ALS.TO - Altius Minerals

[Liberty]

Best of luck. Obviously you are highly convinced if you have 100% of your portfolio in it. I was just trying to slide a bit of a different perspective in between the drill hole reports. Maybe some others reading this will have gotten value from it even if you haven't.

[cwericb]

To me, the real value of this board is reasoned, alternative viewpoints. Thanks both, don't hesitate to keep it up. All viewpoints welcomed.

[linealdin]

Mountain Lake gives up the option on Moosehead. Couldn't raise the $1 million Altius required by September 30th.

[linealdin]

Last commodity boom wasnt a bubble. A real bubble has your father in law cashing in his 401K to buy bars of gold and your kids dropping out of college to join mining companies. Real world mania.

 

Dotcom bubble had regular dudes I knew quitting their careers to daytrade tech stocks. Absurdity.

[tripleoptician]

Best of luck. Obviously you are highly convinced if you have 100% of your portfolio in it. I was just trying to slide a bit of a different perspective in between the drill hole reports. Maybe some others reading this will have gotten value from it even if you haven't.

 

Appreciate all your thoughts here Liberty. I have suffered greatly from thesis drift on this holding since my original position in 2013.

I realize now it is sloppy investment work to simply say that Altius has huge optionality from its project generation business and apply a high P/E multiple to the royalty side of cash flows.

When I compare ALS to my CSU and TDG positions, it is clear that Altius cannot be a comparable long term consistent compounder based on the fundamentals for the mining industry. The niche critical software and aerospace parts industry has clearly better fundamentals for long term consistent organic/inorganic growth potential.

 

This is despite Dalton structuring this business in the best possible way with the project generation/merchant banking/ value investing slant given the dynamics of the mining industry. The mining industry is simply too unpredictable with commodity pricing swings. Dalton and his crew are going to view trends to help determine if they think we are at the end of the bear cycle - their educated opinion is clearly better then mine. Yet we all need to acknowledge that it is simply an educated bet similar to a macro investor like Dalio predicting economic/interest rate trends. Their intelligence is not a guarantee of outcome.

 

I have chosen to stick with the position on the probability bet that average commodity pricing doesn't go much lower amongst the weighted average of ALS's different commodity holdings. If commodity pricing is flat for many years, ALS will generate a reasonably safe IRR but overall under my goal IRR. If pricing improves, ALS will be leveraged to this because their optionality will bear fruit. This provides a double whammy improved IRR that can exceed my goal IRR substantially.

If commodity pricing drops, ALS will clearly generate poor IRR's, but it is hard to see how the business fails as debt has reasonable coverage.

 

Bottom line, I am far less enthusiastic as linealdin around long term prospects. I don't think this company generates long term IRR's like CSU or TDG might because of inherent fundamentals. I do think the current bet is favorable on a probability weighted front, similar to a poker hand. Thus position sizing must be adjusted accordingly.

 

The bigger question of when to sell ALS I still haven't figured out - let the thesis drift continue!

 

 

 

 

[Liberty]

Thanks for sharing your thoughts, Tripleoptician. Very good introspection.

 

I almost said that it's good to know you're going in with your eyes wide open, but that's probably not the best phrasing to use with an optician...

[tripleoptician]

Thanks for sharing your thoughts, Tripleoptician. Very good introspection.

 

I almost said that it's good to know you're going in with your eyes wide open, but that's probably not the best phrasing to use with an optician...

 

Lol. I'm not an optician. I made up that handle in my 20's thinking about 3rd eye/spiritual introspection stuff. I have seen some nasty eye stuff as a doctor though!

[linealdin]

http://altiusminerals.com/uploads/10-12-2017-ALTIUS-REPORTS-CHANGE-IN-FISCAL-YEAR-END.pdf

 

Fiscal year change to traditional format ending in December 31st. Kowtowing to the stupid analysts who can't figure out a fiscal year ending in April.

[Gamecock-YT]

Hopefully they push the AGM to the summer. April might be a little rough for St.John's weather.

[linealdin]

I just think there is something intellectually dishonest about acknowledging that we are in a bear market for bulk commodities, yet denying the very basic idea that bear markets create the conditions for the next bull market.

 

Do you accept that commodities markets are cyclical or not?

