ALS.TO - Altius Minerals

[Ross812]

Altius is undervalued.  But it's not as undervalued as before, that is why they are slowing down their share repurchases.

 

I checked into the share repurchases this morning because I was interested in the company's share based compensation. On 30 May 2010 there were 28,550,895 shares outstanding. on 31 January 2013 there were 28,148,018 shares outstanding. During this time period there were 840,611 shares repurchased. This looks ok... The net change in shares was  (402,877) meaning 52% of the shares repurchased went to pay employees in the last few years. Employees have lost out with long dated options issued a few years ago at $28. Look here:

 

http://canadianinsider.com/node/7?ticker=ALS

 

When you look at 2013 options it appears that management is going to get a little luckier this year:

 

 

It looks like 460,500 shares are going to be issued this year. Meaning all these share repurchases don't have much of a net effect to shareholders. Even if they go on repurchasing 25k shares a month, they are not going to keep up with their stock incentive program. I want to be realistic about how "positive" these buybacks are...

[FFHWatcher]

Agreed.  Until they start buying back 1M shares or more, it won't make a material difference but perhaps the cash can be deployed elsewhere that potentially is a 5 or 10 bagger?  I would also say that the vast majority of exploration type companies dilute the crap out of their shareholders and Altius is not doing that.

 

460k shares x ($12 - $6.34 = $5.66) = $2.6M discount to current Altius share price transferred to employees for compensation.  As we all know and mgmt knows, that can evaporate or double in the next 6 months.  By buying back those shares it limits the future dilution and caps the overall cost/lost opportunity of later issuing shares at a potentially higher price.  Of course, if they were also buying back at $17 or $28 when they were issuing their options several years ago, we know how that turned out. 

[Ross812]

Agreed.  Until they start buying back 1M shares or more, it won't make a material difference but perhaps the cash can be deployed elsewhere that potentially is a 5 or 10 bagger?  I would also say that the vast majority of exploration type companies dilute the crap out of their shareholders and Altius is not doing that.

 

460k shares x ($12 - $6.34 = $5.66) = $2.6M discount to current Altius share price transferred to employees for compensation.  As we all know and mgmt knows, that can evaporate or double in the next 6 months.  By buying back those shares it limits the future dilution and caps the overall cost/lost opportunity of later issuing shares at a potentially higher price.  Of course, if they were also buying back at $17 or $28 when they were issuing their options several years ago, we know how that turned out.

 

Agreed. I'm glad that Altius is not going crazy with dilution. There is a lot of positive talk about how great Altius management is for buying back undervalued shares while the price is down. They are buying back shares, but it's not accretive to common stock holders. The slight reduction (about 1.5%) in shares outstanding is surely going to turn into a 1.5% dilution going forward as newly issued options will more than likely be in the money ($5 and $7 options).  The they've been buying back ~500k shares a year and issuing about as many. The share count has only been down due to forfeited options out of the money at expiration. I'm not sure share buybacks should be a major factor when looking at Altius until, like you said, 1M shares or more are repurchased and the buybacks actually benefit common shareholders.

[ItsAValueTrap]

I certainly have my suspicions on costs being that low.  Where do you put them at?

You can re-read all the earlier posts on this thread.  I assume that their costs will be similar to Bloom Lake but with quality deductions for lower quality ore.  The technical report (which I don't trust anyways) puts $15/ton for quality deductions.

 

And of course Altius has a 3% royalty and Hebei's offtake agreement is slightly better than a 3% royalty.

[ItsAValueTrap]

On the subject of share repurchases and stock-based compensation.

 

I don't really have a problem with stock-based compensation.  It could make employees care about the company more because then they have some skin in the game.  Rather than collecting a cash salary, they will suffer a bit if they make bad decisions for the company.  This can be helpful in the mining business because sometimes the employee's incentive is to do too much exploration and mine building.  It looks better on your resume if your company spent way too much money to find something than to not have found a deposit at all.  Between paying employees with cash or stock or options, it's not too big a difference.  If you pay them with stock or options, they are more likely to own stock because they've been defaulted into owning stock.

