ALS.TO - Altius Minerals

[peter1234]

Not saying that Mr. Market values it the right way. Just offering an idea as to why ALS is behaving the way it does.

;)

 

Thank you! :)

That, of course, makes sense… it doesn’t solve my problem though!

ALS is becoming a royalty company, and the cash flow from many of those royalties is not tied to commodity prices… yet the market goes on correlating commodity prices with ALS? Why? The market isn’t stupid! What am I missing? ???

 

Gio

 

Chairman: What causes a cheap stock to find its value?

 

Graham: That is one of the mysteries of our business, and it is a mystery to me as well as to everybody else. [but] we know from experience that eventually the market catches up with value.

Benjamin Graham

Testimony to the Committee on Banking and Commerce

Sen. William Fulbright, Chairman

(11 March 1955)

:)

[frommi]

Not saying that Mr. Market values it the right way. Just offering an idea as to why ALS is behaving the way it does.

;)

 

Thank you! :)

That, of course, makes sense… it doesn’t solve my problem though!

ALS is becoming a royalty company, and the cash flow from many of those royalties is not tied to commodity prices… yet the market goes on correlating commodity prices with ALS? Why? The market isn’t stupid! What am I missing? ???

 

Gio

 

There is the counterparty risk to the royalty streams, when a mine is not profitable anymore or the company running it goes under its possible that the mine is closed down and with it the royalties. So commodity prices are not completly detached from ALS business from my limited understanding.

[giofranchi]

There is the counterparty risk to the royalty streams, when a mine is not profitable anymore or the company running it goes under its possible that the mine is closed down and with it the royalties. So commodity prices are not completly detached from ALS business from my limited understanding.

 

Yeah! Of course, but… Carbon?!… Potash?!… Really??

Either we stop using electricity, or carbon will still be needed, no matter what the economy does.

Either we stop eating, or potash will still be needed, no matter what the economy does.

Iron-ore might be different, but in my NAV calculation assets related to iron-ore already are valued at ZERO…

 

Gio

 

[frommi]

Yeah! Of course, but… Carbon?!… Potash?!… Really??

Either we stop using electricity, or carbon will still be needed, no matter what the economy does.

Either we stop eating, or potash will still be needed, no matter what the economy does.

Iron-ore might be different, but in my NAV calculation assets related to iron-ore already are valued at ZERO…

 

Gio

 

Perhaps its better to not focus on why the market is sometimes irrational but just be happy that it is. :)

[alertmeipp]

Yeah! Of course, but… Carbon?!… Potash?!… Really??

Either we stop using electricity, or carbon will still be needed, no matter what the economy does.

Either we stop eating, or potash will still be needed, no matter what the economy does.

Iron-ore might be different, but in my NAV calculation assets related to iron-ore already are valued at ZERO…

 

Gio

 

Perhaps its better to not focus on why the market is sometimes irrational but just be happy that it is. :)

 

Sure, if u can add more. If you are fully in already, why be happy.

[netnet]

Netnet,

 

That's a great discussion to be having! I think ALS is quite different from Amex, which had a branded moat business in a secularly growing area. ALS is more of a optionality play, in my opinion.

 

As an example, from their most recent financials:

 

a – Natashquan River

On July 25, 2013, the Corporation announced an earn in and royalty agreement with Anglo American to

explore the Natashquan nickel/copper PGe property. Under the terms of the agreement, Anglo American

may earn 66% of the property by investing $20,000,000 in exploration expenditures over a five year period.

Altius will also retain a 1% net smelter return royalty on the property upon formation of the joint venture.

 

Altius has a 500k cost basis in this property, and they've convinced a big mining company with smart geologists to spend $20MM developing it. If it works out, they'll have a valuable working interest and net smelter royalty. If it doesn't, they're out the 500 grand, which isn't exactly a big deal.

 

I look at Altius more like a portfolio manager than a traditional company, which makes it harder to value.

 

However, I really like the economics of optionality, it reminds me of Taleb's antifragile theory. Essentially, ALS is benefiting from volatility in mineral prices and deposit sizes. It actually also reminds of the Dhando investor (heads I win, tails I don't lose much).

 

All this is a long way of saying I really like the company, but don't see a huge margin of safety in the traditional sense. If you run a worst case scenario on the company the value is lower than the current price. If you run a best case scenario it's pretty easy to get share prices >$30.

