ALS.TO - Altius Minerals

[Ross812]

I still do not understand why everyone was so excited about the share buybacks. Altius has never had a significant buyback and meaningfully reduced the number of outstanding shares over the passed 3 years I have owned them. I have observed buybacks roughly offsetting stock options issued to management meaning the buybacks are essentially a dividend to management; nothing more. Altius has never been a true cannibal or opportunistically retired a large number of shares at any price; the discussion issuing/retiring shares based on stock price is a moot point. 

[Blue Macaw]

Crashing now.... down 4 %

[original mungerville]

Let it come down some more. Another 15% would be nice.

[ItsAValueTrap]

But do you really think you understand LMCA’s industry much better?! Personally, I know I don’t.

LMCA is mostly a pile of stocks and deferred tax liabilities.  Those are pretty easy to value.

 

Then there's all sorts of random assets hidden in LMCA.  I never figured them out.  But if Malone is buying back shares, you know that LMCA is undervalued.

 

You have to figure out if their stocks (LMCA, CHTR, LYV) are undervalued.  Hard, but doable.

 

2- Mining on the other hand is just unbelievably difficult.  To value Kami you basically have to do your own feasibility study without access to their technical data.  And you have to have the expertise of a team of specialized engineers (construction, resource modelling, metallurgy, tailings, etc. etc.).

 

I think I understand mining well enough to know that I need a very large margin of safety on the long side.  (The short side is easier for me.)

 

That’s why we try to partner with the best in the world: because they are the ones truly knowledgeable about their own businesses.

Tell me: what’s the point of partnering with them, and then questioning every choice of theirs?!

I think that Dalton is making very smart moves.

 

It's just that the last secondary offering in 2007 signaled a top.  Altius' share price still hasn't recovered.  Part of that has to do with the fall in commodity prices since then.

In general... I like to buy undervalued stocks and to sell overvalued stocks.  When a management team decides to do a secondary offering, it is probably because they think that their stock is overvalued.  A secondary offering is an extremely expensive method of raising capital.  Raising debt or doing a rights offering is a lot cheaper.  You should only do a secondary offering if the stock is overpriced... or if you want brokers to promote your stock so that you can sell more stock in the future.  (Or if you have liquidity problems because you stupidly took on too much leverage.)

 

---

 

3- Companies that have done secondary offerings or private placements:

TCI/Liberty (a very very long time ago)

Valeant

Altius

KMP (Kinder Morgan)

 

Fairfax

CHK

 

ATPG

Fortress Paper

Energold

Sandstorm M&E

STEC, CREE (I made a lot of money shorting these.  With Cree I may have gotten really lucky.)

Tile Shop

Yukon-Nevada Gold / Veris Gold

Virtually every junior miner*  (*secondary offerings and private placements are not the real reason why these stink)

Most 1999/2000 era Dot-Coms

 

The history of secondary offerings is not that great.  There is probably a study out there that backtests and shows that secondary offerings underperform the market.  Anyways, the point is that you should stay away from companies that do secondary offerings.  In the Energold and Sandstorm threads... I said that you should stay away because they sold shares recently.  I'd also stay away from Fairfax and Valeant right now (does that make me a heretic?  I don't know).

 

4- If management is really good at compounding capital, then the stock will do well over very long stretches of time even if you buy after a secondary offering.  But you will do much better if you buy when the company is buying back shares.

 

So that's the game and that's how I would play it.

[naboo]

Trap,

 

I don't like the secondary offer in general. But I think you miss the point.  They are doing the secondary offer not because they think the stock price is high, it is because they need the cash in rush,  they need the cash to make more money. So this is a little different.

 

now they have to prove they can use that money wisely.

 

 

 

But do you really think you understand LMCA’s industry much better?! Personally, I know I don’t.

LMCA is mostly a pile of stocks and deferred tax liabilities.  Those are pretty easy to value.

 

Then there's all sorts of random assets hidden in LMCA.  I never figured them out.  But if Malone is buying back shares, you know that LMCA is undervalued.

