ALS.TO - Altius Minerals

[reader]

Altius Subsidiary Adia Resources Reports Drill Program Results for Lynx Diamonds Project

 

TEST Business Wire Releases•November 26, 2019

 

 

https://www.businesswire.com/news/home/20191126005296/en/

 

 

The drilling results real meaning are above my cursory reading grade

but this PG prospect passes De Beers threshold for phase 2 drill campaign so it's at least a mild positive in my book.

 

"This was the first drilling program on the project. It consisted of three drill holes completed during the winter of 2019 at the Eastern Bay zone. The analysis of drill core samples was carried out by De Beers Group ("De Beers") under the terms of the equity support and participation agreement between Adia and De Beers.

While the abundance and distribution of microdiamonds throughout the thick and extensive ultramafic units is encouraging at this early stage of work, future exploration will focus on zones within the ultramafic package that host coarser diamonds with the potential for commercial value.

The company is fully permitted for a planned Phase 2 drill campaign for winter 2020 to test for further extensions of the unit and to better define the internal stratigraphy and diamond distribution of the Eastern Bay zone. The program will also include the first drill holes to test the diamondiferous Western Bay zone."

 

[Spekulatius]

The we study billionaires podcast had a nice episode on Altius:

https://podcasts.apple.com/us/podcast/we-study-billionaires-the-investors-podcast-network/id928933489?i=1000458309550

[Liberty]

New renewable energy royalty:

 

http://altiusminerals.com/uploads/2019-12-17-Altius-Tri-Global-Energy-Announcement-FINAL.pdf

 

I kind of skimmed the release, but seems to me like there's not much detail on the economics of the deal. There's not a single dollar-amount in the whole thing.

[bizaro86]

New renewable energy royalty:

 

http://altiusminerals.com/uploads/2019-12-17-Altius-Tri-Global-Energy-Announcement-FINAL.pdf

 

I kind of skimmed the release, but seems to me like there's not much detail on the economics of the deal. There's not a single dollar-amount in the whole thing.

 

This is part of their original tri-global deal I think. Basically, they estimated they would get ~10-13% cash on cash. Irr will be lower, because the cash flow doesn't start for a few years after they make the investment (project startup) and while the project lives are long they aren't perpetuities. There was some limited disclosure here: https://www.triglobalenergy.com/news/altius-announces-first-renewable-energy-royalty-transaction

 

Basically, I think this is a low risk way to earn mid to high single digits irr. I'm not too excited about that, I think the biggest potential upside would be building a full portfolio and selling it to a low cost of capital investor (pension/sovereign wealth) based on a low single digits IRR.

[Liberty]

New renewable energy royalty:

 

http://altiusminerals.com/uploads/2019-12-17-Altius-Tri-Global-Energy-Announcement-FINAL.pdf

 

I kind of skimmed the release, but seems to me like there's not much detail on the economics of the deal. There's not a single dollar-amount in the whole thing.

 

This is part of their original tri-global deal I think. Basically, they estimated they would get ~10-13% cash on cash. Irr will be lower, because the cash flow doesn't start for a few years after they make the investment (project startup) and while the project lives are long they aren't perpetuities. There was some limited disclosure here: https://www.triglobalenergy.com/news/altius-announces-first-renewable-energy-royalty-transaction

 

Basically, I think this is a low risk way to earn mid to high single digits irr. I'm not too excited about that, I think the biggest potential upside would be building a full portfolio and selling it to a low cost of capital investor (pension/sovereign wealth) based on a low single digits IRR.

 

Who goes to Altius for mid-single digits IRRs? I don't understand why they're doing this... seems like they have few good opportunities and have to go into these mediocre deals just to redeploy capital and avoid it doing nothing on the balance sheet. You'd think that they'd be able to find better things in their sector, since commodities have been so beaten down for so long.

[bizaro86]

New renewable energy royalty:

 

http://altiusminerals.com/uploads/2019-12-17-Altius-Tri-Global-Energy-Announcement-FINAL.pdf

 

I kind of skimmed the release, but seems to me like there's not much detail on the economics of the deal. There's not a single dollar-amount in the whole thing.

