ALS.TO - Altius Minerals

[linealdin]

Genesee contracted physical natural gas capacity

During the second quarter, Capital Power secured additional physical natural gas delivery capacity for the Genesee site. This capacity is expected to enable increased natural gas co-firing as early as 2020 and allows for full conversion to natural gas as early as 2020.

 

Wow.

 

From Altius' site:

 

"The units were originally expected to be decommissioned in 2039, 2044 and 2055 respectively, but the government decision to shut down coal-fired electricity generation by 2030 impacted our Genesee royalty most. In 2016, an impairment charge of $72 million was recognized, as the expected cash flows from 2030 onward were no longer to be realized."

 

So from 2039-2055 to 2030 to maybe 2020 or in high likelihood within a few years of that.

 

There's more uncertainty in these royalty than might appear at first, that's for sure.  Looks like those who sold the coal royalty to Altius might have gotten the better end of the bargain.

 

Fact is, coal is going away because it's not competitive with other cleaner fuels. It's simply too dirty to keep around, voters don't want to burn coal, so politicians will always be a risk to coal and the pressure will go up year by year. Utilities have to make plans for decades down the road, and when they look forward, they don't see having coal assets as being a good idea.

 

It's 2018, buddy. Electrical coal's not really that important a part of Altius's royalty portfolio anymore. In 2014 when you owned Altius it was the whole game. Last quarter electrical coal was 16% of total royalty revenue. That percentage will continue to diminish as new royalties (Gunnison, Telkwa, IOC, Rocanville Unit 2 etc) come online or expand.

 

That said, Altius has collected a ton of electrical coal revenue and will continue to for a good many years under most analyst projections.

 

Many people like to pretend coal power's already been eliminated in Alberta. The fact remains no Alberta or Canadian coal plants have been converted. We might see the first CTG conversion in 2021, if Transalta's construction plans proceed on schedule.

 

In the meantime the coal cash flows.

[linealdin]

Two of Altius's coal royalty plants are not part of any CTG conversation.

 

Transalta, which has been most aggressive in their CTG plans, has specifically exempted Keephills 3, a supercritical technology coal plant.

 

The same applies to Genesee 3, which is also supercritical technology.

 

The economics of CTG just don't work for those plants. So Altius will be receiving some electrical coal revenue through the end of 2029.

 

Details matter.

[linealdin]

https://www.prnewswire.com/news-releases/cru-the-high-grade-iron-ore-premium-has-peaked-300742477.html

 

CRU Group predicts IOC will be one of the high-grade iron ore players to expand production in the coming years:

 

"In addition, key high-grade suppliers such as Vale, CITIC Pacific, IOC and Minas Rio are expected to ramp up production and put an additional 50 Mt/y of high-grade supply onto the seaborne market in the coming years."

 

An additional 5 MTA to 10 MTA from IOC would be welcome.

[linealdin]

Interesting that Triple Flag is becoming a competitor to Altius in base metals. Triple Flag's copper streaming deal with Excelsior has similarities to Altius's copper streaming deal with Yamana Gold.

 

Triple Flag basically paid US$65 million for a 16.5% stream (paying 25% of market copper price) on 25 million pounds of annual production at Gunnison. That nets them 3.09 million pounds of copper annually.

 

Altius basically paid US$60 million for a 3.7% stream (paying 30% of market copper price) on 125 million pounds of annual production at Chapada. That nets Altius 3.23 million pounds of copper annually.

 

The mine life is what separates these two deals. Gunnison is pretty much stuck at 22 years, there's no more copper to be drilled (though in-situ recoveries could certainly be higher or lower than expected). Altius has enjoyed 2.5 years of Chapada mine life, and there's 37 years of reserves and measured/indicated resources remaining. Yamana is dedicating 30K to 40K meters of drilling each year at Chapada to keep delineating ore bodies and extending mine life.

 

That's the juice.

[linealdin]

Would Altius have done the Triple Flag deal, if offered to them? Altius has the cash and credit but they just don't seem to like how unproven in-situ recovery for this type of deposit. I think there's a concern the recoveries might not be high enough for an economic mining project.

 

My understanding is that in-situ is low initial capex but high sustaining capex. You just have to keep continually adding wellfields, which is expensive.

