Northern Dynasty Minerals Ltd (NYSE MKT: NAK) was founded on May 11, 1983 and is headquartered in Vancouver, Canada. Northern Dynasty’s principal asset is the Pebble Project in southwest Alaska, USA, an advanced-stage initiative to develop mineral resources.
The company owns 100% of the Pebble deposit containing over 100 million ounces of gold and some 82 billion pounds of copper and 514 million ounces of silver amongst others. Over the last few years, Northern Dynasty has been trying to begin the permitting process for its “Pebble” project after being stopped by the Environmental Protection Agency (“EPA”) veto in 2014.
The company recently announced that Pebble and the 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.”
As per management, a great deal of common ground has already been established between the parties, including 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, the company anticipates achieving a resolution to these matters next week.
The sensitivity of the company’s stock towards any news/announcement has increased substantially in the recent past. In fact, during February 2017, the company’s stock suddenly plunged by more than 40% due to a certain class of investor calling NAK’s projects economically unviable. As a reaction, the management announced that it is considering a potential lawsuit against a short-seller whose false allegations about the company are “worthless” and caused a sharp selloff in the company’s stock.
Therefore, the near term performance of NAK is significantly dependent on the upcoming developments. The company’s outlook could be revised to negative, if the aforesaid agreement does not come out within one week and or if the outcome of agreement adversely impacts the business risk profile of the company. Therefore, the upcoming final EPA announcement is the first real material event since the Presidential election in 2016.
Notwithstanding the fact that Northern Dynasty Minerals is gradually moving towards the permitting and regulatory approval process, the ultimate commercialization of operations continues to remain a long and expensive affair. The permitting process itself would entail $150 million to complete along with a timeline of more than four years. However, the company’s business risk profile continues to benefit from the series of standalone positive developments.
NAK shares have gotten substantial attention over the past few months, in anticipation of positive impact on Pebble due to the Trump Presidency and expectations of successful permission of the project. In fact, NAK’s successful capital raise and Trump inauguration have significantly supported company’s stock price, which had more than tripled before the February sell off event.
On January 26th, the Company reported successful closure of its secondary share offering. A total of 20.24 million common shares were sold for gross proceeds of US$37.444 million.
For Q4 2016, it reported Nil revenues & net loss of CAD $-5.5 million as against net loss of $-12.4 million last period. From a financial flexibility perspective, it reported less than adequate liquidity with cash and Cash equivalents at $7.1 million compared to $7.5 million during Dec 2015. That said, company’s immediate cash burden is alleviated by its recent secondary offering.
Description:
Northern Dynasty owns 100% of the Pebble Project located in southwest Alaska. Pebble is an initiative to develop copper, gold, molybdenum and silver resources into a modern, long-life mine.
The Pebble Deposit represents 6.44 billion tons of measured and indicated resources containing 82 billion lb copper, 100 million oz gold, 3.4 billion lb molybdenum and 514 million oz silver; and 4.46 billion tons of inferred resources.
The Environmental Protection Agency (“EPA”) exercised its veto in 2014, to impose restrictions on Pebble, blocking it from applying for a permit, citing “potentially destructive impacts” to the world’s largest sockeye salmon fishery. Also, Anglo American & Rio Tinto Group , who were partners in Pebble until 2013, walked away after permission related challenges. By 2013, over $500 million had already been spent on the project.
The management of NAK is counting on Donald Trump to rein in the power of EPA, potentially leading to a friendlier permitting environment for Northern Dynasty and other developmental-stage mining companies. The company is positive that Pebble would get a 404 permit and, as per management, the likely permitting cost would be around $150 million and should take around four years.
Notwithstanding its positive expectations, Northern Dynasty’s business profile is constrained due to a lack of money and expertise required for NAK to develop the mine on its own. However, after successful resolution of permission with the EPA, NAK could find a new partner (with adequate financial strength & technical expertise) for Pebble’s development. The management expects to find a new partner for Pebble’s development by October 2017.
On January 26, 2017, the company reported that it has sold 20.24 million common shares at a price of US$1.85 per share for gross proceeds of US$37.444 million.
The proceeds are anticipated to be used by the Company to address the pre-emptive regulatory action of the U.S. Environmental Protection Agency, preparation of the Pebble Project for the initiation of federal and state permitting under the U.S. National Environmental Policy Act, environmental monitoring, engineering and environmental studies, field investigations and related technical studies to finalize a proposed development plan for the Pebble Project amongst others.
Key Stock Influences:
Some key influences that might govern future stock price performance over the near to medium include:
- The near term performance of NAK is significantly dependent on the upcoming developments. The company’s outlook could be revised to negative, if the above-mentioned agreement does not come out within one week and or if the outcome of the agreement adversely impacts the business risk profile of the company. Therefore, The upcoming final EPA announcement is the first real material event since the election.
- Can NAK successfully resolve permission with the EPA and find a new partner (with adequate financial backing & technical expertise) for Pebble’s development in 2017.
- Even if the EPA’s preemptive veto gets lifted. It doesn’t mean the project itself will be permitted, it just means that the permitting process could begin. Resistance from environmental groups and its adverse impact would continue to impinge the business sentiments/prospects of the company.
- Assuming NAK gets the required permits, the magnitude of capex (including its funding pattern) which is required to safely build out the infrastructure and get Pebble into production, would remain a major business & financial sensitive factor.
- As of the company’s most recent quarterly filing, it had $7.1 million cash on its balance sheet. Though its immediate cash burden is alleviated by the recent secondary offering, developing Pebble would entail substantial incremental capital. Therefore, NAK’s ability to obtain additional capital /timely financial closure would remain a major challenge.
Earnings Review
For three months ended on December 31, 2016, The Company reported a net loss of $5.5 million, or $(0.02) per share, for the 4th quarter 2016, compared to a net loss of $12.4 million, or $(0.07) per share, during the same period in the prior year.
Operating Metrics
There was no gross profit & operating margin during the Quarter ended Dec, 2016 as the company is still on development phase with no revenue.
Cash Flow & Balance Sheet
The company has incurred losses in the past few years and as of December 31, 2016 it had an accumulated deficit of approximately $406 million, as against $379 million as on December 31st, 2015. The company will continue to incur losses until it generates sufficient revenue to offset expenses.
NAK has financed its operations since inception through issuance of equity securities. It had total equity of $148.8 million, compared to $155 million at December 31, 2015. Total debt to equity ratio of the company for most recent quarter is 0.00.
Net cash outflow from operating activities for Q4 2016 was $24 million compared to an outflow of $37 million for Dec 2015.
Stock Performance
On Monday, May 8th, 2017, NAK shares, in mid-day trading are at +15.05%/ $1.84 on an average volume of 4.22 million shares exchanging hands. Market capitalization is $593.89 million The current RSI is 62.11
In the past 52 weeks, shares of NAK have traded as low as $0.28 and as high as $3.45.
At $1.84, shares of NAK are trading above its 50-day moving average (MA) at $1.44 and above its 200-day MA at $1.38.
The present support and resistance levels for the stock are at $1.54 & $1.94 respectively.
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