ALS.TO - Altius Minerals

[SharperDingaan]

The basic argument, articulated in various forms, & by many people; is that given the foreseeable environment, it is better to sell Kami &/or JL - versus try to develop them. Most would think management probably has a similar view.

 

It then just becomes if you can sell, how much, at what price, & when. We know there is interest, but the price may be lower than expected, & the transaction may be different from that originally contemplated.

 

At the extreme, they could simply sell all their Kami & JL royalties, JL claims, & shares in ADV; & very likely repay all debt & have some significant change left over. Leaving a simple, diversified royalty coy, with a very strong BS & significant cash flow, in a position to start paying dividends. One or two transactions  away, & we know the properties are being shopped.

 

If you believe they will develop versus sell, because they cannot get the price they want; then the falling share price is warranted. And if this were inexperienced management looking to make a reputation developing a mine - you might even be right. But it assumes management cannot put the ego away, & there are no sane people whispering in their ear.

 

Feeing lucky  :)

 

SD

[cwericb]

Financial Post article on Alderon today:

 

Alderon: Pillars of Production

 

http://business.financialpost.com/2014/03/11/alderon-pillars-of-production/

 

 

 

[original mungerville]

Just to be clear, I have a large position, but its so damn hard to figure out where we are right now in these markets as the Fed and other central banks have potentially distorted so many markets over the past few years.

 

We seem to have Buffett on the inflation side, Watsa on the deflation side, and Seth Klarman hedging against both with a large cash position and call options on precious metals.

 

Anyway, at this share price and considering there is value in Kami now that its all set and ready, its going to be pretty hard to lose money in Altius - which usually means an investor will make money.

[Guest Dazel]

The Board has the jitters...here is perspective for you...I hate to see you guys worry.

 

Anglo Pacific group (a royalty company with 50% royalty from coal and 20% iron ore)

market cap $435m Toronto Stock exchange

 

2013 royalty revenue in pounds 12m@$1.85cdn=$22.2m (19.59 times)=$435m and very little cash as they dividend it all out.

 

Altius-PMRL and Voisey $30m x 19.59 =$587m-net debt of $37m (high)= $550m market cap implied for Altius

                                  $30m x 15    =$450m-net debt of $37m          =$423m

                                  $30m x 10      =$300m-net debt of $37m          =$263m

*The industry norm is 15x

 

Kami                            $25m x 10      =$250m @ Altius target of $110 per ton (Todays price for iron ore in cdn $116)

Julienne lake                $70m x 10      =$700m  @$110

 

Altius is not trading like a royalty company yet....keep in mind they sold International Royalty company to Royal Gold at 37x in 2010. You will not be able to find another diversified royalty company today that trades below 15x...but please try.

 

Management and all of the other assets have great value (ballpark $100m-these outside the net debt number) but you do not need them to get valuations on par with the other royalty companies...the market is waiting for the deal closure the sooner the better.

 

Dazel

 

 

[abyli]

Dazel:

Out of the $30M Royalty, do you know how much tax we need to pay? Thanks.

Bing

[Guest Dazel]

Bing,

 

If you check the thread there is an analysis of the taxes...however, the royalty industry does not trade on after tax multiples and this is one of the reasons Altius' valuation is lagging it's peers. Once the PMRL deal is done I am going to start a new thread (this is one is waaaaaayyyy too long!)..the new thread will explain royalty companies and will do an in depth analysis of Altius in comparison to the industry.

 

Dazel.

[ItsAValueTrap]

Financial Post article on Alderon today:

 

Alderon: Pillars of Production

 

http://business.financialpost.com/2014/03/11/alderon-pillars-of-production/

 

It seems to be a fluff piece written by Jay Currie of Resources Wire.  (I find it interesting that the National Post did not prominently credit Jay Currie as the author.  Normally the National Post credits journalists.)

 

The Resources Wire website has a disclaimer:

http://resourceswire.com/disclosure-and-disclaimer/

Some of the companies featured at resourcewire.com pay resourcewire.com for advertising or dissemination services.

 

In my opinion, it's a shame that the National Post is lowering its standards by reprinting public relations pieces.

[original mungerville]

Dazel,

 

Thanks for the comparison as it is quite similar to Altius. We have been using a 15x multiple on this thread (with 10x as a low low-ball). Indeed at 15x you basically can't lose money in Altius at its current market cap when the PMLR deal closes.

