ALS.TO - Altius Minerals

[giofranchi]

Why don't you try to buy the spin-off on the open market immediately post spinoff? Spin-offs often drop immediately after being issued.

 

Two reasons:

 

1) Rights offering

In the spin-off, record holders of Series A, Series B and Series C common stock will receive one-fourth of a share of the corresponding series of Liberty Broadband common stock for every whole share of Liberty Media's common stock held by them as of the record date for the spin-off, with cash in lieu of fractional shares. In addition, stockholders will also receive a subscription right to acquire one share of Series C Liberty Broadband common stock for every five shares of Liberty Broadband common stock they receive in the spin-off.

 

2) I don't see why Liberty Broadband should drop: I would be very hard pressed to say which one will hold better assets, whether Liberty Media or Liberty Broadband...

 

Gio

[TwoCitiesCapital]

Don't wanna be a downer but this article is not very positive on iron ore:

 

http://www.bloomberg.com/news/2014-09-10/goldman-calls-end-to-iron-age-after-dramatic-drop-in-ore-price.html

 

I have seen what an oversupplied market can do to a commodity price with dissolved pulp and it is not pretty

 

 

Iron ore matters very little at this price. I know very little about mining but a reaonsable individual could argue that the current coal/potash/nickel royalties are fairly valued at the current market cap and all future developments, price deposits, and equity investments are free.

 

I basically see near 0% downside as is and 100-200% upside based on how Kami and JL shake out. I used conservative pricing ($80-$100 for iron ore) and 10% discount rates with a 40% tax rates after year 5 for Kami/JL estimates.

 

I just dont know how the market is missing this. The math is simple and estimates conservative. Just makes no sense. I would love to see this go back down to $10 - it's my largest position and I could justify more at that price.

 

Given today's market cap, what after-tax earnings yield are you getting from the current royalties (excluding Iron Ore), and therefore what P/E do you have as a fair value.

 

I've been very vocal against the use of multipliers here - DCF is the way to go.

 

If you assume 34-37M in revenue over the next 40 years (this will vary but currently planned expansions and contractions should even it out), 35-40% cash tax rates, and a discount rate of 5% (given the premium deserved for royalty businesses) you get valuations between 350M-412M without considering any equity investments, and projects in the pipeline (which I essentially use to net out debt).

 

There are a lot of simplifying assumptions here but I'm just trying to provide a quick "back of the envelope" without getting into the actual year to year production, tax rates, and FV of investments. If Kami and JL dont ever get built, Altius is just about fairly valued - if they do get built, you're talking about doubling to tripling revenue with no additional expense and favorable cash tax rates up front. It would be a significant re-rating.

 

 

 

 

[giofranchi]

if they do get built, you're talking about doubling to tripling revenue with no additional expense and favorable cash tax rates up front. It would be a significant re-rating.

 

That’s exactly the risk I am accepting to run for at least some months…

 

Gio

 

[SharperDingaan]

You might want to use the volatility to close out the ALS sale & repurchase, & put the gain into Liberty options. If the Liberty transaction is as good as advertised, there should be a gain - & you will have the funds to buy whichever of the two entities offers the best value at the time.

 

No ALS risk, no new $ investment required, limited Liberty downside risk, etc.

 

SD

[giofranchi]

You might want to use the volatility to close out the ALS sale & repurchase, & put the gain into Liberty options. If the Liberty transaction is as good as advertised, there should be a gain - & you will have the funds to buy whichever of the two entities offers the best value at the time.

 

No ALS risk, no new $ investment required, limited Liberty downside risk, etc.

 

SD

 

Yes, that’s my idea too… the problem I have with this kind of “trading strategies”, instead of simply buying and keeping a business I understand and like, is they almost never work out like I had thought!! ;)

 

Gio

 

[nostradamus]

Some quite downbeat stuff in the ALS Q1 MD&A:

 

"The Corporation’s share of Voisey’s Bay royalty revenue was lower in the quarter compared to the same period last year due to a modest decrease in production. Vale has stated it intends to transition Voisey’s Bay nickel concentrate processing from its Sudbury and Thompson smelters to its new Long Harbour hydrometallurgical plant in the near future. The Corporation’s partner in the Labrador Nickel Royalty Limited Partnership, (“LNRLP”), Royal Gold Corporation, is in discussions with Vale regarding the methodology for calculation of royalties once treatment of these nickel concentrates transitions to the Long Harbour plant. The potential impact to royalty revenue due to the change in smelting location and process is unknown at this time."

 

"Alderon continued to meet significant development milestones during the year, but has not yet obtained construction financing and the company has recently taken prudent steps of delaying construction commencement until the construction financing can be assured. As a result the goal of initial commercial production of 8 million tonnes of iron ore concentrate per annum by late 2015 is unlikely."

