ALS.TO - Altius Minerals

[Liberty]

Dazel -

 

I'm surprised Altius hasn't used the steep correction in the Canadian resource sector this spring/early summer to take new positions and make its cash work. I think that's also something you expected as per your previous comments.

 

It's not that I don't like the buybacks at this price. I'm just surprised they haven't used their cash earlier this year to take advantage of the opportunities that were there and I'd be curious to get your opinion on that.

 

thanks in advance

 

Eric

 

I'm surprised too, especially after the "bring on the bloodbath" interview many months ago.

[Green King]

maybe its happening and we just don't see it.

The reason most of us got in is because of the good management right ?

[ItsAValueTrap]

Maybe it's because they are smart and are waiting around for the fat pitch.

 

Yes the share prices of juniors have gone down but they were coming down from levels of overvaluation.

[ItsAValueTrap]

Look at how Altius has made money in the past.  It wasn't from investing in juniors.  It was from:

 

A- Buying royalties instead of equity.  Look at all the people who have made personal fortunes in mining.  Teck is one of the rare cases where somebody (Norman Keevil) made a fortune from from equity.  Whereas Lassonde, Schulich, and Dalton made a lot of money from royalties.  The problem with equity is that the equityholders in mines regularly do dumb things.  They chase projects with low rates of returns (e.g. practically the entire gold industry), engage in empire building, have to compete with the publicly-traded miners who bid against you on acquisitions, etc.  And the junior explorers (in aggregate) are huge destroyers of capital.

 

B- Staking land *when it was cheap*.  That's why Altius is saying "bring on the bloodbath".  It's because they have this huge stash of cash and they want to buy land when it is cheap.  Land may not be cheap right now.  Dalton was visiting China probably because he was trying to "sell" Altius' iron ore land positions through joint venture deals (these JV deals are a subtle form of selling).

This is a business where Altius cannot deploy a lot of capital but has generated obscene returns.

 

C- Selling shares when they were expensive, buying them back when they were cheap.

 

And look at what Altius has NOT done.  They have largely avoided the business of exploration (exploration stocks have negative ROI in aggregate).  They have largely avoided the business of developing, building, and owning mines.  That's smart in my opinion as those aren't great businesses.

[Green King]

Look at how Altius has made money in the past.  It wasn't from investing in juniors.  It was from:

 

A- Buying royalties instead of equity.  Look at all the people who have made personal fortunes in mining.  Teck is one of the rare cases where somebody (Norman Keevil) made a fortune from from equity.  Whereas Lassonde, Schulich, and Dalton made a lot of money from royalties.  The problem with equity is that the equityholders in mines regularly do dumb things.  They chase projects with low rates of returns (e.g. practically the entire gold industry), engage in empire building, have to compete with the publicly-traded miners who bid against you on acquisitions, etc.  And the junior explorers (in aggregate) are huge destroyers of capital.

 

B- Staking land *when it was cheap*.  That's why Altius is saying "bring on the bloodbath".  It's because they have this huge stash of cash and they want to buy land when it is cheap.  Land may not be cheap right now.  Dalton was visiting China probably because he was trying to "sell" Altius' iron ore land positions through joint venture deals (these JV deals are a subtle form of selling).

This is a business where Altius cannot deploy a lot of capital but has generated obscene returns.

 

C- Selling shares when they were expensive, buying them back when they were cheap.

+1

[nostradamus]

Hello all

 

I have been following the discussion on this board for a while now and thought it was about time for me to contribute. But first a disclaimer: I have quite a sizable investment in Altius and I know next to nothing about mining. So I am both biased and uninformed.

 

Anyway there are a couple of things I have noticed recently that I don't think have been posted:

 

First off, some recent news on Julienne lake:

 

http://www.thetelegram.com/News/Local/2012-10-10/article-3096301/Call-for-expressions-of-Interest-for-Julienne-Lake-development/1

 

I guess that the Altius management had flagged that this was anticipated, but the announcement is clearly positive. As I said at the outset, I don't really know anything about mining, but if the goverment is encouraging a developer to spend a huge amount of money to turn their property into a mine, it seems to me that the developer would want to make that capex go a bit further by aquiring the right to mine the adjacent (submerged) land that altius owns as well. I assume we will hear more about this when altius reports back on the outcome of their 2012 winter drill programme.

