ALS.TO - Altius Minerals

[Guest Dazel]

 

Partner24,

 

Not sure what you are looking at. Last reporting period for Altius is Oct31st...end of their second quarter.

 

$170m cash and marketable securities

$32m mining investments securities (including Rambler and Millrock)

$3m equity related investments...(this is where Alderon is...since it was converted on Dec 8th it has not been reported)

so basically $200m cash and securities plus Alderon $125m and the Voisey bay Royalty at $75m (on the books at $10m) equals $400m or the market cap for Altius...all the rest is free.

 

when Altius reports their 3rd quarter it will easy to see what I am saying now you have to do some work. The gain in the 3rd quarter will be in the range of $120m. The end of their 3rd quarter is Jan31st.

 

Dazel

[Guest Dazel]

 

"To me this looks like fully valued based on current assets - it is a play about the future, what this company can be based on historical returns."

 

Shalab,

 

I will go with your theory for the moment..

If Altius were to liquidate....they would be selling off the company in pieces....giving 0 for the historical returns and the managements ability.

 

what do you think you would get?

 

Now look at the company and value the future values of each individual asset and give the management a multiple for their excellent track record. You will have to include all the future royalty payments not yet received...

 

either way you do it...I think you will concur it is worth more than the 3 assets it is being valued at Cash, Marketble securities(including Alderon) and the Voisey bay royalty.

 

Dazel.

[Mungerville]

Dazel,

 

So the big 3 items are worth $400M plus or minus.  Excluding the value of management, what kind of value do you place on all this other stuff we get for free (ie on a liquidation basis, not a fire sale but orderly wind-down). Would you say this other free stuff is worth discounted to present value?:

 

a) less than 200M

b) 200-400 or

c) 400M plus

 

I guess the question is, roughly how much do you figure this whole thing is worth in a wind-down scenario selling off assets in and orderly manner? 400M plus a), b) or c)?

 

I know I should be figuring this out myself but I am not an expert on mining projects/stages and their market values.

[RolfGunderson]

Some additional detail. I'm midway through my own valuation.

 

Fully Diluted Shares Outstanding

 

29,816,395 at September 13, 2010

 

Cash and Liquid investments

 

$170,000,000 (from Feb 2011 presentation by Alderon) - $5.70/share

 

Equity Positions - Working to determine if each of these holdings is fairly valued.

 

Northern Abitibi Mining Corp - 1,115,000 shares @ 0.24 = $267,600

Royal Gold - 529,297 shares @ 47.04 = $24,898,130.88

Alderon Resource Corporation - 32,285,006 @ 3.92 = $126,557,223.52

Rambler Metals and Mining - 12,000,000 @ 0.69 = $8,280,000 (however, Rambler has significantly diluted shareholders several times)

Millrock Resources - 7,932,046 @ 0.81 = $6,424,957.26

Joint venture with Cranberry Capital - $25 million (89.2% interest) to invest primarily in early stage mineral exploration companies, managed by Paul van Eeden.

 

Total Equity Positions of $191,427,911.66 - $6.42/share

 

Other Investments

 

Newfoundland and Labrador Refining Corporation - 39.6% interest; carried at $0 (NLRC must sell its assets to satisfy creditors or complete financing of the project by October 2011). Altius is also a secured creditor of NLRC.

Millrock Resources - June 2010 warrants for the purchase of 3,450,000 common shares at a price of 45 cents per share for a period of five years; $1,242,000=(0.81-.45)*3,450,000 shares (not sure if I'm double counting this. I don't see that these warrants have been exercised.)

 

Current and Potential Royalty Streams

 

Voisey's Bay - 0.3% net smelter returns (30 year life; revenue of $4.1m in '09 before strike)

Millrock Resources - 2% on gold and 1% on other commodities

 

Aurora Energy - 2% gross uranium sales royalty and a 2% net smelter return. This project is subject to a three year moratorium, subject to review on or before April 2011, imposed by the Nunatsiavut government (the self governing Inuit of Northern Labrador)

Northern Abitibi Mining Corp - 2 to 4% sliding scale net smelter royalty, tied to price of gold.

 

Early Stage exploration

 

From 2010 AR, Altius is pursuing 17 projects (18 with Cliffs included?) at a generative or early stage, including:

 

Labrador Iron Ore – potential 49 (Altius)/51 (Rio Tinto) interest if Rio Tinto meets certain investment targets by December 2011. Triggers a range of possible (positive) outcomes including a 2-3% gross royalty for Altius (3% unless Rio Tinto buys down 1% of Altius' royalty stream for $10M).

