ALS.TO - Altius Minerals

[linealdin]

https://ycharts.com/indicators/potassium_chloride_muriate_of_potash_spot_price

 

Check out the potash spot prices. Potash bottomed at $214 in February and March 2017. At the end of February 2018 it was $226. A $12 improvement!

 

Sentiment’s improved slightly for the potash sector but in terms of commodity price we are still right at the bottom of the cycle. Contrarians buy at the bottom. We are far below the incentive price for new builds of potash mines. This deal is going to look really good in 3 to 5 years.

 

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Liberty Metals made out fine. They squeezed a total of C$80 million out of its Potash Royalty and Alderon positions. That’s going to help the bottom line of their parent company Liberty Mutual, whose insurance business is struggling.

 

When the Prairie Royalties deal was signed in December 2013 the potash price was $332, and when the deal closed in April 2014 the price was $287. Pretty far from the eventual bottom.

 

My understanding is that Altius assigned 50% of the C$240.9 million cost of Prairie Royalties package to the potash royalties portion, so the potash cost C$120.45 million, in theory.

 

That C$120.45 million bought them 52.4% of Potash Royalties Limited Partnership. Acquiring another 38.9% of Potash Royalties LP would have cost C$89.42 million in 2014.

 

Altius only paid C$65 million this week for that 38.9%. A little bit of depletion (though the royalties seem to last forever) and the lower potash market price explain the price drop.

[StevieV]

linealdin,

 

Any explanation for the run-up this week?  Doesn't seem that the deals this week were sufficient for this move.  Commodities up a bit this week, but nothing unusual.  Anyway, trying to get a feel for how this trades, and what factors it trades with.

 

I started a small position on Tuesday this week.  At least for now, it appears I had unusually good timing. 

[Gamecock-YT]

linealdin,

 

Any explanation for the run-up this week?  Doesn't seem that the deals this week were sufficient for this move.  Commodities up a bit this week, but nothing unusual.  Anyway, trying to get a feel for how this trades, and what factors it trades with.

 

I started a small position on Tuesday this week.  At least for now, it appears I had unusually good timing.

 

A Few banks upgraded the company PTs/Ratings

[SharperDingaan]

And just stop with this nonsense about Alderon getting income from its port agreement. It is a lie. I’ve read the port agreement. It is a liability, not an asset. Alderon is slowly having its deposit drained to zero, then its obligations to the port will be over. That was the negotiated settlement.

 

There’s no port rent paid to Alderon!

 

Per Note 10 of the F/S, the 22.2M Liberty note is not convertible at IRON’s option. Hence, agreed that IRON is going to have to pay it off, with cash raised from either a refinancing or an equity sale - our bad. Given that Liberty also has 5.2M warrants (3.9% of IRON) at < $0.20, most would expect a related transaction when the convertible matures. What that might be, is speculation.

 

http://www.canadiansailings.ca/port-of-sept-les-multi-user-dock-though-fully-operational-now-will-be-officially-inaugurated-in-2017/

 

Funded by the federal and Quebec governments to the tune of $55 million each, plus $110 million from a consortium of five iron ore miners in the region (Alderon Iron Ore, Champion Iron Mines, Labrador Iron Mines, New Millennium Iron and Tata Steel Minerals Canada) that agreed to jointly use of the facility when its construction was announced in 2012, the new terminal features a 560-metre-long concrete trestle on steel pilings and a 425-metre-long berthing site that can accommodate two ships at a time.

 

http://www.alderonironore.com/index.php/news-releases/2012/83-alderon-secures-port-access-and-enters-into-bridge-financing-agreement

 

We understand that IRON owns approx. 10% of this new terminal that was secured against a take-or-pay commitment of 8M ton/year starting 2018. IRON negotiated an offset to its take-or-pay requirement in Dec-2017.

