Business Breakdowns
· Matt Reustle, Luke Bridgeman
[00:00:00] S0: And does the renewable financing business – I guess the way you described having the publicly listed entity for a period of time. But having that vehicle, in terms of attracting capital to finance the financing business, is there anything else that it does to the balance sheet or cash flows that are unique in terms of tying up a lot of cash? Maybe because it's earlier stage or anything along those lines which change the profile of the business in any material way. [00:00:00] S1: What's quite interesting is over the last couple of years, Altius has monetized its equity interest in a gold project in Nevada. It's pre-development, but it's owned by Anglo Gold. This is an interest which it originally acquired in its project generation business for $400,000. And it's recently sold part of its exposure to that to Franco-Nevada for $250 million while retaining a significant royalty interest for itself. And it's also sold a separate royalty to Triple Flag, which is another precious metals royalty company for about $200 million. A phenomenal return on the original investment while retaining continuing exposure to it, and really strengthening its balance sheet. So the risk of future dilution from other opportunities to deploy capital is reduced. So, a really good example of the project generation business working – and the royalties have not yet even started paying out. So that's very exciting.
· Luke Bridgeman, Matt Reustle
[00:00:00] S1: What's quite interesting is over the last couple of years, Altius has monetized its equity interest in a gold project in Nevada. It's pre-development, but it's owned by Anglo Gold. This is an interest which it originally acquired in its project generation business for $400,000. And it's recently sold part of its exposure to that to Franco-Nevada for $250 million while retaining a significant royalty interest for itself. And it's also sold a separate royalty to Triple Flag, which is another precious metals royalty company for about $200 million. A phenomenal return on the original investment while retaining continuing exposure to it, and really strengthening its balance sheet. So the risk of future dilution from other opportunities to deploy capital is reduced. So, a really good example of the project generation business working – and the royalties have not yet even started paying out. So that's very exciting. [00:00:00] S0: The fact that they retained an interest after realizing those sales at those prices makes it hurt a little bit more for me, but I'm sure as an investor it's quite interesting and really speaks to the thesis behind that opportunity. Really interesting. Something I need to read a bit more about after our conversation. When you think about risks with this business, you're going to have cyclicality and commodity prices, which we've talked about. Capital allocation feels like the most important thing. Is there anything else you would point to just in terms of risks that you think about as an investor?
· Luke Bridgeman, Matt Reustle
[00:00:00] S1: You might add expropriation to that list you just gave, but I think that's mitigated by being mainly in developed world jurisdictions, so less of a risk there than we've seen with some mining companies. I think for me, one of the biggest risks is that it gets bid for by a precious metal royalty company. Altius trades at around 1.4 times net asset value, and you can justify that premium because of the embedded optionality in projects which are visible but are not yet producing. Precious metal royalty companies trade over 2 times net asset value, so they have a much lower cost of capital. They might take advantage of that to potentially acquire Altius. Remember, Altius has some sort of gold exposure. If they could acquire Altius and apply their own multiple to Altius, then that would be an opportunity for them. And that would be a risk as far as I'm concerned, because it would be a real pity to see this countercyclical value creator acquired by someone who was just playing a dollar-cost averaging game. [00:00:00] S0: What explains the premium for the precious metals businesses in terms of the 2x NAV? [00:00:00] S1: It's a bit of a head scratcher. I think if you were to ask them, they would justify it by saying that we'll always end up having a much longer life and a greater scope than is reflected in the net asset value. But they are also a means for investors to get exposure to the underlying precious metal.
· Luke Bridgeman, Matt Reustle
[00:00:00] S1: It's a bit of a head scratcher. I think if you were to ask them, they would justify it by saying that we'll always end up having a much longer life and a greater scope than is reflected in the net asset value. But they are also a means for investors to get exposure to the underlying precious metal. [00:00:00] S0: That also makes sense. Fascinating. A very interesting business and one that I think any which angle that we took it at, we could talk for extremely extended periods of time. But I think you've done a great job covering everything. When we close up these conversations, we always like to hit on the lessons that you could potentially take away and apply elsewhere. What would you say about Altius that stands out in terms of applicable lessons that you might be able to use elsewhere?
· Luke Bridgeman
[00:00:00] S1: Strong managers like Brian Dalton are difficult to come across, almost unique. Number 2, taking a long-term approach, as they have and do, is really important. And I think that surfaces opportunities which other people wouldn't be able to surface. And I think the project generation business exemplifies that. Countercyclicality is written throughout Altius' playbook. And that's really what it's all about. Embedded optionality. When you have exposure to very long-lived mining projects, there is so much which can happen in the future. And the company talks about tripling its royalty revenue from about $60 last year to $200 million by 2030, on the basis of projects which are already in hand. And then beyond that, there are even bigger projects, so there is a lot of upside there. Altius is also an example of the alpha that exists between silos, between asset classes. It's neither a mining company nor a conglomerate. It's one of a kind and therefore overlooked by a lot of investors – maybe not so well understood. And that's a real opportunity for anyone who can do the work. Those would be the key points to hit on.
· Matt Reustle, Luke Bridgeman
[00:00:00] S0: I love it, particularly that last lesson where this doesn't fit cleanly into a specific bucket. It combines a lot of different aspects. But at the end of the day, I go back to the academic approach to investing and thinking about this very clearly in terms of what a royalty represents and embedded optionality, and a lot of these concepts that you see pretty cleanly in this one. So thank you Luke. It has been a fascinating conversation again. Really appreciate you joining us. [00:00:00] S1: It's been a treat. Thanks, Matt.