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9th annual Spring value investing congress

April 4, 2014 Las Vegas, NV

The Best Royalty Investment in the World Today Daniel Ferris, Extreme Value

The Best Royalty Investment in the World Today

Dan Ferris April 4,2014 Las Vegas, NV


What Im looking for

3,000-5,000 small mining exploration stocks
1 in 3,000 mining prospects becomes a mine

Few youd ever want to touch Narrow the field: buy prospect generators

What is a prospect generator?

Trades intellectual capital for physical capital Lays operational risk off on JV partners

Altius Minerals (ALS.TO)

$5.30/share in cash, no debt Voiseys Bay nickel mine 0.3% royalty
Paid <$14mm 10 years ago Received $30mm in royalty income

Kami 3% royalty ($100mm+ NPV) 10-12 chances at 50x-100x returns (no kidding) Organically created royalties Just multiplied its royalty income 10x in a single transaction

Two complimentary businesses

Mineral exploration project generation & royalty creation
Royalty acquisition & investment The best business is a royalty on the growth of others requiring little capital itself.
~Warren Buffett, 1978 Berkshire annual report

Capex lite business model

56 partner funded projects since inception
Partner exploration funding $150 million vs. $15 million from ALS

Current NAV = $350mm I never want to be in the mining business.

~Brian Dalton, co-founder/CEO Altius Minerals

When it works
Mineral & project location Partner ALS cost $650,000 ALS proceeds Royalty

Uranium - Central Labrador Copper/gold - central Newfoundland (Ming Mine)

Aurora Energy

$210 million

2% GSR

Rambler Metals

$600,000 $2.5 million

$6 million


Iron ore in western Labrador (Kami project)

Alderon Iron Ore

$50+ million

3% GSR

Voiseys Bay Royalty

Effective 0.3% NSR on Voiseys Bay nickel Paid $13.6 million in 2003
Assumed $3.25/lb. nickel ($4 in 2009, $6+ now)

Cumulative revenues ~$30 mm Est. mine life ~2036 Royalty covers all future expansion/development at zero extra cost Cash flow covers Altius G&A

Capital structure
27.9mm shares
NCIB 1,406,207
Started 4/2/2013 Expires 4/1/2014

Automatic share repurchase plan

7,036 shares/day (NCIB 200 days)

Zero debt (for now) Not your typical geologists paycheck scheme

Upside potential: Kami project

Altius discovered a 1 billion tonne iron ore resource in western Labrador
Four producing mines, skilled labor, mining friendly jurisdiction, rail, deep sea ports, roads

Created Alderon Iron Ore (ADV.TO)

Altius owns 25% (32.9 mm shares) of ADV Alderon owns 75% of Kami LP Hebei Iron & Steel Group owns 20% of ADV.TO; 25% of Kami LP Hebei will offtake 60% of first 8 million tonnes

Hebei paid $182 mm of $400mm committments

Upside potential: Kami Project

Dec. 2012 feasibility study $1.3B capital cost to build the mine Kami mine = $2.46B NPV10
Altius owns 25% of 75% of that ~$461mm, or $16 Altius share, or ~100% upside ADV stake = ~C$50+mm today
Altius plans to hold through Kami development

Milestones achieved
Major investment/offtake w/Hebei Provincial/Federal environmental clearance Electric power is secured $1 billion debt financing underway Long-lead time equipment ordered Next milestone: project finance

Kami royalty income projection

Kami royalty
Production commences Q4 2015 $25mm/year @ 8mmtpa FE 62% $50mm/year @ 16mmtpa FE 62%

Mgmt stated intention is to dividend royalty income from Kami

After royalty tax, maybe $0.72 - $1.44/share

Alderon/Kami is one of 20
20 projects 10 w/partners
Project Kami Western Labrador Labrador West iron ore Revelation Alaska Cristo Cu/Au Alaska Topsails Cu/Moly central NL Viking gold west NL CMB uranium central Labrador Humble Cu/Au Central Labrador Saglek - iron ore North Labrador Partner Alderon Iron Ore Rio Tinto Millrock Millrock/Brixton JNR Resources Northern Abitibi Paladin Energy Millrock/Kinross Cliffs Natural Resources Royalty 3% GSR 3% GSR 2% NSR gold; 1% NSR base metals 2% NSR gold; 1% NSR base metals 2% GSR uranium/ 2% NSR other 2-4% sliding scale NSR 3% GSR 2% NSR gold; 1% NSR base metals 1% NSR

Balance sheet right now

$124 mm cash/securities $95mm equities $8.4 mm Voiseys Bay Royalty
Kami royalty @5x royalties $15.1 mm total liabilities NAV Share price lately =

$8.00/share $3.44 $0.30

$4.89 ($0.55) $16.08 $15-ish

$3mm/year royalties at $6 lb. nickel

A transformative deal
Tuesday, Dec. 24, 2013: Altius announces two major transactions 1. Altius will buy 52.36% stake in 11 royalties for $241 million (seller: Sherritt Intl, S.TO) 2. Altius will buy the Carbon Development Partnership (CDP) for $42mm
CDP owns 7.2 billion tonnes coal, 2 billion tonnes potash in Alberta and Saskatchewan, plus royalties on production in the region

Excellent royalty portfolio

58% of royalties from inflation-adjusted thermal coal
Mine-sited power generation No exposure to thermal coal market prices Albertas lowest base load power

No single royalty asset contributes more than 22% of royalty revenue (incl. Voiseys Bay) Low political risk: all mines in Canada

Carbon Development Partnership

~12 billion tonnes undeveloped coal reserves/resources ~2 billion tonnes of inferred potash resources (30,000 drill holes) Lands next to existing mines can lead to new royalty creation opportunities Other lands can lead to new royalties, JVs, spin-out companies

Total purchase price: $283 million $124 million cash $40 million equity securities
Stakes in VGQ.TO, CAA.V and FER.TO

$80 million term loan

Scotia, 6%, 4-year term

$50 million convertible sub debt

Sprott Global, 7%, 7-year term

Financing situation is fluid Expecting to close end of April 2014

Post deal pro-forma NAV

Assets Cash (post-deal estimate) Alderon Iron Ore (ADV.TO) Callinan Royalties (CAA.V) Century Iron Mines (FER.TO) Voisey's Bay nickel 0.3% royalty at book value Kami development stage iron ore 3% Royalty @ 5 times estimated annual royalties newly acquired 52.36% stake in coal and potash royalties at 15x royalties Investment w/Cranberry Capital (2260761 Ontario Inc) Carbon Development Partnership at cost Liabilities total liabilities non-revolving senior debt (lender: Scotiabank) Convertible Debt (lender: Sprott Inc) Estimated net asset value fully diluted share count (millions) Per share net asset value estimate -$15.10 -$80.00 -$50.00 $542.24 27.9 $19.44 estimated value (in C$ millions) $5.00 $51.98 $5.66 $2.60 $8.10 $135.00 $415.00 $22.00 $42.00

Income potential
Mgmt has stated its intention to pay dividends
A Wayne Gretzky income stock

Potential C$3.00/share after royalty tax dividend payment

20% yield on current share price by 2017 Share price @10% yield: $30, +100% Share price @7% yield: $43, +186% Share price @5% yield: $60, +300%

Summary: Altius Minerals (ALS.TO)

Excellent, low capex business model Demonstrated potential for 50x-100x returns Excellent balance sheet management Demonstrated ability to make transformative deals at excellent prices
10x increase in royalty revenue imminent, w/potential 30x increase by 2017

High probability of 10% yield in <2yrs BUY up to C$14/share

For 50% off 1 year of Extreme Value: