Northern Dynasty Minerals Ltd T.NDM

Latest from some guy named Grandich

[Letssetsail]

First and foremost, my comments must be considered biased and as is always stated on this blog and in public comments, there’s the potential for conflicts of interest, which in this case is not only my working relationship with the company, but also the fact that my family and I presently own about a million dollars worth of stock. I guess it could be said I have a million reasons to love the stock-lol.
Back when this blog started, I made NDM my very first entry onto my “Tracking List.” The stock was $3.36 at the time. I had previously worked for the company and had “touted” (my Internet critics used that word and some worse to describe my actions-I wish my Mom would stay off the computer-lol) NDM as a takeover target. At the time, I was not engaged by the company, nor did I own any shares.
A period of time passed and NDM engaged me again. I also am engaged by other companiesmanaged by the same group that manages NDM. I’ve publicly stated on numerous occasions that I consider them among the best in their business (and no amount of compensation could make me say that if I didn’t truly believe it).
NDM and 50/50 partner Anglo American are developing what is either the number one or number two (depending on how you compare it to the Oyu Tolgoi) single largest copper/gold deposit in the world. It’s truly gigantic and is not without potential hurdles, including environmental concerns. But, whether you see the cup half full or empty on its chances for success, it’s without a doubt, a prize most major producers in the world can’t ignore.
Despite rising from the $3 area in late 2008, the stock IMHO was languishing around $10 two years later when it suddenly went vertical and more than doubled in less than two months. There are likely lots of reasonable explanations for the move, but in my biased little eyes two reasons were the main drivers:
1- Rio Tinto did a deal with Ivanhoe Mines that effectively remove the Oyu Tolgoi as a takeover target. Appearing properly priced and the lure of a takeover price removed, institutional investors had reason to take their profits in Ivanhoe and look for the next big thing.
2- NDM’s management, in at least two public comments (Wall Street Transcript and BNN interview of Ron Theissen), spoke about their intentions to release in the not-too-distant future a preliminary assessment of the Pebble Deposit, of which they owned 50%. It also seemed to be implied that not long after that, the company would either put itself up for sale and/or become a valid takeover candidate.
I believe this road map created a hunger to own NDM shares and was the driving force in the price appreciation.
A period of consolidation kicked in after the run-up, and I began to comment about an entry point for those not yet in. I also noted my personal interest in the shares (I did buy, sell and buy back a position in NDM and my personal holdings are always fully published on the blog).
During trading last Tuesday and Wednesday, there was some vague chatter about a block of NDM for sale and at least one email to me claimed they heard it was the block owned by one of NDM’s major shareholders, Mitsubishi. I called NDM management and they said they had a few similar inquires but they knew nothing factual.
After the close on Wednesday, NDM released their “Preliminary Assessment” on Pebble and it was very encouraging not just to me, but to more than one analyst who dramatically raised their target price for NDM shares and takeover value. The stock traded up Thursday. Shortly after the close, NDM traded down sharply in the aftermarket. Again emailers, callers and chatter on stock boards spoke about a big block that either traded or was going to be traded. Again, speaking to NDM management found no factual news. (Incidentally, in my opinion, online boards are the last and worst source of information I would consider because to this date, not one person who has ever made false claims about me as ever come public or made those claims to proper channels. In my mind, that speaks volumes about the person(s) making the claims, the legitimacy of the claims, and their motives.)
The market (I know I did) came into Friday’s opening expecting a block or something to explain why after such great news from the company, the stock gave up all the gains and then some the day after the news became public. I received the usual “what’s up” emails and the rare (and sad) nasty emails accusing me of everything from being a “pump and dump” to the death of Elvis, Jimmy Hoffa and the second gunman in the Kennedy assassination. NDM came well off its lows but couldn’t seem to get any real traction as a cloud was hanging over the market on what caused the reversal of fortune’s literally overnight.
After the close Friday, an SEC filing came out showing Mitsubishi had indeed sold its major block. And, faster than Grant took Richmond, I started to receive emails claiming this must be bad news as how could they sell if the stock was about to go a new higher level? Mustn’t this be bad news for NDM? Isn’t it all over but the crying?
