ALS.TO - Altius Minerals

[beerbaron]

Anybody knows why are the royalty companies registered in US and Canada? It seems to me that an offshore entity would save a shitload of money on taxes.

 

BeerBaron

[ItsAValueTrap]

I'm guessing that it isn't allowed / doesn't work.

 

Accounting companies often put out excellent white papers on tax issues:

http://www.pwc.com/en_ca/ca/mining/publications/canadian-mining-taxation-2011-04-en.pdf

http://www.pwc.com/en_GX/gx/energy-utilities-mining/publications/pdf/pwc-gx-miining-taxes-and-royalties.pdf

 

The effective tax rate on the mine and on Altius' royalties are pretty high.  At one point Altius was arguing that the tax on its Voisey's Bay royalty was over 55% since they weren't allowed to deduct legal expenses (they were underpaid on the royalty and had to go sue the payer).

[Guest Dazel]

I feel obligated to board members to chime in...no fun watching your investments go down when there is a raging bull market in the U.S.! However, there is a huge upside here as the environment is an excellent opportunity to deploy capital for high returns. We are currently getting extremely low returns on our huge cash position at Altius.

 

I will post a share buy back calculation soon that mimics Warren Buffett's numbers he released on IBM's share buy back impact on Berkshire Hathaway. Shareholders can use it to determine how the buyback helps their economic interest in owning Alius. We giggle each day that Goes by and 7000 more shares of Altius get cancelled. Right now we see the buy back as the greatest use of cash as Altius shares are significantly undervalued. The company is in the drivers seat to pick a couple more royalty streams from cash strapped companies. While other companies racked up debt and bought royalties and future cashflow streams at high prices. Altius sat on their cash with patience this has put them in the drivers seat to pick and choose. They have done  this before when they bought up 10% of  IRC in 2009 selling it to Royal Gold in 2010. They also made an excellent purchase on the Voisey bay royalty paying for it self in only a few years. It is only in times like these that excellent purchase prices are available. The longer we stay in this environment the better for Altius...buybacks and purchase opportunities will reshape Altius future cash-flow per share.

 

Alderon will have plenty of news on the ramp up to production in the coming months...it is a great

time to be negotiating rail deals, materials etc....they have become the only game in town on

production in the Labrador trough which will bring start up costs down significantly....see the chief financial officer hire formally a big part of the Iron Ore Company of Canada build out. Another off take agreement is likely soon.

 

Dazel.

[Green King]

As Munger have said you should not be in equities if you cannot take 50% volatility.

 

Also it will be hard to see Alderon not getting build with financing help from Hebei even if China blows up. Based on the relative size of JV partner and the project.

 

Cheers

 

GK

[finetrader]

Also it will be hard to see Alderon not getting build with financing help from Hebei even if China blows up. Based on the relative size of JV partner and the project.

 

Kami project's projection are for about 1.5B$ to put the mine in production. I think Alderon's current shareholders will be diluted by 10-15 times when everything is built up.  Also Hebei will buy 60% of the production with a 5% discount. To me this looks like another 3% royalty to Hebei. So you have 6% of pretax margin that is going outside Alderon' pocket. So an investment in Alderon has to be considered accordingly. I will pass on Alderon.

 

Altius's 3% royalty on 8M tons will be worth about 260M$ when it will start to pay.

[Blue Macaw]

Hebei's discount is like a royalty.

 

However the Chinese are playing this in a great way and due to things like:

1. Discount

2. Off take agreement

3. Ownership in mine

 

they will have control of the mine, get what they want for a cheaper prize than buying it from Rio, Vale etc etc

 

How much more expensive is it to transport the ore from Canada in comparison with Australia?

[Blue Macaw]

I forgot to add that with these things like discount, off take, ownership in mine we will more likely see a mine being built than no mine at all. So today is not a good day to be greedy. The Chinese as said earlier are playing this where they want it. Alderon shareholder and Altius will benefit from this.

[Blue Macaw]

Cliffs natural really looking to make Bloom lake their future go to project with an increase from todays output of 6.5 to 7.0 million to 14-14.5 million in phase II. Cliffs think cash cost will go down from 85-90 dollars to mid 60 with the expansion. Interesting..they also believe Eastern Canada is where they will grow the most in the future...

[ItsAValueTrap]

Cliffs has slowed down their expansion plans at Bloom Lake.  They also took an impairment on their property.  (If they take a huge impairment now, I believe their GAAP earnings will be higher in the future.)

 

Cliffs think cash cost will go down from 85-90 dollars to mid 60 with the expansion.

They have adjusted their current guidance higher.

 

 

 

Eastern Canadian Iron Ore Outlook (Metric Tons, F.O.B. Eastern Canada)

For 2013, Cliffs is maintaining its full-year sales volume expectation of 9 - 10 million tons. Full-year production volume is also expected to be 9 - 10 million tons. Due to the recently announced adjustment to Wabush's product mix, Cliffs expects to sell approximately 1.5 million tons of iron ore pellets, with iron ore concentrate sales making up the remainder of the expected sales volume range.

