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Rio Tinto pulls out of Pebble Partnership, gifting its stake to Alaska organizations

Months after saying it would reassess its involvement in the controversial Pebble Mine project, mining giant Rio Tinto said Monday it has pulled its support and will donate its shares in the proposed Alaska mine project -- worth about $16 million today -- to a pair of Alaska charitable organizations.

Rio Tinto -- owner of a 19.1 percent stake in Northern Dynasty Minerals, which in turn owns the rights to Pebble prospect -- said it would donate its stake to the Alaska Community Foundation and the Education Foundation of Bristol Bay Native Corporation.

If developed as currently planned, the project would be one of the largest open pit mines in the world. Northern Dynasty estimates that the proposed mining area could contain as much as 81 billion pounds of copper, 5.6 billion pounds of molybdenum and 107 million ounces of gold. Estimates have put the value of the resources at up to $300 billion.

But the proposed project has faced national opposition and harsh scrutiny over potential impacts to the sensitive environment it would inhabit -- including from the U.S. Environmental Protection Agency. The watershed near the mine feeds into the rivers and streams that make up the Bristol Bay region, home to one of the world's most successful commercial salmon fisheries and a subsistence fishery crucial to the communities in the area.

Rio Tinto's divestment comes as part of a series of blows to the prospect over the last year.

In September, London-based Anglo American withdrew from the Pebble Partnership, taking a $300 million hit for doing so.

In December, following Anglo American's decision and facing pressure from major shareholders to divest, Rio Tinto said it would re-evaluate its investment. Then in February, the EPA launched a special review under a rarely-used section of the Clean Water Act that many believed was a preemptive effort to stop Pebble. Under those provisions, the EPA has said it has the power to halt development permanently.

The decision for Rio Tinto to leave comes as no surprise to the Pebble Partnership, according to Mike Heatwole, spokesman for the partnership. Despite the setback, he said the company is still confident in the project. Its immediate goal for the next year is to work with Northern Dynasty to secure a long-term partner.

"We remain optimistic about the conversation that's taking place," Heatwole said.

To sell or not to sell?

Both the Alaska Community Foundation and Bristol Bay Native Corporation Education Fund will receive half of Rio Tinto's 18 million shares. Those roughly 9 million shares each equate to a little less than $8 million in funds at today's current stock prices, should the groups decide to sell.

In a press release, the Alaska Community Foundation said it plans to use the windfall create the Vocational Fund for Alaska's Future, which will contribute to the "competitiveness of Alaska's economy." The fund will go toward investments in training and education in the fields of welding, carpentry, plumbing, geology and engineering in Alaska.

Bristol Bay Native Corporation plans to invest the shares in its Education Foundation, which provides scholarships and other educational opportunities to shareholders from the region.

But along with the shares come big questions over what it will mean for the Pebble Partnership. Rio Tinto was the largest minority stakeholder in the project.

Now that title falls jointly to ACF and BBNC. Both organizations said Monday they were still considering how they would handle the shares.

The gift also raises questions over the value of the shares, which have dropped dramatically in recent years. The stocks peaked in January 2011 at just over $21 a share, but have steadily fallen since then. In April of last year, Northern Dynasty shares hovered at just under $3 a share. On Monday the stock closed at 88 cents per share.

Rio Tinto spokesperson David Outhwaite refused to comment on whether or not Rio Tinto had tried to sell the shares instead of gifting them. In December, when the company started its strategic review of its Pebble involvement, it said it would consider all forms of divestment, including a traditional sale.

The company looked at all different options and decided the donation was the best course of action, Outhwaite said from London Monday.

Pebble Partnership spokesperson Heatwole said if the organizations decide to keep their shares, they will be welcomed as stakeholders. Heatwole said Pebble has worked with ACF before, when the partnership invested $5 million in projects for the region in areas such as education and workforce development. That only ended in 2013 when Anglo-American pulled its support and left the partnership reassessing it finances.

The relationship with Bristol Bay Native Corporation could be more complicated. The organization has long been an outspoken critic of the proposed project, something the Pebble Partnership is keenly aware of.

"Even though they have a publicly-stated position opposing the project, we like to keep lines of communication open," Heatwole said. "Obviously the appropriate folks will be sitting down with the right folks over there sometime in the near future to figure out what this really means."

Moving forward

Whether the organizations will hold on to the shares -- or try to cash them in -- seems to be in question. ACF President and CEO Candace Winkler said the organization would be looking at the "most prudent" way to use the shares, likely by monetizing them as quickly as possible.

"We understand this is a complex issue and people have strong feelings on both sides," Winkler said. "But we're excited about the opportunity to be able to do something good for Alaska."

BBNC President and CEO Jason Metrokin said he suspects Rio Tinto gifting the shares has something to do with investors being "few and far between at this point."

Gifting the shares would mean goodwill on the part of Rio Tinto should the company decide to pursue a future Alaska project, Metrokin said.

Rio Tinto will take a $130 million write-down to get out of Pebble, said Outhwaite.

Rio Tinto has another investment in Alaska, and it could be in danger as well. Spokesman Outhwaite said the company had an early stage exploration joint venture project at the Groundhog claim in Bristol Bay which undertook exploration between 2011 and 2012.

But the claim is also subject to the EPA's Clean Water Act section 404 action and the company is currently in the process of terminating that project, he said.

Rio Tinto also had a stake in the Greens Creek gold mine in Southeast Alaska. At one point the group owned 70 percent interest in the mine, though it sold it to Hecla Mining Company in 2008 as part of a sale that involved the company offloading $15 billion worth of assets worldwide.

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