In my biased and prejudicial mind, this is my response to those and all concerns: if history is any indication, the typical retail investor won’t grasp it and will remain stuck on why, why, why. Shrewd investors, however, and the vast majority of experienced institutional investors should get it.
In my opinion, Mitsubishi (M) didn’t buy their block like most other investors for simply investment returns but rather for strategic reasons. They assumed that at some point NDM or Anglo would allow them to negotiate an off-take agreement for the Copper concentrate (conc’s), or in the event of a bidding situation for NDM they could influence that outcome with their 11%. I suggest that neither Anglo nor NDM would consider an off-take now, and would suggest to them at the earliest for development financing (2015) but more likely only production (2017-18). I suspect the other major NDM shareholder, Rio Tinto (RT), wouldn’t give them comfort on an off-take if RT ended up in control of NDM. They could have concluded that NDM wouldn’t allow them to hook up their shareholding with either Anglo or RT in terms of a “bid” at this time; without our consent it would trigger the Poison Pill. So the strategic holding wasn’t working. Worse (and this is my speculation), they would find themselves at odds with their customers/partners in a bidding war. If BHP, RT or others were to bid, who would M align with? M is in business with them all; pick one and you piss off the others.
As I stated earlier, I don’t believe the average investor has the ability to think this way. This is not an insult nor a statement of superiority but a personal evaluation of the situation with almost three decades of experience behind it.
In terms of Mitsubishi, fundamentally the money they invested in NDM was money they used to invest in projects for which they get copper concentrate off-take agreements. This money is really not about an “investment” return, but rather using it to obtain a fixed stream of copper conc’s. They, in turn, sell or use the concentrates in Japanese smelters and make money from the concentrates. That is a core, fundamental component of their business. Investing simply to hold shares and capital returns is entirely secondary.
So, if the metals acquisition/trading group was going to do more business, it needed more money. I suspect the corporate head office could have said, “Use the money in the NDM investment as its not returning any copper concentrates.” In terms of what kind of concentrate agreements they could get for $160 million+, think of another HD company, Taseko Mines, and a recent deal of theirs—the Gibraltar off-take. Sojitz invested $180million and got 50% of the Cu conc’s; 75,000 tones of some of the best conc’s in the world. If M used the $160 million(from the sale of NDM shares) for conc’s from Peru or Africa they could probably get double or more. For them, it’s about metal trading. They aren’t equity investors like the masses.
Like in the movie Alfie when it was asked, “What’s it all about, Alfie?” Grandich, what’s it all about?
To begin with, I think it’s all but certain this decision to sell the block didn’t happen “overnight” so I’m going on the basis it was considered before the Prelimenary Assessment release. This is key as the average investor will remain tied up in the “why sell after such good news” analogy. If you concur as I do what M’s main motive was and look at the corporate strategy NDM has telegraphed since late 2010, the end result of the M block was a net positive. (Oh I can hear my critics now, “Liar, liar pants on fire.”)
For starters, how about considering that a 10-million block was swallowed up very quickly and where did the share price close (higher than it was before the date release)? The assumption is the buyer or buyers of those shares (whether investors or potential suitors or a combination of both) obviously felt their entry point offered them value and may be stronger holders than M would have been knowing their main reason to hold was not going to get them where they thought they could get when they first bought (hence potential weak holder is now gone).
Did the block sale change any of the corporate news that led to multiple respected analysts greatly increasing their target price for NDM and publicly stating NDM was a takeover target? Taking into account the thoughts expressed in at least two public interviews, does the block sale derail or hinder the process NDM management laid out? The first part is done–data is out. Does their desire to sell their interest get impeded in any way? Or actually increase since a major shareholder who could have been considered hostile to a particular acquirer is now removed from the equation?
As I said throughout this commentary, I suspect some shareholders will not be able to see the forest through the trees. For those who can, I believe net-net; NDM is in its best possible position in its corporate life. And with the first of two biggest mining conferences underwayand NDM being featured at both, I think any individual sorrow that leads to sales of NDM shares (or lack of buying) shall be more than offset by institutional investors who can not only appreciate the case I just laid out, but act positively upon it.