Canada Research Altius Minerals Corp.

Transcription

Canada Research
Published by Raymond James Ltd.
Altius Minerals Corp.
May 27, 2014
Company Report - Initiation of Coverage
ALS-TSX
Alex Terentiew MBA, P.Geo | 416.777.4912 | [email protected]
Ross Yakovlev CA, MBA (Associate) | 416.777.7144 | [email protected]
Mining | Base Metals & Minerals
Outperform 2
C$19.50 target price
Recommendation
Current Price ( May-23-14 )
Total Return to Target
52-Week Range
Suitability
We are initiating coverage of Altius Minerals Corp. with an Outperform rating and a
$19.50 target price. Altius is the largest, non-precious metals focused royalty company in
North America, providing investors with exposure to long-term, relatively stable cash
flows, without linking returns to gold and silver prices (the route most of its peers have
pursued). In our view, Altius’ growing cash flow, derived from its Canadian-based, highquality and long-life asset base, diligent and patient management team, as well as its
attractive valuation, position Altius as a compelling investment opportunity.
Market Data
Market Capitalization (mln)
Current Net Debt (mln)
Enterprise Value (mln)
Shares Outstanding (mln, basic)
10 Day Avg Daily Volume (000s)
Dividend/Yield
100% Made in Canada - The New Royalty Name In Town
Analysis




A transformed, and not yet well-known company. Altius’ acquisition of Sherritt’s
royalty portfolio has not only significantly increased its cash flow prospects (its
adjusted OCF is set to reach $9.7 mln in F2015 and $12.7 mln in F2016), but also
given a greater level of certainty and visibility to them, and we expect this
transformation to increase investor awareness of the company, and potentially
improve its market valuation.
High-quality, long-life Canadian asset base. All of Altius’ assets are located in
Canada, a rarity for a diversified mining company, and we estimate a NAV-weighted
average minelife of 28 years, ~35% above the average minelife for the four covered
precious metals royalty and streaming companies.
Alternative to precious-metals-focused royalty companies. In our view, Altius fills a
niche within the royalty sector, allowing it to retain certain positive characteristics of
a royalty business model (low operating cost base and scalability), while at the same
time cater to investors that do not want precious metals exposure.
Attractive valuation. ALS is trading at 0.6x discount on P/NAV to its larger goldfocused royalty peers. As the market digests the details of the Sherritt deal and
Altius begins generating sizeable royalty cash flows, we expect some of the valuation
gap to narrow and accordingly, Altius' share price to move higher.
Key Financial Metrics
2013A
2014E
P/CFPS
58.5x
nm
P/NAV
NA
CFPS
C$0.23
C$(0.05)
Working Capital (mln)
C$145
C$(26)
Total Debt (mln)
C$0
C$147
Shares Outstanding (mln, f.d.)
29.3
28.6
Our C$19.50 target price applies a 30% weighting of 13.0x our average fiscal F2015/F2016
adjusted operating cash flow forecasts and 70% weighting of a 1.3x multiple to our
minesite NAV estimate, with net cash and other corporate items included at par. This
compares with 18x P/CF and 1.8x P/NAV average target multiples for more established
covered royalty peers. Despite ALS’s high-quality, long-life asset base, these lower
multiples are appropriate in our view given almost half of the net asset value is tied to
development- and exploration-stage iron ore projects. For more details, see the
“Valuation and Recommendation” section.
2013A
1Q
Jul
C$(0.10)
2Q
Oct
C$(0.10)
3Q
Jan
4Q
Apr
Full
Year
Revenues
(mln)
NAV
C$(0.13)
C$(0.14)
C$(0.47)
C$6
2014E
(0.05)A
(0.03)A
0.00A
(0.03)
(0.10)
4
NA
2015E
(0.15)
(0.07)
(0.14)
(0.17)
(0.52)
2
C$19.64
2016E
(0.15)
(0.15)
(0.14)
(0.10)
(0.53)
2
NA
Source: Raymond James Ltd., Thomson One
Please read domestic and foreign disclosure/risk information beginning on page 22 and Analyst Certification on page 22.
Raymond James Ltd. | 2100 – 925 West Georgia Street | Vancouver BC Canada V6C 3L2
C$430
-C$36
C$397
32.0
57
C$0.00/0.0%
2015E
2016E
43.7x
34.0x
0.68x
NA
C$0.31
C$0.39
C$(16)
C$(1)
C$114
C$80
33.3
33.3
Company Description
Altius Minerals Corp. is a Canadian-resource-focused
royalty company, with interests in coal, potash, iron
ore, and base metals mines and projects.
Valuation
EPS
C$13.35
46%
C$16.32 - C$9.09
Aggressive Growth
Canada Research | Page 2 of 27
Table of Contents
Investment Overview........................................................................................................................................... 3
Company Overview.............................................................................................................................................. 5
Financial Analysis & Outlook................................................................................................................................ 12
Valuation & Recommendation ............................................................................................................................ 14
Appendix 1: Financial Statements ....................................................................................................................... 17
Appendix 2: Management & Board of Directors ................................................................................................. 19
Risks ..................................................................................................................................................................... 20
Investment Overview
We are initiating coverage of Altius Minerals Corp. with an Outperform rating and a C$19.50
target price. Altius is a non-precious metals royalty company and a mining-project generator,
based in St. John’s, Newfoundland, Canada. 100% of Altius’ asset base is located in Canada, and
we estimate approximately half of its net asset value is tied to coal, potash, and base metals
mines already in production, with most of the balance of the NAV (44%) tied to two developmentstage iron ore projects.
We believe the reasons to own Altius include: (i) growing cash flows from a high-quality, long-life
asset base located in Canada; (ii) emerging investment alternative to precious-metals-focused
royalty/streaming companies; (iii) patient, diligent, and long-term-focused management; and, (iv)
attractive valuation.
Growing producer with high-quality, long-life, Canada-based assets. Altius’ adjusted operating
cash flow is set to reach $9.7 mln in F2015 and $12.7 mln in F2016 (from negative cash flows in
F2014) as the company reaps the benefits of its transformational deal with Sherritt. Altius’ entire
asset portfolio is located in Canada (one of the safest jurisdictions, in our view), while its royalties
benefit from peer-leading mine lives, which we estimate on average to be 28 years (on an NAVweighted basis).
Alternative to precious-metals-focused royalty/streaming companies. Presently, there is a
dearth of royalty companies with exposure to commodities other than precious metals, with
Altius now leading the way in market capitalization. Unlike gold projects, which generally have
shorter mine lives, Altius’ potash, coal, iron ore, and base metals assets have an NAV-weighted
average minelife of 28 years, ~35% above the average mine-life for the four covered precious
metals royalty and streaming companies. More importantly, with the exception of its iron ore
assets, Altius hold interests in projects operated by well-established and respected producers,
such as Vale, Teck Resources, Potash Corp., Agrium, and Mosaic, among others.
Patient, diligent, and long-term-focused management. We believe the royalty model contributes
to better cash flow visibility and lowers the risk to these cash flows for the company. As such, the
decision to invest in royalties helped, in our view, establish a solid financial foundation for the
company, which allowed management to focus on its true core competency – project generation,
exemplified by the successful development and profitable spin-outs of Rambler Metals & Mining
(Rambler), Aurora Energy Resources Inc. (Aurora) and Alderon Iron ore Corp. (Alderon). We view
Julienne Lake as the next possible such spin-out for Altius.
Both the CEO (Brian Dalton) and Chairman (John Baker) have been with the company since its
inception. Altius also managed to keep its share count at modest levels with only a few private
placements and two public offerings completed since the IPO, two of which served to facilitate
royalty acquisitions (Voisey’s Bay in 2003 and Sherritt’s royalty portfolio in 2014).
Attractive valuation. Altius is up 26% since announcing the deal with Sherritt on Dec-24-13, with
substantial room for more share price appreciation, in our view. At current levels, ALS is trading at
0.6x discount on P/NAV to its larger gold-focused royalty peers. As the market digests the details
of the deal and Altius begins generating sizeable royalty cash flows, starting in F2015, we expect
some of the valuation gap to narrow and accordingly, Altius’ share price to move higher.
We rate Altius Outperform with a C$19.50 target price. To arrive at our target price we apply a
30% weighting of a 13x multiple to our average F2015/F2016 adjusted Operating Cash Flow (OCF)
forecasts and 70% weighting of a 1.3x multiple to our minesite NAV estimate, with net cash and
other corporate items included at par. This compares with 18x P/CF and 1.8x P/NAV average
target multiples for more established covered royalty peers. Despite ALS’s high-quality, long-life
asset base, these lower multiples are appropriate, in our view, given almost half of the net asset
value is tied to development- and exploration-stage iron ore projects. For more details, see the
“Valuation and Recommendation” section.
Exhibit 1: ALS’ Financial and Operating Summary
Rating:
6-12 Mth Target
Projected Return:
OP2
(ALS-TSX)
$19.50
46%
NAVPS
$19.64
YR-END:
April 30
RAYMOND JAMES LTD. RESEARCH
Analyst: Alex Terentiew 416-777-4912
Associate: Ross Yakovlev 416-777-7144
[email protected]
[email protected]
Reporting Currency: C$
Investment Thesis
Altius is the largest, non-precious metals focused royalty company in North America,
providing investors with exposure to long-term, relatively stable cash flows, without
linking returns to gold and silver prices (the route most of its peers have pursued). In
our view, Altius’ growing cash flow, derived from its Canadian-based, high-quality and
long-life asset base, diligent and patient management team, as well as its attractive
valuation, position Altius as an attractive investment opportunity.
Key Attributes:
- Altius’ acquisition of Sherritt’s royalty portfolio has not only significantly increased
its cash flow prospects, but also given it a greater level of certainty and visibility to
them, and we expect this transformation to increase investor awareness of the
company, and improve its market valuation.
- All of Altius’ assets are located in Canada, a rarity for a diversified mining company,
and we estimate a NAV-weighted average minelife of 28 years, ~35% above the
average minelife for the four covered royalty peers.
- In our view, Altius fills a niche within the royalty sector, allowing it to retain certain
positive characteristics of a royalty business model (low operating cost base and
scalability), while at the same time cater to investors that do not want precious metals
exposure.
