ALS.TO - Altius Minerals

[nostradamus]

Thanks Dazel. I just found it on SEDAR. He owns 1,370,775 shares, which appears to be unchanged in the last 3 years.

 

[Ross812]

Synopsis of the valuation work:

 

Quick summary below (in $m). It's incredibly cheap....

 

Cash and marketable securities           175.3 As of Oct 31, 2011

Royal Gold                                             36.5 529k @ $69. Nasdaq listed (RGLD), precious metal mines

Alderon Resource                                   108.6 32,285k @ $3.3, iron-ore jr, venture listed (ADV.V)

Millrock Resources                                       2.9 7,932k @ $0.47, venture listed exploration specialists in Alaska (MRO.V)

JV w/ Cranberry Capital                                Early stage mineral exploration, book value $25m

Voisey Bay                                                 Royalty generating $4m+ a year, $10m in the books

NLRC                                                         Fully w/o, only refinery project in NA approved in years

Collection of Royalties                                 free call option

17 exploration projects (12 JV)                 free call option

Worst case scenario valuation                     323.3

 

# of shares                                               28.9

Current Price                                               11.2

Current Market Cap                                     323.6

 

I did a DCF calculation on the 3% gross sales royalty on Alderon's Kami project to see what it is actually worth to Altius.  Once again, it appears that there is huge value here, and it's not a lot of "what if" value dependent on financing, infrastructure costs, concentrator build out cost increases etc.  It's just a straight commission on whatever eventually gets shipped out of there by whatever corporate entity sells it.  We're 3 years away from production so you know there could be JV deals with China, share dilution at Alderon (as per todays release) etc and none of it matters - just a net cheque for the selling price per ton x 3% payable to Altius once everything is up and running by whoever gets it up and running.  My point is it's calculable future cash flow with a high degree of confidence.

 

Using the assumptions of:  3% royalty on an Annual production of 8 million tons, mine life of 15 years, cash flows not to begin until 2015 and a discount rate of 5% (let me know if I'm out to lunch on that one please!) and a selling price of $100 per ton (for margin of safety) I get a Net Present Value of this one royalty stream to Altius of $215.17 million.  If the iron ore price averages $150 it's 1.5 times that amount or $322.8 million (which is approximate current market cap so of course everything else is free at that iron ore price!)  If the iron ore price averages $50 it's still worth $107.5 million or approximately the same amount as their shares in Alderon are worth.

 

So the value is there.  I would say that at current pricing and even a 5 year horizon there is significant margin of safety in Altius.

 

Eric50 = $11.50 + Royaly

value-is-what-you-get = Royalty at 3.82 ($50/ton) - $11.5 ($150/ton)

 

so - $15.3 to $23 

 

Dazel,

 

I was working off memory and some jotted notes from reading the 2010 annual report.

 

Current assets are 176 million 31 Jan 12. Of that 50.6 million is cash and taxes receivable. They don't have 175 million in cash.

I didn't see the 25m Cranberry capital anywhere. How do you value the J/V? at 50% or 80%?

 

I very well may be off on the NPV of the Alderon 3% Royalty. 4.8mt has been spoken for by Hebei; they may hit 16mt but even at 8mt the valuation is compelling. pof4520, this is going to be a show me stock, no one is going to give them a NPV on 20mt a year. I started with a ore price growing at 3% a year but went back to 0% because I don't see Iron ore growing in excess of inflation from here. China is going though a major build out right now. I don't see it increasing in speed. 9%, 11% what is the correct benchmark? Should you discount iron or at the developing world's GDP growth rate? I chose the risk free rate + China's current GDP growth rate... It seemed conservative.

 

I value Alderon Shares at $3.4, cost at the Hebei investment 33m shares = $112m

 

In the 2010 annual report Altius recognized 15.3 million in 7 years of owning the Voisey BAy Royalty, 2.18m per year; I used 2.25m. They made 3m 9 months ending 31 Jan 12, 4.1m 2009, 1.7m 2010. I like your 4m number. A DCF at 0% growth, 11% discount gives NPV of 36.3m.

 

Alderon shares + Royalty NPV (8mt at $100, 0% G, 11% D)

112 + 218 = $330m

 

Voisey- 36 m

 

Millrock- 2.3m

 

Labrador Iron Props- 30m

 

Cranberry at 50% - 12.5m

 

Cash- 50m

 

Total - $460m + free options galore

24% margin of safety at today's price

Back out Alderon though (if something goes bust, 10% chance?) the valuation gets a lot harder to justify...

