ALS.TO - Altius Minerals

[ItsAValueTrap]

To add on...

 

4- I am just extremely cynical about juniors.  And to a lesser degree, I don't like mining stocks.  If I was forced to index, I would never want to index these stocks.  These stocks are screwed up because:

a- Even Goldcorp (a large cap) pays for people to shill for them.  Goldcorp sponsors theaureport.com

b- Gold miners should have made more money in a bull market.

c- As far as juniors go, their lack of capitalization means that they constantly have to spend money to raise money.  For some juniors, not that much money is spent on actual exploration (sometimes less than 50%).

d- Sometimes juniors will extend warrants (this is sort of like giving away free money) because it's a cheap way of raising money.  Because the alternatives have paperwork costs and you may need to pay brokers several percent.  Very few companies do rights offerings (arguably the fairest for shareholders) because it costs money to do it and it doesn't make brokers happy so they won't pump your stock.  Raising money is expensive... but they have no choice.

 

Rick Rule (he/Sprott is long Altius):

It is critical for gold stock speculators to remember that the junior market, in aggregate, is always overvalued. If we were to merge every gold junior in the world into one entity (let's call it Junior Goldco), that company would lose (profits and corporate acquisitions less industry expenditures) somewhere between two billion and eight billion dollars per year.

http://www.caseyresearch.com/cdd/rick-rule-why-im-excited-about-market

 

Harris Kupperman, hedge fund manager (no idea if he is long Altius):

Quick, what’s the world’s worst investment sector?

Airlines? Autos? Biotech? Give up? Junior mining is way worse. Airlines limp on for years in quasi-bankruptcy—so do autos. A few companies like Toyota even do well. Biotech companies sometimes find something interesting. Even if your junior mining company finds something, you still will probably lose money.

http://adventuresincapitalism.com/post/2010/03/07/Mining-worse-than-airlines.aspx

*He may be making a reference to Warren Buffett's shareholder letters where Warren points out that airlines have made no money for investors.

 

5- I hope you see why Altius is brilliant.  The royalty structure protects them against a lot of the problems in the mining sector.  And usually those problems work to the royalty holders advantage.

 

If somebody chases an uneconomic mine, the equity holders lose a lot of money but the royalty holder still makes some money.  If Alderon turns into a mine and the equity owner goes into empire building mode and expands production at the mine, the royalty benefits.

 

On the exploration side, sometimes juniors will keep on drilling so that they can generate news flow to raise more money to pay insiders' salaries.  Why do exploration yourself when you can get a junior to do it?

 

6- Assuming that everybody was rational and that juniors act in the best interest of shareholders, it doesn't entirely make sense for Altius to seek royalties on their joint venture deals.  If they took equity instead, they would be helping out more in terms of raising capital to build a mine.  Altius has a lot of cash on its balance sheet.  In theory it would make sense for it to deploy its capital into building mines.

 

Building mines is not that good of a business.  Altius isn't buying more shares of Alderon to push it towards production (even though it could).  It is exercising capital discipline and waiting for really high rate of return opportunities.  They are really smart.

[jjsto]

Iron ore falls below $100....

 

http://www.businessweek.com/news/2012-08-24/iron-ore-drops-below-100-as-slowing-growth-in-china-cuts-demand

[jjsto]

Interesting article on spread between domestic and imported iron ore prices in china:

 

http://blogs.ft.com/beyond-brics/2012/08/29/iron-ore-tests-the-chinese-floor-theory/#axzz24nQ97pcb

[Guest Dazel]

 

 

Itsavaluetrap,

 

We agree on junior miners in general...we also agree that Altius are the smartest guys in the room. Rick Rule and Brent Cook refer to Altius as a merchant banker. All we care about is return on capital. Altius like Leucadia are lumpy returns for now.

 

We would love a return on the cash that is sitting there...we will see what happens.

 

Dazel.

[Guest Dazel]

 

 

Jjsto,

 

Alderon.

