ALS.TO - Altius Minerals

[doc75]

Williams406,

 

You are correct in my mind...the average royalty term of their portfolio is a stagerring 39 years. While the market does not seem to care as we all are measuring everything in days or weeks now...for the major royalty companies they would add permanent revenue streams in acquiring Altius. That type of royalty is almost impossible to find and buy at a reasonable price. When you compare these to long term 30 year bonds at 3%....they are dirt cheap. No one wants to look that far out...of course...but adding permanent revenue to the valuations of the majors is enticing. They are checking around investment banks with interest in Altius but it is hard to say whether we will get a sufficient offer as they are being opportunistic.

 

I keep reading this theme on here and I really don't get it.  The vast bulk of Altius' producing royalties were purchased about a year ago. If Altius did indeed get these royalties for a screaming deal, then they did so because they were the only guys in the room who thought it *was* a screaming deal.  Everyone has their own pricing model.  The major royalty companies weren't particularly interested.  I just can't figure out the expectation that someone is going to come in and buy Altius for a premium to get assets that they clearly didn't want very badly a year ago.  Almost as if they're more valuable because ALS bought them.

 

I'm no expert in mining etc. This is really a jockey play for me.  But it seems like there's lots of wishful thinking about chess pieces moving in all sorts of convoluted ways -- just look at all the posts conjecturing various back-room shenanigans with Kami, or the "low" price on the share issuance.  I think reality is much simpler.  Kami missed the boat this time around, JL isn't going to be a huge catalyst in the near term, and Altius will continue to languish through the commodity downturn.  But that's okay, because historically Altius has made very smart moves when things are out of favour, and ALS comes with a bunch of free optionality. 

 

Buying this at $10 or under seems like a pretty good long term play.  Why worry about near-term acquisitions etc?

 

 

[TwoCitiesCapital]

Williams406,

 

You are correct in my mind...the average royalty term of their portfolio is a stagerring 39 years. While the market does not seem to care as we all are measuring everything in days or weeks now...for the major royalty companies they would add permanent revenue streams in acquiring Altius. That type of royalty is almost impossible to find and buy at a reasonable price. When you compare these to long term 30 year bonds at 3%....they are dirt cheap. No one wants to look that far out...of course...but adding permanent revenue to the valuations of the majors is enticing. They are checking around investment banks with interest in Altius but it is hard to say whether we will get a sufficient offer as they are being opportunistic.

 

I keep reading this theme on here and I really don't get it.  The vast bulk of Altius' producing royalties were purchased about a year ago. If Altius did indeed get these royalties for a screaming deal, then they did so because they were the only guys in the room who thought it *was* a screaming deal.  Everyone has their own pricing model.  The major royalty companies weren't particularly interested.  I just can't figure out the expectation that someone is going to come in and buy Altius for a premium to get assets that they clearly didn't want very badly a year ago.  Almost as if they're more valuable because ALS bought them.

 

I'm no expert in mining etc. This is really a jockey play for me.  But it seems like there's lots of wishful thinking about chess pieces moving in all sorts of convoluted ways -- just look at all the posts conjecturing various back-room shenanigans with Kami, or the "low" price on the share issuance.  I think reality is much simpler.  Kami missed the boat this time around, JL isn't going to be a huge catalyst in the near term, and Altius will continue to languish through the commodity downturn.  But that's okay, because historically Altius has made very smart moves when things are out of favour, and ALS comes with a bunch of free optionality. 

 

Buying this at $10 or under seems like a pretty good long term play.  Why worry about near-term acquisitions etc?

 

What are markets if not public auctions? If markets can be inefficient then why can't private auctions with few participants? There are a myriad of factors that could have affected the sellers and bidders. Social pressure from peers and shareholders, mental biases in buying assets that have significantly dropped value, emotional biases from fear of short term loss, etc. We know fund managers generally  herd and underperform due to incentives, biases, and pressures. Do you really believe corporate executives are any different?

 

I'm not saying Altius did or didn't get a deal because I'm not an expert. I believe these royalties are high quality, long lived assets with stable revenues and built in inflation protection. I believe you can compare these to other high quality, long term revenue streams and find that Altius' trade at a sizeable discount.

