ALS.TO - Altius Minerals

[Guest Dazel]

 

Glenn,

 

"-255mt at mill lake not incuded in the study...When management was asked if there is upside to the 30 years. "absolutely" "

 

This makes me giddy for Altius!

 

Dazel

[zippy1]

Alderron is actully down almost 9% right now.  Wow! so expectation must be really high there.

[PullTheTrigger]

Duetsche Bank Commodities Outlook:

 

http://www.commodities-now.com/news/power-and-energy/13497-deutsche-bank-commodities-outlook-2013-.html

Bulk Commodities: Iron ore markets have moved sharply higher over the past month and we believe that prices could reach USD170/tonne over the next quarter.  This reflects a combination of expected re-stocking in China and possible weather issues affecting supply in Brazil over the next few weeks.

[Guest Dazel]

 

The market was expecting Hebei to release the $120m...thinking that Alderon would have already submitted the study 15 business days ago to them....I may "personally speculate" with a short term trade on Alderon...

 

Hebei will gladly fork over the $120 m...they are going to do very well on their transaction.

 

 

Dazel.

[Phaceliacapital]

Thanks Dazel, very informative.

 

What are the chances that a call transcript will be available??

 

On a TA side of view: ADV crossed its 200 DMA at 2.2, I think atm algos and other TA traders are "testing" this level, its down to 11%, there is no rational explanation.

[Phaceliacapital]

 

The market was expecting Hebei to release the $120m...thinking that Alderon would have already submitted the study 15 business days ago to them....I may "personally speculate" with a short term trade on Alderon...

 

Hebei will gladly fork over the $120 m...they are going to do very well on their transaction.

 

 

Dazel.

 

Thinking the exact same thing but I would have to move cash around, upside at, 20% ST?

[ItsAValueTrap]

The feasibility study states operating costs of $42.17 per ton of concentrate.  This includes transportation costs to Port of Sept-Iles and loading/port costs ($25.98/ton without those costs).  This would make Alderon one of the lowest-cost iron ore mines in the world.  Yeah right.

This will likely be a repeat of history considering BBA authored this report.  Real-world operating costs will likely be slightly above those of Bloom Lake.  (If you compare BBA's reports for Kami versus Bloom Lake, Kami has slightly higher opex and quality deductions.)

 

If you simply compare Kami to Bloom Lake/Consolidated Thompson, I think Alderon's stock still looks undervalued.

 

2- Hebei's investment in Alderon is a big vote of confidence in it in my opinion.  They likely have done a very high level of due diligence on Alderon.  Technical reports by BBA are a joke... Hebei likely did their own homework.

[biaggio]

The feasibility study states operating costs of $42.17 per ton of concentrate.  This includes transportation costs to Port of Sept-Iles and loading/port costs ($25.98/ton without those costs).  This would make Alderon one of the lowest-cost iron ore mines in the world.  Yeah right.

This will likely be a repeat of history considering BBA authored this report.  Real-world operating costs will likely be slightly above those of Bloom Lake.  (If you compare BBA's reports for Kami versus Bloom Lake, Kami has slightly higher opex and quality deductions.)

 

If you simply compare Kami to Bloom Lake/Consolidated Thompson, I think Alderon's stock still looks undervalued.

 

2- Hebei's investment in Alderon is a big vote of confidence in it in my opinion.  They likely have done a very high level of due diligence on Alderon.  Technical reports by BBA are a joke... Hebei likely did their own homework.

 

Trap, thanks for balancing discussion.

 

"the Feasibility Study ("FS") on the Rose Deposit of the Kamistiatusset ("Kami") Iron Ore Property in western Labrador. The FS was completed by BBA Inc. ("BBA") located in Montreal, Quebec, Stantec Consulting Ltd. ("Stantec") located in St. John''s, Newfoundland & Labrador and Watts, Griffis and McOuat Limited ("WGM") located in Toronto, Ontario, and is effective as of December 17, 2012 "

 

-would having 3 different firms involved in the evaluation  not help with the validity of the analysis, roughly speaking. Am I naive to think that a smart (I assume), sophisticated buyer like Hebrei would do a very thorough evaluation i.e. personally I am banking on Dalton + recent buy in by Hebrei that there is a very good project there.

[ItsAValueTrap]

Here's how a senior miner would usually do due diligence on the project:

 

A- Re-assay some of the drillcore.  Freeport Mcmoran essentially did this when they wanted to buy out Bre-X... that is why they didn't get burned unlike the institutional investor community.

 

B- Check that the resource model is appropriate.  You need a copy of their computer files and a competence resource modelling engineer.

