ALS.TO - Altius Minerals

[linealdin]

https://www.alderonironore.com/news/2019/517-alderon-appoints-financial-advisor-to-arrange-transaction-for-the-development-of-the-high-grade-kami-iron-ore-project

 

Alderon appoints Scotiabank as financial advisor for arrangement of its construction financing.

 

Fallout from the Vale disaster continues. Vale will take 40 million tonnes of production offline, including 11 million tonnes of pellet feed, as additional tailings ponds are decommissioned. It will try to partially make up the production by increasing production in other areas. Should still be a significant net loss.

 

Samarco settlement and restart likely to be complicated and delayed because of new disaster (according to public statements by creditors).

 

We should see a period of high prices for iron ore. Now is the time to finance and build Kami.

[mikek]

Why is anyone going to build Kami with that capex?  I just don't see why anyone is going to put up that capex with a producing operation such as Champion Iron operating right now and look at their market cap.  Alderon needs to start thinking outside of the box and stop with the idea of it being a standalone operation.  That management team has been way too slow in getting things done.  Why are they now just appointing a financial advisor?  That should have been done a long time ago.  These guys are always 3 steps behind.  The reason Champion Iron and Tacora are getting things done was that the capex was much lower.  The property obviously has value but this thing isn't getting built as a standalone operation.

[Williams406]

Mikek, in reality, Champion's Bloom Lake didn't have low capex. It's just that much of the capex was spent by others. Sure, Champion adjusted the mine plan and re-configured some things but they are using much of the engineering and infrastructure put in place by other parties at great expense. You're not wrong, though, on your main points about the management team and the fact that getting Kami built as a stand-alone project is a big ask.

[linealdin]

http://www.mining.com/iron-ore-prices-flying/

 

Iron ore prices are really moving up in response to Vale taking 10% of its production offline, with an outsize impact on pellet production. This has many implications for Altius's iron ore portfolio:

 

1) Sky high iron ore prices will be needed to incentivize the financing of new production like Kami. There are predictions that the benchmark 62% Fe price will reach $120 by August 2019. The price for Alderon's 65% Fe would be even higher than that of course. $120 benchmark may be the price that Alderon needs to close their construction financing package.

 

2) Champion is going to go ahead with their Phase 2 expansion plan, no matter the price environment. Cliffs has basically already built most of the Phase 2 plant. It's a no-brainer to spend another $300 million to complete the work. A higher iron ore price environment just lowers Champion's cost of capital. Strategic investors will be lining up around the block to finance a piece of the project.

 

Altius owns roughly 15 million shares of Champion. I believe Champion will be a $5 stock when Phase 2 is brought online.

 

3) IOC's performance was excellent in 2018 with $70 iron ore and a $59 Atlantic pellet premium. (LIF built up a formidable cash position instead of distributing the dividends but that's another story.) What happens to IOC with $120 iron ore and a $75 Atlantic pellet premium. Analysts are predicting Samarco may not restart in 2020, which clears the runway for IOC's pellet product.

 

When does Rio Tinto complete its spin out or sale so that IOC can do the obvious: expansion to 30 MTA or more.

[SharperDingaan]

Keep in mind that Kami can be built in much the same way that Bloom Lake was.

Capex spend to expand an existing joint facility, lowers the capex and processing costs for all involved.

It will also take 2 years+ to actually build Kami, and it will be done in stages.

 

Vale's dam collapse has also esssentially stranded their Brazilian iron ore production, as this is the 2nd dam collapse.

Vale can replace the dam walls, but do you really think their existing permits are going to be 'renewed', without some very material additional graft being paid? Additional cost, reducing their return on investment.

 

SD

 

[Williams406]

Uncle SD, I will keep that in mind, provided you keep in mind that I'm...practically one of your nephews should things work out with Alderon and Kami.

 

 

 

 

[Liberty]

Looking at its burn-rate, Alderon better make something happen..

 

In 2013 it had: $95m in cash, $14m in liabilities, and $192m in common equity.

 

In sept 2018 it had: $7m in cash, $26m in liabilities, and $26m in common equity.

[linealdin]

Looking at its burn-rate, Alderon better make something happen..

 

In 2013 it had: $95m in cash, $14m in liabilities, and $192m in common equity.

 

In sept 2018 it had: $7m in cash, $26m in liabilities, and $26m in common equity.

