ALS.TO - Altius Minerals

[Liberty]

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.

 

I don't think that really matters. All that matters is the opportunity cost vs your next best opportunity. You could also hold SPY forever, or BRK or MKL, or whatever else you like. The question is, will ALS do better or worse than your other alternatives at creating value over that time?

 

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.

 

I don't think this is what matters. If the stock is flat because there's been little value creation, or because it was overvalued 10 years ago and now the valuation has compressed to a fairer level, or because the macro picture wasn't sustainable at the time, it could be more expensive than a stock that has tripled over the past 10 years but that has also more than tripled IV during that time.

 

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:

 

I really can't know how these deals will do, which is why I can't invest. I don't think management can even know, because it'll depend on many factors out of their control.

 

People said the same things about the deals 6 years ago and they were very convincing at the time, you can go back and re-read the thread. Maybe they'll go well, maybe they won't. But the longer it takes for it to get going, the lower your IRR...

 

¯\_(ツ)_/¯

[linealdin]

You wrote that I have to sell at some point. I, in fact, will never sell. I just wanted to correct your mistaken notion.

[Williams406]

Liberty,

 

I hear you. I was introduced to Altius by this thread and started investing at a similar starting point. No misconceptions at the time about commodity-linked stocks being a "graveyard" for investors, but not content to learn vicariously through others' mistakes, I intrepidly forged ahead. Along the way I've seen first-hand how cyclical this business can be. I always use Bloom Lake as a reminder: Cliffs Natural paying $4.something plus billions in capital upgrades vs. O'Keeffe's Bloom Lake-should-be-priced-as-a-liability purchase for peanuts. Crazy. And I bought right near the peak of the commodity cycle...

 

Lots of incredible opportunities since then like mining-company bonds, but I've been content to restrict my investment activities in this industry to Altius. 2011 was a pretty good year to go shopping for good businesses generally and it may well be the case that Altius won't catch those companies on a stock performance basis. But the perspective is very different depending on whether you're at the crest, in the trough, or somewhere in between when the wave heights are significant. We'll see what Altius can do full-cycle. Maybe the company really capitalizes and maybe it doesn't. The business model isn't going to be a fit for everyone for sure. I appreciate your thoughts--always good to gain perspective from skeptics and/or former smart shareholders who see things differently.

[Liberty]

You wrote that I have to sell at some point. I, in fact, will never sell. I just wanted to correct your mistaken notion.

 

Someone will have to sell it someday, and you can't be certain you won't have to sell. You can't even be certain management won't sell the business to someone else or get into trouble in the coming years/decades or get hostile bids at low prices.

 

But all I meant is that it's nice to talk about the long-term, but once in a while you have to see if things are actually working. You can't always kick the can down the road and say "oh well, the past 10+ years haven't done so well, but I'm holding forever so it doesn't matter". Your return on invested capital and opportunity cost matters, unless you don't care about making money.

 

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.

 

Yeah, the 0.98% dividend should increase once the debt is paid down, a few years after they bought those declining assets. And then if they want to materially increase cashflows, they have to invest in new things, either with more debt or using cash from that current cashflow, or some of their options have to materialize after years of development and permits and capex, all depending on favorable commodity prices (which could kill any project if they swing the wrong way), dealing with outside mine developers who are mostly promoters that pay themselves millions and rarely get a project through the finish line.. Seems very uncertain and difficult.

 

Or you could've bought SHW at 15 P/E a few years ago and watched it grow at 20-30% ROIC and 50%+ ROE. And if dividends is what you're after, look at this:

 

 

To each their own, but to me ALS is in the too-hard pile. I'm not even saying it won't do well. I hope it will. I'm just saying it's a tougher business than what I thought it was when I first learned about the model.

[linealdin]

The other really absurd thing you wrote was about the 3 deals not getting "going." What in the world do you mean? By all conventional measures the acquired royalties are "going" gangbusters.

