ALS.TO - Altius Minerals

[bizaro86]

I don't think the 50% charge is as big a loss as people think. Vale was saying the smelter charges were 100% of the metal value, which is ridiculous, but zero isn't the right number either, and they are a permitted deduction.

[linealdin]

https://republicofmining.com/2011/09/26/vale’s-massive-newfoundland-nickel-refinery-takes-shape-by-paul-brent-canadian-mining-journal-–-september-2011/

 

This describes what happens at Long Harbour. Vale delivers a concentrated ore to Long Harbour, which will be 20% nickel, 2.4% copper, and 1% cobalt. This concentrate will, at that point, have a “gross metals value” based upon market prices for those commodities.

 

Then Long Harbour crushes, grinds, gases and leaches the concentrate to produce saleable rounds of pure nickel, copper and cobalt.

 

Of course the process can’t capture all the metal in the concentrate. There’s a target recovery rate for each commodity. Then there are processing and marketing charges.

 

After all that what Altius receives is a 0.3% royalty on 50% of the original gross metals value of the concentrate that arrived at Long Harbour. That percentage was negotiated to rise if commodity prices rise.

[linealdin]

http://www.labradorironore.com/News-Releases/Press-Release-Details/2018/Labrador-Iron-Ore-Royalty-Corporation---Cash-dividends-for-the-third-quarter-of-2018---055-per-common-share-comprised-of-a-regular-dividend-of-025-and-a-special-dividend-of-030/default.aspx

 

LIF declares a 55 cent dividend for Q3. Altius receives C$1.733 million.

 

IOC gave an huge C$59 million dividend to LIF (92 cents per LIF share) but LIF decided to build its cash position “pending the outcome of relevant strategic considerations.”

 

Meaning they are waiting to see if shareholders vote to allow them to buy a copper royalty, which they can probably pay for in cash.

 

Crazy! LIF could have paid a $1.25 dividend this quarter if they had decided to pass the IOC dividend on to its shareholders.

 

(And they still can if shareholders reject their copper royalty plan.)

[linealdin]

LIF just got a C$59 million dividend for its 15% equity shareholding in IOC. That means IOC just paid out a shocking C$393 million to all its shareholders. As a quarterly dividend!

 

IOC is rolling in cash because of quality and pellet premiums.

 

 

[linealdin]

Last full year of VB nickel royalties was the fiscal year ended April 2015: only C$2.5 million revenue. Nickel prices were significantly higher that year versus today’s price.

 

Lower prices and lower production = don’t expect great results in the short term. VB will be below C$2 million for a while. Nickel is still in a trough and Long Harbour is still ramping up. Neither of those things will last forever.

 

I’m certain we will see $10 nickel and max design capacity reached at Long Harbour during this bull cycle. You will see the renegotiated royalty produce outsize returns in that environment.

 

 

[Cigarbutt]

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 like the "concept" that includes an adjusted and variable NPV going forward and a "sunk" cost.

Details need to be analyzed but the settlement seems OK, just in the lower range of the more unfavorable outcomes.

Legal costs are probably very significant too.

 

Helpful to match past expectations with actual results once in a while. When a projected slam dunk becomes a rimshot, somehow the expected asset of this situation from the past has to be written down. When an asset write-down is officially recognized, the interesting questions are not about the actual timing of the recognition but more about when and especially why those assets should have been written down. With the new info now in the open, one could always evolve the "narrative" but perhaps, if the discount rate is to be "untouched", conservatively, a range of cash flow scenarios should be included and should take into account both the positive and the negative potential.

[linealdin]

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 like the "concept" that includes an adjusted and variable NPV going forward and a "sunk" cost.

Details need to be analyzed but the settlement seems OK, just in the lower range of the more unfavorable outcomes.

Legal costs are probably very significant too.

 

Helpful to match past expectations with actual results once in a while. When a projected slam dunk becomes a rimshot, somehow the expected asset of this situation from the past has to be written down. When an asset write-down is officially recognized, the interesting questions are not about the actual timing of the recognition but more about when and especially why those assets should have been written down. With the new info now in the open, one could always evolve the "narrative" but perhaps, if the discount rate is to be "untouched", conservatively, a range of cash flow scenarios should be included and should take into account both the positive and the negative potential.

 

Writedowns? The Voisey’s Bay royalty has a book value of C$5.717 million. How much of a writedown should Altius take? C$3 million? C$5 million?

 

Why not discount rate it to zero?

[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 like the "concept" that includes an adjusted and variable NPV going forward and a "sunk" cost.

Details need to be analyzed but the settlement seems OK, just in the lower range of the more unfavorable outcomes.

Legal costs are probably very significant too.

 

Helpful to match past expectations with actual results once in a while. When a projected slam dunk becomes a rimshot, somehow the expected asset of this situation from the past has to be written down. When an asset write-down is officially recognized, the interesting questions are not about the actual timing of the recognition but more about when and especially why those assets should have been written down. With the new info now in the open, one could always evolve the "narrative" but perhaps, if the discount rate is to be "untouched", conservatively, a range of cash flow scenarios should be included and should take into account both the positive and the negative potential.

