Altius Minerals Q3 2023 Earnings Call Transcript

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November 9, 2023

There are 6 speakers on the call.

Operator

Morning, ladies and gentlemen, and welcome to the Altius Minerals Corp. Q3 2023 Financial Results Conference Call. At this time, all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Thursday, November 9, 1023.

Operator

And I would now like to turn the conference over to Ms. Flora Wood. Thank you. Please go ahead.

Speaker 1

Good morning, everyone. Thank you, Ina. Welcome to our Q3 2023 conference call. Our press release and interim filings were released yesterday after the close and are available on our website. This event is being webcast live, and you'll be able to access a replay along with the presentation slides that are on our homepage and under the Investor information section.

Speaker 1

Brian Dalton, CEO and Ben Lewis, CFO, will speak on the call. The forward looking statement on Slide 2 applies to everything we say in our formal remarks and during the Q and A session. And with that, Ben is up first to take us through the numbers. Go ahead, Ben.

Speaker 2

Thank you, Flora. Good morning, everyone. Thank you for joining. Royalty revenue for Q3 2023 was $17,800,000 or $0.38 per share compared to $26,200,000 or $0.55 per share in Q3 2022. Adjusted EBITDA followed the trend of revenue in the Q3, with the overall EBITDA margin being 69% this year versus 84% in the Q3 of The Minerals Royalty segment had an EBITDA margin of 76% 87% for the current and prior year, respectively.

Speaker 2

Both revenue and adjusted EBITDA were impacted by lower commodity prices, primarily potash and the scheduled closure of the 777 minutee at the end of Q2 of last year. Q3 2023 adjusted operating cash flow of 11,000,000 or $0.23 per share compares to $25,900,000 or $0.54 per share in the same quarter last year. The decrease again follows the trend of lower revenue as well as slightly higher interest paid in the current period. Net earnings of $3,500,000 or $0.08 per share compares to net earnings of $11,500,000 or $0.22 per share in Net earnings for the current quarter reflects lower revenues as well as higher interest costs and Marginally Higher G and A Expenses in the Renewable Realty segment, which added a couple of people during last year. In addition, current quarter G and A includes $537,000 for the purchase of voluntary cabin credits related to the 2022 financed emissions, which is based on our calculated share of operating royalties emissions.

Speaker 2

Net earnings for the quarter was also affected by equity losses of approximately $2,900,000 in GBR's investments in BlueStar and Nova. That's 2 Development Stage Renewable Energy Businesses. Adjusted net earnings of $0.05 per share for the quarter decreased relative to $0.20 per share during Q3 2022. The main adjusting Items are unrealized gains on derivatives related to the revaluation of share purchase warrants from Junior Mining Equities, Foreign exchange losses and gains on disposal of mineral properties. ARR reported its Q3 results Earlier this week on Monday, revenue from ARR continued to grow from the addition of several operating projects, which were acquired in the second half twenty twenty two and another project is expected to reach commercial operations before year end.

Speaker 2

Electricity prices increased in the current quarter due to warm weather and increased power demand in certain markets in which GBR has operating royalty interests. On October 31, 2023, GBR announced that had entered into a $247,000,000 senior secured credit financing, which enables TBR to accelerate its growth This agreement represents another strong endorsement of GBR's business model. Brian will speak more on the strong progress at ARR, and you can review the recently published quarterly filings and investor conference Call remarks on ARR's website. I'll now turn to capital allocation and liquidity. We made our regular scheduled principal repayment of $2,000,000 on our term debt during the quarter.

Speaker 2

We also paid cash dividends of 3,600,000 or $0.08 per share to common shareholders and issued 10,860 common shares valued at $200,000 under the Corporation's dividend reinvestment plan. The Board of Directors approved Regular 0 point 0 $8 per share dividend that will be paid to shareholders of record on November 30, 2023 with a payment date of December 15, 2023. The corporation Also repurchased and canceled 275,000 common shares under its normal course issuer bid for a total cost of $5,700,000 during the quarter. In addition, ARR funded $4,700,000 into GBR, representing its 50% portion of new and existing royalty investments. Our current liquidity consists of $16,200,000 in cash at the end of Q3 and we have $93,000,000 in unused revolver on our credit facility.

