ALS.TO - Altius Minerals

[Blue Macaw]

I think they will pay off debt from cash flow, which should significantly exceed profit.

Of course cash flow not profit. Their statement would look something like I wrote

[Blue Macaw]

SINGAPORE/SYDNEY, July 3 (Reuters) - Canadian iron ore miner Labrador Iron Mines Holdings (LIM) said it has halted mining operations this year, as falling prices on the back of a surge in global supply hit smaller producers.

 

LIM, which operates in the Labrador Trough in Quebec, posted a loss of C$105.2 million ($98.6 million) for the year to March and said it would almost certainly have posted further operating losses this year given current low prices.

 

Iron ore prices have fallen about 30 percent so far in 2014 as a flood of new supply to main market China, fueled by an expansion binge among global miners, has overwhelmed demand.

 

Smaller miners are not able to achieve the economies of scale that have driven down production costs at companies such as Brazil's Vale SA, and BHP Billiton and Rio Tinto in Australia.

 

"LIM is currently not planning for any mining or processing activity in 2014," company president and chief operating officer Rod Cooper said in a statement on Wednesday. Subject to completion of financing, LIM plans to begin production from its bigger Houston iron ore mine in April 2015, said Cooper.

 

Australia's Cairn Hill iron ore mine was shut late last month by its owner IMX Resources after falling prices crippled the 1.7-million-tonnes-per-year operation. The mine is 49 percent-owned by China's Taifeng Yuanchuang International Development, which also holds a direct stake in IMX.

 

Ratings agency Moody's Investors Service warned on Wednesday that falling iron prices would have the biggest impact on miners that rely solely on iron ore for revenue, as well as some mining service companies.

 

Morgan Stanley estimates the average cash cost of iron ore producers in Canada, equivalent to the 62-percent grade benchmark, is at $80 per tonne this year compared with just $38 for Rio Tinto.

 

Iron ore stood at $94.70 a tonne .IO62-CNI=SI on Wednesday. A recent Reuters poll of analysts pointed to limited near-term upside, with forecasts the price could fall as low as $80 next year.

 

Moody's said lower prices were credit negative for single-commodity miners Fortescue Metals Group and Atlas Iron Ltd.

 

Each $8-per-tonne reduction in iron ore prices at current production, would cut Fortescue's annual revenue by about $1.2 billion, or roughly 11 percent of 2013 revenue, it said. Atlas' revenue would fall by about $90 million, or 9 percent of last year's revenue. ($1 = 1.0669 Canadian Dollars) (Editing by Richard Pullin)

[Blue Macaw]

Mines are closing down. I would say at this current price only bigger mines stand a chance. Smaller mines in Sweden are also closing down or not receiving the financing for development.

 

What will happen to Kami that is the question.....

[giofranchi]

What will happen to Kami that is the question.....

 

I think simple common sense would suggest they will go on trying to put together a sort of financing agreement. This will surely take some more months. Then building will start. By the time production finally begins, iron-ore prices will have finally bottomed.

Here we have two possible scenarios:

1) Iron-ore prices start rising again

2) Iron-ore prices remain depressed for many years

If 1) is true, I think Kami will be profitable, therefore all people involved will be happy.

If 2) is true, we are left with other two possible scenarios:

a) Kami’s production costs are lower than average

b) Kami’s production costs are higher than average

If a) is true, like Kami’s management believes, Kami will be profitable, therefore all people involved will be happy.

If b) is true, like ItsAValueTrap believes, Kami won’t be profitable, and will probably be shut down sooner or later.

 

Personally, I believe in 1). I think urbanization will just go on everywhere in the world, and mostly in places like China and India. We will need more and more steel, and as a consequence more and more iron-ore. When the need for something goes up, oversupply is always just temporary.

 

In the meantime, let’s receive free cash from our royalties, and let’s use it to buy new royalties and to develop projects that will lead to new royalties. We already have the CDP only waiting to be exploited! ;)

 

Gio

 

[Blue Macaw]

What will happen to Kami that is the question.....

 

I think simple common sense would suggest they will go on trying to put together a sort of financing agreement. This will surely take some more months. Then building will start. By the time production finally begins, iron-ore prices will have finally bottomed.

