ALS.TO - Altius Minerals

[ItsAValueTrap]

Altius or Alderon:

 

Altius trades at a discount to its assets, so buying Altius is a way of buying Alderon at a discount.  Altius is buying back shares because it makes sense to buy back undervalued shares.  However, look carefully at what Altius is doing.  They are sitting on a cash hoard and aren't buying more shares of Alderon.  You have some of the smartest people in the field in Brian Dalton and Paul van Eeden.  They aren't buying shares of Alderon.  Maybe they don't think that Alderon shares are undervalued.

 

I think that it is likely that Hebei overpaid.

 

*I used to scalp/swing trade Alderon shares and now I don't own any.  I really think the way to play this is to just buy Altius.  When I look at all of the mining CEOs out there, I would have to rate Brian Dalton as #1.  The royalty strategy makes sense (equity is dubious) and his track record is incredible.  And Altius is trading at a discount... what more can you ask for???

[Guest Dazel]

 

 

Agreed.

Why would Altius get that greedy buying more Alderon when they have a royalty at stake worth more than their current market cap? It makes sense for Altius to buy back shares rather than buy more Alderon...Altius will do well on their Alderon stake but the royalty is literally worth a frigging fortune and they can buy back 50 cent shares right now....

 

We agree with what Altius is doing...we would rather see a buyback of Altius which means buying a piece of Alderon through their own ownership. We just wish regulations would allow Altius to buy more of their own shares.

[Guest Dazel]

 

We do not see permitting risk either but bankers and lenders want to see it. Another party cannot buy a stake like Hebei got for any cheaper today even with the share price where it is.

 

Private prices are much higher than  what we are seeing in the public markets today ( we see this with Rio's 11mt of iron ore for sale at Carol lake looking to fetch $4b)...If these companies were at fair value we would not be talking about them...

 

 

[Guest Dazel]

For fun....

To buy Altius'  stake in Alderon passively in the market it would take you 357 business days...281 days for Hebei....to buy every single share traded on the tsx!

So any large deal would have to go through these 2 companies to gain approval...this is disincentive for any large Corp to start the accumulation of shares...it would be next to impossible to pull off without driving the price through the roof.

So we will see large deals happen and the stock will be driven that way. We think Hebei was smart....and they will do very well at Kami...the other way is to buy production as Posco did and others are trying to do with Rio's stake at Carol lake...but in the end these assets are worth a lot of money the market just does not appreciate that right now.

[SharperDingaan]

We just added an equal $ stake in Alderon, to hedge our bet. Our combined Altius/Alderon exposure is higher than we would like, but we will live with it for a bit.

 

Interestingly, our entry/exit points on FBK were very similar. Our FBK proceeds bought us a very undervalued flat in London, UK; but that undervalued take-out essentially cost us the immediate retirement of the mortgage on that flat. C'est le vie - but it is not going to happen to us again!

 

SD

[nostradamus]

ItsAValueTrap, you sugget that the fact that Altius are not buying more Alderon shares means that they do not think it is undervalued. I think this is a strange conclusion:

 

1. Doesn't the fact that Altius are not selling their stake in Alderon indicate that they see value in the equity?

2. In the Q3 MD&A this week they say "In spite of the many fundamental milestones accomplished by Alderon in the past 12 months, its share price remains well below the implied values based on project economics. Alderon is currently evaluating several financing alternatives, in addition to conventional equity and debt raisings that are well supported by its financially adept shareholder base." So it seems clear that they do see value in the equity.

3. As Dazel points out, when they buy back their own shares they effectively increase the ownership of Alderon for the remaining Altius shareholders and increase the ownership of the royalty. If they think the royalty is more undervalued than the stock, this is a better way of maximising shareholder value.

 

So I would agree with Dazel... with one exception - personally I am happy that they are not buying back more shares, they already have a massive exposure to Alderon and so I would prefer it if they use their cash to diversify a bit more (sparkfly excluded - they should stick to mining related investments where they have expert knowledge).

 

Regarding this week's Q3 numbers, there was not a massive amount that was new as far as I could see. Regarding Julienne Lake they said "The Corporation expects to receive formal feedback from the Newfoundland and Labrador government on its proposal in the coming quarter." So I think this means we should get some information by the end of October. Did anyone spot anything else new?

 

N.

[ItsAValueTrap]

If Altius thinks that Alderon is significantly undervalued, then they should use some of their $63M in cash and cash equivalents to buy Alderon stock.  Hebei's investment implies a value of at least $3.70/share.

 

It comes down to thinking for yourself.

 

Do you honestly think that Alderon's management is credible?

Do you honestly think that BBA is credible?  (Especially given its technical report on Bloom Lake, which wasn't anywhere close to reality.)