Speaker 2

ARR had cash of approximately US38 $1,000,000 at quarter end. With that, I'll turn it over to Brian.

Speaker 3

Thank you, Ben. Thank you, Flora. Some higher level observations and commentary from me today as per usual before turning it over to questions. Apologies in advance Prices for most of our commodity exposures continue to hold at levels well below that required to incentivize new supply As the markets continue to be gripped by near term demand side concerns, concerns that seem to be having trouble manifesting despite continuing to dominate sentiments. In the case of copper, the period of disincentivized growth capital investment has now crossed a full 10 years.

Speaker 3

Meanwhile, one of the most common features we have observed following this quarter's reporting by the major producers has been production guidance downgrades, not to mention heightened geopolitical risk and increasing threats to existing major operations as well as several notable pipeline projects. It's all starting to lead us to wonder about whether the widely projected looming copper supply demand deficit missed the memo We also note it with interest that one of the only big new projects to commission recently has updated its capital cost number once again. The result is a CapEx intensity that is more than $13 a pound of new capacity. At our Investor Day in the spring, we revealed that our estimated incentive price Copper had just crossed over $5 a pound on our numbers. But note that this estimate was based upon a production growth CapEx Intensity estimate that was far lower in the $8 a pound range.

Speaker 3

Dollars 13 is closer to today's reality. We are very low on our incentive price call. Potash market, the most fundamentally fundamental non commodity market that arguably We exist, has obviously been on a wild ride on a short term basis and this has played heavily into our recent revenue profile. I felt today it will be worthwhile to reset some context since this topic continues to be a hot one in our interactions with shareholders. Our potash royalties last year were well ahead of expectations because of the spike in pricing that occurred following the Ukraine war and the market's uncertainty around supply availability from the major Russian and Belarusian producers.

Speaker 3

The increased pricing drove global farmers to defer purchases and application to their soils. And as a result, less potash was put to ground than was extracted or mined, if you will, to firming. In other words, soil potash levels have been depleted. It's all pretty simple math. There were 2 key short term impacts in this dynamic.

Speaker 3

Firstly, lower purchasing caused prices to tumble back. And secondly, and more fundamentally, agricultural yields have now decreased due to the nutrient depleted soil. So it should not really be coming as a surprise to anyone, although it does seem to be the case, Interactions and Sales Inquiries. WorldCan't actually afford farm reductions, while overall food demand continues to increase. Also, farmers are recognizing that they are losing more revenue on yield reductions than they save by buying less potash.

Speaker 3

Sales are now in serious catch up mode relative to fundamental demand and prices have stabilized and even begun to turn up in certain markets. Again, That's more than enough to add on recent or short term part of the potash market, which while volatile obviously has ultimately been working and matured. Let's touch on the positive bigger picture potash outlook we've been consistently espousing before we move on. Nothing that has happened over the past 2 years has changed anything there. And in fact, the events have proven to be confirmatory.

Speaker 3

Around 2.7% more potash needs to be applied to global firms every year on average to keep pace with increasing food demand. That's a compound in 2.7 percent by the way. To run that forward and today's 70,000,000 ton global requirement grows by 20,000,000 ton to 90,000,000 tons or so over the next decade and by 50,000,000 tons to 120,000,000 tons total in 20 years and so on. We laid out all of this out in our Investor Day materials earlier this year, together with some scenario analysis around what that will mean for our underlying royalty volumes. We continue to fully stand by this work with nothing from recent events that would make us alter anything.

Speaker 3

As I said, the opposite is true. Hopefully, this also provides context to our shareholders on how widely overblown the market's fixation on the impact of BHP's Janssen project is, which aspires to very gradually introduce 8,000,000 tons of potash into the market over the next decade or longer. The real question not being asked is one of where the rest of the needed tons will come from to keep the world fed. We believe our mines are going to play a key role in that. Iron ore saw another decent quarter in terms of pricing and it also seems to have missed a memo that it is supposed to be trading far lower Despite another tough quarter in terms of production at IOC, you guys have been having a hard time catching any breaks, but I do think they are putting in the effort and the capital to get the ship ready.

