ALS.TO - Altius Minerals

[Blue Macaw]

Just for infomation about Chinas coal and iron ore import last year:

 

http://www.bloomberg.com/news/2014-01-10/china-s-ore-to-coal-imports-reach-records-in-13-as-demand-gains.html

[jouni1]

i'm sure this has been tackled here many times, but this thread is unsearchable.

 

what is this right of first refusal on the royalties? who can do it, and will they? is it normal to say somebody has rights of first refusal and not even tell the investors who that is or any additional information? i just started to worry if the lack of information is a bit junior miner'esque  ::) or i might have simply missed something, if so, thanks for the link!

 

everybody seems to be thinking altius got a deal, maybe someone wants to get in on it?

 

[giofranchi]

 

Unless Iron Ore prices fall out of bed, my guess is its going to be hard not to make money here in the short, medium and long-term.

 

Do me a favour, never ever, ever, ever... say this again for a stock I own... :-)

I will likely sell tomorrow after your post...

 

Me, I don’t care much about the short and medium term… On the contrary, you know what? I really hope to lose money in the short and medium term! So that, as long as my view on ALS business model doesn’t change, I get to average down and to buy more shares cheaply: I am sure this way the money I will make in the long run will be greatly enhanced!

And I don’t think I only talk the talk… instead, I think I walk the walk too! Just look at what I am doing with Lancashire… I sincerely hope I get the chance to replicate that same process of buying at lower and lower prices with Altius too. As long as I am right about Lancashire and Altius business models, I am getting very rich. ;)

 

Gio

 

[giofranchi]

i'm sure this has been tackled here many times, but this thread is unsearchable.

 

what is this right of first refusal on the royalties? who can do it, and will they? is it normal to say somebody has rights of first refusal and not even tell the investors who that is or any additional information? i just started to worry if the lack of information is a bit junior miner'esque  ::) or i might have simply missed something, if so, thanks for the link!

 

everybody seems to be thinking altius got a deal, maybe someone wants to get in on it?

 

Maybe Dazel knows the name of the third party that might exercise ROFR until April 23, 2014. I admit I don’t know.

Anyway… If I read the numbers correctly, the Genesee royalty would account for 22% of Altius’ 2015F royalty revenues, while the price Altius and its partners will have to pay, if the ROFR is exercised will be $251 million less than in the case it expires unused. Instead of $460 million, they will have to pay only $209 million.

A 22% decrease in revenue vs. a 55% decrease in price… Not bad! ;)

Furthermore, the cash Altius will have then at its disposal might be used to buy other royalties, not necessary tied to coal production, diversifying even further its royalties portfolio. Now that Altius has to buy 100% of CDP, it might not be a bad idea to use some cash for the purchase of royalties not tied to coal production.

Are my numbers correct? Am I missing something?

 

Gio

 

[Blue Macaw]

i'm sure this has been tackled here many times, but this thread is unsearchable.

 

what is this right of first refusal on the royalties? who can do it, and will they? is it normal to say somebody has rights of first refusal and not even tell the investors who that is or any additional information? i just started to worry if the lack of information is a bit junior miner'esque  ::) or i might have simply missed something, if so, thanks for the link!

 

everybody seems to be thinking altius got a deal, maybe someone wants to get in on it?

 

Maybe Dazel knows the name of the third party that might exercise ROFR until April 23, 2014. I admit I don’t know.

Anyway… If I read the numbers correctly, the Genesee royalty would account for 22% of Altius’ 2015F royalty revenues, while the price Altius and its partners will have to pay, if the ROFR is exercised will be $251 million less than in the case it expires unused. Instead of $460 million, they will have to pay only $209 million.

A 22% decrease in revenue vs. a 55% decrease in price… Not bad! ;)

Furthermore, the cash Altius will have then at its disposal might be used to buy other royalties, not necessary tied to coal production, diversifying even further its royalties portfolio. Now that Altius has to buy 100% of CDP, it might not be a bad idea to use some cash for the purchase of royalties not tied to coal production.