 

Basically assigning value to the Alderon royalty. Discounting their 80m in investments in associates. And assigning a more reasonable value to Voisey (on the books for 9.6m)

 

Ross812 = $16.37

 

 

What is missing? The value of the Alderon position...now that they have secured financing and things look like they are headed to production...here is what we see.

 

Look at a Labrador iron ore royalty for an almost exact model for Altius ownership positon in Alderon. Labrador iron ore royalty to us shows us looks like what a mature Altius would look like (on this one asset-Alderon).

 

So forget the rest Altius for now...this is a spin out scenario.

 

Labrador iron ore owns 15.1% of the iron ore company of Canada...they have been diluted like Altius will be for a smaller piece of a bigger market cap.Rio Tinto owns 58.72%, mitsubshi 26.18%.

 

Altius will get diluted as the project gets built out...so we use 15% ownership the same as Labrador iron ore and a 3% royalty compared to 7% at Labrador royalty.

 

Altius Royalty Corp (hypothetical spin out)

 

Royalty income

$28m (net of 20% Newfoundland royalty tax)

-8mtX$145t= 1.16b @ 3%=$35m @20% tax royalty tax= $28m

 

Equity income

Alderon- PEA numbers

8mtX$145-$45 (total operating costs)= $800m profit

 

We will use $500m.

 

Altius royalty Corp. Income $75m @22.5m tax (30%)

$52.5m

 

Total income to Altius

$82.5m

 

Labrador iron ore trades at 10 times income

 

Altius royalty Corp at this valuation

$825m

 

When Alderon reaches 16mt production you can double your numbers....

$1.65 billion market cap.

 

You can discount how you like as you see we have done with the income from Alderon....reducing it to $500m....from the $800m @30% tax=$660m

 

NO ONE is running the numbers on how huge Alderon is for Altius. We welcome negative scenario's including a drop in the price of Iron ore...please someone run some numbers...

 

Disclosure

We own a lot Altius shares.

 

Dazel.

 

Dazel = $29.35 (with kami)

 

Hello all

 

I have been following the discussion on this board for a while now and thought it was about time for me to contribute. But first a disclaimer: I have quite a sizable investment in Altius and I know next to nothing about mining. So I am both biased and uninformed.

 

Anyway there are a couple of things I have noticed recently that I don't think have been posted:

 

First off, some recent news on Julienne lake:

 

http://www.thetelegram.com/News/Local/2012-10-10/article-3096301/Call-for-expressions-of-Interest-for-Julienne-Lake-development/1

 

I guess that the Altius management had flagged that this was anticipated, but the announcement is clearly positive. As I said at the outset, I don't really know anything about mining, but if the goverment is encouraging a developer to spend a huge amount of money to turn their property into a mine, it seems to me that the developer would want to make that capex go a bit further by aquiring the right to mine the adjacent (submerged) land that altius owns as well. I assume we will hear more about this when altius reports back on the outcome of their 2012 winter drill programme.

 

Secondly, I came across this presentation:

 

http://altiusminerals.com/uploads/RIF-2012.pdf

 

It includes a few things that I had not seen before. 1. info on the Chile expansion, 2. a statement that they intend to dividend out the Kami royality cash flow, 3. their own NAV calculation of the current value of the Voissey Bay and Kami royalities (C$172m).

 

Regarding point 2. They project a royality of C$55.2m by 2017 on Kami. Divide this by the 28,759,675 shares outstanding give a dividend of C$1.91 per share, or a yeild of around 18% at current prices!

 

Regarding point 3. Take a look at the slide on their capital structure. I think this means that if you just consider the cash, marketable securities and two royalities (Voissey and Kami), you get a valuation of 182 + 114 + 172 = C$468m or 16.27 per share. Ie just these aspects of the business are worth about 60% more than the current share price.

 

Then there is all the potential from their other interests, eg CMB royalty and Julienne lake.

 

I think this stock might be cheap.

 

N.

 

nostradomus = $16.27 (voissey + kami + cash)

 

From Value Trap's Blog (http://glennchan.wordpress.com/2013/05/01/altius-minerals-als-to-great-business-trading-at-a-discount/)

Valuing Altius- the longer method

 

As of Jan 31, 2013 Altius had a book value of $268M.

 

Altius owns 32.8M shares of Alderon, which have a market value of $35.42M at $1.08 per Alderon share.  Alderon is carried on Altius’ books at $70.47M. The difference is -$35M.  (I will ignore decreased taxes on capital gains.)

