed document. By the EPA’s own admission, it evaluated the effects of a "hypothetical project" that has neither been defined nor proposed by the Pebble Partnership, and for which key environmental mitigation strategies have not yet been developed and, hence would not yet be known. It is believed by the Company that the assessment was rushed because it is based on studies conducted over only one year in an area of 20,000 square miles. In comparison, the Pebble Project has studied the ecological and social environment surrounding Pebble for nearly a decade. The EPA also failed to adequately consider the comprehensive and detailed data that the Pebble Partnership provided as part of its 27,000-page Environmental Baseline Document.
The EPA called for public comment on the quality and sufficiency of scientific information presented in the draft BBWA report. In response, the Pebble Partnership and Northern Dynasty made submissions on the draft report. Northern Dynasty made a presentation highlighting these shortcomings at public hearings held in Seattle, Washington, on May 31, 2012 and in Anchorage, Alaska, on August 7, 2012. In July 2012, the Company also submitted a 635-page critique of the draft report in response to the EPA’s call for public comment, and has called upon the EPA to cease such unwarranted actions until such time as a definitive proposal for the development of the Pebble deposit is submitted into the rigorous National Environmental Policy Act ("NEPA") permitting process.
Concerns about the reasonableness of the basis of risk assessment in the draft EPA report were stated by many of the independent experts on the peer review panel assembled to review the BBWA, as summarized in a report entitled "External Peer Review of EPA's Draft Document: An Assessment of Potential Mining Impacts on Salmon Ecosystems of Bristol Bay, Alaska" released in November 2012. In a wide-ranging critique of the draft report's methodology and findings, many peer review panelists called the EPA's effort to evaluate the effects of a "hypothetical mining scenario" on the water, fish, wildlife and cultural resources of Southwest Alaska "inadequate", "premature", "unreasonable", “suspect" and "misleading".
On April 26, 2013, the EPA released a revised draft of the BBWA report and announced another public comment and Peer Review period. The Pebble Partnership and Northern Dynasty made submissions on the revised draft. In late May 2013, Northern Dynasty filed a 205-page submission which describes the same major shortcomings as the original report published in May 2012.
In mid-January 2014, the EPA released the final version of its BBWA. The report still reflects many of the same fundamental shortcomings as previous drafts.
On February 28, 2014, the EPA announced the initiation of a regulatory process under Section 404(c) of the Clean Water Act to consider restriction or a prohibition on mining activities associated with the Pebble deposit in order to protect aquatic resources in southwest Alaska. In late April 2014, the Pebble Partnership submitted a comprehensive response to the EPA’s February 28, 2014 notification letter.
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In late May 2014, the Pebble Partnership filed suit in the U.S. District Court for Alaska and sought an injunction to halt the regulatory process initiated by the EPA under the Clean Water Act, asserting that, in the absence of a permit application, the process exceeds the federal agency’s statutory authority and violates the Alaska Statehood Act among other federal laws. The State of Alaska and Alaska Peninsula Corporation, an Alaska Native village corporation with extensive land holdings in the Pebble Project area, later joined in the Pebble Partnership’s lawsuit against the EPA as co-plaintiffs. On September 26, 2014, U.S. federal court in Alaska granted EPA’s motion to dismiss the case. This ruling did not judge the merits of the statutory authority case, it only deferred that hearing and judgment until after a final Section 404(c) determination has been made by the EPA. If or when the EPA action is deemed "final", the Pebble Partnership will pursue the underlying case. The Company has also appealed the decision to grant the motion to dismiss to the 9th Circuit Court of Appeals. The 9th Circuit Court of Appeals has agreed to an expedited hearing of the Pebble Partnership’s appeal.
On July 18, 2014, EPA Region 10 announced a ’Proposed Determination’ to restrict the discharge of dredged or fill material associated with mining the Pebble deposit in a 268 square mile area should that disposal result in any of the following: loss of five or more miles of streams with documented salmon occurrence; loss of 19 or more miles of streams where salmon are not documented but that are tributaries of streams with documented salmon occurrence; the loss of 1,100 or more acres of wetlands, lakes, and ponds that connect with streams with documented salmon occurrence or tributaries of those streams; and stream flow alterations greater than 20 percent of daily flow in nine or more linear miles of streams with documented salmon occurrence. Northern Dynasty management does not accept that EPA has the statutory authority to impose conditions on development at Pebble, or any development project anywhere in Alaska or the US, prior to the submission of a detailed development plan and its thorough review by federal and state agencies including development of an Environmental Impact Statement ("EIS") and review under NEPA.
On September 19, 2014, the Pebble Partnership submitted a comprehensive legal and technical response to EPA Region 10’s Proposed Determination.’ Northern Dynasty and the Pebble Partnership believe the Proposed Determination is unsupported by the administrative record as established by the Bristol Bay Watershed Assessment, and is therefore arbitrary and capricious.
On September 3, 2014, the Pebble Partnership initiated a second action against EPA in federal district court in Alaska charging that EPA violated the Federal Advisory Committee Act ("FACA ") due to its close interactions with, and the undue influence of Environmental Non-Governmental Organizations ("ENGOs") and anti-mining activists in developing the Bristol Bay Watershed Assessment, and with respect to its unprecedented pre-emptive 404c regulatory process under the Clean Water Act. On September 24, 2014, the U.S. federal court judge in Alaska released an order recognizing that EPA agreed not to take the next step to advance its 404c regulatory process with respect to southwest Alaska’s Pebble Project until at least January 2, 2015.
On November 24, 2014, the U.S. federal court judge in Alaska granted the Pebble Partnership’s request for a Preliminary Injunction ("PI") in relation to the FACA case. While the PI does not resolve the Pebble Partnership’s claims that EPA actions with respect to the Bristol Bay Watershed Assessment and subsequent 404c regulatory process violated FACA, the decision permits the further discovery process of the underlying facts to enable the court to issue a final decision on the merits of the FACA case. Northern Dynasty expects it will take several months for the case to run its course.
The Pebble Partnership will now have an opportunity for extensive depositions and discovery into alleged EPA misconduct. That the Preliminary Injunction was granted also reflects the US federal court judge’s view that the claimant has a ‘likelihood of success on the merits.’ Should Pebble Partnership prevail in its FACA litigation against the EPA, the federal agency may be unable to rely upon the Bristol Bay Watershed Assessment as part of the administrative record for any regulatory action at the Pebble Project.
Northern Dynasty has submitted numerous letters to the independent Office of the EPA Inspector General ("IG") since January 2014 raising concerns of bias, process irregularities and undue influence by environmental organizations in the EPA's preparation of the Bristol Bay Watershed Assessment. In response to Congressional and other requests, on May 2, 2014, the IG’s office announced that it would investigate the EPA’s conduct in preparing ‘An Assessment of Potential Mining Impacts on Salmon Ecosystems of Bristol Bay, Alaska’. A team of IG investigators is now in place and a full investigation is underway "to determine whether the EPA adhered to laws, regulations, policies and procedures in developing its assessment of potential mining impacts in Bristol Bay, Alaska." The Pebble Partnership is advancing a multi-dimensional strategy to address the EPA’s pre-emptive regulatory process under Section 404(c) of the Clean Water Act, and is working to position the Pebble Project to initiate federal and state permitting under NEPA unencumbered by any extraordinary development restrictions imposed by the EPA. This strategy includes three discrete pieces of litigation against the EPA as set below:
challenging the EPA’s statutory authority to pre-emptively impose development restrictions at the Pebble Project under Section 404(c) of the Clean Water Act prior to the Pebble Partnership submitting a proposed development plan for the project or the development of an EIS under NEPA;
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• | alleging that the EPA violated FACA in the course of undertaking the Bristol Bay Watershed Assessment and subsequent Section 404(c) of the Clean Water Act regulatory process; and |
• | alleging that the EPA is unlawfully withholding relevant documentation and other information sought by the Pebble Partnership under the Freedom of Information Act ("FOIA"). |
The Pebble Partnership’s strategy to address the EPA’s Section 404(c) of the Clean Water Act regulatory process also includes undertaking research, including technical and legal investigations, to facilitate various investigations of EPA actions with respect to the Pebble Project, including one by the EPA Inspector General.
On March 24, 2015, it was announced that former Defense Secretary William S. Cohen and his firm, The Cohen Group, assisted by law firm DLA Piper, had been retained by the Pebble Partnership to conduct an independent review of whether the EPA acted fairly in connection with its evaluation of potential mining in the Bristol Bay, Alaska watershed. Secretary Cohen will evaluate the fairness of EPA's actions and decisions in this matter based upon a thorough assessment of the facts and relying on his experience as Secretary of Defense as well as his 24 years as a member of the US House of Representatives and Senate. He will have full discretion as to the means and manner of carrying out this review to ensure that it is thorough and unbiased.
While the litigation process is inherently uncertain, and it is difficult to predict with confidence the length of time that each of the legal initiatives described above will take to advance to specific milestone events or final conclusion, Northern Dynasty expects the following to occur in 2015:
• | the 9th Circuit Court of Appeals is expected to fully hear and issue a decision in 2015 on the Pebble Partnership’s appeal of a lower court’s decision that its ‘statutory authority’ case is not ripe and cannot be heard until such time as the EPA has taken final regulatory action under Section 404(c) of the Clean Water Act. If the Pebble Partnership prevails, the case will be returned to federal court in Alaska for a final determination on its merits; if the EPA prevails, the statutory authority case will be heard at a later date should the federal agency proceed to issue a final regulatory decision under Section 404(c) of the Clean Water Act; |
• | a final decision by a federal court judge in Alaska on the Pebble Partnership’s FACA case is expected in the latter half of the year; |
• | a decision in the Pebble Partnership’s FOIA litigation against EPA is expected in the latter half of the year; and |
• | the independent Office of the EPA Inspector General is expected to complete its investigation and publish a final report on EPA actions with respect to the Bristol Bay Watershed Assessment and the EPA’s subsequent Section 404(c) of the Clean Water Act regulatory process in the second or third quarter of 2015. |
Northern Dynasty cannot predict the outcome of its various challenges to what it sees as improper, preemptory attempts by the EPA to prevent or otherwise restrict mineral development at Pebble. If these challenges all fail and the EPA continues to oppose the Pebble Project by all legal means, it may have a material adverse effect on the Company.
(ii) | Nunamta Aulukestai |
In October 2011, a lawsuit filed in July 2009 by the Trustees for Alaska (an environmental law firm) on behalf of Nunamta Aulukestai – an organization established and funded to oppose development of the Pebble Project - was rejected by the Anchorage Superior Court. The lawsuit alleged that the Alaska Department of Natural Resources had violated the state constitution by granting exploration and temporary water use permits to the Pebble Partnership, and exploration activities had caused harm to vegetation, water, fish and wildlife. The Pebble Partnership actively participated in the trial proceedings after being granted intervener status. Superior Court Judge Aarseth denied each of the allegations made by Nunamta Aulukestai, and ruled that no evidence of environmental harm was presented. The plaintiffs have filed an appeal that is now pending before the Alaska Supreme Court.
(iii) | Lake and Peninsula Borough |
In November 2011, by a narrow 280 – 246 margin, voters in southwest Alaska’s Lake & Peninsula Borough approved a ballot measure sponsored by anti-Pebble activists that proposed to restrict future development that affects more than one square mile of land within the 31,000 square mile borough. The initiative was opposed by a broad spectrum of Alaska interests, including a group of four Alaska Native village corporations representing seven Lake & Peninsula Borough communities whose private land holdings would be affected by the ordinance, the State of Alaska and the Pebble Partnership. It was also opposed by the Resource Development Council for Alaska, the Alaska State Chamber of Commerce, the Alaska Miners Association, Council of Alaska Producers, the Alaska Oil and Gas Association and the Alaska Industry Support Alliance, among others.
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The Pebble Partnership and the State of Alaska filed legal challenges to the ballot initiative in the Alaska Superior Court, and on March 19, 2014 the court issued a permanent injunction barring the law from going into effect. The court ruled in favor of the Pebble Partnership, agreeing that the Alaska constitution and Alaska statutes preempted local governments from interfering with resource development on State lands. The ballot sponsors have appealed to the Alaska Supreme Court.
B. | SIGNIFICANT CHANGES |
There have been no significant changes to Northern Dynasty’s affairs as disclosed in the business of Northern Dynastyaccompanying financial statements since December 31, 2014, except as disclosed in this Annual Report on Form 20-F.
ITEM 9 | THE OFFER AND LISTING |
A. | OFFER AND LISTING DETAILS |
Trading Markets
Northern Dynasty's common shares have been listed in Canada on the Toronto Stock Exchange since October 2007, under the symbol NDM, and prior to that on the TSX Venture Exchange ("TSX-V") since December 1994.
The Company's common shares have been traded in the U.S. on NYSE MKT (formerly known as the American Stock Exchange "AMEX"), since November 2004, exceptunder the symbol NAK.
The following tables set forth for completionthe periods indicated the price history of the $30.8 million financingCompany's common shares on the TSX and on the exercise of the Teck Cominco and HDGI options described elsewhere herein.NYSE MKT.
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ITEM 9 THE OFFER AND LISTING
A. Offer and Listing Details
Trading Markets
TSX VENTURE: | OTCBB and AMEX: | |||||
NDM - Trading in Canadian | Trading in United States | |||||
Dollars | Dollar | |||||
High | Low | High | Low | |||
($) | ($) | ($) | ($) | |||
Annual | Annual | |||||
2005 (to March 15, 2004) | 7.00 | 4.20 | 2005 (to March 15, 2005) | 6.24 | 3.25 | |
2004 | 11.54 | 3.90 | 2004 | 9.00 | 2.90 | |
2003 | 7.35 | 0.55 | 2003 | 5.55 | 0.36 | |
2002 | 1.44 | 0.42 | 2002 (from July 29, 2002) | 0.90 | 0.25 | |
2001 | 0.79 | 0.32 | ||||
2000 | 0.66 | 0.40 | ||||
1999 | 0.57 | 0.32 | ||||
1998 | 0.75 | 0.37 | ||||
1997 | 1.95 | 1.00 | ||||
1996 | 2.00 | 1.02 | ||||
By Quarter | By Quarter | |||||
Calendar 2000 | ||||||
First Quarter | 0.66 | 0.48 | ||||
Second Quarter | 0.42 | 0.40 | ||||
Third Quarter | 0.50 | 0.41 | ||||
Fourth Quarter | 0.51 | 0.40 | ||||
Calendar 2001 | ||||||
First Quarter | 0.46 | 0.32 | ||||
Second Quarter | 0.49 | 0.36 | ||||
Third Quarter | 0.55 | 0.35 | ||||
Fourth Quarter | 0.79 | 0.38 | ||||
Calendar 2002 | Calendar 2002 | |||||
First Quarter | 1.20 | 0.43 | ||||
Second Quarter | 1.44 | 0.95 | ||||
Third Quarter | 1.24 | 0.54 | Third Quarter (from July 20, 2002) | 0.90 | 0.40 | |
Fourth Quarter | 0.74 | 0.42 | Fourth Quarter | 0.60 | 0.25 | |
Calendar 2003 | Calendar 2003 | |||||
First Quarter | 0.90 | 0.55 | First Quarter | 0.60 | 0.36 | |
Second Quarter | 1.28 | 0.65 | Second Quarter | 0.99 | 0.47 | |
Third Quarter | 3.25 | 1.15 | Third Quarter | 2.41 | 0.78 | |
Fourth Quarter | 7.35 | 2.95 | Fourth Quarter | 5.55 | 2.21 | |
Calendar 2004 | Calendar 2004 | |||||
First Quarter | 11.54 | 5.62 | First Quarter | 9.00 | 4.35 | |
Second Quarter | 7.80 | 4.13 | Second Quarter | 5.94 | 2.90 | |
Third Quarter | 5.85 | 3.90 | Third Quarter | 4.50 | 2.90 | |
Fourth Quarter | 7.35 | 5.25 | Fourth Quarter | 6.10 | 4.31 | |
Calendar 2005 | Calendar 2005 | |||||
First Quarter (to March 15, 2005) | 7.00 | 4.20 | First Quarter (to March 15, 2005) | 6.24 | 3.25 |
Trading under the symbol NDM | Trading under the symbol NAK | |||||
on the TSX | on the NYSE MKT | |||||
Average daily | Average daily | |||||
Fiscal Year Ended | High | Low | trading | High | Low | trading |
December 31, | ($) | ($) | volume | (US$) | (US$) | volume |
2014 | 1.85 | 0.38 | 56,803 | 1.70 | 0.32 | 204,562 |
2013 | 4.19 | 1.07 | 75,913 | 4.26 | 1.00 | 271,510 |
2012 | 8.13 | 2.23 | 116,593 | 8.19 | 2.20 | 269,042 |
2011 | 21.50 | 5.16 | 252,154 | 21.76 | 4.87 | 612,224 |
2010 | 14.45 | 6.50 | 113,821 | 14.45 | 6.00 | 294,358 |
Trading under the symbol NDM | Trading under the symbol NAK | |||||
on the TSX | on the NYSE MKT | |||||
Average daily | Average daily | |||||
Fiscal Quarter | High | Low | trading | High | Low | trading |
($) | ($) | volume | (US$) | (US$) | volume | |
Q1 2015 | 0.83 | 0.45 | 85,840 | 0.72 | 0.36 | 102,643 |
Q4 2014 | 0.65 | 0.38 | 54,644 | 0.59 | 0.32 | 173,261 |
Q3 2014 | 0.95 | 0.55 | 63,193 | 0.89 | 0.52 | 121,700 |
Q2 2014 | 1.13 | 0.67 | 54,719 | 1.01 | 0.61 | 170,652 |
Q1 2014 | 1.85 | 0.90 | 54,726 | 1.70 | 0.80 | 359,362 |
Q4 2013 | 1.98 | 1.07 | 66,846 | 1.93 | 1.00 | 321,525 |
Q3 2013 | 2.84 | 1.35 | 64,799 | 2.73 | 1.31 | 248,384 |
Q2 2013 | 3.28 | 1.94 | 75,546 | 3.17 | 1.85 | 251,034 |
Q1 2013 | 4.19 | 2.75 | 97,143 | 4.26 | 2.67 | 264,668 |
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Monthly | Monthly | |||||
March 2005 (to March 15, 2005) | 7.00 | 4.80 | March 2005 (to March 15, 2005) | 6.24 | 3.93 | |
February 2005 | 5.30 | 4.29 | February 2005 | 4.29 | 3.45 | |
January 2005 | 5.70 | 4.20 | January 2005 | 4.82 | 3.25 | |
December 2004 | 6.60 | 5.25 | December 2004 | 5.60 | 4.31 | |
November 2004 | 7.35 | 5.87 | November 2004 | 6.10 | 5.01 | |
October 2004 | 7.34 | 5.66 | October 2004 | 5.98 | 4.40 | |
September 2004 | 5.66 | 4.60 | September 2004 | 4.50 | 3.59 | |
August 2004 | 5.85 | 4.35 | August 2004 | 4.45 | 3.30 |
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Trading under the symbol NDM | Trading under the symbol NAK | |||||
on the TSX | on the NYSE MKT | |||||
Average daily | Average daily | |||||
Last six months | High | Low | trading | High | Low | trading |
($) | ($) | volume | (US$) | (US$) | volume | |
April 2015 | 0.53 | 0.44 | 21,900 | 0.43 | 0.36 | 69,400 |
March 2015 | 0.63 | 0.46 | 33,100 | 0.51 | 0.36 | 109,900 |
February 2015 | 0.83 | 0.53 | 27,800 | 0.72 | 0.43 | 113,100 |
January 2015 | 0.57 | 0.45 | 194,200 | 0.45 | 0.38 | 92,900 |
December 2014 | 0.57 | 0.39 | 51,900 | 0.50 | 0.33 | 257,400 |
November 2014 | 0.52 | 0.40 | 69,100 | 0.47 | 0.35 | 167,100 |
Northern Dynasty share trading information is also available through free internet search services (for example, see Yahoo.com,refer towww.yahoo.com, enter NDM.V and NAK)NDM.TO (for TSX) or NAK (for NYSE MKT)).
