ALS.TO - Altius Minerals

[Guest Dazel]

Ross182,

 

Thanks...i know you are being negative...so added a few corrections and higher assumtions.

 

 

-Kami has apllied for 16 million tons a year...on your numbers at $140t x 16mt Alderon would be $460m

 

-if they would sell the Voisey bay for $20m they would be locked up...$4m normal annualized. 30x $4m=$120 we think higher because of the nickel situation in indonesia.

 

-rambler gone.

 

- where is the $175m cash and the $25m with Cranberry capital?

 

Dazel.

 

 

 

[JAllen]

8M tons a year implies a 60 year mine life at ~500M tons.  They have, very probably, 1B+ tons.  A 50 year mine life implies 20 tons a year.  These iron ore companies typically ramp up to twice, at least their initial production 5 years after the initial mine has started.

 

The Alderon royalty NPV is $17.5 per Altius share with these assumptions: $80 beginning iron ore price growing at 3% per year; 9% discount rate; 8M tons (starting 2016), 10, 12, 14, 16 up to 30 M tons production in 2028 staying at 30 tons per year until 2046 (cumulative 767 tons of production).

 

Change the starting price to $120 and it's $27 per Altius share; $150 and it's $34/share.

[FFHWatcher]

Questions/Comments

 

What am I missing with your math numbers?

-Kami has apllied for 16 million tons a year...on your numbers at $140t x 16mt Alderon would be $460m

$100*95%*4.8*3%  Why did you use 4.8M mt ?  That is just what Hebei is buying.

 

 

 

Alderon Corp Presentation shows 15 year mine life

 

Is this a correct summary as to what the transaction is?

$106M for 25% of Kami project in the new LP (Alderon retains 75% of LP)

25% ownership in Alderon via $88M share purchase of treasury Shares

All money ($88M + $106M) spent to develop this $1B project.

Remaining $$ ($500m - $1B) needed will be financed via debt/equity/other JVs

 

Hopefullly Altius' 3% royalty is on the entire mining operations at Kami, not just 3% on Alderon.

 

Is Altius potential 3% royalty as easy as;

8M mt x $100-140/t x 3%? Maybe $25-30M/yr once it gets into commercial production in approx. 2015/2016. Or am I missing a step?

 

 

 

[Ross812]

Dazel,

 

I was working off memory and some jotted notes from reading the 2010 annual report.

 

Current assets are 176 million 31 Jan 12. Of that 50.6 million is cash and taxes receivable. They don't have 175 million in cash.

I didn't see the 25m Cranberry capital anywhere. How do you value the J/V? at 50% or 80%?

 

I very well may be off on the NPV of the Alderon 3% Royalty. 4.8mt has been spoken for by Hebei; they may hit 16mt but even at 8mt the valuation is compelling. pof4520, this is going to be a show me stock, no one is going to give them a NPV on 20mt a year. I started with a ore price growing at 3% a year but went back to 0% because I don't see Iron ore growing in excess of inflation from here. China is going though a major build out right now. I don't see it increasing in speed. 9%, 11% what is the correct benchmark? Should you discount iron or at the developing world's GDP growth rate? I chose the risk free rate + China's current GDP growth rate... It seemed conservative.

 

I value Alderon Shares at $3.4, cost at the Hebei investment 33m shares = $112m

 

In the 2010 annual report Altius recognized 15.3 million in 7 years of owning the Voisey BAy Royalty, 2.18m per year; I used 2.25m. They made 3m 9 months ending 31 Jan 12, 4.1m 2009, 1.7m 2010. I like your 4m number. A DCF at 0% growth, 11% discount gives NPV of 36.3m.

 

Alderon shares + Royalty NPV (8mt at $100, 0% G, 11% D)

112 + 218 = $330m

 

Voisey- 36 m

 

Millrock- 2.3m

 

Labrador Iron Props- 30m

 

Cranberry at 50% - 12.5m

 

Cash- 50m

 

Total - $460m + free options galore

24% margin of safety at today's price

Back out Alderon though (if something goes bust, 10% chance?) the valuation gets a lot harder to justify...

 

Basically assigning value to the Alderon royalty. Discounting their 80m in investments in associates. And assigning a more reasonable value to Voisey (on the books for 9.6m)

[barminov]

From last Q:

 

Cash $49.5

Marketable Securities $124.4

 

"Marketable securities consist of Canadian government guaranteed and corporate backed commercial paper,

bonds and marketable securities  with original maturities of greater than three months at the time of

purchase."