 

$268M

-$35M for market value of Alderon shares.

+$150M for Kami royalty

+12M for fair value of Voisey’s Bay royalty

+0M?  for value of non-Kami iron ore properties

-0M?  for junior mining shares discount

—

$395M

 

I estimate Altius’ fair value to be around $14.04 / share.  Altius currently trades at around $10.85 / share.

 

Value Trap = $14.04

[Guest Dazel]

 

 

Keep in mind the development since these numbers were being run...not for me but others..

 

Alderon has used the number $746m in their projected payout to Altius at 8mt....mamba, century, Astray, AngloAmerican spin outs have happened and Julienne Lake is in the process which really could be as big as Alderon...and iron ore is $141...which no one predicted.

 

Altius has been very busy in the last couple of years. It also appears they have taken a 6.5% stake in Virgina Mines ( not confirmed)....it is in Virgina Mines presentation.

 

Dazel.

 

 

[ItsAValueTrap]

Ross: great summary!!!

[naboo]

The calculation mixed US dollar and Canadian dollar. The iron price, gold price etc are in USD, but cash is in CAD.  In the 6-12 months, we might see 1 CAD = 0.9 USD or even lower.  so all target price should multiply by 0.9 - 0.95, in USD.

[Guest Dazel]

http://www8.gsb.columbia.edu/sites/valueinvesting/files/files/Graham%20%26%20Doddsville%20-%20Issue%2014%20-%20Winter%202012.pdf

 

For those interested in the company we keep...pardon the pun...Bill Strong who runs Mason Hill Partners owns 13% of both Altius and Virginia mines...

 

He cut his teeth under the legendary Late Bill Ruane. The link above is an interview with him where discusses is value oriented investment strategy. He also mentions that Mr. Ruane told him he was a personal friend of Warren Buffett...to which Bill thought "who is Warren Buffett"? In other words he has been around a long time!

 

 

 

 

[nostradamus]

Thanks Dazel for the shareholder info. Looking at the following presentations:

 

http://altiusminerals.com/uploads/2012-June-QC.pdf

http://minesvirginia.com/wp-content/uploads/2013/07/UniversityClubChicagoJuillet2013.pdf

 

... it seems that in addition to the significant stakes of Mason Hill, Adrian Day owns 5% of both companies. Plus Altius now owns 6.5% of Virginia Mines. And of course Altius and Virgina have the stategic alliance.

 

Do we know whether Virginia owns any of Altius? Is the Altius stake simply an attempt to make money from buying into an undervalued company? Or is it the prelude to a takeover/merger? If the latter, is there a relationship with the Advance Notice By-Law announced by Altius?

 

 

[Guest Dazel]

 

 

Nostradamas,

 

At these levels I think the Virginia mines investment is a passive opportunistic deployment of capital. We would expect that Altius has purchased a lot of different shares during the bloodbath in May June...we know they were aggressive in buying back their own shares which are the best investment in my opinion.

Virginia mine does not have the capital to buy a stake an Altius stake...they value and the market values their royalty at $11 per share. Altius Kami royalty dwarfs Virginia mines royalty but it starts to pay out in 2014...there is a huge mismatch because Altius gets less than 0 market value for their capital deployment skills and the elephant gun they have loaded. That will change.

 

Dazel.

[Guest Dazel]

http://www.metalbulletin.com/Article/3249589/Iron-ore-and-coking-coal/Evraz-sees-61-Fe-iron-ore-averaging-at-125-cfr-over-next-5-years.html

 

 

We like to look at the steel makers opinion...Hebei etc...they have to plan for iron ore prices. Altius would do very very well at $125 over the next 5 years...

 

We are at $141 today.

[Blue Macaw]

When could we expect some news regarding Julienne Lake?

 

Virginina Mines looks like an ok investment. However the royalty from their gold project starting end 2014 is valued to a great extent in the price today. Hopefully Altius picked up the share around 8 CAD. There looks to have been som larger positions traded around that price some months back.

[Guest Dazel]

http://www.bloomberg.com/news/2013-09-04/steel-rallying-with-chinese-builders-beating-mills-commodities.html

 

 

Looks Hebei needs Alderon's iron ore pretty badly...who would have thought that a bull markculinary steel could be forming...besides Altius that is.

can't believe that the analysts were wrong again!

 

Dazel.

[SharperDingaan]

Nod to Dazel. We added a small, short-term & speculative, position in ALS over the week.