- ALS is trading at 0.6-turn discount on P/NAV to its larger gold-focused royalty peers.
As the market digests the details of the Sherritt deal and Altius begins generating
sizeable royalty cash flows, we expect some of the valuation gap to narrow and
accordingly, Altius' share price to move higher.
Key Risks:
- Kami – Several development milestones (the main one being project finance) still
need to be reached by Alderon to move Kami to producer status.
- Julienne Lake – Earlier stage of development (vs. Kami); provincial announcement on
whether or not the project will proceed to the next stage of dev't is outstanding.
NAV Breakdown by Type of Asset
Market Statistics
Share Price
$13.35
Shares Basic (mln)
32.2
52 Week High/Low
$ 16.32 / 9.09
Shares Fully Diluted (mln)
33.3
Market Cap. (mln)
$430.4
Adj. Shares used in NAV calc (mln)
33.3
Enterprise Value (mln)
$397.3
4-Wk. Avg. Daily Vol. ('000)
102
Fiscal Year End
Financial Metrics
April 30
2013A
2014E
2015E
50.4
67.8
9.2
20.4
9.0
LT Investments ($mln)
223.6
188.8
138.1
126.7
98.9
Working capital ($mln)
Oper.
53%
-0.9
168.1
145.3
-26.0
-15.6
75.4
75.7
0.3
0.6
0.9
Total Debt ($mln)
0.0
0.0
147.2
114.0
80.0
289.4
Common Equity ($mln)
280.2
257.7
262.3
305.4
Price/book (x)
1.2x
1.2x
1.5x
1.4x
1.5x
Debt/(Debt + Equity) (%)
0.0%
0.0%
27.0%
20.9%
15.7%
ROE (%)
-1.6%
-5.0%
-1.1%
-5.8%
-5.8%
ROIC (%)
1.2%
-0.1%
-0.5%
-1.1%
-1.2%
Earnings/Cash Flow
2012A
2013A
2014E
2015E
2016E
RJL Potash Forecast US$/t
435
397
292
294
309
RJL Iron Ore Forecast US$/t
155
129
127
114
107
RJL Met Coal Forecast US$/t
281
189
149
133
148
RJL Nickel Forecast US$/lb
9.31
7.60
6.58
7.71
7.75
11.0
3.0
36.0x
4.8
5.9
-3.3
67.7x
-0.3
3.8
3.0
105.1x
-2.2
1.9
20.5
207.1x
-4.9
1.9
21.3
204.4x
-4.9
Revenue ($mln)
EBITDA ($mln)
EV/EBITDA (x)
EBIT ($mln)
-4.6
-13.3
-2.9
-16.5
-17.1
-0.16
-0.47
-0.10
-0.52
-0.53
Operating Cash Flow ($mln)
-8.2
6.4
-3.1
-18.6
-13.1
Investing Cash Flow ($mln)
-4.4
19.0
-196.8
4.0
35.8
Financing Cash Flow ($mln)
-1.5
-8.0
141.3
25.8
-34.0
12.7
FCF ($mln)
-10.6
5.6
-264.1
-14.6
Adj. OCF (before W/C adj.)
-7.8
6.5
-1.3
9.7
CFPS (oper., pre-W/C adj.)
-0.27
0.23
-0.05
0.31
0.39
nm
58.5x
nm
43.7x
34.0x
50.4
67.8
9.2
20.4
9.0
2.4
0.8
263.1
21.0
0.0
C$ mln
$/share
203
200
113
103
25
21
20
1
686
6.11
6.02
3.38
3.09
.75
0.63
0.61
0.03
20.62
19
50
46
(120)
(27)
654
.56
1.51
1.38
(3.61)
(.82)
19.64
P/CF (x)
YE Cash Balance ($mln)
Capex ($mln)
Operating Summary
Adj. OCF (w/o W/C adj.) ($ mln)
FCF ($mln)
2012A
-7.8
-10.6
2013A
6.5
5.6
2014E
-1.3
-264.1
2015E
9.7
-14.6
2016E
12.7
12.7
Projected Cash Flows
Adj. OCF (pre W/C) & FCF ($ mln)
20
12.7 12.7
15
9.7
10
6.5
5
5.6
-1.3
-5
-10
Valuation
Electrical Coal
Kami
Potash
Julienne Lake
Cardinal River
CDP
Voisey's Bay
Other Royalties
Gross Asset Value
Cash and cash equivalents
Investments in associates
Mining and other investments
Debt obligations
Corporate G&A
Net Asset Value (5%)
-264.1
0
-7.8
-10.6
-15
-14.6
-20
2012A
2013A
2014E
Adj. OCF (w/o W/C adj.) ($ mln)
2015E
2016E
FCF ($mln)
% of minesite NAV
30%
29%
16%
15%
4%
3%
3%
0%
100%
Note: Target multiple is applied to the mining assets, with net cash included at par. Valuation is 70%
weighted to P/NAV, and 30% P/CF
ALS Share Price Performance
ALS share price (C$)
12.7
Target
Multiple
1.3x
13.0x
$19.50
Valuation Measures
Price / NAVPS
P/CF
Target Price C$:
NAV breakdown by commodity
$20
Met
Coal
4%
$15
Potash
19%
$10
$5
Dec-09
2016E
Current ratio (x)
EPS (C$)
Dev.
29%
0.0%
2012A
Cash ($mln)
Net earnings ($mln)
Expl.
18%
Div Yield %
Sensitivity Analysis (10% change)
Ni
3%
Potash
Iron Ore
Coking Coal
USD/CAD
NAVPS
1.5%
5.1%
0.3%
-8.2%
CFPS
4.5%
0.0%
1.6%
-21.2%
EBITDA
2.1%
0.0%
0.8%
-10.0%
Fe
44%
Dec-10
Dec-11
Dec-12
Dec-13
ALS
Electric
Coal
30%
Source: Altius Minerals Corp., Capital IQ, Raymond James Ltd.
Company Overview
Altius Minerals is a Canadian-based coal, potash, iron ore, and base metals royalty company, and a
mining-project generator, incorporated and publicly listed in 1997. In January 2007, Altius
graduated to the TSX from the TSX-Venture Exchange. Over the years, Altius has spun out three
companies (Aurora, Rambler, and Alderon), while initially retaining part-ownership in them, with
the spin-outs serving as examples of Altius’ successful project-generation strategy.
A transformational deal. On Apr-28-14, Altius closed a $241 mln acquisition of a 52.36% interest
in Prairie Mines & Royalty Limited (PMRL) (11 coal and potash royalties) from Sherritt, and on
May-13-14 the company completed a $42 mln acquisition of a 100% interest in Carbon
Development Partnership (CDP) (sizeable undeveloped potash and coal resources) from Sherritt
and Ontario Teachers’ Pension Plan Board. Altius used its strong balance sheet, along with
proceeds from $140 mln in debt and a $65 mln equity raise to fund the two transactions.
Exhibit 2: 100% of Altius asset base is in Canada
CANADA
Source: Altius Minerals Corp., Raymond James Ltd.
Lower-risk royalty structure. Royalties involve Altius receiving a portion of the revenues from a
mineral property in exchange for an initial payment (in the case of the Kami, a royalty was created
when Alderon was spun out), without assuming any responsibility for the actual mining operation.
Altius does not contribute to the exploration, operating, or capital costs at the mine after its
investment is made. Given our expectation that Julienne Lake will eventually be spun out and
turned into a royalty, we estimate that revenues from NSR (net smelter return) and GSR (gross
sales royalty) royalties account for nearly all of the company’s minesite net asset value (97%),
while the balance comes from ownership stakes in undeveloped deposits (primarily CDP).
The company’s key assets are a royalty on the Kami iron ore project and a 24.8% equity stake in
Alderon (Kami’s operator), along with a majority interest in 11 coal and potash royalties that it
recently acquired from Sherritt. Over half of the company’s NAV is derived from mines already in
production and 14% from investments in publicly-traded equities.
Exhibit 3: NAV breakdown by mine life, mine type, and stage of development
10-15 yrs
22%
TBD
3%
Met Coal
4%
Ni
3%
Expl.
18%
Potash
19%
Oper.
53%
Fe
44%
Dev.
29%
> 15 yrs
75%
Electric
Coal
30%
TBD - To Be Determined
Source: Raymond James Ltd.
We calculate an average (NAV-weighted) mine life of Altius’ assets at 28 years – the longest in
our covered royalty/stream universe – underpinning our positive view of the company. In total,
75% of ALS’s NAV is attributed to assets with a mine life in excess of 15 years, and ~97% to assets
with mine lives over 10 years (Exhibit 3). This compares with (on average) 69% and 80%
proportions of the minesite NAV for 15+ years and 10+ years, respectively, among its covered
royalty peers. Generally, we like to see a greater proportion of longer-life assets in the company’s
portfolio, which contributes to better visibility and lower risk of future cash flows.
We note that our mine life and reserve estimates, while largely based on mine owner reserve
statements, include assumptions on reserve growth extensions, which are based on our
commodity price outlook and exploration and reserve growth success at the individual operations.
However, given the significant mine life of its key assets, we view Altius’ exploration upside as less
impactful on an NAV basis vs. its more established peers with shorter mine lives, largely due to
the time value of money and thus lower incremental present value from additional future cash
flows several decades away.
Boosted by a transformational deal with Sherritt. In fiscal 2015 (fiscal year-end is April 30), we
forecast the adjusted operating cash flows to turn positive and bring in $9.7 mln, followed by
$12.7 mln in F2016, driven primarily by the acquisition of the coal and potash royalties from
Sherritt. We anticipate the lion’s share of the new cash flows (approximate two thirds) to come
from electrical (thermal) coal royalties, anchored by the Genesee asset and its 41-year mine life,
by our estimates. Potash royalties, which we project to account for 18% of 2015 cash flows, also
have a particular defining feature – we calculate their NAV-weighted average life to be an
impressive 57 years.
Decade-long operating cash-flow runway, before considering any future acquisitions. Assuming
Altius converts its interest in Julienne Lake into a 3% GSR (same as the Kami royalty), and
considering our expectations for Kami and Julienne Lake to start up in 2016 and 2021,
respectively, we anticipate adjusted operating cash flows to grow at a CAGR of 21% from 2015E to
$78 mln in 2026E.