 

Thompson consolidated ramped up in a hurry at prices below $75...the cost to build the alderon project have dropped significantly  in the last 8 months...engineering, material, labor, all of the inputs have dropped because in times of uncertainty everyone stops....if they were to do the build out at $150 a ton....everything would be extremely expensive because every one would be trying to build out. We are seeing projects pull back and anyone without the right economics will hold off until the price rises. Alderon will benefit on the build out at a lower iron ore price and be able to negotiate better deals with their suppliers...They want the price high when they produce not when they build.

 

Dazel.

[beerbaron]

Jjsto,

 

Alderon.

 

Thompson consolidated ramped up in a hurry at prices below $75...the cost to build the alderon project have dropped significantly  in the last 8 months...engineering, material, labor, all of the inputs have dropped because in times of uncertainty everyone stops....if they were to do the build out at $150 a ton....everything would be extremely expensive because every one would be trying to build out. We are seeing projects pull back and anyone without the right economics will hold off until the price rises. Alderon will benefit on the build out at a lower iron ore price and be able to negotiate better deals with their suppliers...They want the price high when they produce not when they build.

 

Dazel.

 

Dazel, which model are you using to state the costs have been reduced significantly? Do you have any similar examples where the drop of cost of developing the asset made the future asset more viable even if the resource price fell.

 

BeerBaron

[Guest Dazel]

 

Beer baron,

 

Iron ore do not sell futures like copper or platinum..they used to price iron ore once a year...they may go back to this method who knows...

 

The future price of iron ore has not been accounted for because the contracts are in real  time...they are not futures like copper or oil for say december... They are negotiated prices between real buyers and sellers...not hedge funds or hedgers etc...No bid...guess what.. Prices plummet.

 

When china decides to cut inventory this is what happens...the steel makers were readily paying

$140 a ton 4 months ago....they are not now...when they need it again they will pay what is needed

to get product...it is that simple. To build a mine takes a lot of capital....but when the entire iron ore community is trying race to cash in on $140 iron ore pricing the costs to build a mine escalate. Look

at Fortescue they were a billion dollars off on their capital expansion program. They have said costs

have come down significantly....but a billion dollars off!! That is spending recklessly. Like all

producers they will cut back.

 

I hope that helps....when supply is cut which is what is happening already with iron ore pricing dropping like it is...it sets up for higher prices later on...that is all I am saying. There is race in Labrador to be the first "new producer" because there was limited rail room electricity etc...if Alderon does not have to compete for all of these services, labour, engineering, surveying, environmental prices for their build out will come down.

 

 

Dazel.

 

 

 

 

[Guest Dazel]

http://www.mineweb.com/mineweb/view/mineweb/en/page67?oid=157890&sn=Detail&pid=102055

 

 

Rogers calls the mining slowdown a blip...."buy the commodities that have fallen the most."

 

 

 

[ItsAValueTrap]

I think I'd be more bullish on nickel than on iron ore.

 

IRON ORE:

production has gone up several times over the past decade

price has gone up several times over the past decade

pretty easy to find... a lot of the juniors in the Labrador trough have found iron ore deposits that are economic.  Pretty much every iron ore miner has increased production at their mines and have ongoing expansion plans.  e.g. Fortescue is expanding, Bloom Lake is expanding, etc. etc.

 

NICKEL:

production has stayed flat over the past decade

price has gone up over the past decade, but nowhere as much as iron ore

HARD to find low-cost sulfide deposits.  None of the juniors exploring near Noront's Eagle One deposit and around Voisey's Bay have found any nickel.  In each area, there were hundreds of millions of dollars spent and 30+ juniors with staked claims.

 

2- All miners have seen very significant price inflation... this will drive commodity prices higher.  This is good for Altius when it owns royalties; not so great when it owns mining companies or exploration companies.

 

3- Jim Rogers is mostly into commodity futures and not so much into commodity stocks.  He avoids commodity stocks as futures tend to outperform commodity stocks by 3 times.  But he says that if you find the right commodity stock, you can make a lot of money.  Hopefully Altius will do that for us.