 

This is part of their original tri-global deal I think. Basically, they estimated they would get ~10-13% cash on cash. Irr will be lower, because the cash flow doesn't start for a few years after they make the investment (project startup) and while the project lives are long they aren't perpetuities. There was some limited disclosure here: https://www.triglobalenergy.com/news/altius-announces-first-renewable-energy-royalty-transaction

 

Basically, I think this is a low risk way to earn mid to high single digits irr. I'm not too excited about that, I think the biggest potential upside would be building a full portfolio and selling it to a low cost of capital investor (pension/sovereign wealth) based on a low single digits IRR.

 

Who goes to Altius for mid-single digits IRRs? I don't understand why they're doing this... seems like they have few good opportunities and have to go into these mediocre deals just to redeploy capital and avoid it doing nothing on the balance sheet. You'd think that they'd be able to find better things in their sector, since commodities have been so beaten down for so long.

 

Presumably nobody, although the royalty business has the potential to be a low cost of capital type enterprise I think.

 

I wouldn't do those deals if I was ALS, way prefer for them to keep the money in mining. If they are opportunity short there I'd have preferred oil and gas royalties, as that sector is capital starved in Canada right now.

 

I think in many ways it's probably greenwashing. Their last credit facility had a "no spending this money on coal" clause, and I bet they were worried about losing access to capital if they were viewed as a "carbon bad actor." So some wind farms at decent but not spectacular returns is probably at least partially a risk mitigation strategy.

 

[TwoCitiesCapital]

New renewable energy royalty:

 

http://altiusminerals.com/uploads/2019-12-17-Altius-Tri-Global-Energy-Announcement-FINAL.pdf

 

I kind of skimmed the release, but seems to me like there's not much detail on the economics of the deal. There's not a single dollar-amount in the whole thing.

 

This is part of their original tri-global deal I think. Basically, they estimated they would get ~10-13% cash on cash. Irr will be lower, because the cash flow doesn't start for a few years after they make the investment (project startup) and while the project lives are long they aren't perpetuities. There was some limited disclosure here: https://www.triglobalenergy.com/news/altius-announces-first-renewable-energy-royalty-transaction

 

Basically, I think this is a low risk way to earn mid to high single digits irr. I'm not too excited about that, I think the biggest potential upside would be building a full portfolio and selling it to a low cost of capital investor (pension/sovereign wealth) based on a low single digits IRR.

 

Who goes to Altius for mid-single digits IRRs? I don't understand why they're doing this... seems like they have few good opportunities and have to go into these mediocre deals just to redeploy capital and avoid it doing nothing on the balance sheet. You'd think that they'd be able to find better things in their sector, since commodities have been so beaten down for so long.

 

Presumably nobody, although the royalty business has the potential to be a low cost of capital type enterprise I think.

 

I wouldn't do those deals if I was ALS, way prefer for them to keep the money in mining. If they are opportunity short there I'd have preferred oil and gas royalties, as that sector is capital starved in Canada right now.

 

I think in many ways it's probably greenwashing. Their last credit facility had a "no spending this money on coal" clause, and I bet they were worried about losing access to capital if they were viewed as a "carbon bad actor." So some wind farms at decent but not spectacular returns is probably at least partially a risk mitigation strategy.

 

My thoughts. I don't think these deals were done so much for the economics. There's something to be said for long-lived assets that produce even in a down turn, but I think this is the bigger motivation.

 

Especially since their coal assets have been prematurely impacted by govt and they're suing - seems like having some green deals behind them and a commitment to no more coal could have them seen more favorably than coal barons demanding blood.

[Thrifty3000]

On their last conference call they said something along the lines of:

 

- the market for renewable royalties is likely much larger than originally expected

- they will invest around $100 million in renewables to replace the coal royalties that are running off over the next few years

- they expect to earn about $12 million annually on the $100 million invested

- if the renewables royalty market does prove to be much bigger than $100 million - which they think it will - they are considering spinning the renewables business off as its own public company (to realize higher valuation)

 

The CEO also said he wouldn’t be surprised if a decade from now the potash royalties alone are worth more than the company’s current market cap. He’s also suggested the potash royalties may prove to be the most valuable royalty asset on the planet.

