ALS.TO - Altius Minerals

[linealdin]

http://www.allegiancecoal.com.au/irm/PDF/1379_0/CoalWashabilityandQualityTestingInitialResults

 

Allegiance Coal announces coal washability tests for the Telkwa coal project: "The results indicate that the yield of washing raw coal to clean coal is higher than the historical data suggests, which in turn should improve project economics."

 

2 steel mills in Japan and 1 mill in South Korea also received Telkwa coal for performing their own coke oven tests.

[linealdin]

https://wcsecure.weblink.com.au/pdf/PXX/01980323.pdf

 

PolarX raises A$2.5 million to drill extensions to the Zackly deposit (3.4 MT at 1.2% copper, 2.0 g/t gold, 14 g/t silver) in June. Looking for a larger porphyry deposit underneath the Zackly skarn.

 

Altius holds on a 2% royalty on the precious metals from Zackly, and a 1% royalty on the copper.

[linealdin]

A little background on the Oxford Brook property, which was optioned by Fancamp Exploration in 2014. This is from Fancamp's press release when they acquired the property:

 

"The second property, known as Oxford Brook, is a base metal discovery, brand new, in an overburden covered area never before examined and devoid of reported mineralized zones. The vendors, Messrs. Tim Lavoie and Pierre-Luc Guitard, discovered the bedrock mineralization in a newly bulldozed lumber road located in a little known belt of volcanics and intrusives extending for some 30 km in a NE direction. No previous mineralization has been reported from this belt, which given this discovery, is obviously highly prospective. The property covers some 11,500 acres along the 30 km strike length. This discovery so impressed the New Brunswick Prospectors and Developers Association that the vendors were designated "Prospectors of the Year" at the recent 2014 Annual Exploration, Mining and Petroleum Conference in Fredericton. The exposed mineralized zone forms a gossanous, blocky exposure some 100 feet along the road. Grab samples, reported and published by the vendors, run up to 60 g/t Ag, 9% Zn and 3.4% Pb. Gold values up to 3 g/t were also reported. No ground geophysics or drilling has ever been carried out in this area, and the last airborne surveys date back to the early 80's. These latter survey results, will of course be re-evaluated. Further trenching is planned together with geophysics to get a handle on its potential size. The option agreement is spaced over three years with $5,000 payable up front and the obligation to spend $50,000 before March 14th 2016. A further $15,000 is payable in two tranches before March 14th 2017 with total exploration expenditures of $175,000 required before March 18th 2018. A final payment of $100,000 within 30 days of this last date will secure a 100% interest in the property for the Company accompanied by a 2% NSR with a buyback on 1% for 1 million dollars.

 

"The Company intends to apply to New Brunswick's generous exploration grant system to finance preliminary work on both these properties. Reconnaissance work will begin immediately, weather permitting."

 

*

 

So the initial discovery was a very promising one. The prospectors won a regional Prospector of the Year award. There seems to have been a bumper payment of $100K and a total expenditure requirement of $175K due in March of 2018. Fancamp didn't make these payments, the property went back to the original prospectors, who then did a deal with Altius. Altius has now farmed Oxford Brook out to another junior explorer.

[linealdin]

http://aethonminerals.com/storage/presentations/aethon-minerals-may-2018-1525876525.pdf

 

New Aethon Minerals presentation. They are focused on acquiring an advanced copper exploration property, with at least a historical resource, with potential to significantly expand the resource base. Searching for projects in South America, particularly Chile. "Actively evaluating" several acquisitions with "high potential rates of return."

 

This is Adventus, part 2. Let's see if Aethon can find as good a project as Adventus's Curipamba.

[mugwump]

altius revenue increase

https://ceo.ca/@businesswire/altius-reports-q1-2018-revenue-of-158m-and-adjusted

[mikek]

"The Corporation has recently decided to co-found a company that will be focused on acquiring royalty or royalty-like instruments related to the renewable energy sector. Renewable energy-based generation is the fastest growing component of the power generation segment on the strength of: (a) its arrival at the low end of the cost curve for overall power generation; and (b). the rapidly progressing societal shift away from fossil fuel based electrical generation."

 

Altius has distinguished itself for its focus on long resource life assets that it believes offer inversely disproportionate upside option value, particularly at the royalty level. It has long had an interest in the

renewable energy sector in the belief that the resource lives of renewable energy sources such as wind, sun and water are infinite.

