ALS.TO - Altius Minerals

[goldfinger]

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.

 

But they also have around 40M$ in other equity investments, Cranberry with 30M$, >10M$ cash... Why would they have to dilute?

[hohi]

Just added some more. Thanks for all the panic and negativity ;).

[Blue Macaw]

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....

 

Yep agree with this. I got out a couple of weeks ago because of what happened with Alderon. The slump in iron ore price has really put projects like Kami and other to sleep for a while. I think I missed this to some degree and I believed that Altius always was carrying some valuation related to Kami in its price. Honestly speaking, if Kami is not built the earnings will give Altius some p/e of 30 which is not truly attractive. Without Kami I thought it would be hard to justify prices around 15. Altius has a book value of around 9 CAD. (of course with values that are not shown in balance sheet) This will also be hurt if larger impairment cost will be taken due to Alderon share hitting the floor (as it seems it will be doing).

 

As for the report it needs to be easy to follow the numbers. You should ask management to clarify this.

 

A lower price of iron ore will infact benefit the big 3 since almost all their projects fall in the lower cash cost curve. (BHP, Rio and Vale). The can sell more and even if the price is lower they will make more. They are running this hard now. So many players will sooner or later have to step down. I doubt that the Chinese will slice their production volumes. Yes they will lose money but the overall gain will still be high enough (with lower price of iron ore) in other areas to justify a loss in iron ore extraction. This will cause mines in Sweden and Canada to have a har d time to compete. LKAB in Sweden was to increase the volumes from 23 M tons to 30 something for 2016. With this price now (and it might go lower) it is hard for an underground mine to be competetive eventhough the mine is top quality.

 

If there is a project in Canada to be built I still believe Kami is the number one. But it will be hard to get the financing....

[hohi]

When production in China will be shut down due to low prices we'll see what the big three were playing all this time. This isn't the first instance when they manipulated prices down to shut off the competition.

[giofranchi]

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.

 

I think about ALS as a very long term investment candidate for my firm. And I have yet to find a public company, that I would like to hold for 2 or 3 decades, which doesn’t give chances to get back on board over and over again (albeit at different price levels, of course!). None that I know of. Zero. And I don’t see why ALS should prove to be the exception.

 

I also look at Valeant as a sort of event driven investment right now. But I have also commented on the reason I still feel more comfortable with Liberty Media. Besides, the Liberty Media timeline is much clearer than Valeant’s (who knows when the acquisition of Allergan might actually come to pass?)

 

Gio

 

[Williams406]

I've never liked the terms of the debt with the quick repayment schedule cited by Ross. It puts Altius in a position of perhaps having to sell assets cheaply. But, tough times call for tough decisions. I don't see a required equity raise, but I don't like fire sales unless I'm a buyer.

 

Having said that:

 

Virginia Mine's Eleonore gold project is, I believe, still slated for first production later this fall. I haven't done any valuation work on Virginia Mines, but I'd guess Goldcorp is interested. My "sources" (i.e. company press release) tell me Franco-Nevada recently raised half a billion and I think they do things with gold royalties. Altius' Virginia equity stake alone could address the upcoming debt repayment if you tack on a bit of a premium to the current price. Again, not sure if that's justified, but looking at multiples garnered by Royal Gold and Franco Nevada...Virginia's Eleonore royalty interest would seem to be quite valuable. I'd be a bit surprised if no one offers a bid on either the Eleonore royalty or Virginia itself in the next six months.

 

A CDP deal may get done. I'd rather wait to sell until coal and potash assets are more respected, but this is another possible source of cash.

 

Kami? I'm a lot less optimistic than I was a few weeks ago. But I am confident Altius and Endeavor will be pushing Alderon to look at every possible angle here.

 

Altius could exit Cranberry partnership, though illiquid positions may make this challenging.

 

Over 12-18 months, there are assets that could be converted to cash.

 

I have greater confidence that a deal gets done with JL than with Kami, assuming they continue as separate projects. JL won't likely generate cash for Altius in the near term, but with a press release, Altius suddenly has an asset worth a whole lot more than it's JL carrying value today.

