Northern Dynasty | Valentine’s Day Massacre 2017

If you own shares of Northern Dynasty Minerals Ltd. (NAK) you may know they fell more than 36% in the first hour of trading today.

Kerrisdale Capital, a New York-based hedge fund, issued a scathing report on the company. It also disclosed a short position in the company’s stock.

Northern Dynasty controls the world’s largest undeveloped gold deposit. Located in Alaska, the Pebble deposit didn’t stand a chance against onerous Obama-era EPA regulations. It does stand a chance at development during the Trump years.

In the report, Kerrisdale calls Northern Dynasty’s gold hoard “worthless.” They point to the company’s massive development capital needs. It may need $7 billion, $8 billion, or even $10 billion to develop its project. With 70 million ounces of gold, 57 billion pounds of copper, and 344 million ounces of silver in the ground, those capital requirements don’t seem so daunting. A $100-per-ounce increase in the price of gold raises the project’s value by $7 billion… completely changing the picture of high development costs.

Kerrisdale also points to the company’s difficulty obtaining a mining permit. Pebble became a political issue. Obama even visited the region. He took photos with locals and made statements that hurt Pebble. Considering the region has roughly two residents per square mile, there’s no way he went there on his own to get votes.

When we recommended buying shares of NAK last August, we shared a YouTube video of Robert Redford. In it, he makes a passionate case against mining Pebble’s gold.

We predict President Trump’s EPA will be far less political than the one that preceded it. We also don’t think Trump answers to movie stars and billionaire liberals. Instead, he represents the people. At least that’s what we’ve seen so far. If it keeps up, his administration may see the massive economic value in developing Pebble.

Doug Casey visited Pebble last summer. He noted the minuscule portion of Bristol Bay affected by the deposit. He also noted the radical advances made in mining technology. Modern mines have a far less noticeable impact on the environment than they did in the 1970s or 1980s.

Finally, Kerrisdale points to the “low grade” of Pebble’s gold. In order to recover its 70 million ounces of gold, the company must move and process 6.5 billion tonnes of earth. That means it would pull one troy ounce of gold from every 91 tonnes of earth processed.

What Kerrisdale hasn’t considered is that the Pebble mine sits unencumbered, ready for open-pit mining. The deposit’s low grade would make it impossible to mine if it was buried a mile under the earth’s surface. That’s not the case.

We could have saved Kerrisdale a lot of time. We knew about all of Pebble’s problems years ago. The difference is we think a rising gold price and a mining-friendly administration are more important.

This is not our first run-in with Kerrisdale. Late last summer, the firm wrote a similar hit piece on First Majestic Silver Corp. (AG). In it, they called for the company’s shares to fall “70%–80%” from current levels. They also disclosed a short position in the company’s stock taken prior to publishing.

First Majestic shares fell on that news. The fall triggered our trailing stop loss, taking us out of our position. They later recovered. We re-entered the trade, and First Majestic returned to its proper place as one of the best silver-mining firms we know of.

For now, we’re maintaining our BUY recommendation.

BUY Northern Dynasty Minerals Ltd. (NAK) up to $3 per share. Use a 50% trailing stop loss on the position.

Regards,

E.B. Tucker
Editor, The Casey Report