Oftentimes, companies have overly aggressive resource models.  The drillholes only sample a very tiny % of a resource body.  Everything else is a guess.  There is room to get pretty crazy with that guess.  Peter George / Barkerville would be an extreme example.  (Oh yeah... he is not in jail.  The bar to actually end up in jail is extremely high so there is a lot of bad behaviour that you can get away with.)

 

C- Check the engineering assumptions.  You need to a copy of all their work and a team of specialized engineers (metallurgy, infrastructure, mining, etc.).

There is a lot of room here to get overly optimistic.  Remember that any errors in predicting the economics of a mine can be multiplicative (is that a real word???)... so you could throw out some crazy numbers without getting into legal trouble.  Like what happened with Bloom Lake / Consolidated Thompson / BBA and the mythical <$40/ton opex.

 

D- Check that the title to the property is good.  Which requires a lawyer.

 

Clearly... I am not doing this level of due diligence.  I don't have a copy of all the technical data.  In theory I could calculate esoteric stuff such as whether or not Alderon's pit slope angle is reasonable (this affects mine economics)... but to do that, you would need information on soil characteristics (how elastic it is, etc.).

And I do not have a team of specialized engineers.

 

Am I naive to think that a smart (I assume), sophisticated buyer like Hebrei would do a very thorough evaluation

In rare cases, companies don't actually do due diligence when buying a junior.  There was some example in Pierre Lassonde's book on gold which I forget.

 

Crazy Eddie (the electronics retail mega-fraud) is an example of private equity not doing enough due diligence.

 

Warren Buffett bought GenRe... got burned on their derivatives unit.

 

You can't always assume that the buyer did thorough due diligence.

 

Can you tell the board why IOC has costs in the range that Alderon is talking about? And go through the points from the conference call that describe the high cost structure at Bloom Lake.

I didn't listen to the conference call... hopefully there is a transcript.

 

Because I don't have access to technical data and a team of specialized engineers... I don't have a very good idea about what the Kami project's potential economics will look like.

 

Regarding Alderon versus Bloom Lake... you could always make claims about Alderon/Kami having better economics even if it were the other way around.  Many of the economic assumptions are *subjective* and you won't end up in jail for being ridiculously optimistic.

[Guest Dazel]

 

I erased a message for you Trap...i will send later..i don't want to waste your time...we are both Altius backers and production for 30 plus years is well

a home run...enough said.

 

I feel it is important to relay the message that Alderon shareholders were given today...Alderon is an IOC copycat not Thompson Consolidate or Cliffs...is $42 costs possible? not likely for a long time...I think you would add the discounts you often refer to the costs...They have taken them off revenues..bringing them to $107 and $102...so likely add $8 and $13 to costs.

 

 

*Alderon also had Bectel engineers look at the study ( conference call)...

 

I will post some IOC information for us all...I have seen their margins...they are impressive. As an Altius investor it is in our best interest for management to build out Kami and stay on as operators...One problem with Bloom Lake is that all the operators got rich and left. Cliffs hired third party contract operators with nothing at stake...as you will note they fired many of them recently.

 

Dazel.

[biaggio]

ItsaValueTrap, thanks for the post. Its good to have knowledgeable posters like you and Dazel.

 

FWIW, I feel reassured that a poster with a name ItsaValueTrap, is also long ALS.

[ItsAValueTrap]

-they fly in labour (like IOC, Alderon will employ and house locals)

 

Fly-in fly-out labour:

I could be wrong here as I only researched this today.

 

Bloom Lake mine is at

52°50'11"N  67°17'1"W

According to google maps, this is a 16min drive to Fermont.  38min drive to Wabush.

 

I am guessing that Cliffs is flying people into Fermont/Wabush where they live for their rotation.  There they drive to work.  Presumably the shortages of labour is bad enough that they can't find enough Fermont/Wabush residents to fill all the roles.  (And/or they can't convince people to move their families to Fermont.)

This job posting:

http://www.infomine.com/careers/jobs/job865760/reliability.engineer.flyin.flyout.montrealfermont.aspx

suggests that Cliffs will hire you if you move your family to Montreal; they will fly you in and out of Fermont.

 

I am guessing that Kami will also need fly-in/fly-out labour???????  Maybe they are on some pipe dream where they train locals so that they can fill more of the skilled jobs?

 

If the Kami project starts up in the area, I would expect even more shortages of accommodation, labour, etc.  These shortages already exist???

 

-Cliffs as a large organization has associated costs (this is likely a nice way of describing my accounting theory)

I would figure that Alderon would have higher G&A as a percentage of its market cap.