 

We always knew Altius was not immune to the vicissitudes of the commodity market. Having watched this management team in action, I'm confident of two things: a) They are being proactive in trying to get deals done and b) over the long term, they will intelligently play those same vicissitudes to the benefit of Altius shareholders.* Being a lazy owner, I prefer to establish my position and let my management team work.

 

*Unless Altius is "taken under".

 

Those of you who have sold your shares, it may have been the right decision for you. But I see too many ways the Altius picture changes very quickly for the better to be comfortable doing that.

 

 

[Gamecock-YT]

 

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

 

Note 7 on the financial statement gives the breakdown of how the JV's earnings and distributions breakdown. My guess for the Cash Flow Statement question, is that the earnings are controlled by the JV and not part of Altius, so there's no cash coming in, thus the decrease to earnings in OCF. And pretty much the opposite for the distributions. 

 

Royalties on the I/S are 100% owned, so basically CDP.

 

JV Amort is on the last page of the MDA in the calculation of Attributable EBITDA.

[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.

 

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?

 

It's always going to be tricky with the JV statement not breaking things down besides Revenue, Amort, Earnings, and Distributions (and even then you have to piece it together). The other key piece we are missing is how do they determine distributions, if you compare Labrador Nickel Royalty with Genesee Royalty, Labrador is net negative, whereas Genesee is net positive. I'm wondering if 'Recovery of acquisition costs' of $1,499 won't be part of distributions in the future? Just spitballing...too bad they don't have quarterly calls to get some clarity on these things.

[giofranchi]

But I see too many ways the Altius picture changes very quickly for the better to be comfortable doing that.

 

I agree. My idea though is to run that risk at least for a few months. What do I have to lose? Let’s examine the worst case scenario I can foresee:

 

a) Kami and/or JL get approved in the meantime;

b) ALS trades at another price level.

 

But:

 

c) Though certainly not the gains I would have enjoyed with ASL, hopefully I have made some money with the Liberty Broadband spin-off;

d) Even if ALS doubles, it would still have much room for growth;

e) There will always be some uncertainty in the commodity business, and therefore some volatility too;

f) With volatility I expect a new reasonable entry price will be available sooner or later;

g) ALS then will only be a better and more proven royalty company.

 

I can live with such a worst case scenario… what do you think?

 

Gio

 

[rohitc99]

But I see too many ways the Altius picture changes very quickly for the better to be comfortable doing that.

 

I agree. My idea though is to run that risk at least for a few months. What do I have to lose? Let’s examine the worst case scenario I can foresee:

 

a) Kami and/or JL get approved in the meantime;

b) ALS trades at another price level.

 

But:

 

c) Though certainly not the gains I would have enjoyed with ASL, hopefully I have made some money with the Liberty Broadband spin-off;

d) Even if ALS doubles, it would still have much room for growth;

e) There will always be some uncertainty in the commodity business, and therefore some volatility too;

f) With volatility I expect a new reasonable entry price will be available sooner or later;

g) ALS then will only be a better and more proven royalty company.

 

I can live with such a worst case scenario… what do you think?

 

Gio

 

Gio - I have been following your analysis for a long time and agree broadly with it.

 

This is the way I look - lets say it mid 70s and you come across Berkshire. WEB has a good record, but if you look at the company the SOTP does not give too much comfort. Anyone investing is betting on WEB and not on the assets. Same for Malone and any such outlier CEOs

 

I am thinking of als in a similar fashion. Dalton is not a WEB or Malone - but he has done well in the last 10+ years and has a good record. If he comes close to replicating it even partially, then it is a multi-decade story for ALS.

 

As dazel or SD keep pointing out, there is a lot of optionality for which we are not paying. There is future optionality which no one (including the management) knows. We are getting all of that for free - equivalent of buying Berkshire in the mid 70s.

 

if I am completely wrong, we lose maybe 20-30% ? those are good enough odds isn't it ?

[SharperDingaan]

Realize that selling X to buy Y, to later sell Y & buy X is inherently risky. It is market timing both X and Y, with a 50% probability (right or wrong) of success on both your picks. To work-the projected return on Y has to exceed the possible loss on X, & the differences in share count & volatility matters. We all know that were ALS a heavily shorted stock - a sharp price rise would force short covering to mitigate losses, & further amp the price spike :D.

