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Mining company seeking Ambler road admits 'substantial doubt' on its financial health

  • Author: Dermot Cole
    | Opinion
  • Updated: September 28, 2016
  • Published December 18, 2014

FAIRBANKS — The company that wants the state to build a 200-mile one-lane road to mining prospects in Northwest Alaska says "substantial doubt exists as to our ability to continue as a going concern," a statement it made in July and repeated to investors as recently as October.

NovaCopper says the doubt is because it is dependent "on our ability to obtain additional financing," according to documents filed with regulators by the Canadian mining company.

"There is no assurance that we will be successful in obtaining additional financing, that sufficient funds will be available to us or be available on favorable terms in the future," NovaCopper told the Securities and Exchange Commission in its latest quarterly report in October and said in press releases.

Fluctuations in the company's share price, which was 55 cents Thursday — more than $1 below the 52-week high and 9 cents above the 52-week low — as well as international market conditions, investor perceptions and other factors could affect the availability of financing, it said.

The company said it is not generating income from its operations and had $7 million in cash as of Aug. 31. In July, it raised $7.5 million from its largest existing shareholders to pay for administrative expenses and program expenditures, NovaCopper said.

Thomas Kaplan, chairman of the NovaCopper board, is chairman of the Electrum Group LLC, a New York investment and financial management firm that is the largest shareholder in NovaCopper, with about one-third of its stock. In 2010, the Wall Street Journal described him as a "low-profile billionaire" who was betting big on gold.

Paulson & Co., a hedge fund run by billionaire John Paulson, owned 18 percent of NovaCopper, according to an August filing with the SEC.

The Parnell administration and the Legislature have included nearly $18 million in recent years to promote the 200-mile access road to the proposed mining site. The preliminary economic assessment by NovaCopper says the road would be "built by the government of Alaska," while it would likely pay a toll based on a $150 million cost. But other estimates have put the cost of the road at $193 million to $400 million.

The company assumes it would pay $9.7 million a year in road tolls for the 12-year life of the mine.

The Parnell administration said $15.5 million was needed over the next two fiscal years to get the project preparations to the point where a road could be built.

The Alaska Industrial Development and Export Authority was to develop a financing strategy for the road this fiscal year. In an interview with Copper Investing News, NovaCopper President Rick Van Nieuwenhuyse said he sees strong support from Alaska for the project.

"AIDEA, which is effectively a state development bank, is currently in the process of permitting an access road into the Ambler Mining District. So we see strong support for mineral development specifically," he said.

"This type of approach — sometimes called a Public-Private Partnership, or P3, is becoming more and more common in the world. A lot of road infrastructure projects, a lot of freeways and highways in various cities in North America have been financed with this model," he said.

He said that "given the state of the market and the fact that we decided to do a reduced program this year, we're in good shape financially for the year. However, in order to advance the project beyond this year's program, we'll have to look for additional funding."

The Walker administration has cut $8 million in proposed state spending on the Ambler project from the fiscal year 2016 capital budget, but some legislative supporters may seek to fund it.

In 2011, NovaCopper paid $4 million to the NANA regional Native corporation for an exploration agreement on NANA lands. NANA has the right to appoint a member to the NovaCopper board but has not done so.

If a decision to build a mine is made, Kotzebue-based NANA has the right to purchase 16 percent to 25 percent of the mine or keep a 15 percent royalty on net proceeds, NovaCopper says.

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