 

[Liberty]

Email from Alderon:

 

http://alderonironore.com/_resources/news/2012-09-04-NewsRelease.pdf

 

Alderon Iron Ore Corp. (TSX: ADV) (NYSE MKT: AXX) (“Alderon” or the “Company”) is pleased to announce that it has closed the Alderon common share (“Common Share”) subscription component of the previously announced transaction with Hebei Iron & Steel Group Co., Ltd. (“Hebei”). Pursuant to the terms of the subscription agreement (as amended) (the “Subscription Agreement”), Hebei has acquired 25,858,889 Common Shares at a price of C$2.41 per Common Share for gross proceeds to the Company of approximately C$62.3 million, representing 19.9% of the issued and outstanding Common Shares. Alderon and Hebei have also executed the remaining definitive agreements, including the Investor Rights Agreement, the Off Take Agreement and the agreements required to form and operate the limited partnership that will own the Kami iron ore project (the “Kami Project”).

 

Concurrent with the Hebei closing, Liberty Metals & Mining Holdings, LLC (“LMM”), a subsidiary of Liberty Mutual Insurance, has acquired 3,816,181 Common Shares at a price of C$2.41 per Common Share for gross proceeds to the Company of approximately C$9.2 million, allowing LMM to maintain its relative proportionate interest in Alderon. Also concurrent with the Hebei closing, Alderon is repaying the $10.5 million bridge loan previously advanced by LMM.

 

Mark Morabito, Executive Chairman of Alderon, said “The closing of the private placement component of Hebei’s strategic investment in Alderon and its Kami Project is a major milestone for both parties. One of Alderon’s next milestones will be the completion of its Feasibility Study, which is expected in Q4 2012. Once Alderon delivers to Hebei a Feasibility Study that meets the required criteria, Hebei will contribute the remainder of its C$182.2 million investment. I would also like to acknowledge and thank Liberty for its continued support of Alderon.”

 

Hebei’s initial investment in Alderon and the Kami Project will total C$182.2 million. Pursuant to the terms of the definitive agreements, within 15 business days of Hebei receiving a feasibility study that meets certain criteria, Hebei will contribute the remaining C$119.9 million of the initial investment and Alderon will contribute the Kami Project and relevant properties to the newly formed limited partnership which is owned as to 25% by Hebei and 75% by Alderon.

 

Other transaction highlights include:

Hebei agrees to use its best efforts to assist in obtaining project debt financing for the Kami Project from financial institutions, including Chinese banks.

Alderon and Hebei will be required to contribute to capital expenditures for the development of the Kami Project not covered by initial capital contributions and project debt financing, in accordance with their respective interests.

Upon Hebei's acquisition of its 25% interest in the Kami Project, it will be obligated to purchase upon the commencement of commercial production, 60% of the actual annual production from the Kami Project up to a maximum of 4.8 million tonnes of the first 8.0 million tonnes of iron ore concentrate produced annually at the Kami Project. The price paid by Hebei will be based on the monthly average price per DMT for iron ore sinter feed fines quoted by Platts Iron Ore Index (including additional quoted premium for iron content greater than 62%) (“Platts Price”), less a discount equal to 5% of such quoted price. Hebei will also have the option to purchase additional tonnage at a price equal to the Platts Price, without any such discount.

Hebei has agreed to co-operate with Alderon in its efforts to attract additional off-take partners in respect of the annual production from the Kami Project that has not been committed to Hebei.

Alderon will be the manager of the Kami Project and will receive a fixed annual management fee during the construction period of the project. Once the Kami Project has reached commercial production, Alderon will receive a management fee on a per tonne of iron ore concentrate basis.

The entire C$182.2 million of investment proceeds from Hebei will be used for the exploration and development of the Kami Project, the repayment of the $10.5 million bridge loan from LMM and other relevant corporate expenses of Alderon.

Alderon has granted Hebei a pre-emptive right to maintain its interest in Alderon in certain circumstances.