 

Being a cheap ass value investor, I am still getting my head around that high 15x multiple. It does make sense because there are not many businesses out there where you can generate future earnings with almost no capital investment. Altius generates future earnings through its expertise rather than capital which is a huge benefit. Dalton also seems to try to buy cheap and zig when the market zags. Its quite a nice package long-term.

 

When you have a nice package long-term, and in the short-term things go badly (eg, lets say Iron Ore drops another 20%), Mr Market usually offers you a nice price which often over shoots on the downside. So its pretty hard to go wrong if you can double down.

[beerbaron]

Financial Post article on Alderon today:

 

Alderon: Pillars of Production

 

http://business.financialpost.com/2014/03/11/alderon-pillars-of-production/

 

It seems to be a fluff piece written by Jay Currie of Resources Wire.  (I find it interesting that the National Post did not prominently credit Jay Currie as the author.  Normally the National Post credits journalists.)

 

The Resources Wire website has a disclaimer:

http://resourceswire.com/disclosure-and-disclaimer/

Some of the companies featured at resourcewire.com pay resourcewire.com for advertising or dissemination services.

 

In my opinion, it's a shame that the National Post is lowering its standards and reprinting public relations pieces.

 

Thank you for pointing that out. When I red the article I was actually asking myself how such evident advertising was possible in a known journal. Credibility has it's price I guess.

 

BeerBaron

[hohi]

The Board has the jitters...here is perspective for you...I hate to see you guys worry.

 

I am exactly invested in ALS because I don't want to worry. And I don't. As you know most of my devils advocate arguments are ridiculous. But it is true, that we may got ahead of ourselves in the discussion. Nothing is riskless.

 

I am here for the long term (at least 15+ years) and actually just want the dividend in the end. To me it doesn't matter if the share price fluctuates wildly, if there's a steady dividend to comfort me in the meantime. And with the sherrit deal we'll see a super stable revenue stream that will give ALS a more than solid base for dividend payments for the next few decades at least. Even if nothing else comes together that'll be good enough for a dividend that's higher than the S&P500s.

 

Nothing to worry about. But a lot to discuss and look forward to.

[FFHWatcher]

Below is a post from just over 2 years ago.  Not from Altius or Alderon.  Another great talent (Chad) who looked like a genius for buying out of favour things for pennies on the dollar.  He had previous success, numbers and scenarios about the future were dissected here on the board to the n'th degree.  People were almost arguing whether they would be making $150M or $200M/yr in EBITDA just from Thurso alone.  On top of that, other assets were being ignored and Thurso itself was worth $75/share.  5 or 6x's EBITDA wasn't used, 5.5 was, because it was more accurate.  8.5 was more accurate than 8 or 9x's. 

Price back then was $35-40/share so the $92.75/share estimate (not $92 or $93) still provided lots of room for growth.

Let us not underestimate what might or could happen or get carried away with the future.

FTP closed today at $2.83 and it has absolutely nothing to do with Altius. 

FFHWatcher

 

Post from Oct 11, 2011....from on this Board....

1) Thurso shutdown for conversion to DP. Should begin November 7th.

2) Spot prices are currently $1650 - $1700 for DP and rising.

3) All in cost delivered to Shanghai is in the low $600's once the Cogen facility is built out.

4) At current prices that produces about $1000 EBITDA/ton.

5) Capacity is 200,000 tons => therefore runrate EBITDA of $200M from Thurso

6) Only a handful of mills are actually suited for conversion, worldwide.

7) Intending to conclude a couple more acquisitions in the next 6-9 months.

______________________________

 

So, just for shits and giggles:

 

Dresden should do about $26M EBITDA in 2012 and I'll assign a 5.5X multiple to this business

Landquart should do about $13M EBITDA in 2012 and I'll assign a 8.5X multiple to this business

As per above if conditions hold, Thurso will produce normalized EBITDA of $200M. But the co gen isn't up and running yet and there is bound to be some hiccups getting to capacity. So, accounting for a ramp up of production and higher expenses due to no co gen facility I'll knock off 10% and suggest a annual 2012 EBITDA target of $180M. I'll assign a 6X multiple for this business.

