Rio Tinto plc Gifts Away Its Pebble Mine Stake

The miner chooses to give away its rights than fight a futile battle.

Apr 8, 2014 at 2:51PM

Now that Rio Tinto (NYSE:RIO) is donating to charity its stake in miner Northern Dynasty Minerals, the controversial Pebble mine in Alaska will now likely never see its way to development and all but seals the doom of its owner.

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Sockeye salmon. Source: Wikimedia Commons.

Pebble is the single largest undeveloped copper-gold-molybdenum deposit in the world, with the potential to produce as much as 55 billion pounds of copper, 67 million ounces of gold, and 3.3 billion pounds of molybdenum over its near-80-year life. Despite the soaring economics, the project is located on Bristol Bay at the headwaters of a major spawning ground where 40 million sockeye salmon swim in every year and has become a lightning rod for opposition.

The Environmental Protection Agency didn't even wait for its owner to submit a proposal for consideration. Instead, it relied upon a draft outline the miner submitted to the SEC and then asked some mining experts to offer their opinion. It then issued its third and final assessment of the project, once again determining that Pebble will cause "catastrophic effects" by destroying as much as 94 miles of salmon streams and 5,350 acres of wetlands, ponds, and lakes. It also initiated a rarely used provision under the Clean Water Act to stop a needed dredging permit that effectively denied its ability to go forward.

The writing was already on the wall for Pebble when Anglo American (NASDAQOTH:AAUKY) said in September it was withdrawing from the project and sold back to Northern Dynasty its 50% stake in the project and took a $300 million writedown afterward.

Although $556 million had already been spent developing Pebble, it will take some $5 billion more to bring it to fruition, but with the EPA and a star-studded lineup of individuals and companies arrayed against the project, it wasn't surprising that Rio itself took a $130 million writedown on the asset and announced it was considering walking away as well.

Yesterday, it followed through, saying it would gift its stake equally to two local Alaskan charitable foundations, the Alaska Community Foundation and the Bristol Bay Native Corporation Education Foundation. Now without any major funder backing the mine and its owner unable to advance the project on its own, Pebble is done. The charitable organizations Rio donated its ownership stake to were opposed to the project from the beginning and the Bristol Bay foundation reiterated that opposition yesterday when acknowledging the gift.

Rio Tinto has been evaluating all of its business, putting a number of them up for sale because their economics didn't comport with its focus on driving profits and shareholder value. With a project like Pebble that didn't even have the optics to go with it, it was easy to see this move was simply a matter of when, not if, it would be killed.

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