ALS.TO - Altius Minerals

[Guest Dazel]

 

Trap,

 

As always I love your responses!

Loved the article....Munk said he did not deserve any of the credit...He said "Smith  deserves all the credit he recruited the entire team."

 

Alderon's guy is Tyfun Eldum and he recruited the team from IOC...he has the support of Altius, Hebei and Liberty....no one else matters....I would hope that they would have more knowledge after working similar conditions at Carol Lake with his teams experience of over 100 years...than the Bloom Lake group that bolted on the sale and brought in outside contractors...

 

You will notice from the article you sent that Barrack was not the industry norm as Smith brought in and used only his own people..."not contractors as was the industry norm-cliffs did this after the Copper miner and the premier (consolidated Thompson management) left when Bloom Lake was sold...incidentally Bloom Lake had a big fire just Cliffs was buying it.

 

Enough of all that...

 

As you said Altius will do well....if Tyfun's team does well..they will do better.

 

Dazel.

 

[Blue Macaw]

Trap,

 

The Chinese might be dumb money and many of the deals some of the companies have done have been really bad, I agree. But I assume that applies to not only Chinese companies. The Chinese are sitting on cash and they are getting what they want. This is something we need to get used to. Partly state owned companies that act very agressively, more like private companies. I don´t know if the Chinese are better than the Canadians at running a mine. They are however very good at Infrastructure tunneling (biggest market in the world now is China) something I work in. But the big point is that there will be more and more Chinese workers in Canada thus lowering the cost. This is crucial and I do think it will happen over time.

 

Yes they are probably not going to liquidate their stake until financing is complete  but I do hope they will as soon as this is done. Environmental issues must be cleared also of course.

 

Virigina mines have exellent land stakes but the stock is looking a bit overpriced at the moment. Callinan is a great catch around 1,5-1,6. A 20 % upside immediately. But as you say they are probably adding both. Callinan is bringing in 16 million a year (last year) and the 777 mine will at least be running 8 more years. Gunnison project looks promising among others.

[Guest Dazel]

 

 

Adding to both of your points Blue and Trap,

 

You can see from looking at Callinan and Virginia mines what type of pricing is out there for royalties....they are extremely expensive even in a disastrous commodity market...

 

The comparison of Virginia mines royalty to what Kami would be gives you an idea of what multiple Altius would trade at....

 

Dazel.

[ItsAValueTrap]

But the big point is that there will be more and more Chinese workers in Canada thus lowering the cost.

A question about that because I'm intellectually curious:

 

What type of schedule would they work on?  Do they fly in and fly out?  When they fly out, do they fly to a North American city or China?  Where would their families live?

 

The Labrador trough has some serious housing issues and extremely high rents.  So I'm curious as to whether Chinese miners would lower the cost much.

 

Virigina mines have exellent land stakes but the stock is looking a bit overpriced at the moment.

When I looked at it, I thought that the Eleonore royalty was worth roughly the market cap for some reason.  Then you get the land on top of that.

[Guest Dazel]

Trap,

 

I agree on Eleonore royalty being roughly the Market cap of Virginia...have you compared it to what Kami Would be to Altius?

 

Dazel.

[ItsAValueTrap]

I think that mining assets should be valued based on net present value, not P/E multiples.

 

The NPV of the Kami royalty depends highly on whether or not a mine will be built.  I'm probably a little more pessimistic than you.  ;)  But I think it's likely the mine will be built.  They just need to line up the financing.

 

Re-reading Alderon's press release on the BNP Paribas engagement letter:

http://www.alderonironore.com/_resources/news/2013-09-12-NewsRelease.pdf

It seems that it doesn't have any debt lined up.  It's just a promotional press release about how BNP Paribas is going to try to sell $1B in debt.

