ALS.TO - Altius Minerals

[Blue Macaw]

Two days of larger volume and an uptick in share price. Did we see the bottom there?

 

Kami will be built . Everything so far is just going like planned. The deal is what might scare me a bit. Will Altius get 2,02 for their shares or will it be less? I would take less and get started with it.

[Guest Dazel]

 

I would give the equity in Alderon away if I were Altius to get financing.

 

We are talking about one of the largest royalties it the world...altius' Kami royalty would be the second or third largest royalty in Royal Gold's portfolio about the same size as their share of Voisey  bay at 8mta production at Kami. It would be largest at 16mta...Chinese partners will take it to 16mta which it is approved for right away...they need the ore.

 

Keep in mind that Royal Gold has a $4 billion market cap.

[hohi]

Just a short comment on a take over from Silver Wheaton, Royal Gold or Franco-Nevada. It ain't gonna happen.

 

1.) Silver Wheaton has stated since its inception it'll always be 100% Precious Metals

 

2.) Royal Gold and Franco-Nevada have stated since at least 10 years that the maximum percentage of non-PM revenue they are going to get is around 80% of total revenue. That's because they get those huge multiple only because they are seen as a PM vehicle. Below 80% investor sentiment shifts and the royalty company won't get the same multipe any longer.

 

I personally don't understand the logic behind the extra multiple investors are willing to pay for a PM royalty company, but it's the truth. Imho ALS should get at least the same multiple or even a higher one as the assets are longer life and higher quality. But that will remain just our dream.

[Guest Dazel]

http://www.businessweek.com/news/2014-05-07/mine-m-and-a-set-to-double-as-china-returns-in-coal-to-copper-deals

 

 

The deal we want is from Steel makers from China.

 

They have "just" relaxed the regulation in deals below $1 billion in China.. they no longer need approval from NDRC...so the long process we had with Hebei is no longer necessary. This is very good news for Alderon the high water mark previously was $100m.

 

http://blogs.wsj.com/moneybeat/2014/05/15/loosening-of-china-outbound-rules-still-raises-questions/

 

[SharperDingaan]

It ain't gonna happen.

 

ALS would be bought to liquidate - with zero intent to keep anything coal, iron, potash, uranium, etc. Pay with equity, dump the royalties for cash - & repay debt &/or pay-out a special dividend - or buy back stock. The acquirer is just buying inventory cheap, & selling expensive - PM royalties would just muddy the process. Catnip for management, shareholder, & I-Bankers does not come much purer. 

 

SD

[ap1234]

The topic of Altius valuation has come up on numerous occasions so I thought I would add my 2 cents. To be clear, I am speaking specifically about how I think about the value of the acquired royalties from Sherritt. My post does not address how to value the other assets (Voisey Bay, Kami, JL, etc.).

 

Throughout this thread, several people have highlighted that Altius paid significantly less (9-10x EBITDA) for the Sherritt royalties than historical M&A transactions or other publicly traded comps (Franco, Royal Gold, etc.) which can trade anywhere from 15-30x EBITDA. The premise was that Altius got a ‘bargain’ price and that these acquired royalties are actually worth substantially more than 10x EBITDA. The logic follows that if you apply a 20x multiple (i.e. the multiple of their peers), Altius is dramatically undervalued at today’s stock price. 

 

I recently spoke with the management of Sherritt. I inquired about the process when they sold their royalty assets last December. Sherritt said they had discussions with bankers and considered many options (including a spinoff) on how best to unlock the value of their coal/potash assets. Ultimately, Sherritt decided that the best way to maximize value was an auction process.

 

There were several royalty companies (Franco & Sandstorm), P/E firms and pension funds that bid on the Sherritt assets. The Altius bid was the highest. According to Sherritt, the reason the assets sold at a significant discount to other royalty transactions (i.e. 9-10x EBITDA) has to do with the nature of the assets (i.e. thermal coal is less attractive than precious metals, some of the coal assets have very short reserve lives less than 10 years, etc.). Sherritt thought that the potash royalties (because of their long lives) were close to 50% of the value of the portfolio (even though they are a smaller % of the current royalty revenues).

