ALS.TO - Altius Minerals

[giofranchi]

I’ve just bought more: my investment in Altius today is another 35% bigger. :)

 

Gio

 

[ap1234]

Thanks for the info Dazel. That is very helpful! I have a few follow-up questions:

 

1. The historical track record (you mentioned 29% CAGR) is very impressive. Very few companies have that kind of record. But just to follow up on that, I’m curious to know whether anyone has done any attribution of the historical returns. If you EXCLUDE their Aurora investment, what is their historical track record? Similar to how Fairfax excludes their one-time CDS gains from their historical Hamblin Watsa results.

 

The reason I am asking this is that I read that the Aurora investment turned a $650,000 original investment into $200+ million. This is a 300 bagger! Today, Altius’ market cap is $380 million. This means that 1 investment accounted for over 50% of Altius’ current market cap. Presumably, this had a very large impact on the company’s historical track record (29% CAGR).

 

In my mind, Altius is an investment manager. They just happen to play in the minerals space. But they should be evaluated the same way as I would evaluate any external money manager. For example, let’s say I was thinking of hiring Hamblin Watsa as my money manager. They could show me a chart that says they delivered a 20% annualized return on their equity portfolio over the past 20 years while the S&P 500 delivered 8% annualized returns. If they then told me they have a couple of stocks that were 200-300 baggers I would be somewhat concerned. I know how rare it is find 200 baggers in the stock market. I would be much more comfortable knowing that their record was based upon numerous wins as opposed to a couple large winners that had a disproportionate impact on their historical returns.

 

To be clear, I do NOT think Fairfax’s record was simply based upon a couple home runs (they have had many fantastic investments over the past 30 years). I’m just using it as an illustrative example. I am asking the question above because I am not nearly as familiar with Altius as other people on the board. And I want to understand how to think about their prospects to compound capital in the future (i.e. if 29% is not the sustainable rate, is it 10% or 15%?).

 

2. In terms of Alderon, I have come across some discussions about the quality of the engineering firm (BBA) that Alderon has used for their feasibility study. They suggest that the engineering firm has a record of providing overly optimistic estimates (ex. Consolidated Thompson’s Bloom Lake). See the following write-up for an example.

 

http://glennchan.wordpress.com/2013/05/01/altius-minerals-als-to-great-business-trading-at-a-discount/

 

Given your understanding of the Kami project, what are your expectations for a realistic all-in cost/tonne, production, etc.?

 

Thank you again for generously sharing your thoughts on the company!

 

[value-is-what-you-get]

Thanks for the info Dazel. That is very helpful! I have a few follow-up questions:

 

1. The historical track record (you mentioned 29% CAGR) is very impressive. Very few companies have that kind of record. But just to follow up on that, I’m curious to know whether anyone has done any attribution of the historical returns. If you EXCLUDE their Aurora investment, what is their historical track record? Similar to how Fairfax excludes their one-time CDS gains from their historical Hamblin Watsa results.

 

The reason I am asking this is that I read that the Aurora investment turned a $650,000 original investment into $200+ million. This is a 300 bagger! Today, Altius’ market cap is $380 million. This means that 1 investment accounted for over 50% of Altius’ current market cap. Presumably, this had a very large impact on the company’s historical track record (29% CAGR).

 

In my mind, Altius is an investment manager. They just happen to play in the minerals space. But they should be evaluated the same way as I would evaluate any external money manager. For example, let’s say I was thinking of hiring Hamblin Watsa as my money manager. They could show me a chart that says they delivered a 20% annualized return on their equity portfolio over the past 20 years while the S&P 500 delivered 8% annualized returns. If they then told me they have a couple of stocks that were 200-300 baggers I would be somewhat concerned. I know how rare it is find 200 baggers in the stock market. I would be much more comfortable knowing that their record was based upon numerous wins as opposed to a couple large winners that had a disproportionate impact on their historical returns.

 

To be clear, I do NOT think Fairfax’s record was simply based upon a couple home runs (they have had many fantastic investments over the past 30 years). I’m just using it as an illustrative example. I am asking the question above because I am not nearly as familiar with Altius as other people on the board. And I want to understand how to think about their prospects to compound capital in the future (i.e. if 29% is not the sustainable rate, is it 10% or 15%?).

 

2. In terms of Alderon, I have come across some discussions about the quality of the engineering firm (BBA) that Alderon has used for their feasibility study. They suggest that the engineering firm has a record of providing overly optimistic estimates (ex. Consolidated Thompson’s Bloom Lake). See the following write-up for an example.

