Shares of mining darling Northern Dynasty Minerals (NYSEMKT:NAK) lost a little over 10% in December to end what had begun as a wild year with a thud. The single event that caused the monthly slide was actually one that investors had been awaiting the entire year: repartnering the Pebble Project. The term refers to finding a deep-pocketed partner to help develop the company's prized asset in Alaska after previous partners bailed years ago in the face of regulatory uncertainty.
Management delivered by announcing a framework agreement had been reached with the $12 billion copper-mining titan First Quantum Minerals. That's good news, considering Pebble's most profitable resource could very well be its copper deposits. But Wall Street was left unsatisfied after reading the remaining details of the outlined agreement.
The stock finished its 2017 campaign down 14.5%.
On the surface, Northern Dynasty Minerals appeared to have crossed the all-important "repartner Pebble Project" task from its to-do list. Dig a little deeper, though, and there are multiple details that may create more questions than answers.
First and foremost, a partnership with First Quantum Minerals hasn't been finalized. The keyword is "framework" agreement. While the copper mining leader provided Northern Dynasty Minerals with $37.5 million upfront, the deep-pocketed partner is still conducting due diligence on its potential role in Pebble. That means the deal could fall through or have the initially outlined terms amended to de-risk the potential partner's stake.
Second, the initially outlined terms don't appear to be to Wall Street's liking. The framework agreement calls for Northern Dynasty Minerals to give up 50% of the Pebble Project for only $1.5 billion, which likely isn't enough to develop half of the project. That total includes the $37.5 million upfront payment, which itself is part of $150 million in early funding that could be provided in the early stages to kick-start permitting activities.
Northern Dynasty Minerals may have missed its self-imposed deadline of announcing progress on the repartnering process by the end of the third quarter of 2017, but you have to admit that First Quantum Minerals is an ideal candidate to develop the copper-loaded Pebble Project. And hey, a couple of months late is close enough in the grand scheme of things, especially when the asset isn't expected to be in production until 2024.
But the delay and the terms outlined in the framework agreement serve as a reminder that there's a significant amount of room for error between now and production. Little delays could add up. Northern Dynasty Minerals may have to give up more -- and end up funding more of development -- than it wants in order to meet its deadlines. Investors will need to be on the lookout for further clarification on repartnering and progress on the permitting process in 2018.