Commodities & Metals

Did Northern Dynasty's Gold Rush Just Get Burned?

Investors have an on-and-off love affair with gold. True gold bugs generally prefer investing in the shiny yellow metal rather than in miners, but the more speculative investors will venture into the gold-mining stocks. The reality is that there are big gold-mining giants, and there are also tiny speculative companies that get the attention of micro-cap investors. The latter has been the case for Northern Dynasty Minerals Ltd. (NYSEMKT: NAK).

Before going one step further, and before trusting anything that gets said or referred to here, understand that Northern Dynasty Minerals is a highly speculative stock. In fact, it is more speculative than most speculative stocks.

What looks to be happening in this stock at this time is a bull-bear war between speculative buyers and a short seller. After it closed at $3.36 last Friday and at $3.18 on Monday, this was a gain of over 50% from the $2.07 closing price at the end of 2016. Even after the gains seen in 2016, that is not normal. And for 2016, Northern Dynasty shares were trading at $0.31 at the end of 2015 — so its gain has been tenfold.

Then on Tuesday, February 14, Northern Dynasty shares were down almost 29% at $2.28 in midday trading. Even before the noon hour it had traded almost six times normal volume, with some 32 million shares having changed hands.

When speculative stocks rise 100%, it is not unusual for there to be some doubters. But what about when the shares rise closer to 1,000%? One such doubt that may have greatly hurt Northern Dynasty’s shares on Tuesday was a short seller report from an unknown firm named Kerrisdale Capital that was made public.

There are three takeaways here that the report discusses, and that is on top of the very first line: “We are short shares of Northern Dynasty Minerals…”

The company controls an undeveloped project in Alaska called the Pebble deposit, which was discovered long ago but has never been mined. This has been a regulatory and legal hot potato where environmentalists, commercial fishing interests, Alaska natives and agencies have debated against it ever starting up. According to a past Gabelli report, Northern Dynasty’s Pebble deposit contains defined mineral resources of 82 billion pounds of copper, 107 million ounces of gold and 514 million ounces of silver, with an in-ground value of $335 billion.

According to Thomson Reuters, the Pebble Project is located in southwest Alaska and is approximately 20 miles from the villages of Iliamna and Newhalen, and over 200 miles southwest of the city of Anchorage. It also was noted that the property consists of approximately 2,400 mineral claims and is situated over 1,000 feet above sea-level and approximately 60 miles from tidewater on Cook Inlet.

There has been a lot of hope that the regulatory climate under President Donald Trump would be friendly to the commencement of operations. According to the Kerrisdale report, investors could be sitting on a zero. Three comments stand out here:

  • All this enthusiasm is misplaced.
  • We believe Northern Dynasty is worthless.
  • [T]he upfront capital costs necessary to build and operate the mine are so onerous that the mine isn’t commercially viable.

Due to not knowing the firm that issued the short seller report, that’s all that can be said about this for the time being.