ALS.TO - Altius Minerals

[linealdin]

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

 

I thought my estimate of 80 cents was aggressive. This is impressive.

 

Altius receives at least C$2.5 million in LIF dividends in Q2. (Probably a bit more, I think they are still on the bid whenever the LIF stock weakens).

 

LIF in the press release seems to be tamping down expectations for next quarter. Maybe just a 50 cent dividend.

[linealdin]

Altius probably hits C$18 million in Q2 revenue: commodity price bump fully kicking in, seasonal production effects at Chapada, and outsize LIF dividends. I'm hoping the stock price drops 10% when Q2 revenue is announced.

[nostradamus]

Irrespective of the sequencing, ALS has taken on debt and put money into LIF. They could have opted to not take on the debt and not make the LIF investment. It has paid-off so far and I am extremely happy about that. But, given the fact that I am up to my neck in ALS, I worry about their approach to debt and large concentrated speculative investments that could take a turn for the worse.

 

I guess that I should just start thinking about their LIF investment as an iron ore royalty, rather than a large listed equity investment. That somehow makes me feel a bit better. Hmmm.

 

Thanks linealdin for your analysis of the results and call, really appreciated.

 

N.

[linealdin]

Forget LIF for a second. Thought exercise:

 

How much would you pay today for a long-life iron ore royalty you believed would pay an average of C$6.25 million a year in royalties? Long life as in 50 years. Also consider there's a longterm trend of incremental production capacity expansion at this hypothetical mine.

 

Let's say a 10% chance of production being idled or shut down sometime in this 50 year period due to bear market price cycles.

[mikek]

"Irrespective of the sequencing, ALS has taken on debt and put money into LIF. They could have opted to not take on the debt and not make the LIF investment. It has paid-off so far and I am extremely happy about that. But, given the fact that I am up to my neck in ALS, I worry about their approach to debt and large concentrated speculative investments that could take a turn for the worse.

 

I guess that I should just start thinking about their LIF investment as an iron ore royalty, rather than a large listed equity investment. That somehow makes me feel a bit better. Hmmm."

 

The preferred debt doesn't worry me much because there is no maturity on the debt at a 5% fixed.  If they took out more debt from a bank or a line of credit I would agree 100% and I would be concerned.  The capital structure of the debt makes me comfortable with the debt. I can understand being concerned with issuing warrants at $15 a share but I don't really feel concerned with any type of leverage risk due to taking out the preferred securities.  Even when things were a complete disaster in iron ore that royalty was still paying out $1 a share per year.  I would say the proper way to look at is an actual royalty on iron ore.  You basically have 71 million in bank debt and 50 million at preferred debt 5% fixed.  We are talking about 6.2 million in interest expense per year at an average cost of 5.2 percent.  For a company that is on pace to bring anywhere from 55-65 million in annual royalty revenue I don't lose any sleep worrying about the debt situation.  I do think you can make a valid case that issuing the equity warrants at $15 is unfortunate.

[nsa122]

So what's altius worth these days?

[linealdin]

So what's altius worth these days?

 

Altius is worth a dollar more than what you sold your shares for in July 2016. Thanks for asking.

[linealdin]

Forget LIF for a second. Thought exercise:

 

How much would you pay today for a long-life iron ore royalty you believed would pay an average of C$6.25 million a year in royalties? Long life as in 50 years. Also consider there's a longterm trend of incremental production capacity expansion at this hypothetical mine.

 

Let's say a 10% chance of production being idled or shut down sometime in this 50 year period due to bear market price cycles.

 

I'd be comfortable paying around C$45 million for a long-life royalty in those circumstances. I think Altius paid around C$37.5 million for its LIF position.

[linealdin]

It will be very interesting to watch how LIF's dividend yield pushes the stock price upwards. There is an obvious aversion to iron ore in the market place right now, and a misunderstanding of the quality premiums that IOC will continue to receive for its ore.