In Exhibit 4 below, we highlight how we expect Kami, followed by Julienne Lake, to have a
significant impact on the company’s long-term cash flow as they generate revenue for Altius
through royalties the company has created. The royalties acquired from Sherritt, and Voisey’s Bay,
are accounted for using the equity method, and hence, we reflect our estimates for Altius’ share
of free cash flow from those respective assets.
Condolidated Revnues/FCF by Asset ($ mln)
Exhibit 4: ALS’ growth profile – consistent and steady growth on the horizon
$120
Other
$100
CDP
Julienne Lake
$80
Kami
$60
Cardinal River (FCF)
$40
Potash (FCF)
$20
Electrical Coal (FCF)
$0
2013A 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E
Voisey's Bay (FCF)
Key Asset Summary
Kami (29% of minesite NAV)
Altius holds an effective 3% gross sales royalty (GSR) on the open pit iron ore Kami deposit,
located in Labrador, Canada and jointly-owned by Alderon Iron Ore Corp. (75%) and Hebei Iron &
Steel (25%). Altius created the royalty in 2010, when it spun out Alderon. Additionally, Altius
continues to hold 33 mln shares of Alderon, representing a 24.8% interest as at May 2014.
Kami is an iron ore deposit, which we expect to enter production in mid-2016 (calendar).
Alderon has achieved numerous milestones for Kami so far this year, including: the receipt of the
provincial and federal environmental approvals for the project, the signing of an Impact and
Benefits Agreement (IBA) with the Innu Nation of Labrador, the signing of a support agreement
with the nearby town of Labrador City, the order of long-lead items for two critical components of
the port-handling equipment (the rotary car dumper and the stacker-reclaimer), the confirmation
of the transmission line to supply the power, the signing of a power purchase agreement, and
changes in municipal zoning to enable the project to proceed.
We see several potential de-risking catalysts for both Alderon and Kami in 2014, including signing
additional off-take and/or joint venture partner agreements (mid-2014E) and securing the debt
and/or equity financing for the project (2014E). We expect Alderon to advance Kami into
production in calendar 2016E (mid-year), achieve an 8 Mtpa run-rate by 2017E, and expand to 16
Mtpa by 2020E. We estimate Kami’s mine life at 21 years and Altius’ attributable LOM average
revenues and free cash flow (after-tax) of $34.9 mln and $24.5 mln, respectively (Exhibit 6).
Julienne Lake (15% of minesite NAV)
Julienne Lake is an iron ore deposit located in Labrador that Altius is trying to develop in alliance
with two Chinese SOEs. Altius is part of the JL Alliance that has been selected by the Province of
Newfoundland and Labrador (the Province) to enter into exclusive final-stage negotiations for the
award of mineral rights held by the Province over the Julienne Lake deposit. The JL Alliance was
formed by Altius to improve its efforts to acquire the portion of the deposit being offered by the
Province. The other partners in the JL Alliance are two Chinese integrated steel producers
(companies are not disclosed). We understand from Altius that these negotiations have already
initiated and are well advanced.
Altius has agreed to contribute its surrounding mineral rights to the JL Alliance upon successful
award of the mineral rights being offered by the Province. Altius’ consideration for the
contribution of its mineral rights will be to retain both a royalty and a minority project interest in
the consolidated mineral rights package (we only model 3% GSR to be conservative).
According to Altius, the Julienne Lake iron ore deposit has been the subject of work conducted by
the Province over the past few years that was designed to provide an NI 43-101 compliant mineral
resource estimate, in conjunction with offering the project to the private sector as a development
opportunity. The Province has reported 867 Mt at 33.7% iron (Measured + Indicated resources)
and 299 Mt at 34.1% iron (Inferred resources) within their land holdings.
Strategic mineral land rights contiguous with those of the Province. Several years ago, Altius
acquired these lands and has since completed its own exploration work, demonstrating that a
potentially significant part of the mineral deposit (not currently defined to NI 43-101 standards)
extends onto these Altius lands. If an agreement is reached with the Province, the JL Alliance
intends to commence pre-feasibility and environmental assessment studies and has already
begun co-operative stakeholder engagements.
The potential to become Altius’ largest source of cash flow. The JL Alliance anticipates
developing Julienne Lake into a 21-24 Mtpa iron ore operation, with Altius working towards
retaining a roylaty, and potentially a stake in the project, similarly to what the company did with
Kami and Alderon. Considering the work still to be completed on the project, mainly geotechnical
and permitting associated with building dykes/berms and lowering the water level in part of the
lake, we assume a 2021 start-up, with full production of 21 Mtpa by year 6.
Exhibit 5: Julienne Lake’s main challenge, we believe, will be dealing with the Lake
Source: Altius Minerals Corp.
Managing the surrounding water body will be the key challenge. Altius has undertaken some
geotechnical studies aimed at evaluating the potential of berming portions of the lake, in a
fashion similar to that at the Diavik diamond mine, and believes that the technical and permitting
issues surrounding development in a lake are surmountable.
Government involvement should help, not hinder, Julienne Lake’s chances of becoming a mine.
With the Province involved in the sale process and having spent several million dollars over the
past few years on the project’s development (this process is normally driven by a corporate
entity), we expect government support and see the permitting timeline having the potential to
move along at a reasonable pace and avoid material delays, pending the outcome of the
environmental assessments and stakeholder consultations.
Electric Coal Assets (30% of minesite NAV)
The royalties on the electric/thermal coal assets are not tied to commodity prices, but rather
based on the number of tonnes of coal provided to fuel mine-mouth electrical power-generating
plans. Most of the royalties are tied to a base royalty rate that is indexed to GDP growth each
year. All of the coal royalties were acquired as part of Altius’ royalty deal with Sherritt. Sherritt
concurrently sold its coal mining operations to Westmoreland Coal Corp.
We estimate Altius’ attributable 30-year average royalty revenue and free cash flow from
electrical coal assets of $16.4 mln and $13.5 mln, respectively (Exhibit 6). We note that due to the
equity method of accounting, electrical coal royalties will not be reflected in consolidated revenues
of the company.
Genesee
Altius holds a per-tonne royalty on the electrical coal Genesee mine, located in Alberta, Canada
and jointly-owned by Capital Power Corporation (CPX-TSX) and Westmoreland Coal Company
(WLB-NYSE).
Although Genesee reserves of 278.5 Mt as at Dec-31-13 imply a 54-year mine life, assuming
current production rate of 5.2 Mtpa, we conservatively assume a 41 mine life and expect the
Genesee power station (often a mine-life-limiting factor, as it consumes mine’s output) to be fully
decommissioned by 2055 (currently its three units are expected to be decommissioned in 2039,
2044, and 2055). Although the Alberta Environmental Protection and Enhancement Act approval
expires on Sep-12-14, the operator is allowed to re-apply for a ten-year renewal of the approval,
the receipt of which is currently expected in 2Q14 (we see this outcome as likely).
Paintearth/Sheerness
Altius holds per-tonne royalties on the thermal coal Paintearth and Sheerness mines, located in
Alberta, Canada and wholly-owned by Westmoreland Coal Company.
Paintearth reserves of 22.9 Mt as at Dec-31-13 imply an 8-year mine life, assuming current
production rate of 2.9 Mt, while Sheerness reserves of 36.8 Mt as at Dec-31-13 imply a 10-year
mine life, assuming current production rate of 3.8 Mt. The decommissioning of the Battle River
power station that consumes Paintearth’s output caps any likely exploration upside at mine level,
as its three operating units are presently scheduled for decommissioning in 2019, 2025, and 2031.
Highvale
Altius holds a per-tonne royalty on the thermal coal Highvale mine, located in Alberta, Canada and
wholly-owned by TransAlta Corporation (TA-TSX). We presently attribute no value to ALS’ interest
in Highvale due to timing uncertainty (in our view) as to when the areas subject to the royalty will
be mined again by the operator.
Potash Assets (16% of minesite NAV)
Altius acquired the potash royalties as part of its royalty portfolio deal with Sherritt. The royalty
rates payable to Altius are determined in accordance with Saskatchewan Subsurface Mineral
Regulations and range between 4.4% and 5.0%, depending on the ore grade for the underlying
potash assets, by our estimates. Given Altius’ 52.36% majority stake in PRML, blended 4.7% NSR
rate, and company’s expectation that approximately 9.7% of the underlying potash assets are
subject to Altius’ royalty, we presently model an effective 0.24% NSR potash royalty. We note that
we do not anticipate the mines to operate at or near their respective operating capacities, given
that all three potash mine operators subject to Altius’ royalty are part of Canpotex, one of the key
players in the potash market that carries oligopolistic characteristics, one of which is restricted
production, aimed at supporting the commodity price.
We estimate Altius’ attributable 57-year average revenue and free cash flow from potash assets of
$7.3 mln and $5.6 mln, respectively (Exhibit 6). We note that we assume a long-term realized
potash price of $309/t, based on our expectation for sales mix in North America and offshore, inline with RJL’s 2015E estimate for Potash Corp.’s (POT-TSX) realized potash price.
Rocanville/Cory/Allan/Patience Lake
Rocanville, Cory, Allan, and Patience Lake are underground potash mines located in
Saskatchewan, Canada and wholly-owned and operated by Potash Corp. Current reserves peg the
potash assets mine lives at 15-80 years, with Rocanville and Allan sitting at ~80 years, assuming
2013 run rates. Potash Corp. expects to complete expansions at Allan (2014) and Rocanville
(2015), which should increase their respective capacities to 2.7 Mt and 5.7 Mt and possibly
improve production profile of the portfolio going forward, thus bringing some of the future cash
forward and rewarding Altius shareholders. We model Rocanville reaching 5 Mtpa production runrate by 2018, while conservatively keep Allan’s LOM production at 1.2 Mt, in-line with the levels
observed in the past three years.
Esterhazy
Altius holds a blended 4.7% royalty on the underground potash Esterhazy mine, located in
Saskatchewan, Canada and wholly-owned and operated by the Mosaic Company (MOS-NYSE).
Esterhazy reserves of 860 Mt of recoverable ore as at May-31-13 imply a 68-year mine life,
assuming current production rate of 4.0 Mtpa of finished product (vs. newly-expanded
operational capacity of 6.3 Mtpa). Mosaic expects to complete 3rd shaft (K3) in 2017, which could
increase the capacity by another 0.9 Mtpa to 7.2 Mtpa. We conservatively model Esterhazy
reaching 5.5 Mt run-rate by 2019.
