ALS.TO - Altius Minerals

[Liberty]

Someone on another board said that they spoke to ALS management. I can't verify any of this, but this is what they wrote:

 

a few things:

*Loan terms are VERY favourable. 7% interest and no warrants if converted.

*If first right of refusal would be exercised on Genesee El. Coal Royalty purchase price would be signifiacntly lower. Although Genesee is a great asset/royalty, if the can`t buy it the deal remains very favourable, because then the revenue distribution by underlying commodity is better. Either way: cheap deal!

*Will increase promotion to attract new investors, more analyst coverage expected soon

*underlying assets compare very favourable to its peers in terms of operating cash costs

 

To me:

Altius now is the perfect retirement stock. And i will continue to purchase stock on a regular basis.

Such high quality Revenue over decades, with such a great management is a very rare thing and its just the beginning.

I see Altius beeing THE "Franco Nevada" in the Non-Precoius Metal Royalty Sector a few years down the road.

With cash flow upon closing they will be able to pay back dabt rapidly, even more rapid once Kami iron ore starts paying.

 

Next i would love to see them buy a Copper Royalty for even better diversification.

[jouni1]

i'm really starting to like this. seems like they have found out a way for investors to benefit from mining.

 

have just had a quick look and the only problem for me is how to value this. i guess i'll spend new year reading through this thread.

 

because of the way they operate, i'm thinking they will make huge margins on the $30 million revenue they are projecting. revenues will run for generations and management has said they plan to maximize per share dividends by buybacks etc.

 

how much costs are you projecting? the last 6 months they lost 0.07 per share. i know this is crude but (1.00-0.14)/12(share price)=7,1667%, which is ok but i think i'm missing something because you guys are so excited over this.

 

thanks in advance if someone goes through the trouble of correcting me. never looked at anything even close to this.

[Guest Dazel]

http://agoracom.com/ir/Altius/forums/discussion/topics/318576-reports-third-quarter-net-earnings-of-31-6-million

 

http://www.mineweb.com/mineweb/content/en/mineweb-company-releases?oid=122907&sn=Detail&pid=102055

 

For those that are looking at the past couple of quarters to get an idea on expenses and earnings I posted some past earnings articles....For some fun examples of what Altius has done in the past...

...earnings have been lumpy over time....this will change with the a new royalty deal and Kami coming on stream...you will see from the first earnings release that they were announcing drilling from Kami..the project pipeline continues..so the equity they have built over time will not stop but cashflow and predictablility of cashflow will increase from 0 or negative to approx $40m (Voisey Bay,PMRL royalties,Kami)  a year from royalties for the next 30 years... And then you have the upside of new projects coming on stream plus the past equity positions Ie Alderon, Julienne Lake etc...

 

That is why we are so excited.

[rpadebet]

Nice idea. Good business with a smart management.

 

However I have few non business related questions

 

1. Why is it undervalued?

2. Why is Mr. Market giving us this great deal now?

3. If we are buying, who is selling the shares? (or what would be their motivation?)

 

 

[Guest Dazel]

1. Unknown-under appreciated investors think they are miners.

 

2. Market has not priced in latest moves and no one is doing the work to find the value. It does not hit stock screens Because the trailing numbers look bad. Sector has been hit very hard..this is how they have been able to buy the latest royalty portfolio...

 

3. Very few sellers....low volumes...insiders own most of the company...buyers are Altius themselves as they have have bought back 13% of the float in the last 5 years( management knows the value), new buyers will be institutional once cashflow turns as we have discussed...royalty mutuals etc will have to take a position...they will likely receive brokerage coverage from Scotia once the debt deal is done  as per usual retail will buy after the stock runs...momo investors will then jump on...

 

[rpadebet]

1. Unknown-under appreciated investors think they are miners.

 

2. Market has not priced in latest moves and no one is doing the work to find the value. It does not hit stock screens Because the trailing numbers look bad. Sector has been hit very hard..this is how they have been able to buy the latest royalty portfolio...

 

3. Very few sellers....low volumes...insiders own most of the company...buyers are Altius themselves as they have have bought back 13% of the float in the last 5 years( management knows the value), new buyers will be institutional once cashflow turns as we have discussed...royalty mutuals etc will have to take a position...they will likely receive brokerage coverage from Scotia once the debt deal is done  as per usual retail will buy after the stock runs...momo investors will then jump on...

 

Thank you for your comments Dazel,

 

I agree this doesn't screen well and given the name and depressed sector, it is possibly misunderstood/out of favor at the moment.

 

Regarding the sellers, I have a hard time wrapping my head around why someone who has previously held this is willing to sell now. Though this is not a deal breaker, it would allow greater conviction if we know that there might be some irrational seller like an ETF/Quant fund. Volume maybe low, but every share we buy aren't we buying from someone who is selling. What do we know more than they do? Or do they know something which we might be missing?

