ALS.TO - Altius Minerals

[nostradamus]

The board might be interested in listening to the following interview with Tayfun Eldem which took place yesterday:

 

http://www.cbc.ca/labradormorning/episodes/2014/05/26/alderon-continues-with-new-mine-as-ore-prices-fall/

 

What he said makes me think that the announcement today will not be to do with the financing, but will instead be about them meeting the remaining conditions of the provincial enviromental assessment, noted in their last press release:

 

http://www.alderonironore.com/_resources/news/ADVNR20140521.pdf

 

The press release mentions that they have met three of the conditions to be permitted to start construction and the TE mentions in the interview that there are two remaining conditions which they are close to meeting. His tone on the interview seems to suggest (to me at least) that financing is still work in progress and not something to expect in the coming days.

 

N.

[nostradamus]

The two remaining permitting conditions that he mentions in the interview are:

 

Completing a real time water monitoring system; and

Execution of a "benefits agreement" with the goverment/province.

 

He mentions that the benefits agreement is "very close to being concluded". So I would assume that this is the news that will be announced today.

 

N.

[Gamecock-YT]

Benefits agreement it is.

[argonaut]

Looks like there is an analyst report out now: http://blogs.wsj.com/canadarealtime/2014/05/27/canada-stocks-to-watch-scotiabank-altius-open-text-lightstream/

 

C$19.50 target by Raymond James.

[Liberty]

Looks like there is an analyst report out now: http://blogs.wsj.com/canadarealtime/2014/05/27/canada-stocks-to-watch-scotiabank-altius-open-text-lightstream/

 

C$19.50 target by Raymond James.

 

If anyone can post that report, I'd be curious to see what they have to say. Thanks.

[craigatk]

 

This guy was at the Kami press conference.

[craigatk]

It looks like it was a political press conference, nothing substantial. Will wait for media reports.

[hillfronter83]

Looks like there is an analyst report out now: http://blogs.wsj.com/canadarealtime/2014/05/27/canada-stocks-to-watch-scotiabank-altius-open-text-lightstream/

 

C$19.50 target by Raymond James.

 

If anyone can post that report, I'd be curious to see what they have to say. Thanks.

 

Here

RJ_Report.pdf

[Liberty]

Looks like there is an analyst report out now: http://blogs.wsj.com/canadarealtime/2014/05/27/canada-stocks-to-watch-scotiabank-altius-open-text-lightstream/

 

C$19.50 target by Raymond James.

 

If anyone can post that report, I'd be curious to see what they have to say. Thanks.

 

Here

 

Thank you.

[cwericb]

It seems that the Province of NFLD has been putting a lot of their "eggs in this basket" (Alderon), what are the odds that the Province could step in - if necessary - with some loan guarantees to ensure Alderon is able to secure the necessary financing?

[nostradamus]

Thanks for the RJ analyst report hillfronter83.

 

Is anyone else confused by the projected financials in that report? Why is there negative EBIT out to 2016 on the income statement? Why is there a massive "share of loss in associates" that more than offsets "earnings from joint ventures"?

 

I must admit, if I glanced at the financials in that report, I would not be jumping to invest...

 

N.

[SharperDingaan]

ADV Press Release: Once the financing plan is complete, we will be ready to commence construction. Alderon also confirms that the Kami LP has been released from further processing obligations, including any requirements related to the construction and operation of a pellet plant.

 

... So financing was being held up until there was a decision as to whether they also needed to build/operate a pellet plant, & whether they would have ongoing environmental exposure after the mine is done. With those road blocks removed, financing should now be very straightforward. Short time to conclusion.

 

... Conclusion of Kami benefit & environmental assessment templates quantifies & establishes the developments value to the Province; & allows the Province to invest in enabling value-enhancing infrastructure - possibly a pellet plant. The template could also be applied to JL (& Wabush), reducing the time it would take to move these forward. Shorter time to JL announcement.

 

... RJ report. Appropriate div discount rate of 1.6%, not 2%; & ALS is expected to sell their ADV shares. Assume they sell at the conversion rate, & make a 78M debt repayment - consistent with the debt structure of the recent UW. That interest saving will allow them to very easily pay .42 (12 x .035/month) -.44 (4 x .11/quarter) per share. $26-$28/share.

