ALS.TO - Altius Minerals

[Williams406]

Champion taking another step toward a re-start of Bloom Lake:

 

http://www.marketwired.com/press-release/champion-iron-acquires-735-specialized-iron-ore-railcars-for-bloom-lake-mine-asx-cia-2202974.htm

[Williams406]

Looks like we may see things happen with Wabush soon:

 

http://www.cbc.ca/news/canada/newfoundland-labrador/wabush-mines-down-payment-1.4037667

[linealdin]

Longtime follower of the board, finally shelled out the $30 to comment. Just bought another chunk of shares after long due diligence. Thought I would share some tidbits:

 

1) Altius management suspects 777 mine could be extended another 2 to 4 years beyond the current expiration date of yearend 2020. Mostly because the strong copper and zinc prices could make additional reserves economic. This certainly helps the Callinan math.

 

2) More from the Callinan deal: their equity stake in Excelsior Mines has appreciated considerably recently. Also Callinan owned 20% of Adventus Exploration, which Altius increased to 80% with a $450,000 cash injection, then flipped the whole project into what is now Adventus Zinc. Another seed from the Callinan deal grows.

 

3) I know the deals were done 6 months apart but Altius got a much, much better deal from Chapada than Sandstorm Gold. The killer for Sandstorm is that they are limited to receiving 325,000 pounds of copper per month (3.9 million pounds annually) from Chapada. The guidance for Chapada in 2017 is 120 million pounds. Altius would be entitled to 3.7% or 4.44 million pounds. Sandstorm, on the other hand, would still be stuck at 3.9 million pounds maximum despite having a higher stream rate of 4.2%.

 

Chapada in Q4 produced a remarkable 37 million pounds of copper (or 148 million pounds over a year of similar production). So Altius would capture that upside if Chapada outperforms while Sandstorm doesn't.

 

Altius had $4.427 million and $2.301 million in revenue from Chapada in the most recent two quarters.

 

Sandstorm had $2.144 million and $1.643 million in revenue from Chapada in the most recent two quarters.

 

Sandstorm's 4.2% stream only looks higher than Altius's 3.7% stream. As a practical matter Altius gets more revenue. Altius's advantage only increases over the life of the deals as Sandstorm's stream drops to 3% at 39 million pounds and 1.5% at 50 million pounds.

 

 

 

 

[Williams406]

Linealdin, Welcome to the board and thank you for sharing the insights.

 

Excelsior has had a nice run over the past year or so, but I've got Altius with 3.5% of Excelsior O/S (per Excelsior presentation) which gets me to a bit less than $5 million for Altius' current equity interest. I don't see it as material yet, but we'll see what happens to the equity with Gunnison permitting and the march toward production. There should be some milestone royalty options for Altius to consider there soon as well, I think.

[linealdin]

If we assume 120 million pounds of annual Chapada copper production over a 30 year mine life, by my rough calculation:

 

Altius would receive its first 75 million pounds in 16.89 years, while it would take Sandstorm 26.94 years to receive its first 75 million pounds.

 

Altius gets paid much faster, and while both streams end up at 1.5%, Altius would get a longer tail.

 

 

[linealdin]

I sweat the small stuff from the Callinan deal. I think the deal is misunderstood. Once I crunched some numbers it looks like Altius got a lot for a small investment.

 

$112 million CAD total price for Callinan

minus the 6% of Callinan Altius already owned

minus the roughly $40 million in cash, accounts receivable & prepaid expenses Callinan held

minus the $4.85 million in equity investments Callinan held (which have appreciated significantly since 2015)

_____________

 

Purchase price ends up around $60.43 million CAD. Not very much.

 

My understanding is that the Chapada purchase is not possible without the Callinan deal getting Altius's debt profile in order.

 

 

Linealdin, Welcome to the board and thank you for sharing the insights.

 

Excelsior has had a nice run over the past year or so, but I've got Altius with 3.5% of Excelsior O/S (per Excelsior presentation) which gets me to a bit less than $5 million for Altius' current equity interest. I don't see it as material yet, but we'll see what happens to the equity with Gunnison permitting and the march toward production. There should be some milestone royalty options for Altius to consider there soon as well, I think.