 

LIF is going to end up declaring somewhere between $2.60 and $3.00 in dividends in 2017. The stock price is at C$19.67. That is a 13% to 15% yield.

 

This is a situation that can't last if LIF keeps declaring similar dividends into 2018.

[nostradamus]

Very fair points about the value of LIF as a royalty and the lack of maturity on the pref shares. And I certainly hope that the warrants turn out to be the worst part of Fairfax funding deal!

 

N.

 

[linealdin]

[edit]

 

LIF stock has a strong response to the juicy $1 dividend announcement. Up this morning to a 52 week high of C$21.05. Altius position now worth C$52.625 million.

 

Proceeds from the last major equity divestiture, Virginia Mines for C$41 million, went immediately to debt repayment.

 

I don't think the plan is to hold LIF indefinitely. They will cash out their LIF shares somewhere north of C$30 for proceeds of C$75 million or more. Then wipe out the remaining credit facility debt in one fell swoop.

 

Timeframe? Give the LIF stock another year or so to catch up to its crazy dividend yield.

 

 

[linealdin]

http://www.transalta.com/newsroom/news-releases/balancing-pool-provides-notice-to-terminate-the-sundance-alberta-power-purchase-arrangements/

 

Sundance PPAs terminated as of March 31st, 2018. Interesting preview of what happens at the end of 2020 when ALL the PPAs in Alberta end.

 

Will Transalta continue to operate the plants and try to obtain a free market price for electricity? Coal to gas conversions before the originally planned conversion period of 2021 to 2023? Anything can happen.

 

This directly affects Altius's C$1.2 million LTM Highvale royalty only. Decreased or ceased production from the Sundance complexes (it is a lot of megawatts) would force higher market electricity prices and maximum capacity production from Genessee and Sheerness, where Altius has much more consequential royalties. Silver lining.

[TwoCitiesCapital]

LIF stock has a strong response to the juicy $1 dividend announcement. Up at the open to C$20.39. Altius position now worth C$51 million.

 

Proceeds from the last major equity divestiture, Virginia Mines for C$41 million, went immediately to debt repayment.

 

I don't think the plan is to hold LIF indefinitely. They will cash out their LIF shares somewhere north of C$30 for proceeds of C$75 million or more. Then wipe out the remaining credit facility debt in one fell swoop.

 

Timeframe? Give the LIF stock another year or so to catch up to its crazy dividend yield.

 

TBH - if we are, in fact, considering the position in LIF as an iron ore royalty - I'd rather them hold it for as long as the expected yield exceeds the cost of financing. It diversifies their royalty base, gives them access to another long-term revenue stream, and is actually more liquid than the majority of their royalty offerings giving them increased flexibility for as long as its held.

 

If there's positive carry to holding the position, they should continue to do so.

 

Agreed on the comments about dilution at $15 - really hoping we see a strong buyback at some point in the future to make up for that. I'm less mad about it if viewed through the lens of buying at $10-12 and selling at $15 to lock in a tactical profit on cheap financing options, but we really need to pick up repurchase activity before we can even begin to say that is true. Won't even be mad about the lack of a dividend increase if they chose to use their cash for that instead.

 

Someone mentioned watching Altius grow up - I invested in 2012 when Altius was just a single-royalty company with $200 million in the bank and all hopes pinned on the development of Kami. Crazy to think of how much it has changed since that time! Also crazier that the share price has gone nowhere -  the EV has changed a lot, but on a per/share basis we haven't seen much despite what were all very positive developments. Hopefully, one day, we'll be awarded for our patience.

[linealdin]

LIF investment is golden. I'm certain Altius will get at least 100% total return whenever it cashes out.

 

My quarrel is with the $10 million Champion debenture investment. That company already has 387 million shares out, with more equity dilution coming (22.22 million shares in the equity raise and Sprott/Caisse get 24 million warrants). Who wants to pay $1 a share for another 10 million shares? I don't.

