A rush of money into clean energy companies, coupled with intense investor demand for Canadian initial public offerings, has convinced Newfoundland’s Altius Minerals Corp. to spin out its renewable power division through a $100-million IPO.
Based in St. John’s, Altius has historically made money off royalty streams on mining projects. Under these contracts, streaming companies write upfront cheques to help fund developments, then receive a percentage of revenue earned from the resources when they are ultimately produced.
The financing model is common in the natural resources sector, and Altius’s royalty streams are tied to resources such as copper, zinc, potash and coal. But two years ago the company set up a renewable power division to diversify its thermal coal exposure in Alberta, and this arm has been on the prowl for royalty streams from wind and solar projects in the United States.
Globally, mining companies are in a race to dump their most carbon-intensive assets, and thermal coal is becoming one of the most unloved resources. Altius has four coal royalty streams in Alberta, yet the province has announced plans to phase out coal-fired power. The move materially affected Altius because the royalty streams are not expected to produce beyond 2030. The company is now suing the province and the federal government.
To date, Altius’s renewable power push has included two investments in U.S. assets, as well as a joint venture with private equity firm Apollo. Altius Renewable Royalties Corp. is now being spun out and taken public on the Toronto Stock Exchange to raise money for future deals. The parent company will continue to own a majority stake.
The IPO is launching into a frothy market, with the S&P/TSX Composite Index setting a new high last week. Canadian IPOs have also received intense investor demand of late – and shares of a number of newly public companies have soared once they started trading.
While Canada’s recent IPOs have largely come from the tech, biotech and health care sectors, the clean energy industry has attracted heavy investor demand globally because institutional shareholders are on the hunt for companies that promote ESG principles – that is, those with good environmental, social and governance standards.
Altius Minerals expanded into clean energy by acquiring Great Bay Renewables Inc. in 2019, and the business has made two key renewable royalty deals to date: a US$55-million commitment to Tri Global Energy LLC, and a US$35-million commitment to Apex Clean Energy Inc. The projects fall under a recently formed joint venture with Apollo.
At the moment, Altius Renewable has negative cash flow from operations because its investments are still in the development stage. The company lost US$2.9-million over the first nine months of 2020.
Clean energy projects are attracting investors of all stripes, including major pension funds, and there is already talk of too much money chasing too few deals. However, the sector has scores of companies at various stages of growth, and Altius is hoping to fill a need for one corner of the market.
“Despite significant technological advancement in the renewable power industry over the past several decades, financing innovation has not kept pace and there remains a need for alternative financing solutions as the sources of financing for renewable power generation continue to change and evolve,” according to the company’s IPO filing.
Altius Renewable is hoping to sell around 10 million shares at a price between $9.50 and $11.00 each. After the offering, which is co-led by TD Securities and Scotia Capital, Altius Minerals will continue to own between 57 per cent and 61 per cent of the newly traded company.
If the deal is successful, Altius expects to have US$195-million in available liquidity to invest in new royalty streams. The funds will come from both the IPO and additional investments into the joint venture by Apollo.
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Tim Kiladze