 

http://glennchan.wordpress.com/2013/05/01/altius-minerals-als-to-great-business-trading-at-a-discount/

 

Given your understanding of the Kami project, what are your expectations for a realistic all-in cost/tonne, production, etc.?

 

Thank you again for generously sharing your thoughts on the company!

 

I too would like to acknowledge Dazel's persistence and diligence on ALS. 

 

You have asked a very insightful question there ap1234.  I think by means of a partial answer I concur that your observation is accurate and that the majority of ALS success has come from the Aurora investment.  We don't know when or which of their current irons in the fire will become the next Aurora, but for myself, I am fairly confident that Altius management recognizes this as well.  That is why they just sat on cash for years rather than getting all full of themselves, throwing it away thinking they have the Midas touch.  That success, while largely responsible for market cap today, has not gone to their heads.  Honest and capable management.

[hohi]

It is a function of the cyclicality of the resource sector that Altius has managed to hit these home-runs. And this is also the genius of the business model: ALS buys up or claims promising strategic land positions when nobody else wants them. Then they do some early stage (relatively cheap) work on those properties and wait for the cycle to turn. Then they let others pay for the costly exploration. They have deep knowledge of the cyclicality of the sector and use it as their advantage. Its using volatility and not being used by it (as Rick Rule says). They invested in uranium when nobody wanted it. Then uranium came back and they sold their properties. They claimed huge iron ore formations in the Labrador Through when nobody wanted iron ore. Now, years later, they are harvesting their profits. They still have a few uranium properties, PGM etc... and will probably do the exact same thing again and again. But its not like 20% every year. Its more like 5 years nothing and then 150% at once. Thats the nature of the sector and you have to acknowledge that before you invest.

[FFHWatcher]

Certainly Dazel has done a ton of work here.  I appreciate that as do many others.  Everyone seems to be cheering and saying homerun (not Dazel but everyone else is) and that seems very premature.  It will take years and years to figure out if the royalty purchase (which hasn't even closed) was a good one and likely a similar time frame (unless Altius sells sooner at a higher price) than that to determine if Alderon and Kami were winners.  There are many, many risks and many, many things that have to happen over the next 3-5 years to make both these investments successful and I think Dazel will agree.  In the meantime, the share price is going to move around.  It sounds like Dazel is confident that if a few of the things that Altius is working on, especially the royalty deal, work out than Altius will be worth multiples of what it is today so a move from $11 to $14. is really insignificant as was the move from $12 to $9.

Basically, I just don't get the cheerleading, the sudden interest and the assumption of success that has yet to occur.  Seems like bad Karma to me (way too similar to Fortress Paper and how many were looking fwd to the EBITDA per share in 2015-2016, they were looking at rainfall in India and cotton crops, and a million things had to go right for that to occur).

[craigatk]

Value and Hohi just answered better than I could... Hohi mentions the cyclical nature of their uranium and iron-ore investments. Take a look at this quote lifted from their recent deal announcement.

 

Altius has agreed to acquire Sherritt's 50% interest in Carbon Development Partnership ("CDP"). CDP holds coal projects with more than 7.2 billion tonnes of measured and indicated resources and approximately 4.7 billion tonnes of inferred resources. It also holds approximately 2 billion tonnes of inferred potash resources in Saskatchewan, as well as a separate portfolio of production-stage royalties. The purchase price for CDP will be $21 million.

 

$21MM for that many billion tonnes of coal and potash resources? Is that all it costs? We all just need a little patience here. Let's check back in 10 years on what's happening with coal... my guess is the value is much higher.

[jwfm1985]

Certainly Dazel has done a ton of work here.  I appreciate that as do many others.  Everyone seems to be cheering and saying homerun (not Dazel but everyone else is) and that seems very premature.  It will take years and years to figure out if the royalty purchase (which hasn't even closed) was a good one and likely a similar time frame (unless Altius sells sooner at a higher price) than that to determine if Alderon and Kami were winners.  There are many, many risks and many, many things that have to happen over the next 3-5 years to make both these investments successful and I think Dazel will agree.  In the meantime, the share price is going to move around.  It sounds like Dazel is confident that if a few of the things that Altius is working on, especially the royalty deal, work out than Altius will be worth multiples of what it is today so a move from $11 to $14. is really insignificant as was the move from $12 to $9.

