CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2009
(Expressed in thousands of Canadian Dollars)
(Unaudited)
These financial statements have not been reviewed by the Company's auditors
Northern Dynasty Minerals Ltd.
Condensed Consolidated Interim Statements of Financial Position
(Unaudited - Expressed in thousands of Canadian Dollars)
| September 30 | December 31 | ||||||||
| 2009 | 2008 | ||||||||
| Note | (Note 8 | ) | |||||||
| ASSETS | |||||||||
| Non-current assets | |||||||||
| Property, plant and equipment | $ | – | $ | 11 | |||||
| Investment in the Pebble Limited Partnership | 5 | 106,904 | 121,611 | ||||||
| 106,904 | 121,622 | ||||||||
| Current assets | |||||||||
| Balances receivable from a related party | 6 | – | 149 | ||||||
| Amounts receivable and prepayments | 240 | 165 | |||||||
| Marketable securities | 1 | 2 | |||||||
| Cash and cash equivalents | 44,995 | 45,966 | |||||||
| 45,236 | 46,282 | ||||||||
| Total Assets | $ | 152,140 | $ | 167,904 | |||||
| EQUITY | |||||||||
| Share capital | 3 | $ | 369,026 | $ | 365,202 | ||||
| Reserves | 38,513 | 47,710 | |||||||
| Deficit | (255,742 | ) | (245,156 | ) | |||||
| 151,797 | 167,756 | ||||||||
| LIABILITIES | |||||||||
| Current liabilities | |||||||||
| Balances payable to a related party | 6 | 178 | – | ||||||
| Accounts payable and accrued liabilities | 165 | 148 | |||||||
| 343 | 148 | ||||||||
| Total Equity and Liabilities | $ | 152,140 | $ | 167,904 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
These condensed consolidated interim financial statements are authorized for issue on November 12, 2009. They are signed on the Company's behalf by:
| /s/ Ronald W. Thiessen | /s/ Robert A. Dickinson |
| Ronald W. Thiessen | Robert A. Dickinson |
| Director | Director |
Page 2
Northern Dynasty Minerals Ltd.
Condensed Consolidated Interim Statements of Comprehensive (Income) Loss
(Unaudited - Expressed in thousands of Canadian Dollars, except for share information)
| Three months ended | Nine months ended | ||||||||||||||
| September 30 | September 30 | ||||||||||||||
| 2009 | 2008 | 2009 | 2008 | ||||||||||||
| Note | (Note 8 | ) | (Note 8 | ) | |||||||||||
| Expenses | |||||||||||||||
| Depreciation | $ | 2 | $ | – | $ | 12 | $ | – | |||||||
| Conference and travel | 101 | 109 | 290 | 212 | |||||||||||
| Exploration | 11 | 551 | 80 | 619 | |||||||||||
| Foreign exchange loss (gain) | 74 | (1,581 | ) | 118 | (2,617 | ) | |||||||||
| Legal, accounting and audit | 130 | 48 | 226 | 124 | |||||||||||
| Office and administration | 479 | 1,151 | 2,144 | 1,815 | |||||||||||
| Shareholder communication | 230 | 79 | 637 | 217 | |||||||||||
| Share-based compensation | 1,313 | 892 | 7,133 | 5,339 | |||||||||||
| Trust and filing | 18 | 39 | 192 | 226 | |||||||||||
| Loss from operating activities | 2,358 | 1,288 | 10,832 | 5,935 | |||||||||||
| Interest income | (111 | ) | (150 | ) | (246 | ) | (777 | ) | |||||||
| Loss before taxes | 2,247 | 1,138 | 10,586 | 5,158 | |||||||||||
| Income taxes | – | – | – | – | |||||||||||
| Loss for the period | $ | 2,247 | $ | 1,138 | $ | 10,586 | $ | 5,158 | |||||||
| Other comprehensive (income) loss | |||||||||||||||
| Unrealized loss on available-for-sale marketable securities | 2 | 9 | 1 | 10 | |||||||||||
| Exchange difference arising on translation of investment in | |||||||||||||||
| the Pebble Limited Partnership | 9,216 | (4,443 | ) | 14,707 | (7,279 | ) | |||||||||
| Other comprehensive (income) loss | $ | 9,218 | $ | (4,434 | ) | $ | 14,708 | $ | (7,269 | ) | |||||
| Total comprehensive (income) loss | $ | 11,465 | $ | (3,296 | ) | $ | 25,294 | $ | (2,111 | ) | |||||
| Basic and diluted loss per common share | 4 | $ | 0.02 | $ | 0.01 | $ | 0.11 | $ | 0.06 | ||||||
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
Page 3
Northern Dynasty Minerals Ltd.
Condensed Consolidated Interim Statements of Cash Flows
(Unaudited - Expressed in thousands of Canadian Dollars)
| Three months ended | Nine months ended | |||||||||||
| September 30 | September 30 | |||||||||||
| 2009 | 2008 | 2009 | 2008 | |||||||||
| (Note 8 | ) | (Note 8 | ) | |||||||||
| Operating activities | ||||||||||||
| Loss for the period | $ | (2,247 | ) | $ | (1,138 | ) | $ | (10,586 | ) | $ | (5,158 | ) |
| Adjustments for: | ||||||||||||
| Depreciation | 2 | – | 12 | – | ||||||||
| Donation of shares | – | – | 437 | – | ||||||||
| Interest income | (111 | ) | (150 | ) | (246 | ) | (777 | ) | ||||
| Share-based compensation | 1,313 | 892 | 7,133 | 5,339 | ||||||||
| (1,043 | ) | (396 | ) | (3,250 | ) | (596 | ) | |||||
| Changes in non-cash working capital items | ||||||||||||
| Amounts receivable and prepayments | 150 | (151 | ) | (75 | ) | (32 | ) | |||||
| Balances receivable from related parties | (162 | ) | 805 | 149 | 1,220 | |||||||
| Accounts payable and accrued liabilities | 96 | 527 | 18 | (990 | ) | |||||||
| Balances payable to related parties | 178 | 247 | 178 | 247 | ||||||||
| 262 | 1,428 | 270 | 445 | |||||||||
| Net cash provided from (used in) operating activities | (781 | ) | 1,032 | (2,980 | ) | (151 | ) | |||||
| Investing activities | ||||||||||||
| Interest income | 111 | 150 | 246 | 777 | ||||||||
| Net cash provided from investing activities | 111 | 150 | 246 | 777 | ||||||||
| Financing activities | ||||||||||||
| Common shares issued for cash, net of issue costs | 254 | – | 1,763 | – | ||||||||
| Net cash provided from financing activities | 254 | – | 1,763 | – | ||||||||
| Increase (decrease) in cash and cash equivalents | (416 | ) | 1,182 | (971 | ) | 626 | ||||||
| Cash and cash equivalents at beginning of the period | 45,411 | 38,572 | 45,966 | 39,128 | ||||||||
| Cash and cash equivalents at end of the period | $ | 44,995 | $ | 39,754 | $ | 44,995 | $ | 39,754 | ||||
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
Page 4
Northern Dynasty Minerals Ltd.
CondensedConsolidatedInterimStatements ofChanges in Equity
(Unaudited - Expressed in thousands of Canadian Dollars, except for share information)
| Share capital | Reserves | ||||||||||||||||||||
| Foreign | Available-for- | ||||||||||||||||||||
| Number of | Share based | currency | sale financial | ||||||||||||||||||
| shares | Amount | payments | translation | assets | Deficit | Total | |||||||||||||||
| Balance at January 1, 2008 (Note 8) | 92,543,639 | $ | 365,202 | $ | 17,381 | $ | – | $ | (3 | ) | $ | (244,005 | ) | $ | 138,575 | ||||||
| Share-based compensation | – | – | 5,339 | – | – | – | 5,339 | ||||||||||||||
| Total comprehensive income (loss) for the period (Note 8) | – | – | – | 7,279 | (10 | ) | (5,158 | ) | 2,111 | ||||||||||||
| Balance at September 30, 2008 | 92,543,639 | $ | 365,202 | $ | 22,720 | $ | 7,279 | $ | (13 | ) | $ | (249,163 | ) | $ | 146,025 | ||||||
| Balance at January 1, 2009 . | 92,543,639 | $ | 365,202 | $ | 25,089 | $ | 22,635 | $ | (14 | ) | $ | (245,156 | ) | $ | 167,756 | ||||||
| Shares issued | 443,031 | 2,200 | – | – | – | – | 2,200 | ||||||||||||||
| Share-based compensation | – | – | 7,133 | – | – | – | 7,133 | ||||||||||||||
| Fair value of share options allocated to shares issued on exercise | – | 1,624 | (1,624 | ) | – | – | – | – | |||||||||||||
| Adjustment for rounding | – | – | – | – | 2 | – | 2 | ||||||||||||||
| Total comprehensive income (loss) for the period | – | – | – | (14,707 | ) | (1 | ) | (10,586 | ) | (25,294 | ) | ||||||||||
| Balance at September 30, 2009 | 92,986,670 | $ | 369,026 | $ | 30,598 | $ | 7,928 | $ | (13 | ) | $ | (255,742 | ) | $ | 151,797 | ||||||
Theaccompanying notes are anintegral part of thesecondensedconsolidated interimfinancialstatements.