 

To minimize the possible repurchase loss, you had to have sold ALS prior to the earnings release. You could cover today for the bird in hand (realized short gain), or play Y for the birds in the bush. But there better be 2 or more birds in that bush, for it to be worthwhile.

 

Different strokes.

 

SD

[nostradamus]

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?

 

It's always going to be tricky with the JV statement not breaking things down besides Revenue, Amort, Earnings, and Distributions (and even then you have to piece it together). The other key piece we are missing is how do they determine distributions, if you compare Labrador Nickel Royalty with Genesee Royalty, Labrador is net negative, whereas Genesee is net positive. I'm wondering if 'Recovery of acquisition costs' of $1,499 won't be part of distributions in the future? Just spitballing...too bad they don't have quarterly calls to get some clarity on these things.

 

I spoke to Altius and got some explanation of the latest financials. I asked why the distributions from the Prairie Royalties are so low this quarter relative to the actual amount of the royalties. I was told that this is simply a timing of payment issue and that the residual amount was paid to Altius after the quarter end, ie it is not anything to do with expenses or taxes or any other cash drain at the royalty vehicle level. They confirmed that the attributable royalty revenue amount that they report (ie the $7.217m in the news release) is the cash amount that Altius expects to recieve from their royalty interests.

 

I also asked about the tax treatement of the royalties. I was told that it is only the Voisey's bay royalty component (ie $0.579m of the $7.217m) that gets subject to the 20% royalty tax. The other royalty payments are not subject to royalty tax.

 

N.

[Williams406]

Gio,

 

Why not just buy back your Altius shares now, simultaneously take a small bit of capital, execute two consecutive day trades returning 50%-100% each in the stocks/options of your choice, then roll the after-tax proceeds into Liberty? That's what I'd do...

 

406

[Ross812]

We also need to keep in mind that the last 50% of CDP was acquired on 13 May meaning Royalties from CDP are understated by 14%.  So normalized CDP as it stands today is approximately 575K instead of 505k. CDP can be further monetized as they have potash in the ground, and need to initiate a JV to extract it. 

 

 

I spoke to Altius and got some explanation of the latest financials. I asked why the distributions from the Prairie Royalties are so low this quarter relative to the actual amount of the royalties. I was told that this is simply a timing of payment issue and that the residual amount was paid to Altius after the quarter end, ie it is not anything to do with expenses or taxes or any other cash drain at the royalty vehicle level. They confirmed that the attributable royalty revenue amount that they report (ie the $7.217m in the news release) is the cash amount that Altius expects to recieve from their royalty interests.

 

I also asked about the tax treatement of the royalties. I was told that it is only the Voisey's bay royalty component (ie $0.579m of the $7.217m) that gets subject to the 20% royalty tax. The other royalty payments are not subject to royalty tax.

 

N.

 

This makes me a little more comfortable.

 

So we are looking at:

 

Royalties:

 

CDP - 0.57M

VB - 0.58M - Taxes = .46M

Prairie - 6.19M

 

Expenses ex Amortization - 1.35M

Interest - 2.9M

 

So FCF of (7.2M less Interest and Expenses) ~ $3M per quarter

 

Equates to a estimated annual FCF/Share of  37.5c. which is a P/FCF of ~35x...

 

Granted, you can get creative and net out cash and equivalent investments. Right now probably 50M for cranberry and 30M for Alderon, another 10M in cash and equivalents, Virginia et. all maybe another 30M (off the top of my head). So 120M or $3.75/share. This means the royalties are trading for 25x FCF which looks a little better... 4% yield...

 

The Credit Facility allows for optional prepayments of principal at the end of each calendar month. On

April 28, 2015, a cash fee of 2% of the principal amount in excess of $80,000,000 will be payable.

 

Altius is a 117M now, with 12M of retained earnings they can knock that down to 105M which means they will have a payment of 1.25M (2% of 25M) due in Q2 of '15.  They will be fine for 2015 but are going to come up 30M-33M short in 2016. After 2016, Altius is golden as their interest expenses fall to 1.3M per quarter and royalty FCF hits ~18M per yr. 

