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Does Northern Dynasty Minerals Deserve a Place in Your Portfolio?

Mining company Northern Dynasty Minerals' (NAK) Pebble Project has piqued the interest of investors due to its potential to enhance the production of metals needed in green technology. But, considering that politically unfavorable circumstances have jeopardized the project's future, is it worth investing in the stock now? Read on, let's find out.

Northern Dynasty Minerals Ltd. (NAK) is a Vancouver, Canada-based mineral exploration and development company. Its principal asset is a 100% interest in a contiguous block of 1,840 mineral claims in Southwest Alaska, including the Pebble deposit, which is located 200 miles from Anchorage and 125 miles from Bristol Bay. It is owned through its wholly owned Alaska-based U.S. subsidiary, Pebble Limited Partnership. The company's shares have gained 20.6% in price over the past month driven by the Biden administration's renewable and low-carbon energy initiatives, which are likely to fuel extraordinary demand for copper.

However, the stock is down 46.2% in price over the past year and 18.2% over the past month to close yesterday's trading session at $0.39. In addition, it is currently trading 47.3% below its 52-week high of $0.74, which it hit on March 18, 2021.

While the Pebble Project initiative might promote green power and electrification technologies, the EPA's decision to delay the preparation of a Recommended Determination addressing the Pebble Project in Southwest Alaska, along with NAK's faltering financials, could make investors anxious.

Here is what could shape NAK's performance in the near term:

EPA Extended its decision on Pebble Project

In December, NAK commented on the United States Environmental Protection Agency's (EPA) press release dated Nov. 17, 2021, in which the EPA extended the deadline for either withdrawing the 2014 Proposed Determination or preparing a Recommended Determination addressing the Pebble Project in Southwest Alaska. “While it is not yet known what action, if any, the EPA will finally take, we are cautiously optimistic about their commitment to consider new information that has become available since the 2014 Proposed Determination and to make science-based decisions," said Ron Thiessen, President and CEO of Northern Dynasty.

Inadequate Financials

NAK's loss from operating activities came in at CAD8.68 million ($6.82 million) for the third quarter ended Sept. 30, 2021. The company reported a CAD8.67 million ($6.81 million) net loss, while its loss per share amounted to CAD0.02. In addition, its restricted cash declined marginally for the nine months ended Sept. 30, 2021, to CAD788,000 ($611,260). Its net cash used in operating activities amounted to CAD27.09 million ($21.28 million) over this period.

Poor Profitability

NAK's trailing-12-months ROA and ROC are negative 24.3% and 13.8%, respectively. And its trailing-12-month cash from operations stood at negative $37.24 million compared to its $356.50 million industry average.

POWR Ratings Reflect Uncertainty

NAK has an overall F rating, which equates to a Strong Sell in our proprietary POWR Ratings system. The POWR ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. NAK has an F grade for Quality and a D for Stability. NAK's poor profitability and weak financials are in sync with its Quality grade. In addition, the stock’s 1.14  beta is consistent with its Stability grade.

Among the 37 stocks in the D-rated Industrial – Metals industry, NAK is ranked #35.

Beyond what I have stated above, you can view NAK ratings for Growth, Value, Sentiment, and Momentum here.

Click here to check out our Industrial Sector Report for 2022

Bottom Line

Although NAK's Pebble Project remains an important domestic source for meeting the country's lower carbon emission goals, the EPA's regulatory proceeding regarding the Pebble project in Southwest Alaska could affect the company's growth. In addition, the company's poor balance sheet and negative profitability could cause its shares to retreat further in price. Therefore, we believe the stock is best avoided now.

How Does Northern Dynasty Minerals Ltd. (NAK) Stack Up Against its Peers?

While NAK has an overall F rating, one might want to consider its industry peers, Ryerson Holding Corporation (RYI), BHP Group Ltd. (BHP), and Rio Tinto (RIO), which have an overall A (Strong Buy) rating.

NAK shares fell $0.39 (-100.00%) in premarket trading Thursday. Year-to-date, NAK has gained 16.49%, versus a -8.63% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.


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