When Radar first looked at the company back in late 2011 we were impressed with the pedigree of management in led by James Brown, who had developed big coal assets in Indonesia for New Hope and had its foot on the Tabalong Coal Project in South Kalamantan, which was slated to produce about $15 million in a year in revenues. It also had a 30 per cent interest in the Mt Webber iron ore project being developed by Atlas Iron, which owns the other 70 per cent.
Fast forward two and a bit years and how things have changed. Altura’s fortunes rest not on coal mining, but on iron ore. And fortunate is a good way to describe Brown and his team at the helm of Altura, but wily is another adjective you could use. At 19 cents the mining junior has a market cap of $89 million and it also has its hands on some cash after last week it announced the sale of a mine in Western Australia for $4.5 million.
Shareholders in Altura will be more than happy if the mining junior’s 30 per cent interest in the Mt Webber turns out producing $50 million in free cash flow a year for the next six years for Altura, instead of its current run rate of $20 million. In either case, Brown and his team have negotiated with Atlas some pretty good conditions, which mean that Altura’s capital commitments are at the bear minimum, chiefly because Atlas needed Altura’s approval for the development plan. Atlas also had contracts and port commitments that had to be met, so Altura was always in a strong position.
Mining has started and iron are sales are to commence in the next couple of months, and at Atlas’s last quarterly it flagged that it wanted to increase the production from 3 million tonnes a year of direct shipping ore (DSO) to 6 million tonnes. We understand that a confirmation of this decision is imminent. On the basis of Mt Webber Altura is easily outperforming its peers, says Patterson Securities analyst Matthew Trivett: “The excitement in the stock is iron ore, but its coal assets have potential. You have to say that not many junior resource companies that are cash flow positive these days.” The Indonesian Tabalong coal project is being held up due to permitting problems which don’t look at being resolved any time soon. The company also owns a third share in a private Indonesian coal company, Delta Coal, which is producing 1.5 million tonnes of the black stuff. We forgot to mention that Altura also owns some tenements with iron ore potential in the Pilbara.
Isn’t it still confusing though, taking money out of the Pilbara and putting it into Indonesian coal?
“I view Altura as a vehicle to harvest cash,” says Trivett. How many junior miners could you say that about?