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
As at August 18, 2015
Commission File Number: 001-32210
NORTHERN DYNASTY MINERALS LTD.
(Translation of registrant's name into English)
15th Floor - 1040 W. Georgia St.
Vancouver, British Columbia
Canada V6E 4H1
(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: August 18, 2015 |
By: |
/s/ Marchand Snyman |
|
|
|
|
|
Marchand Snyman |
|
Title: |
Director, Chief Financial Officer |
CONDENSED CONSOLIDATED
INTERIM
FINANCIAL
STATEMENTS
THREE AND SIX
MONTHS ENDED
JUNE 30,
2015
(Expressed in thousands
of Canadian Dollars)
(Unaudited)
Northern
Dynasty Minerals Ltd. |
Condensed
Consolidated Interim Statements
of Financial Position |
(Unaudited - Expressed in thousands of Canadian Dollars)
|
|
|
|
|
June 30 |
|
|
December
31 |
|
|
|
Notes |
|
2015 |
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current
assets |
|
|
|
|
|
|
|
|
Mineral property, plant and equipment |
|
3
|
$ |
132,891 |
|
$ |
123,608 |
|
Total
non-current assets |
|
|
|
132,891 |
|
|
123,608 |
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
Available-for-sale financial assets |
|
4 |
|
167 |
|
|
287 |
|
Amounts receivable and prepaid
expenses |
|
5 |
|
523 |
|
|
962 |
|
Restricted cash |
|
6 (b) |
|
1,233 |
|
|
1,206 |
|
Cash and cash equivalents |
|
6 (a) |
|
814 |
|
|
9,447 |
|
Total
current assets |
|
|
|
2,737 |
|
|
11,902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
|
$ |
135,628 |
|
$ |
135,510 |
|
|
|
|
|
|
|
|
|
|
EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital and
reserves |
|
|
|
|
|
|
|
|
Share capital |
|
7 |
$ |
399,888 |
|
$ |
389,227 |
|
Reserves |
|
|
|
86,344 |
|
|
84,031 |
|
Deficit |
|
|
|
(357,319 |
) |
|
(345,295 |
) |
Total Equity |
|
|
|
128,913 |
|
|
127,963 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current
liabilities |
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
|
|
|
|
1,514
|
|
Total
non-current liabilities |
|
|
|
|
|
|
1,514 |
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Payable to a related party |
|
8 (b) |
|
275 |
|
|
383 |
|
Trade and other payables |
|
9 |
|
6,440 |
|
|
5,650 |
|
Total
current liabilities |
|
|
|
6,715 |
|
|
6,033 |
|
|
|
|
|
|
|
|
|
|
Total
Liabilities |
|
|
|
6,715 |
|
|
7,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity and
Liabilities |
|
|
$ |
135,628 |
|
$ |
135,510 |
|
Continuance of Operations (note 1)
Commitments (note
12)
The accompanying notes
are an integral part
of these condensed
consolidated interim financial
statements.
These condensed consolidated interim 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 2
Northern
Dynasty Minerals Ltd. |
Condensed
Consolidated Interim Statements
of Comprehensive Loss |
(Unaudited - Expressed in thousands of Canadian Dollars,
except for share information) |
|
|
|
|
Three months ended June 30 |
|
|
Six months ended June 30 |
|
|
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
|
Notes |
|
|
|
|
(note
2 |
(b)) |
|
|
|
|
(note
2 |
(b)) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration and evaluation expenses |
|
11 |
$ |
1,484 |
|
$ |
2,952 |
|
$ |
3,558 |
|
$ |
6,980 |
|
General and administrative
expenses |
|
11 |
|
1,567 |
|
|
2,150 |
|
|
3,383 |
|
|
4,820 |
|
Legal, accounting and audit |
|
|
|
2,922 |
|
|
1,281 |
|
|
6,170 |
|
|
1,436 |
|
Share-based compensation |
|
7 (c) |
|
41 |
|
|
699 |
|
|
401 |
|
|
2,798 |
|
Loss from operating activities |
|
|
|
6,014 |
|
|
7,082 |
|
|
13,512 |
|
|
16,034 |
|
Foreign exchange loss (gain)
|
|
|
|
23 |
|
|
(55 |
) |
|
107 |
|
|
(285 |
) |
Interest income |
|
|
|
(63 |
) |
|
(48 |
) |
|
(81 |
) |
|
(289 |
) |
Loss before tax |
|
|
|
5,974 |
|
|
6,979 |
|
|
13,538 |
|
|
15,460 |
|
Deferred income tax recovery |
|
|
|
(196 |
) |
|
(108 |
) |
|
(1,514 |
) |
|
(126 |
) |
Loss for the
period |
|
|
$ |
5,778 |
|
$ |
6,871 |
|
$ |
12,024 |
|
$ |
15,334 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive
loss (income) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items that may
be reclassified subsequently
to loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange translation
loss (gain) |
|
7 (d) |
|
1,864 |
|
|
4,164 |
|
|
(9,318 |
) |
|
(239 |
) |
Decrease in fair value of available-for-sale financial assets |
|
4
|
|
28 |
|
|
|
|
|
120
|
|
|
|
|
Other comprehensive
loss (income) for
the period |
|
|
$ |
1,892 |
|
$ |
4,164 |
|
$ |
(9,198 |
) |
$ |
(239 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive
loss for the period
|
|
|
$ |
7,670 |
|
$ |
11,035 |
|
$ |
2,826 |
|
$ |
15,095 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
loss per common share |
|
10 |
$ |
0.04 |
|
$ |
0.07 |
|
$ |
0.09 |
|
$ |
0.16 |
|
The accompanying notes
are an integral part
of these condensed
consolidated interim financial
statements.
Page 3
Northern
Dynasty Minerals Ltd. |
Condensed
Consolidated Interim Statements
of Cash Flows |
(Unaudited - Expressed in thousands of Canadian Dollars)
|
|
|
|
|
Six months ended June 30 |
|
|
|
Notes |
|
2015 |
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
Cash flows
from operating activities |
|
|
|
|
|
|
|
|
Loss for the period |
|
|
$ |
(12,024 |
) |
$ |
(15,334 |
) |
Adjustments for items not
affecting cash or operating activities: |
|
|
|
|
|
|
|
|
Depreciation |
|
|
|
131 |
|
|
143 |
|
Deferred income
tax recovery |
|
|
|
(1,514 |
) |
|
(126 |
) |
Foreign exchange loss (gain) |
|
|
|
104 |
|
|
(301 |
) |
Interest
received on cash held |
|
|
|
(81 |
) |
|
(156 |
) |
Interest receivable on loan
prior to settlement |
|
|
|
|
|
|
(133 |
) |
Loss on disposal
of plant and equipment |
|
|
|
5 |
|
|
59 |
|
Share-based compensation |
|
|
|
401 |
|
|
2,798 |
|
Changes in non-cash working
capital items |
|
|
|
|
|
|
|
|
Restricted cash |
|
6 (b) |
|
61 |
|
|
12 |
|
Amounts
receivable and prepaid expenses |
|
|
|
448 |
|
|
|
|
Trade and other payables |
|
|
|
550 |
|
|
(178 |
) |
Payable to related party |
|
|
|
(108 |
) |
|
(243 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in
operating activities |
|
|
|
(12,027 |
) |
|
(13,459 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from
investing activities |
|
|
|
|
|
|
|
|
Acquisition of plant and
equipment |
|
3 |
|
(28 |
) |
|
|
|
Disposal of equipment |
|
3 |
|
70 |
|
|
|
|
Interest received on cash held |
|
|
|
81 |
|
|
156 |
|
Net cash from
investing activities |
|
|
|
123
|
|
|
156
|
|
|
|
|
|
|
|
|
|
|
Cash flows from
financing activity |
|
|
|
|
|
|
|
|
Special Warrants issued, net of issuance costs |
|
7 (b) |
|
3,375 |
|
|
|
|
Net cash from
financing activity |
|
|
|
3,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in
cash and cash
equivalents |
|
|
|
(8,529 |
) |
|
(13,303 |
) |
Effect of exchange rate
fluctuations on cash held |
|
|
|
(104 |
) |
|
69 |
|
Cash
and cash equivalents at beginning of the period |
|
|
|
9,447
|
|
|
25,795 |
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
at end of the
period |
|
6
(a) |
$ |
814 |
|
$ |
12,561 |
|
|
|
|
|
|
|
|
|
|
Non-cash investing
and financing activities: |
|
|
|
|
|
|
|
|
The Company
converted Special Warrants on a one-for-one basis into common shares at no
additional cost to holder (note 7(b)) |
|
The Group received title to mineral claims in settlement of a loan
receivable in 2014 (note 3) |
|
|
|
|
The accompanying notes
are an integral part
of these condensed
consolidated interim financial
statements
Page 4
Northern
Dynasty Minerals Ltd. |
Condensed
Consolidated Interim Statements
of Changes in Equity
|
(Unaudited - Expressed in thousands of Canadian Dollars,
except for number of shares) |
|
|
Share capital |
|
|
Reserves |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity settled |
|
|
currency |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
share-based |
|
|
translation |
|
|
Investment |
|
|
Special |
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
payments |
|
|
reserve |
|
|
revaluation |
|
|
Warrants |
|
|
|
|
|
|
|
|
|
shares |
|
|
Amount |
|
|
reserve |
|
|
(note
7(d)) |
|
|
reserve |
|
|
(note 7(b)) |
|
|
Deficit |
|
|
Total equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2014
|
|
95,009,864 |
|
$ |
389,227 |
|
$ |
51,417 |
|
$ |
7,234 |
|
$ |
(2 |
) |
$ |
|
|
$ |
(313,948 |
) |
$ |
133,928 |
|
Share-based compensation |
|
|
|
|
|
|
|
2,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,798
|
|
Loss for the
period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,334 |
) |
|
(15,334 |
) |
Other comprehensive income for the period |
|
|
|
|
|
|
|
|
|
|
239
|
|
|
|
|
|
|
|
|
|
|
|
239
|
|
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,095 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June
30, 2014 |
|
95,009,864 |
|
$ |
389,227 |
|
$ |
54,215 |
|
$ |
7,473 |
|
$ |
(2 |
) |
$ |
|
|
$ |
(329,282 |
) |
$ |
121,631 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2015
|
|
95,009,864 |
|
$ |
389,227 |
|
$ |
55,294 |
|
$ |
17,179 |
|
$ |
6 |
|
$ |
11,552 |
|
$ |
(345,295 |
) |
$ |
127,963 |
|
Conversion of Special Warrants into common
shares |
|
25,684,721 |
|
|
10,661 |
|
|
|
|
|
|
|
|
|
|
|
(10,661 |
) |
|
|
|
|
|
|
Special Warrants issued, net
of transaction costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,375 |
|
|
|
|
|
3,375 |
|
Share-based compensation |
|
|
|
|
|
|
|
401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
401
|
|
Loss for the
period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,024 |
) |
|
(12,024 |
) |
Other comprehensive income (loss) for the
period |
|
|
|
|
|
|
|
|
|
|
9,318
|
|
|
(120 |
) |
|
|
|
|
|
|
|
9,198
|
|
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,826 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June
30, 2015 |
|
120,694,585 |
|
$ |
399,888 |
|
$ |
55,695 |
|
$ |
26,497 |
|
$ |
(114 |
) |
$ |
4,266 |
|
$ |
(357,319 |
) |
$ |
128,913 |
|
The accompanying notes
are an integral part
of these condensed
consolidated interim financial
statements.
