Author Topic: ALS.TO - Altius Minerals  (Read 1715480 times)

linealdin

  • Hero Member
  • *****
  • Posts: 2107
Re: ALS.TO - Altius Minerals
« Reply #6940 on: January 16, 2019, 12:18:50 PM »
ďAnd if you can't at all raise anything, what are the chances that your project is that promising and company that solid to bring it to fruition? There's gotta be plenty of risk with partners that can't raise the debt or equity for a project, right?Ē

The last post criticized development royalty financing as if that is Altiusís business model. Liberty is, of course, completely off base and talking in circles.

When has Altius bought a major royalty from a project developer? NEVER.

The royalties they bought during the last cycle were from mines that had been in production for decades. Facts not fantasies: Look up the dates Rocanville, Esterhazy, Chapada, Genesee, 777, IOC went into production.
« Last Edit: January 16, 2019, 12:27:01 PM by linealdin »


Liberty

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 11324
  • twitter.com/libertyRPF
    • twitter.com/libertyRPF
Re: ALS.TO - Altius Minerals
« Reply #6941 on: January 16, 2019, 12:41:14 PM »
ďAnd if you can't at all raise anything, what are the chances that your project is that promising and company that solid to bring it to fruition? There's gotta be plenty of risk with partners that can't raise the debt or equity for a project, right?Ē

The last post criticized development royalty financing as if that is Altiusís business model. Liberty is, of course, completely off base and talking in circles.

When has Altius bought a major royalty from a project developer? NEVER.

The royalties they bought during the last cycle were from mines that had been in production for decades. Facts not fantasies: Look up the dates Rocanville, Esterhazy, Chapada, Genesee, 777, IOC went into production.

Why did these mines sell these royalties? It's still just a way to raise capital, right? Why would the terms be so much better for the buyer than on other forms of capital? Please explain that to me.

And I didn't mean non-producing junior miners, I meant people who are raising money to pay for their projects, wether capex for mine expansion or selling a piece of one mine to finance the building of another one. You took what I wrote too narrowly.
"Most haystacks don't even have a needle." |  I'm on Twitter  | This podcast episode is a must-listen

TwoCitiesCapital

  • Hero Member
  • *****
  • Posts: 2192
Re: ALS.TO - Altius Minerals
« Reply #6942 on: January 16, 2019, 12:51:50 PM »
Quote from: Liberty

Why do you even sell a royalty to someone like Altius to begin with? It's just a form of financing to pay for your mine, right? You could also borrow from the bank or raise equity or sell preferreds. Why would you give away the store if you can do these others things? And if you can't at all raise anything, what are the chances that your project is that promising and company that solid to bring it to fruition? There's gotta be plenty of risk with partners that can't raise the debt or equity for a project, right? Or if they can but would just rather sell a royalty anyway, do you think they'll sign conditions that are radically better than debt or equity? Why would a royalty have an expected return of 20% IRR for the buyer or whatever? You have to be lucky and the seller miscalculates...

I'll bite. It's very possible for Altius to be a lender of last resorts - especially given their counter cyclical business model - without taking undue risk.

I remember back in 2010/2011 I was trying to buy a piece of commercial real estate. There were 7 years left on the lease with two options to extend 5 years each, the corporate tenant was a Dollar General, and the property grossed 40-45k a year and was selling for $220k - an unlevered  cap rate of 18%! Also, it was a trippe-net lease arrangement so all you're responsible for was roof and parking lot maintenance....

I went to 10+ banks and credit unions to get a loan to buy this thing. I was making ~60k at the time and so was my partner. Even with two personal incomes backing the loan, an 18% cap rate, a tenant who had doubled sales in the last 5 years despite the recession, and being 2 years into the economic recovery, we couldn't get a loan. Why? Because it was 2010/2011 and lenders didn't lend to anyone. It had nothing to deal with the deal mechanics and everything to do with lenders being skittish.

If I could have sold a royalty on some of the cash flows to finance the purchase, it would have been lucrative for the person buying it because there was virtually no risk in the transaction of the financing not getting paid with 160k cash/yr against a 210k mortgage.

Secondly, Altius isn't just a lender of last resort. They're the one who is often times providing the land package and necessary equity financing to allow for the exploration to occur to begin with. Without Altius, there is no mine even if you can go to the bank for financing.

