ALS.TO - Altius Minerals

[linealdin]

Champion $20 million subscription should close around Monday, September 18th. 12.8 million shares sold to a President's list of investors (insiders, friends and family) and 9.4 million shares offered on an underwritten basis.

 

There will be no problem with this deal closing. The majority of shares placed with pre-vetted investors while the dealers will cover the shortfall on the non-presidents list. And the shares are offered significantly below market price: 90 cents while the market price is $1.03 in both Canada and Australia.

[linealdin]

Of course we think it's a better idea for Adventus to be run as a low cost prospect generator, and I'm certain at the right time they will do some farm-out agreements of existing properties. That is the business model that makes the most sense in mining.

 

But the investment banker CEO and the private equity investors signed on for something quite different. Adventus is their zinc acquisition vehicle. The investment bankers and the deep pocket private equity will raise hundreds of millions for the right deal. They want a stock that will generate some excitement when the zinc bull hits its peak.

 

All of that is fine as long as Altius keeps its total investment in the company low: no more than $5 million to $10 million I would say, unless there is a royalty financing involved.

 

 

[linealdin]

http://www.anglopacificgroup.com/acquisition-of-a-royalty-on-the-piaui-nickel-cobalt-project/

 

Altius competitor Anglo Pacific Group acquires a 1% nickel royalty. A special situation deal: heap leaching for nickel laterites is just being proven as a viable technique.

 

First 1% royalty costs only US$2 million. Optional next stage purchase is another 2% royalty for US$20 million, finally another 2.5% royalty for US$50 million.

 

Everybody is playing smallball: buying smaller royalties in very early stage projects.

[linealdin]

http://www.mountain-lake.com/2017_09_14_MLK_Moosehead_News_Release_17-08.pdf

 

Mountain Lake Minerals options Moosehead Gold, will issue Altius 10,523,339 shares and a 1.5% royalty. Minimum C$500K first year exploration spend and C$1 million capital raise required.

 

Mountain Lake raised C$175K in August, that's about all they have in the bank. C$814K in liabilities, mostly with related parties, so payback extensions likely.

 

Altius will own 19.9% of Mountain Lake.

 

Paul Smith, CEO of Mountain Lake, developed and sold the Valentine Lake property to Marathon Gold. That has turned into a great deposit. Moosehead Gold is on the same geological trend.

[linealdin]

http://altiusminerals.com/uploads/MDA-July-31-Q1-F2018-FINAL.pdf

 

http://altiusminerals.com/uploads/FS-July-31--Q1-F2018-FINAL.pdf

 

http://altiusminerals.com/uploads/09-13-2017-ALTIUS-REPORTS-Q1-F2018--REVENUE-OF-15-4M-FINAL_.pdf

 

A hell of a lot is happening.

 

1) New copper spinout which will hold the Chile copper properties (Arcas). Multiple new earn-in agreements to be signed soon.

 

2) Revenue of C$15.4 million beats the previous estimate of C$14.8 million. New quarterly record.

 

3) Drawdown in August of second tranche of Fairfax, another $25 million.

 

4) $13.2 million used to buy shares of LIF. (The rest of the $14.4 in investments in the quarter went to the C$1.2 million Evrim investment.) Not revealed exactly how many LIF shares picked up but we can guess. $13.2 million / $16.50 per share = 800,000 shares

 

Add that to the existing 1.7076 million shares and the new total is ~2.5 million shares of LIF. Monster position.

 

5) C$5.427 million paid on longterm debt. Debt in the credit facilities now at C$73.1 million.

 

6) D stands for diamonds! New diamond project in Manitoba. Altius spent C$153K in the quarter on diamonds. Also C$387K on the Finnish gold and nickel projects.

 

[edit]

 

No dividend increase!

[linealdin]

What copper properties can go into a copper spinout? Chile Arcas, Michigan Copper Range, Seal Lake in Labrador, and a newly staked copper project is Saskatchewan. Nice way to package them up in exchange for shares and royalties. The key will be what management and investors can be lured in. The market liked Adventus, and gave it a nice valuation, because of all the heavy hitters involved.