 

Upside for those shares is limited because of the coming dilution. Take the $10 million back in cash. Don't convert because you are buddies with Michael O'Keeffe!

 

I hope they gave Champion the debenture just to lock in the right to match a royalty financing. That opportunity has passed, perhaps. Champion is fully financed and probably doesn't need to do a royalty deal?

 

 

[linealdin]

LIF C$21.43 x 2.5 million shares = C$53.575 million. Up 8.95% today.

 

Breakout. The LIF position is worth 11% of Altius's market cap.

[nostradamus]

I'm still trying to get my head around the rationale for the establishment of Adventus, especially given that on the conference all Dalton said that they will be doing something similar with their copper properties. Specifically, what is the main rationale for combining projects into a separate company, funding it, then IPOing it, rather than simply doing what they did in the past which is partnering with existing companies to develop their projects?

 

There are obviously a lot of costs of this new approach. In addition to the IPO costs you get a load of new managements costs associated with a new independent company like Adventus. This cost is off-balance sheet for Altius, but over time it will still erode the value of the equity stake that Altius funded. Altius will also be exposed to losses on their equity stake if the management make bad decisions (this is a bit different to the partnering approach where Altius may still be exposed to losses on the equity stake, but typically they did not pay for the equity, they were given it).

 

So what are the main benefits of the new approach? Has Altius got so many projects now that it is simply too much work for their small management team to seek individual partners for each of them? Does Dalton believe that single commodity focused development companies like zinc or copper will achieve a premium market pricing, or will more easily attract financing? Is it driven instead by personalities - ie, Dalton knows people who he believes are very talented and he has decided that giving them their own companies to run is the best way of effectively getting them to work for him?

 

Any views?

 

N

 

[linealdin]

I'm still trying to get my head around the rationale for the establishment of Adventus, especially given that on the conference all Dalton said that they will be doing something similar with their copper properties. Specifically, what is the main rationale for combining projects into a separate company, funding it, then IPOing it, rather than simply doing what they did in the past which is partnering with existing companies to develop their projects?

 

There are obviously a lot of costs of this new approach. In addition to the IPO costs you get a load of new managements costs associated with a new independent company like Adventus. This cost is off-balance sheet for Altius, but over time it will still erode the value of the equity stake that Altius funded. Altius will also be exposed to losses on their equity stake if the management make bad decisions (this is a bit different to the partnering approach where Altius may still be exposed to losses on the equity stake, but typically they did not pay for the equity, they were given it).

 

So what are the main benefits of the new approach? Has Altius got so many projects now that it is simply too much work for their small management team to seek individual partners for each of them? Does Dalton believe that single commodity focused development companies like zinc or copper will achieve a premium market pricing, or will more easily attract financing? Is it driven instead by personalities - ie, Dalton knows people who he believes are very talented and he has decided that giving them their own companies to run is the best way of effectively getting them to work for him?

 

Any views?

 

N

 

Altius was given most of their shares in Adventus in exchange for shares: By my calculation 63% of their shares. The rest they paid for, but only spent C$1.25 million to C$1.5 million. That is a very modest investment, and the value of their shares has appreciated significantly since the seed IPO. Triple bagger.

 

In terms of management costs Altius has actually earned a little under C$300K in management, consulting and administrative fees from Adventus. See related party transactions in the recent MD&As.

 

In your third paragraph you've nailed all the more legitimate rationales for this approach.

 

It's also kind of a scam, it's a quick way to bag a couple hundred million once a commodity gets hot. They bagged $200 million from Aurora, and really should have bagged $100 million from Alderon but they screwed up their timing. My view is that they are feeding the market what it wants. The market is kind of dumb: it doesn't want prospect generators, it really wants hot single commodity vehicles to ride.

 

In 2006 the market wanted uranium so Altius and Fronteer did an IPO of Aurora.

 

In 2010 iron ore was heating up so Altius spun out Alderon.