[linealdin]

Recent small potatoes news that Altius hasn't press released:

 

1) Yesterday Antler Gold optioned 6 more gold properties from Altius (along trend from its existing Wilding Lake project). Compensation to Altius: 980,000 additional Antler Gold shares (current market value $617,400 CAD), and a commitment by Antler to spend $300,000 on the property within 12 months.

 

2) Last month Altius and Midland Exploration committed $500k to jointly explore for gold projects similar to Goldcorp's Eleonore Mine.

 

3) A couple of weeks ago Altius sold 332,000 shares of Alderon around 0.50 CAD. If iron ore has another run I'm sure Altius will be much more itchy on the sell trigger for its 32 million plus ADV shares than they were the last up cycle.

[linealdin]

Voisey's Bay royalty litigation notes:

 

1) Venue is the St. John's Trial Division of the Supreme Court of Newfoundland & Labrador. Next appearance is a Case Management meeting on Tuesday April 18th at 10am.

 

2) Labrador Nickel Royalty Limited Partnership is represented by mining lawyer Colm St. Roch Seviour. Seviour practices in St. John's with Stewart McKelvey, and is a former director of International Royalty Corp, whose cornerstone asset was the Voiseys Bay royalty, so he is intimately familiar.

 

3) Vale Inco repped by Kent Thomson and Derek Ricci, prominent hotshot attorneys from Toronto. Not mining specialists.

 

4) Classic battle between local specialists and national hotshots. Venue is Altius's home turf.

 

5) Current litigation burn rate of $2.2 million a quarter for Royal Gold/Altius. Probably more for Vale given the prominence of the attorneys they've hired.

 

6) I've read the Royalty agreement (available in old IRC filings). Not sure anything in it addresses the current situation of how to deal with the capital costs of a sophisticated nickel processing plant. Vale will argue for creative reading of allowable deductions in Royalty agreement while Royal Gold/Altius will push for the plain text which only allows for the usual smelting and refining deductions.

[linealdin]

Here's the language of the original Voisey's Bay Royalty agreement. LNRLP is entitled to 3% of "the actual proceeds received from any mint, smelter, refinery or other purchaser for the sale of ores, base metals, rare earth metals, elements and any other minerals normally subject to net smelter returns or concentrates produced from the properties and sold, after deducting from such proceeds the following charges to the extent they were not deducted by the purchaser in computing payment: smelting and refining charges; penalties; smelter assay costs and umpire assay costs; cost of freight and handling of ores, metals or concentrates; customs duties; or mineral taxes or the like and export or import taxes or tariffs payable in respect of said ores, metals or concentrates."

 

What Vale/Inco is doing is including the capital costs of building their hydrometallurgical processing facility (a kind of refinery) as an allowable deduction to the royalty. Fancy lawyers or not, I just don't see how they prevail in a Canadian court.

 

Think of the absurd precedent a win for Vale/Inco would set: every mining company with a producing property encumbered by a royalty would consider building their own smelter or refinery or processing facility, and then deduct the costs of building that plant from the royalty. Those deductions would effectively eliminate their royalty burden. Absurd, and obviously never going to happen.

 

My somewhat educated guess (I'm an attorney with experience with large litigation) is that Vale/Inco back in the 2000's when they started these royalty deduction shenanigans was just trying to put some pressure on what they considered small fish to renegotiate the royalty. Remember IRC and Altius were relatively small fish then, Voisey's Bay was a cornerstone royalty for each of them, and litigation costs would have been fairly significant given the company sizes.

 

Now the situation has changed completely. Royal Gold, responsible for 90% of the litigation costs on the plaintiff side, is a $4.62 billion USD company. Both Royal Gold and Altius have acquired so many royalties/streams that Voisey's Bay is no longer a cornerstone asset for each. They face no economic pressure to capitulate and renegotiate the royalty.

