ALS.TO - Altius Minerals

[hohi]

Very nice to see them buy at these undervalued levels. One of the smartest things they can do with all that cash right now imho.

[ItsAValueTrap]

I did some research on Alderon and I can't get that excited about it. 

 

1- It is a shady junior exploration company.

 

They "sponsor" theaureport.com (shills...).

 

They are probably paying money to penny stock promoters.  see

http://thepennystockpick.com/tag/alderon/

and then their disclaimer

http://thepennystockpick.com/disclaimer/

"Thepennystockpick.com its operators, owners, employees, and affiliates most often have interests or positions in equity securities of the companies profiled on this website, some or all of which may have been acquired prior to the dissemination of this report, and may increase or decrease these positions at any time even after making positive remarks about a company."

"Thepennystockpick.com most often receives compensation from third party(ies) for publication of the information contained in this website, as follows:

This compensation may constitute a conflict of interest as to Thepennystockpick.com ability to remain objective in our communication regarding the profiled company. Thepennystockpick.com may receive stock as compensation for advertising services. Most often Thepennystockpick.com will sell its stock during, before and after making positive comments about the company. Any compensation received for advertising will be disclosed at the bottom of the ThePennyStock.com emails."

 

2- I think that it will have higher operating costs than Bloom Lake (Cliffs bought that from Consolidated Thompson).

 

If you look at this Cliffs' earnings press release:

http://www.euronext.com/fic/000/070/720/707207.pdf

Bloom Lake has cash costs of $91/t for the first half of 2012 (estimated to be $85/ton for the entire year).  This is well above what was stated in their technical reports and well above the $30/ton figure thrown around somewhere on the Internet.

 

Pros for Alderon:

-very close to infrastructure

-management team has built a mine before

-off-take agreement provides partial financing

-vaguely close to turning into a producing mine

 

Cons for Alderon:

-high manganese levels (and to a smaller degree sulfur) in ore means that they will have smelter deductions and receive a lower price for their ore.  The PEA estimates $15/t  (I have no idea how the smelter deductions will be calculated.)

-high manganese limits their marketing flexibility and they might only be able to sell to China.  The problem with selling to China is that Alderon will have to pay a little ~$20/ton for shipping (depends on shipping rates... overcapacity in the drybulk sector may keep rates down) which may be double that for NA/European customers.

-slightly burdened by 3% royalty to Altius.  Not a big deal.

-slightly burdened by off-take agreement.  Hebei gets a 5% discount on Platts benchmark price for first 60% of 8MT/yr.

 

Compared to Bloom Lake, Alderon might have a margin that is lower by ~$20-30+/t. 

Cliffs is getting a price of $128/t - $175/t between 2011-2012 for its Eastern Canadian ore (some of this is affected by the output of high manganese pellets from Wabush, which I believe sells at a premium to Bloom Lake fines output?).

If D&A runs $16/t and cash cost is $85/t-$91/t for Bloom Lake, then the total costs are $101/t-$107/t.  Add 20-30/t to that and Alderon might run $121/t-$137/t in costs.  The profit margin might be anywhere from -$9/t to $54/t.  It could be marginally profitable and could very well turn into a producing mine.  I definitely would not short it.  But perhaps it is not worth as much as you might like to hope?

 

3- Other iron ore mines have cash costs far lower than Bloom Lake.  Cliffs has operations at $62/ton cash costs.  I haven't checked other miners but they might be at $40-50/t.  Many of the $60/ton and below operations are being expanded (e.g. Fortescue is taking on debt and expanding).  So you might make the argument that eventually new supply will bring iron ore prices down.  A smart buyer might stay away from really marginal stuff like Alderon.  (But if iron prices rise... boy oh boy will Alderon go up along with Altius' iron ore portfolio.)