 

$

2015 8,000

2016 47,000

2017 8,000

2018 8,000

2019 48,000

119,000

Less: unamortized debt costs 3,394

115,606

 

 

 

[giofranchi]

Realize that selling X to buy Y, to later sell Y & buy X is inherently risky. It is market timing both X and Y, with a 50% probability (right or wrong) of success on both your picks. To work-the projected return on Y has to exceed the possible loss on X, & the differences in share count & volatility matters. We all know that were ALS a heavily shorted stock - a sharp price rise would force short covering to mitigate losses, & further amp the price spike :D.

 

To minimize the possible repurchase loss, you had to have sold ALS prior to the earnings release. You could cover today for the bird in hand (realized short gain), or play Y for the birds in the bush. But there better be 2 or more birds in that bush, for it to be worthwhile.

 

Different strokes.

 

SD

 

SD,

3 things:

 

1) I sold ALS before the earnings release;

 

2) I am not “selling X to buy Y, to later sell Y & buy X”… Actually, I am only “selling X to buy Y”… Why? Because you should not forget that my firm’s 5-6 months worth of fcf is not negligible… And I will use that cash to buy back ALS… If the price stays this low, I will start at the end of this month to buy back ALS… though it will take me at least 6 months of fcf to get back near the amount of my investment in ALS a few days ago;

 

3) Do I plan to sell Liberty Media and Liberty Broadband in the future? Only if my thesis works out as I expect. Simply because, if it does, by then Liberty Media and Liberty Broadband would have grown to a disproportionate percentage of my firm’s portfolio.

 

I see this as yet another luxury that owning some operating businesses might give you! ;)

 

Gio

 

[nostradamus]

Thanks Ross812, great summary.

 

My guess is that they will sell their Virginia and Callinan stakes some time in advance of the 47m debt repayment due in 2016. Maybe even in advance of April 28, 2015, to avoid the extra 2% charge.

[hohi]

But I see too many ways the Altius picture changes very quickly for the better to be comfortable doing that.

 

I agree. My idea though is to run that risk at least for a few months. What do I have to lose? Let’s examine the worst case scenario I can foresee:

 

a) Kami and/or JL get approved in the meantime;

b) ALS trades at another price level.

 

But:

 

c) Though certainly not the gains I would have enjoyed with ASL, hopefully I have made some money with the Liberty Broadband spin-off;

d) Even if ALS doubles, it would still have much room for growth;

e) There will always be some uncertainty in the commodity business, and therefore some volatility too;

f) With volatility I expect a new reasonable entry price will be available sooner or later;

g) ALS then will only be a better and more proven royalty company.

 

I can live with such a worst case scenario… what do you think?

 

Gio

 

I'd say - be right and sit tight. What you are doing sounds more like trading to me. Nothing against trading, but I am not intelligent enough to forsee price movements in the stock markets, at least in the short to mid-term.

[giofranchi]

I'd say - be right and sit tight. What you are doing sounds more like trading to me. Nothing against trading, but I am not intelligent enough to forsee price movements in the stock markets, at least in the short to mid-term.

 

Maybe… I think about it this way:

 

I have investment 1 (ALS) and investment 2 (LMCA), both with the potential to unlock much value in the medium and long term. Investment 2, though, imo has greater potential to unlock value in the short term (due both to the spin-off event and the slump in the price of iron-ore). Instead of putting 50 in investment 1 and 50 in investment 2, at least for a few months I have decided to put 20 in investment 1 and 80 in investment 2. Then, either if I were right or wrong about investment 2 short term potential to unlock value, I will reestablish the proper balance between those two in my portfolio.

 

You might call it trading… Others might simply refer to what I am doing as “position sizing”…

 

By the way, let me ask you: do you have 25 in ALS.TO, 25 in ARG.TO, 25 in DMM.TO, and 25 in LON:STI?

If it were so, I would be really surprised!

If not, how do you choose the percentage of those investments of yours? Always thinking about the long term picture only? Short term “opportunism” never plays a role in it?

 

Gio

 

[hohi]

Hey Gio. I always appreciate your comments and I hope you know that I didn't want to confront you or something ;).

