naboo Posted November 17, 2014 Share Posted November 17, 2014 I’m going to take a stab at putting some perspective on this deal. There may be errors in the below; please point them out. Virginia closed Friday at $10.07. They have 33.8M shares out, of which Altius owns 8.2%. Altius itself has 32.24M shares out. The announced deal price is $14.19 per Virginia share. Therefore: Virginia had value of ( $10.07 X 8.2% * 33.8 ) / 32.24 = $0.87 per Altius share as of Friday close Compared with ( $14.19 * 8.2% *33.8 ) /32.24 = $1.21 per Altius share, assuming the deal closes as planned. $1.21 - $0.87 = $0.35/share So, this deal adds $0.35/share of incremental value to Altius vs Friday’s close. Good news for sure, but not huge. I think you could make a reasonable case that the added value to Altius is higher than simply the $0.35/share because: - Altius would now hold a more liquid stock (Osisko vs. Virginia) which could be sold in the open market. - This comes at a time when Altius has unusually high debt level (by Altius’ historical standards) and the cash flow from selling Osisko shares can be used to reduce this debt, reducing the uncertainly about Altus more generally. - This is (further) validation of Altius’ strategy and expertise. But, on the other hand: - Altius has not specifically said that it intends to sell the Osisko shares. Altius’ press release on this announcement states, “We look forward to continuing to work together with the new combined company to generate exploration value through our successful exploration alliances.” Will Altius have a lock-up on its shares for some period of time? I don’t know, but I presume Altius would be eager to get cash for its shares ASAP. - An open-market sale of Osisko shares would involve market price risk. Altius could get far more than $14.19 or far less than $14.19. Also, any gains associated with the sale of Osisko shares would presumably be subject to capital gains taxes. Perhaps another board member can provide Altius’ tax basis in its Virginia shares. But the $39 million sale proceeds (assuming $14.19/shares) presumably overstates the actual after-tax cash flow to Altius. - The deal is not closed (though it seems likely to close in early 2105) and therefore uncertainty remains. Again, good news for sure, and it’s certainly nice to have some good news. But we shouldn't treat this announcement as if it had the certainty of all-cash deal at $14.19, nor should we ignore the tax consequences to Altius from selling Virginia/Osisko shares. For reference, here is Altius’ press release on the deal: http://altiusminerals.com/uploads/PR1412-VGQ.pdf BRK7, Your calculation is right, but I see this differently. This deal will generate 35M-40M for ALS, I like to see ALS sell the shares (even now), and use the cash to pay their debt which bothers me the most. I think ALS management team mentioned couple of times, the first priority was to reduce the debt. If ALS can pay off their debt, they will be a super great company, and market will recognize that as well. Link to comment Share on other sites More sharing options...
matts Posted November 17, 2014 Share Posted November 17, 2014 Altius will be locked from selling the Osisko shares. Maybe someone knows how long that will be and can chime in, but you guys can forget about getting the cash in the short term. Link to comment Share on other sites More sharing options...
hillfronter83 Posted November 17, 2014 Share Posted November 17, 2014 Osisko also annouced a stock buy back plan for up to 5% over 12 month period at prevailing market price. Altius' stake will be about 3% of Osisko after merger. Link to comment Share on other sites More sharing options...
TwoCitiesCapital Posted November 17, 2014 Share Posted November 17, 2014 Altius will be locked from selling the Osisko shares. Maybe someone knows how long that will be and can chime in, but you guys can forget about getting the cash in the short term. That's why I said within a year. There's also a slim possibility that Altius isn't part of the lock up. BRK7, Just because they expressed that they'd be working with them in the future doesn't mean they have to continue on as an owner. Altius has a few joint projects with Virginia that will likely survive the sale even if Altius isn't a stockholder of the new combined co. Link to comment Share on other sites More sharing options...
BRK7 Posted November 17, 2014 Share Posted November 17, 2014 Altius will be locked from selling the Osisko shares. Maybe someone knows how long that will be and can chime in, but you guys can forget about getting the cash in the short term. That's why I said within a year. There's also a slim possibility that Altius isn't part of the lock up. BRK7, Just because they expressed that they'd be working with them in the future doesn't mean they have to continue on as an owner. Altius has a few joint projects with Virginia that will likely survive the sale even if Altius isn't a stockholder of the new combined co. Zach, I agree. Altius may continue as an owner and it may not. I was simply saying that we cannot be certain at this point. IMO, these are the key remaining questions: -confirm ALS intends to sell Osisko shares? (IMO, selling seems to be high probability, based on past comments from management about prioritizing the pay-down of debt.) -will ALS be subject to lock-up on Osisko shares and for how long? -what is the tax basis for Virginia? (the after-tax proceeds from the Osisko sale is the relevant figure, in terms of evaluating ALS' ability to use the proceeds to pay down debt) Link to comment Share on other sites More sharing options...
