ALS.TO - Altius Minerals

[doc75]

 

10    PRINT "Talking in circles."

20    GOTO 10

[linealdin]

Iron ore was trading at $13 a tonne in 1999. Around $60 today. Reached heights of $190 during the super cycle. Are we closer to the bottom or the top?

 

Now iron ore I know a little about. We are not going back to $13 a tonne.

[Liberty]

Altius partial write-down of Genesee:

 

http://altiusminerals.com/uploads/PR1701-Genesee.pdf

 

Just for fun, I went back in the thread to see the discussion about Altius writing down the coal assets by $70-75m dollars, or about 15% of the market cap at the time.

 

http://www.marketwired.com/press-release/altius-write-down-of-genesee-royalty-on-alberta-electrical-policy-change-tsx-als-2193238.htm

 

The above quoted post is the only thing at the time. That's on feb 3. I scanned the rest of the month of February to see if it was discussed further and didn't see it. I'm guessing it probably was down the line, but I'm not sure. Doing a quick scan for the word "coal" in the thread I found plenty in previous years about how the coal deposit was high margin, how use of coal would go up because of high oil prices and nuclear restrictions, how this was going to be a big winner, the safest bet, etc.

 

I find it interesting that many small and speculative bits of news are discussed when they are positive, but a write-down of 15% of the market cap, almost twice what they paid for CDP, gets just 6 words and a URL. This makes me think that maybe the discussion is too focused on the positive and not enough on the negative. Some balance would be better for investors and would-be investors. As I said previously, I'm not even negative on Altius. There's a chance that right after I write this, the stock will get out of it's 10-year trading range and double or whatever (which would be great for new buyers and merely not terrible for long-term holders), I'm not making predictions. I just felt like maybe there isn't enough skepticism here.

 

We could probably do the same exercise with Alderon/Kami/Julienne Lake. Hundreds of posts about how it's going to be worth billions, the team running it is the same team who built some other mines, China has thousands of airports and cities to build and iron ore just has to keep going up, etc. But then it fizzles out and it's "aw shucks", but I didn't see many people change their estimate of ALS intrinsic value and decide to sell or cut their holdings at the time. Maybe I missed them. But maybe it means that people are prospectively valuing things when positive, but not valuing them when negative. Either the value's there or it isn't, it can't be Shrödinger's value. I understand what optionality is, but changes in the likelihood of outcomes on an option changes its value...

[linealdin]

The writedown was for the purposes of establishing a figure for compensation from the Alberta authorities, when that was thought to be a possibility. As Sharper Dingaan has laboriously explained the value of future cash flows (this is a writedown of Genesee revenue from 2031 to 2046) has very little net present value. I dont think the NPV of that lost cash flow is near $70 million.

 

The United Conservative Party in Alberta are campaigning on reversing the NDP's coal policies. We shall see if Genesee actualy shuts down in 2030.

[linealdin]

Schrodinger's cat! Christ, can you get more pretentious?

[bizaro86]

I think the comment SD made a few pages back is an interesting one, and it sort of got missed in the back and forth.

 

There are roughly 3 commodity price possibilities for ALS portfolio.

 

1) down. In this case I think the stock is fairly valued to overvalued. POT will keep paying, and so will LIF, and some of the coal stuff, but no new mines/expansions make ALS dead money at best.

 

2) roughly flat. In this case the stock is fairly valued to undervalued. The same stuff from (1) will keep paying, maybe you get a few expansions, but no big new royalties de novo.

 

3) up. In this case ALS will be a home run. As an example, higher Fe pricing increase their LIF revenue, but if it also gets Kami built that is huge upside from here. In this case the stock is undervalued.

 

The attraction for me to ALS (and I am long) has been that it is a heads I win tails I don't lose much. But SD made a great point that in the euphoria of (3) nobody will care about ALS downside protecion, and if Fe pricing goes up enough that Kami is economic Alderon shares are probably a way better bet than ALS.

 

I'm starting to wonder if the total risk reward of converting my ALS position to 90% BRK and 10% "quality" juniors might be better

 

0.9x BRK will be better in cases 1 and 2, and 0.9x BRK plus one or two 5-10 bagger junior positions probably comes close to ALS upside in case number 3...

 

Sorry for the stream of consiousness post, just trying to work this out. I have always been attracted to the ALS business model (if I ever start a public company it will be an oil version of ALS) and did very well buying them after the Prairie deal, which was an obvious steal at the time and still looks good imo. I never liked paying anything for Kami and reduced my position dramatically on that run up.

