Dan Ferris, “Best Royalty Investment in the World”

By Travis Johnson, Stock Gumshoe, April 4, 2014

These are my notes and instant reactions from a presentation at the Value Investing Congress, the notes below might contain errors, paraphrases, incorrect quotes, or misinterpretations.

Dan Ferris, who we have covered many times, is presenting about Altius Minerals (ALS.TO, ATUSF), which he has covered for years and we’ve written about many times (it’s also my largest personal equity holding).

He has to go through quite a lot of explaining to value investors about why he likes a company that’s in a business riddled with failures and crooks and wasted money.

He describes Altius as a “prospect generator”, which is also how he teased them when his teaser pitch for Extreme Value was the first time I heard about Altius almost exactly five years ago. You’re probably familiar with the basic idea, but it’s that they find assets but turn them over to other people to do all the expensive exploratory work and Altius’ main goal is to build the royalty portfolio.

The beauty of royalties is that they are so capex-lite. They put in $15 million and their partners put in $150 million and their current net asset value is about $350 million.

So … no surprises here, the story is that they keep the lights on at HQ with the Voisey’s Bay Royalty, the big growth potential is the Kami iron ore mine that’s planned and likely to be built within the next few years (he says that royalty alone should be worth at least $100 million to anyone else in the industry).

They don’t dilute shareholders, management is good.

More on Kami: Hebei, the Chinese partner in the mine, has already paid $182 million of their committed $400 million, they have labor and ports and rail and power infrastructure.

Ferris also said that he would think about buying Alderon (AXX), too, given his confidence in Altius and the fact that a company emerging from a prospect to a mine can provide a dramatic multi-bagger return (Ferris isn’t allowed to own the stocks he covers, by the way, a Stansberry rule). But Alderon seems obviously more on the risk side of the risk/reward seesaw.

Ferris puts their NAV at about $19.50 per share, though that values the royalties at substantially more than they paid, and he thinks they’ll grow into a double digit dividend yield from these prices, but it may ...

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