 

Altius has recently agreed to partner with Great Bay Renewables, a US based boutique renewable energy investment firm whose principals have an extensive track record as successful renewable energy developers and operators, to co-found Blue Sky Renewable Energy Royalties (“Blue Sky”). Great Bay will provide fully dedicated technical expertise, capital, and an existing royalty on a small-scale producing renewable energy project. Altius expects to contribute its royalty creation expertise and acquisition capital to the venture as opportunities are identified. Blue Sky may also add additional strategic investors.

 

Altius is also considering the contribution or designation of some or all of its portfolio of Alberta electrical coal based royalties into Blue Sky. These royalties relate to electrical generating facilities that are proposed to be phased out by 2030 under recently adopted government policies. Altius believes that the reinvestment of coal phase-out royalty cash flows as royalty-based financing for the next generation of renewable energy projects could innovatively transform this short to medium life part of its current portfolio into long life royalties.

 

Corporate structure planning, strategic financing development and initial target acquisition discussions are currently in progress and the Corporation will provide further updates as these activities progress over the coming months."

 

I don't necessarily mind them getting into renewables, not really what I would prefer but I really don't like them possibly putting in the coal royalties into this vehicle.  That is like taking out cash flow and letting someone else reinvest the funds.  It seems smarter to just keep the coal royalties and reinvest funds where you would like.  Seems like kind of a dumb thing to do, maybe I'm looking at this wrong but this is how I see that decision so far.  Let me know if I'm thinking about this wrong.  Obviously if they put those royalties in they would get a large percentage of the company but I just don't like the idea of allowing someone else allocate the cash flows.  It also is going into an area that I don't think they have any great knowledge in, seems like a strange move to me to be honest.

 

 

[Gamecock-YT]

"The Corporation has recently decided to co-found a company that will be focused on acquiring royalty or royalty-like instruments related to the renewable energy sector. Renewable energy-based generation is the fastest growing component of the power generation segment on the strength of: (a) its arrival at the low end of the cost curve for overall power generation; and (b). the rapidly progressing societal shift away from fossil fuel based electrical generation."

 

Altius has distinguished itself for its focus on long resource life assets that it believes offer inversely disproportionate upside option value, particularly at the royalty level. It has long had an interest in the

renewable energy sector in the belief that the resource lives of renewable energy sources such as wind, sun and water are infinite.

 

Altius has recently agreed to partner with Great Bay Renewables, a US based boutique renewable energy investment firm whose principals have an extensive track record as successful renewable energy developers and operators, to co-found Blue Sky Renewable Energy Royalties (“Blue Sky”). Great Bay will provide fully dedicated technical expertise, capital, and an existing royalty on a small-scale producing renewable energy project. Altius expects to contribute its royalty creation expertise and acquisition capital to the venture as opportunities are identified. Blue Sky may also add additional strategic investors.

 

Altius is also considering the contribution or designation of some or all of its portfolio of Alberta electrical coal based royalties into Blue Sky. These royalties relate to electrical generating facilities that are proposed to be phased out by 2030 under recently adopted government policies. Altius believes that the reinvestment of coal phase-out royalty cash flows as royalty-based financing for the next generation of renewable energy projects could innovatively transform this short to medium life part of its current portfolio into long life royalties.

 

Corporate structure planning, strategic financing development and initial target acquisition discussions are currently in progress and the Corporation will provide further updates as these activities progress over the coming months."

 

I don't necessarily mind them getting into renewables, not really what I would prefer but I really don't like them possibly putting in the coal royalties into this vehicle.  That is like taking out cash flow and letting someone else reinvest the funds.  It seems smarter to just keep the coal royalties and reinvest funds where you would like.  Seems like kind of a dumb thing to do, maybe I'm looking at this wrong but this is how I see that decision so far.  Let me know if I'm thinking about this wrong.  Obviously if they put those royalties in they would get a large percentage of the company but I just don't like the idea of allowing someone else allocate the cash flows.  It also is going into an area that I don't think they have any great knowledge in, seems like a strange move to me to be honest.

 

Agreed. Had to read the press release again because my brain wasn't processing it. My guess is they just want to be done with the coal assets and this gives them an opportunity to flip them and still get some value out of it. Hopefully get some clarity on the call tomorrow morning.

[mikek]

Yeah I guess I can't really judge it until we get more information but if I were Altius I would just invest directly and keep my royalties so that they have ultimate control over the future cash flows of the coal part of it.  I guess it really just depends what they are giving up and what they are getting before we can really comment.

