Longtime readers already know the benefits of focusing on royalty plays instead of standard miners.
Last week, for instance, I brought Franco Nevada (FNV) to your attention. Just a few days later, shares catapulted to new 52-week highs.
Today, I’d like to bring a new opportunity in the royalty space to your attention – one that holds even more profit potential.
You see, while Franco is a killer royalty play, the company is sector bound to precious metals and energy.
With this new opportunity, however, you can gain exposure to the entire industrial space in one fell swoop.
And the company is only now beginning to draw attention from savvy investors.
Industrial Strength Royalties
Altius Minerals (ALS.TO) holds royalty interests in 12 producing assets – including five coal mines and six potash mines located in Western Canada, and Voisey’s Bay nickel-copper-cobalt mine in Labrador.
In the past, the company’s focus has been entirely on Canadian properties. Now Altius is building a portfolio outside the country – starting with Chile.
The company has formed a joint venture with Zeus. The Chilean company will focus on investing in the generation of new early-stage mineral exploration opportunities in the country.
Now, what I really like about Altius is the company’s absolute focus. It simply acquires these royalties, but it doesn’t try to be a mining company at the same time.
After all, the major benefit of royalty companies – especially in depressed markets – is that they don’t have the massive overhead constraints and costs associated with mining.
And its royalties are paying off… big time!
Just one of its projects – Kami, an iron ore deposit – should generate upwards of $25 million in royalty payments for the company, per year, for the next 30 years.
That’s more than $700 million in royalty payments when all is said and done – from just one play!
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Granted, that might not seem like much, until – of course – you consider that the company has a market cap of less than $400 million.
Better yet, Altius’ aim is to return money to shareholders in the form of dividends. What’s the point of generating that much potential cash and not giving it to the people who are invested in the company, right?
To top it off, the company just closed on a C$65-million secondary offering of its shares, at around C$14 per share. The stock is currently trading well below that, at C$12.40. (Shares usually trade lower than the offering price to factor in dilution.)
The company plans to use the money to continue its acquisitions of royalties in the industrial sector.
Bottom line: Industrial materials are often overlooked, as they don’t have the sexy allure of gold, silver, or oil. The lackluster pricing of underlying minerals doesn’t help, either. But with global population on the rise, industrial demand is only going to build going forward. And that works especially well for royalty plays – since they look for long-standing mines and stable underlying demand for continued royalty payments.
I recommend diversifying into the industrial sector by adding some shares of Altius to your portfolio. Potash, coal and nickel may not be sexy, but they’re in demand.
Altius offers you a way to cash in on that demand without betting the farm on one sector or mineral.
And “the chase” continues,
What Gives Royalty Companies An Edge?
Remember, royalty plays are different in that they don’t seek to own, develop, or operate mines.
Instead, they seek to make strategic investments into specific mining operations.
The actual miners receive funding to allow them to develop the mines and participate in most of the upside (should prices rise). In return, the royalty company collects a stream of payments, based on predetermined rates of production and pricing.
In other words, what royalty companies generally give up, in terms of upside and production increases, they make up for in the form of stable cash flow and lack of liability.
They are also protected somewhat during down cycles, since they’re not tasked with funding overhead.