ALS.TO - Altius Minerals

[giofranchi]

I agree with Trap Alderon has failed...

 

That’s why I ask again: what would ADV true operating costs per ton of iron ore be? Because, if they are around $60, some 30% higher than what management said they would be!, how could Kami be a bust?! It would be among the low-cost producers of iron ore in the world… Practically impossible to fail! ;)

 

Gio

 

[Liberty]

Quite the change in sentiment from a couple months ago... Maybe that's a contrary indicator.

[frommi]

Quite the change in sentiment from a couple months ago... Maybe that's a contrary indicator.

 

The question is if this board is a good contrary indicator, but you are right this makes me a bit uncomfortable, too. I love being alone with my position, its possible that ALS was my worst idea this year. :)

[SharperDingaan]

 

Kami will be auctioned if management cannot put a deal together..their clock is ticking. We assume that the board brought in the heavy hitters for this process.

 

Agreed. One of the smartest things ADV could do ASAP, would be to spin off the Kami Project into a separate legal entity, initiate an auction process to commence in roughly 30-60 days, & actively discriminate against Chinese financing (ie: all bids must be financed by Cdn banks). If your partner wont dance ... find another one.

 

China can choose to either own the production, or pay higher prices on the open market; the clock is ticking, their choice.

 

SD

 

 

[Blue Macaw]

There will be a deal. Alderon might not get what they could have but I am sure we will see a deal. Altius will probably not get more than 1,5 for their shares which still leaves them with roughly 50 M. If they can´t get anything then we are in trouble as Altius then need to sell everything they have to pay off the debt or sell some royalties to cut the debt. They played it high hopefully they will pull it off.

[alertmeipp]

 

Kami will be auctioned if management cannot put a deal together..their clock is ticking. We assume that the board brought in the heavy hitters for this process.

 

Agreed. One of the smartest things ADV could do ASAP, would be to spin off the Kami Project into a separate legal entity, initiate an auction process to commence in roughly 30-60 days, & actively discriminate against Chinese financing (ie: all bids must be financed by Cdn banks). If your partner wont dance ... find another one.

 

China can choose to either own the production, or pay higher prices on the open market; the clock is ticking, their choice.

 

SD

 

you think they can get financing from cdn banks? auction off a iron ore mine now in current environment is the best?

 

i disagree with both.

 

[SharperDingaan]

"you think they can get financing from cdn banks? auction off a iron ore mine now in current environment is the best?"

 

Kami has a lower cost/ton than just about everyone else. It is quite saleable.

Sched-A Cdn banks to guarantee the financing & take a cut - not provide it. No different to stamping commercial paper.

But if all 5 will not guarantee your financing, your financing can only be interpreted as 2nd rate - with resultant loss of face.

 

Or ...

 

Have a discussion behind closed doors, & put the gaming away.

Everybody walks away happy

 

SD

 

 

 

 

[netnet]

The market's reaction to the news was pretty mild.  (But remember to make the market your slave as opposed to the reverse!)

[ItsAValueTrap]

I agree with Trap Alderon has failed...

 

That’s why I ask again: what would ADV true operating costs per ton of iron ore be? Because, if they are around $60, some 30% higher than what management said they would be!, how could Kami be a bust?! It would be among the low-cost producers of iron ore in the world… Practically impossible to fail! ;)

 

Gio

 

You should do your own back-of-the-envelope feasibility study.

 

1- Easiest way of looking at it:

BBA's technical reports say that Kami will have higher costs than Bloom Lake.  (BBA having done work on both.)  Of course, BBA's credibility is a little shoddy given that it missed bigtime on Bloom Lake's costs.

 

You take the Bloom Lake operating costs that Cliffs is reporting and add some number onto that.  BBA's report for Kami states that there will be $15/ton in quality deductions.  This might put you in the right ballpark.

 

2- Look at Kami's characteristics and try to figure out what their costs will be.

 

The grade is low.  Unfortunately, grade is one of the biggest factors in cost ("grade is king").  The grade is significantly lower than the lowest-cost producers in the world.

Quality of concentrate - Kami has some problems due to sulfur and manganese.

