ALS.TO - Altius Minerals

[linealdin]

Wonderful work, a lot to be absorbed.

 

China only has a $8,153 per capita GDP. Despite all the posturing as a world power and road & belting it is still a relatively poor country. A tremendous amount of growth must happen for China to become a moderately prosperous country like South Korea ($27,538 per capita GDP). It will be a bumpy process. I have no doubt there will be recessions, wars, regime change during that run from $8K to $27.5K. But the Chinese desperately want the same cities, electricity, fridges and cars the South Koreans have. Commodities will be increasingly needed to build those things.

 

Supply side is much clearer. Industry players agree there's been historically low investment in building new supply and greenfields exploration (especially in copper and zinc) in recent years. That is playing out now.

[linealdin]

http://www.abc.net.au/news/2017-11-24/mineralogy-sino-iron-royalty-case/9191418

 

Resolution to the Clive Palmer iron ore royalty case. He wins big, US$150 million judgment. No, you can't just decide you don't want to pay the royalty anymore.

 

Vale is going to get smashed in court by Royal Gold and Altius. Their arguments for stopping royalty payments are just about as ridiculous as CITIC's. Rule of law will prevail.

 

And I don't give a damn if Vale decides to curtail underground development at Voisey's Bay as result of a trial decision against them. The principle of the issue matters more.

[linealdin]

https://www.businessinsider.com.au/iron-ore-relationship-to-steel-prices-2017-11

 

Check out this chart. Historically iron ore prices track steel prices, but relationship has broken down this year. If tracking reestablishes the iron ore price rises to US$130 to keep up with steel prices. What??

 

At US$130 even Morabito's incompetence can't stop Kami from being financed for construction.

[SharperDingaan]

https://www.businessinsider.com.au/iron-ore-relationship-to-steel-prices-2017-11

 

Check out this chart. Historically iron ore prices track steel prices, but relationship has broken down this year. If tracking reestablishes the iron ore price rises to US$130 to keep up with steel prices. What??

 

At US$130 even Morabito's incompetence can't stop Kami from being financed for construction.

 

The chart is telling you that for long periods of 2017 - iron ore was not being turned into steel; scrap steel was being used instead, and it was available in large quantities. We would suggest that the bulk of this scrap is the awful steel that was produced in Asia during the early years of the millennium, and while it exists - it is an enormous source of supply holding down the price of ore.

 

Most would expect Kami to be sold to a major, that actually develops the mine; it's unlikely to be ADV. But if the existing royalty agreements are to stick, owners need to keep/increase their sizeable interests. Iron at US$130 will immediately benefit the owners of ADV, owners of ALS have to wait until the mine is actually producing.

 

SD

 

   

 

 

 

[Cigarbutt]

"Historically iron ore prices track steel prices, but relationship has broken down this year."

Agree with the possible lower grade stockpiles playing a role.

Would add though that the other major input in steel (coking coal) may explain the divergence as coking coal has recently been quite volatile (mostly going up) due to various supply issues (cyclone Debbie affecting Australia's coal exports ++ earlier this year and China reducing supply (restriction on mining days) in order to ? support indebted miners).

I understand that long term contracts (in volatile periods) can cause lags in "tracking" also.

 

https://www.ft.com/content/9e1aa924-0fbd-11e7-b030-768954394623

As the author suggests, at this point, the price of coal is based on what Beijing's ultimate goal is.

But what is the ultimate goal?

Will depend on the state planner.

[linealdin]

"Historically iron ore prices track steel prices, but relationship has broken down this year."

Agree with the possible lower grade stockpiles playing a role.

Would add though that the other major input in steel (coking coal) may explain the divergence as coking coal has recently been quite volatile (mostly going up) due to various supply issues (cyclone Debbie affecting Australia's coal exports ++ earlier this year and China reducing supply (restriction on mining days) in order to ? support indebted miners).

I understand that long term contracts (in volatile periods) can cause lags in "tracking" also.

 

https://www.ft.com/content/9e1aa924-0fbd-11e7-b030-768954394623

As the author suggests, at this point, the price of coal is based on what Beijing's ultimate goal is.

But what is the ultimate goal?

Will depend on the state planner.

 

My understanding is that if the original chart were redone with 65% iron ore the lag with steel prices would be smaller. With 58% ore the lag would be much bigger.

 

The higher grade ore is still tracking the price of steel.

[linealdin]

https://www.businessinsider.com.au/iron-ore-relationship-to-steel-prices-2017-11

 

Check out this chart. Historically iron ore prices track steel prices, but relationship has broken down this year. If tracking reestablishes the iron ore price rises to US$130 to keep up with steel prices. What??