 

As a term of the transaction, Hebei was entitled to nominate two directors to the Board of Alderon. Hebei has nominated Ms. Zheng Liangjun and Mr. Tian Zejun and they have been appointed to the Board of Alderon. The Board would like to welcome the new directors and looks forward to a long term and successful partnership.

 

Ms. Zheng, B.Eng., M.Eng., MBA, brings 21 years of international trade and investment experience to Alderon. Ms. Zheng was Deputy General Manager of Handan Iron and Steel Group Import & Export Co., Ltd., a subsidiary of Hebei from 2006 to 2008. Since 2009, she has been with Hebei Iron and Steel Group International Trade Corporation, also a subsidiary of Hebei. In 2011, she became Deputy General Manager of Hebei Iron and Steel Group International Trade Corporation, responsible for overseas investment and projects as well as equipment imports. Ms. Zheng received the title of Senior Engineer in 1999 and holds a Bachelor of Engineering degree from Hebei University of Technology, a Masters Degree from Wuhan University of Science and Technology and a Masters of Business Administration from Beijing Jiaotong University.

 

Mr. Tian, B.Eng., MBA, has 24 years of experience in mining, geological and metallurgical technology and management. Since 2010, Mr. Tian has been Deputy General Manager of Hebei Iron and Steel Group Mining Co., Ltd and General Manager of Laiyuan Non-ferrous Metals Co., Ltd., each a subsidiary of Hebei. Mr. Tian has served as a Standing Committee member and Deputy Secretary of Laiyuan County in Hebei province since 2009. Mr. Tian received the title of Senior Engineer in 1997 and holds a Bachelor of Mining Engineering degree from Xi’an University of Architecture and Technology and a Masters of Business Administration from the University of Texas at Arlington.

 

Stepping aside from the Alderon Board to allow for the appointment of the Hebei nominees is Mr. Stan Bharti. Mr. Bharti was one of Alderon’s founding directors and he has been instrumental in attracting the necessary capital to support its development. Mr. Bharti, through Forbes & Manhattan, Inc., will continue to advise Alderon on a consulting basis and Alderon will retain the benefits of his experience and expertise. The Board would like to acknowledge and thank Mr. Bharti for his significant contributions to the Company’s development to date.

[jjsto]

Grandich Update:

 

http://www.grandich.com/2012/09/grandich-client-alderon-iron-ore-11/

 

 

[SouthernYankee]

Has anyone visited these areas like Labrador and/or the rest of Newfoundland? The pictures on the Altius website are beautiful, but I am trying to comprehend the amount of land that is up there!

[FFHWatcher]

Has anyone visited these areas like Labrador and/or the rest of Newfoundland? The pictures on the Altius website are beautiful, but I am trying to comprehend the amount of land that is up there!

 

Ever been to Wyoming?  Labrador is 20% larger by area.  Wyoming is desolate.  Wyoming is the least populous state with 2nd least population density and Labrador makes Wyoming look like New York City.  Wyoming has 568,000 people.  Labrador has about 30,000.  Biggest city is Labrador City with something like 7,500 which is close by the Kami project. 

 

Unless you are a geologist, you haven't visited Labrador City, as a guess.

[LTVALUE]

China continues to move along......

 

 

http://www.reuters.com/article/2012/09/07/markets-ironore-idUSL4E8K707L20120907

 

[naboo]

China won't stop the construction in the near term.  There are still a lot of projects need to be done.

 

http://www.businessweek.com/news/2012-09-06/china-approves-plan-to-build-new-roads-to-boost-economy

 

".....................The approvals on Sept. 5 for a total of 25 new subway and inter-city rail projects are worth more than 800 billion yuan ($126 billion), or 1.7 percent of 2011 gross domestic product, according to HSBC. The spending will run from the second half of the year to 2018, it said. "

 

 

[LTVALUE]

It is my belief that a significant percentage of the increased iron ore production coming on line will either be delayed or stopped due to political factors, cost overruns, underlying commodity price decline, etc. 

