In 2013, Altisource was the best performing long position in my portfolio. In 2014, I unfortunately made it the largest position in my portfolio. Because of that, I am badly lagging the market.
Here’s the slide:
BBA did technical report work for Bloom Lake. Note the big discrepancy between Bloom Lake’s current operating costs and what the technical reports estimated.
BBA did technical report for Kami. Hmm I guess Alderon’s management failed to mention this in their presentation. Other slides in the presentation also fail to mention the sulfur and manganese levels in the Kami deposit.
*Disclosure: No position in Alderon or Altius Minerals (key Altius employees sit on Alderon’s board of directors). There may be some value in Kami. However, I think that projections about Kami’s economics are “overly optimistic”.
Sometimes I will search a company’s website to see what PDF files and other files they have uploaded onto the website (e.g. use Google to search “filetype:pdf site:JuniorMiningCompany.com”). Junior mining companies often repost analyst reports, presumably for stock promotion purposes. It so happens that I did not bother to do this until after I closed my Altius Minerals position at a large profit. Had I figured this out earlier, I’m not so sure I would have invested in Altius.
Here’s the press release. I am very surprised that Altius chose to do a secondary offering of shares. Management initially said that they would sell convertible debt.
In general, secondary offerings scare me. Selling shares is an extremely expensive way of raising capital:
- Share dilution from issuing shares at a discount.
- Altius’ underwriters will collect a 5% fee and a call option.
- Various professional fees in handling the paperwork. I believe this usually costs hundreds of thousands of dollars.
Secondary offerings are generally a sign that management (A) is stupid or (B) believes that the stock is overvalued. Brian Dalton has a track record of selling high and buying low so it is almost certainly the latter. Perhaps I should have noticed the overvaluation earlier; my process may have been flawed.
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:
- 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.
- It is hard to time if the Kami mine is economic.
- Alderon engages in your typical junior mining bullshit.
- Altius voluntarily bought shares of Virginia Mines, a company which pays for stock promotion.
- Some of Altius’ corporate presentations are on the promotional side.
A reader of this blog asked me why I think that Hebei is the dumb money. Let me answer that by explaining Alderon’s paid stock promotion.