ALS.TO - Altius Minerals

[Blue Macaw]

Current share price will drop to around 14,5.

 

At that price I will of course pick up some more. More money coming in within 2 weeks.

[Otsog]

Kami construction is 26 months, aren't we hoping for Q4 2016 as best case now?

[Blue Macaw]

Kami construction is 26 months, aren't we hoping for Q4 2016 as best case now?

 

Where did you find that information? It is likely

[giofranchi]

ItsAValueTrap,

like I said yesterday, I don’t play that game. Period.

Therefore, this is what interests me:

In the long term, these stocks will often go down because the underlying companies are bad. 

Do you think ALS is a bad company? I don’t.

Do you think ALS is overvalued? I don’t.

 

I ask you the same questions for FFH and VRX. And I give the same answers. ;)

 

Gio

 

[Blue Macaw]

Same comparison as earlier but against Anglo Pacific and Labrador Iron ore royalty company.

 

MV/R = approx. 14 which would give Altius a value of 420 MCAD or 13,12 CAD/share (including dilution up to 32 million shares)

[SharperDingaan]

Running a few back-of-the envelope numbers.

For valuation purposes use expected EBITDA over the next 12 months (ie: 2015)

 

Closing share price = $15.09

2015 Revenue: VB(3) + Kami(0) + PMRL/CDP(28) = 31, run-rate expense (9.2), EBITDA = 21.8M

2016 Revenue: VB(3) + Kami(22) + PMRL/CDP = 53, run-rate expense (9.2), EBITDA = 43.8M

Current FD share count = 27.8M. New share count = 32.8M. 5M shares issued @ $15.00 including UW allotment.

 

Multiple (pre-issue) = 19.24x    $15.09 Closing share price /(21.8M 2015 EBITDA/27.8M current FD share count)

Multiple (post-issue) = 22.86x    $15.09 Closing share price /(21.8M 2015 EBITDA/32.8M new FD share count)

Assuming additional share options for executing PRML/CDP & JL; the new multiple is about 23x

    ... the institutional buyers in this new issue are increasing the multiple by around 20%

    ... 23x 43.8M 2016 EBITDA/32.8M new share count = projected share price of $30.70, 12 months out.

    ... with no effort - a 1 year gain of 103%

 

But teams of sales people WILL be out there, & they will be selling DCF, versus comparative, valuation - inclusive of a growth reduction in the discount rate applied to future royalties & dividends. They will have incentive to raise valuation, & indirectly increase the multiple.

 

It is highly likely that come 2017, 2018 we will also see royalties from Kami phase II, & JL. Assuming an extra $20M starting 2018, & valuation based on the dividend model producing an equivalent 2017 multiple of 30x - a share price of $62.01. Another 102% gain over the $30.70, 2016 price.

 

And all of this is before we take a multiple of 23x to every asset in the ALS pipeline, discount it at the rate that our nice salesmen say we should use, & find out that we also have a huge amount of unrealized value. Nothing that a sale & leaseback could not realize.

 

Yesterday we threw out the madness of $30, $60, & $120/share valuation. Still think we are nuts ...

We think they should squeeze the UW cohones a little harder! - 25x is a great number

 

SD

 

 

 

 

[original mungerville]

Sharper,

 

$120 is still a bit nuts at this stage!... but $60 sometime in the next 2-4 years is definitely not nuts.  :) 

 

And $120 is not so crazy looking out 5-7 years, but that is far over the horizon at this point / hard to predict. We could indeed eventually have another Franco Nevada here (albeit not gold centric as FN is), however there should be buying opportunities into that outcome over the years.

 

Having said all that, as the share price moves to $30 then $60, moving the needle on a totally organic basis (as Altius has done in the past) should get harder and harder (because the projects have to be huge). So I would say that evaluating things correctly right now, ie the probability of Kami and Julienne, etc may give us the best opportunity to double/triple/quadruple (ie 15, 30, 45, 60 a share) our investment versus waiting and trying at the $60, 120, 240 stages if ever those stages are reached.

[Ross812]

Sharper,

 

Let's see if Kami gets financed and construction actually begins before counting our money. 23 x 21.8M is $15.7. 19x is $13.

 

Right now ALS.TO is worth $13 to $16. They have the opportunity to increase share price by 200-400% IF their iron ore projects are completed.

 

I've had a large position in Altius for a few years now, and it has always been a "show me" stock and never on my timeline. I expect Kami to be built, but your 2016 price is likely a 2017-18 price. Mine construction and ramping up to capacity takes years and never goes smoothly.

 

So no your valuation is not nuts; the nuts part is your timeline and pricing iron ore that is still in the ground with no way to get it out.