B. Plan of Distribution
B. | PLAN OF DISTRIBUTION |
Not applicable.
C. Markets
C. | MARKETS |
The shares of Northern Dynasty have traded in Canada on the TSX Venture Exchange (successor Exchangesince October 2007, and prior to the Canadian Venture and Vancouver Stock Exchanges) since 1994, (symbol-NDM at Yahoo NDM.V)
From July 20, 2002 to November 3, 2004, Northern Dynasty’s shares traded in the United Statesthat on the OTC Bulletin Board.TSX-V since December 1994, under the trading symbol NDM. Northern Dynasty commenced tradingDynasty's shares have traded on the American Stock Exchange on November 4, 2004NYSE MKT under the symbol NAK.NAK, since November 2004.
D. Selling Shareholders
D. | SELLING SHAREHOLDERS |
Not applicable.
E. Dilution
E. | DILUTION |
Not applicable.
F. Expenses of the Issue
F. | EXPENSES OF THE ISSUE |
Not applicable.
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ITEM 10 ADDITIONAL INFORMATION
A. Share Capital
ITEM 10 | ADDITIONAL INFORMATION |
A. | SHARE CAPITAL |
Not required in an Annual Report.
B. | MEMORANDUM AND ARTICLES OF ASSOCIATION |
B. Memorandum and ArticlesThe Company was originally incorporated on May 11, 1983 pursuant to theCompany Act of Association
Northern Dynasty’s corporate constituting documents comprising Articlesthe Province of Association and Memorandum are registered withBritish Columbia (predecessor statute to the British Columbia RegistrarCorporations Act in force since 2004), under the name "Dynasty Resources Inc.". On November 30, 1983 the Company changed its name to "Northern Dynasty Explorations Ltd." and subsequently, on October 11, 1997, changed its name to Northern Dynasty Minerals Ltd.
The Company’s current Notice of Companies under Corporation No. 262963. A copy of the Articles of Associationis dated August 15, 2014 and Memorandum are filed with the initial registration statementis attached to this Annual report on Form 20-F as an exhibit. (See Item 19.)Exhibit 19.1. The Company’s Articles dated June 10, 2010, as amended on June 19, 2013, are attached to this annual report on Form 20-F as Exhibit 19.1.
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Objects and Purposes
The following is a summary of certain material provisions of (i) Northern Dynasty’s MemorandumNotice of IncorporationArticles and Articles, and (ii) certain provisions of Association (“Articles”the British ColumbiaBusiness Corporations Act (the “Business Corporations Act”) applicable to Northern Dynasty:
1. | Objects and Purposes |
Northern Dynasty's Notice of Articles and Articles do not specify objects or purposes. Under British Columbia corporate law (the British ColumbiaNorthern Dynasty is entitled under theBusiness Corporations Act to carry on all lawful businesses which can be carried on by a natural person.
2. | Directors |
Director’s power to vote on a proposal, arrangement or its predecessorcontract in which the British Columbiadirector is interested.
According to theCompanyBusiness Corporations Act, a British Columbia corporation generally has alldirector holds a disclosable interest in a contract or transaction if:
1. | the contract or transaction is material to the company; |
2. | the company has entered, or proposes to enter, into the contract or transaction, and |
3. | either of the following applies to the director: |
a. | the director has a material interest in the contract or transaction; | |
b. | the director is a director or senior officer of, or has a material interest in, a person who has a material interest in the contract or transaction. |
However, the legal powersBusiness Corporations Act also provides that in the following circumstances, a director does not hold a disclosable interest in a contract or transaction if:
1. | the situation that would otherwise constitute a disclosable interest arose before the coming into force of theBusiness Corporations Actor, if the company was recognized under theBusiness Corporations Act, before that recognition, and was disclosed and approved under, or was not required to be disclosed under, the legislation that: |
a. | applied to the company on or after the date on which the situation arose; and | |
b. | is comparable in scope and intent to the provisions of theBusiness Corporations Act; |
2. | both the company and the other party to the contract or transaction are wholly owned subsidiaries of the same corporation; | |
3. | the company is a wholly owned subsidiary of the other party to the contract or transaction; | |
4. | the other party to the contract or transaction is a wholly owned subsidiary of the company; or | |
5. | where the director or senior officer is the sole shareholder of the company or of a corporation of which the company is a wholly owned subsidiary. |
TheBusiness Corporations Act further provides that a director of a natural person. British Columbia corporations maycompany does not undertake certain limited business activities such as operating ashold a trust companydisclosable interest in a contract or railroad without alterations to its form of articles and specific government consent.transaction merely because:
1. | the contract or transaction is an arrangement by way of security granted by the company for money loaned to, or obligations undertaken by, the director or senior officer, or a person in whom the director or senior officer has a material interest, for the benefit of the company or an affiliate of the company; | |
2. | the contract or transaction relates to an indemnity or insurance; | |
3. | the contract or transaction relates to the remuneration of the director or senior officer in that person's capacity as director, officer, employee or agent of the company or of an affiliate of the company; |
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4. | the contract or transaction relates to a loan to the company, and the director or senior officer, or a person in whom the director or senior officer has a material interest, is or is to be a guarantor of some or all of the loan; or | |
5. | the contract or transaction has been or will be made with or for the benefit of a corporation that is affiliated with the company and the director or senior officer is also a director or senior officer of that corporation or an affiliate of that corporation. |
Directors - Powers and Limitations
Under Northern Dynasty’s Articles, do not specify a maximum numberdirector or senior officer who holds a disclosable interest (as that term is used in theBusiness Corporations Act) in a contract or transaction into which Northern Dynasty has entered or proposes to enter:
1. | is liable to account to Northern Dynasty for any profit that accrues to the director or senior officer under or as a result of the contract or transaction only if and to the extent provided in the Act; |
2. | is not entitled to vote on any directors’ resolution to approve that contract or transaction, unless all the directors have a disclosable interest in that contract or transaction, in which case any or all of those directors may vote on such resolution; |
3. | and who is present at the meeting of directors at which the contract or transaction is considered for approval may be counted in the quorum at the meeting whether or not the director votes on any or all of the resolutions considered at the meeting. |
A director or senior officer who holds any office or possesses any property, right or interest that could result, directly or indirectly, in the creation of a duty or interest that materially conflicts with that individual’s duty or interest as a director or senior officer, must disclose the nature and extent of the conflict as required by theBusiness Corporations Act. No director or intended director is disqualified by his or her office from contracting with Northern Dynasty either with regard to the holding of any office or place of profit the director holds with Northern Dynasty or as vendor, purchaser or otherwise, and no contract or transaction entered into by or on behalf of Northern Dynasty in which a director is in any way interested is liable to be voided for that reason.
Directors' power, in the absence of an independent quorum, to vote compensation to themselves or any members of their body.
The compensation of the directors is decided by the directors unless the board of directors (the minimum under British Columbia law forrequests approval to the compensation from the shareholders by ordinary resolution. TheBusiness Corporations Act provides that a publicdirector of a company is three). The numberdoes not hold a disclosable interest in a contract or transaction merely because the contract or transaction relates to the remuneration of directors is fixed, annually,the director or senior officer in that person's capacity as director, officer, employee or agent of Northern Dynasty or of an affiliate of Northern Dynasty.
Borrowing powers exercisable by shareholders at the annual Shareholders meeting and all directors are elected at that time - there are no staggered directorships. .
Under the BCCA, directors are obligated to abstain from voting on matters in which they may be financially interested after disclosing in writing such interest. Directors’ compensation is not a matter on which they must abstain. Directors must be of the age of majority (18), and meet eligibility criteria including being mentally competent, not an undischarged bankrupt, no fraud related convictions in the previous five years and a majority of directors must be ordinarily resident in Canada. There is no mandatory retirement age either under Northern Dynasty’s Articles, or under the BCCA.
Directors’ borrowing powers are not generally restricted where the borrowing is in Northern Dynasty’s best interests, but the directors may, not authorizeon behalf of Northern Dynasty:
1. | borrow money in such manner and amount, on such security, from such sources and upon such terms, and conditions as they consider appropriate; |
2. | issue bonds, debentures, and other debt obligations either outright or as a security for any liability or obligation of Northern Dynasty or any other person and at such discounts or premiums and on such other terms as they consider appropriate; |
3. | guarantee the repayment of money by any other person or the performance of any obligation of any other person; and |
4. | mortgage, charge, whether by way of specific or floating charge, grant a security interest in, or give other security on, the whole or any part of the present and future assets and undertaking of Northern Dynasty. |
Retirement and non-retirement of directors under an age limit requirement.
There are no such provisions applicable to Northern Dynasty to provide financial assistanceunder its Memorandum or its Articles or theBusiness Corporations Act.
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Number of shares required for any reason where Northern Dynasty is insolvent or the providing of the guarantee would render it insolvent. a director’s qualification.
Directors need not own any shares of Northern Dynasty in order to qualify as directors.
3. | Rights, Preferences and Restrictions Attaching to Each Class of Shares |
Authorized Capital
The Articles specify thatCompany’s authorized capital consists of an unlimited number of common shares.
Common Shares
The rights, preferences and restrictions attached to the Company’s common shares are summarized as follows:
Dividends
Subject the provisions of theBusiness Corporations Act, the directors may from time to time declare and authorized payments of dividends out of available assets. Any dividends must be declared and paid according to the number of directors shallshares held. Under theBusiness Corporations Act, no dividend may be paid if Northern Dynasty is, or would as a result of payment of the numberdividend become, insolvent.
Voting Rights
Each common share is entitled to one vote on matters to which common shares ordinarily vote including the annual election of directors, fixed by shareholders annually or the number whichappointment of auditors and approval of corporate changes. Directors are actually elected to hold office at a general shareholders meeting. The number of directors is determined by shareholders at theeach annual Shareholders meeting and all directors are elected at that time. Underhold office until the Articles, the directors are entitled between successiveensuing annual general meetings to appoint one or more additional directors but not more than one-third of the number of directors fixed at a shareholders or actually elected at the preceding annual shareholders’ meeting. Directors automatically retire at the commencement of each annual meeting butmeeting. There are no staggered directorships among Northern Dynasty’s directors. There are no cumulative voting rights applicable to Northern Dynasty.
Rights to Profits and Liquidation Rights
All common shares of Northern Dynasty participate ratably in any net profit or loss of Northern Dynasty and participate ratably as to any distribution of assets in the event of a winding up or other liquidation.
Redemption
The common shares are not subject to any rights of redemption.
Sinking Fund Provisions
Northern Dynasty has no sinking fund provisions or similar obligations relating to the common shares.
Shares Fully Paid
All common shares of Northern Dynasty must, under theBusiness Corporations Act, be issued as fully paid for cash, property or services. They are therefore non-assessable and not subject to further calls for payment.
Pre-emptive Rights
Holders of common shares of Northern Dynasty are not entitled to any pre-emptive rights which provide a right to any holder to participate in any further offerings of the Company’s equity or other securities.
4. | Changes to Rights and Restrictions to Shares |
The Articles provide that, subject to theBusiness Corporations Act, the Company may, by special resolution:
• | create special rights or restrictions for, and attach those special rights or restrictions to, the shares of any class or series of shares, whether or not any or all of those shares have been issued; or | |
• | vary or delete any special rights or restrictions attached to the shares of any class or series of shares, whether or not any or all of those shares have been issued. |
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Subject to the Business Corporations Act, the Company may by directors resolution subdivide or consolidate all or any of its unissued, or fully paid issued, shares and, if applicable, alter its Notice of Articles, and, if applicable, its Articles.
The Articles provide that the Company may be re-elected at such meeting.directors resolution authorize an alteration of its Notice of Articles in order to change its name or adopt or change any translation of that name.
UnderThe Company’s Articles provide that, subject to the Articles,Business Corporations Act, the Company may by ordinary resolution of shareholders (or a director who is any way directly or indirectly interested in a proposed contract or transaction with Northern Dynasty, or who holds any office or possesses any property whereby directly or indirectly a duty might be created which would conflict with his duty or interest as a director, shall
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declare in writingresolution of the nature and extent of such interest in such contract or transaction. A director shall not vote in respect of any such contract or transaction if the company in which he is interested and if he should vote his vote shall not be counted but shall be counteddirectors in the quorum presentcase of §(c) or §(f) below):
(a) | create one or more classes or series of shares; |
(b) | increase, reduce or eliminate the maximum number of shares that Northern Dynasty is authorized to issue out of any class or series of shares or establish a maximum number of shares that Northern Dynasty is authorized to issue out of any class or series of shares for which no maximum is established; |
(c) | subdivide or consolidate all or any of its unissued, or fully paid issued, shares; |
(d) | if the Company is authorized to issue shares of a class of shares with par value: |
o | decrease the par value of those shares; or | |
o | if none of the shares of that class of shares are allotted or issued, increase the par value of those shares; |
(e) | change all or any of its unissued, or fully paid issued, shares with par value into shares without par value or any of its unissued shares without par value into shares with par value; |
(f) | alter the identifying name of any of its shares; or |
(g) | otherwise alter its shares or authorized share structure when required or permitted to do so by the Act where it does not specify a special resolution. |
The Articles provide that a special resolution is a resolution of shareholders that is approved by two thirds (66 2/3%) of those votes cast at the meeting. Similarly, under the BCCA directors are obligated to abstain from voting on matters in which they may be financially interested after fully disclosing such interest. Directors must abstain from voting in such circumstances both under the Articles and under the BCCA.
Changes to Rightsa properly constituted meeting of Common Shareholders
Changesshareholders. An ordinary resolution is a resolution of shareholders that is approved by a majority of those votes cast at a properly constituted meeting of shareholders. Quorum pursuant to the Articles is two shareholders holding at least 33 1/3% of issued shares.
If special rights and memorandumrestrictions are altered and any right or special right attached to issued shares is prejudiced or interfered with, then the consent of Northern Dynasty requirethe holders of shares of that class or series by a shareholders’ “special resolution” beingspecial separate resolution will be required.
TheBusiness Corporations Act also provides that a resolution passedcompany may reduce its capital if it is authorized to do so by a court order, or, if the capital is reduced to an amount that is not less than 75% of the shares voted in person or by proxy at a duly convened shareholders meeting. Some organic corporate changes including amalgamation with another company, sale of substantially all of Northern Dynasty’s assets, redomiciling out of the jurisdiction of British Columbia, creation of new classes of shares not only require such 75% approval but generally also give rise to a dissent right which is the right to be paid the fairrealizable value of the stockholder’s shares in cash if the requiredcompany's assets less its liabilities, by a special resolution is actually passedor court order.
Generally, there are no significant differences between British Columbia and Northern Dynasty electsUnited States law with respect to proceed withchanging the matter notwithstanding receiptrights of dissent notices. A noticeshareholders as most state corporation statutes require shareholder approval (usually a majority) for any such changes that affect the rights of a shareholdersshareholders.
5. | Meetings of Shareholders |
The Articles provide that the Company must hold its annual general meeting once in every calendar year (being not more than 15 months from the last annual general meeting) at which such an organic change action is intendedtime and place to be considered must include a prominent notice of the dissent right. Dissent provisions are governeddetermined by the BCCA and not by the Articlesdirectors of Northern Dynasty.
Shareholders Meetings
Shareholders meetings are governed by the Articles of Northern Dynasty but many important shareholder protections are also contained in the Canadian provincial securities laws that are applicable to Northern Dynasty as a reporting issuer in the Canadian provinces of British Columbia, Alberta, and Ontario (“Canadian Securities Act (British Columbia)Laws”) and the BCCA.British Columbia Corporations Act. The Articles provide that Northern Dynasty will hold an annual shareholders’ meeting, will provide at least 21 days’days' advance written notice of any meeting of shareholders and will provide for certain procedural matters and rules of order with respect to conduct of the meeting. The directors may fix in advance a date, which is no fewer than 21 days prior to the date of the meeting for the purpose of determining shareholders entitled to receive notice of and to attend and vote at a general meeting.
Canadian Securities Act (British Columbia)Law and the BCCA British Columbia Corporations Actsuperimpose requirements that generally provide that shareholders meetings require not less than a 60 day notice period from initial public notice and that Northern Dynasty makes a thorough advanced search of intermediary and brokerage registered shareholdings to facilitate communication with beneficial shareholders so that meeting proxy and information materials can be sent via the brokerages to unregistered but beneficial shareholders,shareholders. The form and content of information circulars and proxies and like matters are governed by theCanadian Securities ActLawsand the BCCA.British Columbia Corporations Act. This legislation specifies the disclosure requirements for the proxy materials and various corporate actions, background information on the nominees for election for director, executive compensation paid in the previous year and full details of any unusual matters or related party transactions. Northern Dynasty must hold an annual shareholders meeting open to all shareholders for personal attendance or by proxy at each shareholder's determination.
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Most state corporation statutes require a public company to hold an annual meeting for the election of directors and for the consideration of other appropriate matters. The meetingstate statutes also include general provisions relating to shareholder voting and meetings. Apart from the timing of when an annual Meeting must be held within 13 monthsand the percentage of the previousshareholders required to call an annual shareholdersMeeting or an extraordinary meeting, there are generally no material differences between Canadian and must present audited statements that are no more than 180 days old at such meeting.
Shares Fully Paid
All Northern Dynasty shares must, by applicableUnited States law be issued as fully paid for cash, property or services. They are therefore non-assessablerespecting annual meetings and not subject to further calls for payment.extraordinary meetings.
Redemption
Northern Dynasty has no redeemable securities authorized or issued. Therefore, Northern Dynasty has no sinking fund or like security redemption fund.
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Pre-emptive Rights
There are no pre-emptive rights applicable to Northern Dynasty in its constating documents which provide a right to any person to participate in offerings of Northern Dynasty’s equity or other securities Northern Dynasty has however by agreement provided Shambala Gold PLC with a pre-emptive right.
Rights to Profits and Liquidation Rights
All common shares of Northern Dynasty participate rateably in any net profit or loss of Northern Dynasty and shares rateably any available assets in the event of a winding up or other liquidation.