[TwoCitiesCapital]

http://altiusminerals.com/uploads/MDA-July-31-Q1-F2018-FINAL.pdf

 

http://altiusminerals.com/uploads/FS-July-31--Q1-F2018-FINAL.pdf

 

http://altiusminerals.com/uploads/09-13-2017-ALTIUS-REPORTS-Q1-F2018--REVENUE-OF-15-4M-FINAL_.pdf

 

A hell of a lot is happening.

 

1) New copper spinout which will hold the Chile copper properties (Arcas). Multiple new earn-in agreements to be signed soon.

 

2) Revenue of C$15.4 million beats the previous estimate of C$14.8 million. New quarterly record.

 

3) Drawdown in August of second tranche of Fairfax, another $25 million.

 

4) $13.2 million used to buy shares of LIF. (The rest of the $14.4 in investments in the quarter went to the C$1.2 million Evrim investment.) Not revealed exactly how many LIF shares picked up but we can guess. $13.2 million / $16.50 per share = 800,000 shares

 

Add that to the existing 1.7076 million shares and the new total is ~2.5 million shares of LIF. Monster position.

 

5) C$5.427 million paid on longterm debt. Debt in the credit facilities now at C$73.1 million.

 

6) D stands for diamonds! New diamond project in Manitoba. Altius spent C$153K in the quarter on diamonds. Also C$387K on the Finnish gold and nickel projects.

 

7) Sold C$9.529 million in investments in the quarter (recognized gain of C$5.184 million). Those junior equity shares are held to be sold, aggressively. They are a piggy bank.

 

Curious to know what exactly they are selling to generate C$9.529 million. That is a lot. It's not LIF, Alderon, Adventus, Antler, or Evrim.

No dividend increase!

 

Saw that too - if they're still drawing from Fairfax's 5% preferred line, there's probably a reason they're holding onto the cash and not increasing the dividend. They must have an opportunity in mind that they're keeping cash on hand for.

[linealdin]

http://www.cbc.ca/news/canada/manitoba/diamonds-discovered-1.4012050

 

Diamonds discovered in Manitoba very recently. First announced at PDAC this year. Altius's style recently has been to option the property from the original discoverers (as with the Antler gold discovery). They certainly have the cash.

 

$150K cash upfront plus royalties and payments down the road can be quite a score for a prospector.

 

http://www.glaciermediagroup.com/bigadmin/DigitalEditionAdmin/download-pdf.aspx?pdf=NMD-DE-06012017.pdf

 

See page 21. These prospectors staked 500 square kilometers around the discovery and hoped to sign an option agreement by the summer. Altius almost certainly made a deal with them. The prospectors had all the land locked up.

[mikek]

Not exactly thrilled with taking another 25 million from Fairfax but they are definitely getting some things done. The copper spinout could create some value. The royalty portfolio is doing very well.  There is definitely a lot going on with the exploration side of the business.  I wasn't an earlier fan of the LIF position but there has definitely been a structural change in the iron ore market and am a lot more comfortable with the large position in LIF due to the high quality iron ore. Not really concerned with no dividend increase,  they seem to feel that they can continue to add value by investing cash instead of paying out at this time.

[doc75]

Curious to know what exactly they are selling to generate C$9.529 million. That is a lot. It's not LIF, Alderon, Adventus, Antler, or Evrim.

 

From the MD&A: 

 

"The Corporation received $9,529,000 in proceeds for the three months ended July 31, 2016 from the sale

of available for sale investments, which was used to repay a portion of the New Credit Facilities in the prior

year."

 

The year isn't a typo.  This sale was reported in last year's Q1 report.  I presume they're mentioning it again only for comparative purposes.

[linealdin]

Curious to know what exactly they are selling to generate C$9.529 million. That is a lot. It's not LIF, Alderon, Adventus, Antler, or Evrim.

 

From the MD&A: 

 

"The Corporation received $9,529,000 in proceeds for the three months ended July 31, 2016 from the sale

of available for sale investments, which was used to repay a portion of the New Credit Facilities in the prior

year."

 

The year isn't a typo.  This sale was reported in last year's Q1 report.  I presume they're mentioning it again only for comparative purposes.

 

Yes, bad reading skills, apologies. I will edit.

[nostradamus]

Yes, lots happening

 

The Moosehead deal:

 

http://www.mountain-lake.com/2017_09_14_MLK_Moosehead_News_Release_17-08.pdf

 

Adventus Zinc Enters Into Option Agreement With Salazar Resources on the Curipamba Copper-Zinc-Gold Project and Forms Exploration Alliance in Ecuador:

 

http://www.salazarresources.com/news/2017/september14/

 

Out of interest, where are the references to the diamond and Finnish gold and nickel projects? I can't find them.