Just some thoughts as to why that's not necessarily an accurate or fair comparison


Liberty

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 11324
  • twitter.com/libertyRPF
    • twitter.com/libertyRPF
Re: ALS.TO - Altius Minerals
« Reply #6943 on: January 16, 2019, 01:35:01 PM »
That's what I thought the model was, be counter-cyclical, sit on cash to have it when others need it, etc.

But that doesn't change that when you do that the royalty model isn't that different from debt or equity. If you're injecting capital when someone really needs it, you can usually get pretty good price and terms. Yet in recent years, despite us apparently being in a terrible time for commodities, I haven't seen such great deals, and I haven't seen such great IRRs from past deployments of capital. Hence my point that being so enamored by the royalty format can distract us from the fact that however you structure things, you won't get economics that are that different from other providers of capital for distressed situations, unless you're lucky (which can also happen with equity/warrants/etc). And just the fact that your lendees can get in distressed capital-starved situations in the first place shows that there's probably a decent amount of risk there.
"Most haystacks don't even have a needle." |  I'm on Twitter  | This podcast episode is a must-listen

Cigarbutt

  • Hero Member
  • *****
  • Posts: 1664
Re: ALS.TO - Altius Minerals
« Reply #6944 on: January 16, 2019, 02:39:53 PM »
Quote from: Liberty
Why do you even sell a royalty to someone like Altius to begin with? It's just a form of financing to pay for your mine, right? You could also borrow from the bank or raise equity or sell preferreds. Why would you give away the store if you can do these others things? And if you can't at all raise anything, what are the chances that your project is that promising and company that solid to bring it to fruition? There's gotta be plenty of risk with partners that can't raise the debt or equity for a project, right? Or if they can but would just rather sell a royalty anyway, do you think they'll sign conditions that are radically better than debt or equity? Why would a royalty have an expected return of 20% IRR for the buyer or whatever? You have to be lucky and the seller miscalculates...
I'll bite. It's very possible for Altius to be a lender of last resorts - especially given their counter cyclical business model - without taking undue risk.

I remember back in 2010/2011 I was trying to buy a piece of commercial real estate. There were 7 years left on the lease with two options to extend 5 years each, the corporate tenant was a Dollar General, and the property grossed 40-45k a year and was selling for $220k - an unlevered  cap rate of 18%! Also, it was a trippe-net lease arrangement so all you're responsible for was roof and parking lot maintenance....

I went to 10+ banks and credit unions to get a loan to buy this thing. I was making ~60k at the time and so was my partner. Even with two personal incomes backing the loan, an 18% cap rate, a tenant who had doubled sales in the last 5 years despite the recession, and being 2 years into the economic recovery, we couldn't get a loan. Why? Because it was 2010/2011 and lenders didn't lend to anyone. It had nothing to deal with the deal mechanics and everything to do with lenders being skittish.

If I could have sold a royalty on some of the cash flows to finance the purchase, it would have been lucrative for the person buying it because there was virtually no risk in the transaction of the financing not getting paid with 160k cash/yr against a 210k mortgage.

Secondly, Altius isn't just a lender of last resort. They're the one who is often times providing the land package and necessary equity financing to allow for the exploration to occur to begin with. Without Altius, there is no mine even if you can go to the bank for financing.

Just some thoughts as to why that's not necessarily an accurate or fair comparison
I guess you no longer need financing for your projects but if you ever did, call me and we'll talk. ;) I would make sure that the royalty is based on revenue so I don't have to worry about rising costs and would include liens on whatever positive may happen to the property (building getting larger with more rented space, new metro station nearby with its effect on rent etc).

There is nothing magical with the royalty model and the "inventors" (Mr. Lassonde and Mr. Schulich) of the model in the commodity space did extremely well because of an unusual combination of shrewd skill and luck (especially with their first homerun purchase) as well as a patient and contrarian capacity to ride several cycles. And perhaps not all that glitters is gold.

IMO the royalty model sits somewhere between debt and equity (in terms of risk and return) and modulates the effects of the cycle. In certain instances, notwithstanding the credit cycle (especially in early stages of development), mining companies may want to avoid debt (cash flow issue) and may want to avoid equity financing (expensive dilution) and may then offer an attractive proposition to royalty capital providers which, by definition, occupy this financing space.