Vanscoy
Altius holds a blended 4.7% royalty on the underground potash Vanscoy mine, located in
Saskatchewan, Canada and wholly-owned and operated by Agrium Inc. (AGU-TSX).
Vanscoy reserves of 81 Mt of recoverable ore as at Dec-31-11 implied a 61-year mine life at
current production rates. However, with the brownfield expansion (to 3.0 Mtpa, from 2.0) set to
be completed in late 2014, Agrium forecasts production to increase to 2.8 Mtpa of finished
product, lowering the projected minelife to 46 years. We conservatively model flat production
profile of 1.7 Mtpa over 61 years.
Metallurgical Coal Asset (4% of minesite NAV)
Cardinal River
Altius holds an effective 1.3% NSR on the open pit (primarily) met coal Cardinal River mine,
located in Alberta, Canada and wholly-owned and operated by Teck Resources (TCK.B-TSX).
Cardinal River reserves of 23.3 Mt of met coal and 0.8 Mt of PCI coal as at Dec-31-13 imply a 13year mine life, assuming current production rate of 1.8 Mt of clean coal (vs. preparation plant
capacity of 3.0Mt). We thus estimate Cardinal River mine life at 13 years and Altius’ attributable
LOM average annual revenue and FCF of $2.9 mln and $2.7 mln, respectively (Exhibit 6).
Voisey’s Bay (3% of minesite NAV)
Altius holds an effective 0.3% NSR on the open pit nickel-copper-cobalt Voisey’s Bay mine, located
in Newfoundland and Labrador, Canada and wholly-owned and operated by Vale S.A. (VALENYSE). Altius acquired the royalty in 2003 for ~$13 mln.
We expect Vale to pursue underground mining to extend the mine life, which we have
incorporated into our forecasts. We thus estimate Voisey’s Bay mine life at 12 years and Altius’
attributable LOM average annual revenue and FCF of $3.9 mln and $2.4 mln, respectively (Exhibit
6).
Carbon Development Partnership (3% of minesite NAV)
Altius acquired full ownership of the Carbon Development Partnership (CDP) for C$42 mln after
Ontario Teachers’ Pension Plan Board (OTPPB) exercised its tag-along right on the back of the
Sherritt deal. Although CDP (previously under Sherritt’s and OTPPB’s 50-50 ownership) was
publicly known for numerous setbacks in developing the Dodds-Roundhill project 60 km southeast
of Edmonton, AB (more on this below), we understand that the partnership holds a collection of
prospective coal and potash properties, totaling 7.2 Bt of M&I and 4.7 Bt of Inferred coal
resources, as well as 1.6 Bt of inferred potash resources, some of which could be developed in the
future. CDP presently earns revenue from several undisclosed royalties, which we peg at $1.5 mln
per year, in-line with the reported run-rate over the past couple of years.
Dodds-Roundhill
Plans for the Dodds-Roundhill project included mining and processing coal-bed methane (CBM) by
building a surface coal mine and gasification facility in order to produce synthetic natural gas,
hydrogen, diesel/methanol, and electricity. However, the project has been stymied by legal
challenges surrounding “split title” mineral rights to CBM on freehold (privately held) properties in
Alberta, including the property on which CDP holds coal, but not natural gas rights.
In 2011, Justice Kent of Alberta Court of Queen’s Bench ruled against CDP’s claim, declaring
natural gas rights holders were entitled to produce CBM. The decision appears to be in-line with
the title rules observed on Crown lands in Alberta and is largely consistent with the U.S. Supreme
Court ruling in Amoco Production Co. v. Southern Ute Tribe from 1999 that confirmed that the
natural gas rights holders were entitled to CBM.
Although CDP’s legal challenge has not been discarded outright and the case could still find its
way to Canada’s Supreme Court, we elected to assign value of $21 mln to Altius’ interest in CDP
(or 50% of the $42 mln purchase price), until any meaningful breakthrough in this litigation
process is achieved or significant advances at other projects are made.
Altius’ Investments (15% of NAV)
Proven project generator. Unlike its more established royalty peers, which obtain royalties or
streams in exchange for providing financing, Altius has historically differentiated itself by building
its foundation on project generation. Altius holds a portfolio of exploration and evaluation assets,
the most important of which we think is Julienne Lake (discussed above). Furthermore, Altius has
investments in several publicly traded companies, such as Alderon, Callinan Royalties, Virginia
Mines, Century Iron Ore, among others. While some are simple direct equity investments,
Alderon’s Kami project used to be part of Altius Minerals. Over the years, Altius has spun out
three companies (Aurora, Rambler, and Alderon), while initially retaining part-ownership in them.
Out of the three, Alderon remains the only remaining investment.
Aurora Energy Resources Inc.
In mid-2005, in order to advance the Aurora uranium project in Labrador, Altius created a spin-out
company, Aurora Energy Resources, and took a 48% equity stake, 2% uranium GSR and 2% base
and precious metals NSR, with its development partner Fronteer Gold taking 52%. Over the
following three-year period, Altius realized C$208 mln in gross proceeds as it disposed of its equity
interest in the project, which was fully acquired by Fronteer Gold in late 2008 and eventually sold
to Paladin Energy Ltd. in late 2010. The Aurora project is a collection of 6 low-grade uranium
deposits totalling 83.8 Mlbs and 53.0 Mlbs in M&I and Inferred categories, respectively, with the
Michelin deposit being the largest of the group. Michelin’s 2009 PEA, which was based on an
$85/lb uranium price, estimated a start-up CapEx of $1.1 bln and 19% IRR. At current uranium
prices of $28/lb, we view this project as uneconomic and thus assign a value of $nil to any related
royalties in our valuation for Altius.
Rambler Metals & Mining plc
In 2001, Altius acquired the Ming copper-gold mine, which had been on care & maintenance since
1982. The company conducted exploration in 2001, 2003 and 2004 on the property and then
IPO’d the asset on the AIM in 2005 under Rambler Metals & Mining plc (“Rambler”). Altius exited
its investment in Rambler in early 2011, disposing of its holdings of 12 mln ordinary shares for
C$5.9 mln, while Altius’ two executives, Brian Dalton (President & CEO) and John Baker
(Chairman), exited Rambler’s Board in late 2011. Rambler, which declared commercial production
at Ming in late 2012, is currently listed on AIM and TSX-Venture with a market capitalization of
C$66 mln.
International Royalty Corp.
Over the course of F2010, Altius brought its stake in International Royalty Corporation (“IRC”) to
9.4%, which was followed by Royal Gold announcing its take-out of IRC in December 2009. Altius
supported the deal and received C$63.1 mln consideration, including C$37.5 mln in cash,
recording a gain on sale of C$28.4 mln.
Exhibit 6: Summary of RJL Estimates by Asset
Mine / Project
Country
Owner / Operator
Producing /
Modeled
Stream /
Avg. Revenue
Avg. FCF
Asset's
% of Minesite
Start Date
Mine Life
Other
(Attrib., $ mln)* (Attrib., $ mln)
Primary
NAV
(RJL Estimate)
(years)
Commodity
Electrical Coal
Canada
Westmoreland Coal / Capital Power / ATCO / TransAlta
Producing
30
Royalty
16.4
13.5
Electric Coal
30%
Kami
Canada
Alderon Iron Ore Corp.
2016
21
Royalty
34.9
24.5
Fe
29%
Potash
Canada
Potash Corp. / Mosaic / Agrium
Producing
57
Royalty
7.3
5.6
Potash
16%
Julienne Lake
Canada
2021
14
Ownership
39.8
28.0
Fe
15%
Cardinal River
Canada
Teck Resources Limited
Producing
13
Royalty
2.9
2.7
Met Coal
4%
CDP
Canada
TBD
TBD
Ownership
1.5
0.8
Potash
3%
Voisey's Bay
Canada
Vale S.A.
Producing
12
Royalty
3.9
2.4
Ni
3%
Other Royalties
Canada
TBD
TBD
Royalty
TBD
TBD
Fe
0%
* - Altius' investments in Labrador Nickel Royalty Limited Partnership and Prairie Mines & Royalty Limited are accounted for under the equity method, and are thus excluded from consolidated revenues.
Our Key Concerns
Although we rate Altius Outperform and like the company’s potential, we believe it is worth
noting some of our main concerns:
Kami – While the project, which has the potential to contribute $24.5 mln in annual FCF to Altius
(placing Kami ahead of the FCF from any other existing royalty), and appears to be moving along
well in the hands of its owners (Alderon/Hebei), we note that several development milestones
(the main one being project finance) still need to be reached by Alderon to move Kami to
producer status. We expect positive developments at Kami to be some of the key catalysts for
Altius in the coming year.
Julienne Lake – This project faces some of the same challenges as Kami, but is at an even earlier
stage of development. In addition, the Province of Newfoundland and Labrador has yet to make
its announcement on whether or not the project will proceed to the next stage of development,
introducing a higher level of risk than for Altius’ other assets.
Financial Analysis & Outlook
Corporate Structure
Altius Minerals was incorporated in 1997 and completed an IPO on the TSX-V on Oct-31-97
(graduated to the TSX on Jan-15-07), raising gross proceeds of C$0.8 mln. Since its IPO, Altius has
completed several private placements (the largest of which was for C$10 mln in July 2003) and
two additional public offerings (October 2007 – C$53.2 mln and May 2014 – C$65.0 mln). Over the
years, Altius has spun out three companies (Aurora, Rambler, and Alderon), while initially
retaining part-ownership in them (equity holdings in Aurora and Rambler have since been
divested). The company presently has $120 mln drawn on its non-revolving credit facility.
Altius’ shares trade on the TSX under the symbol “ALS”. There are approximately 32.2 mln
common shares outstanding (33.3 mln fully diluted), and the average daily trading volume since
Dec-24-13 (date the Sherritt deal with announced) has been 79 thousand shares. For the three
months prior to the Sherritt deal, the average daily volume was approximately 16 thousand
shares. A publicly disclosed list of the top 10 shareholders is shown in Exhibit 7, although we
expect this list to be updated by mid-August 2014, following the C$65 mln equity deal close in late
April. By our estimates, management, directors, company insiders and strategic shareholders
collectively owned approximately half of the shares outstanding before the latest equity raise,
which resulted in 17% dilution.
