ROYALTIES & STREAMING
Going Green: Mining Money Flips
A royalty group in Canada is pumping coal revenue into renewables, creating an asset class that doesn't exist yet. “There aren't 20 things going on,” says CEO Brian Dalton. “It's one theme.”
Cattle-ranchers in Texas have one word for the mining industry: renewables.
Alongside corn fields and oil platforms, landowners in Texas are pumping more money into renewable energy than almost any region on the planet. After 10 years of spending, Texas is now one of the world's largest wind power producers, ahead of California and only just behind India. On top of cotton and steak, “we also fuel this economy,” local Congressmen boast.
The state's investment shows how power markets have flipped. The world is going through a one-off “trend break”, according to consultant McKinsey: even without subsidies, renewables are undercutting other sources of power.
Companies in mining, seen as polluting and outdated, don't want to be left behind. Canadian royalty group Altius Minerals generates 20 per cent of its revenue from coal, pulling in C$15m ($11m) a year from royalties the group holds over coal mines in Alberta. Its board plans to pump that cash flow into green energy.
Altius announced a $30m royalty deal earlier this month with Tri Global, a private company in Dallas that has put up 7 per cent of America’s wind capacity. “Ask any farmer or rancher and they will all tell you, being able to make a living off the land is one of God's greatest blessings,” says Tri’s chairman John Billingsley, who has owned land in Texas all his life.
Billingsley is the biggest player behind America's wind revolution: Tri has built a quarter of all turbines in Texas, where more new capacity was added in 2018 than in America's next three state's combined.
Tri builds utility-scale assets, he says, but negotiates its way through planning by drawing hundreds of local investors into each new project. Instead of syphoning-off profits to New York or companies in South Korea, revenue stays “right here, in Main Street America.”
Altius CEO Brian Dalton, who spent most of 2011 travelling in China, points to
the so-called “Asian brown cloud”, a layer of pollution stretching from Beijing to New Delhi. For a month every year, air pollution in China is too dense to officially classify.
Every trend in mining is being driven by that cloud, Dalton says, from rising cobalt output in the D.R.C., to high premiums for high-grade iron ore, to legal battles over water rights to pump lithium brine in Chile. “There aren't twenty different things going on. It's one theme.”
Royalties in wind will be even more valuable than royalties in gold or copper, Dalton believes. Whereas oil and mining assets deplete and roll onto new land, the biggest bottleneck in building a wind farm is planning approval; once a site has been built, it is likely to expand, with ever-bigger turbines generating rising levels of power.
Electricity prices could also rocket: whilst wind blows up through the central US, fracking has created a gas glut on the east coast, depressing electricity, squeezing coal out of the mix. Gas shipments into China are meanwhile rising at 50 per cent per annum to $2.9bn per month. Once America's surplus is cleared, Altius expects energy prices to shoot up.
Already, wind turbines are getting larger. Tri Global recently put up a 120,000-acre complex with turbines taller than the Statue of Liberty. As projects in its pipeline come online, Altius will inject cash in exchange for a 3 per cent royalty.
There is “insatiable” demand for renewables, Billingsley says: from General Motors' factories in Texas to Apple’s data centres in Oregon, companies are out-pledging each other to lock-in clean power. Even oil giant BP agrees: growing at 8 per cent per annum, renewables will overtake gas, hydropower, nuclear energy and coal within 20 years, according to internal forecasts released by the group this month.
Wind turbine costs are down 66 per cent in 10 years, according to manufacturer Vestas, and renewables are growing faster than “any fuel in history”, BP says. “Coal is
the main loser.”
Outside of running Altius, Brian Dalton says he personally drives a diesel pickup, but is building a house in Canada with two charging points.
The wider mining industry is aiming for a transition just as seamless. Rio Tinto has sold $4.2bn of coal mines under CEO Jean-Sebastian Jacques and is instead advancing a lithium project in Serbia. Streaming giant Wheaton Precious piled $390m into a cobalt agreement last June, whilst coal miner Glencore publicly agreed last week that the world is moving to a “low-carbon economy”, capping its coal output at current levels.
Ever since 2013, when Tesla started rolling-out electric cars and China declared war on pollution, quintupling Tesla's share price in 12 months, electrification has been a buzzword that is now feeding into the markets: oil is decoupling from copper, falling 24 per cent since October, sending mining margins up sharply. Air quality in China is meanwhile improving, according to measurements taken by Greenpeace and the US embassy in Beijing.
Brian Dalton has his eye on longer-term moves, betting that renewable royalties will prove just that, generating indefinite cash flow. Having founded Altius in his twenties, the company is now backed by insurance giant Fairfax and its chairman Prem Watsa, known for his punishingly long-term investment time horizons.
When it comes to building companies, Dalton says, they share the same mindset. “The first 100 years are the hardest.”
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