ALS.TO - Altius Minerals

[linealdin]

http://www.marketwired.com/press-release/champion-announces-entering-into-definitive-agreements-previously-announced-financing-asx-cia-2236750.htm

 

Champion signs definitive agreements for previously announced debt financings. As soon as everything closes in a week or two Champion will have the cash to pay Altius the C$10 million back immediately. But maybe Champion chooses to carry the debt through mine construction: a little extra cash in a sensitive period. Cost overruns happen all the time. Good to have leeway.

 

Altius would then collect a little more interest (8% a year = C$800K).

 

Looked back at Alderon's last feasibility study. They claim cash costs of $31 a tonne at Kami vs. Bloom Lake at $43 a tonne. That is very impressive on paper.

 

If Bloom Lake prospers as a restarted mine that HAS to impact how attractive Kami looks to financiers.

[linealdin]

CDP potash holdings are ignored. For example, if you like the industry leading low costs at Rocanville mine (I certainly do) then you should like that CDP owns the projected extensions of the mine surrounding Rocanville. Little chance of optioning that land out (too close to existing operations) but the likelyhood is the CDP deposits will feed into mine life extensions. Those deals will be made eventually.

[Liberty]

CDP potash holdings are ignored. For example, if you like the industry leading low costs at Rocanville mine (I certainly do) then you should like that CDP owns the projected extensions of the mine surrounding Rocanville. Little chance of optioning that land out (too close to existing operations) but the likelyhood is the CDP deposits will feed into mine life extensions. Those deals will be made eventually.

 

Are the potash holdings being ignored by the market, or are they being priced like other potash players right now? Potash Corp hasn't been doing so hot lately:

 

 

ALS closed CDP in april 2014. If you look at POT since then, it seems like ALS didn't exactly catch it at the bottom of the cycle for that commodity... You never know when it might turn again, but I'm not sure if saying that the market is ignoring it is entirely fair. I think the market is valuing it lower than you do. The market might be wrong, we'll see.

[linealdin]

Copper gathering steam at $3.06. Almost out of the recent dip.

 

Chapada in H1 produced only 55 million pounds of copper. They claim to be on target for annual production of 120 million pounds. So H2 will bring in 65 million pounds.

 

H1: 55 million pounds at an average realized price around $2.61.

 

H2: 65 million pounds at an average realized price of $3 plus.

 

Last 2 quarters Chapada brought in C$6.454 million in revenue.

 

The next two quarters may bring in C$10 million.

 

The seasonal effects are real.

 

 

 

[linealdin]

CDP potash holdings are ignored. For example, if you like the industry leading low costs at Rocanville mine (I certainly do) then you should like that CDP owns the projected extensions of the mine surrounding Rocanville. Little chance of optioning that land out (too close to existing operations) but the likelyhood is the CDP deposits will feed into mine life extensions. Those deals will be made eventually.

 

Are the potash holdings being ignored by the market, or are they being priced like other potash players right now? Potash Corp hasn't been doing so hot lately:

 

 

ALS closed CDP in april 2014. If you look at POT since then, it seems like ALS didn't exactly catch it at the bottom of the cycle for that commodity... You never know when it might turn again, but I'm not sure if saying that the market is ignoring it is entirely fair. I think the market is valuing it lower than you do. The market might be wrong, we'll see.

 

I'm not sure the stock price of a producer like POT relates very much to Altius's longterm potash royalty holdings (unless POT goes bankrupt). For Altius there is some hidden upside in that CDP portfolio. Rocanville is the lowest cost potash mine on the planet. It is going to be in production for a very, very long time. Altius owns the inferred resources surrounding the existing mine that will eventually be fed into the Rocanville complex.

 

And obviously it is all upside. Altius, unlike POT, won't spend a dollar to put the resources into production.

 

The market values CDP's 2 billion tonnes of potash, mostly extensions of existing low cost mines like Rocanville, at zero. It also values CDP's 12 billion tonnes of coal resources at zero.

 

Market is correct about coal, Altius has written down many of the coal assets over the last year to decrease holding costs. It is incorrect about the potash.

[linealdin]

Producer and royalty holder dichotomy is normal. I expect Altius to make a fortune from its Chapada stream, but I expect Yamana's stock price to go nowhere (too much debt like most gold producers).