Page 5
Northern Dynasty Minerals Ltd. |
|
Notes to the Condensed Consolidated
Interim Financial Statements |
|
For the three and six months ended June 30, 2015 and 2014 |
|
(Unaudited Expressed in thousands of Canadian Dollars, unless
otherwise stated, except per share or option) |
1. |
NATURE AND CONTINUANCE OF
OPERATIONS
|
Northern Dynasty Minerals Ltd. (the
"Company") is incorporated under the laws of the Province of British Columbia,
Canada, and its principal business activity is the exploration of mineral
properties. The Company is listed on the Toronto Stock Exchange ("TSX") under
the symbol "NDM" and on the 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 condensed consolidated interim
financial statements ("Financial Statements") of the Company as at and for the
period ended June 30, 2015, include financial information for the Company and
its subsidiaries (note 2(c)) (together referred to as the "Group" and
individually as "Group entities"). The Company is the ultimate parent. The Group
operates in a single and geographical reportable operating segment which is the
acquisition, exploration and development of its core mineral property interest,
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 interest, are 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.
As at June 30, 2015, the Group had 0.8
million in cash and cash equivalents for its operating requirements. After the
reporting period, on August 10, 2015, the Group announced that it intends to
raise up to $20.0 million through a combination of an equity financing of
$10-$15 million through the issuance of Special Warrants and an acquisition of
an inactive TSX Venture listed entity whose primary asset is cash of $4.7
million (note 13). The Group has prioritized the allocation of these funds to
meet key corporate and Pebble Project expenditure requirements in the near term
and additional financing will be required in order to progress material
expenditures at the Pebble Project in 2016. 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.
Management has concluded that going concern is appropriate in the presentation
of these Financial Statements due to the anticipated financing discussed
above.
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
discharges 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. The appeal was denied in May 2015. The
Pebble Partnership still holds the option to pursue its statutory authority case
in the instance that EPA finalizes a pre-emptive regulatory action under the
Clean Water Act 404(c). 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.
In June 2015, in a U.S. federal court decision, the EPAs motion to dismiss the
FACA case was rejected and as a result the FACA case will move forward. 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.
On October 14, 2014, the Pebble Partnership filed suit in the federal district
court in Alaska charging that the EPA has violated the Freedom of Information
Act by improperly withholding documents related to the Pebble Project, the
Bristol Bay Watershed Assessment and consideration of a pre-emptive 404(c) veto
under the Clean Water Act. The EPA has moved for summary judgment claiming that
its search for and disclosure of documents was adequate. The Pebble Partnership
has opposed the motion pointing out several deficiencies in the EPAs search
parameters and pointing out the agencys overly broad assertion of the
deliberative process privilege to withhold documents.
Page 6
Northern Dynasty Minerals Ltd. |
|
Notes to the Condensed Consolidated
Interim Financial Statements |
|
For the three and six months ended June 30, 2015 and 2014 |
|
(Unaudited Expressed in thousands of Canadian Dollars, unless
otherwise stated, except per share or option) |
2. |
SIGNIFICANT ACCOUNTING
POLICIES
|
(a) |
Statement of Compliance
|
|
|
|
These Financial Statements have been prepared in
accordance with IAS 34, Interim Financial Reporting, as issued by
the International Accounting Standards Board ("IASB") and interpretations
issued by the IFRS Interpretations Committee ("IFRIC"s). They do not
include all of the information required by International Financial
Reporting Standards ("IFRS") for complete annual financial statements, and
should be read in conjunction with the Groups consolidated financial
statements as at and for the year ended December 31, 2014, which were
filed. Accordingly, accounting policies applied other than as noted in (e)
below are the same as those applied in the Groups annual financial
statements. These Financial Statements were authorized for issue by the
Audit and Risk Committee of the Board of Directors on August 13,
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. |
|
|
|
Comparative information in the statement of loss and
comprehensive loss has been reclassified to separately reflect legal,
accounting and audit expenditures, which line item is predominantly
comprised of legal costs incurred by the Group in response to the EPAs
activities surrounding the Pebble Project. These expenditures were
previously included under general and administrative expenditures. There
is no impact of the expense reclassification on loss and comprehensive
loss for the period or basic and diluted loss per share. Statements of
financial position, cash flows and changes in equity are not
affected. |
|
|
(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: |
Page 7
Northern Dynasty Minerals Ltd. |
|
Notes to the Condensed Consolidated
Interim Financial Statements |
|
For the three and six months ended June 30, 2015 and 2014 |
|
(Unaudited Expressed in thousands of Canadian Dollars, unless
otherwise stated, except per share or option) |
|
Place of |
|
|
Name of
Subsidiary |
Incorporation |
Principal Activity |
Ownership |
0796412 BC Ltd.
|
British Columbia,
Canada |
Not active. Wholly-owned
subsidiary of the Company. |
100%
|
3537137 Canada
Inc.1
|
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 ("PLP") 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 2
|
Alaska, USA
|
Holding Company. Wholly-
owned subsidiary of PLP. |
100%
(indirect) |
Pebble East Claims
Corporation 3
|
Alaska, USA
|
Holding Company. Wholly-
owned subsidiary of PLP. |
100%
(indirect) |
U5
Resources Inc.4
|
Nevada, USA
|
Holding Company. Wholly-
owned subsidiary of the
Company. |
100%
|
Notes to the table above:
|
1. |
Holds 20% interest in the Northern Dynasty Partnership.