Basically, I just don't get the cheerleading, the sudden interest and the assumption of success that has yet to occur.  Seems like bad Karma to me (way too similar to Fortress Paper and how many were looking fwd to the EBITDA per share in 2015-2016, they were looking at rainfall in India and cotton crops, and a million things had to go right for that to occur).

 

 

It might be somewhat premature, but there is definitely something to "cheer" about. The company was sitting on a pile of cash and part of the appeal of the company was the hope that Dalton could pull the trigger on the right opportunity to deploy that cash. Granted the deal hasn't closed, but it would appear that this COULD be a game-changing transaction for the company. You are right, the deal isn't done yet - but there is definitely enough evidence and momentum to garner additional excitement in the company and a correlating increase in share price...

[jwfm1985]

Also, as a lurker on both threads (and now ALS owner), I'd say this is VERY different from Fortress...

[giofranchi]

Basically, I just don't get the cheerleading, the sudden interest and the assumption of success that has yet to occur.  Seems like bad Karma to me

 

FFHWatcher,

Be sure I am not a cheerleader… I am a quarterback!! ;D ;D ;D

Seriously, I like a royalty business, I like a shrewd and opportunistic businessman / investor at the helm of a royalty business, I like his track-record and I like the fact he is still very young. I like a share price that I think is very cheap. These are facts. I am not imagining anything… I have no dreaming visions of future greatness… If something has worked so well in the past, if I see no reason why that success should suddenly stop, and if I don’t have to pay much to jump on board, well then I definitely want to partner with smart people. Period. ;)

 

Gio

 

[hohi]

Certainly Dazel has done a ton of work here.  I appreciate that as do many others.  Everyone seems to be cheering and saying homerun (not Dazel but everyone else is) and that seems very premature.  It will take years and years to figure out if the royalty purchase (which hasn't even closed) was a good one and likely a similar time frame (unless Altius sells sooner at a higher price) than that to determine if Alderon and Kami were winners.  There are many, many risks and many, many things that have to happen over the next 3-5 years to make both these investments successful and I think Dazel will agree.  In the meantime, the share price is going to move around.  It sounds like Dazel is confident that if a few of the things that Altius is working on, especially the royalty deal, work out than Altius will be worth multiples of what it is today so a move from $11 to $14. is really insignificant as was the move from $12 to $9.

Basically, I just don't get the cheerleading, the sudden interest and the assumption of success that has yet to occur.  Seems like bad Karma to me (way too similar to Fortress Paper and how many were looking fwd to the EBITDA per share in 2015-2016, they were looking at rainfall in India and cotton crops, and a million things had to go right for that to occur).

 

I really appreciate you calming us down here. It's important to have balance and I am the first to admit that I am very excited about ALS and the next few years. That being said I think there is some objective reason to be positive:

 

1) as Kami is pushed toward a development decision the risk for ALS goes down - this means the value of the royalty and equity increases

2) there is a good possibility that ALS will get the Julienne Lake deal - this opportunity didn't exist before and it could be a game changer

3) ALS sat on a big pile of cash and just found a very promising way to allocate that capital - sure we'll have to see, but the quality of the assets (especially the potash ones) are out of question (at least for me)

4) we can expect a dividend in the near future - this was not in the cards a few years back

 

So although you may think there is nothing new, I think there is. But please keep it up, so we can all check the facts again and test our investment thesis.

[giofranchi]

ap1234,

as usual your questions are very interesting and well thought out and expressed. Thank you! As always, I will let someone else (Dazel, of course) answer them!! ;D ;D

Anyway, I would consider that we don’t need to compound at 29% to make ALS a worthwhile investment: because the price we are paying imo is very low. Think about all those projects that are on ALS’s balance sheet for almost nothing… and probably we are not paying much above true BV. Anything in between their historical compound rate and 15% is fine with me. To consider a compound rate of 15%, when historically they have achieved 29%, isn’t somehow like getting a 50% margin of safety? ;)

 

Gio

 

[Guest Dazel]

 

Ap1234,

 

I have responded to Glenn Chan's trading reports before and I won't again. Anyone that is actively trading a stock up and down as he has disclosed has a bias view..on the way up and and on the way down. No disrespect to Glenn Chan but I don't care what he has to say.

 

As far BBA and BloomLake they are not $10 billion off like Anglo Americans work at Minos Reas in Brazil...so call them out individually is stupid....can costs be higher at Kami than projected of course. If the Canadian dollar falls too much will they be dead on? Maybe...maybe not. The fact is even if they are higher  Kami is still a world class asset with a  Billion..tonnes of iron ore 2km's from a road and 14km from rail...there is no resource  like this in the world right now....all projects are looking at huge Capital expenditures which include rail and ports which Kami has access to.

