ALS.TO - Altius Minerals

[Guest Dazel]

 

 

The original piece done by Stanberry is interesting because it simply makes the point that Franco Nevada always traded at ebitda multiple of 20 or better because they had a great business in royalties but they were growing. They are arguing that Altius will deserve  this multiple as well because of the quality of their royalties after the deal and their pipeline. I would add that Franco Nevada still trades at this multiple now even though it will be almost impossible for them to grow as quick as Altius because of their size....

I do like the handle "the next great Royalty Company!" it has a nice ring!

 

More like cha Ching...

 

Dazel.

[giofranchi]

just rambling since I'm feeling annoyed that I didn't pick up more shares, I'm becoming more and more convinced of the idea of buying bigger portions instead of nibbling as share price gets lower and lower

 

havingheart,

why should these two things be mutually exclusive?

For instance, I started a 7% position almost right away, then averaged down till I got to a 10% position.

I want to build a significant enough position in a business I like a lot, when the price is right. But I also want to leave some room to average down.

Because the simple truth is in the market you never know… ;)

 

Gio

 

[jouni1]

just rambling since I'm feeling annoyed that I didn't pick up more shares, I'm becoming more and more convinced of the idea of buying bigger portions instead of nibbling as share price gets lower and lower

 

don't worry. the newsletter people will get bored and sell in a few days and with no news, the stock will be even lower (i hope, i'm not full yet either).

[Phaceliacapital]

Rated new buy at Salman Partners, TP of 17.90 (.90 , where do they get this??).

 

Included for your comfort:

 

ALTIUS.pdf

[giofranchi]

Rated new buy at Salman Partners, TP of 17.90 (.90 , where do they get this??).

 

Included for your comfort:

 

Thank you for posting. :)

 

They get to a NAV more than double the one I had calculated...

 

Gio

[roughlyright]

Rated new buy at Salman Partners, TP of 17.90 (.90 , where do they get this??).

 

Included for your comfort:

 

Phaceliacapital,

 

Thank you for posting this  :) Very informative!

[giofranchi]

Rated new buy at Salman Partners, TP of 17.90 (.90 , where do they get this??).

 

Included for your comfort:

 

Thank you for posting. :)

 

They get to a NAV more than double the one I had calculated...

 

Gio

 

Dazel & others,

any comment on the NAV calculated by Salman Partners?

 

Thanks,

 

Gio

[hohi]

Basically it's a good report IMO. I don't like their "low" discount rate of ~6,5%, I am more conservative and using 10%. They don't emphasize enough the opportunity in Julienne Lake plus don't even mention Geothite Bay (at least I didn't read it). But in general it looks like ALS will be getting a lot more attention in the coming years as people slowly realize the completion of a cash-flow machine Dalton et al. are building since 1997.

[giofranchi]

I don't like their "low" discount rate of ~6,5%, I am more conservative and using 10%.

 

Even more controversial imo is to use the NPV of assets that have yet to commence pay-out… In a NAV calculation those assets should be included only for what they could actually be sold in the market today. Their market value should be considered, not the NPV of streams of cash tied to some future production that might never materialize… No discount rate (certainly not 8.76%!!) can account satisfactorily for such an uncertainty.

 

This being said, yesterday, even after the big jump of the day before, I added more. :)

 

Gio

 

[Guest Dazel]

 

 

Gio,

 

Have only had a few minutes to glance at the report...

I could be wrong with my assumptions...

 

-they are using a 1.1 multiple of NAV..so whatever it is... that is not a correct multiple for a royalty company...this is something I will explore in another thread when PMRL is done.

 

-they have said they had a 0 valuation NAV for Julienne Lake...it seems they covered it well though from a quick glance.

 

-looks like they footnoted the possibility of another approx $10 of share price of "blue sky" NAV if Julienne Lake is the same size as Kami.

 

I will look at more when I get time...

 

I continue to add...for two reasons.

 

You absolutely "cannot" buy a diversified royalty company Anywhere on the planet for less than 15x ebitda (find one!)...and Brian Dalton and his team will monetize An exceptional low cost low risk asset base into more cash and more royalties.

 

Dazel.

 

 

 

[ap1234]

Gio, I thought the report was well written and provides a good summary of the company's history, business model as well as a discussion of some of its primary assets.

