ALS.TO - Altius Minerals

[nostradamus]

 

Q2 2018 Voiseys Bay royalty revenue of C$286K is NOT representative of the long-term potential. Vale made a strategic decision to decrease production (35.8% lower than in Q2 2017). Long Harbour is still ramping up and they wanted to extend the open pit mine life so that the underground mine could be financed and built without a work stoppage.

 

We will see higher revenue when Long Harbour is processing at full capacity.

Thanks linealdin, very helpful.

[linealdin]

 

Q2 2018 Voisey’s Bay royalty revenue of C$286K is NOT representative of the long-term potential. Vale made a strategic decision to decrease production (35.8% lower than in Q2 2017). Long Harbour is still ramping up and they wanted to extend the open pit mine life so that the underground mine could be financed and built without a work stoppage.

 

We will see higher revenue when Long Harbour is processing at full capacity.

Thanks linealdin, very helpful.

 

Production at Voisey’s Bay could be 40.4% higher. Q2 Long Harbour production at annualized rate of 35,600 tonnes versus full design capacity of 50,000 tonnes annually.

 

40.4% upside is meaningful.

[wachtwoord]

Does anyone understand this settlement? Sound like Vale getting 100% what they want while Altius' case seemed really strong.

 

Sets a terrible precedent of Altius chickening out as well ....

[mikek]

I agree 100 percent with wachtwood, not sure what in the world Altius is doing here. Was the contract worded very badly and Altius messed up on the contract when the original deal happened? What a complete joke. Vale underpays for many years, stops paying for a couple years and now gets 50 percent of the prior royalty?? What are our other royalties really worth? Why wouldn't our other counterparties just stop paying and take the chance? Not sure how anyone can put a positive spin on this. All I see from Altius management is surprises to the downside. This trial was also in their own backyard. If you can't protect your assets in this case - wow..... I would love to hear a real response from Altius on this and to tell shareholders why they believe their current royalties have value if they are willing to completely get screwed over in a case where it looked like they had the upper hand. Very disappointed. Anyone putting a positive spin on this has lost their mind unless we are missing a lot of undisclosed information. I'm being serious here, how can Altius shareholders have any confidence in the current royalties unless we are missing something completely here.

[linealdin]

Does anyone understand this settlement? Sound like Vale getting 100% what they want while Altius' case seemed really strong.

 

Sets a terrible precedent of Altius chickening out as well ....

 

Have to remember that Vale was doing shady stuff with low-priced intercompany transfers over the whole period the royalty was paid. The settlement eliminates that nonsense, which was probably cutting 30% off the market price already.

 

Now Altius gets a full market price for the commodities Vale sells, while tying the royalty percentage coverage to the commodity price. In a high commodity price scenario Altius receives close to the full 0.3% royalty, at the full market price, with no inter-company transfer pricing.

[linealdin]

I agree 100 percent with wachtwood, not sure what in the world Altius is doing here. Was the contract worded very badly and Altius messed up on the contract when the original deal happened? What a complete joke. Vale underpays for many years, stops paying for a couple years and now gets 50 percent of the prior royalty?? What are our other royalties really worth? Why wouldn't our other counterparties just stop paying and take the chance? Not sure how anyone can put a positive spin on this. All I see from Altius management is surprises to the downside. This trial was also in their own backyard. If you can't protect your assets in this case - wow..... I would love to hear a real response from Altius on this and to tell shareholders why they believe their current royalties have value if they are willing to completely get screwed over in a case where it looked like they had the upper hand. Very disappointed. Anyone putting a positive spin on this has lost their mind unless we are missing a lot of undisclosed information. I'm being serious here, how can Altius shareholders have any confidence in the current royalties unless we are missing something completely here.

 

One factual correction: Altius had nothing to do with the original royalty contract’s wording. It was signed between the prospectors who discovered the deposit and Diamond Fields.