tengen Posted November 17, 2014 Share Posted November 17, 2014 A few quick thoughts. Osisko sounds exactly like the type of company Altius wants to own. On the other hand, maybe Osisko should take out Altius if they want to branch out from gold.:-) Altius may be forced to sell their stake in 2016 when they are required to repay $47 million of principal. From the press release: Osisko Gold Royalties Ltd. (TSX:OR) ("Osisko") and Virginia Mines Inc. (TSX:VGQ) ("Virginia") are pleased to announce that they have entered into a definitive agreement to combine the two companies to create a new leading intermediate royalty company with two world-class gold royalty assets in Quebec. The transaction combines two top-quality, highly-complementary asset portfolios, including two long life revenue-generating gold royalties: Osisko's 5% net smelter return ("NSR") royalty on the Canadian Malartic mine, and Virginia's sliding-scale 2.2% - 3.5% NSR royalty on the Éléonore mine. Both the Osisko and Virginia royalties cover not only the operating mines, but also the high-potential land packages surrounding the mines. Link to comment Share on other sites More sharing options...
Guest Dazel Posted November 17, 2014 Share Posted November 17, 2014 It was obvious that we pushed Altius to sell this position among other initiatives including a possible sale of the company in a letter to the board of directors. There are however, other implications from the deal announced today. Many are correct in the direct benefits debt pay down takes Altius interest rate down to 6% increasing cash flow! share buy backs and dividends become good options. However, there was a "lot" of interest in Virginia and Eleonore...there is the possibility that this mine could become a "world class" status because the size has not been defined yet. We have heard whisper numbers of 20 million ounces....this is speculation of course because Goldcorp has underwent a massive drilling program to define the resource and those findings are not complete.Who cares? Well Franco Nevada, Royal Gold, Osisko gold royalty and possibly Prairesky royalty corp of course....with this deal Osisko gold royalty becomes a "major" they will now be a formidable threat to The other majors for institutional and retail shareholders money that are looking for growth. They will also become competition for other other royalty deals...note FNV,RGLD and PSK have shrinking revenues. With the possibility of Eleonore becoming a mammoth mine and Goldcorp as the money behind it the majors will likely have to bid on Virginia as well...this will likely become an IRC royalty type bidding war with Altius and their largest shareholder Mason Hill partners controlling the fate of "any" deal because between Altius and Mason Hill partners they control 20% of Virginia Mines. So yes another $10m would be nice with higher bids....but the obvious move for the majors is to control the bidding process themselves. How? If you buy Altius you control Virginia mines...the difference from the IRC royalty bidding war Altius orchestrated in 2010 is that Altius royalty income and future royalty streams would be very valuable to "any of the majors"....remember they all trade at about 20 times revenues. We have repeatedly heard that the majors would have no interest in buying Altius because they are not a precious metal royalty company...well they are now the biggest precious metal strategic assets in one of the most promising gold royalties that has been up for bidding in a long time. In other words if they buy Altius they will control Virginia and that is where we wanted them to be sitting. The majors really could not go wrong buying Altius even at a nice premium...stay tuned. Dazel Link to comment Share on other sites More sharing options...
JAllen Posted November 17, 2014 Share Posted November 17, 2014 How does Altius control Virginia with an 8% stake? Link to comment Share on other sites More sharing options...
Guest Dazel Posted November 17, 2014 Share Posted November 17, 2014 They would control a bidding process as they did with IRC royalty.... if the majors were to buy Altius they would have to convince Mason Hill Partners....who also is the largest holder of Virginia Mines. In buying Altius they would certainly execute a lock up agreement on Mason hill's VGQ ownership along with their Altius block. When the majors established a 20% block of VGQ they would not control the process but it would be like trying to take a banana out of a Gorilla's hands they would win the bid..remember these are not big purchases for the majors... It is also possible that Osisko itself becomes in play....it is times like these that the giants flex their financial muscles. That is why there is an oligopoly of majors.... The majors have one more thing going for them...they are based in U . S currency their gains alone on the cdn dollar this year would purchase all of VGQ in rgld's case and all of VGQ and Altius in FNV's situation. Link to comment Share on other sites More sharing options...