 

http://www.alderonironore.com/index.php/news/2017/421-

 

Pursuant to the terms of the Multi-User Dock Contract, once the multi-user dock is operational Kami LP was required to provide take-or-pay payments to the Port in the event that Kami LP had not commenced shipping operations. The Port Agreement provides that the funds previously advanced by Kami LP for the Buy-In Payment will satisfy the take-or-pay obligation and that Kami LP has no further funding requirements in respect to the take-or-pay obligation. Once the funds previously advanced for the Buy-In Payment are fully offset against the take-or-pay obligation, Kami LP is able to reduce its reserved capacity proportionately based on the remaining term of the Multi-User Dock Contract

 

No revenues show on IRON’s books as ore hasn’t started loading yet; it’s stockpiling at the dock. Once Champion starts loading, there will be a value stream from the Multi-User Dock Contract. How it is ultimately sliced/diced is a speculation.

 

http://www.portsi.com/wp-content/uploads/2017/08/rapport-annuel-2016-en.pdf

 

Per p14 of the 2016 Annual Report, the Port of Sept-Iles earned a net income of 797M in the year ended Dec 31, 2016 on the 23M tones shipped, p4; an average $34.65/ton shipped. Even if the net for this dock is just $10/ton (29% of the average), it will add up quickly – and 10% of it will flow to IRON. IRON’s 8M ton take-or-pay, alone, would have contributed a 80M profit (speculation) – from which 10% would have gone back to IRON.

 

We may dispute its significance, but our view is that IRON’s Multi-User Dock Contract will be a key driver to their approach through 2018/2019, and the ALS involvement. Just a different take.

 

SD

 

[linealdin]

Alderon paid an advance on its future shipping fees at the port. It didn’t buy an ownership stake.

 

The only thing that’s happening with the port is that Alderon has a take or pay obligation. It has to pay even if it is not using its allocated shipping capacity. So the port is deducting Alderon’s take or pay payments from the significant upfront payment Alderon made. The agreement is currently an obligation and a liability. Alderon gets zero benefit from the port but it has to spend millions and millions and millions.

 

Wonderful deal by Morabito.

 

Alderon does not have any ownership interest in the port. If it did wouldn’t it be mentioned in an MD&A? Same logic applies to all the mining companies who made upfront payments. None claim to be owners of the dock.

 

It does have the right, if it reaches production, to pay for actually shipping its product instead of paying for nothing, as it is doing right now.

 

*

 

Alderon also paid $21 million upfront deposit for an electrical transmission line. Does that mean it now is the owner of an electricity transmission company? Of course not.

 

 

[SharperDingaan]

Alderon paid an advance on its future shipping fees at the port. It didn’t buy an ownership stake.

 

The only thing that’s happening with the port is that Alderon has a take or pay obligation. It has to pay even if it is not using its allocated shipping capacity. So the port is deducting Alderon’s take or pay payments from the significant upfront payment Alderon made. The agreement is currently an obligation and a liability. Alderon gets zero benefit from the port but it has to spend millions and millions and millions.

 

Wonderful deal by Morabito.

 

Alderon does not have any ownership interest in the port. If it did wouldn’t it be mentioned in an MD&A? Same logic applies to all the mining companies who made upfront payments. None claim to be owners of the dock.

 

It does have the right, if it reaches production, to pay for actually shipping its product instead of paying for nothing, as it is doing right now.

 

*

 

Alderon also paid $21 million upfront deposit for an electrical transmission line. Does that mean it now is the owner of an electricity transmission company? Of course not.

 

Fair enough, the 110M from the 5 miners were pre-paid loading fees & there are no equity interests in the port.

IRON's portion was the Long Term Advance (Note Eight) showing on the FS - 10.383M (after impairment) as at Sep-30-2017.

 

What's to stop IRON simply buying 8000 ton of someone else's production, & just delivering that to the dock?

They've already paid for loading, & since the ore didn't come from KAMI - its sale would be outside of the off-take agreements.

 

SD

 

 

[linealdin]

I agree Alderon’s contracted port capacity has some value. If Champion acquired Alderon they could use that capacity for their Phase 2 production (to 16 MTA).

 

I believe Altius has made a guess at what the forced auction sale value of Kami would be. And the current market cap  of Alderon is at or below that number. Hence they bought more shares.

