ALS.TO - Altius Minerals

[tripleoptician]

Not sure I understand the math here. The rate changes from 3.7% to 1.5% after 75M pounds. I think that for long term we better use 1.5% for production because it's going to take them around 12 months to reach that trigger.

 

75M x 2.20$/pound = 165M$ x 0.037= 6.1M

 

If they say EBITDA will be around CAD 8-9M$ that really means 6M$ USD.

 

Does it mean that year 2 will produce only 2.4M USD of EBITDA?

On a USD 45M$ acquisition, that's about 5% current return... probably does not pay for the interests.

Of course there is the optionality of copper price, but I would have expected better terms.

 

BeerBaron

 

I read it differently.

2016 total copper production expected to be 122-125 million pounds.

Also has 3.7% of total production or 4.51 - 4.625 million pounds/year x current spot $2.2 USD/pd =

$9.92-10.175 USD / year gross

But it looks like Altius pays 30% spot price as well - $.66/pd

So net is $2.2-.66 =$1.54/pd for a net range of ~$7 million USD/ year or ~$9 million CAD at current spot price/exchange rate

 

So $60 million USD($78 million CAD) purchase plus 400,000 warrant dilution for $9 million EBITDA/year with upside to increase in copper prices and increased yearly production or mine expansion, but possible downside to exchange rates at current levels.

So 9-10x Ebitda and hopefully our shrewd asset allocators are correct in their upside analysis.

 

Yamana website says 3 billion pounds proven copper reserve, so we have 24 years mine life on current production. Altius won't hit reduced royalty percentage until year 15-20 based on current production profile.

 

This is after a first read, so it may be an incorrect interpretation. Haven't been able to review what the debt profile will look like yet - I'm a little weary of the increased debt since their strong balance sheet has historically allowed them to chase better deals in the down cycle....

 

 

 

 

 

[wachtwoord]

I'm not sure about the calculation above but this is what I get:

 

131M annual production according to http://www.yamana.com/portfolio/producing-mines/chapada/default.aspx

 

So year 1: 76M x 2.2 x 0.035 + (131-76) x 2.2 x0.015 = 5.852 + 1.815 = 7.667 USD ==> 9.98 CAD

2 and beyond: 131 x 2.2 x 0.015 = 4.323 USD => 5.63 USD

 

The warrants are worth $3.78 CAD (if they expire in 10 years) according to my quick tango with http://www.fintools.com/resources/online-calculators/options-calcs/options-calculator/ . So roughly 1.5M for 400k, leading to a total purchase price of 61.5M CAD. So that's a discounted return of 7.5% (with no growth and constant copper prices).

 

Edit:

 

I realized I left out the 30% spot price cost to Altius. This will bring the proceeds of the first year down to $6.99 CAD and after that $3.94 and the discounted return to 3%. Am I missing something here? 7.5% is fine, but 3 is a bit low right?

[tripleoptician]

New presentation

 

http://altiusminerals.com/uploads/2016-march31-Chapada.pdf

[tripleoptician]

I'm not sure about the calculation above but this is what I get:

 

131M annual production according to http://www.yamana.com/portfolio/producing-mines/chapada/default.aspx

 

So year 1: 76M x 2.2 x 0.035 + (131-76) x 2.2 x0.015 = 5.852 + 1.815 = 7.667 USD ==> 9.98 CAD

2 and beyond: 131 x 2.2 x 0.015 = 4.323 USD => 5.63 USD

 

The warrants are worth $3.78 CAD (if they expire in 10 years) according to my quick tango with http://www.fintools.com/resources/online-calculators/options-calcs/options-calculator/ . So roughly 1.5M for 400k, leading to a total purchase price of 61.5M CAD. So that's a discounted return of 7.5% (with no growth and constant copper prices).

 

Edit:

 

I realized I left out the 30% spot price cost to Altius. This will bring the proceeds of the first year down to $6.99 CAD and after that $3.94 and the discounted return to 3%. Am I missing something here? 7.5% is fine, but 3 is a bit low right?