 

At small junior miners, stock-based compensation makes a lot of sense as it aligns incentives and also because almost all juniors are severely undercapitalized.  The real problem is that they waste huge amounts of money, some management teams are there to mine the stock markets, and that not having enough money forces them to do dumb things.  If you merged all the junior explorers together, you would have a company that loses money every year (even if commodity prices go up).  It's awful.

 

I don't have a problem with Altius slowing down its share repurchases.  They've been pretty good about buying their shares when they are low and selling them when they are high.  A few years back they did a secondary offering when their share price was a lot higher than today.

[Ross812]

I certainly have my suspicions on costs being that low.  Where do you put them at?

You can re-read all the earlier posts on this thread.  I assume that their costs will be similar to Bloom Lake but with quality deductions for lower quality ore.  The technical report (which I don't trust anyways) puts $15/ton for quality deductions.

 

And of course Altius has a 3% royalty and Hebei's offtake agreement is slightly better than a 3% royalty.

 

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 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.

 

Not, trying to beat a dead horse here Valuetrap. Are we not in agreement that the $15 a ton quality deduction was accounted for in the cost to beneficiate the ore from ~30% Fe to 65.5% Fe? The quality deduction ($15) that keeps on being thrown around from the pit optimization table IS accounted for and rectified in the estimated cost table 21.2. I won't argue that BBA is not low balling $/t cost of the project, but saying there is a $15 quality deduction subtracted from the iron ore spot price is silly based on the information in the cited report. 

[Ross812]

I certainly have my suspicions on costs being that low.  Where do you put them at?

You can re-read all the earlier posts on this thread.  I assume that their costs will be similar to Bloom Lake but with quality deductions for lower quality ore.  The technical report (which I don't trust anyways) puts $15/ton for quality deductions.

 

And of course Altius has a 3% royalty and Hebei's offtake agreement is slightly better than a 3% royalty.

 

From a little research last year:

 

There is three ways to look at iron ore. DSO ore is hematite that comes out of the ground at 60+ %Fe. It is broken onto small pieces and shipped DSO=Direct Shipping Ore. In Canadian iron mines the ore is not DSO, it is beneficiated iron ore. Benificiated ore is initially taken from the ground at a lower grade, ~30% Fe, ground up and separated from non ferrous rock with magnets.

 

The two types of ore they mine in Canada are magnetite and low grade hematite. There is a huge difference. Magnetite is more magnetic than hematite which allows it to be separated in larger pieces than hematite. Hematite undergoes a second fine grinding before it can be separated. Magnetite is much cheaper to process because it is separated on the first pass of course grinding.

 

To give an example:

 

Say a 30% raw Fe concentration mine ore is made up of 60% magnetite and 40% hematite. To reach a 60% Fe concentration for shipping, half non ferrous rock must be removed or the 30% Fe concentration doubled (this is ore benefaction). If 100 tones of raw or are sent through the course grinder, the first pass of the magnets are going to pick up 36 tones of hematite (100 tones * 2*30%raw concentration ore * 60% magnetite). The remaining 64 tones of ore is pulverized and sent through centrifuges to remove the remaining  15.4 tones of hematite (64 tones *2*30% raw concentration * 40% hematite). The result is ~50 tones of Fe 60% ore and 50 tones of non-ferrous waste. 

 

Alderon's Kami project is:

 

60-70% Magnetite

40-30% Hematite

 

Cliff's Bloom Lake is:

 

10-20% Magnetite

90-80% Hematite

 

This means that 58-64% of Kami ore has to be further processed to finish benefication where Bloom Lake has to further process  88-94% of their raw ore to produce the same amount of 60% Fe shipping ore.

 

BBA was more than likely soft on their costs to produce ore, but I am positive Kami ore will be much cheaper than Bloom lake ore to benificate. BBA has Kami at $43 to produce ore where Bloom lake is at $80. The true cost is somewhere in between. I would guess $60-70 a ton... 

[ItsAValueTrap]

My short, easy answer:

 

1- I don't really know what Kami's costs will be.  I don't have access to their engineering data and I don't have a team of specialized engineers.  When senior miners do due diligence on a project... they will send in their engineering teams, go re-assay their drill core, visit the site, etc. etc.  This is the kind of due diligence that isn't being done by most stock market investors.

