The Estevan thermal coal mine in south-east Saskatchewan, subject to per tonnage royalty bought by Altius off Sherritt. Photo: Westmoreland

The Estevan thermal coal mine in south-east Saskatchewan, subject to per tonnage royalty bought by Altius off Sherritt. Photo: Westmoreland

Who's Winning? Altius Minerals

Issue 117, February 2015

The current bear market has cemented Brian Dalton's standing as the mining industry's most conscientious steward of capital.

Having listed Altius Minerals in 1997 at the onset of a bear market, Dalton learnt early on how to reap the cycle. Rather than sole-fund high cost exploration, Altius stuck to mapping and prospecting, optioning projects on in exchange for cash, shares, spending commitments and retained royalty rights.

The model is epitomised by the Michelin uranium deposit, shunted by Altius into Toronto-listed Aurora Energy in 2005 in exchange for 37 per cent of its stock. By 2008, Altius had sold down its shares into a raging uranium bull market, netting proceeds of C$208m, versus initial prospecting costs of C$650,000.

In true counter-cyclical fashion, Dalton used part of the cash to buy-back shares when markets collapsed in 2008, but Altius was left sitting on C$150m, then equal to half its market cap. Rather than pay dividends out of capital, Dalton held out for a patience-testing 5 years and was rewarded with the right deal, paying nickel miner Sherritt C$233m for a coal and potash royalty portfolio in December 2013.

Again, Altius was unmistakably on the right side of the table, with Sherritt forced into asset sales by battered nickel prices and a proxy bid for its board. As of its last quarter, Altius is now sitting on recurring royalty revenue of C$26m per annum ($21m), extending over mine lives of up to 70 years.

The company reaped C$41m last week from an opportunistic investment in Virginia Mines, selling its shares into the company's C$1.3bn merger with Osisko Gold, and also holds 17m options over Michael O'Keeffe's Champion Iron, busy rolling-up iron ore assets in Canada's Labrador Trough.

Its Virginia windfall equates to a 75 per cent investment return over 3 years and lowers Altius' net debt, taken on to fund its Sherritt deal, to C$61m, bringing forward the prospect of dividends and putting Altius back in the market for fresh royalty deals. Dalton's track-record guarantees that he will be highly selective.

Originally published in "Who's Winning?", a roundup of companies capitalising on the current down-cycle ➤

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