Closed my Altius Minerals position

1. The share price has gone up a lot.
2. Altius is no longer buying back shares due to #1.
3. A lot of Altius’ intrinsic value is tied to Alderon and whether or not its flagship Kami mine is financed.  I absolutely do not trust Alderon’s management or the engineering firm (BBA) which prepared their feasibility study.  I previously estimated that Kami’s all-in costs would be $120/ton.  I believe iron ore spot prices are currently slightly less than that, so by my estimate a Kami mine doesn’t make sense right now.  I recognize that my estimate is not very good and that it is virtually impossible for me to perform due diligence on the Kami project.  I lack the engineering expertise and do not have access to technical data.
4. No news is bad news.  If Kami were economic (and my estimate overly pessimistic), some sort of financing deal might be in place by now (e.g. a takeover by a larger mining company).

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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.

Mining Mania

I used to assume that large mining companies would not chase projects with negative returns.  This is a dangerous assumption that I need to rethink.  I’m starting to realize that most large miners regularly chase projects with poor return.  Or, they engage in business decisions that don’t make a lot of sense.  I shouldn’t rely on the due diligence of senior mining companies when trying to value the assets of a junior.

Here’s my analysis of various large mining companies and why they are crazy.

What gets measured gets improved… or not

On the surface, it seems that measuring key metrics for a business can lead to improvements.  Many businesses will try to quantify their operations instead of relying on qualitative goalposts.  This is probably a good idea in most situations.  However, the real world is messy and difficult.  Sometimes employees will game the metrics used to measure their performance.

Nanocaps: why I don’t like them

Nanocaps are stocks with a market cap less than $50M.  (To be honest, I used to think that the correct term was microcap.)

There are two main reasons:

1. The overhead of being a publicly-listed company is going to be a huge drag on performance.
2. Often these stocks are intentionally created knowing #1.  The brokers know that shareholders will have a hard time making money but they don’t care.

Altius Minerals (ALS.TO) – Great business trading at a discount

I would consider Altius Minerals to have the best management team in the resource sector.  Currently, this company is trading below what its assets are worth and is buying back shares.

Portfolio updates Feb 2013

KB Home (KBH):  The stock ran up (around $19.57).  Originally I said that they should sell stock… now they are doing exactly that.  This is somewhat bad for the shorts (~34% of the float is short) as intrinsic value will move closer to the secondary offering price.  I plan on waiting to see if the short thesis plays out.