Friday File — Last of the year

Checking in on the "Executive Order 0001" Teaser, plus an update on Ligand

By Travis Johnson, Stock Gumshoe, December 23, 2016

I’ve got a couple things to look at for you today as we close out our last working week of the year (Stock Gumshoe will be closed until after the new year, though we’ll probably have a couple quick articles for you next week). The first is a look at a Casey teaser that a bunch of folks have been asking me about this week, and the second is a quick check-in on Ligand Pharmaceuticals, which has been the focus of some attention this week.

The Casey pitch is about, as you might expect, a “tiny stock” — and it’s very much a “Trump” play. Here’s how the ad gets our juices flowing:

“On his first day as President, Donald Trump will roll back one of Obama’s biggest mistakes… But not the one you expect.

“The result will unlock a $128 billion fortune in a forgotten part of America. And it could send a tiny $1 stock through the roof…

‘Trump’s election could be the best thing to happen to the stock market. And this company could be the best investment of his entire presidency.’ ~ Doug Casey, author of NY Times bestseller, ‘Crisis Investing'”

We’re seeing “Trump stocks” pitched left and right, of course, from the financials who would benefit from rising interest rates to the various construction and energy companies that would benefit from huge increases in infrastructure spending… but this sounds like another thing entirely. What are they talking about? More from the ad:

“Donald Trump can’t repeal Obamacare on his very first day – he needs the Senate’s help for that.

“And it will take some planning before he can start construction of a wall on the Mexican border.

“But on Friday, Jan. 20, President-elect Trump’s first executive order will roll back one of President Obama’s biggest mistakes….

“… the Trump transition team has studied the Presidential rules closely.

“They saw how President Obama issued ‘executive orders’ at an unprecedented rate.

“And the Trump team is planning to use the same strategy to reverse Obama’s massive expansion of red tape and regulatory overreach.

“Trump believes these regulations are what’s keeping American production low – and keeping American workers unemployed….

“… he’s not looking to help big banks or give a major corporation a tax break.

“He’s actually going to introduce a measure that should immediately add 3,000 jobs in a downtrodden, forgotten part of America…. Alaska.”

Ah, so now I think I know where we’re headed with this one. Sounds like Casey is looking at one of those big and as-yet undeveloped Alaska mines that’s trying to get environmental or regulatory approval… and, thankfully, there aren’t so many of those. Which one is the pitch about? More clues:

“Trump’s executive order will wake a sleeping giant – the Alaskan mining industry.

“And there’s one publicly-traded company in particular that could see their share prices soar almost immediately.

“This company’s stock is currently hanging around $1 – but according to the most recent study done in 2013 they’re sitting on a resource mother lode:

“The largest gold deposit in the world.

“They haven’t been able to pull this gold out of the ground – until Trump got elected….

“…underneath the surface of a remote property in Alaska, geologists believe there’s over 107 million ounces of gold.

“At today’s prices, that’s worth $128 billion.”

So that should be clear now, but we’ll grab these last couple clues from the ad just to be sure:

“‘Beneath hills blanketed with a crazy quilt of moss and lichen, lurks a multibillion-dollar fortune… perhaps the greatest lode on the planet,’ The New York Times said about this site.

“ added, ‘It is arguably the richest prize in mining.’

“The company’s share price is currently just around $1….

“There is the real potential here to make as much as 10 or 20 times your money.”

So yes, what’s being teased here is the proposed Pebble Mine in Alaska, which was left almost for dead a few months ago but has seen the flames of hope fanned a little bit by a recent decision to mediate their court case against the EPA… and fanned further still by Trump’s win in the election because of his professed goal of bringing the EPA’s regulatory impulses to heel.

Does that mean President Trump will sign an Executive Order on his first day that immediately grants the Pebble Mine a mining permit? No, that’s likely beyond his control… but his new EPA may well take a different tack in the lawsuit/mediation with the Pebble project, I have no idea.

The company that owns the Pebble Project is Northern Dynasty Minerals (NDM in Toronto, NAK in NY), and I personally hold some 2021 warrants on the stock. That’s an extremely speculative position for me, and I made it because of the huge upside potential if the mine does advance into permitting and looks like it will really be built someday… so I thought it worth a gamble even though I don’t know whether their chances of actually building a mine are 3% or 50% or some other wild guess of a number.

That’s because of the mammoth size of the deposit — you can read that New York Times article they quote, it’s from 2008 and available here, to give you some idea of the environmental controversy surrounding the project and some idea of the incredible size of the mineral deposit. The Pebble Mine could be, if built, the largest and most productive copper and gold mine in the world, and it would almost certainly be among the top five or ten mines in the world. This is not a small deposit, it’s one of the biggest gold and copper deposits ever identified, which is why there’s probably something better than a zero chance that it will be developed. There would certainly be no debate about this mine if it were a few million ounces of gold at stake — that would be nowhere near big enough for it to be worth building the massive infrastructure projects they’d require to produce gold safely (if such a thing is possible) in this location.

And even if you don’t care about environmental protection at all (most people do, of course, even former governor Palin and president-elect Trump), this is not a “no brainer” development — it would be incredibly expensive to build, and there is real fear that it will put at risk Alaska’s huge salmon fishery if any toxic cyanide or copper runoff makes it into the Bristol Bay. Fish is not a tree-hugger concern in Alaska, it’s not about wealthy Bostonians protecting their trout streams, it’s a major part of the state economy and a fishery and spawning grounds can’t necessarily be fixed if there’s a substantial mining incident and they get “broken.”

So I don’t consider this a “done deal” even under President Trump and his very clearly different strategy with the EPA — but with a strong and aggressive EPA the mine had probably almost a zero chance of being built, and the chances have improved in the last few months. You’ll have to make your own call about how much they’ve improved, and keep in mind that Northern Dynasty would still have to raise billions of dollars to build the mine (they had a big mining partner who was funding much of the permitting and assessment work several years ago, but Anglo American pulled out a couple years back, after the EPA effectively shut down the project).

Can a mine be safely built in this area? I suppose that most things are probably possible if you throw enough money and science at them… but I don’t know what the final determination will be on that, or even whether the size of the mine can match the cost of the environmental protection safeguards that would be required (it is a mega-mine, but that doesn’t mean the whole thing can be mined with whatever the environmental safeguards end up being… and building massive dams is not cheap). I do think that it’s likely the stock will continue to enjoy this reprieve at