 

Secondly, I came across this presentation:

 

http://altiusminerals.com/uploads/RIF-2012.pdf

 

It includes a few things that I had not seen before. 1. info on the Chile expansion, 2. a statement that they intend to dividend out the Kami royality cash flow, 3. their own NAV calculation of the current value of the Voissey Bay and Kami royalities (C$172m).

 

Regarding point 2. They project a royality of C$55.2m by 2017 on Kami. Divide this by the 28,759,675 shares outstanding give a dividend of C$1.91 per share, or a yeild of around 18% at current prices!

 

Regarding point 3. Take a look at the slide on their capital structure. I think this means that if you just consider the cash, marketable securities and two royalities (Voissey and Kami), you get a valuation of 182 + 114 + 172 = C$468m or 16.27 per share. Ie just these aspects of the business are worth about 60% more than the current share price.

 

Then there is all the potential from their other interests, eg CMB royalty and Julienne lake.

 

I think this stock might be cheap.

 

N.

[biaggio]

Nostradomus, thanks for posting presentation.

 

If they think they will dividend out $55 million from Kami I wonder why they are allocating only $172 million to NAV (internal valuation)

 

Wow, $1.91 per share in dividends- I was not banking on this- I'll take it.

 

I am not sure where that presentation was made (made in Sept 2012) but certainly I don t think that this story is known by the market as the shares still sell in low volume without much upward price movement, not that I care. Will be fairly priced when 2015 comes when + if they have Kami operating as projected

 

ALS is slowly becoming one of my larger holdings.

[biaggio]

http://altiusminerals.com/uploads/2012-Sept-Chicago.pdf

 

another similar presentation posted Oct 1 at "Chicago Hard Asset Conference" with similar info.

 

$1.90 dividend projected for 2017- who knows what will happen by then- in the long run I think hard assets are going to be worth more than today- being able to collect the royalty you don t have to worry about the increasing cost to mine the stuff.

[Ross812]

How many tons of iron can Alderon produce? The release this morning suggested 8 million tonnes? 4.8 million tones purchased by Hebei for 95% the market cost. Lets assume $100/ton so Alderon is now making at least grosses 456 million. Altius gets 13.7 million? ($100*95%*4.8*3%) DCF discounted at 11%, 0% growth. The 3% royalty is worth 124 million on the extreme low end...

At $140 per ton 8 million per year the royalty is worth 305 million...

 

Voisey .3% Royalty, 2.25 million per year

0% growth, 11% discount 20 million

 

 

I came up with this a while ago. I came up with a royalty value between 125 and 300 million. At this point it's all speculation. Will kami be completed? What will the discount rate be? What is the level of production? What is the iron ore price? Your number seems on the low side of my range, so they may be being a little conservative. I'm not sure where the 55 million royalty is coming from...

[ItsAValueTrap]

Well there's always risk in developing mines.  A fraction of promising projects won't make it into production.  And of those that do start producing, a small number of them will actually fail within a few years because it turns out some of their assumptions were wrong.

 

I think that Altius is assuming that there is a chance that Alderon won't make it into production.  Alderon is more marginal than some of its peers as its ore has elevated levels of manganese.

 

2- A high discount rate could explain part of it.  The $172M is for both the Voisey's Bay royalty *and* the Alderon iron ore royalty.  If the Voisey's Bay royalty is worth $40M ($4m/yr times 10), then the Kami royalty is worth $132M.  This could imply that the Alderon project has a 50/50 chance of making it into production.  $55M times 10 times a 50% chance of going into production = $275M.  If you discount that to the present then it could be around $132M depending on your discount rate and when you think the project will go into production.

