Returning to the Iron Age
03/28/2013 9:45 am EST
This company’s two-pronged approach to iron mining is ready to deliver big returns for shareholders, writes Larry Roulston of Resource Opportunities.
Altius Minerals (Toronto: ALS) is moving closer to a big payoff on its Labrador iron project as the environmental assessment process moves into the final stage.
Last month, the operator completed a feasibility study on the project. With funding from a Chinese steel company, the iron project is on track to start production in 2015.
The Altius geological team discovered that iron deposit, which was then rolled into Alderon Iron Ore (Toronto: ADV). Altius retains 32 million shares of Alderon and a 3% gross sales royalty on the project. At the initial production level, the royalty would pay $27 million a year to Altius, doubling after two years when the project moves to the second stage.
The iron project is the third highly successful spin-out by this company, which exemplifies the prospect generator model of mineral exploration.
In fact, Altius follows a two-pronged approach. One side of the business sees its exploration team aggressively seeking new discoveries. Over the past decade, the company has levered its own exploration spending by nearly tenfold through joint venture funding.
The second aspect of the Altius business is royalties, beginning with the purchase of a base metal royalty in 2003 that now generates $4 million of revenue every year. In addition to the iron ore royalty, the company has acquired several other royalties, mostly through its prospect generator business.
That business model has paid off exceptionally well, as Altius has $158 million of cash and $108 million worth of mining investments. The company also holds an extensive portfolio of exploration prospects, on its own or with joint venture partners. That portfolio holds the promise of additional successes, like the Alderon story.
Altius shares have held up exceptionally well at a time when the shares of many exploration companies have fallen hard. The prospect generator model and the focus on royalties offer a low-risk approach to resource investing while still offering huge upside potential.