ALS.TO - Altius Minerals

[linealdin]

https://www.newswire.ca/news-releases/damara-gold-corp-announces-amendment-to-business-combination-agreement-698060731.html

 

New Found Gold reverse takeover is delayed. Now expected to close in early February 2019. Altius owns a 2% royalty on Sail Pond, of NFG's flagship projects, and will own roughly 20% of NFG once transaction is completed..

[linealdin]

https://www.alderonironore.com/images/News/20181025_New_Alderon_Director_and_President_of_HBIS_Canada_Zhou_Wayne_Wei_FINAL.pdf

 

Alderon announces that Zhou Wei from Hesteel is appointed as Vice-President (Finance & Procurement) of Kami Limited Partnership. Kami LP is owned 75/25 by Alderon and Hebei.

 

Pictures of Wei meeting with all the Labrador Trough stakeholders (port officials, provincial government, town leaders, chamber of commerce).

[linealdin]

https://www.teck.com/media/Q3-18-News-Release.pdf

 

Teck Q3 results, page 11:

 

“We plan to invest approximately $12 million to complete and evaluate the MacKenzie Redcap detailed design study. We expect to be in a position to make a decision on the project before year end. MacKenzie Redcap development is expected to supply approximately 1.8 million tonnes of steelmaking coal production per year and has the potential to extend production at Cardinal River Operations to approximately 2027, beyond the planned closure in 2020. Beyond 2020, that additional tonnage would add to the current planned production capacity of 27 million tonnes in the Elk Valley.”

 

*

 

$12 million mine life extension study at Cheviot met coal is proceeding rapidly. Teck expects to make a decision by year end 2018. The strong price environment for steelmaking coal makes the decision an obvious YES.

 

The Teck plan for the Cheviot extension had initially been for 1.4 MT of annual production over 9 years (to 2029). Now the plan has evolved to 1.8 MT of annual production over 7 years (to 2027). 28.5% higher annual production but 2 years less mine life.

 

The exact same amount of production (12.6 million tonnes total) in both scenarios. But the latest plan brings the production forward in time. Teck seems to see a strong market for steelmaking coal continuing through early in the next decade, and wants to take advantage.

 

Bringing the royalty revenue forward is positive for Altius in terms of the time value of money.

[linealdin]

https://www.juniorminingnetwork.com/junior-miner-news/press-releases/513-tsx-venture/rox/53970-canstar-resources-announces-appointment-of-vp-exploration-and-provides-exploration-update.html

 

Canstar hires Bob Patey, geologist from Altius, and provides update on exploration program. 3000 to 4000 meters of drilling this winter, starting with a 1200 meter Phase 1 program at Mary March in January 2019.

 

Altius holds 2% royalties on Buchans and Daniel’s Harbour and equity in Canstar.

[linealdin]

https://s22.q4cdn.com/899716706/files/doc_financials/quarterly/2018/q3/Yamana-Gold-Inc_MD-A-Q3-2018_Final.pdf

 

Yamana Q3 financials. Only 28.6 million pounds of copper produced and sold at Chapada. Much lower than the 37 million pounds produced in Q3 2017.

 

The explanation: a plan to use 700K tonnes of lower grade, difficult-to-process ore from the stockpile while they concentrated on removing waste material from the Corpo Sul pit, leading to much lower recoveries than previous quarters. The amount of ore they mined and processed was at the maximum capacity. In Q4 the ore is expected to return to higher grades and recoveries.

 

Chapada’s realized prices were protected by a forward copper sales agreement they entered on January 11th, 2018. During the quarter they had forward sales of 13.3 million pounds of copper at $3.25 a pound. Far better than their market sales for the rest of the ore at $2.72 a pound.

 

This forward sales program runs through Q4 2018 and Q1 2019. Altius will basically enjoy a hedge for their copper stream if market prices remain depressed during those quarters.

