ALS.TO - Altius Minerals

[mikek]

I would guess that Altius is probably working on a new 5 year term loan for the debt. I would also guess that they would like to keep adding to the Labrador royalty at these prices. I hope they hold the 60 million in cash until they get a new loan for the debt. If they get the new 5 year loan they can deploy that cash aggressively on the Labrador royalty and after that pay down debt aggressively. They could be running around the 72-80 million revenue per year with 128 million debt if they get VB back and keep adding to Labrador Royalty. That would be pretty impressive with 43 million shares outstanding and 50 if fairfax exercises the warrants.

[bizaro86]

If they had all that cash from Fairfax, why pay interest on the revolver plus dividends on the fairfax preferred. After all, if you decide to buy more LIF (or anything else) just draw down the revolver then, and save some interest payments. Money is fungible, use the revolver dollars for the next thing.

 

The only thing I could think of was the coal restriction. IIRC they can't use the revolver for coal acquisitions. Maybe they are planning to buy the remaining share of the electrical coal royalties from Liberty as well, potential for a bargain there, one would think. Motivated seller plus hated asset...

[linealdin]

If they had all that cash from Fairfax, why pay interest on the revolver plus dividends on the fairfax preferred. After all, if you decide to buy more LIF (or anything else) just draw down the revolver then, and save some interest payments. Money is fungible, use the revolver dollars for the next thing.

 

The only thing I could think of was the coal restriction. IIRC they can't use the revolver for coal acquisitions. Maybe they are planning to buy the remaining share of the electrical coal royalties from Liberty as well, potential for a bargain there, one would think. Motivated seller plus hated asset...

 

The revolver has more restrictions. I believe it can only be used for qualifying royalty/stream purchases like the Liberty Potash deal. The Fairfax preferred shares have been turned into cash, which can be used for other purposes: debt reduction, equity purchases, issuance of convertible debentures or other loans, and coal-related purchases as you mentioned. Can’t do those things with the revolver.

 

 

[linealdin]

Altius is a bargain hunter but they are not touching the rest of those coal royalties. Thermal coal, for the fiscal year ended April 2017, accounted for 36% of Altius revenue. After the LIF purchase and the recent Liberty potash deal thermal coal now accounts for 17.7% of revenue. I think Altius has an informal goal of knocking that percentage below 10% through organic royalty growth (Voisey’s Bay, Excelsior Mines) and producing royalty purchases.

 

Market will start to disregard the coal exposure at that point.

[linealdin]

http://www.allegiancecoal.com.au/irm/PDF/1340_0/ReceivesStrongMarketSupportRaising397Million

 

Allegiance Coal raises nearly A$4 million for permitting and environmental studies. Altius, if it participated, had to kick in around A$556K to maintain its 14% equity ownership.

[linealdin]

http://m.miningweekly.com/article/private-capital-carves-out-mining-niche-with-specialist-focus-2018-03-28/rep_id:3861

 

Interesting article about how private equity firms function in the junior resource space. This is Altius’s direct competition for development and project finance royalties.

 

Altius is perhaps a bit more nimble than some of these groups. I can’t imagine Altius needing 6 months of due diligence before making an investment.

 

Altius is also a longer term investor than the PE groups, which need to cash out in 5 to 7 years when their funds are dissolved and capital is returned to investors. Altius wants to hold its royalties forever.

[linealdin]

http://www.adventuszinc.com/news/122499

 

Adventus adds the Pijili gold/silver project to its exploration alliance with Salazar. 2.333 million Adventus shares will be issued to Salazar after the next capital raise.

 

Drilling at Curipamba has nearly reached 4000 meters with holes at El Gallo, Sesmo and Caracol exploration targets, as well as infill drilling at El Domo deposit. Ground IP and magnetic surveys also completed.

 

Sesmo and Caracol are just to the north of El Domo while El Gallo is south. They are focusing on the exploration targets nearest to El Domo. The next phase is targets farther away in the Salazar land package.

 

*

 

That Sesmo target is very intriguing. Best channel sample result of 39 g/t gold and 741 g/t silver over 15 meters. Yowza.

[linealdin]

The pattern for Altius has been to issue shares after the announcement of major royalty purchases. C$65 million in shares issued after Prairie acquisition, a bunch of new shares issued in the Callinan deal, and C$40 million in shares issued after the Chapada acquisition was announced.

