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Northern Dynasty Minerals Ltd. (TSX:NDM) has found a new “partner” for its massive but controversial Pebble project in Alaska, in First Quantum Minerals Ltd. (TSX:FM). We see this transaction positively for First Quantum and negatively for Northern Dynasty. At the surface the announced framework appears positive, US$150 million over 4 years followed by a US$1.35 billion investment to acquire 50% of the project, and could be considered third-party validation for the Pebble project. However, in our view, First Quantum is acquiring a cheap option on a world-class resource (10.9 billion tonnes @ 0.67% CuEq) in an improved permitting environment currently in the United States. If the project turns out to be permittable, First Quantum has a cheap option to get significant exposure to a world-class asset. If the permitting environment reverts to what it has been previously, First Quantum has spent a relatively small sum of money and can walk away without further liabilities. In our view, we do not consider this a true third-party validation and but merely, First Quantum buying a relatively low-risk, high potential return option. For Northern Dynasty shareholders, we view this negatively because, while the company is now funded for the lengthy permitting process (should First Quantum continue with the option), they continue to bear the essentially 100% of the permitting risk, and are still on the hook for the majority of their share of the construction capital to build the mine should it get permitted. read more
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