[Ross812]

55 million a year to altius at a 3% royalty implies alderon will mine 16 million tonnes at $120 a ton (including the 5% discount for hebei). 55 million a year could not possibly happen for altius until 2017-18. I think Altius is valueing alderon at roughly 130 million which implies 13 million a year give or take. This is in line with my conservative estimate. the dividend should be about .50. Sorry for the punctualtion. Im typing on a tablet.

 

-Ross

[Guest Dazel]

 

 

Thanks for the posts.

We agree with most all that has been posted...

 

Altius are extremely conservative. So I would judge their internal number for royalties the same way you look at the way they have held their huge cash position. They are seasoned and have proven them selves time and again. That is why there is no mention of the cmb royalty. Their conservative royalty number still takes them over $16 a share.

 

 

There is dirt cheap capital available to those with scale who are buyers of royalties. That is why Altius has not purchased any...simple....price. Royalties are being priced at massive premiums...

 

So...Our question to you then is what is Altius worth to someone else in the royalty business?

 

Dazel.

 

Dazel.

 

[ItsAValueTrap]

LIF.UN and Mesabi iron ore trust are publicly traded royalty companies.

 

LIF.UN has most of its NAV in a royalty on IOC's mine, but it also owns an equity stake in IOC (which has assets in its mines and railroad).  As more companies use that railroad, IOC will receive a little more in fees.  (Unfortunately I haven't crunched the numbers of that railroad revenue.)

LIF.UN has a PE of around 12.8.

 

Mesabi iron ore trust is overpriced and the borrow is ridiculously expensive AFAIK.

 

Other royalty companies own a mix of gold, silver, and other metals. 

Anglo Pacific

Silver Wheaton

The various Sandstorm companies are royalty-esque

Franco-Nevada

Premier Gold will IPO a royalty company soon (because some people overpay for royalties)

 

I think that overvaluation exists for many of those companies since:

A- Many mining companies are overpriced.  The royalty companies, in comparison, look fairly priced.

B- Many mining companies and royalty companies regularly raise capital, so there is are elements of a pyramid scheme going on.  It's like tulips, real estate, telecom companies, Dot-Coms, social networking, etc.

 

I'd also point out that there's a big difference between iron ore valuations and gold valuations.  The iron ore miners trade at very low multiples.  CLF has a PE of 4, Goldcorp 26.  There are fears that the iron ore market may crash (which makes sense because iron ore production has gone up several times over the past few years).  There are also a lot of folks trying to short China in general (which is not in an obvious bubble), or trying to short Chinese real estate (which is in an obvious bubble).

Gold is hot right now, iron ore is not.

 

Personally I don't see the overvaluation in gold miners and royalties lasting for long.  The public markets are far better than our governments at printing paper.  There are no supply constraints for the equities.  There *are* supply constraints for physical gold... we haven't increased production in the past decade despite the skyrocketing price.  Similarly there are supply constraints for the mines.

 

So...Our question to you then is what is Altius worth to someone else in the royalty business?

Not that much?  Iron ore != gold or silver.

[beerbaron]

So...Our question to you then is what is Altius worth to someone else in the royalty business?

Not that much?  Iron ore != gold or silver.

 

Someone went to it's C++ classes...

 

BeerBaron

[ItsAValueTrap]

Hey I preach inequality!  :P

[Guest Dazel]

 

 

Once again...

 

The bulk of the valuation on royal gold is Voisey's bay it's largest royalty...at a 50 plus PE....even though it is a gold co...

 

As we all know Altius owns the same royalty and when uranium comes out of it's free fall....you have another world class asset at Paladin's Michelin project.

 

The world is looking for yield...they do not care how they get it.

 

Dazel.

[nostradamus]

http://member.afraccess.com/media?id=CMN://6A608326&filename=20121016/PDN_01343711.pdf

 

Includes some further information on the Michelin project (pasted below):

 

AURORA – MICHELIN URANIUM PROJECT, Canada

 

Drilling started at Michelin in late August. Two diamond core rigs are now operating on site and have completed 19 diamond holes incorporating 3,200m of core.

