Pat McKeough recently replied to an Inner Circlememberlooking for an opinion on this mining stock. The company aims to mine one of Alaska’s largest copper/gold deposits, says Pat. But it faces opposition.
Q: Hi Pat. I am considering Northern Dynasty Minerals (NDM) for the aggressive part of my portfolio. Could you please give me your take on this stock? Thanks.
A: NORTHERN DYNASTY MINERALS (symbol NDM on Toronto; www.northerndynastyminerals.com) aims to build a mine at its Pebble project in Alaska.
The Pebble deposit contains an estimated 81.5 billion pounds of copper, 5.6 billion pounds of molybdenum and 107 million ounces of gold. That makes it one of the world`s largest undeveloped copper/gold deposits.
The project has faced strong opposition from environmental groups in part because it sits near Alaska’s major Sockeye salmon fishery. The U.S. Environmental Protection Agency (EPA) officially halted the project in 2014.
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In the wake of the election of President Donald Trump, Northern Dynasty shares shot up from around $1 a share in November 2016 to as high as $4.54 in late January 2017. Investors felt that the new U.S. administration would loosen environmental rules.
Northern Dynasty reacted quickly to the share-price jump by selling 20.2 million shares at $1.85 each ($2.43 Cdn.). The share issue raised a total of $37.4 million U.S. ($49.3 million Cdn.).
However, the stock plunged over a two-week period in February. That’s mostly after a U.S. short seller, Kerrisdale Capital Management, said in a report that it thinks the Pebble deposit is “worthless.” It cited the poor economics of the project: the $1.5 billion that Northern Dynasty needs to build the huge mine; and the site’s low-grade deposit despite its massive size.
At the same time, Kerrisdale pointed out that even if the project is viable, it could still face a veto from the Alaskan state government or a future Democratic U.S. president. The permitting process could, in fact, take four or more years to complete.
The company needs to overcome several challenges for a profitable mine to be built, including weak copper and gold prices. Meanwhile, the shares will mostly trade on speculation about Northern Dynasty’s ability to get past those obstacles.
Inner Circle recommendation: We don’t recommend the shares of Northern Dynasty Minerals.
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