ALS.TO - Altius Minerals

[plato1976]

"Altius uses zero leverage, isn't ultra concentrated on one commodity.."

Isn't Altius quite concentrated on iron ore ?

 

You can clearly see Cranberry Capital (Altius' subsidiary run by Paul van Eeden) investing more.

 

There is definitely blood in the street, which is wonderful for Altius.  Many juniors are running out of cash.  If they don't have enough money to keep their exploration claims in good standing, they will lose them and another company can stake those claims.  With the TSX Venture down two thirds, it will be difficult for juniors to raise capital.  Some have been able to raise small amounts (a few hundred thousand) which is only enough to keep the lights on (pay inflated insider salaries, tens of thousands to the auditor, etc.).  Very very few are putting cash towards exploration.  Because Altius has a cash hoard, they will be able to capitalize... buying up claims, royalties, etc.  There are probably some juniors trading below cash (with "decent" management teams)... it is likely that van Eeden is buying them.

 

we think their return on invested capital will start to look more like Leucadia

I think that Leucadia mostly got lucky with its investment in Fortescue.  Iron ore prices have skyrocketed in the past decade.  On top of that, Fortescue was able to put together an amazing portfolio of land.  Fortescue doesn't just have a single mine... it has multiple mines on very large deposits with very low costs.  And their returns have been fueled with an unsafe level of leverage (debt:equity over 2:1 ???).  Debt:equity of 0.3:1 is more reasonable.  I think Altius' future returns will be good, but not Fortescue good.  Altius uses zero leverage, isn't ultra concentrated on one commodity, and it's unlikely that iron ore prices will go up 5X again.

 

---

On another note, Hebei might be crazy.  They may be overestimating the economics of the Kami project.  I think that this is why Altius is not buying shares of Alderon, even though Hebei's investment implies a value a few times that of the current share price.

 

Altius continues to buy back its own shares.  (Management is phenomenal, the company is cheap, and they are buying back shares... isn't that what we all want?)

 

http://www.bloomberg.com/news/2013-07-25/china-cuts-capacity-in-some-industries-to-reshape-economy.html

Thanks for the link!  It, um, looks really bad for iron ore demand.

[ItsAValueTrap]

Yes they have a lot of exposure to iron ore because of the Alderon shares and the royalty.  (Though not as much as Fortescue.)

[Liberty]

One view on iron ore's prospects:

 

The rule with oligopolies is that eventually, someone cheats a bit—then everyone cheats a lot. That’s the reason that oligopolies rarely last very long—particularly when you are dealing with global commodities that are not all that scarce. Or at least, that’s how most economists think of the world. I would like to offer a slightly different axiom—if you are making too much money, you will also destroy the oligopoly due to new supply.

 

In almost any product, there is almost always a bit of new supply. The oligopolists cannot ever stop all new supply from coming online and lowering prices. However, when the big boys restrict themselves in terms of supply, they can create a world of semi-permanent prosperity—unless of course, they are resticting the market too much and are acting greedy. If you make too much money, someone new will WANT to compete with you.

 

Take iron ore. Starting in early in 2003 iron prices began a climb that has still not fallen back to earth. In the process, the big 3 iron ore players (Vale, BHP Billiton and Rio Tinto Group) made true fortunes. However, they got greedy. They forced buyers to purchase iron ore using annual contracts rather than the spot market—they effectively colluded to push the price of iron ore upwards and forced the Chinese to overpay. They sold iron ore for a few times what it cost to produce.

 

By making too much money and making iron ore mining not look risky, these three miners set up their own downfall. Eventually, marginal mines were funded (particularly the massive new mines owned by Fortescue Metals Group)—the returns on capital were just too juicy for investors not to fund them. These mines are now being built and are starting to ramp up. Dozens of other mines are being contemplated. By allowing new mining companies to tout massively profitable business plans, the big players have allowed their competition to blossom. Iron ore prices will eventually head down to the marginal cost of production. Prices may even stay below the cost of production—once the thing is built, you don’t want to cease production—even if you are losing money. It’s usually better to just keep producing and hope for higher prices. Iron ore will have a structural supply overhang for quite some time. As an industry, it’s going to be an ugly decade or two—starting in a few years as these mines come online. The big 3 players got too greedy and destroyed their industry.