 

I'm not sure why you both are interpreting the reduction in base royalty rate in year 2. That would be a very odd way for Altius to structure the deal.

I think it means once 75 million lbs has been delivered to Altius, then there is the reduction.

The first year share is 3.7% of yearly copper production, so even at 131 million lbs (higher than Altius quote), Altius has a share of 4.85 million lbs in the first year.

[TwoCitiesCapital]

I'm not sure about the calculation above but this is what I get:

 

131M annual production according to http://www.yamana.com/portfolio/producing-mines/chapada/default.aspx

 

So year 1: 76M x 2.2 x 0.035 + (131-76) x 2.2 x0.015 = 5.852 + 1.815 = 7.667 USD ==> 9.98 CAD

2 and beyond: 131 x 2.2 x 0.015 = 4.323 USD => 5.63 USD

 

The warrants are worth $3.78 CAD (if they expire in 10 years) according to my quick tango with http://www.fintools.com/resources/online-calculators/options-calcs/options-calculator/ . So roughly 1.5M for 400k, leading to a total purchase price of 61.5M CAD. So that's a discounted return of 7.5% (with no growth and constant copper prices).

 

Edit:

 

I realized I left out the 30% spot price cost to Altius. This will bring the proceeds of the first year down to $6.99 CAD and after that $3.94 and the discounted return to 3%. Am I missing something here? 7.5% is fine, but 3 is a bit low right?

 

I'm not sure why you both are interpreting the reduction in base royalty rate in year 2. That would be a very odd way for Altius to structure the deal.

I think it means once 75 million lbs has been delivered to Altius, then there is the reduction.

The first year share is 3.7% of yearly copper production, so even at 131 million lbs (higher than Altius quote), Altius has a share of 4.85 million lbs in the first year.

 

I agree it would be odd to structure it as 75M as a one time cap instead of a cap for every year; however, the wording is very confusing because they append the "for remaining life of mine after" at the end instead of "for remainder of the year."

 

The second bullet points goes on to confuse me even more as it suggests the opposite - why even append a note about reducing the royalty rate to 2.65% if the 3.7% was only good for the first 75M in production in the first year?

 

• Base Rate: 3.7% referenced to copper production from the Chapada mine reducing to 1.5% for remaining life of mine after

75 million pounds delivered 

• Expansion Incentive Rate: Rate decreases to 2.65% in the event of a Chapada mine expansion

 

My guess is that the 75M cap is renewed every year until an expansion is made in which it drops to 2.65%, but they could have worded that more clearly in the announcement.

 

I've reached out to shareholder info to clarify.

[wachtwoord]

My guess is that the 75M cap is renewed every year until an expansion is made in which it drops to 2.65%, but they could have worded that more clearly in the announcement.

 

I've reached out to shareholder info to clarify.

 

I may very well be wrong but always try to read ambiguous statements conservatively. Please let us know what investor relations answers.

[hohi]

Fantastic transaction, almost the same deal as Sandstorm Gold did with Yamana, just slightly better for ALS imho.

http://www.sandstormgold.com/news/2015/index.php?&content_id=468

 

The juice lies within the optionality here. 700 square km of highly prospective mineral real estate. There will be other deposits found on this land within the 30 years of resource life of Chapada. Who knows if theres another Chapada-sized deposit on there, but Cu-Au will be found. They paid a fair price for the current EBITDA at current Cu prices. These prices are not sustainable over the long run. So in 5-10 years when Cu is back at $4/lbs this one will be a huge winner for ALS.

 

Be right and sit tight my friends.

[hohi]

Sorry, forgot to mention - as many here seem to have misunderstood the deal - of course ALS will receive 75 Mlbs before the percentage drops. So at least 10+ years of solid cash flow.

[wachtwoord]

Sorry, forgot to mention - as many here seem to have misunderstood the deal - of course ALS will receive 75 Mlbs before the percentage drops. So at least 10+ years of solid cash flow.

