NORTHERN DYNASTY MINERALS LTD

Transcription

NORTHERN DYNASTY MINERALS LTD
FORM 20-F
(Annual and Transition Report (foreign private issuer))
Filed 05/02/16 for the Period Ending 12/31/15
Telephone
CIK
Symbol
SIC Code
Industry
Sector
Fiscal Year
604-684-6365
0001164771
NAK
1040 - Gold And Silver Ores
Integrated Mining
Basic Materials
12/31
http://www.edgar-online.com
© Copyright 2016, EDGAR Online, Inc. All Rights Reserved.
Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR
[X] SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 0-31224
NORTHERN DYNASTY MINERALS LTD.
(Exact name of Registrant as specified in its charter)
BRITISH COLUMBIA, CANADA
(Jurisdiction of incorporation or organization)
15th Floor, 1040 West Georgia Street
Vancouver, British Columbia, Canada, V6E 4H1
(Address of principal executive offices)
Marchand Snyman, Chief Financial Officer
Facsimile No.: 604-684-8092
15th Floor, 1040 West Georgia Street
Vancouver, British Columbia, Canada, V6E 4H1
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of Each Class: Not applicable Name of each exchange on which registered: Not applicable
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Common shares with no par value
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report:
221,939,376 common shares as of December 31, 2015
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
[ ] Yes
[X] No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
[ ] Yes
[X] No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.
[X] Yes
[ ] No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
[ ] Yes
[ ] No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large
accelerated filer" in Rule 12b-2 of the Exchange Act. (check one):
Large accelerated filer [ ]
Accelerated filer [ ]
Non-accelerated filer [X]
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S.GAAP [ ]
International Financial Reporting Standards as issued
by the International Accounting Standards Board [X]
Other [ ]
If "Other" has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:
Item 17 [ ]
Item 18 [ ]
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
[ ] Yes
Form 20-F Annual Report
[X] No
Page|2
TABLEOFCONTENTS
GENERAL
ITEM 1
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
ITEM 2
OFFER STATISTICS AND EXPECTED TIMETABLE
ITEM 3
KEY INFORMATION
ITEM 4
INFORMATION ON THE COMPANY
ITEM 4A
UNRESOLVED STAFF COMMENTS
ITEM 5
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
ITEM 6
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
ITEM 7
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
ITEM 8
FINANCIAL INFORMATION
ITEM 9
THE OFFER AND LISTING
ITEM 10
ADDITIONAL INFORMATION
ITEM 11
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 12
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
ITEM 13
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
ITEM 14
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
ITEM 15
CONTROLS AND PROCEDURES
ITEM 16
[RESERVED]
ITEM 16A
AUDIT COMMITTEE FINANCIAL EXPERT
ITEM 16B
CODE OF ETHICS
ITEM 16C
PRINCIPAL ACCOUNTANT FEES AND SERVICES
ITEM 16D
EXEMPTIONS FROM LISTING STANDARDS FOR AUDIT COMMITTEES
ITEM 16E
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
ITEM 16F
CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT
ITEM 16G
CORPORATE GOVERNANCE
ITEM 16H
MINE SAFETY DISCLOSURE
ITEM 17
FINANCIAL STATEMENTS
ITEM 18
ITEM 19
EXHIBITS
INDEX TO FINANCIAL STATEMENTS
4
11
11
11
19
42
42
51
83
87
92
93
113
114
114
114
114
116
116
116
117
117
118
118
118
119
119
119
119
122
Page|3
GENERAL
In this Annual Report on Form 20-F, all references to "we", "Northern Dynasty" or the "Company" refer to Northern Dynasty Minerals Ltd.
The Company uses the Canadian Dollar as its reporting currency. All references in this document to "Dollars" or "$" are expressed in Canadian Dollars ("CAD",
"C$"), unless otherwise indicated. See also Item 3 – Key Information for more detailed currency and conversion information.
Except as noted, the information set forth in this Annual Report is as of April 29, 2016 and all information included in this document should only be considered
correct as of such date.
GLOSSARY OF TERMS
Certain terms used herein are defined as follows:
Alkalic
Igneous rock containing a relatively high percentage of sodium and potassium feldspar; alteration can also introduce alkali minerals.
Argillic
Hydrothermal alteration of wall rock which forms clay minerals including kaolinite, smectite, illite and other species.
CuEQ
Copper Equivalent.
Comminution
Reduction of solid materials from one average particle size to a smaller average particle size by crushing, grinding, cutting, vibrating, or
other means.
Deportment
Assessment of how minerals contribute to grade, as each mineral is likely to behave differently to comminution, flotation or leaching.
Diorite
Grey to dark-grey igneous intrusive rock of intermediate composition, composed principally of plagioclase feldspar along with biotite,
hornblende and/or pyroxene.
Geometallurgy
Practice of combining geology and/or geostatistics with metallurgy.
Graben
Down-dropped block of land bordered by parallel faults.
Granodiorite
Medium- to coarse-grained acid igneous rock with quartz (>20%), plagioclase and alkali feldspar, commonly with minor hornblende
and/or biotite.
HDGI
Is a reference to Hunter Dickinson Group Inc. (now renamed 3537137 Canada Inc.) which is the related party corporation which
originally held the options to the Pebble Project, and which was acquired by the Company in fiscal 2006.
Hypogene
Processes below the earth's surface which, in mineral deposits, result in precipitation of primary minerals like sulphides.
Hydrothermal mineral
Any concentration of metallic minerals formed by the precipitation of solids from
deposit
hot waters (hydrothermal solution). The solutions may be sourced from a magma or from deeply circulating water heated by magma.
Intrusion
Medium to coarse grained igneous bodies which crystallized at depth within the
(batholith, dyke,
pluton)
Earth's crust. Large intrusive bodies are called batholiths; smaller bodies are plutons and linear bodies are dykes.
Leached Cap
Rock which originally contained mineralization that was subsequently removed due to weathering processes.
Locked Cycle Test
A repetitive batch flotation test used in mineral processing laboratories while developing a metallurgical flowsheet.
Page|4
Elements
Au - Gold; Ag - Silver; Al - Aluminum; Cu - Copper; Fe - Iron; Mo - Molybdenum; Na - Sodium; O - Oxygen; Pb - Lead; S - Sulphur;
Zn - Zinc.
Monzonite
Igneous intrusive rock with approximately equal amounts of plagioclase and alkali feldspar, and less than 5% quartz by volume.
National Instrument
43-101 ("NI 43-101")
The Canadian securities rule which establishes disclosure standards for mineral projects of Canadian resource companies.
Kriging
A method of estimation of a variable value (such as metal grade) at an unmeasured location from measured values, weighted by distance
and orientation, at nearby locations.
Porphyry deposit
A type of mineral deposit genetically related to igneous intrusions in which ore minerals are widely distributed, generally of low grade
but commonly of large tonnage.
Potassic
Hydrothermal alteration which results in the production of potassium-bearing minerals such as biotite, muscovite or sericite, and/or
orthoclase.
Pyrophyllite
Aluminosilicate hydroxide mineral that forms as a result of hydrothermal alteration or low grade metamorphism.
Sodic
In this report, refers to a type of hydrothermal alteration that contains sodium-bearing minerals, most commonly albite feldspar.
Subduction
Process by which one tectonic plate moves under another tectonic plate.
Supergene
Refers to processes which occur relatively near the surface of the earth which modify or destroy original (hypogene) minerals by
oxidation and chemical weathering.
Superterrane
A group of physically connected and related geological terranes (group of related rock units).
CURRENCY AND MEASUREMENT
All currency amounts in this Annual Report are stated in Canadian Dollars unless otherwise indicated. Approximate conversion of metric units into imperial
equivalents is as follows:
Metric Units
Multiply by
Imperial Units
hectares
2.471
= acres
meters
3.281
= feet
kilometers
3281
= feet
kilometers
0.621
= miles
grams
0.032
= ounces (troy)
tonnes
1.102
= tons (short) (2,000 pounds)
grams/tonne
0.029
= ounces (troy)/ton
RESOURCE CATEGORY (CLASSIFICATION) DEFINITIONS
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:
Page|5
Mineral
Resource
A concentration or occurrence of solid material of economic interest in or on the Earth’s crust in such form, grade or quality and quantity that
there are reasonable prospects for eventual economic extraction. The location, quantity, grade or quality, continuity and other geological
characteristics of a Mineral Resource are known, estimated or interpreted from specific geological evidence and knowledge, including sampling.
Inferred
Mineral
Resource
That part of a Mineral Resource for which quantity and grade or quality are estimated on the basis of limited geological evidence and sampling.
Geological evidence is sufficient to imply but not verify geological and grade or quality continuity. It has a lower level of confidence than that
applying to an Indicated Mineral Resource and must not be converted to a Mineral Reserve. It is reasonably expected that the majority of Inferred
Mineral Resources could be upgraded to Indicated Mineral Resources with continued exploration.
Indicated
Mineral
Resource
That part of a Mineral Resource for which quantity, grade or quality, densities, shape and physical characteristics are estimated with sufficient
confidence to allow the application of Modifying Factors in sufficient detail to support mine planning and evaluation of the economic viability of
the deposit. Geological evidence is derived from adequately detailed and reliable exploration, sampling and testing and is sufficient to assume
geological and grade or quality continuity between points of observation. It has a lower level of confidence than that applying to a Measured
Mineral Resource and may only be converted to a Probable Mineral Reserve.
Measured
Mineral
Resource
That part of a Mineral Resource for which quantity, grade or quality, densities, shape, and physical characteristics are estimated with confidence
sufficient to allow the application of Modifying Factors to support detailed mine planning and final evaluation of the economic viability of the
deposit. Geological evidence is derived from detailed and reliable exploration, sampling and testing and is sufficient to confirm geological and
grade or quality continuity between points of observation. It has a higher level of confidence than that applying to either an Indicated Mineral
Resource or an Inferred Mineral Resource. It may be converted to a Proven Mineral Reserve or to a Probable Mineral Reserve.
Page|6
Mineral
Reserve
The economically mineable part of a Measured and/or Indicated Mineral Resource. It includes diluting materials and allowances for losses, which
may occur when the material is mined or extracted and is defined by studies at Pre-Feasibility or Feasibility level as appropriate that include
application of Modifying Factors, which are considerations used to convert Mineral Resources to Mineral Reserves and include, but are not
restricted to, mining, processing, metallurgical, infrastructure, economic, marketing, legal, environmental, social and governmental factors. Such
studies demonstrate that, at the time of reporting, extraction could reasonably be justified. The reference point at which Mineral Reserves are
defined, usually the point where the ore is delivered to the processing plant, must be stated. It is important that, in all situations where the
reference point is different, such as for a saleable product, a clarifying statement is included to ensure that the reader is fully informed as to what
is being reported. The public disclosure of a Mineral Reserve must be demonstrated by a Pre-Feasibility Study or Feasibility Study.
Probable
Mineral
Reserve
The economically mineable part of an Indicated, and in some circumstances, a Measured Mineral Resource. The confidence in the Modifying
Factors applying to a Probable Mineral Reserve is lower than that applying to a Proven Mineral Reserve.
Proven
Mineral
Reserve
The economically mineable part of a Measured Mineral Resource. A Proven Mineral Reserve implies a high degree of confidence in the
Modifying Factors.
CAUTIONARY NOTES TO UNITED STATES INVESTORS CONCERNING MINERAL RESERVE AND RESOURCE ESTIMATES
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.
Page|7
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.
FORWARD LOOKING STATEMENTS
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:
•
the outcome of our multi-dimensional strategy to address the Environmental Protection Agency’s pre- emptive regulatory process under Section 404(c) of
the Clean Water Act and prepare the Pebble Project to initiate federal and state permitting under the National Environmental Policy Act ("MultiDimensional Strategy");
•
the outcome of legal proceedings in which we are engaged;
•
our expectations regarding the potential for permitting of a mine at the Pebble Project;
•
our expected financial performance in future periods;
•
our plan of operations, including our plans to carry out and finance the Multi-Dimensional Strategy activities, exploration and development activities and
legal proceedings;
•
our ability to raise capital to fund the Multi-Dimensional Strategy activities, exploration and development activities and operational costs;
•
our expectations regarding the exploration and development potential of the Pebble Project; and
•
factors relating to our investment decisions.
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 Company’s forward-looking information are based include:
•
that we will be able to secure sufficient capital necessary for the Multi-dimensional Strategy activities, litigation, continued environmental assessment and
permitting activities and engineering work which must be completed prior to any potential development of the Pebble Project which would then require
engineering and financing in order to advance to ultimate construction;
•
that the Company will ultimately be able to demonstrate that a mine at the Pebble Project can be developed and operated in an environmentally sound and
socially responsible manner, meeting all relevant federal, state and local regulatory requirements so that we will be ultimately able to obtain permits
authorizing construction of a mine at the Pebble Project;
Page|8
•
that the market prices of copper, gold, molybdenum and silver will not further significantly decline or stay depressed for a lengthy period of time;
•
that key personnel will continue their employment with us; and
•
that we will continue to be able to secure minimal adequate financing on acceptable terms.
•
Readers are cautioned that the foregoing list is not exhaustive of all factors and assumptions which may have been used. Forward looking statements are
also subject to the Risk Factor facing the business, any of which could have a material impact on our outlook.
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:
•
a negative outcome of the Multi-Dimensional Strategy, or other legal and political challenges with which we are engaged regarding the Pebble Project,
which would have a material adverse effect on the Company;
•
an inability to obtain permitting for a mine at the Pebble Project;
•
an inability to continue to fund the exploration and development activities and other operating costs;
•
the highly cyclical nature of the mineral resource exploration business;
•
the pre-development stage economic and technical uncertainties of the Pebble Project and the lack of known reserves on the Pebble Project;
•
an inability to establish that the Pebble Project contains commercially viable deposits of ore;
•
an inability to recover the financial statement carrying values of the Pebble Project if the Company ceases to continue on a going concern basis;
•
the potential for loss of the services of key executive officers;
•
a history of, and expectation of further, financial losses from operations impacting our ability to continue on a going concern basis;
•
the volatility of copper, gold, molybdenum and silver prices and mining share prices;
•
the inherent risk involved in the exploration, development and production of minerals, and the presence of unknown geological and other physical and
environmental hazards at the Pebble Project;
•
the potential for changes in, or the introduction of new, government regulations relating to mining, including laws and regulations relating to the protection
of the environment and project legal titles;
•
potential claims by third parties to titles or rights involving the Pebble Project;
•
the possible inability to insure our operations against all risks;
•
the highly competitive nature of the mining business;
•
the potential equity dilution to current shareholders from future equity financings is currently uncertain; and
Page|9
•
that we have never paid dividends and will not do so in the foreseeable future.
This list is not exhaustive of the factors that may affect any of the Company’s 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.
STATUS AS AN EMERGING GROWTH COMPANY
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:
(a)
the last day of the fiscal year during which the Company has total annual gross revenues of US$1,000,000,000 (as such amount is indexed for inflation
every 5 years by the SEC) or more;
(b)
the last day of the Company's fiscal year following the fifth anniversary of the date of the first sale of common equity securities pursuant to an effective
registration statement under the Securities Act;
(c)
the date on which the Company has, during the previous 3-year period, issued more than US$1,000,000,000 in non-convertible debt; or
(d)
the date on which the Company is deemed to be a "large accelerated filer", as defined in Exchange Act Rule 12b–2.
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.
P a g e | 10
ITEM 1
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
Not applicable for an Annual Report.
ITEM 2
OFFER STATISTICS AND EXPECTED TIMETABLE
ITEM 3
A.
KEY INFORMATION
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
($ 000’s)
Mineral property, plant and equipment, net
Total assets
Total liabilities
Working capital
Share capital
Reserves
Accumulated deficit
Net assets
Shareholders' equity
$
2015
147,088 $
157,704
2,724
7,892
435,069
99,035
(379,124)
154,980
154,980
2014
123,608 $
135,510
7,547
5,869
389,227
84,031
(345,295)
127,963
127,963
2013
108,050 $
141,784
7,856
29,681
389,227
58,649
(313,948)
133,928
133,928
2012
1,055 $
132,934
4,041
32,134
389,189
51,129
(311,425)
128,893
128,893
2011
1,055
145,241
3,885
42,474
388,987
48,132
(295,763)
141,356
141,356
P a g e | 11
Statements of Comprehensive Loss (Income) Data
($ 000’s, except per share amounts and number of shares)
Interest and other income
Exploration expenditures
General and administrative expenses (1)(2)
Legal, accounting and audit (1)
Share-based payments
Other
Gain on discontinuance of equity method
Deferred income tax
Net loss for the year
Other comprehensive (income) loss
Total comprehensive loss (income)
Basic and diluted net loss per share
Weighted average number of common shares outstanding
$
$
2015
(313) $
8,718
8,272
17,001
903
762
–
(1,514)
33,829
(23,187)
10,642
0.23
146,313,397
$
2014
(281) $
12,877
9,059
8,325
3,877
(221)
–
(2,289)
31,347
(9,953)
21,394
0.33
95,009,864
$
2013
(1,136) $
1,991
5,970
275
641
(340)
(5,062)
184
2,523
(6,887)
(4,364)
0.03
95,007,374
$
2012
(887) $
4,461
6,525
255
5,225
83
–
–
15,662
2,123
17,785
0.16
94,995,127
$
2011
(944)
819
5,840
328
14,205
(58)
–
(51)
20,139
(2,153)
17,986
0.21
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 EPA’s 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
Conference and travel
Consulting
Donations
Insurance
Office costs
Management and administration
Shareholder communication
Trust and filing
$
2015
369
232
–
398
1,188
5,009
759
317
8,272
$
2014
323
782
–
384
1,964
4,610
772
224
9,059
$
2013
340
836
–
342
670
2,572
983
227
5,970
$
2012
566
1,761
–
343
702
2,095
830
228
6,525
$
2011
525
–
866
296
980
2,334
517
322
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.
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.
2015
$1.3840
$1.2787
$1.3990
$1.1728
Rate at end of year
Average rate for year
High for year
Low for year
Year Ended December 31 (Canadian Dollars per U.S. Dollar)
2014
2013
2012
$1.1601
$0.9402
$1.0051
$1.1046
$0.9711
$1.0004
$1.1656
$1.0165
$1.0299
$1.0639
$0.9342
$0.9599
2011
$0.9833
$1.0110
$1.0583
$0.9430
Monthly High and Low Exchange Rate (Canadian Dollar per U.S. Dollar)
Month or Period
April 2016 (to April 18, 2016)
March 2016
February 2016
January 2016
December 2015
November 2015
B.
High
$1.3170
$1.3468
$1.4040
$1.4589
$1.3990
$1.3360
Low
$1.2792
$1.2962
$1.3523
$1.3969
$1.3360
$1.3095
CAPITALIZATION AND INDEBTEDNESS
C.
REASONS FOR THE OFFER AND USE OF PROCEEDS
D.
RISK FACTORS
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 Dynasty’s 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.
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The Company will be required to seek additional capital; the Company’s 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 Company’s 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 Company’s 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.
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 Dynasty’s 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 Partnership’s 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.
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 Dynasty’s 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 Dynasty’s 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 Dynasty’s 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 Dynasty’s common shares and reduce its
ability to obtain new financing.
The Pebble Project is, through the Pebble Partnership, Northern Dynasty’s principal mineral property interest. Northern Dynasty’s 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 Dynasty’s 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 Dynasty’s 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
P a g e | 16
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 project’s 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 Dynasty’s 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 .
P a g e | 17
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
Dynasty’s operating expenses which could, in turn, have a material adverse effect on Northern Dynasty’s 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 Dynasty’s operating expenses.
The market price of Northern Dynasty’s 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
Company’s common shares suggests Northern Dynasty’s shares will continue to be volatile. Therefore, investors could suffer significant losses if Northern
Dynasty’s 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 Dynasty’s plan of operations may be
delayed or be more expensive to undertake than anticipated.
Northern Dynasty’s 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.
P a g e | 18
ITEM 4
A.
INFORMATION ON THE COMPANY
HISTORY AND DEVELOPMENT OF THE COMPANY
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) 6846365, facsimile (604) 684-8092. The Company’s 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 Company’s 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 American’s 50% ownership interest in the Pebble Partnership on the latter’s
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.
P a g e | 19
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
American’s 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 American’s 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 Tinto’s indirect ownership in Northern
Dynasty to approximately 19.8% . In early 2014, this holding represented approximately 19.1% of Northern Dynasty’s outstanding and issued common shares. Rio
Tinto plc divested of its shares in April 2014.
P a g e | 20
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.
B.
THE PEBBLE PROJECT
The Company’s 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.
P a g e | 21
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.
P a g e | 22
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 American’s 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 Dynasty’s 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 whollyowned 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 FMMUSA’s 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 whollyowned 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.
P a g e | 23
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 Company’s profile at www.sedar.com and as a Form 6-K on the Company’s 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.
P a g e | 24
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.
P a g e | 25
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.
P a g e | 26
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.
P a g e | 27
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.
P a g e | 28
•
in 2004, 147 exploration holes were drilled in the Pebble deposit; the Pebble East zone is identified; the 308 Zone porphyry copper-goldmolybdenum 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.
P a g e | 29
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
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
7
5,450.0
1,661
1,355
1,042,218.2
317,668
1,132
1,023,297.6
311,901
223
18,920.6
5,767
1,355
1,042,218.2
317,668
By Operator
FMMUSA
Total
By Type
Core 1,5
Percussion 6
Total
P a g e | 30
No. of
Holes
Feet
Metres
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
By Year
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
P a g e | 31
No. of
Holes
Feet
Metres
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
By Area
308 Zone
1
879.0
268
21
3,105.0
946
153
60,442.4
18,423
SW
51
9,337.8
2,846
Sill
39
10,445.5
3,184
8
909.5
277
1,355
1,042,218.2
317,668
Eastern
Southern
Cook Inlet
Total
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.
P a g e | 32
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.
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%
90%
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.
P a g e | 33
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
P a g e | 34
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$12.50/lb for molybdenum, and recoveries of 85% for copper
69.6% for gold, and 77.8% for molybdenum in the Pebble West zone and 89.3% for copper, 76.8% for gold, and 83.7% for molybdenum in the Pebble East zone.
A 0.30% CuEQ cut-off is considered to be comparable to that used for porphyry deposit open pit mining operations in the Americas.
The resource estimate is constrained by a conceptual pit that was developed using a Lerchs-Grossman algorithm and is based on the parameters set out below:
Parameter
Metal Price
Metal Recovery
Operating Cost
Units
Cost ($)
Value
Gold
US$/oz
-
1540.00
Copper
US$/lb
-
3.63
Molybdenum
US$/lb
-
12.36
Copper
%
-
89
Gold
%
-
72
Molybdenum
%
-
82
Mining (mineralized material or waste)
$/ton mined
1.01
-
Added haul lift from depth
$/ton/bench
0.03
-
– 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
-
Process
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.
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 goldbearing 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.
P a g e | 36
Table 5 Projected Metallurgical Recoveries 1 – Pebble Project
Flotation Recovery to Concentrate 2
Cu Con
Domain
Gold Plant Recovery 3
Mo Con
SART
Overall Recovery
Dore
Cu
%
Au
%
Ag
%
Mo
%
Cu
%
Au
%
Ag
%
Cu
%
Au
%
Ag
%
Mo
%
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
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
31.6
64.1
82.5
2.1
32.1
6.0
88.1
63.7
70.2
82.5
Supergene:
Hypogene:
QSP
86.0
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.
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;
P a g e | 38
•
Marine environment: minimize the port facility’s 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 Company’s plans for 2016 listed below are subject to the Company’s ability to raise the necessary capital resources to meet obligations as they come due.
•
Continue to advance a multi-dimensional strategy to address the EPA’s 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.
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.
P a g e | 40
C.
ORGANIZATIONAL STRUCTURE
Structure as at December 31, 2015:
P a g e | 41
D.
PROPERTY, PLANT AND EQUIPMENT
The Company’s 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:
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.
A.
RESULTS OF OPERATIONS
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.
Excerpts from Statements of Financial Position
Total assets
Total non-current liabilities (non-financial)
Total current liabilities
Excerpts from Statements of Comprehensive Loss (Income)
Exploration and evaluation
General and administrative
Legal, accounting and audit
Share-based compensation
Other items (i)
Gain on discontinuance of equity method (ii)
Loss for the year
Basic and diluted loss per common share
Weighted average number of common shares outstanding (‘000’)
$
$
$
$
Fiscal Year
2015
157,704
–
2,724
$
8,718 $
8,272
17,001
903
(1,065)
–
33,829 $
0.23
146,313
$
Fiscal Year
2014
135,510
1,514
6,033
$
Fiscal Year
2013
141,784
3,803
4,053
12,877 $
9,059
8,325
3,877
(2,791)
–
31,347 $
1,991
5,970
275
641
(1,292)
(5,062)
2,523
0.33
95,010
0.03
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.
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 EPA’s 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")
Engineering
Environmental
Site activities
Socio-economic
Property fees and assessments
Other activities and travel
$
$
2015
224
907
2,176
3,963
1,276
172
8,718
$
$
2014
1,440
2,322
3,200
4,324
1,097
494
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")
Consulting
Insurance
Office costs
Trust and filing
Total G&A
$
$
2015
369
232
398
1,188
5,009
759
317
8,272
17,001
25,273
$
$
2014
323
782
384
1,964
4,610
772
224
9,059
8,325
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.
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 Company’s reporting currency.
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
Engineering
Environmental planning and testing
Site activities
Socio-economic
Other activities and travel
$
$
2014
1,440
2,322
4,297
4,324
494
12,877
$
$
2013
853
270
401
26
441
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 American’s 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 Partnership’s 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 EPA’s 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:
P a g e | 45
G&A
Consulting
Insurance
Office costs
Trust and filing
Total G&A
Total
$
$
2014
323
782
384
1,964
4,610
772
224
9,059
8,325
17,384
$
$
2013
340
836
342
670
2,572
983
227
5,970
275
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 Company’s operating activities as discussed
above. The source of cash and cash equivalents during 2014 included the Company’s cash resources and cash received from the issue of special warrants in a
private placement late in December 2014.
Total assets decreased by $6.3 million to $135.5 million. This decrease was due mainly to the utilization of the Company’s cash and cash equivalents in its
operating activities.
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 Company’s 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
EPA’s 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:
P a g e | 46
G&A
Consulting
Insurance
Office costs
Trust and filing
Total G&A
Total
$
$
2013
340
836
342
670
2,572
983
227
5,970
275
6,245
$
$
2012
566
1,761
343
702
2,095
830
228
6,525
255
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 Company’s 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 Company’s 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).
The Company’s 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).
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 American’s 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 Company’s 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.
P a g e | 48
Capital Resources
The Company’s 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 shortterm 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.
C.
RESEARCH EXPENDITURES
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.
D.
TREND INFORMATION
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.
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$16.20/oz.
Average annual prices since 2011 as well as the average prices so far in 2016 for copper, gold, molybdenum and silver are shown in the following table:
Copper
US$/lb
4.00
3.61
3.32
3.14
2.49
2.13
Year or Period
2011
2012
2013
2014
2015
2016 (to the date of this Form 20F)
Gold
US$/oz
1,572
1,669
1,410
1,276
1,160
1,191
Average Prices
Molybdenum
US$/lb
15.41
12.81
10.40
11.91
6.73
5,49
Silver
US$/oz
35.25
31.16
23.80
19.08
15.68
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 EPA’s preemptive regulatory action under Section
404(c) of the Clean Water Act, through litigation against the EPA contesting the EPA’s 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 Company’s 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:
Trade and other payables
Payable to a related party
Lease commitments
Total
$
$
Total
2,047
677
608
3,332
$
$
Payments due by period
≤ 1 year
1-5 years
2,047 $
–
677
–
608
–
3,332 $
–
$
$
> 5 years
–
–
–
–
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.
G.
SAFE HARBOR
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
A.
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
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)
1973
Director
December 2015
David E. De Witt (2)(4)
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)
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
1967
Secretary
February 2008
Bruce Jenkins
1950
Senior Vice President, Corporate Development June 2004
Stephen Hodgson
1954
Vice President Engineering
March 2005
P a g e | 51
Name
Year born
Position
Director or Officer Since
Sean Magee North
1966
Vice President Public Affairs
October 2006
Doug Allen
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
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
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
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
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.
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
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
Director
June 1994
Present
Chairman
April 2004
Present
Director
April 1993
Present
Chairman
April 2004
Present
TSX, NYSE MKT
Amarc Resources Ltd.
TSX-V, OTCBB
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
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:
P a g e | 54
Company
Name of Market
Positions Held
From
To
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)
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
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
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
TSX, NYSE MKT
Director
August 2008
February 2016
CFO
August 2008
Present
TSX-V, OTCBB
CFO
January 2008
April 2011
TSX-V
CFO
November 2009
April 2012
TSX
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.
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
TSX, NYSE MKT
TSX-V, OTCBB
Atlatsa Resources Corporation
TSX-V, JSE,
NYSE MKT
TSX-V, OTCBB
Detour Gold Corporation
TSX
Great Basin Gold Ltd.
TSX, NYSE MKT, JSE
TSX-V
TSX, NYSE MKT
Positions Held
From
To
Director
November 1995
Present
President and CEO
November 2001
Present
Director
September 1995
Present
CEO
September 2000
Present
President
September 2000
November 2014
Director
April 1996
June 2011
Director
November 1995
April 2011
Co-Chairman
January 2006
April 2011
Director
July 2006
May 2012
Director
October 1993
June 2013
Chairman
November 2006
June 2013
President, CEO and
Director
December 2011
Present
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
TSX, NYSE MKT
Secretary
February 2008
Present
TSX-V, OTCBB
Secretary
February 2008
Present
TSX-V, OTCBB
Secretary
February 2008
April 2011
Curis Resources Ltd.
TSX
Secretary
June 2013
November 2014
TSX-V
Secretary
June 2013
Present
TSX
Secretary
June 2011
Present
TSX-V
Secretary
June 2013
Present
TSX-V
Secretary
March 2011
Present
Rockwell Diamonds Inc.
TSX, OTCBB, JSE
Secretary
February 2008
September 2012
TSX, NYSE MKT
Secretary
July 2008
Present
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
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.
B.
COMPENSATION
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 $150,000 for that financial
year; and
•
each individual who would be an NEO under paragraph (c) but for the fact that the individual was neither an executive officer of the company, nor acting
in a similar capacity, at December 31, 2015.
The following disclosure sets out the compensation that the Board intended to pay, make payable, award, grant, give or otherwise provide to each NEO and director
for the financial year ended December 31, 2015.
P a g e | 58
The compensation paid to the NEOs during the Company’s three most recently completed financial years ended December 31 is as set out below and expressed in
Canadian dollars unless otherwise noted:
Non-equity incentive
plan compensation ($)
Name and
principal position
Year
Salary
($)
Optionbased
awards
($)
Annual
incentive
plans
($)
Long-term
incentive
plans
($)
Pension
value
($)
All other
compensation
($)
Total
compensation
($)
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 Corporation’s 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 Corporation’s 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
6.
The options were granted in April 2014 pursuant to the Corporation’s share option plan. For compensation purposes, the Black-Scholes option valuation
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
P a g e | 59
7.
8.
9.
10.
11.
The options were granted in September 2014 pursuant to the Corporation’s 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$0.39 per
Mr. Collier was appointed to the position of CEO of the Pebble Limited Partnership on February 1, 2014 and is employed and paid through a subsidiary of
the Company.
Mr. Robertson holds the position of Senior Vice President of Corporate Affairs of the Pebble Limited Partnership and is employed and paid through a
subsidiary of the Company.
A subsidiary of the Company has a 401(k) retirement savings plan for U.S. employees whereby employees are able to contribute a portion of their pay and
receive a dollar for dollar Company match up to 6% of their pay, subject to IRS limitations.
Mr. Collier receives a housing allowance as Mr. Collier’s primary residence is outside of Alaska.
Incentive Plan Awards
Outstanding Share-based Awards and Option-based Awards
The Company currently only has an option-based awards plan and does not have any share based awards plan. The following table sets out the option-based awards
outstanding as at December 31, 2015, for each NEO:
Option-based Awards
Value of
unexercised in-themoney options (1)
($)
Name
Ronald Thiessen
President and CEO
Number of securities
underlying unexercised
options (#)
450,000
480,000
Option
exercise price
($)
0.50
1.77
Option expiration
date
m–d–y
Oct-20-2020 (2)
Feb-26-2019 (3)
Marchand Snyman
CFO
450,000
480,000
0.50
1.77
Oct-20-2020 (2)
Feb-26-2019 (3)
Nil
750,000
0.89
Apr-16-2019 (2)
Nil
125,000
0.89
Apr-16-2019 (2)
Nil
50,000
200,000
100,000
100,000
0.50
0.72
1.77
3.00
Oct-20-2020 (2)
Sep-15-2019 (3)
Feb-26-2019 (3)
Jun-29-2017 (4)
Nil
Nil
Nil
Nil
Thomas Collier
PLP CEO
Peter Robertson
PLP Senior VP Corporate Affairs
Sean Magee
VP Public Affairs
Notes:
1.
2.
3.
4.
Nil
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.
Options were granted during the year ended December 31, 2015.
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
options
28,200
47,000
150,400
220,900
150,400
37,600
18,800
56,400
225,600
9,400
150,400
75,200
37,600
37,600
1,245,500
Exercise Price
$0.37
$0.40
$0.29
$0.37
$0.40
$0.43
$0.37
$0.37
$0.40
$0.37
$0.40
$0.40
$0.37
$0.29
Expiry Date
m-dd-yy
Dec-02-2015
Dec-02-2015
Jan-29-2016
Jan-29-2016
Jan-29-2016
Jan-29-2016
Jul-23-2017
Jun-30-2019
Jun-30-2019
Mar-10-2021
Mar-10-2021
Dec-12-2022
Dec-15-2022
Dec-08-2024
P a g e | 61
Incentive Plan Awards – Value Vested or Earned During the Year
The following table sets out all incentive plans (value vested or earned) during the year ended December 31, 2015, for each NEO:
Option-based awards – Value vested
during the year (1)
($)
Non-equity incentive plan compensation –
Value earned during the year
($)
Ronald Thiessen
President and CEO
Nil
Nil
Marchand Snyman
CFO
Nil
Nil
Thomas C. Collier
PLP CEO
Nil
Nil
Peter Robertson
PLP Senior VP Corporate Affairs
Nil
Nil
Sean Magee
VP Public Affairs
Nil
Nil
Name
Note:
1.
Represents the aggregate dollar value that would have been realized if options under the option-based award had been exercised on the 2014 vesting date
determined by taking the difference between the market price of the shares subject to the option at date of vesting and the exercise price of the option.
Director Compensation
Philosophy and Objectives
The main objective of director compensation is to attract and retain directors with the relevant skills, knowledge and abilities to carry out the Board’s mandate.
P a g e | 62
Director Compensation Table
The compensation provided to the directors, excluding a director who is included in disclosure for an NEO, for the Company’s most recently completed financial
year of December 31, 2015 is:
Name
Desmond Balakrishnan (5)
Fees earned
($)
Share optionbased awards
($) (7)
Non-equity
incentive plan
compensation
($)
Pension
value
($)
All other
compensation
($)
Total
($)
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 director’s 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 Company’s 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 Company’s 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 Corporation’s share option plan. For compensation purposes, the Black-Scholes option valuation
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$0.29 per
8.
Mr. Keep received 197,400 options during the period. These options to acquire NDM shares were issued in exchange for those Cannon Point options
previously held by Mr. Keep on the acquisition of Cannon Point. AS such no value was attributed thereto.
9.
Messrs. Cousens, Fretwell, Hallbauer, Kirk and Mitchell resigned as directors on February 24, 2016.
P a g e | 63
Outstanding Share-based Awards and Option-based Awards
The following table sets out all option-based awards outstanding as at December 31, 2015 (as mentioned previously the Company does not have a share-based
awards plan) for each director, excluding a director who is already set out in disclosure for an NEO for the Company:
Option-based Awards
Name
Scott Cousens (7)
Marcel de Groot (6)
underlying
unexercised options
(#)
Nil
150,000
210,000
Nil
Value of
unexercised in-themoney options (1)
($)
Option exercise
price
($)
Option expiration
date
m–d–y
–
–
0.50
1.77
Oct-20-2020 (2)
–
–
Nil
Feb-26-2019 (3)
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
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.
2.
3.
4.
5.
6.
7.
1,504
1,504
1,504
94
6,768
The value is the difference between the closing price of $0.41 per Common Share on the TSX at December 31, 2014 and the exercise price of options.
Mr. Keep became a director of the Company on October 29, 2015 on completion of the acquisition of Canon Point. Pursuant the acquisition, Mr. Keep’s
Canon Point options were exchanged for options of the Company.
Mr. de Groot became a director of the Company on December 24, 2015 on completion of the acquisition of Mission Gold.
P a g e | 64
Incentive Plan Awards – Value Vested or Earned During the Year
The following table sets out all incentive plans (value vested or earned) during the year ended December 31, 2015, for each director, excluding a director who is
already set out in disclosure for an NEO for the Company:
Option-based awards – Value vested
during the year (1)
($)
Non-equity incentive plan compensation
– Value earned during the year
($)
Nil
Nil
Scott Cousens (5)
Nil
Nil
Marcel de Groot (3)
Nil
Nil
Robert Dickinson
Nil
Nil
Gordon Fretwell (5)
Nil
Nil
Nil
Nil
Gordon Keep (4)
Nil
Nil
Wayne Kirk (5)
Nil
Nil
Peter Mitchell (5)
Nil
Nil
Ken Pickering
Nil
Nil
Name
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.
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. Keep’s
197,400 Canon Point options were exchanged for 197,400 options of the Company. These options were not issued under the Company’s option plan.
5.
COMPENSATION ACTIONS, DECISIONS OR POLICIES MADE AFTER DECEMBER 31, 2015
On February 24, 2016, Messer’s 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 Corporation’s 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.
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 Rusoro’s gold mining assets in Venezuela.
C.
BOARD PRACTICES
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 Company’s 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
Company’s 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 Company’s directors. A copy of the Manual is available for review on the Company’s website
under Corporate Governance at www.northerndynastyminerals.com .
P a g e | 66
Composition of the Board of Directors
Applicable governance policies require that a listed issuer’s board of directors determine the status of each director as independent or not, based on each director’s
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 Company’s 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 director’s 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 Company’s 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 Company’s executive officers served at the same time on that entity’s 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 vicechairman).
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 Board’s 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.
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
Company’s management. The Board is satisfied with the integrity of the Company’s internal control and financial management information systems.
Committees of the Board of Directors
Applicable regulatory governance policies require that (i) the Board’s 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 management’s system of internal controls, (ii) the Audit and Risk
Committee have direct access to the Company’s 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 Company’s 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 Dynasty’s 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 Company’s Corporate Governance Policies and Procedures Manual available on the
Company’s 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 Company’s
profile on SEDAR at www.sedar.com on March 30, 2016 and under the Company’s 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 Company’s website under Corporate Governance, at www.northerndynastyminerals.com .
P a g e | 68
The function of the Compensation Committee includes review, on an annual basis, of the compensation paid to the Company’s executive officers and directors,
review of the performance of the Company’s executive officers and making recommendations on compensation to the Board.
The Compensation Committee administers the Company’s 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 Company’s 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 Company’s website under Corporate
Governance, at www.northerndynastyminerals.com .
The NG Committee has been given the responsibility of developing and recommending to the Board the Company’s 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 reelection to the Board should be based on a particular candidate’s merits, skills and the Company’s needs after taking into account the current composition of the
Board. When evaluating candidates annually for nomination for election, the NG Committee considers each individual’s 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.
P a g e | 69
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 management’s 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
3 of 4
1 of 1
N/A
1 of 1
N/A
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
5 of 5
Gordon Keep (4)
1 of 1
Wayne Kirk (2)(7)
5 of 5
3 of 4
Peter Mitchell (3)(7)
4 of 5
4 of 4
Ken Pickering
4 of 5
Marchand Snyman (7)
5 of 5
Ronald Thiessen
5 of 5
N/A
2 of 2
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.
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3.
4.
5.
6.
7.
Previous Audit and Risk Committee Chairman.
Mr. Keep was appointed to the Board on October 29, 2015. There was one Board meeting thereafter in 2015.
Mr. de Groot was appointed to the Board on December 24, 2015. He is the current Audit and Risk Committee Chair.
Mr. Balakrishnan was appointed to the Board on December 15, 2015.
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 Company’s mineral project(s) and the expectations of directors, or they would receive orientation commensurate with their
previous experience on the Company’s properties, business, technology and industry and the responsibilities of directors. Board meetings generally include
presentations by the Company’s senior management and project staff in order to give the directors full insight into the Company’s 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 Company’s 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 Company’s 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 Company’s governing corporate legislation and the common law and the restrictions placed by applicable corporate
legislation on an individual director’s 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 Board’s 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 Company’s 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.
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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 Company’s Governance Policies and Procedures Manual, is available for download from the Company’s 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 Company’s auditors to discuss the various
aspects of the Company’s 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 Company’s 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 Company’s 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.
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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 Company’s Governance Policies and Procedures Manual, is available for download from the Company’s website at www.northerndynastyminerals.com
and under the Company’s 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.
D.
EMPLOYEES
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 ).
E.
SHARE OWNERSHIP
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.