 

The Eastern Canadian Iron Ore revenues-per-ton sensitivity is included within the 2013 revenues-per-ton sensitivity table above. Full-year 2013 cash cost per ton in Eastern Canadian Iron Ore is expected to be $95 - $100.

 

The Company is maintaining its full-year cash-cost-per-ton expectation at Bloom Lake Mine and Wabush Mine of $85 - $90 and $115 - $120, respectively. Depreciation, depletion and amortization is expected to be approximately $18 per ton for full-year 2013.

http://ir.cliffsnaturalresources.com/releasedetail.cfm?ReleaseID=759114

[Blue Macaw]

The Wabush mine sells pellets no? That is why they can keep it running? Otherwise it must be better to shut it completely down,

[ItsAValueTrap]

The Wabush mine is really, really old.  The manganese content may continue to go up (it hurts the price of the product).  Pellets receive a premium since they are easier to handle by the smelter.  Right now they are shifting to less pellets and more concentrate I believe.

 

It currently should be cash flow positive so it will keep running.  Sometimes you don't want to shut it down only to restart it a few months later since there are startup/shutdown costs (e.g. severance, cost of bringing staff employees back).

[Blue Macaw]

I got the info regarding Bloom lake from their latest presentation. March presentation I think it was. So I don´t think they have changed much of their future thoughts since then, have they?

[ItsAValueTrap]

Most of the major iron ore producers are still expanding capacity.  Vale and BHP Biliton have lower costs so it makes more sense for them to expand than Cliffs.

 

The economics for expansions work like this:

For a given iron ore mine, you always try to mine the most economic ore first.  So you might have lots of ore at $50/ton cash costs, then $60/ton, and so on and so forth.  As the mine ages, its costs will go up.  If your cash costs are $140/ton and your ore sells for $140/ton, you are at a breakeven point where it makes sense to start thinking about shutting the mine down.  When commodity prices rise, the expected mine life of a deposit will go up.

 

If you expand capacity, then two things happen:

A- You bring the future cash flows into the present.  $1 30 years from now is worth less than $1 15 years from now.  If you double capacity on a mine with a life of 30 years, then the new life would be roughly 15 years.  (Pretend that the new capacity comes online immediately.)

B- There are minor economies of scale from having a larger operation.  Cash costs will actually go down a little bit.

 

You usually maximize the economics of a mine if it's life is between 6-15 years.  If the mine life is a lot more than 15 years, you may be better off increasing capacity and reducing the mine life.

 

2- Cliffs could be lying about what its future cash costs will be.

 

The economics of a mine depend on a huge number of factors.  You can have a roomful of honest mine engineers and they can all have wildly different opinions on what the mine's economics will be like.  Cliffs is probably being "extremely optimistic".  Personally I think that it is extremely unlikely that Bloom Lake's cash costs will go down significantly.  Given its lower grade, it should have higher costs than Vale and BHP Biliton. 

 

3- Anyways, let's get back to talking about Altius.  It's cheap and they're buying back shares.

[Blue Macaw]

yes you might be right that Bloom lake´s cash cost will stay high. I assume Kami is roughly the same but I do think they stated a much lower cash cost projection in their feasibility study. Probably a bit over optimistic as usual.

[ItsAValueTrap]

re-read this thread.  BBA did the  feasibility study for both kami and bloom lake.  BBA's study for bloom lake stated that production costs would be around $30-40/ton... not even close.  You can find it on SEDAR if you search for consolidated thompson.

[JAllen]

http://www.brecorder.com/pakistan/markets/121909-iron-ore-and-metallurgical-coal-prices-declining.html

[Guest Dazel]

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

 

We are loving these Buy back prices.

 

Dazel

[Liberty]

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

 

We are loving these Buy back prices.

 

Dazel

 

Indeed, though I wish they could buy back higher volumes. The number of shares outstanding doesn't seem to have moved much since at least 2009.

[BRK7]

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

 

We are loving these Buy back prices.

 

Dazel

 

Indeed, though I wish they could buy back higher volumes. The number of shares outstanding doesn't seem to have moved much since at least 2009.

 

agreed.  average monthly buyback over the past 3 months is 66,000 shares.  That's 0.23% of outstanding shares.  At that rate, a whole year's worth of buybacks would barely exceed 2.5% of outstanding shares.

[Guest Dazel]

 

Yes higher volumes would help.

They will accelerate as much as they can at these prices as we see buy back volumes rise around  this price range....they purchased 5 % of the outstanding shares in 2008 and then raised the buyback to 10%...so you entered 2009 purchasing back almost 10% of the shares in one year...they invested in a big way into IRC at that time as we know...so the buybacks slowed...

 

We would like to see both in this environment...the continued Buy back as we are seeing and a another investment similar to IRC as their is low hanging fruit in their industry.

 

Dazel.

[nostradamus]

According to their Twitter feed Altius submitted their proposal for the Julienne Lake development on Friday.

 

It seems to me that, even if they are unsuccessful in their bid, altius stand to make a lot of money as long as the JL project gets developed. That is, whoever invests in all the infrastructure to get the EML mined is going to want to leverage off that to mine the altius claims as well.

