People are, by far, the most important facet of any business. This is especially true in the resource sector, as mining is a risky investment even when the best people are involved in the project. You might be thinking, ‘but I have to pay a premium for the best people.’ Well, that may be true sometimes, especially if you were unable to buy the best people during a bear market.

It’s my contention that, over the long haul, investing in the best people will always put you in the best possible position to succeed. But, don’t take my word for it; here’s a quote from Rick Rule, President and CEO of Sprott U.S. Holdings, from an interview I did with him a few months back:

“The truth is, if you have the guts to invest in bad markets, you can buy the best properties and the best management teams very cheaply. In the market that we are heading into, a bull market, however, other sets of circumstances are true and I would suggest to your readers, unless they are prepared to devote a minimum of 20 hours per week to their speculative portfolios, that they give up the optionality associated with new management teams and focus on investing around the best of the best, even being willing to accept those premiums.” ~ Rick Rule – Junior Stock Review Interview

Today, I have for you an interview with Brian Dalton, CEO of Altius Minerals. In my opinion, Dalton is as good as it gets when it comes to people in the resource sector, and this is the biggest reason why I am a shareholder of the company. Recently, I had the chance to meet with Dalton and to ask him a few questions, learning a little more about the company and the man leading Altius Minerals.


Altius Minerals logo

Altius Minerals – TSX:ALS

MCAP – $625.7 M (at the time of writing)

As of October 31, 2017

Common Shares Issued – 43,187,291

Fully Diluted – 50,743,614

Annual Royalty Revenue – Last 12 months – $60.1 M

Total Debt – $70 M

Cash – $29 M

Equity Portfolio – $84 M, including $10 M convertible loan to Champion Iron

A Conversation with Brian Dalton

In my opinion, one of the biggest issues facing most people is their lack of self-awareness. Whether it be in their investments or their personal lives, many people either have no idea or are prone to lying to themselves about where they are strong and where they are weak and, thus, typically fall short of their goals and aspirations.

Dalton, however, appears to be very in-tune with his own strengths, as well as those of his team. Altius Minerals has been very successful over the last 20 years because they have played to their strengths and,  therefore, in my opinion, are in a class of their own when it comes to the mining business.

Quoting Dalton from an interview he did with BNN on February 28th of this year,

“We don’t see anything in our skill set that would make us suitable to run major industrial operations, but we can evaluate projects that are going to work, and their future, and their exploration potential” ~ BNN

This is a very introspective comment, one that has proven to be very advantageous for Altius and its shareholders.

For those who aren’t familiar, Altius was founded by Dalton and the rest of the team while they were in university. Playing to their strengths, Altius’ business plan is to buy or stake exploration properties in the midst of crisis, which can later be sold in a market upturn, while keeping a royalty on each. Additionally, Altius has used proceeds from these sales to purchase a diversified portfolio of mining royalties from producing mines.

In my conversation with Dalton, I asked about the origins of the company and how they built a tiny junior into the sector’s first diversified mining royalty company.

Brian Dalton: “When the market started to get better in 2001 and 2002, we had a bit of a head start on everyone because we’d stayed busy right through the downturn.  The market got behind us and we were first able to buy a royalty on Voisey’s Bay in 2003. It was a really big bet for us costing $10 million dollars, which was essentially our full market cap, but we felt comfortable with it.

The market continued to get stronger and stronger and all of these early exploration lands we’d been buying in the downturn, which we had bought really cheap, suddenly became what everyone wanted. The market wanted to pay for exploration land and we were able to make an awful lot of money over the course of that cycle just by literally monetizing the value of the exploration land, all the while keeping our royalties.

Fast-forward to about 2011 and the end of the big bull run in the market, and we found ourselves with a lot of cash, over $200 million. I can remember we started the cycle with less than a $1 million market cap. The most important thing to remember is that these were profits, not money we raised in the market selling our stock.

From here, we wondered what we should do as a business model, we had been building up a big portfolio of royalties for our exploration properties, but now we had this cash. We said, ‘let’s buy some production stage royalties as well and fill out a whole portfolio which would include production stage, exploration stage investments.’