 

Writedowns? The Voisey’s Bay royalty has a book value of C$5.717 million. How much of a writedown should Altius take? C$3 million? C$5 million?

 

Why not discount rate it to zero?

 

I doubt he means an IFRS writedown, as obviously this was a great investment in hindsight. However, I doubt anyone doing a sum of the parts valuation of ALS had Voisey's at $5.7 MM. If the expected value before was $20 MM in refunds plus an annual royalty per year (and you had suggested $20 MM in back payments very recently) then the fair value of the company is less when they don't collect any refunds.

 

That isn't an accounting refund but it does change the fair value of the company. 

 

[linealdin]

I wrote that C$20 million arrears was the max that Altius could possibly receive. I also acknowledged the possibility Altius could get zero: not a cent of arrears and not another cent of royalty. Vale could have lost at trial, dragged out multiple appeals for 15 years then declared bankruptcy for their Canadian subsidiary. These things happen.

 

The real result was something in the middle.

 

I’m not interested in these imaginary fluctuations in value. Altius was stupid cheap yesterday. It remains stupid cheap today.

[bizaro86]

Sure, but probably the expected value of that decision was $10mm or so. Figure they lose on the underpayment but win on the zero payments. Since an expected near term paymentof $10 mm evaporated, ALS is absolutely worth 10mm less.

 

I still think it's cheap, especially with the results coming out of LIF, but it's 10mm or so less cheap than it was.

 

I am glad the royalty is starting again, that helps, as getting those payments now has a better present value than after appeals are exhausted at some indeterminate future point.

[Cigarbutt]

^BTW, this is meant to be constructive criticism and this issue is mentioned only because I stuck my neck out too earlier in this thread versus the potential outcomes of the lawsuit.

 

I did mean adjustments from the point of view of a private investor's "book".

 

Even if one expects a lower payout (?50M) over time, even if the royalty stream will be lower for a while and even if you "write-down" the value of refunds (and legal costs), the fair value in my book is still above the reported value and was not significantly changed with the settlement announcement.

[linealdin]

3 significant things happened to the Voisey’s Bay royalty in recent months:

 

1) Vale obtained US$690 million in financing and committed to a US$1.7 billion underground mine, extending the Altius royalty payouts to at least 2034. Vale has to build the mine or return the money. It’s building the mine.

 

Building the underground mine is the necessary precursor to an underground exploration program. Experts like Derek Wilton of Memorial University believe Vale will discover new ore bodies underground to extend Altius’s royalty payments well past 2034.

 

2) Altius settled with Vale, turning a non-paying royalty to a paying one.

 

3) Altius settled for less than the maximum they could have been awarded by winning at trial (though collecting that judgment could have been difficult).

 

*

 

Why focus so much on the third point? Why so much negativity? Altius has a reactivated royalty that should pay out for a very, very long time. I think I’ll be dead by the time Voisey’s Bay is closes shop. That’s a thought that cheers me up.

[linealdin]

Sure, but probably the expected value of that decision was $10mm or so. Figure they lose on the underpayment but win on the zero payments. Since an expected near term paymentof $10 mm evaporated, ALS is absolutely worth 10mm less.

 

I still think it's cheap, especially with the results coming out of LIF, but it's 10mm or so less cheap than it was.

 

I am glad the royalty is starting again, that helps, as getting those payments now has a better present value than after appeals are exhausted at some indeterminate future point.

 

They didn’t lose $10 million for non-payment. My estimate was offbase. I didn’t know Vale had throttled down production so much during the non-payment period. And I thought Altius would lose 3 years of payments but it ended up being 2 years with the retroactive payment starting April 1st.

 

Altius lost at most C$4.5 million on the non-payment. Probably less.

[linealdin]

I hold out hope that the commodity price upside provisions of the revised terms make up for the lack of an immediate cash arrears payout.

 

There should be an multiplier effect with higher commodity prices: higher prices X a higher effective royalty rate.

 

I believe we will see $10 nickel and $5 copper in the next 5 years. There will be bonanza payouts from VB at those prices.

[linealdin]

Altius Voisey’s Bay legal fees over the last 3 years total C$1.083 million. Before that busy period the legal expenses were presumably much lower (not noted in the financials). Royal Gold took the brunt and they obviously had the decision-making power in terms of coming to a settlement.

 

Vale’s commitment to the underground mine probably made settlement easier. All parties realized there would be plenty of money to make in the future with higher commodity prices. Therefore they agreed to a revised royalty structure that rewards the royalty holders if commodity prices rise and punishes them if commodity prices fall.

[bizaro86]

That's a good point regarding the underground mine decision giving everyone at the table an incentive to get it settled.