[linealdin]

http://www.infomine.com/investment/metal-prices/potash/all/

 

If you look at the long term price chart for the potash price (which matters much more to a royalty holder than the producer's stock price) you will see that Altius closed the Prairie Royalties and CDP deals much closer to the bottom than the top ($275 per tonne in April 2014).

 

Potash traded at $875 per tonne in 2008. Will it ever reach those heights again? Who the hell knows.

 

 

[Liberty]

http://www.infomine.com/investment/metal-prices/potash/all/

 

If you look at the long term price chart for the potash price (which matters much more to a royalty holder than the producer's stock price) you will see that Altius closed the Prairie Royalties and CDP deals much closer to the bottom than the top.

 

Potash traded at $875 per tonne in 2008. Will it ever reach those heights again? Who the hell knows.

 

It doesn't mean they caught it at the bottom of the price of the asset, though. As the POT chart shows, it's only when the market realizes that prices are staying low for an extended period that the they're more willing to discount the future at lower commodity prices than the original models coming out of the much higher period.

 

The market values CDP's 2 billion tonnes of potash, mostly extensions of existing low cost mines like Rocanville, at zero.

 

How do you get that, though?

 

Altius exchanged a bunch of cash/equity in return for an asset that is generating certain cashflows. If you discount those back at a decent discount rate (10%? what's your hurdle? For a commodity small cap my personal hurdle would be closer to 15-20%, otherwise why not buy BRK?), I'm not sure if the market isn't giving them a value that isn't somewhere around what ALS paid for them, probably a bit lower. That might be a mistake, but that's not zero.

 

Granted, I'm just eyeballing it, but I'd certainly be curious to know how you're doing it.

[linealdin]

I think that you don't know what I am talking about. Not the Prairie royalties package. Not the CDP royalties that are paying out now. Within the CDP package there are 2 billion tonnes of 100% owned potash inferred resources, not royalties.

 

Those 2 billion tonnes of potash are extensions of existing low cost mines. Market gives them zero value as deep shelf inventory assets.

 

Potash sells for US$230 a tonne. Even if you assign a nominal value of 5 cents per tonne to those 2 billion tonnes that is still US$100 million in value.

 

I think those 100% owned potash assets will be monetized for significant cash, shares and royalties once the potash market turns.

[Liberty]

I think that you don't know what I am talking about. Not the Prairie royalties package. Not the CDP royalties that are paying out now. Within the CDP package there are 2 billion tonnes of 100% owned potash inferred resources, not royalties.

 

Those 2 billion tonnes of potash are extensions of existing low cost mines. Market gives them zero value as deep shelf inventory assets.

 

Potash sells for US$230 a tonne. Even if you assign a nominal value of 5 cents per tonne to those 2 billion tonnes that is still US$100 million in value.

 

I think those 100% owned potash assets will be monetized for significant cash, shares and royalties once the potash market turns.

 

What I'm saying is that the sellers of those assets didn't give them to ALS for free. They are baked into the price paid, heavily discounted because they are not producing yet, might not be for years, will require capex to get going (even if ALS isn't paying for it, they are dependent on someone doing it, with all the uncertainty that this brings) and who knows what the commodity prices will be for long periods of time. Maybe they sold them too cheap, maybe not, time will tell. But I'm pretty sure the sellers weren't completely incompetent and didn't give away the shop.

 

Something that's off in the future and uncertain deserves a high discount rate, so the NPV might not be as big one might expect from looking at the size of the resource on paper. It might pay off big in the coming years, or it might trickle out slowly over decades and be worth less than buying SPY, we'll see. But I suggest you do DCFs with various rates and see how little something far off in the future is worth at higher rates.

 

According to Morningstar, POT's 10-year total-return CAGR has been -1.23% and revenue is now lower than it was 10 years ago. Who knows what the next 10 years will bring for potash as a commodity? Seems like returns are never as certain as they might seem with any commodity -- I remember articles back in the day about POT being a takeover target and being one of the best performing stocks at the time and being a world champion for Canada and everything...

