ALS.TO - Altius Minerals

[Guest Dazel]

 

Brk7,

 

 

I have completely massacred the 129 page prospectus....you are correct...the $36m and $39m are PMRL....I was up late last night and kept the numbers in my head...thx for pointing it out.

 

The simple math I was reconciling was $30m royalty + $6m (mamba) + $8m gain in Virginia

Mines....less tax-depreciation...Altius does not break down mark to market gains so we do not see it however, cash equivalents do rise from time to time. With Altius they make money usually each year in different ways besides the royalties.

Example are above....Rambler, Alderon, Aurora, IRC....Julienne Lake..they are lumpy but combined with the royalty streams average out they certainly add to cashflow with very little risk.

 

That was supposed to be my point! I will get some sleep!

 

Dazel

 

 

[craigatk]

According to Slide #11 of the Champion Iron Mines Limited & Mamba Minerals Limited

Business Combination Presentation found here: http://www.championironmines.com/vns-site/page-presentations.html

 

Altius may be receiving AUS$5.75MM in option payment due three months after exercising the option. Since Altius' latest fact sheet shows the Champion Iron Mines 3% NSR royalty as an asset, perhaps Champion has recently optioned the property and Altius will be receiving another lump of cash soon.

[leftcoast]

This business was bought at a very low price due to the fact that coal and potash have low prices now. This will change but might take some time as things do in this field.

 

I believe that almost 90% of the coal royalties are from electrical coal, and those royalties are tonnage-based and not affected by the commodity price (I guess except to the extent that production increases when prices are higher.)

 

Potash royalties, which do fluctuate with commodity prices, are only about one-third the size (today) of the electrical coal royalties.

[hohi]

Once all the dust settles we can probably expect a JV deal on the CDP properties within the next months. Also ALS will be busy to get Julienne Lake going after the government chooses the JL Alliance.

 

I understand the criticism because of the PP, but believe me - in 5 years nobody will talk about the dilution. It was a needed move to finish this transformational deal. Without the placement ALS wouldn't have got the money. Their equity positions are probably very, very illiquid and they were under time pressure, as Sherritt needed the cash. Of course it may have been short sighted of management to not see that coming but in the end value will prevail.

 

To a truly bright future of ALS, the new great royalty player with a deep, deep pipeline of projects to come.

[Blue Macaw]

According to Slide #11 of the Champion Iron Mines Limited & Mamba Minerals Limited

Business Combination Presentation found here: http://www.championironmines.com/vns-site/page-presentations.html

 

Altius may be receiving AUS$5.75MM in option payment due three months after exercising the option. Since Altius' latest fact sheet shows the Champion Iron Mines 3% NSR royalty as an asset, perhaps Champion has recently optioned the property and Altius will be receiving another lump of cash soon.

 

Yes I think they will receive this money. Would lower the debt some. Not bad. From 120 M to 114,2.

 

The 65 M will be to pay CDp 21, debt 20, unsecured 7,2 which would leave them with approx. 12 M on hand. So if they really needed to pay off the remaining 114 Million we have Alderon (current value of 51 M), Viriginia (30 M), Cranberry (30 M) and Callinan (5 M) + 12 M on hand = 128 M

 

The current debt/equity is however very healthy and I think they prefer(hope) to realize a higher value on Alderon shares instead of giving them up at this price. Cranberry also has a higher potential than the current valuation. Virigina I think is valued correctly at the moment. Altius should have sold some at 14 as Dazel suggested before but it is easy to say this now. Callinan I think is slightly undervalued at the moment. A fair price pught to be 2. 777 mine is expanding and they are drilling to extend mine life. Very low production costs at this mine which gives it a higher probability to continue mining more than the 8,5 years left. (If there are ore of course)

[Blue Macaw]

Once all the dust settles we can probably expect a JV deal on the CDP properties within the next months. Also ALS will be busy to get Julienne Lake going after the government chooses the JL Alliance.

