ALS.TO - Altius Minerals

[no_free_lunch]

Thanks for the royalty link Nostradamus.

 

It looks like about half of the royalties are long-lived and the remainder expire in the next 15 years.  Sheerness with $5.4M royalties to Altius has about 15 years left on the royalty, PaintEarth with $5.3M has 7 years and Cheviot with $2.6M has about 15 (depending on which production number you use).    So in 7 years, the royalties drop to $21M, and in 15 they drop to about $13M.  Not saying it's good or bad, just breaking out the figures. 

[Liberty]

I don't quite understand the rationale of how the royalties can be worth so much more than what was paid.  If they are worth double then why did Sherritt hand them over for such a bargain?  That would imply some serious incompetence on their part wouldn't it?  I understand that markets are not perfectly rational and sometimes people do get a deal but usually there is something to explain the difference.  It could be tax considerations, cost cutting, synergies, or perhaps the value becomes apparent over time as situations change but for Sherrit to just not know how to price the royalties seems bizarre.

 

I do see merit in the UW price as an analysis point as presumably the institutional investors understood what they were getting.  So if the discount to $14 continues to widen I will be a buyer based on that simple logic but it is difficult to believe that this is an immediate double.

 

I asked a similar question here:

 

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/als-to-altius-minerals/msg169386/#msg169386

 

You can see what was answered if you keep reading the thread from that point.

[no_free_lunch]

Thanks Liberty.  I did look back a bit to see if my question was already answered but not far enough to see your post.

 

I think it really just comes down to coal, which makes up the majority of the royalties, being out of favour.  Have a look at the coal etf (KOL).  It is down to around $19 from highs of $50 in the prior decade.  There is investor concern that with environmental issues, low NG prices, alternative energy, etc that coal's best days are behind it.  Perhaps investors are concerned whether the royalties will be reaped in the long-term and hence the low price tag.  However, I am actually more comfortable with this now that I understand it better.  Dalton found a way to buy a royalty stream on the cheap due to it being out of favour.  It's actually a good hedge if things go south with Russia or if NG prices shoot back up.  It also provides Dalton with a supply of cash to fund prospecting, and given his track record it's perhaps the best use of the funds.  Sorry if much of this has already been said I am just trying to work it through on my own.

[Guest Dazel]

No Free Lunch.....we are here to learn....all questions are helpful....

 

Altius is very much unknown....especially as a royalty company. They likely thought that the secondary would give them exposure from the investment houses...that has not happened yet.

 

SD is correct.... we know Franco Nevada and Royal Gold are very aware of who Altius is...as they had a bidding war for Altius auction of International Royalty Corp...that went at 37x ebitda.

[SharperDingaan]

As at right now there are 31M in PRML, CDP, & VB royalties, & 20M in FCF after run-rate & 5M in interest costs. Confirmed on the CC.

 

Value as a royalty & you would use EBITDA multiple. Value as a liquidation & you would sum up the parts. DCF the 25M EBITDA at 5.74% & you get to Fridays close. Apparently investors refuse to accept ALS is now a royalty company, & would prefer to liquidate - because liquidation results in a much higher number from the pipeline being dumped for whatever it will raise.

 

So, lets liquidate.....

Quickest & best way is a bid from a FNV, which now WILL BE at a premium EBITDA multiple - & will be done quickly so that only PRML, CDP, & VB royalties are being valued; pipeline is for free. Instant double. The FNV bid does not even have to be successful - they make a healthy gain on what they already own of ALS. But apparently, this is a terrible idea.

 

OK it must be a royalty company, & we don't want to liquidate .....

Royalty dividends are discounted at around 1.0-1.5%, & the more growth the lower the discount rate. Div payouts range up to 75% of FCF. If ALS pays .44/yr, the 14.3M payout will be 72% of FCF, & capitalization at 1.25% results in a $35.20 price. Capitalize at 1.5% & you get $29.33. The FCF from these royalties has already begun, & the decision to dividend is entirely an ALS decision. Instant double.

 

But they need to pay down debt ....

ALS announced on the CC they will be selling securities to do it, & not organic CF. They also do not have to pay down debt as LT Debt is financing LT Assets, & would ordinarily be retired at the depletion rate of those assets; ie: minimal repayment per year.

