Williams406 Posted February 12, 2014 Share Posted February 12, 2014 Posco is a steelmaker, so lower iron ore prices reduce that input cost. The idea behind the proposed hedge, I think, is that lower iron ore prices hurt several major Altius investments whereas those same lower prices would help Posco. No comment on effectiveness of hedge. 406 Link to comment Share on other sites More sharing options...
giofranchi Posted February 12, 2014 Share Posted February 12, 2014 Posco is a steelmaker, so lower iron ore prices reduce that input cost. The idea behind the proposed hedge, I think, is that lower iron ore prices hurt several major Altius investments whereas those same lower prices would help Posco. No comment on effectiveness of hedge. 406 Well, but of course this is just short-term… In the long-term we will keep consuming more and more iron and its price should be sustained by the increasing demand. And in the short-term who really knows? Maybe also the price of steel could take a hit… so, lower costs, but also lower revenues. Who knows? Gio Link to comment Share on other sites More sharing options...
SharperDingaan Posted February 12, 2014 Share Posted February 12, 2014 For hedging purposes, think the other way ..... What goes up if Labrador West booms? trucking, mine servicing, hotels, hiring agencies, etc. Go long during the expansion phase, & progressively sell & repurchase through the usual bumps. You end up with a good interest in the infrastructure, & it is reliant on all the mines - not just one. Generally, the people who get rich in a boom are those providing the infrastructure (bars, girls, repair shops, etc.), & not the miners themselves. SD Link to comment Share on other sites More sharing options...
Ross812 Posted February 12, 2014 Share Posted February 12, 2014 Posco is a steelmaker, so lower iron ore prices reduce that input cost. The idea behind the proposed hedge, I think, is that lower iron ore prices hurt several major Altius investments whereas those same lower prices would help Posco. No comment on effectiveness of hedge. 406 Well, but of course this is just short-term… In the long-term we will keep consuming more and more iron and its price should be sustained by the increasing demand. And in the short-term who really knows? Maybe also the price of steel could take a hit… so, lower costs, but also lower revenues. Who knows? Gio Gio, There has been a fundamental disconnect between the price of iron ore and the price of steel over the past 5 years. Iron ore prices have increased and steel producers have not been able to pass on the increase to the end customer. The increase in iron consumption and the high prices are due to China. Many Chinese steel mills produce inferior products that are not accepted as imports around the world meaning much of this steel is used domestically. This stems from impurities in the ore they are using, and limitations of their production technology to remove impurities proper cooling etc... The disparity between high iron ore prices and low steel prices is caused by China's trade imbalance between the import of iron ore and export of steel. A crash in Chinese construction would cause a crash in Chinese domestic steel production and thus a crash in the price of iron ore. The Chinese domestic steel industry would be unable to export their inferior structural steel to the rest of the world, but steel mills elsewhere producing specialty steel and superior structural steel would continue to supply their customers as if nothing had happened. The steel mills would benefit from falling iron ore prices and steady demand aka- steel prices. Posco is the lowest cost specialty steel producer in the world and 4th largest steel producer in the world. They are still making money right now while many mills are breaking even or losing money due to high ore prices. In addition they are nimble and able to cut costs or expand quickly with the ebb and flow of steel demand. Posco is a best of breed steel supplier who's business model does not rely on China and can make windfall profits if the price of iron ore crashes. Berkshire owns 4% of the company and Munger just had to disclose that Posco was one of six companies DJCO has interest in. There is a lot of good info over in the Posco thread. Over the long term Altius will be fine, even if iron ore drops. If Jullienne Lake and Kami are canned though, you can rest assured that you are sitting on several years of dead money in Altius until the cycle reverses. The thing I like about adding Posco to my portfolio is: 1. Iron ore prices stay the same as they are now - Posco does alright, it is already undervalued by roughly 50%; Altius proceeds as we have talked about and we all make a lot of money. 2. Iron prices increase significantly - Posco takes a short term hit until lower quality producers go out of business and steel prices rise; We all make even more money off of Altius. 3. Iron ore prices go down slightly into the 70-90 range - Posco will double; Kami is likely built and will yield 30-50% of what all our estimates have been, Jullienne Lake is canned. 4. Iron ore prices crash - Posco is a 3-4 bagger; Julienne Lake and Kami are canned, Altius stays around the current price until management can find other opportunities and decreases their debt load. Link to comment Share on other sites More sharing options...