 

 

[Liberty]

I just think there is something intellectually dishonest about acknowledging that we are in a bear market for bulk commodities, yet denying the very basic idea that bear markets create the conditions for the next bull market.

 

Do you accept that commodities markets are cyclical or not?

 

Are you talking to me? I've done no such thing, so I don't have to defend myself.

[linealdin]

"And the current bear market might not just be a bear market"

 

The implication is that this may not be a bear market, the kind of market that creates the conditions for the next bull market.

 

If it is not a "just" bear market what is it? A commodity market that is not cyclical anymore. Flat.

[SharperDingaan]

It might be worthwhile revisiting some basic mathematics. 

 

The PV of $1, @ 20%/yr, 5 years in the future is just 40c (1/(1+.2)^5); at 10 years out its just 16c. The ALS Chipada, Potash, and Iron ore exposures are all great exposures – but even if they work perfectly, on time, and as expected; they are so far in the future that the PV is essentially meaningless. They do not contribute to TODAYS price of ALS.

 

Mining is cyclical, inherently risky, and sentiment changes rapidly. You are also looking at 3 cycles acting together – commodity price, capital, and investor momentum; and trying to forecast it forward over many years. Flea infested turkeys fly in strong winds (up cycle of capital investment), and often look like eagles (when running in the up cycle of momentum investing). And they fly as high, as those companies that are a lot more reputable. ALS’s quality reputation isn’t going to matter when everything is flying.   

 

It has already been pointed out that there is no royalty if the source mine stops producing. Hence you are TWICE exposed to the commodity market. 1) Revenue (commodity price) has to exceed the cash cost of production, and 2) everything being sold is going at low prices – minimizing the royalty payment. You are also exposed to the capital cycle – because if the source mine cannot make its debt payments, it’ll bankrupt - & production will stop (even If it is still profitable) until a new buyer is found for the deposit. The royalty model is NOT a magic bullet – it has all the same risks as a major.

 

Get it right, & the mining game will make you VERY rich.

But recognize that it isn’t going to happen by ‘holding forever’, & simply compounding. It just isn’t how mining works.

 

SD

 

[valcont]

Flea infested turkeys fly in strong winds and often look like eagles . And they fly as high

 

I am copyrighting this quote.

[Liberty]

"And the current bear market might not just be a bear market"

 

The implication is that this may not be a bear market, the kind of market that creates the conditions for the next bull market.

 

If it is not a "just" bear market what is it? A commodity market that is not cyclical anymore. Flat.

 

I suggest you work on your comprehension skills.

[linealdin]

"And the current bear market might not just be a bear market"

 

The implication is that this may not be a bear market, the kind of market that creates the conditions for the next bull market.

 

If it is not a "just" bear market what is it? A commodity market that is not cyclical anymore. Flat.

 

I suggest you work on your comprehension skills.

 

"Not just a bear market": You should just stand by your words. You think that the bear market could be a permanent or near-permanent condition. Correct?

[linealdin]

It might be worthwhile revisiting some basic mathematics. 

 

The PV of $1, @ 20%/yr, 5 years in the future is just 40c (1/(1+.2)^5); at 10 years out its just 16c. The ALS Chipada, Potash, and Iron ore exposures are all great exposures – but even if they work perfectly, on time, and as expected; they are so far in the future that the PV is essentially meaningless. They do not contribute to TODAYS price of ALS.

 

Mining is cyclical, inherently risky, and sentiment changes rapidly. You are also looking at 3 cycles acting together – commodity price, capital, and investor momentum; and trying to forecast it forward over many years. Flea infested turkeys fly in strong winds (up cycle of capital investment), and often look like eagles (when running in the up cycle of momentum investing). And they fly as high, as those companies that are a lot more reputable. ALS’s quality reputation isn’t going to matter when everything is flying.   

 

It has already been pointed out that there is no royalty if the source mine stops producing. Hence you are TWICE exposed to the commodity market. 1) Revenue (commodity price) has to exceed the cash cost of production, and 2) everything being sold is going at low prices – minimizing the royalty payment. You are also exposed to the capital cycle – because if the source mine cannot make its debt payments, it’ll bankrupt - & production will stop (even If it is still profitable) until a new buyer is found for the deposit. The royalty model is NOT a magic bullet – it has all the same risks as a major.

 

Get it right, & the mining game will make you VERY rich.

