UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16
OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of April 7, 2015
Commission File Number: 001-32210
Northern Dynasty Minerals Ltd.
(Translation of registrant's name into English)
15th Floor - 1040 W. Georgia St., Vancouver, BC, V6E 4H8
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
[ x ] Form 20-F [ ] Form 40-F
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): [ ]
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): [ ]
SUBMITTED HEREWITH
Exhibits
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
|
NORTHERN DYNASTY MINERALS LTD. |
|
(Registrant) |
|
|
|
Date: April 7, 2015 |
By: |
/s/ Ronald Thiessen |
|
|
|
|
|
Ronald Thiessen |
|
Title: |
President & CEO |
CONSOLIDATED FINANCIALSTATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 2014, 2013 AND 2012
(Expressed in thousands
of Canadian Dollars)
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 Companys 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 Companys
internal control over financial reporting as of December 31, 2014, based on the
criteria established in Internal 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
Companys internal control over financial reporting.
/s/ Deloitte LLP
Chartered Accountants
Vancouver, Canada
March 30, 2015
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 in Internal
ControlIntegrated 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 Managements 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 in Internal 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
Vancouver, Canada
March 30, 2015
Northern Dynasty
Minerals Ltd. |
Consolidated Statements
of Financial Position |
(Expressed in thousands of Canadian Dollars)
|
|
|
|
December 31 |
|
|
|
December 31 |
|
|
Notes |
|
2014 |
|
|
|
2013 |
|
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current
assets |
|
|
|
|
|
|
|
|
Mineral property, plant and equipment |
3 |
$ |
123,608 |
|
|
$ |
108,050 |
|
Total
non-current assets |
|
|
123,608 |
|
|
|
108,050 |
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
Available-for-sale financial assets |
4 |
|
287 |
|
|
|
|
|
Amounts receivable and prepaid
expenses |
5 |
|
962 |
|
|
|
6,663 |
|
Restricted cash |
6 |
|
1,206 |
|
|
|
1,276 |
|
Cash and cash equivalents |
6 |
|
9,447 |
|
|
|
25,795 |
|
Total current assets |
|
|
11,902 |
|
|
|
33,734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
135,510 |
|
|
$ |
141,784 |
|
|
|
|
|
|
|
|
|
|
EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital and
reserves |
|
|
|
|
|
|
|
|
Share capital |
7 |
$ |
389,227 |
|
|
$ |
389,227 |
|
Reserves |
|
|
84,031 |
|
|
|
58,649 |
|
Deficit |
|
|
(345,295 |
) |
|
|
(313,948 |
) |
Total Equity |
|
|
127,963 |
|
|
|
133,928 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current
liabilities |
|
|
|
|
|
|
|
|
Deferred income taxes |
12 |
|
1,514 |
|
|
|
3,803 |
|
Total
non-current liabilities |
|
|
1,514 |
|
|
|
3,803 |
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Payable to a
related party |
8 |
|
383 |
|
|
|
459 |
|
Trade and other payables |
9 |
|
5,650 |
|
|
|
3,594 |
|
Total
current liabilities |
|
|
6,033 |
|
|
|
4,053 |
|
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
7,547 |
|
|
|
7,856 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity and
Liabilities |
|
$ |
135,510 |
|
|
$ |
141,784 |
|
Events after the reporting date (note 7(b))
Commitments
(note 14)
The accompanying notes
are an integral part
of these consolidated
financial statements.
These consolidated financial statements are signed on the
Company's behalf by:
/s/ Ronald W. Thiessen |
/s/ Peter Mitchell |
|
|
Ronald W. Thiessen |
Peter Mitchell |
Director |
Director |
Page 5
Northern Dynasty
Minerals Ltd. |
Consolidated Statements
of Comprehensive Loss
(Income) |
(Expressed in thousands of Canadian Dollars, except for
share information) |
|
|
|
|
Year ended
December 31 |
|
|
Notes |
|
2014 |
|
|
|
2013 |
|
|
2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
Exploration and
evaluation expenses |
3, 11 |
$ |
12,877 |
|
|
$ |
1,991 |
|
$ |
4,461 |
|
General and administrative
expenses |
11 |
|
17,384 |
|
|
|
6,245 |
|
|
6,780 |
|
Share-based compensation |
7(c) |
|
3,877 |
|
|
|
641 |
|
|
5,225 |
|
Loss from operating activities |
|
|
34,138 |
|
|
|
8,877 |
|
|
16,466 |
|
Foreign exchange
(gain) loss |
|
|
(221 |
) |
|
|
(340 |
) |
|
83 |
|
Interest income |
|
|
(281 |
) |
|
|
(1,136 |
) |
|
(887 |
) |
Gain on discontinuance of equity method |
3(a) |
|
|
|
|
|
(5,062 |
) |
|
|
|
Loss before tax |
|
|
33,636 |
|
|
|
2,339 |
|
|
15,662 |
|
Deferred Income tax |
12 |
|
(2,289 |
) |
|
|
184 |
|
|
|
|
Loss for the
year |
|
$ |
31,347 |
|
|
$ |
2,523 |
|
$ |
15,662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive
(income) loss |
|
|
|
|
|
|
|
|
|
|
|
Items
that may be
reclassified subsequently to
loss |
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange translation
difference |
3, 7(d) |
|
(9,945 |
) |
|
|
(6,874 |
) |
|
2,206 |
|
Deferred income
tax on investment in a foreign subsidiary |
7(d) |
|
|
|
|
|
128 |
|
|
(83 |
) |
Reversal of deferred income tax
on investment |
7(d) |
|
|
|
|
|
(141 |
) |
|
|
|
Increase in fair value of available-for-sale
financial assets |
4 |
|
(8 |
) |
|
|
|
|
|
|
|
Other comprehensive
(income) loss for
the year |
|
$ |
(9,953 |
) |
|
$ |
(6,887 |
) |
$ |
2,123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
(income) for the year |
|
$ |
21,394 |
|
|
$ |
(4,364 |
) |
$ |
17,785 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
loss per common share |
10 |
$ |
0.33 |
|
|
$ |
0.03 |
|
$ |
0.16 |
|
The accompanying notes
are an integral part
of these consolidated
financial statements.
Page 6
Northern Dynasty
Minerals Ltd. |
Consolidated Statements
of Cash Flows |
(Expressed in thousands of Canadian Dollars)
|
|
|
|
Year ended
December 31 |
|
|
Notes |
|
2014 |
|
|
|
2013 |
|
|
2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows
from operating activities |
|
|
|
|
|
|
|
|
|
|
|
Loss for the
year |
|
$ |
(31,347 |
) |
|
$ |
(2,523 |
) |
$ |
(15,662 |
) |
Adjustments for items not
affecting cash or operating activities: |
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax recovery |
12 |
|
(2,289 |
) |
|
|
184 |
|
|
|
|
Depreciation |
|
|
282 |
|
|
|
|
|
|
|
|
Loss on disposal of equipment |
|
|
13 |
|
|
|
|
|
|
|
|
Interest received
on cash held |
|
|
(149 |
) |
|
|
(633 |
) |
|
(445 |
) |
Interest receivable on loan |
5 |
|
(131 |
) |
|
|
(503 |
) |
|
(442 |
) |
Gain on
discontinuance of equity method |
3 |
|
|
|
|
|
(5,062 |
) |
|
|
|
Share-based compensation |
|
|
3,877 |
|
|
|
641 |
|
|
5,225 |
|
Unrealized
exchange (gain) loss |
|
|
(211 |
) |
|
|
(332 |
) |
|
93 |
|
|
|
|
1,392 |
|
|
|
(5,705 |
) |
|
4,431 |
|
Changes in working capital items |
|
|
|
|
|
|
|
|
|
|
|
Restricted cash |
6(b) |
|
171 |
|
|
|
(1,269 |
) |
|
|
|
Amounts receivable
and prepaid expenses |
|
|
303 |
|
|
|
84 |
|
|
48 |
|
Amounts receivable from a related party |
|
|
|
|
|
|
3 |
|
|
480 |
|
Trade and other
payables |
|
|
1,747 |
|
|
|
1,246 |
|
|
91 |
|
Payable to related party |
|
|
(76 |
) |
|
|
311 |
|
|
148 |
|
|
|
|
2,145 |
|
|
|
375 |
|
|
767 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities |
|
|
(27,810 |
) |
|
|
(7,853 |
) |
|
(10,464 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows
from investing activities |
|
|
|
|
|
|
|
|
|
|
|
Cash
contribution to the Pebble Limited Partnership |
3(a) |
|
|
|
|
|
(1,055 |
) |
|
|
|
Net cash received on assuming
control of the Pebble Limited Partnership |
3(a) |
|
|
|
|
|
6,507 |
|
|
|
|
Proceeds from
disposal of equipment |
|
|
50 |
|
|
|
|
|
|
|
|
Interest received on cash held |
|
|
149 |
|
|
|
633 |
|
|
445 |
|
Net cash from investing activities |
|
|
199 |
|
|
|
6,085 |
|
|
445 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing
activities |
|
|
|
|
|
|
|
|
|
|
|
Special warrants issued, net of issuance cost |
7(b) |
|
11,273 |
|
|
|
|
|
|
|
|
Common shares issued for cash on exercise of share purchase
options |
7(c) |
|
|
|
|
|
30 |
|
|
97 |
|
Net
cash from financing activities |
|
|
11,273 |
|
|
|
30 |
|
|
97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease
in cash and cash
equivalents |
|
|
(16,338 |
) |
|
|
(1,738 |
) |
|
(9,922 |
) |
Effect of
exchange rate fluctuations on cash held |
|
|
(10 |
) |
|
|
(4 |
) |
|
2 |
|
Cash and cash equivalents at beginning of the year |
|
|
25,795 |
|
|
|
27,537 |
|
|
37,457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents at end
of the year |
6 |
$ |
9,447 |
|
|
$ |
25,795 |
|
$ |
27,537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
investing and financing
activities: |
|
|
|
|
|
|
|
|
|
|
|
The Company received
available-for-sale financial assets in payment for 650,000 Special
warrants issued (note 7(b)) |
|
|
|
|
|
|
|
|
|
|
|
Assets and liabilities held in the Pebble Limited
Partnership upon discontinuance of equity method and consolidation in
these consolidated financial statements (note 3) |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes
are an integral part
of these consolidated
financial statements.
Page 7
Northern Dynasty
Minerals Ltd. |
Consolidated Statements
of Changes in Equity
|
(Expressed in thousands of Canadian Dollars, except for
share information) |
|
|
Notes |
|
Share capital |
|
|
|
|
|
Reserves |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity settled |
|
|
currency |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
share-based |
|
|
translation |
|
|
Investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
payments |
|
|
reserve |
|
|
revaluation |
|
|
Special |
|
|
|
|
|
|
|
|
|
|
|
shares |
|
|
Amount |
|
|
reserve |
|
|
(note 7(d)) |
|
|
reserve |
|
|
Warrants |
|
|
Deficit |
|
|
Total equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2012 |
|
|
94,978,764 |
|
$ |
388,987 |
|
$ |
45,664 |
|
$ |
2,470 |
|
$ |
(2 |
) |
$ |
|
|
$ |
(295,763 |
) |
|
141,356 |
|
|
Shares issued for cash on exercise of share
purchase options |
|
|
21,000 |
|
|
97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97 |
|
|
Fair value of options
allocated to shares issued on exercise |
|
|
|
|
|
105 |
|
|
(105 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation |
|
|
|
|
|
|
|
|
5,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,225 |
|
|
Loss for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,662 |
) |
|
(15,662 |
) |
|
Other comprehensive loss for the year net of tax |
|
|
|
|
|
|
|
|
|
|
|
(2,123 |
) |
|
|
|
|
|
|
|
|
|
|
(2,123 |
) |
|
Total comprehensive loss for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,785 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2012 |
|
|
94,999,764 |
|
$ |
389,189 |
|
$ |
50,784 |
|
$ |
347 |
|
$ |
(2 |
) |
$ |
|
|
$ |
(311,425 |
) |
$ |
128,893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2013 |
|
|
94,999,764 |
|
$ |
389,189 |
|
$ |
50,784 |
|
$ |
347 |
|
$ |
(2 |
) |
$ |
|
|
$ |
(311,425 |
) |
$ |
128,893 |
|
|
Shares issued for cash on exercise of share
purchase options |
|
|
10,100 |
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 |
|
|
Fair value of options
allocated to shares issued on exercise |
|
|
|
|
|
8 |
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation |
|
|
|
|
|
|
|
|
641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
641 |
|
|
Loss for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,523 |
) |
|
(2,523 |
) |
|
Other comprehensive income for the year net of
tax |
|
|
|
|
|
|
|
|
|
|
|
6,887 |
|
|
|
|
|
|
|
|
|
|
|
6,887 |
|
|
Total comprehensive income for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,364 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2013 |
|
|
95,009,864 |
|
$ |
389,227 |
|
$ |
51,417 |
|
$ |
7,234 |
|
$ |
(2 |
) |
$ |
|
|
$ |
(313,948 |
) |
$ |
133,928 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2014 |
|
|
95,009,864 |
|
$ |
389,227 |
|
$ |
51,417 |
|
$ |
7,234 |
|
$ |
(2 |
) |
$ |
|
|
$ |
(313,948 |
) |
$ |
133,928 |
|
|
Special warrants issued net of transaction
costs |
7(b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,552 |
|
|
|
|
|
11,552 |
|
|
Share-based compensation |
|
|
|
|
|
|
|
|
3,877 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,877 |
|
|
Loss
for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31,347 |
) |
|
(31,347 |
) |
|
Other comprehensive income for
the year net of tax |
|
|
|
|
|
|
|
|
|
|
|
9,945 |
|
|
8 |
|
|
|
|
|
|
|
|
9,953 |
|
|
Total comprehensive loss for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,394 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2014 |
|
|
95,009,864 |
|
$ |
389,227 |
|
$ |
55,294 |
|
$ |
17,179 |
|
$ |
6 |
|
$ |
11,552 |
|
$ |
(345,295 |
) |
$ |
127,963 |
|
The accompanying notes
are an integral part
of these consolidated
financial statements.
Page 8
Northern Dynasty Minerals Ltd. |
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2014, 2013 and 2012 |
(Expressed in
thousands of Canadian Dollars, unless otherwise stated, except per share
or option) |
1. |
NATURE AND CONTINUANCE OF
OPERATIONS |
Northern Dynasty Minerals Ltd. (the
"Company") is incorporated under the laws of the Province of British Columbia,
Canada, and its principal business activity is the exploration of mineral
properties. The Company is listed on the Toronto Stock Exchange ("TSX") under
the symbol "NDM" and on the New York Stock Exchange-MKT ("NYSE-MKT") under the
symbol "NAK". The Companys 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 Groups 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 Groups continuing operations and the underlying value and recoverability of
the amounts shown for the Groups 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 Companys 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 Courts 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 Partnerships request for a preliminary
injunction, which, although considered by the Company as a significant
procedural milestone in the litigation, does not resolve the Pebble
Partnerships 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.
