Iron Ore Popper

Checking in on a "fave for 2013" mover

By Travis Johnson, Stock Gumshoe, March 18, 2013

In case you’re following Altius Minerals (ALS.TO ATUSF), the 10% pop that mostly came late on Friday (though it’s still rising today so far) was from Alderon’s (AXX ADV.TO) deal with Hebei closing and getting that financing on board for development of the Kami mine — Hebei put up $120 million, so that’s a huge vote of confidence in the mine being built, and they’re also guaranteeing to be the major customer of the mine in an offtake agreement. This deal is not new, and Hebei had already put up a bout $60 million, but this closing to bring the total cash payment to $180 million for project development helped assuage some worries that their big partner might pull out or change the deal. Alderon also jumped dramatically when the announcement came through late on Friday, though it has moderated a bit since.

Altius has lots of early stage irons in the fire with their prospect development deals, largely in iron ore but also in other minerals, and they should have a fine future, but the 25%+ rise in the share price this particular year (so far) is all predicated on Alderon’s iron ore mine actually getting built. That’s not mostly due to the ownership in Alderon, which will continue to get gradually diluted as Alderon raises money and which Altius will probably gradually sell off if the pricing improves (their holding is now down to about 25%), it’s because of the potentially massive 3% gross sales royalty that Altius owns on that mine.

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So if the mine is built and produces anything near what they’re expecting, Altius gets a massive annual cash flow stream at no further cost, easily covers their corporate costs (their only other steady cash flow now comes from the small royalty on the Voisey’s Bay mine), and turns them into a solid dividend payer in a few years.

Sentiment about iron ore prices and the financing needed to build the mine is obviously a key concern here, but since Hebei has closed and supplied a huge chunk of cash now, with potential access to project finance now from Chinese banks, the concern is lessened about getting the project built. They still expect permits and etc. to be done and approved before the end of 2013, infrastructure is in place, or close and available, so unless there’s a ...

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