ALS.TO - Altius Minerals

[Guest Dazel]

 

Hohi,

 

 

46100 shares at $11.33.

 

Dazel.

[hohi]

Thanks!

[naboo]

New presentation

 

http://altiusminerals.com/uploads/PDAC-2013-CW.pdf

 

 

 

[hohi]

New presentation

 

http://altiusminerals.com/uploads/PDAC-2013-CW.pdf

 

Great presentation. New Info:

 

Julienne Lake - bid with 2 integrated chinese steel producers; ALS will retain Royalty+small equity if successful.

[beerbaron]

This is the first time I see them expose so clearly their strategy of being a royalty company.

 

BeerBaron

[hohi]

What I also found interesting is the slide where they state "$150M in Cash, $110M in Investments". Their investments as stated before a worth a lot less than that - maybe they put some more money to work with Van Eeden?

 

If we get Julienne Lake, that could turn out to be a huge mine. Looks like 1,5Bt+ @ better grades than Kami etc.

[ItsAValueTrap]

I'm more interested in Altius for its prospect generation line of business.  In general, you can look at Altius as having different lines of business:

 

1- Wheeling and dealing.  Suppose the underlying business is a mine (or a potential mine).  You can break it up into equity, debt, royalties, and streaming deals.  All of those things are simply different forms of financial engineering.  Altius' management is definitely good at this.

 

2- Wheeling and dealing #2.  Flipping publicly-traded securities.  Cranberry capital is mostly involved in this (though it has things that aren't stocks and aren't mining-related).

 

3- Prospect generation.  (You can sort of look at this like land flipping.)  They stake land and do basic exploration on it because they have to.  (You have to put in exploration expenses to keep your claims in good standing.)  They probably add value by being very good at exploration... there are a number of different exploration techniques you can use to guess where the mineral deposits are.  Valuing land and being good at exploration go hand in hand.  It's all about finding minerals in a cost-effective manner.

 

#3 is tied to #1.  Altius tries to do exploration cheaply by getting stupid juniors to do the exploration for them.  Why do it yourself when you can joint venture and get a junior to do it for less?

 

I believe prospect generation is the part of Altius with the highest return on capital.

 

----

Some of the royalty and streaming companies have different business models.  They engage in wheeling and dealing... arguably they generate value out of the financial engineering (e.g. by buying things for less than what they're worth).

 

They sell equity when their shares are high and always try to pump their stock so they can continually sell equity at high prices.

[no_free_lunch]

I am interested in the prospect business as well but what you are paying for is Alderon.  I don't see how you can justify the stock if Alderon doesn't go through / Iron prices crash.

[ItsAValueTrap]

Sometimes you have to buy when things seem ugly.  Be greedy when others are fearful.

 

If you're pretty sure that iron ore prices will crash (and also that no mine will be built), then obviously this will be a bad investment.  I'm not smart enough to predict future iron ore prices.

 

The Altius guys are smart and they are still buying back shares, albeit at a slower rate now that the share price has jumped.  These shares are undervalued.  I also think that Alderon shares are really undervalued right now... if iron ore prices stayed at $150/ton forever, Alderon's equity should easily be worth around $500M-$2000M+.

 

2- Altius is the best mining-related stock I have ever come across.  (Northfield Capital might be the second best.)  For a wonderful business to sell at a discount to liquidation value... it's a fat pitch for me.  You might get screwed by iron ore prices but I think that this one is really worth swinging at.  You have the smartest people in the business buying back their stock... what more can you ask for?

[no_free_lunch]

I really didn't want to get sucked into a debate speculating on the price of iron, but I guess I'm mostly to blame.  I think $150/ton is high.  Costs are averaging in the $40's delivered for the big three.  Prices were in the $15-20 range a decade ago.  Does it seem reasonable that prices will stay 3-4x higher than cost, or 8-10x higher than a decade ago?

 

The prospect business is a great one, but I just don't know how to value it.  Back when it was at $10 I bought in because I felt the Alderon stake was so cheap I was getting the prospect business for near free.  I just feel at the current price I am paying full value for Alderon (adjusted for the various risks) and I have a hard time paying more than $30-40M extra for the remaining businesses.

[ItsAValueTrap]

1- I don't think that costs are that low.  Cash costs ignore things like depreciation and amortization on your upfront capital costs.  Some companies try to mislead investors by playing games with their cash costs figures (e.g. they might exclude corporate G&A).

 

The cost of freight can sometimes be a big deal and some attention to be paid on whether or not the cash costs include the cost of freight.

 

The overall production costs exist on a continuum.  China has a lot of operating mines with very low grade.  Many of those mines will eventually be shut down over time.  The cost curve goes all the way up to the current spot price.

 

Vale's profit margin is in the ballpark of 45% according to their 20-F filing.