[linealdin]

The capex required to bring those tonnes of potash is minimized because the deposits are extensions of existing mines, like Rocanville. No need for new processing facilities. If the deposits were in Alaska, with no existing potash infrastructure, then of course the assets should be deeply discounted. Fortunately they are located in the best possible place. 5 cents a tonne seems like deep enough a discount.

 

Why do I keep mentioning Rocanville? Because they just expanded capacity from 2 MTA to 6.5 MTA. That is an enormous, multi-billion dollar expansion project. Once the potash market really gets going that capacity will be utilized. They are going to need plenty of ore, including the CDP extension deposits.

 

CDP has existing royalty revenue, a short term development project with Allegiance coal, and longer term development prospects with the 2 billion tonnes of potash. Altius certainly didn't pay premium for the longer term assets. CDP only cost C$42 million.

 

2 billion tonnes is a lot. Only about 60 million tonnes were produced last year worldwide.

 

Again, POT's equity performance is completely irrelevant.

 

[linealdin]

Liberty's basic argument: Maybe commodity markets aren't cyclical, maybe the current bear market for bulk commodities just goes on indefinitely.

 

My argument: Commodities are still cyclical like they have always been. Bear markets create the conditions for bull markets and vice versa.

 

I don't know a damn thing about POT but if I were buying it today I would be encouraged by the last 10 years of bad returns, and that people hate the stock. Probably a bottom. Cheap is good.

[Liberty]

The capex required to bring those tonnes of potash is minimized because the deposits are extensions of existing mines, like Rocanville. No need for new processing facilities. If the deposits were in Alaska, with no existing potash infrastructure, then of course the assets should be deeply discounted. Fortunately they are located in the best possible place. 5 cents a tonne seems like deep enough a discount.

 

Why do I keep mentioning Rocanville? Because they just expanded capacity from 2 MTA to 6.5 MTA. That is an enormous, multi-billion dollar expansion project. Once the potash market really gets going that capacity will be utilized. They are going to need plenty of ore, including the CDP extension deposits.

 

CDP has existing royalty revenue, a short term development project with Allegiance coal, and longer term development prospects with the 2 billion tonnes of potash. Altius certainly didn't pay premium for the longer term assets. CDP only cost C$42 million.

 

2 billion tonnes is a lot. Only about 60 million tonnes were produced last year worldwide.

 

Again, POT's equity performance is completely irrelevant.

 

You do realize that higher supply means lower prices, right? That's the thing with commodities. When prices rise, for a while everybody thinks they'll get rich, but then the high prices attract a bunch of marginal supply online, and prices go down again and everybody's stuck paying for capex they approved at much higher prices.

 

I don't think POT's performance is irrelevant, as a scaled pure-play potash company and proxy for the industry. But if you think so, that's fine.

 

I know people always have a hard time understanding nuanced arguments, so I'll spell it out again: I'm not saying they made a bad deal, I'm not saying performance going forward will be bad, I'm not saying commodities won't go back up (or down, or sideways). I'm just raising questions about past performance and the assumptions I'm seeing on the future.

 

Liberty's basic argument: Maybe commodity markets aren't cyclical, maybe the current bear market for bulk commodities just goes on indefinitely.

 

My argument: Commodities are still cyclical like they have always been. Bear markets create the conditions for bull markets and vice versa.

 

That's a misrepresentation. My argument is: You don't know, and when you don't know, you should have high hurdles and discount rates. And the current bear market might not be just a bear market if the previous level that people anchored on was a bubble and we're now back to a more normal plateau. For all we know, the next move could be down rather than up (that's the "we don't know" part -- back in 2011 everybody was so certain of the next move, any day now, and they're still waiting).

[linealdin]

Increased supply leads to lower prices. Agreed. That's why we are in a prolonged bear market for potash. Low prices lead to shutdowns (Potash Corp shut down its New Brunswick zinc operations in favor of the lower cost Rocanville operation). Lower prices also have nixed some recent potash projects, and BHP's Jansen is the next probable victim. That lack of capex spending creates the conditions for the next bull market.

 

We are in the bear market. I have no idea how long it is going to last. But bear markets aren't killers for royalty holders the way they are for producers like POT. Altius will continue to collect its $6 million per year in potash royalties while waiting for the market to rebalance.

