ALS.TO - Altius Minerals

[ItsAValueTrap]

Opex of $44/ton would put Kami among the lowest-cost deposits in the world (ones with grades far higher than Kami and requiring less or no beneficiation) and HALF of what Bloom Lake's opex is.  This is extremely unlikely.

 

If anything you would figure that Kami will come in with opex a shade higher than BL as it will spend more money on the metallurgy to get the manganese content down. 

 

*I don't like juniors.  So many lies.

[biaggio]

added some @ $10.20 this afternoon.

 

Further weakness in price to follow I am sure. Hope to average in a bit more.

 

I like the net cash

 

I like the royalties (protection from the eventual inflation)

[Guest Dazel]

 

Cliffs natural have had operational issues at their eastern iron ore mines...the bloom lake operations have changed their longterm marketing strategy to producing a higher end premium product. This change took cash costs above $100 per ton in the second quarter...because of the costs and lower volume....that came down to $88 per ton this quarter and will continue downward. In other words they had problems with production and have changed operational focus at Bloom Lake...management does not like to say we "screwed up" but it looks like they have and are coming back from that....with cash cost dropping considerably this quarter...

 

The operators matter as we know...taking a rough patch from a mine and saying  those cash costs are the normal is just silly. Things go wrong equipment malfunctions etc...and we had a huge drop in the price of iron ore during the same period...as an operator you are not going to try to push through more volume...you slow production and take the time to fix problems.

 

Dazel.

[Ross812]

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.

 

I did a looked into your reference to $15 quality deductions. You got that from Table 16.2 Pit Optimization Parameters. $15 for quality deductions is actually the cost of beatification of the ore. This is not a cost deduction to the processed ore. The $15 quality deduction is accounted for in table 21.2 I previously cited. Table 16.2 is identical to table 21.2, just in a different form. To read the pit optimization table:

 

Add the operating costs for the mined raw ore:

Mining Cost (Ore, Waste) $2.10 + Mining Cost (OB) $1.05 + Processing Cost $1.95 + General and Administration (G&A) $1.13 = 6.23 $/t raw unprocessed ore.

 

The weighted recovery is 37%. Divide the unprocessed ore by 37% to get to processed ore cost per ton:

$6.23/0.37 = 16.84 $/t processed 30% Fe

 

Now its time to beneficiate (concentrate) the ore to take it from ~30% Fe to 65.5% Fe:

 

$16.84 + $15 (Quality Penalty – smelter deduction) = 31.84 $/t FeCon

 

Add in Port $3/t and Rail $10/t costs and we get 44.84 $/t which is the estimated cost in table 21.2.

 

Hebei is not stupid. They would not have negotiated a price of 95% Platt if they could get Platt - $15. The Platt price is based off 62% Fe. Alderon ore is 65.5% which would fetch a premium of Platt + $5/%Fe if pricing gets really competitive. Using Platt for the product price assumption seems pretty reasonable and a little conservative.

 

[ItsAValueTrap]

Add the operating costs for the mined raw ore:

1a- Mining Cost (Ore, Waste) $2.10 + Mining Cost (OB) $1.05 + Processing Cost $1.95 + General and Administration (G&A) $1.13 = 6.23 $/t raw unprocessed ore.

There is a difference between $/t mined, $/t milled, and $/t FeCon.

 

Of everything that is mined, some of it is waste and goes to the waste pile.

Of everything that is milled, some of it is waste tailings and goes to the tailings storage.

And then you have your iron ore concentrate.

 

1b- The mining costs are different for ore/waste and overburden.  You don't add both costs up together.

 

2- The pit optimization may use more conservative assumptions than the economic assessment.  This is so if the ore price falls, you won't have a pit that was optimized for a higher price and you lose even more money.

 

Hebei is not stupid. They would not have negotiated a price of 95% Platt if they could get Platt - $15. The Platt price is based off 62% Fe. Alderon ore is 65.5% which would fetch a premium of Platt + $5/%Fe if pricing gets really competitive. Using Platt for the product price assumption seems pretty reasonable and a little conservative.