 

In effect, this was not a distressed sale. It was a competitive bid with other rational private market buyers of royalty assets. The idea that Altius paid 10x for something that is actually worth 20x suggests that other sophisticated and knowledgeable buyers dramatically undervalued the asset.

 

In essence, every royalty asset is different. There are different commodities, different reserve lives, different opportunities for mine expansions, mine development, etc. Simply applying a 20x multiple to Altius’ because other royalty companies trade at 20x seems somewhat aggressive to me.

 

To be clear, I have no idea how the MARKET will value Altius’ royalties. Maybe if Altius eventually pays out 90% of their royalties (after the debt is reduced) and becomes a dividend paying royalty company, the market will value their business similar to Labrador Iron Ore or other high yielding royalty companies that trade at lofty valuations (I would be thrilled if this happens!).

 

Personally, regardless of what company I am looking at, when I calculate my NAV I try and value the different assets based upon what a private market player (a rational buyer) would pay for 100% of the asset and NOT what an irrational stock market investor might pay at a moment in time (I am not a big fan of relative value). At times, if the market is willing to pay a higher price for an asset because they are craving yield, that is fantastic (a free option)! But I would never value the company assuming that the market is irrational. I would tend to use private comps as a rough proxy for what the asset is worth (unless there is a unique situation why the asset was sold in distress, the business is structurally changing, etc.).

 

I hope that Altius trades at 20x EBITDA in the future but I'm not sure that today the acquired Sherritt royalties are worth that valuation.

 

 

[Guest Dazel]

 

Here is how it sounds to Franco Nevada investors and they would be nuts not to do it.

 

 

We have bent our portfolio make up guideline's somewhat in order to take over Altius Minerals. They are one of only Five major royalty companies in the world remaining. They will be accretive immediately to our cashflow and we will be able to raise our dividend as a consequence.

 

As result of this take over we have secured an equity investment into the Elenore Gold royalty from Gold Corp. We think that this Gold field may be the next great Gold world camp. We also have attained a royalty on the Kami project which would add another $25m to our royalty stream.

 

As per our policy we have not purchased Altius other projects that are not precious metal related which we understand will be spun out as Altius spin co.

 

We are very pleased that we will add $31m in royalty revenue immediately and $56m in 2016. Our equity in Virginia mines means we will have direct access to the world's next great gold camp. We have agreed to issue Altius .0767  of our shares for a purchase price of $560m.

 

Dazel

[Guest Dazel]

 

Sherritt sold the stake in a hurry when they saw Clarke coming...of course they are going to tell you that AP1234.

 

Are they going to say that we got what we could because our debt covenants were close to being breached and we knew we were going to have to cut our dividend? Remember the price was almost half a billion "CASH" that would exclude all except maybe Franco...but they just paid a billion to buy into a project in South America. Liberty's  involvement allowed Altius to offer cash...No one else could.

[Guest Dazel]

 

Ap1234,

 

Thank you for doing some research...I have talked to parties involved as well. Sherritt would be in big trouble had they not sold and Nickel did not rise...big trouble. That is why Clarke went in.

 

The "BIG" issue that all are missing with the PMRL deal Franco et all were not allowed to use their multiple to buy...in other words if they could have bought the royalties with their shares they would have...because it was a cash deal they could not bid unless they went to market and raised cash with their shares premium and then paid cash. Hohi, is right in this instance the investment bankers would not want to raise equity for royalties that were not PM and $500m cash is not a small sum!....they also did not have time to do it... so they put low ball bids and tried to steal it.

 

The ebitda multiple is between 15 and 30.....take your pick...

[beerbaron]

 

Ap1234,

 

Thank you for doing some research...I have talked to parties involved as well. Sherritt would be in big trouble had they not sold and Nickel did not rise...big trouble. That is why Clarke went in.

 

The "BIG" issue that all are missing with the PMRL deal Franco et all were not allowed to use their multiple to buy...in other words if they could have bought the royalties with their shares they would have...because it was a cash deal they could not bid unless they went to market and raised cash with their shares premium and then paid cash. Hohi, is right in this instance the investment bankers would not want to raise equity for royalties that were not PM and $500m cash is not a small sum!....they also did not have time to do it... so they put low ball bids and tried to steal it.

