Keep finding gold and make others work to find out just how much gold you are finding.
That seems to be the story at Northern Dynasty Minerals...
[Note: This is a slightly edited version of a company update that went out to subscribers at Iacono Research just a few days ago - shares of Northern Dynasty were added to the model portfolio late last year with additional shares purchased yesterday. If you are interested in investing in the great natural resources bull market of the early 21st century, you might want to sign up for a Free Trial to see what it's all about.]
Northern Dynasty Minerals (AMEX:NAK) is one of the best-positioned companies in the gold mining industry to benefit from rising metal prices either by building a mine or by being acquired - the company's Pebble West Project is huge, but the Pebble East Project looks like it will be even bigger.
Share price have risen dramatically in recent months after an updated resource estimate for Pebble East in February but, since that time, the company has been virtually silent about what's going on with their 2007 drill program.
Recall that after some very promising initial exploration in 2005 at Pebble East, company priorities were realigned resulting in increased exploration in 2006 and an initial estimate in February of 2007 indicating a near doubling of the inferred resource from 22 million ounces of gold to 40 million ounces. A larger drill program is now underway with the intention of further defining the resource and moving as much of the gold as possible from the Inferred category (fewer samples, wider spacing) to Measured and Indicated (more samples closer together).
According to recent accounts, with eight drill rigs operating this summer, the ore body boundaries at Pebble East have yet to be found - both laterally and at depth - and non-disclosure agreements have been signed with as many as eighteen other mining companies as a prelude to possibly forming a consortium to build and operate what will probably be the world's largest gold and copper mine. What was planned as a 2007 drill program at Pebble East will likely turn into a multi-year exploration effort to discover just how big the deposit really is - only then can planning for the construction of a mine really begin. The 31 million ounce Pebble West Project is now being de-emphasized by management, the current thinking being that an open-pit mine will extract just the higher grade ore, as a multi-generational life for an underground mine at Pebble East is pondered.
So, if you've been wondering how a company boosts their stock price by 50 percent in six months without issuing a press release, now you know. You do it by having the goods which is what more and more investors realize Northern Dynasty has mid-way through 2007. (As it turns out, you don't even have to update the resource estimate on your website if you have what Northern Dynasty seems to have in Pebble East - their resource page still doesn't reflect the resource doubling that was announced in February.)
While higher share prices for Northern Dynasty seem to be all but a sure thing, remember that there is still a fair amount of environmental opposition to the Pebble Project by some well-connected environmentalists who live nearby. But, simply due to the enormous mineral content and the clout that comes with increasing involvement by much larger mining concerns in what is generally a very mining-friendly state, this appears to be a project that is just too big to stop.
At times such as this, making an additional purchase comes only after great deal of deliberation. Even after the recent run-up in the share price Northern Dynasty is still undervalued by a very wide margin - simply comparing their current gold resource and market capitalization to that of Alaskan neighbor NovaGold Resources (AMEX:NG) makes this point abundantly clear.
Vancouver-based Northern Dynasty Minerals is developing one of the world's most significant advanced stage copper-gold-molybdenum projects in southwestern Alaska. This is very much a copper and gold project, however, the amount of gold that has already been confirmed through extensive drill programs ranks among the largest deposits in the world, making this resource a prime take-over target in the years ahead.
The company's Pebble West Project was discovered by Teck Cominco in 1988 who then proceeded to explore the property until 1997, ultimately agreeing to option 80 percent of the resource to Northern Dynasty in 2001. After three years, Northern Dynasty earned its 80 percent interest from Teck Cominco and a year later exercised its right for the remaining 20 percent from the Hunter Dickinson Group and gained control of the entire property.
Drill programs for Pebble West were conducted from 2002 through 2005 and mine planning was initiated, however, an eastward expansion in exploration during 2005 resulted in a substantial new discovery of higher grade copper-gold-molybdenum mineralization that came to be known as Pebble East. Much of the work over the past year has been focused on defining the resource at Pebble East, leading to a huge increase in inferred resources announced in February of 2007. Exploration continues at Pebble East during the summer of 2007.
With a total of almost 80 million resource ounces of gold, of which 31.3 million ounces are already in the Measured and Indicated category, the company is a prime target for acquisition in the ongoing mining industry consolidation where large producers seek to purchase smaller exploration companies with confirmed mineral resources. Mining giant Rio Tinto owns almost 20 percent of Northern Dynasty shares and, due to the sheer size of the project, a mining consortium is being considered to more efficiently develop mining operations at Pebble.
Full Disclosure: Long NAK and NG at time of writing.
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