Opinion on  Northern Dynasty Minerals Ltd (NAK)     Sector: Basic Materials  >  Industry: Gold & Silver
The Pebble Mine-More than Just Pebbles?

Northern Dynasty Minerals (“NAK”) is a Canadian mineral exploration company primarily focused on its Pebble Mine in Alaska. It currently has a 100% stake in the mine. The Pebble Mine in Alaska is regarded as a “world class mine” of gold-copper-molybdenum that is split up into Pebble East and Pebble West. For this article, we will disregard the whole Pebble West Mine and focus on the Pebble East Mine.

NAK recently put a press release out that truly signifies the importance of the Pebble East mine. It describes the inferred resources contained in the mine and follows ( http://biz.yahoo.com/iw/070220/0217508.html ):

“3.4 billion tonnes grading 1.00% copper equivalent, containing 42.6 billion pounds of copper, 39.6 million ounces of gold, and 2.7 billion pounds of molybdenum.”

This is just a tremendous amount of minerals and has a value of over $200 billion using today’s metal prices. NAK estimates it will have low project costs of $0.3/lb of copper and $50/oz of gold which would make this company extremely profitable. This immense amount of minerals will and has already seen huge interest from the majors.

This mine is world class because of its large mineral deposit, its long estimated life, and NAK’s low project costs of $0.3/lb of copper and $50/oz of gold. Rio Tinto , a $80 Billion mining and exploration company has taken a 19.9% stake in the company that values NAK at around $900 million. Production is slated to begin sometime in 2010 with construction of the mine starting in 2008.

The main risk with this company is getting regulatory approval to mine. There is currently heavy opposition to this Mine, mostly from the wildlife associations that want to protect the environment. A good description of whose for and whose against this mine can be found on Wikipedia, by going here: http://en.wikipedia.org/wiki/Pebble_Mine

Although there is heavy opposition, this mine would supply the United States for decades and in times where natural resources are extremely scare and getting increasingly expensive.

Rio Tinto is definitely interested in taking NAK out but that might not happen. Tinto might not be able to take them out cheaply due to the shareholder rights plan NAK has instated: http://biz.yahoo.com/iw/061212/0193989.html

NAK currently has no debt and is being fed liquidity from Rio Tinto. This mine is a world class asset and I believe it will definitely be mined starting in the beginning of the next decade. NAK’s current market capitalization of $815 million doesn’t fully take into account the immense potential that this mine offers.

Renowned options trader Phil Davis makes a good comparison of NAK to AUY here: http://gold.seekingalpha.com/article/11693

Overall, NAK looks like a good value play that can deliver profits to its shareholders for many decades into the future. It is also a good play on the increasing price of gold and copper.

For more insight, you can visit my site at http://valuestocksuniverse.blogspot.com

Northern Dynasty has reserves on the low end of 200 billion. You can read more about it here.

If NAK was to ever be valued at a 1:1 ratio in ten years down the line that would give an investor an annual return of around 70%.