The discussion of mineral deposit classifications in this
Annual Report adheres to the mineral resource and mineral reserve definitions
and classification criteria developed by the Canadian Institute of Mining
("CIM") 2014. Estimated mineral resources fall into two broad categories
dependent on whether the economic viability of them has been established and these are namely
"resources" (potential for economic viability) and "reserves" (viable economic
production is feasible). Resources are sub-divided into categories depending on
the confidence level of the estimate based on level of detail of sampling and
geological understanding of the deposit. The categories, from lowest confidence
to highest confidence, are inferred resource, indicated resource and measured
resource. Reserves are similarly sub-divided by order of confidence into
probable (lowest) and proven (highest). These classifications can be more
particularly described as follows:
This Annual Report on Form 20-F uses terms that comply with
reporting standards in Canada and certain estimates are made in accordance with
the National Instrument 43-101, Standards of Disclosure for Mineral Projects
("NI 43-101"). NI 43-101 is a rule developed by the Canadian Securities
Administrators that establishes standards for all public disclosure an issuer
makes of scientific and technical information concerning mineral projects.
Unless otherwise indicated, all resource estimates contained in or incorporated
by reference in this prospectus have been prepared in accordance with NI 43-101.
These standards differ significantly from the requirements of the SEC, and
resource information contained herein and incorporated by reference herein may
not be comparable to similar information disclosed by companies in the United
States (US companies).
In addition, this Annual Report on Form 20-F uses the terms
"measured mineral resources", "indicated mineral resources" and "inferred
mineral resources" to comply with the reporting standards in Canada. We advise
United States investors that while those terms are recognized and required by
Canadian regulations, the SEC does not recognize them. United States investors
are cautioned not to assume that any part or all of the mineral deposits in
these categories will ever be converted into mineral reserves. These terms have
a great amount of uncertainty as to their existence, and great uncertainty as to
their economic and legal feasibility.
Further, "inferred resources" have a great amount of
uncertainty as to their existence and as to whether they can be mined legally or
economically. Therefore, United States investors are also cautioned not to
assume that all or any part of the inferred resources exist. In accordance with
Canadian rules, estimates of "inferred mineral resources" cannot form the basis
of feasibility or other economic studies, except in limited circumstances where
permitted under NI 43-101.
It cannot be assumed that all or any part of "measured mineral
resources", "indicated mineral resources", or "inferred mineral resources" will
ever be upgraded to a higher category. Investors are cautioned not to assume
that any part of the reported "measured mineral resources", "indicated mineral
resources", or "inferred mineral resources" in this prospectus is economically
or legally mineable.
In addition, disclosure of "contained ounces" is permitted
disclosure under Canadian regulations; however, the SEC only permits issuers to
report mineralization as in place tonnage and grade without reference to unit
measures.
The Annual Report on Form 20-F includes or incorporates by
reference certain statements that constitute "forward-looking statements" within
the meaning of the United States Private Securities Litigation Reform Act of
1995.
Forward-looking statements describe our future plans,
strategies, expectations and objectives, and are generally, but not always,
identifiable by use of the words may, will, should, continue, expect,
anticipate, estimate, believe, intend, plan or project or the
negative of these words or other variations on these words or comparable
terminology. Forward-looking statements contained or incorporated by reference
into this Prospectus Supplement include, without limitation, statements
regarding:
Forward-looking information is based on the reasonable
assumptions, estimates, analysis and opinions of management made in light of its
experience and its perception of trends, current conditions and expected
developments, as well as other factors that management believes to be relevant
and reasonable in the circumstances at the date that such statements are made,
but which may prove to be incorrect. We believe that the assumptions and
expectations reflected in such forward-looking information are reasonable.
Key assumptions upon which the Companys forward-looking
information are based include:
Some of the risks we face and the uncertainties that could
cause actual results to differ materially from those expressed in the
forward-looking statements include:
This list is not exhaustive of the factors that may affect any
of the Companys forward-looking statements or information. Forward-looking
statements or information are statements about the future and are inherently
uncertain, and actual achievements of the Company or other future events or
conditions may differ materially from those reflected in the forward-looking
statements or information due to a variety of risks, uncertainties and other
factors, including, without limitation, the risks and uncertainties described
above.
Our forward-looking statements and risk factors are based on
the reasonable beliefs, expectations and opinions of management on the date of
this Prospectus Supplement. Although we have attempted to identify important
factors that could cause actual results to differ materially from those
contained in forward-looking information, there may be other factors that cause
results not to be as anticipated, estimated or intended. There is no assurance
that such information will prove to be accurate, as actual results and future
events could differ materially from those anticipated in such information.
Accordingly, readers should not place undue reliance on forward-looking
information. We do not undertake to update any forward-looking information,
except as, and to the extent required by, applicable securities laws.
The Company is an "emerging growth company" as defined in
section 3(a) of the Exchange Act, and the Company will continue to qualify as an
"emerging growth company" until the earliest of:
Northern Dynasty expects to continue to be an emerging growth
company until December 31, 2020.
Generally, a registrant that registers any class of its
securities under section 12 of the Exchange Act is required to include in the
second and all subsequent annual reports filed by it under the Exchange Act, a
management report on internal control over financial reporting and, subject to
an exemption available to registrants that are neither an "accelerated filer" or
a "larger accelerated filer" (as those terms are defined in Exchange Act Rule
12b-2), an auditor attestation report on management's assessment of internal
control over financial reporting. However, for so long as the Company continues
to qualify as an emerging growth company, the Company will be exempt from the
requirement to include an auditor attestation report in its annual reports filed
under the Exchange Act, even if it were to qualify as an "accelerated filer" or
a "larger accelerated filer". In addition, auditors of an emerging growth
company are exempt from the rules of the Public Company Accounting Oversight
Board requiring mandatory audit firm rotation or a supplement to the auditor's
report in which the auditor would be required to provide additional information
about the audit and the financial statements of the registrant (auditor
discussion and analysis).
The Company has irrevocably elected to comply with new or
revised accounting standards even though it is an emerging growth company.
ITEM 1
|
IDENTITY OF DIRECTORS,
SENIOR MANAGEMENT AND ADVISORS
|
Not applicable for an Annual Report.
ITEM 2
|
OFFER STATISTICS AND
EXPECTED TIMETABLE
|
Not applicable for an Annual Report.
A.
|
SELECTED FINANCIAL DATA
|
The following tables summarize selected financial data for
Northern Dynasty derived from the Company's financial statements,
expressed in thousands of Canadian Dollars, and which have been prepared in
accordance with and using accounting policies in compliance with International
Financial Reporting Standards ("IFRS") as issued by the International Accounting
Standards Board ("IASB"). This selected financial data should be read in
conjunction with the Company's audited financial statements for the fiscal years
then ended.
Statements of Financial Position Data
($ 000s)
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Mineral property, plant and
equipment, net
|
$
|
147,088
|
|
$
|
123,608
|
|
$
|
108,050
|
|
$
|
1,055
|
|
$
|
1,055
|
|
Total assets
|
|
157,704
|
|
|
135,510
|
|
|
141,784
|
|
|
132,934
|
|
|
145,241
|
|
Total liabilities
|
|
2,724
|
|
|
7,547
|
|
|
7,856
|
|
|
4,041
|
|
|
3,885
|
|
Working capital
|
|
7,892
|
|
|
5,869
|
|
|
29,681
|
|
|
32,134
|
|
|
42,474
|
|
Share capital
|
|
435,069
|
|
|
389,227
|
|
|
389,227
|
|
|
389,189
|
|
|
388,987
|
|
Reserves
|
|
99,035
|
|
|
84,031
|
|
|
58,649
|
|
|
51,129
|
|
|
48,132
|
|
Accumulated deficit
|
|
(379,124
|
)
|
|
(345,295
|
)
|
|
(313,948
|
)
|
|
(311,425
|
)
|
|
(295,763
|
)
|
Net assets
|
|
154,980
|
|
|
127,963
|
|
|
133,928
|
|
|
128,893
|
|
|
141,356
|
|
Shareholders' equity
|
|
154,980
|
|
|
127,963
|
|
|
133,928
|
|
|
128,893
|
|
|
141,356
|
|
|
|
Form 20-F Annual Report
|
P a g e
| 11
|
Statements of Comprehensive Loss (Income) Data
($ 000s, except per share amounts and
number of
shares)
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Interest and other income
|
$
|
(313
|
)
|
$
|
(281
|
)
|
$
|
(1,136
|
)
|
$
|
(887
|
)
|
$
|
(944
|
)
|
Exploration expenditures
|
|
8,718
|
|
|
12,877
|
|
|
1,991
|
|
|
4,461
|
|
|
819
|
|
General and administrative
expenses
(1)(2)
|
|
8,272
|
|
|
9,059
|
|
|
5,970
|
|
|
6,525
|
|
|
5,840
|
|
Legal, accounting and audit
(1)
|
|
17,001
|
|
|
8,325
|
|
|
275
|
|
|
255
|
|
|
328
|
|
Share-based payments
|
|
903
|
|
|
3,877
|
|
|
641
|
|
|
5,225
|
|
|
14,205
|
|
Other
|
|
762
|
|
|
(221
|
)
|
|
(340
|
)
|
|
83
|
|
|
(58
|
)
|
Gain on discontinuance of
equity method
|
|
|
|
|
|
|
|
(5,062
|
)
|
|
|
|
|
|
|
Deferred income tax
|
|
(1,514
|
)
|
|
(2,289
|
)
|
|
184
|
|
|
|
|
|
(51
|
)
|
Net loss for the year
|
|
33,829
|
|
|
31,347
|
|
|
2,523
|
|
|
15,662
|
|
|
20,139
|
|
Other comprehensive (income) loss
|
|
(23,187
|
)
|
|
(9,953
|
)
|
|
(6,887
|
)
|
|
2,123
|
|
|
(2,153
|
)
|
Total comprehensive loss (income)
|
|
10,642
|
|
|
21,394
|
|
|
(4,364
|
)
|
|
17,785
|
|
|
17,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss
per share
|
$
|
0.23
|
|
$
|
0.33
|
|
$
|
0.03
|
|
$
|
0.16
|
|
$
|
0.21
|
|
Weighted average number of common shares outstanding
|
|
146,313,397
|
|
|
95,009,864
|
|
|
95,007,374
|
|
|
94,995,127
|
|
|
94,851,589
|
|
Note
1.
|
Comparative information in the statement of loss and
comprehensive loss has been reclassified to separately reflect legal,
accounting and audit expenditures as a separate line item. This line item
is predominantly comprised of legal costs incurred by the Group in
response to the EPAs activities surrounding the Pebble Project. These
expenditures were previously included under general and administrative
expenditures.
|
|
|
2.
|
The breakdown of these costs are presented below. The
latest three years are discussed under Item 5.
|
|
General and administrative expenses
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
Conference and travel
|
$
|
369
|
|
$
|
323
|
|
$
|
340
|
|
$
|
566
|
|
$
|
525
|
|
|
Consulting
|
|
232
|
|
|
782
|
|
|
836
|
|
|
1,761
|
|
|
|
|
|
Donations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
866
|
|
|
Insurance
|
|
398
|
|
|
384
|
|
|
342
|
|
|
343
|
|
|
296
|
|
|
Office costs
|
|
1,188
|
|
|
1,964
|
|
|
670
|
|
|
702
|
|
|
980
|
|
|
Management and administration
|
|
5,009
|
|
|
4,610
|
|
|
2,572
|
|
|
2,095
|
|
|
2,334
|
|
|
Shareholder communication
|
|
759
|
|
|
772
|
|
|
983
|
|
|
830
|
|
|
517
|
|
|
Trust and filing
|
|
317
|
|
|
224
|
|
|
227
|
|
|
228
|
|
|
322
|
|
|
|
|
8,272
|
|
|
9,059
|
|
|
5,970
|
|
|
6,525
|
|
|
5,840
|
|
Currency and Exchange Rates
On April 18, 2016, the rate of exchange of the Canadian Dollar,
based on the daily noon rate in Canada as published by the Bank of Canada, was
US$1.00 = C$1.2815. Exchange rates published by the Bank of Canada, available on
its website
www.bankofcanada.ca
, are nominal quotations not buying or
selling rates and are intended for statistical or analytical purposes.
|
|
Form 20-F Annual Report
|
P a g e
| 12
|
The following tables set out the exchange rates, based on the
daily noon rates in Canada as published by the Bank of Canada for the conversion
of Canadian Dollars into U.S. Dollars.
|
Year Ended December 31 (Canadian Dollars per U.S. Dollar)
|
|
2015
|
2014
|
2013
|
2012
|
2011
|
Rate at end of year
|
$1.3840
|
$1.1601
|
$0.9402
|
$1.0051
|
$0.9833
|
Average rate for year
|
$1.2787
|
$1.1046
|
$0.9711
|
$1.0004
|
$1.0110
|
High for year
|
$1.3990
|
$1.1656
|
$1.0165
|
$1.0299
|
$1.0583
|
Low
for year
|
$1.1728
|
$1.0639
|
$0.9342
|
$0.9599
|
$0.9430
|
Monthly High and Low Exchange Rate (Canadian Dollar per U.S.
Dollar)
|
Month or Period
|
High
|
Low
|
April 2016 (to April 18, 2016)
|
$1.3170
|
$1.2792
|
March 2016
|
$1.3468
|
$1.2962
|
February 2016
|
$1.4040
|
$1.3523
|
January 2016
|
$1.4589
|
$1.3969
|
December 2015
|
$1.3990
|
$1.3360
|
November 2015
|
$1.3360
|
$1.3095
|
B.
|
CAPITALIZATION AND
INDEBTEDNESS
|
Not applicable for an Annual Report.
C.
|
REASONS FOR THE OFFER AND USE OF
PROCEEDS
|
Not applicable for an Annual Report.
The securities of Northern Dynasty are highly speculative and
subject to a number of risks. A prospective investor or other person reviewing
Northern Dynasty for a prospective investor should not consider an investment in
Northern Dynasty unless the investor is capable of sustaining an economic loss
of their entire investment. The risks associated with Northern Dynastys
business include:
Inability to Achieve Mine Permitting of the Pebble
Project
The principal risk facing the Company is that it will be
ultimately be unable to secure the necessary permits under United States Federal
and Alaskan State laws to build a mine at Pebble. There are prominent and well
organized opponents of the Pebble Project and the Company may be unable, despite
developing solid scientific and technical evidence of risk mitigation, to
overcome such opposition and convince mining regulatory authorities that a mine
should be permitted at Pebble. If we are unable to secure the necessary permits to build a mine at the Pebble Project, we may be unable
to achieve revenues from operations and/or recover our investment in the Pebble
Project.
|
|
Form 20-F Annual Report
|
P a g e
| 13
|
The Company will be required to seek additional capital; the
Companys inability to obtain additional capital could have a material adverse
effect on its operations
While the Company has prioritized the available resources in
order to meet key corporate and Pebble Project expenditure requirements, the
Company will seek to source significant additional financing. Such financing may
include any of, or a combination of: debt, equity and/or contributions from
possible new Pebble Project participants. In light of the recent significant
depreciation of the Canadian dollar and that the vast majority of the Companys
expenditures are in United States dollars, that the Pebble Project will require
additional engineering and technical expenditures beyond what is contemplated in
the current budget, and the possibility that expenditures to pursue the
Companys Multi-Dimensional Strategy, including legal expenditures may exceed current
budget expectations, it is possible that additional financing may well be
required. There can be no assurances that the Company will be successful in
obtaining any such additional financing. If the Company is unable to raise the
necessary capital resources to meet obligations as they come due, the Company
will at some point have to further reduce or curtail its operations.
Negative Operating Cash Flow
The Company currently has a negative operating cash flow and
will continue to have that for the foreseeable future. Accordingly, the Company
will require substantial additional capital in order to fund its future
exploration and development activities. The Company does not have any
arrangements in place for this funding and there is no assurance that such
funding will be achieved when required. Any failure to obtain additional
financing or failure to achieve profitability and positive operating cash flows
will have a material adverse effect on its financial condition and results of
operations.
The Company believes it is likely a "passive foreign
investment company" which may have adverse U.S. federal income tax consequences
for U.S. shareholders.
U.S. shareholders should be aware that the Company believes it
was classified as a passive foreign investment company ("PFIC") during one or
more previous tax years, and may be a PFIC in the current tax year and possibly
in subsequent tax years. If the Company is a PFIC for any tax year during a U.S.
shareholder's holding period, then such U.S. shareholder generally will be
required to treat any gain realized upon a disposition of common shares, or any
so-called "excess distribution" received on its common shares, as ordinary
income, and to pay an interest charge on a portion of such gain or
distributions, unless the shareholder makes a timely and effective "qualified
electing fund" election or a "mark-to-market" election with respect to the
common shares. A U.S. shareholder who makes a qualified electing fund election
generally must report on a current basis its share of the Company's net capital
gain and ordinary earnings for any tax year in which the Company is a PFIC,
whether or not the Company distributes any amounts to its shareholders. A U.S.
shareholder who makes the mark-to-market election generally must include as
ordinary income each year the excess of the fair market value of the common
shares over the taxpayer's basis therein. This paragraph is qualified in its
entirety by the discussion below under the heading "Certain United States
Federal Income Tax Considerations." Each U.S. shareholder should consult its own
tax advisor regarding the PFIC rules and the U.S. federal income tax
consequences of the acquisition, ownership, and disposition of common shares.
|
|
Form 20-F Annual Report
|
P a g e
| 14
|
The Pebble Project is Subject to Political and Environmental
Regulatory Opposition
As is typical for a large scale mining project, the Pebble
Project faces concerted opposition from many individuals and organizations who
are motivated to preclude any possible mining in the Bristol Bay Watershed
(“BBW”). The BBW is an important wildlife and salmon habitat area. The United
States Environmental Protection Agency has gone so far as to suggest that it may
peremptorily prevent the Pebble Project from proceeding even before a mine
permitting application is filed. Accordingly one of the greatest risks to the
Pebble Project is seen to be political/permitting risk which may ultimately
preclude construction of a mine at Pebble.
In the event that we are unsuccessful in our litigation against the Environmental Protection Agency, or
are otherwise unable to reach a settlement with the federal agency, we may never be able to proceed
with permitting with respect to the Pebble Project.
The principal risk currently facing the Company is that we may be unable to settle our ongoing issues with the
Environmental Protection Agency (the “EPA”) with respect to its regulatory action under Section 404(c) of
the U.S. Clean Water Act. While we believe our position has merit, the proceedings have been lengthy and have
required us to expend substantial funds and time. There can be no assurance that the funds allocated for
combating the EPA action will be sufficient to bring our strategy to completion and we may be unable to raise
additional funds, causing us to abandon our strategy. Further, even if we are able to raise sufficient funds to
bring our strategy to completion, there is no assurance that we will ultimately be successful. In the event that
we are unsuccessful, and the EPA’s regulatory action is upheld, we will be unable to proceed with permitting
of the Pebble Project and the Company will be materially adversely affected.
Northern Dynasty will require additional funding to meet the
development objectives of the Pebble Project.
Northern Dynasty will need to raise additional financing to
achieve permitting and development of the Pebble Project. In addition, a
positive production decision at the Pebble Project would require significant
capital for project engineering and construction. Accordingly, the continuing
development of the Pebble Project will depend upon Northern Dynastys ability to
obtain financing through debt financing, equity financing, the joint venturing
of the project, or other sources of financing. There can be no assurance that
Northern Dynasty will be successful in obtaining the required financing, or that
it will be able to raise the funds on terms that do not result in high levels of
dilution to shareholders.
The Pebble Partnerships mineral property interests do not
contain any ore reserves or any known body of economic mineralization.
Although there are known bodies of mineralization on the Pebble
Project, and the Pebble Partnership has completed core drilling programs within,
and adjacent to, the deposits to determine measured and indicated resources,
there are currently no known reserves or body of commercially viable ore and the
Pebble Project must be considered an exploration prospect only. Extensive
additional work is required before Northern Dynasty or the Pebble Partnership
can ascertain if any mineralization may be economic and hence constitute
"ore".
Mineral Resources disclosed by Northern Dynasty or the
Pebble Partnership for the Pebble Project are estimates only.
Northern Dynasty has included mineral resource estimates that
have been made in accordance with National Instrument 43-101. These resource
estimates are classified as "measured resources", "indicated resources" and
"inferred resources". Northern Dynasty advises investors that while these terms
are mandated by Canadian securities administrators, the U.S. Securities and
Exchange Commission does not recognize these terms. Investors are cautioned not
to assume that any part or all of mineral deposits classified as "measured
resources" or "indicated resources" will ever be converted into ore reserves.
Further, "inferred resources" have a great amount of uncertainty as to their
existence, and economic and legal feasibility. It cannot be assumed that all or
any part of an inferred mineral resource will ever be upgraded to a higher
category. Under Canadian rules, estimates of inferred mineral resources may not
form the basis of feasibility or prefeasibility studies, except in rare cases.
Investors are cautioned not to assume that part or all of an inferred resource
exists, or is economically or legally mineable.
All amounts of mineral resources are estimates only, and
Northern Dynasty cannot be certain that any specified level of recovery of
metals from the mineralized material will in fact be realized or that the Pebble
Project or any other identified mineral deposit will ever qualify as a
commercially mineable (or viable) ore body that can be economically exploited.
Mineralized material which is not mineral reserves does not have demonstrated economic viability. In addition, the quantity of
mineral reserves and mineral resources may vary depending on, among other
things, metal prices and actual results of mining. There can be no assurance
that any future economic or technical assessments undertaken by the Company with
respect to the Pebble Project will demonstrate positive economics or
feasibility.
|
|
Form 20-F Annual Report
|
P a g e
| 15
|
Northern Dynasty has no history of earnings and no
foreseeable earnings, and may never achieve profitability or pay
dividends.
Northern Dynasty has only had losses since inception and there
can be no assurance that Northern Dynasty will ever be profitable. Northern
Dynasty has paid no dividends on its shares since incorporation. Northern
Dynasty presently has no ability to generate earnings as its mineral properties
are in the pre-development stage.
Northern Dynasty may not be able to continue as a going
concern.
Northern Dynastys consolidated financial statements have been
prepared on the basis that Northern Dynasty will continue as a going concern. At
December 31, 2015, Northern Dynasty had working capital of approximately $7.9
million. Northern Dynasty has prioritized the allocation of available financial
resources in order to meet key corporate and Pebble Project expenditure
requirements in the near term. Additional financing will be required for
continued corporate expenditures and expenditures at the Pebble Project.
Northern Dynastys continuing operations and the underlying value and
recoverability of the amounts shown for mineral property interest are entirely
dependent upon the existence of economically recoverable mineral reserves at the
Pebble Project, the ability of the Company to finance its operating costs, the
completion of the exploration and development of the Pebble Project, the Pebble
Partnership obtaining the necessary permits to mine, and on future profitable
production at the Pebble Project. Furthermore, failure to continue as a going
concern would require that Northern Dynasty's assets and liabilities be restated
on a liquidation basis, which would likely differ significantly from their going
concern assumption carrying values.
As the Pebble Project is Northern Dynastys principal
mineral property interest, the failure to establish that the Pebble Project
possesses commercially viable and legally mineable deposits of ore may cause a
significant decline in the trading price of Northern Dynastys common shares and
reduce its ability to obtain new financing.
The Pebble Project is, through the Pebble Partnership, Northern
Dynastys principal mineral property interest. Northern Dynastys principal
business objective is to carry out further exploration and related activities to
establish whether the Pebble Project possesses commercially viable deposits of
ore. If Northern Dynasty is not successful in its plan of operations, Northern
Dynasty may have to seek a new mineral property to explore or acquire an
interest in a new mineral property or project. Northern Dynasty anticipates that
such an outcome would possibly result in further declines in the trading price
of Northern Dynastys common shares. Furthermore, Northern Dynasty anticipates
that its ability to raise additional financing to fund exploration of a new
property or the acquisition of a new property or project would be impaired as a
result of the failure to establish commercial viability of the Pebble Project.
If prices for copper, gold, molybdenum and silver decline,
Northern Dynasty may not be able to raise the additional financing required to
fund expenditures for the Pebble Project.
The ability of Northern Dynasty to raise financing to fund the
Pebble Project, will be significantly affected by changes in the market price of
the metals for which it explores. The prices of copper, gold, molybdenum and
silver are volatile, and are affected by numerous factors
beyond Northern Dynastys control. The level of interest rates, the rate of
inflation, the world supplies of and demands for copper, gold, molybdenum and
silver and the stability of exchange rates can all cause fluctuations in these
prices. Such external economic factors are influenced by changes in
international investment patterns and monetary systems and political
developments. The prices of copper, gold, molybdenum and silver have fluctuated
in recent years, and future significant price declines could cause investors to
be unprepared to finance exploration of copper, gold, molybdenum and silver,
with the result that Northern Dynasty may not have sufficient financing with
which to fund its exploration activities
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Northern Dynasty competes with larger, better capitalized
competitors in the mining industry.
The mining industry is competitive in all of its phases,
including financing, technical resources, personnel and property acquisition. It
requires significant capital, technical resources, personnel and operational
experience to effectively compete in the mining industry. Because of the high
costs associated with exploration, the expertise required to analyze a projects
potential and the capital required to develop a mine, larger companies with
significant resources may have a competitive advantage over Northern Dynasty.
Northern Dynasty faces strong competition from other mining companies, some with
greater financial resources, operational experience and technical capabilities
than Northern Dynasty possesses. As a result of this competition, Northern
Dynasty may be unable to maintain or acquire financing, personnel, technical
resources or attractive mining properties on terms Northern Dynasty considers
acceptable or at all.
Compliance with environmental requirements will take
considerable resources and changes to these requirements could significantly
increase the costs of developing the Pebble Project and could delay these
activities.
The Pebble Partnership and Northern Dynasty must comply with
stringent environmental legislation in carrying out work on the Pebble Project.
Environmental legislation is evolving in a manner that will require stricter
standards and enforcement, increased fines and penalties for non-compliance,
more stringent environmental assessments of proposed projects and a heightened
degree of responsibility for companies and their officers, directors and
employees. Changes in environmental legislation could increase the cost to the
Pebble Partnership of carrying out its exploration and, if warranted,
development of the Pebble Project. Further, compliance with new or additional
environmental legislation may result in delays to the exploration and, if
warranted, development activities.
Changes in government regulations or the application thereof
and the presence of unknown environmental hazards on Northern Dynastys mineral
properties may result in significant unanticipated compliance and reclamation
costs.
Government regulations relating to mineral rights tenure,
permission to disturb areas and the right to operate can adversely affect
Northern Dynasty. Northern Dynasty and the Pebble Partnership may not be able to
obtain all necessary licenses and permits that may be required to carry out
exploration at our projects. Obtaining the necessary governmental permits is a
complex, time-consuming and costly process. The duration and success of efforts
to obtain permits are contingent upon many variables not within our control.
Obtaining environmental permits may increase costs and cause delays depending on
the nature of the activity to be permitted and the interpretation of applicable
requirements implemented by the permitting authority. There can be no assurance
that all necessary approvals and permits will be obtained and, if obtained, that
the costs involved will not exceed those that we previously estimated. It is
possible that the costs and delays associated with the compliance with such
standards and regulations could become such that we would not proceed with the
development or operation of a mine at the Pebble Project. Refer to further
discussion in
Item 8 - A3. Legal Proceedings
.
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Litigation
The Company is currently and may in future be subject to legal
proceedings in the development of its Pebble Project. Given the uncertain nature
of these actions, the Company cannot reasonably predict the outcome thereof. If
the Company is unable to resolve these matters favorably it may have a material
adverse effect of the Company.
Northern Dynasty is subject to many risks that are not
insurable and, as a result, Northern Dynasty will not be able to recover losses
through insurance should such certain events occur.
Hazards such as unusual or unexpected geological formations and
other conditions are involved in mineral exploration and development. Northern
Dynasty may become subject to liability for pollution, cave-ins or hazards
against which it cannot insure. The payment of such liabilities could result in
increase in Northern Dynastys operating expenses which could, in turn, have a
material adverse effect on Northern Dynastys financial position and its results
of operations. Although Northern Dynasty and the Pebble Partnership maintain
liability insurance in an amount which we consider adequate, the nature of these
risks is such that the liabilities might exceed policy limits, the liabilities
and hazards might not be insurable against, or Northern Dynasty and the Pebble
Partnership might elect not to insure itself against such liabilities due to
high premium costs or other reasons, in which event Northern Dynasty could incur
significant liabilities and costs that could materially increase Northern
Dynastys operating expenses.
The market price of Northern Dynastys common shares is
subject to high volatility and could cause investor loss.
The market price of a publicly traded stock, especially a
resource issuer like Northern Dynasty, is affected by many variables in addition
to those directly related to exploration successes or failures. Such factors
include the general condition of markets for resource stocks, the strength of
the economy generally, the availability and attractiveness of alternative
investments, and the breadth of the public markets for the stock. The effect of
these and other factors on the market price of the Companys common shares
suggests Northern Dynastys shares will continue to be volatile. Therefore,
investors could suffer significant losses if Northern Dynastys shares are
depressed or illiquid when an investor seeks liquidity and needs to sell
Northern Dynasty shares.
If Northern Dynasty loses the services of the key personnel
that it engages to undertake its activities, then Northern Dynastys plan of
operations may be delayed or be more expensive to undertake than anticipated.
Northern Dynastys success depends to a significant extent on
the performance and continued service of certain independent contractors,
including Hunter Dickinson Services Inc. ("HDSI"). The Company has access to the
full resources of HDSI, an experienced exploration and development firm with
in-house geologists, engineers and environmental specialists, to assist in its
technical review of the Pebble Project. There can be no assurance that the
services of all necessary key personnel will be available when required or if
obtained, that the costs involved will not exceed those that we previously
estimated. It is possible that the costs and delays associated with the loss of
services of key personnel could become such that we would not proceed with the
development or operation of a mine at the Pebble Project.
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ITEM 4
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INFORMATION ON THE
COMPANY
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A.
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HISTORY AND DEVELOPMENT OF THE
COMPANY
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Incorporation
Northern Dynasty is a mineral exploration company incorporated
on May 11, 1983 pursuant to the Company Act of the Province of British Columbia
(predecessor statute to the British Columbia Corporations Act in force since
2004), under the name "Dynasty Resources Inc.". On November 30, 1983 the Company
changed its name to "Northern Dynasty Explorations Ltd." and subsequently, on
October 11, 1997, changed its name to Northern Dynasty Minerals Ltd. Northern
Dynasty became a reporting company in the Province of British Columbia on April
10, 1984 and was listed on the Vancouver Stock Exchange (now the TSX Venture
Exchange and herein generally "TSX Venture") from 1984-1987, listed on the
Toronto Stock Exchange from 1987-1993, and unlisted but continued to comply with
its continuous disclosure obligations from 1993 to 1994, and thereupon listed on
TSX Venture from 1994 to October 30, 2007 when it began trading on the Toronto
Stock Exchange ("TSX"). In November 2004, the common shares of Northern Dynasty
were also listed on the American Stock Exchange ("AMEX"). AMEX was purchased by
the New York Stock Exchange ("NYSE") and the Company now trades on the NYSE MKT
Exchange ("NYSE MKT").
Offices
The head office of Northern Dynasty is located at Suite 1500,
1040 West Georgia Street, Vancouver, British Columbia, Canada V6E 4H1, telephone
(604) 684-6365, facsimile (604) 684-8092. The Companys legal registered office
is in care of its Canadian attorneys, McMillan LLP, Barristers & Solicitors,
at Suite 1500, 1055 West Georgia Street, Vancouver, British Columbia, Canada V6E
4N7, telephone (604) 689-9111, facsimile (604) 685-7084.
The Companys Alaska mineral resource exploration business is
operated through an Alaskan registered limited partnership, the Pebble Limited
Partnership (the "Pebble Partnership" or "PLP"), in which the Company (since
December 2013) owns a 100% interest through subsidiary entities. A 100%
subsidiary of the Company, Pebble Mines Corp. is the general partner of the
Pebble Partnership and responsible for its day-to-day operations. The business
address of the Northern Dynasty Partnership is Suite 602, 3201 C Street,
Anchorage, Alaska, USA, 99503.
Company Development
Northern Dynasty is a mineral exploration company focused on
developing the Pebble Project, a copper-gold-molybdenum-silver mineral project.
The Pebble Project is located in southwest Alaska, approximately 200 miles (320
kilometers) southwest of the city of Anchorage.
To December 31, 2015, approximately $806 million (US$752
million)
1
in expenditures have been incurred on the Pebble Project.
Of this amount, approximately $595 million (US$573 million) in funding was
provided to the Pebble Partnership by an affiliate of Anglo American plc
("Anglo American") and expended from 2007 to December 10, 2013 after which time
Northern Dynasty re-acquired Anglo Americans 50% ownership interest in the
Pebble Partnership on the latters withdrawal. Prior to the formation of the
Pebble Partnership in 2007, Northern Dynasty had spent approximately $188
million on exploration activities and a further $106 million in acquisition
costs on the Pebble Project.
_____________________________
1
During the period 2007 to 2013, the Pebble
Partnership expended several hundred million dollars on the Pebble Project, a
major portion of which was spent on exploration programs, resource estimates,
environmental data collection and technical studies, with a significant portion
spent on engineering of various possible mine development models, as well as
related infrastructure, power and transportation systems. As a consequence of
several factors, including the Environmental Protection Agency Clean Water Act
404(c) action on the Pebble Project, the withdrawal of Anglo American plc from
the project and the passage of time, technical and engineering studies related
to mine-site and infrastructure development are considered to have very
uncertain and perhaps little value at this time. Environmental baseline studies
and data collection remains a significant legacy asset of the Company from this
period.
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Northern Dynasty does not have any operating revenue, although
currently and historically it has had non-material annual interest revenue as a
consequence of investing its surplus funds.
Significant Acquisitions, Dispositions and Group
Reorganization
Northern Dynasty via 100% owned subsidiaries and other entities
holds indirect interests in mineral claims on State land in southwest Alaska,
USA. These claims (including certain area claims) form what is referred to as
the Pebble Copper-Gold-Molybdenum-Silver Project (the "Pebble Project").
Pebble Limited Partnership and Pebble Project
On July 26, 2007, the Company converted a wholly-owned general
partnership that held its Pebble Project interests into a limited partnership,
the Pebble Partnership. The purpose of the Pebble Partnership is to engineer,
permit, construct and operate a modern, long-life mine at the Pebble Project.
Anglo American through a wholly-owned affiliate subscribed for 50% of the Pebble
Partnership's equity effective July 31, 2007. To maintain its 50% interest in
the Pebble Partnership, Anglo American was required to commit staged cash
investments into the Pebble Partnership aggregating to US$1.5 billion. On
September 15, 2013, Anglo American gave notice to the Company of its withdrawal
from the Pebble Partnership. In December 2013, the Company exercised its right
to acquire Anglo Americans 50% interest and consequently holds a 100% interest
in the Pebble Partnership and Pebble Mines Corp. (the General Partner of the
Pebble Partnership which administers the Pebble Project).
Under the Pebble Partnership Agreement and applicable tax
regulations, neither the Company nor its affiliated general partnership will be
entitled to the benefits for tax purposes of the expenditures incurred by the
Pebble Partnership from Anglo Americans investment, as these benefits accrued
exclusively to Anglo American under the Pebble Partnership Agreement and
applicable tax regulations.
2006 Equity Investment by Rio Tinto Affiliate
In 2006, the Company issued 8,745,845 common shares in
connection with a share purchase agreement with Kennecott Canada Exploration
Inc. ("Kennecott", a subsidiary of Rio Tinto plc) for $10.00 per share for
proceeds of approximately $87 million. In January 2007, Northern Dynasty was
advised by Galahad Gold plc ("Galahad"), a significant shareholder of the
Company that QIT-Fer Et Titane Inc., an affiliate of Rio Tinto, agreed to
purchase 9.4 million shares of Northern Dynasty from Galahad at a price of
$10.00 per share. The share purchase, which closed February 1, 2007, increased
Rio Tintos indirect ownership in Northern Dynasty to approximately 19.8% . In
early 2014, this holding represented approximately 19.1% of Northern Dynastys
outstanding and issued common shares. Rio Tinto plc divested of its shares in
April 2014.
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Special Warrant Financings
In late December 2014 and early January 2015, the Company
completed a financing to raise proceeds of $15.5 million through the issuance of
35,962,735 Special Warrants, each convertible into one common share without
payment of additional consideration. All the Special Warrants were automatically
converted or converted upon election by warrantholders according to their terms
into common shares by September 2015. See
Item 10 - C. Material
Contracts
.
In September 2015, the Company completed a financing and raised
gross proceeds of approximately $15 million through the issuance of 37,600,000
Special Warrants, each convertible into one common share without payment of
additional consideration. These Special Warrants were automatically converted
into common shares in November 2015. See
Item 10 - C. Material Contracts
.
Acquisition of Inactive Listed Issuer Cannon Point
Resources Ltd. ("Cannon Point")
In October 2015, the Company issued 12,881,344 common shares to
acquire Cannon Point, a company with a primary asset of $4.25 million in cash.
Acquisition of Listed Issuer Mission Gold Ltd.
("Mission Gold")
In December 2015, the Company issued 27,593,341 common shares
to acquire Mission Gold, a company with primary assets of approximately $9
million in cash and a 100% interest in a titanium project that was sold by
Mission Gold to a third party for $1.5 million in marketable securities as part
of the transaction with Northern Dynasty. See
Item 10 - C. Material
Contracts
.
Private Placement
In December 2015, the Company completed a private placement of
12,573,292 common shares at a price of $0.412 per share for gross proceeds of
approximately $5.2 million.
The Companys business is the exploration and advancement
towards feasibility, permitting and ultimately development of a
copper-gold-molybdenum-silver mineral resource in Alaska, USA known as the
"Pebble Project".
The Pebble Project is Subject to State and Federal
Laws
The Pebble Partnership is required to comply with all Alaska
statutes in connection with the Pebble Project. These statutes govern titles,
operations, environmental, development, operating and generally all aspects of
exploration and development of a mine in Alaska.
Alaska Statute 38.05.185 among others establishes the rights to
mining claims and mineral leases on lands owned by the State of Alaska and open
to mineral entry. This group of statutes also covers annual labor and rental
requirements, and royalties.