Here we have two possible scenarios:

1) Iron-ore prices start rising again

2) Iron-ore prices remain depressed for many years

If 1) is true, I think Kami will be profitable, therefore all people involved will be happy.

If 2) is true, we are left we other two possible scenarios:

a) Kami’s production costs are lower than average

b) Kami’s production costs are higher than average

If a) is true, like Kami’s management believes, Kami will be profitable, therefore all people involved will be happy.

If b) is true, like ItsAValueTrap believes, Kami won’t be profitable, and will probably be shut down sooner or later.

 

Personally, I believe in 1). I think urbanization will just go on everywhere in the world, and mostly in places like China and India. We will need more and more steel, and as a consequence more and more iron-ore. When the need for something goes up, oversupply is always just temporary.

 

In the meantime, let’s receive free cash from our royalties, and let’s use it to buy new royalties and to develop projects that will lead to new royalties. We already have the CDP only waiting to be exploited! ;)

 

Gio

 

Yes I believe you are right. We will be more than 10 billion people in some 20-30 years and as you say urbanization will continue. Kami will be delayed however and until then we need to live on our royalties. Year 1 I see them paying off debt with 15 M from cash flow and the other 12 from selling some equity. Year 2 will be similar with 15 from cash flow and the rest which should be 34 M from sale of equity. Year 3 and 4 is only 8 M a year so they can pay that with cash flow. Last part of debt (48 M) is too far in the future to tell and lots of things can happen. If the growth continue then that should not be a problem.

 

At this point they have Cranberry equity of approx 30 M. Callinan 5 M, and Virginia 31,9 M. They will not be put under pressure and there is little risk of not beig able to pay off debt.

[ItsAValueTrap]

"Alderon not fazed by Lab West mine woes"

July 05, 2014

http://www.thetelegram.com/Business/2014-07-05/article-3788028/Alderon-not-fazed-by-Lab-West-mine-woes/1

 

Alderon's CEO:

“We’re working on financing. We expect to have some clarity on financing by the fall.”

 

Natural Resource Minister Dalley:

“We have been in regular contact with senior Alderon officials who remain confident in their ability to raise capital for this project in Newfoundland and Labrador, which is known throughout the global mining community as a good place to do business,” Dalley said, in a statement.

 

“We are disappointed that the company has temporarily suspended the work of its engineering, procurement and construction management (EPCM) contractor. We hope that the impact of this decision is minimal on the contractor and its employees.”

 

(Personally I think that actions speak louder than words.)

[SharperDingaan]

Kami receives a take-or-pay 95% of the Platts Iron Ore Index price, adjusted for concentration, for its off-take production. The index price is USD & based on a Fe concentration of 62%. Kami exports concentrate at 77.7% Fe concentration & receives a 25% premium [((77.7/62)-1)x100 = 25.32%] . A index price of USD 94.70 results in Kami receiving USD 112.75 [uSD 94.7x(77.7/62)x95% = USD 112.75]. Fact most are ignoring.

 

Kami Opex is USD 42.17; current expanding mega-mines (BHP) have an opex in the USD 41-45/ton range. Were Kami in production today, it would have a margin of USD 70.58/ton, & that low cost production would be putting other local iron ore mines out of business. The bulk of the Kami Opex saving over other local mines (Bloom Lake) is because it is designed to operate at capacity (Fixed Cost/ton saving of USD 16/ton), & there is far less trucking/rail/transhipment cost (saving of USD 20/ton) to get it to port. Again, fact most are ignoring.

 

ADV will be issuing equity, & the Kami Project will be debt financing to do this deal. Most recognize that an ADV equity raise in todays climate is a difficult sell, but few recognize that the natural buyers of that equity raise are the province, liberty, & the new off-take partner. We know that clarity on financing is expected by Fall (Eldem); which implies a private placement following provincial job creation/preservation announcements.

 

Mr Eldem's comments would appear to be well warranted.

