Guest Dazel Posted January 29, 2014 Share Posted January 29, 2014 Interesting that on a day that is a sea of red across global markets and really a tough month....the former leaders of the markets are rolling over and who are the leaders? Materials. Ya I had to double check as most CNBC comedy is laughable....Alcoa, Vulcan Materials (LongLeaf partners old pick), Goldcorp, silver companies the stocks that have truly been not only laggards but have been truly decimated in comparison to the markets. Are we seeing a sector rotation in materials and commodities? The number one asset class being mentioned on CNBC is miners...they are up 10 to 12% on average this year quietly....is capital going to loosen up for these guys? This is the first time I have heard this in a long long time. Nice to be early....well done Altius shareholders...Alderon will follow. Dazel. Link to comment Share on other sites More sharing options...
bizaro86 Posted January 29, 2014 Share Posted January 29, 2014 Anyone that is hedging Altius positions which I do understand...I must disclose I may be on the other end buying the shares you are selling.... I think Alderon shares are undervalued...the negativity will subside a lot of it really is noise and some very unintelligent...I agree with Hohi. The whole industry is painted with the same brush. Jim Rogers has said you can truly get rich with the right mine...I will be happy with middle of the pack for Kami. In world of Tesla's, Netflix, amazon, salesforce.com etc...they are in a balloon not a bubble... to believe what people are thinking and doing. Tesla's latest billion dollar market cap move up in the market was on their china push! now that is ironic to me. The other irony is the perception of risk...the crowd does not like resources they like whatever has been going up the longest whatever that is. This is a great post. I own Altius, but probably wouldn't buy Alderon. However, I'm hesitant to short it even as a hedge because there is a very real chance it gets taken over at multiples of the current price. I would love to buy Alderon puts as an Altius hedge, but I don't believe that's possible. I do agree that materials are probably oversold, and that Altius is a great way to play that. I wouldn't be surprised if Dec 24th 2013 and the Sherritt deal marked the bottom of the cycle. Link to comment Share on other sites More sharing options...
Guest Dazel Posted January 30, 2014 Share Posted January 30, 2014 http://blogs.barrons.com/emergingmarketsdaily/2014/01/30/jp-morgan-buy-vale-as-china-bids-up-high-quality-ore-premium/?mod=yahoobarrons&ru=yahoo Kami is 65.2% iron they have touted this fact as Fortescue and other Brazilian producers send lower quality iron to China....Hebei may look very intelligent here as they were "ahead" of the curve....higher quality iron is going for higher premiums in China. Add the fact that JP Morgan is putting a 50% upside on Vale's stock....fingers crossed on the markets cyclical turn on basic materials! Link to comment Share on other sites More sharing options...
ItsAValueTrap Posted January 30, 2014 Share Posted January 30, 2014 Kami's grade is lower than Fortescue, Vale, BHP, etc. The concentrate is *projected* to have 65.2% iron (or whatever the right figure is; I haven't double checked the correct figure). The metallurgy is uncertain because metallurgy isn't a perfect science. It's possible that whoever did the metallurgy projections is being overly optimistic. 2- We've gone over the manganese issues earlier in this thread. 3- Vale, BHP, Fortescue are going to have higher margins than Kami. Link to comment Share on other sites More sharing options...
ItsAValueTrap Posted January 31, 2014 Share Posted January 31, 2014 In a commercial mine, various things are done to the ore to concentrate it and to increase its grade. The final concentrate usually has a grade of 60% or higher. As investors, what we really care about are the mine's margins. Usually what we want to focus on is the grade of the ore *before* it has been processed. There is a strong correlation between the mine's margins and what the grade of the ore is **before** it is concentrated/processed/beneficiated. The grade of the concentrate can be anything. *Of course mining is a little complex sometimes. Some ore is easier to process than others (e.g. hematite versus magnetite). Some ore has unacceptable levels of impurities. The structure of the ore matters; two different ores with identical assays may have different economics. 2- Anyways my point is this. a- Investors should care about a mine's margins. b- Margin-wise, Kami probably won't be as good as "Fortescue and other Brazilian producers". *There's nothing wrong with lower-margin mines. They can still be profitable. **(I'm actually a fan of higher-margin mines like Voisey's Bay and the potash ones which Altius have a royalty on. It's the whole mine life thing. But when the Altius team staked the land for the Kami property, they didn't get to choose whether or not the deposit is some ridiculously profitable high-margin deposit or not.) Link to comment Share on other sites More sharing options...