Speaker 3

We also have continued to hear from Champion about continuing positive technical progress and demonstrating that CAMI can produce an ultra pure and Ultra Rear Doctor quality project product as it nears completion of the project feasibility study. I highly encourage our shareholders access Champion's latest quarterly newsletter that is available on its website to get a better handle on the macro scale developments underway We're driving outsized demand for this type of material relative to more traditional types of iron ore. ARR made huge strides during the Order in terms of advancing pipeline of new royalty financing opportunities, and perhaps more importantly, in securing the liquidity required to execute upon these opportunities. When it negotiated a new US247 $1,000,000 green credit facility. The equity and debt markets have really deteriorated Renewable sector more broadly over the past couple of years, it's a need for capital and new production capacity has continued to increase.

Speaker 3

It's a perfect storm of opportunity as far as we can see and has very strong parallels with events and sentiment conditions that we and most of the other established mining royalty companies back upon so fondly when recollecting the 20 fifteen-twenty 16 period. ARR royalties continue to ramp up nicely and this is coinciding well with the end of coal royalties stemming from our portfolio as we had hoped. Genesee Power Plant is nearing completion of its conversion to gas in accordance with regulatory requirements. I should also point out that a hearing is scheduled in Alberta later today of our appeal of an earlier decision to dismiss our claim against the governments of Alberta and Canada relating to the de facto expropriation of our Genesee royalties. We will keep you posted on how this goes once the decision is released.

Speaker 3

Finally, on silicon, there's not much new to report following the significant update provided last quarter. However, the operator has noted that it continues to expect to complete the resource declaration for the Merlin deposit The concept study for the expanded silicon project, which includes silicon and Merlin deposits in the current quarter. It reiterated that the study is, and I quote, evaluating opportunities to capture synergies from increased economies of scale and integrated infrastructure So that's it for my prepared remarks. We'll now turn things over to questions. Thank you.

Operator

Your first question comes from the line of Adam Schwartz, Klumbeck, Fair Value Partners. Please go ahead.

Speaker 2

Hi, good morning. Thanks for taking my question.

Speaker 3

Could you comment a little bit about

Speaker 2

your thoughts on capital allocation and aggressive the potential progressive Levels of buybacks and

Speaker 4

how you weigh that versus stating for the future, paying down debt, investing in new projects in the current climate, Just given where the equity is trading, just curious how you think through those decisions?

Speaker 3

Yes. So when we think about the buyback, 1st and foremost, we look at it not in the traditional bucket of Capital returns, we kind of assess it more like we would 3rd party acquisitions. It almost falls more in an M and A type of So yes, price is definitely a function of how motivated we might be on the buyback, obviously, in accordance with So yes, it's just really we look at what we think the Underlying value of the business is and how the market wants to price it on any given day and that really drives our decision. We've been, I think relatively aggressive throughout this year on the buyback because again, we have Pretty constructive on a lot of developments that are occurring within our business, but that has Weighed it numerous times, I'd say, over the year in terms of what is happening with debt service costs and those kinds of things. But generally speaking, We continue to be not that concerned about our debt levels, but we watch things Closely there as market conditions change.

Speaker 3

And so far to date, the decision has been to allocate Excess capital to the buyback to the full extent that we can and as of today, again, this is a dynamic market, but as of Today, I would be feeling even stronger about that than I would have a week ago. Hope that answers the question.

Speaker 5

It does. Thank you.

Operator

Thank you. And your next question comes from the line of Craig Hutchinson from TD Securities. Please go ahead.

Speaker 3

Hey, good morning guys.

Speaker 2

Hey, Craig.