The Company holds the remaining 80% interest. |
|
2. |
Holds certain of the Pebble Project claims. |
|
3. |
Holds certain of the Pebble Project claims and claims
located south and west of the Pebble Project claims. In January 2015, two
of the Companys wholly-owned subsidiaries, Kaskanak Inc. and its
wholly-owned parent, Kaskanak Copper LLC, were merged with Pebble East
Claims Corporation, with the latter surviving the merger. |
|
4. |
Holds certain mineral claims located north of the Pebble
Project claims. |
(d) |
Significant Accounting Estimates and
Judgments
|
|
|
|
There was no change in the use of estimates and judgments
during the current period as compared to those described in Note 2 in the
Groups Consolidated Financial Statements for the year ended December 31,
2014. |
|
|
(e) |
Amendments, Interpretations, Revised and New Standards
Adopted by the Group
|
|
|
|
As of January 1, 2015 the Group has not adopted any new
amendments, interpretations, revised and new
standards. |
Page 8
Northern Dynasty Minerals Ltd. |
|
Notes to the Condensed Consolidated
Interim Financial Statements |
|
For the three and six months ended June 30, 2015 and 2014 |
|
(Unaudited Expressed in thousands of Canadian Dollars, unless
otherwise stated, except per share or option) |
(f) |
Accounting Standards, Amendments and Revised Standards
Not Yet Effective
|
|
|
|
|
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. |
|
|
|
|
|
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 Programs, 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, 2018,
with early adoption permitted. In May 2015, the IASB issued an exposure
draft for comments on the proposal to defer the effective date of IFRS 15
by one year. On July 22, 2015, following a public consultation, the IASB
confirmed the one year deferral. |
|
|
|
|
The Group anticipates that the adoption of IFRS 15 is
unlikely to have a material impact on its financial statements given the
extent of revenue from contracts with customers in the ordinary course of
business. |
Page 9
Northern Dynasty Minerals Ltd. |
|
Notes to the Condensed Consolidated
Interim Financial Statements |
|
For the three and six months ended June 30, 2015 and 2014 |
|
(Unaudited 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:
Six months ended June 30, 2015 |
|
Mineral property |
|
|
Plant and |
|
|
Total |
|
|
|
interest |
|
|
equipment |
|
|
|
|
Cost |
|
|
|
|
|
|
|
|
|
Beginning balance |
$ |
112,541 |
|
$ |
1,155 |
|
$ |
113,696 |
|
Additions |
|
|
|
|
28 |
|
|
28 |
|
Disposals |
|
|
|
|
(151 |
) |
|
(151 |
) |
Ending balance |
$ |
112,541 |
|
$ |
1,032 |
|
$ |
113,573 |
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation |
|
|
|
|
|
|
|
|
|
Beginning balance |
$ |
|
|
$ |
(278 |
) |
$ |
(278 |
) |
Charge for the period |
|
|
|
|
(131 |
) |
|
(131 |
) |
Reversal of accumulated depreciation on disposal |
|
|
|
|
76 |
|
|
76 |
|
Ending balance |
$ |
|
|
$ |
(333 |
) |
$ |
(333 |
) |
|
|
|
|
|
|
|
|
|
|
Foreign currency
translation difference |
|
19,484 |
|
|
167 |
|
|
19,651 |
|
|
|
|
|
|
|
|
|
|
|
Net carrying
value Ending balance |
$ |
132,025 |
|
$ |
866 |
|
$ |
132,891 |
|
Year ended December 31, 2014 |
|
Mineral property |
|
|
Plant and |
|
|
Total |
|
|
|
interest |
|
|
equipment |
|
|
|
|
Cost |
|
|
|
|
|
|
|
|
|
Beginning balance |
$ |
106,697 |
|
$ |
1,222 |
|
$ |
107,919 |
|
Additions (1) |
|
5,844 |
|
|
|
|
|
5,844 |
|
Disposals |
|
|
|
|
(67 |
) |
|
(67 |
) |
Ending balance |
$ |
112,541 |
|
$ |
1,155 |
|
$ |
113,696 |
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation |
|
|
|
|
|
|
|
|
|
Beginning balance |
$ |
|
|
$ |
|
|
$ |
|
|
Charge for the period |
|
|
|
|
(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 |
|
|
(1) |
Additions to mineral property interest represent the
transfer to the Group of a 100% interest in certain mineral claims located
north and north west of the Pebble Project in settlement of a loan to a
third party. |
The Groups mineral property represents
the Pebble Project and adjacent mineral claims, 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 relating to the Pebble Project were acquired by the Group in
2001. In July 2007, the Group established the Pebble Limited Partnership (the
"Pebble Partnership") to advance the Pebble Project toward the feasibility
stage. The Groups contribution to the Pebble Partnership was the Pebble
Project. Until December 2013, the Pebble Partnership was under joint control and
funded by the Group`s partner who provided approximately $595 million (US$573
million) in funding. The Group reacquired a 100% interest in the Pebble
Partnership and control of the Pebble Project in December 2013.
Page 10
Northern Dynasty Minerals Ltd. |
|
Notes to the Condensed Consolidated
Interim Financial Statements |
|
For the three and six months ended June 30, 2015 and 2014 |
|
(Unaudited Expressed in thousands of Canadian Dollars, unless
otherwise stated, except per share or option) |
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.
|
|
|
June 30 |
|
|
December 31 |
|
|
|
|
2015 |
|
|
2014 |
|
|
|
|
|
|
$ |
|
|
|
Marketable securities |
$ |
167 |
|
|
287 |
|
The Group has determined the fair value
of the marketable securities that comprise its available-for-sale financial
assets using their quoted market prices, which are level 1 inputs in the fair
value hierarchy.
5. |
AMOUNTS RECEIVABLE AND PREPAID
EXPENSES
|
|
|
|
June 30 |
|
|
December 31 |
|
|
|
|
2015 |
|
|
2014 |
|
|
|
|
|
|
$ |
|
|
|
Sales tax receivable |
$ |
56 |
|
|
70 |
|
|
Amounts receivable |
|
194 |
|
|
143 |
|
|
Prepaid expenses |
|
273 |
|
|
749 |
|
|
|
|
|
|
$ |
|
|
|
Total |
$ |
523 |
|
|
962 |
|
6. |
CASH AND CASH EQUIVALENTS AND RESTRICTED
CASH
|
(a) |
Cash and Cash
Equivalents
|
|
|
|
June 30 |
|
|
December 31 |
|
|
|
|
2015 |
|
|
2014 |
|
|
|
$ |
|
|
$ |
|
|
|
Business and savings accounts |
|
814 |
|
|
9,130 |
|
|
Guaranteed investment certificates |
|
|
|
|
317 |
|
|
|
$ |
|
|
$ |
|
|
|
Total |
|
814 |
|
|
9,447 |
|
(b) |
Restricted Cash
|
|
|
|
At June 30, 2015, restricted cash in the amount of $1,233
(December 31, 2014 $1,206) was held by the Pebble Partnership for
certain equipment demobilization expenses relating to its activities
undertaken when it was subject to joint control. This cash is not
available for general use by the Group. The Group has a current obligation
(note 9) to refund to Anglo American any unutilized balance upon the
earlier of (i) 60 days from the date of completion of demobilization and
(ii) December 31, 2015. |
Page 11
Northern Dynasty Minerals Ltd. |
|
Notes to the Condensed Consolidated
Interim Financial Statements |
|
For the three and six months ended June 30, 2015 and 2014 |
|
(Unaudited Expressed in thousands of Canadian Dollars, unless
otherwise stated, except per share or option) |
(a) |
Authorized Share Capital
|
|
|
|
At June 30, 2015, the Companys authorized share capital
comprised an unlimited (2014 unlimited) number of common shares with no
par value. All issued shares are fully paid. |
|
|
(b) |
Special Warrants
|
|
|
|
In December 2014, the Company 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, of which $11,905 was received
in December 2014 and $3,595 was received in January 2015. The Group
incurred a total of $573 in advisory, finders, regulatory, and legal fees
on the Private Placement, of which $353 was incurred in December 2014 and
$220 in the period ended June 30, 2015. |
|
Continuity of
Special Warrants |
|
Number |
|
|
Balance at January 1, 2015 |
|
27,622,642 |
|
|
Issued January 2, 2015 |
|
1,160,093 |
|
|
Issued January 12, 2015 |
|
7,180,000 |
|
|
Conversion into
the Companys common shares on a oneforone basis |
|
(25,684,721 |
) |
|
Balance at June 30, 2015 (i) |
|
10,278,014 |
|
|
(i) |
On July 3, 2015, these outstanding Special Warrants were
converted into an equivalent number of common shares in the
Company. |
Each Special Warrant was convertible,
without payment of any additional consideration by the holder, into one common
share of the Company, either at the option of the holder or automatically within
a maximum of a two year period from the issuance date. Of the total number of
Special Warrants converted as of June 30, 2015, 15,741,132 were converted during
the three month period ended June 30, 2015.
The Special Warrants did not confer on
their holders any right as a shareholder of the Company, including but not
limited to any right to vote at any meeting of shareholders or any other
proceedings of the Company, other than meetings by holders of Special Warrants,
or any right to receive any dividend or other distribution.
