ALS.TO - Altius Minerals

[linealdin]

As I suspected Altius has been gobbling up more LIF shares. They owned 2.5 million shares at the end of July.

 

Altius owning 5% of LIF's 64 million shares = 3.2 million LIF shares. Altius received C$3 million in LIF royalty revenue in the quarter. Only LIF shares owned by September 30th were eligible for the C$1 per share dividend paid on October 25th. So it looks like Altius owned 3 million shares of LIF on September 30th, then bought another 200,000 shares in October.

 

With LIF trading at C$21.47 this morning the full 3.2 million share position is worth C$68.7 million. I'm pretty sure the traditional debt facilities are currently at C$68.7 million or lower (around C$73 million at the end of July). Now, the LIF position is large enough to wipe out all of Altius's traditional debt. They will pull the trigger and kill the debt at the appropriate time.

 

I think the appropriate time is a little later. I see a strong case for the LIF share price rising to between C$30 and C$40 in the relatively near term. Still undervalued.

[linealdin]

"The royalty is partially secured with ancillary timber rights attached to the property and is convertible at our election under certain circumstances into a similar royalty on Wolfden’s Orvan Brook project or Wolfden common equity."

 

It's amusing how many ways Altius has protected its US$6 million royalty investment in Pickett Mountain. If the deposit doesn't become a mine Altius can be compensated with a royalty on another Wolfden property, more Wolfden equity, straight cash (see last press release), or the "ancillary timber rights" on the property.

 

I believe the property is worth US$3 million to US$4 million as timberland. It is a vast freehold property. 8000 acres (including the lakes) anywhere in Maine is a pretty penny. Altius negotiated great terms because they could. Most royalty deals don't have these kinds of protections for the royalty holder; if the deposit isn't mined the royalty holder usually gets nothing. Wolfden needed this deal to close, stock had run up too much in anticipation. Deal falling apart would have meant going back to microcap purgatory.

[linealdin]

Altius revenue for the quarter could be a touch higher than C$17.9 million. These are preliminary estimates and Altius tends to be conservative. Last quarter they press released an estimate of C$14.8 million in revenue, but the final numbers came in at C$15.4 million. Excellent numbers regardless.

 

Altius has first rights to additional royalty and stream financing for Excelsior. I didn't see that in the original Callinan royalty agreement. Interesting. Excelsior is in the process of raising US$49 to US$75 million for Stage 1 capex and a working capital cushion. They recently filed a shelf prospectus on SEDAR for an equity raise of up to US$30 million. Would be quite a vote of confidence if Altius decides to finance a portion of the remaining financing requirements.

 

Press release also highlights the Alderon PEA. The economics of the PEA are indeed quite "robust." Retail shareholders have decided to ignore that Alderon will be able to produce ore at US$29.94 cost per tonne. That is a remarkable number and competitive in any iron ore price environment. I don't think the iron ore producers and steelmakers will ignore that metric. We will see some kind of move (merger, takeover, financing or sale of additional project interest) sooner rather than later. Kami will be mined by someone, I'm growing more sure of that. Location and economics are too good for it to stay idle.

 

 

[linealdin]

http://altiusminerals.com/projects/lynx-diamond

 

Lynx diamond project updated with new work:

 

1) 4 additional rock samples collected in October with microdiamond counts ranging from 67 to 198.

 

2) SRK Consulting engaged to produce 43-101 report for property, which will be delivered in early 2018.

 

3) Next exploration steps: indicator abundance and composition studies, petrography, an airborne magnetic survey, and possibly diamond drilling and/or bulk sampling to try to find more macrodiamonds.

 

This one is getting serious. The 43-101 report is for potential investors. A junior who wants to make Lynx its flagship project would use the 43-101 report as a basis of raising the cash to make the acquisition.

[linealdin]

Champion closes at C$1.54, up 12.4% for the day. This is going to be quite a run to production in March.

 

Altius debenture worth C$15.4 million. Original $10 million investment, made on June 1st, has returned 58% (including interest) in less than 5 months. No more resale restrictions on stock once debenture is converted.

 

Where is the CAGR/discounting crew? Please calculate CAGR on this one. Prime example of Altius's bull market activity: opportunistic cash flips not purchases of increasingly expensive royalties.

 

So beautiful that the Champion investment traces back to the crummy Snelgrove Lake property. (Altius cashed out 3 million shares of Champion as compensation for Snelgrove, when Mamba took over Champion.)

[mikek]

Raises 12 month guidance from 55 million to between 67 and 72 million.  YoY 81% increase on royalty revenue - Stock falls- Possibly the most useless stock on Planet Earth.

 

At times you just have to laugh...