And it goes all the way to operations that have a profit margin close to 0%.  (e.g. Cliffs' Wabush mine)

 

2- The cost of mining has gone up and will likely stay high.  We mine the most economic ore first.  Over time, costs will go up unless technology comes to the rescue (like what heap leaching did for gold, shale/fracking technology for natural gas, etc.).  There hasn't been any major advances in iron ore mining... so I expect costs to continue to go up.

 

3- The supply side is ok.  Fortescue, Vale, BHP, etc. have announced expansions which are sometimes put on hold.  Eventually that supply will hit the market.  Old mines will close.  My guess is that overall production will grow a little.

 

4- I have no idea where iron ore prices are headed.

 

5- I believe Altius is selling for slightly less than liquidation value?

[no_free_lunch]

You make some good points in regards to D&A but I have seen in the past miners put into positions of losing money, I don't understand why that couldn't happen with iron.

 

I also still disagree on the costs.  Pulled up a few quick links, you will note that the $40 includes shipping.

 

    Combining the data from the two charts above, BHP’s breakdown of total iron ore costs of $39/t CIF China are as follows:

        US$9.4/t – Contractors

        US$7.0/t – Secondary taxes & royalties

        US$4.3/t – Freight, distribution & demurrage

        US$3.5/t – Depreciation, depletion & amortization

        US$3.1/t – Fuel & energy

        US$2.7/t – Raw materials & consumables

        US$2.7/t – Labor incl. consultants

        US$0.4/t – Exploration

        US$5.9/t – Other

 

http://thebusinessofmining.com/tag/costs/

 

 

Note 2013 is the first year in surplus then the gap blows out, and out, and OUT! At a $300 million tonnes surplus in 2018, iron should be trading at about $25. And that’s assuming quite aggressive demand growth.

 

Eighteen months ago, this same MS chart read as a nearly endless supply deficit. I’d be prepared to bet that in another eighteen months it’ll change again, with both demand and supply projections radically reduced, but a large surplus will remain. I expect a price equilibrium around $80.

 

http://www.macrobusiness.com.au/2013/03/the-long-term-iron-ore-supply-balance/

 

 

In regards to point 5, how do you come up with a liquidation value of $330M?  I got $160M cash, the bulk of the remainder is Alderon.

[ItsAValueTrap]

Hmm BHP Biliton.

 

Iron ore revenue - 22,601 US$M

underlying EBIT -  14,201 US$M

production -          159.478M  (wet tonnes basis)

 

62.8% EBIT margin

wet tonnes sold at $141.7 / ton

so expenses around $52.7/ton on a wet tonne basis

 

2012 average for the Platts index was $151.17

Platts 62 per cent Fe Cost and Freight (CFR) China – used for fines.  (Note that the units, delivery, and quality of ore are different.)

 

Too lazy to figure out if BHP's customers are paying for shipping or if BHP is paying for shipping.  BHP has to ship its iron ore to a port (probably by rail).

 

In regards to point 5, how do you come up with a liquidation value of $330M?  I got $160M cash, the bulk of the remainder is Alderon.

I haven't calculated it recently; Alderon's share price right now is really low.

 

The main adjustments to book value to make are:

a- The nickel royalty is worth $30-40M at least.  It is carried on Altius' books at far less than that.

b- The Kami royalty is worth a lot.  A lazy way to value it is to assume that it is worth half of Altius' Alderon shares. 

c- Market vs book value of Alderon shares

d- Some of the exploration properties will be written down soon while others are worth a lot more than book value (esp. the some of the iron ore ones).  On balance, there is some hidden value here IMO.

[Phaceliacapital]

Strong agree

[hohi]

If the new adjustment to all-in-costs in the gold sector is any indication about how fast mining costs have risen I would argue that IronOre all-in-costs are probably in the range of $75-$100 for most producers.

 

I'm pretty sure that gold all-in-costs are >$1.400/oz btw. It's no surprise to me that the miners are so beat up, because most of them really are not profitable. That's why I'm so comfortable with holding a large chunk of ALS. They've got royalties on very long lasting mines (Voisey's Bay, Kami) and very low G&A expenses themselves. Plus a big cash pile in case deflation hits. Perfect for times like these.

[Guest Dazel]

http://www.theglobeandmail.com/globe-investor/first-quantums-51-billion-hostile-inmet-takeover-all-but-sealed/article9657250/

 

Leucadia will have made a fortune on this deal....it has been highlighted here a few times...but a $30 million purchase 8 years ago has been an out of the park home run for them...

 

http://www.prnewswire.com/news-releases/leucadia-national-corporation-and-mk-resources-company-announce-inmet-mining-corporation-to-acquire-70-interest-in-las-cruces-project-leucadia-and-mk-resources-also-announce-merger-agreement-54247532.html

 

http://www.bloomberg.com/news/2010-11-30/inmet-mining-pays-552m-for-leucadia-stake-in-cobre-las-cruces-in-spain.html

 

http://www.bloomberg.com/news/2013-01-10/leucadia-to-tender-inmet-shares-to-first-quantum-offer.html

 

Altius structures it's deals in the same way..except they do not have costs up front other than exploratory and they maintain the royalty. Once again it was the above deal at Leucadia that brought us to Altius...their property inventory pre dates Leucadia's purchase of MK Resources in 2005.