 

Alderon wasted some but not all of the money. They spent a lot on expensive and necessary items:

 

1) Environmental permitting. Kami’s now one of the very few fully permitted, shovel ready iron ore project on the planet. Permitting isn’t cheap.

 

2) Completing all required engineering work to begin construction. Purchased long lead time items such as the rotary car dumper and the autogenous and ball mill.

 

3) Paid a $21 million deposit to secure a new power transmission line.

 

4) Paid $20.46 million to secure 8 million tonnes of capacity at the new multi-user port.

 

*

 

Altius is now the largest shareholder of Alderon while Altius and Sprott own the US$14 million loan. Those two groups (Brian Dalton and Rick Rule, essentially) will decide a Plan B for Kami if construction financing isn’t secured in 2019.

 

Sale of Kami to the neighbors IOC, Tacora or Champion makes a lot of sense. Champion is doubling production, Tacora needs a cleaner and longer life source of ore, and IOC has considered expansion. Altius’s 3% royalty pays out no matter who puts Kami into production.

 

[linealdin]

LIF was trading near $22 last week. Today it’s $30. Huge one week move, worth about C$28 million to Altius. Market is acknowledging how Vale’s pellet production being taken down directly benefits LIF. Things change quickly.

 

Altius LIF position worth C$105.5 million at the LIF day high of C$30.15. Onward to $40! The dividends in 2019 should justify a $40 valuation for LIF.

[SharperDingaan]

Uncle SD, I will keep that in mind, provided you keep in mind that I'm...practically one of your nephews should things work out with Alderon and Kami.

 

If this works out, and a certain Newfoundland lass does her thing;

one of the nephews may very well end up making St John 'home' for a time ;)

 

SD

[bizaro86]

The champion stake should also move on higher iron ore pricing. While they don't have pellets, they do have high FE% concentrate...

 

I think Champion hired new IR, which is something they need. Their last earnings release must have been written by a gold person, it said their grades were 32 g/t. Not just a one-off typo either, it was throughout the document. Which of course is ridiculous, it is 32% (or ~320,000 g/t).

 

All that said, Champion is going to print money for awhile here. If they can get their high cost financing paid down they could have a long term sustainable business in the trough.

[reader]

Altius Announces Director Resignation, Genesee Lawsuit Defence Deadlines Extended

 

http://bit.ly/2SeULkc

 

Fairfax' director shall be replaced by Fairfax.

 

 

"Altius also wishes to advise that it has received requests from both the Government of Alberta and the Government of Canada for extensions of time to provide statements of defense to the lawsuit filed against them by the Genesee Royalty Limited Partnership, of which Altius is indirectly the general partner. This suit claims $190 million in damages, while describing actions that it feels were tantamount to expropriation of its royalty interest in the Genesee mine, which serves and is integrated with the Genesee power plant in Alberta, Canada. The requests to extend have been granted in both cases to March 1, 2019 and a further update will be provided once the defences have been filed."

 

Whatever they'd get out of this lawsuit, is upside, the impairment is already baked in.

[Williams406]

A little shareholder activism from Altius toward LIORC. Anglo-Pacific is almost certainly part of the 25%-30% support figure cited by Altius.

 

http://altiusminerals.com/

[mikek]

Smart move by Altius to address the concerns but unfortunately it seems like the "employees of LIORC" have different plans.  This is the problem when employees can control a corporation instead of the actual owners of said corporation.  Their incentives are completely different compared to the actual owners.  The problem here is that the "employees" currently have the power to make important decisions.  That is a dangerous position for Altius to be in.  The only difference I would have done is wrote that letter with the combined 25-30% of shareholders.  The proper value creation move would be for LIORC to either sell the equity component with Rio in the upcoming IPO or split them as Altius recommends.  Altius is thinking like an actual owner and "LIORC management" is thinking like an employee that is trying to get a higher salary.  Hopefully Altius and the combined backing of shareholders that agree with Altius's suggestions can make some moves that protects their interests in the company.  It's too bad because right now is really when you want someone that is thinking like an actual owner making decisions at that company.  With the RIO IPO coming up and huge cash flow coming in, this is the time when real value creation can take place yet the wrong people are in charge over there.

