TORONTO (miningweekly.com) - TSX-listed Altius Minerals CEO Brian Dalton, who has been spending a lot of time on the phone to and in China, says the world will see a new wave of mining investment coming out of what is now the world’s second biggest economy.
The Newfoundland-based company, which explores for mining assets and then sells them for royalties or shares, has been scouring the Chinese landscape for potential partners in its Canadian projects.
“It’s almost embarrassing it has taken us so long to get there,” Dalton told Mining Weekly Online last week.
He said what took him by surprise about the Chinese companies he had spoken to was how early stage an exploration project could generate interest there.
Previously, Chinese investors were keener on buying stakes in projects that already had a prefeasibility study completed.
Altius had been speaking to both private Chinese investors and state-owned companies.
There are often big exploration outfits that are under these companies, but the sheer size of just one such firm’s geological department blew Dalton away.
“One company I was talking to has 7 000 geologists and 5 000 engineers in its exploration department alone. And that’s a company that I previously didn’t even know existed,” he said, declining to name the firm.
China has enormous goal for infrastructure development, and the desires of an increasingly wealthy population are shifting from basic necessities to luxuries the west has enjoyed for decades.
“Everyone wants a Lamborghini, forget indoor plumbing,” Dalton joked.
“We are about to see a new wave of that [investment out of China to satisfy demand growth],” he added.
BUSINESS MODEL
Altius has a model where it invests at the concept level of a project and then allows a partner to earn into the project by spending money on exploration and development, while Altius retains a minority interest or a royalty.
Dalton first developed the model when he was studying geology in university. He bought shares for $8 a piece in a company that found the Voisey’s Bay nickel mine in Labrador, which Vale now owns.
Dalton sold those shares for $20 each a few weeks later, and used the profit to buy stakes around Voisey’s Bay. Those claims became the 0,03% yearly royalty that Altius receives from Vale’s nickel mine.
Altius also owns 32-million resources in Alderon Resources (named for the iron-laden planet in Star Trek), which recently exercised its option to buy the Kami iron project in Labrador from Altius.
“A lot of the work I’ve done in China is introducing the Alderon project, and there has been a lot of interest from Chinese steelmakers,” says Dalton.
Surrounded by Cliffs Rio Tinto and Consolidated Thompson, Dalton enthuses that Alerdon has a “good address”.
CLIFFS JV
While Dalton was speaking to Mining Weekly Online in St Johns, Altius was announcing its newest venture – an exploration alliance with Cliffs Natural Resources for ferroalloy metals within specific areas of Newfoundland and Labrador.
Cliffs will pay Altius $1,8-million to do exploration work over two years to find new grassroots targets.
The projects will owned equally, but Cliffs will have an option to increase its interest to 70% by funding $4-million in exploration over four years, and up to 90% by completing and funding a bankable feasibility study.
CONTRARIAN
Dalton says Altius is a contrarian investor that buys projects when the market is low, and sells them when high valuations abound.
The company holds C$200-million in cash and what he calls senior liquid investments, a large chunk of which is made up by a stake in International Royalty Corp.
He says investors sometimes pressure him to use the money for buyouts, but valuations are high.
The model has worked for Altius so far, despite the fact the its very early stage projects don’t generate much excitement from the analyst community (Dalton points out no analysts currently cover the company.
“With 30% compound annual growth since October 1994, it’s okay to be boring sometimes,” he says.
Altius was trading at $13,64 a share on Monday, giving it a market capitalisation of C$391-million and a relatively low price-to-earnings ration of 16,6.