 

In 2017 Altius believes the market wants zinc and copper. They will fulfill that hunger.

 

[TwoCitiesCapital]

 

So what are the main benefits of the new approach? Has Altius got so many projects now that it is simply too much work for their small management team to seek individual partners for each of them? Does Dalton believe that single commodity focused development companies like zinc or copper will achieve a premium market pricing, or will more easily attract financing? Is it driven instead by personalities - ie, Dalton knows people who he believes are very talented and he has decided that giving them their own companies to run is the best way of effectively getting them to work for him?

 

Any views?

 

N

 

I believe linealdin is correct and that the part highlighted in bold is the key. When something is popular, pureplays get the premium - not conglomerates that have some pureplay exposure.

[Williams406]

Regarding the rationale for Adventus structure, I'd add that bringing partners like Resource Capital and Greenstone on board at this stage can directly and indirectly facilitate raising additional capital for Adventus if they find a big zinc target acquisition to go after.

[nostradamus]

Thanks all for your thoughts. So its a combination of pure play premium market pricing and the fact that the structure enables deep pocketed financers to be pre-engaged and ready to provide more funds when needed. Makes sense. A couple more Auroras would certainly be nice!

 

N.

[linealdin]

Wolfden Mines trading halt is over. Maine property deal seems to have injected some excitement. Stock rises 38% to 25.5 cents.

 

Altius will be buying 14.2 million shares at 25 cents, while receiving 7.1 million warrants to buy shares for 35 cents. I'm hoping equity appreciation pays back the whole original investment. It is a nanocap stock so there is plenty of room to run. We won't see royalty revenue from Pickett Mountain for 5 to 10 years (in the best case scenario of the mine actually being built).

[linealdin]

http://www.mountain-lake.com/2017_News_Release/2017_09_21_MLK_Financing_News_Release_17-09_FINAL.pdf

 

Mountain Lake announces required capital raise for acquisition of Moosehead Gold project. C$1.25 million. Altius takes up to C$175K, shares priced at 10 cents with half warrants to purchase shares at 15 cents. (Altius is not taking the flow through shares.)

 

Fully funded for required C$500K exploration spend in first year. We should see some drills turning on the property.

 

[cwericb]

This is kind of interesting...

 

On Sept 21 Roger Lace, President, Hamblin Watsa Investment Counsel Ltd. (Fairfax) purchased 10,000 shares of Altius at $11.58.

[linealdin]

http://altiusminerals.com/uploads/09-25-2017-ALTIUS-REPORTS-THE-DISCOVERY-OF-DIAMONDS-IN-MANITOBA-FINAL.pdf

 

D is for Diamonds. As suspected Altius did an option deal with the original prospectors, Lynx Consortium, who made the discovery. Their excellent reputation and big cash stack allows them first dibs on good discoveries in Canada. Same thing happened with the Antler Gold discovery. Altius optioned the original discovery from a local prospector, then made a deal with Antler, all of which led to a staking rush in the region.

 

In this case there won't be a staking rush since Altius is in the process of locking down a massive 121,000 hectares of exploration land surrounding the discovery. They've got the whole district.

 

Chance for this to become a big discovery: unexplored territory, large undrilled geological structures and the initial results are excellent.

 

The usual path would be a farmout agreement with BHP, which has its hands in many of Canada's diamond mines, but another spinout may be tempting if exploration is very successful. It is an exciting story for the market.

 

 

[linealdin]

https://hotcopper.com.au/documentdownload?id=uOMxKKzFkiWRTLKhOROKAxjvSDYL4w20yxDzv%2FRw%2FrFiGug%3D

 

Champion partially closes its equity offering for proceeds of $11.7 million. Still expects to close balance of $20 million offering by September 28th. It's been weirdly hard for Champion to get the job done. The equity raise has been going on since August 1st.

 

Altius would have given them the money in exhange for a royalty. No hoops to jump through, no begging investors on the phone. Could have started construction in August.