 

1) Do you know how quickly each deal is being paid back? At the current tempo Callinan will be paid back by the end of 2020, or earlier depending on when the Excelsior shares are cashed in. Chapada will be paid back by the end of 2023 or 2024, another 20 to 30 years of mine life will be gross profit. New deposits being discovered at Chapada every quarter. Prairie will be paid back by 2025, the potash royalties as a virtually perpetual royalty will be the profit. Potash will pay for multi-centuries. I believe they are severely undervalued.

 

2) Big difference between the price of copper/zinc at the time of royalty acquisition versus current and projected near-term prices. We will continue to see record quarterly royalty revenue records. Bull market is "going."

 

3) Project deals spun out from the main royalty deals are also "going." Excelsior will reach production early next year. Adventus just made a great acquisition. Allegiance has reduced capex so low it, too, will almost certainly reach commercial production. These 3 companies, and Altius's equity stakes in them, will be rerated with commercial production.

 

[linealdin]

http://www.avrupaminerals.com/news/index.php?&content_id=274

 

Avrupa reports that a 2000 meter drill program at Avito property funded by Oz Minerals will begin in a week.

 

Altius holds 1.5% royalty, and a substantial share position in Avrupa. Yes, more optionality from the Callinan deal.

[Liberty]

The other really absurd thing you wrote was about the 3 deals not getting "going." What in the world do you mean? By all conventional measures the acquired royalties are "going" gangbusters.

 

I'm talking about the deals that I paid attention to back when I was a shareholder, Kami/Julienne lake, which were supposed to be worth multiples of the market cap by now.

 

1) Do you know how quickly each deal is being paid back? At the current tempo Callinan will be paid back by the end of 2020, or earlier depending on when the Excelsior shares are cashed in. Chapada will be paid back by the end of 2023 or 2024, another 20 to 30 years of mine life will be gross profit. New deposits being discovered at Chapada every quarter. Prairie will be paid back by 2025, the potash royalties as a virtually perpetual royalty will be the profit. Potash will pay for multi-centuries. I believe they are severely undervalued.

 

2) Big difference between the price of copper/zinc at the time of royalty acquisition versus current and projected near-term prices. We will continue to see record quarterly royalty revenue records. Bull market is "going."

 

3) Project deals spun out from the main royalty deals are also "going." Excelsior will reach production early next year. Adventus just made a great acquisition. Allegiance has reduced capex so low it, too, will almost certainly reach commercial production. These 3 companies, and Altius's equity stakes in them, will be rerated with commercial production.

 

I certainly hope it'll turn out how you expect it to.

[linealdin]

Kami? Julienne Lake? This is just like the recent management call. All the investors still sore about deals from years ago while management is focused on the future (copper spinout coming, Adventus just made a spectacular deal, great gold exploration results from Finland to be announced soon, etc.).

 

The nature of prospect generation is that a certain number of the projects fail. Altius generated both Kami and Julienne Lake for very little money. Both projects generated excitement (and hundreds of millions in equity value in the case of Alderon) but both are stalled and now mostly exist as options on the iron ore price. So what? More deals are being generated to fill the void.

 

 

[nostradamus]

I started investing in Altius about 4 years ago, my average in price is about $11 and Altius is now about 70% of my investing portfolio. Like linealdin, I don't plan to sell, I plan to live off the dividends.

 

I've been enjoying the exchange today. There a two reasons that I really like Altius: I trust management (who doesn't?) and the company is packed full of options. These things are massively difficult to value, but I don't think the market gives Altius much credit for the options - my impression is that Altius gets valued on the basis of its royalty income only, with the coal royalties putting a lot of investors off. But, at some point, some of the options will start paying out (again). The market will start to recognise the value in the options and maybe even start to assign value to the prospect of the management creating more options further in the future. With all the drilling that is now starting to take place (I'm finding it difficult to keep up), I wouldn't like to be on the side lines right now.

 

N.

[Liberty]

Kami? Julienne Lake? This is just like the recent management call. All the investors still sore about deals from years ago while management is focused on the future (copper spinout coming, Adventus just made a spectacular deal, great gold exploration results from Finland to be announced soon, etc.).

 

The nature of prospect generation is that a certain number of the projects fail. Altius generated both Kami and Julienne Lake for very little money. Both projects are stalled and now mostly exist as options on the iron ore price. So what? More deals are being generated to fill the void.