[linealdin]

Update on expansion and exploration at Chapada:

 

“Improvements and optimizations at the main Chapada operation continue to advance on schedule (Refer to Section 5: Construction, Development and Exploration of this MD&A for additional details). In respect to the phased development plan, Phase 1 efforts, which targets plant optimization for further copper and gold recovery increases in the range of 2% for all ore types, have prioritized engineering for long lead- time equipment and is on track for commissioning in mid-2019. The feasibility study on Phase 2, which involves a plant expansion to achieve a throughput capacity of up to 32 million tonnes per annum, is also progressing. Phase 3, which contemplates a pit wall pushback to access higher-grade Sucupira ore, continues to advance with the results expected to support the ongoing feasibility study. During the quarter, the design and tie-in review of the scavenger circuit expansion and scalper circuit improvements were completed.

 

“Approximately 8,400 metres of drilling was completed at Chapada in the third quarter of 2018, in line with plan. The exploration plan focused on Suruca, Baru and regional targets. At Suruca, drilling continues to expand the gold sulphide mineral resource. At Baru, near surface, higher-grade mineralization has been intersected to the northeast. Scout drilling at Formiga has identified the presence of new mineralization zone suggesting the mineral envelope for this system is expanding.”

 

*

 

Formiga is 14km away from current operations but is basically another Chapada main pit deposit next to a Sucupira-like deposit. Very similar grades, structure and alteration. I suspect the long-term plan will be to bring in a JV partner to help finance another processing facility at Formiga.

 

14km is too far away to truck or conveyor belt the ore?

[linealdin]

https://s22.q4cdn.com/899716706/files/doc_presentations/2018/Q3-FINAL-with-Appendix.pdf

 

Yamana Q3 presentation. Slide 18 indicates the copper forward sales program runs through Q2 2019: 10.7 million pounds in Q4 2018, 8.2 million pounds in Q1 2019, and 8.2 million pounds in Q2 2019.

 

Those forward sales will average US$3.25 per pound, even though copper is currently trading much lower. Altius and Yamana will enjoy some downside price protection through June 2019.

 

*

 

Q2: 5.95 million tonnes processed, 0.28% copper grade, 79.1% copper recovery

 

Q1: 5.22 million tonnes processed, 0.31% copper grade, 86.2% copper recovery

 

The Chapada plant was operating beyond nameplate max capacity in Q2, but the lower grade stockpile ore just wasn't very amenable to recovery. Yamana expects to feed more fresh ore through the plant in Q4. They are guiding 35 million pounds of copper production for Q4.

[linealdin]

https://www.teck.com/media/TECK%20Q3%202018%20Transcript.pdf

 

A little more color about the Cheviot mine life extension in the Q3 Teck call:

 

"Sure. So, that project up until I guess last year, we were anticipating closure at Cardinal River and that would have occurred around 2020. So, the plan that we're working on is to advance it a little farther out. And that would support that 1.8 million tonnes a year. Through to about 2027, I think, is the year so eight or nine additional years.

 

"And as far as the order of magnitude on capital costs, it would be less capital intensity than Quintette. So it's actually a pretty strong project and I don't want to speak too much about this stage. We're going through an approval process and the final economics on it, but it would fall on that range. It would be a better project than Quintette would be.

 

"Yeah. It's going to roughly fall in a range of between $100 million to $150 million."

 

*

 

Capex for the Cheviot extension will be between $100 and $150 million. The CEO indicates it is a "pretty strong project." This project is going to be built.

[linealdin]

Prairie Coal payback calculation:

 

Including Q3 2018 Altius has received C$73.413 million in electrical and met coal royalties.

 

I assign C$120.45 million as the cost of the coal portion of the Prairie royalty package (50% of the total C$240.9 million purchase price).

 

C$73.413 million / C$120.45 million = 61% payback.

 

It will take roughly 3 more years to get to break-even (excluding the costs of the transaction). Taking us through Q3 2021.

 

1) Sheerness is planned to be 100% converted to gas by early 2022.

 

2) Highvale and Paintearth could both be mostly converted to gas by 2022 also.

 

3) Genesee is the big question mark. Earliest conversion date is probably 2022, though they could be burning coal through 2029 (dual fuel with gas or biomass).