 

Forbes and Manhattan-related companies (and anything Stan Bharti-related) tend to have very high G&A, overpaid board members, etc.  They're on the more ridiculously overpaid side of the spectrum.

 

All of the directors get paid six figures.  Dalton pulls in almost a million dollars in options grants... not bad for a part-time job!!!  But he is not the highest-paid part-timer there.  F***ing obscene.

 

The highest paid Cliffs director was paid $225,933.  Of course, Cliffs market cap is far higher than Alderon's.

 

Junior mining... makes me angry sometimes.  Lol.  I try not to look at circular filings on SEDAR.

 

-they have 3 rd party managers...Alderon will be doing it in house

-They truck out tailings

-they boat material and then load to ship

-rail deal at Cliffs is not as good as Alderon is looking for...(there was a question asked on the call on how Alderon think they will get a better deal)

dunno

 

----------------

On the metallurgy side, you would expect Kami to have higher costs.  They will likely do more processing on the ore to get the manganese content down.

 

More processing also means they throw away more iron ore.  This will raise mining costs since they have to mine a little more to get the same amount of concentrate/product.

[Guest Dazel]

Trap,

 

You are making me work...not sure why since I am Altius investor....information good or bad always helps...and I am sucker to find it.

 

Conference call...Part of the increased capex cost at Kami was that their housing complex they initially had planned was too small...it will have to be larger...they will not be flying workers in and out. They will be following IOC's business plan.

 

Bharti...is gone from what I can see ( he is not well liked) Morabito remains...the only Consolidated Thompson guy on the management team is the geologist...which is very smart of course...

 

The management is an IOC team. They know what they are doing (Richard quesnel from Thompson consolidated had no experience in Labrador- more on that later) as Carol Lake is about the same distance from Alderon as Bloom Lake....Alderon and Carol Lake are both closer to Labrador city...as you will remember kami is 2 km from a paved road...easy to get in and out.

Happy to pay Dalton....he is the one in China.

 

Dazel

[ItsAValueTrap]

Conference call...Part of the increased capex cost at Kami was that their housing complex they initially had planned was too small...it will have to be larger...they will not be flying workers in and out. They will be following IOC's business plan.

 

The housing complex seems to be for non-local construction workers during the construction phase.

 

IOC has been trying to get their union workers to allow them to have some fly-in/fly-out (FIFO) workers.  There has been a lot of resistance to that plan because:

A- If you don't allow FIFO, then maybe the supply/demand situation will force higher wages and there will be more jobs for the union workers.

B- Arguably, FIFO workers create issues for the community (crime, not invested in the community, etc.).

It looks like IOC won't have any FIFO workers in the meantime.  They'd need to hire people who choose to move their families to Wabush/Fremont/Labrador City.

C- Part of it is preserving the social fabric of the town(s).  Without jobs, things will get painful for the community.

 

The labour and housing situation there is a little crazy.  If you make less than $65k, you are eligible for affordable housing programs.  Rents have skyrocketed due to the need for a lot of labour in that area... non-locals (or their companies that are paying for them) are driving up rents.

[Phaceliacapital]

http://finance.yahoo.com/news/nalcor-confirms-power-supply-alderons-113000223.html

 

"This will fulfill a major infrastructure requirement for the Kami Project and will allow us to continue to move forward on our development timeline. We are now engaged with Nalcor in a process that will lead to the completion of detailed engineering and conclusion of a mutually acceptable Power Purchase Agreement. This is very positive news for Labrador West, as this project will bring tremendous benefits to the region. We are pleased that Nalcor recognizes the importance of supplying power for industrial development right here in Labrador."

[Guest Dazel]

 

Trap,

 

IOC has advertised in Ireland a great deal to move families there to work at Carol lake. They are looking to create a continuity in the labour force....through experience they realize the Importance. More importantly management needs to know what they are dealing with in the environment. It looks to me like Bloom Lake has blown this since the beginning....from Quesnel on through...great asset but the people matter as you know.

 

Thanks. I would not have gone in this deep without you Trap...After digging into Bloom Lake...it looks Quesnel was an outsider and building the first mine in the area in sometime you have to cut him some slack i guess...Cliffs picked up where they left off...as we know Cliffs Wabush mine is a disaster

 

It looks like Morabito learned from this and hired IOC intelligence and local expertise. To me it looks like the management team at Alderon is the Canadian Olympic hockey team (NHL included) which is proven over time (IOC)...compared to the Russian Olympic team who have great talent but you have brought them into Canada to work for 4 years...they are great in Russia and other places but they do not know the lay of the land nor would the people cut them any slack. They lack longterm view because they know they will be leaving shortly.

