Yesterday at exactly 5:49am, I got a message from one of my favorite SA authors:
Note the time of 5:49am. That's am as in the morning. Courage knew there was something in the air, some ominous moment coming and he could not sleep through it. So he messaged me. During the day we were getting a selloff induced by "no news is bad news". As you read below, note that the press release came out 6:34pm.
On May 4, 2017 at 6:34pm, Northern Dynasty and the EPA filed a joint motion to extend stay of proceedings.
The exact wording of the press release is as follows:
VANCOUVER, May 4, 2017 (Canada NewsWire via COMTEX) -- Northern Dynasty Minerals Ltd. (NYSEMKT:NAK) ("Northern Dynasty" or the "Company") announces that its wholly-owned US subsidiary, Alaska-based Pebble Limited Partnership ("Pebble Partnership" or "PLP"), and the US Environmental Protection Agency ("EPA") have filed a Joint Motion in federal court to extend a stay of proceedings in the parties' longstanding legal dispute over the federal agency's pre-emptive regulatory action under Section 404(c) of the Clean Water Act to May 11, 2017.
The motion states: "The parties have identified a likely framework for settlement and request a short, one-week extension of the current stay to allow the parties the time necessary to finalize the agreement and obtain the required approvals."
Northern Dynasty CEO Tom Collier: "A great deal of common ground has been established between the parties, including on the importance of upholding the rule of law when it comes to administering statutorily mandated processes under the Clean Water Act, the National Environmental Policy Act and other federal statutes. On that basis, we anticipate achieving a resolution to these matters next week."
Source: Canada NewsWire
In my first article, Alaska Permit For Northern Dynasty Kicks Off Buying Frenzy, I cautioned readers not to buy into the melt up after a press release that Northern Dynasty received an ongoing users permit from Alaska. I made it clear late buyers buying after the run up were going to be melting down from the cold waters of reality.
In my second article, Northern Dynasty Minerals Faces The Music After Defying Bollinger Bands, I warned readers by using Technical Analysis featuring the amazing Bollinger Bands® to expect a significant correction to bring pricing back to equilibrium. My personal thanks to John Bollinger for making a guest appearance to weigh in.
In my third article, Northern Dynasty: The NAKetship Is Ready To Blast Off!, I advised readers the time was right for buying. I followed my own advice and added to my position the day I wrote the article.
A TALE OF TWO VETOS
Many assume there is only one veto the EPA has to control the outcome of the Pebble mine, and that is the preemptive veto. That means the EPA can veto the process before the permitting of the mine goes forward. The EPA preemptive veto never kept Northern Dynasty from proceeding with the permitting process. The overhang of a retroactive veto is what has kept Northern Dynasty from permitting. Had the time and money been expended on permitting, and the permits all were approved, the EPA retroactive veto meant they could cancel and kill the mine, even if it were up and running. That is what has had Northern Dynasty frozen in its tracks in the great north.
There is no credible business operator in the world that would invest billions in any project even if were to become the most profitable venture in the history of mankind if there were a sword hanging overhead that it could be legally shut it down because an arm of the government could do so on a whim.
Just the permitting of the Pebble mine could run in the hundreds of millions of dollars. Nobody wants to spend that kind of money if it could go up in smoke. It would be the personal equivalent of spending thousands of dollars to get a building permit, and hundreds of thousands of dollars on building costs, only to have the government condemn and evict without any compensation whatsoever when it felt like it. Nobody would ever want to build anything.
Furthermore, if Northern Dynasty does not get the assurances they are seeking from the EPA, it would not be possible to attract a major miner partner to get the investments into the ground in terms of what is needed to develop the mine and necessary infrastructure.
The Clean Water Act was originally introduced and signed into law in 1972 by then President Nixon. Over the years the EPA has morphed from a enforcer of the law as passed by Congress to a codifier of EPA written regulations that have been enforced as de facto law.
There were Congressional hearings in 2014 to strike the EPA's practice of using veto powers to shut down a fully permitted operation. From the testimony of Bob Gibbs, Ohio, Chairman Subcommittee on Water Resources and Environment regarding the EPA's involvement with Pebble mine:
The EPA has not only asserted itself after a permit has been issued. It has recently been preempting potential applicants. A recent example of the EPA perhaps illegally exercising its veto authority before someone even applies for a 404 permit is in the Pebble Mine, Bristol Bay, Alaska project. In this case, without ever receiving an application describing the proposed action, the EPA has declared that no permit, regardless of conditions and potential public benefits, can ever be issued in that designated area. I consider this regulatory overreach to be a fundamental property rights issue. With this new and broad interpretation of its powers, EPA is setting itself up as the ultimate manager of land use and economic development in the Nation. This is an example of Government that thinks it has no limitations on its power.