The iron ore price in Canadian dollars yesterday was about $144 in Canadian dollars...will that fluctuate? Yes.

Kami is a massive resource.

 

[Guest Dazel]

 

 

Ffh Watcher,

 

I have seen cheerleading on Fairfax (Sanjeev gone for lunch) and BAC boards. This hardly that type of thread...not a whole lot to cheer about in the sector Altius is in!

 

 

[cwericb]

For those who may not know, FFH Watcher has been around here this board for a long time. There are always two sides of any topic and when everyone gets a little overly positive, Watcher will often bring up a few good negative points that others may tend overlook in their enthusiasm. No investment is all good and we need to spend time looking at the ‘what if’s’ if we are not to get overly nearsighted. As long as the what if’s can be countered, explained, and prepared for, we have a better discussion and become better investors.  Just my 2 cents worth.

[Guest Dazel]

Altius has lumpy earnings more like Leucadia then Fairfax but similar as both buy low and sell high during the stock market cycles. Fairly priced assets are sold and the other assets are grown...Altius has proven it's investment prowess during these cycles.

 

The purchase of the royalty allows Altius another model to their business...using their cash from their winning sales...that was earning very little. To provide a long  life cashflow stream...this will smooth earnings more like Berkshire than Leucadia and Fairfax. We see this cash stream and investment segment providing steady wins as is now the case with Virginia Mines and we expect Callinan to be the same....this will continue and likely grow as the base of Altius.

 

Project generation

Make no mistake the huge Aurora win is not a one time event. It looks like Kami will be multiples of the home run Aurora was....Julienne Lake may be a Kami like home run as well...but Julienne Lake is not even close to being priced into the mix and it should not be yet. They have not won the

government proposal yet.

 

The 10 other projects and the new massive coal asset buy are future seeds....they will groom over time. There cost base is basically 0...so the upside is exponential as far as risk.

 

Fairfax ( we are shareholders) has an insurance risk always...and it almost sunk the company in the early 2000's...Leucadia has never had steady cash-flow per share that rivals what Altius will have. Leucadia are incredible investors and they have much more scope and experience than Altius. However, they do not have in the house technical team that Altius has to evaluate opportunities in their specialty market...Altius size also allows for smaller investments and projects to move the needle much more on a per share basis that their peers cannot.

 

Finally, records in the past are not a barometer for the future but it gives us a look into how the money was made and is there an opportunity or probability to duplicate that success in the future. Altius has the assets and young leader in Brian Dalton to be hungry enough to make himself rich (his net worth is with yours)... Where as their peers are already rich, older and size will be their cruch.

 

 

[Guest Dazel]

 

 

Ffhwatcher,

 

I reread my post...I was joking but it may not have come off that way. Welcome to the thread..and for those that do not know FFH Watcher he is an original on this board. We made a fortune on Fairfax with other board members that bought when others did not count and trust Prem's team. I think Brian Dalton would be Prem's kind of guy.

 

Dazel.

[giofranchi]

I have seen cheerleading on Fairfax (Sanjeev gone for lunch)

 

And what about the dinner?! ;D ;D Will you be there next April? It would be a pleasure to meet you in person. ;)

 

Cheers,

 

Gio

 

[giofranchi]

Welcome to the thread..and for those that do not know FFH Watcher he is an original on this board. We made a fortune on Fairfax with other board members that bought when others did not count and trust Prem's team.

 

Hey! FFHWatcher... I was only joking with that "quarterback" stuff, ok? ;)

 

Cheers,

 

Gio

[giofranchi]

For those who may not know, FFH Watcher has been around here this board for a long time. There are always two sides of any topic and when everyone gets a little overly positive, Watcher will often bring up a few good negative points that others may tend overlook in their enthusiasm. No investment is all good and we need to spend time looking at the ‘what if’s’ if we are not to get overly nearsighted. As long as the what if’s can be countered, explained, and prepared for, we have a better discussion and become better investors.  Just my 2 cents worth.

 

I agree 100%! In fact, that's exactly the reason I decided to join the board in the first place! ;)

 

Gio

[SharperDingaan]

While a rising share price is nice, we might want to temper the enthusiasm a little.

 

Most would suspect that these January deals would not be occurring, unless the year-end financials were very good; so another bump on publication is highly likely - but a 40% jump in 4-6 weeks ... is just not sustainable.

