Massiff Capital Long On Altius Minerals
Massiff Capital Long On Altius Minerals
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Massiff Capital’s latest commentary on Altius Minerals Corporation (TSE:ALS), a TSX listed royalty and streaming company that they established a position in earlier this year.
Q1 2020 hedge fund letters, conferences and more
Altius has assembled a formidable portfolio of base metal royalties, many of which align with long term structural trends in the global economy. The firm is also the first company (that we are aware of) that is creating a renewable energy royalty business by recycling profits from their legacy coal assets into renewable energy developers.
Massiff thinks very highly of the management team at Altius and are pleased to support them as they continue building their company.
Investment Thesis:
Altius Minerals (TSX: ALS) is a diversified royalty & streaming (R&S) company with a portfolio of 15 royalty contracts1 backed by an investment‐grade balance sheet, reliable and innovative management, and low jurisdictional risk.
Beyond these admirable qualities, we find ALS a compelling investment for several reasons:
1) Their project generation business feeds the royalty business model. Altius organically assembles geological real estate in periods of market stress that they later sell to junior miners in return for equity stakes and underlying royalties. Counter‐cyclical capital allocation is a critical pillar to their business model, not just a popular catchphrase. Earnings generated from prospect generation are re‐circulated into the exploration business to acquire third party royalties that augment the internally generated royalties held by the business. The firm’s geological flywheel often creates royalties at zero cost for the future benefit of shareholders.
2) The portfolio of royalties is almost entirely comprised of base metals. By contrast, their listed R&S peers almost exclusively hold royalties in precious metals. Aside from differentiated exposure, base metal mines are often characterized by extremely long lives. This increases the overall optionality of the portfolio and allows the company to grow in a very capital efficient manner.
3) ALS is creating a first of its kind renewable energy royalty business. Tied closely with the firm’s intent to restructure their portfolio to align with global sustainability trends, Altius is recycling its current coal royalties into a newly created renewable subsidiary that is experiencing rapid growth.
The Altius management team is comprised of highly respected capital allocators that are currently buying back their shares at below net asset value (NAV). We believe the aggregate cash flows from the current royalty portfolio are worth roughly C$550 million. Inclusive of the market value of their equity holdings, less net debt and minority interests, the firm is worth about C$12.5 per share, a 65% discount to its current price. 2 Should ALS trade at market multiples comparable to other R&S peers, we think the stock is worth more than C$20 per share.
The Altius Business Model:
Traditional financing can either be unavailable or expensive for junior resource developers. As such, R&S companies can provide an essential financing bridge to junior miners, taking a royalty or streaming interest in the future production of a resource in return for capital.
R&S arrangements are a positive‐sum game for the mine operator, the financing company, and the equity investor. The mine operator can capitalize on proven reserves before an operation becomes productive, the financier enjoys the resource upside while avoiding the direct risks associated with developing/operating a mine, and equity investors can gain exposure to a portfolio of resources through an asset‐light business model.
ALS has three lines of business: a portfolio of royalties, a project generation business, and Altius Renewable Resources (ARR). The royalty contracts have underlying exposure to copper, nickel, zinc, iron ore, potash, and coal. Most mines that feed the royalty business are in either Canada or Brazil.
The Core of Altius - Project Generation:
Project generation is a cornerstone of the Altius business model. In many ways, it was borne of out necessity in late ’97 when ALS went public. CEO Brian Dalton notes that in hindsight, the creation of ALS amid a mining downturn forced them to hone a business model that could endure mining cycles.
Project generation acts as a feeder into the royalty business. ALS will organically assemble prospective geological real estate during periods of bearish sentiment when capital is tight and competition to secure prospective land is limited. When the market turns, ALS sells its portfolio of property to well‐capitalized junior miners in return for equity stakes and/or underlying royalty interests.
The value add of the project generation arm extends beyond the market value of the equity portfolio (which sits today at about $34 million, or ~10% of its current market capitalization). This strategy can create an extremely low, or potentially negative, underlying cost basis for any royalty/stream it may generate. From 2012‐2016, ALS assembled roughly 2 million hectares of land in nine different jurisdictions covering prospective sites for a suite of base metals. Since 2017, ALS has sold 57 global exploration projects under 17 agreements with various partners, converting most of the mineral assets it assembled during the past downturn into new royalties and a portfolio of 20+ junior equity positions.
