Northern Dynasty Minerals Stock Is a Speculative Bet

Pebble mining regulatory clearance can send the stock surging. Production remains years away.

If the roller-coaster ride on buying Bitcoin is unaffordable, the equity markets have Northern Dynasty Minerals (NYSEAMERICAN:NAK). On Dec. 24, 2018, NAK stock was trading at 51.5 cents. By the first week of February 2019, the stock was higher by 104%, at $1.05.

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The stock subsequently slumped by 60% to 42 cents in the second week of May 2019. and the story of extreme volatility is far from over. NAK stock price skyrocketed by 118% to 92 cents in the first week of August 2019. The stock is currently 37% lower at 58 cents.

Therefore, within one year, the Northern Dynasty Minerals stock price has witnessed multiple upsides followed by corrections. I expect this volatility to continue, and this makes NAK an interesting trading bet.

In addition, a small exposure to NAK stock can be considered with a “buy and forget” investment strategy. A positive regulatory outcome (to be discussed) can imply that the stock is a five- or 10-bagger.

A Brief Overview on Regulatory Hurdles for Northern Mineral

Northern Mineral Dynasty is a mineral exploration and development company. The company holds “100% interest in a contiguous block of 2,402 mineral claims in southwest Alaska, including the Pebble deposit.”

According to the company, Pebble has 6.5 billion in measured and indicated resources. The resources include copper, gold, molybdenum and silver. To put things into perspective, Pebble gold resources is equivalent to 1.8% of all the gold mined (ever).

Someone looking at the company for the first time would wonder why Northern Minerals Dynasty trades with a market capitalization of just $225 million.

The answer: In 2014, the Obama administration had outlined a restriction on the Pebble project under Section 404(c) of the Clean Water Act. South-western Alaska is known for a flourishing salmon and fisheries industry. The fear was that mining at Pebble would result in pollution of water resources and the death of the fishing industry. Therefore, there was a pre-emptive veto against the project.

Renewed Hopes of Regulatory Clearance

In February 2019, the U.S. Army Corps of Engineers released a draft environmental impact statement. The key finding was that Pebble will not harm the Bristol Bay fishery or the water resources of Bristol Bay. In addition, the project will have an important economic contribution towards the state of Alaska.

Further, In July 2019, the Environmental Protection Agency scrapped the proposed restriction on Bristol Bay.

As Bloomberg reports — “The move does not guarantee the U.S. government will issue a permit for the company’s planned Pebble Mine. But the decision removes a major barrier to the project.”

While the EPA scrapped the restriction, it also mentioned that Army Corps’ draft “likely underestimates impacts and risks.”

Therefore, it is likely that EPA will work in sync with the Army Corps to conclude on the potential environmental impact. The Corps is targeting a final draft in the first quarter of 2020. A positive outcome can send NAK stock flying higher.

At the same time, Alaska natives and fishermen have sued the EPA for reversing the Pebble Mine decision. So it would be too optimistic to expect no hurdles.

In any case, the NAK stock will be in news and investors can expect sharp movements to continue.

What Comes After Regulatory Clearance?

The first scenario is that regulatory clearance will be delayed as Alaska natives fight the case against the EPA and the company. In this scenario, the stock is likely to remain volatile and I don’t expect a sustained move over $1.

In the second scenario, the company receives the regulatory clearance and I expect the stock to surge higher. However, the stock will decline and settle at lower levels after an initial exuberance.

The Reason: Even if the company gets regulatory clearance in 2020, mining operations will not start before 2026. The period between 2020 and 2026 will be a phase of high investment, leveraging and several rounds of equity dilution.

Final Thoughts on NAK Stock

The roller-coaster ride for investors exposed to Northern Dynasty is likely to continue. I believe that current levels are interesting for medium-term exposure.

However, the project is still far from initiation and free cash flows from the project are unlikely in the next 8-10 years.

Therefore, NAK stock will remain a trading stock that is worth considering. However, a big plunge in the stock is not advisable considering the regulatory risks.

As of this writing, Faisal Humayun did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2019/11/northern-dynasty-minerals-stock-is-a-speculative-bet/.

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