 

The ebitda multiple is between 15 and 30.....take your pick...

 

I agree with Dazel, there was no way Sherrit would do a spinoff of the royalties. They needed cash.

 

BeerBaron

[Guest Dazel]

http://www.alarisroyalty.com/files/doc_presentations/2014/Alaris%20Investor%20Presentation_May%205-2014.pdf

 

 

You do not have to be a precious metal royalty to get the multiples we are talking about. Alaris could buy out Altius with debt and stock keep the royalties and sell the rest....they are getting about a $800m market cap on around $50m ebitda.

 

A royalty is a royalty and it does "not" have to be Gold! Dividends matter....income investors are looking for it....especially now.

[Guest Dazel]

Your more obvious multiple comparison is Labrador iron royalty. Their multiple is in the range of 18 x and Altius would be a tremendous fit now that they are full of cheap royalties. It is also likely that investors would appreciate the other iron assets that Altius holds namely Kami and JL which is 6 km from their royalty and part ownership of IOC.

At a $2 billion dollar market cap they could easily issue their premium shares to takeover Altius' cheaper valuation. Knowing that Kami and JL could give  them an enormous upside. This merger may perhaps make sense to Altius as with the Franco Nevada example that Altius spin co...could keep CDP and some of the other projects to start over after getting paid with their new partners premium shares and the dividend yield they would receive.

 

My point in all of this is obvious...all of the other royalty companies are trading at multiples that are much higher than Altius. The argument that only precious metals companies command high

premiums and that they only buy gold and silver royalties is false. Investors want cash flow and dividends and they "will" pay a premium multiple for royalties because management can't screw them up. Royalty companies have few opportunities to get good prices for other royalty streams and they will buy them with aggression when they get a chance.

 

Dazel

 

 

[SharperDingaan]

The message here should be very clear.....

 

Once Kami is announced, ALS either rises smartly on initiation of a dividend stream - or it gets sold in a take-out. The good news is that it is going to be hard to steal ALS via a lowball bid, to remain independent ALS is going to have to initiate a larger payout, & competitive bidding for one of the top 5 royalty companies will drive down yield - & raise price. What is not to like.

 

Catnip.

 

SD

 

[Guest Dazel]

Nostradamus,

 

 

I get it now I looked at the Raymond James report...it is terribly done. If people did not understand Altius before they will understand it less after reading that report. Embarrassing really....forgive me I never read that crap generally. If it is meant to confuse the shit out of the reader they did a good job...I realize that 2014 year end is April 30...but they leave impression that Altius does not have any revenue coming in...looks like a mistake....because of the jv earnings...so you do not get to see the straight $31m ebitda number anywhere as it run out through accounting principles and associates losses.

 

No wonder the equity raise was botched. No one has a clue what is going on at Altius...you would have to be a chartered accountant to understand any of it. Most people don't know how a market cap

is calculated! Wow market action on the stock makes more sense now!

 

 

Dazel.

[TwoCitiesCapital]

The topic of Altius valuation has come up on numerous occasions so I thought I would add my 2 cents. To be clear, I am speaking specifically about how I think about the value of the acquired royalties from Sherritt. My post does not address how to value the other assets (Voisey Bay, Kami, JL, etc.).

 

Throughout this thread, several people have highlighted that Altius paid significantly less (9-10x EBITDA) for the Sherritt royalties than historical M&A transactions or other publicly traded comps (Franco, Royal Gold, etc.) which can trade anywhere from 15-30x EBITDA. The premise was that Altius got a ‘bargain’ price and that these acquired royalties are actually worth substantially more than 10x EBITDA. The logic follows that if you apply a 20x multiple (i.e. the multiple of their peers), Altius is dramatically undervalued at today’s stock price. 

 

I recently spoke with the management of Sherritt. I inquired about the process when they sold their royalty assets last December. Sherritt said they had discussions with bankers and considered many options (including a spinoff) on how best to unlock the value of their coal/potash assets. Ultimately, Sherritt decided that the best way to maximize value was an auction process.

