ALS.TO - Altius Minerals

[linealdin]

http://www.allegiancecoal.com.au/irm/PDF/1305_0/DrillProgrammeCommencesStrongDemandforCore

 

Allegiance begins drill program at Telkwa for geotechnical data and coal sampling. Company claims strong demand from numerous Asian steelmakers for samples of the Telkwa coal for coke oven tests. Steelmakers are both potential offtakers and JV partners. Increased the number of diamond drill holes from 6 to 16, also using wider diameter hole for better recovery.

 

Samples will be delivered to the steel mills by March 2018. Allegiance will do its own coke oven tests in April.

 

 

 

 

[Crip1]

Any catalyst for a 10% bump in pricing today?

 

 

-Crip

[Gamecock-YT]

Any catalyst for a 10% bump in pricing today?

 

 

-Crip

 

The 10% decline from the past week?

[linealdin]

ALS is basically moving up and down in line with other commodity and royalty stocks. FNV as a bellweather royalty stock has sharply corrected from $106 in late November to $90 today.

 

There are potential short-term catalysts for a significant move up (to $20) in the next 6 months:

 

1) Closing one or more royalty financing or project financing deals. I understand ALS management is flying around looking at a number of deals. Who knows if anything closes.

 

2) I think the market would react positively to news of the traditional term/revolver debt being wiped out. They could easily do it by cashing in a portion of their LIF and/or CIA holdings.

 

3) CIA stock should rise significantly with the March restart of Bloom Lake and a big promotional push by O'Keeffe. I believe Altius has a potential 15 million share CIA position (10 million convertible debenture plus 5 million shares purchased at 90 cents).

 

4) A significant discovery drill hole on Altius royalty land. Evrim's Cuale looks like a very promising gold/silver prospect. Wolfden and Adventus should be reporting step-out exploration drill holes from their respective known deposits all year.

[Williams406]

Hard to see them sell off the LIF interest. Maybe if something happened to advance Alderon development, but Dalton likes iron ore prospects and that position delivers a look-through iron ore royalty for Altius. The company is on record as saying paying down the debt is a huge priority this year, though, so we'll see how they approach that. I'd like to see Altius apply a surprise settlement from Vale to the debt. Not holding my breath on that--even if I'm optimistic long term there, I was a long-suffering Callinan shareholder during their legal battle with Hudbay...

 

I am very interested to see what Champion's next moves are once they get Bloom Lake up and running.

[linealdin]

Agreed. More likely they sell the Champion position (or other equities) than the LIF.

 

But strictly as a trading vehicle the big move for LIF has already happened. Altius got its first tranche around $13.50 and its next tranches around $16.50. If LIF hits $30 Altius is looking at a double, just in the stock price appreciation. Add in the dividends and that’s another 30% in gains.

 

Where’s the upside for LIF? For the stock price to move significantly beyond $30 we’d have to see the iron ore price go crazy or IOC announce expansion plans to 27 MTA or beyond. No signs of either of those things happening.

 

*

 

The debt’s been knocked down from $71 million at the end of October to $66 million at year end. I believe selling some but not all of the Excelsior position helped with that payoff. If Champion runs up because of the Bloom Lake restart it could be the next target to fund debt reduction.

[Williams406]

Dalton described his view of iron ore as "super bullish" in a Junior Stock Review interview which, apparently lands just behind "mega bullish." Given the majors can bring large quantities of higher-impurity ore online, Dalton's view suggests to me he may think the premium for Labrador Trough ore may be more structural and longer lasting such that shares of a cash-flowing royalty pass-through Lab Trough iron ore vehicle aren't the first assets out the door from here to reduce debt. I don't think he'd hold that view on iron ore just be/c he thinks the Biggies will remain disciplined in bringing on new supply. I'm just spit-balling on all of the above. Frankly, full-year royalty cash flow gets them a good part of the way to debt elimination. We'll see what they do.

[linealdin]

http://www.rengold.com/i/pdf/2018-02-13_NR_REN_fEJPvP4R.pdf

 

Renaissance Gold partner updates:

 

Anglogold Ashanti, the world’s 3rd largest gold producer, in January 2018 started a 3000 meter drill program on the Silicon property. Altius holds a 1.5% royalty.

