Kerrisdale Capital: Northern Dynasty Stock 'Is A Zero'

Shares of Canadian exploration company Northern Dynasty Minerals Ltd NAK are down more than 5 percent in Tuesday’s pre-market session after Kerrisdale Capital released a scathing new report urging investors to sell the stock. Kerrisdale believes the huge run-up in Northern Dynasty’s share price since Donald Trump was elected is based on a false hope.

Politics, False Hope And Real Disappointment

Northern Dynasty owns a major undeveloped copper and gold property Alaska called the Pebble deposit. Despite the fact that the Pebble deposit was discovered decades ago, it has never been mined due to concerns over its location. Northern Dynasty has gotten intense resistance from environmentalists, local natives and commercial fisherman about the project, ultimately resulting in the Environmental Protection Agency stepping in and putting the brakes on Pebble in 2014.

Trump’s campaign to reduce environmental regulatory barriers has investors optimistic about the prospects for the Pebble project. Since Election Day, Northern Dynasty stock is up more than 320 percent. However, Kerrisdale believes this optimism is misplaced.

“We believe Northern Dynasty is worthless,” the note reads. “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.”

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Kerrisdale pointed out big names in the Canadian mining scene, including Teck Resources Ltd (USA) TECK, Rio Tinto plc (ADR) RIO and Anglo American plc AAL all previously abandoned exploration of the Pebble deposit on economic grounds.

Cost Concerns And Commercial Viability

“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,” Kerrisdale wrote. The firm noted that Northern Dynasty itself even pushed to sell the Pebble property back in 2011.

“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 the mine would destroy billions of dollars of value,” according to the report.

Without an economically viable asset, Kerrisdale concludes that Northern Dynasty’s stock is essentially worthless.