In what could be another significant set back in its efforts to develop the Pebble Project in Alaska, Northern Dynasty Minerals learned that Rio Tinto PLC plans to undertake a “strategic review” of its 19 percent stake in Northern Dynasty Minerals.

Rio Tinto said in a release that the review could potentially conclude in a decision to divest its stake in Northern Dynasty, where it owns about 18.1 million shares.

The move comes several days after New York City and California state controllers, who oversee the billions in pension fund investment led by the two major U.S. municipalities, sent Rio Tinto a letter requesting that Rio Tinto exit its stake of just below $25 million in Northern Dynasty.

“Northern Dynasty has lost roughly 80 percent of its market value over the past two years,” wrote John Chiang and John Liu, the controllers for California state and New York City, respectively. “We believe the reputational risks the investment poses to Rio Tinto now outweigh its market valuation. We therefore request that Rio Tinto divest from the project.”

Anglo American, Northern Dynasty’s development partner, withdrew from the project in September adding problems for the project that has long faced opposition from environmental groups.

Environmental activists have said for years that the project will damage the valuable nearby salmon fishing industry, and maintain that it is overwhelmingly opposed by the local population, with 80 percent of regional residents against the project.

Rio Tinto will consider whether the Pebble project fits with its “strategy of investing in and operating long-life and expandable assets,” according to Rio Tinto. Rio Tinto owns stakes in four productive copper mines and two ongoing copper developments in Peru and Arizona.
Rio Tinto spokesman David Outhwaite told International Business Times that the company hasn’t yet formulated a specific response to the letters from the public finance managers. Between them, Liu and Chiang supervise about $570 billion in pension fund assets.

On a conference call, Northern Dynasty CEO Ron Thiessen said the Rio Tinto move caught him by “complete surprise," when a Rio Tinto executive called him on Friday and informed him of their decision.

“I was at a loss to understand why they were announcing it publicly,” said Thiessen of the Rio Tinto strategic review. He said it was “out of character with everything they’d communicated prior to that point in time.”

Northern Dynasty will provide updates on the status of the Pebble project in the first quarter of 2014. Thiessen has previously said that Northern Dynasty could submit project permits in 2014, and that it could do so before securing a development partner. The mine is expected to cost $6 billion.

Rio Tinto has paid “very close attention” to the Pebble project since Anglo’s withdrawal, said Thiessen. He said he was unsure whether pressure from pension funds contributed to Rio’s decision, adding that Rio failed to provide clarity on this point.

Developers are likely to spend $800,000 a month on the project, according to their most recent guidance, after the $700 million invested to date by Anglo and Northern Dynasty.