 

I think it's pretty safe to call that cash or "cash equivalents." Where/how are you getting $50.6?

[JAllen]

Altius invested $25M in Cranberry.

 

http://www.24hgold.com/english/news-company-gold-silver-altius-partners-with-cranberry-capital-to-create-new-company.aspx?articleid=650579

[Green King]

So this is done right ?

Is there any other risks out there other than China Blow up? (Very Low)

ALS can get 15% ROE no problems over the next five years ?

 

We are just arguing about how much. Right?

 

[Ross812]

From last Q:

 

Cash $49.5

Marketable Securities $124.4

 

"Marketable securities consist of Canadian government guaranteed and corporate backed commercial paper,

bonds and marketable securities  with original maturities of greater than three months at the time of

purchase."

 

I think it's pretty safe to call that cash or "cash equivalents." Where/how are you getting $50.6?

50.6 is cash + income tax receivable on the 31 Jan 2012 report. As for124.4 in marketable securities, their description was veg. Does this include alderon? They made 1m, off the top of my head, in interest expense. So these marketable securities, ie bonds are yielding .8%? Something doesn't add up unless this is revering to shares in partners. The 80m on the last reported as interest with partners is not enough for alderon and cranberry.

 

As for cranberry, thanks it wasn't in the reports I read.

 

 

[Guest Dazel]

 

 

I know it sounds wrong but the cash equivalents are $175m...the Alderon shares are separate.....if you include the Alderon shares altius basically trades for cash...an absolutely stupid price.

 

The yield is low because interest rates are low on government paper. None of the royalties are in the Altius price...

 

I will do some detail on this and start another thread...this one is too long...

 

Dazel.

[shalab]

Total equity is 287 million per last Quarter report. (Jan 12) It maps Alderon stake separately (investment in associates ) and values that and the sparkfly stake together around 85 million. See section 8 of the quarterly report attached.

 

Page 3 has total equity at ~287 million.

 

als.PDF

[biaggio]

Agree with Shalab + Dazel

 

Putting  #'s that Ross812 provided + corrected current asset value I get:

 

 

Current assets are 176 million 31 Jan 12. Of that 50.6 million is cash and taxes receivable.

 

Voisey BAy Royalty, NPV of 36.3m.

 

Alderon shares + Royalty NPV (8mt at $100, 0% G, 11% D)

112 + 218 = $330m

 

 

Millrock- 2.3m

 

Labrador Iron Props- 30m

 

Cranberry at 50% - 25m

 

Total - ~$599m + free options galore

 

29.8 million shares= ~$20 per share

 

~40% margin of safety at today's price

 

Seems like a good story + find by Dazel, have been adding in + now one of my biggest holdings. Thanks to all. (This proclamation should give us another buying opportunity in the near term)

 

[Ross812]

Thanks everyone,

 

The cash position was confusing. Altius seems to be a pretty simple company, but it has a lot of moving parts.

 

Assuming the 124.4 million is government paper, this is trading for its liquidation cost at a minimum.

 

Current Assets @ 95%- 167m

Voisey Royalty @ 75%-  27m

Alderon Shares @ 60%-  67m

Alderon Royalty @ 20%-  44m

Labrador Props @ 60%- 18m

Cranberry @ 50%- 12.5m

Millrock @ 60%- 1.4m

 

total- 337m

 

There is a lot of guessing in there, but 337m seems like a conservative floor. The best part is this is not a cigar butt company and should be trading at a 600m market cap. At 600m there are still all kinds of free call options that could make Altius even more valuable. Being able to buy this near its liquidation value is remarkable.

 

Thanks Dazel

 

 

 

[Guest Dazel]

 

What is missing? The value of the Alderon position...now that they have secured financing and things look like they are headed to production...here is what we see.

 

Look at a Labrador iron ore royalty for an almost exact model for Altius ownership positon in Alderon. Labrador iron ore royalty to us shows us looks like what a mature Altius would look like (on this one asset-Alderon).

 

So forget the rest Altius for now...this is a spin out scenario.

 

Labrador iron ore owns 15.1% of the iron ore company of Canada...they have been diluted like Altius will be for a smaller piece of a bigger market cap.Rio Tinto owns 58.72%, mitsubshi 26.18%.

 

Altius will get diluted as the project gets built out...so we use 15% ownership the same as Labrador iron ore and a 3% royalty compared to 7% at Labrador royalty.

