Friday File: Quick Look at Doug Casey’s “Biggest Bet” and Gold’s Three Catalysts

by Travis Johnson, Stock Gumshoe | November 11, 2016 9:49 pm

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.

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“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[1]. 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!


Endnotes:
  1. it’s been teased before: http://www.stockgumshoe.com/reviews/s-a-resource-report/alaskas-secret-gold-mine-biggest-gold-discovery-of-last-20-years/

Source URL: https://www.stockgumshoe.com/reviews/the-casey-report/friday-file-quick-look-at-doug-caseys-biggest-bet-and-golds-three-catalysts/


      • 11854 |
        Travis Johnson, Stock Gumshoe
        Travis Johnson, Stock Gumshoe
        Nov 14 2016, 11:59:12 am

        It certainly has no PE now, and won’t for at least five years — it’s a story stock, based on the fact that they have a huge gold and copper mine that would be among the largest in the world if it gets built… but also the fact that there’s a very high chance that it doesn’t get built.

        It’s a story stock, it’s loved by a few newsletters and is certainly being promoted by some, and it will probably be a very binary outcome at some point in the next few years — it’s either worth ten times or more the current market cap if they can build the mine, or it’s worth nothing if they can’t, and the latter should probably be weighted much more heavily when you’re figuring your probabilities. But the PE doesn’t mean anything, no exploratory mining stocks have earnings.

      • 18 |
        Avatar
        barndoor
        Nov 12 2016, 09:32:43 am

        Thanks, Travis. I had found that much. Nothing on your brokerage statement?

        If I have the ISIN I can make Canadian trades at non broker-assisted rates….(Fidelity). Time to call them–when the foreign trading desk is open……

  1. 27 |
    Avatar
    curiousjoe
    Nov 13 2016, 10:05:05 pm

    Thanks, Travis for sleuthing Doug Casey’s big bet on gold down to Northern Dynasty.

    “Big Picture?… …(infrastructure might boom! Copper’s going up! Interest rates are going up!)…”

    I have been receiving pitches from Thomas Moore teasing a small cap copper stock to drum up sales for his “Retirement Revival” advisory. Any idea what stock he is pitching?

    Thanks.

  2. 28 |
    Avatar
    Michael Kennedy
    Nov 15 2016, 04:28:19 am

    Thanks, Travis, for a very interesting article. As you say Northern Dynasty’s lawsuit claims that the EPA acted improperly in issuing a pre-emptive veto under the Clean Water Act before the Army Corp of Engineers could evaluate the project or the company could file proper permits. Here’s a link to an entertaining article from The New Yorker (May 3 2016) about the litigation: http://www.newyorker.com/tech/elements/phil-north-the-e-p-a-ecologist-who-ran-away. Some Gummies will be interested to learn that one of the accusations (almost certainly unfair on the facts) was that the EPA ecologist, the subject of the article, conducted EPA business through his personal email account – shades of poor Hillary!
    I would guess that the result of the mediation will be that the EPA will agree to drop its veto and the permitting process will start up again from scratch, with the EPA scrupulously sticking to the letter of the law to make all its rulings lawyer-proof.
    Will Northern Dynasty eventually get all the permits it needs and raised the C$5billion or so required for development? Here’s a link to a recent article in SA (October 24) confidently asserting that Hillary will win the Presidential election; one of the company’s major shareholders (Frank Guistra) is a pal of Bill Clinton which will help; and the company’s plans will avoid any ecological disaster to the Bristol Bay fisheries (which include the world’s largest and most pristine sockeye salmon fishery): http://seeki ngalpha.com/article/4014394-stock-idea-upcoming-hillary-victory. As Harold Wilson, a former British Prime Minister, once said: “A week is a long time in politics.”
    For another recent, but perhaps more balanced, article by somebody called Alex Prud’Homme see http://www.alexprudhomme.com/articles/politics-environment-bristol-bay-alaska/
    Trump has promised to replace the present head of the EPA but I would imagine that Trump will be more concerned to carry out his pledge to lift restrictions on the production of US energy reserves than involve himself personally in so controversial projecy. I admit to concern for the fish. My brother and I (both Brits) spent two wonderful months 50 years ago exploring Alaska and Kodiak Island and I remember a river in Kodiak which turned silver and pink as waves of salmon surged upstream to spawn.
    Shrewd advice from Travis to buy the warrants rather than the shares for an interesting punt as there is no premium. On the company’s website this morning the shares (which reached C$20 in 2011) are quoted at C$1.22 each on the Canadian TSX (giving a market cap of C$312m) while the three issues of warrants are priced as follows:
    NDM-WT: 2,735,433 outstanding, current price C$0.08, strike price C$3.00, expiry September 14, 2017.

    NDM-WT.A: 13,182,076 outstanding, current price C$0.66, strike price C$0.55, expiry July 9, 2020.

    NDM-WT.B: 42,444,376 outstanding, current price C$0.65, strike price C$0.65, expiry June 10, 2021.
    (See http://www.northerndynastyminerals.com/ndm/Northern_Dynasty_Warrant_Terms.asp)
    The price of the 2017 warrants doubled yesterday: good to know that there are some optimists around.
    As an aside I see that the company raised C$2m in July 2016 with a private placement of new shares at only C$0.45 each (with one free 2021 warrant for each share).
    I don’t have a position at the moment but may buy a few options ($NDM-WT.B) to encourage me to follow what promises to be a fascinating saga.
    Apologies for a rather tendentious post adding little or nothing to Travis’s article.
    Best to all – Michael.