Page 9
Northern Dynasty Minerals Ltd. |
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2014, 2013 and 2012 |
(Expressed in
thousands of Canadian Dollars, unless otherwise stated, except per share
or option) |
2. |
SIGNIFICANT ACCOUNTING POLICIES |
|
|
|
(a) |
Statement of Compliance |
|
|
|
|
These Financial Statements have been prepared in
accordance with International Financial Reporting Standards ("IFRS") as
issued by the International Accounting Standards Board ("IASB") and
interpretations issued by the IFRS Interpretations Committee ("IFRIC"s)
that are effective for the Groups reporting year ended December 31, 2014.
These Financial Statements were authorized for issue by the Board of
Directors on March 30, 2015. |
|
|
|
(b) |
Basis of Preparation |
|
|
|
|
These Financial Statements have been prepared on a
historical cost basis using the accrual basis of accounting, except for
cash flow information and for financial instruments classified as
available-for-sale, which are stated at their fair value (note 2(f) and
note 4). The accounting policies set out below have been applied
consistently to all periods presented in these Financial
Statements. |
|
|
|
(c) |
Basis of Consolidation |
|
|
|
|
These Financial Statements incorporate the financial
statements of the Company, the Companys subsidiaries, and entities
controlled by the Company and its subsidiaries listed
below: |
|
|
Place of |
|
|
|
Name of
Subsidiary |
Incorporation |
Principal Activity |
Ownership |
|
U5 Resources Inc.1 |
Nevada, USA |
Holding Company. Wholly-owned subsidiary
of the Company. |
100% |
|
0796412 BC Ltd. |
British Columbia, Canada |
Not active.
Wholly-owned subsidiary of the Company. |
100% |
|
3537137 Canada Inc.2 |
Canada |
Holding Company. Wholly-owned subsidiary of
the Company. |
100% |
|
Pebble Services Inc. |
Nevada, USA |
Management and
services company. Wholly-owned
subsidiary of the Company. |
100% |
|
Northern Dynasty Partnership |
Alaska, USA |
Holds
99.9% of the Pebble Limited Partnership and
100% of Pebble Mines Corp. |
100% (indirect) |
|
Pebble Limited Partnership |
Alaska, USA |
Holding Company and
Exploration of the Pebble Project. |
100% (indirect) |
|
Pebble Mines Corp. |
Delaware, USA |
General Partner. Holds 0.1% of PLP. |
100% (indirect) |
|
Pebble West Claims Corporation 3 |
Alaska, USA |
Holding Company.
Subsidiary of the Pebble Limited Partnership. |
100% (indirect) |
|
Pebble East Claims Corporation 3 |
Alaska, USA |
Holding Company. Subsidiary of the Pebble
Limited Partnership. |
100% (indirect) |
|
Kaskanak Copper LLC 5 |
Delaware, USA |
Holds 100% of Kaskanak
Inc. Subsidiary of the Pebble Limited
Partnership. |
100% (indirect) |
|
Kaskanak Inc. 4, 5 |
Alaska, USA |
Holding Company. |
100% (indirect) |
Page 10
Northern Dynasty Minerals Ltd. |
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2014, 2013 and 2012 |
(Expressed in
thousands of Canadian Dollars, unless otherwise stated, except per share
or option) |
Notes to the table above:
|
1 |
Holds the claims acquired from Liberty Star (note 3(b)). |
|
|
|
|
2. |
Holds 20% interest in the Northern Dynasty Partnership.
The Company holds the remaining 80% interest. |
|
|
|
|
3. |
Holds the Pebble Project claims. |
|
|
|
|
4. |
Holds claims located south and west of the Pebble Project
claims. |
|
|
|
|
5. |
In January 2015, these entities were merged with Pebble
East Claims Corporation. |
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 Groups 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.
(d) |
Investment in Joint
Ventures |
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 Groups
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 Groups investment in the Pebble Partnership under
joint venture (note 3(a)) was translated at the end of each reporting period and
exchange differences Page 11 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)).
Page 11
Northern Dynasty Minerals Ltd. |
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2014, 2013 and 2012 |
(Expressed in
thousands of Canadian Dollars, unless otherwise stated, except per share
or option) |
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.
(f) |
Financial Instruments |
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 Groups
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 Groups 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.
Page 12
Northern Dynasty Minerals Ltd. |
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2014, 2013 and 2012 |
(Expressed in
thousands of Canadian Dollars, unless otherwise stated, except per share
or option) |
Non-derivative financial
liabilities:
The Groups 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:
|
|
significant financial difficulty of the issuer
or counterparty; or |
|
|
default or delinquency in interest or principal
payments; or |
|
|
it becoming probable that the borrower will
enter bankruptcy or financial re-organization. |
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.
Page 13
Northern Dynasty Minerals Ltd. |
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2014, 2013 and 2012 |
(Expressed in
thousands of Canadian Dollars, unless otherwise stated, except per share
or option) |
(g) |
Exploration and Evaluation
Expenditure |
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:
|
|
Substantive expenditure on further exploration
and evaluation activities is neither budgeted nor planned; |
|
|
title to the asset is compromised; |
|
|
adverse changes in the taxation and regulatory
environment; |
|
|
adverse changes in variations in commodity
prices and markets; and |
|
|
variations in the exchange rate for the
currency of operation. |
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.
(h) |
Mineral property, plant and
equipment |
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.
Page 14
Northern Dynasty Minerals Ltd. |
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2014, 2013 and 2012 |
(Expressed in
thousands of Canadian Dollars, unless otherwise stated, except per share
or option) |
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.
(i) |
Impairment of Non-Financial
Assets |
At the end of each reporting period the
carrying amounts of the Groups 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 arms 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.
(j) |
Share Capital and Special
Warrants |
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.
Page 15
Northern Dynasty Minerals Ltd. |
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2014, 2013 and 2012 |
(Expressed in
thousands of Canadian Dollars, unless otherwise stated, except per share
or option) |
(k) |
Share-based Payment
Transactions |
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 the equity-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.
(m) |
Restoration, Rehabilitation, and Environmental
Obligations |
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.
Page 16
Northern Dynasty Minerals Ltd. |
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2014, 2013 and 2012 |
(Expressed in
thousands of Canadian Dollars, unless otherwise stated, except per share
or option) |
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.
(n) |
Loss per Share |
|
|
|
The Group presents basic and diluted loss per share data
for its common shares, calculated by dividing the loss attributable to
common shareholders of the Group by the weighted average number of common
shares outstanding during the year. Diluted loss per share does not adjust
the loss attributable to common shareholders or the weighted average
number of common shares outstanding when the effect is
anti-dilutive. |
|
|
(o) |
Segment Reporting |
|
|
|
The Group operates in a single reportable operating
segment the acquisition, exploration and development of mineral
properties. The Groups core asset is the Pebble Project, which is located
in Alaska, USA. |
|
|
(p) |
Significant Accounting Estimates and
Judgments |
The preparation of these Financial
Statements requires management to make certain estimates, judgments and
assumptions that affect the reported amounts of assets and liabilities at the
date of the Financial Statements and reported amounts of expenses during the
reporting period. Actual outcomes could differ from these estimates. These
Financial Statements include estimates which, by their nature, are uncertain.
The impacts of such estimates are pervasive throughout the Financial Statements,
and may require accounting adjustments based on future occurrences. Revisions to
accounting estimates are recognized in the period in which the estimate is
revised and future periods if the revision affects both current and future
periods. These estimates are based on historical experience, current and future
economic conditions and other factors, including expectations of future events
that are believed to be reasonable under the circumstances.
Sources of estimation uncertainty
Significant assumptions about the
future and other sources of estimation uncertainty that management has made at
the end of the reporting period, that could result in a material adjustment to
the carrying amounts of assets and liabilities, in the event that actual results
differ from assumptions made, relate to, but are not limited to, the following:
Page 17
Northern Dynasty Minerals Ltd. |
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2014, 2013 and 2012 |
(Expressed in
thousands of Canadian Dollars, unless otherwise stated, except per share
or option) |
|
i. |
The Group uses the Black-Scholes Option Pricing Model to
calculate the fair value of share purchase options granted for determining
share-based compensation included in the loss for the year. Inputs used in
this model require subjective assumptions, including the expected price
volatility from three to five years. Changes in the subjective input
assumptions can affect the fair value estimate, and therefore the existing
models do not necessarily provide a reliable single measure of the fair
value of the Groups share purchase options. The weighted average
assumptions applied are disclosed in Note 7(c). |
|
|
|
|
ii. |
The Group received clear title to certain mineral claims
(the Settlement Claims) as a result of the release of all liens thereon
in payment of the loan receivable by the debtor (refer note 5). The Group
has recognized the Settlement Claims in mineral property interest at the
carrying value of the outstanding loan receivable on the date the mutual
release was signed by the Group. |
|
|
|
|
iii. |
Significant assumptions about the future and other
sources of estimation uncertainty are made in determining the provision
for any deferred income tax expense included in the loss for the year and
the composition of deferred income tax liabilities included in the
Statement of Financial Position. |
Critical accounting judgments
These include:
|
i. |
In terms of IFRS 6, Exploration and Evaluation of
Mineral Resources, management identified indicators that required
testing the Groups mineral property interest ("MPI") for impairment. The
Group used judgment in determining from an analysis of facts and
circumstances that no impairment of the MPI was necessary. |
|
|
|
|
ii. |
IAS 21, The Effects of Changes in Foreign Exchange
Rates ("IAS 21") defines the functional currency as the currency of
the primary economic environment in which an entity operates. IAS 21
requires the determination of functional currency to be performed on an
entity by entity basis, based on various primary and secondary factors. In
identifying the functional currency of the parent and its subsidiaries,
management considered the currency in which financing activities are
denominated and the currency that mainly influences the cost of
undertaking the business activities in each jurisdiction in which the
Group operates. |
|
|
|
|
iii. |
The Group has employed judgement that going concern was
an appropriate basis for the preparation of the Financial Statements, as
the Group has prioritized the allocation of available financial resources
to meet key corporate Pebble Project expenditure requirements in the near
term (refer note 1). |
(q) |
Amendments, Interpretations, Revised and New Standards
Adopted by the Group |
Effective January 1, 2014 the Group adopted several new and
revised standards, which are described as follows:
|
|
Amendments to IAS 32, Financial Instruments:
Presentation. The amendments clarify existing application issues
relating to the offset of financial assets and financial liabilities
requirements. Specifically, the amendments clarify the meaning of
"currently has a legal enforceable right of set-off" and "simultaneous
realization and settlement". |
|
|
Amendments to IAS 36, Impairment of Assets. The
amendments clarify the recoverable amount disclosures for non-financial
assets, including additional disclosures about the measurement of the
recoverable amount of impaired assets when the recoverable amount was
based on fair value less costs of disposal. The amendments apply
retrospectively. |
|
|
IFRIC 21, Levies ("IFRIC 21"), provides guidance
on accounting for levies in accordance with the requirements of IAS 37,
Provisions, Contingent Liabilities and Contingent Assets. The
Interpretation defines a levy as an outflow from an entity imposed by a
government in accordance with legislation, and explicitly excludes from
its scope outflows related to IAS 12, Income Taxes, fines and
penalties and liabilities arising from emission trading schemes. IFRIC 21
clarifies that a liability is recognized only when the triggering event
specified in the legislature occurs and not before. IFRIC 21 is effective
retrospectively. |
Page 18
Northern Dynasty Minerals Ltd. |
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2014, 2013 and 2012 |
(Expressed in
thousands of Canadian Dollars, unless otherwise stated, except per share
or option) |
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.
(r) |
Accounting Standards, Amendments and Revised Standards
Not Yet |
Effective Effective for the Groups financial
year commencing on January 1, 2016
|
|
Amendments to IAS 1, Presentation of
Financial Statements |
|
|
Amendments to IAS 16, Property, Plant and
Equipment |
|
|
Amendments to IAS 27, Separate Financial
Statements |
|
|
Amendments to IAS 28, Investments in
Associates |
|
|
Amendments to IAS 38, Intangible Assets
|
|
|
Amendments to IFRS 10, Consolidated
Financial Statements |
|
|
Amendments to IFRS 11, Joint
Arrangements |
The Group has not early adopted these
revised standards and is currently assessing the impact, if any, that these
amendments will have on the Groups Financial Statements.
Effective for annual periods
commencing on or after July 1, 2016
|
|
Annual improvements to IFRS 2012 2014
Cycle ("AIP 2012-2014") |
The Group anticipates that AIP
2012-2014, which has amendments to five standards, will have no material effect
on the Groups consolidated financial statements.
Effective for annual periods
commencing on or after January 1, 2017
|
|
IFRS 15, Revenue from Contracts with Customers
("IFRS 15"), which was issued by the IASB in May 2014, supersedes IAS
11, Construction Contracts, IAS 18, Revenue, IFRIC 13,
Customer Loyalty Programmes, IFRIC 15, Agreements for the
Construction of Real Estate, IFRIC 18, Transfers of Assets from
Customers, and SIC 31, Revenue Barter Transactions
involving Advertising Services. IFRS 15 establishes a single five-step
model framework for determining the nature, amount, timing and certainty
of revenue and cash flows arising from a contract with a customer. IFRS 15
is effective for annual periods beginning on or after January 1, 2017,
with early adoption permitted. |
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
|
|
IFRS 9, Financial Instruments ("IFRS
9"), replaces IAS 39, Financial Instruments: Recognition and
Measurement, in its entirety. The standard incorporates a number of
improvements: a) includes a logical model for classification and
measurement (IFRS 9 provides for principle-based approach to
classification which is driven by cash flow characteristics and the
business model in which an asset is held); b) includes a single,
forward-looking "expected loss" impairment model (IFRS 9 will require
entities to account for expected credit losses from when financial
instruments are first recognized and to recognize full lifetime expected
losses on a timely basis); and c) includes a substantially-reformed model
for hedge accounting with enhanced disclosures about risk management
activity (IFRS 9s new model aligns the accounting treatment with risk
management activities). IFRS 9 is effective for annual periods beginning
on or after 1 January 2018 with early adoption permitted.
|
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.