 

 

[mugwump]

renaissance gold update

https://ceo.ca/@fscwire/renaissance-gold-confirms-planned-follow-up-drilling

[linealdin]

https://www.atco.com/Investors/Events-and-Presentations/Documents/Sept%2014%20Investor%20Day%20Presentation.pdf

 

Slide 35 shows ATCO’s coal to gas conversion strategy at Battle River (Paintearth) and Sheerness. They seem to have chosen dual fuel co-firing as a low cost alternative to full gas conversion.

 

They’ve completed 50% of the conversion at Battle River 4, and plan to have dual fuel conversion at Battle River 5 by December 2019.

 

The new gas line supporting these changes will be commisioned by November 2019, with a firm gas transport agreement by November 2021.

 

At Sheerness they plan to convert both plants to dual fuel. New gas line interconnected by November 2019 and a firm natural gas transport commitment by April 2022.

 

 

[linealdin]

https://www.bv.com/insights/expert-perspectives/utilities-explore-dual-fuel-low-cost-option-full-gas-conversion

 

What does dual fuel conversion at Battle River and Sheerness actually mean? ATCO has chickened out from full conversion to gas and Altius has won a small victory.

 

Here’s how dual fuel conversion works. These plants likely already have a gas igniter or warm-up gun to use natural gas as a start-up fuel. ATCO is making a modest investment to upsize the existing gas igniter, bring additional gas supply to the site, and use natural gas for “20% to 25% of the toal heat input” to the steam generators.

 

So by April 2022, with a firm gas transport commitment, the Sheerness plants might be 75% coal and 25% natural gas. This “conversion” gives ATCO the social cover to keep burning coal as the majority fuel for these plants for the rest of the decade. I’ll take it!

 

(The nightmare scenario Nancy Southern, CEO of ATCO, had bandied about was full gas conversion of all their Alberta plants by 2020. It was total bullshit.)

[linealdin]

Dual fuel is also how Capital Power has proposed to do the conversions at Genesee. Though they won’t finalize a decision and announce a conversion schedule until 2020.

 

I’m heartened by the fact that Capital Power tried an extended dual fuel co-firing test with biomass at one of the Genesee plants last year. I didn’t notice any change in coal royalty revenue during the trial period.

 

Dual fuel practically mean majority coal, minority whatever else is socially acceptable to burn. If the dual fuel conversions are executed I expect the Genesee and Sheerness complexes to burn majority coal through the last possible regulatory moment. All will provide significant coal royalties to Altius through 2030.

[mugwump]

wow linealdin!!

that dual fuel news is great

thanks!!

[linealdin]

wow linealdin!!

that dual fuel news is great

thanks!!

 

There’s tepid enthusiasm about full conversion to gas because natural gas has an uncertain future, too. Burning gas produces plenty of CO2. Only renewables will really be favored by future regulatory regimes.

 

So ATCO and Capital Power are taking the lowest risk, cheapest option. Capital Power says it will only cost $30 million per unit to turn the Genesee plants into dual fuel co-firing power plants. This is less than the cost of full gas conversion, which is a more technical process than just adding a larger gas fuel injector.

 

I also like the extended timelines for how long it will take to get sufficient natural gas supply to these sites. Pipelines take a long time to design, finance, permit and build. The pipeline for the Sheerness complex is slated for April 2022, with no unexpected delays. That’s 3.5 years from now. Altius is going to collect a lot of coal royalty revenue from Sheerness in that 3.5 year period.

 

And if dual fuel co-firing becomes the reality there will be another 8 years of coal royalty revenue from Sheerness (25% to 40% reduced from current payout rates) after April 2022.

 

Given the difficult regulatory framework this would be a very good outcome for Altius.

[bizaro86]

The 3.5 years for relatively short natural gas pipelines wholly in AB has baffled me, until I came to a conclusion about incentives.

 

I don't think the power plant owners actually want to convert to gas, but they want to seem environmentally supportive. So if they say the fastest they can do it is in 3.5 years, then it isn't their fault and they can continue burning coal and making money in the meantime.

 

 

[linealdin]

The 3.5 years for relatively short natural gas pipelines wholly in AB has baffled me, until I came to a conclusion about incentives.

 

I don't think the power plant owners actually want to convert to gas, but they want to seem environmentally supportive. So if they say the fastest they can do it is in 3.5 years, then it isn't their fault and they can continue burning coal and making money in the meantime.

 

Yes, definite slowplay by the utilities. Even Transalta, which supposedly wants full conversion of its coal plants, is building a pipeline that will initially provide 17% of the Transalta’s total gas needs, but is expandable to 50% of their needs (with additional work and investment).

 

No plans yet for providing the remaining 50% of the gas they need to totally convert from coal.

 

https://www.transalta.com/newsroom/news-releases/transalta-tidewater-midstream-announce-today-letter-intent-construct-natural-gas-pipeline-transaltas-facilities/

 

Translation: Transalta is taking its time getting off coal, despite a lot of rhetoric.

[mugwump]

john kaiser discusses altius Lynx project

at 26 minutes