ALS.TO - Altius Minerals

[Phaceliacapital]

Thanks Dazel, very informative.

What are the chances that a call transcript will be available??

On a TA side of view: ADV crossed its 200 DMA at 2.2, I think atm algos and other TA traders are "testing" this level, its down to 11%, there is no rational explanation.

[Phaceliacapital]

The market was expecting Hebei to release the $120m...thinking that Alderon would have already submitted the study 15 business days ago to them....I may "personally speculate" with a short term trade on Alderon...

Hebei will gladly fork over the $120 m...they are going to do very well on their transaction.


Dazel.

Thinking the exact same thing but I would have to move cash around, upside at, 20% ST?

[ItsAValueTrap]

The feasibility study states operating costs of $42.17 per ton of concentrate.  This includes transportation costs to Port of Sept-Iles and loading/port costs ($25.98/ton without those costs).  This would make Alderon one of the lowest-cost iron ore mines in the world.  Yeah right.
This will likely be a repeat of history considering BBA authored this report.  Real-world operating costs will likely be slightly above those of Bloom Lake.  (If you compare BBA's reports for Kami versus Bloom Lake, Kami has slightly higher opex and quality deductions.)

If you simply compare Kami to Bloom Lake/Consolidated Thompson, I think Alderon's stock still looks undervalued.

2- Hebei's investment in Alderon is a big vote of confidence in it in my opinion.  They likely have done a very high level of due diligence on Alderon.  Technical reports by BBA are a joke... Hebei likely did their own homework.

[biaggio]

The feasibility study states operating costs of $42.17 per ton of concentrate.  This includes transportation costs to Port of Sept-Iles and loading/port costs ($25.98/ton without those costs).  This would make Alderon one of the lowest-cost iron ore mines in the world.  Yeah right.
This will likely be a repeat of history considering BBA authored this report.  Real-world operating costs will likely be slightly above those of Bloom Lake.  (If you compare BBA's reports for Kami versus Bloom Lake, Kami has slightly higher opex and quality deductions.)

If you simply compare Kami to Bloom Lake/Consolidated Thompson, I think Alderon's stock still looks undervalued.

2- Hebei's investment in Alderon is a big vote of confidence in it in my opinion.  They likely have done a very high level of due diligence on Alderon.  Technical reports by BBA are a joke... Hebei likely did their own homework.

Trap, thanks for balancing discussion.

"the Feasibility Study ("FS") on the Rose Deposit of the Kamistiatusset ("Kami") Iron Ore Property in western Labrador. The FS was completed by BBA Inc. ("BBA") located in Montreal, Quebec, Stantec Consulting Ltd. ("Stantec") located in St. John''s, Newfoundland & Labrador and Watts, Griffis and McOuat Limited ("WGM") located in Toronto, Ontario, and is effective as of December 17, 2012 "

-would having 3 different firms involved in the evaluation  not help with the validity of the analysis, roughly speaking. Am I naive to think that a smart (I assume), sophisticated buyer like Hebrei would do a very thorough evaluation i.e. personally I am banking on Dalton + recent buy in by Hebrei that there is a very good project there.

[ItsAValueTrap]

Here's how a senior miner would usually do due diligence on the project:

A- Re-assay some of the drillcore.  Freeport Mcmoran essentially did this when they wanted to buy out Bre-X... that is why they didn't get burned unlike the institutional investor community.

B- Check that the resource model is appropriate.  You need a copy of their computer files and a competence resource modelling engineer.
Oftentimes, companies have overly aggressive resource models.  The drillholes only sample a very tiny % of a resource body.  Everything else is a guess.  There is room to get pretty crazy with that guess.  Peter George / Barkerville would be an extreme example.  (Oh yeah... he is not in jail.  The bar to actually end up in jail is extremely high so there is a lot of bad behaviour that you can get away with.)

C- Check the engineering assumptions.  You need to a copy of all their work and a team of specialized engineers (metallurgy, infrastructure, mining, etc.).
There is a lot of room here to get overly optimistic.  Remember that any errors in predicting the economics of a mine can be multiplicative (is that a real word???)... so you could throw out some crazy numbers without getting into legal trouble.  Like what happened with Bloom Lake / Consolidated Thompson / BBA and the mythical <$40/ton opex.

D- Check that the title to the property is good.  Which requires a lawyer.

Clearly... I am not doing this level of due diligence.  I don't have a copy of all the technical data.  In theory I could calculate esoteric stuff such as whether or not Alderon's pit slope angle is reasonable (this affects mine economics)... but to do that, you would need information on soil characteristics (how elastic it is, etc.).
And I do not have a team of specialized engineers.

Am I naive to think that a smart (I assume), sophisticated buyer like Hebrei would do a very thorough evaluation

In rare cases, companies don't actually do due diligence when buying a junior.  There was some example in Pierre Lassonde's book on gold which I forget.

Crazy Eddie (the electronics retail mega-fraud) is an example of private equity not doing enough due diligence.

Warren Buffett bought GenRe... got burned on their derivatives unit.

You can't always assume that the buyer did thorough due diligence.

Can you tell the board why IOC has costs in the range that Alderon is talking about? And go through the points from the conference call that describe the high cost structure at Bloom Lake.

I didn't listen to the conference call... hopefully there is a transcript.

Because I don't have access to technical data and a team of specialized engineers... I don't have a very good idea about what the Kami project's potential economics will look like.