 

[linealdin]

It is not just about commodity prices. Management and technical execution matter in any commodity environment. Examples:

 

1) If Mamba Minerals had merged with Alderon instead of Champion a few years ago I believe Kami would be coming into production instead of Bloom Lake. O'Keeffe and his team knew how to take advantage of a bear market. And with iron ore still not a particularly hot commodity they are still shipping the first Bloom Lake ore in February.

 

2) Excelsior is supposed to be profitable even at $1 copper. Their in situ process is very, very cheap in theory. Again they need management to technically execute the groundbreaking process. If it works like the feasibility study it will be profitable at any point in the copper cycle. If the process fails they will be bankrupt.

 

3) Even if the bull market is for real it still requires management acumen to take advantage. When to sell the huge LIF position? When to monetize Adventus, Excelsior or other investment vehicles? How to market your generated projects as effectively as possible? How do you transfer Kami to a better management team? How to balance debt repayment with new investment opportunities. When do you stop buying and start selling everything?

 

3) It was a management failure not to cash out $100 million plus from the ADV shares in the last cycle. If you create one of these projects out of thin air, and it happens to catch fire, then you have to sell aggressively. As the project promoter you have to not get seduced by your own promotion. You are selling the project to gullible investors who want hot single commodity vehicles.

[linealdin]

The truth is ALL of these price commodity scenarios, down/flat/up, will happen to Altius's royalties over the life of the mines. Multiple boom and bust cycles over the 30 to 50 year mine life of Chapada, for example.

 

As for the next 3 years which I suppose is the concern of most Altius investors (not me): The Wood Mackenzie prediction, which is as credible as any other, is zinc rising to $1.70 in 2018 and 2019, then a decline to $1 over the longer term. Wood predicts flat to declining iron ore prices over the next few years. And they make a case for copper dipping to $2.60 in the near term then rising slowly to a peak of $3.75 in 2023. So it is a mishmash of down, flat and up even in the near term. So what?

 

I doubt that all commodities will move in exact lockstep and I also doubt there will be dramatic moves up or down. Restraint has been the new watchword in mining. Producers are not chasing higher commodity prices with unfettered capex spending. It is just not happening, that is a fact.

[SharperDingaan]

A few takeaways; then we'll move on.

 

Know the 'thesis' risk of overexposure; over entrenchment distorts what you want to/will hear. Friends at the bar might try to prevent a friend from getting into a bar fight he/she cant win, but there's only so much they can do.

 

Investment, vs ownership are very different things. Buy a major specialized in 1-2 commodities when those prices are rising; sell when they start falling. As INVESTOR you benefit only from REALIZED price related gains; a post cycle bigger/better/more reputable company does nothing for you. 

 

ALS has a great collection of options, & adds more all the time - but they will not all work out as hoped for, and most options expire worthless. Were an investors wish to replicate ALS's iron ore exposure, the reality is that a T-Bill and a few shares in each of their equity exposures would do it. But when the commodity takes off, there will be no diversification loss - as the investor is sitting on a pure play.

 

Re disclosure: We hold a side-pocketed portfolio of laddered Newfoundland bonds + a large block of ADV (for retail) funded entirely with house money. The bonds exists for risk management/margin purchases, & over the years we expect the size of our house funded ADV block to opportunistically increase. We attribute zero value to ADV today as we have no idea as to when 'the magic' will happen, but net of expected dilution - we're pretty sure that at some point it will ultimately pay off in spades. In the meantime, we're the recipient of a reliable interest income stream every quarter. Risk management.

 

Best of luck to you.

 

SD

 

 

 

[linealdin]

All of that sounds brilliant, except I would never, ever, ever invest my family money in a shady junior mining, single commodity, debt ridden stock like Alderon. Way too risky. Even today Liberty could call in their loan payments and put extreme pressure on.

 

Liberty has given Alderon a $22 million loan secured by a mortgage on Kami. There is also a significant amount of accrued 8% interest which is added to the principal. The loan is due December 2018.

 

I would like to hear a credible scenario for how this loan gets paid, and how Kami isn't forfeited to Liberty during a bankruptcy process.

[bizaro86]

The truth is ALL of these price commodity scenarios, down/flat/up, will happen to Altius's royalties over the life of the mines. Multiple boom and bust cycles over the 30 to 50 year mine life of Chapada, for example.

 

As for the next 3 years which I suppose is the concern of most Altius investors (not me): The Wood Mackenzie prediction, which is as credible as any other, is zinc rising to $1.70 in 2018 and 2019, then a decline to $1 over the longer term. Wood predicts flat to declining iron ore prices over the next few years. And they make a case for copper dipping to $2.60 in the near term then rising slowly to a peak of $3.75 in 2023. So it is a mishmash of down, flat and up even in the near term. So what?

