ALS.TO - Altius Minerals

[naboo]

I already bought more this morning as well. Have cash as I am liquidating LRE.

 

Guys, slow down, I am gathering my cash. Don't push it up too fast........  :) :) :)

[gary17]

does it concern anyone that alderon will probably have low operation during the winter times....

and the logistics of transporting the iron ore to china relative to sources available in australia?

[hohi]

does it concern anyone that alderon will probably have low operation during the winter times....

and the logistics of transporting the iron ore to china relative to sources available in australia?

 

No.

[hohi]

"Enter Into Exclusive, Final Stage Negotiations"

 

ALS is the only player left in the final stage of the game? So we will see another "alderon" soon.  Who will run the new "alderon"???

 

Not another Alderon. Something very much bigger and better than Alderon will ever be. JL is bigger, higher grade and with economy of scale lower cost per unit. Better news than the Sherritt deal IMO. But nobody cares ;).

[gary17]

does it concern anyone that alderon will probably have low operation during the winter times....

and the logistics of transporting the iron ore to china relative to sources available in australia?

 

No.

 

why?

[hohi]

As stated here many, many times before - it is not the economics of Kami per se that will make it a mine, but more importantly it is the strategic value to our chinese friends. They want to diversify out of Australia and away from the big three iron ore producers. They want an own supply of iron ore to support their strategic goals at home. So that is why I don't worry about it so much.

[gary17]

I'd just be a bit careful with that assumption...    disclosure: no position.

[naboo]

As stated here many, many times before - it is not the economics of Kami per se that will make it a mine, but more importantly it is the strategic value to our chinese friends. They want to diversify out of Australia and away from the big three iron ore producers. They want an own supply of iron ore to support their strategic goals at home. So that is why I don't worry about it so much.

 

Exactly.

 

The Chinese firms' strategy is to own more mines rather than buy from big three, then the Chinese companies will have more pricing power to negotiate better deals. So ALS' properties are perfect fits for this strategy.

 

http://www.atimes.com/atimes/China_Business/LE06Cb01.html

 

 

[hohi]

I'd just be a bit careful with that assumption...    disclosure: no position.

 

I'll let management do the work. If it comes down to the one factor I am invested here it is management. They know how to be careful and I trust them.

[SharperDingaan]

Just keep in mind that preliminary work on Kami has allready begun (pre-orders, docks, etc); so a completed financing announcement cannot be far away, & it will produce additional future royalties that are not in the price yet. We will also know early next week if we have additional CDP royalties.

 

SD

[craigatk]

does it concern anyone that alderon will probably have low operation during the winter times....

and the logistics of transporting the iron ore to china relative to sources available in australia?

 

No.

 

why?

 

 

For me it was because of these two posts by Ross812. All Iron Ore is not alike and the Canadian stuff will be worth more to the Chinese than the Australian.

 

The iron ore coming from Canada has Fe content higher the DSO coming from the majority of other sources. Good DSO is very rare after 100+ years of mining. A very profitable mine in Australia today would be producing 60-62% Fe content DSO. The highest grade Platt specifies contains 65% Fe.

 

Keep in mind, to process Magnetite a great deal of power and therefore infrastructure is needed (ex- Muskrat Falls). Canada is one of the few geographies that has access to both ore and cheap power.

 

The most important point to stress is Hebei is buying this ore to blend with Asian ore. The mine, in Hebei's case, is more about securing a source to ore than making a profit at the mine. Hebei can continue entering contracts with Australian producers for good quality 60% Fe ore and continue having to compete with their competitors bidding up the contracts, or they can secure a source of 8B tons of 65.5% Fe ore at 95% of Platt and blend it with 55% Fe DSO from west China bought competition free. 

 

Also keep in mind that all these quality problems with Kami ore are an issue if you were selling it on the open market. This is why the ore will be difficult to sell to anyone (i.e. outside of China) who does not have a source of sulfur free low %Fe iron to blend with the Kami ore.

 

I think Dazel has understood this for a long time!