No Limitation on Foreign Ownership
6. | Rights to Own Securities |
There are no limitations under Northern Dynasty’sDynasty's Articles or in the BCCABusiness Corporations Act on the right of persons who are not citizens of Canada to hold or vote common shares. (See also “Exchange Controls”)
7. | Restrictions on Changes in Control, Mergers, Acquisitions or Corporate Restructuring of the Company |
Dividends
Dividends may be declaredThe Company’s Articles do not contain any provisions that would have the effect of delaying, deferring or preventing a change of control of the Company. The Company has implemented a shareholders' rights plan dated effective May 17, 2013 which was approved by the Board out of available assetson May 17, 2013 and are paid rateably to holders of common shares. No dividend may be paid if Northern Dynastyratified by the Company's shareholders in June 2013. A copy is or would thereby become, insolvent.
Voting Rights
Each Northern Dynasty share is entitled to one vote on matters to which common shares ordinarily vote including the annual election of directors, appointment of auditors and approval of corporate changes.attached as Exhibit 4.04 hereto. There are no cumulative voting rights applicable to Northern Dynasty.
Change in Control
Northern Dynasty has not implemented any shareholders’ rights or other “poison pill” protection against possible take-overs. Northern Dynasty does not have any agreements that are triggered by a take-over or other change of control. There are noadopted provisions in its articlesthe Company’s Articles triggered by or affected by a change in outstanding shares which gives rise to a change in control. There are no provisions in Northern Dynasty’s material agreements giving special rights to any person on a change in control.
Insider Share Ownership Reporting
8. | Ownership Threshold Requiring Public Disclosure |
The articlesArticles of Northern Dynasty do not require disclosure of share ownership. Share ownership of director nominees must be reported annually in proxy materials sent to Northern Dynasty’sDynasty's shareholders. There are no requirements under British Columbia corporate law to report ownership of shares of Northern Dynasty but theCanadian Securities Act (British Columbia)Law requires disclosure of trading by insiders (generally officers, directors and holders of 10% of voting shares) within 105 days of the trade. Controlling shareholders (generally those in excessIn addition, Canadian Securities Laws require disclosure of 20%acquisition of outstanding shares) must provide seven days advance notice of share sales. Copies of such reports are available for public inspection at the officesmore than 10% of the issued and outstanding shares of the Company by press release and filing of an early warning report within 2 business days of the acquisition. Canadian Securities Laws also require that we disclose in our annual general meeting proxy statement, holders who beneficially own more than 10% of our issued and outstanding shares, and United States federal securities laws require the disclosure in our annual report on Form 20-F of holders who own more than 5% of our issued and outstanding shares.
Most state corporation statutes do not contain provisions governing the threshold above which shareholder ownership must be disclosed. United States federal securities laws require a company that is subject to the reporting requirements of the Securities Exchange Act of 1934 to disclose, in its annual reports filed with the Securities and Exchange Commission those shareholders who own more than 5% of a corporation’s issued and outstanding shares.
9. | Differences in Law between the US and British Columbia |
Differences in the law between United States and British Columbia, Securities Commission, 9th Floor, 701 West Georgia Street, Vancouver, British Columbia V7Y 1L2 telephone (604) 899-6500 or at the British Columbia Securities Commission web site (www.bcsc.bc.ca). Commencing June 2003 insider reportswhere applicable, have been explained above within each category.
10. | Changes in the Capital of the Company |
There are available online on SEDI website (www.sedi.ca).
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Securities Act (British Columbia)
This statute applies to Northern Dynasty and governs matters typically pertaining to public securities such as continuous quarterly financial reporting, immediate disclosure of material changes, insider trade reporting, take-over protections to ensure fair and equal treatment of all shareholders, exemption and resale rules pertaining to non-prospectus securities issuances as well as civil liability for certain misrepresentations, disciplinary, appeal and discretionary ruling matters. All Northern Dynasty shareholders regardless of residence have equal rights under this legislation.
Alaska Subsidiary
This company is wholly-ownedno conditions imposed by Northern Dynasty and has constituting documents ordinary to such single-purpose wholly owned corporations.Dynasty’s Notice of Articles or Articles which are more stringent than those required by the Business Corporations Act.
C. Material Contracts
C. | MATERIAL CONTRACTS |
Northern Dynasty’sDynasty's only material contracts as of March 31, 2004May 11, 2015 are:
1. | Corporate Services Agreement between Northern Dynasty and Hunter Dickinson Services Inc. dated | |
2. | Special Warrant Certificate dated effective December 31, 2014; |
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Registration Rights Agreement dated |
In late December 2014 and early January 2015, the Company completed a financing to raise proceeds of $15.5 million through the issuance of 35,962,735 special warrants (the “Special Warrants’) Each special warrant entitles the holder thereof to receive one common share (“Common Share”) of the Company (an “Underlying Share’) without payment of additional consideration.
The Company agreed with the investors to use reasonable best efforts to clear resale restrictions that are or may be applicable to the Underlying Shares by (i) seeking to clear a final Prospectus in Canada qualifying the distribution of the Underlying Shares for resale in Canada, and (ii) concurrently filing a U.S. Registration Statement with the SEC to seek to qualify the resale of such Underlying Shares in the United States. The Company further agreed to use reasonable best efforts to cause the U.S. Registration Statement to be declared effective by the SEC by not later than 90 days after the Closing Date and to cause such U.S. Registration Statement to remain continuously effective until the Resale Filing Termination Date. The Company further agreed to use reasonable best efforts to cause the Prospectus to remain effective and current until the earlier of: (i) 90 days following the issuance of a receipt for the Prospectus; and (ii) the expiry of the Canadian hold period on the Special Warrants.
The TSX and the NYSE MKT have conditionally approved the listing of the Underlying Shares to be issued by the Company under this Prospectus. Listing is subject to the Company fulfilling all of the requirements of the TSX and the NYSE MKT.
The Special Warrants were issued pursuant to and are governed by and subject to the terms and conditions of the Special Warrant Certificates which are all dated as of December 31, 2014. The Special Warrant Certificates provide, among other things, that the holders of Special Warrants will be entitled to receive, upon exercise or deemed exercise of the Special Warrants, without payment of any additional consideration and subject to adjustment in certain circumstances, one Underlying Share for each Special Warrant held, at any time prior to the Expiry.
The Special Warrant Certificates generally provide that for holders who are not U.S. Persons they will be automatically exercised into Underlying Shares upon a receipt being issued for the final Prospectus subject to a limitation for any holder that the number of Underlying Shares when aggregated with other Common Shares beneficially owned will not exceed 19.99% of issued Common Shares (only one non-U.S. Person holder is potentially affected by this limitation). Therefore, on issuance of a final receipt for this Prospectus, 17,123,589 Underlying Shares will be issued on exercise and cancellation of 17,123,589 Special Warrants of the 35,962,735 Special Warrants which were issued, subject to the 19.99% limitation noted above. A total of 18,839,146 Special Warrants were issued to U.S. Persons and may be exercised until December 31, 2016 and will be subject to the U.S. Registration Statement.
The Company cleared the distribution of the underlying shares in Canada and the United States on February 24, 2015. A total of 10,008,589 Special Warrants shares have been converted to date.
The Special Warrant Certificates provide that the Special Warrants do not confer on a holder of Special Warrants any right or interest whatsoever as a shareholder of the Company, including but not limited to any right to vote at, to receive notice of, or to attend, any meeting of shareholders or any other proceedings of the company or any right to receive any dividend or other distribution. No fractional Underlying Shares will be issued upon the exercise or deemed exercise of the Special Warrants and holders of the Special Warrants will not have any rights as shareholders of the Company.
In addition, the Special Warrant Certificates provide for and contains adjustment provisions designed to keep the holders of the Special Warrants unaffected by the possible occurrence of certain events, including any subdivision, redivision, change, reduction, combination, consolidation, stock dividend or reclassification of the common shares, the amalgamation, merger or corporate reorganization of the Company. The Special Warrant Certificates provides that in each such event the number of Underlying Shares issuable upon the exercise of deemed exercise of the Special Warrants will be adjusted immediately after the effective date of such subdivision, redivision, change, reduction, combination, consolidation, or stock dividend of the common shares, the amalgamation, merger or corporate reorganization of the Company.
The rights of holders of Special Warrants may be modified by agreement between the Company and the holders of the Special Warrants. The Special Warrant Certificates provides for meetings by holders of Special Warrants and the passing of resolutions and extraordinary resolutions by such holders which are binding on all holders of Special Warrants. Certain amendments to the Special Warrant Certificates may only be made by “extraordinary resolution”, which is defined in the Special Warrant Certificates as a resolution passed by the affirmative vote of Special Warrant holders entitled to acquire not less than 66% of the aggregate number of Underlying Shares which may be acquired pursuant to all the then outstanding Special Warrants represented at the meeting and voted on the poll on such resolution.
The foregoing is a summary description of certain material provisions of the Special Warrant Certificates, it does not purport to be a comprehensive summary and is qualified in its entirety by reference to the more detailed provisions of the Special Warrant Certificates.
Other agreements are in the normal course of business.
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D. | ||
EXCHANGE CONTROLS |
D. Exchange Controls
Northern Dynasty is aincorporated pursuant to the laws of the Province of British Columbia, Canada corporation.Canada. There is no law or governmental decree or regulation in Canada that restricts the export or import of capital, or affects the remittance of dividends, interest or other payments to a non-resident holder of Common Shares, other than withholding tax requirements. Any such remittances to United States residents are generally subject to withholding tax, however no such remittances are likely in the foreseeable future. See “Taxation”"Taxation", below.
There is no limitation imposed by the laws of CanadaCanadian law or by the charter or other constituent documents of Northern Dynastythe Company on the right of a non-resident to hold or vote its common shares, other than as provided inCommon Shares of the Company. However, the Investment Canada Act (Canada) (the “Investment Act”"Investment Act"). has rules regarding certain acquisitions of shares by non-Canadians, along with other requirements under that legislation.
The following discussion summarizes the materialprincipal features of theInvestment Act for a non-residentnon-Canadian who proposes to acquire a controlling numberCommon Shares of Northern Dynasty’s common shares. Itthe Company. The discussion is general only,only; it is not a substitute for independent legal advice from an investor’sinvestor's own advisor,advisor; and, except where expressly noted, it does not anticipate statutory or regulatory amendments. Northern Dynasty does not believe the
The Investment Act will have any affect on it is a federal statute of broad application regulating the establishment and acquisition of Canadian businesses by non-Canadians, including individuals, governments or on itsagencies thereof, corporations, partnerships, trusts or joint ventures, Investments by non-Canadians to acquire control over existing Canadian businesses or to establish new ones are either reviewable or notifiable under the Investment Act. If an investment by a non-Canadian shareholders due to a number of factors includingacquire control over an existing Canadian business is reviewable under the nature of its operations and Northern Dynasty’s relatively small capitalization.
TheInvestment Act, the Investment Act generally prohibits implementation of a “reviewable”the investment by an individual, government or agency thereof, corporation, partnership, trust or joint venture (each an “entity”) that is not
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a “Canadian” as defined in theInvestment Act (i.e. a “non-Canadian”), unless, after review, the DirectorMinister of Investments appointed byIndustry (or the minister responsibleMinister of Canadian Heritage and Official Languages for investments in a Canadian business engaged in any of theInvestment Act activities of a "cultural business"), is satisfied that the investment is likely to be of net benefit to Canada. The size and nature of a proposed transaction may give rise to an obligation to notify the Director to seek an advance ruling. An investment in Northern Dynasty’s common shares by a non-Canadian (other than a “WTO Investor” as that term is defined in theInvestment Act and which term includes entities which are nationals of or are controlled by nationals of member states of the World Trade Organization), when Northern Dynasty was not controlled by a WTO Investor, would be reviewable under theInvestment Act if it was an investment to acquire control of Northern Dynasty and the value of the assets of Northern Dynasty, as determined in accordance with the regulations promulgated under the Investment Act, was over a certain figure, or if an order for review was made by the federal cabinet on the grounds that the investment related to Canada’s cultural heritage or national identity, regardless of the value of the assets of Northern Dynasty. An investment in the Common Shares by a WTO Investor, or by a non-Canadian when Northern Dynasty was controlled by a WTO Investor, would be reviewable under theInvestment Act if it was an investment to acquire control of Northern Dynasty and the value of the assets of Northern Dynasty, as determined in accordance with the regulations promulgated under the Investment Act, was not less than a specified amount, which for 2000 exceeds C$192 million.
A non-Canadian would acquire control of Northern Dynastythe Company for the purposes of theInvestment Act through the acquisition of Common Shares if the non-Canadian acquired a majority of the Common Shares. TheShares of the Company.
Further, the acquisition of less than a majority but one-third or more of the Common Shares of the Company would be presumed to be an acquisition of control of Northern Dynastythe Company unless it could be established that, on the acquisition, Northern Dynastythe Company was not controlled in fact by the acquiroracquirer through the ownership of the Common Shares.
To determine whether an investment is reviewable under the Investment Act it is necessary to consider whether the investor (or the vendor) is a ‘WTO investor’ (i.e. controlled by persons who are citizens of countries that are members of the World Trade Organization ("WTO"); there are currently 160 WTO members); the book value of the assets of the Canadian business being acquired; and whether the Canadian business being acquired engages in cultural activities.
Where a WTO investor is involved, and if the Canadian business is being acquired directly and is not engaged in cultural activities, an investment will be reviewable only if the Canadian operating business being acquired has an enterprise value in excess of C$600 million for 2015.
If the acquisition by a WTO investor is indirect (i.e., the acquisition of shares of a foreign corporation that controls a Canadian business) the transaction is not reviewable. Where the Canadian business engages in any of the activities of a ‘cultural business’, or if neither the investor nor the vendor are WTO investors, the applicable thresholds for direct and indirect investments are assets with a book value of C$5 million or C$50 million, respectively. (The acquisition of a Canadian business that is a "cultural business" is subject to lower review thresholds under the Investment Act because of the perceived sensitivity of the cultural sector.)
An acquisition of control of a Canadian business by a non-Canadian that falls below the thresholds for review under the Investment Act does not require the filing of an application for review. However, even where an investment falls below the thresholds, it must still be notified by way of a two-page form to the Investment Review Division of the Department of Industry (or the Department of Canadian Heritage for cultural cases). Notifications may be submitted by the investor any time before or up to 30 days after implementation of the investment.
In 2009, amendments were enacted to the Investment Act concerning investments that may be considered injurious to national security. If the Minister of Industry has reasonable grounds to believe that an investment by a non-Canadian "could be injurious to national security," the Minister of Industry may send the non-Canadian a notice indicating that an order for review of the investment may be made.
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The foregoing assumes Northern Dynasty willreview of an investment on the grounds of national security may occur whether or not engage inan investment is otherwise subject to review on the productionbasis of uranium or own an interest in a producing uranium property innet benefit to Canada or provide any financial serviceotherwise subject to notification under the Investment Canada Act. To date, there is neither legislation nor guidelines published, or transportation service, asanticipated to be published, on the rules governingmeaning of "injurious to national security." Discussions with government officials suggest that very few investment proposals will cause a review under these businesses are different.new sections.
Certain transactions, except those to which the national security provisions of the Investment Act may apply, relating to the Common Shares would beof the Company are exempt from theInvestment Act,, including
(a) acquisition of Common Shares of the Company by a person in the ordinary course of that person's business as a trader or dealer in securities,
(b) acquisition of control of the Company in connection with the realization of security granted for a loan or other financial assistance and not for a purpose related to the provisions on the Investment Act, and
(c) acquisition of control of the Company by reason of an amalgamation, merger, consolidation or corporate reorganization following which the ultimate direct or indirect control in fact of the Company, through the ownership of Common Shares, remained unchanged.
E. | ||
TAXATION |
E. Taxation
MaterialCertain Canadian Federal Income Tax ConsequencesInformation for United States Residents
The following in management’s understanding summarizes the materialprincipal Canadian federal income tax consequencesconsiderations generally applicable to the holding and disposition of Common Sharescommon shares of the Company by a holder (in this summary, a “U.S. Holder”) who (a), for the purposes of the Income Tax Act (Canada) (the “Tax Act”"Tax Act"), and at all relevant times, (i) is not resident in Canada or deemed to be resident in Canada, (ii) deals at arm’sarm's length and is not affiliated with Northern Dynasty,the Company, (iii) holds the Common Sharescommon shares as capital property and does not use or hold the Common Sharescommon shares in the course of carrying on, or otherwise in connection with, a business in Canada, and (b) who, for the purposes of the Canada-United States Income Tax Convention 1980 (the “Treaty”"Treaty"), at all relevant times, is a resident solely of the United States, has never been a resident of
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Canada, and has not held or used (and does not hold or use) Common Sharescommon shares in connection with a permanent establishment or fixed base in Canada. ThisCanada, and who qualifies for the full benefits of the Treaty. The Canada Revenue Agency ("CRA") has introduced special forms to be used in order to substantiate eligibility for Treaty benefits, and affected holders should consult with their own advisors with respect to these forms and all relevant compliance matters.
Holders who meet all such criteria in clauses (a) and (b) above are referred to herein as a "U.S. Holder" or "U.S. Holders", and this summary only addresses such U.S. Holders. The summary does not apply todeal with special situations, such as particular circumstances of traders or dealers in securities, limited liability companies, tax-exempt entities, insurers, financial institutions (including those to which the mark-to-market provisions of the Tax Act apply), specified financial institutions, or any other U.S. Holder to which special considerations apply.entities considered fiscally transparent under applicable law, or otherwise.
This summary is based on the current provisions of the Tax Act including alland the regulations thereunder, the Treaty, all proposed amendments to the Tax Act theand regulations and the Treaty publicly announced by the GovernmentMinister of CanadaFinance (Canada) to the date hereof, the current provisions of the Treaty and our understanding of the current administrative practices of the Canada Customs and Revenue Agency.CRA. It has been assumed that all currently proposed amendments to the Tax Act and regulations will be enacted as proposed and that there will be no other relevant change in any governing law, the Treaty or administrative practice,policy, although no assurancesassurance can be given in these respects. This summary does not take into account Canadian provincial, U.S., state or other foreign income tax law or practice. The tax consequences to any particular U.S. Holder will vary according to the status of that holder as an individual, trust, corporation, partnership or other entity, the jurisdictions inconsiderations, which that holder is subject to taxation, and generally according to that holder’s particular circumstances. Accordingly, thismay differ significantly from those discussed herein.
This summary is not andexhaustive of all possible Canadian income tax consequences. It is not to be construedintended as Canadianlegal or tax advice to any particular U.S. Holder.Holder and should not be so construed. The tax consequences to a U.S. Holder will depend on that U.S. Holder's particular circumstances. Accordingly, all U.S. Holders or prospective U.S. Holders should consult their own tax advisors with respect to the tax consequences applicable to them having regard to their own particular circumstances. The discussion below is qualified accordingly.
Dividends
Dividends paid or credited or deemed to be paid or credited by the Company to a U.S. Holder by Northern Dynasty will beare subject to Canadian withholding tax. Under the Treaty, the rate of withholding tax on dividends paid to a U.S. Holder is generally limited to 15% of the gross amount of the dividend (or 5% ifin the case of a U.S. Holderholder that is a corporation and beneficially ownscorporate shareholder owning at least 10% of Northern Dynasty’sthe Company's voting shares). Northern Dynasty, provided the U.S. Holder can establish entitlement to the benefits of the Treaty. We will be required to withhold the applicable withholding tax from any such dividend and remit it to the Canadian government for the U.S. Holder’s account.