 

Yeah, there's always more deals. There's hundreds of pages in this thread of people scrutinizing every little development, for all the good it did them so far. Reminds me a bit of SHLD (though less lately), when people where so certain that the value was right there and it was about to come out any day now.

 

As I said, I hope it all starts working better and that shareholders get good CAGRs in the end. I was a shareholder for years, so I'm predisposed to like the company. I'm just skeptical it'll suddenly become easier than it was in the past (you have to look at base rates), or that even if it goes well, you can wake up any morning to a huge downturn in commodities and see royalties squeezed, possibly for years and years (bulls will say "but that's when they'll deploy capital", but I've been a bit underwhelmed by what they did in the last huge commodity downturn).

[linealdin]

I will note that we have already woken up to a huge downturn in the commodity prices of iron ore, coal, and potash. It is nuclear winter for bulk commodities. Altius gets very little credit for its iron ore or coal holdings, and only modest credit for potash.

 

This is the downside. We live in it. If there is any market surprise it will be to the upside (not much downside left for bulk).

 

I acknowledge the the downside case for base metals like zinc and copper grows with every cent the prices go up.

 

The copper dip was shortlived. Copper up 6 cents to $2.99 this morning.

 

[linealdin]

I am responsible for a good number of those hundreds of pages scrutinizing every development. The scrutiny seems not to be your taste. Sorry.

 

With such a large position (for me, not for the world) and with it being 100% of my stock portfolio I feel the need to scrutinize every development and put my thoughts on screen. It does me good.

 

I see that this magic stock Sherwin Williams was trading for $36 in 1998. Six years later it was trading for $34. Flat as Taylor Swift's body. I guess it happens to the best.

[TwoCitiesCapital]

Kami? Julienne Lake? This is just like the recent management call. All the investors still sore about deals from years ago while management is focused on the future (copper spinout coming, Adventus just made a spectacular deal, great gold exploration results from Finland to be announced soon, etc.).

 

The nature of prospect generation is that a certain number of the projects fail. Altius generated both Kami and Julienne Lake for very little money. Both projects are stalled and now mostly exist as options on the iron ore price. So what? More deals are being generated to fill the void.

 

Yeah, there's always more deals. There's hundreds of pages in this thread of people scrutinizing every little development, for all the good it did them so far. Reminds me a bit of SHLD (though less lately), when people where so certain that the value was right there and it was about to come out any day now.

 

As I said, I hope it all starts working better and that shareholders get good CAGRs in the end. I was a shareholder for years, so I'm predisposed to like the company. I'm just skeptical it'll suddenly become easier than it was in the past (you have to look at base rates), or that even if it goes well, you can wake up any morning to a huge downturn in commodities and see royalties squeezed, possibly for years and years (bulls will say "but that's when they'll deploy capital", but I've been a bit underwhelmed by what they did in the last huge commodity downturn).

 

In total agreement with this - I don't think the business model has gotten easier, but I do think it's gotten better for shareholders due to the diverse nature of the optionality. Before, Altius was all or nothing on Iron Ore. It was ALL Kami/JL driven with equity exposure to Alderon to add. We, as shareholders, gambled on iron ore and lost. I was lost in the big picture of the counter-cyclical business model and what it could look like. I also thought the 50% decline in iron ore reduced the risk of the position as opposed to increasing it (seems like commodity investing is more suited for momentum chasing as opposed to value investing).

 

Altius has changed a bit since then. It's business model isn't different, but instead of 2 or 3 potentially viable options on iron, we have multiple potentially viable options on a half dozen base commodities, SIGNIFICANTLY improved access to financing, and the appearance of upward momentum in commodity markets which will make everything easier.

 

It's still a gamble. We still need strong pricing in commodities - but it could be strong pricing in any of coal, potash, copper, zinc, gold, nickel, iron, etc. instead of requiring that iron ore perfrom. Altius grew into the big picture strategy that I mistakenly envisioned it already was when it was simply a leveraged bet on iron. Results were disappointing initially, but I do expect them to be better going forward. It won't be a homerun without a homerun of a commodity bull market - but I do think it will produce reasonable returns relative to other assets going forward. Being wrong for the first 4 years doesn't mean we'll be wrong for the next.