Page 5
| Northern Dynasty Minerals Ltd. |
| Notes to the Condensed Consolidated Interim Financial Statements |
| For the three and nine months ended September 30, 2009 and 2008 |
| (Unaudited - Expressed in thousands of Canadian Dollars, unless otherwise stated) |
| 1. | NATURE OF OPERATIONS AND CONTINUANCE OF OPERATIONS |
Northern Dynasty Minerals Ltd. (the "Company") is incorporated under the laws of the Province of British Columbia, Canada, and its principal business activity is the exploration of mineral properties. The address of the Company’s registered office is #1500 Royal Centre, 1055 West Georgia Street, Vancouver, BC, Canada V6E 4N7. The condensed consolidated interim financial statements ("Interim Financial Statements") of the Company as at and for the period ended September 30, 2009 comprise the Company and its subsidiaries (note 7) and the Company’s interest in jointly controlled entities. The Company is the ultimate parent. The Company’s principal mineral property interest is its 50% share in the Pebble Project located in Alaska, United States of America ("USA" or "US"). | |
The Company is in the process of exploring its mineral property interests and has not yet determined whether the Pebble Project contains mineral reserves that are economically recoverable. The Company’s continuing operations and the underlying value and recoverability of the amounts shown for the investment in the Pebble Project is entirely dependent upon the existence of economically recoverable mineral reserves; the ability of the Company to obtain the necessary financing to complete the exploration and development of the investment in the Pebble Project; obtaining the necessary permits to mine; and future profitable production or proceeds from the disposition of the investment in the Pebble Project. | |
| 2. | SIGNIFICANT ACCOUNTING POLICIES |
| (a) Statement of Compliance and Conversion to International Financial Reporting Standards | |
The Canadian Accounting Standards Board ("AcSB") confirmed in February 2008 that International Financial Reporting Standards ("IFRS") will replace Canadian generally accepted accounting principles ("GAAP") for publicly accountable enterprises for financial periods beginning on and after January 1, 2011, with the option available to early adopt IFRS from periods beginning on or after January 1, 2009 upon receipt of approval from the Canadian Securities regulatory authorities, which the Company received in early March 2009. | |
These Interim Financial Statements have been prepared in accordance with International Accounting Standard 34,Interim Financial Reporting("IAS 34"), using accounting policies consistent with IFRS as issued by the International Accounting Standards Board ("IASB") and interpretations of the International Financial Reporting Interpretations Committee ("IFRIC"). | |
These IFRS Interim Financial Statements are for part of the period covered by the Company’s first IFRS consolidated annual financial statements to be presented in accordance with IFRS for the year ending December 31, 2009. Previously, the Company prepared its consolidated annual and consolidated interim financial statements in accordance with GAAP. | |
| (b) Basis of Preparation | |
These Interim Financial Statements have been prepared on a historical cost basis, except for financial instruments classified as available-for-sale which are stated at their fair value. In addition these Interim Financial Statements have been prepared using the accrual basis of accounting, except for cash flow information. |
Page 6
| Northern Dynasty Minerals Ltd. |
| Notes to the Condensed Consolidated Interim Financial Statements |
| For the three and nine months ended September 30, 2009 and 2008 |
| (Unaudited - Expressed in thousands of Canadian Dollars, unless otherwise stated) |
The preparation of these Interim Financial Statements in conformity with IAS 34 requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates. These Interim Financial Statements do not include all of the information required for full annual financial statements.
These Interim Financial Statements have been prepared on the basis of IFRS standards that are expected to be effective or available for early adoption on December 31, 2009, the Company’s first annual reporting date.
These standards are subject to change and may be affected by additional interpretation(s). Accordingly, the accounting policies for the annual period that are relevant to these Interim Financial Statements will be determined only when the first full IFRS financial statements are prepared for the year ending December 31, 2009.
The preparation of these Interim Financial Statements resulted in changes to the accounting policies as compared with the most recent annual financial statements prepared under GAAP. The accounting policies set outbelow have been applied consistently to all periods presented in these Interim Financial Statements. They also have been applied in preparing an opening IFRS statement of financial position as at January 1, 2008 for the purposes of the transition to IFRS, as required by IFRS 1,First Time Adoption of International Financial Reporting Standards("IFRS 1").The impact of the transition from GAAP to IFRS is explained in Note 8.
(c) Basis of Consolidation
These Interim Financial Statements include the accounts of the Company and all its subsidiaries (note 7).
The Company has determined that its investment in the Pebble Limited Partnership (the "Pebble Partnership"), a 50:50 limited partnership between the Company and Anglo-American plc ("Anglo"), each through wholly-owned affiliates, qualifies as an interest in a jointly controlled entity under IAS 31,Interests in Joint Ventures. The Company has elected to apply the equity method to account for its interest in the Pebble Partnership (note 8). The investment is carried in the statement of financial position at cost and adjusted by post-acquisition changes in the Company’s share of the net assets of the joint venture, less any impairments.
Inter-company balances and transactions, including any unrealized income and expenses arising from inter-company transactions, are eliminated in preparing the Interim Financial Statements. Unrealized gains arising from transactions with equity accounted investees are eliminated against the investment to the extent of the Company’s interest in the investee. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.
(d) Business Combinations
Business combinations that occurred prior to January 1, 2008 were not accounted for in accordance with IFRS 3,Business Combinations ("IFRS 3") or IAS 27,Consolidated and Separate Financial Statements, in accordance with the IFRS 1 exemption discussed in Note 8.
Acquisitions of subsidiaries and businesses are accounted for using the purchase method. The cost of the business combination is measured as the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the Company in exchange for control
Page 7
| Northern Dynasty Minerals Ltd. |
| Notes to the Condensed Consolidated Interim Financial Statements |
| For the three and nine months ended September 30, 2009 and 2008 |
| (Unaudited - Expressed in thousands of Canadian Dollars, unless otherwise stated) |
of the acquired entity or acquiree, plus any costs directly attributable to the business combination. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognized at their fair values at the acquisition date, except for non-current assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5,Non-current Assets Held for Sale and Discontinued Operations, which are recognized and measured at fair value less costs to sell.
Goodwill arising on acquisition is recognized as an asset and initially measured at cost, being the excess of the cost of the business combination over the Company’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognized. If, after reassessment, the Company’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognized immediately in profit or loss in the consolidated statements of comprehensive income or loss.
The interest of non-controlling shareholders in the acquiree is initially measured at the non-controlling shareholders’ proportion of the net fair value of the assets, liabilities and contingent liabilities recognized.
(e) Foreign Currencies
The functional and presentation currency of the Company is the Canadian dollar.
Transactions in currencies other than the functional currency are recorded at the rates of exchange prevailing on dates of transactions. At each financial position reporting date, monetary assets and liabilities that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.
The Company has determined that the functional currency of the Pebble Partnership is the US dollar. Exchange differences arising from the translation of the net investment in the Pebble Partnership are taken directly to the foreign currency translation reserve in other comprehensive income or loss.
(f) Financial Instruments
Financial assets and liabilities:
Investments are recognized and derecognized on trade date where the purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, plus transaction costs, except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value. Financial assets held are balances receivable from related parties, amounts receivable and prepayments, marketable securities and cash and cash equivalents. These are classified into the following specified categories: loans and receivables and other liabilities and available-for-sale ("AFS") financial assets. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.
