ALS.TO - Altius Minerals

[mikek]

 

Yeah the more I think about it the better I feel that Sheerness and Genesee have a good chance of still being run on coal in the late 2020's.  The reason I was surprised by that article saying that Sheerness might switch by 2020 is due to how mad the town of Hanna was with the original decision that there would be no more coal after 2030.  I can't imagine how angry they would be if they decide to switch in 2020.  I was also surprised because Sheerness is one of the newer coal plants other than Genesee and Keephills 3.  I also listened to the Atco AGM and I agree that the statements in that article might be misinterpreted and they are possibly just talking about the Battle River Plants.  Does anyone know the amount of jobs a natural gas plant has compared to a coal plant?  As far as I know a coal plant has a lot more jobs compared to natural gas.  I could be completely wrong about that statement and please correct me if that is incorrect.  One thing I found interesting is I remember reading Peyto's monthly reports and the president said their natural gas pipelines had frozen and they weren't able to get natural gas to the plants for a short time.  Is this an extremely rare thing or can this actually happen every once in a while?  It seems if this type of thing can happen it would highly advantageous to have coal from a safety perspective alone.  They are basically going to only have natural gas as the base load in the province.  Altius will be in very good shape if Sheerness, Genesee, and Highvale are running in the late 2020's.  This gives them huge optionality with possible technology and government changes.  Australia put in a carbon tax and got rid of it entirely in 2 years.  As long as ATCO and Capital Power don't initiate plans to switch to natural gas on those 2 plants before 2020 I feel we are in pretty good shape.

 

I think we will hear more about this topic on May 15th on Westmoreland's conference call

 

You can find many articles like the ones below from the last couple of years regarding how the town felt when they were told there would be no more coal by 2030.

http://www.cbc.ca/news/canada/calgary/hanna-alberta-coal-mine-shut-down-1.3936178

 

 

[linealdin]

When one of these coal plants is converted to gas it may be the first in the country. There are lots of press releases about coal to gas conversion but little action. Thunder Bay Generating Station in Ontario is a good example:

 

1) 326 MW coal burner operational since 1963. Old, inefficent, lots of emissions.

 

2) In 2004 Ontario government proposes conversion to natural gas. Cheap and easy and low emissions, right?

 

3) Plan cancelled in 2006.

 

4) 2010 Long Term Energy Plan: Ontario Ministry of Energy wants plant converted to gas by 2014.

 

5) 2012: Conversion suspended by Ontario Power Authority because of market concerns.

 

6) 2013: Thunder Bay will be converted to burning biomass.

 

7) 2015: Conversion to biomass complete. Plant now operates at 2% of nameplate capacity!

[bizaro86]

 

1) A natural gas pipeline takes 3 full years to construct. That doesnt include design and permitting. Thats why Transalta's board-approved plan to convert to gas leaves a window up to 2023 to complete the conversions.

 

 

I have personally worked on long, big diameter natural gas pipelines in AB, where we had them constructed in less than 2 years from the time we decided we needed it. I was in the meeting where someone suggested the new pipeline and it was discussed, and I dealt with the final bills that came in, so I know the timelines for a fact.

[linealdin]

 

1) A natural gas pipeline takes 3 full years to construct. That doesnt include design and permitting. Thats why Transalta's board-approved plan to convert to gas leaves a window up to 2023 to complete the conversions.

 

 

I have personally worked on long, big diameter natural gas pipelines in AB, where we had them constructed in less than 2 years from the time we decided we needed it. I was in the meeting where someone suggested the new pipeline and it was discussed, and I dealt with the final bills that came in, so I know the timelines for a fact.

 

Every project is different. The 3 years to build the pipeline is Transalta's estimate, not mine. Land rights, environmental review, and permitting are site-specific.

 

Specifics of pipeline for Genesee: Capital Power has already scoped a plan for building Genesee 4 and 5, natural gas plants (project now on hold). The closest suitable source for tying in such a large pipeline is in Drayton Valley, about 65 km away from Genesee. These coal plants are located where the coal fields are, unlike new nat gas plants which would be built with pipeline access as a major consideration.