 

I understand the criticism because of the PP, but believe me - in 5 years nobody will talk about the dilution. It was a needed move to finish this transformational deal. Without the placement ALS wouldn't have got the money. Their equity positions are probably very, very illiquid and they were under time pressure, as Sherritt needed the cash. Of course it may have been short sighted of management to not see that coming but in the end value will prevail.

 

To a truly bright future of ALS, the new great royalty player with a deep, deep pipeline of projects to come.

 

Believe me, no one will talk about dilution in a few months time (not years). As soon as the next JV deal is out we will go towards 15-16 again. If it is Julienne lake then that would just be fantastic. If a JV deal comes out from the CDP then people will understand the value of that. Since Altius has great connections with the Chinese (and I mean great, porbably the best in the business, and you need to hook up with the chinese these days) we will see potash and coal deals with them. China imported 300 M tons of coal last year. It is set to increase.

[Guest Dazel]

 

 

To be clear....I am not slighting Virginia Mines....strategically and as a company they are excellent operators. Really on par or better than Altius in the project generation game....Their discoveries are mostly gold and some zinc so it would give Altius more mineral diversification. I think long term Altius thinks they have more producing royalties coming like Elonore...however, they are not cheap and we will all be very very happy when Altius starts to get evaluated on par with Virginia.

 

As for iron ore falling at the wrong time...we should see a large portion of the 1.1 billion tonnes of iron mines in China stopping production at these prices as they are losing on average $20 to $40 a tonne producing it themselves.... the steel mills will buy every last tonne they can from overseas at these levels....just a matter of time before the price starts to rise again.

 

 

[gary17]

They can't sell Virginia due to liquidity.

 

[Guest Dazel]

They could have in January when gold was hot....to an institutional or Goldcorp...I think they dream of taking the whole company out.

[Guest Dazel]

 

 

When Franco nevada or Royal Gold takes someone out or buys an income stream it immediately gets a multiple of 20 times or better....any royalty or income stream is always in play...that is why Virginia looks so expensive.....Franco would have bought Altius stake....Dalton is also loyal and partners with Virginia...his integrity will win in the long term short term...it has bitten us in the ass with this financing....I will take integrity everyday of the week.

 

Altius eventually will be very expensive too.

[Blue Macaw]

 

 

When Franco nevada or Royal Gold takes someone out or buys an income stream it immediately gets a multiple of 20 times or better....any royalty or income stream is always in play...that is why Virginia looks so expensive.....Franco would have bought Altius stake....Dalton is also loyal and partners with Virginia...his integrity will win in the long term short term...it has bitten us in the ass with this financing....I will take integrity everyday of the week.

 

Altius eventually will be very expensive too.

 

Any idea of how much Virginia tends to dividend out to share holders? Half of revenue?

[Blue Macaw]

I checked out Franco nevada. Pays out 30 % of revenue.

[Blue Macaw]

I checked out Franco nevada. Pays out 30 % of revenue.

 

Which means it is not unlikely that Virginia Mines will pay 0,2 M to Altius in dividends for 2015.

[JAllen]

We found ourselves fixated on CDP and what it could be in a few years.  However, it appears that there are also near-term royalties that may come from CDP.  According to slides 10 and 25 of the latest presentation.  Is anyone aware of more information about the later-stage CDP assets that may generate royalties soon?

[Blue Macaw]

We found ourselves fixated on CDP and what it could be in a few years.  However, it appears that there are also near-term royalties that may come from CDP.  According to slides 10 and 25 of the latest presentation.  Is anyone aware of more information about the later-stage CDP assets that may generate royalties soon?

 

1,6 M if I am not mistaken. It is in their short prospectus. However it came with a cost so I am not sure how that will affect us.

[naboo]

Offer price is C$14,  why atusf is not at $12.75???  I have waited for two days for that price to load up.

[SharperDingaan]

Back of the envelope calcs ....