 

In Altius, you have 25-30M in EBITDA selling in the market for $280M. In two years time the majority of debt will likely be paid and it's unnecessary for business operations so I'm ignoring it for now and we'll start or nanalysis for beginning of year 2016. Treat this income like a 30Y bond and solve for the discount rate. The market is discounting these revenues at 7.5-8.5% less any tweaking for taxes that are currently not being paid (and difficult to estimate). Compare that to the current yield on long-dated AAA corporate debt and tell me that's not ridiculous.

 

These are high quality, stable, inflation adjusted revenues with growth potential from some of the lowest cost mines in existence. They shouldn't be discounted at twice the rate of triple A corporates.  This discount also excludes any future value from development growth, inflation adjustments, current exploration projects, the value of the Kami and JL optionality, AND any value Altius management can create with repurchases/issuances and reinvestment . It's simply current revenue and assumes price stability for 30 years and that all other investments, projects, and options are 0. C'mon!

[Williams406]

Doc75,

 

I appreciate your posts a lot.

 

Any Altius buyout speculation in which I have been engaged stems from the following ideas:

a) Like you, Altius seems to me like a pretty good long term play especially at current prices. I'd really like the company to remain independent so it can be a long term play for my portfolio. I'm trying to assess the likelihood of royalty majors or mining co's trying to do an Altius takeunder. I don't mind a bid if it re-sets the stock price a bit, but my preference is for Altius to create value for me years into the future as an independent entity.

 

b) In the current environment where--as you say--things are out of favor, I'd guess there are some attractive royalty opportunities. My take is Altius is pretty limited in what it can do right now and I'd like that to change. Having a richer stock currency brought about by a bid is one route to that.

 

Even if one thinks a bid for Altius is unlikely, it doesn't hurt to take a look at the global iron ore dynamics or royalty company dynamics that might factor in to such a bid.

[doc75]

Zach,

 

I understand your financial analysis.  I agree to a large extent, although I personally think the discount rate for the royalties should be quite significant, particularly coal.  My reason:  The energy landscape could change a lot over a couple decades, and coal remains an environmental pariah, whether deservedly or not.

 

Here's what I'm saying:

 

- Last year, pre-purchase, Altius traded around current levels.

 

- The stock jumped markedly on the royalty purchase. 

 

- Ever since, it has been mostly bad news for Altius.  Sentiment towards all commodities has seriously degraded, Kami isn't happening any time soon if at all, and even the Voisey Bay royalty is now a bit of a question mark.

 

I just don't see why there's an expectation of an acquisition at any meaningful premium to today's price.  Why now?    Sure the stock is down, but basically it's back to pre-purchase levels, and there are now *significantly* lower expectations as regards realizing the value of pre-purchase assets.    So this premium must manifest from other market players now deciding that Altius paid an outstandingly good price for their royalty assets.  Of course, they paid for those assets in part with shares issued at 40% above today's trading price, so the effective price of the assets is lower today than at purchase, but even still...

 

Williams:  I hear you and you make an excellent point.  Perhaps I'm misconstruing some of the posts on here as expectations  whereas they are merely thought experiments. The talk of letters to the BOD etc. just made it seem to me there was anticipation/expectation of an acquisition in the near term. 

 

Interestingly, this thread reminds me a lot of the old SFK/FBK thread.  There was a lot of conjecture, and nobody guessed the ending correctly; turns out that reality wasn't as "elegant" as many surmised.  That was a great learning experience for me.    (Yes, this is a totally different situation.  FWIW I don't foresee Fairfax doing a takeunder of Altius!!!)

 

In any case, please pardon my apparent negativity.  I'm quite happy to build out a position again around $10.

 

 

[JAllen]

One of Rio Tinto's trains derailed headed to Sept-Iles:

 

 

Train derails on Rio's Canadian iron ore line, conductor missing

 

 

http://mobile.reuters.com/article/idUSL1N0SW1QA20141106?irpc=932

 

 

from http://stockbase.com/news

[ap1234]

Dazel et al.

 

Has anyone done work on Virginia Mines as a standalone investment? I know Altius and Virginia have similar business models, Andre Gaumond is well regarded, both companies have partnered with eachother on prospecting initiatives, Virginia's Eleonore mine just started production, etc.

 

Altius has highlighted in the past that monetizing their Virginia stake is one potential avenue to help pay down their debt.

 

Any thoughts on investing in Virginia at current valuations?