The way the benchmark pricing works is that it is a price for iron ore of a certain quality.  It will have limits for the levels of impurity in the product... Alderon's ore likely exceeds that.

 

What normally happens is that the price will be reduced for impurities (e.g. smelter deductions) and increased/decreased for iron content above/below the 62% level.  The smelter deductions will be linked to the level of impurities.  We don't know what the exact level of impurities will be (since there are uncertainties as to resource estimation and metallurgy).  The level of impurities may vary from shipment to shipment (it varies within the ore deposit).  So if Hebei is smart, they will link their price to the level of impurities in the ore.  This will protect them.

 

Otherwise Alderon could buy extremely low-quality ore from somebody else and sell that to Hebei.

 

So basically, Hebei will be getting 95% of Platt + adjustment for iron content - quality penalties / smelter deductions for manganese (and sulfur).

 

I don't know if the quality penalties will be $15/ton.

[Ross812]

Add the operating costs for the mined raw ore:

1a- Mining Cost (Ore, Waste) $2.10 + Mining Cost (OB) $1.05 + Processing Cost $1.95 + General and Administration (G&A) $1.13 = 6.23 $/t raw unprocessed ore.

There is a difference between $/t mined, $/t milled, and $/t FeCon.

 

Of everything that is mined, some of it is waste and goes to the waste pile.

Of everything that is milled, some of it is waste tailings and goes to the tailings storage.

And then you have your iron ore concentrate.

 

1b- The mining costs are different for ore/waste and overburden.  You don't add both costs up together.

 

2- The pit optimization may use more conservative assumptions than the economic assessment.  This is so if the ore price falls, you won't have a pit that was optimized for a higher price and you lose even more money.

 

Hebei is not stupid. They would not have negotiated a price of 95% Platt if they could get Platt - $15. The Platt price is based off 62% Fe. Alderon ore is 65.5% which would fetch a premium of Platt + $5/%Fe if pricing gets really competitive. Using Platt for the product price assumption seems pretty reasonable and a little conservative.

The way the benchmark pricing works is that it is a price for iron ore of a certain quality.  It will have limits for the levels of impurity in the product... Alderon's ore likely exceeds that.

 

What normally happens is that the price will be reduced for impurities (e.g. smelter deductions) and increased/decreased for iron content above/below the 62% level.  The smelter deductions will be linked to the level of impurities.  We don't know what the exact level of impurities will be (since there are uncertainties as to resource estimation and metallurgy).  The level of impurities may vary from shipment to shipment (it varies within the ore deposit).  So if Hebei is smart, they will link their price to the level of impurities in the ore.  This will protect them.

 

Otherwise Alderon could buy extremely low-quality ore from somebody else and sell that to Hebei.

 

So basically, Hebei will be getting 95% of Platt + adjustment for iron content - quality penalties / smelter deductions for manganese (and sulfur).

 

I don't know if the quality penalties will be $15/ton.

 

You're right here is the corrected Pit Optimization Costs:

 

Let’s look at the system as a whole:

 

From Table 16.6, Applying Costs from 16.2:

 

Step 1 - Remove overburden:

46,766 Kt * 1000 t/Kt * 1.05 $/t = $49 million

 

Step 2 – Mining Ore and Waste Rock:

Kt Mined Ore + Kt Mined Rock= (335,128 + 711,853) * 1000 t/Kt * 2.10 $/t = $2.198 Billion to produce 335,128 Kt of Ore

 

Step 3 – Process the Ore:

335,128 Kt * 1000 t/Kt * (1.95+1.13) $/t = $1.032 Billion to produce:

 

335,128 Kt * 37% Weighted Recovery = 123,997 Kt of FeCon

 

So adding all this up we get:

$49M + $2198M + $1032M = $3279M to produce 123,997 Kt of FeCon so production OPEX is:

