ALS.TO - Altius Minerals

[Gamecock-YT]

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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.

 

This is true, green bonds and social impact funds are getting to be very popular these days. But I guess my question to Altius would be part of what is Altius' foundation is being counter-cyclical, we all know and love the cycle chart they put in every presentation...basically proving capital when it's in short supply and spinning out projects when demand is there...It seems like these alternative energy projects would be darlings in terms of ease of getting capital for new project now based on the popularity mentioned before, so why is now the right time to do this? Just tough to wrap my head around how this works from beginning to end of a deal.

[linealdin]

The market dynamics for renewables are different than for traditional commodities. But these are the counter-cyclical aspects of the Blue Sky deal:

 

1) Royalty financing of renewable energy projects basically doesn’t exist. Altius and Great Bay are out there negotiating and closing the first deals. They are inventing the field by writing legally enforceable agreements. In 10 years this may all be different. A good renewable project in 10 years seeking royalty financing could be running an auction process with multiple deep-pocketed bidders.

 

Right now Blue Sky has first mover advantage. Franco Nevada had first mover advantage in the gold royalties field. Silver Wheaton invented streaming. Both companies enjoyed the advantage.

 

2) Renewables compete against traditional commodities for their share of the power generation pie. Natural gas has had a good market share in North America because it is cleaner than coal and because it is so cheap. But what if this is the bottom for the natural gas price (it is certainly not the top)? As natural gas prices rise renewables should become a more attractive alternative.

 

Oil just jumped from $45 to $70 in a few months. Will gas, uranium, and coal prices follow oil and rise out of their deep bear markets? The market dynamics are complex but renewables should be able to find more financing and sign better power supply contracts in a rising energy price environment.

[linealdin]

Altius had its first flirtation with renewable energy in 2005. Its royalty financing proposal for the Lower Churchill hydropower station was short-listed but finally rejected. They’ve been thinking about and researching renewable royalties for a long time.

[linealdin]

http://www.evrimresources.com/s/news-releases.asp?ReportID=825758

 

Evrim reveals plans for its $1.5 million Phase 3 program at Cuale: soil sampling, a fancy sounding audio-magnetic survey, and 650 meters of trenching in May and June. Then after drill targets are created a 3000 meter drill program in July.

 

Additional staking has increased the size of the project to the north. Now 232 square kilometers, or 59% larger. They found similar color soil anomalies as in the La Gloria discovery zone.

 

Much work seems to be going towards establishing that the mineralization is in a much larger area than the La Gloria trenching zone. More La Gloria-type mineralization hiding under thin cover?

 

http://www.evrimresources.com/i/pdf/ppt/2018-05-16-cuale-tcp-49cmHn.pdf

 

This is the technical presentation for Cuale. Slide 21 has all the expansion targets from the La Gloria zone: the North Dome, the quartz ribs etc.

 

This is quite an audacious claim: "La Gloria is a small erosional window into the mineralized part of system."

[linealdin]

https://www.greatbayrenewables.com/company/

 

The Great Bay Renewables website gives a preview of the investment parameters Blue Sky will have:

 

Target size of royalty investments per project: $5 million to $100 million. From very small to quite large.

 

Will consider the full spectrum of proven renewable technologies: solar, wind, hydroelectric, geothermal, biomass and energy storage.

 

Will buy royalties at any stage of project development, from permitting/design to construction and operations.

 

North America focus.

[linealdin]

http://aethonminerals.com/news/122491

 

Aethon Minerals signs an option deal to acquire the Llanos de Llahuin copper/gold project in Chile. Super cheap option deal; will only cost $100K for the first 6 months.

 

Aethon plans an aggressive exploration program in that 6 month period including mapping, channel and chip sampling, magnetics, IP survey, and a 1000 meter drill program. The plan is for four 250-meter holes space 300 meters apart. Trying to see if the supergene enrichment that's interpreted to be there actually is there. See presentation below.

 

If results are bad, then only $100K in option costs have been spent. They can cut bait at that point.

 

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https://www.asx.com.au/asxpdf/20150513/pdf/42yjy3rtt91z2c.pdf

 

This presentation from another company explains the Llanos de Llahuin project, including the Gomila prospect, and how it relates to the two deposits on either side of it. The 3 deposits are within 7km of each other.