What is Alderon really worth?  (I think the correct answer here is:  I don't have access to the engineering data and I don't have the engineering expertise to analyze it even if I did.)

[nostradamus]

Regarding what Alderon is really worth, I am in the same position as you. I don't know. Maybe the detailed engineering data that niether of us has access to would demonstrate that it is overvalued or undervalued. Who knows? Well, perhaps Altius has a better idea than both of us - and they hold a significant stake.

 

Regarding management, I find it a bit strange that you regard Altius management so highly, but have such a negative perspective on the management of Alderon. Presumably Altius, as the main shareholder of Alderon, was instrumental in selecting the management. How do you reconcile this? Did the "best in the business" management of Altius screw up when they selected the management of Alderon?

[ItsAValueTrap]

Altius can't be picky about who their joint venture partners are.

 

Their model is based on "selling" land/claims to other parties.  The junior explorers are usually undercapitalized and don't have a lot of cash to buy mining claims with.  So it makes sense for them to pay in equity than cash.  As far as Altius goes, it isn't a great business idea to backstab your business partners.  It makes sense for Altius to go with the flow.  But you know that once the mine gets financed, they will likely look at selling their shares (much like with Aurora).

 

Good things you can say about Altius:

Good track record without leverage

The process makes sense

Insider compensation is low by junior mining standards

They are mostly not that promotional

The CEO doesn't try to game his incentive structure.  His bonus is based on reported EPS.

The MD&As has a lot of information presented in a useful way

 

Bad things you can about Altius:

The CEO's bonus structure is dumb.

Their corporate presentations are promotional.  They repeat Alderon's silly figures.

Insiders take large salaries at Alderon.  In theory, this can be abusive to shareholders if you take large stakes in other companies and take large salaries for sitting on their board.  Then it's almost like you're a fund of funds manager.  Though my opinion is that Altius' overall insider compensation is low.  Greedy people would find ways to get higher pay.

[Guest Dazel]

Trap,

 

 

Morabito is the only Bharti related party at Alderon. He is perhaps overpaid...however, if he comes through for the financing of the mine I am happy to pay him. He and his team have struck a an important deal with Hebei that you are happy with as well. I don't really care what Bharti has done somewhere else. It is like Randy Moss coming to the Patriots a few years back you can't help but do well with good people around you. The owners of the company Altius, Hebei and Liberty will not be screwed by Bharti so relax. Randy Moss was exceptional until he got selfish and then he was gone...same is and will continue to happen with Bharti.

 

The operations team is best of class...I am very comfortable with their experience at IOC...they have built in the Labrador trough before and that is a huge attribute and they are the reason Alderon has done a lot of the right things with regards to a timeline.

 

As for Dalton and Baker (lawyer) from Altius double dipping on director fees...I am happy to have hat happen until the mine is operational. Dalton is "The Tom Brady" of situation and we need Baker around to make sure everything is done above board.

 

Dazel

[SharperDingaan]

Investors have to recognize that relative to their peer group (Vancouver/Alberta exchange juniors), these companies are better than most. It doesn't mean their practices are particularly good; it just means they are the better or shinier examples on a pile of turds.

 

If everything works, eventually there will be a mine. However it is highly probable that the capital structure, once the mine is built, will be very different from todays; & then only if the mine is not dealt away so someone else. They need to 'market' the property, & promotion is part & parcel of that.

 

Mine 'finding' is very different from mine 'operating'; & scale matters. A Rio Tinto/BHP/Freeport is not going to agree to pay a royalty if/when the mine is dealt to them. Royalty receivers usually receive a terminal payment, in shares of the mining entity.

 

As investors we have to question what we're doing in the turd pile, how much we're willing to tolerate, & for how long. We could have just stayed in cash, & snored soundly.

 

Were we miners we might have a different view. Were this an o/g play we definitely would have.

 

It is not for everyone.

 

SD

 

[Guest Dazel]

 

SD,

 

I agree with what you have said...however, we do not look at Altius in this manner. We look at Altius in the same manner we looked at Leucadia when they were miner heavy. Basically we are looking at assets not miners.

We are looking at this the same as the buses and contracts we bought in Laidlaw out of bankruptcy. Sometimes it's buses, pulp mills, insurance contracts, cash, management etc.

All in all it is simply the assets. We don't care about juniors and and all that stuff. Same old same old..

Just simply a Buck for 50 cents.

 

Dazel.