Are my numbers correct? Am I missing something?

 

Gio

 

I kind of agree with you. The Geneese is  little expensive according to me but it is the royalty that will go on for some time. The other ones only have a life length of 8-12 year. The Highvale will come on stream in 2016 and I am not sure how long that mine  will go on. Maybe the additional phases will bring Geneese royalty up in the future? At least nothing Altius has promoted in their presentations. I would be happy with either case I assume. Geneese would mean higher risks since it puts Altius balnce sheet in strain.

[Blue Macaw]

Sorry I was wrong with the estimated life length (Ithought I read 8-12 years somewhere else, maybe on Sheritts site??)

 

Paintearth: 11 years

Sheerness: 24 years

Highvale: 19 years

Cardinal river: 16 years

Geneese: 43 years

 

 

[Williams406]

Party with ROFR on Genesee is the power plant operator--Capital Power. The $251 million price tag--that either Capital Power needs to pay or Altius and Partners need to pay for Genesee, was set by the terms of the deal. Assign a value to each asset in your offer. Where there are ROFR, use the higher end set of values.  Cap Power can exercise the ROFR and pay $251 to make roughly $12-$13 million in royalty payments go away. I can't speak to their interest or means to get that done. Give it a month and we'll know.

 

Gio has expressed one dynamic here well. Take away about half the total Genesee royalty payment away from Altius' presented LTM royalties and compare that with Altius' vastly reduced investment for this deal and it looks like an incredible deal for Altius and they retain a great balance sheet. I still see around $19-$20 million in royalty income. Genesee royalty interest is a nice asset and the aggregate deal royalty cash flow relative to aggregate price look pretty reasonable to me with Genesee royalty acquired. If Altius can garner a higher multiple of royalty income, Genesee makes a lot of sense from that perspective. As does buying one-off royalty interests for low multiples and adding it to the Altius portfolio trading at a much higher multiple. 

 

Heads, Altius has paid what strikes me as a very reasonable price for a set of royalties that create a company with a bona fide royalty portfolio. Tails, Altius has paid a much lower price for a set of royalties that create a company with a bona fide royalty portfolio less one very long-life royalty stream. I don't see a bad coin flip result here for Altius.

[Williams406]

BTW,  Sherritt's material on PMRL and CDP disclosed the names of parties with ROFR and tag along rights. It was out there.

[giofranchi]

Thank you Williams406!

Very useful! :)

 

Gio

[Liberty]

April 2, 2014   

 

Alderon Iron Ore Corp. (TSX: ADV) (NYSE MKT: AXX) ("Alderon" or the “Company”) is pleased to announce that it has commenced preliminary work for the Pointe-Noire Terminal facility at the Port of Sept-Îles, Quebec.  This is the product handling facility for the Kami Iron Ore Project (“Kami Project”) with mining and processing facilities located in western Labrador. The Kami Project is held by the Company’s affiliate The Kami Mine Limited Partnership (“Kami LP”).

 

Site preparations have commenced at the terminal facility, which will be built for receiving, unloading, stockpiling and reclaiming concentrate for ship loading.  The terminal facility will consist of a railcar unloading stub track, a single rotary car dumper, a concentrate storage yard with stacker-reclaimer and interconnecting conveyor systems.  Two of the most critical pieces of the material handling system for the Kami Project, the car dumper and the stacker-reclaimer, have already been ordered.  Please refer to news release dated January 28, 2014 for more information about the equipment orders.

 

“After a tremendous amount of hard work from the entire Alderon team, we are very excited to have commenced with the first step in preparation for construction for the Kami Project,” says Tayfun Eldem, Alderon President and CEO.  “This step marks the continuation of a very successful start to the year and we look forward to hitting many more milestones in the next six months.”

