Why the Northern Dynasty’s mineral store exploded today

What happened

Actions of Minerals of the Northern Dynasty (NYSEMKT: NAK) jumped today after the mining company released a completed Preliminary Economic Assessment (PEA) for its proposed Alaska pebble mine project. Investors liked what they saw and drove stocks up nearly 30% early Monday morning. As of 11 a.m. EDT, the stock reduced those gains but remained up 19.4%.

So what

At current prices for several metals the mine will produce, including copper, gold and silver, Northern Dynasty’s PEA says the project will provide an internal rate of return of 23.7%. It also calculates that the net present value of the project – which is a measure of its profitability – is $ 4.7 billion using a 7% discount rate.

Image source: Getty Images.

These valuations fall based on long-term expected metal prices, but investors were still impressed with the potential returns from the 20-year surface mining project. But the reaction to these details was also likely tempered by the fact that the project still remains in limbo pending a resolution of a US Environmental Protection Agency (EPA) review as well as a lawsuit. In progress.

Now what

Northern Dynasty President and CEO Ron Thiessen said in a statement, “The 2021 PIA forecasts strong economics for the proposed project and also demonstrates an important option for potential future developments. He added that the company has made investments to ensure that the project can be built and operated using “the best environmental safeguards in the industry.”

But that alone will not move the project forward. Northern Dynasty wants the EPA to decide more quickly whether it will conduct a proposed determinative review on the impacts of the project on the neighboring Bristol Bay watershed. The agency had previously withdrawn the review process, but subsequently decided to continue it.

Northern Dynasty believes it has already addressed concerns expressed by the agency and has included appropriate protections to move the project forward. But until the regulatory and legal process is complete, Northern Dynasty shares will remain at the mercy of that process. For today, the expected economic benefits of the project have some investors willing to take this risk.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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