 

On the pricing of the ore. I would just model 95% of Platt 62% price for the ore sold to Hebei (as stated in their contract) with no premium for high Fe content or quality deductions for Sulfur. Arguing the price of ore right now is like arguing what BNSFs dividend will be when Berkshire spins it out. A shot in the dark of a situation that doesn't even exist yet.

 

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.

[SharperDingaan]

"Altius has agreed to contribute its surrounding mineral rights to the JL Alliance upon successful award of the mineral rights being offered by the Province. Altius's consideration for the contribution of its mineral rights will be to retain both a royalty and a minority project interest in the consolidated mineral rights package."

 

Notice that we have just been told ...

- There will be a ADV type spin-off

- They will receive a royalty & not cash. IE: NPV of the future royalty is > todays cash consideration

- It should not take that long to negotiate, & they will book a significant realized gain on completion

- They dont need cash from this to complete the Sherrit deal

- They will retain a significant stub in the new venture.

- Where the bulk of the royalty stream growth will come from 4-5 years out

- We need to discount the future royalty stream, net of a significant growth adjustment.

 

Elegant gentlemen, very elegant

 

SD

 

 

 

[original mungerville]

I'd just be a bit careful with that assumption...    disclosure: no position.

 

I'll let management do the work. If it comes down to the one factor I am invested here it is management. They know how to be careful and I trust them.

 

Hohi,

 

There has to be a price at which Iron Ore could fall to make Kami or Julienne no gos. I think you may have mentioned $70-90 in the past for Kami. What would your number be for Julienne given the higher grades?

 

 

[original mungerville]

Lets be rational. At some price for Iron Ore, the "strategic value" to the Chinese is nil. What is that approximate price range for Kami and what is that approximate price range for Julienne?

 

[hohi]

I'd just be a bit careful with that assumption...    disclosure: no position.

 

I'll let management do the work. If it comes down to the one factor I am invested here it is management. They know how to be careful and I trust them.

 

Hohi,

 

There has to be a price at which Iron Ore could fall to make Kami or Julienne no gos. I think you may have mentioned $70-90 in the past for Kami. What would your number be for Julienne given the higher grades?

 

That is a very good question, but literally impossible to answer. You can't even trust the feasibility studies these days, but IMO JL would be substantially more economic than Kami. Substantially may mean $10 per ton less in opex than Kami in the end, but who knows. In the end what matters is that the mine will get built and ALS holds the royalty. They'll sell all the equity anyways and just collect the royalties. It is very probable that the government wants some assurances from the chinese that JL really gets built. In case of a positive feasibility the chinese will have to put the money on the table or they'll loose JL and maybe even get fined. But that is all just speculation. We'll have to see how the numbers come out in the end.

[hohi]

Lets be rational. At some price for Iron Ore, the "strategic value" to the Chinese is nil. What is that approximate price range for Kami and what is that approximate price range for Julienne?

 

If they own the whole thing and all that matters is that iron ore is coming into China then what's the problem? Let's say Kami produces a ton for $100. That is still better than the price they would pay on the open market. And even if it would cost $150 to produce a ton it would still have a strategic value or not?

What I am saying is they don't have to make money. They have to produce the iron ore and ship it. If they make money on it, great. If not, they still got their own supply of iron ore outside the monopoly. Either way ALS wins. Because the royalty gets paid first in all cases.

[bizaro86]

If they own the whole thing and all that matters is that iron ore is coming into China then what's the problem? Let's say Kami produces a ton for $100. That is still better than the price they would pay on the open market. And even if it would cost $150 to produce a ton it would still have a strategic value or not?

What I am saying is they don't have to make money. They have to produce the iron ore and ship it. If they make money on it, great. If not, they still got their own supply of iron ore outside the monopoly. Either way ALS wins. Because the royalty gets paid first in all cases.

 

If the all-in (including capital/cost of capital) cost of iron from Aldernon/Kami is > long term future price of iron ore, the mines shouldn't be built. Maybe the chinese will build them anyway, for whatever reason, but I hate making investments on the basis that someone else will do something irrational.

 

If you require someone else to make an uneconomic decision for your investment to be a success, how are you different than a momentum investor?