 

Progress on the new multi-user dock by the Port of Sept-Îles is progressing with construction scheduled to wrap up during the summer of 2014.  The new dock will provide ship-loading services to the Kami LP for up to 8 million tonnes of iron ore annually as per the agreement with the Port of Sept-Îles.  For additional information about the agreement, please refer to Alderon’s News Release dated July 16, 2012.

[original mungerville]

 

Unless Iron Ore prices fall out of bed, my guess is its going to be hard not to make money here in the short, medium and long-term.

 

Do me a favour, never ever, ever, ever... say this again for a stock I own... :-)

I will likely sell tomorrow after your post...

 

There will be no money to be made short and medium term if the stock market in the US tanks from these very high valuation levels. There, thats true and should make you feel better!

[tengen]

There was some discussion about the ROFR for Genesee back in January.

 

Capital Power Corporation (CPX) has the right of first refusal on the Genesee royalty. To exercise that right, they would have to pay $251 million (the portion of the PMRL purchase allocated to Genesee). That's well over half the aggregate purchase price of $460 million. From my admittedly superficial perspective, it doesn't seem to make any sense that CPX would do this. To flip this around the other way, if CPX already owned the royalty, I think they would be extremely happy to sell it for $251 million.

 

EliG,

 

To expand on this a little bit, the total Genesee royalty is $12.75 million ($6.5 / .51), or just a hair over 5% of $251 million. Maybe I'm out to lunch but I think CPX would benefit a lot more by investing $251 million to maintain and grow their power generation capacity rather than saving $12.75 million / year (assuming they would gain 100% benefit from the royalty value). CPX  also appears to operating fairly close to their self imposed debt-ceiling and they have recently sold some assets to "lower their risk profile". If people think I'm out to lunch, let's just agree to disagree.

 

I guess I like to quote myself.

[bizaro86]

Seeking Alpha article on Alderon/Kami:

 

http://seekingalpha.com/article/2118433-alderon-iron-ore-a-big-project-advancing-towards-production

[jouni1]

thanks for breaking it down for me! seems like it's a done deal. i really like the long life of the genesee royalty.

[phil_Buffett]

from the value investing congress.

 

http://www.scribd.com/fullscreen/216405047?access_key=key-1un7ktww334zys1ny5qe&allow_share=true&escape=false&view_mode=scroll

[giofranchi]

from the value investing congress.

 

http://www.scribd.com/fullscreen/216405047?access_key=key-1un7ktww334zys1ny5qe&allow_share=true&escape=false&view_mode=scroll

 

Thank you very much for posting! :)

 

Demonstrated potential for 50x - 100x returns

Buy up to C$14.00 per share

 

Aren't these two things mutually exclusive??! This I don't understand ::)

 

I am willing to pay much more, and expect much lower returns. ;)

 

Gio

[hohi]

from the value investing congress.

 

http://www.scribd.com/fullscreen/216405047?access_key=key-1un7ktww334zys1ny5qe&allow_share=true&escape=false&view_mode=scroll

 

Thanks! A bit optimistic to see a 20% yield by 2017 IMO, but still good stuff ;)

[gary17]

can't seem to find that WEB quote about royalty in the annual letters - there goes the credibility...

 

from the value investing congress.

 

http://www.scribd.com/fullscreen/216405047?access_key=key-1un7ktww334zys1ny5qe&allow_share=true&escape=false&view_mode=scroll

 

Thanks! A bit optimistic to see a 20% yield by 2017 IMO, but still good stuff ;)

[jouni1]

these hype pieces make me uneasy.

[SharperDingaan]

Nice to see these pieces getting posted, which are rolling out the business case.

When you are about to do a 1.3B financing (1B debt, 300M equity, for Kami) - you are entitled to some promotion. 