 

4- I think that the mining sector in general has some serious problems.  This is why Altius' royalty strategy is brilliant. Whenever miners do dumb or crazy things, Altius stands to benefit if it is holding the royalty.  If somebody puts a marginal mine into production, Altius' royalty isn't killed by any losses on the equity/debt side if commodity prices slide.  And sometimes mining companies will mine at a loss (e.g. Yukon-Nevada Gold I am looking at you)... great for the royalty holder, terrible for the equity owners.

 

Yes Altius does own Alderon stock (which has been diluted by equity raises).  But I think that's most because they have to, not because they want to.  They took a higher royalty presumably in exchange for less shares.  I am guessing Alderon was a cash-strapped junior when it acquired the property and it wouldn't have made sense for it to pay cash (juniors are almost always undercapitalized).

[jjsto]

Recent article:

 

http://www.miningweekly.com/article/labrador-trough-positioned-to-feed-canadas-iron-ore-exports-2012-08-10

 

And, my understanding is that the initial higher cash costs at bloom lake were due to a fire and extended down-time from equipment failures.  I remember reading (dont have link) management is still confident they will bring costs down to their low 60s target.

[ItsAValueTrap]

Hmm if you read Cliff's press release, they seem to be staying that cash costs will stay at high levels.  If the first half of the year was $91/t, and the forecast for the full year is $85/t, then the second half would have costs of $79/t.  That's still well above $60/t.

 

2- Opex versus cash costs:  Cash costs will include things like equipment leases and royalties (Bloom Lake has none AFAIK).  So this may explain part of the gap between cash costs and projected operating costs but not all of it.

 

3- Actually if you read Cliff's press release things are a little nastier.  They are going to keep production at about 7.2MT/yr instead of the 8.0MT/yr that was supposed to happen.

 

So if BBA did technical report work for Bloom Lake and they are now doing the work for Alderon and other juniors in the area, you might expect that the technical reports are on the very aggressive side.

 

3b- There are legitimate reasons why technical reports can be wrong.  There is uncertainty in the metallurgical process.  What works on a bench/laboratory scale doesn't necessarily behave the same on a production scale.  What the metallurgical engineers can do (if they have the money) is to run tests on a large sample of ore (you need a bulk sample) at various scales (bigger and bigger).  And from that they try to extrapolate to what would happen on a production scale.  It's an educated guess.

 

However, the problem with juniors is that they sometimes find authors who are aggressive in their educated guess or they pressure the author to be aggressive.  And I guess I was fooled as I didn't see anything in the Bloom Lake report that immediately struck me as very aggressive.  (It was the reverse... I was surprised that they used such a low price for the commodity price assumption.  It's unusual to use a price lower than the 3-year average.)

 

3c- Honestly, because there are legitimate reasons why technical reports can be wrong, it's hard to prosecute technical report authors for being way too aggressive.  Canadian regulators have been pretty lax about this and I don't recall anybody getting punished for putting out a really aggressive technical report (Peter George / Barkerville Gold takes the cake... but AFAIK he got a slap on the wrist).

 

4- Basically, I really have no idea what's going on.  I don't know what accounts for the miss between BBA's technical report and what Cliffs is reporting. 

[Liberty]

http://www.alderonironore.com/_resources/news/2012-08-13-NewsRelease.pdf

[Guest Dazel]

http://finance.yahoo.com/news/paladin-energy-ltd-long-term-110000145.html

 

 

Paladin has secured $200m in a prepayment for future uranium output...the deal is secured by 60.1% of their Canadian asset "Michelin project." This is indeed very good news for Altius....it confirms the value of the project for Paladin. That is a large prepayment in this market and security in this asset means they would likely want to deliver the uranium from The Michelin project. The michelin project is the old Aurora project that Altius sold at a $200m profit.

 

It would be great to see this project get some more attention not only for the future royalty stream to Altius but the other uranium assets they hold. We know that Altius has built valuable ties to China and we know that China has resumed their ambitious nuclear program...Connecting the two seems like the logical next step.

 

Dazel.

 

Dazel.