 

You have to figure out if their stocks (LMCA, CHTR, LYV) are undervalued.  Hard, but doable.

 

2- Mining on the other hand is just unbelievably difficult.  To value Kami you basically have to do your own feasibility study without access to their technical data.  And you have to have the expertise of a team of specialized engineers (construction, resource modelling, metallurgy, tailings, etc. etc.).

 

I think I understand mining well enough to know that I need a very large margin of safety on the long side.  (The short side is easier for me.)

 

That’s why we try to partner with the best in the world: because they are the ones truly knowledgeable about their own businesses.

Tell me: what’s the point of partnering with them, and then questioning every choice of theirs?!

I think that Dalton is making very smart moves.

 

It's just that the last secondary offering in 2007 signaled a top.  Altius' share price still hasn't recovered.  Part of that has to do with the fall in commodity prices since then.

In general... I like to buy undervalued stocks and to sell overvalued stocks.  When a management team decides to do a secondary offering, it is probably because they think that their stock is overvalued.  A secondary offering is an extremely expensive method of raising capital.  Raising debt or doing a rights offering is a lot cheaper.  You should only do a secondary offering if the stock is overpriced... or if you want brokers to promote your stock so that you can sell more stock in the future.  (Or if you have liquidity problems because you stupidly took on too much leverage.)

 

---

 

3- Companies that have done secondary offerings or private placements:

TCI/Liberty (a very very long time ago)

Valeant

Altius

KMP (Kinder Morgan)

 

Fairfax

CHK

 

ATPG

Fortress Paper

Energold

Sandstorm M&E

STEC, CREE (I made a lot of money shorting these.  With Cree I may have gotten really lucky.)

Tile Shop

Yukon-Nevada Gold / Veris Gold

Virtually every junior miner*  (*secondary offerings and private placements are not the real reason why these stink)

Most 1999/2000 era Dot-Coms

 

The history of secondary offerings is not that great.  There is probably a study out there that backtests and shows that secondary offerings underperform the market.  Anyways, the point is that you should stay away from companies that do secondary offerings.  In the Energold and Sandstorm threads... I said that you should stay away because they sold shares recently.  I'd also stay away from Fairfax and Valeant right now (does that make me a heretic?  I don't know).

 

4- If management is really good at compounding capital, then the stock will do well over very long stretches of time even if you buy after a secondary offering.  But you will do much better if you buy when the company is buying back shares.

 

So that's the game and that's how I would play it.

[giofranchi]

So that's the game and that's how I would play it.

 

What you say makes sense, as always.

Let’s just say you engage in buying and selling stocks much more frequently than I do...

And I would leave it at that! ;)

 

Cheers,

 

Gio

 

[SharperDingaan]

Every pupil eventually grows up .... ey!  A  couple of observations before we too reduce the frequency of our posting.

We will continue to hold for some time yet, but will not be as intense about it now that many of the critical events are over.

 

Money as servant. Most folk, depending on the size of their position, are probably going to experience one-time life altering increases in wealth. Don't be in a hurry to sell, & keep the reason for your investment top-of-mind. These are the kind of opportunities that buy you your house, pay for school, fund round the world vacations ... or establish breweries ;) Sloth is good, & you get very well paid for it.

 

Moving on. Most value investors will be selling at some point, as they get increasingly uncomfortable with valuation, the investor mix will become increasingly institutional, & there will be increasing dissonance on this board. This is nothing unusual, but learn from the process as it is not in the textbook. We are very fortunate to have ring-side seats.

 

Pricing. It is highly likely that over the next few weeks, pricing will move towards whatever the new issue price will be; simply because the underwriter(s) will be arbitraging the market. These institutions are buying a tangible & long lived royalty stream; it is a much easier sell, fairly straightforward to value, & no longer something from a junior. They will also be factoring in that the 1.3B Kami financing is very close (phase I,II royalties), & JL will be settled & spun off within the next 2-3 months. Their very considerable MOS against overpaying - is the near presence of those unknown (magnitude) future Kami/JL royalties, & the gain on re-evaluation of the rest of the assets in the ALS pipeline.

