Northern Dynasty Minerals Stock: Mixed Results From Midterm Elections (NYSE:NAK)

The midterm elections appear to have provided mixed results for Northern Dynasty Minerals (NYSE:NAK). Although the results have not been finalized yet, the Republicans have so far ended up with a narrow majority in the House. This would lead to a change in the composition and leadership of House committees such as the House Committee on Transportation and Infrastructure that produced a negative report on Pebble and urged further investigations.

On the other hand, it appears that Mary Peltola will end up winning the election for Alaska’s House seat. Peltola ran on a pro-fish platform and was the most opposed to Pebble of the three main candidates for the seat. Thus Pebble will continue to have no real support from Alaskan Members of Congress, and will now have a Congresswoman who is quite opposed to Pebble.

The effect of the royalty agreement on Pebble’s NPV7 is higher than I had previously estimated, although the reduction in NPV7 is still fairly small. Northern Dynasty appears to have at enough cash to last until the end of 2023 to early 2024 currently, and could raise additional funds via equity offerings if the Royalty Holder does not invest more into the company. Pebble remains a long-shot project with many hurdles in the way of it progressing.

Election Effects

Mary Peltola is currently strongly favored to win Alaska’s House seat, taking advantage of a brief period of incumbency and Republican divisions. Although the final result is unlikely to be known for another week, Peltola is currently at 48% and the ranked choice voting process should put her well over 50% in the end.

For example, during the August special election, Peltola was the second choice of 29% of Nick Begich’s voters, while Sarah Palin was the second choice for 50% of Begich’s voters. The other 21% of Begich voters did not put down a second choice. A similar distribution of second choice votes would result in Peltola ending up with a high-50s percentage of the votes.

This result would be a negative for Pebble since Peltola ran partly on a pro-fish platform and expressed strong opposition to Pebble. Peltola replaced the late Don Young, who wanted Alaskans to decide about the fate of the Pebble Project rather than federal agencies. This leaves Pebble with even less Congressional support than before.

On the other hand, Republicans will gain a small majority (with 218 seats required for a majority) in the House, having been declared winners in 218 seats and leading in three additional races. This result would benefit Northern Dynasty since the various House Committees will switch to Republican leadership and majorities. The current Democratic-led House Committee on Transportation and Infrastructure produced a negative report on Pebble, while Republican-led Committees are less likely to press for an investigation into Pebble.

Notes On EPA Veto

The EPA is scheduled to decide by December 2 on whether it will veto the Pebble Project. It is highly expected to veto Pebble, although this outcome should already be mostly/entirely built into Northern Dynasty’s stock given what has gone on before. A negative decision is very likely to be appealed, so this will end up in the courts after.

Cash Position And Royalty Agreement

At the end of Q3 2022, Northern Dynasty had approximately US$18 million in cash and cash equivalents along with a small amount of restricted cash. This includes the first US$12 million payment from the royalty agreement. Northern Dynasty used approximately US$4 million in cash during the quarter, and it should have until roughly the end of 2023 to early 2024 before it completely uses up its current cash. Northern Dynasty has the option to raise more cash via equity offerings if the royalty holder doesn’t invest more (up to US$60 million in the agreement).

Northern Dynasty also notes that the royalty agreement has limited impact on Pebble’s economics. With a US$60 million investment, the post-tax NPV7 would be decreased by around 8% compared to the no royalty scenario.

Conclusion

The midterm elections had mixed results for Northern Dynasty. It benefits from the Republicans taking control of the House, which should ease some of the investigations into Pebble. However, Mary Peltola’s likely election victory results in a strong opponent to Pebble continuing to represent Alaska in the House.

The EPA is soon expected to veto Pebble, although this will be challenged in the courts. Northern Dynasty should have enough cash to last for slightly over a year and could gain more runway if the Royalty Holder invests more money or if it issues more equity. The hurdles to Pebble progressing remain quite high, including the lack of Congressional support and the probable EPA veto.