Investing in ALS means that:
-one likes the royalty model
-one considers that management is competent, patient, opportunistic, and contrarian
-a key part is where management reinvests their money
-there is concordance with management as to where we stand in the cycle

bizaro86

  • Hero Member
  • *****
  • Posts: 1051
Re: ALS.TO - Altius Minerals
« Reply #6945 on: January 16, 2019, 03:13:54 PM »
ďAnd if you can't at all raise anything, what are the chances that your project is that promising and company that solid to bring it to fruition? There's gotta be plenty of risk with partners that can't raise the debt or equity for a project, right?Ē

The last post criticized development royalty financing as if that is Altiusís business model. Liberty is, of course, completely off base and talking in circles.

When has Altius bought a major royalty from a project developer? NEVER.

The royalties they bought during the last cycle were from mines that had been in production for decades. Facts not fantasies: Look up the dates Rocanville, Esterhazy, Chapada, Genesee, 777, IOC went into production.

Why did these mines sell these royalties? It's still just a way to raise capital, right? Why would the terms be so much better for the buyer than on other forms of capital? Please explain that to me.

And I didn't mean non-producing junior miners, I meant people who are raising money to pay for their projects, wether capex for mine expansion or selling a piece of one mine to finance the building of another one. You took what I wrote too narrowly.

A lot of those assets were existing royalties they bought from others, not mine owner-operators. Potash they bought from Sherritt, which was distressed from overspending on a nickel mine in Madagascar. 777 was owned by Callinan another public royalty co. that they took over, the market had no confidence in their strategy. IOC is a public company and they bought shares on the stock exchange.


petec

  • Hero Member
  • *****
  • Posts: 1821
Re: ALS.TO - Altius Minerals
« Reply #6946 on: January 17, 2019, 09:15:23 AM »
That's what I thought the model was, be counter-cyclical, sit on cash to have it when others need it, etc.

But that doesn't change that when you do that the royalty model isn't that different from debt or equity. If you're injecting capital when someone really needs it, you can usually get pretty good price and terms. Yet in recent years, despite us apparently being in a terrible time for commodities, I haven't seen such great deals, and I haven't seen such great IRRs from past deployments of capital. Hence my point that being so enamored by the royalty format can distract us from the fact that however you structure things, you won't get economics that are that different from other providers of capital for distressed situations, unless you're lucky (which can also happen with equity/warrants/etc). And just the fact that your lendees can get in distressed capital-starved situations in the first place shows that there's probably a decent amount of risk there.

There's nothing magic about royalties but they offer a very different return profile to either debt or equity.

Debt gives you no (upside) exposure to the cycle or to mine life extensions. Equities give you both, but with (usually levered) downside exposure to the cycle.

Royalties sit somewhere in the middle. You get exposure to the cycle and mine life extensions, but no operating or financial leverage and no exposure to rising costs. If you're skilled enough to be a countercyclical LOLR, then royalties offer a relatively high reward low risk profile compared to debt and equity.

Liberty

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 11324
  • twitter.com/libertyRPF
    • twitter.com/libertyRPF
Re: ALS.TO - Altius Minerals
« Reply #6947 on: January 17, 2019, 09:35:45 AM »
That's what I thought the model was, be counter-cyclical, sit on cash to have it when others need it, etc.

But that doesn't change that when you do that the royalty model isn't that different from debt or equity. If you're injecting capital when someone really needs it, you can usually get pretty good price and terms. Yet in recent years, despite us apparently being in a terrible time for commodities, I haven't seen such great deals, and I haven't seen such great IRRs from past deployments of capital. Hence my point that being so enamored by the royalty format can distract us from the fact that however you structure things, you won't get economics that are that different from other providers of capital for distressed situations, unless you're lucky (which can also happen with equity/warrants/etc). And just the fact that your lendees can get in distressed capital-starved situations in the first place shows that there's probably a decent amount of risk there.

There's nothing magic about royalties but they offer a very different return profile to either debt or equity.

Debt gives you no (upside) exposure to the cycle or to mine life extensions. Equities give you both, but with (usually levered) downside exposure to the cycle.

Royalties sit somewhere in the middle. You get exposure to the cycle and mine life extensions, but no operating or financial leverage and no exposure to rising costs. If you're skilled enough to be a countercyclical LOLR, then royalties offer a relatively high reward low risk profile compared to debt and equity.

We're saying the same thing.

But if you go back through this thread, there's always been a lot of excitement about royalties, claiming they deserve a 40-60x P/E like FNV or whatever, while they're in fact just a way to tweak the risk/return profile on capital deployed. If you're going to be a distressed investor, you can also pick up high-yield debt at significant discounts to par and get equity-like profile...