 

If this is indeed the interpretation then the high royalty applies for the first 2027 Mlbs of the mine. That would be an awesome deal!

[sys]

yamana's announcement is more clearly worded.  if we use their figure of ca. 3 million lbs/year, then 3.7/2.65% would apply for ca. 25 years.

 

 

https://ceo.ca/@marketwired/yamana-announces-copper-purchase-agreement-in-relation-to-funding-its-riacho-dos-machados-acquisition

[TwoCitiesCapital]

yamana's announcement is more clearly worded.  if we use their figure of ca. 3 million lbs/year, then 3.7/2.65% would apply for ca. 25 years.

 

 

https://ceo.ca/@marketwired/yamana-announces-copper-purchase-agreement-in-relation-to-funding-its-riacho-dos-machados-acquisition

 

Much more clear. Good stuff!

[wachtwoord]

yamana's announcement is more clearly worded.  if we use their figure of ca. 3 million lbs/year, then 3.7/2.65% would apply for ca. 25 years.

 

 

https://ceo.ca/@marketwired/yamana-announces-copper-purchase-agreement-in-relation-to-funding-its-riacho-dos-machados-acquisition

 

Much more clear. Good stuff!

 

Seems like an awesome deal. Why does Altius expect this to be accreditive to EBITA only by 8-9M C$ annually? Per year this should yield between 122*0.7*2.2*0.037 = 6.95M USD (9.05M C$) and 125*0.7*2.2*0.037 = 7.12M USD (9.27MC$). What are the cost which bring the EBITA down from 9.05-9.27M C$ to 8-9M C$ ?

[Williams406]

I'll be interested to see what the final terms on the debt look like. Price to cash flow seem good as is, with exploration upside possible down the road as Hohi notes.  Building the land bank is good--Franco did the same thing from '90-'00 with...pretty good results--but this deal brings in cash flow now along with a lot of property Yamana has an incentive to explore on their dime to Altius' possible benefit.  This deal also marks a couple of firsts for Altius, I believe--it's a stream rather than a royalty and the mine/property is not in Canada. 

 

Build up a sizable, diversified stream of cash flow requiring no additional overhead and Altius should always have a way to finance any attractive deal that comes along. I hope they can follow this playbook a couple more times in the near future. It's a good time to be active as long as you can remain disciplined on price.

 

 

[wachtwoord]

3.6 M shares at 11.25 CAD per share. Over 10% dilution  :-\ :'(

 

http://www.juniorminingnetwork.com/junior-miner-news/press-releases/768-tsx/als/18526-altius-tsx-als-announces-c-35-million-bought-deal-financing.html

[Liberty]

3.6 M shares at 11.25 CAD per share. Over 10% dilution  :-\ :'(

 

http://www.juniorminingnetwork.com/junior-miner-news/press-releases/768-tsx/als/18526-altius-tsx-als-announces-c-35-million-bought-deal-financing.html

 

So the general theory on ALS seems to be that that Dalton is very shrewd and that ALS is very undervalued at the current price.

 

So why is Dalton doing a bought deal at 11.25 CAD? Could argue that he needs the money to buy something even more undervalued, but couldn't he have given up less value by raising debt?

[wachtwoord]

3.6 M shares at 11.25 CAD per share. Over 10% dilution  :-\ :'(

 

http://www.juniorminingnetwork.com/junior-miner-news/press-releases/768-tsx/als/18526-altius-tsx-als-announces-c-35-million-bought-deal-financing.html

 

So the general theory on ALS seems to be that that Dalton is very shrewd and that ALS is very undervalued at the current price.

 

So why is Dalton doing a bought deal at 11.25 CAD? Could argue that he needs the money to buy something even more undervalued, but couldn't he have given up less value by raising debt?

 

Yes I would have preferred debt.

