Author Topic: ALS.TO - Altius Minerals  (Read 1402211 times)

Cigarbutt

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Re: ALS.TO - Altius Minerals
« Reply #6310 on: August 08, 2018, 10:00:15 AM »
I dipped my toe today. For anyone interested:
- I discounted potash royalties at 4% into perpetuity (using q2 payments)
- I discounted Chapada at 6% for 50 years (having modelled volumes and assumed $2.7/lb flat)
- I applied a multiple of 3x to 777 and 4x to thermal coal
- I valued IOC and the other major equity holdings (i.e. the ones where they give the # of shares on the website) at market
- I applied zero value for the smaller equity holdings and the exploration royalties
- I included the debt and Fairfax prefs at face value
- I discounted holdco costs at 10%

This gets me to a p/nav of 1x. I'm happy there given optionality around commodity prices moving up, exploration success, and sensible deployment of future capital.

Helpful post as it really gets to the heart of the matter.

Interestingly, the royalty model mutes the optionality and this puts it in "no man's land" in the investment landscape now, although that may change. Even if relatively muted, volatility may induce large changes in the optionality value, but in two directions.

I continue to struggle in building a sufficient margin of safety because, somehow, the economic and commodity cycles have to be integrated into the range of outcomes. With cyclical stuff, timing can make a huge difference. Some suggest that the likelihood of a mistake in cyclical industries is either to ignore the cycle or to think that you can precisely forecast it.

In terms of the inflation, a look at long term graphs is sobering as commodity price indices can significantly deviate from inflation rates for significant periods. There have been long periods when commodities lagged. Reconstruction after WWII and the China boom helped restore long term trends and one has to assume that there will be more of those defining trends. Optimist but progress is not linear.


petec

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Re: ALS.TO - Altius Minerals
« Reply #6311 on: August 08, 2018, 10:14:38 AM »
I dipped my toe today. For anyone interested:
- I discounted potash royalties at 4% into perpetuity (using q2 payments)
- I discounted Chapada at 6% for 50 years (having modelled volumes and assumed $2.7/lb flat)
- I applied a multiple of 3x to 777 and 4x to thermal coal
- I valued IOC and the other major equity holdings (i.e. the ones where they give the # of shares on the website) at market
- I applied zero value for the smaller equity holdings and the exploration royalties
- I included the debt and Fairfax prefs at face value
- I discounted holdco costs at 10%

This gets me to a p/nav of 1x. I'm happy there given optionality around commodity prices moving up, exploration success, and sensible deployment of future capital.

Helpful post as it really gets to the heart of the matter.

Interestingly, the royalty model mutes the optionality and this puts it in "no man's land" in the investment landscape now, although that may change. Even if relatively muted, volatility may induce large changes in the optionality value, but in two directions.

I continue to struggle in building a sufficient margin of safety because, somehow, the economic and commodity cycles have to be integrated into the range of outcomes. With cyclical stuff, timing can make a huge difference. Some suggest that the likelihood of a mistake in cyclical industries is either to ignore the cycle or to think that you can precisely forecast it.

In terms of the inflation, a look at long term graphs is sobering as commodity price indices can significantly deviate from inflation rates for significant periods. There have been long periods when commodities lagged. Reconstruction after WWII and the China boom helped restore long term trends and one has to assume that there will be more of those defining trends. Optimist but progress is not linear.

Royalties do mute the optionality but there is still plenty there.

I integrate economic and commodity cycles via position sizing: I will add a lot more if everything craps out.

I totally agree that commodity cycles can swamp inflation over fairly long periods, but:
a) I'm thinking very long term not fairly long term because of the nature of the two main royalties.
b) I'm also looking for something that protects me in a "loss of faith in the currency" kind of inflation, a la the 1970s. Most of my portfolio will derate if that happens. I could do that by owning gold but I prefer this because management can make smart decisions.

But I agree there is not a huge margin of safety. Hence the toehold!

StevieV

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Re: ALS.TO - Altius Minerals
« Reply #6312 on: August 08, 2018, 10:18:58 AM »
I dipped my toe today. For anyone interested:
- I discounted potash royalties at 4% into perpetuity (using q2 payments)
- I discounted Chapada at 6% for 50 years (having modelled volumes and assumed $2.7/lb flat)
- I applied a multiple of 3x to 777 and 4x to thermal coal
- I valued IOC and the other major equity holdings (i.e. the ones where they give the # of shares on the website) at market
- I applied zero value for the smaller equity holdings and the exploration royalties
- I included the debt and Fairfax prefs at face value
- I discounted holdco costs at 10%

This gets me to a p/nav of 1x. I'm happy there given optionality around commodity prices moving up, exploration success, and sensible deployment of future capital.

