Annual Report on Form 20-F
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, 2002 (with other information to
May 1, 2003 except where noted)
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
CIK Number 0001164771
Commission file number 0-31224
NORTHERN DYNASTY MINERALS LTD.
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(Exact name of Registrant specified in its charter)
NORTHERN DYNASTY MINERALS LTD.
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(Translation of Registrant's name into English)
BRITISH COLUMBIA, CANADA
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(Jurisdiction of incorporation or organization)
SUITE 1020, 800 WEST PENDER STREET
VANCOUVER, BRITISH COLUMBIA, CANADA, V6C 2V6
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(Address of principal executive offices)
COMMON SHARES WITHOUT PAR VALUE
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(Title of Class)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of Each Class Name of each exchange on which registered
---------------------------- -----------------------------------------
None Not applicable
Securities registered or to be registered pursuant to Section 12(g) of the Act
Common Shares without Par Value
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(Title of Class)
Securities for which there is a reporting obligation
pursuant to Section 15(d) of the Act.
None
Number of outstanding shares of Northern Dynasty's only class of
capital stock as on December 31, 2002
15,015,323 Common Shares Without Par Value (the number
outstanding on May 1, 2003 was 18,058,723).
Indicate by check mark whether 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.
NOT APPLICABLE
Indicate by check mark which financial statement item
Registrant has elected to follow:
Item 17 [ X ] Item 18 [ ]
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING
THE PAST FIVE YEARS)
Indicate by check mark whether Registrant has filed all documents and reports
required to be filed by Sections 12, 13 or 15(d) of the SECURITIES
EXCHANGE ACT OF 1934 subsequent to the distribution of securities
under a plan confirmed by a court.
NOT APPLICABLE
CURRENCY AND EXCHANGE RATES
All monetary amounts contained in this Registration Statement are,
unless otherwise indicated, expressed in Canadian dollars. On May 1,
2003 the Federal Reserve noon rate for Canadian Dollars was
US$1.00:Cdn$1.4188 (see Item 4 for further historical Exchange Rate
Information).
TABLE OF CONTENTS
PAGE
ITEM 1 IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS..........1
ITEM 2 OFFER STATISTICS AND EXPECTED TIMETABLE........................1
ITEM 3 KEY INFORMATION................................................1
ITEM 4 INFORMATION ON THE COMPANY.....................................6
ITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS..................28
ITEM 6 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES....................33
ITEM 7 MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.............39
ITEM 8 FINANCIAL INFORMATION.........................................41
ITEM 9 THE OFFER AND LISTING.........................................42
ITEM 10 ADDITIONAL INFORMATION........................................43
ITEM 11 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....57
ITEM 12 DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES........57
ITEM 13 DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES...............58
ITEM 14 MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
AND USE OF PROCEEDS........................................58
ITEM 15 [RESERVED]....................................................58
ITEM 16 [RESERVED]....................................................58
ITEM 17 FINANCIAL STATEMENTS..........................................58
ITEM 18 FINANCIAL STATEMENTS..........................................58
ITEM 19 EXHIBITS......................................................58
PART 1
ITEM 1 IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable (this is an Annual Report only)
ITEM 2 OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable (this is an Annual Report only)
ITEM 3 KEY INFORMATION
A. SELECTED FINANCIAL DATA
The following constitutes selected financial data for Northern Dynasty for the
last five fiscal years ended December 31, 2002, in Canadian dollars, presented
in accordance with Canadian generally accepted accounting principles ("GAAP")
and United States GAAP.
(Cdn$) As at December 31
------------------------------------------------------------------------
Balance Sheet Data 2002 2001 2000 1999 1998
------------ ----------- ----------- ----------- -----------
Total assets according to financial
statements (CDN GAAP)(1) $685,149 $2,588,367 $2,644,832 $2,801,227 $2,860,059
Total Assets (US GAAP)(2) 685,149 2,588,367 2,644,832 2,801,227 2,860,059
Total liabilities 186,288 768,544 4,500 4,500 7,818
Share capital 11,035,977 7,907,717 7,273,342 7,270,842 7,270,842
Deficit (CDN GAAP) $(11,200,387) $(6,087,894) $(4,633,010) $(4,474,115) $(4,418,601)
Deficit (US GAAP) $(11,200,387) $(6,087,894) $(4,633,010) $(4,474,115) $(4,418,601)
(Cdn$) As at December 31
------------------------------------------------------------------------
Period End Balances 2002 2001 2000 1999 1998
---------- --------- --------- --------- ---------
(as at)
Working capital $496,048 $1,816,289 $2,639,000 $2,792,214 $2,846,549
Equipment, net 2,813 3,534 1,332 4,513 5,692
Mineral property interests --- --- --- --- ---
Shareholders' equity 498,861 1,819,823 2,640,332 2,796,727 2,852,241
Number of outstanding Shares 15,515,223 9,292,455 7,182,455 7,177,455 7,177,455
No cash or other dividends have ever been declared.
(Cdn$) As at December 31
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Statement of Operations Data 2002 2001 2000 1999 1998
----------- ---------- -------- ------- ---------
Investment and Other Income ($10,676) $108,631 $157,138 $110,336 $151,332
General and administrative expenses 771,881 395,121 316,033 165,850 268,294
Writedown of mineral property
interests and investments --- -- -- -- (660,139)
Exploration Expenditures 4,329,936 1,168,394 -- -- --
Income (loss) according to financial
statements (CDN GAAP) (5,112,493) (1,454,884) (158,895) (55,514) (777,101)
Income (loss) from continuing
operations per Common Share (0.41) (0.20) (0.02) (0.01) (0.13)
Income (loss) per Share (US GAAP)(2) (0.41) (0.20) (0.02) (0.01) (0.13)
Notes:
(1) Northern Dynasty follows Canadian GAAP applicable to junior mining
exploration companies whereby mineral exploration expenditures can be
deferred on prospective properties until such time as it is determined
that further exploration is not warranted, at which time the property
costs are written off. Under US GAAP exploration costs are generally
written off as incurred unless there is a feasibility report which
confirms the existence of economic ore making the recovery of costs
likely. As Northern Dynasty did not record any deferred exploration
expenditures as of December 31, 2001 there is no difference between
presentation of Northern Dynasty's accounts under Canadian and US GAAP
as of that date nor for the fiscal years ended December 31, 2001 and
2000.
(2) Statement of Financial Accounting Standards No. 128: Earnings per
Share ("SFAS 128") replaces the presentation of primary earnings per
share ("EPS") with a presentation of both basic and diluted EPS for all
entities with complex capital structures, including a reconciliation of
each numerator and denominator. Basic EPS excludes dilutive securities
and is computed by dividing income available to common stockholders by
the weighted-average number of common shares outstanding for the year.
Diluted EPS reflects the potential dilution that could occur if dilutive
securities were converted into common stock and is computed similarly to
fully diluted EPS pursuant to previous accounting pronouncements. SFAS
128 applies equally to loss per share presentations. Stock options and
warrants outstanding were not included in the computation of diluted
loss per share as their inclusion would be antidilutive.
On May 1, 2003 the Federal Reserve noon rate for Canadian Dollars was
US$1.00:Cdn$1.4188. The following table sets out the exchange rates, based on
the noon buying rates as posted on the Bank of Canada website
(www.bankofcanada.ca), for the conversion of Canadian dollars into United States
dollars. These rates are comprised of those in effect at the end of the six
months including and immediately prior to December 31, 2001 and the average
exchange rates and the range of high and low exchange rates for such periods.
For year ended December 31
---------------------------------------------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
End of Period 1.58 1.59 1.52 1.47 1.54
Average for Period 1.57 1.55 1.49 1.49 1.48
High for Period 1.62 1.60 1.56 1.53 1.58
Low for Period 1.50 1.49 1.43 1.44 1.41
THE FOLLOWING TABLE SETS OUT THE HIGH AND LOW EXCHANGE RATES, BASED ON THE NOON
BUYING RATES AS POSTED ON THE BANK OF CANADA WEBSITE (WWW.BANKOFCANADA.CA) FOR
THE CONVERSION OF CANADIAN DOLLARS INTO UNITED STATES DOLLARS IN EFFECT FOR THE
FOLLOWING MONTHS.
Monthly Low and High Exchange Rates:
Month Low High
----- --- ----
May, 2003 1.34 1.43
April, 2003 1.43 1.49
March, 2003 1.46 1.50
February, 2003 1.48 1.53
January, 2003 1.58 1.62
December, 2002 1.55 1.58
November, 2002 1.56 1.59
See Item 17 for accompanying audited year-end financial statements (prepared in
accordance with Canadian GAAP) for further details.
B. CAPITALIZATION AND INDEBTEDNESS
Not applicable (this is an Annual Report only)
C. REASONS FOR THE OFFER AND USE OF PROCEEDS
Not applicable (this is an Annual Report only)
D. RISK FACTORS
NORTHERN DYNASTY'S RECENTLY OPTIONED PEBBLE PROPERTY CONTAINS NO KNOWN RESERVES
OF ORE. Although there is a known body of mineralization on the Pebble Property
(see Items 4, 7 and 19), there are no known reserves or body of commercially
viable ore and the Pebble Property must be considered an exploration prospect
only. Extensive additional exploration work is required before Northern Dynasty
can ascertain if any mineralization may be economic. Exploration for minerals is
a speculative venture necessarily involving substantial risk. If the
expenditures Northern Dynasty makes on the Pebble Property do not result in
discoveries of commercial quantities of ore, the value of exploration and
acquisition expenditures will be totally lost and the value of Northern Dynasty
stock resale negatively impacted.
FURTHER FUNDING NEEDED TO EXPLORE AND RETAIN RIGHTS TO PEBBLE PROPERTY. Northern
Dynasty's means of generating funds is through the sale of common shares, and
Northern Dynasty will need to continue to find buyers for its treasury shares in
order to generate sufficient funds to allow Northern Dynasty to conduct further
exploration on the Pebble Property after completion of the planned exploration
program. If Northern Dynasty cannot fund exploration its share value will be
severely negatively impacted. Northern Dynasty believes that as a minimum it
will need to raise $2 million over the next one to two years to pursue the
current level of exploration of the Pebble Property. The Pebble Option requires
expenditures to make failing which Northern Dynasty will lose its interest.
NORTHERN DYNASTY HAS NO HISTORY OF EARNINGS AND NO FORESEEABLE EARNINGS.
Northern Dynasty has a history of 18 years of losses. Northern Dynasty may never
be profitable. Northern Dynasty has paid no dividends on its shares since
incorporation and does not anticipate paying dividends in the foreseeable
future. A failure to eventually achieve profitability will negatively impact on
Northern Dynasty's share value.
ASSETS MAY BE SUBJECT TO FUTURE WRITE-DOWNS. Northern Dynasty's financial
statements have been prepared assuming that Northern Dynasty will continue its
business on a going-concern basis; however unless additional funding is obtained
this assumption will have to change and Northern Dynasty's assets may then have
to be written-down from carrying values based on costs to asset prices which are
realizable in insolvency or distress circumstances.
SIGNIFICANT POTENTIAL EQUITY DILUTION AND END OF LOCK-UPS. At April 30, 2003,
Northern Dynasty had 18,058,723 common shares and 1,175,750 share purchase
options and 6,277,018 warrants outstanding. The resale of outstanding shares
from the exercise of dilutive securities could have a depressing effect on the
market for Northern Dynasty's shares. At April 30, 2003, dilutive securities
represent approximately 41.3% of Northern Dynasty's currently issued shares.
EXPLORATION IS A RISKY BUSINESS. The exploration for mineral deposits involves
significant financial and other risks over an extended period of time, which
even a combination of careful evaluation, experience and knowledge may not
eliminate. Few properties that are explored are ultimately developed into
producing mines. Factors beyond Northern Dynasty's control will affect the
marketability of any substances discovered. Metal prices have fluctuated widely
in recent years and in particular, gold and copper prices have been depressed
for several years. Even if exploration is successful (and a mine deemed
warranted), mining requires huge capital investment, long capital recovery
periods and it is difficult to suspend operations pending a recovery of prices.
RISK OF ADVERSE GOVERNMENT POLICIES. Government regulations relating to mineral
rights tenure, permission to disturb wilderness areas and the right to operate
and export minerals can adversely affect Northern Dynasty. Northern Dynasty may
not be able to obtain all necessary licenses and permits that may be required to
carry out exploration at our projects. Environmental concerns in general
continue to be a significant challenge for Northern Dynasty as they are for all
exploration companies. Any changes in regulations or shift in political attitude
are beyond the control of Northern Dynasty and may adversely affect its
business.
ENVIRONMENTAL RISKS. Unexpected environmental damage from spills, accidents and
severe acts of nature such as earthquakes are risks which may not be fully
insurable and if catastrophic could mean the total loss of shareholders' equity.
VOLATILITY OF NORTHERN DYNASTY'S SHARES COULD CAUSE INVESTOR LOSS. The market
price of a publicly traded stock, especially a junior 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 market for junior resource stocks, the strength of the economy
generally, the availability and attractiveness of alternative investments, and
the breadth of the public market for the stock. The effect of these and other
factors on the market price of the common shares on the TSX Venture 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.
NORTHERN DYNASTY'S DIRECTORS, OFFICERS AND STAFF ARE ONLY PART-TIME. Most of
Northern Dynasty's directors and officers serve as officers and/or directors of
other resource exploration companies and, as such, are engaged and will continue
to be engaged in the search for additional resource opportunities on behalf of
such other companies. In particular, the success of Northern Dynasty and its
ability to continue to carry on operations is dependent upon its ability to
retain the services of Bruce Youngman, Vice-President, Ronald Thiessen, Chief
Executive Officer and Jeffrey Mason, Chief Financial Officer. (See Item 7.)
MANAGEMENT MAY BE SUBJECT TO CONFLICTS OF INTEREST DUE TO AFFILIATION WITH OTHER
RESOURCE COMPANIES. As most of Northern Dynasty's directors and officers serve
as officers and/or directors of other resource exploration companies which are
themselves engaged in the search for additional opportunities, situations may
arise where these directors and officers are presented with or identify resource
exploration opportunities and may be or perceived to be in competition with
Northern Dynasty for exploration opportunities. Such potential conflicts, if any
arise, will be dealt with in accordance with the relevant provisions of British
Columbia corporate and common law. Northern Dynasty's directors and officers
expect that participation in exploration prospects offered to the directors will
be allocated between the various companies that they serve on the basis of
prudent business judgement and the relative financial abilities and needs of the
companies to participate. In addition, all of Northern Dynasty's officers and
directors have a financial interest in other resource issuers to which they
serve as management and hence may never be financially disinterested in the
outcomes of these potential conflict of interest situations. This situation may
require that shareholders favorably consider ratification of directors'
decisions where financial conflicts arise resulting in uncertainty with respect
to completion of such matters.
NORTHERN DYNASTY'S MANAGEMENT MAY NOT BE SUBJECT TO U.S. LEGAL PROCESS. As
Canadian citizens and residents, Northern Dynasty's directors and officers may
not subject themselves to U.S. legal proceedings, so that recovery on judgments
issued by U.S. courts may be difficult or impossible. While reciprocal
enforcement of judgment legislation exists between Canada and the U.S., Northern
Dynasty's insiders may have defences available to avoid in Canada the effect of
U.S. judgments under Canadian law, making enforcement difficult or impossible.
Northern Dynasty's management may not have any personal assets available in the
U.S. to satisfy judgments of U.S. courts. Therefore, Northern Dynasty
shareholders in the United States may have to avail themselves of remedies under
Canadian corporate and securities laws for perceived oppression, breach of
fiduciary duty and like legal complaints. Canadian law may not provide for
remedies equivalent to those available under U.S. law.
LIKELY PFIC STATUS HAS POSSIBLE ADVERSE TAX CONSEQUENCES FOR U.S. INVESTORS.
Potential investors who are U.S. taxpayers should be aware that Northern Dynasty
expects to be classified for U.S. tax purposes as a passive foreign investment
company ("PFIC") for the current fiscal year, and may also have been a PFIC in
prior years, and may also be a PFIC in subsequent years. This status arises due
to the fact that Northern Dynasty's excess exploration funds are invested in
interest-bearing, securities creating "passive income" which, while modest and
ancillary to the exploration business, is Northern Dynasty's only source of
income. If Northern Dynasty is a PFIC for any year during a U.S. taxpayer's
holding period, then such a U.S. taxpayer, generally, will be required to treat
any so-called "excess distribution" received on its common shares, or any gain
realized upon a disposition of common shares, as ordinary income and to pay an
interest charge on a portion of such distribution or gain, unless the taxpayer
makes a qualified electing fund ("QEF") election or a mark-to-market election
with respect to the shares of Northern Dynasty. In certain circumstances, the
sum of the tax and the interest charge may exceed the amount of the excess
distribution received, or the amount of proceeds of disposition realized, by the
taxpayer. A U.S. taxpayer who makes a QEF election generally must report on a
current basis its share of Northern Dynasty's net capital gain and ordinary
earnings for any year in which Northern Dynasty is a PFIC, whether or not
Northern Dynasty distributes any amounts to its shareholders. A U.S. taxpayer
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 tax basis therein. (See also ITEM 10E - Passive Foreign Investment
Company.)
SHARES OF NORTHERN DYNASTY MAY BE ADVERSELY AFFECTED BY PENNY STOCK RULES.
Northern Dynasty's stock may be subject to U.S. "Penny Stock" rules, which may
make the stock more difficult to trade on the open market. Northern Dynasty's
common shares have traded on the TSX Venture Exchange ("TSX Venture", or its
predecessor exchange) since 1994. For further details on the market performance
of Northern Dynasty's common stock, see "Item 5 Nature of Trading Market."
Although Northern Dynasty's common stock trades on the TSX Venture, it is
subject to U.S. "penny stock" rules. A "penny stock" is generally defined by
regulations of the U.S. Securities and Exchange Commission ("SEC") as an equity
security with a market price of less than US$5.00 per share. However, an equity
security with a market price under US$5.00 will not be considered a penny stock
if it fits within any of the following exceptions:
(i) the equity security is listed on Nasdaq or a national securities
exchange;
(ii) the issuer of the equity security has been in continuous operation
for LESS than three years, and either has (a) net tangible assets of at
least US$5,000,000, or (b) average annual revenue of at least
US$6,000,000; or
(iii) the issuer of the equity security has been in continuous
operation for MORE than three years, and has net tangible assets of at
least US$2,000,000.
If an investor buys or sells a penny stock, SEC regulations require that the
investor receive, prior to the transaction, a disclosure explaining the penny
stock market and associated risks. Furthermore, trading in Northern Dynasty's
common stock is currently subject to Rule 15g-9 of the Exchange Act, which
relates to non-Nasdaq and non-exchange listed securities. Under this rule,
broker/dealers who recommend Northern Dynasty's securities to persons other than
established customers and accredited investors must make a special written
suitability determination for the purchaser and receive the purchaser's written
agreement to a transaction prior to sale. Securities are exempt from this rule
if their market price is at least $5.00 per share.
Penny stock regulations will tend to reduce market liquidity of Northern
Dynasty's common stock because they limit the broker/dealers' ability to trade,
and a purchaser's ability to sell, the stock in the secondary market. The low
price of Northern Dynasty's common stock has a negative effect on the amount and
percentage of transaction costs paid by individual shareholders. The low price
of Northern Dynasty's common stock also limits Northern Dynasty's ability to
raise additional capital by issuing additional shares. There are several reasons
for these effects. First, the internal policies of certain institutional
investors prohibit the purchase of low-priced stocks. Second, many brokerage
houses do not permit low-priced stocks to be used as collateral for margin
accounts or to be purchased on margin. Third, some brokerage house policies and
practices tend to discourage individual brokers from dealing in low-priced
stocks. Finally, broker's commissions on low-priced stocks usually represent a
higher percentage of the stock price than commissions on higher priced stocks.
As a result, Northern Dynasty's shareholders may pay transaction costs that are
a higher percentage of their total share value than if Northern Dynasty's share
price were substantially higher.
The rules described above concerning penny stocks may adversely affect the
market liquidity of Northern Dynasty's securities. Northern Dynasty believes its
shares will likely continue to be thinly traded, and that its stock is a "penny
stock" as its tangible assets (basically cash) are likely to decline to less
than US$2 million. For more information about penny stocks, contact the Office
of Filings, Information and Consumer Services of the U.S. Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 telephone
(202) 272-7440.
SIGNIFICANT POTENTIAL EQUITY DILUTION AND END OF LOCK-UPS. At May 1, 2003,
Northern Dynasty had 18,058,723 common shares and 1,175,750 share purchase
options and 6,277,018 warrants outstanding. The resale of outstanding shares
from the exercise of dilutive securities could have a depressing effect on the
market for Northern Dynasty's shares. At May 1, 2003, dilutive securities
represent approximately 42% of Northern Dynasty's currently issued shares.
ITEM 4 INFORMATION ON THE COMPANY
SUMMARY
A. HISTORY AND DEVELOPMENT OF NORTHERN DYNASTY
1. The legal name of the corporation which is the subject of this Annual Report
on Form 20F is "Northern Dynasty Minerals Ltd."
2. Northern Dynasty was incorporated on May 11, 1983 under the laws of the
Province of British Columbia, Canada. Northern Dynasty was incorporated as
"Dynasty Resources Inc." and subsequently changed its name on November 30, 1983
to "Northern Dynasty Explorations Ltd." Northern Dynasty became a reporting
company in the Province of British Columbia on April 10, 1984 by having a
receipt issued for its initial prospectus offering by the British Columbia
Securities Commission. Northern Dynasty was formerly listed on the Vancouver
Stock Exchange (now the TSX Venture Exchange and herein generally "TSX Venture")
from 1984-1987, interlisted on the Toronto Stock Exchange from 1987-1993, and
unlisted but remained in good standing with all securities commissions from 1993
to 1994, and thereupon listed solely on TSX Venture from 1994 to present.
3. Northern Dynasty continues to subsist under the laws of the Province of
British Columbia, Canada. Northern Dynasty's business office is located at Suite
1020 - 800 West Pender Street, Vancouver, British Columbia V6C 2V6 telephone
(604) 684-6365. Northern Dynasty's registered legal office is located c/o its
British Columbia attorneys at Suite 1500, 1055 West Georgia Street, Vancouver,
British Columbia V6E 4N7 telephone (604) 689-9111.
4. During the period 1984-1993, Northern Dynasty held a participating interest
in the Little Bald Mountain Project in Nevada, from which modest-scale gold
production and cash flow was obtained. Northern Dynasty utilized this cash flow
and the proceeds from other financings to conduct exploration programs on a
number of properties in Nevada, USA, Ontario, Canada and Yukon, Canada.
Subsequently all these properties were written off or written down to nominal
value. In 1994, Northern Dynasty's name was changed to "Northern Dynasty
Minerals Ltd." and it was reorganized, including a change of management, new
investors and a three old for one new common share consolidation (also known as
a "reverse-split"), and relisted on the Vancouver Stock Exchange.
On October 29, 2001, Northern Dynasty entered into an agreement with Hunter
Dickinson Group Inc. ("HDG"), a non-arm's length party, to acquire up to 100% of
HDG's interest in certain options granted by Teck Cominco American Incorporated
("Teck Cominco") in its Pebble Property (herein called the "Pebble Property" or
the "Pebble Project") with HDG retaining a carried interest (callable by
Northern Dynasty) to the point of the exercise of the first option under the
Pebble Property Agreements (see Item 3). HDG acquired its interest from Teck
Cominco, a subsidiary of one of Canada's largest mining companies. The terms of
the option are described below.
5. Northern Dynasty has made no material capital expenditures (there have been
no material divestitures) over the three fiscal years ended December 31, 2001
except for the Pebble Property acquisition and related matters described herein.
