Shares of Northern Dynasty Minerals (NYSEMKT: NAK) jumped 18% in February, according to data provided by S&P Global Market Intelligence. That brought the would-be gold and copper miner's two-month advance to 62%! What may be more shocking is that even after that massive gain, the stock is still 50% below the level at which it started 2018. In fact, there are some worrying signs even looking at just the February gain -- at one point in the month the stock was up more than 30%.
Northern Dynasty Minerals' main asset is the Pebble Project in Alaska. The company reports that it is one of the largest undeveloped gold and copper deposits in the world, and is trying to build a mine to exploit that asset. It hasn't been smooth sailing, with the project facing material environmental pushback and government red tape.
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Even in the best case scenario, Northern Dynasty won't see any revenue from the proposed mine for years to come. At this point the company just has expenses, and it is relying on the capital markets for the cash it needs to continue its quest to build out the Pebble Project. Northern Dynasty had a partner, but that company pulled out in mid-2018...which helps explain at least a portion of the disastrous performance of the stock last year.
That said, what all of this highlights is that Northern Dynasty Minerals is not a stock for most investors. Only truly aggressive types should be looking at this company. News is the driving factor today, and often that news is binary, with either a good or a bad outcome (for example, the approval or denial of a permit) leading to swift and dramatic price moves. Lately the news has been a bit better for the company, so the stock has been heading generally higher.
But even there you have to take the stock changes with a grain of salt because commodity prices also play an important role. Like the news flow about the mine, commodity prices can cause material price volatility. Copper, for example, has had a good run so far this year, supporting the stock. Gold started the year strongly, but has since cooled off, offering mixed support.
The key takeaway, however, is that Northern Dynasty has to deal with two very uncertain issues: building a mine and commodity prices. News on either front can lead to huge price swings for the tiny company.
This is not a stock that most investors should be looking at. It requires a very long-term view that assumes a positive outcome with the Pebble Project. And even assuming the best-case scenario unfolds, between now and the potential completion of the mine there are likely to be a lot of dramatic price swings in the stock.
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