 

In the US pipeline costs at least $1 million a mile, and maybe double or triple that that depending on the diameter required (converting about 1200 MW at Genesee).

 

Was the pipeline you helped deliver in less than 2 years shorter or longer than 65km?

 

 

[linealdin]

The US experience in coal to gas conversion (since I dont think its been done in Canada):

 

1) True retrofits vs. replacement. What is announced as a cheap conversion sometimes becomes shutting down the coal plant and replacing it with a brand new gas plant, a much more expensive endeavor. Of course management wants to retrofit an existing plant but that is not always possible.

 

2) The age of the coal plants involved almost all are 50 to over 100 years old. I found one coal plant conversion which was built in 1973, the others were all older, usually much, much older.

 

Sheerness 1 commissioned in 1986 and Sheerness 2 in 1990. Genesee 1 commissioned in 1989 and Genesee 2 in 1994. ATCO and Capital would be in uncharted territory if they convert these plants.

 

 

[bizaro86]

 

1) A natural gas pipeline takes 3 full years to construct. That doesnt include design and permitting. Thats why Transalta's board-approved plan to convert to gas leaves a window up to 2023 to complete the conversions.

 

 

I have personally worked on long, big diameter natural gas pipelines in AB, where we had them constructed in less than 2 years from the time we decided we needed it. I was in the meeting where someone suggested the new pipeline and it was discussed, and I dealt with the final bills that came in, so I know the timelines for a fact.

 

Every project is different. The 3 years to build the pipeline is Transalta's estimate, not mine. Land rights, environmental review, and permitting are site-specific.

 

Specifics of pipeline for Genesee: Capital Power has already scoped a plan for building Genesee 4 and 5, natural gas plants (project now on hold). The closest suitable source for tying in such a large pipeline is in Drayton Valley, about 65 km away from Genesee. These coal plants are located where the coal fields are, unlike new nat gas plants which would be built with pipeline access as a major consideration.

 

In the US pipeline costs at least $1 million a mile, and maybe double or triple that that depending on the diameter required (converting about 1200 MW at Genesee).

 

Was the pipeline you helped deliver in less than 2 years shorter or longer than 65km?

 

The pipeline I was talking about was just over 40 km. I suspect if TA thinks it'll take longer it's for regulatory or land use reasons (or unfamiliarity with the process). Longer pipelines cam be built in the same time by using more crews/welders.

 

Do you know if they plan to own the pipeline themselves?  As that would add some time if they have to negotiate an agreement with a pipeline Co first.

[linealdin]

Rocanville expansion and rampup is basically complete. This month Potash Corp is running a 14 day full production test and engineering audit for Canpotex. Canpotex then will allocate a sales allocation taking effect on July 1st. Full capacity is 6 million tonnes but the plan is to produce 5 million tonnes per year. When Altius bought the royalty the annual production was 2 million tonnes.

 

The second half of calendar 2017 we should start seeing the true potential of the royalty. Even in this depressed price environment the Rocanville royalty could hit CAD $5 million to $6 million on annual basis.

 

Esterhazy 3 expansion also chugging along. Miners hit potash in February and pruduction will begin by end of 2017. The plan is to reduce production at Esterhazy 1 and 2 as Esterhazy 3 ramps up so the effect on the Altius royalty will be positive but somewhat muted.

[mikek]

From westmoreland's conference call today.

 

An investor asked how management thinks about the contracts in Canada.  The only direct comment was that they felt that genessee would run to 2030 on coal as a worst case scenario.  They didn't mention any other projects other than saying that they felt very confident on the saskatchewan coal plants which don't relate to altius. You can take that comment to mean that they weren't as confident on the alberta side. They said they had two draglines down in Canada which affected coal tons for the quarter but according to the quarterly report they sold 6 million tons compared to 5.8 last year.  The tons were back loaded this year so it might have had an impact on altius depending on which coal plants experienced difficulties.  Pretty irrelevant either way, I was hoping to get more of an answer relating to Sheerness but really no new information on that.

 

This is obviously coming from a coal supplier so there is definitely going to be some bias in those comments so take them as you will.

[linealdin]

From westmoreland's conference call today.

