Northern Dynasty Minerals Ltd (NAK)

[garyadam]

The Alpha Group’s current assessment as originally posted on Stockhouse earlier today.

Great News with Dunleavy win and BM1 Defeated-we're still in

Hi all!

We've been quiet for months simply watching and addding here and there. We will begin posting our thoughts a bit more regularly now that we're through big storm and thing are starting to go our way.

We stand by our past views on this stock and company, and if you go back to our last long post on our thesis, you will see much of what we said would occur has happened. We are a bit early to the stock but feel very much emboldened that we will see a fanastic return here in the next 6-12 months.

We have not sold a share in our investment group and have averaged down, hopefully many here have as well. Some key points we've made in the past as well as key information given advancements with NAK to date

1. As all know now, Dunleavy winning was a very material win for NAK. State permits are needed and having a very pro mining Governer and GOP Governer at that, in office only bodes well for us.

2. BM1 (stand for salmon) was defeated resoundingly by Alaskans 2-1 rejection of that nonsense. This is good for a number of reasons. 1) Clearly it removes a key risk for us 2) It really proves most Alaskans were/are not against Pebble, indeed a strong majority are clearly FOR Pebble and it simply shows outside interests were indeed spreading the misinformation (looking at you NRDC and China and uneducated / ignorant Washington State fishermen)

3. Draft EIS due 2nd week of January - we expect this to be a material event. With this stock we no longer try to call 'catalysts' as there is so much gaming going on, but we do care about material events that de-risk this from a partner or buy out perspective. 2 of those key events have happened with 1 and 2 above, a clean Draft EIS pretty much guarantees a permit as these things are usually only adjusted at the margin. Should that happen, the 'true value' of this company should start appearing as institutions get in, and bidders line up to partner or buy the company out given the resource. Remember, Ron T stated he felt the company would be bought out shortly after th Draft EIS, and that Cu prices should see material moves upwards in 2019 and supply issues start to hit.

4. We see the company has 28 mil in cash and short term investments, as of Sept 30, this is good, as the ACOE has now done the heavy lifting on the draft EIS and as such, we should be good cash wise for another 2 quarters, and by then the value of the company should be materially higher (already should be much higher but is what it is). Cash burn will clearly slow as the AcOE is wrapping up the 'heavy' lifting so to speak. We will need a partner, funding or a buyout by Q2 in our view but the draft eis should push that value higher with any partner. Our guess is the company will wait the 1.5 months to leverage that document into a higher valuation from partners, since we have the cash.

Finally, here's some of our past thoughts - they still hold today, as I said, a bit early but we love this name and are continuing to hold / add selectively.

As has been stated in the past, a number of factors can increase our ‘relative value’ and thus price target in the short term
NAK will be the only “pure play” public vehicle with access to Pebble only – largest Cu / Au deposit in the world

Most are now aware of what is going on in the Cu market and dynamics/sentiment in that regard – the market is finally seeing that Cu demand is only going to increase over time given a lack of supply and material new demand from electric vehicles, electronics, global urbanization and related infrastructure needs, etc.

A strong consortium valuation clearly affirms a bullish view on the value of Cu long term.

Deals done in the private market are usually at a 15-20% discount to fair value given illiquidity, lack of control (especially if multiple partners), and as a ‘sweetener’ to potential partners. Therefore, the market could value NAK’s 50% ownership higher

Value and price can differ, the stock could trade higher, lower, or equal to its valuation (ie Tesla is overvalued based on financial theory. Market dynamics and sentiment always play a role. Sentiment, shorting, gaming can play a role to suppress short term as we have seen. This is the tug of war/interplay we must all consider, when will the market appreciate the value here. It could be today, tomorrow or months, but when it does, this will a very highly priced stock relative to prior to the news.


(This was state after FQ - stock moved but we now have this back with other risks removed. We do need to address this near term as above) With the MAJOR RISK for exploratory mines now gone (financing risk), expect more institutions to get into the name, as well as, more investment banks to pick up coverage, which then drives more institutional buying. With that risk gone, and resultant institutional buying, the company “should” hopefully start seeing a valuation in line with the developers set out in the corporate presentation –ensure you go to the NAK website and look at this please!

HR 520 in the house – Strategic Minerals act could permit this mine much faster (along with recent POTUS Executive Order to reduce permitting times for infra and related projects). Also, S.1460 introduced by Murkowski- Energy and Natural resources act affect us as well – links below

https://www.congress.gov/bill/115th-congress/senate-bill/1460/text
https://www.congress.gov/bill/115th-congress/house-bill/520?q=%7B%22search%22%3A%5B%22hr520%22%5D%7D&r=1


Russian Sanctions including minerals could make permitting more urgent

Demand for Cu will only grow long term as supply issues are a reality –goes to long term valuation/sentiment

Safe location, size of deposit, global demand for Cu, vs third world mining issues should give NAK a premium valuation to its comp set

Wotus issue removal and ‘real’ effect on permit odds (effectively removes only permit impediment)

Pruitt’s “Sue and Settle” changes at EPA and limiting the ability of enviros to litigate legislative changes helps permitting odds. Now with Dunleavy and BM1 addressed political risks are minimized - since political risks have been the cause of this stocks poor performance, this should help over time


Valuation at permitting is MULTIPLES higher than JV terms, see corporate presentation for transaction precedents and valuation insight –so assumptions on permit risk play a role- That being said, the new information on how the company is mitigating permit risk makes that risk less and less concerning (smaller mine, no cyanide, etc).

Prefeasibility study de-risks the project further and is expected this quarter/near term according to the company presentation – as mining companies de-risk value increases and this study if positive (or better than expected) should have a material impact on price - Company has stated after draft EIS they will publish

The company is clearly a buyout target at permitting given they are not a producer, this is a major value catalyst mid-term. Explorers are typically bought out at permit stage and the valuation will be multiples of the JV terms.
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