 

At $10.50, ALS was a reasonable risk/reward proposition; but if you were buying it new at $15.00 - it is not the same animal. The risk did not suddenly drop by 40%+; & $15 could get you a share of many other higher quality companies, all be they with perhaps slightly lesser prospects. Some of them may even pay you a dividend...

 

We like ALS, & are one of those 40% people, but we also know to periodically take $ off the table.

 

SD

 

[goldfinger]

While a rising share price is nice, we might want to temper the enthusiasm a little.

 

Most would suspect that these January deals would not be occurring, unless the year-end financials were very good; so another bump on publication is highly likely - but a 40% jump in 4-6 weeks ... is just not sustainable.

 

At $10.50, ALS was a reasonable risk/reward proposition; but if you were buying it new at $15.00 - it is not the same animal. The risk did not suddenly drop by 40%+; & $15 could get you a share of many other higher quality companies, all be they with perhaps slightly lesser prospects. Some of them may even pay you a dividend...

 

We like ALS, & are one of those 40% people, but we also know to periodically take $ off the table.

 

SD

 

Weird: Altius looks like the type of company you would want to hold long term unless the thesis changes...

[Guest Dazel]

 

SD,

 

Thought you were gone by now...as you said you bought it for a trade.

 

I made 200% in a boring old value stock insurance company (Fairfax) that no one understood in less than a year! When they figured out what Fairfax was we made another 3 times  our money over the proceeding years. (FFH Watcher you have taken me down memory lane!!!) that was too fun.

 

We do not think the market understands Altius at all...The market is a voting machine in the short run...and to be honest Altius has not had any love for some time...it is being weighed now. There will be lots of traders in and out which is always the case...But this move to us may be quick for some but it is years since we have been here...and as our long term royalty holding this 40% move is a blip. Just like Fairfax's move from $80 to $112 ($477 is the high this year) was done in a few days for those that remember.

 

So SD Fairfax was a  whole lot more riskier at  $112 than $80 I agree...but many on this hoard bought then and made 4 times their money. Not saying they are apples to Apples but your short term trade mentality is whole lot different than our long term approach. All the power to you though you made a good purchase and you have a wonderful short term profit.

Congrats.

 

 

Dazel.

 

[Blue Macaw]

I agree with you Dazel.

 

At this point you could get out with a nice profit. I myself have been buying between 9-10 howver since I am Swedish and the CAD has lost 10 % the profit could be larger. Could we reach 4 times this value in a few years? Definetely!! But it will be in a few years. The big triggers this year will be Alderon and Julienne, that is for sure. If approved we will see some value of both but ofcourse not the full value. Maybe 20 CAD/share by the end of the year.

 

Alderon start would be 2015-2016 less than 2 years from now.

Julienne lake maybe 2018 earliest.

But other things are moving fast as well. Chile we have not heard of in some time. Expecting some news from there. CMB is on going, Paladin is looking for a mine between 2018-20. Century drilling hard now on Schefferville W et c etc. List can be made long.

 

The deal might have been of fair value but it will bring out a value of all the other assets.

 

And this is interesting: "The latest World Energy Outlook highlights that "coal alone accounts for more than 50% of the total on-grid additions" required to achieve the IEA's Energy for All case....Total world coal production reached a record level of 7831Mt in 2012, increasing by 2.9% in comparison to previous year" Source World Coal association.

 

 

 

 

[JAllen]

Does anyone know which document has the most detail about terms of the Hebei deal? 

 

 

I'm asking because I want to understand what will happen with Kami if Hebei doesn't perform because of what is going on with Hebei right now.

 

 

Thanks.  Am looking for it too, and will post once I find something.

[original mungerville]

The way I look at the share price today is something like the following:

 

After the December deal, $13-15 is the old $10-12 range for Altius (because the deal added value and brought some attention). So us hitting $15 today still does not give any credit for Alderon or Julienne events coming up.

 

I could see momentum bringing us up further in coming months to $17, then through $22 when Alderon/Julienne progress is made. Can this thing double from $15 to 30 by year-end 2016? (ie in 3 years?) - yes, absolutely. I would expect the Alderon mine to be delayed by something (operational, financing, commodity prices, I don't know) at some point however so I would add at least one year to its start date as a buffer - but that's pretty much a blip on the valuation front overall.

 

I agree with Dazel, that a lot of money is still to be made from these levels. $13-15 is the old $10-12 range. That deal in December added probably $2-3 per share in value (not including any additional attention it will bring to the stock).