 

Sum of the parts using 14.292M shares

 

Dresden: Value of $10/share

Landquart: Value of $7.75/share

Thurso: Value of $75/share

 

Sum = $92.75

 

[hohi]

Sure, everything can happen. But ALS is as good as it gets in the resource sector. As long as the world needs raw materials, food and energy we will be fine. The beauty of the royalty and prospecting business is that other people take most of the risks. You just have to make sure your partners are solid. With the Sherritt deal closed ALS will have royalties on the best potash projects, one of the best nickel projects, electrical coal with fixed prices and the royalties on iron ore that are maybe not the best, but because of the strategic value to the chinese they are solid as well, imho.

It will be a bumpy ride, but I can't see a disaster scenario here.

[giofranchi]

Hi ap1234,

thank you very much for your very useful contribution!

 

I will try to answer some points you have rightly brought up:

 

It is not enough to know that we are partners in ALS. Because that tells nothing about position sizing, and about averaging down. For instance, original mungerville has written he will wait for a larger decline, before averaging down. Well, then my calculation of NAV for ALS must be wrong… I have come to a NAV of $233 million and Dazel has said I have lost circa $70 million along the way… Let’s suppose he is way too optimistic about ALS, and that I have lost just 50% of the figure he has mentioned, $35 million. Let’s also suppose that ALS equity portfolio in a market crash might take a 50% hit, so let’s put its value at $60 million instead of $80 million. With these numbers I get to a NAV for ALS of nearly $250 million. With a market cap at yesterday closing of $370 million. A company that has grown NAV at 29% annual for 17 years is selling for 1.48 x NAV, now that it also enjoys a steady and reliable stream of free cash… Even if you assume an annual rate of growth which is half the historical one, because macro conditions will be a strong headwind for a long time, it simply seems a great deal to me… So, why is original mungerville waiting? And what are you doing? I am not rushing in, I never do, but I neither wait. Instead, I have a gradual plan of averaging down, as long as the price keeps declining.

 

In other words, what is your conservative assessment of NAV for ALS? Is it much different than mine? And what is your conservative assumption for future growth? Is it much lower than 15% compounded annual? According to your conservative assessment of NAV and conservative assumption for future growth, which are the actions you have taken (position sizing), and the ones you plan to take (averaging down)?

 

Thank you, :)

 

Gio

 

[giofranchi]

Below is a post from just over 2 years ago.  Not from Altius or Alderon.  Another great talent (Chad) who looked like a genius for buying out of favour things for pennies on the dollar.  He had previous success, numbers and scenarios about the future were dissected here on the board to the n'th degree.  People were almost arguing whether they would be making $150M or $200M/yr in EBITDA just from Thurso alone.  On top of that, other assets were being ignored and Thurso itself was worth $75/share.  5 or 6x's EBITDA wasn't used, 5.5 was, because it was more accurate.  8.5 was more accurate than 8 or 9x's. 

Price back then was $35-40/share so the $92.75/share estimate (not $92 or $93) still provided lots of room for growth.

Let us not underestimate what might or could happen or get carried away with the future.

FTP closed today at $2.83 and it has absolutely nothing to do with Altius. 

FFHWatcher

 

Post from Oct 11, 2011....from on this Board....

1) Thurso shutdown for conversion to DP. Should begin November 7th.

2) Spot prices are currently $1650 - $1700 for DP and rising.

3) All in cost delivered to Shanghai is in the low $600's once the Cogen facility is built out.

4) At current prices that produces about $1000 EBITDA/ton.

5) Capacity is 200,000 tons => therefore runrate EBITDA of $200M from Thurso

6) Only a handful of mills are actually suited for conversion, worldwide.

7) Intending to conclude a couple more acquisitions in the next 6-9 months.

______________________________

 

So, just for shits and giggles:

 

Dresden should do about $26M EBITDA in 2012 and I'll assign a 5.5X multiple to this business

Landquart should do about $13M EBITDA in 2012 and I'll assign a 8.5X multiple to this business

As per above if conditions hold, Thurso will produce normalized EBITDA of $200M. But the co gen isn't up and running yet and there is bound to be some hiccups getting to capacity. So, accounting for a ramp up of production and higher expenses due to no co gen facility I'll knock off 10% and suggest a annual 2012 EBITDA target of $180M. I'll assign a 6X multiple for this business.