 

Vision. This is not a time to be coy. We think that for now 20x earnings ($31) is about the minimum, & that it will rise to around 35-40x ($60+) after dividends start sometime in Q3. We also expect a 2/3 probability of $120 by Dec-31-2015 ahead of the big PMRL royalty streams, & royalty growth. Don't short-change yourself by thinking like little men/women.

 

Value Investors. We all recognize the contrarian approach, but for some reason - we only seem comfortable with the pessimistic side. The other side of the same contrarian approach is aggressive valuation on the optimistic side. Again, not in the textbook.

 

Many thanks to Dazel, & others, for the experience. Now apply what you have learned.

 

Good luck.

 

SD

 

 

 

[giofranchi]

Vision. This is not a time to be coy. We think that for now 20x earnings ($31) is about the minimum, & that it will rise to around 35-40x ($60+) after dividends start sometime in Q3. We also expect a 2/3 probability of $120 by Dec-31-2015 ahead of the big PMRL royalty streams, & royalty growth. Don't short-change yourself by thinking like little men/women.

 

Value Investors. We all recognize the contrarian approach, but for some reason - we only seem comfortable with the pessimistic side. The other side of the same contrarian approach is aggressive valuation on the optimistic side. Again, not in the textbook.

 

Many thanks to Dazel, & others, for the experience. Now apply what you have learned.

 

Good luck.

 

SD

 

SD,

even if this doesn’t come close to happen… you have been so much fun!! ;D ;D ;D

 

Many many thanks to you too!

 

Cheers,

 

Gio

 

[naboo]

Question is:  Will ALS become a $10B company in xxx years? :)

 

Vision. This is not a time to be coy. We think that for now 20x earnings ($31) is about the minimum, & that it will rise to around 35-40x ($60+) after dividends start sometime in Q3. We also expect a 2/3 probability of $120 by Dec-31-2015 ahead of the big PMRL royalty streams, & royalty growth. Don't short-change yourself by thinking like little men/women.

 

Value Investors. We all recognize the contrarian approach, but for some reason - we only seem comfortable with the pessimistic side. The other side of the same contrarian approach is aggressive valuation on the optimistic side. Again, not in the textbook.

 

Many thanks to Dazel, & others, for the experience. Now apply what you have learned.

 

Good luck.

 

SD

 

SD,

even if this doesn’t come close to happen… you have been so much fun!! ;D ;D ;D

 

Many many thanks to you too!

 

Cheers,

 

Gio

[Williams406]

"Vision. This is not a time to be coy. We think that for now 20x earnings ($31) is about the minimum, & that it will rise to around 35-40x ($60+) after dividends start sometime in Q3. We also expect a 2/3 probability of $120 by Dec-31-2015 ahead of the big PMRL royalty streams, & royalty growth. Don't short-change yourself by thinking like little men/women." --SD

 

I'll have what he's having.

 

"Value Investors. We all recognize the contrarian approach, but for some reason - we only seem comfortable with the pessimistic side. The other side of the same contrarian approach is aggressive valuation on the optimistic side. Again, not in the textbook." --SD

 

This idea can be applied to Altius' asset base as well as its stock. In this business, royalties sometimes sell for 37x. And mines go for absurd values that later impair the acquirer. Tough to imagine today, but give it time. And at the other point in the cycle, high-quality defensive royalty portfolios and mineral lands can be had at attractive prices. They looked at PMRL in 2008 but Sherritt wasn't dealing. I think the odds are very good that Altius will play the cyclical nature of this business well over time. That may or may not be in the textbook SD's reading. Given the stock price projections above, I'm not entirely sure that's a textbook. 

[bizaro86]

"Vision. This is not a time to be coy. We think that for now 20x earnings ($31) is about the minimum, & that it will rise to around 35-40x ($60+) after dividends start sometime in Q3. We also expect a 2/3 probability of $120 by Dec-31-2015 ahead of the big PMRL royalty streams, & royalty growth. Don't short-change yourself by thinking like little men/women." --SD

 

I'll have what he's having.

