Altius Minerals (Toronto: ALS) — a royalty finance company in the resource sector — generated $78 million in royalty revenue last year, following a soft last quarter, with 37% of it from copper, explains Adrian Day, editor of Global Analyst.
Given the limited time frame on its coal royalties and the poor image associated with them, Altius has been using the revenue from coal royalties to launch a new clean energy unit. Coal royalties are now down to 14% of the total.
The clean energy unit comprises two wind projects, though other clean energy project, and other partners, are likely to be included over time. Altius expects this business to become self-sustaining “very soon” as it is growing faster than expected.
Acquiring royalties, including those on base metals and other resources, has become more competitive and expensive, as not only new companies enter the space, but also private equity and other players who do seem concerned with realistic rates of return.
Altius is expecting going forward more royalty generation from deals on its extensive land package of early-stage resource properties, though these will take longer that purchased royalties before they generate revenue.
Altius has proven itself over the years, however, at being able to generate revenue from these deals long before royalty income begins, such as by selling equity interests in new companies formed to advance particular projects.
New debt stands at $82 million, down slightly from the previous quarter. Although the cash balance—at C$22 million—is relatively low, it ignores the value of a junior portfolio of just over $54 million, as well as the value of its holding in Labrador Iron Ore, at $93 million.
The value of the junior portfolio is more-or-less where it stood a year ago, despite Altius having pulled out $19 million. It has also streamlined the portfolio, from 27 to 18 companies, limiting holdings to companies with which Altius has some strategic royalty interest.
In addition, Altius has access to capital through its line-of-credit, its relationship with Fairfax Financial, and other partners. It has been aggressively buying back stock.
We have high confidence in Altius’s management, disciplined, patient and imaginative. Together with its solid balance sheet; strong, diverse, cash flow; and vast land package, this makes Altius a long-term holding for exposure to non-gold resources. At the current price, it is a strong buy.