Marketable securities held by the Company that are traded in an active market are classified as being AFS and are stated at fair value. Gains and losses arising from changes in fair value are recognized directly in reserves through other comprehensive income or loss. With the exception of impairment losses, interest calculated using the effective interest method and foreign exchange gains and losses on monetary assets are recognized directly in profit or loss in the consolidated statements of comprehensive income or loss. Where the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously
Page 8
| Northern Dynasty Minerals Ltd. |
| Notes to the Condensed Consolidated Interim Financial Statements |
| For the three and nine months ended September 30, 2009 and 2008 |
| (Unaudited - Expressed in thousands of Canadian Dollars, unless otherwise stated) |
recognized in the investments revaluation reserve is included in the profit or loss in the consolidated statements of comprehensive income or loss for the period.
The fair value of AFS monetary assets denominated in a foreign currency is determined in that foreign currency and translated at the spot rate at the financial position reporting date. The change in fair value attributable to translation differences that result from a change in amortized cost of the asset is recognized in profit or loss, and other changes are recognized in other comprehensive income or loss.
Amounts receivable, accounts payable and accrued liabilities that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Loans and receivables are measured at amortized cost using the effective interest method, less any impairment. Interest income is recognized by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.
Impairment of financial assets:
Financial assets are assessed for indicators of impairment at each financial position reporting date. Financial assets are impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted. For unlisted shares classified as AFS, a significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment.
For all other financial assets objective evidence of impairment could include:
| • significant financial difficulty of the issuer or counterparty; or | |
| • default or delinquency in interest or principal payments; or | |
| • it becoming probable that the borrower will enter bankruptcy or financial re-organization. |
For certain categories of financial assets, such as amounts receivable and prepayments, assets that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of amounts receivable, where the carrying amount is reduced through the use of an allowance account. When an amount receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognized in profit or loss in the consolidated statements of comprehensive income or loss.
With the exception of AFS equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized. In respect of AFS equity securities, impairment losses previously recognized through profit or loss in the consolidated statements of comprehensive income or loss are not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is recognized directly in equity.
The Company does not have any derivative financial instruments.
Page 9
| Northern Dynasty Minerals Ltd. |
| Notes to the Condensed Consolidated Interim Financial Statements |
| For the three and nine months ended September 30, 2009 and 2008 |
| (Unaudited - Expressed in thousands of Canadian Dollars, unless otherwise stated) |
(g) Exploration and Evaluation
Exploration and evaluation expenditures include the costs of acquiring licenses, costs associated with exploration and evaluation activity, and the fair value (at acquisition date) of exploration and evaluation assets acquired in a business combination. Exploration and evaluation expenditures are expensed as incurred except for expenditures associated with the acquisition of exploration and evaluation assets through a business combination or an asset acquisition. Costs incurred before the Company has obtained the legal rights to explore an area are recognized in profit or loss in the consolidated statements of comprehensive income or loss.
Capitalized costs, being acquisition costs, including general and administrative costs, are only allocated to the extent that these costs can be related directly to operational activities in the relevant area of interest where it is considered likely to be recoverable by future exploitation or sale or where the activities have not reached a stage which permits a reasonable assessment of the existence of reserves.
Exploration and evaluation assets are assessed for impairment if (i) sufficient data exists to determine technical feasibility and commercial viability, and (ii) facts and circumstances suggest that the carrying amount exceeds the recoverable amount.
Once the technical feasibility and commercial viability of the extraction of mineral resources in an area of interest are demonstrable, exploration and evaluation assets attributable to that area of interest are first tested for impairment and then reclassified to mining property and development assets within property, plant and equipment.
Recoverability of the carrying amount of any exploration and evaluation assets is dependent on successful development and commercial exploitation, or alternatively, sale of the respective areas of interest.
(h) Property, Plant and Equipment
Property, plant and equipment ("PPE") are carried at cost, less accumulated depreciation and accumulated impairment losses.
The cost of an item of PPE consists of the purchase price, any costs directly attributable to bringing the asset to the location and condition necessary for its intended use and an initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located.
Depreciation is provided at rates calculated to write off the cost of property, plant and equipment, less their estimated residual value, using the declining balance method at various rates ranging from 20% - 30% per annum.
An item of PPE is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on disposal of the asset, determined as the difference between the net disposal proceeds and the carrying amount of the asset, is recognized in profit or loss in the consolidated statements of comprehensive income or loss.
Where an item of plant and equipment consists of major components with different useful lives, the components are accounted for as separate items of plant and equipment. Expenditures incurred to replace a component of an item of PPE that is accounted for separately, including major inspection and overhaul expenditures, are capitalized.
Page 10
| Northern Dynasty Minerals Ltd. |
| Notes to the Condensed Consolidated Interim Financial Statements |
| For the three and nine months ended September 30, 2009 and 2008 |
| (Unaudited - Expressed in thousands of Canadian Dollars, unless otherwise stated) |
(i) Cash and Cash Equivalents
Cash and cash equivalents in the statement of financial position are comprised of cash held at banks and short term deposits with an original maturity of three months or less, which are readily convertible into a known amount of cash. The Company’s cash and cash equivalents are invested with major financial institutions in business and savings accounts which are available on demand by the Company for its programs, and are not invested in any asset backed deposits/investments.
(j) Impairment
At each financial position reporting date the carrying amounts of the Company’s assets are reviewed to determine whether there is any indication that those assets are impaired. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment, if any. The recoverable amount is the higher of fair value less costs to sell and value in use. Fair value is determined as the amount that would be obtained from the sale of the asset in an arm’s length transaction between knowledgeable and willing parties. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount and the impairment loss is recognized in the profit or loss in the consolidated statements of comprehensive profit or loss for the period. For the purposes of impairment testing, exploration and evaluation assets are allocated to cash-generating units to which the exploration activity relates. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash generating unit to which the asset belongs.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but to an amount that does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognized immediately in profit or loss in the consolidated statements of comprehensive profit or loss.
(k) Share Capital
Common shares are classified as equity. Transaction costs directly attributable to the issue of common shares and share options are recognized as a deduction from equity, net of any tax effects.
(l) Share-based payment transactions
The share purchase option plan allows Company employees and consultants to acquire shares of the Company. The fair value of share purchase options granted is recognized as an employee or consultant expense with a corresponding increase in equity. An individual is classified as an employee when the individual is an employee for legal or tax purposes (direct employee) or provides services similar to those performed by a direct employee.
The fair value is measured at grant date and each tranche is recognized on a straight line basis over the period during which the share purchase options vest. The fair value of the share purchase options granted is measured using the Black-Scholes option pricing model taking into account the terms and conditions upon which the share purchase options were granted. At each financial position reporting date, the amount
Page 11
| Northern Dynasty Minerals Ltd. |
| Notes to the Condensed Consolidated Interim Financial Statements |
| For the three and nine months ended September 30, 2009 and 2008 |
| (Unaudited - Expressed in thousands of Canadian Dollars, unless otherwise stated) |
recognized as an expense is adjusted to reflect the actual number of share purchase options that are expected to vest.
(m) Income taxes
Income tax on the profit or loss for the periods presented comprises current and deferred tax. Income tax is recognized in profit or loss in the statements of comprehensive income or loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity.
Current tax expense is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at period end, adjusted for amendments to tax payable with regards to previous years.
Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: goodwill not deductible for tax purposes; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit; and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the financial position reporting date.
A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. To the extent that the Company does not consider it probable that a future tax asset will be recovered, it provides a valuation allowance against that excess.
Additional income taxes that arise from the distribution of dividends are recognized at the same time as the liability to pay the related dividend.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.
(n) Asset Retirement Obligation
An obligation to incur restoration, rehabilitation and environmental costs arises when environmental disturbance is caused by the exploration, development or ongoing production of a mineral property interest. Such costs arising from the decommissioning of plant and other site preparation work, discounted to their net present value, are provided for and capitalized at the start of each project to the carrying amount of the asset, as soon as the obligation to incur such costs arises. Discount rates using a pre-tax rate that reflect the time value of money are used to calculate the net present value. These costs are charged against profit or loss over the economic life of the related asset, through amortization using either the unit-of-production or the straight line method. The related liability is adjusted for each period for the unwinding of the discount rate and for changes to the current market-based discount rate, amount or timing of the underlying cash flows needed to settle the obligation. Costs for restoration of subsequent site damage which is created on an ongoing basis during production are provided for at their net present values and charged against profits as extraction progresses.
