ALS.TO - Altius Minerals

[linealdin]

The new United Conservative Party in Alberta will hold its leadership election at the end of the month. Brian Jean looks to be the front runner, though Jason Kenney has a lot of support also. It doesn’t matter who wins, both men on record as opposing the carbon tax and the coal plant phaseout. What does matter is the UCP maintaining its 20% lead in the polls over the ruling NDP. Only thing that will save the NDP in the early 2019 election: the Alberta economy making a miraculous turnaround.

 

Once elected not sure what the UCP will be able to do about the carbon tax except a lawsuit (the feds will push it through) but the coal plant issue is easy. Alberta can negotiate with Ottawa the same equivalency deal for its power plants that Saskatchewan and Nova Scotia negotiated for their coal plants to operate past 2030. Ottawa may grumble but the same deal should be available as a matter of basic fairness.

 

I think Genesee 3 and Keephills 3, as supercritical technology plants, will be allowed to operate far past 2030. And the likelihood is that Capital Power will want to keep Genesee 1 & 2 operating past 2030 also. Capital is proud that their plants are the newest in the province and is investing significant money in improving efficiency, which lowers emissions, and experimenting with mitigations like using recycled wood biomass for 10% to 15% of fuel. They are getting prepared to make the case that their plants offer the cleanest coal power.

[linealdin]

Zinc trading at $1.49. That must be a 10 year high. Not a particularly frothy market for commodities in general, zinc just has great fundamentals.

 

Perfect environment for the 777 mine to be prioritizing production at zinc-rich stopes. I think Q2 revenue from 777 will surpass C$4 million.

 

Also perfect environment for Adventus to farm out Buchans and a few of the Irish properties. G11 and Teck sold a zinc property neighboring Rathkeale for ~US$7 million. The market is hungry for zinc. I expect Kargl-Simard to close some very favorable farm-out deals before the end of 2017.

[linealdin]

https://wcsecure.weblink.com.au/pdf/PXX/01903528.pdf

 

Initial drill results from PolarX’s Zackly historic deposit. Thick zones of copper mineralization in all drill core. First assay results this month.

 

Altius holds a 2% royalty.

[linealdin]

Recent diamond rush in Canada, the Wawa diamond play in Ontario in the 2000’s, was fueled by micro diamond discoveries. A lot of juniors rose to great heights then fell to zero when macrodiamonds weren’t found in sufficient quantity in the larger bulk samples. Dianor Resources rose from pennies in 2002 to $1.50 in 2006, then to zero in 2013.

 

It does show how diamonds, like gold, can capture the fevered investor imagination.

[linealdin]

Altius received 1% royalties from the recently discovered Moria nickel and O'Connor zinc projects in Quebec. Both from the exploration alliance with Midland Exploration.

[linealdin]

One more note about Sandstorm vs Altius. Both companies made streaming deals with Yamana. Sandstorm did 3 streams for US$152 million. Altius did the Chapada stream for US$60 million. All fine, but the warrant situation was quite illustrative:

 

Sandstorm gave 15 million warrants to Yamana as deal sweetener. All those warrants are in the money now, more dilution coming.

 

Altius gave 400,000 warrants to Yamana. Those warrants are not in the money.

 

Sandstorm has great properties but very little share discipline. It will matter over the long term.

[linealdin]

777 should last a year or more longer than the originally announced shutdown date of late 2020 for two reasons:

 

1) Production at 777 has slowed down. An older mine is harder to mine. Last quarter Hudbay mined only 288,000 tonnes of ore. That is down from a more typical 369,000 tonnes in Q4 2015.

 

2) Mineral reserves and resources as of January 1st, 2017 calculated using copper prices of $2.67 per pound, and zinc prices of $1.24 per pound. Prices have increased.

 

As of January 1st, 2017 777 mine had:

 

Proven and probable reserves of 4.46 million tonnes and indicated/inferred resources of 1.409 million tonnes.

 

So 5.869 million tonnes at an annual run rate of 1.152 million tonnes = 5.09 years of production. That takes us from 2017 to the end of 2021.

