NR18 | Natural Resources Magazine | FALL 2013

THE ODDS

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BRIAN DALTON AND ALTIUS MINERALS LOOK TO TAKE SOME OF THE RISK OUT OF THE MINING BUSINESS. BY BETTING ON MORE THAN ONE PROJECT

BEATING

BY DARREN CAMPBELL


But Dalton means what he says. Altius isn’t a mining company in the strictest sense of the word. Dalton and his staff have no intention of turning promising mineral deposits into producing mines. “When this company was founded, a typical junior mining business model was get a project, raise capital, spend the money and hopefully end up with a big success and a discovery,” Dalton says. “We thought it was a f law in the overall business model of a lot of companies that they were going to explore and find something and then were going to build a mine. We realized the skill set required to put those stories and ideas together had nothing to do with the skill set required to construct a major

industrial operation and operate it afterwards.” So Dalton and his team built a business with

no intention of ever building a mine themselves. What Altius would do is identify promising prospects in jurisdictions and geology it knows, acquire the exploration rights to them and then sell a large portion of those prospects to partners who would spend the time and money required to determine if they had a deposit big enough to warrant building a mine. It’s not an exciting, sexy business model, but it’s worked for Dalton and Altius since the company was founded in 1996. But in a bearish market where so many junior mining companies are fighting for their survival – will the model continue to work?

Brian Dalton says he is not running a mining company. It seems like an odd thing for him to say. After all, Dalton is the president and CEO of Altius Minerals Corporation, a company with interests in dozens of iron ore, uranium, gold, nickel and base metals projects. Its staff employs plenty of geologists – the type of people you’d expect to find working at a mining company. And Altius is listed on the Toronto Stock Exchange as being involved in the “metals and mining” industry.

Altius prospector Paul Crocker examining some gossanous rocks which might be indicative of sulphide mineralization. Photo: Altius Minerals


MINING ANALYST Brent Cook uses the roulette wheel analogy when he talks

about the mining business. He says running a junior mining company is an expensive gamble. The Utah-based rock hound and author of Exploration Insights newsletter says the discovery and exploitation of an economic mineral deposit is a very rare event. It also takes a lot of time and a lot of money to find out if a deposit is mineable. So rather than sitting at the roulette wheel and betting on one number – or in the case of many juniors, one project – Cook thinks it makes more sense to bet on several projects.

“I think it’s an intelligent approach,” Cook says of what is known in the mining business as the prospect generator model. “But it’s definitely not the popular model. The popular model is to pick up a property, hype it up and talk about how you are going to get rich drilling this hole because no one thought of this idea before.”

Dalton has no interest in betting on one property. Since the St. John’s-based company was founded by Dalton and some of his university pals, Altius has charted a different course for itself. It sniffs out promising prospects and does early stage mineral exploration on them. If the prospect proves promising, Altius markets it to potential partners and looks for financing agreements where Altius takes a minority or non-operating and/or equity and royalty interest in it.

Perhaps Dalton’s business philosophy was born out of his experience in the fishing industry. In the early 1990s, Dalton was leasing a boat and gear from his uncle in Cape Broyle, Newfoundland and Labrador. But the cod moratorium imposed by the federal government in 1992 put an end to his fishing career and forced him to find a new line of work – providing an early lesson in the merits of not placing all your eggs in one basket. “It made me redouble my efforts around education. I started out thinking about engineering and quickly got into geology,” Dalton says. “It attracted me because it seemed like an opportunity to work outside and I found prospecting pretty fascinating.”

It was fascinating enough that Dalton enrolled in earth sciences at Memorial University in St. John’s. But a life of libraries and lectures wasn’t enough for Dalton. He also worked as a prospector and in exploration services while pursuing his studies. He formed Cape Broyle Exploration Limited with partner Paul Crocker and two other ventures – Deep Reach Exploration and Gabbro Expediting and Transfer. The two latter companies were formed to take advantage of opportunities that came about due to the discovery of the Voisey’s Bay deposit in 1994. The deposit, which has become a nickel and copper mine run by Vale, set off a f lurry of activity among junior mining companies

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looking to find the next Voisey’s Bay. Many of them didn’t know the lay of the land in Labrador, geologically or politically, so they looked for help from local prospectors who did. Dalton hired several classmates and partnered with some and started staking claims and optioning them to these companies. “It was a real windfall,” Dalton says.

The windfall came from selling his interests in all three companies and using it to raise the seed money to form Altius. And from the beginning, its world view has been clear: diversity is a must in the mining business. “Failure wasn’t much of an option because we didn’t have a backup plan,” Dalton says.

So far, Dalton hasn’t needed a backup plan. From its humble beginnings, Altius has become something of a leader among junior mining companies that use the prospect generator

business model. In its 2013 first quarter management discussion and analysis, it says it has 12 active exploration agreements with partners on projects throughout Newfoundland and Labrador and Quebec. Since its inception, the company says it has struck over 60 joint venture earn-in/sales and strategic alliance agreements. And some of the companies it has partnered with are big ones, including Rio Tinto and Anglo-American plc.