[Guest Dazel]

http://www.mining.com/mick-davis-wants-bhps-coal-division-to-be-cornerstone-of-his-new-mining-empire-62855/

[Otsog]

Kami construction is 26 months, aren't we hoping for Q4 2016 as best case now?

 

Where did you find that information? It is likely

 

http://www.alderonironore.com/_resources/annualinformationform/ADV2013AIF.pdf

 

Pg. 22

 

Construction is expected to commence at the end of the second quarter of 2014, contingent on the successful completion of the Senior Debt Facility. Following commencement of full-scale construction, it is currently estimated to take 26 months for completion, including pre- operational verifications, hot commissioning and handover to mine operations team.

 

I think mid 2017 is more likely and appropriate if it gets built.  I can't put any value on Kami II yet, that is too unknown for me. The only thing everyone can agree on for Kami OPEX is that the $42.17/ton is a pipe dream, so until the actual Kami economics are known I need a generous margin of safety.  Thankfully we are getting one  :)

[Guest Dazel]

http://www.bloomberg.com/news/2014-04-30/china-set-to-overtake-u-s-as-biggest-economy-using-ppp-measure.html

[SharperDingaan]

ALS has already announced intent to dividend, but dividends are really just backstopping the multiple. We need the discount rate to reflect the new post crises era (market rate in the 7.5% range), include a growth component (demonstrated history + prospects), & sizeable additional royalties. For $120/share; 208M of after tax revenue, 85% payout, discount rate of 4.5% (7.5%-3.0% growth). We will not get there on dividends alone.

 

At 40x, we need $3 of EBITDA/share (98.4M) to make $120. For practical purposes an additional 50M of royalties from Kami II & JL, if they occur at all. Lot of uncertainty here, but at least within the current realm of possibility; so long as ALS executes on the rest of its pipeline, & consistently pays out a high dividend while doing it. Possible, but agreed this is the top end of the range, & maybe 5 yrs out.

 

So what does it mean, if I have 10,000 shares. For an unleveraged current investment of around 151K, a 1Yr value of maybe 307K, a 2Yr value of maybe 620K, a 5Yr value of maybe 1.2M.

 

Needless to say .... sloth pays exceedingly well.

 

Good luck to all.

 

SD

 

Agreed there is need to adjust the timing a bit, but the basic premise still holds.

 

SD

 

 

 

[Liberty]

Dazel and SD (and others), do you know why Sherritt sold PMRL at 9x? Were they in a cash crunch or otherwise forced sellers? I've been meaning to dig more into Sherritt for a long time but never actually got around to it (shame on me).

 

I'm very happy with the assets, but I never could fully figure out why they got the price they did (though I know it required a lot of patience and the mining sector in Canada has been in the dumps for a while, so I'm sure this has to do with those types of pressures on Sherritt).

 

I could more easily understand if they paid a higher multiple at the bottom of a commodity cycle and thus got a good price in absolute dollars when you look at the whole cycle, with expansions at some of the mines providing future growth plus lots of exploration potential at CDP. But paying 9x and then turning around and having the market value it at much higher multiples inside Altius is a bit hard to understand for me (though it wouldn't be the first major market inefficiency we witnessed...).

 

I appreciate your insights. Thanks.

[Guest Dazel]

 

Liberty-debt, capex in their core nickel business which is doing well...distressed sale.

 

please stop asking me questions bud you know i can't turn you down!

[naboo]

Why was it moved from Q42015 to Q42016 or later?  I thought everything was on schedule.  I also noticed Alderon's remove  time table section from their latest presentation.

 

another question: Can alderon start the production before the project completed?

 

 

Kami construction is 26 months, aren't we hoping for Q4 2016 as best case now?

 

Where did you find that information? It is likely

 

http://www.alderonironore.com/_resources/annualinformationform/ADV2013AIF.pdf

 

Pg. 22

 

Construction is expected to commence at the end of the second quarter of 2014, contingent on the successful completion of the Senior Debt Facility. Following commencement of full-scale construction, it is currently estimated to take 26 months for completion, including pre- operational verifications, hot commissioning and handover to mine operations team.

 

I think mid 2017 is more likely and appropriate if it gets built.  I can't put any value on Kami II yet, that is too unknown for me. The only thing everyone can agree on for Kami OPEX is that the $42.17/ton is a pipe dream, so until the actual Kami economics are known I need a generous margin of safety.  Thankfully we are getting one  :)

[Liberty]

 

Liberty-debt, capex in their core nickel business which is doing well...distressed sale.

 

please stop asking me questions bud you know i can't turn you down!