 

And that doesn't include projected increases in reserves/resources because of significant commodity price increases.

[nostradamus]

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.

 

And on Sept 27 he purchased 10,000 more at $11.75.

[linealdin]

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.

 

And on Sept 27 he purchased 10,000 more at $11.75.

 

Lace is an old, very experienced, contrarian investor of the Graham school. He must see deep value in the shares, as most of us do.

[linealdin]

Interesting footnote in the latest Altius presentation (beautifully done by the way, credit Flora Wood) about "waiting for Alberta to return to its traditional investment friendly political tendencies."

 

Political tendencies. Yes, Altius sees the writing on the wall now that the conservative parties have merged in Alberta. Without that conservative vote splitting, and with the unpopularity of the NDP government, we have a good sense of who will be in power in 2019.

 

There will be time to undo the damage done to Albertan coal interests in recent years. Best to hold on to those coal projects and wait for the political help to arrive. It won't be long.

[linealdin]

I love all the recent exploration results at Chapada. Near-mine resources that will feed right into the existing processing plant. Low capex expansion.

 

From what I can glean from the press release Sucupira/Baru can be part of a very large open pit right next to the existing Chapada pit. Suruca SW can be developed alongside the Suruca gold-only deposit. From presentations in 2015 the plan for Chapada had been to increase capacity from 22 million tonnes to 28 million tonnes or more.

 

Holding all this up? Yamana has a debt situation: $110 million in senior notes to pay back in 2018 and $182 million in notes to pay back in 2019. The idea is that Cerro Morro is supposed to be completed by the end of 2017, and start increasing EBITDA and paying down debt in subsequent years.

 

That assumes no mine commisioning delays and no production hiccups. Aren't there always delays and hiccups? Yamana will be very cautious with expansion spending decisions until Cerro Morro is stable and the debt situation is firmly in control.

 

Chapada is a low cost cornerstone asset and I sense Yamana's desire to expand but it will have to wait until 2020 or thereabouts.

[linealdin]

Back to an old discussion related to the value of the potash royalties.

 

A) Net present value (8% discount rate) of royalty that pays $10 million a year for the next 30 years: $112.58 million.

 

B) Net present value (8% discount rate) of a perpetual royalty that pays $10 million a year: $125 million.

 

OK, I understand the financial calculators. But in the real world, let's say you are buying an investment for your children and grandchildren, if you were offered the choice of paying the NPV for Option A or Option B wouldn't you choose option B every time?

 

An extra $12.42 million seems a small price to pay for an additional 100 or 200 years of revenue.

 

(The potash royalties revenue should also rise if inflation spirals up, which makes them more valuable than the typical perpetual royalty.)

[linealdin]

http://antlergold.com/files/PR_20171004_re_commence_dill_program_final_2_with_map.pdf

 

Antler Gold drill program began this morning. 2500 meters, 15 targets. Also trenching program continues. Best grab sample result: 273.8 g/t gold at Red Ochre prospect.

 

Stock up to 47 cents. Altius equity position worth ~C$3.85 million.

[Liberty]

Just for fun I looked at ALS stock price on January 8, 2011, when this thread was created 6.7 years ago.

 

$13.84

 

Impressive how much has happened since then and yet...

[abyli]

Just for fun I looked at ALS stock price on January 8, 2011, when this thread was created 6.7 years ago.

 

$13.84

 

Impressive how much has happened since then and yet...

 

Yeah, what a wasted time and energy on commodity business....

[linealdin]

Well, it was at that stock price in 2011 because Alderon was moving and expected to bring in $1 billion plus in royalties over the life of mine. Altius was getting credit for that. As the prospects for Alderon deflated Altius made 3 excellent royalty purchase deals. Downward pressure and upward pressure.

 

We can run this utterly idiotic exercise for just about every commodity company. Where was Royal Gold selling for in 2012? About $100. It is $86 today. I guess theyve made zero progress in 5 years by that standard.

 

Timing matters in a cyclical business. Can't be mad if your timing is crap.

 

 

[TwoCitiesCapital]

Just for fun I looked at ALS stock price on January 8, 2011, when this thread was created 6.7 years ago.