Exhibit 7: The top 10 publicly disclosed shareholders own 23% of the company (as at May-22-14)
Mason Hill Advisors LLC
Dalton, Brian Francis
Global Strategic Management Inc
Baker, John A.
Dimensional Fund Advisors LP
Warr, Donald J.
BMO Investments Inc.
Wells, Chad S.
AKRO Investicni Spolecnost A.S.
Winter, Lawrence
0%
2%
4%
6%
8%
10%
12%
Source: Capital IQ, Raymond James Ltd.
Balance sheet capability
We estimate that Altius should finish F1Q15 (Jul-31-14) with C$18.7 mln in the bank and
investments, market value of which we peg at C$96 mln (vs. expected book value of ~C$137 mln),
serving as a source of additional liquidity. Based on our cash flow expectations from its existing
assets and minimal spending requirements going forward, we expect ALS’ liquidity (cash +
investments) to be sufficient to meet its debt repayment schedule (Exhibit 8): minimum $60 mln
repayment within 2 years and full repayment within 5 years, after accounting for mandatory
quarterly repayments of $2 mln.
Available Liquidity ($ mln)
Exhibit 8: ALS liquidity balance forecast, reflecting debt repayment schedule
180
160
140
120
100
80
60
40
20
0
2014E
$64.0
$28.8
$34.0
$8.0
2015E
2016E
Investments (Market Value)
2017E
Cash
$8.0
2018E
2019E
2020E
Credit Facility Repayment
Note: 2015E repayment of $28.8 mln includes $2.8 mln commitment fee
The biggest FCF drivers over the next few years should be the newly acquired royalties from
Sherritt, as well as Kami’s start-up and anticipated ramp-up (Exhibit 9).
Exhibit 9: Altius FCF Profile
100
Free Cash Flow ($ mln)
50
0
Other - FCF - $ mln
-50
-100
-150
CDP - FCF - $ mln
Sherritt's Royalty Portfolio &
CDP Acquisitions
Julienne Lake - FCF - $ mln
Kami - FCF - $ mln
Voisey's Bay - FCF - $ mln
-200
Cardinal River - FCF - $ mln
-250
Potash - FCF - $ mln
-300
Electrical Coal - FCF - $ mln
2013A 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E
Paying Down Debt and Adding a Dividend
In light of management’s conservative style and apparent desire to have a clean balance sheet, we
expect the company to pay down its outstanding debt at a rate faster than that required by the
terms of the credit facilities. Based on the current payment structure, we estimate Altius’ current
debt of $120 mln will be extinguished in 2019.
Disposition of investments are possible. While operating cash flows are forecast to grow the
company’s cash balance, even after contractual debt payment obligations, the main options to
reduce debt are by monetizing its holdings in Alderon ($42 mln in market value) and Virginia
Mines ($32 mln in value). We believe transactions on their disposition could happen within the
next 1-2 years, potentially making Altius debt free within that timeframe.
Paying dividends is a question of when, not if. Management has expressed a desire to return
future cash flow to shareholders, with the main question in our mind simply being when? Until
Altius’ balance sheet liquidity improves or its stakes in Alderon and/or Virginia Mines are divested,
we believe shareholders will have to wait for cash returns, however. For comparison, Altius’
larger, precious metal focused royalty/streaming peers currently pay dividends yielding 1.3% 1.6%. Considering the longer mine lives of Altius’ assets, however, and pending the rate of
development of Kami and Julienne Lake, we believe a dividend yield above its peers could be
possible.
Valuation & Recommendation
We have chosen to value Altius using a 70/30 weighting of a multiple to our minesite NAV
estimates, with net cash and other corporate items included at par, and a multiple to our average
fiscal 2015/2016 operating cash flow estimates. In our view, a valuation approach using both a
multiple to cash flow and a multiple to NAV helps to capture both the near-term financial
performance of the company, as well as the long-term value (and costs) imbedded in properties
that are not yet in production and their associated future cash flows. As the royalty companies
are, in our view, a lower risk way to get equity exposure to the mining sector, they typically trade
at a premium to their mining peers.
To arrive at our target price for Altius, we apply a 13x multiple to our average 2015/2016
Operating Cash Flow (OCF) estimate and a 1.3x multiple to our minesite NAV estimate (producing
assets discounted at 5%, Kami at 8% and Julienne Lake at 10%), with net cash and other corporate
items included at par. The 13x P/CF target multiple is a turn below Sandstorm’s (more wellknown, gold-focused peer) and 1.6 turns above ALS’ own two year trading average, indicating our
view of growing cash flows over the next few years. The multiples chosen attempt to reflect the
relative risks (technical, political, financial) to the company’s properties, and also reflect the
company’s size, liquidity and diversity, while our choice to weigh the two target multiples 70/30
(vs. 50/50 for other royalty peers) was aimed at highlighting significant future growth potential
from Kami and Julienne Lake (see summary in Exhibit 10).
Exhibit 10: Valuation and rating summary
Company
Share price
Rating
Target
Price
ROR (%)
Altius
Franco-Nevada
Royal Gold
Sandstorm
Silver Wheaton
C$13.35
US$49.02
US$64.19
C$6.13
US$21.56
OP2
MP3
SB1
OP2
SB1
C$19.50
US$46.00
US$83.00
C$7.00
US$31.00
46%
-6%
29%
14%
44%
NAV
Multiple
Weight
70%
50%
50%
50%
50%
NAV
multiple
NAVPS
(8%)
1.30x
2.00x
2.00x
1.30x
1.80x
US$19.64
US$27.40
US$52.54
US$5.96
US$19.05
P/CF
Multiple
Weight
30%
50%
50%
50%
50%
Avg.
P/CF
F2014-15 OCF
multiple
(mln $)
13.0x
US$11
20.0x
US$296
20.0x
US$197
14.0x
US$42
17.0x
US$544
Note: 2015/2016 OCF used for ALS due to the April 30 year end.
Historically, on a P/CF, EV/EBIDTA, and P/Sales basis, Altius traded at a premium to its larger
stream/royalty peers, primarily due to its focus on project generation and small recurring
revenue base (see Exhibits 11 & 12). However, as the deal with Sherritt resulted in the acquisition
of several stable, long-life royalties, we expect the gap in those multiples to begin to close. On a
P/NAV basis, Altius clearly trades at discount to its royalty peers and the Canadian diversified base
metal producers, with progress at both Kami and Julienne Lake and an improved level of
familiarity amongst investors expected to bridge some of this gap over the next few years, in our
view.
Exhibit 11: Forward P/CF multiples for royalty and Canadian diversified base metals miners
Royalty Companies
Mkt Cap
CS
FM
HBM
LUN
TCK
Weighted Avg.
Current multiple
43.7x
17.5x
24.6x
21.6x
15.3x
25.3x
21.9x
4.5x
10.7x
82.9x
8.6x
7.5x
10 year average
122.8x
13.3x
19.8x
22.6x
18.5x
24.3x
19.9x
5.4x
6.6x
9.2x
8.6x
6.1x
5 year average
103.0x
13.3x
20.1x
19.9x
16.8x
21.8x
18.7x
5.7x
7.5x
12.5x
7.4x
6.2x
2 year average
11.4x
14.2x
20.8x
18.9x
13.8x
17.4x
17.3x
5.8x
8.4x
17.1x
8.1x
6.1x
1 year average
11.4x
13.5x
21.0x
16.4x
13.6x
17.0x
17.3x
4.4x
7.8x
15.3x
8.6x
5.8x
Note: With the exception of current multiples for our covered universe (ALS, SSL, FNV, RGLD, SLW, CS, FM, HBM, LUN, TCK, and LIF), all other multiples
* - ALS current multiple based on F2015 cash flows (RJL Estimates); ** - RGLD current multiple based on calendar 2014 cash flows (RJL Estimates);
NTM P/CF
ALS*
SSL
FNV
RGLD**
SLW
Royalties Avg.
LIF
FCX
BHP
RIO
GLEN
12.2x
4.6x
7.3x
6.3x
6.6x
13.1x
6.1x
7.6x
8.0x
10.0x
13.8x
5.6x
7.5x
6.2x
10.0x
14.3x
4.5x
7.1x
5.8x
7.5x
14.0x
4.2x
7.2x
6.0x
6.2x
are based on Consensus Capital IQ estimates.
AAL
5.2x
6.3x
5.6x
4.7x
4.5x
VALE
4.2x
4.6x
4.5x
4.5x
3.9x
Base Metals Miners
Mkt Cap
Weighted Avg.
13.4x
6.7x
8.8x
5.8x
8.6x
5.9x
8.4x
6.2x
8.1x
6.0x
Miners Avg.