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Disposition
A U.S. Holder is generally not subject to tax under the Tax Act in respect of a capital gain realized on the disposition of a Common Sharecommon share in the open market, unless the share is “taxable"taxable Canadian property”property" to the holder thereof and the U.S. Holder is not entitled to relief under the Treaty. A Common Share
Provided that the Company's common shares are listed on a "designated stock exchange" for purposes of the Tax Act (which currently includes the TSX) at the time of disposition, a common share will begenerally not constitute taxable Canadian property to a U.S. Holder if,unless, at any time during the 60 monthsmonth period preceding the disposition, (i) the U.S. Holder or persons with whom the U.S. Holder did not deal at arm’sarm's length alone or(or the U.S. Holder together with such persons) owned or had rights to acquire, 25% or more of Northern Dynasty’sthe issued shares of any class or series.series of the Company AND (ii) more than 50% of the fair market value of the share was derived directly or indirectly from certain types of assets, including real or immoveable property situated in Canada, Canadian resource properties or timber resource properties, and options, interests or rights in respect of any of the foregoing. Common shares may also be deemed to be taxable Canadian property under the Tax Act in certain specific circumstances, including in certain circumstances where shares were acquired for other securities in a tax-deferred transaction for Canadian tax purposes.
If the Company’s shares constitute taxable Canadian property to the U.S. Holder, the U.S. Holder will (unless relieved under the Treaty) be subject to Canadian income tax on any gain. The taxpayer’s capital gain or loss from a disposition of the share is the amount, if any, by which the proceeds of disposition exceed (or are exceeded by) the aggregate of the adjusted cost base of the share and reasonable expenses of disposition. One-half of a capital gain ("taxable capital gain") from the disposition of taxable Canadian property (other than treaty protected properties) is included in computing the income of a U.S. Holder and one-half of a capital loss ("allowable capital loss”) is deductible from taxable capital gains from dispositions of taxable Canadian property realized in the same year. Unused allowable capital losses from previous taxation years generally may be carried back three taxation years or forward indefinitely and applied to reduce net taxable capital gains realized in those years by a U.S. Holder from the disposition of a taxable Canadian property.
A U.S. Holder whoseholding Common Shares do constituteshares as taxable Canadian property and who might therefore be liable for Canadian incomeshould consult with the U.S. Holder's own tax advisors in advance of any disposition of Common shares or deemed disposition under the Tax Act in order to determine whether any relief from tax under the Tax Act will generallymay be relieved from such liability underavailable by virtue of the Treaty, unless the value of such shares at the time of disposition is derived principally from real property situated in Canada. Management of Northern Dynasty believes that the value of Northern Dynasty’s Common Shares is not currently derived principally from real property situated in Canada.and any related compliance procedures.
United States Tax Consequences
Certain United States Federal Income Tax ConsequencesConsiderations
The following is in management’s understanding a discussiongeneral summary of thecertain material United StatesU.S. federal income tax consequences, under current law, generallyconsiderations applicable to a U.S. Holder (as hereinafter defined)defined below) arising from and relating to the acquisition, ownership, and disposition of the Company’s common shares.
This summary is for general information purposes only and does not purport to be a complete analysis or listing of all potential U.S. federal income tax considerations that may apply to a U.S. Holder arising from and relating to the acquisition, ownership, and disposition of common sharesshares. In addition, this summary does not take into account the individual facts and circumstances of Northern Dynasty.any particular U.S. Holder that may affect the U.S. federal income tax consequences to such U.S. Holder, including specific tax consequences to a U.S. Holder under an applicable tax treaty. Accordingly, this summary is not intended to be, and should not be construed as, legal or U.S. federal income tax advice with respect to any particular U.S. Holder. This discussionsummary does not address the U.S. federal alternative minimum, U.S. federal estate and gift, U.S. Medicare contribution, U.S. state and local, or non-U.S. tax consequences to U.S. Holders of the acquisition, ownership, and disposition of common shares. Except as specifically set forth below, this summary does not discuss applicable tax reporting requirements. Each U.S. Holder should consult its own tax advisor regarding all potentially relevantU.S. federal, U.S. state and local, and non-U.S. tax consequences relating to the acquisition, ownership and disposition of common shares.
No opinion from U.S. legal counsel or ruling from the Internal Revenue Service (the "IRS") has been requested, or will be obtained, regarding the U.S. federal income tax mattersconsequences of the acquisition, ownership, and it doesdisposition of common shares. This summary is not address consequences peculiarbinding on the IRS, and the IRS is not precluded from taking a position that is different from, and contrary to, personsany position taken in this summary. In addition, because the authorities on which this summary is based are subject to special provisionsvarious interpretations, the IRS and the U.S. courts could disagree with one or more of federal income tax law, such as those described below as excluded from the definition of apositions taken in this summary.
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U.S. Holder. In addition, this discussion does not cover any state, local or foreign tax consequences. (see “Taxation – Canadian Federal Income Tax Consequences” above). Accordingly, holders and prospective holders of common shares of Northern Dynasty should consult their own tax advisors about the specific federal, state, local, and foreign tax consequences to them of purchasing, owning and disposing of common shares of Northern Dynasty, based upon their individual circumstances.Authorities
The following discussionThis summary is based upon the sections ofon the Internal Revenue Code of 1986, as amended (the “Code”"Code"), Treasury Regulations (whether final, temporary, or proposed), published Internal Revenue Service (“IRS”) rulings of the IRS, published administrative positions of the IRS, the Convention Between Canada and the United States of America with Respect to Taxes on Income and on Capital, signed September 26, 1980, as amended (the "Canada-U.S. Tax Convention"), and U.S. court decisions that are currently applicable any or alland, in each case, as in effect and available, as of the date of this document. Any of the authorities on which this summary is based could be materiallychanged in a material and adversely changed, possibly on a retroactive basis,adverse manner at any time, and any such change could be applied on a retroactive or prospective basis which are subject to differing interpretations.could affect the U.S. federal income tax considerations described in this summary. This discussionsummary does not considerdiscuss the potential effects, bothwhether adverse andor beneficial, of any proposed legislation which,that, if enacted, could be applied possibly on a retroactive basis, at any time.or prospective basis.
U.S. Holders
As used herein, a “U.S. Holder”For purposes of this summary, the term "U.S. Holder" means a holderbeneficial owner of common shares that is for U.S. federal income tax purposes:
• | an individual who is a citizen or resident of the U.S.; |
• | a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the U.S., any state thereof or the District of Columbia; |
• | an estate the income of which is subject to U.S. federal income taxation regardless of its source; or |
• | a trust that (1) is subject to the primary supervision of a court within the U.S. and the control of one or more U.S. persons for all substantial decisions or (2) has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person. |
Non-U.S. Holders
For purposes of Northern Dynasty whothis summary, a "non-U.S. Holder" is a citizen or individual residentbeneficial owner of the United States,common shares that is not a corporation or partnership created or organized in or under the laws of the United States or of any political subdivision thereof, an estate whose(or other “pass-through” entity) for U.S. federal income tax purposes and is taxable in the United States irrespective of source ornot a trust subject to the primary supervision of a court within the United States and control of a United States fiduciary as described Section 7701(a)(30) of the Code.U.S. Holder. This summary does not address the U.S. federal income tax consequences to non-U.S. Holders arising from and relating to the acquisition, ownership, and disposition of common shares. Accordingly, a non-U.S. Holder should consult its own tax advisor regarding all U.S. Holderfederal, U.S. state and local, and non-U.S. tax consequences (including the potential application of and operation of any income tax treaties) relating to the acquisition, ownership, and disposition of common shares.
U.S. Holders Subject to Special U.S. Federal Income Tax Rules Not Addressed
This summary does not include, persons subject to specific provisions ofaddress the U.S. federal income tax law, such asconsiderations applicable to U.S. Holders that are subject to special provisions under the Code, including, but not limited to, the following: (a) U.S. Holders that are tax-exempt organizations, qualified retirement plans, individual retirement accounts, andor other tax-deferred accounts,accounts; (b) U.S. Holders that are financial institutions, underwriters, insurance companies, real estate investment trusts, or regulated investment companies,companies; (c) U.S. Holders that are broker-dealers, non-resident alien individuals, personsdealers, or entitiestraders in securities or currencies that elect to apply a mark-to-market accounting method; (d) U.S. Holders that have a “functional currency”"functional currency" other than the U.S. dollar, shareholders subject to the alternative minimum tax, shareholders who holdDollar; (e) U.S. Holders that own common shares as part of a straddle, hedging ortransaction, conversion transaction, and shareholders whoconstructive sale, or other arrangement involving more than one position; (f) U.S. Holders that acquired their common shares throughin connection with the exercise of employee stock options or otherwise as compensation for services. This summary is limited to U.S. Holders who own common shares as capital assets and who own (directly and indirectly, pursuant to applicable rules of constructive ownership) no more than 5% of the value of the total outstanding stock of Northern Dynasty. This summary does not address the consequences to a person or entity holding an interest in a shareholder or the consequences to a person of the ownership, exercise or disposition of any options, warrants or other rights to acquire common shares. In addition, this summary does not address special rules applicable to United States persons (as defined in Section 7701(a)(30) of the Code) holding common shares through a foreign partnership or to foreign persons holding common shares through a domestic partnership.
Distribution on Common Shares of Northern Dynasty
In general, U.S. Holders receiving dividend distributions (including constructive dividends) with respect to common shares of Northern Dynasty are required to include in gross income for United States federal income tax purposes the gross amount of such distributions, equal to the U.S. dollar value of such distributions on the date of receipt (based on the exchange rate on such date), to the extent that Northern Dynasty has current or accumulated earnings and profits, without reduction for any Canadian income tax withheld from such distributions. Such Canadian tax withheld may be credited, subject to certain limitations, against the U.S. Holder’s federal income tax liability or, alternatively, may be deducted in computing the U.S. Holder’s federal taxable income by those who itemize deductions. (See more detailed discussion at “Foreign Tax Credit” below). To the extent that distributions exceed current or accumulated earnings and profits of Northern Dynasty, they will be treated first as a return of capital up to the U.S. Holder’s adjusted basis in the common shares and thereafter as gain from the sale or exchange of
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property. Preferential tax rates for long-term capital gains are applicable to a U.S. Holder which is an individual, estate or trust. There are currently no preferential tax rates for long-term capital gains for a U.S. Holder which is a corporation.
In the case of foreign currency received as a dividend that is not converted by the recipient into U.S. dollars on the date of receipt, a U.S. Holder will have a tax basis in the foreign currency equal to its U.S. dollar value on the date of receipt. Generally, any gain or loss recognized upon a subsequent sale or other disposition of the foreign currency, including the exchange for U.S. dollars, will be ordinary income or loss. However, an individual whose realized gain does not exceed $200 will not recognize that gain, provided that there are no expenses associated with the transaction that meet the requirements for deductibility as a trade or business expense (other than travel expenses in connection with a business trip) or as an expense for the production of income.
Dividends paid on the common shares of Northern Dynasty generally will not be eligible for the dividends received deduction provided to corporations receiving dividends from certain United States corporations. A U.S. Holder which is a corporation and which owns shares representing at least 10% of the voting power and value of Northern Dynasty may, under certain circumstances, be entitled to a 70% (or 80% if the U.S. Holder owns shares representing at least 20% of the voting power and value of Northern Dynasty) deduction of the United States source portion of dividends received from Northern Dynasty (unless Northern Dynasty qualifies as a “foreign personal holding company” or a “passive foreign investment company,” as defined below). Northern Dynasty does not anticipate that it will earn any United States income, however, and therefore does not anticipate that any U.S. Holder will be eligible for the dividends received deduction.
Under current Treasury Regulations, dividends paid on Northern Dynasty’s common shares, if any, generally will not be subject to information reporting and generally will not be subject to U.S. backup withholding tax. However, dividends and the proceeds from a sale of Northern Dynasty’s common shares paid in the U.S. through a U.S. or U.S. related paying agent (including a broker) will be subject to U.S. information reporting requirements and may also be subject to the U.S. backup withholding tax, unless the paying agent is furnished with a duly completed and signed Form W-9. Any amounts withheld under the U.S. backup withholding tax rules will be allowed as a refund or a credit against the U.S. Holder’s U.S. federal income tax liability, provided the required information is furnished to the IRS.
Foreign Tax Credit
A U.S. Holder who pays (or has withheld from distributions) Canadian income tax with respect to the ownership of common shares of Northern Dynasty may be entitled, at the option of the U.S. Holder, to either receive a deduction or a tax credit for such foreign tax paid or withheld. Generally, it will be more advantageous to claim a credit because a credit reduces United States federal income taxes on a dollar-for-dollar basis, while a deduction merely reduces the taxpayer’s income subject to tax. This election is made on a year-by-year basis and generally applies to all foreign taxes paid by (or withheld from) the U.S. Holder during that year. There are significant and complex limitations which apply to the credit, among which is the general limitation that the credit cannot exceed the proportionate share of the U.S. Holder’s United States income tax liability that the U.S. Holder’s foreign source income bears to his or its worldwide taxable income. In the determination of the application of this limitation, the various items of income and deduction must be classified into foreign and domestic sources. Complex rules govern this classification process. In addition, this limitation is calculated separately with respect to specific classes of income such as “passive income, “high withholding tax interest,” “financial services income,” “shipping income,” and certain other classifications of income. Dividends distributed by Northern Dynasty will generally constitute “passive income” or, in the case of certain U.S. Holders, “financial services income” for these purposes. The availability of the foreign tax credit and the application of the
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limitations on the credit are fact specific, and U.S. Holders of common shares of Northern Dynasty should consult their own tax advisors regarding their individual circumstances.
Disposition of Common Shares of Northern Dynasty
In general, U.S. Holders will recognize gain or loss upon the sale of common shares of Northern Dynasty equal to the difference, if any, between (i) the amount of cash plus the fair market value of any property received, and (ii) the shareholder’s tax basis in the common shares of Northern Dynasty. Preferential tax rates apply to long-term capital gains of U.S. Holders which are individuals, estates or trusts. In general, gain or loss on the sale of common shares of Northern Dynasty will be long-term capital gain or loss if the common shares are a capital asset in the hands of the U.S. Holder and are held for more than one year. Deductions for net capital losses are subject to significant limitations. For U.S. Holders which are not corporations, any unused portion of such net capital loss may be carried over to be used in later tax years until such net capital loss is thereby exhausted. For U.S. Holders that are corporations (other than corporations subject to Subchapter S of the Code), an unused net capital loss may be carried back three years and carried forward five years from the loss year to be offset against capital gains until such net capital loss is thereby exhausted.
Other Considerations
Set forth below are certain material exceptions to the above-described general rules describing the United States federal income tax consequences resulting from the holding and disposition of common shares:
Foreign Personal Holding Company
If at any time during a taxable year more than 50% of the total combined voting power or the total value of Northern Dynasty’s outstanding shares is owned, directly or indirectly (pursuant to applicable rules of constructive ownership), by five or fewer individuals who are citizens or residents of the United States and 60% or more of Northern Dynasty’s gross income for such year is derived from certain passive sources (e.g., from certain interest and dividends), Northern Dynasty may be treated as a “foreign personal holding company.” In that event,services; (g) U.S. Holders that hold common shares would be required to include in gross income for such year their allocable portions of such passive income to the extent Northern Dynasty does not actually distribute such income. Northern Dynasty does not believe that it currently qualifiesother than as a foreign personal holding company. However, there can be no assurance that Northern Dynasty will not be considered a foreign personal holding company forcapital asset within the current or any future taxable year.
Foreign Investment Company
If 50% or moremeaning of the combined voting power or total value of Northern Dynasty’s outstanding shares is held, directly or indirectly, by citizens or residents of the United States, United States domestic partnerships or corporations, or estates or trusts other than foreign estates or trusts (as defined by the Code Section 7701(a)(31)), and Northern Dynasty is found to be engaged primarily in the business of investing, reinvesting, or trading in securities, commodities, or any interest therein, it is possible that Northern Dynasty may be treated as a “foreign investment company” as defined in Section 12461221 of the Code causing all(generally, property held for investment purposes); or part of any gain realized by a U.S. Holder selling or exchanging common shares to be treated as ordinary income rather than capital gain. Northern Dynasty does not believe that it currently qualifies as a foreign investment company. However, there can be no assurance that Northern Dynasty will not be considered a foreign investment company for the current or any future taxable year.
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Passive Foreign Investment Company
United States income tax law contains rules governing “passive foreign investment companies” (“PFIC”) which can have significant tax effects on(h) U.S. Holders of foreign corporations. These rules do not apply to non-U.S. Holders. Section 1297 of the Code defines a PFIC as a corporation that is not formed in the United States if, for any taxable year, either (i) 75%own or more of its gross income is “passive income,” which includes interest, dividends and certain rents and royaltieshave owned (directly, indirectly, or (ii) the average percentage, by fair market value (or, if the corporation is not publicly traded and either is a controlled foreign corporation or makes an election, by adjusted tax basis), of its assets that produce or are held for the production of “passive income” is 50% or more. Northern Dynasty appears to have been a PFIC for the fiscal year ended December 31, 2003, and at least certain prior fiscal years. In addition, Northern Dynasty expects to qualify as a PFIC for the fiscal year ending December 31, 2004 and may also qualify as a PFIC in future fiscal years. Each U.S. Holder of Northern Dynasty is urged to consult a tax advisor with respect to how the PFIC rules affect such U.S. Holder’s tax situation.
Each U.S. Holder who holds stock in a foreign corporation during any year in which such corporation qualifies as a PFIC is subject to United States federal income taxation under one of three alternative tax regimes at the election of such U.S. Holder. The following is a discussion of such alternative tax regimes applied to such U.S. Holders of Northern Dynasty. In addition, special rules apply if a foreign corporation qualifies as both a PFIC and a “controlled foreign corporation” (as defined below) and a U.S. Holder owns, actually or constructively,attribution) 10% or more of the total combined voting power of the outstanding shares of the Company. This summary also does not address the U.S. federal income tax considerations applicable to U.S. Holders who are: (a) U.S. expatriates or former long-term residents of the U.S.; (b) persons that have been, are, or will be a resident or deemed to be a resident in Canada for purposes of the Income Tax Act (Canada) (the "Tax Act"); (c) persons that use or hold, will use or hold, or that are or will be deemed to use or hold common shares in connection with carrying on a business in Canada; (d) persons whose common shares constitute "taxable Canadian property" under the Tax Act; or (e) persons that have a permanent establishment in Canada for the purposes of the Canada-U.S. Tax Convention. U.S. Holders that are subject to special provisions under the Code, including, but not limited to, U.S. Holders described immediately above, should consult their own tax advisors regarding all classesU.S. federal, U.S. state and local, and non-U.S. tax consequences relating to the acquisition, ownership and disposition of common shares.
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If an entity or arrangement that is classified as a partnership (or other "pass-through" entity) for U.S. federal income tax purposes holds common shares, the U.S. federal income tax consequences to such entity and the partners (or other owners) of such entity of the ownership and disposition of common shares generally will depend on the activities of the entity and the status of such partners (or other owners). This summary does not address the U.S. federal income tax consequences to any such entity or its owners. Partners (or other owners) of entities or arrangements that are classified as partnerships (or other "pass-through" entities) for U.S. federal income tax purposes should consult their own tax advisors regarding the U.S. federal income tax consequences arising from and relating to the acquisition, ownership, and disposition of common shares.