 

Initial infill drilling at Michelin intersected uranium mineralisation as expected. Detailed widths and grades will be reported after assays have been received and downhole gramma logs validated.

 

Ground geophysical surveys, geological mapping and prospecting were undertaken along the Michelin trend east and west of the main mineralised zone as well as the sub-parallel Rainbow trend, to the south and west all within 5km of the Michelin deposit. Early results show numerous uranium anomalies along this trend offering targets for future scout drilling. At this stage four scout drill holes have been completed at Running Rabbit Lake. All holes intersected some uranium mineralisation. Detailed results are still outstanding.

 

An updated mineral resource estimate for the Michelin deposit is expected early in 2013 after all assays have

been received and validated.

[Guest Dazel]

 

 

 

Iron ore prices are quietly back to the perceived global price floor of $120 per ton....you would not know that from the news headlines as the negativity in the space of the past 3 months has been overwhelming.

 

FYI

 

Altius' corporate presentation and assumptions for $27.5m and $55m royalty for 8mt and 16mt at Kami contemplate iron ore prices of $115 per ton.

 

Dazel.

[ItsAValueTrap]

Hey does anybody know how smelter deductions are normally calculated? / How to get up to date pricing information?

[nostradamus]

Does anyone have any views on what the 3rd Quarter results for Cliffs means for the viability of Kami?

 

I am particularly thinking of the cost per ton of nearby mining operations:

 

Cash cost per ton in Eastern Canadian Iron Ore was $106.06, up 21% from $87.37 in the year-ago quarter. The increase reflected higher cash costs at Wabush Mine of $132 per ton, up 25% from the prior year's comparable quarter, due to higher labor costs and increased spending related to maintenance and repairs. Additionally, third-quarter 2012 cash costs at Bloom Lake Mine were $88 per ton, up 18% from the year-ago quarter, primarily driven by higher fuel, contract labor, and maintenance and supply costs. Cliffs indicated Bloom Lake Mine's cash costs per ton have improved over second-quarter 2012 results primarily due to increased production throughput rates at the mine.

 

http://ir.cliffsnaturalresources.com/releasedetail.cfm?ReleaseID=716089

 

[ItsAValueTrap]

Bloom Lake's opex was $88 per ton for the quarter.

 

The Wabush mine has ore that is very high in manganese content.  I'm not sure but I think that Cliffs may be mixing the cleaner ore from BL with the Wabush ore to have a product that is reasonable in manganese levels.  So maybe you could just assume that Kami's ore will sell at a similar price to Cliffs' Eastern Iron ore operations...?  *BUT* that price is for 1/3 of the product being pellets, which has a higher price than fines.  With Cliffs, the operations produce a lot of (super) fines that are turned into pellets.  Kami may get a lower price without a pellet plant.

 

Revenue for the quarter was $110 per ton

 

Royalties and offtake will be at least $7 (it's 6% at 8MT/yr, slightly higher if it turns out to be like BL and production turns out to be 7MT/yr)

 

----

Capital cost of $989M, mine life 15.3 years. 

http://www.alderonironore.com/projects/kami/

 

simple D&A calculation

$1000M / 15 years / 8MTperYear = $8.33/ton D&A

-production might end up at 7MT

-cost inflation may push capex higher (actually you could probably read consolidated thompson's financials and cliffs' financials and figure out the real capex)

-mine life may be longer than 15 years

 

So at current prices:

$110 revenue

$88 opex

$6.6 royalty+offtake

$8.33 D&A

 

You have a profit of about $7.07 / ton on revenue of $117.  At 6% profit margin, I don't think this will go into production...?

 

Of course I am probably off by a lot... this is just a rough back of the envelope calculation.  Alderon will spend at least several million dollars on feasibility studies.  A real mining company would do due diligence that retail and institutional investors aren't doing if they wanted to buy this.

[Ross812]

Regarding Manganese content from Alderon Iron Ore Corp. NI 43-101 Technical Report:

 

The chemical analysis for the Kami concentrate, previously presented in Table 13.11, offers

mostly positive characteristics having a low concentration of the most typical gangue elements.