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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%
2,758,878
1.24%
Ronald Thiessen
Trevor Thomas
10,000
–
Bruce Jenkins
10,000
–
136,000
0.06%
Stephen Hodgson
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
Robert Dickinson
Gordon Keep (1)
Marchand Snyman
Ronald Thiessen
Number of options
480,000
450,000
37,600
37,600
37,600
9,400
56,400
480,000
450,000
480,000
450,000
Exercise price
$1.77
$0.50
0.37
0.37
0.37
0.40
0.29
$1.77
$0.50
$1.77
$0.50
Expiry date
Feb-26,2019
Oct-20-2020
Jun-30-2019
Mar-10-2021
Dec-15-2021
Dec-12-2022
Dec-24-2024
Feb-26,2019
Oct-20-2020
Feb-26,2019
Oct-20-2020
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Name of Insider
Trevor Thomas
Bruce Jenkins
Stephen Hodgson
Sean Magee
Doug Allen
Thomas Collier
Peter Robertson
Note:
(1)
Number of options
75,000
70,000
80,000
100,000
100,000
90,000
100,000
100,000
90,000
100,000
100,000
200,000
50,000
300,000
100,000
100,000
150,000
750,000
125,000
300,000
Exercise price
$3.00
$1.77
$0.50
$3.00
$1.77
$0.50
$3.00
$1.77
$0.50
$3.00
$1.77
$0.72
$0.50
$0.48
$3.00
$1.77
$0.50
$0.89
$0.89
$0.48
Expiry date
Jun-29-2017
Feb-26,2019
Oct-20-2020
Jun-29-2017
Feb-26,2019
Oct-20-2020
Jun-29-2017
Feb-26,2019
Oct-20-2020
Jun-29-2017
Feb-26,2019
Sep-15-2019
Oct-20-2020
Mar-15-2021
Jun-29-2017
Feb-26,2019
Oct-20-2020
Apr-16-2019
Apr-16-2019
Mar-15-2021
Mr. Keep’s options were not issued under the Company’s 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 Company’s 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 nontransferable, 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 Optionee’s 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.
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(d)
(e)
Vesting of options is determined by the Board and subject to the following:
•
where an Optionee has left the Company’s 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 Optionee’s 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 Optionee’s 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;
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 Company’s 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 Company’s 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 Company’s 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.
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(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 Company’s 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 Company’s
other share compensation arrangements currently in effect for their benefit, may not exceed 1% of the Company’s 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)
(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.
The Plan has the following additional restrictions:
(i)
Common Shares to be issued to Insiders under the Plan, when combined with all of the Company’s 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 Company’s 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.
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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 Company’s 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
Company’s 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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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 participant’s 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
Company’s discretion (unless otherwise provided in the applicable Grant Agreement), all or a portion of such participant’s 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:
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(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 Participant’s 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 Participant’s 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 director’s 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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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 equitybased 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 director’s 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 Participant’s “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
P a g e | 81
(g)
any other amendment, fundamental or otherwise, not requiring shareholder approval under applicable laws;
(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 Director’s 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 Director’s 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 Director’s 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 Director’s 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.
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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
remaining available for
future issuance under
equity compensation
plans (excluding securities
reflected in column (a))
(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
–
–
–
9,755,600
$1.27
12,438,338
Plan Category
Total
Notes:
1.
2.
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.
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
A.
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
MAJOR SHAREHOLDERS
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.
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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
TOTALS
60
12,073,643
5.4%
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:
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
Company’s 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 HDI’s 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
Company’s 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.
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 Company’s 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
Services rendered by HDSI
Technical
Engineering
Environmental
Socioeconomic
Other technical services
Management, financial & administration
$
Reimbursement of third party expenses
Conferences and travel
Insurance
Office supplies and other
Sale of marketable securities to HDSI
Total
2015
4,680
1,600
140
580
670
210
3,080
2,420
660
$
610
160
60
390
$
(280)
5,010 $
2014
4,926
1,745
540
686
277
242
3,181
2,542
639
$
779
196
71
512
–
5,705
2013
4,181
1,241
612
383
85
161
2,940
2,245
695
829
234
57
538
$
–
5,010
Key Management Personnel
The required disclosure for the remuneration of the Company’s 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 Company’s 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.
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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 Company’s 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 Company’s outstanding share capital. Ms. Lu holds no interest in the Company.
ITEM 8
A1.
FINANCIAL INFORMATION
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.
A2.
DIVIDEND POLICY
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.
A3.
LEGAL PROCEEDINGS
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.
P a g e | 87
The EPA’s first draft Bristol Bay Watershed Assessment ("BBWA") report was released on May 18, 2012. In the Company’s opinion after review with its
consultants, the draft report is a fundamentally flawed document. By the EPA’s 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 EPA’s 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 Company’s 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 EPA’s 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 agency’s 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 Partnership’s lawsuit against the EPA as co-plaintiffs. On September 26, 2014, U.S. federal court in Alaska
granted the EPA’s 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.
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On September 19, 2014, the Pebble Partnership submitted a comprehensive legal and technical response to EPA Region 10’s 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 Alaska’s Pebble Project until at least January 2, 2015.
On November 24, 2014, a U.S. federal court judge in Alaska granted the Pebble Partnership’s request for a preliminary injunction in relation to the FACA case.
While the preliminary injunction does not resolve the Pebble Partnership’s 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 EPA’s 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 government’s motion, pointing out several deficiencies in the EPA’s search parameters and the agency’s 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 EPA’s motion for summary judgement
on the Freedom of Information Act ("FOIA") litigation. The court accepted the EPA’s 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 EPA’s 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 agency’s 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 EPA’s 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
Partnership’s January 2014 FOIA request and to submit these documents for in camera review.
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 EPA’s
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 EPA’s 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 Agency’s Actions in Connection with its Evaluation of Potential Mining in
Alaska’s 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.
P a g e | 90
The Cohen report also raised a number of concerns about the EPA’s 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, EPA’s 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 "expert’s" report but rather considers it to constitute an informed view of the Company’s
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 EPA’s 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 EPA’s 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
Partnership’s 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 plaintiff’s attorney fees in the amount of US$57,082. The case was remanded back to the trial court for further litigation about
the potential award of the plaintiff’s attorney’s fees for the trial court portion of the litigation. Pebble Partnership then negotiated a settlement with the plaintiffs and
the case has been dismissed in it is entirety.
P a g e | 91
B.
SIGNIFICANT CHANGES
There have been no significant changes to Northern Dynasty’s affairs as disclosed in the accompanying financial statements since December 31, 2015, except as
disclosed in this Annual Report on Form 20-F.
ITEM 9
A.
THE OFFER AND LISTING
OFFER AND LISTING DETAILS
The following tables set forth for the periods indicated the price history of the Company's common shares on the TSX and on the NYSE MKT.
Fiscal Year Ended
December 31,
2015
2014
2013
2012
2011
Fiscal Quarter
Q1 2016
Q4 2015
Q3 2015
Q2 2015
Q1 2015
Q4 2014
Q3 2014
Q2 2014
Q1 2014
High
($)
0.83
1.85
4.19
8.13
21.50
Trading under the symbol NDM
on the TSX
Average daily
Low
trading
($)
volume
0.37
55,058
0.38
56,803
1.07
75,913
2.23
116,593
5.16
252,154
High
($)
0.58
0.58
0.67
0.54
0.83
0.65
0.95
1.13
1.85
on the TSX
Average daily
Low
trading
($)
volume
0.28
207,584
0.38
76,251
0.37
34,517
0.38
25,070
0.45
85,348
0.38
54,644
0.55
63,193
0.67
54,719
0.90
54,726
High
(US$)
0.72
1.70
4.26
8.19
21.76
Trading under the symbol NAK
on the NYSE MKT
Average daily
Low
trading
(US$)
volume
0.28
103,728
0.32
204,562
1.00
271,510
2.20
269,042
4.87
612,224
High
(US$)
0.39
0.31
0.36
0.37
0.40
0.59
0.89
1.01
1.70
on the NYSE MKT
Average daily
Low
trading
(US$)
volume
0.20
159,570
0.29
108,597
0.30
93,941
0.34
109,776
0.36
102,643
0.32
173,261
0.52
121,700
0.61
170,652
0.80
359,362
P a g e | 92
Last six months
March 2016
February 2016
January 2016
December 2015
November 2015
October 2015
High
($)
0.52
0.51
0.44
0.43
0.58
0.58
on the TSX
Average daily
Low
trading
($)
volume
0.41
297,000
0.36
229,000
0.28
110,600
0.38
70,400
0.38
135,200
0.40
36,700
High
(US$)
0.39
0.38
0.32
0.32
0.44
0.44
on the NYSE MKT
Average daily
Low
trading
(US$)
volume
0.30
207,600
0.26
134,500
0.20
148,300
0.28
97,600
0.28
144,200
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).
B.
PLAN OF DISTRIBUTION
Not applicable.
C.
MARKETS
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.
D.
SELLING SHAREHOLDERS
Not applicable.
E.
DILUTION
Not applicable.
F.
EXPENSES OF THE ISSUE
Not applicable.
ITEM 10
A.
ADDITIONAL INFORMATION
SHARE CAPITAL
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.
P a g e | 93
The Company’s current Notice of Articles is dated March 24, 2016 and the Company’s 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 Dynasty’s Notice of Articles and Articles, and (ii) certain provisions of the British
Columbia Business Corporations Act (the “ Business Corporations Act ”) applicable to Northern Dynasty:
1.
Objects and Purposes
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.
2.
Directors
Director’s
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
P a g e | 94
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;
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 Dynasty’s 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 individual’s 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.
P a g e | 95
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;
3.
guarantee the repayment of money by any other person or the performance of any obligation of any other person; and
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
director’s
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 Company’s authorized capital consists of an unlimited number of common shares.
Common Shares
The rights, preferences and restrictions attached to the Company’s common shares are summarized as follows:
Dividends
P a g e | 96
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 Dynasty’s 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 nonassessable 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 Company’s 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.
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 Company’s 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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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 Company’s 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 Company’s 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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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 corporation’s 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 Dynasty’s Notice of Articles or Articles which are more stringent than those required by the Business Corporations
Act.
P a g e | 100
C.
MATERIAL CONTRACTS
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.
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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.
D.
EXCHANGE CONTROLS
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 nonCanadians, 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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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 nonCanadian 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.
E.
TAXATION
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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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 .
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. Holder’s 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 Company’s 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 taxpayer’s 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 Company’s 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:
•
an individual who is a citizen or resident of the U.S.;
•
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;
•
an estate the income of which is subject to U.S. federal income taxation regardless of its source; or
•
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.
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 Company’s
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 Company’s 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-tomarket 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. Holder’s pro rata share of the Company’s 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 Company’s 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.
P a g e | 110
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.
P a g e | 111
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 nonU.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.
G.
STATEMENT BY EXPERTS
Not applicable.
P a g e | 112
H.
DOCUMENTS ON DISPLAY
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
A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 Company’s corporate expenses are incurred in US dollars. The Company’s 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 Company’s 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 Company’s 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 Company’s 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
2015
Financial assets:
Amounts receivable
Cash and cash equivalents and restricted cash
Financial liabilities: Trade and other payables
Net financial assets (liabilities) exposed to foreign currency risk
$
$
595 $
6,408
7,003
(1,529)
5,474 $
December 31
2014
635
1,758
2,393
5,225
(2,832)
P a g e | 113
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 Company’s objectives and
policies for managing this risk and no significant change to the Company’s 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).
D.
COMMODITY PRICE RISK
While the value of the Company’s 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.
ITEM 13
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
Not applicable.
ITEM 14
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
Not applicable.
ITEM 15
CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
At the end of the period covered by this annual report on Form 20-F, an evaluation was carried out with the participation of the Company's management, including
the President and Chief Executive Officer ("CEO") and the Chief Financial Officer ("CFO"), of the effectiveness of the Company's disclosure controls and
procedures (as defined in Rules 13a – 15(e) and 15d –15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")). Based on that
evaluation, the President and CEO and the CFO have concluded that as of the end of the period covered by this annual report on Form 20-F, the Company's
disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and are effective at that reasonable assurance level in
providing: (i) information required to be disclosed by the Company in reports that it files or submits to the SEC under the Exchange Act was recorded, processed,
summarized and reported within the time periods specified in applicable rules and forms, and (ii) material information required to be disclosed in the Company's
reports filed under the Exchange Act was accumulated and communicated to the Company's management, including the President and CEO and the CFO, as
appropriate, to allow for accurate and timely decisions regarding required disclosure.
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MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Company's management, including the President and CEO and CFO, is responsible for establishing and maintaining adequate internal control over financial
reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of financial statements for external purposes in
accordance with IFRS. The Company's internal control over financial reporting includes those policies and procedures that:
•
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
•
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS, and that
receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
•
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could
have a material effect on the financial statements.
With the participation of the President and CEO and CFO, management conducted an evaluation of the design and operation of the Company's internal control over
financial reporting as of December 31, 2015, based on the criteria set forth in Internal Control – Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission. This evaluation included review of the documentation of controls, evaluation of the design effectiveness
of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation. Based on this evaluation, management concluded in its report that
the Company's internal control over financial reporting was effective as of December 31, 2015.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
During the period covered by this annual report on Form 20-F, no changes occurred in the Company's internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
LIMITATIONS OF CONTROLS AND PROCEDURES
The Company's management, including its President and CEO and CFO, does not expect that its disclosure controls and procedures or internal controls and
procedures will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of
controls must be considered relative to their costs.
Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if
any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns
can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more
people, or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may
become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent
limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
P a g e | 115
ITEM 16
[RESERVED]
ITEM 16A
AUDIT COMMITTEE FINANCIAL EXPERT
Of the members of the Audit and Risk Committee the Board of Directors has determined that Mr. de Groot qualifies as an audit committee "financial expert" under
the rules of the SEC, based on his education and experience. Each audit and risk committee member is independent, as the term is defined in section 803 of the
NYSE MKT Company Guide.
Each audit committee member is able to read and understand fundamental financial statements.
ITEM 16B
CODE OF ETHICS
The Company's board of directors has adopted a Code of Ethics governing directors, officers, employees and contractors. The Code of Ethics sets forth written
standards that are designed to deter wrongdoing and to promote:
(a)
honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;
(b)
full, fair, accurate, timely, and understandable disclosure in reports and documents that the Company files with, or submits to, securities regulators and in
other public communications made by the Company;
(c)
compliance with applicable laws, rules and regulations;
(d)
the prompt internal reporting of violations of the Code of Ethics to an appropriate person or persons identified in the Code; and
(e)
accountability for adherence to the Code of Ethics.
The board of directors monitors compliance with the Code of Ethics by ensuring that all Company personnel have read and understood the Code of Ethics, and by
charging management with bringing to the attention of the board of directors any issues that arise with respect to the Code of Ethics.
The Company's Code of Ethics is included in the Manual which is available for download at the Company’s website under Corporate Governance at
www.northerndynastyminerals.com . The Company will also provide a copy of the Code of Ethics to any person without charge, upon request. Requests can be sent
by mail to: 15th floor, 1040 West Georgia Street, Vancouver, British Columbia V6E 4H1 or on request of the Company at 604-684-6365, attention: Investor
Relations Department.
During the most recently completed fiscal year, the Company has neither: (a) materially amended its Code of Ethics; nor (b) granted any waiver (including any
implicit waiver) form any provision of its Code of Ethics.
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ITEM 16C
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table discloses the aggregate fees billed for each of the last two fiscal years for professional services rendered by the Company's audit firm, Deloitte
LLP for various services.
Services:
Audit Fees
Audit-related Fees
Tax Fees
All Other Fees
Total
Description of services
Includes fees necessary to perform the annual audit and quarterly
reviews of the Company's financial statements. Audit Fees
include fees for review of tax provisions and for accounting
consultations on matters reflected in the financial statements.
Audit Fees also include audit or other attest services required by
legislation or regulation, such as comfort letters, consents,
reviews of securities filings and statutory audits.
Includes services that are traditionally performed by the auditor.
These audit-related services include employee benefit audits, due
diligence assistance, accounting consultations on proposed
transactions, internal control reviews and audit or attest services
not required by legislation or regulation.
Includes fees for all tax services other than those included in "Audit
Fees" and "Audit-related Fees". This category includes fees for
tax compliance, tax planning and tax advice. Tax planning and tax
advice includes assistance with tax audits and appeals, tax advice
related to mergers and acquisitions, and requests for rulings or
technical advice from tax authorities.
Includes all other non-audit services.
Year ended December 31
2015
2014
$ 137,000
$ 167,000
70,000
80,000
Nil
Nil
Nil
$ 207,000
Nil
$ 247,000
From time to time, management of the Company recommends to and requests approval from the audit committee for 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 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 services requested would be
considered "prohibited services" as contemplated by the SEC, and whether the services requested and the fees related to such services could impair the
independence of the auditors. No material non-audit services were provided by the Company's auditors during the year ended December 31, 2015.
ITEM 16D
EXEMPTIONS FROM LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
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ITEM 16E
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
In the year ended December 31, 2015, the Company did not purchase any of its issued and outstanding Common Shares pursuant to any repurchase program or
otherwise.
ITEM 16F
CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT
None.
ITEM 16G
CORPORATE GOVERNANCE
NYSE MKT Corporate Governance
The Company's common shares are listed in the United States on the NYSE MKT. The Company is considered a "foreign issuer" under the NYSE MKT Company
Guide as it is incorporated under the laws of the Province of British Columbia. Section 110 of the NYSE MKT Company Guide permits NYSE MKT to consider
the laws, customs and practices of foreign issuers in relaxing certain NYSE MKT listing criteria, and to grant exemptions from NYSE MKT listing criteria based
on these considerations. A company seeking relief under these provisions is required to provide written certification from independent local counsel that the noncomplying practice is not prohibited by home country law. We have sought or intend to seek relief from NYSE MKT for the corporate practices described below.
The Company’s governance practices differ from those followed by U.S. domestic companies pursuant to NYSE MKT listing standards in the following manner:
Board Meetings
Section 802 (c) of the NYSE MKT Company Guide requires that the Board of Directors hold meetings on at least a quarterly basis. The Board of Directors of the
Company is not required to meet on a quarterly basis under the laws of the Province of British Columbia.
Solicitation of Proxies
The NYSE MKT requires the solicitation of proxies and delivery of proxy statements for all shareholder meetings, and requires that these proxies shall be solicited
pursuant to a proxy statement that conforms to applicable SEC proxy rules. The Company is a foreign private issuer as defined in Rule 3b-4 under the 1934 Act,
and the equity securities of the Company are accordingly exempt from the proxy rules set forth in Sections 14(a), 14(b), 14(c) and 14(f) of the Securities Exchange
Act of 1934, as amended. The Company solicits proxies in accordance with applicable rules and regulations in Canada.
Shareholders’ Approval for Dilutive Private Placement Financings
Section 713 of the NYSE MKT Company Guide requires that the Company obtain the approval of its shareholders for share issuances equal to 20 percent or more
of presently outstanding shares for a price which is less than the greater of book or market value of the shares. This requirement does not apply to public offerings.
There is no such requirement under British Columbia law or under the Company’s home stock exchange rules (TSX) unless the dilutive financing:
(i)
(ii)
(iii)
materially affects control of the issuer;
provides consideration to insiders in the aggregate of 10% or greater of the issuer’s market capitalization or outstanding shares, or a non-diluted basis,
where certain conditions are met; and
is in respect of private placement or an acquisition where the issuer will issue shares in excess of 25% of its presently outstanding shares, on a non-diluted
basis.
The Company will seek a waiver from NYSE MKT’s section 713 requirements should a dilutive private placement financing trigger the NYSE MKT shareholders’
approval requirement in circumstances where the same financing does not trigger such a requirement under British Columbia law or under TSX rules.
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Quorum Requirements
Section 123 of the NYSE MKT Company Guide recommends that the quorum for meetings of shareholders of a listed company be not less than 33-1/3% of the
issued and outstanding shares entitled to vote at a meeting of shareholders.
The Company’s quorum requirement is specified in its Articles as two persons who are, or who represent by proxy, shareholders who in the aggregate hold at least
5% of the issued shares entitled to vote at a meeting of shareholders.
ITEM 16H
MINE SAFETY DISCLOSURE
Not applicable.
ITEM 17
We have elected to provide financial statements for the fiscal year ended December 31, 2015 and the related information pursuant to Item 18.
ITEM 18
The financial statements appear in this annual report on Form 20-F beginning on page 122. The report of the independent registered public accounting firm appears
on page 123.
ITEM 19
EXHIBITS
The following exhibits are included with this Annual Report on Form 20-F:
Exhibit Number Description of Exhibit
1.01
Notice of Articles Dated March 24, 2016 and Articles Dated June 19, 2013 (5)
4.01
Share Option Plan Dated May 16, 2014 (1)
4.02
Restricted Share Unit Plan dated effective July 7, 2015 (5)
4.03
Deferred Share Unit Plan dated effective July 7, 2015 (5)
4.04
Form of Special Warrant Certificate dated effective December 2014 (2)
4.05
Form of Registration Rights Agreement dated effective December 2014 (2)
4.06
Form of Special Warrant Certificate dated effective August and September 2015 (3)
4.07
Form of Registration Rights Agreement dated effective August and September 2015 (3)
4.08
Shareholder Rights Plan Dated Effective May 17, 2013 (1)
4.09
Arrangement Agreement between Northern Dynasty and Mission Gold dated October 30, 2015 (4)
8.01
List of Subsidiaries (5)
11.01
Code of Ethics (5)
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Exhibit Number Description of Exhibit
12.01
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 (5)
12.02
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 (5)
13.01
Certification of Chief Executive Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (5)
13.02
Certification of Chief Financial Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (5)
15.01
Pebble Property - List of Property Claims (5)
15.02
Consent of Independent Registered Public Accounting Firm (Deloitte LLP) (5)
15.03
Consent of Independent Auditors (Deloitte & Touche LLP) (5)
15.04
Consent of Expert (David Gaunt) (5)
15.05
Consent of Expert (James Lang) (5)
15.06
Consent of Expert (Eric Titley) (5)
15.07
Consent of Expert (Ting Lu) (5)
Notes to above exhibits:
1.
Incorporated by reference to the Company’s Form 20-F filed on May 22, 2015
2.
Incorporated by reference to the Company’s Form F-3 filed on February 13, 2015.
3.
Incorporated by reference to the Company’s Form F-3 filed on October 16, 2015.
4.
Filed as an exhibit to our report as a foreign private issuer on Form 6-K filed with the SEC on February 12, 2016 and incorporated herein by reference.
5.
Filed as an exhibit hereto.
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SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this
Annual Report on its behalf.
/s/ Marchand Snyman
Chief Financial Officer
DATED: May 2, 2016.
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INDEX TO FINANCIAL STATEMENTS
Page
Report of the Company's Independent Registered Public Accounting Firm, Deloitte LLP
Consolidated statements of financial position as at December 31, 2015 and December 31, 2014
Consolidated statements of comprehensive loss for the years ended December 31, 2015 2014 and 2013
Consolidated statements of cash flows for the years ended December 31, 2015, 2014 and 2013
Consolidated statements of changes in equity for the years ended December 31, 2015, 2014 and 2013
Notes to the consolidated annual financial statements
123
125
126
127
128
130
Pebble Limited Partnership
Independent Auditors’ Report
Consolidated statement of loss and comprehensive loss for the period January 1 to December 10, 2013
Consolidated statement of changes in equity for the period January 1 to December 10, 2013
Consolidated statement of financial position as at December 10, 2013
Consolidated statement of cash flows for the period from January 1 to December 10, 2013
Notes to the consolidated annual financial statements
155
156
157
158
159
160
P a g e | 122
Deloitte LLP
2800 – 1055 Dunsmuir Street
4 Bentall Centre
P.O. Box 49279
Vancouver BC V7X 1P4
Canada
Tel: 604-669-4466
Fax: 778-374-0496
www.deloitte.ca
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Northern Dynasty Minerals Ltd.
We have audited the accompanying consolidated statements of financial position of Northern Dynasty Minerals Ltd. and subsidiaries (the “Company”) as at
December 31, 2015, December 31, 2014, and the related consolidated statements of comprehensive loss (income), cash flows and changes in equity for the years
ended December 31, 2015, 2014, and 2013. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States) and Canadian generally accepted
auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Northern Dynasty Minerals Ltd. and
subsidiaries as of December 31, 2015, and the results of their operations and their cash flows for the years ended December 31, 2015, 2014, and 2013, in
conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 of the financial
statements, the Company incurred a net loss of $33,829,000 and $31,347,000 during the year ended December 31, 2015 and 2014, respectively and had a deficit of
$379,124,000 as at December 31, 2015. This condition, along with other matters as set forth in Note 1, indicates the existence of material uncertainties that raise
substantial doubt about the Company’s ability to continue as a going concern. Management's plans concerning these matters are also discussed in Note 1 to the
financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Deloitte LLP
Chartered Professional Accountants
March 29, 2016
Vancouver, Canada
P a g e | 123
Consolidated Statements of Financial Position
(Expressed in thousands of Canadian Dollars)
December 31
2015
Notes
December 31
2014
ASSETS
Non-current assets
Mineral property, plant and equipment
Total non-current assets
Current assets
Available-for-sale financial assets
Amounts receivable and prepaid expenses
Restricted cash
Cash and cash equivalents
Total current assets
4
$
5
6
7(b)
7(a)
Total Assets
147,088
147,088
$
1,579
1,075
453
7,509
10,616
$
157,704
123,608
123,608
287
962
1,206
9,447
11,902
$
135,510
EQUITY
Capital and reserves
Share capital
Reserves
Deficit
Total Equity
8
$
435,069 $
99,035
(379,124)
154,980
389,227
84,031
(345,295)
127,963
LIABILITIES
Non-current liabilities
Deferred income taxes
Total non-current liabilities
13
–
–
1,514
1,514
Current liabilities
Payable to a related party
9
10
677
2,047
2,724
383
5,650
6,033
2,724
7,547
Total Liabilities
Total Equity and Liabilities
$
157,704
$
135,510
Events after the reporting date (note 7(b))
Commitments (note 15)
The accompanying notes are an integral part of these consolidated financial statements.
P a g e | 124
Consolidated Statements of Comprehensive Loss (Income)
(Expressed in thousands of Canadian Dollars, except for share information)
Notes
2015
2014
2013
Expenses
Exploration and evaluation expenses
General and administrative expenses
Loss from operating activities
Foreign exchange loss (gain)
Interest income
Interest expense
Other income
Loss before tax
Deferred Income tax (recovery) expense
Loss for the year
Other comprehensive (income) loss
Items that may be subsequently reclassified to loss
Foreign exchange translation difference
Deferred income tax on investment in a foreign subsidiary
Reversal of deferred income tax on investment
Decrease (increase) in fair value of available-for-sale financial assets
Other comprehensive income for the year
4, 12
12
2(b)
8(d)
12,877 $
9,059
8,325
3,877
34,138
(221)
(281)
–
–
–
33,636
(2,289)
31,347 $
1,991
5,970
275
641
8,877
(340)
(1,136)
–
–
(5,062)
2,339
184
2,523
$
(23,300)
–
–
113
(23,187) $
(9,945)
–
–
(8)
(9,953) $
(6,874)
128
(141)
–
(6,887)
3
4(a)
13
4, 8(e)
8(e)
8(e)
5
Total comprehensive loss (income) for the year
Basic and diluted loss per common share
$
$
8,718
8,272
17,001
903
34,894
618
(99)
144
(214)
–
35,343
(1,514)
33,829 $
$
11
$
10,642
$
21,394
$
(4,364)
$
0.23
$
0.33
$
0.03
The accompanying notes are an integral part of these consolidated financial statements.
P a g e | 125
Consolidated Statements of Cash Flows
Notes
Operating activities
Loss for the year
Non-cash or non-operating items
Deferred income tax (recovery) expense
Depreciation
Loss on disposal of equipment
Interest received on cash held
Interest receivable on loan
Interest accrued on loans from Cannon Point and Mission Gold
Gain on disposal of surplus site inventory
Unrealized exchange (gain) loss
Changes in working capital items
Restricted cash
Amounts receivable and prepaid expenses
Amounts receivable from a related party
Payable to related party
Net cash used in operating activities
Investing activities
Acquisition of plant and equipment
Cash contribution to the Pebble Limited Partnership
Net cash received on assuming control of the Pebble Limited
Partnership
Proceeds from disposal of equipment
Proceeds from disposal of available-for-sale financial assets
Proceeds from disposal of surplus site inventory
Interest received on cash and cash equivalents
Net cash from investing activities
Financing activities
Cash received on the acquisition of Cannon Point and Mission
Gold, net of transaction costs
Net proceeds from the private placement of special warrants
Net proceeds from the private placement of common shares
Proceeds from the exercise of share purchase options
Net cash from financing activities
Net decrease in cash and cash equivalents
Effect of exchange rate fluctuations on cash and cash equivalents
Cash and cash equivalents at beginning of the year
Cash and cash equivalents at end of the year
Supplementary cash flow information
2015
$
4
(33,829) $
3
8(c)
8(b)
8(c)
$
(31,347) $
2013
(2,523)
(1,514)
279
5
(99)
–
144
–
(173)
903
–
(2,289)
282
13
(149)
(131)
–
–
–
3,877
(211)
184
–
–
(633)
(503)
–
(5,062)
–
641
(332)
826
(8)
–
(4,374)
294
(37,546)
171
303
–
1,747
(76)
(27,810)
(1,269)
84
3
1,246
311
(7,853)
(28)
–
4
9(b)
7(a)
7(a)
Year Ended December 31
2014
–
–
–
(1,055)
–
70
280
173
99
594
–
50
–
–
149
199
6,507
–
–
–
633
6,085
12,347
17,485
5,166
7
35,005
(1,947)
9
9,447
7,509 $
–
11,273
–
–
11,273
(16,338)
(10)
25,795
9,447 $
–
–
–
30
30
(1,738)
(4)
27,537
25,795
P a g e | 126
Consolidated Statements of Changes in Equity
Share capital
Notes
Balance at January 1, 2013
Shares issued for cash on exercise
of share purchase options
Fair value of options allocated to
shares issued on exercise
Loss for the year
Other comprehensive income for
the year net of tax
Total comprehensive income for
the year
Balance at December 31, 2013
Special warrants issued net of
transaction costs
Loss for the year
Other comprehensive income for
the year net of tax
Total comprehensive loss for the
year
Number of
shares
94,999,764
Amount
$
389,189
8(d)
10,100
30
8(d)
–
–
–
8
–
–
–
–
8(c)
8(d)
Reserves
Equity
settled
share-based
compensation
reserve
$
50,784
Foreign
currency
translation
reserve
(note 8(e))
$
–
(8)
641
–
–
347
Investment
revaluation
reserve
$
(2)
Share
Purchase
Warrants
(note 8(c))
$
–
–
–
–
–
–
–
–
–
–
–
–
–
6,887
–
–
Total
Equity
Deficit
$
(311,425)
$
–
128,893
30
–
–
(2,523)
–
641
(2,523)
–
6,887
51,417
$
7,234
$
(2)
$
–
$
(313,948)
$
4,364
133,928
389,227
51,417
$
7,234
$
(2)
$
–
$
(313,948)
$
133,928
–
–
–
–
–
–
–
3,877
–
–
–
–
–
–
–
11,552
–
–
–
–
–
9,945
8
–
95,009,864
$
389,227
95,009,864
$
95,009,864
$
389,227
$
$
55,294
$
17,179
$
6
$
11,552
–
–
(31,347)
11,552
3,877
(31,347)
–
$
(345,295)
9,953
$
(21,394)
127,963
P a g e | 127
Consolidated Statements of Changes in Equity
Share capital
Notes
Special warrants issued net of
transaction costs
Conversion of special warrants
into common shares
Common shares issued pursuant
to a private placement, net of
transaction costs
Common shares issued as
referral fees relating to a
private placement
Common shares issued for the
acquisition of
Cannon Point, net of transaction
cost
Options and warrants issued for
the acquisition of Cannon
Point
Common shares issued for the
acquisition of Mission Gold
("MG")
Options and warrants issued
pursuant to the acquisition of
MG, net of transaction costs
Common shares issued upon
exercise of share purchase
options
Fair value allocated to shares
issued on options exercised
Loss for the year
Other comprehensive income
(loss) for the year net of tax
Total comprehensive loss for the
year
Number of
shares
95,009,864
Reserves
Equity
settled
share-based
compensation
reserve
Amount
$
389,227
$
55,294
Foreign
currency
translation
Reserve
(note 8(e))
$
17,179
Investment
Revaluation
Reserve
$
6
Share
Purchase
Warrants
(note 8(c))
$
11,552
Total
equity
Deficit
$
(345,295)
$
127,963
8(c)
–
–
–
–
–
17,485
–
17,485
8(c)
73,562,735
29,037
–
–
–
(29,037)
–
–
8(b)
12,573,292
5,046
–
–
–
–
–
5,046
8(b)
300,000
120
–
–
–
–
–
120
3(a)
12,881,344
4,062
–
–
–
–
–
4,062
3(a)
–
–
–
–
–
217
–
217
3(b)
27,593,341
7,564
–
–
–
–
–
7,564
3(b)
–
–
–
–
–
2,255
–
2,255
8(c)
18,800
7
–
–
–
–
–
7
8(d)
8(d)
–
–
–
6
–
–
903
–
–
–
–
–
–
–
(6)
–
–
–
–
–
23,300
221,939,376
$
435,069
$
56,197
$
40,479
(113)
$
(107)
–
–
(33,829)
–
$
2,466
–
903
(33,829)
–
$
(379,124)
23,187
$
(10,642)
154,980
P a g e | 128
1.
NATURE AND CONTINUANCE OF OPERATIONS
Northern Dynasty Minerals Ltd. (the "Company") is incorporated under the laws of the Province of British Columbia, Canada, and its principal business
activity is the exploration of mineral properties. The Company is listed on the Toronto Stock Exchange ("TSX") under the symbol "NDM" and on the New
York Stock Exchange- MKT ("NYSE-MKT") under the symbol "NAK". The Company’s corporate office is located at 1040 West Georgia Street, 15 th
floor, Vancouver, British Columbia.
The consolidated financial statements ("Financial Statements") of the Company as at and for the year ended December 31, 2015, include financial
information for the Company and its subsidiaries (note 2(c)) (together referred to as the "Group" and individually as "Group entities"). The Company is the
ultimate parent. The Group’s core mineral property interest is the Pebble Copper-Gold-Molybdenum-Silver Project (the "Pebble Project") located in
Alaska, United States of America ("USA" or "US").
The Group is in the process of exploring and developing the Pebble Project and has not yet determined whether the Pebble Project contains mineral
reserves that are economically recoverable. The Group’s continuing operations and the underlying value and recoverability of the amounts shown for the
Group’s mineral property interests, is entirely dependent upon the existence of economically recoverable mineral reserves; the ability of the Group to
obtain financing to complete the exploration and development of the Pebble Project; the Group obtaining the necessary permits to mine; and future
profitable production or proceeds from the disposition of the Pebble Project.
During the year ended December 31, 2015, the Company raised an aggregate of $23.8 million in cash through the private placement of common shares
(note 8(b)) and special warrants (note 8(c)) and it received an aggregate amount of $12.7 million in cash and cash equivalent and approximately $1.7
million in other financial assets (mainly publicly traded marketable securities) as a result of the acquisition of two publicly listed entities (note 3).
As at December 31, 2015, the Group has $7.5 million in cash and cash equivalents for its operating requirements. The Group 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 in order to progress any material expenditures at the Pebble Project. Additional financing may include any of or a combination of debt equity
and/or contributions from possible new Pebble Project participants. There can be no assurances that the Group will be successful in obtaining additional
financing. If the Group is unable to raise the necessary capital resources and generate sufficient cash flows to meet obligations as they come due, the Group
may, at some point, consider reducing or curtailing its operations. As such there is material uncertainty that casts substantial doubt about the Company’s
ability to continue as a going concern.
In July 2014, the United States Environmental Protection Agency (the "EPA") announced a proposal under Section 404(c) of the Clean Water Act to
restrict and impose limitations on all discharges of dredged or fill material ("EPA Action") associated with mining the Pebble deposit. The Company
believes that the EPA does not have the statutory authority to impose conditions on the development at Pebble prior to the submission of a detailed
development plan and its thorough review by federal and state agencies, including review under the National Environmental Protection Act ("NEPA"). The
Pebble Limited Partnership (the “Pebble Partnership”), a wholly-owned subsidiary of the Company, along with the State of Alaska and the Alaska
Peninsula Corporation, an Alaska Native village corporation with extensive land holdings in the Pebble Project area, filed for an injunction to stop the EPA
Action with the US Federal Court in Alaska (the "Court"). However, the Court has deferred judgment thereon until the EPA has issued a final
determination. The Company appealed the Court’s decision to the 9 th Circuit Court of Appeals. The 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). In September 2014, the Pebble Partnership initiated a second action against the EPA in federal district court in Alaska charging that the
EPA violated the Federal Advisory Committee Act ("FACA"). In November 2014, the U.S. federal court judge in Alaska granted, in relation to the FACA
case, the Pebble Partnership’s request for a preliminary injunction, which, although considered by the Company as a significant procedural milestone in the
litigation, does not resolve the Pebble Partnership’s claims that the EPA Actions with respect to the Bristol Bay Assessment and subsequent 404(c)
regulatory action, violated FACA. In June 2015, the EPA’s motion to dismiss the FACA case was rejected and as a result the FACA case is moving
forward. The Company expects its legal rights will be upheld by the Court and that the Company will ultimately be able to apply for the necessary permits
under NEPA. On October 14, 2014, the Pebble Partnership filed suit in the federal district court in Alaska charging that the 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 preemptive 404(c) veto under the Clean Water Act.
P a g e | 129
The EPA has moved for summary judgment claiming that its search for and disclosure of documents was adequate. The Pebble Partnership has opposed the
motion pointing out several deficiencies in the EPA’s search parameters and pointing out the agency’s 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 EPA’s motion for summary
judgement on the Freedom of Information Act ("FOIA") litigation. The court accepted the EPA’s 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 the 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 the EPA’s withholdings under the deliberative process privilege. Before producing this sample to the Court, the 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 agency’s 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 EPA’s 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. A decision has not yet been issued. 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 Partnership’s January 2014
FOIA request and to submit these documents for in-camera review.
2.
SIGNIFICANT ACCOUNTING POLICIES
(a)
Statement of Compliance
These Financial Statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International
Accounting Standards Board ("IASB") and interpretations issued by the IFRS Interpretations Committee ("IFRIC"s) that are effective for the Group’s
reporting year ended December 31, 2015. These Financial Statements were authorized for issue by the Board of Directors on March 23, 2016.
(b)
Basis of Preparation
These Financial Statements have been prepared on a historical cost basis using the accrual basis of accounting, except for cash flow information and for
financial instruments classified as available-for-sale, which are stated at their fair value (note 2(e) and note 5). The accounting policies set out below have
been applied consistently to all periods presented in these Financial Statements.
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 EPA’s activities
surrounding the Pebble Project. These expenditures were previously included under general and administrative expenditures. There is no impact of the
expense reclassification on loss and comprehensive loss for the year or basic and diluted loss per share. Statements of financial position, cash flows and
changes in equity are not affected.
(c)
Basis of Consolidation
These Financial Statements incorporate the financial statements of the Company, the Company’s subsidiaries, and entities controlled by the Company and
its subsidiaries listed below:
P a g e | 130
Name of Subsidiary
Place of
Principal Activity
Ownership
British Columbia,
Not active. Wholly-owned
100%
Canada
Canada
Holding Company. Wholly-
Incorporation
0796412 BC Ltd.
3537137 Canada Inc. 1
100%
owned subsidiary of the
Company.
Pebble Services Inc.
Nevada, USA
Management and services
100%
company. Wholly-owned
Northern Dynasty Partnership
Alaska, USA
Holds 99.9% of the Pebble
100%
Limited Partnership and
(indirect)
100% of Pebble Mines Corp.
Alaska, USA
Holding Company and
100%
Exploration of the Pebble
(indirect)
Project.
Pebble Mines Corp.
Delaware, USA
General Partner. Holds 0.1%
100%
of Pebble Limited
(indirect)
Partnership.
Pebble West Claims Corporation 2
Alaska, USA
Holding Company. Subsidiary
100%
of the Pebble Limited
(indirect)
Partnership.
Pebble East Claims Corporation 3
Alaska, USA
Holding Company. Subsidiary
100%
of the Pebble Limited
(indirect)
Partnership.
U5 Resources Inc. 4
Nevada, USA
Holding Company. Wholly-
100%
owned subsidiary of the
Company.
Cannon Point Resources Ltd. 5
British Columbia,
Canada
MGL Subco Ltd. 6
British Columbia,
100%
100%
Canada
Delta Minerals Inc. 6
British Columbia,
100%
Canada
subsidiary of MGL Subco Ltd.
(indirect)
Imperial Gold Corporation 6
British Columbia,
100%
Canada
subsidiary of Delta Minerals
(indirect)
Inc.
Yuma Gold Inc. 6
Nevada, USA
100%
subsidiary of Imperial Gold
(indirect)
Corporation.
Notes to the table above:
1.
Holds 20% interest in the Northern Dynasty Partnership. The Company holds the remaining 80% interest.
2.
Holds certain of the Pebble Project claims.
3.
Holds certain of the Pebble Project claims and claims located south and west of the Pebble Project claims. In January 2015, two of the Company’s
wholly-owned subsidiaries, Kaskanak Inc. and its wholly-owned parent, Kaskanak Copper LLC, were merged with Pebble East Claims
Corporation, with the latter surviving the merger.
4.
Holds certain mineral claims located north of the Pebble Project claims.
P a g e | 131
5.
Acquired during the year ended December 31, 2015 (note 3(a)).
6.
Acquired during the year ended December 31, 2015 (note 3(b)).
Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those
returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Company has power over the investee (i.e.
existing rights that give it the current ability to direct the relevant activities of the investee); exposure, or rights, to variable returns from its involvement
with the investee; and the ability to use its power over the investee to affect its returns.
Intra-Group balances and transactions, including any unrealized income and expenses arising from intra-Group transactions, are eliminated in preparing the
Financial Statements. Unrealized gains arising from transactions with equity accounted investees are eliminated against the investment to the extent of the
Group’s interest in the investee. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of
impairment.
(d)
Investment in Joint Ventures
A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint arrangement.
Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require
unanimous consent of the parties sharing control.
An investment in a joint venture is accounted for using the equity method. Under the equity method, an investment in a joint venture is initially recognized
in the consolidated statement of financial position at cost and adjusted thereafter to recognize the Group’s share of changes in net assets of the joint venture
attributable to the Group. An investment is accounted for using the equity method from the date on which the investee becomes a joint venture.
