ALS.TO - Altius Minerals

[ItsAValueTrap]

Hmm I forgot about the controversy over Muskrat Falls.

 

http://www.theglobeandmail.com/news/national/marathon-filibuster-over-muskrat-falls-hydroelectric-project-ends/article6691092/

 

It looks like the hydro project will go through, which means that Kami will have enough power.

 

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.

I honestly don't think it is a big deal.  It really comes down to the economics of the mine... if the economics are good, Hebei will buy in.  (They have sunk costs and the off-take agreement which makes it more economic for them.)  If the economics aren't good, then they probably will not unless they are stupid.

 

Iron ore pricing will make a huge difference on Kami's economics... this will come down mostly to luck.

Investor sentiment will affect Alderon's ability to get financing... as we all know, Mr. Market's moods fluctuate dramatically.

 

I think that the equity in Alderon is worth more than the royalty.  A simple way of looking at it is this:

 

If the profit margin on the mine is 10%, then the equityholders will see 70% of the profits and the 3% royalty holder will see 30%.  The equity should be worth 7/3 times that of the royalty.

If the profit margin on the mine is less than 10%... then in hindsight you should not have built the mine.  In practice, this can happen if iron ore prices drop in the future.  But one might expect that you only build a mine if the expected profit margin is at least 10% (preferably far more).

 

If the profit margin on the mine is higher than 10%, then the equityholders will see a greater share of the profits.

 

A rule of thumb in mining is to look for a minimum IRR of 15%.  (But then you could look at the abysmal performance of gold mining stocks... they collectively chased projects with poor economics.)

[original mungerville]

Itsavaluetrap,

 

If Altius owns 1/4 of Alderon with a 10% profit margin on Kami, that's earnings for Altius of 2.5% of revenues from Kami. Then let's put a 8x p/e on that - so that's a market value of 20% of the revenues of Kami.

 

If Altius owns 100% of the royalties of Alderon and its a 3% royalty, that's earning for Altius of 3% of revenues from Kami. Then let's put a 10-16x p/e on that - so that's a market value of 30 - 50% (avg 40%).

 

So the Altius Royalty is worth double what its equity stake in Alderon is worth - and that's BEFORE cost overuns and delays (which will bring down the value of the equity stake due to dilution).

 

So figure on 3x instead of 2x more valuable. As an Altius investor, I would focus on the variables that drive the royalty, and not the equity value of Alderon. No?

 

 

[ItsAValueTrap]

Hmm the value of the equity and the royalty are related to each other.

 

The equity is trading at a valuation that implies that there is a good chance that Kami does not turn into a mine.

 

2- In general, there are a few values of valuing an asset:

a- Discounted cash flow.

b- Public market value / comps.

c- Private market value.

 

For A, you plug in an iron ore price and the % chance that Kami becomes a mine.  But this model may not be entirely satisfactory since you have to estimate the proceeds of an Alderon financing.

 

C fluctuates wildly.  What would a senior miner pay for Alderon in a takeover?

 

B is difficult since mining assets aren't directly comparable.  A good valuation would have a range of possible values embedded in it I think.

 

---

My best guess for the royalty's value compared to the equity is that the royalty should be 3/7th to 3/17th the price of Alderon's market cap.  So 37M to 90M dollars with Alderon at $2.08.  I don't think you can justify a value above 90M... unless you can forsee that the Kami mine will get built even though it will be a financial disaster.

 

I think Alderon is underpriced.

[Guest Dazel]

 

Beer Baron,

 

Agreed...very biased..I am going to put a clamp on my large mouth! There is only one short thesis..and that is Hebei not paying up...once they have...they will have secured an enormous resource...they are likely very excited about prospect as they rarely get a chance to profit from securing valuable supply...I think this is what is being missed.

 

Shorting Altius? Well I wish someone was...

 

Our recent excitement is in Alderon's IOC connection...take that for what it is worth...

 

As for the Alderon royalty vs. Equity valuation....for Altius it is heads I win and tails I win...

 

Don't underestimate what the Hebei money does to the market perception of both Altius and Alderon...they are both stupidly cheap...

