ALS.TO - Altius Minerals

[linealdin]

Biggest validation for the Labrador Trough: Glencore's involvement. They are the definition of smart money (in the Trough the dumb money is the Chinese). Glencore has offtake deals with both Alderon and Champion Iron, and also holds a large debenture with Champion. Glencore wouldn't be signing those deals unless the Labrador Trough is a lucrative opportunity.

 

As a related matter Alderon cannot easily downsize to a smaller initial production project (as Black Iron in Ukraine is proposing) because it has already signed offtake deals for 100% of its planned production. I'm sure the contract terms don't allow Alderon to unilaterally decrease the production plan. Black Iron hasn't signed offtake deals yet so they have more flexibility.

[linealdin]

The long term case for iron ore is simple. 2.1 billion tonnes of iron ore was consumed in 2016. Rio Tinto, which spends millions developing bottom-up forecasts, predicts 3 billion tonnes of iron ore demand by 2030. Iron ore benchmark price must rise to incentivize investment in that additional 900 million tonnes of supply.

 

It shouldn't be too long. Metalytics expects prices to stay in the $60 to $70 range in the near term, then start rising in 2020. Upside target is a little over $100 per tonne.

 

Kami is already economic at current prices and premiums. A modest uptick in the iron ore price will convince the bankers to finance the $1 billion capex. I am happy waiting 2 or 3 years for a construction decision. The prize is large.

[nostradamus]

If the iron ore environment improves the extent that Kami gets financed, it will be hard to avoid recognising some of the huge potential value in Jullienne Lake.

[linealdin]

If the iron ore environment improves the extent that Kami gets financed, it will be hard to avoid recognising some of the huge potential value in Jullienne Lake.

 

Rio Tinto just has to be right about their 3 billion tonnes of iron ore demand by 2030 forecast. In that demand scenario the best deposits from the Trough will be put into production. Incentive prices will be reached.

 

Rio Tinto's claim is that their forecasts are granular, bottom-up, complex and expensive. They employ teams of researchers on the ground in China and India to study macroeconomic developments, industry costs, production trends and consumption drivers. They study 800 large and small cities and rural areas, and build a forecast from the bottom-up. They commit millions of dollars to this process.

 

They believe the typical investment bank's iron ore forecast is made by a recent MBA grad in a room in NYC or London. Simple top-down projections based on someone else's data.

 

 

 

 

[linealdin]

https://www.bloomberg.com/news/articles/2017-11-14/glencore-is-said-to-be-close-to-creating-mining-royalty-company

 

Glencore and Ontario Teachers Pension Fund create a base metals royalty company. Glencore contributes 10 royalties for its 50% stake while Ontario Teachers contributes $350 million in funding for new royalty acquisitions for its 50% stake. Company remains private for now, though a public listing is possible in the future.

 

Ontario Teachers sold its 50% stake in CDP to Altius for C$21 million, as part of the Sherritt acquisition in 2014.

 

1) There will be lots of institutional pressure for whoever runs the company to employ that $350 million in the near term. Making a big splash to justify the new job and salary. But valuations for royalties are sky high in the base metals bull market. Formula for bad deals.

 

2) Better to have spun out this company during the depths of the bear market (2013 through early 2016) in a target rich environment but nobody wanted to invest $350 million then. Matching up the cash and the opportunities is always difficult.

 

3) This is evidence that Glencore believes this is going to be a long, fruitful bull market in base metals. They are going to monetize their stake through a big IPO eventually. That big IPO can only happen if the commodities market is way up.

[linealdin]

One more Franco-Nevada thought. It was founded as an exploration stock; they bought the Goldstrike royalty so they could minimize their dependence on the equity markets. Similar story with Altius and its purchase of the Voisey's Bay royalty. The royalty was also meant to be a long term source of cash so Altius didn't need to raise money every year like every other explorer. Both companies stumbled into a successful business model.

 

That prospect generator DNA will help Altius stay contrarian. Prospect generation takes long periods of time and patience, waiting for partners to come along. I'm certain Altius is resolved to not purchase big producing royalties until we are again deep into the depths of another bear market. Hopefully it takes another 10 years to get to that point.

[linealdin]

Timeline delays at Excelsior Mines. EPA draft permit public comment period extended 45 days to January 8th. Construction financing now expected to close in Q1 2018, then a 9 month construction period. So earliest production could begin is late Q4 2018.

 

Not great. Stock should be under some selling pressure, the short term momentum players have banked some tremendous paper gains and will not wait until late 2018 for the next leg up.

 

 

 

[linealdin]

Oil & gas, deep in a bear market, seems to be a logical royalty acquisition target for Altius, except for the quick depletion/decline rates of the wells. Altius likes the extra juice from mine life extensions (like Chapada potentially operating for 50 more years) but that doesn't really happen in oil & gas. My sense is an average oil well lasts about as long as an average gold mine. 10 years?