B. BUSINESS OVERVIEW
NORTHERN DYNASTY'S BUSINESS STRATEGY AND PRINCIPAL ACTIVITIES
Northern Dynasty is in the business of acquiring and exploring mineral
exploration properties. Its current principal focus is on exploration of the
optioned gold/copper prospect known as Pebble Property, which is located in the
State of Alaska. In October 2001, it acquired the right to earn up to a 100%
interest in the Pebble Property from Teck Cominco American Incorporated and HDG.
The first of the two options permits Northern Dynasty to purchase the previously
drilled portions of the prospect on which the known mineralization exists (the
"Resource Lands Option"). The Resource Lands Option expires November 30, 2004,
and requires payments of cash and shares aggregating in excess of US$10 million.
The second part of the Option permits Northern Dynasty to earn a minimum of 50%
(and up to 100%) interest in the remainder of the Pebble Property (the
"Exploration Lands") by doing 60,000 feet of exploration drilling by November
30, 2004 of which 15,000 feet must be drilled by November 30, 2002, and
thereafter a minimum of 6,000 feet must be drilled in each calendar year
starting January 1, 2003. To August 31, 2002, Northern Dynasty had drilled
36,353 feet on the Exploration Lands.
Northern Dynasty has compiled all of the project's technical data and completed
an exploration program, comprising of 37,093 feet of core drilling in May and
August 2002. Technical staff also re-logged core from Teck Cominco drilling at
the Pebble deposit, and commissioned independent engineering firm Snowden Mining
Industry Consultants to estimate the mineral resources based on a geological
block model (see Pebble Property Overview).
Northern Dynasty's plans for fiscal 2003 are to continue exploration activities
to determine if sufficient mineralization exists on the Pebble Property to
warrant further exploration and the payment of additional option considerations
to Teck Cominco. Northern Dynasty's exploration activities have included
planning and carrying out an exploration program of core drilling and related
work, compiling and analyzing drill results, outlining or "scoping" the extent
and quality of mineralization, and filing notices and results of work with
government officials to maintain the Pebble Property claims in good standing.
Under the Teck Cominco Options, Northern Dynasty committed to and completed
15,000 ft of drilling by November 30, 2002 at an estimated total cost of $2.0
million. In 2003, Northern Dynasty's commitments are at least 6,000 feet of
drilling on the Exploration Lands. Northern Dynasty's current working capital is
approximately $500,000, so it will need to raise funds to meet its 2003
commitments, and it will need to raise additional funds to cover the future
exploration programs and the ongoing administrative costs. However, if the
equity markets for junior resource issuers are not receptive to additional
financings, Northern Dynasty will have to reduce the planned expenditures. There
can be no assurance that Northern Dynasty will obtain additional financing on
acceptable terms (or at all), and failure to obtain such financing could result
in the loss of Northern Dynasty's interest in the Pebble Project.
Northern Dynasty does not have any operating revenue, although historically it
has had annual interest revenue as a consequence of investing surplus
exploration funds pending the completion of exploration programs. Although
exploration activities can be more challenging in winter conditions, Northern
Dynasty's business cannot really be said to be seasonal in nature. Metals prices
have traditionally seen multi-year cycles of higher and lower prices, which
often impact the availability of exploration funds in years with depressed
prices.
Alaska Statutes 38.05.185 and following establish the rights to mining claim and
mineral leases on lands owned by the State of Alaska and open to mineral entry.
This group of statutes also covers annual labour, annual rental, and royalties.
Operations on claims or leases on state owned land must be permitted under a
plan of operations as set out in 11 Alaska Administrative Code 86.800. 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.
Environmental conditions are controlled by Alaska Statute 46.08 (prohibits
release of oil and hazardous substances), Alaska Statute 46.03.060 and following
(sets water quality standards), and Alaska Statute 46.14 (sets air quality
standards).
C. ORGANIZATIONAL STRUCTURE
Northern Dynasty has one non-material subsidiary, Northern Dynasty Mines Inc., a
company incorporated under the laws of Alaska.
D. PROPERTY, PLANTS AND EQUIPMENT
Neither the Pebble Property, nor any other of Northern Dynasty's property
interests, has any mining, plant or equipment located thereon.
PEBBLE PROPERTY INFORMATION - ABBREVIATIONS, MEASUREMENT
(I) GEOLOGICAL TERMS AND MINERAL SYMBOLS
Composite Hydrothermal
Created by hydrothermal process or processes in which there is evidence
of more System than one centre or source of hydrothermal fluids, and
potentially more than one mineral deposit.
Hydrothermal Alteration
Alteration of rocks or minerals by the reaction of hot, or hydrothermal,
water with pre-existing (or host) rocks or minerals. The products of
this reaction may also be a hydrothermal mineral deposit, that is,
gangue and ore minerals that have been deposited in fractures, faults,
breccia openings, etc., by replacement or open-space filling from watery
fluids of 50-700o C temperature and of 1-3 kilobars pressure.
Induced Polarization
A geophysical survey used to identify a feature that appears to be
different from ("IP") Survey the typical or background survey results
when tested for levels of electro-conductivity; IP detects both
chargeable, pyrite-bearing rock and non-conductive rock that has high
content of quartz.
Mineral Symbols Au - Gold; Ag - Silver; Al - Aluminum; Cu - Copper; Fe -
Iron; Mo - Molybdenum; Na - Sodium; O - Oxygen; Pb - Lead; S - Sulphur;
Zn - Zinc.
Porphyry deposit
A type of mineral deposit in which ore minerals are widely disseminated,
generally of low grade but large tonnage.
(II) CURRENCY AND MEASUREMENT
All currency amounts in this Registration Statement are stated in Canadian
dollars unless otherwise indicated (see Item 3A for exchange rate information).
The following measurements may be used.
Ton Imperial measure equal to 2,000 pounds.
Tonne Metric measure of mass equal to 1,000 kilograms or 2,204.6 pounds.
Conversion of metric units into imperial equivalents is as follows:
Metric Units Multiply by Imperial Units
------------ ----------- --------------
hectares 2.471 = acres
metres 3.281 = feet
kilometres 0.621 = miles (5,280 feet)
grams 0.032 = ounces (troy)
tonnes 1.102 = tons (short) (2,000 lbs)
grams/tonne 0.029 = ounces (troy)/ton
PEBBLE PROPERTY, ALASKA, OVERVIEW
In October 2001, Northern Dynasty acquired two inter-related options whereby it
can acquire interests in two areas of an Alaskan mineral prospect currently
owned by a major mining company. Previous exploration on the prospect, known as
the Pebble Property, indicates that it contains a large tonnage of
porphyry-style copper and gold mineralization that will require more detailed
drilling and technical studies to assess its economic viability. The first of
the two options permits Northern Dynasty to purchase the previously drilled
portions of the prospect on which the known mineralization exists (the "Resource
Lands Option"). The Resource Lands Option expires November 30, 2004, and
requires payments of cash and shares aggregating in excess of US$10 million. The
second part of the Option permits Northern Dynasty to earn a minimum of 50% (and
up to 100%) interest in the remainder of the Pebble Property (the "Exploration
Lands") by doing 60,000 feet of exploration drilling by November 30, 2004, and
then forming a joint venture with the senior mining company.
In 2002, Northern Dynasty completed approximately 37,000 feet in core drill
holes to explore for porphyry-style deposits on the property, of which 36,353
feet were drilled on the Exploration Lands. The work indicates that the Property
might contain economical porphyry, skarn and vein/shear gold deposits. Northern
Dynasty geological staff also re-logged 104 holes that had been drilled into the
Pebble deposit by previous operators, in order to gain a better understanding of
the geology and to identify key geological controls for higher-grade
mineralization. In 2003, the Company commissioned an independent mineral
resource estimate that indicates the Pebble deposit contains significant amounts
of higher-grade mineralization than was previously estimated. Northern Dynasty
intends to complete a core drilling program to assess the extent of higher-grade
material within the Pebble porphyry deposit, follow up on new deposit targets
discovered in 2002, and explore for additional deposits on the property;
however, it will have to raise additional funds to carry on this exploration and
to participate in a potential joint venture on the Exploration Lands. Northern
Dynasty has the right to pay most of the option consideration in cash or shares,
at its election.
PEBBLE PROPERTY OPTION AGREEMENTS
LEGAL AGREEMENTS OVERVIEW
In October 2001, Northern Dynasty was assigned a two-part option by Teck Cominco
American Incorporated ("Teck Cominco"), a major mining company, which option
allows Northern Dynasty, until November 30, 2004 to purchase either or both of:
(i) the part of the Pebble Property which hosts the Pebble deposit described
herein (the "Resource Lands") for US$10 million in cash or Northern Dynasty
shares (Northern Dynasty has made required interim option payments of US$250,000
cash plus 1 million shares and 750,000 warrants to Teck Cominco), and (ii) if
Northern Dynasty completes the purchase of the Resource Lands, it may, by doing
a total of 60,000 feet of exploration drilling (of which 33,653 feet were
completed in 2002), acquire the right to joint venture the remainder of the
Pebble Property (the "Exploration Lands") with Teck Cominco (50:50 sharing of
costs), or instead of a joint venture, Teck Cominco may decide to simply sell
out its 50% balance of the Exploration Lands for US$4 million.
ASSIGNMENT OF PEBBLE OPTION FROM HUNTER DICKINSON GROUP INC., A RELATED PARTY
By an assignment agreement dated October 29, 2001 between Northern Dynasty as
assignee and Hunter Dickinson Group Inc. ("HDG") as assignor, (the "HDG
Assignment") (see Item 7), Northern Dynasty was assigned the right to acquire up
to a 100% interest in two discrete but interdependent options granted to HDG by
Teck Cominco, respecting its 22,582 hectare "Pebble" copper/gold prospect in
southwestern Alaska. The two options relate to separate portions of the Pebble
Property which are referred to as the "Resource Lands" on which a mineralized
body has already been outlined by Teck Cominco, and the "Exploration Lands"
which constitute the remainder of the Pebble Property area. In this Annual
Information Form, these two options are referred to as the "Resource Lands
Option" and the "Exploration Lands Option" and together they are referred to as
the "Teck Cominco Options". HDG is a private company owned by certain directors
of Northern Dynasty and their associates and hence is not at arm's length to
Northern Dynasty. (See Item 7)
Under the HDG Assignment, Northern Dynasty has been assigned at HDG's
out-of-pocket costs of $586,966 (which includes HDG's 2001 exploration and
additional property staking costs related to the Pebble Property), an 80%
interest in the Teck Cominco Options, together with the right to acquire HDG's
retained 20% interest which is a "carried" interest and further described below.
In 2001 after acquiring the Teck Cominco Options, HDG completed additional claim
staking (adding to the Exploration Lands) and conducted geophysical and
geochemical surveys on the Pebble Property at a cost of approximately $537,000.
Under the terms of the HDG Assignment, HDG is carried with respect to its
retained 20% interest (the "Carried Interest") meaning that Northern Dynasty
must incur 100% of all exploration costs and 100% of all underlying option
payments to Teck Cominco required by the Teck Cominco Options to the point of
exercise of the Resource Lands Option (assuming Northern Dynasty decides to
pursue exercise of the Teck Cominco Options respecting which Northern Dynasty
retains full discretion). Northern Dynasty may purchase (or "call") the Carried
Interest for a 90-day period commencing at the time that, and in the event that,
Northern Dynasty exercises the Resources Lands Option which requires that
Northern Dynasty have made interim option payments to Teck Cominco (all of which
have been made, as described below) as well as the balloon payment of US$10
million by November 30, 2004 (extended by one year to November 30, 2004 in an
amending agreement dated December 19, 2002 for the consideration of 200,000
shares issued by the Company). The Carried Interest call price is the
independently appraised value of the Carried Interest which call amount will be
payable by Northern Dynasty in common shares of Northern Dynasty valued at
market at that time. If Northern Dynasty does not call the Carried Interest,
then after the Resource Lands Option is exercised, HDG shall thereupon be
responsible for its 20% share of all subsequent exploration and development
expenses related to the Pebble Property in a joint venture ("JV") to be formed
on the terms disclosed below, which JV terms are materially the same as the
potential Teck Cominco:Northern Dynasty JV related to the Exploration Lands
Option.
BASIC OPTION TERMS
(I) RESOURCE LANDS
The Resource Land Option allows Northern Dynasty to explore the entire Pebble
property until November 30, 2004, at which time Northern Dynasty is required to
elect whether to purchase the 36 claims of the Resource Lands which include the
Pebble gold/copper deposit by paying Teck Cominco US$10 million in cash or
Northern Dynasty common shares valued at US$10 million. If Northern Dynasty
elects to issue shares to Teck Cominco in lieu of cash, Northern Dynasty shall
manage in good faith the resale of any of its shares issued to Teck Cominco by
seeking investors to purchase them and by using reasonable efforts to achieve an
orderly resale market for these shares. Any excess of Teck Cominco's resale
proceeds will be credited against Northern Dynasty's future option requirements
and any share resale shortfall must be made up by Northern Dynasty to maintain
the Teck Cominco Options in good standing (that is, Northern Dynasty is not
liable for any shortfall on resale of its shares; however, the consequence of a
shortfall which is not "topped up" in cash or shares is that Northern Dynasty's
rights under the Teck Cominco Options will be forfeited). The required interim
option payments to Teck Cominco have all been made, including US$250,000 in cash
plus 500,000 two-year share purchase warrants (exercisable at $0.75) prior to
December 31, 2001 (which consideration was paid on December 31, 2001) and
500,000 shares and 500,000 two-year share purchase warrants (exercisable at
$1.15) prior to March 31, 2002 (which consideration was paid on March 28, 2002)
and a further 500,000 shares and 250,000 warrants before December 31, 2002
(which consideration was paid on December 19, 2002). As per amending agreement,
an additional 200,000 shares were issued to Teck Cominco on December 19, 2002 to
extend the deadline to purchase the Resource Lands from November 30, 2003 to
November 30, 2004.
(II) EXPLORATION LANDS
If Northern Dynasty purchases the Resource Lands under the Resource Lands
Option, it also has the right under the Exploration Lands Option to earn a 50%
interest in the adjacent "Exploration Lands" by completing 60,000 feet of
drilling by November 30, 2004. When Northern Dynasty completes the drilling,
Teck Cominco can either elect to match our future expenditures by forming a
50:50 JV or sell its 50% interest in the Exploration Lands to Northern Dynasty
for US$4 million and retaining a 5% net profits interest. To August 31, 2002
Northern Dynasty has completed 36,353 feet of drilling on the Exploration Lands.
FURTHER DETAILS OF PEBBLE OPTION
BACKGROUND
The Teck Cominco Options were originally granted to HDG pursuant to a memorandum
of understanding dated May 1, 2001, which was superseded by a letter agreement
dated October 29, 2001, which coincided with the formal HDG Assignment, both of
which were supplemented by a written consent of Teck Cominco to the HDG
Assignment also dated October 29, 2001. Under the terms of the Teck Cominco
Options, Teck Cominco represented that it is the sole legal and beneficial owner
of the Pebble Property's Resource Lands and Exploration Lands, has good title to
same and the exclusive right to enter grant the Teck Cominco Options, and that
the mineral interests are held free and clear of liens and security interests.
Teck Cominco also represented there were no outstanding work orders,
environmental matters nor any basis for litigation respecting the Pebble
Property. Teck Cominco owns only the mineral titles and does not own any surface
rights.
INTERIM OPTION PAYMENT REQUIREMENTS
The interim option requirements, all of which have been paid by Northern
Dynasty, are a pre-condition for the exercise of either of the Resource Lands
Option and the Exploration Lands Option, are that Northern Dynasty must have,
prior to December 31, 2001, paid US$250,000 cash and issued 500,000 Northern
Dynasty warrants having an exercise price which is the closing price of Northern
Dynasty's shares on the day following the date of the public announcement of the
transaction. The transaction was announced on November 1, 2001 and on November
2, 2001 the closing share price of Northern Dynasty common shares on the TSX
Venture was $0.75. The cash payment of US$250,000 and the two-year $0.75
warrants were delivered to Teck Cominco on December 31, 2001. This initial
tranche of 500,000 warrants has an expiry date of December 31, 2003. The second
interim option payment, requiring that Northern Dynasty allot and issue on or
before March 31, 2002 a further 500,000 common shares plus 500,000 two-year
common share purchase warrants (exercisable at $1.15), was delivered to Teck
Cominco on March 28, 2002. The third interim option requirement is that Northern
Dynasty allot and issue, on or before December 31, 2002, an additional 500,000
shares plus 250,000 warrants with warrants (exercisable at $0.60), was delivered
to Teck Cominco on December 19, 2002.
POSSIBLE TOP-UPS ON RESALE PROCEEDS OF NORTHERN DYNASTY SHARES
If Teck Cominco wishes to resell the shares received under the aforementioned
interim option payment tranches, it will give notice to Northern Dynasty by a
date that is within 180 days from issuance of each tranche. If Teck Cominco so
elects, Northern Dynasty shall manage the resale of these shares on Teck
Cominco's behalf within six months of the initial US$250,000 tranche, and within
twelve months in the case of shares issued out of the exercise of the warrants
of the first tranche, and twelve months for shares in the tranches due March 31,
2002 and December 31, 2002, with the requirement to obtain a minimum of
US$250,000 in resale proceeds from each such tranche paid to Teck Cominco. If
the proceeds exceed US$250,000 from the resale of shares from any tranche, then
the amount payable to exercise the Resource Lands Option or Exploration Lands
Option will be reduced by the amount of the excess, and should there be any
deficiencies in the proceeds from the sale of any tranche, Northern Dynasty must
provide additional cash or shares to "top-up" the shortfall so that the stated
dollar amount required to be received by Teck Cominco is achieved, failing which
the Teck Cominco Options will terminate (without liability to Northern Dynasty
for the shortfall). If Teck Cominco does not give notice to sell by the notice
to sell deadline of six and twelve months, as the case may be, there will be no
minimum proceeds requirement on the resale of those shares. The application of
proceeds to reduce the amount payable to exercise the Options shall not apply to
the resale of shares issued to Teck Cominco as a result of the exercise of
Northern Dynasty warrants.
RESOURCE LANDS - BALLOON PAYMENT REQUIREMENT
Northern Dynasty may purchase the Resource Lands under the Resource Lands Option
by paying US$10 million, less any of the excess resale proceeds received from
resale by or on behalf of Teck Cominco of the interim option share issuances,
and must pay this sum to Teck Cominco on or before November 30, 2004 (extended
from November 30, 2003 to November 30, 2004 by an amending agreement dated
December 19, 2002) or, alternatively, may issue to Teck Cominco by that date a
number of Northern Dynasty shares as is equivalent to US$10 million divided by
the five-day trading average of Northern Dynasty's shares as at the date prior
to the issuance. Teck Cominco may give notice to Northern Dynasty that it wishes
to liquidate the shares, in which case Northern Dynasty shall manage the resale
of those shares so that the return to Teck Cominco is US$10 million if the
shares are resold within the following 12 months from the date of notice to sell
or US$11 million if sold within the following 24 months, but in either case with
a minimum requirement of US$1 million per 3-month period. Any shares remaining
after the required US$10 million consideration has been received by Teck Cominco
will be returned to Northern Dynasty's treasury for cancellation, and if there
are any deficiencies in the resale proceeds, Northern Dynasty must provide
top-up shares or the cash equivalent until the minimum is achieved failing which
the option will terminate (without liability for the shortfall). The Resource
Lands Option will not be deemed to be exercised until the minimum required
consideration has been received by Teck Cominco. If Teck Cominco does not give
notice by the notice to sell deadline, there will be no minimum proceeds
requirement. If Northern Dynasty does not exercise the Resource Lands Option,
both Teck Cominco Options will terminate.
EXPLORATION LANDS - OPTION REQUIREMENTS FOR DRILLING AND JOINT VENTURE
Providing Northern Dynasty exercises the Resource Lands Option, it has the
exclusive option to earn an initial 50% working interest in the Exploration
Lands in which event Northern Dynasty and Teck Cominco will establish a joint
venture with each party thereafter contributing its respective 50% share of
future exploration and development costs relating to the Exploration Lands. In
order to exercise the Exploration Lands Option, Northern Dynasty must complete
60,000 feet of core drilling on the Exploration Lands by November 30, 2004 of
which 15,000 feet must be drilled by November 30, 2002 (36,353 feet had been
completed by August 31, 2003) and Northern Dynasty must thereafter drill a
minimum of 6,000 feet in each calendar year starting January 1, 2003. A
requirement that Northern Dynasty must drill 15,000 feet on certain targets
agreed to by Teck Cominco was fulfilled by the Company in 2002.
TECK COMINCO'S ELECTION TO "PUT" ITS REMAINING INTEREST TO NORTHERN DYNASTY
If Northern Dynasty exercises the Exploration Lands Option, Teck Cominco in turn
has the option, exercisable upon notice to Northern Dynasty within 90 days to
either sell to Northern Dynasty Teck Cominco's remaining 50% interest in the
Exploration Lands or enter into a joint venture with Northern Dynasty with each
party having a 50% interest. If Teck Cominco elects to sell its 50% interest,
then Northern Dynasty must purchase the interest and pay Teck Cominco US$4
million and grant Teck Cominco a net profits royalty (as described below) on any
mine in the Exploration Lands. Prior to the recovery of the capital costs of
constructing a mine on the Exploration Lands, the net profits royalty will be
based upon the net cash flow from the sale of minerals after operating,
marketing, distribution and debt-financing repayments to a maximum of 4% of the
net cash flow. Following payback of any mine's capital costs, the royalty is 5%
of net profits. The US$4 million price for the 50% interest shall be paid in
cash or, at Northern Dynasty's option in Northern Dynasty shares, based on the
5-day trading average prior to the date of issuance. If Teck Cominco elects to
liquidate these shares, it may, by notice to Northern Dynasty require Northern
Dynasty to manage the resale of these shares with a view to realizing at least
US$4 million over the 12-month period after the notice. Any deficiencies from
this figure will require Northern Dynasty to provide top-up shares or cash so
that the minimum is achieved failing which the Option will terminate. Any
Northern Dynasty shares remaining unsold after the maximum of US$4 million has
been realized will be returned to Northern Dynasty's treasury for cancellation.
If Teck Cominco does not give notice of sale by the notice to sell deadline,
there is no resale proceeds protection, and if Teck Cominco elects to sell after
the notice to sell deadline, then Northern Dynasty may retain control of the
share resale process for a 48-month period with any profit or loss on the share
resale (measured from the initial issuance value) will be for the account of
Teck Cominco. Northern Dynasty must direct the resale of the shares in good
faith with a view to maximizing Teck Cominco's proceeds with all such resale
activities in compliance with applicable US and Canadian securities laws and the
policies of the TSX Venture. All negotiations between Northern Dynasty and Teck
Cominco took place in Canada. Teck Cominco American Incorporated is a US holding
subsidiary of Teck Cominco Ltd. (shares listed on The Toronto Stock Exchange and
bonds listed on AMEX). Any securities issued to Teck Cominco will be issued
relying on the exemption from US registration found in Rule 903(c)(1) of
Regulation S to the United States Securities Act of 1933 and are expected to be
eligible for resale through the TSX Venture Exchange under Rule 904 to
Regulation S.
JOINT VENTURE TERMS
Other business terms respecting the Teck Cominco Options require that Northern
Dynasty will determine and fund work programs to be carried out on the Pebble
Property and will generally have sole and exclusive possession of the Resource
Lands and Exploration Lands to do such work. Northern Dynasty shall perform its
obligations in a proper manner in accordance with sound mining practices and all
applicable laws and shall be obliged to keep the Resource Lands and Exploration
Lands free from liens or encumbrances and shall provide Teck Cominco with
regular reports on Northern Dynasty's activities. In the event Northern Dynasty
elects to terminate the Teck Cominco Options prior to the exercise thereof, it
shall leave the Resource Lands and Exploration Lands in a condition which is
reclaimed with respect to Northern Dynasty's activities and will deliver to Teck
Cominco all information and data in its possession and will ensure that all
contractors and suppliers have been paid. Registered legal title to the Resource
Lands and Exploration Lands will remain with Teck Cominco during the period of
the Options, and Northern Dynasty has provided an indemnity for Teck Cominco
with respect to its activities on the Pebble Property during the Option term
including an obligation to maintain third party liability insurance.