 

I will be quiet for awhile until the Hebei money comes in...smiling and counting our shares.

 

Dazel.

[Guest Dazel]

http://www.reuters.com/article/2013/01/14/uranium-one-private-idUSL6N0AJ0BA20130114?feedType=RSS&feedName=utilitiesSector&rpc=43

 

 

 

http://finance.yahoo.com/q?s=Pdn.to&ql=1

 

 

Sorry could not help myself...has nothing to do with Alderon! This is a major trigger for the uranium market as state owned Russian company is buying out Uranium One...

 

The state knows that they will not be renewing their uranium deal with the U.S...

 

Altius has tremendous expertise and land leases other than the former Aurora project in Uranium. They will be in demand soon.

 

The Michelin project does not seem like a big deal at about $9m a year...however, royalties trade at 15 to 20 times that amount...it would add market cap of over $100 million to the stock...not to mention the other deals they could create at $80 uranium..

 

Dazel.

Dazel.

[original mungerville]

Dazel,

 

What kind of multiple does the market put on a royalty stream (which stream we should adjust to after-tax dollars) vs an after-tax earnings stream for a mining company?

 

Is it in the neighbourhood of 2x more - ie p/e of 14 vs 7 or something along those lines? Let's start with iron ore because its "on topic"....:).

 

[Guest Dazel]

http://finance.yahoo.com/q;_ylt=AhgtBucA9HFPFGbUFMe.vvWiuYdG;_ylu=X3oDMTIwOGJrNXZ2BG1pdANXaWRlIFF1b3RlcyBNb2R1bGUEcG9zAzEEc2VjA01lZGlhUmVjZW50UXVvdGVzUG9ydGZvbGlvc1dpZGU-;_ylg=X3oDMTFpNzk0NjhtBGludGwDdXMEbGFuZwNlbi11cwRwc3RhaWQDBHBzdGNhdANob21lBHB0A3NlY3Rpb25z;_ylv=3?s=LIF.TO

 

 

Mungerville,

 

There are not many iron ore royalties out there for public companies to compare multiples. Labrador iron ore royalty has both and trades at a PE of 21. It is very comparable to Altius because they are neighbors and the Alderon management ran IOC which is their only asset.

 

If you look at other royalties it is forward projected cash flows that trade at 15 times..Their current multiples are in the range of 30 to 50 times...obviously giving multiples that are 2 to 5 times greater than straight mining company multiples...

 

Mining royalty companies that have long lasting economical mines  are the greatest companies on the planet and they will continue to command superior multiples. They are inflation adjusted bonds...and in and environment of record low interest rates...we do not see that changing.

 

Dazel.

 

 

 

[Guest Dazel]

 

Are there any Altius shares short? Is anyone that stupid? I have never bothered to check.

 

Dazel

[Ross812]

Up 7% on 2x volume... I can't find any news. Alderon is flat. Does anyone know what is going on?

[Phaceliacapital]

No clue, also no news on SEDAR

[Ross812]

So its up 14% on 6x the daily volume on the Toronto exchange and 10x volume on the pink sheets with no news? I guess it is under a million dollars in shares though. It may just be a fund getting in...

[beerbaron]

Dazel probably decided to load up the truck. Maybe he's getting close to control ownership by now :)

 

BeerBaron

[ItsAValueTrap]

I don't think that any big fund would get in that sloppy.

 

It could be anything really... this isn't a very liquid stock with a lot of different shareholders.  One of the Altius presentations lists major shareholders, many of them with 5-10% of the float.

 

Sometimes some rich retail guy just decides to buy up a lot of stock.  Look at the story of CMEDQ.

 

[value-is-what-you-get]

Dazel probably decided to load up the truck. Maybe he's getting close to control ownership by now :)

 

BeerBaron

 

. . . or maybe he went out for lunch today!!  ;)

[original mungerville]

Thanks for the reply on the royalty valuations Dazel. Seems clear that the Altius royalty is going to be worth for more than the equity stake in Alderon.

 

 

[alertmeipp]

might have something to do with Rio Tinto?

[hohi]

It was a recommendation in a US newsletter. As there where no Alderon news I guess that probably was it - nothing more to it.