 

$3279M/(123997 Kt * 1000 t/Kt) = 26.44 $/t

 

This is equal to Table 21.2 Mining + Concentrator Cost (20.36+6.28) = 26.64 $/t (within rounding error)

 

[Ross812]

Smelter deductions as far as I can tell don’t really come into play with respect to iron ore. Smelter credits/deductions are given to compensate the smelter for waste above a certain benchmark. For iron smelting this is usually in the form of credits or deductions above an agreed upon %Fe. The factory has to use the same amount of energy regardless if 58% Fe or 64% Fe ore is used and the recovery from 58% Fe ore is lower and waste higher so a credit/debit is given in the form of $5/%Fe to compensate. Sulfur and Manganese are not smelter deductions because they are actually incorporated into the steel (not a waste product).  Quality deductions may come into play. Most European iron ore contracts I could find state a max allowed sulfur % at 0.05. As far as Manganese goes, 0.4-1.1% is desirable. Alderon ore will have 1.6% Manganese and .053% sulfur which means it will probably be blended with lower manganese/sulfer/fe content ores during sintering. The ore as-is is acceptable to make steel in China, but blending a lower quality 60% Fe Indian ore with Alderon’s 65.5% Fe ore would create a product that could be sold in Europe. Manganese does not start affecting the quality of the steel produced until ~4%. 65.5% Fe 1.6% Mn or can only produce 2.45% Mn steel. Sulfur and the grain size distribution are the two main detractors to this ore’s marketability. 

[ItsAValueTrap]

Manganese increases hardenability and tensile strength of steel, but to a lesser extent than carbon. It is also able to decrease the critical cooling rate during hardening, thus increasing the steels hardenability much more efficient than any other alloying elements. Manganese also tends to increase the rate of carbon penetration during carburizing and acts as a mild deoxidizing agent. However when too high carbon and too high manganese accompany each other, embrittlement sets in. Manganese is capable to form Manganese Sulphide (MnS) with sulphur, which is beneficial to machining. At the same time, it counters the brittleness from sulphur and is beneficial to the surface finish of carbon steel.

 

For welding purposes, the ratio of manganese to sulphur should be at least 10 to 1. Manganese content of less than 0.30% may promote internal porosity and cracking in the weld bead, cracking can also result if the content is over 0.80%. Steel with low Manganese Sulphide ratio may contain sulphur in the form of iron Sulphide (FeS), which can cause cracking (a “hot-short” condition) in the weld

http://www.leonghuat.com/articles/elements.htm

 

It seems that the ideal level of manganese is different for different types of steel?  For steel that will be welded, manganese should be lower than 0.8%.  There are other types of steel where more manganese is better.... most of the world's manganese mined is used as a additive for steel.

 

2- The Platts index specifies sulphur below 0.02% for one of its indexes but not the others.

PDF of the specification here:

http://www.platts.com/IM.Platts.Content/MethodologyReferences/MethodologySpecs/ironore.pdf

 

Beyond that the index would make some kind of adjustment to normalize for the difference in quality.

 

3- Strathcona wrote a report for the government regarding the Wabush mine and problems with the manganese content in its ore.

 

The manganese content in the ore, which is a specific characteristic of the Scully Mine deposits,

is the primary market limitation to exploiting more of the remaining resources than is currently

planned and that are not included in the most recent reserve estimates.

Cleveland-Cliffs Inc., as the managers of the Wabush Mines joint venture, have been examining

the possibility of installing a manganese reduction plant and if feasible this project could allow the

current blend of pellet products to be produced through to 2021.  Encouragement and support for

this endeavour should be given by all stakeholders because of the significant benefits of extended

mine life for the employees of Wabush Mines and the community of Wabush

 

Cliffs bought out its other partners in the mine and installed a manganese separation plant.

[Green King]

3- Strathcona wrote a report for the government regarding the Wabush mine and problems with the manganese content in its ore.