 

I'm not saying that's the case with ALS, and I'm long, but I think what price these mines make sense at is an extremely fair question, and highly relevant to the valuation.

[Guest Dazel]

 

 

Hebei (kami)and the two major steel makers that are looking at taking Julienne Lake's supply have an average cost of production of between $100 to $150 in China in their vertically integrated iron mines. If the price drops below $120 they shut down their own mines and buy all they can from the majors. but the production shut down in china cuts the iron ore supply and the price rises...everyone in the business knows this.

 

China is trying to stop this cycle...they won't be able to do it in the short term so they are looking for long term suppliess of iron ore that they have more control over...smoothing their costs...their iron ore  mines are falling in iron content and that will continue...they need to secure "future" supply.

 

if the price were to drop below $100 which it has been for a couple of days in the last 7 years..."all china production would stop"

 

why are they all over the world trying to secure supply? for fun? Have we become that silly? Their iron ore mines are "uneconomical" in any senario below $120.

 

What happens if a cyclone (which Australia has every year) were to destroy a major port in Australia? What if the majors decide to cut production at any time which they can do? It would take iron ore prices to $200....they were $190 in 2011.

 

I am not saying that iron ore prices can't drop...however, as explained above if they do...chinese production stops.

 

this and the fact that the premium finished product in the Trough (which cost more to produce than Austtralia) not only sells for a premium in world market it is being mandated by the Chinese government to lower pollution. It is a no brainer for Chinese steel producers.

 

So if iron ore drops to $70 to $90 the world iron market would shut down one third to half of all production....and the price would sky rocket. we saw this happen in 2012...where it hit $90 for a day and was at $140 in 3 months....in fact current pricing is expected to moth ball 100mt of iron ore production in China this year.

 

Altius is situated perfectly for this because of its proximity to infrastructure...anything without infrastructure will not be built because of the negativity in the market.

 

 

 

 

 

[ItsAValueTrap]

why are they all over the world trying to secure supply?

I think they might be crazy.

 

Those investing outside their country are often the dumb money.

 

If you require someone else to make an uneconomic decision for your investment to be a success, how are you different than a momentum investor?

Exactly.

 

I'm not sure why people are excited about Altius now that they aren't buying back shares.  The time to get excited was when Altius was at $9, $10.

[Blue Macaw]

why are they all over the world trying to secure supply?

I think they might be crazy.

 

Those investing outside their country are often the dumb money.

 

If you require someone else to make an uneconomic decision for your investment to be a success, how are you different than a momentum investor?

Exactly.

 

I'm not sure why people are excited about Altius now that they aren't buying back shares.  The time to get excited was when Altius was at $9, $10.

 

They are not buying back  shares because they need the money for other things now. Jullienne lake is amazing news and we know the full value of that is about 20-25 CAD per share. I would say that in current price we have some value of Kami.

 

I value the producing royalties to 10 CAD per share

Other early stage projects 3 CAD per share (land, CDP, CMB, Rio tinto, Chile etc)

Kami phase 1, 10 CAD per share (completely valued)

Julienne lake,  20-25 CAD per share (colmpletely valued)

 

End of the year I would not be surprised if we see:

Kami financing secured and construction at full speed

Jullienne awarded and new company started with 10 % in shares and 3 % roaylty. Drilling, environmental and pre feasibilty study started

Deal struck with Chinese partner regarding CDP. (Coal will be shipped to China.)

 

Shares could be valued around 20 CAD per share.

 

[hohi]

If the all-in (including capital/cost of capital) cost of iron from Aldernon/Kami is > long term future price of iron ore, the mines shouldn't be built. Maybe the chinese will build them anyway, for whatever reason, but I hate making investments on the basis that someone else will do something irrational.

 

If you require someone else to make an uneconomic decision for your investment to be a success, how are you different than a momentum investor?

 

I'm not saying that's the case with ALS, and I'm long, but I think what price these mines make sense at is an extremely fair question, and highly relevant to the valuation.