 

We think a short-term rise in ore prices is reasonable. Materiality, & sustainability, is an open question.

We also think there may well be some favorable deployment of their cash. We will find out on the release of Q3 financials. 

 

Long-term, we think there are far better alternative prospects.

If a boom in ore prices is to be sustainable, the economies of the US & Europe need to be turning around, AND they need to be investing in new infrastructure, almost right of the bat, that USES large amounts of steel (pipelines, rail, hi-rise construction, etc.). We're not so certain on the timing, & we also expect demand displacement - similar to on-line use displacing newsprint demand.

 

For those interested, we would direct you to the existing advances in materials science; taken to its logical extension, a very high % of todays manufacturing infrastructure is obsolete. If this is your forte, & you have an aged population (Germany, Japan), you are going to be replacing your manufacturing infrastructure as soon as you can (after your economy recovers) - & doing it aggressively.

 

SD

 

[alertmeipp]

wz up with ALS lately? Any news?

[Guest Dazel]

 

 

Alertmieppe,

 

 

The stars are aligning...as soon as Alderon gets permits (should be soon) it  becomes a takeover target..alone or take over Altius wins.

 

Dazel.

[Guest Dazel]

http://finance.yahoo.com/news/novus-energy-inc-enters-definitive-000400224.html

 

 

We own Novus Energy....we did not expect their take over to be a Chinese Entity at all. Interesting that all of our focus on China with regards Alderon and Altius we ignored the prospects at Novus. It was a nice surprise. It is another fairly sized deal for a Canadian-Chinese investment.

 

Dazel.

[SharperDingaan]

 

wz up with ALS lately? Any news?

 

... short answer is because we bought it. Sorry!

 

 

 

 

[alertmeipp]

Okay, SD. Don't buy anymore then. :)

[alertmeipp]

 

 

Alertmieppe,

 

 

The stars are aligning...as soon as Alderon gets permits (should be soon) it  becomes a takeover target..alone or take over Altius wins.

 

Dazel.

 

Would love to see ADV to get taken over with a fair price by a major. The royalty stream will be golden.

[Blue Macaw]

A takeover needs to be above 2 because that is the value of alderon according to the balance sheet. If not a loss so to speak.

[ItsAValueTrap]

Hebei's option exercise suggests that Alderon is worth at least $3.70 ($480M divided by 130M shares).  If Hebei was smarter, they should have let the option lapse and picked up shares of Alderon on the open market.  And fire management while they are at it... there's no reason to pay insiders so much.  If they were really smart, they wouldn't even be involved in the first place.  It's not worth doing business with Stan Bharti as your so-called "partner" (look at Aberdeen International).

 

I think that many of the Chinese companies (and non-Chinese companies like Cliffs) are overpaying for assets.  These inflated valuations may go away one day.  I think this is the reason why Altius isn't buying shares of Alderon like it used to... the Kami project is marginal and unfortunately it has been highly leveraged to the drop in iron ore prices from 2011.

[Guest Dazel]

 

It's a value trap,

 

 

Cliffs paid $5 billion for Bloom Lake...iron ore prices were $180...so yes in hindsight that is extremely rich even when compared to your $480m...in fact over 10 times your number...

When you look around the globe you just can't find a project with infrastructure in place..at a cost as cheap as Alderon...I would ask everyone to try to find one...Hebei has said they looked at projects everywhere....

What everyone needs to understand is there is no project until environmental and building permits are approved...Hebei just had an iron ore mine shut down in China because of improper permits....Hebei's financing has a permit clause in it.

 

Alderon is not in play until this happens...at that point I agree with all you have said...there is no need for Bharti's affiliations...Hebei, Liberty and Altius would avoid doing anything until the permits are in place.

 

When that happens all bets are on...and I agree with you  things happen quick...it will be a take over right away taking advantage of the stupid pricing of Alderon shares or the shares will rise to the point they do not get taken out and present management will build the mine.

[SharperDingaan]

Just keep in mind that management could also take Alderon private at the stupid pricing, & they have the best window on the progress of the permitting process. Existing shareholders would see little of the benefit, & it would also not be terribly unusual; as per the FBK experience.

