The Primary Reason Behind Northern Dynasty Minerals Ltd.'s 12% Move Higher

By Sean Williams Markets Fool.com


Image source: Disney-ABC Television Group, Flickr.

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What happened

Shares of Northern Dynasty Minerals (NYSEMKT: NAK), a developmental-stage precious-metal mining company that hopes to develop the Pebble Project in Alaska, surged as much as 12% during Friday's trading session. The reason behind the move appears to be none other than the inauguration of President Trump.

So what

Northern Dynasty Minerals is currently determining whether it would be economically feasible to recover the estimated 6 billion tons of ore buried underground. Previously measured, indicated, and inferred resources showed a whopping 81.5 billion pounds of copper, 107 million ounces of gold, and 514 million ounces of silver within the confines of the project. Based on these eye-popping figures, you'd probably assume Northern Dynasty was sitting on a veritable gold mine (pardon the apropos pun). However, the company has one major issue standing in the way: the Environment Protection Agency (EPA). The EPA halted Northern Dynasty Minerals' chance at permitting after the company spent more than $500 million on Pebble.

So, why the rally? Wall Street and investors are counting on Donald Trump to rein in the power of the EPA, potentially leading to a friendlier permitting environment for Northern Dynasty and other developmental-stage mining companies.

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If Northern Dynasty Minerals were able to get its Pebble Project off the ground, it would potentially be able to mine Pebble for more than 100 years!


Image source: Getty Images.

Now what

Now that you have a better understanding of why Northern Dynasty is rallying, let's face a dose of reality. As of the company's most recent quarterly filing, it had less than $6 million in cash left on its balance sheet. Last week, the company wound up issuing common stock via a secondary offering that raised approximately $32.4 million. Though its immediate cash burden is alleviated, investors shouldn't be oblivious to the fact that developing Pebble will take billions of dollars. Northern Dynasty Minerals is nowhere near the level of capital it would need to bring its dream of mining Pebble to fruition at the moment.

Also, investors should heed the cautious words of Northern Dynasty Minerals. Here's what was contained within the company's Q3 earnings press release:

The Group's continuing operations and underlying value and recoverability of the amount shown for the Group's mineral property interests, is entirely dependent upon the existence of economically recoverable mineral reserves.

That's a pretty straightforward way of telling investors that there isn't even a concrete plan in place to recover the roughly 6 billion tons of ore profitably.

While the company may appear to have potential, investors are best off keeping a very safe distance from Northern Dynasty Minerals until its permitting and cash situation look a lot rosier.

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Sean Williamshas no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has adisclosure policy.