Page 19
Northern Dynasty Minerals Ltd. |
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2014, 2013 and 2012 |
(Expressed in
thousands of Canadian Dollars, unless otherwise stated, except per share
or option) |
3. |
MINERAL PROPERTY, PLANT AND
EQUIPMENT |
The Groups exploration and evaluation
assets are comprised of the following:
|
Year ended December 31, 2014 |
|
Mineral Property |
|
|
Plant and |
|
|
Total |
|
|
|
|
interest |
|
|
equipment |
|
|
|
|
|
Cost |
|
|
|
|
|
|
|
|
|
|
Beginning balance |
$ |
106,697 |
|
$ |
1,222 |
|
$ |
107,919 |
|
|
Additions during the year (note 3(b)) |
|
5,844 |
|
|
|
|
|
5,844 |
|
|
Dispositions during the year |
|
|
|
|
(67 |
) |
|
(67 |
) |
|
Ending balance |
$ |
112,541 |
|
$ |
1,155 |
|
$ |
113,696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation |
|
|
|
|
|
|
|
|
|
|
Beginning balance |
$ |
|
|
$ |
|
|
$ |
|
|
|
Charge for the year(1) |
|
|
|
|
(282 |
) |
|
(282 |
) |
|
Eliminated on disposal |
|
|
|
|
4 |
|
|
4 |
|
|
Ending balance |
$ |
|
|
$ |
(278 |
) |
$ |
(278 |
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation difference |
|
10,095 |
|
|
95 |
|
|
10,190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net carrying
value Ending balance |
$ |
122,636 |
|
$ |
972 |
|
$ |
123,608 |
|
|
Year ended December 31, 2013 |
|
Mineral Property |
|
|
Plant and |
|
|
Total |
|
|
|
|
interest |
|
|
equipment |
|
|
|
|
|
Cost |
|
|
|
|
|
|
|
|
|
|
Beginning balance (note 3(b)) |
$ |
1,055 |
|
$ |
|
|
$ |
1,055 |
|
|
Additions
during the year (note 3(a)) |
|
105,642 |
|
|
1,222 |
|
|
106,864 |
|
|
Ending balance |
$ |
106,697 |
|
$ |
1,222 |
|
$ |
107,919 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation |
|
|
|
|
|
|
|
|
|
|
Beginning balance |
$ |
|
|
$ |
|
|
$ |
|
|
|
Charge for the year(1) |
|
|
|
|
|
|
|
|
|
|
Eliminated on
disposal |
|
|
|
|
|
|
|
|
|
|
Ending balance |
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation difference |
|
130 |
|
|
1 |
|
|
131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net carrying value Ending balance |
$ |
106,827 |
|
$ |
1,223 |
|
$ |
108,050 |
|
|
(1) |
Depreciation has been included in the loss for the year
and has been classified as exploration and evaluation
expenses. |
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 Page 20 "Pebble
Partnership") to advance the Pebble Project toward the feasibility stage. The
Groups 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.
Page 20
Northern Dynasty Minerals Ltd. |
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2014, 2013 and 2012 |
(Expressed in
thousands of Canadian Dollars, unless otherwise stated, except per share
or option) |
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:
|
Investment in the Pebble Partnership |
|
December 31 |
|
|
December 31 |
|
|
|
|
2013 |
|
|
2012 |
|
|
Carrying value at the beginning of
the year |
$ |
99,336 |
|
$ |
101,542 |
|
|
Cash contribution to Pebble Partnership |
|
1,055 |
|
|
|
|
|
Gain on increase in net assets
of Pebble Partnership |
|
5,062 |
|
|
|
|
|
Exchange difference on translation of
investment in Pebble Partnership (note 7(d))
|
|
6,736 |
|
|
(2,206 |
) |
|
Discontinuance of equity method |
|
(112,189 |
) |
|
|
|
|
Carrying value
at the end of the year |
$ |
|
|
$ |
99,336 |
|
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).
4. |
AVAILABLE-FOR-SALE FINANCIAL
ASSETS |
The Groups available-for-sale
financial asset is comprised of investments in marketable securities of Canadian
publicly listed companies.
|
|
|
December 31 |
|
|
December 31 |
|
|
|
|
2014 |
|
|
2013 |
|
|
Marketable
securities |
$ |
287 |
|
$ |
|
|
5. |
AMOUNTS RECEIVABLE AND PREPAID
EXPENSES |
|
|
|
December 31 |
|
|
December 31 |
|
|
|
|
2014 |
|
|
2013 |
|
|
Sales tax receivable |
$ |
70 |
|
$ |
94 |
|
|
Amounts receivable |
|
143 |
|
|
217 |
|
|
Loan receivable (note 5(a)) |
|
|
|
|
5,479 |
|
|
Prepaid expenses |
|
749 |
|
|
873 |
|
|
Total |
$ |
962 |
|
$ |
6,663 |
|
Page 21
Northern Dynasty Minerals Ltd. |
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2014, 2013 and 2012 |
(Expressed in
thousands of Canadian Dollars, unless otherwise stated, except per share
or option) |
(a) |
Loan Receivable |
|
|
|
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 Stars 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:
|
|
|
March 27 |
|
|
|
December 31 |
|
|
|
|
2014 |
|
|
|
2013 |
|
|
Balance of the principal amount: |
|
(Settlement date |
) |
|
|
|
|
|
Cash advance (US$3,000,000) |
$ |
3,325 |
|
|
$ |
3,191 |
|
|
Expenses incurred on behalf of Liberty Star (US$730,174) |
|
810 |
|
|
|
776 |
|
|
Total principal amount receivable (US$3,730,174) |
|
4,135 |
|
|
|
3,967 |
|
|
Accumulated accrued interest |
|
|
|
|
|
|
|
|
(March 27, 2014 -
US$1,542,203; December 31, 2013 - US$1,421,306) |
|
1,709 |
|
|
|
1,512 |
|
|
Balance at settlement date/as of December 31, 2013 |
|
|
|
|
|
|
|
|
(March 27, 2014 - US$5,272,377; December 31, 2013 -
US$5,151,480) |
|
5,844 |
|
|
|
5,479 |
|
|
Loan extinguished
with transfer of mineral claims (note 6) |
|
(5,844 |
) |
|
|
|
|
|
Balance at end
of year |
$ |
|
|
|
$ |
5,479 |
|
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 Stars mineral claims adjacent to the mineral
claims acquired. Liberty Stars 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 Stars 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).
Page 22
Northern Dynasty Minerals Ltd. |
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2014, 2013 and 2012 |
(Expressed in
thousands of Canadian Dollars, unless otherwise stated, except per share
or option) |
6. |
CASH AND CASH EQUIVALENTS AND RESTRICTED
CASH |
(a) |
Cash and Cash
Equivalents |
|
|
|
December 31 |
|
|
|
December 31 |
|
|
|
|
2014 |
|
|
|
2013 |
|
|
Business and savings accounts |
$ |
9,130 |
|
|
$ |
7,334 |
|
|
Guaranteed
investment certificates |
|
317 |
|
|
|
18,461 |
|
|
Total |
$ |
9,447 |
|
|
$ |
25,795 |
|
(b) |
Restricted Cash |
|
|
|
At December 31, 2014, restricted cash in the amount of
$1,206 (December 31, 2013 $1,276) was held in the Pebble Partnership for
certain equipment demobilization expenses relating to its activities
undertaken while the Pebble Partnership was subject to joint control of
the Group and Anglo American (note 3(a)). This cash is not available for
general use by the Group. The Group has a current obligation (note 9) to
refund any unutilized balance upon the earlier of (i) sixty days from the
date of completion of demobilization; and (ii) December 31, 2015 (during
the year, extended from December 31, 2014). |
(a) |
Authorized Share Capital |
|
|
|
At December 31, 2014, the authorized share capital
comprised an unlimited (2013 unlimited) number of common shares with no
par value. All issued shares are fully paid. |
|
|
(b) |
Special Warrants |
|
|
|
In December 2014, the Group initiated a private placement
financing (the Private Placement) of 35,962,735 share purchase warrants
(the Special Warrants) at a price of $0.431 per Special Warrant for
gross proceeds of approximately $15,500. Pursuant to the Private
Placement, the Special Warrants were issued by the Group as
follows: |
|
Date of
Issue |
|
Special Warrants Issued |
|
|
Gross Proceeds Received |
|
|
December 31, 2014 |
|
27,622,642 |
|
$ |
11,905 |
|
|
January 2, 2015 |
|
1,160,093 |
|
|
500 |
|
|
January 12, 2015 |
|
7,180,000 |
|
|
3,095 |
|
|
Total |
|
35,962,735 |
|
$ |
15,500 |
|
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.
Page 23
Northern Dynasty Minerals Ltd. |
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2014, 2013 and 2012 |
(Expressed in
thousands of Canadian Dollars, unless otherwise stated, except per share
or option) |
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.
(c) |
Share Purchase Option Compensation
Plan |
The Group has a share purchase option
plan approved by the Groups 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
optionees 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 Groups
options outstanding at the beginning and end of the year:
|
|
|
2014 |
|
|
|
2013 |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
average |
|
|
|
|
|
|
average |
|
|
|
|
|
|
|
exercise |
|
|
|
|
|
|
exercise |
|
|
|
|
Number of |
|
|
price |
|
|
|
Number of |
|
|
price |
|
|
Continuity of
options |
|
options |
|
|
($/option) |
|
|
|
options |
|
|
($/option) |
|
|
Balance at beginning of year |
|
3,735,700 |
|
|
4.13 |
|
|
|
7,611,530 |
|
|
7.00 |
|
|
Granted |
|
5,875,100 |
|
|
1.56 |
|
|
|
|
|
|
|
|
|
Exercised (1) |
|
|
|
|
|
|
|
|
(10,100 |
) |
|
3.00 |
|
|
Expired |
|
(1,881,100 |
) |
|
5.07 |
|
|
|
(1,800,830 |
) |
|
7.79 |
|
|
Forfeited |
|
(42,700 |
) |
|
2.08 |
|
|
|
(64,000 |
) |
|
4.26 |
|
|
Cancelled |
|
|
|
|
|
|
|
|
(2,000,900 |
) |
|
11.76 |
|
|
Balance at end
of year |
|
7,687,000 |
|
|
1.95 |
|
|
|
3,735,700 |
|
|
4.13 |
|
|
(1) |
In 2013 options were exercised when the weighted average
share price of the Companys shares on the TSX was
$3.15. |
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:
Page 24
Northern Dynasty Minerals Ltd. |
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2014, 2013 and 2012 |
(Expressed in
thousands of Canadian Dollars, unless otherwise stated, except per share
or option) |
|
Assumptions |
|
|
|
|
Risk-free interest rate |
|
1.53% |
|
|
Expected life |
|
4.56 years |
|
|
Expected volatility (2) |
|
67.80% |
|
|
Grant date share price |
$ |
1.44 |
|
|
Expected dividend
yield |
|
Nil |
|
|
(2) |
Expected volatility is based on the historical and
implied volatility of the Companys common share price on the
TSX. |
The following table summarizes
information about the Groups options outstanding at December 31, 2014:
|
2014 |
|
Options outstanding |
|
|
Options exercisable |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Weighted |
|
|
average |
|
|
|
|
|
Weighted |
|
|
average |
|
|
|
|
|
|
|
average |
|
|
remaining |
|
|
|
|
|
average |
|
|
remaining |
|
|
|
|
Number of |
|
|
exercise |
|
|
contractual |
|
|
Number of |
|
|
exercise |
|
|
contractual |
|
|
Exercise |
|
options |
|
|
price |
|
|
life |
|
|
options |
|
|
price |
|
|
life |
|
|
prices ($) |
|
outstanding |
|
|
($/option) |
|
|
(years) |
|
|
exercisable |
|
|
($/option) |
|
|
(years) |
|
|
0.72 |
|
200,000 |
|
|
0.72 |
|
|
4.71 |
|
|
66,667 |
|
|
0.72 |
|
|
4.71 |
|
|
0.89 |
|
1,180,500 |
|
|
0.89 |
|
|
4.20 |
|
|
376,834 |
|
|
0.89 |
|
|
4.20 |
|
|
1.77 |
|
4,454,800 |
|
|
1.77 |
|
|
3.62 |
|
|
2,239,900 |
|
|
1.77 |
|
|
3.61 |
|
|
3.00 |
|
1,824,700 |
|
|
3.00 |
|
|
1.01 |
|
|
1,824,700 |
|
|
3.00 |
|
|
1.01 |
|
|
15.44 |
|
27,000 |
|
|
15.44 |
|
|
1.21 |
|
|
27,000 |
|
|
15.44 |
|
|
1.21 |
|
|
|
|
7,687,000 |
|
|
1.95 |
|
|
3.11 |
|
|
4,535,101 |
|
|
2.26 |
|
|
2.62 |
|
The following table summarizes
information about the Groups options outstanding at December 31, 2013:
|
2013 |
|
Options outstanding |
|
|
Options exercisable |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Weighted |
|
|
average |
|
|
Number of |
|
|
Weighted |
|
|
average |
|
|
|
|
|
|
|
average |
|
|
remaining |
|
|
share |
|
|
average |
|
|
remaining |
|
|
|
|
Number of |
|
|
exercise |
|
|
contractual |
|
|
purchase |
|
|
exercise |
|
|
contractual |
|
|
Exercise |
|
options |
|
|
price |
|
|
life |
|
|
options |
|
|
price |
|
|
life |
|
|
prices ($) |
|
outstanding |
|
|
($/option) |
|
|
(years) |
|
|
exercisable |
|
|
($/option) |
|
|
(years) |
|
|
3.00 |
|
2,017,700 |
|
|
3.00 |
|
|
1.91 |
|
|
2,017,700 |
|
|
3.00 |
|
|
1.91 |
|
|
5.00 5.35 |
|
1,643,000 |
|
|
5.01 |
|
|
0.09 |
|
|
1,643,000 |
|
|
5.01 |
|
|
0.09 |
|
|
15.44 |
|
75,000 |
|
|
15.44 |
|
|
0.92 |
|
|
75,000 |
|
|
15.44 |
|
|
0.92 |
|
|
|
|
3,735,700 |
|
|
4.13 |
|
|
1.09 |
|
|
3,735,700 |
|
|
4.13 |
|
|
1.09 |
|
Page 25
Northern Dynasty Minerals Ltd. |
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2014, 2013 and 2012 |
(Expressed in
thousands of Canadian Dollars, unless otherwise stated, except per share
or option) |
(d) |
Foreign Currency Translation
Reserve |
|
|
|
Year ended December 31 |
|
|
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
|
Balance at beginning of year |
$ |
7,234 |
|
$ |
347 |
|
$ |
2,470 |
|
|
Foreign exchange translation differences incurred in the
year |
|
|
|
|
|
|
|
|
|
|
Exchange gain (loss) on translation of the investment in
the Pebble Partnership under joint venture |
|
|
|
|
6,736 |
|
|
(2,206 |
) |
|
Exchange
gain on translation of foreign subsidiaries |
|
9,945
|
|
|
138
|
|
|
|
|
|
Total foreign exchange translation differences during the
year |
|
9,945 |
|
|
6,874 |
|
|
(2,206 |
) |
|
Deferred income tax on investment |
|
|
|
|
(128 |
) |
|
83 |
|
|
Reversal of
deferred income tax on investment |
|
|
|
|
141
|
|
|
|
|
|
Balance at the
end of year |
$ |
17,179 |
|
$ |
7,234 |
|
$ |
347 |
|
The foreign currency translation
reserve represents accumulated exchange differences arising on the translation,
into the Groups presentation currency (the Canadian dollar), of the results of
operations and net assets of the Groups 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.