 

An investor asked how management thinks about the contracts in Canada.  The only direct comment was that they felt that genessee would run to 2030 on coal as a worst case scenario.  They didn't mention any other projects other than saying that they felt very confident on the saskatchewan coal plants which don't relate to altius. You can take that comment to mean that they weren't as confident on the alberta side. They said they had two draglines down in Canada which affected coal tons for the quarter but according to the quarterly report they sold 6 million tons compared to 5.8 last year.  The tons were back loaded this year so it might have had an impact on altius depending on which coal plants experienced difficulties.  Pretty irrelevant either way, I was hoping to get more of an answer relating to Sheerness but really no new information on that.

 

This is obviously coming from a coal supplier so there is definitely going to be some bias in those comments so take them as you will.

 

What makes Westmoreland confident about Genesee: the CAD $70 million they just got paid from Capital Power for prepaid expenses until 2030. The transfer of the money means the decision to run on coal until 2030 is a done deal in the Capital Power boardroom. Not a hard decision, given how young and efficiently the plant runs.

 

I now think Sheerness gets taken out (ATCO and Transalta both want out of coal, they will reach an agreement) but not as quickly as some expect. ATCO will try the coal to gas conversion at the older plants in the early 2020's and maybe flip Sheerness by 2025 or 2026 if all goes well. I will eat a shoe if Sheerness isnt burning coal in 2022.

 

Keephills 3 is safe, but makes up a miniscule portion of what is already a small royalty at Highvale. I'm kind of shocked Transalta would convert Keephills 1 and 2 (youngish plants). But again I think they will convert the older Sundance plants first and see how the economics works out before pulling the trigger at Keephills.

 

The Paintearth mine power plants are DOA but who cares. That royalty is a rounding error.

[linealdin]

*edit

 

Nice little comeback from LIF. CAD $16.61 on 4/18 to CAD $18.71 today. Optimism about another special dividend to be announced in early June?

 

Another regular and special dividend = $575K dividend for Altius.

 

On a more speculative note: Altius owning shares of a company with a cornerstone royalty seems to indicate a willingness to merge with that company under the right circumstances. See attempted merger with IRC and merger with Callinan.

 

I'm certain Altius loves that 7% royalty on IOC that LIF owns.

 

 

[linealdin]

Latest presentation on Altius website seems to indicate they paid off only $2 million in debt in the quarter ending April 31st. Current debt: $79 million.

 

Total available liquidity as of 5/6/17 ($35 million cash, $63 million unused revolver, unused $75 million preferred share drawdown): $173 million.

 

Thoughts: the $2 million was the minimum required payment on the term facility, so no payment on the revolver this quarter ($2.7 million paid on revolver in Q3). Another very solid quarter of revenues. And yet the total liquidity declines from $176 million to $173 million.

 

Instead of paying off revolver debt did they buy shares?

 

 

[linealdin]

Very good presentation on Excelsior Mines by COO Roland Goodyear, available at Virtual Investor Conferences 5/11. Key points:

 

1) Permitting moving quickly. State permit expected in July, and EPA permit around Oct. 1st. Weekly and bi-weekly meetings with regulators.

 

2) Purchase of Johnson camp in receivership paid off $4 million in back taxes. Very appreciated in Cochise County, which is poor and needs every tax dollar. Supportive editorial in local paper. Community support seems strong.

 

3) Meeting with financing offerers now. Seeking US $70 million to cover capex, working capital, and other costs. Perhaps $50 million in debt and $20 million in equity.

 

4) Permitting is for all production stages up to 125 million pounds per annum. So if project proves successful at 25 million pounds per annum there is an option to proceed directly to building a plant that can produce 125 million pounds. If financing is available it can be done.

 

5) Once permits and financing are secured construction and commissioning of wellfields should take 9 months. Commercial production in mid-2018 is the plan.

[Guest JoelS]

I recall some in this thread saying they would exit if Fairfax ever got involved. Any concerns now that Fairfax is involved and has a seat on the board? It would be a shame to see Altius get back to $7 or $8 and be bought out by Fairfax at $11.

[Williams406]

For me, Fairfax is a source of capital based on the deal struck and a potential source of serious capital if a whale comes along. I think royalty ownership is a natural fit for an insurer and could see an expansion of the relationship. I would hope all the while Fairfax doesn't place Altius in the "cigar butt" category of investment...