 

I looked into the ownership structure for some clues, but couldn't find much there. Institutions own 16% of the float (one hedge fund accounts for bulk of it), insiders own another 8% or so and increasing which is good. Rest of the ownership I have no idea.

 

I am not too worried about who will buy from us or when/how value is realized because I would like to hold onto and accumulate this thing for sometime. It is a nice asset lite, predictable cash flow business model in a asset heavy sector which I don't have much exposure to anyway.

 

[original mungerville]

Dazel or others,

 

Is Kami going to be a high or low cost producer? Where would you place them in terms of quartiles as a producer?

 

I mean if they are high cost, and iron ore prices drop over next 3 years, the mine could be shut for some time which would affect the royalty stream to Altius.

 

If they are low cost, those risks are much lower and Altius' stream of royalties from Kami is much more secure.

 

The thought process here is that the only ways for Altius not to get payed is 1) either the Kami mine is not built, or 2) it becomes a high cost producer and iron ore prices fall such that it gets built but gets shut down.

 

For 1), I am guessing there is a 70% or so chance of the mine getting built which is made up of the probability of a successful EA (at 90-95%) multiplied by the probability of Alderon getting more financing post successful EA (at 80%). Am I missing something else here? Probability of surrounding infrastructure?...or does that seem like pretty high odds at this point?

 

For 2), I would like to assign a probability of 0% chance or some low probability like 20% of the thing being shut down due to its costs of production being higher than some weak future iron ore price. So are they likely to be a first? or second quartile? (ie low cost producer?) or average or higher cost producer?

 

When you start working all this out - all of these probabilities need to be multiplied together - I am around 70% for 1) at best and 80% for 2) at best - so that's around 50% at best at this point or is that too pessimistic and why? I mean even if we take 50% of the Kami future value, there is still value in Altius because the downside is pretty minimal given their capital allocation skills and management.

 

I think a valuation framework along these lines makes sense. (Aside: This string of probabilities multiplied out is why so many entrepreneurial endeavours fail and why Buffet keeps talking about moats to protect the business)

 

 

 

 

 

 

[Libs]

<insiders own most of the company...buyers are Altius themselves as they have have bought back 13% of the float in the last 5 years<

 

But share count is only down ~7% since then, from ~30MM to ~28MM. I think that's worth noting.

 

This is an epic thread for sure. I have long looked at Franco Nevada but it was always so expensive. This looks better - smaller, cheaper, more diversified.

 

Out of sheer conservatism I will probably largely miss out on this ( although I just bought a little). My hang-up revolves around Alderon. Knowing nothing about mining, I need a huge margin of safety, and with all the risks of getting the mine going, and the risks of ore prices plunging and making it uneconomical by YE 2015 ( I have no idea - I could see $50 - $200 ore, frankly, that's why I loathe resource stocks), it would be great to buy Altius and get Alderon for free. I know, that sounds crazy. But how often do these projections of mine production really pan out? Blame Value Trap for my cynicism, by the way  :P

 

Take out Alderon and that's an IV of maybe $7; although at that price you get all the other kickers for free.

 

So I would guess there's a decent chance it all goes to *^^% and Altius is only worth $7.

 

Something like this range of outcomes by 2016:

 

20% chance of $7 = $1.40

60% chance of $15 = $9 EV

20% chance of  $30 = $6 EV

 

EV = $16.40

 

That's still not bad. Not very scientific, but false precision is always the enemy.

 

In summary of this sloppily written post, I think this is a good spec play at $12 but the MOS may not be as large as some think around here.

 

If someone has a compelling, top down argument about why I'm too pessimistic about Alderon - something along the lines of, "X% of mines of this profile and at this stage of development and financing pan out," I'm all ears.  If that's even possible.

 

Much thanks for all who've put so much work in to this thread...

 

 

 

 

 

 

 

[hohi]

Kami probably won't be a low-cost producer (like the FS suggests) but that being said I don't think it'll be uneconomic either. Once the mine is built it isn't going to shut down for a while, even if they are producing at a loss. That's because it is much more expensive to shut a mine down and ramp it up some years down the road. So every producer tries to muddle along as long as possible. Also with the chinese backing it is very imaginable that a shut down is even less probable. The chinese want to secure supply for their steel production and for them the strategic value of a non-australian, non-senior producer is higher than an uneconomic own mine in the first few years. But as far as I am concerned I think Kami will be a success for Alderon, Altius and Hebei.