 

http://www.nr.gov.nl.ca/mines&en/publications/wabush-memo-v3.pdf

 

Can you explain again how the high manganese matter ?

 

If you can just blend or build one of those plants for 40 million ?

sorry i am very new to the sector. It was very hard to keep up. :(

[Guest Dazel]

"Cleveland-Cliffs have previously examined the possibility of installing a manganese reduction plant

that would reduce the manganese content of ore processed to allow production of the current pellet

products to continue, with their manganese content of either 1.2% or 2.0%, from ores that would

contain up to 4.0% manganese."

 

from with in the old Strachcona report.

 

Alderon is at 1.6% maganese well with in the range of 1% or 2 % that Cliffs is desiring at Wabush. It explains their high cost 40 year

old mine ($125 cash cost a ton last quarter) with very little desirable reserves left without the additional cost and hence why they bought Thompson Consolidated...where once they get operations on track they will do very well.

 

Not sure why Wabush is being compared to Alderon or Bloom lake very different.

 

dazel.

[Guest Dazel]

 

sorry Wabush mine cash cost were $132 last quarter....

 

BloomLake was $88/ton ....last year this quarter it was about $70/ton at Bloom lake...

 

I have not looked but it is possible that Bloom lake changed strategy to mine higher premium

ore at Bloom lake to blend with the lower quality ore at Wabush.

 

As I stated earlier the spike in cash cost at Bloom Lake is over how they have implemented their new strategy and

their cash cost will come down now...

 

Dazel.

[ItsAValueTrap]

Can you explain again how the high manganese matter ?

I'm not sure why but apparently it was a big deal for Wabush.  (As Dazel points out, Wabush's manganese content is far higher than Alderon.)

 

I suppose that non-Chinese smelters are not interested in making steel with high levels of manganese.

 

If you can just blend or build one of those plants for 40 million ?

 

To get rid of the manganese, I believe this is what they do.

 

You grind up the ore really fine.  Hopefully you don't have too many grains where manganese is stuck to something magnetic (e.g. magnetite/iron, hematite/iron)... it depends on the nature of the ore.  If you grind the ore finer, you will probably have less of those grains.  But it depends on the nature of the ore.

 

You use magnets to separate out magnetic material from non-magnetic material.  There are two different processes that can be used... high-intensity magnetic separation and low-intensity magnetic separation.

http://en.wikipedia.org/wiki/High_intensity_magnetic_separator

 

Grinding the ore:

- Depends on how hard the ore is.

- Grinding the ore finer costs more money

- Grinding the ore generates fines.  These receive a lower price since they cause problems in the furnace when iron ore is smelted.  Fines receive a lower price than lumps which receive a lower price than pellets.  You need a pelletization plant to turn fines/lumps into pellets.

 

sorry i am very new to the sector. It was very hard to keep up. :(

I am too.

 

You know what... I'm starting to feel that this is really hard.  There is a lot of esoteric knowledge involved and this information is not on Google.  I still don't know how to figure out the smelter deductions/quality deductions.  I've read some university textbooks on mine engineering but they don't cover that aspect of project economics.

Mining companies have teams of specialized engineers who all do different things.  Doing due diligence on juniors is freakishly hard when you don't have access to all the technical data and lack knowledge about several *different* fields of engineering.

[ItsAValueTrap]

As I stated earlier the spike in cash cost at Bloom Lake is over how they have implemented their new strategy and

their cash cost will come down now...

 

Dazel.

 

Hmm there may be a disconnect between what Cliffs says it will do and what it actually does:

 

For the full year 2012, Cliffs said it anticipates Bloom Lake iron ore concentrate sales and production volume to be approximately 8 million tons, with a revenue rate of approximately $170 - $175 per ton, based on current iron ore spot prices. With the additional volume expected and resulting fixed cost leverage, Bloom Lake's 2012 cash costs per ton are anticipated to decline to $45 - $50.