(c) |
Share Purchase Option Compensation
Plan
|
|
|
|
The following reconciles share purchase options
("Options") outstanding for the six months ended June 30, 2015 and
2014: |
|
|
|
2015 |
|
|
2014 |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
average |
|
|
|
|
|
average |
|
|
|
|
|
|
|
exercise |
|
|
|
|
|
exercise |
|
|
|
|
Number of |
|
|
price |
|
|
Number of |
|
|
price |
|
|
Continuity of Options |
|
Options |
|
|
($/Option) |
|
|
Options |
|
|
($/Option) |
|
|
Balance at beginning of period |
|
7,687,000 |
|
|
1.95 |
|
|
3,735,700 |
|
|
4.13 |
|
|
Granted |
|
|
|
|
|
|
|
5,675,100 |
|
|
1.59 |
|
|
Expired |
|
(1,241,800 |
) |
|
3.00 |
|
|
(1,839,600 |
) |
|
5.12 |
|
|
Forfeited |
|
(202,500 |
) |
|
2.43 |
|
|
(2,600 |
) |
|
1.77 |
|
|
Balance at end of period |
|
6,242,700 |
|
|
1.72 |
|
|
7,568,600 |
|
|
1.99 |
|
Page 12
Northern Dynasty Minerals Ltd. |
|
Notes to the Condensed Consolidated
Interim Financial Statements |
|
For the three and six months ended June 30, 2015 and 2014 |
|
(Unaudited Expressed in thousands of Canadian Dollars, unless
otherwise stated, except per share or option) |
For the Options granted during the six
month period ended on June 30, 2014, the weighted average fair value was
estimated at $0.77 per option and was based on the Black-Scholes option pricing
model using the following weighted average assumptions:
Assumptions |
|
|
|
Risk-free interest rate |
|
1.53% |
|
Expected life |
|
4.55 years |
|
Expected volatility |
|
68% |
|
Grant date share price |
|
$1.47 |
|
Expected dividend yield |
|
Nil |
|
The following table summarizes
information about Options outstanding at June 30, 2015:
|
|
Options outstanding |
|
|
|
|
|
Options exercisable |
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
average |
|
|
|
|
|
|
|
|
average |
|
|
|
|
|
|
average |
|
|
remaining |
|
|
|
|
|
average |
|
|
remaining |
|
Exercise |
|
Number of |
|
|
exercise |
|
|
contractual |
|
|
Number of |
|
|
exercise |
|
|
contractual |
|
prices |
|
Options |
|
|
price |
|
|
life |
|
|
Options |
|
|
price |
|
|
life |
|
($) |
|
outstanding |
|
|
($/Option) |
|
|
(years) |
|
|
exercisable |
|
|
($/Option) |
|
|
(years) |
|
0.72 |
|
200,000 |
|
|
0.72 |
|
|
4.21 |
|
|
66,667 |
|
|
0.72 |
|
|
4.21 |
|
0.89 |
|
1,180,500 |
|
|
0.89 |
|
|
3.70 |
|
|
745,166 |
|
|
0.89 |
|
|
3.72 |
|
1.77 |
|
4,360,200 |
|
|
1.77 |
|
|
3.16 |
|
|
4,360,200 |
|
|
1.77 |
|
|
3.16 |
|
3.00 |
|
475,000 |
|
|
3.00 |
|
|
2.00 |
|
|
475,000 |
|
|
3.00 |
|
|
2.00 |
|
15.44 |
|
27,000 |
|
|
15.44 |
|
|
0.71 |
|
|
27,000 |
|
|
15.44 |
|
|
0.71 |
|
|
|
6,242,700 |
|
|
1.72 |
|
|
3.20 |
|
|
5,674,033 |
|
|
1.81 |
|
|
3.14 |
|
(d) |
Foreign Currency Translation
Reserve
|
|
|
|
The foreign currency translation reserve represents
accumulated exchange differences arising on the translation of the results
and net assets of two of the Companys subsidiaries the Pebble
Partnership and U5 Resources Inc. from their functional currency (US
dollar), to the Groups reporting currency (Canadian
dollar). |
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 of transactions and
balance with other related parties are disclosed below:
(a) |
Transactions and Balances with Key Management
Personnel
|
|
|
|
The aggregate value of transactions with key management
personnel, being directors and senior management including the Senior Vice
President, Corporate Development, Vice President ("VP") Corporate
Communications, VP, Engineering, VP, Public Affairs, Pebble Partnership
Chief Executive Officer and VP, Public Affairs and Pebble Mines Corp.
Chairman, for the three and six months ended June 30, 2015 and 2014 was as
follows: |
Page 13
Northern Dynasty Minerals Ltd. |
|
Notes to the Condensed Consolidated
Interim Financial Statements |
|
For the three and six months ended June 30, 2015 and 2014 |
|
(Unaudited Expressed in thousands of Canadian Dollars, unless
otherwise stated, except per share or option) |
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
|
Compensation |
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
Short-term employee benefits (i) |
$ |
1,338 |
|
$ |
1,011 |
|
$ |
1,946 |
|
$ |
2,004 |
|
|
Share-based compensation |
|
33 |
|
|
512 |
|
|
299 |
|
|
1,999 |
|
|
Total |
$ |
1,371 |
|
$ |
1,523 |
|
$ |
2,245 |
|
$ |
4,003 |
|
|
(i) |
Short-term employee benefits include salaries, directors
fees and amounts paid to HDSI (see (b)(i)) for services provided to the
Group by certain HDSI personnel who serve as executive directors and
officers for the Group. |
(b) |
Transactions and Balances with other Related
Parties
|
|
|
|
The aggregate value of transactions and outstanding
balances with other related parties for the three and six months ended
June 30, 2015 and 2014 were as follows: |
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
|
Transactions |
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
Entity with significant influence (i) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
Services rendered to the Group |
$ |
972 |
|
$ |
1,252 |
|
$ |
2,110 |
|
|
2,696 |
|
|
Reimbursement of third party expenses incurred on behalf
of the Group |
|
140 |
|
|
162 |
|
|
138 |
|
|
460 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
Total paid by the Group |
$ |
1,112 |
|
$ |
1,414 |
|
$ |
2,248 |
|
|
3,156 |
|
|
|
|
June 30 |
|
|
December 31 |
|
|
Balances payable to related parties |
|
2015 |
|
|
2014 |
|
|
Entity with significant influence over the Group (i) |
$ |
275 |
|
$ |
383 |
|
|
Total |
$ |
275 |
|
$ |
383 |
|
|
(i) |
Hunter Dickinson Services Inc. ("HDSI"), a private
company, provides geological, corporate development, administrative and
management services to the Group and its subsidiaries at annually set
rates pursuant to a management services agreement. 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. |
9. |
TRADE AND OTHER
PAYABLES
|
|
|
|
June 30 |
|
|
December 31 |
|
|
Falling due within the year |
|
2015 |
|
|
2014 |
|
|
Trade |
$ |
5,207 |
|
$ |
4,444 |
|
|
Other (note 6(b)) |
|
1,233 |
|
|
1,206 |
|
|
Total |
$ |
6,440 |
|
$ |
5,650 |
|
Page 14
Northern Dynasty Minerals Ltd. |
|
Notes to the Condensed Consolidated
Interim Financial Statements |
|
For the three and six months ended June 30, 2015 and 2014 |
|
(Unaudited 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 for the three and six months ended
June 30, 2015 and 2014:
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
Loss attributable to common shareholders |
$ |
5,778 |
|
$ |
6,871 |
|
$ |
12,024 |
|
$ |
15,334 |
|
|
Weighted average number of common shares outstanding and
common share equivalents (000s) |
|
130,973 |
|
|
95,010 |
|
|
130,529 |
|
|
95,010 |
|
Due to their mandatory conversion
requirements with no additional payments, Special Warrants (note 7(b)) are
included in the calculation of basic loss per share. Diluted loss per share does
not include the effect of all share purchase options outstanding as they are
anti-dilutive.
The amount of salaries and benefits
included in expenses for the three and six months ended June 30, 2015 and 2014
are as follows:
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
Exploration and evaluation expenses |
$ |
901 |
|
$ |
1,297 |
|
$ |
1,408 |
|
$ |
2,775 |
|
|
General and administration expenses |
|
1,215 |
|
|
1,272 |
|
|
2,592 |
|
|
2,688 |
|
|
Share-based compensation |
|
41 |
|
|
699 |
|
|
401 |
|
|
2,798 |
|
|
Total |
$ |
2,157 |
|
$ |
3,268 |
|
$ |
4,401 |
|
$ |
8,261 |
|
12. |
COMMITMENTS AND
CONTINGENCIES
|
(a) |
Leases
|
|
|
|
The Group has the following commitments as of June 30,
2015: |
|
|
|
2015 |
|
|
|
|
|
|
|
|
|
|
(After June 30 |
) |
|
2016 |
|
|
Total |
|
|
|
|
(000s |
) |
|
(000s |
) |
|
(000s |
) |
|
Anchorage office lease (i) |
US$ |
240 |
|
US$ |
407 |
|
US$ |
647 |
|
|
Anchorage communication lease (ii) |
|
12 |
|
|
|
|
|
12 |
|
|
Pebble Project
site lease (iii) |
|
48 |
|
|
32 |
|
|
80 |
|
|
Total |
US$ |
300 |
|
US$ |
439 |
|
US$ |
739 |
|
|
Total in Canadian dollars (iv) |
$ |
375 |
|
$ |
548 |
|
$ |
923 |
|
|
(i) |
Original term of 5 years expires on October 31,
2016. |
|
(ii) |
Lease term expires on July 31, 2015. |
|
(iii) |
Lease for hanger at site, expires on May 1,
2016. |
|
(iv) |
Converted at closing rate of $1.2490/US$ on June30, 2015,
as per Bank of Canada. |
Page 15
Northern Dynasty Minerals Ltd. |
|
Notes to the Condensed Consolidated
Interim Financial Statements |
|
For the three and six months ended June 30, 2015 and 2014 |
|
(Unaudited Expressed in thousands of Canadian Dollars, unless
otherwise stated, except per share or option) |
|
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 of approximately US$218,000 ($273). The term of the
sub-lease expires on October 31, 2016. |
|
|
(b) |
Property Rentals
|
|
|
|
State rentals for the Pebble Project and adjacent claims
in the amount of US$990,390 ($1,237) are payable in November
2015. |
|
|
(c) |
Other
|
|
|
|
As a result of a recent ruling from the Alaska Supreme
Court ("Court"), in which the Court in the appeal case reversed a decision
of a lower court and remanded the case back to the lower court, the Group,
through the Pebble Partnership, has a contingent liability for its share
of the award of attorneys' fees and other amounts that the lower court may
impose. The Group is unable to estimate reliably the total amount of these
costs. |
13. |
EVENTS AFTER THE REPORTING
PERIOD
|
On August 10, 2015, the Company
announced that it intended to raise up to $20 million through (a) the issuance
of $10$15 million worth of Special Warrants, exercisable into the Companys
common shares at a price of $0.399 per Special Warrant, and (b) the acquisition
of 100% of Cannon Point Resources Ltd. ("Cannon Point"), a TSX Venture Exchange
listed entity, whose primary asset is cash of $4.7 million, through the issuance
of approximately 12.9 million common shares of the Company.