 

--

 

Metallurgy - You'd have to read the technical reports to get a better handle on this situation.  It's possible that the feasibility study is underestimating the costs of processing the ore.  Metallurgy and the quality of ore are related.  More expensive processing might be needed to improve the quality of the final concentrate.

 

Cost of labour - High.  The area has a shortage of labour and housing and may require lots of fly-in fly-out labour.  Wabush closure helps a little bit.

 

Freight - "High".  Canada is further away than Australia and Brazil.

 

Political risk - low.

 

Mining method - open pit.

 

Reserve estimation - may be inflated.

 

2b- Given Kami's grades and the quality of its ore, it makes no sense that it would be among the lowest-cost producers in the world.

 

3- I'm telling you... Dalton is brilliant.  If the shares were fairly valued, he likely would have issued convertible debt as originally planned/projected.

 

He sits on Alderon's board so he should have a pretty good idea as to Kami's chances of getting financed.

[alertmeipp]

good call on selling ALS when everyone else is talking high about it.

[netnet]

good call on selling ALS when everyone else is talking high about it.

 

Except that we all have probably traded away multi baggers.  Buffett just happened to learn that lesson before his 15th birthday!

[wachtwoord]

good call on selling ALS when everyone else is talking high about it.

 

You seriously think this stock is overvalued?

[alertmeipp]

good call on selling ALS when everyone else is talking high about it.

 

You seriously think this stock is overvalued?

 

Doesn't really matter. Valuetrap gets out 10-15% above the current price so he made a good call (at least for now).

 

If a deal comes next Monday and ALS pops to 20 bucks. Then, it's a different story. I assume Valuetrap has not bought back in.

 

[ItsAValueTrap]

Investing the easy way:

If management is really good and they're buying back shares... you should probably buy.

If management is really good and they're selling shares in secondary offerings, PIPE placements, private placements, etc.  .... you should probably sell.

You won't be right all the way, but these are the bets you want to take.

 

Investing the hard way:

Do your research and perform your due diligence.  For example, look at other operating mines in the world.  Look at their grades and their operating costs.  Bloom Lake will likely be the most comparable to Kami.

 

Haven't you guys figured this out?

[TwoCitiesCapital]

good call on selling ALS when everyone else is talking high about it.

 

You seriously think this stock is overvalued?

 

Doesn't really matter. Valuetrap gets out 10-15% above the current price so he made a good call (at least for now).

 

If a deal comes next Monday and ALS pops to 20 bucks. Then, it's a different story. I assume Valuetrap has not bought back in.

 

I think this is a poor way to analyze this. Investing is a probabilistic process that should be judged based on the process and it's long-term implementation and not on the results of a single trade. Was ValueTrap good with this trade or simply lucky? It's impossible to tell.

 

Let's assume a hypothetical situation where there is a 75% gain of and 25% of an equal loss. You take the bet against and it just so happens that it's one of those times that make up the 25%. That doesn't mean you were smart or right. It simply means you got lucky because pursuing this strategy long term actually looses you money.

 

ValueTrap had sound logic for why he was selling: management was selling. The people who held had sound logic for holding: we felt the shares being sold were less undervalued then the assets that were being purchased with the proceeds. It's impossible to tell who was right/wrong and lucky/unlucky in this given situation. It could simply be that we're in that 25% of the time phase - metaphorically speaking. I'm in no way suggesting those are the actual probabilities for Altius/Kami.

 

Quite the change in sentiment from a couple months ago... Maybe that's a contrary indicator.

 

I too am quite surprised by the quickness in which we've turned around. I don't intend to be someone who is anchored to my original value/probabilities but I'm also not one to change my thesis so dramatically in so little time with so little changed. It's bizarre! Over the last two months individuals have made the following arguments:

 

1) Kami is likely to be built because of for strategic reasons (Chinese need leverage of ownership to negotiate global prices)

2) Kami is the most likely to be built because long-term iron prices will likely have a floor where Kami is profitable ($100).