 

http://adventuresincapitalism.com/post/2013/08/07/Potash-Will-Not-Go-The-Way-Of-Iron-Ore.aspx

[original mungerville]

Looks like Alderon is announcing that another potential deal similar to Hebei is in the works.

 

http://www.bloomberg.com/news/2013-08-12/alderon-set-to-sign-asia-partner-for-iron-mine.html

 

[Blue Macaw]

Very interesting times ahead indeed.....

 

I am still curious about the cash cost for Kami. I do think it looks like the iron ore they have is closer/more similar to Bloom Lake than Carol lake which has an iron content of an average 38 % in comparison to Bloom lake which has a 30 % . Carol lake has a cash cost of 60,75 dollar per ton, producing 19 million tons compared to Bloom lakes 87 dollar and 8 million ton production. With the increased production at Bloom lake Cliffs think they will get it down to around 60-70 dollar. I think the cost will go down with increased production at bloom lake but still.....down to 60?

[ItsAValueTrap]

Cliffs originally said that Bloom Lake would hit $35/ton.  Cliffs is crazy and overly optimistic.  They're a poorly run miner in my opinion (and a little lacking on the integrity side, like most companies in the mining sector).

 

Originally the plan was to do stage 1 of 8MT/yr and stage 2 would be another 8MT/yr.  That was clearly overly optimistic because Bloom Lake hit around 6-7 MT/yr.  Cliffs has scaled back the expansion when iron ore prices crashed.  There are some minor economies of scale from a larger operation.  However, Cliffs notes on a conference call (can't remember which one) that some of those economies of scale didn't materialize.

 

If the trend in mining inflation continues, I don't think that their cash costs will get that much lower.  Any new labour for their mine will have to be expensive fly-in fly-out labour because there is a housing shortage in the area.

[Guest Dazel]

http://www.metalbulletin.com/Article/3243233/Iron-ore-and-coking-coal/Spot-635-Fe-iron-ore-prices-extend-rally-on-Wednesday.html

 

 

Things are getting very interesting for Altius...it looks like the commodity complex has bottomed and has turned. there are some Mining stocks that are up very substantially in the last month. We continue to think Altius is the best situated as a risk reward play. What is different about the commodity complex is that stock prices move very quickly both ways. We have seen them move down over the last 18 months....very excited for the spring upwards!

 

 

 

[Guest Dazel]

 

 

Cliffs is up 60% from it's bottom and we know what type of operator they are...things could very interesting if  money continues to rotate into the Commodities complex which it appears to have began....we could be at the beginning of the next leg of the bull market Jim Rogers has talked about. We know from the cycle that the stocks will move before fundamentals improve.

 

 

[ItsAValueTrap]

http://www.bloomberg.com/news/2013-08-12/alderon-set-to-sign-asia-partner-for-iron-mine.html

 

Alderon Iron Ore Corp. (ADV), developer of the C$1.3 billion ($1.26 billion) Kami mine in Canada, is within weeks of signing up a second Asian partner, Chairman Mark Morabito said.

 

Alderon is in “advanced” talks with Asian steelmakers and commodity-trading companies aimed at locking in the sale of 30 percent to 40 percent of the proposed mine’s annual iron-ore output, Morabito said in an interview at company headquarters in Vancouver. A deal, valued at a minimum of C$100 million to Alderon, may also include the sale of a stake in Kami, he said.

 

An agreement may be in place before October, followed within about three months by a comprehensive debt-financing package, Morabito said.

 

“The market by the end of the year will have full visibility on how this project is being financed and who is financing it,” he said, adding that negotiations have included some of Asia’s largest steel producers that aren’t government-controlled. “What people will see is that more money is coming in this year.”