The Company has no material restoration, rehabilitation and environmental costs as the disturbance to date is minimal.
Page 12
| Northern Dynasty Minerals Ltd. |
| Notes to the Condensed Consolidated Interim Financial Statements |
| For the three and nine months ended September 30, 2009 and 2008 |
| (Unaudited - Expressed in thousands of Canadian Dollars, unless otherwise stated) |
(o) Environmental Expenditures
The operations of the Company have been, and may in the future be, affected from time to time in varying degree by changes in environmental regulations, including those for site restoration costs. Both the likelihood of new regulations and their overall effect upon the Company vary greatly from country to country and are not predictable. The Company’s policy is to meet or possibly surpass environmental standards set by relevant legislation by the application of technically proven and economically feasible measures.
Environmental expenditures that relate to ongoing environmental and reclamation programs are charged against operations as incurred or capitalized and amortized depending on their expected future economic benefit. Estimated future removal and site restoration costs are recognized when the ultimate liability is reasonably determinable, and are charged against operations over the estimated remaining life of the related business operations, net of expected recoveries.
(p) Loss per Share
The Company presents basic and diluted loss per share data for its common shares, calculated by dividing the loss attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the period. Diluted loss per share is determined by adjusting the loss attributable to common shareholders and the weighted average number of common shares outstanding for the effects of all dilutive potential common shares.
(q) Segment Reporting
The Company operates in a single reportable operating segment – the acquisition, exploration and development of mineral properties.
(r) Significant Accounting Judgments and Estimates
The preparation of these Interim Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of expenses during the reporting period. Actual outcomes could differ from these estimates. These Interim Financial Statements include estimates which, by their nature, are uncertain. The impacts of such estimates are pervasive throughout the Interim Financial Statements, and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the period in which the estimate is revised and the revision affects both current and future periods.
Significant assumptions about the future and other sources of estimation uncertainty that management has made at the financial position reporting date, that could result in a material adjustment to the carrying amounts of assets and liabilities, in the event that actual results differ from assumptions made, relate to, but are not limited to, the following:
| i. | the recoverability of amounts receivable and prepayments which are included in the condensed consolidated interim statements of financial position; | |
| ii. | the carrying value of the investment in the Pebble Partnership and the recoverability of the carrying value included in the condensed consolidated interim statements of financial position; | |
| iii. | the estimated useful lives of property, plant and equipment which are included in the condensed consolidated interim statement of financial position and the related depreciation included in profit |
Page 13
| Northern Dynasty Minerals Ltd. |
| Notes to the Condensed Consolidated Interim Financial Statements |
| For the three and nine months ended September 30, 2009 and 2008 |
| (Unaudited - Expressed in thousands of Canadian Dollars, unless otherwise stated) |
and loss in the consolidated statements of comprehensive loss for the period ended September 30, 2009; | ||
| iv. | the inputs used in accounting for share-based compensation expense in profit and loss in the condensed consolidated interim statements of comprehensive loss; and | |
| v. | the nil provision for income taxes which is included in profit and loss in the condensed consolidated interim statements of comprehensive loss and the composition of deferred income tax assets and liabilities included in the condensed consolidated interim statements of financial position at September 30, 2009. |
(s) New Standards Not Yet Adopted
Standards and interpretations issued but not yet effective:
| • | Amendments to IFRS 2,Share-Based Payments | |
| • | Amendments to IFRS 3,Business Combinations | |
| • | Amendments to IFRS 8,Operating Segments | |
| • | Amendments to IFRS 5,Non-current Assets Held for Sale and Discontinued Operations | |
| • | Amendments to IAS 27,Consolidated and Separate Financial Statements | |
| • | Amendments to IAS 28,Investments in Associates | |
| • | Amendments to IAS 31,Interests in Joint Ventures | |
| • | Amendments to IAS 32,Financial Instruments: Presentation |
Additionally, in April 2009 the IASB issued the second omnibus standard "Improvements to IFRSs" as part of its annual improvement process project. This standard slightly adjusts ten existing standards and two interpretations by fifteen amendments. Unless otherwise specified, the amendments are effective for fiscal years beginning on or after January 1, 2010, while earlier application is permitted. Currently, management does not expect the adoption of the amended standards and interpretations to have a material impact on the Group's consolidated financial statements. | ||
The Company anticipates that the adoption of these standards and interpretations in future periods will have no material impact on the consolidated financial statements of the Company except for additional disclosures. | ||
| 3. | CAPITAL AND RESERVES | |
| (a) | Authorized Share Capital | |
At September 30, 2009, the authorized share capital comprised an unlimited number of common shares. The common shares do not have a par value. All issued shares are fully paid. | ||
| (b) | Issued Share Capital | |
At September 30, 2009 the issued share capital amounted to $369,026. The change in issued share capital for the period was as follows: | ||
Page 14
| Northern Dynasty Minerals Ltd. |
| Notes to the Condensed Consolidated Interim Financial Statements |
| For the three and nine months ended September 30, 2009 and 2008 |
| (Unaudited - Expressed in thousands of Canadian Dollars, unless otherwise stated) |
| Number of shares | Amount | |||||
| Balance at the beginning of the year | 92,543,639 | $ | 365,202 | |||
| Donation of shares | 75,000 | 437 | ||||
| Share purchase options exercised (3(c)) | 368,031 | 1,763 | ||||
| Fair value allocated to share purchase options exercised | – | 1,624 | ||||
| Balance at end of the period | 92,986,670 | $ | 369,026 |
There were no changes in the issued share capital of the Company in the comparable interim period in 2008.
(c) Share purchase option compensation plan
The Company has a share purchase option plan approved by the Company’s shareholders that allows it to grant share purchase options, subject to regulatory terms and approval, to its officers, directors, employees, and service providers. The share purchase option plan (the "2008 Rolling Option Plan") is based on the maximum number of eligible shares equalling a rolling percentage of 10% of the Company's outstanding common shares, calculated from time to time. Pursuant to the 2008 Rolling Option Plan, if outstanding share purchase options are exercised or expire, and/or the number of issued and outstanding common shares of the Company increases, then the share purchase options available to grant under the plan increase proportionately. The exercise price of each share purchase option is set by the Board of Directors at the time of grant but cannot be less than the market price (less permissible discounts). Share purchase options can have a maximum term of ten years and typically terminate 90 days following the termination of the optionee’s employment or engagement, except in the case of retirement or death. Vesting of share purchase options is at the discretion of the Board of Directors at the time the options are granted.
The continuity of share purchase options for the period ended September 30, 2009 is as follows:
| Exercise | Dec 31 | Expired / | Sep 30 | ||||||||||||||||
| Expiry date | price | 2008 | Granted | Exercised | cancelled | 2009 | |||||||||||||
| April 30, 2009 | $ | 7.25 | 359,400 | – | (15,000 | ) | (344,400 | ) | – | ||||||||||
| April 30, 2009 | $ | 9.81 | 50,000 | – | – | (50,000 | ) | – | |||||||||||
| April 30, 2009 | $ | 10.32 | 593,000 | – | – | (593,000 | ) | – | |||||||||||
| April 14, 2011 | $ | 9.74 | 1,461,668 | – | – | (1,434,168 | ) | 27,500 | |||||||||||
| April 30, 2011 | $ | 7.25 | 945,000 | – | – | (765,000 | ) | 180,000 | |||||||||||
| October 27, 2011 | $ | 3.00 | 221,877 | – | (45,975 | ) | (5,910 | ) | 169,992 | ||||||||||
| February 2, 2012 | $ | 5.00 | – | 529,000 | (36,166 | ) | – | 492,834 | |||||||||||
| February 4, 2012 | $ | 5.00 | – | 2,168,200 | (215,890 | ) | (65,667 | ) | 1,886,643 | ||||||||||
| February 20, 2012 | $ | 10.95 | 828,000 | – | – | (678,000 | ) | 150,000 | |||||||||||
| March 26, 2012 | $ | 8.25 | – | 25,000 | – | – | 25,000 | ||||||||||||
| April 11, 2013 | $ | 9.74 | 753,000 | – | – | (678,000 | ) | 75,000 | |||||||||||
| August 22, 2013 | $ | 5.35 | 40,000 | – | – | – | 40,000 | ||||||||||||
| October 27, 2013 | $ | 3.00 | 140,000 | – | (10,000 | ) | – | 130,000 | |||||||||||
| February 2, 2014 | $ | 5.00 | – | 2,063,000 | (45,000 | ) | – | 2,018,000 | |||||||||||
| February 4, 2014 | $ | 5.00 | – | 220,000 | – | – | 220,000 | ||||||||||||
| 5,391,945 | 5,005,200 | (368,031 | ) | (4,614,145 | ) | 5,414,969 | |||||||||||||
| Weighted average | |||||||||||||||||||
| exercise price | $ | 8.90 | $ | 5.02 | $ | 4.79 | $ | 9.32 | $ | 5.24 |
During the nine month period, the Company issued 4,980,200 share purchase options to purchase common shares at an exercise price of $5.00 per common share, with expiry dates ranging from February 2, 2012 to February 4, 2014. The Company also cancelled 4,614,145 share purchase options with exercise prices between $3.00 and $10.95 and with various expiry dates between April 30, 2009 and April 11, 2013. The
Page 15
| Northern Dynasty Minerals Ltd. |
| Notes to the Condensed Consolidated Interim Financial Statements |
| For the three and nine months ended September 30, 2009 and 2008 |
| (Unaudited - Expressed in thousands of Canadian Dollars, unless otherwise stated) |
Company determined that the new options are replacement options and as such, a modification of the cancelled options has occurred for accounting purposes. For modified options, the compensation expense is based on the fair value of the options on the alteration date less the fair value of the original options based on the shorter of the remaining expanded life of the old option or the expected life of the modified option.