 

Ramelius Resources is pleased with initial drill results at Jupiter (9.1 meters of 1.1 g/t gold). Plans follow-up drilling this summer. Altius holds a 1% royalty.

[linealdin]

Dalton described his view of iron ore as "super bullish" in a Junior Stock Review interview which, apparently lands just behind "mega bullish." Given the majors can bring large quantities of higher-impurity ore online, Dalton's view suggests to me he may think the premium for Labrador Trough ore may be more structural and longer lasting such that shares of a cash-flowing royalty pass-through Lab Trough iron ore vehicle aren't the first assets out the door from here to reduce debt. I don't think he'd hold that view on iron ore just be/c he thinks the Biggies will remain disciplined in bringing on new supply. I'm just spit-balling on all of the above. Frankly, full-year royalty cash flow gets them a good part of the way to debt elimination. We'll see what they do.

 

I believe LIF will pay an average of $2.50 in annual dividends for the next 5 years. That would be a little under C$8 million in annual revenue at Altius’s 3.15 million share position. I don’t think the LIF stock will move much above $30 or $35 unless something unusual happens (big expansion at IOC).

 

I suppose there’s nothing wrong with sitting back and collecting that C$8 million every year. Especially because the cost basis of the LIF investment is only C$48 million or so.

 

[linealdin]

Copper at $1.23 and zinc at $1.63. Both recovered fully from their respective dips. Iron ore is solid at $78 ahead of the lunar holiday.

[linealdin]

 

Interesting video from Nolan Watson of Sandstorm Gold. His thesis:

 

1) Traditional structures of equity raising for mining companies are declining. Brokers and bankers that used to concentrate on resource stocks are out of work because of the rise of passive forms of investment like ETF’s and index funds.

 

2) So when a resource junior needs to raise cash they can’t do it the same way they used to do it. The Vancouver broker-dealers they used to rely on are now working as real estate agents.

 

3) What’s going to fill the gap? Strategic investments by private equity funds, large industry players and royalty/streamers. Watson argues that smart junior resource CEO’s have seen the change in the markets and are now pro-actively seeking strategic investments from those types of groups. The CEO’s who don’t seek those types of investments will see their projects die.

 

*

 

We see this thesis playing out in Altius’s project generation portfolio:

 

Adventus’s strategy is totally based on access to capital from RCF (private equity), Greenstone (private equity) and Altius (royalty/stream). They are considering bringing on another strategic investment from a big industry player later this year.

 

Excelsior’s deals with Callinan Royalties and Greenstone (now up 50% equity ownership and a 3% royalty) helped it survive the downturn and stay on the track to production.

 

Champion has also created a success story with an incredible list of strategic investors: Resources Quebec (government fund), Caisse de Depot (government fund), Wynnchurch Capital (private equity), RCF (private equity), Sprott Resource Lending, Glencore, Sojitz and Altius.

 

More traditional juniors like Canex Metals or Sokoman Iron are having trouble raising cash to drill their projects, despite commodity prices being quite healthy.

 

[linealdin]

Does Champion’s restart of Bloom Lake teach Alderon any lessons? Yes, start issuing some cheap shares to the right kinds of long-term strategic investors, especially groups that will make add-on bets once it is time to finance construction.

 

Give Glencore some shares, instead of just an off-take deal. Give stakes to private equity groups. Get Sprott involved. Give the Newfoundland government a stake. See if Hebei will allow another Asian steel maker to buy into the project.

 

Don’t worry about dilution (132 million shares currently). It’s okay to reach 400 million or 500 million shares if you’re bringing in the right kind of investors.

 

*

 

Was acquiring Wabush really important? If it was Alderon shouldn’t have lowballed that bid. They could have issued a bunch of shares to a private equity group to finance a $10 million bid for Wabush. Something certain to win. That would have jumpstarted Kami. Why not a Stage 1 phased production using those old Wabush facilities (after some refurbishment)? And it’s always nice to have a new strategic investor.

[SharperDingaan]

The only way they are going to issue additional shares is via a earn-out for building the mine.

No mine, no shares - and no junior involvement .

 

SD

 

[linealdin]

The only way they are going to issue additional shares is via a earn-out for building the mine.

No mine, no shares - and no junior involvement .

