Author Topic: ALS.TO - Altius Minerals  (Read 1907448 times)

Dazel

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Re: ALS.TO - Altius Minerals
« Reply #760 on: August 16, 2012, 08:29:47 AM »

Value is what you get,


Thanks for correcting me so quickly...only looked at the first part of the release quickly...on vacation.

For us...it is the agreement itself that matters..the continuity of the project is all we care about...yes altius's stake received some dilution from the $3.42 to $2.42 level. But more importantly to us is they raised the project financing. they will raise about $1 billion in debt and equity from here so dilution will continue over the next few years...we would pay up for the stability as Alderon did...

We see Altius's value in the royalty as we have stated many times....Paladin and Alderon have raised significant capital in a brutal financing market...well done to both companies.

Dazel.


ItsAValueTrap

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Re: ALS.TO - Altius Minerals
« Reply #761 on: August 16, 2012, 09:17:15 AM »
The rest of the money is contingent on positive results from a feasibility study.  There is an option embedded in there.

If the feasibility study is negative, then Hebei may have overpaid for Alderon shares and Alderon gets to hang onto the money from the share subscription.  You can make the argument that this is fair since Hebei is getting some very good terms to its deal.  By committing to buying 60% of Alderon's ore at a discount of 5% (I still don't know how they will handle smelter/quality deductions and they will be significant), it's like Hebei has a royalty of 3%.  But I believe it's actually worth more than 3%.  The benchmark price is for iron ore delivered to China, so presumably it's Alderon that will pay for the shipping.  It would make more sense if the purchase price was benchmarked to a Quebec port, but no such benchmark exists AFAIK.

Suppose shipping costs $20/ton.  The maximum upside for Alderon is $20/ton if drybulk rates drop to $0/ton.  Whereas in the past, drybulk rates have exceeded the cost of the ore itself (!!!).  So Alderon is exposed to risks from the fluctuation in shipping costs... there is little upside and a lot of downside.
Hebei also has an option to take the rest of the ore at the benchmark price without any discount.  This option is worth something too.  If funky things happen with drybulk rates (they are extremely volatile) then that option could be worth a lot.

2- Liberty probably realized that they were getting shafted a little.  Hebei gets all sorts of options (and something worth a little more than a 3% "royalty") while Liberty does not.  So adjusting their subscription price down makes some sense.
This is somewhat bad for Alderon as shareholders get diluted.  Obviously existing shareholders would like to see Alderon sell shares at a high price.  There is a big difference between #/42 and $2.42.

3- Alderon is no Consolidated Thompson in my opinion.  Alderon's ore will be penalized for manganese content.  I think that Hebei did protect itself by stipulating deductions for deleterious minerals in its off-take agreement (it's a pretty standard practice).  Otherwise Alderon could cut corners on mineral processing costs (e.g. not spend the electricity and mill capacity on grinding the ore finely) and ship a product with high levels of silica, manganese, etc.
« Last Edit: August 16, 2012, 09:22:01 AM by ItsAValueTrap »
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value-is-what-you-get

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Re: ALS.TO - Altius Minerals
« Reply #762 on: August 16, 2012, 09:58:17 AM »
I have a couple of questions for Itsavaluetrap:

Wouldn't all suppliers including South America and Australia (70+% of global supply) have similar exposure to dry goods shipping rate fluctuations?

Is .60% manganese considered to be a high level?




ItsAValueTrap

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Re: ALS.TO - Altius Minerals
« Reply #763 on: August 16, 2012, 11:24:41 AM »
Usually it's the purchaser who pays for the shipping.

On second thought I don't think that the risk from shipping cost fluctuations is a huge issue.  Alderon should be able to hedge its risk by entering into long-term freight contracts.  I don't believe that there would be significant counterparty risk to Alderon... I believe that it is the charterer who is the most likely to default.  I'm guessing that the shipping company will want to be compensated for credit/counterparty risk so there would be a minor cost to this hedge.

2- If Alderon could sell to non-Chinese customers, then Hebei's option on 40% of their output could hurt them a little.  After adjusting for shipping costs, it could be possible that Alderon should sell to local customers rather than Chinese customers.  But Alderon's technical report suggests that it will likely sell to Chinese customers only due to the lower quality of its ore.

Quote
Wouldn't all suppliers including South America and Australia (70+% of global supply) have similar exposure to dry goods shipping rate fluctuations?
Yes.  Brazil to China is a longer route than Australia to China.  Shipping costs are a big reason why Vale decided to build unusually large ore carriers (larger than capesize).  The larger vessels are more efficient.  And owning its vessels reduces their exposure to shipping costs.
(I'm not saying that Vale's decision is a good one necessarily.  Some people say that there has been a huge wave of overbuilding in the drybulk sector.)

Quote
Is .60% manganese considered to be a high level?
Yes.  According to the technical reports, sulfur is also a little on the high side.

I don't know enough about iron ore to know what level of deduction Alderon's ore may receive.
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Dazel

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Re: ALS.TO - Altius Minerals
« Reply #764 on: August 19, 2012, 07:12:28 AM »
http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/oil-and-ink-publishers-bold-refinery-plan-raises-eyebrows/article4486051/


Great idea!
We think the better idea is the fully permitted NLRC on the east coast that is ready to go! Black mentions one third Chinese ownership...interesting.

Dazel.

Dazel

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Re: ALS.TO - Altius Minerals
« Reply #765 on: August 19, 2012, 07:20:45 AM »
http://altiusminerals.com/projects/nlrc


The 36 month creditor standstill agreement expires November20 2012.

jjsto

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Re: ALS.TO - Altius Minerals
« Reply #766 on: August 20, 2012, 07:41:24 AM »
Grandich on alderon:

http://www.grandich.com/2012/08/grandich-client-update-alderon/

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ItsAValueTrap

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Re: ALS.TO - Altius Minerals
« Reply #767 on: August 20, 2012, 12:30:44 PM »
Remember that Alderon is paying Grandich to say good things about them.  This does not generate value for society and does not generate value for all shareholders.

2a- Grandich is glossing over the value of Hebei's option.  If the project is not economic, it does not have to commit the rest of the capital.
2b- He is also glossing over the value of Hebei's 5% discount.
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Dazel

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Dazel

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Re: ALS.TO - Altius Minerals
« Reply #769 on: August 23, 2012, 01:13:07 AM »