 

I think Aethon's goal could be to sell the deposit to Hudbay if they make a discovery. Area has to be consolidated somehow. The deposits are very close to each other.

[linealdin]

http://shmining.com.au/images/SUH_110515_Gomila.pdf

 

There are 4 current and historical artisanal mining operations on the property Aethon just optioned. Lots of disseminated copper, gold and silver mineralization in the host rocks. Rich enough to attract the artisanal miners. Looks like a good acquisition.

 

I’m impressed how quickly Aethon management closed a deal. They’ve been working hard the last couple of months as the company was being set up.

[linealdin]

https://hotcopper.com.au/documentdownload?id=uOMxKKzFkiWRTLKhOROKAxjvTDYC6w28zRSZpfpske92GA%3D%3D

 

EMU claims they’ve discovered a significant high sulphidation epithermal gold/silver system at Vidalita. The company drilled an impressive 5451 meters this season. No assays yet to support their claim but they’ve drilled the same types of rock that they found at surface with good gold and silver values.

 

I guess this is visual confirmation of the drill core? No lengths of intercepts or grades, of course. A curious press release.

[linealdin]

http://www.adventuszinc.com/news/122502

 

Adventus reports on its Irish properties:

 

Seismic survey leads to new geological interpretation of Rathkeale and Lismore. 630 square kilometers staked to southwest of existing claims. Adventus will give up the Gaine River, Shrule and Moyvore blocks.

 

6 drill ready targets identified at Rathkeale. 2 drill targets at Lismore. A phase 2 diamond drilling program is being formulated.

[linealdin]

https://www.businessnews.com.au/article/Emu-Chilean-drill-campaign-reveals-exciting-geology

 

News story on the Vidalita drilling. Assays due by the end of the June quarter. Drilling showed visible sulphide mineralization and “wide intervals of the rock type, textures and alteration” consistent with the top of a high value epithermal system.

 

 

 

 

[linealdin]

http://aethonminerals.com/storage/presentations/aethon-minerals-may-16-2018-1526562539.pdf

 

New Aethon presentation with 3 slides on the recently optioned Llanos. The artisanal miners digging underground tunnels at Gomila exposed some very obvious high grade copper/gold mineralization. A lot of the early stage legwork has been done on this property by the previous owners. They've theorized that there's a buried copper/gold porphory system; the picture on slide 9 is a geological interpretation. The drill bit will quickly confirm or deny the theory.

 

Previous owner, Southern Hemisphere Mining, complained that it is difficult in Chile to assemble a coherent land package from the miscellaneous claims held by many different parties. Aethon has some work to do acquiring more concessions from private owners.

 

Slide 16 indicates that there's early joint venture interest for the properties in the Aethon portfolio. Aethon claims to have "strong relationships in place to form partnership alliances to help fund and finance select copper projects" (slide 5).

 

*

 

Robert Davies, the Aethon CEO, is a bit unusual in the depth of his work experience with majors. I wonder if he uses his relationships at Barrick, Kinross, and First Quantum (which acquired Inmet his former employer) to joint venture some of the properties.

[linealdin]

As to how the mechanics of a renewable energy royalty would work? Quite simply: Blue Sky would purchase a royalty on the gross revenue generated from the sales of electricity from a renewable energy plant.

 

Less room for dispute than most net smelter royalties (which involve deductions which could be disputed as with Voisey's Bay, in an extreme example).

 

The pressure point for the royalty holder would not involve the size of the resource (sun and wind are infinite) but the length and terms of the electricity supply contract that the renewable energy plant signs. The royalty could end with the end of the power supply contract. New technology could make an older renewable energy plant uneconomic to run once its contract is finished. Most power supply contracts seem to last for 10 to 20 years.

 

Once a contract is signed there's also no commodity price risk or upside, which is quite different from most commodity royalties. There's basically just a flat rate per kilowatt of electricity supplied, with perhaps a small adjustment for inflation.

 

The revenue should be steady and predictable.

 

I would also assume Altius wants to be involved with financing very new projects. There's constant technological change in renewables driving down cost. You want a royalty on the newest technology, which hopefully survives economically for a very long time. No one wants an old windmill.

