Altius Minerals - A Countercyclical Royalty Company Worth Investing In

• Royalty companies, like Altius Minerals, are more immune to rising costs and inflation affecting mining companies. They benefit from higher commodity prices without shouldering the increased costs associated with mining.
• The mining industry is currently grappling with cost pressures and a demand for greener, cleaner commodities, leading to a standoff on pricing, especially for copper.
• Environmental, social, and governance (ESG) considerations are adding to the mining industry's cost pressures, particularly with the need to account for carbon costs. This is expected to influence commodity prices in the long run.
• Altius is exploring carbon capture initiatives and has a growing interest in renewable energy, believing it will become a substantial business in the future.

Altius Minerals Corporation is a Canadian mining royalty company focused on long-term value creation through countercyclical investments. In a recent video interview, CEO Brian Dalton provided several compelling reasons why Altius could be a good investment opportunity for investors seeking exposure to the mining sector.

Strong Financial Performance In 2021

In 2021, Altius generated $84 million in attributable royalty revenue and $32 million in adjusted earnings. This strong financial performance came amidst a volatile period for commodity prices, demonstrating the resilience of Altius' diversified royalty portfolio. The company's royalty revenue has grown steadily in recent years and should continue benefiting as commodity prices strengthen.

Immunity from Inflation and Rising Costs?

A key advantage of Altius’ royalty business model is immunity from the inflation and rising costs currently pressuring mining companies. As Dalton explains, royalty companies avoid capital and operating cost exposure, allowing them to capture the upside from higher commodity prices without the downside from increased expenses. With mines facing surging capex and opex, royalty companies like Altius are an attractive way to gain mining exposure without the associated risks.

Disciplined Approach to Capital Allocation

Altius Minerals takes a disciplined approach to capital allocation, directing funds towards high-quality royalty and streaming opportunities. In 2021, the company strategically restructured its investment partnership with Fairfax Financial, exercising warrants to eliminate $100 million in preferred shares while taking Fairfax on as a significant shareholder. This provides Altius Minerals with a stronger balance sheet to support continued investments.

Favorable Positioning in Potash and Copper

Two of Altius’ major royalty exposure areas—potash and copper—appear well-positioned for substantial growth. In potash, operators have signaled plans to ramp up production at Altius’ flagship mines by 20-30% in the near term. This outlook is underpinned by tight supply/demand conditions and strong agricultural demand. In copper, looming production declines and critical underinvestment have set the stage for sizeable price increases necessary to incentivize new mine development. Altius’ portfolio includes royalties linked to premier copper assets.

Exciting Optionality in Iron Ore and Lithium

Beyond its cornerstone potash and copper royalties, Altius Minerals also holds royalties providing upside exposure to iron ore and lithium—two markets also facing structural supply deficits. The company has royalty exposure to Champion Iron’s Phase II Kami project, a promising source of high-purity iron ore in the Labrador Trough. Altius also stands to benefit from surging lithium prices through its royalty on the Lithium Americas/Ganfeng Cauchari-Olaroz project.

Exposure to Fast-Growing Renewable Energy Industry

Altius Minerals is also positioned to capitalize on renewable energy growth through its majority ownership in Altius Renewable Royalties. This subsidiary has assembled a portfolio of 16 royalties on wind, solar and hydro energy projects across North America. With strong tailwinds for renewable power growth, Altius Renewable Royalties provides shareholders with unique exposure to this burgeoning sector.

Contrarian Investment Strategy

A hallmark of Altius Minerals is its contrarian investment approach—targeting distressed assets during industry downturns. This countercyclical strategy has enabled Altius to assemble an impressive royalty portfolio at attractively low acquisition costs. With many mining companies struggling to fund new projects, Altius Minerals is poised to become an increasingly vital source of growth capital, unlocking further royalty opportunities.

Experienced, Cycle-Tested Management

Altius’ management team has steered the company through multiple commodity cycles, proving its ability to create value throughout market extremes. CEO Brian Dalton is a third-generation resource investor with an extensive network and a deep understanding of resource cycles. His leadership and expertise represent a key competitive strength.

Altius Minerals represents a compelling investment opportunity, offering leveraged exposure to strengthening commodity markets through a diversified portfolio of royalties on high-quality mining assets. The company’s countercyclical investment approach, strong balance sheet, and talented management team position it well to continue generating attractive shareholder returns over the long term. For investors seeking mining exposure along with inflation protection, Altius deserves strong consideration.

The Investment Thesis for Altius Minerals

Leveraged Exposure to Commodities

As a royalty company, Altius Minerals provides leveraged exposure to underlying commodity prices without the risks of operating costs and capital expenditures. If potash, copper, iron ore, and lithium prices rise, Altius will benefit disproportionately compared to miners. This leverage enhances shareholder returns during bull markets.

Inflation Hedge

With high inflation expected to persist, Altius offers an effective inflation hedge. Its royalty revenues will increase along with commodity prices and mining input costs. Royalty companies have historically outperformed during high inflationary periods.

Strong Growth Prospects

Altius has clear visibility on significant near-term growth from expansions at its flagship potash mines. Longer-term, it is well-positioned to benefit from major supply deficits in copper, iron ore, and lithium. As commodity prices rise to incentivize new mine supply, Altius' royalties will become increasingly valuable.

Diversified Portfolio

Altius has intelligently assembled a diversified royalty portfolio spanning several essential minerals and renewable energy. This diversity reduces risk and provides exposure to multiple high-potential segments of the commodity sector.

Contrarian Approach

Altius' contrarian strategy of acquiring distressed assets during industry downturns has allowed it to build an impressive royalty portfolio on the cheap. This enhances returns as market conditions improve.

Experienced Management

CEO Brian Dalton and his team have a proven track record of creating value for shareholders across market cycles. Their prudence and mining expertise provide reassurance during volatile markets.

Altius Minerals offers attractive leverage to strengthen commodity markets alongside inflation protection, diversification, and experienced management. For investors with a bullish metals and mining outlook, it is a uniquely positioned vehicle to ride the upside.