 

New share count of around 32.25M. 12 month forward earnings of 21.8M (31M revenue - 9.2M of 12 month run-rate expenses). EPS of $0.68 (21.88/32.25). They are unlikely to be paying taxes for at least the next 12-18 months, or longer.

 

The above average prospectus identified peers are FNV, RGL, LIF, SLW. Div payouts of around 75%, 33%, 82%. Div yields of 1.479%, 1.274%, 3.245%, 1.269%. Mix of monthly & quarterly payouts. Assume a dividend yield of 1.5% for ALS.

 

ALS has stated intent to pay dividends ASAP. At div payouts of 25%, 50%, 67%, 75%; $0.17, $0.34, $0.46, $0.51. Capitalize at 1.5% & you get $11.33, $22.67, $30.37, $34.00. At $14.40 & 1.5% div yield, the implied dividend is $0.22/yr (14.4x0.015) & a payout of about 33%.

 

So what?

 

Every $1M of additional royalty flow increases EPS by $0.0310. If 75% (FNV payout ratio) of that incremental royalty flows to additional div discounted at 1.5%, the share price rises by $1.55  (((1/32.25)*.75)/.015)=$1.55.

 

Add in that PRML/CDP are long-term assets, financed with LT Debt (repay at the same rate that the royalty flows deplete). If ALS expects Kami to move forward, & JL to follow, they could quite easily go to a 50%-67% payout (doubling) once these deals are announced. But if these deals are in trouble .....  the payout remains at 33%, as the earnings are not reliant on either of Kami or JL.

 

How much longer can it really be before there is a Kami announcement. It has been 3-4 months already.

How much longer can it really be before there is a JL announcement. It has been 1 month already.

 

SD

 

 

[Blue Macaw]

Back of the envelope calcs ....

 

New share count of around 32.25M. 12 month forward earnings of 21.8M (31M revenue - 9.2M of 12 month run-rate expenses). EPS of $0.68 (21.88/32.25). They are unlikely to be paying taxes for at least the next 12-18 months, or longer.

 

The above average prospectus identified peers are FNV, RGL, LIF, SLW. Div payouts of around 75%, 33%, 82%. Div yields of 1.479%, 1.274%, 3.245%, 1.269%. Mix of monthly & quarterly payouts. Assume a dividend yield of 1.5% for ALS.

 

ALS has stated intent to pay dividends ASAP. At div payouts of 25%, 50%, 67%, 75%; $0.17, $0.34, $0.46, $0.51. Capitalize at 1.5% & you get $11.33, $22.67, $30.37, $34.00. At $14.40 & 1.5% div yield, the implied dividend is $0.22/yr (14.4x0.015) & a payout of about 33%.

 

So what?

 

Every $1M of additional royalty flow increases EPS by $0.0310. If 75% (FNV payout ratio) of that incremental royalty flows to additional div discounted at 1.5%, the share price rises by $1.55  (((1/32.25)*.75)/.015)=$1.55.

 

Add in that PRML/CDP are long-term assets, financed with LT Debt (repay at the same rate that the royalty flows deplete). If ALS expects Kami to move forward, & JL to follow, they could quite easily go to a 50%-67% payout (doubling) once these deals are announced. But if these deals are in trouble .....  the payout remains at 33%, as the earnings are not reliant on either of Kami or JL.

 

How much longer can it really be before there is a Kami announcement. It has been 3-4 months already.

How much longer can it really be before there is a JL announcement. It has been 1 month already.

 

SD

 

Yes, we are here to stay around 14-15 until Kami deal or Julienne deal are announced. According to your calculations Kami will add a lot of value to the share price. 25 Million*1.55 which is more than I anticipated. We will see....I think we will see Kami deal and Julienne deal before summer. I suppose these things take time.

[SharperDingaan]

According to your calculations Kami will add a lot of value to the share price. 25 Million*1.55 which is more than I anticipated.