8. |
RELATED PARTY BALANCES AND
TRANSACTIONS |
Balances and transactions between the
Company and its subsidiaries, which are related parties of the Company, have
been eliminated on consolidation (note 2(c)). Details between the Group and
other related parties are disclosed below:
(a) |
Transactions and Balances with Key Management
Personnel |
The aggregate value of transactions
with key management personnel ("KMP"), being the Groups directors and senior
management including the Senior Vice President ("VP"), Corporate Development,
VP, Corporate Communications, VP, Engineering, VP, Public Affairs, Chief
Executive Officer of the Pebble Partnership ("CEO of PLP"), Chairman of Pebble
Mines Corp ("Chair of PMC"), Senior VP, Corporate Affairs of the Pebble
Partnership ("PLP Senior VP") and Company Secretary, was as follows:
|
|
|
Year ended December 31 |
|
|
Transaction |
|
2014 |
|
|
2013 |
|
|
2012 |
|
|
Compensation |
|
|
|
|
|
|
|
|
|
|
Payments to HDSI for services of KMP employed
by HDSI (1) |
$ |
2,369 |
|
$ |
1,608 |
|
$ |
2,135 |
|
|
Payments to
KMP (2) |
|
1,814
|
|
|
137
|
|
|
169
|
|
|
|
|
4,183 |
|
|
1,745 |
|
|
2,304 |
|
|
Share-based
compensation |
|
2,825
|
|
|
230
|
|
|
2,781
|
|
|
Total compensation |
$ |
7,008 |
|
$ |
1,975 |
|
$ |
5,085 |
|
|
Transfer of
resources to the Group (3) |
|
(749) |
|
|
|
|
|
|
|
|
Total |
$ |
6,259 |
|
$ |
1,975 |
|
$ |
5,085 |
|
|
(1) |
The Groups executive directors and senior management
(other than disclosed in (2)) are employed by the Group through Hunter
Dickinson Services Inc. ("HDSI"). |
Page 26
Northern Dynasty Minerals Ltd. |
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2014, 2013 and 2012 |
(Expressed in
thousands of Canadian Dollars, unless otherwise stated, except per share
or option) |
|
(2) |
The Group directly employs its independent directors, the
CEO of PLP, the Chair of PMC and PLP Senior VP. Payments represent short
term employee benefits incurred, including salaries and directors
fees. |
|
|
|
|
(3) |
1,737,000 Special Warrants were issued to eight directors
and officers and a spouse of an officer who participated in the private
placement of Special Warrants (note 7(b)). The Group received $470 in cash
and $279 was received in shares of a Canadian public listed company (note
4). |
(b) |
Transactions and Balances with other Related
Parties |
The aggregate value of transactions and
outstanding balances with other related parties were as follows:
|
|
|
Year ended December 31 |
|
|
Transactions |
|
2014 |
|
|
2013 |
|
|
2012 |
|
|
Entity with significant influence
(a) |
|
|
|
|
|
|
|
|
|
|
Services rendered to the Group |
$ |
4,926 |
|
$ |
4,181 |
|
$ |
3,531 |
|
|
Reimbursement of third party expenses incurred on behalf of
the
Group |
|
779 |
|
|
829 |
|
|
1,129 |
|
|
Total paid by
the Group |
$ |
5,705 |
|
$ |
5,010 |
|
$ |
4,660 |
|
|
Jointly controlled entity (b) |
|
|
|
|
|
|
|
|
|
|
Reimbursement of
third party expenses incurred by the Group |
$ |
|
|
$ |
(90 |
) |
$ |
(25 |
)
|
|
Total
reimbursed (to) the Group |
$ |
|
|
$ |
(90 |
) |
$ |
(25 |
)
|
|
|
|
December 31 |
|
|
December 31 |
|
|
Balances
payable to related parties |
|
2014 |
|
|
2013 |
|
|
Entity with
significant influence over the Group (a) |
$ |
383 |
|
$ |
459 |
|
|
Total |
$ |
383 |
|
$ |
459 |
|
|
(a) |
HDSI is a private company that provides geological,
engineering, environmental, corporate development, financial
administrative and management services to the Group and its subsidiaries
at annually set rates pursuant to a management services agreement. The
annually set rates also include a component of overhead costs such as
office rent, information technology services and general administrative
support services. HDSI also incurs third party costs on behalf of the
Group which are reimbursed by the Group at cost. The Group may make
pre-payments for services under terms of the services agreement. Several
directors and other key management personnel of HDSI, who are close
business associates, are also key management personnel of the
Group. |
|
|
|
|
(b) |
The Group incurred costs on behalf of the Pebble
Partnership while under joint control (note 3(a)), which were reimbursed
at cost. |
9. |
TRADE AND OTHER
PAYABLES |
|
|
|
December 31 |
|
|
December 31 |
|
|
Falling
due within the year |
|
2014 |
|
|
2013 |
|
|
Trade |
$ |
4,444 |
|
$ |
2,318 |
|
|
Other
(note 6 (b)) |
|
1,206
|
|
|
1,276
|
|
|
Total |
$ |
5,650 |
|
$ |
3,594 |
|
Page 27
Northern Dynasty Minerals Ltd. |
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2014, 2013 and 2012 |
(Expressed in
thousands of Canadian Dollars, unless otherwise stated, except per share
or option) |
10. |
BASIC AND DILUTED LOSS PER
SHARE |
The calculation of basic and diluted
loss per share was based on the following:
|
|
|
Year ended December 31 |
|
|
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
|
Loss attributable to common shareholders |
$ |
31,347 |
|
$ |
2,523 |
|
$ |
15,662 |
|
|
Weighted average
number of common shares outstanding (000s) |
|
95,010 |
|
|
95,007 |
|
|
94,995 |
|
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:
|
|
|
Year ended December 31 |
|
|
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
|
Exploration and evaluation expenses |
$ |
6,492 |
|
$ |
992 |
|
$ |
856 |
|
|
General and administration expenses |
|
3,715 |
|
|
3,389 |
|
|
2,874 |
|
|
Share-based
compensation |
|
3,877
|
|
|
641
|
|
|
5,225
|
|
|
Total |
$ |
14,084 |
|
$ |
5,022 |
|
$ |
8,955 |
|
|
(1) |
Salaries include directors fees and amounts paid to HDSI
(see 8(b)) for services provided to the Group by HDSI
personnel. |
Page 28
Northern Dynasty Minerals Ltd. |
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2014, 2013 and 2012 |
(Expressed in
thousands of Canadian Dollars, unless otherwise stated, except per share
or option) |
|
|
|
Year ended December 31 |
|
|
|
|
2014 |
|
|
|
2013 |
|
|
2012 |
|
|
Current tax (recovery) expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
(recovery) expense |
$ |
|
|
|
$ |
|
|
$ |
|
|
|
Current income tax
(recovery) expense |
$ |
|
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax (recovery) expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
(recovery) expense |
$ |
(2,289 |
) |
|
$ |
184 |
|
$ |
|
|
|
Deferred income
tax (recovery) expense |
$ |
(2,289 |
) |
|
$ |
184 |
|
$ |
|
|
|
|
|
Year ended December 31 |
|
|
Reconciliation of effective tax rate |
|
2014 |
|
|
|
2013 |
|
|
2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) for the year |
$ |
(31,348 |
) |
|
$ |
(2,523 |
) |
$ |
(15,662 |
) |
|
Total income tax (recovery) expense |
|
(2,289 |
) |
|
|
184 |
|
|
|
|
|
(Loss) excluding
income tax |
|
(33,637 |
) |
|
|
(2,339 |
) |
|
(15,662 |
) |
|
Income tax using the Company's domestic tax rate |
|
(8,746 |
) |
|
|
(602 |
) |
|
(3,916 |
) |
|
Non-deductible expenses and other |
|
(1,283 |
) |
|
|
336 |
|
|
1,322 |
|
|
Increase in statutory tax rates |
|
|
|
|
|
(1,465 |
) |
|
|
|
|
Foreign exchange |
|
|
|
|
|
13 |
|
|
83 |
|
|
Deferred income
tax assets not recognized |
|
7,740 |
|
|
|
1,902 |
|
|
2,511 |
|
|
|
$ |
(2,289 |
) |
|
$ |
184 |
|
$ |
|
|
The Company's domestic tax rate for the
year was 26% (2013 25.75%, 2012 25.00%).
|
|
|
December 31 |
|
|
|
December 31 |
|
|
Deferred
income tax assets (liabilities) |
|
2014 |
|
|
|
2013 |
|
|
Resource pool |
$ |
|
|
|
$ |
|
|
|
Tax losses |
|
2,547 |
|
|
|
115 |
|
|
Net deferred income tax assets |
|
2,547 |
|
|
|
115 |
|
|
Resource property/investment in Pebble Partnership |
|
(4,012 |
) |
|
|
(3,901 |
) |
|
Equipment |
|
(49 |
) |
|
|
(17 |
) |
|
Net deferred
income tax liability |
$ |
(1,514 |
) |
|
$ |
(3,803 |
) |
Page 29
Northern Dynasty Minerals Ltd. |
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2014, 2013 and 2012 |
(Expressed in
thousands of Canadian Dollars, unless otherwise stated, except per share
or option) |
The Group had the following temporary
differences at December 31, 2014 in respect of which no deferred tax asset has
been recognized:
|
|
|
|
|
|
Resource |
|
|
|
|
|
Expiry |
|
Tax losses |
|
|
pools |
|
|
Other |
|
|
Within one year |
$ |
|
|
$ |
|
|
$ |
|
|
|
One to five years |
|
|
|
|
|
|
|
1,311 |
|
|
After five years |
|
59,452 |
|
|
|
|
|
|
|
|
No expiry date |
|
78
|
|
|
101,322 |
|
|
65
|
|
|
Total |
$ |
59,530 |
|
$ |
101,322 |
|
$ |
1,376 |
|
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.
13. |
FINANCIAL RISK MANAGEMENT |
The Group is exposed in varying degrees
to a variety of financial instrument related risks. The Board approves and
monitors the risk management processes, inclusive of documented investment
policies, counterparty limits, and controlling and reporting structures. The
type of risk exposure and the way in which such exposure is managed is provided
as follows:
(a) |
Credit Risk |
|
|
|
Credit risk is the risk of potential loss to the Group if
a counterparty to a financial instrument fails to meet its contractual
obligations. The Groups credit risk is primarily attributable to its
liquid financial assets, including cash and cash equivalents, restricted
cash and amounts receivable. The Group limits the exposure to credit risk
by only investing its cash and cash equivalents and restricted cash with
high-credit quality financial institutions in business and saving
accounts, guaranteed investment certificates, and in government treasury
bills which are available on demand by the Group for its programs. Amounts
receivable (note 5) include receivable balances with government agencies
and refundable deposits. |
|
|
(b) |
Liquidity Risk |
|
|
|
Liquidity risk is the risk that the Group will not be
able to meet its financial obligations when they become due. The Group
ensures, as far as reasonably possible, it will have sufficient capital in
order to meet short to medium term business requirements, after taking
into account cash flows from operations and the Groups holdings of cash
and cash equivalents and restricted cash. The Groups cash and cash
equivalents and restricted cash are currently invested in business
accounts and guaranteed investment certificates which are available on
demand. |
|
The Groups financial liabilities are comprised of trade
and other payables (note 9) and a payable to a related party (note 8),
which are due for payment within 12 months from the reporting date. The
carrying amounts of the Groups financial liabilities represent the
Groups contractual obligations. |
|
|
(c) |
Foreign exchange risk |
|
|
|
The Company is subject to both currency transaction risk
and currency translation risk: the Pebble Partnership and U5 Resources
Inc. both have the US dollar as functional currency, and certain of the
Companys corporate expenses are incurred in US dollars. The operating
results and financial position of the Group are reported in Canadian
dollars in the Groups consolidated financial statements. The fluctuation
of the US dollar in relation to the Canadian dollar will consequently have
an impact upon the losses incurred by the Group as well as the value of
the Groups assets and the amount of shareholders
equity. |
Page 30
Northern Dynasty Minerals Ltd. |
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2014, 2013 and 2012 |
(Expressed in
thousands of Canadian Dollars, unless otherwise stated, except per share
or option) |
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:
|
Currency |
|
December 31, 2014 |
|
|
December 31, 2013 |
|
|
|
|
US dollar |
|
|
Amount in |
|
|
US dollar |
|
|
Amount in |
|
|
|
|
amount |
|
|
Canadian |
|
|
amount |
|
|
Canadian |
|
|
US dollars
Financial assets |
|
(000s |
) |
|
dollars |
|
|
(000s |
) |
|
dollars |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts receivable |
$ |
547 |
|
$ |
635 |
|
$ |
5,360 |
|
$ |
5,701 |
|
|
Cash and cash equivalents and |
|
|
|
|
|
|
|
|
|
|
|
|
|
restricted cash
|
|
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 Group's financial
liabilities to foreign exchange risk is as follows:
|
Currency |
|
December 31, 2014 |
|
|
December 31, 2013 |
|
|
|
|
US dollar |
|
|
Amount in |
|
|
US dollar |
|
|
Amount in |
|
|
|
|
amount |
|
|
Canadian |
|
|
amount |
|
|
Canadian |
|
|
US dollars
Financial liabilities |
|
(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 |
|
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 is subject to interest rate
cash flow risk with respect to its investments in cash and cash equivalents. The
Groups policy is to invest cash at fixed rates of interest and cash reserves
are to be maintained in cash and cash equivalents in order to maintain
liquidity, while achieving a satisfactory return for shareholders. Fluctuations
in interest rates when cash and cash equivalents mature impact interest income
earned.
Assuming that all other variables
remain constant, a 100 basis points change representing a 1% increase or
decrease in interest rates would have resulted in a decrease or increase in loss
as follows:
|
|
|
December 31 |
|
|
December 31 |
|
|
|
|
2014 |
|
|
2013 |
|
|
Effect on loss |
$ |
176 |
|
$ |
267 |
|
The Group's policy is to maintain a
strong capital base so as to maintain investor and creditor confidence and to
sustain future development of the business. The capital structure of the Group
consists of equity, comprising share capital, reserves and Special Warrants, net
of accumulated deficit. There were no changes in the Group's approach to capital
management during the year. The Group is not subject to any externally imposed
capital requirements.
Page 31
Northern Dynasty Minerals Ltd. |
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2014, 2013 and 2012 |
(Expressed in
thousands of Canadian Dollars, unless otherwise stated, except per share
or option) |
The fair value of the Groups financial
assets and liabilities approximates the carrying amount. The fair value of AFS
financial asset is classified into level 1 of the fair value hierarchy as quoted
market prices are used in the fair value determination.
14. |
COMMITMENTS AND
CONTINGENCIES |
The Group has the following commitments
as of December 31, 2014:
|
|
|
2015 |
|
|
2016 |
|
|
Total |
|
|
|
|
(000s |
) |
|
(000s |
) |
|
(000s |
) |
|
Anchorage office lease
(i) |
|
US$ 477 |
|
|
US$ 407 |
|
|
US$ 884 |
|
|
Anchorage other leases (ii) |
|
84 |
|
|
|
|
|
84 |
|
|
Iliamna site leases (iii) |
|
260 |
|
|
|
|
|
260 |
|
|
Total |
|
US$
821 |
|
|
US$
407 |
|
|
US$
1,228 |
|
|
Total in Canadian dollars (iv) |
|
$ 952 |
|
|
$ 472 |
|
|
$ 1,424 |
|
|
(i) |
The initial 5 year lease term expires on October 31,
2016. |
|
|
|
|
(ii) |
Lease term expires on July 31, 2015. |
|
|
|
|
(iii) |
Lease for site accommodation and facilities term expires
on April 30, 2015. |
|
|
|
|
(iv) |
Converted at closing rate of $1.1601/US$ on December 31,
2014, as per Bank of Canada. |
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.