50/50 interest in potential joint ventures with Cliffs Natural Resources, triggering a 1% net smelter royalty for Altius. Exploration costs funded by CNR.

 

This paragraph from their 2010 AR outlining Altius' strategy is also instructive:

 

Altius’ principal business activities are focused on the generation and

acquisition of mineral projects and royalties. Often these business

activities generate alliances or corporate structures which result in the

Company creating minority and non-operating projects or equity interests

in addition to project-level royalty interests. The creation of certain equity

stakes through the co-founding of special purpose companies (“spin

outs”) has resulted in significant profits in the past and continues to be a

key plank in our strategy. To complement this work and in recognition of

its large accumulated cash position the Company also pursues direct royalty

interests and equity stakes in companies with undervalued quality assets.

 

[biaggio]

Nice job Rolf!

[Guest Dazel]

 

Rolf,

 

 

thx for the effort but I think you are at least 6 months behind...Royal Gold was sold a year ago.

 

Dazel.

[RolfGunderson]

 

Rolf,

 

 

thx for the effort but I think you are at least 6 months behind...Royal Gold was sold a year ago.

 

Dazel.

 

Dazel,

 

Altius received both cash and convertibles for their IRC shares. I haven't seen where they have disposed of the Royal Gold shares. Do let me know if I have missed something.

 

From 2010 AR (June, 2010):

 

"The IRC Shareholder vote was held on February 16, 2010 and the results of the shareholder vote were positive. Upon court approval

and closing the Corporation received $37,520,000 in cash and 529,297 shares in RG Exchange Co Inc representing estimated total

proceeds of approximately $63,132,000 and recorded an estimated gain of approximately $28,413,000. The RG Exchangeable shares

have all the rights of Royal Gold common shares and are convertible into Royal Gold common shares at the option of the holder."

 

DP

[Guest Dazel]

 

 

Rolf,

 

2010 year end april 30th included a $30m gain from the sale of Royal gold shares...I would love to be wrong but I think that was all they made....

 

Dazel.

[Guest Dazel]

Mungerville,

 

disclosure...we own a lot of Altius....if you have not seen it...I am biased.

 

I think Alderon (the fact they have control of the property at some point will give them a premium) alone is worth more than the market cap...disclosure once again we owned Alderon and sold it..we would rather own Altius than Alderon as there is operational risk...However, we followed what Leucadia did in Spain and with Fortesque...the properties are worth a great deal and you have a team that just keeps executing again and again...and I get them for free.

The answer to me is greater than $400m ($30a share...not tomorrow...but not long either).

 

Dazel.

 

 

[Guest Dazel]

 

Sorry Rolf,

 

I do not want to seem confrontational....thx for the hard work! at least 25% of Millrock has been sold...and Alderon and the Cranberry capital partnership has not been reported on the balance sheet...so what I am talking about is not obvious...as always we here on the board are ahead of the heard...there is not one analyst covering the stock...Alderon has 5 analysts!

 

pls look at my previous post on cash and security values they come from Oct 31st....plus Alderon and the Voisey bay Royalty.

 

Dazel.

[Guest Dazel]

 

Rolf,

 

"2010 year end april 30th included a $30m gain from the sale of Royal gold shares...I would love to be wrong but I think that was all they made...."

 

Rolf my apology.....you were correct that they own the the exchangeable Royal gold shares as of Oct 30th...the gain was realized in April 30th year end...thought they had done a forward agreement on the shares... can"t find it and don't care to look anymore.

 

good job!

 

Dazel.

[RolfGunderson]

 

Sorry Rolf,

 

I do not want to seem confrontational....thx for the hard work! at least 25% of Millrock has been sold...and Alderon and the Cranberry capital partnership has not been reported on the balance sheet...so what I am talking about is not obvious...as always we here on the board are ahead of the heard...there is not one analyst covering the stock...Alderon has 5 analysts!

 

pls look at my previous post on cash and security values they come from Oct 31st....plus Alderon and the Voisey bay Royalty.

 

Dazel.

 

Dazel,

 

No worries at all. If I'm wrong I want to know. Thanks for taking the time to respond.

 

I just realized I didn't review the 2nd quarter financial statements, so you're probably right about Millbrook. I'm going to ask about the Royal Gold convertibles and will post when I hear back.

 

Your responses are much appreciated.