 

SD

 

 

 

[Blue Macaw]

Yes SD but it comes down to one thing if we are to see above 20 cad per share and that is Kami construction start and sale of shares around 70 million. Looks like at least the first one will happen.

[SharperDingaan]

ALS could declare a $0.40/year dividend tomorrow; 67% of existing FCF - no ADV sale required.

Selling the ADV stake just gives them additional CF from interest saving on the debt repaid.

 

To accept that ALS will dividend ASAP, is to accept with high probability - a valuation double in fairly short order. Anything else is to claim that ALS will either dividend later, or pay out materially less. Contrary to what management has repeatedly stated, & the reality that they will quickly get gobbled if they don't pay.

 

SD

[Blue Macaw]

ALS could declare a $0.40/year dividend tomorrow; 67% of existing FCF - no ADV sale required.

Selling the ADV stake just gives them additional CF from interest saving on the debt repaid.

 

To accept that ALS will dividend ASAP, is to accept with high probability - a valuation double in fairly short order. Anything else is to claim that ALS will either dividend later, or pay out materially less. Contrary to what management has repeatedly stated, & the reality that they will quickly get gobbled if they don't pay.

 

SD

 

However I only see them being able to pay around 0,26 per share in dividend based on my earlier calculations. (3,14 M net revenue per quarter before tax and A *0,67 =2,10 M/32 M = 0,065 per share and quarter. Per year 0,26.). Based on your 1,6 % yield we have a share price of roughly 16,25 CAD. What they need to do is to get the finance cost down.

[Blue Macaw]

Removing the debt they can get to 0,44 dividend giving a value of 28 CAD per share on a 1,6 % yield basis. Bit it will get better with +3 M royalty from CDP, 0,2 M from Virginia + 30 % growth or 1,6 M from Potash = 4,8 M more in revenue.

[nostradamus]

Thanks for the RJ analyst report hillfronter83.

 

Is anyone else confused by the projected financials in that report? Why is there negative EBIT out to 2016 on the income statement? Why is there a massive "share of loss in associates" that more than offsets "earnings from joint ventures"?

 

As an attempt to guess an answer my own question, I think what may be happing is as follows. The Prairie royalties vehicle goes on to the balance sheet of ALS and is accounted for using the equity method. This means that the royalty income appears as earnings from joint ventures (or associates?). However, when the Prairie royalties vehicle pays out royalties its net asset value (ie the value on the balance sheet of ALS) declines. This decline shows as a loss from associates. So the payment of royalties results in a both a profit (the royalty) and a loss (the decline in the value of the Prairie royalty vehicle). This means that the Praire royalties do not (at least in the near term) show up as bottom line accounting profit.

 

I know it is better just to focus on cash flow than the income statement, but I think if the RJ have got the accounting right, then the income statement of ALS could look (superficially) quite bad until the Kami royalties start coming in in several years' time. This could have an impact on the extent to which ALS shows up on the radar of investors screening for undervalued stocks.

 

(BTW, I am just making some observations regarding the likelihood of a re-rating. As I have mentioned in the past, I am heavily in ALS for the long-term large dividends I expect to recieve. And on this matter, personally I would prefer it if they do not pay out any dividends until they have completely repaid the debt.)

 

N. 

[Williams406]

RE Altius Bid:

When I look at the royalty space, I see three big players--Franco Nevada, Silver Wheaton, and Royal Gold that could financially swing an Altius bid without any trouble. Perhaps there are other players that could do a massive equity issuance to arbitrage valuation between themselves and Altius, not sure. Of the Big Three, though, I don't see from current portfolios the institutional focus to bid for Altius except for Royal Gold. Electrical and thermal coal, potash doesn't seem to fit Silver Wheaton at all. FNV generates about 3% of it's revenue from "other" meaning not gold (primary), oil and gas, or platinum group. FNV's presentations emphasize the advantages of FNV's version of gold exposure.

 

All three could do it financially. Not sure I see the interest in doing so from two of the three. Admittedly, I don't know if SLW or FNV have stated any intent to diversify in a way that would make Altius a logical target. Any insight to counter my very superficial "bigger fish" analysis?

 

RE Kami Financing:

Good to see that something other than slammed doors accounted for the lengthy Kami financing period, but when I saw the debt structure of the PMRL/CDP deal, I figured Altius had a very high confidence level in monetizing their Alderon equity stake. Could still be wrong on that...we'll see. Probably soon.