[linealdin]

It is the greatest. I love chaos. My fondest hope is this stocķ dropping below $10. Hopefully a drop that big shakes some of you loose. I want your shares but only if you utterly capitulate and give up in disgust.

[Liberty]

Where is the CAGR/discounting crew? Please calculate CAGR on this one. Prime example of Altius's bull market activity: opportunistic cash flips not purchases of increasingly expensive royalties.

 

I'm right here. My points still stand.

[doc75]

I would guess 16-17 Canadian for the upcoming quarter.  I would be pretty surprised if we saw 20 million this quarter.

 

Good call.

[linealdin]

Where is the CAGR/discounting crew? Please calculate CAGR on this one. Prime example of Altius's bull market activity: opportunistic cash flips not purchases of increasingly expensive royalties.

 

I'm right here. My points still stand.

 

Please calculate the CAGR for the Champion debenture. Thanks in advance.

[linealdin]

I would guess 16-17 Canadian for the upcoming quarter.  I would be pretty surprised if we saw 20 million this quarter.

 

Good call.

 

When the actual revenue is announced in December (project generation revenue included) I think my guess of $20 million will be slightly closer to the mark than Mike's guess of $16.5 million.

[doc75]

I would guess 16-17 Canadian for the upcoming quarter.  I would be pretty surprised if we saw 20 million this quarter.

 

Good call.

 

When the actual revenue is announced in December (project generation revenue included) I think my guess of $20 million will be slightly closer to the mark than Mike's guess of $16.5 million.

 

Oh yes, could be!  Apologies for turning the spotlight away from you for a moment.

[netnet]

 

Champion and Excelsior reaching production in early 2018 should be big liquidity events for both stocks. I expect Altius to cash out at least C$30 million from those two positions. That cash will pay off debt.

 

 

Champion is really on a run; it's been a great 15 months or so, (almost as good as Bitcoin!) This has been a great trade.  Now for me the question is the exit.  Personally, I think that the time to sell is in the March time frame, i.e. all the 'good news' will be out. 

 

Linealdin, your thoughts?

[linealdin]

OH SNAP. I believe Altius has taken the remaining C$50 million in Fairfax preferred shares. Report of exempt distribution of the preferred shares on November 10th.

 

Timing and the taking of both remaining tranches indicates they have uses for the money lined up. A large acquisition by Adventus would probably require royalty financing. Champion royalty? Excelsior?

[linealdin]

Altius increased its share position in Alderon by 504,456 shares at the end of October. Total position is now 33,041,462 shares.

 

Altius bought those shares in a private transaction from John Baker and Brian Dalton, former members of Alderon's board. They each exercised share purchase rights they had received for their board service, then immediately sold those shares to Altius.

 

Interesting. Altius likes the value at these depressed levels? Increasing confidence in the Kami project because of the structural premiums?

 

More shares = more influence. I'm sure Altius wants the project steered into Michael O'Keeffe's hands.

 

As a related matter Alderon has filed its recently announced PEA on SEDAR.

[linealdin]

 

Champion and Excelsior reaching production in early 2018 should be big liquidity events for both stocks. I expect Altius to cash out at least C$30 million from those two positions. That cash will pay off debt.

 

 

Champion is really on a run; it's been a great 15 months or so, (almost as good as Bitcoin!) This has been a great trade.  Now for me the question is the exit.  Personally, I think that the time to sell is in the March time frame, i.e. all the 'good news' will be out. 

 

Linealdin, your thoughts?

 

For the individual retail investor the time to exit is now. At C$550 million the market cap is significant for a non-producer. What's the upside? Maybe C$900 million, near the after tax NPV for the project.

 

Altius is not a retail investor. It holds a debenture which pays 8% interest as it waits to see what happens. Altius gets paid to wait and is in no hurry. I expect Altius to hold the debenture through maturity in June 2018. It will wait and see if Champion goes to the moon or falls back to earth. Fine either way.

 

On paper the Bloom Lake restart is a very impressive project. After tax cash flow will be C$2.3 billion over the life of the mine. No royalties or streams to eat into the upside.

[linealdin]

First Fairfax tranche was received at the beginning of May (Q1). The proceeds went to buy C$13 million in LIF shares, the C$10 million Champion debenture (June 1st) and a private placement in Evrim Resources (May 23rd).

 

Second Fairfax tranche received in early August (Q2). Proceeds went to purchase another 700,000 share tranche of LIF, C$11 million Wolfden equity/royalty purchase (announced in mid-September), and C$3 million upfront payment for McChip (announced November 1st).

 

Third and Fourth Fairfax tranches received on November 10th (beginning of final quarter of abbreviated year). Altius likely has deals in advanced negotiations right now to invest that C$50 million immediately. We should see some deal flow in December and January. (Hopefully not more LIF purchases; I love LIF but the position is large enough.)