 

If you don't think this is a bear market for potash then I'm not sure what evidence will convince you. The hallmarks of a bear market are obvious and glaring.

[linealdin]

http://www.midlandexploration.com/en/Communique.aspx?ResourceId=d97cb615-7a77-4561-8ed8-f32982bf853e

 

http://media3.marketwire.com/docs/Figures_Communique_BJ-Altius_Gold_Octobre2017.pdf

 

Some early exploration results for the Midland-Altius exploration alliance gold properties. Grab samples. The hunt for the next Eleonore mine continues.

 

Electromagnetic airborne survey coming for the Shire and Moria base metal projects. EM surveys are an expense most small juniors just can't afford. Altius since it became rich now runs EM surveys for most of its larger exploration projects. Competitive advantage when the projects are marketed to potential partners.

[linealdin]

Adventus trading at a ridiculous 92 cents. Altius owns 12,114,012 shares now worth C$11,114,499.

 

Investors just like single commodity vehicles during a bull market.

 

Probably makes sense for Adventus to issue some shares. 10 million shares at $1 a share (and warrants) should keep them cashed up for another year or two.

[linealdin]

Copper on a crazy run to $3.11. Zinc back above $1.50.

 

This is the bull market we've been waiting for. Q2 Altius revenue won't be a dollar under C$18 million.

 

C$20 million a possibility depending on exactly how many LIF shares they have accumulated since the end of July.

[Liberty]

If you don't think this is a bear market for potash then I'm not sure what evidence will convince you. The hallmarks of a bear market are obvious and glaring.

 

I said "not just a bear market".

 

When the dot-com bubble burst in 2000, was it just a bear market for the dot-com companies of the time? Did they bounce back up to previous levels or was the bubble the abnormal level and the crash brought things back to a more sustainable level (removing many companies that could only survive at bubble levels), from which there could then be more normal fluctuations both ways.

 

What I'm saying is that if the commodity "super-cycle" that everybody talked about a few years ago was actually a commodity bubble, we might not go back anywhere near these levels, at least not for a very long time in real terms. We're in a "bear market" compared to those years, but compared to the longer-term for those commodities, inflation-adjusted, we're not particularly low right now, and in real terms, commodities tend to be flat to down over time (with volatility), as mechanization and technology reduces costs.

 

 

For example, here's copper, inflation adjusted. Where we are now doesn't exactly feel like such a bear market when taken in context.

 

[linealdin]

All that is well and fine. Thank you for the charts, a lot to think over.

 

I make no claims that copper or zinc is in a bear market. The base metals are in fact in a roaring bull market. There is obviously more downside than upside at this point.

 

I still don't know why you are bringing up all these random equities, dot com flameout etc. Altius owns royalties on a Yamana mine, not Yamana equity. Altius owns a royalty on a Hudbay mine, not Hudbay equity.

 

I'm sure you are right that mining producers like Yamana and Hudbay will be flat or down as investments. SO WHAT? I only care that the 777 mine and Chapada pay out their royalties. That is happening, in spades.

 

 

[linealdin]

You seem to be saying that mining is a terrible industry. I agree with you. Brian Dalton agrees with you. Now what Dalton finds interesting is the difference in valuations between the bottom of a mining cycle and the top of one. I think he is going to make me a lot of money by exploiting that valuation swing.

 

You just want to be done with anything mining related. That is a credible position.

[Liberty]

I still don't know why you are bringing up all these random equities, dot com flameout etc. Altius owns royalties on a Yamana mine, not Yamana equity. Altius owns a royalty on a Hudbay mine, not Hudbay equity.

 

I think they're relevant to help think about the situation.

 

I'm sure you are right that mining producers like Yamana and Hudbay will be flat or down as investments. SO WHAT? I only care that the 777 mine and Chapada pay out their royalties. That is happening, in spades.

 

Royalties are typically based on percentages of revenues/production, right? Then if revenues/production are affected, that'll affect royalties, no? If there are royalties with upside if mines expand or new mines are built up, whether the underlying companies can do these things will affect the royalties, right?