[netnet]

3.6 M shares at 11.25 CAD per share. Over 10% dilution  :-\ :'(

 

http://www.juniorminingnetwork.com/junior-miner-news/press-releases/768-tsx/als/18526-altius-tsx-als-announces-c-35-million-bought-deal-financing.html

 

So the general theory on ALS seems to be that that Dalton is very shrewd and that ALS is very undervalued at the current price.

 

So why is Dalton doing a bought deal at 11.25 CAD? Could argue that he needs the money to buy something even more undervalued, but couldn't he have given up less value by raising debt?

 

Although in these times you want to maintain financial flexibility and low debt, it still is really annoying and somewhat perplexing.

[nsa122]

I also find the recent dilution disturbing and am beginning to wonder if I made a (large) mistake here.  I sent an email to IR and asked them the following...will let you know if I get any substantial answer.

 

1)  In May 2014, Altius issues $65M of shares at $14.

2)  In May 2015, in the Callinan deal, you issue nearly $100M of stock at $12.72

3)  During the course of the year, the stock price goes as low as $8 and only a minute fraction of the shares outstanding are repurchased.

4)  Now you issue 3M more shares at $11.25.

 

How can this be explained other than that value has been lost or destroyed?  If the Sherritt acquisition is as great as it was billed to be, why wouldn't you be repurchasing shares hand over fist as the share price dropped from C$14 to C$8?

 

I am really not trying to be antagonistic, as I mentioned before I would love to be a long-term holder of Altius and ride it for decades, but I cannot understand this, and it's very frustrating when every press release seems positive, and yet the share price is down AND we are further diluted, at much lower prices than I paid.  Maybe I am completely missing the boat; I'd appreciate a call to explain things if I am thinking about things wrong.

[nsa122]

And in reviewing the performance of the PMRL royalties, things don't appear as rosy as they were initially billed.  Last 4 quarters' revenue appears to amount to $21M CAD, vs. original estimate of $26M, which when combined with CAD vs. USD for US investors, looks  kind of like a bust at the present time, but maybe I'm being too superficial. 

[wachtwoord]

Nsa I would be very interested in hearing how they reply to your questions.

[Williams406]

This equity raise is an unwelcome surprise to me. From the Chapada press release, it sounded like Scotiabank and ING Capital had committed $100m to two different credit facilities for $70m and $80m with a third lender in negotiations. If they couldn't line up that last $50m, use $100m committed, get Chapada done and pay off some of the current term loan or borrow $60m and just get Chapada done. But don't give up a chunk of the company with ongoing dividend commitment on those new shares. 

 

The company hasn't said they have scrapped the credit facilities. Perhaps they still plan to set those up and use some of the capital for another purpose? I hope we hear more in the near future to clarify things.

 

NSA122, do you really need to ask questions of management? We all know you have their full communication systems tapped.

[Sunrider]

If memory serves, they did a raise two years ago at similarly shit valuations to buy royalties that were mostly coal in a world that is moving rapidly away from finding CO2 belching plants acceptable Guess what, new government comes in and is in the process of shutting down coal power stations in Alberta. Not sure how valuable that royalty stream is now?

 

This equity raise is an unwelcome surprise to me. From the Chapada press release, it sounded like Scotiabank and ING Capital had committed $100m to two different credit facilities for $70m and $80m with a third lender in negotiations. If they couldn't line up that last $50m, use $100m committed, get Chapada done and pay off some of the current term loan or borrow $60m and just get Chapada done. But don't give up a chunk of the company with ongoing dividend commitment on those new shares. 

 

The company hasn't said they have scrapped the credit facilities. Perhaps they still plan to set those up and use some of the capital for another purpose? I hope we hear more in the near future to clarify things.

 

NSA122, do you really need to ask questions of management? We all know you have their full communication systems tapped.

[Williams406]

Sunrider,

 

They raised $65m @ $14/share to partially fund PMRL in May 2014.

 

http://altiusminerals.com/press-releases/view/287

 

I suspect their coal exposure is causing problems. No one is sure what happens after PPA expiration in 2020 since we've not been here before. Throw in the dispute at Voiseys Bay, and a decent chunk of Altius revenue is at some risk. If you are an institutional investor, lender, friendly takeover target, or would-be suitor, determining your price/terms is tough right now.

