ALS.TO - Altius Minerals

[linealdin]

Michael O’Keeffe is promoting heavily in the Australian papers.

 

1) Believes Fortescue’s announced intention to move to 60% plus iron ore confirms the structural nature of the quality premiums. Fortescue is getting hammered for its low quality ore and is afraid the pain will continue indefinitely unless it changes its product mix. O'Keeffe doesn’t know "where the hell" Fortescue will find that 60% plus ore.

 

2) Discusses possibility of a “sweetener” for Champion shareholders in 2018. I assume a special dividend. Depends on the iron ore price holding firm.

 

3) Likes IOC’s assets in the Trough but they probably won’t be cheap enough to buy in the near future. No interest in Cliffs Western Australia iron ore assets.

 

*

 

A Champion dividend in 2018? Buying IOC (or other attractive assets in the Trough)? I love this guy’s ambition.

[linealdin]

http://www.stockhouse.com/news/press-releases/2017/12/11/excelsior-announces-private-placement-of-c-26-million

 

Excelsior Mines announces a non-brokered private placement to raise up to C$26 million (US$20.2 million). Issuance of up to 26 million shares priced at C$1.

 

Capex for Stage 1 is US$46.9 million, including a 15% contingency. If this capital raise is successful it will cover 43% of the capex. Debt financing to follow, I'm sure.

 

Does Altius participate for a few million?

 

*

 

These capital raises are easier to announce than to complete. Champion had a hell of a time trying to raise equity ($50 million initial announced raise, then after months of delay, a $20 million raise was completed).

[linealdin]

From Excelsior's ceo.ca board. Eric Coffin from Hard Rock Analyst talked to Excelsior management about the capital raise (and who has been selling down the stock in recent weeks):

 

"I just talked to them.  They told me they went to London/Oslo because those guys were more aggressive. They did some North American roadshows with the usual suspects on the brokerage side and found those were not that effective and they had someone selling into their market all the while.  They do have their suspicions about the seller but its unlikely they will be able to confirm it. They may keep whomever they suspect out of this round though.  They said the debt negotiations are pretty far along but, yes, can't be closed until the EPA permit is in hand. They are not worried about that at all but were surprised at how many people they met on recent roadshows, especially in the US, still see the EPA permit as a big risk.  They don't expect this to take more than a couple of days to close. A couple of large lead orders in hand already."

[linealdin]

LIF on a remarkable run. Hits a new 52-week high of C$24.24. Altius's 3.2 million share position (as of the end of October) is worth C$77.57 million at that level.

 

I believe Altius's LIF position is currently closer to 4 million shares. There were some huge block trades in LIF in the days after Altius received its C$50 million from Fairfax on November 10th. I think Altius wants even more but the LIF stock is running away from them. People are figuring out just how well IOC's business is doing in this iron ore market, and that LIF's prospective yield justifies a C$30 to C$40 stock price.

 

LIF's Q4 dividend to its shareholders will be announced this week.

 

 

[linealdin]

Dalton in the past has stated the intention to turn Altius into a "Wayne Gretzky" income stock. What in the world does that mean?

 

Another opportunity to increase the 3 cent dividend tomorrow. It's time.

[mikek]

They obviously could increase the dividend but I wouldn't bet or count on it. They keep taking money and investing it so they obviously feel the capital is better used on investing it compared to paying it out. Personally, I don't care whether the dividend increases as long as they are investing the capital in smart ways.

[linealdin]

If I'm correct that Altius's current LIF position is now close to 4 million shares (with large block purchases in mid-November):

 

1) Altius, without much fanfare, has acquired a flagship royalty. Flagship meaning the highest annual net revenue and among the longest asset lives of any royalty in the portfolio.

 

2) I expect LIF will pay C$3 in dividends in 2018, if iron ore prices stay flat or even decline slightly. 4 million shares x C$3 = C$12 million in annual revenue.