 

4) Cheviot will produce through 2027 (and possibly beyond with further development of inferred resources).

 

The best case scenario is squeezing out another C$70 million in coal royalties after reaching the break-even at C$120.45 million.

[linealdin]

https://hotcopper.com.au/documentdownload?id=uOMxKKzFkiWRTLKhOROKAxjvTDYD4wi9zBaZpfpske92GA%3D%3D

 

EMU NL is raising cash to drill another 13K meters at Vidalita, starting this December. They are persistent despite the weak results so far.

 

US$100K is due to Altius and its Chilean partners this November to continue the Vidalita option. It likely gets paid. In November 2019 US$2 million will be due. I think that US$2 million is paid only if EMU makes a real discovery in the coming drill season. Otherwise the Vidalita property is returned to Altius and partners.

[linealdin]

777 payback calculation:

 

Through Q3 2018 Altius has received C$36.411 million in 777 royalties. The purchase price was roughly C$67 million (after backing out the cash and equities Callinan held).

 

C$36.411 million / C$67 million = 54.3% payback.

 

Altius will hit breakeven in another ~3 years, taking us through Q3 2021.

 

1) Can Hudbay extend 777 mine life another year beyond 2021 with the remnant strategy?

 

2) The real profit potential of the Callinan deal is tied up with the Excelsior equity/royalty and the Evrim equity/Cuale royalty. I think both become producing mines.

[linealdin]

https://www.wolfdenresources.com/wp-content/uploads/2018/10/WLFOct292018final.pdf

 

More excellent Wolfden drill results. 12.7 meters of 10.9% combined zinc-lead-copper from hole 27.

 

Hole 29 should be spectacularly rich based on neighboring holes. 10.3 meters of perhaps 30% plus combined zinc-lead-copper. Waiting on the assays for that one.

[linealdin]

https://hotcopper.com.au/documentdownload?id=uOMxKKzFkiWRTLKhOROKAxjvTDYD4wi%2FzBCZof9oke92GA%3D%3D

 

Allegiance Coal quarterly activities report. They’ve commenced the federal permitting process by filing a project description.

 

JV discussions with a major Japanese trading house progressing. A feasibility study will be delivered in Q1 2019.

 

A$3.322 million in cash at September 30th, 2018. A good JV deal should fund Allegiance through the 2 year permitting process.

 

[linealdin]

https://hotcopper.com.au/documentdownload?id=uOMxKKzFkiWRTLKhOROKAxjvSDYL4g%2B4yhP3v%2FRw%2FrFiGug%3D

 

Champion Iron quarterly activities report for the quarter ending in September. 1.858 million tonnes of production, a little more than that sold.

 

At the beginning of October (including the 2 payments that didn’t make it into September) Champion had a cash position around C$147.385 million. The cash hoard will grow: Champion is cash flow positive.

 

Production costs per tonne are falling. Produce for US$45, sell for US$69 (after shipping costs). Healthy margin.

 

Altius C$10 million debenture is still in place. If Champion doesn’t pay it off by the end of 2018 then the debenture turns into a 0.3% royalty on Bloom Lake. Unlikely scenario.

 

 

[mugwump]

adventus drill results

https://ceo.ca/@newswire/adventus-and-salazar-announce-additional-2018-drill

[mugwump]

evrim exploration alliance with yamana

https://ceo.ca/@nasdaq/evrim-signs-three-year-exploration-alliance-in-the

[linealdin]

https://www.excelsiormining.com/news/news-2018/excelsior-mining-secures-us-75-million-project-financing-package

 

Excelsior sells stream and equity to Triple Flag for US$75 million. Fully financed for production once the deal closes in November. Huge win for them. I like that Triple Flag has the option of investing another US$65 million into Phase 2 financing.

 

The Altius 1% royalty becomes meaningful at full production of 125 million pounds per annum.

 

Altius construction option to purchase additional 0.5% royalty for C$5 million kicks in now.

