Canada-based copper mining company Northern Dynasty Minerals’ (NAK) Pebble Project has attracted significant investor attention because of its potential to boost the production of metals used in green technology. But given that politically unfavorable circumstances have put the project’s future in jeopardy, is it worth betting on the stock now? Read on.
Based in Vancouver, Canada, mineral exploration company Northern Dynasty Minerals Ltd.’s (NAK) principal mineral property—the Pebble project—represents the most significant underdeveloped copper and gold resource in the world. And because the Biden administration's renewable and low-carbon energy targets are expected to drive unprecedented demand for copper, the company is well-positioned to benefit.
However, NAK’s shares fell 10.3% in price on Monday after the U.S. Environmental Protection Agency (EPA) announced its decision to file a motion to remand its July 2019 withdrawal notice concerning Alaska's Pebble Project. In addition, the stock is trading 64% below its 52-week high of $1.26, indicating short-term bearishness.
While its Pebble Project initiative could boost green power and electrification technologies, ongoing legal challenges and NAK’s faltering financials could make investors nervous.
Here’s what we think could influence NAK’s performance in the near term:
EPA Decision Could Hamper the Pebble Project
Last week, the Biden administration said it would relaunch a process for permanently protecting the Alaskan watershed from the development of the Pebble Mine project. EPA Administrator Michael Regan said, "The Bristol Bay Watershed is an Alaskan treasure that underscores the critical value of clean water in America." If the Alaska federal district court grants the request to vacate the 2019 decision to remove the previously issued protection of the Bristol Bay watershed, it will restore the EPA’s Clean Water Act Section 404 review process. This could put NAK’s Pebble Project’s future in jeopardy and mar the company’s growth prospects.
At-the-Market Offering of Shares
In June, NAK entered an At-the-Market Offering Agreement with H.C. Wainwright & Co. to sell up to $14.5 million of the company's common shares. It plans to use the offering’s net proceeds to fund its work on the Pebble Project and to prepare engineering reports to appeal the Record of Decision by the United States Army Corps of Engineers, and for general corporate purposes. However, the offering could negatively impact its stock price because it will lead to the dilution of existing shares.
NAK has not generated any revenue but its share-based compensation for the second quarter, ended June 30, 2021, rose 109.1% year-over-year to CAD1.29 million ($1.02 million). Also, its loss from operating activities came in at CAD9.03 million ($7.13 million), while net loss stood at CAD9.22 million ($7.29 million). Furthermore, NAK’s loss per share amounted to $0.02 for the quarter. And its net decrease in cash and cash equivalents totaled CAD5.11 million ($4.04 million) for the six months ended June 30, 2021. Its net cash from financing activities declined 53.7% year-over-year to CAD10.85 million ($8.57 million) over this period.
Its trailing-12-month ROE, ROA, and ROTC are negative 37%, 33.7%, and 22.2%, respectively. Also, its trailing-12-month cash from operations stood at negative $41.16 million.
Unfavorable POWR Ratings
NAK has an overall F rating, which translates to a Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. NAK has an F grade for Quality. The stock’s negative profit margin is reflected in this grade.
It also has a C grade for Growth, which is consistent with the stock’s bleak growth prospects.
In terms of Stability Grade, NAK has a D. This indicates that the stock is more volatile than its peers.
Beyond the grades we’ve highlighted, one can check out additional NAK ratings for Sentiment, Value, and Momentum here.
Of the 39 stocks in the D-rated Industrial – Metals industry, NAK is ranked #37.
Even though NAK’s Pebble Project remains an important domestic source to meet the country’s lower carbon emission goals, the Biden administration’s opposition to the mine to protect Bristol Bay, and the EPA’s efforts to vacate its previously announced 2019 notice that ended the review process, could threaten the company’s growth. Meanwhile, its weak balance sheet and significant cash burn could pose a risk to the stock. So, we think the stock is best avoided now.
How Does Northern Dynasty Minerals (NAK) Stack Up Against its Peers?
While NAK has an overall POWR Rating of F, one might want to consider taking a look at its industry peers, Ryerson Holding Corporation (RYI), Vale S.A. ADR (VALE), and Atkore International Group Inc. (ATKR), which have an A (Strong Buy) rating.
Note that ATKR is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Growth portfolio. Learn more here.
NAK shares fell $0.00 (-1.06%) in premarket trading Tuesday. Year-to-date, NAK has gained 39.75%, versus a 20.15% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.
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