    Thanks, Travis, for a very interesting article. As you say Northern Dynasty’s lawsuit claims that the EPA acted improperly in issuing a pre-emptive veto under the Clean Water Act before the Army Corp of Engineers could evaluate the project or the company could file proper permits. Here’s a link to an entertaining article from The New Yorker (May 3 2016) about the litigation: http://www.newyorker.com/tech/elements/phil-north-the-e-p-a-ecologist-who-ran-away. Some Gummies will be interested to learn that one of the accusations (almost certainly unfair on the facts) was that the EPA ecologist, the subject of the article, conducted EPA business through his personal email account – shades of poor Hillary!
    I would guess that the result of the mediation will be that the EPA will agree to drop its veto and the permitting process will start up again from scratch, with the EPA scrupulously sticking to the letter of the law to make all its rulings lawyer-proof.
    Will Northern Dynasty eventually get all the permits it needs and raised the C$5billion or so required for development? Here’s a link to a recent article in SA (October 24) confidently asserting that Hillary will win the Presidential election; one of the company’s major shareholders (Frank Guistra) is a pal of Bill Clinton which will help; and the company’s plans will avoid any ecological disaster to the Bristol Bay fisheries (which include the world’s largest and most pristine sockeye salmon fishery): http://seeki ngalpha.com/article/4014394-stock-idea-upcoming-hillary-victory. As Harold Wilson, a former British Prime Minister, once said: “A week is a long time in politics.”
    For another recent, but perhaps more balanced, article by somebody called Alex Prud’Homme see http://www.alexprudhomme.com/articles/politics-environment-bristol-bay-alaska/
    Trump has promised to replace the present head of the EPA but I would imagine that Trump will be more concerned to carry out his pledge to lift restrictions on the production of US energy reserves than involve himself personally in so controversial projecy. I admit to concern for the fish. My brother and I (both Brits) spent two wonderful months 50 years ago exploring Alaska and Kodiak Island and I remember a river in Kodiak which turned silver and pink as waves of salmon surged upstream to spawn.
    Shrewd advice from Travis to buy the warrants rather than the shares for an interesting punt as there is no premium. On the company’s website this morning the shares (which reached C$20 in 2011) are quoted at C$1.22 each on the Canadian TSX (giving a market cap of C$312m) while the three issues of warrants are priced as follows:
    NDM-WT: 2,735,433 outstanding, current price C$0.08, strike price C$3.00, expiry September 14, 2017.

    NDM-WT.A: 13,182,076 outstanding, current price C$0.66, strike price C$0.55, expiry July 9, 2020.

    NDM-WT.B: 42,444,376 outstanding, current price C$0.65, strike price C$0.65, expiry June 10, 2021.
    (See http://www.northerndynastyminerals.com/ndm/Northern_Dynasty_Warrant_Terms.asp)
    The price of the 2017 warrants doubled yesterday: good to know that there are some optimists around.
    As an aside I see that the company raised C$2m in July 2016 with a private placement of new shares at only C$0.45 each (with one free 2021 warrant for each share).
    I don’t have a position at the moment but may buy a few options ($NDM-WT.B) to encourage me to follow what promises to be a fascinating saga.
    Apologies for a rather tendentious post adding little or nothing to Travis’s article.
    Best to all – Michael.

    • 11854 |
      Travis Johnson, Stock Gumshoe
      Travis Johnson, Stock Gumshoe
      Nov 15 2016, 02:28:02 pm

      They did file their quarterly report yesterday, but I don’t think there were any surprises in that (I haven’t read the whole thing yet). It could easily be increased investor attention because of other newsletter recommendations, or chatter among investors at the Kitco Silver and Gold Summit that’s taking place today. Or maybe just more news getting out about the hoped-for environmental progress next year tied to an expected lighter regulatory hand from the new administration, combined with the fact that gold has at least temporarily stopped going down. There’s also an updated version of their Investor Presentation up now, FYI.

  3. Avatar
    Jack B.
    Nov 16 2016, 09:28:24 am

    Still wondering about potential currency crisis you mention here, which is relative to big selloffs in U.S. treasuries by big holders such as China, which is stockpiling gold and like Saudi Arabia increasingly looking at alternatives to the petrodollar.

    • 11854 |
      Travis Johnson, Stock Gumshoe
      Travis Johnson, Stock Gumshoe
      Nov 16 2016, 09:41:02 am

      That “currency crisis” has been prophesied so many times over the past six years that I think we’ve all internalized the notion that somehow these fluctuations are imminent and fast and predictable — but really they tend to be gradual and slow and unpredictable. So far, the “regular” flow is that rising interest rates boost the dollar. If President Trump really starts sabre rattling about a trade war, all bets are off, and there’s certainly plenty of risk in currency fluctuations given the political instability of the democratic “West”, but other than a steady diversification with a little gold and some international exposure to balance US$ exposure I’m hesitant to make any big bets on possible “macro” shifts like that.

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