MAC/20: Mines and Communities

London Calling

Published by MAC on 2007-08-04


London Calling

4th August 2007

Dances with wolves

Over the past year, it's become impossible to predict the nature of mergers and acquisitions within the minerals industry. Rio Tinto's friendly offer to buy-out Alcan - now virtually certain to materialise, thus thrusting the UK company to the top of the aluminium ladder - took most industry-watchers by surprise; not least (one suspects) its closet rival, BHPBilliton. Whether the world's biggest mining company will now attempt a takeover of Alcoa is moot. But then, so was Xstrata's hostile bid for Canada's Falconbridge last year - and that succeeded against the initial odds.

It wasn't so long ago that we conjured up the vision (ugly though it may appear) of a mining industry ruled by just two multinationals. That hasn't happened, for at least three major reasons. First, the Chinese regime has clearly settled for a strategy of joint ventures (to a lesser extent outright takeover) with both large and medium-sized companies in order to gain secure access to iron, nonferrous and speciality metals overseas. Second, capital markets (partly manipulated by come UK and US hedge funds) have gained access to - and boosted the fortunes of - a new brand of corporate player: notably Xstrata, Vedanta Resources and upstarts like of Nikanor.

Third, companies already endowed with vast mineral resources in Latin America, eastern Europe, Central Asia and, to a lesser extent, South Asia, aren't going to readily yield control over them to their Northern-based counterparts. As already pointed out in this column, "South-South" acquisitions - virtually un-countenanced a few years back – have substantially proliferated. An example of this is the Indian company, Jindal's, takeover of Bolivia's massive El Mutun iron ore deposits which was finally cleared last month.

This doesn't mean that the Big Three - BHPBilliton, Rio Tinto and Anglo American - are fighting for their lives. But, they've all recently had to push through deals which would have seemed excessively over-extended, if not downright hazardous, less than a decade ago. Such deals would have been impossible had metals demand (especially from China) not triggered the most formidable price rises in history and a recent rush by the major UK and Australian based companies (which now include Xstrata and Vedanta) to pre-empt competition from the likes of CVRD-Inco (iron ore and nickel), and Rusal and Sual (aluminium) and Kazakhmys (copper) or Kazatomprom (uranium).

It's in this context that we should view last week's successful entry by Anglo American into Northern Dynasty's vast Pebble copper-gold project in Alaska. This is not so much an aggressive, as a defensive, ploy. For some months, Anglo itself has been rumoured as a target for the predation of its peers (BHPBilliton and Rio Tinto). Now it's secured access to one of the world's richest copper lodes, but deftly pushed Rio Tinto (already a shareholder in Northern Dynasty) aside. Not that the world's most diversified miner will be floored by such audacity. After all, last year, it penetrated Robert Friedland’s stronghold at Ivanhoe, and seems well on the way to ultimately controlling Oyu Tolgoi in Mongolia - certainly a rival in prospectivity to Pebble.

It’s surely fascinating to view these maneuvers from the outside. Mining finance was once incredibly dull, with scarcely any movement going on between the upper echelons of the industry, the medium-size players, and the "bottom feeders". Now it seems that everything - and everyone – is up for grabs. The wasps have never thronged so stingingly around so many honey pots. And the big players appear more vulnerable, while wielding more financial power, than ever before.

But this is a false paradox. The money awash for minerals’ acquisitions is unsustainably speculative, dependent on increasingly shaky credit assurances and arbitrary (or manipulated) share prices. Five years ago, it was widely considered that that the bull market wouldn’t waver for at least ten years. Now it seems certain that it won’t last that long.


Major mining company throws in with Pebble

By ELIZABETH BLUEMINK , Anchorage Daily News

31st July 2007

One of the world's largest mining companies announced today it is making an investment of up to $1.425 billion in Alaska's massive Pebble prospect.

The controversial Pebble copper-and-gold deposit near Iliamna in Southwest Alaska will have a new management team, composed of executives from London-based mining giant Anglo American and Northern Dynasty Minerals Ltd., the company that owns the project.

The two companies said they will create a new company to explore and develop Pebble.

They signed their 50-50 partnership agreement today after they notified regulators.

Northern Dynasty said it stopped trading of its stock on the Canadian and U.S. stock exchanges at mid afternoon in anticipation of signing the deal.

The agreement is the first major step in developing a mine at Pebble, said Northern Dynasty's chief operating officer Bruce Jenkins.

The deal was reached after the Vancouver, British Columbia-based company went through more than a year of confidential negotiations with roughly 15 other major mining companies, Jenkins said.

In the agreement, Anglo has committed to spend $125 million to finish a pre-feasibility study for the mine, targeted for the end of next year.

To retain its 50 percent partnership, Anglo will then have to commit $325 million for a feasibility study, targeted for 2011. If a decision then is made to develop a mine, Anglo must commit $975 million to build it.

If built, Pebble could become one of the largest copper mines in the world, Pebble's proponents say.

The Pebble deposit is the target of a major campaign from Bristol Bay commercial fishermen, Iliamna-area sport-fishing groups and lodges, and some residents of the region.