[Spekulatius]

On their last conference call they said something along the lines of:

 

- the market for renewable royalties is likely much larger than originally expected

- they will invest around $100 million in renewables to replace the coal royalties that are running off over the next few years

- they expect to earn about $12 million annually on the $100 million invested

- if the renewables royalty market does prove to be much bigger than $100 million - which they think it will - they are considering spinning the renewables business off as its own public company (to realize higher valuation)

 

The CEO also said he wouldn’t be surprised if a decade from now the potash royalties alone are worth more than the company’s current market cap. He’s also suggested the potash royalties may prove to be the most valuable royalty asset on the planet.

 

They don’t have any edge so serving renewable, in fact I would say they are at a disadvantage, because their cost of capital is going to be higher than for an investment grade company like ENB for example.

[Thrifty3000]

Except they claim to be the first in the renewable royalty space. So maybe a slight prime mover advantage, whatever that’s worth.

[bizaro86]

Except they claim to be the first in the renewable royalty space. So maybe a slight prime mover advantage, whatever that’s worth.

 

It seems from their limited disclosures that they should get high single digit IRRs on their investments in the space. Once they are operating and proven I would expect they could be sold or spun out at a lower discount rate (higher multiple). I would also expect them to get squeezed out of the market (by Enbridge as mentioned above, or more likely a BAM company...) as their cost of capital is unlikely to be competitive. Still, if they make a nice capital gain and improve their own cost of capital in the process it will probably be worth having done these deals.

[Liberty]

If this is greenwashing, isn't this as big a red flag as if it's just a mediocre investment? Do you want management to use a big chunk of shareholder capital to do things for these reasons? Doesn't it show lack of better opportunities even if it's greenwashing?

 

I tend to think that they really like the space, but I also tend to think that they probably won't get great returns there because of the dynamics of that industry (wind farms and electricity are fairly commoditized, and the things to be known about the "wind resource" at a specific location are probably known equally to all players).

 

Agreed they probably don't have an edge in this. This isn't exploration requiring very niche geological expertise or whatever, this is big capital intensive projects that can be financed by many other people, which is probably why the IRRs are that low.

[TwoCitiesCapital]

If this is greenwashing, isn't this as big a red flag as if it's just a mediocre investment? Do you want management to use a big chunk of shareholder capital to do things for these reasons? Doesn't it show lack of better opportunities even if it's greenwashing?

 

I tend to think that they really like the space, but I also tend to think that they probably won't get great returns there because of the dynamics of that industry (wind farms and electricity are fairly commoditized, and the things to be known about the "wind resource" at a specific location are probably known equally to all players).

 

Agreed they probably don't have an edge in this. This isn't exploration requiring very niche geological expertise or whatever, this is big capital intensive projects that can be financed by many other people, which is probably why the IRRs are that low.

 

I dunno. I tend to think that all companies have to do "green washing" to some extent.

 

I mean look at Berkshire - they got rid of Sokol to avoid any hint of impropriety despite the fact he was likely the successor of Buffett and probably one of the best executives in the world. Do you want to invest in a company that's willing to throw away an asset that valuable over something that small? 

 

Not a 1 for 1 comparison, but ALL companies are going to be involved in some form of supbar asset allocation and decision making to make themselves look better to regulators/customers/investors/etc because bottom line ISN'T the only thing that matters. It's the cost of doing business as a public company.

 

Overtime it will become more clear if this is a standing portfolio addition, in which case I agree with you. But if this is an investment to repent of their dirty coal ways in the eyes of regulators and investors, to be spun-off later, then I'm not hugely concerned.

[Liberty]

Sokol committed a pretty severe ethical breach, front running a M&A transaction for personal gain with his insider (and advisory on the deal) knowledge. He had to go, however good he was. I don't think it's a good parallel.

[bizaro86]

Sokol committed a pretty severe ethical breach, front running a M&A transaction for personal gain with his insider (and advisory on the deal) knowledge. He had to go, however good he was. I don't think it's a good parallel.

 

I totally agree Sokol had to go. However, I think ALS thought they might not be able to renew their credit facility again if they were viewed as a coal company. The increase to their cost of capital from that would be a serious if not existential risk for what is at least partially a spread finance business. I think the greenwashing takes that risk off the table.

 

 

[Liberty]

Sokol committed a pretty severe ethical breach, front running a M&A transaction for personal gain with his insider (and advisory on the deal) knowledge. He had to go, however good he was. I don't think it's a good parallel.

