Adrian Day - Mon, Apr 11, 2016

Altius Minerals Takes Advantage of Market Weakness

Adrian DayAdrian Day of Adrian Day Asset Management discusses Altius Minerals, one of his core holdings, including why he holds it.

Altius Three-Month Chart
Altius Three-Month Chart

Altius Minerals Corp. (ALS:TSX, $11.81; ATUSF:OTC) has continued to make progress through the bear market in resources. Most recently, it has entered into a metal purchase agreement with Yamana Gold to purchase some of the future copper production from its Chapada mine.

Altius Minerals will pay US$60 million plus 30% of the spot copper price upon delivery. It will also give Yamana Gold (AUY:NYSE; YRI:TSX) 400,000 warrants exercisable at CA$14 per share. It will receive just under 4% of the copper production from Chapada (with some reductions after 75 million pounds has been delivered and if the mine expands production).

The deal is expected to increase Altius' earnings by around CA$8 million per year at the current price, significantly adding to total revenue (which for the past 12 months was a little over $30 million). It diversifies the resource base, reducing reliance on coal royalties, and adding an interest in another long-life, low-cost mine. To finance the deal, Altius is entering into short-term debt facilities, which will also replace its current term loan at a lower interest rate.

Building a mineral bank

Altius has also been very active, though quietly so, on increasing exposure to exploration projects worldwide, emphasizing zinc, copper, gold, nickel and PGMs, in Newfoundland, Ireland and Chile, as well as Michigan. This is largely low-cost prospect-generation, during what it says was the "best opportunity in more than 15 years" to acquire minerals rights that will be highly sought after as exploration money flows back to the sector, allowing it to retain royalty and minority interests.

Altius is one of our top core holdings. The stock tends to be quite volatile, so we would look for pullbacks to add to positions. Though it is good value at this price, patient investors will likely see better opportunities ahead.

Adrian Day, London-born and a graduate of the London School of Economics, heads the money management firm Adrian Day Asset Management, where he manages discretionary accounts in both global and resource areas. Day is also sub-adviser to the EuroPacific Gold Fund (EPGFX). His latest book is "Investing in Resources: How to Profit from the Outsized Potential and Avoid the Risks."

1) Adrian Day: I own, or my family owns, shares of the following companies mentioned in this interview: Altius Minerals Corp. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. Clients of Adrian Day Asset Management hold shares of the following companies mentioned in this interview: Altius Minerals Corp.
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