In the event the Exploration Lands Option is exercised and Teck Cominco elects
to form a joint venture respecting the Exploration Lands, each of the parties
will hold a 50% JV interest and either party can choose from time to time a
portion of the Exploration Lands to complete a project prefeasibility study.
Within 90 days of the formation of the joint venture, Northern Dynasty and Teck
Cominco will alternate in selecting from the Exploration Lands designated areas,
which are sufficiently advanced to warrant a prefeasibility study with Northern
Dynasty designating first. The designating party will act as operator and will
be required to complete a prefeasibility study within two years of selecting the
specified area (measuring up to 3.5 square km by 3.5 square km). A management
committee will be formed to approve programs of exploration, and the party
acting as operator will be entitled to a cost recovery based on third-party
contractor costs to reflect its own overhead expenses which recovery ranges from
10% to 5% on single-party contracts and 2% to 3% on mine operating costs. Each
party must elect to contribute its proportionate share of ongoing exploration
costs, and if a party elects not to contribute, the 50/50 initial interests of
the parties will be adjusted so that each party holds an interest proportionate
to its contribution to total exploration costs. If a party's interest in reduced
to less than 10%, it will be deemed to have conveyed its working interest to the
other party and will be entitled to the net profits royalty described above. The
joint venture will have an area of interest pursuant to which each party will be
obligated to contribute any acquired mineral interests in the vicinity of the
Pebble Project to the joint venture.
ADDITIONAL REQUIREMENTS OF TECK COMINCO
By Consent to Assignment dated October 29, 2001, Teck Cominco consented to the
HDG Assignment, assigning the Teck Cominco Options to Northern Dynasty subject
to certain provisos including that in the event Northern Dynasty does not
exercise its right to call the Carried Interest, the Resource Lands Option price
shall be increased from US$10 million to US$12 million. The Consent also
provides that HDG and Northern Dynasty provide a cross-guarantee of each other's
obligations to Teck Cominco, and an acknowledgement that Northern Dynasty has
the right to make all elections and communications on behalf of HDG and certain
like matters to ensure Teck Cominco need only look to Northern Dynasty for
certainty as to the legal positions of both HDG and Northern Dynasty.
AMENDING AGREEMENT DATED DECEMBER 19, 2002
By an Option Agreement Amendment dated December 19, 2002, Northern Dynasty
issued an additional 200,000 share to Teck Cominco to defer obligations under
the Resource Lands Option for a one-year period, from November 30, 2003 to
November 30, 2004.
PEBBLE PROPERTY GEOLOGICAL DISCUSSION - OVERALL SUMMARY
The following summary is derived from a 2001 independent technical report by
M.J. Casselman, P.Geo., an in-house technical report completed in February 2003,
and a May 2003 independent technical report by Snowden Mining Industry
Consultants.
The Pebble copper-gold porphyry project is situated in southwest Alaska, 380 km
southwest of Anchorage and 95 km from tidewater at Cook Inlet (Figure 1), in an
area of rolling hills and low mountains, at elevations ranging from 250 m to 850
m above sea level.
Since the initial discovery of gold mineralization at the Pebble property in
1987, several core drill programs by a past operator have outlined a copper-gold
"porphyry" deposit (a type of mineral deposit in which the ore minerals are
widely disseminated and of generally low grade but large tonnage). Based upon
110 drill holes totalling 18,353 m, a large body of low-grade copper-gold
porphyry mineralization was identified over an area measuring 1.7 km by 1.7 km,
within which there are areas of higher-grade mineralization.
In 2003, Northern Dynasty commissioned an independent mineral resource estimate
by engineering firm Snowden Mining Industry Consultants Inc. ("Snowden") of West
Perth, Australia. Inferred Mineral Resources estimated by Snowden are 1.0
billion tonnes grading 0.40 g/t gold, 0.30% copper, and 0.015% molybdenum (0.61%
copper-equivalent) above a cut-off grade of 0.30% copper-equivalent. Snowden
also estimates that the Pebble deposit contains significant amounts of
higher-grade mineralization: 141 million tonnes of 0.67 g/t gold, 0.48% copper
and 0.019% molybdenum (0.97% copper-equivalent) above a cut-off grade of 0.80%
copper-equivalent. (Source: May 2003 technical report prepared for Northern
Dynasty by Paul Blackney, B.Sc. (Hons.), MAusIMM, MAIG, and Michael J.
Casselman, P.Geo.) This mineralization would require more detailed technical
studies to assess its economics and hence is not considered to be ore and hence
does not constitute reserves.
The Pebble deposit occurs in the northeastern corner of a 89 square km Induced
Polarization chargeability (IP - a ground penetrating electrical geophysical
survey that detected sulphide-bearing rock) anomaly, measuring 21 km in length
and up to 9 km in width. Northern Dynasty believes that the Pebble deposit is
associated with only one of several coalescing sulphide-rich hydrothermal
systems combining to create the large anomaly. The 2002 core drilling program
was designed to test the potential of the system to host one or more additional
copper-gold porphyry deposits, and resulted in new porphyry, skarn and vein
discoveries (Figure 2).
Previous preliminary engineering studies outlined several road access options,
including a 130 km access route connecting the Pebble project to a site suitable
for a deep-draft ocean port on Cook Inlet. Preliminary CESL engineering work
also indicated that power requirements could be met by natural gas from
currently producing offshore wells in Cook Inlet, and transported by pipeline to
the property. A number of possible sites for processing facilities,
accommodations, tailings storage, and waste rock disposal were also evaluated.
Preliminary metallurgical testwork indicated good recoveries for both copper and
gold, within the range experienced at other producing copper-gold porphyry
mines. Additional studies will be required to substantiate metal recoveries, or
if possible improve them, and to substantiate power, infrastructure and
environmental requirements. It should be noted that notwithstanding certain
exploration and initial engineering work conducted by Teck Cominco, they
subsequently elected to farm-out their interest to Northern Dynasty for reasons
that were not shared with Northern Dynasty.
The principal objective of Northern Dynasty's exploration on the Pebble property
is to update the established resources and fully delineate additional the
higher-grade copper-gold mineralization in order to provide mill feed required
for more rapid recovery of capital costs during the initial years of production
from any potential mining operation. Northern Dynasty completed a Phase One
drilling program in 2002, involving 68 holes totaling 11,306 m (37,093 feet)
(Figure 3) to commence testing of the many targets within the 89 km2
hydrothermal system. This program was highly successful and resulted in the
discovery of a new porphyry copper-gold-molybdenum deposit, a porphyry copper
zone, a gold-copper skarn and several high-grade gold veins. In addition,
Northern Dynasty completed a geological model for the Pebble deposit based on
detailed examination of Teck Cominco's drill holes (Figure 4).
The Company is now proceeding to formulate Phase Two drilling plans. The program
is being designed to expand and delineate the good-grade gold-copper-molybdenum
portions within the giant Pebble porphyry deposit, as well as the significant
new porphyry, skarn and vein discoveries made by Northern Dynasty during its
Phase One program. Additional drilling is also being planned to test new
high-grade and bulk tonnage, gold-only targets, and to assess the potential for
additional porphyry deposits within several untested, large-scale IP
chargeability anomalies.
PEBBLE PROPERTY - FURTHER PARTICULARS OF TECHNICAL MATTERS
LOCATION AND ACCESS
The Pebble Property is centered at latitude 59 degrees 53 minutes 54 seconds
North and longitude 155 degrees 17 minutes 44 seconds West in the Bristol Bay
region of southwestern Alaska. It is approximately 380 km southwest of Anchorage
and 27 km northwest of the village of Iliamna (Figure 1).
Access to the Pebble Project from Anchorage is via fixed wing aircraft to
Iliamna. Iliamna has a state-operated airport with a 1,700 m gravel airfield. It
is serviced by several passenger and cargo flights daily from Anchorage, using
Convair, Hercules and DC-6 aircraft, as well as smaller charter aircraft.
Current access from Iliamna to the property is by helicopter, a flying distance
of 27 km.
The Pebble Property is located 95 km from tidewater. Access to the coast from
Lake Iliamna is provided by a 30 km, state-maintained road, which extends from
Pile Bay at the eastern end of Lake Iliamna to Williamsport near Iniskin Bay on
Cook Inlet. Bulk fuel and heavy freight can also be barged in the summer months
to Lake Iliamna via the Kvichak River. There is currently no road to Iliamna
northwest to the Pebble Property.
TOPOGRAPHY AND CLIMATE
The climate of the Iliamna area is similar to Anchorage with summer daytime high
temperatures range from 10 to 17 degrees Celsius, and low temperatures varying
from -10 to -13 degrees Celsius in December through to March. Average annual
precipitation is 69 cm. The climate, although periodically harsh, is
sufficiently moderate to allow a well-planned mineral exploration program to be
conducted year-round.
The Pebble Property lies within an area of rolling hills and low mountains.
Valley bottoms are at elevations of 250 m above sea level. The highest point on
the property is Kaskanak Peak, at an elevation of 841 m. The currently known
mineralized deposit (a mass of naturally occurring mineral material without
regard to mode of origin) is situated at the 325 m elevation. Vegetation
consists of sparse patches of alders separated by expanses of tundra and grass.
The area was recently glaciated and glacial soil deposits and hummocky terrain
abound. There are numerous streams and small, shallow lakes and ponds in the
vicinity of the project, which could provide water for exploration drilling.
FIGURE 1
MINERAL CLAIMS STATUS
The Pebble Property forms a continuous block of 1,215 mineral claims, totalling
25,787 hectares, located on Alaska State ground. The property is subdivided into
the Resource Lands and the Exploration Lands (Figure 2) related to the option
agreements. State mineral claims in Alaska may be kept in good standing by
incurring annual assessment work or by paying cash in lieu of assessment work in
the amount of US$100 per mineral claim per year and by paying annual escalating
state rentals. To keep the existing Pebble Property in good standing, the annual
assessment work or cash in lieu obligations total US$107,400.
FIGURE 2
PEBBLE PROPERTY GEOLOGY
The Pebble property encompasses the eastern and southern margins of the Late
Cretaceous Kaskanak Batholith and the adjacent intruded Jurassic-Cretaceous
turbidite sequence of sedimentary rocks and interbedded mafic volcanic flows.
Similar to many of the world's great porphyry copper districts, the Pebble
deposit is centered on a multi-phased, coeval, calc-alkalic intrusive suite
proximal and genetically related to the batholith.
On the east side of the Kaskanak Batholith, a northeast trending, structural
corridor is present, oriented obliquely to the Late Cretaceous regional
structures. This corridor has been traced for 22 km on the property, and is
marked by a linear cluster of multi-phased, compositionally and texturally
variable, irregular stocks, sills, dikes and breccia bodies that are probably
developed at the same time as the Kaskanak Batholith. The intrusive suite
includes bodies of pyroxenite, gabbro, monzonite, diorite, porphyritic and
non-porphyritic phases of quartz monzodiorite, granodiorite and granite. The
presence of the mafic-ultramafic intrusions suggests that a deep structure may
have controlled the position of the intrusive corridor that, in turn, has
controlled the loci of mineral deposition. Numerous gold and copper-gold mineral
occurrences, including the large Pebble and the newly discovered Thirty-Eight
porphyry copper-gold-molybdenum deposits, are related to the diverse group of
intrusions.
Younger volcanic rocks and/or glacial sediments largely cover all pre-Tertiary
rocks and associated mineral deposits and occurrences. The Sill epithermal gold
deposit, situated six km southeast of the Pebble deposit, is hosted by
fine-grained, equigranular to porphyritic Tertiary latite. Northern Dynasty has
not conducted any work on the Sill deposit.
EXPLORATION HISTORY
Another company conducted exploration on the Pebble Property prior to 2001. In
2001, HDG conducted soil geochemical and induced polarization geophysical
surveys.
During the period 1988-1997, several phases of soil geochemical surveys were
conducted on the Pebble Property and HDG completed an additional sampling
program in 2001. These programs outlined an extensive and coincident gold,
copper, and molybdenum soil geochemical anomaly measuring 9 km in length and up
to 4 km in width, and several significant outliers.
Induced polarization surveys were conducted during the years 1988 to 1990. In
1997, 121 line-km of IP surveying with a spacing of 150 m were completed. This
data was then integrated with the previous survey results. In 2001, HDG
contracted to complete 30 line-km of IP survey, utilizing the same survey
parameters as the previous surveys in order to easily integrate the results with
the pre-existing data.
The IP data defines a north-northeast trending zone of anomalous chargeability
that extends over 89 square km and measures 21 km long and up to 9 km wide. It
remains open to the south and possibly to the southeast. To the east, the
anomaly is masked by Tertiary volcanic rocks. To the north, the anomaly is open,
but disappears under volcanic cover. The west side of the IP chargeability
anomaly is well defined and corresponds closely with the margins of the Kaskanak
Batholith.
The Pebble deposit lies in the northeastern part of the large IP chargeability
anomaly in an area of generally moderate intensity. Within this very large
chargeability anomaly, other areas with similar geophysical signatures occur.
The Pebble sulphide system compares favorably in size with other large porphyry
systems that often contain more than one deposit.
From 1988-1997, 164 drill holes comprising 23,076 m were completed. Most of the
drilling was done at the Pebble deposit, and most holes were drilled vertically.
Drill spacing ranges from 100 to 250 m throughout much of the deposit,
increasing to up to 300 m on the margins. The depth of the holes in the deposit
is variable, but in general tested to between 125 and 250 m. Only 5 holes were
drilled below 300 m depth, and the deepest hole was 457 m.
Based upon the 110 drill holes (18,353 m) at the Pebble deposit, a large body of
low-grade copper-gold porphyry mineralization was identified over an area
measuring 1.7 km by 1.7 km. Minimal, generally shallow, drilling was completed
elsewhere within the extensive composite IP chargeability and geochemical
anomaly, prior to the 2002 program by Northern Dynasty. In the Sill area, 7 km
southeast of the Pebble deposit, 39 holes (totalling 3,178 m) were completed by
the previous operators to evaluate high-level epithermal (deposit formed at low
temperature - 50-200oC, usually within one kilometre of the earth's surface,
often as structurally controlled veins) gold mineralization.
During May, June and August 2002, Northern Dynasty drilled 68 holes totalling
11,306 m (Figure 3) exploring for additional porphyry deposits within the 89
square km sulphide system. Limited surface exploration, consisting of an 18.5
line km ground magnetometer survey; a 328 soil geochemical survey and a few
man-days of geological traverses, were also completed. To gain a better
understanding of the geology of the Pebble deposit, Northern Dynasty's
geological staff re-logged 104 diamond drill holes and then constructed three
geological level plans and 28 geological cross-sections in two orthogonal sets.
In March 2003, Northern Dynasty commissioned an independent mineral resource
estimate by engineering firm Snowden Mining Industry Consultants Inc.
PRELIMINARY ENGINEERING STUDIES
Preliminary engineering studies outlined several road access options, including
a 130 km gravel access road connecting the Pebble project to a deep-draft ocean
port site on Iniskin Bay. One study indicates that the port would be ice-free
for at least ten months per year. In recent years, the State of Alaska has
provided significant financial assistance for the construction of similar access
roads and ports for major mineral development projects, such as that at the Red
Dog Mine in northwest Alaska. Preliminary engineering studies indicated that
power required for project development could be provided by natural gas from
offshore wells in Cook Inlet, transported by pipeline to the mine site, where
natural gas turbines would be situated. Preliminary engineering work evaluated
and selected a number of possible sites for processing facilities, a water
source, accommodations, tailings storage, and waste rock disposal. Preliminary
metallurgical testing was conducted on various samples from the Pebble project
during the period 1991 through 1994. In 1991, two independent metallurgical
laboratories conducted grindability testwork on six core samples. The 1992
flotation testing utilized feed that assayed 0.41% Cu and 0.34 g/t Au and was
comprised of 1.2% chalcopyrite, 12.3% pyrite and 86.5% host rock with minor
amounts of molybdenite. The 1994 metallurgical testing utilized a 310 kg
composite sample of mineralization collected from 8 core drill holes. The holes
were a good spatial mix from within the core of the deposit.
The grindability test results were fairly consistent amongst the various
metallurgical programs with the metric ballmill work index range being 15.6 to
17.5 kilowatt hours per tonne of mineralization (kWh/t) and averaging 17.1
kWh/t. The grindability tests are initial tests and only provide information on
the known mineralized area only.
Preliminary metallurgical testwork comprised bench scale as well as lock cycle
testing. A variety of grind sizes, pH conditions, reagent suites and simulated
flow schematics were tried. The Pebble sulphide mineralization is fine grained
and well disseminated in the host rock and veins and veinlets throughout the
deposit. As a result, much of the testwork involved optimization of primary
liberation size within a wide range.
Flotation (separation of minerals from waste rock in solution) testwork was
conducted during several programs from 1991 to 1994. The 1992 work utilized
rougher, scavenger and cleaner flotation schematics. During the four years of
testwork, the range of recoveries obtained was 81% to 94% for copper and 60% to
84% for gold. The 1994 flotation results did not achieve the 1992 high results,
but coarser grinds and various regrind schemes were investigated. Much of the
work in 1994 included pyrite depression and separation, which reduced gold
recovery. Results were not conclusive and additional testwork will have to
include optimization of flotation, regrind and pyrite handling.
FIGURE 3
PEBBLE DEPOSIT - GEOLOGY AND MINERALIZATION
Pebble is a calc-alkalic porphyry deposit, encompassing three
granodiorite-quartz monzodiorite stocks (A, B and C) and related sill-like
intrusions (Figure 4). These stocks intrude moderately folded and previously
hornfelsed quartzitic sedimentary rocks that host older diorite sill-like
intrusions and intrusion breccias. The three stocks range from 200 to 450 m in
diameter. The two western-most stocks subcrop under minimal (2 to 30 m thick)
glacial tills, whereas the eastern-most stock is covered unconformably by the
western margin of a Tertiary volcano-sedimentary basin.
Mineralization consists principally of pyrite, chalcopyrite, bornite, and
molybdenite as fracture fillings and disseminations in intrusive and sedimentary
host rocks, with some quartz-veinlet stockwork. Gold is present with the
sulphides in a ratio of approximately 1 g/t gold to 1% copper. Mineralization is
strongest within and around the granodiorite stocks and is associated with
strong secondary potassium feldspar (potassic) alteration. Mineralization occurs
over an area of at least 1.7 km by 1.7 km and to a depth of 300 m, and remains
unconstrained to the northeast and to the west. The periphery of the deposit
coincides with a transition from potassic dominant alteration to
quartz-sericite-pyrite-gold-dominant (phyllic) alteration. The phyllic
alteration envelope around the deposit covers an area of up to 5.5 km by 2.5 km,
containing gold concentrations exceeding 100 ppb that, in turn, is enveloped by
an even broader epidote-chlorite-pyrite (propylitic) alteration shell within
which local gold concentrations can exceed 100 ppb.
All intrusive and sedimentary rocks within the deposit are mineralized.
Preliminary statistical analysis of drill hole assays indicates that the highest
copper and gold grades are associated with the intrusions. Higher gold grades
are also associated with phyllic and propylitic-altered rocks. Crude zonation
patterns indicate a copper-gold-rich, relatively low-pyrite core that grades
outward to a high-pyrite-gold zone with lower copper concentrations, to
peripheral gold-only zones. The distribution of drill holes containing sample
intervals with gold concentrations >5.0 g/t displays an annular distribution of
high gold grades associated with quartz-pyrite veins at the deposit periphery, a
feature common to classic porphyry systems. Drill holes with concentrations of
molybdenum and arsenic exceeding 100 ppm are confined to the deposit.
Copper and gold mineralization remains open to the east and northeast, an area
where drilling and geological mapping indicate Tertiary cover, and yet to be
constrained to the west. Hypogene copper-gold-(molybdenum) mineralization occurs
throughout the zone of potassic alteration and is concentrated in and
surrounding the upper parts of the granodiorite stocks. Copper is present as
chalcopyrite as disseminated grains and along sulphide-rich fractures. Gold is
fine-grained, generally a few microns in diameter, usually near grain boundaries
of pyrite and chalcopyrite. The pyrite content is low in the zone of potassic
alteration. In general the ratio of Au grade (in g/t) to Cu grade (in %) is near
1. In leached zones near surface, copper commonly was removed whereas gold was
immobile. Molybdenite commonly occurs in late-stage quartz-(pyrite) veins and
veinlets.
Copper was concentrated moderately (0.6-1.0%) by pre-Mid-Eocene supergene
processes in zones of secondary sulphide and oxide enrichment up to several tens
of metres thick. These zones begin directly below or within a few metres of the
bottom of the leached zone. They are represented by
covellite-digenite-chalcocite replacement of chalcopyrite and coatings on
pyrite, and by veinlets and fractures containing chalcocite or secondary copper
hydroxides and carbonates. Cu/Au ratios significantly greater than 1 occur
mainly in the zone of secondary sulphide and/or oxide enrichment. The highest
known grades occur in and on the north flank of Stock A (centered near DDH 099).
Many of the holes in this area are shallow, with several terminating in well
mineralized rock.
Significant copper-gold mineralization around Stock B (centered on Hole 077) is
indicated in a few well-mineralized holes. This area of higher-grade
mineralization is not well defined because of the wide spacing of the holes.
Gold mineralization in the range 0.5-1.5 g/t is widespread in the zone of
phyllic alteration bordering the zone of potassic alteration and in the zone of
propylitic alteration in a diorite sill (D2) to the northwest of the deposit
(Hole 1 Gold Zone). In these zones, the copper concentrations are very low. Gold
mineralization is also associated with zones up to a few metres wide of phyllic
(in part + potassic feldspar) alteration that cut across the major potassic
alteration zone. Some of these zones of phyllic alteration are envelopes on
quartz-pyrite-(sericite-chlorite) veinlets and veins. Some crosscutting zones of
phyllic alteration contain strongly anomalous concentrations of zinc, lead, and
silver; some of these also contain strongly anomalous concentrations of gold.
These zones represent a later, lower-temperature phyllic alteration superimposed
on the earlier, higher-temperature potassic alteration. It is possible that
another granodiorite stock exists below the D2 diorite sill in the vicinity of
DDH 071.
FIGURE 4
CURRENT ESTIMATES OF MINERALIZATION
In 2003, Northern Dynasty commissioned an independent mineral resource estimate
by engineering firm Snowden Mining Industry Consultants Inc. Snowden's estimate
is based on drill core assay results from 92 holes obtained to 1997 by Teck
Cominco and one drill hole by Northern Dynasty in 2002, and detailed geological
logging of the drill core by Northern Dynasty. Paul Blackney, B.Sc. (Hons.),
MAusIMM, MAIG, of Snowden Mining Industry Consultants Inc. was responsible for
the resource estimate. He is an independent Qualified Person as defined under
Canadian Securities Legislation. This inferred resource is based on Canadian
Institute of Mining and Metallurgy categories, which differ from those used in
the United States and the term "mineralization" is used herein to generally
describe these estimates. The specific breakdown of Inferred Mineral Resources
for the Pebble deposit above varying cut-off grades is tabulated below:
PEBBLE DEPOSIT INFERRED MINERAL RESOURCES1
-----------------------------------------------------------------------------------------------------------------
CUT-OFF
COPPER TONNES GOLD COPPER MOLYBDENUM AUEQ2 CUEQ2
EQUIV% MILLION G/T % % G/T % CONTAINED METAL
------------ ----------- -------- ---------- --------------- --------- ---------- -------------------------------
GOLD COPPER AUEQ2
M OZ B LBS M OZ
------------ ----------- -------- ---------- --------------- --------- ---------- ---------- ---------- ---------
0.30 1,013 0.40 0.30 0.015 0.96 0.61 13.1 6.8 31.2
0.40 940 0.42 0.31 0.015 0.99 0.63 12.5 6.5 29.9
0.50 692 0.46 0.35 0.016 1.09 0.69 10.2 5.3 24.2
0.60 434 0.53 0.39 0.017 1.23 0.78 7.4 3.7 17.1
0.70 271 0.59 0.43 0.018 1.35 0.86 5.1 2.5 11.8
0.80 141 0.67 0.48 0.019 1.52 0.97 3.0 1.5 6.9
(1) Mineral resources are not reserves and do not have demonstrated
economic viability. An Inferred Mineral Resource is that part of
a mineral resource for which quantity and grade can be estimated
on the basis of geological evidence and limited sampling and
reasonably assumed, but not verified, geological and grade
continuity.