 

You need something good to happen for this to work out (Ie Kami gets financed/built, or one of their other irons in the fire works out). It's one of my larger positions (top 5), but my portfolio isn't especially concentrated right now, as I've got a basket of net-nets and a few other things like that. (liquidations, merger arb, etc)

 

The analogy to AmEx was not apt on my part.  Ok.  Say you thought that this is the Berkshire Hathaway circa 1970.  That is a more apt analogy.  Smart, honest operator with a long history of success and a security at a fair valuation. (In a way Altius is farther along in that we can see a catalyst for a quick rerating and Chile and CDP should provide for more project generation and we have some visibility into coming royalty streams. )

 

So then what is the proper portfolio allocation?  Munger's advice is buy 3 or 4 such companies and "sit on your ass".

[frommi]

Sure, if u can add more. If you are fully in already, why be happy.

 

Because the sun is shinig or the birds are singing. Just be happy :D. If you can`t relax your position sizing probably doesn`t match your personality.

[TwoCitiesCapital]

Portfolio question:

 

Is this the top name in your portfolio and what is the relative size?

 

For example, in individual portfolios what % of your portfolio are you comfortable for this name?

 

If you don't want to publicize  relative size, i.e. 20%, would you say this a top name in your portfolio?

 

From where I sit, in an individual, concentrated portfolio, I could see a 25% position, much like Buffet who I believe had 25% in AmEx back in his salad (oil) days.

 

For me, it is my top name and I'm topping out 20% in my personal account, but it is unlevered, because, I don't do leverage AND if Kami is not financed it may drop 20%.  If Kami is not financed, I will probably go in for another 5%. (Although this is irrational, I should just take the expected value on a 50/50 probability and buy more now.) Contrast this with the BH investor (Kirkpatrick I think) who when he discovered BH and Buffett, margined with this as his only name.  (I would NOT do that! even in 1960 with Buffett.)

 

I'm not managing money for others so I evaluate by % of net worth as opposed to portfolio value. That being said, close to 15% is in Altius. I think it's undervalued slightly if all iron ore properties are worthless and easily worth $30-$40 USD with Kami and JL. It's a phenomenal company with great management, a great business model, and I'm willing to sit on my ass and give them a decade to make me very happy. Definitely good probability that this will be a successful punch card stock.

[alertmeipp]

Sure, if u can add more. If you are fully in already, why be happy.

 

Because the sun is shinig or the birds are singing. Just be happy :D. If you can`t relax your position sizing probably doesn`t match your personality.

 

I agree we should be happy for many other things, but you said we should be happy for the lagging stock price. That's what I disagree. I am not like upset of it, but not sure why we should be happy about it unless you are buying or shorting. Many of us are not like Buffett, we don't have billions of cash flow coming in.

 

 

[alertmeipp]

There is the counterparty risk to the royalty streams, when a mine is not profitable anymore or the company running it goes under its possible that the mine is closed down and with it the royalties. So commodity prices are not completly detached from ALS business from my limited understanding.

 

Yeah! Of course, but… Carbon?!… Potash?!… Really??

Either we stop using electricity, or carbon will still be needed, no matter what the economy does.

Either we stop eating, or potash will still be needed, no matter what the economy does.

Iron-ore might be different, but in my NAV calculation assets related to iron-ore already are valued at ZERO…

 

Gio

 

Carbon will be interesting. NG price is firming up and many will switch back to coal if NG stay high.

 

And then we have Uranium.

 

 

[frommi]

I agree we should be happy for many other things, but you said we should be happy for the lagging stock price. That's what I disagree. I am not like upset of it, but not sure why we should be happy about it unless you are buying or shorting. Many of us are not like Buffett, we don't have billions of cash flow coming in.

 

Because without these inefficiencies you were not able to buy ever at bargain prices? You can`t expect these to go away just because you bought a position. For me ALS has still some shady light around it, and as long as that doesn`t go away i would never be able to commit more than 5% to it.

What Buffet/Munger meant that you should punch is a situation like 2008 for a high quality bank like WFC that has delivered for decades before that. For me ALS was never and probably will never be such a high quality name.