 

I can definitely see both an equity issue and a new term debt facility being announced in the next two weeks. Altius may not be comfortable with C$128 million in debt. Issuance of, let’s say, C$30 million in shares cuts down the debt to a manageable size.

 

Or they don’t do it. Shareholders already annoyed the stock price hasn’t moved up enough.

[mikek]

Would be a very dumb move, if they are concerned with the debt use the cash on hand to reduce debt.

 

Also, if you keep issuing shares you can't really say shares are undervalued because you're willing to keep selling your shares at these prices. There is absolutely 0 reason to issue equity here. They have 60+ cash on hand, I rather they just pay down debt with that cash instead of buying more royalties if they feel they need to issue more shares to be comfortable with the debt. The facts are that companies that keep issuing shares just aren't usually good investments and I feel shareholders are already a bit tired of Altius issuing shares, sooner or later you have to let the internal cash flow be enough.

[linealdin]

Yamana’s Annual Information Form filed on SEDAR. Interesting developments on Chapada:

 

1) Phase III plant optimization will start to be installed in 2018, with commissioning in Q2 2019. Copper and gold recoveries will improve by 1.5% to 2%.

 

2) A feasibility study will begin in 2018 for a processing plant expansion to 28 MTA to 32MTA.

 

3) Processing plant would have to be relocated to access Sucupira/Baru mineralization.

 

*

 

Chapada currently runs at 22 MTA and produces 120 million pounds of copper per annum (guidance). At 28 MTA to 32 MTA I would expect copper production to be 153 million to 175 million pounds per annum (not including the Phase 3 optimization).

 

Once the expansion stream rate of 2.65% kicks in the Altius revenue won’t increase materially. But in the ramp-up and 5 month commissioning period (plant must run at least 26 MTA for 150 days) Altius will reap a windfall.

 

It takes a long time to ramp from 120 million to 175 million pounds.

 

Any further plant expansions would then materially increase Altius’s stream revenue.

 

[linealdin]

"At such time (the “Project Expansion Date”) as the existing treatment plant at the

Chapada Mine has: (i) been upgraded and/or expanded; (ii) achieved a throughput rate of

at least 26,000,000 metric tonnes of copper-bearing sulphide ore, on an annualized basis

for a period of one hundred and fifty (150) consecutive days; and (iii) achieved a 33%

increase in Reference Copper after deducting or factoring in the payable rate of copper

contained in the applicable Offtake Agreement, as compared to the projected Reference

Copper after deducting or factoring in the payable rate of copper, as provided by the

Seller to the Purchaser in the model entitled “ChapadaS1_vNov2” in the data room and

summarized in Schedule H (collectively, the “Project Expansion”). The Seller shall

deliver to the Purchaser a certificate signed by a director or senior officer of the Seller

certifying that the Project Expansion has occurred."

 

*

 

That is relevant language from the Chapada copper purchase agreement. Some takeaways:

 

1) Some strict language for the expansion. 26 MTA throughput has to be achieved for 150 consecutive days. Not an easy task if the nameplate capacity of the expansion is only 26 MTA (hard to run at max capacity every single day with no hiccups). Makes more sense to build a 28 MTA or 30 MTA plant and fulfill the 150 day throughput test by running at 95% or 90% of capacity. I think 28 MTA would be the absolute minimum nameplate expansion at Chapada if Yamana expects to the clear the hurdle for a royalty rate reduction to 2.65%.

 

2) The rate isn't reduced until the 150 day test is finished and other requirements are completed. Sometimes ramping up to a certain capacity can take YEARS. Stockpiles have to be built up; bottlenecks have to be cleared; workers have to be threatened. Increasing production is always easier on paper as a feasibility study than in real life. Altius will enjoy the higher production of the ramp-up and 150 day test periods at its original 3.7% royalty stream.

 

With the right copper price and the right USD/CAD exchange rate Altius could reap C$30 million in Chapada revenue in a year of a ramp-up and throughput testing.

 

3) A successful expansion could lead to further expansions/optimizations. Yamana, like everyone else, knows this is a bull market and is hungry to reap the benefits. The resource base is growing and can support much higher production. 250 million pounds of copper per year? Why not?

 

Chapada expansion thought through above. The minimum expansion for the plant is indeed 28 MTA.