 

SD

 

Juniors? Champion only had to raise $350 million in capex but it required the involvement of no less than 8 large strategic investors. All of them are very large concerns, Altius is the smallest by far. Champion had a great deal of trouble trying to raise $50 million from retail investors; they had to downsize their equity raise to $20 million, and most of that was taken up by institutions like Altius.

 

This is a sea-change from when Consolidated Thompson was collecting hundreds of millions from public equity raises. I think Nolan Watson is right: index funds have completely changed the equity markets.

 

There are also no more syndicates of traditional banks willing to fund a project like Kami.  Alderon has to go where the risk capital is: resource-focused private equity funds, streamers, large commodity trading houses, and Asian steelmakers. Adapt or die.

[linealdin]

There’s never been an iron ore streaming deal. Vale a few years ago was offered $9 billion from a Chinese conglomerate for an iron ore stream but the deal never closed. That shows the potential for what kind of upfront cash an iron ore stream could raise.

 

To get Kami built the execs have to adapt to the changes in the capital markets. They have to be aggressive and innovative. BaseCore, Orion and Triple Flag are streamers sitting there with access to billions of risk capital. Give them a really good deal, lock down $300 million and that’s a nice start towards actually building a mine.

 

I’m sure Morabito et al prefer collecting $400K salaries for doing very little. But it’s not the right thing for the shareholders.

[SharperDingaan]

The only way they are going to issue additional shares is via a earn-out for building the mine.

No mine, no shares - and no junior involvement .

 

SD

 

Juniors? Champion only had to raise $350 million in capex but it required the involvement of no less than 8 large strategic investors. All of them are very large concerns, Altius is the smallest by far. Champion had a great deal of trouble trying to raise $50 million from retail investors; they had to downsize their equity raise to $20 million, and most of that was taken up by institutions like Altius.

 

This is a sea-change from when Consolidated Thompson was collecting hundreds of millions from public equity raises. I think Nolan Watson is right: index funds have completely changed the equity markets.

 

There are also no more syndicates of traditional banks willing to fund a project like Kami.  Alderon has to go where the risk capital is: resource-focused private equity funds, streamers, large commodity trading houses, and Asian steelmakers. Adapt or die.will

 

It is far more likely that the mine builder will be an Anglo, BHP, etc.

Although everyone wants a mine NOW, it's much more likely to be a mine LATER - and help in selling everyone else's ore now, in return for a similar consideration later. Adding Kami today would simply drive up everyones operating costs by inflating labour costs. Delaying the mine would also extend the life of the community, and improve the cummulative regional economic benefit.

 

The ore isn't going anywhere, and the world is highly unlikely to suddenly stop needing steel.

There's little risk to simply 'passing' this time around, even if we don't want to hear it.

 

SD

 

 

 

[linealdin]

You’re treating Kami like an iron ore land bank. Value to be realized in another generation, etc.

 

Why that doesn’t work: Have you seen the executive salaries? Mark Morabito and friends will bleed that pig dry before you wake up from your land bank daydreams. It is your money (and Altius’s) not their piggy bank.

 

Also Alderon is fully permitted. Those permits aren’t effective indefinitely.

 

Kami’s competitive advantage is its permitted status. It has its papers, none of its competitors do. Fire Lake North will get its permits eventually and move up the priority ladder. Why give up that competitive advantage?

[SharperDingaan]

It is not an advantage if it dilutes the he'll out of you

SD

[linealdin]

It is not an advantage if it dilutes the he'll out of you

SD

 

Any credible path to production will involve significant dilution. The number of shares could increase from 132 million to 400 million but the market cap will also rise towards the Kami project NPV of US$1.7 billion. Long-term shareholders will make a killing despite the dilution.

 

While Champion was bringing in all those strategic investors in 2016 and 2017 there was crazy dilution. It seemed like O’Keeffe was giving stock to everyone and their mother. But it turned out to be the right move. Champion is going into production and it has a group of cornerstone investors who are willing to make add-on bets if the mine has any commissioning issues in its first year of production. (There are always problems.)

[linealdin]

The larger picture for Altius is that capital is flowing away from traditional retail brokerages and towards royalty/streaming companies and private equity.

 

The Fairfax deal is an example of how readily capital is flowing towards Altius. I have no doubt that if Altius wanted a new $100 million credit facility it would be organized and made available to them very quickly. Same situation for all the large royalty companies.