 

I totally agree Sokol had to go. However, I think ALS thought they might not be able to renew their credit facility again if they were viewed as a coal company. The increase to their cost of capital from that would be a serious if not existential risk for what is at least partially a spread finance business. I think the greenwashing takes that risk off the table.

 

Maybe that's what it is, I just don't think it's comparable with Sokol situation.

 

And if that's what it is, it shows how precarious their credit situation is, no? If they have to dilute themselves in mediocre deals just to avoid being cut off..?

[Haasje]

I think they are trying to create some scale. Then spin it out, sell it or put it in its dedicated corp structure. Then lever it up once away from the rest of Altius. That should turn a cash IRR like this into something stunning.

[TwoCitiesCapital]

Sokol committed a pretty severe ethical breach, front running a M&A transaction for personal gain with his insider (and advisory on the deal) knowledge. He had to go, however good he was. I don't think it's a good parallel.

 

So severe the SEC never pressed charges or pursued investigation after a cursory look?

 

I agree that Sokol's actions probably aren't the model for an executive of a company. Nor do I necessarily say it's right, or wrong, that Berkshire sacked him or that I wouldn't have done the same. It is what it is.

 

Berkshire lost one of the best managers in the world over a $3 million gain that was achieved shadily - but not illegally. Buffett determined that loss was worthwhile to stay above reproach. Maybe it was worthwhile. Maybe it wasn't. But I view at a form of greenwashing and marketing - maintaining teh public view of the company, the culture of the company, etc. all come with a cost that is not captured in IRR.

[Liberty]

Sokol committed a pretty severe ethical breach, front running a M&A transaction for personal gain with his insider (and advisory on the deal) knowledge. He had to go, however good he was. I don't think it's a good parallel.

 

So severe the SEC never pressed charges or pursued investigation after a cursory look?

 

I agree that Sokol's actions probably aren't the model for an executive of a company. Nor do I necessarily say it's right, or wrong, that Berkshire sacked him or that I wouldn't have done the same. It is what it is.

 

Berkshire lost one of the best managers in the world over a $3 million gain that was achieved shadily - but not illegally. Buffett determined that loss was worthwhile to stay above reproach. Maybe it was worthwhile. Maybe it wasn't. But I view at a form of greenwashing and marketing - maintaining teh public view of the company, the culture of the company, etc. all come with a cost that is not captured in IRR.

 

When you don't trust someone anymore, what does anything else matter? At that level of the company, either you trust someone, or you don't, and they're out. Especially important in a decentralized company that runs on trust, where people don't have a ton of process and people looking over their shoulders.

[Liberty]

I think they are trying to create some scale. Then spin it out, sell it or put it in its dedicated corp structure. Then lever it up once away from the rest of Altius. That should turn a cash IRR like this into something stunning.

 

Their cost of capital is way higher than the players that have a real advantage doing this kind of thing. ALS isn't BAM..

[Spekulatius]

 

When you don't trust someone anymore, what does anything else matter? At that level of the company, either you trust someone, or you don't, and they're out. Especially important in a decentralized company that runs on trust, where people don't have a ton of process and people looking over their shoulders.

 

+1. I agree that Sokol was a great manager, but I think that WEB way was the right decision. Berkshire runs on personal trust, not internal controls. This will become an issue when Buffett is not going to be around any more. Then Berkshire will have to be run with a much larger headquarter staff, more internal controls etc. Some of the guys currently in charge of the operating business may not like this and retire or quit. At least that is a pot. bear case scenario.

[Williams406]

Sprott has extended the Alderon loan facility term from Dec. 2019 to Feb. 2020. Excelsior has received EPA approval to begin mine operations...finally. First copper cathode sales expected 1Q 2020. I think Altius holds a small # of Excelsior shares (correct me if I'm wrong) as well as a 1.6% royalty, so Excelsior isn't a massive project for Altius.

[Liberty]

He's probably just on vacation.

 

Or maybe he sold the stock... ¯\_(ツ)_/¯

[bizaro86]

He's probably just on vacation.

 

Or maybe he sold the stock... ¯\_(ツ)_/¯

 

Personally, I hope that's what it is and that nothing has happened to him...

[Liberty]

He's probably just on vacation.

 

Or maybe he sold the stock... ¯\_(ツ)_/¯

 

Personally, I hope that's what it is and that nothing has happened to him...

 

His account shows he's been logging into the site, last time on Dec 26, so I'd guess he's ok.