 

DP

[Partner24]

Current Asset Base (as of December 31, 2010)

• $145 Million in treasury

 

•529,251 shares of Royal Gold Inc. valued at ~$28 Million (received as part of  IRC purchase transacti)

 

•Voisey's Bay LP interest (10%)

 

•*32,285,006 shares of Alderon Resources Corp. (ADV-TSX-V)

 

•$25 million investment with Cranberry Capital (Paul van Eeden) - early stage mineral exploration companies

 

•Increasing collection of "created" royalties - Paladin Energy - CMB - 2% gross sales uranium royalty and 2% NSR on base metals and precious metals, Alderon Resource Corp. - 3% Gross Sales Royalty on Kami iron ore project, Northern Abitibi's Viking Gold project 2-4% sliding scale net smelter return royalty, Rare Element Resources' Nuiklavik REE project - 2% gross over-riding sales royalty.

 

•Diverse portfolio of exploration projects including 9 active Joint Ventures

 

•Rambler Metals and Mining plc (12 million shares)

[Mungerville]

Dazel,

 

Let me just make sure I am getting what you are saying right and am not misinterpreting.

 

a) You think that Altius' stake in Alderone alone is worth over 400M (which is Altius' current market cap) meaning Alderone should be valued at more than $400M not its current 150M.

b) so at $30 per share in value for Altius, the revaluation of a) is the main value driver to get us from $13-14 a share to say $23-25 or so a share, then there is $6 or more a share in the value of other Altius projects

c) you initially chose to invest in Alderone but then went with Altius because it had lower operational risk than Alderone

d) but now that Altius owns a big chunk of Alderone, and Alderone is a big driver in the value of Altius, Altius is currently incurring a large amount of the operational risk Alderone is incurring by virtue of its majority ownership of Alderone

 

Am I interpreting what you said correctly in terms of a), b), c) and d).

 

e) If yes, your high-level investment thesis revolves around valuing Alderone first (up from 150M to around $500Mish), then second becoming very comfortable with Altius management and ability to execute/track-record, etc for the remaining $6 plus plus a share in value of Altius to get us from $23-25 a share to north of $30 a share. Is this what you are saying?

 

 

 

 

 

[Guest Dazel]

 

 

Mungerville,

 

I have been here for awhile..(Altius)..bought in the 5's all the way up....to our highest purchase at $14.20.

 

Management is the best in the business....by all accounts..proven and continuing to prove.

 

My theisis...my first buys were a tap in as we say...we watched the stake they were taking in IRC and the subsquent quick $30m profit (we studied what the royalties were worth and equated that to what Altius' royalty in Voisey Bay was worth)...IRC was sold to Royal Gold. We knew Alderon was in the works so we studied Thomson Consolidated....Alderon is next door in Labrador and the founders of Thomson Consolidated are the founders of Alderon with Altius...one of the best business combinations around.

 

Thomson Consolidated land was purchased for $1.5m in 2005...it sold to for $5 billion last month.

You can see how we got interested in Alderon since we believe they will dupilcate what they did before. So we bought Alderon at $1.50...

 

Present market cap for Alderon is $260m of which Altius owns 45% and a 3% royalty...As I concluded  earlier I think that Altius will realize more than $400m from this project (including royalty). That would put Altius in the range of the middle $20's...as you have alluded.

 

Why did we not just buy Alderon and hold it since it has to go up in price for Altius to realize the $400m I think they will reap?

 

Because we think that Alderon is the catalyst for Altius' stock price. We think they will get a premium from the market once the world realizes what is going on. What they have done in the past and what is possible with their remaining properties and the large cash hoard they have created. So we sold our Alderon stake and bought more Altius with it.

 

We have discrepencies in numbers here because what we are discussing is not knowledge on the street. This quarter will be a blow out quarter (and more balance sheet clarity) as we know from Alderon's developments...we see that continuing...

 

But we also see the other projects coming to fruition...We would like to see St. Georges Potash developed and the Oil Shales in New Brunswick developed...

 

As Rick Rule has said it makes us giddy to see what is possible with this management and these assets. Alderon is one of many and that is why we own Altius. We finally got the opportunity to buy Real mining assets from a company without capex and that have done very much the same thing Leucadia has done. Except their younger... smaller(easier numbers) and have new opportunities...and similar performance records over the last 10 years...to the legendary duo at Leucadia.

 

Dazel.

[Mungerville]

Thanks for taking the time Dazel. It looks like there are good backers/management in place at both Alderone and Altius. Its nice to know that the people at Alderone have already done this once before and are looking to do it next door again.

 

 

[woltac]

How can I purchase Altius in the US?  I can get a quote using ALS.TO in my Fidelity account, but the symbol is not recognized when I try to preview an order.  Is ATUSF the same company listed on the pink sheets?