 

At US$130 even Morabito's incompetence can't stop Kami from being financed for construction.

 

The chart is telling you that for long periods of 2017 - iron ore was not being turned into steel; scrap steel was being used instead, and it was available in large quantities. We would suggest that the bulk of this scrap is the awful steel that was produced in Asia during the early years of the millennium, and while it exists - it is an enormous source of supply holding down the price of ore.

 

Most would expect Kami to be sold to a major, that actually develops the mine; it's unlikely to be ADV. But if the existing royalty agreements are to stick, owners need to keep/increase their sizeable interests. Iron at US$130 will immediately benefit the owners of ADV, owners of ALS have to wait until the mine is actually producing.

 

SD

 

   

 

 

 

But ALS is by far the largest shareholder of ADV. And they've been buying more shares. ALS will have immediate benefit at a higher iron ore price.

[linealdin]

The beauty of long life royalties: NPV's don't decline as the mine is slowly depleted.

 

Compare the multi-century potash royalties to the average 15 year mine life gold royalty.

 

Let's say both have an NPV today of $100 million.

 

In 15 years the potash royalties will still have an NPV of $100 million (reserves barely depleted) while the gold royalty will have a NPV of zero (reserves totally depleted).

[linealdin]

As to the discount rate that should be applied to Altius's royalty streams? A 5% discount rate has been industry standard in negotiations between royalty companies and miners in recent years. If you don't like that 5% discount rate go complain to Franco Nevada. Tell them their business model is wrong, that they should be discounting royalty streams at a 15% rate. I'm sure Pierre Lassonde will care.

[Cigarbutt]

linealdin,

Highly respect your multiple contributions.

The purpose is to work together. May disagree along the way.

 

-Concerning the iron content argument, there has been an increasing divergence but I think that price movements along the grades still move in unison. Maybe, there is a speculation component but I submit that this is price discovery in progress. Below is an interesting link that is relevant (iron ore grades and "illegal" scrap-based production) and that touches on the underlying fundamental issues.

 

https://agmetalminer.com/2017/10/02/iron-ore-price-china-steel/

 

"The iron ore price has a lot of explaining to do"

A lot of unanswered questions but I don't buy the environmental argument.

I remember you making comments about disconnected "forecasters" sitting in big city offices with no boots on the ground experience and would submit that the price of iron ore/steel may be highly linked to the thought process of high ranking officials who may have multiple conflicting objectives and who may have limited technical and practical knowledge.

 

-Concerning the last NPV comment. I go along the terminal value concept but you still have to discount the NPV at year 15 to its value at year 1. Depending on the discount rate used, the 100 number becomes smaller. In today's world, 15 years is a long time.

 

 

[linealdin]

China is exporting pollution to remote parts of Canada. Beijing can't handle emissions from a pellet plant, Labrador City can. Therefore IOC gets exceptional premiums for its pellets. Environmental argument is very compelling.

 

*

 

Why would I calculate the year 2032 NPV today? What is the point? Today I'm going to calculate today's net present value.

 

In 2032 I will calculate the 2032 NPV. In the example I submitted the NPV will still be around $100 million in 2032 for the potash assets.

 

Today Altius isn't getting credit for its long-dated revenue. That is okay. But time moves forward relentlessly. Those long-dated revenue streams are brought forward, year by year.

[SharperDingaan]

https://www.businessinsider.com.au/iron-ore-relationship-to-steel-prices-2017-11

 

Check out this chart. Historically iron ore prices track steel prices, but relationship has broken down this year. If tracking reestablishes the iron ore price rises to US$130 to keep up with steel prices. What??

 

At US$130 even Morabito's incompetence can't stop Kami from being financed for construction.

 

The chart is telling you that for long periods of 2017 - iron ore was not being turned into steel; scrap steel was being used instead, and it was available in large quantities. We would suggest that the bulk of this scrap is the awful steel that was produced in Asia during the early years of the millennium, and while it exists - it is an enormous source of supply holding down the price of ore.

 

Most would expect Kami to be sold to a major, that actually develops the mine; it's unlikely to be ADV. But if the existing royalty agreements are to stick, owners need to keep/increase their sizeable interests. Iron at US$130 will immediately benefit the owners of ADV, owners of ALS have to wait until the mine is actually producing.

 

SD

 

 

 

But ALS is by far the largest shareholder of ADV. And they've been buying more shares. ALS will have immediate benefit at a higher iron ore price.