 

N

(Also a bit disappointed that they seem to be taking leveraged bets on LIF by using the Fairfax money, rather than paying down debt or increasing buybacks/dividends.)

[linealdin]

 

Out of interest, where are the references to the diamond and Finnish gold and nickel projects? I can't find them.

 

 

See page 7 of the quarterly financial statement under Exploration and Evaluation Assets. Some significant spending on diamonds and Finland in the quarter.

[doc75]

(Also a bit disappointed that they seem to be taking leveraged bets on LIF by using the Fairfax money, rather than paying down debt or increasing buybacks/dividends.)

 

My feelings exactly!

[linealdin]

Terrific conference call this morning. Altius management in great spirits, as they should be.

 

1) Confirmed: Current LIF position is ~2.5 million shares. First 1.15 million shares were acquired for C$13 or C$14 a share. Currently trading near C$20. It has been a spectacular investment, given the all the regular and special LIF dividends. (I believe recent equity tranches were acquired below C$16.)

 

Watch the LIF dividend announcement in the next few days. Should be in the 80 cent range.

 

2.5 million shares x 80 cents = C$2 million in royalty revenue for Altius in Q2. That's huge. C$2 million is a little less than what Voisey's Bay used to bring in over a year.

 

2) Sounds like some good early stage gold discoveries in Finland on the property near Aurion Resources. Expectation of a farm-out deal over the next 6 months.

 

3) Very approving of the Adventus deal in Ecuador. Good polymetallic deposit but the exploration opportunities even more exciting.

 

4) Interesting divide between the callers and management. Callers hung up on the failures or non-starters of the past (Kami, Julienne Lake, Rio Tinto exploration agreement) while management is focused on the future (Ecuador zinc, Finnish gold, the C$2.50 per share dividend they will receive for their LIF position in 2017).

 

Prospect generator mindset is to move on quickly from failure. A certain rate of failure is expected. That's why the bet size was small in the first place.

 

5) Confirmed that the developing structural premium spread in the iron ore market influenced them to take a larger position in LIF.

 

6) Copper spinout will be modelled on Adventus as zinc spinout.

 

7) Regarding the Prairie deal Dalton implies that they reluctantly took the coal royalties in order to acquire the prize: multi-century potash royalties.

 

Eight) Again mentioned that Altius royalty revenue lags the commodity price changes. So the 777 mine and Chapada haven't really felt the impact of $3 copper or $1.40 zinc. The price bump will show up in upcoming quarters.

[linealdin]

Notes on the Adventus acquisition:

 

1) Seems like a cheap deal for Adventus? US$25 million for a 75% interest in a very good deposit.

 

2) Salazar has had trouble raising money in recent years. Had a Chinese investor but the Chinese CEO gets injured in a car crash so the final deal is never signed. Shady.

 

3) The one investor Salazar actually reeled in is Resource Capital Funds, also a major strategic shareholder in Adventus. RCF owns a 2% royalty on Curipamba and equity in Salazar. RCF obviously has already vetted Curipamba and will likely make add-on bets to advance the project to production.

 

4) The 2015 PEA is outdated because the excellent drill results from the 2017 10,000 meter drill program are not incorporated. The PEA results are 14 year mine life (9 years open pit, 5 years underground), US$110.2 million capex, NPV10 of US$86.72 million, US$202.6 million positive cash flow, 30% IRR, 2 year payback period. I like the relatively low capex (though that will grow as the resource gets larger).

 

5) Currently have 10 million tonnes of resources in all categories. Given the excellent new drill results the goal may be to get to 15 million to 20 million tonnes, which is typical for VMS deposits of this type. Something about the size of the 777 deposit, for reference.

 

6) Ecuador is warm in the winter (unlike Emu's project in Chile) so exploration can advance year-round.

 

7) Ecuador extremely underexplored, which gets the geologists excited for more discoveries.

 

Eight) Ecuador nationalization/appropriation risk lower than Bolivia but still a risky jurisdiction. Kinross took a bath there over windfall tax a few years ago.