 

Someone asked about the major shareholders. Last time I checked it was something like this for ALS:

 

15% Rick Rule / Sprott

10% Insiders

10% Mason Hill / Equinox

10% Paul Van Eeden (Manager of ALS JV Cranberry Capital)

5% John Tognetti

5% Adrian Day

 

Put the new royalties in my model and got a worst case (Kami isn't built and no JV properties get developed) price target of ~ $10 and a best case (Kami gets built, we get Julienne Lake, CMB gets developed and Kami/Potash/Genesee ramp-up) price target of ~ $ 63.

[Williams406]

Libs and OM,

 

The mining space is an investor graveyard and your conservatism and caution toward that industry should serve you well. One thing you may be thinking about but I'm not sure from your recent posts is that Altius has two assets related to Kami--the royalty and the Alderon equity (a bit under 33 million shares working off the top of my head). I don't have any insight into how Altius will handle the equity stake though others have shared their opinions. My reason for bringing it up is that we could see a scenario that has Alderon getting environmental clearance, a power agreement, and financing squared away 1Q 2014 at which time Altius elects to sell its equity stake. No idea how this market would treat Alderon stock with those things checked off.

 

That's one way Altius benefits in the short run from Alderon even if iron ore collapses and/or Kami's cost structure renders the future royalty stream value-less. Altius doesn't necessarily have to wait until it gets the first check from the Kami royalty to begin extracting value from the project. Something to keep in mind for the "Alderon goes to *^^%" scenarios. 

 

Iron ore pricing has been and remains a huge factor for Altius with Alderon and Julienne Lake, but the royalty deal helps a lot.

 

406 

[original mungerville]

In my view Alderon stock is highly speculative. It would be nice to see Altius get rid of it ASAP once there is a string of good news flow. They are already levered to Kami via the royalties to a great degree. Unless there is a control/voting reason, there is no need to keep Alderon stock.

 

So I agree, sell and get rid of it ASAP. The royalty in Kami makes sense to me. If we wanted to own stock in miners rather than royalties we could buy them ourselves. So its not Altius' biz model to hold onto to the stock in Alderon for that long.

[tengen]

Regarding the probability of getting environmental approval, I think it's more like 99.9%. Labrador is "mine friendly" and the proposed Kami mine is in an area where several other mines already operate. I took a quick a look at the list of environmental assessments on the NFLD provincial government web site and could not find any rejections (due to the size of the list, I only looked at applications with "mine" or "iron" in the title).

 

[ItsAValueTrap]

Blame Value Trap for my cynicism, by the way  :P

 

Thanks :D

 

In my view Alderon stock is highly speculative. It would be nice to see Altius get rid of it ASAP once there is a string of good news flow. They are already levered to Kami via the royalties to a great degree. Unless there is a control/voting reason, there is no need to keep Alderon stock.

They don't want to sell all of their stock if it hurts Kami's chances of getting financed.  Plus it's not a good idea for them to hurt their partners because Altius will want future partners in its prospect generation business.

 

Once the mine is financed, Altius will likely sell their shares like they have done in the past.

[Otsog]

Blame Value Trap for my cynicism, by the way  :P

 

I could have saved a nice chunk of money if I had listened to him on SND, looking back on that thread his analysis + conservatism was impressively sound, definitely exposed where I am lacking in analysis.  I think I'm off the resources sector as well, my competence is lacking and there are just too many stories.  Although when CoBaF and ItsAValueTrap actually align on a resource company it is hard to not piggyback a bit.  ;)

 

Thanks to Dazel et al. for your work.

[original mungerville]

Tengen,

 

I agree with you that the EA seems like its in the bag (I was at 90%). That is not my concern. What I am getting at is the discussion should revolve around the discreet events required to make Kami successful and then assign some probability to each while recognizing these things need to be multiplied through.

 

 

[original mungerville]

Blame Value Trap for my cynicism, by the way  :P

 

Thanks :D

 

In my view Alderon stock is highly speculative. It would be nice to see Altius get rid of it ASAP once there is a string of good news flow. They are already levered to Kami via the royalties to a great degree. Unless there is a control/voting reason, there is no need to keep Alderon stock.

They don't want to sell all of their stock if it hurts Kami's chances of getting financed.  Plus it's not a good idea for them to hurt their partners because Altius will want future partners in its prospect generation business.

 

Once the mine is financed, Altius will likely sell their shares like they have done in the past.

 

This makes sense as a reason to hold it a bit longer...my point is just based on pure economics related to this deal, get rid of it ASAP. But your point is well taken.

[tengen]

What I am getting at is the discussion should revolve around the discreet events required to make Kami successful and then assign some probability to each while recognizing these things need to be multiplied through.

 

I don't disagree. However the difference between "90-95" and "99.9" is not insignificant to the end result of your math.

 

Sorry for the double negatives!

