For those familiar with gold investments, Northern Dynasty Minerals (NAK 3.82%) is possibly a familiar name. While the company doesn't own any mineral-producing assets, it does maintain 100% ownership of the Pebble deposit, which it characterizes as the "world's largest undeveloped copper and gold resource."
The stock's popularity among bulls has grown considerably in 2020. Shares of Northern Dynasty Minerals have skyrocketed more than 236% year to date, while the S&P 500 has plummeted more than 6%. Has some catalyst inspired investors that a golden future is within reach, or are shareholders' dreams anchored to fool's gold? Let's take a look at what's behind the stock's recent rise, and whether now is a good time for investors prospecting for gold stocks to pick up shares.
The market's growing appetite for the yellow stuff
It's been a rocky road so far in 2020. Between COVID-19, volatility in the stock market, and widespread protests, the past six months feel more like six years. It's unsurprising, therefore, that the price of gold has soared more than 14% year to date as investors turn to gold as a safe-haven investment. In light of the high correlation between the movements in gold-related stocks and the price of the yellow metal, moreover, the rise in the stock price of Northern Dynasty Minerals is understandable.
What's especially relevant in this case, though, is the nature of the asset, the Pebble deposit. According to the most recent estimate, the Alaskan asset has measured and indicated gold resources of 71 million ounces of gold plus inferred resources of 36 million ounces of gold. But wait, there's more. The Pebble deposit's measured and indicated reserves include abundant amounts of other metals: 57 billion pounds of copper, 3.4 million pounds of molybdenum, and 345 million ounces of silver. This exposure to other metals gleams brightly in investors' eyes since it mitigates the company's exposure to risk related to a downturn in the price of gold.
Nuggets of encouraging news
Environmental concerns have stalled the company's development of the project, resulting in its inability to secure the proper permits. In February, however, investors received a hopeful sign. The company revealed that the U.S. Army Corps of Engineers indicated in an early version of its Final Environmental Impact Statement (EIS) that it "portrays a mine development project that will coexist with the fisheries and water resources of Bristol Bay, while making a substantial positive contribution to the socioeconomic health and well-being of local communities." While the positive characterization is only in a preliminary version of the final EIS, it nonetheless raised investors' hopes for successful development of the controversial project.
Two months later, the company received more positive news -- this time in the form of a legal victory. In April, a federal judge granted the Environmental Protection Agency's (EPA) motion to dismiss regarding a case that activist groups had brought against the agency. In the lawsuit, litigants challenged the EPA's decision made in July 2019 to reverse course on a prior determination made in 2014, one the company claimed "sought to pre-emptively veto the Pebble Project before permit applications had been filed or an [EIS] permitting process was undertaken." For a company that has long struggled to clear the regulatory hurdles and receive the necessary permits, the legal victory was interpreted as an auspicious sign.
And the good news continued into May, when investors learned that the permitting process was advancing. According to a statement on the company's website, the EPA confirmed that the EIS process "is proceeding well, and effectively addressing all issues and concerns raised by EPA, the U.S. Fish and Wildlife Service (USFWS) and other cooperating agencies."
Should investors load up on the stock of this lode-seeking company?
Despite the recent momentum, it's critical for investors to realize that even if Northern Dynasty Minerals receives the necessary permits, it won't begin gold production overnight; construction of a mine is a lengthy, capital-intensive endeavor. In fact, management estimates that if things proceed smoothly, commencement of operations would begin in 2026.
Further complicating the situation is the possibility that environmental groups or locals tie up the project with additional litigation, resulting in more delays. And while the Trump administration has looked favorably on the project, it's certainly possible that the November election could result in a Biden administration, which could be less keen on the project.
While the prospect of investing early in a world-class mining operation is alluring, only those shareholders with the highest levels of tolerance for risk should consider picking up shares at this point.
Lustrous last thoughts on Northern Dynasty Minerals
For gold-minded investors, the ongoing saga of Northern Dynasty Minerals is worth following, but there are currently plenty of more compelling options to consider. Only those people with the highest levels of risk-tolerance should consider picking up shares at this point.