Dan Ferris is out with a new ad for his Extreme Value newsletter at Stansberry, and he’s again promising great gains and a realistic shot at a “10-bagger”… in fact, he says it has “more than a dozen” paths to 1,000% gains.
So, naturally, Gumshoe readers are curious… what is this “Next Royalty Company” that he’s teasing?
Stop me if you’ve heard this before.
I know, I know, he has teased this company as the “Next Great Royalty Company” for about a year and a half now, so many of you will have seen those articles here at Stock Gumshoe, or Ferris’ commentary about it over the years… if that’s you, just skip ahead a little and you can see my updated thoughts on the stock, but don’t spoil the surprise for everyone else.
How does Ferris pitch this stock this time around? Here’s a little taste:
Brian Hunt, Ferris’ editor at Stansberry, calls it a “stock market anomaly” and introduces it thusly:
“… anyone with a brokerage account can exploit this anomaly with one simple investment.
“And let me be very clear: There is absolutely nothing illegal or unethical about doing this.
“The anomaly has nothing do with a computer ‘glitch,’ or insider information, or anything like that. And it doesn’t involve any risky, complicated trading strategies either.
“Like I said, anyone can take advantage of it.
“I believe this trade setup gives you the chance to double or triple your money in the next few years with very little downside.
“That’s what I’m comfortable projecting. Of course, as any Stansberry Research editor will tell you… I’m known for being very conservative with these estimates.
“Dan Ferris, the editor of Extreme Value, thinks this anomaly could deliver gains north of 500% — plus a huge stream of annual income.”
He then runs through some examples of “anomaly” stocks that are in the natural resource sector, mostly in gold, but have been much more resilient than the mining stocks over the past several years of falling gold (and other metal) prices. These “anomaly” stocks are pretty clearly Royal Gold (RGLD), Franco-Nevada (FNV), Osisko Gold Royalties (OR.TO, OKSKF OTC in the US)… and one other.
And it turns out, “Anomaly No. 2”, which he compares favorably to the price of the U.S. Mining Index, makes its money from coal and nickel and other stuff… and that happens to actually also be the stock one he’s teasing today as Dan Ferris’ “If I had to pick just one stock to put all my money into… this would be it” investment.
So now do you remember that one? OK, fine, we’ll just spill the beans — yes, Dan Ferris is again teasing Altius Minerals (ALS.TO, ATUSF OTC in the US), a prospect generator-turned-royalty owner that is generating a decent cash flow now, after two substantial royalty acquisitions over the past year and a half (the Sherritt royalties on coal and potash in Western Canada, and the Callinan Royalties on the Hudbay 777 copper/gold complex).
And fine, I’ll stop quoting bits of the ad for you — you can see the whole thing here if you like, it is all very similar to past Dan Ferris teaser ads about Altius, particularly those that have come out since January of 2014, when the company cemented its transformation from a prospect generator with just enough royalty cash flow to cover their overhead into a cash-flowing base metals/diversified mining royalties firm.
I’ve written about Altius many times and have owned it for more than five years (though I’ve bought many times since then, so my cost basis is above the current share price), I think it’s pretty reasonably priced given the current doldrums for commodities prices, maybe even a bit undervalued, and I did buy a few more shares a week or two ago, as noted below… but it’s not going to rise by 1,000% in the next couple years unless animal spirits return to the commodities sector — a sector that most investors are terrified of now. I do agree that the downside should be limited, but to a significant degree that assumes the global economy doesn’t crash from here, and that commodity prices don’t fall another 30-50% to their pre-Chinese-emergence levels of the 1990s.
I don’t want to re-invent the wheel, so I’ll just copy over the update I shared with the Irregulars as part of their Friday File two weeks ago, when I responded to some questions about Altius and updated my thoughts following their most recent quarter — what follows originally appeared in the Friday File on September 12 (yes, I published a day late that week), and has not been updated.
Several readers have asked me about Altius Minerals (ALS.TO, ATUSF) lately, and about whether the drop in shares is a buying opportunity. That obviously depends a lot on when (or whether) the commodity cycle changes and commodities begin to increase in value again, and investors become interested again in commodity stocks… but since we can’t predict the future macro trends, other than to say that there’s no sense in planning on another supercycle boom market anytime soon in gold, copper and the like, let’s look at their most recent quarter, reported this week, and see how things are looking. They aren’t on a typical calendar cycle, so this was actually their first quarter of the fiscal year, and it ended on July 31.
So yes, we should keep in mind, as we go through the numbers, that these numbers reflect the business performance just before the most recent weakness in the markets. The second calendar quarter (Mar-June) was actually not all that bad for most commodities — the average commodity, as represented by most of the broad commodity indices, was fairly flat for the quarter… but then, following that quarter and starting for most commodities in late July, the bottom fell out of the market again and most commodities took another 10%+ bump down. So while this most recent quarter for Altius was certainly a weak quarter for commodities in general, things did get worse for most commodities after the quarter ended. That won’t make a huge immediate difference, since they are diversified across several commodities and there’s quite a bit of lag between mining and royalty payments clearing, but there’s no indication that we should expect this current quarter to be better than the quarter just reported.
For those who are new to Altius Minerals, they started as a prospect developer — staking land, finding deposits, then partnering with others to get those deposits developed… they contribute the discovery, the partner contributes the capital to explore and (maybe) develop, Altius gets a royalty on whatever might be mined in the future and, perhaps, a junior equity stake or other additional exposure. Many years ago they acquired a small royalty on the Voisey’s Bay mine, and that has fueled a lot of their work (as has their huge uranium bubble sale of properties, which created most of the huge cash pile they used to buy up royalties more recently), but they have evolved into a cash-flowing royalty company on the back of two large deals over the last couple years with Sherritt and Callinan Royalties to acquire about a dozen significant royalty streams on potash mines, coal mines, the 777 gold and copper mine, and a few others.
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They have many development projects, most of which require very little cash because they’re partnered out to operators or are just sitting by waiting for a partner to show some interest, and progress is very slow on those right now because no one is excited about investing a lot in exploration or mine development with prices low (and financing, in most cases, very hard to get). Patience will definitely be required, because Altius spends money on acquiring or developing projects when markets are bad and tries to sell or monetize them when markets are great… and that seems unlikely to happen anytime soon.
Their biggest disappointment in recent years has been the mothballing (so far) of the Kami iron ore mine by their spinoff Alderon (AXX) — they still own a chunk of Alderon equity, and a large gross sales royalty on the mine if it is developed, but Alderon has been unable to get construction financing in the weak iron ore environment, which has probably been the primary reason for the weakness in Altius shares over the last year and a half or so as the equity value of their Alderon stake has been written down to almost nothing, creating big non-cash losses on the income statement, and as they’ve lost, or at least significantly delayed, the expectation that they’ll eventually receive substantial royalties from the Kami mine. I value this as being worth essentially nothing for the next five years, but it could turn into something if iron recovers in the future — two years ago, this was by far Altius’ most valuable asset, so the lesson here is that diversification is key. Without the royalties they acquired over the last 18 months, the company would be trading probably down below $6, close to what would be their cash value if they hadn’t bought the royalties, be