If an agency (the EPA) is given the right to unilaterally revoke an already issued permit, then nothing can ever be considered final. The issuance of a Federal permit should come with the certainty that the activity can go forward unencumbered, but within the bounds of the permit.
Giving EPA the unconstrained authority to revoke section permits at any time strips the permits of the finality and regulatory certainty that Congress clearly intended for them to have.
From the testimony of William L. Kovacs, Senior Vice President, Environment, Technology and Regulatory Affairs, U.S. Chamber of Commerce on the subject of the Pebble mine:
But EPA's retroactive permit authority is only one of the many ways in which the Agency is unilaterally expanding its regulatory authorities. The claim of retroactive authority is merely the latest. In the case of Pebble Mine, which the chairman mentioned, in Alaska, the developer spent over one-half billion dollars and it has not even yet been able to apply for a permit. In this situation, the activists petitioned EPA requesting that the permit be preemptively denied before even Pebble could apply for it. To appease the activists, EPA undertook a watershed assessment using outdated models and operations of a mine. While EPA has not yet preemptively prohibited the permit application, it has formally started the process to prohibit it.
In the practical world, securing a permit, and I think this is our biggest problem with the retroactive veto, is a multiyear effort involving complex studies, engineering reports, compliance with over 30,000 pages of regulations covering air, water, waste, endangered species, and environmental impact statements. When a permit is granted, the developer has complied with literally every regulatory detail. The developer goes through this torturous process to develop a significant project with the expectation that the project will add economic value to the community, create jobs, and increase shareholder value. The developer enters the permitting process believing that once it proves it can meet every condition imposed by the Government, that it will hold the permit for a specific number of years to both complete and operate the project. EPA's retroactive veto means that a permit no longer is granted for a specific period of time. Rather, a permit has value only as long as the Administrator believes that it should not be revoked.
Source: Government Publishing Office
After reading the excerpts of the congressional hearings regarding the absolute retroactive powers the EPA has, it becomes crystal clear why Northern Dynasty has had no incentive to pursue the permitting process while the EPA has held retroactive veto powers. There has been much discussion of the EPA preemptive veto authority, but scarcely little about the retroactive veto authority the EPA has insisted it has. That is the key to the agreement that Northern Dynasty is trying to work out with the EPA, that there can be no retroactive veto if legitimate permits are in place.
OVER THE SHORT TERM
There have been a couple of price spikes since mid February. The last spike was when the state of Alaska issued an ongoing use permit for the Pebble mine. This current spike is a pre EPA resolution spike and should be more pronounced than the last two headline spikes. If it becomes official, it is a permanent material event, and the ensuing selloff should not be as deep.I do not anticipate that the formal announcement coming out next week will be much of a spike, in fact, if we are around $2 by then, it could very well sell off.
There are still some serious short term risks here. The biggest short term risk is the agreement does not come out within one week. We saw what happened this week when no news was forthcoming and nervous sellers bailed. Nervous sellers will bail again and if the wording of the agreement when it comes out is not super pro NAK there will be a selloff.
In the chart below, the first spike came after the letter was sent from the House of Representatives Committee on Science, Space, and Technology to Scott Pruitt, head of the EPA asking him to rescind the 2014 EPA decision to preventively veto the Pebble mine. The second spike came when Northern Dynasty received an ongoing users permit from Alaska.
BEWARE OF SELLING OFF AFTER NEWS EVENTS!!!
In the past election, the fundamental outlook for Northern Dynasty changed because the EPA up until then had blocked the normal lawful permitting process. The stock price has been a roller coaster, rising from a little under $1 to over $3 and falling back close to $1, only to rise to $1.50ish. The upcoming final EPA announcement is the first real material event since the election. Short seller attacks aside, the facts remain unchanged and the underlying fundamentals are intact. NAK has been in a long term uptrend for almost a year now, even with all the gyrations.
If you are a long term investor, congratulations, because with long range superpower vision we can see the NAKetship is back on course. If you are a trader, it may be a good time to sell the news to longer term hands in the spirit of thanksgiving.
Disclosure: I am/we are long NAK.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.