giofranchi Posted February 13, 2014 Share Posted February 13, 2014 Hi Ross, your explanation makes a lot of sense! Though I am afraid I am not nimble enough to invest in Posco... When I invest, I require: a) a great owner / manager to partner with for the very long term, b) a good business to own for the very long term, c) a fair entry price. You may have noticed I have proceeded from a) to b) to c), and from “great” to “good” to “fair”, so you know the order in which I look at those three things, and the relevance I attach to each of them. Now, about Posco: - I know nothing of a), - I don’t like the steel business in general… and I think this is relevant to any investment decision and business analysis: of course, Posco can swim against the tide, and be the exception to the rule, but why should I be confident in my ability of truly recognizing the exception to the rule? I mean, what do I really know about the steel industry? Very little, I guess… And why should I presume to be able to identify the only very profitable business in a mediocre industry, that I know little about? While it is easy enough to recognize if a business is a good one in general, I find exceedingly hard to spot the single great company in an industry stuck with burdensome capital needs and low returns… - Finally, I am sure Posco’s share price today is very attractive. As you can see, the only thing I am sure about Posco is the one to which I attach the least relevance… Regarding ALS I don’t understand why you assume that, should iron ore price crash, both Julienne Lake and Kami are “canned”… Such long term project should not be so much price dependent, or should they? I mean, production would surely be slower than previously thought, and sales would consequently be less than projected… This is easily foreseeable… But completely postponed or cancelled?! It seems a bit pessimistic… ALS’s royalties might be much lower than expected, but imo it is hard to think they will amount to zero! And even with greatly reduced royalties from Julienne Lake and Kami, ALS’s management will enjoy a lot of free-cash to invest in new projects. It is difficult to see how ALS could be dead money for many years ahead… Gio Link to comment Share on other sites More sharing options...
jouni1 Posted February 13, 2014 Share Posted February 13, 2014 - I don’t like the steel business in general… me neither; market shares are spread out very thin, having steel production (even at a loss) in your country is good for employment and the economy in general, the volumes are huge. different countries do different stuff to make their own production the preferred choice, taxes, tariffs, political blackmail etc. it just feels like this isn't a business one can invest in a great company and do ok, just too many political moving variables. that said, if i were to invest in a steel producer, it would probably be POSCO. not having bought any altius yet, keeping my thumbs up for that real drop in iron ore and a panic. let's see ::) Link to comment Share on other sites More sharing options...
phil_Buffett Posted February 13, 2014 Share Posted February 13, 2014 http://www.cbc.ca/news/canada/newfoundland-labrador/alderon-says-its-mine-could-hire-displaced-wabush-workforce-1.2535225 http://www.vocm.com/newsarticle.asp?mn=2&id=43404&latest=1 Link to comment Share on other sites More sharing options...
Guest Dazel Posted February 13, 2014 Share Posted February 13, 2014 The Wabush shut down and the Duck Pond (Teck Resources) shut down...Make the timing for the Premier perfect to announce major projects...he has said that we will all know soon why they have taken time to get the transmission line announcement finalized. Let's hope its an Altius win on Julienne Lake....that was holding up negotiations on the line! Dazel. Link to comment Share on other sites More sharing options...
