New Alaska Gold & Copper Mine Clears Major Hurdle (NAK, RIO, AAUKY, ABX, NG, GDX, GDXJ, GLD)

A state superior court judge in Alaska has ruled against an environmental group in a lawsuit aimed at stopping development of the Pebble gold and copper mine project in the state. The project’s developer is joint venture between Northern Dynasty Minerals Ltd. (AMEX: NAK) and British mining giant Anglo American plc (OTC: AAUKY). Another mining giant, Rio Tinto plc (NYSE: RIO) owns just over 19% of Northern Dynasty.

Northern Dynasty was named in April as a top undiscovered pick by Midas Fund manager Tom Winmill, provided an investor can wait until 2016 for the investment to pay off.  That’s no less true today, even if the price has come down significantly.

The company fully expects further legal and legislative challenges, including a ballot measure in the local taxing jurisdiction that would prohibit all large-scale development and is specifically aimed at Pebble.

A pre-feasibility study for the project is expected next year, but the current estimate for the size of the resource is 350,000 tons of copper, 12,000 tons of molybdenum, and 600,000 ounces of gold. Anglo American has committed $1.5 billion to the initial stages of the project, of which about $350 million  has been spent so far.

The total development cost could go much higher though. A joint venture between Barrick Gold Corp. (NYSE: ABX) and Novagold Resources Inc. (AMEX: NG) has raised the development cost estimate for its Donlin Creek project in Alaska from $4.5 billion to $7 billion. A total of 38 million ounces of gold has already been identified at the Donlin Creek project, but that didn’t keep investor George Soros from dumping all his shares earlier this year.

Junior miners like Northern Dynasty and Novagold have no choice but to form partnerships with the big miners on projects like Donlin Creek or Pebble because they simply can’t raise enough capital on their own. Yet a gold mine like Donlin Creek could be worth the billions it will cost, and a project like Pebble, which is primarily copper, is far more subject to commodity price swings and thus more sensitive to cost increases.

Northern Dynasty shares closed last night at $6.84, up about 6% on the day, in a 52-week range of $4.87-$21.76. Novagold closed at $7.02, up about 2.6% on the day, in a 52-week range of $5.93-$16.90. Shares in both are down about -21% over the past 12 months. The Market Vectors Junior Gold Miners ETF (NYSE: GDXJ) closed at $29.54 yesterday, in a 52-week range of $25.22-$44.86. The Market Vectors Gold Miners ETF (NYSE: GDX) closed at $56.27, in a 52-week range of $50.42-$66.98. Neither Northern Dynasty nor Novagold is included in either fund.

The SPDR Gold Trust (NYSE: GLD) closed at $160.49 last night, up about 0.65% on the day, in a 52-week range of $127.80-$185.85. Shares are trading up another 0.85% in the pre-market this morning.

Paul Ausick