[linealdin]

If Bloom Lake's success is the precursor to Kami being built then the initial signs are very good.

 

5 bulk carriers loaded with high quality Bloom Lake ore and on the sea headed to customers all over the world:

 

Magnus Oldendorff going to Qingdao port, China

Seaforce headed to Singapore

Suigo going to Kisarazu port, Japan

Berge Cristobal to Dangju port, South Korea

Lydia Oldendorff to Port Said, Egypt

 

Two more ships coming to pick up ore later this month.

 

Hubertus Oldendorff (200,000 tonne capacity) arriving on May 20th.

Sunrise (170,000 tonne capacity) arriving on May 27th.

 

909,108 tonnes sold from the first 5 carriers plus the two late May boats = 1,279,108 tonnes shipped by the end of May. That's 17.3% of the annual goal of 7.4 million tonnes.

 

Remarkable execution given that nameplate production won't be achieved until sometime in June. 

 

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The Champion stock price may not be where its shareholders want it to be (too much dilution) but the market cap is C$509 million. That looks like success. And there's certainly a path to $1 billion or higher market if they prove profitability on the financial statements.

[linealdin]

The Labrador Trough’s direct competition is marginal, low grade production from Australia. What Bloom Lake is going to prove is that high grade Trough ore is more profitable per tonne than the ore Fortescue mines. That is despite Fortescue having the lowest C1 mining costs in the world and much lower shipping costs to Asia.

 

The price that Bloom Lake receives for its 66% concentrate is double what Fortescue gets for its product. Fortescue can’t make up that difference even if they drive their C1 mining costs to zero.

 

The long term trend is that the Trough will continue to eat away at the huge Aussie piece of the pie. Cliffs closes its Western Australia iron ore operations (11 MTA) at the exact time Bloom Lake ramps up to full production (7.4 MTA). That’s not a random coincidence.

[linealdin]

Got a limit order executed on ATUSF at US$10.00, equivalent to an Altius stock price of C$12.88 at current exchange rates. Very pleasing.

[linealdin]

https://www.google.com/amp/edmontonjournal.com/business/energy/capital-power-sues-province-over-alleged-unreasonable-cut-to-coal-plant-closure-payments/amp

 

Capital Power, which owns the Genesee power plants, sues Alberta over a cut to its off-coal compensation payments. (ATCO CEO Nancy Southern also mentioned at their investor day that a lawsuit is something they would consider also).

 

The Altius lawsuit against Alberta is scheduled to be filed sometime in 2018. Whatever basis Capital Power has to sue is the same legal basis for Altius’s lawsuit. I don’t think Altius would be going down this route unless they believed there was some chance for victory at trial or through a settlement. They are serious-minded people; this is not a frivolous lawsuit. Win or lose it will cost them $1 million or more.

[linealdin]

http://avrupaminerals.com/_resources/presentations/Corporate-presentation-May-2018.pdf

 

New Avrupa Minerals presentation. Pictures of drilling and drill core logging for Alvito. Oz Minerals funded $1.005 million euros, or C$1.523 million in exploration expenses at Alvito in 2017. That was just prospecting/sampling/geophysics and doesn’t include the current 2100 meter drill program. Altius expected Oz/Avrupa would spend C$2 million at Alvito in 2018. The budget will blow past that. Costs are high in Europe.

 

(Total spend by Avrupa and previous partners before Oz signed on was 450,000 euros, or C$682,000.)

[linealdin]

Upward Trends with the Esterhazy and Rocanville royalties.

 

For Esterhazy:

 

Quarter ended March 31st, 2018: C$544K (including 8 days of Liberty potash)

2 month quarter ended December 31st, 2017: C$303K (excluding C$2.6 million true-up); C$454.5 on 3 month basis.

Quarter ended October 31st, 2017: C$355K

Quarter ended July 31st, 2017: C$293K

Quarter ended April 30th, 2017: C$214K

 

The royalty revision, besides the one-time C$2.6 million payment, means Esterhazy is yielding C$100K to C$200K more per quarter on a forward basis.

