Altius: Sell-off Creates Opportunity

02/09/2016 10:00 am EST


Adrian Day

Chairman and CEO, Adrian Day Asset Management

Investors should take advantage of the sell-off in selected resource stocks, explains sector expert Adrian Day, editor of Global Analyst.

Altius Minerals (TSX: ALS) has suffered from the general malaise in the resource sector, as well as specific developments in Alberta.

The newly elected NDP government has said it wants to transition the province off coal-fired electricity generation to greener sources.

Altius acquired a package of Alberta coal royalties two years ago in a company-transforming transaction. These royalties generated just over $8 million in the last six months.

Notwithstanding the rhetoric, the situation is not as dire as it would at first appear. First, some 60% of Alberta’s electricity base load is coal-fired. It would be an expensive and long-term project to eliminate that.

Second, there is no plan from the government, but—so far—just noise in the form of goals. A strategy document is expected within 60 days, though that will still fall short of a detailed plan.

Third, it is very expensive to change an existing plant from coal to gas. At best, the government could mandate that new plants be gas-fired. This would not affect Altius’s royalties.

Fourth, Altius’s contracts are long life (ten to 20 years) with payments based on volumes not price.

Meanwhile, Altius has returned to its exploration roots, accumulating land in multiple jurisdictions, holding the land without doing a lot of expensive work.

It believes this is putting the company is a good position for when the sector turns and miners are seeking ventures on attractive properties.

Altius has also started buying back its shares again, essentially the maximum it is allowed under various debt covenants and stock exchange rules.

The company has about $15 million in cash and about $30 million in equity investments, mostly juniors.

It has debt of $68 million, on which it is paying 6%. With royalty revenue of about $38 million a year at current commodity prices, the debt could be paid off within a couple of years, so is not a huge burden.

There may be no rush, but we should take advantage of the sell-off. At the current price, Altius is a great buy for long-term investors.

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