[nostradamus]

http://altiusminerals.com/uploads/PR1710-Q4-call.pdf

 

$46.3m royalty revenue for the year, $13.4m in Q4 versus $14.5m in Q3 (their record quarter)

 

 

[linealdin]

That's an excellent revenue number for Q4.

 

Latest presentation by Altius has cash and public equity positions at: $98 million at 4/30.

 

It looks like at 4/30:

 

$35 million in cash

 

$33.4 million in Project Generation Equity portfolio

 

[$9.33 million in Adventus, $4.74 million in Excelsior Mines, $2.24 million in Evrim Resources, $1.13 million in Bitterroot Resources, $2.5 million in Antler Gold, $350K in EMU NL, $220K in Allegiance Coal, etc]

 

$20.39 million in Labrador Iron Ore Royalty

 

$9.76 million in Alderon

 

[linealdin]

http://www.asx.com.au//asxpdf/20170518/pdf/43jbvl09qw9q1r.pdf

 

Some movement in the Trough iron ore space. Champion Iron signs $40 million bridge financing deal to do construction work this summer. $26 million loan and offtake agreement with Sojitz Corp and $14 million in equity investment. Advanced discussions to obtain $212 million master financing to cover total capex for restart of Bloom Lake. Michael O'Keefe is a master dealmaker.

 

Takeaway for Alderon: There is still significant interest in the higher quality Trough iron ore, even in this depressed price environment.

[linealdin]

https://media.wix.com/ugd/8d6671_a4b0aee0978243d386c717b94a66d068.pdf

 

Drill results for Vidalita. Have not struck the motherlode yet. Some interesting gold/silver geochemistry interpreted as the upper or peripheral parts of a high sulphidation epithermal system similar to other large gold deposits in the region. These HSE systems are characterized by a steam heated cap of 100 to 300 meters with only traces of gold/silver geochemistry. EMU only drilled 442 meters total divided among 3 holes.

 

Must drill deeper once drilling season begins again in the fall.

 

 

[linealdin]

http://www.drumhellermail.com/news/29762-atco-moves-up-timeline-for-coal-phaseout

 

Hanna mayor speaks about possible coal to gas conversion at Sheerness.

[linealdin]

1) http://www.teck.com/operations/canada/operations/cardinal-river/public-access/

 

"Cardinal River Operations will be conducting exploration work in the MacKenzie and Redcap areas of the Cheviot mine from mid-February 2017 to the end of April 2017. There will be a need to temporarily close access on designated access trails when equipment is working."

 

The Redcap and MacKenzie pits will have to be mined to extend the Cheviot met coal royalty beyond 2020 to 2027. 2.5 month exploration programs, which likely include drilling, cost significant money. I assume "equipment" means drills. Anyway, it's a good sign that Teck is spending the money.

 

2) Hudbay's plan, once the 777 mine is exhausted, is to put the 777 processing facilities on care and maintenance to maintain regional optionality until a new mine is found. They are looking: $4 million is committed in 2017 to Manitoba exploration. Some of that $4 million will go to exploration around Lalor, some towards gold exploration at Snow Lake, and some to base metal targets in the Flin Flon greenstone belt (Altius holds a 3% royalty on 31 square kilometers in that Flin Flon belt). Altius also holds some royalty options on Callinex's copper targets in the Flin Flon area.

 

Everyone realizes the 777 mill needs ore, and everyone realizes that the Flin Flon belt is prolific (27 producing mines over the last 100 years). It's just a matter of applying modern exploration techniques and lots of cash.

 

 

[linealdin]

http://ets.aeso.ca/ets_web/ip/Market/Reports/CSDReportServlet

 

Current supply/demand report for Alberta electricity. It updates in real time. Last I checked coal accounted for 48% of the current total net generation. Coal provides the baseline power while natural gas is for peak demand periods (hot summer or freezing winter).

 

I will believe coal is gone when I see it declining on this report. Press releases don't convince me.