(2) Copper and gold equivalent calculations use metal prices of
US$0.80/lb for copper, US$350/oz for gold, and US$4.50/lb for
molybdenum. The contained gold, copper, and gold-equivalent
represent estimated contained metal in the ground and have not
been adjusted for metallurgical recoveries of gold and copper.
Molybdenum recovery was assumed to be 60%. Adjustment factors to
account for differences in relative metallurgical recoveries for
gold, copper, and molybdenum will depend upon the completion of
definitive metallurgical testing.
CuEQ = Cu(%) + Au (g/t) x (11.25/17.64) + Mo(%) x (59.52/17.64).
AuEQ = Au(g/t) + Cu(%) x (17.64/11.25) + Mo(%) x (59.52/11.25).
OTHER AREAS - GEOLOGY AND MINERALIZATION
HOLE 1 GOLD ZONE
Gold mineralization situated at the northwestern periphery of the Pebble
porphyry deposit is hosted by propylitic altered, fine to medium-grained
diorite. Irregular patches of replacement epidote and quartz veinlets are
ubiquitous and are accompanied by medium-grained disseminated pyrite and veinlet
pyrite. By volume epidote comprises 2 to 25%, averaging 15%, and pyrite ranges
from 1 to 15%, averaging about 7%.
Gold concentrations are more or less evenly distributed in the 0.2 to 0.9 g/t
range throughout the length of the holes. Thicker pyrite veins (2 to 5 cm) and
silicified, pyritic and chloritic shear zones of limited thickness (0.3 to 6 m
thick) explain gold concentrations exceeding 1.0 g/t that upgrade the overall
gold tenor. Grains of chalcopyrite are rare. Currently, an area roughly 150 m by
250 m has been tested to a depth of about 100 m. The zone of gold mineralization
is open to extension to depth, along strike to the northeast and southwest. The
potential of the propylitic-altered diorite to host enhanced concentrations of
gold without appreciable copper is much higher than the phyllic altered and
hornfelsed sedimentary units. Elsewhere in the Pebble area, D2 diorite sills
contain significant copper-gold mineralization. No holes in the Hole 1 Gold Zone
penetrate through the diorite sill (D2/D1) in the northern part of the area.
TWENTY-FIVE GOLD ZONE
The Twenty-Five Gold Zone is situated on a till-mantled, rounded ridge, where
high copper and gold concentrations in soils extend over a 700 m x 1000 m area
lying within the south-central portion of a 12 square km ultramafic-mafic
intrusion breccia complex. Much of the intrusion breccia complex has a
moderate-intensity IP chargeability response. The breccia complex includes at
least three intrusive phases of similar composition. Alteration, dominated by a
chlorite-epidote-calcite-pyrite propylitic assemblage, occurs as disseminations,
phenocryst replacements and rims around breccia clasts. The intrusion breccia is
cut locally by silica veining, flooding and breccia. Along the contact with the
monzonitic dikes occurs skarn-type alteration comprising chlorite, epidote,
calcite and garnet.
Gold mineralization in the Twenty-Five Gold Zone is often sulphide-rich and
includes polymetallic veins and veinlets with sphalerite, galena and
chalcopyrite with minor disseminated chalcopyrite. Significant zones of 3-8%
pyrite associated in places with quartz-carbonate breccia and in others with
exceptionally strong chlorite-epidote alteration contain gold mineralization.
Less pyritic, hydrothermal quartz veins, flooding and breccia are also
auriferous.
The higher-grade gold intervals in the Twenty-Five Gold Zone (eg Hole 9:
57.91-59.44 m, 33.9 g/t Au; Hole 2025: 70.10-76.20 m, 28.903 g/t Au; Hole 2062:
27.31 m to 27.74 m, 11.83 g/t Au) are associated with pyritic propylitic/skarn
alteration that is pervasive in the pyroxenite/gabbro/monzonite intrusion
breccia complex. In spite of the numerous gold intersections in the area,
controls for the deposition of gold and structures hosting the gold are not yet
well understood. Diamond drilling has demonstrated that the intrusion breccia
complex hosts a substantial number of gold-bearing structures. Additional
drilling is warranted to define and trace the individual auriferous structures
along strike and down dip and to search for additional structures hosting
high-grade gold mineralization.
THIRTY-EIGHT PORPHYRY COPPER-GOLD-MOLYBDENUM DEPOSIT
Reconnaissance drill testing of a previously unexplored, 1 km by 3 km IP
chargeability anomaly situated in a broad valley under approximately 25 m of
glacialfluvial gravels resulted in the discovery of the Thirty-Eight porphyry
copper-gold-molybdenum deposit. Drilling has tested an area measuring
approximately 600 m by 700 m, with the deposit open to the northeast and to the
southwest.
The primary host to mineralization in the Thirty-Eight Porphyry is a hornblende
porphyritic quartz monzodiorite transitional to a granodiorite. A younger, small
stock that is transitional from granite to a quartz monzonite forms a
lower-grade core to the deposit. The contact is gradational over tens of metres.
Alteration in the Thirty-Eight porphyry displays classic porphyry zoning
patterns. Potassic alteration and copper mineralization are closely related.
Copper mineralization is almost exclusively chalcopyrite; bornite and
tetrahedrite are present only as rare grains. Within a few metres of the bedrock
surface, thin oxidized zones at the top of some holes contain minor malachite,
azurite and black Cu-Fe-Mn oxides. Trace amounts of
chalcocite-(covellite-diginite) coat some chalcopyrite and pyrite grains beneath
the oxidized zones.
Chalcopyrite occurs in three principal modes: as pervasive very fine
disseminated grains in secondary biotite replacements in hornblende phenocrysts,
as coatings with pyrite on fracture surfaces, and in the core or along the
margins of quartz, quartz-pyrite and quartz-pyrite-molybdenite veinlets. The
best copper grades coincide with increased density of fractures and quartz veins
adjacent to and northeast of the small granite stock where Northern Dynasty Hole
2049 intersected 0.41% Cu and 0.41 g/t Au (0.70% copper-equivalent) over 149 m.
No holes have been drilled to the southwest of the granite stock. Rare grains of
gold were seen in polished thin sections within chalcopyrite grains. There
appears to be an extraordinarily constant gold:copper ratio of 1 g/t Au per 1%
Cu.
Exploration drilling has demonstrated that the Thirty-Eight Porphyry
Copper-Gold-Molybdenum Deposit is a major porphyry occurrence displaying classic
alteration and sulphide assemblages and distributions. The best copper grades
coincide with increased fracture and quartz vein density adjacent to and
northeast of the small granite stock. No holes have been drilled to the
southwest of the granite stock. The deposit is open to the southwest and to the
northeast. Substantially more drilling is warranted to fully delineate the
deposit and to seek zones of higher metal concentrations.
THIRTY-SEVEN COPPER-GOLD SKARN ZONE
The Thirty-Seven Skarn Zone was found associated with calc-silicate alteration
during reconnaissance drill testing of a copper-gold soil geochemical anomaly 5
km west of the Thirty-Eight porphyry deposit.
Skarn protoliths include fine to medium-grained basalt, flow-top breccias, mafic
volcaniclastic rocks and minor, immature intercalations of lithic sandstone,
siltstone and mudstone. Possible amygdaloidal textures with quartz, calcite and
chlorite fillings occur in flow-tops in most holes, and may have a direct
relationship with increased skarn alteration. Carbonate and/or propylitic
alteration of the basalt also may have also produced interstitial and veinlet
carbonate, promoting subsequent skarn formation.
Basalt and associated rocks in and near the Thirty-Seven Skarn display
pervasive, actinolite/tremolite-epidote-chlorite alteration. Most mineralized
intercepts are associated with fracture-controlled veinlets and veins of
epidote, ferroan dolomite, light brown garnet, potassium feldspar, pyrrhotite,
chalcopyrite, and magnetite. Garnet is by far the most spatially restricted of
the calc-silicate minerals, occurring only in the veins in hole 2037, closely
associated with the gold intercepts. This vein garnet probably replaced earlier
veins calcite. Calc-silicate mineral distribution peripheral to the veins was
characterized by epidote replacement, pervasive chlorite alteration and more
restricted actinolite/tremolite replacement and veinlets.
The sulphide assemblage is dominated by pyrrhotite, which has the widest
distribution, followed in abundance by chalcopyrite that is spatially associated
with pyrrhotite. Sphalerite is a minor accessory sulphide. Intervals with high
copper and gold concentrations invariably correlate with epidote-ferroan
dolomite-chalcopyrite-pyrrhotite-magnetite veins. Copper and gold concentrations
closely track each other and scattered grains of free gold occur within
chalcopyrite or at chalcopyrite grain boundaries.
The calc-silicate assemblage and the copper-gold intercepts encountered in the
initial reconnaissance holes extend across 600 m. Additional drilling is needed
to determine the orientation and frequency of the well-mineralized structures
encountered in hole 2037 (0.40% Cu and 1.00 g/t Au over 79.0 m) that may strike
to the north, parallel to the orientation of the drill holes. A contrasting
structural orientation is revealed by the ground magnetometer survey data from
this area, showing a strong magnetic feature trending at 225 degrees that could
reflect an intrusive dike crosscutting the basalt that contributed to the
mineralization encountered in hole 2037 or a large, elongate mass of skarn
mineralization.
FIFTY-TWO PORPHYRY COPPER OCCURRENCE
The Fifty-Two Porphyry Copper Occurrence is situated 1.5 km north of the
Thirty-Seven Skarn near the southwestern margin of the Kaskanak Batholith. It
was discovered by reconnaissance drilling of a copper soil geochemical anomaly
that is coincident with a low contrast IP chargeability anomaly at the outer
edge of the survey grid. Neither anomaly is adequately defined.
Surface rubble and diamond drill core indicate that the entire area investigated
is underlain by a dark green to black, fine to medium-grained basalt similar to
that at the Thirty-Seven Skarn. Weak propylitic alteration predominates; it
consists of epidote in low concentrations and variable distribution. The
intensity of sulphide mineralization is low. Chalcopyrite and lesser pyrite, in
association with chlorite, occur most commonly as 1 to 2 mm-thick
fracture-fillings having a sub-millimetre potassium feldspar selvage. These
mineralized fractures are not abundant and occur at a frequency of only one or
two per metre. Chalcopyrite is present locally as micro-veinlets in some
intervals where more intense propylitic alteration is accompanied by secondary
potassium feldspar and minor biotite. Rare grains of chalcopyrite form the core
of some chlorite and quartz amygdules. Copper concentrations and the intensity
of potassic alteration increase to the north, from hole 2052 to hole 2068.
The broad area of basalt-hosted, fracture-controlled, low-grade copper
mineralization and associated alteration has definite porphyry affinities. Soil
geochemistry, mineralization and alteration vectors indicate increased potential
to the north and west-northwest of the area drilled. Additional geological,
geochemical and possibly IP surveys are required to more adequately assess this
region prior to resumed drill testing.
SAMPLING AND ANALYSIS
During the period 1988-1997, several phases of soil geochemical surveys in the
northeastern part of the property were completed with a total of 7,337 samples
collected. Throughout the central part of the large geochemical grid, samples
were taken at 30 to 80 m intervals along lines spaced 130 to 260 m apart. In
several large areas, especially along the northern, western and southwestern
margins of the grid, sample density was significantly lower.
As well, a total of 164 core drill holes were completed prior to 2002. Samples
of the HQ (6.3 cm diameter) drill core generally consisted of 3.05 m (10 ft)
lengths of half core that was split using a mechanical core splitter. Holes
within the Pebble deposit were sampled from top to bottom whereas in some
outlying holes, sampling was more selective and related to mineralized
intervals.
All samples were analyzed for gold. Copper assays were done for samples from
hole 4 onward. Molybdenum assays were done on some drilling campaigns,
representing 83.7% of the assay database in the Pebble deposit. Multi-element
ICP analysis was also done on every sixth sample beginning with hole 106.
The 1997 drill core samples were prepared by air drying, then crushing to a 10
mesh (‹2mm); a 250 g portion was pulverized to 200 mesh (‹75 microns). A 250 g
sample was analyzed for copper using an Aqua-Regia digestions and Inductively
Coupled Plasma Atomic Emission Spectroscopy (ICP-AES). Gold was analyzed using
Fire Assay on a one assay ton sample with an Atomic Absorption Spectrometry
(AAS-AES) finish. Trace elements were also analyzed by Aqua-Regia digestion and
ICP-AES. One blind standard was inserted for every 20 samples analyzed. One
duplicate sample was taken for each ten samples analyzed. Five percent of all
drill hole samples were re-analyzed which showed copper to have remarkable
correlation and gold adequate to good correlation. The 1997 drill hole samples
were check analyzed with excellent correlation for copper and good correlation
for gold.
Every forty soil samples analyzed included four random repeats, one standard and
one blank. There was excellent correlation for copper among these samples and
good to adequate gold correlation.
For the 2001 and 2002 sampling programs, all samples were collected by Northern
Dynasty personnel or agents. A total of 658 analytical results were returned
from the laboratory for soil samples from 601 locations in 2001, with a total of
374 analytical results returned from the laboratory for soil samples from 341
locations in 2002. The results included 30 lab duplicates and 60 lab standards.
Samples were air dried, then shipped by airfreight from the project site to
Vancouver, B.C. via Anchorage, Alaska. They were imported under an Agriculture
Canada permit and couriered to Acme Analytical Laboratories in Vancouver, B.C.
This process took about two to three weeks. At Acme, the soils were dried and
sieved through an 80 mesh screen in preparation for analysis (based on ASTM
standard screen openings of 177 microns, minus 80 mesh material consists of
particles that are less than 177 microns in at least two dimensions). At Acme
Analytical Laboratories, the samples were analyzed for 32 elements using two
methods. Gold content was determined to the 0.2 ppb level using the Acme Group
3A wet digestion method. A 10 g sample was digested in Aqua Regia, and analyzed
by Graphite Furnace Atomic Absorption Spectroscopy or Inductively Coupled Plasma
Mass Spectroscopy (ICP-MS) finish. The Acme Group 1D multi-element method was
used on a minimum 1 g pulp to determine other elements and gold to the ppm
level. In this method, the samples were digested in hot Aqua Regia and analyzed
by Inductively Coupled Plasma Atomic Emission Spectroscopy (ICP-AES).
A total of 2,467 core samples, averaging 3.9 m in length, were taken from the 68
NQ2 (5.02 cm diameter) core holes drilled during 2002 by Northern Dynasty. The
NQ2 drill core was boxed at the drill rig and transported daily by helicopter to
Northern Dynasty's secure logging facility at the village of Iliamna, Alaska All
core drilled was sampled, except for 170 m of overlying Tertiary volcanic rocks
in holes 2036 and 2040.
At the Iliamna facility, the drill core was geologically logged and digital
photographs of each box of core were taken prior to sampling. These images were
archived on electronic data storage disk, and provide an indication and record
of the core recovery and rock quality. Sampling was performed by mechanically
splitting the core in half lengthwise. The remaining half core was returned to
the core boxes and is stored at a secure Iliamna warehouse. Samples were placed
in bags and stored in a locked aircraft hangar prior to shipping via
twice-weekly commercial airfreight service to Anchorage. From Anchorage the
samples proceeded by commercial surface transport to the ALS Chemex sample
preparation laboratory at Fairbanks.
At the Fairbanks laboratory, the sample bags were verified against the numbers
listed on the shipment notice. The entire sample of drill core was dried,
weighed and crushed to 70% passing 10 mesh (1.7 mm), then a 250 g split was
taken and pulverized to 85% passing 200 mesh (75 micron). The pulp was split,
and approximately 125 g shipped by commercial airfreight for analysis at ALS
Chemex, North Vancouver, British Columbia. The remaining pulps were shipped to a
secure warehouse for long-term storage at Port Kells, BC. The coarse rejects
were held for several months at the Fairbanks laboratory until all Quality
Assurance/Quality Control (QAQC) measures were completed and then were
discarded.
ALS Chemex of North Vancouver, BC, an ISO 9002 certified laboratory, performed
the analytical work for the program. All 2,467 samples were analyzed by
fire-assay for gold (Au), and for 34 elements, including copper (Cu) and
molybdenum (Mo), using a standard multi-element geochemical method. In addition,
several drill holes exhibiting copper-gold porphyry style mineralization were
subject to Cu assay level determinations, and a few Mo assay level
determinations were also performed.
Gold (Au) content was determined by 30 g Fire Assay (FA) fusion with lead as a
collector and an Atomic Absorption Spectroscopy (AAS) finish. The four samples
that returned Au results greater than 10,000 ppb, (10 g/t), were re-analyzed by
1 assay ton FA fusion with a gravimetric finish. All samples were subject to
multi-element analysis for 34 elements, including Cu and Mo, by Aqua Regia (AR)
digestion Inductively Coupled Plasma - Atomic Emission Spectroscopy (ICP-AES)
finish.
A total of 1,822 samples from 31 holes drill holes exhibiting porphyry
copper-gold style mineralization were assayed for Cu by four-acid (total)
digestion with an AAS finish to the ppm level. For Cu assays > 10,000 ppm
another total digestion AAS finish analysis was performed to the per cent level.
A further 61 samples from drill hole 2034 were assayed for Mo by four acid
digestion AAS finish to the ppm level.
As part of Northern Dynasty's analytical QAQC program, Cu-Au-bearing or
Au-bearing standard reference samples were inserted with the regular samples.
The 118 analyses of these standards represent over 5% of the total samples
analyzed. For drill holes 2044 through 2068, an in-line reject duplicate was
made and analyzed with the regular samples. The 65 analyses of duplicates,
represents 4% of the total number of samples in this series. These standards and
duplicates are in addition to the laboratory's internal quality control work.
Inter-laboratory analysis included a total of 25 pulp duplicates analyzed for
gold, and 13 reject duplicates analyzed for gold and four 1/4-core reject splits
assayed for metallic gold by Acme Analytical Laboratories of Vancouver.
Remaining drill core is stacked and stored in Iliamna, Alaska. Pulps and rejects
from pre-1997 drill core and all soil samples are now stored in Northern
Dynasty's secured warehouse facility in Port Kells, British Columbia.
CONCLUSIONS AND RECOMMENDATIONS
Northern Dynasty's 2002 exploration program successfully met its objectives by
locating a new porphyry copper-gold deposit, a porphyry copper occurrence, a
copper-gold skarn, and several high-grade gold occurrences within the
multi-phase intrusive complex. In addition, the re-examination of the Pebble
deposit drill core has revealed several areas within and adjacent to the deposit
that have enhanced potential to host additional tonnages of higher-grade
mineralization. In 2003, Northern Dynasty commissioned an independent mineral
resource estimate that indicates that the Pebble deposit contains significant
amounts of higher-grade mineralization.
Re-logging of the Pebble deposit has revealed several areas where higher than
average copper and gold grades may be delineated to add to the presently
defined, higher-grade resource and where the deposit may extend to the west and
to the northeast. The reconnaissance drilling program elsewhere on the property
discovered several new zones of mineralization that require follow-up and
further assessment. Several IP chargeability and soil geochemical anomalies
remain to be drill-tested for additional porphyry deposits.
When drilling within the Pebble deposit is undertaken, oriented core from
inclined holes is required first, to determine the optimum hole-orientation in
order to drill orthogonal to any dominant mineralized fracture and veinlet
orientation. Appropriately oriented inclined holes will more closely reflect
deposit grades than widely spaced vertical holes.
To generate a viable mining venture on the Pebble property, Northern Dynasty's
priority objectives are to upgrade the established resources and fully delineate
sufficient higher-grade copper-gold resources to provide the mill feed required
for the rapid recovery of capital costs during the initial years of production
from any potential mining operation. An aggressive exploration program involving
the systematic assessment of all known zones of mineralization and the testing
of the outstanding IP and soil geochemical anomalies is being considered. A
budget for the maximum program is outlined below. The program would be
undertaken on a staged basis as funds are available.
ITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS
OVERVIEW
Northern Dynasty's business strategy is to acquire, explore and conduct
preliminary engineering and economic analyses of mineralized deposits, which
have large tonnage and multi-year production potential. This work is done with a
view to enhancing the value of the mineral prospect and to thereafter seek to
sell or joint venture the project to a major mining company at a profit. As an
active junior resource issuer, Northern Dynasty does not consider it likely that
even if project economics warrant commercial production that Northern Dynasty
would have the financial and manpower resources to place the Pebble Project into
commercial production itself, as such operations require large corporate,
technical and financial infrastructure, which Northern Dynasty does not have nor
intend to acquire.
Under Canadian generally accepted accounting principles (GAAP)
corporate/administrative expenses are written-off yearly and property
development and acquisition costs are deferred (or capitalized). Such costs are
written-off when a company decides to abandon a property due to disappointing
exploration program results which appear to warrant abandonment, or when it
appears the deferred costs are likely not recoverable. Acquisition costs and
exploration expenditures are usually financed through a combination of cash and
common share issuances. The Canadian Institute of Chartered Accountants (CICA)
has released an accounting guideline (AcG-11) wherein the CICA presents its
views on the financial disclosure by companies that may be in the "development
stage". As an active junior resource explorer, Northern Dynasty does not
consider itself a development stage issuer, however, the issue is not free from
uncertainty and some comment on this issue is believed by management of Northern
Dynasty warranted for readers to understand the continuous financial disclosure
of Northern Dynasty in future. Under the provisions of AcG-11, development stage
resource companies are encouraged, but not required, to provide disclosure in
the income statement and in the cash flow statement of cumulative balances from
the inception of the development stage to the date of the statements rather than
segmenting such information on an annual basis. As well, disclosure would also
be made of all share capital issuances since inception. If Northern Dynasty were
determined to be a "development stage" company, adoption of the provisions of
AcG-11 would result in changes to Northern Dynasty's financial statement
presentation, but as it would not affect Northern Dynasty's accounting policies,
there would be no changes to Northern Dynasty's balance sheet and the annual
current and historical financial statements on a year-to-date basis would not be
materially different. Readers are reminded that Northern Dynasty is only
required under U.S. law to report financial results annually (as a "foreign
private issuer"), however, under Canadian law, Northern Dynasty must file such
information quarterly and this information is available on the internet at
www.SEDAR.com.
Northern Dynasty's results of operations are economically evaluated by investors
on an "event driven" basis in that exploration expenditures yield information on
the nature, extent and statistical confidence (primarily from core drilling
exploration programs) in a mineralized deposit's size and continuity which
information is not contained in financial statements. Thus, it is difficult to
evaluate the success of operations in a fiscal year by reference to the
financial statements given that results are more appropriately measured by an
evaluation of the minerals discovered and/or confirmed. Northern Dynasty's
operating activities do not occur on a regular or periodic basis and are subject
to the economic realities of metals prices and equity financing conditions for
natural resource exploration issuers. Accordingly, it may not be meaningful to
seek observable trends in financial operating statistics although liquidity
statistics will be important. Northern Dynasty calculates an annual loss per
share (which has varied over a range of $0.01 to $0.20 over the last three
fiscal years), but is of the view that Northern Dynasty's share price does not
vary in accordance with the loss per share statistic. Rather Northern Dynasty
share prices vary with the outlook for its mineral projects and the price of the
underlying market for gold and copper and the outlook for these metals.
