The not so pretty side of Altius Minerals

I have a large position in Altius.  But sometimes it is good to invert and to look at why your positions aren’t great ideas.  Here are some things about Altius that deserve examination:

  1. Altius owns shares in Alderon (and has a valuable royalty on Alderon’s flagship Kami project).  Alderon pays for stock promotion.  The way this paid promotion is disclosed may be improper.
  2. It is hard to time if the Kami mine  is economic.
  3. Alderon engages in your typical junior mining bullshit.
  4. Altius voluntarily bought shares of Virginia Mines, a company which pays for stock promotion.
  5. Some of Altius’ corporate presentations are on the promotional side.

Alderon’s stock promotion

I’ve previously written that Altius pays for stock promotion.  It may or may not be paying an outfit called “Resources Wire” for stock promotion.  That company’s disclaimer page (http://resourceswire.com/disclosure-and-disclaimer/) states:

Some of the companies featured at resourcewire.com pay resourcewire.com for advertising or dissemination services.

Unfortunately, Resources Wire doesn’t seem to state which companies pay for advertising or “dissemination” services.  So I cannot be sure whether or not Alderon is paying them to write articles on the Kami project.  However, I do know that Resources Wire wrote a very positive article about the Kami Project, which was picked up by the Financial Post (http://business.financialpost.com/2014/03/11/alderon-pillars-of-production/).  The article, entitled “Alderon: Pillars of Production”, interviews Alderon’s CEO.  Tayfun Eldem explains what the three pillars are and how Alderon has secured all three.  Apparently being fully financed is not a pillar of production.

Anyways, I think that the National Post is selling itself out by republishing PR fluff pieces from third parties.  In reprinting the piece, it did not disclose whether or not Alderon paid for the fluff piece.  Nor has Resources Wire disclosed whether or not Alderon paid for the article.  It is standard practice for stock shills to disclose their financial relationships with the companies they write about.  Other Alderon shills such as Streetwise Reports and Grandich disclose that they were paid by Alderon (*Grandich doesn’t write anymore).  Why doesn’t Resources Wire, run by an individual named Jay Currie, properly disclose its financial relationships?  I don’t know whether this is a breach of securities law, but it should be.

Is the Kami mine economic? + Alderon engages in your typical junior mining bullshit.

Other posts on this blog cover these topics so I won’t rehash it here.

Alderon has lots of related party transactions, one of which involved the company paying Stan Bharti for use of a corporate jet.  Shareholders would be better off if management flew coach.  Obviously, Stan Bharti and Richard Kinder are on opposite sides of the spectrum.

*Bharti is no longer the chairman of Alderon.  Bharti and Mark Morabito parted ways.

Virginia Mines

Like Alderon, Virigina Mines pays theaureport.com (Streetwise Reports) for stock promotion.

Unlike Alderon, Altius voluntarily bought shares of Virginia Mines.  I think the investment thesis has nothing at all to do with Virginia Mines paying for stock promotion.  Virginia has a royalty on the Éléonore mine that Goldcorp is currently building.  Goldcorp has been discovering more and more ore below the current known deposit.  Dalton likely feels that the market is not correctly pricing the royalty given Éléonore’s expanded size and exploration potential.  Virginia also has a huge land position that could be worth a lot.  It has recently raised money (without selling Virginia shares) to explore the Coulon copper-zinc-silver deposit.

In the past, Virginia and Altius have been business partners through their exploration joint alliance.  Dalton likely thinks very highly of Virginia’s exploration team.  Normally, Altius does not spend money exploring the prospects it has generated.  Yet it is spending money on Virginia’s prospects.

Altius’ capital allocation strategy

In the past, Altius has sold its shares in a secondary offering.  I think that Dalton will promote Altius stock if need be.  (Altius has also bought back its own shares when it has traded at low prices.)

Currently, Altius is trying to close a very large purchase of various royalties from Sherritt (S.TO).  It may finance part of this deal with convertible debt.  Not surprisingly, Altius’ presentations have (in my opinion) become more promotional than in the past.  A higher stock price will drive down the cost of convertible debt.

I’m bearish on iron ore

Most iron ore miners are expanding their mines*.  High prices cannot last indefinitely when there is still a lot of room to increase supply.  Of course, I’m terrible at predicting commodity prices so I could be wrong about this.

*Cliffs is one of the few exceptions.

My plan

Because I hold my Altius shares in my tax-free savings account (I am Canadian), I can sell them without any tax consequences.  If Altius shares rally strongly, I will likely trim my position and reinvest the proceeds elsewhere.

I am still a fan of management and I think that it would be a mistake for me to sell all of my Altius shares.  The recent royalty deal was likely a good deal for Altius.  What’s not obvious about the potash royalties is that the Canadian potash producers have not been running their mines at full capacity as they are trying to impose cartel pricing.  On top of that, they still have some excess capacity coming online.

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3 thoughts on “The not so pretty side of Altius Minerals

  1. Whats interesting is that ALS.TO jumped 50% after it was included in the CoBF Fund and the last upmove was after an ongoing discussion in the forum. It looks like the only buyers of the stock are out of the forum. The same happened with Intralot. This is a bit like a self fulfilling prophecy. I would bet that as soon as it falls out of the fund, the stock will crash below the level where it was before it was included.

    • No idea. There could be people promoting the stock. There may be parties that wish to drive the price higher so that they collect more fees from their hedge fund. I really don’t know.

  2. There was a presentation on ALS at the Value Investing Congress. Potential dividend of $3/share by 2017 according to the speaker. “A Wayne Gretzky income stock”. Anyways, it’s kind of outside my circle of competence.

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