 

If your goal is just to have any royalties paid, then that's fine, I'm pretty sure there's always going to be some money coming in. But if your goal is to get really good rates of returns that compound over a long period, then it gets a lot more uncertain, because you're still riding on top of these mining companies that are operating the mines and these volatile commodity prices, and there's a lot of uncertainty in the reinvestment opportunities. That's why I'd need a really high hurdle with this kind of setup, and I can't really get there with ALS (and the past 10 years haven't sufficiently reassured me).

[linealdin]

No, the mining equities are just distracting you from reality. Yamana in May 2016 when the Chapada transaction was closed was trading at $4.70. Today the stock is at $2.64. Horrific for Yamana investors  and also completely irrelevant to Altius.

 

Luckily Altius isn't "riding" Yamana. It is collecting royalties on a side product from just one of its mines.

 

Today the Chapada stream is worth way more than they purchased it for. Copper price has gone up significantly from $2.20 to $3.10. Revenue has boomed, just watch what Chapada does in Altius Q2. C$5 million a very real possibility.

 

Exploration results at near-mine deposits have been excellent since the purchase closed, leading to expansion possibilities and mine life extensions.

 

None of this has to do with Yamana's stock price.

[Liberty]

You seem to be saying that mining is a terrible industry. I agree with you. Brian Dalton agrees with you. Now what Dalton finds interesting is the difference in valuations between the bottom of a mining cycle and the top of one. I think he is going to make me a lot of money by exploiting that valuation swing.

 

You just want to be done with anything mining related. That is a credible position.

 

I get the attraction of the merchant bank model, I'm a former shareholder, so it's very attractive on paper. And I get the attraction of the volatility. "Hey, let's be value investors, buy low and sell high, or buy low and hold forever."

 

But the problem, and probably the reason why you don't see many big value investors in the commodity space, is that you can't really pin down an intrinsic value on most things, so it's very easy to make mistakes. And the industry is truly terrible, it eats up capital like nothing else, so time is usually not on your side.

 

When you're looking at a bank or an aerospace company, you can look a the value of the financial assets and the cashflows and look at ROIC and ROE and FCF margins and estimate what you think the business is worth.

 

With companies in the commodities space, there's always a "it's worth X at Y commodity price" and you have no control over commodity prices and not much practical ability to predict them. If you're a buyer, you always think commodity prices should be lower, and if you're a seller, you always think they should be higher, but in practice, you don't really have control and are speculating on a roll of the dice.

 

 

[Liberty]

No, the mining equities are just distracting you from reality. Yamana in May 2016 when the Chapada transaction was closed was trading at $4.70. Today the stock is at $2.64. Horrific for Yamana investors  and also completely irrelevant to Altius.

 

Luckily Altius isn't "riding" Yamana. It is collecting royalties on a side product from just one of its mines.

 

I mean you're riding the operational businesses underlying the royalties, not the stocks. Someone has to mine the ore for you to get that royalty, no?

 

Today the Chapada stream is worth way more than they purchased it for. Copper price has gone up significantly from $2.20 to $3.10. Revenue has boomed, just watch what Chapada does in Altius Q2. C$5 million a very real possibility.

 

Exploration results at near-mine deposits have been excellent since the purchase closed, leading to expansion possibilities and mine life extensions.

 

None of this has to do with Yamana's stock price.

 

Exactly my point. This one went the right way, so now it's worth more. The coal and iron stuff went the other way, so now they're worth less. And maybe next year, or the one after that, copper will go the other way. You're not that isolated from the underlying commodity market and companies even if your downside is capped by the royalty model. Capping the downside is great, but you also have to compound value over time at high rates to be an attractive investment.

 

You can always say that everything's an option that might pay off later, but at some point, there's the value of time to take into account. A big payoff after 10-15 years might give you a pretty sad CAGR even if at that moment it seems like a big move.

 

Drill holes and promising exploration results are lifeblood of this very promotional industry, there's a steady stream of those to keep people hooked and dreaming about future riches, but until the money's in the bank, I wouldn't hold my breath.

[linealdin]

Chapada is going to be a 50 year mine. Those new deposit discoveries are at similar size/grade as the original Chapada deposit discoveries.

 

In that 50 years I expect many boom and bust cycles for copper. So what? It will all be gravy. The original purchase price will be paid back a lot sooner than you think, probably before this bull cycle is over. C$5 million a quarter adds up quickly. Do the math!