 

 

[alertmeipp]

Sorry if repost:

 

http://www.marketwire.com/press-release/alderon-announces-signing-of-project-financing-engagement-letter-tsx-adv-1829865.htm

 

VANCOUVER, BRITISH COLUMBIA--(Marketwired - Sept. 12, 2013) - Alderon Iron Ore Corp. (TSX:ADV) (NYSE MKT:AXX) ("Alderon" or the "Company") is pleased to announce that it has signed an engagement letter (the "BNP Paribas Engagement Letter") under which it has given BNP Paribas an exclusive mandate to act as lead arranger of up to a US$1 billion senior debt financing facility (the "Senior Debt Facility") to complete the construction and start-up of the Kami Iron Ore Project (the "Kami Project"), located in the Labrador Trough. The BNP Paribas Engagement Letter sets forth the required steps, including agreement on final terms and conditions and requisite documentation for the Senior Debt Facility, completion of due diligence, and procurement of credit approvals, among other things. The BNP Paribas Engagement letter does not constitute a commitment to provide financing.

Alderon is pursuing a financing strategy for the Kami Project based on a combination of the Senior Debt Facility, other debt options, equipment financing, equity and off-take partner contributions. In order to provide flexibility and maximize its financing options, Alderon intends to pursue the Senior Debt Facility and its other debt options in parallel, and is targeting a total debt financing amount of US$1 billion. Alderon will in particular be evaluating an offering of senior secured notes in the capital markets to ensure that it obtains the total US$1 billion target.

"The signing of the engagement letter represents a significant step forward towards obtaining project financing for the construction of the Kami Project," said Mark Morabito, Alderon's Executive Chairman. "We expect our financing strategy to provide maximum flexibility for Alderon to achieve its US$1 billion debt financing target and to obtain all of the required capital to develop the Kami Project. Alderon also expects that a portion of the debt financing will be provided by Chinese banks given Hebei Iron & Steel Group's involvement in the Kami Project and the strong relationship that Hebei has with many Chinese banks."

"We are pleased to be working with the BNP Paribas team to bring the Kami Project into production. The combination of the proven financial capability of BNP Paribas, coupled with the high quality project team currently at work on the Kami Project gives us great confidence that this project will be developed in an environmentally and socially responsible manner to the benefit of our shareholders, employees and local stakeholders" said Tayfun Eldem, President and CEO of Alderon. "We believe the high quality, large scale and favorable proximity to infrastructure in the Labrador Trough combined with 60% of the production presold to Hebei for the next 15 years, make it an attractive candidate for financing from the international banking community. This step illustrates that progress for finalizing our financing is keeping pace with the Kami Project environmental assessment process, which we expect to be nearing completion in the coming months."

This press release shall not constitute an offer to sell or a solicitation of an offer to purchase any securities of the Company in the United States or any other jurisdiction. The securities of the Company have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the "U.S. Securities Act"), or the securities laws of any other jurisdiction and may only be offered and sold in the United States pursuant to an exemption from the registration requirements of the U.S. Securities Act. In addition, the securities of the Company may only be offered and sold in Canada pursuant to an exemption from the prospectus requirements of Canadian securities laws.

[Guest Dazel]

Sd,

 

 

I have good and bad memories of FBK...since we bought at .33 and sold at $1.45.... And thank you for you tremendous work there! However, it was worth $3 and taken out way below that as we know.

 

We have contemplated this..and we are considering hedging our bets by buying Alderon common because it is stupid cheap..

 

Big difference here is we own enough Altius to benefit from a private transaction...Liberty and Altius control the common equity of Alderon right now and we are comfortable with that. When Fibrek got taken out by Resolute they were too small to make a difference to Fairfax or Resolute. And Quite

frankly we hated Resolutes news print and paper business which continues to be a dog.

 

One thing we are confident in absolutely is the Altius will "not" lose in the deal if there is one. They are too smart for that.

 

Dazel.

[ItsAValueTrap]

Just keep in mind that management could also take Alderon private at the stupid pricing, & they have the best window on the progress of the permitting process

I don't see a lot of permitting risk here.  No First Nations are involved.  No environmentalists are campaigning against the project.  There is some controversy over power and the proposed Muskrat Falls dam.  I believe they have enough power without Muskrat Falls.

 

It is a mining region and I believe local residents are in favour.  Mining has been their lifeblood and the locals want the jobs (see Strathcona's report on the Wabush mine prepared for the Labrador government).

 

Historically, mining companies have been willing to buy projects even before all the permitting is in place.  Inco (bought out by Vale later) took control of the Voisey's Bay project before all of the permitting issues and politics were worked out.  Inco paid a price for it as it took a very long time to get it permitted.  Altius was able to capitalize on the situation as there were fears that the mine would never go ahead (Altius as we know bought part of a royalty on Voisey's Bay).