 

In addition, Cliffs anticipates 2012 capital expenditures related to Bloom Lake to be approximately $350 million, including sustainable and expansion capital.

http://ir.cliffsnaturalresources.com/releasedetail.cfm?ReleaseID=582597

 

2012 is almost over and it looks like Cliffs will definitely miss their target.  Part of it is cost inflation that every miner is experiencing (this trend will likely continue as the shortages of labour and equipment are likely to continue).  The rest is "optimism".

 

Of course Cliffs' press release coincided with Cliffs selling its shares.

[Ross812]

It seems that the ideal level of manganese is different for different types of steel?  For steel that will be welded, manganese should be lower than 0.8%.  There are other types of steel where more manganese is better.... most of the world's manganese mined is used as a additive for steel.

 

2- The Platts index specifies sulphur below 0.02% for one of its indexes but not the others.

PDF of the specification here:

http://www.platts.com/IM.Platts.Content/MethodologyReferences/MethodologySpecs/ironore.pdf

 

Beyond that the index would make some kind of adjustment to normalize for the difference in quality.

 

3- Strathcona wrote a report for the government regarding the Wabush mine and problems with the manganese content in its ore.

 

 

Low sulfur is important for electric arc furnaces primarily used in the US. Every European contract i have looked at specifiies sulfur below 0.05% which is the standard. There is nothing wrong with 0.053% sulfur as long as there is manganese in the ore to help fix the sulfur. The rules in Europe are what they are but are an old rule of thumb. The chinese are not as picky and just want it to work. If their steel passes its astm tests they can export it. The price difference between fines and pellets is essentialy the price to sinter the fines. The chinese would rather sinter their own pellets than pay for our more expensive energy costs to do it at the mine. There is three ways to look at iron ore. Dso ore is hematite that come out of the ground at 60+ %Fe. It is broken onto small pieces and shipped dso=direct ahipping ore. In canadian fe mines the ore is not dso, it is beneficiated. It is ground up and separated woth magnets. Here they use magnetite and low grade hematite. Magnetite is more magnetice than hematite so it can be separated in larger pieces than hematite which undergoes a second fine grinding before it can be separated. Magnetite is much cheaper to process because it is separated on the first pass.

 

This is a huge difference between the cliffs operation and alderon. Alderon is 60-70% magnetite where cliffs is 80-90% hematite.

 

 

 

 

[Ross812]

"Cleveland-Cliffs have previously examined the possibility of installing a manganese reduction plant

that would reduce the manganese content of ore processed to allow production of the current pellet

products to continue, with their manganese content of either 1.2% or 2.0%, from ores that would

contain up to 4.0% manganese."

 

from with in the old Strachcona report.

 

Alderon is at 1.6% maganese well with in the range of 1% or 2 % that Cliffs is desiring at Wabush. It explains their high cost 40 year

old mine ($125 cash cost a ton last quarter) with very little desirable reserves left without the additional cost and hence why they bought Thompson Consolidated...where once they get operations on track they will do very well.

 

Not sure why Wabush is being compared to Alderon or Bloom lake very different.

 

dazel.

 

Exactly right! Structural steel should be <4% Mn or greater than 8 percent Mn. Going from 62 to ~100% Fe in steel means Mn is concentrated by a factor of 1.6. In order to stay below 4% Mn the ore must be 4/1.6. = <2.5%. Greater than 4% and Mn starts making steel very ductile. We can't have our bridges sagging! To use high Mn steels other elements need to be alloyed into the steel and you start to get into specialty steel.

[nostradamus]

http://www.alderonironore.com/_resources/news/2012-10-29-NewsRelease.pdf

 

Alderon also announces that while the progress of the feasibility study on the Kami Property continues to advance, certain engineering studies and optimization analyses within the overall feasibility initiative are taking more time to conduct and finalize than originally anticipated. The results of the study may still be released during the fourth quarter of 2012, but in any event, the results of the feasibility study will be released prior to January 31, 2013. This delay will not affect Alderon’s project development timeline.