Operations on claims or leases on state owned land must be
permitted under a plan of operations as set out in Title 11 of the Alaska
Administrative Code, Chapter 86, Section 800. This regulation generally provides
that the State Division of Mining can be the lead agency in coordinating the
comments of all agencies which must consent to the issuance of a plan of
operations, and sets the requirements for the approval of a plan of operations.
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Environmental conditions are controlled by Alaska Statute 46.08
(which prohibits release of oil and hazardous substances), Alaska Statute
46.03.060 (which sets water quality standards), and Alaska Statute 46.14 (which
sets air quality standards).
Once a decision is made to enter permitting, the Pebble Project
will be required to satisfy permitting requirements at three levels: federal,
state and local (borough). The process takes approximately 3-4 years to complete
and involves 11 regulatory agencies, 60+ categories of permits and significant
ongoing opportunities for public involvement. The Alaska Department of Natural
Resources Large Mine Permitting Team is responsible for coordinating permitting
activities for large mine projects.
To satisfy permitting requirements under the National
Environmental Policy Act ("NEPA") and other regulatory statutes, a project must
provide a comprehensive project design and operating plan for mine-site and
infrastructure facilities; documentation of development alternatives
investigated; mitigation and compensation strategies, and identification of
residual effects; and environmental monitoring, reclamation and closure plans.
The first step is to provide the required information for an Environmental
Impact Statement ("EIS") under NEPA, including a Project Description and
Environmental Baseline Document prepared by a third-party contractor under the
direction of a lead federal agency, expected to be the US Army Corps of
Engineers. The EIS will determine whether sufficient evaluation of the project's
environmental effects and development alternatives has been undertaken. It will
also provide the basis for federal, state and local government agencies to make
individual permitting decisions.
Under the U.S. Clean Water Act, Section 404(c), the
Administrator of the Environmental Protection Agency ("EPA") is given the right
to disallow the specification (including the withdrawal of specification) of any
defined area as a disposal site if he or she determines that the release of such
material will have an unacceptable adverse effect on municipal water supplies,
local wildlife, spawning and breeding areas of fisheries, shellfish beds, and/or
recreational areas. Such decisions made by the Administrator require notice and
opportunity for public hearings, and consultation with the Secretary of the Army
Corp of Engineers. The Administrator shall set forth in writing and make public
his or her findings and reasons for making any determination under this
subsection.
Ownership History
In October 2001, Northern Dynasty acquired, through its Alaskan
subsidiary, a two-part Pebble Property purchase option previously secured by
HDGI from an Alaskan subsidiary of Teck Cominco Limited, now Teck Resources
Limited (Teck). In particular, HDGI assigned 80% of this two-part option (the
Teck Option) to Northern Dynasty while retaining 20% thereof. The first part of
the Teck Option permitted Northern Dynasty to purchase (through its Alaskan
subsidiary) 80% of the previously drilled portions of the Pebble Property on
which the majority of the then known copper mineralization occurred (the
Resource Lands Option). Northern Dynasty could exercise the Resource Lands
Option through the payment of cash and shares aggregating US$10 million prior to
November 30, 2004. The second part of the Teck Option permitted Northern Dynasty
to earn a 50% interest in the exploration area outside of the Resource Lands
(the Exploration Lands Option). Northern Dynasty could exercise the
Explorations Lands Option by doing some 60,000 ft (18,200 m) of exploration
drilling by November 30, 2004, which it completed on time. The HDGI assignment
of the Teck Option also allowed Northern Dynasty to purchase the other 20% of
the Teck Option retained by HDGI for its fair value.
In November 2004, Northern Dynasty exercised the Resource Lands
Option and acquired 80% of the Resource Lands. In February 2005, Teck elected to
sell its residual 50% interest in the Exploration Lands to Northern Dynasty for
US$4 million. Teck still retains a 4% pre-payback advance net profits royalty
interest (after debt service) and 5% after-payback net profits interest royalty
in any mine production from the Exploration Lands portion of the Pebble property
as shown on the figure below.
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In June 2006, Northern Dynasty acquired, through its Alaska
subsidiaries, the remaining HDGI 20% interest in the Resource Lands and
Exploration Lands by acquiring HDGI from its shareholders and through its
various subsidiaries had thereby acquired an aggregate 100% interest in the
Pebble Property, subject only to the Teck net-profits royalties on the
Exploration Lands. At that time, Northern Dynasty operated the Pebble Property
through an Alaskan general partnership with one of its subsidiaries.
In July 2007, the Pebble Partnership was created and an
indirect wholly-owned subsidiary of Anglo American subscribed for 50% of the
Pebble Partnership's equity effective July 31, 2007. Each of Northern Dynasty
and Anglo American effectively had equal control and management rights in the
Pebble Partnership and its general partner, Pebble Mines Corp., through
respective wholly-owned affiliates. The Pebble Partnership's assets include the
shares of two Alaskan subsidiaries, which hold registered title to the claims.
To maintain a 50% interest in the Pebble Partnership, Anglo American was
required to make staged cash investments into the Pebble Partnership,
aggregating $1.5 billion, towards comprehensive exploration, engineering,
environmental and socioeconomic programs and, if warranted, development of the
Pebble Project. On September 15, 2013, Anglo American gave Northern Dynasty a
60-day notice of withdrawal from the Pebble Project. In December 2013, Northern
Dynasty exercised its right to acquire Anglo Americans interest in the Pebble
Partnership and now holds a 100% interest in the Pebble Partnership.
On June 29, 2010, Northern Dynasty entered into an agreement
with Liberty Star Uranium and Metals Corp. and its subsidiary, Big Chunk Corp.
(together, "Liberty Star"), pursuant to which Liberty Star sold 23.8 square
miles of claims (the 95 "Purchased Claims") to a U.S. subsidiary of Northern
Dynasty in consideration for both a $1 million cash payment and a secured
convertible loan from Northern Dynasty in the amount of $3 million. The parties
agreed, through various amendments to the original agreement, to increase the
principal amount of the Loan by $730,174. Northern Dynasty later agreed to
accept transfer of 199 claims (the Settlement Claims) located north of the
ground held 100% by the Pebble Partnership in settlement of the Loan. These
claims are now held by Northern Dynastys subsidiary U5 Resources Inc. See
Property Description below for current claim holding.
On January 31, 2012, the Pebble Partnership entered into a
Limited Liability Company Agreement with Full Metal Minerals (USA) Inc.
(FMMUSA), a wholly-owned subsidiary of Full Metal Minerals Corp., to form
Kaskanak Copper LLC (the LLC). Under the agreement, the Pebble Partnership
could earn a 60% interest in the LLC, which indirectly owned 100% of the
Kaskanak claims, by incurring exploration expenditures of at least US$3 million and making annual payments of $50,000 to
FMMUSA over a period ending on December 31, 2013. On May 8, 2013, the Pebble
Partnership purchased FMMUSAs entire ownership interest in the LLC for a cash
consideration of $750,000. As a result, the Pebble Partnership gained a 100%
ownership interest in the LLC, the indirect owner of a 100% interest in a group
of 542 claims located south and west of other ground held by the Pebble
Partnership. In January 2015, Kaskanak Inc. and its wholly-owned parent,
Kaskanak Copper LLC, were merged with Pebble East Claims Corporation, with the
latter the surviving entity that holds the 464 claims covering 116 square miles.
See Property Description below for current claim holdings.
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TECHNICAL SUMMARY
The following disclosure is mainly summarized from the 2014
Technical Report on the Pebble Project, Southwest Alaska, USA by J. David
Gaunt, P.Geo., James Lang, P.Geo., Eric Titley, P.Geo., and Ting Lu, P.Eng.,
effective date December 31, 2014 (2014 Technical Report), and updated from
Company files. Additional details can be found in the 2014 Technical Report
which is filed on the Companys profile at
www.sedar.com
and as a Form
6-K on the Companys profile at
www.sec.gov
.
Introduction
The Pebble deposit was originally discovered in 1989 and was
acquired by Northern Dynasty in 2001. Since that time, Northern Dynasty and
subsequently the Pebble Limited Partnership (the Pebble Partnership, in which
Northern Dynasty currently owns a 100% interest) have conducted significant
mineral exploration, environmental baseline data collection, and engineering
work on the Pebble Project to advance it towards development.
Work at Pebble has led to an overall expansion of the Pebble
deposit, as well as the discovery of several other mineralized occurrences along
an extensive northeast-trending mineralized system underlying the property. Over
one million feet of drilling has been completed on the property, a large
proportion of which has been focused on the Pebble deposit.
In light of more recent stakeholder and regulatory feedback,
Northern Dynasty initiated a comprehensive review of previous analyses of the
Pebble Project in late 2013 and in 2014 commissioned the 2014 Technical Report
to update information on the mineral resources and metallurgy for the project.
Property Description and Location
The Pebble Project is located in southwest Alaska,
approximately 200 miles southwest of Anchorage, 17 miles northwest of the
village of Iliamna, 160 miles northeast of Bristol Bay, and approximately 60
miles west of Cook Inlet.
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Northern Dynasty holds, indirectly through wholly-owned
subsidiaries including the Pebble Partnership, a 100% interest in a contiguous
block of 2,402 mineral claims covering approximately 417 square miles (Figure
2). This includes 2,182 claims covering 364.2 square miles (including the Pebble
deposit) held by Pebble Partnership subsidiaries, Pebble East Claims Corporation
and Pebble West Claims Corporation; and 220 claims covering 52.5 square miles
held by Northern Dynasty subsidiary U5 Resources Inc. The details of the mineral
claims are provided as Exhibit 15.01.
State mineral claims in Alaska are kept in good standing by
performing annual assessment work or in lieu of assessment work by paying $100
per year per 40 acre (0.06 square mile) mineral claim, and by paying annual
escalating state rentals. All of the assessment work payment obligations come
due annually on August 31. Credit for excess work can be banked for a maximum of
four years, and can be applied as necessary to continue to hold the claims in
good standing. The Project claims have a variable amount of work credit
available that can be applied in this way and will be applied in
2016
1
. State rentals for 2016 are US$990,390 and are payable no later
than 90 days after the assessment work is due.
_____________________________
2
Annual assessment work obligations for the
property of some US$667,700 are due in 2016 and will be covered by banked
assessment credits from work performed in 2015 and prior years.
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The Pebble Partnership currently does not own surface rights
associated with the mineral claims that comprise the Pebble Property. All lands
are held by the State of Alaska, and surface rights may be acquired from the
state government once areas required for mine development have been determined
and permits awarded. Permits necessary for exploration drilling and other field
programs associated with pre-development assessment of the Pebble Project are
applied for each year. There are no existing material environmental liabilities
associated with the Pebble Project.
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Accessibility, Climate, Local Resources, Infrastructure and
Physiography
Current access to the property is by helicopter from Iliamna.
There is a modern airfield at Iliamna, with two paved 4,920 ft airstrips, that
services the communities of Iliamna, Newhalen and Nondalton. The runways are
suitable for DC-6 and Hercules cargo aircraft and commercial jet aircraft.
There are paved roads that connect the villages of Iliamna and
Newhalen to the airport and to each other, and a partly paved, partly gravel
road that extends to a proposed Newhalen River crossing near Nondalton. The
property is currently not connected to any of these local communities by road; a
road would be planned as part of the project design.
There is no access road that connects the communities nearest
the Pebble Project to the coast on Cook Inlet. From the coast, at Williamsport
on Iniskin Bay, there is an 18.6 mile state-maintained road that terminates at
the east end of Iliamna Lake, where watercraft and transport barges may be used
to access Iliamna. The route from Williamsport, over land to Pile Bay on Iliamna
Lake, is currently used to transport bulk fuel, equipment and supplies to
communities around the lake during the summer months. Also during summer,
supplies are barged up the Kvichak River, approximately 43.4 miles southwest of
Iliamna, from Kvichak Bay on the North Pacific Ocean.
A small run-of-river hydroelectric installation on the nearby
Tazamina River provides power for the three communities in the summer months.
Supplemental power generation using diesel generators is required during winter
months.
Iliamna and surrounding communities have a combined population
of just over 400 people. As such, there is limited local commercial
infrastructure except that which services seasonal sports fishing and hunting.
The property is situated at approximately 1,000 ft above mean
sea level in an area described as subarctic tundra. It is characterized by
gently rolling hills and an absence of permafrost. The climate is sufficiently
moderate to allow a well-planned mineral exploration program to be conducted
year-round at Pebble.
Geological Setting and Mineralization
Pebble is a porphyry-style copper-gold-molybdenum-silver
deposit that comprises two adjacent, contiguous, coeval hydrothermal centers
called the Pebble East and Pebble West zones. Mineralization in the Pebble West
zone extends from surface to depths of at least 3,000 ft whereas higher grade
mineralization in the Pebble East zone extends to a depth of at least 5,810 ft
but is concealed beneath an east-thickening wedge of unmineralized rock types.
An important exploration target is represented by high-grade, but as yet
undelineated, mineralization on the far eastern side of the deposit which was
dropped 1,970 to 2,950 ft by normal faults into the northeast-trending East
Graben.
The Pebble deposit formed about 90 million years ago in
response to intrusion of granodiorite magmas generated by subduction of the
Pacific Plate beneath the Wrangellia Superterrane. The Pebble deposit is hosted
by these granodiorite intrusions and by the sedimentary and volcanic rocks of
Jurassic to Cretaceous age, granodiorite and diorite sills and alkalic monzonite
intrusions and associated breccias which host them.
Mineralization at Pebble is predominantly hypogene, although
the Pebble West zone contains a thin zone of variably developed leached cap and
underlying supergene mineralization. Disseminated and vein-hosted
copper-gold-molybdenum-silver mineralization, dominated by chalcopyrite and
locally accompanied by bornite, is associated with early potassic alteration in
the shallow part of the Pebble East zone and with early sodic-potassic
alteration in the Pebble West zone and deeper parts of the Pebble East zone.
High-grade copper-gold mineralization is associated with younger pyrophyllite-
and sericite-bearing subtypes of advanced argillic alteration in the Pebble East
zone. The deposit is surrounded by weakly mineralized quartz-sericite-pyrite
alteration; in the upper center of the deposit quartz-illite-pyrite alteration
is an illite-altered relict of a mostly eroded quartz-sericite-pyrite cap to the
deposit.
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Exploration
Historical
Cominco Alaska, a division of Cominco Ltd. now Teck (Cominco
(Teck)) began reconnaissance exploration in the Pebble region in the mid-1980s
and in 1984 discovered the Sharp Mountain gold prospect near the southern margin
of the current property. Gold was discovered in quartz veins of probable
Tertiary age near the peak of Sharp Mountain. Grab samples of veins in talus
ranged from 0.045 oz/ton Au to 9.32 oz/ton Au and 3.0 oz/ton Ag. In 1987,
examination and sampling of several prominent limonitic and hematitic alteration
zones yielded anomalous gold concentrations from the Sill prospect and the
Pebble discovery outcrop.
Geophysical surveys were conducted on the property between 1988
and 1997. An IP survey in 1989 at Pebble displayed response characteristics of a
large porphyry-copper system. The surveys were dipole-dipole induced
polarization (IP) surveys which defined a chargeability anomaly about 31.1
square miles in extent within Cretaceous age rocks which surround the eastern to
southern margins of the Kaskanak batholith. All known zones of mineralization of
Cretaceous age on the Pebble property occur within the broad IP anomaly.
In 1991, baseline environmental and engineering studies were
initiated and weather stations were established. A preliminary evaluation was
undertaken by Cominco (Teck) in 1991, and updated in 1992. Historical estimates
of the mineral resources for the Pebble deposit were completed by Cominco
(Teck), most recently in 2000.
Northern Dynasty and Pebble Partnership
Between 2001 and 2006, the entire Pebble property was mapped
for rock type, structure and alteration at a scale of 1:10,000, providing an
important geological framework for interpretation of other exploration data. A
geological map of the Pebble deposit was also constructed but, due to a paucity
of outcrop, was based solely on drill hole information. The content and
interpretation of district and deposit scale geological maps have not changed
materially from those presented in 2009 and 2010.
A number of geophysical surveys, including IP, magnetic and
other survey types were completed by Northern Dynasty and the Pebble Partnership
between 2001 and 2010 to test the Pebble deposit and other occurrences on the
Pebble property. Between 2001 and 2003, Northern Dynasty collected 1,026 soil
samples, outlining high-contrast, coincident anomalies in gold, copper,
molybdenum and other metals in an area that measures at least 5.6 miles
north-south by up to 2.5 miles east-west, with strong but smaller anomalies in
several outlying zones. All soil geochemical anomalies lie within the 31.1
square mile IP chargeability anomaly. Limited surficial geochemical surveys were
completed in 2010 and 2011.
Drilling
Extensive drilling totalling 1,042,218 ft has been completed in
1,355 holes on the Pebble Project. These result from annual drill programs which
took place during 19 of the 26 years from 1988 to 2013. Northern Dynasty and the
Pebble Partnership completed drilling for exploration, deposit delineation,
engineering and environmental purposes between 2002 and 2013. Highlights from
exploration and deposit delineation drilling since 2002 include:
|
|
in 2002, drill testing of IP chargeability and
multi-element geochemical anomalies outside of the Pebble deposit but
within the larger and broader IP chargeability anomaly discovered the 38
Zone porphyry copper-gold-molybdenum deposit, the 52 Zone porphyry copper
occurrence, the 37 Zone gold-copper skarn deposit, the 25 Zone gold
deposit, and several small occurrences in which gold values exceeded 3.0
g/t.
|
|
|
|
|
|
in 2003, drilling took place within and adjacent to the
Pebble West zone and outside the Pebble deposit to test for extensions and
new mineralization at four other zones, including the 38 Zone porphyry
copper-gold-molybdenum deposit and the 37 Zone gold-copper skarn deposit.
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Form 20-F Annual Report
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P a g e
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|
|
in 2004, 147 exploration holes were drilled in the Pebble
deposit; the Pebble East zone is identified; the 308 Zone porphyry
copper-gold-molybdenum deposit is discovered.
|
|
|
|
|
|
in 2005 and 2006, drilling at Pebble East
confirms its large size and higher grades of copper, gold and molybdenum.
|
|
|
|
|
|
in 2007, 34 holes extend Pebble East to the
northeast, northwest, south and southeast.
|
|
|
|
|
|
in 2008, 31 delineation and infill holes were
drilled at Pebble East. FMMUSA drilled seven exploration holes on land
that is now controlled by the Pebble Partnership.
|
|
|
|
|
|
in 2009 and 2010, delineation holes were
drilled at the margins of Pebble West and exploration holes were drilled
elsewhere on the property.
|
|
|
|
|
|
in 2011 and 2012, holes drilled at the Pebble West zone
indicate potential for resource expansion laterally and to depth;
exploration targets were tested on the Kaskanak claims to the northwest
and south of Pebble, and on the KAS claims further south.
|
Drilling for engineering (metallurgical and geotechnical) and
environmental (hydrological) purposes began in 2004 and continued through
2013.
The spatial distribution and type of holes drilled are
illustrated below.
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Form 20-F Annual Report
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P a g e
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Most of the footage on the Pebble Project was drilled using
diamond core drills. Only 18,921 ft were percussion-drilled from 223 rotary
drill holes. Many of the cored holes were advanced through overburden using a
tricone bit with no core recovery. These overburden lengths are included in the
core drilling total.
Since early 2004, all Pebble drill core has been geotechnically
logged on a drill run basis. Over 69,000 measurements were made for a variety of
geotechnical parameters on 735,000 ft of core drilling. Recovery is generally
very good and averages 98.5% overall; two-thirds of all measured intervals have
100% core recovery. Additionally, all Pebble drill core from the 2001 through
2013 drill programs was photographed in a digital format.
All drill hole collars have been surveyed using a differential
global positioning system. A digital terrain model for the site was generated by
photogrammetric methods in 2004. All post-Cominco (Teck) drill holes have been
surveyed downhole, typically using a single shot magnetic gravimetric tool. A
total of 989 holes were drilled vertically (-90°) and 192 were inclined from
-42° to -85° at various azimuths.
A summary of drilling by various categories (operator, type,
year and area) to the end of the 2013 exploration program are compiled in the
table below. As shown in Figure 3 and Table 1 (East, West, Main), a large
proportion of the drilling has been directed toward the Pebble deposit.
Table 1 Summary of Drill Holes Pebble Project
|
No. of
Holes
|
Feet
|
Metres
|
By Operator
|
Cominco (Teck)
1
|
164
|
75,741.0
|
23,086
|
Northern Dynasty
|
578
|
495,069.5
|
150,897
|
Pebble Partnership
2
|
606
|
465,957.7
|
142,024
|
FMMUSA
|
7
|
5,450.0
|
1,661
|
Total
|
1,355
|
1,042,218.2
|
317,668
|
By Type
|
Core
1,5
|
1,132
|
1,023,297.6
|
311,901
|
Percussion
6
|
223
|
18,920.6
|
5,767
|
Total
|
1,355
|
1,042,218.2
|
317,668
|
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Form 20-F Annual Report
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P a g e
| 30
|
|
No. of
Holes
|
Feet
|
Metres
|
By Year
|
1988
1
|
26
|
7,601.5
|
2,317
|
1989
1
|
27
|
7,422.0
|
2,262
|
1990
|
25
|
10,021.0
|
3,054
|
1991
|
48
|
28,129.0
|
8,574
|
1992
|
14
|
6,609.0
|
2,014
|
1993
|
4
|
1,263.0
|
385
|
1997
|
20
|
14,695.5
|
4,479
|
2002
|
68
|
37,236.8
|
11,350
|
2003
|
67
|
71,226.6
|
21,710
|
2004
|
267
|
165,567.7
|
50,465
|
2005
|
114
|
81,978.5
|
24,987
|
2006
3
|
48
|
72,826.9
|
22,198
|
2007
4
|
92
|
167,666.9
|
51,105
|
2008
5
|
241
|
184,726.4
|
56,305
|
2009
|
33
|
34,947.5
|
10,652
|
2010
|
66
|
57,582.0
|
17,551
|
2011
|
85
|
50,767.7
|
15,474
|
2012
|
81
|
35,760.2
|
10,900
|
2013
|
29
|
6,190.0
|
1,887
|
Total
|
1,355
|
1,042,218.2
|
317,668
|
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Form 20-F Annual Report
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P a g e
| 31
|
|
No.
of
Holes
|
Feet
|
Metres
|
By Area
|
East
|
141
|
446,379.3
|
136,056
|
West
|
443
|
351,986.7
|
107,286
|
Main
7
|
101
|
10,674.7
|
3,254
|
NW
|
203
|
45,948.4
|
14,005
|
North
|
46
|
25,695.9
|
7,832
|
NE
|
10
|
1,097.0
|
334
|
South
|
98
|
50,262.5
|
15,320
|
25 Zone
|
8
|
4,047.0
|
1,234
|
37 Zone
|
7
|
4,252.0
|
1,296
|
38 Zone
|
20
|
14,221.5
|
4,335
|
52 Zone
|
5
|
2,534.0
|
772
|
308 Zone
|
1
|
879.0
|
268
|
Eastern
|
21
|
3,105.0
|
946
|
Southern
|
153
|
60,442.4
|
18,423
|
SW
|
51
|
9,337.8
|
2,846
|
Sill
|
39
|
10,445.5
|
3,184
|
Cook Inlet
|
8
|
909.5
|
277
|
Total
|
1,355
|
1,042,218.2
|
317,668
|
Notes to table:
1. Includes holes drilled on the Sill prospect.
2. Holes
started by Northern Dynasty and finished by the Pebble Partnership are included
as the Pebble Partnership.
3. Drill holes counted in the year in which they
were completed.
4. Wedged holes are counted as a single hole including full
length of all wedges drilled.
5. Includes FMMUSA drill holes; data acquired
in 2010.
6. Shallow (<15 ft) auger holes not included.
7. Comprises
holes drilled entirely in Tertiary cover rocks within the Pebble West and Pebble
East areas. Some numbers may not sum exactly due to rounding.
Sampling, Analysis and Security of Samples
The Pebble deposit has been explored by extensive core
drilling, with 80,859 samples having been taken from drill core for assay
analysis. Nearly all potentially mineralized Cretaceous core drilled and
recovered has been sampled by halving in 10 ft lengths. Similarly, all core
recovered from the Late Cretaceous to Early Tertiary cover sequence has also
been sampled, typically on 20 ft sample lengths, with some shorter sample
intervals in areas of geologic interest. Unconsolidated overburden material,
where it exists, is generally not recovered by core drilling and therefore not
usually sampled.
Rock chips from the 222 rotary percussion holes were generally
not sampled for assay analysis, as the holes were drilled for monitoring wells
and environmental purposes. Only 35 samples were taken from the drill chips of
26 rotary percussion holes outside the Pebble deposit area, which were drilled
for condemnation purposes.
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Form 20-F Annual Report
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P a g e
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Analytical work in 2002 and from 2004 to 2013 was completed by
ALS Minerals Laboratories of North Vancouver, an ISO 9002 certified laboratory.
Analytical work for the 2003 drilling program was completed by SGS Canada Inc.
of Toronto, ON, an ISO 9002 registered, ISO 17025 accredited laboratory.
Northern Dynasty maintained an effective Quality
Control/Quality Assurance (QA/QC) program consistent with industry best
practices, which has continued from 2007 to 2013 under the Pebble Partnership.
This program is in addition to the QA/QC procedures used internally by the
analytical laboratories. The QA/QC program has also been subject to independent
review by Analytical Laboratory Consultants Ltd. and Nicholson Analytical
Consulting. The analytical consultants provide ongoing monitoring, including
facility inspection and timely reporting of the performance of standards, blanks
and duplicates in the sampling and analytical program. The results of this
program indicate that analytical results are of a high quality, suitable for use
in detailed modelling and resource evaluation studies. The QA/QC sample types
used in the program are described in the table below.
Table 2 Summary of Quality Control/Quality Assurance Sampling
Pebble Project
QC Code
|
Sample Type
|
Description
|
% of Total
|
MS
|
Regular Mainstream
|
Regular samples submitted for
preparation and analysis at the primary laboratory.
|
90%
|
ST
|
Standard (Certified
Reference
Material)
|
Mineralized material in pulverized
form with a known concentration and distribution of element(s) of
interest. Randomly inserted using pre-numbered sample tags.
|
5%
or
1 in 20
|
DP
|
Duplicate or Replicate
|
An additional split taken from the
remaining pulp reject, coarse reject, ¼ core or ½ core remainder.
Random selection using pre-numbered sample tags.
|
5%
or
1 in 20
|
SD
|
Standard Duplicate
|
Standard reference sample submitted
with duplicates and replicates to the check laboratory.
|
<1%
|
BL
|
Blank
|
Sample containing negligible or
background amounts of elements of interest, to test for contamination.
|
1%
|
Core was boxed at the rig and transported daily by helicopter
to the secure logging facility in Iliamna. Half cores remaining after sampling
were replaced in the original core boxes and stored at Iliamna, AK in a secure
compound. Crushed reject samples from the 2006 through 2013 analytical programs
are stored in locked containers at Delta Junction, AK. Drill core assay pulps
from the 1989 through 2013 programs are stored at a secure warehouse in Langley,
BC.
Mineral Resources
The current estimate of the mineral resources in the Pebble
deposit is based on approximately 59,000 assays obtained from 699 drill holes
completed to the end of 2013. The resource tabulated below was estimated using
ordinary kriging by David Gaunt, P.Geo., a qualified person who is not
independent of Northern Dynasty.
The tabulation is based on copper equivalency that incorporates
the contribution of copper, gold and molybdenum. Although the estimate includes
silver, it was not used as part of the copper equivalency calculation in order
to facilitate comparison with previous estimates which did not consider the
silver content or its potential economic contribution. A base case cut-off of
0.3% CuEq is highlighted.
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Form 20-F Annual Report
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P a g e
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Cautionary Note to Investors Concerning Estimates
of Measured and Indicated Resources
This section uses the terms, "measured resources" and "indicated
resources". The Company advises investors that while those terms are
recognized and required by Canadian regulations, the U.S. Securities and
Exchange Commission (the "SEC") does not recognize them.
Investors are
cautioned not to assume that all or any part of
mineral deposits in
these categories will ever be converted into reserves.
|
Table 3 2014 Estimate of Mineral Resources Pebble Deposit
Measured and Indicated Categories
Threshold CuEq %
|
CuEq%
|
Tonnes
|
Cu (%)
|
Au (g/t)
|
Mo (ppm)
|
Ag (g/t)
|
Measured
|
0.3
|
0.65
|
527,000,000
|
0.33
|
0.35
|
178
|
1.66
|
0.4
|
0.66
|
508,000,000
|
0.34
|
0.36
|
180
|
1.68
|
0.6
|
0.77
|
279,000,000
|
0.40
|
0.42
|
203
|
1.84
|
1.0
|
1.16
|
28,000,000
|
0.62
|
0.62
|
302
|
2.27
|
Indicated
|
0.3
|
0.77
|
5,912,000,000
|
0.41
|
0.34
|
245
|
1.66
|
0.4
|
0.82
|
5,173,000,000
|
0.45
|
0.35
|
260
|
1.75
|
0.6
|
0.99
|
3,450,000,000
|
0.55
|
0.41
|
299
|
1.99
|
1.0
|
1.29
|
1,411,000,000
|
0.77
|
0.51
|
343
|
2.42
|
Measured + Indicated
|
0.3
|
0.76
|
6,439,000,000
|
0.40
|
0.34
|
240
|
1.66
|
0.4
|
0.81
|
5,681,000,000
|
0.44
|
0.35
|
253
|
1.75
|
0.6
|
0.97
|
3,729,000,000
|
0.54
|
0.41
|
291
|
1.98
|
1.0
|
1.29
|
1,439,000,000
|
0.76
|
0.51
|
342
|
2.42
|
Cautionary Note to Investors Concerning Estimates
of Inferred Resources
This section also uses the term "inferred mineral resources". The
Company advises investors that while this term is recognized and required
by Canadian regulations, the SEC does not recognize it. "Inferred mineral
resources" have a great amount of uncertainty as to their existence, and
great uncertainty as to their economic and legal feasibility. It cannot be
assumed that all or any part of a mineral resource will ever be upgraded
to a higher category. Under Canadian rules, estimates of Inferred Mineral
Resources may not form the basis of economic studies, except in rare
cases.
Investors are cautioned not to assume that all or any part of an
inferred resource
exists, or is economically or legally mineable.
|
Table 4 2014 Estimate of Mineral Resources Pebble Deposit
Inferred Category
Threshold CuEq %
|
CuEq%
|
Tonnes
|
Cu (%)
|
Au (g/t)
|
Mo (ppm)
|
Ag (g/t)
|
Inferred
|
0.3
|
0.54
|
4,460,000,000
|
0.25
|
0.26
|
222
|
1.19
|
0.4
|
0.68
|
2,630,000,000
|
0.33
|
0.30
|
266
|
1.39
|
0.6
|
0.89
|
1,290,000,000
|
0.48
|
0.37
|
291
|
1.79
|
1.0
|
1.20
|
360,000,000
|
0.69
|
0.45
|
377
|
2.27
|
|
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Form 20-F Annual Report
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P a g e
| 34
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The tabulated mineral resources are subject to the notes below:
These resource estimates have been prepared in accordance with
NI 43-101 and the CIM Definition Standards. Inferred resources have a great
amount of uncertainty as to their existence and whether they can be mined
legally or economically. It cannot be assumed that all or any part of the
Inferred resources will ever be upgraded to a higher category.
Copper equivalent calculations use metal prices of US$1.85/lb
for copper, US$902/oz for gold and US$12.50/lb for molybdenum, and recoveries of
85% for copper 69.6% for gold, and 77.8% for molybdenum in the Pebble West zone
and 89.3% for copper, 76.8% for gold, and 83.7% for molybdenum in the Pebble
East zone.
A 0.30% CuEQ cut-off is considered to be comparable to that
used for porphyry deposit open pit mining operations in the Americas.
The resource estimate is constrained by a conceptual pit that
was developed using a Lerchs-Grossman algorithm and is based on the parameters
set out below:
Parameter
|
Units
|
Cost ($)
|
Value
|
Metal Price
|
Gold
|
US$/oz
|
-
|
1540.00
|
Copper
|
US$/lb
|
-
|
3.63
|
Molybdenum
|
US$/lb
|
-
|
12.36
|
Metal Recovery
|
Copper
|
%
|
-
|
89
|
Gold
|
%
|
-
|
72
|
Molybdenum
|
%
|
-
|
82
|
Operating Cost
|
Mining (mineralized material or
waste)
|
$/ton mined
|
1.01
|
-
|
Added haul lift from depth
|
$/ton/bench
|
0.03
|
-
|
Process
|
Process cost adjusted by total
crushing energy
|
$/ton milled
|
4.40
|
-
|
Transportation
|
$/ton milled
|
0.46
|
-
|
Environmental
|
$/ton milled
|
0.70
|
-
|
G&A
|
$/ton milled
|
1.18
|
-
|
Block Model
|
Current block model
|
ft
|
-
|
75 x 75 x 50
|
Density
|
Mineralized material and waste
rock
|
-
|
-
|
Block model
|
Pit Slope Angles
|
|
degrees
|
-
|
42
|
These mineral resource estimates may ultimately be affected by
a broad range of environmental, permitting, legal, title, socioeconomic,
marketing and political factors commensurate with the specific characteristics
of the Pebble deposit (including its scale, location, orientation and
poly-metallic nature) as well as its setting (from a natural, social,
jurisdictional and political perspective).
Mineral Processing and Metallurgical Testing
Metallurgical testwork for the Pebble Project was initiated by
Northern Dynasty in 2003 and continued under the direction of Northern Dynasty
until 2008. From 2008 to 2013, metallurgical testwork progressed under the
direction of the Pebble Partnership.
Geometallurgical studies were initiated by the Pebble
Partnership in 2008, and continued through 2012. The principal objective of this
work was to quantify significant differences in metal deportment that may result
in variations in metal recoveries during mineral processing. The results of the
geometallurgical studies indicate that the deposit comprises several
geometallurgical (or material type) domains. These domains are defined by distinct, internally consistent copper and gold deportment
characteristics that correspond spatially with changes in silicate alteration
mineralogy.
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Form 20-F Annual Report
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P a g e
| 35
|
The first major distinction between domains is characterized by
hypogene and supergene mineralization. Hypogene mineralization reflects the
copper-, gold- and molybdenum-bearing minerals which precipitated from hot
hydrothermal solutions when the deposit initially formed in the Cretaceous
Period. In contrast, supergene mineralization represents modifications, mostly
to the Cu-bearing minerals present in the near-surface parts of the Pebble West
zone, during a much more recent weathering phase of the deposit when it became
exposed for a time at the surface of the earth. The second critical influence on
metallurgical recoveries is related directly to different alteration assemblages
that formed over time in different parts of the Pebble deposit.
These alteration assemblages as listed in Table 5 include sodic
potassic, illite-pyrite (described as quartz-illite-pyrite in
Geological
Setting and Mineralization
above), K-silicate (potassic in
Geological
Setting and Mineralization
), QSP (quartz-sericite-pyrite in Geological
Setting and Mineralization), QP (pyrophyllite in
Geological Setting and
Mineralization
) and sericite types. Each of these assemblages contains a
distinct suite of minerals that precipitated from hydrothermal fluids under
different conditions of temperature, pressure and chemical composition, and
including, in some cases, differences in the types of copper- and gold-bearing
minerals.
Recognition of the relationships between metallurgical behavior
and mineralization styles and alteration assemblages provides significant
technical advantages to further testwork on the Pebble Project. The samples
selected for the comminution, copper-gold-molybdenum bulk flotation, and copper
molybdenum separation testing were representative of the various types and
styles of mineralization present at the Pebble deposit.
Metallurgical testwork and associated analytical procedures
were performed by recognized testing facilities with extensive experience with
this analysis, with this type of deposit, and with the Pebble Project.
The test results on variable mineralization samples derived
from the 103 locked-cycle (LCT) flotation tests indicate that marketable
copper and molybdenum concentrates can be produced with gold and silver contents
that meet or exceed payable levels in representative smelter contracts. Metal
recoveries were projected in the 2014 Technical Report based on the LCT results
of the variability samples, and associated gold leach testwork as well as
SART
3
tests. The table summarizes projected overall recoveries from
varied mineralization domains, which include the flotation and gold plant
recoveries.
|
|
Form 20-F Annual Report
|
P a g e
| 36
|
Table 5 Projected Metallurgical
Recoveries
1
Pebble Project
Domain
|
Flotation
Recovery to Concentrate
2
|
Gold Plant
Recovery
3
|
Overall
Recovery
|
Cu Con
|
Mo Con
|
SART
|
Dore
|
|
Cu
%
|
Au
%
|
Ag
%
|
Mo
%
|
Cu
%
|
Au
%
|
Ag
%
|
Cu
%
|
Au
%
|
Ag
%
|
Mo
%
|
Supergene:
|
|
|
|
|
|
|
|
|
|
|
|
Sodic Potassic
|
74.7
|
60.4
|
64.1
|
51.2
|
1.5
|
16.0
|
6.0
|
76.2
|
76.4
|
70.2
|
51.2
|
Illite Pyrite
|
68.1
|
43.9
|
64.1
|
62.6
|
3.9
|
26.8
|
6.0
|
72.1
|
70.7
|
70.2
|
62.6
|
Hypogene:
|
|
|
|
|
|
|
|
|
|
|
|
Illite Pyrite
|
86.4
|
43.9
|
64.1
|
73.2
|
1.9
|
26.1
|
6.0
|
88.3
|
70.0
|
70.2
|
73.2
|
Sodic Potassic
|
86.2
|
60.4
|
64.1
|
76.6
|
1.4
|
16.7
|
6.0
|
87.6
|
77.1
|
70.2
|
76.6
|
K Silicate
|
90.3
|
61.3
|
64.1
|
82.3
|
0.7
|
13.8
|
6.0
|
91.0
|
75.1
|
70.2
|
82.3
|
QP
|
94.3
|
65.0
|
64.1
|
80.1
|
1.4
|
14.4
|
6.0
|
95.6
|
79.4
|
70.2
|
80.1
|
Sericite
|
86.4
|
39.2
|
64.1
|
73.2
|
1.9
|
26.7
|
6.0
|
88.3
|
65.8
|
70.2
|
73.2
|
QSP
|
86.0
|
31.6
|
64.1
|
82.5
|
2.1
|
32.1
|
6.0
|
88.1
|
63.7
|
70.2
|
82.5
|
Notes to table:
|
1.
|
Silver recovery projection based on a dataset of 10 LCT
samples
|
2.
|
Flotation recovery to concentrate refers to metal
recoveries to copper concentrate (Cu Con) and to molybdenum concentrate
(Mo Con).
|
3.
|
Gold plant recovery refers to copper recovery to SART
sulphidization, acidification, recycling, and thickening process tests to
recover copper from leaching circuit residue, as well as gold and silver
recoveries to dore bar.
|
Environmental and Socioeconomic
The Pebble deposit is located on state land that has been
specifically designated for mineral exploration and development. The project
area has been the subject of two comprehensive land-use planning exercises
conducted by the Alaska Department of Natural Resources (the ADNR), the first
in the 1980s and the second completed in 2005. The ADNR identified five land
parcels (including Pebble) within the Bristol Bay planning area as having
significant mineral potential, and where the planning intent is to accommodate
mineral exploration and development. These parcels total 2.7% of the total
planning area (ADNR, 2005).
