Pebble could be denied before environmental approval process starts

VANCOUVER — The U.S. Environmental Protection Agency (EPA) says it might employ a little-used veto power to block development of the Pebble mine in Alaska’s Bristol Bay, the latest twist in a long battle over the proposed mine.

Pebble is the largest undeveloped copper–gold deposit in the world. Owner Northern Dynasty Minerals (TSX: NDM; NYSE-MKT; NAK) is trying to build momentum behind plans to turn the behemoth deposit into a massive mine, but the project sits on pristine lands famous for their salmon-spawning streams.

Environmentalists, natives and commercial fishermen have united to oppose the mine. In 2011 these opponents petitioned the EPA to review Pebble’s potential impacts. The resulting report, released in January, found that large-scale mining in the Bristol Bay watershed posed significant risks to salmon and to the Alaskan native cultures that rely on the fish.

Now the EPA has revealed how it could act to protect Bristol Bay from such risks.

Under the Clean Water Act, any plan that involves putting dredged or fill material into streams, wetlands, lakes or ponds requires a Section 404(c) permit from the U.S. Army Corps of Engineers. Thousands of permits are issued each year, generally after the EPA works with the Army Corps to resolve environmental concerns.

However, the EPA has the authority to “prohibit or restrict fill activities if a project would have unacceptable adverse effects on fishery areas.” In the 42-year history of the Clean Water Act the EPA has only used this veto authority 13 times.

In contemplating its fourteenth veto move, the EPA proposes to ban discharge of any material mined at Pebble that would result in loss of streams, wetlands, lakes or ponds, or alteration of streamflows. Within the area that the Pebble mine would impact, the agency’s report identifies 8 km of salmon-rich streams, 30 km of additional streams and 4.45 sq. km of associated wetlands.

The EPA describes the move as “a proposal to protect one of the world’s most valuable salmon fisheries . . . from the risks posed by large-scale mining at the Pebble deposit.”

Pebble is home to 5.9 billion measured and indicated tonnes  grading 0.42% copper, 0.35 gram gold per tonne and 0.025% molybdenum, containing 55 billion lb. copper, 67 million oz. gold and 3.3 billion lb. molybdenum. There are 4.8 billion inferred tonnes at lower grades.

However, the huge deposit essentially straddles the border between the Kvichak and Nushagak River watersheds, which support some of the largest sockeye salmon returns in the world each year.

“Bristol Bay is an extraordinary ecosystem that supports an ancient fishing culture and economic powerhouse,” EPA Regional Administrator for EPA Region 10 Dennis McLerran said in a statement. “The science is clear that mining the Pebble deposit would cause irreversible damage to one of the world’s last intact salmon ecosystems. Bristol Bay’s exceptional fisheries deserve exceptional protection.”

As described by the EPA, the Pebble open pit would cover almost 18 sq. km. The tailings impoundment would extend across 50 sq. km, while waste-rock piles would cover another 23 sq. km.

Northern Dynasty has neither submitted a formal mine plan nor applied for a Section 404(c) wetlands permit from the Army Corps. Without those submissions the company, known in this context as the “Pebble Partnership,” says the EPA could not possibly make an informed decision on the mine’s impacts.

In May the Pebble Partnership filed suit against the EPA. Within days, the State of Alaska asked to intervene in the case on behalf of Pebble because blocking the mine would restrict the state’s right to develop its resources for the benefit of its residents. The case is in its early stages before a federal trial judge in Alaska.

In addition, two bipartisan bills are pending in the U.S. House and Senate that seek to prove the EPA does not have authority to pre-emptively veto project development before federal and state permitting.

On top of that, investigations are underway by the Office of the EPA Inspector General and by the House Committee on Oversight and Government Reform around the validity of the EPA’s pre-emptive veto.

“The company does not accept that the EPA has the statutory authority to impose conditions on development at Pebble, or any development project anywhere in Alaska or the U.S., prior to the submission of a detailed development plan and its thorough review by federal and state agencies, including review under the National Environmental Policy Act (NEPA),” Northern Dynasty said in a statement. “The correct, legal and defensible way forward is for EPA to suspend its pre-emptive 404(c) process and allow us the full opportunity to have the project reviewed by federal and state-regulatory agencies, including EPA, under NEPA.”

Recent legal precedent, however, is on the EPA’s side. In March the U.S. Supreme Court declined to hear an appeal in a case that validated the latest application of the EPA’s 404(c) veto. In that case the EPA’s veto overruled an Army Corps permit authorizing a mountaintop coal mine. In declining to hear the appeal, the Supreme Court left intact a decision by a federal appeals court that ruled broadly in favour of the EPA’s action, deciding Section 404(c) “imposes no temporal limit” on the agency.

The decision suggests that the EPA would be within its rights to veto Pebble before, during or after the regulatory process.

The EPA is not certain it will employ the veto. McLerran says the agency will be open for public comment until mid-September, including hosting a series of meetings in Alaska. After that the group will determine its next step.

The junior used to have major mining companies as partners at Pebble, but last September Anglo American (US-OTC: AAUKY; LSE: AAL) walked away from its 50% stake in the project after spending US$556 million on-site. In April Rio Tinto (NYSE: RIO; LSE: RIO) gave its 19.1% stake in Northern Dynasty to two Alaskan charities.

A year ago, before Anglo and Rio walked away from Pebble, Northern Dynasty shares traded as high as $2.84. Today they are worth 84¢. Northern Dynasty has 95 million shares outstanding.