 

If the Genesee complex, as planned, runs through the end of 2030 Altius will have held the producing Genesee royalty for 16.67 years. Not bad compared to most mines.

[bizaro86]

The trick with oil and gas would be to target royalties on land not wells.

 

Then there are lots of ways to extend life: other zones/stacked pay, infill drilling, secondary/tertiary recovery, etc. Also, royalty deals tend to trade on the basis of current income, so adjacent exploration upside is often available. (Washover sands beside a channel play, etc)

 

I would love it if ALS recreated their project generation business model in oil and gas, this would likely be the perfect time in the cycle for it. Maybe I should call them and volunteer...

[Cigarbutt]

Looking at past and present projects.

More precise data points for the Lake Bloom re-start (production in March 2018 and 450 workers).

http://business.financialpost.com/pmn/business-pmn/champion-irons-bloom-lake-mine-set-to-reopen-in-march-with-450-workers

 

Although not due to direct involvement by Altius, Champion (Mr. O'Keefe) seems to have been able to combine heads (including the government) in order to partner for the investment and the related infrastructure. An additional 26,2 million public investment in the project announced today. Altius seems to team up with the right people.

 

Appears to be a typical return curve project with extent and timing of cash flows highly tied to the cycle.

 

"The reopening was announced as the Quebec government reported that mining investments in the province grew last year for the first time since 2012."

 

False dawn?

 

[linealdin]

Altius's debenture to Champion came at a sensitive time, early in financing process. Could be a very lucrative deal. O'Keeffe will promote like crazy in next few months.

[linealdin]

http://www.allegiancecoal.com.au/irm/PDF/1271_0/PresentationtotheICCCForum

 

Allegiance latest presentation, delivered at the International Coal, Coke and Carbon Forum in Budapest. Gives more history about the Telkwa project. In 2008 CDP had Telkwa joint ventured with a Japanese trading house. Previous owners misunderstood the project as having high costs. Allegiance makes case that Telkwa will be in the lowest 5% of cost curve, thus will be economic at any point in the commodity cycle.

[linealdin]

http://www.newswire.ca/news-releases/wolfden-completes-financing-and-purchase-of-the-pickett-mountain-base-metal-property-in-penobscot-county-maine-usa-657932443.html

 

Wolfden completes the Maine acquisition. Altius acquires 1.35% royalty. Altius' 14.2 million shares (purchased at 25 cents) and 7.1 million warrants (exercisable at 35 cents) are already deep in the money with Wolfden trading at 42 cents.

 

If the Maine deposit isn't economic Altius has the right to convert the royalty to more Wolfden equity or a royalty on Wolfden's promising Orvan Brook property. Optionality.

[linealdin]

Wolfden opens around 44 cents. Altius's equity position cost C$3.55 million, and is now worth C$6.25 million. Its warrants would cost C$2.485 million to exercise, and would be worth C$3.12 million.

 

So it's is a C$9.37 million position with all warrants exercised. Fairly substantial.

 

My hope is that continued Wolfden equity appreciation pays for the whole acquisition (Altius cost of around C$11.17 million). The 1.35% royalty would then be free upside (will take at least 10 years to reach production).

 

At the end of June Wolfden had roughly C$1.9 million in cash and short term investments. They will clear about C$1.55 million after paying for Pickett Mountain and deal expenses. There is enough to run a drill program in the next couple of months.

 

Orvan Brook, the fallback royalty option if Pickett Mountain doesn't work, has a historical resource of 2.69 MT grading 6% zinc, 2.8% lead and 0.32% copper. Wolfden has had some success drilling deeper at Orvan Brook this year.

[linealdin]

Champion up 5.4% today to C$1.35. A good reaction to the news conference. David Cataford of Champion says the high quality Bloom Lake ore will sell for US$80 per tonne.

 

Altius debenture worth C$13.5 million. Also C$400K in interest received so far.

 

What is a 7.4 MTA producing iron ore mine worth if profitable? C$1 billion? C$1.5 billion? More? At full production Bloom Lake will be 1/3 the size of IOC. But Bloom Lake is unimpaired by royalties (IOC pays LIF 7% of revenues). That makes a difference.

[linealdin]

The option to exchange the Pickett Mountain royalty for more equity or another property royalty is unusual, and wasn't included in the September press release. Seems like it was negotiated recently. Sweetener to compensate for issues found during prolonged due diligence process.

 

Update: Altius press release indicates the Mount Pickett royalty can be exchanged for cash under certain conditions. Additional downside protection if deposit doesn't become a mine.