[Guest Dazel]

http://finance.yahoo.com/news/alderon-amends-hebei-agreement-052400649.html

 

 

Not sure why the change....it looks like more investment in the kami project itself and little less in the shares of Alderon.

It also looks like there has been no change to the $3.42 subscription price which should be very positive for the stock.

 

Dazel.

[value-is-what-you-get]

It looks like the price has indeed changed! 

 

"Under the terms of the amended Subscription Agreement, Hebei will subscribe for common shares at a price per share equal to C$2.41. Upon closing of the Private Placement, Hebei will acquire approximately 25,828,305 common shares for gross proceeds to the Company of C$62.2 million representing 19.9% of the issued and outstanding shares of Alderon. "

 

. . . and then bumping up the investment in Kami for the same ownership percentage.  This could well be optics and approval-related - why pay 40% more than the quoted price?  In addition, the end use for the money is Kami anyway so the net result is the same, but without overt stock price disparities.

 

 

[Guest Dazel]

Thx did not see that release.

 

Get the cash....the project economics will take care of the rest.

[Guest Dazel]

Alderon will raise a lot of debt...as did Thompson...it appears that management has chosen accordingly. I would argue that their partners are much stronger than Thompson's. Thompson had to raise money at a terrible time as well.

 

The opportunity in all of this is that the price of all of the components to construct the mine have come down substantially as well. We see Alderon now raising towards production as Thompson did. However, we see Alderon advantaged over Thompson by two major factors.

 

1. They have much larger institutional backing

 

2. The investment community has already seen Thompson do it. They also see all of the winners from that process.

-shareholders

-lenders (the whole investment banking world is looking for yield)

-fees...investment banks to insurers (Liberty) ...government

-jobs and economic activity...big winner

-infrastructure build outs....power to rail..huge for Quebec and Labrador expect quick permitting to make sure the project gets done.

 

Dazel.

[Guest Dazel]

 

Value is what you get,

 

 

Thanks for correcting me so quickly...only looked at the first part of the release quickly...on vacation.

 

For us...it is the agreement itself that matters..the continuity of the project is all we care about...yes altius's stake received some dilution from the $3.42 to $2.42 level. But more importantly to us is they raised the project financing. they will raise about $1 billion in debt and equity from here so dilution will continue over the next few years...we would pay up for the stability as Alderon did...

 

We see Altius's value in the royalty as we have stated many times....Paladin and Alderon have raised significant capital in a brutal financing market...well done to both companies.

 

Dazel.

[ItsAValueTrap]

The rest of the money is contingent on positive results from a feasibility study.  There is an option embedded in there.

 

If the feasibility study is negative, then Hebei may have overpaid for Alderon shares and Alderon gets to hang onto the money from the share subscription.  You can make the argument that this is fair since Hebei is getting some very good terms to its deal.  By committing to buying 60% of Alderon's ore at a discount of 5% (I still don't know how they will handle smelter/quality deductions and they will be significant), it's like Hebei has a royalty of 3%.  But I believe it's actually worth more than 3%.  The benchmark price is for iron ore delivered to China, so presumably it's Alderon that will pay for the shipping.  It would make more sense if the purchase price was benchmarked to a Quebec port, but no such benchmark exists AFAIK.

 

Suppose shipping costs $20/ton.  The maximum upside for Alderon is $20/ton if drybulk rates drop to $0/ton.  Whereas in the past, drybulk rates have exceeded the cost of the ore itself (!!!).  So Alderon is exposed to risks from the fluctuation in shipping costs... there is little upside and a lot of downside.

Hebei also has an option to take the rest of the ore at the benchmark price without any discount.  This option is worth something too.  If funky things happen with drybulk rates (they are extremely volatile) then that option could be worth a lot.

 

2- Liberty probably realized that they were getting shafted a little.  Hebei gets all sorts of options (and something worth a little more than a 3% "royalty") while Liberty does not.  So adjusting their subscription price down makes some sense.

This is somewhat bad for Alderon as shareholders get diluted.  Obviously existing shareholders would like to see Alderon sell shares at a high price.  There is a big difference between #/42 and $2.42.

