Altius: A Key Holding in Minerals

06/01/2017 2:56 am EST

Focus: COMMODITIES

Brien Lundin

President, Jefferson Financial, Inc.

That means we’re in a brief window of opportunity for buying quality junior gold stocks, such as Altius Minerals (Toronto: ALS) — a key holding in our model portfolio, explains Brien Lundin, editor of Gold Newsletter.

In late April, Altius Minerals and Fairfax Financial Holdings closed on a deal whereby Fairfax may invest up to C$100 million in Altius. The deal will take the form of up to four tranches of 5% preferred securities, with each tranche being not less than C$25 million.

The April transaction closed on the first tranche of C$25 million. Altius retains sole discretion to require Fairfax to make additional purchases of up to C$75 million by Dec. 31, 2017.

According to the terms of the deal, Altius can pay back the preferred securities at any time after April 26, 2022 and at any time after April 26, 2020, if the weighted average trading price of its stock remains above C$24.00 for any 10-day period.

As part of the terms, Fairfax has received 6.67 million purchase warrants that are exercisable at C$15 a share. These warrants will vest proportionately according to the aggregate amount of preferred securities Fairfax purchases.

With this large cash influx, Altius can get very aggressive on the acquisition front, as it seeks to build out its already large royalty portfolio. The company has taken a prudent approach to prospect generation and royalty development that has put it in position to line up a financing like the one with Fairfax.

Altius ended its Fiscal Year 2017 on April 30, having grown its portfolio via equity appreciation by 121% year-over-year.

The portfolio’s market value stood at C$44.7 million at that point, a marked improvement over the C$20.2 million it posted a year prior. In addition, that C$44.7 million valuation included net cash from equity sales of C$11.3 million.

Altius has remained a stalwart member of our portfolio for years based on its ability to deliver leveraged gains in good times and protect investor capital in bad times.

I read the large investment from Fairfax as a smart-money endorsement of Altius’ strategy moving into this next phase for commodities. The company remains a solid bet on the broader commodities market and a key hold in our portfolio.

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