 

Cheers,

hohi

[Mark Jr.]

It was a recommendation in a US newsletter. As there where no Alderon news I guess that probably was it - nothing more to it.

 

Cheers,

hohi

 

Which newsletter? I'm curious.

[hohi]

It was a recommendation in a US newsletter. As there where no Alderon news I guess that probably was it - nothing more to it.

 

Cheers,

hohi

 

Which newsletter? I'm curious.

 

"Small Stock Specialist" of Stansberry & Associates

http://www.stansberryresearch.com/products/Small-Stock-Specialist

[Guest Dazel]

 

Wow..a little coverage from a newsletter gives us a pop above all technical ranges!? Imagine when the coverage universe gets a hold of the Altius story! Newsletter or not technical traders screens will be popping. Sadly, this is Wallstreet...but it is coming at a time when the Hebei financing is about to be announced...so whoever, wrote the newsletter did a hell of a job at a hell of time! If this is the spark that gets investors attention to value at Altius... great...if not..we will buy a boat load more shares back!

 

Stocks rise for the strangest of reasons...and even the great Ben Graham when asked by Congress could not explain how value was finally realized in a stock price.

 

"It is one of the great mysteries of our business..."

 

Dazel.

[hohi]

I actually was sad to see the price go up 10% as one of my goals for 2013 was to add substantially to my already large position in ALS. I'll probably to it anyway but I would have loved to do it at the discounted price levels we had over the last years... I just hope we get some extra time to position ourselves, because once Kami starts developing and people realize who owns the royalty this gem will at least double.

 

I am actually pretty optimistic that over the next 10 years at least one or two of our other iron ore properties will get developed while we can sit back and just watch it happen passively. Also I see good things happening in Chile over the next decade. Never mind deploying our cash and all the other good things happening.

 

I must admit that I see ALS as one of the safest bets I've made so far in my investment career. Once Hebei paid the money to Alderon, Altius is a no-brainer. Hebei not paying is like the only serious scenario I see where ALS is not undervalued by at least the factor 2. My current fair value lies at $ 23,55 and that is calculated very conservatively.

 

Anyways just wanted to share those thoughts with you guys. Keep up the great work!

 

Cheers,

hohi.

[hohi]

Mamba begins drilling the 7th of february. Stock is also showing strength - it's near its all-time-high. Current Mcap of about $15M... once Altius gets its 20% stake that will be worth $3M+. I am pretty confident Mamba will hit some nice Fe intercepts as they are for sure trying to get investors attention to do another financing in a year or so. So they'll probably drill some higher risk holes to hit it big. 6 holes in total in Phase I.

 

http://www.reuters.com/finance/stocks/MAB.AX/key-developments/article/2677417

 

Cheers,

hohi.

[HJ]

Any commentary on the just filed NI 43-101  Study by Alderon?  I guess that's the reason ALS has been popping.  Do they just all back date the filings on Sedar?  Since none of us saw the filing last week, but it shows up as filing on Jan 15.

 

[hohi]

Any commentary on the just filed NI 43-101  Study by Alderon?  I guess that's the reason ALS has been popping.  Do they just all back date the filings on Sedar?  Since none of us saw the filing last week, but it shows up as filing on Jan 15.

 

The study shows royalty payments to Altius between $20M - $30M / year. Assumption are long term Fe prices of $102. Total some $700M+ for Altius @ $102 Fe.

 

Cheers,

hohi.

[ItsAValueTrap]

Do they just all back date the filings on Sedar?

In Canada, you are allowed to issue a press release and then file the actual technical report 45 days later.  I'm not sure why this is allowed but it is.

 

In the case of Barkerville Gold, they issued a press release about their technical report claiming a very, very large gold deposit (Bre-X sized).  Later, the regulatory authorities found many issues with the technical report and the stock was halted... AFTER the price spiked up on the press release.

 

It's just the way things are apparently.  Another approach would be for regulators to vet technical reports first.  The technical report would be available on SEDAR concurrent with the press release.  This would avoid investors getting hurt by bogus/problematic technical reports.  Then again... a lot of bogus technical reports are allowed anyways so the overall problem isn't fixed.