Exhibit 12: Sherritt deal to drive multiple gap lower over time, in our view
Company
ALS*
Price
22-May-14
C$13.35
P/E
2015E
nm
2014E
53.8x
65.6x
23.4x
100.0x
19.6x
25.7x
100.0x
21.1x
26.0x
9.8x
13.5x
12.1x
10.1x
14.7x
14.3x
6.1x
60.7x
44.8x
22.7x
12.7x
32.2x
13.9x
EV/EBITDA
2015E
2016E
19.4x
18.7x
2014E
2015E
19.9x
18.4x
18.5x
13.9x
16.8x
14.4x
13.4x
10.6x
4.7x
4.3x
10.6x
6.4x
29.0x
5.0x
9.4x
4.7x
8.3x
6.3x
12.6x
11.9x
6.2x
5.5x
6.4x
6.2x
6.0x
5.5x
9.1x
7.8x
6.1x
5.5x
4.7x
4.6x
17.6x
15.2x
18.1x
15.6x
9.4x
6.1x
6.8x
6.0x
11.8x
8.8x
7.1x
6.3x
2016E
nm
2015E
46.9x
50.7x
20.1x
100.0x
9.3x
13.0x
12.4x
8.9x
13.7x
8.6x
11.6x
12.0x
9.0x
10.9x
11.8x
5.4x
54.4x
38.0x
10.6x
10.4x
21.5x
11.4x
P/CF
2015E
43.7x
2014E
24.6x
26.1x
15.3x
17.5x
4.5x
10.7x
82.9x
8.6x
7.5x
12.2x
4.6x
7.3x
6.3x
6.6x
5.2x
4.2x
25.4x
21.5x
13.4x
6.7x
16.9x
7.2x
2016E
34.0x
2015E
23.2x
18.2x
13.1x
14.2x
4.4x
7.0x
7.9x
5.0x
5.4x
10.6x
4.4x
7.1x
5.9x
5.7x
4.7x
3.9x
20.5x
18.3x
6.0x
5.9x
10.3x
6.3x
P/Sales
2015E
2016E
100.0x
100.0x
2014E
2015E
17.6x
16.4x
16.8x
12.0x
11.2x
9.6x
8.9x
7.2x
1.4x
1.4x
3.3x
2.1x
3.3x
1.6x
4.2x
2.7x
1.6x
1.5x
10.2x
9.6x
1.5x
1.4x
2.6x
2.5x
2.0x
1.8x
0.3x
0.3x
1.2x
1.1x
1.5x
1.4x
30.9x
29.0x
16.5x
14.4x
2.8x
2.3x
1.9x
1.7x
11.0x
10.1x
2.4x
2.2x
P/NAV
0.68x
FNV
US$49.02
1.79x
RGLD**
US$64.19
1.22x
SLW
US$21.56
1.13x
SSL
C$6.13
0.94x
CS
C$2.64
0.56x
FM
C$23.29
0.95x
HBM
C$10.64
1.01x
LUN
C$5.87
0.98x
TCK
C$24.90
1.30x
LIF
C$28.00
0.74x
FCX***
US$34.30
nm
BHP***
£19.36
nm
RIO***
£32.30
nm
GLEN***
£3.29
nm
AAL***
£15.38
nm
VALE***
R$26.62
nm
Average (Royalties)
1.15x
Mkt Cap Weighted Average
1.37x
Average (Base Metals Miners)
0.92x
1.08x
Average (All)
1.03x
1.28x
Note: Multiples capped at 100x.
* - ALS estimates based on F2015 & F2016 (April Y/E); ALS P/Sales multiple is not representative, as most of its producing royalties are
accounted under equity method. ** - RGLD estimates based on F2014 & F2015 (June Y/E); *** - Consensus Estimates (Capital IQ)
Exhibit 13: ALS stands out as the cheapest royalty company on P/NAV basis in our covered
universe
P/CF (F2014-15 Avg.)
40.0x
ALS*
30.0x
FNV
RGLD
20.0x
SSL
SLW
10.0x
0.0x
0.50x
1.00x
1.50x
2.00x
P/NAV
* - Altius' P/CF multiple is based on F2015-16 operating cash flows
Net Asset Value
Our NAVPS for Altius is $19.64, with the mining assets valued at $20.62/share (105% of NAVPS).
53% of the minesite NAV is comprised of properties already in production, 29% is for properties
under development, and 18% of properties are still at the exploration stage. Corporate items
account for ($0.98)/share (or (5%) of NAVPS), which is primarily $120 mln debt, net of cash and
investments on hand. Our NAVPS using a discount rate of 8% for all assets, is $17.90 and at 10% is
$14.86.
Exhibit 14: ALS’ NAV Breakdown
Electrical Coal
Kami
Potash
Julienne Lake
Cardinal River
CDP
Voisey's Bay
Other Royalties
Gross Asset Value
C$ mln
$203
$200
$113
$103
$25
$21
$20
$1
$686
Debt obligations
Corporate G&A
Net Asset Value
Diluted shares outstanding (mln)
Valuation
Target Price (C$) (rounded)
C$/share
$6.11
$6.02
$3.38
$3.09
$0.75
$0.63
$0.61
$0.03
$20.62
$46
$50
$19
($120)
($27)
$654
Disc. Rate % of NAV
5%
30%
8%
29%
5%
16%
10%
15%
5%
4%
5%
3%
5%
3%
5%
0%
100%
$1.38
$1.51
$0.56
($3.61)
($0.82)
$19.64
33.3
Target
$19.50
Our net asset value estimate is derived using a discounted cash flow (DCF) analysis of the cash
flow attributed to Altius from the mining properties on which it has streams or royalties, with
producing assets discounted at 5%, Kami (development stage) at 8% and Julienne Lake (predevelopment) at 10%. We then make adjustments to include cash on hand, existing debt, and
corporate G&A expenses. Our DCF estimates are based on project technical reports, company
guidance, and include estimates based on our own expectations.
Sensitivity Analysis
In Exhibit 15, we summarize the impact of a 10% change in the prices of iron ore, potash, and
coking coal on the company’s financial performance. With Altius’ iron ore royalties (Kami, and our
expectation for Julienne Lake) accounting for 44% of the company’s total asset NAV, and its
investment in Alderon bringing this up to 51%, price movements of iron ore have the largest
impact on the company’s future cash flows and valuation. Near-term cash flows, however, are
most sensitive to potash prices, despite the majority of Altius’ cash flow in the next two years
coming from its electric/thermal coal asset, as thermal coal prices are not a factor in revenues for
those royalties.
Exhibit 15: ALS sensitivity to swings in commodity prices and FX
Sensitivity Analysis (10% change in commodity spot price)
NAV (@5%)
2015E EBITDA
2015E EPS
(%)
(%)
(%)
2015E CFPS
(%)
Potash
1.5%
2.1%
2.6%
4.5%
Iron Ore
5.1%
0.0%
0.0%
0.0%
Met Coal
0.3%
0.8%
0.9%
1.6%
USD/CAD
-8.2%
-10.0%
-12.4%
-21.2%
Exhibit 16: RJL Commodity and FX Forecasts
RJL Forecasts (Calendar Period)
2014E
RJL Realized Potash Prices (US$/t)
$287
RJL Iron Ore Fines (US$/t)
$116
RJL Met Coal (US$/t)
$132
USD/CAD
$0.91
2015E
$309
$112
$145
$0.91
2016E
$309
$99
$150
$0.94
2017E
$309
$87
$160
$0.94
2018E
$309
$87
$170
$0.94
Long Term
$309
$87
$170
$0.94
Appendix 1: Financial Statements
Exhibit 17: ALS’ Income Statement
INCOME STATEMENT (millions C$)
2012A 2013A
Revenue
11.0
5.9
General and administrative
(3.7)
(3.8)
Amortization
(1.3)
(1.2)
Other
(1.2)
(1.1)
EBIT
4.8
(0.3)
Interest expense
0.0
0.0
Earnings from joint ventures
0.6
1.7
Share of loss in associates
(6.7)
(11.7)
Other
(5.1)
(4.8)
Income before income taxes
(6.4)
(15.1)
Income tax expense
1.5
2.0
Net Income (loss)
(4.9)
(13.2)
Non-controlling interest
(0.3)
0.2
Net Earnings - Attributable
(4.6)
(13.3)
Adjustments
0.0
0.0
Adjusted Net Earnings (loss)
(4.6)
(13.3)
Earnings per share
Diluted
-$0.16
-$0.47
Weighted average number of common shares outstanding in millions
Diluted
28.8
28.4
2014E
3.8
(5.2)
(0.0)
(0.8)
(2.2)
(0.0)
1.3
(3.2)
0.5
(3.7)
0.9
(2.8)
0.1
(2.9)
0.0
(2.9)
2015E
1.9
(5.2)
(0.4)
(1.3)
(4.9)
(14.4)
15.3
(11.5)
(4.4)
(19.8)
0.0
(19.8)
0.0
(19.8)
3.3
(16.5)
2016E
1.9
(5.2)
(0.4)
(1.3)
(4.9)
(9.4)
16.0
(17.7)
(1.1)
(17.1)
0.0
(17.1)
0.0
(17.1)
0.0
(17.1)
-$0.10
-$0.52
-$0.53
27.7
31.7
32.2
Exhibit 18: ALS’ Cash Flow Statement
CASH FLOW STATEMENT (millions C$)
Operating activities
Net income
Items not affecting cash:
Amortization
Share-based compensation
Assets abandoned or impaired
Earnings from JV
Share of loss in associates
Other non-cash items
Net changes in non-cash working capital items
Net operating cash flows
Investing activities
Acquisition of property and equipment
Distributions received from (Investments in) JV
Purchase of ST investments
Purchase of LT investments
Other
Net investing cash flows
Financing activities
Proceeds on issuance of common shares
Debt financing cash flows
Other
Net financing cash flows
Effect of exchange rates on cash and cash equivalents
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
2012A
2013A
2014E
2015E
2016E
(4.9)
(13.2)
(2.8)
(19.8)
(17.1)
1.3
0.8
1.3
(0.6)
6.7
(12.4)
(0.4)
(8.2)
1.2
0.0
0.6
(1.7)
11.7
7.8
(0.0)
6.4
0.0
2.2
0.5
(1.3)
3.2
(5.2)
0.3
(3.1)
0.4
1.1
0.0
(15.3)
11.5
3.6
0.0
(18.6)
0.4
1.1
0.0
(16.0)
17.7
0.8
0.0
(13.1)
(2.4)
0.0
(15.2)
13.1
0.0
(4.4)
(0.8)
0.0
(13.9)
33.7
0.0
19.0
(263.1)
2.0
(10.5)
77.9
(3.2)
(196.8)
(21.0)
25.0
0.0
0.0
0.0
4.0
0.0
25.8
10.0
0.0
(0.0)
35.8
(1.3)
(0.3)
0.0
(1.5)
0.0
(14.2)
64.6
50.4
(8.3)
0.3
0.0
(8.0)
0.0
17.4
50.4
67.8
(5.7)
147.0
0.0
141.3
0.0
(58.6)
67.8
9.2
61.8
(36.0)
0.0
25.8
0.0
11.2
9.2
20.4
0.0
(34.0)
0.0
(34.0)
0.0
(11.3)
20.4
9.0
Adj. Operating Cash Flow (before W/C)
Cash flow per share
(7.8)
-$0.27
6.5
$0.23
(1.3)
-$0.05
9.7
$0.31
12.7
$0.39
Exhibit 19: ALS’ Balance Sheet
BALANCE SHEET (millions C$)
Assets
Current Assets
Marketable securities
Other
Non-current assets
Exploration and evaluation assets
PP&E
Interests in JV
Goodwill
Other LT assets
Total Assets
Liabilities
Current liabilities
Accounts payable and accrued liabilities
Current portion of LT debt
Other current liabilities
Non-current liabilities
Long-term debt and capital lease obligations
Deferred tax liabilities
Other liabilities
Total Liabilities
Non-Controlling Interest
Equity
Total shareholders' equity
Total Liabilities & Shareholders' Equity
2012A
2013A
2014E
2015E
2016E
50.4
111.6
8.3
170.4
67.8
77.9
1.5
147.2
9.2
0.0
1.4
10.6
20.4
0.0
1.4
21.8
9.0
0.0
1.4
10.4
3.2
0.3
9.2
79.9
32.1
0.0
1.5
296.6
2.8
0.2
8.9
73.2
37.6
0.0
2.9
272.8
23.8
0.2
249.0
71.3
66.8
11.1
6.1
438.9
43.6
0.2
239.3
59.9
66.8
11.1
6.1
448.8
42.5
0.2
229.6
42.1
56.8
11.1
6.1
398.8
2.3
0.0
0.0
2.3
1.9
0.0
0.0
1.9
2.1
33.2
1.3
36.6
2.1
34.0
1.3
37.4
2.1
8.0
1.3
11.4
0.0
10.6
1.5
14.4
2.0
0.0
9.0
1.4
12.3
2.8
114.0
21.0
2.0
173.5
3.1
80.0
21.0
2.0
140.3
3.1
72.0
21.0
2.0
106.3
3.1
280.2
296.6
257.7
272.8
262.3
438.9
305.4
448.8
289.4
398.8
Appendix 2: Management & Board of Directors
Exhibit 20: Altius’ Management & Board of Directors
Name
Title
Age
John Baker
Chairman
61
Brian Dalton
President & CEO,
Director
41
Fred Mifflin
Director
55
Ben Lewis
CFO
Chad Wells
VP of Corporate
Development,
Corporate
Secretary
Lawrence Winter
VP of Exploration
Years in Years on Years at the
Background
position board
company
7 years 17 years 17 years Degrees: LL.B
Chairman since late 2006 and in the past also
served as Corporate Secretary of Altius, as
well as Director at Rambler Metals & Mining
Plc. (AIM:RMM) and Aurora Energy Resources.