(e)
Foreign Currencies
The functional currency is the currency of the primary economic environment in which the entity operates and has been determined for each entity within
the Group. The functional currency of U5 Resources Inc., Pebble Mines Corp., the Pebble Partnership and its subsidiaries, is the US dollar and for all other
entities within the Group, the functional currency is the Canadian dollar. The functional currency determinations were conducted through an analysis of the
factors for consideration identified in IAS 21, The Effects of Changes in Foreign Exchange Rates .
Transactions in currencies other than the functional currency are recorded at the rates of exchange prevailing on dates of transactions. At the end of each
reporting period, monetary assets and liabilities that are denominated in foreign currencies are translated at the rates prevailing at that date. Non-monetary
assets and liabilities carried at fair value that are denominated in foreign currencies are translated at rates prevailing at the date when the fair value was
determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.
Before assuming control of the Pebble Partnership in 2013, the Group’s investment in the Pebble Partnership under joint venture (note 4(a)) was translated
at the end of each reporting period and exchange differences arising on translation of the US denominated investment were recognized directly in the
foreign currency translation reserve through other comprehensive income or loss (note 8(e)).
The results and financial position of entities within the Group which have a functional currency that differs from that of the Group are translated into
Canadian dollars as follows:- (i) assets and liabilities for each statement of financial position are translated at the closing exchange rate at that date; (ii)
income and expenses for each income statement are translated at average exchange rates for the period; and (iii) the resulting exchange differences are
included in the foreign currency translation reserve within equity.
(f)
Financial Instruments
Non-derivative financial assets:
The Group has the following non-derivative financial assets: available-for-sale financial assets (note 5) and loans and receivables.
P a g e | 132
Available-for-sale financial assets
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) heldto-maturity investments or (iii) financial assets at fair value through profit or loss. The Group’s 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
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 Group’s 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.
Non-derivative financial liabilities:
The Group’s 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.
Impairment of financial assets:
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:
• significant financial difficulty of the issuer or counterparty; or
• default or delinquency in interest or principal payments; or
• it becoming probable that the borrower will enter bankruptcy or financial re-organization.
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.
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With the exception of AFS equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related
objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss to the
extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the
impairment not been recognized. In respect of AFS equity securities, impairment losses previously recognized through profit or loss are not reversed
through profit or loss. Any increase in fair value subsequent to an impairment loss is recognized directly in equity.
When an AFS financial asset is considered to be impaired, cumulative gains or losses previously recognized in other comprehensive income are reclassified
to profit or loss in the period.
Derivative financial assets and liabilities:
The Group has no derivative financial assets or liabilities.
(g)
Exploration and Evaluation Expenditure
Exploration and evaluation expenditures include the costs of acquiring licenses, costs associated with exploration and evaluation activity, and the
acquisition date fair value of exploration and evaluation assets acquired in a business combination or an asset acquisition. Exploration and evaluation
expenditures are expensed as incurred except for expenditures associated with the acquisition of exploration and evaluation assets through a business
combination or an asset acquisition. Costs incurred before the Group has obtained the legal rights to explore an area are expensed.
Acquisition costs, including general and administrative costs, are only capitalized to the extent that these costs can be related directly to operational
activities in the relevant area of interest where it is considered likely to be recoverable by future exploitation or sale or where the activities have not reached
a stage which permits a reasonable assessment of the existence of reserves.
Exploration and evaluation ("E&E") assets are assessed for impairment only when facts and circumstances suggest that the carrying amount of an E&E
asset may exceed its recoverable amount and when the Group has sufficient information to reach a conclusion about technical feasibility and commercial
viability.
Industry-specific indicators for an impairment review arise typically when one of the following circumstances applies:
•
•
•
•
•
Substantive expenditure on further exploration and evaluation activities is neither budgeted nor planned;
title to the asset is compromised;
adverse changes in the taxation and regulatory environment;
adverse changes in variations in commodity prices and markets; and
variations in the exchange rate for the currency of operation.
Once the technical feasibility and commercial viability of the extraction of mineral resources in an area of interest are demonstrable, exploration and
evaluation assets attributable to that area of interest are first tested for impairment and then reclassified to mining property and development assets within
property, plant and equipment.
Recoverability of the carrying amount of any exploration and evaluation assets is dependent on successful development and commercial exploitation, or
alternatively, sale of the respective assets.
(h)
Mineral property, plant and equipment
Mineral property, plant and equipment are carried at cost, less accumulated depreciation and accumulated impairment losses.
The cost of mineral property, plant and equipment consists of the acquisition costs transferred from E&E assets, any costs directly attributable to bringing
the asset to the location and condition necessary for its intended use, including costs to further delineate the ore body, development and construction costs,
removal of overburden to initially expose the ore body, an initial estimate of the costs of dismantling, removing the item and restoring the site on which it is
located and, if applicable, borrowing costs.
P a g e | 134
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 cost of an item of plant and equipment consists of the purchase price, any costs directly attributable to bringing the asset to the location and condition
necessary for its intended use, and an initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located.
Depreciation is provided at rates calculated to write off the cost of plant and equipment, less their estimated residual value, using the declining balance
method at various rates ranging from 20% to 30% per annum.
An item of equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any
gain or loss arising on disposal of the asset, determined as the difference between the net disposal proceeds and the carrying amount of the asset, is
recognized in profit or loss.
Where an item of equipment consists of major components with different useful lives, the components are accounted for as separate items of equipment.
Expenditures incurred to replace a component of an item of equipment that is accounted for separately, including major inspection and overhaul
expenditures, are capitalized.
Residual values and estimated useful lives are reviewed at least annually.
(i)
Impairment of Non-Financial Assets
At the end of each reporting period the carrying amounts of the Group’s non-financial assets are reviewed to determine whether there is any indication that
these assets are impaired. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment
loss, if any. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cashgenerating unit to which the asset belongs. The recoverable amount is the higher of fair value less costs to sell and value in use. Fair value is determined as
the amount that would be obtained from the sale of the asset in an arm’s length transaction between knowledgeable and willing parties. In assessing value
in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time
value of money and the risks specific to the asset. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount
of the asset is reduced to its recoverable amount and the impairment loss is recognized in profit or loss for the period. For an asset that does not generate
largely independent cash inflows, the recoverable amount is determined for the cash generating unit to which the asset belongs.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its
recoverable amount. This increase in the carrying amount is limited to the carrying amount that would have been determined had no impairment loss been
recognized for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognized immediately in profit or loss. The Group has
not recorded any impairment charges in the years presented.
(j)
Share Capital and Special Warrants
Common shares and special warrants (note 8(c)) are classified as equity. Transaction costs directly attributable to the issue of common shares, share
purchase options and special warrants are recognized as a deduction from equity, net of any tax effects. Upon conversion of the special warrants into
common shares, the carrying amount of the special warrants, net of a pro rata share of the transaction costs, is transferred to common share capital.
(k)
Share-based Payment Transactions
Equity-settled share-based payments
The Group operates an equity-settled share-based option plan for its employees and service providers (note 8(d)). The fair value of share purchase options
granted is recognized as an employee or consultant expense with a corresponding increase in the equity-settled share-based payments reserve in equity. An
individual is classified as an employee when the individual is an employee for legal or tax purposes ("direct employee") or provides services similar to
those performed by a direct employee.
P a g e | 135
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.
P a g e | 136
(l)
Income Taxes
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.
(m)
Restoration, Rehabilitation, and Environmental Obligations
An obligation to incur restoration, rehabilitation and environmental costs arises when environmental disturbance is caused by the exploration or
development of a mineral property interest. Such costs arising from the decommissioning of plant and other site preparation work, discounted to their net
present value, are provided for and capitalized at the start of each project to the carrying amount of the asset, along with a corresponding liability as soon as
the obligation to incur such costs arises. The timing of the actual rehabilitation expenditure is dependent on a number of factors such as the life and nature
of the asset, the operating license conditions and, when applicable, the environment in which the mine operates.
Discount rates using a pre-tax rate that reflects the time value of money are used to calculate the net present value. These costs are charged against profit or
loss over the economic life of the related asset, through amortization using either the unit-of-production or the straight line method. The corresponding
liability is progressively increased as the effect of discounting unwinds, creating an expense recognized in profit or loss.
Decommissioning costs are also adjusted for changes in estimates. Those adjustments are accounted for as a change in the corresponding capitalized cost,
except where a reduction in costs is greater than the unamortized capitalized cost of the related assets, in which case the capitalized cost is reduced to nil
and the remaining adjustment is recognized in profit or loss.
The operations of the Group have been, and may in the future be, affected from time to time in varying degree by changes in environmental regulations,
including those for site restoration costs. Both the likelihood of new regulations and their overall effect upon the Group are not predictable.
The Group has no material restoration, rehabilitation and environmental obligations as the disturbance to date is immaterial.
P a g e | 137
(n)
Loss per Share
The Group presents basic and diluted loss per share data for its common shares, calculated by dividing the loss attributable to common shareholders of the
Group by the weighted average number of common shares and fully prepaid special warrants (note 8(c)) outstanding during the year. Diluted loss per share
does not adjust the loss attributable to common shareholders or the weighted average number of common shares outstanding when the effect is antidilutive.
(o)
Segment Reporting
The Group operates in a single reportable operating segment – the acquisition, exploration and development of mineral properties. The Group’s core asset
is the Pebble Project, which is located in Alaska, USA.
(p)
Accounting Standards, Amendments and Revised Standards Not Yet Effective
Effective for the Group’s financial year commencing on January 1, 2016
•
•
•
•
•
•
•
•
Amendments to IAS 1, Presentation of Financial Statements
Amendments to IAS 16, Property, Plant and Equipment
Amendments to IAS 27, Separate Financial Statements
Amendments to IAS 28, Investments in Associates
Amendments to IAS 38, Intangible Assets
Amendments to IFRS 10, Consolidated Financial Statements
Amendments to IFRS 11, Joint Arrangements
Annual improvements to IFRS 2012 – 2014 Cycle ("AIP 2012-2014")
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 Group’s Financial Statements. The annual improvements has amendments to four standards and anticipates the amendments will have no material effect
on the Group’s consolidated financial statements.
Effective for annual periods commencing on or after January 1, 2018
•
IFRS 15, Revenue from Contracts with Customers ("IFRS 15"), which was issued by the IASB in May 2014, supersedes IAS 11, Construction
Contracts , IAS 18, Revenue , IFRIC 13, Customer Loyalty Programmes , IFRIC 15, Agreements for the Construction of Real Estate , IFRIC 18,
Transfers of Assets from Customers, and SIC 31, Revenue – Barter Transactions involving Advertising Services . IFRS 15 establishes a single fivestep model framework for determining the nature, amount, timing and certainty of revenue and cash flows arising from a contract with a customer.
IFRS 15 is effective for annual periods beginning on or after January 1, 2018, with early adoption permitted.
The Group is currently evaluating the impact that IFRS 15 may have on its financial statements.
•
IFRS 9, Financial Instruments ("IFRS 9"), replaces IAS 39, Financial Instruments: Recognition and Measurement , in its entirety. The standard
incorporates a number of improvements: a) includes a logical model for classification and measurement (IFRS 9 provides for principle-based
approach to classification which is driven by cash flow characteristics and the business model in which an asset is held); b) includes a single,
forward-looking "expected loss" impairment model (IFRS 9 will require entities to account for expected credit losses from when financial
instruments are first recognized and to recognize full lifetime expected losses on a timely basis); and c) includes a substantially-reformed model for
hedge accounting with enhanced disclosures about risk management activity (IFRS 9’s new model aligns the accounting treatment with risk
management activities). IFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early adoption permitted.
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.
Effective for annual periods commencing on or after January 1, 2019
•
On January 13, 2016, IASB issued IFRS 16, Leases ("IFRS 16") and revised IAS 17, Leases ("IAS 17"). IFRS 16 specifies how to recognize,
measure, present and disclose leases. The standard provides a single lessee accounting model, requiring the recognition of assets and liabilities for
all leases, unless the lease term is 12 months or less or the underlying asset has a low value. Lessor accounting however remains largely unchanged
from IAS 17 and the distinction between operating and finance leases is retained. IAS 17, as revised, now prescribes the accounting policies and
disclosures applicable to leases, both for lessees and lessors.
P a g e | 138
The Group anticipates that the adoption of IFRS 16 will not have a significant impact other than the accounting for any office lease the Group may have
entered into where the minimum lease term is more than 12 months. As of the date of these financial statements, the Group has not entered into any long
term lease (refer note 15(a)).
(q)
Significant Accounting Estimates and Judgments
The preparation of these Financial Statements requires management to make certain estimates, judgments and assumptions that affect the reported amounts
of assets and liabilities at the date of the Financial Statements and reported amounts of expenses during the reporting period. Actual outcomes could differ
from these estimates. These Financial Statements include estimates which, by their nature, are uncertain. The impacts of such estimates are pervasive
throughout the Financial Statements, and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are
recognized in the period in which the estimate is revised and future periods if the revision affects both current and future periods. These estimates are based
on historical experience, current and future economic conditions and other factors, including expectations of future events that are believed to be reasonable
under the circumstances.
Sources of estimation uncertaint y
Significant assumptions about the future and other sources of estimation uncertainty that management has made at the end of the reporting period, that
could result in a material adjustment to the carrying amounts of assets and liabilities, in the event that actual results differ from assumptions made, relate to,
but are not limited to, the following:
1.
The Group uses the Black-Scholes Option Pricing Model to calculate the fair value of share purchase options granted for determining share-based
compensation included in the loss for the year. Inputs used in this model require subjective assumptions, including the expected price volatility
from three to five years. Changes in the subjective input assumptions can affect the fair value estimate, and therefore the existing models do not
necessarily provide a reliable single measure of the fair value of the Group’s share purchase options. The weighted average assumptions applied are
disclosed in Note 8(d).
2.
Significant assumptions about the future and other sources of estimation uncertainty are made in determining the provision for any deferred income
tax expense included in the loss for the year and the composition of deferred income tax liabilities included in the Statement of Financial Position.
Critical accounting judgme nts
These include:
3.
1.
In terms of IFRS 6, Exploration and Evaluation of Mineral Resources, management identified indicators that required testing the Group’s mineral
property interest ("MPI") for impairment. The Group used judgment in determining from an analysis of facts and circumstances that no impairment
of the MPI was necessary.
2.
IAS 21, The Effects of Changes in Foreign Exchange Rates ("IAS 21") defines the functional currency as the currency of the primary economic
environment in which an entity operates. IAS 21 requires the determination of functional currency to be performed on an entity by entity basis,
based on various primary and secondary factors. In identifying the functional currency of the parent and its subsidiaries, management considered
the currency in which financing activities are denominated and the currency that mainly influences the cost of undertaking the business activities in
each jurisdiction in which the Group operates.
3.
The Group has employed judgement that going concern was an appropriate basis for the preparation of the Financial Statements, as the Group has
prioritized the allocation of available financial resources to meet key corporate Pebble Project expenditure requirements in the near term (refer note
1).
ACQUISITIONS
During the year ended December 31, 2015, the Company acquired two publicly listed entities as described below:
P a g e | 139
(a)
Acquisition of Cannon Point Resources Ltd.
On October 29, 2015, by way of a plan of arrangement (the "Cannon Point Arrangement") dated August 31, 2015, the Group acquired 100% of the issued
and outstanding common shares of Cannon Point Resources Ltd. ("Cannon Point"), a TSX-Venture listed entity whose only major asset was cash and cash
equivalents, by issuing 12,881,344 common shares in the Company to the former shareholders of Cannon Point in an exchange ratio of 0.376 of a Northern
Dynasty common share for each issued Cannon Point common share. Additionally, the Company issued an aggregate of 4,394,500 of its warrants and nonemployee options (note 8(c)) to the holders of Cannon Point’s outstanding warrants and options. Cannon Point was delisted immediately after the
acquisition by the Company.
Prior to the completion of the acquisition and pursuant to the Cannon Point Arrangement, on September 1, 2015, Cannon Point advanced to the Company
$4,250 (the "Cannon Point Cash Advance") with a one year term at an interest rate of 15% per annum. The Group accrued $103 in interest on the Cannon
Point Cash Advance up to the date of the acquisition.
As of the date of acquisition, Cannon Point did not meet the definition of a business under IFRS 3, Business Combinations ("IFRS 3"). The Company has
accounted for the acquisition of Cannon Point as issuance of its equity for cash and cash equivalents and other financial assets, net of financial liabilities,
under IAS 39, Financial Instruments: Recognition and Measurement ("IAS 39") and IAS 32, Financial Instruments: Presentation ("IAS 32") .
The following are the assets and liabilities of Cannon Point acquired and consideration provided by the Group:
Cash and cash equivalent, including Cannon Point Cash Advance
Amounts receivable
Accounts payable and accrued liabilities assumed
Fair value of financial instruments acquired
Consideration:
Issuance of 12,881,344 common shares in the Company
Issuance of 4,394,500 share purchase warrants and options (note 8(c))
Total consideration
$
$
$
$
Fair value
4,397
126
(140)
4,383
4,166
217
4,383
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:
•
the fair value of the common shares were determined with reference to the quoted market price on the date of issuance; and
•
the fair value of the warrants and non-employee options were determined using the Black Scholes Options Pricing model and based on the
following weighted average valuation inputs: Exercise price – $1.63; Valuation date share price – $0.55; Expected volatility – 87%; Risk free rate
– 0.49%; Remaining life – 0.82 years; and Dividend yield – nil%.
The Company incurred $104 in transaction costs relating to the acquisition of Cannon Point and recorded it within equity.
(b)
Acquisition of Mission Gold Ltd.
On December 24, 2015, by way of a plan of arrangement (the "Mission Gold Arrangement"), the Group acquired 100% of issued and outstanding common
shares of Mission Gold Ltd. ("Mission Gold"), a TSX-Venture listed entity which held cash and cash equivalents of approximately $9,000 and common
shares of a public listed company with a fair value of $1,684; these common shares were received by Mission Gold as a consideration for the sale of its
Alto Parana titanium project prior to and as a condition for closing of the transaction with the Company.
The Group issued 27,593,341 common shares in the Company to the former shareholders of Mission Gold at an exchange ratio of 0.5467 of a Northern
Dynasty common share for each issued and outstanding common share of Mission Gold. In addition, the Group issued an aggregate of 16,673,348 Northern
Dynasty warrants (note 8(c)) to the holders of Mission Gold’s outstanding warrants. Concurrent to its acquisition by the Group, Mission Gold was delisted
and amalgamated with a wholly-owned subsidiary of the Company; namely, MGL Subco Ltd.
P a g e | 140
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:
Cash and cash equivalent received, including draw-down on the Mission Gold Credit Facility
Common shares of a publicly listed company
GST receivable and other amounts receivable
Fair value of financial instruments acquired
Consideration:
Issuance of 27,593,341 common shares
Issuance of share purchase warrants (note 8(c))
Total consideration
$
$
$
$
Fair value
8,338
1,684
81
10,103
7,838
2,265
10,103
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 fair value of the common shares were determined with reference to the quoted market price on the date of issuance; and
•
the fair value of the warrants were determined using the Black Scholes Options Pricing model and based on the following weighted average
valuation inputs: Exercise price – $0.97; Valuation date share price – $0.43; Expected volatility – 83%; Risk free rate – 0.59%; Remaining life –
4.06 year; and Dividend yield – nil%.
The Company incurred $284 in transaction costs relating to the acquisition of Mission Gold and recorded it within equity.
P a g e | 141
4.
MINERAL PROPERTY, PLANT AND EQUIPMENT
The Group’s exploration and evaluation assets are comprised of the following:
Year
ended
December
31,
2015
Cost
Beginning balance
Additions during the year
Dispositions during the year
Ending balance
Accumulated depreciation
Beginning balance
Charge for the year (1)
Eliminated on disposal
Ending balance
Foreign currency translation difference (note 8(e))
Net carrying value – Ending balance
Mineral
Property
interest
$
Plant and
equipment
112,541
–
–
112,541
$
$
$
–
–
–
–
$
33,743
146,284
$
$
$
Total
1,155 $
28
(151)
1,032 $
113,696
28
(151)
113,573
(278) $
(279)
76
(481) $
(278)
(279)
76
(481)
$
253
804
$
$
33,996
147,088
Year ended December 31, 2014
Mineral
Property
interest
Cost
Beginning balance
Additions during the year (note 4(b))
Dispositions during the year
Ending balance
Beginning balance
Charge for the year (1)
Eliminated on disposal
Ending balance
Foreign currency translation difference (note 8(e))
Net carrying value – Ending balance
(1)
$
Plant and
equipment
106,697
5,844
–
112,541
$
$
$
–
–
–
–
$
10,095
122,636
$
$
$
Total
1,222 $
–
(67)
1,155 $
107,919
5,844
(67)
113,696
– $
(282)
4
(278) $
–
(282)
4
(278)
$
$
95
972
$
10,190
123,608
Depreciation has been included in the loss for the year and has been classified as exploration and evaluation expenses.
P a g e | 142
Mineral Property Interest
(a)
Pebble Project
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 Group’s 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.
(b)
Other Claims
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 arm’s-length party. These claims form part of the Pebble Project claims discussed in (a).
5.
AVAILABLE-FOR-SALE FINANCIAL ASSETS
The Group’s available-for-sale financial asset is comprised of investments in marketable securities of Canadian publicly listed companies.
Marketable securities
6.
$
December 31
2015
1,579
$
December 31
2014
287
AMOUNTS RECEIVABLE AND PREPAID EXPENSES
Sales tax receivable
Amounts receivable
Prepaid expenses
Total
7.
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
(a)
Cash and Cash Equivalents
Business and savings accounts
Guaranteed investment certificates
Total
$
$
$
$
December 31
2015
164
514
397
1,075
December 31
2015
7,509
–
7,509
$
$
$
$
December 31
2014
70
143
749
962
December 31
2014
9,130
317
9,447
P a g e | 143
Supplementary cash flow information
Non-cash investing and financing activities:
•
•
•
•
(b)
During the year ended December 31, 2015, the Group acquired certain entities by issuing equity instruments (note 3).
During the year ended December 31, 2014, the Group received marketable securities as consideration for 650,000 special warrants issued (note
8(c)).
During the year ended December 31, 2014, the Group received claims from Liberty Star in settlement of amounts advanced to the arm’s-length
party (note 4).
During the year ended December 31, 2013, the Group acquired assets and liabilities held in the Pebble Limited Partnership upon discontinuance of
the equity method (note 4).
Restricted Cash
At December 31, 2015, restricted cash in the amount of $453 (December 31, 2014 – $1,206) was held in the Pebble Partnership for certain equipment
demobilization expenses relating to its activities undertaken while the Pebble Partnership was subject to joint control of the Group and Anglo American
(note 4(a)). This cash was not available for general use by the Group. Subsequent to the reporting period, the Group incurred $393 in demobilization
expenses which was refunded from restricted cash. The remaining unutilized balance of $60 was refunded to Anglo American.
8.
CAPITAL AND RESERVES
(a)
Authorized Share Capital
At December 31, 2015, the authorized share capital comprised an unlimited (2014 – unlimited) number of common shares with no par value. All issued
shares are fully paid.
(b)
Private Placement
On December 23, 2015, the Group completed a private placement of 12,573,292 common shares in the Company at a price of $0.412 per share for gross
proceeds of approximately $5,180,200. The Group issued 300,000 common shares as referral fees to an arm’s length third party and recorded the fair value
of these common shares of $120 as share issuance cost. Other legal and regulatory costs incurred in relation to the private placement was $14.
P a g e | 144
(c)
Share Purchase Warrants and Options, Other than Options Issued under the Group’s Incentive Plan
The following reconciles warrants and non-employee options (options which are not issued under the Group’s incentive plan (note 8(d)), each exercisable
to acquire one common share of the Company, at the beginning and end of the year:
Exercise
price per
common
share ($)
Expiry date
Balance at
beginning
of year
Issued
Exercised/
conversion
Expired
Balance
at end of
year
Not applicable
27,622,642
45,940,093
(73,562,735)
–
–
28,200
47,000
3,149,000
150,400
220,900
150,400
37,600
18,800
56,400
225,600
9,400
150,400
37,600
75,200
37,600
4,394,500
–
–
–
–
–
–
–
(18,800)
–
–
–
–
–
–
–
(18,800)
(28,200)
(47,000)
(3,149,000)
–
–
–
–
–
–
–
–
–
–
–
–
(3,224,200)
–
–
–
150,400
220,900
150,400
37,600
–
56,400
225,600
9,400
150,400
37,600
75,200
37,600
1,151,500
–
–
–
13,801,672
2,871,676
16,673,348
–
–
–
–
–
-
13,801,672
2,871,676
16,673,348
27,622,642
67,007,941
(73,581,535)
(3,224,200)
17,824,848
Special warrants issued for cash (1)
nil
Warrants and options issued pursuant to the acquisition of Cannon Point (2) (note 3(a))
0.37
0.40
2.13
0.29
0.37
0.40
0.43
0.37
0.37
0.40
0.37
0.40
0.37
0.40
0.29
December 2, 2015
December 2, 2015
December 17, 2015
January 29, 2016 (3)
January 29, 2016 (3)
January 29, 2016 (3)
January 29, 2016 (3)
July 23, 2017 (4)
June 30, 2019
June 30, 2019
March 10, 2021
March 10, 2021
December 15, 2021
December 12, 2022
December 8, 2024
Total
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Warrants and options issued pursuant to the acquisition of Mission Gold (2) (note 3(b))
0.55
3.00
Total
Grand Total (5)
July 9, 2020
September 14, 2017
P a g e | 145
Exercise
price per
common
share ($)
Expiry date
Special warrants issued for cash (1)
nil
Not applicable
(d)
Balance at
beginning
of year
–
Issued
Exercised/
conversion
Expired
Balance
at end of
year
27,622,642
–
–
27,622,642
(1)
The Group issued special warrants for cash during fiscal years 2014 and 2015. Each of the Group’s share purchase warrants ("Special Warrant")
was convertible, without payment of any additional consideration by the holder, into one common share of the Company, either at the option of the
holder or automatically within a maximum of a two year period from the issuance date. At December 31, 2015, all Special Warrants issued were
converted into common shares. During the year ended December 31, 2015, the Group incurred a total of $1,112 in advisory, finders’, regulatory,
and legal fees on the financing (2014: $353).
(2)
Warrants and options issued pursuant to the acquisition of Cannon Point and Mission Gold were recognized at their relative fair value (note 3).
(3)
Subsequent to the reporting date, all the options other than 75,200 options expired unexercised.
(4)
The options were exercised on November 27, 2015 at an average market share price of $0.40.
(5)
At December 31, 2015, warrants and non-employee options had a weighted average exercise price of $0.93 and weighted average remaining life of
3.94 years.
Share Purchase Option Compensation Plan
The Group has a share purchase option plan approved by the Group’s shareholders that allows the Board of Directors to grant share purchase options,
subject to regulatory terms and approval, to its officers, directors, employees, and service providers. The share purchase option plan (the "2014 Rolling
Option Plan") is based on the maximum number of eligible shares equaling a rolling percentage of up to 10% of the Company's outstanding common shares
including any issuances from the Group’s Restricted Share unit ("RSU") and Deferred Share unit ("DSU") plans, calculated from time to time. Pursuant to
the 2014 Rolling Option Plan, if outstanding share purchase options ("options") are exercised and the number of issued and outstanding common shares of
the Company increases, then the options available to grant under the plan increase proportionately (assuming there are no issuances under the RSU and
DSU plans). The exercise price of each option is set by the Board of Directors at the time of grant but cannot be less than the market price, being the 5- day
volume weighted average trading price calculated the day before the grant. Options can have a maximum term of five years and typically terminate 90 days
following the termination of the optionee’s employment or engagement. In the case of death or retirement, any outstanding vested options will expire the
earlier of the expiry date or one year from date of death or retirement. The vesting period for options is at the discretion of the Board of Directors at the
time the options are granted.
P a g e | 146
The following reconciles the Group’s options outstanding at the beginning and end of the year:
2015
Number of
options
7,687,000
3,657,500
(1,241,800)
(347,100)
9,755,600
Continuity of options
Balance at beginning of year
Granted
Expired
Forfeited/cancelled
Balance at end of year
2014
Weighted
average
exercise
price
($/option)
1.95
0.50
3.00
2.09
1.27
Number of
options
3,735,700
5,875,100
(1,881,100)
(42,700)
7,687,000
Weighted
average
exercise
price
($/option)
4.13
1.56
5.07
2.08
1.95
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:
Assumptions
Risk-free interest rate
Expected life
Expected volatility (1)
Grant date share price
Expected dividend yield
(1)
$
2015
0.78%
4.36 years
81.76%
0.47
Nil
$
2014
1.53%
4.56 years
67.80%
1.44
Nil
Expected volatility is based on the historical and implied volatility of the Company’s common share price on the TSX.
The following table summarizes information about the Group’s options outstanding at December 31, 2015:
2015
Exercise
prices ($)
0.50
0.72
0.89
1.77
3.00
15.44
Options outstanding
Number
of
options
outstanding
3,639,500
200,000
1,180,500
4,233,600
475,000
27,000
9,755,600
Weighted
average
exercise
price
($/option)
0.50
0.72
0.89
1.77
3.00
15.44
1.27
Options exercisable
Weighted
average
remaining
contractual
life
(years)
4.15
3.71
3.20
2.70
1.50
0.21
3.26
Number of
options
exercisable
1,217,172
133,334
745,166
4,233,600
475,000
27,000
6,831,272
Weighted
average
exercise
price
($/option)
0.50
0.72
0.89
1.77
3.00
15.44
1.57
Weighted
average
remaining
contractual
life
(years)
4.15
3.71
3.22
2.70
1.50
0.21
2.94
P a g e | 147
The following table summarizes information about the Group’s options outstanding at December 31, 2014:
2014
Exercise
prices ($)
0.72
0.89
1.77
3.00
15.44
(e)
Options outstanding
Number of
options
outstanding
200,000
1,180,500
4,454,800
1,824,700
27,000
7,687,000
Weighted
average
exercise
price
($/option)
0.72
0.89
1.77
3.00
15.44
1.95
Options exercisable
Weighted
average
remaining
contractual
life
(years)
4.71
4.20
3.62
1.01
1.21
3.11
Number of
share
purchase
options
exercisable
66,667
376,834
2,239,900
1,824,700
27,000
4,535,101
Weighted
average
remaining
contractual
life
(years)
4.71
4.20
3.61
1.01
1.21
2.62
Weighted
average
exercise
price
($/option)
0.72
0.89
1.77
3.00
15.44
2.26
Foreign Currency Translation Reserve
Balance at beginning of year
Foreign exchange translation differences incurred in the year:
Exchange gain on translation of the investment in the Pebble
Partnership under joint venture
Exchange gain on translation of foreign subsidiaries
Total foreign exchange translation differences during the year
Deferred income tax on investment
Reversal of deferred income tax on investment
Balance at the end of year
$
2015
17,179
$
–
23,300
23,300
–
–
40,479
2014
$
7,234 $
$
–
9,945
9,945
–
–
17,179
$
2013
347
6,736
138
6,874
(128)
141
7,234
The foreign currency translation reserve represents accumulated exchange differences arising on the translation, into the Group’s presentation currency (the
Canadian dollar), of the results of operations and net assets of the Group’s subsidiaries with a US dollar functional currency. In 2012 and until December
10, 2013, the Pebble Partnership was under joint control. The Group then reacquired a 100% interest therein. Until the change in control, the investment in
the Pebble Partnership was accounted for under the equity method with the related tax effect recognized in other comprehensive loss.
9.
RELATED PARTY BALANCES AND TRANSACTIONS
Balances and transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation
(note 2(c)). Details between the Group and other related parties are disclosed below:
(a)
Transactions and Balances with Key Management Personnel
The aggregate value of transactions with key management personnel ("KMP"), being the Group’s directors and senior management including the Senior
Vice President ("VP"), Corporate Development, VP, Corporate Communications, VP, Engineering, VP, Public Affairs, Chief Executive Officer of the
Pebble Partnership ("CEO of PLP"), Chairman of Pebble Mines Corp ("Chair of PMC"), Senior VP, Corporate Affairs of the Pebble Partnership ("PLP
Senior VP") and Company Secretary, was as follows:
P a g e | 148
Transaction
Compensation
Payments to HDSI for services of KMP employed by HDSI (1)
Payments to KMP (2)
(b)
2015
$
Total compensation
$
Transfer of resources to the Group (3)(4)
$
2,800
2,700
5,500
500
6,000
2014
$
$
(364) $
2,369
1,814
4,183
2,825
7,008
$
2013
$
1,608
137
1,745
230
1,975
(749) $
–
(1)
The Group’s executive directors and senior management (other than disclosed in (2)) are employed by the Group through Hunter Dickinson
Services Inc. (refer (b)).
(2)
The Group directly employs its independent directors, the CEO of PLP, the Chair of PMC and PLP Senior VP. Payments represent short term
employee benefits incurred, including salaries and directors fees.
(3)
During the year ended December 31, 2015, 912,336 Special Warrants were issued to three directors and officers and spouses of officers who
participated in the private placement of Special Warrants (note 8(c)).
(4)
During the year ended December 31, 2014, 1,737,000 Special Warrants were issued to eight directors and officers and a spouse of an officer who
participated in the private placement of Special Warrants (note 8(c)) and, as consideration of these Special Warrants, received $470 in cash and
$279 was received in shares of a Canadian public listed company (note 5).
Transactions and Balances with other Related Parties
Hunter Dickinson Services Inc. ("HDSI") is a private company that provides geological, engineering, environmental, corporate development, financial
administrative and management services to the Group and its subsidiaries at annually set rates pursuant to a management services agreement. The annually
set rates also include a component of overhead costs such as office rent, information technology services and general administrative support services. HDSI
also incurs third party costs on behalf of the Group which are reimbursed by the Group at cost. Several directors and other key management personnel of
HDSI, who are close business associates, are also key management personnel of the Group.
P a g e | 149
The aggregate value of transactions and outstanding balances with HDSI were as follows:
Transactions with HDSI
Services rendered by HDSI:
Technical
Engineering
Environmental
Socioeconomic
Other technical services
Management, financial & administration
$
Reimbursement of third party expenses
Conferences and travel
Insurance
Office supplies and other
Sale of marketable securities to HDSI (note 5)
Total value of transactions
610
160
60
390
$
Balances payable to HDSI
Entity with significant influence over the Group
10.
(280)
5,010
$
779
196
71
512
$
2013
4,181
1,241
612
383
85
161
2,940
2,245
695
829
234
57
538
–
5,705
December 31
2015
677
$
$
–
5,010
December 31
2014
383
TRADE AND OTHER PAYABLES
Falling due within the year
Trade
Other (note 7(b))
Total
11.
2015
2014
4,680 $
4,926 $
1,600
1,745
140
540
580
686
670
277
210
242
3,080
3,181
2,420
2,542
660
639
$
$
December 31
2015
1,594
453
2,047
$
$
December 31
2014
4,444
1,206
5,650
BASIC AND DILUTED LOSS PER SHARE
The calculation of basic and diluted loss per share was based on the following:
Loss attributable to common shareholders
Weighted average number of common shares outstanding
(000s)
$
2015
2014
33,829 $
31,347 $
146,313
95,010
2013
2,523
95,007
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).
P a g e | 150
12.
EMPLOYMENT COSTS
During the year ended December 31, 2015, the Group recorded $9,900 (2014: $14,084; 2013: $5,022) in salaries and benefits, including share-based
payments (note 8(d)) and amounts paid to HDSI (note 9(b)) for services provided to the Group by HDSI personnel.
13.
INCOME TAX EXPENSE
2015
2014
2013
Current tax (recovery) expense
Current (recovery) expense
Current income tax (recovery) expense
$
$
–
–
$
$
–
–
$
$
–
–
$
$
184
184
Current (recovery) expense
Reconciliation of effective tax rate
Loss for the year
Total income tax (recovery) expense
Loss excluding income tax
Income tax using the Company's domestic tax rate
Non-deductible expenses and other
Increase in statutory tax rates
Foreign exchange
Deferred income tax assets not recognized
$
$
$
$
(1,514)
(1,514)
$
$
(2,289)
(2,289)
2015
2014
(33,829) $
(31,348) $
(1,514)
(2,289)
(35,343)
(33,637)
(9,189)
(8,746)
(1,245)
(1,283)
–
–
–
–
8,920
7,740
(1,514) $
(2,289) $
2013
(2,523)
184
(2,339)
(602)
336
(1,465)
13
1,902
184
The Company's domestic tax rate for the year was 26% (2014 – 26%, 2013 – 25.75%) .
P a g e | 151
Deferred income tax assets (liabilities)
Resource pool
Tax losses
Net deferred income tax assets
Resource property/investment in Pebble Partnership
Equipment
Net deferred income tax liability
$
$
December 31
2015
–
3,117
3,117
(3,005)
(112)
–
December 31
2014
–
2,547
2,547
(4,012)
(49)
(1,514)
$
$
The Group had the following temporary differences at December 31, 2015 in respect of which no deferred tax asset has been recognized:
Expiry
Within one year
One to five years
After five years
No expiry date
Total
$
$
Tax losses
–
–
87,646
78
87,724
$
$
Resource
pools
–
–
–
101,343
101,343
$
$
Other
–
2,957
–
148
3,105
The Group has taxable temporary differences in relation to investments in foreign subsidiaries or branches for which deferred tax liabilities have not been
recognized of approximately $7.3 million.
14.
FINANCIAL RISK MANAGEMENT
The Group is exposed in varying degrees to a variety of financial instrument related risks. The Board approves and monitors the risk management
processes, inclusive of documented investment policies, counterparty limits, and controlling and reporting structures. The type of risk exposure and the way
in which such exposure is managed is provided as follows:
(a)
Credit Risk
Credit risk is the risk of potential loss to the Group if a counterparty to a financial instrument fails to meet its contractual obligations. The Group’s credit
risk is primarily attributable to its liquid financial assets, including cash and cash equivalents, restricted cash and amounts receivable. The Group limits the
exposure to credit risk by only investing its cash and cash equivalents and restricted cash with high-credit quality financial institutions in business and
saving accounts, guaranteed investment certificates, and in government treasury bills which are available on demand by the Group for its programs.
Amounts receivable (note 6) include receivable balances with government agencies and refundable deposits.
(b)
Liquidity Risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations when they become due. The Group ensures, as far as reasonably
possible, it will have sufficient capital in order to meet short to medium term business requirements, after taking into account cash flows from operations
and the Group’s holdings of cash and cash equivalents and restricted cash. The Group’s cash and cash equivalents and restricted cash are currently invested
in business accounts.
The Group’s financial liabilities are comprised of trade and other payables (note 10) and a payable to a related party (note 9(b)), which are due for payment
within 12 months from the reporting date. The carrying amounts of the Group’s financial liabilities represent the Group’s contractual obligations.
P a g e | 152
Foreign exchange risk
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 Company’s corporate expenses are incurred in US dollars. The operating results and financial position of
the Group are reported in Canadian dollars in the Group’s consolidated financial statements. The fluctuation of the US dollar in relation to the Canadian
dollar will consequently have an impact upon the losses incurred by the Group as well as the value of the Group’s assets and the amount of shareholders’
equity.
The Group has not entered into any agreements or purchased any instruments to hedge possible currency risks.
The exposure of the Group's US dollar- denominated financial assets and liabilities to foreign exchange risk is as follows:
December 31
2015
Financial assets:
Amounts receivable
Financial liabilities: Trade and other payables
Net financial assets (liabilities) exposed to foreign currency risk
$
$
595
6,408
7,003
(1,529)
5,474
December 31
2014
$
$
635
1,758
2,393
5,225
(2,832)
Based on the above net exposures and assuming that all other variables remain constant, a 10% depreciation of the Canadian dollar relative to the US dollar
would result in a gain of approximately $502 in the year (2014 – $283 loss). This sensitivity analysis includes only outstanding foreign currency
denominated monetary items.
(c)
Interest rate risk
The Group is subject to interest rate cash flow risk with respect to its investments in cash and cash equivalents. The Group’s policy is to invest cash at fixed
rates of interest and cash reserves are to be maintained in cash and cash equivalents in order to maintain liquidity, while achieving a satisfactory return for
shareholders. Fluctuations in interest rates when cash and cash equivalents mature impact interest income earned.
Assuming that all other variables remain constant, a 100 basis points change representing a 1% increase or decrease in interest rates would have resulted in
a decrease or increase in loss of $85 (2014: $176).
(d)
Capital Management
The Group's policy is to maintain a strong capital base so as to maintain investor and creditor confidence and to sustain future development of the business.
The capital structure of the Group consists of equity, comprising share capital, reserves and Special Warrants, net of accumulated deficit. There were no
changes in the Group's approach to capital management during the year. The Group is not subject to any externally imposed capital requirements.
(e)
Fair value
The fair value of the Group’s financial assets and liabilities approximates the carrying amount. The fair value of the AFS financial asset is classified into
level 1 of the fair value hierarchy as quoted market prices are used in the fair value determination.
P a g e | 153
15.
COMMITMENTS AND CONTINGENCIES
(a)
Leases
The Group has the following commitments as of December 31, 2015:
Anchorage office lease (i)
Pebble Project site lease (ii)
Total
Total in Canadian dollars (iii)
(i)
(ii)
(iii)
2016
(‘000s)
US$ 407
32
Total
(‘000s)
US$ 407
32
US$ 439
$ 608
US$ 439
$ 608
The initial 5 year lease term expires on October 31, 2016.
Initial lease for hanger at site expires on May 1, 2016.
Converted at closing rate of $1.3840 per US$ on December 31, 2015, as per Bank of Canada.
The Group has a sub-lease agreement in respect of a portion of the Anchorage office space subject to the operating lease for an average annual rent,
expressed in thousands, of approximately US$259 ($187). The term of the sub-lease expires on October 31, 2016.