Environmental standards and permitting requirements in Alaska
are stable, objective, rigorous and science-driven. These features are an asset
to projects like Pebble that are being designed to meet U.S. and international
best practice standards of design and performance.
Environmental Baseline Studies
Northern Dynasty began an extensive field study program in 2004
to characterize the existing physical, chemical, biological, and social
environments in the Bristol Bay and Cook Inlet areas where the Pebble Project
might occur. The Pebble Partnership compiled the data for the 2004-2008 study
period into a multi-volume Environmental Baseline Document
1
. These
studies have been designed to:
_____________________________
1
Baseline data collecting and monitoring has
continued since that time. The program data from 2009 to 2014 is being
integrated with environmental baseline data reports from 2004 to 2008 so that
this information can also be shared with state/federal agencies and the public
as part of the future permitting process under NEPA.
|
|
Form 20-F Annual Report
|
P a g e
| 37
|
|
|
Fully characterize the existing biophysical and
socioeconomic environment;
|
|
|
|
|
|
Support environmental analyses required for
effective input into Project design;
|
|
|
|
|
|
Provide a strong foundation for internal
environmental and social impact assessment to support corporate
decision-making;
|
|
|
|
|
|
Provide the information required for
stakeholder consultation and eventual mine permitting in Alaska; and,
|
|
|
|
|
|
Provide a baseline for long-term monitoring of
potential changes associated with mine development.
|
The baseline study program
includes:
|
|
surface water
|
|
|
wildlife
|
|
|
|
|
|
|
|
|
groundwater
|
|
|
air quality
|
|
|
|
|
|
|
|
|
surface and groundwater quality
|
|
|
cultural resources
|
|
|
|
|
|
|
|
|
geochemistry
|
|
|
subsistence
|
|
|
|
|
|
|
|
|
snow surveys
|
|
|
land use
|
|
|
|
|
|
|
|
|
fish and aquatic resources
|
|
|
recreation
|
|
|
|
|
|
|
|
|
noise
|
|
|
socioeconomics
|
|
|
|
|
|
|
|
|
wetlands
|
|
|
visual aesthetics
|
|
|
|
|
|
|
|
|
trace elements
|
|
|
climate and meteorology
|
|
|
|
|
|
|
|
|
fish habitat stream flow
modeling
|
|
|
Iliamna Lake
|
|
|
|
|
|
|
|
|
marine
|
|
|
|
Potential Environmental Effects and Proposed Mitigation
Measures
The application of sound engineering, environmental planning
and best management practices, including compliance with existing U.S. federal
and state environmental laws, regulations and guidelines, will ensure that all
of the environmental issues associated with the development and operation of the
Pebble Project can be effectively addressed and managed.
The major environmental components include air, water and
terrestrial resources. During the preliminary stages of the Pebble Project,
Northern Dynasty identified key environmental issues and design drivers that
have formed the basis of baseline data collection, environmental and social
analysis and continuing stakeholder consultations influencing the Pebble Project
design. The effects assessment has confirmed these as important issues and
design drivers, and has identified mitigation measures for each. The key
mitigation strategies for these drivers include:
|
|
Water: development of a water management plan that
maximizes the collection and diversion of groundwater, snowmelt and direct
precipitation away from the mine site;
|
|
|
|
|
|
Wetlands: avoidance and minimization of project effects
on wetlands and implementation of a water management plan (in accordance
with US Army Corp of Engineers guidelines and regulations) to reduce
wetland impacts;
|
|
|
|
|
|
Aquatic habitats: development of a water management plan
and habitat mitigation measures that includes strategies to effectively
manage the release of treated water in compliance with anticipated
regulatory requirements to sustain necessary downstream flows and to
protect downstream fish habitat and aquatic environments;
|
|
|
|
|
|
Air quality: implementation of air emissions
and dust suppression strategies;
|
|
|
Form 20-F Annual Report
|
P a g e
| 38
|
|
|
Marine environment: minimize the port
facilitys footprint in the intertidal zone, particularly in soft sediment
intertidal areas; and
|
|
|
|
|
|
Compensatory mitigation measures to ensure
compliance with the Clean Water Act.
|
Direct integration of these and other appropriate measures into
the Pebble Project design and operational strategies are expected to effectively
mitigate possible environmental effects and minimize residual environmental
effects associated with the construction, operation and eventual closure of any
proposed mine at the Pebble Project.
Community Consultation and Stakeholder Relations
An active program of stakeholder outreach has also been
undertaken at Pebble, and has included community meetings, stakeholder visits,
presentations and event appearances, as well as stakeholder tours to the Pebble
Project site and to operating mines in the United States and Canada. The focus
of these outreach activities is to update stakeholders on the Pebble Project, to
receive feedback on stakeholder priorities and concerns and to advise
participants about modern mining practices.
Stakeholder outreach and community engagement is ongoing,
although at a reduced scale commensurate with other project activities. As the
Pebble Project advances toward the completion of a Project Description and
preparation for project permitting under NEPA, it is expected that the Pebble
Partnership will initiate further stakeholder engagement programs to involve
stakeholders in the planning process.
Status of Project Engineering and Previous Mine Planning
Work
During the period 2007 to 2011, the Pebble Partnership expended
several hundred million dollars on the Pebble Project, a major portion of which
was spent on exploration programs, resource estimates, environmental data
collection and technical studies involving engineering of various possible mine
development models, as well as related infrastructure, power and transportation
systems. During this period, the Pebble Partnership was funded by the
international mining company Anglo American through an affiliate which had
acquired a 50% interest in the limited partnership which owns the Pebble Project
contingent on the provision of $1.5 billion in funding for project costs. These
studies informed a preliminary assessment of the project released by the Company
in 2011. As a consequence of several factors, including EPA action on the Pebble
Project discussed under
Item 8 A3. Legal Proceedings
, the withdrawal of
Anglo American from the project and the passage of time, technical and
engineering studies related to mine-site and infrastructure development are
considered to have very uncertain and perhaps little value at this time.
Environmental baseline studies and data collection remains a significant legacy
asset of the Company from this period. The 2014 Technical Report does not
attempt to build on this previous engineering work given that, unless and until
there is some visibility in the litigation with the EPA in regards to the
possibility of permitting any kind of mine at Pebble, it is not appropriate for
the technical report authors to use or build upon previously posited mine models
or to make large dollar recommendations in furtherance of assessing the
technical or economic feasibility of a potential mine at Pebble.
Plans for 2016
The Companys plans for 2016 listed below are subject to the
Companys ability to raise the necessary capital resources to meet obligations
as they come due.
|
|
Continue to advance a multi-dimensional strategy to
address the EPAs pre-emptive CWA regulatory action to ensure the Pebble
Project can initiate federal and state permitting under NEPA unencumbered
by any extraordinary development restrictions imposed by the EPA.
|
|
|
|
|
|
Maintain an active corporate presence in Alaska to
advance relationships with political and regulatory offices of government,
Alaska Native partners and broader stakeholder relationships.
|
|
|
Form 20-F Annual Report
|
P a g e
| 39
|
|
|
Maintain the Pebble Project and Pebble claims
in good standing.
|
|
|
|
|
|
Continue general and administration activities
to maintain the Company in good standing, while continuing to reduce these
costs.
|
|
|
|
|
|
Continue to work toward securing a transaction
with a potential partner(s) to further advance the project.
|
|
|
Form 20-F Annual Report
|
P a g e
| 40
|
C.
|
ORGANIZATIONAL STRUCTURE
|
Structure as at December 31, 2015:
|
|
Form 20-F Annual Report
|
P a g e
| 41
|
D.
|
PROPERTY, PLANT AND
EQUIPMENT
|
The Companys principal property is the Pebble Project, as
discussed above in Item 4.B.
The Company has approximately $804,000 in plant and equipment
primarily at the Pebble Project site located in Iliamna.
The Company, through the Pebble Partnership, has leased
premises in Anchorage and at the Pebble Project site and as result the Company
has lease commitments which have been disclosed under
Item 5 F. Tabular
Disclosure of Contractual Obligations
.
ITEM 4A
|
UNRESOLVED STAFF
COMMENTS
|
There are none.
ITEM 5
|
OPERATING AND FINANCIAL
REVIEW AND PROSPECTS
|
OVERVIEW
Northern Dynasty is a mineral exploration company which, via
its subsidiaries, holds a 100% interest in mining claims on State of Alaska land
in southwest Alaska, USA ("US") that are part of or in the vicinity of the
Pebble Copper-Gold-Molybdenum-Silver Project (the "Pebble Project" or
Pebble).
None of the Company's properties have any mineral reserves or
have been proven to host mineralized material which can be said to be "ore" or
feasibly economic at current metals prices. The Company incurs significant
exploration expenditures as it carries out its business strategy. As Northern
Dynasty is an exploration stage company, it does not have any revenues from its
operations to offset its exploration expenditures. Accordingly, the Company's
ability to continue exploration of its properties will be contingent upon the
availability of additional financing.
Northern Dynasty's financial statements are prepared on the
basis that it will continue as a going concern. The Company has incurred losses
since inception and the ability of the Company to continue as a going concern
depends upon its ability to continue to raise adequate financing and to develop
profitable operations. Northern Dynasty's financial statements do not reflect
adjustments, which could be material, to the carrying values of assets and
liabilities, which may be required should the Company be unable to continue as a
going concern.
The following discussion should be read in conjunction with the
audited annual financial statements for the years ended December 31, 2015, 2014,
and 2013, and the related notes accompanying this Annual Report ("2015 Financial
Statements"). The Company prepares and presents its financial statements in
accordance with International Financial Reporting Standards ("IFRS"), as issued
by the International Accounting Standards Board.
Critical Accounting Policies and Estimates
The preparation of the 2015 Financial Statements requires
management to make estimates, judgments and assumptions that affect the reported
amounts of assets and liabilities at the end of the reporting period presented
and reported amounts of expenses during said reporting period. Actual outcomes
may differ from these estimates.
Areas where significant estimates exist include:
|
|
Form 20-F Annual Report
|
P a g e
| 42
|
i.
|
the inputs into the Black Scholes calculation for the
estimation of the fair value of share purchase options granted,
|
|
|
ii.
|
assumptions used in the determination of the provision
for deferred income tax expense (recovery).
|
Areas where significant judgments exist include:
i.
|
assessing the indicators for testing the Company's
mineral property interest ("MPI") for impairment,
|
|
|
ii.
|
determining the functional currencies of the Company and
its subsidiaries,
|
|
|
iii.
|
concluding that going concern was an appropriate basis
for the preparation of the 2015 Financial
Statements.
|
Further discussion can be found in note 2 of the 2015 Financial
Statements which form Item 18 of this Annual Report.
Financial Instruments and Other Instruments
The Company has no derivative financial assets or liabilities.
The following selected annual information is from the audited
consolidated financial statements for the fiscal years ended December 31which
have been prepared in accordance with IFRS. The 2013 figures include the Pebble
Partnership on a consolidated basis with effect from December 10, 2013. Unless
otherwise stated, all monetary amounts are expressed in thousands of Canadian
dollars except per share amounts, which are expressed in Canadian dollars.
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
Excerpts from Statements of Financial Position
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
Total assets
|
$
|
157,704
|
|
$
|
135,510
|
|
$
|
141,784
|
|
Total non-current liabilities (non-financial)
|
|
|
|
|
1,514
|
|
|
3,803
|
|
Total current liabilities
|
|
2,724
|
|
|
6,033
|
|
|
4,053
|
|
|
|
|
|
|
|
|
|
|
|
Excerpts from Statements of Comprehensive Loss (Income)
|
|
|
|
|
|
|
|
|
|
Exploration and evaluation
|
$
|
8,718
|
|
$
|
12,877
|
|
$
|
1,991
|
|
General and administrative
|
|
8,272
|
|
|
9,059
|
|
|
5,970
|
|
Legal, accounting and audit
|
|
17,001
|
|
|
8,325
|
|
|
275
|
|
Share-based compensation
|
|
903
|
|
|
3,877
|
|
|
641
|
|
Other items
(i)
|
|
(1,065
|
)
|
|
(2,791
|
)
|
|
(1,292
|
)
|
Gain
on discontinuance of equity method
(ii)
|
|
|
|
|
|
|
|
(5,062
|
)
|
Loss
for the year
|
$
|
33,829
|
|
$
|
31,347
|
|
$
|
2,523
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per common share
|
$
|
0.23
|
|
$
|
0.33
|
|
$
|
0.03
|
|
Weighted average number of common shares outstanding (000)
|
|
146,313
|
|
|
95,010
|
|
|
95,007
|
|
Notes
(i)
|
Other items include interest income, exchange gain or
loss, other income and deferred income tax.
|
|
|
(ii)
|
Represents a gain recorded upon discontinuance of equity
method for accounting for the investment in the Pebble Limited Partnership
when the Company reacquired control in Q4 of
2013.
|
|
|
Form 20-F Annual Report
|
P a g e
| 43
|
Year Ended December 31, 2015 versus Year Ended December 31,
2014
The Company recorded an increase in loss of $2.5 million due
primarily to its ongoing activities around the EPAs pre-emptive regulatory
action as discussed in
Item 8 A3. Legal Proceedings
which resulted in
an increase in legal, accounting and audit expenses by $8.7 million. The
increase was offset by the reduction of Exploration and Evaluation expenses
("E&E") by $4.2 million and general and administrative expenses ("G&A")
by $0.8 million as the Company allocated its financial resources from operating
activities to these matters.
E&E comprised mainly of the following for the year as
compared to 2014, expressed in thousands of dollars:
Exploration and evaluation expenses ("E&E")
|
|
2015
|
|
|
2014
|
|
Engineering
|
$
|
224
|
|
$
|
1,440
|
|
Environmental
|
|
907
|
|
|
2,322
|
|
Site activities
|
|
2,176
|
|
|
3,200
|
|
Socio-economic
|
|
3,963
|
|
|
4,324
|
|
Property fees and assessments
|
|
1,276
|
|
|
1,097
|
|
Other activities and travel
|
|
172
|
|
|
494
|
|
|
$
|
8,718
|
|
$
|
12,877
|
|
The Company incurred E&E associated with continued Native
community engagement, stakeholder outreach environmental monitoring, annual fees
for claims, payments in respect to site leases and demobilization and
remediation activities at site.
The following table provides a breakdown of G&A, and legal,
accounting and audit expenses incurred in the year as compared to 2014,
expressed in thousands of dollars:
General and administrative expenses ("G&A")
|
|
2015
|
|
|
2014
|
|
Conference and travel
|
$
|
369
|
|
$
|
323
|
|
Consulting
|
|
232
|
|
|
782
|
|
Insurance
|
|
398
|
|
|
384
|
|
Office costs
|
|
1,188
|
|
|
1,964
|
|
Management and administration
|
|
5,009
|
|
|
4,610
|
|
Shareholder communication
|
|
759
|
|
|
772
|
|
Trust and filing
|
|
317
|
|
|
224
|
|
Total G&A
|
|
8,272
|
|
|
9,059
|
|
Legal, accounting and audit
|
|
17,001
|
|
|
8,325
|
|
|
$
|
25,273
|
|
$
|
17,384
|
|
Share-based compensation expense ("SBC") has fluctuated due to
the timing of share purchase option grants and the vesting periods associated
with these grants.
|
|
Form 20-F Annual Report
|
P a g e
| 44
|
The Company recognized an exchange gain on translation of
subsidiaries which have a U.S. Dollar functional currency of $23.3 million (2014
$9.9 million) in other comprehensive income with the result that the Company
recorded comprehensive loss for the year of $10.6 million (2014 $21.4
million).
Financial position as at December 31, 2015 versus December
31, 2014
Total assets of the Company increased by $22 million due in
large part to the appreciation in the US dollar in relation to Canadian dollar
and the resultant increase in the value of mineral assets translated to the
Companys reporting currency.
Year Ended December 31, 2014 versus Year Ended December 31,
2013
The Company recorded an increase in loss of $28.8 million due
primarily to the increase in E&E, G&A and SBC. In 2013, the Company
recorded a $5.1 million gain on the discontinuance of the equity method in
accounting for the Pebble Partnership.
E&E increased by $10.9 million as the Company funded all
exploration and evaluation work on the Pebble Project for the full year and
included the updating of information on mineral resources (discussed under
Item 4 Technical Summary
), other technical studies, site activities
including payment of annual fees for claims, site leases and land access
agreements, environmental monitoring and Native community engagement. E&E
comprised mainly of the following for the year as compared to 2013, expressed in
thousands of dollars:
E&E
|
|
2014
|
|
|
2013
|
|
Engineering
|
$
|
1,440
|
|
$
|
853
|
|
Environmental planning and testing
|
|
2,322
|
|
|
270
|
|
Site activities
|
|
4,297
|
|
|
401
|
|
Socio-economic
|
|
4,324
|
|
|
26
|
|
Other activities and travel
|
|
494
|
|
|
441
|
|
|
$
|
12,877
|
|
$
|
1,991
|
|
Until December 10, 2013, the Pebble Project was under joint
control with Anglo American with the latter funding exploration and evaluation
work on the Pebble Project. Pursuant to the agreement with Anglo American, the
distribution of losses funded by Anglo American were to be allocated 100% to
Anglo American until satisfaction of Anglo Americans earn-in expenditures, and
as a result Northern Dynasty did not recognize any share of the losses.
G&A increased to $9.0 million from $6.0 million in 2013 due
to the inclusion of the Pebble Partnerships management, administration, and
office expenses for the full year. Legal, accounting and audit costs increased
by $8.0 million as legal costs were incurred in response to the EPAs activities
during the year (see
Item 8 A3. Legal Proceedings
).
The following table provides a breakdown of G&A incurred in
the year as compared to 2013, expressed in thousands of dollars:
|
|
Form 20-F Annual Report
|
P a g e
| 45
|
G&A
|
|
2014
|
|
|
2013
|
|
Conference and travel
|
$
|
323
|
|
$
|
340
|
|
Consulting
|
|
782
|
|
|
836
|
|
Insurance
|
|
384
|
|
|
342
|
|
Office costs
|
|
1,964
|
|
|
670
|
|
Management and administration
|
|
4,610
|
|
|
2,572
|
|
Shareholder communication
|
|
772
|
|
|
983
|
|
Trust and filing
|
|
224
|
|
|
227
|
|
Total G&A
|
|
9,059
|
|
|
5,970
|
|
Legal, accounting and audit
|
|
8,325
|
|
|
275
|
|
Total
|
$
|
17,384
|
|
$
|
6,245
|
|
SBC increased to $3.9 million from $0.6 million in 2013 as the
Company granted 5.9 million share purchase options in the current year (2013
no options were granted).
The Company recognized an exchange gain on translation of
subsidiaries which have a U.S. Dollar functional currency of $9.9 million (2013
$6.9 million) in other comprehensive income with the result that the Company
recorded comprehensive loss for the year of $21.4 million as compared to a
comprehensive gain of $4.4 million in 2013.
Cash Flows for the Year Ended December 31, 2014 versus 2013
Net cash used in operations increased to $27.8 million in 2014
from $7.8 million in 2013, due to the increase in the Companys operating
activities as discussed above. The source of cash and cash equivalents during
2014 included the Companys cash resources and cash received from the issue of
special warrants in a private placement late in December 2014.
Financial position as at December 31, 2014 versus December
31, 2013
Total assets decreased by $6.3 million to $135.5 million. This
decrease was due mainly to the utilization of the Companys cash and cash
equivalents in its operating activities.
Year Ended December 31, 2013 versus Year Ended December 31,
2012
The Company recorded a decrease in loss of $13.1 million due
mainly to the decrease in E&E, SBC and a gain recognized on discontinuance
of the equity method for accounting for the investment in the Pebble
Partnership.
E&E decreased by $2.5 million as the Companys work on
technical studies wound down.
G&A decreased to $6.0 million from $6.5 million in 2012 due
mainly to a reduction in consulting fees paid and conference and travel costs.
In 2012, in response to EPAs initiatives such as the Bristol Bay Watershed
Assessment, the Company retained US political and scientific representatives and
consultants to assist, consult and represent the Company; such costs were lower
in 2013. This was offset by increased shareholder communication in 2013 as the
Company focused more resources in the area of investor relations and shareholder
communication.
The following table provides a breakdown of G&A incurred in
the year as compared to 2012, expressed in thousands of dollars:
|
|
Form 20-F Annual Report
|
P a g e
| 46
|
G&A
|
|
2013
|
|
|
2012
|
|
Conference and travel
|
$
|
340
|
|
$
|
566
|
|
Consulting
|
|
836
|
|
|
1,761
|
|
Insurance
|
|
342
|
|
|
343
|
|
Office costs
|
|
670
|
|
|
702
|
|
Management and administration
|
|
2,572
|
|
|
2,095
|
|
Shareholder communication
|
|
983
|
|
|
830
|
|
Trust and filing
|
|
227
|
|
|
228
|
|
Total G&A
|
|
5,970
|
|
|
6,525
|
|
Legal, accounting and audit
|
|
275
|
|
|
255
|
|
Total
|
$
|
6,245
|
|
$
|
6,780
|
|
SBC decreased to $0.6 million from $5.2 million in 2012 due
mainly to the Company not granting share purchase options in 2013. In 2012 the
Company granted 2.2 million options and recognized an additional $0.5 million
expense for options that were cancelled voluntarily. Although over 2.0 million
options were cancelled voluntarily in 2013, they were fully vested, and there
was no impact on SBC as the Company had previously recognized SBC thereon.
The Company recognized an exchange gain on translation of the
Pebble Partnership, which has a US dollar functional currency, of $6.9 million
(2012 loss of $2.2 million) in other comprehensive income, with the result
that the Company recorded comprehensive income for 2013 of $4.4 million as
compared to a comprehensive loss of $17.8 million in 2012.
Cash Flows for the Year Ended December 31, 2013 versus 2012
Net cash used in operations decreased by $2.7 million to $7.8
million in 2013 due mainly to the decrease in Company corporate activities.
The Company contributed a further $1.0 million to the Pebble
Partnership before the change in control of the Pebble Partnership on December
10, 2013. On assumption of control, the Companys cash resources increased by
$6.5 million.
The Company received $0.6 million in interest on cash balances
as compared to $0.4 million in 2012 as the Companys funds were invested at
higher rates. For the 2013 year, the Company had a net decrease in cash of $1.7
million (2012 $9.9 million).
Financial position as at December 31, 2013 versus December
31, 2012
The Companys total assets increased by $8.9 million to $141.8
million. The increase was mainly the result of consolidating the assets and
liabilities of the Pebble Partnership as a result of assuming control thereof.
In respect to non-current assets, the Company recognized the Pebble mineral
property and plant and equipment as it discontinued the equity method of
accounting for the Pebble Partnership, which including a foreign exchange gain
on translation amounted to an increase of $7.7 million. Current assets increased
by $1.2 million as the Company consolidated amounts receivable and prepaid
expenses, certain restricted cash ($1.2 million) and cash and cash equivalents
from the Pebble Partnership. The additional cash and cash equivalents reduced
the decrease in cash and cash equivalents utilized for the year to $1.7 million.
Other changes included the change in value of the amounts receivable due to
accrued interest ($0.3 million) and foreign exchange gain on translation ($0.5
million).
|
|
Form 20-F Annual Report
|
P a g e
| 47
|
The Pebble Partnership under Joint Venture
Until the change of control on December 10, 2013, the Company
accounted for its investment in the Pebble Partnership under the equity
method.
Expenditures incurred by the Pebble Partnership on the Pebble
Project were funded by Anglo American in order to retain its 50% interest in the
Pebble Project. Anglo Americans total contributions from inception of the
Pebble Partnership to December 31, 2013 total $594.9 million (US$573.2 million).
For the period ended January 1 to December 10, 2013, the Pebble Partnership
incurred losses of $68.8 million (December 31, 2012 $102.9 million). E&E
costs decreased to $58.5 million from $93.3 million in the previous year as the
Pebble Partnership focused on various programs to advance the completion of a
prefeasibility study for the Pebble Project and the completion of a Project
Description to support the permit application under NEPA. In Q1 of 2012, the
Pebble Partnership released the 27,000-page Environmental Baseline Document.
The main E&E costs during the period ended January 1 to
December 10, 2013, were:
|
engineering (2013 $10.6 million; December 31,
2012 $19.1 million);
|
|
|
|
environmental planning and testing (2013
$13.9 million; December 31, 2012 $20.0 million);
|
|
|
|
site activities (2013 $18.8 million; December
31, 2012 $36.6 million);
|
|
|
|
corporate affairs (2013 $13.7 million;
December 31, 2012 $16.5 million); and
|
|
|
|
business development (2013 $1.5 million;
December 31, 2012 $1.1 million).
|
B.
|
LIQUIDITY AND CAPITAL
RESOURCES
|
Liquidity
The Company's major sources of funding has been the issuance of
equity securities for cash, primarily through private placements to
sophisticated investors and institutions and the issue of common shares pursuant
to the exercise of share purchase options. The Company has also in fiscal 2015
pursued the strategy of acquiring companies whose primary assets are cash and
equivalents through the issuance of equity securities (see "Significant
Acquisitions, Dispositions and Group Reorganization" in
Item 4
). The
Company's access to financing is always uncertain. There can be no assurance of
continued access to significant equity or other sources of funding.
As at December 31, 2015, the Companys cash and cash
equivalents were $7.5 million, down from $9.4 million at December 31, 2014 as
the Company used $37 million of its cash in its operating activities and raised
$35.0 million from various financing activities. The Company has prioritized the
allocation of available financial resources in order to meet key corporate and
Pebble Project expenditure requirements in the near term. Additional financing
will be required to pursue corporate activities and work programs at the Pebble
Project. There can be no assurances that the Company will be successful in
obtaining additional financing. The Company has been reducing its operating
costs and will continue to do so given the current market conditions. If the
Company is unable to raise the necessary capital resources to meet obligations
as they come due, the Company will have to further reduce or curtail its
operations.
At December 31, 2015, the Company had working capital of
approximately $7.9 million as compared to $5.9 million at December 31, 2014. The
Company has no long term debt, capital lease obligations, operating leases or
any other long term obligations other than those disclosed below (refer
F.
Tabular Disclosure of Contractual Obligations
).
The Company has no "Purchase Obligations", defined as any
agreement to purchase goods or services that is enforceable and legally binding
on the Company that specifies all significant terms, including: fixed or minimum
quantities to be purchased; fixed, minimum or variable price provisions; and the
approximate timing of the transaction. The Company is responsible for
maintenance payments on the Pebble Project claims and other claims and routine
office leases.
|
|
Form 20-F Annual Report
|
P a g e
| 48
|
Capital Resources
The Companys capital resources consist of its cash reserves.
As of December 31, 2015, the Company had no long term debt or commitments for
material capital expenditures other than what has been disclosed in below in
F. Tabular Disclosure of Contractual Obligations
.
The Company has no lines of credit or other sources of
financing which have been arranged or utilized.
Requirement of Financing
Northern Dynasty does not earn any revenues and has
historically had, and will continue to have for the foreseeable future, negative
cash flows. Historically, Northern Dynasty's sole source of funding has been
provided by the sale of equity securities for cash, primarily through private
placements to sophisticated investors and institutions. The Company has in
fiscal 2015 also pursued the strategy of acquiring companies whose primary
assets are cash and equivalents through the issuance of equity securities. Like
all exploration stage companies, Northern Dynasty will need to raise additional
financing to pursue any work programs at the Pebble Project and to meet its
business objectives.
Financial Instruments
The Company has no derivative financial assets or liabilities
and has the following non-derivative financial assets and liabilities.
|
|
Marketable securities
|
|
|
|
|
|
Amounts receivable
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
Trade and other payables, and
|
|
|
|
|
|
Amounts payable to a related party.
|
The Company keeps its financial instruments denominated in US
and Canadian Dollars, depending on expected needs in each currency. The Company
does not engage in any hedging operations with respect to currency or in-situ
minerals. Funds which are excess to Northern Dynasty's current needs are
invested in short-term near-cash investments.
Northern Dynasty does not have any material, legally
enforceable obligations requiring it to make capital expenditures and
accordingly, can remain relatively flexible in gearing its activities to the
availability of funds.
Northern Dynasty does not carry out any research or development
activities. Please refer to Item 3 and Item 4 above for a discussion of the
exploration expenditures that the Company has incurred in connection with the
exploration of its mineral properties.
Copper prices trended upward from early 2009 until late 2011.
Prices were variable from 2012 to 2015 and weakened overall. Prices continue to
be variable in 2016. The recent closing price is US$2.13/lb.
|
|
Form 20-F Annual Report
|
P a g e
| 49
|
The average annual gold price steadily increased from 2008 to
2012. Gold prices trended lower in 2013, and were variable, weakening overall in
2014 and 2015. Gold prices have increased in 2016, related to global economic
uncertainty. The recent closing price is US$1,191/oz.
Molybdenum prices were variable, but improving in 2010 and
2011, and variable but weakening in 2012 and 2013. Following an uptrend from
January to August 2014, prices decreased in 2015 but appear to have stabilized
in 2016. The recent closing price of US$5.58/lb.
Silver prices trended upward in 2010 and 2011, reaching as high
as $43/oz. Prices ranged between $26/oz and $35/oz between October 2011 and
December 2012, and trended downward in 2013. Prices were variable in 2014 and
2015, with an overall decrease in the average price. Prices have shown some
improvement in 2016. The recent closing price is US$16.20/oz.
Average annual prices since 2011 as well as the average prices
so far in 2016 for copper, gold, molybdenum and silver are shown in the
following table:
|
Average Prices
|
|
Copper
|
Gold
|
Molybdenum
|
Silver
|
Year or
Period
|
US$/lb
|
US$/oz
|
US$/lb
|
US$/oz
|
2011
|
4.00
|
1,572
|
15.41
|
35.25
|
2012
|
3.61
|
1,669
|
12.81
|
31.16
|
2013
|
3.32
|
1,410
|
10.40
|
23.80
|
2014
|
3.14
|
1,276
|
11.91
|
19.08
|
2015
|
2.49
|
1,160
|
6.73
|
15.68
|
2016 (to the date
of this Form 20F)
|
2.13
|
1,191
|
5,49
|
14,97
|
Source: LME Official Cash Price as provided at
www.metalprices.com
E.
|
OFF-BALANCE SHEET
ARRANGEMENTS
|
The Company, through the Pebble Partnership, is advancing the
Multi-dimensional Strategy to address the EPAs preemptive regulatory action
under Section 404(c) of the Clean Water Act, through litigation against the EPA
contesting the EPAs statutory authority to act pre-emptively under the Clean
Water Act, and alleging violation of FACA and the unlawful withholding of
documentation under the Freedom of Information Act. The Company has a contingent
liability for additional legal fees and costs that may be due to the Companys
counsel should there be a successful outcome. However, the Company is unable to
estimate or determine the length of time that each of the legal initiatives
mentioned above will take to advance to specific milestone events or final
conclusion. As of December 31, 2015, if there was a
favourable outcome or settlement, the Company estimates there would potentially
be additional legal success fees of $8.3 million (US$6.0 million at closing Bank
of Canada rate on December 31, 2015 of C$1.3214) payable by the Company.
F.
|
TABULAR DISCLOSURE OF CONTRACTUAL
OBLIGATIONS
|
The following commitments and payables (expressed in thousands)
existed at December 31, 2015:
|
|
Payments due by period
|
|
|
|
Total
|
|
|
≤ 1 year
|
|
|
1-5 years
|
|
|
> 5 years
|
|
Trade and other payables
|
$
|
2,047
|
|
$
|
2,047
|
|
$
|
|
|
$
|
|
|
Payable to a related party
|
|
677
|
|
|
677
|
|
|
|
|
|
|
|
Lease commitments
|
|
608
|
|
|
608
|
|
|
|
|
|
|
|
Total
|
$
|
3,332
|
|
$
|
3,332
|
|
$
|
|
|
$
|
|
|
|
|
Form 20-F Annual Report
|
P a g e
| 50
|
The Company had no long-term debt obligations, no capital
(finance) lease obligations, no operating lease obligations (other than noted
above), no purchase obligations, or other long-term liabilities.
The safe harbor provided in Section 27A of the Securities Act
and Section 21E of the Exchange Act applies to forward-looking information
provided pursuant to Item 5.E and Item 5.F above.
ITEM 6
|
DIRECTORS, SENIOR
MANAGEMENT AND EMPLOYEES
|
A.
|
DIRECTORS AND SENIOR
MANAGEMENT
|
The names and municipalities of residence of the directors and
officers of the Company, their principal occupations during the past five years,
and the period of time they have served as directors or officers of Northern
Dynasty are presented in the table below. Except where indicated, each director
and senior officer of Northern Dynasty has held the same or similar principal
occupation with the organization indicated or a predecessor thereof for the last
five years. Where shown the reference to "CEO" refers to "Chief Executive
Officer" and "CFO" to "Chief Financial Officer".
Name
|
Year
born
|
Position
|
Director or Officer
Since
|
Desmond M. Balakrishnan
Vancouver, BC, Canada
|
1971
|
Director
|
December 2015
|
Marcel H. de Groot
(1)(2)(3)(4)
Vancouver, BC, Canada
|
1973
|
Director
|
December 2015
|
David E. De Witt
(2)(4)
Vancouver, BC, Canada
|
1952
|
Director
|
February 2016
|
Steven A. Decker
(2)(4)
Sherman Oaks, CA, United States
|
1960
|
Director
|
March 2016
|
Robert A. Dickinson
Lions
Bay, BC, Canada
|
1948
|
Chairman of the Board and
Director
|
June 1995
|
Gordon B. Keep
(1)(3)
Vancouver, BC, Canada
|
1957
|
Director
|
October 2015
|
Kenneth W. Pickering
(3)
Chemainus, BC, Canada
|
1947
|
Director
|
September 2013
|
Marchand Snyman
West
Vancouver, BC, Canada
|
1967
|
CFO
|
August 2008
|
Ronald W. Thiessen
West
Vancouver, BC, Canada
|
1952
|
President, CEO and Director
|
November 1995
|
Trevor Thomas
Vancouver,
BC, Canada
|
1967
|
Secretary
|
February 2008
|
Bruce Jenkins
Vancouver,
BC, Canada
|
1950
|
Senior Vice President, Corporate
Development
|
June 2004
|
Stephen Hodgson
Vancouver,
BC, Canada
|
1954
|
Vice President Engineering
|
March 2005
|
|
|
Form 20-F Annual Report
|
P a g e
| 51
|
Name
|
Year born
|
Position
|
Director or Officer Since
|
Sean Magee North
Vancouver, BC, Canada
|
1966
|
Vice President Public Affairs
|
October 2006
|
Doug Allen
Vancouver, BC,
Canada
|
1958
|
Vice President Corporate
Communications
|
June 2012
|
Notes:
|
1.
|
Mr. Keep was appointed as a director upon the closing of
the acquisition of Cannon Point on October 29, 2015 as a condition of said
transaction. Mr. de Groot was appointed as a director upon the closing of
the acquisition of Mission Gold on December 24, 2015 as a condition of
said transaction.
|
2.
|
Member of the Audit and Risk Committee.
|
3.
|
Member of the Compensation Committee.
|
4.
|
Member of the Nominating and Governance
Committee.
|
5.
|
Mr. Snyman resigned as a director of the Company on
February 24, 2016.
|
The following is biographical information on each of the
persons listed above.
Desmond M. Balakrishnan BA., LLB. Director
Mr. Balakrishnan is a lawyer practicing in the areas of
Corporate Finance and Securities, Mergers and Acquisitions, Lending, Private
Equity and Gaming and Entertainment for McMillan LLP, where he has been a
partner since 2004. He has been lead counsel on over $500 million in financing
transactions and in mergers and acquisitions aggregating in excess of $1
billion. He also serves as a director and/or officer of several resource,
finance and gaming firms. He holds CLA and BA from Simon Fraser University and a
Bachelor of Laws (With Distinction) from the University of Alberta.
Mr. Balakrishnan is, or was within the past five years,
an officer and/or director of the following public companies:
Company
|
Name of Market
|
Positions Held
|
From
|
To
|
Northern Dynasty Minerals Ltd.
|
TSX, NYSE MKT
|
Director
|
December 2015
|
Present
|
Aroway Energy Inc.
|
TSX-V
|
Director
|
July 2010
|
Present
|
Big Sky Petroleum Corporation
|
TSX-V
|
Director
|
November 2011
|
Present
|
Contagious Gaming Inc.
|
TSX-V
|
Director
|
August 2014
|
Present
|
Electric Metals Inc.
|
TSX-V
|
Secretary
|
June 2009
|
September 2013
|
Great Gaming Corporation
|
TSX
|
Assistant Secretary
|
June 2006
|
October 2011
|
Hillcrest Petroleum Ltd.
|
TSX-V
|
Secretary
|
January 2008
|
August 2015
|
Network Exploration Ltd.
|
TSX-V
|
Secretary
|
May 2008
|
Present
|
Petro Basin Energy Corp.
|
TSX-V (NEX)
|
Director
|
February 2012
|
Present
|
Poydras Gaming Finance Corp.
|
TSX-V
|
Secretary
|
April 2010
|
May 2014
|
Red Rock Capital Corp.
|
TSX-V (NEX)
|
Director
|
February 2012
|
Present
|
Rooster Energy Ltd.
|
TSX-V
|
Director
|
November 2007
|
April 2011
|
Shelby Ventures Inc.
|
TSX-V (NEX)
|
Director
|
December 2010
|
Present
|
Yankee Hat Minerals Ltd.
|
TSX-V
|
Secretary
|
January 2005
|
November 2012
|
|
|
Form 20-F Annual Report
|
P a g e
| 52
|
Marcel H. de Groot, B.Com., CPA, CA Director
Mr. de Groot is a Chartered Professional Accountant (Chartered Accountant) whose experience as a
director and/or officer of companies in the mineral sector spans some 20 years.