[Liberty]

It's 2018, buddy. Electrical coal's not really that important a part of Altius's royalty portfolio anymore. In 2014 when you owned Altius it was the whole game. Last quarter electrical coal was 16% of total royalty revenue. That percentage will continue to diminish as new royalties (Gunnison, Telkwa, IOC, Rocanville Unit 2 etc) come online or expand.

 

That said, Altius has collected a ton of electrical coal revenue and will continue to for a good many years under most analyst projections.

 

Many people like to pretend coal power's already been eliminated in Alberta. The fact remains no Alberta or Canadian coal plants have been converted. We might see the first CTG conversion in 2021, if Transalta's construction plans proceed on schedule.

 

In the meantime the coal cash flows.

 

I'm not your buddy. And I wasn't talking about Altius as a whole, but about one specific investment of Altius, which originally was supposed to be one thing, but over time is turning out to be quite something else.

[linealdin]

It's 2018, buddy. Electrical coal's not really that important a part of Altius's royalty portfolio anymore. In 2014 when you owned Altius it was the whole game. Last quarter electrical coal was 16% of total royalty revenue. That percentage will continue to diminish as new royalties (Gunnison, Telkwa, IOC, Rocanville Unit 2 etc) come online or expand.

 

That said, Altius has collected a ton of electrical coal revenue and will continue to for a good many years under most analyst projections.

 

Many people like to pretend coal power's already been eliminated in Alberta. The fact remains no Alberta or Canadian coal plants have been converted. We might see the first CTG conversion in 2021, if Transalta's construction plans proceed on schedule.

 

In the meantime the coal cash flows.

 

I'm not your buddy. And I wasn't talking about Altius as a whole, but about one specific investment of Altius, which originally was supposed to be one thing, but over time is turning out to be quite something else.

 

The same exact statement applies to the potash portion of the Prairie Royalties. "It was supposed to be one thing, but it is turning out to be quite something else." Altius will likely collect C$20 million in potash revenue in 2019, and at incentive prices in the potash price cycle should hit C$50 million in annual potash revenue. Monstrous.

 

Your agenda, of course, is to emphasize the negative and completely ignore the positives. That's transparent.

 

 

[Liberty]

The same exact statement applies to the potash portion of the Prairie Royalties. "It was supposed to be one thing, but it is turning out to be quite something else." Altius will likely collect C$20 million in potash revenue in 2019, and at incentive prices in the potash price cycle should hit C$50 million in annual potash revenue. Monstrous.

 

Your agenda, of course, is to emphasize the negative and completely ignore the positives. That's transparent.

 

Because you don't have an agenda, here? You can't stay on topic if that topic is negative, and with investing, it's very important to find the negative things because that's what can hurt you. I'm under no obligation to discuss the positives here, you're doing that quite well on your own.

 

It's always been clear that the upside on royalties can be high when things go the right way, and some have done quite well (as you'll point out all day, posting more news about this one small cap than people post about Berkshire Hathaway). But from the start, the story has been that the downside has been low, that long-term cashflows were predictable, and they were the smartest guys in the room making the smartest deals. I think that if a royalty gets cut by decades, that's something worth discussing, which is what I was doing before you got defensive and started talking about other things.

[linealdin]

The fear-mongering, out-of-touch statement: Genesee could be going away in 2020.

 

The reality: Capital Power has already stated that it won't decide a conversion schedule until 2020. They have already stated they are considering a staggered approach. And Genesee 3 economically is not a good candidate for early CTG conversion.

 

What this adds up to? Zero possibility of the fear-mongering statement being correct. If you want to convert in 2020 then you have to have environmental impact statements filed today (what Transalta is doing to make the 2021 conversions reality). Most likely scenario:

 

Genesee 1 converts in 2024.

 

Genesee 2 converts in 2026.

 

Genesee 3 converts in 2029.

 

In the meantime, with none of their royalty coal plants converted, Altius enjoys C$40.5K a day in electrical coal revenue.

[linealdin]

The same exact statement applies to the potash portion of the Prairie Royalties. "It was supposed to be one thing, but it is turning out to be quite something else." Altius will likely collect C$20 million in potash revenue in 2019, and at incentive prices in the potash price cycle should hit C$50 million in annual potash revenue. Monstrous.

 

Your agenda, of course, is to emphasize the negative and completely ignore the positives. That's transparent.