 

2- Hebei probably did their due diligence on Kami.  They probably aren't stupid.  (At least... I really hope not...)

Altius also likely did their due diligence on Kami.  Though I don't know if they have mine engineering experience on the same level as Hebei.

 

---

The longer answer:

 

Beneficiation of iron ore is a complex process.  As far as I can tell, there are a lot of different ways of skinning a cat and there are some subtleties about certain ores that can make them difficult to deal with.

 

Sometimes the impurities in an ore can be tightly bound to the grains of iron.  After crushing, there will be grains of iron with some impurities stuck onto the grain.  After magnetic separation, these impure grains may be separated with the good ore.  (I believe this is a problem for Canadian Orebodies' deposit if you read their technical report.)

The Wabush operation has a problem with manganese content in its ore.  Strathcona was commissioned to put out a report on that operation's challenges because the provincial government was worried that the mine would shut down and therefore Wabush's economy would be devastated.  Anyways, they installed a new plant to help separate out the manganese from the ore... I think they used high intensity magnetic separation to do it.  That technique presumably works well with Wabush's ore.  You grind the ore down to a certain size and you can get much of the manganese out.  (But the resulting concentrate still has high levels of manganese according to Cliffs.)

 

Some impurities are a lot worse than others.  The smelting process is there to get rid of impurities.  The metallurgical engineers want to figure out the right balance of getting rid of impurities through smelting (which is the mine's customers' cost), grinding the ore more finely, magnetic separation (different techniques), screening, flotation, gravity, etc. etc.

 

Steelmaking is complex.  Sometimes manganese is considered undesirable (e.g. Wabush... go read Sthrathcona's report - http://www.nr.gov.nl.ca/mines&en/publications/wabush-memo-v3.pdf  ).  Other times it is added to steel - apparently a good chunk of manganese production is used for steelmaking purposes.  I don't really know too much about why ore high in manganese fetches a lower price.  I don't know whether it's because it causes problems in the smelter or if it's because the supply of high-manganese ore outstrips the demand for it.  A lot of steel is specified to have low amounts of manganese because manganese changes the properties of the steel in undesirable ways.

 

Here is a paper in a textbook on Wabush' manganese problem and how they are dealing with it:

http://books.google.ca/books?id=5v0gadnyAD0C&pg=PA269&lpg=PA269&dq=wabush+manganese&source=bl&ots=XbCFrEjeNB&sig=l7mg51eYjDL-SSQHup9qL2oDUl4&hl=en&sa=X&ei=7UtSUaDhAaW3ywGNvIGgBQ&ved=0CGYQ6AEwCQ#v=onepage&q=wabush%20manganese&f=false

 

BBA has Kami at $43

BBA had Bloom lake's costs at below $43/ton.  You can find the technical report on SEDAR if you search for Consolidated Thompson.

[naboo]

News (March 28, 2013): http://altiusminerals.com/press-releases/view/269

[Phaceliacapital]

No mention of Altius whatsoever, can you believe this?

[naboo]

http://www.proactiveinvestors.com.au/companies/news/41500/mamba-minerals-in-exciting-hematite-iron-discovery-in-eastern-canada-41500.html

 

 

Altius owns 20% of Mamba minerals and 3% gross royalty on the property...at a cost of a few hundred thousand.

 

Dazel.

 

 

correct me if I am wrong, Mamba has to get 7 million then the deal will be real. As end of last year, Mamba only have a little more than half of that required money,  they raised all 7 million by now?

[ItsAValueTrap]

Assay results are expected in May and given the length of this intersection and the size of the DSO targets it should be prove interesting indeed.

 

Ok, so they didn't assay the drillcore yet...  their press release is almost meaningless.  The grade could be anything.

 

DSO is just some term that they are throwing around.  In the Labrador Trough, another company has a "DSO" project but they are saying that they will use beneficiation processes other than crushing or screening.  So in other words, direct shipping ore never really means direct shipping ore.  Without assaying the ore and running some preliminary metallurgical tests, they don't know if this ore is "DSO" ore and they have no idea whether or not this is high-margin ore.

 

That's the problem I have with the junior sector.  It's filled with deceptive, promotional BS like this.  This is noise that you should filter out.