 

"Value Investors. We all recognize the contrarian approach, but for some reason - we only seem comfortable with the pessimistic side. The other side of the same contrarian approach is aggressive valuation on the optimistic side. Again, not in the textbook." --SD

 

This idea can be applied to Altius' asset base as well as its stock. In this business, royalties sometimes sell for 37x. And mines go for absurd values that later impair the acquirer. Tough to imagine today, but give it time. And at the other point in the cycle, high-quality defensive royalty portfolios and mineral lands can be had at attractive prices. They looked at PMRL in 2008 but Sherritt wasn't dealing. I think the odds are very good that Altius will play the cyclical nature of this business well over time. That may or may not be in the textbook SD's reading. Given the stock price projections above, I'm not entirely sure that's a textbook.

 

I'll cheerfully admit that my position before the stock reaches $120 if that happens in the next two years. I'll be happy with my profits at a lower sale price, and will toast SD's vision if that occurs.

[alertmeipp]

Why would sherrit sell it so cheap if those royalty worth 30x

[racemize]

Why would sherrit sell it so cheap if those royalty worth 30x

 

Reading through the Clarke presentations on Sherritt (albeit biased), I've not been terribly impressed with Sherritt's management--particularly the bit where they bought the coal assets and then sold them later at a loss, in a pretty quick succession.  However, I am not s informed as others in this thread, so hopefully they can shed some light on it.

[alertmeipp]

When do you guys think we will see the pricing? Anyone know why they dont do a bought deal financing.

[phil_Buffett]

as i said yesterday stock will tank today, and i have no Money to buy more  :(

[Liberty]

as i said yesterday stock will tank today, and i have no Money to buy more  :(

 

Alderon tanking too on unusually high volume.

[SharperDingaan]

Keep in mind that we are that colourful 5%, who said buy NBG at $3.00, amid much laughter .. to see it run up to $5.50 maybe 7 months later. Similar story with PD, & apparently again with SAN. Frame big ... if you end up sawing off at just 50% of your expectation, & it takes 2x as long - you will still have done exceedingly well.

 

Until the issue closes expect volatility. Enjoy it, take a motion sickness pill, & try not to hurl into the wind :D. Once it is done, everyone of those UWs will have their marketing teams in the market extoling the virtues of this new royalty firm - ALS. Even if these were the worst salesmen in the world (very unlikely), it is pretty hard to see why ALS would not be much higher once the Kami financing & JL spinoff has been announced, & dividends commence.

 

Cant offer what were having - yet, but we have ambition. When you can make Trooper beer for Iron Maiden, & sell it to their fans at every concert, anything is possible!

 

SD

 

 

[hohi]

When do you guys think we will see the pricing? Anyone know why they dont do a bought deal financing.

 

Pricing is tomorrow (April 30th). So the big guys are pushing it down a bit to get the shares cheaper tomorrow. Sad, but that's the reality of it ;).

[Kraven]

When you can make Trooper beer for Iron Maiden, & sell it to their fans at every concert, anything is possible!

 

Nice retro heavy metal reference.  Are you drinking that beer with Eddie?

[ItsAValueTrap]

The investment banks might be allowed to naked short Altius for "market stabilization" purposes or something like that.  (Or maybe that is only the US?)

 

Here's how the secondary offering game is played:

- Before a secondary offering, many investment banks will have their analysts write positive research on the company.  They are sucking up to management in the hope that management will reward them with underwriting fees.

 

- After the secondary offering price is announced, the underwriters do not want the share price to drop below the price at which its clients have bought the stock.  If that happens a lot of clients will be unhappy.

- Institutional clients who get shares in the secondary are expected to buy shares on the open market.  Those who do that often will get bigger allocations of stock.  Basically the brokers want their clients to hop onto the bull ship and support the stock in the short term.

 

- Some Jim Cramer-type hedge funds will secretly short the stock in an offshore account.  They buy at the secondary offering price and short the stock at the public market price, hopefully making an easy arbitrage profit.

- Some short sellers will short secondary offerings and IPOs.