The weighted average assumptions used to estimate the fair value of options for the periods ended September 30, 2009 and 2008 were:
| Three months ended | Nine months ended | |||||||||||
| September 30 | September 30 | |||||||||||
| 2009 | 2008 | 2009 | 2008 | |||||||||
| Risk-free interest rate | 1.79% | 3.17% | 1.79% | 3.31% | ||||||||
| Expected life | 3.87 years | 5 years | 3.87 years | 3.73 years | ||||||||
| Expected volatility | 64% | 59% | 64% | 57% | ||||||||
| Expected dividend yield | Nil | Nil | Nil | Nil | ||||||||
Option pricing models require the input of highly subjective assumptions including the expected price volatility. Changes in the subjective input assumptions can materially affect the fair value estimate, and therefore the existing models do not necessarily provide a reliable measure of the fair value of the Company's share purchase options. | |
| 4. | LOSS PER SHARE |
Basic and diluted loss per share | |
The calculation of basic and diluted loss per share for the three and nine months ended September 30, 2009 was based on the loss attributable to common shareholders of $2,247 (2008 – $1,138) and $10,586 (2008 – $5,158) and the weighted average number of common shares outstanding of 92,958,128 (2008– 92,543,639) and 92,853,991 (2008 – 92,543,639) respectively. | |
Diluted loss per share did not include the effect of 5,414,969 share purchase options as they are anti-dilutive. | |
| 5. | INVESTMENT IN THE PEBBLE LIMITED PARTNERSHIP |
On July 26, 2007, the Company converted a wholly-owned general partnership formed in 2006 to hold its Pebble Property interest into a limited partnership, the Pebble Partnership, so that an indirect wholly-owned subsidiary of Anglo could subscribe for 50% of the Pebble Partnership's equity effective July 31, 2007. Each of the Company and Anglo American plc ("Anglo") has equal rights in the Pebble Partnership through wholly-owned affiliates. The purpose of the Pebble Partnership is to engineer, permit, construct and operate a modern, long-life mine at the Pebble Project. The Pebble Partnership's assets include the shares of two Alaskan subsidiaries which hold registered title to the claims. To maintain its 50% interest in the Pebble Partnership, Anglo is required to make staged cash investments into the Pebble Partnership aggregating to US$1.425 billion as discussed below. | |
Anglo’s staged investment requirements includes an initial minimum expenditure of US$125 million to be expended towards a prefeasibility study (funding completed in 2008) plus a requirement to fund additional expenditures approved by the board of the general partner (Pebble Mines Corp.) unless Anglo elects to terminate its rights and relinquish all its interests in the Pebble Partnership. After the completion and |
Page 16
| Northern Dynasty Minerals Ltd. |
| Notes to the Condensed Consolidated Interim Financial Statements |
| For the three and nine months ended September 30, 2009 and 2008 |
| (Unaudited - Expressed in thousands of Canadian Dollars, unless otherwise stated) |
approval by the partners of the prefeasibility study, Anglo is required, in order to retain its 50% interest in the Pebble Partnership, to commit to further expenditures which bring its total investment to at least US$450 million which amount is to be expended in producing a final feasibility study and in related activities, including to obtain relevant permits contemplated for current and planned activities, the completion of which is expected to take the Pebble Partnership to a production decision. Upon an affirmative decision by the partnership to develop a mine, Anglo is required to commit to the remainder of the total investment of US$1.425 billion in order to retain its interest in the Pebble Partnership. Following completion of the US$1.425 billion expenditure, any further expenditure will be funded by Anglo and Northern Dynasty on a 50:50 basis. If the feasibility study is completed after 2011, Anglo’s overall funding requirement increases from US$1.425 billion to US$1.5 billion. The Pebble Partnership agreement provides for equal project control rights for both partners with no operator’s fees payable to either party.
The Company has determined that its investment in the Pebble Partnership qualifies as an interest in a jointly controlled entity under IAS 31,Interests in Joint Ventures, and has elected to apply the equity method in accounting for its interest in the Pebble Partnership. The Company’s share of the loss in the Pebble Partnership for the period was $Nil (2008 - $Nil) as the agreement with Anglo states that the distribution of losses funded by Anglo are allocated 100% to Anglo until the total investment of US$1.425 billion is met. The Company has not recognized losses relating to the Pebble Partnership totaling $50,320 in the period (2008 - $109,171), since the Company has no obligation in respect of these losses.
| Investment in Pebble Partnership | As at September 30 | As at December 31 | ||||
| 2009 | 2008 | |||||
| Carrying value at the beginning of the year | $ | 121,611 | $ | 98,976 | ||
| Foreign currency translation | (14,707 | ) | 22,635 | |||
| Carrying value at the end of the period | $ | 106,904 | $ | 121,611 |
Summary financial information for the equity accounted investee, not adjusted for the percentage ownership held by the Company, is as follows:
| As at and for the nine months | ||||||
| ended September 30 | ||||||
| 2009 | 2008 | |||||
| Ownership | 50% | 50% | ||||
| Non-current assets | $ | 587 | $ | 761 | ||
| Current assets | 4,270 | 10,449 | ||||
| Total assets | 4,857 | 11,210 | ||||
| Current liabilities | 7,959 | 13,453 | ||||
| Total liabilities | 7,959 | 13,453 | ||||
| Expenses | 50,320 | 109,171 | ||||
| Net loss | $ | 50,320 | $ | 109,171 | ||
The results of the Pebble Partnership have not been included in the financial statements of the Company.
