Investors have an on-and-off love affair with gold. True gold bugs generally prefer investing in the shiny yellow metal rather than in miners, but the more speculative investors will venture into the gold-mining stocks. The reality is that there are big gold-mining giants, and there are also tiny speculative companies that get the attention of micro-cap investors. The latter has been the case for Northern Dynasty Minerals Ltd. (NYSEMKT: NAK).

Before going one step further, and before trusting anything that gets said or referred to here, understand that Northern Dynasty Minerals is a highly speculative stock. In fact, it is more speculative than most speculative stocks.

What looks to be happening in this stock at this time is a bull-bear war between speculative buyers and a short seller. After it closed at $3.36 last Friday and at $3.18 on Monday, this was a gain of over 50% from the $2.07 closing price at the end of 2016. Even after the gains seen in 2016, that is not normal. And for 2016, Northern Dynasty shares were trading at $0.31 at the end of 2015 — so its gain has been tenfold.

Then on Tuesday, February 14, Northern Dynasty shares were down almost 29% at $2.28 in midday trading. Even before the noon hour it had traded almost six times normal volume, with some 32 million shares having changed hands.

When speculative stocks rise 100%, it is not unusual for there to be some doubters. But what about when the shares rise closer to 1,000%? One such doubt that may have greatly hurt Northern Dynasty’s shares on Tuesday was a short seller report from an unknown firm named Kerrisdale Capital that was made public.

There are three takeaways here that the report discusses, and that is on top of the very first line: “We are short shares of Northern Dynasty Minerals…”

The company controls an undeveloped project in Alaska called the Pebble deposit, which was discovered long ago but has never been mined. This has been a regulatory and legal hot potato where environmentalists, commercial fishing interests, Alaska natives and agencies have debated against it ever starting up. According to a past Gabelli report, Northern Dynasty’s Pebble deposit contains defined mineral resources of 82 billion pounds of copper, 107 million ounces of gold and 514 million ounces of silver, with an in-ground value of $335 billion.

According to Thomson Reuters, the Pebble Project is located in southwest Alaska and is approximately 20 miles from the villages of Iliamna and Newhalen, and over 200 miles southwest of the city of Anchorage. It also was noted that the property consists of approximately 2,400 mineral claims and is situated over 1,000 feet above sea-level and approximately 60 miles from tidewater on Cook Inlet.

There has been a lot of hope that the regulatory climate under President Donald Trump would be friendly to the commencement of operations. According to the Kerrisdale report, investors could be sitting on a zero. Three comments stand out here:

• All this enthusiasm is misplaced.
• We believe Northern Dynasty is worthless.
• [T]he upfront capital costs necessary to build and operate the mine are so onerous that the mine isn’t commercially viable.

Due to not knowing the firm that issued the short seller report, that’s all that can be said about this for the time being.

As far as other developments since the start of 2017, Northern Dynasty Minerals closed on an upsized equity offering for a total of 20.24 million common shares after the overallotment option at $1.85 per share (U.S.) for gross proceeds of $37.4 million. The firms involved in the offering were shown to be Cantor Fitzgerald (Canada), TD Securities and BMO Capital Markets. Other co-managers were Canaccord Genuity, CIBC World Markets and a firm named Haywood Securities. The press release indicated that Northern Dynasty paid a 5% commission to the underwriters.

What should stand out here is that this is a relatively tiny offering in the grand scheme of things, and it still had six underwriters.

According to the Wall Street Journal short interest tables, Northern Dynasty had 6.524 million shares short as of the end of January. That was up 22% from the 5.34 million shares short in the middle of January. While that is a large jump, it was still only about 3% of the float.

Other firms have commented on Northern Dynasty with research reports.

TD Securities wrote back on January 27 that Northern Dynasty was worth C$5.00 per share rather than a prior C$2.00 per share, but its rating was Hold and its risk was Speculative. The TD report sees a Pruitt-led U.S. EPA as being more receptive to a settlement or outright withdrawal of its dispute over Pebble. That TD report further said:

Our increased target price largely reflects a reduction in our discount rate assumption for Pebble to 10% from 12% to reflect: 1) a change-over at the EPA under the Trump administration; 2) improving base metal fundamentals, particularly for copper, resulting in a positive shift in sentiment towards large development-style projects, including Pebble and 3) the gold exposure of the project.

Late in December, Gabelli issued a Buy rating when shares were at $1.78 with a private market value of $3.00. That report asked if it was a Christmas gift from Trump, and three excerpts from the report said:

We believe that the new Trump EPA will choose to withdraw its preemptive veto of the Pebble project, leading the way for an application for a permit for the project to be filed with the Army Corps. … We believe that any large copper and/or gold mining company in the world would be interested in acquiring a stake in the Pebble project. We would categorize Pebble as a “company maker” deposit given its potential to be a long life, high margin mine. … We estimate a net asset value for the project of $6.80 per share assuming $1,200 per ounce gold, $2.50 per pound copper, a 5% discount rate and a very conservative 25-year mine life in which approximately 13% of the total mineral endowment of the property is exploited.

The $2.28 share price seen in mid-Tuesday trading is in a 52-week trading range of $0.28 to $3.45. Even after this large drop, the market cap was listed as $672 million, according to Yahoo! Finance, and $628 million according to Google Finance.

Northern Dynasty is a company in which investors are going to have to make up their own minds. It is one thing to see a stock rise about 1,000% in a year, and it’s another thing to see a drop of almost 30% based on a short seller report.

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