 

And what if that major gets their position via a diluting convertible pref share issue? in enough quantity to support the debt that will be incurred to build the mine. And what if the bulk of those ADV shares, passing through the market, are just coming from the other players? to BOTH set ALS up as the lead negotiator (to mitigate potential competitive rivalry with that major) AND establish the ADV EV as the MV of the Kami option. All ADV shareholders benefit from the interest in Kami; but existing players lose it to the dilution of the convertible - because they cant sell. The only immediate ADV beneficiary would be the small shareholder ;)

 

As long as material inventories of scrap steel & landed high content ore exist in Asia, there are very real limits on how much new high content ore will be required. And the demand for that high content ore is also spread all around the world ...

 

The trench doesn't need another big mine opening up, and ADV is already getting a 'cut' on every ton of Labrador ore loaded at the quay. For the near/medium term future it's a far lower risk to simply keep the Kami ore in the ground, and improve the negotiating position of ALS. Exactly what they appear to be doing. 

 

SD

 

[linealdin]

Frankly, I don't understand any of the preceding re: ADV. Above my pay grade.

 

Good things will happen if the iron ore price rises. I think there is a contrarian case for that happening. The analysts in London predicting $50 iron ore by the end of 2017 look to be dead wrong.

[linealdin]

The market likes single story, single commodity stocks best. Optionality, prospect generation, Other People's Money, long-dated revenue streams: the market doesn't want to hear it. They just don't care. Too complex, too boring.

 

Altius just needs to keep doing its thing until one of its options bears fruit and gives the market the single story it craves. Example: Sail Pond will hit a great drill hole and the market will treat Altius like a promising silver company. Then it needs to squeeze $100 million out of the property before the market euphoria wears off.

 

Alderon hit great drill holes and turned Altius into an iron ore company in the market's mind. All good except Altius started believing their own hype and didn't bother to juice the fruit. Instead Altius had Paul van Eeden buying additional ADV shares at $2 and $3. Crazy.

 

 

[linealdin]

http://www.wolfdenresources.com/files/PickettMtn-Presentation.pdf

 

Wolfden Mt. Pickett presentation.

 

1) Timberland rights worth estimated US$5 million to US$6 million. Altius royalty secured by these ancillary timberland rights. If the timberland is sold before commercial mining has begun I expect part or all of the proceeds to go to Altius to repay their US$6 million royalty purchase cost (reducing any potential NSR revenue by the same amount).

 

Will be a couple of years before timberland is sold. Need to hold surface rights for potential mine facilities, including surface facilities for new deposit discoveries. Once Wolfden knows what it has then they can cash out the timber.

 

2) Argues Maine is extension of prolific Bathurst/Buchans VMS belts. More acquisitions in Maine are likely. Altius financing further deals? First mover locking down district. Slide 6 shows the historic deposit is quite a small part of whole purchased land package.

 

3) 6000 meter drill program in December including step out drilling. EM and airborne geophysics over whole property. There will be good news flow because of aggressive exploration pace, no need to stop for winter etc.

[SharperDingaan]

Per the TSX, with minor exception IRON has pretty much traded in the range of $0.23-$0.30 since May 2017. As there has been no material share volume in this period, it is highly unlikely that ALS has been buying shares. What ALS might have done in 2014, or prior, is not relevant.

 

The LLM loan totaling $C24.672 M is due Dec 31, 2018. Per the warrants, LLM will own 16M shares (10.8%) of IRON – and 8.11% of the Kami project. If the principal converts as well, LLM will own 25.3M shares (16.0%) of ADV – and 12% of the Kami Project at an average cost of around $C1.00/share; ADV will hold 63% of Kami. As LLM was part of the attempt to finance Kami, most would expect that Kami has an equity value of around 212.7M (25.2M/.12), and that ADV has an equity value of around 158M.  http://www.alderonironore.com/index.php/news/2014/18-alderon-implements-cash-preservation-program

 

Most would expect a major to develop Kami, and that they would acquire the LLM shares of ADV to control 12% of Kami. Furthermore, most would expect that major to fund a ADV convertible pref, convertible into additional shares of ADV – that takes their control interest in Kami up to 25%, to match Hebei.

 

Between the LLM conversion, and the probable convertible pref issue, the ADV share count would rise to around 185M shares; or roughly 40%+ dilution. ALS HAD TO buy in some ADV to ensure that after dilution, they had a control position in ADV at least equal to that of the major developing the mine. Sure, ALS might have been able to do the buy  in for less, but hindsight is 20/20.

 

The ALS royalty in Kami is dependent upon maintaining a control position in ADV until after the mine has been built, and its cost of building repaid. Were ALS to reduce their ADV stake prematurely, there is a real risk that the Kami royalty could be reduced over the mines life – with little that ALS could do about it.

 

We end up with ALS pulling strings on a mine controlled by a Canadian entity (ADV), built & run by a major (RTZ, BHP, etc.), with all its ore pre-sold through offtake agreements to both a major commodity house and steel user. Some trick.