[linealdin]

One attraction of expanding the royalty model into the renewable energy space: zero competition.

 

The boutique investment firm that Altius is partnering with, Great Bay Renewables, claims to be introducing the royalty model into the space:  "While the concept of a gross revenue royalty is a well-established financing mechanism in these sectors, it has never been adapted for mainstream use with non-finite resources like renewable energy - until now."

 

Great Bay did its first royalty deal in December on a portfolio of hydro and solar assets.

 

https://www.greatbayrenewables.com/Great-Bay-Renewables/wp-content/uploads/2018/04/GBR_Collateral_032818_final-1.pdf

 

Altius also seems to be interested in acquiring royalties on non-finite, or infinite, resources. From the MD&A: "It has long had an interest in the renewable energy sector in the belief that the resource lives of renewable energy sources such as wind, sun and water are infinite."

 

Again the theme seems to be capturing long-dated revenue that the financial models assign no value to. Example: doing a deal valued upon the first 15 years of revenue from a hydropower plant, but the plant potentially lasting a hundred years or more.

[linealdin]

Why partner with Great Bay? Credibility and deal flow.

 

Altius has a great reputation in the mining/royalty space. It has no reputation in the energy or renewable energy space. The principals at Great Bay have been buying, owning, operating and selling renewable power plants since the 1990's. They have the relationships to create the deal flow.

 

Also, Altius has some cash and good revenue but these power plants are expensive to finance. (BayCorp, where most of the Great Bay principals come from was part owner of a Florida biomass plant that sold for US$750 million. This is big business.) A really good deal might be too expensive for Altius to finance alone. Syndicating the costs with one or more partners makes a lot of sense.

 

 

[linealdin]

As for pumping the coal royalties into Blue Sky? A kooky idea.

 

I think Altius feels it is punished by the market for receiving coal revenue. This is a way of green-washing that dirty money.

 

This whole venture is inspired by the proposed litigation against Alberta for cutting short the Genesee plant life. Altius's hope is that the parties will come to a mutually beneficial settlement: Alberta gives some cash as compensation to Altius/Blue Sky, which will then use that cash to finance new renewable energy projects in Alberta.

[linealdin]

Questions, questions, questions:

 

Is there a first mover advantage to being the first royalty player in the renewable energy space?

 

Does size matter? In mining you want to be involved with majors or mid-majors building and operating mines. In the renewable space there are lots of smaller projects. Are the smaller projects profitable? Or do you have to go big?

 

Does Blue Sky stay private forever like BayCorp Holdings? Or is it a business model that will intrigue enough retail investors to support a public vehicle?

 

Was Altius inspired by mining legend Ross Beaty's move into renewable energy with Alterra Power?

 

How many significant deals can Blue Sky close in the next 12 months?

 

How many years will it take for Blue Sky to surpass Altius's market cap and/or annual revenue?

[nostradamus]

Also, very surprised when I read this.

 

Agree that it seems to be a green washing exercise. I assume that they will have a veto on any project and so I'm not so concerned about the idea of losing control of the royalty revenues. I'm more concerned about the risk of something that is untested.

 

The question about the first mover advantage is critical. There are probably loads of mistakes that can be made by first movers.

 

Hmmm.

[linealdin]

I will also note the Basecore Metals deal as a model. 50/50 joint venture between Ontario Teachers pension fund and Glencore. Ontario Teachers contributed $150 million for its stake, while Glencore contributed its royalty portfolio. The resulting vehicle has a mandate to purchase more base metals royalties.

 

Imagine that deal structure: Great Bay Renewables contributes C$100 million for 50% of Blue Sky Royalties, while Altius contributes its coal royalty package for its 50% stake. The resulting vehicle has a significant amount of cash and revenue and a mandate to acquire more renewable energy royalties.

 

The vehicle stays private for a few years with a goal of gaining enough weight to support major IPO. Goal of an IPO that values Blue Sky at a half a billion or more.

 

No competitors. Renewables as the fastest growing segment of the energy market. Very, very interesting.

[linealdin]

http://altiusminerals.com/uploads/2018-05-15-AGM-FINAL.pdf

 

Awesome new presentation for today’s AGM. More details on Blue Sky royalties. Adia Resources Inc. created to house the Lynx diamond project. Multiple industry leaders prepared to co-invest. Adia will be taken public in late 2018 or 2019.