Mr. de Groot is Co-founder and President of Pathway Capital, a venture capital
company that collaborates with successful mining entrepreneurs to create new
ventures. He holds a Bachelor of Commerce degree from the University of British
Columbia.
Mr. de Groot is, or was within the past five years, an officer
and/or director of the following public companies:
Company
|
Name of Market
|
Positions Held
|
From
|
To
|
Northern Dynasty Minerals Ltd.
|
TSX, NYSE MKT
|
Director
|
December 2015
|
Present
|
Anthem United Inc.
|
TSX-V
|
Director
|
April 2014
|
Present
|
Asanko Gold Inc.
|
TSX, NYSE MKT
|
Director
|
July 2009
|
Present
|
Esperanza Resources Corp.
1
|
TSX-V
|
Director
|
May 2012
|
August 2013
|
Lowell Copper Ltd.
|
TSX-V
|
President and Director
|
March 2007
|
Present
|
Luna Gold Corp.
|
TSX-V
|
Director and Chairman
|
June 2000
|
July 2012
|
Premier Royalty Inc.
2
|
TSX-V
|
Director
|
May 2013
|
October 2013
|
Sandstorm Metals & Energy Ltd.
|
TSX-V
|
Director
|
March 2010
|
October 2014
|
David E. De Witt, B.Com., LLB. Director
Mr. De Witt is a founder and the Chairman of Pathway Capital
Ltd., a Vancouver based private venture capital company. Mr. De Witt has
extensive experience in the areas of corporate and securities law, as well as
mergers and acquisitions. Mr. De Witt graduated with a BCom., LLB from the
University of British Columbia and practiced corporate, securities and mining
law until his retirement from the practice of law in January 1997. He currently
holds directorships in a number of public companies involved in the natural
resource field and has experience in resource projects located in Latin America,
North America and Asia.
Mr. De Witt is, or was within the past five years, an officer
and/or director of the following public companies:
Company
|
Name of Market
|
Positions Held
|
From
|
To
|
Northern Dynasty Minerals Ltd.
|
TSX, NYSE MKT
|
Director
|
February 2016
|
Present
|
Bear Creek Mining Corporation
|
TSX-V
|
Director
|
May 2003
|
Present
|
Lowell Copper Ltd. formerly Waterloo
Resources Ltd.
|
TSX-V
|
Director
|
July 2013
|
September 2015
|
Mission Gold Ltd.
|
TSX-V
|
President and Director
|
July 2015
|
December 2015
|
Nautilus Minerals Inc.
|
TSX, AIM
|
Director
|
May 2006
|
June 2012
|
Sandstorm Gold Ltd.
|
TSX
|
Director
|
April 2008
|
Present
|
Sandstorm Metals & Energy Ltd.
|
TSX-V
|
Director
|
May 2010
|
July 2014
|
Turnberry Resources Ltd.
|
TSX-V
|
Director
|
April 2011
|
April 2014
|
_____________________________
1
Acquired by Alamos Gold Inc.
2
Acquired by Sandstorm Gold
Ltd.
|
|
Form 20-F Annual Report
|
P a g e
| 53
|
Steven A. Decker, CFA Director
Mr. Decker is a Chartered Financial Analyst® charterholder with
more than 20 years of investment experience as an Analyst and Portfolio Manager.
He holds an MBA in Finance from the Marshall School of Business at the
University of Southern California where he received the Marcia Israel Award for
Entrepreneurship and was a manager of the California Equity Fund.
Mr. Decker is, or was within the past five years, an officer
and/or director of the following public companies:
Company
|
Name of Market
|
Positions Held
|
From
|
To
|
Northern Dynasty Minerals Ltd.
|
TSX, NYSE MKT
|
Director
|
March 2016
|
Present
|
Robert A. Dickinson, B.Sc., M.Sc. Chairman of the Board
and Director
Mr. Dickinson is an economic geologist who has been actively
involved in mineral exploration and mine development for over 45 years. He is
Chairman of HDI and HDSI as well as a director and member of the management team
of a number of the public companies associated with Hunter Dickinson Inc. He is
also President and Director of United Mineral Services Ltd., a private resource
company. He also serves as a Director of the Britannia Mine Museum and a Trustee
of the BC Mineral Resources Education Program. Mr. Dickinson is, or was within
the past five years, an officer and/or director of the following public
companies:
Company
|
Name of Market
|
Positions Held
|
From
|
To
|
Northern Dynasty Minerals Ltd.
|
TSX, NYSE MKT
|
Director
|
June 1994
|
Present
|
Chairman
|
April 2004
|
Present
|
Amarc Resources Ltd.
|
TSX-V, OTCBB
|
Director
|
April 1993
|
Present
|
Chairman
|
April 2004
|
Present
|
Continental Minerals Corporation
|
TSX-V, OTCBB
|
Director
|
June 2004
|
April 2011
|
Curis Resources Ltd.
|
TSX
|
Director
|
November 2010
|
November 2012
|
Heatherdale Resources Ltd.
|
TSX-V
|
Director
|
November 2009
|
Present
|
Northcliff Resources Ltd.
|
TSX
|
Director
|
June 2011
|
Present
|
Chairman
|
June 2011
|
January 2013
|
Rathdowney Resources Ltd.
|
TSX-V
|
Director and Chairman
|
March 2011
|
December 2011
|
Director
|
December 2011
|
Present
|
Quartz Mountain Resources Ltd.
|
TSX-V
|
Chairman
|
December 2011
|
November 2012
|
Taseko Mines Limited
|
TSX, NYSE MKT
|
Director
|
January 1991
|
Present
|
Gordon B. Keep, B.Sc., MBA,
P.Geo. Director
Gordon Keep is a Professional Geologist with extensive business
experience in investment banking and creating public natural resource companies.
Mr. Keep is CEO of Fiore Management & Advisory Corp., a private financial
advisory firm. He also serves as an officer and/or director for several natural
resource companies. He holds a B.Sc. in Geological Science from Queen's
University and an MBA from the University of British Columbia.
Mr. Keep is, or was within the past five years, an officer
and/or director of the following public companies:
|
|
Form 20-F Annual Report
|
P a g e
| 54
|
|
|
Company
|
Name of Market
|
Positions Held
|
From
|
To
|
Northern Dynasty Minerals Ltd.
|
TSX, NYSE MKT
|
Director
|
October 2015
|
Present
|
Cannon Point Resources Ltd.
|
TSX-V
|
CEO and Director
|
July 2009
|
October 2015
|
CarbonOne Technologies Inc.
|
TSX-V
|
Director
|
July 2015
|
Present
|
Catalyst Copper Corp.
|
TSX-V
|
Director
|
April 2008
|
Present
|
Eastern Platinum Limited
|
TSX, JSE
|
Director
|
November 2003
|
Present
|
Encanto Potash Corp.
|
TSX-V
|
Director
|
December 2008
|
Present
|
Chairman
|
October 2009
|
Present
|
Klondike Gold Corp.
|
TSX-V
|
Director
|
December 2013
|
Present
|
Oceanic Iron Ore Corp.
|
TSX-V
|
Director
|
September 2010
|
Present
|
Pacific Topaz Resources Ltd.
|
TSX-V (NEX)
|
CFO and Secretary
|
March 2011
|
April 2013
|
Peregrine Diamonds Ltd.
|
TSX
|
Director
|
February 2005
|
July 2015
|
Peregrine Metals Ltd.
|
TSX
|
Director
|
June 2009
|
October 2011
|
Petroamerica Oil Corp.
|
TSX-V
|
Secretary
|
January 2008
|
August 2014
|
Petromanas Energy
Inc.
|
TSX-V
|
Director
|
August 2010
|
Present
|
Secretary
|
November 2006
|
June 2011
|
PNO Resources Ltd.
|
TSX-V (NEX)
|
President and Director
|
July 2007
|
April 2013
|
Prima Columbia Hardwood Inc.
|
TSX-V
|
Director
|
July 2007
|
June 2013
|
Renaissance Oil Corp.
|
TSX-V
|
Director
|
September 2014
|
Present
|
Royce Resources Corp.
|
TSX-V (NEX)
|
CFO and Secretary
|
March 2011
|
April 2013
|
Rusoro Mining Ltd.
|
TSX-V
|
CFO and Secretary
|
November 2003
|
Present
|
Skyridge Resources Ltd.
|
TSX-V (NEX)
|
Director
|
December 2007
|
April 2013
|
Tapango Resources Ltd.
|
TSX-V (NEX)
|
CFO and Secretary
|
February 2007
|
April 2013
|
Uracan Resources Ltd.
|
TSX-V
|
Director
|
November 2003
|
Present
|
Kenneth W. Pickering., PEng. Director
Mr. Pickering is a Professional Engineer and mining executive
with 40 years of experience in a variety of capacities in the natural resources
industry. He has led the development, construction and operation of world-class
mining projects in Canada, Chile, Australia, Peru and the United States,
focusing on operations, executive responsibilities and country
accountabilities.
Mr. Pickering is, or was within the past five years, an officer
and/or director of the following public companies:
Company
|
Name of Market
|
Positions Held
|
From
|
To
|
Northern Dynasty Minerals Ltd.
|
TSX, NYSE MKT
|
Director
|
September 2013
|
Present
|
Endeavour Silver Corp.
|
TSX, NYSE
|
Director
|
August 2012
|
Present
|
THEMAC Resources Group Limited
|
TSX-V
|
Director
|
March 2011
|
Present
|
Pan Aust Minerals
|
ASX
|
Director
|
October 2011
|
Present
|
Enaex Chile
|
IPSA
|
Director
|
May 2011
|
Present
|
|
|
Form 20-F Annual Report
|
P a g e
| 55
|
Marchand Snyman, CA (SA), CA (Aust.) Chief Financial
Officer
Marchand Snyman is a member of the Institute of Chartered
Accountants in Australia and of the South African Institute of Chartered
Accountants. He is a director and Chief Operating Officer of HDI and a director
of HDSI. Mr. Snyman has over 17 years of experience in the mining sector. Mr.
Snyman was a director of Muratie Investments Pty Limited between 2003 and 2006,
an Australian mining consultant providing advisory services to businesses in
Australia, China, South Africa and the USA, prior to joining HDI in 2006. Mr.
Snyman was General Manager Corporate Finance and Development for Anglo Platinum
Limited, the world's premier platinum producer from 1999 2002, responsible for
managing diverse projects including joint venture negotiations, corporate tax
structures and offshore corporate operations, having joined Anglo Platinum in
1996 as Corporate Finance Manager. Prior to that, he was a senior financial
advisor for a multi-modal transportation company in South Africa.
Mr. Snyman is, or was within the past five years, an officer
and/or director of the following public companies:
Company
|
Name of Market
|
Positions Held
|
From
|
To
|
Northern Dynasty
Minerals Ltd.
|
TSX, NYSE MKT
|
Director
|
August 2008
|
February 2016
|
CFO
|
August 2008
|
Present
|
Continental Minerals
Corporation
|
TSX-V, OTCBB
|
CFO
|
January 2008
|
April 2011
|
Heatherdale Resources Ltd.
|
TSX-V
|
CFO
|
November 2009
|
April 2012
|
Northcliff Resources
Ltd.
|
TSX
|
Director and Chairman
|
January 2013
|
Present
|
Ronald W. Thiessen, FCA Director, President and Chief
Executive Officer
Ronald Thiessen is a Chartered Accountant with professional
experience in finance, taxation, mergers, acquisitions and re-organizations.
Since 1986, Mr. Thiessen has been involved in the acquisition and financing of
mining and mineral exploration companies. Mr. Thiessen is a director of HDI and
HDSI, a company providing management and administrative services to several
publicly-traded companies and focuses on directing corporate development and
financing activities.
|
|
Form 20-F Annual Report
|
P a g e
| 56
|
Mr. Thiessen is, or was within the past five years, an officer
and/or director of the following public companies:
Company
|
Name of Market
|
Positions Held
|
From
|
To
|
Northern Dynasty
Minerals Ltd.
|
TSX, NYSE MKT
|
Director
|
November 1995
|
Present
|
President and CEO
|
November 2001
|
Present
|
Amarc Resources Ltd.
|
TSX-V, OTCBB
|
Director
|
September 1995
|
Present
|
CEO
|
September 2000
|
Present
|
President
|
September 2000
|
November 2014
|
Atlatsa Resources Corporation
|
TSX-V, JSE,
NYSE MKT
|
Director
|
April 1996
|
June 2011
|
Continental Minerals
Corporation
|
TSX-V, OTCBB
|
Director
|
November 1995
|
April 2011
|
Co-Chairman
|
January 2006
|
April 2011
|
Detour Gold Corporation
|
TSX
|
Director
|
July 2006
|
May 2012
|
Great Basin Gold Ltd.
|
TSX, NYSE MKT, JSE
|
Director
|
October 1993
|
June 2013
|
Chairman
|
November 2006
|
June 2013
|
Quartz Mountain Resources Ltd.
|
TSX-V
|
President, CEO and Director
|
December 2011
|
Present
|
Taseko Mines Limited
|
TSX, NYSE MKT
|
Director
|
October 1993
|
Present
|
Chairman
|
May 2006
|
Present
|
Trevor Thomas, LLB Secretary
Trevor Thomas has practiced in the areas of corporate
commercial, corporate finance, securities and mining law since 1995, both in
private practice environment as well as in house positions and is currently
general counsel for HDI. HDI, he served as in-house legal counsel with Placer
Dome Inc.
Mr. Thomas is, or was within the past five years, an officer of
the following public companies:
Company
|
Name of Market
|
Positions Held
|
From
|
To
|
Northern Dynasty Minerals Ltd.
|
TSX, NYSE MKT
|
Secretary
|
February 2008
|
Present
|
Amarc Resources Ltd.
|
TSX-V, OTCBB
|
Secretary
|
February 2008
|
Present
|
Continental Minerals Corporation
|
TSX-V, OTCBB
|
Secretary
|
February 2008
|
April 2011
|
Curis Resources Ltd.
|
TSX
|
Secretary
|
June 2013
|
November 2014
|
Heatherdale Resources Ltd.
|
TSX-V
|
Secretary
|
June 2013
|
Present
|
Northcliff Resources Ltd.
|
TSX
|
Secretary
|
June 2011
|
Present
|
Quartz Mountain Resources Ltd.
|
TSX-V
|
Secretary
|
June 2013
|
Present
|
Rathdowney Resources Ltd.
|
TSX-V
|
Secretary
|
March 2011
|
Present
|
Rockwell Diamonds Inc.
|
TSX, OTCBB, JSE
|
Secretary
|
February 2008
|
September 2012
|
Taseko Mines Limited
|
TSX, NYSE MKT
|
Secretary
|
July 2008
|
Present
|
|
|
Form 20-F Annual Report
|
P a g e
| 57
|
Bruce Jenkins Senior Vice President, Corporate Development
Bruce Jenkins is an environmental and government relations
executive with more than 40 years of experience in project and corporate
management. He supports the Pebble Partnership and helps guide environmental
studies, mitigation planning and permitting activities. Mr. Jenkins is also
Executive Vice President of Environment and Sustainability for Hunter Dickinson
Inc.
Stephen Hodgson Vice President, Engineering
Stephen Hodgson is a professional engineer with over 35 years
of experience in mine operations, mine development and project engineering. He
is also Executive Vice President of Engineering for Hunter Dickinson Inc.
Mr. Hodgson is, or was within the past five years, an officer
of the following public companies:
Company
|
Name of Market
|
Positions Held
|
From
|
To
|
Rathdowney Resources Ltd.
|
TSX-V
|
Director
|
December 2011
|
August 2014
|
Sean Magee Vice President, Public Affairs
Sean Magee is a former journalist and speech writer with more
than 20 years of natural resource industry communications experience. Mr. Magee
has had a working relationship with Hunter Dickinson Inc. for more than 15 years
and is currently HDI's Executive Vice President of Strategic Communications and
Public Affairs.
Doug Allen Vice President, Corporate Communications
Doug Allen is an asset management industry specialist with more
than 30 years of experience on both the sell-side and the buy-side of the
investment industry. His experience includes extensive investment work in the
mining industry. Mr. Allen serves as the primary liaison between the
broker-dealer and asset management industries and the Company.
Named Executive Officers
In this section Named Executive Officer (or "NEO") means each
of the following individuals:
|
the Chief Executive Officer ("CEO");
|
|
|
|
the Chief Financial Officer ("CFO");
|
|
|
|
each of the three most highly compensated executive
officers, or the three most highly compensated individuals acting in a
similar capacity, other than the CEO and CFO, at the end of the most
recently completed financial year whose total compensation was,
individually, more than $150,000 for that financial year; and
|
|
|
|
each individual who would be an NEO under paragraph (c)
but for the fact that the individual was neither an executive officer of
the company, nor acting in a similar capacity, at December 31, 2015.
|
The following disclosure sets out the compensation that the
Board intended to pay, make payable, award, grant, give or otherwise provide to
each NEO and director for the financial year ended December 31, 2015.
|
|
Form 20-F Annual Report
|
P a g e
| 58
|
The compensation paid to the NEOs during the Companys three
most recently completed financial years ended December 31 is as set out below
and expressed in Canadian dollars unless otherwise noted:
Name and
principal
position
|
Year
|
Salary
($)
|
Option-
based
awards
($)
|
Non-equity incentive
plan compensation ($)
|
Pension
value
($)
|
All other
compen-
sation
($)
|
Total
compen-
sation
($)
|
Annual
incentive
plans
($)
|
Long-term
incentive
plans
($)
|
Ronald
Thiessen
(2)(3)
President & CEO
|
2015
2014
2013
|
500,500
500,500
460,500
|
130,500
(4)
427,200
(5)
Nil
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
631,000
927,700
460,500
|
Marchand
Snyman
(2)(3)
CFO
|
2015
2014
2013
|
290,500
240,500
198,000
|
130,500
(4)
427,200
(5)
Nil
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
420,500
667,700
198,000
|
Thomas Collier
(8)
PLP CEO
|
2015
2014
2013
|
831,202
(1)
635,148
(1)
Nil
|
Nil
352,500
(6)
Nil
|
673,273
Nil
Nil
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
104,731
(10)(11)
81,978
(10)
Nil
|
1,609,206
1,069,626
Nil
|
Peter Robertson
(9)
PLP Senior VP
Corporate Affairs
|
2015
2014
2013
|
530,690
(1)
458,409
(1)
Nil
|
Nil
58,750
(6)
Nil
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
20,332
(10)
17,231
(10)
Nil
|
551,023
534,390
Nil
|
Sean Magee
(2)(3)
VP
Public Affairs
|
2015
2014
2013
|
341,956
272,748
192,989
|
14,500
(4)
167,000
(5)(7)
Nil
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
356,456
439,748
192,989
|
Notes:
|
1.
|
Salaries except for Messrs. Collier and Robertson are
paid in Canadian dollars. An annual average exchange rate of Cdn$1.00 =
US$0.7820 has been applied for the period of January 1, 2015 to December
31, 2015 for figures reported for Messrs. Collier and Robertson (for
January 1, 2014 to December 31, 2014, an average annual exchange rate
Cdn$1.00 = US$0.9053 was applied).
|
2.
|
Salary for Messrs. Thiessen, Snyman and Magee is paid
through HDSI. The compensation amount shown is the amount paid to HDSI for
Messrs. Thiessen, Snyman and Magee based on the estimated amount of time
spent providing services to the Company, including the Pebble
Partnership.
|
3.
|
Messrs. Thiessen and Snyman do not serve the Company
solely on a full time basis, and their salary from the Company is
allocated based on the estimated amount of time spent providing services
to the Company. For 2015, Mr. Thiessen spent 80% (2014-78%, 2013-78%), Mr.
Snyman spent 65% (2014-54%, 2013-54%) and Mr. Magee spent 91% (2014-93%,
2013-80%) of their estimated amount of time on providing services to the
Company.
|
4.
|
The options were granted in October 2015 pursuant to the
Corporations share option plan. For compensation purposes, the
Black-Scholes option valuation model has been used to determine the fair
value on the date of grant using the following assumptions: expected life
of 5 years, expected volatility of 79.85%, expected dividend yield of 0%,
and risk-free interest rate of 0.88%. The Black-Scholes grant date fair
value for these awards was Cdn$0.29 per option which was 58% of the option
exercise price.
|
5.
|
The options were granted in February 2014 pursuant to the
Corporations share option plan. For compensation purposes, the
Black-Scholes option valuation model has been used to determine the fair
value on the date of grant using the following assumptions: expected life
of 5 years, expected volatility of 65.79%, expected dividend yield of 0%,
and risk-free interest rate of 1.62%. The Black-Scholes grant date fair
value for these awards was Cdn$0.89 per option which was 50% of the option
exercise price.
|
6.
|
The options were granted in April 2014 pursuant to the
Corporations share option plan. For compensation purposes, the
Black-Scholes option valuation model has been used to determine the fair
value on the date of grant using the following assumptions: expected life
of 5 years, expected volatility of 67.44%, expected dividend yield of 0%,
and risk- free interest rate of 1.64%. The Black-Scholes grant date fair
value for these awards was Cdn$0.47 per option which was 53% of the option
exercise price.
|
|
|
Form 20-F Annual Report
|
P a g e
| 59
|
|
|
7.
|
The options were granted in September 2014 pursuant to
the Corporations share option plan. For compensation purposes, the
Black-Scholes option valuation model has been used to determine the fair
value on the date of grant using the following assumptions: expected life
of 5 years, expected volatility of 67.42%, expected dividend yield of 0%,
and risk-free interest rate of 1.69%. The Black-Scholes grant date fair
value for these awards was Cdn$0.39 per option which was 54% of the option
exercise price.
|
8.
|
Mr. Collier was appointed to the position of CEO of the
Pebble Limited Partnership on February 1, 2014 and is employed and paid
through a subsidiary of the Company.
|
9.
|
Mr. Robertson holds the position of Senior Vice President
of Corporate Affairs of the Pebble Limited Partnership and is employed and
paid through a subsidiary of the Company.
|
10.
|
A subsidiary of the Company has a 401(k) retirement
savings plan for U.S. employees whereby employees are able to contribute a
portion of their pay and receive a dollar for dollar Company match up to
6% of their pay, subject to IRS limitations.
|
11.
|
Mr. Collier receives a housing allowance as Mr. Colliers
primary residence is outside of Alaska.
|
Incentive Plan Awards
Outstanding Share-based Awards and Option-based Awards
The Company currently only has an option-based awards plan and
does not have any share based awards plan. The following table sets out the
option-based awards outstanding as at December 31, 2015, for each NEO:
|
Option-based Awards
|
|
|
|
|
Value of
|
|
Number of securities
|
Option
|
Option expiration
|
unexercised in-the-
|
|
underlying unexercised
|
exercise price
|
date
|
money options
(1)
|
Name
|
options (#)
|
($)
|
m d y
|
($)
|
Ronald Thiessen
|
450,000
|
0.50
|
Oct-20-2020
(2)
|
Nil
|
President and CEO
|
480,000
|
1.77
|
Feb-26-2019
(3)
|
Marchand Snyman
|
450,000
|
0.50
|
Oct-20-2020
(2)
|
Nil
|
CFO
|
480,000
|
1.77
|
Feb-26-2019
(3)
|
Thomas Collier
PLP CEO
|
750,000
|
0.89
|
Apr-16-2019
(2)
|
Nil
|
Peter Robertson
PLP Senior VP Corporate Affairs
|
125,000
|
0.89
|
Apr-16-2019
(2)
|
Nil
|
Sean Magee
|
50,000
|
0.50
|
Oct-20-2020
(2)
|
Nil
|
VP Public Affairs
|
200,000
|
0.72
|
Sep-15-2019
(3)
|
Nil
|
|
100,000
|
1.77
|
Feb-26-2019
(3)
|
Nil
|
|
100,000
|
3.00
|
Jun-29-2017
(4)
|
Nil
|
Notes:
|
1.
|
The value is the difference between the closing price of
$0.41 per common share on the TSX at December 31, 2015 and the exercise
price of options.
|
2.
|
Options were granted during the year ended December 31,
2015.
|
3.
|
Options were granted during the year ended December 31,
2014.
|
4.
|
Options were granted during the year ended December 31,
2012.
|
|
|
Form 20-F Annual Report
|
P a g e
| 60
|
During the most recently completed financial year, the Company
awarded an aggregate of 5,103,000 options. The following is a summary of the
options awarded during the most recently completed financial year:
1.
|
On September 15, 2015, the Company granted 200,000
options with an exercise price of $0.72 per Common Share and a five year
term an officer of the Company. The options vest in three equal tranches:
one third vested on date of grant, one third vests 12 months from the
grant date and one third vests 24 months following the grant
date.
|
|
|
2.
|
On October 20, 2015 the Company granted 3,657,000 options
with an exercise price of $0.70 per Common Share and a five year term to
directors, officers, employees and consultants of the Company and to
employees of the Pebble Partnership. The options have either a three or
five year term and vest in three equal tranches: one third vested on date
of grant, one third vests 12 months from the grant date and one third
vests 24 months following the grant date. Of the options granted, an
aggregate of 2,450,000 options were awarded to directors and officers of
the Company.
|
|
|
3.
|
On October 29, 2015, pursuant to the acquisition of Canon
Point, the Company exchanged 1,245,500 Canon Point options for 1,245,500
options of the Company which immediately vested and are listed
below:
|
|
Number of
|
Exercise Price
|
Expiry Date
|
|
options
|
|
m-dd-yy
|
|
28,200
|
$0.37
|
Dec-02-2015
|
|
47,000
|
$0.40
|
Dec-02-2015
|
|
150,400
|
$0.29
|
Jan-29-2016
|
|
220,900
|
$0.37
|
Jan-29-2016
|
|
150,400
|
$0.40
|
Jan-29-2016
|
|
37,600
|
$0.43
|
Jan-29-2016
|
|
18,800
|
$0.37
|
Jul-23-2017
|
|
56,400
|
$0.37
|
Jun-30-2019
|
|
225,600
|
$0.40
|
Jun-30-2019
|
|
9,400
|
$0.37
|
Mar-10-2021
|
|
150,400
|
$0.40
|
Mar-10-2021
|
|
75,200
|
$0.40
|
Dec-12-2022
|
|
37,600
|
$0.37
|
Dec-15-2022
|
|
37,600
|
$0.29
|
Dec-08-2024
|
|
1,245,500
|
|
|
|
|
Form 20-F Annual Report
|
P a g e
| 61
|
Incentive Plan Awards Value Vested or Earned During the
Year
The following table sets out all incentive plans (value vested
or earned) during the year ended December 31, 2015, for each NEO:
Name
|
Option-based
awards Value vested
during the year
(1)
($)
|
Non-equity
incentive plan compensation
Value earned during the year
($)
|
Ronald Thiessen
President and CEO
|
Nil
|
Nil
|
Marchand Snyman
CFO
|
Nil
|
Nil
|
Thomas C. Collier
PLP CEO
|
Nil
|
Nil
|
Peter Robertson
PLP Senior VP Corporate
Affairs
|
Nil
|
Nil
|
Sean Magee
VP Public Affairs
|
Nil
|
Nil
|
Note:
|
1.
|
Represents the aggregate dollar value that would have
been realized if options under the option-based award had been exercised
on the 2014 vesting date determined by taking the difference between the
market price of the shares subject to the option at date of vesting and
the exercise price of the option.
|
Director Compensation
Philosophy and Objectives
The main objective of director compensation is to attract and
retain directors with the relevant skills, knowledge and abilities to carry out
the Boards mandate.
|
|
Form 20-F Annual Report
|
P a g e
| 62
|
Director Compensation Table
The compensation provided to the directors, excluding a
director who is included in disclosure for an NEO, for the Companys most
recently completed financial year of December 31, 2015 is:
Name
|
Fees earned
($)
|
Share option-
based awards
($)
(7)
|
Non-equity
incentive plan
compensation
($)
|
Pension
value
($)
|
All other
compensation
($)
|
Total
($)
|
Desmond Balakrishnan
(5)
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Scott Cousens
(2)(9)
|
40,425
|
43,500
|
Nil
|
Nil
|
Nil
|
83,925
|
Marcel de Groot
(6)
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Robert Dickinson
(2)
|
165,000
|
130,500
|
Nil
|
Nil
|
Nil
|
295,500
|
Gordon Fretwell
(1)(9)
|
44,000
|
23,200
|
Nil
|
Nil
|
Nil
|
67,200
|
Russell Hallbauer
(2)(9)
|
40,425
|
43,500
|
Nil
|
Nil
|
Nil
|
83,925
|
Gordon Keep
(4)(8)
|
6,750
|
Nil
|
Nil
|
Nil
|
Nil
|
6,750
|
Wayne Kirk
(1)(3)(9)
|
84,500
|
23,200
|
Nil
|
Nil
|
Nil
|
107,700
|
Peter Mitchell
(1)(9)
|
49,200
|
23,200
|
Nil
|
Nil
|
Nil
|
72,400
|
Ken Pickering
|
40,500
|
23,200
|
Nil
|
Nil
|
Nil
|
63,700
|
Notes:
|
1.
|
Messrs. Fretwell, Kirk, Mitchell and Pickering provided
services independently of HDSI. Each director of the Company was paid an
annual directors fee of: a) $40,500 Base Fee; b) $8,700 for Chairman of
the Audit and Risk Committee; and c) $3,500 for the Chairman of the
Compensation Committee and the Chairman of the NG Committee.
|
2.
|
Fees for Messrs. Cousens, Dickinson and Hallbauer are
paid through HDSI. The fee amounts shown are the amounts paid to HDSI for
Messrs. Cousens, Dickinson and Hallbauer based on the estimated time spent
on the Companys activities. For 2015, Mr. Cousens spent 25%, Mr.
Dickinson spent 34% and Mr. Hallbauer spent 5% of their estimated amount
of time on providing services to the Company.
|
3.
|
Mr. Kirk was the sole member and Chairman of the Pebble
Partnership Oversight Committee which is authorized to oversee the
Companys interest in the Pebble Partnership. The Pebble Partnership
Oversight Committee Chairman received an annual fee of $40,500.
|
4.
|
Mr. Keep became a director of the Company on October 29,
2015 on the completion of the acquisition of Canon Point.
|
5.
|
Mr. Balakrishnan became a director of the Company on
December 15, 2015.
|
6.
|
Mr. de Groot became a director of the Company on December
24, 2015 on the completion of the acquisition of Mission Gold.
|
7.
|
The options were granted in October 2015 pursuant to the
Corporations share option plan. For compensation purposes, the
Black-Scholes option valuation model has been used to determine the fair
value on the date of grant using the following assumptions: expected life
of 5 years, expected volatility of 79.853%, expected dividend yield of 0%,
and risk-free interest rate of 0.88%. The Black-Scholes grant date fair
value for these awards was Cdn$0.29 per option which was 58% of the option
exercise price.
|
8.
|
Mr. Keep received 197,400 options during the period.
These options to acquire NDM shares were issued in exchange for those
Cannon Point options previously held by Mr. Keep on the acquisition of
Cannon Point. AS such no value was attributed thereto.
|
9.
|
Messrs. Cousens, Fretwell, Hallbauer, Kirk and Mitchell
resigned as directors on February 24, 2016.
|
|
|
Form 20-F Annual Report
|
P a g e
| 63
|
Outstanding Share-based Awards and Option-based
Awards
The following table sets out all option-based awards
outstanding as at December 31, 2015 (as mentioned previously the Company does
not have a share-based awards plan) for each director, excluding a director who
is already set out in disclosure for an NEO for the Company:
Name
|
Option-based
Awards
|
Number of
securities
underlying
unexercised options
(#)
|
Option exercise
price
($)
|
Option expiration
date
m d y
|
Value of
unexercised in-the-
money options
(1)
($)
|
Desmond Balakrishnan
(5)
|
Nil
|
|
|
Nil
|
Scott Cousens
(7)
|
150,000
210,000
|
0.50
1.77
|
Oct-20-2020
(2)
Feb-26-2019
(3)
|
Nil
|
Marcel de Groot
(6)
|
Nil
|
|
|
Nil
|
Robert Dickinson
|
450,000
480,000
|
0.50
1.77
|
Oct-20-2020
(2)
Feb-26-2019
(3)
|
Nil
|
Gordon Fretwell
(7)
|
80,000
150,000
|
0.50
1.77
|
Oct-20-2020
(2)
Feb-26-2019
(3)
|
Nil
|
Russell Hallbauer
(7)
|
150,000
210,000
|
0.50
1.77
|
Oct-20-2020
(2)
Feb-26-2019
(3)
|
Nil
|
Gordon Keep
(4)
|
37,600
37,600
37,600
9,400
56,400
|
0.37
0.37
0.37
0.40
0.29
|
Jun-30-2019
Mar-10-2021
Dec-15-2021
Dec-12-2022
Dec-24-2024
|
1,504
1,504
1,504
94
6,768
|
Wayne Kirk
(7)
|
80,000
270,000
|
0.50
1.77
|
Oct-20-2020
(2)
Feb-26-2019
(3)
|
Nil
|
Peter Mitchell
(7)
|
80,000
150,000
|
0.50
1.77
|
Oct-20-2020
(2)
Feb-26-2019
(3)
|
Nil
|
Ken Pickering
|
80,000
150,000
|
0.50
1.77
|
Oct-20-2020
(2)
Feb-26-2019
(3)
|
Nil
|
Notes:
|
1.
|
The value is the difference between the closing price of
$0.41 per Common Share on the TSX at December 31, 2014 and the exercise
price of options.
|
2.
|
Options were granted during the year ended December 31,
2015.
|
3.
|
Options were granted during the year ended December 31,
2014.
|
4.
|
Mr. Keep became a director of the Company on October 29,
2015 on completion of the acquisition of Canon Point. Pursuant the
acquisition, Mr. Keeps Canon Point options were exchanged for options of
the Company.
|
5.
|
Mr. Balakrishnan became a director of the Company on
December 15, 2015.
|
6.
|
Mr. de Groot became a director of the Company on December
24, 2015 on completion of the acquisition of Mission Gold.
|
7.
|
Messrs. Cousens, Fretwell, Hallbauer, Kirk and Mitchell
resigned as directors on February 24, 2016.
|
|
|
Form 20-F Annual Report
|
P a g e
| 64
|
Incentive Plan Awards Value Vested or Earned During the
Year
The following table sets out all incentive plans (value vested
or earned) during the year ended December 31, 2015, for each director, excluding
a director who is already set out in disclosure for an NEO for the Company:
Name
|
Option-based
awards Value vested
during the year
(1)
($)
|
Non-equity
incentive plan compensation
Value earned during the year
($)
|
Desmond Balakrishnan
(2)
|
Nil
|
Nil
|
Scott Cousens
(5)
|
Nil
|
Nil
|
Marcel de Groot
(3)
|
Nil
|
Nil
|
Robert Dickinson
|
Nil
|
Nil
|
Gordon Fretwell
(5)
|
Nil
|
Nil
|
Russell Hallbauer
(5)
|
Nil
|
Nil
|
Gordon Keep
(4)
|
Nil
|
Nil
|
Wayne Kirk
(5)
|
Nil
|
Nil
|
Peter Mitchell
(5)
|
Nil
|
Nil
|
Ken Pickering
|
Nil
|
Nil
|
Notes:
|
1.
|
Represents the aggregate dollar value that would have
been realized if options under the option-based award had been exercised
on the vesting date, determined by taking the difference between the
market price of the shares subject to the share option at date of vesting
and the exercise price of the share option.
|
2.
|
Mr. Balakrishnan became a director of the Company on
December 15, 2015.
|
3.
|
Mr. de Groot became a director of the Company on December
24, 2015 on completion of the acquisition of Mission Gold.
|
4.
|
Mr. Keep became a director of the Company on October 29,
2015 on completion of the acquisition of Canon Point. Pursuant the
acquisition, Mr. Keeps 197,400 Canon Point options were exchanged for
197,400 options of the Company. These options were not issued under the
Companys option plan.
|
5.
|
Messrs. Cousens, Fretwell, Hallbauer, Kirk and Mitchell
resigned as directors on February 24, 2016.
|
COMPENSATION ACTIONS, DECISIONS OR POLICIES MADE AFTER
DECEMBER 31, 2015
On February 24, 2016, Messers Cousens, Hallbauer, Snyman,
Kirk, Fretwell, and Mitchell resigned as directors of the Company. Mr. Snyman
retained his position as Chief Financial Officer.
On February 25, 2016, David De Witt became a director of the
Company.
On March 16, 2016, the Company granted 600,000 options with an
exercise price of $0.48 per Common Share and a five year term to an officer and
an employee of the Company. The options vest in three equal tranches: one third
vested on date of grant, one third vests 12 months from the grant date and one
third vests 24 months following the grant date.
On March 23, 2016, Steven Decker became a director of the
Company.
Given the evolving nature of the Corporations business, the
Board continues to review and redesign the overall compensation plan for senior
management so as to continue to address the objectives identified above.
|
|
Form 20-F Annual Report
|
P a g e
| 65
|
CEASE TRADE ORDERS, BANKRUPTCIES, PENALTIES OR SANCTIONS
No director or officer of Northern Dynasty other than noted
below, is, as of the date of this Annual Report, or has been within the ten
years before the date of this Annual Report, a director or officer of any
company that while that person was acting in that capacity, was the subject of a
cease trade order, penalties, sanctions or bankruptcy, during the time the
individual was a director or within a one year period thereafter, or was a
director or officer of a company during the time in which an event occurred
which led to a cease trade order, penalties, sanctions or bankruptcy subsequent
to the individual ceasing to act as a director or officer. This information has
been provided by each director or officer, as the Company is unable to verify
these statements independently.
As publicly disclosed at
www.sedar.com
in September,
2012, Great Basin Gold Ltd. ("GBG"), a company for which Mr. Thiessen formerly
served, became insolvent and was liquidated commencing in September 2012. GBG
was developing two gold projects using substantial debt financing when gold
prices began their precipitous fall. Mr. Thiessen resigned in June 2013.