 

A developer with a mine in the project finance stage has to go to where the capital is today.

 

I think it’s becoming a target rich environment for Altius in terms of participating in syndicated project financing deals. They just have to pick the right mines to finance.

 

*

 

A real world example: In December 2017 Nevada Copper completed its project financing of US$378 million to build its Pumpkin Hollow copper mine. It involved a $70 million stream from Triple Flag and various types of investments from three resource-focused private equity funds: Red Kite Mine Finance, Pala Investments, and Concord Resources. Limited participation by traditional retail brokerages. 5 years ago this mine would have been financed by Haywood Securities as a lead broker organizing a lot of retail investment capital.

 

This is the new normal. Altius is going to see a lot of deal flow across its desks.

[linealdin]

Current situation at Alderon is unsustainable.

 

Cash has dropped from C$8.9 million at the end of 2016 to C$4.7 million at the end of September 2017. Pretty serious burn rate for a company that's supposed to be in a "Cash Preservation Program."

 

Total current liabilities have increased from C$11.6 million at 2016 year end to C$19.8 million at the end of September.

 

The balance of the convertible debenture to Liberty Mutual is now C$23.7 million (interest has been accruing) and is due at the end of December 2018.

 

That Cash Preservation Program, instituted in 2014, reduced Morabito's salary ("consulting fees") from C$500K to a modest C$330K. That's about the salary Brian Dalton makes. It's a full-time job for Brian, but only a part-time job for Morabito, who has about 10 other companies he's involved with (jetlines, artificial intelligence, all sorts of nonsense). Also compare Altius's market cap to Alderon's market cap when you consider whether that C$330K salary is reasonable.

 

*

 

So there's going to be some kind of major restructure at Alderon before the end of the year, probably spurred on by the Liberty Mutual debenture (secured by a mortgage on the Kami property). My guess is Liberty Mutual takes 60% of a restructured Alderon as payment for the C$23.7 million debenture, and installs a new CEO and board. Morabito's household is suddenly put on a tight budget.

 

I hope this happens sooner rather than later. There are intriguing development possibilities for Kami if the right management/ownership can be found.

 

 

 

[linealdin]

http://www.cbc.ca/news/canada/saskatoon/nutrien-considers-closing-sask-potash-mines-1.4522570

 

Nutrien considering closing some of its less profitable potash mines in Saskatchewan. Will run all 6 mines now but will reconsider in the second half of the year. Allan and Lanigan look like the weakest of the bunch.

 

Production could shift to Rocanville, its lowest cost producer.

 

Altius has royalties on all these mines but this move will be a net positive for its potash royalty income because the Rocanville royalty (partially due to the McChip royalty purchase) is much larger than the other 2 royalties.

 

The Lanigan royalty, for example, only gave Altius two thousand dollars in revenue during the 6 month period ended in October. Please idle it!

[bizaro86]

It is not an advantage if it dilutes the he'll out of you

SD

 

Depends where you are in the capital stack. I own ALS but no Alderon. If Morabito issued a billion shares and was able to build the mine, that would be a win for ALS. Even if their equity was diluted to zero, the upside on the royalty would cover it.

[linealdin]

http://www.yamana.com/English/investors/news/news-details/2018/Yamana-Gold-Provides-2018-2020-Outlook/default.aspx

 

Yamana provides guidance for the next few years. Still being conservative with guidance of 120 million pounds of copper at Chapada (produced 127 million pounds in 2017).

 

Extensive discussion of the studies for optimization and expansion at Chapada, which will be delivered in Q2. Under consideration: Increasing the throughput of the processing plant to handle mineralization from Sucupira/Baru and from a huge low grade stockpile (set to increase by 15 million tonnes this year). Also studying a broader Suruca project, which I think involves adding a new circuit to the plant to handle oxides.

 

It’s all low grade ore but there’s plenty of it. Yamana has to carefully choose the most cost-effective development path.

[linealdin]

http://www.allegiancecoal.com.au/irm/PDF/1307_0/MineLifeResourceBulletinFebruary2018

 

Allegiance has moved from 2 cents in June 2017 to nearly 8 cents yesterday. Doesn’t seem like a lot but Altius owns 55.4 million shares. Starts becoming a material position at 15 or 20 cents.

 

This report claims representatives of Asian steelmakers could be visiting Telkwa in the coming months.