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Northern Dynasty Minerals Ltd. - 49ers Redux

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  • NAK has the rights to one of the world's largest discoveries of gold, silver, palladium and other precious minerals in a project called "Pebble".
  • The Company has been embroiled in legal, political and environmental battles over the right to permit and build/operate a mine to gain access to the resources worth hundreds of billions.
  • Today, the Army Corp of Engineers, after years of analysis, provided NAK a FEIS (final environmental impact statement) which analyzes the viability of the planned mine - a major milestone.
  • No earlier than 30 days from today, a ROD (record of decision) will be provided that officially sanctions the mine paving the way for NAK to permit the business over the next few years.
  • The reserves of the discovery have an estimated NPV of $10 billion, which is increasing almost by the minute as gold, silver and other metals prices skyrocket.  Further, the strategic value of Pebble is paramount to national security of the United States, which has become overly dependent on China for basic and rare commodities supply/processing. The Trump Administration and Congress understand the gravity of the situation, and in at least semi-bipartisanship are seeking an accelerated path to wean the country off Asian metal.  Using 500MM shares O/S and based on the FEIS, we think NAK should be valued at $2.5BN, or 25% of NPV = $5/share.  Upon filing of the ROD as soon as T+30 days but no later than in a year, we expect this valuation to double to $5BN, or 50% of NPV = $10/share.  Since NAK is an exploration company and will likely sell the mineral hoard to an operator in 2021, our 12-18 month target is $10BN, or 100% of NPV = $20+/share.  Our math is admittedly "back of the envelope" and subject to moving parts and risks such as litigation, acrimony with tribes, political risk, and lack of transparency on future partners or suitors.  That said, the Company has ample cash for the next 9-12 months and the time to add this spec strategic mining play to risk portfolios is now, in our view.  Against this backdrop, we initiate coverage with a BUY recommendation.

Analyst's Disclosure: I am/we are long NAK.

We intend to provide additional commentary in our ongoing coverage of NAK.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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