[linealdin]

Alderon should be following the Excelsior path. Excelsior gave away a ton of equity and a 3% royalty to Greenstone, a private equity group, and they gave much of their Phase 1 profit to Triple Flag, a royalty company.

 

Alderon should sign the first iron ore streaming deal ever with a player with big pockets (Triple Flag or Basecore Metals) for US$250 million. Give most of the upside of Phase 1 away. Just get into production, then make it up with profits from Phase 2.

 

Hebei is already committed to financing 25% of Kami’s Phase 1 capex. A big streaming deal could secure another 25%. Then cobble the rest together from private equity groups, Asian export credit agencies and equipment financing. No involvement from traditional Toronto brokerages. They’re dead.

[mikek]

Not very good news for Altius lately.  It doesn't mean that they are going to be off coal in 2020 but nonetheless it's definitely a possibility.  Full disclosure- I would have never bet that this would have happened so I was completely wrong on analyzing the coal royalties.  I have a feeling that the 777 royalty might be in trouble, the royalty got pretty much cut in half this quarter, as far as I can tell the costs went up a lot and this is hurting the NSR.  Whether that continues or not I don't know but it's kind of strange since the ore sold didn't look like it got cut down that much.  If you find any information about what happened on the 777 royalty this quarter it would be appreciated Linealdin.  I still think Altius should take the extra half percent royalty on Excelsior, I think it's worth taking the chance that this mine gets built to 125 million pounds per annum one day.  It takes so long to get these mines built from start to finish that having that permit to build it to 125 million pounds gives it a good chance of getting there if they prove successful at 25 million.  Potash continues to look strong and LIF is looking to be in a good position.  I don't mind Altius buying more LIF but I wonder why they waited to buy more until recently.  They knew what LIF had going for them quite awhile ago.

 

Genesee contracted physical natural gas capacity

During the second quarter, Capital Power secured additional physical natural gas delivery capacity for the Genesee site. This capacity is expected to enable increased natural gas co-firing as early as 2020 and allows for full conversion to natural gas as early as 2020.

 

Genesee royalty rate agreement

During the second quarter, Capital Power entered into an agreement with Genesee Royalty Limited Partnership establishing a fixed royalty rate structure in place of the previous structure which was based on coal regulations from the 1980’s. The new structure provides improved royalty cost certainty in the future.

[Gamecock-YT]

Not very good news for Altius lately.  It doesn't mean that they are going to be off coal in 2020 but nonetheless it's definitely a possibility.  Full disclosure- I would have never bet that this would have happened so I was completely wrong on analyzing the coal royalties.  I have a feeling that the 777 royalty might be in trouble, the royalty got pretty much cut in half this quarter, as far as I can tell the costs went up a lot and this is hurting the NSR.  Whether that continues or not I don't know but it's kind of strange since the ore sold didn't look like it got cut down that much.  If you find any information about what happened on the 777 royalty this quarter it would be appreciated Linealdin.  I still think Altius should take the extra half percent royalty on Excelsior, I think it's worth taking the chance that this mine gets built to 125 million pounds per annum one day.  It takes so long to get these mines built from start to finish that having that permit to build it to 125 million pounds gives it a good chance of getting there if they prove successful at 25 million.  Potash continues to look strong and LIF is looking to be in a good position.  I don't mind Altius buying more LIF but I wonder why they waited to buy more until recently.  They knew what LIF had going for them quite awhile ago.

 

Genesee contracted physical natural gas capacity

During the second quarter, Capital Power secured additional physical natural gas delivery capacity for the Genesee site. This capacity is expected to enable increased natural gas co-firing as early as 2020 and allows for full conversion to natural gas as early as 2020.

 

Genesee royalty rate agreement

During the second quarter, Capital Power entered into an agreement with Genesee Royalty Limited Partnership establishing a fixed royalty rate structure in place of the previous structure which was based on coal regulations from the 1980’s. The new structure provides improved royalty cost certainty in the future.

 

Judging by the percentage change today, we should call them out more often.

[linealdin]

Unlikely the Genesee complex is off-coal in 2020. Contracting the natural gas supply is just a preparatory step. All the utilities are taking that step because eventually conversion will be necessary.