 

I still think C$30 million of stream revenue paid to Altius is possible in a ramp-up year, given the right commodity price.

[Williams406]

Latest from Global Mining Observer on Royalty/Stream biz:

 

http://www.globalminingobserver.com/streaming-ceiling-191

 

 

[netnet]

Would be a very dumb move, if they are concerned with the debt use the cash on hand to reduce debt.

 

Also, if you keep issuing shares you can't really say shares are undervalued because you're willing to keep selling your shares at these prices. There is absolutely 0 reason to issue equity here. They have 60+ cash on hand, I rather they just pay down debt with that cash instead of buying more royalties if they feel they need to issue more shares to be comfortable with the debt. The facts are that companies that keep issuing shares just aren't usually good investments and I feel shareholders are already a bit tired of Altius issuing shares, sooner or later you have to let the internal cash flow be enough.

I'm inclined to agree with you here. (My quibble is that you can issue overvalued shares to buy cheap(er) assets. But generally the argument on this board is that Altius is undervalued, so, if the shares are undervalued, then you need to be buying something that is really, really cheap.)

 

Let's contrast this with the Abitibi Royalties, where the CEO, Ian Ball, is shrinking share-count.  By the way, I just started reading about him, courtesy of Global Mining Newsletter,  his annual letters are superb. If he walks his talk, this guy is going to be one of the best in mining. 

 

Below are two quotes from his Annual Letter last year.

Investors who purchase shares become partners in the business.  They are also treated like partners.

Good Lord, shades of Buffett in mining no less.

At the end of the day a company’s share price will be equal to its total value divided by the number of shares outstanding. Given enough time, the market will ensure this simple formula plays out (it can take a long time in some cases). When a company issues shares in order to make an acquisition, it is not strictly buying an asset. It is also selling part of its existing business to strangers. There are times when issuing shares can create additional value, where 1+1 does equal 3 (Goldcorp’s acquisition of Wheaton River in 2005 is one example), but those situations are rare and require a lot of patience. I would be lying to you if I said the thought of issuing Abitibi Royalties shares didn’t give me heartburn.

Not to be too crass, but for Altius issuing shares seems to stimulate the appetite!

 

Don't get me wrong, I have been an Altius shareholder for a number of years, and these guys are smart, seemingly among the smartest in the business, but they do not seem as disciplined as I would like, at least compared to Abitibi and Ian Ball.(I'm just saying...)

 

[linealdin]

While we’re giving Ian Ball a handjob let me ask some questions:

 

1) What percentage of Abitibi’s cash flow goes to Ian Ball’s salary? (It will surprise you.)

 

2) Will Abitibi’s royalty cash flow cover their G&A costs in 2018?

 

3) How many of the royalties purchased in the well-publicized “Abitibi Royalty Search” are advancing towards development?

[Gamecock-YT]

Agree with the above about issuing shares, they were in the market doing a buyback $2 from where the shares are trading now, doesn't do much for signaling when you are doing dilutive measures right afterwards.

[linealdin]

Latest from Global Mining Observer on Royalty/Stream biz:

 

http://www.globalminingobserver.com/streaming-ceiling-191

 

Article talks about how the top 40 mining companies turn over $500 billion each year, and how that’s a business opportunity for the streaming companies.

 

But those top 40 mining companies mostly aren’t gold companies. They are iron ore, copper, coal, nickel, potash-focused companies. Altius territory.

 

The precious metals streamers can’t go deep into Altius territory without diluting their precious metals percentage of revenue, and the high multiples the market assigns to gold/silver streamers.

 

Altius doesn’t get the 20X multiples but it faces little competition for the potash and iron ore royalties it wants to add.

 

 

[linealdin]

The rundown on Abitibi Royalties:

 

1) Not actually a royalty company. No royalties received in 2017. $1500 in royalties received in 2016.

 

2) Actually a holding company for $37 million worth of Agnico Eagle and Yamana Gold shares. And some puts and options on those shares.

 

3) Strategy seems to be to slowly sell down those Agnico and Yamana shares and buy back Abitibi shares.

 

4) Ian Ball gets paid $325K a year to monitor this stock sell down and buyback process.