 

A major strength of Altius is their ability and discipline regarding when to invest capital.  Many of the royalty deals in the past couple of years will only be successful if the underlying commodity appreciates in price. Altius being value investors, only look at deals where preservation of capital exists and returns are looked at with an understanding that future outcomes fall under a number of scenarios.  In other words they model their own probability distribution for each deal and only act when the least favourable outcomes still promise preservation of capital and a suitable rate of return to accommodate the necessary risk.  i.e. limiting their investment in Alderon to the initial $2 million!  At present Altius is being rewarded/penalized based on their iron ore exposure.  Altius' value is comprised of much more....IMHO their iron ore properties will still prove of great value and if they don't work out they are still in a position to capitalize on future uncertainty.

 

Here is an interesting article regarding the future of Chinese steel demand:

 

http://ftalphaville.ft.com/blog/2012/03/21/930311/steel-demand-is-endless/

 

[Guest Dazel]

 

We see a huge window of opportunity...this what Thompson Consolidated did...they built during the low price environment and cashed in at the high...deja vu all over again.

 

As for Altius we are hoping they are doing or have done some buying of other companies lately...all commodities are now rallying...iron ore will join the party.

 

As Rogers said it is just a blip...get to work Alderon...Hebei is an obvious believer....

 

For us...our other investments are moving up quickly...it may work out Perfectly to add to Altius and Alderon here.

 

Dazel.

[Guest Dazel]

http://www.abc.net.au/news/2012-09-12/iron-ore-prices-continue-rebound/4256692?section=business

 

 

Funny  negativity always steals (pardon the pun!) the headlines....the rebound in iron ore prices is  hard to find! Whoever, picked up the 4 or 5 million shares of Alderon during the latest drop is going to make a killing...hopefully Altius added.

 

Dazel.

[Guest Dazel]

http://www.miningweekly.com/article/rcr-sees-potential-uranium-supply-gap-emerging-2012-09-12

 

 

Paladin will be looking at the 2015 uranium demand as china brings on their 26 nuclear reactors....if you were to add the 18 japaneese reactors potentially brought back on line things could get very interesting for uranium prices.

 

Dazel.

[Liberty]

http://altiusminerals.com/press-releases/view/263

 

St. John’s - Altius Minerals Corporation (“Altius”) reported a net loss attributable to common shareholders of $2,857,000 or ($0.10) per share for the three months ended July 31, 2012 compared to a net loss of $1,588,000 for the same period last year. The current year was affected primarily by the losses in the share of associates, decreased royalty revenue, and a general decline in the market value of investments.

 

A summary of the financial results is included in the following table.

 

Three months ended July 31, (unaudited) 2012 2011 $ $ Revenue 1,335,000 2,156,000 Net earnings (loss) attributable to shareholders (2,857,000) (1,588,000) Diluted earnings (loss) per share (0.10) (0.06) Net cash flow from operating activities 4,647,000 (6,751,000)

 

Significant progress on its wholly owned and partner-funded project interests continued during the period, particularly in the Labrador West iron ore mining district. Additional information on the Corporation’s results of operations is included in the Corporation’s MD&A, and Financial Statements, which were filed on SEDAR today and are also available on the Company’s website at www.altiusminerals.com.

[LTVALUE]

Information regarding Snelgrove Lake deal:

 

http://www.mamba.com.au/uploads/9/2/0/6/9206450/2012-07-30_mab_mamba_to_acquire_highly_prospective_iron_ore_project.pdf

 

The company is Mamba Minerals listed on the ASX.

