ALS.TO - Altius Minerals

[linealdin]

https://thewest.com.au/business/mining/shake-out-looms-for-wa-iron-ore-as-china-cleans-up-ng-b88652457z

 

Great summary of the iron ore quality premium/penalty debate: Are the premiums structural or cyclical? I side with the opinion of the majors, obviously.

 

A shakeout in Western Australia, mine shutdowns and bankruptcies, will help the Trough's position in the long term.

 

Tacora Resources very quiet about when exactly Wabush Mines restarts. Union might have backed the wrong horse.

[linealdin]

This morning there is 2 MW of wind power generation in Alberta out of 1445 MW capacity. Amazingly bad technology. Something will replace coal but it won't be wind.

[Liberty]

This is actual wind power generation in the U.S. in thousand-megawatthours:

 

 

The thing with exponential growth is it looks like nothing for a long while and then it pretty rapidly takes over.

 

According to the National Renewable Energy Laboratory, the contiguous United States has the potential for 10,459 GW of onshore wind power. The capacity could generate 37 petawatt-hours (PW·h) annually, an amount nine times larger than current total U.S. electricity consumption. The U.S. also has large wind resources in Alaska, and Hawaii.

 

[...]

 

In addition to the large onshore wind resources, the U.S. has large offshore wind power potential, with another NREL report released in September 2010 showing that the U.S. has 4,150 GW of potential offshore wind power nameplate capacity, an amount 4 times that of the country's 2008 installed capacity from all sources, of 1,010 GW

 

This isn't even counting solar, which has been going down in cost even faster and has a bigger potential than wind.

 

This tidal wave is coming and won't be stopped.

[linealdin]

The 2 MW of current wind power generation in Alberta is now 4 MW. A doubling! That must be the tidal wave that can't be stopped.

 

The U.S. in 2016 had 5.55% of its electricity generated by wind power. Another tidal wave!

[Liberty]

Canada is a bigger country than the US with 1/10th the population. You don't think wind will take more share here over time with all this energy resource available for the taking, with only upfront costs and then no fuel costs? Storage costs are going down rapidly too, and if the environmental and health costs of coal are ever taken into account, coal plants won't be around long. But in Alberta specifically, who knows, it'll probably be gas that'll kill coal first.

[Cigarbutt]

The world is indeed changing.

https://cdn.theatlantic.com/static/mt/assets/business/technology%20adoption%20rate%20century.png

 

 

These graphs do suffer from survival bias.

The challenge is to catch the right wave.

Even if you spot the right wave, timing is of the essence.

 

[linealdin]

Wishful thinking doesn't keep the lights on in Alberta. Coal power does. Current coal power generation of 5221 MW out of 10,044 MW total generation. 52% coal power. Good luck replacing that with wind that doesn't blow most of the time. I think Alberta's current solar power capacity is 10 MW. Something infinitely small that I'm sure will grow into a tidal wave sometime in the 2100's.

 

What will kill coal is legislation. Genesee and Sheerness will be prohibited from operating after December 2030. Unless a new conservative government lead by the coal supporter Jason Kenney changes things. "Jason Digs Coal" is one of their campaign slogans. We shall see.

 

What will gradually replace coal as baseload power in Alberta is combined cycle natural gas. The kind of plants that cost multi-billions of capex. A construction decision on Capital Power's long-delayed Genessee 4 & 5 combined cycle gas plants will be a bellwether, and a sign that the adults are getting serious about changing Alberta's power mix.

 

 

 

 

[Liberty]

I didn't say it would be wind that would do it in Alberta. But it's head-in-the-sand to think that's it's not a rapidly emerging source of clean power that will play a major role everywhere in the future, just like solar.

[linealdin]

I didn't say it would be wind that would do it in Alberta. But it's head-in-the-sand to think that's it's not a rapidly emerging source of clean power that will play a major role everywhere in the future, just like solar.

 

I'm sure you're right that Alberta will have more wind and solar power by 2100. Not my concern.

 

My concern is baseload competitors to Genesee and Sheerness in the period from today through December 31st, 2030. It won't be wind or solar replacing coal's baseload power in that period. It could be combined cycle natural gas but the utilities haven't pulled the trigger on the multi-billion dollar investments those plants would require. Mostly because carbon taxes don't favor the carbon that natural gas plants produce either.

 

There's significant inertia in Alberta's power market (not much new generation of any kind currently in construction). Altius collects its checks and enjoys that inertia.

[Cardboard]

It will play a role but, will never be major or a large percentage of our needs because of simple fluid mechanics: low energy per area occupied, inconsistent.

 

And if you add on storage cost to it: lithium batteries or even hydro, it becomes uneconomical and to my knowledge is not done anywhere in the world currently.

 

And over time humans will find better ways to source energy: fusion, hydrogen, etc.

 

Cardboard

[Liberty]

I didn't say it would be wind that would do it in Alberta. But it's head-in-the-sand to think that's it's not a rapidly emerging source of clean power that will play a major role everywhere in the future, just like solar.

 

I'm sure you're right that Alberta will have more wind and solar power by 2100. Not my concern.

