ALS.TO - Altius Minerals

[value-is-what-you-get]

wrt Alderon value, I did a real simple comparison and as Buffett says "it sort of jumped off the page" at me.

Neighbour Consolidated Thompson got $4.9 billion for about 990 million tonnes.  That's about $4.95 a tonne.  $4.95 x 500 million = $2.475 billion

Consolidated are a producing mine so I looked at the cost of building that to be around $1 billion.  Leaves $1.475 billion.

Then I figured that because I probably made some incorrect assumptions and would like a nice margin of safety  I'll divide that in half.  Leaves $737.5 million for 500 million tonnes. 

That's about 2.5x current market cap and that's when it just sort of jumped off the page!

Any further resource increase is just more Margin of Safety above that figure.

Downside is if Iron Ore tanks - who knows??  Not me, but it looks pretty good so far!

[Myth465]

wrt Alderon value, I did a real simple comparison and as Buffett says "it sort of jumped off the page" at me.

Neighbour Consolidated Thompson got $4.9 billion for about 990 million tonnes.  That's about $4.95 a tonne.  $4.95 x 500 million = $2.475 billion

Consolidated are a producing mine so I looked at the cost of building that to be around $1 billion.  Leaves $1.475 billion.

Then I figured that because I probably made some incorrect assumptions and would like a nice margin of safety  I'll divide that in half.  Leaves $737.5 million for 500 million tonnes. 

That's about 2.5x current market cap and that's when it just sort of jumped off the page!

Any further resource increase is just more Margin of Safety above that figure.

Downside is if Iron Ore tanks - who knows??  Not me, but it looks pretty good so far!

I really like the way you look at things.

[Liberty]

I really like the way you look at things.

I second that!

[Dazel]

You guys have beat me to the punch on Alderon...you can see the excitement Altius management sees...It is early in the Alderon project but what is being missed is the 3% royalty (more on royalties later) that Altius owns in addition to it's 40% ownership of Alderon....just like Leucadia's royalty at Fortesque it was nothing and then...pure cashflow...We think that these income streams from future royalty streams are being completely ignored.

example: today's prices
Altius market cap     $394m 0 debt.
Alderon shares32m   $130m
cash equivalents      $200m
The company is trading for $64m...That looks like more of a financial company than a resource company does it not? That is what the market is pricing but what about the other assets?


Royalties of interest
Voisey Bay
We have asked management what it would cost them to buy another 10% stake in the Labrador Nickel Royalty limited partnership that they already own. That way we will find out
what it costs in the market. It covers the entire Voisey bay area so if Vale were to discover further resources, the Royalty rises with output...without any exploration cost. Voisey Bay is the low cost producer in the world with a massive resource base that Vale figures will operate for 30 years with out additional resource finds. After looking at what these royalties cost in the market place..we are convinced that this asset is being ignored. altius is an expert when it comes to royalties as shown by their astute purchase of IRC (International Royalty Corp in 2009) They made $31m on it in 6 months. How did they know it was undervalued? Because IRC was a major holder of the same partnership above. So what's the value?
http://www.altiusminerals.com/lab_nickel.php

Alderon
So what would the 3% Alderon royalty be worth if The Consolidated Thompson model is followed through. That would likely make the royalty that is being valued at less than 0 worth more than the entire market cap of Altius.


Central mineral belt
2% gross sales and 2% smelter..now owned by Paladin..
http://www.altiusminerals.com/aurora.php
                           
Cliffs Natural Resources
They purchased of Consoldidated Thompson for $5 billion...Altius signed an exploration agreement with them in December..Do you think they know Alderon is next door to Consolidated Thompson? They are a big global player. Altius does not usually do projects with large companies but this relationship can't hurt.
http://www.altiusminerals.com/cliffs_natural_resources.php

Having said that...
Rio Tinto partnership-Labrador Iron Ore
http://www.altiusminerals.com/labrador_iron_ore.php

Rio Tinto is a 58% owner of the The Iron Ore company of Canada, 26% Mitsibushi, 15% Labrador iron ore royalty(2.65b market cap) other the other owners. They have produced a billion tonnes of iron ore in the district which has been around since the 1950's..they have 2.5 billion tonnes in reserves...So they are in partnership with the big boys of the area and in contact. We assume that these players are very aware of what these properties are worth and these are the deepest pockets in the world. As discussed earlier New Millenium was taken out by Tata steel for big bucks in the same region.