Page 32
MANAGEMENT'S DISCUSSION AND ANALYSIS
YEAR ENDED DECEMBER 31, 2014
Northern Dynasty Minerals Ltd. |
Management's Discussion And Analysis |
Year ended
December 31, 2014 |
Table of Contents
Page 2
Northern Dynasty Minerals Ltd. |
Management's Discussion And Analysis |
Year ended
December 31, 2014 |
This Managements Discussion and Analysis ("MD&A") should
be read in conjunction with the audited consolidated financial statements
("Financial Statements") of Northern Dynasty Minerals Ltd. ("Northern Dynasty"
or the "Company") for the year ended December 31, 2014 as publicly filed under
the Companys profile on SEDAR at www.sedar.com.
The Company reports in accordance with International Financial
Reporting Standards as issued by the International Accounting Standards Board
("IASB") and interpretations of the IFRS Interpretations Committee (together,
"IFRS"). The following disclosure and associated Financial Statements are
presented in accordance with IFRS. This MD&A is prepared as of March 30,
2015. All dollar amounts herein are expressed in Canadian dollars, unless
otherwise specified.
This discussion includes certain statements that may be
deemed "forward-looking statements" or "forward looking information"
within the meaning of Canadian and United States securities law. Wherever
possible, words such as plans, expects, or does not expect,
budget, scheduled, estimates, forecasts, anticipate or does not
anticipate, believe, intend and similar expressions or statements
that certain actions, events or results may, could, would, might
or will be taken, occur or be achieved, have been used to identify
forward-looking information. |
|
|
Forward-looking information may include, but is not
limited to, |
|
our
expectations regarding permitting of a mine at the Pebble Project; |
|
our
expected financial performance in future periods; |
|
our
plan of operations, including our plans to carry out exploration and
development activities; |
|
our
ability to raise capital for exploration and development activities; |
|
our
expectations regarding the exploration and development potential of the
Pebble Project; and |
|
factors
relating to our investment decisions. |
|
|
Forward-looking information is based on the reasonable
assumptions, estimates, analysis and opinions of management made in light
of its experience and its perception of trends, current conditions and
expected developments, as well as other factors that management believes
to be relevant and reasonable in the circumstances at the date that such
statements are made, but which may prove to be incorrect. We believe that
the assumptions and expectations reflected in such forward-looking
information are reasonable. |
|
|
Key assumptions upon which the Companys
forward-looking information are based include: |
|
that the Company 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; |
|
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 is precondition to any potential
development of the Pebble Project which would then require engineering and
financing form ultimate construction; |
|
the cost of carrying out exploration and development
activities on the Pebble Project; |
|
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. |
Page 3
Northern Dynasty Minerals Ltd. |
Management's Discussion And Analysis |
Year ended
December 31, 2014 |
Readers are cautioned that the foregoing list is not
exhaustive of all factors and assumptions which may have been used. |
|
|
Some of the risks and uncertainties that could cause
actual results to differ materially from those expressed in the
forward-looking statements include: |
|
ability
to obtain permitting for a mine at the Pebble Project; |
|
ability
to continue to fund the exploration and development activities; |
|
the
speculative nature of the mineral resource exploration business; |
|
the
exploration stage of the Pebble Project; |
|
the
lack of known reserves on the Pebble Project; |
|
inability to establish that the Pebble Project contains
commercially viable deposits of ore; |
|
ability
to recover the financial statement carrying values of the Pebble Project
if the Company ceases to continue on a going concern basis; |
|
loss of
the services of any of the Companys executive officers; |
|
a
history of financial losses; |
|
ability
to continue on a going concern basis; |
|
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 on the Pebble Project; |
|
potential claims by third parties to the Pebble Project; |
|
inability to insure our operations against all risks; |
|
the
highly competitive nature of the mining business; |
|
litigation risks and the inherent uncertainty of litigation; |
|
the
historical volatility in the Companys share price; |
|
potential conflicts of interest relating to the Companys
directors and officers; |
|
the
potential dilution to current shareholders due to any future equity
financings; |
|
the
loss of services of independent contractors; and |
|
the
potential dilution to current shareholders from the exercise of share
purchase options to purchase the Companys shares. |
|
|
This list is not exhaustive of the factors that may
affect any of the Companys 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. |
|
|
Our forward-looking statements are based on the
reasonable beliefs, expectations and opinions of management on the date of
this MD&A. Although we have attempted to identify important factors
that could cause actual results to differ materially from those contained
in forward-looking information, there may be other factors that cause
results not to be as anticipated, estimated or intended. There is no
assurance that such information will prove to be accurate, as actual
results and future events could differ materially from those anticipated
in such information. Accordingly, readers should not place undue reliance
on forward- looking information. |
|
|
During the period 2007 to 2013, the Pebble Limited
Partnership expended several hundred million dollars on the Pebble
Project, a major portion of which was spent on exploration programs,
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
US Environmental Protection Agency (the "EPA") opposition to the Pebble
Project, the withdrawal of Anglo American plc from the project and the
passage of time, technical and engineering studies related to mine-site
and infrastructure development are considered to |
Page 4
Northern Dynasty Minerals Ltd. |
Management's Discussion And Analysis |
Year ended
December 31, 2014 |
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. |
|
For more information on the Company, investors should
review the Companys annual information form and home jurisdiction filings
that are available on SEDAR at www.sedar.com. |
|
The Company reviews its forward looking statements on an
ongoing basis and updates this information when circumstances require it. |
Cautionary Note to Investors Concerning Estimates of
Measured and Indicated Resources |
|
The following section uses the terms "measured resources"
and "indicated resources". The Company advises investors that although
those terms are recognized and required by Canadian regulations, the SEC
does not recognize them. Investors are cautioned not to assume that all
or any part of mineral deposits in these categories will ever be
converted into reserves. |
Cautionary Note to Investors Concerning Estimates of
Inferred Resources |
|
The following section uses the term "inferred resources".
The Company advises investors that although this term is recognized and
required by Canadian regulations, the SEC does not recognize it. "Inferred
resources" have a great amount of uncertainty as to their existence, and
as to their economic and legal feasibility. It cannot be assumed that all
or any part of a mineral resource will ever be upgraded to a higher
category. Under Canadian rules, estimates of inferred mineral resources
may not form the basis of economic studies, except in rare cases. Investors are cautioned not to assume that all or any part of an
inferred resource exists, or is economically or legally
mineable. |
Northern Dynasty is a mineral exploration company which, via
its subsidiaries, holds a 100% interest in mining claims on State of Alaska land
in southwest Alaska, USA ("US") that are part of or in the vicinity of the
Pebble Copper-Gold-Molybdenum Project (the "Pebble Project" or Pebble).
The Pebble Project is an initiative to develop one of the
worlds most important mineral resources when measured by aggregate contained
metals. Current mineral resources in the Pebble deposit at a 0.30% copper
equivalent (CuEQ)1 comprise:
|
6.44 billion tonnes of Measured and Indicated
Mineral Resources grading 0.40% copper, 0.34 g/t gold, 240 ppm molybdenum
and 1.66 g/t silver, containing 57 billion pounds of copper, 70 million
ounces of gold, 3.4 billion pounds of molybdenum and 344 million ounces of
silver; and |
|
|
|
4.46 billion tonnes of Inferred Mineral
Resources grading 0.25% copper, 0.26 g/t gold, 222 ppm molybdenum and 1.19
g/t silver, containing 24.5 billion pounds of copper, 37 million ounces of
gold, 2.2 billion pounds of molybdenum and 170 million ounces of silver.
|
Over $797 million has been invested to advance the project, of
which approximately $595 million (US$573 million) was provided by a wholly-owned
subsidiary of Anglo American plc which participated in the Pebble Limited
Partnership (the "Pebble Partnership")2 from 2007 to 2013, and the
remainder from 2001 to mid-2007 directly by Northern Dynasty.
______________________________
1 For additional details, see section 1.2.1 below.
2 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 programs, 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 EPA opposition to the Pebble
Project, the withdrawal of Anglo 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.
Page 5
Northern Dynasty Minerals Ltd. |
Management's Discussion And Analysis |
Year ended
December 31, 2014 |
The work has included comprehensive deposit delineation, and
environmental, socioeconomic and engineering studies of the Pebble deposit. A
review of previous analyses of the Pebble Project was initiated in late 2013. In
2014, the Company commissioned a technical report to provide updated information
on the mineral resources and metallurgy for the project.
In February 2014, the US Environmental Protection Agency (the
"EPA") announced the initiation of a regulatory process under the Clean Water
Act to consider restriction or a prohibition on mining activities associated
with the Pebble deposit. Much of the Companys efforts in 2014 have been focused
around providing information and responses to this action through the Pebble
Partnership. Further details are provided in Section 1.2.1.2.
In 2015, the Company plans to:
|
advance a multi-dimensional strategy, described
in section 1.2.1.2 below to address the EPAs pre- emptive regulatory
process under Section 404(c) of the Clean Water Act and prepare
documentation to position the Pebble Project to initiate federal and state
permitting under National Environmental Policy Act ("NEPA"); |
|
|
|
maintain an active corporate presence in Alaska
to advance relationships with political and regulatory offices of
government, Alaska Native partners and other stakeholder groups; |
|
|
|
maintain the Pebble Project and Pebble claims
in good standing and continue environmental monitoring; and |
|
|
|
advance a potential partner(s) transaction.
|
In January 2015, the Company completed the final tranche of a
$15.5 million financing, of which $11.9 million was closed in December 2014.
As at December 31, 2014, Northern Dynasty has $9.4 million in
cash and cash equivalents for its operating requirements. The Company continues
to seek additional financing and 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 may include any
of or a combination of, debt, equity and/or contributions from possible new
Pebble Project participants. Additional financing will be required to progress
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 at some point have to reduce or curtail its
operations.
The Pebble property ("Pebble") is located in southwest Alaska,
approximately 17 miles (27 kilometers) from the villages of Iliamna and
Newhalen, and approximately 200 miles (320 kilometers) southwest of the city of
Anchorage. The property consists of 2,402 mineral claims. Situated approximately
1,000 feet above sea-level and 65 miles from tidewater on Cook Inlet, the site
conditions are favorable for sound mine site and infrastructure development.
Page 6
Northern Dynasty Minerals Ltd. |
Management's Discussion And Analysis |
Year ended
December 31, 2014 |
Mineralization indicating the presence of the Pebble deposit
was discovered by a prior operator in 1987, and by 1997 an initial outline of a
deposit of copper, gold and molybdenum had been identified.
Northern Dynasty acquired the right to earn an interest in the
Pebble property in 2001. Exploration since that time has led to an overall
expansion of the Pebble deposit, including the discovery of a substantial volume
of higher grade mineralization in the eastern part of the deposit. Another
porphyry copper-gold-molybdenum deposit, a porphyry copper zone, a gold-copper
skarn occurrence and gold showings have been identified along the extensive
northeast-trending mineralized system that underlies the property.
Page 7
Northern Dynasty Minerals Ltd. |
Management's Discussion And Analysis |
Year ended
December 31, 2014 |
1.2.1.1 |
Technical Programs |
As a part of the overall review of the Pebble Project, in 2014
the Company commissioned a Technical Report in accordance with National
Instrument ("NI") 43-101 (the "2014 Technical Report") to provide updated
information on the mineral resources and metallurgy for the project. The
technical report, entitled "2014 Technical Report on the Pebble Project,
Southwest Alaska, USA, "authored by J. David Gaunt, PGeo., James Lang, PGeo.,
Eric Titley, PGeo., and Ting Lu, PEng., is filed under the Companys profile at
www.sedar.com.
Other technical work was focused on technical studies or site
activities including property and facilities maintenance, environmental
monitoring and community engagement.
Mineral Resources
The estimate of the mineral resources in the Pebble deposit
incorporated in the 2014 Technical Report is based on drilling to the end of
2013, and includes approximately 59,000 assays obtained from 699 drill holes.
The resource was estimated using ordinary kriging by David Gaunt, P.Geo., a
qualified person who is not independent of Northern Dynasty.
The mineral resource tabulation, as shown below uses 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.
Pebble Resource Estimate 2014
Cut-off
CuEq % |
CuEq
% |
Tonnes |
Cu
(%) |
Au
(g/t) |
Mo
(ppm) |
Ag
(g/t)
|
Cu
Blbs
|
Au
Moz |
Mo
Blbs
|
Ag
Moz |
Measured |
0.3 |
0.65 |
527,000,000 |
0.33 |
0.35 |
178 |
1.66 |
3.83 |
5.93 |
0.21 |
28.13 |
0.4 |
0.66 |
508,000,000 |
0.34 |
0.36 |
180 |
1.68 |
3.80 |
5.88 |
0.20 |
27.42 |
0.6 |
0.77 |
279,000,000 |
0.40 |
0.42 |
203 |
1.84 |
2.46 |
3.77 |
0.12 |
16.51 |
1.0 |
1.16 |
28,000,000 |
0.62 |
0.62 |
302 |
2.27 |
0.38 |
0.56 |
0.02 |
2.04 |
Indicated |
0.3 |
0.77 |
5,912,000,000 |
0.41 |
0.34 |
245 |
1.66 |
53.42 |
64.62 |
3.20 |
315.50 |
0.4 |
0.82 |
5,173,000,000 |
0.45 |
0.35 |
260 |
1.75 |
51.31 |
58.21 |
2.97 |
291.05 |
0.6 |
0.99 |
3,450,000,000 |
0.55 |
0.41 |
299 |
1.99 |
41.82 |
45.47 |
2.27 |
220.71 |
1.0 |
1.29 |
1,411,000,000 |
0.77 |
0.51 |
343 |
2.42 |
23.95 |
23.14 |
1.07 |
109.79 |
Measured + Indicated |
0.3 |
0.76 |
6,439,000,000 |
0.40 |
0.34 |
240 |
1.66 |
56.76 |
70.38 |
3.40 |
343.63 |
0.4 |
0.81 |
5,681,000,000 |
0.44 |
0.35 |
253 |
1.75 |
55.09 |
63.92 |
3.17 |
319.62 |
0.6 |
0.97 |
3,729,000,000 |
0.54 |
0.41 |
291 |
1.98 |
44.38 |
49.15 |
2.39 |
237.37 |
1.0 |
1.29 |
1,439,000,000 |
0.76 |
0.51 |
342 |
2.42 |
24.11 |
23.60 |
1.08 |
111.97 |
Inferred |
0.3 |
0.54 |
4,460,000,000 |
0.25 |
0.26 |
222 |
1.19 |
24.55 |
37.25 |
2.18 |
170.49 |
0.4 |
0.68 |
2,630,000,000 |
0.33 |
0.30 |
266 |
1.39 |
19.14 |
25.38 |
1.55 |
117.58 |
0.6 |
0.89 |
1,290,000,000 |
0.48 |
0.37 |
291 |
1.79 |
13.66 |
15.35 |
0.83 |
74.28 |
1.0 |
1.20 |
360,000,000 |
0.69 |
0.45 |
377 |
2.27 |
5.41 |
5.14 |
0.30 |
25.94 |
Notes:
These resource estimates have been prepared in accordance with
NI 43-101 and the CIM Definition Standards. Inferred Mineral Resources are
considered to be too speculative to allow the application of technical and
economic parameters to support mine planning and evaluation of the economic
viability of the project. Under Canadian rules, estimates of Inferred Mineral Resources may not form the basis
of feasibility or pre-feasibility studies, or economic studies except for
Preliminary Economic Assessments as defined under 43-101. It cannot be assumed
that all or any part of the Inferred Resources will ever be upgraded to a higher
category.