Speaker 4

Just a question on the potash Volumes per se, obviously, we're seeing growth from Mosaic and Nutrien. Any sense just based On the indications that they've made going into next year, what type of volumes you guys might see on your royalties in terms of maybe

Speaker 3

I won't try to quantify that directly, but I'll point out Couple of items. There were some big turnarounds at the operations in the Q3 like when you particularly if you look at Mosaic, They in order to meet that extra demand that came at them in the most recent period here, they had to restart Collins and provided incremental tons there. But that was partly a function of a major turnaround that Underway at Esterhazy. And I think they've been pretty clear in their messaging that their preference is to maximize Esterhazy production when they can, but it's obviously difficult. They're basically completing the ramp up of K3 and some debottlenecking work.

Speaker 3

I believe they're talking about mid next year that that's fully complete. So we'd expect more of their overall production to come from Esterhazy where our royalty exposure is Going forward and similarly at Nutrien, Cory was on big turnaround and whatnot this year. And sure, we're all looking pretty hard at Just overall optimizing production going into next year as they see this big demand surge. So Again, some of the muted volume this year was less a function of overall market conditions and more just Operational decisions and project level turnaround type work that occurred at the operations. So Taking advantage of the low prices to do necessary work at the operations to tune them up when markets are better.

Speaker 3

We're pretty constructive on next year.

Speaker 4

Okay. Maybe just a follow-up question just for regards to market conditions in general. I listened to the Altice Renewables call the other day. It sounds like there's obviously a flood of opportunities there given some of the constraints for access to capital. And in your opening remarks, you kind of mentioned some cost overruns we're seeing on the base metal projects out there as well.

Speaker 4

Are you starting to see opportunities, More opportunities in terms of the base metal royalties just given some of the capital overruns we're seeing and the cost of capital going up?

Speaker 3

The mixed element to that because I think as everyone else looks at Other people's projects and big cost blowouts, they start to get more suspect of their own projects. In many cases, anyone that has Kind of stuck in the pipeline, their capital estimates probably are starting to feel very stale right now. And I would expect Not excited about what new numbers might look like. So there's a real hesitancy out there. There's no incentivization in terms of price.

Speaker 3

We're below incentivization. I think the real question now is just how far below it we really are. So I mean until Operators can get more constructive on all forms of capital being available. There's not much New project finance work getting done that would give us kind of Opportunity to play. We're continuing to look pretty hard at bigger picture, longer term development stage stories and trying to Handicap, just which projects in the world are going to be the ones that will fit into the When it really starts to build up and when incentivization pricing does arrive with maturity month.

Speaker 3

And that's getting harder too because that added layer of not just the technical Elements now like a political risk has never been higher and handicapping exercises. I'm telling you, the cement copper is scary from one perspective and tremendously exciting on the other.

Speaker 4

Okay, great. Thanks. Thanks, Brian. Appreciate the comments.

Operator

Thank you. And your next question comes from the line of Adrian Dey from Adrian Dey Asset Management. Please go ahead.

Speaker 5

Yes. Good morning. Two quick questions. The shrinkage in margin, is that Entirely due to the reduction in revenue and then the second or other factors. And then the second question, I may have missed it and if I do, I apologize, on Sami, when are you expecting the updated feasibility?

Speaker 3

Yes. Thanks, Adrienne. On the first one, on the margin, it is pretty much that because there's a fixed cost component To the business when you consider that we maintain the project generation business at stable levels. In fact, we often step things up when things are uglier. Yes, so the fixed cost relative to revenue, costs don't go up dramatically when revenues go up They stay the same when they go down.

Speaker 3

So that's your margin compression right there. We've got some flex in that, but we're not Making big adjustments to the business just because sentiment is weak for a period. As far as Kami goes, it's not Perfectly clear as to when that announcement is going to come. I think on the last call, I heard from Champion, they talked about Maybe before the end of the year, if not very early in the New Year, somewhere in that pretty soon in either way.

Speaker 5

Okay. Yes, pretty soon. Thank you.

Operator

Thank you. Ms. Wood, there are no further questions at this time. Please proceed.

Speaker 1

Thank you, Yna, and want to thank everybody for joining today and for the questions. And we'll look forward to speaking to you after Q4 results.

Operator

Thank you, ladies and gentlemen. That does conclude our conference for today. Thank you all for participating. You may all disconnect.

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Altius Minerals Q3 2023
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