 

Sum of the parts using 14.292M shares

 

Dresden: Value of $10/share

Landquart: Value of $7.75/share

Thurso: Value of $75/share

 

Sum = $92.75

 

Well, the job and responsibility of each entrepreneur are to know who he is partnering with and to know what he owns and at what price. Then, if he has made some serious mistakes, to bear the burden of the inevitable consequences without complain. ;)

 

Without providing the knowledge of whom was owning and managing that other business, without explaining the quality of that other business, and without clearly showing why the comparison with ALS should be relevant, imo the piece of information inside your post, though maybe a precious one, remains not actionable.

 

Gio

 

[nostradamus]

I already have a very large % of my portfolio in ALS. Like hohi, I am in it for the dividends - this is my retirement income.

 

That said, I bought a bit more yesterday, this time as more of a short-term trade in antipcipation of the JL announcement. According to the ALS slides the decision is imminent.

 

Surely when the market examines the JL deal (assuming ALS are successful) it will start to appreciate its significance and reflect this in the ALS share price? They stand to get a royalty stream that exceeds PMRL, Voisey and Kami combined! This would be massive.

 

Also, on a separate issue, Paladin provided a project update on their website last month for the Michelin uranium deposit, on which ALS has a royalty. It notes:

 

"Paladin’s objectives for the Michelin Project comprise expanding its existing uranium resource in the region through a two to three

year exploration programme and developing this resource in the 2018-2020 timeframe into a long-life mining and milling

operation, subject to economic viability."

 

N.

 

[hohi]

Oh I don't know if it was mentioned here before, at least I don't remember it.

 

Altius is going to purchase 100% of the coal properties (CDP). It was stated before that they were buying 50% for $21M (with Ontarios Teachers owning the other 50%), not they state that they'll buy 100% for $42M.

 

It looks interesting because it seems they already have partners/interest/royalties planned out. As I have said many times before, in the resource business it is paramount to understand and play the cyclicality of the sector. ALS is imho the best example of a management team that delivers on this promise. Coal is depressed right now. thats why ALS is buying it.

 

We may hear a lot of good news from this CDP aquisition in the coming decade ahead...

[Blue Macaw]

Oh I don't know if it was mentioned here before, at least I don't remember it.

 

Altius is going to purchase 100% of the coal properties (CDP). It was stated before that they were buying 50% for $21M (with Ontarios Teachers owning the other 50%), not they state that they'll buy 100% for $42M.

 

It looks interesting because it seems they already have partners/interest/royalties planned out. As I have said many times before, in the resource business it is paramount to understand and play the cyclicality of the sector. ALS is imho the best example of a management team that delivers on this promise. Coal is depressed right now. thats why ALS is buying it.

 

We may hear a lot of good news from this CDP aquisition in the coming decade ahead...

 

I thought it was 21 million for 50 % and that they only stated that the total price for the whole thing was 42. I did not interpret it like they were going to purchase 100 %

[hohi]

from the current presentation

 

Altius is acquiring on a 51% basis... the royalties

And on a 100% basis ... CDP

 

Seems they'll buy OTTP's 50% for $21M also...

[giofranchi]

ajc in a PM asked me if I think ALS should be looked at via price/NAV or price/fcf. I think it is a good question, therefore I am answering on this thread.

First of all, let me say that I like the most conservative valuation metric that makes sense. What do I mean with “that makes sense”? Well, original mungerville has written:

 

there are not many businesses out there where you can generate future earnings with almost no capital investment. Altius generates future earnings through its expertise rather than capital which is a huge benefit.

 

Usually, a company that doesn’t employ much capital to generate earnings cannot be looked at via price/NAV, instead should be looked at via price/fcf. Price/NAV for such a company would surely be too conservative and would lead to almost useless information.

Now, the fact that we can look at ALS via price/NAV, despite that ALS “generates future earnings through its expertise rather than capital”, and still come up with a reasonable valuation, is imo another, though not often appreciated, margin of safety: the use of a more conservative valuation metric, one that, if applied to most businesses which generate earnings through intangible assets (like expertise), is almost always conservative to the point of making no sense at all.

 

Gio

 

[nostradamus]

Great spot hohi, I had not noticed that they are now planning to buy all of CDP. Owning the whole thing should really help when it comes to negotiating with potential developers (ie not have to consult a third party).

[Guest Dazel]

Gio,

 

Agreed...valuation is different at Altius...here is why I think you were light and Hohi picked up on my $42m question on why CDP was missing....from your NAV.