ItsAValueTrap Posted January 31, 2014 Share Posted January 31, 2014 The grade of the concentrate doesn't matter too much. If you spend more money on processing, then the grade of the concentrate will get better. There's tradeoffs involved. If you reject more ore, than the grade of the concentrate will go up. But you will be selling less of the valuable metal because more of it will end up in the waste tailings. There's tradeoffs involved. What you should really care about is the cost-effectiveness of concentrating the ore. Link to comment Share on other sites More sharing options...
Guest Dazel Posted January 31, 2014 Share Posted January 31, 2014 Trap, Straight question does the Labrador trough on average have better a better iron ore content than Fortescue when sent to China? And are you a friend of Bronte Capital? Dazel. Link to comment Share on other sites More sharing options...
ItsAValueTrap Posted January 31, 2014 Share Posted January 31, 2014 Lol Dazel. Ok, if you want to get a better understanding of mining, go to the library and read books like this one: http://www.amazon.com/Mineral-Processing-Technology-Seventh-Edition/dp/0750644508/ I have some book reviews here: http://wp.me/p1mOGr-dL (I'm not sure I would bother reading the mineral processing book.) The questions you are asking me aren't that relevant. And are you a friend of Bronte Capital? LOL ;D I've talked to him on Skype once. We are fans of each other's blogs. We did not talk about Alderon. *I used to be long Alderon in the past. No current position. Hempton obviously posted about shorting Alderon on his blog. I think it's a bad short. **I am massively long Altius Minerals. Link to comment Share on other sites More sharing options...
Guest Dazel Posted January 31, 2014 Share Posted January 31, 2014 Trap, If you read my post it is very relevant what grade the iron is as China is paying $14 to $18 (in the article) premium for higher grades. Alderon "will" have higher grades of iron than all producers in Australia except Rio, BHP and Vale. I said nothing about margins....I said Hebei may have been ahead of the game as they knew that this would happen. Labrador iron ore is processed and yes it is lower margin however, it can go straight into the blast furnaces in China and that is why there is premium being paid if you read the article. That would change the margins and make the Labrador trough much more attractive. I do not know if it will continue. This is not just relevant to Kami...It is relevant to all of Altius' properties... Thank you for answering my second question with respect to Brogalboy...I answered the first one for you. And yes it is very relevant in China's new world....it was not before and that is why I posted it. It is positive for your massively long Altius position... I have enough books Dazel. Link to comment Share on other sites More sharing options...
Guest Dazel Posted January 31, 2014 Share Posted January 31, 2014 http://www.ft.com/intl/cms/s/0/2a031fd4-8786-11e3-ba87-00144feab7de.html The article is in the Financial Times now...I have not seen this pricing before. Dazel. Link to comment Share on other sites More sharing options...
original mungerville Posted January 31, 2014 Share Posted January 31, 2014 Good ol' Brogalboy eh? Wow, shorting Alderon now. If I were him I would think about covering. But then again, he was never good at that was he? Link to comment Share on other sites More sharing options...
bizaro86 Posted January 31, 2014 Share Posted January 31, 2014 Trap, Straight question does the Labrador trough on average have better a better iron ore content than Fortescue when sent to China? And are you a friend of Bronte Capital? Dazel. I'm an oil guy not a mining guy, but my understanding is that Kami is much lower grade in-situ than the Aussie producers, at about 30% iron. So, to ship a ton of 60% iron concentrate, they have to dig up 2 tons of rock, and separate out 1 ton that isn't made of iron. It costs more, because you're moving twice as much rock, and you have to run a process to "upgrade" the material somehow. That moves you up the cost curve. Obviously, FOB China the %Fe is as good or better, because it wouldn't make any sense to ship the rock that isn't iron around the world, so they take it out at the mine. That doesn't make the mine uneconomic, but it does push it higher up the cost curve. Link to comment Share on other sites More sharing options...