Gordon Keep is a director of Rusoro Mining Ltd. ("Rusoro"). On
May 21, 2013, the British Columbia Securities Commission ("BCSC") issued a cease
trade order against Rusoro for failure to file its audited financial statements
for the year ended December 31, 2012 and related MD&A. On June 5, 2013, and
June 7, 2013, respectively, similar cease trade orders were issued against
Rusoro by the Ontario Securities Commission ("OSC") and the Autorité des Marchés
Financiers ("AMF"). On August 19, 2013 Rusoro filed its December 31, 2012
financial statements and related MD&A. On August 21, 2013, (BCSC), August
28, 2013 (AMF) and on September 4, 2013 (OSC) granted full revocations of the
cease trade order issued by each of them. Rusoro was unable to file its December
31, 2012 financial statements and MD&A by the required filing deadline
because it experienced significant delays in preparing them due to the
nationalization by the Venezuelan government of Rusoros gold mining assets in
Venezuela.
Of the current Board of Directors, Messrs. Thiessen and Mr.
Dickinson were elected at the annual general meeting of shareholders held on
July 7, 2015. The other directors were appointed subsequently. All directors
have a term of office expiring at the next annual general meeting of the
Company's shareholders. All officers have a term of office lasting until their
removal or replacement by the board of directors (the "Board").
Except as disclosed above in Item 6.B, there were no
arrangements, standard or otherwise, pursuant to which directors were
compensated by Northern Dynasty or its subsidiaries for their services in their
capacity as directors, or for committee participation, involvement in special
assignments or for services as consultants or experts during the most recently
completed financial year. Northern Dynasty does not have any director service
contract, other than noted below, with any of its directors that provide for
termination benefits upon termination of employment.
Pursuant to a Change of Control Agreement dated September 9,
2015 upon termination without cause following a Change of Control, Mr. Thiessen
is entitled to receive a payment equal to two times his annual salary ($920,000)
and any amount earned and payable under any Company incentive plan, or if no
amount is earned for the year in question any incentive plan payment made in the
previous year, and all stock options held thereby will fully vest and be
exercisable until their normal expiry date.
Mandate of the Board of Directors
The Board has a formal mandate as outlined in the Corporate
Governance Policies and Procedures Manual (the "Manual"), dated December 1,
2014. The Manual mandates the Board to: (i) assume responsibility for the
overall stewardship and development of the Company and monitoring of its
business decisions, (ii) identify the principal risks and opportunities of the
Companys business and ensure the implementation of appropriate systems to
manage these risks, (iii) oversee ethical management and succession planning,
including appointing, training and monitoring of senior
management and directors, and (iv) oversee the integrity of the Companys
internal financial controls and management information systems. The Manual also
includes written charters for each committee and it contains a code of ethics,
policies dealing with issuance of news releases and disclosure documents, as
well as share trading black-out periods. Further, in the Manual the Board
encourages but does not require continuing education for all the Companys
directors. A copy of the Manual is available for review on the Companys website
under Corporate Governance at
www.northerndynastyminerals.com
.
|
|
Form 20-F Annual Report
|
P a g e
| 66
|
Composition of the Board of Directors
Applicable governance policies require that a listed issuers
board of directors determine the status of each director as independent or not,
based on each directors interest in or other relationship with, the Company.
Applicable governance policies recommend that a board of directors be
constituted with a majority of directors who qualify as independent directors
(as defined below). A board of directors should also examine its size with a
view to determining the impact of the number of directors upon the effectiveness
of the board of directors, and the board of directors should implement a system
which enables an individual director to engage an outside advisor at the expense
of the corporation in appropriate circumstances. The Companys policies allow
for retention of independent advisors for members of the board of directors when
they consider it advisable.
Under the policies, an "independent" director is one who "has
no direct or indirect material relationship" with the Company. Generally
speaking, a director is independent if he or she is free from any employment,
business or other relationship which could, or could reasonably be expected to
materially interfere with the exercise of the directors independent judgment. A
material relationship includes having been (or having a family member who has
been) within the last three years an employee or executive of the Company or
employed by the Companys external auditor. An individual who (or whose family
member) is or has been within the last three years, an executive officer of an
entity where any of the Companys executive officers served at the same time on
that entitys Compensation Committee is deemed to have a material relationship
as is any individual who (or whose family members or partners) received directly
or indirectly, any consulting, advisory, accounting or legal fee or investment
banking compensation from the Company (other than compensation for acting as a
director or as a part time chairman or vice-chairman).
The Board has eight (8) directors, five (5) of whom can be
considered "independent" directors. The "independent" directors are Gordon Keep,
Marcel de Groot, David De Witt, Steven Decker and Ken Pickering. These directors
are considered independent by virtue of not being executive officers of the
Company and having received no compensation other than in their role as
directors. The non-independent directors (and the reasons for that status) are:
Robert Dickinson (Chairman of the Board and geological consultant for the
Company), Ronald Thiessen (President and Chief Executive Officer) and Desmond
Balakrishnan (a partner of McMillan LLP, counsel to the Company).
Messrs. Dickinson and Thiessen serve together on boards of
directors of other publicly traded companies associated with Hunter Dickinson
Inc. ("HDI"), a private company. Messrs. Dickinson and Thiessen are directors of
HDI. As described in Item 7 below, HDI is the parent company of HDSI, which
provides geological, corporate development, administrative and management
services to, and incurs third party costs on behalf of, the Company. HDSI
employs members of the executive management of some of these public companies
(of which the Company is one) including Mr. Snyman, the CFO, who is also a
director of HDI, and in turn invoices those companies for their share of these
services, pursuant to annually set rates.
The Boards Nominating and Governance Committee (the "NG
Committee") formalizes the process of ensuring high caliber directors and proper
director succession planning. The NG Committee currently consists of David De
Witt (Chair), Steven Decker and Ken Pickering, all of whom are independent
(discussed above).
The Board monitors the activities of the senior management
through regular meetings and discussions amongst the Board and between the Board
and senior management. The Board is of the view that its communication policy
between senior management, members of the Board and shareholders is good.
|
|
Form 20-F Annual Report
|
P a g e
| 67
|
Meetings of independent directors are not held on a regular
scheduled basis but communications among this group occurs on an ongoing basis
and as needs arise from regularly scheduled meetings of the Board or otherwise.
The number of these meetings has not been recorded but it would be less than
five in the financial year that commenced on January 1, 2015. The Board also
encourages independent directors to bring up and discuss any issues or concerns
and the Board is advised of and addresses any such issues or concerns raised
thereby.
The Board believes that adequate structures and processes are
in place to facilitate the functioning of the Board with a sufficient level of
independence from the Companys management. The Board is satisfied with the
integrity of the Companys internal control and financial management information
systems.
Committees of the Board of Directors
Applicable regulatory governance policies require that (i) the
Boards Audit and Risk Committee be composed only of independent directors, and
the role of the Audit and Risk Committee be specifically defined and include the
responsibility for overseeing managements system of internal controls, (ii) the
Audit and Risk Committee have direct access to the Companys external auditor,
(iii) other committees of the Board be composed of at least a majority of
independent directors (iv) the Board expressly assume responsibility, or assign
to a committee of directors responsibility, for the development of the Companys
approach to governance issues, and (v) the Board appoint a committee, composed
of a majority of independent directors, with the responsibility for proposing
new nominees to the Board and for assessing directors on an ongoing basis.
The following committees have been established by the members
of Northern Dynastys board of directors:
Committee
|
Membership
|
Audit and Risk Committee
|
Marcel de Groot
(Chair)
David De Witt
Steven Decker
|
Compensation Committee
|
Gordon Keep
Marcel de Groot
Ken Pickering (Chair)
|
Nominating and Governance
Committee
|
Steven Decker
Marcel de Groot
David De Witt (Chair)
|
Audit and Risk Committee
The mandate of each of these committees is more particularly
described in the Companys Corporate Governance Policies and Procedures Manual
available on the Companys website at:
www.northerndynastyminerals.com
.
For information concerning the Audit and Risk Committee please
see Item 19 and Appendix of the company Annual Information Form filed under the
Companys profile on SEDAR at
www.sedar.com
on March 30, 2016 and
under the Companys profile on EDGAR
www.sec.gov
on April 12, 2016.
Compensation Committee
The Compensation Committee recommends compensation for the
directors and executive officers of the Company. See further disclosure under
the heading, Statement of Executive Compensation. The Compensation Committee
charter is included in the Manual and is available for viewing at or can be downloaded from the Companys website under Corporate
Governance, at
www.northerndynastyminerals.com
.
|
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Form 20-F Annual Report
|
P a g e
| 68
|
The function of the Compensation Committee includes review, on
an annual basis, of the compensation paid to the Companys executive officers
and directors, review of the performance of the Companys executive officers and
making recommendations on compensation to the Board.
The Compensation Committee administers the Companys share
option plan and periodically considers the grant of share options. Share options
have been granted to the executive officers and directors and certain other
service providers, taking into account competitive compensation factors and the
belief that share options help align the interests of executive officers,
directors and service providers with the interests of shareholders.
The Compensation Committee also administers the Companys
Restricted Share Unit Plan and its Deferred Share Unit Plan. See Share Ownership
Security Holdings of Directors and Senior Management.
Nominating and Governance Committee ("NG Committee")
The charter for the NG Committee is included in the Manual and
is available for viewing at or can be downloaded from the Companys website
under Corporate Governance, at
www.northerndynastyminerals.com
.
The NG Committee has been given the responsibility of
developing and recommending to the Board the Companys approach to corporate
governance and of assisting members of the Board in carrying out their duties.
The NG Committee also reviews with the Board the rules and policies applicable
to governance of the Company to assure that the Company remains in full
compliance with proper governance practices.
The nominating function of the NG Committee is to evaluate and
recommend to the Board the size of the Board and persons as nominees for the
position of director of the Company.
The NG Committee does not set specific minimum qualifications
for director positions. Instead, the NG Committee believes that nominations for
election or re-election to the Board should be based on a particular candidates
merits, skills and the Companys needs after taking into account the current
composition of the Board. When evaluating candidates annually for nomination for
election, the NG Committee considers each individuals skills, the overall
diversity needs of the Board (skills mix, age profiles gender, work and life
experience) and independence and time availability.
The NG Committee seeks to achieve for the Board a balance of
industry and business knowledge and experience, including expertise in the
mining industry, in regulatory and public policy issues, in management and
operations and in transactional situations, as well as independence, financial
expertise, public company experience, sound judgment and reputation.
The NG Committee believes that a diverse Board offers depth of
perspective and enhances Board operations. The NG Committee strives to identify
candidates with the ability to strengthen the Board. The NG Committee does not
specifically define diversity, but considers diversity of experience, education,
ethnicity and gender, as part of its overall annual evaluation of director
nominees. The Board appreciates that women have been under represented on
Canadian boards, and the Company believes that enhancing gender diversity will
strengthen the Board. However, the Board does not establish quotas for any
selection criteria, as the composition of the Board is based on numerous factors
and the character of a candidate and the selection is often a function of the
"best available" candidate.
The Company has not adopted an express policy specifically
addressing gender diversity, nor has the Company set any numerical timeline
objectives for increasing gender diversity. The Company currently has no female
board members or senior executives. Due to the relatively smaller size of the
Company, the Board does not consider it necessary to implement a specific gender
diversity policy at this time but the issue remains under review. Should a
specific gender diversity policy be considered to be of increasing importance in
the future, any adopted policy will be explained to shareholders and input will
be welcomed. The Company has not set mandatory age or term limits for its
directors or senior officers as it focuses on measurable performance rather than employing arbitrary age thresholds
which are of dubious legality as a form of age related discrimination. However,
review by the NG Committee of the performance of all Board members and senior
officers of the Company is ongoing and it is within the mandate of the NG
Committee to keep within its scope the possibility of imposing such limits in
the future The Company has formal procedures for assessing the effectiveness of
Board committees as well as the Board as a whole. This function is carried out
annually under the direction of the NG Committee and those assessments are then
provided to the Board.
|
|
Form 20-F Annual Report
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|
Board of Directors Decisions
Good governance policies require the Board of a listed
corporation, together with its chief executive officer, to develop position
descriptions for the Board and for the chief executive officer, including the
definition of limits to managements responsibilities. Any responsibility which
is not delegated to senior management or to a Board committee remains with the
full Board. The Board has approved written position descriptions for the
Chairman of the Board and the Chairmen of the Board Committees.
Recruitment of New Directors and Assessment of Board of
Directors Performance
Good governance policies require that (i) the board of
directors of every listed corporation implement a process for assessing the
effectiveness of the Board and its committees, and the contribution of
individual directors, (ii) every corporation provide an orientation and
education program for new directors, and (iii) every board of directors review
the adequacy and form of compensation of directors and ensure that the
compensation realistically reflects the responsibilities and risks involved in
being an effective director. Please see the discussion concerning the Nominating
and Governance Committee above under the heading, Committees of the Board of
Directors.
The following table sets forth the record of attendance of
Board, Audit and Risk, Compensation and NG Committee meetings by Directors for
the 12 month period ended December 31, 2015:
Director
|
Board of
Directors
Meetings
|
Audit and Risk
Committee
Meetings
|
NG Committee
Meetings
|
Compensation
Committee
Meetings
|
Desmond Balakrishnan
(6)
|
N/A
|
|
|
|
Scott Cousens
(4)(7)
|
5 of 5
|
|
|
|
Marcel de Groot
(5)
|
N/A
|
|
|
|
Robert Dickinson
|
5 of 5
|
|
|
|
Gordon Fretwell
(1)(7)
|
5 of 5
|
3 of 4
|
1 of 1
|
N/A
|
Russell Hallbauer
(7)
|
5 of 5
|
|
|
|
Gordon Keep
(4)
|
1 of 1
|
|
|
|
Wayne Kirk
(2)(7)
|
5 of 5
|
3 of 4
|
1 of 1
|
N/A
|
Peter Mitchell
(3)(7)
|
4 of 5
|
4 of 4
|
|
N/A
|
Ken Pickering
|
4 of 5
|
|
2 of 2
|
|
Marchand Snyman
(7)
|
5 of 5
|
|
|
|
Ronald Thiessen
|
5 of 5
|
|
|
|
Notes:
|
1.
|
Previous Compensation Committee Chairman. Ken Pickering
is the current Compensation Committee Chair.
|
2.
|
Previous NG Committee Chairman. David De Witt is the
current NG Committee Chair.
|
|
|
Form 20-F Annual Report
|
P a g e
| 70
|
3.
|
Previous Audit and Risk Committee Chairman.
|
4.
|
Mr. Keep was appointed to the Board on October 29, 2015.
There was one Board meeting thereafter in 2015.
|
5.
|
Mr. de Groot was appointed to the Board on December 24,
2015. He is the current Audit and Risk Committee Chair.
|
6.
|
Mr. Balakrishnan was appointed to the Board on December
15, 2015.
|
7.
|
Messrs. Cousens, Fretwell, Hallbauer, Kirk, Mitchell and
Snyman resigned as directors on February24, 2016.
|
Orientation and Continuing Education
The Company has traditionally retained experienced mining
people as directors and hence the orientation needed is minimized. When new
directors are appointed, they generally are acquainted with the Companys
mineral project(s) and the expectations of directors, or they would receive
orientation commensurate with their previous experience on the Companys
properties, business, technology and industry and the responsibilities of
directors. Board meetings generally include presentations by the Companys
senior management and project staff in order to give the directors full insight
into the Companys operations.
To enable each director to better perform his or her duties and
to recognize and deal appropriately with issues that arise, the Company will
provide the directors with appropriate education programs and/or suggestions to
undertake continuing director education, the cost of which will be borne by the
Company.
Ethical Business Conduct
The Board has a formal ethics policy which is contained in the
Manual and which is available for download from the Companys website under
Corporate Governance at
www.northendynastyminerals.com
. In addition, the
Board has implemented an annual procedure whereby directors and officers sign
off on and ratify that they have read and understand the Companys code of
ethics and that they are unaware of any violations thereof. The Board has found
that the fiduciary duties placed on individual directors by the Companys
governing corporate legislation and the common law and the restrictions placed
by applicable corporate legislation on an individual directors participation in
decisions of the Board in which the director has an interest have been
sufficient to ensure that the Board operates independently of management and in
the best interests of the Company.
Nomination of Directors
The Board considers its size each year when it considers the
number of directors to recommend to the shareholders for election at the annual
meeting of shareholders, taking into account the number required to carry out
the Boards duties effectively and to maintain a diversity of views and
experience. The NG Committee recommended to the Board the nine directors as
nominees for election at the Companys annual general meeting in 2015. See the
description of the NG Committee above under the heading, Committees of the Board
of Directors.
Assessments
The Board monitors the adequacy of information given to
directors, communication between the Board and management and the strategic
direction and processes of the Board and its committees. The NG Committee
oversees an annual formal assessment of the Board and its three main committees
namely the Audit and Risk Committee, Compensation Committee and NG Committee.
The Board is satisfied with the overall project and corporate achievements of
the Company and believes this reflects well on the Board and its practices.
|
|
Form 20-F Annual Report
|
P a g e
| 71
|
Audit Committee
Audit and Risk Committee ("Audit Committee") Charter
The Audit Committee has adopted a charter that sets out its
mandate and responsibilities. A copy of the Audit and Risk Committee Charter,
which is included as part of the Companys Governance Policies and Procedures
Manual, is available for download from the Companys website at
www.northerndynastyminerals.com
.
Composition of the Audit Committee
The Audit Committee as stated above currently consists of
Marcel de Groot (Chair), David de Witt and Steven Decker. The Committee reviews
all financial statements of the Company prior to their publication, reviews
audits performed, considers the adequacy of audit procedures, recommends the
appointment of independent auditors, reviews and approves the professional
services to be rendered by them and reviews fees for audit services. The Audit
Committee Charter has set criteria for membership which all members of the Audit
Committee are required to meet consistent with National Instrument 52-110 and
other applicable regulatory requirements. The Audit Committee, as needed, meets
separately (without management present) with the Companys auditors to discuss
the various aspects of the Companys financial statements and the independent
audit.
Each Audit Committee member is an independent director and is
financially literate. Mr. Decker is a Chartered Financial Analyst charterholder
with an MBA, Finance. Mr. De Witt is an experienced securities lawyer with
extensive involvement in raising venture capital and has been a member on other
audit committees of publicly listed companies. Mr. de Groot is a Chartered
Professional Accountant and is a financial expert.
Relevant Education and Experience
As a result of their education and experience, each member of
the Audit Committee has familiarity with, an understanding of, or experience
in:
|
|
the accounting principles used by the Company to prepare
its financial statements, and the ability to assess the general
application of those principles in connection with estimates, accruals and
reserves;
|
|
|
|
|
|
reviewing or evaluating financial statements that present
a breadth and level of complexity of accounting issues that are generally
comparable to the breadth and complexity of issues that can reasonably be
expected to be raised by the Company's financial statements, and
|
|
|
|
|
|
an understanding of internal controls and
procedures for financial reporting.
|
See disclosure regarding biographical information in Item 6.
Reliance on Certain Exemptions Available in NI 52-110
The Companys auditor, Deloitte LLP, has not provided any
material non-audit services during the most recently completed fiscal year.
Pre-Approval Policies and Procedures
The Company has procedures for the review and pre-approval of
any services performed by its auditor. The procedures require that all proposed
engagements of its auditor for audit and non-audit services be submitted to the
Audit Committee for approval prior to the beginning of any such services. The
Audit Committee considers such requests and, if acceptable to a majority of the
Audit Committee members, pre-approves such audit and non-audit services by a
resolution authorizing management to engage the Companys auditor for such audit
and non-audit services, with set maximum dollar amounts for each itemized service. During such deliberations, the Audit Committee
assesses, among other factors, whether the services requested would be
considered "prohibited services" as contemplated by the regulations of the US
Securities and Exchange Commission, and whether the services requested and the
fees related to such services could impair the independence of the auditors.
|
|
Form 20-F Annual Report
|
P a g e
| 72
|
Principal Accountant Fees and Services
The Audit Committee has reviewed the nature and amount of the
audit and non-audit services provided by Deloitte LLP to the Company to ensure
auditor independence. Disclosure of fees incurred with Deloitte LLP for audit
and non-audit services in the last two fiscal years are outlined in Item 16.C.
From time to time, management of the Company recommends to and
requests approval from the audit committee for audit and non-audit services to
be provided by the Company's auditors. The audit committee routinely considers
such requests at committee meetings, and if acceptable to a majority of the
audit committee members, pre-approves such audit and non-audit services by a
resolution authorizing management to engage the Company's auditors for such
non-audit services, with set maximum dollar amounts for each itemized service.
During such deliberations, the audit committee assesses, among other factors,
whether the non-audit services requested would be considered "prohibited
services" as contemplated by the US Securities and Exchange Commission, and
whether the non-audit services requested and the fees related to such services
could impair the independence of the auditors.
Code of Ethics
The Company has adopted a code of ethics that applies to all
directors, officers and employees of the Company. A copy of the Code of Ethics,
which is included as part of the Companys Governance Policies and Procedures
Manual, is available for download from the Companys website at
www.northerndynastyminerals.com
and under the Companys profile on SEDAR
at
www.sedar.com
.
Potential Conflicts of Interest
Directors of Northern Dynasty also serve as directors of other
similar companies involved in natural resource development. Accordingly, it may
occur that properties will be offered to such other companies. Furthermore,
those other companies may participate in the same properties as those in which
Northern Dynasty has an interest. As a result there may be situations which
involve a potential conflict of interest or issues in connection with the
doctrine of "corporate opportunity". In that event, a financially interested
director would not be entitled to vote at meetings of directors in respect of a
transaction involving the Company if it evokes any such conflict. The directors
will attempt to avoid dealing with such other companies in situations where
conflicts or corporate opportunity issues might arise and will at all times use
their best efforts to act in the best interests of Northern Dynasty.
At December 31, 2015, the Company and its subsidiaries had 12
full time employees. Employees of HDSI are seconded to Northern Dynasty on an
as-needed and as-requested basis (see
Item 7 - Major Shareholders and Related
Party Transactions
).
Security Holdings of Directors and Senior Management
As at April 18, 2016, the directors and officers of Northern
Dynasty, and their respective affiliates, directly and indirectly, own or
control as a group an aggregate of 9,305,668 common shares (4.19%), or
15,603,068 (6.83%) on a diluted basis.
|
|
Form 20-F Annual Report
|
P a g e
| 73
|
As at April 18, 2016, the Company's directors and senior
management beneficially owned the following number of the Company's common
shares:
Name of Insider
|
Number of common Shares
Beneficially
Owned or Controlled
(1)
|
As a % of the outstanding common
shares
|
Desmond Balakrishnan
|
35,062
|
|
Marcel de Groot
|
68,884
|
|
David De Witt
|
1,111,288
|
0.50%
|
Robert Dickinson
(2)
|
4,070,620
|
1.84%
|
Gordon Keep
(3)
|
541,936
|
0.24%
|
Ken Pickering
|
116,000
|
0.05%
|
Marchand Snyman
|
170,000
|
0.08%
|
Ronald Thiessen
|
2,758,878
|
1.24%
|
Trevor Thomas
|
10,000
|
|
Bruce Jenkins
|
10,000
|
|
Stephen Hodgson
|
136,000
|
0.06%
|
Sean Magee
|
Nil
|
|
Doug Allen
|
270,000
|
0.12%
|
Thomas Collier
|
Nil
|
|
Peter Robertson
|
Nil
|
|
Notes:
|
1.
|
The information as to the number of Common Shares
beneficially owned or controlled is not within the knowledge of management
of the Company and has been furnished by the respective nominees as filed
on SEDI.
|
2.
|
Certain of these common shares are beneficially owned
through a private company controlled by Mr. Dickinson, and a Registered
Retirement Saving Plan (RRSP) owned by Mr. Dickinson.
|
3.
|
Of these common shares, 206,800 are held by his children.
Mr. Keep has direction and control over these
shares.
|
As at April 18, 2016, the Company's directors and senior
management beneficially held the following number of share purchase options
(options) to purchase the Company's common shares:
Name of Insider
|
Number of options
|
Exercise price
|
Expiry date
|
Robert Dickinson
|
480,000
|
$1.77
|
Feb-26,2019
|
450,000
|
$0.50
|
Oct-20-2020
|
|
37,600
|
0.37
|
Jun-30-2019
|
|
37,600
|
0.37
|
Mar-10-2021
|
Gordon Keep
(1)
|
37,600
|
0.37
|
Dec-15-2021
|
|
9,400
|
0.40
|
Dec-12-2022
|
|
56,400
|
0.29
|
Dec-24-2024
|
Marchand Snyman
|
480,000
|
$1.77
|
Feb-26,2019
|
450,000
|
$0.50
|
Oct-20-2020
|
Ronald Thiessen
|
480,000
|
$1.77
|
Feb-26,2019
|
450,000
|
$0.50
|
Oct-20-2020
|
|
|
Form 20-F Annual Report
|
P a g e
| 74
|
Name of Insider
|
Number of options
|
Exercise price
|
Expiry date
|
|
75,000
|
$3.00
|
Jun-29-2017
|
Trevor Thomas
|
70,000
|
$1.77
|
Feb-26,2019
|
|
80,000
|
$0.50
|
Oct-20-2020
|
|
100,000
|
$3.00
|
Jun-29-2017
|
Bruce Jenkins
|
100,000
|
$1.77
|
Feb-26,2019
|
|
90,000
|
$0.50
|
Oct-20-2020
|
|
100,000
|
$3.00
|
Jun-29-2017
|
Stephen Hodgson
|
100,000
|
$1.77
|
Feb-26,2019
|
|
90,000
|
$0.50
|
Oct-20-2020
|
|
100,000
|
$3.00
|
Jun-29-2017
|
|
100,000
|
$1.77
|
Feb-26,2019
|
Sean Magee
|
200,000
|
$0.72
|
Sep-15-2019
|
|
50,000
|
$0.50
|
Oct-20-2020
|
|
300,000
|
$0.48
|
Mar-15-2021
|
|
100,000
|
$3.00
|
Jun-29-2017
|
Doug Allen
|
100,000
|
$1.77
|
Feb-26,2019
|
|
150,000
|
$0.50
|
Oct-20-2020
|
Thomas Collier
|
750,000
|
$0.89
|
Apr-16-2019
|
Peter Robertson
|
125,000
|
$0.89
|
Apr-16-2019
|
300,000
|
$0.48
|
Mar-15-2021
|
Note:
|
(1)
|
Mr. Keeps options were not issued under the Companys
option plan but were issued in exchange for Cannon Point options held by
Mr. Keep on the acquisition of Canon Point by the
Company.
|
Share Option Plan
In order to provide incentive to directors, officers,
employees, management and others who provide services to the Company to act in
the best interests of the Company the Company has adopted a Share Option Plan
(the Plan). As at April 18, 2016, 10,282,000 options were outstanding pursuant
to the Plan, described below, and an aggregate of 11,933,088 common shares
remained available for issuance pursuant to the Plan. A description of the Plan
is provided below.
Under the Plan, options may be granted in an amount up to 10%
of the outstanding shares including any issuances from the Companys Restricted
Share unit and Deferred Share unit plans (discussed below). As outstanding share
options are exercised, additional share options may be granted to replace the
exercised options. In addition, as the number of issued and outstanding Common
Shares of the Company increases, the number of share options available for
granting to eligible optionees will increase. As at the date hereof there are
share options outstanding to purchase an aggregate of 10,282,000 common shares
(representing approximately 4.63% of common shares outstanding.
The following is a summary of the material terms of the
Plan:
(a)
|
Persons who are directors, officers, employees, or
consultants to the Company or its affiliates, or who are employees of a
management company providing services to the Company are eligible to
receive grants of options under the Plan.
|
|
|
(b)
|
Options may be granted only to an individual or to a
company that is owned by individuals eligible for an option grant. If the
option is granted to a company, the company must undertake that it will
not permit any transfer of its shares, nor issue further shares, to any
other individual or entity as long as the incentive stock option remains
in effect without the consent of the TSX.
|
|
|
(c)
|
All options granted under the Plan may be exercisable
only by the Optionee to whom they have been granted and the options are
non-assignable and non-transferable, except that in the case of the
death of an Optionee, any vested option held by the deceased Optionee
at the date of death will become exercisable by the Optionees lawful personal
representatives, heirs or executors until the earlier of (1) one year after the
date of death of such Optionee and (2) the date of expiration of the term
otherwise applicable to such Option.
|
|
|
Form 20-F Annual Report
|
P a g e
| 75
|
(d)
|
Vesting of options is determined by the Board and subject
to the following:
|
|
|
where an Optionee has left the Companys employ/office or
has been advised his or her services are no longer required or his or her
service contract has expired, subject to other provisions set out in the
Plan, vested options expire on the earlier of the expiry date of the
option or 90 days after the date the Optionee ceases to be employed by,
provide services to, or be a director or officer of, the Company, and all
unvested options immediately terminate without right to exercise same;
|
|
|
|
|
|
in the case of the death of an Optionee, any vested
Option held at the date of death will become exercisable by the Optionees
lawful personal representatives, heirs or executors until the earlier of
one year after the date of death of such Optionee and the date of
expiration of the term otherwise applicable to such Option;
|
|
|
|
|
|
in the case of an Optionee being dismissed from
employment or service for cause, such Optionees options, whether or not
vested at the date of dismissal, immediately terminate without right to
exercise same;
|
|
|
|
|
|
in the event of a change of control occurring, options
granted to directors and officers which are subject to vesting provisions
are deemed to have immediately vested upon the occurrence of the change of
control; and
|
|
|
|
|
|
in the event of a director not being nominated for
re-election as a director of the Company, although consenting to act and
being under no legal incapacity which would prevent the director from
being a member of the Board, options granted which are subject to a
vesting provision are deemed to have vested on the date of Meeting upon
which the director is not re-elected;
|
(e)
|
All options granted under the Plan are exercisable for a
period of up to 5 years and will vest at the discretion of the Board,
provided that the term of such options may be extended in circumstances
where the expiry date otherwise falls during a black-out period (defined
below) as determined in accordance with the Companys policies or
applicable securities legislation, and subject
to:
|
|
(i)
|
the Optionee remaining employed by or continuing to
provide services to the Company or any of its subsidiaries and affiliates
as well as, at the discretion of the Board, achieving certain milestones
which may be defined by the Board from time to time or receiving a
satisfactory performance review by the Company or its subsidiary or
affiliate during the vesting period; or
|
|
|
|
|
(ii)
|
remaining as a director of the Company or any of its
subsidiaries or affiliates during the vesting
period.
|
A blackout period is any period of
time during which a participant in the Plan is unable to trade securities of the
Company as a consequence of the implementation of a general restriction on
trading by an authorized Officer or Director pursuant to the Companys
governance policies that authorize general and/or specific restrictions on
trading by service providers in circumstances where there may exist undisclosed
material changes or undisclosed material facts in connection with the Companys
affairs. The term of an option will expire on its Expiry Date as defined in the
Plan unless the Expiry Date occurs during a blackout period or within five
business days after the expiry of the blackout period, in which case the Expiry
Date for that Option will be the date that is the tenth business day after the
date the blackout period expires.
|
|
Form 20-F Annual Report
|
P a g e
| 76
|
(f)
|
The exercise price of the option is established by the
Board at the time the option is granted, provided that the minimum
exercise price shall not be less than the weighted average trading price
of the Companys shares on the TSX for the five trading days preceding the
date of the grant.
|
|
|
(g)
|
The number of common shares that may be issuable to
directors who are independent directors of the Company, when combined with
all of the Companys other share compensation arrangements currently in
effect for their benefit, may not exceed 1% of the Companys outstanding
common shares.
|
|
|
(h)
|
Subject to the policies of the TSX, the Plan may be
amended by the Board without further shareholder approval
to:
|
|
(i)
|
make amendments which are of a typographical, grammatical
or clerical nature;
|
|
|
|
|
(ii)
|
change the vesting provisions of an option granted under
the Plan;
|
|
|
|
|
(iii)
|
change the termination provision of an option granted
under the Plan, if it does not entail an extension beyond the original
expiry date of such option;
|
|
|
|
|
(iv)
|
add a cashless exercise feature payable in cash or Common
Shares;
|
|
|
|
|
(v)
|
make amendments necessary as a result in changes in
securities laws applicable to the Company;
|
|
|
|
|
(vi)
|
make such amendments as may be required by the policies
of such senior stock exchange or stock market if the Company becomes
listed or quoted on a stock exchange or stock market senior to the TSX;
and
|
|
|
|
|
(vii)
|
make such amendments as reduce, and do not increase, the
benefits of the Plan to Optionees.
|
(i)
|
The Plan has the following additional
restrictions:
|
|
(i)
|
Common Shares to be issued to Insiders under the Plan,
when combined with all of the Companys other share compensation
arrangements, may not exceed 10% of the outstanding Common Shares in any
12 month period;
|
|
|
|
|
(ii)
|
Common Shares being issuable to independent directors
under the Plan, when combined with all of the Companys other share
compensation arrangements, may not exceed 1% of the outstanding Common
Shares of the Company from time to time; and
|
|
|
|
|
(iii)
|
a reduction in the exercise price of an option granted
hereunder to an Insider or an extension of the term of an option granted
hereunder benefiting an Insider, would require the approval of the
disinterested shareholders (defined below) of the
Company.
|
Disinterested Shareholder approval shall be required in respect
of:
|
a.
|
any amendment which reduces the Exercise Price of an
Option;
|
|
|
|
|
b.
|
any amendment to extend the term of an option granted to
an Insider;
|
|
|
|
|
c.
|
amendments to increase any of the limits on the number of
Options that may be granted;
|
|
|
|
|
d.
|
any amendment that may permit an increase to the proposed
limit on independent director participation;
|
|
|
|
|
e.
|
any amendment relating to the transferability or
assignability of an Option; and
|
|
|
|
|
f.
|
any amendments required to be approved by shareholders
under applicable law.
|
The Plan provides for the granting of Options that meet the
definition of Incentive Stock Options under the United States Internal Revenue
Code. The Plan provides that, subject to adjustment for general changes to the
Common Shares, the total number of Common Shares which may be
issued pursuant to such Incentive Stock Options is limited to 5,000,000 Common
Shares.
|
|
Form 20-F Annual Report
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|
Definitions
:
A "disinterested shareholder" means a shareholder that is not
an Insider eligible to receive options under the Plan, and who is not an
Associate of an Insider.
An "Insider" is a director or an officer of the Company, a
director or an officer of a company that is itself an Insider or a subsidiary of
an Insider, or a person that has beneficial ownership of and/or control or
direction, either directly or indirectly, over, securities of the Company
carrying more than 10% of the voting rights attached to all the Companys
outstanding voting securities.
Restricted Share Unit Plan and Deferred Share Unit Plan
The Company adopted a Restricted Share Unit Plan (the RSU
Plan) and a Deferred Share Unit Plan (the DSU Plan) in March 2015 which were
approved by the Companys shareholders in June 2015. The material terms of RSU
Plan and the DSU Plan are set out below:
Restricted Share Unit Plan
Summary of the RSU Plan
Set out below is a summary of the RSU Plan. A complete copy of
the RSU Plan is attached as Exhibit 4.02. Capitalized terms used, but not
defined herein have the meaning ascribed to them in the RSU Plan.
Eligible Participants
The RSU Plan would be administered by the Compensation
Committee of the Board. Employees, directors and eligible consultants of the
Company and its designated subsidiaries are eligible to participate in the RSU
Plan. RSUs awarded to participants are credited to them by means of an entry in
a notional account in their favour on the books of the Company. Each RSU awarded
conditionally entitles the participant to receive one Common Share (or the cash
equivalent) upon attainment of the RSU vesting criteria.
Vesting
The vesting (i.e. fulfillment of conditions required for
absolute entitlement) of RSUs is conditional upon the expiry of a time-based
vesting period. The duration of the vesting period and other vesting terms
applicable to the grant of the RSUs shall be determined at the time of the grant
by the Compensation Committee.
Once the RSUs vest, the participant is entitled to receive the
equivalent number of underlying Common Shares or cash equal to the Market Value
of the equivalent number of Common Shares. The vested RSUs may be settled
through the issuance of Common Shares from treasury (subject to the Shareholder
approval being obtained at the Meeting), by the delivery of Common Shares
purchased in the open market, in cash or in any combination of the foregoing (at
the discretion of the Company). If settled in cash, the amount shall be equal to
the number of Common Shares in respect of which the participant is entitled
multiplied by the Market Value of a Common Share on the payout date. Market
Value per share is defined in the RSU Plan and means, as at any date (if the
Common Shares are listed and posted for trading on the TSX), the arithmetical
average of the closing price of the Common Shares traded on the TSX for the five
(5) trading days on which a board lot was traded immediately preceding such
date. The RSUs may be settled on the payout date, which shall generally be
before the third anniversary of the date of the grant. The expiry date of RSUs
will be determined by the Committee at the time of grant. However, the maximum
term for all RSUs is three years. All RSUs for which vesting cannot be satisfied
due to a departure from the Company, would be available for future grants.
|
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|
P a g e
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|
Maximum Number of Common Shares Issuable
RSUs may be granted in accordance with the RSU Plan provided
the aggregate number of RSUs outstanding pursuant to the RSU Plan from time to
time shall not exceed 3.0% of the number of issued and outstanding Common Shares
from time to time. Furthermore, the maximum number of Common Shares issuable
pursuant to all Security Based Compensation Arrangements (i.e. Option, DSU and
RSU Plans), at any time, shall not exceed 10% of the total number of outstanding
Common Shares.
The RSU Plan provides that the maximum number of Common Shares
issuable to insiders (as that term is defined by the TSX) pursuant to the RSU
Plan, together with any Common Shares issuable pursuant to any other
security-based compensation arrangement of the Company, will not, at any time,
exceed 10% of the total number of outstanding Common Shares.
The RSU Plan provides that the maximum number of Shares issued
to Insiders (as that term is defined by the TSX) pursuant to the RSU Plan,
together with any Common Shares issuable pursuant to any other security-based
compensation arrangement of the Company, within any one year period, shall not
exceed 10% of the total number of weighted average number of common shares
outstanding during the year.
Cessation of Entitlement
Unless otherwise determined by the Company in accordance with
the RSU Plan, RSUs which have not vested on a participants termination date
shall terminate and be forfeited. If a participant who is an employee ceases to
be an employee as a result of termination of employment without cause, in such
case, at the Companys discretion (unless otherwise provided in the applicable
Grant Agreement), all or a portion of such participants RSUs may be permitted
to continue to vest, in accordance with their terms, during any statutory or
common law severance period or any period of reasonable notice required by law
or as otherwise may be determined by the Company in its sole discretion. All
forfeited RSUs are available for future grants.