But recognize that it isn’t going to happen by ‘holding forever’, & simply compounding. It just isn’t how mining works.

 

SD

 

I've already calculated the IRRs of the Callinan, Prairie, CDP, and Chapada purchases. No need for a lecture on discounting future cash flows.

[linealdin]

In terms of bankruptcy risk of the producer partners:

 

1) Transalta, Capital Power and Atco are rock-solid companies. Westmoreland as one of the coal mine operators is very financially shaky but probably replaceable by a contract miner.

 

2) Yamana has a lot of debt repayments. Bankruptcy a possibility if Cerro Morro doesn't come on line as expected. Cerro Morro construction currently on schedule.

 

3) Hudbay just completed a $242 million equity issue and their operating cash flow has been growing. Very little risk of bankruptcy especially for 777 mine's short remaining mine life.

[linealdin]

LIF up a dollar to C$21.10. Not sure why, the dividend date to collect the $1 per share was September 30th.

 

Altius's 2.5 million shares of LIF worth C$52.75 million.

 

I expect another LIF special dividend but nothing huge. Maybe just 50 cents per share, payable in January.

[linealdin]

The things that will move Altius's stock price forward, in order of importance.

 

1) Revenue growth. I think we will see C$70 million LTM revenue at some point in 2018.

 

2) Dividend growth. A 3% royalty would attract new classes of investors.

 

3) Wiping out all $71 million of traditional debt: Sell LIF at opportune time and get the job done.

 

4) Excelsior or Allegiance or Adventus becoming royalty payers. Monetizing the equity of any of these companies for significant gains.

 

5) Drill bit discoveries by anyone on Altius royalty land.

[linealdin]

More potential triggers for stock price appreciation in the near future:

 

Voisey's Bay litigation resolved in positive manner (cash payout and royalty payments restarting).

 

Adventus making a large acquisition from a major in a hot zinc market.

 

Buying a producing royalty from Champion or another producer.

 

Another early stage royalty acquisition.

 

A successful copper spinout. A farm-out deal for diamonds or Finland gold.

 

Champion, or another consolidating force, buying Alderon.

 

$4 copper. $2 zinc.

 

 

 

[linealdin]

I think the commodity price forecasting risk is overstated for Altius. Are they really trying to predict the price of commodities? Not really, they are just reacting to price changes.

 

Zinc price makes a strong move from 65 cents in February 2016 to $1.20 in late 2016. Altius didn't predict that move. They were just prepared enough with existing zinc properties, a well connected young investment banker, and good relationships with some private equity groups. All that preparation, most of it done during the downturn, helped them quickly create Adventus.

 

Same with the proposed copper spinout. Copper moved from $2.10 in October to over $3 recently. Altius is just trying to react nimbly to that price move. Putting together the right properties, management and deep-pocketed investors QUICKLY.

 

Reaction not prediction.

 

 

[Liberty]

"And the current bear market might not just be a bear market"

 

The implication is that this may not be a bear market, the kind of market that creates the conditions for the next bull market.

 

If it is not a "just" bear market what is it? A commodity market that is not cyclical anymore. Flat.

 

I suggest you work on your comprehension skills.

 

"Not just a bear market": You should just stand by your words. You think that the bear market could be a permanent or near-permanent condition. Correct?

 

No. I was pretty clear, you just missed my meaning. Oh well. ¯\_(ツ)_/¯

[racemize]

I think we all appreciate your posts and updates linealdin; however, I think Liberty's points are quite valid and worth considering.  E.g., at least that the real prices of metals could have been too high in the last bull cycle and that we may not be depressed from a longer-term point of view (as opposed to just compared to recent highs).  Additionally, these royalties would be (and were until recently) worth a lot less in a subdued commodity price environment.  That of course does not take away from the possibility of this working out, but the "not working out" case is certainly possible, even if the downside may not be horrible in that case.

[linealdin]

Pre super cycle potash was trading at $120 a tonne. Like in 1999. Today market price is $218. During the bull market potash reached heights $875 per tonne, which kicked off a flurry of multi-billion dollar capex investments.

 

Are we closer to the bottom or the top? My guess is that there is more upside than downside at this point. But I may be wrong.

 

Saving grace for the potash royalties: their length. Even if potash drops to $120 for the next 10 years there will still be centuries of potash reserves/resources remaining.