They contend that developing the huge deposit into a mine could lead to an environmental disaster for a region rich in fish and subsistence foods. Northern Dynasty and its supporters, including other residents of the region, respond that blocking development is premature because any decision to build a mine there is years away. Northern Dynasty says it would build an environmentally sound mine.

Find Elizabeth Bluemink online at ebluemink@adn.com or call 257-4317.

© Copyright 2007, The Anchorage Daily News, a subsidiary of The McClatchy Company


Northern Dynasty & Anglo American Establish 50:50 Partnership to Advance Pebble Project to Production

Renewable Resources Coalition

31st July 2007

Northern Dynasty Minerals Ltd announces the signing and completion of a transaction with Anglo American plc, whereby a wholly owned subsidiary of Anglo American ("Anglo") has become a 50% partner with The Northern Dynasty Partnership (a wholly owned affiliate of Northern Dynasty) in a limited partnership with equal rights in the Pebble Copper-Gold-Molybdenum Project (the "Pebble Project") in southwestern Alaska, USA, by making a staged cash investment of US$1.425 billion.

The Pebble Project's key assets are the near surface, 4.1 billion tonne, open pit style Pebble West deposit and the deeper and higher grade 3.4billion tonne Pebble East deposit that is amenable to underground bulk mining methods. The Pebble resources rank among the world's most important accumulations of copper, gold and molybdenum.

The purpose of the strategic partnership is to engineer, permit, construct and operate a modern, long-life mine at the Pebble Project. The transaction agreements lay out a schedule to accomplish this goal, targeting completion of a pre-feasibility study in December 2008, a feasibility study by 2011 and commencement of commercial production by 2015.

Anglo's staged investment includes a committed expenditure of US$125 million to complete a pre-feasibility study targeted at the end of 2008. After the completion of the pre-feasibility study, Anglo must, in order to retain its 50% interest, elect to commit to a further US$325 million for a feasibility study, the completion and approval of which is targeted for 2011, and this is expected to take the partnership to a production decision. Upon the decision to develop a mine, Anglo must elect to commit to the next US$975 million of expenditures to retain its 50% interest, completion of which will meet the US$1.425 billion requirement. Thereafter, any further expenditure will be funded on a 50:50 basis. If the feasibility study is completed after 2011, Anglo's overall funding requirement increases to US$1.5 billion. Northern Dynasty will assess its 50% share of any project debt financing when a production decision is made. The partnership agreement provides for equal project control rights with no operator's fees payable to either party. BMO Capital Markets has provided an opinion to the board of directors that the transaction is fair, from a financial point of view, to Northern Dynasty.

Over the next six months, the partnership will put a management and operating team in place for the Alaskan-based operating company, guided by a board of directors with equal representation from Anglo and Northern Dynasty. In the interim, normal operations will continue.

Cynthia Carroll, CEO of Anglo American, said, "As one of the world's largest copper-gold-molybdenum deposits, Pebble has the potential to be a world-class operation. The project offers Anglo American a unique opportunity to be involved in a very long life, low operating cost mine. We are excited to be initiating operations in the State of Alaska, a jurisdiction known around the world for the responsible development of its natural resources. Like Northern Dynasty, Anglo American is committed to the highest international standards for community relations, environmental protection, and health and safety. We are very pleased to bring these skills and experience to this partnership. We also look forward to working closely with the people of Alaska and, in particular, the communities of the Bristol Bay area and Kenai Peninsula to maximize the value of these resources for all stakeholders, taking into account the positive long-term demand prospects for copper."

Ron Thiessen, President & CEO of Northern Dynasty, stated: "Alaska's environmental standards and permitting requirements are among the most stringent in the world. Northern Dynasty's experienced, largely Alaskan based, mine development team has been undertaking thorough and balanced technical, environmental and social assessments to ensure that the Pebble project is developed in a manner that protects the environment and traditional ways of life. We have sought a partner that shares our approach to development, has the ability to finance, and is an experienced mine operator. Anglo brings commitment and depth in all of these key areas. Our shared goal is to develop a state-of-the-art operation with a high annual metal production profile that will bring direct benefits to the local communities, as well as being a catalyst for sustainable economic development in the region and across the State."

Anglo American plc is one of the world's largest mining and natural resource groups. Based in the United Kingdom, the company has operations in 45 countries across Africa, Europe, Australia, South and North America, and Asia. With its subsidiaries, joint ventures and affiliates, it is a global leader in the production of platinum group metals, gold and diamonds, with significant interests in coal, base and ferrous metals, and industrial minerals: key materials that contribute to improved standards of living. The company is actively involved in two major copper mines, and in advancing two other copper projects.

Northern Dynasty Minerals Ltd. is part of the Hunter Dickinson (HDI) group of companies. HDI is a multi-disciplinary team with expertise in the fields of geoscience, engineering, the environmental sciences, finance and investment, property acquisition, regulatory and government affairs, and community development that provides services to publicly traded companies active around the world in mineral exploration, development and production. Northern Dynasty has a clearly defined, progressive approach predicated on a principle of responsible mineral development

 

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