 

 

 

[Guest Dazel]

AP1234,

 

Virginia is a wonderful asset...those that are looking at Eleonore are waiting on GoldCorp to release information on their "massive" drilling campaign. While no one knows the outcome there is speculation that the resource could grow to world class levels and their drilling will confirm this. The reason for that speculation is the size of the mine infrastructure that GoldCorp built around current reserves. "If" it becomes world class it is likely that the area may become a new "Gold Camp" meaning all of the other property that Andre has accumulated at Virginia would sky rocket in value.

If this does not come to fruition than Virginia is a decent value here but it is the above that smart money is waiting for. Obviously, we must wait for the drill results to know...

 

 

[Guest Dazel]

http://www.reuters.com/article/2014/11/08/us-china-infrastructure-idUSKBN0IS0C420141108

 

 

Another $118b stimulus confirms that the more that things change in China....the more they stay the same...the development is moving from real estate to infrastructure.

[matts]

Looks like RBC downgraded Alderon from buy to hold today. Price target taken from 2.00 to 0.60. Unfortunately I don't have access to the report.

 

[Gamecock-YT]

Looks like RBC downgraded Alderon from buy to hold today. Price target taken from 2.00 to 0.60. Unfortunately I don't have access to the report.

 

Not much to it:

 

http://personal.crocodoc.com/tFN1bWa

 

Our view:  We are downgrading Alderon from Outperform to Sector Perform with downward revisions to our iron ore price forecasts. In our view, ongoing iron ore market weakness over the next several years increases the risk associated with Alderon's ability to finance and execute its Kami project.

 

Key points:

 

Downgrading with lower iron ore price assumptions: We have updated our model to incorporate lower iron ore price forecasts in the medium- term, which we expect will compound challenges associated with securing financing, delay execution of the 75%-owned, early-stage Kami project, and weigh on Alderon's share performance. Our NAV declines from $2.57 to $0.94, and we are downgrading our recommendation from Outperform to Sector Perform with a decline in our target price from $2.00 to $0.60. See page 3 for details of estimate revisions.

[ap1234]

Thanks Dazel.

[Guest Dazel]

http://data.tradingcharts.com/futures/quotes/UX.html

 

http://uraniuminvestingnews.com/19985/uranium-price-jumps-most-in-16-months-japan-approves-reactors.html

 

I think most have forgotten Altius' uranium assets....they certainly did not joinnthe rally!

[TwoCitiesCapital]

Bloomberg - Iron Ore Seen by Citigroup Below $60 as 2015 Forecast Cut http://bloom.bg/1pKg5Kk

[TwoCitiesCapital]

Is there any chance for the cost per ton at JL to be less than what is realistic at Kami or does Kami take the cake on operational  and location advantages?

[TwoCitiesCapital]

Also, people in the thread have mentioned we can offset some of the iron ore risk in Altus by purchasing Posco which  trades at half of book and would benefit from lower  input prices.

 

Dry bulk shippers would also benefit from shutting down Chinese production down in favor of cheaper sea-borne ore. 2015 and 2016 have the potential to be the first two years since 2008 where demand outstrips supply. Many profitable  dry shippers  trade at large discounts to conservative  book value estimates and might catch a tailwind  here. Why not play  all dynamics of the iron ore market since all of them seem to be priced attractively.

[alertmeipp]

So what is the worst case for Alderon?

 

What if they can't get the financing in say two years?

[hohi]

So what is the worst case for Alderon?

 

What if they can't get the financing in say two years?

 

What's important for Altius is that the deposit isn't going anywhere, neither is the royalty. Kami will eventually get developed and ALS will reap the rewards. It is still one of the best undeveloped deposits in the world and if you believe that humanity is still going to construct new things then you have to believe that it is only a matter of time.

 

Worst case for Alderon? Bankruptcy ;)

[Guest Dazel]

http://business.financialpost.com/2014/11/17/osisko-gold-to-buy-virginia-mines-for-461-million-to-add-gold-royalties/#__federated=1

 

This a big win for Altius!

 

[TwoCitiesCapital]

http://business.financialpost.com/2014/11/17/osisko-gold-to-buy-virginia-mines-for-461-million-to-add-gold-royalties/#__federated=1

 

This a big win for Altius!

 

I know that their 35-40M from this will be used for the 8M and 47M debt payments in 2015 and 2016 respectively,  but this does free up some cash flow for Altius to begin repurchashing shares again too.

 

Let's  hope they pick the habit back up at these insane prices.