Guest Dazel Posted November 17, 2014 Share Posted November 17, 2014 Some disclosures are appropriate. As mentioned before we have not owned or will we own any VGQ for obvious reasons so we did not or will we benefit from their stock price movement other than through our Altius ownership. We have been unable to buy Altius stock during this last fall as we felt it was not appropriate. While we pushed for this type of situation with VGQ we had no discussion on "any" negotiations or possible transactions. Altius is and have always been first class...and our discussions were just that. Brian Dalton and his team should once again be commended for their incredible work...whether or not this becomes the bidding war we expect remains to be seen and is "speculation" on our part. We trust Altius management completely and through our dealings with them it is obvious they will do the right thing to create value for shareholders. We are extremely pleased with the VGQ transaction and the position that it puts Altius in for the short term and the long term. However, if it did come down to bidding war and an Altius buy out was on the table we would certainly look at every option available to realizing our "own" value through our Altius ownership and that does include a sale. Dazel Link to comment Share on other sites More sharing options...
JAllen Posted November 17, 2014 Share Posted November 17, 2014 I guess it's hard to imagine a price that would be exciting, seeing as how the stock was just $14 a few months ago. Would the major's really offer more than a 55% premium? Hard to see that happening. It seems like they would want to buy cheaply, and for Altius, regardless of what you think the value is, more than $12 or so isn't very cheap when considering the recent price. Link to comment Share on other sites More sharing options...
ItsAValueTrap Posted November 18, 2014 Share Posted November 18, 2014 The Canadian Malartic mine was only slightly cash flow positive the last time I looked at it. I do not think that this is a great royalty because the mine life may not be that long. It feels like Osisko Gold Royalties is using very overpriced stock to buy Virginia. Viriginia might think that they're in trouble because the royalty rate is reduced if gold prices drop (and gold prices did drop). But Osisko is in much bigger trouble. Virginia Mines pays for stock promotion... like everybody else in their field. 2- I'm skeptical about Virginia because it's generally a bad idea to invest in companies that pay for stock promotion. But Altius invested in them so what do I know. However, I think that Altius will dump their shares once the lock-up expires. Link to comment Share on other sites More sharing options...
bizaro86 Posted November 18, 2014 Share Posted November 18, 2014 The Canadian Malartic mine was only slightly cash flow positive the last time I looked at it. I do not think that this is a great royalty because the mine life may not be that long. It feels like Osisko Gold Royalties is using very overpriced stock to buy Virginia. Viriginia might think that they're in trouble because the royalty rate is reduced if gold prices drop (and gold prices did drop). But Osisko is in much bigger trouble. Virginia Mines pays for stock promotion... like everybody else in their field. 2- I'm skeptical about Virginia because it's generally a bad idea to invest in companies that pay for stock promotion. But Altius invested in them so what do I know. However, I think that Altius will dump their shares once the lock-up expires. As an Altius shareholder, I certainly hope they sell the Osisko shares. I like the royalty business model, and looked into Osisko when it came out, but I couldn't get anywhere close to the price it was trading at. Link to comment Share on other sites More sharing options...
Williams406 Posted November 18, 2014 Share Posted November 18, 2014 With respect to Alderon, at least there's this to hang on to--2014 Developer of the Year Award: http://www.alderonironore.com/_resources/news/ADVNR20141118.pdf In taking a cursory glance at things yesterday, I thought the chain of events in 2014 leading to the creation of Osisko Gold Royalties was interesting. Very early in the year, Goldcorp makes a hostile offer for Osisko Mining. Yamana and Agnico-Eagle play white knights and spin out Osisko Gold Royalties middle of the year. Now we have Osisko Gold Royalties buying Virginia with it's Goldcorp-owned Eleonore mine royalty. Here you've got an example of an acquisition and quick, subsequent re-org. Keep the parts you want, sell the parts you don't. Your effective purchase price isn't the up-front headline price tag. I have no real sense for how interested any other parties might be in acquiring Altius, but if any sharks are circling, their framework would probably be slice and dice rather than swallowing it whole. Especially given Altius' lack of resource focus--which I happen to like. As an Altius shareholder, I like this deal. I'm not sure I'd say that as a Virginia shareholder if I expected this to be the final deal. Assuming no further bids and provided Osisko's stock holds up until the lock-up expiry, I like the baseline option of Altius selling the shares. If a bidding war erupts, there will be no complaints from me. Link to comment Share on other sites More sharing options...
naboo Posted November 18, 2014 Share Posted November 18, 2014 Why can't ALS sell Virginia Mines now. Between CAD$ 13.5 to 14 should be good enough. As today's volume, it will just take a couple of days. Link to comment Share on other sites More sharing options...
