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Northern Dynasty Minerals May Look Worthwhile, but It’s a Questionable Bet at Best

One of the most popular targets is Northern Dynasty Minerals (NYSEAMERICAN:NAK) stock, a junior mining firm specializing in copper and gold exploration. Though incredibly risky, NAK stock has attributes that appeal to those who can handle volatility.

a cart filed with gold in a gold mine

Source: Shutterstock

First, you have the outright performance metrics. On a year-to-date basis, NAK stock is up around 72% as I write this.

While shares have encountered substantial volatility recently, it’s fair to point out that they reached a closing peak this year of $1.

Also, in July of last year, Northern Dynasty’s equity unit closed at $1.94, a multi-year high. Therefore, NAK has proven potential to move much higher from the present price of 56 cents.

Second and I’d say much more important, NAK stock enjoys fundamental support.

According to Reuters report earlier this year, “Soaring sales of consumer goods such as washing machines, fridges, freezers and cars in the world outside China are expected to invigorate copper consumption and create shortages later this year.”

Not helping matters was that several manufacturers across various industries shut down production in early 2020 as the novel coronavirus began its raging assault.

Further, the Reuters report points out that “Coronavirus lockdowns have meant many consumers who in previous times would have spent money on holidays, restaurants and other leisure activities are now choosing to buy electrical appliances and durable goods.”

You can find support for this thesis in the U.S. personal saving rate, which remains at multi-decade highs.

Some of that pent-up demand may continue supporting consumer goods, even high-priced goods like cars and electric vehicles. That’s good news for NAK stock due to rising demand for copper. Sure enough, copper has been one of the top-performing commodities over the trailing year.

Don’t Lose Sight of the Bigger Picture with NAK Stock

As our own Louis Navellier explained, much of the investor sentiment toward NAK stock specifically revolves around the underlying company’s Pebble Project in Alaska.

With skyrocketing demand for copper, Northern Dynasty has a vested interest in exploring and developing the mine. Further, Navellier listed the project’s compelling stats:

  • Second-largest undeveloped copper project globally
  • 17% of the contained copper of the world’s 10 top copper projects
  • 74% of the contained copper of the 10 top U.S.-located projects
  • 57 billion pounds, measured and indicated, of copper
  • 71 million ounces, measured and indicated, of gold
  • Significant deposits of silver, molybdenum and rhenium

There’s just one problem – environmental regulators have blocked Northern Dynasty from developing Pebble.

“So, much of the drama and debate surrounding NAK stock involves the company’s ability (or lack thereof) to develop this project,” wrote Navellier.

But in my view, that’s not the only headwind for NAK stock. For one thing, the pent-up demand for appliances and electronic products that use copper could fade once the post-Covid-19 economy normalizes.

In addition, the EV craze (as well as cars in general) will probably die out as the Covid vaccine rollout immunizes a larger chunk of the population. That’s because safety concerns regarding the pandemic drove up auto sales, especially in mass-transit friendly areas like New York City or Boston. Once pandemic fears subside, so too may auto sales, which will hurt copper pricing.

Also, Northern Dynasty’s gold exposure isn’t a panacea. Actually, it might become a liability. Yes, I understand that mainstream business media fears inflation. However, it’s deflation that we probably should be worried about.

What doesn’t get discussed much is that money velocity, or the rate of circulation of each unit of currency in the economy, is near all-time lows. The closer money velocity gets toward zero, the more exponentially difficult it is for monetary and fiscal policies to spark inflation. And that would at least take away the inflation fear catalyst for gold.

The Craziness May Come to an End

Of course, a major attraction point for NAK stock is that in this period of unprecedented governmental action to address glaring weaknesses in the economy, there’s a clear incentive to hold investments in or based on physical assets.

As the gold and silver bugs like to say, you don’t own it until you hold it. Thus, gold isn’t necessarily a bad bet, even if we don’t get inflation.

However, NAK stock is not a commodity but a company that specializes in commodities. Further, Northern Dynasty’s commodity of choice, copper, may face corrective pressure in the near future. Plus, the Pebble question must be answered positively for NAK to likely have a chance at continued upside.

Finally, I’m seeing cryptocurrencies – the hallmark of extreme speculation – eat fecal matter at time of this writing. If cryptos are rising due to inflation as some blockchain gurus suggested, the digital market is certainly demonstrating this in the strangest way possible.

Personally, I think the speculation that we’ve seen in almost every asset sector is unwinding. If that’s the case, you’ll want to stay clear of NAK stock until we reach some stabilization.

On the date of publication, Josh Enomoto is long gold and silver.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

Article printed from InvestorPlace Media, https://investorplace.com/2021/04/nak-stock-only-seems-like-worthwhile-bet/.

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