 

I doubt that all commodities will move in exact lockstep and I also doubt there will be dramatic moves up or down. Restraint has been the new watchword in mining. Producers are not chasing higher commodity prices with unfettered capex spending. It is just not happening, that is a fact.

 

If you're not betting on the cycle, the only other thesis that makes sense is that ALS will reliably compound capital on a full cycle basis. If that's true, it makes sense as a hold forever stock.

 

I want to believe that, but when they missed the chance to cash out of Alderon shares it makes me wonder about their ability to time the cycle for high returns. I still have a position here, but if they miss cashing out Adventus during this upswing I will probably be out.

 

I don't want to own debt ridden promotional juniors for the long haul, either directly or indirectly. If creating these companies to sell is the model I like it, if creating them to hold is the model I don't like it all.

[SharperDingaan]

All of that sounds brilliant, except I would never, ever, ever invest my family money in a shady junior mining, single commodity, debt ridden stock like Alderon. Way too risky. Even today Liberty could call in their loan payments and put extreme pressure on.

 

Liberty has given Alderon a $22 million loan secured by a mortgage on Kami. There is also a significant amount of accrued 8% interest which is added to the principal. The loan is due December 2018.

 

I would like to hear a credible scenario for how this loan gets paid, and how Kami isn't forfeited to Liberty during a bankruptcy process.

 

Apparently KAMI cannot refinance, or do a rights offering?

Nobody is going to be using their port facility (& paying a fee) to get their ore out?

ALL the other partners (all seniors) are going to willingly cede their attractive off-take agreements?

.... ADV isn't going to BK, at worst there may be some modest rights related dilution.

 

ADV has also already 'won' on this cycle; we just don't want to recognize it - because it isn't convenient.

We would suggest to you that ADV will ultimately be paid to keep Kami/JL ore in the ground via a fee for use of their loading facility; it will service/retire a good chunk of their debt, & everyone will be willing to pay - because those funds will come back in the future when Kami/JL eventually get mined. Of course to a day trader this is toxic, whereas to the longer term investor it's just opportunity. To the coming mine producers its everyday quid pro quo, & everybody wins. Kami/JL ore stays in the ground for the near/intermediate term, & comes out later to work everyone's fixed costs/ton down.

 

There are lots of ways to skin a cat, & all these parties are very good at it.

 

SD

 

[Liberty]

Schrodinger's cat! Christ, can you get more pretentious?

 

If one of the best known metaphors in the world, part of pop culture, threatens your fragile ego, you have other problems.

[Guest ajc]

 

 

Schrodinger's cat! Christ, can you get more pretentious?

 

 

If one of the best known metaphors in the world, part of pop culture, threatens your fragile ego, you have other problems.

 

 

 

He's right, linealdin. It's extremely well-known. Some people have said it's the most well-known. You should see the ratings it gets. Probably the greatest ratings. Very big in pop culture.

 

 

 

[Liberty]

 

 

Schrodinger's cat! Christ, can you get more pretentious?

 

 

If one of the best known metaphors in the world, part of pop culture, threatens your fragile ego, you have other problems.

 

 

 

He's right, linealdin. It's extremely well-known. Some people have said it's the most well-known. You should see the ratings it gets. Probably the greatest ratings. Very big in pop culture.

 

Lennon told me that cat was bigger than Jesus...

[Cigarbutt]

"Shrödinger's value".

"...one of the best known metaphors in the world, part of pop culture..."

LOL. Not in my neck of the woods anyways but, then again, quantum physics was always out of my league.

 

Looked it up though. Learned something? The best explanation was found here:

Watch the whole segment (I had to) or start at the 2:44 mark if you are brilliant.

 

Having said that, commodity investing is fascinating. Will need to do some (heavy) work but may eventually be able to bring a modest contribution.

First, I have to find my old file on Franco-Nevada. The "old F-N" file.

[Liberty]

"Shrödinger's value".

"...one of the best known metaphors in the world, part of pop culture..."

LOL. Not in my neck of the woods anyways but, then again, quantum physics was always out of my league.

 

Looked it up though. Learned something? The best explanation was found here:

Watch the whole segment (I had to) or start at the 2:44 mark if you are brilliant.

 

Having said that, commodity investing is fascinating. Will need to do some (heavy) work but may eventually be able to bring a modest contribution.

First, I have to find my old file on Franco-Nevada. The "old F-N" file.