3) Kami is the most likely to be built in Canada due to it's proximity to rail and infrastructure

4) Kami could combine with JL and/or Wabush and create a super-mine with better economics

5) Kami will get help from Canadian banks because the Chinese refuse to play ball and the government wants it done

6) Kami will get help from Chinese because Canadian banks refuse to play ball and the Chinese need iron

7) We had confirmation from Chad in early May with expectations of financing being finished in 30-60 days and a cost structure that would somewhere around $65/ton.

8 ) The announcement that the shareholder meeting would be delayed sent the group into a frenzy speculating that it meant the financing deal would be done, an conglomeration of the 2 or 3 mines confirmed, or a sale.

 

Now, obviously some of these are contradictory but it's amazing to me how an announcement that financing is likely to be delayed results in a complete 180 and none of these are possible or plausible and our heads were in the clouds and the management was clearly being largely promotional to the point of lying. I don't think the announcement warrants that dramatic of a change.

 

As many have pointed out, even with iron assets at 0 Altius is attractively priced compared to peers with several attractive long-term opportunities and management with a history of being smart and savvy. If Kami is a failure, JL probabilities go down as well, but we're still waiting to hear the news on that later this summer. There's still time to for them to announce normal financing for Kami, or pull a mega deal with JL/Kami before the year end. Even if it doesn't get done this year, if Kami can really achieve costs below $100 then we'll be good to go at some date in the future and Altius will still have the royalty.

 

As far as I can tell, Altius has risky assets that are highly volatile but that are more likely than not to payoff. The best part is even if they don't, you're still getting a fair price because you didn't pay for the upside potential on these assets. Buy it. Sit on it. Thank me in 5 years.

[ItsAValueTrap]

ValueTrap had sound logic for why he was selling: management was selling.

I sold a few days before the secondary offering was announced.  I had no idea that Altius would be selling shares in a secondary offering.

 

ValueTrap had sound logic for why he was selling: management was selling. The people who held had sound logic for holding:

1- Sure you're trying to be polite and that's cool.  But you're saying that both sides of a thesis have "sound logic".  That's silly.  I don't think that both sides can be right.

 

2- I have no position in this.  It's your money and I hope you don't lose it.

 

I don't think you understand how hard it is to value these assets without:

A- A team of specialized engineers.

B- Access to technical data.

Senior miners can perform due diligence at a high level because they have A and B.  Freeport McMoran didn't get burned by Bre-X because it performed its due diligence, unlike the investment bank analysts and institutional investors.  I don't think you know what you're doing and that worries me a little.

 

I was never able to value Altius accurately and I still can't.

[Liberty]

I was never able to value Altius accurately and I still can't.

 

I'm curious why you decided to own it and feature it as one of your best ideas on your blog. Was it speculative to you?

[alertmeipp]

The reason I said ValueTrap made a good call was mainly because many of us thought the stocks will go higher, hold on or added. He saved himself good 10-15% and he always has option to buy back in (which I suspect he might soon).

 

I think ALS is cheap here. Probably way cheaper than it was at 8 - 9 bucks.

[ItsAValueTrap]

1- I thought that the margin of safety was there.  Iron ore prices were also higher.  It seemed reasonable to think that Kami had good chances of being built back then.  You can certainly read my old posts because they record what I was thinking at the time.

 

Alderon/Kami is inherently speculative because there's a lot of risk with early-stage projects.  I definitely did not assume that Kami would get built... that's clear in my guestimate as to what the Kami royalty is worth.

 

1b- Obviously if you buy Altius, you are exposed to iron ore prices whether you like it or not.

 

2- If Dalton buys back shares again, I will definitely be looking at Altius.

 

3- To some degree, development-stage projects change in value very rapidly.  Suppose that a project has a 66% chance of turning into a mine.  (For whatever reason, the rule of thumb in my head is that two thirds of promising deposits will turn into a profitable mine.  I don't know if that's correct.)  If the company finishes its feasibility study and figures out that the mine isn't viable, then suddenly the intrinsic value of that project drops dramatically.

 

I think it does make sense to change opinions on a junior mining stock very quickly.  The intrinsic value does move very quickly.