[linealdin]

I would understand the unhappiness with the "leveraged bet" on LIF if it were going in the wrong direction, if IOC was still struggling and about to be idled. But the bet has gone as well as can be expected.

 

1) ~C$4.37 million in LIF dividends paid out so far (investment made Q1 2016). I expect another C$2 million in LIF dividends this quarter.

 

2) IOC just paid LIF the largest dividend it has paid in years and authorized $79 million investment in the Wabush 3 pit.

 

3) IOC production set to make a new annual record. Its pellets and high quality concentrate enjoying premiums never seen before. Iron ore market reshaping in favor of the Labrador Trough.

 

4) The investment has appreciated ~30% in the stock price. Add in dividends for total return. But do wait for the C$2 million dividend to be announced. It matters to the bottom line. Total return including upcoming dividend will be ~50%.

 

5) Downside is paying 5% interest to Fairfax and issuing 1.67 million warrants per $25 million tranche. It has worked out.

 

6) LIF position is worth roughly C$49.77 million. Credit facilty debt is C$73.2 million. They can sell LIF and pay off 68% of the debt today. But I suspect they will sit back, collect huge dividends, watch IOC's expansion plans play out.

[linealdin]

Market timing is not easy, even for the professionals. Like Altius, Osisko bought a juicy equity stake in LIF in 2015 but they bought a quarter earlier than Altius and paid about $4 more per share. Then Osisko sold its position in January of this year before the flurry of LIF special dividends were announced. Only booked a 17.4% return on what should have been a home run.

[linealdin]

Fairfax second tranche drawdown came after the close of Q1. New LIF shares already purchased by then, with existing cash flow.

 

The second C$25 million, supplementing the C$8 million cash at the end of July, is on the ready for NEW opportunities. Equity/royalty financing with Wolfden accounts for C$10.8 million. More deals/investments coming.

[linealdin]

http://www.adventuszinc.com/storage/presentations/adzn---corporate-presentation---september-2017-for-distribution-1505437979.pdf

 

New Adventus presentation on Ecuador transaction. Smart. Curipamba has "ideal deal structure, no upfront dilution."

 

"The Curipamba transaction is the first of several advanced exploration deals, envisioned by Adventus management through the end of 2017 and into 2018."

 

Better zinc equivalent grades than the 777 mine.

 

The investment banker wants to make deals. More deals coming, maybe even Bolivia.

[TwoCitiesCapital]

Holy cow - this is not response I expected from the earnings today.

[linealdin]

Holy cow - this is not response I expected from the earnings today.

 

Personally I root for market chaos since I'm never selling my shares. New retirement account purchases coming. Excellent corporate developments, and even better pricing. I understand the pain for those on shorter investment timelines.

[Williams406]

I appreciate the extensive commentary/opinions on the quarterly #'s and call. On the conference call this AM I found myself thinking that it's neat to watch Altius "grow up." Cash flows are building, Gaumond on the BoD, that there IS a conference call, some seemingly strong additions to the executive team (don't go crazy with overhead, now, though!) I suspect if a really big deal opened up, Fairfax might be up for a few extra bucks of investment. There is a dizzying amount of activity on several continents. Good stuff, on the whole.

[linealdin]

http://www.adventuszinc.com/storage/presentations/adzn---corporate-presentation---september-2017-for-distribution-1505437979.pdf

 

New Adventus presentation on Ecuador transaction. Smart. Curipamba has "ideal deal structure, no upfront dilution."

 

"The Curipamba transaction is the first of several advanced exploration deals, envisioned by Adventus management through the end of 2017 and into 2018."

 

Better zinc equivalent grades than the 777 mine.

 

The investment banker wants to make deals. More deals coming, maybe even Bolivia.

 

Also clear from the Adventus presentation: this isn't the megasize deal they are seeking. They still want a deal with a major for a mine that will produce 100,000 tpa zinc for at least 10 years.

 

The Curipamba property isn't that, it is a sideline deal: an advanced exploration property, with a historical resource, that can be acquired at reasonable valuations.

[mikek]

http://www.labradorironore.com/News-Releases/Press-Release-Details/2017/Labrador-Iron-Ore-Royalty-Corporation---Cash-Dividends-for-the-Third-Quarter-of-2017---100-Per-Common-Share-Comprised-of-a-Regular-Dividend-of-025-and-a-Special-Dividend-of-075/default.aspx

 

Wow nice