[beerbaron]

So Dazel, management has hit a few home-runs in the pasts years and that is great. Could these successes be attributed by pure luck?

 

There is plenty of PHDs in geology and very experienced individuals that are very competent at what they do and still did not get the same results. So what makes this management so much more capable then others? What "sigma" would they be considered if looked purely on a statistical standpoint?

 

BeerBaron

[Guest Dazel]

 

"Is ATUSF the same company listed on the pink sheets?"

 

Yes.

 

the pink sheet volume and price movement has been leading the cdn share price.

 

Rick Rule and Global Resource Investments are American....just for your information.

 

Dazel.

[Myth465]

I bought the pick shares, thanks again for the play.

 

This inmo is the best way for a value investor to learn about mining. I hope to hold for several years and hope the commentary and other details give me a crash course as well as a decent return.

 

Thanks again.

[Guest Dazel]

BeerBaron,

 

As far as Sigma's I am incapable of answering that question from a geology standpoint. From a total return standpoint they are in the top percentile. I believe their average return per annum over 10 years is 37%..so from a business standpoint they execute well. Their cash hoard is self generated where as most companies with  these of levels of cash are from share issues. They are extremely disciplined with their cash...

 

Did they get lucky? I think they are getting lucky like Leucadia does. I would give the edge to Leucadia in business...but not geology...Altius has both.

 

Dazel.

 

[Partner24]

I've never studied any company in that field before (except Leucadia, but that's just a part of their overall conglomerate), so my questions might be dumb, but they look like opportunistic and disciplined value investors in their field:

 

- Does a part (or a significant part) of their success might be related to the tailwind that this sector had over the last years (i.e. price increases in the ressources sector)?

 

- If we have a bubble in the ressources sector like some value investors think, wouldn't that hurt Altius significantly? I know they have treasuries and cash, but as far as I know more or less 30% of their market cap.

 

 

[Myth465]

I am probably not qualified to answer this (having spent much less time on this then most of you all), but similar to LUK a pullback in the general economy or thier respective industry (minerals and mining) is ganna hurt them as well as everyone else.

 

They seem to be spread around though and appear to be excellent value investors. Similar to LUK it appears that they are picking up assets for pennies on the dollar, and more of them workout then not. I dont think you have to know much to invest with these guys.

 

If any of those mines with royalty interests start producing we could have a nice reoccuring revenue stream, you also have a refinery which is carried at zero but could be worth multiples (everyone seems to believe we need more of these in NA), and several other assets. The company reminds me of this Munger / Pabrai quote.

 

Mohnish Pabrai - Heads I win, tails I don’t lose much. Make big bets when the downside is small and the upside is large.

 

Charlie Munger - You’re looking for a mispriced gamble. That’s what investing is. And you have to know enough to know whether the gamble is mispriced. That’s value investing.

 

I dont know much, but this gamble looks mispriced.

 

If you dont have a firm valuation of Alderon or insight into the other assets (basically you need to be a Geologist or know one) then be honest with yourself - You are gambling  ;D. I know I am, but the odds look good  :-*. I plan to start small 3%-4% and will scale up as I get to know these guys and know more about mining.

 

Also a downturn would allow them to buyback stock or pickup other cheap assets. Thats the beauty of a company run by owner managers, with excess cash. They can turn lemons into lemonade.

 

----

 

Thats how I view the investment.

[Guest Dazel]

 

When I refer to Leucadia...I am referring to their entry into the commodity world...over the last 10 years. They stated they (leucadia) believe in everything that Jim Rogers is saying...I do to...However, I am very much involved in watching Fairfax's deflationary defense (and as you have seen we have held very big positions in FFH-and plan on doing so in the future)...so in my world I will hedge when appropriate.

 

Altius entered earlier 1997...

 

Partner24,

 

As i mentioned at the start of this thread It has been difficult for me to own "mining companies"...I do not look at Altius as a miner...we do not have capex risk...yes with a commodity downturn...the shares will drop..that would be a longterm benefit...as the longerterm cycle will not be broken in my mind...

 

Fairfax have large positions in commodities...but because they are an insurance company they need to be cashflow and event hedged...

 

Leucadia went all in and got their head handed to them (2008)...but as you have noticed they held Fortesque and Inmet...and still do..these two companies alone make up half the  market cap...so I see less risk in Altius than Leucadia...

Leucadia also has a lot of debt...with negative cashflow...

Altius 0 debt and cashflow is now picking up-Royalties.

 

Hope that helps.

 

Dazel.

 

[Eric50]

Dazel - thanks for sharing. I spent my weekend reading about Altius. This is a very very good idea.

 

Eric