 

5) They have a crown jewel 3% royalty on extensions to the Canadian Malartic mine. No certainty that drilling and exploration on those extension lands will result in production in the intermediate term (2019 - 2022).

[linealdin]

https://www.google.com/amp/s/mobile.reuters.com/article/amp/idUSKBN1H534V

 

IOC port and rail workers also in strike posture, just like their peers at the processing plant. Not legally allowed to go on strike until April 10th. If they stop working shipments from Champion’s Bloom Lake will stop. Ugly.

[linealdin]

Just want to note that Altius has far, far fewer shares outstanding than its royalty peers (at least the ones that have been existence for longer than my toddler daughter).

 

Abitibi will have to make a royalty acquisition eventually. That acquisition will be funded by share issuance. They will start catching up to Altius’s 43.2 million shares outstanding.

[linealdin]

http://www.hudbayminerals.com/English/Media-Centre/News-Releases/News-Release-Details/2018/Hudbay-Announces-Updated-Technical-Report-for-Constancia-and-Provides-Annual-Reserve-and-Resource-Update/default.aspx

 

777 reserves and resources update. As of January 1st, 2018 there is:

 

3.876 million tonnes proven & probable reserves.

1.4 million tonnes indicated & inferred resources.

 

Compare with reserves and resources at January 1st, 2017:

 

4.466 million tonnes proven & probable reserves.

1.4 million tonnes indicates & inferred resources.

 

Not much decline in reserves in 2017. Only down 590,000 tonnes.

 

Production at 777 has slowed down in recent years. Mine life should last to the end of 2021 with the reserves only, and to 2022 with the resources added in.

 

(If reserve depletion slows down to the 2017 rate of 590,000 tonnes then there’s another 9 years of mine life. I assume that won’t happen.)

 

 

 

[linealdin]

http://www.alderonironore.com/index.php/news/2018/458-alderon-welcomes-altius-nominee-john-baker-back-to-its-board-of-directors

 

John Baker, Altius executive chairman, re-appointed to Alderon’s board of directors.

 

Board appointments matter. Influence over potential mergers or sales. Altius really should have 2 board positions given their 40% equity position.

[linealdin]

https://docs.wixstatic.com/ugd/8d6671_9f7d4a211b5b43ff836816026fcf4b5d.pdf

 

Drilling progress at EMU's Vidalita. 2533 meters completed as of March 27th. Three drills working on site. Some visuals of mineralization.

 

If they complete 5000 meters this season I will be satisfied. That should clear up whether or not Vidalita has economic potential.

[linealdin]

http://www.wolfdenresources.com/files/News-Apr4-2018.pdf

 

Assay results for the next 5 drill holes at Wolfden’s Mt. Pickett. Excellent results, including 8 meters of 22% zinc/copper/lead. Also two holes each with 40+ meters of lower grade mineralization. 15 holes drilled, assays for 8 holes released so far. Very promising.

 

IP results have identified two drill targets along strike from main deposit. EM and VTEM surveys in April and early May to identify more drill targets.

[linealdin]

https://www.firstmajestic.com/news/2018/index.php?content_id=353

 

Some Evrim Resources news: First Majestic defines an inferred resource of 41 million ounces of silver equivalent ounces at Ermitano West. 68 g/t silver and 4 g/t gold. And they discovered a new vein at Ermitano which will be drilled to depth in 2018. 13,000 meters of drilling planned for the property.

 

There will be a catalyst by the end of the year. Either FM completes earn-in and announces a production plan for Ermitano (ore feeds into their Santa Elena) leaving Evrim with a producing royalty, or Evrim keeps 100% ownership of the property (which might be worth a hundred million or more with continued good drill results.)

 

Some potential for litigation between the two partners.

 

Evrim only has a C$31 million market cap.

[linealdin]

http://www.evrimresources.com/s/news-releases.asp?ReportID=820540

 

Evrim announces that First Majestic has initiated an arbitration process related to the Ermitano option agreement.

 

Evrim originally optioned out the property to Silvercrest in January 2014. First Majestic acquired Silvercrest in 2015. Ermitano property was neglected until last year when a discovery was made. Now First Majestic has a hard deadline to have permits and a production notice for Ermitano by January 2019. Not likely they will be able to fulfill all requirements by then. By the terms of the option agreement property ownership would then stay with Evrim.

 

If arbitration fails, then the lawsuits begin.