The agreements result in Altius spending very little on exploration each year – a mere $2-3 million this fiscal year according to a year-end management discussion and analysis report issued in April. Dalton feels that’s a plus for the company and its shareholders. “It’s more than money that comes in on these partnerships. You strengthen your effort overall,” Dalton says. “Sometimes the other mining partners bring in other insights – engineering and otherwise. It can be just as important to have a partner that helps you fail quickly. The worst scenario is dragging these things out.”

But if being in the prospect generating business is such a smart, low-risk strategy, why aren’t more junior miners doing it? Part of it boils down to psychology. Dalton notes that when a lot of geologists work on a prospect and find a promising target, they want to be there when it comes time to drill on them. “That’s the

“ You don’t necessarily control your fate. A lot of these guys do deals with major mining companies and you’re just a small piece of what they are doing. That can get to be a problem.” Brent Cook, mining analyst

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real moment of excitement and glory. It’s hard to be part of a project to the point where you hand it over at that exciting stage,” Dalton says.

Cook says the model has its downsides, notably the lack of control a junior has over a project when someone else is in control of the scope and pace of the work. “If you get a partner and you get a technically incompetent team, it gets to be a drag,” Cook says. “You don’t necessarily control your fate. A lot of these guys do deals with major mining companies and you’re just a small piece of what they are doing. That can get to be a problem as well.”

The potential downsides of being a prospect generator haven’t deterred Altius, and Dalton says the company has developed a reputation as a fair partner and one that offers up projects that have merit. One such partner is Toronto-based Century Iron Mines Corporation, which has been working with Altius on four iron ore prospects in the Labrador Trough since 2011. Century president and CEO Sandy Chim says his company has found Dalton and Altius to be “very honourable, very supportive and very fair” and its reputation within the industry made the partnership attractive to Century. “They are good project generators and have a very good geological team,” Chim says “We really appreciated their confidence. They chose to do business with us when they had options of

dealing and working on the same project with other associated companies.”

At least one of the projects in its portfolio is close to paying off for Altius. The Kami project, located in the Labrador Trough, is being led by Alderon Iron Ore Corp., a Vancouver-based company Altius spun out with the purpose of advancing the project. Altius owns approximately 32 million shares in Alderon and Dalton and Altius director John Baker sit on its board. Alderon is proposing to build and operate an iron ore mine that will produce eight million tonnes of concentrate per year. The estimated cost of the mine is pegged at US$1.27 billion. The company wants to open the mine by 2015 and expects it to have a life of 30 years.

The project is currently undergoing an environmental assessment and if it receives regulatory approval and is built, Altius will

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A bird’s eye view of Vale’s Voisey’s Bay mine, which Altius has a royalty stake in. Photo: Vale


receive a three per cent gross sales royalty from production during the life of the mine. That could result in Altius receiving in excess of $20 million per year in royalty revenue from Kami.

Royalty agreements loom just as large

for Altius as selling off majority interests in promising mineral prospects. Perhaps the company’s crowning achievement so far came in 2003 when the company purchased a 0.3 per cent royalty in Vale’s Voisey’s Bay mine. The deal gave Altius

a steady stream of cash that continues to f low into its treasury. (Altius says it expects the royalty to generate $3 million annually based on current nickel prices and typical production volumes.)

In fact, Dalton says the goal is for Altius to be recognized as more than just a prospect generator. “We see the business transforming into one that’s seen first as a unique type of royalty company. Compared to all of our competition, which is solely buying royalties, we have an exploration division that is very low cost and we can generate quality royalties with our efforts,” Dalton says.

WITH ITS SHARES trading at just over $11 in late September, Altius

stock is holding up well in a market that generally isn’t placing high values on junior miners. And in today’s tight capital markets where investors are shunning junior miners, Altius is in better financial shape than many of its peers. With $146 million in net working capital and no debt, the company has the ability to go bargain hunting during a time when a lot of distressed companies are looking to shed assets.

It has also stepped out beyond the Labrador and Quebec jurisdictions it knows so well. In 2012, Altius partnered with Zeus Capital Inc. of Santiago, Chile with the aim of identifying mineral prospects in the South American country and seeking either joint venture agreements with partners or creating spin out companies. Altius would own a 49 per cent equity stake and a royalty interest in all projects this venture generates.

It is early days in this foray, but Dalton thinks the Altius model can work in Chile and elsewhere, but expansion there and anywhere else will be controlled. “We are not betting the farm on this move. It’s a measured expansion of our business model. We think we’ve got a handle on it enough to where we can take it to other places.”

Whatever Dalton and Altius do in the present and future, rock hound Cook expects them to be successful at it. Cook says he owns “a significant piece” of Altius shares, so he’s not without some bias, but he notes the track record of the Altius team is impressive. “They made a lot of money renting equipment and trailers to people looking for the next Voisey’s Bay. They went out and staked ground and then [sold] it off. Even in university the guys in Altius had figured out how to make money in this business.” | NRM

“ They are good project generators and have a very good geological team. They chose to do business with us when they had options of dealing and working on the same project with other associated companies.”

Sandy Chim, president and CEO of Century Iron Mines Corporation

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