 

But I think you nailed it on the head. When it comes to valuation analysis and a discussion of risks, it was somewhat lacking. I don't think valuation analysis for a company like Altius should be based upon a static NAV (there are way too many unknowns). It probably makes more sense to run a scenario analysis and come up with a range of values. For example, what is the upside to the NAV if Kami and JL come online? What is the downside if Kami is postponed for several years? The report seems to suggest Kami is a certainty to come online as schedule next year which may or may not be the case.

 

I think a better exercise is to come up with a range of values (say from $9-10 to $30) and then the reader can handicap the different probabilities (each scenario is not equally likely to occur).

 

The discussion of risks was extremely limited (and tucked away at the bottom of the report). The possibility of any delays on the pre-production mines was not even discussed which is somewhat misleading to potential investors.

 

 

 

 

[SharperDingaan]

We think one has to realize this is a moving target, & that multiples are going to change as events unfold.

 

As is; a multiple of 15x, today, is more appropriate (21.50). Yes there is blue-sky, but it is far advanced, & most folks recognize there is value to it. We are just questioning the value, not existence, or completeness. You cannot value as though this blue-sky does not exist.

 

Post announcements, & commencement of dividend, a multiple of 17.5x. None of us know the timing, if there are more royalties, or the future div payout ratio; but all would agree that ALS will be worth more - simply because there is less uncertainty. 17.5x as the average between todays multiple of 15, & tomorrows multiple of 20

 

When the big royalty flows start, & the dividend increases, a multiple of 20x (Franco-Nevada). 2-3 years out.

 

Obviously, ALS is still very undervalued as at yesterdays close.

 

SD

 

[giofranchi]

Obviously, ALS is still very undervalued as at yesterdays close.

 

SD

 

I try and keep my eyes open on the major risks, but I agree with the statement above. :)

 

Gio

[Williams406]

For me, the recent analyst report didn't contain a lot of facts or info I didn't already know. But the historical summary did get me ruminating on management quality for a bit instead of the current assets and near-term opportunities. My thanks for posting it. Hearing about management drawing up their royalty "hit list" and knowing that they approached Sherritt back in 2008 speaks of entrepreneurial and proactive qualities--perhaps a "hustle factor"--that I value. Holding a hefty cash stake for as long as they did suggests a discipline that I think is pretty rare. Standing with the bat on your shoulder gets boring. Wait for the right pitch, though, and you'll bat....406, to pull a random number off the top of my head.

 

My sense is management thinks about risk/reward and capital commitments differently post NLRC, which, if correct, suggests adaptability and some humility. Also very important qualities. Some folks might have attributed that experience to bad luck, stuck with the same playbook, and redoubled their efforts resulting in there being no end to what they couldn't do...

 

When some of the dust settles on Kami and JL and should some of the future success for Altius that I think probable materialize, there are risks there: e.g. greyhound catching the rabbit, "midas touch" delusions, etc. But my hope is that Dalton and team indeed have and retain these positive qualities I perceive and remain partners of mine for a long time to come. The company is at an inflection point, but also has a long growth runway, potentially. Contrarian thinking in a cyclical industry, coupled with discipline, intelligence, and capital should work out well for Altius. I concede that there are a range of outcomes possible here in the near term, some of which would be tough as a shareholder. But I also see a process of creating value that is repeatable over the long term if I'm right about management quality. 

 

In any event, I've got a front-row seat and some popcorn.

 

 

[giofranchi]

In any event, I've got a front-row seat and some popcorn.

 

;D ;D

Me too! Some new funds arrive next monday, and I will buy more ALS and LRE. :)

 

Cheers,

 

Gio

[hohi]

Couldn't resist and bought a bunch more. Looks like we own almost half the company with this board by now ;).

 

If the SP jumps after the JL announcement I'll sell some though, as my holdings in ALS are a ridiculously huge part of my resource portfolio by now.

 

Keep it up.

[alertmeipp]

 

 

Gio,

 

Have only had a few minutes to glance at the report...

I could be wrong with my assumptions...

 

-they are using a 1.1 multiple of NAV..so whatever it is... that is not a correct multiple for a royalty company...this is something I will explore in another thread when PMRL is done.

 

-they have said they had a 0 valuation NAV for Julienne Lake...it seems they covered it well though from a quick glance.

 

-looks like they footnoted the possibility of another approx $10 of share price of "blue sky" NAV if Julienne Lake is the same size as Kami.

 

I will look at more when I get time...

 

I continue to add...for two reasons.