 

In an auction I believe Kami would sell for $50 million to $75 million. Permits are valuable and the location is perfect.

[bizaro86]

While we're in the Kami topic (even though the Potash news is bigger/better, imo) does anyone know when those permits expire? Whether/when Kami gets built is a huge factor in valuing ALS, and one that I have trouble handicapping. If the option has a 25 year life it is more valuable than if it has a 3 year life.

[linealdin]

While we're in the Kami topic (even though the Potash news is bigger/better, imo) does anyone know when those permits expire? Whether/when Kami gets built is a huge factor in valuing ALS, and one that I have trouble handicapping. If the option has a 25 year life it is more valuable than if it has a 3 year life.

 

http://assembly.nl.ca/Legislation/sr/statutes/m12.htm#31_

 

This is the relevant mining law. Alderon has been granted mining leases and related surface leases for building a mine. They have all required permits. Their mining leases have a fixed term, not to exceed 25 years, which may be renewed by the minister.

 

More importantly, there’s a provision in the law that requires that mining activity begin within 5 years after the mining lease is granted. Alderon got its leases in 2014.

 

Not sure what happens if mining doesn’t begin within 5 years. Have to obtain some kind of waiver/renewal from minister?

 

 

[linealdin]

http://www.theaurora.ca/business/steelworkers-union-negotiators-back-to-labrador-west-following-talks-with-ioc-196368/

 

Signs of progress in IOC contract negotiations. Union negotiators go back to Labrador City from Sept-Iles to update union executives on the latest offer.

 

I’m optimistic a strike will be avoided.

[SharperDingaan]

While we're in the Kami topic (even though the Potash news is bigger/better, imo) does anyone know when those permits expire? Whether/when Kami gets built is a huge factor in valuing ALS, and one that I have trouble handicapping. If the option has a 25 year life it is more valuable than if it has a 3 year life.

 

http://assembly.nl.ca/Legislation/sr/statutes/m12.htm#31_

 

This is the relevant mining law. Alderon has been granted mining leases and related surface leases for building a mine. They have all required permits. Their mining leases have a fixed term, not to exceed 25 years, which may be renewed by the minister.

 

More importantly, there’s a provision in the law that requires that mining activity begin within 5 years after the mining lease is granted. Alderon got its leases in 2014.

 

Not sure what happens if mining doesn’t begin within 5 years. Have to obtain some kind of waiver/renewal from minister?

 

The thrust of the law is that you can't get a permit, & then simply sit on it. You have to demonstrate progress on development within the 5 year period. The various mine studies since 2014, loading dock 'take or pay' agreement, all evidence progress.

 

IRON could obtain its ore commitment via a swap, or through a sale to another producer in the trough. As we're allready 25% through 2018, and Liberty's convertible doesn't expire until Dec 31, 2018, a 2018 delivery seems unlkely. IRON would seem to have a similar view, hence the December 2017 renegotiation with the port.

 

KAMI itself becomes more valuable once ore starts crossing the loading pier. All its ore has a buyer, its location cuts costs, ore is actually shipping, and any kind of future for current production swap (8M ton/yr) would raise NPV by bringing sales forward. Were a Champion involved, they could also use the profit on accelerated existing production, to bootstrap Kami into a producing mine. A material 'win' for all stakeholders involved, and a 'made in Canada' solution. Obviously as potential beneficiaries, we wish them luck.

 

We're just mindful that the NSR is opening, and the Port of Sept-Iles is a deep water port capable of loading much larger ore carriers. Once production in the trough starts flowing, the next step will be ice-strenghened ore carriers transiting the NSR to demonstrate that it's 'safe' (iron is inert). The shorter distance lowering transport costs by 50%, & reducing the size of stockpiles (working capital requirement) on the receiving end.

 

SD

 

 

 

 

 

 

 

[linealdin]

https://www.google.com/amp/www.cbc.ca/amp/1.4592901

 

Strike at IOC is imminent. Last contract offer rejected. It’s going to get ugly.

