POTASHCORP's Rocanville mine, Saskatchewan. Altius has paid $233m for a portfolio of royalties covering more than 60 per cent of Canada's potash production.

POTASHCORP's Rocanville mine, Saskatchewan. Altius has paid $233m for a portfolio of royalties covering more than 60 per cent of Canada's potash production.

 

Altius Flies Higher on Coal & Potash Royalty Deal

Issue 69, January 2014

Under a $1bn deal by Sherritt International, once Canada’s largest thermal coal miner, explorer Altius Minerals has emerged as one of the world’s largest diversified royalty groups.

Sherritt has sold its Canadian coal portfolio to Colorado-based Westmoreland Coal for C$465m ($435m), whilst hiving off its associated royalty portfolio to a consortium led by Altius for $460m. “This is the transformational deal that we have been looking for,” says Altius director Jamie Strauss, lead partner at London-based Strauss Partners. “We’ve found the right asset at the right price.”

The royalties cover 6 potash mines in Saskatchewan encompassing more than 60 per cent of all potash production in Canada, comfortably the world’s largest potash producer, accounting for a third of all global supply. They also cover the Cardinal River coking coal mine in Alberta, operated by Canada’s Teck, plus tonnage-based royalties on a string of thermal coal mines being sold to Westmoreland.

Altius will pay $233m for 51 per cent of the portfolio, with a subsidiary of Boston-based Liberty Mutual taking a further 43 per cent. Altius’ share of the partnership would have generated $27m last year at profit margins close to 100 per cent.

“We are deeply attracted to long-term sustainable revenue that does not require sustaining investment,” chief executive Brian Dalton wrote in a letter to shareholders; the underlying potash mines have an average reserve life of over 70 years.

The deal aggressively accelerates Altius’ evolution from an exploration stock to a fully-fledged royalty house. Founded by Dalton in 1997, Altius has become a royalty machine by confining itself to low cost prospecting, repeatedly optioning out projects in exchange for cash, shares and retained royalty rights on discoveries held by Rio Tinto, Mamba Minerals, Altius spin-out Alderon and uranium miner Paladin.

The structure generates royalties at better than zero cost: in 2004, Altius staked the Kami iron project in Labrador for $2.2m, before spinning the project into Alderon, retaining a 3 per cent gross sales royalty and $50m in stock. Based on current prices, the royalty is expected to generate over $30m per annum for 30 years from late 2015.

Altius also holds a 0.3 per cent royalty on Vale’s Voisey’s Bay nickel mine in Labrador...

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“Brian has built this business utilising cash from the Voisey’s Bay royalty. His tool chest has now increased tenfold.”
-Rick Rule

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