 

You absolutely "cannot" buy a diversified royalty company Anywhere on the planet for less than 15x ebitda (find one!)...and Brian Dalton and his team will monetize An exceptional low cost low risk asset base into more cash and more royalties.

 

Dazel.

 

Dazel,

 

Any reason Sherritt does not spin off the royalties themselves rather than give such a deal to ALS?

[beerbaron]

Couldn't resist and bought a bunch more. Looks like we own almost half the company with this board by now ;).

 

Well maybe we could be elected someone on the BOD with our shared votes :)

 

BeerBaron

 

[giofranchi]

The more I think about it, the better I like Altius’ business model: the first part, the project generator, is where growth might be pursued and achieved; the second part, the royalty portfolio manager, is where the free cash flow might be generated.

 

This two parts business model enjoys some peculiar and very rare to find advantage: it might distribute to shareholders all the free cash it generates and still be able to grow.

 

If you think about it, we either have a business which distributes all its earnings, or a business which retains them and invest in growth opportunities (of course, these are the extremes: we might have businesses that retain some of their earnings and distribute the rest, or we might even have businesses that distribute all their earnings and constantly raise new equity to invest in growth opportunities, see for instance MLPs).

 

What I think I have never found before is a business which can do both things: to distribute all its earnings and to grow at the same time. Because Altius clearly doesn’t need the cash produced by the royalty portfolio to grow. As long as the first part of the business keeps working well, the capital it needs to develop new ideas and projects is quite limited. Practically all the cash produced by the royalty portfolio might be distributed to shareholders and still grow over time, because of new projects that will bring in new royalties or new equity investments, that eventually become royalties themselves.

 

Imo what we have got here is an outlier: a business that might pay out all its earnings and still grow handsomely… think of a Lancashire that could grow fast too! Wow! ;)

 

What do you think?

 

Gio

 

[Blue Macaw]

Info from Arch coal presentation

 

• Coal consumption in Southeast Asia

is projected to grow by 4.8% per year

through 2035 – tripling to approximately

400 million tons over that time frame

• Various sources project that South

Korea’s thermal imports could increase

by 60 million tonnes or more by 2022

• Japan’s coal use rose 15% in 2013; two

new coal plants came online in December

2013; and coal is increasingly viewed

as a strategic substitute for shuttered

nuclear plants

• In addition, the Pakistani government

has announced plans to add nearly 10

GWs of new coal-based capacity

• 
  
• 
  

Germany’s coal consumption reached

a five-year high in 2013

[Blue Macaw]

It would not surprise me if Altius strikes a deal with a chinese partner for some coal delivery to China.....

[Guest Dazel]

 

Alertmiepp,

 

I would rather not comment on the PMRL deal anymore until it's done...it is transformational to Altius.

 

Gio,

 

I agree 100%....Altius will become a cash machine...and will send the cash to shareholders...as Lancashire does...great business with great management is economic nirvana!

 

Iron ore prices have risen steadily to where they were before the much publicized drop...and the USD-Cdn currency exchange has Remained favorable for Canadian resource producers..low cost of production.

 

April should be a huge month for Altius.

 

Dazel.

[hohi]

Just did a little more DD on the CDP properties. As it seems one part of the deal is the Telkwa Coal project in BC.

 

looks very, very interesting

http://webmap.em.gov.bc.ca/mapplace/Coal/telkwa.cfm?map=Telkwa

 

and if the info from this site is correct, there may be good value there (in 1998 it was worth more than $100M).

http://www.informetrica.com/ccp/subscribe/PROJ_BC.HTM

 

The more I think about it, the more I like it. Everybody hates coal. Even me. Brilliant move ;).

[hohi]

Oh I forgot to say that there could be a good amount of natural gas there, too. And that's just one of the project of course. If ALS could strike a JV deal for the coal gasification - that is some bluesky potential right there. But let's not get ahead of ourselves... I want to see this deal closed first.

[bizaro86]

My paper today had a regulatory notice in it about Capital Power expanding the Genessee power plant with two new phases. However, they'll be building combined cycle natural gas generating units, not coal units. This suggests to me that no new coal plants will get built in AB unless gas prices jump dramatically, and carbon capture technology improves. However, it also makes it more likely (imo) for Capital Power to waive their ROFR.

 

More here: http://www.capitalpower.com/generationportfolio/constructiondevelopment/Pages/G4and5.aspx