Ross812 Posted January 31, 2014 Share Posted January 31, 2014 Trap, Straight question does the Labrador trough on average have better a better iron ore content than Fortescue when sent to China? And are you a friend of Bronte Capital? Dazel. I'm an oil guy not a mining guy, but my understanding is that Kami is much lower grade in-situ than the Aussie producers, at about 30% iron. So, to ship a ton of 60% iron concentrate, they have to dig up 2 tons of rock, and separate out 1 ton that isn't made of iron. It costs more, because you're moving twice as much rock, and you have to run a process to "upgrade" the material somehow. That moves you up the cost curve. Obviously, FOB China the %Fe is as good or better, because it wouldn't make any sense to ship the rock that isn't iron around the world, so they take it out at the mine. That doesn't make the mine uneconomic, but it does push it higher up the cost curve. Australian ore and Canadian ore are different but one is not a "lower grade" than the other. Australia exports primarily hematite direct shipping ore (DSO). DSO is excavated, crushed, screened and shipped. The %Fe content is generally between 56-62%. Hematite can only be economically benefacted (removal of non %Fe containing rock) by crushing and screening. Keep in mind DSO takes a quality deduction of ~$5/%Fe to Platt for concentrations below 62%. Canadian mines produce primarily magnetite. Magnetite is a softer rock than hematite mined at around 32-37% Fe concentrations. Magnetite is more finely crushed, screened, then is passed over with a magnet to separate the Fe rich ore from the surrounding rock. The resulting ore is benefacted to 62-74% Fe. Further processing can take place if necessary (producing pellets for electric arc furnaces used in the N.America) and pretreatment of the ore to remove unwanted impurities. Magnetite is more expensive to process, but fetches a premium to Platt as the concentration is often several points higher than the pricing benchmark. Kami ore has two strikes against it which makes it unusable in the US and Europe - high Sulfur and Manganese contents. Electric Arc Furnaces in the US cannot use high manganese ores and the EU does not permit Fe ore with >.05% to be imported. Enter China. Chinese steel companies use the blast furnace which are not as sensitive to the Manganese content as the EAF. The high manganese content is actually beneficial because manganese must be added to remove Sulfur during smelting if the ore contains more than .015% to .03% Sulfur. What everyone seems to be missing here is the Kami ore is a premium product that fills a role Australian ore cannot. The high %Fe content allows the ore to be blended with lower grade ore and bring the blended ore to a level where steel can be produced economically. Very cheap Indian DSO at <55% Fe without Sulfur or Manganese and very low shipping cost is going to be blended with the Kami ore to produce economically viable high grade steel. The Chinese are buying this high %Fe ore to blend with low grade Indian and Chinese ore. A company securing a source of Canadian ore allows them to utilize much cheaper sources of low grade ore in their own Geography. Link to comment Share on other sites More sharing options...
tengen Posted January 31, 2014 Share Posted January 31, 2014 Ross812, thank you for your extremely informative posting! Link to comment Share on other sites More sharing options...