[tengen]

I don't know if it's a lock that we'll see cheap Chinese labour imported to work in Canadian mines.  When they tried to do that in BC, it created a big uproar and they wound up sending the miners back to China:

 

http://www.cbc.ca/news/canada/british-columbia/chinese-miners-sent-home-in-b-c-workers-dispute-1.1394435

[Blue Macaw]

Yes these guys were sent home for now. All this happened in Sweden to all the foreign workers some 10 years ago. Massive resistance. News paper coverage, tv programs etc. And today...80 % of all the labour within infrastructure are foreign. It comes in waves and with each wave there will be less and less resistance.

 

All the good locals are taken I suppose so most of the Kami´s labour will be flown in. The Chinese would probably work double north sea shift (28/18) or similar making it about 30 trips (or 15 round trips) per year per person back to china. They would live in barracks on site. An additional cost might have to be included for a bigger cantin etc but if they make half of what a Canadian miner makes that still saves a lot despite the extra travel cost. (A lot of Canadians need to be flown in so there will only be parts that are additional costs). They might also work harder.

[Blue Macaw]

It should of course be less trips than what I stated above..making it even more profitable.

 

Virginia mines have a large part of their royalty included in their share price.

If you look at it from a P/e perspective with costs of 5 million a year.

 

2015    300,000 ounces * 2,2% =6600*1350 =8,9 million-5 = 4,9 /33 million shares*20(p/e)=2,72

2016    600,000*2,2=13200*1350=17,8-5*20=7,75

2017-2037 and so on until 3 million ounces when they get 0,25% more and then 0,25 % every million ounces up to maximum 3,5 %

 

I am not saying that it is a bad buy at the moment. Viriginia Mines seems to be a great company and it is better to buy a great company to a fair price. The price is however not great at the moment.

 

[Guest Dazel]

http://minesvirginia.com/wp-content/uploads/2013/06/ImpVirginiaEN.pdf

 

 

I can't get you guys to bite!

 

Virginia has their royalty valued at $10 per share....$1 for cash etc..as Trap said the rest of the projects and upside are free.

 

So if they value their Eleanore royalty at 10....what will Kami be worth...the math is scary good if you do it for Kami in comparison...the Kami royalty is larger and the mine life is at least 10 years longer.

 

So let's get he mine built and we will go from there.

 

Dazel

[ItsAValueTrap]

Dazel, thanks for posting that.  Page 16 and 17 in the PDF are notable.  It looks like that the deposit has a huge amount of exploration potential.  They've held off on exploring deeper until the exploration shaft is sunk (so that drilling is cheaper and the drilling won't deviate off target when you drill too deep).

 

As the mine goes deeper and deeper (assuming that the ore is there), the operating costs will go up.  But this is a high-grade deposit the rise in operating costs shouldn't be an issue.  It could be that the mine goes on for decades before it reaches breakeven economics and needs to shut down.  I think that Altius may be spotting value here that other people don't see.

[Blue Macaw]

Dazel

 

I tried before to give my estimate of the Kami royalty. In 2017 I think we will see net earnings around $1 per share and at that point I assume you could motivate a share price of $20 just for the royalties.

 

In 2017 an investor would thus see:

777 mine +5 years left

Voisey bay +10-15 years left

Eleonore + 20 years left

Kami +20 years left

 

Out of these 20 per share I guess Kami would be valued up to 85 % of that or approximately 17 dollars. (That is of course at 110 dollars per ton and 8 million tons a year)

 

I am often very cautious with my prediction as things normally are worse than they seem. Almost all these companies try to inflate their current value and I would not buy completely the value Virginia Mines claim the Eleonore royalty has. I just don´t like when companies are highly valued before production have started.

 

But as I stated before. Altius has an enormous buried value I think and with time and hard work they might be brought to the surface. So I will try to put some current values on the other things apart from the royalty valuation above:

 

Century iron, 5-35 million shares in the future. Today (2013-11-30) they will own 5 million shars = 2,5 million or 0,09/share

Mamba minerals, 20 % of outstanding shares. Market cap today 31,9 million*0,2 = 6,38 million or 0,22/share

Alderon shares, 32.9 million*1,75 =58 million or 2,06/share

Cranberry investments = 1/share

Additional money/securities ????? (Depending on how much have been spent on buying Callinan and Virginia mines. Need to check next Q)

Rio tinto joint venture ???