[linealdin]

https://m.facebook.com/photo.php?fbid=2072579109449174&set=gm.10156091212598186&type=3&theater&ifg=1

 

Magnus Oldendorff bulk carrier being loaded at Sept-Iles full of high quality ore from Bloom Lake. A great milestone.

[linealdin]

https://www.google.com/amp/www.cbc.ca/amp/1.4594654

 

IOC union is on strike. Picket line has formed at the mine gates.

[linealdin]

http://altiusminerals.com/uploads/2018-03-27-ALTIUS-ANNOUNCES-CLOSING-OF-LIBERTY-POTASH-ROYALTIES-ACQUISITION.pdf

 

Potash Royalties acquisition closes quickly. Time is of the essence when acquiring producing royalties. Altius gets a few bonus days of Q1 royalty income.

 

Debt at the end of December was C$66.163 million. The mandatory payment on the term facility at the end of January was C$3.25 million, cutting debt to C$62.913 million. Altius put the whole C$65 million acquisition on the revolver bringing total debt up to C$127.913 million, or C$128 million in the press release.

 

I assume the plan is to take on another low interest credit facility with a longer maturity date to replace the revolver. (If the plan is to partially fund the acquisition with an equity raise I will be very, very upset.)

 

Altius stays aggressive. It keeps its C$60 million cash on hand to continue to stalk acquisitions, including the project finance deals we were told to expect. It must still be a target rich environment, otherwise why double your debt load? They had the cash and investments to pay for the potash royalties.

[mikek]

As long as they get a new term loan I'm okay with it.  I absolutely hate debt but I'm comfortable with the cash and available securities they have currently.  Maybe they have some other royalty ideas or possibly just going to purchase some more Labrador Royalty.  Anytime you can purchase 40-50 year royalties from just reserves alone on some of the best mines in the world you have to do it.  I agree, if they issue equity they are going to have a lot of pissed off shareholders.

[linealdin]

https://globenewswire.com/news-release/2018/03/27/1453483/0/en/Quebec-Iron-Ore-to-Ship-First-Vessel-of-High-Quality-Canadian-Iron-Ore-From-Sept-Îles-to-Asia.html

 

Champion Iron press release on its first shipment by sea. 200,000 wet tonnes of 66% ore headed to Asia. Should fetch a hefty premium over the 62% benchmark.

[linealdin]

http://www.theaurora.ca/business/one-main-issue-in-steelworkers-strike-at-ioc-in-labrador-west-197090/

 

IOC and union basically are basically fighting over 1 issue: temporary workers. Just one minor issue.

 

I don’t think this strike lasts long. IOC has billions in profit to make. The workers each have hundreds of thousands to make. Back to work by May 1st.

[linealdin]

http://altiusminerals.com/uploads/2018-03-27-ALTIUS-ENTERS-INTO-LETTER-OF-INTENT-TO-SELL-ITS-SAIL-POND-PROJECT-FINAL.pdf

 

Altius sells Sail Pond for 12 million shares of a new company to be IPO-ed called New Found Gold Corp, and a 2% royalty. $7.5 million capital raise required, and $1 million exploration commitment in the first year.

 

Positives:

 

1) New Found Gold is going to be a player. Founded by Ralph Kettell, who sold Long Canyon to Newmont for $2.3 billion, and legendary financier Sheldon Inwentash of Pine Tree Capital, which reached a $1 billion market cap before blowing up in the commodity market crash.

 

2) New Found Gold has a land bank of gold and cobalt properties, as well as a couple million in cash.

 

3) $250K in required exploration expenses before the end of October allows Altius to work on Sail Pond as the IPO for New Found Gold is being completed.

[linealdin]

https://www.slideshare.net/mobile/srzubick/new-found-gold-corp-future-ipo

 

October investor presentation for New Found Gold. Significant land bank: 14 projects in Newfoundland, 6 projects in Ontario, 5 in Nevada, and 3 in Saskatchewan.

 

A very good technical team and the founders have deep pockets and are well-connected. There should be no problems raising cash for the IPO.