 

Well, maybe well known in well-read circles, which I assume is most people on this board. Who cares? Focusing on the cat is a great way to miss the point, which was that it's not good for investors to have a one-way ratchet when it comes to positive vs negative information flow, and that it seemed to me like the ALS thread was too focused on every little positive detail and too dismissive of anything negative, despite plenty of it in the past decade. Nobody's immune to this and I've been guilty of it in the past in big ways and I've lost lots of money because of it. When you fall in love with a company, it's too easy to duct-tape the rose-colored glasses to your head.... I think it's healthy to have push back in discussions that are too one-sided, but not everybody sees it that way.

 

https://en.wikipedia.org/wiki/Schrödinger%27s_cat_in_popular_culture

[Cigarbutt]

Liberty,

It seems to me that you're the one who gets carried away now.

It's only humor.

Your points are valid.

But it's interesting how we tend to react when pushed into retrenchment.

No?

I may not agree with all your inputs but thank you for them.

 

[doc75]

Looked it up though. Learned something? The best explanation was found here:

Watch the whole segment (I had to) or start at the 2:44 mark if you are brilliant.

 

I struggled heavily trying to learn quantum stuff until I stopped trying to "understand" it and just followed the math (which is really quite amazing). The accuracy and predictive power of our current models is truly bizarre.  I find many of the pop-sci books/explanations to raise more questions than answers. 

[Guest ajc]

 

 

 

Schrodinger's cat! Christ, can you get more pretentious?

 

 

If one of the best known metaphors in the world, part of pop culture, threatens your fragile ego, you have other problems.

 

 

He's right, linealdin. It's extremely well-known. Some people have said it's the most well-known. You should see the ratings it gets. Probably the greatest ratings. Very big in pop culture.

 

 

Lennon told me that cat was bigger than Jesus...

 

 

 

Must've been while he was taking time away from beating up the women and kids in his life.

 

 

 

[Liberty]

Liberty,

It seems to me that you're the one who gets carried away now.

It's only humor.

Your points are valid.

But it's interesting how we tend to react when pushed into retrenchment.

No?

I may not agree with all your inputs but thank you for them.

 

No sure what tone you read into what I wrote, but I don't think it was the intended one (always a problem with text..). I was just trying to bring things back to what I thought was a more important point. No retrenchment here :D

[Cigarbutt]

Pushed into retrenchment in the sense of threat (cognitive threat).

You seemed to imply that another poster failed to appreciate an open mind when opposing evidence was submitted.

When I offered some resistance with humor, the "who cares" and the exclusive "well read" part did not suggest an open mind to opposition.

That's all. I thought it was interesting.

Time to get back to the kings of royalty.

 

[Liberty]

Pushed into retrenchment in the sense of threat (cognitive threat).

You seemed to imply that another poster failed to appreciate an open mind when opposing evidence was submitted.

When I offered some resistance with humor, the "who cares" and the exclusive "well read" part did not suggest an open mind to opposition.

That's all. I thought it was interesting.

Time to get back to the kings of royalty.

 

No, the "who cares" was literally "who cares if I mis-calibrated or not how well known Shrodinger's cat's thought experiment is?" It's really not important at all. Everybody here understood what I meant in the context of the surrounding sentences. I didn't start quoting Assyrian poetry in the ancient greek translation surrounded by pages of advanced algebra equations like Taleb would do. Now that would be pretentious :D

[Liberty]

The writedown was for the purposes of establishing a figure for compensation from the Alberta authorities, when that was thought to be a possibility. As Sharper Dingaan has laboriously explained the value of future cash flows (this is a writedown of Genesee revenue from 2031 to 2046) has very little net present value. I dont think the NPV of that lost cash flow is near $70 million.

 

Wait, so you're saying that the NPV of far off royalty revenues is worth very little. Is that correct?

 

The United Conservative Party in Alberta are campaigning on reversing the NDP's coal policies. We shall see if Genesee actualy shuts down in 2030.

 

The way coal is going all around the world (even increasingly in China), under huge pressures from cheap fracking natural gas that is much less carbon-intensive and doesn't cause smog, and solar and wind relentlessly going down in costs year after year, as well as storage becoming more and more viable with each passing year, I'd be very surprised if any coal plant in Canada was safe for very long. There'll be pressure from the federal government at some point too, and Trump won't always be in the White House. When he goes, you can probably expect a big pendulum swing the other way, and any carbon regulations in the US can influence things here. We'll see. Anything can happen, but my money would be against coal doing very well in the coming decade or two.

[linealdin]

I have done my due diligence on Genesee. I know how much Capital Power is investing in capex at those coal plants. Efficiency improvements, wood biomass experiments. Those millions aren't being spent for no reason. You have a very general idea: Coal bad.

 

The general idea is correct, but the details and exceptions matter. You don't know enough.