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

Continued from Page 1 ➤

...bought for $13m in 2003. In a per share emphasis rare to the mining industry, Altius has bought back over 13 per cent of its stock since the deal achieved payback in 2008.

“Commonsense dictates that shareholder value should be the most important thing,” says Strauss, “and as you’re seeing in the gold companies, shareholder value has become the buzzword of the last 12 months. For us, it’s been the buzzword of the last 15 years.”

Sherritt’s asset disposal is Canada’s third largest mining deal of 2013, behind Silver Wheaton’s $2bn streaming deal with Vale in February and a Russian buyout of uranium group, Uranium One. The deal vindicates Altius’ strategy of holding a $150m cash cushion, earned through a string of equity spin-outs, allowing the company to aggressively capitalise on the current bout of mining market weakness.

Sherritt, which has oil interests in Cuba and debt of $2.1bn, has been embattled by dividend uncertainty and calls for a proxy battle. The company is due to suffer a C$460m ($430m) loss on the sale, having bought the assets in 2008 by bidding for a utilities trust.

Altius will meanwhile lift its royalty revenue tenfold to $30m per annum, equal to roughly $1 per share, which have jumped 40 per cent since the deal was announced to C$14.98. Altius has paid less than 9 times royalty income, before accounting for an expected 35 per cent ramp-up in output at its underlying potash mines.

The deal is being funded by cash plus debt of $130m, lent by Scotiabank and Rick Rule’s Sprott, one of Dalton’s earliest backers. “Brian has built this business utilising the two and a half to three million dollars a year cash from the Voisey’s Bay royalty,” says Rule. “His tool chest has now increased tenfold. I think that’s important.”

The assets have such long lives, adds Rule, that their net present value will be undiminished even after pumping out payments for 15 years. “Brian will now be in a different league,” Rule says. “He’ll have highly predictable cash to invest on my behalf for the rest of my useful life.”

For a further $21m Altius also gains Sherritt’s 50 per cent share in a vast landbank surrounding the royalties, peppered with drilled extensions to the existing mines. “We see huge optionality,” says Strauss. “We’ve got a debt structure that needs to be serviced, but it is our clear intention to move to a dividend paying position as soon as possible.”

“This is the transformational deal that we have been looking for.”

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