 

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For Rocanville:

 

Q 3/18: C$1.484 million (8 days of potash royalties)

Q 12/17: C$863K; C$1.295 million on 3 month basis

Q 10/17: C$1.155 million

Q 7/17: C$968K

Q 4/17: C$948K

Q 1/17: C$733K

 

The last two quarters have seen the impact of the McChip royalty (effective November 1st 2017) and a lot of production increases.

 

*

 

Next quarter I expect Rocanville to pop up to C$2.6 million, and Esterhazy to rise to C$950K.

 

[mikek]

Looks like shareholders weren't very happy with the latest decision, it does add more complications and confusion.  I do really like the recent potash acquisition and hopefully they get that debt refi deal asap.  But nonetheless, investors don't like uncertainty and that latest announcement wasn't a welcome surprise for many shareholders.  Whether it works out or not, time will tell but markets typically don't like management going into new areas that you wouldn't consider their expertise.  I personally don't mind getting into renewables but I think they are doing it the wrong way.  If they just came out and said they will be investing some capital into possible future deals in the renewable royalty sector people would have probably been ok with that. I think shareholders view it like I do that if Altius contributes their coal royalty portfolio they will come out with the short stick in that deal.  I also don't like it because cash flow will go directly to that vehicle and not the parent.  That is a big difference.  Think about it, a lot of investors are already confused with attributable revenue because of the joint ventures, just think what this will do....  I completely understand what they are trying to do but to be honest I don't think it's very intelligent from a lot of different ways.  Management doesn't seem very good at explaining the story or perception of some of the things they do.  I think a lot of investors have lost trust in management over the years and to be honest I can't really blame them. I felt like they were doing a lot of good things in the last couple of years but this move really puts a bad taste in my mouth.  Not to mention, they have said over the years how much room they have to grow in the "Diversified royalty sector" because it's such a small sector compared to the market caps of the diversified mining companies(slide 8 AGM).  If that is true, what in the world are they doing?  Just not the best thing to do from a optics standpoint.  Most of the things they have done over the years are likely to work out but the fact remains that if investors don't trust or understand what is going on it doesn't really matter.  Pretty disappointed in management, I know they haven't done anything yet but they need to be a little more aware on how certain things look and how investors will look at a move.  A royalty company is all about direct cash flow coming into the company and the company "reinvesting those cash flows themselves."  Basically, they are making a simple thing into a complicated thing and therefore they deserve to be punished by the market and rightfully so unfortunately.  Also, they still can find good royalty deals that make perfect sense on "stuff that they actually know."  For example, recent deals like potash deals, could even keep buying more Labrador Iron, I have no doubt that the strike isn't going to last forever.  It's things like this that just completely boggle my mind =(.  This post isn't coming from recent share price action, this comes from whether I think a move is value destructive or creates actual value for shareholders.

[gurjot]

Agree with mikek

[mikek]

Look, they are going out of their sweet zone for no reason. You have two lines of businesses that they have shown to have done decently well that compliment each other extremely well. They thought the market would have approved this so called "greening" idea that they have been working on for "18 months " but they got punched in the face. Stick to what you have been doing for the last 20 years. You have to ask yourself, how high are these returns going to even be when realistically you can find 8-12 percent yields right now on royalties that have 40-50 years proven reserves on some of the lowest cost mines in the world. This is just not very logical. If they feel they have nothing to do with capital because returns are too low in the future you can do that thing known as dividends or buying back shares. This isn't rocket science. Remember what happened when they outsourced investing decisions to Paul van eden? That was a train wreck. Not to mention all of the other complications this type of deal causes. It's very simple, you invest directly if you want to invest and the cash flows come back to you. The whole setup and idea of putting the coal royalties in this vehicle is just purely ludicrous and management dropped the ball on many levels here. It was a decision that the market really didn't expect from a management team that typically sticks to what they know and stays in their own backyard. You're outsourcing capital allocation decisions and you're likely to get a low valuation for what you're putting in. Not to mention all the other dumb things that a move like this shows to investors. Truly, a genius decision. Sorry, but it's just a horrible decision, even if it works out I still don't like it from the risk/reward/optics standpoint. This is also an area that realistically I don't think these type of returns are going to be so amazing that it's worth it. The more I think about it the more I hate this idea. These posts are coming from someone that really thinks highly of this management team and has respected what they have accomplished over the years but I will always comment if I think they are making a mistake.