CMB royalty, at least 30 million I would say = 1/ share

Chile (small share valuation today)

Millrock (small share valuation today)

Anglo American joint venture (In 5 years maybe at least 0,7/share). If it goes to production the that would mean a looooooot of money

 

The list can get longer but I do believe that there is a big possibility that we will see a share price of around $30 in 2017. (If Kami goes the way we want). That is a quite high return on investments I would say. The thing with Altius is that the down side is fairly low and the up side very big. Altius is one of the 2 companies I am invested in at the moment. I try to do my reserach and follow Benjamin Grahams principles to some extent and I have been burnt many times as I try to fool myself into some fairytale promise.

 

Altius so far has been great and I do believe they are doing a good job. But I watch them like a hawk.

 

"The wisdom god, Woden, went out to the king of the trolls, got him in an armlock, and demanded to know of him how order might triumph over chaos. 'Give me your left eye,' said the king of the trolls, "And I'll tell you." Without hesitation Woden gave up his left eye. "Now tell me."

The troll said, "The secret is, Watch with both eyes!"'

[Guest Dazel]

Thanks Blue. Great job...

 

We are hoping that the price stays here for a little bit...I know lot of people do not really want that but it is in our best interest...buy back...and accumulation.

 

We have done very well investing else where over the last couple of years and we would like to roll those profits culminating in the next 6 months to a year into Altius...we think things are about to get exciting.

 

We see something similar to Franco Nevada's first 20 years where they compounded returns at 40% in the biggest bear market gold has ever seen. There are a lot of similarities between Seymour schulich and Brian Dalton...we think when they write his biography it will look a lot like Seymour's.

 

 

http://en.wikipedia.org/wiki/Seymour_Schulich

 

http://en.wikipedia.org/wiki/Franco-Nevada

 

 

[Liberty]

Dazel, you've been buying ALS pretty constantly for at least 3 years, it seems from your posts.

 

The market cap's not that big. You must own more shares than Brian Dalton. How is it that you don't have a seat on the board yet ;)

[Guest Dazel]

 

Liberty,

 

Yes we have been accumulating for 3 years... float is tiny so difficult to accumulate for anyone especially when you do not want to interfere with the buyback.

 

The Other is a private matter...I have learned my lesson with the technology today and privacy. I will add like Buffett has said...we think we picked the smartest guy in the room with Dalton and he is backed by a good team, great assets, cash and liquidity...we love what the business will become. Using Buffett again....Right now like The Great one Wayne Gretzky we are where the puck is going to be....it is not here yet but it's coming. When the market figures it out you just will not be able to buy the shares there are not enough.

 

 

Dazel

[Blue Macaw]

Also hoping share price stays low for some time. My other company has finally started to move and I am hoping to cash in on that and transfer the money to Altius.

 

The environmental decision will be in January the earliest I think regarding kami.

 

Concerning Julienne lake I hope news will be delayed longer that H2.

[no_free_lunch]

Blue Macaw,

 

Assuming Altius hits $1 / share earnings from royalties, you assume they would get a 20 PE and trade, based just on the royalties, at $20.  Do you have any comps that that is based on?  It just seems high to me, given that the royalty has a fixed life.  I would think it would be more in the 10-15 range, e.g. where the stock is now.  I don't claim to be a mining expert, so just take this as my attempting to gain some knowledge as opposed to me trying to argue with you.

 

Thanks

[Blue Macaw]

No_free

 

Yes you are right, it is a little high. I personally would probably not enter at that time depending on two factors. Can kami production be increased to 16 million tons and what extra does Eleonore have? So I think it is not impossible that we will actually see p/e of 20 for some time due to the fact that Kami might have a phase 2 coming up. (or just proposed)

 

Labrador iron ore royalty company has a p/e of approx. 17 based on 2012 numbers.