 

Because you don't have an agenda, here? You can't stay on topic if that topic is negative, and with investing, it's very important to find the negative things because that's what can hurt you. I'm under no obligation to discuss the positives here, you're doing that quite well on your own.

 

It's always been clear that the upside on royalties can be high when things go the right way, and some have done quite well (as you'll point out all day, posting more news about this one small cap than people post about Berkshire Hathaway). But from the start, the story has been that the downside has been low, that long-term cashflows were predictable, and they were the smartest guys in the room making the smartest deals. I think that if a royalty gets cut by decades, that's something worth discussing, which is what I was doing before you got defensive and started talking about other things.

 

The coal and potash were purchased in the same C$240.9 million package. That's why I brought the potash up. Potash has done better than expected, coal has been hit by politics. But the idea that the sellers got the better end of the deal? NONSENSE.

 

Add up how much Altius has received in coal and potash revenues related to the original purchase. It's a large amount of money! They've only had the royalty package for 4.5 years. There's literally hundreds more years of revenue to come.

 

I think it will go down as one of the greatest royalty deals ever made. That sounds like an audacious statement but once potash hits mid-cycle prices in a few years many will agree with me.

[Liberty]

The fear-mongering, out-of-touch statement: Genesee could be going away in 2020.

 

The reality: Capital Power has already stated that it won't decide a conversion schedule until 2020. They have already stated they are considering a staggered approach. And Genesee 3 economically is not a good candidate for early CTG conversion.

 

What this adds up to? Zero possibility of the fear-mongering statement being correct. If you want to convert in 2020 then you have to have environmental impact statements filed today (what Transalta is doing to make the 2021 conversions reality). Most likely scenario:

 

Genesee 1 converts in 2024.

 

Genesee 2 converts in 2026.

 

Genesee 3 converts in 2029.

 

In the meantime, with none of their royalty coal plants converted, Altius enjoys C$40.5K a day in electrical coal revenue.

 

More defensiveness. I just pointed out the capital one report and the original royalty deal which expected 2055 phase-out. If you feel so threatened by that info that you have to go into full-defensive mode, maybe you should stop to think about whether maybe you got too emotionally attached to your investment.

 

If they're lining up nat gas supply for a full conversion in 2020, I kind of doubt they'll wait 9 more years to do it. If they feel like they could make more money by converting, they'll do it. If politicians feel pressure on coal, they'll expedite the process. And deciding that it takes X years to do an environmental impact study with a sample size of N=1 is risky; nothing says that Transalta's conversion date is held back by the time it takes to do the study and that it couldn't be done faster, especially a second time around.

 

But what I really want to know is, am I your buddy or a fear-monger? You're giving me whiplash here...

[Liberty]

The coal and potash were purchased in the same C$240.9 million package. That's why I brought the potash up. Potash has done better than expected, coal has been hit by politics. But the idea that the sellers got the better end of the deal? NONSENSE.

 

Add up how much Altius has received in coal and potash revenues related to the original purchase. It's a large amount of money! They've only had the royalty package for 4.5 years. There's literally hundreds more years of revenue to come.

 

I think it will go down as one of the greatest royalty deals ever made. That sounds like an audacious statement but once potash hits mid-cycle prices in a few years many will agree with me.

 

I see you're getting into your manic phase again. I won't get into ROIC and IRRs again, that's been done...

 

btw, the potash royalty was purchased in two phases, not all in that original royalty, and I said that the seller had the better end of the bargain on coal, I said nothing about potash--see how you're changing the subject?

[petec]

You both remind me of this:

 

http://www.m.trolino.com/someone-is-wrong-on-the-internet-104222

 

Keep the personal stuff out of it. You’ve both got informative stuff to say.

[linealdin]

I’ve noted every failed drill hole in Altius’s PG portfolio and every bad development to the producing and development royalty portfolio. I discussed the negative Genesee pipeline news, and put it in context, way before Liberty brought it up. I am even-handed and focused on the facts. He’s mostly uninformed and late to the conversation.

 

Liberty has a problem with my posting style: too frequent and focused on Altius. He’s brought that up repeatedly. He thinks that eventually the market is going to teach me some kind of lesson, that I’ll get my comeuppance for being too invested in the stock. It’s amusing how much he wants that to happen.

 

 

[linealdin]

To support the contention that the coal portion of the deal was bad you have to establish:

 

1) A purchase price. Some portion of the C$240.9 million total package price. Perhaps 50%.