In the end what matters is the returns on the capital and the ability to redeploy at attractive returns (since royalties don't offer a built-in reinvestment mechanism), and that's where I'm not yet convinced. If you can get high ROIC with royalties over long periods and with most of your capital, that's amazing, but it's easier said than done, apparently.
"Most haystacks don't even have a needle." |  I'm on Twitter  | This podcast episode is a must-listen

petec

  • Hero Member
  • *****
  • Posts: 1821
Re: ALS.TO - Altius Minerals
« Reply #6948 on: January 17, 2019, 10:03:38 AM »
That's what I thought the model was, be counter-cyclical, sit on cash to have it when others need it, etc.

But that doesn't change that when you do that the royalty model isn't that different from debt or equity. If you're injecting capital when someone really needs it, you can usually get pretty good price and terms. Yet in recent years, despite us apparently being in a terrible time for commodities, I haven't seen such great deals, and I haven't seen such great IRRs from past deployments of capital. Hence my point that being so enamored by the royalty format can distract us from the fact that however you structure things, you won't get economics that are that different from other providers of capital for distressed situations, unless you're lucky (which can also happen with equity/warrants/etc). And just the fact that your lendees can get in distressed capital-starved situations in the first place shows that there's probably a decent amount of risk there.

There's nothing magic about royalties but they offer a very different return profile to either debt or equity.

Debt gives you no (upside) exposure to the cycle or to mine life extensions. Equities give you both, but with (usually levered) downside exposure to the cycle.

Royalties sit somewhere in the middle. You get exposure to the cycle and mine life extensions, but no operating or financial leverage and no exposure to rising costs. If you're skilled enough to be a countercyclical LOLR, then royalties offer a relatively high reward low risk profile compared to debt and equity.

We're saying the same thing.

But if you go back through this thread, there's always been a lot of excitement about royalties, claiming they deserve a 40-60x P/E like FNV or whatever, while they're in fact just a way to tweak the risk/return profile on capital deployed. If you're going to be a distressed investor, you can also pick up high-yield debt at significant discounts to par and get equity-like profile...

In the end what matters is the returns on the capital and the ability to redeploy at attractive returns (since royalties don't offer a built-in reinvestment mechanism), and that's where I'm not yet convinced. If you can get high ROIC with royalties over long periods and with most of your capital, that's amazing, but it's easier said than done, apparently.

Agreed.

mikek

  • Full Member
  • ***
  • Posts: 101
Re: ALS.TO - Altius Minerals
« Reply #6949 on: January 17, 2019, 10:16:25 AM »
I agree with what TwoCities said recently, unfortunately I am in the same boat and this has been dead money for such a long time.

I just don't see a catalyst unfortunately to move the stock.  The only big catalyst would be Alderon and I don't see that happening.  The PG portfolio isn't going to move the needle, say they hit big on one of the properties, it still isn't really going to move the stock.  The increase in value on the PG portfolio isn't going to be enough to really move the stock.  The royalty on that said property isn't going to be worth much because these mines take such a long time to be built that the market isn't going to assign any value to that.  The big problem is that Altius has 777 stopping at the end of 2021 and the market doesn't have much confidence in the thermal coal royalties.  This is why it doesn't matter if Altius hits 67-72 million in royalty revenue because the market is very uncertain on near term cash flows and the market hates declining royalty revenues.

I do feel a lot of the moves they have made in the last couple of years were very good deals, chapada, LIF (as long as management doesn't do something dumb) and 2nd part of potash royalty deal were deals that are likely to turn out well.  The problem is that 777 and thermal coal royalty purchases didn't work out as planned.  When they made the 777 purchase I think they felt it had a good chance of getting extended.  I would also guess that in their worse case scenario they didn't plan the thermal coal royalties working out this way.  I know the thermal coal and potash package came together but those deals just didn't work out well.  I don't think this stock is expensive but I also don't see it being super cheap.  Unfortunately, it looks like dead money to me. 

The one thing they have going for them is that commodities have been pretty brutal for quite awhile, majors seem to be only building tier 1 assets and sooner or later commodities are likely to turn.  The other positive is that Excelsior and Allegiance coal have a decent chance of replacing the 777 mine.  Those two mines have a decent probability of working out for Altius. 
« Last Edit: January 17, 2019, 10:28:37 AM by mikek »