Northern Dynasty's financial statements are prepared on the basis that it will
continue operations as a going concern. Given that Northern Dynasty has no
source of significant revenue this assumption is always subject to the further
assumption that there will continue to be investment interest in equity funding
exploration to seek large tonnage metal deposits. Northern Dynasty can give no
assurance that it will continue to be able to raise sufficient funds and, should
it be unable to continue to do so, may be unable to realize on the carrying
value of the resource project. The net realizable value could be materially less
than Northern Dynasty's liabilities with a potential for total loss to Northern
Dynasty shareholders.
Northern Dynasty does not believe that it is significantly impacted by the
effects of inflation nor currency moves as the Canadian dollar has fluctuated in
a relatively narrow band to the United States dollar (US$1.00: Cdn$1.60 to
$1.43) during the last three years. Northern Dynasty's principal property is
located in Alaska and most on-site property related expenses will be transacted
in United States dollars. Northern Dynasty will monitor exchange rates and buy
US dollars at the most favourable rates available to mitigate the effects of the
United States/Canadian dollar exchange rate on our business. For additional
details respecting the five year historical exchange rates, see Item 3A.
Northern Dynasty has not been significantly affected by government economic,
fiscal, monetary or political policies and the outlook for Northern Dynasty's
assets primarily relate to the results of exploration and the outlook for copper
and gold.
OPERATING RESULTS
FISCAL 2002 COMPARED WITH FISCAL 2001
The Company writes off as expenses all its resource expenditures hence it
recorded a loss of $5,112,493 over the 2002 fiscal year as compared to a loss of
$4,120,331 over the first nine months of 2002 and $1,454,844 in the prior fiscal
year. The expenditures for fiscal 2002 year ($5,101,817) are higher than in the
prior fiscal year ($1,563,515), and this is largely attributed to higher
exploration costs (2002 - $4,329,926; 2001 - $1,168,394) incurred at the Pebble
Project. Administrative costs were also higher in 2002 (2002 - $771,881; 2001 -
$395,121) because of additional support for the exploration programs and
securities reporting and registration activities. Expenses increased in 2002
over 2001 in all areas except for management and consulting fees and property
investigation costs. The latter 2001 costs were related to the technical review
and development of a qualifying report, and negotiation and completion of
agreements on the Pebble Project.
Expenses decreased in the fourth quarter to $988,986 as compared to $1,564,462
in the third quarter, due mainly to a decrease in exploration expenditures
(December 31, 2002 - $737,287; September 30, 2002 - $1,425,595). This decrease
was partially offset by an increase in shareholder communication costs (December
31, 2002 - $97,672; September 30, 2002 - $17,872). Shareholder communication
costs increased due to a wide distribution of information to potential investors
during the quarter. Exploration expenditures decreased as site work was
completed in the third quarter.
The highest exploration expenditures in the fourth quarter were option payments
(December 31, 2002 - $420,000; September 30, 2002 - nil) for the Pebble
property; geological wages (December 31, 2002 - $89,798; September 30, 2002 -
$245,012) for compilation of the results from drilling and re-logging programs;
site activities (December 31, 2002 - $74,424; September 30, 2002 - $199,071)
which involved final payments for the third quarter work at site; and assays
(December 31, 2002 - $48,204; September 30, 2002 - $53,216) for completion of
analytical work on the drill core samples.
Hunter Dickinson Inc. ("HDI") of Vancouver, British Columbia is a private
company with certain directors in common that carries out geological, corporate
development, shareholder communications, administration and other management
activities for, and incurs third party costs on behalf of, the Company. HDI is
reimbursed on a full cost recovery basis. In fiscal 2002, Northern Dynasty paid
$1,227,425 to HDI, as compared to $333,142 in fiscal 2001. The Company also paid
$28,698 to Hunter Dickinson Group Inc., a decrease from $586,966 paid in fiscal
2001. (See also "Related Party Transactions".)
FISCAL 2001 COMPARED WITH FISCAL 2000
The Company has recorded a loss of $1,454,884 in fiscal 2001 compared to a loss
of $158,895 in 2000 due to higher expenses and lower interest income. Interest
income was less (2001 - $100,755; 2000 - $150,903) in 2001 because of lower
interest rates and lower cash balances.
Expenses for the year ending December 31, 2001 were $1,563,515 as compared to
$316,033 in fiscal 2000. Expenses are higher in most categories in 2001, mostly
directed toward acquisition of the Pebble Project in Alaska in the fourth
quarter. Exploration expenses were the highest category ($1,168,394); over
$537,000 of these expenditures were made to HDG for the 2001 Pebble exploration
program, pursuant to the assignment agreement as described in the management
discussion. The largest exploration expenditure was the option payment to Teck
Cominco ($398,343). The next largest exploration costs were geological expenses
($277,700) for planning, executing and interpreting results of the exploration
program, and also for costs related to the independent technical report. Other
significant exploration costs were property fees and assessment ($235,464) for
claim staking and requisite filing fees for exploration work, helicopter charges
($124,036) for transportation to and from the Pebble site, and site activities
($61,328) for equipment and support of the geophysical and geochemical surveys.
Other significant expenditures in 2001 were on salaries and benefits and
property investigations. Salaries and benefits increased from $35,642 in 2000 to
$123,656, as promotional materials and disclosure documents on the Pebble
project were developed, including an Annual Information Form in Canada and an
initial filing on Form 20F for the US Securities and Exchange Commission.
Property investigation expenditures decreased in 2001 because those related to
the evaluation of the Pebble Project have now been assigned to exploration
costs.
Northern Dynasty has no legally committed capital resources or other sources of
debt or equity capital. Northern Dynasty generally secures funding by presenting
resource projects to a network of exploration investors including individual,
institutional and brokerage firms. Northern Dynasty's ability to fund projects
is contingent on not only the perceived merits of its prospects but also on
conditions generally in the exploration venture capital markets.
B. LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
Historically, Northern Dynasty's source of funding has been the sale of equity
securities for cash primarily through private placements to sophisticated
investors and insiders and their associates. Northern Dynasty has no assurance
of continued access to equity funding. Northern Dynasty believes it has
sufficient working capital to meet its operating requirements to December 31,
2003 depending on the level of activity it pursues. Additional equity funding
was secured in February 2002 and January 2003, an aggregate of $1.3 million.
Northern Dynasty's working capital on hand at May 1, 2003 will be used to
complete the current exploration program ($2.0 million inclusive of $0.2 million
for property maintenance) at the Pebble Property and pay 18 months'
administration overhead ($0.7 million) with the balance reserved for unallocated
working capital. Contingent on positive results from the exploration program,
Northern Dynasty will require additional financing to cover future exploration
programs and ongoing administrative costs. The Company is actively sourcing
additional funding however; there can be no assurance that Northern Dynasty will
be able to raise the additional funds, and should it be unsuccessful, the
Company would be required to scale back its operations.
Northern Dynasty has no legally committed capital resources or other sources of
debt or equity capital. Northern Dynasty generally secures funding by presenting
resource projects to a network of exploration investors including individual,
institutional and brokerage firms. Northern Dynasty's ability to fund projects
is contingent on not only the perceived merits of its prospects but also on
conditions generally in the exploration venture capital markets.
FISCAL 2002 COMPARED WITH FISCAL 2001
On July 29, 2002, the common shares of Northern Dynasty commenced trading on the
OTC Bulletin Board ("OTCBB") in the United States. The Company now trades on the
TSX Venture Exchange (symbol NDM) and the OTCBB (symbol NDMLF).
On August 27, 2002, the Company closed a private placement of 197,548 units at a
price of $1.05 per unit for net proceeds of $190,815. Each unit is comprised of
one common share and one share purchase warrant. Each share purchase warrant
entitles the holder to purchase an additional common share at a price of $1.15
until December 27, 2003. The share purchase warrants are subject to a four-month
hold period and an accelerated expiry. If the closing price of the common shares
as traded on the TSX Venture Exchange is greater than or equal to $1.73 for ten
consecutive trading days, warrant holders will be given notice that the warrants
will expire in 45 days.
On January 14, 2003, Northern Dynasty completed a private placement by issuing
1,300,000 flow-through units and 400,000 non flow-through units at $0.50 each.
Each flow-through unit is comprised of a flow-through common share and a
two-year non flow-through share purchase warrant. Each warrant entitles the
Investor to purchase one common share at a price of $0.60 for two years after
the issue date. The non flow-through units are comprised of one common share and
a two-year share purchase warrant with the same warrant terms. As at December
31, 2002, the Company received $650,000 towards this private placement.
At December 31, 2002, Northern Dynasty has working capital of $496,048, as
compared to a working capital deficit of $77,575 at the end of the previous
quarter. Management is diligently seeking additional sources of equity financing
to provide adequate working capital for ongoing operations and proposed
exploration programs in 2003. Northern Dynasty had 15,515,323 common shares
issued and outstanding at year-end.
FISCAL 2001 COMPARED WITH FISCAL 2000
At December 31, 2001, Northern Dynasty has a positive working capital position
of $1.82 million (excluding the $400,000 private placement announced December
13, 2001 and the $1.0 million placement announced March 6, 2002), compared to
$2.64 million at the end of 2000. At December 31, 2001 Northern Dynasty has
9,292,455 issued and outstanding shares.
In July 2001, the Company closed a private placement of 2,100,000 units at a
price of $0.30 of which 1,900,000 were placed to insiders of the Company and/or
their associates. Each Unit issued on conversion of the Special Warrants
comprised of one common share and one share purchase warrant exercisable to
purchase an additional share at a price of $0.40 for a two-year period from the
date of issuance. The offering closed July 17, 2001. Proceeds, some $630,000,
from the placement will be used for working capital.
On December 13, 2001, the Company announced that it had reached agreement in
principle for a private placement to insiders. The placement comprises 1,176,470
units at $0.34 each. Each unit will consist of one common share and a share
purchase warrant exercisable to purchase an additional common share at a price
$0.45 for a two-year period, subject to a four-month hold period. Proceeds will
be used for working capital and for the advancement of exploration of the Pebble
Project. The offering closed February 20, 2002.
On March 6, 2002 and subsequent to year-end, the company announced that it had
reached agreement in principle with certain private investors to privately place
2,000,000 Units at a price of $0.50 per Unit. Each Unit will comprise one share
and one share purchase warrant exercisable to purchase an additional share at a
price of $0.62 for a two year period from the date of issuance. The Company will
pay placement fees in accordance with TSX Venture Exchange Policies on a portion
of the private placement. The offering closed April 19, 2002. Proceeds from the
placement will be used for working capital and the advancement of the Pebble
Project.
Northern Dynasty will consider raising, if possible, further funds for the
Pebble Property contingent on the outcome of the first phase of exploration.
Should Northern Dynasty be unable to arrange additional financing it would
result in forfeiture of the Teck Cominco Options.
FINANCIAL INSTRUMENTS
Northern Dynasty keeps its financial instruments denominated in Canadian dollars
and does not engage in any hedging operations with respect to currency. Funds,
which are currently excess to Northern Dynasty's needs, are invested in short
term near cash investments pending the need for the funds.
Northern Dynasty does not have any material commitments for capital expenditures
and accordingly can remain relatively flexible in gearing its activities to the
availability of funds. As of the fiscal 2001 year-end, Northern Dynasty
estimates that the cost of maintaining its corporate administrative activities
at approximately $40,000 per month. Accordingly, Northern Dynasty's management
estimates that approximately $0.48 million will be needed to maintain its
corporate status and assets over the ensuing one-year period excluding Pebble
Property activities. Northern Dynasty has current working capital of
approximately $500,000 as of December 31, 2002, but expects to be able to raise
sufficient capital to fund the cost of the next two years administration and
exploration programs. There is, however, no assurance that Northern Dynasty will
be able to raise the required funds.
Northern Dynasty will consider raising, if possible, further funds for the
Pebble Property contingent on the outcome of the first phase of exploration.
Should Northern Dynasty be unable to arrange additional financing it would
result in forfeiture of the Teck Cominco Options.
C. RESEARCH EXPENDITURES
Northern Dynasty is a natural resource exploration expenditure based corporation
and does not have a program of intellectual property development or patenting or
licensing.
D. TREND INFORMATION
As a natural resource exploration company, Northern Dynasty's activities are
mainly event-driven, that is based on exploration successes and failures than
seasonal, but it may be seen to be affected by the cyclic nature of metal
prices. Northern Dynasty is aware many economists continue to predict economic
softness and hence Northern Dynasty does not anticipate a near term recovery in
the price of copper, but the price of gold has improved and the fundamentals are
expected to be strong through 2003.
Copper is a commodity metal used extensively in the housing and automotive
industries and accordingly demand for copper varies directly with general
economic conditions. Copper prices decreased in 2002 due to the global economic
slowdown. Copper prices fluctuated over the year in 2002 and averaged US$0.71
per pound, but began to improve at year-end. Prices are projected to increase to
about US$0.90/lb by 2004.
The gold price increased significantly in 2002, averaging US$308/oz compared to
about US$270/oz in 2001. Gold has continued its uptrend in early 2003, reaching
as high as US$380/oz in January, before dropping off to about US$340/oz in
February and March 2003.
ITEM 6 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. DIRECTORS AND SENIOR MANAGEMENT
NAME, POSITION AND PERIOD A DIRECTOR OF SHARES BENEFICIALLY
PLACE OF RESIDENCE NORTHERN DYNASTY OWNED OR CONTROLLED(1)
Ronald W. Thiessen Since November 10, 1995 86,282 Shares
Chief Executive Officer, President and (President since October 31, 2001)
Director
West Vancouver, B.C.
Canada
Bruce A. Youngman Since June 22, 1994 475,400 Shares
Vice-President and Director (President to October 31, 2001;
Vancouver, B.C. now Vice-President)
Canada
Robert G. Hunter(2) Since June 18, 1996 502,682 Shares
Co-Chairman and Director
Vancouver, B.C.
Canada
Robert A. Dickinson(3)(4) Since June 22, 1994 1,902,900 Shares
Co-Chairman and Director
Lions Bay, B.C.
Canada
David J. Copeland Since June 18, 1996 92,250 Shares
Director
Vancouver, B.C.
Canada
Jeffrey R. Mason Since June 18, 1996 450 Shares
Chief Financial Officer, Secretary and
Director
Vancouver, B.C.
Canada
Scott D. Cousens Since June 18, 1996 61,382 Shares
Director
Vancouver, B.C.
Canada
(1) The information as to shares beneficially owned or controlled is
furnished by the respective directors at May 31, 2002 and includes shares
held through holding companies.
All directors have a term of office expiring at the next annual general meeting
of Northern Dynasty. All officers have a term of office lasting until their
removal or replacement by the Board of Directors. Management's approximately
3,121,346 shares represent approximately 17.3% of the 18,058,723 shares
outstanding on May 1, 2003.
PRINCIPAL OCCUPATION OF CURRENT MANAGEMENT OF NORTHERN DYNASTY
RONALD W. THIESSEN, C.A. - PRESIDENT, CHIEF EXECUTIVE OFFICER AND DIRECTOR
Ronald W. Thiessen is accredited as a public accountant in Canada and for the
past several years, his principal occupation has been serving as a director
and/or officer of several publicly-traded mineral exploration companies. Mr.
Thiessen is employed by Hunter Dickinson Inc. (see Item 7), a company providing
management and administrative services to several publicly-traded companies
including Northern Dynasty, and he focuses on directing corporate development
and financing activities. He is also a director of Hunter Dickinson Inc.
BRUCE A. YOUNGMAN, B.SC. - VICE-PRESIDENT AND DIRECTOR
Mr. Youngman holds a Bachelor of Science degree in geology from the University
of British Columbia and has been active in the mineral exploration field for
more than 18 years. He is a director and an employee of Hunter Dickinson Inc.
and an employee and officer of Northern Dynasty.
ROBERT G. HUNTER - CO-CHAIRMAN OF THE BOARD AND DIRECTOR
Robert G. Hunter for the past several years has been active as a mining promoter
headquartered in Vancouver and continues to be active in the mining business
although he now semi-retired. Mr. Hunter does not have any technical credentials
in mining but through years as a businessman and insurance executive developed a
network of venture capitalists in the mining field. Mr. Hunter has served as a
director of other public companies listed at one time on the NASDAQ, The Toronto
Stock Exchange (now the TSX Exchange) and Canadian Venture Exchange (now the TSX
Venture Exchange). Mr. Hunter is Co-Chairman of Hunter Dickinson Inc.
ROBERT A. DICKINSON, B.SC., M.SC. - CO-CHAIRMAN OF THE BOARD AND DIRECTOR
Robert A. Dickinson is an economic geologist who serves as a member of
management of several mineral exploration companies, primarily those for whom
Hunter Dickinson Inc. provides services. He holds a Bachelor of Science degree
(Hons. Geology) and a Master of Science degree (Business Administration -
Finance) from the University of British Columbia. Mr. Dickinson has also been
active in mineral exploration over 34 years. He is Co-Chairman and a director of
Hunter Dickinson Inc. He is also President and Director of United Mineral
Services Ltd., a private investment company.
JEFFREY R. MASON, CA - CHIEF FINANCIAL OFFICER, CORPORATE SECRETARY AND DIRECTOR
Jeffrey R. Mason holds a Bachelor of Commerce degree from the University of
British Columbia and obtained his Chartered Accountant designation while
specializing in the mining, forestry and transportation sectors at the
international accounting firm of Deloitte & Touche. Following comptrollership
positions at an international commodity mercantilist and Homestake Mining Group
of companies including responsibility for North American Metals Corp. and the
Eskay Creek Project, Mr. Mason has spent the last seven years as a corporate
officer and director to a number of publicly-traded (TSX, NASDAQ, TSX Venture)
mineral exploration companies. Mr. Mason is also employed as Chief Financial
Officer of Hunter Dickinson Inc. and his principal occupation is the financial
administration of the public companies that Hunter Dickinson Inc. provides
services for.
SCOTT D. COUSENS - DIRECTOR
Scott D. Cousens is responsible for corporate communications for the public
companies for which Hunter Dickinson Inc. provides services. He also assists
with financing initiatives given his background as a registered securities
broker in the early 1990s.
DAVID J. COPELAND, P.ENG. - DIRECTOR
David J. Copeland is a geological engineer who graduated in economic geology
from the University of British Columbia. With over 30 years of experience, Mr.
Copeland has undertaken assignments in a variety of capacities in mine
exploration, discovery and development throughout the South Pacific, Africa,
South America and North America. His principal occupation is President and
Director of CEC Engineering Ltd., a consulting engineering firm that directs and
co-ordinates advanced technical programs for exploration on behalf of Northern
Dynasty and other companies for which Hunter Dickinson Inc. provides services.
He is also a director of Hunter Dickinson Inc.
B. COMPENSATION
During Northern Dynasty's financial year ended December 31, 2002 the aggregate
direct remuneration paid or payable to Northern Dynasty's directors and senior
officers by Northern Dynasty was $204,968. This figure includes any portion of
remuneration received by the named person as an officer or employee of Hunter
Dickinson Inc. that is attributable to Northern Dynasty's affairs.
Ronald W. Thiessen, President and Chief Executive Officer, and Bruce A.
Youngman, former President, are each a "Named Executive Officer" of Northern
Dynasty for the purposes of the following disclosure.
The compensation paid to each of the Named Executive Officers during Northern
Dynasty's three most recently completed financial years is as set out below:
==============================================================================================================
SUMMARY COMPENSATION TABLE
--------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG TERM COMPENSATION
-------------------------------------------------------------------
AWARDS PAYOUTS
------------------------ ---------
SECURITIES RESTRICTED
UNDER SHARES OR
OTHER OPTIONS/ RESTRICTED ALL
ANNUAL SARS SHARE LTIP OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION GRANTED UNITS PAYOUTS COMPENSAT
POSITION YEAR ($) ($) ($) (#) ($) ($) ($)
----------------------- ------- ----------- --------- ---------- ------------ ----------- --------- ----------
Bruce A. Youngman(1) 2002 55,604 0 0 0 0 0 0
Former President and 2001 54,080 0 0 7,500 0 0 0
Director 2000 54,080 0 0 0 0 0 0
----------------------- ------- ----------- --------- ---------- ------------ ----------- --------- ----------
Ronald W. Thiessen(1) 2002 42,533 0 0 0 0 0 0
President, Chief 2001 8,704 0 0 160,000 0 0 0
Executive Officer and
Director
----------------------- ------- ----------- --------- ---------- ------------ ----------- --------- ----------
(1) Effective November 1, 2001, Bruce A. Youngman resigned as President of
Northern Dynasty Minerals Ltd., and was appointed Vice-President so that
he could focus on field exploration related to the Pebble Project.
Ronald W. Thiessen was appointed President and CEO on November 1, 2001.
He was not a Named Executive Officer during 2000.
No options were granted to the Named Executive Officers during the financial
year ended December 31, 2002. No options were exercised by the Named Executive
Officers during the financial year ended December 31, 2002. Subsequent to
year-end, no options were exercised by Named Executive Officers. The value of
the unexercised in-the-money options was $35,175 at December 31, 2002 and
$243,250 at May 1, 2003.
TERMINATION OF EMPLOYMENT, CHANGE IN RESPONSIBILITIES AND EMPLOYMENT CONTRACTS
There are no compensatory plans or arrangements with respect to the Named
Executive Officers resulting from the resignation, retirement or any other
termination of employment of the officer's employment or from a change of the
Named Executive Officer's responsibilities following a change in control.
COMPENSATION OF DIRECTORS
There were no arrangements, standard or otherwise, pursuant to which directors
were compensated by Northern Dynasty for their services in their capacity as
directors, or for committee participation, involvement in special assignments of
for services as consultants or experts during the most recently completed
financial year or subsequently, up to and including the date hereof. See also
Item 7 regarding the potential value of the retained carried interest in the
Pebble Property which, although it is not compensation, should be construed as a
benefit to the directors.
SECURITY HOLDINGS OF INSIDERS WHO ARE MANAGEMENT (AS AT MAY 1, 2003)
SHARES OWNED OR PERCENTAGE OF CURRENT NUMBER OF
BENEFICIALLY ISSUED AND OUTSTANDING OPTIONS OUTSTDG
NAME OF INSIDER CONTROLLED(3) COMMON SHARES(4) TO INSIDER
David J. Copeland 92,250 0.5% 130, 000
Scott D. Cousens 61,382 0.3% 160,000
Robert A. Dickinson(2) 1,902,900 10.5% 157,500
Robert G. Hunter 502,682 2.8% 80,000
Jeffrey R. Mason 450 0.0% 0
Ronald W. Thiessen 86,282 0.5% 160,000
Bruce A. Youngman 475,400 2.6% 7,500
--------- ---- -------
TOTAL 3,121,346 17.3% 695,000
========= ==== =======
SECURITIES HELD BY INSIDERS
As of May 31, 2002 the directors and officers of Northern Dynasty and their
affiliate held as a group, directly and indirectly, own or control an aggregate
of 2,867,596 common shares (21.8% of outstanding common shares). Insiders also
hold 780,732 options and 1,250,000 warrants to acquire additional common shares.
To Northern Dynasty's knowledge, at May 31, 2002, there were no persons
(exclusive of Mr. Robert A. Dickinson, Director, and Mrs. Carmen Dickinson, Mr.
Dickinson's spouse, and the directors and officers as a group) holding more than
10% of the issued common shares of Northern Dynasty.
C. BOARD PRACTICES
All directors were re-elected at the June 28, 2002 annual general meeting and
have a term of office expiring at the next annual general meeting of Northern
Dynasty scheduled for June 18, 2003. All officers have a term of office lasting
until their removal or replacement by the Board of Directors.