[ItsAValueTrap]

The longer Alderon takes to get financed, the less bullish on Kami you should be.  No news is bad news.

 

a- If Alderon got financing, there would be news.  Therefore, no news means that they *didn't* get financing.  Most juniors try to keep the news flow going to pump the stock.  So what you want to look for are press releases on silly irrelevant things.  If a junior constantly pumps out press releases about irrelevant stuff and dances around its real issues, then something is up.  I'm not saying that Alderon did this.  It issues BS press releases all the time, so its latest behaviour isn't unusual.

 

However, Morabito has come out and said that they don't have financing (yet).

 

b- Alderon went "all-in" on Kami.  It bought equipment that is useless without a mine.  That equipment even turns into a liability because they have to spend money putting it on care and maintenance at some point.

 

c- The faster the mine is built, the higher the NPV is.  Management is supposed to get financing in a timely fashion, otherwise value is being lost.

 

he always has option to buy back in (which I suspect he might soon).

Haha.  I don't see myself buying Altius shares anytime soon.  The intrinsic value of the Alderon shares and the Kami royalty are lower now than a year ago.  Iron ore prices have come down.

 

But I suspect that there is something wrong with the Kami project and that Dalton knows it.  There's certainly something wrong with Altius.  Dalton said that he would do convertible debt and he did a secondary offering instead.  Through his actions, Dalton definitely doesn't seem confident about Altius.  By issuing shares, he can dilute Altius' problems.

[giofranchi]

2b- Given Kami's grades and the quality of its ore, it makes no sense that it would be among the lowest-cost producers in the world.

 

3- I'm telling you... Dalton is brilliant.  If the shares were fairly valued, he likely would have issued convertible debt as originally planned/projected.

 

He sits on Alderon's board so he should have a pretty good idea as to Kami's chances of getting financed.

 

Thank you ItsAValueTrap,

I do not even try to follow your analysis… It is definitely out of my circle of competence… Therefore, I ask you again: is Mr. Dalton in the 99th percentile, or is he not?

If he is, please answer this questions that I don’t understand:

 

1) Has he worked a long time to build Kami… which is an iron mine with high operating costs?! I am not in the 99th percentile… not by a long stretch… but I know that, when it comes to commodities, business gets interesting only if you are among the low cost producers! And Mr. Dalton ignores this?!

 

2) You are practically saying ADV management lied about Kami’s operating costs… one thing I am sure: an entrepreneur in the 99th percentile doesn’t get himself involved with people who lie.

 

Both 1) and 2) are completely inconsistent with the idea Mr. Dalton is in the 99th percentile. So, either 1) and 2) are false, or Mr. Dalton is not such a good entrepreneur as we thought.

 

No, I don’t think I agree. You want to issue debt only if you buy assets that produce safe and steady cash flow. The royalties do, the CDP doesn’t yet. What looks like a “good judgment” in hindsight, issuing stocks at $14, was actually nothing but conservative business practice. Exactly what I expect from an entrepreneur in the 99th percentile. Furthermore, new equity as a financing mean had always been contemplated: on page 5 of the Management’s Discussion and Analysis for the period ended January 31, 2014, we read:

The Corporation intends to finance the purchase of Prairie Royalties and CDP using a number of sources that may include current cash, a senior debt facility of up to $80 million, asset and available for sale equity dispositions and new corporate equity.

All that “shock”, when new equity was finally issued, is simply unjustifiable.

 

2- If Dalton buys back shares again, I will definitely be looking at Altius.

 

Also this I don’t understand… You seem to be very interested about stock buybacks… But they don’t always make sense! Even if the stock is undervalued! Let me give you a simple example that everyone can understand: let’s suppose Mr. Buffett has just bought one “elephant” of his, and BRK's cash has declined below what he judges to be the safety threshold… and BRK stock trades at 1.15 x BV… Do you imagine him buying back stocks?! Absolutely not! Because it doesn’t make business sense!

It is all about this: what makes sense in business. And there are not specific rules that can always be applied. It depends on the circumstances. Period.

 

There's certainly something wrong with Altius. 