[TwoCitiesCapital]

What are the risks to the Kami mine at this point? I was under the impression that the financing from Hebei and the environmental stuff were the last two hurdles before construction could start by year end.

 

I have done all my analysis with a 30 year mine life, 8M in production, and iron at $100 and still received very attractive valuations based on Kami alone. How likely is it that they will double production to 16M like we are hoping for and how soon could the ramp up be completed?

 

If Julienne Lakes received approval, how long does it take to move through the process of getting a cash flowing mine together from start to finish?

 

Thanks for any responses,

[hohi]

If Kami goes into production I think it is probable that they will ramp up production to 16mtpa and later maybe even to 20+mtpa as the unit cost per mt of iron will go down and the mine would be more economic.

 

Julienne Lake could go into production well before 2020 in my opinion. The government wants it to be producing, that's why they put it out there for auction. If you assume that ALS/JV will build the 21mpta this project alone could be worth north of $500M (the royalty alone) to ALS.

I am optimistic that we have a good shot at getting the deal. ALS is well connected and respected in the government and has a great track record of honest investment in the province.

 

I think the probability of Kami going into production is maybe 80%. ALS getting the Julienne Lake property maybe 50%.

[TwoCitiesCapital]

If Kami goes into production I think it is probable that they will ramp up production to 16mtpa and later maybe even to 20+mtpa as the unit cost per mt of iron will go down and the mine would be more economic.

 

Julienne Lake could go into production well before 2020 in my opinion. The government wants it to be producing, that's why they put it out there for auction. If you assume that ALS/JV will build the 21mpta this project alone could be worth north of $500M (the royalty alone) to ALS.

I am optimistic that we have a good shot at getting the deal. ALS is well connected and respected in the government and has a great track record of honest investment in the province.

 

I think the probability of Kami going into production is maybe 80%. ALS getting the Julienne Lake property maybe 50%.

 

Thanks for your response on Julienne Lakes. Can you go into more detail on why you think they'll double production?  What you said above makes sense, but then why doesn't every mind do this? Do Altius or the guys at Alderon have a history of increasing initial production estimates? 

 

You gave Kami an 80% chance of going into production?  What's the risk that accounts for your 20% uncertainty?  I thought that all major hurdles had been crossed and it was simply a matter of funding.  With the backing of Hebei and Altius and a proven reserve,  why wouldn't there be money out there for them?

[Guest Dazel]

 

Zackmansell,

 

They are waiting on the final federal permitting for Kami. It has been approved at the Provincial level. It is likely that they will announce an off take agreement the same day or shortly after the approval....as this is always the major hurdle in the development of mine. From there they look at raising more money as they start building the mine.

 

The Environmental permit is for 16 mta at Kami so they will not need to go through the process again to reach the 16mta  production level.

 

We would expect both Alderon and Altius to be very quiet until this happens.....as there are likely a

great deal of negotiations going on for the off take and other financings going on behind closed doors.

 

[ItsAValueTrap]

Well Alderon hasn't exactly been quiet.  You can read all of their press releases on their website.

[Guest Dazel]

http://www.mining.com/iron-ore-price-lifted-by-strong-chinese-steel-growth-84632/

 

 

[hohi]

 

Thanks for your response on Julienne Lakes. Can you go into more detail on why you think they'll double production?  What you said above makes sense, but then why doesn't every mind do this? Do Altius or the guys at Alderon have a history of increasing initial production estimates? 

 

You gave Kami an 80% chance of going into production?  What's the risk that accounts for your 20% uncertainty?  I thought that all major hurdles had been crossed and it was simply a matter of funding.  With the backing of Hebei and Altius and a proven reserve,  why wouldn't there be money out there for them?

 

Well I am optimistic they'll double production because a) they already permitted most of the mine for 16mpta b) the resource would make it possible to mine at 16 mtpa and c) it makes the mine more economic

 

20% uncertainty is just my guess. As you point out, there is still a risk of funding. Thats an uncertainty right there. Then there are a few things missing in the permitting process. Then there is some black swan event that could happen. Who knows. Nothing is 100% certain.