Northern Dynasty Minerals, a recent stock market darling, said Friday it is considering a potential lawsuit against a short-seller whose allegations the company is “worthless” caused a sharp selloff in the company’s stock.
The Vancouver-based miner’s stock had been on a tear, rising more than 300 per cent since the election of U.S. President Donald Trump in November, on speculation its controversial Pebble copper-gold project in Alaska would be approved under the new administration.
But its stock plunged as much as 40 per cent Tuesday after Kerrisdale Capital Management said the sprawling, but stalled $1.5 billion “low-grade” project is uneconomic and would require an investment so large that it would never be profitable.
Shares in the company have fallen more than 20 per cent from Monday, the day before the report was released, but rebounded slightly after the company’s rebuttal Friday up as much as five per cent in afternoon trading at $3.14 on the Toronto Stock Exchange.
Northern Dynasty issued a detailed statement refuting each of Kerrisdale’s claims Friday, saying the claims are “unfounded, contain numerous errors and unsupported speculation and demonstrate a lack of understanding of the company’s business.”
The short seller’s report also accused the company of hiding a negative project assessment conducted by its former partner Anglo American — citing unnamed sources at that company — which backed out after spending some US$600 million on the project.
CEO Ron Thiessen, who found out about the allegations as a flight was taking off in Zurich, said the company’s lawyers are reviewing regulatory and legal actions.
“When people make such unfounded allegations based on anonymous comments I think you’ve got to do what you’ve got to do,” he said in a phone interview from London.
But Sahm Adrangi, founder and chief investment officer of Kerrisdale, which has a history of betting against companies and releasing public reports, said while the company could sue, it doesn’t happen a lot because it “doesn’t really solve anything.”
“What are you going to sue us for, saying the mine is uneconomic?” he said, adding the company’s rebuttal does not change his position.
“It seems like they’re taking the approach of arguing with us on the points, which is typically what most companies do.”
Meanwhile, at least one class action lawsuit has been certified against Northern Dynasty as a result of Kerrisdale’s claims and the company is aware of two others filed.
Environmentalists, indigenous people and fisherman have fought the mine’s development over potential risks to the local salmon population and the Environmental Protection Agency halted the project in 2014. Northern Dynasty maintains it could build the project without harming one of the world’s most valuable salmon habitats.
The company has been in mediation with the EPA and thought it was close to a resolution last August and had not settled all aspect of concern ahead of the U.S. presidential election, which upended the administration. It is now waiting for the new EPA head to be confirmed and will start a discussion on eliminating it’s pre-emptive veto. Thiessen believes that can be accomplished by March 31.
Theissen took particular issue with the claims its asset was “low grade.” It pointed out that other mining companies are turning profits from mining lower grade ore within a few hundred miles of its project.
“Whoever had the thought that this is a low-grade deposit probably has to go back to geological school,” Theissen said. The company says there are 6.44 billion measured ad indicated tonnes of metal, including 57 billion points of copper at a grade of 0.4% and 70 million ounces of gold at a grade of 0.34 gold per tonne.
However, Kerridale said it was not going to engage in a “silly semantic” dispute over the meaning of low grade, adding that regardless of its grade, it’s in a remote location and would be expensive to build.
Northern Dynasty said its evidence backing its resource and reserve claims have been certified by independent qualified experts who attest to the accuracy of the reports, while Kerrisdale did not have access to the information experts used.
Thiessen said the company plans to find another partner by the end of the third quarter on the project, which it estimated in 2011 had 1.5 million tons of ore over a 35-year mine life.
“There are many mining companies out there that are extremely interested in this project, this is truly a unique accumulation of metal,” he said, adding that he is not concerned the Kerrisdale report has damaged its reputation in the industry.
“I would venture there’s not a mining company that wouldn’t like to own a piece of this.”