 

3) Chapada's topline revenue in 2018 should be higher than C$12 million, but the 30% cost of sales means the actual revenue Altius receives is lower. If Chapada pays C$16 million in annual revenue Altius only receives C$11.2 million.

 

In addition the Chapada stream percentage declines to 1.5% after 75 million pounds are delivered, which means Chapada revenue will decline by 59.5%. The LIF royalty stays at 7% for the life of the mine. Chapada also hampered by a expansion incentive rate, while LIF will enjoy the full impact of potential mine expansion at IOC.

 

The LIF position therefore has more revenue potential over the long term.

 

4) LIF asset life, based on proven and probable reserves, is 38 years. Chapada, by the same measure, has 28 years of life. Both will extend beyond those terms with their respective measured, indicated and inferred resources but LIF mine life should still last much longer.

 

Of the rest of the portfolio only the potash royalties last longer than the LIF royalty.

 

5) A flagship position in iron ore helps Altius emulate the portfolios of large diversified mining houses like BHP or Rio Rinto, which are overweight in iron ore.

 

6) I think Altius management felt some urgency to add the LIF position as a means of adding pass-through royalty revenue because it is going to take some hits soon to its other royalties. 777 will only last another 3 years or so, which will be a big blow to the bank account. And Cheviot is facing an up-or-down development decision that could squelch that royalty in 2019.

 

I've changed my mind about LIF being an opportunistic investment that will be sold once the stock hits $30 or $40. I think LIF will be held for a very long time (all the way through this bull cycle and maybe into the next bull cycle). A 10 year hold. Altius needs to keep its royalty income padded in the near and medium term.

 

Producing royalties won't be available for direct purchase at reasonable rates of return for many years. And the most promising development royalties in the portfolio are still years away from production.

 

 

[bizaro86]

Would not have expected to be the first person to comment on ALS quarter...

 

 

Link to PR is here:

http://altiusminerals.com/uploads/12-12-2017-ALTIUS-REPORTS-Q2-F2018-REVENUE-OF-18M-AND-ADJUSTED-EBITDA-OF-14-6M-FINAL_.pdf

 

Revenue came in a shade over $18 MM.

[linealdin]

Notes on Q2 results:

 

1) The dividend increase was long awaited and comes at an appropriate time. Brian Dalton has promised that Altius will become dividend compounding machine, a "Wayne Gretzky" income stock (whatever that means). If that is the chosen path then you have to steadily raise dividends as business results allow.

 

The yields in the mining sector and in the mining royalty sector, Altius's direct competitors, are not impressive. FNV is yielding 1.3% or so? Once Altius hits 3% yield that will become a differentiating factor. Dividend seekers can be very loyal long-term investors. Once the traditional debt is really diminished the dividend will rise.

 

2) Debt repayment was at the minimum level during the quarter: C$3.25 million on the term facility (minimum required payment on term facility is up from C$2 million.)

 

3) C$6.746 million from the project generation investment portfolio was monetized during the quarter. Altius has committed to fund exploration expenses only from the project generation portfolio, not touching royalty revenue. This should cover those expenses for a year or more.

 

Even with the PG portfolio being public it's still hard to figure out what exactly they sold. They received some small change from selling 600K shares of Bitterroot but didn't touch any of the other SEDI-disclosed positions (which report all transactions).

 

Likeliest candidate of the non SEDI-disclosed equity positions to yield over C$6 million? Excelsior had a run-up in August, and seemed very overpriced to me. I think Altius sold a majority of their 5.8 million share position. The rest of the non-SEDI positions are mostly microcaps or stocks Altius is just starting to build a position in (Champion). 

 

4) "The Project Generation business entered into another exploration agreement and continues to advance negotiations on the sale of several other projects." Very good. I expect deals for Finnish gold and for Manitoba diamonds in the near future.

 

5) The big exploration dollars in the quarter went to the Sail Pond silver project, the Midland exploration alliance in James Bay, and Manitoba diamonds.

