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Thesis article

Inflation has become one of the world’s top investing themes in the current environment. Materials companies tend to offer inflation protection, although some are struggling with the upside expenses for labour, machinery, parts, etc. We believe that Altius Minerals Corporation (OTCPK: ATUSF) is one of the best choices for inflation protection, because its revenues increase thanks to rising commodity prices, while costs are generally low and generally do not increase in an inflationary environment.


About two years ago we started warning about inflation, for example in May 2020 with an article written by my colleague Darren McCammon: Fear creates opportunity: money is trash. Over the months, we added several more centered on a major theme: the Fed was keeping rates near zero while printing money at a rapid pace, and different forms of stimulus (e.g., direct payments in species in the United States) have further fueled conditions that would make inflationary pressures rise. As it turns out, inflation has indeed become a major theme, with the US inflation rate, as measured by the CPI, hitting a 40-year high of 8.5% in March. Investors are naturally looking for ways to secure their wealth and purchasing power, making inflation-resistant stocks an important theme.

Streaming companies/royalties

In short, streaming and royalty companies finance mining projects in exchange for a percentage of the raw material extracted from the mine. Due to their unique business model, these companies tend to have even greater advantages than the mining companies themselves in an inflationary environment. As the value of the mined material increases, streamers earn additional revenue, just like mines and miners, but usually without incurring additional mining fees – these are paid by the miner, and do not by the streaming or royalty company. Labor, electricity, mining equipment and many other mining costs tend to increase in an inflationary scenario, but this does not impact the streamer, as the miner is responsible for these expenses.

There is another factor at play besides this: streaming companies also benefit from inflation because they have traded a certain amount of money or other assets. in the old days in exchange for a small percentage (e.g. 3%) of all future production throughout the life of the mine. Thus, if higher prices encourage mining companies to take on new projects and/or increase production, the streaming company gets its percentage share of a larger project without having to pay any additional cost because the price has been paid in the past.

The combination of these two factors makes commodity streaming companies an excellent hedge against inflation, at least as long as demand and prices for the underlying commodity are strong.

Altius Minerals

Altius Minerals Corporation is not a well-known streaming/royalty company, mainly due to the fact that it is a rather small company. Its market capitalization is still below $1 billion today, despite gains of more than 60% in the past year. The company’s assets are diversified across different commodities in the field of metals and mining. This includes coal (electricity generation), base and battery metals, iron ores (for steelmaking) and even potash used as fertilizer. The company thus benefits from price increases for a wide range of raw materials, including iron ore, copper, zinc, potash, precious metals, coal, etc. In an inflationary environment where the prices of many commodities are reaching multi-year, even historic highs, this sounds very intriguing to me.

However, Altius isn’t just a finance-focused commodity streaming company. They are also trying to discover new mineral resources. In fact, Altius discoveries have turned into more than 61 new royalties and/or mining interests since 2016. Additionally, Altius’ tendency to invest counter-cyclically has resulted in a steady increase in operating cash flow. per share in recent years.

Altius royalties and cash flow

Altius Presentation

This growth in cash flow happened before commodity prices even started to take off in 2020, when inflation really started kicking in.

Fourth quarter results

Adjusted EBITDA for the last quarter was C$0.43 per share, relatively flat year-over-year. Adjusted operating cash flow per share was C$0.38, up 18% year-over-year.

Debt is relatively low. In fact, Altius has around C$100 million in cash and fungible stocks, with total debt only slightly higher at around C$120 million. The low level of net debt allows Altius to return cash to owners of the business through dividends and buyouts. In 2021, the company paid out $22 million, which may not seem like much, but seems solid given the company’s small size and ongoing growth investments. Based on current payouts, Altius Minerals offers a dividend yield of just over 1%. Investors should note, however, that the dividend has increased rapidly in recent years. Between 2017 and 2022, Altius Minerals increased the payout per share by 200% – with growth like that, low performance isn’t too much of an issue.

One thing to remember with streaming companies is that their royalties usually lag behind commodity price changes due to delays in contract resets at new prices or purely due to logistics. So Q4 revenue, earnings, and cash flow tend to be determined by Q3 commodity prices, and so on. The large spike in many commodity prices that occurred in February and March of this year should therefore begin to show in Altius’ second quarter results.


Altius Minerals is trading today at 16x EBITDA. This isn’t an ultra-low valuation, but investors should take into account the company’s high earnings quality with a strong cash flow conversion rate and strong balance sheet. Looking at the historical norm, Altius Minerals is actually trading at a discount:

Chart: Altius Minerals EV on EBITDA

Compared to how the company was valued in the past, Altius Minerals is trading today at a discount of around 20%, despite the fact that the current environment of rising commodity prices is very positive for earnings and cash flow of Altius.

Take away

Altius looks like a solid long-term investment overall. It offers exposure to a wide range of products needed to feed the world (fertilizer), for the transition to electric vehicles (copper), etc. Altius Minerals has a healthy balance sheet, strong and well-aligned management and offers steadily increasing shareholder payouts. But more importantly, Altius is a great hedge against inflation – if commodity prices continue to climb, so will Altius’ earnings. At the same time, its expenses are low and have been mostly fixed in the past, so margins should increase in an inflationary environment. This sets Altius apart from mining, oil, etc. companies. – their income increases, but so does their cost. Altius Minerals therefore appears to be a particularly solid hedge against inflation.

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