(b)
Legal
The Group, through the Pebble Partnership, is advancing its multi-dimensional strategy to address the EPA’s preemptive regulatory action under Section
404(c) of the Clean Water Act, through litigation against the EPA contesting the EPA’s 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 Group has a contingent
liability for additional legal fees and costs that may be due to the Group’s counsel should there be a successful outcome. However, the Group 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 the reporting date, if there was a favourable outcome or settlement, the Company estimates there would potentially be additional legal
fees of $8.3 million (US$6.0 million at closing Bank of Canada rate on December 31, 2015 of C$1.3840) payable by the Company.
P a g e | 154
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated financial statements of Pebble Limited Partnership and its subsidiaries (the "Partnership"), which comprise the
consolidated statement of financial position as of December 10, 2013 and the related consolidated statements of loss and comprehensive loss, changes in equity,
and cash flows, for the period from January 1 to December 10, 2013, and the related notes to the consolidated financial statements.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally
accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair
presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors' Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing
standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures
selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to
fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Partnership's preparation and fair presentation of the
consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the Partnership's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Pebble Limited Partnership
and subsidiaries as of December 10, 2013 and the results of their operations and their cash flows for the period January 1 to December 10, 2013 in accordance with
accounting principles generally accepted in the United States of America.
Emphasis of Matter Regarding Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note 1 to
the consolidated financial statements, the Partnership is experiencing difficulty in generating sufficient cash flow to meet its obligations and sustain its operations,
which raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also discussed in Note 1 to the
consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our
opinion is not modified with respect to this matter.
DELOITTE
&
TOUCHE
LLP
Portland, Oregon
May 15, 2015
P a g e | 155
Consolidated Statement of Loss and Comprehensive Loss
(Expressed in thousands of United States dollars)
Period from
January 1 to
December 10
2013
Notes
Expenses
Depreciation
Legal and accounting
Office and administration
Travel
Operating loss
Impairment loss on IDC receivable
Foreign exchange loss
Loss and comprehensive loss for the period
Allocated as follows:
Limited partners' interests
General partner's interest
3
7
$
4
$
$
$
265
53,180
2,631
8,864
1,504
66,444
1,262
102
67,808
67,808
–
67,808
See accompanying notes to the consolidated financial statements.
P a g e | 156
Consolidated Statement of Changes in Equity
For the period from January 1 to December 10, 2013
Limited
Partners
Capital
Balance, January 1, 2013
Contributions for the period from January 1 to December 10 , 2013
Balance, December 10, 2013
Deficit
Balance, January 1, 2013
Loss and comprehensive loss for the period
from January 1 to December 10, 2013
Balance, December 10, 2013
Partners' equity at December 10, 2013
$
$
$
$
604,051
69,895
673,946
$
(500,429) $
–
$
(500,429)
$
(67,808)
(568,237) $
–
–
$
(67,808)
(568,237)
10
$
105,709
$
105,699
$
Total
10
–
10
$
604,041
69,895
673,936
General
Partner
$
P a g e | 157
Consolidated Statement of Financial Position
December 10
2013
Notes
ASSETS
Non-current assets
Tangible assets, net
Due from general partner
Total non-current assets
Current assets
Other receivables
Due from limited partner
Cash
Total current assets
Total assets
PARTNERS' EQUITY
Capital
Deficit
Total partners' equity
3
4
$
4
4
100,497
99
100,596
850
4,900
1,319
7,069
$
107,665
$
673,946
(568,237)
105,709
LIABILITIES
Current liabilities
Total partners' equity and liabilities
1,956
1,956
$
107,665
P a g e | 158
Consolidated Statement of Cash Flows
Period from
January 1 to
December 10
2013
Cash flows used in operating activities
Loss for the period
Adjustment for items not affecting cash or operating activities
Depreciation
Impairment loss on IDC receivable and interest
$
(67,808)
265
1,262
(66,281)
683
(8,237)
(73,835)
Change in other receivables
Change in trade and other payables
Net cash used in operating activities
Cash flows used in investing activity
Additions to tangible assets
(258)
Cash flows from financing activity
Capital contributions by limited partners
64,995
Decrease in cash
Cash, beginning of period
Cash, end of period
$
(9,098)
10,417
1,319
Non-cash financing activity
Contribution receivable from limited partner
$
4,900
P a g e | 159
1.
Primary business activity
The Pebble Limited Partnership (the "Pebble Partnership") was formed pursuant to a limited partnership agreement dated July 26, 2007 and first amended
and restated as of July 31, 2007, with a subsequent amendment as of September 14, 2007 (the "Agreement"). The purpose of the Pebble Partnership is to
engineer, permit, construct and operate a modern, long-life mine at the Pebble Project near Iliamna, located approximately 200 miles (320 kilometers)
southwest of the city of Anchorage in the State of Alaska.
Until December 10, 2013, Northern Dynasty Partnership ("Northern Dynasty") and Anglo American US (Pebble) LLC. ("Anglo"), wholly-owned US
affiliates of Northern Dynasty Minerals Ltd. and Anglo American plc. respectively, had equal rights in the Pebble Partnership as the limited partners, and
each owned 50% of the outstanding shares of the general partner, Pebble Mines Corp. To maintain its 50% interest in the Pebble Partnership, Anglo was
required to make staged cash investments into the Pebble Partnership aggregating to $1.5 billion (described below). On September 15, 2013, Anglo gave
notice to Northern Dynasty of its withdrawal from the Pebble Partnership. On December 10, 2013, Northern Dynasty exercised its right to acquire Anglo’s
50% interest and consequently holds a 100% interest in the Pebble Partnership and in the Pebble Partnership’s general partner, Pebble Mines Corp. (which
administers the Pebble Project). Anglo contributed $573.2 million to the Pebble Partnership as of December 10, 2013.
Anglo American’s staged investment requirements included an initial minimum expenditure of $125 million (completed in 2008) towards a prefeasibility
report. The prefeasibility report was to be approved by the Board of Pebble Mines Corp., and was to summarize all previous prefeasibility studies. The
Board of Pebble Mines Corp. was also to approve the alternatives for a final feasibility study. Anglo was required, in order to retain its 50% interest in the
Pebble Partnership, to commit within 90 days of the later of the receipt of the approved prefeasibility report and the approved study alternatives, to fund
further expenditures which would bring its total investment to at least $450 million, which amount was to be expended in producing a final feasibility study
and in related activities, which was expected to take the Pebble Partnership to a production decision. Upon an affirmative decision by the Pebble
Partnership to develop a mine, Anglo was required to commit to the remaining portion of the total investment of $1.5 billion in order to retain its interest in
the Pebble Partnership. To December 10, 2013, Anglo American funded $573.2 million. The Pebble Partnership agreement provided for equal project
control rights for both partners with no operator’s fees payable to either party.
Northern Dynasty’s contribution to the Pebble Partnership was the Pebble mineral property. The mineral property was recorded by the Pebble Partnership
at the carrying value of the property in Northern Dynasty prior to the Agreement date and is comprised of acquisition costs and related expenses.
Cash distributions to the partners are first allocated to the limited partners based on capital contributions in excess of any previous distributions made and
then to the limited partners and the general partner in proportion to their ownership interests.
These consolidated financial statements are for the period from January 1 to December 10, 2013.
P a g e | 160
2.
Significant accounting policies
(a)
Basis of presentation
These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States, and are
expressed in United States ("US") dollars, which is the currency of the primary economic environment in which the Pebble Partnership operates, with the
assumption that the Pebble Partnership will be able to realize its assets and discharge its liabilities in the normal course of business rather than through a
process of forced liquidation. During the period from January 1 to December 10, 2013, the Pebble Partnership incurred a loss of $67,808 and used cash
from operating activities of $73,835. Continued operations of the Pebble Partnership are dependent on its ability to develop its mineral property claims,
receive continued financial support from its limited partner(s), or generate profitable operations in the future. These circumstances raise substantial doubt
about the Pebble Partnership’s ability to continue as a going concern. The financial statements do not include any adjustment to assets and liabilities should
the Pebble Partnership be unable to continue as a going concern.
There can be no assurance that the Pebble Partnership will continue to receive financial support, in which case it will be unable to meet its obligations.
Should the Pebble Partnership be unable to realize its assets and discharge its liabilities in the normal course of business, the net realizable value of its
assets may be materially less than the amounts recorded in these consolidated financial statements.
The Pebble Partnership has early adopted the amendments pursuant to Financial Accounting Standards Board’s
June 2014 Accounting Standards Update 2014-10, Development Stage Entities (Topic 915) , Elimination of Certain Financial Reporting Requirements,
Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation (the "Update") . The amendments in this Update remove the
definition of a development stage entity from the Master Glossary of the Accounting Standards Codification, thereby removing the financial reporting
distinction between development stage entities and other reporting entities from US Generally Accepted Accounting Principles. In addition, the
amendments inter alia eliminate the requirements for development stage entities to (1) present inception-to-date information in the statements of operations
and comprehensive loss, partners’ equity and cash flows, (2) label the financial statements as those of a development stage entity, and (3) disclose a
description of the development stage activities in which the entity is engaged.
The consolidated financial statements have been prepared under the historical cost convention. A summary of the significant accounting policies are
provided below.
(b)
Basis of consolidation
These consolidated financial statements incorporate the financial statements of the Pebble Partnership and the subsidiaries controlled by the Pebble
Partnership listed below:
Name of subsidiary
Place of
incorporation
Proportion of
ownership
interest
Principal activity
Pebble East Claims Corporation
Pebble West Claims Corporation
Kaskanak Copper LLC
Kaskanak Inc.
Alaska, USA
Alaska, USA
Delaware, USA
Alaska, USA
100%
100%
100%
100%
Title holding company
Holding company
Control exists when the Pebble Partnership has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain
benefits from its activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control
commences until the date that control ceases. All significant intercompany transactions and balances have been eliminated.
P a g e | 161
(c)
Recently issued accounting pronouncements
The new mandatory effective accounting pronouncements did not impact the Pebble Partnership’s financial statements. The Pebble Partnership does not
believe that there are any new accounting pronouncements that have been issued that are expected to have a material impact on its financial position or
results of operations.
(d)
Significant accounting judgments and estimates
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period.
Actual outcomes could differ from these estimates. The consolidated financial statements include estimates which, by their nature, are uncertain. The
impacts of such estimates are pervasive throughout the consolidated financial statements, and may require accounting adjustments based on future
occurrences. Revisions to accounting estimates are recognized in the period in which the estimates are revised and the revisions affect both current and
future periods.
Significant accounts that require estimates as the basis for determining the stated amounts include the mineral property interest, plant and equipment,
Iliamna Development Corporation ("IDC") loan receivable and restoration, rehabilitation and environmental costs.
Depreciation and depletion of the mineral property interest and plant and equipment assets are dependent upon estimates of useful lives and reserves
estimates, both of which are determined with the exercise of judgment. The assessment of any impairment of property, plant and equipment is dependent
upon estimates of fair value that take into account factors such as reserves, economic and market conditions and the useful lives of assets.
(e)
Foreign currencies
The functional and presentation currency of the Pebble Partnership is the US dollar.
Transactions in currencies other than the functional currency are recorded at the rates of exchange prevailing on dates of transactions. At the end of each
reporting period, monetary assets and liabilities that are denominated in foreign currencies are translated using the period end foreign exchange rate. Nonmonetary items that are measured in terms of historical cost in a foreign currency are translated using the historical rate on the date fair value was
determined.
(f)
Tangible assets
Property, plant and equipment ("PPE") are carried at cost, less accumulated depreciation and include accumulated impairment losses.
The cost of an item of PPE consists of the purchase price, any costs directly attributable to bringing the asset to the location and condition necessary for its
intended use and an initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located.
Depreciation is provided at rates calculated to write off the cost of PPE, less their estimated residual value, using the declining balance method at various
rates ranging from 20% - 30% per annum.
The estimated useful lives, residual values and depreciation method are reviewed at least annually, with the effect of any changes in estimates accounted for
on a prospective basis.
An item of PPE is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or
loss arising on disposal of the asset, determined as the difference between the net disposal proceeds and the carrying amount of the asset, is recognized in
the consolidated statement of loss and comprehensive loss.
Where an item of plant and equipment consists of major components with different useful lives, the components are accounted for as separate items of PPE.
Expenditures incurred to replace a component of an item of PPE that is accounted for separately, including major inspection and overhaul expenditures, are
capitalized.
(g)
Impairment
Unlike goodwill and indefinite-lived intangible assets, the accounting rules do not provide for an annual impairment test in determining whether tangible
assets are impaired. Instead, they require that a triggering event occur before testing an asset for impairment. Examples of such triggering events include a
significant disposal of a portion of such assets, an adverse change in the market involving the business employing the related asset, a significant decrease in
the benefits realized from an acquired business, difficulties or delays in integrating the business, and a significant change in the operations of an acquired
business.
P a g e | 162
Once a triggering event has occurred, the impairment test employed is based on whether the intent is to hold the asset for continued use or to hold the asset
for sale. If the intent is to hold the asset for continued use, the impairment test involves a comparison of undiscounted cash flows against the carrying value
of the asset as an initial test. If the carrying value of such asset exceeds the undiscounted cash flow, the asset would be deemed to be impaired. Impairment
would then be measured as the difference between the fair value of the fixed or amortizing intangible asset and the carrying value to determine the amount
of the impairment. The Company generally determines fair value by using the discounted cash flow method. If the intent is to hold the asset for sale and
certain other criteria are met (i.e., the asset can be disposed of currently, appropriate levels of authority have approved sale, and there is an actively
pursuing buyer), the impairment test is a comparison of the asset’s carrying value to its fair value less costs to sell. To the extent that the carrying value is
greater than the asset’s fair value less costs to sell, an impairment loss is recognized for the difference. Assets held for sale are separately presented on the
balance sheet and are no longer depreciated.
The Pebble Partnership has not recorded any impairment charges on its tangible assets in the periods presented.
(h)
Exploration and evaluation expenditures
Exploration and evaluation expenditures include the costs of acquiring licenses, costs associated with exploration and evaluation activity, and the
acquisition date fair value of exploration and evaluation assets acquired in a business combination or an asset acquisition. Exploration and evaluation
expenditures are expensed as incurred except for expenditures associated with the acquisition of exploration and evaluation assets through a business
combination or an asset acquisition. Costs incurred before the Pebble Partnership has obtained the legal rights to explore an area are expensed.
Acquisition costs, including general and administrative costs, are only capitalized to the extent that these costs can be related directly to operational
activities in the relevant area of interest where it is considered likely to be recoverable by future exploitation or sale or where the activities have not reached
a stage which permits a reasonable assessment of the existence of reserves.
Exploration and evaluation assets are assessed for impairment only when facts and circumstances suggest that the carrying amount exceeds the recoverable
amount and when the Pebble Partnership has sufficient information to reach a conclusion about the technical feasibility and commercial viability of the
assets.
Once the technical feasibility and commercial viability of the extraction of mineral resources in an area of interest are demonstrable, exploration and
evaluation assets attributable to that area of interest are first tested for impairment and then reclassified to mining property and development assets within
PPE.
Recoverability of the carrying amount of any exploration and evaluation assets is dependent on successful development and commercial exploitation, or
alternatively, sale of the assets.
(i)
Asset retirement obligation
An obligation to incur restoration, rehabilitation and environmental costs arises when environmental disturbance is caused by the exploration, development
or ongoing production of a mineral property interest. Such costs arising from the decommissioning of plant and other site preparation work, discounted to
their net present value, are provided for and capitalized at the start of each project, as soon as the obligation to incur such costs arises. These costs are
charged against profits over the life of the operation, through the amortization and the unwinding of the discounted provision.
The Pebble Partnership has no material restoration, rehabilitation and environmental costs as the disturbance to date is minimal.
(j)
Financial assets
Financial assets are classified into ‘loans and receivables’. The Pebble Partnership does not hold any financial assets classified as any of ‘financial assets at
fair value through profit or loss’, ‘held to maturity instruments’ or ‘available for sale financial assets’. The classification depends on the nature and purpose
of the financial assets and is determined at the time of initial recognition.
P a g e | 163
Loans and receivables
The Pebble Partnership has classified other receivables as ‘loans and receivables’. ‘Loans and receivables’ are financial assets with fixed or determinable
payments that are not quoted in an active market.
‘Loans and receivables’ are initially recognized at the transaction value and subsequently carried at amortized cost less impairment losses. The impairment
loss of receivables is based on a review of all outstanding amounts at period end. Bad debts are written off during the year in which they are identified.
Interest income is recognized by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.
Derecognition of financial liabilities
The Pebble Partnership derecognizes financial liabilities when, and only when, the Pebble Partnership’s obligations are discharged, cancelled or they
expire.
(k)
Leases
Rental costs under operating leases are charged to the consolidated statement of loss and comprehensive loss in equal amounts over the lease term.
(l)
Income taxes
The partners are individually liable for any taxes related to their respective shares of the Pebble Partnership’s taxable income or loss. Accordingly, no
provision for income taxes is required. Additionally, distributions of tax losses are allocated based on funding contributions made by each partner.
(m)
Provisions
Provisions are recorded when a present legal or constructive obligation exists as a result of past events where it is probable that an outflow of resources
embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made.
The amount recognized as a provision is the best estimate of the consideration required to settle the obligation at the financial position reporting date,
taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the
present obligation, its carrying amount is the present value of those cash flows. When some or all of the economic benefits required to settle an obligation
are expected to be recovered from a third party, the receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the
amount receivable can be measured reliably.
P a g e | 164
3.
Tangible assets
Mineral
property
Cost
At January 1, 2013
Additions
At December 10, 2013
At January 1, 2013
Depreciation
Carrying value
4.
$
Plant and
equipment
99,347
–
99,347
$
$
$
–
–
–
$
99,347
$
$
Total
1,906
258
2,164
$
$
$
749
265
1,014
$
749
265
1,014
$
1,150
$
100,497
$
$
101,253
258
101,511
Receivables
December 10
2013
Non-current
Amounts due from general partner
Current
Contribution receivable from limited partner
Prepayments and deposits
$
99
$
4,900
850
5,750
$
Loan Receivable
The Pebble Partnership committed a loan in the amount of $3,156 to the Iliamna Development Corporation ("IDC"). This loan was initiated on April 15,
2009 at a value of $1,712 with an increase of $200 on February 1, 2010 and an increase of $1,244 on April 1, 2010. A lien on all IDC assets was granted as
the security for the loan. The original maturity date of this loan was December 31, 2011. In 2011, $1,894 was written off in relation to the loan receivable to
reflect management’s expectation of future recoverability of the loan. This adjustment included consideration of a renegotiated payment plan with IDC that
was completed in early 2012 and treated as an adjusting item as at December 31, 2011. As at December 10, 2013, the loan was considered not recoverable
as the Pebble Partnership had not received payment thereon notwithstanding the payment plan in place and an impairment loss was recognized in the
consolidated statement of loss and comprehensive loss.
P a g e | 165
5.
Related party balances and transactions
Transactions between the Pebble Partnership and its subsidiaries have been eliminated on consolidation and are not disclosed in this note. The undernoted
summarizes related party activities other than those identified elsewhere in these financial statements:
Transactions
For services rendered and expenses reimbursed
Anglo American plc and subsidiaries (a)
Hunter Dickinson Services Inc. (b)
Period from
January 1 to
December 10
2013
$
$
6.
1,392
1,641
3,033
(a)
Anglo American plc and its subsidiaries provided technical, geological, corporate development, administrative, safety and community services to,
and incurred third party costs on behalf of, the Pebble Partnership on a full cost recovery basis pursuant to the technical services agreements dated
July 8, 2008 and further provided in the addendum to the said agreements dated November 20, 2009.
(b)
Hunter Dickinson Services Inc. (“HDSI”) is a private company which has directors and other key management personnel, who are close business
associates that are also key management personnel of Northern Dynasty Minerals Ltd., which owns the Northern Dynasty Partnership. HDSI
provides geological, site operations, engineering, corporate development, administrative and management services to, and incurs third party costs
on behalf of, the Pebble Partnership on a full cost recovery basis pursuant to an agreement dated July 8, 2008 and further provided in the addendum
to the said agreement dated November 20, 2009.
Financial instruments and risk management
The Pebble Partnership’s financial instruments consist of cash, amounts due from the general partner, related parties and other unrelated parties, and trade
and other payables. All of the Pebble Partnership’s financial instruments have carrying values which are considered to be reasonable approximations of fair
value due to the short-term nature of these instruments.
The Pebble Partnership’s financial instruments are exposed to a number of financial and market risks, including credit, liquidity and foreign exchange risks.
The Pebble Partnership may, or may not, establish from time to time active policies to manage these risks. The Pebble Partnership does not currently have
in place any active hedging or derivative trading policies to manage these risks as the Pebble Partnership’s management does not believe that the current
size, scale and pattern of its operations would warrant such hedging activities.
(a)
Credit risk
Credit risk is the risk that a counterparty to a financial instrument will not discharge its obligations, resulting in a financial loss to the Pebble Partnership.
The Pebble Partnership has procedures in place to minimize its exposure to credit risk. The Pebble Partnership management evaluates credit risk on an
ongoing basis, including evaluation of counterparty credit rating.
The primary sources of credit risk for the Pebble Partnership arise from the following financial assets: (1) cash balances and until recently amounts due
from IDC which the Pebble Partnership impaired during the period from January 1 to December 10, 2013 (note 4). Except as discussed in Note 4, the
Pebble Partnership does not expect to have any credit losses in the future. At December 10, 2013, the Pebble Partnership has no financial assets that are
past due or impaired due to credit risk defaults.
P a g e | 166
The Pebble Partnership’s maximum exposure to credit risk at the reporting date is as follows:
December 10
2013
Cash
Due from general partner
Due from limited partner
$
$
(b)
1,319
99
4,900
6,318
Liquidity risk
Liquidity risk is the risk that the Pebble Partnership will not be able to meet its obligations with respect to financial liabilities as they fall due. The Pebble
Partnership’s financial liabilities are comprised of trade and other payables. The Pebble Partnership frequently assesses its liquidity position by reviewing
the timing of amounts due and the Pebble Partnership’s current cash flow position to meet its obligations.
As discussed in Note 1, the Pebble Partnership is reliant on financial support from its limited partners, which subsequent to December 10, 2013, is only
Northern Dynasty, to meet cash flow requirements.
The Pebble Partnership’s financial liabilities arise as a result of ongoing exploration of its mineral property interest and corporate expenses. Payment terms
on these liabilities are typically 30 to 60 days from receipt of invoice and do not generally bear interest. The following table summarizes the remaining
contractual maturities of the Pebble Partnership’s financial liabilities:
(c)
$
December 10
2013
1,956
Market risk
Market risk is the risk that the fair value for assets classified as ‘fair value through profit and loss’ and ‘available- for-sale’ or future cash flows for assets or
liabilities considered to be ‘held-to-maturity’, ‘other financial liabilities’, and ‘loans or receivables’ will fluctuate because of changes in market conditions.
The Pebble Partnership evaluates market risk on an ongoing basis and has established policies and procedures for mitigating its exposure to foreign
exchange fluctuations. The Pebble Partnership is not exposed to interest rate risk, as it does not hold debt balances and is not charged interest on its trade
payables balances.
(d)
Foreign exchange risk
The Pebble Partnership is exposed to foreign exchange risk as some of its operating expenses are incurred in Canadian ("Cdn") dollars and certain of its
liabilities are denominated in Cdn dollars. The Pebble Partnership does not use any derivative instruments to reduce its exposure to fluctuations in foreign
currency exchange rates.
The appreciation of the Cdn dollar against the US dollar can increase the costs of operations in US dollar terms. The Pebble Partnership maintains its cash
balances in US dollars and until December 10, 2013, exchanged currency to meet its Cdn dollar obligations on an as needed basis, thereby reducing the
exchange risk on cash balances.
The Pebble Partnership is exposed to currency risk through the following US dollar equivalent of financial assets and liabilities denominated in currencies
other than US dollars:
December 10
2013
Currency
Canadian dollar exposure
$
132
P a g e | 167
Based on the above net exposures and assuming all other variables remain constant, a 10% depreciation or appreciation in the Cdn dollar against the US
dollar would result in a $13 decrease or increase in the Pebble Partnership’s net loss.
7.
Assays and analysis
Engineering
Environmental
Equipment rental
Freight
Option payment for Kaskanak claims
Public affairs
Site activities
Socioeconomic
Transportation
Incurred during the period / year
8.
Period from
January 1 to
December 10
2013
45
8,992
13,145
38
449
750
4,125
15,477
7,361
2,798
53,180
$
$
Commitments
The Pebble Partnership has the following non-cancellable leases to 2016:
Commitment
Office lease
Site leases
Other leases
$
$
2014
740
780
144
1,664
$
$
2015
763
260
84
1,107
$
$
2016
651
–
–
651
Rent expense under non-cancellable operating leases was $1,627 for the period from January 1 to December 10, 2013.
9.
Subsequent events
The Pebble Partnership has evaluated subsequent events for recognition or disclosure through May 15, 2015, which represents the date the financial
statements were issued.
P a g e | 168
Mailing Address:
PO Box 9431 Stn Prov Govt
Victoria BC V8W 9V3
www.corporateonline.gov.bc.ca
Location:
2nd Floor - 940 Blanshard Street
Victoria BC
1 877 526-1526
Cover Sheet
Confirmation of Service
Form Filed:
Date and Time of Filing:
Name of Company:
Incorporation Number:
Notice of Change of Directors
March 24, 2016 03:19 PM Pacific Time
BC0263934
This package contains:
•
Certified Copy of the Notice of Articles
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instructions on how to correct the errors or omissions.
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Mailing Address:
PO Box 9431 Stn Prov Govt
Victoria BC V8W 9V3
www.corporateonline.gov.bc.ca
Location:
2nd Floor - 940 Blanshard Street
Victoria BC
1 877 526-1526
CERTIFIED COPY
Of a Document filed with the Province
of
British Columbia Registrar of
Companies
Notice of Articles
BUSINESS CORPORATIONS ACT
NOTICE OF ARTICLES
Name of Company:
REGISTERED OFFICE INFORMATION
Mailing Address:
1500 ROYAL CENTRE
PO BOX 11117
1055 WEST GEORGIA STREET
VANCOUVER BC V6E 4N7
CANADA
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DIRECTOR INFORMATION
Last Name, First Name, Middle Name:
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Mailing Address:
1500 - 1055 WEST GEORGIA STREET
VANCOUVER BC V6E 4N7 CANADA
Delivery Address:
1500 - 1055 WEST GEORGIA STREET
VANCOUVER BC V6E 4N7 CANADA
DE WITT, DAVID E
Mailing Address:
1400-400 BURRARD STREE,
VANCOUVER BC V6C 3A6 CANADA
Delivery Address:
1400-400 BURRARD STREE,
De Groot, Marcel
Mailing Address:
1400-400 BURRARD STREET
Delivery Address:
1400-400 BURRARD STREET
Keep, Gordon
Mailing Address:
595 BURRARD STREET, SUITE 3123
VANCOUVER BC V7X 1J1 CANADA
Delivery Address:
595 BURRARD STREET, SUITE 3123
VANCOUVER BC V7X 1J1 CANADA
DICKINSON, ROBERT A.
Mailing Address:
15TH FLOOR - 1040 WEST GEORGIA STREET
VANCOUVER BC V6E 4H1 CANADA
Delivery Address:
Pickering, Kenneth
Mailing Address:
Delivery Address:
Page: 2 of 3
THIESSEN, RONALD W.
Mailing Address:
Delivery Address:
Decker, Steven
Mailing Address:
12610 KLING ST
STUDIO CITY CA 91604
UNITED STATES
Delivery Address:
12610 KLING ST
STUDIO CITY CA 91604
UNITED STATES
AUTHORIZED SHARE STRUCTURE
1.
No Maximum
Common Shares
Without Par Value
Without Special Rights or
Restrictions attached
Page: 3 of 3
1
Incorporation number: BC0263934
(the “Company”)
ARTICLES
ARTICLE 1 INTERPRETATION
ARTICLE 2 SHARES AND SHARE CERTIFICATES
ARTICLE 3 ISSUE OF SHARES
ARTICLE 4 SHARE REGISTERS
ARTICLE 5 SHARE TRANSFERS
ARTICLE 6 TRANSMISSION OF SHARES
ARTICLE 7 PURCHASE OF SHARES
ARTICLE 8 BORROWING POWERS
ARTICLE 9 ALTERATIONS
ARTICLE 10 MEETINGS OF SHAREHOLDERS
ARTICLE 11 PROCEEDINGS AT MEETINGS OF SHAREHOLDERS
ARTICLE 12 VOTES OF SHAREHOLDERS
ARTICLE 13 DIRECTORS
ARTICLE 14 ELECTION AND REMOVAL OF DIRECTORS
ARTICLE 15 ALTERNATE DIRECTORS
ARTICLE 16 POWERS AND DUTIES OF DIRECTORS
ARTICLE 17 DISCLOSURE OF INTEREST OF DIRECTORS
ARTICLE 18 PROCEEDINGS OF DIRECTORS
ARTICLE 19 EXECUTIVE AND OTHER COMMITTEES
ARTICLE 20 OFFICERS
ARTICLE 21 INDEMNIFICATION
ARTICLE 22 DIVIDENDS
ARTICLE 23 DOCUMENTS, RECORDS AND REPORTS
ARTICLE 24 NOTICES
ARTICLE 25 SEAL
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Articles amended by Annual and Special General Meeting of the shareholders held on June 10, 2010 and received for deposit at the Records Office on July
19, 2010.
-2ARTICLE 1
INTERPRETATION
Definitions
1.1
In these Articles, unless the context otherwise requires:
(a)
“ board of directors ”, “ directors ” and “ board ” mean the directors or sole director of the Company for the time being;
(b)
“ Act ” means the Business Corporations Act (British Columbia) from time to time in force and all amendments thereto and includes all regulations
and amendments thereto made pursuant to that Act;
(c)
“ legal personal representative ” means the personal or other legal representative of the shareholder;
(d)
“ registered address ” of a shareholder means the shareholder’s address as recorded in the central securities register;
(e)
“ seal ” means the seal of the Company, if any;
(f)
“ share ” means a share in the capital of the Company; and
(g)
“ special majority ” means the majority of votes described in §11.2 which is required to pass a special resolution.
Act and Interpretation
Act
Definitions Applicable
1.2
The definitions in the Act and the definitions and rules of construction in the Interpretation Act , with the necessary changes, so far as applicable, and
except as the context requires otherwise, apply to these Articles as if they were an enactment. If there is a conflict between a definition in the Act and a definition or
rule in the Interpretation Act relating to a term used in these Articles, the definition in the Act will prevail. If there is a conflict between these Articles and the Act,
the Act will prevail.
ARTICLE 2
SHARES AND SHARE CERTIFICATES
Authorized Share Structure
2.1
The authorized share structure of the Company consists of shares of the class or classes and series, if any, described in the Notice of Articles of the
Company.
-3Form of Share Certificate
2.2
Each share certificate issued by the Company must comply with, and be signed as required by, the Act.
Shareholder Entitled to Certificate, Acknowledgment or Written Notice
2.3
Unless the shares of which the shareholder is the registered owner are uncertificated shares, each shareholder is entitled on request, without charge, to (a)
one share certificate representing the shares of each class or series of shares registered in the shareholder’s name or (b) a non-transferable written acknowledgment
of the shareholder’s right to obtain such a share certificate, provided that in respect of a share held jointly by several persons, the Company is not bound to issue
more than one share certificate or acknowledgment and delivery of a share certificate or acknowledgment for a share to one of several joint shareholders or to one
of the shareholders’ duly authorized agents will be sufficient delivery to all. The Company must send to a holder of an uncertificated share a written notice
containing the information required by the Act within a reasonable time after the issue or transfer of such share.
Delivery by Mail
2.4
Any share certificate or non-transferable written acknowledgment of a shareholder’s right to obtain a share certificate, or written notice of the issue or
transfer of an uncertificated share may be sent to the shareholder by mail at the shareholder’s registered address or the shareholder’s duly authorized agent and
neither the Company nor any director, officer or agent of the Company is liable for any loss to the shareholder because the share certificate, acknowledgement or
written notice is lost in the mail or stolen.
Replacement of Worn Out or Defaced Certificate or Acknowledgement
2.5
If a share certificate or a non-transferable written acknowledgment of the shareholder’s right to obtain a share certificate is worn out or defaced, the
Company must, on production of the share certificate or acknowledgment, as the case may be, and on such other terms, if any, as are deemed fit:
(a)
cancel the share certificate or acknowledgment; and
(b)
issue a replacement share certificate or acknowledgment.
Replacement of Lost, Stolen or Destroyed Certificate or Acknowledgment
2.6
If a share certificate or a non-transferable written acknowledgment of a shareholder’s right to obtain a share certificate is lost, stolen or destroyed, the
Company must issue a replacement share certificate or acknowledgment, as the case may be, to the person entitled to that share certificate or acknowledgment, if
the requirements of the Act are satisfied and it receives:
(a)
proof satisfactory to it of the loss, theft or destruction; and
-4(b)
any indemnity the directors consider adequate.
Splitting Share Certificates
2.7
If a shareholder surrenders a share certificate to the Company with a written request that the Company issue in the shareholder’s name two or more share
certificates, each representing a specified number of shares and in the aggregate representing the same number of shares as the share certificate so surrendered, the
Company must cancel the surrendered share certificate and issue replacement share certificates in accordance with that request.
Certificate Fee
2.8
There must be paid to the Company, in relation to the issue of any share certificate under §2.5, §2.6 or §2.7, the amount, if any, not exceeding the amount
prescribed under the Act, determined by the directors.
Recognition of Trusts
2.9
Except as required by law or statute or these Articles, no person will be recognized by the Company as holding any share upon any trust, and the
Company is not bound by or compelled in any way to recognize (even when having notice thereof) any equitable, contingent, future or partial interest in any share
or fraction of a share or (except as by law or statute or these Articles provided or as ordered by a court of competent jurisdiction) any other rights in respect of any
share except an absolute right to the entirety thereof in the shareholder.
ARTICLE 3
ISSUE OF SHARES
Directors Authorized
3.1
Subject to the Act and the rights of the holders of issued shares of the Company, the Company may allot, issue, sell or otherwise dispose of the unissued
shares, and issued shares held by the Company, at the times, to the persons, including directors, in the manner, on the terms and conditions and for the
consideration (including any premium at which shares with par value may be issued) that the directors may determine. The issue price for a share with par value
must be equal to or greater than the par value of the share.
Commissions and Discounts
3.2
The Company may at any time pay a reasonable commission or allow a reasonable discount to any person in consideration of that person’s purchase or
agreement to purchase shares of the Company from the Company or any other person’s procurement or agreement to procure purchasers for shares of the
Company.
-5Brokerage
3.3
The Company may pay such brokerage fee or other consideration as may be lawful for or in connection with the sale or placement of its securities.
Share Purchase Warrants and Rights
3.4
Subject to the Act, the Company may issue share purchase warrants, options and rights upon such terms and conditions as the directors determine, which
share purchase warrants, options and rights may be issued alone or in conjunction with debentures, debenture stock, bonds, shares or any other securities issued or
created by the Company from time to time.
ARTICLE 4
SHARE REGISTERS
Central Securities Register
4.1
As required by and subject to the Act, the Company must maintain in British Columbia a central securities register and may appoint an agent to maintain
such register. The directors may appoint one or more agents, including the agent appointed to keep the central securities register, as transfer agent for shares or any
class or series of shares and the same or another agent as registrar for shares or such class or series of shares, as the case may be. The directors may terminate such
appointment of any agent at any time and may appoint another agent in its place.
ARTICLE 5
SHARE TRANSFERS
Registering Transfers
5.1
A transfer of a share must not be registered unless the Company, or the Company’s transfer agent or registrar for the class or series of shares to be
transferred has received:
(a) except as exempted by the Act, a written instrument of transfer in respect of the share (which may be a separate document or endorsed on the share
certificate for the shares transferred) made by the shareholder or other appropriate person or by an agent who has actual authority to act on behalf of that
person;
(b)
if a share certificate or non-transferable written acknowledgement of the shareholder’s right to obtain a share certificate has been issued by the
Company in respect of the share to be transferred, that share certificate; and
-6(c) such other evidence, if any, as the Company or the transfer agent or registrar for the class or series of shares to be transferred may require to prove the
title of the transferor or the transferor’s right to transfer the share, that the written instrument of transfer is genuine and the right of the transferee to have
the transfer registered.
Form of Instrument of Transfer
5.2
The instrument of transfer in respect of any share must be either in the form, if any, on the back of the Company’s share certificates of that class or series
or in some other form that may be approved by the directors or by the transfer agent or registrar for those shares from time to time.
Transferor Remains Shareholder
5.3
Except to the extent that the Act otherwise provides, the transferor of a share is deemed to remain the holder of it until the name of the transferee is
entered in a securities register of the Company in respect of the transfer.
Signing of Instrument of Transfer
5.4
If a shareholder, or shareholder’s duly authorized attorney, signs an instrument of transfer in respect of shares registered in the name of the shareholder,
the signed instrument of transfer constitutes a complete and sufficient authority to the Company and its directors, officers and agents to register the number of
shares specified in the instrument of transfer or specified in any other manner, or, if no number is specified, all the shares represented by the share certificates or set
out in the written acknowledgments deposited with the instrument of transfer, or if the shares are uncertificated shares, then all of the shares registered in the name
of the shareholder on the central securities register:
(a)
in the name of the person named as transferee in that instrument of transfer; or
(b)
if no person is named as transferee in that instrument of transfer, in the name of the person on whose behalf the instrument is deposited for the
purpose of having the transfer registered.
Enquiry as to Title Not Required
5.5
Neither the Company nor any director, officer or agent of the Company is bound to inquire into the title of the person named in the instrument of transfer
as transferee or, if no person is named as transferee in the instrument of transfer, of the person on whose behalf the instrument is deposited for the purpose of
having the transfer registered or is liable for any claim related to registering the transfer by the shareholder or by any intermediate owner or holder of the shares
transferred, of any interest in such shares, of any share certificate representing such shares or of any written acknowledgment of a right to obtain a share certificate
for such shares.
-7Transfer Fee
5.6
There must be paid to the Company, in relation to the registration of a transfer, the amount, if any, determined by the directors.
ARTICLE 6
TRANSMISSION OF SHARES
Legal Personal Representative Recognized on Death
6.1
In case of the death of a shareholder, the legal personal representative, or if the shareholder was a joint holder, the surviving joint holder, will be the only
person recognized by the Company as having any title to the shareholder’s interest in the shares. Before recognizing a person as a legal personal representative, the
Company shall receive the documentation required by the Act.
Rights of Legal Personal Representative
6.2
The legal personal representative of a shareholder has the same rights, privileges and obligations that attach to the shares held by the shareholder,
including the right to transfer the shares in accordance with these Articles, provided the documents required by the Act and the directors have been deposited with
the Company.
ARTICLE 7
PURCHASE OF SHARES
Company Authorized to Purchase Shares
7.1
Subject to §7.2, to the special rights and restrictions attached to the shares of any class or series and to the Act, the Company may, if authorized by the
directors, purchase or otherwise acquire any of its shares at the price and upon the terms specified in such resolution.
Purchase When Insolvent
7.2
The Company must not make a payment or provide any other consideration to purchase or otherwise acquire any of its shares if there are reasonable
grounds for believing that:
(a)
the Company is insolvent; or
(b)
making the payment or providing the consideration would render the Company insolvent.
-8Sale and Voting of Purchased Shares
7.3
If the Company retains a share redeemed, purchased or otherwise acquired by it, the Company may sell, gift or otherwise dispose of the share, but, while
such share is held by the Company, it:
(a)
is not entitled to vote the share at a meeting of its shareholders;
(b)
must not pay a dividend in respect of the share; and
(c)
must not make any other distribution in respect of the share.
ARTICLE 8
BORROWING POWERS
8.1
The Company, if authorized by the directors, may:
(a)
borrow money in the manner and amount, on the security, from the sources and on the terms and conditions that they consider appropriate;
(b) issue bonds, debentures and other debt obligations either outright or as security for any liability or obligation of the Company or any other person and
at such discounts or premiums and on such other terms as the directors consider appropriate;
(c)
guarantee the repayment of money by any other person or the performance of any obligation of any other person; and
(d)
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 the Company.
ARTICLE 9
ALTERATIONS
Alteration of Authorized Share Structure
9.1
Subject to §9.2 and the Act, the Company may by ordinary resolution (or a resolution of the directors in the case of §9.1(c) or §9.1(f):
(a) create one or more classes or series of shares or, if none of the shares of a class or series of shares are allotted or issued, eliminate that class or series
of shares;
(b) increase, reduce or eliminate the maximum number of shares that the Company is authorized to issue out of any class or series of shares or establish a
maximum number of shares that the Company is authorized to issue out of any class or series of shares for which no maximum is established;
-9(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:
(i)
decrease the par value of those shares; or
(ii)
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.
Special Rights and Restrictions
9.2
Subject to the Act and in particular those provisions relating to the rights of holders of outstanding shares to vote if their rights are prejudiced or
interfered with, the Company may by ordinary resolution:
(a) 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
(b) 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 and alter its Notice of Articles accordingly.
9.3
To the extent permitted by and subject to the Act, if the special rights and restrictions attached to a class or series of shares permit the directors to do so,
the directors may:
(a) 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
(b)
alter 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.
- 10 Change of Name
9.4
The Company may by ordinary resolution or resolution of the directors authorize an alteration of its Notice of Articles in order to change its name or
adopt or change any translation of that name.
Other Alterations
9.5
If the Act does not specify the type of resolution and these Articles do not specify another type of resolution, the Company may by ordinary resolution
alter these Articles.
ARTICLE 10
MEETINGS OF SHAREHOLDERS
Annual General Meetings
10.1
Unless an annual general meeting is deferred or waived in accordance with the Act, the Company must hold an annual general meeting at least once in
each calendar year and not more than 15 months after its last annual reference date.