 

Funny to see Altius announcing that rather than Alderon!

 

N

[Gamecock-YT]

http://web.tmxmoney.com/article.php?newsid=70239878&qm_symbol=ALS

 

Net loss attributable to common shareholders of $8,102,000 in Q1. If the market just looks at the headline figures we could see some swings.

 

N.

 

Back down below $12 again (Must be gio unloading his shares!)  I thought those days were over after the last push up.

[Ross812]

Forgive me...

 

What is this adjustment for:

 

Adjust: joint venture revenue (6,611,000)

 

Taxes? Did they have to contribute capital for some reason?

 

I see the MTM loss on Alderon: (5,789,000)and interest cost of: (2,982,000) which comes to: (8,771,000)

 

Revenue I see 7,217,000 then the adjustment of (6,611,000) for IFRS revenue of 606,000.

 

Leading to the net loss of (8,102,000)    [(8,771,000) + 606,000]

 

What am I missing?

 

 

 

 

[Ghost]

I have changed my mind… Not about the quality of ALS, of course… but about how I want to play the situation…

 

Before the end of the year Liberty Media is going to spin-off Liberty Broadband, rights will be offered to purchase more shares of Liberty Broadband at a discount, probably with the right to oversubscribe.

Just as I have participated to the fullest extent possible in the BH rights offering, the same I want to do with Liberty Media.

Therefore, I have sold some ALS and bought more Liberty Media.

 

My hope, of course, is Alderon doesn’t get financed before the end of the year, the price of iron-ore remains under pressure, and therefore the market volatility in ALS stock continues.

 

Then, after the Liberty Broadband spin-off is over, and I have exercised all rights of mine plus oversubscription, hoping the market receives the spin-off well and reevaluates Liberty Broadband accordingly, I will start purchasing ALS again. Luckily at a bargain price still.

 

Risks of this strategy:

1) Alderon gets financed in the next 3 months

2) ALS gets acquired,

3) No oversubscription right will be accorded to Liberty Broadband shareholders

4) Liberty Broadband won’t be reevaluated by the market

 

I see the Liberty Broadband spin-off as an event driven investment, while I look at ALS as a business I want to hold for the very long term: I am putting aside for a short period of time a very long term investment for an event driven one.

 

How does it sound? Very foolish? ???

 

Gio

 

Interesting.  Time to read up on Liberty Media. 

[nostradamus]

Forgive me...

 

What is this adjustment for:

 

Adjust: joint venture revenue (6,611,000)

 

Taxes? Did they have to contribute capital for some reason?

 

 

I think it is basically amortization of the royalty assets.

 

So, although ALS gets the revenue from royalty payments, it also needs to reduce the value of its royalty assets reflect the fact that there is now less stuff in the ground to be dug up. That gives you the net IFRS earnings from the royalties, which I suspect are a lot lower than most people appreciated.

[nostradamus]

From the MD&A:

 

"Attributable revenue is defined by the Corporation as total revenue from the consolidated

financial statements plus the Corporation’s proportionate share of gross revenue in the

joint ventures. The Corporation’s key decision makers use attributable royalty revenue

and related attributable royalty expenses as a basis to evaluate the business performance.

The attributable royalty revenue amounts, together with amortization of royalty interests,

general and administrative costs and mining tax, are not reported gross in the

consolidated statement of earnings (loss) since the royalty revenues are being generated

in a joint venture and IFRS 11 Joint Arrangements requires net reporting as an equity

pick up. The reconciliation to IFRS reports the elimination of the attributable revenues

and reconciles to the revenues recognized in the consolidated statements of earnings

(loss)."

[wachtwoord]

Gio, your timing is perfect!  8)

[giofranchi]

Gio, your timing is perfect!  8)

 

With ALS 4 to 6 months are a long time… meaning that anything can still happen… I admit though that the first day of "my new strategy" has turned out to be very lucky indeed! ;D

 

Gio

 

[TwoCitiesCapital]

Someone please correct me if I'm wrong, but the 6.6M appears to be the net figure for all G&A, taxes, and amortization. Are we expecting this to remain consistent or is G&A still inflated due to the closing of the acquisition?

 

8M a quarter in expenses (interest included) seems very steep for a continuous run rate compared to their previous costs. Seems to me that there is something "one-off" about this quarter that is making this look much worse than it is

[Ross812]

From the MD&A:

 

"Attributable revenue is defined by the Corporation as total revenue from the consolidated

financial statements plus the Corporation’s proportionate share of gross revenue in the

joint ventures. The Corporation’s key decision makers use attributable royalty revenue

and related attributable royalty expenses as a basis to evaluate the business performance.

