Altius Minerals (ALS) - Cash is King and Organic Growth is the Focus
Altius Minerals Corporation is a mining royalty and mineral project generation company. The Company is engaged in the generation and acquisition of mineral resource projects, royalties and investments. The royalty interests cover mining operations producing copper, zinc, nickel, cobalt, precious metals, potash, and thermal (electrical) and metallurgical coal.
Overall, the exposure of Altius Minerals is related to a number of broader thematics that are actively related to electrification and transportation. Altius Minerals is also a majority shareholder in a new company called Altius Renewable Royalties which invests directly in renewable energy projects. Underpinning the mineral side of the business, Altius has the Project Generation Group which identifies mineral prospects in exchange for equity positions and royalties.
We had a recent conversation with Brian Dalton, President and CEO at Altius Minerals. He shared with us the recent happenings in his royalty-based business and where the company is headed.
Altius is a Canadian company focused on a diversified portfolio of long-life, high-margin royalty assets designed to bring major value to company shareholders. The company owns 13 producing assets throughout the Americas. These assets focus on potash, coal, copper, nickel, zinc, cobalt, gold, silver, and renewables. Furthermore, the company continues to seek out royalty acquisition and/or royalty financing opportunities to augment its current portfolio. In addition, the company has built a portfolio of directly and indirectly held junior resource investments with generous earn-in characteristics.
Management And Direction
In addition to Dalton, company officers include Ben Lewis, CFO; Chad Wells, VP Business Development; and Lawrence Winter, VP Exploration. John A. Baker heads the company’s Board of Directors. In aggregate, the officers and directors hold just over 6% of the outstanding shares.
The firm is a royalty-based company focused on several broad macro-trend commodity-consuming themes such as electrification, renewables, and transportation, Dalton summarized. In addition, the company has an in-house project generation group, which identifies mineral prospects in the industrial and precious metals space, as potential future royalty assets.
The Various Altius Companies
We asked Dalton to give us an overview of recent corporate-level activity, some of which resulted in a spin-off IPO. Altius Minerals will be 25 years old next year, he told us. The company started as a prospect generation business and made a lot of money doing that, he told us. Along the way, in order to deploy capital effectively, they found their way into investing in advanced-stage mineral royalty companies. All of the royalty assets are housed in the original company, Altius Minerals, he continued. Altius Renewable Royalties (TXS: ARR) is a recent IPO focusing on the mega-trend toward renewable energy and a low-carbon-emitting future. ARR holds a diversified portfolio of utility-scale wind and solar energy royalties. It is majority held by Altius Minerals.
Aligning with Macro-Trends
Altius is highly focused on several commodity macro-trends, including coal to clean energy transition, electrification and storage, agriculture yield improvements, and low-emission steelmaking. Therefore, the minerals that Altius invests in, copper, potash, nickel, lithium, and iron, are all involved in some of these major trends, Dalton told us. For example, copper is needed in most electrification themes. Iron is needed in modern, low-emitting steel making. Potash is needed to increase crop yields. All of these commodities are requisite for sustainable businesses.
Business Timing Story
We asked Dalton to give us some information on business timing, particularly when he buys into assets or is engaged in M&A activity. He replied that “Our bets are in”, the buying window has now closed, and that they are well positioned, in his mind, to ride through the current uptrend in commodities. He told us that they were adding positions a few years back when everything was bleak in the commodity space.
At this point in time, they have low-cost assets that are making great money as the prices of these materials have risen significantly. Investments are now coming into the commodity operators. According to the CEO, the company has “assets that are going to get an outside share of that investment and will ultimately grow production volumes”.
As far as M&A, this is not the time for Altius to make an acquisition, said Dalton. Instead, this is the time that they let the assets play-out for the investors.
So, we asked the CEO to describe his firm’s asset base, particularly from the point of view of a new investor. He described his assets base as long-term, “very expandable” assets acquired at “great cost-curve positions”. They are not short-term bets, he said. He also said that with royalties, the big return comes via volume multiplied by price. The price is already up, the volume is coming, he told us. They are at a sweet spot in the cycle, he said.
Dalton went on to say that some of the increased returns they expect would come from expansion in assets that are already producing significant cash flow. Another component of increased revenue will come from assets that are becoming or yet-to-become cash flowing.
He gave us several examples: Altius owns a royalty stream from Ludin at the Chapada Mine, where a lot of holes are being drilled now and an expansion story is unfolding there. Updates on that story should be coming soon, he said. In another example, Altius owns an indirect royalty stream from Rio Tinto’s IOC Mine, where last quarter an announcement was made to expand production at the mine.
As far as new developments go, the CEO spoke about their royalty on the Kani iron ore mine in Labrador, recently acquired by Champion Iron Ore who are engaged in a scoping study for development and production, which could turn out to be really big for Altius, said Dalton.
Active or Passive Investment Style?
We asked the CEO if they take an active or passive role in managing their royalty streams. Without a doubt, Altius is passive, he told us. He reiterated that their job to bank assets at low prices that will “play out logically in the fullness of time”. They have built up their royalty stream and are positioned to maintain or gain market share in the current up-cycle, he explained.
They love the concept of buying asset streams at a low price, and then when prices rise, they make more money, he said. It’s a long-time-frame approach: The last cycle from bottom to next consecutive bottom took 16 years. It’s an investment time frame and that’s the game they are playing, he said. At cycle bottom points, when players want to offload assets at discounted prices, we like to pick them up, he continued. “That's the simple story here: per share, long-term, counter-cyclical growth”, he said.
Indeed, when we asked Dalton if he is interested in influencing organic growth in any royalty assets Altius owns, he said no. They are more interested in long-life assets and they buy them only at a discount. Then, they let the operators and market forces play the bets out.
We queried Dalton on the numerous new entrants in the royalty business and what he thought about it. He replied that most of the newer entrants are strictly playing precious metals. Altius, on the other hand, has been heavily invested in the non-precious-metals space for many years and Dalton won’t trade that. He admitted that more than a few times they’ve been told by investors and other royalty firms that the royalty model doesn’t work for industrial minerals. But, they, perhaps stubbornly, have stuck with it and are pleased. These are long-life assets that produce products that society really needs, he said.
The newcomers can buy gold and silver assets at current prices if they wish. But Altius will be back buying when the price is right and that’s when the mining industry will be in a horrible place, he told us.
Final Thoughts on Commodity Cyclicity
Toward the close of our interview, Dalton again came back to the cyclic nature of the commodity business. It’s a natural rhythm, he said. We’re now reaching that part of the up-cycle where the incentive for operators to expand comes in. This set up an inevitable increase in supply, which, of course, tends to bring prices back and, at times, unravels everything. It’s all about proper timing in these long-term commodity cycles, he stressed.
We closed the conversation reiterating that we are very clear on the company message: No more major buying, asset bets are in place, and Altius is ready to reap the rewards. Indeed, the CEO believes that they are in the sweet spot now for the duration of this up-cycle period in commodities.