 

SD

 

 

 

 

[giofranchi]

Kami receives a take-or-pay 95% of the Platts Iron Ore Index price, adjusted for concentration, for its off-take production. The index price is USD & based on a Fe concentration of 62%. Kami exports concentrate at 77.7% Fe concentration & receives a 25% premium [((77.7/62)-1)x100 = 25.32%] . A index price of USD 94.70 results in Kami receiving USD 112.75 [uSD 94.7x(77.7/62)x95% = USD 112.75]. Fact most are ignoring.

 

Kami Opex is USD 42.17; current expanding mega-mines (BHP) have an opex in the USD 41-45/ton range. Were Kami in production today, it would have a margin of USD 70.58/ton, & that low cost production would be putting other local iron ore mines out of business. The bulk of the Kami Opex saving over other local mines (Bloom Lake) is because it is designed to operate at capacity (Fixed Cost/ton saving of USD 16/ton), & there is far less trucking/rail/transhipment cost (saving of USD 20/ton) to get it to port. Again, fact most are ignoring.

 

Yes! Thank you very much, SD!

I think both “facts most are ignoring” are instead very important, and bode very well for the reaching of a successful financing agreement in the not too distant future! :)

 

Gio

 

[hohi]

Kami receives a take-or-pay 95% of the Platts Iron Ore Index price, adjusted for concentration, for its off-take production. The index price is USD & based on a Fe concentration of 62%. Kami exports concentrate at 77.7% Fe concentration & receives a 25% premium [((77.7/62)-1)x100 = 25.32%] . A index price of USD 94.70 results in Kami receiving USD 112.75 [uSD 94.7x(77.7/62)x95% = USD 112.75]. Fact most are ignoring.

 

Kami Opex is USD 42.17; current expanding mega-mines (BHP) have an opex in the USD 41-45/ton range. Were Kami in production today, it would have a margin of USD 70.58/ton, & that low cost production would be putting other local iron ore mines out of business. The bulk of the Kami Opex saving over other local mines (Bloom Lake) is because it is designed to operate at capacity (Fixed Cost/ton saving of USD 16/ton), & there is far less trucking/rail/transhipment cost (saving of USD 20/ton) to get it to port. Again, fact most are ignoring.

 

ADV will be issuing equity, & the Kami Project will be debt financing to do this deal. Most recognize that an ADV equity raise in todays climate is a difficult sell, but few recognize that the natural buyers of that equity raise are the province, liberty, & the new off-take partner. We know that clarity on financing is expected by Fall (Eldem); which implies a private placement following provincial job creation/preservation announcements.

 

Mr Eldem's comments would appear to be well warranted.

 

SD

 

I am not sure how you come up with the 77.7% final Fe conc.? As per the BFS it was always 65% as far as I know.

As for the Opex I think everyone here agrees that this number will be a lot higher.

 

Don't get me wrong, I still think Kami could be economic and as often stated I even think it'll be built without being very economic. It is the strategic value to the chinese that drives Kami construction IMHO.

[giofranchi]

I am not sure how you come up with the 77.7% final Fe conc.? As per the BFS it was always 65% as far as I know.

As for the Opex I think everyone here agrees that this number will be a lot higher.

 

Don't get me wrong, I still think Kami could be economic and as often stated I even think it'll be built without being very economic. It is the strategic value to the chinese that drives Kami construction IMHO.

 

hohi,

I think the two most interesting numbers are “Fixed Cost/ton saving of USD 16/ton” because Kami is designed to operate at capacity, and “saving of USD 20/ton” because there is far less trucking/rail/transhipment cost to get it to port.

If we assume an average operating cost of USD 90-100/ton for competing mines worldwide, those two numbers would put Kami’s costs 36%-40% below average! Not bad! ;)

Put that together with Kami’s strategic importance, and I think financing will very likely get done.

So, do you think those USD 36/ton savings are plausible, or are they too optimistic? And, if too optimistic, why?

Thank you,

 

Gio

 

[SharperDingaan]

77.7% Fe Rec.

ADV June 2014 Presentation: http://www.alderonironore.com/investors/presentations/

P19, Final Concentrate Fe Rec % after gravity & magnetic separation.