Ross812 Posted February 13, 2014 Share Posted February 13, 2014 Hi Ross, your explanation makes a lot of sense! Though I am afraid I am not nimble enough to invest in Posco... When I invest, I require: a) a great owner / manager to partner with for the very long term, b) a good business to own for the very long term, c) a fair entry price. You may have noticed I have proceeded from a) to b) to c), and from “great” to “good” to “fair”, so you know the order in which I look at those three things, and the relevance I attach to each of them. Gio, I very much respect the way you invest and we look for much of the same things - though I switch A and B around because a great business will outlast its manager! I feel that Altius checks all three of your items and is starting to diversify to the point the cyclical nature of their business will begin to be smoothed out. What I don't like about their business right now is the price run up in iron ore and the build out of so many mines chasing this high price. http://agmmcdn.s3.amazonaws.com/agmmcdn/2013/06/iron-ore.jpg The price of iron ore was less than the cost of production at Kami prior to 2007 (this is the estimated cost, the real costs could be quite a bit higher). If iron ore reverts to this range prior to or during the initial construction, Kami and Julienne Lake will be canned. I think there is a lot of incentive for Kami to be built even if it is marginally profitable, but at 19XX-2007 prices it almost certainly will not be built. As for Posco. I hate the steel business. Actually I hate any business that is capital intensive, relies on materials with no price control, and produces midstream products. This applies to steel, paper, sugar (RIP Imperial), plastics, and most industrial chemicals. I do think Posco is the best steel company in a crappy business and the risk is likely compensated for in the price I am paying. This is not just picking up a cigar butt; it is a business still making money in an essential industry when their competitors are treading water and could be one of the only steel companies left if this trend were to continue. I wouldn't be looking at PKX if I didn't own a huge chunk of Altius. Over the past year my other investments have done great while Altius was sitting under $10. I plowed all the dividends from KMI, LRE, BP and all the proceeds from a 3 year position in AIG into Altius. With the 40% price increase it is now my largest position. I'm just looking for ways to hedge the position which is a pain because options are unavailable. Is anyone else hedging? Maybe I should just lighten up on it.... Link to comment Share on other sites More sharing options...
giofranchi Posted February 13, 2014 Share Posted February 13, 2014 The price of iron ore was less than the cost of production at Kami prior to 2007 (this is the estimated cost, the real costs could be quite a bit higher). If iron ore reverts to this range prior to or during the initial construction, Kami and Julienne Lake will be canned. I think there is a lot of incentive for Kami to be built even if it is marginally profitable, but at 19XX-2007 prices it almost certainly will not be built. Ah! Thank you, Ross, for that scary graph! Though sometimes ignorance is very much sweeter than knowledge… ;D ;D ;D Dazel, what’s your view on the probability Kami and Julien Lake are canned, because of a sudden and unexpected dive in the price of iron ore? If that were to happen, how quickly do you think management would be able to come up with new projects to replace Kami and Julien Lake? (The second question is silly, I understand… Because, how could you possibly know?? ::) ) Thank you, Gio Link to comment Share on other sites More sharing options...
original mungerville Posted February 13, 2014 Share Posted February 13, 2014 Unless these guys are political idiots, they will announce the Kami powerline today or Friday in Wabush. http://www.castanet.net/news/Business/108736/Mayor-of-one-industry-Wabush-N-L-says-town-will-tough-out-mine-shutdown "Without question, when we see something like this it's devastating," Dalley said in an interview. "Government will be fully supportive of the community and we remain optimistic that there will be new opportunities on the horizon for them." Those may include a new buyer for the Scully mine, Dalley said. "There has been interest particularly from China in new developments in iron ore." On that note, Dalley said a long-awaited decision on whether the province will pay to build a dedicated power line from Churchill Falls to Labrador West is coming Thursday or Friday. Alderon Iron Ore has said approval of the line, estimated to cost about $300 million, is key to developing its $1-billion Kami mine project in the region. The Kami project, owned 75 per cent by Alderon and 25 per cent by Hebei Iron and Steel of China, has the potential to create more than 2,000 construction jobs and 650 full-time jobs, Dalley said. "The importance of that is highlighted by what we've seen in Wabush." Well, doesn't that last sentence mean we will hear something positive today or Friday (I expect today)?...And it involves the Chinese. So I bought more. How can that be interpreted differently? Link to comment Share on other sites More sharing options...
tengen Posted February 13, 2014 Share Posted February 13, 2014 Isn't a big drop in global steel production the most likely reason for the price of iron ore to dive? In that case, I don't see how an investment in a steel producer truly hedges your investment in an iron ore mine. The ore might get a lot cheaper but that doesn't help if no one buys your steel. It seems to me that POSCO acts as a hedge only to the specific scenario where Chinese demand drops but POSCO's market (presumably 100% non-Chinese) is unaffected. How likely is that? Link to comment Share on other sites More sharing options...