[linealdin]

Press release indicates Altius owns 6.2%, or 3.971 million shares of LIF. They purchased a little under 500K shares since the end of 2018. Average purchase price likely around $23 or $24. Increasing the bet.

 

The LIF position worth roughly C$124.4 million at today’s close.

 

I believe LIF will eventually draw down and dividend its substantial cash position. There’s no support for the bylaw change required to purchase the copper royalty. Altius and friends would prefer the drawdown happen sooner rather than later. But it’s going to happen.

 

I’m not sure the royalty/equity separation proposed by Altius would create a lot of value. Seems like pointless financial engineering.

[TwoCitiesCapital]

Smart move by Altius to address the concerns but unfortunately it seems like the "employees of LIORC" have different plans.  This is the problem when employees can control a corporation instead of the actual owners of said corporation.  Their incentives are completely different compared to the actual owners.  The problem here is that the "employees" currently have the power to make important decisions.  That is a dangerous position for Altius to be in.  The only difference I would have done is wrote that letter with the combined 25-30% of shareholders.  The proper value creation move would be for LIORC to either sell the equity component with Rio in the upcoming IPO or split them as Altius recommends.  Altius is thinking like an actual owner and "LIORC management" is thinking like an employee that is trying to get a higher salary.  Hopefully Altius and the combined backing of shareholders that agree with Altius's suggestions can make some moves that protects their interests in the company.  It's too bad because right now is really when you want someone that is thinking like an actual owner making decisions at that company.  With the RIO IPO coming up and huge cash flow coming in, this is the time when real value creation can take place yet the wrong people are in charge over there.

 

Worst case scenario is that Altius can try to luanch proxy vote which to correct ship from deviant, self-motivated employees with the owners voting.

 

If the "employees" knew what was good for them, they wouldn't rock the boat with such large shareholders pushing back on them.

 

Also, for those of us that are optimistic of a near-term catalyst (that isn't Kami), a re-rating of the LIORC position would be a substantial occurrence seeing as it is now 1/4 of Altius' market cap.

[bizaro86]

Management owns nothing here, Altius and Anglo-Pacific could control it if they worked together.

 

Also, a message of, "dividend out the cash instead of saving it for later" would play very well with the retail yield base. I doubt many of us would back management anyway, but the fact their intentionally reducing the yield on a retail yield vehicle isn't something that plays well to their base.

 

If Altius wants the board to be composed of Altius/Anglo-Pacific folks and their close friends they could achieve that fairly easily. They would have my votes. 

[TwoCitiesCapital]

Management owns nothing here, Altius and Anglo-Pacific could control it if they worked together.

 

Also, a message of, "dividend out the cash instead of saving it for later" would play very well with the retail yield base. I doubt many of us would back management anyway, but the fact their intentionally reducing the yield on a retail yield vehicle isn't something that plays well to their base.

 

If Altius wants the board to be composed of Altius/Anglo-Pacific folks and their close friends they could achieve that fairly easily. They would have my votes.

 

Exactly. Nothing to be worried about here. The only people at risk are the management of LIORC if they don't see the writing on the wall.

[Gamecock-YT]

Smart move by Altius to address the concerns but unfortunately it seems like the "employees of LIORC" have different plans.  This is the problem when employees can control a corporation instead of the actual owners of said corporation.  Their incentives are completely different compared to the actual owners.  The problem here is that the "employees" currently have the power to make important decisions.  That is a dangerous position for Altius to be in.  The only difference I would have done is wrote that letter with the combined 25-30% of shareholders.  The proper value creation move would be for LIORC to either sell the equity component with Rio in the upcoming IPO or split them as Altius recommends.  Altius is thinking like an actual owner and "LIORC management" is thinking like an employee that is trying to get a higher salary.  Hopefully Altius and the combined backing of shareholders that agree with Altius's suggestions can make some moves that protects their interests in the company.  It's too bad because right now is really when you want someone that is thinking like an actual owner making decisions at that company.  With the RIO IPO coming up and huge cash flow coming in, this is the time when real value creation can take place yet the wrong people are in charge over there.

 

Worst case scenario is that Altius can try to luanch proxy vote which to correct ship from deviant, self-motivated employees with the owners voting.