Mr. Baker is a partner at White Ottenheimer &
Baker law firm.
17 years 17 years 17 years Degrees: BSc
Mr. Dalton co-founded Altius in 1997 and has
been its President & CEO since. Director at
Alderon since late 2010, following its spin-out,
and also served as Director at Rambler Metals
& Mining Plc. (AIM:RMM, another spin-out)
from 2005 to 2011.
8 years 8 years
8 years Degrees: MBA, BComm
Director since 2006. Mr. Mifflin has served as
Partner at Blair Franklin Capital Partners since
2007 and prior to that worked at BMO Nesbitt
Burns (1991-2001) and BMO Capital Markets
(2001-2006) in a variety of positions, including
Head of Global Investment & Corporate
Banking and MD, Mining & Metals.
8 years
n/a
8 years Degrees: CA, BComm
CFO since 2006. Previously, Mr. Lewis served
as Corporate Controller at CHC Helicopter
Corporation (NYSE:HELI) from 2001 to 2006.
11 years
n/a
11 years Degrees: BSc
VP of Corp. Dev. since 2003. Previously, Mr.
Wells worked as a consulting geologist with
junior and senior companies in the mineral
and petroleum sectors across Canada.
8 years
n/a
8 years Degrees: P.Geo, MSc
Mr. Winter has worked with several junior and
major mineral exploration companies in both
North and South America.
Other Positions
- Partner at White Ottenheimer &
Baker (law firm)
- Director at Alderon Iron Ore Corp.
(TSX:ADV)
- Director at Alderon Iron Ore Corp.
(TSX:ADV)
- Partner at Blair Franklin Capital
Partners
- n/a
- n/a
- n/a
Risks
Commodity Price and Funding Risk. The price of iron ore and potash and to a lesser extent met
coal, nickel, and copper, from which Altius currently derives (or will derive) its cash flows, have, in
our view, a large influence on the share price of Altius. A significant decrease in the price of those
commodities could have a material negative impact on the company’s share price, profitability,
and ability to raise capital.
Third-Party Ownership Risk. With the exception of Alderon, where Altius has Board
representation, Julienne Lake and CDP, the operation of the properties in which the company has
an interest in is generally determined by the property owners and operators. As a result, Altius’
ability to influence how the properties are operated is limited (or nonexistent), and as a result, the
revenues from such properties attributable to Altius are not under Altius’ control.
Solvency Risk. Altius’ share price and profitability may be impacted by the ability of the owners of
the mines on which it has an interest to continue as a going concern and access capital. The lack of
access to capital could result in these companies entering bankruptcy proceedings and as a result,
Altius may not be able to realize any value from its respective royalties.
Geopolitical, Permitting, and Environmental Risks. With claims on production from producing
mines and exploration and development projects located in Canada, Altius is nonetheless exposed
to a risk of higher royalties and taxes, and other regulatory challenges that may impact production
levels and profitability of the mine owners, which may result in changes to their operating plans or
ability to continue production or exploration. In addition, there is always a risk permits for
continuing production (such as, for example, renewal of Alberta Environmental Protection and
Enhancement Act approval for its thermal coal portfolio) or new development may not be
attainable due to unforeseen circumstances, and changes to environmental laws and regulations
may restrict operations.
Resource Risk. There exists a risk that further work leads to a deterioration of the grade and/or
size of the deposits. Also, our outlook for some assets hinges on resource expansion, although
future work may show further expansions are not possible.
Company Citations
Company Name
Agrium Inc.
Alderon Iron Ore Corp.
Anglo-American PLC
Atco Ltd.
Bank of Montreal
BHP Billiton Ltd
Capital Power Corp.
Capstone Mining Corp.
CHC Group Ltd.
First Quantum Minerals Ltd.
Franco-Nevada Corp.
Freeport-McMoRan Copper & Gold Inc.
Fronteer Gold Inc.
Genesee & Wyoming Inc.
Glencore International Plc
HudBay Minerals, Inc.
HudBay Minerals, Inc.
Labrador Iron Ore Royalty Corp.
Lundin Mining Corporation
Orezone Gold Corp.
Paladin Energy Ltd.
Potash Corp. of Saskatchewan Inc.
Rambler Metals & Mining plc
Rio Alto Mining Ltd.
Royal Gold Inc.
Sandstorm Gold Ltd.
Sherritt International Corporation
Silver Wheaton
Teck Resources Limited
The Mosaic Company
TransAlta Corporation
Vale S.A.
Westmoreland Coal Co.
Ticker
AGU
ADV
AAL.LSE
ACO.X.T
BMO
BHP
CPX.T
CS
HELI
FM
FNV
FCX
FRG
GWR
GLEN.LSE
HBM
HBM
LIF
LUN
ORE
PDN
POT
RMM
RIO
RGLD
SSL
S.T
SLW
TCK.B
MOS
TA.T
VALE
WLB
Exchange
NYSE
TSX
LSE
TSX
NYSE
TSX
TSX
NYSE
TSX
NYSE
TSX
NYSE
LSE
NYSE
TSX
TSX
TSX
TSX
TSX
NYSE
LSE
TSX
NASDAQ
TSX
TSX
NYSE
TSX
TSX
NYSE
Currency
US$
C$
Closing Price
90.83
1.26
C$
US$
C$
US$
2.73
6.54
23.18
48.58
US$
96.44
C$
C$
C$
C$
C$
US$
10.55
28.94
5.86
0.66
0.40
36.32
C$
US$
C$
1.96
63.98
6.05
US$
C$
21.30
25.36
RJ Rating
3
2
NC
NC
NC
NC
NC
1
2
2
3
NC
NC
1
NC
NC
3
2
2
2
3
3
2
1
2
NC
1
3
NC
NC
NC
NC
RJ Entity
RJ LTD.
RJ LTD.
RJ LTD.
RJ & Associates
RJ LTD.
RJ LTD.
RJ & Associates
RJ LTD.
RJ LTD.
RJ LTD.
RJ LTD.
RJ LTD.
RJ LTD.
RJ LTD.
NC
RJ LTD.
RJ LTD.
RJ LTD.
RJ LTD.
RJ LTD.
Notes: Prices are as of the most recent close on the indicated exchange and may not be in US$. See Disclosure section for rating definitions.
Stocks that do not trade on a U.S. national exchange may not be registered for sale in all U.S. states. NC=not covered.
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The views expressed in this report accurately reflect the personal views of the analyst(s) covering the subject securities. No part of said
person's compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this
research report. In addition, said analyst has not received compensation from any subject company in the last 12 months.
RATINGS AND DEFINITIONS
Raymond James Ltd. (Canada) definitions: Strong Buy (SB1) The stock is expected to appreciate and produce a total return of at least
15% and outperform the S&P/TSX Composite Index over the next six months. Outperform (MO2) The stock is expected to appreciate and
outperform the S&P/TSX Composite Index over the next twelve months. Market Perform (MP3) The stock is expected to perform
generally in line with the S&P/TSX Composite Index over the next twelve months and is potentially a source of funds for more highly
rated securities. Underperform (MU4) The stock is expected to underperform the S&P/TSX Composite Index or its sector over the next
six to twelve months and should be sold.
Raymond James & Associates (U.S.) definitions: Strong Buy (SB1) Expected to appreciate, produce a total return of at least 15%, and
outperform the S&P 500 over the next six to 12 months. For higher yielding and more conservative equities, such as REITs and certain
MLPs, a total return of at least 15% is expected to be realized over the next 12 months. Outperform (MO2) Expected to appreciate and
outperform the S&P 500 over the next 12-18 months. For higher yielding and more conservative equities, such as REITs and certain MLPs,
an Outperform rating is used for securities where we are comfortable with the relative safety of the dividend and expect a total return
modestly exceeding the dividend yield over the next 12-18 months. Market Perform (MP3) Expected to perform generally in line with the
S&P 500 over the next 12 months. Underperform (MU4) Expected to underperform the S&P 500 or its sector over the next six to 12
months and should be sold. Suspended (S) The rating and price target have been suspended temporarily. This action may be due to
market events that made coverage impracticable, or to comply with applicable regulations or firm policies in certain circumstances,
including when Raymond James may be providing investment banking services to the company. The previous rating and price target are
no longer in effect for this security and should not be relied upon.