 

Sorry...with NHL coming back on line could not help it!

 

It looks like the media and myself included have been wrong in our comparison of what Alderon's intention is. They are not looking to Bloom Lake to duplicate it...they are looking to Carol Lake to duplicate it using Bloom Lake asset value as a measuring stick.

 

In other words...they do not want to be the son of Consolidated Thompson....they want to be the brother of Carol Lake.

 

As an Altius shareholder this what we want to see...longevity.

More to come...

 

Dazel.

[ItsAValueTrap]

They talk a good game but then you look at how insiders at Alderon are paid... these guys (Stan Bharti, Forbes and Manhattan) are charlatans who overpay themselves.  How are they going to keep costs down when they are paying their board of directors more money than a mega-corporation like Cliffs?

 

I think that once the mine is fully financed, Altius will actively look at selling their Alderon shares.  They are obsessed with royalties because they know that the equity is usually terrible... I don't think that Alderon will be an exception (just look at other Forbes and Manhattan companies like Aberdeen International... an example of not making money in a commodities bull market).

I think that Brian Dalton doesn't say anything bad about their joint venture partner because he wants Altius to sell its prospects to other piece of poo juniors out there (backstabbing your partners is not a good idea).  Because in any other world, it would not be unreasonable to fire Stan Bharti and all the other overpaid hacks at Alderon... and to bring other salaries down.

 

2- IOC's management has been trying to keep its costs down... that is why they keep asking for FIFO from their union.

 

The labour disputes between the union and IOC suggest that they haven't been great managers on the labour relations front... it seems the union has gone on strike multiple times in the past.

 

*I own a few hundred shares of Aberdeen International... I'm the idiot scalping that piece of poo trading below liquidation value.

 

as we know Cliffs Wabush mine is a disaster

Wabush is a very old operation... it has been around for decades.  A lot of its operational issues are due to age.  Its high operating costs have to do with ages... a mine's economics will get worse over time since you mine the best ore first and things like the stripping ratio usually increase over time.

 

I have no idea if Cliffs has been doing a good job at operating it.  Usually operational skill doesn't have too much impact on a mine's economics.

[Guest Dazel]

http://www.labradorironore.com/files/Labrador%202011%20Annual%20Report_FINAL_v001_m6v0tt.pdf

 

 

http://www.theaurora.ca/News/2008-02-11/article-1564051/Largest-getting-larger/1

 

Alderon's management is stacked with Iron ore company of Canada former leadership that were responsible for IOC's numbers...see page 5 of the annual report linked above..

 

As Trap said old mines have issues...Tayfun and his team were responsible for the expansion at IOC. The numbers at IOC have been excellent.

 

 

Dazel.

 

[beerbaron]

The market was expecting Hebei to release the $120m...thinking that Alderon would have already submitted the study 15 business days ago to them....I may "personally speculate" with a short term trade on Alderon...

 

Hebei will gladly fork over the $120 m...they are going to do very well on their transaction.

 

Dazel.

 

Dazel, watch out! You are probably having a psychological bias here. The market did not discount Alderon by 10% for a 15 days delay, even Mr Market is not that short sided! Take some time to think what you would think of the situation if you were short Alderon, maybe you'll get some balance. :)

 

BeerBaron

[Green King]

what will happen if Hebei doesn't pay ?

[ItsAValueTrap]

I think the stock would drop a lot.  It would imply that Hebei doesn't think that the project is economic (even after their sunk costs).

 

I think that Hebei will pay though... unless there is some subtlety / unexpected surprise that popped up in the feasibility study.

[original mungerville]

I understand far fewer of the details than Dazel and Itsavaluetrap but from a bird's eye view, I would look at this whole thing like a series of independent probabilities for each independent event. Interestingly, if 3 of the big required events have a 90% chance of success, then the overall odds of success are low 70s% (ie 0.9*0.9*0.9). I would suggest those more familiar with Altius put some numbers to these events. This would be the mental framework I would use.

 

Anyway I might see these three things as roughly the following: 1) project funding, 2) guess?: environmental assessment, 3) implementation/operational issues

 

1) Project funding: Hebei paying (maybe 90% odds?) - I think Hebei paying is pretty key as with that plus the market cap of Alderon, there should be enough to work with to raise the equity and debt to fund the project (95% sub-odds here maybe; so virtually 100% so let's neglect the odds of raising the rest of the funding if Hebei pays in). Given the funding (which is likely post Hebei paying in), the next hurdle I see may be...