 

6) Some reorganization in the way the CDP potash portfolio is reported. Evidently the CDP potash portfolio contained some Rocanville and Esterhazy revenue, as well as revenue from Lanigan, another Potash Corp mine. The CDP Rocanville/Esterhazy money is now consolidated with the main Rocanville and Esterhazy royalties, while Lanigan is broken out separately. CDP potash no longer exists as a reporting segment. Just some housekeeping to make the Rocanville and Esterhazy royalties look more impressive.

 

7) 777 royalty is quite a laggard. Spot prices during the August to October period were significantly higher than $2.88 for copper and $1.38 for zinc. 777 has about a 3 month lag? That combined with the significantly lower production volume really held down the revenue for the quarter.

 

Once 777 catches up to the spot market, and once the production issues are worked out, I expect the quarterly revenue to be closer to C$4.5 million.

 

8] Chapada almost hits C$5 million, as I expected. This royalty is the best. Sheerness also had an incredible quarter at C$1.848 million. I've been watching Alberta electricity demand and it has been pushing Genesee and Sheerness to run at max capacity. Carbon chaos in Alberta has no near-term effect on revenue from these two beasts.

 

9) If my math is correct the LIF position at the end of October was 3.15 million shares. (C$65.8 million quarter end value / LIF closing price of C$20.88 on October 31st.)

 

 

 

 

[linealdin]

Some clarity on the McChip purchase. "This royalty relates to the Unit 2 production area which is currently ramping up to support the operations recently commissioned capacity expansion."

 

So this McChip royalty may not be just a unitized minority share of the Rocanville royalty. This seems like a new production area that is still ramping up. Altius's royalty purchase price of C$8 million was certainly not justified by McChip's past royalty receipts. But McChip's past royalty receipts may not show the full potential of the McChip royalty land once full production is achieved.

 

[linealdin]

http://www.allegiancecoal.com.au/irm/PDF/1280_0/SteelmillsexpressinterestinTelkwametcoal

 

Allegiance Coal meets with steelmakers in Seoul and Tokyo, who express interest in Telkwa for semi-soft coking coal and PCI coal. The Japanese and Korean steelmakers are supposed to be very picky about the quality of coal that goes into their furnaces, unlike the Chinese.

 

Plans to drill some holes at Telkwa in Q1 to provide coal for drum and coke oven tests by the steel mills.

 

Telkwa's shipping terminal at Ridley is a shorter distance from Japan/Korea/Taiwan than the Australian ports, where most of the seaborne met coal is from. That's very surprising.

[linealdin]

Excellent quarterly call this morning:

 

1) Dalton is triumphant regarding LIF investment. IOC was supposed to be victim of iron ore market oversupply; turns out it is now one of the highest margin iron ore businesses on planet. Expects similar LIF dividends in 2018 to 2017.

 

2) Regarding Fairfax final drawdowns: Confident they will employ the C$50 million in “innovative and accretive” royalty-related investments. Seeing more opportunities in pipeline than they expected. Even production stage royalties. Construction finance stage royalties a strong focus. Hoping to close deals in new year.

 

3) Participated in Adventus placement on pro rata basis, so C$2.7 million.

 

4) Board meeting yesterday emphasized need to obliterate the traditional debt especially the revolver. Paying down revolver keeps options open because full revolver could still be drawn for royalty opportunities in future.

[linealdin]

http://altiusminerals.com/uploads/2018-Fiscal-Q2-conf-call-FINAL.pdf

 

Q2 conference call presentation. See footnote on Slide 10. Altius is dead serious about the Project Generation business being self-supporting. In last fiscal year C$11.4 million cashed out from portfolio covered C$5.3 million in PG overhead and exploration expenses.

[linealdin]

Dalton on conference call (paraphrased): LIF demonstrates robust market for Trough ore; Bloom Lake, once commissioned, will offer further proof; Kami is then next logical candidate to be mined. He sounds cautiously optimistic. Points out 3% Kami could be worth C$25 million in annual revenue.