 

If they get $100M, I don't think that the mine will be fully financed.  (To me, there is some smoke and mirrors to Morabito's comments.  He has to be promotional and he may be overselling Alderon's prospects.)  But if there is some deal that gets the mine fully financed, that would be huge for Alderon and Altius.  Altius' royalty won't make money unless a mine is built.

[ItsAValueTrap]

http://finance.yahoo.com/news/alderon-places-orders-autogenous-ball-103000103.html

http://www.alderonironore.com/_resources/news/2013-08-15-NewsRelease.pdf

 

Build a mine or die trying.

 

Alderon Iron Ore Corp. (ADV.TO) (NYSE MKT:AXX) ("Alderon" or the "Company") is pleased to announce that it has placed orders for the autogenous (AG) and ball mills for its Kami Project located in Canada's premier iron ore district that is surrounded by four producing iron ore mines. The AG-mill and ball mill are the key processing equipment in the proposed concentrator as described in its independent technical reports. The placement of this order is part of Alderon's strategy to source the long-lead mining and processing equipment in sufficient time to begin production by the end of 2015.

 

Alderon just ordered items that have a long wait time / lead time.  They're going all in and making the assumption that they will be able to get the mine fully financed.

[beerbaron]

http://finance.yahoo.com/news/alderon-places-orders-autogenous-ball-103000103.html

http://www.alderonironore.com/_resources/news/2013-08-15-NewsRelease.pdf

 

Build a mine or die trying.

 

Alderon Iron Ore Corp. (ADV.TO) (NYSE MKT:AXX) ("Alderon" or the "Company") is pleased to announce that it has placed orders for the autogenous (AG) and ball mills for its Kami Project located in Canada's premier iron ore district that is surrounded by four producing iron ore mines. The AG-mill and ball mill are the key processing equipment in the proposed concentrator as described in its independent technical reports. The placement of this order is part of Alderon's strategy to source the long-lead mining and processing equipment in sufficient time to begin production by the end of 2015.

 

Alderon just ordered items that have a long wait time / lead time.  They're going all in and making the assumption that they will be able to get the mine fully financed.

 

No surprise! With the timetable they set forth they need to put the horses in front of the cart. I like it, Alderon is either a Zero or a Home-Run for Altius. It's painfull to see Alderon +50% in a month without me owning any shares, but I much prefer the leverage Altius offers.

 

BeerBaron

[Guest Dazel]

http://seekingalpha.com/article/1640712-alderon-iron-ore-800-potential-with-this-iron-ore-miner?source=yahoo

 

 

[Guest Dazel]

http://www.reuters.com/article/2013/08/16/us-fortescue-taiwan-idUSBRE97F01220130816

 

 

This is a big investment from a non traditional steel company. This what the market will look like going forward. Strategic investment...

 

Alderon needs the environmental go ahead before they will get major financing...should go through soon. The market is starting to appreciate the Kami asset....Alderon and Altius will get a lot of interest in the next couple of months.

[Guest Dazel]

http://seekingalpha.com/article/1646772-altius-minerals-should-generate-substantial-cash-flow-from-2016-on?source=google_news

 

 

[Guest Dazel]

http://seekingalpha.com/article/1646772-altius-minerals-should-generate-substantial-cash-flow-from-2016-on?source=google_news

 

 

I posted this analysis above as well...But I will add a comment.

 

They have a $25 target for Altius....however, they are light on the cash and marketable securities number....they use $100m working capital and $75m in investments...the actual yearend number is $145m in cash and marketable securities (these are government securities).... They have a remaining $110m in mining related investments...which are higher than year end we know...

we will take $25 a share but $30 is more accurate!

 

Dazel.

 

 

[naboo]

http://seekingalpha.com/article/1646772-altius-minerals-should-generate-substantial-cash-flow-from-2016-on?source=google_news

 

 

I posted this analysis above as well...But I will add a comment.