Page 17
| Northern Dynasty Minerals Ltd. |
| Notes to the Condensed Consolidated Interim Financial Statements |
| For the three and nine months ended September 30, 2009 and 2008 |
| (Unaudited - Expressed in thousands of Canadian Dollars, unless otherwise stated) |
| 6. | RELATED PARTY BALANCES AND TRANSACTIONS |
A number of key management personnel, or their related parties, hold positions in other entities that result in them having control or significant influence over the financial or operating policies of the entities outlined below. | |
The following entities transacted with the Company in the reporting period. The terms and conditions of the transactions with key management personnel and their related parties were no more favourable than those available, or which might reasonably be expected to be available, on similar transactions to non-key management personnel related entities on an arm’s length basis. | |
The aggregate value of transactions and outstanding balances relating to key management personnel and entities over which they have control or significant influence were as follows: |
| Transactions | Three months ended | Nine months ended | |||||||||||
| September 30 | September 30 | ||||||||||||
| 2009 | 2008 | 2009 | 2008 | ||||||||||
| Services rendered: | |||||||||||||
| Hunter Dickinson Services Inc. (a) | $ | 533 | $ | 758 | $ | 1,858 | $ | 1,594 | |||||
| Sidev Holdings Ltd. (b) | – | 16 | – | 16 | |||||||||
| C.E.C Engineering Ltd. (c) | – | 150 | – | 150 | |||||||||
| As at September 30 | As at December 31 | ||||||
| Related party balances receivable | 2009 | 2008 | |||||
| Hunter Dickinson Services Inc. (a) | $ | – | $ | 149 |
| As at September 30 | As at December 31 | ||||||
| Related party balances payable | 2009 | 2008 | |||||
| Hunter Dickinson Services Inc. (a) | $ | 178 | $ | – |
| (a) | Hunter Dickinson Services Inc. ("HDSI") is a private Company owned equally by several public companies, one of which is the Company. HDSI has certain directors in common with the Company and provides geological, corporate development, administrative and management services to, and incurs third party costs on behalf of, the Company and its subsidiaries on a full cost recovery basis pursuant to an agreement dated June 1, 2008. No interest is accrued on these related party balances. | |
| (b) | Sidev Holdings Ltd. is a private company controlled by a former director of Pebble East Claims Corp., a wholly owned private US subsidiary of the Pebble Partnership, which provided project management services at market rates. | |
| (c) | C.E.C Engineering Ltd. is a private company controlled by a director that provided services to the Company based on the fair market value of those services. |
Page 18
| Northern Dynasty Minerals Ltd. |
| Notes to the Condensed Consolidated Interim Financial Statements |
| For the three and nine months ended September 30, 2009 and 2008 |
| (Unaudited - Expressed in thousands of Canadian Dollars, unless otherwise stated) |
| 7. | SUBSIDIARIES |
| Proportion of | |||
| Name of Subsidiary | Place of Incorporation | Ownership Interest | Principal Activity |
| 3537137 Canada Inc. | British Columbia, Canada | 100% | Holding company |
| 0796412 BC Ltd. | British Columbia, Canada | 100% | Not active |
| Northern Dynasty Partnership | Alaska, USA | 100% | Holding company |
| 8 | TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS | |
As stated in Note 2, these Interim Financial Statements are for the period covered by the Company’s first annual consolidated financial statements to be prepared in accordance with IFRS. | ||
The accounting policies in Note 2 have been applied in preparing the Interim Financial Statements for the nine months ended September 30, 2009, the comparative information for the nine months ended September 30, 2008, the financial statements for the year ended December 31, 2008 and the preparation of the opening IFRS statement of financial position on January 1, 2008, the "Transition Date". | ||
In preparing the opening IFRS statement of financial position, comparative information for the nine months ended September 30, 2008 and financial statements for the year ended December 31, 2008, the Company has adjusted amounts reported previously in financial statements that were prepared in accordance with GAAP. | ||
An explanation of how the transition from GAAP to IFRS has affected the Company’s financial position, financial performance and cash flows is set out in the following tables. | ||
The guidance for the first time adoption of IFRS is set out in IFRS 1. IFRS 1 provides for certain mandatory exceptions and optional exemptions for first time adopters of IFRS. The Company elected to take the following IFRS 1 optional exemptions: | ||
• | to apply the requirements of IFRS 3,Business Combinations,prospectively from the Transition Date; | |
• | to apply the requirements of IFRS 2,Share-based payments, only to equity instruments granted after November 7, 2002 which had not vested as of the Transition Date; and | |
• | to transfer all foreign currency translation differences, recognized as a separate component of equity, to deficit as at the Transition Date including those foreign currency differences which arise on adoption of IFRS. | |
Page 19
| Northern Dynasty Minerals Ltd. |
| Notes to the Condensed Consolidated Interim Financial Statements |
| For the three and nine months ended September 30, 2009 and 2008 |
| (Unaudited - Expressed in thousands of Canadian Dollars, unless otherwise stated) |
Reconciliation of Assets, Liabilities & Equity
| As at January 1, 2008 | |||||||||||||||
| Effect of | |||||||||||||||
| GAAP | transition to IFRS | IFRS | |||||||||||||
| Notes | |||||||||||||||
| (a) (d) | Note | ||||||||||||||
| ASSETS | |||||||||||||||
| Non-current assets | |||||||||||||||
| Property, plant and equipment | $ | 674 | $ | (659 | ) | $ | – | $ | 15 | ||||||
| Mineral property interest | 168,222 | (105,983 | ) | – | – | ||||||||||
| (62,239 | ) | – | – | ||||||||||||
| Investment in the Pebble Limited Partnership | – | 98,976 | – | 98,976 | |||||||||||
| Total non-current assets | 168,896 | (69,905 | ) | – | 98,991 | ||||||||||
| Current assets | |||||||||||||||
| Balances receivable from related parties | 27 | 1,193 | – | 1,220 | |||||||||||
| Amounts receivable and prepayments | 1,000 | (125 | ) | – | 875 | ||||||||||
| Marketable securities | 13 | – | – | 13 | |||||||||||
| Cash and cash equivalents | 40,341 | (1,213 | ) | – | 39,128 | ||||||||||
| Total current assets | 41,381 | (145 | ) | – | 41,236 | ||||||||||
| $ | 210,277 | $ | (70,050 | ) | $ | – | $ | 140,227 | |||||||
| EQUITY | |||||||||||||||
| Share capital | $ | 365,202 | $ | – | $ | – | $ | 365,202 | |||||||
| Reserves | 18,015 | – | (637 | ) | (c) | 17,378 | |||||||||
| Deficit | (273,906 | ) | 29,264 | 637 | (c) | (244,005 | ) | ||||||||
| Total equity | 109,311 | 29,264 | – | 138,575 | |||||||||||
| LIABILITIES | |||||||||||||||
| Current liabilities | |||||||||||||||
| Balance payable to related parties | 21 | – | – | 21 | |||||||||||
| Accounts payable and accrued liabilities | 7,607 | (5,976 | ) | – | 1,631 | ||||||||||
| Total current liabilities | 7,628 | (5,976 | ) | – | 1,652 | ||||||||||
| Future income tax liability | 57,786 | (57,786 | ) | – | – | ||||||||||
| Non-controlling interest | 35,552 | (35,552 | ) | – | – | ||||||||||
| Total liabilities | 100,966 | (99,314 | ) | – | 1,652 | ||||||||||
| $ | 210,277 | $ | (70,050 | ) | $ | – | $ | 140,227 | |||||||
Page 20
| Northern Dynasty Minerals Ltd. |
| Notes to the Condensed Consolidated Interim Financial Statements |
| For the three and nine months ended September 30, 2009 and 2008 |
| (Unaudited - Expressed in thousands of Canadian Dollars, unless otherwise stated) |
Reconciliation of Assets, Liabilities & Equity (continued)
| As at September 30, 2008 | |||||||||||||||
| Effect of | |||||||||||||||
| GAAP | transition to IFRS | IFRS | |||||||||||||
| Notes | |||||||||||||||
| (a) (d) | Note | ||||||||||||||
| ASSETS | |||||||||||||||
| Non-current assets | |||||||||||||||
| Property, plant and equipment | $ | 776 | $ | (761 | ) | $ | – | $ | 15 | ||||||
| Mineral property interest | 168,222 | (105,983 | ) | – | – | ||||||||||
| (62,239 | ) | – | – | ||||||||||||
