An updated resource estimate shows that Northern Dynasty’s Pebble deposit is one of the largest metal occurrences in the world. Lawrence Roulston tells us what’s next for the company.
Northern Dynasty has just announced the results of an independent resource estimate for its Pebble copper-gold-molybdenum deposit in Alaska. The figures, determined by a leading independent group of geological and mining consultants, were in line with expectations. That resource estimate establishes Pebble as one of the larger metal occurrences in the world.
The overall Pebble deposit, incorporating measured plus indicated plus inferred resources, totals 4.1 billion tonnes and contains 42 million ounces of gold, 24 billion pounds of copper and 1.3 billion pounds of molybdenum. The overall resource, as presently outlined, could sustain one of the largest mines in the world for more than 50 years.
Importantly, the infill drilling resulted in 3.0 billion tonnes being elevated to the measured and indicated resource status. That volume is adequate for 41 years of production at 200,000 tonnes per day – the upper end of the projected mining rate for the project. That production level would rank among the largest mining operations in the world.
The news release highlights the overall size of the deposit, resulting in average grades that may seem low to some people. It is very important to put those grade figures into perspective. Remember, this deposit contains gold plus copper plus moly, all of which add to the revenue potential.
Using the lowest cut off grade quoted in the release – 0.3% copper equivalent – the average grade of the 4.1 billion tonne overall deposit is 0.54% copper equivalent. That grade compares to 0.43% copper equivalent presently being mined at Teck Cominco’s Highland Valley mine. That operation in British Columbia is comparable to Pebble and generated $431 million of operating profit last year.
It is extremely significant that the Pebble deposit contains a higher grade measured and indicated resource of 569 million tonnes grading 0.50 grams gold per tonne, 0.46% copper, and 0.021% molybdenum, or 0.88% copper-equivalent.
That material is positioned where it can be accessed at the start of the mine life, thereby constituting a “starter pit”.. That portion of the deposit, on its own, exceeds or matches many of the larger porphyry copper-gold deposits now in production. At the 200,000 tonne per day projected production level, the presently outlined higher grade measured and indicated resource would sustain eight years of production, likely adequate for capital repayment.
Pebble, already one of the largest deposits in the world, will almost certainly continue to grow as drilling proceeds over the summer. Last year’s drilling found a big zone to the east with grades significantly above the overall average. One of the objectives for this year is to delineate that Eastern Zone, which has potential to add a considerable volume of material at a favorable grade.
All this good news, but the big question now is: What’s next?
On the corporate front, Northern Dynasty will be acquiring the 20% of the property interest it does not already hold. The value, which is to be paid in shares, is to be determined by an independent entity. There are a number of ways to value the deposit at this stage, but I would hope that the number arrived at does not exceed the value implied by the value that investors are presently attributing to the company.
Engineering work is progressing, as part of a feasibility study. Environmental and other studies are also underway, leading toward the permitting process. Drilling will be underway again next month.
There is no doubt that the world’s largest mining companies are looking closely at Pebble. While I fully expect to see offers coming from those companies, we will most likely have to wait for some time yet. The majors want to see a lot of details before entering into a deal of this magnitude. I am guessing that Northern Dynasty management will want to get a firmer idea of the potential size of the Eastern Zone before getting into serious discussions with the majors, as that new zone has potential to add considerable value to the project.
The share price had a big run after the figures were announced, closing up C$1.55 at C$6.55 and since holding near that level. It is hard to predict what will happen to the share price in the short term: Most likely there will be considerable volatility. There may be a pullback at some stage after a big upward move. Nimble traders may want to play the swings, but that approach carries the risk of being traded out of the stock.
With a measured and indicated resource containing 31 million ounces of gold plus 18 billion pounds of copper plus 1 billion pounds of molybdenum, it is entirely likely that enough investors will recognize the fundamental value that the price could continue upward in the near term. Over the coming weeks, Northern Dynasty will continue to gain broader recognition for its fundamental value.
March 4, Resource Opportunities
Price March 14, 2005: C$6.55
Shares Outstanding: 48 million
Shares Fully Diluted: 55.3 million
Market Cap: C$ 314.4 million
Contact: Investor Relations
[The information and opinions contained in this article are drawn from sources believed to be reliable, but the accuracy and completeness is not guaranteed, nor in providing it does the author assume any liability.]
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