 

It's not coincidence they follow up their press release with the following language:

 

The information contained in this press release does not and is not meant to constitute a solicitation of proxies under

applicable corporate or securities laws. Given that LIORC has not yet fixed a record date or meeting date for its annual

meeting, Altius is not hereby soliciting proxies in connection with any LIORC shareholder meeting, and LIORC shareholders

are not being asked at this time to execute proxies in favour of any matter set forth in this press release. None of Altius or,

to its knowledge, any of its associates or affiliates, has any material interest, direct or indirect, by way of beneficial ownership

of securities or otherwise, in any matter currently proposed to be considered or acted on at a meeting of LIORC

shareholders.

 

not exactly an idle threat....

[linealdin]

Iron ore move continues this week:

 

Alderon to 42 cents

Champion to C$1.50

LIF to C$32.10

 

Total value of Altius’s holdings in just these 3 companies at the close today: ~C$172 million

 

My expectation is that Altius will cash out at least C$500 million from equity sales during this bull cycle.

[linealdin]

http://www.labradorironore.com/News-Releases/Press-Release-Details/2019/Labrador-Iron-Ore-Royalty-Corporation-Responds-to-Questions/default.aspx

 

It sounds like LIF has heard the concerns of their large shareholders. No copper acquisition on the horizon and I expect some large and consistent dividends in 2019.

 

In this price environment IOC will prosper. I believe a total annual dividend payment of $4 is likely.

 

$4 x Altius’s 3.971 million share position = C$15.884 million royalty revenue

[Gamecock-YT]

First new renewable royalty announced, $30MM transaction.

 

Also bringing in renewable deal team in house for $5MM

[wachtwoord]

First new renewable royalty announced, $30MM transaction.

 

Also bringing in renewable deal team in house for $5MM

 

Am I the only one that thinks that deal sounds terrible? :(

 

$3-4M annual royalty at some undisclosed time in the future for a $30M investment (so 10% return at some point in the future) with no possibility of further expansions without adding further capital short of the energy prices rising (which I'd expect to go down significantly over the very long term).

 

Sounds to me like taking the business risk while capping your returns without receiving something back for it. All the negatives of a royalty with none of the positives.

 

What am I missing here?

[StevieV]

First new renewable royalty announced, $30MM transaction.

 

Also bringing in renewable deal team in house for $5MM

 

Am I the only one that thinks that deal sounds terrible? :(

 

$3-4M annual royalty at some undisclosed time in the future for a $30M investment (so 10% return at some point in the future) with no possibility of further expansions without adding further capital short of the energy prices rising (which I'd expect to go down significantly over the very long term).

 

Sounds to me like taking the business risk while capping your returns without receiving something back for it. All the negatives of a royalty with none of the positives.

 

What am I missing here?

 

 

I haven't looked closely, but my initial reaction was similar.

[linealdin]

First new renewable royalty announced, $30MM transaction.

 

Also bringing in renewable deal team in house for $5MM

 

Am I the only one that thinks that deal sounds terrible? :(

 

$3-4M annual royalty at some undisclosed time in the future for a $30M investment (so 10% return at some point in the future) with no possibility of further expansions without adding further capital short of the energy prices rising (which I'd expect to go down significantly over the very long term).

 

Sounds to me like taking the business risk while capping your returns without receiving something back for it. All the negatives of a royalty with none of the positives.

 

What am I missing here?

 

Missing a lot:

 

1) The $30 million isn’t paid up front. It’s paid in stages over a 3 year period as projects reach the construction and production stage. The 1500 MW portfolio is expected to reach production in the 2020 to 2022 period.

 

The first $7.5 million, paid today, is for wind projects going into production next year. Another tranche will be paid in 2020 for projects producing in 2021, and so on.

 

2) Altius has created incentives for Tri Global to stay on schedule. If Tri Global delivers projects on schedule Altius receives 3% royalties on about 1100 MW of wind power (I got that number from management). If Tri Global misses deadlines then Altius will have 3% royalties on a larger number of MW, like 1300 MW or 1500 MW.

 

3) If you study Tri Global’s existing wind projects in Texas you will see that expansions are the norm. Doubling the initial installed MW’s. You just acquire more land and install more turbines. Tri Global treats the locals as partners, sharing profits, so their projects have little political risk. The locals want the wind farms to grow so their royalties also grow.

 

Once Altius receives a royalty on a project it enjoys all expansions and project life extensions (the initial project lives will be 25 years, based upon electricity supply contracts) free of charge. No additional capital required!