 

Drill budgets for Altius’s junior partners. C$39 million in partner-funded drilling in 2018; 40 kilometers total drilling (that 40K meters does NOT include the many thousands of meters Yamana is drilling on the Chapada land package).

[linealdin]

Conference call: Blue Sky royalties will be a partially owned subsidiary for now, just like the 91% owned Potash Royalty Limited Partnership. So those coal royalties, even if assigned to Blue Sky, will still show up on the Altius balance sheet.

 

Once Blue Sky reaches critical mass there could be a discussion about spinning it out as a private or public vehicle. Dalton promises that a spinout would only happen if it benefits Altius shareholders.

[linealdin]

Conference call:

 

The potash mines that Altius has royalties on can increase production by 71% to reach nameplate production (a result of C$9 billion in investment in expansion). Altius sees world potash demand increasing by 4% to 5% on a compound annual basis, so it sees that potential 71% production growth happening over the next 10 years.

 

Altius thinks potash prices must double from current levels to reach the incentive price for new greenfield potash mines. Thus the current producers are largely protected from upstart competitors.

 

A brief mention that Teck announced on its recent investor day plans to study potential capital investments to extend Cheviot’s mine life past 2021. Altius’s presentation indicates that Cheviot could have another 13 years of mine life based upon reserves, and another 11 years beyond that based on measured & indicated resources.

 

The renewable energy royalty model has been studied by Altius for 18 months. Discussions of potential royalty financing have begun with operators and developers.

 

A new credit facility will replace the current term and revolver. The new facility will be larger than the old credit facilities recognizing Altius’s revenue growth. The old facilities obtained in 2016 totaled C$150 million (C$70 million term facility and C$80 million revolver). So I expect the new credit facility to be C$200 million or larger.

 

There’s currently C$128 million in debt that needs to be refinanced so that would leave C$72 million or more as firepower to acquire new royalties.

[linealdin]

https://www.hydroworld.com/articles/2018/02/gravity-renewables-acquires-pair-of-vermont-small-hydro-projects.html

 

These are the two small hydropower plants and co-located solar facility that was sold by Great Bay in December, leaving Great Bay with a royalty on production. Newport and West Charleston plants on the Clyde River in Vermont. Just 4 MW of hydro at Newport, 675 kw of hydro at West Charleston, and a 150 kw solar facility at Newport. This small royalty will be assigned to the Blue Sky Royalties vehicle.

[linealdin]

Pitfalls and Prizes:

 

The biggest miss that Baycorp Holdings was involved with, through Energy Management Inc., was the 468 MW Cape Wind project, a proposed US$2.6 billion offshore wind farm that was killed by local opposition in Martha's Vineyard and Nantucket.

 

Their biggest win was selling the Gainesville Renewable Energy Center, a 102.5 MW biomass plant to the City of Gainesville for US$754 million.

 

*

 

The key for Blue Sky will obviously be execution. Financing the right projects, avoiding projects that are opposed by locals, choosing developers that can technically execute on budget. There will be many, many billions of capex for renewable projects that needs to be financed over the next 20 years in North America. A good renewable energy project can obtain $1 billion in capex financing (unlike a certain Labrador iron ore project). Governments want to be spend on these projects, international finance groups are chasing these projects.

 

Blue Sky just needs to carve out the right royalty stakes from that deal flow.

 

 

[linealdin]

http://altiusminerals.com/uploads/2018-05-15-AGM-FINAL.pdf

 

"Private company Adia Resources Inc. created and multiple recognized industry leaders prepared to co-invest with Altius; considering the launch of a new public vehicle 2018-19."

 

My question: are we talking about recognized resource industry leaders like Greenstone Capital, John Tognetti and Rick Rule (the usual suspects who finance Altius spinouts) or are we talking about diamond industry leaders like DeBeers and BHP? I hope it is the latter.

 

The plan for 2018 is spending C$3 million on a drilling and bulk sampling program. The Lynx diamond deposit looks like it could be very large but it is also under a huge body of water.

[linealdin]

I suspect Altius won't officially assign any Prairie coal royalties (or even capital) into the Blue Sky Royalties structure until a few cornerstone renewable energy royalty deals are locked in. Significant deals.

 

This isn't going to be a blind bet. Great Bay will bring Altius some solid accretive deals in the near future, and those deals will be closed, or nothing will be done with the coal royalties.

