Northern Dynasty Minerals Ltd., the Vancouver miner blindsided by a short-seller's scathing report, fired back on Friday, saying the polemic is "unsupported speculation" from a "troubled organization" that doesn't understand mining.
Kerrisdale Capital Management, a New York investment firm, hammered Northern Dynasty's stock on Tuesday when it published a report arguing the miner is "worthless" because its undeveloped copper and gold resource in Alaska is not commercially viable.
In response, Northern Dynasty said Kerrisdale's analysis contains numerous errors and misunderstandings. "Their report isn't worth the paper it's written on," Northern Dynasty chief executive Ron Thiessen said in an interview.
For instance, while Kerrisdale dismisses the Pebble deposit as "very large" but "relatively low grade," the levels of copper in the ore body are much higher than at many properties currently in production, such as Gibraltar, a Taseko Mines Ltd. operation in south-central British Columbia.
"This is not a low-grade deposit," Mr. Thiessen said.
A pair of analysts who follow Northern Dynasty also shrugged off the report. They observed that it contains two key arguments – that the Pebble project faces stiff political opposition to winning a permit for development and that the project may require too much capital investment to ever produce a profit.
Little about that is new, said Chris Mancini, a research analyst with the Gabelli Gold Fund in Rye, N.Y., which owns Northern Dynasty shares.
"So the report says it's unlikely that the mine will get a permit and … [capital expenditures] will be very high? Well, no kidding," Mr. Mancini said.
Neither view comes as a shock to informed investors, he said. People have long realized that the chance of Pebble being developed is relatively low. However, the chance is not zero, he asserted.
Investors hold the stock for its option value, he said. It's essentially a wager that the potentially huge payoff from owning a large copper and gold deposit within the United States is big enough to offset the daunting odds against the project being completed.
"Owning the stock is about probabilities and optionality and I don't think [Kerrisdale] really understands that," Mr. Mancini summed up.
Craig Hutchison of TD Securities echoed that view, saying Northern Dynasty "offers significant option value." On Thursday, he raised his recommendation on Northern Dynasty to "speculative buy" from "hold" after the Kerrisdale report knocked 25 per cent off the miner's share price.
Kerrisdale chief Sahm Adrangi did not return a phone call seeking comment. He racked up big gains by shorting Chinese Internet stocks several years ago, but has been the object of unflattering attention more recently.
Mr. Adrangi, a Yale graduate in his mid-30s, was charged with speeding and driving under the influence in August, according to Reuters . The story also reported that assets under management at his firm had fallen to $170-million (U.S.) in December from roughly $350-million in the summer.
Northern Dynasty stock offers a natural target for short sellers, in part because of the shares' recent surge. They were trading around $1 (Canadian) in the run-up to the U.S. election, a level that reflected the regulatory opposition to Pebble from the U.S. Environmental Protection Agency.
In 2014, the EPA launched an action to pre-emptively veto Pebble development because of concerns about the threat to the Alaskan salmon fishery.
The election of Donald Trump raised the possibility that the EPA might ease its opposition. Northern Dynasty shares tripled over the next couple of months.
The Kerrisdale report has since slammed the stock, but not all the signs are negative. Mr. Hutchison said in a note on Friday that the U.S. Senate confirmation of Scott Pruitt as EPA head is potentially positive for Northern Dynasty.
If the EPA roadblock does vanish, the likely next step would be for Northern Dynasty to partner up with a larger miner and begin the permitting process, which would probably take three to four years, according to Mr. Thiessen.