[nostradamus]

First Fairfax tranche was received at the beginning of May (Q1). The proceeds went to buy C$13 million in LIF shares, the C$10 million Champion debenture (June 1st) and a private placement in Evrim Resources (May 23rd).

 

Second Fairfax tranche received in early August (Q2). Proceeds went to purchase another 700,000 share tranche of LIF, C$11 million Wolfden equity/royalty purchase (announced in mid-September), and C$3 million upfront payment for McChip (announced November 1st).

 

Third and Fourth Fairfax tranches received on November 10th (beginning of final quarter of abbreviated year). Altius likely has deals in advanced negotiations right now to invest that C$50 million immediately. We should see some deal flow in December and January. (Hopefully not more LIF purchases; I love LIF but the position is large enough.)

 

Their initial draw downs of the Fairfax facility certainly seem to be paying off at the moment, but I worry about the Fairfax money. When it was originally announced and Dalton did that TV interview, he seemed a little bit star struck to me. Ever since the initial draw down, Dalton must have been thinking: I need to find a use for $75m being offered to me my hero by the end of the year or I'll lose access to it. This doesn't seem like the ideal environment for cool headed appraisals of potential investments by Altius.

 

Some of the original attractions of Altius for me were their aversion to debt and the pride they used to take in the fact that their share count had (for a long time) not increased since their original IPO. Now they are taking on more debt (albeit perpetual debt) and diluting my upside. I really hope that the projects that they have lined up are worth sacrificing for the 13.3% of Altius that Fairfax will own if their warrants get exercised.

 

(I've just realised - it was probably obvious to others - that if the 6.67m warrants now held by Fairfax get exercised (price of $15) this raises $100m for Altius. Presumably at this point they would use this money to pay off the Fairfax preferred shares).

 

N

[nostradamus]

New corporate presentation posted:

 

http://altiusminerals.com/uploads/2017-11-20-corporate-presentation-November-2017.pdf

 

Not much new as far as I can tell, but mentions that for their planned copper spin off  "Key management, Board members and strategic shareholders identified"

 

 

[linealdin]

First Fairfax tranche was received at the beginning of May (Q1). The proceeds went to buy C$13 million in LIF shares, the C$10 million Champion debenture (June 1st) and a private placement in Evrim Resources (May 23rd).

 

Second Fairfax tranche received in early August (Q2). Proceeds went to purchase another 700,000 share tranche of LIF, C$11 million Wolfden equity/royalty purchase (announced in mid-September), and C$3 million upfront payment for McChip (announced November 1st).

 

Third and Fourth Fairfax tranches received on November 10th (beginning of final quarter of abbreviated year). Altius likely has deals in advanced negotiations right now to invest that C$50 million immediately. We should see some deal flow in December and January. (Hopefully not more LIF purchases; I love LIF but the position is large enough.)

 

Their initial draw downs of the Fairfax facility certainly seem to be paying off at the moment, but I worry about the Fairfax money. When it was originally announced and Dalton did that TV interview, he seemed a little bit star struck to me. Ever since the initial draw down, Dalton must have been thinking: I need to find a use for $75m being offered to me my hero by the end of the year or I'll lose access to it. This doesn't seem like the ideal environment for cool headed appraisals of potential investments by Altius.

 

Some of the original attractions of Altius for me were their aversion to debt and the pride they used to take in the fact that their share count had (for a long time) not increased since their original IPO. Now they are taking on more debt (albeit perpetual debt) and diluting my upside. I really hope that the projects that they have lined up are worth sacrificing for the 13.3% of Altius that Fairfax will own if their warrants get exercised.

 

(I've just realised - it was probably obvious to others - that if the 6.67m warrants now held by Fairfax get exercised (price of $15) this raises $100m for Altius. Presumably at this point they would use this money to pay off the Fairfax preferred shares).

 

N

 

 

 

 

 

Dalton is basically a bit star struck regarding fairfax

 

I think the due diligence process on their recent investments has been sound. And they've been digging in unusual places for opportunities. Creating opportunities instead of signing up for deals brought to them by the investment bankers.

 

1) LIF was not a typical royalty purchase. Due diligence and smarts was required to realize the hidden potential of the royalty in an environment that was very down on iron ore. It was not obvious that LIF would pay C$2.75 in dividends in 2017. See the Credit Suisse reports earlier this year for examples of what the investment professionals thought of LIF. Altius made a very large and contrarian bet. It has paid off.

 

2) Champion was trading at 85 cents when Altius gave them a debenture. It was not obvious that Champion would be able to raise the full capex for construction. That took thought and due diligence. My understanding is that Altius really studied the economics at the reinvented Bloom Lake before making the investment.