 

I think the plan for Royal Gold/Altius is to go win what looks to be a pretty easy case at trial. Remember in Canada at the end of a trial the judge will often order the loser to pay the winner's attorney fees. That will be a well deserved punch in the mouth to Vale/Inco for its bully tactics.

 

 

[linealdin]

Most royalty litigation is a bit harder to deal with at trial. Callinan and Hudbay's tussle over a Net Profits Interest (NPI), for instance, was a genuine legal issue. There are multiple legitimate ways to calculate profit (many cash flow positive businesses have ways to defer paying taxes on profits for years) and it's understandable why eventually the parties litigate over an NPI.

 

This Vale/Inco gambit is some made-up B.S. that is almost certain to fail.

[nostradamus]

linealdin

 

Thanks for all your information and analysis. Your point about the precedent that would be set if Vale wins the Voisey's Bay case sounds convincing to me (as an Altius shareholder!).

 

Do you have a view on potential size of the payout to Royal Gold/Altius if win they win the case?

 

N

[linealdin]

linealdin

 

Thanks for all your information and analysis. Your point about the precedent that would be set if Vale wins the Voisey's Bay case sounds convincing to me (as an Altius shareholder!).

 

Do you have a view on potential size of the payout to Royal Gold/Altius if win they win the case?

 

N

 

Thanks for the kind words.

 

There's two parts to this litigation: 2) the 2009 portion about systematic underpayment; and 2) the recent deduction of processing plant capital costs.

 

The second part should be an easy win for Royal Gold/Altius. They will eventually receive what they are owed, and what they are owed should be fairly easy to calculate. Vale/Inco has to keep detailed records for their shareholders of exactly how much nickel etc they are producing each month. So Altius is going to get that $3 million or $4 million a year back with interest.

 

The first part of the litigation is more of a difficult legal issue. Royal Gold/Altius is entitled to 3% of the "proceeds" of the nickel concentrate after it is sold. They obviously think the concentrate should be sold for exactly the spot price. Vale/Inco would argue that their nickel concentrate is a slightly different product from the nickel being sold on the spot market, and is worth less. Both sides of the argument have merit.

 

The fault lies in the badly drafted royalty agreement about receiving "proceeds." A modern royalty agreement would call for the royalty holder to be able to receive the metal itself. If there's a dispute over spot price then courier us those gold ounces, so we can sell them on the spot market ourselves. 

[linealdin]

2 of the 3 new option deals were public knowledge already. Canex Metals is new. Canex is the new name for Northern Abitibi, which Altius did a deal with on the Viking gold project a few years ago. It looks like Shane Ebert of Canex generated this project. He found Steve Scott the individual with the exploration rights, had Altius do an option agreement with Scott, then Canex in turn optioned the property from Altius.

 

Canex had only $300K in the bank at the end of 2016 so it looks like they will need to do a financing to do any real work on the property.

 

The partner funded 2017 drill programs mentioned in the press release:

 

1) EMU NL in Chile announced on March 17th that they are setting up a 20 person camp near the drill site and moving equipment in. They should be drilling now. Assay results due in the second half of April.

 

2) Kingscourt, an Irish property held by Adventus Zinc, was drilled by Teck Resources. Results pending. Adventus considering drilling various projects. They are cashed up.

[linealdin]

Thoughts on Excelsior Mining Royalty:

 

Altius has already declined to purchase additional Gunnison royalties 2 times. Declined a 0.5% Royalty for $3 million in 2015, and another 0.5% Royalty for $3 million in 2016. The only remaining option is a construction option after Excelsior has obtained 50% of construction financing: Altius will be able to purchase a 0.5% Royalty for $5 million.

 

My guess is they pass yet again. Significant skepticism about the project. Heap leaching not 100% proven method?

 

 

[Williams406]

Some color on Adventus from Globalminingobserver:

 

http://www.globalminingobserver.com/adventus-zinc-acquisition-christian-kargl-simard-181

[wachtwoord]

Thanks for the discussion you guys. Very informative :)

[linealdin]

https://media.wix.com/ugd/8d6671_9581ddf7144c498290e3f0111a601590.pdf

 

Emu NL first couple of drill holes at Vidalita. No assay yet but doesn't sound like they struck gold? Someone who knows geology please review.