[SharperDingaan]

We have no dog in ALS and think it's a generally well run company .... but we're inclined to agree.

Our own view is that ALS has access to too much capital, and its corroding their decisions; simply because we find it hard to believe that they would have made some of the same choices when they were 'poorer'.

 

The reality is that there's is a niche business, and like all niche's - there are capital (scale) limitations. Throw too much capital at it, and all you get is a long period of sh1te returns and eventual write-offs. Operationally the rational decision is to accept the excess capital and use it to try and diversify the business. Arguably, precisely what ALS is doing.

 

Shareholder wise, it is hard to see how the volatility from ongoing 'correction' doesn't hurt; and sadly it will have little to do with the company's efforts. Choices are very limited.

 

SD

 

 

[linealdin]

1) How do you know the market is punishing Altius for Blue Sky? Altius went on sale in February and March, too. This is just the latest random sale. I highly doubt that a couple of paragraphs in the MD&A about a new venture into renewable royalties is the direct cause of the sale. The market might make a judgment when actual money or coal royalties are assigned into Blue Sky to purchase actual royalties on actual power plants with actual electricity sales revenue.

 

I suspect the market will like the actual deals when they are consummated. It is premature and unfair to judge a book without reading it. The book will be published within the next 6 months or so.

 

2) How do you know Altius is giving up its decision-making power when allocating capital? Altius invested alongside Liberty and Tognetti when purchasing coal and potash royalties. They will invest alongside Great Bay on these deals. So what’s new?

 

3) Any renewable royalty revenue will indeed go directly on Altius’s quarterly financials. I’ve confirmed that with management. Any spinout, public or private, is a decision that is many years away. And may never happen.

 

[Gamecock-YT]

Remember what happened when they outsourced investing decisions to Paul van eden?

 

Have to say his name came to my mind as well when reading about the new company. I understand what they are going for and it makes sense to me, but for a company that's made it's name for being a diversified mining royalty company to go into a new area where their only expertise (or 'edge' if you like) is knowing about how to construct royalties it opens itself up to these kinds of questions. It's like the proverbial money burning a hole in one's pocket. History has shown they've gotten into trouble when they've strayed from 'what they know' (Van Eden and the oil refinery come to mind).

[mikek]

The difference with this partnership is that revenue isn't likely to be distributed back to Altius. Don't get me wrong, they have control of the entity and you're correct that they will likely have probably at least 50 percent of the partnership. I don't view it the same as the others because those vehicles were strictly used to receive cash flow and give it back to the holding company. This vehicle the cash flow is highly likely to be reinvested no matter what. This is the issue I have with it, not to mention the whole coal royalty situation. Management even commented that they weren't even sure if this type of vehicle really fits with a mining royalty company. That to me is not a good sign if realistically they are already having some doubts. I agree with SD, it seems they are reaching because they feel they have too much cash and access and that is the riskiest times when you feel you need to make deals just to put cash to work. This is actually the first decision that I can honestly say I completely disagree with. I know we don't have all the information yet but this is my opinion. I will fully eat my words and hope I do but I think SD summed it up very well. Companies with excess cash flow have shown to be good investments if management has the discipline to return excess capital back to shareholders and not try to grow for just purely growth sake. It's like they feel they can't move the needle without going into renewables in the future. I don't think that is true but this is what I feel they think and are trying to accomplish. Too much capital is dangerous if you're doing things you normally wouldn't do- SD hit that right on the head. It's very simple, you just dividend or buy back shares if you feel you don't have good opportunities. This is a extremely low cost business to run- PG is even cash flow positive, this is why shareholders were attracted to the company because they felt management would be disciplined. This decision tells me that they are reaching, that is my opinion. I'm telling you, I believe shareholders would be perfectly fine if Altius setup this partnership with cash, started out small and slow. By putting the coal royalties in you're saying this is going to be a decent sized bet and realistically as time goes on it's going to get bigger. This is the problem I feel shareholders likely see. I could be wrong but this is how I view it. Forget the share price, if shares jumped 10 percent I would have said the same exact thing. What I care about are the decisions and direction the company is going. Volatility is irrelevant to me, what is relevant are the decisions management are making and why.