But thats just me, i don`t know really why i am so upset about your post. :D

[Blue Macaw]

Well Altius has a lot to prove if to be compared to Berkshire Hathaway but regardless of that it is a great company that so far has created value for some of us. It was more when share price it above 16 that is for sure.

 

But down to some hard core facts. Kami needs to be built in order for this to be a great company in the short term. That is how it is. Without Kami Altius will struggle to pay the first 60 M in debt eventhough I do believe they will make it with the rest of its equity. They will deliver some dividends now with the royalties and the company is far better off in that respect with the deal with Sheritt than before. But the debt is a bit too high for the money they are bringing in.

[SharperDingaan]

You think we will hear about Kami's financing by end of June?

 

Pretty surprized if it isn't announced by then; consistent with the CC transcript & ADV AGM extension.

Now if somebody wants to starts dumping ... & making us all richer :)

 

SD

[SharperDingaan]

Just for something to do ... google the mechanics of the 2 stage dividend model.

 

Plug in a 65% payout ratio, a current 20M FCF, and an additional 20M FCF from Kami 2 years out.

Discount the Kami FCF at 10%. Capitalize the div flow at 2%. What do you get?

Then do it again with 0 FCF from Kami.

 

SD

 

 

[giofranchi]

What Buffet/Munger meant that you should punch is a situation like 2008 for a high quality bank like WFC that has delivered for decades before that. For me ALS was never and probably will never be such a high quality name.

 

Well, show me a small cap company run by its young founder, that would qualify as “high quality” as WFC… I don’t know of any in the world… Yet, small cap, with a sound business model, huge prospects for growth, and a young, able, and reliable founder to take care of that growth is imo the place to be.

I am not in love with ALS: just show me something better with those same characteristics, and I will take it seriously into consideration! ;)

 

Gio

 

[ragu]

Ragu, I have spoken to Altius management in the past. They have never said the Sherritt deal was a ‘steal.’

 

ap1234,

 

Steal was perhaps too strong a word. Thanks for the colour from your interaction with ALS management.

 

I don’t think you can read into that IR slide and interpret that Altius management thinks the asset purchase was a bargain.

 

Well, "attractive purchase price multiple" implies some sort of bargain. We can disagree on the size of the bargain.

 

But my personal NAV will always reflect what I think a private market player would pay for the assets not what a yield hungry, retail investor might pay in the stock market for a fractional ownership of the asset.

 

Absolutely agree with this. Patience will be key here (isn't it always?).

 

Best,

Ragu

 

Disclosure: No position yet. Might not be long before that changes though.

[alertmeipp]

the deal was actually well received and help the stock went up all the way to over 16 bucks. Unfortunately, the equity sale took out lots of demand and probably increase supply significantly.That  plus the iron ore and coal news really killed it more. Opportunity.

[netnet]

 

What Buffet/Munger meant that you should punch is a situation like 2008 for a high quality bank like WFC that has delivered for decades before that. For me ALS was never and probably will never be such a high quality name.

 

That is an interesting interpretation but not at all what either Munger or Buffett has said. 

• First of all Munger has said repeatedly buy the great business at a fair price, which means you are not waiting for the Great Recession to buy.  BUT of course when you see a WFC at a really cheap price then you buy hand over fist.
  
• Secondly, I am assuming that you did not mean to limit selections to banks.
  
• Third, remember that Buffett advocated buying  Teledyne, which is pretty far from your WFC example and more like ALS.  Neither of which is a large moat business, rather they require a good business model and excellent execution.
  
• Dalton and ALS's over a decade of 20 %plus returns in a replicable business model, well that seems  pretty darn good to me.
   
  

 

Of course all of us are fallible,  Munger and Buffett included, but don't miss-interpret what they said!

[frommi]

No i meant not to limit selection to banks.

Sorry when i sound harsh, but we had the greatest bullrun in commodities over the last decade. That will not repeat itself. Mr. Dalton was there to take advantage of that, but i would never attribute every dollar that this company has earned to him. Sometimes i really don`t understand why so much people on this board are so in love with some managements when the reality is that most managements try to rip us shareholders off the second you turn your back to them. There are clearly exceptions, but most of these exceptions are only known after decades when they are grey and old. A lot of people on this board will probably disagree with me in this point.

 

Who cares what Buffet and Munger said about concentration? When you can`t sleep at night, your position is too big.