 

 

 

Dazel.

[JAllen]

Dazel: Is your interest in Altius purely ownership of the stock?

[Guest Dazel]

 

 

Pof4520,

 

Not sure what you mean?

 

 

Dazel.

[Ross812]

http://finance.yahoo.com/news/alderons-environmental-assessment-kami-property-113000964.html

 

 

Good timing....

 

Hebei will contribute the $350 million needed...$120 million by march 15th...for the build out of Kami...because the timeline is on schedule and they know if they don't someone else will. Fortes cue and all the majors stock prices are recovering...and they are printing cash. Everyone is looking for a deal and right now Alderon and Kami are up for grabs at these prices.

 

Fortes cue has an enterprise value of $27 billion right now! Andrew Forest made a large bet buying up more shares at the bottom in September which continues to pay off...those operators that know what they are doing will be fishing in this market we expect to see a lot of action in iron ore this year!

 

Dazel.

 

Tomorrow is the day we find out if Kami is a go?

[JAllen]

 

 

Pof4520,

 

Not sure what you mean?

 

 

Dazel.

 

Hi Dazel (changed my name to something closer to my real name),

 

Anyways, your optimism is just impressive and always seems to be optimistic, that's all.  For example, you post iron ore price increases, but not declines (like how prices have declined ~12% recently).  Don't get me wrong, I struggle to always be unemotional and objective regarding investing topics too.

 

Just an observation.

 

 

[Guest Dazel]

 

JAllen,

 

 

Optimistic yes.

You are entitled to your observations...the headlines out there are dreadful..."Price of iron ore Plummets! On over supply....yet the article talks about the 90% rise in prices since Sept and that china has the lowest stock piles of iron ore since the crash in 2009... In order to find any positiveness right now you have to look "very hard".

 

No one is talking about the killing that Leucadia made in Fortescue or Inmet....That is not optimistic that is fact...Altius has had similar returns in terms of scale...fact...the other I agree with you I will scale back on iron ore pricing I have done it long enough. I appreciate the comments.

 

Dazel.

 

 

[jose]

I have no problem with Dazel's updates on iron ore pricing or anything else.

 

It's hard not to be a cheerleader when u see a company as deeply undervalued.  Besides, he's made it clear he has a large interest in it.

 

Keep the updates coming Dazel!

[zippy1]

So this is the day the Hebei deal is supposed to be decided for Alderon. No news yet....

[Phaceliacapital]

(BFW) Quebec Sees Yr Mining Investments Down 16%, Mulls Tax on P

rofit

 

+------------------------------------------------------------------------------+

 

Quebec Sees Yr Mining Investments Down 16%, Mulls Tax on Profit

2013-03-15 13:05:32.275 GMT

 

 

By Frederic Tomesco and Aoyon Ashraf

    March 15 (Bloomberg) -- Quebec considering 5% tax on gross

mining output, resources Minister Martine Ouellet says, speaking

in Montreal.

  * Wants to boost mining royalties, considering mixed royalties

    regime

  * NOTE: Quebec mining investment in 2012 was C$4.8b

  * NOTE: Earlier, Quebec Considers 5% Tax on Gross Mining

    Output

[zippy1]

The Hebei deal is done.

http://finance.yahoo.com/news/alderon-closes-c-119-9-181634461.html

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Mar 15, 2013) - Alderon Iron Ore Corp. (ADV.TO)(NYSE MKT:AXX) ("Alderon") is pleased to announce that Hebei Iron & Steel Group Co., Ltd. ("HBIS") has contributed the remaining C$119.9 million of its initial investment and Alderon has contributed the Kami iron ore project ("Kami Project") to a limited partnership (the "Kami Limited Partnership") which is owned 25% by HBIS and 75% by Alderon. HBIS is China''s largest steel producer.

 

This concludes HBIS''s initial strategic investment, first announced on April 13, 2012, into both Alderon and its Kami Project for an aggregate amount of C$182.2 million, in exchange for 19.9% of the outstanding common shares of Alderon (completion announced on September 4, 2012) and a 25% interest in the Kami Limited Partnership which was established to own the Kami Project. Alderon has the remaining 75% interest in the Kami Limited Partnership.

In connection with the C$119.9 million contribution, Alderon has provided confirmations to HBIS with respect to certain information rights related to the development of the Kami Project and the expenditure of the C$119.9 million contribution. In addition, Alderon has agreed that in the event that the environmental assessment and related approvals for the Kami Project are not obtained by March 31, 2014, Alderon will be required to pay to HBIS C$3 million per month for each whole month until such approvals are obtained.