The attributable royalty revenue amounts, together with amortization of royalty interests,

general and administrative costs and mining tax, are not reported gross in the

consolidated statement of earnings (loss) since the royalty revenues are being generated

in a joint venture and IFRS 11 Joint Arrangements requires net reporting as an equity

pick up. The reconciliation to IFRS reports the elimination of the attributable revenues

and reconciles to the revenues recognized in the consolidated statements of earnings

(loss)."

 

Ok, so the revenue from royalties was 7.2M. Tax and Amortization was 6.6M. Of the 7.2M, 6.5M was attributed to PMRL which comes to an annual benefit of 26M. Subtract the interest expense of 12M (3M x 4Qs) we come up with 14M at a 35% Tax Rate leaving us with 9.1M before amortization, but I believe amatorization should be taken out before taxes though correct? Do we know the rate of amatorization?

[Liberty]

Guess I was lucky with my timing too (though who knows? maybe they announce Kami and Julienne Lake soon). Recently sold my ALS position. Just didn't fit in my portfolio anymore.

[Ross812]

Using the current calculation methodology, the Corporation expects royalty receipts from

LNRLP in respect of the Voisey’s Bay mine to continue at annualized levels of approximately

$2,500,000 based on current nickel prices and typical production volumes. Note that the

Company is uncertain what impact the start-up of the Long Harbour hydromet facility will have

on the current net smelter return royalty calculation. The general partner of LNRLP, Royal Gold

Limited, is in discussions with Vale on the proposed calculation methodology.

 

This is a reduction from the previous expected annual contribution of $4M.

 

Based on historical information, the Corporation expects the newly acquired Prairie Royalties

and CDP portfolio to generate attributable revenue of approximately $25,000,000 to $30,000,000

per year.

 

26M annualized if this quarter is expanded through the year.

 

Project generation/exploration expenditures will continue to be directed towards the objective of

long-term royalty creation at an estimated cost of approximately $2,000,000 per annum.

 

As expected.

 

Amortization:

 

Amortization of Royalty Assets - 1.8M .

 

Cranberry:

 

The Corporation recorded a gain on the sale of investments of $34,000 and impairment provision

of $756,000 for the three months ended July 31, 2014 compared to a loss on the sale of

investments of $626,000 recorded for the same period in the prior year and $nil impairment

charges. These disposals were primarily related to sale of various investments held in 2260761.

 

http://altiusminerals.com/uploads/July-31-2014-MDA-FINAL.pdf

 

 

[Guest Dazel]

 

 

We are very much still here.

Can't comment.

 

Dazel

[Ross812]

Reading through the income statement, I cam up with this:

 

Investment side of Business:

 

Mark to Market losses:

 

MTM Alderon Shares - (5.03M)

MTM on Shares of other associates - (0.3M)

 

25.3% share of Alderon losses - (1.2M) - this is an accounting loss correct? There is no cash payment to alderon?

 

MTM Warrants - (1.3M)

 

MTM Cranberry - MTM loss of 0.76M + Capital Gain of 0.34M - (0.72M)

 

Gain from sale of JV shares - .28M

 

MTM Investment Losses of: (~$8.27M)

 

Operating side of Business:

 

Corp income:

CDP .5M <- not sure where the 1.1M of potash revenue comes in...

Interest and investment .08M

Other .02M

 

 

JV  Income:

Coal 4M

Voisey's Bay .23M

Chilean loss - (.1M)

 

Total - 4.73M

 

Expenses:

 

EG&A - 1.21M

Share-based compensation .2M

Generative exploration .2M

Mineral rights and leases .1M

Amortization .5M

 

Interest on long-term debt 2.9M

 

Expense Total - $4.75M

 

Is anyone coming up with anything else?

 

This is the first quarter of the "new company" I trying to understand how to read the new balance sheet. I'm a little thrown off by "royalty revenue" vs "income from JVs". The royalty revenue in the MD&A doesn't match what is in the Income Statement (MD&A rev of 7.2M vs Statement of loss - rev of .606M with 4.03M added in later as income from JVs???)

 

If I could get the Revenue figured out I would have a much better understanding of what is going on.

 

So far I see:

 

MTM investment losses of $8.27M

Expenses (ex-interest) of $1.9M

Interest carrying cost of $2.9M

 

It looks like they made modest gain if you net out the one time MTM loss on investments... What am I missing here?

[original mungerville]

Gio, your timing is perfect!  8)

 

With ALS 4 to 6 months are a long time… meaning that anything can still happen… I admit though that the first day of "my new strategy" has turned out to be very lucky indeed! ;D

 

Gio

 

Gio, I did the exact same thing for the same reasons earlier this summer - only rather than to buy Liberty Media, to buy Valeant. Like you, I am risking that the price moves up in the interim and I can't get back in.