The Gunnison copper mine in Arizona is set to become the first paying royalty from the project generation business. Inclusive of equity gains for ALS associated with Gunnison, the project has a negative underlying cost base for Altius shareholders.
Once up and running, the project generation strategy can be self‐funding. Over the previous commodity cycle (pre‐2012), Altius generated equity capital gains of greater than $200 million, which the firm used to fund many of their down cycle (2012‐2016) cash flowing royalty acquisitions. This cycle of royalty growth and creation is incredibly capital efficient.
The Royalty Portfolio:
For roughly eight years following the financial crisis, ALS converted its equity gains from the decade before into royalty stakes. In addition to efficient capital recycling, ALS has proven to be successful capital allocators, securing royalties on projects that have ended up being very profitable.
Healthy operating margins, with select commodity prices hovering near all‐time lows, has generated strong cash flow, allowing ALS to reduce leverage and increase their dividend while still providing enough liquidity to buy back shares below NAV and sustain a strong balance sheet. 3
A key differentiator of the Altius’s royalty portfolio is that it is comprised of base metals as opposed to precious metals, a rarity in the public equity R&S space. This may seem like a minor point, but the life of a base metal mine can be an order of magnitude higher than a precious metal mine. A potash mine, for instance, may have a 100+ year life, whereas a gold mine is lucky to have a 15‐year life. With long‐life assets, significant optionality can be secured at the royalty level.
As a royalty holder that does not share in the capital costs to expand mine production, a mine expansion will generate additional upside without additional capital outlay. This dynamic is far more pronounced in base metals when compared to precious metals. Base metal mines are still ultimately a depleting asset. Still, the depletion point is often so far out in time that the number of opportunities for production rates to increase is such that investors may be getting perpetual growth royalties.
Today, the Altius royalty business is shifting from an acquisition model to an organic growth platform. The portfolio of royalties is beginning to capitalize on the option value embedded in their assets. The large nickel/copper deposit in Canada, Voisey Bay, is constructing an underground mine that sits within ALS’s extensive royalty land package. The Chapada copper mine in Brazil has been recently taken over by Lundin Mining with a view towards expanding production. In both cases, ALS has rights to the market value of the increased production with zero obligation to help finance the expansions. ALS does not need to be a continuous buyer of assets to drive growth.
Altius Renewable Royalties:
A unique feature of ALS is its subsidiary, Altius Renewable Royalties Corp. (ARR). The venture was conceived as a mechanism to phase out of coal by reinvesting coal royalty revenue into renewable energy via the financing of renewable energy projects. In a little over a year, Altius has funded a $30 million investment with Tri Global Energy, a Texas‐based wind developer and a $35 million investment with Apex Clean Energy, a US‐based wind and solar developer. The pool of capital that has been allocated to Tri Global and Apex has thus far come from existing ALS liquidity and helps the developers bring wind and solar projects to the market. ARR begins to receive royalty payments once the developer sells a project to the final project sponsor and/or operator of the asset, after which they receive a royalty of between 1.5% and 3% of revenue.
The project deal flow has surprised the management team. The original strategy earmarked C$100 million to be invested over ten years. The C$100 million now appears to be a bare minimum, and the timeline greatly accelerated. Early indication from Tri Global suggests that year over year buyers showing up to project sales have doubled.
Rather than being constrained by access to high‐quality projects, ALS now finds itself limited by access to capital. To address this constraint, ALS management is looking to spin off ARR into a separate, publicly listed entity that they believe will not only have a lower cost of capital when separated from the mining business and but also trade at market pricing multiples more in line with renewable energy firms. Depending on market conditions, management expects the spin‐off to occur sometime in 2021. In the near‐term, ALS is looking to raise equity at the subsidiary level to continue to grow the business.
Where we find ourselves today:
2019 was a strong year for ALS. Organic growth from the royalty portfolio drove a 16% increase in revenue with no significant cash acquisition. At year‐end, the value of the junior equity portfolio was $54 million, and the sales, net of investments, generated cash of $17 million. That $17 million was returned to shareholders, evenly split between dividends and share buybacks.
In early April, ALS notified investors that production curtailments4 were in effect at mines that collectively produced just under 2% of the 2019 attributable royalty revenue. Management has informed us they will remain patient during this crisis. Capital prioritization remains geared towards buying back shares and funding renewable energy developers. Scanning current commodity prices and the USD/CAD exchange rate, we expect EBTIDA to be impacted by ~C$4‐5 million relative to 2019 (or between 8‐11% of 2019 earnings).