original mungerville Posted February 13, 2014 Share Posted February 13, 2014 Hi Ross, your explanation makes a lot of sense! Though I am afraid I am not nimble enough to invest in Posco... When I invest, I require: a) a great owner / manager to partner with for the very long term, b) a good business to own for the very long term, c) a fair entry price. You may have noticed I have proceeded from a) to b) to c), and from “great” to “good” to “fair”, so you know the order in which I look at those three things, and the relevance I attach to each of them. Gio, I very much respect the way you invest and we look for much of the same things - though I switch A and B around because a great business will outlast its manager! I feel that Altius checks all three of your items and is starting to diversify to the point the cyclical nature of their business will begin to be smoothed out. What I don't like about their business right now is the price run up in iron ore and the build out of so many mines chasing this high price. http://agmmcdn.s3.amazonaws.com/agmmcdn/2013/06/iron-ore.jpg The price of iron ore was less than the cost of production at Kami prior to 2007 (this is the estimated cost, the real costs could be quite a bit higher). If iron ore reverts to this range prior to or during the initial construction, Kami and Julienne Lake will be canned. I think there is a lot of incentive for Kami to be built even if it is marginally profitable, but at 19XX-2007 prices it almost certainly will not be built. As for Posco. I hate the steel business. Actually I hate any business that is capital intensive, relies on materials with no price control, and produces midstream products. This applies to steel, paper, sugar (RIP Imperial), plastics, and most industrial chemicals. I do think Posco is the best steel company in a crappy business and the risk is likely compensated for in the price I am paying. This is not just picking up a cigar butt; it is a business still making money in an essential industry when their competitors are treading water and could be one of the only steel companies left if this trend were to continue. I wouldn't be looking at PKX if I didn't own a huge chunk of Altius. Over the past year my other investments have done great while Altius was sitting under $10. I plowed all the dividends from KMI, LRE, BP and all the proceeds from a 3 year position in AIG into Altius. With the 40% price increase it is now my largest position. I'm just looking for ways to hedge the position which is a pain because options are unavailable. Is anyone else hedging? Maybe I should just lighten up on it.... Ross812, I think its very intelligent that you are looking for an Iron ore hedge while investing in Altius. Putting a greater portion of your portfolio in Altius while hedging makes more sense to me than putting a smaller percentage of your portfolio into it because you are concerned about Iron ore. I do think markets are going to get very volatile at some point - both up and down for commodities and stocks. Link to comment Share on other sites More sharing options...
tengen Posted February 13, 2014 Share Posted February 13, 2014 Unless these guys are political idiots, they will announce the Kami powerline today or Friday in Wabush. I agree and I bought more as well. Link to comment Share on other sites More sharing options...
SharperDingaan Posted February 13, 2014 Share Posted February 13, 2014 We would suggest to you that they may well be announcing a lot more than just a new power line. Purely speculation ... but make Labrador West an economic trade zone, expand the rail heads, put in a new dam, & add more than one power line. All infrastructure spend, & exactly what you do to stave off economic downturn (fed & provincial). Then keep in mind that global warming is opening up the NW passage, & a 2nd deep water port in the North to complement Churchill;& overtly demonstrate sovereignty over the eastern entrance of the passage - cannot be too far from the fed mind. SD Link to comment Share on other sites More sharing options...
nostradamus Posted February 13, 2014 Share Posted February 13, 2014 Maybe these politicians are smarter than I realised. If they announced the power line before the announcement that Wabush would close, the media might have focused on whether the extra power was needed. Now when they announce it (today or tomorrow) they get to seem like white knights pulling off a deal that rescues the whole region from mass unemployment! This all seems like great news for Alderon and Altius. The huge numbers of skilled people who will be looking to get jobs at Kami has got to have a reasonable impact on the economics of the mine. N. Link to comment Share on other sites More sharing options...