[hillfronter83]

http://business.financialpost.com/2014/11/17/osisko-gold-to-buy-virginia-mines-for-461-million-to-add-gold-royalties/#__federated=1

 

This a big win for Altius!

 

I know that their 35-40M from this will be used for the 8M and 47M debt payments in 2015 and 2016 respectively,  but this does free up some cash flow for Altius to begin repurchashing shares again too.

 

Let's  hope they pick the habit back up at these insane prices.

 

It's an all stock deal. So can we assume Altius will sell Osisko stock after the deal?

[nostradamus]

What would be nice now is an all cash counterbid for Virginia.

[nostradamus]

The deal presentation on the Osisko website mentions:

 

"Holders of 27% of the shares of Virginia, in addition to the board and management who beneficially own 3.4%, have agreed to support the transaction and enter into lock-up agreements."

 

So I wonder whether this means that Altius is prevented from selling its Osisko shares in the short term....

[hohi]

Great news indeed. It again shows that management has the ability to invest very smartly into world class royalty assets. They did it with with Voisey's, they did it with Eleonore and they probably did it with the Prairie Royalties too. Although the last one the seem to love so much they want to keep it for themselves ;).

[TwoCitiesCapital]

http://business.financialpost.com/2014/11/17/osisko-gold-to-buy-virginia-mines-for-461-million-to-add-gold-royalties/#__federated=1

 

This a big win for Altius!

 

I know that their 35-40M from this will be used for the 8M and 47M debt payments in 2015 and 2016 respectively,  but this does free up some cash flow for Altius to begin repurchashing shares again too.

 

Let's  hope they pick the habit back up at these insane prices.

 

It's an all stock deal. So can we assume Altius will sell Osisko stock after the deal?

 

This would be my assumption.  They've  talked on multiple occasions about tapping these investments for liquidity and a purchase is a great opportunity to do it.  They may be restricted from selling in the short term but would imagine that we'll  have the cash from sold shares within a year.

[BRK7]

I’m going to take a stab at putting some perspective on this deal.  There may be errors in the below; please point them out.

 

Virginia closed Friday at $10.07.  They have 33.8M shares out, of which Altius owns 8.2%.  Altius itself has 32.24M shares out.  The announced deal price is $14.19 per Virginia share.

 

Therefore:

 

Virginia had value of ( $10.07 X 8.2% * 33.8 ) / 32.24 = $0.87 per Altius share as of Friday close

Compared with ( $14.19 * 8.2% *33.8 ) /32.24 = $1.21 per Altius share, assuming the deal closes as planned.

$1.21 - $0.87 = $0.35/share

 

So, this deal adds $0.35/share of incremental value to Altius vs Friday’s close.  Good news for sure, but not huge.

 

I think you could make a reasonable case that the added value to Altius is higher than simply the $0.35/share because:

 

- Altius would now hold a more liquid stock (Osisko vs. Virginia) which could be sold in the open market.

- This comes at a time when Altius has unusually high debt level (by Altius’ historical standards) and the cash flow from selling Osisko shares can be used to reduce this debt, reducing the uncertainly about Altus more generally.

- This is (further) validation of Altius’ strategy and expertise.

 

But, on the other hand:

- Altius has not specifically said that it intends to sell the Osisko shares.  Altius’ press release on this announcement states, “We look forward to continuing to work together with the new combined company to generate exploration value through our successful exploration alliances.”  Will Altius have a lock-up on its shares for some period of time?  I don’t know, but I presume Altius would be eager to get cash for its shares ASAP.

- An open-market sale of Osisko shares would involve market price risk. Altius could get far more than $14.19 or far less than $14.19.  Also, any gains associated with the sale of Osisko shares would presumably be subject to capital gains taxes.  Perhaps another board member can provide Altius’ tax basis in its Virginia shares. But the $39 million sale proceeds (assuming $14.19/shares) presumably overstates the actual after-tax cash flow to Altius.

- The deal is not closed (though it seems likely to close in early 2105) and therefore uncertainty remains.

 

Again, good news for sure, and it’s certainly nice to have some good news.  But we shouldn't treat this announcement as if it had the certainty of all-cash deal at $14.19, nor should we ignore the tax consequences to Altius from selling Virginia/Osisko shares.

 

 

For reference, here is Altius’ press release on the deal:

 

http://altiusminerals.com/uploads/PR1412-VGQ.pdf