 

$13.84

 

Impressive how much has happened since then and yet...

 

Agreed - it's been frustrating. It's clear in hindsight that I was too optimistic about the potential development of Kami back when I started buying in 2013. I figured that after the first 50% drop in iron, that we'd start to see a recovery and potential buildout of the mine was merely delayed instead of tabled.

 

Beyond that initial optimism though, I'd say the other half of the story is the market not appreciating the dramatic change Altius has undergone over the last 4-years.

 

On July 31, 2013 - Altius had an EV roughly ~$227M CAD. For that, you received ~$75M in junior mining equities, a royalty on Voisey Bay of that covered fixed expenses of $3M CAD per year, and a whole lot of hope in Kami to generate a 10-15% royalty yield on that EV in the foreseable future.

 

Now, Altius has an EV roughly $543M CAD. For that, you receive ~$90M CAD in mining equities/investments, royalties producing ~$55M CAD per year, and a whole lot of hope in Kami/JL, Adventus, and whatever new Copper carve-out they accomplish.

 

Obviously, the homerun scenario for Altius still requires cooperation by commodity prices - that being said, this appears to be an environment where that's far more likely than in 2013 and there are more ways for Altius to win than simply iron ore. I'm comfortable continuing to hold, and even adding, despite the frustrations over the last 4-years. Their business models demands that they'll have another day in the sun.

 

[linealdin]

I do like how bored and crabby many Altius investors seem to be. No patience for the long run. (Too much enthusiasm would scare me.) I think there will be a few more good buying dips before the bull run really starts. I want 50% more shares.

[Liberty]

I do like how bored and crabby many Altius investors seem to be. No patience for the long run. (Too much enthusiasm would scare me.) I think there will be a few more good buying dips before the bull run really starts. I want 50% more shares.

 

What's the "long run", though? Because some ALS investors from 10+ years ago are basically flat. And that's not mentioning those who bought on the refinery excitement and are still deep underwater. Meanwhile, many other good businesses have compounded well and doubled or tripled or more since. So to get a good relative performance going forward, ALS would need to start raking up some serious CAGR to even just catch up.

 

Looking at my notes, I first bought ALS in April 2011, and I sold it all on sept 10, 2014. But it's worse than even that seems because I moved in and out a bit as I needed capital for other things or new developments made me move capital back in, so I did worse than if I had just held for the period (which wouldn't have been that great to begin with -- book value per share was actually higher in 2011, according to Morningstar, though I know that's not the best measure). If I had held since then, I'd be 6+ years in with little to show for it.

 

I'm just an ex-shareholder who keeps an eye on it once in a while because, like everyone here, I was attracted by the smarts of the management and the royalty model. But at some point, I decided that the model wasn't nearly as good as I thought it was and got out. Time will tell if I made a mistake or not, but at some point, the long-term has happened, you can't just push it back further over the horizon forever.

[linealdin]

Yeah, I read your blog. A little too paranoid about stock promotion from what I remember.

 

The long term is death. I plan to hold these shares until I die and leave them to my children. And I own more shares than a good number of the directors so it is a consequential position.

 

It is amusing that the stock price (which management has little control over in the short term) is what excites the investor imagination. I am only interested in seeing that management is doing everything it can to create long term value for the shareholder. They are.

 

As for the stock price I hope it randomly drops to $5 tomorrow. I root for the pain.

[linealdin]

I would like Altius stock a lot less if it were trading at $36 or $24 dollars a share instead of $12. The fact that the stock has gone nowhere while the intrinsic longterm value and optionality has risen extraordinarily creates a Roger Lace-ian situation of deep contrarian value.

 

If you believe that the intrinsic value isn't there then feel free to make that argument. But don't just go blathering on about the stock price being flat. The flat stock price means it is still very cheap. I love cheap.

[linealdin]

https://hotcopper.com.au/documentdownload?id=uOMxKKzFkiWRTLKhOROKAxjvTDYC5g21zxSZpfpske92GA%3D%3D

 

New Emu presentation, very well done. More infill soil sampling in November, 36 drill holes planned beginning in December. Plan to use air core drill rig (some drilling failures last year so new tack).