Raymond James Latin American rating definitions: Strong Buy (SB1) Expected to appreciate and produce a total return of at least 25.0%
over the next twelve months. Outperform (MO2) Expected to appreciate and produce a total return of between 15.0% and 25.0% over
the next twelve months. Market Perform (MP3) Expected to perform in line with the underlying country index. Underperform (MU4)
Expected to underperform the underlying country index. Suspended (S) The rating and price target have been suspended temporarily.
This action may be due to market events that made coverage impracticable, or to comply with applicable regulations or firm policies in
certain circumstances, including when Raymond James may be providing investment banking services to the company. The previous
rating and price target are no longer in effect for this security and should not be relied upon.
Raymond James Euro Equities, SAS rating definitions: Strong Buy (1) Expected to appreciate, produce a total return of at least 15%, and
outperform the Stoxx 600 over the next 6 to 12 months. Outperform (2) Expected to appreciate and outperform the Stoxx 600 over the
next 12 months. Market Perform (3) Expected to perform generally in line with the Stoxx 600 over the next 12 months. Underperform (4)
Expected to underperform the Stoxx 600 or its sector over the next 6 to 12 months. Suspended (S) The rating and target price have been
suspended temporarily. This action may be due to market events that made coverage impracticable, or to comply with applicable
regulations or firm policies in certain circumstances, including when Raymond James may be providing investment banking services to the
company. The previous rating and target price are no longer in effect for this security and should not be relied upon.
In transacting in any security, investors should be aware that other securities in the Raymond James research coverage universe might
carry a higher or lower rating. Investors should feel free to contact their Financial Advisor to discuss the merits of other available
investments.
Suitability Categories (SR): Total Return (TR) Lower risk equities possessing dividend yields above that of the S&P 500 and greater
stability of principal. Growth (G) Low to average risk equities with sound financials, more consistent earnings growth, at least a small
dividend, and the potential for long-term price appreciation. Aggressive Growth (AG)
Medium or higher risk equities of companies in
fast growing and competitive industries, with less predictable earnings and acceptable, but possibly more leveraged balance sheets. High
Risk (HR) Companies with less predictable earnings (or losses), rapidly changing market dynamics, financial and competitive issues,
higher price volatility (beta), and risk of principal. Venture Risk (VR) Companies with a short or unprofitable operating history, limited or
less predictable revenues, very high risk associated with success, and a substantial risk of principal.
RATING DISTRIBUTIONS
Coverage Universe Rating Distribution
Investment Banking Distribution
RJL
RJA
RJ LatAm
RJEE
RJL
RJA
RJ LatAm
RJEE
Strong Buy and Outperform (Buy)
69%
54%
50%
46%
36%
23%
0%
0%
Market Perform (Hold)
30%
41%
50%
39%
23%
9%
0%
0%
Underperform (Sell)
2%
5%
0%
15%
33%
0%
0%
0%
RAYMOND JAMES RELATIONSHIP DISCLOSURES
Raymond James Ltd. or its affiliates expects to receive or intends to seek compensation for investment banking services from all
companies under research coverage within the next three months.
Company Name
Disclosure
Raymond James Ltd. has managed or co-managed a public offering of securities within the last 12
months with respect to Altius Minerals Corp.
Raymond James Ltd. has provided investment banking services within the last 12 months with respect
to Altius Minerals Corp.
STOCK CHARTS, TARGET PRICES, AND VALUATION METHODOLOGIES
Valuation Methodology: The Raymond James methodology for assigning ratings and target prices includes a number of qualitative and
quantitative factors including an assessment of industry size, structure, business trends and overall attractiveness; management
effectiveness; competition; visibility; financial condition, and expected total return, among other factors. These factors are subject to
change depending on overall economic conditions or industry- or company-specific occurrences.
Target Prices: The information below indicates our target price and rating changes for ALS stock over the past three years.
Valuation Methodology: We value Altius Minerals using a weighted average of multiples to cash flows and NAV.
RISK FACTORS
General Risk Factors: Following are some general risk factors that pertain to the projected target prices included on Raymond James
research: (1) Industry fundamentals with respect to customer demand or product / service pricing could change and adversely impact
expected revenues and earnings; (2) Issues relating to major competitors or market shares or new product expectations could change
investor attitudes toward the sector or this stock; (3) Unforeseen developments with respect to the management, financial condition or
accounting policies or practices could alter the prospective valuation.
Risks - Altius Minerals Corp.
Commodity Price and Funding Risk. The price of iron ore and potash and to a lesser extent met coal, nickel, and copper, from which Altius
currently derives (or will derive) its cash flows, have, in our view, a large influence on the share price of Altius. A significant decrease in
the price of those commodities could have a material negative impact on the company’s share price, profitability, and ability to raise
capital.
Third-Party Ownership Risk. With the exception of Alderon, where Altius has Board representation, Julienne Lake and CDP, the operation
of the properties in which the company has an interest in is generally determined by the property owners and operators. As a result,
Altius’ ability to influence how the properties are operated is limited (or nonexistent), and as a result, the revenues from such properties
attributable to Altius are not under Altius’ control.
Solvency Risk. Altius’ share price and profitability may be impacted by the ability of the owners of the mines on which it has an interest to
continue as a going concern and access capital. The lack of access to capital could result in these companies entering bankruptcy
proceedings and as a result, Altius may not be able to realize any value from its respective royalties.
Geopolitical, Permitting, and Environmental Risks. With claims on production from producing mines and exploration and development
projects located in Canada, Altius is nonetheless exposed to a risk of higher royalties and taxes, and other regulatory challenges that may
impact production levels and profitability of the mine owners, which may result in changes to their operating plans or ability to continue
production or exploration. In addition, there is always a risk permits for continuing production (such as, for example, renewal of Alberta
Environmental Protection and Enhancement Act approval for its thermal coal portfolio) or new development may not be attainable due
to unforeseen circumstances, and changes to environmental laws and regulations may restrict operations.
Resource Risk. There exists a risk that further work leads to a deterioration of the grade and/or size of the deposits. Also, our outlook for
some assets hinges on resource expansion, although future work may show further expansions are not possible.
Additional Risk and Disclosure information, as well as more information on the Raymond James rating system and suitability
categories, is available for Raymond James at rjcapitalmarkets.com/Disclosures/index and for Raymond James Limited at
www.raymondjames.ca/researchdisclosures.
INTERNATIONAL DISCLOSURES
FOR CLIENTS IN THE UNITED STATES:
Any foreign securities discussed in this report are generally not eligible for sale in the U.S. unless they are listed on a U.S. exchange. This
report is being provided to you for informational purposes only and does not represent a solicitation for the purchase or sale of a security
in any state where such a solicitation would be illegal. Investing in securities of issuers organized outside of the U.S., including ADRs, may
entail certain risks. The securities of non-U.S. issuers may not be registered with, nor be subject to the reporting requirements of, the
U.S. Securities and Exchange Commission. There may be limited information available on such securities. Investors who have received
this report may be prohibited in certain states or other jurisdictions from purchasing the securities mentioned in this report. Please ask
your Financial Advisor for additional details and to determine if a particular security is eligible for purchase in your state.
Raymond James Ltd. is not a U.S. broker-dealer and therefore is not governed by U.S. laws, rules or regulations applicable to U.S.
broker-dealers. Consequently, the persons responsible for the content of this publication are not licensed in the U.S. as research analysts
in accordance with applicable rules promulgated by the U.S. Self Regulatory Organizations.
Any U.S. Institutional Investor wishing to effect trades in any security should contact Raymond James (USA) Ltd., a U.S. broker-dealer
affiliate of Raymond James Ltd.
FOR CLIENTS IN THE UNITED KINGDOM:
For clients of Raymond James & Associates (London Branch) and Raymond James Financial International Limited (RJFI): This document
and any investment to which this document relates is intended for the sole use of the persons to whom it is addressed, being persons
who are Eligible Counterparties or Professional Clients as described in the FCA rules or persons described in Articles 19(5) (Investment
professionals) or 49(2) (High net worth companies, unincorporated associations etc) of the Financial Services and Markets Act 2000
(Financial Promotion) Order 2005 (as amended) or any other person to whom this promotion may lawfully be directed. It is not intended
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therefore not intended for private individuals or those who would be classified as Retail Clients.
For clients of Raymond James Investment Services, Ltd.: This report is for the use of professional investment advisers and managers and
is not intended for use by clients.
For purposes of the Financial Conduct Authority requirements, this research report is classified as independent with respect to conflict of
interest management. RJA, RJFI, and Raymond James Investment Services, Ltd. are authorised and regulated by the Financial Conduct
Authority in the United Kingdom.
FOR CLIENTS IN FRANCE:
This document and any investment to which this document relates is intended for the sole use of the persons to whom it is addressed,
being persons who are Eligible Counterparties or Professional Clients as described in “Code Monétaire et Financier” and Règlement
Général de l’Autorité des Marchés Financiers. It is not intended to be distributed or passed on, directly or indirectly, to any other class of
persons and may not be relied upon by such persons and is therefore not intended for private individuals or those who would be
classified as Retail Clients.
For institutional clients in the European Economic Area (EEA) outside of the United Kingdom: This document (and any attachments or
exhibits hereto) is intended only for EEA institutional clients or others to whom it may lawfully be submitted.
Raymond James International and Raymond James Euro Equities are authorized by the Autorité de contrôle prudentiel et de résolution in
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Proprietary Rights Notice: By accepting a copy of this report, you acknowledge and agree as follows:
This report is provided to clients of Raymond James only for your personal, noncommercial use. Except as expressly authorized by
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express written consent of Raymond James. You also agree not to use the information provided in this report for any unlawful purpose.
This report and its contents are the property of Raymond James and are protected by applicable copyright, trade secret or other
intellectual property laws (of the United States and other countries). United States law, 17 U.S.C. Sec.501 et seq, provides for civil and
criminal penalties for copyright infringement.
Additional information is available upon request. This document may not be reprinted without permission.
RJL is a member of the Canadian Investor Protection Fund. ©2014 Raymond James Ltd.
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Canada Research Altius Minerals Corp.

Transcription

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