original mungerville Posted February 13, 2014 Share Posted February 13, 2014 Maybe these politicians are smarter than I realised. If they announced the power line before the announcement that Wabush would close, the media might have focused on whether the extra power was needed. Now when they announce it (today or tomorrow) they get to seem like white knights pulling off a deal that rescues the whole region from mass unemployment! This all seems like great news for Alderon and Altius. The huge numbers of skilled people who will be looking to get jobs at Kami has got to have a reasonable impact on the economics of the mine. N. Yes - should bring costs down for Kami. Link to comment Share on other sites More sharing options...
cwericb Posted February 13, 2014 Share Posted February 13, 2014 "Premier Announces Third Transmission Line for Labrador West" http://www.vocm.com/newsarticle.asp?mn=2&ID=43404 or http://www.vocm.com/newsarticle.asp?mn=2&ID=43427 Link to comment Share on other sites More sharing options...
original mungerville Posted February 13, 2014 Share Posted February 13, 2014 Are we the only ones tracking this? Anyone think Alderon is good for a quick pop here - stock still hasn't moved! Link to comment Share on other sites More sharing options...
havingheart Posted February 13, 2014 Share Posted February 13, 2014 Looks like the link is down already, doesn't seem to work for me Link to comment Share on other sites More sharing options...
cwericb Posted February 13, 2014 Share Posted February 13, 2014 Alderon is up about 10% today in relatively high volume. Link to comment Share on other sites More sharing options...
cwericb Posted February 13, 2014 Share Posted February 13, 2014 Try this link http://www.vocm.com/index.asp or http://www.vocm.com/newsarticle.asp?mn=2&ID=43427 "Premier Tom Marshall has confirmed that an agreement has been reached for a third transmission line to Labrador West. The premier, joined by Natural Resources Minister Derek Dalley and area MHA Nick McGrath made the announcement in Wabush. Marshall says the role of government is to provide support to the industry. He also says government will do what it can to help the people of Wabush affected by the closure of the mine. He says over the next few weeks, labour market resources will be provided in the town. VOCM News is in Wabush and more details will be announced shortly." Link to comment Share on other sites More sharing options...
original mungerville Posted February 13, 2014 Share Posted February 13, 2014 Yes, Alderon is up today (Altius not so much) but did not move at all on the announcement. Either a) the news was already in the Alderon stock price this morning with the heavy trading, or b) more upside will happen as Alderon puts out its press release later today, or c) those in a) will sell the press release news in b)!!!! See this is why its good to be long-term! Link to comment Share on other sites More sharing options...
cwericb Posted February 13, 2014 Share Posted February 13, 2014 Here is another article http://www.thetelegram.com/News/Local/2014-02-13/article-3614708/Marshall-gives-OK-for-third-transmission-line-between-Churchill-Falls-and-Labrador-West/1 Link to comment Share on other sites More sharing options...
cwericb Posted February 13, 2014 Share Posted February 13, 2014 Mungerville, to say Alderon has not moved is not really correct. I think that the announcement was so anticipated over the past week and a half that it had already moved a fair amount. Ten days ago it was ADV was at $1.71 and is now around $2.08, that's about 20%. Alderon is pretty good at pumping the stock so we will see what they do with this news. While some are not in favour of the company promoting their own stock, it certainly can't hurt circulating press releases to bring this to investors attention. Government may also have a few more goodies to release over the coming weeks as they attempt to keep people in the region from panicing after the other mine closures. I guess the next move for Alderon will be financing. They probably have it pretty well in place as a few weeks ago they announced orders were placed for material handling systems for the the shipping port. "Alderon placed orders in December 2013 for two of the most critical pieces of its material handling system for the Pointe-Noire ore shipping terminal. An order has been placed with Metso Minerals Canada for the supply of the Rotary Car Dumper which is due for delivery in Q1 2015. The Stacker-Reclaimer will be acquired from Sandvik AB and the delivery is scheduled for Q2 2015. Additionally the Autogenous mill and ball mill drive systems were awarded to General Electric which complement the mills that were ordered in August 2013" I am a little surprised this hasn't seemed to have any effect on Altius yet, but we will see. Link to comment Share on other sites More sharing options...
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