 

There were several royalty companies (Franco & Sandstorm), P/E firms and pension funds that bid on the Sherritt assets. The Altius bid was the highest. According to Sherritt, the reason the assets sold at a significant discount to other royalty transactions (i.e. 9-10x EBITDA) has to do with the nature of the assets (i.e. thermal coal is less attractive than precious metals, some of the coal assets have very short reserve lives less than 10 years, etc.). Sherritt thought that the potash royalties (because of their long lives) were close to 50% of the value of the portfolio (even though they are a smaller % of the current royalty revenues).

 

In effect, this was not a distressed sale. It was a competitive bid with other rational private market buyers of royalty assets. The idea that Altius paid 10x for something that is actually worth 20x suggests that other sophisticated and knowledgeable buyers dramatically undervalued the asset.

 

In essence, every royalty asset is different. There are different commodities, different reserve lives, different opportunities for mine expansions, mine development, etc. Simply applying a 20x multiple to Altius’ because other royalty companies trade at 20x seems somewhat aggressive to me.

 

To be clear, I have no idea how the MARKET will value Altius’ royalties. Maybe if Altius eventually pays out 90% of their royalties (after the debt is reduced) and becomes a dividend paying royalty company, the market will value their business similar to Labrador Iron Ore or other high yielding royalty companies that trade at lofty valuations (I would be thrilled if this happens!).

 

Personally, regardless of what company I am looking at, when I calculate my NAV I try and value the different assets based upon what a private market player (a rational buyer) would pay for 100% of the asset and NOT what an irrational stock market investor might pay at a moment in time (I am not a big fan of relative value). At times, if the market is willing to pay a higher price for an asset because they are craving yield, that is fantastic (a free option)! But I would never value the company assuming that the market is irrational. I would tend to use private comps as a rough proxy for what the asset is worth (unless there is a unique situation why the asset was sold in distress, the business is structurally changing, etc.).

 

I hope that Altius trades at 20x EBITDA in the future but I'm not sure that today the acquired Sherritt royalties are worth that valuation.

 

Thank you for bringing a little sobriety to the thread. I've argued on 2 or 3 occasions against the arbitrary use of multiples in favor of a range of DCFs using different iron ore prices and discount rates. Range of value is wider but definitely gives the general progression as upwards.

 

Unfortunately people still want to use arbitrary multiples and relative value concepts. Good luck getting them to change their minds.

 

As for the auction, it's possible to get a steal even in the auction. After all, what is the stock market if not a continuous auction day after day. The general perception towards coal is negative because of environmental concerns. The general attitude towards potash is negative due to pricing concerns now that an collusion and price setting has been ruined. Altius bought good assets at what is likely a cyclical bottom; the pop in price came as part of a re rating due to a large amount of unproductive assets becoming productive and generating positive cash flow. In the long term, altius will likely have gotten a deal even if they were the highest bidder in a public auction. Also, as others mentioned, there was a need for cash. Altius had it and was willing to supply more of it than others. We see that, the market doesn't but it doesnt warrant the immediate premium/rerating many are giving it in the present. It will take years for the market to realize, and reward, it's mistake.

 

Altius is my largest position, but I think it will take many years to realize it's full value and will not be as simple as a few choice acquisitions and royalties given the negative perception of many of its assets.

[Blue Macaw]

The message here should be very clear.....

 

Once Kami is announced, ALS either rises smartly on initiation of a dividend stream - or it gets sold in a take-out. The good news is that it is going to be hard to steal ALS via a lowball bid, to remain independent ALS is going to have to initiate a larger payout, & competitive bidding for one of the top 5 royalty companies will drive down yield - & raise price. What is not to like.

 

Catnip.

 

SD

 

Yes you are right. Kami is the key still. It was before as well and it still is. With kami we can reduce the debt and get a tremendous project going. It will push the share price above 20 and that is what I am counting on for 2014-12-31. Dividends will be paid as soon as Kami deal is structured. Hopefully within 1-2 months.