[SharperDingaan]

 

Agreed. We're here for a simple 10-20%; not the long term

 

 

[Phaceliacapital]

http://www.steelguru.com/raw_material_news/Alderon_announces_signing_of_project_financing_engagement_letter/324968.html

 

 

[Guest Dazel]

http://www.mining.com/glencore-considers-3-billion-iron-ore-mine-in-congo-55233/?gce_var=lower-comments&utm_expid=17625373-0.wR1isPasQ6GSvnWKGYTdqA.1&utm_referrer=http%3A%2F%2Fwww.mining.com%2Firon-ore%2F

 

 

Why not just invest in Alderon? Euros have appreciated greatly against the Canadian currency...Glencore's wants to into the iron ore business...

 

 

[Guest Dazel]

http://finance.yahoo.com/blogs/breakout/market-awaiting-fomc-announcement-bernanke-presser-173933565.html

 

 

We remain correct in our assessment of the Fed and monetary policy.

We believe that Altius not only is being offered as a buck for 50 cents it is an excellent inflation hedge.

 

Dazel.

[Phaceliacapital]

Inflation expectation?

 

http://www.ft.com/intl/cms/s/0/ec038a60-206b-11e3-9a9a-00144feab7de.html

 

Mexico has hedged its oil production for the coming year at the highest price on record, in a striking indication of how stubbornly high oil prices continue to allow producing governments to finance growing budgets.

 

 

[Guest Dazel]

 

 

The stubbornly high oil price continues to indicate uranium is the only answer for Japan, India, China.

 

Uranium will take off as well as "things"...

 

 

[Guest Dazel]

 

 

We have added to our Altius position...the shares are being forgotten in the marketplace...

 

Thanks SD...can you knock the shares down again please.

 

Dazel.

[Phaceliacapital]

Just wondering, do you have other exposure to Uranium? (Direct or indirect?)

 

If you don't want to disclose no problem

[Guest Dazel]

 

No.

Altius gives us the resource exposure we want.

 

Uex.to, Pdn.to, Cameco....are uranium companies we watch but do not touch. We have the Altius team for that...if they were to show conviction in something we may follow.

 

Dazel.

[ItsAValueTrap]

The stubbornly high oil price continues to indicate uranium is the only answer for Japan, India, China.

 

Very few people burn oil for electricity... diesel accounts for a tiny portion of the world's electricity generation.  It's mostly coal, natural gas, etc.  Both coal and natural gas are currently cheap on a historical basis.

 

Fukushima is still leaking so I don't think that Japan will be enthusiastic about nuclear.  As far as uranium mining goes, there may be reasons to be bullish.  There may be supply issues since there hasn't been a lot of supply coming online, and now some first-world countries are blocking new projects like the Matoush project in Quebec due to environmental fears.

 

*I have a very, very small and highly speculative long position in Strateco.

[Guest Dazel]

 

 

The single biggest problem that China has is pollution....coal can't continue like it has..the government knows this and that is why they will be the biggest user of nuclear power in the world tomorrow....they  do not have cheap Nat gas...it is very expensive in the rest of the world.

 

Japan has no choice...LNG is expensive...all the cost of nuclear power is in the buildout...uranium itself is a small percentage...Japan imports of power do to the nuclear shut down are hitting them hard.

 

India is a mess.

 

Saudi are building 16 reactors...

 

Agree supply has been decimated since the tsunami hit....it may take awhile but the price surge will come...supply demand....north America is benefitting greatly from cheap Nat gas...the rest of the world does not have this advantage.

[Guest Dazel]

http://www.theglobeandmail.com/report-on-business/canadas-first-new-refinery-in-decades-breaks-ground/article14426102/#dashboard/follows/

 

 

Too bad Newfoundland does not have Alberta's money!

[Blue Macaw]

Yes, too bad nothing became of that refinery they had going on. Any news at all regarding that by the way? What is happening?

 

Uranium will be the fuel of the future specially for China. However they do sit on the biggest resources in the world when it comes to shale gas. (actually bigger than the States ) so when they learn to tap that it could be an additional source. Coal will in the meantime be the major energy source for the world. It will not go away for quite some time. Read the other day that they are building 20 new coal reactors in the states and in China and India they are just massively consuming it.

 

World´s population today is roughly 7,2 billion. If we suddenly started (today) to have less than 2,1 children per family we would still reach 8,5 billion people due to the fact that there are lots of young people who are about to start a family and have children. So at least around 8,5 billion people is something to expect. Where is the energy going to come from? Not just the fact that we are more people but also that the 2 biggest countries population wise have started to move towards an increasingly more energy consuming lifestyle.

 

Uranium will start to move but I think we have to wait a while longer. The Uranium companies have been saying this for some time now, that the supply and demand figures are pointing towards an increase in price. They are right but the timing is the critical thing here. Until then some Uranium companies will go bust and some will pick up cheap resources.