Is Northern Dynasty Minerals (NYSEAMERICAN:NAK) stock a gamble worth taking? On one hand, if this junior miner is able to proceed with its Pebble Project in Alaska, it could possibly reap tremendous windfall. On the other hand, there’s little chance of this project getting the green light.
Why? Chalk it up to environmental concerns. Despite the long-shot odds, the company is fighting to win over regulators. Will they prevail? Right now, I wouldn’t bank on it. But, is it worth betting on it? Even if it’s basically like buying a lottery ticket, as InvestorPlace’s Muslim Farooque put it on May 6?
It depends. At first glance, it could appear that buying shares today (at around 58 cents per share) would be worth it. The boost this stock would receive if it made just an ounce of progress with the Pebble project would likely send it back to prices many times where it trades today.
This would more than counter the risk of total loss, if it gets to the end of the road with its appeals to repeated rejections. Yet, diving into the details, it becomes more questionable. With so many stakeholders against the project, the Pebble Project may remain this company’s impossible dream for years, if not decades, to come.
NAK Stock: Why Some See it as a Gamble Worth Taking
Right now, Northern Dynasty generates zero revenue. Its operating expenses have been around $50 million annually over the past few years. Per its latest financials, it has only $33.4 million in cash on hand. But, when you consider the potential value of the Pebble Project (if it comes to fruition), it’s clear why the stock manages to have a market capitalization of around $284 million.
As our own Louis Navellier broke it down Apr 30, the Pebble Project is a literal treasure trove, containing an estimated $400 billion+ worth of metals. Now, it’s not as if the company, if it ever got approval to commence mining at the site, would immediately become worth $400 billion.
But, it would have an outsized effect on its stock price. Even any indication that things were moving in its favor would help send NAK stock “to the moon” once again. A full bounce back to its 52-week high ($2.49 per share) would result in a more than four-fold gain from today’s prices.
Compared to the risk of a total loss, some may see this as a gamble worth taking. But, it’s not like there’s a 50% chance it happens, and a 50% chance it doesn’t. It may not even have a 20% chance of happening. Instead, it’s odds are probably more like 99-to-1.
Lack of Support Hints Why it May be a Bad Bet
Northern Dynasty has few on its side fighting for the greenlight on the Pebble Project. Politicians on both sides of the aisle have come out against it. President Biden explicitly said while campaigning for office he would block the project. And, even during the Trump years, the company failed to obtain approval from the Army Corps of Engineers.
In addition, a diverse group of stakeholders in the Bristol Bay region of Alaska (where the site is located) have been vocal in their opposition to the Pebble Project. In short, it’s not just Washington politicians, and environmental activists who aren’t keen on it moving forward. With the local community against it, it’s easy to see why the state’s two Senators (Lisa Murkowski and Dan Sullivan) supported the Army Corps of Engineers’ rejection.
Meanwhile, Northern Dynasty continues to spend tens of millions of dollars per year fighting an uphill battle. Where does it generate this cash? Via dilutive secondary offerings, such as a $35.3 million one it closed on in July 2020. This dilution, coupled with diminishing interest among speculators, as they become impatient, likely points to this “cheap stock” getting even “cheaper” over time.
In fact, shares today may be a bit inflated, relative to the project’s current prospects. Shares fell to as low as 31 cents per share after Biden’s election, but saw a more than three-fold rebound thanks to the “meme stock” phenomenon. The remnants of last winter’s speculative fever remain factored in the price of NAK stock.
Bottom Line: Fun to Speculate About, But Tread Carefully
Admittedly, it’s fun to think this company could be sitting on a $400 billion treasure trove. But, a bull case built largely on hopes hardly pays off. Sure, for those looking for a fun situation to speculate on, there’s no problem investing a small amount you’re okay with potentially losing. Just keep one thing in mind.
Lacking support not just from Washington politicians and regulators, but the local community as well, the odds of this junior miner prevailing are probably more remote than what’s currently baked into the NAK stock price.
On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.