 

I understand the skepticism of Altius investors. We know how much revenue those coal royalties will produce in the next 12 years. We have no idea how much one of these renewable energy royalties will cost, and how much revenue they will produce.

 

BaseCore Metals probably made a mistake by creating a vehicle, with significant amounts of cash and royalty revenue, without having any investment deals ready. Altius and Great Bay will bring something solid to the table before anything irrevocable is committed to.

[linealdin]

A real advantage to assigning the coal royalties into Blue Sky: there's a hedge against the early termination of Genesee and Sheerness (early as in the early 2020's).

 

Let's say Altius assigns its coal royalties (which should bring in C$16 million a year) into Blue Sky for a 50% stake in the company. Great Bay pays C$80 million for its 50% stake in Blue Sky. Then the companies take the C$80 million and make some accretive, long-lasting royalty deals in the renewable space in the next year or two.

 

Then disaster strikes. Capital Power and Transalta announce they are shutting down Genesee and Sheerness in 2022, eight years earlier than expected.

 

The shutdowns would still hurt Altius as a 50% equity holder in Blue Sky, which would suddenly lose a lot of revenue. But Altius would still enjoy 50% of the long-lasting revenue from the new royalty deals Blue Sky signed. They don't have to give the money back. With no Blue Sky deal Altius would be left with nothing in an early coal termination scenario.

 

If Blue Sky happens and yet there's no early termination of Genesee and Sheerness before 2030: no real harm done. Altius would still be a 50% owner of Blue Sky, and of the coal royalties, and would help direct how the revenue from the coal royalties are re-invested.

[mikek]

There is definitely harm done if they last to 2030, you realistically just sold that coal cash flow for 80 million that you no longer have direct control of in your example.  It's definitely not a win win no matter what.  I don't think Gen and Shearness are likely to shutdown in 2022.  I agree that it does give some hedge but this deal would all depend on the number they actually get for putting the coal royalties into that vehicle.  Seems like it will just confuse investors some more.....  I rather just take our chances with the coal royalties that they have and invest directly if they want to put cash into it.  They are likely to get a very low valuation for the coal royalties.  Cash flow goes into this vehicle instead of directly to Altius, I'm not saying those guys are going to invest the funds badly but there is definitely a difference between getting cash directly into the parent instead of into a partnership.  The potash situation is different because cash goes directly to Altius while in this case those funds would be reinvested by the partnership.

 

My opinion is that Altius will not get a good deal with that setup, that is my opinion. I see what they are trying to accomplish I just don't like it. Basically, getting too cute, just invest directly and call it a day is what I would do.

[linealdin]

There is definitely harm done if they last to 2030, you realistically just sold that coal cash flow for 80 million that you no longer have direct control of in your example.  It's definitely not a win win no matter what.  I don't think Gen and Shearness are likely to shutdown in 2022.  I agree that it does give some hedge but this deal would all depend on the number they actually get for putting the coal royalties into that vehicle.  Seems like it will just confuse investors some more.....  I rather just take our chances with the coal royalties that they have and invest directly if they want to put cash into it.  They are likely to get a very low valuation for the coal royalties.  Cash flow goes into this vehicle instead of directly to Altius, I'm not saying those guys are going to invest the funds badly but there is definitely a difference between getting cash directly into the parent instead of into a partnership.  The potash situation is different because cash goes directly to Altius while in this case those funds would be reinvested by the partnership.

 

This is going to be a show and prove situation. Injecting the coal royalties into Blue Sky is different from selling the coal royalties for C$80 million to C$100 million in cash, which I agree would be pointless. Altius will only inject the royalties if there are really good deals lined up and ready to close. The C$80 million to C$100 million has to be put to use immediately.

 

Deals good enough to change your mind, hopefully.

[linealdin]

Some of this skepticism about Blue Sky is anti-renewables bias. I’m guilty of that. I think wind power is retarded. Baseload power like hydro and geothermal I love, however.

 

If Altius were partnering with a deep pocketed US private equity firm to invest in, say, oil royalties? We’d all be thrilled.

 

But the reality is the competition for traditional oil & gas royalty packages is fierce. Even Franco-Nevada is buying oil royalties. The returns are low. The well lives are short. The competition for financing renewable royalty deals? Nil, at the moment. That should mean higher returns are possible. And the royalties should pay for as long as the turbines turn and the solar cells last.

 

All in theory, of course. They must show us what is possible.