It took a while when that strategy was first started, as the market was really hot, price expectations for the commodities were off scale and everything was just hot, and then boom, everything died, exploded actually.  Suddenly, every mining company in the world looked as though they were going to go bankrupt and it was chaos.  Many believed that it was over for the sector.

At which point, we said, ‘OK, it’s probably about time.’ So we put all that money to work and we borrowed on top of that and we bought 14 more royalties through that period, right through the carnage. That’s the period between 2014 and 2016.

We had a diversified approach, we bought potash, copper, iron ore, zinc. We basically created the first real diversified mining royalty company.”

For me, jurisdictional risk is an interesting subject because everyone has their own criteria for what constitutes risk. For most, jurisdictional risk is most closely tied to the politics of the country in question, or the politics of a neighbouring country.

Question – How do you view jurisdictional risk and how does it affect Altius’ investment strategy?

Brian Dalton: “Most would look at our portfolio and the places that we work as pretty low risk. I use a really simple rule of thumb. More or less, would I be willing to put someone there and feel comfortable, am I able to sleep at night and would I visit there with my kids? If I am able to get through these points, I’m usually pretty good. Now, that’s a very high level, the basic kinds of risks.

Generally, we like to make most of our investments when things are in true, utter chaos and crisis. It turns out that when money turns off, it really turns off everywhere. We tend to use the downturns as an opportunity to get into the best places.

As it turns out, the best places are the places where money returns to first. We’ve never felt the need to chase a lot of political risk to find value because we find value just by buying in the right part of the cycle.

Oddly, what we thought was the lowest risk of all the acquisitions that we have made, be it exploration or production assets, according to commentary or how institutions would have risked it. The absolute lowest risk assets were a bunch of things in Alberta that we bought, which turned out to be the biggest political disaster you’ve ever seen. You can never get it right. To me, right now, Alberta has more political risk than the Congo, I am not saying we are going to the Congo, but that is the kind of thing we’ve got.”

NOTE: In 2016, Altius recorded an impairment charge of $72 million as a result of the Alberta provincial government – NDP – committing to end coal-fired electricity generation by 2030.  One of their large coal royalty assets – Genessee – is expected to produce well beyond 2030, and the impairment charge was the deduction of those years of projected cash flows that are cut off because of the government’s decision.

In October of this year, I had the chance to visit western Newfoundland. The purpose of my trip was to visit two operating mines in the northwest portion of the island, near Baie Verte, and an exploration project in central Newfoundland, just south of Millertown. (Site Visit Article Series – Part 1Part 2 and Part 3)

During my visit to Rambler’s Ming Mine, I spoke to Larry Pilgrim, their Chief Exploration Geologist. In our conversation, Pilgrim said that there were enough prospective targets just in the Baie Verte Peninsula area to last him 3 lifetimes.

Question – What do you think about Newfoundland and Labrador as a destination for mining? How much mineral potential does the province have?

Brian Dalton: “It’s still pretty wide open. The thing about Newfoundland geology is that there isn’t anywhere else, that I know, with that size of an area, that has as many different geological terrains and environments. It is the proving ground for plate tectonics, it records everything.

In the past year, we’ve made discoveries in Northern Newfoundland for a type of mineralization that nobody has ever looked at. Two years ago, everyone would have said that Newfoundland is the last place you will find silver. What do we do? We go into an area we shouldn’t, and find a bunch of silver. Up in the same area, someone’s come up with a new style of gold mineralization, which had never been conceived.

Is there still upside potential in Newfoundland? You better believe it. Newfoundland has been a happy hunting ground for us for 20 years, and I could see another 20 there, too.”

In my view, we live in a society of paradigms or bias that lock us into thought patterns that keep many of us blind to other alternatives – alternatives that may be more efficient or beneficial.

Question – Whether it be financial, political or social, in your opinion, how does one keep an open mind and see through paradigms and their own inherent bias?