 

3- Alderon is no Consolidated Thompson in my opinion.  Alderon's ore will be penalized for manganese content.  I think that Hebei did protect itself by stipulating deductions for deleterious minerals in its off-take agreement (it's a pretty standard practice).  Otherwise Alderon could cut corners on mineral processing costs (e.g. not spend the electricity and mill capacity on grinding the ore finely) and ship a product with high levels of silica, manganese, etc.

[value-is-what-you-get]

I have a couple of questions for Itsavaluetrap:

 

Wouldn't all suppliers including South America and Australia (70+% of global supply) have similar exposure to dry goods shipping rate fluctuations?

 

Is .60% manganese considered to be a high level?

 

 

 

 

[ItsAValueTrap]

Usually it's the purchaser who pays for the shipping.

 

On second thought I don't think that the risk from shipping cost fluctuations is a huge issue.  Alderon should be able to hedge its risk by entering into long-term freight contracts.  I don't believe that there would be significant counterparty risk to Alderon... I believe that it is the charterer who is the most likely to default.  I'm guessing that the shipping company will want to be compensated for credit/counterparty risk so there would be a minor cost to this hedge.

 

2- If Alderon could sell to non-Chinese customers, then Hebei's option on 40% of their output could hurt them a little.  After adjusting for shipping costs, it could be possible that Alderon should sell to local customers rather than Chinese customers.  But Alderon's technical report suggests that it will likely sell to Chinese customers only due to the lower quality of its ore.

 

Wouldn't all suppliers including South America and Australia (70+% of global supply) have similar exposure to dry goods shipping rate fluctuations?

Yes.  Brazil to China is a longer route than Australia to China.  Shipping costs are a big reason why Vale decided to build unusually large ore carriers (larger than capesize).  The larger vessels are more efficient.  And owning its vessels reduces their exposure to shipping costs.

(I'm not saying that Vale's decision is a good one necessarily.  Some people say that there has been a huge wave of overbuilding in the drybulk sector.)

 

Is .60% manganese considered to be a high level?

Yes.  According to the technical reports, sulfur is also a little on the high side.

 

I don't know enough about iron ore to know what level of deduction Alderon's ore may receive.

[Guest Dazel]

http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/oil-and-ink-publishers-bold-refinery-plan-raises-eyebrows/article4486051/

 

 

Great idea!

We think the better idea is the fully permitted NLRC on the east coast that is ready to go! Black mentions one third Chinese ownership...interesting.

 

Dazel.

[Guest Dazel]

http://altiusminerals.com/projects/nlrc

 

 

The 36 month creditor standstill agreement expires November20 2012.

[jjsto]

Grandich on alderon:

 

http://www.grandich.com/2012/08/grandich-client-update-alderon/

 

from stockhouse bullboard

[ItsAValueTrap]

Remember that Alderon is paying Grandich to say good things about them.  This does not generate value for society and does not generate value for all shareholders.

 

2a- Grandich is glossing over the value of Hebei's option.  If the project is not economic, it does not have to commit the rest of the capital.

2b- He is also glossing over the value of Hebei's 5% discount.

[Guest Dazel]

http://www.theglobeandmail.com/globe-investor/franco-nevada-to-pump-1-billion-into-inmets-cost-of-cobre-panama-mine/article4489537/

 

 

The bargain hunters are out.

 

Dazel.

[Guest Dazel]

http://business.financialpost.com/2012/08/22/olympic-dam-delay-bodes-well-for-uranium/

 

 

This bodes well for The uranium industry....

[Guest Dazel]

 

 

Royal gold is trading near an all-time high today. There PE is now 51.67.

 

To put that in perspective...51.67 times ( Altius Voisey bay royalty) $4m

 

Over $200 m pre tax valuation to Royal Gold market cap.

 

Dazel.

[biaggio]

 

 

Royal gold is trading near an all-time high today. There PE is now 51.67.