[original mungerville]

I just don't like assuming 99.9% which is virtual certainty. But I have a very high conviction as do you on this element. So 99.9% is probably closer to the real probability relative to my 90%. I should be at 95% or higher for sure - maybe as high as 98%. So we could just round that off to 100% which is your point because whether its 98 or 100 won't make a big difference to the final calculation.

 

Ok, so where are we on the probabilities for the financing, operating delays, and surrounding infrastructure?

 

 

[Guest Dazel]

Original Mungerville,

 

I expect Kami to have similar economics to IOC's Carol Lake...middle of the pack economics but very valuable to the end users like Hebei.

I would put a probability of above 50% that Alderon gets taken out by a Major player but more likely a consortium of players like Carol Lake's structure. Iron Ore Company is owned Rio Tinto, Mitsubishi and Labrador iron ore royalty company. In Alderon's case you would have Hebei and likely two or three other partners that need iron ore. This is what we would like to see happen....

This would make Altius' royalty worth a great deal more because a strategic player would produce the iron for themselves and would push for higher quantities...ie 16mta...they do not have to worry as much about margins as they are taking the iron ore for themselves.

 

So your probability on the permitting process and hydro deal...are very very...important. We see

them as 100%...and soon.

 

Alderon immediately becomes in play after this in my opinion...Altius is the majority owner and they have a great relationship with Liberty....so they could in fact negotiate the sale of Alderon. Substituting upside in the stock price of Alderon (obviously a sale price will be much higher than

where we are today)for stability in the royalty...every thing will be on the table soon as financing options, off take agreements and potential equity buying are going to be negotiated. Altius will not do anything of this sort until the permitting and final power deal is done....They will also not leave money on the table as they are big believers in Kami hitting 16mta.

 

January should be a lot fun.

 

 

[Guest Dazel]

 

 

Libs,

 

Your share count is off they were at 31.25m at Jan31,2008... There are 27.7m outstanding now..the jump In shares above 30m was from a 1.9m share offering at $28 a share in late 2007.

 

Hohi...thanks for clarifying the insider ownership...very closely held...in 2007 the stock jumped from around $10 to around $30 in a short time because there is very little float.

 

 

[hohi]

As usual I agree with Dazels observations, although I wouldn't put a 100% probability on anything. ;)

 

I believe most people don't really appreciate the partnership of Hebei and the support of Liberty/Altius with Alderon. Hebei is primarily NOT just investing for capital gains but they are looking for a strategic iron ore supply outside Australia and not controlled by BHP/Vale/etc. They need the iron more than they need the capital gains of Alderon equity. That's why Kami will be a success, not because it might or might not be very profitable.

 

Although it might seem weird, but I really hate the recent uptick in ALS share price. I would have liked to add substantially at those depressed levels but now it seems ALS isn't looking back ;).

 

2014 will be a spectacular year and many people will be suprised at how fast and how high this gem can rise. Once the royalty deal is done and Kami fully permitted/financed (+ maybe JL) people will eventually realize the value of this business.

[Guest Dazel]

Agreed Hohi,

 

I have mentioned on this board the joy of watching the share count drop daily at depressed prices...it seems highly unlikely that we will get that opportunity again. In hindsight those that have been around as long term investors in Altius as we are...have seen management do just wonderful things in  very troubling times for the industry. They have worked incredibly hard securing a future royalty pipeline, improved the capital structure, created trust and partnerships that will benefit all involved. Perhaps most importantly the patience to wait through the cycle for the right royalty purchase at the right time. The market will start to appreciate the most undervalued asset at Altius...it's people.

 

We are not commodity investors so as our only holding in the sector we have harvested large gains elsewhere Bank of America, GGP, AIG etc...we have dry powder and we just don't see anything else in the market place with as little downside risk with as much upside potential. Where can you find a business that is going to create cash flow like this royalty business at these valuations? Tell me and we will look..for now Altius is the best game in town... When Kami is secured it will no longer be

cheap so careful what you wish for those that are accumulating.

 

 

[hohi]

The core belief of Dalton I am most excited about:

 

"Capital structure management is the key to longevity and success in the junior mineral space."

[Guest Dazel]

http://canadianinsider.com/node/7?ticker=ALS

 

47,000 more shares bought back at $10.46... May have been there last chance to repurchase that low.

[cwericb]

Not long ago I debated buying more ALS but bought ADV instead thinking that if I held onto it a few months I could perhaps sell ADV at a profit and roll the proceeds into ALS. This is typical of my timing. This may work out yet but I bought just one or two days before ALS made their announcement.  #&%$”?*!!

 

I sometimes think that when I buy something it’s the kiss of death. At least ADV hasn’t dropped.

 

I am just wondering if anyone else is in the same boat and have you bailed from ADV and gone into ALS or are you going to stay with ADV?