Altius Minerals Corp

Altius Minerals Corp (TSX: ALS) is engaged in the business of obtaining diversified mining royalty. It holds interests in mining operations that produce metals and minerals such as copper, zinc, nickel, cobalt, gold, silver, and potash. The corporation also holds other pre-development stage royalty interests and various earlier stage royalties.

Q2FY20 Financial Highlights: Altius Minerals declared its quarterly results, wherein the Company posted revenue and other income of CAD 10.270 million, declined significantly from CAD 15.185 million in the previous corresponding period (pcp). The lower-income was primarily attributable to a drastic decline in the royalty income due to lower base metal, potash and iron ore prices. Adjusted EBITDA was posted at CAD 10.048 million, down 39% from Q2FY19. The quarter was marked by higher Share-based compensation, a considerable decline in exploration and evaluation assets abandoned or impaired expense, a lower general and administrative expense and a lower cost of sales. The group reported earnings before income taxes of CAD 4.021 million against a loss of CAD 2.881 million a year ago, partially supported by a decline in interest on long-term debt, unrealized gain on fair value adjustment of derivatives and a significantly lower loss from impairment in associates. Net earnings, during the quarter, stood at CAD 4.105 million, as compared to a loss of CAD 1.868 million in pcp.

Q2FY20 Income Statement Highlights (Source: Company Reports)

Risks: Due to the ongoing pandemic, the price of base metals are likely to remain volatile, which may dampen the overall performance of the Company. Further, extended suspension of the production facility would hamper the production.

Valuation Methodology: Price to CF Based Relative Valuation (Illustrative)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendations: The stock of ALS corrected ~14% so far this year, due to a decline in the base metal prices. The group is expected to utilize the cash flows for further investments in ARR, which is a key positive. In order to optimize its growth potential, the group would evaluate the merits of working with strategic co-investment partners and potentially spinning ARR out as a renewable energy royalty public company. The company’s iron ore segment is operating at normal levels and is supported by higher demand and pricing. Further, demand for base metals is expected to rise in the near term as the industrial and manufacturing activities are resuming, which would help in stabilizing metal prices. The management expects that long-term global potash demand is likely to remain positive while prices are likely to remain relatively weak in the near-term. Further, with the increase in the mining activities, we expect an improvement in the royalty income, which is expected to improve the company’s top-line in the coming quarters. The stock of ALS has closed above its 200-days simple moving average of CAD 10.04, indicating a bullish trend. We have valued the stock using Price to CF based relative valuation method and have arrived at a target upside of double-digit (in percentage terms). For the said purposes, we have considered peers like Champion Iron Ltd, Sandstorm Gold Ltd. etc. Hence, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of CAD 10.28 on September 24, 2020.

ALS Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Black Diamond Group Limited

Black Diamond Group Limited (TSX: BDI) is a Calgary-based leading provider of space rental and workforce accommodation solutions. The company operates in Canada, the United States and Australia. The group’s operating segments include Modular Space Solutions (MSS) and Workforce Solutions (WFS).

Q2FY20 Financial Highlights: Black Diamond announced its quarterly results, wherein the company posted total revenue of CAD 37.286 million, lower than CAD 47.346 million in the previous corresponding period (pcp). The decline was mainly due to a ~29% and ~20% y-o-y lower income from Canada and the United States geography. The consolidated number of rental units within the global fleet increased to 13,538 units from 12,246 in pcp, driven by organic growth from the space rentals fleet coupled with the acquisition of the Spectrum fleet assets. Within the MSS segment, utilization stood at 74%, as compared to 75% in pcp. However, rental revenue was down by 9% on y-o-y to CAD 14.4 million in Q2FY20. Gross profit stood at CAD 17.401 million, slightly lower than CAD 17.589 million in (pcp), despite lower revenue, driven a steep decline in the direct costs from Q2FY19. Loss before income taxes improved to CAD 0.246 million, as compared to a loss of CAD 2.285 million in pcp. The quarter witnessed a lower administrative expense, depreciation and amortization, share based compensation and finance costs. Net loss, during the quarter, declined to CAD 0.401 million, from CAD 1.974 million in pcp.

Q2FY20 Income Statement Highlights (Source: Company Reports)

Risks: Black Diamond's cash generated from operations will be dependent upon future financial performance, which in turn will be subject to financial, business, and other risk factors, including factors beyond Black Diamond's control. At the same time, recent macroeconomic shocks in the form of oil price war and COVID-19 pandemic have presented near-term challenges in parts of the group's platform.

Valuation Methodology: Price to CF Based (Illustrative)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: Due to the ongoing pandemic coupled with a weak investor's sentiment, the BDI stock corrected ~28% so far this year. The company's operations were benefitted from the strategic diversification of the company's asset rental platform and have been a prime driver of the company's longer-term vision over in the recent past. Despite a steep correction within the Lodging and Energy Services space, the WFS segment continued to witness strong traction across Australia, coupled with an improves business from mining, infrastructure and disaster recovery customers, which are key positives. Furthermore, within the company's digital marketplace platform for workforce travel and accommodation, LodgeLink, the company continued to expand by adding more than 500 unique corporate customers and more than 1,500 properties, reflecting ~160,000 rooms of capacity listed at the end of the quarter. Currently, the company has more than 5.1 million square feet of rentable space across the platform, and the company is well-positioned to build a stable, diversified, recurring revenue-generating rental platform. We have valued the stock using Price to CF based relative valuation method and have arrived at a lower double-digit upside (in percentage terms). For the said purposes, we have considered peers like CES Energy Solutions Corp, Horizon North Logistics Inc etc. Hence, we recommend a 'Speculative Buy' rating on the stock at the closing market price of CAD 1.54 on September 24, 2020.

BDI Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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