 

To put that in perspective...51.67 times ( Altius Voisey bay royalty) $4m

 

Over $200 m pre tax valuation to Royal Gold market cap.

 

Dazel.

 

That s because the shareholders of royal gold are not as smart as the ALS shareholders (I don t include myself, though I have accumulated a significant amount). I think most current holders will be long gone way before 51  times.

Personally I am not counting on that type of valuation- it seems crazy to me

Dazel (and other posters) appreciate all your updates + posts.

[Guest Dazel]

Biaggio,

 

 

As you know I post things that I see...what I take from the 51 pe and Franco Nevada valuation is that there are very very few royalty companies out there. So the lack of supply of this type of investment has investors fighting over theirs shares.

 

What this means to us... is that Altius has a hidden asset in Voisey Bay royalty that if sold to Royal Gold would be worth many many times at Franco Nevada or Royal Gold when compared to Altius.

 

This should give Altius a currency in this market. Do we want them to sell it? No. Unless they could

get $100m out of it. Take 25 years of payments out now. We are not saying this is going to happen but that the assets are being misplaced at Altius...the value of their assets will be priced in the market...there are  many ways to unlock hidden value.

 

The Voisey's Bay Royalty remains Royal Gold's largest royalty and the main reason they took out International Royalty from Altius.

 

 

 

 

 

Dazel.

[value-is-what-you-get]

3- Alderon is no Consolidated Thompson in my opinion.  Alderon's ore will be penalized for manganese content.  I think that Hebei did protect itself by stipulating deductions for deleterious minerals in its off-take agreement (it's a pretty standard practice).  Otherwise Alderon could cut corners on mineral processing costs (e.g. not spend the electricity and mill capacity on grinding the ore finely) and ship a product with high levels of silica, manganese, etc.

 

I believe you are here for alterior motives based on the nature, tone and language used in your posts and even your username. 

 

Having done some subsequent research on your assertion above, I can find absolutely nothing indicating that 0.6% Manganese is a bad thing.  As a matter of fact Manganese is added in the steel making process up to 8% concentrations:

 

"Steel

Manganese is essential to iron and steel production by virtue of its sulfur-fixing, deoxidizing, and alloying properties. Steelmaking,[27] including its ironmaking component, has accounted for most manganese demand, presently in the range of 85% to 90% of the total demand.[26] Among a variety of other uses, manganese is a key component of low-cost stainless steel formulations.[24][28]

 

Small amounts of manganese improve the workability of steel at high temperatures, because it forms a high melting sulfide and therefore prevents the formation of a liquid iron sulfide at the grain boundaries. If the manganese content reaches 4%, the embrittlement of the steel becomes a dominant feature. The embrittlement decreases at higher manganese concentrations and reaches an acceptable level at 8%."

 

Please provide some sort of proof or citing that indicates 0.60% manganese in iron ore is considered a high level and subjects the ore to price discounts.

 

As far as Grandich not adding any value for saying good things about Altius/Alderon, it follows logically that we can do away with all forms of advertising as well on the same basis of not adding value.

 

I think the intelligent posters on this thread understand you better than you understand them.  The proof will lie in subsequent posts.

[ItsAValueTrap]

Hi value-is-what-you-get

 

1- When I first tried to sign up for this forum, my username was GlennC but my membership was never approved for whatever reason.  (Perhaps it is too similar to another username on this forum that also starts with Glenn.)

 

2- In regards to the manganese content of Alderon's ore, please refer to the technical report that Alderon filed on SEDAR and that can also be found on its website:

http://alderonironore.com/_resources/kami/PEA_Final2011.pdf

 

If you search for the phrase "Quality Penalties" in 16-4, you will see that the technical report anticipates a $15/t penalty.  (The technical report notes that sulfur and manganese are the two main issues.)

 

3- Don't get me wrong... I am bullish on Altius.  I think that they are the best managed mining-related company out there.  (Northfield Capital would be #2.)