Resolution Instead of Annual General Meeting
10.2
If all the shareholders who are entitled to vote at an annual general meeting consent in writing by a unanimous resolution under the Act to all of the
business that is required to be transacted at that annual general meeting, the annual general meeting is deemed to have been held on the date of the unanimous
resolution. The shareholders must, in any unanimous resolution passed under this §10.2, select as the Company’s annual reference date a date that would be
appropriate for the holding of the applicable annual general meeting.
Calling of Meetings of Shareholders
10.3
The directors may, whenever they think fit, call a meeting of shareholders.
Notice for Meetings of Shareholders
10.4
The Company must send notice of the date, time and location of any meeting of shareholders, in the manner provided in these Articles, or in such other
manner, if any, as may be prescribed by ordinary resolution (whether previous notice of the resolution has been given or not), to each shareholder entitled to attend
the meeting, to each director and to the auditor of the Company, unless these Articles otherwise provide, at least the following number of days before the meeting:
(a)
if the Company is a public company, 21 days;
(b)
otherwise, 10 days.
- 11 Record Date for Notice
10.5
The directors may set a date as the record date for the purpose of determining shareholders entitled to notice of any meeting of shareholders. The record
date must not precede the date on which the meeting is to be held by more than two months or, in the case of a general meeting requisitioned by shareholders under
the Act, by more than four months. The record date must not precede the date on which the meeting is held by fewer than:
(a)
if the Company is a public company, 21 days;
(b)
otherwise, 10 days.
If no record date is set, the record date is 5 p.m. on the day immediately preceding the first date on which the notice is sent or, if no notice is sent, the beginning of
the meeting.
Record Date for Voting
10.6
The directors may set a date as the record date for the purpose of determining shareholders entitled to vote at any meeting of shareholders. The record
date must not precede the date on which the meeting is to be held by more than two months or, in the case of a general meeting requisitioned by shareholders under
the Act, by more than four months. If no record date is set, the record date is 5 p.m. on the day immediately preceding the first date on which the notice is sent or, if
no notice is sent, the beginning of the meeting.
Failure to Give Notice and Waiver of Notice
10.7
The accidental omission to send notice of any meeting to, or the non-receipt of any notice by, any of the persons entitled to notice does not invalidate any
proceedings at that meeting. Any person entitled to notice of a meeting of shareholders may, in writing or otherwise, waive or reduce the period of notice of such
meeting.
Notice of Special Business at Meetings of Shareholders
10.8
If a meeting of shareholders is to consider special business within the meaning of §11.1, the notice of meeting must:
(a)
state the general nature of the special business; and
(b)
if the special business includes considering, approving, ratifying, adopting or authorizing any document or the signing of or giving of effect to any
document, have attached to it a copy of the document or state that a copy of the document will be available for inspection by shareholders:
(i)
at the Company’s records office, or at such other reasonably accessible location in British Columbia as is specified in the notice; and
(ii)
during statutory business hours on any one or more specified days before the day set for the holding of the meeting.
- 12 Place of Meetings
10.9
In addition to any location in British Columbia, any general meeting may be held in any location outside British Columbia approved by a resolution of the
directors.
ARTICLE 11
PROCEEDINGS AT MEETINGS OF SHAREHOLDERS
Special Business
11.1
At a meeting of shareholders, the following business is special business:
(a) at a meeting of shareholders that is not an annual general meeting, all business is special business except business relating to the conduct of or voting
at the meeting;
(b)
at an annual general meeting, all business is special business except for the following:
(i)
business relating to the conduct of or voting at the meeting;
(ii)
consideration of any financial statements of the Company presented to the meeting;
(iii)
consideration of any reports of the directors or auditor;
(iv)
the setting or changing of the number of directors;
(v)
the election or appointment of directors;
(vi)
the appointment of an auditor;
(vii)
the setting of the remuneration of an auditor;
(viii)
business arising out of a report of the directors not requiring the passing of a special resolution or an exceptional resolution;
(ix) any other business which, under these Articles or the Act, may be transacted at a meeting of shareholders without prior notice of the business
being given to the shareholders.
Special Majority
11.2
The majority of votes required to pass a special resolution at a meeting of shareholders is two-thirds of the votes cast on the resolution.
- 13 Quorum
11.3
Subject to the special rights and restrictions attached to the shares of any class or series of shares, the quorum for the transaction of business at a meeting
of shareholders is two persons who are, or who represent by proxy, shareholders who, in the aggregate, hold at least 331/3% of the issued shares entitled to be voted
at the meeting.
One Shareholder May Constitute Quorum
11.4
If there is only one shareholder entitled to vote at a meeting of shareholders:
(a)
the quorum is one person who is, or who represents by proxy, that shareholder, and
(b)
that shareholder, present in person or by proxy, may constitute the meeting.
Other Persons May Attend
11.5
The directors, the president (if any), the secretary (if any), the assistant secretary (if any), any lawyer for the Company, the auditor of the Company and
every other person invited by the directors are entitled to attend any meeting of shareholders, but if any of those persons does attend a meeting of shareholders, that
person is not to be counted in the quorum and is not entitled to vote at the meeting unless that person is a shareholder or proxy holder entitled to vote at the
meeting.
Requirement of Quorum
11.6
No business, other than the election of a chair of the meeting and the adjournment of the meeting, may be transacted at any meeting of shareholders
unless a quorum of shareholders entitled to vote is present at the commencement of the meeting, but such quorum need not be present throughout the meeting.
Lack of Quorum
11.7
If, within one-half hour from the time set for the holding of a meeting of shareholders, a quorum is not present:
(a)
in the case of a general meeting requisitioned by shareholders, the meeting is dissolved, and
(b)
in the case of any other meeting of shareholders, the meeting stands adjourned to the same day in the next week at the same time and place.
Lack of Quorum at Succeeding Meeting
11.8
If, at the meeting to which the meeting referred to in §11.7(b) was adjourned, a quorum is not present within one-half hour from the time set for the
holding of the meeting, the person or persons present and being, or representing by proxy, one or more shareholders entitled to attend and vote at the meeting
constitute a quorum.
- 14 Chair
11.9
The following individual is entitled to preside as chair at a meeting of shareholders:
(a)
the chair of the board, if any; or
(b)
if the chair of the board is absent or unwilling to act as chair of the meeting, the president, if any.
Selection of Alternate Chair
11.10
If, at any meeting of shareholders, there is no chair of the board or president present within 15 minutes after the time set for holding the meeting, or if
the chair of the board and the president are unwilling to act as chair of the meeting, or if the chair of the board and the president have advised the secretary, if any,
or any director present at the meeting, that they will not be present at the meeting, the directors present may choose either one of their number or the solicitor of the
Company to be chair of the meeting. If all of the directors present decline to take the chair or fail to so choose or if no director is present or the solicitor of the
Company declines to take the chair, the shareholders entitled to vote at the meeting who are present in person or by proxy may choose any person present at the
meeting to chair the meeting.
Adjournments
11.11
The chair of a meeting of shareholders may, and if so directed by the meeting must, adjourn the meeting from time to time and from place to place, but
no business may be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place.
Notice of Adjourned Meeting
11.12
It is not necessary to give any notice of an adjourned meeting or of the business to be transacted at an adjourned meeting of shareholders except that,
when a meeting is adjourned for 30 days or more, notice of the adjourned meeting must be given as in the case of the original meeting.
Decisions by Show of Hands or Poll
11.13
Subject to the Act, every motion put to a vote at a meeting of shareholders will be decided on a show of hands unless a poll, before or on the declaration
of the result of the vote by show of hands, is directed by the chair or demanded by at least one shareholder entitled to vote who is present in person or by proxy.
- 15 Declaration of Result
11.14
The chair of a meeting of shareholders must declare to the meeting the decision on every question in accordance with the result of the show of hands or
the poll, as the case may be, and that decision must be entered in the minutes of the meeting. A declaration of the chair that a resolution is carried by the necessary
majority or is defeated is, unless a poll is directed by the chair or demanded under §11.13, conclusive evidence without proof of the number or proportion of the
votes recorded in favour of or against the resolution.
Motion Need Not be Seconded
11.15
No motion proposed at a meeting of shareholders need be seconded unless the chair of the meeting rules otherwise, and the chair of any meeting of
shareholders is entitled to propose or second a motion.
Casting Vote
11.16
In case of an equality of votes, the chair of a meeting of shareholders does not, either on a show of hands or on a poll, have a second or casting vote in
addition to the vote or votes to which the chair may be entitled as a shareholder.
Manner of Taking Poll
11.17
Subject to §11.18, if a poll is duly demanded at a meeting of shareholders:
(a)
the poll must be taken:
(i)
at the meeting, or within seven days after the date of the meeting, as the chair of the meeting directs; and
(ii)
in the manner, at the time and at the place that the chair of the meeting directs;
(b)
the result of the poll is deemed to be the decision of the meeting at which the poll is demanded; and
(c)
the demand for the poll may be withdrawn by the person who demanded it.
Demand for Poll on Adjournment
11.18
A poll demanded at a meeting of shareholders on a question of adjournment must be taken immediately at the meeting.
Chair Must Resolve Dispute
11.19
In the case of any dispute as to the admission or rejection of a vote given on a poll, the chair of the meeting must determine the dispute, and his or her
determination made in good faith is final and conclusive.
- 16 Casting of Votes
11.20
On a poll, a shareholder entitled to more than one vote need not cast all the votes in the same way.
Demand for Poll
11.21
No poll may be demanded in respect of the vote by which a chair of a meeting of shareholders is elected.
Demand for Poll Not to Prevent Continuance of Meeting
11.22
The demand for a poll at a meeting of shareholders does not, unless the chair of the meeting so rules, prevent the continuation of a meeting for the
transaction of any business other than the question on which a poll has been demanded.
Retention of Ballots and Proxies
11.23
The Company must, for at least three months after a meeting of shareholders, keep each ballot cast on a poll and each proxy voted at the meeting, and,
during that period, make them available for inspection during normal business hours by any shareholder or proxyholder entitled to vote at the meeting. At the end
of such three month period, the Company may destroy such ballots and proxies.
ARTICLE 12
VOTES OF SHAREHOLDERS
Number of Votes by Shareholder or by Shares
12.1
Subject to any special rights or restrictions attached to any shares and to the restrictions imposed on joint shareholders under §12.3:
(a)
on a vote by show of hands, every person present who is a shareholder or proxy holder and entitled to vote on the matter has one vote; and
(b)
on a poll, every shareholder entitled to vote on the matter has one vote in respect of each share entitled to be voted on the matter and held by that
shareholder and may exercise that vote either in person or by proxy.
Votes of Persons in Representative Capacity
12.2
A person who is not a shareholder may vote at a meeting of shareholders, whether on a show of hands or on a poll, and may appoint a proxy holder to act
at the meeting, if, before doing so, the person satisfies the chair of the meeting, or the directors, that the person is a legal personal representative or a trustee in
bankruptcy for a shareholder who is entitled to vote at the meeting.
- 17 Votes by Joint Holders
12.3
If there are joint shareholders registered in respect of any share:
(a) any one of the joint shareholders may vote at any meeting, either personally or by proxy, in respect of the share as if that joint shareholder were solely
entitled to it; or
(b) if more than one of the joint shareholders is present at any meeting, personally or by proxy, and more than one of them votes in respect of that share,
then only the vote of the joint shareholder present whose name stands first on the central securities register in respect of the share will be counted.
Legal Personal Representatives as Joint Shareholders
12.4
Two or more legal personal representatives of a shareholder in whose sole name any share is registered are, for the purposes of §12.3, deemed to be joint
shareholders.
Representative of a Corporate Shareholder
12.5
If a corporation, that is not a subsidiary of the Company, is a shareholder, that corporation may appoint a person to act as its representative at any
meeting of shareholders of the Company, and:
(a)
for that purpose, the instrument appointing a representative must:
(i) be received at the registered office of the Company or at any other place specified, in the notice calling the meeting, for the receipt of proxies,
at least the number of business days specified in the notice for the receipt of proxies, or if no number of days is specified, two business days before
the day set for the holding of the meeting; or
(ii)
(b)
be provided, at the meeting, to the chair of the meeting or to a person designated by the chair of the meeting;
if a representative is appointed under this §12.5:
(i) the representative is entitled to exercise in respect of and at that meeting the same rights on behalf of the corporation that the representative
represents as that corporation could exercise if it were a shareholder who is an individual, including, without limitation, the right to appoint a proxy
holder; and
(ii) the representative, if present at the meeting, is to be counted for the purpose of forming a quorum and is deemed to be a shareholder present
in person at the meeting.
Evidence of the appointment of any such representative may be sent to the Company by written instrument, fax or any other method of transmitting legibly
recorded messages.
- 18 Proxy Provisions Do Not Apply to All Companies
12.6
If and for so long as the Company is a public company or a pre-existing reporting company which has the Statutory Reporting Company Provisions as
part of its Articles or to which the Statutory Reporting Company Provisions apply, then §12.7 to §12.15 are not mandatory, however the directors of the Company
are authorized to apply all or part of such sections or to adopt alternative procedures for proxy form, deposit and revocation procedures to the extent that the
directors deem necessary in order to comply with securities laws applicable to the Company.
Appointment of Proxy Holders
12.7
Every shareholder of the Company entitled to vote at a meeting of shareholders of the Company may, by proxy, appoint one or more (but not more than
two) proxy holders to attend and act at the meeting in the manner, to the extent and with the powers conferred by the proxy.
Alternate Proxy Holders
12.8
A shareholder may appoint one or more alternate proxy holders to act in the place of an absent proxy holder.
When Proxy Holder Need Not Be Shareholder
12.9
A person must not be appointed as a proxy holder unless the person is a shareholder, although a person who is not a shareholder may be appointed as a
proxy holder if:
(a)
the person appointing the proxy holder is a corporation or a representative of a corporation appointed under §12.5;
(b)
the Company has at the time of the meeting for which the proxy holder is to be appointed only one shareholder entitled to vote at the meeting; or
(c) the shareholders present in person or by proxy at and entitled to vote at the meeting for which the proxy holder is to be appointed, by a resolution on
which the proxy holder is not entitled to vote but in respect of which the proxy holder is to be counted in the quorum, permit the proxy holder to attend and
vote at the meeting.
Deposit of Proxy
12.10
A proxy for a meeting of shareholders must:
(a) be received at the registered office of the Company or at any other place specified, in the notice calling the meeting, for the receipt of proxies, at least
the number of business days specified in the notice, or if no number of days is specified, two business days before the day set for the holding of the
meeting; or
- 19 (b)
unless the notice provides otherwise, be provided, at the meeting, to the chair of the meeting or to a person designated by the chair of the meeting.
A proxy may be sent to the Company by written instrument, fax or any other method of transmitting legibly recorded messages, including through Internet voting
or by e-mail if permitted by the notice calling the meeting or the information circular for the meeting.
Validity of Proxy Vote
12.11
A vote given in accordance with the terms of a proxy is valid notwithstanding the death or incapacity of the shareholder giving the proxy and despite
the revocation of the proxy or the revocation of the authority under which the proxy is given, unless notice in writing of that death, incapacity or revocation is
received:
(a) at the registered office of the Company, at any time up to and including the last business day before the day set for the holding of the meeting at which
the proxy is to be used; or
(b) by the chair of the meeting, before the vote is taken.
Form of Proxy
12.12
A proxy, whether for a specified meeting or otherwise, must be either in the following form or in any other form approved by the directors or the chair
of the meeting:
[name of company]
(the “Company”)
The undersigned, being a shareholder of the Company, hereby appoints [name] or, failing that person, [name], as proxy holder for the undersigned to
attend, act and vote for and on behalf of the undersigned at the meeting of shareholders of the Company to be held on [month, day, year] and at any
adjournment of that meeting.
Number of shares in respect of which this proxy is given (if no number is specified, then this proxy if given in respect of all shares registered in the name of
the shareholder): _____________________
Signed [month, day, year]
[Signature of shareholder]
[Name of shareholder—printed]
- 20 Revocation of Proxy
12.13
Subject to §12.14, every proxy may be revoked by an instrument in writing that is:
(a) received at the registered office of the Company at any time up to and including the last business day before the day set for the holding of the meeting
at which the proxy is to be used; or
(b)
provided, at the meeting, to the chair of the meeting.
Revocation of Proxy Must Be Signed
12.14
An instrument referred to in §12.13 must be signed as follows:
(a)
if the shareholder for whom the proxy holder is appointed is an individual, the instrument must be signed by the shareholder or his or her legal
personal representative or trustee in bankruptcy;
(b) if the shareholder for whom the proxy holder is appointed is a corporation, the instrument must be signed by the corporation or by a representative
appointed for the corporation under §12.5.
Production of Evidence of Authority to Vote
12.15
The chair of any meeting of shareholders may, but need not, inquire into the authority of any person to vote at the meeting and may, but need not,
demand from that person production of evidence as to the existence of the authority to vote.
ARTICLE 13
DIRECTORS
First Directors; Number of Directors
13.1
The first directors are the persons designated as directors of the Company in the Notice of Articles that applies to the Company when it is recognized
under the Act. The number of directors, excluding additional directors appointed under §14.8, is set at:
(a)
subject to §(b) and §(c), the number of directors that is equal to the number of the Company’s first directors;
(b)
if the Company is a public company, the greater of three and the most recently set of:
(i)
the number of directors set by a resolution of the directors (whether or not previous notice of the resolution was given); and
- 21 (ii)
(c)
the number of directors in office pursuant to §14.4;
if the Company is not a public company, the most recently set of:
(i)
the number of directors set by a resolution of the directors (whether or not previous notice of the resolution was given); and
(ii)
the number of directors in office pursuant to §14.4.
Change in Number of Directors
13.2
If the number of directors is set under §13.1(b)(i) or §13.1(c)(i):
(a)
the shareholders may elect or appoint the directors needed to fill any vacancies in the board of directors up to that number; or
(b) if the shareholders do not elect or appoint the directors needed to fill any vacancies in the board of directors up to that number then the directors may
appoint directors to fill those vacancies.
Directors’ Acts Valid Despite Vacancy
13.3
office.
An act or proceeding of the directors is not invalid merely because fewer than the number of directors set or otherwise required under these Articles is in
Qualifications of Directors
13.4
A director is not required to hold a share as qualification for his or her office but must be qualified as required by the Act to become, act or continue to
act as a director.
Remuneration of Directors
13.5
The directors are entitled to the remuneration for acting as directors, if any, as the directors may from time to time determine. If the directors so decide,
the remuneration of the directors, if any, will be determined by the shareholders.
Reimbursement of Expenses of Directors
13.6
The Company must reimburse each director for the reasonable expenses that he or she may incur in and about the business of the Company.
Special Remuneration for Directors
13.7
If any director performs any professional or other services for the Company that in the opinion of the directors are outside the ordinary duties of a
director, he or she may be paid remuneration fixed by the directors, or at the option of the directors, fixed by ordinary resolution, and such remuneration will be in
addition to any other remuneration that he or she may be entitled to receive.
- 22 Gratuity, Pension or Allowance on Retirement of Director
13.8
Unless otherwise determined by ordinary resolution, the directors on behalf of the Company may pay a gratuity or pension or allowance on retirement to
any director who has held any salaried office or place of profit with the Company or to his or her spouse or dependants and may make contributions to any fund and
pay premiums for the purchase or provision of any such gratuity, pension or allowance.
ARTICLE 14
ELECTION AND REMOVAL OF DIRECTORS
Election at Annual General Meeting
14.1
At every annual general meeting and in every unanimous resolution contemplated by §10.2:
(a) the shareholders entitled to vote at the annual general meeting for the election of directors must elect, or in the unanimous resolution appoint, a board
of directors consisting of the number of directors for the time being set under these Articles; and
all the directors cease to hold office immediately before the election or appointment of directors under §(a), but are eligible for re-election or re-appointment.
Consent to be a Director
14.2
No election, appointment or designation of an individual as a director is valid unless:
(a)
that individual consents to be a director in the manner provided for in the Act;
(b)
that individual is elected or appointed at a meeting at which the individual is present and the individual does not refuse, at the meeting, to be a
director; or
(c)
with respect to first directors, the designation is otherwise valid under the Act.
Failure to Elect or Appoint Directors
14.3
If:
(a) the Company fails to hold an annual general meeting, and all the shareholders who are entitled to vote at an annual general meeting fail to pass the
unanimous resolution contemplated by §10.2, on or before the date by which the annual general meeting is required to be held under the Act; or
(b)
the shareholders fail, at the annual general meeting or in the unanimous resolution contemplated by §10.2, to elect or appoint any directors;
- 23 then each director then in office continues to hold office until the earlier of:
(c)
the date on which his or her successor is elected or appointed; and
(d)
the date on which he or she otherwise ceases to hold office under the Act or these Articles.
Places of Retiring Directors Not Filled
14.4
If, at any meeting of shareholders at which there should be an election of directors, the places of any of the retiring directors are not filled by that election,
those retiring directors who are not re-elected and who are asked by the newly elected directors to continue in office will, if willing to do so, continue in office to
complete the number of directors for the time being set pursuant to these Articles but their term of office shall expire when new directors are elected at a meeting of
shareholders convened for that purpose. If any such election or continuance of directors does not result in the election or continuance of the number of directors for
the time being set pursuant to these Articles, the number of directors of the Company is deemed to be set at the number of directors actually elected or continued in
office.
Directors May Fill Casual Vacancies
14.5
Any casual vacancy occurring in the board of directors may be filled by the directors.
Remaining Directors Power to Act
14.6
The directors may act notwithstanding any vacancy in the board of directors, but if the Company has fewer directors in office than the number set
pursuant to these Articles as the quorum of directors, the directors may only act for the purpose of appointing directors up to that number or of summoning a
meeting of shareholders for the purpose of filling any vacancies on the board of directors or, subject to the Act, for any other purpose.
Shareholders May Fill Vacancies
14.7
If the Company has no directors or fewer directors in office than the number set pursuant to these Articles as the quorum of directors, the shareholders
may elect or appoint directors to fill any vacancies on the board of directors.
Additional Directors
14.8
Notwithstanding §13.1 and §13.2, between annual general meetings or unanimous resolutions contemplated by §10.2, the directors may appoint one or
more additional directors, but the number of additional directors appointed under this §14.8 must not at any time exceed:
(a) one-third of the number of first directors, if, at the time of the appointments, one or more of the first directors have not yet completed their first term
of office; or
- 24 (b)
in any other case, one-third of the number of the current directors who were elected or appointed as directors other than under this §14.8.
Any director so appointed ceases to hold office immediately before the next election or appointment of directors under §14.1(a), but is eligible for re-election or reappointment.
Ceasing to be a Director
14.9
A director ceases to be a director when:
(a)
the term of office of the director expires;
(b)
the director dies;
(c)
the director resigns as a director by notice in writing provided to the Company or a lawyer for the Company; or
(d)
the director is removed from office pursuant to §14.10 or §14.11.
Removal of Director by Shareholders
14.10
The Company may remove any director before the expiration of his or her term of office by special resolution. In that event, the shareholders may elect,
or appoint by ordinary resolution, a director to fill the resulting vacancy. If the shareholders do not elect or appoint a director to fill the resulting vacancy
contemporaneously with the removal, then the directors may appoint or the shareholders may elect, or appoint by ordinary resolution, a director to fill that vacancy.
Removal of Director by Directors
14.11
The directors may remove any director before the expiration of his or her term of office if the director is convicted of an indictable offence, or if the
director ceases to be qualified to act as a director of a company and does not promptly resign, and the directors may appoint a director to fill the resulting vacancy.
See attached pages 24.1 to 24.5 for new Article 14.12. The Articles were amended
by ordinary resolution passed at the Annual General and Special Meeting of
Shareholders held on June 19, 2013 @ 3:00 PM local time and deposited into the
Records Books on September 5, 2013.
ARTICLE 15
ALTERNATE DIRECTORS
Appointment of Alternate Director
15.1
Any director (an “appointor”) may by notice in writing received by the Company appoint any person (an “appointee”) who is qualified to act as a director
to be his or her alternate to act in his or her place at meetings of the directors or committees of the directors at which the appointor is not present unless (in the case
of an appointee who is not a director) the directors have reasonably disapproved the appointment of such person as an alternate
This Article 14.12 - was added by ordinary resolution passed at the Annual General
and Special Meeting of Shareholders held on June 25, 2013 @ 3:00 PM local time
and deposited into the Record Book on September 5, 2013.
Nomination of Directors
14.12
(a) Subject only to the Act, only persons who are nominated in accordance with the following procedures shall be eligible for election as directors of the
Company. Nominations of persons for election to the board may be made at any annual meeting of shareholders, or at any special meeting of shareholders
(but only if the election of directors is a matter specified in the notice of meeting given by or at the direction of the person calling such special meeting):
(i)
by or at the direction of the board or an authorized officer of the Company, including pursuant to a notice of meeting;
(ii) by or at the direction or request of one or more shareholders pursuant to a proposal made in accordance with the provisions of the Act or a
requisition of the shareholders made in accordance with the provisions of the Act; or
(iii) by any person (a " Nominating Shareholder ") (A) who, at the close of business on the date of the giving of the notice provided for below in
this §14.12 and on the record date for notice of such meeting, is entered in the securities register as a holder of one or more shares carrying the right
to vote at such meeting or who beneficially owns shares that are entitled to be voted at such meeting and (B) who complies with the notice
procedures set forth below in this §14.12.
(b) In addition to any other applicable requirements, for a nomination to be made by a Nominating Shareholder, such person must have given (i) timely
notice thereof in proper written form to the Corporate Secretary of the Company at the principal executive offices of the Company in accordance with this
§14.12 and (ii) the representation and agreement with respect to each candidate for nomination as required by, and within the time period specified in
§14.12(e) .
(c)
To be timely under §14.12(b)(i), a Nominating Shareholder’s notice to the Corporate Secretary of the Company must be made:
(i)
in the case of an annual meeting of shareholders, not less than 30 nor more than 65 days prior to the date of the annual meeting of
shareholders; provided, however, that in the event that the annual meeting of shareholders is called for a date that is less than 40 days after the date
(the " Notice Date ") on which the first public announcement of the date of the annual meeting was made, notice by the Nominating Shareholder
may be made not later than the tenth (10th) day following the Notice Date; and
(ii) in the case of a special meeting (which is not also an annual meeting) of shareholders called for the purpose of electing directors (whether or
not called for other purposes), not later than the fifteenth (15th) day following the day on which the first public announcement of the date of the
special meeting of shareholders was made.
-2Notwithstanding the foregoing, the board may, in its sole discretion, waive any requirement in this §14.12(c) .
(d)
To be in proper written form, a Nominating Shareholder’s notice to the Corporate Secretary of the Company, under §14.12(b)(i) must set forth:
(i) as to each person whom the Nominating Shareholder proposes to nominate for election as a director (A) the name, age, business address and
residence address of the person, (B) the principal occupation or employment of the person, (C) the class or series and number of shares in the
capital of the Company which are controlled or which are owned beneficially or of record by the person as of the record date for the Meeting of
Shareholders (if such date shall then have been made publicly available and shall have occurred) and as of the date of such notice, (D) a statement
as to whether such person would be “independent” of the Company (within the meaning of sections 1.4 and 1.5 of National Instrument 52-110 –
Audit Committees of the Canadian Securities Administrators, as such provisions may be amended from time to time) if elected as a director at such
meeting and the reasons and basis for such determination and (E) any other information relating to the person that would be required to be
disclosed in a dissident’s proxy circular in connection with solicitations of proxies for election of directors pursuant to the Act and Applicable
Securities Laws; and
(ii) as to the Nominating Shareholder giving the notice, (A) any information relating to such Nominating Shareholder that would be required to
be made in a dissident’s proxy circular in connection with solicitations of proxies for election of directors pursuant to the Act and Applicable
Securities Laws, and (B) the class or series and number of shares in the capital of the Company which are controlled or which are owned
beneficially or of record by the Nominating Shareholder as of the record date for the Meeting of Shareholders (if such date shall then have been
made publicly available and shall have occurred) and as of the date of such notice.
(e)
To be eligible to be a candidate for election as a director of the Company and to be duly nominated, a candidate must be nominated in the manner
prescribed in this §14.12 and the candidate for nomination, whether nominated by the board or otherwise, must have previously delivered to the Corporate
Secretary of the Company at the principal executive offices of the Company, not less than 5 days prior to the date of the Meeting of Shareholders, a written
representation and agreement (in form provided by the Company) that such candidate for nomination, if elected as a director of the Company, will comply
with all applicable corporate governance, conflict of interest, confidentiality, share ownership, majority voting and insider trading policies and other
policies and guidelines of the Company applicable to directors and in effect during such person’s term in office as a director (and, if requested by any
candidate for nomination, the Corporate Secretary of the Company shall provide to such candidate for nomination all such policies and guidelines then in
effect).
-3(f)
No person shall be eligible for election as a director of the Company unless nominated in accordance with the provisions of this §14.12; provided,
however, that nothing in this §14.12 shall be deemed to preclude discussion by a shareholder (as distinct from nominating directors) at a meeting of
shareholders of any matter in respect of which it would have been entitled to submit a proposal pursuant to the provisions of the Act. The chair of the
meeting shall have the power and duty to determine whether a nomination was made in accordance with the procedures set forth in the foregoing provisions
and, if any proposed nomination is not in compliance with such foregoing provisions, to declare that such defective nomination shall be disregarded.
(g)
For purposes of this §14.12:
(i)
" Affiliate ", when used to indicate a relationship with a person, shall mean a person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with, such specified person;
(ii) " Applicable Securities Laws " means the Securities Act (British Columbia) and the equivalent legislation in the other provinces and in the
territories of Canada, as amended from time to time, the rules, regulations and forms made or promulgated under any such statute and the published
national instruments, multilateral instruments, policies, bulletins and notices of the securities commissions and similar regulatory authorities of
each of the applicable provinces and territories of Canada;
(iii) " Associate ", when used to indicate a relationship with a specified person, shall mean (A) any corporation or trust of which such person owns
beneficially, directly or indirectly, voting securities carrying more than 10% of the voting rights attached to all voting securities of such corporation
or trust for the time being outstanding, (B) any partner of that person, (C) any trust or estate in which such person has a substantial beneficial
interest or as to which such person serves as trustee or in a similar capacity, (D) a spouse of such specified person, (E) any person of either sex with
whom such specified person is living in conjugal relationship outside marriage or (F) any relative of such specified person or of a person
mentioned in clauses (D) or (E) of this definition if that relative has the same residence as the specified person;
(iv) " Derivatives Contract " shall mean a contract between two parties (the “Receiving Party” and the “Counterparty”) that is designed to
expose the Receiving Party to economic benefits and risks that correspond substantially to the ownership by the Receiving Party of a number of
shares in the capital of the Company or securities convertible into such shares specified or referenced in such contract (the number corresponding
to such economic benefits and risks, the “Notional Securities”), regardless of whether obligations under such contract are required or permitted to
be settled through the delivery of cash, shares in the capital of the Company or securities convertible into such shares or other property, without
regard to any short position under the same or any other Derivatives Contract. For the avoidance of doubt, interests in broad-based index options,
broad-based index futures and broad-based publicly traded market baskets of stocks approved for trading by the appropriate governmental authority
shall not be deemed to be Derivatives Contracts;
-4(v) " Meeting of Shareholders " shall mean such annual shareholders meeting or special shareholders meeting, whether general or not, at which
one or more persons are nominated for election to the board by a Nominating Shareholder;
(vi) " owned beneficially " or " owns beneficially " means, in connection with the ownership of shares in the capital of the Company by a
person, (A) any such shares as to which such person or any of such person’s Affiliates or Associates owns at law or in equity, or has the right to
acquire or become the owner at law or in equity, where such right is exercisable immediately or after the passage of time and whether or not on
condition or the happening of any contingency or the making of any payment, upon the exercise of any conversion right, exchange right or
purchase right attaching to any securities, or pursuant to any agreement, arrangement, pledge or understanding whether or not in writing; (B) any
such shares as to which such person or any of such person’s Affiliates or Associates has the right to vote, or the right to direct the voting, where
such right is exercisable immediately or after the passage of time and whether or not on condition or the happening of any contingency or the
making of any payment, pursuant to any agreement, arrangement, pledge or understanding whether or not in writing; (C) any such shares which are
beneficially owned, directly or indirectly, by a Counterparty (or any of such Counterparty’s Affiliates or Associates) under any Derivatives
Contract (without regard to any short or similar position under the same or any other Derivatives Contract) to which such person or any of such
person’s Affiliates or Associates is a Receiving Party; provided, however that the number of shares that a person owns beneficially pursuant to this
clause (C) in connection with a particular Derivatives Contract shall not exceed the number of Notional Securities with respect to such Derivatives
Contract; provided, further, that the number of securities owned beneficially by each Counterparty (including their respective Affiliates and
Associates) under a Derivatives Contract shall for purposes of this clause be deemed to include all securities that are owned beneficially, directly or
indirectly, by any other Counterparty (or any of such other Counterparty’s Affiliates or Associates) under any Derivatives Contract to which such
first Counterparty (or any of such first Counterparty’s Affiliates or Associates) is a Receiving Party and this proviso shall be applied to successive
Counterparties as appropriate; and (D) any such shares which are owned beneficially within the meaning of this definition by any other person with
whom such person is acting jointly or in concert with respect to the Company or any of its securities; and
(vii) " public announcement " shall mean disclosure in a press release reported by a national news service in Canada, or in a document publicly
filed by the Company or its agents under its profile on the System of Electronic Document Analysis and Retrieval at www.sedar.com.
-5(h) Notwithstanding any other provision to this §14.12, notice or any delivery given to the Corporate Secretary of the Company pursuant to this §14.12
may only be given by personal delivery, facsimile transmission or by email (provided that the Corporate Secretary of the Company has stipulated an email
address for purposes of this notice, at such email address as stipulated from time to time), and shall be deemed to have been given and made only at the
time it is served by personal delivery, email (at the address as aforesaid) or sent by facsimile transmission (provided that receipt of confirmation of such
transmission has been received) to the Corporate Secretary at the address of the principal executive offices of the Company; provided that if such delivery
or electronic communication is made on a day which is a not a business day or later than 5:00 p.m. (Vancouver time) on a day which is a business day, then
such delivery or electronic communication shall be deemed to have been made on the subsequent day that is a business day.
(i) In no event shall any adjournment or postponement of a Meeting of Shareholders or the announcement thereof commence a new time period for the
giving of a Nominating Shareholder’s notice as described in §14.12(c) or the delivery of a representation and agreement as described in §14.12(e) .
25
director and have given notice to that effect to his or her appointor within a reasonable time after the notice of appointment is received by the Company.
Notice of Meetings
15.2
Every alternate director so appointed is entitled to notice of meetings of the directors and of committees of the directors of which his or her appointor is a
member and to attend and vote as a director at any such meetings at which his or her appointor is not present.
Alternate for More than One Director Attending Meetings
15.3
A person may be appointed as an alternate director by more than one director, and an alternate director:
(a) will be counted in determining the quorum for a meeting of directors once for each of his or her appointors and, in the case of an appointee who is
also a director, once more in that capacity;
(b) has a separate vote at a meeting of directors for each of his or her appointors and, in the case of an appointee who is also a director, an additional vote
in that capacity;
(c) will be counted in determining the quorum for a meeting of a committee of directors once for each of his or her appointors who is a member of that
committee and, in the case of an appointee who is also a member of that committee as a directors, once more in that capacity; and
(d) has a separate vote at a meeting of a committee of directors for each of his or her appointors who is a member of that committee and, in the case of an
appointee who is also a member of that committee as a director, an additional vote in that capacity.
Consent Resolutions
15.4
Every alternate director, if authorized by the notice appointing him or her, may sign in place of his or her appointor any resolutions to be consented to in
writing.
Alternate Director an Agent
15.5
Every alternate director is deemed to be the agent of his or her appointor.
Revocation or Amendment of Appointment of Alternate Director
15.6
An appointor may at any time, by notice in writing received by the Company, revoke or amend the terms of the appointment of an alternate director
appointed by him or her.
Ceasing to be an Alternate Director
15.7
The appointment of an alternate director ceases when:
- 26 (a)
his or her appointor ceases to be a director and is not promptly re-elected or reappointed;
(b)
the alternate director dies;
(c)
the alternate director resigns as an alternate director by notice in writing provided to the Company or a lawyer for the Company;
(d)
the alternate director ceases to be qualified to act as a director; or (e) the term of his appointment expires, or his or her appointor revokes the
appointment of the alternate directors.
Remuneration and Expenses of Alternate Director
15.8
The Company may reimburse an alternate director for the reasonable expenses that would be properly reimbursed if he or she were a director, and the
alternate director is entitled to receive from the Company such proportion, if any, of the remuneration otherwise payable to the appointor as the appointor may from
time to time direct.
ARTICLE 16
POWERS AND DUTIES OF DIRECTORS
Powers of Management
16.1
The directors must, subject to the Act and these Articles, manage or supervise the management of the business and affairs of the Company and have the
authority to exercise all such powers of the Company as are not, by the Act or by these Articles, required to be exercised by the shareholders of the Company.
Notwithstanding the generality of the foregoing, the directors may set the remuneration of the auditor of the Company.
Appointment of Attorney of Company
16.2
The directors may from time to time, by power of attorney or other instrument, under seal if so required by law, appoint any person to be the attorney of
the Company for such purposes, and with such powers, authorities and discretions (not exceeding those vested in or exercisable by the directors under these
Articles and excepting the power to fill vacancies in the board of directors, to remove a director, to change the membership of, or fill vacancies in, any committee
of the directors, to appoint or remove officers appointed by the directors and to declare dividends) and for such period, and with such remuneration and subject to
such conditions as the directors may think fit. Any such power of attorney may contain such provisions for the protection or convenience of persons dealing with
such attorney as the directors think fit. Any such attorney may be authorized by the directors to sub-delegate all or any of the powers, authorities and discretions for
the time being vested in him or her.
- 27 ARTICLE 17
DISCLOSURE OF INTEREST OF DIRECTORS
Obligation to Account for Profits
17.1
A director or senior officer who holds a disclosable interest (as that term is used in the Act) in a contract or transaction into which the Company has
entered or proposes to enter is liable to account to the Company 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.
Restrictions on Voting by Reason of Interest
17.2
A director who holds a disclosable interest in a contract or transaction into which the Company has entered or proposes to enter 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.
Interested Director Counted in Quorum
17.3
A director who holds a disclosable interest in a contract or transaction into which the Company has entered or proposes to enter 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.
Disclosure of Conflict of Interest or Property
17.4
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 individual’s duty or interest as a director or senior officer, must disclose the nature and extent of the conflict as
required by the Act.
Director Holding Other Office in the Company
17.5
A director may hold any office or place of profit with the Company, other than the office of auditor of the Company, in addition to his or her office of
director for the period and on the terms (as to remuneration or otherwise) that the directors may determine.
No Disqualification
17.6
No director or intended director is disqualified by his or her office from contracting with the Company either with regard to the holding of any office or
place of profit the director holds with the Company or as vendor, purchaser or otherwise, and no contract or transaction entered into by or on behalf of the
Company in which a director is in any way interested is liable to be voided for that reason.
- 28 Professional Services by Director or Officer
17.7
Subject to the Act, a director or officer, or any person in which a director or officer has an interest, may act in a professional capacity for the Company,
except as auditor of the Company, and the director or officer or such person is entitled to remuneration for professional services as if that director or officer were
not a director or officer.
Director or Officer in Other Corporations
17.8
A director or officer may be or become a director, officer or employee of, or otherwise interested in, any person in which the Company may be interested
as a shareholder or otherwise, and, subject to the Act, the director or officer is not accountable to the Company for any remuneration or other benefits received by
him or her as director, officer or employee of, or from his or her interest in, such other person.
ARTICLE 18
PROCEEDINGS OF DIRECTORS
Meetings of Directors
18.1
The directors may meet together for the conduct of business, adjourn and otherwise regulate their meetings as they think fit, and meetings of the directors
held at regular intervals may be held at the place, at the time and on the notice, if any, as the directors may from time to time determine.
Voting at Meetings
18.2
Questions arising at any meeting of directors are to be decided by a majority of votes and, in the case of an equality of votes, the chair of the meeting has
a second or casting vote.
Chair of Meetings
18.3
The following individual is entitled to preside as chair at a meeting of directors:
(a)
the chair of the board, if any;
(b)
in the absence of the chair of the board, the president, if any, if the president is a director; or
(c)
any other director chosen by the directors if:
(i)
neither the chair of the board nor the president, if a director, is present at the meeting within 15 minutes after the time set for holding the
meeting;
(ii)
neither the chair of the board nor the president, if a director, is willing to chair the meeting; or
- 29 (iii) the chair of the board and the president, if a director, have advised the secretary, if any, or any other director, that they will not be present at
the meeting.
Meetings by Telephone or Other Communications Medium
18.4
A director may participate in a meeting of the directors or of any committee of the directors in person or by telephone if all directors participating in the
meeting, whether in person or by telephone , are able to communicate with each other. A director may participate in a meeting of the directors or of any committee
of the directors by a communications medium other than telephone if all directors participating in the meeting, whether in person or by telephone or other
communications medium, are able to communicate with each other and if all directors who wish to participate in the meeting agree to such participation. A director
who participates in a meeting in a manner contemplated by this §18.4 is deemed for all purposes of the Act and these Articles to be present at the meeting and to
have agreed to participate in that manner.
Calling of Meetings
18.5
time.
A director may, and the secretary or an assistant secretary of the Company, if any, on the request of a director must, call a meeting of the directors at any
Notice of Meetings
18.6
Other than for meetings held at regular intervals as determined by the directors pursuant to §18.1, 48 hours’ notice of each meeting of the directors,
specifying the place, day and time of that meeting must be given to each of the directors by any method set out in §24.1 or orally or by telephone.
When Notice Not Required
18.7
It is not necessary to give notice of a meeting of the directors to a director if:
(a)
the meeting is to be held immediately following a meeting of shareholders at which that director was elected or appointed, or is the meeting of the
directors at which that director is appointed; or
(b)
the director has waived notice of the meeting.
Meeting Valid Despite Failure to Give Notice
18.8
The accidental omission to give notice of any meeting of directors to, or the non-receipt of any notice by, any director, does not invalidate any
proceedings at that meeting.
