ALS.TO - Altius Minerals

[phil_Buffett]

 

 

I would add this...the market prices risk...even though we were confident that muskrat falls would be built and the power would be there...the market

was skeptical as it should be (international money want to see 3 things, power, ports and rail...when the link is built it is the last piece of the package. Labrador

west needs cheap power and now they will get it with the link. We will see much more interest when the begins to be built...which everyone agrees will happen.

 

Julienne lake cannot go ahead without it...and it is the province that is selling it...so all of these properties should go up in value exponentially when the power issue

is fully derisked.

 

 

Phil,

 

Not an issue at all...we have been following Nalcor, Dunderdale, and more importantly Muskrat Falls. "all" of the government and Nalcor's attention was on Muskrat falls $7.7 billion

development. The deal for the federal loan guarantee was only signed on December 11th. While this was expected after Emera and Nova Scotia agreed to link (happened in November) that solidified the federal loan deal. Muskrat is huge deal...for the province and for Labrador west.

 

Nalcor in our opinion had to wait for this deal to close before building the link from Churchill falls. The link costs $300 million to build and they could not start it until they were assured they would have power from Muskrat falls...makes sense right. Alderon deos not need power from Muskrat falls "yet"...the power link will have enough power from Churchill falls for 8 million tonnes a year from Alderon...they will need it for the next expansion.

 

To be clear Bloom lake, Carol lake, Alderon, and Julienne lake cannot do anything without this link. It is not just about Alderon as Dunderdale alluded to. It will be built quickly now that Muskrat falls has been financed.

 

It is a win win for Newfoundland and the companies mentioned....including Altius of course. They have a lot more power coming on stream and these companies will be paying for it.

 

We would rather Altius and Brian Dalton were dealing with everyone involved but that is not practical of course...not mentioning names but we think a couple of idiot comments were made by someone at Alderon that confused people. All will be very clear in January...

 

and those that picked shares up on the roller coaster ride will do very well.

 

 

 

thank you very much dazel for your answers. great!  :)

 

iam very confinced that 2014 and the following years will be great for alderon and altius  :)

[nostradamus]

http://www.scmp.com/business/commodities/article/1388556/hebei-iron-may-face-closer-watch

 

Any views on likely impact? Does it make a sale of Alderon more likely?

[kirkomi]

Hello Dazel,

 

This is about Alderon, not Altius per say.

 

The FS assumes a selling price of approximately $100M/mt. Unless my back-of-the-envelop calculation is somehow severely lacking, the upside for Alderon is not more than 2.2x at these prices.

 

Here is my thinking. For a mining company, converting 10% of the revenue to FCF might be too fancy, but let us suppose that they can achieve it. The mine then produces ~$70M of FCF for 30 years. Assuming a hurdle rate of 12%, this produces a value of $570M for the company, when the mine starts producing. The mine will produce in two years and the present value of that cash at 12% discount rate is $441M.

 

In my opinion, this valuation is still too optimistic for the company. But I would have probably bought at $0.9. Unfortunately, it was not on my radar.

 

Given this scenario, why buy Alderon when you can buy Altius ? I am trying to handicap this investment but even if the Kami project fails, Altius is still worth the current market cap. I don't see *any* downside at these prices for Altius.

 

-Krish

 

[Guest Dazel]

Nostradamus,

 

Hebei stock was down a penny last night and the chairman was replaced on December 9. Hebei raised $150 million on December 11..If. anything I would think it strengthens Hebei's appetite to make Kami work as a good allocation of capital...

Some of these headlines...from The china post are amusing...a lawyer who was "unnamed source"... Sounds a little fishy. Might explain what looked like a short attack on Alderon last week.

 

http://www.4-traders.com/HEBEI-IRON-AND-STEEL-CO-L-6496784/news/Hebei-Iron-And-Steel-Co-Ltd--Hebei-Iron--Steel-Sold-USD-Loan-Backed-Bonds-17602420/

 

[Guest Dazel]

 

 

Krish,

 

I agree...Altius looks very very good in the scenario that is playing out. Alderon is going to get large interest in the coming weeks...month as they will get approval from environmental and a power deal and likely to sign another off take deal at the same time....these will clearly make the company more valuable. Tax loss selling has a couple of days left and we should see both companies do well.

Altius has many more balls in the air but Kami is huge.

 

Dazel.

 

 

[Guest Dazel]

 

http://en.wikipedia.org/wiki/China_Export_%26_Credit_Insurance_Corporation

 

The article from the South China Post...mentions that Hebei might have to fire sale assets and "may" have trouble getting financing... Look at the China Export and credit Insurance corporation that just guaranteed their latest bond issue...

China has $3 trillion in reserves...now there is one thing to start a rumor about bribery...Hebei denies it...they say there is "no" evidence to support the rumor. They also had the two men that are retiring say speeches and praised them for their valuable service...

but a funding problem internationally....that is just crazy talk. They have the biggest backing of anyone in the history of the world.

 

Would China rather fund investments like Kami or buy us treasuries? I think  real assets are on China's agenda.... they know what they are doing.

 

[nostradamus]

Big deal!!!

 

http://web.tmxmoney.com/article.php?newsid=64764715&qm_symbol=ALS

 

[Guest Dazel]

 

This is a game changer.

 

Happy holidays to all.

 

Dazel

[Guest Dazel]

http://www.altiusminerals.com/uploads/PR1311-PMRL-CDP-FINAL-Dec24.pdf

 

 

[jjsto]

Dalton letter to shareholders

 

http://www.altiusminerals.com/uploads/Altius-Letter-to-Shareholders-Dec24.pdf

[Ross812]

The pump begins.

