A new report issued today by independent New York-based investment firm Kerrisdale Capital Management concluded that Northern Dynasty Minerals—the proponent behind the low-grade gold and copper mine to be located at the headwaters of Bristol Bay’s world-class salmon runs—is “worthless.”
Northern Dynasty Minerals has benefited from a “Trump-bump,” with its stock prices soaring over 300 percent after the election. As investment analysts from Kerrisdale Capital point out, however, even President Trump “can’t make a success out of a value-destroying boondoggle.”
The report cites both economic and political reasons. (Note: the report also discloses that Kerrisdale Capital has short positions in the stock of Northern Dynasty Minerals.)
1. The mine is an economic loser.
As the report notes, “the upfront capital costs necessary to build and operate the mine are so onerous that the mine isn’t commercially viable.”
Indeed, every major mining company involved in Pebble has withdrawn—Mitsubishi in 2011, Anglo American in 2013, and Rio Tinto in 2014. Since then, Northern Dynasty Minerals has issued a series of special warrant sales—thereby diluting its share value—in order to stay afloat. Notably, however, it has not been able to entice a new moneyed partner.
According to the report: “With little cash on its balance sheet and few people under its employ, Northern Dynasty needs massive financial and operational backing to even consider developing the Pebble deposit. But what potential partner would willingly bear such a wide range of unquantifiable and potentially catastrophic regulatory risks? More importantly, what potential partner would gladly incinerate billions of dollars of value by building a mine that can’t produce an adequate return on capital? We believe that Northern Dynasty is on its own. It will never develop the Pebble deposit and has no other source of potential value; it’s worthless.”
CNBC’s Mad Money Jim Cramer came to a similar conclusion about Northern Dynasty Minerals last week: “no revenue, no nothing. I mean, no, come on! It's just a momentum play…too dangerous for this guy.”
2. The mine is a political loser.
In a nutshell, Alaskans don’t want it.
As the report emphasizes, Alaska voters passed—with 65 percent of the vote (or more) in every precinct across the state—an initiative called “Bristol Bay Forever” in 2014. The initiative protects the Bristol Bay watershed from large-scale sulfide mining (like the proposed Pebble Mine) that would harm wild salmon. It requires an affirmative finding from the Alaska legislature that mining would not be harmful to wild salmon within the Bristol Bay Fisheries Reserve.
The report states: “The mine’s local unpopularity, coupled with the added requirement of legislative approval, would put its future in grave danger even if it were commercially viable…Even if the EPA allows Pebble to proceed, we believe the Alaskan legislature will block it.”
The report further identifies political risks at the federal level if/when Democrats regain the White House. “Given the influence of environmentalist interests on the Democratic Party, the unique unpopularity of the Pebble project, and the Obama EPA’s clearly articulated reasoning for expecting “unacceptable adverse effect[s]” from the mine [according to a three-year, twice peer reviewed scientific assessment of mining impacts on the Bristol Bay watershed], we believe that any future Democratic EPA would swiftly re-impose the veto [under Section 404(c) of the Clean Water Act].
Ultimately, the report applauds Northern Dynasty Minerals for “skillfully exploit[ing] the Trump narrative to reignite enthusiasm for a company that the market had left for dead” but nevertheless concludes that the “Pebble project is doomed: politically impaired and commercially futile. Northern Dynasty’s shares are worthless.”
Repeat after me: the Pebble Mine is “doomed.” “Politically impaired.” “Commercially futile.”
Further repeat: “Northern Dynasty’s shares are worthless.”
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