 

Well if you read my investment thesis you'd know that it is not based on any of this. My investment in ALS will be a success (if proven correctly) because of management and the business model. I would buy (and I did) ALS even without Kami and JL. But it wouldn't be a bargain as it is now. In a few weeks we'll have a very solid royalty cash flow mashine with some serious wild cards.

 

Of course it doesn't make sense to built an uneconomic mine for a value investor. And I am not saying Kami/JL won't be economic. They probably will be. But there are other factors at play that make me sit even more patiently and calmer. If you don't want to factor in the chinese in your valuation model, good for you. But don't call other people names because they model something differently. I am invested in ALS for some years and will probably be for another 30 or so. I still hope the momentum is on my side though ;).

[Blue Macaw]

If the all-in (including capital/cost of capital) cost of iron from Aldernon/Kami is > long term future price of iron ore, the mines shouldn't be built. Maybe the chinese will build them anyway, for whatever reason, but I hate making investments on the basis that someone else will do something irrational.

 

If you require someone else to make an uneconomic decision for your investment to be a success, how are you different than a momentum investor?

 

I'm not saying that's the case with ALS, and I'm long, but I think what price these mines make sense at is an extremely fair question, and highly relevant to the valuation.

 

Well if you read my investment thesis you'd know that it is not based on any of this. My investment in ALS will be a success (if proven correctly) because of management and the business model. I would buy (and I did) ALS even without Kami and JL. But it wouldn't be a bargain as it is now. In a few weeks we'll have a very solid royalty cash flow mashine with some serious wild cards.

 

Of course it doesn't make sense to built an uneconomic mine for a value investor. And I am not saying Kami/JL won't be economic. They probably will be. But there are other factors at play that make me sit even more patiently and calmer. If you don't want to factor in the chinese in your valuation model, good for you. But don't call other people names because they model something differently. I am invested in ALS for some years and will probably be for another 30 or so. I still hope the momentum is on my side though ;).

 

Kami will be like Blooms lake. Even the geology report states this. It will be with decent economics but not like Carol lake. However it will be like Dazel states, far better than some of the mines in China so the chinese will lower costs which is beneficial to them as a state.

 

Julienne lake will have better economics, is of higher grade and more similiar to Carol lake. It will be a top level mine. It is interesting that Wuhan steel is involved in this. It would not strike me as completely strange if they also bought Altius part in the Kami mine. Wuhan is heavily involved in Century Iron ore and have a huge stake in many projects further north for those that don´t know.

[SharperDingaan]

Keep in mind that Wabush is in the same locality, they have existing infrastructure that could easily be leveraged in a JV with Kami & JL, & there is a need for employment. A change in Wabush ownership, following the Kami financing announcements, is not out of the picture.

 

SD

[bizaro86]

Well if you read my investment thesis you'd know that it is not based on any of this. My investment in ALS will be a success (if proven correctly) because of management and the business model. I would buy (and I did) ALS even without Kami and JL. But it wouldn't be a bargain as it is now. In a few weeks we'll have a very solid royalty cash flow mashine with some serious wild cards.

 

Of course it doesn't make sense to built an uneconomic mine for a value investor. And I am not saying Kami/JL won't be economic. They probably will be. But there are other factors at play that make me sit even more patiently and calmer. If you don't want to factor in the chinese in your valuation model, good for you. But don't call other people names because they model something differently. I am invested in ALS for some years and will probably be for another 30 or so. I still hope the momentum is on my side though ;).

 

All I'm saying is what iron price the mines are economic at is an important question, and shouldn't be brushed under the rug. I'm certainly not trying to call names, (after all, some people can be successful momentum investors!). The one big benefit to their business model is they don't need the mines to be permanently economic, they just need them to appear economic enough to be built, since their royalty gets paid off the top. What price forecast has to be used for the mines to be built I'm not sure, but I will be waiting with baited breath for the Kami feasibility study.

[hohi]

Well maybe you should go to Alderons website and read it. Kami has a positive BFS. Opex per tonne are a little over $40, but I don't believe that. It'll be higher but still profitable IMO. But always do your own DD.