Silica levels are in line with those for concentrates from Mount Wright (4.5%) and Carol Lake

(4.2%). The sulfur level of 0.053% is indicated to be marginally higher than the acceptable limit

in Europe which is 0.050%. The Mn level is elevated and exceeds acceptable levels in many BF

operations. The expected MnO and S levels of the Alderon concentrate will make this product

difficult to market in Europe.

 

Stantec's Conclusions:

 

19.8 Conclusions

Considering that:

 The Kami concentrate may contain a higher proportion of fines than what is normally used

as a sinter feed;

 The Kami concentrate can be considered as a standard quality concentrate, with normal

silica levels, high-end sulfur levels and higher than standard manganese content;

 The Chinese market is the largest consumer of sinter feed material and the fastest growing

in demand;

 The Chinese market has the least quality restrictions.

It can be concluded, at this stage of the Project, and based on the information available to date,

that the most appropriate marketing strategy for Alderon is to actively explore and pursue

commercial opportunities with potential Chinese Customers.

[Ross812]

Table 21.2: Total Estimated Average Operating Cost ($/t concentrate)

 

Mining                                              20.36 $

Concentrator                                    6.28 $

Site Infrastructure (incl. Garage)          0.55 $

General Administration                      1.77 $

Environmental and Tailings Management 0.32 $

Rail Transportation                            13.51 $

Port Facilities                                    2.08 $

TOTAL                                            44.87 $

 

The accuracy range for the Capital Cost Estimate and the Operating Cost Estimate developed in this

Study is -20%/+30%.

 

So lets assume +30% = $58.33/ton OPEX + Royalties 6% of $120/ton = $65.53/ton

 

Bloom Lake's opex was $88 per ton for the quarter.

 

The Wabush mine has ore that is very high in manganese content.  I'm not sure but I think that Cliffs may be mixing the cleaner ore from BL with the Wabush ore to have a product that is reasonable in manganese levels.  So maybe you could just assume that Kami's ore will sell at a similar price to Cliffs' Eastern Iron ore operations...?  *BUT* that price is for 1/3 of the product being pellets, which has a higher price than fines.  With Cliffs, the operations produce a lot of (super) fines that are turned into pellets.  Kami may get a lower price without a pellet plant.

 

Revenue for the quarter was $110 per ton

 

Royalties and offtake will be at least $7 (it's 6% at 8MT/yr, slightly higher if it turns out to be like BL and production turns out to be 7MT/yr)

 

The Washburn Mine produces Hematite which is much harder (i.e. more expensive) to concentrate than Alderon's ore which is 70% magnetite.

 

This may help:

http://www.mineralresource.info/2012/08/24/iron-ore-looking-beyond-grade/

[Ross812]

Kami ore is also 65.5% Fe which means it would be priced at a premium to the 62% Platt price. This is about +$5-5.50/%. Which means Kami ore could fetch a price at Platt + $17.5. Hebei was smart when they locked in a price at 95% Platt. Manganese levels do not particularly matter when selling to China. Sulfur levels are just outside the range of what is acceptable in Europe (6% too high), but they are not selling to Europe anyway. Prices for ore are negotiated directly; Hebei gets preferential treatment at 95% Platt. I don’t think other companies are going to get this sweet heart deal. I would look for Platt + $5-17 for everyone else. 

[ItsAValueTrap]

The same technical report calls for quality deductions of $15/ton.  Unfortunately, it seems like nobody on this forum knows how smelter/quality deductions are calculated.

 

2- The big issue is that these technical reports are a joke.  BBA did technical report work for Consolidated Thompson when it owned Bloom Lake and before Cliffs bought out CT.  The BBA technical report wasn't even close... it projected opex below $40/ton.  This quarter it is around $88/ton.  (How cash costs and operating costs are defined can make a difference... but does not explain the entire difference.)

 

Guess who is doing technical report work for Alderon?  BBA.

 

*I also own Altius.