 

We have just been reminded that;

 

Todays share price, less cash on hand & the value of thier various share investments (ie: ADV), leaves a very small stub. You are paying very little for a share of ALS, & if you used margin - you actually have more, & safer, leverage than you could get on most options. When coy cash on hand equals the per share margin loan, the risk becomes just the possible loss if you overpaid for the share, relative to what the eventual price is post announcements. Do you really think a loss is likely?, & if there were a loss (because you bought at $30) - is it really likely to be significant, & will you really care?

 

There is a intended, & possible, $3/share dividend, which will be discounted at the market rate ® less their growth rate (g). Most are not expecting a $3/share dividend after costs & payout ratio in the short term, & most are not expecting a 20% discount rate. But many haven't realized that the growth in their royalties also means a much smaller discount rate, & thereby a higher dividend model valuation.

 

The convertible is back, & we have been indirectly told to look at the ALS buyback of its own shares. What are the odds that the convertible converts to close on the number of shares that ALS bought back; meaning they bought their own shares back at a cheap price & resold them at a high price when the convertible was issued. And that debt will get converted if they can maintain their growth rate.

 

There is zero value attached to JL. What do you think is going to happen to the share price if one of the financing sources turns out to be a spin-off of JL into another ADV, & ALS doesn't end up selling the equities the report suggests?

 

They are doing the right things.

Let them continue, & hopefully we all get very rich  :)

 

SD

 

 

 

 

[hohi]

There is zero value attached to JL. What do think is going to happen to the share price if one of the financing sources turns out to be a spin-off of JL into another ADV, & ALS doesn't end up selling the equities the report suggests?

 

They are doing the right things.

Let them continue, & hopefully we all get very rich  :)

 

SD

 

ALS has showed again and again that they are very good at crafting deals. Like with the Sherritt deal buying the CDP properties but at the same time lining up JV partners even before the deal is closed. I see a real possibility of JL paying for some of the Sherritt deal, but who knows.

[SharperDingaan]

Just to ensure fairness ...

 

What is a reasonable discount rate.

Per the BOC website. A) Prime rate (Series V121769) is 3.00%, B) Bank rate (Series V39078) is 1.25%, C) Canada 5-10 year average yield is 2.11%. Risk premium (A-B) is (D) 1.75%. Equity yield for a 5-10 year holding period is C+D, 3.86%. With zero growth, the discount rate should be about 4%, not 20%. Take your own guess on growth rate, & subtract it from 4%.

 

What is the leverage thing.

Per the TSX, & Scrib report. Cash (124M) + Securities (95M) = A) 219M. B) 27.9M shares o/s. Share price includes $8.11 (A/B) of cash/marketable securities. Share price (Friday close) of $14.93. Share is eligible for 50% margin. To buy a share at 45.5% margin you must put up $8.14 (14.93*(1-.455)) of capital; about equal to the cash portion of the share price.

 

The margined share is equivalent to an infinite life call option with a strike at $14.93, & a cost of $8.14. But the actual cost is about zero, as it is offset by beneficial ownership of the cash portion of the share price. Therefore the true cost is just the interest carry on the margin & the opportunity cost on the $8.14 put up to buy the share. Should ALS actually declare dividends, as they have repeatedly stated as their intent, the call option will have positive carry. Investors get to buy at $8.14, get paid to sit on their shares, & if they need the money; can simply increase the margin until the positive carry becomes zero, & pay the money to themselves.

 

Hence, most would expect the float of shares to become very sticky; & any kind of incremental demand (Index funds & HFT) to drive the share price up very quickly, to produce enough incremental supply. Economics 101.

 

Should put a smile on every vultures beak  ;)

 

SD

 

 

 

[hohi]

Although I agree with most of what you are saying, I don't agree with your thinking on the discount rate.

 

The resource sector has a very long and steady history of value destruction. Especially the juniors are known to be black holes for capital. Development of mines has been slower and more capital intensive than anticipated. Operating costs are almost always higher than anticipated.