As of the end of March 2020, ALS has $90 million in term debt, $64 million drawn from their revolver (~64% of their capacity), and $32 million of cash on hand. Both the term and revolving credit facilities do not mature until 2023. We believe that the value of their operating assets is roughly $560 million. Inclusive of the market value of their junior equity portfolio, less net debt and minority interests, we believe the firm is worth just over $500 million, or $12.5 per share.
Relative to their R&S peers, ALS is trading at a material discount. It’s not clear to us why a relative gap has widened so considerably. Perhaps it is their smaller market capitalization; maybe it is the market sentiment around base metals as demand erosion dominates headlines.
The business model is durable and has significant royalty volume growth potential. The portfolio represents long life, high margin assets, producing commodities that are well aligned with long term structural trends in the broader economy. The renewable platform is developing quickly, and metal prices may be facing a perfect storm in the coming years with demand drivers emerging while conditions to bring on required levels of supply remain notably absent. The COVID19 fallout may suggest taking a defensive posture as an investor. Akin to the counter‐cyclical model employed by Altius, we are enthusiastic about deploying capital at these prices.
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Spread & Containment
The Coming Of The Police State In America
The Coming Of The Police State In America
Authored by Jeffrey Tucker via The Epoch Times,
The National Guard and the State Police are now…
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Authored by Jeffrey Tucker via The Epoch Times,
The National Guard and the State Police are now patrolling the New York City subway system in an attempt to do something about the explosion of crime. As part of this, there are bag checks and new surveillance of all passengers. No legislation, no debate, just an edict from the mayor.
Many citizens who rely on this system for transportation might welcome this. It’s a city of strict gun control, and no one knows for sure if they have the right to defend themselves. Merchants have been harassed and even arrested for trying to stop looting and pillaging in their own shops.
The message has been sent: Only the police can do this job. Whether they do it or not is another matter.
Things on the subway system have gotten crazy. If you know it well, you can manage to travel safely, but visitors to the city who take the wrong train at the wrong time are taking grave risks.
In actual fact, it’s guaranteed that this will only end in confiscating knives and other things that people carry in order to protect themselves while leaving the actual criminals even more free to prey on citizens.
The law-abiding will suffer and the criminals will grow more numerous. It will not end well.
When you step back from the details, what we have is the dawning of a genuine police state in the United States. It only starts in New York City. Where is the Guard going to be deployed next? Anywhere is possible.
If the crime is bad enough, citizens will welcome it. It must have been this way in most times and places that when the police state arrives, the people cheer.
We will all have our own stories of how this came to be. Some might begin with the passage of the Patriot Act and the establishment of the Department of Homeland Security in 2001. Some will focus on gun control and the taking away of citizens’ rights to defend themselves.
My own version of events is closer in time. It began four years ago this month with lockdowns. That’s what shattered the capacity of civil society to function in the United States. Everything that has happened since follows like one domino tumbling after another.
It goes like this:
1) lockdown,
2) loss of moral compass and spreading of loneliness and nihilism,
3) rioting resulting from citizen frustration, 4) police absent because of ideological hectoring,
5) a rise in uncontrolled immigration/refugees,
6) an epidemic of ill health from substance abuse and otherwise,
7) businesses flee the city
8) cities fall into decay, and that results in
9) more surveillance and police state.
The 10th stage is the sacking of liberty and civilization itself.
It doesn’t fall out this way at every point in history, but this seems like a solid outline of what happened in this case. Four years is a very short period of time to see all of this unfold. But it is a fact that New York City was more-or-less civilized only four years ago. No one could have predicted that it would come to this so quickly.
But once the lockdowns happened, all bets were off. Here we had a policy that most directly trampled on all freedoms that we had taken for granted. Schools, businesses, and churches were slammed shut, with various levels of enforcement. The entire workforce was divided between essential and nonessential, and there was widespread confusion about who precisely was in charge of designating and enforcing this.
It felt like martial law at the time, as if all normal civilian law had been displaced by something else. That something had to do with public health, but there was clearly more going on, because suddenly our social media posts were censored and we were being asked to do things that made no sense, such as mask up for a virus that evaded mask protection and walk in only one direction in grocery aisles.
Vast amounts of the white-collar workforce stayed home—and their kids, too—until it became too much to bear. The city became a ghost town. Most U.S. cities were the same.