Energy opportunities
at $105 oil this could be very interesting
http://www.altiusminerals.com/albert_oil_shale.php

NLRC has until October 2011 to sell or finace the refinery project..If they are able to pull off something of value here it would be huge for the stock price as the market still sees this as disasterous for Altius..they forgot to look at the other assets!
http://www.altiusminerals.com/nlrc.php

There are numerous other projects that I did not mention including many gold assets including Rambler that will start producing gold this quarter..but i do not know what they are worth..more than 0! We see the above projects as potentially huge for the company. Now that 43-101 is out for Alderon and it was extremely positive (we are not geologists!!) we have greater conviction that the $64 million the market is valuing this company at is crazy! As was said earlier it jumps off the page at us!
disclosure:We are very biased! and own a large chunk of Altius...

Dazel.

[jjsto]

"Alderon
So what would the 3% Alderon royalty be worth if The Consolidated Thompson model is followed through. That would likely make the royalty that is being valued at less than 0 worth more than the entire market cap of Altius."

I was just trying to come up with a number for the value of this royalty.  Using pretty conservative assumptions of: 1) 8MT annual production, 2) long-term $100/ton 66% iron price in Canada, 3) production starts in 2015, 4) 25 year mine life and 4) a 12% discount rate, I get a present value of around $120m today (and $190m in 2015), unless my math is wrong.  I guess for the Royalty it doesn't really matter if they follow the "CLM" model for the financing, all that matters is that the mine actually goes into production.  So, at this point, considering the location, management, low capex etc...what would you estimate the probability is that the mine doesn't go into production?  Aside from a sudden collapse in iron-ore prices and/or the economy what other event(s) would prevent development?  I am having a hard time coming up with scenarios that would stop continuing development...

Also, Dazel, do you have any idea what type of financing Alderon will wind up getting?  I feel like in this environment they should be getting a deal similar to or better than what CLM got with WISCO, but I really have no idea...either way, it seems like Altius will sell the shares at some point, and just keep the royalty??

and, yeah, if iron ore prices stay where they are now, and the mine goes into production, then in 2014 or so, the Royalty could be worth more than the entire market cap...

[Liberty]

Dazel, do you have a sense of the likelihood of Altius getting acquired within a few years vs that they remain independent and keep growing with the model that they've used so far?

Their model is so brilliant and well executed so far, I would actually be sad to see them swallowed up, even at a nice premium.

Do you think that only their spin-off companies would potentially be acquired, with Altius itself staying independent? Do you have any insight on what the management thinks about these possibilities? Are they eyeing an exit the way that most startups are, or are they aiming at growing Altius indefinitely (in the same way that Watsa wouldn't sell FFH)?

[jjsto]

"Neighbour Consolidated Thompson got $4.9 billion for about 990 million tonnes.  That's about $4.95 a tonne.  $4.95 x 500 million = $2.475 billion"

I have been looking through the Consolidated Thompson filings, and I think they have at least 826 million tonnes at the Bloom Lake properties and 934 million tonnes at the Lamelee & Peppler properties, for a total of 1,760...

[Dazel]

We have not talked to management.

We have very recently sent a detailed long email to Brian Dalton outlining our thoughts and strategic directions we see Altius taking.

Everyone is for sale at a price. We think it is possible for a large partner like Leucadia-Sprott to buy a big stake in the company but we do not see
an outright sale. Pure speculation on our part.

They need to be very smart now...because dilution is their friend and enemy at Alderon...the 5% they have diluted already has cost them about $5 million. However, raising funds are essential to moving Alderon to production. They want production for their 3% royalty to kick in. If CNR were to buy Alderon for the reserves they could
sit on them for years...needs to be the right buyer. But as we know anyone will sell at a price. Now that 43-101 is out they will be negotiating with the whole iron ore world. We are extremely confident in management in this capacity. They are the expert in Labrador. 

We would like more resources (people-project managers) put towards their other projects as outlined previously they all have the potential of being the next Alderon. This asset was worth $1.5m on the balance sheet this time last year!!!! The market cap yesterday was $271m ($138m-3% royalty-their portion)!!!! Not a bad return already! You can see our excitement with the other projects.

Dazel.

[jegenolf]

You guys have beat me to the punch on Alderon...you can see the excitement Altius management sees...It is early in the Alderon project but what is being missed is the 3% royalty (more on royalties later) that Altius owns in addition to it's 40% ownership of Alderon....just like Leucadia's royalty at Fortesque it was nothing and then...pure cashflow...We think that these income streams from future royalty streams are being completely ignored.

example: today's prices
Altius market cap     $394m 0 debt.
Alderon shares32m   $130m
cash equivalents      $200m
The company is trading for $64m...That looks like more of a financial company than a resource company does it not? That is what the market is pricing but what about the other assets?


