Northern Dynasty Minerals (NAK) may be using Trump tales to hook investors.
The company appears to be allowing distribution of extremely aggressive and possibly misleading news – even suggesting the new administration has “a desire to permit” Northern’s stalled project. These claims appear to be nothing but hype used in an effort to pump up the stock.
And it’s working. The stock darted upward about 75% after a couple of key stories hit in late December and January, spreading misconception about Northern.
Northern wants to mine copper and gold deposits along Alaska’s Bristol Bay watershed which supports the world’s biggest sockeye salmon fishery. But the “Pebble” project has been stalled for three years amid a firestorm of opposition and a lawsuit with regulators. Northern sued the Environmental Protection Agency in 2014 after the agency used a rare veto initiative to block mine construction before the company had applied for a federal permit. Northern lost its funding partners a year earlier after half-a-billion-dollars in costs and permitting problems.
The EPA indicated to TheStreetSweeper today, Feb. 9, that the agency isn’t ready to back down.
But let’s look closely at the Canadian company’s claims:
*1. The Claim: Desire to Permit
Northern’s public comments were used by Bloomberg for a Jan. 23 story in which the company makes a tall claim that sounds indefensible to us:
So the CEO said that Northern has Trump’s backing and the new administration has “a desire to permit Pebble?” And they’ll resolve the issue within 100 days?
The company has ignored TheStreetSweeper’s numerous requests for comment. But a StreetSweeper research provider did talk to investor relations, confirmed through Jan. 31 and Feb. 1 emails.
Investor relations said no one with Northern ever spoke to the Trump team or the incoming EPA team.
That’s right. Northern didn’t talk to them.
Never mind that Northern indicated in the story that it had Trump’s backing and said that Trump had a desire to permit … even had a 100-day resolution supposedly pinned down.
Consequently, investors bought the story. And Northern’s stock flew following the Jan. 23 story, as indicated by the yellow line below:
(Source: Yahoo and TheStreetSweeper)
TheStreetSweeper asked the EPA to comment.
“We cannot comment on matters involving pending litigation,” said an EPA spokesperson.
So the EPA does not appear to be ready to back off and wave Northern’s Pebble project through…
*2. The Claim: We’ve Talked to Trump Team
Now, let’s look at the Reuters example of what in our opinion is more Northern double-speak.
In Reuters’ Dec. 21, 2016 story about Northern, CEO Ronald Thiessen is quoted as saying the company has had discussions with President Trump’s transitional team.
So in this story, too, CEO Thiessen said the company held discussions with the Trump team.
But our research assistant was told, “No one ever talked to the Trump team or EPA.“
Northern’s investor relations person told our assistant that the CEO’s words were taken out of context and Mr. Thiessen meant that his comments were just his expectations of relief from the EPA.
TheStreetSweeper followed up with yet another call to Northern just prior to publishing this story; ignored again. Another reliable StreetSweeper source also called Jan. 9 to ask investor relations TheStreetSweeper’s questions about whether the company ever spoke with the Trump team or EPA. Neither Northern’s president nor the investor relations person bothered to respond by deadline.
As the stock chart indicates, though, investors believe “the company has held discussions” with President Trump’s team. The stock ran from $1.72 to over $3 per share following the Dec. 21 Reuters story and the Bloomberg story in January, pushing the valuation close to an absurd billion dollars:
(Source: Yahoo and TheStreetSweeper)
Meanwhile, even in the highly unlikely event that the overwhelming opposition subsided and the EPA inexplicably approved the permit this year – which the agency seems to indicate it has no desire to do and in fact is talking about “pending litigation” – investor relations said it would take Northern six to eight additional years to begin production.
Despite Northern’s allowing everyone to think they’ve got Trump and the EPA in its back pocket, investors will have a long wait to see if their gamble pays off … or drifts straight to the bottom of Bristol Bay.
*3. Diluting Current Shareholders
Meanwhile, current shareholders have just endured Northern’s latest stop on the sell-dilute-and-dilute-some-more money train.
About a week after the Bloomberg story and resulting stock surge, the company sold 17.6 million shares of stock to an investment bank. The price was just $1.85 per share at the same time the average stock-buyer paid around $3 per share:
(Source: Company SEC filing)
Thanks to dilution, the value of current stockholders shares took a 6.5% hit after Northern sold the additional stock. And that’s nothing compared with what the future holds.
Unwary investors who stay in the stock must be very careful not to ride the train through the dilution tunnel until their stock is virtually worthless.
Meanwhile, as average shareholders can look forward to funding more dilution-fueled dreams, Northern’s top executives are living the dream…
4. Executive Enrichment Amid Wretched Returns
Northern executives are raking in over $3.5 million in compensation even as the company endures over $24 million in 2015 net operating losses, has spent more than $750 million on the stalled Pebble project and returns a wretched 0.13% on equity.
(Source: Morningstar, TheStreetSweeper)
Northern’s stock rally has been fueled by two extremely aggressive announcements that we consider highly misleading. Northern, in our view, is involved in misinformation in its finest form.
Meanwhile, it’s all fun and games while Northern is drumming up a dream that will take a decade or so to play out.
But let’s say the company actually gets the EPA permit. That’s when the real costs hit and investors begin to really see their stock get watered down. Northern’s recent stock sale is nothing compared to the $6 billion it will have to raise for construction. Where will that money come from? Its previous funding partners fled four years ago. So Northern will be forced to sell stock again and again to raise billions, thereby diluting current stockholders to unfathomable levels.
This stock is extremely overpriced amid widespread misconception. We expect it to quickly plummet to a more reasonable price of about 50 cents per share.
* Important Disclosure: The owners of TheStreetSweeper hold a short position in NAK and stand to profit on any future declines in the stock price.
* Editor’s Note: As a matter of policy, TheStreetSweeper prohibits members of its editorial team from taking financial positions in the companies that they cover. To contact Sonya Colberg, the author of this story, please send an email to [email protected]