The discount rates were based off the idea that I want a 6% real return on a very safe long run cash flow stream. Assuming that prices will rise with inflation long term I can ignore inflation, hence the 6% discount rate for Chapada. Potash got 4% to allow for 2% volume growth, which ought to be reliable given world demand is growing faster than that and these are low cost assets with a weighted average inferred resource of >500 years.

I accept that will look aggressive to some but these are very assured cash flows with zero maintenance capital requirement, volatile in the short term but fairly predictable on a retirement-type timeframe (which is what I am thinking about - this goes into a "forget for 30 years" bucket for me).

I discounted holdco costs at 10% because I always do. Maybe I should have used a lower rate here to be consistent with the assets (which would being down my NAV as this is a liability) but the cash flows would keep coming even if they decided to retire and stop all operating costs tomorrow, which is a fairly unique attribute.

Thanks for the helpful rundown.  Plus, it had been several days without an Altius post (before linealdin's earlier today), and I was starting to get withdrawal.  Feeling better now.

I have a small position.  Assuming no material changes to the company, something like $8 USD would make me consider a more significant add.  Not sure that is in the cards.

Regarding optionality, if I recall correctly, earlier in the thread linealdin said he had a high confidence Kami would be built this cycle.  Then, later, I thought he backed off quite a bit.  I would not assign any current value.
« Last Edit: August 08, 2018, 10:22:35 AM by StevieV »


linealdin

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Re: ALS.TO - Altius Minerals
« Reply #6314 on: August 09, 2018, 03:14:56 AM »
From the MD&A:

Lithium Royalty Corp.

During the quarter ended June 30, 2018 the Corporation invested $7 million into and alongside Lithium Royalty Corporation (“LRC”). LRC is a private company established to pursue lithium related royalty opportunities of which Altius owns approximately 12% and holds one board seat. As a founding investor and as consideration for providing ongoing technical support, the Corporation received the right to participate directly in royalty acquisitions on a 10% basis.

LRC is an affiliate of Waratah Capital, and was formed to pursue investment opportunities in the battery materials sector, with a focus on lithium.

linealdin

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Re: ALS.TO - Altius Minerals
« Reply #6315 on: August 09, 2018, 03:41:33 AM »
LRC is an affiliate of Waratah, which has about $1.4 billion under management. Lithium project finance is very active right now. Many mines are being built. This deal allows Altius to participate, on a minority basis, in syndicated royalty/stream deals in the very short term.

Altius puts in $5 million, LRC puts in $45 million. That’s around the deal size I expect.

I expect initial royalty deals will be announced in the next 3 to 6 months. Hot market.

petec

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Re: ALS.TO - Altius Minerals
« Reply #6316 on: August 09, 2018, 03:59:06 AM »
Hot market.

Yes, hardly a contrarian call. But interesting.

mugwump

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Re: ALS.TO - Altius Minerals
« Reply #6317 on: August 09, 2018, 05:04:25 AM »

Williams406

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Re: ALS.TO - Altius Minerals
« Reply #6318 on: August 09, 2018, 06:11:47 AM »
LRC is an affiliate of Waratah, which has about $1.4 billion under management. Lithium project finance is very active right now. Many mines are being built. This deal allows Altius to participate, on a minority basis, in syndicated royalty/stream deals in the very short term.

Altius puts in $5 million, LRC puts in $45 million. That’s around the deal size I expect.

I expect initial royalty deals will be announced in the next 3 to 6 months. Hot market.

Waratah was trying to shake things up at LIORC a few years ago:
https://www.newswire.ca/news-releases/waratah-advisors-requests-labrador-iron-ore-royalty-corporation-put-separation-of-the-ioc-royalty-and-the-ioc-equity-before-shareholders-at-may-29-2013-annual-meeting-512203221.html

linealdin

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Re: ALS.TO - Altius Minerals
« Reply #6319 on: August 09, 2018, 06:45:56 AM »
Hot market.

Yes, hardly a contrarian call. But interesting.

Yes, project finance is a weird space for contrarian investment. Any project that actually raises the money necessary for construction is likely to be favored by the general market. Lithium is highly favored right now.