Transferability
RSUs are not assignable or transferable other than by operation
of law, except, if and on such terms as the Company may permit, to certain
family members and private affiliate companies of the participants.
Amendments to the RSU Plan
In the event of receipt of Shareholders approval for the RSU
Plan, the Board may, without notice, at any time and from time to time, without
shareholder approval, amend the RSU Plan or any provisions thereof in such
manner as the Board, in its sole discretion, determines appropriate including,
without limitation:
(a)
|
for the purposes of making formal minor or technical
modifications to any of the provisions of the RSU Plan;
|
|
|
(b)
|
to correct any ambiguity, defective provision, error or
omission in the provisions of the RSU Plan;
|
|
|
(c)
|
to change the vesting provisions of RSUs;
|
|
|
(d)
|
to change the termination provisions of RSUs or the RSU
Plan that does not entail an extension beyond the original expiry date of
the RSU;
|
|
|
(e)
|
to preserve the intended tax treatment of the benefits
provided by the RSU Plan, as contemplated therein; or
|
|
|
(f)
|
any amendments necessary or advisable because of any
change in applicable laws;
|
provided, however, that:
|
|
Form 20-F Annual Report
|
P a g e
| 79
|
(g)
|
no such amendment of the RSU Plan may be made without the
consent of each affected participant if such amendment would adversely
affect the rights of such affected participant(s) under the RSU Plan;
and
|
|
|
(h)
|
Shareholder approval shall be obtained in accordance with
the requirements of the TSX for any amendment that results
in:
|
|
i.
|
an increase in the maximum number of Common Shares
issuable pursuant to the RSU Plan other than as already contemplated in
the RSU Plan;
|
|
|
|
|
ii.
|
an extension of the expiry date for RSUs granted to
insiders under the RSU Plan;
|
|
|
|
|
iii.
|
other types of compensation through Common Share
issuance;
|
|
|
|
|
iv.
|
expansion of the rights of a participant to assign RSUs
beyond what is currently permitted in the RSU Plan; or
|
|
|
|
|
v.
|
the addition of new categories of Participants, other
than as already contemplated in the RSU Plan.
|
Certain United States Federal Income Tax Consequences
The following is a summary of the principal U.S. federal income
tax consequences generally applicable to RSUs awarded under the RSU Plan. The
following description applies to RSUs that are subject to U.S. federal income
tax. The grant of RSUs should not result in taxable income to the Participant at
the time of grant. When RSUs are paid out, the Participant will recognize
ordinary income equal to the fair market value of the Common Shares and cash
received in settlement of the RSUs, and the Company will be entitled at that
time to a corporate income tax deduction (for U.S. federal income tax purposes)
for the same amount, subject to the general rules concerning deductibility of
compensation. A Participants basis in any Common Shares received will equal the
fair market value of the Common Shares at the time the Participant recognized
ordinary income. If, as usually is the case, the Common Shares are a capital
asset in the Participants hands, any additional gain or loss recognized on a
subsequent sale or exchange of the Common Shares will not be ordinary income but
will qualify as capital gain or loss.
Deferred Share Unit Plan
Summary of the DSU Plan
Set out below is a summary of the DSU Plan. A complete copy of
the DSU Plan is attached as Exhibit 4.03. Capitalized terms used, but not
defined herein have the meaning ascribed to them in the DSU Plan.
Administration of Plan
The Compensation Committee shall administer the DSU Plan. The
DSU Plan provides that DSUs will be awarded at the discretion of the Board but
also provides that non-executive directors may elect to receive up to 100% of
their annual compensation amount (the Annual Base Compensation) in DSUs. A DSU
is a unit credited to a Participant by way of a bookkeeping entry in the books
of the Company, the value of each DSU is equivalent to one Common Share. All
DSUs paid with respect to Annual Base Compensation will be credited to the
director by means of an entry in a notional account in their favour on the books
of the Company (a DSU Account) when such Annual Base Compensation is payable.
The directors DSU Account will be credited with the number of DSUs calculated
to the nearest thousandth of a DSU, determined by dividing the dollar amount of
compensation payable in DSUs on the payment date by the Share Price of a Common
Share at the time. Share Price is defined in the DSU Plan and means (if the
Common Shares are listed and posted for trading on the TSX) the closing price of
a Common Share on the TSX averaged over the five (5) consecutive trading days
immediately preceding the date of grant or the redemption date, as the case may
be.
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Form 20-F Annual Report
|
P a g e
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|
Fractional Common Shares will not be issued and any fractional
entitlements will be rounded down to the nearest whole number.
Additionally, the Board may award such number of DSUs to a
non-executive director as the Board deems advisable to provide the director with
appropriate equity-based compensation for the services he or she renders to the
Company. The Board shall determine the date on which such DSUs may be granted
and the date as of which such DSUs shall be credited to the directors DSU
Account. The Company and a director who receives such an additional award of
DSUs shall enter into a DSU award agreement to evidence the award and the terms
applicable thereto.
Generally, a participant in the DSU Plan shall be entitled to
redeem his or her DSUs during the period commencing on the business day
immediately following the date upon which the non-executive director ceases to
hold any position as a director of the Company and its subsidiaries and is no
longer otherwise employed by the Company or its subsidiaries, including in the
event of death of the participant (the Termination Date) and ending on the
90th day following the Termination Date, provided, however that for U.S.
Eligible Participants, redemption will be made upon such Participants
separation from service as defined under Internal Revenue Code Section 409A.
Redemptions of DSUs under the DSU Plan may be in Common Shares issued from
treasury (subject to the Shareholder approval being sought at this Meeting), may
be purchased by the Company on the open market for delivery to the former
director, may be settled in cash, or any combination of the foregoing.
Maximum Number of Common Shares Issuable for DSUs
DSUs may be granted in accordance with the DSU Plan, provided
the aggregate number of DSUs outstanding pursuant to the DSU Plan from time to
time does not exceed 2.0% of the issued and outstanding Common Shares from time
to time. The maximum number of Common Shares issuable pursuant to all Security
Based Compensation Arrangements (including all of Option, DSU and RSU Plans), at
any time, including all Common Shares, options or other rights to purchase or
otherwise acquire Common Shares that are granted to Insiders, shall not exceed
10% of the total number of outstanding Common Shares.
The DSU Plan provides that the maximum number of Common Shares
issuable to insiders (as that term is defined by the TSX) pursuant to the DSU
Plan, together with any Common Shares issuable pursuant to any other security-
based compensation arrangement of the Company, within a one year period, will
not exceed 10% of the total number of outstanding Common Shares.
Transferability
No right to receive payment of deferred compensation or
retirement awards shall be transferable or assignable by any participant under
the DSU Plan except by will or laws of descent and distribution.
Amendments to the DSU Plan
In the event of Shareholder approval of the DSU Plan, the Board
may at any time, and from time to time, and without shareholder approval, amend
any provision of the DSU Plan, subject to any regulatory or stock exchange
requirement at the time of such amendment, including, without limitation:
(a)
|
for the purposes of making formal minor or technical
modifications to any of the provisions of the DSU Plan including
amendments of a clerical or housekeeping nature;
|
|
|
(b)
|
to correct any ambiguity, defective provision, error or
omission in the provisions of the DSU Plan;
|
|
|
(c)
|
amendments to the termination provisions of the DSU
Plan;
|
|
|
(d)
|
amendments necessary or advisable because of any change
in applicable laws;
|
|
|
(e)
|
amendments to the transferability of DSUs;
|
|
|
(f)
|
amendments relating to the administration of the DSU
Plan; or
|
|
|
Form 20-F Annual Report
|
P a g e
| 81
|
(g)
|
any other amendment, fundamental or otherwise, not
requiring shareholder approval under applicable
laws;
|
provided, however, that:
(h)
|
no such amendment of the DSU Plan may be made without the
consent of each affected participant in the DSU Plan if such amendment
would adversely affect the rights of such affected participant(s) under
the DSU Plan; and
|
|
|
(i)
|
shareholder approval shall be obtained in accordance with
the requirements of the TSX for any amendment:
|
|
a.
|
to increase the maximum number of Common Shares which may
be issued under the DSU Plan;
|
|
|
|
|
b.
|
to the amendment provisions of the DSU Plan; or
|
|
|
|
|
c.
|
to expand the definition of
Participant.
|
Certain United States Federal Income Tax Consequences
The following is a summary of the principal U.S. federal income
tax consequences generally applicable to DSUs awarded under the DSU Plan. The
following description applies to DSUs that are subject to U.S. federal income
tax. The grant of DSUs and the crediting of DSUs to a Directors DSU Account
should not result in taxable income to the Director at the time of grant. When
DSUs are paid out, the Director will recognize ordinary income equal to the fair
market value of the Common Shares and cash received in settlement of the DSUs,
and the Company will be entitled at that time to a corporate income tax
deduction (for U.S. federal income tax purposes) for the same amount, subject to
the general rules concerning deductibility of compensation. A Directors basis
in any Common Shares received will equal the fair market value of the Common
Shares at the time the Director recognized ordinary income. If, as usually is
the case, the Common Shares are a capital asset in the Directors hands, any
additional gain or loss recognized on a subsequent sale or exchange of the
Common Shares will not be ordinary income but will qualify as capital gain or
loss. To the extent that a Directors DSUs are subject to U.S. federal income
tax and to taxation under the Income Tax Act (Canada), DSUs awarded under the
DSU Plan are intended to comply with Section 409A of the Internal Revenue Code
and to avoid adverse tax consequences under paragraph 6801(d) of the regulations
under the Income Tax Act (Canada). To that end, the DSU Plan contains certain
forfeiture provisions that could apply to DSUs awarded under the DSU Plan in
limited circumstances.
There are no RSUs or DSUs currently issued and outstanding.
The following table sets out equity compensation plan
information as at the end of the financial year ended December 31, 2015.
|
|
Form 20-F Annual Report
|
P a g e
| 82
|
Equity Compensation Plan Information
|
Number of shares to be
issued upon exercise of
outstanding share
options, warrants and
rights
(1)
|
Weighted-average exercise
price of outstanding share
options, warrants and
rights
|
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding securities
reflected in column (a))
|
Plan Category
|
(a)
|
(b)
|
(c)
|
Equity compensation
plan
approved by
security holders
(the
Share Option Plan)
|
9,755,600
|
$1.27
|
12,438,338
|
Equity compensation plans
not
approved by
security holders
|
|
|
|
Total
|
9,755,600
|
$1.27
|
12,438,338
|
1.
|
The Company has only share options issued and
outstanding. No RSUs or DSUs are currently issued and outstanding. The
Company did propose to issue 426,500 RSUs to an NEO in 2015, however, the
Company did not proceed with that plan.
|
2.
|
These table exclude options issued in exchange for Canon
Point options pursuant to the acquisition of Canon Point by the Company.
These options were not issued under the existing compensation
plan.
|
ITEM 7
|
MAJOR SHAREHOLDERS AND
RELATED PARTY TRANSACTIONS
|
Major Shareholders
Northern Dynasty is a publicly-held corporation, with its
shares held by residents of Canada, the United States of America and other
countries. To the best of Northern Dynasty's knowledge, other than as noted
below, no person, corporation or other entity beneficially owns, directly or
indirectly, or controls more than 5% of the common shares of Northern Dynasty,
the only class of securities with voting rights. For these purposes, "beneficial
ownership" means the sole or shared power to vote or direct the voting or to
dispose or direct the disposition of any security.
Name
|
Number of common Shares
Beneficially
Owned or Controlled
|
As a % of the outstanding
common
shares
1
|
Kopernik Global Investors, LLC
|
26,948,277
|
12.13%
|
Stirling Global Value Fund Inc.
|
30,181,119
|
13.59%
|
Notes:
1.
|
Based on shares outstanding as of April 18, 2015. See
below.
|
As at April 18, 2016, Northern Dynasty had authorized unlimited
common shares without par value, of which 222,150,876 were issued and
outstanding. Northern Dynasty has 17,265,548 options and warrants issued
pursuant to the acquisition of listed entities (see Item 4 Significant
Acquisitions, Dispositions and Group Reorganization) outstanding which are exercisable on a one-for
one basis into common shares at an average exercise price of $0.95 per common share.
|
|
Form 20-F Annual Report
|
P a g e
| 83
|
All of the common shares have the same voting rights.
Geographic Breakdown of Shareholders
As of April 18, 2016, Northern Dynasty's register of
shareholders indicates that Northern Dynasty's common shares are held as
follows:
Location
|
Number of
registered
shareholders of record
|
Number of
shares
|
Percentage of
total shares
|
Canada
|
200
|
194,959,009
|
87.8%
|
United States
|
204
|
15,118,224
|
6.8%
|
Other
|
60
|
12,073,643
|
5.4%
|
TOTALS
|
464
|
222,150,876
|
100.0%
|
Shares registered in intermediaries were assumed to be held by
residents of the same country in which the clearing house was located.
Northern Dynasty's securities are recorded on the books of its
transfer agent, Computershare Investor Services Inc., located at 510 Burrard
Street, Vancouver, Canada (604) 661-9400 in registered form. However, the
majority of such shares are registered in the name of intermediaries such as
brokerage houses and clearing houses (on behalf of their respective brokerage
clients). Northern Dynasty does not have knowledge or access to the identities
of the beneficial owners of such shares registered through intermediaries.
Control
Northern Dynasty is not directly or indirectly owned or
controlled by any other corporation, by any foreign government or by any other
natural or legal person, severally or jointly, other than as noted above under
Major Shareholders. There are no arrangements known to Northern Dynasty which,
at a subsequent date, may result in a change in control of Northern Dynasty.
Insider Reports under the Securities Acts of British
Columbia and Alberta and Ontario
Since the Company is a reporting issuer under the Securities
Acts of British Columbia and Alberta and Ontario, under National Instrument
55-104 Insider Reporting Requirements and Exemptions, as adopted by the CSA ,
certain "insiders" of the Company (including its directors, certain executive
officers, and persons who directly or indirectly beneficially own, control or
direct more than 10% of its common shares) are generally required to file
insider reports of changes in their ownership of Northern Dynasty's common
shares within five days following the trade. Copies of such reports are
available for public inspection at the offices of the British Columbia
Securities Commission, 9th Floor, 701 West Georgia Street, Vancouver, British
Columbia V7Y 1L2, (604) 899-6500 or at the British Columbia Securities
Commission web site,
www.bcsc.bc.ca
. In British Columbia, all insider
reports must be filed electronically within five days following the date of the
trade at
www.sedi.ca
. The public is able to access these reports at
www.sedi.ca
.
B.
|
RELATED PARTY TRANSACTIONS
|
Except as disclosed below, Northern Dynasty has not, since
January1, 2013, and does not at this time propose to:
|
|
Form 20-F Annual Report
|
P a g e
| 84
|
(1)
|
enter into any transactions which are material to
Northern Dynasty or a related party or any transactions unusual in their
nature or conditions involving goods, services or tangible or intangible
assets to which Northern Dynasty or any of its former subsidiaries was a
party;
|
|
|
(2)
|
make any loans or guarantees directly or through any of
its former subsidiaries to or for the benefit of any of the following
persons:
|
|
(a)
|
enterprises directly or indirectly through one or more
intermediaries, controlling or controlled by or under common control with
Northern Dynasty;
|
|
|
|
|
(b)
|
associates of Northern Dynasty (unconsolidated
enterprises in which Northern Dynasty has significant influence or which
has significant influence over Northern Dynasty) including shareholders
beneficially owning 10% or more of the outstanding shares of Northern
Dynasty;
|
|
|
|
|
(c)
|
individuals owning, directly or indirectly, shares of
Northern Dynasty that gives them significant influence over Northern
Dynasty and close members of such individuals families;
|
|
|
|
|
(d)
|
key management personnel (persons having authority in
responsibility for planning, directing and controlling the activities of
Northern Dynasty including directors and senior management and close
members of such directors and senior management); or
|
|
|
|
|
(e)
|
enterprises in which a substantial voting interest is
owned, directly or indirectly, by any person described in (c) or (d) or
over which such a person is able to exercise significant
influence.
|
Hunter Dickinson Services Inc. ("HDSI")
Hunter Dickinson Inc. ("HDI") and its wholly owned subsidiary,
HDSI, are private companies established by a group of mining professionals
engaged in advancing and developing mineral properties for a number of private
and publicly-listed exploration companies, one of which is the Company.
Current directors of the Company, namely Robert Dickinson and
Ron Thiessen are active members of the HDI Board of Directors. Marchand Snyman,
the Companys CFO, is also an active member of the HDI Board of Directors. Other
key management personnel of the Company Doug Allen, Stephen Hodgson, Bruce
Jenkins, Sean Magee and Trevor Thomas are members of HDIs senior management
team.
The business purpose of the related party relationship
HDSI provides technical, geological, corporate communications,
regulatory compliance, administrative and management services to the Company, on
an as-needed and as-requested basis from the Company.
HDSI also incurs third party costs on behalf of the Company.
Such third party costs include, for example, directors and officers insurance,
travel, conferences, and technology services.
As a result of this relationship with HDSI, the Company has
ready access to a range of diverse and specialized expertise on a regular basis,
without having to engage or hire full-time experts. The Company benefits from
the economies of scale created by HDSI.
The measurement basis used
The Company procures services from HDSI pursuant to an
agreement (the "Services Agreement") dated July 2, 2010 whereby HDSI agreed to
provide technical, geological, corporate communications, administrative and
management services to the Company. A copy of the Services Agreement is publicly
available under the Companys profile at www.sedar.com.
Services from HDSI are provided on a non-exclusive basis as
required and as requested by the Company. The Company is not obligated to
acquire any minimum amount of services from HDSI. The fees for services is
determined based on an agreed upon charge-out rate for each employee performing
the service and the time spent by the employee. The charge-out rate also includes
overhead costs such as office rent, information technology services and
administrative support. Such charge-out rates are agreed and set annually in
advance.
|
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Form 20-F Annual Report
|
P a g e
| 85
|
Third party expenses are billed at cost, without any markup.
Ongoing contractual or other commitments resulting from the
related party relationship
There are no ongoing contractual or other commitments resulting
from the Companys transactions with HDSI, other than the payment for services
already rendered and billed. The agreement may be terminated upon 60 days
notice from either the Company or HDSI.
The following summarizes the transactions with HDSI expressed
in thousands of dollars for each fiscal year:
Transactions
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
Services rendered by HDSI
|
$
|
4,680
|
|
$
|
4,926
|
|
$
|
4,181
|
|
Technical
|
|
1,600
|
|
|
1,745
|
|
|
1,241
|
|
Engineering
|
|
140
|
|
|
540
|
|
|
612
|
|
Environmental
|
|
580
|
|
|
686
|
|
|
383
|
|
Socioeconomic
|
|
670
|
|
|
277
|
|
|
85
|
|
Other technical services
|
|
210
|
|
|
242
|
|
|
161
|
|
General and administrative
|
|
3,080
|
|
|
3,181
|
|
|
2,940
|
|
Management, financial &
administration
|
|
2,420
|
|
|
2,542
|
|
|
2,245
|
|
Shareholder communication
|
|
660
|
|
|
639
|
|
|
695
|
|
|
|
|
|
|
|
|
|
|
|
Reimbursement of third party expenses
|
|
610
|
|
|
779
|
|
|
829
|
|
Conferences and travel
|
|
160
|
|
|
196
|
|
|
234
|
|
Insurance
|
|
60
|
|
|
71
|
|
|
57
|
|
Office supplies and other
|
|
390
|
|
|
512
|
|
|
538
|
|
|
|
|
|
|
|
|
|
|
|
Sale of
marketable securities to HDSI
|
|
(280
|
)
|
|
|
|
|
|
|
Total
|
$
|
5,010
|
|
$
|
5,705
|
|
$
|
5,010
|
|
Key Management Personnel
The required disclosure for the remuneration of the Companys
key management personnel is provided in note 9(a) of the notes to the Financial
Statements which accompany this Annual Report and which are available under the
Companys profile at
www.sedar.com
.
Financing Activities
December 2014 Special Warrant Offering
In January 2015, 2014 the Company completed a Special Warrant
private placement involving the issuance of an aggregate of 35,962,735 Special
Warrants at a price of $0.431 per special warrant for gross proceeds of
approximately $15,5 million.
Stirling Global Value Fund Inc. ("Stirling"), an insider of the
Company, participated in the Special Warrant Offering and subscribed for
7,180,000 Special Warrants.
Kopernik Global Investors, LLC ("Kopernik"), an insider of the
Company, participated in the Special Warrants Offering and subscribed for
18,714,146 Special Warrants.
|
|
Form 20-F Annual Report
|
P a g e
| 86
|
August 2015 Special Warrant Offering
In September 2015 the Company completed a Special Warrant
private placement involving the issuance of an aggregate of 37,600,000 Special
Warrants at a price of C$0.399 per Special Warrant for gross proceeds of
approximately $15.0 million as follows:
|
|
an initial 25,624,408 Special Warrants were
issued and sold on August 28, 2015 for gross proceeds of approximately
$10.2 million; and
|
|
|
|
|
|
a subsequent 11,975,592 Special Warrants were
issued and sold on September 9, 2015 for gross proceeds of approximately
$4.8 million.
|
Stirling participated in this Special Warrant private placement
and subscribed for 7,518,797 Special Warrants.
Kopernik participated in this Special Warrant private placement
and subscribed for 1,303,258 Special Warrants.
December 2015 Private Placement
In December 2015, the Company completed a private placement of
12,573,292 common shares at $0.412 per share for gross proceeds of approximately
$5.2 million.
Stirling participated in this private placement and subscribed
for 2,582,322 shares.
C.
|
INTERESTS OF EXPERTS AND COUNSEL
|
J. David Gaunt, P.Geo., James Lang, P.Geo., Eric Titley, P.Geo., of Hunter Dickson Services Inc., and Ting Lu, P.Eng., Tetra Tech are persons:
(a) who are named as in a report described in a filing. or referred to in a filing, made under the Canadian
Securities Administrators, National Instrument 51-102 by the Company during, or relating to, the Companys
most recently completed financial year: and
(b) whose profession or business gives authority to the report made by each of them.
Messrs. Gaunt, Lang and Titley hold interests in the common shares of the Company, directly or indirectly, or
through share purchase options, representing less than 1% of the Companys outstanding share capital. Ms. Lu
holds no interest in the Company.
ITEM 8
|
FINANCIAL
INFORMATION
|
A1.
|
FINANCIAL STATEMENTS AND OTHER FINANCIAL
INFORMATION
|
Item 18 of this Form 20-F contains Northern Dynasty's audited
annual financial statements as at and for the years ended December 31, 2015,
2014 and 2013. These financial statements have been prepared in accordance with
IFRS, as issued by the IASB.
The Company has not paid any dividends on its outstanding
common shares since its incorporation and does not anticipate that it will do so
in the foreseeable future. All funds of Northern Dynasty are being retained for
exploration of its projects.
Environmental Protection Agency and Bristol Bay Watershed
Assessment
In February 2011, the EPA announced it would undertake a
Bristol Bay Watershed Assessment study focusing on the potential effects of
large-scale mine development in Bristol Bay and, specifically the Nushagak and
Kvichak area drainages. This process was ostensibly initiated in response to
calls from persons and groups opposing the Pebble Project for the EPA to
pre-emptively use its asserted authority under Section 404(c) of the U.S. Clean
Water Act (the "Clean Water Act") to prohibit discharges of dredged or fill
material in waters of the US within these drainages; however, evidence exists
that the EPA may have been considering a Section 404(c) veto of the Pebble
Project at least as far back as 2008 two years before it received a petition
from several Alaska Native tribes.
|
|
Form 20-F Annual Report
|
P a g e
| 87
|
|
|
The EPAs first draft Bristol Bay Watershed Assessment ("BBWA")
report was released on May 18, 2012. In the Companys opinion after review with
its consultants, the draft report is a fundamentally flawed document. By the
EPAs own admission, it evaluated the effects of a "hypothetical project" that
has neither been defined nor proposed by the Pebble Partnership, and for which
key environmental mitigation strategies have not yet been developed and, hence,
would not yet be known. It is believed by the Company that the assessment was
rushed because it was based on studies conducted over only one year in an area
of 20,000 square miles. In comparison, the Pebble Project has studied the
ecological and social environment surrounding Pebble for nearly a decade. The
EPA also failed to adequately consider the comprehensive and detailed data that
the Pebble Partnership provided as part of its 27,000-page Environmental
Baseline Document (further described under Environmental Baseline Studies
above).
The EPA called for public comment on the quality and
sufficiency of scientific information presented in the draft BBWA report. In
response, the Pebble Partnership and Northern Dynasty made submissions on the
draft report. Northern Dynasty made a presentation highlighting these
shortcomings at public hearings held in Seattle, Washington, on May 31, 2012 and
in Anchorage, Alaska, on August 7, 2012. In July 2012, the Company also
submitted a 635-page critique of the draft report in response to the EPAs call
for public comment, and has called upon the EPA to cease such unwarranted
actions until such time as a definitive proposal for the development of the
Pebble deposit is submitted into the rigorous NEPA permitting process.
Concerns about the reasonableness of the basis of risk
assessment in the draft EPA report were stated by many of the independent
experts on the peer review panel assembled to review the BBWA, as summarized, in
a report entitled External Peer Review of EPA's Draft Document: An Assessment of
Potential Mining Impacts on Salmon Ecosystems of Bristol Bay, Alaska released in
November 2012. In a wide-ranging critique of the draft report's methodology and
findings, many peer review panellists called the EPA's effort to evaluate the
effects of a "hypothetical mining scenario" on the water, fish, wildlife and
cultural resources of Southwest Alaska "inadequate", "premature",
"unreasonable", suspect" and "misleading". A list of these peer review
documents can be found on the Companys website.
On April 26, 2013, the EPA released a revised draft of the BBWA
report and announced another public comment and Peer Review period. The Pebble
Partnership and Northern Dynasty made submissions on the revised draft. In late
May 2013, Northern Dynasty filed a 205-page submission which describes the same
major shortcomings as the original report published in May 2012.
In mid-January 2014, the EPA released the final version of its
BBWA. The report still reflects many of the same fundamental shortcomings as
previous drafts.
On February 28, 2014, the EPA announced the initiation of a
regulatory action under Section 404(c) of the Clean Water Act to consider
restriction or a prohibition on mining activities associated with the Pebble
deposit in order to protect aquatic resources in southwest Alaska. In late April
2014, the Pebble Partnership submitted a comprehensive response to the EPAs
February 28, 2014 notification letter.
In late May 2014, the Pebble Partnership filed suit in the U.S.
District Court for Alaska and sought an injunction to halt the regulatory action
initiated by the EPA under the Clean Water Act, asserting that, in the absence
of a permit application, the action exceeds the federal agencys statutory
authority and violates the Alaska Statehood Act among other federal laws. The
State of Alaska and Alaska Peninsula Corporation, an Alaska Native village
corporation with extensive land holdings in the Pebble Project area, later
joined in the Pebble Partnerships lawsuit against the EPA as co-plaintiffs. On
September 26, 2014, U.S. federal court in Alaska granted the EPAs motion to
dismiss the case. This ruling did not judge the merits of the statutory
authority case, it only deferred that hearing and judgment until after a final
Section 404(c) determination has been made by the EPA. If or when the EPA action
is deemed "final", the Pebble Partnership will pursue the underlying case. The
Company also appealed the decision to grant the motion to dismiss to the 9th
Circuit Court of Appeals. This appeal was denied in May 2015. The Pebble
Partnership still holds the option to pursue its statutory authority case in the
instance that EPA finalizes a pre-emptive regulatory action under the Clean
Water Act 404(c).
On July 18, 2014, EPA Region 10 announced a "Proposed
Determination" to restrict the discharge of dredged or fill material associated
with mining the Pebble deposit in a 268 square mile area should that disposal
result in any of the following: loss of five or more miles of streams
with documented salmon occurrence; loss of 19 or more miles of streams where
salmon are not documented but that are tributaries of streams with documented
salmon occurrence; the loss of 1,100 or more acres of wetlands, lakes, and ponds
that connect with streams with documented salmon occurrence or tributaries of
those streams; and stream flow alterations greater than 20 percent of daily flow
in nine or more linear miles of streams with documented salmon occurrence.
Northern Dynasty management does not accept that the EPA has the statutory
authority to impose conditions on development at Pebble, or any development
project anywhere in Alaska or the US, prior to the formal submission of a
development plan and its thorough review by federal and state agencies including
development of an Environmental Impact Statement ("EIS") and review under
NEPA.
|
|
Form 20-F Annual Report
|
P a g e
| 88
|
On September 19, 2014, the Pebble Partnership submitted a
comprehensive legal and technical response to EPA Region 10s Proposed
Determination. Northern Dynasty and the Pebble Partnership believe the Proposed
Determination is unsupported by the administrative record as established by the
Bristol Bay Watershed Assessment, and is therefore arbitrary and capricious.
On September 3, 2014, the Pebble Partnership initiated a second
action against EPA in federal district court in Alaska charging that EPA
violated the Federal Advisory Committee Act ("FACA") due to its close
interactions with, and the undue influence of Environmental Non-Governmental
Organizations and anti-mining activists in developing the Bristol Bay Watershed
Assessment, and with respect to its unprecedented pre-emptive 404c regulatory
action under the Clean Water Act. On September 24, 2014, the U.S. federal court
judge in Alaska released an order recognizing that the EPA agreed not to take
the next step to advance its 404c regulatory action with respect to southwest
Alaskas Pebble Project until at least January 2, 2015.
On November 24, 2014, a U.S. federal court judge in Alaska
granted the Pebble Partnerships request for a preliminary injunction in
relation to the FACA case. While the preliminary injunction does not resolve the
Pebble Partnerships claims that the EPA actions with respect to the Bristol Bay
Watershed Assessment and subsequent 404c regulatory action violated FACA, the
decision permits the further discovery process of the underlying facts to enable
the court to issue a final decision on the merits of the FACA case. On June 4,
2015, the federal court in Alaska issued an order denying the EPAs motion to
dismiss this case.
Discovery has now commenced in the FACA case. The Pebble
Partnership has filed numerous requests for production of documents and is now
reviewing thousands of documents produced by the EPA. The Pebble Partnership has
also served a number of notices of dispositions for current and former EPA
employees and relevant third parties and depositions have started. Should the
Pebble Partnership prevail in its FACA litigation against the EPA, the federal
agency may be unable to rely upon the Bristol Bay Watershed Assessment as part
of the administrative record for any regulatory action at the Pebble Project.
On October 14, 2014, the Pebble Partnership filed suit in
federal district court in Alaska charging that EPA has violated the Freedom of
Information Act by improperly withholding documents related to the Pebble
Project, the Bristol Bay Watershed Assessment and consideration of a pre-emptive
404(c) veto under the Clean Water Act. The EPA moved for summary judgment
claiming that its search for and disclosure of documents was adequate. The
Pebble Partnership opposed the governments motion, pointing out several
deficiencies in the EPAs search parameters and the agencys overly broad
assertion of the deliberative process privilege to withhold documents. On August
24, 2015, the U.S. federal court judge granted in part and deferred in part the
EPAs motion for summary judgement on the Freedom of Information Act ("FOIA")
litigation. The court accepted the EPAs position that it had made an adequate
search for documents but left the matter open should the EPA not meet its
obligations in the FACA litigation or if additional documents surface.
Additionally, the judge ordered EPA to produce a sample of 183 partially or
fully withheld documents so that it could conduct an in-camera review of the
sample and test the merits of EPAs withholdings under the deliberative process
privilege. Before producing this sample to the Court, EPA chose to voluntarily
release 115 documents (or 63% of the sample ordered by the Court), relinquishing
its claim of privilege as to these documents.
In briefings before the Court, the Pebble Partnership argued
that the voluntary release of 63% of the agencys same documents conclusively
demonstrated that the EPA had been over broad in its assertion of the
deliberative process privilege, particularly because the content of the
voluntarily released documents was not in fact deliberative. The Court agreed, finding that EPA
improperly withheld documents in full," and that "many of the documents that
defendant released should have been released to begin with because the portions
that defendant released were not deliberative." It then ordered the EPA to
review an additional 65 documents. Of these 65 documents, the EPA voluntarily
released 55 documents in whole or in part (or 85% of the documents). Given the
EPAs high rate of release, the Pebble Partnership submitted a brief to the
Court arguing that the EPA should be forced to review the remaining documents
being withheld and arguing that judgment should not be granted to the agency at
this time. The Court agreed, concluding that it had "no confidence that [EPA]
has properly withheld documents, either in full or in part, pursuant to the
deliberative process privilege." The Court reiterated its earlier finding that
EPA had been withholding documents that "should never have been withheld to
begin with." As a result, the Court ordered the Agency to re-evaluate all
remaining documents EPA is withholding in response to the Pebble Partnerships
January 2014 FOIA request and to submit these documents for in camera review.
|
|
Form 20-F Annual Report
|
P a g e
| 89
|
|
|
Counsel for Northern Dynasty and the Pebble Partnership
submitted numerous letters to the independent Office of the EPA Inspector
General ("OIG") since January 2014, raising concerns of apprehension of bias,
process irregularities and undue influence by environmental organizations in the
EPA's preparation of the Bristol Bay Watershed Assessment. In response to
Congressional and other requests, on May 2, 2014, the OIG announced that it
would investigate the EPAs conduct in preparing An Assessment of Potential
Mining Impacts on Salmon Ecosystems of Bristol Bay, Alaska, "to determine
whether the EPA adhered to laws, regulations, policies and procedures in
developing its assessment of potential mining impacts in Bristol Bay, Alaska."
On January 13, 2016, the OIG published its report (the OIG Report). While
acknowledging significant "scope limitations" in its review and subsequent OIG
Report, the OIG concluded that: "we found no evidence of bias in how the EPA
conducted its assessment of the Bristol Bay watershed, or that the EPA
predetermined the assessment outcome, but that an EPA Region 10 employee may
have been guilty of "a possible misuse of position."
Several other investigations of EPA conduct at Pebble
contradict the OIG Report. The US Congress House Committee on Oversight and
Government Reform found "that EPA employees had inappropriate contact with
outside groups and failed to conduct an impartial, fact-based review of the
proposed Pebble mine." In addition, a report by former United States Senator and
Defense Secretary William S. Cohen and his firm (further described below), said
their investigation "raise(s) serious concerns as to whether EPA orchestrated
the process to reach a pre-determined outcome; had inappropriately close
relationships with anti-mine advocates; and was candid about its decision-making
process. "
The findings of the OIG Report are not expected to materially
affect the Pebble Partnership strategy for addressing the EPAs CWA 404(c)
regulatory action. The Company remains confident that the Pebble Project will
ultimately enter federal and state permitting unencumbered by any extraordinary
development restrictions.
In March 2015, William Cohen and his firm, The Cohen Group,
assisted by the law firm DLA Piper, was retained by the Pebble Partnership to
conduct an independent review of whether the EPA acted fairly in connection with
its evaluation of potential mining in the Bristol Bay watershed. Secretary Cohen
was requested to evaluate the fairness of EPA's actions and decisions in this
matter based upon a thorough assessment of the facts and relying on his
experience as a senior government official as well as his 24 years as a member
of the U.S. Senate and House of Representatives.
A team of independent investigators employed by The Cohen Group
and DLA Piper reviewed thousands of documents secured through FOIA requests and
interviewed approximately 60 individuals involved with the EPA or its review of
the Pebble Project. On October 6, 2015, Mr. Cohen released his report entitled
Report of an Independent Review of the United States Environmental Protection
Agencys Actions in Connection with its Evaluation of Potential Mining in
Alaskas Bristol Bay Watershed. The report stated the conclusion of Mr. Cohen
that he did not believe the EPA used the "fairest and most appropriate process"
in its proposed preemptive regulatory action under the Clean Water Act
404(c).
Mr. Cohen urged policymakers to require that the permitting
process under NEPA and the regulations developed by the Council on Environmental
Quality (the "Permit/NEPA Process") be followed. Mr. Cohen commented that the Permit/NEPA Process is more comprehensive
than the pre-emptive Section 404(c) action employed by the EPA and he could find
no valid reason why that process was not used.
|
|
Form 20-F Annual Report
|
P a g e
| 90
|
The Cohen report also raised a number of concerns about the
EPAs Bristol Bay Watershed Assessment study and the Clean Water Act 404(c)
regulatory action, including possible prejudice and pre-determination of
outcomes by the EPA, inappropriately close relationships between certain EPA
officials and anti-mine advocates, EPAs candor with respect to certain actions
it took, lack of consistency between the BBWA and the proposed determination,
and lack of cooperation by EPA personnel with respect to Congressional queries
and FOIA requests.
Northern Dynasty does not consider the Cohen report to
constitute an "experts" report but rather considers it to constitute an
informed view of the Companys treatment by the EPA expressed by a person
familiar with governmental due process goals. Mr. Cohen has appeared before a
Congressional committee (House Committee on Science, Space and Technology) with
respect to the findings in his report and, if given the opportunity, may appear
before other committees in the months ahead.
In summary, the Pebble Partnership is advancing a
multi-dimensional strategy to address the EPAs preemptive regulatory action
under Section 404(c) of the Clean Water Act, and is working to position the
Pebble Project to initiate federal and state permitting under NEPA unencumbered
by any extraordinary development restrictions imposed by the federal agency.
This strategy includes three discrete pieces of litigation against the EPA,
including:
|
challenging the EPAs statutory authority to
pre-emptively impose development restrictions at the Pebble Project under
Section 404(c) of the Clean Water Act prior to the Pebble Partnership
submitting a proposed development plan for the project or the development
of an EIS under NEPA;
|
|
|
|
alleging that the EPA violated FACA in the course of
undertaking the Bristol Bay Watershed Assessment and subsequent Section
404(c) of the Clean Water Act regulatory action; and
|
|
|
|
alleging that the EPA is unlawfully withholding relevant
documentation and other information sought by the Pebble Partnership under
FOIA.
|
While the litigation process is inherently uncertain, and it is
difficult to predict with confidence the length of time that each of the legal
initiatives described above will take to advance to specific milestone events or
final conclusion, Northern Dynasty expects a final decision by a federal court
judge in Alaska on the Pebble Partnerships FACA case in 2017.