 

3 parts to Altius

 

1. Royalties-comparable to the royalty sector and liquid assets that trade at high premiums

2. NAV-CDP ($42m), 11 projects including Julienne Lake

3. Management-Altius ability to monetize the assets and capital costs and expenses.

 

In your valuation 2. And 3. Were valued at 0...they are however, worth an an amount that has yet to be determined....and I would argue if sold today $50m to $100m.. with Altius monetizing over time worth many times that amount and that does not include Kami or Julienne Lake royalty as you also did not include in your valuation.

 

 

 

Dazel.

[Guest Dazel]

http://www.mbironoreindex.com/Article/3318475/MBIO-Index-12-March-2014-Index-up-again.html

 

 

FYI- you will have to look to find out iron ore has been up for the last two days....not a media story.

[giofranchi]

3 parts to Altius

 

1. Royalties-comparable to the royalty sector and liquid assets that trade at high premiums

2. NAV-CDP ($42m), 11 projects including Julienne Lake

3. Management-Altius ability to monetize the assets and capital costs and expenses.

 

In your valuation 2. And 3. Were valued at 0...

 

Dazel,

I don’t think I valued 2 and 3 at 0… I just believed Kami and Julienne Lake were two future projects that couldn’t be sold nor monetized today. That’s why I didn’t count them in my present NAV estimation for ALS. But they certainly were accounted for in my assumption of a 15% CAGR for the next 15 years!

If, instead, like you have made me notice, they could be monetized right away, what ALS might be able to sell them for in today’s market should be added to my present NAV estimation. This is a correction I think I have made, getting to a present NAV for ALS of $250 million.

Anyway, whoever comes to a different number, please let me know! ;)

 

Gio

 

[original mungerville]

from the current presentation

 

Altius is acquiring on a 51% basis... the royalties

And on a 100% basis ... CDP

 

Seems they'll buy OTTP's 50% for $21M also...

 

No, I'm not sure. The 51% is in reference to Liberty and 2 other private partners. The 100% may therefore also be in reference to Liberty and the 2 other partners. Ie they are buying 100% of the 50% for $21M.

 

So, I am not sure there has been a change. Maybe...maybe not?

[original mungerville]

Hi ap1234,

thank you very much for your very useful contribution!

 

I will try to answer some points you have rightly brought up:

 

It is not enough to know that we are partners in ALS. Because that tells nothing about position sizing, and about averaging down. For instance, original mungerville has written he will wait for a larger decline, before averaging down. Well, then my calculation of NAV for ALS must be wrong… I have come to a NAV of $233 million and Dazel has said I have lost circa $70 million along the way… Let’s suppose he is way too optimistic about ALS, and that I have lost just 50% of the figure he has mentioned, $35 million. Let’s also suppose that ALS equity portfolio in a market crash might take a 50% hit, so let’s put its value at $60 million instead of $80 million. With these numbers I get to a NAV for ALS of nearly $250 million. With a market cap at yesterday closing of $370 million. A company that has grown NAV at 29% annual for 17 years is selling for 1.48 x NAV, now that it also enjoys a steady and reliable stream of free cash… Even if you assume an annual rate of growth which is half the historical one, because macro conditions will be a strong headwind for a long time, it simply seems a great deal to me… So, why is original mungerville waiting? And what are you doing? I am not rushing in, I never do, but I neither wait. Instead, I have a gradual plan of averaging down, as long as the price keeps declining.

 

In other words, what is your conservative assessment of NAV for ALS? Is it much different than mine? And what is your conservative assumption for future growth? Is it much lower than 15% compounded annual? According to your conservative assessment of NAV and conservative assumption for future growth, which are the actions you have taken (position sizing), and the ones you plan to take (averaging down)?

 

Thank you, :)

 

Gio

 

Gio,

 

I'm probably waiting because I have a larger percentage of my portfolio already in Altius than you! So while you will average down gradually, I will do so in larger variances to the current price.

 

Further, with temporary debt now in the equation, enterprise value (and NAV) will change less percentage wise relative to the equity market capitalisation. So changes in the stock price will produce less of an impact on NAV percentage wise, therefore I need bigger moves in the stock price.

 

Having said that, I don't think we see the stock ever go back to $10. Probably can't get below $13...but I never say never...