 

This is not until the ore is actually being delivered to the buyer on a routine basis, which is years out; & at that time the capitalization rate may well be higher than it is today (assumes global recovery).

 

But after Kami & JL are announced it will be very difficult to keep the div payout at just 1/3, especially when ancillary royalty flows are also expected & there is the possibility of future deals. Double the payout & they are still conservative, relative to peers, but with stock worth 2x todays value. Stock they can use to fund those future deals. 

 

So you have to wonder, why they would not simply trim todays raise back a bit; & go back to the market in 6-9 months once these deals are done, & the dividend payout stream actually evidenced. Obviously, there are other shoes to drop, but the fact these questions exist is not helping them.

 

SD

 

 

[bizaro86]

Well, we got diluted at a low price, but at least my account with Scotia didn't get any allocation of the cheap shares.  :'(

[gary17]

Okay, I'm sure I or others  have asked this .. can someone please just excuse my intelligence here... knowing that China the largest resource buyer has built like 3 billion homes and could be looking at a recession, how do the shareholders feel comfortable about this holding given the probability of a correction is quite high?!

[investor-man]

I think you're being a bit hyperbolic. China isn't looking at a recession, just lower growth. And the most bearish growth numbers are still at 6%. Also you can't forget that China is a communist country which means it has the benefit of leveraging both fiscal and monetary policy when times get tough, unlike the US which has a politically tough time pushing through fiscal policy.

 

Macro-musings are fun, but the reason to own this business is that it's a great business at a fair price.

[Blue Macaw]

Okay, I'm sure I or others  have asked this .. can someone please just excuse my intelligence here... knowing that China the largest resource buyer has built like 3 billion homes and could be looking at a recession, how do the shareholders feel comfortable about this holding given the probability of a correction is quite high?!

 

Ok what do you mean? The world going "bust"? Then you will have far weaker companies than Altius that is for sure. Actually I think Altius, with this move of aquiring the royalties, is in a far better position of handling a major recession than berfore. We are not leaning only on Kami now and we can still have growth. We did not have that before with only money in the bank and Altius putting money in companies like sparkfly, Cranberry etc.

 

I have thought about what I wrote berfore that if Kami is bust then Altius will see a correction to 10. I am not so sure anymore. We might see some correction but not more than to 12 maybe. These royalties are too good to be true.

 

If the world goes bust then Greece will look like a picnic in the park. US will have a major crack down then and the european countries will follow for sure including latin america who sells everything to China. But trust me China will be the next world leader and in 20 years from now the new world currency will not be dollars but yuan. So far US still has more than 51 % (of all things that can be negotiated with) but when that turns and China suddenly has more to but up on the table then it goes very quickly. Just pure mathematics.

 

Yesterday we had quite high volume and staying around 14,35. I think we will hang around these levels until next news. I do think Julienne lake will be first.

 

If there is a recession then none of all the mines will be built in Canada. (maybe Paladin CMB) If not a recession then Kami, Julienne lake and Fire lake North are the top 3 mines as I see it due to the closeness to infrastructure. (Maybe Rio Tintos/Altius Goethith bay which is located 6 km from Julienne lake). Altius has the upper hand and it is always good to have probabiltiy on your side

[Guest Dazel]

http://www.bloomberg.com/news/2014-05-04/baosteel-aurizon-bid-to-buy-aquila-in-a-1-4-billion-deal.html

 

And there China goes....expect to see a lot of deals at these prices...in all resources...they Have $4 trillion in reserves...what else are they going to do with them? Buy Treasuries at 2.57%? the key is how much foreign governements allow them to buy....I suspect this is happening now in Labrador...there is no reason not to allow the Chinese to own a big iron ore producer JL and Kami....all of the other producers are foreign owned in the area.

 

Dazel.

[gary17]

Thanks all.

I get the long term story.... I'm not questioning if it is good or not... I think it is very good.  But my question is more about if buying /holding at the current time frame is being rational. The market can be irrational, but as investors we must be rational.