Waiver of Notice of Meetings
18.9
Any director may send to the Company a document signed by him or her waiving notice of any past, present or future meeting or meetings of the
directors and may at any time withdraw that waiver with respect to meetings held after that withdrawal. After sending a waiver with respect to all future meetings
and until that waiver is withdrawn, no notice of any meeting of the directors need be given to that director and all meetings of the directors so held are deemed not
to be improperly called or constituted by reason of notice not having been given to such director.
- 30 Quorum
18.10
The quorum necessary for the transaction of the business of the directors may be set by the directors and, if not so set, is deemed to be a majority of the
directors or, if the number of directors is set at one, is deemed to be set at one director, and that director may constitute a meeting.
Validity of Acts Where Appointment Defective
18.11
Subject to the Act, an act of a director or officer is not invalid merely because of an irregularity in the election or appointment or a defect in the
qualification of that director or officer.
Consent Resolutions in Writing
18.12
A resolution of the directors or of any committee of the directors may be passed without a meeting:
(a)
in all cases, if each of the directors entitled to vote on the resolution consents to it in writing; or
(b) in the case of a resolution to approve a contract or transaction in respect of which a director has disclosed that he or she has or may have a disclosable
interest, if each of the other directors who are entitled to vote on the resolution consents to it in writing.
18.13
A consent in writing under this Article may be by signed document, fax, email or any other method of transmitting legibly recorded messages. A consent
in writing may be in two or more counterparts which together are deemed to constitute one consent in writing. A resolution of the directors or of any committee of
the directors passed in accordance with this §18.12 is effective on the date stated in the consent in writing or on the latest date stated on any counterpart and is
deemed to be a proceeding at a meeting of directors or of the committee of the directors and to be as valid and effective as if it had been passed at a meeting of the
directors or of the committee of the directors that satisfies all the requirements of the Act and all the requirements of these Articles relating to meetings of the
directors or of a committee of the directors.
- 31 ARTICLE 19
EXECUTIVE AND OTHER COMMITTEES
Appointment and Powers of Executive Committee
19.1
The directors may, by resolution, appoint an executive committee consisting of the director or directors that they consider appropriate, and this committee
has, during the intervals between meetings of the board of directors, all of the directors’ powers, except:
(a)
the power to fill vacancies in the board of directors;
(b)
the power to remove a director;
(c)
the power to change the membership of, or fill vacancies in, any committee of the directors; and
(d)
such other powers, if any, as may be set out in the resolution or any subsequent directors’ resolution.
Appointment and Powers of Other Committees
19.2
The directors may, by resolution:
(a)
appoint one or more committees (other than the executive committee) consisting of the director or directors that they consider appropriate;
(b)
delegate to a committee appointed under §(a) any of the directors’ powers, except:
(i)
the power to fill vacancies in the board of directors;
(ii)
the power to remove a director;
(iii) the power to change the membership of, or fill vacancies in, any committee of the directors; and
(iv)
the power to appoint or remove officers appointed by the directors; and
(c) make any delegation referred to in §(b) subject to the conditions set out in the resolution or any subsequent directors’ resolution.
Obligations of Committees
19.3
Any committee appointed under §19.1 or §19.2, in the exercise of the powers delegated to it, must:
(a)
conform to any rules that may from time to time be imposed on it by the directors; and
- 32 (b)
report every act or thing done in exercise of those powers at such times as the directors may require.
Powers of Board
19.4
The directors may, at any time, with respect to a committee appointed under §19.1 or §19.2:
(a)
revoke or alter the authority given to the committee, or override a decision made by the committee, except as to acts done before such revocation,
alteration or overriding;
(b)
terminate the appointment of, or change the membership of, the committee; and
(c)
fill vacancies in the committee.
Committee Meetings
19.5
Subject to §19.3(a) and unless the directors otherwise provide in the resolution appointing the committee or in any subsequent resolution, with respect to
a committee appointed under §19.1 or §19.2:
(a)
the committee may meet and adjourn as it thinks proper;
(b) the committee may elect a chair of its meetings but, if no chair of a meeting is elected, or if at a meeting the chair of the meeting is not present within
15 minutes after the time set for holding the meeting, the directors present who are members of the committee may choose one of their number to chair the
meeting;
(c)
a majority of the members of the committee constitutes a quorum of the committee; and
(d) questions arising at any meeting of the committee are determined by a majority of votes of the members present, and in case of an equality of votes,
the chair of the meeting does not have a second or casting vote.
ARTICLE 20
OFFICERS
Directors May Appoint Officers
20.1
The directors may, from time to time, appoint such officers, if any, as the directors determine and the directors may, at any time, terminate any such
appointment.
Functions, Duties and Powers of Officers
20.2
The directors may, for each officer:
- 33 (a)
determine the functions and duties of the officer;
(b)
entrust to and confer on the officer any of the powers exercisable by the directors on such terms and conditions and with such restrictions as the
directors think fit; and
(c)
revoke, withdraw, alter or vary all or any of the functions, duties and powers of the officer.
Qualifications
20.3
No person may be appointed as an officer unless that person is qualified in accordance with the Act. One person may hold more than one position as an
officer of the Company. Any person appointed as the chair of the board or as a managing director must be a director. Any other officer need not be a director.
Remuneration and Terms of Appointment
20.4
All appointments of officers are to be made on the terms and conditions and at the remuneration (whether by way of salary, fee, commission,
participation in profits or otherwise) that the directors thinks fit and are subject to termination at the pleasure of the directors, and an officer may in addition to such
remuneration be entitled to receive, after he or she ceases to hold such office or leaves the employment of the Company, a pension or gratuity.
ARTICLE 21
INDEMNIFICATION
Definitions
21.1
In this Article 21:
(a)
“eligible party” means an individual who:
(i)
is or was a director or officer of the Company;
(ii)
is or was a director or officer of another corporation
(A)
at a time when the corporation is or was an affiliate of the Company, or
(B)
at the request of the Company; or
(iii) at the request of the Company, is or was, or holds or held a position equivalent to that of, a director or officer of a partnership, trust, joint
venture or other unincorporated entity;
(b)
“eligible penalty” means a judgment, penalty or fine awarded or imposed in, or an amount paid in settlement of, an eligible proceeding;
- 34 (c)
“eligible proceeding” means a legal proceeding or investigative action, whether current, threatened, pending or completed, in which a director or
former director of the Company or any of the heirs and legal personal representatives of the eligible party, by reason of the eligible party being or having
been a director of the Company:
(i)
is or may be joined as a party; or
(ii)
is or may be liable for or in respect of a judgment, penalty or fine in, or expenses related to, the proceeding;
and shall include any other proceeding or action contemplated by the Act; and
(d)
“expenses” has the meaning set out in the Act and includes costs, charges and expenses, including legal and other fees, but does not include
judgments, penalties, fines or amounts paid in settlement of a proceeding.
Mandatory Indemnification of Directors and Former Directors
21.2
Subject to the Act, the Company must indemnify a director or former director of the Company and his or her heirs and legal personal representatives
against all eligible penalties to which such person is or may be liable, and the Company must, after the final disposition of an eligible proceeding, pay the expenses
actually and reasonably incurred by such person in respect of that proceeding. Each director or officer is deemed to have contracted with the Company on the terms
of the indemnity contained in this §21.2.
Indemnification of Other Persons
21.3
Subject to any restrictions in the Act, the Company may agree to indemnify and may indemnify any person (including an eligible party) against eligible
penalties and pay expenses incurred in connection with the performance of services by that person for the Company.
Authority to Advance Expenses
21.4
The Company may advance expenses to an eligible party to the extent permitted by and in accordance with the Act.
Non-Compliance with Act
21.5
Subject to the Act, the failure of a director or officer of the Company to comply with the Act or these Articles does not, of itself, invalidate any indemnity
to which he or she is entitled under this Part.
Company May Purchase Insurance
21.6
The Company may purchase and maintain insurance for the benefit of any eligible party person (or his or her heirs or legal personal representatives)
against any liability incurred by him or her as such director, officer or person who holds or held such equivalent position.
- 35 ARTICLE 22
DIVIDENDS
Payment of Dividends Subject to Special Rights
22.1
The provisions of this Article 22 are subject to the rights, if any, of shareholders holding shares with special rights as to dividends.
Declaration of Dividends
22.2
Subject to the Act, the directors may from time to time declare and authorize payment of such dividends as they may deem advisable.
Record Date
22.3
The directors must set a date as the record date for the purpose of determining shareholders entitled to receive payment of a dividend. The record date
must not precede the date on which the dividend is to be paid by more than two months.
Manner of Paying Dividend
22.4
A resolution declaring a dividend may direct payment of the dividend wholly or partly by the distribution of specific assets or of fully paid shares or of
bonds, debentures or other securities of the Company, or in any one or more of those ways.
Settlement of Difficulties
22.5
If any difficulty arises in regard to a distribution under §22.4, the directors may settle the difficulty as they deem advisable, and, in particular, may:
(a)
set the value for distribution of specific assets;
(b)
determine that cash payments in substitution for all or any part of the specific assets to which any shareholders are entitled may be made to any
shareholders on the basis of the value so fixed in order to adjust the rights of all parties; and
(c)
vest any such specific assets in trustees for the persons entitled to the dividend.
When Dividend Payable
22.6
Any dividend may be made payable on such date as is fixed by the directors.
- 36 Dividends to be Paid in Accordance with Number of Shares
22.7
All dividends on shares of any class or series of shares must be declared and paid according to the number of such shares held.
Receipt by Joint Shareholders
22.8
If several persons are joint shareholders of any share, any one of them may give an effective receipt for any dividend, bonus or other money payable in
respect of the share.
Dividend Bears No Interest
22.9
No dividend bears interest against the Company.
Fractional Dividends
22.10
If a dividend to which a shareholder is entitled includes a fraction of the smallest monetary unit of the currency of the dividend, that fraction may be
disregarded in making payment of the dividend and that payment represents full payment of the dividend.
Payment of Dividends
22.11
Any dividend or other distribution payable in cash in respect of shares may be paid by cheque, made payable to the order of the person to whom it is sent,
and mailed to the address of the shareholder, or in the case of joint shareholders, to the address of the joint shareholder who is first named on the central securities
register, or to the person and to the address the shareholder or joint shareholders may direct in writing. The mailing of such cheque will, to the extent of the sum
represented by the cheque (plus the amount of the tax required by law to be deducted), discharge all liability for the dividend unless such cheque is not paid on
presentation or the amount of tax so deducted is not paid to the appropriate taxing authority.
Capitalization of Surplus
22.12
Notwithstanding anything contained in these Articles, the directors may from time to time capitalize any surplus of the Company and may from time to
time issue, as fully paid, shares or any bonds, debentures or other securities of the Company as a dividend representing the surplus or any part of the surplus.
ARTICLE 23
DOCUMENTS, RECORDS AND REPORTS
Recording of Financial Affairs
23.1 The directors must cause adequate accounting records to be kept to record properly the financial affairs and condition of the Company and to comply with the
Act.
- 37 Inspection of Accounting Records
23.2
Unless the directors determine otherwise, or unless otherwise determined by ordinary resolution, no shareholder of the Company is entitled to inspect or
obtain a copy of any accounting records of the Company.
ARTICLE 24
NOTICES
Method of Giving Notice
24.1
Unless the Act or these Articles provide otherwise, a notice, statement, report or other record required or permitted by the Act or these Articles to be sent
by or to a person may be sent by:
(a)
mail addressed to the person at the applicable address for that person as follows:
(i)
for a record mailed to a shareholder, the shareholder’s registered address;
(ii) for a record mailed to a director or officer, the prescribed address for mailing shown for the director or officer in the records kept by the
Company or the mailing address provided by the recipient for the sending of that record or records of that class;
(iii) in any other case, the mailing address of the intended recipient;
(b)
delivery at the applicable address for that person as follows, addressed to the person:
(i)
for a record delivered to a shareholder, the shareholder’s registered address;
(ii) for a record delivered to a director or officer, the prescribed address for delivery shown for the director or officer in the records kept by the
Company or the delivery address provided by the recipient for the sending of that record or records of that class;
(iii) in any other case, the delivery address of the intended recipient;
(c)
sending the record by fax to the fax number provided by the intended recipient for the sending of that record or records of that class;
(d)
sending the record by email to the email address provided by the intended recipient for the sending of that record or records of that class;
(e)
physical delivery to the intended recipient.
- 38 Deemed Receipt of Mailing
24.2
A record that is mailed to a person by ordinary mail to the applicable address for that person referred to in §24.1 is deemed to be received by the person to
whom it was mailed on the day, Saturdays, Sundays and holidays excepted, following the date of mailing.
Certificate of Sending
24.3
A certificate signed by the secretary, if any, or other officer of the Company or of any other corporation acting in that behalf for the Company stating that
a notice, statement, report or other record was addressed as required by §24.1, prepaid and mailed or otherwise sent as permitted by §24.1 is conclusive evidence of
that fact.
Notice to Joint Shareholders
24.4
A notice, statement, report or other record may be provided by the Company to the joint shareholders of a share by providing the notice to the joint
shareholder first named in the central securities register in respect of the share.
Notice to Trustees and Personal Representatives
24.5
A notice, statement, report or other record may be provided by the Company to the persons entitled to a share in consequence of the death, bankruptcy or
incapacity of a shareholder by:
(a)
mailing the record, addressed to them:
(i) by name, by the title of the legal personal representative of the deceased or incapacitated shareholder, by the title of trustee of the bankrupt
shareholder or by any similar description; and
(ii)
at the address, if any, supplied to the Company for that purpose by the persons claiming to be so entitled; or
(b) if an address referred to in §(a)(ii) has not been supplied to the Company, by giving the notice in a manner in which it might have been given if the
death, bankruptcy or incapacity had not occurred.
ARTICLE 25
SEAL
Who May Attest Seal
25.1
Except as provided in §25.2 and §25.3, the Company’s seal, if any, must not be impressed on any record except when that impression is attested by the
signatures of:
(a)
any two directors;
- 39 (b)
any officer, together with any director;
(c)
if the Company only has one director, that director; or
(d)
any one or more directors or officers or persons as may be determined by the directors.
Sealing Copies
25.2
For the purpose of certifying under seal a certificate of incumbency of the directors or officers of the Company or a true copy of any resolution or other
document, despite §25.1, the impression of the seal may be attested by the signature of any director or officer.
Mechanical Reproduction of Seal
25.3
The directors may authorize the seal to be impressed by third parties on share certificates or bonds, debentures or other securities of the Company as they
may determine appropriate from time to time. To enable the seal to be impressed on any share certificates or bonds, debentures or other securities of the Company,
whether in definitive or interim form, on which facsimiles of any of the signatures of the directors or officers of the Company are, in accordance with the Act or
these Articles, printed or otherwise mechanically reproduced, there may be delivered to the person employed to engrave, lithograph or print such definitive or
interim share certificates or bonds, debentures or other securities one or more unmounted dies reproducing the seal and the chair of the board or any senior officer
together with the secretary, treasurer, secretary-treasurer, an assistant secretary, an assistant treasurer or an assistant secretary-treasurer may in writing authorize
such person to cause the seal to be impressed on such definitive or interim share certificates or bonds, debentures or other securities by the use of such dies. Share
certificates or bonds, debentures or other securities to which the seal has been so impressed are for all purposes deemed to be under and to bear the seal impressed
on them.
2015 RESTRICTED SHARE UNIT PLAN
1.
PURPOSE
1.1
This Plan has been established by the Corporation to assist the Corporation in the recruitment and retention of highly qualified employees and consultants
by providing a means to reward superior performance, to motivate Participants under the Plan to achieve important corporate and personal objectives and,
through the issuance of Share Units in the Corporation to Participants under the Plan, to better align the interests of Participants with the long-term interests
of Shareholders.
2.
PLAN DEFINITIONS AND INTERPRETATIONS
In this Plan, the following terms have the following meanings:
(a)
“ Account ” means the bookkeeping account established and maintained by the Corporation for each Participant in which the number of Share
Units of the Participant are recorded;
(b)
“ Applicable Law ” means any applicable provision of law, domestic or foreign, including, without limitation, applicable securities legislation,
together with all regulations, rules, policy statements, rulings, notices, orders or other instruments promulgated thereunder and Stock Exchange
Rules;
(c)
“ Beneficiary ” means any person designated by the Participant as his or her beneficiary under the Plan in accordance with Section 14.1 or, failing
any such effective designation, the Participant’s legal representative;
(d)
“ Board ” means the Board of Directors of the Corporation;
(e)
“ Change of Control ” means:
(i)
the acquisition whether directly or indirectly, by a person or company, or any persons or companies acting jointly or in concert (as
determined in accordance with the Securities Act (British Columbia) and the rules and regulations thereunder) of voting securities of the
Corporation which, together with any other voting securities of the Corporation held by such person or company or persons or companies,
constitute, in the aggregate, more than 50% of all outstanding voting securities of the Corporation;
(ii)
(an amalgamation, arrangement or other form of business combination of the Corporation with another company which results in the
holders of voting securities of that other company holding, in the aggregate, 50% or more of all outstanding voting securities of the
Corporation (including a merged or successor company) resulting from the business combination; or
-2(iii)
the sale, lease or exchange of all or substantially all of the property of the Corporation to another person, other than a subsidiary of the
Corporation or other than in the ordinary course of business of the Corporation;
(f)
“ Committee ” means the Compensation Committee of the Board or any other committee or person designated by the Board to administer the Plan,
provided, however, if the Company ceases to qualify as a “foreign private issuer” (as defined in Rule 3b-4 under the Exchange Act), the Committee
shall be a committee of the Board comprised of not less than two directors, and each member of the Committee shall be a “non-employee director”
within the meaning of Rule 16b-3;
(g)
“ Corporation ” means Northern Dynasty Minerals Ltd. and its respective successors and assigns, and any reference in the Plan to action by the
Corporation means action by or under the authority of the Board or any person or committee that has been designated for the purpose by the Board
including, without limitation, the Committee;
(h)
“ Designated Subsidiary ” means an entity (including a partnership) in which the Corporation holds, directly or indirectly, a majority voting
interest and which has been designated by the Corporation for purposes of the Plan from time to time;
(i)
“ Director ” means a director of the Corporation;
(j)
“ Eligible Consultant ” means an individual, other than an Employee, that (i) is engaged to provide on a bona fide basis consulting, technical,
management or other services to the Corporation or any Designated Subsidiary under a written contract between the Corporation or the Designated
Subsidiary and the individual or a company of which the individual consultant is an employee, (ii) in the reasonable opinion of the Corporation,
spends or will spend a significant amount of time and attention on the affairs and business of the Corporation or a Designated Subsidiary, and (iii)
does not provide services in connection with the offer or sale of securities in a capital-raising transaction and do not directly or indirectly promote
or maintain a market for the registrant's securities;
(k)
“ Employee ” means an employee of the Corporation or any of its Designated Subsidiaries or any combination or partnership of such corporations;
(l)
“ Employer ” means the Corporation, the Designated Subsidiary or the combination or partnership of such corporations that employs the
Participant or that employed the Participant immediately prior to the Participant’s Termination Date;
(m)
“ Exchange Act ” means the U.S. Securities Exchange Act of 1934, as amended;
(n)
“ Expiry Date ” means, with respect to Share Units granted to a Participant, the date determined by the Corporation for such purpose for such
grant, which date shall be no later than December 31 of the calendar year in which the third anniversary of the Grant Date occurs;
-3(o)
“ Fiscal Year ” means a fiscal year of the Corporation;
(p)
“ Grant Agreement ” means an agreement between the Corporation and a Participant under which Share Units are granted, together with such
amendments, deletions or changes thereto as are permitted under the Plan;
(q)
“ Grant Date ” of a Share Unit means the date a Share Unit is granted to a Participant under the Plan;
(r)
“ Insider ” has the meaning provided for purposes of the TSX relating to Security Based Compensation Arrangements;
(s)
“ Joint Actor ” means a person acting “jointly or in concert with” another person within the meaning of Section 96 of the Securities Act (British
Columbia) or as such section may be amended or re-enacted from time to time;
(t)
“ Market Value ” with respect to a Share as at any date means the arithmetic average of the closing price of the Shares traded on the TSX for the
five (5) trading days on which a board lot was traded immediately preceding such date (or, if the Shares are not then listed and posted for trading on
the TSX, on such stock exchange on which the Shares are then listed and posted for trading as may be selected for such purpose by the
Corporation). In the event that the Shares are not listed and posted for trading on any stock exchange, the Market Value shall be the Market Value
of the Shares as determined by the Board in its discretion, acting reasonably and in good faith;
(u)
“ Participant ” means a bona fide full-time or part-time Employee, an Eligible Consultant or a director who, in any such case, has been designated
by the Corporation for participation in the Plan;
(v)
“ Payout Date ” means a date selected by the Corporation, in accordance with and as contemplated by Sections 3.2, 6.1 and 7.1;
(w)
“ Plan ” means this 2015 Restricted Share Unit Plan;
(x)
“ Reorganization ” means any (i) capital reorganization, (ii) merger, (iii) amalgamation, or (iv) arrangement or other scheme of reorganization;
(y)
“ Rule 3b-4 ” means Rule 3b-4 promulgated by the Securities and Exchange Commission under the Exchange Act or any successor rule or
regulation;
(z)
“ Rule 16b-3 ” means Rule 16b-3 promulgated by the Securities and Exchange Commission under the Exchange Act or any successor rule or
regulation;
(aa)
“ Section 409A ” means Section 409A of the U.S. Internal Revenue Code of 1986 , as amended, and the Treasury Regulations promulgated
thereunder as in effect from time to time;
(bb)
“ Securities Act ” means the U.S. Securities Act of 1933, as amended;
-4(cc)
“ Security Based Compensation Arrangement ” has the meaning defined in the provisions of the TSX Company Manual relating to security
based compensation arrangements;
(dd)
“ Shareholders ” means the holders of Shares;
(ee)
“ Shares ” mean common shares of the Corporation and includes any securities of the Corporation into which such common shares may be
converted, reclassified, redesignated, subdivided, consolidated, exchanged or otherwise changed, pursuant to a Reorganization or otherwise;
(ff)
“ Share Unit ” means a unit credited by means of an entry on the books of the Corporation to a Participant pursuant to the Plan, representing the
right to receive, subject to and in accordance with the Plan, for each Vested Share Unit one Share or the other consideration as referred to in the
Plan, at the time, in the manner, and subject to the terms, set forth in the Plan and the applicable Grant Agreement;
(gg)
“ Stock Exchange Rules ” means the applicable rules of any stock exchange upon which Shares are listed;
(hh)
“ Termination Date ” means the date on which a Participant ceases, for any reason including resignation, termination, death or disability, to be an
active Employee, an Eligible Consultant, or a director, as the case may be, and, in the case of a Participant who is an Employee, where the
employment is terminated by the Employer, whether wrongful or for cause or otherwise, such date shall be the date notice of termination is
provided and, in the case of a Participant who is an Eligible Consultant, the date the written contract between the Eligible Consultant and the
Corporation or any Designated Subsidiary is terminated or expires and the Eligible Consultant no longer provides services thereunder;
(ii)
“ TSX ” means the Toronto Stock Exchange; and
(jj)
“ Vested Share Units ” shall mean Share Units in respect of which all vesting terms and conditions set forth in the Plan and the applicable Grant
Agreement have been either satisfied or waived in accordance with the Plan.
2.2
In this Plan, unless the context requires otherwise, words importing the singular number may be construed to extend to and include the plural number, and
words importing the plural number may be construed to extend to and include the singular number.
3.
GRANT OF SHARE UNITS AND TERMS
3.1
The Corporation may grant Share Units to such Participant or Participants in such number and at such times as the Corporation may, in its sole discretion,
determine. Unless otherwise determined by the Corporation in its sole discretion, a grant of Share Units to a Participant in any calendar year will represent
a right to a bonus or similar payment to be received for services rendered by such Participant to the Corporation or a Designated Subsidiary, as the case
may be, in the Corporation’s or Designated Subsidiary’s fiscal year ending in, or coincident with, such calendar year.
-53.2
In granting any Share Units pursuant to Section 3.1, the Corporation shall designate:
(a)
the number of Share Units which are being granted to the Participant;
(b)
any time based conditions as to vesting of the Share Units to become Vested Share Units;
(c)
the Payout Date, which shall in no event be later than the Expiry Date and, unless otherwise determined on the Grant Date, shall be the third
anniversary of the Grant Date; and
(d)
the Expiry Date, which date shall be no later than (and, unless otherwise determined on the Grant Date, shall be) December 31 of the calendar year
in which the third anniversary of the Grant Date occurs;
of which the items in (a) and (b) shall be set out in the Grant Agreement, and the Payout Date and Expiry Date may be set out in the Grant Agreement in
the Corporation’s sole discretion.
3.3
The conditions may relate to all or any portion of the Share Units in a grant and may be graduated such that different percentages of the Share Units in a
grant will become Vested Share Units depending on the extent of satisfaction of one or more such conditions. The Corporation may, in its discretion and
having regard to the best interests of the Corporation, subsequent to the Grant Date of a Share Unit, waive any resulting conditions, provided that the
waiver of such conditions will not accelerate the time of payment with respect to such Share Units, and the payout will occur on the Payout Date as set
forth in the Grant Agreement or pursuant to Sections 7.1 or 8.3 of the Plan, if applicable.
4.
GRANT AGREEMENT
4.1
Each grant of a Share Unit will be set forth in a Grant Agreement containing terms and conditions required under the Plan and such other terms and
conditions not inconsistent herewith as the Corporation may, in its sole discretion, deem appropriate.
5.
SHARE UNIT GRANTS AND ACCOUNTS
5.1
An Account shall be maintained by the Corporation for each Participant. On the Grant Date, the Account will be credited with the Share Units granted to a
Participant on that date.
6.
PAYOUTS
6.1
On each Payout Date, the Participant shall be entitled to receive, and the Corporation shall issue or provide, a payout with respect to those Vested Share
Units in the Participant’s Account to which the Payout Date relates, in one of the following forms:
(a)
subject to shareholder approval of this Plan and the limitations set forth in Section 11.2 below, Shares issued from treasury equal in number to the
Vested Share Units in the Participant’s Account to which the Payout Date relates, net of any applicable deductions and withholdings;
-6(b)
subject to and in accordance with any Applicable Law, Shares purchased by an independent administrator of the Plan in the open market for the
purposes of providing Shares to Participants under the Plan equal in number to the Vested Share Units in the Participant’s Account to which the
Payout Date relates, net of any applicable deductions and withholdings;
(c)
the payment of a cash amount to a Participant on the Payout Date equal to the number of Vested Share Units in respect of which the Corporation
makes such a determination, multiplied by the Market Value on the Payout Date, net of any applicable deductions and withholdings; or
(d)
any combination of the foregoing,
as determined by the Corporation, in its sole discretion.
6.2
No fractional Shares shall be issued and any fractional entitlements will be rounded down to the nearest whole number.
6.3
Shares issued by the Corporation from treasury under Section 6.1(a) of this Plan shall be considered fully paid in consideration of past service that is no less
in value than the fair equivalent of the money the Corporation would have received if the Shares had been issued for money.
6.4
The Corporation or a Designated Subsidiary may withhold from any amount payable to a Participant, either under this Plan, or otherwise, such amount as
may be necessary so as to ensure that the Corporation or the Designated Subsidiary will be able to comply with the applicable provisions of any federal,
provincial, state or local law relating to the withholding of tax or other required deductions, including on the amount, if any, includable in the income of a
Participant. Each of the Corporation or a Designated Subsidiary shall also have the right in its discretion to satisfy any such withholding tax liability by
retaining, acquiring or selling on behalf of a Participant any Shares which would otherwise be issued or provided to a Participant hereunder.
7.
CHANGE OF CONTROL
7.1
Notwithstanding the conditions as to vesting of Share Units contained in any individual Grant Agreement, all outstanding Share Units shall become Vested
Share Units on any Change of Control and, except as otherwise provided in Section 16 hereof, the Payout Date in connection with such Vested Share Units
shall, notwithstanding any provisions in the Grant Agreement, be accelerated to the date of such Change of Control and the Corporation shall, as soon as
practicable following such Change of Control, issue or provide Shares or make payments to such Participants with respect to such Vested Share Units in
accordance with Section 6.
-78.
TERMINATION OF EMPLOYMENT AND FORFEITURES
8.1
Unless otherwise determined by the Corporation pursuant to Section 8.2, on a Participant’s Termination Date, any Share Units in a Participant’s Account
which are not Vested Share Units shall terminate and be forfeited.
8.2
Notwithstanding Section 8.1, where a Participant ceases to be an Employee as a result of the termination of his or her employment without cause, then in
respect of each grant of Share Units made to such Participant, at the Corporation’s discretion, all or a portion of such Participant’s Share Units 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 Corporation in its sole discretion.
8.3
Except as otherwise provided in Section 16, in the event a Participant’s Termination Date is prior to the Payout Date with respect to any Vested Share Units
in such Participant’s Account, the Payout Date with respect to such Vested Share Units shall, notwithstanding any provision in the Grant Agreement, be
accelerated to the Participant’s Termination Date and the Corporation shall, as soon as practicable following such Termination Date, issue or provide
Shares or make payment to such Participant, or Beneficiary thereof, as applicable, with respect to such Vested Share Units in accordance with Section 6.
9.
FORFEITED UNITS
9.1
Notwithstanding any other provision of the Plan or a Grant Agreement, Share Units granted hereunder shall terminate on, if not redeemed or previously
terminated and forfeited in accordance with the Plan, and be of no further force and effect after, the Expiry Date.
10.
ALTERATION OF NUMBER OF SHARES SUBJECT TO THE PLAN
10.1
In the event that the Shares shall be subdivided or consolidated into a different number of Shares or a distribution shall be declared upon the Shares payable
in Shares, the number of Share Units then recorded in the Participant’s Account shall be adjusted by replacing such number by a number equal to the
number of Shares which would be held by the Participant immediately after the distribution, subdivision or consolidation, should the Participant have held
a number of Shares equal to the number of Share Units recorded in the Participant’s Account on the record date fixed for such distribution, subdivision or
consolidation.
10.2
In the event there shall be any change, other than as specified in Section 10.1, in the number or kind of outstanding Shares or of any shares or other
securities into which such Shares shall have been changed or for which they shall have been exchanged, pursuant to a Reorganization or otherwise, then
there shall be substituted for each Share referred to in the Plan or for each share into which such Share shall have been so changed or exchanged, the kind
of securities into which each outstanding Share shall be so changed or exchanged and an equitable adjustment shall be made, if required, in the number of
Share Units then recorded in the Participant’s Account, such adjustment, if any, to be reasonably determined by the Committee and to be effective and
binding for all purposes.
-810.3
In the case of any such substitution, change or adjustment as provided for in this Section 10, the variation shall generally require that the aggregate Market
Value of the Share Units then recorded in the Participant’s Account prior to such substitution, change or adjustment will be proportionately and
appropriately varied so that it be equal to such aggregate Market Value after the variation.
11.
RESTRICTIONS ON ISSUANCES
11.1
Share Units may be granted by the Corporation in accordance with this Plan provided the aggregate number of Share Units outstanding pursuant to the Plan
from time to time shall not exceed 3.0% of the number of issued and outstanding Shares from time to time. The maximum number of Shares issuable
pursuant to all Security Based Compensation Arrangements, at any time, including all Share Units, options or other rights to purchase or otherwise acquire
Shares that are granted to Insiders, shall not exceed 10% of the total number of outstanding Shares.
11.2
The maximum number of Shares issued to Insiders pursuant to the Plan, together with any Shares issued pursuant to any other Security Based
Compensation Arrangement, within any one year period, shall not exceed 10% of the total number of weighted average number of common shares
outstanding during the year.
12.
AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN
12.1
Until such time as the Corporation receives shareholder approval of the issuances from treasury contemplated in Section 6.1(a), the Plan may be amended,
suspended or terminated at any time by the Board in whole or in part. No amendment of the Plan shall, without the consent of the Participants affected by
the amendment, or unless required by Applicable Law, adversely affect the rights accrued to such Participants with respect to Share Units granted prior to
the date of the amendment.
12.2
Following shareholder approval of any issuances from treasury as contemplated by Section 6.1(a), the Corporation may, without notice, at any time and
from time to time, and without shareholder approval, amend the Plan or any provisions thereof in such manner as the Corporation, 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 Plan;
(b)
to correct any ambiguity, defective provision, error or omission in the provisions of the Plan;
(c)
to change the vesting provisions of Share Units;
(d)
to change the termination provisions of Share Units or the Plan which does not entail an extension beyond the original Expiry Date of the Share
Units;
-9(e)
to make the amendments contemplated by Section 16.1(g); or
(f)
to make any amendments necessary or advisable because of any change in Applicable Law;
(g)
no such amendment of the Plan may be made without the consent of each affected Participant in the Plan if such amendment would adversely affect
the rights of such affected Participant(s) under the 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 Shares issuable pursuant to the Plan (other than pursuant to Section 10);
(ii)
an extension of the Expiry Date for Share Units granted to Insiders under the Plan;
(iii)
other types of compensation through Share issuance;
(iv)
an expansion of the rights of a Participant to assign Share Units other than as set forth in Section 15.2; or
(v)
the addition of additional categories of Participants (other than as contemplated by Section 10).
12.3
If the Corporation terminates the Plan, Share Units previously credited shall, at the discretion of the Corporation, either (a) be settled immediately in
accordance with the terms of the Plan in effect at such time, or (b) remain outstanding and in effect and settled in due course in accordance with the
applicable terms and conditions, in either case without shareholder approval.
13.
ADMINISTRATION
13.1
Unless otherwise determined by the Board, the Plan shall be administered by the Committee subject to Applicable Laws. The Committee shall have full and
complete authority to interpret the Plan, to prescribe such rules and regulations and to make such other determinations as it deems necessary or desirable for
the administration of the Plan. All actions taken and decisions made by the Committee shall be final, conclusive and binding on all parties concerned,
including, but not limited to, the Participants and their beneficiaries and legal representatives, each Designated Subsidiary and the Corporation. All
expenses of administration of the Plan shall be borne by the Corporation.
13.2
The Corporation shall keep or cause to be kept such records and accounts as may be necessary or appropriate in connection with the administration of the
Plan and the discharge of its duties. At such times as the Corporation shall determine, the Corporation shall furnish the Participant with a statement setting
forth the details of his or her Share Units including the Grant Date and the Vested Share Units and unvested Share Units held by each Participant. Such
statement shall be deemed to have been accepted by the Participant as correct unless written notice to the contrary is given to the Corporation within 30
days after such statement is given to the Participant.
- 10 13.3
The Corporation may, at its discretion, appoint one or more persons or companies to provide services in connection with the Plan including without
limitation, administrative and record-keeping services.
14.
BENEFICIARIES AND CLAIMS FOR BENEFITS
14.1
Subject to the requirements of Applicable Law, a Participant may designate in writing a Beneficiary to receive any benefits that are payable under the Plan
upon the death of such Participant. The Participant may, subject to Applicable Law, change such designation from time to time. Such designation or change
shall be in such form and executed and filed in such manner as the Corporation may from time to time determine.
15.
GENERAL
15.1
The transfer of an Employee from the Corporation to a Designated Subsidiary, from a Designated Subsidiary to the Corporation or from a Designated
Subsidiary to another Designated Subsidiary, shall not be considered a termination of employment for the purposes of the Plan, nor shall it be considered a
termination of employment if a Participant is placed on such other leave of absence which is considered by the Corporation as continuing intact the
employment relationship.
15.2
The Plan shall enure to the benefit of and be binding upon the Corporation, its successors and assigns. The interest of any Participant under the Plan or in
any Share Unit shall not be transferable or assignable other than by operation of law, except, if and on such terms as the Corporation may permit, to a
spouse or minor children or grandchildren or a personal holding company or family trust controlled by a Participant, the sole shareholders or beneficiaries
of which, as the case may be, are any combination of the Participant, the Participant’s spouse, the Participant’s minor children or the Participant’s minor
grandchildren, and after his or her lifetime shall enure to the benefit of and be binding upon the Participant’s Beneficiary, on such terms and conditions as
are appropriate for such transferees to be included in the class of transferees who may rely on a Form S-8 registration statement under the Securities Act to
sell shares received pursuant to the Share Unit.
15.3
The Corporation’s grant of any Share Units or issuance of any Shares hereunder is subject to compliance with Applicable Law applicable thereto. As a
condition of participating in the Plan, each Participant agrees to comply with all Applicable Law and agrees to furnish to the Corporation or a Designated
Subsidiary all information and undertakings as may be required to permit compliance with Applicable Law.
15.4
The Corporation shall not have any responsibility for or in respect of the tax consequences of a grant of Share Units to, or the receipt of Share Units or
payout in respect thereof by, Participants under this Plan. The Corporation or a Designated Subsidiary may withhold from any amount payable to a
Participant, either under this Plan, or otherwise, such amount as may be necessary or desirable as determined by the Corporation in its sole discretion so as
to ensure that the Corporation or the Designated Subsidiary will be able to comply with the applicable provisions of any federal, provincial, state or local
law relating to the withholding or remittance of tax or other required deductions or amounts, including on the amount, if any, includable in the income of a
Participant. The Corporation shall also have the right in its discretion to satisfy any such withholding tax liability by retaining, acquiring or selling (on such
terms as the Corporation determines in its sole discretion, and, in the case of a sale, without any requirement to obtain the best possible price) on behalf of a
Participant any Shares which would otherwise be issued or provided to a Participant hereunder, or to require a Participant, as a condition of receiving
anything under this Plan, to deliver cash or certified cheque payable to the Corporation for the amount of applicable tax as determined by the Corporation
in its sole discretion.
- 11 15.5
A Participant shall not have the right or be entitled to exercise any voting rights, receive any distribution or have or be entitled to any other rights as a
Shareholder in respect of any Share Units.
15.6
Neither designation of an Employee as a Participant nor the grant of any Share Units to any Participant entitles any Participant to the grant, or any
additional grant, as the case may be, of any Share Units under the Plan. Neither the Plan nor any action taken thereunder shall interfere with the right of the
Corporation or a Designated Subsidiary to terminate a Participant’s employment, or service under contract, at any time. Neither any period of notice, if any,
nor any payment in lieu thereof, upon termination of employment, wrongful or otherwise, shall be considered as extending the period of employment for
the purposes of the Plan.
15.7
Participation in the Plan shall be entirely voluntary and any decision not to participate shall not affect any Employee’s employment or any consultant’s
contractual relationship with the Corporation or a Designated Subsidiary.
15.8
The Plan shall be an unfunded obligation of the Corporation. Neither the establishment of the Plan nor the grant of any Share Units or the setting aside of
assets by the Corporation (if, in its sole discretion, it chooses to do so) shall be deemed to create a trust. The right of the Participant or Beneficiary to
receive payment pursuant to the Plan shall be no greater than the right of other unsecured creditors of the Corporation.
15.9
This Plan is established under the laws of the Province of British Columbia and the rights of all parties and the construction of each and every provision of
the Plan and any Share Units granted hereunder shall be construed according to the laws of the Province of British Columbia.
16.
SECTION 409A
16.1
It is intended that the provisions of this Plan comply with Section 409A, and all provisions of this Plan shall be construed and interpreted in a manner
consistent with the requirements for avoiding taxes or penalties under Section 409A. Notwithstanding anything in the Plan to the contrary, the Corporation
may provide in the applicable Grant Agreement with respect to Share Units granted to Participants whose benefits under the Plan are or may become
subject to Section 409A, such terms and conditions as may be required for compliance with Section 409A. In addition, the following will apply to the
extent that a Participant’s Share Units are subject to Section 409A.
- 12 (a)
Except as permitted under Section 409A, any Share Units, or payment with respect to Share Units, may not be reduced by, or offset against, any
amount owing by the Participant to the Corporation or any Designated Subsidiary.
(b)
If a Participant otherwise would become entitled to receive payment in respect of any Share Units as a result of his or her ceasing to be an
Employee, an Eligible Consultant or director upon a Termination Date, any payment made on account of such person ceasing to be an Employee or
Eligible Consultant shall be made at that time only if the Participant has experienced a “separation from service” (within the meaning of Section
409A).
(c)
If a Participant is a “specified employee” (within the meaning of Section 409A) at the time he or she otherwise would be entitled to payment as a
result of his or her separation from service, any payment that otherwise would be payable during the six-month period following such separation
from service will be delayed and shall be paid on the first day of the seventh month following the date of such separation from service or, if earlier,
the Participant’s date of death.
(d)
A Participant’s status as a specified employee shall be determined by the Corporation as required by Section 409A on a basis consistent with the
regulations under Section 409A and such basis for determination will be consistently applied to all plans, programs, contracts, agreements, etc.
maintained by the Corporation that are subject to Section 409A.
(e)
Each Participant, any beneficiary or the Participant’s estate, as the case may be, is solely responsible and liable for the satisfaction of all taxes and
penalties that may be imposed on or for the account of such Participant in connection with this Plan (including any taxes and penalties under
Section 409A), and neither the Corporation nor any Designated Subsidiary or affiliate shall have any obligation to indemnify or otherwise hold
such Participant or beneficiary or the Participant’s estate harmless from any or all of such taxes or penalties.
(f)
If and to the extent that Share Units would otherwise become payable upon a Change of Control as defined in the Plan, such payment will occur at
that time only if such change of control also constitutes a “change in ownership”, a “change in effective control” or a “change in the ownership of a
substantial portion of the assets of the Corporation” as defined under Section 409A and applicable regulations (a “409A Change in Control”). If a
Change of Control as defined in the Plan is not also a 409A Change in Control, unless otherwise permitted under Section 409A, the time for the
payment of Share Units will not be accelerated and will be payable pursuant to the terms of the Plan and applicable Grant Agreement as if such
Change of Control had not occurred.