[Ross812]

Assay results are expected in May and given the length of this intersection and the size of the DSO targets it should be prove interesting indeed.

 

Ok, so they didn't assay the drillcore yet...  their press release is almost meaningless.  The grade could be anything.

 

DSO is just some term that they are throwing around.  In the Labrador Trough, another company has a "DSO" project but they are saying that they will use beneficiation processes other than crushing or screening.  So in other words, direct shipping ore never really means direct shipping ore.  Without assaying the ore and running some preliminary metallurgical tests, they don't know if this ore is "DSO" ore and they have no idea whether or not this is high-margin ore.

 

That's the problem I have with the junior sector.  It's filled with deceptive, promotional BS like this.  This is noise that you should filter out.

 

Agreed. How can they say this is DSO if they don't know what the %Fe content is in the formation? This may be DSO if Fe content is high enough, or another Bloom Lake - hematite rich and expensive to beneficate.

[ItsAValueTrap]

Oooh, gold down about 9% today.  TSX Venture continues its bear market and down about 6% today.

 

This is a good market for Altius in the long run.  They have been patiently sitting on a pile of cash for opportunities to arise.  Or, they will just sit there and continue to buy back shares.

 

In the short run, we do wish to see iron ore prices stay around $150 (or higher) and want to see the Kami project become fully financed.  So it's not entirely good for Altius, but Altius is trading at a discount to liquidation value and this is the type of market that they have been waiting for.  If juniors can't get financed, there may be distressed sellers of land, royalties, stock (which Cranberry Capital / Paul van Eeden can capitalize on), etc.

[beerbaron]

Today was a bloody day for the commodity market, it in days like these that I'm happy to give the management of my commodity portfolio to professionals like Altius.

 

BeerBaron

[ItsAValueTrap]

Some juniors halt their shares all the time on news that doesn't matter.

 

It's yet another stock promotion technique.

 

 

The big picture is that there is some hidden value in Altius' other iron ore projects.  Their non-Alderon stuff may be worth tens of millions of dollars.  Julienne Lake and the other property highlighted in their presentation are the most promising right now.  Brian Dalton is flying around the world trying to convince others that the land has good exploration potential so that he can "sell" the land through JV deals.  (Altius could use their own cash to drill it... but Altius would rather get somebody else to pay for it.)

[beerbaron]

Dazel, why did you delete your previous post?

 

BeerBaron

[Guest Dazel]

 

 

BeerBaron,

 

 

I would rather let Altius do the talking....Quiet at this time is better for long term investors.

 

 

Dazel.

[ItsAValueTrap]

Just post the following link repeatedly hehehe:

http://www.canadianinsider.com/node/7?menu_tickersearch=als

 

I think we'll see Altius step up share repurchases again.

[beerbaron]

BeerBaron,

I would rather let Altius do the talking....Quiet at this time is better for long term investors.

Dazel.

 

Translation: You are buying more.

 

 

[tengen]

BeerBaron,

I would rather let Altius do the talking....Quiet at this time is better for long term investors.

Dazel.

 

Translation: You are buying more.

 

I had exactly the same thought! :)

 

My trigger finger is getting itchy too but I suspect my usual sloth will result in no action on my part.

[Ross812]

I added 25% to my position today at 9.26.

[naboo]

I added 25% to my position today at 9.26.

 

 

I added 10%, ALS had very weird move recently, I wonder how many shares Altius bought back during this down turn.

[biaggio]

I added 25% to my position today at 9.26.

 

 

I added 10%, ALS had very weird move recently, I wonder how many shares Altius bought back during this down turn.

 

It made it to $9.26?

 

I increased my position almost 15% @$9.46.

 

Hope for further price weakness to add more, so I am sure it will bounce up.

[Ross812]

I added 25% to my position today at 9.26.

 

 

I added 10%, ALS had very weird move recently, I wonder how many shares Altius bought back during this down turn.

 

It made it to $9.26?

 

I increased my position almost 15% @$9.46.

 

Hope for further price weakness to add more, so I am sure it will bounce up.

 

Pink sheets. I own Canadian shares too, but i can't trade in the Canadian shares on my smartphone without converting currency first.