 

2) Total royalty revenue received so far.

 

3) And much royalty revenue is expected in the future based on announced and probable conversion schedules (not fearmongering).

 

4) Don’t forget the met coal! Teck will be extending Cheviot for a good long time.

 

5) Then discount away.

[Liberty]

I’ve noted every failed drill hole in Altius’s PG portfolio and every bad development to the producing and development royalty portfolio. I discussed the negative Genesee pipeline news, and put it in context, way before Liberty brought it up. I am even-handed and focused on the facts. He’s mostly uninformed and late to the conversation.

 

Liberty has a problem with my posting style: too frequent and focused on Altius. He’s brought that up repeatedly. He thinks that eventually the market is going to teach me some kind of lesson, that I’ll get my comeuppance for being too invested in the stock. It’s amusing how much he wants that to happen.

 

Strawmen and putting words in my mouth.

 

I really don't care, I'm not invested either way. In fact, that's not true, I wish you all the best. But I point things out as I notice them, and I've noticed some things in this thread. If you decide to not listen or get defensive, that's your choice. In the past you've touted some "amazing" deals that when we did the math amounted to single digit returns and such...

[Liberty]

To support the contention that the coal portion of the deal was bad you have to establish:

 

1) A purchase price. Some portion of the C$240.9 million total package price. Perhaps 50%.

 

2) Total royalty revenue received so far.

 

3) And much royalty revenue is expected in the future based on announced and probable conversion schedules (not fearmongering).

 

4) Don’t forget the met coal! Teck will be extending Cheviot for a good long time.

 

5) Then discount away.

 

I only have to look at the fact that they originally estimated it to last until 2055 and already took down a $70m write-off on it for a previous change to 2030 to know that they aren't getting what they thought they were getting. The original price was negotiated with one thing in mind, but they're getting something quite different.

 

You always tout how much cumulative revenue they made from a royalty, or how much they're supposed to make in the future, but I rarely see you do much math to see how good a return that is. If you're investing $240m in something (more than that actually because of the subsequent $65m investment in potash this year) and your hurdle rate is decently high (15-20%), then it's normal to want to see $35-50m of FCF out of it (not revenue) per year, especially if it's a depreciating asset that is subject to commodity price fluctuations and political changes and such. You can't just slap a multiple on those streams since they are depleting (even if slowly). If you look at 240+65m, at 15-20% you'd expect to see around 45-$60m/year just to meet that hurdle, but even with that you wouldn't actually have 15-20% in your pocket since you have to put some aside to eventually replace the depreciating asset.

 

Since 2013, the SP500 in CAD is up 138% and ALS is up 7.6% (though it's been basically flat around $10-13 for 10+ years). The stock could double and it still wouldn't have caught up to a simple index fund. So I'm certainly hoping that they're creating value underneath the surface, because it's selling at 1.62x book and 20.5x P/E, 20x 2018 EBIT and book value per share has been almost flat for 5+ years (actually, at 8.66 it was higher in 2014 than today at 7.70). I know management is smart and they have a good model - that's why I looked at the company in the first place and owned it for a while - but sometimes that's not enough to have market beating returns over the long-term...

[linealdin]

I thought you weren’t getting into IRR’s again? Couldn’t resist the call of the 20% discount rate? No royalty deal in history has survived that hurdle. It’s a real steamroller argument.

 

$1 growing at 20% a year is what ungodly number in 100 years?

[linealdin]

What ATCO means by partial conversion: a project enabling the co-firing of natural gas for 50% of Battle River 4’s 150 MW generating capacity. This partial conversion has been completed. Yet no substantial amount of gas is being burned at Battle River 4 currently.

 

What ATCO means by full conversion: a project enabling the co-firing of of natural gas for 100% of Battle River 5’s 385 MW generating capacity. This project is due to be completed in late 2019. When that project is complete we shall see how much co-firing ATCO actually does.

 

The hold-up, as always, is pipelines. They are expensive, and must be secure. Transalta’s studies indicate that ideally two different pipelines should be built to the same generating complex. If one pipleline is damaged the other one can be relied upon. This is necessary to maintain base load power.

 

To avoid the cost of so many redundant pipelines ATCO has decided to go with co-firing. Capital Power is indicating that co-firing with either gas or biomass is the most flexible solution for the Genesee complex through 2030. They plan to take a staggered approach to these conversions.