 

Who knows where we will be by December 2018? Environment could look 10x better for building Kami. Things change fast in mining.

 

Super important that Champion gets the job done in H1 2018. Not least because they are the most attractive consolidator for the region. Kami fed into the Bloom Lake complex by conveyor belt would double the complex’s mine life and create expansion opportunities (16 MTA). Capex would be modest for this type of operation. Just an in pit crusher and a long conveyor belt. US$200 million?

[linealdin]

Also in today’s conference call: “Diversified mining royalties represent low risk annuity-style assets that fit the portfolio criteria of pension funds and insurance houses.”

 

This is to explain why like concerns like Ontario Teachers Pension Plan and Liberty Mutual Insurance have become involved in the diversified royalties sector in recent years.

 

When Altius gains enough weight (let’s say C$300 million in annual royalty revenue) ultimately they become a takeover target for these kinds of groups.

[linealdin]

Dalton also floats the Altius theory (which I’ve heard elaborated before) that the 777 mine will revise their reserve decks with the improved copper and zinc prices, and thus increase mine life to 2023.

 

We shall see how Hudbay calculates reserves in the beginning of 2018. I am skeptical of the extension theory because Hudbay has been so firm publicly about late 2020 being the end for 777. The closure date especially matters to local stakeholders in Flin Flon, who need to plan for the future. I doubt Hudbay would jerk those people around with changing dates.

[linealdin]

http://antlergold.com/files/PR_20171213_final_with_appendix_and_maps.pdf

 

Antler Gold drill results. Best result: 10 g/t gold over 5 meters. The results not so promising on the whole. Swing and a miss, though they will follow up with more drilling.

[linealdin]

Summary of Fairfax money uses so far:

 

1) C$27 million in LIF share purchases.

 

2) C$10 million Champion debenture.

 

3) C$11 million Wolfden equity and royalty financing.

 

4) C$3 million upfront payment for McChip royalty.

 

Total: C$51 million

 

(Dalton was using the number C$60 million for Fairfax-related expenditures in the conference call. We get to C$60 million by including the remaining C$5 million of McChip staged payments, the C$1.2 million Evrim investment, and maybe a few million in recently purchased Champion equity).

 

*

 

Since the end of Q2 I believe another C$10 million to C$15 million has gone towards LIF purchases.

[TwoCitiesCapital]

Shareholders are finally being rewarded for their long-suffering!

 

22% YTD and 50% off its lows in June. Roughly a double off its 2016 lows (all in USD). Hopefully we will see a significant narrowing in price between this and its precious metal peers for another significant gain over the 2018/2019 period.

[Liberty]

Shareholders are finally being rewarded for their long-suffering!

 

22% YTD and 50% off its lows in June. Roughly a double off its 2016 lows (all in USD). Hopefully we will see a significant narrowing in price between this and its precious metal peers for another significant gain over the 2018/2019 period.

 

FX makes a pretty big difference. In CAD, it's 12% YTD.

[linealdin]

From Ben Lewis’s comments on the conference call: the largest equity positions in the PG portfolio at end of quarter are Adventus (C$11.26 million), Alderon (C$8.25 million), and Champion (unknown). All values from the end of October.

 

Champion being a larger position than Excelsior is a surprise. The Excelsior position was 5.8 million shares and would have been worth C$7.13 million at the end of October. The Champion debenture hasn’t been converted to shares yet.

 

Conclusion: During Q2 Altius bought a significant amount of Champion shares in the 90 cent-priced equity raise that closed in October.  Up to C$5 million worth (C$19 million in total investments during the quarter, of that C$14 million in LIF).

 

And Altius sold a good portion, but not all, of their Excelsior shares during the quarter.

 

*

 

Champion position is building some torque. Could be 15.5 million shares once the debenture is converted. Excellent paper profits on both the 90 cent shares and the “convertible at $1” debenture shares.