| Investment in the Pebble Limited Partnership | – | 106,255 | – | 106,255 | |||||||||||
| Total non-current assets | 168,998 | (62,728 | ) | – | 106,270 | ||||||||||
| Current assets | |||||||||||||||
| Amounts receivable and prepayments | 2,355 | (1,446 | ) | – | 909 | ||||||||||
| Marketable securities | 3 | – | – | 3 | |||||||||||
| Cash and cash equivalents | 48,757 | (9,003 | ) | – | 39,754 | ||||||||||
| Total current assets | 51,115 | (10,449 | ) | – | 40,666 | ||||||||||
| $ | 220,113 | $ | (73,177 | ) | $ | – | $ | 146,936 | |||||||
| EQUITY | |||||||||||||||
| Share capital | $ | 365,202 | $ | – | $ | – | $ | 365,202 | |||||||
| Reserves | 22,439 | 7,279 | 268 | (c) | 29,986 | ||||||||||
| Deficit | (387,390 | ) | 138,495 | (268 | ) | (c) | (249,163 | ) | |||||||
| Total equity | 251 | 145,775 | – | 146,025 | |||||||||||
| LIABILITIES | |||||||||||||||
| Current liabilities | |||||||||||||||
| Balance payable to related parties | 1,016 | (748 | ) | – | 268 | ||||||||||
| Accounts payable and accrued liabilities | 13,347 | (12,705 | ) | – | 642 | ||||||||||
| Total current liabilities | 14,363 | (13,453 | ) | – | 910 | ||||||||||
| Future income tax liability | 57,786 | (57,786 | ) | – | – | ||||||||||
| Non-controlling interest | 147,713 | (147,713 | ) | – | – | ||||||||||
| Total liabilities | 219,862 | (218,951 | ) | – | 910 | ||||||||||
| $ | 220,113 | $ | (73,177 | ) | $ | – | $ | 146,936 | |||||||
Page 21
| Northern Dynasty Minerals Ltd. |
| Notes to the Condensed Consolidated Interim Financial Statements |
| For the three and nine months ended September 30, 2009 and 2008 |
| (Unaudited - Expressed in thousands of Canadian Dollars, unless otherwise stated) |
Reconciliation of Assets, Liabilities & Equity (continued)
| As at December 31, 2008 | |||||||||||||||
| Effect of | |||||||||||||||
| GAAP | transition to IFRS | IFRS | |||||||||||||
| Notes | |||||||||||||||
| (a) (d) | Note | ||||||||||||||
| ASSETS | |||||||||||||||
| Non-current assets | |||||||||||||||
| Property, plant and equipment | $ | 619 | $ | (608 | ) | $ | – | $ | 11 | ||||||
| Mineral property interest | 168,222 | (105,983 | ) | – | – | ||||||||||
| (62,239 | ) | – | – | ||||||||||||
| Investment in the Pebble Limited Partnership | – | 121,611 | – | 121,611 | |||||||||||
| Total non-current assets | 168,841 | (47,219 | ) | – | 121,622 | ||||||||||
| Current assets | |||||||||||||||
| Balances receivable from related parties | – | 149 | – | 149 | |||||||||||
| Amounts receivable and prepayments | 1,109 | (944 | ) | – | 165 | ||||||||||
| Marketable securities | 2 | – | – | 2 | |||||||||||
| Cash and cash equivalents | 59,201 | (13,235 | ) | – | 45,966 | ||||||||||
| Total current assets | 60,312 | (14,030 | ) | – | 46,282 | ||||||||||
| $ | 229,153 | $ | (61,249 | ) | $ | – | $ | 167,904 | |||||||
| EQUITY | |||||||||||||||
| Share capital | $ | 365,202 | $ | – | $ | – | $ | 365,202 | |||||||
| Reserves | 22,485 | 23,571 | 1,654 | (c) | 47,710 | ||||||||||
| Deficit | (423,812 | ) | 180,310 | (1,654 | ) | (c) | (245,156 | ) | |||||||
| Total equity | (36,125 | ) | 203,881 | – | 167,756 | ||||||||||
| LIABILITIES | |||||||||||||||
| Current liabilities | |||||||||||||||
| Balance payable to related parties | 1,328 | (1,328 | ) | – | – | ||||||||||
| Accounts payable and accrued liabilities | 12,015 | (11,867 | ) | – | 148 | ||||||||||
| Total current liabilities | 13,343 | (13,195 | ) | – | 148 | ||||||||||
| Future income tax liability | 57,753 | (57,753 | ) | – | – | ||||||||||
| Non-controlling interest | 194,182 | (194,182 | ) | – | – | ||||||||||
| Total liabilities | 265,278 | (265,130 | ) | – | 148 | ||||||||||
| $ | 229,153 | $ | (61,249 | ) | $ | – | $ | 167,904 | |||||||
Page 22
| Northern Dynasty Minerals Ltd. |
| Notes to the Condensed Consolidated Interim Financial Statements |
| For the three and nine months ended September 30, 2009 and 2008 |
| (Unaudited - Expressed in thousands of Canadian Dollars, unless otherwise stated) |
Reconciliation of Loss (Income) and Comprehensive Loss (Income)
| Nine months ended September 30, 2008 | |||||||||||||||
| Effect of | |||||||||||||||
| GAAP | transition to IFRS | IFRS | |||||||||||||
| Notes | |||||||||||||||
| (a) (d) | Notes | ||||||||||||||
| Expenses (income) | |||||||||||||||
| Depreciation | $ | 90 | $ | (90 | ) | $ | – | $ | – | ||||||
| Conference and travel | 1,325 | (1,113 | ) | – | 212 | ||||||||||
| Exploration | 101,086 | (100,467 | ) | – | 619 | ||||||||||
| Foreign exchange gain | (1,537 | ) | (1,080 | ) | – | (2,617 | ) | ||||||||
| Interest income | (900 | ) | 123 | – | (777 | ) | |||||||||
| Legal, accounting and audit | 715 | (591 | ) | – | 124 | ||||||||||
| Office and administration | 7,768 | (5,953 | ) | – | 1,815 | ||||||||||
| Shareholder communication | 217 | – | – | 217 | |||||||||||
| Share-based compensation - exploration | 1,304 | – | – | 1,304 | |||||||||||
| Share-based compensation - administration | 3,130 | – | 905 | (c) | 4,035 | ||||||||||
| Trust and filing | 226 | – | – | 226 | |||||||||||
| Loss before taxes | 113,424 | (109,171 | ) | 905 | 5,158 | ||||||||||
| Income taxes | 60 | (60 | ) | – | – | ||||||||||
| Loss for the period | $ | 113,484 | $ | (109,231 | ) | 905 | $ | 5,158 | |||||||
| Other comprehensive loss (income) | |||||||||||||||
| Unrealized loss on available-for-sale marketable securities | 10 | – | – | 10 | |||||||||||
| Exchange difference on translation of investment in the Pebble Limited | |||||||||||||||
| Partnership | – | – | (7,279 | ) | (b) | (7,279 | ) | ||||||||
| Other comprehensive loss (income) | $ | 10 | $ | – | $ | (7,279 | ) | $ | (7,269 | ) | |||||
| Total comprehensive loss (income) | $ | 113,494 | $ | (109,231 | ) | $ | (6,374 | ) | $ | (2,111 | ) | ||||
Page 23
| Northern Dynasty Minerals Ltd. |
| Notes to the Condensed Consolidated Interim Financial Statements |
| For the three and nine months ended September 30, 2009 and 2008 |
| (Unaudited - Expressed in thousands of Canadian Dollars, unless otherwise stated) |
Reconciliation of Loss (Income) and Comprehensive Loss (Income) (continued)
| Year ended December 31, 2008 | |||||||||||||||
| Effect of | |||||||||||||||
| GAAP | transition to IFRS | IFRS | |||||||||||||
| Notes | |||||||||||||||
| (a) (d) | Notes | ||||||||||||||
| Expenses (income) | |||||||||||||||
| Depreciation | $ | 182 | $ | (178 | ) | $ | – | $ | 4 | ||||||
| Conference and travel | 1,756 | (1,483 | ) | – | 273 | ||||||||||
| Exploration | 140,603 | (140,195 | ) | – | 408 | ||||||||||
| Foreign exchange gain | (9,168 | ) | 38 | – | (9,130 | ) | |||||||||
| Interest income | (1,268 | ) | 153 | – | (1,115 | ) | |||||||||
| Legal, accounting and audit | 1,141 | (771 | ) | – | 370 | ||||||||||
| Office and administration | 10,657 | (8,644 | ) | – | 2,013 | ||||||||||
| Shareholder communication | 384 | – | – | 384 | |||||||||||
| Share-based compensation - exploration | 1,641 | – | – | 1,641 | |||||||||||
| Share-based compensation - administration | 3,776 | – | 2,291 | (c) | 6,067 | ||||||||||
| Trust and filing | 235 | – | – | 235 | |||||||||||
| Loss before taxes | 149,939 | (151,080 | ) | 2,291 | 1,150 | ||||||||||
| Income taxes | – | – | – | – | |||||||||||
| Future income tax recovery | (33 | ) | 33 | – | – | ||||||||||
| Loss for the period | $ | 149,906 | $ | (151,047 | ) | $ | 2,291 | $ | 1,150 | ||||||
| Other comprehensive loss (income) | |||||||||||||||
| Unrealized loss on available-for-sale marketable securities | 11 | – | – | 11 | |||||||||||
| Exchange difference on translation of investment in the Pebble Limited | |||||||||||||||
| Partnership | 936 | (23,571 | ) | – | (22,635 | ) | |||||||||
| Other comprehensive loss (income) | $ | 947 | $ | (23,571 | ) | $ | – | $ | (22,624 | ) | |||||
| Total comprehensive loss (income) | $ | 150,853 | $ | (174,618 | ) | $ | 2,291 | $ | (21,474 | ) | |||||
Page 24
| Northern Dynasty Minerals Ltd. |
| Notes to the Condensed Consolidated Interim Financial Statements |
| For the three and nine months ended September 30, 2009 and 2008 |
| (Unaudited - Expressed in thousands of Canadian Dollars, unless otherwise stated) |
Reconciliation of Cash Flows
| Nine months ended September 30, 2008 | |||||||||||||||
| Effect of | |||||||||||||||
| GAAP | transition to IFRS | IFRS | |||||||||||||
| Notes | |||||||||||||||
| (a) (d) | Notes | ||||||||||||||