Passive Foreign Investment Company Rules
If the Company were to constitute a "passive foreign investment company" within the meaning of Section 1297 of the Code (a "PFIC", as defined below) for any tax year during a U.S. Holder's holding period, then certain potentially adverse rules will affect the U.S. federal income tax consequences to such U.S. Holder resulting from the acquisition, ownership and disposition of common shares. The Company believes it was a PFIC during one or more prior years, and, based on current business plans and financial projections, expects to be a PFIC in the current tax year and possibly in subsequent tax years. The determination of whether any corporation was, or will be, a PFIC for a tax year depends, in part, on the application of complex U.S. federal income tax rules, which are subject to differing interpretations. In addition, whether any corporation will be a PFIC for any tax year depends on the assets and income of such corporation over the course of each such tax year and, as a result, cannot be predicted with certainty before the close of the tax year in question. Accordingly, there can be no assurance that the Company will or will not be determined to be a PFIC for the current or any prior or future tax year, or that the IRS will not challenge any determination made by the Company (or any subsidiary of the Company) concerning its PFIC status. Each U.S. Holder should consult its own tax advisor regarding the PFIC status of the Company and any subsidiary of the Company.
In addition, in any year in which the Company is a PFIC, a U.S. Holder would be required to file an annual report with the IRS containing such information as Treasury Regulations and/or other IRS guidance may require. In addition to penalties, the failure to satisfy such reporting requirements may result in an extension of the time period during which the IRS can assess a tax. U.S. Holders should consult their own tax advisors regarding the requirements of filing such information returns under these rules, including the requirement to file an IRS Form 8621.
PFIC Status of the Company
The Company generally will be a PFIC for a tax year, if (a) 75% or more of its gross income is passive income (as defined for U.S. federal income tax purposes) (the "income test") or (b) 50% or more (by value) of its assets either produce passive income or are held for the production of passive income, based on the quarterly average of the fair market value of such assets (the "asset test"). For purposes of the PFIC provisions, "gross income" generally includes all sales revenues less the cost of goods sold, plus income from investments and from incidental or outside operations or sources, and "passive income" generally includes dividends, interest, certain rents and royalties, certain gains from the sale of stock entitled to voteand securities, and certain gains from commodities transactions.
Active business gains arising from the sale of commodities generally will be excluded from passive income if substantially all (85% or more) of the Company’s commodities are stock in trade or inventory, depreciable property used in a trade or business, or supplies regularly used or consumed in a trade or business and certain other requirements are satisfied.
For purposes of the PFIC income test and asset test described above, if the Company owns, directly or indirectly, 25% or more of the total value of the outstanding shares of another corporation, the Company will be treated as if it (a) held a proportionate share of the assets of such foreignother corporation (See more detailed discussion at “Controlled Foreign Corporation” below).and (b) received directly a proportionate share of the income of such other corporation. In addition, for purposes of the PFIC income test and asset test described above, and assuming certain other requirements are met, "passive income" does not include certain interest, dividends, rents, or royalties that are received or accrued by the Company from certain "related persons" (as defined in Section 954(d)(3) of the Code), to the extent such items are properly allocable to the income of such related person that is not passive income.
AUnder certain attribution rules, if the Company is a PFIC, U.S. Holder who electsHolders will generally be deemed to treat Northern Dynasty asown their proportionate share of the Company's direct or indirect equity interest in any company that is also a qualified electing fund (“QEF”PFIC (a ''Subsidiary PFIC''), and will be subject under Section 1293 of the Code, to currentU.S. federal income tax on their proportionate share of (a) any "excess distributions," as described below, on the stock of a Subsidiary PFIC and (b) a disposition or deemed disposition of the stock of a Subsidiary PFIC by the Company or another Subsidiary PFIC, both as if such U.S. Holders directly held the shares of such Subsidiary PFIC. In addition, U.S. Holders may be subject to U.S. federal income tax on any indirect gain realized on the stock of a Subsidiary PFIC on the sale or disposition of common shares. Accordingly, U.S. Holders should be aware that they could be subject to tax even if no distributions are received and no redemptions or other dispositions of the Company’s common shares are made.
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Default PFIC Rules Under Section 1291 of the Code
If the Company meets the income test or the asset test for any taxabletax year toduring which the election applies in which Northern Dynasty qualifies as a PFIC on his pro rata share of Northern Dynasty’s (i) “net capital gain” (the excess of net long-term capital gain over net short-term capital loss), which will be taxed as long-term capital gain, and (ii) “ordinary earnings” (the excess of earnings and profits over net capital gain), which will be taxed as ordinary income, in each case, for the shareholder’s taxable year in which (or with which) Northern Dynasty’s taxable year ends, regardless of whether such amounts are actually distributed. A U.S. Holder’s tax basis in the common shares will be increased by any such amount that is included in income but not distributed.
The procedure a U.S. Holder must comply with in making an effective QEF election,owns common shares, the U.S. federal income tax consequences to such U.S. Holder of the acquisition, ownership, and the consequencesdisposition of such election,common shares will depend on whether the year of the election is the first year in the U.S. Holder’s holding period in which Northern Dynasty is a PFIC. If theand when such U.S. Holder makes an election to treat the Company and each Subsidiary PFIC, if any, as a "qualified electing fund" or "QEF" under Section 1295 of the Code (a "QEF Election") or makes a mark-to-market election under Section 1296 of the Code (a "Mark-to-Market Election"). A U.S. Holder that does not make either a QEF electionElection or a Mark-to-Market Election will be referred to in such first year, i.e.,this summary as a “timely” QEF election, then the"Non-Electing U.S. Holder."
A Non-Electing U.S. Holder may makewill be subject to the QEF election by simply filing the appropriate documents at the time the U.S. Holder files his tax return for such first year. If, however, Northern Dynasty qualified as a PFIC in a prior year during the U.S. Holder’s holding period, then, in order to avoid the Section 1291 rules discussed below, in addition to filing documents, the U.S. Holder must elect to recognize under thedefault rules of Section 1291 of the Code (discussed herein), (i) any gain that he would otherwise recognize if the U.S. Holder sold his stock on the qualification date or (ii) if Northern Dynasty is a controlled foreign corporation, the U.S. Holder’s pro rata share of Northern Dynasty’s post-1986 earnings and profits as of the qualification date. The qualification date is the first day of Northern Dynasty’s first tax year in which Northern Dynasty qualified as a QEF(described below) with respect to such U.S. Holder. For purposes of this discussion, a U.S. Holder who makes (i) a timely QEF election, or (ii) an untimely QEF election and either of the above-described gain-recognition elections under Section 1291 is referred to herein as an “Electing U.S. Holder.” A U.S. Holder who holds common shares at any time during a year of Northern Dynasty in which Northern Dynasty is a PFIC and who is not an Electing U.S. Holder (including a U.S. Holder who makes an untimely QEF election and makes neither of the
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above-described gain-recognition elections) is referred to herein as a “Non-Electing U.S. Holder.” An Electing U.S. Holder (i) generally treats(a) any gain realized on the sale or other disposition of his Registrant common shares as capital gain;(including dispositions and (ii) may either avoid interest charges resulting from PFIC status altogether, or make an annual election, subject to certain limitations, to defer payment of current taxes on his share of Northern Dynasty’s annual realized net capital gain and ordinary earnings subject, however, to an interest charge. If the U.S. Holder isother events that would not a corporation, any interest charge imposed under the PFIC regime wouldotherwise be treated as “personal interest”taxable events) of common shares and (b) any "excess distribution" received on the common shares. A distribution generally will be an "excess distribution" to the extent that is not deductible.
In order forsuch distribution (together with all other distributions received in the relevant tax year) exceeds 125% of the average annual distribution received during the three preceding tax years (or during a U.S. Holder to make (or maintain) a valid QEF election, Northern Dynasty must provide certain information regarding its net capital gains and ordinary earnings and permit its books and records to be examined to verify such information. Northern Dynasty intends to makeHolder's holding period for the necessary information available to U.S. Holders to permit them to make (and maintain) QEF elections with respect to Northern Dynasty. Northern Dynasty urges each U.S. Holder to consult a tax advisor regardingcommon shares, if shorter).
Under the availabilitydefault rules of and procedure for making, the QEF election.
A QEF election, once made with respect to Northern Dynasty, applies to the tax year for which it was made and to all subsequent tax years, unless the election is invalidated or terminated, or the IRS consents to revocation of the election. If a QEF election is made by a U.S. Holder and Northern Dynasty ceases to qualify as a PFIC in a subsequent tax year, the QEF election will remain in effect, although not applicable, during those tax years in which Northern Dynasty does not qualify as a PFIC. Therefore, if Northern Dynasty again qualifies as a PFIC in a subsequent tax year, the QEF election will be effective and the U.S. Holder will be subject to the rules described above for Electing U.S. Holders in such tax year and any subsequent tax years in which Northern Dynasty qualifies as a PFIC. In addition, the QEF election remains in effect, although not applicable, with respect to an Electing U.S. Holder even after such U.S. Holder disposes of all of his or its direct and indirect interest in the shares of Northern Dynasty. Therefore, if such U.S. Holder reacquires an interest in Northern Dynasty, that U.S. Holder will be subject to the rules described above for Electing U.S. Holders for each tax year in which Northern Dynasty qualifies as a PFIC.
In the case of a Non-Electing U.S. Holder, special taxation rules under Section 1291 of the Code, will apply to (i) gainsany gain realized on the sale or other disposition (or deemedof common shares (including an indirect disposition of the stock of any Subsidiary PFIC), and any "excess distribution" received on common shares or with respect to be realized by reasonsthe stock of a pledge) of his Registrant common shares and (ii) certain “excess distributions,” as definedSubsidiary PFIC, must be ratably allocated to each day in Section 1291(b), by Northern Dynasty.
Aa Non-Electing U.S. Holder generally would be required to pro rate all gains realized on the disposition of his Registrant common shares and all excess distributions on his Registrant common shares over the entireHolder's holding period for the respective common shares. All gainsThe amount of any such gain or excess distributionsdistribution allocated to prior yearsthe tax year of disposition or distribution of the U.S. Holder (excludingexcess distribution and to tax years before the entity became a PFIC, if any, portion of the holder’s period prior to the first day of the first year of Northern Dynasty (i) which began after December 31, 1986, and (ii) for which Northern Dynasty was a PFIC) would be taxed as ordinary income. The amounts allocated to any other tax year would be subject to U.S. federal income tax at the highest tax rate for each such prior year applicable to ordinary income. The Non-Electing U.S. Holder alsoincome in each such year, and an interest charge would be liable for interestimposed on the foregoingresulting tax liability for each such prior year, calculated as if such tax liability had been due with respect toin each such priortax year. A Non-Electing U.S. Holder that is not a corporation must treat thisany such interest chargepaid as “personal interest”"personal interest," which as discussed above, is wholly non-deductible. The balance, if any,not deductible. Any loss realized on the disposition of common shares would not be recognized.
If the gainCompany meets the income test or the excess distribution will be treated as ordinary income in the year of the disposition or distribution, and no interest charge will be incurred with respect to such balance. In certain circumstances, the sum of the tax and the PFIC interest charge may exceed the amount of the excess distribution received, or the amount of proceeds of disposition realized, by the U.S. Holder.
If Northern Dynasty is a PFICasset test for any taxabletax year during which a Non-Electing U.S. Holder holds Registrant common shares, then Northern Dynastythe Company will continue to be treated as a PFIC with respect to
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such Registrant common shares, even if it is no longer definitionally a PFIC.Non-Electing U.S. Holder, regardless of whether the Company meets the income test or the asset test in one or more subsequent tax years. A Non-Electing U.S. Holder may terminate this deemed PFIC status by electing to recognize gain (which will be taxed under the default rules of Section 1291 of the Code discussed above for Non-Electing U.S. Holders)above), but not loss, as if such Registrant common shares had beenwere sold on the last day of the last taxabletax year for which itthe Company was a PFIC.
Effective for tax years of U.S. Holders beginning after December 31, 1997, U.S. Holders who hold (actually or constructively) marketable stock of a foreign corporation that qualifies as a PFIC may elect to mark such stock to the market annually (a “mark-to-market election”). If such an election is made, suchQEF Election
A U.S. Holder that makes a timely and effective QEF Election for the first tax year in which its holding period of its common shares begins generally will generally not be subject to the special taxationdefault rules of Section 1291 of the Code, discussed above. However,above, with respect to its common shares. Instead, such a U.S. Holder will be required to include currently in gross income for each tax year in which the Company is a PFIC, such U.S. Holder’s pro rata share of the Company’s net capital gain and ordinary earnings, if any, regardless of whether such gain or earnings are actually distributed. If a U.S. Holder that made a timely and effective QEF Election has an income inclusion, such U.S. Holder may, subject to certain limitations, elect to defer payment of current U.S. federal income tax on such amounts, subject to an interest charge. If such U.S. Holder is not a corporation, any such interest paid will be treated as "personal interest," which is not deductible.
A U.S. Holder that makes a timely and effective QEF Election with respect to the mark-to-market electionCompany generally (a) may receive tax-free distributions from the Company to the extent that such distribution represents "earnings and profits" of the Company that were previously included in income by the U.S. Holder because of such QEF Election and (b) will adjust such U.S. Holder's tax basis in the common shares to reflect the amount included in income or allowed as a tax-free distribution because of such QEF Election. In addition, a U.S. Holder that makes a QEF Election generally will recognize capital gain or loss on the sale or other taxable disposition of common shares.
The procedure for making a QEF Election, and the U.S. federal income tax consequences of making a QEF Election, will depend on whether such QEF Election is “timely”. A QEF Election will be treated as "timely" if such QEF Election is made by a Non-Electingfor the first tax year in the U.S. Holder after the beginning of theHolder's holding period for the common shares in which the Company was meets the income test or asset test. A U.S. Holder may make a QEF Election for a tax year by filing the appropriate QEF Election documents at the time such U.S. Holder files a U.S. federal income tax return for such tax year. If a U.S. Holder does not make a timely and effective QEF Election for the first year in the U.S. Holder's holding period for the common shares, the U.S. Holder may still be able to make a timely and effective QEF Election in a subsequent year if such U.S. Holder meets certain requirements and makes a "purging" election to recognize gain (which will be taxed under the default rules of Section 1291 of the Code discussed above) as if such common shares were sold for their fair market value on the day the QEF Election is effective. If a U.S. Holder owns PFIC stock thenindirectly through another PFIC, separate QEF Elections must be made for the PFIC in which the U.S. Holder is a direct shareholder and the Subsidiary PFIC for the QEF rules to apply to both PFICs.
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A QEF Election will apply to the tax year for which it is timely made and to all subsequent tax years, unless such QEF Election is invalidated or terminated or the IRS consents to its revocation. If a U.S. Holder makes a QEF Election and, in a subsequent tax year, the Company ceases to be a PFIC, the QEF Election will remain in effect (although it will not be applicable). Accordingly, if the Company becomes a PFIC in another subsequent tax year, the QEF Election will be effective and the U.S. Holder will be subject to the QEF rules described above during any subsequent tax year in which the Company qualifies as a PFIC.
In light of the adverse tax consequences of the Company being a PFIC and the uncertainty as to the Company’s PFIC status, the Company will provide to any U.S. Holder, upon written request, the information necessary for U.S. income tax reporting purposes for such U.S. Holder to make a QEF Election with respect to the Company. The Company may elect to provide such information on its website. Each U.S. Holder should consult its own tax advisor regarding the availability and desirability of, and procedure for making, a QEF Election.
Mark-to-Market Election
A U.S. Holder may make a Mark-to-Market Election only if the common shares are "regularly traded" on a qualified exchange or other market (within the meaning of the Code and applicable Treasury Regulations), which include a national securities exchange that is registered with the Securities and Exchange Commission, the national market system established pursuant to section 11A of the Securities and Exchange Act of 1934, and certain foreign securities exchanges that are regulated or supervised by a governmental authority of the country in which the market is located. If such stock is traded on such a qualified exchange or other market, such stock generally will be "regularly traded" for any calendar year during which such stock is traded, other than in de minimis quantities, on at least 15 days during each calendar quarter. There is no assurance that the common shares will be or remain "regularly traded" for this purpose.
A U.S. Holder that makes a Mark-to-Market Election with respect to its common shares generally will not be subject to the default rules of Section 1291 of the Code, discussed above, with respect to such common shares. However, if a U.S. Holder does not make a Mark-to-Market Election beginning in the first tax year of such U.S. Holder's holding period for the common shares or such U.S. Holder has not made a timely QEF Election, the default rules of Section 1291 of the Code, discussed above, will apply to certain dispositions of, and distributions on, and other amounts taxable with respect to Northern Dynastythe common shares.
A U.S. Holder whothat makes the mark-to market electiona Mark-to-Market Election will include in ordinary income, for each taxabletax year forin which the electionCompany is in effecta PFIC, an amount equal to the excess, if any, of (a) the fair market value of the common shares, of Northern Dynasty as of the close of such tax year over (b) such U.S. Holder’s adjustedHolder's tax basis in such common shares. In addition, theA U.S. Holder isthat makes a Mark-to-Market Election will be allowed a deduction for the lesser of (i)in an amount equal to the excess, if any, of (a) such U.S. Holder’sHolder's adjusted tax basis in the common shares, as of the close of such tax year, over (b) the fair market value of such common shares as(but only to the extent of the closenet amount of previously included income as a result of the tax year, or (ii) the excess, if any, of (A) the mark-to-market gains for the common shares in Northern Dynasty included by such U.S. HolderMark-to-Market Election for prior tax years, including any amount which would have been treated as a mark-to-market gain for any prior tax year but for the Section 1291 rules discussed above with respect to Non-Electing U.S. Holders, over (B) the mark-to-market losses for shares that were allowed as deductions for prior tax years. years).
A U.S. Holder’s adjustedHolder that makes a Mark-to-Market Election generally also will adjust such U.S. Holder's tax basis in the common shares of Northern Dynasty will be adjusted to reflect the amount included in gross income or deducted from incomeallowed as a resultdeduction because of such Mark-to-Market Election. In addition, upon a mark-to-market election. sale or other taxable disposition of common shares, a U.S. Holder that makes a Mark-to-Market Election will recognize ordinary income or ordinary loss (not to exceed the excess, if any, of (a) the amount included in ordinary income because of such Mark-to-Market Election for prior tax years over (b) the amount allowed as a deduction because of such Mark-to-Market Election for prior tax years). Losses that exceed this limitation are treated as capital losses. Deductions for capital losses are subject to significant limitations under the Code.
A mark-to-market electionMark-to-Market Election applies to the taxabletax year in which the electionsuch Mark-to-Market Election is made and to each subsequent taxabletax year, unless Northern Dynastythe common shares cease to be marketable, as specifically defined,eligible for such election or the IRS consents to revocation of thesuch election. Because the IRS has not established procedures for making a mark-to-market election,Each U.S. HoldersHolder should consult theirits own tax advisor regarding the manneravailability of, and procedure for making, such an election. No view is expressed regarding whethera Mark-to-Market Election.