 

ThreeD Capital (Sheldon Inwentash) values its 13.5 million shares of the privately held New Found Gold at C$5.4 million, or 40 cents per share.

 

I expect the IPO to price the shares accordingly at around 40 cents. Altius’s 12 million shares would be worth C$4.8 million, and it would pick up another 2.5 million shares by participating in the IPO.

 

Altius should end up with around 25% equity of the new company.

 

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https://palisade-research.com/pinetree-2-0-threed-capital-the-return-of-sheldon-inwentash-cnsxidk-frab5k1/

 

Some more background on Palisade, which originally acquired the land bank, and ThreeD Capital.

[linealdin]

Altius’s total spending on Sail Pond as of the end of December: C$522K.

 

Those 12 million NFG payment shares, if they are priced anywhere near 40 cents per share, will give Altius an immediate 800% return on its investment (C$4.8 million).

 

Very good deal. The project generation business is humming. Lynx Diamonds is next candidate for a deal.

[linealdin]

http://aethonminerals.com/storage/coming-soon/aethon-minerals-corporate-presentation-march-2018.pdf

 

Initial investor presentation for Aethon Minerals. New hires include John Miniotis, formerly of AuRico and Lundin, as VP of Corporate Development. David O’Connor, also a technical adviser for Adventus, will be the country manager in Chile.

 

Trading will begin in late April. Just as with Adventus Aethon will use its portfolio of former Altius properties as a base from which to stalk additional copper property acquisitions. “Actively evaluating several acquisitions with high potential rates of return.”

[linealdin]

Adventus/Salazar began drilling on January 22nd at the El Gallo target south of the El Domo deposit. Recently they completed their second hole at the precious metals-rich Sesmo target.

 

I suspect Adventus will hold back the drill results until they get a couple of really good holes, then release a bunch of assay results. Kargl-Simard knows how to play the game.

[Williams406]

Brief article on Anglo Pacific--Julian Treger putting forth the idea that the indexing trend is creating more opportunity to provide capital to development-stage projects. I don't want to debate the indexing effects on the mining biz but mention this strictly because of the development-stage royalty angle for Altius. Treger is certainly plugged in enough that if he says he's seeing lots of that type of deal, they are out there. Treger isn't--and can't, given the massive % of revenue and cash flow from coal--play the current Altius game of "we're barely in to coal at all, anymore."

 

https://finance.yahoo.com/news/anglo-pacific-says-coal-tempting-115810166.html

 

A Treger interview with some comments on the thermal and coking coal markets and this gem:

 

“I have been in this business for many years, and the longer I go on, I discover that really nobody knows anything. I go to conferences every year where the best and brightest make forecasts and every year they are totally wrong. In the commodities space there often tends to be a herd mentality; that’s why we often go through boom and bust cycles because there is not enough contrarian thinking.”

 

https://www.forbes.com/sites/gauravsharma/2018/02/12/de-risked-mining-exposure-why-anglo-pacific-goes-beyond-gold-and-silver/#28aff7ec338e

 

I'd second the calls by Mikek and linealdin regarding Altius equity issuance here. I'm really interested to see what Altius does on the financing front as a clue to big deals in the pipeline.

[linealdin]

Yeah the index thing is certainly keeping some traditional forms of capital away from junior resource companies. But private equity groups like Greenstone are trying to fill the void. Look at all the financing they’ve provided to Excelsior: Greenstone now owns 50% of the equity and a significant royalty.

 

Altius will also have opportunities but the bet size has to be small. Maybe $2 million to $10 million. Most of these development projects won’t get built but a few will produce 10x or 30x gains.

 

See Callinan’s record when Roland Butler was making a bunch of small ball royalty deals. Excelsior and an early seed investment into the Irish version of Adventus are working out fine. The deals with Renaissance Gold, Avrupa, Evrim and Kinetic Gold have created royalties on projects being explored by majors but no discovery yet. The deals with Wallbridge, Sokoman Iron, and Northern Shield struck out.