As the months of disaster rolled on, the captives were let out of their houses for the summer in order to protest racism but no other reason. As a way of excusing this, the same public health authorities said that racism was a virus as bad as COVID-19, so therefore it was permitted.
The protests had turned to riots in many cities, and the police were being defunded and discouraged to do anything about the problem. Citizens watched in horror as downtowns burned and drug-crazed freaks took over whole sections of cities. It was like every standard of decency had been zapped out of an entire swath of the population.
Meanwhile, large checks were arriving in people’s bank accounts, defying every normal economic expectation. How could people not be working and get their bank accounts more flush with cash than ever? There was a new law that didn’t even require that people pay rent. How weird was that? Even student loans didn’t need to be paid.
By the fall, recess from lockdown was over and everyone was told to go home again. But this time they had a job to do: They were supposed to vote. Not at the polling places, because going there would only spread germs, or so the media said. When the voting results finally came in, it was the absentee ballots that swung the election in favor of the opposition party that actually wanted more lockdowns and eventually pushed vaccine mandates on the whole population.
The new party in control took note of the large population movements out of cities and states that they controlled. This would have a large effect on voting patterns in the future. But they had a plan. They would open the borders to millions of people in the guise of caring for refugees. These new warm bodies would become voters in time and certainly count on the census when it came time to reapportion political power.
Meanwhile, the native population had begun to swim in ill health from substance abuse, widespread depression, and demoralization, plus vaccine injury. This increased dependency on the very institutions that had caused the problem in the first place: the medical/scientific establishment.
The rise of crime drove the small businesses out of the city. They had barely survived the lockdowns, but they certainly could not survive the crime epidemic. This undermined the tax base of the city and allowed the criminals to take further control.
The same cities became sanctuaries for the waves of migrants sacking the country, and partisan mayors actually used tax dollars to house these invaders in high-end hotels in the name of having compassion for the stranger. Citizens were pushed out to make way for rampaging migrant hordes, as incredible as this seems.
But with that, of course, crime rose ever further, inciting citizen anger and providing a pretext to bring in the police state in the form of the National Guard, now tasked with cracking down on crime in the transportation system.
What’s the next step? It’s probably already here: mass surveillance and censorship, plus ever-expanding police power. This will be accompanied by further population movements, as those with the means to do so flee the city and even the country and leave it for everyone else to suffer.
As I tell the story, all of this seems inevitable. It is not. It could have been stopped at any point. A wise and prudent political leadership could have admitted the error from the beginning and called on the country to rediscover freedom, decency, and the difference between right and wrong. But ego and pride stopped that from happening, and we are left with the consequences.
The government grows ever bigger and civil society ever less capable of managing itself in large urban centers. Disaster is unfolding in real time, mitigated only by a rising stock market and a financial system that has yet to fall apart completely.
Are we at the middle stages of total collapse, or at the point where the population and people in leadership positions wise up and decide to put an end to the downward slide? It’s hard to know. But this much we do know: There is a growing pocket of resistance out there that is fed up and refuses to sit by and watch this great country be sacked and taken over by everything it was set up to prevent.
Government
Low Iron Levels In Blood Could Trigger Long COVID: Study
Low Iron Levels In Blood Could Trigger Long COVID: Study
Authored by Amie Dahnke via The Epoch Times (emphasis ours),
People with inadequate…
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Authored by Amie Dahnke via The Epoch Times (emphasis ours),
People with inadequate iron levels in their blood due to a COVID-19 infection could be at greater risk of long COVID.
A new study indicates that problems with iron levels in the bloodstream likely trigger chronic inflammation and other conditions associated with the post-COVID phenomenon. The findings, published on March 1 in Nature Immunology, could offer new ways to treat or prevent the condition.
Long COVID Patients Have Low Iron Levels
Researchers at the University of Cambridge pinpointed low iron as a potential link to long-COVID symptoms thanks to a study they initiated shortly after the start of the pandemic. They recruited people who tested positive for the virus to provide blood samples for analysis over a year, which allowed the researchers to look for post-infection changes in the blood. The researchers looked at 214 samples and found that 45 percent of patients reported symptoms of long COVID that lasted between three and 10 months.
In analyzing the blood samples, the research team noticed that people experiencing long COVID had low iron levels, contributing to anemia and low red blood cell production, just two weeks after they were diagnosed with COVID-19. This was true for patients regardless of age, sex, or the initial severity of their infection.