 

Of course I don't have 100% of my investments in those four equities. (25% is in real estate, 25% bullion, 25% cash and 25% stocks of which those four are just the resource equities I am invested in - in case you want to know ;)).

I'll stay invested for hopefully some decades to come and will not sell unless my thesis is proven wrong. Falling iron ore prices or commodities prices in general are to be expected (in the short and mid term) so that is no problem for me. I learned a long time ago that buying into and selling out of positions just makes my broker money and me broker. ;)

 

Btw, of my resource investments ALS is about 50% or so of my portfolio. I am very familiar with all the assets and feel comfortable with managements strategy going forward. So what I do is (hopefully) be right and just sit tight for the next 20 years...

[giofranchi]

hohi,

it is me who really appreciate what you have to say! And your insights about ALS are among the most useful to me! :)

 

This is why I would like to know your opinion about one doubt of mine.

Among all the things ItsAValueTrap has said, the following has grabbed my attention the most: ALS has never discovered a profitable mine.

Never? In 18 years?

 

Now, you know very well how intelligent I reckon the ALS business to be: a project generator + a manager of royalties can, at least in theory, do wonders. It is the combination of the two that imo sets ALS apart from any other investor in the resource space. After all, when royalties are for sale, anyone can buy them, right? But who can also enjoy the work of a proven project generator? Whose goal is to develop new royalties at very low costs? Only a handful of companies! Royalties are a very good business, but very good businesses are not always available at fair prices… Sometimes they might be, like the game changing acquisition ALS has recently closed, but most of the times the price they are selling for might be way too high… And then there is nothing else to do but wait… Not at ALS, though! Because, if ALS doesn’t find bargains to scoop up, it can go on creating them! Huge advantage, isn’t it? And one that could speed up the process of value creation very much!

 

So you see how much relevance I attach to the project generator side of ALS business. And therefore my question: how do you reconcile a proven project generator, the word “proven”, with the fact they have not discovered a profitable mine yet?

 

It is very fine when the idea behind a business is a truly intelligent one… But also execution matters! A lot! I know royalties are a percentage of sales, not a percentage of earnings… And that is great, and it is one of the reasons why royalties are such a good business. But, is it sustainable to keep generating royalties from mines that are not profitable? Will people go on paying royalties to us, if we don’t discover and give them mines that ultimately could be run at a profit?

 

Besides my short term trading strategy, this is a doubt I have about ALS in the long run.

 

Gio

 

[hohi]

Gio, those are good questions you ask. Those are some of my thought about it:

 

- most geologists never even come close to finding a profitable mine

- exploration for resources is among the most risky of all businesses

- ALS does not want to find profitable mines (they want other people to find them)

- ALS wants other people to pay for the exploration that (hopefully) results in a discovery

- many of the best geologists work for big companies that have had JV's with ALS

- the exploration is only as good as the JV partners ability to do good exploration work

- commodities prices are extremely cyclical

- maybe the biggest positive is ALS knowledge of the cyclicality and their ability to scoop up promising mineral real estate (where at current prices nobody would pay for exploration)

- although a profitable mine is optimal, ALS can make money even if the mine is unprofitable. Cash payments, equity etc. that can be monetized before production is even considered

- ALS has in my opinion deep knowledge of the value of other peoples royalties. VB + Prairie Royalties are a good example of royalties on Tier1 assets that ALS was able to acquire

- although it might be possible that ALS and their JV partners never find a profitable mine, I think it is just a matter of time (the more money partners spend the more likely something will be discovered)

- I don't think ALS management is the best as some people here think. They are not the best explorationists, not the best promoters, not the most knowledgable.

- in my opinion ALS has the best business model in the resource sector. And they have people backing and advising them that are the best at what they do

- I am certain that at some point Kami, JL, CMB and probably a few other of the iron ore assets will be producing. But that could take years or decades

 

the biggest reasons I am invested here are:

1) superior business model

2) management commitment to a tight share structure

3) integrity of management

4) proven ability to acquire the best royalties on the planet

5) backing by the best in the resource sector

6) deep understanding of cyclicality

 

Hope this helps.

[giofranchi]

Hope this helps.

 

Yes! Of course it does! :)

 

Thank you,

 

Gio

[alertmeipp]

To add to that, I am now back in to ALS and it is a commodities stock and we all know the world no longer need oil, coal, potash, etc.