Liberty Posted January 31, 2014 Share Posted January 31, 2014 Ross812, thank you for your extremely informative posting! I second that. Thank you. Ross! Link to comment Share on other sites More sharing options...
cwericb Posted January 31, 2014 Share Posted January 31, 2014 Thanks Ross for that quick bit of education. That should help put people on the same wavelength here. Link to comment Share on other sites More sharing options...
bizaro86 Posted February 1, 2014 Share Posted February 1, 2014 Thanks Ross! That's a very informative post, and a great mental model. I know I often think of "commodities" as fungible, as opposed to considering the value they add to their customers. Link to comment Share on other sites More sharing options...
original mungerville Posted February 1, 2014 Share Posted February 1, 2014 Yup Ross, That makes things much more clear. I couldn't figure out what was going on with the grade and costs. Thanks a lot. Link to comment Share on other sites More sharing options...
hohi Posted February 1, 2014 Share Posted February 1, 2014 Looks like ALS and VGQ picked up their first real property for the exploration alliance http://www.marketwatch.com/story/rio-silver-virginia-mines-and-altius-resources-secure-deal-on-rio-silvers-kan-property-2014-01-31?reflink=MW_news_stmp Link to comment Share on other sites More sharing options...
Guest Dazel Posted February 1, 2014 Share Posted February 1, 2014 Ross812, Thank you for explaining my short comings as always a well informed and excellent post. Is it "fair" to say that after the processing of the ore in The Labrador Trough (which you explained very well) that it is of higher iron content then most in the world other than the big three mentioned in the article? Dazel. Link to comment Share on other sites More sharing options...
giofranchi Posted February 1, 2014 Share Posted February 1, 2014 Ross, I am curious: does your professional background have something to do with metallurgy, or do you really develop such deep technical knowledge in any sector you invest? :o Gio Link to comment Share on other sites More sharing options...
ItsAValueTrap Posted February 1, 2014 Share Posted February 1, 2014 Well you can always take a look at the past and look at BBA's work for the Bloom Lake project. - Bloom Lake to produce 5 million tonnes of high-quality 66% concentrate per year beginning in 2008 - Pre-production Capital Cost (including working capital) US $ 178 million - Pre-tax IRR 40.2% using US $ 0.59 per iron unit equivalent to revenue price of US $ 38.94/tonne of concentrate - Total operating cost US $ 20.96 / tonne concentrate - NPV (at 5% Discount rate) of US$ 888 million - Total undiscounted Cash Flow of US $ 1.6 billion - Forecasted yearly Cash Flow exceeding US $ 90 million - Payback of 2.2 years http://cnrp.ccnmatthews.com/news/releases/show.jsp?action=showRelease&actionFor=587660&searchText=false&showText=all Apparently the concentrate will have a grade of 66% and total operating cost will be US $ 20.96 / tonne concentrate. Cliffs provides numbers on Bloom Lake in its press releases: http://ir.cliffsnaturalresources.com/releasedetail.cfm?ReleaseID=695438bloom_lake_press_release.pdf Link to comment Share on other sites More sharing options...
Guest Dazel Posted February 1, 2014 Share Posted February 1, 2014 Trap, You are too intelligent to be posting 2006 reports...and the fifth or sixth time you have posted this...Bharti's not there anymore so I can save from posting that again. I will post countrywide finacials from 2006 if you want...they were worth $100 billion market cap at that time...does that mean that their auditors and all other banks that were around them should lose their credibility as well? You still have not answered my question about the iron ore grades? And the 2006 report and the book from Amazon you quoted a price for me have not answered it either. Link to comment Share on other sites More sharing options...
Guest Dazel Posted February 1, 2014 Share Posted February 1, 2014 http://www.mining.com/anglo-american-forges-ahead-with-8-8-billion-brazil-project-despite-huge-overruns- Do think the industry as a whole got their projections wrong years back? Link to comment Share on other sites More sharing options...
ItsAValueTrap Posted February 1, 2014 Share Posted February 1, 2014 It's BBA that did the technical report work... not Stan Bharti. You still have not answered my question about the iron ore grades? 1- You keep editing your posts. I thought you removed your question??? 2- Your question is, quite frankly, a waste of my time. If you care about that particular issue, why don't you do your own work and answer it yourself? Look... if this mine gets built, we'll see if the mine will be as profitable as management says it will be. I will try and stop posting about Kami's economics because I've said enough and this thread is long enough as it is. Link to comment Share on other sites More sharing options...
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