(g)
In the event that the Committee determines that any amounts payable under the Plan will be taxable to a Participant under Section 409A prior to
payment to such Participant of such amount, the Corporation may (i) adopt such amendments to the Plan and Share Units and appropriate policies
and procedures, including amendments and policies with retroactive effect, that the Committee determines necessary or appropriate to preserve the
intended tax treatment of the benefits provided by the Plan and Grant Agreement and/or (ii) take such other actions as the Corporation determines
necessary or appropriate to avoid or limit the imposition of an additional tax under Section 409A.
- 13 (h)
In Sections 7.1 and 8.3 the phrase “as soon as practicable following” a designated event will be interpreted to mean within the same calendar year
as the designated event, or if later, by the 60th day following the occurrence of the designated event.
(i)
Notwithstanding the provisions in Section 12.3, upon termination of the Plan payments will be made in accordance with the regulations issued
under Section 409A regarding payments upon the termination of a nonqualified deferred compensation plan.
EFFECTIVE DATE: •
2015 NON-EMPLOYEE DIRECTORS DEFERRED SHARE UNIT PLAN
1.
PURPOSE OF THE PLAN
1.1
This Plan has been established by the Corporation to promote the interests of the Corporation by attracting and retaining qualified persons to serve on the
Board and to promote a greater alignment of long term interests between such Participants and the shareholders of the Corporation.
2.
PLAN DEFINITIONS AND INTERPRETATIONS
In this Plan, the following terms have the following meanings:
(a)
“Account” means an account maintained for each Participant on the books of the Corporation which will be credited with Deferred Share Units, in
accordance with the terms of the Plan.
(b)
“Applicable Law” means any applicable provision of law, domestic or foreign, including, without limitation, applicable securities legislation,
together with all regulations, rules, policy statements, rulings, notices, orders or other instruments promulgated thereunder and Stock Exchange
Rules.
(c)
“Board” means the Board of Directors of the Corporation.
(d)
Change of Control ” means:
(i)
the acquisition whether directly or indirectly, by a person or company, or any persons or companies acting jointly or in concert (as
determined in accordance with the Securities Act (British Columbia) and the rules and regulations thereunder) of voting securities of the
Corporation which, together with any other voting securities of the Corporation held by such person or company or persons or companies,
constitute, in the aggregate, more than 50% of all outstanding voting securities of the Corporation;
(ii)
(an amalgamation, arrangement or other form of business combination of the Corporation with another company which results in the
holders of voting securities of that other company holding, in the aggregate, 50% or more of all outstanding voting securities of the
Corporation (including a merged or successor company) resulting from the business combination; or
-2(iii)
the sale, lease or exchange of all or substantially all of the property of the Corporation to another person, other than a subsidiary of the
Corporation or other than in the ordinary course of business of the Corporation;
(e)
“Committee” means the Compensation Committee of the Board.
(f)
“Common Shares” means common shares of the Corporation and includes any securities of the Corporation into which such Common Shares may
be converted, reclassified, redesignated, subdivided, consolidated, exchanged or otherwise changed, pursuant to a Reorganization or otherwise.
(g)
“Corporation” means Northern Dynasty Minerals Ltd. and its respective successors and assigns, and any reference in the Plan to action by the
Corporation means action by or under the authority of the Board or any person or committee that has been designated for the purpose by the Board
including, without limitation, the Committee.
(h)
“DSU” or “Deferred Share Unit” means a unit credited to a Participant by way of a bookkeeping entry in the books of the Corporation pursuant
to this Plan, the value of which is equivalent in value to a Common Share.
(i)
“Grant” means any Deferred Share Unit credited to the Account of a Participant.
(j)
“Insider” has the meaning provided for purposes of the TSX relating to Security Based Compensation Arrangements.
(k)
“Notice of Redemption” means written notice, on a prescribed form, by the Participant, or the administrator or liquidator of the estate of the
Participant, to the Corporation of the Participant’s wish to redeem his or her Deferred Share Units.
(l)
“Participant” means a director of the Corporation who is designated by the Committee as eligible to participate in the Plan.
(m)
“Plan” means this 2015 Non-Employee Directors Deferred Share Unit Plan.
(n)
“Redemption Date” means the date that a Notice of Redemption is received by the Corporation; provided in the case of a U.S. Eligible Participant,
however, the Redemption Date will be made the earlier of (i) “separation from service” within the meaning of Section 409A of the Code, or (ii)
within 90 days of the U.S. Eligible Participant’s death.
(o)
“Reorganization” means any (i) capital reorganization, (ii) merger, (iii) amalgamation, or (iv) arrangement or other scheme of reorganization.
-3(p)
“Section 409A ” means Section 409A of the U.S. Internal Revenue Code of 1986, as amended , and the Treasury Regulations promulgated
thereunder as in effect from time to time.
(q)
“ Security Based Compensation Arrangement ” has the meaning defined in the provisions of the TSX Company Manual relating to security
based compensation arrangements.
(r)
“Share Price” means the closing price of a Common Share on the TSX averaged over the five (5) consecutive trading days immediately preceding
(a) in the case of a Grant, the last day of the fiscal quarter preceding the date of Grant in respect of a director, or (b) in the case of a redemption, the
Redemption Date, as applicable, or in the event such shares are not traded on the TSX, the fair market value of such shares as determined by the
Committee acting in good faith.
(s)
“ Stock Exchange Rules ” means the applicable rules of any stock exchange upon which the Common Shares are listed.
(t)
“Termination Date” means the date of a Participant’s death, or retirement from, or loss of office or employment with the Corporation, within the
meaning of paragraph 6801(d) of the regulations under the Income Tax Act (Canada), including the Participant’s resignation, retirement, removal
from the Board, death or otherwise.
(u)
“TSX” means the Toronto Stock Exchange.
(v)
“ U.S. Eligible Participant ” refers to a Participant who, at any time during the period from the date Deferred Share Units are granted to the
Participant to the date such Deferred Share Units are redeemed by the Participant, is subject to income taxation in the United States on the income
received for his or her services as a director of the Corporation and who is not otherwise exempt from U.S. income taxation under the relevant
provisions of the U.S. Internal Revenue Code of 1986, as amended , or the Canada-U.S. Income Tax Convention, as amended from time to time .
3.
NON-EMPLOYEE DIRECTOR COMPENSATION
3.1
Establishment of Annual Base Compensation
An annual compensation amount (the " Annual Base Compensation ") payable to non-employee Directors (hereafter " Directors ") of the Corporation
shall be established from time-to-time by the Board. The amount of Annual Base Compensation will be reported annually in the Corporation’s management
information circular.
-43.2
3.3
Payment of Annual Base Compensation
(a)
The Annual Base Compensation shall be payable in quarterly installments, with each installment payable as promptly as practicable following the
last business day of the fiscal quarter to which it applies. Quarterly payments shall be pro rated if Board service commences or terminates during a
fiscal quarter. The number of DSUs to be paid and the terms of the DSUs shall be determined as provided in the following sections of this Plan.
(b)
Each Director may elect to receive in DSUs up to 100% of his or her Annual Base Compensation by completing and delivering a written election to
the Corporation on or before November 15th of the calendar year ending immediately before the calendar year with respect to which the election is
made. Such election will be effective with respect to compensation payable for fiscal quarters beginning during the calendar year following the date
of such election. Further, where an individual becomes a Director for the first time during a fiscal year and such individual has not previously
participated in a plan that is required to be aggregated with this Plan for purposes of Section 409A, such individual may elect to participate in the
Plan with respect to fiscal quarters of the Corporation commencing after the Corporation receives such individual’s written election, which election
must be received by the Corporation no later than 30 days after such individual’s appointment as a Director. For greater certainty, new Directors
will not be entitled to receive DSUs pursuant to an election for the quarter in which they submit their first election to the Corporation or any
previous quarter. Elections hereunder shall be irrevocable with respect to compensation earned during the period to which such election relates.
(c)
All DSUs granted with respect to Annual Base Compensation will be credited to the Director's Account when such Annual Base Compensation is
payable (the " Grant Date ").
(d)
The Director's Account will be credited with the number of DSUs calculated to the nearest thousandths of a DSU, determined by dividing the dollar
amount of compensation payable in DSUs on the Grant Date by the Share Price. Fractional Common Shares will not be issued and any fractional
entitlements will be rounded down to the nearest whole number.
Additional Deferred Share Units
-5In addition to DSUs granted pursuant to Section 3.2, the Board may award such number of DSUs to a Participant as the Board deems advisable to provide
the Participant with appropriate equity-based compensation for the services he or she renders to the Corporation. 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 a Participant’s Account. The Corporation and a Participant who receives an award of
DSUs pursuant to this Section 3.3 shall enter into a DSU award agreement to evidence the award and the terms applicable thereto.
4.
ADMINISTRATION OF DSU ACCOUNTS
4.1
Administration of Plan
The Committee shall have the power, where consistent with the general purpose and intent of the Plan and subject to the specific provisions of the Plan:
4.2
(a)
to establish policies and to adopt rules and regulations for carrying out the purposes, provisions and administration of the Plan and to amend and
rescind such rules and regulations from time to time;
(b)
to interpret and construe the Plan and to determine all questions arising out of the Plan and any such interpretation, construction or determination
made by the Committee shall be final, binding and conclusive for all purposes;
(c)
to prescribe the form of the instruments used in conjunction with the Plan; and
(d)
to determine which members of the Board are eligible to participate in the Plan.
Redemption of Deferred Share Units
(a)
Each Participant shall be entitled to redeem his or her Deferred Share Units during the period commencing on the business day immediately
following the Termination Date and ending on the 90th day following the Termination Date by providing a written Notice of Redemption to the
Corporation. In the event of death of a Participant, the Notice of Redemption shall be filed by the legal representative of the Participant. In the case
of a U.S. Eligible Participant, however, the redemption will be deemed to be made on the earlier of (i) “separation from service” within the
meaning of Section 409A, or (ii) within 90 days of the U.S. Eligible Participant’s death.
(b)
Upon redemption, the Participant shall be entitled to receive, and the Corporation shall issue or provide:
-6-
4.3
(i)
subject to shareholder approval of this Plan and the limitations set forth in Section 6.2 below, a number of Common Shares issued from
treasury equal to the number of DSUs in the Participant’s Account, net of any applicable deductions and withholdings;
(ii)
subject to and in accordance with any Applicable Law, a number of Common Shares purchased by an independent administrator of the
Plan in the open market for the purposes of providing Common Shares to Participants under the Plan equal in number to the DSUs in the
Participant’s Account, net of any applicable deductions and withholdings;
(iii)
the payment of a cash amount to a Participant equal to the number of DSUs multiplied by the Share Price, net of any applicable deductions
and withholdings; or
(iv)
any combination of the foregoing, as determined by the Corporation, in its sole discretion.
Payment Notwithstanding
Notwithstanding any other provision of this Plan, all amounts payable to, or in respect of, a Participant hereunder shall be paid on or before December 31 of
the calendar year commencing immediately after the Participant’s Termination Date.
5.
ALTERATION OF NUMBER OF SHARES SUBJECT TO THE PLAN
5.1
Subdivisions or Consolidations
In the event that the Common Shares shall be subdivided or consolidated into a different number of Common Shares or a distribution shall be declared
upon the Common Shares payable in Common Shares, the number of DSUs then recorded in the Director’s Account shall be adjusted by replacing such number by
a number equal to the number of Common Shares which would be held by the Director immediately after the distribution, subdivision or consolidation, should the
Director have held a number of Common Shares equal to the number of DSUs recorded in the Director’s Account on the record date fixed for such distribution,
subdivision or consolidation.
5.2
Reorganizations
In the event there shall be any change, other than as specified in Section 5.1, in the number or kind of outstanding Common Shares or of any shares or other
securities into which such Common Shares shall have been changed or for which they shall have been exchanged, pursuant to a Reorganization or otherwise, then
there shall be substituted for each Common Share referred to in the Plan or for each share into which such Common Share shall have been so changed or
exchanged, the kind of securities into which each outstanding Common Share shall be so changed or exchanged and an equitable adjustment shall be made, if
required, in the number of DSUs then recorded in the Director’s Account, such adjustment, if any, to be reasonably determined by the Committee and to be
effective and binding for all purposes.
-75.3
Adjustments
In the case of any such substitution, change or adjustment as provided for in this Section 5, the variation shall generally require that the number of DSUs then
recorded in the Director’s Account prior to such substitution, change or adjustment will be proportionately and appropriately varied.
6.
RESTRICTIONS ON ISSUANCES
6.1
Maximum Number of DSUs
DSUs may be granted by the Corporation in accordance with this Plan provided the aggregate number of DSUs outstanding pursuant to the Plan from time
to time shall not exceed 2.0% of the number of issued and outstanding Common Shares from time to time. The maximum number of Shares issuable pursuant to all
Security Based Compensation Arrangements, at any time, including all Shares, options or other rights to purchase or otherwise acquire Shares that are granted to
Insiders shall not exceed 10% of the total number of outstanding Shares.
6.2
Insider Participation Limits
The maximum number of Shares issued to Insiders pursuant to the Plan, together with any Shares issued pursuant to any other Security Based
Compensation Arrangement, within any one year period, shall not exceed 10% of the total number of weighted average number of common shares outstanding
during the year.
7.
AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN
7.1
Amendment to the Plan
Until such time as the Corporation receives shareholder approval of the issuances from treasury contemplated in Section 4.2(b)(i), the Plan may be
amended, suspended or terminated at any time by the Board in whole or in part. No amendment of the Plan shall, without the consent of the Participants affected by
the amendment, or unless required by Applicable Law, adversely affect the rights accrued to such Participants with respect to DSUs granted prior to the date of the
amendment.
-8Following shareholder approval of any issuances from treasury as contemplated in Section 4.2(b)(i), the Board may at any time, and from time to time, and
without shareholder approval, amend any provision of the 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 Plan including amendments of a “clerical” or
“housekeeping” nature;
(b)
to correct any ambiguity, defective provision, error or omission in the provisions of the Plan;
(c)
amendments to the termination provisions of Section 7.2;
(d)
amendments necessary or advisable because of any change in Applicable Laws;
(e)
amendments to the transferability of Deferred Share Units provided for in Sections 8.2 and 8.10;
(f)
amendments to Section 4.1 relating to the administration of the Plan; and
(g)
any other amendment, fundamental or otherwise, not requiring shareholder approval under Applicable Laws;
7.2
(h)
no such amendment of the Plan may be made without the consent of each affected Participant in the Plan if such amendment would adversely affect
the rights of such affected Participant(s) under the Plan; and
(i)
shareholder approval shall be obtained in accordance with the requirements of the TSX for any amendment:
(i)
to Section 6.1 in order to increase the maximum number of Deferred Share Units which may be issued under this Plan (other than pursuant
to Section 5);
(ii)
to Section 7.1; or
(iii)
to the definition of “Participant”.
Plan Termination
-9The Committee may decide to discontinue granting awards under the Plan at any time in which case no further Deferred Share Units shall be awarded or
credited under the Plan. Any Deferred Share Units which remain outstanding in a Participant’s Account at that time shall continue to be dealt with according to the
terms of the Plan. The Plan shall terminate when all payments owing pursuant to Section 4.2 of the Plan have been made and all Deferred Share Units have been
cancelled in all Participants’ Accounts.
8.
GENERAL PROVISIONS
8.1
Withholding
The Corporation shall not have any responsibility for or in respect of the tax consequences of a grant of Deferred Share Units to, or the receipt of Deferred
Share Units or payout in respect thereof by, Participants under this Plan. The Corporation may withhold from any amount payable to a Participant, either under this
Plan, or otherwise, such amount as may be necessary or desirable as determined by the Corporation in its sole discretion so as to ensure that the Corporation will be
able to comply with the applicable provisions of any federal, provincial, state or local law relating to the withholding or remittance of tax or other required
deductions or amounts, including on the amount, if any, includable in the income of a Participant. The Corporation shall also have the right in its discretion to
satisfy any such withholding tax liability by retaining, acquiring or selling (on such terms as the Corporation determines in its sole discretion, and, in the case of a
sale, without any requirement to obtain the best possible price) on behalf of a Participant any Common Shares which would otherwise be issued or provided to a
Participant hereunder, or to require a Participant, as a condition of receiving anything under this Plan, to deliver cash or certified cheque payable to the Corporation
for the amount of applicable tax as determined by the Corporation in its sole discretion.
8.2
Assignability
No right to receive payment of DSUs and other benefits under the Plan shall be transferable or assignable by a Participant except by will or laws of descent
and distribution.
8.3
Unfunded Plan
Unless otherwise determined by the Committee, the Plan shall be unfunded. To the extent any Participant or his or her estate holds any rights by virtue of a
grant of Deferred Share Units under the Plan, such rights (unless otherwise determined by the Committee) shall be no greater than the rights of an unsecured
creditor of the Corporation.
8.4
Final Determination
- 10 Any determination or decision by or opinion of the Committee made or held pursuant to the terms of the Plan shall be final, conclusive and binding on all
parties concerned. All rights, entitlements and obligations of Participants under the Plan are set forth in the terms of the Plan and cannot be modified by any other
documents, statements or communications, except by Plan amendments referred to in Section 7.1 of the Plan.
8.5
No Right to Employment
Participation in the Plan shall not be construed to give any Participant a right to be retained as a Director.
8.6
No Other Benefit
No amount will be paid to, or in respect of, a Participant under the Plan to compensate for a downward fluctuation in the price of Common Shares nor will
any other form of benefit be conferred upon, or in respect of, a Participant for such purpose.
8.7
No Shareholder Rights
Under no circumstances shall Deferred Share Units be considered Common Shares nor shall they entitle any Participant to exercise voting rights or any
other rights attaching to the ownership of Common Shares nor shall any Participant be considered the owner of Common Shares by virtue of the award of Deferred
Share Units.
8.8
Reorganization of the Corporation
The existence of any Deferred Share Units shall not affect in any way the right or power of the Corporation or its shareholders to make or authorize any
adjustment, recapitalization, reorganization or other change in the Corporation’s capital structure or its business, or any amalgamation, combination, merger or
consolidation involving the Corporation or to create or issue any bonds, debentures, shares or other securities of the Corporation or the rights and conditions
attaching thereto or to affect the dissolution or liquidation of the Corporation or any sale or transfer of all or any part of its assets or business, or any other corporate
act or proceeding, whether of a similar nature or otherwise.
8.9
Successors and Assigns
The Plan shall be binding on all successors and assigns of the Corporation.
8.10
General Restrictions and Assignment
Except as required by law, the rights of a Participant under the Plan are not capable of being anticipated, assigned, transferred, alienated, sold, encumbered,
pledged, mortgaged or charged and are not capable of being subject to attachment or legal process for the payment of any debts or obligations of the Participant.
- 11 8.11
Section 409A
It is intended that the provisions of this Plan comply with Section 409A, and all provisions of this Plan shall be construed and interpreted in a manner
consistent with the requirements for avoiding taxes or penalties under Section 409A. Notwithstanding anything in the Plan to the contrary, the following will apply
with respect to the rights and benefits of U.S. Eligible Participants under the Plan:
(a)
Except as permitted under Section 409A, any deferred compensation (within the meaning of Section 409A) payable to or for the benefit of a U.S.
Eligible Participant may not be reduced by, or offset against, any amount owing by the U.S. Eligible Participant to the Corporation or any of its
affiliates.
(b)
If a U.S. Eligible Participant becomes entitled to receive payment in respect of any Deferred Share Units as a result of his or her “separation from
service” (within the meaning of Section 409A), and the U.S Eligible Participant is a “specified employee” (within the meaning of Section 409A) at
the time of his or her separation from service, and the Committee makes a good faith determination that (i) all or a portion of the Deferred Share
Units constitute “deferred compensation” (within the meaning of Section 409A) and (ii) any such deferred compensation that would otherwise be
payable during the six-month period following such separation from service is required to be delayed pursuant to the six-month delay rule set forth
in Section 409A in order to avoid taxes or penalties under Section 409A, then payment of such “deferred compensation” shall not be made to the
U.S Eligible Participant before the date which is six months after the date of his or her separation from service (and shall be paid in a single lump
sum on the first day of the seventh month following the date of such separation from service) or, if earlier, the U.S Eligible Participant’s date of
death.
(c)
A U.S. Eligible Participant’s status as a specified employee shall be determined by the Corporation as required by Section 409A on a basis
consistent with the regulations under Section 409A and such basis for determination will be consistently applied to all plans, programs, contracts,
agreements, etc. maintained by the Corporation that are subject to Section 409A.
(d)
Each U.S Eligible Participant, any beneficiary or the U.S Eligible Participant’s estate, as the case may be, is solely responsible and liable for the
satisfaction of all taxes and penalties that may be imposed on or for the account of such U.S Eligible Participant in connection with this Plan
(including any taxes and penalties under Section 409A), and neither the Corporation nor any affiliate shall have any obligation to indemnify or
otherwise hold such U.S Eligible Participant or beneficiary or the U.S Eligible Participant’s estate harmless from any or all of such taxes or
penalties.
- 12 -
8.12
(e)
In the event that the Committee determines that any amounts payable hereunder will be taxable to a Participant under Section 409A prior to
payment to such Participant of such amount, the Corporation may (i) adopt such amendments to the Plan and Deferred Share Units and appropriate
policies and procedures, including amendments and policies with retroactive effect, that the Committee determines necessary or appropriate to
preserve the intended tax treatment of the benefits provided by the Plan and Deferred Share Units hereunder and/or (ii) take such other actions as
the Committee determines necessary or appropriate to avoid or limit the imposition of an additional tax under Section 409A.
(f)
Notwithstanding the provisions in Section 7, upon termination of the Plan payments will be made in accordance with the regulations issued under
409A regarding payments upon the termination of a nonqualified deferred compensation plan.
Forfeiture Provision
If a Participant is subject to tax under the Income Tax Act (Canada) and also is a U.S. Eligible Participant with respect to DSUs, the following special rules
regarding forfeiture of such Deferred Share Units will apply if the Participant’s DSUs are subject to Section 409A. For greater clarity, these forfeiture provisions
are intended to avoid adverse tax consequences under Section 409A and/or under paragraph 6801(d) of the regulations under the Income Tax Act (Canada), that
may result because of the different requirements as to the time of settlement of Deferred Share Units with respect to a Participant’s “separation from service”
(within the meaning of Section 409A) (“ Separation From Service ”) and his retirement or loss of office (under tax laws of Canada). If a Participant otherwise
would be entitled to payment of DSUs in any of the following circumstances, such DSUs shall instead be immediately and irrevocably forfeited (for greater
certainty, without any compensation therefore):
(a)
a Participant experiences a Separation From Service as a result of a permanent decrease in the level of services provided to less than 20% of his
past service in circumstances that do not constitute a retirement from, or loss of office or employment with, the Corporation or an affiliate thereof,
within the meaning of paragraph 6801(d) of the regulations under the Income Tax Act (Canada); or
(b)
a Participant experiences a Separation From Service upon ceasing to be a director while continuing to provide services as an employee in
circumstances that do not constitute a retirement from, or loss of office or employment with, the Corporation or an affiliate thereof, within the
meaning of paragraph 6801(d) of the regulations under the Income Tax Act (Canada); or
- 13 -
8.13
(c)
a Participant experiences a serious disability that continues for more than 29 months in circumstances that constitute a Separation from Service and
do not constitute a retirement from, or loss of office or employment with, the Corporation or an affiliate thereof, within the meaning of paragraph
6801(d) of the regulations under the Income Tax Act (Canada); or
(d)
a Participant experiences a retirement from, or loss of office or employment with, the Corporation or an affiliate thereof, within the meaning of
paragraph 6801(d) of the regulations under the Income Tax Act (Canada) by virtue of ceasing employment as both an employee and as a director,
but he continues to provide services as an independent contractor such that he has not experienced a Separation From Service.
Interpretation
In this text, words importing the singular meaning shall include the plural and vice versa, and words importing the masculine shall include the feminine and
neuter genders.
8.14
Governing Law
The validity, construction and effect of the Plan and any actions taken or relating to the Plan shall be governed by the laws of the Province of British
Columbia and the federal laws of Canada applicable therein.
8.15
Severability
The invalidity or unenforceability of any provision of the Plan shall not affect the validity or enforceability of any other provision and any invalid or
unenforceable provision shall be severed from the Plan.
8.16
Effective Date
The effective date of this Plan shall be •.
EXHIBIT 8.01
LIST OF CURRENT SUBSIDIARIES
Name of Subsidiary
Place of Incorporation
Principal Activity
Ownership
Canada
Holding Company. Wholly-owned
100%
Pebble Services Inc.
Nevada, USA
Management and services company.
Wholly-owned subsidiary of the
Company.
100%
Northern Dynasty Partnership
Alaska, USA
Holds 99.9% of the Pebble Limited
Partnership and 100% of Pebble Mines
Corp.
100%
(indirect)
Alaska, USA
Holding Company and Exploration of
the Pebble Project.
100%
(indirect)
Delaware, USA General Partner. Holds 0.1% of Pebble
Limited Partnership.
100%
(indirect)
3537137 Canada Inc.
Pebble Mines Corp.
Pebble West Claims Corporation
Alaska, USA
Holding Company. Subsidiary of
Pebble Limited Partnership.
100%
(indirect)
Pebble East Claims Corporation
Alaska, USA
Holding Company. Subsidiary of
Pebble Limited Partnership.
100%
(indirect)
U5 Resources Inc.
Nevada, USA
Holding Company. Wholly-owned
100%
Cannon Point Resources Ltd.
British Columbia, Canada
Not active. Wholly-owned subsidiary
of the Company.
100%
MGL Subco Ltd.
of the Company.
100%
Delta Minerals Inc.
of MGL Subco Ltd.
100%
(indirect)
Imperial Gold Corporation
of Delta Minerals Inc.
100%
(indirect)
Nevada, USA
of Imperial Gold Corporation.
100%
(indirect)
Yuma Gold Inc.
EXHIBIT 11.01
CODE OF ETHICS AND TRADING RESTRICTIONS
Corporate Governance Manual - Code of Ethics
Page|1
Introduction
The Company’s policy is to conduct its business in accordance with the highest ethical and legal standards. To assist the Company in achieving this policy, the
Board of Directors has adopted this Code of Ethics and Trading Restrictions. The Code is designed to deter wrongdoing and to promote:
(1)
Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest;
(2)
Full, fair, accurate, timely and understandable disclosure in reports and documents that the Company submits to regulatory authorities and
communicates to the public;
(3)
Compliance with applicable governmental laws and regulations;
(4)
Prompt internal reporting of violations of the Code to appropriate persons identified in the Code; and
(5)
Accountability for adherence to the Code.
The Code applies to all employees, officers, and directors of the Company and its subsidiaries. Because Hunter Dickinson Services Inc. (“HDSI”) employees and
officers provide substantial services to the Company, the Code also applies to all employees, officers and directors of HDSI with respect to their activities relating
to the Company. Depending on the circumstances, it may also apply to agents and other representatives of the Company. ("You" as used in this Code refers to all
such persons, as appropriate.) In addition to your complying with the Code, it is your responsibility to prevent others from violating these standards if you are in a
position to do so. If you are not in a position to do so, it is your responsibility to bring the matter to the attention of a member of senior management who is in a
position to take appropriate action, or to the attention of an independent member of the Board of Directors.
1.
Avoiding Questionable or Illegal Practices
The Company’s policy is to comply with all laws and regulations that apply to its business, and to avoid any activity that may be regarded as questionable or
unethical. Fraudulent, illegal or unethical acts will not be tolerated. No action that would otherwise be questionable is permissible simply because it is customary in
a particular location or business.
If you are confronted with a situation that raises an issue under this policy, ask yourself these questions:
•
Is the life, health or safety of anyone, or the environment, endangered by the action?
•
Is it legal?
•
Does it feel honest, fair and ethical?
•
Does it compromise anyone’s trust or integrity?
•
Would the public disclosure of the activity in any way be embarrassing to you, the Company or any other affected employees?
You should be sufficiently familiar with any laws and regulations and Company policies and procedures that apply to your area of work and responsibility. That
will permit you to recognize possible breaches and to know when to seek advice. If in doubt, you should discuss the matter with a member of senior management.
Page|2
2.
Honesty and Fair Dealing.
When representing the Company, it is important that you deal honestly and fairly with the Company’s joint venture partners, suppliers, customers, professional
advisors, competitors, other employees, and anyone else with whom you have contact in the course of performing your job. You should not take any advantage of
anyone through actions such as manipulation, concealment, misappropriation or abuse of confidential information, falsification, misrepresentation of material facts,
undue influence or any other unfair dealing practice. You also should not give any advantage to anyone for reason of personal relationship, personal benefit or other
reasons not involving the best interest of the Company.
3.
Policy to Prevent the Corruption of Foreign Public Officials
Both Canada and the United States have laws making it illegal to corrupt officials of foreign governments or to engage in certain related acts. In Canada, the law is
entitled Corruption of Foreign Public Officials Act and in the United States the law is entitled Foreign Corrupt Practices Act . In the discussion that follows, we
have always adopted the more stringent requirement of the two laws.
(a) Persons to Whom the Laws Apply . Both laws apply to the Company and its subsidiaries; their employees, officers and directors; and their agents and
representatives. For these purposes, action by a foreign agent or representative is the equivalent of action by the Company.
The laws may apply in whole or in part to foreign companies and joint ventures if a U.S. or Canadian company controls the foreign company or joint
venture or otherwise authorizes, directs or participates in activity by the foreign company or joint venture. Deciding whether activities of a foreign
company or joint venture are authorized, directed or participated in by the Company in any particular instance will be an uncertain exercise with uncertain
results. In addition, allegations of illegal conduct by any company or joint venture in which the Company has a significant interest can only cause damage
to the reputation of the Company. For this reason, you should assume that any action of any foreign companies and joint ventures in which the Company
has a significant interest, including the actions of the employees and agents of such foreign companies and joint ventures, will be attributable to the
Company.
(b) Prohibition. The laws make it illegal to offer or provide money or anything of value for the personal benefit of (i) any foreign government official or
any official of a public international organization (such as the International Monetary Fund, regional development banks or other multilateral organizations)
or (ii) any foreign political party or its officials or any political candidate for the purpose of: influencing that official in the exercise of his or her duties (or
non-exercise of those duties); having any such person influence foreign government activity; or otherwise securing an improper advantage for the purpose
of aiding the Company in obtaining, retaining or directing business. The laws may be violated if the Company knows, or if it should have been obvious to
the Company, that the payments were made for an illegal purpose.
The laws also apply to indirect payments, i.e ., where the Company offers or provides money or anything of value to any person with the knowledge that
the person will make a payment to a foreign government official, official of a public international organization, foreign political party or its officials, or any
political candidate for such a prohibited purpose.
The laws also make it illegal to possess property or proceeds from property known to have been obtained as a result of the bribery of a public official or to
“launder” ( i.e ., deal with intent to conceal) property or proceeds from property obtained as a result of the bribery of a public official.
Foreign government-owned corporations and other instrumentalities are generally treated as if they are governments, and their employees, officers and
directors are treated as government officials.
Page|3
(c)
Exception to Prohibition. There is an exception in the laws for “facilitating payments.” “Facilitating payments” are payments made to expedite
routine governmental action that does not involve obtaining, retaining or directing business. Example include payments to (i) secure processing of papers
such as visas, work orders and permits, (ii) induce customs officials to process legally transmitted goods, (iii) obtain police protection, (iv) obtain
installation and maintenance of utility connections, and (v) induce minor government functionaries (government employees without discretionary authority
over a project or transaction) to complete their jobs in the manner required and where the situation does not involve the securing of business.
There are three additional exceptions:
•
It is an affirmative defence if it can be shown that the payment was legal under the written laws and regulations of the foreign country. As an
example, in some foreign countries, the Company may be required by law to hire as an agent a national of that country who also is connected to the
government of that country in some way or other.
•
It also is an affirmative defence if it can be shown that the payment was a reimbursement of travel, lodging and other reasonable and bona fide
expenses directly related to the business promotion, demonstration or explanation of the Company’s business, or the execution or performance of a
contract with the foreign government. As an example, payment of the travel expenses of a foreign government official to visit one of our mines, as
a part of an effort to promote the Company in that country, would fit into this category.
•
Unconditional gifts having nominal value, when made openly and as a social amenity, or as a token of esteem, regard or gratitude in accordance
with local custom, generally will not be regarded as a bribe.
(d)
Company Policy . The Company’s policy is firm and unconditional. Under no circumstances will the Company ever pay a bribe prohibited by the
laws. If you are ever solicited for such a bribe, or if you become aware of any instance where any Company employee, officer, director, agent or
representative of the Company or its subsidiaries or its joint ventures proposes to offer such a bribe or is otherwise involved in such illegal activity, you are
to report the matter to your immediate superior, or directly to the CEO or CFO of the Company. Any employee, officer, director, agent or representative
who participates in any scheme to pay such an illegal bribe will be terminated immediately.
With respect to payments that fall within the exceptions noted above:
•
No “facilitating payments” may be made without the prior written approval of the CEO.
•
No payment that would otherwise be an illegal bribe may be made on the basis that it is legal under the written laws and regulations of the foreign
country without the prior written approval of the CEO.
•
No payment that would otherwise be an illegal bribe may be made on the basis that it is a reimbursement of travel, lodging or other reasonable and
bona fide expenses directly related to the business promotion, demonstration or explanation of the Company’s business or the execution or
performance of a contract with the foreign government without the prior written approval of the CEO.
•
With respect to unconditional gifts of nominal value made openly and as a social amenity, or as a token of esteem, regard or gratitude in
accordance with local custom, the CEO will establish a monetary limit on the value of any such gift. Any gifts with a value in excess of that limit
must be approved in advance by the CEO.
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(e)
Accounting Requirements . The Company and its affiliated foreign companies and joint ventures must:
•
Keep financial records which, in reasonable detail, accurately and fairly reflect transactions; and
•
Maintain a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with
management authorization, (ii) transactions are properly recorded as needed to permit preparation of financial statements and to maintain
accountability for assets, (iii) all assets are recorded on the books of the Company and access to assets is only permitted in accordance with
management authorization, and (iv) periodic auditing is done at reasonable intervals and action is taken to resolve discrepancies.
As an example, the accounting provisions require that the Company properly record “facilitating payments” as such and prohibit their characterization in
some other form. The accounting provisions also prohibit the Company from maintaining off-record cash “slush” funds or cash that may be accessed
without senior management authorization.
(f)
4.
Things to Look For . The following is a list of “red flags” that may indicate the possible existence of corrupt practices:
•
Foreign agent with a poor reputation or with links to the government.
•
Unusually large commission payments or commission payments where the agent does not appear to have provided significant services.
•
Cash payments, or payments without paper trail or compliance with normal internal controls.
•
Unusual bonuses to foreign personnel for which there is little support.
•
Payments to third country accounts.
Corporate Opportunities and Duty of Loyalty
You have a duty of loyalty to the Company, which includes a duty to advance the Company’s legitimate interests when the opportunity to do so arises.
Accordingly, you may not use your position or the Company’s name, property, information or good will for personal gain or for the gain of others. You are further
prohibited from taking advantage of an opportunity that is discovered through the use of any corporate property, information, contacts or your position with the
Company. All such opportunities, actual or perceived, should be reported to your immediate supervisor.
Business opportunities that come to the employees, officers and directors of HDSI are dealt with in accordance with the Services Agreement between the Company
and HDSI. . The Audit and Risk Committee of the Board of Directors is charged with the responsibility of reviewing relationships with HDSI, and it will consider
such matters as a part of its periodic review of the relationship. Directors of the Company who are also directors of HDSI nevertheless have an overriding fiduciary
duty to the Company that is governed by Canadian law.
Outside directors of the Company may have a variety of other business relationships involving duties of loyalty. In addition, outside directors do not, as a general
matter, have the same obligation as officers and employees to bring corporate opportunities to the Company. For these reasons, the Code does not apply to outside
directors of the Company with respect to issues involving duties of loyalty or corporate opportunities and such issues, to the extent they arise, are to be resolved
directly with the Board of Directors.
Page|5
5.
Avoiding Conflicts of Interest
A conflict of interest occurs when your private interests, or the private interests of your family, interfere, or appear to interfere, in any way with the best interests of
the Company. For these purposes, “family” would generally include your parents and grandparents, spouse, children and grandchildren, siblings, in-laws and other
persons who share a residence with you or another member of your family. You must take care to avoid any direct or indirect involvement or understanding that
might result in such a conflict or create the appearance of such a conflict. Whether a situation involves a conflict of interest depends on all of the circumstances.
Generally, the Company would not consider it a conflict of interest if an employee’s brother or sister were an officer of a competitor. However, the Company
would consider it a conflict of interest if a Company employee in charge of procurement were to purchase products or services from a company owned by the
employee’s brother or sister or from a company owned by a close personal friend of the employee. The following are examples of conflict of interest situations
which generally must be avoided or which may raise a question:
•
Acting as an employee, officer or director of, or a consultant to, a competitor or potential competitor of the Company;
•
Having a financial interest in or loan from a business which is a joint venture partner, optionor or optionee, competitor, customer or supplier of the
Company or which otherwise does business with the Company (an investment in the securities of a publicly traded company normally would not be
considered to present a conflict of interest unless it represented a material part of your savings);
•
Placing of Company business with any other company that is directly or beneficially owned or controlled by you or by members of your family.
Some conflicts are clear-cut; others are less obvious. In addition, there may be circumstances where it is necessary or in the best interests of the Company to have a
business relationship with a business or company in which an employee or officer, or his or her family, may have an interest. For example, where Company
operations are in a remote location, it may be necessary from time to time to enter into a business relationship with a business controlled by an employee’s family
members. For these reasons, you must fully disclose to your supervisor, the CEO or the CFO all circumstances that could be perceived as involving a conflict of
interest between the Company and you or members of your family. Full disclosure enables the Company to resolve unclear situations and to ethically handle
conflicts of interest before any difficulty can arise. To the extent a conflict of interest cannot be avoided in a reasonable fashion, then appropriate procedures will be
put in place to ensure that there is full disclosure and to minimize the involvement of the conflicted individuals in the relationship giving rise to the conflict.
The Company recognizes that there is a potential for a conflict of interest inherent in the Company’s relationship with HDSI. The Board of Directors believe that
the Company derives substantial benefits on a cost-effective basis from its continuing relationship with HDSI. The Audit Committee of the Board of Directors will
periodically (not less than annually) review the service agreements with HDSI and transactions under such agreements to confirm the fairness to the Company.
Outside directors of the Company are not expected to devote their time and effort solely on behalf of the Company, and they may have a variety of other business
relationships that could give rise to a conflict of interest. Any such potential conflicts of interest are not subject to the Code and are to be resolved directly with the
Board of Directors.
6.
Giving or Accepting Gifts
The giving or accepting of gifts can adversely affect the Company’s reputation for fair dealing and also create conflicts of interest. You should avoid:
Page|6
•
Giving or offering to give any gift, favour, entertainment, reward, or any other thing of value that might influence or appear to influence the judgment or
conduct of the recipient in the performance of his or her job. This includes transactions with government personnel, customers and suppliers. Such action
may damage the Company’s reputation for fair dealing and may be illegal.
•
Accepting or soliciting a gift, favour, or other thing of value that is intended to, or might appear to, influence your decision-making or professional
conduct. In addition to damaging the Company’s reputation for fair dealing, receipt of such gifts could interfere with your ability to make judgments solely
in the best interest of the Company, and thus create the appearance of a conflict of interest.
You may give or receive unsolicited gifts or entertainment only in cases where the gifts or entertainment are of nominal value, are customary to the industry, will
not violate any laws, and will not influence nor appear to influence the recipient’s judgment or conduct.
7.
Outside Activities
Outside activities must not conflict with the proper performance of your duties.
(a)
Other Business Activity . Full-time employees and officers are expected to devote substantial effort and attention to the furtherance of the
Company’s business. In the usual case, this would make it difficult for you to properly perform your duties while also being engaged in other business
ventures. For this reason, you may not serve as the proprietor, general partner, officer or director of any other business without first obtaining the written
consent of the CEO or CFO. In the case of family owned businesses, the CEO or CFO will normally grant such consent if he or she is satisfied that the
involvement in the family business will not conflict with your duties and will not involve any conflict with the interests of the Company. In addition, the
CEO may grant consent to an officer or employee serving as a member of the board of directors of another company in special circumstances. (The Board
of Directors will consider any proposal for the CEO or the CFO of the Company to serve on the board of another entity, other than not-for-profit entities or
family businesses that in no material way compete with the Company or do any material business with the Company.)
This policy does not apply to employees or officers who are also employees or or officers of HDSI with respect to services performed by them for other
companies.
(b)
Professional Associations and Charitable Organizations . The Company encourages employees and officers to participate in geological, engineering
and other professional associations and activities that do not conflict with their duties for the Company and do not involve conflicts of interest. The
Company also encourages officers and employees to participate in charitable organizations and activities. However, you should consult with the CEO or
CFO before you undertake any such outside activities requiring a substantial amount of time. In addition, you should not accept a position as an officer or
director of a professional or charitable organization without prior consultation with the CEO or CFO, so that they can be satisfied that your activity on
behalf of such organizations cannot be attributed to the Company.
(c)
Political and Government Affairs . No Company contributions may be made, directly or indirectly, to any election or issue campaign in any
jurisdiction or circumstance that would be unlawful. Corporate contributions may be made in appropriate cases where and when permitted by applicable
law, but only with the approval of the CEO. Use of Company equipment, supplies or facilities to support any political party, candidate or campaign, as well
as employee activity during normal business hours, may constitute a political contribution. You may not engage in any such activity where it involves
Company equipment, supplies or facilities or activity during normal business hours without the prior approval of the CEO. In addition, no action which
presents, or may appear to present, the position of the Company with respect to any political or governmental matter may be taken without the prior
approval of the CEO.
Page|7
The Company encourages employees and officers, as individuals, to take part in political and governmental affairs to the extent that such activity does not
interfere with the proper performance of their duties or involve the use of Company assets or a conflict of interest. However, if you wish to run for public
office or hold an appointed public position, you must confer with the CEO and counsel for the Company to ensure that the proposed activity is consistent
with your duties to the Company and does not involve a conflict of interest.
The outside directors of the Company are not expected to devote their full time and effort solely on behalf of the Company and accordingly this policy does not
apply to them.