[Gamecock-YT]

This is the first quarter of the "new company" I trying to understand how to read the new balance sheet. I'm a little thrown off by "royalty revenue" vs "income from JVs". The royalty revenue in the MD&A doesn't match what is in the Income Statement (MD&A rev of 7.2M vs Statement of loss - rev of .606M with 4.03M added in later as income from JVs???)

 

If I could get the Revenue figured out I would have a much better understanding of what is going on.

 

 

Just a guess:

 

The attributable royalty revenue amounts, together with amortization of royalty interests,

general and administrative costs and mining tax, are not reported gross in the

consolidated statement of earnings (loss) since the royalty revenues are being generated

in a joint venture and IFRS 11 Joint Arrangements requires net reporting as an equity

pick up.

 

 

 

[Ross812]

This is the first quarter of the "new company" I trying to understand how to read the new balance sheet. I'm a little thrown off by "royalty revenue" vs "income from JVs". The royalty revenue in the MD&A doesn't match what is in the Income Statement (MD&A rev of 7.2M vs Statement of loss - rev of .606M with 4.03M added in later as income from JVs???)

 

If I could get the Revenue figured out I would have a much better understanding of what is going on.

 

 

Just a guess:

 

The attributable royalty revenue amounts, together with amortization of royalty interests,

general and administrative costs and mining tax, are not reported gross in the

consolidated statement of earnings (loss) since the royalty revenues are being generated

in a joint venture and IFRS 11 Joint Arrangements requires net reporting as an equity

pick up.

 

So what is the correct way to understand their FCF?

 

The only way I can understand to view their financial condition at the moment is to look at change in working capital on the balance sheet and net out the one time adjustments for MTM gains/losses. This comes out to $4.7M. ($0.15/share) This is essentially net earnings + MTM losses as they do not affect the cash flow. Im not sure how to add amortization back in either as it looks like the majority of amatorization is realized at the JV level and not reported on Altius's balance sheet... The MD&A states amatorization of royalty assets are 1.8M but the balance sheet only states 55k which means this amatorization must be applied before royalty earnings are reported on the balance sheet? Should the 4.7M be adjusted by 1.8M to reflect this?

[SharperDingaan]

Interesting quarter - but you need to know IFRS accounting to appreciate it.

 

The underlying business is actually doing very well; royalty revenue well above operating expenses & interest, & contributing net cash. But it is being masked by MTM changes & equity accounting around their various holdings. In more normal markets, those MTM's would be positive - & additional to the underlying business.

 

MTM Alderon Shares - (5.03M). MTM on Shares of other associates - (0.3M). 25.3% share of Alderon losses - (1.2M).

All non-cash, but more importantly the accounting indicates non-strategic assets available for sale - revaluing every quarter. If good things happen to ADV by Oct-31 (quarter-end), todays MTM loss could well be tomorrows gain.

 

You might want to consider how you would expect the market to react, if the next statement suddenly had equity at around 500M  ;)

 

SD

[Ross812]

If good things happen to ADV by Oct-31 (quarter-end), todays MTM loss could well be tomorrows gain.

 

You might want to consider how you would expect the market to react, if the next statement suddenly had equity at around 500M  ;)

 

SD

 

True, but reality is MTM for Alderon is 32.8M shares valued at 46.345M (pg15), about 1.41 a share. As of today those shares are worth 0.97, or 31.8M which is a MTM loss of 14.5M! So yes, if alderon gains 45% in the next 50 days the next quarter will look much better. As it stands, next quarter is going to look terrible (0.51 loss per share at todays alderon price). 

 

The huge problem looming is the 47M debt payment due in 2016.  (pg 19) at 16M FCF for 2015 and 16 and 8M due in '15 the only way they can pay off the debt is selling assets. I hope alderon is still worth something by then, because if this iron slump get worse, another dilution will be coming.

 

I don't think management anticipated this slump in iron ore. This debt has the potential to paint them into a corner....

[beerbaron]

There are a few point I don't understand in the quaterly report. Maybe someone can help me understand.

 

Why is the earning from joint ventures substracted from the operating cash flow?

 

In the investing cash flow, what is the Distribution received from joint venture? Is it not the same thing as earning from joint venture?

 

If the royalties are held in a joint venture, what is the line called Royalty in the income statement?

 

Where is the amortization of the joint venture royalty shown?

 

I'm trying to calculate owner's earning excluding investments and I arrive at:

Royalty:                        504

Interest and investment: 80

Other:                            21

G&A:                              -1315

Share based comp:          -192

Interest:                        -2892

Earnings from JV:            +4068

-----------------------

Owners's Earnings            274

 

Something does not add up, they should be making about 6-8M$ from their royalties. How come they only declare 4M$.

 

BeerBaron