Northern Dynasty Minerals Ltd.: The Pebble Deposit Isn't Commercially Viable


  • Northern Dynasty's key asset, the low-grade Pebble deposit, is not commercially viable: mining it would require so much upfront investment that it would actually destroy value.
  • Kerrisdale believes Northern Dynasty's former partners concluded that the Pebble project had a negative present value – an assessment that Northern Dynasty has spent years trying to conceal from public.
  • Frenzied investor enthusiasm over the benefits that Trump presidency will bring to the Pebble project overlooks the ineradicable threat of veto from either the Alaskan government or future Democratic White House.

We are short shares of Northern Dynasty Minerals (NYSEMKT:NYSE:NAK), a Canadian company that owns an undeveloped copper and gold resource in Alaska called the Pebble deposit. Discovered decades ago but never mined, the Pebble deposit has inspired intense controversy, as a broad and bipartisan coalition, including environmentalists, Alaska Natives, and commercial fishermen, fought its planned development, leading the Environmental Protection Agency in 2014 to stop the project in its tracks. The election of Donald Trump, however, has fueled hopes that a more mining-friendly EPA will allow the project to move forward. Since Election Day, Northern Dynasty's stock price has increased 326% amid a host of promotional campaigns. As one observer put it on January 20th, "This is getting a little ridiculous. I don't think I've ever seen a single mining stock as aggressively endorsed by investment newsletters as Northern Dynasty has been over the past few months."

All this enthusiasm is misplaced. We believe Northern Dynasty is worthless. Though the legal and regulatory problems that will continue to plague the Pebble project even under a Trump presidency are enormous, the project's Achilles' heel is more fundamental: economics. Large players in the mining industry, including Teck (TECK), Mitsubishi (OTCPK:MSBHY) (OTCPK:MSBHF), Rio Tinto (RIO), and Anglo American (OTCQX:AAUKF) (OTCPK:AAUKY), invested in Pebble years ago; one by one, they all abandoned it. Northern Dynasty itself was reportedly "on an aggressive sales push" to rid itself of the asset back in 2011. Why?

Based on our discussions with multiple people directly involved in planning the Pebble project, we believe the answer is simple: the upfront capital costs necessary to build and operate the mine are so onerous that the mine isn't commercially viable. Indeed, Anglo American - Northern Dynasty's former partner on the Pebble project, before it exited in 2013 - concluded that, under a range of scenarios and despite years of attempted optimization, building

This article was written by

Kerrisdale Capital is a private investment manager that focuses on value and special situations investments. We manage investment partnerships and separately managed accounts.

Disclosure: I am/we are short NAK. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Please read our disclaimer at

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