During the financial year ended December 31, 2002, no options were granted to
directors.
Ronald W. Thiessen, Robert A. Dickinson and Scott D. Cousens are members of
Northern Dynasty's audit committee. Ronald W. Thiessen is Northern Dynasty's
Chief Executive Officer and Mr. Dickinson is Co-Chairman. Northern Dynasty's
directors are all active in its affairs and hence are not independent. The audit
committee is elected annually by the directors of Northern Dynasty at the first
meeting of the board held after Northern Dynasty's annual general meeting. Its
primary function is to review the financial statements of Northern Dynasty
before they are submitted to the board for approval. The audit committee is also
available to assist the board if required with matters relating to the
appointment of Northern Dynasty's auditor and the overall scope and results of
the audit, internal financial controls, and financial information for
publication for various purposes. Northern Dynasty has no remuneration
committee.
D. EMPLOYEES
At May 1, 2003, Northern Dynasty had no direct full-time employees, but rather
it contracts staff from Hunter Dickinson Inc. on an as-need basis. Northern
Dynasty's functions are primarily administered through Hunter Dickinson Inc.
(see Item 7).
E. SHARE OWNERSHIP - STOCK OPTIONS
As at May 1, 2003, an aggregate of 1,175,750 shares have been reserved for
issuance pursuant to the following director, executive officer and service
provider stock options:
(A) INCENTIVE OPTIONS
NUMBER OF EXERCISE DATE EXPIRY
OPTIONHOLDER STATUS SHARES PRICE OF GRANT DATE
Directors and Officers of
Northern Dynasty 695,000 $0.40 May 15, 2001 May 15, 2004
------------
Employees and Consultants 288,250 $0.40 May 15, 2001 May 15, 2004
73,500 $0.40 November 21, 2001 May 15, 2004
119,000 $0.40 December 11,2002 December 20, 2004
------------
480,750
------------
1,175,750
============
In fiscal 2002, 323,750 options were exercised with proceeds of $131,450 at an
average price of $0.41 per share. In fiscal 2003 to May 1, 2003, 21,500 options
were exercised, at an average price of $0.41, with proceeds of $8,840.
(B) SHARE INCENTIVE PLAN
In order to provide incentive to directors, officers, employees, management and
others who provide services to Northern Dynasty it has adopted a Share Incentive
Plan (the "Plan"). The Plan was originally approved by shareholders at Northern
Dynasty's annual general meeting held on June 24, 1999 and a resolution
increasing the number of shares available for issuance under the Plan was
approved by shareholders on June 20, 2000 and amended on June 28, 2002 (the
"2002 Plan"). Under the 2002 Plan, a total of 2,600,000 shares of Northern
Dynasty were reserved for share incentive options to be granted at the
discretion of Northern Dynasty's board of directors to eligible optionees (the
"Optionees"). At May 1, 2003 a total of 2,600,000 share incentive options are
outstanding under the Plan of which 1,175,000 options have been granted, and
1,069,000 shares remain available for issuance to future Optionees. The 2003
shareholder's meeting (June 18, 2003) will seek authority to increase the Plan
to 3,600,000 shares (the "2003 Plan").
ELIGIBLE OPTIONEES
Under TSX policy, to be eligible for the issuance of a stock option under the
2002 Plan, an Optionee must either be a director, officer, employee, consultant
or an employee of a company providing management or other services to Northern
Dynasty or its subsidiary at the time the option is granted.
Options may be granted only to an individual or to a company that is wholly
owned by individuals eligible for an option grant. If the option is granted to a
company, the company must provide TSX Venture with an undertaking 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 TSX Venture.
MATERIAL TERMS OF THE PLAN
The following is a summary of the material terms of the 2002 Plan (the Proposed
2003 Plan varies from the following only by the number of shares included)
(a) all options granted under the 2002 Plan are non-assignable and
non-transferrable and are up to a period of 5 years;
(b) for stock options granted to employees or service providers (inclusive
of management company employees), Northern Dynasty is required to
represent that the proposed Optionee is a bona fide employee or service
provider (inclusive of a management company employee), as the case may
be, of Northern Dynasty;
(c) Options granted pursuant to the Plan to Directors and all Employees
employed by Northern Dynasty for a period of more than six months at the
time the Option is granted shall vest as follows: (i) 1/3 of the total
number of Options granted shall vest six months after the date of grant;
(ii) a further 1/3 of the total number of Options granted shall vest one
year after the date of grant; and (iii) the remaining 1/3 of the total
number of Options granted shall vest 18 months after the date of grant.
Options granted pursuant to the Plan to an Employee who has been
employed by Northern Dynasty for a period of less than six months at
the time the Option is granted shall vest as follows: (a) 1/3 of the
total number of Options granted shall vest one year after the date of
grant; (b) a further 1/3 of the total number of Options granted shall
vest 18 months after the date of grant; and (c) the remaining 1/3 of
the total number of Options granted shall vest two years after the date
of grant.
Options granted to Consultants retained by Northern Dynasty pursuant to
a short-term contract or for a specific project with a finite term,
shall be subject to such vesting provisions determined by the Board of
Directors of Northern Dynasty at the time the Option Commitment is
made.
Options issued to persons engaged in Investor Relations Activities vest
in stages over 12 months, with 1/4 of such Options vesting in each
three-month period commencing after three months from the Option
Commitment.
(d) Northern Dynasty has a share purchase option approval plan approved by
the shareholders that allows it to grant options, subject to regulatory
terms and approval, to its employees, officers, directors and
non-employees. The exercise price of each option can be set equal to or
greater than the closing price of the common shares on the TSX Venture
on the day prior to the date of the grant of the option less the
applicable discount according to TSX Venture policy. An option has a
maximum term of ten years and terminates 30 days following the
termination of the optionee's employment, except in the case of
retirement or death. In the case of retirement, it terminates 30 to 90
days, at management's discretion, following retirement. In the case of
death, it terminates at the earlier of one year after the event or the
expiry of the option. Vesting of options is done at the discretion of
the Board at the time the options are granted; and
(e) the minimum exercise price of an option granted under the 2002 Plan must
not be less than the closing price for Northern Dynasty's common shares
as traded on the TSX Venture on the last trading day before the date
that the option is granted less allowable discounts as permitted by TSX
Venture of up to 25% (depending on the price at the time of grant).
NorthernDynasty has obtained "disinterested" shareholders' approval and
therefore as permitted by TSX Venture policy:
o the number of options granted to Insiders of Northern Dynasty may exceed
10% of Northern Dynasty's outstanding listed shares;
o the aggregate number of options granted to Insiders of Northern Dynasty
within a one year period may exceed
o 10% of Northern Dynasty's outstanding listed shares; and
o the number of options granted to any one Insider and such Insider's
associates within a one year period may exceed 5% of Northern Dynasty's
outstanding listed shares.
DISINTERESTED SHAREHOLDER APPROVAL ("DSA")
"Disinterested Shareholder Approval" means the approval by a majority of the
votes cast by all shareholders of Northern Dynasty at the shareholders' meeting
excluding votes attached to listed shares beneficially owned by "insiders" of
northern dynasty (generally officers and directors) to whom the dsa options have
been granted under the 2002 Plan and associates of those insiders. The approval
of the 2003 plan will also require DSA.
ITEM 7 MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. MAJOR SHAREHOLDERS
Northern Dynasty's securities are recorded on the books of its transfer agent
(Computershare Trust Company of Canada, 510 Burrard Street, Vancouver, B.C. V6C
3B9 (604) 661-0215) 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. Based on information provided pursuant
to Northern Dynasty's search of intermediaries, as of May 1, 2003, there were
279 registered shareholders of record holding a total of 18,058,723 common
shares of Northern Dynasty. To the best of Northern Dynasty's knowledge, there
were 143 registered shareholders of record with registered addresses in Canada
(holding approximately 14,698,994 (81.4%) shares), 113 shareholders of record
with registered addresses in the United States, (holding approximately 2,392,275
(13.2%) shares) and 23 shareholders of record with registered addresses in other
countries (holding approximately 967,454 (5.4%) shares). Shares registered in
intermediaries were assumed to be held by residents of the same country in which
the clearing house was located. To the best of its knowledge, Northern Dynasty
is not directly or indirectly owned or controlled by a corporation or foreign
government. For information on the holdings of insiders see Item 6B. Since
December 31, 2002 the proportion of shares held by Canadians has increased due
to placements of securities to investors and insiders (see Item 7).
As of May 1, 2003, the only registered holders of 5% or more of the current
issued and outstanding common shares of Northern Dynasty are Robert A. Dickinson
(1,902,900 common shares - 10.5%), who is a director, Carmen Dickinson
(2,536,670 common shares - 14.0%) and brokerage clearinghouses. The
shareholdings of the individual directors are listed in Item 6A. The voting
rights of the major shareholders do not differ from the voting rights of other
Northern Dynasty shareholders.
The changes in the holdings of Northern Dynasty's principal shareholders in the
last 3 years (in absolute numbers and as a percentage of then outstanding
shares) is:
HOLDINGS HOLDINGS HOLDINGS HOLDINGS
DECEMBER 31, 2000 DECEMBER 31, 2001 DECEMBER 31, 2002 MAY 1, 2003
------------------- -------------------- -------------------- --------------------
Robert A. Dickinson 659,900 (9.2%) 2,067,500 (22.2%) 1,611,200 (12.2%) 1,902,900 (10.5%)
Carmen Dickinson (spouse) 151,200 (2.1%) 1,636,670 (17.6%) 1,636,670 (12.4%) 2,536,670 (14.0%)
Bruce Youngman 579,500 (8.1%) 579,500 (6.2%) 470,400 (3.6%) 475,400 (2.6%)
Under the British Columbia SECURITIES ACT insiders (generally officers,
directors, holders of 10% or more of Northern Dynasty's shares) are required to
file insider reports of changes in their ownership in the first 10 days of the
month following a trade in Northern Dynasty's securities. 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 (phone (604) 899-6500) or at the British Columbia Securities
Commission web site (www.bcsc.bc.ca). Commencing in June 2003 in British
Columbia all insider reports must be filed electronically 10 days following the
date of the trade at www.sedi.ca. The public will be able to access these
reports at www.sedi.ca.
B. RELATED PARTY TRANSACTIONS
No director or senior officer, and no associate or affiliate of the foregoing
persons, and no insider has or has had any material interest, direct or
indirect, in any other transactions, or in any other proposed transaction, which
in either such case has materially affected or will materially affect Northern
Dynasty or its predecessors during the years ended December 31, 2001 or December
31, 2002 or in any pending transaction except as follows:
(A) MANAGEMENT CONTRACTS
Northern Dynasty has a services agreement dated December 31, 1996 with Hunter
Dickinson Inc. ("HDI"), a private company owned equally by nine public resource
exploration companies (one of which is Northern Dynasty) and which is managed by
directors the majority of whom are the same directors as those of Northern
Dynasty. HDI is one of the larger independent mining exploration groups in North
America and as of April 15, 2003 employs or retains on a substantially full-time
basis, 16 geoscientists (of which 6 are professional geoscientists/P.Geo., 3 are
geological engineers/P.Eng. and 2 are Ph.D.s), 2 licensed professional mining
and 1 mechanical engineers (P.Eng.), 8 accountants (including 4 Chartered
Accountants, 1 Certified Management Accountant and 1 Certified General
Accountant) and 15 administrative staff. It has supervised mineral exploration
projects in Canada (British Columbia, Manitoba, Ontario and Quebec) and
internationally in Brazil, Chile, USA (Nevada and Alaska), Mexico and South
Africa. HDI allocates the costs of staff input into projects like Pebble based
on time records of involved personnel. The Services Agreement which can be
terminated by either party on 30 days' notice at which time Northern Dynasty
would surrender its one share of HDI. (See Item 19 - Exhibits.) Under the
Services Agreement HDI provides ongoing geological, corporate development
management and administrative services to Northern Dynasty on a full cost
recovery basis and at a cost that is intended to be competitive with arm's
length suppliers. During fiscal 2002, Northern Dynasty paid HDI $1,227,425 for
services rendered. HDI may also invoice exploration and operating advances in
anticipation of services to be rendered. As of December 31, 2002, HDI had been
advanced $79,350 in excess of services rendered to that date. The nine directors
of HDI are the seven directors of Northern Dynasty plus two other persons not
related to Northern Dynasty.
(B) PROPERTY OPTION ASSIGNMENT
HDG Assignment dated October 29, 2001 between Hunter Dickinson Group Inc. and
Northern Dynasty respecting the Pebble Property Option. (See Item 4A and Item 19
- Exhibits.) As of April 30, 2002, Northern Dynasty had fully paid HDG for
Pebble expenditures. Hunter Dickinson Group Inc. (herein "HDG") is a private
company which seeks to source and secure rights to mineral prospect
opportunities for its own account and for purposes of involving public companies
by way of option, joint venture or assignment of all or a part of HDG's rights.
HDG has assigned prospect interests to both arm's length and non-arm's length
companies. HDG will generally risk its own funds on preliminary exploration
costs before assigning its interest in a prospect on terms negotiated with the
transferee company. Such assignments generally require the acceptance by the TSX
Venture (which Northern Dynasty has received) and in some cases the shareholders
of the public company (by approval of a majority of the disinterested
shareholders of the transferee). All of the directors of Northern Dynasty,
except Mr. Youngman, are among the seven directors of HDG, and HDG has one
independent director. The shares of HDG are held by Messrs. R.A. Dickinson, R.W.
Thiessen, J.R. Mason, D.J. Copeland, S.D. Cousens, R.G. Hunter, and D.S.
Jennings, each of whom is a director of Northern Dynasty, except D.S. Jennings.
HDG is the corporate trustee of seven director family trusts to which such named
directors and their family members are beneficiaries. Northern Dynasty is
received disinterested shareholder approval for the transaction at its June 28,
2002 annual shareholders meeting.
(C) PARTICIPATION IN PRIVATE PLACEMENTS
On December 13, 2001 Northern Dynasty announced a private placement financing to
raise additional working capital of $400,000 by issuing 1,176,470 Units for
$0.34 each. Each Unit was comprised of one common share and one share purchase
warrant, with each share purchase warrant exercisable at $0.45 for two years.
Robert A. Dickinson and his spouse were the only participating insiders and they
completed the purchase of 1,029,470 of the Units on February 20, 2002, after
receiving TSX Venture Exchange acceptance for filing.
In January 2003, the Company completed a private placement consisting of
1,700,000 Units at a price of $0.50 per Unit. Each Unit was comprised of one
common share and one share purchase warrant exercisable into one common share at
$0.60. The participating insiders were:
Robert A. Dickinson 100,000 units
491038 BC Ltd (1) 100,000 units
United Mineral Services Ltd.(1) 200,000 units
Bruce A. Youngman 20,000 units
(1) Private companies controlled by Mr. Dickinson
(D) DIRECTORS AND OFFICERS
Directors and officers of Northern Dynasty may from time to time serve as
directors of and have an interest, either directly or indirectly, in other
companies involved in natural resource exploration and development. As a result,
a director of Northern Dynasty may be presented, from time to time, with
situations, which give rise to an apparent conflict of interest. On any conflict
situation, a director may abstain from voting on resolutions of the Board of
Directors that evoke such conflict in order to have the matter resolved by an
independent Board, or the situation may be presented to the shareholders of
Northern Dynasty for ratification. In any event, the directors of Northern
Dynasty must, in accordance with the laws of British Columbia, act honestly and
in good faith and in the best interests of Northern Dynasty, and must exercise
the care, diligence and skill of a reasonably prudent person in dealing with the
affairs of Northern Dynasty.
(E) See also, ITEM 6B - Compensation of Directors regarding cash
compensation and ITEM 6E re Options.
C. INTERESTS OF EXPERTS AND COUNSEL
Not applicable.
ITEM 8 FINANCIAL INFORMATION
A. STATEMENTS AND OTHER FINANCIAL INFORMATION
See "Item 17 Financial Statements" and pages 2 to 4.
LEGAL PROCEEDINGS
Northern Dynasty is not involved in any litigation or legal proceedings and to
Northern Dynasty's knowledge, no material legal proceedings involving Northern
Dynasty are to be initiated against Northern Dynasty.
DIVIDEND POLICY
Northern Dynasty 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.
B. SIGNIFICANT CHANGES
There have been no significant changes to the business of Northern Dynasty since
December 31, 2002.
ITEM 9 THE OFFER AND LISTING
A. OFFER AND LISTING DETAILS
TRADING MARKETS
TSX VENTURE: OTC BULLETIN BOARD:
NDM - Trading in Canadian Dollars Trading in United States Dollars
High Low High Low
($) ($) ($) ($)
ANNUAL ANNUAL
2003 (to May 1, 2003) 0.90 0.55 2003 (to May 1, 2003) 0.62 0.36
2002 1.44 0.42 2002 (from July 29, 2002) 0.90 0.25
2001 0.79 0.32
2000 0.66 0.40
1999 0.57 0.32
1998 0.75 0.37
1997 1.95 1.00
1996 2.00 1.02
BY QUARTER BY QUARTER
Calendar 2000
First Quarter 0.66 0.48
Second Quarter 0.42 0.40
Third Quarter 0.50 0.41
Fourth Quarter 0.51 0.40
Calendar 2001
First Quarter 0.46 0.32
Second Quarter 0.49 0.36
Third Quarter 0.55 0.35
Fourth Quarter 0.79 0.38
Calendar 2002 Calendar 2002
First Quarter 1.20 0.43
Second Quarter 1.44 0.95
Third Quarter 1.24 0.54 Third Quarter (from July 20, 2002) 0.90 0.40
Fourth Quarter 0.74 0.42 Fourth Quarter 0.60 0.25
Calendar 2003 Calendar 2003
First Quarter 0.90 0.55 First Quarter 0.60 0.36
Second Quarter (to May 1, 2003) 0.88 0.70 Second Quarter (to May 1, 2003) 0.62 0.47
MONTHLY MONTHLY
April 2003 0.88 0.70 April 2003 0.62 0.47
March 2003 0.75 0.60 March 2003 0.52 0.36
February 2003 0.75 0.60 February 2003 0.49 0.40
January 2003 0.90 0.55 January 2003 0.60 0.36
December 2002 0.65 0.49 December 2002 0.47 0.28
November 2002 0.57 0.42 November 2002 0.33 0.25
October 2002 0.74 0.43 October 2002 0.60 0.26
September 2002 0.86 0.54 September 2002 0.60 0.40
Northern Dynasty share trading information is also available through free
internet search services (for example, see Yahoo.com, enter NDM.V NDMLF).
B. PLAN OF DISTRIBUTION
Not applicable.
C. MARKETS
The shares of Northern Dynasty have traded in Canada on the TSX Venture Exchange
(successor Exchange to the Canadian Venture and Vancouver Stock Exchanges) since
1994, (symbol-NDM @ Yahoo NDM.V). Since July 20, 2002, Northern Dynasty's shares
have traded in the United States on the OTC Bulletin Board.
D. SELLING SHAREHOLDERS
Not applicable.
E. DILUTION
Not applicable.
F. EXPENSES OF THE ISSUE
Not applicable.
ITEM 10 ADDITIONAL INFORMATION
A. SHARE CAPITAL
Northern Dynasty's share capital consists of one class only, namely common
shares without par value, of which 100,000,000 shares are authorized and
15,515,223 common shares without par value are issued and outstanding as fully
paid and non-assessable as of December 31, 2002 and 18,058,723 common shares
outstanding as of May 1, 2003. The accompanying audited financial statements
provides details of all share issuances effected by Northern Dynasty in the
issue price per share for the three previous fiscal years ended December 31,
2002. There are no shares of Northern Dynasty, which are held by or on behalf of
Northern Dynasty. There have been no changes in the classification of common
shares (reclassifications, consolidations, reverse splits or the like) within
the previous five years. All common shares of Northern Dynasty rank pari passu
(i.e. equally) for the payment of any dividends and distributions in the event
of a windup. A summary of Northern Dynasty's dilutive securities (convertible or
exercisable into common shares) is as follows:
(A) HISTORY OF SHARE CAPITAL
A summary of Northern Dynasty's share capital for the last three years as
follows:
Number of
Shares Amount
-----------------------------------------------------------------------------------------------------
Balance, December 31, 1998 and 1999 7,177,455 $ 7,270,842
Share purchase options exercised at $0.50 each 5,000 2,500
-----------------------------------------------------------------------------------------------------
Balance, December 31, 2000 7,182,455 7,273,342
Private placement at $0.30 2,100,000 630,000
Share purchase options exercised at $0.55 2,500 1,375
Share purchase options exercised at $0.40 7,500 3,000
-----------------------------------------------------------------------------------------------------
Balance, December 31, 2001 9,292,455 7,270,842
Private placement at $0.34 1,176,470 400,000
Private placement at $0.50 2,000,000 1,000,000
Private placement at $1.05 197,548 207,425
Issued for options at $0.40 310,750 124,300
Issued for options at $0.55 13,000 7,150
Warrants exercised at $0.40 1,325,000 530,000
Issued for Pebble property 1,200,000 995,000
-----------------------------------------------------------------------------------------------------
Balance, December 31, 2002 15,515,223 10,534,717
Private placement at $0.50 1,700,000 850,000
Issued for options at $0.40 13,500 5,400
Issued for options at $0.43 8,000 3,440
Warrants exercised at $0.45 147,000 66,150
Warrants exercised at $0.62 100,000 62,000
Warrants exercised at $0.40 575,000 230,000
-----------------------------------------------------------------------------------------------------
BALANCE, MAY 1, 2003 18,058,723 $ 11,751,707
=====================================================================================================
(B) WARRANTS
Outstanding warrants from transactions at May 1, 2003
NUMBER EXERCISE PRICE EXPIRY M/Y
--------------- ------------------------ ----------------
200,000 $0.40 July, 2003
1,029,4700 0.45 February, 2004
250,000 0.60 December, 2004
1,700,000 0.60 January 2005
1,900,000 0.62 April, 2004
500,000 0.75 December, 2003
197,548 1.15 December, 2003
500,000 1.15 March, 2004
---------------
6,277,018
===============
(C) OTHER POTENTIAL SHARE ISSUANCES
A summary of Northern Dynasty's diluted share capital at May 31, 2003 is as
follows:
(a) Issued 18,058,723
(b) Options outstanding 1,175,750
(c) Warrants outstanding 6,277,018
---------------
Diluted share position (1) 25,511,491
===============
NOTES:
(1) Excludes further shares potentially issuable under Pebble Agreement
because these are optional only and not legal commitments to issue
shares.
See Item 6E for information regarding Northern Dynasty's Share Incentive Plan.
B. MEMORANDUM AND ARTICLES OF ASSOCIATION
Northern Dynasty's corporate constituting documents comprising Articles of
Association and Memorandum are registered with the British Columbia Registrar of
Companies under Corporation No. 262963. A copy of the Articles of Association
and Memorandum are filed with the initial registration statement on Form 20F as
an exhibit. (See Item 19.)
OBJECTS AND PURPOSES
Northern Dynasty's Memorandum of Incorporation and Articles of Association
("Articles") do not specify objects or purposes. Under British Columbia
corporate law (the British Columbia COMPANY ACT or herein "BCCA"), a British
Columbia corporation generally has all the legal powers of a natural person.
British Columbia corporations may not undertake certain limited business
activities such as operating as a trust company or railroad without alterations
to its form of articles and specific government consent.
DIRECTORS - POWERS AND LIMITATIONS
Northern Dynasty's Articles do not specify a maximum number of directors (the
minimum under British Columbia law for a public company is three). The number of
directors is fixed, annually, by shareholders at the annual Shareholders meeting
and all directors are elected at that time - there are no staggered
directorships. Under the BCCA, directors are obligated to abstain from voting on
matters in which they may be financially interested after disclosing in writing
such interest. Directors' compensation is not a matter on which they must
abstain. Directors must be of the age of majority (18), and meet eligibility
criteria including being mentally competent, not an undischarged bankrupt, no
fraud related convictions in the previous five years and a majority of directors
must be ordinarily resident in Canada. There is no mandatory retirement age
either under Northern Dynasty's Articles or under the BCCA.