| Operating activities | |||||||||||||||
| Loss for the period | $ | (113,484 | ) | $ | 109,231 | $ | (905 | ) | (c) | $ | (5,158 | ) | |||
| Depreciation | 90 | (90 | ) | – | – | ||||||||||
| Share-based compensation | 4,434 | – | 905 | (c) | 5,339 | ||||||||||
| Changes in non-cash working capital | 5,407 | (4,962 | ) | – | 445 | ||||||||||
| Cash and equivalents (used in) provided by operating activities | (103,553 | ) | 104,179. | – | 626 | ||||||||||
| Cash and equivalents used for investing activities | (192 | ) | 192 | – | – | ||||||||||
| Financing activities | |||||||||||||||
| Contributions from non-controlling interest | 112,161 | (112,161 | ) | – | – | ||||||||||
| Cash provided from financing activities | 112,161 | (112,161 | ) | – | – | ||||||||||
| Increase in cash and cash equivalents | 8,416 | (7,790 | ) | – | 626 | ||||||||||
| Cash and cash equivalents, beginning of period | 40,341 | (1,213 | ) | – | 39,128 | ||||||||||
| Cash and cash equivalents, end of period | $ | 48,757 | $ | (9,003 | ) | $ | – | $ | 39,754 | ||||||
| Year ended December 31, 2008 | |||||||||||||||
| Effect of | |||||||||||||||
| GAAP | transition to IFRS | IFRS | |||||||||||||
| Notes | |||||||||||||||
| (a) (d) | Notes | ||||||||||||||
| Operating activities | |||||||||||||||
| Loss for the period | $ | (149,906 | ) | $ | 151,080 | $ | (2,324 | ) | (c) (b) | $ | (1,150 | ) | |||
| Depreciation | 182 | (178 | ) | – | 4 | ||||||||||
| Future income tax recovery | (33 | ) | 33 | (b) | – | ||||||||||
| Share-based compensation | 5,417 | – | 2,291 | (c) | 7,708 | ||||||||||
| Changes in non-cash working capital | 5,633 | (5,357 | ) | – | 276 | ||||||||||
| Cash and equivalents (used in) provided by operating activities | (138,707 | ) | 145,545 | – | 6,838 | ||||||||||
| Cash and equivalents used for investing activities | (127 | ) | 127 | – | – | ||||||||||
| Financing activities | |||||||||||||||
| Contributions from non-controlling interest | 157,694 | (157,694 | ) | – | – | ||||||||||
| Cash provided from financing activities | 157,69 | (157,694 | ) | – | – | ||||||||||
| Increase in cash and cash equivalents | 18,860 | (12,022 | ) | – | 6,838 | ||||||||||
| Cash and cash equivalents, beginning of year | 40,341 | (1,213 | ) | – | 39,128 | ||||||||||
| Cash and cash equivalents, end of year | $ | 59,201 | $ | (13,235 | ) | $ | – | $ | 45,966 | ||||||
Page 25
| Northern Dynasty Minerals Ltd. |
| Notes to the Condensed Consolidated Interim Financial Statements |
| For the three and nine months ended September 30, 2009 and 2008 |
| (Unaudited - Expressed in thousands of Canadian Dollars, unless otherwise stated) |
Notes to Reconciliations
| (a) | Basis of Consolidation |
Under GAAP, the Company accounted for its interest in the Pebble Partnership as a variable interest entity with the Company as the primary beneficiary. Accordingly, the Company consolidated 100% of the Pebble Partnership, and previously reported a non-controlling interest. | |
IFRS does not include the concept of a variable interest entity. IFRS requires the Company to consolidate entities including Special Purpose Entities only where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. On application of IFRS, the Company has determined that it has joint control of the Pebble Partnership and can elect to use either the equity method or proportionate consolidation method to account for its interest in the Pebble Partnership. | |
The Company has elected to apply the equity method to account for its interest in the Pebble Partnership, and the carrying value of the investment is the Company’s cost of investment to date in US dollars. | |
| (b) | Cumulative translation differences |
IFRS requires that the functional currency of each entity of the Company be determined separately. The Company has determined that as at the Transition Date the Canadian dollar was the functional currency of all entities in the Company except the Pebble Partnership which has a US dollar functional currency. In accordance with IFRS 1 optional exemptions, the Company elected to transfer the cumulative translation differences, recognized as a separate component of equity, to deficit at the Transition Date. Under GAAP, the Pebble Partnership was defined as an integrated foreign operation from the date the Pebble Partnership was formed ("formation date") to the Transition Date and therefore no foreign exchange translation in equity was noted. Under IFRS, the Pebble Partnership has a US dollar functional currency since the formation date and therefore as at the Transition Date a foreign exchange translation reserve of $7,554 had accumulated. In electing to take this IFRS 1 exemption, the Company has transferred this foreign exchange translation reserve at the Transition Date to deficit. For the period ended September 30, 2008 and for the year ended December 31, 2008, shareholders’ equity increased due to an increase in the foreign currency translation reserve of $7,279 and $22,635 respectively with a corresponding increase in the equity investment in the Pebble Partnership. | |
| (c) | Share-based Payment |
Under GAAP, the Company measured share-based compensation related to share purchase options at fair value of the share purchase options granted using the Black-Scholes option pricing formula and recognized this expense over the vesting period of the options. For the purpose of accounting for share-based payment transactions an individual is classified as an employee when the individual is consistently represented to be an employee under law. The fair value of the share purchase options granted to employees is measured on the date of grant. The fair value of share purchase options granted to contractors and consultants are measured on the date the services are completed. Forfeitures are recognized as they occur. | |
IFRS 2, similar to GAAP, requires the Company to measure share-based compensation related to share purchase options granted to employees at the fair value of the share purchase options on the date of grant and to recognize such expense over the vesting period of the options. However, for share purchase options granted to non-employees, IFRS requires that share-based compensation be measured at the fair value of the services received unless the fair value cannot be reliably measured. For the purpose of accounting for share based |
Page 26
| Northern Dynasty Minerals Ltd. |
| Notes to the Condensed Consolidated Interim Financial Statements |
| For the three and nine months ended September 30, 2009 and 2008 |
| (Unaudited - Expressed in thousands of Canadian Dollars, unless otherwise stated) |
payment transactions an individual is classified as an employee when the individual is an employee for legal or tax purposes (direct employee) or provides services similar to those performed by a direct employee. This definition of an employee is broader than that previously applied by the Company and resulted in certain contractors and consultants being classified as employees under IFRS. | |
For the share purchase options granted to individuals reclassified, changes in fair value after the grant date previously recognized for GAAP purposes have been adjusted. The adjustments were calculated only for unvested share purchase options issued and outstanding as of and after the Transition Date. | |
| (d) | Deferred Tax on Mineral Properties |
Under GAAP, the Company, in determination of the net loss from its interest in the Pebble Partnership, recognized a future income tax liability on temporary differences arising on the initial recognition of the Pebble Partnership mineral property interest (where the fair value of the asset acquired exceeded its tax basis) in a transaction which was not a business combination and affected neither accounting profit or loss nor taxable profit or loss. IAS 12,Income Taxesdoes not permit the recognition of deferred taxes on such transactions. | |
As of the Transition Date and December 31, 2008, the Company has derecognized the impacts of all future income tax liabilities which had previously been recognized on the initial acquisition of the investment in the Pebble Partnership through transactions deemed not to be business combinations and affecting neither accounting profit or loss nor taxable profit or loss. |
Page 27