 

All of those reasons brought us here to Altius. Their business model is far superior and mitigates most of the risks of resource investing. But a 4% or lower discount rate is too optimistic I think. First, long term investors in the space work with a 10% discount rate. The better analysts and smart money in the space critisized the use of lower discount rates in the past and generally speaking they were right. It is high risk and although interest rates are at record lows, that doesn't mean we won't see higher interest rates ever again. For a long term analysis one may use a higher discount rate IMO.

 

That of course does NOT mean, that the market will not bid up ALS using a 2% discount rate. When people get excited, strange things can happen. I am sure the market will get very excited, once they realize the deep value here. I am excited too. Even using 10% discount rates I come to the conclusion that there is incredible value here. No need to "crazy" though ;).

[SharperDingaan]

Agreed overall re the thinking on the discount rate, but we need to recognize that these are not normal times. Were it not for the ongoing financial crisis, the risk free rate would be a good 250bp higher; the 10% norm falls to around 7.5%.

 

We know that Kami could well double to 16m tonnes, & ALS has a stable of other properties; assume a 3.5% growth rate for 5 years & you get back to 4%. Plug in various combinations & there is a lot of clustering around 3-6%. Significant as with 1/2 the discount rate, you only need 1/2 the dividend to get the same valuation, & could start paying earlier; alternatively twice the valuation for the same dividend payout.

 

We are also just buying a royalty cash flow; the underlying business risk around revenues is the same as for any other royalty generating business. Flavours are different, but the basic risk is the same.

 

SD

 

[Blue Macaw]

Info regarding Altius from Virginia home page from today:

 

KAN PROPERTY

Virginia also entered into an agreement to acquire from Rio Silver Inc. (“Rio Silver”), jointly with Altius Resources Inc. (“Altius”), a wholly-owned subsidiary of Altius Minerals Corporation, the Kan property located on the Nunavik Territory, in Northern Quebec.

Under this agreement, Virginia and Altius acquire a 100% interest in the Kan property in consideration of Virginia’s issuance of 3,571 common shares of its capital stock and a cash payment of $25,000 to Rio Silver, and a cash payment of $75,000 by Altius to Rio Silver. This agreement also provides Ressources Tectonic Inc. (“Tectonic”) with a 2% NSR on 209 claims included in the Kan property, half of which (1%) can be bought back by Virginia and Altius for $500,000 on or before April 2, 2015 or for $1,500,000 thereafter.

The Kan property is a large gold and base-metal exploration project covering a surface of more than 30,000 hectares in the Labrador Trough, 85 kilometres southwest of Kuujjuaq. A silicate-carbonate iron formation, of regional extension, represents an important auriferous metallotect on the property. Work conducted in the 1990′s led to the discovery of numerous significant gold showings within this iron formation with drill results reaching 5 g/t Au over 6 metres (Ferricrete showing) and 9.46 g/t Au over 2 metres (Kan showing). Recent work carried out by Rio Silver in 2011-2012 yielded 3.12 g/t Au over 13.9 metres in channels and 1.2 g/t Au over 10.4 metres in drilling on the Pump Pad Ridge showing. Interesting gold anomalies were also detected from soil geochemistry above the iron formation and several of them remain totally unexplained. The Kan project also offers an interesting potential for base metals, highlighted by the presence of massive sulphide showing, which yielded 5.2% Zn, 2.6% Pb, and 96 g/t Ag over 1.2 metres as well as 10.8% Zn, 7.36% Pb, 270 g/t Ag and 0,76 g/t Au over 0.3 metres. Rio Silver’s recent work led to the discovery, 5 kilometres south of this showing, of an erratic massive sulphide boulder, which yielded 12.23% Zn, 2.29% Pb, 80 g/t Ag and 0.35 g/t Au.

Virginia and Altius are planning an exploration campaign in the summer of 2014 on the Kan project.

- See more at: http://minesvirginia.com/en/index.php/press-en/virginia-mines-acquires-new-properties-in-james-bay-and-nunavik2014-04-04/#sthash.u22zid2b.dpuf