I haven’t discussed it here before, but NDM.TO – Northern Dynasty Minerals, is an interesting story. It has been a favorite recommendation of many newsletter writers (including Casey, Stansberry, and TD Securities, ), and I have no hesitation in reporting that it has been a greater winner for me over the last year.
As you can see from the six month chart, it’s had a beautiful run, from 75 cents in mid October to the $4.50 level a week ago.
And then, as you can see in the box, in the space of a day Northern Dynasty went from an intra-day high of $4.50 to an intra-day low of $2.50.
The short sellers moved in.
Specifically, Kerrisdale Capital issued a report saying Cu at Zero. Their basic premise is simple: Northern Dynasty’s main asset, the Pebble deposit in Alaska, is worthless. They state that many large players in the industry have owned this deposit in the past, and have invested massive amounts of money, over $500 million, only to abandon it (and sell it cheaply to Northern Dynasty). They further state that to develop the asset, including building an 86 mile long road, and dams and other infrastructure, would render the project uneconomic.
Interesting. The market was worried, and a big sell-off ensued.
So who is correct? Management, and the newsletter writers, who say this is a great investment, or Kerrisdale Capital?
Let’s start with Kerrisdale Capital. They are a hedge fund in New York that specializes in short sales. The founder and chief investment officer of Kerrisdale, Sahm Adrangi, was arrested in August, 2016 on charges of drunk driving and cocaine possession, apparently after he crashed his BMW at 3:00 am.
So, at least we know the owner is credible…..
Kerrisdale’s modus operadi is simple: pick a target, short the stock, write a report to crash the price, cover your shorts, win big. They’ve done it before.
Back in September, 2016, one short month after that little cocaine possession incident, Kerrisdale targeted First Majestic Silver Corp. The stock was around $17 when they shorted it, and it’s around $13 now, so I guess they were right to short it, but that has more to do with the market than their actions.
So what about Northern Dynasty?
On Friday, Northern Dynasty responded by saying “BS”. Specifically, they said that Short Seller’s Report Based on Misstatements, Inaccuracies and “Anonymous Sources”, which is the fancy way of saying “BS”. You can read their response in full, but the gist of it is this:
Kerrisdale has no mining analysts on staff, they have not visited the site in Alaska, and they have not talked to either company management or apparently any outside experts. They are making it up.
In addition, while it is true that there would be costs to develop Pebble, the deposit is massive, and with new mining techniques it can be done less expensively than with old technology.
As with all mining companies there are no guarantees, but this could be a massive winner.
I already have a sizeable position, so I probably won’t do any new buying. However, I plan to hold for a while and see who wins the battle: shorts vs. longs.
I’m betting on the longs (not the short cocaine guy).
Those are my thoughts, thanks for reading, see you next week.