 

RE Altius Capital Allocation

I hope Altius doesn't wait to repay all debt before initiating a dividend. I could see them waiting until they unload their Alderon stake. But absent a major CDP deal, I don't see how Altius could eliminate the full debt balance for quite a few years. They don't have years to remain independent. In order of priority (assuming Alderon equity used to bring debt to $70 million) I'd like to see them a) initiate a large dividend out of royalty cash flow, b) repurchase maximum # of shares at current prices, c) pare down debt with any future cash inflow from deals. I'd like to believe that doing a) increases the stock price, but I didn't see Altius stock price at this level post PMRL/CDP closing, either. I still think Altius is not well known/understood by investors and think large dividend coupled with removal of Kami financing uncertainty remain keys. Altius has full discretion over that first possible action. I'm not forgetting about JL, and realize that there could be an announcement soon, but it could also be fall before we hear anything. If we're waiting to hear something on Kami in one month, I don't think anything we hear is going to be good. 

 

[Guest Dazel]

 

 

N,

 

 

I have not looked at the RJ report...but I would assume the loss from associates is from Alderon as it is now.

[PLynchJr]

Is there a reason there is such a large spread between ALS.TO ($13.34) and ATUSF ($12.26)?

[EliG]

Is there a reason there is such a large spread between ALS.TO ($13.34) and ATUSF ($12.26)?

 

CAD vs USD

[SharperDingaan]

Blue. They already have 20M/yr in FCF after costs. Interest savings from debt repayment, & all the other flows mentioned are additional. Annual dividends of $0.40-$0.44 are probably on the more conservative end, but recognition means materially re-rating. http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/als-to-altius-minerals/msg171515/#msg171515

 

Take-outs. We argued an ALL EQUITY take-out. ALS shareholders get to roll-over their gain tax-free for shares of the buyer; the buyer gets a sizeable & cheap equity raise (the cost of ALS) that is immediately accretive. Post take-out the buyer simply sells the ALS royalties for cash to repay debt, & ALS shareholders sell the shares of the acquirer. They are catnip for pretty much everybody.

 

SD

[PLynchJr]

Is there a reason there is such a large spread between ALS.TO ($13.34) and ATUSF ($12.26)?

 

CAD vs USD

 

Hah...note to self...don't post until I've had my morning coffee!

[nostradamus]

 

 

N,

 

 

I have not looked at the RJ report...but I would assume the loss from associates is from Alderon as it is now.

 

Thanks Dazel for the correction.

 

So what I now think is happening is that the Prairie royalties are shown in the "earnings from joint ventures" line. This shows a number that is much lower than the actual royalty payments (eg income statement shows income from JV of $15.3m for 2015, whereas cashflow from JV is $25m). My understanding is that equity accounting of the JVs means that they are declining in value each year as they pay out a royalty and this reduction in value is offseting the royalty income in the income statement. (this reduction in value can be seen by looking at the balance sheet where the value of JVs is predicted to decline each year by about $10m).

 

I wish these analyst reports would provide a bit more detail in their methodology/assumptions for generating the financials, rather than just expecting investors to accept a black box.

 

N.

[Guest Dazel]

 

I have heard that the NAV according to the cash flow of Osiko's royalty stub is $500m...this is approx the same royalty revenue as Kami at $25m annually and a shorter mine life at 20 years compared to Kami! If I were Altius I would be in china begging to get the mine built and have my family with Shovels starting to dig out Kami.

 

Royal gold gets the same premium on Voisey bay as their gold royalties...they would get the same multiple on Kami as Osisko...$500m. They are out of their mind if they are not at least looking at Altius because Kami is free.

 

JL is less than free you are being paid to take it....

 

I have spoken with investors who are in the royalty space that have "no idea" that Altius cashflow number will be that high annually and less than an idea where Kami is or it's massive size and have never heard of JL...these are investors whose job it is to follow royalty companies!

 

The market has "NO IDEA" who or what Altius is....They all know Virginia Mines because it is gold but Altius is being missed completely...which is a little interesting as Virginia may be a carrot among Altius holdings for Franco or Royal Gold....

 

We are in a painful transition between being a value investment to cash-flow, dividend and growth story...we would rather remain Altius as the upside is much higher than being taken out. Get to work Altius the next few months are huge for our future!

 

 

Dazel.