A Canadian mining company is punching back after being hit with an uppercut by the U.S. Environmental Protection Agency (EPA).

Northern Dynasty Minerals (AMEX: NAK) is a co-owner of the Pebble project, a polymetallic deposit located 200 miles south of Anchorage, Alaska. The site contains copious amounts of gold, copper and molybdenum. 

Northern Dynasty and a 50/50 European partner have put significant financial resources into studying and assessing the mine in the hope of one day pulling out its vast riches. And there is no disputing the wealth that Pebble holds: 67 million ounces of gold, 3.3 billion pounds molybdenum and 55 billion pounds of copper.

But those hopes may have just been dashed, or at least delayed.

The EPA recently released a harsh watershed assessment report that outlines numerous concerns, most notably the potential threat of a dam breach that could leak waste material from the mine into the surrounding Bristol Bay — one of the world’s largest salmon fisheries.
 
This is not the final word on the project, but the opposition does present a formidable roadblock to future development. The market reacted swiftly, lopping nearly 40% off Northern Dynasty shares over a brutal three-day selloff.

Why am I bringing this up? Because I see a potential opportunity…

My Scarcity & Real Wealth readers know that I seldom see eye-to-eye with the EPA. And while I don’t agree with its ruling, the EPA may have just handed investors an opportunity to take a flier on this stock — and potentially score big.

My take on the ruling
As a Louisiana native and avid fisherman, I witnessed firsthand the damage caused by BP‘s (NYSE: BP) oil spill in the Gulf of Mexico and understand the importance of protecting waterways. I don’t think anyone would dispute the need for common sense safeguards.

But any regulations have to be balanced with the need to create jobs, reduce dependence on foreign oil, keep homeowners’ gas and electricity bills in check, and harvest the nation’s vital energy and metals resources.#-ad_banner-#

Those goals are usually at odds with the EPA’s single-minded mission to block drilling and mining projects rather than look for compromise and solutions. The agency frequently overplays the hand it has been dealt. Just last week, it was rebuked by a federal appeals court that overturned a heavy-handed EPA mandate meant to cripple coal-fired power plants.

In this particular case, the agency jumped the gun. Why do I say that? Because Northern Dynasty hasn’t submitted any specific plans or proposals for the Pebble Mine. Heck, it hasn’t even formally applied for an environmental permit yet.

The Bristol Watershed report was a pre-emptive strike. And it was based solely on hypothetical mining scenarios.

How can you assess the potential impact of a project that hasn’t even been designed yet? That’s like rejecting a future job candidate a few months before they officially turn in an application and without anyone having read their resume.

For its part, Northern Dynasty argues that the EPA findings are based on distorted maps and figures that “lean heavily” on political propaganda disseminated by environmental groups.

The company also notes that the mine is little more than a speck, covering just one-twentieth of one percent of the land in question. The surrounding waters account for less than 1% of the bay’s total salmon production.

Pebble’s owners have spent eight years (and $150 million) studying the potential environmental impact. Those data were compiled in a 27,000 page report that was submitted to the EPA last December. However, this work reportedly came in too late to be evaluated — never mind that the company hasn’t yet applied for a permit.

Ironically, the EPA dragged its heels for years on the Keystone Pipeline and ultimately rejected the proposal because more study time was needed. This time, the agency was in such a rush to pass judgment that it apparently didn’t even take the time to evaluate key information.

Fortunately, this was only a rough draft (the final version is due out in November). And a peer-review panel of 12 independent scientists and consultants who were asked to review the report skewered it earlier this month.

Some cited multiple errors, omissions, flaws and inconsistencies. Others logically pointed out that you can’t reasonably determine ecological risk from a project that is still in the hypothetical stage.

Such stinging criticism from independent experts will force the EPA to start over and rely more on science than politics — which means the Pebble Mine still has a fair chance.

Risks to Consider: The difficulties that Northern Dynasty is facing underscore the risk and uncertainty shared by all junior and exploratory miners. The lesson here is simple: don’t place too much value on metals in the ground until they can be brought to the surface.

Action to Take –> Northern Dynasty has a veteran management team. If the company can sidestep the environmental hurdles and begin production, this $2 stock would be a steal. But that’s a big “if”. For now, I plan to keep Northern Dynasty on my watch list.

P.S. — While I’m waiting to pull the trigger on Northern Dynasty, there’s another “Scarcity” situation you need to know about. It involves the Russians, a nuclear “crisis” and an emergency briefing involving President Obama. You couldn’t make this stuff up. For details, go here.