“We’re neither a pure play royalty company nor a pure explorer,” explains chief executive and co-founder of Altus Strategies Steve Poulton. “We believe we are positioning our shareholders at the epicentre of the sweet spot in the resources sector. On the exploration side tremendous returns on capital can be generated by making an economic discovery, while at the mining stage a royalty can deliver an almost perpetual revenue stream off the underlying asset, without assuming the project’s operational risks. That’s what we do at Altus.”
The London and Toronto-listed junior stakes ground across the African continent, makes mineral discoveries, partners with leading project developers and gets paid along the way, all while retaining future royalty interest. “We exit the asset, monetise it for our shareholders and retain the royalty interest at the back end. This keeps us nimble and constantly growing,” Poulton says. “It takes a while to develop a portfolio via this model, but the value creation and optionality can be huge. It requires certain skills from management to simultaneously advance and monetise multiple projects in different jurisdictions, as well as shareholders who understand that we are not looking to make a ‘quick buck’. Over time, we believe our model will generate superior returns for our shareholders, for considerably less risk.”
Altus’ high quality shareholder base provides a strong endorsement of its unique hybrid business model. First and foremost, the board owns a combined 20% of the company. This inside ownership has imbued an additional layer of confidence in the management team among institutional backers.
Enter La Mancha
In February 2020, world-renowned resources investor La Mancha acquired a 35% stake in Altus and appointed their CEO Karim Nasr to the board as a non-executive director with the right to appoint another non-executive should they wish. Altus has also been backed by Sprott since 2012 and has several other high profile institutional and high net worth investors which, together with the board, own close to 80% of the share register.
“Why did La Mancha take that strategic position in our company? Because their investment strategy dovetails elegantly with our business model. They are exceptionally strong believers in the African mining sector, having large equity positions in TSX–listed gold producers Endeavour Mining and Golden Star Resources.
“They are also keen to have exposure to the discovery phase, as well as royalty opportunities,” Poulton asserts. “Altus provides exposure to a growing, diversified and gold-weighted portfolio of discovery stage assets in Africa. Our royalty portfolio is now also growing as we are monetising our assets. It really is a perfect meeting of minds.”
The chief executive declares that with La Mancha’s blessing, Altus has plans to expand its portfolio into new jurisdictions on the African continent with new projects, new partnerships and new royalty transactions.
Altus chooses to focus on African opportunities primarily due to the sheer size of the continent and its underexplored nature compared to other established mining jurisdictions. Related to its size and lack of exploration, average depths of discovery are a key factor for the company. Whereas in Canada, average discovery depths are down at 200 metres, in Africa they average just nine metres (outside of South Africa), according to Poulton.
“All the discoveries Altus has made on the continent have been at surface. That means we can move quickly from concept to discovery and – if the asset is of merit – on to monetisation.
“Of course, sometimes along the way it doesn’t work and you have to make a decision to cut your losses in order to not waste your shareholders money. This feature of being able to fold and walk away at the earliest opportunity, is a real strength of our model.”
Cash generating royalties
Since striking its first royalty deal almost a decade ago, Altus has been growing its portfolio of royalties and milestone payment agreements for discoveries made by the company across Africa. At the end of Q4 2020, Altus’ project portfolio contained up to 10 royalty transactions and Poulton expects to see the organic royalty portfolio grow dramatically in the next two to three years as the cycle of the market continues to turn for the better.
In addition, the company is expecting to add to the organic royalties portfolio with some non-organic transactions, which would either be acquired from third parties or Altus could provide capital to companies to create new royalty agreements.
“Taking a longer-term view over four to five years, I’d be very surprised if our royalty portfolio was not substantially larger, was not substantially cash paying and was not more than 50% backed in value by royalties that we’d acquired versus those we’d written.”
By the same token, Altus will look to maintain an approximate 50:50 split between royalties and discoveries on its project portfolio by remaining focused in the African exploration space over the coming years. The company also intends to continue to have an approximate 70% weighting of its portfolio towards gold, in order to offer maximum exposure to the thriving precious metals sector.
“While the royalty companies do quite well and get a good mark up on their prices based on their revenue streams, they simply don’t have exposure to a drill bit discovery that can turn a relatively low value asset into a quarter of a billion dollar one. That is the interesting part of the Altus model that the royalty companies do not share,” Poulton explains.
Current exploration programmes
Diving deeper into the exploration side of the business, Altus is currently advancing three gold projects in Mali, with approximately 20,000 metres of drilling taking place at the assets within a three-month period.
Two of the Malian assets, named Lakanfla and Tabakorole, are being developed in conjunction with the firm’s ASX-listed joint venture (JV) partner Marvel Gold, while the third project is called Diba and is 100% owned by Altus.
“Tabakorole already has approximately 1 million ounces (Moz) resource on it and further drilling is already underway. Meanwhile, Lakanfla is located just 5 or 6 km from the pits of the Sadiola gold mine, which has historically produced well over 10 Moz of gold. Drilling has been completed at Lakanfla and we are awaiting assay results.”
In addition, the company is undertaking up to 10,000 metres of drilling at the Diba project, with around two thirds focusing on targets within the wider licence area and a third within the existing resource, which currently hosts 400,000 ounces of gold.
Altus announced an updated preliminary economic assessment (PEA) for the Diba project in November. Using a gold price of US$1,800 per ounce, the PEA proposes that Diba will deliver around $140 million in net present value (NPV) after tax using a 10% discount rate. This figure is approximately three times the company’s current market cap.
“We have sold two gold projects in Mali to TSXV-listed Desert Gold and two gold projects in Côte d’Ivoire to TSXV-listed Stellar Africa. We also have a JV with Resolute Mining in Mali,” says Poulton.
Elsewhere on the continent, Altus has 100%-owned gold and copper discoveries in Northern Ethiopia and copper and silver discoveries in central Morocco, amongst other projects and royalty agreements in the likes of Liberia and Cameroon, where the company has made bauxite, gold and iron ore discoveries.
Shareholders of ASX-listed Canyon Resources recently agreed the issue of a further 10 million shares to Altus in respect of its former bauxite JV in Cameroon. Canyon is rapidly advancing Cameroon’s world-class Minim Martap bauxite deposit. Poulton describes the firm’s management of multiple assets, partners and royalty transactions in multiple jurisdictions across Africa as ‘a distinct blend of art and science’.
“We are going to grow our portfolio in Africa into new countries with a primary focus on the gold sector, but also in commodities like copper. Having diversification is a real value add to our shareholders. Geopolitical and commodity risks are a real and present threat to all companies active in the resources sector, so it’s good to know that with Altus, you’re not exposed too heavily to any one country or any one commodity.”
The best of both worlds
With a rapidly expanding portfolio in the most prospective region in the world for new discoveries and a self-sustaining royalty generator model, Altus is demonstrating that it can successfully combine the two sweet spots in the mining sector.
Further validation of this model is provided by Altus’ high quality share registry, which includes some of the biggest institutional investors in the mining space. “In particular, with La Mancha’s backing we have the opportunity to do more far-reaching deals and projects. That is all part and parcel of our current decision making process, in terms of our allocation of human and financial resources to take Altus to the next level,” Poulton concludes.