[John Hjorth]

... $1 growing at 20% a year is what ungodly number in 100 years?

 

$82,817,975.

 

[i'm so bored waiting for BRK 2018Q3!]

[linealdin]

Dalton’s explanation is that the Prairie Royalty package was purchased to gain control of the multi-century potash royalties. Potash was the prize. Taking on the coal royalties was basically a necessary evil.

 

It was understood at the time of purchase that there were political risks for coal.

 

Altius has collected C$73.4 million from the coal royalties in 4.5 years. If you assign 50% of the Prairie purchase price to coal: C$120.45 million.

 

If the co-firing thesis plays out I expect Altius will collect around C$220 million in coal royalties by the hard coal end date of December 31st, 2029. (And Cheviot has significant inferred resources that may be mined by Teck beyond 2029.)

 

Nothing to cry over. Especially if taking on the coal was indeed the cost of gaining control of the Rocanville and Esterhazy royalties.

[Liberty]

I thought you weren’t getting into IRR’s again? Couldn’t resist the call of the 20% discount rate? No royalty deal in history has survived that hurdle. It’s a real steamroller argument.

 

$1 growing at 20% a year is what ungodly number in 100 years?

 

Strawman again.

 

Who's saying it has to grow at 20% for 100 years?

 

But if a half-a-billion market cap company isn't aiming for returns on its invested capital of at least 15-20%, why not just buy an index fund? Of course the returns are never smooth and can be back-loaded, etc, but I think Altius has been around long enough for us to get an idea of the full-cycle returns on some of their deals. They've had some really good ones, and some not so good ones, and combine all those together and you can't say that the actual returns have been too terrific so far.

[Liberty]

Dalton’s explanation is that the Prairie Royalty package was purchased to gain control of the multi-century potash royalties. Potash was the prize. Taking on the coal royalties was basically a necessary evil.

 

It was understood at the time of purchase that there were political risks for coal.

 

Altius has collected C$73.4 million from the coal royalties in 4.5 years. If you assign 50% of the Prairie purchase price to coal: C$120.45 million.

 

If the co-firing thesis plays out I expect Altius will collect around C$220 million in coal royalties by the hard coal end date of December 31st, 2029. (And Cheviot has significant inferred resources that may be mined by Teck beyond 2029.)

 

Nothing to cry over. Especially if taking on the coal was indeed the cost of gaining control of the Rocanville and Esterhazy royalties.

 

What were they saying about the coal stuff at the time? I seem to remember them praising it as a safe thing that wasn't impacted by the coal commodity price and that was long-lived and safe and such. Seems revisionist after you take a $70m write-down to say "oh well, we didn't care that much about it and only did it to get something else".

 

"If the co-firing thesis plays out I expect"

 

Yeah, but you also expected it to last for decades originally, so that shows how hard the future is to predict.

[linealdin]

“Altius has been around long enough for us to get an idea of the full-cycle returns on some of their deals. They've had some really good ones, and some not so good ones, and combine all those together and you can't say that the actual returns have been too terrific so far.”

 

Nonsense. We haven’t seen a full cycle for most of their royalties. Altius bought all if its royalties (aside from Voisey’s Bay) close to the recent commodity bottom around 2016. Around $2.15 copper, $215 potash, $40 iron ore. (They caught Voisey near the previous cycle bottom in 2003.)

 

We’re off the 2016 bottom, but I don’t think we’re at mid-cycle prices yet.

 

At the top of the cycle we will see $5 copper, $800 potash, $2 zinc, etc. Altius is going to be making unbelievable amounts of money. Idiots will be mortgaging their homes to buy commodity stocks.

 

[linealdin]

“What were they saying about the coal stuff at the time? I seem to remember them praising it as a safe thing that wasn't impacted by the coal commodity price and that was long-lived and safe and such.”

 

Do you really expect a public company to buy an asset and then tell you how awful it is? Of course Altius was promoting both the coal and potash in the media. That’s just what you do.

 

Anti-coal politics were active well before 2014. It was part of the landscape.

 

From the C$240.9 million + C$65 million combined purchase I expect Altius to receive about C$2.5 billion in this century. And more in the next.

 

You can apply whatever discount rate you want to those cash flows. How about 25%? 50%? I understand the tactic. If you apply a high enough rate the cash flows become worthless. Play that game all you like. No one cares.