 

I have one suggestion - when Gio sells, run to the hills  ;D. If you have seen the price action in LRE, VRX and now ALS after he sold, it will be pretty clear.

 

Hope this helps.

 

Yes! Of course it does! :)

 

Thank you,

 

Gio

[TwoCitiesCapital]

Gio, those are good questions you ask. Those are some of my thought about it:

 

- most geologists never even come close to finding a profitable mine

- exploration for resources is among the most risky of all businesses

- ALS does not want to find profitable mines (they want other people to find them)

- ALS wants other people to pay for the exploration that (hopefully) results in a discovery

- many of the best geologists work for big companies that have had JV's with ALS

- the exploration is only as good as the JV partners ability to do good exploration work

- commodities prices are extremely cyclical

- maybe the biggest positive is ALS knowledge of the cyclicality and their ability to scoop up promising mineral real estate (where at current prices nobody would pay for exploration)

- although a profitable mine is optimal, ALS can make money even if the mine is unprofitable. Cash payments, equity etc. that can be monetized before production is even considered

- ALS has in my opinion deep knowledge of the value of other peoples royalties. VB + Prairie Royalties are a good example of royalties on Tier1 assets that ALS was able to acquire

- although it might be possible that ALS and their JV partners never find a profitable mine, I think it is just a matter of time (the more money partners spend the more likely something will be discovered)

- I don't think ALS management is the best as some people here think. They are not the best explorationists, not the best promoters, not the most knowledgable.

- in my opinion ALS has the best business model in the resource sector. And they have people backing and advising them that are the best at what they do

- I am certain that at some point Kami, JL, CMB and probably a few other of the iron ore assets will be producing. But that could take years or decades

 

the biggest reasons I am invested here are:

1) superior business model

2) management commitment to a tight share structure

3) integrity of management

4) proven ability to acquire the best royalties on the planet

5) backing by the best in the resource sector

6) deep understanding of cyclicality

 

Hope this helps.

 

Thanks for sharing! I think there's two very important items to take away for this current conversation.

 

1) despite the fact that Altius has never found a profitable mine, they have managed to make tons of money on anyways as evidenced by the royalties and investments they have acquired

 

2) the base rate for Kami's success, and JL, is likely much much lower than many of us anticipated. Obviously this would have been ratcheted up over time with the feasibility studies and Hebei buying into the ownership, but I think many of us who had a 50-75% chance of success were more optimistic than the evidence would've suggested we should've been.

 

 

That being said, how are you guys that are knowledgable about mining handicapping these probabilities? I'm simply relying on a good buying price relative to asset value and optionality but would love to have a more informed and accurate understanding of the real likelihood behind Kami and JL. The following questions come to mind.

 

 

Is it often that massive deposits that are well located don't get developed or has it traditionally forced people to get creative to reduce expenses?

How much are massive reserves that can't be profitably developed worth? Surely not 0 due to optionality.

What does the expected profit on the mine have to be for people to be willing to buy it/develop it? I know that we probably agree estimates of OpEx for the mine are too rosy, but even $80/ton would be profitable for Kami is it currently appears on paper.

[giofranchi]

To add to that, I am now back in to ALS and it is a commodities stock and we all know the world no longer need oil, coal, potash, etc.

 

Sure! No doubt about that! But what attracted me to the ALS business model in the first place is the following:

 

A fast growing portfolio of royalties in some diversified necessities of life

 

Three are the important things here:

1) fast

2) royalties

3) diversified necessities of life

What I was asking hohi, and I ask you too, I ask Dazel, I ask SD, I ask zachmansell, and any other knowledgeable investors in ALS, is the following:

 

I have no doubt about 2) and 3), my doubt instead is: shouldn't a project generator side of the business, that is successful in finding at least some profitable mines, be necessary, if we are also to enjoy 1)?

 

Imo this is very important for the long-term, because, as I have said, a successful project generator is what truly sets ALS apart from any other investor in 2) + 3), that’s to say any other company which tries to manage a portfolio of royalties in the resources market.

 

This is still not very clear to me, and I would appreciate any insight of yours.

 

Gio