[linealdin]

http://www.newswire.ca/news-releases/wolfden-to-speak-at-geological-society-of-maines-annual-fall-meeting-in-augusta-maine-usa-658231403.html

 

http://www.gsmmaine.org/wp-content/uploads/2017/11/GSM-2017-Fall-Meeting-Program.pdf

 

Wolfden to present Pickett Mountain project today at Maine Geological Society conference, on a panel featuring a Maine state senator and a state representative who helped pass the new mining laws which allow this deposit to be developed. Don Hoy, CEO of Wolfden, will make a presentation called "Pickett Mountain Project and Undiscovered Mineral Potential."

 

Social/political acceptance is half the battle.

 

Altius is paying for the "Undiscovered Mineral Potential." The VMS deposit is very high grade but probably too small to mine at 3.2 million tonnes. Double or triple that resource and mining becomes a possibility.

[linealdin]

https://www.platts.com/latest-news/metals/london/analysis-iron-ore-pellet-2018-contract-premium-26842297

 

Record pellet premiums were reached in 2017, but negotiations indicate pellet premiums will continue to rise in 2018.

 

IOC has sold roughly 56% of its 2017 production as pellets, which are receiving "exceptional" premiums, according to LIF's recent press release on Q3 results. If the benchmark price for 62% fines is US$60 per tonne, then high quality pellets will receive roughly US$122 per tonne in 2018. Total gamechanger, the pellet premium was US$10 a tonne just a couple of years ago.

 

IOC is one of only a handful of global producers of the prized direct reduction iron ore pellets. Samarco, another major supplier of these types of pellets, has been idled because of an environmental disaster.

 

Major competitive advantage in this type of market. Pellet premiums haven't yet attracted investments in new pellet plant construction, so no new competition looming. I think the LIF equity position could be held for another couple of years. The stock could go a lot higher. Production volume and pellet premium increases are expected for 2018.

[linealdin]

http://www.amm.com/events/download.ashx/document/speaker/8336/a0ID000000X0kN4MAJ/Presentation

 

This 2014 presentation indicates that IOC has the largest direct reduction pellet production capacity of any mine in the world (now that the Samarco complex has been idled). That production capacity will be utilized and amply rewarded over the next 5 years. I see the LIF stock price reaching C$40 in that time period.

[linealdin]

https://globenewswire.com/news-release/2017/11/17/1195012/0/en/McChip-Resources-Inc-Completes-Sale-of-Its-Interest-in-Certain-Mineral-Titles-Located-in-the-Rocanville-Area-of-Saskatchewan.html

 

McChip royalty purchase completed. Effective date of November 17th.

 

Looks like the C$500K payment from Altius to McChip will be paid on an annual basis. I'm assuming the payment date will be at the end of the year, when the required minimum annual production levels and potash grades can be calculated. Will confirm when the royalty agreement is filed on SEDAR.

 

Altius, on the other hand, receives its McChip-related Rocanville royalties on a monthly basis. So when Altius receives its January royalties it is able to put that revenue to work for another 11 months (collecting interest or being re-invested or going towards debt retirement) before the big payment to McChip is due at the end of the year. The royalty paid for February can be put to work for 10 months. And so on for each monthly payment. It is an advantage and it matters because the margin will be pretty thin the first 10 years.

 

*

 

On a related note most simple NPV calculators seem to be based upon annual cash flows. But Altius receives its royalty revenue on a monthly basis. Obviously better to receive monthly royalties versus a big lump sum payment on December 31st of each year. I need more a more sophisticated NPV calculator.

[linealdin]

Wolfden up 11% to 49 cents. Altius's 14.2 million shares are worth C$6.96 million. Their 7.1 million warrants are worth another C$3.48 million if exercised. Total potential value: C$10.44 million.

 

Speculators like how the canny Ewan Downie sold the original Wolfden Resources for C$363 million in 2007. He has the cash and connections to develop this deposit.

 

[bizaro86]

I hope their lightening that position as it gets to $0.45+.

 

Maybe that's a mine and maybe it isn't, but if they sell the shares now they dramatically reduce the amount of capital they have invested in this prospect. Keep the warrants for equity upside, but sell the shares to cover a big chunk of the initial capital outlay in a short time period.

[linealdin]

4 month hold on those Wolfden shares and warrants. Their usual practice is to wait a year or two for a major development, and probably longer. Wolfden will delineate a 43-101 compliant Pickett Mountain resource in 2018, that would be the first selling opportunity.

[linealdin]

LIF was trading way over $30 for most of 2013 (high around $36). LIF paid $1.875 in dividends in 2013.

 

LIF will pay $2.75 or more in 2017 dividends. Stock price at $21.

 

Makes no sense. Irrational hatred of iron ore even though IOC sells mostly high demand pellets. I think LIF goes to $40 in the next year or two.

 

 

[Williams406]

$18 million Royalty rev and 5% of LIF.

 

http://altiusminerals.com/uploads/11-20-2017-Q2-Royalty-Revenue-and-Earnings-Date-FINAL.pdf