Although a U.S. Holder may be eligible to make a Mark-to-Market Election with respect to the common shares, no such election may be made with respect to the stock of Northern Dynasty are marketable for these purposes or whetherany Subsidiary PFIC that a U.S. Holder is treated as owning, because such stock is not marketable. Hence, the electionMark-to-Market Election will not be available.
Undereffective to eliminate the application of the default rules of Section 1291(f)1291 of the Code the IRS has issued Proposed Treasury Regulations that, subjectdescribed above with respect to certain exceptions, would treat as taxable certain transfersdeemed dispositions of Subsidiary PFIC stock by Non-Electing U.S. Holders thator excess distributions with respect to a Subsidiary PFIC.
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The PFIC rules are generally not otherwise taxed, such as gifts, exchanges pursuant to corporate reorganizations,complex, and transfers at death. Generally, in such cases the basis of Northern Dynasty common shares in the hands of the transferee and the basis of any property received in the exchange for those common shares would be increased by the amount of gain recognized. Under the Proposed Treasury Regulations, an Electingeach U.S. Holder would not be taxed on certain transfers of PFIC stock, such as gifts, exchanges pursuant to corporate reorganizations, and transfers at death. The transferee’s basis in this case will depend on the manner of the transfer. In the case of a transfer by an Electing U.S. Holder upon death, for example, the transferee’s basis is generally equal to the fair market value of the Electing U.S. Holder’s common shares as of the date of death under Section 1014 of the Code. The specific tax effect to the U.S. Holder and the transferee may vary based on the manner in which the common shares are transferred. Each U.S. Holder of Northern Dynasty is urged toshould consult aits own tax advisor with respect toregarding the PFIC rules and how the PFIC rules may affect his or itsthe U.S. federal income tax situation.consequences of the acquisition, ownership, and disposition of common shares.
Whether or not a U.S. Holder makes a timely QEF election with respect to common sharesOwnership and Disposition of Northern Dynasty, certain adverse rules may apply in the event that both Northern Dynasty and any foreign corporation in which Northern Dynasty directly or indirectly holds sharesCommon Shares
The following discussion is a PFIC (a “lower-tier PFIC”). Pursuant to certain Proposed Treasury Regulations, a U.S. Holder would be treated as owning his or its proportionate amount of any lower-tier PFIC shares, and generally would be subject to the PFIC rules
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with respect to such indirectly-held PFIC shares unless suchDistributions on Common Shares
A U.S. Holder makesthat receives a timely QEF election with respect thereto. Northern Dynasty intends to make the necessary information available to U.S. Holders to permit them to make (and maintain) QEF elections with respect to each subsidiary of Northern Dynasty that isdistribution, including a PFIC.
Under the Proposed Treasury Regulations, a U.S. Holder who does not make a timely QEF electionconstructive distribution, with respect to a lower-tier PFIC generally wouldcommon share will be subjectrequired to include the amount of such distribution in gross income as a dividend (without reduction for any Canadian income tax (andwithheld from such distribution) to the PFIC interest charge) on (i) any excessextent of the current or accumulated "earnings and profits" of the Company, as computed for U.S. federal income tax purposes. To the extent that a distribution deemedexceeds the current and accumulated "earnings and profits" of the Company, such distribution will be treated first as a tax-free return of capital to have been received with respect to his or its lower-tier PFICthe extent of a U.S. Holder's tax basis in the common shares and (ii) any gain deemed to arise from a so-called “indirect disposition” of such shares. For this purpose, an indirect disposition of lower-tier PFIC shares would generally include (i) a disposition by Northern Dynasty (or an intermediate entity) of lower-tier PFIC shares, and (ii) any other transaction resulting in a diminution of the U.S. Holder’s proportionate ownership of the lower-tier PFIC, including an issuance of additional common shares by Northern Dynasty (or an intermediate entity). Accordingly, each prospective U.S. Holder should be aware that he or it could be subject to tax even if such U.S. Holder receives no distributions from Northern Dynasty and does not dispose of its common shares.Northern Dynasty strongly urges each prospective U.S. Holder to consult a tax advisor with respect to the adverse rules applicable, under the Proposed Treasury Regulations, to U.S. Holders of lower-tier PFIC shares.
Certain special, generally adverse, rules will apply with respect to Registrant common shares while Northern Dynasty is a PFIC unless the U.S. Holder makes a timely QEF election. For example under Section 1298(b)(6) of the Code, a U.S. Holder who uses PFIC stockthereafter as security for a loan (including a margin loan) will, except as may be provided in regulations, be treated as having made a taxable disposition of such shares.
Controlled Foreign Corporation
If more than 50% of the total combined voting power of all classes of shares entitled to vote or the total value of the shares of Northern Dynasty is owned, actually or constructively, by citizens or residents of the United States, United States domestic partnerships or corporation, or estates or trusts other than foreign estates or trusts (as defined by the Code Section 7701(a)(31)), each of which own, actually or constructively, 10% or more of the total combined voting power of all classes of shares entitled to vote of Northern Dynasty (“United States Shareholder”), Northern Dynasty could be treated as a controlled foreign corporation (“CFC”) under Subpart F of the Code. This classification would effect many complex results, one of which is the inclusion of certain income of a CFC which is subject to current U.S. tax. The United States generally taxes United States Shareholders of a CFC currently on their pro rata shares of the Subpart F income of the CFC. Such United States Shareholders are generally treated as having received a current distribution out of the CFC’s Subpart F income and are also subject to current U.S. tax on their pro rata shares of increases in the CFC’s earnings invested in U.S. property. The foreign tax credit described above may reduce the U.S. tax on these amounts. In addition, under Section 1248 of the Code, gain from the sale or exchange of such common shares. (See "Sale or Other Taxable Disposition of Common Shares" below). However, the Company may not maintain the calculations of earnings and profits in accordance with U.S. federal income tax principles, and each U.S. Holder should therefore assume that any distribution by the Company with respect to the common shares will constitute a dividend. Dividends received on common shares generally will not be eligible for the "dividends received deduction" available to U.S. corporate shareholders receiving dividends for U.S. corporations. If the Company is eligible for the benefits of the Canada-U.S. Tax Convention, dividends paid by the Company to non-corporate U.S. Holders generally will be eligible for preferential tax rates applicable to long-term capital gains, provided certain holding period and other conditions are satisfied, including that the Company not be classified as a PFIC in the tax year of distribution or in the preceding tax year. The dividend rules are complex, and each U.S. Holder should consult its own tax advisor regarding the application of such rules.
Sale or Other Taxable Disposition of Common Shares
Upon the sale or other taxable disposition of common shares, a U.S. Holder generally will recognize capital gain or loss in an amount equal to the difference between the amount of cash received plus the fair market value of any property received and such U.S. Holder's tax basis in such common shares sold or otherwise disposed of. A U.S. Holder's tax basis in common shares generally will be such U.S. Holder's U.S. Dollar cost for such common shares. Gain or loss recognized on such sale or other disposition generally will be long-term capital gain or loss if, at the time of the sale or other taxable disposition, the common shares have been held for more than one year.
Preferential tax rates currently apply to long-term capital gain of a U.S. Holder that is an individual, estate, or trust. There are currently no preferential tax rates for long-term capital gain of a U.S. Holder that is a corporation. Deductions for capital losses are subject to significant limitations under the Code.
Receipt of Foreign Currency
The amount of any distribution paid to a U.S. Holder in connection with the ownership of common shares, or on the sale or other taxable disposition of common shares, generally will be equal to the U.S. Dollar value of such foreign currency based on the exchange rate applicable on the date of receipt (regardless of whether such foreign currency is converted into U.S. Dollars at that time). A U.S. Holder will have a basis in the foreign currency equal to its U.S. Dollar value on the date of receipt. Any U.S. Holder who converts or otherwise disposes of the foreign currency after the date of receipt may have a foreign currency exchange gain or loss that would be treated as ordinary income or loss, and generally will be U.S. source income or loss for foreign tax credit purposes. Different rules apply to U.S. Holders who use the accrual method with respect to foreign currency received upon the sale, exchange or other taxable disposition of the common shares. Each U.S. Holder should consult its own tax advisor regarding the U.S. federal income tax consequences of receiving, owning, and disposing of foreign currency.
Foreign Tax Credit
Subject to the PFIC rules discussed above, a U.S. Holder that pays (whether directly or through withholding) Canadian income tax in connection with the ownership or disposition of common shares generally will be entitled, at the election of such U.S. Holder, to receive either a deduction or a credit for such Canadian income tax. Generally, a credit will reduce a U.S. Holder's U.S. federal income tax liability on a Dollar-for-Dollar basis, whereas a deduction will reduce a U.S. Holder's income subject to U.S. federal income tax. This election is made on a year-by-year basis and applies to all creditable foreign taxes paid (whether directly or through withholding) by a U.S. Holder during a year.
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Complex limitations apply to the foreign tax credit, including the general limitation that the credit cannot exceed the proportionate share of a U.S. Holder's U.S. federal income tax liability that such U.S. Holder's "foreign source" taxable income bears to such U.S. Holder's worldwide taxable income. In applying this limitation, a U.S. Holder's various items of income and deduction must be classified, under complex rules, as either "foreign source" or "U.S. source." Generally, dividends paid by a non-U.S. corporation should be treated as foreign source for this purpose, and gains recognized on the sale of stock of a non-U.S. corporation by a U.S. Holder should be treated as U.S. source for this purpose, except as otherwise provided in an applicable income tax treaty, and if an election is properly made under the Code. However, the amount of a distribution with respect to the common shares of Northern Dynasty which is or was a United States Shareholder at any time during the five-year period ending on the date of the sale or exchangethat is treated as ordinarya "dividend" may be lower for U.S. federal income tax purposes than it is for Canadian federal income tax purposes, resulting in a reduced foreign tax credit allowance to the extent of earnings and profits of Northern Dynasty attributable to the shares sold or exchanged. If a foreign corporationU.S. Holder. In addition, this limitation is both a PFIC and a CFC, the foreign corporation generally will not be treated as a PFICcalculated separately with respect to United States Shareholdersspecific categories of income. The foreign tax credit rules are complex, and each U.S. Holder should consult its own U.S. tax advisor regarding the CFC. This rule generally will be effective for taxable years of United States Shareholders beginning after 1997 and for taxable years of foreign corporations ending with or within such taxable years of United States Shareholders. tax credit rules.
Special rules apply to United States Shareholders who are subjectthe amount of foreign tax credit that a U.S. Holder may claim on a distribution from a PFIC. Subject to thesuch special taxation rules, under Section 1291 discussed aboveforeign taxes paid with respect to any distribution in respect of stock in a PFIC. BecausePFIC are generally eligible for the foreign tax credit. The rules relating to distributions by a PFIC and their eligibility for the foreign tax credit are complicated, and a U.S. Holder should consult with its own tax advisor regarding the availability of the complexityforeign tax credit with respect to distributions by a PFIC.
Information Reporting and Backup Withholding
Under U.S. federal income tax law, certain categories of Subpart F,U.S. Holders must file information returns with respect to their investment in, or involvement in, a more detailed reviewnon-U.S. corporation. For example, U.S. return disclosure obligations (and related penalties) are imposed on individuals who are U.S. Holders that hold certain specified foreign financial assets in excess of certain threshold amounts. The definition of specified foreign financial assets includes not only financial accounts maintained in foreign financial institutions, but also, if held for investment and not in an account maintained by certain financial institutions, any stock or security issued by a non-U.S. person, any financial instrument or contract that has an issuer or counterparty other than a U.S. person and any interest in a non-U.S. entity. U.S. Holders may be subject to these reporting requirements unless their common shares are held in an account at certain financial institutions. Penalties for failure to file certain of these rulesinformation returns are substantial. U.S. Holders should consult with their own tax advisors regarding the requirements of filing information returns, including the requirement to file an IRS Form 8938.
Payments made within the U.S. or by a U.S. payor or U.S. middleman, of dividends on, and proceeds arising from the sale or other taxable disposition of, common shares will generally be subject to information reporting. In addition, backup withholding, currently, at a rate of 28%, may apply to such payments if a U.S. Holder (a) fails to furnish such U.S. Holder's correct U.S. taxpayer identification number (generally on IRS Form W-9), (b) furnishes an incorrect U.S. taxpayer identification number, (c) is outsidenotified by the IRS that such U.S. Holder has previously failed to properly report items subject to backup withholding tax, or (d) fails to certify, under penalty of perjury, that such U.S. Holder has furnished its correct U.S. taxpayer identification number and that the scope of this discussion.
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Northern Dynasty doesIRS has not believenotified such U.S. Holder that it currently qualifiesis subject to backup withholding. Certain exempt persons generally are excluded from these information reporting and backup withholding rules. Backup withholding is not an additional tax. Any amounts withheld under the U.S. backup withholding rules will be allowed as a CFC. However, there cancredit against a U.S. Holder's U.S. federal income tax liability, if any, or will be no assurance that Northern Dynasty will not be consideredrefunded, if such U.S. Holder furnishes required information to the IRS in a CFC fortimely manner. Each U.S. Holder should consult its own tax advisor regarding the current or any future taxable year.
F. Dividendsinformation reporting and Paying Agentsbackup withholding rules.
F. | DIVIDENDS AND PAYING AGENTS |
Not applicable.
G. | STATEMENT BY EXPERTS |
G. Statement by ExpertsNot applicable.
The following are experts whose opinions or reports are included herein:
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DOCUMENTS ON DISPLAY |
All the foregoing experts have consented to the inclusion of their reports or opinions herein or in the previously (March 18 2002, April 25 2002, May 31 2002, and June 10 2002) filed initial 20-FA registration statements (as amended) and, if filed with such previous 20-FAs, the section herein respecting which such expert has consented has not been amended by this annual filing.
H. Documents on Display
Exhibits attached to this Form 20-F are also available for viewing on EDGAR, or at the offices of Northern Dynasty, Suite 1020 - 8001500 – 1040 West PenderGeorgia Street, Vancouver, British Columbia V6C 2V6V6E 4H1 or on request of Northern Dynasty at 604-684-6365, attention Shirley Main.attention: Corporate Secretary. Copies of Northern Dynasty’sDynasty's financial statements and other continuous disclosure documents required under the British ColumbiaSecurities Act are available for viewing on the internet at www.sedar.com.www.sedar.com.
I. Subsidiary Information
I. | SUBSIDIARY INFORMATION |
Not applicable.
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ITEM 11 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(a) Transaction Risk and Currency Risk Management
ITEM 11 | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
A. | TRANSACTION RISK AND CURRENCY RISK MANAGEMENT |
Northern Dynasty’sDynasty's operations do not employ financial instruments or derivatives and given that Northern Dynasty keeps its excess funds in high grade short term instruments it does not have significant or unusual financialwhich are market risks.sensitive.
(b) Exchange Rate Sensitivity
B. | EXCHANGE RATE SENSITIVITY |
Northern Dynasty’s Pebble PropertyDynasty's administrative operations are in Canada. The Company typically holds most of its funds in US and Canadian Dollars and typically acquires foreign currency on an as-needed basis.
The Company is subject to both currency transaction risk and currency translation risk: the StatePebble Partnership and U5 Resources Inc. both have the US dollar as functional currency; and certain of Alaskathe Company’s corporate expenses are incurred in US dollars. As the Company’s functional and hence itpresentation currency is somewhat affectedthe Canadian dollar, the fluctuation of the US dollar in relation to the Canadian dollar will consequently have an impact upon the losses incurred by the Company as well as the value of the Company’s assets and total shareholders’ equity. 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, and there was no significant change to the Company’s exposure to foreign exchange risk during the year ended December 31, 2014.
The exposure of the Company's financial assets to foreign exchange risk is as follows:
Currency | December 31, 2014 | December 31, 2013 | ||||||||||
US dollar amount | Amount in | US dollar amount | Amount in | |||||||||
US dollars – Financial assets | (000s | ) | Canadian dollars | (000s | ) | Canadian dollars | ||||||
Amounts receivable | $ | 547 | $ | 635 | $ | 5,360 | $ | 5,701 | ||||
Cash and cash equivalents | 1,515 | 1,758 | 7,083 | 7,534 | ||||||||
Total exposed to currency risk | $ | 2,062 | $ | 2,393 | $ | 12,443 | $ | 13,235 |
The exposure of the Company's financial liabilities to foreign exchange risk is as follows:
Currency | December 31, 2014 | December 31, 2013 | ||||||||||
Amount in | ||||||||||||
US dollar | Amount in Canadian | US dollar amount | Canadian | |||||||||
US dollars – Financial liabilities | amount (000s | ) | dollars | (000s | ) | dollars | ||||||
Trade and other payables | $ | 4,504 | $ | 5,225 | $ | 3,197 | $ | 3,400 | ||||
Total exposed to currency risk | $ | 4,504 | $ | 5,225 | $ | 3,197 | $ | 3,400 |
A 10% depreciation of the Canadian dollar relative to the United States dollar at December 31, 2014 would result in a loss of $283,000 (2013 - $983,000 gain). This analysis assumes that all other variables, in particular interest rates, remain constant.
The Company currently does not engage in foreign currency hedging.
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C. | INTEREST RATE RISK AND EQUITY PRICE RISK |
The Company is subject to interest rate risk of fluctuations between Canadianwith respect to its investments in cash and United States currency. Its liabilities are all short term trade payablescash equivalents. There has been no change in the Company’s objectives and substantially all are denominated in Canadian and U.S. dollars. Northern Dynasty does not hedgepolicies for managing this risk which it does not consider material inand no significant change to the context of its operations.
(c) Interest Rate Risk and Equity Price Risk
Northern Dynasty is equity financed and does not have any debt that could be subjectCompany’s exposure to significant interest rate risk during the year ended December 31, 2014.
Assuming that all variables remain constant, a 100 basis points change risks.in a decrease or increase in interest rates would have resulted in a decrease or increase in interest income of approximately $176,000 (2013 - $267,000).
(d) Commodity Price Risk
D. | COMMODITY PRICE RISK |
While the value of Northern Dynasty’sthe Company’s core mineral resource properties can always be said to relateproperty, held through its interest in the Pebble Partnership, is related to the price of gold, copper and gold metalsmolybdenum and the outlook for same, Northern Dynastythese minerals, the Company currently does not have any operating mines and hence does not have any hedging or other commodity based operations risks respectingin respect of its businessoperational activities.
- 76 -Gold, copper, and molybdenum 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.
ITEM 12 DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
A. Debt Securities
ITEM 12 | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |
Not applicable.
B. Warrants and Rights
Not applicable. (Northern Dynasty’s warrants are non-transferable and no market exists for them. Northern Dynasty has issued no rights.)
C. Other Securities
ITEM 13 | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |
Not applicable.
D. American Depositary Shares
ITEM 14 | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |
Not applicable.
PART II
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ITEM 13 DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
Not applicable.
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ITEM 14 MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
Not applicable.