Issuance of the Special Warrants is
subject to the filing of a prospectus in applicable Canadian provinces, and a
registration statement in the United States.
The acquisition of Cannon Point is
conditional upon at least $10 million being raised in the Special Warrant
offering, and is subject to the preparation of definitive agreements, and a 2/3
majority vote of Cannon Point shareholders. Cannon Point has agreed to provide a
secured credit facility available to the Group, bearing interest at 15% per
annum prepaid in six month periods. The amounts borrowed are to be repayable 180
days after termination if the acquisition of Cannon Point does not proceed.
Both the Special Warrant offering and
the acquisition of Cannon Point are subject to customary regulatory and judicial
approvals.
Page 16
MANAGEMENT'S DISCUSSION AND ANALYSIS
THREE AND SIX MONTHS ENDED JUNE 30, 2015
Northern
Dynasty Minerals Ltd.
|
Management's
Discussion And Analysis
|
Three
and six months
ended June 30,
2015 |
Table of Contents
This Managements Discussion and Analysis ("MD&A") should
be read in conjunction with the unaudited interim financial statements ("Interim
Financial Statements") for the three and six months ended June 30, 2015 and the
audited consolidated financial statements and MD&A 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 August 13,
2015. All dollar amounts herein are expressed in Canadian dollars, unless
otherwise specified.
Page 2
Northern
Dynasty Minerals Ltd.
|
Management's
Discussion And Analysis
|
Three
and six months
ended June 30,
2015 |
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 a precondition to any potential development of the
Pebble Project which would then require engineering and financing for 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.
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;
|
Page 3
Northern
Dynasty Minerals Ltd.
|
Management's
Discussion And Analysis
|
Three
and six months
ended June 30,
2015 |
- the volatility of gold, copper and molybdenum prices;
- the inherent risk involved in the exploration, development and production
of minerals;
- changes in, or the introduction of new, government regulations relating to
mining, including laws and regulations relating to the protection of the
environment;
- the presence of unknown environmental hazards at the Pebble Project;
- potential claims by third parties against 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 for 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.
Since Northern Dynasty acquired the Pebble Project in 2001, the
Company and subsequently the Pebble Limited Partnership completed significant
exploration programs, resource estimates, environmental data collection and
technical studies, and engineering of various possible mine development models
and related infrastructure, power and transportation systems. As a consequence
of several factors, including the US Environmental Protection Agency opposition
to the Pebble Project, the withdrawal of Anglo American plc from the project and
the passage of time, previous 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 remain 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 and the Companys annual report on
Form 20-F filed with the United States Securities Exchange Commission (the
"SEC") at www.sec.gov.
The Company reviews its forward looking statements on an
ongoing basis and updates this information when circumstances require it. |
Page 4
Northern
Dynasty Minerals Ltd.
|
Management's
Discussion And Analysis
|
Three
and six months
ended June 30,
2015 |
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 cut-off grade 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.
Mineralization indicating the presence of the Pebble deposit
was discovered by a prior operator in 1987, and by 1997 an initial outline of
the copper, gold and molybdenum deposit 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 significant expansion of the Pebble
deposit, including the discovery of a substantial volume of higher grade
mineralization in the eastern part of the deposit. In addition, other
occurrences of copper, gold and molybdenum were identified along the extensive
northeast-trending mineralized system that underlies the property. Comprehensive
deposit delineation, environmental, socioeconomic and engineering studies of the
Pebble deposit began in 2004.
Some $801 million has been invested to advance the Pebble
Project since 2001, 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") from 2007 to
20132, and the remainder 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
Page 5
Northern
Dynasty Minerals Ltd.
|
Management's
Discussion And Analysis
|
Three
and six months
ended June 30,
2015 |
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. The Companys efforts since that time have been focused
around providing information and responses to this action through the Pebble
Partnership.
In 2015, the Company is:
-
engaging in 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 otherwise prepare documentation to position
the Pebble Project to initiate federal and state permitting under National
Environmental Policy Act ("NEPA");
-
continuing to maintain an active corporate presence in Alaska to advance
relationships with political and regulatory offices of government, Alaska
Native partners and other stakeholder groups; and
-
working to advance a transaction with a potential partner(s) to further
advance the project.
Site maintenance and environmental monitoring activities and
community engagement were carried out at the Pebble Project site during the
quarter and will continue throughout the year.
At June 30, 2015, Northern Dynasty had $0.8 million in cash and
cash equivalents available for its operating requirements. However, the Company
announced subsequent to the end of the quarter, that it intends to raise up to
$20 million through a combination of an equity financing of between $10-$15
million through the issuance of Special Warrants and the purchase of a TSX
Venture listed entity, whose primary asset is cash of $4.7 million. With the
receipt of these funds, the Company will prioritize the allocation of the
available financial resources in order to meet key corporate and Pebble Project
expenditure requirements in the near term. The Company will continue to seek
additional financing in order to progress any material programs. 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 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.
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 6
Northern Dynasty Minerals Ltd. |
Management's Discussion And Analysis |
Three and six months ended June 30, 2015 |
1.2.1.1 |
Technical
Information |
In early 2015, a Technical Report in accordance with National
Instrument ("NI") 43-101 (the "2014 Technical Report") was completed which
updates information on the mineral resources and metallurgy for the project. The technical report, entitled "2014 Technical
Report on the Pebble Project, Southwest Alaska, USA," effective date December
31, 2014 and 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.
Mineral Resources
The current 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 Project Mineral Resources
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 to above table:
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 7
Northern Dynasty Minerals Ltd. |
Management's Discussion And Analysis |
Three and six months ended June 30, 2015 |
Copper equivalent calculations used 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 |
Environmental and Socioeconomic
Environmental Baseline Studies
Extensive environmental baseline data collection was initiated
in 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
purpose of the EBD 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.
Page 8
Northern Dynasty Minerals Ltd. |
Management's Discussion And Analysis |
Three and six months ended June 30, 2015 |
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.
Environmental baseline data reports through 2014 are being
integrated with the database from the EBD 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 continues in
2015.
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 is 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 is ongoing,
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.
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 opinions of Northern Dynasty and the Pebble Partnership,
after review with 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 so would not as 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
more than 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.
___________________________________________
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 9
Northern Dynasty Minerals Ltd. |
Management's Discussion And Analysis |
Three and six months ended June 30, 2015 |
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 the shortcomings
at public hearings held in Seattle, Washington, on May 31, 2012 and in
Anchorage, Alaska, on August 7, 2012. In response to the EPAs call for public
comment, Northern Dynasty also submitted a 635-page written critique of the
draft report in July 2012 and called upon the EPA to cease such unwarranted
actions until such time as a definitive proposal for the development of the
Pebble deposit is submitted into the rigorous National Environmental Policy
Act (NEPA) permitting process.
Concerns about the reasonableness of the basis of risk
assessment in the draft EPA report were stated by many of the independent
experts on the peer review panel assembled to review the BBWA, as summarized in
a report entitled "External Peer Review of EPA's Draft Document: An
Assessment of Potential Mining Impacts on Salmon Ecosystems of Bristol Bay,
Alaska" released in November 2012. In a wide-ranging critique of the draft
report's methodology and findings, many peer review 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 draft of a new version of
the BBWA report, approximately twice the length of the original version with
significant new information, and announced another public comment and Peer
Review period. The Pebble Partnership and Northern Dynasty made submissions on
the new version. In late May 2013, Northern Dynasty filed a 205-page submission
on the new version 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 contains many of the same fundamental shortcomings as the
earlier 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.
The Pebble Partnership appealed the US federal courts decision
to grant EPAs motion to dismiss to the 9th Circuit Court of Appeals. That
appeal was denied in May 2015. The Pebble Partnership still holds the option to
pursue its statutory authority case in the instance that EPA finalizes a
pre-emptive regulatory action under the Clean Water Act 404(c).
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 if that disposal would
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 and Pebble Partnership management do 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.