 

- Before the secondary offering price is announced, the underwriters may naked short the stock.  This is supposedly for "market stabilization" purposes.  When they announce the secondary offering price, the share price often drops.  If the underwriters shorted the stock earlier, they can now cover their position.  Their buying will increase the share price so that it stays above the secondary offering price.  The real reason why an investment bank might want to do this is because they will make money on their trade.  They're essentially flipping shares that they bought at a discount... which is pretty much the practice that they don't want their clients to do.

 

- After the secondary offering, the underwriters will often have their analysts promote the stock to try to drive the share price up.  If their clients buy into the secondary offering and see their shares go up a lot in value in the short term, they will be happy because they made a "profit".

In the long term, these stocks will often go down because the underlying companies are bad.  But some institutional investors enjoy gambling / playing "hot potato"... and they getting wined and dined by the sell side.

[original mungerville]

Can't naked short in Canada (for more than a day or two). We know this on this board because of the FFH ordeal 10 years ago!!!

[SharperDingaan]

Nice retro heavy metal reference.  Are you drinking that beer with Eddie?

 

Negotiating to do a short apprenticeship at Robbies next summer - the maker of Trooper.

Apparently Eddie lives nearby, & helped them develop the beer.

 

Just the thing for the 'Rock'

 

SD

 

[original mungerville]

The investment banks might be allowed to naked short Altius for "market stabilization" purposes or something like that.  (Or maybe that is only the US?)

 

Here's how the secondary offering game is played:

- Before a secondary offering, many investment banks will have their analysts write positive research on the company.  They are sucking up to management in the hope that management will reward them with underwriting fees.

 

- After the secondary offering price is announced, the underwriters do not want the share price to drop below the price at which its clients have bought the stock.  If that happens a lot of clients will be unhappy.

- Institutional clients who get shares in the secondary are expected to buy shares on the open market.  Those who do that often will get bigger allocations of stock.  Basically the brokers want their clients to hop onto the bull ship and support the stock in the short term.

 

- Some Jim Cramer-type hedge funds will secretly short the stock in an offshore account.  They buy at the secondary offering price and short the stock at the public market price, hopefully making an easy arbitrage profit.

- Some short sellers will short secondary offerings and IPOs.

 

- Before the secondary offering price is announced, the underwriters may naked short the stock.  This is supposedly for "market stabilization" purposes.  When they announce the secondary offering price, the share price often drops.  If the underwriters shorted the stock earlier, they can now cover their position.  Their buying will increase the share price so that it stays above the secondary offering price.  The real reason why an investment bank might want to do this is because they will make money on their trade.  They're essentially flipping shares that they bought at a discount... which is pretty much the practice that they don't want their clients to do.

 

- After the secondary offering, the underwriters will often have their analysts promote the stock to try to drive the share price up.  If their clients buy into the secondary offering and see their shares go up a lot in value in the short term, they will be happy because they made a "profit".

In the long term, these stocks will often go down because the underlying companies are bad.  But some institutional investors enjoy gambling / playing "hot potato"... and they getting wined and dined by the sell side.

 

Other than the naked shorting, everything else sounds sensible for sure.

[alertmeipp]

I think it's called greenshoe option. Thinking it's allowed even in Canada.

[Blue Macaw]

Ok so here are some numbers where we compare Franco Nevada with Altius.

 

FN revenue last year 400 Million (400,9)

Shares 147,2 M

Share price (yesterday) 53,24 CAD

Market Value of company 7,84 BCAD

No debt

 

MV/R =19,6

 

To apply this factor to Altius we have let say revenue of 30 M next year * 19,6 = 588 M

Assume new share count at 32 million and we have a value per share of 18,37. (included in this is however 120 M in debt something FN doesn´t have)

 

By doing this we should not price anything to Kami and Julienne lake until they are producing assets since Franco Nevada has a lot of up coming producing assets. (if comparison is to be as ok as possible)

 

The interesting thing comes IF Kami starts to produce income next year (more likely in 2016). 26 M more would almost double the number per share and if we talk about Julienne lake then hold your hats.....