Page 8
Northern Dynasty Minerals Ltd. |
Management's Discussion And Analysis |
Year ended
December 31, 2014 |
Copper equivalent calculations use metal prices of $1.85/lb for
copper, $902/oz for gold and $12.50/lb for molybdenum, and recoveries of 85% for
copper 69.6% for gold, and 77.8% for molybdenum in the Pebble West zone and
89.3% for copper, 76.8% for gold, 83.7% for molybdenum in the Pebble East zone.
Contained metal calculations are based on 100% recoveries.
A 0.30% CuEQ cut-off is considered to be appropriate for
porphyry deposit open pit mining operations in the Americas.
All mineral resource estimates, cut-offs and metallurgical
recoveries are subject to change as a consequence of more detailed economic
analyses that would be required in pre-feasibility and feasibility studies.
The resource estimate is constrained by a conceptual pit that
was developed using a Lerchs-Grossman algorithm and is based on the parameters
set out below:
|
Parameter |
Units |
Cost ($) |
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 |
Page 9
Northern Dynasty Minerals Ltd. |
Management's Discussion And Analysis |
Year ended
December 31, 2014 |
Engineering
Engineering activities in 2014 have been mainly directed toward
an overall review of the Pebble Project and responding to questions from
potential project partners. Northern Dynasty is reviewing open pit and process
plant designs as well as throughput capacity, and associated infrastructure
options and alternative options for the transportation infrastructure and power
plant. The Company also engaged Tetra Tech WEI Inc. to compile a summary of the
metallurgical testwork and projected recoveries for copper, gold, molybdenum and
silver for the 2014 Technical Report.
Environmental and Socioeconomic
Environmental Baseline Document
Extensive environmental baseline data has been collected since
2004, with close and ongoing attention given to designing and planning a project
that protects clean water, healthy fish and wildlife populations and other
natural resources in the region.
In January 2012, the Pebble Partnership publicly released the
27,000-page Environmental Baseline Document ("EBD") for the Pebble Project,
characterizing a broad range of environmental and social conditions in southwest
Alaska including climate, water quality, wetlands, fish and aquatic habitat,
wildlife, land and water use, socioeconomics and subsistence activities.
The EBD provides information and analysis on baseline physical,
chemical, biological and social conditions based upon data collection by the
Pebble Partnership environmental study team from 2004 to 2008. Its purpose is to
provide the public, regulatory agencies and the Pebble Partnership with a
detailed compendium of pre-development environmental and socioeconomic
conditions in the project area. Research for the Pebble EBD was conducted by
more than 40 respected independent research firms, utilizing over 100 scientific
experts and engineering groups, laboratories and support services. Researchers
were selected for their specific areas of expertise and Alaskan experience, with
cooperating government agencies participating in several studies. Information
for the EBD was gathered through field studies, laboratory tests, review of
government records and other third-party sources, and interviews with Alaska
residents. The EBD study is available at www.pebbleresearch.com.
The Pebble Partnership facilitated a four-day workshop with
federal and state regulatory agencies in January 2012 to present the EBD
findings. The workshop was broadcast publicly via the Internet. A series of
public presentations was also coordinated in more than 20 communities throughout
southwest Alaska and elsewhere around the State to present the EBD findings.
Public and expert review of the EBD was facilitated under the Keystone
initiative3.
Baseline data collecting and monitoring has continued. Field
activities in 2014 included selected environmental monitoring programs. The data
from the 2014 program is being integrated with environmental baseline data
reports from 2009 to 2013 so that this information can be shared with
state/federal agencies and the public as part of the future permitting process
under NEPA. Environmental monitoring at reduced levels is planned to continue in
2015.
______________________________
3 An independent stakeholder dialogue process
concerning the Pebble Project initiated in late 2010 by the Keystone Center a
non-profit organization specializing in facilitating stakeholder-driven
consultation processes concerning contentious, science-based issues.
Page 10
Northern Dynasty Minerals Ltd. |
Management's Discussion And Analysis |
Year ended
December 31, 2014 |
Employment and Workforce Development
The Pebble Partnership has been one of the most important
private sector employers in southwest Alaska for several years, and has
implemented employee training and workforce development initiatives such as
training in the areas of equipment operations, health, safety and environment
for its site programs. Local employment at Pebble was substantially reduced in
2014, commensurate with the scale of field activities. However, the Pebble
Partnership maintained partnerships and commercial relationships with a number
of Alaska Native village corporations in the Pebble Project area in 2014.
Community Engagement
An active program of stakeholder outreach has also been
undertaken at Pebble, which has included community meetings, stakeholder visits,
presentations and event appearances, as well as stakeholder tours to the Pebble
Project site and to operating mines in the United States and Canada. The focus
of these outreach activities was to update stakeholders on the Pebble Project,
to receive feedback on stakeholder priorities and concerns and to advise
participants about modern mining practices.
Stakeholder outreach and community engagement continued in
2014, although at a reduced scale commensurate with other project activities. As
the Pebble Project advances toward the completion of a Project Description and
preparation for project permitting under NEPA, it is expected that the Pebble
Partnership will initiate further stakeholder engagement programs to involve
stakeholders in the planning process.
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 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.
The EPAs first draft Bristol Bay Watershed Assessment ("BBWA")
report was released on May 18, 2012. In the Companys opinion after review with
its consultants, the draft report is a fundamentally flawed document. By the
EPAs 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 was 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 EPAs 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.
Page 11
Northern Dynasty Minerals Ltd. |
Management's Discussion And Analysis |
Year ended
December 31, 2014 |
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 panellists 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 EPAs
February 28, 2014 notification letter.
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 agencys
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 Partnerships lawsuit against the EPA as
co-plaintiffs (the "plaintiffs"). On September 26, 2014, U.S. federal court in
Alaska granted EPAs 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 Partnerships
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 the 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 10s Proposed
Determination. Northern Dynasty and the Pebble Partnership believe the Proposed
Determination is unsupported by the administrative record as established by the
Bristol Bay 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 preemptive 404c regulatory process under
the Clean Water Act. On September 24, 2014, the US federal court judge in Alaska
released an order recognizing that the EPA agreed not to take the next step to
advance its 404(c) regulatory process with respect to southwest Alaskas Pebble
Project until at least January 2, 2015.
Page 12
Northern Dynasty Minerals Ltd. |
Management's Discussion And Analysis |
Year ended
December 31, 2014 |
On November 24, 2014, the U.S. federal court judge in Alaska
granted the Pebble Partnerships request for a Preliminary Injunction ("PI") in
relation to the FACA case. While the PI does not resolve the Pebble
Partnerships claims that the EPA actions with respect to the Bristol Bay
Watershed Assessment and subsequent 404(c) 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. The Pebble
Partnership 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 to determine if there was any EPA
misconduct. That the PI was granted also reflects the US federal court judges
view that the claimant has a likelihood of success on the merits. Should the
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 IGs office announced that it would investigate the EPAs 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 EPAs 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 out
below:
|
challenging the EPAs 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; |
|
|
|
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 Partnerships strategy to address the EPAs 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.
Page 13
Northern Dynasty Minerals Ltd. |
Management's Discussion And Analysis |
Year ended
December 31, 2014 |
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 Partnerships appeal
of a lower courts 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 Partnerships FACA case is expected in the latter
half of the year; |
|
|
|
a decision in the Pebble Partnerships FOIA
litigation against the 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 EPAs 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.
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 Alaskas 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.
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.
Page 14
Northern Dynasty Minerals Ltd. |
Management's Discussion And Analysis |
Year ended
December 31, 2014 |
In the fourth quarter, Northern Dynasty initiated a private
placement financing (the "Private Placement") of 35,962,735 share purchase
warrants (the "Special Warrants") priced at $0.431 per Special Warrant, for
gross proceeds in the amount of $15.5 million; pursuant to the Private
Placement, the Company issued 27,622,642 Special Warrants in December 2014 and
8,340,093 special warrants in January 2015, when the Private Placement was
completed. Under the terms of issuance of the Special Warrants, the Company
agreed to file a prospectus in certain Canadian provinces to qualify the
conversion of the Special Warrants (completed) and a registration statement in
the United States to qualify the resale of common shares in the Company ("Common
Shares") by U.S. investors (completed). The Special Warrants will convert on
exercise into Common Shares on a one-for-one basis, subject to certain
restrictions, without payment of any additional consideration. The Special
Warrants are subject to automatic conversion provisions, which depend on the
country of residence of a holder of the Special Warrants and the total number of
the Common Shares that a holder of the Special Warrants will own after such
conversion, and, in any event, all outstanding Special Warrants will be
automatically converted on the second anniversary of their 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.
As of the date of this MD&A, 9,943,589 Special Warrants had
automatically converted into 9,943,589 Common Shares (see 1.15.1
Disclosure of Outstanding Share Data).
Copper prices increased from early 2009 until late 2011. From
that time, prices have been variable and weakened overall. The recent closing
price is US$2.77/lb.
The average annual gold price steadily increased from 2008 to
2012. Gold prices trended lower in 2013, and have been variable but weakened
overall in 2014 and 2015. The recent closing price is US$1,186/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$8.39/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$16.65/oz
Average annual prices since 2010 as well as the average prices
so far in 2015 for copper, gold, molybdenum and silver are shown in the table
below:
Page 15
Northern Dynasty Minerals Ltd. |
Management's Discussion And Analysis |
Year ended
December 31, 2014 |
Year |
Average metal price |
Copper US$/lb |
Gold US$/oz |
Molybdenum US$/lb |
Silver 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 the MD&A) |
2.64
|
1,219 |
8.49
|
16.71 |
Source: LME Official Cash Price as provided at
www.metalprices.com
Page 16
Northern Dynasty Minerals Ltd. |
Management's Discussion And Analysis |
Year ended
December 31, 2014 |
1.3 |
Selected Annual
Information |
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.
|
|
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) |
|
1,514 |
|
|
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. |
1.4 |
Summary and Discussion of Quarterly
Results |
All monetary amounts are expressed in thousands of dollars
except per share amounts and where otherwise indicated. Minor differences are
due to rounding.
Excerpts from Statements of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Loss |
|
Dec 31 |
|
|
Sep 30 |
|
|
Jun 30 |
|
|
Mar 31 |
|
|
Dec 31 |
|
|
Sep 30 |
|
|
Jun 30 |
|
|
Mar 31 |
|
(Income)
|
|
2014 |
|
|
2014 |
|
|
2014 |
|
|
2014 |
|
|
2013 |
|
|
2013 |
|
|
2013 |
|
|
2013 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration and evaluation |
$ |
3,461 |
|
$ |
2,436 |
|
$ |
2,952 |
|
$ |
4,028 |
|
$ |
1,076 |
|
$ |
270 |
|
$ |
246 |
|
$ |
399 |
|
General and administrative |
|
7,051 |
|
|
4,077 |
|
|
3,431 |
|
|
2,825 |
|
|
1,810 |
|
|
1,552 |
|
|
1,495 |
|
|
1,388 |
|
Share-based compensation |
|
522 |
|
|
557 |
|
|
699 |
|
|
2,099 |
|
|
|
|
|
|
|
|
217 |
|
|
424 |
|
Other items (i) |
|
(1,109 |
) |
|
(982 |
) |
|
(211 |
) |
|
(489 |
) |
|
(412 |
) |
|
(120 |
) |
|
(440 |
) |
|
(320 |
) |
Equity accounting adjustment (ii) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,062 |
) |
|
|
|
|
|
|
|
|
|
Loss (income) for the quarter |
|
9,925 |
|
|
6,088 |
|
|
6,871 |
|
|
8,463 |
|
|
(2,588 |
) |
|
1,702 |
|
|
1,518 |
|
|
1,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss (income) per common share |
$ |
0.10 |
|
$ |
0.06 |
|
$ |
0.07 |
|
$ |
0.09 |
|
$ |
(0.03 |
) |
$ |
0.02 |
|
$ |
0.02 |
|
$ |
0.02 |
|
(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. |
Page 17
Northern Dynasty Minerals Ltd. |
Management's Discussion And Analysis |
Year ended
December 31, 2014 |
Discussion of Quarterly Trends
Exploration and evaluation expenses ("E&E") increased from
Q4 of 2013 as the Company commenced funding of evaluation related work on the
Pebble Project (discussed in Section 1.2.1.1 Technical
Programs) with the withdrawal of Anglo American plc ("Anglo")
from the Pebble Partnership in late December 2013. E&E included costs for
Native community engagement, select environmental monitoring programs, annual
fees for claims, site leases for accommodation, land access agreements and
technical studies.
General and administrative expenses ("G&A") have fluctuated
based on the level of corporate activities undertaken. In 2013, G&A trended
lower until Q4 2013, when the added costs associated with the management and
administration of the Pebble Partnership was borne by the Company as a result of
Anglos withdrawal. In 2014, G&A was higher due to the inclusion of the
management and administration of the Pebble Partnership and the additional costs
associated with ongoing activities around the EPAs initiatives as discussed in
Section 1.2.1.2 Legal Matters.
Share-based compensation expense ("SBC") has fluctuated due to
the timing of share purchase option grants and the vesting periods associated
with these grants. In 2013 there were no new grants and as such SBC related to
the graded vesting of share purchase option grants from prior years. In 2014,
SBC related to new grants by the Company and the graded vesting of these share
purchase options during the year.
1.5 |
Results of Operations |
The following financial data has been prepared in accordance
with IFRS effective for the year ended December 31, 2014 and is expressed in
thousands of Canadian dollars unless otherwise stated.
The Companys operations and business are not driven by
seasonal trends, but rather are driven towards the achievement of project
milestones relating to the Pebble Project such as the achievement of various
technical, environmental, socio-economic and legal objectives, including
obtaining the necessary permits, the completion of pre-feasibility and final
feasibility studies, preparation of engineering designs, as well as receipt of
financings to fund these objectives along with mine construction.
1.5.1 |
Results of Operations for the Year Ended December 31,
2014 vs. 2013 |
The Company recorded an increase in loss of $29.4 million due
primarily to the increase in E&E, G&A and SBC. In 2013, the Company
recorded a $5.1 million gain on the discontinuance 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 (discussed in Section
1.2.1.1 Technical Programs) for the full year. E&E
comprised mainly of the following for the year as compared to 2013, expressed in
thousands of dollars:
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 |
|
The Company incurred E&E associated with Native community
engagement, environmental monitoring, annual fees for claims, site leases for
accommodation, land access agreements and technical studies.