Page 10
Northern Dynasty Minerals Ltd. |
Management's Discussion And Analysis |
Three and six months ended June 30, 2015 |
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 pre-emptive 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.
However, in advance of that date 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 EPAs 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. On June 4, 2015, the federal court in Alaska issued an order
denying the EPAs motion to dismiss this case.
Discovery has now commenced in the FACA case. The Pebble
Partnership has filed requests for production of documents and notices of
dispositions for EPA employees and relevant third parties. 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.
On October 14, 2014, the Pebble Partnership filed suit in
federal district court in Alaska charging that EPA has violated the Freedom of
Information Act by improperly withholding documents related to the Pebble
Project, the Bristol Bay Watershed Assessment and consideration of a pre-emptive
404(c) veto under the Clean Water Act. EPA has moved for summary judgment
claiming that its search for and disclosure of documents was adequate. Pebble
has opposed the governments motion pointing out several deficiencies in EPAs
search parameters and pointing out the agencys overly broad assertion of the
deliberative process privilege to withhold documents.
Counsel for Northern Dynasty and the Pebble Partnership 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 initiate a review of the EPAs conduct in preparing the BBWA. A team of
IG investigators was assigned "to determine whether the EPA adhered to laws,
regulations, policies and procedures in developing its assessment of potential
mining impacts in Bristol Bay, Alaska."
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 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, within regulatory limitations, as to the means and
manner of carrying out this review to ensure that it is thorough and
unbiased.
Page 11
Northern Dynasty Minerals Ltd. |
Management's Discussion And Analysis |
Three and six months ended June 30, 2015 |
In summary, the Pebble Partnership is advancing a
multi-dimensional strategy to address the EPAs preemptive 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. The strategy
involves three discrete pieces of litigation against the EPA as well as
independent reviews of EPA actions, including:
- 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 BBWA
and subsequent Section 404(c) action under the Clean Water Act;
- alleging that the EPA is unlawfully withholding relevant documentation and
other information sought by the Pebble Partnership under the Freedom of
Information Act ("FOIA");
- appealing to the Office of the EPA Inspector General to investigate the
conduct of the agency in relation to the BBWA; and,
- initiating a third party investigation by The Cohen Group.
While the process of litigation and independent review are
inherently uncertain, and it is difficult to predict with confidence the length
of time that each of the initiatives described above will take to advance to
specific milestone events or final conclusion, Northern Dynasty expects:
-
a final decision by a federal court judge in Alaska on the Pebble
Partnerships FACA case sometime in the next 18 months;
-
a decision in the Pebble Partnerships FOIA litigation against the EPA in
the latter half of 2015;
-
the independent Office of the EPA Inspector General to complete its
investigation and publish a final report on EPA actions with respect to the
BBWA and the EPAs subsequent regulatory process under Section 404(c) of the
Clean Water Act in the first quarter of 2016; and,
-
the Cohen Group to complete its investigation and publish a final report on
EPA actions with respect to the BBWA and the EPAs subsequent regulatory
process under Section 404(c) of the Clean Water Act in the 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.
Nunamta Aulukestai
In October 2011, a lawsuit filed in July 2009 by the Trustees
for Alaska (an environmental law firm) on behalf of Nunamta Aulukestai an
organization established and funded to oppose development of the Pebble Project
- was rejected by the Anchorage Superior Court. The lawsuit alleged that the
Alaska Department of Natural Resources had violated the state constitution by
granting exploration and temporary water use permits to the Pebble Partnership,
and exploration activities had caused harm to vegetation, water, fish and
wildlife. The Pebble Partnership actively participated in the trial proceedings
after being granted intervener status. Superior Court Judge Aarseth denied each
of the allegations made by Nunamta Aulukestai, and ruled that no evidence of
environmental harm was presented. The plaintiffs filed an appeal and a ruling
was made on May 29, 2015. The Alaska Supreme Court agreed that there was no
evidence of environmental damage but ruled that the land use permits conveyed an
interest in land and, as such should have been preceded by public notice. The
decision does not change the status of current permits held by the Pebble
Partnership, although drilling permits applied for in future may necessitate
additional public notice and comment requirements. The case has been remanded
back to the trial court and there may be further litigation as to whether the
plaintiffs are entitled to an award of attorneys fees and other amounts from
the Pebble Partnership.
Page 12
Northern Dynasty Minerals Ltd. |
Management's Discussion And Analysis |
Three and six months ended June 30, 2015 |
Lake and Peninsula Borough
In November 2011, voters in southwest Alaskas Lake &
Peninsula Borough approved, by a narrow margin, 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 Alaskan interests. 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 appealed to the Alaska Supreme
Court, which issued a decision on July 17, 2015, confirming the lower courts
ruling.
December 2014/January 2015
In the first quarter of 2015, Northern Dynasty completed a
private placement financing initiated late in the 2014 fiscal year, which
consisted of 35,962,735 share purchase warrants each priced at $0.431, for gross
proceeds of $15.5 million. Pursuant to the private placement financing, the
Company issued 27,622,642 share purchase warrants in December 2014 and 8,340,093
share purchase warrants in January 2015. The Company filed a prospectus in
certain Canadian provinces to qualify the conversion of the share purchase
warrants and a registration statement with the SEC in the United States to
qualify the resale of common shares in the Company ("Common Shares") by U.S.
investors.
As of the date of this MD&A, all the share purchase
warrants have been converted into the same number of Common Shares.
August 2015
Subsequent to the end of the second quarter, Northern Dynasty
announced that it intends to raise up to $20 million through a combination of an
issuance of $10-$15 million worth of Special Warrants, exercisable into Common
Shares on a one for one basis, at a price of $0.399 per Special Warrant (the
"August 2015 Special Warrants"), together with the acquisition of 100% of Cannon
Point Resources Ltd. ("Cannon Point"), a TSX Venture listed entity, whose
primary asset is cash of $4.7 million.
Under the terms of issuance of the August 2015 Special
Warrants, the Company has agreed to file a prospectus in certain Canadian
provinces to qualify the conversion of the August 2015 Special Warrants and a
registration statement in the United States to qualify the resale of Common
Shares by U.S. investors. The August 2015 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 August 2015
Special Warrants are subject to automatic conversion provisions, which depend on
the country of residence of a holder of the August 2015 Special Warrants and the
total number of the Common Shares that a holder of the August 2015 Special
Warrants will own after such conversion, and, in any event, all outstanding
August 2015 Special Warrants will be automatically converted on the second
anniversary of their issuance date.
Page 13
Northern Dynasty Minerals Ltd. |
Management's Discussion And Analysis |
Three and six months ended June 30, 2015 |
The August 2015 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.
Based on a letter agreement, the Company expects to acquire
100% of Cannon Point for approximately 12.9 million common shares of the
Company, subject to the approval of a special 2/3 majority vote of Cannon Point
shareholders as well as customary regulatory and judicial approvals. The
acquisition is not subject to Company shareholder approval. During the merger
process, which will be by conventional statutory plan of arrangement, Cannon
Point has agreed to make a secured credit facility for $4.25 million available
to the Company. The amounts borrowed would bear interest at 15% per annum, with
6 months of interest to be prepaid, be repayable after 30 days if due to a
Northern Dynasty breach and 180 days from termination if the merger does not
complete for any other reason. Holders of approximately 21% of Cannon Point
Shares have agreed to support the merger transaction, including shareholders
associated with Fiore Management & Advisory Corp. The acquisition of Cannon
Point is subject to negotiation of a definitive agreement, which will be filed
on SEDAR at www.sedar.com when executed which is anticipated to occur
within the next 30 days. The private placement of Special Warrants is not
conditional on the Cannon Point acquisition, but the Cannon Point acquisition is
conditional on at least $10 million of Special Warrants being sold.
Completion of both financing transactions is subject to
execution of definitive agreements, TSX and NYSE MKT approvals and other
customary closing conditions. The Special Warrants offering is expected to close
by late August 2015 and the Cannon Point acquisition within 120 days.
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$2.34/lb.
The average annual gold price steadily increased from 2008 to
2012. Gold prices trended lower in 2013, and have been variable but weakening
overall in 2014 and 2015. The recent closing price is US$1,116/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, largely, been on a downtrend since that time with a
recent closing price of US$6.17/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, and trended downward in 2013.
Silver prices have been variable in 2014 and 2015, with an overall decrease in
the average price. The recent closing price is US$15.33/oz.
Average annual prices since 2010 as well as the average prices
so far in 2015 for copper, gold, molybdenum and silver are shown in the table
below:
Page 14
Northern Dynasty Minerals Ltd. |
Management's Discussion And Analysis |
Three and six months ended June 30, 2015 |
Year
|
Average metal
price |
Copper
US$/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 |
1,188 |
7.61 |
16.24
|
Source: LME Official Cash Price as provided at
www.metalprices.com
1.3 |
Selected Annual
Information |
Not required for interim MD&A.
1.4 |
Summary and Discussion of Quarterly
Results |
All monetary amounts are expressed in thousands of dollars
except per share amounts and where otherwise indicated. Minor differences are
due to rounding.