 

My concern is baseload competitors to Genesee and Sheerness in the period from today through December 31st, 2030. It won't be wind or solar replacing coal's baseload power in that period. It could be combined cycle natural gas but the utilities haven't pulled the trigger on the multi-billion dollar investments those plants would require. Mostly because carbon taxes don't favor the carbon that natural gas plants produce either.

 

There's significant inertia in Alberta's power market (not much new generation of any kind currently in construction). Altius collects its checks and enjoys that inertia.

 

Natural gas is way less carbon intensive per unit of power than coal. From memory it's about 1/4th.

 

https://www.eia.gov/tools/faqs/faq.php?id=73&t=11

 

This shows about 1/2 from straight burning it, but natural gas plants tend to be more efficient than coal plants, so I could easily see 1/3 to 1/4th (especially if you compare a new cogen gas plant to an old coal plant). Gas plants also have higher capacity factors than coal. And then there are all the other benefits (nat gas doesn't cause the smog that coal does, gas wells are less destructive than coal mining, no mercury, no fly ash to store, etc).

 

If you think it'll take until 2100 until wind and solar make a big difference in NA, you're not looking at the growth trends and cost trends properly.

[Liberty]

It will play a role but, will never be major or a large percentage of our needs because of simple fluid mechanics: low energy per area occupied, inconsistent.

 

And if you add on storage cost to it: lithium batteries or even hydro, it becomes uneconomical and to my knowledge is not done anywhere in the world currently.

 

And over time humans will find better ways to source energy: fusion, hydrogen, etc.

 

Cardboard

 

It's already happening in many countries and region (you can extrapolate where it'll go next as costs come down by another half, etc). It'll require changes to the grid (more long-distance DC transmission, more interconnected regional grids) and more development of grid-scale storage (check this out:

) but the trends are clear.

 

 

 

http://costofsolar.com/management/uploads/2013/06/price-of-solar-power-drop-graph.jpg

 

Ideally, combined with LFTR tech (liquid fluoride thorium reactors) or breeders and hydro and smarter grids with TOU rates and demand response mechanisms, it could power the world very well and very cleanly.

[nostradamus]

Those cost curves look like they are levelling off to me.

[Liberty]

Those cost curves look like they are levelling off to me.

 

Because they aren't on log charts and because real-world curves are never entirely smooth.

 

Silicon is literally dirt-cheap. Lowering costs is all about scaling up production, automating processes, improving efficiencies so that out of the same amount of silicon you get more power, etc. Then they're also automating installation processes (robots are starting to install panels at utility-scale solar farms), etc. Plenty more cost reductions coming, we're early in this game.

[linealdin]

Back to reality.

 

Alberta's added about 850 MW of renewable energy capacity, mostly wind, since 2010. Very admirable but mostly meaningless.

 

That 850 MW is capacity, not actual net generation. How much actual average net generation are Albertans getting from that capacity? Maybe 150 MW? On a windy day.

 

Coal's pumping out over 5000 MW right now in Alberta. Not capacity, actual net generation.

 

Renewables are not sneaking up on anybody. There's a renewable RFP right now, there are plans for renewable capacity auctions in 2019. I know approximately how much money is being invested or bid. It's nothing of consequence. 

 

Capital Power estimates it will cost the utilities $20 billion to replace coal. I will let you know when those billions start flowing. Ain't happened yet.

[Liberty]

Back to reality.

 

Alberta's added about 850 MW of renewable energy capacity, mostly wind, since 2010. Very admirable but mostly meaningless.

 

That 850 MW is capacity, not actual net generation. How much actual average net generation are Albertans getting from that capacity? Maybe 150 MW? On a good day.

 

Coal's pumping out over 5000 MW right now in Alberta.

 

Renewables are not sneaking up on anybody. There's a renewable RFP right now, there are plans for renewable capacity auctions in 2019. I know approximately how much money is being invested or bid. It's nothing of consequence. 

 

Capital Power estimates it will cost the utilities $20 billion to replace coal. I will let you know when those billions start flowing. Ain't happened yet.

 

How many times do I have to say that something else will probably kill coal in Alberta before renewables, but they're still coming and coal is still going away?

 

I never said wind is what will take out coal in Alberta. You were talking about how little wind power there was in Alberta, so I gave some numbers to show the larger context and the trend.

[linealdin]

Back to reality.

 

Alberta's added about 850 MW of renewable energy capacity, mostly wind, since 2010. Very admirable but mostly meaningless.

 

That 850 MW is capacity, not actual net generation. How much actual average net generation are Albertans getting from that capacity? Maybe 150 MW? On a good day.

 

Coal's pumping out over 5000 MW right now in Alberta.

 

Renewables are not sneaking up on anybody. There's a renewable RFP right now, there are plans for renewable capacity auctions in 2019. I know approximately how much money is being invested or bid. It's nothing of consequence. 

 

Capital Power estimates it will cost the utilities $20 billion to replace coal. I will let you know when those billions start flowing. Ain't happened yet.