 

Thanks Dazel! It's why I ask, I know you can't say no! But I also know you enjoy it, so I don't feel bad ;)

[Williams406]

RE Sherritt's point of view in selling the royalty/development business at the prices it did: I can't speak at all to how competitive the bidding process was for PMRL/CDP, but you see multi-line businesses "re-focus" after "diversifying" all the time. Sherritt saw their Cuba oil and gas biz and their metals business as operations they wanted to retain (or as less saleable, not sure). Their coal operations and royalties/development assets could go. New acquisition criterion from recent Sherritt presentation: "Be in metals."

 

The same Sherritt presentation  emphasized deleveraging and its not hard to imagine a management team looking at cash proceeds of $793 million ($950 million total consideration) for coal ops and PMRL/CDP as adequate to recapitalize and re-rate the stock. With that train of thought, you can justify selling a good asset with durable cash flow and using it to re-cap the entire biz. Not the position I'd want to be in, and not one that tends to garner the highest bids, as Dazel said.

 

Why 9x? They couldn't get 12x or 15x in their position at this time. I sure don't see anything in the acquired portfolio that makes me think the real multiple will be higher due to a lower future royalty amount. In other words, I don't think Altius got snookered.

[Otsog]

Why was it moved from Q42015 to Q42016 or later?  I thought everything was on schedule.  I also noticed Alderon's remove  time table section from their latest presentation.

 

another question: Can alderon start the production before the project completed?

 

0.00% (not zero, but rounds to zero) of mining projects are completed on time from the very first guidance published. Only 22% of mining projects are producing on schedule after the first time a company gives guidance that is less than a year. The average delay of the 78% of projects that missed their one year guidance is 8 months.

 

Page 81 of Alderon's 2013 AIF shows the original schedule from the Feasibility Study (Dec 2012).  Environmental Assessment release was projected to be Sept. 2013 (Happened Q1 2014), Construction was supposed to start Nov. 2013 (now projected end of Q2 2014, contingent on financing), Full handover projected to be Nov 2015 (now June 2014 + 26 months = Aug 2016).  Commercial production to start a month after handover at 85% capacity for the first year. 

 

I think 6.80mt (8*.85) would be a best case result for 2017 (2016 effectively 0).

 

[Guest Dazel]

http://www.bloomberg.com/news/2014-04-30/bankruptcy-s-silver-lining-for-energy-future-s-coal-power-plants.html

[original mungerville]

Why was it moved from Q42015 to Q42016 or later?  I thought everything was on schedule.  I also noticed Alderon's remove  time table section from their latest presentation.

 

another question: Can alderon start the production before the project completed?

 

0.00% (not zero, but rounds to zero) of mining projects are completed on time from the very first guidance published. Only 22% of mining projects are producing on schedule after the first time a company gives guidance that is less than a year. The average delay of the 78% of projects that missed their one year guidance is 8 months.

 

Page 81 of Alderon's 2013 AIF shows the original schedule from the Feasibility Study (Dec 2012).  Environmental Assessment release was projected to be Sept. 2013 (Happened Q1 2014), Construction was supposed to start Nov. 2013 (now projected end of Q2 2014, contingent on financing), Full handover projected to be Nov 2015 (now June 2014 + 26 months = Aug 2016).  Commercial production to start a month after handover at 85% capacity for the first year. 

 

I think 6.80mt (8*.85) would be a best case result for 2017 (2016 effectively 0).

 

Sounds very logical (I am definitely not an expert).

[original mungerville]

http://www.bloomberg.com/news/2014-04-30/bankruptcy-s-silver-lining-for-energy-future-s-coal-power-plants.html

 

Thanks Dazel, very interesting and relevant. You identified a great short and long-term opportunity in Altius. Thanks again.

[Otsog]

On the latest ALS presentation they still have Alderon as Q4 2015.  This is the response from ALS:

 

Hi Otsog and thank you for your query.  As I understand it Alderon is already breaking ground and has ordered long lead items but I admit I am uncertain as to when their 26 month clock began ticking??  I will address this internally and possibly amend the slide accordingly.  Thank you for pointing out this apparent inconsistency.

 

Regards,

Chad

 

Really quick response.  I hope we get more concrete news from either ALS or ADV about the Kami timeline.  The Feasibility study is getting fairly antiquated.

 

 

Disclosure: adding more to ALS if it continues down to the 14s today.

 

 

[Liberty]

At this rate Glenn might soon be able to do a round trip :P

[alertmeipp]

I saw a post earlier on predicting we will go down to 14.5. How would he or she know?

[Blue Macaw]

The prediction was actually off by some. You will be able to buy some for 13.7-13.8 next week. That buy will however be a very good entrance point again. We now know the lowest value ought to be around 13.5 per share making the risk substantially lower if you could enter there. Altius will not go lower than that (or you would have a fantastic entrance point)

 

Still standing by my other prediction of 20 CAD by year end.