Northern Dynasty cannot predict the outcome of its various
challenges to what it sees as improper, preemptory attempts by the EPA to
prevent or otherwise unduly restrict mineral development at Pebble. If these
challenges all fail and the EPA continues to oppose the Pebble Project by all
legal means, it may have a material adverse effect on the Company.
Nunamta Aulukestai
In October 2011, a lawsuit filed in July 2009 by the Trustees
for Alaska (an environmental law firm) on behalf of Nunamta Aulukestai an
organization established and funded to oppose development of the Pebble Project
- was rejected by the Anchorage Superior Court. The lawsuit alleged that the
Alaska Department of Natural Resources had violated the state constitution by
granting exploration and temporary water use permits to the Pebble Partnership,
and exploration activities had caused harm to vegetation, water, fish and
wildlife. The Pebble Partnership actively participated in the trial proceedings
after being granted intervener status. Superior Court Judge Aarseth denied each
of the allegations made by Nunamta Aulukestai, and ruled that no evidence of
environmental harm was presented. The plaintiffs have filed an appeal and a
ruling was made on May 29, 2015. The Alaska Supreme Court agreed that there was
no evidence of environmental damage but ruled that the land use permits conveyed
an interest in land and, as such should have been preceded by public notice. The
decision does not change the status of current permits held by the Pebble
Partnership, although drilling permits applied for in future may necessitate
additional public notice and comment requirements. In August 2015, the Supreme
Court ruled in the appeal case that the Alaska Department of Natural Resources
and the Pebble Partnership were jointly and severally liable
for plaintiffs attorney fees in the amount of US$57,082. The case was remanded
back to the trial court for further litigation about the potential award of the
plaintiffs attorneys fees for the trial court portion of the litigation.
Pebble Partnership then negotiated a settlement with the plaintiffs and the case
has been dismissed in it is entirety.
|
|
Form 20-F Annual Report
|
P a g e
| 91
|
There have been no significant changes to Northern Dynastys
affairs as disclosed in the accompanying financial statements since December 31,
2015, except as disclosed in this Annual Report on Form 20-F.
ITEM 9
|
THE OFFER AND
LISTING
|
A.
|
OFFER AND LISTING DETAILS
|
The following tables set forth for the periods indicated the
price history of the Company's common shares on the TSX and on the NYSE MKT.
|
Trading under the symbol NDM
|
Trading under the symbol NAK
|
|
on the TSX
|
on the NYSE MKT
|
|
|
|
Average daily
|
|
|
Average daily
|
Fiscal Year Ended
|
High
|
Low
|
trading
|
High
|
Low
|
trading
|
December 31,
|
($)
|
($)
|
volume
|
(US$)
|
(US$)
|
volume
|
2015
|
0.83
|
0.37
|
55,058
|
0.72
|
0.28
|
103,728
|
2014
|
1.85
|
0.38
|
56,803
|
1.70
|
0.32
|
204,562
|
2013
|
4.19
|
1.07
|
75,913
|
4.26
|
1.00
|
271,510
|
2012
|
8.13
|
2.23
|
116,593
|
8.19
|
2.20
|
269,042
|
2011
|
21.50
|
5.16
|
252,154
|
21.76
|
4.87
|
612,224
|
|
Trading under the symbol NDM
|
Trading under the symbol NAK
|
|
on the TSX
|
on the NYSE MKT
|
|
|
|
Average daily
|
|
|
Average daily
|
Fiscal Quarter
|
High
|
Low
|
trading
|
High
|
Low
|
trading
|
|
($)
|
($)
|
volume
|
(US$)
|
(US$)
|
volume
|
Q1 2016
|
0.58
|
0.28
|
207,584
|
0.39
|
0.20
|
159,570
|
Q4 2015
|
0.58
|
0.38
|
76,251
|
0.31
|
0.29
|
108,597
|
Q3 2015
|
0.67
|
0.37
|
34,517
|
0.36
|
0.30
|
93,941
|
Q2 2015
|
0.54
|
0.38
|
25,070
|
0.37
|
0.34
|
109,776
|
Q1 2015
|
0.83
|
0.45
|
85,348
|
0.40
|
0.36
|
102,643
|
Q4 2014
|
0.65
|
0.38
|
54,644
|
0.59
|
0.32
|
173,261
|
Q3 2014
|
0.95
|
0.55
|
63,193
|
0.89
|
0.52
|
121,700
|
Q2 2014
|
1.13
|
0.67
|
54,719
|
1.01
|
0.61
|
170,652
|
Q1 2014
|
1.85
|
0.90
|
54,726
|
1.70
|
0.80
|
359,362
|
|
|
Form 20-F Annual Report
|
P a g e
| 92
|
|
Trading under the symbol NDM
|
Trading under the symbol NAK
|
|
on the
TSX
|
on the NYSE MKT
|
|
|
|
Average daily
|
|
|
Average daily
|
Last six months
|
High
|
Low
|
trading
|
High
|
Low
|
trading
|
|
($)
|
($)
|
volume
|
(US$)
|
(US$)
|
volume
|
March 2016
|
0.52
|
0.41
|
297,000
|
0.39
|
0.30
|
207,600
|
February 2016
|
0.51
|
0.36
|
229,000
|
0.38
|
0.26
|
134,500
|
January 2016
|
0.44
|
0.28
|
110,600
|
0.32
|
0.20
|
148,300
|
December 2015
|
0.43
|
0.38
|
70,400
|
0.32
|
0.28
|
97,600
|
November 2015
|
0.58
|
0.38
|
135,200
|
0.44
|
0.28
|
144,200
|
October 2015
|
0.58
|
0.40
|
36,700
|
0.44
|
0.30
|
100,300
|
Share trading information is available through free internet
search services (for example, for TSX, refer to
www.tmxmoney.com
, enter
NDM.TO. For NYSE MKT, use the following:
https://www.nyse.com/listings_directory/stock
, enter NAK).
Not applicable.
Northern Dynasty's common shares have been listed in Canada on
the Toronto Stock Exchange since October 2007, under the symbol NDM, and prior
to that on the TSX Venture Exchange ("TSX-V") since December 1994. The Company's
common shares have been traded in the U.S. on NYSE MKT (formerly known as the
American Stock Exchange "AMEX"), since November 2004, under the symbol NAK.
Not applicable.
Not applicable.
Not applicable.
ITEM 10
|
ADDITIONAL
INFORMATION
|
Not required in an Annual Report.
B.
|
MEMORANDUM AND ARTICLES OF
ASSOCIATION
|
The Company was originally incorporated on May 11, 1983
pursuant to the
Company Act
of the Province of British Columbia
(predecessor statute to the British Columbia Corporations Act in force since
2004), under the name "Dynasty Resources Inc.". On November 30, 1983 the Company
changed its name to "Northern Dynasty Explorations Ltd." and subsequently, on October 11,
1997, changed its name to Northern Dynasty Minerals Ltd.
|
|
Form 20-F Annual Report
|
P a g e
| 93
|
The Companys current Notice of Articles is dated March 24,
2016 and the Companys Articles dated June 10, 2010, as amended on June 19, 2013
are attached to this Annual report on Form 20-F as Exhibit 1.01.
The following is a summary of certain material provisions of
(i) Northern Dynastys Notice of Articles and Articles, and (ii) certain
provisions of the British Columbia
Business Corporations Act
(the
Business Corporations Act
) applicable to Northern Dynasty:
Northern Dynasty's Notice of Articles and Articles do not
specify objects or purposes. Northern Dynasty is entitled under the
Business
Corporations Act
to carry on all lawful businesses which can be carried on
by a natural person.
Directors power to vote on a proposal, arrangement or
contract in which the director is interested
.
According to the
Business Corporations Act
, a director
holds a disclosable interest in a contract or transaction if:
1.
|
the contract or transaction is material to the
company;
|
|
|
2.
|
the company has entered, or proposes to enter, into the
contract or transaction, and
|
|
|
3.
|
either of the following applies to the
director:
|
|
a.
|
the director has a material interest in the contract or
transaction;
|
|
|
|
|
b.
|
the director is a director or senior officer of, or has a
material interest in, a person who has a material interest in the contract
or transaction.
|
However, the
Business Corporations Act
also provides
that in the following circumstances, a director does not hold a disclosable
interest in a contract or transaction if:
1.
|
the situation that would otherwise constitute a
disclosable interest arose before the coming into force of the
Business
Corporations Act
or, if the company was recognized under the
Business Corporations Act
, before that recognition, and was
disclosed and approved under, or was not required to be disclosed under,
the legislation that:
|
|
a.
|
applied to the company on or after the date on which the
situation arose; and
|
|
|
|
|
b.
|
is comparable in scope and intent to the provisions of
the
Business Corporations Act
;
|
2.
|
both the company and the other party to the contract or
transaction are wholly owned subsidiaries of the same
corporation;
|
|
|
3.
|
the company is a wholly owned subsidiary of the other
party to the contract or transaction;
|
|
|
4.
|
the other party to the contract or transaction is a
wholly owned subsidiary of the company; or
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Form 20-F Annual Report
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P a g e
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|
5.
|
where the director or senior officer is the sole
shareholder of the company or of a corporation of which the company is a
wholly owned subsidiary.
|
The
Business Corporations Act
further provides that a
director of a company does not hold a disclosable interest in a contract or
transaction merely because:
1.
|
the contract or transaction is an arrangement by way of
security granted by the company for money loaned to, or obligations
undertaken by, the director or senior officer, or a person in whom the
director or senior officer has a material interest, for the benefit of the
company or an affiliate of the company;
|
|
|
2.
|
the contract or transaction relates to an indemnity or
insurance;
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3.
|
the contract or transaction relates to the remuneration
of the director or senior officer in that person's capacity as director,
officer, employee or agent of the company or of an affiliate of the
company;
|
|
|
4.
|
the contract or transaction relates to a loan to the
company, and the director or senior officer, or a person in whom the
director or senior officer has a material interest, is or is to be a
guarantor of some or all of the loan; or
|
|
|
5.
|
the contract or transaction has been or will be made with
or for the benefit of a corporation that is affiliated with the company
and the director or senior officer is also a director or senior officer of
that corporation or an affiliate of that
corporation.
|
Under Northern Dynastys Articles, a director or senior officer
who holds a disclosable interest (as that term is used in the
Business
Corporations Act
) in a contract or transaction into which Northern Dynasty
has entered or proposes to enter:
1.
|
is liable to account to Northern Dynasty for any profit
that accrues to the director or senior officer under or as a result of the
contract or transaction only if and to the extent provided in the
Act;
|
|
|
2.
|
is not entitled to vote on any directors resolution to
approve that contract or transaction, unless all the directors have a
disclosable interest in that contract or transaction, in which case any or
all of those directors may vote on such resolution;
|
|
|
3.
|
and who is present at the meeting of directors at which
the contract or transaction is considered for approval may be counted in
the quorum at the meeting whether or not the director votes on any or all
of the resolutions considered at the meeting.
|
A director or senior officer who holds any office or possesses
any property, right or interest that could result, directly or indirectly, in
the creation of a duty or interest that materially conflicts with that
individuals duty or interest as a director or senior officer, must disclose the
nature and extent of the conflict as required by the
Business Corporations
Act
. No director or intended director is disqualified by his or her office
from contracting with Northern Dynasty either with regard to the holding of any
office or place of profit the director holds with Northern Dynasty or as vendor,
purchaser or otherwise, and no contract or transaction entered into by or on
behalf of Northern Dynasty in which a director is in any way interested is
liable to be voided for that reason.
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Directors' power, in the absence of an independent
quorum, to vote compensation to themselves or any members of their
body
.
The compensation of the directors is decided by the directors
unless the board of directors requests approval to the compensation from the
shareholders by ordinary resolution. The
Business Corporations Act
provides that a director of a company does not hold a disclosable interest in a
contract or transaction merely because the contract or transaction relates to
the remuneration of the director or senior officer in that person's capacity as
director, officer, employee or agent of Northern Dynasty or of an affiliate of
Northern Dynasty.
Borrowing powers exercisable by the directors
.
Under the Articles, the directors may, on behalf of Northern
Dynasty:
1.
|
borrow money in such manner and amount, on such security,
from such sources and upon such terms, and conditions as they consider
appropriate;
|
|
|
2.
|
issue bonds, debentures, and other debt obligations
either outright or as a security for any liability or obligation of
Northern Dynasty or any other person and at such discounts or premiums and
on such other terms as they consider appropriate;
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|
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3.
|
guarantee the repayment of money by any other person or
the performance of any obligation of any other person; and
|
|
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4.
|
mortgage, charge, whether by way of specific or floating
charge, grant a security interest in, or give other security on, the whole
or any part of the present and future assets and undertaking of Northern
Dynasty.
|
Retirement and non-retirement of directors under an age
limit requirement
.
There are no such provisions applicable to Northern Dynasty
under its Memorandum or its Articles or the
Business Corporations Act
.
Number of shares required for a directors
qualification
.
Directors need not own any shares of Northern Dynasty in order
to qualify as directors.
3.
|
Rights, Preferences and Restrictions Attaching to Each
Class of Shares
|
Authorized Capital
The Companys authorized capital consists of an unlimited
number of common shares.
Common Shares
The rights, preferences and restrictions attached to the
Companys common shares are summarized as follows:
Dividends
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Form 20-F Annual Report
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Subject the provisions of the
Business Corporations Act
,
the directors may from time to time declare and authorized payments of dividends
out of available assets. Any dividends must be declared and paid according to
the number of shares held. Under the
Business Corporations Act
, no
dividend may be paid if Northern Dynasty is, or would as a result of payment of
the dividend become, insolvent.
Voting Rights
Each common share is entitled to one vote on matters to which
common shares ordinarily vote including the annual election of directors,
appointment of auditors and approval of corporate changes. Directors are elected
to hold office at each annual meeting and hold office until the ensuing annual
meeting. Directors automatically retire at each annual meeting. There are no
staggered directorships among Northern Dynastys directors. There are no
cumulative voting rights applicable to Northern Dynasty.
Rights to Profits and Liquidation Rights
All common shares of Northern Dynasty participate ratably in
any net profit or loss of Northern Dynasty and participate ratably as to any
distribution of assets in the event of a winding up or other liquidation.
Redemption
The common shares are not subject to any rights of
redemption.
Sinking Fund Provisions
Northern Dynasty has no sinking fund provisions or similar
obligations relating to the common shares.
Shares Fully Paid
All common shares of Northern Dynasty must, under the
Business Corporations Act
, be issued as fully paid for cash, property or
services. They are therefore non-assessable and not subject to further calls for
payment.
Pre-emptive Rights
Holders of common shares of Northern Dynasty are not entitled
to any pre-emptive rights which provide a right to any holder to participate in
any further offerings of the Companys equity or other securities.
4.
|
Changes to Rights and
Restrictions to Shares
|
The Articles provide that, subject to the
Business
Corporations Act
, the Company may, by special resolution:
|
create special rights or restrictions for, and attach
those special rights or restrictions to, the shares of any class or series
of shares, whether or not any or all of those shares have been issued; or
|
|
|
|
vary or delete any special rights or restrictions
attached to the shares of any class or series of shares, whether or not
any or all of those shares have been issued.
|
Subject to the Business Corporations Act, the Company may by
directors resolution subdivide or consolidate all or any of its unissued, or
fully paid issued, shares and, if applicable, alter its Notice of Articles, and,
if applicable, its Articles.
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|
Form 20-F Annual Report
|
P a g e
| 97
|
The Articles provide that the Company may be directors
resolution authorize an alteration of its Notice of Articles in order to change
its name or adopt or change any translation of that name.
The Companys Articles provide that, subject to the
Business
Corporations Act
, the Company may by ordinary resolution of shareholders (or
a resolution of the directors in the case of §(c) or §(f) below):
(a)
|
create one or more classes or series of shares;
|
|
|
(b)
|
increase, reduce or eliminate the maximum number of
shares that Northern Dynasty is authorized to issue out of any class or
series of shares or establish a maximum number of shares that Northern
Dynasty is authorized to issue out of any class or series of shares for
which no maximum is established;
|
|
|
(c)
|
subdivide or consolidate all or any of its unissued, or
fully paid issued, shares;
|
|
|
(d)
|
if the Company is authorized to issue shares of a class
of shares with par value:
|
|
o
|
decrease the par value of those shares; or
|
|
|
|
|
o
|
if none of the shares of that class of shares
are allotted or issued, increase the par value of those shares;
|
(e)
|
change all or any of its unissued, or fully paid issued,
shares with par value into shares without par value or any of its unissued
shares without par value into shares with par value;
|
|
|
(f)
|
alter the identifying name of any of its shares;
or
|
|
|
(g)
|
otherwise alter its shares or authorized share structure
when required or permitted to do so by the Act where it does not specify a
special resolution.
|
The Articles provide that a special resolution is a resolution
of shareholders that is approved by two thirds (66 2/3%) of those votes cast at
a properly constituted meeting of shareholders. An ordinary resolution is a
resolution of shareholders that is approved by a majority of those votes cast at
a properly constituted meeting of shareholders. Quorum pursuant to the Articles
is two shareholders holding at least 33 1/3% of issued shares.
If special rights and restrictions are altered and any right or
special right attached to issued shares is prejudiced or interfered with, then
the consent of the holders of shares of that class or series by a special
separate resolution will be required.
The
Business Corporations Act
also provides that a
company may reduce its capital if it is authorized to do so by a court order,
or, if the capital is reduced to an amount that is not less than the realizable
value of the company's assets less its liabilities, by a special resolution or
court order.
Generally, there are no significant differences between British
Columbia and United States law with respect to changing the rights of
shareholders as most state corporation statutes require shareholder approval
(usually a majority) for any such changes that affect the rights of
shareholders.
5.
|
Meetings of Shareholders
|
The Articles provide that the Company must hold its annual
general meeting once in every calendar year (being not more than 15 months from
the last annual general meeting) at such time and place to be determined by the
directors of Northern Dynasty. Shareholders meetings are governed by the
Articles of Northern Dynasty but many important shareholder protections are
also contained in the Canadian provincial securities laws that are applicable to
Northern Dynasty as a reporting issuer in the Canadian provinces of British
Columbia, Alberta, and Ontario (
Canadian Securities Laws
) and the
British Columbia Corporations Act
. The Articles provide that Northern
Dynasty will provide at least 21 days' advance written notice of any meeting of
shareholders and will provide for certain procedural matters and rules of order
with respect to conduct of the meeting. The directors may fix in advance a date,
which is no fewer than 21 days prior to the date of the meeting for the purpose
of determining shareholders entitled to receive notice of and to attend and vote
at a general meeting.
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|
Form 20-F Annual Report
|
P a g e
| 98
|
|
|
Canadian Securities Law and the
British Columbia
Corporations Act
superimpose requirements that generally provide that
shareholders meetings require not less than a 60 day notice period from initial
public notice and that Northern Dynasty makes a thorough advanced search of
intermediary and brokerage registered shareholdings to facilitate communication
with beneficial shareholders so that meeting proxy and information materials can
be sent via the brokerages to unregistered but beneficial shareholders. The form
and content of information circulars and proxies and like matters are governed
by Canadian Securities Laws
and the
British Columbia Corporations
Act
. This legislation specifies the disclosure requirements for the proxy
materials and various corporate actions, background information on the nominees
for election for director, executive compensation paid in the previous year and
full details of any unusual matters or related party transactions. Northern
Dynasty must hold an annual shareholders meeting open to all shareholders for
personal attendance or by proxy at each shareholder's determination.
Most state corporation statutes require a public company to
hold an annual meeting for the election of directors and for the consideration
of other appropriate matters. The state statutes also include general provisions
relating to shareholder voting and meetings. Apart from the timing of when an
annual Meeting must be held and the percentage of shareholders required to call
an annual Meeting or an extraordinary meeting, there are generally no material
differences between Canadian and United States law respecting annual meetings
and extraordinary meetings.
6.
|
Rights to Own Securities
|
There are no limitations under Northern Dynasty's Articles or
in the
Business Corporations Act
on the right of persons who are not
citizens of Canada to hold or vote common shares.
7.
|
Restrictions on Changes in Control, Mergers,
Acquisitions or Corporate Restructuring of the
Company
|
The Companys Articles do not contain any provisions that would
have the effect of delaying, deferring or preventing a change of control of the
Company. The Company has implemented a shareholders' rights plan dated effective
May 17, 2013 which was approved by the Board on May 17, 2013 and ratified by the
Company's shareholders in June 2013. A copy is attached as Exhibit 4.04 hereto.
There are no adopted provisions in the Companys Articles triggered by or
affected by a change in outstanding shares which gives rise to a change in
control.
8.
|
Ownership Threshold Requiring Public
Disclosure
|
The Articles of Northern Dynasty do not require disclosure of
share ownership. Share ownership of director nominees must be reported annually
in proxy materials sent to Northern Dynasty's shareholders. There are no
requirements under British Columbia corporate law to report ownership of shares
of Northern Dynasty but Canadian Securities Law requires disclosure of trading
by insiders (generally officers, directors and holders of 10% of voting shares)
within 5 days of the trade. In addition, Canadian Securities Laws require
disclosure of acquisition of more than 10% of the issued and outstanding shares
of the Company by press release and filing of an early warning report within 2
business days of the acquisition. Canadian Securities Laws also require that we
disclose in our annual general meeting proxy statement, holders who beneficially
own more than 10% of our issued and outstanding shares, and
United States federal securities laws require the disclosure in our annual
report on Form 20-F of holders who own more than 5% of our issued and
outstanding shares.
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|
Form 20-F Annual Report
|
P a g e
| 99
|
Most state corporation statutes do not contain provisions
governing the threshold above which shareholder ownership must be disclosed.
United States federal securities laws require a company that is subject to the
reporting requirements of the Securities Exchange Act of 1934 to disclose, in
its annual reports filed with the Securities and Exchange Commission those
shareholders who own more than 5% of a corporations issued and outstanding
shares.
9.
|
Differences in Law between the US and British
Columbia
|
Differences in the law between United States and British
Columbia, where applicable, have been explained above within each category.
10.
|
Changes in the Capital of the
Company
|
There are no conditions imposed by Northern Dynastys Notice of
Articles or Articles which are more stringent than those required by the
Business Corporations Act.
|
|
Form 20-F Annual Report
|
P a g e
| 100
|
Northern Dynasty's only material contracts as of April 18, 2016
are:
1.
|
Corporate Services Agreement between Northern Dynasty and
Hunter Dickinson Services Inc. dated July 2, 2010.
See Item
7.B
.
|
|
|
2.
|
Special Warrant Certificate dated effective December 31,
2014.
|
|
|
3.
|
Registration Rights Agreement dated effective December
31, 2014.
|
|
|
4.
|
Special Warrant Certificate dated effective August 31 and September 10,
2015.
|
|
|
5.
|
Registration Rights Agreement dated effective August 31 and September 10, 2015.
|
|
|
6.
|
Arrangement Agreement between Northern Dynasty and
Mission Gold dated October 30, 2015.
|
Special Warrants
In late December 2014 and early January 2015, the Company
completed a financing to raise proceeds of $15.5 million through the issuance of
35,962,735 special warrants (the "Special Warrants"). Each special warrant
entitled the holder thereof to receive one common share ("Common Share") of the
Company (an "Underlying Share") without payment of additional consideration.
The Company agreed with the investors to use reasonable best
efforts to clear resale restrictions that are or may be applicable to the
Underlying Shares by (i) seeking to clear a final Prospectus in Canada
qualifying the distribution of the Underlying Shares for resale in Canada, and
(ii) concurrently filing a U.S. Registration Statement with the SEC to seek to
qualify the resale of such Underlying Shares in the United States. The Company
further agreed to use reasonable best efforts to cause the U.S. Registration
Statement to be declared effective by the SEC by not later than 90 days after
the Closing Date and to cause such U.S. Registration Statement to remain
continuously effective until the Resale Filing Termination Date. The Company
further agreed to use reasonable best efforts to cause the Prospectus to remain
effective and current until the earlier of: (i) 90 days following the issuance
of a receipt for the Prospectus; and (ii) the expiry of the Canadian hold period
on the Special Warrants.
The Company cleared the distribution of the underlying shares
in Canada and the United States on February 24, 2015. All 35,962,735 Special
Warrants were converted into Common Shares in 2015.
In late August 2015 and early September 2015, the Company
completed a further financing to raise proceeds of $15.0 million through the
issuance of 36,700,000 Special Warrants. Each special warrant entitled the
holder thereof to receive one Common Share (an "Underlying Share") without
payment of additional consideration.
The Company agreed with the investors to use reasonable best
efforts to clear resale restrictions that are or may be applicable to the
Underlying Shares by (i) seeking to clear a final Prospectus in Canada
qualifying the distribution of the Underlying Shares for resale in Canada, and
(ii) concurrently filing a U.S. Registration Statement with the SEC to seek to
qualify the resale of such Underlying Shares in the United States. The Company
further agreed to use reasonable best efforts to cause the U.S. Registration
Statement to be declared effective by the SEC by not later than 90 days after
the Closing Date and to cause such U.S. Registration Statement to remain
continuously effective until the Resale Filing Termination Date. The Company
further agreed to use reasonable best efforts to cause the Prospectus to remain
effective and current until the earlier of: (i) 90 days following the issuance
of a receipt for the Prospectus; and (ii) the expiry of the Canadian hold period
on the Special Warrants.
The Company cleared the distribution of the underlying shares
in Canada and the United States on November 30, 2015. All 37,600,000 Special
Warrants were converted into Common Shares in 2015.
|
|
Form 20-F Annual Report
|
P a g e
| 101
|
Mission Gold
The Company completed a plan of arrangement (the "Arrangement")
in which Northern Dynasty acquired 100% of the issued and outstanding common
shares of Mission Gold. Pursuant to the Arrangement, the Company issued
27,593,341 common shares to the former shareholders of Mission Gold (0.5467 of a
Northern Dynasty common share for each issued Mission Gold common share which
exchange ratio was determined pursuant to the working capital adjustment
provision of the Arrangement). In addition, warrants to purchase 13,801,672
common shares of Mission Gold at a price of $0.50 per share were exchanged for
warrants to purchase 13,801,672 common shares of Northern Dynasty exercisable at
a price of $0.55 per share on or before July 9, 2020, and warrants to purchase
2,871,676 common shares of Mission Gold at a price of $2.72 per share were
exchanged for warrants to purchase 2,871,676 common shares of Northern Dynasty
exercisable at a price of $3.00 per share on or before September 14, 2017.
Other agreements are in the normal course of business.
Northern Dynasty is incorporated pursuant to the laws of the
Province of British Columbia, Canada. There is no law or governmental decree or
regulation in Canada that restricts the export or import of capital, or affects
the remittance of dividends, interest or other payments to a non-resident holder
of Common Shares, other than withholding tax requirements. Any such remittances
to United States residents are generally subject to withholding tax, however no
such remittances are likely in the foreseeable future. See "
Taxation
",
below.
There is no limitation imposed by Canadian law or by the
charter or other constituent documents of the Company on the right of a
non-resident to hold or vote Common Shares of the Company. However, the
Investment Canada Act (Canada) (the "Investment Act") has rules regarding
certain acquisitions of shares by non-Canadians, along with other requirements
under that legislation.
The following discussion summarizes the principal features of
the Investment Act for a non-Canadian who proposes to acquire Common Shares of
the Company. The discussion is general only; it is not a substitute for
independent legal advice from an investor's own advisor; and, except where
expressly noted, it does not anticipate statutory or regulatory amendments.
The Investment Act is a federal statute of broad application
regulating the establishment and acquisition of Canadian businesses by
non-Canadians, including individuals, governments or agencies thereof,
corporations, partnerships, trusts or joint ventures, Investments by
non-Canadians to acquire control over existing Canadian businesses or to
establish new ones are either reviewable or notifiable under the Investment Act.
If an investment by a non-Canadian to acquire control over an existing Canadian
business is reviewable under the Investment Act, the Investment Act generally
prohibits implementation of the investment unless, after review, the Minister of
Industry (or the Minister of Canadian Heritage and Official Languages for
investments in a Canadian business engaged in any of the activities of a
"cultural business"), is satisfied that the investment is likely to be of net
benefit to Canada.
A non-Canadian would acquire control of the Company for the
purposes of the Investment Act through the acquisition of Common Shares if the
non-Canadian acquired a majority of the Common Shares of the Company.
Further, the acquisition of less than a majority but one-third
or more of the Common Shares of the Company would be presumed to be an
acquisition of control of the Company unless it could be established that, on
the acquisition, the Company was not controlled in fact by the acquirer through
the ownership of Common Shares.
To determine whether an investment is reviewable under the
Investment Act it is necessary to consider whether the investor (or the vendor)
is a WTO investor (i.e. controlled by persons who are citizens of countries that are members of the World Trade Organization
("WTO"); there are currently 160 WTO members); the book value of the assets of
the Canadian business being acquired; and whether the Canadian business being
acquired engages in cultural activities.
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Form 20-F Annual Report
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Where a WTO investor is involved, and if the Canadian business
is being acquired directly and is not engaged in cultural activities, an
investment will be reviewable only if the Canadian operating business being
acquired has an enterprise value in excess of C$600 million for 2015 and 2016.
If the acquisition by a WTO investor is indirect (i.e., the
acquisition of shares of a foreign corporation that controls a Canadian
business) the transaction is not reviewable. Where the Canadian business engages
in any of the activities of a cultural business, or if neither the investor
nor the vendor are WTO investors, the applicable thresholds for direct and
indirect investments are assets with a book value of C$5 million or C$50
million, respectively. (The acquisition of a Canadian business that is a
"cultural business" is subject to lower review thresholds under the Investment
Act because of the perceived sensitivity of the cultural sector.)
An acquisition of control of a Canadian business by a
non-Canadian that falls below the thresholds for review under the Investment Act
does not require the filing of an application for review. However, even where an
investment falls below the thresholds, it must still be notified by way of a
two-page form to the Investment Review Division of the Department of Industry
(or the Department of Canadian Heritage for cultural cases). Notifications may
be submitted by the investor any time before or up to 30 days after
implementation of the investment.
In 2009, amendments were enacted to the Investment Act
concerning investments that may be considered injurious to national security. If
the Minister of Industry has reasonable grounds to believe that an investment by
a non-Canadian "could be injurious to national security," the Minister of
Industry may send the non-Canadian a notice indicating that an order for review
of the investment may be made. The review of an investment on the grounds of
national security may occur whether or not an investment is otherwise subject to
review on the basis of net benefit to Canada or otherwise subject to
notification under the Investment Canada Act. To date, there is neither
legislation nor guidelines published, or anticipated to be published, on the
meaning of "injurious to national security." Discussions with government
officials suggest that very few investment proposals will cause a review under
these new sections.
Certain transactions, except those to which the national
security provisions of the Investment Act may apply, relating to Common Shares
of the Company are exempt from the Investment Act, including
(a)
|
acquisition of Common Shares of the Company by a person
in the ordinary course of that person's business as a trader or dealer in
securities,
|
|
|
(b)
|
acquisition of control of the Company in connection with
the realization of security granted for a loan or other financial
assistance and not for a purpose related to the provisions on the
Investment Act, and
|
|
|
(c)
|
acquisition of control of the Company by reason of an
amalgamation, merger, consolidation or corporate reorganization following
which the ultimate direct or indirect control in fact of the Company,
through the ownership of Common Shares, remained
unchanged.
|
Certain Canadian Federal Income Tax Information for United
States Residents
The following summarizes the principal Canadian federal income
tax considerations generally applicable to the holding and disposition of common
shares of the Company by a holder who (a), for the purposes of the Income Tax
Act (Canada) (the "
Tax Act
") and at all relevant times, (i) is not
resident in Canada or deemed to be resident in Canada, (ii) deals at arm's
length and is not affiliated with the Company, (iii) holds the common shares as
capital property and does not use or hold the common shares in the course of
carrying on, or otherwise in connection with, a business in Canada, and (b) who,
for the purposes of the Canada-United States Income Tax Convention (the "
Treaty
") at all
relevant times, is a resident solely of the United States, has never been a
resident of Canada, has not held or used (and does not hold or use) common
shares in connection with a permanent establishment or fixed base in Canada, and
who qualifies for the full benefits of the Treaty. The Canada Revenue Agency
("CRA") has introduced special forms to be used in order to substantiate
eligibility for Treaty benefits, and affected holders should consult with their
own advisors with respect to these forms and all relevant compliance matters.
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Form 20-F Annual Report
|
P a g e
| 103
|
Holders who meet all such criteria in clauses (a) and (b) above
are referred to herein as a "
U.S. Holder
" or "
U.S. Holders
", and
this summary only addresses such U.S. Holders. The summary does not deal with
special situations, such as particular circumstances of traders or dealers in
securities, limited liability companies, tax-exempt entities, insurers,
financial institutions (including those to which the mark-to-market provisions
of the Tax Act apply), specified financial institutions, or entities considered
fiscally transparent under applicable law, or otherwise.
This summary is based on the current provisions of the Tax Act
and the regulations thereunder, all proposed amendments to the Tax Act and
regulations publicly announced by the Minister of Finance (Canada) to the date
hereof, the current provisions of the Treaty and our understanding of the
current administrative practices of the CRA. It has been assumed that all
currently proposed amendments to the Tax Act and regulations will be enacted as
proposed and that there will be no other relevant change in any governing law,
the Treaty or administrative policy, although no assurance can be given in these
respects. This summary does not take into account Canadian provincial, U.S. or
other foreign income tax considerations, which may differ significantly from
those discussed herein.
This summary is not exhaustive of all possible Canadian
income tax consequences. It is not intended as legal or tax advice to any
particular U.S. Holder and should not be so construed. The tax consequences to a
U.S. Holder will depend on that U.S. Holder's particular circumstances.
Accordingly, all U.S. Holders or prospective U.S. Holders should consult their
own tax advisors with respect to the tax consequences applicable to them having
regard to their own particular circumstances. The discussion below is qualified
accordingly
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Dividends
Dividends paid or credited or deemed to be paid or credited by
the Company to a U.S. Holder are subject to Canadian withholding tax. Under the
Treaty, the rate of withholding tax on dividends paid to a U.S. Holder is
generally limited to 15% of the gross dividend (or 5% in the case of a U.S.
holder that is a corporate shareholder owning at least 10% of the Company's
voting shares), provided the U.S. Holder can establish entitlement to the
benefits of the Treaty. We will be required to withhold the applicable
withholding tax from any dividend and remit it to the Canadian government for
the U.S. Holders account.
Disposition
A U.S. Holder is generally not subject to tax under the Tax Act
in respect of a capital gain realized on the disposition of a common share in
the open market, unless the share is "taxable Canadian property" to the holder
thereof and the U.S. Holder is not entitled to relief under the Treaty.
Provided that the Company's common shares are listed on a
"designated stock exchange" for purposes of the Tax Act (which currently
includes the TSX) at the time of disposition, a common share will generally not
constitute taxable Canadian property to a U.S. Holder unless, at any time during
the 60 month period preceding the disposition, (i) the U.S. Holder or persons
with whom the U.S. Holder did not deal at arm's length (or the U.S. Holder
together with such persons) owned 25% or more of the issued shares of any class
or series of the Company AND (ii) more than 50% of the fair market value of the
share was derived directly or indirectly from certain types of assets, including
real or immoveable property situated in Canada, Canadian resource properties or
timber resource properties, and options, interests or rights in respect of any
of the foregoing. Common shares may also be deemed to be taxable Canadian
property under the Tax Act in certain specific circumstances, including in certain circumstances
where shares were acquired for other securities in a tax-deferred transaction
for Canadian tax purposes.
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If the Companys shares constitute taxable Canadian property to
the U.S. Holder, the U.S. Holder will (unless relieved under the Treaty) be
subject to Canadian income tax on any gain. The taxpayers capital gain or loss
from a disposition of the share is the amount, if any, by which the proceeds of
disposition exceed (or are exceeded by) the aggregate of the adjusted cost base
of the share and reasonable expenses of disposition. One-half of a capital gain
("taxable capital gain") from the disposition of taxable Canadian property
(other than treaty protected properties) is included in computing the income of
a U.S. Holder and one-half of a capital loss ("allowable capital loss) is
deductible from taxable capital gains from dispositions of taxable Canadian
property realized in the same year. Unused allowable capital losses from
previous taxation years generally may be carried back three taxation years or
forward indefinitely and applied to reduce net taxable capital gains realized in
those years by a U.S. Holder from the disposition of a taxable Canadian
property.
A U.S. Holder holding Common shares as taxable Canadian
property should consult with the U.S. Holder's own tax advisors in advance of
any disposition of Common shares or deemed disposition under the Tax Act in
order to determine whether any relief from tax under the Tax Act may be
available by virtue of the Treaty, and any related compliance procedures.
Certain United States Federal Income Tax Considerations
The following is a general summary of certain material U.S.
federal income tax considerations applicable to a U.S. Holder (as defined below)
arising from and relating to the acquisition, ownership, and disposition of the
Companys common shares.
This summary is for general information purposes only and
does not purport to be a complete analysis or listing of all potential U.S.
federal income tax considerations that may apply to a U.S. Holder arising from
and relating to the acquisition, ownership, and disposition of common shares. In
addition, this summary does not take into account the individual facts and
circumstances of any particular U.S. Holder that may affect the U.S. federal
income tax consequences to such U.S. Holder, including specific tax consequences
to a U.S. Holder under an applicable tax treaty. Accordingly, this summary is
not intended to be, and should not be construed as, legal or U.S. federal income
tax advice with respect to any particular U.S. Holder. This summary does not
address the U.S. federal alternative minimum, U.S. federal estate and gift, U.S.
Medicare contribution, U.S. state and local, or non-U.S. tax consequences to
U.S. Holders of the acquisition, ownership, and disposition of common shares.
Except as specifically set forth below, this summary does not discuss applicable
tax reporting requirements. Each U.S. Holder should consult its own tax advisor
regarding all U.S. federal, U.S. state and local, and non-U.S. tax consequences
relating to the acquisition, ownership and disposition of common shares.
No opinion from U.S. legal counsel or ruling from the Internal
Revenue Service (the "IRS") has been requested, or will be obtained, regarding
the U.S. federal income tax consequences of the acquisition, ownership, and
disposition of common shares. This summary is not binding on the IRS, and the
IRS is not precluded from taking a position that is different from, and contrary
to, any position taken in this summary. In addition, because the authorities on
which this summary is based are subject to various interpretations, the IRS and
the U.S. courts could disagree with one or more of the positions taken in this
summary.