Excerpts from |
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Statements of |
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Jun 30 |
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Mar 31 |
|
|
Dec 31 |
|
|
Sep 30 |
|
|
Jun 30 |
|
|
Mar 31 |
|
|
Dec 31 |
|
|
Sep 30 |
|
Comprehensive Loss |
|
2015 |
|
|
2015 |
|
|
2014 |
|
|
2014 |
|
|
2014 |
|
|
2014 |
|
|
2013 |
|
|
2013 |
|
(Income) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration and evaluation
|
$ |
1,484 |
|
$ |
2,074 |
|
$ |
3,461 |
|
$ |
2,436 |
|
$ |
2,952 |
|
$ |
4,028 |
|
$ |
1,076 |
|
$ |
270 |
|
General and
administrative(i) |
|
1,567 |
|
|
1,816 |
|
|
2,118 |
|
|
2,120 |
|
|
2,150 |
|
|
2,670 |
|
|
1,596 |
|
|
1,510 |
|
Legal, accounting and
audit(i) |
|
2,922 |
|
|
3,248 |
|
|
4,933 |
|
|
1,957 |
|
|
1,281 |
|
|
155 |
|
|
214 |
|
|
42 |
|
Share-based compensation |
|
41 |
|
|
360 |
|
|
522 |
|
|
557 |
|
|
699 |
|
|
2,099 |
|
|
|
|
|
|
|
Other items (ii)
|
|
(236 |
) |
|
(1,252 |
) |
|
(1,109 |
) |
|
(982 |
) |
|
(211 |
) |
|
(489 |
) |
|
(412 |
) |
|
(120 |
) |
Equity accounting adjustment (iii) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,062 |
) |
|
|
|
Loss (income) for the quarter |
|
5,778 |
|
|
6,246 |
|
|
9,925 |
|
|
6,088 |
|
|
6,871 |
|
|
8,463 |
|
|
(2,588 |
) |
|
1,702 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss (income) per common share |
$ |
0.04 |
|
$ |
0.05 |
|
$ |
0.10 |
|
$ |
0.06 |
|
$ |
0.07 |
|
$ |
0.09 |
|
$ |
(0.03 |
) |
$ |
0.02 |
|
(i) |
From Q1-2015 onward, in presenting its statement of loss
and comprehensive loss, the Company has separately reflected legal,
accounting and audit expenditures, which line item is predominantly
comprised of legal costs incurred by the Group in response to the EPAs
activities surrounding the Pebble Project. These expenditures were
previously included under general and administrative expenditures.
Quarterly results for all previous quarters presented in the above table
have been adjusted to conform with the classification of expenditures
adopted in the current years fiscal quarters. |
(ii) |
Other items include interest income, exchange gain and
loss, and deferred income tax. |
(iii) |
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. |
Discussion of Quarterly Trends
Since late Q3 of 2013, the Company has funded 100% of
evaluation work on the Pebble Project following the withdrawal of the project
partner. Exploration and evaluation expenses ("E&E") included costs for
Native community engagement, select environmental monitoring programs, annual
fees for claims (in Q4 of 2014), site leases for accommodation, land access
agreements and technical studies, some of which were incurred at the beginning
of the respective year.
Page 15
Northern Dynasty Minerals Ltd. |
Management's Discussion And Analysis |
Three and six months ended June 30, 2015 |
General and administrative expenses ("G&A"), which exclude
legal, accounting and audit expenses as per the revised presentation of the
statement of loss and comprehensive loss adopted by the Company in fiscal year
2015, have fluctuated based on the level of corporate activities undertaken. As
a result of the added costs associated with the management and administration of
the Pebble Partnership, G&A trended higher initially in 2014 then declined
to a quarterly average of approximately $2.2 million. In 2015, G&A has
trended downwards due in part to lower corporate activities as the Company
prioritized expenditures to conserve cash.
Legal, accounting and audit expenses are comprised primarily of
legal costs incurred by the Group in response to the EPAs activities
surrounding the Pebble Project and have fluctuated in line with ongoing activities to advance the Companys strategy to address the
EPAs pre-emptive regulatory process 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 and 2015 there were no new grants and as such SBC
related to the graded vesting of share purchase option grants from prior years
(in Q3 and Q4 of 2013, all share purchase options were fully vested). 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 period ended June 30, 2015.
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 Three Months Ended June
30, 2015 vs. 2014 |
The Company recorded a decrease in loss of $1.1 million to $5.8
million from a loss of $6.9 million in 2014.
E&E decreased by $1.5 million as the Company prioritized
the allocation of available financial resources in order to meet key corporate
and Pebble Project expenditure requirements relating to ongoing activities
around the EPAs initiatives as discussed in Section 1.2.1.2 Legal
Matters. E&E activities during the quarter included Native community
engagement, environmental monitoring and site leases for accommodation.
The following table provides a breakdown of E&E incurred
during the period:
E&E
(expressed in thousands of dollars) |
|
Three months ended June 30 |
|
|
|
2015 |
|
|
2014 |
|
Engineering |
$ |
64 |
|
$ |
368 |
|
Environmental |
|
201 |
|
|
621 |
|
Site activities |
|
321 |
|
|
815 |
|
Socio-economic |
|
822 |
|
|
1,053 |
|
Other activities and travel |
|
76 |
|
|
95 |
|
Total |
$ |
1,484 |
|
$ |
2,952 |
|
Page 16
Northern Dynasty Minerals Ltd. |
Management's Discussion And Analysis |
Three and six months ended June 30, 2015 |
G&A excluding legal, accounting and audit decreased $0.6
million to $1.6 million due primarily to the Company reducing office costs and
management and administration. Legal, accounting and audit costs increased by
$1.6 million due primarily to increased legal costs incurred as the Company,
through the Pebble Partnership, advances key legal objectives to address the
EPAs pre-emptive regulatory process (see Section 1.2.1.2 Legal
Matters), as well as additional audit fees incurred relating to the
filing of the Companys 2014 annual form on Form 20-F.
The following table provides a breakdown of G&A incurred
during the period:
G&A
(expressed in thousands of dollars) |
|
Three months ended June 30 |
|
|
|
2015 |
|
|
2014 |
|
Conference and travel |
$ |
95 |
|
$ |
66 |
|
Consulting |
|
73 |
|
|
137 |
|
Insurance |
|
93 |
|
|
111 |
|
Office costs |
|
252 |
|
|
434 |
|
Management and administration |
|
792 |
|
|
1,113 |
|
Shareholder communication |
|
170 |
|
|
233 |
|
Trust and filing |
|
92 |
|
|
56 |
|
General and administrative |
|
1,567 |
|
|
2,150 |
|
Legal, accounting and audit |
|
2,922 |
|
|
1,281 |
|
Total |
$ |
4,489 |
|
$ |
3,431 |
|
SBC decreased to $ 41,000 from $0.7 million in 2014 as the
Company did not grant any options in the current period (2014 1.2 million
options were granted).
1.5.2 |
Results of Operations for the Six Months Ended June
30, 2015 vs. 2014 |
The Company recorded a decrease in loss of $3.3 million to
$12.0 million.
E&E decreased by $3.4 million as the Company prioritized
the allocation of available financial resources in order to meet key corporate
and Pebble Project expenditure requirements relating to ongoing activities
around the EPAs initiatives as discussed in Section 1.2.1.2 Legal
Matters. E&E activities during the six months ended June 30, 2015
included Native community engagement, environmental monitoring and site leases
for accommodation.
The following table provides a breakdown of E&E incurred
during the period:
E&E (expressed in thousands of dollars) |
|
Six months ended June 30 |
|
|
|
2015 |
|
|
2014 |
|
Engineering |
$ |
137 |
|
$ |
1,297 |
|
Environmental |
|
488 |
|
|
1,249 |
|
Site activities |
|
892 |
|
|
1,896 |
|
Socio-economic |
|
1,925 |
|
|
2,334 |
|
Other activities and travel |
|
116 |
|
|
204 |
|
Total |
$ |
3,558 |
|
$ |
6,980 |
|
G&A, excluding legal, accounting and audit decreased $1.4
million due to the Company reducing office costs and management and
administration. Legal, accounting and audit increased by $4.7 million due
primarily to increased legal costs incurred as the Company, through the Pebble
Partnership, advances key legal objectives to address the EPAs pre-emptive
regulatory process (see Section 1.2.1.2 Legal
Matters).
Page 17
Northern
Dynasty Minerals Ltd.
|
Management's
Discussion And Analysis
|
Three
and six months
ended June 30,
2015 |
The following table provides a breakdown of G&A incurred
during the period:
G&A (expressed in thousands of dollars) |
|
Six months ended June 30 |
|
|
|
2015 |
|
|
2014 |
|
Conference and travel |
$ |
180 |
|
$ |
176 |
|
Consulting |
|
234 |
|
|
165 |
|
Insurance |
|
190 |
|
|
218 |
|
Office costs |
|
662 |
|
|
1,131 |
|
Management and administration |
|
1,514 |
|
|
2,495 |
|
Shareholder communication |
|
353 |
|
|
438 |
|
Trust and filing |
|
250 |
|
|
197 |
|
General and administrative |
|
3,383 |
|
|
4,829 |
|
Legal, accounting and audit |
|
6,170 |
|
|
1,436 |
|
Total |
$ |
9,553 |
|
$ |
6,265 |
|
SBC decreased by $2.4 million as the Company did not grant any
options in the current period (2014 5.7 million options were granted).