 

Here is their first article on the Motley Fool:

 

http://www.fool.com/quote/nasdaqoth/altius-minerals-corp/atusf

[nostradamus]

So, does anyone have any estimates of pro forma profit after tax?

 

The presentations are very informative, particularly

 

http://www.altiusminerals.com/uploads/Altius-Investor-Presentation.pdf

 

However, while they give pro forma royalty revenue per share at $1, it is difficult to work out the impact of tax. Plus they say nothing about the financing cost, unless I am missing something. How can we work out the value of the deal if the do not give the financing costs?

[finetrader]

So, does anyone have any estimates of pro forma profit after tax?

 

Take out 20-30% out of the pre tax number they gave.

[jjsto]

Plus they say nothing about the financing cost, unless I am missing something. How can we work out the value of the deal if the do not give the financing costs?

 

Yeah, would be nice to see the terms of financing, particularly the $50m subordinate "convertible debentures," if I am reading that right....

[Guest Dazel]

 

 

 

I have been through the numbers. Very pleased. We expected a return as we alluded to on the cash that has been sitting around we did not expect a home run.

 

Thanks to Brian Dalton and his team for all their hard work...they have exceeded our expectations with this deal.

 

Forgive me if I take a day or two off.

 

Cheers To a very good 2014....and thank you all for your contribution to this thread.

 

Dazel.

[finetrader]

Let say the blend interest rate on those two loans is 5.5%.

 

That is 7.15M$ annual interest payment.

 

so 25-7.15= 17.85M$ minus .25% for taxes --- this give you 13.38M$ annual cash flow.

 

What PE would you apply to these assets. I'm willing to pay max of 15X. So this give an IV of  200M$. Not bad for 124M$ cash outlay.

 

Also take out the interest they were getting paid for this cash at the bank (1%maybe?).

 

I can see that there has been value creation with this deal for Altius. Maybe 1-3$/share in value creation.

[Liberty]

Looks like good news. I'm still digesting it all.

 

What I want to understand better is the exploration potential of this new area and how new royalties could be created there, or existing ones could be expanded. Knowing how these guys operate, I'm pretty sure that there's more than meets the eye.

[beerbaron]

From Dalton's letter:

 

Altius has maintained an excellent capital structure throughout its history and this has been bolstered over the past five years by share buybacks totaling ~13.6%. We can now also begin to consider other means of returning capital to our shareholders. Our first task however is to properly analyze the various options available to us to reduce and eliminate the debt incurred in relation to this important acquisition.

 

I like this guy. already looking to get rid of debt.

 

BeerBaron

[original mungerville]

What's not to like. This is one you buy and put away for 20 years. Give your portfolio some exposure to commodities via royalties, and just leave it there.

 

Royalties (ie low risk exposure to commodities mining) plus a good capital allocator and a decent price. 

 

Hats off to Dazel to bringing this to the board.

[original mungerville]

I also like the diversification across commodities that this deal adds to Altius' portfolio.

 

 

[alertmeipp]

I also like the diversification across commodities that this deal adds to Altius' portfolio.

 

yeah, coal and potash, talk about buying on distressed.

[tengen]

Here's a little video blurb on the acquisition from Canada's Business News Network. What I find interesting is not what the talking heads say but their befuddlement concerning the royalties and why they are apparently worth so much money.

 

http://www.bnn.ca/News/2013/12/24/Sherritt-to-sell-coal-business-for-946M.aspx

 

PS: Merry Christmas to everyone!

[TwoCitiesCapital]

Let say the blend interest rate on those two loans is 5.5%.

 

That is 7.15M$ annual interest payment.

 

so 25-7.15= 17.85M$ minus .25% for taxes --- this give you 13.38M$ annual cash flow.

 

What PE would you apply to these assets. I'm willing to pay max of 15X. So this give an IV of  200M$. Not bad for 124M$ cash outlay.

 

Also take out the interest they were getting paid for this cash at the bank (1%maybe?).

 

I can see that there has been value creation with this deal for Altius. Maybe 1-3$/share in value creation.

 

Multiples don't work well for assets like these for any purpose other than determining a comparable earnings yield. Use discounted cash flows over the estimated mines life. It's the most accurate. Multiples can be terribly misleading if cash flows aren't expected to extend into perpetuity.

[muscleman]

Sorry I am new in this thread. I looked at its financials and it lost money in 7 of the past 8 quarters. How does this company work out? Would you expect it to make money soon?

[Guest Dazel]

Zachmansell,

 

Agree with your cash-flow analysis.. Not sure 12%discount number I would use 6, 8, 10 with rates where they are.

 

However, the 15x will be low for Altius as a whole because of the perpetuity of the company, the asset base, excellent project pipeline, and the management skill and opportunity of the future earnings are going to get priced in now.

 

Leucadia always got a 20 plus PE except after large asset sales...Altius 17 year record is better than Leucadia's. We expect the Altius stock price to return to the mean after their latest moves as the management deserves a market premium and we have been buying it at a discount to 0 for years. All royalty companies trade at very high multiples regardless of management. With Altius we get great economics of the royalty business but more importantly the market will price their capital allocation skills which are the best of the worlds royalty companies.

Our excitement is 3 fold, this deal, Kami gets going, their premium price and reputation in the market will allow them to become the consolidator of the fair priced royalties of the world. Quite frankly we "expect" Leucadia like returns a young Mr.Buffett or Ian Cummings would be buying Altius in their day. Leucadia in the last 10 years got these multiples where Cummings and Steinberg were 60 plus...Brian Dalton and his team are young they have 30 years of growth of Altius...while they do not yet have the legendary allocation of those mentioned above...I would argue Dalton's asset base is better. There is no business like the royalty business.

 

Dazel.