 

How many times do I have to say that something else will probably kill coal in Alberta before renewables, but they're still coming and coal is still going away?

 

I never said wind is what will take out coal in Alberta. You were talking about how little wind power there was in Alberta, so I gave some numbers to show the larger context and the trend.

 

I will let you know the moment the Alberta utilities make the decision to invest multi-billions and break ground on new combined cycle natural gas plants. Nothing in the works currently. Also, the period from beginning of construction of those plants to commissioning will be around 3 to 4 years. That is not my estimate, that is Capital Power's estimate of how long construction of Genesee 4 & 5 will take. 3 years for phase 1, and an additional year for phase 2. Nothing is instant; delays and inertia benefit Altius immensely.

[linealdin]

I think we all agree that coal will fade out in Alberta and everywhere. My guess is that it will be a long tail: Genesee and Sheerness go to the end of 2030, and Genesee possibly a decade beyond that, depending on politics.

 

I thought there would be more fade-out for coal in the near term, but electricity demand in Alberta has been growing for each of the last 10 months. No new capacity has been installed to the grid so the coal plants have been working at near 100% capacity. Coal's share of total net generation has been growing.

 

Altius's electrical coal revenue over that 10-month period, roughly captured by its the last 3 fiscal quarters, is C$11.418 million.

 

The total revenue for the 3 quarters before that? Only C$8.920 million.

 

That is a 28% increase in electrical coal revenue. Not what you would expect if you listened to the coal is dead crowd.

 

 

 

 

[Liberty]

delays and inertia benefit Altius immensely.

 

You mean on their heavily impaired coal royalty from which they expected to get 25 extra years of revenues?

 

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

 

I think we all agree that coal will fade out in Alberta and everywhere. My guess is that it will be a long tail: Genesee and Sheerness go to the end of 2030, and Genesee possibly a decade beyond that, depending on politics.

 

I don't know how long it'll go. Most likely is 2030. But if I was an ALS shareholder, I'd take seriously the possibility that it could also be before then. 2030 is a nice arbitrary round number that they threw out there, but in the intervening 12 years, if gas stays cheap and renewables keep getting cheaper and more and more of the world gets serious about carbon and air pollution (possibly as a backlash to the Trump era), there could very well be renewed pressure to move away from coal even faster.

[linealdin]

I do take the possibility of the Genesee and Sheerness coal royalties being wiped out before 2030 very, very seriously. I've done the research on what it will take to replace coal as baseload power. Multi-billion dollar investments will be required. Huge combined cycle gas plants with 4 year construction timelines will need to break ground. None of that has happened or is imminent.

 

The only thing that's actually happened recently? Altius's electrical coal revenue has increased by 28% the last 9 month period, over the previous 9 month period. WHAT?

 

Reality not fantasy.

[linealdin]

LIF hits a new 52 week high of C$21.78 this morning. Altius's 2.5 million share equity position is worth C$54.45 million at that level.

 

Target equity liquidation price should be around C$30. I expect that target to be reached in the next calendar year. The Wabush 3 pit will be integrated into IOC's production in H2 2018. The target production for 2018 will be something around 23 MT. That volume growth (only 19.2 MT produced in 2016) will show up in the LIF revenue next year.

 

Credit Suisse's prediction for LIF's Q4 dividend is 48 cents. They've been wrong all year. I predict 80 cents, or a dividend to Altius of ~C$2 million payable on January 25th, 2018.

[linealdin]

Does Altius declare a 2 cent royalty for the 2 month transition quarter of November/December? Or is this an opportunity to increase the dividend? New fiscal year, new dividend structure? It is time.

[nostradamus]

Does Altius declare a 2 cent royalty for the 2 month transition quarter of November/December? Or is this an opportunity to increase the dividend? New fiscal year, new dividend structure? It is time.

 

It certainly seems like the right time to do it. Alternatively, maybe they will wait until they sell LIF (C$30 would be nice) and pay off their debt.

[linealdin]

"but in the intervening 12 years"

 

Not 12 years! Altius has only reported results through the end of July, so it has 13.42 more years of electrical coal royalties to collect before the legal door slams shut. Every day counts.

 

There will be small dropoffs with Paintearth dying a natural death and Highvale's early conversions to gas, but Genesee and Sheerness account for roughly 87% of Altius's electrical coal royalties.

 

From August 1st, 2017 through December 31st, 2030 I estimate Altius collects another C$184 million in electrical coal royalties. The long term demand for Alberta electricity is trending up.

 

(The C$184 million figure excludes revenue from the Cheviot met coal royalty and from the indomitable potash royalties.)

[linealdin]

The reason why every day counts: the Prairie royalties are enormous and are paying back quickly, at a clip of C$60K per day.

 

Purchase price of C$240.9 million.

 

Altius has earned C$70.425 million in just 3.25 years of royalty ownership.

 

What happens in another 3.25 years? It's October 31st, 2020 and Altius now has banked a total of C$140.85 million. Anyone really believe Genesee or Sheerness is shutting down by 2020? They'd have to start using candlelight in Alberta.

 

4.5 years after that? Altius achieves payback.