 

Emu NL stock price is at one-year high at 20 cents so maybe encouraging signs in that press release?

[Williams406]

Linealdin--feel like I'm drinking from a firehose...thanks for the info.

 

http://www.alderonironore.com/index.php/news/2017/402-

 

$250k deposit by Alderon, but $750k deposit required for Wabush asset bid, no? If that signifies partners on the bid, I can think of a strategic partner or two.

[linealdin]

Linealdin--feel like I'm drinking from a firehose...thanks for the info.

 

http://www.alderonironore.com/index.php/news/2017/402-

 

$250k deposit by Alderon, but $750k deposit required for Wabush asset bid, no? If that signifies partners on the bid, I can think of a strategic partner or two.

 

Feels like a long slog for Alderon. So much fuss over what's going to be a tailings pit. What's going to move the project: 1) higher iron ore prices; 2) the provincial government spending even more money on infrastructure: rail, power, port. If these Trough projects work they will bring so many jobs and so much tax revenue into the province.

[linealdin]

EMU NL has moved significantly with the initial drill results, from 16 cents on Wednesday to 24 cents at the most recent close. Up 50%.

 

The very, very active EMU NL message board at Hot Copper is excited about the results. They believe EMU may have found a high sulphidation epithermal gold deposit. (Yes, I know all microcap message boards are wildly optimistic.)

 

Before the drilling there was soil sampling from a 2km X 3km area. All 235 samples contained detectable gold and silver. EMU management states that this is an extraordinary data set, and therefore fast tracked the drilling so it can be completed before field season ends in May.

 

Altius website indicates a pending option agreement for the Moosehead gold property. More good news.

[linealdin]

All the royalties/stream acquired during the bear market--Prairie Royalties, 777 Royalty, Chapada-- were on mines that were in production for a minimum of 9 years, some decades old. These were proven operations. Altius is now signaling that proven, low cost, producing royalties are too expensive because of the availability of traditional financing.

 

Altius has a large quiver: $177 million available mostly in cheap debt. But the targets are going to be quite risky: Mining properties that are trying to become producing mines. So many risks in financing, regulation, technical difficulties, bad execution, falling commodity prices. If they are going to take on that kind of debt then the project HAS to work.

 

I am perfectly fine with the safe alternative: don't buy anything now that the market is expensive, collect cash from all the royalties (could be over $50 million CAD in 2017), completely pay off the remaining $80 million in debt within 2 or 3 years, and continue making a ton of option deals with juniors for the huge land bank.

 

One or two of these dopey junior explorers is going to have a run. Remember Altius had plenty of chances to cash out $100 million or $125 million in ADV shares during the bull run. Their mistake. This bull cycle I think they are ready to grab that money.

 

Small ball acquisitions are fine, too. Sandstorm just bought 22 royalties on early stage projects for $1.9 million. Low risk but creation of some option value.

[Gamecock-YT]

It's curious they are cashing out some of the Alderon stock. Granted it was $167K and amounted to 1% of their holding, but still kind of surprising to see.

[linealdin]

It's curious they are cashing out some of the Alderon stock. Granted it was $167K and amounted to 1% of their holding, but still kind of surprising to see.

 

Altius still owns more ADV than the 32.285 million shares they were issued originally. Paul Van Eeden, when he was investing for Altius bought an extra 500,000 shares of ADV for no particular reason. Cashing out some of those extra shares perhaps.

 

If ADV ever reaches $1.00 again I expect major selling.

[nostradamus]

Came across this on the Gunnison project:

 

https://caesarsreport.com/freereports/CaesarsReport_2017-04-11.pdf

 

N.

[nostradamus]

And this announcement from Emu NL today on the Vidalita project, which sounds...hopeful?

 

https://media.wix.com/ugd/8d6671_921dd8e20dec466288dffb725aa90717.pdf