 

Altius Royalty Corp (hypothetical spin out)

 

Royalty income

$28m (net of 20% Newfoundland royalty tax)

-8mtX$145t= 1.16b @ 3%=$35m @20% tax royalty tax= $28m

 

Equity income

Alderon- PEA numbers

8mtX$145-$45 (total operating costs)= $800m profit

 

We will use $500m.

 

Altius royalty Corp. Income $75m @22.5m tax (30%)

$52.5m

 

Total income to Altius

$82.5m

 

Labrador iron ore trades at 10 times income

 

Altius royalty Corp at this valuation

$825m

 

When Alderon reaches 16mt production you can double your numbers....

$1.65 billion market cap.

 

You can discount how you like as you see we have done with the income from Alderon....reducing it to $500m....from the $800m @30% tax=$660m

 

NO ONE is running the numbers on how huge Alderon is for Altius. We welcome negative scenario's including a drop in the price of Iron ore...please someone run some numbers...

 

Disclosure

We own a lot Altius shares.

 

Dazel.

 

 

[Liberty]

Conf call tomorrow morning at 9:30:

 

http://www.alderonironore.com/_resources/news/2012-04-16-NewsRelease.pdf

[Guest Dazel]

 

For the china watchers...government letting the market know they are  loosening monetary policy.

 

http://www.bloomberg.com/news/2012-04-19/china-s-central-bank-to-ensure-liquidity-xinhua-says.html

[Guest Dazel]

http://www.businessweek.com/news/2012-04-24/coal-seen-rebounding-as-china-sets-steel-output-record

 

 

No one talks much about India but they have big plans for steel as you can see from the article.

 

Dazel.

[beerbaron]

http://www.businessweek.com/news/2012-04-24/coal-seen-rebounding-as-china-sets-steel-output-record

 

 

No one talks much about India but they have big plans for steel as you can see from the article.

 

Dazel.

 

You sure are a preacher for this idea Dazel :)

[Liberty]

http://www.montrealgazette.com/business/Huge+mining+projects+works/6513364/story.html

[prunes]

Random thoughts:

 

Alderon trades at a 90% discount to the NPV of its primary site. Anyone know of any comps for other junior miners at this stage in the development process? Is this fair? The market seems to be giving Alderon a 10% chance of hitting this plan.

 

I liked the slide in the Alderon investor deck showing Beijing / Shanghai steel consumption per capita compared to the interior cities.

 

Alderon still needs to find a large slug of capital to fund development. The Hebei deal is promising. Eventually Alderon will need to sell equity to one of the majors. At this point would we expect ALS to sell some of its equity to the major as well?

 

Agreed that the real value for ALS is in getting Alderon producing. The royalty will be very valuable and isn't being recognized by the market at all. What is Alderon's plan if China melts down before production starts?

 

Seems like there's a lot of key man risk at ALS. What's been the key to ALS's success at exploration and execution? Dalton is young and owns a decent chunk of the company so he's not likely to go anywhere. The other major key man risk would be with the geological staff I think? Part of the reason why the company has done so well is because ALS practices geographical specialization. How long before ALS needs to expand outside Newfoundland and Labrador? How can we evaluate how much the company's previous successes have been due to luck? How can we evaluate the odds that the company can repeat its successes in the future?

 

Seems like Alderon is the biggest catalyst for ALS but that value from this catalyst probably won't be recognized until 2015 at the earliest. Correct or incorrect?

[Liberty]

http://www.marketwatch.com/story/alderon-receives-initial-results-from-final-drill-program-before-feasibility-study-2012-05-01-831150?reflink=MW_news_stmp

 

Alderon Iron Ore Corp. CA:ADV +2.46%  AXX +1.58%  ("Alderon" or the "Company") is pleased to announce the first set of assay results from the ongoing drill program on its Kamistiatusset ("Kami") Iron Ore Project in western Labrador. The majority of these results are from the North Rose area and are all within the currently defined mineral resource estimate. The program, which began in mid-January, has concentrated on infill drilling with the goal of upgrading the current mineral resource into the measured and indicated categories in preparation for the Feasibility Study expected in Q3 2012. Highlights include:

 

 

 

       

     

