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Here's Why Shares of Northern Dynasty Minerals Plunged 46% in January

By Scott Levine - Updated Feb 5, 2018 at 10:14PM

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An unexpected announcement from the EPA rocked investors' confidence that gold will be produced at the Pebble Project anytime soon -- if at all.

What happened

Shares of Northern Dynasty Minerals (NAK 1.38%), a mineral exploration and development company, fell 46% in January, according to data from S&P Global Market Intelligence.

The stock's nosedive is the result of an announcement from the Environmental Protection Agency that casts doubt on the company's ability to develop its primary asset: the Pebble Project in Alaska. According to Northern Dynasty's website, the Pebble Project is "indisputably one of the world's largest undeveloped copper/gold deposits with a potential mine life that is measured in decades." 

Digital lines on a financial chart pointed downward.

Image source: Getty Images.

So what 

After receiving input from the various stakeholders of the Bristol Bay watershed, a region that would be affected by the development of the Pebble Project, Administrator Scott Pruitt of the EPA announced his belief that "any mining projects in the region likely pose a risk to the abundant natural resources that exist there." This quashed investors' enthusiasm that had been stoked last July, when the EPA cleared a roadblock preventing the company from advancing into the permitting phase of the project.

Taking a different tack from last summer, Pruitt and the EPA appear considerably less supportive of the Pebble Project; however, the agency didn't remove all hope that Northern Dynasty would be able to advance the project, stating that Northern Dynasty retains the protection of due process and is allowed to proceed in its application. This, nonetheless, provided little solace to shareholders considering the agency indicated that the permit application of the Pebble Project's proponents "must clear a high bar, because EPA believes the risk to Bristol Bay may be unacceptable."

On its website, Northern Dynasty, undeterred, quickly posted a response to the EPA's announcement, indicating that it still sees a path forward. Management stated that it has "every confidence that Pebble's ultimate project design will meet the rigorous environmental standards enforced in Alaska and the U.S." 

Now what 

Challenges have plagued the development of the Pebble Project ever since the deposit was discovered nearly 30 years ago, and the EPA's recent announcement suggests that adversity facing the project won't be waning anytime soon. The announcement, furthermore, provides some vindication to bears who contended that Donald Trump's election -- something that bulls characterized as an encouraging sign for the project's development -- would not be enough to help the project come to fruition.

Of course, the execution of the project transcends the successful completion of the permitting phase. Northern Dynasty must prove that the project is economically feasible -- something that's far from a given. Consequently, Northern Dynasty should only attract the attention of the most risk-tolerant of investors. 

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