 

Lastly, tops/bottoms in commodity industries are largely unpredictable, it does appear that we're closer to a bottom than a top in real assets as a whole and industry conditions are easing as opposed to tightening. If you believe that this industry is one big momentum chase, then now is the time to be buying optionality on it as the forward momentum in multiple commodities is picking up steam.

 

 

 

 

[Liberty]

I am responsible for a good number of those hundreds of pages scrutinizing every development. The scrutiny seems not to be your taste. Sorry.

 

With such a large position (for me, not for the world) and with it being 100% of my stock portfolio I feel the need to scrutinize every development and put my thoughts on screen. It does me good.

 

I see that this magic stock Sherwin Williams was trading for $36 in 1998. Six years later it was trading for $34. Flat as Taylor Swift's body. I guess it happens to the best.

 

Don't be sour. If I wasn't in favor of scrutiny, I wouldn't be sharing my skeptical take in this lovefest.

 

And if I had been holding SHW during that 6-year period, I'd certainly be asking some of the same questions I'm asking now. Are they creating value? What's the IV and has it been growing? How is capital being deployed and what's the ROIC? Is this a good industry to be in and what are the long-term prospects? Are the value drivers knowable and predictable, or am I gambling? Etc.

[Liberty]

In total agreement with this - I don't think the business model has gotten easier, but I do think it's gotten better for shareholders due to the diverse nature of the optionality. Before, Altius was all or nothing on Iron Ore. It was ALL Kami/JL driven with equity exposure to Alderon to add. We, as shareholders, gambled on iron ore and lost. I was lost in the big picture of the counter-cyclical business model and what it could look like. I also thought the 50% decline in iron ore reduced the risk of the position as opposed to increasing it (seems like commodity investing is more suited for momentum chasing as opposed to value investing).

 

Altius has changed a bit since then. It's business model isn't different, but instead of 2 or 3 potentially viable options on iron, we have multiple potentially viable options on a half dozen base commodities, SIGNIFICANTLY improved access to financing, and the appearance of upward momentum in commodity markets which will make everything easier.

 

It's still a gamble. We still need strong pricing in commodities - but it could be strong pricing in any of coal, potash, copper, zinc, gold, nickel, iron, etc. instead of requiring that iron ore perfrom. Altius grew into the big picture strategy that I mistakenly envisioned it already was when it was simply a leveraged bet on iron. Results were disappointing initially, but I do expect them to be better going forward. It won't be a homerun without a homerun of a commodity bull market - but I do think it will produce reasonable returns relative to other assets going forward. Being wrong for the first 4 years doesn't mean we'll be wrong for the next.

 

Lastly, tops/bottoms in commodity industries are largely unpredictable, it does appear that we're closer to a bottom than a top in real assets as a whole and industry conditions are easing as opposed to tightening. If you believe that this industry is one big momentum chase, then now is the time to be buying optionality on it as the forward momentum in multiple commodities is picking up steam.

 

Good to know that they've diversified even more. As I said, I haven't been paying as much attention in recent years since I don't invest in commodities anymore.

 

One thing that I keep wondering about is, Did we enter a commodity depression/downturn a few years ago, or was the preceding period a bubble and we're now back to a more normalized level (that everybody feels is low because they anchored to the higher level), and now a real downturn would take us even lower than this level?

 

Predicting this is way above my pay grade, but it would be another worry I'd have in this business. To think "we fell so much, can only go up" while we're actually plateauing at a more sustainable level and from here moves can be up or down, but not sustainably back to the anchor point.

 

Oh well ¯\_(ツ)_/¯

[SharperDingaan]

Whether ALS is a 'good' investment or not, depends on timeline & purpose.

If it is just to collect dividends you could do a lot better simply holding a Big 5 bank pfd share, if it is a RISING dividend stream you want - buy a Big 5 bank common. Most offer both a higher yield & more reliable growth.  Hence, the reality is that ALS was bought for diversification, & the trading possibility.