... looking at this again, this may mean Fe Recovery & not actual Fe content which may be 65.2%. Recalculate at 65.2% & Kami receives a 5.2% premium, & $USD 94.61 after discount - essentially index price of USD 94.70. USD 52.44/ton margin after Opex.

 

Opex costs

ADV June 2014 Presentation, P18

Volume FC of $16/ton. Bloom Lake had too much FC infrastructure for its volume of production. Amortize over 2M fewer tons of production & FC/ton go up significantly. $4/ton trucking saving, $6/ton rail cost saving, & $10/ton transhipment saving are simply because Kami is in a more commercially viable location.

 

Are the Opex costs real ?

 

The ALS AR refers to them, therefore D&T would have confirmed existence of the report, & that it was put together by competent & qualified experts with experience in this area. The Opex savings are primarily because of design & location; you either agree with the opinion, or you do not.

 

We have assumed the Opex cost estimates are USD. They may actually be primarily CAD costs converted to USD; Kami would have an FX advantage should CAD devalue from current levels over the coming years.

 

Kami is not going to start amortizing FC until after the mine has been put into commission; about 2.5 years out. Until then the USD 17.11/ton mining charge (P17) is not going to apply. Margin should be calculated using the forward price of Fe, 2.5 years out, & not todays price. If you believe we are at/near the bottom of the cycle & calculating margin, either use spot price & deduct the mining charge (USD 69.55), or use the forward price & deduct USD 42.17 (p17) of Opex.

 

Over the long-term the current Opex may be on the high side, primarily because throughput is expected to double to 16M ton/yr which would halve mining cost, & efficiencies will be found along the way. There will be additional costs to achieve the incremental production, but NPV & payback requirements should minimize them.

 

Kami has a pay-back of 4 yrs, & most would use the CF to reduce debt first. After the 1st round of debt reduction, I-Bankers are going to be over them like fly's on sh1te - pushing money. 

 

Hard to see why it would not be financed.

 

SD

[wachtwoord]

BTW: Quick question I am holding ATUSF (OTC) instead of ALS.TO avoid currency exchange fees when buying the stock (and frankly, I believe having a USD and EUR balance in my portfolio is sufficient). couldn't find any problems with doing this because the shares are equally valuable (they represent the same equity) and the OTC volume on average is 1/3rd of the Toronto one.

 

Lately I've been seeing quite a spread develop between the two, usually int he advantage of Toronto (yes I account for the USD:CAD exchange rate):

 

1) Am I missing anything (especially when it comes to risks)

2) The Altius website is a bit limited when it comes to investor relations and the OTC shares aren't even mentioned. Am I right the rights they represent are equal to the Toronto ones? Is there a method of converting the 2 stock types to each other like there is for my China Mobile ADRs? (not that I want to because of the fees, but if there is a method this should force the two to trade on par more due to the arbitrage opportunities).

 

Thanks!

 

Sorry just bumping this. Does anyone know the answer to this or where I can find it myself?

[matts]

Call your broker and ask for the CUSIP/ISIN of both listings. If they are the same it's the same security. Your broker will be able to sell it in either market.

 

 

[hohi]

hohi,

I think the two most interesting numbers are “Fixed Cost/ton saving of USD 16/ton” because Kami is designed to operate at capacity, and “saving of USD 20/ton” because there is far less trucking/rail/transhipment cost to get it to port.

If we assume an average operating cost of USD 90-100/ton for competing mines worldwide, those two numbers would put Kami’s costs 36%-40% below average! Not bad! ;)

Put that together with Kami’s strategic importance, and I think financing will very likely get done.

So, do you think those USD 36/ton savings are plausible, or are they too optimistic? And, if too optimistic, why?

Thank you,

 

Gio

 

Hey Gio,

 

I am no technical expert, so this is just my best guess!

 

1) Of course Kami will be built hoping it'll operate at full capacity - experience shows that won't happen (at least in the beginning)

2) I don't think the quoted cost savings are realistic. First I don't believe the numbers from the BFS. Second Alderon is most likeley overly optimistic as they don't have the financing yet. I am not saying they are lying, but until the financing is done they will do everything to show Kami in a bright light.