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ITEM 15 CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
AsAt the end of March 15, 2005,the period covered by this annual report on Form 20-F, an evaluation was carried out under the supervision of, and with the participation of the Corporation’sCompany's management, including the President and Chief Executive Officer ("CEO") and the Chief Financial Officer ("CFO"), of the effectiveness of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e)Rules 13a – 15(e) and 15d –15(e) under the Securities Exchange Act of 1934)1934, as amended (the "Exchange Act")). Based on that evaluation, the Chief Executive OfficerPresident and Chief Financial OfficerCEO and the CFO have concluded that as of the end of the period covered by this annual report on Form 20-F, the Company's disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and are effective at that reasonable assurance level in providing: (i) information required to be disclosed by the Company in reports that it files or submits to the SEC under the Exchange Act was recorded, processed, summarized and reported within the time periods specified in applicable rules and forms, and (ii) material information required to be disclosed in the Company's reports filed under the Exchange Act was accumulated and communicated to the Company's management, including the President and CEO and the CFO, as appropriate, to allow for accurate and timely decisions regarding required disclosure.
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MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Company's management, including the President and CEO and CFO, is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of financial statements for external purposes in accordance with IFRS. The Company's internal control over financial reporting includes those policies and procedures that:
• | 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 financial statements. |
With the participation of the President and CEO and CFO, management conducted an evaluation of the design and operation of these disclosurethe Company's internal control over financial reporting as of December 31, 2014, based on the criteria set forth in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and procedures were effective.a conclusion on this evaluation. Based on this evaluation, management concluded in its report that the Company's internal control over financial reporting was effective as of December 31, 2014.
NoCHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
During the period covered by this annual report on Form 20-F, no changes were madeoccurred in the Company's internal control over financial reporting that hashave materially affected, or isare reasonably likely to materially affect, the Company's internal control over financial reporting subsequent to the date of their evaluation.
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ITEM 16 AUDIT COMMITTEE, CODELIMITATIONS OF ETHICS, ACCOUNTANT FEES,CONTROLS AND EXEMPTIONS
A. Audit Committee Financial ExpertPROCEDURES
The designatedCompany's management, including its President and CEO and CFO, does not expect that its disclosure controls and procedures or internal controls and procedures will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, 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, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that 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 management override of the 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; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
ITEM16 | [RESERVED] |
ITEM16A | AUDIT COMMITTEE FINANCIAL EXPERT |
The members of the Audit Committeeand Risk committee are Gordon Fretwell, Wayne Kirk and Peter Mitchell. The board of directors has determined that Mr. Mitchell qualifies as a "financial expert" under the rules of the SEC, based on his education and experience. Each audit and risk committee member is Mr. David M. S. Elliott. Mr. Elliott is "independent",independent, as the term is defined in section 803 of the NYSE/MKT Company Guide.
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Each audit committee member is able to read and understand fundamental financial statements.
ITEM 16B | CODE OF ETHICS |
The Company's board of directors has adopted a Code of Ethics governing directors, officers, employees and contractors. The Code of Ethics sets forth written standards that are designed to deter wrongdoing and to promote:
(a) | honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; |
(b) | full, fair, accurate, timely, and understandable disclosure in reports and documents that the Company files with, or submits to, securities regulators and in other public communications made by the Company; |
(c) | compliance with applicable laws, rules and regulations; |
(d) | the prompt internal reporting of violations of the Code of Ethics to an appropriate person or persons identified in the Code; and |
(e) | accountability for adherence to the Code of Ethics. |
The board of directors monitors compliance with the Code of Ethics by ensuring that all Company personnel have read and understood the American Stock ExchangeCode of Ethics, and by charging management with bringing to the attention of the board of directors any issues that arise with respect to the Code of Ethics.
The Company's Code of Ethics is included in the Manual which is available for download at the Company’s website under Corporate Governance at www.northerndynastyminerals.com. The Company will also provide a national securities exchange. Mr. Elliott is a Canadian Chartered Accountant.
B.copy of the Code of Ethics to any person without charge, upon request. Requests can be sent by mail to: 15th floor, 1040 West Georgia Street, Vancouver, British Columbia V6E 4H1 or on request of the Company at 604-684-6365, attention: Investor Relations Department.
TheDuring the most recently completed fiscal year, the Company has tabled a codeneither: (a) materially amended its Code of ethics for discussion that applies to the Company's chief executive officer, the chief financial officer, and other membersEthics; nor (b) granted any waiver (including any implicit waiver) form any provision of senior management.its Code of Ethics.
C. Principal Accountant Fees and Services
ITEM 16C | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
The following table discloses the aggregate fees billed for each of the last two fiscal years for professional services rendered by the Company's audit firm, Deloitte LLP for various services:services.
Year ended | Year ended | |||
Services: | December 31, 2004 | December 31, 2003 | ||
Audit services | $10,000 | $8,500 | ||
Audit-related services | -- | -- | ||
Tax services | 1,000 | 1,000 | ||
All other services | -- | -- | ||
$11,000 | $9,500 |
Services: | Description of services | Year ended December 31 | |
2014 | 2013 | ||
Audit Fees | Includes fees necessary to perform the annual audit and quarterly reviews of the Company's financial statements. Audit Fees include fees for review of tax provisions and for accounting consultations on matters reflected in the financial statements. Audit Fees also include audit or other attest services required by legislation or regulation, such as comfort letters, consents, reviews of securities filings and statutory audits. | $197,000 | $199,500 |
Audit-related Fees | Includes services that are traditionally performed by the auditor. These audit-related services include employee benefit audits, due diligence assistance, accounting consultations on proposed transactions, internal control reviews and audit or attest services not required by legislation or regulation. | Nil | Nil |
Tax Fees | Includes fees for all tax services other than those included in "Audit Fees" and "Audit-related Fees". This category includes fees for tax compliance, tax planning and tax advice. Tax planning and tax advice includes assistance with tax audits and appeals, tax advice related to mergers and acquisitions, and requests for rulings or technical advice from tax authorities. | Nil | Nil |
All Other Fees | Includes all other non-audit services. | Nil | Nil |
Total | $197,000 | $199,500 |
From time to time, management of the Company recommends to and requests approval from the audit committee for non-audit services to be provided by the Company's auditors. The audit committee routinely considers such requests at committee meetings, and if acceptable to a majority of the audit committee members, pre-approves such non-audit services by a resolution authorizing management to engage the Company's auditors for such non-audit services, with set maximum dollarDollar amounts for each itemized service. During such deliberations, the audit committee assesses, among other factors, whether the services requested would be considered "prohibited services" as contemplated by the US Securities and Exchange Commission,SEC, and whether the services requested and the fees related to such services could impair the independence of the auditors.
As 2003 was No material non-audit services were provided by the first year of the audit committee pre-approval process, only the audit and tax services rendered inCompany's auditors during the year ended December 31, 2003 were pre-approved by the audit committee. All non-audit services provided by the auditors in 2004 were approved by the Audit Committee.2014.
D. Exemptions from Listing Standards for Audit Committees
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ITEM 16D | EXEMPTIONS FROM LISTING STANDARDS FOR AUDIT COMMITTEES |
Not applicable.
ITEM 16E | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS |
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E. Purchases Of Equity Securities byIn the Issueryear ended December 31, 2014, the Company did not purchase any of its issued and Affiliated Purchasersoutstanding Common Shares pursuant to any repurchase program or otherwise.
ITEM 16F | CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT |
None.
ITEM 16G | CORPORATE GOVERNANCE |
PART IIINot applicable.
ITEM 16H | MINE SAFETY DISCLOSURE |
Not applicable.
ITEM 17 | FINANCIAL STATEMENTS |
We have elected to provide financial statements for the fiscal year ended December 31, 2014 and the related information pursuant to Item 18.
ITEM 18 | FINANCIAL STATEMENTS |
The financial statements appear in this annual report on Form 20-F beginning on page 88. The report of the independent registered public accounting firm appears on page 89.
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ITEM 17 FINANCIAL STATEMENTS
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ITEM 19 | EXHIBITS |
The following attached financial statementsexhibits are incorporated herein (see exhibits).
included with this Annual Report on Form 20-F:
Number | Description of |
Registration Rights Agreement Dated Effective December 31, 2014 (1) | |
4.03 | Share Option Plan Dated May 16, 2014 |
4.04 | Shareholder Rights Plan Dated Effective May 17, 2013 |
12.01 | |
|
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ITEM 18 FINANCIAL STATEMENTS
NOT APPLICABLE. See Item 17.
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ITEM 19 EXHIBITS
Key to the following document types:
14.02 | Consent of Independent Auditors | |
15.01 | Pebble Property List of Property Claims | |
15.02 | Consent of Expert (David Gaunt) | |
15.03 | Consent of Expert (James Lang) | |
15.04 | Consent of Expert (Eric Titley) | |
15.05 | Consent of Expert (Ting Lu) |
The following exhibits were attached as an AppendixNotes
(1): Incorporated by reference to the Company’s Form 20-F of Northern DynastyF-3 filed January 9, 2002:on February 13, 2015.
Type of | Description | Pages | |
Document | |||
1. | 1 | Certificate of Incorporation, Memorandum and Articles of Association of Northern Dynasty | 1-54 |
2. | 4C | Amended Share Incentive Plan dated for reference June 20, 2000 | 55-67 |
3. | 4B(i) | Geological Management and Administration Services Agreement dated for reference December 31, 1996 between Northern Dynasty and Hunter Dickinson Inc. (“HDI”) (See Item 7 “Interest of Management in Certain Transactions” | 68-77 |
4. | 4B(i) 4B(ii) | HDGI Assignment Agreement with Hunter Dickinson Group Inc. (“HDGI”) dated October 29, 2001 whereby Northern | 78-99 |
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4B(iii) | Dynasty obtained its option to the Pebble Property including the underlying Teck Cominco Options and Consent Agreement | ||
The following exhibits were attached to the Form 20-FA filed March 18, 2002: | |||
5 | 10 | Consent of U.S. Tax Expert, Kempisty & Co., Certified Public Accountants (1) | 100 |
6 | 10 | Consent of Auditors, DeVisser Gray, Chartered Accountants | 101 |
7 | 10 | Consent of counsel, Lang Michener (1) | 102 |
8 | 10 | Consent of geological expert, M.J. Casselman | 103 |
The following exhibits were attached to the second amendment Form 20-FA filed April 25, 2002: | |||
9 | 10 | Consent of Auditors, DeVisser Gray, Chartered Accountants dated April 24, 2002. | 104 |
10 | 10 | Consent of Geological Expert, M.J. Casselman, April 24, 2002. | 105 |
The following exhibits were attached to the third amendment Form 20-FA filed June 3, 2002: | |||
11 | 10 | Consent of Geological Expert, M.J. Casselman, May 31, 2002. | 106 |
The following exhibits were attached to the Annual Report on Form 20-F filed June 24, 2002: | |||
12 | 10 | Consent of Auditors, DeVisser Gray, Chartered Accountants dated June 24, 2002. | 107 |
13 | 10 | Consent of Geological Expert, M.J. Casselman, June 24, 2002. | 108 |
Note: | |||
(1) | No changes were made to the second and third amendment 20-FA sections respecting which these experts were concerned (see Item 10G) and provided consents as part of the March 18, 2002 20-FA (first amendment) filing. | ||
The following exhibits were attached to the Annual Report on Form 20-F filed June 2003: | |||
14 | 10 | Audited annual financial statements for the year ended December 31, 2003 | |
The following exhibits are filed with this Annual Report on Form 20-F | |||
15 | 10.1 | Consent of Derek Barratt, PEng | |
10.2 | Consent of David Rennie, PEng | ||
10.3 | Consent of Les Galbraith, PEng, of Knight Piesold Ltd. | ||
12.1 | |||
12.2 | |||
13.1 | |||
13.2 | |||
99.1 | Audited annual financial statements for the year ended December 31, 2004 |
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SIGNATURES
Northern DynastyThe registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this amended reportAnnual Report on its behalf.
NORTHERN DYNASTY MINERALS LTD. /s/ Marchand Snyman
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of Northern Dynasty Minerals Ltd. We have audited the accompanying consolidated financial statements of Northern Dynasty Minerals Ltd., and subsidiaries (the “Company”), which comprise the consolidated statements of financial position as at December 31, 2014 and December 31, 2013, and consolidated statements of comprehensive loss, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2014, and a summary of significant accounting policies and other explanatory information. Management's Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Northern Dynasty Minerals Ltd. and subsidiaries as at December 31, 2014 and December 31, 2013, and their financial performance and their cash flows for each of the years in the three-year period ended December 31, 2014 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. Emphasis of Matter Without qualifying our opinion, we draw attention to Note 1 of the financial statements which indicates that the Company incurred a net loss of $21,394,000 during the year ended December 31, 2014. This condition, along with other matters as set forth in Note 1, indicates the existence of a material uncertainty that casts substantial doubt about the Company’s ability to continue as a going concern. Other Matter We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2014, based on the criteria established inInternal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 30, 2015 expressed an unqualified opinion on the Company’s internal control over financial reporting. /s/ Deloitte LLP Chartered Accountants
Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of Northern Dynasty Minerals Ltd. We have audited the internal control over financial reporting of Northern Dynasty Minerals Ltd. and subsidiaries (the “Company”) as of December 31, 2014, based on the criteria established inInternal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, 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 financial statements for external purposes in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) 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 financial statements. Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on the criteria established inInternal Control — Integrated Framework (2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission. We have also audited, in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2014 of the Company and our report dated March 30, 2015 expressed an unmodified opinion on those financial statements and included an emphasis of matter paragraph regarding the ability of the Company to continue as a going concern. /s/ Deloitte LLP Chartered Accountants
Consolidated Statements of Financial Position
Events after the reporting date (note 7(b)) The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Statements of Comprehensive Loss (Income)
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Statements of Cash Flows
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Statements of Changes in Equity
ConsolidatedStatements ofChanges inEquity
Theaccompanying notes are anintegral part of theseconsolidatedfinancialstatements.
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 New York Stock Exchange-MKT ("NYSE-MKT") under the symbol "NAK". The Company’s corporate office is located at 1040 West Georgia Street, 15th floor, Vancouver, British Columbia. The consolidated financial statements ("Financial Statements") of the Company as at and for the year ended December 31, 2014, include financial information for the Company and its subsidiaries (note 2(c)) (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"). 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 year ended December 31, 2014, the Company arranged a private placement of special warrants for gross proceeds of $15,500 (note 7(b)). As at December 31, 2014, the Group has $9.4 million in cash and cash equivalents for its operating requirements. The Group has prioritized the allocation of available 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. 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 casts substantial doubt about the Company’s ability to continue as a going concern. In July 2014, the United States Environmental Protection Agency (the "EPA") announced a proposal under Section 404(c) of the Clean Water Act to restrict and impose limitations on all discharge of dredged or fill material ("EPA Action") associated with mining the Pebble deposit. The Company believes that the EPA does not have the statutory authority to impose conditions on the development at Pebble prior to the submission of a detailed development plan and its thorough review by federal and state agencies including review under the National Environmental Protection Act ("NEPA"). The Pebble Limited Partnership (the “Pebble Partnership”), a wholly-owned subsidiary of the Company, along with the State of Alaska and the Alaska Peninsula Corporation, an Alaska Native village corporation with extensive land holdings in the Pebble Project area, filed for an injunction to stop the EPA Action with the US Federal Court in Alaska (the "Court"). However, the Court has deferred judgment thereon until the EPA has issued a final determination. The Company has appealed the Court’s decision to the 9th Circuit Court of Appeals. In September 2014, the Pebble Partnership initiated a second action against the EPA in federal district court in Alaska charging that the EPA violated the Federal Advisory Committee Act ("FACA"). In November 2014, the U.S. federal court judge in Alaska granted, in relation to the FACA case, the Pebble Partnership’s request for a preliminary injunction, which, although considered by the Company as a significant procedural milestone in the litigation, does not resolve the Pebble Partnership’s claims that the EPA Actions with respect to the Bristol Bay Assessment and subsequent 404(c) regulatory process violated FACA. The Company expects its legal rights will be upheld by the Court and that the Company will ultimately be able to apply for the necessary permits under NEPA.
Notes to the table above:
Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Company has power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee); exposure, or rights, to variable returns from its involvement with the investee; and the ability to use its power over the investee to affect its returns. Intra-Group balances and transactions, including any unrealized income and expenses arising from intra-Group transactions, are eliminated in preparing the Financial Statements. Unrealized gains arising from transactions with equity accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.
A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. An investment in a joint venture is accounted for using the equity method. Under the equity method, an investment in a joint venture is initially recognized in the consolidated statement of financial position at cost and adjusted thereafter to recognize the Group’s share of changes in net assets of the joint venture attributable to the Group. An investment is accounted for using the equity method from the date on which the investee becomes a joint venture.
The functional currency is the currency of the primary economic environment in which the entity operates and has been determined for each entity within the Group. The functional currency of U5 Resources Inc., Pebble Mines Corp., the Pebble Partnership and its subsidiaries, is the US dollar and for all other entities within the Group, the functional currency is the Canadian dollar. The functional currency determinations were conducted through an analysis of the factors for consideration identified in IAS 21,The Effects of Changes in Foreign Exchange Rates. Transactions in currencies other than the functional currency are recorded at the rates of exchange prevailing on dates of transactions. At the end of each reporting period, monetary assets and liabilities that are denominated in foreign currencies are translated at the rates prevailing at that date. Non-monetary assets and liabilities carried at fair value that are denominated in foreign currencies are translated at rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Before assuming control of the Pebble Partnership in 2013, the Group’s investment in the Pebble Partnership under joint venture (note 3(a)) was translated at the end of each reporting period and exchange differences arising on translation of the US denominated investment were recognized directly in the foreign currency translation reserve through other comprehensive income or loss (note 7(d)). The results and financial position of entities within the Group which have a functional currency that differs from that of the Group are translated into Canadian dollars as follows:- (i) assets and liabilities for each statement of financial position are translated at the closing exchange rate at that date; (ii) income and expenses for each income statement are translated at average exchange rates for the period; and (iii) the resulting exchange differences are included in the foreign currency translation reserve within equity.
Non-derivative financial assets: The Group has the following non-derivative financial assets: available-for-sale financial assets (note 4) and loans and receivables. Available-for-sale financial assets Available-for-sale ("AFS") financial assets are non-derivatives that are either designated as AFS or are not classified as (i) loans and receivables, (ii) held-to-maturity investments or (iii) financial assets at fair value through profit or loss. The Group’s investments in marketable securities are classified as AFS financial assets. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses, are recognized in other comprehensive income or loss and accumulated in the investment revaluation reserve within equity. When an investment is derecognized, the cumulative gain or loss in the investment revaluation reserve is transferred to profit or loss.