 

[linealdin]

http://www.ctvnews.ca/politics/alberta-pcs-wildrose-to-form-new-entity-called-united-conservative-party-1.3419275

 

Political movements in Alberta. The two conservative parties are taking steps to unite into new party and try to win 2019 election vs NDP.

 

The conservatives would have chance to kill some provincial carbon taxes before they drive electricity prices through the roof.

 

2030 is still hard deadline for coal because the utilities have already taken the $1.2 billion in compensation, but an election win by the conservatives changes the regulatory landscape of operating a coal plant until 2030.

 

More generally I'm still very skeptical how realistic a coal dump is going to work in Alberta. Ontario got off coal, after a decade of bumpy attempts, but they have existing baseload nuclear power. Other Canadian provinces are blessed with hydro for majority of their electricity needs.

 

Saskatchewan and Nova Scotia depend on coal for majority of their power. Both provinces negotiated deals so their newer coal plants could operate past 2030. If cheap coal to gas plant conversions were realistic options wouldnt those provinces have tried it?

 

The only realistic way to get off coal is to decommission those plants and build new natural gas plants (like Genesee 4 and 5, currently on hold), import more hydro, and add in those expensive renewables. But all of this will take time and money.

 

 

 

[linealdin]

http://www.publicpower.org/Media/magazine/ArticleDetail.cfm?ItemNumber=28810

 

"None converted a coal burning plant to natural gas. Rather, they replaced a coal burning plant with a new natural gas plant."

 

Actual cost of coal to gas "conversion": $1 million per MW. So replacing Genesee 1, 2, and 3 with nat gas would cost $1.27 billion! Reality.

[linealdin]

The Ontario experience is important to consider.

 

1) Coal only accounted for 7500 MW or 25% of Ontario's generating capacity in 2003. Nuclear provided the baseload, and hydro too.

 

2) New government pledges in 2003 to eliminate all coal power by 2007.

 

3) How long did it actually take? 11 years.

 

4) How many of those coal plants were converted to gas? Zero.

 

5) Ontario slowly built 10,000 MW of new natural gas power generating capacity in those 11 years to replace the coal plants.

 

6) Why not just convert instead of building new gas plants? The converted plants just arent very efficient. The only way to produce electricity at a competitive price is to bite the bullet and build new efficient and expensive gas plants with the latest technology.

 

All of this will happen in Alberta, only slower. No baseload alternative to coal, which accounts for 40% of generating capacity. It's going to take forever to build 6000 MW of new gas plants. Altius will continue to reap the benefits for longer than we expect.

[linealdin]

There are 3 types of natural gas power currently in use in Alberta: cogeneration, combined cycle and simple cycle.

 

Cogeneration involves using some of the excess heat generated by a large industrial process, mostly oil sands extraction in Alberta. Functionally this acts as efficient, baseload power since industry runs around the clock. Could they build more cogen to replace the 6000 MW of baseload coal power? Sure, but there has to be an independent industrial need for a new plant. Are more oil sands extraction plants going to be built in Alberta anytime soon? Maybe, Suncor has a plan for an oil sands plant to begin construction in 2024 (dont know if cogen is involved). But cogen isnt going to ramp up quickly.

 

Combined cycle is the efficient natural gas plant. Must be built from scratch. $1 million or $2 million per MW capex. Can they build more combined cycle plants to replace coal? Sure, but the economics has to work. Right now Genesee 4 and 5, combined cycle plants with capex of $1.4 billion, are approved by regulators but on hold because of market conditions. Sundance 7, another combined cycle plant with capex of $1.6 billion is also on hold.

 

Simple cycle is the least efficient, most expensive form of natural gas power. Right now all simple cycle generators are idle and reserved for peaking situations only. Even with all the complaints about coal being the worst evil on the planet the utilities today still won't run their simple cycle gas plants instead. If Transalta and Atco convert their coal plants they will become inefficient simple cycle gas plants. It is a cheap conversion but it doesnt solve the province's need for affordable, reliable, and efficient baseload power.

 

I have no doubt some of the older less efficient coal plants will be shut down or converted to peaking plants (but more slowly than the utilities claim for PR purposes). But until the multi-billion dollar combined cycle gas plants begin construction I won't worry about Genesee and Sheerness being put out of service. They are still necessary.