 

To actually convert requires regulatory approval. Open houses for the public, filings with the environmental authorities. The stuff that Transalta's been actively doing this year to allow for plant conversions starting in 2021. Capital Power has taken none of those necessary regulatory steps. They claim they won't even decide a conversion schedule until 2020 at the earliest.

[linealdin]

777 mine is fine. The production rate was up, the ore grades and recoveries were down.

 

I think timing of sales is likely an additional culprit for the low Q3 royalty number. Altius gets paid on quarterly sales, not quarterly production. There can be sales lags.

 

The unit operating costs (C$70.42 per tonne) at 777 in Q3 were actually significantly lower than the previous quarter (C$85.36 in Q2). Back on track?

 

Zero possibility of Hudbay shutting 777 down early. It is still quite profitable.

[linealdin]

https://hotcopper.com.au/documentdownload?id=uOMxKKzFkiWRTLKhOROKAxjvTDYD4wm1zxSZof9oke92GA%3D%3D

 

Allegiance Coal in a trading halt. They will announce a definitive JV investment agreement with a major Japanese trading house (a non-binding terms sheet was signed a few months ago).

 

Capex for Telkwa is unusually modest. A JV deal of reasonable size will take care of most of the needed construction financing.

 

The only obstacle remaining is permits. This one’s going to be a mine.

[linealdin]

From the latest Royal Gold quarterly financials:

 

"During the three months ended September 30, 2018, the Company recognized approximately $4.9 million (includes 10% noncontrolling interest) in royalty revenue attributable to Voisey’s Bay metal production in total for the June 30 ($2.7 million) and September 30, 2018 ($2.2 million) quarters.  Royalty payments for each quarter are due 45 days after quarter-end." 

 

Those are US numbers since Royal Gold is based in Denver. Altius holds the 10% noncontrolling interest.

 

So for the June quarter Altius was entitled to US$270K, or C$351K, at a 1.30 USD CAD exchange rate. This is the royalty payment that Altius press released for Q3 (estimated as C$300K on the Altius fact sheet). 

 

For the September quarter Altius is entitled to US$200K, or C$260K, at the same exchange rate. This payment is not included in Q3 estimate of royalty income, perhaps because it isn't due to arrive until November 15th.

 

So the estimated Voisey's Bay annual royalty payment would be around C$1.22 million. This diminished amount makes sense because Vale has seriously held back production to extend the open pit mine life. They don't want to send their workers home before the underground mine comes online.

 

I don't think it's an issue of a badly renegotiated royalty agreement. Production is way down and nickel prices are weak. Once those things change for the positive we will see the usual C$2 million to C$3 million in annual Voisey's Bay royalties.

 

The largest annual payment Altius ever received under the old royalty regime was around C$5 million, I think. And that was with nickel over $22.

[Liberty]

Genesee contracted physical natural gas capacity

During the second quarter, Capital Power secured additional physical natural gas delivery capacity for the Genesee site. This capacity is expected to enable increased natural gas co-firing as early as 2020 and allows for full conversion to natural gas as early as 2020.

 

Wow.

 

From Altius' site:

 

"The units were originally expected to be decommissioned in 2039, 2044 and 2055 respectively, but the government decision to shut down coal-fired electricity generation by 2030 impacted our Genesee royalty most. In 2016, an impairment charge of $72 million was recognized, as the expected cash flows from 2030 onward were no longer to be realized."

 

So from 2039-2055 to 2030 to maybe 2020 or in high likelihood within a few years of that.

 

There's more uncertainty in these royalty than might appear at first, that's for sure.  Looks like those who sold the coal royalty to Altius might have gotten the better end of the bargain.

 

Fact is, coal is going away because it's not competitive with other cleaner fuels. It's simply too dirty to keep around, voters don't want to burn coal, so politicians will always be a risk to coal and the pressure will go up year by year. Utilities have to make plans for decades down the road, and when they look forward, they don't see having coal assets as being a good idea.