 

Its too hard .....

Too late. ALS is going to get taken out simply because of inability to value it appropriately, & it is nothing to do with speculation. Part of the UW marketing function is to ensure that valuation is appropriate, & that clearly has not occurred.

 

We would prefer that ALS remain independent but the sooner the investor base turns over the better.

A bid is the most practical solution.

 

SD

 

 

 

[txitxo]

Altius is utterly doomed now. I have just started a position.

[SharperDingaan]

We would also remind everyone that the UW group is sitting on 350K shares of unsold inventory ... how much of a premium do you think you will need to offer them to get that 1% of the 3.25M reporting minimum.

 

SD

[Guest 50centdollars]

Altius is utterly doomed now. I have just started a position.

 

LOL

[giofranchi]

I have added today at CAD$13.45.

 

 

Gio

[alertmeipp]

ADV looks rather sick. Down to 1.24. I got token position there. Leak on equity financing?

[ItsAValueTrap]

I'm surprised that both Scotiabank and Desjardin decided to cut Alderon's price target.

 

It's pretty obvious that Alderon wants to raise a huge amount of capital.  Normally the investment banks will suck up to a company to try to win the investment banking business.

[cwericb]

Alderon is down about 30% in the last few weeks. Why do I get the feeling that there are investors out there who know a lot more than we do about Alderon and Kami?

[BRK7]

Alderon is down about 30% in the last few weeks. Why do I get the feeling that there are investors out there who know a lot more than we do about Alderon and Kami?

 

The slump in iron ore prices is at least part of the explanation:

 

http://www.theguardian.com/world/2014/may/20/iron-ore-price-slump-hits-australian-stocks

 

 

 

[alertmeipp]

Part of it maybe. But cant be all of it. Wasnt this trading much higher when we have way more uncertainty.

[cwericb]

In the last month or so we have had nothing but good news for Aldreron. They passed the environmental process, they received approval on the power line, the port is almost ready and equipment contracts have been finalized. About the only hurdle left is the financing (big hurdle). But as recently as February this was in the $2.00 range and dispite all that good news the price has continued to drop. While the price of ore may have also dropped, it hasn't dropped anything like the amount Alderon has and the Kami project seems to have some strategic competitive advantages over other suppliers.

 

So what concerns me is that there appears to be a sentiment out there that the financing is not going to happen and if that is coming from the big players who have a lot more inside information than we do, than there may be good reason for that concern. Not only is this hurting those of us who have invested in Alderon, but given that Altius holds so many Alderon shares that has to have an effect on Altius as well.

 

But even with all the uncertainty, there have been a number of reasons mentioned on this board to still be optimistic.

 

[SharperDingaan]

We suspect the 2 partners may have been required to add a 3rd partner to spread the risk, &/or spread the wealth. It would also not surprise us if that supposed 3rd partner was also in background discussions over JL/Wabush. There has not been a 2nd off-take announcement yet.

 

All the more reason to put a bid under ALS, & side-car both Kami & JL from the valuation. Both these projects are not going to contribute a dime for at least the next 2 years - & their ONLY contribution at present is to bring on a bid. Use it.

 

SD

 

 

 

 

[alertmeipp]

Looks like we are heading below 13. Nice call, Blue. I guess no one really lining up to pay 20 bucks for ALS after all. They were lucky to close the 14 dollars offering.

[alertmeipp]

SD, I hope your optimistism is well placed because this is down like 20 percent since the deal is closed.

 

 

[redhots]

We are getting close to WEB's 10% pretax return with growth and moat.  Lets go lower!

[Blue Macaw]

Yes 13 it became. I think if you are cool enough you will be able to pick some up under 13, maybe 12,7 but after that it will be hard. Fear and disappointment is starting to be seen on the boards which is a sign that the share price will be pushed lower than what they are worth.