 

They have a $25 target for Altius....however, they are light on the cash and marketable securities number....they use $100m working capital and $75m in investments...the actual yearend number is $145m in cash and marketable securities (these are government securities).... They have a remaining $110m in mining related investments...which are higher than year end we know...

we will take $25 a share but $30 is more accurate!

 

Dazel.

 

 

Don't forget the royalty tax.  That will be 20% straight.  Then you calculate expense, loss, etc.. after that,  Altius has to pay Federal and provincial tax, that is probably another 30%.  So overall the tax will be 40% to 45% on royalty income.

[Guest Dazel]

http://announcements.fortbridge.net/2013/08/13/mamba-minerals-asxmab-mamba-minerals-appoints-michael-okeeffe-as-chairman/

 

 

Altius has a lot going on these days....Mamba's new chairman is an industry heavyweight...he was an original investor in Mamba Minerals...

 

Altius is about to get noticed by the investment community.

 

 

Dazel.

[Blue Macaw]

Century Iron  showing encouraging results from Schefferville West. Believe this is part of the Altius Properties.

 

Altius has another 2,250,000 million Century Iron mines shares coming up end of November. (750,000 Century iron shares changed into shares in Northern Star due to sale of 80 % of Astray property) Additional to this they have a bonus of up to 35,000,0000 shares depending on mineral reserves/resources etc from these properties

 

"One target area, labelled Red Dragon, returned encouraging high grade DSO type mineralisation. Drill hole SWI-12-02 intersected 15m grading 59.62% total iron (FeT), and drill hole SWI-12-03 intersected 45m grading 54.33% FeT, including 15m grading 65.82% FeT."

 

"A follow up trenching and drilling program, focussing on the widest portion of the gravity anomalies, is expected to be completed by December 2013."

 

From Century iron´s Annual report

 

Pursuant to the Altius Agreement, the Company agreed to issue (i) an aggregate of 5,000,000 common shares at nil price (with 2,000,000 common shares issued on November 18, 2011 and 3,000,000 common shares issuable on or before November 18, 2013), and (ii) up to a maximum of 35,000,000 common shares upon satisfaction of certain milestones related to the definition of National Instrument 43-101 compliant iron ore resources above specific thresholds to acquire a 100% interest in four of Altius’ regional iron ore projects in the Labrador Trough: Astray, Grenville, Menihek and Schefferville. In addition, the Company agreed to incur minimum exploration expenditures of $7 million per project cumulatively over a 5-year period.

[Guest Dazel]

http://www.mining.com/fortescues-power-makes-an-obvious-but-very-important-point-about-chinese-growth-70686/

 

 

If iron ore pricing remains and China backs the Labrador Trough as it has Fortescue....Altius is worth many times where it is now....Alderon would only be the beginning because the other projects were correctly selected close to infrastructure as well. Altius stands to make a fortune.

[Guest Dazel]

http://finance.yahoo.com/news/labrador-iron-ore-royalty-corporation-222600208.html

 

 

If you look at their equity earnings from the Iron Ore Company of Canada you can see that Carol lake is very profitable...in the range $200m in the first 6 months. As we know Alderon is looking to copy Carol Lake's operations as the core of it's management is from IOC.

 

 

 

[Guest Dazel]

 

 

Just an aside...legendary investor Howard Marks of Oaktree Capital management who we have incredible respect for has bought into Vale in the second quarter....we also know that Jeremy Grantham owns a position in Vale.

 

 

Dazel

[roughlyright]

Dazel,

 

  In your opinion, what is the Intrinsic value ( or range) for Altius?

 

 

[Guest Dazel]

 

 

You would get at least $15 in a firesale liquidation tomorrow...

 

Intrinsic value is approx $20 which it will hit once the mine at Kami is started. Suffice to say there is significant upside from $20 when Alderon is sorted out.

 

 

[nostradamus]

Does anyone have any information on how much of Altius is owned by Dalton? (apologies if it already been covered in this thread)

[Guest Dazel]

 

 

1.4m shares I believe.