The fair value of AFS monetary assets denominated in a foreign currency is determined in that foreign currency and translated at the spot rate at the end of the reporting period. The change in fair value attributable to translation differences that result from the amortized cost of the monetary asset is recognized within other comprehensive income or loss. The change in fair value of AFS equity investments is recognized in other comprehensive income or loss. Loans and receivables Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are initially recognized at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest method, less any impairment losses. Loans and receivables consist of cash and cash equivalents, restricted cash (note 6), and amounts receivable (note 5). Cash and cash equivalents and restricted cash Cash and cash equivalents and restricted cash in the statements of financial position are comprised of cash and highly liquid investments having maturity dates of three months or less from the date of purchase, which are readily convertible into known amounts of cash. The Group’s cash and cash equivalents and restricted cash are invested in business and savings accounts and guaranteed investment certificates at major financial institutions and are available on demand by the Group for its programs and, as such, are subject to an insignificant risk of change in value. Non-derivative financial liabilities: The Group’s non-derivative financial liabilities comprise trade and other payables (note 9) and a payable to a related party (note 8). All financial liabilities fall within the classification of other financial liabilities versus financial liabilities through profit or loss, and are recognized initially at fair value net of any directly attributable transaction costs. Subsequent to initial recognition these financial liabilities are measured at amortized cost using the effective interest method. Impairment of financial assets: When an AFS financial asset is considered to be impaired, cumulative gains or losses previously recognized in other comprehensive income or loss are reclassified to profit or loss in the period. Financial assets are assessed for indicators of impairment at the end of each reporting period. Financial assets are impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial assets, the estimated future cash flows of the investments have been impacted. For marketable securities classified as AFS, a significant or prolonged decline in the fair value of the securities below their cost is considered to be objective evidence of impairment. For all other financial assets, objective evidence of impairment could include:
For certain categories of financial assets, such as amounts receivable, assets that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis. The carrying amount of financial assets is reduced by the impairment loss directly for all financial assets with the exception of amounts receivable, where the carrying amount is reduced through the use of an allowance account. When an amount receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognized in profit or loss.
With the exception of AFS equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized. In respect of AFS equity securities, impairment losses previously recognized through profit or loss are not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is recognized directly in equity. When an AFS financial asset is considered to be impaired, cumulative gains or losses previously recognized in other comprehensive income are reclassified to profit or loss in the period. Derivative financial assets and liabilities: The Group has no derivative financial assets or liabilities.
Exploration and evaluation expenditures include the costs of acquiring licenses, costs associated with exploration and evaluation activity, and the acquisition date fair value of exploration and evaluation assets acquired in a business combination or an asset acquisition. Exploration and evaluation expenditures are expensed as incurred except for expenditures associated with the acquisition of exploration and evaluation assets through a business combination or an asset acquisition. Costs incurred before the Group has obtained the legal rights to explore an area are expensed. Acquisition costs, including general and administrative costs, are only capitalized to the extent that these costs can be related directly to operational activities in the relevant area of interest where it is considered likely to be recoverable by future exploitation or sale or where the activities have not reached a stage which permits a reasonable assessment of the existence of reserves. Exploration and evaluation ("E&E") assets are assessed for impairment only when facts and circumstances suggest that the carrying amount of an E&E asset may exceed its recoverable amount and when the Group has sufficient information to reach a conclusion about technical feasibility and commercial viability. Industry-specific indicators for an impairment review arise typically when one of the following circumstances applies:
Once the technical feasibility and commercial viability of the extraction of mineral resources in an area of interest are demonstrable, exploration and evaluation assets attributable to that area of interest are first tested for impairment and then reclassified to mining property and development assets within property, plant and equipment. Recoverability of the carrying amount of any exploration and evaluation assets is dependent on successful development and commercial exploitation, or alternatively, sale of the respective assets.
Mineral property, plant and equipment are carried at cost, less accumulated depreciation and accumulated impairment losses. The cost of mineral property, plant and equipment consists of the acquisition costs transferred from E&E assets, any costs directly attributable to bringing the asset to the location and condition necessary for its intended use, including costs to further delineate the ore body, development and construction costs, removal of overburden to initially expose the ore body, an initial estimate of the costs of dismantling, removing the item and restoring the site on which it is located and, if applicable, borrowing costs. Mineral property acquisition and development costs are not currently depreciated as the Pebble Project is still in the development stage and no saleable minerals are being produced. The cost of an item of plant and equipment consists of the purchase price, any costs directly attributable to bringing the asset to the location and condition necessary for its intended use, and an initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located. Depreciation is provided at rates calculated to write off the cost of plant and equipment, less their estimated residual value, using the declining balance method at various rates ranging from 20% to 30% per annum. An item of equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on disposal of the asset, determined as the difference between the net disposal proceeds and the carrying amount of the asset, is recognized in profit or loss. Where an item of equipment consists of major components with different useful lives, the components are accounted for as separate items of equipment. Expenditures incurred to replace a component of an item of equipment that is accounted for separately, including major inspection and overhaul expenditures, are capitalized. Residual values and estimated useful lives are reviewed at least annually.
At the end of each reporting period the carrying amounts of the Group’s non-financial assets are reviewed to determine whether there is any indication that these assets are impaired. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. The recoverable amount is the higher of fair value less costs to sell and value in use. Fair value is determined as the amount that would be obtained from the sale of the asset in an arm’s length transaction between knowledgeable and willing parties. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount and the impairment loss is recognized in profit or loss for the period. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash generating unit to which the asset belongs. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount. This increase in the carrying amount is limited to the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognized immediately in profit or loss. The Group has not recorded any impairment charges in the years presented.
Common shares and special warrants (note 7(b)) are classified as equity. Transaction costs directly attributable to the issue of common shares, share purchase options and special warrants are recognized as a deduction from equity, net of any tax effects. Upon conversion of the special warrants into common shares, the carrying amount of the special warrants, net of a pro rata share of the transaction costs, is transferred to common share capital.
Equity-settled share-based payments The Group operates an equity-settled share-based option plan for its employees and service providers (note 7(c)). The fair value of share purchase options granted is recognized as an employee or consultant expense with a corresponding increase in the equity-settled share-based payments reserve in equity. An individual is classified as an employee when the individual is an employee for legal or tax purposes ("direct employee") or provides services similar to those performed by a direct employee. The fair value is measured at grant date for each tranche, which is expensed on a straight line basis over the vesting period, with a corresponding increase in theequity-settled share-based payments reserve in equity. The fair value of the share purchase options granted is measured using the Black-Scholes option pricing model, taking into account the terms and conditions upon which the share purchase options were granted and forfeiture rates as appropriate. At the end of each reporting period, the amount recognized as an expense is adjusted to reflect the actual number of share purchase options that are expected to vest.
Income tax on the profit or loss for the years presented comprises current and deferred tax. Income tax is recognized in profit or loss except to the extent that it relates to items recognized in other comprehensive income or loss or directly in equity, in which case it is recognized in other comprehensive income or loss or equity. Current tax expense is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at year end, adjusted for amendments to tax payable with regard to previous years. Deferred tax is provided using the balance sheet liability method, providing for unused tax loss carry forwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: goodwill not deductible for tax purposes; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit; and differences relating to investments in subsidiaries, associates, and joint ventures to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the end of the reporting period applicable to the period of expected realization or settlement. A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized. Additional income taxes that arise from the distribution of dividends are recognized at the same time as the liability to pay the related dividend. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.
An obligation to incur restoration, rehabilitation and environmental costs arises when environmental disturbance is caused by the exploration or development of a mineral property interest. Such costs arising from the decommissioning of plant and other site preparation work, discounted to their net present value, are provided for and capitalized at the start of each project to the carrying amount of the asset, along with a corresponding liability as soon as the obligation to incur such costs arises. The timing of the actual rehabilitation expenditure is dependent on a number of factors such as the life and nature of the asset, the operating license conditions and, when applicable, the environment in which the mine operates. Discount rates using a pre-tax rate that reflects the time value of money are used to calculate the net present value. These costs are charged against profit or loss over the economic life of the related asset, through amortization using either the unit-of-production or the straight line method. The corresponding liability is progressively increased as the effect of discounting unwinds, creating an expense recognized in profit or loss. Decommissioning costs are also adjusted for changes in estimates. Those adjustments are accounted for as a change in the corresponding capitalized cost, except where a reduction in costs is greater than the unamortized capitalized cost of the related assets, in which case the capitalized cost is reduced to nil and the remaining adjustment is recognized in profit or loss.
The operations of the Group have been, and may in the future be, affected from time to time in varying degree by changes in environmental regulations, including those for site restoration costs. Both the likelihood of new regulations and their overall effect upon the Group are not predictable. The Group has no material restoration, rehabilitation and environmental obligations as the disturbance to date is immaterial.
Critical accounting judgments These include:
These amendments and interpretation did not impact the preparation of these Financial Statements given 1) the Group does not employ the use of financial instruments as contemplated; 2) the Group has not impaired non-financial assets; and 3) the Group is not currently subject to levies as defined in IFRIC 21.
Effective for the Group’s financial year commencing on January 1, 2016
The Group has not early adopted these revised standards and is currently assessing the impact, if any, that these amendments will have on the Group’s Financial Statements. Effective for annual periods commencing on or after July 1, 2016
The Group anticipates that AIP 2012-2014, which has amendments to five standards, will have no material effect on the Group’s consolidated financial statements.
Effective for annual periods commencing on or after January 1, 2017
The Group is currently evaluating the impact that IFRS 15 may have on its financial statements. Effective for annual periods commencing on or after January 1, 2018
The Group anticipates that the adoption of IFRS 9 will have no material impact on its financial statements given the extent of its current use of financial instruments in the ordinary course of business.
The Group’s exploration and evaluation assets are comprised of the following:
Mineral Property Interest
The Pebble Project is located in southwest Alaska, 19 miles (30 kilometers) from the villages of Iliamna and Newhalen, and approximately 200 miles (320 kilometers) southwest of the city of Anchorage. Mineral rights were acquired by the Group in 2001. In July 2007, the Group established the Pebble Limited Partnership (the "Pebble Partnership") to advance the Pebble Project toward the feasibility stage. The Group’s contribution to the Pebble Partnership was the Pebble Project. A wholly-owned subsidiary of Anglo American plc participated in the Pebble Partnership and provided approximately $595 million (US$573 million) in funding until its withdrawal in December 2013, when the Group re-acquired a 100% interest in the Pebble Partnership and control of the Pebble Project. The functional currency of the Pebble Partnership is the US dollar. Exchange differences arising from the translation of the investment in the Pebble Partnership are recognized directly in the foreign currency translation reserve through other comprehensive income or loss (note 7(d)). The following summarizes the movement in the carrying value of the investment in the Pebble Partnership under joint venture:
The Group acquired mineral claims located to the west of the Pebble Project in 2010 for a cash payment of US$1,000,000 ($1,055) from Liberty Star Uranium & Metals Corp. and its subsidiary, Big Chunk Corp. (together, "Liberty Star"). During the year, the Group received further claims from Liberty Star in settlement for amounts advanced to Liberty Star (note 5).
The Group’s available-for-sale financial asset is comprised of investments in marketable securities of Canadian publicly listed companies.
The loan receivable at December 31, 2013 comprised the amount advanced to Liberty Star in cash and expenditures incurred by the Group in relation to Liberty Star’s mineral claims in Alaska and interest accrued thereon (together, the "Loan") pursuant to a letter agreement dated June 2010 and subsequent amendments thereof (together, the "Letter Agreement"). The Loan accrued interest at 10% per annum, compounded monthly, and was secured by assets and mining claims owned by Liberty Star in Alaska, USA. The following is a summary of the Loan until its settlement on March 27, 2014:
The Loan was advanced in conjunction with the acquisition of a mineral property interest (note 3) pursuant to the Letter Agreement, which contemplated a joint venture agreement whereby the Group, subject to an earn-in expenditure requirement, could acquire a 60% interest in certain of Liberty Star’s mineral claims adjacent to the mineral claims acquired. Liberty Star’s assets held as collateral for the Loan included, but were not limited to, these mineral claims. In October 2012, as the joint venture agreement was not executed, the Group delivered a notice of repayment of the Loan to Liberty Star. In November 2012, the Group and Liberty Star negotiated a loan settlement agreement and an amendment thereto (together; the "Loan Settlement Agreement"), whereby the Group agreed to extinguish the Loan in consideration for receiving title to certain of Liberty Star’s mineral claims (the "Settlement Claims") which were held as collateral for the Loan. Liberty Star, however, could not complete valid transfer of these claims to the Group as a third party purported to register a lien on the Settlement Claims in respect of a debt allegedly owed by Liberty Star. As a result and in accordance with the terms of the Loan Settlement Agreement, the Loan Settlement Agreement was not closed and the Group retained all its rights under the Letter Agreement at December 31, 2013, at which date the Group continued to recognize the Loan as a financial asset. On March 27, 2014, all outstanding liens against the Settlement Claims were released and the Group extinguished the Loan and recognized the addition of the Settlement Claims in mineral property interest for the same amount (note 3).
Of the gross proceeds of $11,905 received during the year ended December 31, 2014, $11,626 was received in cash and $279 was received in shares of a Canadian public listed company; these shares were classified as available-for-sale financial assets (note 4). As of the reporting date, transaction costs related to the Private Placement which included advisory, finders, regulatory, and legal fees, amounted to $353. As a result the Group received net proceeds of $11,552 of which cash proceeds were $11,273 during the year ended December 31, 2014. The Special Warrants were issued to eight (8) institutional investors, six (6) accredited investors (as such term is defined under National Instrument 45-106), eight (8) directors and officers and one (1) spouse of an officer pursuant to subscription agreements entered with each Investor. Each Special Warrant will convert, without payment of any additional consideration by the holder, into one common share of the Company, either at the option of the holder or automatically within a maximum of two year period from the issuance date. The Special Warrants do not confer on their holders any right as a shareholder of the Company, including but not limited to any right to vote at any meeting of shareholders or any other proceedings of the Company or any right to receive any dividend or other distribution. Subsequent to year end, 9,943,589 of the Special Warrants were converted into 9,943,589 common shares of the Company.
The Group has a share purchase option plan approved by the Group’s shareholders that allows the Board of Directors to grant share purchase options, subject to regulatory terms and approval, to its officers, directors, employees, and service providers. The share purchase option plan (the "2014 Rolling Option Plan") is based on the maximum number of eligible shares equaling a rolling percentage of 10% of the Company's outstanding common shares, calculated from time to time. Pursuant to the 2014 Rolling Option Plan, if outstanding share purchase options ("options") are exercised and the number of issued and outstanding common shares of the Group increases, then the options available to grant under the plan increase proportionately. The exercise price of each option is set by the Board of Directors at the time of grant but cannot be less than the market price, being the 5-day volume weighted average trading price calculated the day before the grant. Options can have a maximum term of five years and typically terminate 90 days following the termination of the optionee’s employment or engagement. In the case of death or retirement, any outstanding vested options will expire the earlier of the expiry date or one year from date of death or retirement. The vesting period for options is at the discretion of the Board of Directors at the time the options are granted.
The following reconciles the Group’s options outstanding at the beginning and end of the year:
For options granted in 2014, the weighted average fair value was estimated at $0.75 per option and was based on the Black-Scholes option pricing model using the following weighted average assumptions:
The following table summarizes information about the Group’s options outstanding at December 31, 2014:
The following table summarizes information about the Group’s options outstanding at December 31, 2013:
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. In 2012 and until December 10, 2013, the Pebble Partnership was under joint control. The Group then reacquired a 100% interest therein. Until the change in control, the investment in the Pebble Partnership was accounted for under the equity method with the related tax effect recognized in other comprehensive loss.
Basic loss per share includes the effect of Special Warrants issued and outstanding as at December 31, 2014. Diluted loss per share does not include the effect of share purchase options outstanding as they are anti-dilutive (i.e. the diluted loss per share would be reduced).
The amount of salaries(1) and benefits included in expenses are as follows:
The Company's domestic tax rate for the year was 26% (2013 – 25.75%, 2012 – 25.00%) .
The Group had the following temporary differences at December 31, 2014 in respect of which no deferred tax asset has been recognized:
The Group has taxable temporary differences in relation to investments in foreign subsidiaries or branches for which deferred tax liabilities have not been recognized of approximately $9.8 million.
The Group has not entered into any agreements or purchased any instruments to hedge possible currency risks. The exposure of the Group's financial assets to foreign exchange risk is as follows:
The exposure of the Group's financial liabilities to foreign exchange risk is as follows:
Based on the above net exposures and assuming that all other variables remain constant, a 10% depreciation of the Canadian dollar relative to the US dollar would result in a loss of approximately $283 in the year (2013 – $983 gain). This sensitivity analysis includes only outstanding foreign currency denominated monetary items.
The Group has a sub-lease agreement in respect of a portion of the Anchorage office space subject to the operating lease for an average annual rent, expressed in thousands, of approximately US$218 ($253). The term of the sub-lease expires on October 31, 2016.
INDEPENDENT AUDITORS' REPORT We have audited the accompanying consolidated financial statements of Pebble Limited Partnership and its subsidiaries (the "Partnership"), which comprise the consolidated statements of financial position as of December 10, 2013 and December 31, 2012, and the related consolidated statements of loss and comprehensive loss, changes in equity, and cash flows, for the period from January 1 to December 10, 2013 and the year ended December 31, 2012, and the related notes to the consolidated financial statements. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Partnership's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Pebble Limited Partnership and its subsidiaries as of December 10, 2013 and December 31, 2012, and the results of their operations and their cash flows for the period from January 1 to December 10, 2013 and year ended December 31, 2012 in accordance with accounting principles generally accepted in the United States of America.
Emphasis of Matter Regarding Going Concern The accompanying consolidated financial statements for the period from January 1 to December 10, 2013 and the year ended December 31, 2012 have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Partnership is experiencing difficulty in generating sufficient cash flow to meet its obligations and sustain its operations, which raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also discussed in Note 2 to the consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter. DELOITTE & TOUCHE LLP Portland, Oregon
See accompanying notes to the consolidated financial statements.
See accompanying notes to the consolidated financial statements.
See accompanying notes to the consolidated financial statements.
See accompanying notes to the consolidated financial statements.
Control exists when the Pebble Partnership has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. All significant intercompany transactions and balances have been eliminated.
Where an item of plant and equipment consists of major components with different useful lives, the components are accounted for as separate items of PPE. Expenditures incurred to replace a component of an item of PPE that is accounted for separately, including major inspection and overhaul expenditures, are capitalized.
Recoverability of the carrying amount of any exploration and evaluation assets is dependent on successful development and commercial exploitation, or alternatively, sale of the assets.
The amount recognized as a provision is the best estimate of the consideration required to settle the obligation at the financial position reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. When some or all of the economic benefits required to settle an obligation are expected to be recovered from a third party, the receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount receivable can be measured reliably.
Loan Receivable The Pebble Partnership committed a loan in the amount of $3,156 to the Iliamna Development Corporation ("IDC"). This loan was initiated on April 15, 2009 at a value of $1,712 with an increase of $200 on February 1, 2010 and an increase of $1,244 on April 1, 2010. A lien on all IDC assets was granted as the security for the loan. The original maturity date of this loan was December 31, 2011. In 2011, $1,894 was written off in relation to the loan receivable to reflect management’s expectation of future recoverability of the loan. This adjustment included consideration of a renegotiated payment plan with IDC that was completed in early 2012 and treated as an adjusting item as at December 31, 2011. As at December 10, 2013 the loan was considered not recoverable as the Pebble Partnership had not received payment thereon notwithstanding the payment plan in place and an impairment loss was recognized in comprehensive loss.
Based on the above net exposures and assuming all other variables remain constant, a 10% depreciation or appreciation in the Cdn dollar against the US dollar would result in a $13 (2012 - $198) decrease or increase in the Pebble Partnership’s net loss.
Rent expense under non-cancellable operating leases was $1,627 and $1,376 for the period from January 1 to December 10, 2013 and for the year ended December 31, 2012, respectively.
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