 

What do people think? Is this right? Or is there a chance that the EML could get mined but the surrounding Altius claims are left untouched?

 

Also, any thoughts on the Mamba Minerals release today? Is it just the drop in the iron ore price that has been affecting this stock recently or is there something about the exploration results that is problematic?

[ItsAValueTrap]

What do people think? Is this right? Or is there a chance that the EML could get mined but the surrounding Altius claims are left untouched?

It would be a win-win scenario to consolidate the claims.  They are worth a lot more together than they are apart.

 

It's hard for me to imagine that one set of claims get mined but not the other.  I suppose that it's possible that two parties can fight each other and not consolidate the claims.  For example, Cliffs is the largest shareholder in KWG Resources yet both of them are involved in a legal battle with each other.  Cliffs is doing battle with itself... which doesn't make a lot of sense.  It should reach an out-of-court settlement with KWG and save itself lots of money.  Anyways, the point is that sometimes human beings will do crazy things.

 

Also, any thoughts on the Mamba Minerals release today? Is it just the drop in the iron ore price that has been affecting this stock recently or is there something about the exploration results that is problematic?

Stock prices will fluctuate for various reasons.

 

In regards to Mamba's drill results, it strikes me that the ore could be marginal.

 

Here's the May 3rd press release (which I can't find on Mamba's website):

http://www.asx.com.au/asxpdf/20130503/pdf/42fp6gn28ptlcm.pdf

 

They say that there is 101 meters of 52% iron.  However, this is spread out in several different intersections.  When you actually mine the ore in an open pit operation, you will have lots of dilution from the surrounding rock (which is lower grade iron... mostly 30-50%+ iron).  So it could be that only the 52% over 33m interval is any good.  If the interval is only 33m, then this definitely won't become an economic deposit.  The deposit would be too small and the strip ratio would be insane.  I don't think that there is any chance that this is a viable DSO project.

 

Yet the press release suggests that this is a DSO project:

 

Silica content is expected to be easily and economically removed using a conventional upgrading process of crushing, screening and de-sanding, generating a +62

% Fe saleable iron ore fines product.

 

They might be able to apply beneficiation processes such as magnetic separation to the ore so that they can do something with the lower grade ore.  Unfortunately, because this is a hematite deposit and not a magnetite deposit, the beneficiation processes won't work as well or they will cost more.  I think that this is their new plan.  And Mamba hasn't exactly been honest and forthcoming about this.

 

The metallurgy will be a huge factor in the viability of this deposit.

How easy will it be to get the silica out? 

With density separation? 

With low intensity magnetic separation? 

With high intensity magnetic separation? 

How finely does the ore need to be ground?

 

These are metallurgical tests that they should perform.  If it turns out that the lower grade ore (30-50% hematite) can be upgraded at a low cost, then this deposit could be economic.  One thing they have going for them is very low levels of impurities.  Mamba's press releases strike me as intentionally misleading, which I have a distaste for.  Doing business with unethical people can sometimes get you into a lot of trouble.

[nostradamus]

Thanks ItsAValueTrap for your very informative response.

 

The odds seem pretty good that the Julienne lake claims get consolidated, but I take your point that people do stupid things. It is just as well that you basically get the potential upside for free with Altius trading at these levels.

 

Regarding Mamba, you clearly know a lot more than I do about the iron ore mining process, but your comments confirm some concerns I had some doubt about their press releases - they come accross as very ... rampy. I think they would do better to be a bit more open about the potential negatives/difficulties. 

[zippy1]

New CFO for Alderon

VANCOUVER, BRITISH COLUMBIA--(Marketwired - Jun 11, 2013) -  Alderon Iron Ore Corp. (ADV.TO)(NYSE MKT:AXX) ("Alderon" or the "Company") is pleased to announce the appointment of Mr. François Laurin as Chief Financial Officer (CFO) of the Company. Mr. Laurin will join Alderon as CFO on June 17, 2013.

 

Mr. Laurin has held several senior management positions in Canada before joining Alderon. Mr. Laurin previously served as Chief Financial Officer of Consolidated Thompson Iron Mines Ltd., which was acquired for $4.9 billion by Cliffs Natural Resources earlier in 2011.

Alderon's current CFO, Mr. Keith Santorelli, gave notice to Alderon of his intention to pursue other opportunities and is committed to ensuring a seamless transition of his responsibilities to Mr. Laurin.

 

http://finance.yahoo.com/news/alderon-appoints-cfo-project-finance-100000697.html

[beerbaron]

At one point I was very close to buy some Alderon at 1.00$, it is crazy cheap but after much tough I had the following reasoning:

 

Mining stocks are a self fulfilling prophecy.

 

If it's stock price is high, the dilution will be small hence the value is there.

If the stock price is low, the dilution will be very big and we need to discount the dilution in the value of the mine.

 

Overall, I'd rather stay out and self fulfilling prophecies and invest in the sure gain if the mine get done. Royalties seems to fit the mold.

 

Anybody had the same toughts?

 

BeerBaron