 

As a trading vehicle ALS isn't great, as all miners (& royalty) firms rise/fall with the tide of commodity prices, & supposedly royalty firms are less volatile. So why are you NOT in the majors? where investment performance has been many times better, & you have easy ability to control risk via their option markets.

 

Your hope is that sometime during your holding period, the market will recognize what ALS has, & price accordingly; and the expectation is that the holding period will not be forever - as future benefit is largely offset by the discounting process. Hence what you get TODAY, is really the PV of the uncertain current royalty streams + a premium for its deal generation optionality.

 

The royalty streams are determined by the commodity markets - you could have owned the firms paying it instead. As ALS was already good at deal generation, any incremental value is going to be primarily from bigger deal flow. This is your value add, & there are natural limits as to how high this can reasonably get to be.

 

ALS is a solid company and should do very well going forward, but you own it for diversification - as you already own the Big-5 banks. To really move the dial, ALS needs the  Kami/JL deposits to go onto production -  & that will not be for quite some time yet. Of course as commodity prices rise, so will the price of ALS - but relative to the majors, its unlikely to do as well.

 

ALS is easy to fall in love with, but as an investor - it exists to be traded.

And the investors view is not the owners view.

 

Nothing wrong in that.

 

SD

 

 

[linealdin]

I think I've made the case, in excruciating detail, how Altius management has created intrinsic and unrecognized value over the last 3 or 4 years. Including making counter-cyclical calls of buying copper/zinc royalties at multi-year price lows.

 

I'd like to see a credible counterargument based on something more than the flat stock price and commodity prices being inherently volatile.

 

Do you think Chapada is shutting down if gold/copper prices decline, say, 40%? Is potash demand going to be replaced by some new artificial fertilizer? Does in-situ copper solution mining have huge technical excution risks? Is Capital Power secretly planning to convert the Genesee plant to gas well before 2030? Is Adventus a scam? Is IOC going to be put on care and maintenance if iron ore prices go to $35?

[linealdin]

Plenty of ways to move the dial besides Kami and Julienne Lake (investors are waaaaay too hung up on those two properties).

 

Excelsior and Allegiance are going to be in staged production (extraordinarily low capex). The question is how quickly they can reach FULL production. At full production (with Altius buying the additional 0.5% royalty at Gunnison) that is C$15 million in additional long-term annual revenue. These are 20 year mines. Does C$15 million a year for 20 years move the dial?

 

If Antler follows up on the promising trench results and drills a great deposit its market cap will rise to hundreds of millions. Altius has 20% of the company, and a 2% royalty. Would that move the dial?

 

If LIF rises to $30 a share and Altius cashes out its 2.5 million shares for C$75 million and immediately wipes out all traditional debt? Does that move the dial?

 

As for the mining majors always being a better investment: BHP was trading for $36 in January 2006. It is trading for $36 today. Flatter than Iowa.

[Liberty]

In the mining world, the future's always rosy.

 

I guess I've just too rarely seen mining projections materialize fully, and like Mark Twain's cat, I'm now worried even about cold stoves...

 

This reminds me, I've kept printouts of the early Sandstorm Metals & Energy presentations. Good stuff.

 

 

[linealdin]

Sandstorm Metals! I think I made a few bucks on that dog. Nolan Watson remains very, very overrated. Compare details of Altius's and Sandstorm's deals at Chapada.

 

We were not worried enough about commodity prices in 2011 and probably too worried today.

[linealdin]

http://www.reveloresources.com/content/677/RVL_NR14_LoroExplorationStart_2017-10-05_Final.pdf

 

Revelo begins its field season at Loro gold/silver project, funded by Hochschild Mining. Three month program of soil sampling and magnetics. Altius Chilean subsidiary holds a 2% royalty.

[hohi]

Just some data dump ppl :)

[hohi]

and this

[hohi]

What people forget is that value cristalizes in tidal waves. Duplicating growth of 1997-2007 will be near impossible though.

[Liberty]

What people forget is that value cristalizes in tidal waves. Duplicating growth of 1997-2007 will be near impossible though.

 

If what happened in the mid-2000s was a commodity bubble (combined with the generational dislocation of 2008-2009), then ALS played it well, but yeah, expecting a replay is just speculation, not investing.