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 June 30, 2015, the Companys cash and cash equivalents
were $0.8 million, down from $9.5 million at December 31, 2014 as the Company
used $12.0 million of its cash in its operating activities (see Section 1.5.1)
and raised $3.4 million from the portion of the special warrant financing that
closed in January 2015 (see Section 1.2.2 Financings). As
of the date of this MD&A, the Company announced that it intends to raise up
to $20 million through a combination of an issuance of $10-$15 million worth of
Special Warrants, exercisable into Common Shares on a one for one basis, at a
price of $0.399 per Special Warrant, together with the acquisition of 100% of
Cannon Point Resources ("Cannon Point"), a TSX Venture listed entity, whose
primary asset is cash of $4.7 million. The Company has prioritized the
allocation of these funds to meet key corporate and Pebble Project expenditure
requirements and additional financing will be required in order to progress any
material expenditures at the Pebble Project in 2016. 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 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 which includes rental fees of
approximately US$1.0 million due in November 2015 for existing claims and
routine office and site leases (refer to Note 12 in the notes to Interim
Financial Statements which accompany this MD&A).
Page 18
Northern
Dynasty Minerals Ltd.
|
Management's
Discussion And Analysis
|
Three
and six months
ended June 30,
2015 |
The Companys capital resources consist of its cash reserves.
As of June 30, 2015, the Company had no long term debt or commitments for
material capital expenditures other than what has been disclosed in the
Financial Statements.
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 Ronald
Thiessen are active members of the HDI Board of Directors. Other key
management personnel of the Company Doug Allen, Stephen Hodgson, Bruce
Jenkins, Sean Magee and Trevor Thomas are members of 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.
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.
Page 19
Northern
Dynasty Minerals Ltd.
|
Management's
Discussion And Analysis
|
Three
and six months
ended June 30,
2015 |
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 for the
three and six months ended June 30:
|
|
Three months |
|
|
Six months |
|
Transactions |
|
2015 |
|
|
|
2014 |
|
|
|
2015 |
|
|
|
2014 |
|
Services rendered by HDSI |
$ |
1,077 |
|
|
$ |
1,374 |
|
|
$ |
2,110 |
|
|
$ |
2,941 |
|
Technical |
|
354 |
|
|
|
440 |
|
|
|
656 |
|
|
|
1,005 |
|
Engineering |
|
53 |
|
|
|
147 |
|
|
|
155 |
|
|
|
355 |
|
Environmental |
|
178 |
|
|
|
157 |
|
|
|
351 |
|
|
|
341 |
|
Socioeconomic |
|
1 |
|
|
|
84 |
|
|
|
1 |
|
|
|
195 |
|
Other technical
services |
|
122 |
|
|
|
52 |
|
|
|
149 |
|
|
|
114 |
|
General and administrative |
|
723 |
|
|
|
934 |
|
|
|
1,454 |
|
|
|
1,936 |
|
Management, financial
& administration |
|
433 |
|
|
|
637 |
|
|
|
878 |
|
|
|
1,343 |
|
Provision of IT
services |
|
105 |
|
|
|
122 |
|
|
|
219 |
|
|
|
245 |
|
Shareholder
communication |
|
185 |
|
|
|
175 |
|
|
|
357 |
|
|
|
348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reimbursement of third party
expenses |
|
26 |
|
|
|
40 |
|
|
|
138 |
|
|
|
215 |
|
Conference and travel |
|
30 |
|
|
|
39 |
|
|
|
71 |
|
|
|
134 |
|
Insurance |
|
1 |
|
|
|
|
|
|
|
51 |
|
|
|
63 |
|
Office supplies and
other |
|
(5 |
) |
|
|
1 |
|
|
|
16 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total paid by the Company |
$ |
1,103 |
|
|
$ |
1,414 |
|
|
$ |
2,248 |
|
|
$ |
3,156 |
|
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 Interim
Financial Statements which accompany this MD&A and which are available under
the Companys profile at www.sedar.com.
Not applicable.
1.11 |
Proposed
Transactions |
There are no proposed asset or business acquisitions or
dispositions, other than those in the ordinary course, before the Board of
Directors for consideration.
1.12 |
Critical Accounting
Estimates |
There was no change in the use of estimates and judgments
during the current period from those described in Note 2 in the Groups
Consolidated Financial Statements for the year ended December 31, 2014 available
under the Companys profile at www.sedar.com.
Page 20
Northern
Dynasty Minerals Ltd.
|
Management's
Discussion And Analysis
|
Three
and six months
ended June 30,
2015 |
1.13 |
Changes in Accounting Policies including Initial
Adoption |
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 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 as and when required. 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. have the
US dollar as functional currency; and certain of the Companys corporate
expenses are incurred in US dollars. The fluctuation of the US dollar in
relation to the Canadian dollar has an impact upon the losses incurred by the
Company as well as the value of the Companys assets and total shareholders
equity as the Companys functional and presentation currency is the Canadian
dollar. The Company has not entered into any agreements or purchased any
instruments to hedge possible currency risks at this time.
There has been no change in the 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.
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 period ended
June 30, 2015.
Page 21
Northern
Dynasty Minerals Ltd.
|
Management's
Discussion And Analysis
|
Three
and six months
ended June 30,
2015 |
Commodity price risk
While the value of the Companys Pebble Project, 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.
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 special warrants, net of accumulated
deficit.
There were no changes in the Company's approach to capital
management during the period. The Company is not subject to any externally
imposed capital requirements.
1.15 |
Other MD&A
Requirements |
Additional information relating to the Company, including the
Company's 2014 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:
|
|
Total |
|
Common shares issued and outstanding |
|
130,972,599 |
|
Share options
(weighted average exercise price per option: $1.72) |
|
6,194,900 |
|
1.15.2 |
Disclosure Controls and
Procedures |
The Company has disclosure controls and procedures in place to
provide reasonable assurance that any information required to be disclosed by
the Company under securities legislation is recorded, processed, summarized and
reported within the applicable time periods and that required information is
gathered and communicated to the Company's management so that decisions can be
made about timely disclosure of that information.
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:
Page 22
Northern
Dynasty Minerals Ltd.
|
Management's
Discussion And Analysis
|
Three
and six months
ended June 30,
2015 |
-
pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets
of the Company;
-
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with IFRS, and that
receipts and expenditures of the Company are being made only in accordance
with authorizations of management and directors of the company; and
-
provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company's assets that
could have a material effect on the consolidated financial statements.
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 2014 annual information form for the year ended December
31, 2014 filed under the Companys profile on SEDAR at
www.sedar.com.
Page 23
NORTHERN DYNASTY
MINERALS LTD.
Form 52-109F2
Certification of Interim
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 interim financial
report and interim MD&A (together, the interim filings) of Northern
Dynasty Minerals Ltd. (the issuer) for the interim period ended June 30,
2015. |
|
|
2. |
No misrepresentations: Based on my
knowledge, having exercised reasonable diligence, the interim 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, with respect to the period covered by the interim filings.
|
|
|
3. |
Fair presentation: Based on my
knowledge, having exercised reasonable diligence, the interim financial
report together with the other financial information included in the
interim 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 interim 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 end of the period covered by the interim filings
|
|
(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 interim
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. |
Reporting changes
in ICFR: The issuer has disclosed in its interim
MD&A any change in the issuers ICFR that occurred during the period
beginning on April 1, 2015 and ended on June 30, 2015 that has
materially affected, or is reasonably likely to materially affect, the
issuers ICFR. |
Date: August 14, 2015
/s/ R.W.
Thiessen |
|
Ronald W. Thiessen |
|
President and Chief Executive Officer |
|
2
NORTHERN DYNASTY MINERALS
LTD.
Form 52-109F2
Certification of Interim
Filings - Full Certificate
I, Marchand Snyman, Chief Financial Officer of Northern Dynasty
Minerals Ltd., certify the following:
1. |
Review: I have reviewed the interim financial
report and interim MD&A (together, the interim filings) of Northern
Dynasty Minerals Ltd. (the issuer) for the interim period ended June 30,
2015. |
|
|
2. |
No misrepresentations: Based on my
knowledge, having exercised reasonable diligence, the interim 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, with respect to the period covered by the interim filings.
|
|
|
3. |
Fair presentation: Based on my
knowledge, having exercised reasonable diligence, the interim financial
report together with the other financial information included in the
interim 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 interim 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 end of the period covered by the interim filings
|
|
(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 interim
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. |
Reporting changes
in ICFR: The issuer has disclosed in its interim
MD&A any change in the issuers ICFR that occurred during the period
beginning on April 1, 2015 and ended on June 30, 2015 that has
materially affected, or is reasonably likely to materially affect, the
issuers ICFR. |
Date: August 14, 2015
/s/ M.
Snyman |
|
Marchand Snyman |
|
Chief Financial Officer |
|
2
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