 -----------------------------------------------------------------------
        -----
                                  From             To       Interval
        Drill Hole             (metres)       (metres)       (metres)   Total Iron %
        ----------------------------------------------------------------------------
        K-12-176A                242.0          305.0           63.0            27.1
        ----------------------------------------------------------------------------
          and                    338.0          593.2          255.2            30.1
        ----------------------------------------------------------------------------
        K-12-179                 281.0          398.3          117.3            28.0
        ----------------------------------------------------------------------------
          and                    398.4          527.8          129.4            32.6
        ----------------------------------------------------------------------------
        K-12-182                  85.5          111.0           25.5            31.2
        ----------------------------------------------------------------------------
          and                    177.0          430.4          253.4            29.3
        ----------------------------------------------------------------------------
        K-12-184                  59.0           98.0           39.0            29.3
        ----------------------------------------------------------------------------
          and                    182.0          452.0          270.0            31.1
        ----------------------------------------------------------------------------
        K-12-188                  66.0          101.6           35.6            31.7
        ----------------------------------------------------------------------------
          and                    126.0          237.0          111.0            32.3
        ----------------------------------------------------------------------------

[Guest Dazel]

Prunes,

 

Catalysts.....

Alderon has been mentioned....it is obviously the elephant in the room.....if someone were looking to take out Alderon....Altius as a whole would be a logical target.

 

The resource area has been decimated over the last 12 months (the china story of implosion is old)...there are plent of investment banking opportunities out there who is to say we do not spend the $200m on IRC like investment...Altius could easily raise debt in the market for this type of opportunity...they have an excellent record here as well...Voisey bay royalty was a steal as well..Mill rock cost base is 0.

 

If china were to fall to pieces...there would be lots of opportunity for the cash.

 

Uranium has been forgotten because of Japan...that will not last long..the cost base of the Aurora royalty is $200m....uranium has huge catalysts...There has been major activity in the Canadian uranium market...the central belt has just been approved for activity (march) after a 3 year moratorium...Paladin has big plans for the central belt

 

There is a huge pipeline....especially in iron ore...management has proven itself here before...as for the future discoveries...they are a bonus...we are not paying anything for them.

 

 

Brian Dalton has proven to be a superstar but he obviously has a great team around him...His large chunk of the company aligns his interests with yours....as for the future there knowledge in the royalty area would make the investment banking area very promissing especially if they did sell off the Alderon equity.

 

Dazel.

[BRK7]

Jim Chanos was interviewed today (I think) at the Milken conference, and had the following to say on Fortescue (which he has sold short):

 

Chanos:  “over 90% of Fortescue’s revenues in iron ore go to China.  They are expanding aggressively and bringing on new capacity, just at the point at which I think iron ore demand will drop.  Iron Ore (in 2012 dollars) basically traded at between $40-$50/MT for the better part of 110 years.  In 2005, the price chart does a hockey stick up to $200/MT, and iron ore now is trading at about $150/MT.  The cost of pulling this stuff out of the ground is still no more than $30-$40/MT.  This is not a “rare earth” metal--there is iron ore everywhere around the world.  Everybody and his brother is going to be mining this stuff to try to sell it to the Chinese. “

 

Now, I’m not a big fan of Chanos, but his comments got me thinking about a scenario in which iron ore prices decline sharply (not forecasting this necessarily, just to trying to explore the implications).  If I recall correctly, Alderon’s PEA assumed operating costs of about $45/MT in addition to nearly $1B in capital costs. At what iron ore price does it no longer make sense for Kami to get funded/operate?  Alternatively, where is Alederon/Kami in the cost curve?  Will they be among the low-cost producers?

 

[BRK7]

milken institute panel on commodities (1hr,15min):

 

http://www.milkeninstitute.org/presentations/mediapage.taf?ID=3427

 

[netnet]

Uranium has been forgotten because of Japan...that will not last long..the cost base of the Aurora royalty is $200m....uranium has huge catalysts

 

Cost to Paladin was 210M, (gross proceeds to Altius 210M).  Cost to Altius 650K!

 

Dazel, if I might ask, with what metric do you evaluate the pipeline? (that you might care to share)

For me frankly all I can say is that Altius is trading on cash plus securities with no royalty upside counted, (look how various royalty companies trade) and no Alderon upside.

 

Hence I like the name as well, but I can not get a handle on best, average and worst case on potential projects.  Now that may be a fool's errand to try.  One could argue that it is rather more productive to look at what Dalton has done; figure he has a runway, a pile of cash to take off the runway and buy and buy big into Altius!  Frankly I can find no holes in either the (current) price, the value of the company, the team running it, or the future--and that's even with a severe Chinese downturn.  This really does look like one of those, "well honey I think I found a pot of gold (or a thirty something Warren Buffett--although I hate when people say this.  Better, how about a thirty something Seymour Schulich.) " Put a 10-25% of net worth in and go to the beach.

[Green King]

I would also like to know how you value the pipeline.

Please

:D