 

The only reason there could be something wrong with Altius is if Mr. Dalton is not in the 99th percentile. ;)

 

Gio

 

[giofranchi]

So ItsAValueTrap,

given the fact yesterday you first said the most bullish thing that can be uttered about any business, that it is led by an entrepreneur in the 99th percentile, and later you went on saying all kinds of bearish things about ALS… I would like to know: what do you really think about Mr. Dalton?

 

Here I would also add what I think about people’s objection that Mr. Dalton was able to do what he has done until now, only because he found himself in the midst of a secular bull in commodities we will never witness again:

That argument to me sounds like saying that a very successful venture capitalist enjoys a wonderful track record thanks to the fact he operated during a long bull market in stocks… Though a bull market certainly helps, both a venture capital and a PG dabble in very small things with the hidden potential of becoming huge. Their business model is investing little capital in many newly formed entities, expecting to score big profits in only a very few of them. What do you think is the correlation between those very few entities which increase 50x or 100x and the general market? I dare say very small! Don’t you agree?

 

If Mr. Dalton is truly good at what he does, ALS will keep growing. And now with the stability a portfolio of royalties with safe and steady cash flow guarantees.

 

So ItsAValueTrap, is Mr. Dalton in the 99th percentile, or is he not?

 

Gio

 

[giofranchi]

If they can´t get anything then we are in trouble as Altius then need to sell everything they have to pay off the debt or sell some royalties to cut the debt.

 

Why? I don’t understand. Let’s say iron ore assets are worth zero: why would you sell potash and coal assets, or investments in other royalty companies which are very profitable, to pay down debt in a hurry?! When the cash flow from potash and coal royalties is so much more than enough to cover the interest on that debt? It makes no business sense to me… Just use the CDP to develop new royalties, keep paying the interest on your debt, and use the rest of your cash flow to buy new royalties and to increase cash flow. The equity investments in other royalty companies will increase in value, and meanwhile some new project will hopefully start to pay off with even more royalties… Soon we will put together enough cash flow to gradually pay down the principal too.

If we sell our assets without a true necessity, the “compounding” I have described above will never materialize!

 

Gio

 

 

 

[Andy Dufresne]

Gio

 

I admire your passion and have no wish to rain on your parade, so to speak :) however I agree with ItsAValueTrap's basic assertion - the longer it takes to get financing, the lower the value of Kami. I also think he made a good point about the "BS press releases" by Aldernon, which should be treated with caution.

 

For me personally, as someone who has no position in either ADV or ALS, it seems that ALS is more or less fairly valued at the moment, assuming Kami and JL are not built ... BUT if financing or a spin-off do not come quickly, there may be a serious stampede for the door, esp. for those already burnt to the tune of 10% by LCM (thanks SD!) from the CAD 14 equity offering ... this stampede could see ALS share price under CAD 10 .... and it could remain depressed as people, rightfully, lose their respect and trust for management of ADV/ALS

 

So, assuming the markets do not correct in the meantime, we here have the potential to lose 20-25% and the potential to gain about 30% - I assume CAD 16 as the "pop" would be larger HAD financing been timely, but I think it will be greeted with less enthusiasm and perhaps some institutionals and others will just sell once they are back in black ... for me those are not good enough odds to roll the dice, so to speak

 

If ALS gets into single digits, where downside is more limited (and, I think, consists mainly of the stock not moving until mgmt is replaced by more competent people) and upside is more like 50-70%, it will start to get interesting

 

 

[giofranchi]

(and, I think, consists mainly of the stock not moving until mgmt is replaced by more competent people)

 

What do you mean by “mgmt is replaced by more competent people”? ??? This is exactly what I am asking ItsAValueTrap and all of you: is ALS’s management, Mr. Dalton, a top of the class entrepreneur, or should he be replaced?

 

If the answer is he should be replaced, all that speculation about what the stock price will do is completely meaningless to me: on Monday I will sell my whole position.

 

If the answer is he is a top of the class entrepreneur, all that speculation about what the stock price will do is completely meaningless to me: on Monday I will keep averaging down. ;) ;)

 

Gio