Page 18
Northern Dynasty Minerals Ltd. |
Management's Discussion And Analysis |
Year ended
December 31, 2014 |
G&A increased to $17.4 million from $6.2 million in 2013
due to the inclusion of the Pebble Partnerships management, administration, and
office expenses for the full year and increased legal costs which were incurred
in response to the EPAs activities during the year (see Section 1.2.1.2
Legal Matters).
The following table provides a breakdown of G&A incurred in
the year as compared to 2013, expressed in thousands of dollars:
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).
1.5.2 |
Cash Flows for the Year Ended December 31, 2014 vs.
2013 |
Net cash used in operations increased to $27.8 million in 2014
from $7.9 million in 2013, due to the increase in the Companys operating
activities as discussed herein. The source of cash and cash equivalents during
2014 included the Companys cash resources and additional cash received from the
Private Placement (see Section 1.2.2 Financing)
1.5.3 |
Financial position as at December 31, 2014 vs.
December 31, 2013 |
Total assets decreased by $6.3 million to $135.5 million. This
decrease was due mainly to the utilization of the Companys cash and cash
equivalents in its operating activities as described in Section 1.5.1.
The Company's major sources of funding has been the issuance of
equity securities for cash, primarily through private placements to
sophisticated investors and institutions and the 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.
As at December 31, 2014, the Companys cash and cash
equivalents were $9.4 million, down from $25.8 million at December 31, 2013 as
the Company used $28 million of its cash in its operating activities (see
Section 1.5.1) and raised $11.3 million from the Private Placement (see Section
1.2.2 Financing). 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
will be required to pursue any material expenditures 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 at some point
have to reduce or curtail its operations.
Page 19
Northern Dynasty Minerals Ltd. |
Management's Discussion And Analysis |
Year ended
December 31, 2014 |
At December 31, 2014, the Company had working capital of
approximately $5.9 million as compared to $29.7 million at December 31, 2013.
The Company has no long term debt, capital lease obligations, operating leases
or any other long term obligations other than those disclosed below:
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 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.
The Companys 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 other than what has been disclosed in the
Financial Statements and tabulated above.
The Company has no lines of credit or other sources of
financing.
1.8 |
Off-Balance Sheet
Arrangements |
There are none.
1.9 |
Transactions with Related
Parties |
Transactions with Hunter Dickinson Services Inc. ("HDSI")
Hunter Dickinson Inc. ("HDI") and its wholly owned subsidiary,
HDSI are private companies established by a group of mining professionals
engaged in advancing and developing mineral properties for a number of private
and publicly-listed exploration companies, one of which is the Company.
Many 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 active members of HDIs 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.
Page 20
Northern Dynasty Minerals Ltd. |
Management's Discussion And Analysis |
Year ended
December 31, 2014 |
As a result of this relationship with HDSI, the Company has
ready access to a range of diverse and specialized expertise on a regular basis,
without having to engage or hire full-time experts. The Company benefits from
the economies of scale created by HDSI.
The measurement basis used
The Company procures services from HDSI pursuant to an
agreement (the "Services Agreement") dated July 2, 2010 whereby HDSI agreed to
provide technical, geological, corporate communications, administrative and
management services to the Company. A copy of the Services Agreement is publicly
available under the Companys profile at www.sedar.com.
Services from HDSI are provided on a non-exclusive basis as
required and as requested by the Company. The Company is not obligated to
acquire any minimum amount of services from HDSI. The fees for services is
determined based on an agreed upon charge-out rate for each employee performing
the service and the time spent by the employee. The charge-out rate also
includes overhead costs such as office rent, information technology services and
administrative support. Such charge-out rates are agreed and set annually in
advance.
Third party expenses are billed at cost, without any markup.
Ongoing contractual or other commitments resulting from the
related party relationship
There are no ongoing contractual or other commitments resulting
from the Companys transactions with HDSI, other than the payment for services
already rendered and billed. The agreement may be terminated upon 60 days
notice from either the Company or HDSI.
The following summarizes the transactions with HDSI expressed
in thousands of dollars for the year:
Transactions |
|
2014 |
|
|
2013 |
|
Services rendered by HDSI |
$ |
4,926 |
|
$ |
4,181 |
|
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 |
|
|
|
|
|
|
|
|
Reimbursement of third party
expenses |
|
779 |
|
|
829 |
|
Conferences and travel
|
|
196 |
|
|
234 |
|
Insurance |
|
71 |
|
|
57 |
|
Office supplies and other
|
|
512 |
|
|
538 |
|
|
|
|
|
|
|
|
Total paid by the Company |
$ |
5,705 |
|
$ |
5,010 |
|
Key Management Personnel
The required disclosure for the remuneration of the Companys
key management personnel is provided in Note 8(a) in the notes to the Financial
Statements which accompany this MD&A and which are available under the
Companys profile at www.sedar.com.
Page 21
Northern Dynasty Minerals Ltd. |
Management's Discussion And Analysis |
Year ended
December 31, 2014 |
1.10 |
Fourth Quarter 2014 vs
2013 |
The Company recorded an a loss of $9.9 million as compared to a
gain of $2.6 million in 2013 as E&E, G&A and SBC all increased over the
same quarter from the prior year. In 2013, a gain of $5.1 million was also
recognized on the discontinuance of the equity method.
E&E increased by $2.4 million to $3.5 million as the
Company funded all exploration and evaluation work on the Pebble Project
(discussed in Section 1.2.1.1 Technical Programs). E&E
comprised mainly of the following during the quarter as compared to the prior
year quarter, expressed in thousands of dollars:
E&E |
|
2014 |
|
|
2013 |
|
Engineering |
$ |
137 |
|
$ |
266 |
|
Environmental planning and testing |
|
353 |
|
|
97 |
|
Site activities |
|
1,649 |
|
|
401 |
|
Socio-economic |
|
1,069 |
|
|
24 |
|
Other activities and travel |
|
253 |
|
|
288 |
|
|
$ |
3,461 |
|
$ |
1,076 |
|
During the quarter the Companys major expenses were for Native
community engagement, the 2014-2015 rental payments for claims, site leases for
accommodation and payments in respect of land access agreements that were
negotiated.
G&A increased to $7.1 million from $1.8 million in 2013 due
to the inclusion of the Pebble Partnerships management, administration and
office expenses in the Companys G&A costs and the increased legal costs
incurred in response to the EPAs activities during the quarter (see 1.2.1.2
Legal Matters). The following table provides a breakdown of
G&A incurred during the quarter as compared to the fourth quarter of 2013,
expressed in thousands of dollars:
G&A |
|
2014 |
|
|
2013 |
|
Conference and travel |
$ |
71 |
|
$ |
29 |
|
Consulting |
|
259 |
|
|
154 |
|
Insurance |
|
64 |
|
|
86 |
|
Legal, accounting and audit |
|
4,933 |
|
|
214 |
|
Office costs |
|
538 |
|
|
237 |
|
Management and administration |
|
1,022 |
|
|
894 |
|
Shareholder communication |
|
156 |
|
|
191 |
|
Trust and filing |
|
8 |
|
|
5 |
|
Total |
$ |
7,051 |
|
$ |
1,810 |
|
SBC increased to $0.5 from $nil in 2013 due mainly to the
amortization of the fair value of the share purchase options granted during the
current fiscal year.
1.11 |
Proposed Transactions |
There are no proposed asset or business acquisitions or
dispositions, other than those in the ordinary course, before the Board of
Directors for consideration.
Page 22
Northern Dynasty Minerals Ltd. |
Management's Discussion And Analysis |
Year ended
December 31, 2014 |
1.12 |
Critical Accounting
Estimates |
The preparation of the Financial Statements requires management
to 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. The following are specific areas where significant
estimates or judgments exist:
Estimation uncertainties
i. |
The Company uses the Black-Scholes Option Pricing Model
to calculate the fair value of share purchase options granted for
determining share-based compensation included in the loss for the year.
Inputs used in this model require subjective assumptions including the
expected price volatility from three to five years. Changes in the
subjective input assumptions can affect the fair value estimate, and
therefore the existing models do not necessarily provide a reliable single
measure of the fair value of the Companys share purchase
options. |
|
|
ii. |
The Company received clear title to certain mineral
claims (the Settlement Claims) as a result of the release of all liens
thereon in payment of the loan receivable by the debtor (refer Note 5 in
the notes to the Financial Statements). The Company has recognized the
Settlement Claims in mineral property interest at the carrying value of
the outstanding loan receivable on the date the mutual release was signed
by the Company. |
|
|
iii. |
Significant assumptions about the future and other
sources of estimation uncertainty are made in determining the provision
for any deferred income tax expense (recovery) included in the loss for
the year and the composition of deferred income tax liabilities included
in the Statement of Financial Position in the Financial
Statements. |
Judgments
i. |
In terms of IFRS 6, Exploration and Evaluation of
Mineral Resources ("IFRS 6"), management identified indicators that
required testing the Groups mineral property interest ("MPI") for
impairment. The Group used judgment in determining from an analysis of
facts and circumstances that no impairment of the MPI was necessary (see
further discussion in 1.12.2 below). |
|
|
ii. |
IAS 21, The Effects of Changes in Foreign Exchange
Rates ("IAS 21"), defines the functional currency as the currency of
the primary economic environment in which an entity operates. IAS 21
requires the determination of functional currency to be performed on an
entity by entity basis, based on various primary and secondary factors. In
identifying the functional currency of the parent and of its subsidiaries,
Management considered the currency that mainly influences the cost of
undertaking the business activities in each jurisdiction in which the
Company operates. |
|
|
iii. |
The Company has employed judgment that going concern was
an appropriate basis for the preparation of the Financial Statements as
the Group has prioritized the allocation of available financial resources
to meet key corporate and Pebble Project expenditure requirements in the
near term (refer to 1.6
Liquidity). |
1.12.1 |
Mineral resources and the carrying value of the
Companys Mineral Property Interest |
Mineral resources are estimated by professional geologists and
engineers in accordance with recognized industry, professional and regulatory
standards. These estimates require inputs such as future metals prices, future
operating costs, and various technical geological, engineering, and construction
parameters. Changes in any of these inputs could cause a significant change in
the resources estimates which in turn could have a material effect on the
carrying value of the Companys mineral property.
Page 23
Northern Dynasty Minerals Ltd. |
Management's Discussion And Analysis |
Year ended
December 31, 2014 |
1.12.2 |
Impairment analysis of
assets |
At the end of each reporting period, the carrying amounts of
the Companys assets, which currently consist largely of its E&E assets, are
reviewed to determine whether there is any indication that those assets are
impaired. The Company determined that with respect to its E&E assets, as per
IFRS 6, there were two related indicators suggesting that the recovery amount of
the Companys E&E assets may be less than the carrying amount and so further
analysis was performed including impairment testing of the Companys E&E
assets under IAS 36, Impairment of Assets. Based on this analysis, no
impairment charge was required to be made at December 31, 2014.
Recoverability of the carrying amount of the mineral property
is dependent on successful development and commercial exploitation or
alternatively, sale thereof.
Changes in any of the assumptions used to determine impairment
testing could materially affect the results of the analysis.
1.12.3 |
Restoration, rehabilitation, and environmental
obligations |
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 pre-tax rates that reflect the time value
of money are used to calculate the net present value of restoration,
rehabilitation and environmental costs. 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 Company may in the future be affected
from time to time in varying degree by changes in environmental regulations or
changes in estimates used in determining restoration and rehabilitation
obligations. Both the likelihood of new regulations or degree of changes in
estimates and their overall effect upon the Company are not predictable.
At December 31, 2014, the Company has no material restoration,
rehabilitation and environmental obligations as the disturbance to date is
minimal.
1.12.4 |
Share-based compensation
expense |
As indicated in 1.12 (i) the Company uses the Black-Scholes
option pricing model to estimate the fair value of options granted through its
Board of Directors, to directors, employees and service providers. Changes in
any of the inputs in the model such as expected volatility, expected life to
exercise and interest rates could cause a significant change in the SBC charged
in a period. During the year the Company granted 5.9 million share purchase
options. The SBC recognized in the year relates to: (i) the immediate vesting of
one tranche and (ii) amortization of the SBC on tranches still vesting. Further
discussion on the estimation of fair value and assumption used can be found in
Note 7(c) in the notes to the Financial Statements.
Page 24
Northern Dynasty Minerals Ltd. |
Management's Discussion And Analysis |
Year ended
December 31, 2014 |
The Company uses the asset and liability method of accounting
for income taxes. Under this method, deferred income tax assets and liabilities
are computed based on differences between the carrying amounts of assets and
liabilities on the statements of financial position and their corresponding tax
values, generally using the substantively enacted or enacted income tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Deferred income tax assets
also result from unused loss carry forwards, resource-related pools and other
deductions. A deferred tax asset is only recognized to the extent that it is
probable that future taxable profits will be available against which the asset
can be utilized.
Further discussion can be found in Note 2 in the notes to the
Financial Statements which accompany this MD&A.
1.13 |
Changes in Accounting Policies including Initial
Adoption |
Accounting Standards, Amendments and Revised Standards
Adopted
The Company adopted a number of new and revised standards and
amendments that became effective on January 1, 2014 which are discussed in Note
2 in the notes to the Financial Statements which accompany this MD&A.
Accounting Standards, Amendments and Revised Standards Not
Yet Effective
The Company has disclosed information and potential impact
thereof in Note 2 in the notes to the Financial Statements which accompany this
MD&A.
1.14 |
Financial Instruments and Other
Instruments |
The Company has no derivative financial assets or
liabilities.
1.14.1 |
Non-derivative financial
assets: |
The Company has the following non-derivative financial assets:
available-for-sale financial assets and loans and receivables.
Available-for-sale ("AFS") financial assets
The Company has marketable securities which are classified as
AFS financial assets and are measured at fair value with changes therein, other
than impairment losses, recognized in other comprehensive income or loss and
accumulated in the investment revaluation reserve within equity.
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.
Page 25
Northern Dynasty Minerals Ltd. |
Management's Discussion And Analysis |
Year ended
December 31, 2014 |
Loans and receivables currently comprise amounts receivable,
cash and cash equivalents and restricted cash (see below).
Cash and cash equivalents and restricted cash
Cash and cash equivalents and restricted cash in the statement
of financial position comprise cash and investments held at major financial
institutions that are readily convertible into a known amount of cash and which
are only subject to an insignificant risk of change in value, and are measured
at amortized cost.
The Companys cash and cash equivalents and restricted cash are
invested in business and savings accounts and guaranteed investment certificates
which are available on demand by the Company.
1.14.2 |
Non-derivative financial
liabilities: |
The Company has the following non-derivative financial
liabilities: trade and other payables and a payable to a related party.
Such financial liabilities 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.