 

Back to facts. Kami, Julliene lake, and fire lake north are the only mines that might be built during these iron ore prices. And as stated earlier Kami has the best infrastructure, closest in time etc and the probability is higher for Kami than the other 2. The financial deal is what is spooking everyone at the moment. How will it look like? Will it be worht buying shares now at these prices? Altius is going down due to this as well. But my firm belief is that Kami will be built. It has passed all the deals including power line and Enivirmental permits. Construction has started. Julienne lake will get dealt to Altius (it might not be a mine just yet but pre-feasibility study will start. The governement has pushed it too far in order to stop the whole thing)

 

CDP looks great!! Better than I thought. Many projects lined up and two with 43-101. Chad might be right when he says CDP alone is worth more than the whole deal. If they can only do something with it. The Chinese will be lining up for the coal and the potash. Royalty between 1 and 3 which has not been mentioned that much. Why?

 

So growth this year will be Kami construction continuation, Julienne drilling and start pre-feasibility, CDP deal. So far I have been lucky with my predictions regarding share price and my prediction for 2014-12-31 is still 20.

[gary17]

I suspect there's also politic risks related to Alderon which is affecting the price.  It was published earlier today that an ex VP of PetroChina that was involved in the Cutbank Ridge nat gas transaction has been sacked for corruption - news link here: http://www.ntdtv.com/xtr/gb/2014/05/21/a1110832.html  unfortunately only available in Chinese. 

 

This is quite similar to the sacking of the CEO of Hebei who approved the deal with Alderon .

In light of recent weakness in the economy and the new government's effort to get corruption under control, I suspect there's increased pressure to re-examine past dealings of these ex-state-owned executives. This could have significant effect on a slew of businesses decisions made in the past - Alderon and others.

 

I don't think this means the value is lost - the iron ore is still in the ground - it's just that there's an additional layer of complication to unlocking this value.

 

Gary

[giofranchi]

The way I look at ALS is basically the same way I look at BH:

 

I like royalty and franchise businesses, and I think they have much in common.

 

First of all they provide an able manager with a constant stream of cash that requires little capital to grow.

 

Both the fast-food business and the mining business are here to stay (though the mining business might certainly be more volatile), and I don’t see them subject to any kind of disruptive change in the foreseeable future.

 

Mr. Dalton and Mr. Biglari have proven to be very good at what they do, they are both very young, and still have plenty of time to create much value.

 

Of course, they may encounter obstacles along the way: Kami for ALS and CBRL for BH… And there are risks: ALS is not truly yet a proven royalty business, it is becoming one; BH is not truly yet a proven franchise business, it is becoming one.

 

Yet, overall I like what I see in both cases.

 

I will keep buying as the prices of ALS stock and BH stock trend down (today included ;)).

 

Gio

 

[giofranchi]

Sorry if they have already been posted… but I cannot find the Annual Reports for year 2011, 2012, and 2013… Does anybody know why they are not available on ALS’s web site?

 

Thanks,

 

Gio

 

[Guest Dazel]

 

Altius is proven as a royalty franchise....PMRL royalties and  Voisey Bay  are proven as among the  best mines in Canada operated by top tier producers....

This is what is being missed...don't need anyone to collect these royalties....this value is being lost with the noise around Iron ore...there is an implied ebitda for that is being missed.

 

I was here in 2012 when iron ore dropped to $87...I would venture to guess there is no one else on the board that has gone through it....I have.

 

Marginal production drops....China has cut or will cut 150 million tonnes of iron production at these prices....the short trade that looks like a slam dunk brings in stupid money and  gets squeezed and prices leap back up...

 

It took two months for iron ore to go from $87 to $140....while I do not expect that this time $125 to

$130 is likely...I suspect that Alderon and Altius knew what the Chinese were going to do they have partners that are the largest steel producers in the world...Hebei has predicted prices with precision over the last two years. These companies are the chinese government.

 

For those looking at  headlines watching their stock drop and the fear that comes with that all are screaming bottoms...

 

However, Altius valuation should not be predicated on this as the existing royalties are coveted by the other royalty companies if they have a chance they will try to take advantage of the situation...wouldn't you?

 

For those feeling angry... your friends that own Bank of America have had the same percentage price drop in the same period of time....for perspective.

 

 

 

 

 

Dazel.

[giofranchi]

Thank you as always, Dazel! :)

 

Could you please help me with the missing Annual Reports, and let me know where I can find them?

 

Cheers,

 

Gio

 

PS

I bought yesterday, I am buying today! ;)