[giofranchi]

Sometimes i really don`t understand why so much people on this board are so in love with some managements when the reality is that most managements try to rip us shareholders off the second you turn your back to them. There are clearly exceptions, but most of these exceptions are only known after decades when they are grey and old. A lot of people on this board will probably disagree with me in this point.

 

I don’t disagree. You are obviously right. And the proof is in plain sight for everyone to see. Who said business is supposed to be easy?! ;)

 

Yet, when it comes to do business, or to invest in a business for the long run, that’s to say for the value that business is going to create over many years, I simply know of no other way than looking for those people I would like to do business with. Or at least to try!

Therefore, if I cannot rely on a track record of many decades, because then they have become obviously too old, I must be satisfied with a track record of 15 to 20 years and a process that I understand and like.

A 50 years old owner/manager, who has created much value for the past 20 years, has treated his/her shareholders right, is in a predictable enough business, and strategically says and does things I understand and like… That’s exactly what I am looking for! :)

 

Then, of course I know there is “deep value investing”, technical analysis, etc. I know the existence of those things, I know they might be more effective than what I look for… but I don’t do them.

 

I also agree with you we won’t see another bull market in commodities like the one we have witnessed during the last 10 years…Result: during the next 20 years I am assuming an annual growth rate for ALS that is half what it has been in the past 20 years.

 

Gio

 

[SharperDingaan]

Re managements:

 

Like it or not, buying XYZ means you buy the management; you accepted that when you bought into the coy. Institutions are big enough (vote wise) to force change, but it will usually require concurrence of partners. Your directors have also hired the management to run the coy, not you; all that you can do is either agree by continuing to hold - or sell.

 

Many companies have the worst management, but are tolerated because the franchise they run is so strong. Replacing the management would make the company so dominant that it would get broken up, & everybody loses. So .... we tolerate the excesses & use the option markets to profit off the predictable gaffs.

 

Other companies have great management, but a weak franchise. They get stronger by either executing on their potential, or acquiring others & successfully extracting the value-add. Both are rolling the dice, & we pay for the sense & courage to walk away when warranted.

 

Age is just a proxy for succession bias; as every time the game is played, some players will let it go to their heads - & blow up. Life's mid-life crises, boredom, & colleague adulation will all contribute at various times.

 

So .. we make our assessments, balance opportunity against hubris, & vote with our feet.

 

SD

 

 

 

 

 

[giofranchi]

Age is just a proxy for succession bias; as every time the game is played, some players will let it go to their heads - & blow up. Life's mid-life crises, boredom, & colleague adulation will all contribute at various times.

 

Well, of course I am not saying it will work out fine all the times! As I have said, business is not easy: just look at what happened recently with Mr. Brindle at Lancashire…

 

But generally you want to stay in between something too small (business, a start-up company), too young (management, not proven yet) and something too big (business, very large cap company), too old (management, not much time left to go on creating value).

 

This, I repeat, if and only if you are interested in buying and holding a business for many years.

 

Gio

 

[Liberty]

Many companies have the worst management, but are tolerated because the franchise they run is so strong. Replacing the management would make the company so dominant that it would get broken up, & everybody loses. So .... we tolerate the excesses & use the option markets to profit off the predictable gaffs.

 

Just curious, do you have any examples of this phenomenon?

[gary17]

So does anyone have a good guess on what these  "transactions" are?  Thanks  Gary

 

Alderon is also pleased to announce that it has received Toronto Stock Exchange ("TSX") approval to

hold its annual general meeting (“AGM”) on July 29, 2014, outside of the TSX requirement that a

company hold an AGM within six months of its year end. Alderon is evaluating several transactions that

may require shareholder approval and chose to delay the holding of its AGM rather than holding multiple

shareholder meetings in short succession.

[peterburke]

I am new on the board but have been reading the messages for a few weeks. On the issue of what might require shareholder approval, I think the place to start is asking what usually requires shareholder as opposed to director approval. I am not sure where Alderon is incorporated, but typically these approval items would include an amalgamation, asset sale of substantially all the assets, share reorganization, name change, exchange of assets or a takeover bid.  At this point it is a guess only, but would an amalgamation with one of the nearby mines that is closed have some operating synergies and perhaps tax advantages?