Brian Dalton: “I guess it is just experience, when you do something enough times and it works. Sometimes, things just don’t feel right and when you go the other way and it works, those things have a way of compounding over time.

The things we did in the first cycle that were clearly contrarian were the things that were the very best things we did. So when it came down to 2015 and 2016, when every headline out there was predicting the end of the mining industry as we know it, everyone is going to go bankrupt, then you step back and say, ‘everybody can’t go bankrupt. It doesn’t make any sense.’

So this must be an opportunity, I’ve been here before. The same goes for the exploration side of things. When every major says their exploration budget is zero, there must be opportunity there. This stuff becomes self-fulfilling.

The challenge that most people have is even when the fellows running the mining company believe there is a great opportunity and now is the time they should be doing it, and they have the conviction to do it, they don’t have the means.

Alternatively, at the very top of the market, prices are going and going up forever more. That’s when their shareholders are screaming at them to build, and they’re giving the money to do it. So it actually becomes one of those things where, you get in trouble if you don’t respond to the demands, and you end up doing the wrong thing, which will ultimately, probably, get you fired. So they’ve got no choice but to do it. Which then leads to two or three years after the price gets paid and then they get fired, pretty thankless.”

Question  My last question pertains to the future of Altius; where do you see the company in 15 years?

Brian Dalton: “15 years, I think this cycle could be that long. The cycles are getting longer because of the time it takes for the industry to switch from depression to optimism and then to euphoria. Our basic business plan for this, we started in ’97, saw the bottom in 2000 and a top in 2011. So around 2016 would be one full cycle for all of us.

We look at ourselves now as going into our second cycle. We have gone from a million dollar to 500 million market cap, burning money to making, you know, 70 or 80 million annually. We’re not planning to change much. There’s things we’ll try to do better, there are lessons that have been learned.

By the end of the next cycle, I just hope to see us in a similar position. We went to the top of the market and were smart enough to go long cash, at that point, and when the inevitable happens and the next big crisis unfolds, we were there and we were able to seize it.”

Before ending the interview, we did a few rapid fire questions; bull or bear?

Gold – Agnostic

Silver – Bullish

Copper – Mega bull! Geology driven supply challenge which is the best force possible to have at play

Nickel – Very Bullish

Zinc – Very Bullish right now

Iron Ore – Super Bullish

Uranium – Short-Term Bull, Long-Term quite pessimistic

Lithium – Bullish that it becomes a real commodity, Bear short-term on price

Concluding Remarks

People are what make companies successful. Investing in the best people, in my opinion, helps tilt the odds of success in your favour. From my conversation with Brian Dalton, I believe I received a good glimpse into Altius and the man in charge. I left with a few takeaways; here’s a summary of my thoughts:

  • Be contrarian, don’t follow the crowd – There are two major points in my life when I have been contrarian; first was putting 2/3 of my net worth into the junior resource sector in 2014 and 2015. Second, was leaving my 10 year career in steel to pursue a passion – investing and writing. During those periods in my life, a number of people told me I was crazy, and at times, I thought I might be.  Sitting here today, I can say that both moves rank among the best decisions I have ever made in my life.
  • Newfoundland and Labrador is a premier jurisdiction for mining today and will continue to be in the future – I highly encourage those who haven’t visited this province on Canada’s east coast to do so, and in the process, see if you can do a few site visits; it will change your perspective on investing in the resource sector.
  • Stick with a long-term view of the market – Invest in the best people and give them the time that is needed to execute a plan. Having a long-term view will help weather the intermittent periods of bearish sentiment in the sector, as even in a bull market prices have periods of down or sideways movement.

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Until next time,

Brian Leni   P.Eng

Founder – Junior Stock Review

Disclaimer: The following is not an investment recommendation, it is an investment idea. I am not a certified investment professional, nor do I know you and your individual investment needs. Please perform your own due diligence to decide whether this is a company(s) and sector that is best suited for your personal investment criteria. Junior Stock Review does not guarantee the accuracy of any of the analytics used in this report. I do own shares in Altius Minerals. I have NO business relationship with Altius Minerals.

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