 

In the Chapada presentation, Altius noted that with this transaction base metals are now the largest contributor to revenue, which I read as the company saying "NOT COAL." 

 

I look at the access to capital Franco and Osisko have and wonder when Altius gets to that point.

 

[mikek]

Full Disclosure- Altius is by far my largest position and have owned the company for the last 7 years.

 

This was the first time that I have been disappointed with a decision by management.  Altius tends to be very conservative and they tend to hate debt.  I typically agree with that line of thought but in this case I truly believe they didn’t need to raise equity at this time.  They would have had 131 million in Canadian debt at around 5-6% interest rate considering they are paying 6.5% and said the interest would be lower with the new debt facilities.  Obviously, I don’t know the exact rate but I figure it would at least be around that figure considering they said it would be lower than 6.5%.  They have about 28-30 million in available for sale securities (24 million valuation from last report).  I’m calculating the 28-30 million as current value today estimate since the resource stocks they likely own have went up from the 24 million figure.  I figure they paid about 20 million for Labrador Iron Ore Royalty shares and probably about 6 million for Anglo Pacific Group.  They haven’t publicly released what their holdings are but if I had to make an educated guess that would be what I would place my bets on.  I also figure they have about 10 million dollars in cash.

 

So if you back out those you have about 90 million in debt.  I would have much preferred them to sell those positions compared to issuing equity at this price.  I figure you have anywhere from 40 to 45 million revenue on a going forward basis with the new deal.  I would be perfectly comfortable with that debt figure with our ongoing royalties.  I hope they are looking at a new royalty deal and that was why they made the deal but I would not bet on that.  It seems that Brian Dalton is a bit overly cautious at times and this was one situation where I question managements thought process but I’m also not in the room to see what the company is looking at.

 

As for prior deals that they have made in the last couple of years, I still feel the Prairie Royalty deal will turn out okay. The potash royalties are expanding and we will be getting a larger share of volume on those.  The Rocanville royalty is ramping up later this year and that is one of the lowest cost potash mines in the world.  Potash prices have continued to be weak but the royalties are on the Saskatchewan properties and Altius will be getting larger volumes since these are the lower cost mines.  The coal part of the deal still looks okay to me.  If you listen to the conference calls of Capital Power and TransAlta it doesn’t seem that companies are rushing into Alberta to build new wind, solar, or natural gas plants.  To give you the type of ideas that they are looking to do to replace the coal sector they are talking about buying Hydro power from British Columbia.  This type of thing wouldn’t even be finished by at earliest 2024 and would cost quite a bit to build the power lines from BC to Alberta.

 

The NDP government seems to have caused a lot of uncertainty and capital doesn’t seem to be too excited to come into the area at this time.  A decent amount of coal plants that we don’t have royalties on are set to close in 2019.  You do have the risk of the government buying the Power Purchase Agreements out but I think that is unlikely due to the economic situation and coal seems to still supply 40%+ of the power in the area.  You don’t replace a power supply grid overnight.  It takes five years to get a natural gas plant built.  TransAlta commented that they couldn’t even raise $11 in this environment to get a natural gas plant built right now.  I’m not sure if that was 11 Canadian dollars or U.S. dollars but it didn’t sound very probable that natural gas plants were going to be built very soon =).  They said you would need $80-90 dollar power prices to break even and Alberta is currently at $20.  The only way to replace coal in that area is to build natural gas plants because you still need the base load and no one is building nuclear plants in Alberta.  You also have possible new government (NDP in Alberta aren’t very popular right now) it’s not completely their fault but they have also not helped business confidence in Alberta right now.  You also have possible technological advances possibilities with the coal plants.  I look at this deal as we are likely to recoup our initial investment in 10 to 12 years with potash royalties for the rest of our lifetimes.  If coal were to shut down completely today you would have received cash flows of 23.7 million in 2015 and about 21 million in 2016 for Altius 12 month calendar year.  You would receive 6-8 million annually even at today’s potash prices for an original 242 million dollar purchase.