[mikek]

Seriously Linealdin? I like you man but I'm not sure how you can try to put a positive spin on this. Where is the back payment? These guys stole money for many years and stopped paying for two years and no back payment? Altius got punched in the face, they punched their mother in the face and Altius just took it, smiled and even thanked them for their kindness.

[bizaro86]

I don't mind this from a current value perspective, because I think the savings on legal fees, reduction in uncertainty, and getting the payments started now (present value) probably offsets the lost money somewhat.

 

I do agree that knuckling under doesn't set a good precedent.  I would comment that ALS only owns 10% of this royalty, so it may have been Royal Golds decision more than theirs.

[linealdin]

Seriously Linealdin? I like you man but I'm not sure how you can try to put a positive spin on this. Where is the back payment? These guys stole money for many years and stopped paying for two years and no back payment? Altius got punched in the face, they punched their mother in the face and Altius just took it, smiled and even thanked them for their kindness.

 

The cash component is usually not press released for confidential legal settlements. We should see something in the upcoming financials for Royal Gold and Altius.

[linealdin]

With

 

1) Long Harbour at full production,

 

2) Commodity price escalators kicking in with higher nickel and copper prices,

 

3) and the elimination of low priced inter-company transfers (important)

 

I expect Altius to receive the C$3 million annually it expected to receive from Voisey’s Bay over the long term.

 

The exact terms of the new royalty are confidential but the above sentence will either turn out to be true or false. I think it will be true, Altius will see C$3 million annually from VB.

 

I’m trying to get confirmation of backpay.

[mikek]

That is our only hope Bizaro, Royal Gold definitely had the main power in deciding on the decision. No question about that.

 

Fair enough Linealdin, I will wait to see what the settlement was before commenting. Still sticking with that it was an unfortunate outcome but I'm not a lawyer and I wasn't at that table.

[linealdin]

There’s significant uncertainty because the settlement terms are confidential. We know there are price escalators. We know at $2.67 copper we have 50% coverage. What does the nickel/copper price have to be for 75% coverage or 100% coverage?

 

Do we need $3 copper? $4 copper? Devil’s in the details.

[nostradamus]

Devils in the details.

Definitely true. And the details can be deliberately obscured so that both sides can claim they won. Time will tell.

[Williams406]

As has been said, there is a confidential part of the settlement. What is confidential today will be disclosed tomorrow. I like the resumption of a non-paying royalty and generally like price escalators if the timing is right. But whether or not I like this settlement overall depends on that unknown, confidential piece. It's hard to believe backpay wouldn't be a part of that, but we may not find that out until financials are released. If there is no backpay component and plaintiff allegations were true, I'll be ticked off.

[linealdin]

I’ve been told I miscalculated. The US$2.2 million Royal Gold noted in their press release is for their effective 2.7% royalty in Q2 2018.

 

Altius’s 0.3% royalty yields approximately US$244,444, or C$318,733, at current exchange rates. On an annualized basis that’s C$1.275 million.

 

Once Long Harbour is at full production that number should increase by 40%. And if commodity prices increase price escalators will increase the royalty by a unknown amount.

 

[linealdin]

Big picture:

 

Altius paid C$13 million for Voisey’s Bay. They’ve received C$32 million in royalties. The hope is Altius’s total take is C$100 million to C$200 million by the time VB is mined put.

 

Once the underground mine is built we’re going to see some new ore bodies being defined underground. They have targets already. Mine life extension is the juice. Similar nickel districts are in operation for 100 years.

[linealdin]

I didn’t realize Vale had ratcheted down production at VB over the last few years. With low production and low commodity prices Altius missed out on maybe C$4.5 million in royalties over that 2.25 years of non-payment.

 

Wheaton PM and Cobalt 27 are providing the financing to build the underground mine. Altius is going to enjoy the fruits of that investment.

 

Things could have gone in a different direction if cobalt prices didn’t boom when they did. Vale could have decided to shut down production when open pit mining ended in 2020.

