Readers have been asking for a few days about the latest pitch from Doug Casey about the catalysts that he thinks will drive gold higher. I’ve read the ad and won’t go into great detail on this Veteran’s Day, when we’re really closed down here at Stock Gumshoe, but I did think some of the Irregulars might want to know about the particular stock that has been teased in recent versions of this ad.
The bigger picture claim is that three catalysts will move gold higher — changes to official guidelines for Islam that allow for investing in more tradable gold instruments, the rising influence of the Shanghai Gold Exchange in setting prices, and “peak gold” as the number of large mines declines and new ones fail to be discovered to replace them.
All of those are reasonable things that could boost the gold market if everything else remains equal, but if the dollar stays strong and interest rates rise substantially without any real rising fear of currency crisis in the US, Japan, or Europe, that will also be a tough headwind for gold — it’s a deep and complex market, particularly the gold futures markets that still drive the gold price, and shifts in sentiment are not always that easy to predict.
So I wouldn’t rush out and circle the date on a calendar and expect a big move in a predictable timeframe, I think the global economy’s direction and the level of ‘crisis’ sentiment will have at least as much to do with gold prices as mine supply and changes in Islamic financial law, but I do continue to hold a position in both physical gold and some gold equities… even if that equity position is substantially smaller than it was when I took some profits on a few occasions over the past six months.
So with that said, what’s the big bet Casey is excited about following the election? Here’s the tease from one of their emails that I received the day after the election:
“Doug’s biggest bet was on a tiny Canadian gold miner. Most investors have never heard of this company. But it could soon become a household name in the precious metals community.
“That’s because the company has a stake in the world’s largest undeveloped copper and gold deposit.
“Doug’s so convinced this stock will take off that he called it his top gold stock at the New Orleans Investment Conference. Doug’s team also recommends it to readers in The Casey Report.
“This morning, Doug’s top gold stock skyrocketed 25%…
“That’s a gigantic gain for one day. But Doug thinks it’s headed much higher in the coming months.
“Best of all, the U.S. stock market won’t have to crash for this stock to take off.”
So who is it? This is Northern Dynasty Minerals (NDM in Toronto, NAK in NY), which controls the Pebble Deposit in Alaska that is indeed one of the world’s largest undeveloped gold/copper deposits.
And it’s no stranger to the Gumshoe faithful, of course — you can’t have a potentially massive mineral discovery without getting a few newsletters excited, and it’s been teased before. Though that was mostly back in what Northern Dynasty would probably call the “good old days” before protests about the environmental impact of any mine in that area really heated up and the EPA used the Clean Water Act to squash their chances at a permit, causing Northern Dynasty’s big-money partner Anglo American to pull out of the project in the fall of 2013.
Things have started to get a little more interesting for Northern Dynasty this year, though — they haven’t given up on finding a pathway to environmental approval, first by suing the EPA under the Federal Advisory Committee Act (FACA), which led to an injunction back in 2014… and with gold prices rising in the first part of this year and the lawsuit moving forward they started to get some more investor attention again, even doing a few private placements.
Investors got their first taste of real potential optimism when the company announced a few weeks ago that they are entering mediation with the EPA in an attempt to resolve their differences, and their second taste when Donald Trump won the election and investors jumped to the conclusion that President Trump, who did rail against the EPA throughout the campaign, would help companies like Northern Dynasty who are struggling to get environmental approval for controversial projects.
I have no idea whether Trump’s administration will weigh in quickly on this particular dispute, or where the mediation will lead when it gets started next year, and guessing about regulatory outcomes in any one case is always risky, but certainly some optimism has returned for Northern Dynasty this year were none had existed for several years.
I don’t know whether the mine will be built, or even whether it should be built (the primary fear, other than standard worries about gold mines, is the possibility of an accident or a tailings dam breach destroying the Alaska salmon fishery, though there has certainly been a lot of talk from the company this year about much more robust safety measures), but I personally took a small position in some of the warrants that were created in the private placement a few months ago, the June 2021 65 cent warrants (NDM-WT-B), mostly because they were priced without any real premium despite the five-year term.
It’s certainly not a big position for me, and I don’t know whether this mine will really get built — that still seems highly uncertain, to say the least — but this gives a huge exposure to the possibility of the mine advancing and, if things remain even slightly optimistic, strong leverage to gold prices because of the truly massive size of the potential mine (measured, indicated and inferred resources of 80+ billion pounds of copper, 100+ million ounces of gold, along with other goodies), so I decided that it was an interesting way to get a lot of possible upside leverage without putting very much capital at risk. And there is a very good chance, of course, that if the mediation doesn’t go their way, or the EPA or the regulatory agencies at both state and federal levels don’t give them the green light over the next few years, or if gold prices fall, that this position will be worth zero.
Pebble is one of the world’s largest potential mines, but if it does eventually get built it could also also be one of the world’s most expensive mines — so even if permits are available and the green light is eventually given, which are both unknowable and many years in the future, getting financing and a new partner for the mine may well be a challenge (the estimates a few years ago had a capital cost of about $5 billion, and Anglo American is probably still smarting from having spent $500 million or so on the project before backing out in 2013).
And… with that, I’ll leave you to your researchifying on this Veteran’s Day weekend. The stock did jump about 25% on the election results, though it has come back down a little bit from that level as gold prices have fallen over the past couple days.
Big picture? I won’t pretend to have anything more in my quiver just yet than the knee-jerk guesses that came on the day after the election and that everyone is familiar with as the first wave of Wall Street pundit groupthink hits (infrastructure might boom! Copper’s going up! Interest rates are going up!) Perhaps some clarity will come to world markets next week as more news of political transition helps investors to understand the priorities of the next administration, particularly if things remain fairly stable and reassuring on that front, but for now I’m trying to just sit and watch and ignore the gyrations of my portfolio until the ground firms up a bit beneath our feet. I’ll let you know if and when I shake things up or do some more buying or selling… have a great weekend!