According to one of the study co-authors, the removal of iron from the bloodstream is a natural process and defense mechanism of the body.
But it can jeopardize a person’s recovery.
“When the body has an infection, it responds by removing iron from the bloodstream. This protects us from potentially lethal bacteria that capture the iron in the bloodstream and grow rapidly. It’s an evolutionary response that redistributes iron in the body, and the blood plasma becomes an iron desert,” University of Oxford professor Hal Drakesmith said in a press release. “However, if this goes on for a long time, there is less iron for red blood cells, so oxygen is transported less efficiently affecting metabolism and energy production, and for white blood cells, which need iron to work properly. The protective mechanism ends up becoming a problem.”
The research team believes that consistently low iron levels could explain why individuals with long COVID continue to experience fatigue and difficulty exercising. As such, the researchers suggested iron supplementation to help regulate and prevent the often debilitating symptoms associated with long COVID.
“It isn’t necessarily the case that individuals don’t have enough iron in their body, it’s just that it’s trapped in the wrong place,” Aimee Hanson, a postdoctoral researcher at the University of Cambridge who worked on the study, said in the press release. “What we need is a way to remobilize the iron and pull it back into the bloodstream, where it becomes more useful to the red blood cells.”
The research team pointed out that iron supplementation isn’t always straightforward. Achieving the right level of iron varies from person to person. Too much iron can cause stomach issues, ranging from constipation, nausea, and abdominal pain to gastritis and gastric lesions.
1 in 5 Still Affected by Long COVID
COVID-19 has affected nearly 40 percent of Americans, with one in five of those still suffering from symptoms of long COVID, according to the U.S. Centers for Disease Control and Prevention (CDC). Long COVID is marked by health issues that continue at least four weeks after an individual was initially diagnosed with COVID-19. Symptoms can last for days, weeks, months, or years and may include fatigue, cough or chest pain, headache, brain fog, depression or anxiety, digestive issues, and joint or muscle pain.
Uncategorized
February Employment Situation
By Paul Gomme and Peter Rupert The establishment data from the BLS showed a 275,000 increase in payroll employment for February, outpacing the 230,000…
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By Paul Gomme and Peter Rupert
The establishment data from the BLS showed a 275,000 increase in payroll employment for February, outpacing the 230,000 average over the previous 12 months. The payroll data for January and December were revised down by a total of 167,000. The private sector added 223,000 new jobs, the largest gain since May of last year.
Temporary help services employment continues a steep decline after a sharp post-pandemic rise.
Average hours of work increased from 34.2 to 34.3. The increase, along with the 223,000 private employment increase led to a hefty increase in total hours of 5.6% at an annualized rate, also the largest increase since May of last year.
The establishment report, once again, beat “expectations;” the WSJ survey of economists was 198,000. Other than the downward revisions, mentioned above, another bit of negative news was a smallish increase in wage growth, from $34.52 to $34.57.
The household survey shows that the labor force increased 150,000, a drop in employment of 184,000 and an increase in the number of unemployed persons of 334,000. The labor force participation rate held steady at 62.5, the employment to population ratio decreased from 60.2 to 60.1 and the unemployment rate increased from 3.66 to 3.86. Remember that the unemployment rate is the number of unemployed relative to the labor force (the number employed plus the number unemployed). Consequently, the unemployment rate can go up if the number of unemployed rises holding fixed the labor force, or if the labor force shrinks holding the number unemployed unchanged. An increase in the unemployment rate is not necessarily a bad thing: it may reflect a strong labor market drawing “marginally attached” individuals from outside the labor force. Indeed, there was a 96,000 decline in those workers.
Earlier in the week, the BLS announced JOLTS (Job Openings and Labor Turnover Survey) data for January. There isn’t much to report here as the job openings changed little at 8.9 million, the number of hires and total separations were little changed at 5.7 million and 5.3 million, respectively.
As has been the case for the last couple of years, the number of job openings remains higher than the number of unemployed persons.
Also earlier in the week the BLS announced that productivity increased 3.2% in the 4th quarter with output rising 3.5% and hours of work rising 0.3%.
The bottom line is that the labor market continues its surprisingly (to some) strong performance, once again proving stronger than many had expected. This strength makes it difficult to justify any interest rate cuts soon, particularly given the recent inflation spike.
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