 

Below is consideration given to Altius from Mamba's website:

 

Through the acquisition of CIP Mag,  Mamba  will control the right to acquire

100% of the  Snelgrove Lake  Project from Altius  via the Option Agreement for

consideration as follows:

(i) C$410,000 to be paid to Altius;

(ii) The placement of  17,000,000 options

1

to acquire fully paid ordinary

shares in Mamba exercisable on or before 31 August 2015 at $0.25 per

MAB Option, to Altius at an issue price of $0.005 per MAB Option to

raise $85,000 (“Altius Placement”). Completion of the Altius Placement is

at the election of Altius;

(iii) C$3,250,000 to be spent by MAB on exploration of the  Snelgrove Lake

Project within the first 18 months (Tranche 1 Exploration Spend);

(iv) C$3,250,000 to be spent by MAB on exploration of the  Snelgrove Lake

Project within the first 36 months (Tranche 2 Exploration Spend);

(v) $5,750,000 to Altius within three months from the exercise of the three

year Option to acquire the Snelgrove Lake Project; and

(vi) A gross sales royalty of 3% of revenue.

[Guest Dazel]

 

 

The central banks of the world have just juiced the engine....big Ben was the last of the public announcements...all that is a hard asset will do very well from here...China, Europe, Japan have all announced big money printing efforts...south America who is in relatively decent shape have cut rates drastically.

 

Altius's assets will be in demand in the coming years...they are protected for inflation and stand to benefit from the stimulus...

 

We expect to see a huge amount of m&a to start in the resource sector to take advantage of real things. Altius stands to benefit on both ends....they may take advantage of the situation or someone will looking at taking them out...all that cash and no debt is the envy of the resource sector right now.

 

The central banks just juiced the system look out!

 

Dazel.

[Eric50]

Michael Pettit is not very optimist about commodity prices in his latest piece:

 

"For these reasons I am very pessimistic about hard commodity prices and expect them to drop substantially further in the next two to three years.

 

1. Production capacity for hard commodities is rising much too quickly, in a belated response to the unexpected surge in demand just under a decade ago.

 

2. Expected economic growth rates in the country that has been biggest source of new demand – virtually the only source – have fallen sharply and commodity prices have fallen with them. Historical precedents and the arithmetic of rebalancing suggest, however, that the current consensus for medium-term Chinese growth is still too optimistic. Expected growth rates will almost certainly fall further in the next two years.

 

3. Beijing has finally become serious about rebalancing China’s economy, and rebalancing means shifting Chinese growth away from being disproportionately commodity intensive.　 Instead of representing 30-60% of global demand for most hard commodities, Chinese demand will shift to a more “normal” level. Remember that even a very limited shift – from 50% of global demand, for example, to a still high 40% of global demand – represents a sharp drop in global demand.

 

4. There has been so much stockpiling of commodities and finished goods with implicit commodity content in China that the country could well become a net seller, and not net a buyer, of a wide variety of commodities in the next few years."

 

http://www.mpettis.com/2012/09/16/by-2015-hard-commodity-prices-will-have-collapsed/

 

[Guest Dazel]

 

who is michael pettit?

 

We agree with Jim Rogers, Jeremy Grantham etc. whose beliefs contradict these statements not on capacity but on avalibale resources.

 

Dazel.

 

[GlennAS]

Hi Dazel.

 

((who is michael pettit?))

 

Michael Pettis is a Senior Associate at the Carnegie Endowment for International Peace and a finance professor at Peking University’s Guanghua School of Management, where he specializes in Chinese financial markets. He is the most astute China watcher on the planet IMO. I have a post-doc economist friend who raves about Pettis. His website is China Financial Markets: http://www.mpettis.com/China Financial Markets. His most recent post is By 2015 hard commodity prices will have collapsed: http://www.mpettis.com/2012/09/16/by-2015-hard-commodity-prices-will-have-collapsed/.

 

The China hard-landing/soft-landing has various advocates on both sides. Personally, I place more faith in Pettis that Jim Rogers. I have a lot of respect for Jeremy Grantham, but Pettis is much more plugged into the economic data in China than Grantham.

 

I really like the Altius story, but IMO if the global economy continues to trend downward in spite of the efforts of central bankers to stimulate through a ZIRP interest rate policy (pushing on a string?), I believe there's a very good possibility that I'll be able to pick up Altius shares at below $10.

 

IMHO. And I could be wrong. :)

 

Best wishes,

glenn