Plenty of risk associated with mine project

Posted: Friday, April 08, 2005

Editor's note: This is the sixth story in a series by the Clarion on the proposal by Northern Dynasty Minerals Ltd. to build the largest open-pit mine in North America just northwest of Iliamna.

Even as the sweet smell of success urges Northern Dynasty Minerals Ltd. forward toward development of its Pebble Mine site northwest of Iliamna, a company report filed with the U.S. Securities and Exchange Commission suggests Americans suing mine managers might not find justice or compensation for wrongs in U.S. courts should things turn sour.

Favorable analyses of drilling samples, newly secured financing and continued acquisition of interests formerly held by other companies all have NDM Ltd. officials expressing growing confidence in the prospects for what would be the largest open-pit mine in North America. Yet the company's 2003 annual report (the latest available) lists several "risk factors" hovering over the project, including the fact that Northern Dynasty's managers might not be subject to the jurisdiction of the U.S. legal process.

As Canadian citizens and residents, some of the company's directors and officers "may not be subject themselves to U.S. legal proceedings, so that recovery on judgments issued by U.S. courts may be difficult or impossible," the SEC filing said.

Legislation aimed at reciprocal enforcement of judgments does exist, but according to NDM Ltd., company officials "may have defenses available" for avoiding U.S. court judgments.

Chief Operations Officer Bruce Jenkins said Tuesday he was not familiar with that specific reference in the SEC report, but in general terms not all directors associated with the Pebble project are Canadians.

First, he said, the actual property owner is the American company Northern Dynasty Mines Inc., a subsidiary of Northern Dynasty Minerals Ltd., the publicly traded company that is the vehicle for raising mine financing.

"We have American, British and some independent directors," Jenkins said. "Only a subset of the total complement of directors are Canadian."

Jenkins said the parent company was subject to "the strict rule" of Canadian law, and ND Mines Inc., as an American firm, was subject "to the strict rule" of U.S. law.

The possible absence of redress through American courts isn't the only risk facing U.S. investors, or foreign investors, for that matter.

As has been reported previously, NDM Ltd. has no history of earnings and isn't expected to realize earnings for several years to come. In fact, according to the SEC filing, "Northern Dynasty has a history of 20 years of losses" and "may never be profitable." The company has never paid a dividend on its shares.

Minerals exploration is a "risky business and factors beyond the company's control could impact the bottom line" and "metal prices have fluctuated widely in recent years and, in particular, gold and copper prices have been depressed for several years," the report said.

Northern Dynasty Minerals Ltd. (through ND Mines Inc.) still must obtain the necessary licenses and permits to carry out mining operations, and environmental concerns continue to be a significant challenge. Damage from spills, accidents and acts of nature, such as earthquakes, could result in the loss of shareholders' equity, the company warned.

The SEC report went on to note that the price of common shares of "junior" mining companies are subject to a host of unpredictable market conditions. (Junior is a term applied to companies like Northern Dynasty Minerals that might never have operated a mine). Investors "could suffer significant losses if Northern Dy-nasty's shares are depressed or illiquid when an investor seeks liquidity and needs to sell Northern Dynasty shares," the company said.

In other words, investing in such companies is risky.

Northern Dynasty Minerals' directors, officers and staff essentially are part-timers, the SEC report said. They are engaged in other resource exploration efforts with other companies. Success would be "dependent upon (the company's) ability to retain the services" of current Vice President Bruce Youngman, Chief Executive Officer Ronald Thiessen and Chief Financial Officer Jeffrey Mason.

Their other interests could result in conflicts of interest, which would be dealt with under British Columbia corporate and common law, the report said.

The SEC filing warned potential U.S. stock investors that the company expects to be classified as a "passive foreign investment company (PFIC) for U.S. tax purposes. That could affect the way U.S. taxpayers file their own taxes. Also, there are certain risks attached to purchasing so-called "penny stocks," which generally sell for under $5 per share and are subject to certain U.S. penny stock regulations that "will tend to reduce the market liquidity of Northern Dynasty's common stock."

All that being said, gambling investors constantly are eying juniors with attractive stock prices in search of that one golden needle in a haystack — a company with just the right stuff to make a mine. Recent assessments of the size and scope of the Pebble deposit controlled by Northern Dynasty Mines Inc. could make Northern Dynasty Mineral Ltd. shares a fairly good bet.

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