[Guest Dazel]

http://www.bloomberg.com/news/2012-10-29/sandstorm-bets-on-buying-not-finding-gas-gold-corporate-canada.html?cmpid=yhoo

 

 

The guy at Sandstorm was interviewed by Jim Cramer....he is the darling of the royalty business right now...their capital for investing is about half of what the Altius war chest has despite their $1.2 billion dollar market cap...They are now entering nontraditional royalties area as "the world's first diversified streaming business." sound familiar?

 

I guess the question is he and his team smarter than Brian Dalton and his team? At a fourth the price we like Altius odds but it is frustrating to watch for sure.

 

Note: if Dalton is ever interviewed by Cramer we will sell the next day.

Dazel.

[Guest Dazel]

http://business.financialpost.com/2012/08/23/royalty-firms-strike-gold/

 

Interesting article.....Sandstorm raised the capital they have...

 

We know that Altius has looked at many deals...it will be interesting to see if they pull the trigger sooner or rather than later.

 

Dazel.

[hohi]

I am also a shareholder of both the Sandstorm companies. I'm not sure if you realized that there are two of them - one that only makes deals on gold streams and another one that makes deals with all the other resource companies. Although Altius is 2nd largest portfolio position (and I plan to build that up over the next few years if the prices keep this low) I am pretty sure that the Sandstorm guys are a lot more experienced on the financial side of deals. But they are a lot more aggressive also and that brings risk with it.

 

Anyway, Altius will yield some 15%+ at current prices once Kami is up and running and they are dividending out the revenues from that. It's a very low risk play on ressources in my view and I just love the current prices to build my already big position to an even larger one ;).

 

Cheers!

[ItsAValueTrap]

I think Sandstorm understands that you should sell stock when it is overpriced.  Those who get into the pyramid scheme will actually make money.  But if you are late...

 

2- Altius is one of the few companies in the mining space that actually buys back its shares.  (But even Altius understands that you should sell stock when it is overpriced.)  Teck, Potash, Northfield Capital are other companies that buy back shares.  Teck didn't do so in 08/09 because of too much debt.

[Guest Dazel]

 

Nolan Watson of Sandstorm was CFO at Silverwheaten did over a billion in deals...

 

They own a royalty on the former Altius property Ming mine (Rambler metals)....

 

 

 

 

[Guest Dazel]

This is what Virginia mines has been up to:

 

http://minesvirginia.com/en/index.php/press-en/virginia-and-franco-nevada-jointly-acquire-the-initial-royalty-on-the-eastmain-property-11/

 

They are Altius partner below...

 

 

http://altiusminerals.com/press-releases/view/261

 

 

It is likely that Altius will now rotate it's exploration towards precious metals...hence the partnership with Virginia mines and slowly entering south America. Would be nice to have a successful exploration season....

 

Dazel.

 

 

 

 

 

[hohi]

A few weeks back I talked to Chad from ALS and he told me that they expect a lot of future JV's/Royalties to come out of Chile. He did also mention that they are not specifically looking for Copper/Gold, but that it was more because of the business environment that brought them "down there".

 

Thanks for all your input guys. This is truly one of the most informative and least spammed boards I know :). Keep it up.

[Guest Dazel]

 

They are entering chile Smartly....$14 million non recourse loan in a jv with Zeus capital. It fits their seasonal staffing mandate as well as the weather in their northern climate is prohibitive in the winter time. The exploration team is the backbone of the company so it will likely also help with keeping good people around.

 

It also has little to no effect on capital structure as noted by the non recourse loan...chile in effect is trying to bring more mining activity to the country.

 

Interestingly, Rick Rule of Sprott was asked where he thought mining was politically safe in the world... had only one answer chile.

 

 

 

Dazel.

[hohi]

Rick Rule also happens to be one of the smartest Investors in the Sector. And he also happens to own a lot of Altius. And he also happens to love Altius' Management. That let's me sleep even better at night...

 

Cheers.