Williams406 Posted November 18, 2014 Share Posted November 18, 2014 Altius has agreed to support the Osisko-Virginia deal which includes a lock-up period: http://altiusminerals.com/press-releases/view/295 Link to comment Share on other sites More sharing options...
hohi Posted November 19, 2014 Share Posted November 19, 2014 What I would love to see is a spin-out of the Virginia Prospect Generator Business Unit. I never bought into VGQ because I thought the Eleonore royalty was a bit overpriced. But their prospect generation is the best in the world, a lot better than Altius'. I hope ALS will sell their equity as fast as possible as I too think that Osisko Royalties is overpriced. When I see what B2Gold got for their Brucejack Royalty ($40 or $50 M, I don't remember exactly), then the $450+M seems a bit high. But VGQ has a lot more to offer than the royalty. The Coulon property is amazing and they have lots and lots of other assets. So who knows, maybe OR will do a spin-out and let me buy VGQ for $50-$100M. I'd be a buyer! Link to comment Share on other sites More sharing options...
giofranchi Posted November 19, 2014 Share Posted November 19, 2014 So who knows, maybe OR will do a spin-out and let me buy VGQ for $50-$100M. I'd be a buyer! You mean the whole VGQ?!... You have $50-$100M at your disposal?? ;D Cheers, Gio Link to comment Share on other sites More sharing options...
hohi Posted November 19, 2014 Share Posted November 19, 2014 If I had that much money I'd buy all of ALS and take it private ;) * clarification for my previous post regarding Brucejack vs. Eleonore Royalty BTO sold the royalty for $45M (1,2% NSR) on ~ 400koz pa for ~ 20 years. VGQ has up to a 3,5% NSR on ~ 600koz pa for ~ 20 years. $45M * 3 (for 3,6%) * 1,5 (for 600koz) = 202,5M Sure, Brucejack will be producing in 2017, but it's at least as high a quality project as Eleonore. I think it's even better (AISC of under $500/oz) IMHO. Link to comment Share on other sites More sharing options...
Guest Dazel Posted November 19, 2014 Share Posted November 19, 2014 Potash prices are set to rise further as the worlds largest producer (russian) had to shut down one of their mines yesterday because of a sink hole. All of Altius partners stocks have spiked on the news and continue upward today. Altius will benefit from increased Potash royalties immediately but they also hold massive Potash reserves through their CDP purchase which include extensions to existing potash mines. Potash, Agrium and Mosaic are all Altius partners who have all recently increased production... Its a nice break for Altius... Link to comment Share on other sites More sharing options...
Guest Dazel Posted November 19, 2014 Share Posted November 19, 2014 http://mobile.bloomberg.com/news/2014-11-18/potash-producers-jump-after-uralkali-evacuates-mine.html Link to comment Share on other sites More sharing options...
TwoCitiesCapital Posted November 19, 2014 Share Posted November 19, 2014 http://mobile.bloomberg.com/news/2014-11-18/potash-producers-jump-after-uralkali-evacuates-mine.html TBH I'm kind of glad all of this negativity exists. It'd be nice for Altius to triple in 2 years time, but I'm content with letting them expand current royalties, benefit from positive developments and asset sales, pay off debt/repurchase shares, all in quiet for the next 5 years as I slowly accumulate. It'd be nice if the market didn't realize Altius' potential until their potential has been fully realized. That's how long term holders would maximize gains, just isn't as much fun as an overnight triple. It looks like Kami and Alderon are in for tough times near term though and that seems to be what the market is focused on. Link to comment Share on other sites More sharing options...
Williams406 Posted November 19, 2014 Share Posted November 19, 2014 http://mobile.bloomberg.com/news/2014-11-18/potash-producers-jump-after-uralkali-evacuates-mine.html TBH I'm kind of glad all of this negativity exists. It'd be nice for Altius to triple in 2 years time, but I'm content with letting them expand current royalties, benefit from positive developments and asset sales, pay off debt/repurchase shares, all in quiet for the next 5 years as I slowly accumulate. It'd be nice if the market didn't realize Altius' potential until their potential has been fully realized. That's how long term holders would maximize gains, just isn't as much fun as an overnight triple. It looks like Kami and Alderon are in for tough times near term though and that seems to be what the market is focused on. Zachmansell, no quarrel from me regarding that basic framework of obscured value while I accumulate shares. The other side of that, though, is missed opportunities due to limited resources. A higher stock price offers a currency option for buying assets that may be even more "obscured" than Altius' in the current environment or in the future. Give Altius a strong currency and it could make moves to become much more valuable in five years' time than without those moves. Of course it could overpay, too. I like to think I'm a patient, long term investor. But "overnight triple" has a nice ring to it! Link to comment Share on other sites More sharing options...
giofranchi Posted November 19, 2014 Share Posted November 19, 2014 Nothing new... Anyway, here is the link to the latest article on Seeking Alpha: http://seekingalpha.com/article/2691685-altius-minerals-recent-sell-off-provides-an-exceptional-opportunity?uprof=25 Gio Link to comment Share on other sites More sharing options...
tengen Posted November 19, 2014 Share Posted November 19, 2014 Gio is back, but I can't remember if that is a buy signal or a sell signal. :-) Link to comment Share on other sites More sharing options...
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