 

Cash raise should be coming fairly soon. Another $2 million should fund them through the Spring.

[Liberty]

Yeah, I read your blog. A little too paranoid about stock promotion from what I remember.

 

I don't have a blog.

 

The long term is death. I plan to hold these shares until I die and leave them to my children. And I own more shares than a good number of the directors so it is a consequential position.

 

It is amusing that the stock price (which management has little control over in the short term) is what excites the investor imagination. I am only interested in seeing that management is doing everything it can to create long term value for the shareholder. They are.

 

As for the stock price I hope it randomly drops to $5 tomorrow. I root for the pain.

 

I'm well aware of all the value investor sayings about how stock price doesn't matter and all that matters is IV and hold forever and all that. But you still have to buy at some point and sell at some point, and once in a while you should check your theory against reality to make sure you aren't fooling yourself, so the stock price does matter. And the market isn't entirely inefficient for companies that are heavily discussed online and that are being invested in by Fairfax and such, so if after 10+ years the stock is flat, chances are that IV isn't compounding at 30%/year underneath the surface (and book value/share hasn't compounded, and while cashflows are up, they traded a big chunk of cash and equity for those declining assets that aren't exactly shooting the lights out so far).

 

My comments were about all that management has been doing in the past 10 year (and the hundreds of pages of this thread about it), yet they have relatively little to show for it. They're still dependent on all kinds of things that are out of their control, like partner capex, commodity prices, regulators, macro-economic factors, etc. That's why I decided it wasn't a business for me. I prefer it when management has more control over its destiny. I mean, maybe the cycle will turn and projects will get developed and ALS will go crazy next year, I really wish that for shareholders. I just think the commodity world is a bit too roll-of-the-dice and that the actual cashflows of the business aren't that impressive, so too much of the value is assigned to non-cash-flowing assets that have a wide probability distribution of outcomes.

[Liberty]

I would like Altius stock a lot less if it were trading at $36 or $24 dollars a share instead of $12. The fact that the stock has gone nowhere while the intrinsic longterm value and optionality has risen extraordinarily creates a Roger Lace-ian situation of deep contrarian value.

 

If you believe that the intrinsic value isn't there then feel free to make that argument. But don't just go blathering on about the stock price being flat. The flat stock price means it is still very cheap. I love cheap.

 

How do you value it? What metrics do you use and what is your estimate of IV? What IRRs do you think they've been getting on their investments?

[linealdin]

No, I personally don't ever HAVE to sell. I actually plan to hold my substantial share position forever. Or my forever, which is the span of my natural life. It is in no way rhetoric. I expect large dividend increases once the term/revolver debt is closed so I may eventually start taking what I expect to be 5% dividends in cash instead of re-investing. But that is different from actually selling shares.

 

On a go-forward basis would I invest today in a stock that has been flat for a number of years or a stock that has risen 5 fold in the same number of years? I'm going to choose flat, all things being equal.

 

All three deals will prove to be spectacular over the long run. One example: the Callinan deal was criticized as dilutive and low IRR. I believe the criticisms are dead wrong. I believe:

 

1) 777 isn't ending as soon as the market thinks. Production has slowed down to a mild pace. Reserves are based on much lower commodity prices. The bull market in zinc and copper should extend mine life into 2022. Also the revenue returns will amplify in that same bull market. When zinc is at $2 and copper at $4 what do you think quarterly revenue is going to look like at 777?

 

2) The Excelsior equity and royalty, which is going into production, will bring in more cash returns over the life of the mine than the gross $112 million cost of the Callinan deal (which doesn't account for the substantial cash and non-Excelsior equity received from the deal).

 

3) The seed Adventus position and 2% NSRs on all the Adventus Irish zinc properties also came from the Callinan deal. The Adventus equity and royalties will also bring in more cash over the long term than the gross cost of the Callinan acquisition. Now that's an audacious position but Chad Wells has me really hyped about Adventus. He loves it.