 

[linealdin]

Update: no cash payment for Voisey’s Bay arrears.

[mikek]

Heh, I stand by my initial comment, definitely got taken to the cleaners. Not sure why they caved so easily. So they didn't even get anything for the two years that Vale stopped paying or we talking even prior to that? If they got zero cash that would be quite laughable if they didn't get anything for the 2 years that they stopped paying. Have to wonder what the Royal Gold/ Altius lawyers were doing.

[linealdin]

Heh, I stand by my initial comment, definitely got taken to the cleaners. Not sure why they caved so easily. So they didn't even get anything for the two years that Vale stopped paying or we talking even prior to that? If they got zero cash that would be quite laughable if they didn't get anything for the 2 years that they stopped paying. Have to wonder what the Royal Gold/ Altius lawyers were doing.

 

Zero cash. Period.

[StevieV]

Heh, I stand by my initial comment, definitely got taken to the cleaners. Not sure why they caved so easily. So they didn't even get anything for the two years that Vale stopped paying or we talking even prior to that? If they got zero cash that would be quite laughable if they didn't get anything for the 2 years that they stopped paying. Have to wonder what the Royal Gold/ Altius lawyers were doing.

 

Zero cash. Period.

 

They say anything else nice about the settlement.  E.g., we didn't get any cash, but ...

[linealdin]

The upside is a commodity price bull scenario. If nickel goes to the moon again Altius will receive more cash under the new terms than it would have received under the old way Vale did things.

 

Remember how the dispute started. The nickel price went over US$20 per pound but the annual royalty Altius was receiving was stuck at C$5 million. It didn’t make sense. Vale was “selling” the nickel in inter-company transfers that basically ignored that nickel was trading over $20 on the spot market.

 

Now the royalty will measure the “gross metal value,” based upon published commodity prices, of the concentrate Vale produces at Long Harbour, NOT what value it “sells” the concentrate for in made-up intercompany transfers. This change matters. Vale made big cuts to the royalty with those transfers.

 

But Altius only gets a royalty on 100% of the gross metal value if commodity prices are much higher. If Vale is making a lot of money from VB in a bull market then Altius also makes a lot of money. If commodity prices fall the royalty revenue decreases in an accelerated manner.

 

Altius is betting on higher prices.

[mikek]

So all those years Vale underpaid, stopped paying for 2 years and Altius got 0 back payment, 0 for 2 years of no payment and now 50% of their current royalty amount.  Sounds like Altius lawyers did quite an amazing job on that one.  Maybe we can buy them a cookie or give them a pat on the head for doing such an amazing job on that one.  Well done!  Not to mention this trial was taking place in Altius own backyard.  Definitely gives me great confidence if these guys ever have to go to litigation again.  Heck, maybe we can even pay for Vale's lawyer fees also.  Very embarrassing and not a good look for Altius.

 

"They say anything else nice about the settlement.  E.g., we didn't get any cash, but ..."

 

LOL!  I needed a good laugh- thank you sir.  A better question might be- What in the world were you guys thinking with this settlement?  All I can say is I really hope that contract was worded very badly and Royal Gold/ Altius didn't have much leg to stand on.  It's definitely possible that this is what truly happened but definitely was a unexpected loss.

[linealdin]

Important update from management:

 

Altius didn’t take a 50% haircut on the VB royalty. Complete misunderstanding on my part.

 

A typical NSR on a base metals deposit captures 56% to 60% of the “gross metals value” after taking into account typical processing and marketing charges and metal recoveries.

 

Altius and Royal Gold estimate their royalty will capture 50% of the “gross metals value” at current commodity prices, a higher percentage at higher commodity prices, and a lower percentage at lower commodity prices.

 

 

[mikek]

That is a good clarification, thank you for that.  Still not happy with the overall result but that definitely is a big change compared to thinking that they were only going to get half of the prior amount.