For gold-minded investors, Northern Dynasty Minerals (NAK 7.78%) has long been a story. Although the company retains 100% ownership of the Pebble deposit, which is in southwest Alaska and has been dubbed by the company as "one of the greatest stores of mineral wealth ever discovered," it has its share of skeptics. The project has long been mired in controversy, caught up in litigation brought by those concerned that the potential mine could wreak environmental havoc.
A path forward for the Pebble Project seems to have emerged, however. Northern Dynasty Minerals has received its long-awaited Final Environmental Impact Statement (EIS) from the U.S. Army Corps of Engineers, presenting the company with a way to develop the project in an environmentally responsible manner. Does this mean that gold investors should rush to pick up shares of this miner? Let's dig in deeper to find out.
The deets on the deposit
The Pebble deposit has measured and indicated gold and copper resources of 71 million ounces and 57 billion pounds, respectively, in addition to inferred resources of 36 million ounces of gold and 25 million pounds of copper. According to the company, it's the world's largest undeveloped copper and gold resource. While these figures -- and the potential for ample mineral production -- may glitter brightly in investors' eyes, it's critical to recognize that management's mineral estimates haven't been independently verified.
The grandeur of these figures may be difficult to appreciate without some context, so let's consider the reserve base of Newmont Goldcorp (NEM 4.77%). Earlier this year, Newmont, the largest publicly traded gold miner based on market cap, reported that its entire portfolio of assets included measured and indicated gold resources of 76.7 million ounces and inferred resources of 31.3 million ounces. But the Pebble deposit's value isn't limited to gold and copper; it also includes measured and indicated resources of 3.4 billion pounds of molybdenum and 345 million ounces of silver.
According to Northern Dynasty Minerals, the Pebble Project, as it's imagined right now, will have a mine life of 20 years and will achieve annual average production of 613,000 tons of copper-gold concentrate, consisting of 318 million pounds of copper, 362,000 ounces of gold, and 1.8 million ounces of silver.
What's in the Final EIS
Taking more than two and one half years to complete, the Final EIS, at over 2,000 pages long, details the Pebble Project as a proposed open-pit mine with ore processing facilities. Moreover, the Final EIS describes infrastructure for the project: an 82-mile road plus a 164-mile natural gas pipeline from existing infrastructure to the Pebble mine site, where a 270-megawatt natural gas power plant will sustain operations.
Addressing the impact on local fisheries and overall ecology, the Final EIS says: "Overall, impacts to fish and wildlife would not be expected to impact harvest levels. Resources would continue to be available because no population level decrease in resources would be anticipated." And in terms of the potential benefits for locals, the report found that, "The increase in job opportunities, year-round or seasonal employment, steady income, and lower cost of living described above would have beneficial impacts on the EIS analysis area, especially for communities in the LPB [Lake and Penninsula Borough], during construction and operations of the project."
While the Final EIS had the potential to further complicate the project's development, the company is quite happy with the report. According to CEO Ron Thiessen, "There is more work to be done, but the publication of the Final EIS today is a clear validation that Pebble can be developed in an environmentally sound and socially responsible way, creating benefits and opportunities for the people of Bristol Bay and all Alaskans."
The lustrous insight for investors
While the Final EIS is good news for Northern Dynasty Minerals, investors shouldn't expect to see gold production anytime soon because the company is still in the middle of the permitting process. According to management, it will be another two to three years before it obtains the necessary permits from the State of Alaska.
Even if the permitting process goes smoothly, it's possible that the project will find itself at the center of more litigation. And it's not only potential lawsuits that represent risk for the company. The construction of mining projects is incredibly capital-intensive and often subject to delays and unforeseen costs -- especially relevant in light of the fact that the company has not secured partners to help it finance the development of the multi-billion dollar project. Additionally, investors must appreciate the inherent risk in that Northern Dynasty, which counts the Pebble deposit as its principal asset, has no track record of successfully developing projects from the planning phase through mineral production. Only gold investors with considerable tolerance for risk, therefore, should consider an investment at this point. In the meantime, there are plenty of other golden opportunities for those seeking exposure to the metal.