Altius reaps benefits of 
contrarian investing

VANCOUVER — When it comes to the project generator business model, it’s tough to find a more successful example than Altius Minerals (TSX: ALS; US-OTC: ATUSF). The company has seen substantial revenue growth over the past five years largely due to its contrarian investment strategy, which saw it add 13 production-stage royalties to its portfolio and boost revenues from less than 10¢ to more than $1 per share.

On Sept. 12 Altius released its second-quarter financial results headlined by adjusted earnings of $6.4 million, or 15¢ per share. The company expects to generate $40 million per year in revenue going forward, which is especially impressive considering it was $3 million per year in 2013.

And Altius has succeeded largely by investing in commodities that are out of favour. The company’s largest revenue generator is actually thermal coal, while it’s also heavily invested in fertilizers via royalties on mining operations run by Potash Corp. of Saskatchewan (TSX: POT; NYSE: POT) and Agrium (TSX: AGU; NYSE: AGU).

Yamana Gold’s Chapada gold-copper mine in Brazil, where Sandstorm Gold holds a copper stream agreement. Credit: Sandstorm Gold.

Altius’ most recent deal involves acquiring future copper payments from Yamana Gold’s (TSX: YRI; NYSE: AUY) Chapada copper-gold mine in central Brazil. Altius paid US$60 million and 400,000 shares for 3.7% copper production from the operation, which drops to 1.5% for remaining life-of-mine after delivering 75 million pounds.

“The timing of the Chapada purchase marked the end of this down period in the commodity cycle,” Altius president and CEO Brian Dalton said during a conference call. “We were able to get in under the wire with that deal, but immediately we shifted our gears. Sentiment towards our sector has changed and speculative capital has begun to return. Accordingly, we’re turning a good part of our time and attention to preparing to realize value from the extensive portfolio of exploration-stage projects we accumulated during the bear market.”

Given Altius’ contrarian investment thesis, it has expanded its exploration portfolio over the past few years, and has earmarked copper and zinc as commodities of interest. Last year, the company acquired 80% of 1,800 sq. km in Ireland that it deems prospective for carbonate-hosted zinc-lead-silver deposits.

Workers in an underground storage area at Potash Corp. of Saskatchewan’s Allan potash mine, 50 km southwest of Saskatoon, where Altius Minerals holds a royalty. Credit: Potash Corp. of Saskatchewan.

Altius also picked up the largest land position in Newfoundland’s Buchans camp, after parts of the mineral belt became available for staking last year. The company’s holdings include concessions surrounding the past-producing, Buchans high-grade zinc-lead-copper mine.

As for copper, Altius is part of a joint venture exploring 1,000 sq. km in northern Chile, as well as another 1,100 sq. km in Ireland at the Southwest Cork sediment-hosted copper target, where recent grab sampling yielded 7.6% copper and 342 grams silver per tonne from disseminated bornite and chalcocite, within a reduced sandstone unit.

“It’s a business we know well, since it was this exact type of activity during the previous [bull market] that allowed us to build a large cash balance that we converted to cash-flow royalties. The market shift has reduced opportunity and attractiveness from that perspective, and our experience and instincts tell us we can do more by daylighting our exploration assets,” Dalton said.

“What we’re seeing on the ground level is that things have changed completely. Companies of all sizes are now calling for projects, and that’s an early sign that the cycle is turning. We’re going to demonstrate over the next couple quarters just how prepared we are for this market,” he added.

Historically the Buchans deposits ranked among the world’s most prolific high-grade polymetallic VMS deposits. Credit: Altius Resources.

Two commodities Altius will likely avoid are uranium and lithium. Dalton said during the conference call that recent large-scale uranium discoveries could “meet demand for quite some time,” while the company avoids specialty commodities that tend to “run up and run out quite quickly” in favour of “bread-and-butter” resources.

In May, Altius closed a $40-million, bought-deal financing wherein it sold 3.6 million shares priced at $11.25 per share. The offering was led by TD Securities and Scotia Capital, and included Raymond James, BMO Nesbitt Burns and Haywood Securities.

Altius shares have traded in a 52-week price range of $7.39 to $13.89 per share, and closed at $9.56 at press time. The company has 43.4 million shares outstanding for a $419-million market capitalization.