 

SD

 

[linealdin]

ALS bought a little over 500K shares of ADV in October. Check SEDI. Private transaction with John Baker and Brian Dalton. Please see a couple pages back in the thread. Current share position is 33 million plus.

 

Please explain how Altius royalty is reduced in any ownership scenario (aside from bankruptcy).

[SharperDingaan]

ALS bought a little over 500K shares of ADV in October. Check SEDI. Private transaction with John Baker and Brian Dalton. Please see a couple pages back in the thread. Current share position is 33 million plus.

 

Please explain how Altius royalty is reduced in any ownership scenario (aside from bankruptcy).

 

ADV sells the Kami project directly to the major. All else equal the buyer has the choice of honoring existing royalty arrangements, 'renegotiating', or tearing them up - as the agreement was between the prior owner of Kami and ALS, not them. If the arrangements are to stay, the asset is impaired, and ADV gets paid less for it - remove the impairment and ADV gets paid more. Hence with such a valuable asset 'in play', it behooves ALS to keeps a sizeable stake in ADV - to make it difficult to 'renegotiate' royalty arrangements.

 

SD

[linealdin]

Royalty runs with the land. There will be no renegotiation. Pay or face a lawsuit and then pay, as Vale will find out the hard way. Royalties highly protected in Canada.

[SharperDingaan]

Royalty runs with the land. There will be no renegotiation. Pay or face a lawsuit and then pay, as Vale will find out the hard way. Royalties highly protected in Canada.

 

No. To the seller it's gets paid a lot more right right now to break the royalty, & pay out on the lawsuit many years in the future.

The NPV to the seller is strongly positive, and received by today's shareholders of the seller - who sell their stock once the deal is announced. The lawsuit settlement is a different shareholders problem; and nothing prevents the seller from delaying as long as practical, or a future deliberate BK and reshuffle - to avoid paying the settlement altogether. The Vale approach.

 

Simply a different approach, but as equally valid as 'doing the right thing'.

To ensure that it doesn't happen to them, they keep a precautionary significant stake in the seller.

 

SD

 

[linealdin]

Whether Yamana pays Altius its stream revenue or not doesn’t depend on Altius being a shareholder (it isn’t). Same logic applies to Potash Corp, Hudbay, Capital Power etc.

 

I’d be very surprised Vale enjoys what is going to happen to them at trial. When they lose they will have to pay the attorney fees of Royal Gold and Altius. Could be $10 million just in opposing attorney costs.

[linealdin]

Robert Davies, Senior Manager of Development Projects at Barrick Gold, is set to be CEO of the copper spinout. A high level guy from a gold major moving to a tiny new copper vehicle. That doesn't happen too often. Validates how promising the spinout's early stage copper-gold projects are. Barrick's made huge discoveries in Latin America (Veladero) and Chile (Alturas) recently. 

[SharperDingaan]

Whether Yamana pays Altius its stream revenue or not doesn’t depend on Altius being a shareholder (it isn’t). Same logic applies to Potash Corp, Hudbay, Capital Power etc.

 

I’d be very surprised Vale enjoys what is going to happen to them at trial. When they lose they will have to pay the attorney fees of Royal Gold and Altius. Could be $10 million just in opposing attorney costs.

 

All big firms with more to lose by behaving badly, and where ALS has relatively little at risk - their ADV/Kami investment is a very different animal. Vale could also very easily settle out of court for a deeply discounted amount, avoiding costs - and claim it as just another (tax deductible) cost of doing business. Accept 25-35c on the dollar, or roll in the mud with the pigs - your choice. They also LIKE doing this, everybody else - not so much.

 

Just another way of doing business.

 

SD

 

[linealdin]

New trend has been for Altius to partner their exploration projects with juniors instead of with majors.

 

Advantages: The juniors pay more: a lot of their equity, a significant royalty, and significant annual exploration spending requirements. The juniors are also on an aggressive schedule. If they have the cash they will be drilling asap.

 

The majors don't offer equity, their deals are cautiously structured (see the First Quantum option of the West Cork copper project), and they take their sweet time (Agnico-Eagle holding Moosehead Gold as an inactive project for 10 years).

 

Disadvantages: The majors have extraordinary resources and institutional knowledge. They provide technical validation. If BHP likes a project it means the project definitely has promise. If Sokoman Iron likes a project it means nothing.

[linealdin]

Sokoman Iron completes $800K private placement, which was condition of Moosehead Gold option. So the earn-in deal goes forward. Good to see a junior raise some cash. Altius depends on the Venture exchange attracting investment.