 

3) The Wolfden deposit is located in a weird place for mining. And Altius's royalty on Mount Pickett is the most protected royalty I've ever seen. Altius has the right, under certain circumstances, to exchange the royalty for cash, equity, an alternative royalty, or even timberland rights. It is a smaller amount of money, only US$6 million, but Altius obviously fought very hard in negotiations to protect their investment.

 

4) The McChip purchase was an easier decision because Altius had already invested significant resources studying the Rocanville royalty. They understand the expansion potential. Recent hires Stephanie Hussey and Mark Raguz do not stake exploration projects; they spend their time figuring out how to protect and optimize existing royalties like Rocanville.

 

None of these investments seem like they were made to impress Prem Watsa. I doubt that Watsa even knows anything about the Wolfden or McChip deals. Those deals are too small for him to waste his attention.

[nostradamus]

 

I think the due diligence process on their recent investments has been sound. And they've been digging in unusual places for opportunities. Creating opportunities instead of signing up for deals brought to them by the investment bankers.

 

1) LIF was not a typical royalty purchase. Due diligence and smarts was required to realize the hidden potential of the royalty in an environment that was very down on iron ore. It was not obvious that LIF would pay C$2.75 in dividends in 2017. See the Credit Suisse reports earlier this year for examples of what the investment professionals thought of LIF. Altius made a very large and contrarian bet. It has paid off.

 

2) Champion was trading at 85 cents when Altius gave them a debenture. It was not obvious that Champion would be able to raise the full capex for construction. That took thought and due diligence. My understanding is that Altius really studied the economics at the reinvented Bloom Lake before making the investment.

 

3) The Wolfden deposit is located in a weird place for mining. And Altius's royalty on Mount Pickett is the most protected royalty I've ever seen. Altius has the right, under certain circumstances, to exchange the royalty for cash, equity, an alternative royalty, or even timberland rights. It is a smaller amount of money, only US$6 million, but Altius obviously fought very hard in negotiations to protect their investment.

 

4) The McChip purchase was an easier decision because Altius had already invested significant resources studying the Rocanville royalty. They understand the expansion potential. Recent hires Stephanie Hussey and Mark Raguz do not stake exploration projects; they spend their time figuring out how to protect and optimize existing royalties like Rocanville.

 

None of these investments seem like they were made to impress Prem Watsa. I doubt that Watsa even knows anything about the Wolfden or McChip deals. Those deals are too small for him to waste his attention.

 

All very fair points, I just hope they are equally applicable to the next $50m tranche. Thanks for the therapy!

[linealdin]

New corporate presentation posted:

 

http://altiusminerals.com/uploads/2017-11-20-corporate-presentation-November-2017.pdf

 

Not much new as far as I can tell, but mentions that for their planned copper spin off  "Key management, Board members and strategic shareholders identified"

 

Some interesting stuff in this presentation. Flora Wood has been doing a great job with ramping up Altius's investor communications.

 

1) Page 5 of the presentation is kind of shocking. I had no idea the 22 vend-outs Altius did in 2016 far outpaced the number of vend-outs in any other year. The previous high was 7 vend-outs in 2008 and a typical year is 3 or 4 vend-outs. I know there's a lot more coming. Manitoba diamonds, Finnish gold and Chilean copper are on deck.

 

2) All exploration expenses will be funded by sales from the project generation portfolio. Royalty revenue will not be touched for exploration expenses. That is quite a commitment.

 

3) What is this weird mention of Midland Exploration's Willbob gold project on page 17? Altius has nothing to do with Willbob. Or did they do a partnership deal that just isn't public yet?

[linealdin]

Target commodities for the latest C$50 million in Fairfax money? Nickel seems like the obvious choice. Still pretty beaten down on the 5-year chart. Currently receiving no nickel royalties because of Voisey's Bay litigation.

 

Also more copper and zinc to replace the 777 royalty.

 

Oil is cheap but I don't think Altius has any oil & gas experts on staff. Would be flying blind.

[linealdin]

Alderon's offtake agreements have some interesting terms. Hebei has locked up 60% of offtake, while Glencore has the remaining 40%.

 

Both offtake agreements allow for a premium for 65% ore (US$23 per tonne).

 

Hebei's offtake doesn't allow for a low impurity premium but Glencore's does. The low impurity premium that Alderon would charge is US$5.33 per tonne, but only on Glencore's 40% of sales.

 

Also, after all premiums are applied, Hebei buys the ore at 5% discount to the spot market, while Glencore enjoys a 2% discount.

 

All things considered Alderon is locked into a relatively poor offtake deal with Hebei.

[Liberty]

 

I'm right here. My points still stand.

 

Please calculate the CAGR for the Champion debenture. Thanks in advance.

 

Oh great, the $525m company has made a good $10m investment, hurray, this changes everything!