Regarding Alderon versus Bloom Lake... you could always make claims about Alderon/Kami having better economics even if it were the other way around.  Many of the economic assumptions are *subjective* and you won't end up in jail for being ridiculously optimistic.

[Dazel]

I erased a message for you Trap...i will send later..i don't want to waste your time...we are both Altius backers and production for 30 plus years is well
a home run...enough said.

I feel it is important to relay the message that Alderon shareholders were given today...Alderon is an IOC copycat not Thompson Consolidate or Cliffs...is $42 costs possible? not likely for a long time...I think you would add the discounts you often refer to the costs...They have taken them off revenues..bringing them to $107 and $102...so likely add $8 and $13 to costs.


*Alderon also had Bectel engineers look at the study ( conference call)...

I will post some IOC information for us all...I have seen their margins...they are impressive. As an Altius investor it is in our best interest for management to build out Kami and stay on as operators...One problem with Bloom Lake is that all the operators got rich and left. Cliffs hired third party contract operators with nothing at stake...as you will note they fired many of them recently.

Dazel.

[biaggio]

ItsaValueTrap, thanks for the post. Its good to have knowledgeable posters like you and Dazel.

FWIW, I feel reassured that a poster with a name ItsaValueTrap, is also long ALS.

[ItsAValueTrap]

-they fly in labour (like IOC, Alderon will employ and house locals)

Fly-in fly-out labour:
I could be wrong here as I only researched this today.

Bloom Lake mine is at
52°50'11"N   67°17'1"W
According to google maps, this is a 16min drive to Fermont.  38min drive to Wabush.

I am guessing that Cliffs is flying people into Fermont/Wabush where they live for their rotation.  There they drive to work.  Presumably the shortages of labour is bad enough that they can't find enough Fermont/Wabush residents to fill all the roles.  (And/or they can't convince people to move their families to Fermont.)
This job posting:
http://www.infomine.com/careers/jobs/job865760/reliability.engineer.flyin.flyout.montrealfermont.aspx
suggests that Cliffs will hire you if you move your family to Montreal; they will fly you in and out of Fermont.

I am guessing that Kami will also need fly-in/fly-out labour?  Maybe they are on some pipe dream where they train locals so that they can fill more of the skilled jobs?

If the Kami project starts up in the area, I would expect even more shortages of accommodation, labour, etc.  These shortages already exist???

-Cliffs as a large organization has associated costs (this is likely a nice way of describing my accounting theory)

I would figure that Alderon would have higher G&A as a percentage of its market cap.

Forbes and Manhattan-related companies (and anything Stan Bharti-related) tend to have very high G&A, overpaid board members, etc.  They're on the more ridiculously overpaid side of the spectrum.

All of the directors get paid six figures.  Dalton pulls in almost a million dollars in options grants... not bad for a part-time job!!!  But he is not the highest-paid part-timer there.  F***ing obscene.

The highest paid Cliffs director was paid $225,933.  Of course, Cliffs market cap is far higher than Alderon's.

Junior mining... makes me angry sometimes.  Lol.  I try not to look at circular filings on SEDAR.

-they have 3 rd party managers...Alderon will be doing it in house
-They truck out tailings
-they boat material and then load to ship
-rail deal at Cliffs is not as good as Alderon is looking for...(there was a question asked on the call on how Alderon think they will get a better deal)

dunno

----------------
On the metallurgy side, you would expect Kami to have higher costs.  They will likely do more processing on the ore to get the manganese content down.

More processing also means they throw away more iron ore.  This will raise mining costs since they have to mine a little more to get the same amount of concentrate/product.

[Dazel]

Trap,

You are making me work...not sure why since I am Altius investor....information good or bad always helps...and I am sucker to find it.

Conference call...Part of the increased capex cost at Kami was that their housing complex they initially had planned was too small...it will have to be larger...they will not be flying workers in and out. They will be following IOC's business plan.

Bharti...is gone from what I can see ( he is not well liked) Morabito remains...the only Consolidated Thompson guy on the management team is the geologist...which is very smart of course...

The management is an IOC team. They know what they are doing (Richard quesnel from Thompson consolidated had no experience in Labrador- more on that later) as Carol Lake is about the same distance from Alderon as Bloom Lake....Alderon and Carol Lake are both closer to Labrador city...as you will remember kami is 2 km from a paved road...easy to get in and out.
Happy to pay Dalton....he is the one in China.

Dazel

[ItsAValueTrap]

Conference call...Part of the increased capex cost at Kami was that their housing complex they initially had planned was too small...it will have to be larger...they will not be flying workers in and out. They will be following IOC's business plan.

The housing complex seems to be for non-local construction workers during the construction phase.

IOC has been trying to get their union workers to allow them to have some fly-in/fly-out (FIFO) workers.  There has been a lot of resistance to that plan because:
A- If you don't allow FIFO, then maybe the supply/demand situation will force higher wages and there will be more jobs for the union workers.
B- Arguably, FIFO workers create issues for the community (crime, not invested in the community, etc.).
It looks like IOC won't have any FIFO workers in the meantime.  They'd need to hire people who choose to move their families to Wabush/Fremont/Labrador City.
C- Part of it is preserving the social fabric of the town(s).  Without jobs, things will get painful for the community.

The labour and housing situation there is a little crazy.  If you make less than $65k, you are eligible for affordable housing programs.  Rents have skyrocketed due to the need for a lot of labour in that area... non-locals (or their companies that are paying for them) are driving up rents.