 

2) Environmental assessment? - do others agree this is the next big hurdle?...no idea but I would not put the odds higher than 80%,...then...

 

3) all other operational / implementation issues - odds no higher than 90% chance of success.

 

 

Before Hebei pays, I am at something like mid 60s% chances of success. Post Hebei payment, those odd rise to low 70s. Once the EA is done, I am at 90%.

 

I would expect Altius stock to rise with each of these hurdles, and as the discounted project implementation timeframe approaches continuously. From this perspective, I can see why the market is very focused on the Hebei payment.

 

Finally, I don't think the mine will be operational in 2015. I would guess 2016.

 

Now, wrap all that up and don't forget iron ore prices can either go up or down a lot in the meantime - so there is risk here too (to the upside and to the downside). On this front there is more risk to Alderon than to Altius. Same for the 2015 vs 2016 start and same for the operational issues.

 

I see the main risk to Altius being Hebei payment and the EA. (whereas Alderon, in additional, would have more exposure to the operational issues, and also a delayed start date.)

 

Would love Dazel and Valuetrap to puts some odds on the EA (and assess whether I have the right 3 components listed above or not)

 

 

 

 

 

 

[ItsAValueTrap]

I don't think that the EA will be a big hurdle.  They will almost certainly get it... the question is when.  I don't believe there are any First Nations or environmentalist/NGO issues that would cause unusual delays to the EA.

 

I don't see operational issues as being that likely.  All the technology is pretty well understood.  There might be unexpected cost inflation due to shortages of labour and housing (if you make less than 65k you are eligible for affordable housing.... no joke) in the area... the feasibility study may have already taken some of this into account.  I wouldn't be surprised if Alderon underestimates cost inflation... it has been going up dramatically in the past decade.  On cost inflation you probably won't miss by more than 10%.

Of course the BBA feasibility study is a joke.  I think Hebei has a better idea than most people what the real numbers are.

 

The biggest factors likely would be:

1- Iron ore prices.

2- Risk appetite.  People will pay different prices for iron ore assets depending on how optimistic or depressed they are... it's just like Mr. Market.  Sometimes seniors will get into bidding wars over deposits because nobody knows what the correct price should be.

Mood swings among investors will affect Alderon's share price and its ability to raise equity financing.

Mood swings among senior miners will affect their appetite for M&A.  A lot of seniors right now are selling iron ore assets and their low share price makes it difficult for them to finance new mines.  In the future, this could all change.  (Plus, you usually want to buy at the bottom of a cycle anyways when everybody is fearful.)

3- The relative attractiveness between Kami and other deposits in the area could play a factor.  A better deposit could get bought out/financed first.

[ItsAValueTrap]

What I would expect to happen is this:

 

A- Hebei puts in the rest of their money.

B- Alderon will go ahead and start constructing the mine... even though they may not necessarily have all the permits and financing in place.  Because of A, they have the money to start early construction.

The benefit of being crazy like this is that it means that the mine will get built faster (assuming no permit delays and they get financing)... which increases the present value of an eventual mine.

C- They definitely do not have financing in place.  So they will really get aggressive about promoting the stock and trying to raise equity.

If senior miners were in the mood for M&A (many aren't), I am sure that Alderon would shop the project to them too.  Alderon wants to get bought out or to raise capital to build the mine themselves.

D- If the mine doesn't seem like it will be economic, the Alderon team may try to raise money and get it built anyways.  (But Hebei's investment in Alderon is a big vote of confidence assuming they did their due diligence.)

 

There is a good chance that Altius will not use its cash to help finance the mine.  Altius wants to be in the high-margin/high-value added prospect generation business (and royalties and what Cranberry is doing and royalty/stock flipping), not in the mediocre mining business.

[original mungerville]

I guess my point from an Altius perspective is that the key issue is the Hebei financing, because once that payment is made, there is a far higher likelihood of the project going forward. Altius just needs it to go forward to get the royalties flowing. Their investment in the equity of Alderon is likely less important than the royalty, so they just need this thing to get done (delays and operational issues and the related additional financing those would require - either debt and/or equity - are more of an Alderon problem than an Altius problem). 

 

I would not dismiss the EA but I have no clue about how much of a factor this could be. I just would think those can be sensitive approvals at times. Having said that, if there was strong opposition, we would have seen it in local news by now probably...

 

Anyway, the point is that I think the Hebei payment is probably a big deal and it would probably make sense for Mr Market to be cagy until that comes in.