Scope of this Summary
Authorities
This summary is based on the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury Regulations (whether final, temporary, or
proposed), published rulings of the IRS, published administrative positions of
the IRS, the Convention Between Canada and the United States of America with
Respect to Taxes on Income and on Capital, signed September 26, 1980, as amended
(the "Canada-U.S. Tax Convention"), and U.S. court decisions that are applicable
and, in each case, as in effect and available, as of the date of this document.
Any of the authorities on which this summary is based could be
changed in a material and adverse manner at any time, and any such change could
be applied on a retroactive or prospective basis which could affect the U.S.
federal income tax considerations described in this summary. This summary does
not discuss the potential effects, whether adverse or beneficial, of any
proposed legislation that, if enacted, could be applied on a retroactive or
prospective basis.
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U.S. Holders
For purposes of this summary, the term "U.S. Holder" means a
beneficial owner of common shares that is for U.S. federal income tax
purposes:
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an individual who is a citizen or resident of
the U.S.;
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a corporation (or other entity taxable as a corporation
for U.S. federal income tax purposes) created or organized in or under the
laws of the U.S., any state thereof or the District of Columbia;
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an estate the income of which is subject to
U.S. federal income taxation regardless of its source; or
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a trust that (1) is subject to the primary supervision of
a court within the U.S. and the control of one or more U.S. persons for
all substantial decisions or (2) has a valid election in effect under
applicable Treasury Regulations to be treated as a U.S. person.
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Non-U.S. Holders
For purposes of this summary, a "non-U.S. Holder" is a
beneficial owner of common shares that is not a partnership (or other
pass-through entity) for U.S. federal income tax purposes and is not a U.S.
Holder. This summary does not address the U.S. federal income tax consequences
to non-U.S. Holders arising from and relating to the acquisition, ownership, and
disposition of common shares. Accordingly, a non-U.S. Holder should consult its
own tax advisor regarding all U.S. federal, U.S. state and local, and non-U.S.
tax consequences (including the potential application of and operation of any
income tax treaties) relating to the acquisition, ownership, and disposition of
common shares.
U.S. Holders Subject to Special U.S. Federal Income Tax
Rules Not Addressed
This summary does not address the U.S. federal income tax
considerations applicable to U.S. Holders that are subject to special provisions
under the Code, including, but not limited to, the following: (a) U.S. Holders
that are tax-exempt organizations, qualified retirement plans, individual
retirement accounts, or other tax-deferred accounts; (b) U.S. Holders that are
financial institutions, underwriters, insurance companies, real estate
investment trusts, or regulated investment companies; (c) U.S. Holders that are
broker-dealers, dealers, or traders in securities or currencies that elect to
apply a mark-to-market accounting method; (d) U.S. Holders that have a
"functional currency" other than the U.S. Dollar; (e) U.S. Holders that own
common shares as part of a straddle, hedging transaction, conversion
transaction, constructive sale, or other arrangement involving more than one
position; (f) U.S. Holders that acquired common shares in connection with the
exercise of employee stock options or otherwise as compensation for services;
(g) U.S. Holders that hold common shares other than as a capital asset within
the meaning of Section 1221 of the Code (generally, property held for investment
purposes); or (h) U.S. Holders that own or have owned (directly, indirectly, or
by attribution) 10% or more of the total combined voting power of the
outstanding shares of the Company. This summary also does not address the U.S.
federal income tax considerations applicable to U.S. Holders who are: (a) U.S.
expatriates or former long-term residents of the U.S.; (b) persons that have
been, are, or will be a resident or deemed to be a resident in Canada for
purposes of the Income Tax Act (Canada) (the "Tax Act"); (c) persons that use or
hold, will use or hold, or that are or will be deemed to use or hold common
shares in connection with carrying on a business in Canada; (d) persons whose
common shares constitute "taxable Canadian property" under the Tax Act; or (e)
persons that have a permanent establishment in Canada for the purposes of the
Canada-U.S. Tax Convention. U.S. Holders that are subject to special provisions
under the Code, including, but not limited to, U.S. Holders described
immediately above, should consult their own tax advisors regarding all U.S. federal, U.S. state and local, and
non-U.S. tax consequences relating to the acquisition, ownership and disposition
of common shares.
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If an entity or arrangement that is classified as a partnership
(or other "pass-through" entity) for U.S. federal income tax purposes holds
common shares, the U.S. federal income tax consequences to such entity and the
partners (or other owners) of such entity of the ownership and disposition of
common shares generally will depend on the activities of the entity and the
status of such partners (or other owners). This summary does not address the
U.S. federal income tax consequences to any such entity or its owners. Partners
(or other owners) of entities or arrangements that are classified as
partnerships (or other "pass-through" entities) for U.S. federal income tax
purposes should consult their own tax advisors regarding the U.S. federal income
tax consequences arising from and relating to the acquisition, ownership, and
disposition of common shares.
Passive Foreign Investment Company Rules
If the Company were to constitute a "passive foreign investment
company" within the meaning of Section 1297 of the Code (a "PFIC", as defined
below) for any tax year during a U.S. Holder's holding period, then certain
potentially adverse rules will affect the U.S. federal income tax consequences
to such U.S. Holder resulting from the acquisition, ownership and disposition of
common shares. The Company believes it was a PFIC during one or more prior
years, and, based on current business plans and financial projections, expects
to be a PFIC in the current tax year and possibly in subsequent tax years. The
determination of whether any corporation was, or will be, a PFIC for a tax year
depends, in part, on the application of complex U.S. federal income tax rules,
which are subject to differing interpretations. In addition, whether any
corporation will be a PFIC for any tax year depends on the assets and income of
such corporation over the course of each such tax year and, as a result, cannot
be predicted with certainty before the close of the tax year in question.
Accordingly, there can be no assurance that the Company will or will not be
determined to be a PFIC for the current or any prior or future tax year, or that
the IRS will not challenge any determination made by the Company (or any
subsidiary of the Company) concerning its PFIC status. Each U.S. Holder should
consult its own tax advisor regarding the PFIC status of the Company and any
subsidiary of the Company.
In addition, in any year in which the Company is a PFIC, a U.S.
Holder would be required to file an annual report with the IRS containing such
information as Treasury Regulations and/or other IRS guidance may require. In
addition to penalties, the failure to satisfy such reporting requirements may
result in an extension of the time period during which the IRS can assess a tax.
U.S. Holders should consult their own tax advisors regarding the requirements of
filing such information returns under these rules, including the requirement to
file an IRS Form 8621.
PFIC Status of the Company
The Company generally will be a PFIC for a tax year, if (a) 75%
or more of its gross income is passive income (as defined for U.S. federal
income tax purposes) (the "income test") or (b) 50% or more (by value) of its
assets either produce passive income or are held for the production of passive
income, based on the quarterly average of the fair market value of such assets
(the "asset test"). For purposes of the PFIC provisions, "gross income"
generally includes all sales revenues less the cost of goods sold, plus income
from investments and from incidental or outside operations or sources, and
"passive income" generally includes dividends, interest, certain rents and
royalties, certain gains from the sale of stock and securities, and certain
gains from commodities transactions.
Active business gains arising from the sale of commodities
generally will be excluded from passive income if substantially all (85% or
more) of the Companys commodities are stock in trade or inventory, depreciable
property used in a trade or business, or supplies regularly used or consumed in
a trade or business and certain other requirements are satisfied.
For purposes of the PFIC income test and asset test described
above, if the Company owns, directly or indirectly, 25% or more of the total
value of the outstanding shares of another corporation, the Company will be
treated as if it (a) held a proportionate share of the assets of such other
corporation and (b) received directly a proportionate share of the income of such other
corporation. In addition, for purposes of the PFIC income test and asset test
described above, and assuming certain other requirements are met, "passive
income" does not include certain interest, dividends, rents, or royalties that
are received or accrued by the Company from certain "related persons" (as
defined in Section 954(d)(3) of the Code), to the extent such items are properly
allocable to the income of such related person that is not passive income.
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Under certain attribution rules, if the Company is a PFIC, U.S.
Holders will generally be deemed to own their proportionate share of the
Company's direct or indirect equity interest in any company that is also a PFIC
(a ''Subsidiary PFIC''), and will be subject to U.S. federal income tax on their
proportionate share of (a) any "excess distributions," as described below, on
the stock of a Subsidiary PFIC and (b) a disposition or deemed disposition of
the stock of a Subsidiary PFIC by the Company or another Subsidiary PFIC, both
as if such U.S. Holders directly held the shares of such Subsidiary PFIC. In
addition, U.S. Holders may be subject to U.S. federal income tax on any indirect
gain realized on the stock of a Subsidiary PFIC on the sale or disposition of
common shares. Accordingly, U.S. Holders should be aware that they could be
subject to tax even if no distributions are received and no redemptions or other
dispositions of the Companys common shares are made.
Default PFIC Rules under Section 1291 of the Code
If the Company meets the income test or the asset test for any
tax year during which a U.S. Holder owns common shares, the U.S. federal income
tax consequences to such U.S. Holder of the acquisition, ownership, and
disposition of common shares will depend on whether and when such U.S. Holder
makes an election to treat the Company and each Subsidiary PFIC, if any, as a
"qualified electing fund" or "QEF" under Section 1295 of the Code (a "QEF
Election") or makes a mark-to-market election under Section 1296 of the Code (a
"Mark-to-Market Election"). A U.S. Holder that does not make either a QEF
Election or a Mark-to-Market Election will be referred to in this summary as a
"Non-Electing U.S. Holder."
A Non-Electing U.S. Holder will be subject to the default rules
of Section 1291 of the Code (described below) with respect to (a) any gain
realized on the sale or other disposition (including dispositions and certain
other events that would not otherwise be treated as taxable events) of common
shares and (b) any "excess distribution" received on the common shares. A
distribution generally will be an "excess distribution" to the extent that such
distribution (together with all other distributions received in the relevant tax
year) exceeds 125% of the average annual distribution received during the three
preceding tax years (or during a U.S. Holder's holding period for the common
shares, if shorter).
Under the default rules of Section 1291 of the Code, any gain
realized on the sale or other disposition of common shares (including an
indirect disposition of the stock of any Subsidiary PFIC), and any "excess
distribution" received on common shares or with respect to the stock of a
Subsidiary PFIC, must be ratably allocated to each day in a Non-Electing U.S.
Holder's holding period for the respective common shares. The amount of any such
gain or excess distribution allocated to the tax year of disposition or
distribution of the excess distribution and to tax years before the entity
became a PFIC, if any, would be taxed as ordinary income. The amounts allocated
to any other tax year would be subject to U.S. federal income tax at the highest
tax rate applicable to ordinary income in each such year, and an interest charge
would be imposed on the resulting tax liability for each such year, calculated
as if such tax liability had been due in each such tax year. A Non-Electing U.S.
Holder that is not a corporation must treat any such interest paid as "personal
interest," which is not deductible. Any loss realized on the disposition of
common shares would not be recognized.
If the Company meets the income test or the asset test for any
tax year during which a Non-Electing U.S. Holder holds common shares, the
Company will continue to be treated as a PFIC with respect to such Non-Electing
U.S. Holder, regardless of whether the Company meets the income test or the
asset test in one or more subsequent tax years. A Non-Electing U.S. Holder may
terminate this deemed PFIC status by electing to recognize gain (which will be
taxed under the default rules of Section 1291 of the Code discussed above), but
not loss, as if such common shares were sold on the last day of the last tax
year for which the Company was a PFIC.
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QEF Election
A U.S. Holder that makes a timely and effective QEF Election
for the first tax year in which its holding period of its common shares begins
generally will not be subject to the default rules of Section 1291 of the Code,
discussed above, with respect to its common shares. Instead, such a U.S. Holder
will be required to include currently in gross income for each tax year in which
the Company is a PFIC, such U.S. Holders pro rata share of the Companys net
capital gain and ordinary earnings, if any, regardless of whether such gain or
earnings are actually distributed. If a U.S. Holder that made a timely and
effective QEF Election has an income inclusion, such U.S. Holder may, subject to
certain limitations, elect to defer payment of current U.S. federal income tax
on such amounts, subject to an interest charge. If such U.S. Holder is not a
corporation, any such interest paid will be treated as "personal interest,"
which is not deductible.
A U.S. Holder that makes a timely and effective QEF Election
with respect to the Company generally (a) may receive tax-free distributions
from the Company to the extent that such distribution represents "earnings and
profits" of the Company that were previously included in income by the U.S.
Holder because of such QEF Election and (b) will adjust such U.S. Holder's tax
basis in the common shares to reflect the amount included in income or allowed
as a tax-free distribution because of such QEF Election. In addition, a U.S.
Holder that makes a QEF Election generally will recognize capital gain or loss
on the sale or other taxable disposition of common shares.
The procedure for making a QEF Election, and the U.S. federal
income tax consequences of making a QEF Election, will depend on whether such
QEF Election is timely. A QEF Election will be treated as "timely" if such QEF
Election is made for the first tax year in the U.S. Holder's holding period for
the common shares in which the Company was meets the income test or asset test.
A U.S. Holder may make a QEF Election for a tax year by filing the appropriate
QEF Election documents at the time such U.S. Holder files a U.S. federal income
tax return for such tax year. If a U.S. Holder does not make a timely and
effective QEF Election for the first year in the U.S. Holder's holding period
for the common shares, the U.S. Holder may still be able to make a timely and
effective QEF Election in a subsequent year if such U.S. Holder meets certain
requirements and makes a "purging" election to recognize gain (which will be
taxed under the default rules of Section 1291 of the Code discussed above) as if
such common shares were sold for their fair market value on the day the QEF
Election is effective. If a U.S. Holder owns PFIC stock indirectly through
another PFIC, separate QEF Elections must be made for the PFIC in which the U.S.
Holder is a direct shareholder and the Subsidiary PFIC for the QEF rules to
apply to both PFICs.
A QEF Election will apply to the tax year for which it is
timely made and to all subsequent tax years, unless such QEF Election is
invalidated or terminated or the IRS consents to its revocation. If a U.S.
Holder makes a QEF Election and, in a subsequent tax year, the Company ceases to
be a PFIC, the QEF Election will remain in effect (although it will not be
applicable). Accordingly, if the Company becomes a PFIC in another subsequent
tax year, the QEF Election will be effective and the U.S. Holder will be subject
to the QEF rules described above during any subsequent tax year in which the
Company qualifies as a PFIC.
In light of the adverse tax consequences of the Company being a
PFIC and the uncertainty as to the Companys PFIC status, the Company will
provide to any U.S. Holder, upon written request, the information necessary for
U.S. income tax reporting purposes for such U.S. Holder to make a QEF Election
with respect to the Company. The Company may elect to provide such information
on its website. Each U.S. Holder should consult its own tax advisor regarding
the availability and desirability of, and procedure for making, a QEF Election.
Mark-to-Market Election
A U.S. Holder may make a Mark-to-Market Election only if the
common shares are "regularly traded" on a qualified exchange or other market
(within the meaning of the Code and applicable Treasury Regulations), which
include a national securities exchange that is registered with the Securities
and Exchange Commission, the national market system established pursuant to
section 11A of the Securities and Exchange Act of 1934, and certain foreign
securities exchanges that are regulated or supervised by a governmental
authority of the country in which the market is located. If such stock is traded
on such a qualified exchange or other market, such stock generally will be "regularly traded" for any
calendar year during which such stock is traded, other than in de minimis
quantities, on at least 15 days during each calendar quarter. There is no
assurance that the common shares will be or remain "regularly traded" for this
purpose.
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A U.S. Holder that makes a Mark-to-Market Election with respect
to its common shares generally will not be subject to the default rules of
Section 1291 of the Code, discussed above, with respect to such common shares.
However, if a U.S. Holder does not make a Mark-to-Market Election beginning in
the first tax year of such U.S. Holder's holding period for the common shares or
such U.S. Holder has not made a timely QEF Election, the default rules of
Section 1291 of the Code, discussed above, will apply to certain dispositions
of, and distributions on, the common shares.
A U.S. Holder that makes a Mark-to-Market Election will include
in ordinary income, for each tax year in which the Company is a PFIC, an amount
equal to the excess, if any, of (a) the fair market value of the common shares,
as of the close of such tax year over (b) such U.S. Holder's tax basis in such
common shares. A U.S. Holder that makes a Mark-to-Market Election will be
allowed a deduction in an amount equal to the excess, if any, of (a) such U.S.
Holder's adjusted tax basis in the common shares, as of the close of such tax
year, over (b) the fair market value of such common shares (but only to the
extent of the net amount of previously included income as a result of the
Mark-to-Market Election for prior tax years).
A U.S. Holder that makes a Mark-to-Market Election generally
also will adjust such U.S. Holder's tax basis in the common shares to reflect
the amount included in gross income or allowed as a deduction because of such
Mark-to-Market Election. In addition, upon a sale or other taxable disposition
of common shares, a U.S. Holder that makes a Mark-to-Market Election will
recognize ordinary income or ordinary loss (not to exceed the excess, if any, of
(a) the amount included in ordinary income because of such Mark-to-Market
Election for prior tax years over (b) the amount allowed as a deduction because
of such Mark-to-Market Election for prior tax years). Losses that exceed this
limitation are treated as capital losses. Deductions for capital losses are
subject to significant limitations under the Code.
A Mark-to-Market Election applies to the tax year in which such
Mark-to-Market Election is made and to each subsequent tax year, unless the
common shares cease to be eligible for such election or the IRS consents to
revocation of such election. Each U.S. Holder should consult its own tax advisor
regarding the availability of, and procedure for making, a Mark-to-Market
Election.
Although a U.S. Holder may be eligible to make a Mark-to-Market
Election with respect to the common shares, no such election may be made with
respect to the stock of any Subsidiary PFIC that a U.S. Holder is treated as
owning, because such stock is not marketable. Hence, the Mark-to-Market Election
will not be effective to eliminate the application of the default rules of
Section 1291 of the Code described above with respect to deemed dispositions of
Subsidiary PFIC stock or excess distributions with respect to a Subsidiary PFIC.
The PFIC rules are complex, and each U.S. Holder should consult
its own tax advisor regarding the PFIC rules and how the PFIC rules may affect
the U.S. federal income tax consequences of the acquisition, ownership, and
disposition of common shares.
Ownership and Disposition of Common Shares
The following discussion is subject to the rules described
above under the heading "Passive Foreign Investment Company Rules."
Distributions on Common Shares
A U.S. Holder that receives a distribution, including a
constructive distribution, with respect to a common share will be required to
include the amount of such distribution in gross income as a dividend (without
reduction for any Canadian income tax withheld from such distribution) to the
extent of the current or accumulated "earnings and profits" of the Company, as
computed for U.S. federal income tax purposes. To the extent that a distribution
exceeds the current and accumulated "earnings and profits" of the Company, such
distribution will be treated first as a tax-free return of capital to the extent
of a U.S. Holder's tax basis in the common shares and thereafter as gain from the sale or exchange
of such common shares. (See "Sale or Other Taxable Disposition of Common Shares"
below). However, the Company may not maintain the calculations of earnings and
profits in accordance with U.S. federal income tax principles, and each U.S.
Holder should therefore assume that any distribution by the Company with respect
to the common shares will constitute a dividend. Dividends received on common
shares generally will not be eligible for the "dividends received deduction"
available to U.S. corporate shareholders receiving dividends for U.S.
corporations. If the Company is eligible for the benefits of the Canada-U.S. Tax
Convention, dividends paid by the Company to non-corporate U.S. Holders
generally will be eligible for preferential tax rates applicable to long-term
capital gains, provided certain holding period and other conditions are
satisfied, including that the Company not be classified as a PFIC in the tax
year of distribution or in the preceding tax year. The dividend rules are
complex, and each U.S. Holder should consult its own tax advisor regarding the
application of such rules.
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Form 20-F Annual Report
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P a g e
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Sale or Other Taxable Disposition of Common Shares
Upon the sale or other taxable disposition of common shares, a
U.S. Holder generally will recognize capital gain or loss in an amount equal to
the difference between the amount of cash received plus the fair market value of
any property received and such U.S. Holder's tax basis in such common shares
sold or otherwise disposed of. A U.S. Holder's tax basis in common shares
generally will be such U.S. Holder's U.S. Dollar cost for such common shares.
Gain or loss recognized on such sale or other disposition generally will be
long-term capital gain or loss if, at the time of the sale or other taxable
disposition, the common shares have been held for more than one year.
Preferential tax rates currently apply to long-term capital
gain of a U.S. Holder that is an individual, estate, or trust. There are
currently no preferential tax rates for long-term capital gain of a U.S. Holder
that is a corporation. Deductions for capital losses are subject to significant
limitations under the Code.
Receipt of Foreign Currency
The amount of any distribution paid to a U.S. Holder in
connection with the ownership of common shares, or on the sale or other taxable
disposition of common shares, generally will be equal to the U.S. Dollar value
of such foreign currency based on the exchange rate applicable on the date of
receipt (regardless of whether such foreign currency is converted into U.S.
Dollars at that time). A U.S. Holder will have a basis in the foreign currency
equal to its U.S. Dollar value on the date of receipt. Any U.S. Holder who
converts or otherwise disposes of the foreign currency after the date of receipt
may have a foreign currency exchange gain or loss that would be treated as
ordinary income or loss, and generally will be U.S. source income or loss for
foreign tax credit purposes. Different rules apply to U.S. Holders who use the
accrual method with respect to foreign currency received upon the sale, exchange
or other taxable disposition of the common shares. Each U.S. Holder should
consult its own tax advisor regarding the U.S. federal income tax consequences
of receiving, owning, and disposing of foreign currency.
Foreign Tax Credit
Subject to the PFIC rules discussed above, a U.S. Holder that
pays (whether directly or through withholding) Canadian income tax in connection
with the ownership or disposition of common shares generally will be entitled,
at the election of such U.S. Holder, to receive either a deduction or a credit
for such Canadian income tax. Generally, a credit will reduce a U.S. Holder's
U.S. federal income tax liability on a Dollar-for-Dollar basis, whereas a
deduction will reduce a U.S. Holder's income subject to U.S. federal income tax.
This election is made on a year-by-year basis and applies to all creditable
foreign taxes paid (whether directly or through withholding) by a U.S. Holder
during a year.
Complex limitations apply to the foreign tax credit, including
the general limitation that the credit cannot exceed the proportionate share of
a U.S. Holder's U.S. federal income tax liability that such U.S. Holder's
"foreign source" taxable income bears to such U.S. Holder's worldwide taxable
income. In applying this limitation, a U.S. Holder's various items of income and
deduction must be classified, under complex rules, as either "foreign source" or "U.S. source." Generally, dividends
paid by a non-U.S. corporation should be treated as foreign source for this
purpose, and gains recognized on the sale of stock of a non-U.S. corporation by
a U.S. Holder should be treated as U.S. source for this purpose, except as
otherwise provided in an applicable income tax treaty, and if an election is
properly made under the Code. However, the amount of a distribution with respect
to the common shares that is treated as a "dividend" may be lower for U.S.
federal income tax purposes than it is for Canadian federal income tax purposes,
resulting in a reduced foreign tax credit allowance to a U.S. Holder. In
addition, this limitation is calculated separately with respect to specific
categories of income. The foreign tax credit rules are complex, and each U.S.
Holder should consult its own U.S. tax advisor regarding the foreign tax credit
rules.
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Form 20-F Annual Report
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Special rules apply to the amount of foreign tax credit that a
U.S. Holder may claim on a distribution from a PFIC. Subject to such special
rules, foreign taxes paid with respect to any distribution in respect of stock
in a PFIC are generally eligible for the foreign tax credit. The rules relating
to distributions by a PFIC and their eligibility for the foreign tax credit are
complicated, and a U.S. Holder should consult with its own tax advisor regarding
the availability of the foreign tax credit with respect to distributions by a
PFIC.
Information Reporting and Backup Withholding
Under U.S. federal income tax law, certain categories of U.S.
Holders must file information returns with respect to their investment in, or
involvement in, a non-U.S. corporation. For example, U.S. return disclosure
obligations (and related penalties) are imposed on individuals who are U.S.
Holders that hold certain specified foreign financial assets in excess of
certain threshold amounts. The definition of specified foreign financial assets
includes not only financial accounts maintained in foreign financial
institutions, but also, if held for investment and not in an account maintained
by certain financial institutions, any stock or security issued by a non-U.S.
person, any financial instrument or contract that has an issuer or counterparty
other than a U.S. person and any interest in a non-U.S. entity. U.S. Holders may
be subject to these reporting requirements unless their common shares are held
in an account at certain financial institutions. Penalties for failure to file
certain of these information returns are substantial. U.S. Holders should
consult with their own tax advisors regarding the requirements of filing
information returns, including the requirement to file an IRS Form 8938.
Payments made within the U.S. or by a U.S. payor or U.S.
middleman, of dividends on, and proceeds arising from the sale or other taxable
disposition of, common shares will generally be subject to information
reporting. In addition, backup withholding, currently, at a rate of 28%, may
apply to such payments if a U.S. Holder (a) fails to furnish such U.S. Holder's
correct U.S. taxpayer identification number (generally on IRS Form W-9), (b)
furnishes an incorrect U.S. taxpayer identification number, (c) is notified by
the IRS that such U.S. Holder has previously failed to properly report items
subject to backup withholding tax, or (d) fails to certify, under penalty of
perjury, that such U.S. Holder has furnished its correct U.S. taxpayer
identification number and that the IRS has not notified such U.S. Holder that it
is subject to backup withholding. Certain exempt persons generally are excluded
from these information reporting and backup withholding rules. Backup
withholding is not an additional tax. Any amounts withheld under the U.S. backup
withholding rules will be allowed as a credit against a U.S. Holder's U.S.
federal income tax liability, if any, or will be refunded, if such U.S. Holder
furnishes required information to the IRS in a timely manner. Each U.S. Holder
should consult its own tax advisor regarding the information reporting and
backup withholding rules.
F.
|
DIVIDENDS AND PAYING
AGENTS
|
Not applicable.
Not applicable.
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Form 20-F Annual Report
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Exhibits attached to this Form 20-F are also available for
viewing on EDGAR, or at the offices of Northern Dynasty, Suite 1500 1040 West
Georgia Street, Vancouver, British Columbia V6E 4H1 or on request of Northern
Dynasty at 604-684-6365, attention: Corporate Secretary. Copies of Northern
Dynasty's financial statements and other continuous disclosure documents
required under the British Columbia Securities Act are available for viewing on
the internet at
www.sedar.com
.
I.
|
SUBSIDIARY INFORMATION
|
Not applicable.
ITEM 11
|
QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
A.
|
TRANSACTION RISK AND CURRENCY RISK
MANAGEMENT
|
Northern Dynasty's operations do not employ financial
instruments or derivatives which are market sensitive.
B.
|
EXCHANGE RATE SENSITIVITY
|
Northern Dynasty's administrative operations are in Canada. The
Company typically holds most of its funds in US and Canadian Dollars and
typically acquires foreign currency on an as-needed basis.
The Company is subject to both currency transaction risk and
currency translation risk: the Pebble Partnership and U5 Resources Inc. both
have the US dollar as functional currency; and certain of the Companys
corporate expenses are incurred in US dollars. The Companys operating results
and financial position are reported in Canadian dollars. The fluctuation of the
US dollar in relation to the Canadian dollar will consequently have an impact
upon the losses incurred by the Company as well as the value of the Companys
assets and total shareholders equity. The Company has not entered into any
agreements or purchased any instruments to hedge possible currency risks at this
time.
There has been no change in the Companys objectives and
policies for managing this risk, except for the changes in the carrying amounts
of the financial assets exposed to foreign exchange risk, and there was no
significant change to the Companys exposure to foreign exchange risk during the
year ended December 31, 2015.
The exposure of the Company's US dollar denominated financial
assets and liabilities to foreign exchange risk is as follows, expressed in
thousands of Canadian dollars:
|
|
December 31
|
|
|
December 31
|
|
|
|
2015
|
|
|
2014
|
|
Financial assets:
|
|
|
|
|
|
|
Amounts receivable
|
$
|
595
|
|
$
|
635
|
|
Cash
and cash equivalents and restricted cash
|
|
6,408
|
|
|
1,758
|
|
|
|
7,003
|
|
|
2,393
|
|
Financial liabilities: Trade and other payables
|
|
(1,529
|
)
|
|
5,225
|
|
Net
financial assets (liabilities) exposed to foreign currency risk
|
$
|
5,474
|
|
$
|
(2,832
|
)
|
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Form 20-F Annual Report
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A 10% depreciation of the Canadian dollar relative to the
United States dollar at December 31, 2015 would result in a gain of
approximately $502 in the year (2014 - $283 loss). This analysis assumes that
all other variables, in particular interest rates, remain constant.
C.
|
INTEREST RATE RISK AND EQUITY PRICE
RISK
|
The Company is subject to interest rate risk with respect to
its investments in cash and cash equivalents. There has been no change in the
Companys objectives and policies for managing this risk and no significant
change to the Companys exposure to interest rate risk during the year ended
December 31, 2015.
Assuming that all variables remain constant, a 100 basis points
change in a decrease or increase in interest rates would have resulted in a
decrease or increase in interest income of approximately $85,000 (2014 -
$176,000).
While the value of the Companys core mineral resource
property, held through its interest in the Pebble Partnership, is related to the
price of gold, copper and molybdenum and the outlook for these minerals, the
Company currently does not have any operating mines and hence does not have any
hedging or other commodity based risks in respect of its operational
activities.
Copper, gold, molybdenum and silver prices have fluctuated
widely historically and are affected by numerous factors outside of the
Company's control, including, but not limited to, industrial and retail demand,
central bank lending, forward sales by producers and speculators, levels of
worldwide production, short-term changes in supply and demand because of
speculative hedging activities, and certain other factors related specifically
to gold.
ITEM 12
|
DESCRIPTION OF
SECURITIES OTHER THAN EQUITY SECURITIES
|
Not applicable.
Available-for-sale ("AFS") financial
assets are non-derivatives that are either designated as AFS or are not
classified as (i) loans and receivables, (ii) held-to-maturity investments or
(iii) financial assets at fair value through profit or loss. The Groups
investments in marketable securities are classified as AFS financial assets.
Subsequent to initial recognition, they are measured at fair value and changes
therein, other than impairment losses, are recognized in other comprehensive
income or loss and accumulated in the investment revaluation reserve within
equity. When an investment is derecognized, the cumulative gain or loss in the
investment revaluation reserve is transferred to profit or loss.
The fair value of AFS monetary assets
denominated in a foreign currency is determined in that foreign currency and
translated at the spot rate at the end of the reporting period. The change in
fair value attributable to translation differences that result from the
amortized cost of the monetary asset is recognized within other comprehensive
income or loss. The change in fair value of AFS equity investments is recognized
in other comprehensive income or loss.
Loans and receivables are financial
assets with fixed or determinable payments that are not quoted in an active
market. Such assets are initially recognized at fair value plus any directly
attributable transaction costs. Subsequent to initial recognition, loans and
receivables are measured at amortized cost using the effective interest method,
less any impairment losses.
Loans and receivables consist of cash
and cash equivalents, restricted cash (note 7), and amounts receivable (note 6).
Cash and cash equivalents and
restricted cash in the statements of financial position are comprised of cash
and highly liquid investments having maturity dates of three months or less from
the date of purchase, which are readily convertible into known amounts of cash.
The Groups cash and cash equivalents
and restricted cash are invested in business and savings accounts and guaranteed
investment certificates at major financial institutions and are available on
demand by the Group for its programs and, as such, are subject to an
insignificant risk of change in value.
The Groups non-derivative financial
liabilities comprise trade and other payables (note 10) and a payable to a
related party (note 9(b)).
All financial liabilities fall within
the classification of other financial liabilities versus financial liabilities
through profit or loss, and are recognized initially at fair value net of any
directly attributable transaction costs. Subsequent to initial recognition these
financial liabilities are measured at amortized cost using the effective
interest method.
When an AFS financial asset is
considered to be impaired, cumulative gains or losses previously recognized in
other comprehensive income or loss are reclassified to profit or loss in the
period. Financial assets are assessed for indicators of impairment at the end of
each reporting period. Financial assets are impaired when there is objective
evidence that, as a result of one or more events that occurred after the initial
recognition of the financial assets, the estimated future cash flows of the
investments have been impacted. For marketable securities classified as AFS, a
significant or prolonged decline in the fair value of the securities below their
cost is considered to be objective evidence of impairment.
For all other financial assets,
objective evidence of impairment could include:
For certain categories of financial
assets, such as amounts receivable, assets that are assessed not to be impaired
individually are subsequently assessed for impairment on a collective basis. The
carrying amount of financial assets is reduced by the impairment loss directly for all
financial assets with the exception of amounts receivable, where the carrying
amount is reduced through the use of an allowance account. When an amount
receivable is considered uncollectible, it is written off against the allowance
account. Subsequent recoveries of amounts previously written off are credited
against the allowance account. Changes in the carrying amount of the allowance
account are recognized in profit or loss.
Mineral property acquisition and
development costs are not currently depreciated as the Pebble Project is still
in the development stage and no saleable minerals are being produced.
The fair value is measured at grant
date for each tranche, which is expensed on a straight line basis over the
vesting period, with a corresponding increase in the
equity-settled
share-based payments reserve
in equity. The fair value of the share purchase
options granted is measured using the Black-Scholes option pricing model, taking
into account the terms and conditions upon which the share purchase options were
granted and forfeiture rates as appropriate. At the end of each reporting
period, the amount recognized as an expense is adjusted to reflect the actual
number of share purchase options that are expected to vest.
Income tax on the profit or loss for
the years presented comprises current and deferred tax. Income tax is recognized
in profit or loss except to the extent that it relates to items recognized in
other comprehensive income or loss or directly in equity, in which case it is
recognized in other comprehensive income or loss or equity.
Current tax expense is the expected tax
payable on the taxable income for the year, using tax rates enacted or
substantively enacted at year end, adjusted for amendments to tax payable with
regard to previous years.
Deferred tax is provided using the
balance sheet liability method, providing for unused tax loss carry forwards and
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation purposes. The
following temporary differences are not provided for: goodwill not deductible
for tax purposes; the initial recognition of assets or liabilities that affect
neither accounting nor taxable profit; and differences relating to investments
in subsidiaries, associates, and joint ventures to the extent that they will
probably not reverse in the foreseeable future. The amount of deferred tax
provided is based on the expected manner of realization or settlement of the
carrying amount of assets and liabilities, using tax rates enacted or
substantively enacted at the end of the reporting period applicable to the
period of expected realization or settlement.
A deferred tax asset is recognized only
to the extent that it is probable that future taxable profits will be available
against which the asset can be utilized.
Additional income taxes that arise from
the distribution of dividends are recognized at the same time as the liability
to pay the related dividend.
Deferred tax assets and liabilities are
offset when there is a legally enforceable right to set off current tax assets
against current tax liabilities and when they relate to income taxes levied by
the same taxation authority and the Group intends to settle its current tax
assets and liabilities on a net basis.
The Group has not early adopted these
revised standards and amendments and is currently assessing the impact, if any,
that these amendments will have on the Groups Financial Statements. The annual
improvements has amendments to four standards and anticipates the amendments
will have no material effect on the Groups consolidated financial statements.
The Group is currently evaluating the
impact that IFRS 15 may have on its financial statements.
The Group anticipates that the adoption
of IFRS 9 will have no material impact on its financial statements given the
extent of its current use of financial instruments in the ordinary course of
business.
The fair value of financial assets and
liabilities as a result of the acquisition of Cannon Point has been allocated to
the common shares and share purchase options/warrants issued in proportion to
their relative fair values determined as follows:
Pursuant to the Mission Gold
Arrangement, Mission Gold provided the Company with a credit facility of $8.4
million (the "Mission Gold Credit Facility") with a 6-month term at an interest
rate of 15% per annum. The Group however, only drew down $2 million of the
Mission Gold Credit Facility before the acquisition of Mission Gold was
completed. The Group accrued $41 in interest on the $2 million from the Mission
Gold Credit Facility up to the date of the acquisition.
As of the date of acquisition, Mission
Gold did not meet the definition of a business under IFRS 3. The Company has
accounted for the acquisition of Mission Gold as issuance of its equity for cash
and cash equivalents and other financial assets, net of financial liabilities,
under IAS 39 and
IAS 32
.
The following are the assets and
liabilities of Mission Gold acquired and consideration provided by the
Group:
The fair value of financial assets and
liabilities as a result of the acquisition of Mission Gold has been allocated to
the common shares and share purchase warrants issued in proportion to their
relative fair values determined as follows:
The Company incurred $284 in
transaction costs relating to the acquisition of Mission Gold and recorded it
within equity.
The Pebble Project comprises of a
contiguous block of 2,402 mineral claims covering approximately 417 square miles
located in southwest Alaska, 19 miles (30 kilometers) from the villages of
Iliamna and Newhalen, and approximately 200 miles (320 kilometers) southwest of
the city of Anchorage. Mineral rights were acquired by the Group in 2001. In
July 2007, the Group established the Pebble Limited Partnership (the "Pebble
Partnership") to advance the Pebble Project toward the feasibility stage. The
Groups contribution to the Pebble Partnership was the Pebble Project. A
wholly-owned subsidiary of Anglo American plc ("Anglo American") participated in
the Pebble Partnership and provided approximately $595 million (US$573 million)
in funding until its withdrawal in December 2013, when the Group re-acquired a
100% interest in the Pebble Partnership and control of the Pebble Project.
During the year ended December 31,
2014, the Group received claims from Liberty Star Uranium & Metals Corp. and
its subsidiary, Big Chunk Corp. ("Liberty Star") in settlement of amounts
advanced to the arms-length party. These claims form part of the Pebble Project
claims discussed in (a).
The following reconciles the Groups
options outstanding at the beginning and end of the year:
For options granted in 2015, the
weighted average fair value was estimated at $0.28 per option (2014 $0.75) and
was based on the Black-Scholes option pricing model using the following weighted
average assumptions:
The following table summarizes
information about the Groups options outstanding at December 31, 2015:
The following table summarizes
information about the Groups options outstanding at December 31, 2014:
The aggregate value of transactions and
outstanding balances with HDSI were as follows:
Basic loss per share includes the
effect of Special Warrants issued and outstanding during 2014 and 2015. Diluted
loss per share does not include the effect of 1,151,500 share purchase options
and warrants, other than Special Warrants, outstanding as they are anti-dilutive
(i.e. the diluted loss per share would be reduced).