Directors' borrowing powers are not generally restricted where the borrowing is
in Northern Dynasty's best interests, but the directors may not authorize
Northern Dynasty to provide financial assistance for any reason where Northern
Dynasty is insolvent or the providing of the guarantee would render it
insolvent. Directors need not own any shares of Northern Dynasty in order to
qualify as directors.
The Articles specify that the number of directors shall be the number of
directors fixed by shareholders annually or the number, which are actually
elected at a general shareholders meeting. The number of directors is
determined, annually, by shareholders at the annual Shareholders meeting and all
directors are elected at that time. Under the Articles, the directors are
entitled between successive annual general meetings to appoint one or more
additional directors but not more than one-third of the number of directors
fixed at a shareholders or actually elected at the preceding annual
shareholders' meeting. Directors automatically retire at the commencement of
each annual meeting but may be re-elected thereat.
Under the Articles, a director who is any way directly or indirectly interested
in a proposed contract or transaction with Northern Dynasty, or who holds any
office or possesses any property whereby directly or indirectly a duty might be
created which would conflict with his duty or interest as a director, shall
declare in writing the nature and extent of such interest in such contract or
transaction. A director shall not vote in respect of any such contract or
transaction if the company in which he is interested and if he should vote his
vote shall not be counted but shall be counted in the quorum present at the
meeting. Similarly, under the BCCA directors are obligated to abstain from
voting on matters in which they may be financially interested after fully
disclosing such interest. Directors must abstain from voting in such
circumstances both under the Articles and under the BCCA.
CHANGES TO RIGHTS OF COMMON SHAREHOLDERS
Changes to the Articles and memorandum of Northern Dynasty require a
shareholders' "special resolution" being a resolution passed by not less than
75% of the shares voted in person or by proxy at a duly convened shareholders
meeting. Some organic corporate changes including amalgamation with another
company, sale of substantially all of Northern Dynasty's assets, redomiciling
out of the jurisdiction of British Columbia, creation of new classes of shares
not only require such 75% approval but generally also give rise to a dissent
right which is the right to be paid the fair value of the stockholder's shares
in cash if the required special resolution is actually passed and Northern
Dynasty elects to proceed with the matter notwithstanding receipt of dissent
notices. A notice of a shareholders meeting at which such an organic change
action is intended to be considered must include a prominent notice of the
dissent right. Dissent provisions are governed by the BCCA and not by the
Articles of Northern Dynasty.
SHAREHOLDERS MEETINGS
Shareholders meetings are governed by the Articles of Northern Dynasty but many
important shareholder protections are also contained in the SECURITIES ACT
(British Columbia) and the BCCA. The Articles provide that Northern Dynasty will
hold an annual shareholders' meeting, will provide at least 21 days' notice and
will provide for certain procedural matters and rules of order with respect to
conduct of the meeting. The SECURITIES ACT (British Columbia) and the BCCA
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 the
SECURITIES ACT and the BCCA. 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. The meeting must be held within 13 months of the
previous annual shareholders meeting and must present audited statements that
are no more than 180 days old at such meeting.
Shares Fully Paid
All Northern Dynasty shares must, by applicable law, be issued as fully paid for
cash, property or services. They are therefore non-assessable and not subject to
further calls for payment.
Redemption
Northern Dynasty has no redeemable securities authorized or issued. Therefore,
Northern Dynasty has no sinking fund or like security redemption fund.
PRE-EMPTIVE RIGHTS
There are no pre-emptive rights applicable to Northern Dynasty which provide a
right to any person to participate in offerings of Northern Dynasty's equity or
other securities
RIGHTS TO PROFITS AND LIQUIDATION RIGHTS
All common shares of Northern Dynasty participate rateably in any net profit or
loss of Northern Dynasty and shares rateably any available assets in the event
of a winding up or other liquidation.
NO LIMITATION ON FOREIGN OWNERSHIP
There are no limitations under Northern Dynasty's Articles or in the BCCA on the
right of persons who are not citizens of Canada to hold or vote common shares.
(See also "Exchange Controls".)
DIVIDENDS
Dividends may be declared by the Board out of available assets and are paid
rateably to holders of common shares. No dividend may be paid if Northern
Dynasty is, or would thereby become, insolvent.
VOTING RIGHTS
Each Northern Dynasty 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. There are no cumulative voting
rights applicable to Northern Dynasty.
CHANGE IN CONTROL
Northern Dynasty has not implemented any shareholders' rights or other "poison
pill" protection against possible take-overs. Northern Dynasty does not have any
agreements that are triggered by a take-over or other change of control. There
are no provisions in its articles triggered by or affected by a change in
outstanding shares which gives rise to a change in control. There are no
provisions in Northern Dynasty's material agreements giving special rights to
any person on a change in control.
INSIDER SHARE OWNERSHIP REPORTING
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 the SECURITIES ACT (British Columbia) requires disclosure of trading
by insiders (generally officers, directors and holders of 10% of voting shares)
within 10 days of the trade. Controlling shareholders (generally those in excess
of 20% of outstanding shares) must provide seven days advance notice of share
sales. 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 telephone (604) 899-6500 or at the
British Columbia Securities Commission web site (www.bcsc.bc.ca). Commencing
June 2003 insider reports will be available online on SEDI website
(www.sedi.ca).
SECURITIES ACT (BRITISH COLUMBIA)
This statute applies to Northern Dynasty and governs matters typically
pertaining to public securities such as continuous quarterly financial
reporting, immediate disclosure of material changes, insider trade reporting,
take-over protections to ensure fair and equal treatment of all shareholders,
exemption and resale rules pertaining to non-prospectus securities issuances as
well as civil liability for certain misrepresentations, disciplinary, appeal and
discretionary ruling matters. All Northern Dynasty shareholders regardless of
residence have equal rights under this legislation.
Alaska Subsidiary
This company is wholly-owned by Northern Dynasty and has constituting documents
ordinary to such single-purpose corporations.
C. MATERIAL CONTRACTS
Northern Dynasty's material contracts as of May 1, 2003 are:
(a) Amended Share Incentive Plan dated for reference June 28, 2002 (see
Item 6E);
(b) HDG Assignment Agreement, dated October 29, 2001, and underlying
Teck Cominco Options of the Resource Lands and the Exploration Lands of
the Pebble Property and Consent for the Assignment related to the
Pebble Property (see Item 4 - Pebble Property Option Agreements and
Item 7B(b) - Major Shareholders and Related Party Transactions);
(c) Geological Management and Administration Services Agreement with
HDI dated for reference December 31, 1996. (See Item 7B(a) - Major
Shareholders and Related Party Transactions for details on amounts paid
to HDI under the services agreement.)
D. EXCHANGE CONTROLS
Northern Dynasty is a Province of British Columbia, Canada corporation. 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 the laws of Canada or by the charter or other
constituent documents of Northern Dynasty on the right of a non-resident to hold
or vote its common shares, other than as provided in the INVESTMENT CANADA ACT
(Canada) (the "INVESTMENT ACT"). The following discussion summarizes the
material features of the INVESTMENT ACT for a non-resident who proposes to
acquire a controlling number of Northern Dynasty's common shares. It is general
only, it is not a substitute for independent advice from an investor's own
advisor, and it does not anticipate statutory or regulatory amendments. Northern
Dynasty does not believe the INVESTMENT ACT will have any affect on it or on its
non-Canadian shareholders due to a number of factors including the nature of its
operations and Northern Dynasty's relatively small capitalization.
The INVESTMENT ACT generally prohibits implementation of a "reviewable"
investment by an individual, government or agency thereof, corporation,
partnership, trust or joint venture (each an "entity") that is not a "Canadian"
as defined in the INVESTMENT ACT (i.e. a "non-Canadian"), unless after review
the Director of Investments appointed by the minister responsible for the
INVESTMENT ACT is satisfied that the investment is likely to be of net benefit
to Canada. The size and nature of a proposed transaction may give rise to an
obligation to notify the Director to seek an advance ruling. An investment in
Northern Dynasty's common shares by a non-Canadian (other than a "WTO Investor"
as that term is defined in the INVESTMENT ACT and which term includes entities
which are nationals of or are controlled by nationals of member states of the
World Trade Organization), when Northern Dynasty was not controlled by a WTO
Investor, would be reviewable under the INVESTMENT ACT if it was an investment
to acquire control of Northern Dynasty and the value of the assets of Northern
Dynasty, as determined in accordance with the regulations promulgated under the
Investment Act, was over a certain figure, or if an order for review was made by
the federal cabinet on the grounds that the investment related to Canada's
cultural heritage or national identity, regardless of the value of the assets of
Northern Dynasty. An investment in the Common Shares by a WTO Investor, or by a
non-Canadian when Northern Dynasty was controlled by a WTO Investor, would be
reviewable under the INVESTMENT ACT if it was an investment to acquire control
of Northern Dynasty and the value of the assets of Northern Dynasty, as
determined in accordance with the regulations promulgated under the Investment
Act, was not less than a specified amount, which for 2000 exceeds Cdn$192
million. A non-Canadian would acquire control of Northern Dynasty for the
purposes of the INVESTMENT ACT if the non-Canadian acquired a majority of the
Common Shares. The acquisition of less than a majority but one-third or more of
the Common Shares would be presumed to be an acquisition of control of Northern
Dynasty unless it could be established that, on the acquisition, Northern
Dynasty was not controlled in fact by the acquiror through the ownership of the
Common Shares.
The foregoing assumes Northern Dynasty will not engage in the production of
uranium or own an interest in a producing uranium property in Canada, or provide
any financial service or transportation service, as the rules governing these
businesses are different.
Certain transactions relating to the Common Shares would be exempt from the
INVESTMENT ACT, including
(a) an acquisition of the Common Shares by a person in the ordinary
course of that person's business as a trader or dealer in securities,
(b) an acquisition of control of Northern Dynasty in connection with
the realization of security granted for a loan or other financial
assistance and not for a purpose related to the provisions of the
INVESTMENT ACT, and
(c) an acquisition of control of Northern Dynasty by reason of an
amalgamation, merger, consolidation or corporate reorganization
following which the ultimate direct or indirect control in fact of
Northern Dynasty, through the ownership of the Common Shares, remained
unchanged.
E. TAXATION
MATERIAL CANADIAN FEDERAL INCOME TAX CONSEQUENCES FOR UNITED STATES RESIDENTS
The following, in management's understanding summarizes the material Canadian
federal income tax consequences generally applicable to the holding and
disposition of Common Shares by a holder (in this summary, a "U.S. Holder") who,
(a) for the purposes of the Income Tax Act (Canada) (the "Tax Act"), is not
resident in Canada, deals at arm's length with Northern Dynasty, 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) for the purposes of the Canada-United States Income Tax
Convention, 1980 (the "Treaty"), is a resident solely of the United States, has
never been a resident of Canada, and has not held or used (and does not hold or
use) Common Shares in connection with a permanent establishment or fixed base in
Canada. This summary does not apply to 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),
or any other U.S. Holder to which special considerations apply.
This summary is based on the current provisions of the Tax Act including all
regulations thereunder, the Treaty, all proposed amendments to the Tax Act, the
regulations and the Treaty publicly announced by the Government of Canada to the
date hereof, and the current administrative practices of the Canada Customs and
Revenue Agency. It has been assumed that all currently proposed amendments will
be enacted as proposed and that there will be no other relevant change in any
governing law or administrative practice, although no assurances can be given in
these respects. This summary does not take into account provincial, U.S., state
or other foreign income tax law or practice. The tax consequences to any
particular U.S. Holder will vary according to the status of that holder as an
individual, trust, corporation, partnership or other entity, the jurisdictions
in which that holder is subject to taxation, and generally according to that
holder's particular circumstances. Accordingly, this summary is not, and is not
to be construed as, Canadian tax advice to any particular U.S. Holder.
DIVIDENDS
Dividends paid or deemed to be paid to a U.S. Holder by Northern Dynasty will be
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
amount of the dividend (or 5% if the U.S. Holder is a corporation and
beneficially owns at least 10% of Northern Dynasty's voting shares). Northern
Dynasty will be required to withhold the applicable withholding tax from any
such dividend and remit it to the Canadian government for the U.S. Holder's
account.
DISPOSITION
A U.S. Holder is 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. A Common Share will be taxable
Canadian property to a U.S. Holder if, at any time during the 60 months
preceding the disposition, the U.S. Holder or persons with whom the U.S. Holder
did not deal at arm's length alone or together owned, or had rights to acquire,
25% or more of Northern Dynasty's issued shares of any class or series.
A U.S. Holder whose Common Shares do constitute taxable Canadian property, and
who might therefore be liable for Canadian income tax under the Tax Act, will
generally be relieved from such liability under the Treaty unless the value of
such shares at the time of disposition is derived principally from real property
situated in Canada. Management of Northern Dynasty believes that the value of
Northern Dynasty's Common Shares is not currently derived principally from real
property situated in Canada.
UNITED STATES TAX CONSEQUENCES
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is, in management's understanding a discussion of the material
United States federal income tax consequences, under current law, generally
applicable to a U.S. Holder (as hereinafter defined) of common shares of
Northern Dynasty. This discussion does not address all potentially relevant
federal income tax matters and it does not address consequences peculiar to
persons subject to special provisions of federal income tax law, such as those
described below as excluded from the definition of a U.S. Holder. In addition,
this discussion does not cover any state, local or foreign tax consequences.
(see "Taxation - Canadian Federal Income Tax Consequences" above). Accordingly,
holders and prospective holders of common shares of Northern Dynasty should
consult their own tax advisors about the specific federal, state, local, and
foreign tax consequences to them of purchasing, owning and disposing of common
shares of Northern Dynasty, based upon their individual circumstances.
The following discussion is based upon the sections of the Internal Revenue Code
of 1986, as amended (the "Code"), Treasury Regulations, published Internal
Revenue Service ("IRS") rulings, published administrative positions of the IRS
and court decisions that are currently applicable, any or all of which could be
materially and adversely changed, possibly on a retroactive basis, at any time
and which are subject to differing interpretations. This discussion does not
consider the potential effects, both adverse and beneficial, of any proposed
legislation which, if enacted, could be applied, possibly on a retroactive
basis, at any time.
U.S. HOLDERS
As used herein, a "U.S. Holder" means a holder of common shares of Northern
Dynasty who is a citizen or individual resident of the United States, a
corporation or partnership created or organized in or under the laws of the
United States or of any political subdivision thereof, an estate whose income is
taxable in the United States irrespective of source or a trust subject to the
primary supervision of a court within the United States and control of a United
States fiduciary as described Section 7701(a)(30) of the Code. This summary does
not address the tax consequences to, and U.S. Holder does not include, persons
subject to specific provisions of federal income tax law, such as tax-exempt
organizations, qualified retirement plans, individual retirement accounts and
other tax-deferred accounts, financial institutions, insurance companies, real
estate investment trusts, regulated investment companies, broker-dealers,
non-resident alien individuals, persons or entities that have a "functional
currency" other than the U.S. dollar, shareholders subject to the alternative
minimum tax, shareholders who hold common shares as part of a straddle, hedging
or conversion transaction, and shareholders who acquired their common shares
through the exercise of employee stock options or otherwise as compensation for
services. This summary is limited to U.S. Holders who own common shares as
capital assets and who own (directly and indirectly, pursuant to applicable
rules of constructive ownership) no more than 5% of the value of the total
outstanding stock of Northern Dynasty. This summary does not address the
consequences to a person or entity holding an interest in a shareholder or the
consequences to a person of the ownership, exercise or disposition of any
options, warrants or other rights to acquire common shares. In addition, this
summary does not address special rules applicable to United States persons (as
defined in Section 7701(a)(30) of the Code) holding common shares through a
foreign partnership or to foreign persons holding common shares through a
domestic partnership.
DISTRIBUTION ON COMMON SHARES OF NORTHERN DYNASTY
In general, U.S. Holders receiving dividend distributions (including
constructive dividends) with respect to common shares of Northern Dynasty are
required to include in gross income for United States federal income tax
purposes the gross amount of such distributions, equal to the U.S. dollar value
of such distributions on the date of receipt (based on the exchange rate on such
date), to the extent that Northern Dynasty has current or accumulated earnings
and profits, without reduction for any Canadian income tax withheld from such
distributions. Such Canadian tax withheld may be credited, subject to certain
limitations, against the U.S. Holder's federal income tax liability or,
alternatively, may be deducted in computing the U.S. Holder's federal taxable
income by those who itemize deductions. (See more detailed discussion at
"Foreign Tax Credit" below). To the extent that distributions exceed current or
accumulated earnings and profits of Northern Dynasty, they will be treated first
as a return of capital up to the U.S. Holder's adjusted basis in the common
shares and thereafter as gain from the sale or exchange of property.
Preferential tax rates for long-term capital gains are applicable to a U.S.
Holder which is an individual, estate or trust. There are currently no
preferential tax rates for long-term capital gains for a U.S. Holder which is a
corporation.
In the case of foreign currency received as a dividend that is not converted by
the recipient into U.S. dollars on the date of receipt, a U.S. Holder will have
a tax basis in the foreign currency equal to its U.S. dollar value on the date
of receipt. Generally, any gain or loss recognized upon a subsequent sale or
other disposition of the foreign currency, including the exchange for U.S.
dollars, will be ordinary income or loss. However, an individual whose realized
gain does not exceed $200 will not recognize that gain, provided that there are
no expenses associated with the transaction that meet the requirements for
deductibility as a trade or business expense (other than travel expenses in
connection with a business trip) or as an expense for the production of income.
Dividends paid on the common shares of Northern Dynasty generally will not be
eligible for the dividends received deduction provided to corporations receiving
dividends from certain United States corporations. A U.S. Holder which is a
corporation and which owns shares representing at least 10% of the voting power
and value of Northern Dynasty may, under certain circumstances, be entitled to a
70% (or 80% if the U.S. Holder owns shares representing at least 20% of the
voting power and value of Northern Dynasty) deduction of the United States
source portion of dividends received from Northern Dynasty (unless Northern
Dynasty qualifies as a "foreign personal holding company" or a "passive foreign
investment company," as defined below). Northern Dynasty does not anticipate
that it will earn any United States income, however, and therefore does not
anticipate that any U.S. Holder will be eligible for the dividends received
deduction.
Under current Treasury Regulations, dividends paid on Northern Dynasty's common
shares, if any, generally will not be subject to information reporting and
generally will not be subject to U.S. backup withholding tax. However, dividends
and the proceeds from a sale of Northern Dynasty's common shares paid in the
U.S. through a U.S. or U.S. related paying agent (including a broker) will be
subject to U.S. information reporting requirements and may also be subject to
the 31% U.S. backup withholding tax, unless the paying agent is furnished with a
duly completed and signed Form W-9. Any amounts withheld under the U.S. backup
withholding tax rules will be allowed as a refund or a credit against the U.S.
Holder's U.S. federal income tax liability, provided the required information is
furnished to the IRS.
FOREIGN TAX CREDIT
A U.S. Holder who pays (or has withheld from distributions) Canadian income tax
with respect to the ownership of common shares of Northern Dynasty may be
entitled, at the option of the U.S. Holder, to either receive a deduction or a
tax credit for such foreign tax paid or withheld. Generally, it will be more
advantageous to claim a credit because a credit reduces United States federal
income taxes on a dollar-for-dollar basis, while a deduction merely reduces the
taxpayer's income subject to tax. This election is made on a year-by-year basis
and generally applies to all foreign taxes paid by (or withheld from) the U.S.
Holder during that year. There are significant and complex limitations which
apply to the credit, among which is the general limitation that the credit
cannot exceed the proportionate share of the U.S. Holder's United States income
tax liability that the U.S. Holder's foreign source income bears to his or its
worldwide taxable income. In the determination of the application of this
limitation, the various items of income and deduction must be classified into
foreign and domestic sources. Complex rules govern this classification process.
In addition, this limitation is calculated separately with respect to specific
classes of income such as "passive income, "high withholding tax interest,"
"financial services income," "shipping income," and certain other
classifications of income. Dividends distributed by Northern Dynasty will
generally constitute "passive income" or, in the case of certain U.S. Holders,
"financial services income" for these purposes. The availability of the foreign
tax credit and the application of the limitations on the credit are fact
specific, and U.S. Holders of common shares of Northern Dynasty should consult
their own tax advisors regarding their individual circumstances.
DISPOSITION OF COMMON SHARES OF NORTHERN DYNASTY
In general, U.S. Holders will recognize gain or loss upon the sale of common
shares of Northern Dynasty equal to the difference, if any, between (i) the
amount of cash plus the fair market value of any property received, and (ii) the
shareholder's tax basis in the common shares of Northern Dynasty. Preferential
tax rates apply to long-term capital gains of U.S. Holders which are
individuals, estates or trusts. In general, gain or loss on the sale of common
shares of Northern Dynasty will be long-term capital gain or loss if the common
shares are a capital asset in the hands of the U.S. Holder and are held for more
than one year. Deductions for net capital losses are subject to significant
limitations. For U.S. Holders which are not corporations, any unused portion of
such net capital loss may be carried over to be used in later tax years until
such net capital loss is thereby exhausted. For U.S. Holders that are
corporations (other than corporations subject to Subchapter S of the Code), an
unused net capital loss may be carried back three years and carried forward five
years from the loss year to be offset against capital gains until such net
capital loss is thereby exhausted.
OTHER CONSIDERATIONS
Set forth below are certain material exceptions to the above-described general
rules describing the United States federal income tax consequences resulting
from the holding and disposition of common shares:
FOREIGN PERSONAL HOLDING COMPANY
If at any time during a taxable year more than 50% of the total combined voting
power or the total value of Northern Dynasty's outstanding shares is owned,
directly or indirectly (pursuant to applicable rules of constructive ownership),
by five or fewer individuals who are citizens or residents of the United States
and 60% or more of Northern Dynasty's gross income for such year is derived from
certain passive sources (e.g., from certain interest and dividends), Northern
Dynasty may be treated as a "foreign personal holding company." In that event,
U.S. Holders that hold common shares would be required to include in gross
income for such year their allocable portions of such passive income to the
extent Northern Dynasty does not actually distribute such income. Northern
Dynasty does not believe that it currently qualifies as a foreign personal
holding company. However, there can be no assurance that Northern Dynasty will
not be considered a foreign personal holding company for the current or any
future taxable year.
FOREIGN INVESTMENT COMPANY
If 50% or more of the combined voting power or total value of Northern Dynasty's
outstanding shares is held, directly or indirectly, by citizens or residents of
the United States, United States domestic partnerships or corporations, or
estates or trusts other than foreign estates or trusts (as defined by the Code
Section 7701(a)(31)), and Northern Dynasty is found to be engaged primarily in
the business of investing, reinvesting, or trading in securities, commodities,
or any interest therein, it is possible that Northern Dynasty may be treated as
a "foreign investment company" as defined in Section 1246 of the Code, causing
all or part of any gain realized by a U.S. Holder selling or exchanging common
shares to be treated as ordinary income rather than capital gain. Northern
Dynasty does not believe that it currently qualifies as a foreign investment
company. However, there can be no assurance that Northern Dynasty will not be
considered a foreign investment company for the current or any future taxable
year.
PASSIVE FOREIGN INVESTMENT COMPANY
United States income tax law contains rules governing "passive foreign
investment companies" ("PFIC") which can have significant tax effects on U.S.
Holders of foreign corporations. These rules do not apply to non-U.S. Holders.