Royalties of interest
Voisey Bay
We have asked management what it would cost them to buy another 10% stake in the Labrador Nickel Royalty limited partnership that they already own. That way we will find out
what it costs in the market. It covers the entire Voisey bay area so if Vale were to discover further resources, the Royalty rises with output...without any exploration cost. Voisey Bay is the low cost producer in the world with a massive resource base that Vale figures will operate for 30 years with out additional resource finds. After looking at what these royalties cost in the market place..we are convinced that this asset is being ignored. altius is an expert when it comes to royalties as shown by their astute purchase of IRC (International Royalty Corp in 2009) They made $31m on it in 6 months. How did they know it was undervalued? Because IRC was a major holder of the same partnership above. So what's the value?
http://www.altiusminerals.com/lab_nickel.php

Alderon
So what would the 3% Alderon royalty be worth if The Consolidated Thompson model is followed through. That would likely make the royalty that is being valued at less than 0 worth more than the entire market cap of Altius.


Central mineral belt
2% gross sales and 2% smelter..now owned by Paladin..
http://www.altiusminerals.com/aurora.php
                           
Cliffs Natural Resources
They purchased of Consoldidated Thompson for $5 billion...Altius signed an exploration agreement with them in December..Do you think they know Alderon is next door to Consolidated Thompson? They are a big global player. Altius does not usually do projects with large companies but this relationship can't hurt.
http://www.altiusminerals.com/cliffs_natural_resources.php

Having said that...
Rio Tinto partnership-Labrador Iron Ore
http://www.altiusminerals.com/labrador_iron_ore.php

Rio Tinto is a 58% owner of the The Iron Ore company of Canada, 26% Mitsibushi, 15% Labrador iron ore royalty(2.65b market cap) other the other owners. They have produced a billion tonnes of iron ore in the district which has been around since the 1950's..they have 2.5 billion tonnes in reserves...So they are in partnership with the big boys of the area and in contact. We assume that these players are very aware of what these properties are worth and these are the deepest pockets in the world. As discussed earlier New Millenium was taken out by Tata steel for big bucks in the same region.

Energy opportunities
at $105 oil this could be very interesting
http://www.altiusminerals.com/albert_oil_shale.php

NLRC has until October 2011 to sell or finace the refinery project..If they are able to pull off something of value here it would be huge for the stock price as the market still sees this as disasterous for Altius..they forgot to look at the other assets!
http://www.altiusminerals.com/nlrc.php

There are numerous other projects that I did not mention including many gold assets including Rambler that will start producing gold this quarter..but i do not know what they are worth..more than 0! We see the above projects as potentially huge for the company. Now that 43-101 is out for Alderon and it was extremely positive (we are not geologists!!) we have greater conviction that the $64 million the market is valuing this company at is crazy! As was said earlier it jumps off the page at us!
disclosure:We are very biased! and own a large chunk of Altius...

Dazel.

According to the Q3 report, the Rambler stake is gone and the oil shale project is abandoned. Is there something more to either of those investments than what is apparent from the report?

[value-is-what-you-get]

"Neighbour Consolidated Thompson got $4.9 billion for about 990 million tonnes.  That's about $4.95 a tonne.  $4.95 x 500 million = $2.475 billion"

I have been looking through the Consolidated Thompson filings, and I think they have at least 826 million tonnes at the Bloom Lake properties and 934 million tonnes at the Lamelee & Peppler properties, for a total of 1,760...

I stand corrected - many thanks jjsto.  That's why I like to divide things in half! 

From that scenario (i.e. reality) it looks like a reasonable price at $4 - resource being discounted about 40% as it's not a producing mine yet.  As a going concern with a 500 million tonne resource it would be around $6 a share assuming a $1 billion build cost and Consolidated Thompson sale valuation per tonne would be equalled (remember that last $1 billion in value was only realized when the company was sold!! $4/share or so premium over market).  We get to add about $2.75 a tonne (once produicing) for additional resource increases from here on.   It certainly erodes the old MOS considerably and introduces the dreaded "if"s into the equation ("if" they increase the resource by 200, 300, 400 million, "if" they find a buyer etc etc) 

I completely agree with Dazel as well that the 3% royalty is the big value here.  Doesn't matter how ADV dilutes or gets bought out or taken over or anything else - when the ore ships, ALS gets paid by whoever's selling it. 

It seemed in my initial flawed calculation that in the short term, pre-production, there was more bang to be had from ADV stock than ALS.  That is not the case.  There will be some pops followed by months of slow dwindle, dilutions, financings etc - so try to buy when the dwindle stops and before the pop - I generally don't do well on those! 

The greatest potential for large surprises to the upside clearly lies with ALS.to.