Pebble owners working to refine economics of smaller plan

Pebble Limited Partnership has filed with federal regulators for the key environmental permits for the company’s proposed mine, but whether or not the hotly contested project is economically viable remains unclear, at least publicly.

Pebble CEO Tom Collier said in an April 9 interview that the junior mining company plans to change that by the end of the year, if not sooner, by publishing a preliminary economic assessment, or PEA, for its new mine plan.

Collier said the company did not have a cost estimate for the project when he unveiled a smaller mine plan in early October, but emphasized he was confident in the project’s economics.

Currently, Pebble Limited Partnership has an internal cost estimate but British Columbia’s finance laws prevent the company from disclosing it until the preliminary economic assessment is published, according to Collier.

Pebble’s parent company Northern Dynasty Minerals Ltd. is headquartered in Vancouver.

He said Pebble hopes to have the PEA done by the end of this quarter for release in the third quarter of the year or certainly by the end of 2018.

Just by their nature large mines are among the most capital-intensive developments.

In Alaska those development costs are often exacerbated by mineral deposits in remote locations with little or no infrastructure and Pebble is not immune to those challenges.

Pebble requires greenfield development of infrastructure to support a medium-sized town just to gain surface access and power. The overall project plan includes a deepwater port on the west side of Cook Inlet, 65 miles of road and an icebreaking ferry across Iliamna Lake as well as a 188-mile natural gas pipeline from the southern Kenai Peninsula.

The pipeline would feed a 230-megawatt power plant at the mine site, which would be among the largest power plants in the state.

At the mine site there would be a 1.1 billion-ton capacity tailings storage facility to hold the mine waste, a large mill and other facilities all needed to support a 6,500-foot by 5,500-foot mine pit.

Typically, mine proponents draft a preliminary economic assessment or a pre-feasibility study during advanced exploration once it becomes clear there is a resource worth pursuing. It is then often several years before a full-fledged assessment or feasibility study is produced, which informs the developers as to whether or not the project should be permitted and subsequently developed.

Collier acknowledged Pebble’s process has been circuitous, but said that has largely been due to the actions taken by the Environmental Protection Agency in 2014 under the Obama administration to preemptively prohibit the project.

“We were raising money to fight off attacks that were trying to kill the project,” Collier said, referring to the subsequent lawsuit the company filed against the EPA, which was settled out of court last May.

“I don’t think there is much of a traditional mold in the way Pebble moves forward. We had to get ourselves into permitting as quick as we could,” he added.

Per the settlement with the EPA, Pebble had 30 months to apply for its Clean Water Act Section 404 wetlands fill permit and 48 months to get a final EIS for the project before the EPA could revisit the proposed restrictions on large mining operations in the Bristol Bay region.

Current EPA Administrator Scott Pruitt, in a surprise move, in January declined to rescind the proposed Section 404(c) restriction, meaning that while Pebble is not precluded from developing the mine for some time, the proposed regulatory action still hangs over the project.

A 2011 preliminary economic assessment on a much larger, longer-lived mine — 3.8 billion tons of ore over 45 years versus the latest plan of 1.2 billion tons of material over 20 years — projected a 6.2-year payback of an initial capital investment of $4.7 billion with a 14.2 percent pre-tax internal rate of return, according to Northern Dynasty.

The larger initial plan included similar transportation infrastructure as the current plan with the addition of slurry, water and diesel pipelines between the mine and the port. The Iliamna ferry replaces roughly 20 miles of road.

However, a much larger mine would have provided revenue to support the related development.

Opponents contend the smaller mine plan, which Pebble touts as part of its recognition of much of the public’s concern about the project, is just a precursor to efforts to expand the mine.

Additionally, Collier has said Pebble will not use cyanide in its latest plan, cutting gold recovery by about 15 percent.

Collier said the company doesn’t have plans at this point to conduct a more detailed economic evaluation in the future, as most sophisticated investors should be able to reach an informed decision with the information available in the preliminary assessment and all the other materials about Pebble.

“I think (the PEA) is going to answer all the questions the markets will need answered,” Collier said.

In December Northern Dynasty announced it had secured a $37.5 million payment from First Quantum Minerals Ltd., a large Canadian mining firm.

First Quantum is exploring whether or not to enter into an option agreement with Northern Dynasty and put another $112 million into Pebble over the next several years.

If First Quantum continues to support Pebble it will have an option to acquire 50 percent of the Pebble Partnership for $1.35 billion in the next three or four years, according to Collier.

Pebble leaders have said they need such a large investment partner to put the project plans into action.

Elwood Brehmer can be reached at [email protected].

04/25/2018 - 9:01am