 

Altius obviously still has some skepticism regarding the unproven in-situ method at Gunnison (turned down cheap royalty options two times already) and took the stock run up as an opportunity to cash out C$6 million or so. I like it, selling the equity Too Early but still enjoying the royalty if the project actually works. Chalk up a win for the Callinan merger.

 

 

[bizaro86]

selling the equity Too Early but still enjoying the royalty if the project actually work

 

I hope they take this phrase and make it their motto. Put it on Brian Dalton's mirror so he looks at it every time he shaves, and make it the screensaver on all their computers.

 

Get the cash out from junior mining shares ASAP - let the royalties ride. If anyone actually builds a mine you'll still win big.

[linealdin]

LIF's continued hot streak (new 52 week high of C$25.04) has me thinking about the advantages of the non-precious metals space:

 

1) The prizes are much, much bigger in the diversified mining space than in precious metals. LIF's only assets are one big royalty and a 15% minority equity position yet its market cap is C$1.57 billion. Sandstorm Gold holds many, many producing, development and exploration gold royalties but its market cap is only C$1.06 billion.

 

A 3% royalty on Kami could create more revenue than 3 "cornerstone" gold royalties. Same for Julienne Lake. The prizes for reaching production are unbelievably large. That's why Altius has to keep nurturing these projects even over multiple market cycles. Reward is out of proportion to the low cost of holding Alderon equity or Julienne Lake claims for 20 years or however long it takes.

 

2) Nolan Watson had a good idea with Sandstorm Metals (execution was horrific, of course). He believed Sandstorm Metals had a chance to grow much larger in the energy and diversified minerals space than Sandstorm Gold could in the precious metals space. He was talking crazy in interviews about how Sandstorm Metals had the potential to grow to a $50 billion market cap.

 

Where did he get that crazy idea? He was probably looking at the same charts Altius is now using in its presentations. The equivalent size of precious metals majors vs precious metals royalty companies; and the huge size disparity between diversified mining majors vs diversified mining royalty companies. Watson thought he could just keep growing and growing Sandstorm Metals until it became half the size of BHP.

 

3) Sandstorm Metals failed immediately because it made 10 deals with microcap juniors right at the top of a long bull market. Horrific timing during the market cycle, weak technical skills, and weak counterparties = company death.

 

Can the model work with contrarian market timing, better asset selection, technical expertise, and stronger counterparties? We shall see.

 

4) Dalton's been studying these issues. He mentioned looking at the history of the gold royalty companies and how growth seemed to fuel more growth. Meaning, as these companies started gaining some weight they were taken more seriously and started receiving better deal flow.   

 

Altius needs to grow to the point it can do $300 million to $1 billion dollar royalty deals. At that level the Tier 1 diversified mining assets come into play.

 

Buying royalties from microcap diversified mining juniors is for suckers. That's the lesson I take from Sandstorm Metals.

 

[linealdin]

https://www.juniorminingnetwork.com/junior-miner-news/press-releases/1268-tsx-venture/rvl/39605-revelo-resources-advances-the-exploration-program-at-its-loro-gold-silver-jv-project-and-finds-new-quartz-vein-outcrops-and-quartz-vein-float-fields.html

 

Revelo update about its joint ventured Loro precious metals property, which Altius holds a royalty on. Extensive soil sampling, ground magnetics and geological mapping funded by Hochschild Mining. Intriguing results so far. Drill program planned for Q1 2018.

[nostradamus]

Random comments:

 

Interesting that the Altius share price is getting quite close now to the C$15 strike price of the Fairfax warrants.

 

Very glad to hear that they seem committed to paying down their revolver.

 

Alderon and Julienne Lake discussions give me a feeling of déjà vu, but if they ever make it to production they could double the market value of Altius.

 

The creation of a new competitor to Altius (ie the Ontario TPP/Glencore BaseCore Metals company) cannot be good in terms of fundamentals, however, I would not be at all surprised if the increased market focus on the sector that it brings has positive effects for the market value of Altius.

 

N.