 

The Callinan 777 royalty package seems to be a so so deal at best.  I think they thought they had a decent probability of that resource expanding with the 777 north royalty but that doesn’t seem to be happening.  They received about 40 million in cash during close on a 113 million purchase price.  They also got a 1% royalty on the Gunnison Copper royalty with options to increase.  I think they looked at this purchase as a decent probability to get cash back from the 777 deal in current resource life with possible expansion possibilities.  It looks like the Gunnison Copper royalty has a decent chance of getting built and I think we have the option to increase the royalty to 2.5%.  Monday morning quarterbacking would say it was a bad deal but I see the logic that was applied for the deal.

 

The CDP deal looks to be paying about 2 million a year on a 42 million purchase price and a large land package.  Nothing special, but not a complete disaster.

 

The Yamana deal looks pretty reasonable to me.  It’s in a more risky jurisdiction compared to usual so that is kind of concerning but the numbers look pretty good to me.  I don’t have any special technical knowledge about the project but we have to go with the decision making of management.

 

I think the next royalty purchase will likely be a Zinc play; it seems Brian Dalton would like to get some more exposure to that.  I think over the next couple of years Altius is possibly looking at a merger with Labrador Iron Ore Royalty (complete speculation here).  Reasons being – Brain Dalton being friends with Osiko’s CEO- they own 10% of Labrador Iron Ore Royalty, Altius owns some shares now in my opinion, recent stepping down of long time CEO of Labrador Iron Ore Royalty and last year the vote was pretty close to allowing Labrador Iron Ore Royalty to purchase different royalties.  Brian Dalton would hopefully run the joint company and you would have the Franco Nevada of the base metals royalty sector.

 

I remember watching a Rick Rule interview and he said that he will own Altius for the rest of his life and he hopes his kids are smart enough to do the same. This comment was extremely unusual for Rick Rule because I would say he considers himself more of a 3-5 year holding period type of investor and he basically put it out there that Altius is a true compounder.  The good news is that Brian Dalton still has the majority of his net worth tied up in the company and over time he seems to have been fair with salary, incentives and general attitude to minority shareholders.

 

Nonetheless, I completely agree with recent posts that this equity raise at this price was a bit unnecessary and disappointing.  I can care less about the stock reaction but I hate giving up equity at prices that I don’t feel represent a good value for the company.  NSA122, I would also appreciate if you post the responses of the company.  It does question their capital allocation abilities in my opinion but like I said earlier I’m not in the room with them and maybe I am missing something.

 

At the end of the day I still hope to hold this company for the next couple of decades because I feel management has been good and I love the business model.  This is the epitome of an asset lite company that doesn’t take much to run and can have out sized ROIC on the prospect generation front.  I look at the company as a two part business- a royalty company and the prospect generation side that doesn’t need much capital.  You have inherent upside on possible land package partnerships with possible equity/royalty deals when capital comes back to the natural resource sector.  My guess is that Brian Dalton wants to survive at all costs and they tend to lean on the conservative side.  I guess it could always be worse and you could have a CEO that was overly aggressive with debt.

 

“Williams 406- I suspect their coal exposure is causing problems. No one is sure what happens after PPA expiration in 2020 since we've not been here before.”

 

According to Capital Power’s last conference call, they plan to run the Genesee plants no matter what to 2030.  They feel they will make up most of the PPA loss due to higher power prices in the market as the 2019 coal plants shutdown and the end of the 2020 PPA contracts. I agree that there is a little more uncertainty on the Sheerness plant since they put the PPA back to the government but I do feel that the 2019 coal plant closures should rebalance the power market a bit more.  I am glad that we have royalties on the coal plants that will be the last ones to shut down in the area.

 

[ItsAValueTrap]

Guys... commodity prices have fallen, hence Altius is not worth as much.