 

As for a opex guess: I wouldn't be surprised to see the Opex/t at double of what is now expected and presented by ADV. That number probably will come down as the mine reaches full capacity, but I am almost sure it'll never reach the $40-$50/t range. In the end it doesn't matter that much as we will collect the full royalty anyways.

[giofranchi]

2) I don't think the quoted cost savings are realistic. First I don't believe the numbers from the BFS. Second Alderon is most likeley overly optimistic as they don't have the financing yet. I am not saying they are lying, but until the financing is done they will do everything to show Kami in a bright light.

 

Ah! Ok... I understand... Too bad! :(

 

Gio

 

[SharperDingaan]

Well, we guess the message here is pretty clear. Nobody will believe anything that either of these companies publish - until they show us the money in the form of a financing announcement.

 

So be it.

 

SD

[wachtwoord]

Call your broker and ask for the CUSIP/ISIN of both listings. If they are the same it's the same security. Your broker will be able to sell it in either market.

 

Thanks I made the inquiry.

[matts]

Call your broker and ask for the CUSIP/ISIN of both listings. If they are the same it's the same security. Your broker will be able to sell it in either market.

 

Thanks I made the inquiry.

 

I'm almost positive they are they same. If your broker is not sophisticated they might be confused but you can basically force them to transact on whatever market you choose (commission will be high if it's not a market they typically transact in, but they CAN do it). If the CUSIP matches it will settle without an issue. Please keep in mind the bid-ask spread when considering the arbitrage opportunity.

 

 

[wachtwoord]

Call your broker and ask for the CUSIP/ISIN of both listings. If they are the same it's the same security. Your broker will be able to sell it in either market.

 

Thanks I made the inquiry.

 

I'm almost positive they are they same. If your broker is not sophisticated they might be confused but you can basically force them to transact on whatever market you choose (commission will be high if it's not a market they typically transact in, but they CAN do it). If the CUSIP matches it will settle without an issue. Please keep in mind the bid-ask spread when considering the arbitrage opportunity.

 

My broker is Interactive Brokers (I just don't have the Canadian market enabled right now).

 

Primarily, I am asking this question to gauge the risk on holding these shares long term (if a large spread develops between OTC and Toronto) and not for arbitrage.

 

Of course I'm also asking because I'm interested how this works). Thanks all for the information thus far :)

[giofranchi]

Well, we guess the message here is pretty clear. Nobody will believe anything that either of these companies publish - until they show us the money in the form of a financing announcement.

 

So be it.

 

SD

 

Well, I think that is a bit extreme… I would just say, instead, to be invested in ALS today, you must be comfortable knowing that Kami might not get financed soon. And the waiting could prove still to be a very long one. Better to be prepared for this eventuality and to have thought about its consequences, don’t you agree? ;)

 

Cheers,

 

Gio

 

[ragu]

Well, I think that is a bit extreme… I would just say, instead, to be invested in ALS today, you must be comfortable knowing that Kami might not get financed soon. And the waiting could prove still to be a very long one.

 

Agreed. The company is fundamentally becoming less risky, while there is a near-term headline risk with the financing.

 

I suppose that explains the current share price, although I'd like it to get closer to book.

 

Best,

Ragu

[writser]

@Wachtwoord it's the same stock. Are you sure you're not looking at delayed prices? Checking a few closings and everything looks in line.

[giofranchi]

although I'd like it to get closer to book.

 

The problem I always find with waiting "to get closer to book", in companies with an handsome potential for growth, is that, if for instance we get financing, book will leap forward…

 

Gio

 

[ragu]

[...]if for instance we get financing, book will leap forward…

 

From an accounting perspective, it won't. Not immediately. But, the potential for growth in book from the Kami project will likely mean that shares become dearer. It's a risk that I've been willing to take. So far, at any rate.

 

First class management who have clearly demonstrated ability to create value over a long period of time and now on the verge of some solid cash flows. I really should be buying.

 

Best,

Ragu

[giofranchi]

First class management who have clearly demonstrated ability to create value over a long period of time and now on the verge of some solid cash flows.

 

Aren’t those 27 words that perfectly describe also another company we often talk about? ;)

(Except that other company has enjoyed solid cash flows for some time now!)

 

Gio