8.
Accounting and Recordkeeping, Internal Accounting Controls and Auditing Matters.
Many employees of the Company, not just accountants and controllers, participate in the financial control and reporting processes of the Company. If you have
ANY responsibility for any aspect of the Company’s financial activities (for example: processing or approval of payments; creation, processing or approval of
invoices and credit memos; payroll and benefits decisions; approval of expense reports and other transactions; the estimation of financial reserves or other claims or
the amount of any accrual of deferral; or the recording of any of the foregoing in the Company’s records) and/or the preparation of the Company’s financial
statements or other financial reports, you must ensure your involvement complies with complete and accurate procedures as per established Company practice.
(a)
Accounting and Recordkeeping . You may not maintain funds or assets for any improper purposes or make false or misleading statements in any
Company documents, reports or records. No undisclosed or unrecorded accounts may be established using the Company’s funds or other assets. All
accounting records and the financial reports produced from those records must be kept and presented in accordance with applicable law, must accurately
and fairly reflect in reasonable detail the Company’s assets, liabilities, revenue and expenses and, where applicable, must be in accordance with applicable
accounting principles.
Transactions must be supported by accurate and reasonably detailed documentation and recorded in the proper account. Best efforts are to be made to
record transactions in the proper accounting time period. To the extent that estimates are necessary, they must be based on your good faith judgment and be
supported by appropriate documentation. No payment or the related accounting entry may be approved or made with the intention or understanding that any
part of the payment will be used for any purpose other than that described by the document supporting the entry or payment.
(b) Internal Accounting Controls . Internal accounting controls have been established to provide reasonable assurances that (i) transactions are executed
in accordance with management authorization, (ii) transactions are properly recorded as needed to permit preparation of financial statements and to
maintain accountability for assets, (iii) all assets are recorded on the books of the Company and access to assets is only permitted in accordance with
management authorization, and (iv) periodic auditing is done at reasonable intervals and action is taken to resolve discrepancies. You must comply with all
internal control requirements and ensure that no action is taken to avoid the internal controls requirements.
(c) Auditing . The Company employs a firm of independent chartered accountants to audit the Company’s annual financial statements. The annual audit
has a number of purposes, including (i) compliance with regulatory requirements, (ii) providing an independent assessment of whether the Company’s
financial statements fairly present the financial condition, results of operations and cash flow of the Company, (iii) assessment of the accounting principles
used and significant estimates made by the Company in preparing its financial statements, and (iv) assessment of the Company’s system of internal controls
over financial reporting as required by applicable law and regulatory policies. Each employee is responsible for providing whatever assistance may be
required by the auditors. If you receive inquiries from the Company’s independent accountants, you must respond promptly, fully and accurately.
Page|8
If you have any concerns as to weaknesses in the Company’s accounting system or in the Company’s internal controls; or if you believe that any instances of
fraud,* or incorrect or questionable accounting practices may have occurred; or if you believe that any instances of fraudulent, incorrect or questionable practices
may have occurred in connection with the annual audit of the Company’s financial statements, you should consult with your immediate supervisor or with the
Company’s CEO or CFO. Alternatively, you may contact the Audit Committee of the Board of Directors using the procedures outlined below under the heading
“Reporting of Possible Violations or Other Questionable Practices - Procedures to Submit a Report.” Those procedures include a procedure for confidential,
anonymous submission of concerns.
9.
Use of Company Property
You are entrusted with the care, management and cost-effective use of the Company’s property and you are not to make use of these resources for your own
personal benefit or for the personal benefit of anyone else. Passwords are to be kept confidential and use of the computer systems is limited to authorized business
purposes, although occasional personal use of the internet, e-mail and voice mail will normally be permitted unless your supervisor believes that this privilege is
being abused.
However, in order to protect the Company’s interests - including for example, to ensure that the Company’s computers and voice mail are not being used for
improper purposes, such as sexual harassment - the Company reserves the right to review the contents of the Company’s computers, its e-mail system, and its voice
mail system. No employee has a right of personal privacy with respect to information that is placed in the Company’s computers, the e-mail system, or the voice
mail system.
You are responsible to ensure that all Company property assigned to you is maintained in good condition, and you should be able to account for such equipment.
Any disposition of Company property should be for the benefit of the Company and not for personal benefit.
Company letterhead stationery is to be used only for correspondence related to the Company’s business. Do not use it for personal correspondence or charitable
solicitation.
You are to return all documents and property in your possession upon termination of your employment for any reason.
__________
*For purposes of the Code, “fraud” includes any deliberate misstatements or omissions in connection with preparation or reporting (internal or external) of financial
and/or operating information about the Company, whether or not material and without regard to whether the employee receives any personal benefit.
10.
Proprietary Information
We want our employees to be well informed about our business, our plans for the future, and the successes and challenges we have along the way. In return for this
openness, the Company places trust in its employees to maintain the confidentiality of our proprietary information without need for court orders or other legal
requirement.
Page|9
You are to take all reasonable measures to protect the confidentiality of proprietary information obtained or created by you, or otherwise made known to you, in
connection with your activities on behalf of the Company. In addition, you must use proprietary information only for the Company’s legitimate business purposes,
and not for your personal benefit or the benefit of anyone else.
To provide the Company with reasonable protection against unauthorized disclosure or unauthorized use of its proprietary information, all employees are required
to sign an employment agreement prior to their start with the Company that includes provisions addressing confidentiality. These agreements state in part that the
Company retains exclusive ownership of all project information and opportunities arising out of employment or consulting relationships and any information
pertaining to the exploration plans of the Company.
For these purposes, “proprietary information” means information developed or secured for use of the Company in its business, where that information is not
generally known to or otherwise readily available to the public and members of our industry. Proprietary information includes, without limitation:
•
The Company’s ideas, discoveries, projects, data, contact information and production processes.
•
Information concerning actual or projected expenditures, corporate transactions, earnings or operating results or business transactions that has not been
disclosed by the Company.
•
Investor lists, relationships with consultants, contracts, business plans and strategies.
•
Personnel information.
It is your responsibility to know what information is proprietary and ensure that you use and disclose it only in the performance of your duties with the Company. If
you are unsure, consider the information to be confidential until you obtain clarification.
If your employment terminates, you will continue to be bound to your obligations of confidentiality to the maximum extent permitted by law.
11.
Outside Ideas
The purpose of this policy is to avoid the risk of allegation of unauthorized use or disclosure of another person’s proprietary rights, ideas or information.
When an idea, prospect, opportunity, or other confidential or proprietary information is submitted to the Company by an outsider, care must be taken to ensure that
the outsider signs an agreement defining the Company’s rights and obligations before the idea or prospect or information is disclosed to employees qualified to
evaluate it or use it. Outsiders who propose to submit information should be told to submit the information in writing. Outsiders should also be told that any
submission constitutes their agreement that the Company’s brief review to determine possible interest will not create any non-use, confidentiality or area of interest
agreement or obligation of the Company. If they do not so agree, they should be told not to submit their information.
On its receipt, any such information should be sent to the CEO or CFO or persons authorized by them to evaluate outside submissions. No one other than the CEO
or CFO and persons authorized by them are to evaluate any outside submission.
Each written submission will first be reviewed to see if it purports to impose non-use, confidentiality or area of interest obligations. If it does, no further review
should be made and, unless the CEO upon being notified otherwise directs, the material should be returned without further review. If the material does not purport
to impose such an obligation, it should be reviewed briefly to see if it might be of interest. If it is not of interest, it is to be returned with a letter stating that the
information was briefly reviewed to determine possible interest, that the information is not of interest, and that the Company has no non-use, confidentiality or area
of interest agreement or obligation to the sender. If the sender was previously so informed, the letter should also refer to that prior advice. If the material appears to
be of interest, then the Company will need to enter into an appropriate confidentiality agreement setting out the parties’ rights and obligations before any further
review or use of the information.
P a g e | 10
Third party data subject to confidentiality obligations should be so marked, all confidentiality obligations should be noted on the relevant document or file, and all
such obligations must be strictly adhered to.
12.
Disclosure Policy
The Company has both legal and ethical obligations to provide appropriate disclosure of material information, and to ensure that employees and others do not
benefit from having and using undisclosed material information. “Material information” is any information that reasonably could be expected to affect the market
for the Company’s stock or to influence an investor’s decision to buy, sell or hold the stock. The wrongful use of undisclosed material information may make both
the Company and the individual involved liable for criminal and/or civil penalties and damage awards.
(a) Control of Confidential Information . All employees have the responsibility to inform senior management on a timely basis of events or developments
that might have a material effect on the Company. Such information should be communicated to your superior or to members of senior management.
Strict confidentiality must be maintained with regard to disclosure of confidential information to persons within the Company who have no need to know,
and to anyone outside of the Company. Care must be taken when handling confidential correspondence, assay results, reports, documents, memos and
facsimiles. Documents containing confidential information should be shredded or otherwise destroyed, and not placed in rubbish bins. Visitors to the
offices or work sites of the Company are not to be left unattended at any time, except in designated “safe” locations, e.g. reception area and conference
rooms. Discussions by Company personnel concerning Company business should be confined to Company personnel only and on a “need to know” basis,
and should never occur in public places such as elevators and airplanes.
(b) Public Disclosure Responsibilities . The Company has a variety of disclosure obligations under laws and stock exchange rules. The Company fulfills
those obligations through regulatory filings, periodic reports to shareholders, press releases, and web site disclosure. The Company also provides
information to shareholders and others through communications with the media, analysts and others in the financial community, by way of industry
presentations, and in response to inquiries. In carrying out the Company’s disclosure responsibilities:
•
The CEO, the CFO, and other members of senior management, as appropriate, have the sole responsibility to determine (i) whether a particular
matter is sufficiently material to the Company to require disclosure, and (ii) the content, time and manner of disclosure.
•
Company Spokespersons have the exclusive authority to speak for the Company with respect to matters of public disclosure. The Company
Spokespersons consist of the CEO and any other persons who are authorized by the CEO, generally or in a specific instance, to speak for the
Company. NO OTHER PERSONS ARE AUTHORIZED TO COMMUNICATE AS TO MATTERS OF PUBLIC DISCLOSURE ON
BEHALF OF THE COMPANY .
•
It is the responsibility of the Company to ensure that that undisclosed material information is disseminated in such a way that all members of the
public have equal access to the information. Substantial security holders and analysts in particular MUST NOT receive preferential treatment in the
matter of information disclosure. For example, previously undisclosed material information is not to be disseminated by way of communications
with analysts, in earnings telephone conferences, or in industry conference presentations. If material undisclosed information is to be
communicated through such means, it must first be communicated to the public generally by way of a press release or regulatory filing such as a
material change report or Form 6-K report. Persons given early access to undisclosed material information may not use that information to trade in
the Company’s securities, and they, the Company and the individual who causes the early disclosure may be liable for civil and criminal penalties
and damage awards if there is trading on undisclosed material information.
P a g e | 11
(c)
External Communications and Inquiries from Analysts, Media and Other Outsiders . Communications intended for dissemination outside of the
Company and concerning the Company’s business must be referred to the CEO or to one of the designated Company Spokespersons prior to dissemination.
This includes presentations to analysts and papers or presentations to professional groups and others.
All inquiries from the press, securities analysts, investors and other outsiders concerning the Company’s business and affairs must be referred to one of the
designated Company Spokespersons. This will ensure that information is disclosed consistently and equitably. Unless specifically authorized, no one is
authorized to respond to such inquiries.
(d)
Comments on and Dissemination of Analysts’ Reports and Other Media Stories . From time to time, the Company may be asked to review or
comment on analysts’ reports or other media stories about the Company. No employee, officer or director is to review or comment on analysts’ reports or
media stories except an authorized Company Spokesperson, and any such inquiry should be forwarded to such an authorized person without any comments.
If a Company Spokesperson does review such a report or story, the Company Spokesperson should review the report or story ONLY for factual information
and limit his/her comments to discussion or correction of facts. Furthermore, no undisclosed material information is to be communicated in the course of
such a review and comment. If factual correction would result in the disclosure of undisclosed material information, the Company Spokesperson must take
the necessary steps to ensure that such information is communicated to the public generally before it is communicated to the particular analyst or other
person making the inquiry.
Employees, officers or directors of the Company may be asked to forward or recommend analysts’ reports or may consider forwarding analysts’ reports or
media stories about the Company. The forwarding or recommending of such reports or stories may be regarded as verifying or validating the information
contained in the reports or stories. If any of the information in the report or story is not accurate, the act of forwarding or recommending the report or story
may constitute the dissemination of false or misleading information in violation of securities laws. In addition, if any of the information in the report or
story is accurate but has not been generally disseminated by the Company, the forwarding or recommending of the report or story may constitute selective
disclosure in violation of securities laws. Finally, copying and dissemination of analysts’ reports and media stories may violate copyright laws or the
proprietary rights of the authors of the reports or stories. For these reasons, no employee, officer or director should reproduce and distribute or otherwise
disseminate such reports and stories unless specifically approved by the CEO. Persons requesting such materials should be referred to the author or
organization that published the material. In addition, employees, officers and directors should not recommend particular analysts’ reports on the Company
to any person.
(e)
Comments on Rumours and Correction of Selective Disclosure . Employees, officers and directors must not comment, whether positively or
negatively, on rumours about the Company’s business. Information about such rumours should be reported to the Company Spokespersons. In general, the
Company’s policy is not to comment on rumours. If a stock exchange or securities regulatory authority requests the Company to make a definitive
statement in response to rumours, a Company Spokesperson will consider the matter in consultation with legal counsel.
P a g e | 12
If any employee, officer or director makes an unauthorized or premature disclosure of undisclosed material information (inadvertently or otherwise), the
person responsible for the disclosure, and any other employee, officer or director learning of it, must contact the CEO or other Company Spokesperson as
soon as possible, and the CEO and other Company Spokespersons will consider the Company’s responsibilities under applicable law.
13.
Securities Transactions
(a)
Restrictions on Trading . In general, employees, officers and directors, and their family members, may trade in Company securities unless:
•
A Blackout Period (see below) is in place, or
•
The person has knowledge of undisclosed material information.
If a Blackout Period exists, or if you have knowledge of undisclosed material information, neither you nor your family members may trade in Company
securities. For purposes of this policy, “family member” means your spouse, your minor children, any person substantially dependent on you for support,
and other persons who share a residence with you. There are two exceptions to this policy: (i) you may exercise any fixed price option or warrant issued by
the Company, BUT you may not sell the security acquired on exercise of the option or warrant so long as either condition exists; and (ii) you may sell
securities pursuant to a previously existing Trading Plan entered into with a qualifying broker under Section 161 of the rules to the Securities Act of British
Columbia and pursuant to SEC Rule 10b5-1, provided that you were not in possession of undisclosed material information (unless it has since been
disclosed) at the time you established the Trading Plan.
In addition, while you are in possession of undisclosed material information, you and your family members must not trade in the securities of companies
that have a significant legal or financial business relationship, direct or indirect, with the Company (generally joint venture partners) if the undisclosed
material information relates to the subject matter of that business relationship.
(b)
Blackout Period . From time to time, the CEO or other Company Spokesperson may institute a Blackout Period because of the existence of
undisclosed material information. If a Blackout Period is instituted, you will be notified, generally by e-mail. Once notified of the existence of a Blackout
Period, except as noted above, you and your family members may not trade in the Company’s securities until you have been notified that the Blackout
Period has been terminated. The existence of a Blackout Period is itself an item of confidential information that is not to be disclosed to persons outside of
the Company.
(c) Special Considerations in Investing in Company Securities . You and your family members are urged not to purchase securities of the Company using
borrowed funds in an amount or on terms and conditions which are not prudent in light of your financial condition. In addition, careful consideration should
be given before pledging Company securities for a loan because of the potential insider trading liability that could arise if the lender should seek to sell the
securities at a time when there is undisclosed material information about the Company.
(d)
•
Certain Additional Policies . These additional policies apply to officers and directors and in regards to short sales, employees, of the Company.
No employee, officer or director shall engage in short sales of securities of the Company or sales of borrowed securities of the Company. For
purposes hereof, the short sale of Company shares as a method of facilitating the exercise of a valid option granted by the Company shall be
deemed not to be a short sale for purposes of the aforementioned restriction notwithstanding any such sale-against-an-option may be treated as a
short sale under Canadian securities legislation. Before selling short against an option, the holder of the option should bring the proposed
transaction to the attention of the Company’s CEO or CFO so as to ensure the transaction is treated properly, unless the transaction is through the
use of an option exercise and sale facility established by the Company.
P a g e | 13
14.
•
No officer or director shall acquire financial instruments, including for greater certainty, prepaid variable forward contracts, equity swaps, collars
or units of exchanged funds, that are designed to hedge or offset a decrease in market value of options or equity securities granted as compensation
or held directly or indirectly by the officer or director.
•
No officer or director shall place automatic buy or sell orders with brokers except for a Trading Plan entered into with a qualifying broker under
Section 161 of the rules to the Securities Act of British Columbia and pursuant to SEC Rule 10b5-1, provided that you were not in possession of
undisclosed material information (unless it has since been disclosed) at the time you established the Trading Plan.
•
No officer or director of the Company shall buy or sell equity securities of the Company during the period that begins five trading days before and
ends one trading day after the public release of quarterly and annual results of operation of the Company.
Administration and Distribution
The Company’s Board of Directors, the Audit and Risk Committee, and the Nominating and Governance Committee have established the standards of business
ethics and conduct contained in the Code, and it is their responsibility to oversee compliance with the Code. Any change in or waiver of any provision of the Code
shall require approval of the Audit and Risk Committee or the Nominating and Governance Committee, as applicable, and shall be publicly disclosed in the time
period and manner as required by law or regulation.
The Code is to be distributed to each employee, officer and director of the Company and to the employees, officers and directors of HDSI. It will also be made
available via the Company’s Internet site.
Strict adherence to the Code is vital. Directors will confirm on an annual basis in connection with the preparation of the Management Information Circular that they
have read and understand the Code of Ethics. Management will adopt appropriate policies to ensure that officers and employees are provided with and have read
the Code of Ethics. All managers are responsible for ensuring that employees under their supervision are aware of and understand the provisions of the Code For
clarification or guidance on any point in the Code, please consult the CEO or CFO.
15.
Reporting of Possible Violations or Other Questionable Practices
The following procedures govern the reporting and treatment of reports of possible violations of the Code. The Company's Audit and Risk Committee Charter
provides that the Audit and Risk Committee is to establish procedures for the receipt, retention and treatment of complaints received by the Company regarding
accounting, internal accounting controls or auditing matters, and the confidential, anonymous submission by employees of concerns regarding questionable
accounting or auditing matters. The Audit and Risk Committee has adopted these procedures as to complaints and submissions regarding accounting, internal
accounting controls or auditing matters, and the Nominating and Governance Committee has adopted these procedures as to all other complaints and submissions
regarding the Code.
P a g e | 14
(a) When to Make a Report . You should make a report if you believe that any employee, officer or director of the Company or HDSI, or any agent or
representative of the Company, may have or is about to engage in any conduct which you believe may be:
•
A violation of the Code or any internal policy or code of practice,
•
A violation or otherwise involve questionable practices in connection with accounting, internal accounting controls or auditing matters,
•
A violation of any law or regulation,
•
Corruption, mismanagement or fraud, or
•
A danger to the public or danger to worker health and safety or the environment.
If you are unsure about the matter but concerned about the possibility of a violation or questionable practice, you should nonetheless report the matter.
Delays in bringing the information to the attention of senior management, the Audit and Risk Committee, or the Nominating and Governance Committee
may cause damage, complications, and irreversible consequences for the Company. Following the steps outlined below will allow the Company to address
the issues and ensure that timely remedial action is taken.
(b)
Procedures to Submit a Report . You may make a report under this procedure in one of the following ways:
•
Bring the matter to the attention of your immediate supervisor. Any supervisor receiving such a report is to immediately bring the matter to the
attention of the CEO, the CFO, or other member of senior management.
•
Bring the matter to the attention of the CEO, the CFO, or any other member of senior management.
•
Bring the matter to the attention of an independent director of the Company. Matters relating to accounting, internal accounting controls or auditing
matters should be reported to the Chairman of the Audit and Risk Committee. All other matters should be reported to the Chairman of the
Nominating and Governance Committee. If you are uncertain as to whether the matter should go to the Audit and Risk Committee or the
Nominating and Governance Committee, you may choose either one. You may make the report orally, in writing, or by e-mail. All reports will be
treated as confidential to the extent possible, and only revealed on a need-to-know basis or as required by law or court order. Contact information
for the Chairman of the Audit and Risk Committee and the Chairman of the Nominating and Governance Committee is as follows:
P a g e | 15
Chairman of the Audit Committee
Chairman of the Nominating and Governance Committee
Name:
Marcel de Groot
Name:
David De Witt
Address:
Ste. 1400-400 Burrard Street,
Vancouver, BC V6C 3A6
Address:
Ste. 1400-400 Burrard Street,
Vancouver, BC V6C 3A6
Telephone No.:
(604)-628-1102
Telephone No.:
(604)-628-1100
E-mail address:
mdegroot@pathwaycapital.ca
E-mail address:
ddewitt@pathwaycapital.ca
•
If you prefer to report on an anonymous basis, call on the Northern Dynasty hotline at 1- 877-874-8416. Any calls to this number will be forwarded
to the Chairman of the Audit and Risk Committee for further handling.
With respect to matters involving the possible violation of laws or regulations, you also may choose to bring such concerns to an outside regulatory
authority. However, the Company is committed to taking internal action in response to employee concerns, and would appreciate the opportunity to do so,
if appropriate.
(c)
Follow-up and Outcome .
(i)
On receipt of a complaint, the complaint will be reported promptly to the Chairman of the Audit and Risk Committee if it relates to
accounting, internal accounting controls or auditing matters, and to the Chairman of the Nominating and Governance Committee if it relates to
other matters under the Code. In the case of an oral complaint, the party receiving the complaint is to report it orally and also to prepare a written
summary for the Chairman of the Audit and Risk Committee or Nominating and Governance Committee, as applicable.
(ii)
The appropriate Committee Chairman will promptly commission the conduct of an investigation. At the election of the Committee
Chairman, the investigation may be conducted by Company personnel, or by outside counsel, accountants or other persons employed by the
appropriate Committee.
(iii) The identity of a person filing a complaint will be treated as confidential to the extent possible, and only revealed on a need-to-know basis or
as required by law or court order.
(iv)
On completion of the investigation, an oral and/or written investigative report will be provided to management and the Audit and Risk
Committee or Nominating and Governance Committee, as applicable. If any unlawful, violative or other questionable conduct is discovered, the
appropriate Committee will cause to be taken such remedial action as the Committee deems appropriate under the circumstances to achieve
compliance with the applicable law, regulation or policy and to otherwise remedy the unlawful, violative or other questionable conduct. The
Chairman of the appropriate Committee will prepare, or cause to be prepared, a written summary of the remedial action taken.
P a g e | 16
(v) In each case, the written investigative report (or summary of any oral report), and a written summary of the remedial action taken in response
to the investigative report will be retained along with the original complaint/report by or under the authority of the appropriate Committee
Chairman for a period of four years after the resolution of the matter.
(d) Prohibition Against Retaliation . The Company welcomes the courage and honesty of an employee who voices concern over a particular matter that
he or she believes to be unlawful or harmful. Any attempts to intimidate, threaten, harass or retaliate against any employee based upon a good faith report
made by an employee pursuant to the Code is strictly prohibited and will result in disciplinary action up to and including termination of the person
responsible for any such intimidation, threat, harassment or retaliation.
However, groundless or unwarranted complaints - including those with vindictive intent – are not acceptable. Appropriate disciplinary measures will be
taken if allegations are initiated for malicious reasons or in bad faith.
(e)
Governmental or Company Inquiry . If you receive an inquiry from a governmental authority concerning suspected unlawful conduct, you should
immediately direct the inquiry to your immediate superior, the CEO, the CFO or other member of senior management. In such circumstances, you should
take measures to preserve documents and other items relevant to the investigation. To conceal an offence or to alter or destroy evidence is illegal and may
result in criminal prosecution. It also violates the Company’s commitment of conducting its business in a legal and ethical manner and is strictly prohibited.
If you receive an inquiry from the Company representative or a Board committee in connection with an investigation under the Code, you are equally
obligated to take measures to preserve documents and other items relevant to the investigation.
(f)
Failure to Comply or File a Report . The Company is committed to complying with all applicable laws, regulations and policies. Such compliance is
only possible if all employees, officers and directors ensure that they follow all applicable laws, and Company policies and guidelines. When in doubt, ask
the CEO, CFO or other members of senior management. Personnel who violate the law or the Company’s compliance policies or knowingly fail to report a
violation of law or compliance policy may be subject to disciplinary action, up to and including dismissal. The nature and extent of the action will be
determined on a case-by-case basis. In reviewing the situation, the following is a partial list of considerations:
•
The nature and severity of the offence.
•
Whether the persons involved acted reasonably.
•
The efforts by the persons involved to obtain guidance before the offence occurred.
•
Whether the persons involved reported themselves.
Personnel are encouraged to report their own wrongdoing or possible wrongdoing. This action will be taken into account when assessing the appropriate
discipline, if any. The Company will also recognize situations where a person has made an honest mistake and will take it into account in deciding the
course of action to pursue.
P a g e | 17
EXHIBIT 12.01
CERTIFICATION
PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Ronald W. Thiessen, certify that:
(1)
I have reviewed this annual report on Form 20-F of Northern Dynasty Minerals Ltd. ;
(2)
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3)
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this report;
(4)
The issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the issuer and
have:
(5)
(a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c)
evaluated the effectiveness of the issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
disclosed in this report any change in the issuer’s internal control over financial reporting that occurred during the period covered by the annual
report that has materially affected, or is reasonably likely to materially affect, the issuer’s internal control over financial reporting; and
The issuer’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuer’s
auditors and the audit committee of the issuer’s board of directors (or persons performing the equivalent functions):
(a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the issuer’s ability to record, process, summarize and report financial information; and
(b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer’s internal control over
financial reporting.
Date:
May 2, 2016
By:
/s/ R. Thiessen
Name: Ronald W. Thiessen
Title: Chief Executive Officer
EXHIBIT 12.02
CERTIFICATION
PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Marchand Snyman, certify that:
(1)
I have reviewed this annual report on Form 20-F of Northern Dynasty Minerals Ltd. ;
(2)
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3)
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this report;
(4)
The issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the issuer and
have:
(5)
(a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c)
evaluated the effectiveness of the issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
disclosed in this report any change in the issuer’s internal control over financial reporting that occurred during the period covered by the annual
report that has materially affected, or is reasonably likely to materially affect, the issuer’s internal control over financial reporting; and
The issuer’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuer’s
auditors and the audit committee of the issuer’s board of directors (or persons performing the equivalent functions):
(a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the issuer’s ability to record, process, summarize and report financial information; and
(b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer’s internal control over
financial reporting.
Date:
May 2, 2016
By:
/s/ M. Snyman
Name: Marchand Snyman
Title: Chief Financial Officer
EXHIBIT 13.01
CERTIFICATION
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Ronald W. Thiessen, Chief Executive Officer of Northern Dynasty Minerals Ltd. (the “Company”), hereby certify pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1)
The Annual Report on Form 20-F of the Company for the fiscal year ended December 31, 2015 (the “Annual Report”) fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)
The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
By:
/s/ R. Thiessen
Name: Ronald W. Thiessen
Title: Chief Executive Officer
Date:
May 2, 2016
This written statement is being furnished to the Securities and Exchange Commission as an exhibit to the Company’s Annual Report on Form 20-F. A signed
original of this statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its
staff upon request.
This certification accompanies this Annual Report on Form 20-F pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent
required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such
certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the
extent that the Company specifically incorporates it by reference .
EXHIBIT 13.02
CERTIFICATION
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Marchand Snyman, Chief Financial Officer of Northern Dynasty Minerals Ltd. (the “Company”), hereby certify pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1)
The Annual Report on Form 20-F of the Company for the fiscal year ended December 31, 2015 (the “Annual Report”) fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)
The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
By:
/s/ M. Snyman
Name: Marchand Snyman
Title: Chief Financial Officer
Date:
May 2, 2016
This written statement is being furnished to the Securities and Exchange Commission as an exhibit to the Company’s Annual Report on Form 20-F. A signed
original of this statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its
staff upon request.
This certification accompanies this Annual Report on Form 20-F pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent
required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such
certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the
extent that the Company specifically incorporates it by reference .
Exhibit 15.01
PEBBLE PROPERTY
LIST OF CLAIMS
ADL# is the Alaska Department of Lands number
ADL #
CLAIM NAME
Pebble East Claims Corp
ADL #
CLAIM NAME
552871-552885
SOUTH PEBBLE 113-127
638835-638844
PEB 57-66
552909
SOUTH PEBBLE 151
638848-638858
PEB 70-80
552911-552916
638862-638875
PEB 84-97
552931-553019
KAK 1-89
638882-638893
PEB 104-115
642027-642029
SOUTH PEBBLE 71-73
640061-640096
PEB N1-N36
642035-642068
SOUTH PEBBLE 79-112
644304-644311
SP 193-200
642334-643450
PEB EBA 1-4, PEB EB 174, PEB WB 1-39
644316-644317
SP 205-206
643892-644966
PEB SE A1-A7, PEB SE 132, PEB NW A1-A4, PEB
NW 1-32
644196-644279
PEB SE 33-61, PEB A8A13, PEB EB 75-95, PEB
EB A5-A8, PEB WB 4063
644371
SP 280
644374-644415
SP 283-294, KAK 90-119
646604-646617
PEBBLE BEACH 59425943, PEB K 1-12
644421-644426
KAK 125-130
684906-684909
PEB WB 64-67
644467-644483
KAK 171-187
668740-668773
PEBA 113, KAS 1-33
644881-644912
KAK 188-219
668784-668788
KAS 44-48
645600-465601
SP 310-311, SP 316-319
668801-668806
KAS 61-66
649664-649770
KAK 200-KAK 326
668823-668829
KAS 83-89
657890-657965
KAK 327-402
668849-668855
KAS 109-115
663828-663848
KAK 136A-170A
668875-668881
KAS 135-141
668901-668906
KAs 161-166
553427-552429
PEBA 1-3
668929-668934
KAS 189-194
553437-553439
PEBA 11-13
668956-668961
KAS 216-221
553447-553449
PEBA 21-23
668983-668988
KAS 243-248
553457-553459
PEBA 31-33
669010-669015
KAS 270-275
553467-553472
PEBA 41-46
669038-669043
KAS 298-303
553478-553482
PEBA 52-56
669060-669065
KAS 324-328
553488-553494
PEBA 62-68
669075-669079
KAS 340-344
553500-553511
PEBA 74-85
669087-669091
KAS 352-356
553517-553617
PEBA 91-112, PEBB 139, PEBE 1-10, PEBF 127, SILL 6155-6156,
SILL 6256
669098-669102
KAS 363-367
638779-638786
PEB 1-8
669109-669112
KAS 374-377
638791-638802
PEB 13-24
669118-669122
KAS 383-387
638807-638816
PEB 29-38
669127-669130
KAS 392-395
638821-638830
PEB 43-52
669135-669138
KAS 400-403
ADL #
CLAIM NAME
Pebble West Claims Corp
ADL #
CLAIM NAME
516769-516770
SILL 5951-5192
524543-524544
SILL 6343-6344
516779-516780
SILL 6051-6052
524550-524551
SILL 6443-6444
516789-516790
SILL 6151-6152
524557-524558
SILL 6543-6544
516797-516902
SILL 6247-6252
524568-524569
SILL 6643-6644
516806-516836
PEBBLE BEACH 54485454, 5651-5654, 57515754, 5852-5854, 59525954, 6052-6054
524579-524580
SILL 6743-6744
516837-516842
PEBBLE BEACH 61536154, 4651-4653, 4751
524595-524596
SILL 6843-6844
516843-516874
PEBBLE BEACH 4753,
4851-4853, 4951-4953,
5048-5053, 5148-5153,
5248-5253, 5348-5353
524611-524612
SILL 6943-6944
516879-516880
SILL 6351-6352
524630-524631
SILL 7043-7044
516888-516889
SILL 6451-6452
524649-524650
SILL 7143-7144
516948-516950
PEBBLE BEACH 3850- 3852
524668-524669
SILL 7243-7244
516951-516953
524684-524685
SILL 7343-7344
516954-516959
PEBBLE BEACH 40504052, 4150-4151
524698-524699
SILL 7443-7444
516960-516964
524712-524717
SILL 7543-7548
516965-516969
524748-524751
516970-516972
524752-524755
516973-516975
524756-524759
524511-524512
SILL 5543-5544
524515-524516
SILL 5643-5644
524519-524520
SILL 5743-5744
524523-524524
SILL 5843-5844
524527-524528
SILL 5943-5944
524531-524532
SILL 6043-6044
524535-524536
SILL 6143-6144
524539-524542
SILL 6243-6246
ADL #
CLAIM NAME
ADL #
CLAIM NAME
524760-524763
524815-524817
524764-524768
PEBBLE BEACH 3848- 3849, 38533855
524818-524819
524769-524770
524820-524821
524771-524773
524822-524823
524774-524775
524824-524825
524776-524778
524826-52427
524779-524780
524828
PEBBLE BEACH 5455
524781-524783
524829-524831
524784-524785
524832-524834
524786
PEBBLE BEACH 4255
524835-524838
524787-524788
524839-524842
524789
PEBBLE BEACH 4355
524843-52446
524790-524792
524847-524850
524793-524794
524851-524857
524795-524797
524858-524864
524798-524799
525849
PEBBLE BEACH 6152
524800-524802
531355-531358
524803-524804
531359-531362
524805-524807
531363-531368
524808-524809
531369-531374
524810-524812
531375-531380
524813-524814
531381-531386
ADL #
CLAIM NAME
ADL #
CLAIM NAME
531387-531390
540403
PEBBLE BEACH 5955
531391-531394
540404
PEBBLE BEACH 6055
540405
PEBBLE BEACH 6155
531395-531398
PEBBLE BEACH 4444-4447
540406
PEBBLE BEACH 6255
531399
PEBBLE BEACH 4544
540407
PEBBLE BEACH 6355
531400
PEBBLE BEACH 4547
540408-540415
531401-531404
531405-531408
540416-540423
531409-531412
540424-540435
SILL 7643-7648, SILL 7743-7748
531413-531416
540436-540441
SILL 7843-7848
531417-53120
540442-540447
SILL 7943-7948
531421-531424
540448-540453
SILL 8043-8048
531425-531428
540454-540459
SILL 8143-8148
531429-531432
540460-540465
SILL 8243-8248
531433-531436
540466-540467
SILL 8343-8344
531437-531440
540468-540469
SILL 8443-8444
531441-531444
540470-540471
SILL 8543-8544
531445-531448
540472-540473
SILL 8643-8644
531449-531452
541245-541252
PB 113-120
531453-531456
542561
PEBBLE BEACH 4856
531457-531460
542562
PEBBLE BEACH 4956
531461-531464
542563
PEBBLE BEACH 5056
531648-531449
542564
PEBBLE BEACH 5156
540399
PEBBLE BEACH 5555
542565
PEBBLE BEACH 5256
540400
PEBBLE BEACH 5655
542566
PEBBLE BEACH 5356
540401
PEBBLE BEACH 5755
542603-542604
540402
PEBBLE BEACH 5855
ADL #
CLAIM NAME
ADL #
CLAIM NAME
542567
PEBBLE BEACH 5456
552917-552930
542568
PEBBLE BEACH 5556
566247-566252
542569
PEBBLE BEACH 5656
566287-566292
542570
PEBBLE BEACH 5756
566327-566332
542571
PEBBLE BEACH 5856
566367-566373
542572
PEBBLE BEACH 5956
566407-566413
542573
PEBBLE BEACH 6056
566447-566453
542574
PEBBLE BEACH 6156
566487-566492
542575
PEBBLE BEACH 6256
566527-566532
542576
PEBBLE BEACH 6356
566567-566572
542577
PEBBLE BEACH 6456
566607-566610
542578
PEBBLE BEACH 6556
566637-566640
542579-542580
566655-566660
542581-542582
566697-566701
542583-542584
566737-566754
PEBBLE BEACH 3038- 341, 32523255
542585-542586
566767-566771
542587-542588
566781-566784
542589-542590
566793-566802
542591-542592
566811-566820
PEBBLE BEACH 3538- 3541, 35463551
542593-542594
566829 -566838
PEBBLE BEACH 3638-3641, 36463651
542595-542596
566847-566856
542597-542598
566865-566868
542599-542600
566877-566880
542601-542602
566889-566892
542603-542604
ADL #
CLAIM NAME
ADL #
CLAIM NAME
566901-566904
567017-567026
566905-566910
567035-567036
566911-566916
567045-567055
566917-566922
567064-567069
566923-566928
567083-567088
566929-566932
567102-567107
566933-566936
567841-567845
SILL 5343-5347
566937-566940
567855-567860
SILL 5443-5448
566941-566944
567869-567873
SILL 5545-5549
566949-566952
567881-567886
SILL 5645-5650
566953-566956
567893-567898
SILL 5745-5750
566957-566960
567905-567911
SILL 5845-5851
566961-566964
567917-567923
SILL 5945-5953
566965-566968
567927-567933
SILL 6045-6053
566969-566972
567937-567944
SILL 6145-6154
566973-566976
567947-567949
SILL 6253-6255
566977-566980
567951-567960
SILL 6345-6356
566981-566984
567961-567970
SILL 6445-6456
566985-566990
567971-567982
SILL 6545-6556
566991-566996
568175-568178
SILL 8345-8348
566997-567006
568255-568256
SILL 8743-8744
567007-567016
566945-566948
ADL #
CLAIM NAME
644284-644322
SP 173-210, SP 216
644323-644336
SP 225-239, SP 245
644733-644738
SOUTH PEBBLE 234, 240-244
645612-645662
SP 322-372
U5 Resources Inc
642753-642759
BC 265-271
642764-642770
BC 276-282
642775-642781
BC 287-293
642786-642792
BC 298-304
642797-642803
BC 309-315
642808-642814
BC 320-326
642819-642827
BC 331-339
642832-642843
BC 344-355
642848-642862
BC 360-374
642867-642881
BC 379-393
642886-642900
BC 398-412
642905-642919
BC 417-431
642924-642939
BC 436-451
642944-642960
BC 456-472
642964-642983
BC 476-495
642987-643006
BC 499-518
643432-643441
BC 1001-1010
649923-649932
BC 1171-1180
649939-649940
BC 1187-1188
649948-649949
BC 1196-1197
Deloitte LLP
2800 – 1055 Dunsmuir Street
4 Bentall Centre
P.O. Box 49279
Vancouver BC V7X 1P4
Canada
Tel: 604-669-4466
Fax: 778-374-0496
www.deloitte.ca
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement No. 333-209921 on Form F-3 of our report dated March 29, 2016, relating to the
consolidated financial statements of Northern Dynasty Minerals Ltd. and subsidiaries (the “Company”) (which expresses an unqualified opinion and includes an
explanatory paragraph relating to going concern uncertainty), appearing in this Annual Report on Form 20-F of the Company for the year ended December 31,
2015.
/s/ Deloitte LLP
Chartered Professional Accountants
Vancouver, Canada
May 2, 2016
Deloitte & Touche LLP
3900 U.S. Bancorp Tower
111 S.W. Fifth Ave.
Portland, OR 97204-3642
USA
Tel: +1 503 222 1341
Fax: +1 503 224 2172
www.deloitte.ca
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statement No. 333-209921 on Form F-3 of our report dated May 15, 2015, relating to the consolidated
financial statements of Pebble Limited Partnership and subsidiaries (which expresses an unqualified opinion and includes an explanatory paragraph relating to
going concern uncertainty), appearing in this Annual Report on Form 20-F of Northern Dynasty Minerals Ltd. for the year ended December 31, 2015.
/s/ Deloitte & Touche LLP
Portland, Oregon
May 2, 2016
May 2, 2016
VIA EDGAR
United States Securities and Exchange Commission
Re:
Northern Dynasty Minerals Ltd. (the "Company")
Annual Report on Form 20-F
Consent of Expert
This letter is provided in connection with the Company's Form 20-F annual report for the year ended December 31, 2015, (the “Annual Report”) to be filed by the
Company with the United States Securities and Exchange Commission (the “SEC”).
I, J. David Gaunt, P.Geo., hereby consent to the use of my name in connection with reference to my involvement in the following technical report (the "Technical
Report"):
2014 Technical Report on the Pebble Project, Southwest Alaska, USA, effective date December 31, 2014
and to references to the Technical Report, or portions thereof, in the Annual Report and to the inclusion and incorporation by reference of the information derived
from the Technical Report related to me in the Annual Report and in Registration Statement No. 333-209921 on Form F-3.
I have read the Company’s Annual Report and confirm that it documents fairly and accurately represents the information that supports the disclosure.
Yours truly,
J. David Gaunt
J. David Gaunt, P.Geo.
Hunter Dickinson Services Inc.
May 2, 2016
VIA EDGAR
Re:
Consent of Expert
I, James Lang, P.Geo., hereby consent to the use of my name in connection with reference to my involvement in the following technical report (the "Technical
Report"):
Yours truly,
James Lang
James Lang, P.Geo.
May 2, 2016
VIA EDGAR
Re:
Consent of Expert
I, Eric D. Titley, P.Geo., hereby consent to the use of my name in connection with reference to my involvement in the following technical report (the "Technical
Report"):
Yours truly,
Eric Titley
Eric D. Titley, P.Geo.
May 2, 2016
VIA EDGAR
Re:
Consent of Expert
I, Ting Lu, P.Eng., hereby consent to the use of my name in connection with reference to my involvement in the following technical report (the "Technical
Report"):
I have read the Company’s Annual Report and confirm that it documents fairly and accurately represents the information with reference to my involvement in the
Technical Report that supports the disclosure.
Yours truly,
Ting Lu
Ting Lu, P.Eng.

NORTHERN DYNASTY MINERALS LTD

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