Section 1297 of the Code defines a PFIC as a corporation that is not formed in
the United States if, for any taxable year, either (i) 75% or more of its gross
income is "passive income," which includes interest, dividends and certain rents
and royalties or (ii) the average percentage, by fair market value (or, if the
corporation is not publicly traded and either is a controlled foreign
corporation or makes an election, by adjusted tax basis), of its assets that
produce or are held for the production of "passive income" is 50% or more.
Northern Dynasty appears to have been a PFIC for the fiscal year ended September
30, 1999, and at least certain prior fiscal years. In addition, Northern Dynasty
expects to qualify as a PFIC for the fiscal year ending September 30, 2000 and
may also qualify as a PFIC in future fiscal years. Each U.S. Holder of Northern
Dynasty is urged to consult a tax advisor with respect to how the PFIC rules
affect such U.S. Holder's tax situation.
Each U.S. Holder who holds stock in a foreign corporation during any year in
which such corporation qualifies as a PFIC is subject to United States federal
income taxation under one of three alternative tax regimes at the election of
such U.S. Holder. The following is a discussion of such alternative tax regimes
applied to such U.S. Holders of Northern Dynasty. In addition, special rules
apply if a foreign corporation qualifies as both a PFIC and a "controlled
foreign corporation" (as defined below) and a U.S. Holder owns, actually or
constructively, 10% or more of the total combined voting power of all classes of
stock entitled to vote of such foreign corporation (See more detailed discussion
at "Controlled Foreign Corporation" below).
A U.S. Holder who elects to treat Northern Dynasty as a qualified electing fund
("QEF") will be subject, under Section 1293 of the Code, to current federal
income tax for any taxable year to which the election applies in which Northern
Dynasty qualifies as a PFIC on his pro rata share of Northern Dynasty's (i) "net
capital gain" (the excess of net long-term capital gain over net short-term
capital loss), which will be taxed as long-term capital gain, and (ii) "ordinary
earnings" (the excess of earnings and profits over net capital gain), which will
be taxed as ordinary income, in each case, for the shareholder's taxable year in
which (or with which) Northern Dynasty's taxable year ends, regardless of
whether such amounts are actually distributed. A U.S. Holder's tax basis in the
common shares will be increased by any such amount that is included in income
but not distributed.
The procedure a U.S. Holder must comply with in making an effective QEF
election, and the consequences of such election, will depend on whether the year
of the election is the first year in the U.S. Holder's holding period in which
Northern Dynasty is a PFIC. If the U.S. Holder makes a QEF election in such
first year, i.e., a "timely" QEF election, then the U.S. Holder may make the QEF
election by simply filing the appropriate documents at the time the U.S. Holder
files his tax return for such first year. If, however, Northern Dynasty
qualified as a PFIC in a prior year during the U.S. Holder's holding period,
then, in order to avoid the Section 1291 rules discussed below, in addition to
filing documents, the U.S. Holder must elect to recognize under the rules of
Section 1291 of the Code (discussed herein), (i) any gain that he would
otherwise recognize if the U.S. Holder sold his stock on the qualification date
or (ii) if Northern Dynasty is a controlled foreign corporation, the U.S.
Holder's pro rata share of Northern Dynasty's post-1986 earnings and profits as
of the qualification date. The qualification date is the first day of Northern
Dynasty's first tax year in which Northern Dynasty qualified as a QEF with
respect to such U.S. Holder. For purposes of this discussion, a U.S. Holder who
makes (i) a timely QEF election, or (ii) an untimely QEF election and either of
the above-described gain-recognition elections under Section 1291 is referred to
herein as an "Electing U.S. Holder." A U.S. Holder who holds common shares at
any time during a year of Northern Dynasty in which Northern Dynasty is a PFIC
and who is not an Electing U.S. Holder (including a U.S. Holder who makes an
untimely QEF election and makes neither of the above-described gain-recognition
elections) is referred to herein as a "Non-Electing U.S. Holder." An Electing
U.S. Holder (i) generally treats any gain realized on the disposition of his
Registrant common shares as capital gain; and (ii) may either avoid interest
charges resulting from PFIC status altogether, or make an annual election,
subject to certain limitations, to defer payment of current taxes on his share
of Northern Dynasty's annual realized net capital gain and ordinary earnings
subject, however, to an interest charge. If the U.S. Holder is not a
corporation, any interest charge imposed under the PFIC regime would be treated
as "personal interest" that is not deductible.
In order for a U.S. Holder to make (or maintain) a valid QEF election, Northern
Dynasty must provide certain information regarding its net capital gains and
ordinary earnings and permit its books and records to be examined to verify such
information. Northern Dynasty intends to make the necessary information
available to U.S. Holders to permit them to make (and maintain) QEF elections
with respect to Northern Dynasty. Northern Dynasty urges each U.S. Holder to
consult a tax advisor regarding the availability of, and procedure for making,
the QEF election.
A QEF election, once made with respect to Northern Dynasty, applies to the tax
year for which it was made and to all subsequent tax years, unless the election
is invalidated or terminated, or the IRS consents to revocation of the election.
If a QEF election is made by a U.S. Holder and Northern Dynasty ceases to
qualify as a PFIC in a subsequent tax year, the QEF election will remain in
effect, although not applicable, during those tax years in which Northern
Dynasty does not qualify as a PFIC. Therefore, if Northern Dynasty again
qualifies as a PFIC in a subsequent tax year, the QEF election will be effective
and the U.S. Holder will be subject to the rules described above for Electing
U.S. Holders in such tax year and any subsequent tax years in which Northern
Dynasty qualifies as a PFIC. In addition, the QEF election remains in effect,
although not applicable, with respect to an Electing U.S. Holder even after such
U.S. Holder disposes of all of his or its direct and indirect interest in the
shares of Northern Dynasty. Therefore, if such U.S. Holder reacquires an
interest in Northern Dynasty, that U.S. Holder will be subject to the rules
described above for Electing U.S. Holders for each tax year in which Northern
Dynasty qualifies as a PFIC.
In the case of a Non-Electing U.S. Holder, special taxation rules under Section
1291 of the Code will apply to (i) gains realized on the disposition (or deemed
to be realized by reasons of a pledge) of his Registrant common shares and (ii)
certain "excess distributions," as defined in Section 1291(b), by Northern
Dynasty.
A Non-Electing U.S. Holder generally would be required to pro rate all gains
realized on the disposition of his Registrant common shares and all excess
distributions on his Registrant common shares over the entire holding period for
the common shares. All gains or excess distributions allocated to prior years of
the U.S. Holder (excluding any portion of the holder's period prior to the first
day of the first year of Northern Dynasty (i) which began after December 31,
1986, and (ii) for which Northern Dynasty was a PFIC) would be taxed at the
highest tax rate for each such prior year applicable to ordinary income. The
Non-Electing U.S. Holder also would be liable for interest on the foregoing tax
liability for each such prior year calculated as if such liability had been due
with respect to each such prior year. A Non-Electing U.S. Holder that is not a
corporation must treat this interest charge as "personal interest" which, as
discussed above, is wholly non-deductible. The balance, if any, of the gain or
the excess distribution will be treated as ordinary income in the year of the
disposition or distribution, and no interest charge will be incurred with
respect to such balance. In certain circumstances, the sum of the tax and the
PFIC interest charge may exceed the amount of the excess distribution received,
or the amount of proceeds of disposition realized, by the U.S. Holder.
If Northern Dynasty is a PFIC for any taxable year during which a Non-Electing
U.S. Holder holds Registrant common shares, then Northern Dynasty will continue
to be treated as a PFIC with respect to such Registrant common shares, even if
it is no longer definitionally a PFIC. A Non-Electing U.S. Holder may terminate
this deemed PFIC status by electing to recognize gain (which will be taxed under
the rules discussed above for Non-Electing U.S. Holders) as if such Registrant
common shares had been sold on the last day of the last taxable year for which
it was a PFIC.
Effective for tax years of U.S. Holders beginning after December 31, 1997, U.S.
Holders who hold (actually or constructively) marketable stock of a foreign
corporation that qualifies as a PFIC may elect to mark such stock to the market
annually (a "mark-to-market election"). If such an election is made, such U.S.
Holder will generally not be subject to the special taxation rules of Section
1291 discussed above. However, if the mark-to-market election is made by a
Non-Electing U.S. Holder after the beginning of the holding period for the PFIC
stock, then the Section 1291 rules will apply to certain dispositions of,
distributions on and other amounts taxable with respect to Northern Dynasty
common shares. A U.S. Holder who makes the mark-to market election will include
in income for each taxable year for which the election is in effect an amount
equal to the excess, if any, of the fair market value of the common shares of
Northern Dynasty as of the close of such tax year over such U.S. Holder's
adjusted basis in such common shares. In addition, the U.S. Holder is allowed a
deduction for the lesser of (i) the excess, if any, of such U.S. Holder's
adjusted tax basis in the common shares over the fair market value of such
shares as of the close of the tax year, or (ii) the excess, if any, of (A) the
mark-to-market gains for the common shares in Northern Dynasty included by such
U.S. Holder for prior tax years, including any amount which would have been
treated as a mark-to-market gain for any prior tax year but for the Section 1291
rules discussed above with respect to Non-Electing U.S. Holders, over (B) the
mark-to-market losses for shares that were allowed as deductions for prior tax
years. A U.S. Holder's adjusted tax basis in the common shares of Northern
Dynasty will be adjusted to reflect the amount included in or deducted from
income as a result of a mark-to-market election. A mark-to-market election
applies to the taxable year in which the election is made and to each subsequent
taxable year, unless Northern Dynasty common shares cease to be marketable, as
specifically defined, or the IRS consents to revocation of the election. Because
the IRS has not established procedures for making a mark-to-market election,
U.S. Holders should consult their tax advisor regarding the manner of making
such an election. No view is expressed regarding whether common shares of
Northern Dynasty are marketable for these purposes or whether the election will
be available.
Under Section 1291(f) of the Code, the IRS has issued Proposed Treasury
Regulations that, subject to certain exceptions, would treat as taxable certain
transfers of PFIC stock by Non-Electing U.S. Holders that are generally not
otherwise taxed, such as gifts, exchanges pursuant to corporate reorganizations,
and transfers at death. Generally, in such cases the basis of Northern Dynasty
common shares in the hands of the transferee and the basis of any property
received in the exchange for those common shares would be increased by the
amount of gain recognized. Under the Proposed Treasury Regulations, an Electing
U.S. Holder would not be taxed on certain transfers of PFIC stock, such as
gifts, exchanges pursuant to corporate reorganizations, and transfers at death.
The transferee's basis in this case will depend on the manner of the transfer.
In the case of a transfer by an Electing U.S. Holder upon death, for example,
the transferee's basis is generally equal to the fair market value of the
Electing U.S. Holder's common shares as of the date of death under Section 1014
of the Code. The specific tax effect to the U.S. Holder and the transferee may
vary based on the manner in which the common shares are transferred. Each U.S.
Holder of Northern Dynasty is urged to consult a tax advisor with respect to how
the PFIC rules affect his or its tax situation.
Whether or not a U.S. Holder makes a timely QEF election with respect to common
shares of Northern Dynasty, certain adverse rules may apply in the event that
both Northern Dynasty and any foreign corporation in which Northern Dynasty
directly or indirectly holds shares is a PFIC (a "lower-tier PFIC"). Pursuant to
certain Proposed Treasury Regulations, a U.S. Holder would be treated as owning
his or its proportionate amount of any lower-tier PFIC shares, and generally
would be subject to the PFIC rules with respect to such indirectly-held PFIC
shares unless such U.S. Holder makes a timely QEF election with respect thereto.
Northern Dynasty intends to make the necessary information available to U.S.
Holders to permit them to make (and maintain) QEF elections with respect to each
subsidiary of Northern Dynasty that is a PFIC.
Under the Proposed Treasury Regulations, a U.S. Holder who does not make a
timely QEF election with respect to a lower-tier PFIC generally would be subject
to tax (and the PFIC interest charge) on (i) any excess distribution deemed to
have been received with respect to his or its lower-tier PFIC shares and (ii)
any gain deemed to arise from a so-called "indirect disposition" of such shares.
For this purpose, an indirect disposition of lower-tier PFIC shares would
generally include (i) a disposition by Northern Dynasty (or an intermediate
entity) of lower-tier PFIC shares, and (ii) any other transaction resulting in a
diminution of the U.S. Holder's proportionate ownership of the lower-tier PFIC,
including an issuance of additional common shares by Northern Dynasty (or an
intermediate entity). Accordingly, each prospective U.S. Holder should be aware
that he or it could be subject to tax even if such U.S. Holder receives no
distributions from Northern Dynasty and does not dispose of its common shares.
NORTHERN DYNASTY STRONGLY URGES EACH PROSPECTIVE U.S. HOLDER TO CONSULT A TAX
ADVISOR WITH RESPECT TO THE ADVERSE RULES APPLICABLE, UNDER THE PROPOSED
TREASURY REGULATIONS, TO U.S. HOLDERS OF LOWER-TIER PFIC SHARES.
Certain special, generally adverse, rules will apply with respect to Registrant
common shares while Northern Dynasty is a PFIC unless the U.S. Holder makes a
timely QEF election. For example under Section 1298(b)(6) of the Code, a U.S.
Holder who uses PFIC stock as security for a loan (including a margin loan)
will, except as may be provided in regulations, be treated as having made a
taxable disposition of such shares.
CONTROLLED FOREIGN CORPORATION
If more than 50% of the total combined voting power of all classes of shares
entitled to vote or the total value of the shares of Northern Dynasty is owned,
actually or constructively, by citizens or residents of the United States,
United States domestic partnerships or corporation, or estates or trusts other
than foreign estates or trusts (as defined by the Code Section 7701(a)(31)),
each of which own, actually or constructively, 10% or more of the total combined
voting power of all classes of shares entitled to vote of Northern Dynasty
("United States Shareholder"), Northern Dynasty could be treated as a controlled
foreign corporation ("CFC") under Subpart F of the Code. This classification
would effect many complex results, one of which is the inclusion of certain
income of a CFC which is subject to current U.S. tax. The United States
generally taxes United States Shareholders of a CFC currently on their pro rata
shares of the Subpart F income of the CFC. Such United States Shareholders are
generally treated as having received a current distribution out of the CFC's
Subpart F income and are also subject to current U.S. tax on their pro rata
shares of increases in the CFC's earnings invested in U.S. property. The foreign
tax credit described above may reduce the U.S. tax on these amounts. In
addition, under Section 1248 of the Code, gain from the sale or exchange of
shares by a U.S. Holder of common shares of Northern Dynasty which is or was a
United States Shareholder at any time during the five-year period ending on the
date of the sale or exchange is treated as ordinary income to the extent of
earnings and profits of Northern Dynasty attributable to the shares sold or
exchanged. If a foreign corporation is both a PFIC and a CFC, the foreign
corporation generally will not be treated as a PFIC with respect to United
States Shareholders of the CFC. This rule generally will be effective for
taxable years of United States Shareholders beginning after 1997 and for taxable
years of foreign corporations ending with or within such taxable years of United
States Shareholders. Special rules apply to United States Shareholders who are
subject to the special taxation rules under Section 1291 discussed above with
respect to a PFIC. Because of the complexity of Subpart F, a more detailed
review of these rules is outside of the scope of this discussion. Northern
Dynasty does not believe that it currently qualifies as a CFC. However, there
can be no assurance that Northern Dynasty will not be considered a CFC for the
current or any future taxable year.
F. DIVIDENDS AND PAYING AGENTS
Not applicable.
G. STATEMENT BY EXPERTS
The following are experts whose opinions or reports are included herein:
(a) Geological Advisor, M.J. Casselman, P.Geo., was retained by
Northern Dynasty in 2001 [as an independent geological advisor to
review and compile available information on the Pebble Property and
provide his recommendations to further explore it. He has also assisted
in the preparation of the Geological Discussion of the Pebble Project
in Item 4 on behalf of Northern Dynasty. Mr. Casselman holds an M.Sc.
and is a professional geologist and a member of the Association of
Professional Engineers and Geoscientists of British Columbia. His
office address is 1325 Chestnut Street, Vancouver, B.C., Canada.
All the foregoing experts have consented to the inclusion of their reports or
opinions herein or in the previously (March 18 2002, April 25 2002, May 31 2002
and June 10, 2002) filed initial 20FA registration statements (as amended) and,
if filed with such previous 20FAs, the section herein respecting which such
expert has consented has not been amended by this annual filing.
H. DOCUMENTS ON DISPLAY
Exhibits attached to this Form 20-F are also available for viewing at the
offices of Northern Dynasty, Suite 1020 - 800 West Pender Street, Vancouver,
British Columbia V6C 2V6 or on request of Northern Dynasty at 604-684-6365,
attention Shirley Main. Copies of Northern Dynasty's financial statements and
other continuous disclosure documents required under the British Columbia
SECURITIES ACT are available for viewing on the internet at www.SEDAR.com.
I. SUBSIDIARY INFORMATION
Not applicable.
ITEM 11 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(A) TRANSACTION RISK AND CURRENCY RISK MANAGEMENT
Northern Dynasty's operations do not employ financial instruments or derivatives
and given that Northern Dynasty keeps its excess funds in high grade short term
instruments it does not have significant or unusual financial market risks.
(B) EXCHANGE RATE SENSITIVITY
Northern Dynasty's Pebble Property operations are in the State of Alaska and
hence it is somewhat affected by exchange rate risk of fluctuations between
Canadian and United States currency. Its liabilities are all short term trade
payables and many are denominated in Canadian dollars. Northern Dynasty does not
hedge this risk, which it does not consider this material exposure in the
context of its operations.
(C) INTEREST RATE RISK AND EQUITY PRICE RISK
Northern Dynasty is equity financed and does not have any debt that could be
subject to significant interest rate change risks.
(D) COMMODITY PRICE RISK
While the value of Northern Dynasty's resource properties can always be said to
relate to the price of copper and gold metals and the outlook for same, Northern
Dynasty does not have any operating mines and hence does not have any hedging or
other commodity based operations risks respecting its business activities.
ITEM 12 DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
A. DEBT SECURITIES
Not applicable.
B. WARRANTS AND RIGHTS
Not applicable. (Northern Dynasty's warrants are non-transferable and no market
exists for them. Northern Dynasty has issued no rights.)
C. OTHER SECURITIES
Not applicable.
D. AMERICAN DEPOSITARY SHARES
Not applicable.
PART II
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 [RESERVED]
ITEM 16 [RESERVED]
PART III
ITEM 17 FINANCIAL STATEMENTS
The following attached financial statements are incorporated herein (see
exhibits).
ANNUAL
(1) Auditors' Reports on the balance sheets as at December 31, 2002, and 2001,
and the statements of operations and deficit, mineral property interests and
changes in cash flows for each of the three years ended December 31, 2002, 2001
and 2000;
(2) Balance sheets as at December 31, 2002, 2001 and 2000;
(3) Statements of operations and deficit for each of the three years ended
December 31, 2002, 2001 and 2000;
(4) Statements of changes in cash flows for the periods referred to in (8) above;
(5) Notes to the financial statements;
ITEM 18 FINANCIAL STATEMENTS
NOT APPLICABLE. See Item 17.
ITEM 19 EXHIBITS
Key to the following document types:
1. Articles of Incorporation and Registered Incorporation Memorandum of Northern
Dynasty.
2. Other Instruments defining the rights of the holders of equity or debt
securities. (N/A)
3. Voting trust agreements. (N/A)
4. A. Material contracts not made in the ordinary course of business or which
are to be performed in whole or in part at or after the filing of the
Registration Statement or which was entered into not more than two years before
filing.
B
(i) Agreements to which Directors, Officers, promoters voting trustees
or security holders or their affiliates named in the Registration Statement are
parties other than contracts involving only the purchase or sale of current
assets having a determinable market price;
(ii) contracts on which Northern Dynasty business is substantially dependent;
(iii) contracts for the acquisition or sale of property exceeding 15% of
Northern Dynasty's fixed assets; and
(iv) material leases. (N/A)
C. Management Contracts, compensation plans.
5-9 Not applicable.
10. Other
THE FOLLOWING EXHIBITS WERE ATTACHED AS AN APPENDIX TO THE FORM 20-F OF NORTHERN
DYNASTY FILED JANUARY 9, 2002:
TYPE OF
DOCUMENT DESCRIPTION PAGES
--------- ------------- ------------------------------------------------------------------------ -------------
1. 1 Certificate of Incorporation, Memorandum and Articles of Association 1-54
of Northern Dynasty
2. 4C Amended Share Incentive Plan dated for reference June
20, 2000 55-67 3. 4B(i) Geological Management and
Administration Services Agreement dated for 68-77
reference December 31, 1996 between Northern Dynasty and Hunter
Dickinson Inc. ("HDI") (See Item 7 "Interest of Management in Certain
Transactions"
4. 4B(i) HDG Assignment Agreement with Hunter Dickinson Group Inc.
("HDG") 78-99 4B(ii) dated October 29, 2001 whereby Northern Dynasty
obtained its option to 4B(iii) the Pebble Property including the
underlying Teck Cominco Options and
Consent Agreement
THE FOLLOWING EXHIBITS WERE ATTACHED TO THE FORM 20-FA FILED MARCH 18, 2002:
5. 10. Consent of U.S. Tax Expert, Kempisty & Co., Certified Public 100
Accountants (1)
6. 10. Consent of Auditors, DeVisser Gray, Chartered Accountants 101
7. 10. Consent of counsel, Lang Michener (1) 102
8. 10. Consent of geological expert, M.J. Casselman 103
THE FOLLOWING EXHIBITS WERE ATTACHED TO THE SECOND AMENDMENT FORM 20-FA FILED APRIL 25, 2002:
9. 10. Consent of Auditors, DeVisser Gray, Chartered Accountants dated April 104
24, 2002.
10. 10. Consent of Geological Expert, M.J. Casselman, April 24, 2002. 105
THE FOLLOWING EXHIBITS WERE ATTACHED TO THE THIRD AMENDMENT FORM 20-FA FILED JUNE 3, 2002:
11. 10. Consent of Geological Expert, M.J. Casselman, May 31, 2002. 106
THE FOLLOWING EXHIBITS WERE ATTACHED TO THE ANNUAL REPORT ON FORM 20F FILED JUNE 24, 2002:
12. 10. Consent of Auditors, DeVisser Gray, Chartered Accountants dated June 107
24, 2002.
13. 10. Consent of Geological Expert, M.J. Casselman, June 24, 2002. 108 Note:
(1) No changes were made to the second and third amendment 20FA sections
respecting which these experts were concerned (see Item 10G) and provided
consents as part of the March 18, 2002 20FA (first amendment) filing.
THE FOLLOWING EXHIBITS ARE FILED WITH THIS ANNUAL REPORT ON FORM 20F:
14. 99 Audited annual financial statements for the year ended December 31,
2002
SIGNATURES
Northern Dynasty certifies that it meets all of the requirements for filing Form
20-F and that it has duly caused and authorized the undersigned to sign this
amended report on its behalf.
NORTHERN DYNASTY MINERALS LTD.
Per:
RONALD W. THIESSEN
President and Director
DATED: May 30, 2003
CERTIFICATIONS
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 annual 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 annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
(b) evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the Registrant's auditors and the audit committee of
Registrant's board of directors (or persons performing the equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrant's
internal controls; and
6. The Registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 30, 2003 /s/ Ronald W. Thiessen
---------------------- -------------------------------------------
Ronald W. Thiessen, Chief Executive Officer
CERTIFICATIONS
I, Jeffrey R. Mason, certify that:
1. I have reviewed this annual report on Form 20-F of Northern Dynasty Minerals
Ltd.;
2. Based on my knowledge, this annual 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 annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
(b) evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the Registrant's auditors and the audit committee of
Registrant's board of directors (or persons performing the equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrant's
internal controls; and
6. The Registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 30, 2003 /s/ Jeffrey R. Mason
---------------------- ------------------------------------------
Jeffrey R. Mason, Chief Financial Officer