1.14.3 |
Financial Risk Management |
The Company is exposed in varying degrees to a variety of
financial instrument related risks. The Board approves and monitors the risk
management processes, inclusive of documented investment policies, counterparty
limits, and controlling and reporting structures. The type of risk exposure and
the way in which such exposure is managed is provided as follows:
Credit Risk
Credit risk is the risk of potential loss to the Company if a
counterparty to a financial instrument fails to meet its contractual
obligations. The Companys credit risk is primarily attributable to its liquid
financial assets, including cash and cash equivalents, restricted cash and
amounts receivable. The Company limits the exposure to credit risk by only
investing its cash and cash equivalents and restricted cash with high-credit
quality financial institutions in business and saving accounts, guaranteed
investment certificates, and in government treasury bills which are available on
demand by the Group for its programs. There has been no change in the Companys
objectives and policies for managing this risk except for changes in the
carrying amounts of financial assets exposed to credit risk, and there was no
significant change to the Companys exposure to credit risk during the year
ended December 31, 2014. Amounts receivable include receivable balances with
government agencies and refundable deposits. Management has also concluded that
there is no objective evidence of impairment to its amounts receivable.
Liquidity Risk
Liquidity risk is the risk that the Company will not be able to
meet its financial obligations when they become due. There has been no change in
the Companys objectives and policies for managing this risk. The Companys
liquidity position has been discussed in Section 1.6
Liquidity.
Foreign Exchange Risk
The Company is subject to both currency transaction risk and
currency translation risk: the Pebble Partnership and U5 Resources Inc. both
have the US dollar as functional currency; and certain of the Companys
corporate expenses are incurred in US dollars. As the Companys functional and
presentation currency is the 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 Companys 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.
Page 26
Northern Dynasty Minerals Ltd. |
Management's Discussion And Analysis |
Year ended
December 31, 2014 |
There has been no change in the Companys 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 Companys exposure to foreign exchange risk during the
year ended December 31, 2014.
The exposure of the Company's financial assets to foreign
exchange risk, expressed in thousands, is as follows:
Currency |
|
December 31, 2014 |
|
|
December 31, 2013 |
|
|
|
|
|
|
Amount in |
|
|
|
|
|
Amount in |
|
|
|
US dollar |
|
|
Canadian |
|
|
US dollar |
|
|
Canadian |
|
US dollars
Financial assets |
|
amount |
|
|
dollars |
|
|
amount |
|
|
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, expressed in thousands, is as follows:
Currency |
|
December 31, 2014 |
|
|
December 31, 2013 |
|
|
|
|
|
|
Amount in |
|
|
|
|
|
Amount in |
|
|
|
US dollar |
|
|
Canadian |
|
|
US dollar |
|
|
Canadian |
|
US dollars
Financial liabilities |
|
amount |
|
|
dollars |
|
|
amount |
|
|
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 thousands of Canadian
dollars, in a loss of $283 (2013 - $983 gain). This analysis assumes that all
other variables, in particular interest rates, remain constant.
Interest rate risk
The Company is subject to interest rate risk with respect to
its investments in cash and cash equivalents. There has been no change in the
Companys objectives and policies for managing this risk and no significant
change to the Companys exposure to interest rate risk during the year ended
December 31, 2014.
Assuming that all variables remain constant, a 100 basis points
change in a decrease or increase in interest rates would have resulted in a
decrease or increase in interest income, expressed in thousands of Canadian
dollars, of approximately $176 (2013 - $267).
Commodity price risk
While the value of the Companys core mineral resource
property, held through its interest in the Pebble Partnership, is related to the
price of gold, copper and molybdenum and the outlook for these minerals, the
Company currently does not have any operating mines and hence does not have any
hedging or other commodity based risks in respect of its operational
activities.
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.
Page 27
Northern Dynasty Minerals Ltd. |
Management's Discussion And Analysis |
Year ended
December 31, 2014 |
Capital Management
The Company's policy is to maintain a strong capital base so as
to maintain investor and creditor confidence and to sustain future development
of the business. The capital structure of the Company consists of equity,
comprising share capital, reserves and warrants, net of accumulated deficit.
There were no changes in the Company's approach to capital
management during the year. The Company is not subject to any externally imposed
capital requirements.
1.15 |
Other MD&A
Requirements |
Additional information relating to the Company, including the
Company's Annual Information Form, is available under the Companys profile on
SEDAR at www.sedar.com.
1.15.1 |
Disclosure of Outstanding Share
Data |
The capital structure of the Company as of the date of this
MD&A is shown in the following table:
|
Number |
Common shares issued and
outstanding |
104,953,453
|
Special Warrants (see 1.2.2
Financings) |
26,019,146 |
Share options (weighted
average exercise price per share: $1.94) |
7,599,200
|
1.15.2 |
Disclosure Controls and
Procedures |
The Companys management, with the participation of its Chief
Executive Officer ("CEO") and Chief Financial Officer ("CFO"), have evaluated
the effectiveness of the Companys disclosure controls and procedures. Based on
that evaluation, the Companys CEO and CFO have concluded that, as of the end of
the period covered by this report, the Companys disclosure controls and
procedures were effective to provide reasonable assurance that the information
required to be disclosed by the Company in reports it files is recorded,
processed, summarized and reported, within the appropriate time periods and is
accumulated and communicated to management, including the CEO and CFO, as
appropriate to allow timely decisions regarding required disclosure.
1.15.3 |
Managements Report on Internal Control over Financial
Reporting |
The Company's management, including the CEO and the CFO, is
responsible for establishing and maintaining adequate internal control over
financial reporting. Internal control over financial reporting ("ICFR") is a
process designed by, or under the supervision of, the Company's principal
executive and principal financial officers and effected by the Company's Board
of Directors, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
consolidated financial statements for external purposes in accordance with IFRS.
The Company's ICFR includes those policies and procedures that:
|
pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company; |
Page 28
Northern Dynasty Minerals Ltd. |
Management's Discussion And Analysis |
Year ended
December 31, 2014 |
|
provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements in
accordance with IFRS, and that receipts and expenditures of the Company
are being made only in accordance with authorizations of management and
directors of the company; and |
|
|
|
provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or
disposition of the Company's assets that could have a material effect on
the consolidated financial statements. |
The Companys management assessed the effectiveness of the
Companys ICFR as of December 31, 2014. In making the assessment, it used the
criteria set forth in the Internal Control-Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission ("COSO").
Based on their assessment, management has concluded that, as of December 31,
2014, the Companys ICFR was effective based on those criteria.
The Companys ICFR as of December 31, 2014, has been audited by
Deloitte LLP, Independent Registered Public Accounting Firm, who also audited
the Companys consolidated financial statements for the year ended December 31,
2014. Deloitte LLP, as stated in their report that immediately precedes the
Company's audited consolidated financial statements for the year ended December
31, 2014, expressed an unqualified opinion on the effectiveness of the Companys
ICFR.
1.15.4 |
Changes in Internal Control over Financial
Reporting |
There has been no change in the design of the Companys ICFR
that has materially affected, or is reasonably likely to materially affect, the
Companys ICFR during the period covered by this MD&A.
1.15.5 |
Limitations of Controls and
Procedures |
The Companys management, including its CEO and CFO, believe
that any system of disclosure controls and procedures or ICFR, no matter how
well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Furthermore, the
design of a control system must reflect the fact that there are resource
constraints and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, they cannot
provide absolute assurance that all control issues and instances of fraud, if
any, within the Company have been prevented or detected. These inherent
limitations include the realities that judgments in decision-making can be
faulty and breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, or by unauthorized override of
controls. The design of any system of controls is also based in part upon
certain assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under all
potential future conditions. Accordingly, because of the inherent limitations in
a cost effective control system, misstatements due to error or fraud may occur
and not be detected.
Please refer to "Risk Factors" discussed in Item 5 in
the Companys annual information form for the fiscal year ended December
31, 2014 filed under the Companys profile on SEDAR at www.sedar.com.
Page 29
Form 52-109F1
Certification of Annual Filings -
Full Certificate
I, Ronald W. Thiessen, President and Chief Executive Officer
of Northern Dynasty Minerals Ltd., certify the following:
1. |
Review: I have reviewed the AIF, if any, annual
financial statements and annual MD&A, including, for greater
certainty, all documents and information that are incorporated by
reference in the AIF (together, the annual filings) of Northern
Dynasty Minerals Ltd. (the issuer) for the financial year ended
December 31, 2014. |
|
|
2. |
No misrepresentations: Based on my knowledge,
having exercised reasonable diligence, the annual filings do not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated or that is necessary to make a statement not
misleading in light of the circumstances under which it was made, for the
period covered by the annual filings. |
|
|
3. |
Fair presentation: Based on my knowledge, having
exercised reasonable diligence, the annual financial statements together
with the other financial information included in the annual filings fairly
present in all material respects the financial condition, financial
performance and cash flows of the issuer, as of the date of and for the
periods presented in the annual filings. |
|
|
4. |
Responsibility: The issuers other certifying
officer and I are responsible for establishing and maintaining disclosure
controls and procedures (DC&P) and internal control over financial
reporting (ICFR), as those terms are defined in National Instrument 52-109
Certification of Disclosure in Issuers Annual and Interim Filings,
for the issuer. |
|
|
5. |
Design: Subject to the limitations, if any,
described in paragraphs 5.2 and 5.3, the issuers other certifying officer
and I have, as at the financial year end |
|
(a) |
designed DC&P, or caused it to be designed under our
supervision, to provide reasonable assurance
that |
|
(i) |
material information relating to the issuer is made known
to us by others, particularly during the period in which the annual
filings are being prepared; and |
|
|
|
|
(ii) |
information required to be disclosed by the issuer in its
annual filings, interim filings or other reports filed or submitted by it
under securities legislation is recorded, processed, summarized and
reported within the time periods specified in securities legislation;
and |
|
(b) |
designed ICFR, or caused it to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with the issuers
GAAP. |
5.1 |
Control framework: The control framework the
issuers other certifying officer and I used to design the issuers ICFR
is the Internal Control Integrated Framework (2013) published by The
Committee of Sponsoring Organizations of the Treadway
Commission. |
|
|
5.2 |
ICFR material weakness relating to design:
N/A |
5.3 |
Limitation on scope of design: N/A |
|
|
6. |
Evaluation: The issuers other certifying officer
and I have |
|
(a) |
evaluated, or caused to be evaluated under our
supervision, the effectiveness of the issuers DC&P at the financial
year end and the issuer has disclosed in its annual MD&A our
conclusions about the effectiveness of DC&P at the financial year end
based on that evaluation; and |
|
|
|
|
(b) |
evaluated, or caused to be evaluated under our
supervision, the effectiveness of the issuers ICFR at the financial year
end and the issuer has disclosed in its annual
MD&A |
|
(i) |
our conclusions about the effectiveness of ICFR at the
financial year end based on that evaluation. |
|
|
|
|
(ii) |
N/A |
7. |
Reporting changes in ICFR: The issuer has
disclosed in its annual MD&A any change in the issuers ICFR that
occurred during the period beginning on October 1, 2014 and ended
on December 31, 2014 that has materially affected, or is reasonably
likely to materially affect, the issuers ICFR. |
|
|
8. |
Reporting to the issuers auditors and board of
directors or audit committee: The issuers other certifying officer
and I have disclosed, based on our most recent evaluation of ICFR, to the
issuers auditors, and the board of directors or the audit committee of
the board of directors any fraud that involves management or other
employees who have a significant role in the issuers
ICFR. |
Date: March 31, 2015
/s/ R.W. Thiessen |
|
Ronald W. Thiessen |
President & Chief Executive Officer
|
Form 52-109F1
Certification of Annual Filings -
Full Certificate
I, Marchand Snyman, Chief Financial Officer of Northern
Dynasty Minerals Ltd., certify the following:
1. |
Review: I have reviewed the AIF, if any, annual
financial statements and annual MD&A, including, for greater
certainty, all documents and information that are incorporated by
reference in the AIF (together, the annual filings) of Northern
Dynasty Minerals Ltd. (the issuer) for the financial year ended
December 31, 2014. |
|
|
2. |
No misrepresentations: Based on my knowledge,
having exercised reasonable diligence, the annual filings do not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated or that is necessary to make a statement not
misleading in light of the circumstances under which it was made, for the
period covered by the annual filings. |
|
|
3. |
Fair presentation: Based on my knowledge, having
exercised reasonable diligence, the annual financial statements together
with the other financial information included in the annual filings fairly
present in all material respects the financial condition, financial
performance and cash flows of the issuer, as of the date of and for the
periods presented in the annual filings. |
|
|
4. |
Responsibility: The issuers other certifying
officer and I are responsible for establishing and maintaining disclosure
controls and procedures (DC&P) and internal control over financial
reporting (ICFR), as those terms are defined in National Instrument 52-109
Certification of Disclosure in Issuers Annual and Interim Filings,
for the issuer. |
|
|
5. |
Design: Subject to the limitations, if any,
described in paragraphs 5.2 and 5.3, the issuers other certifying officer
and I have, as at the financial year end |
|
(a) |
designed DC&P, or caused it to be designed under our
supervision, to provide reasonable assurance
that |
|
(i) |
material information relating to the issuer is made known
to us by others, particularly during the period in which the annual
filings are being prepared; and |
|
|
|
|
(ii) |
information required to be disclosed by the issuer in its
annual filings, interim filings or other reports filed or submitted by it
under securities legislation is recorded, processed, summarized and
reported within the time periods specified in securities legislation;
and |
|
(b) |
designed ICFR, or caused it to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with the issuers
GAAP. |
5.1 |
Control framework: The control framework the
issuers other certifying officer and I used to design the issuers ICFR
is the Internal Control Integrated Framework (2013) published by The
Committee of Sponsoring Organizations of the Treadway
Commission. |
|
|
5.2 |
ICFR material weakness relating to design:
N/A |
|
|
5.3 |
Limitation on scope of design:
N/A |
6. |
Evaluation: The issuers other certifying officer
and I have |
|
(a) |
evaluated, or caused to be evaluated under our
supervision, the effectiveness of the issuers DC&P at the financial
year end and the issuer has disclosed in its annual MD&A our
conclusions about the effectiveness of DC&P at the financial year end
based on that evaluation; and |
|
|
|
|
(b) |
evaluated, or caused to be evaluated under our
supervision, the effectiveness of the issuers ICFR at the financial year
end and the issuer has disclosed in its annual
MD&A |
|
(i) |
our conclusions about the effectiveness of ICFR at the
financial year end based on that evaluation. |
|
|
|
|
(ii) |
N/A |
7. |
Reporting changes in ICFR: The issuer has
disclosed in its annual MD&A any change in the issuers ICFR that
occurred during the period beginning on October 1, 2014 and ended
on December 31, 2014 that has materially affected, or is reasonably
likely to materially affect, the issuers ICFR. |
|
|
8. |
Reporting to the issuers auditors and board of
directors or audit committee: The issuers other certifying officer
and I have disclosed, based on our most recent evaluation of ICFR, to the
issuers auditors, and the board of directors or the audit committee of
the board of directors any fraud that involves management or other
employees who have a significant role in the issuers
ICFR. |
Date: March 31, 2015
/s/ M. Snyman |
|
Marchand Snyman |
Chief Financial Officer |
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