 

Meanwhile I keep on adding at these prices. Resistance seems to be around 13 so that will mark a good entrance point.

 

Kami now has 4 out of 5 permits finished. Only missing the water monitoring permit. (Should be ok in the end. Don´t expect this to cause any major problems). As it sounded on CEO in this latest interview they are looing for more debt than equity and that the debt will come from China?

 

The only concern I have is why no Chinese bought Rio Tinto´s part in IOC (Carol lake)? Too expensive at 4 B USD? That would have given them 10 M tons of iron ore with the potential of getting to 25 M. Are they more in to organic growth and keeping minor equity stakes in companies instead? Julienne lake would be one of few where the Chinese would have more than 50 % in a project.

[Blue Macaw]

Alderon getting some heavy names as board members...

[hohi]

I was not saying ALS is not a take-over candidate. What I was saying is that the big three PM royalty companies won't buy them out. It is interesting though to hear that FNV bid for the Sherritt royalties. I can only imagine they put in a stink-bid just in case all the other offers were even worse. Thankfully ALS got the deal!

 

As for the multiples... FNV and RGLD get a premium over the base metal companies, although it is not huge. SLW looks cheap right now. Alaris seemed always a bit overpriced to me, but the business model is great. But in case of a major slow-down in the economy I can't dig deep enough into their royalties to know their partners would survive. That's why I am not invested in Alaris.

 

As for a ALS take-over: I could imagine a private equity group or the Labrador guys as Dazel suggested. If they spun out the prospect generator business unit with the Voisey's Bay royalty I would even appreciate it. The upside from the prospect generation would be so much bigger!

[cwericb]

"Alderon getting some heavy names as board members..."

 

Specifically:

 

"Alderon Iron Ore Corp. (TSX:ADV)(NYSE MKT:AXX) ("Alderon" or the "Company") is pleased to announce that it has appointed Mr. Ian R. Ashby, former President, Iron Ore of BHP Billiton Limited ("BHP Billiton") and Mr. W. Adrian Loader, former President and CEO of Shell Canada to the Board of Directors effective immediately."

 

[alertmeipp]

Prairesky up 30 percent from its ipo price and adv looking better daily.

 

Als continue to suck wind. Nice.

[EliG]

Alderon getting some heavy names as board members...

 

Buried at the bottom of the same press release:

 

Alderon is also pleased to announce that it has received Toronto Stock Exchange ("TSX") approval to hold its annual general meeting ("AGM") on July 29, 2014, outside of the TSX requirement that a company hold an AGM within six months of its year end. Alderon is evaluating several transactions that may require shareholder approval and chose to delay the holding of its AGM rather than holding multiple shareholder meetings in short succession.

[craigatk]

Alderon getting some heavy names as board members...

 

Buried at the bottom of the same press release:

 

Alderon is also pleased to announce that it has received Toronto Stock Exchange ("TSX") approval to hold its annual general meeting ("AGM") on July 29, 2014, outside of the TSX requirement that a company hold an AGM within six months of its year end. Alderon is evaluating several transactions that may require shareholder approval and chose to delay the holding of its AGM rather than holding multiple shareholder meetings in short succession.

 

Good find!

 

 

Prairesky up 30 percent from its ipo price and adv looking better daily.

 

Als continue to suck wind. Nice.

 

I bought more at 13, expect it to suck for a while ... sorry!

[alertmeipp]

I saw that. Thats why I said adv is doing better daily. Kami will get built sooner or later. There will be couple large liquidity event soon on it soon I suspect.

The selling might be coming from recent financing.  They just get rid of inventory at all cost. Nice time to add imo.

[Liberty]

I was lucky*, I got a nice chunk at the low of the day.

 

*I'm sure it's just temporary and it'll tank by 20% now that I've added.

[lessthaniv]

I got filled over the course of this week too. Which should be interpreted as ... " probably gonna drop from here".

:)

 

Thanks for all the board contributions to date. It really helped to build a better understanding of the business. Resource plays are not my area of expertise but given the royalty model developing here, it gives me some additional comfort.