Plains All American Pipeline Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 10, 2023

There are 7 speakers on the call.

Operator

Thank you for standing by. My name is Bailey, and I will be your conference operator today. At this time, I would like to welcome everybody to the Triple Flag Q1 2023 Results Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

And I would now like to turn the call over to CEO, Sean Usmar. You may begin.

Speaker 1

Thanks, Bailey, and good morning, everyone, and thank you for joining us to discuss Triple Flag's Q1 2023 results. Today, I'm joined by my CFO, Sheldon Vandekoye my Senior Vice President of Corporate Development, James Dendle And I'll also be joined by our Vice President of Talent and ESG, Katie Boyd and our Vice President of Finance, Yibumbari, in the Q and A section. To Slide 4. The Q1 of 2023 was the first since completing the acquisition of Maverick's Metals, which contributed to another record quarter for Triple Flag. This includes sales of 26,599 gold equivalent ounces, resulting in revenue of US50.3 million dollars and operating cash flow of US38.9 million dollars which are new quarterly records.

Speaker 1

We've also seen a more than 10 fold increase in trading liquidity with the addition of many new quality investors to our register, as well as inclusion to the GDXJ, S and P and TSX Global Gold and Selective Global Silver Miners Indices. Our portfolio continues to perform well and the assets that we acquired from Mavericks have shown great progress and continue to reinforce our investment thesis. Operational performance at Camino Rojo and exploration success at Beta Hunt are two highlights. I'm also grateful to my team and the former Maverick's management team, who worked well together to deliver the integration of the two businesses to a high standard and enabling us to achieve the anticipated run rate of US7 $1,000,000 in annual synergies. Finally, I'm very pleased to report that as we celebrate our 7th anniversary as a company and second anniversary of our initial public offering, our share price is up 31% in U.

Speaker 1

S. Dollars and 45% in Canadian dollars with a lot of room to continue to close the gap with our senior peer valuations as we continue to focus on delivering value to our shareholders. I'll now turn it over to Sheldon to discuss our financials for Q1 2023.

Speaker 2

Thank you, Sean. Turning to Slide 5, we had a record Q1 realizing over 26,500 gold equivalent ounces, reflecting the addition of the Mavericks assets to the portfolio. Operating cash flow in the quarter was also a record at nearly $39,000,000 Adjusted net earnings in the quarter was $0.07 per share. Adjusted earnings was impacted by the step up in value of the Mavericks assets on acquisition as well as additional costs in Q1 due to the Mavericks acquisition in the quarter. We remain on track to realize identified synergies of at least $7,000,000 annually from the transaction.

Speaker 2

I also want to highlight that we recorded non cash to cost of sales of $5,600,000 relating to gold sales from prepaid gold contracts. This equates to $0.03 per share. This is purely accounting. This is a non cash expense moving to the income statement. Our cash flow in the quarter was $0.20 per share, to a 15% increase over the corresponding period in 2022 at $0.17 per share.

Speaker 2

Our asset margins in the quarter were 88%, slightly lower than the 90% levels we have traditionally experienced. This figure was impacted by acquisition accounting as metal inventory on Maverick's balance sheet on the acquisition date Was recorded at fair value and then sold during the quarter. Going forward, we forecast asset margins to return to the 90% levels. We also declared our $0.05 per share dividend. Upon payment of that dividend, we will have paid over $65,000,000 in dividends to shareholders since our 2021 IPO.

Speaker 2

I'd also like to comment on our strong balance sheet. Our total cash outlay on the Mavericks acquisition was $146,000,000 consisting of cash consideration paid to Maverick shareholders, cash paid to retire the Maverick's credit facility and transaction costs incurred. At quarter end, we owe $80,000,000 on our revolving credit facility. Subject to new investments we may make, at current metals prices, we forecast that internal cash to our next generation will allow us to be debt free by year end. I'll now turn to Slide 6.

Speaker 2

Slide 6 highlights 3 very important aspects of our portfolio, being asset diversification, precious metals focus in a portfolio which is predominantly centered in the Americas and Australia. Our revenue diversification meaningfully increased with the addition of the Mavericks portfolio. Cerralindo was our biggest contributor in the quarter with approximately 28% of quarterly revenues and no other asset accounted for more than 15% of revenues. In the past quarter, gold and silver accounted for 95% of our revenues, amongst the highest precious metals percentages in the sector. And by geography, the country with the greatest contribution to our revenues was Australia.

Speaker 2

And after Australia, our portfolio was predominantly located in mining friendly jurisdictions in the Americas. I'll now turn to Slide 7. Tripleflag went public in May of to 2021. So we are approaching our 2 year anniversary as a public company. Looking back, I'm proud of the progress the team has made in these 2 years.

Speaker 2

I'm excited about the future possibilities. First, I'd like to look back on our share price performance since IPO. I think it is fair comment that many IPOs disappoint on share price performance. Our IPO investors have been well rewarded for their trust in us as our share prices increased over 30% from IPO, well in excess of our peer group and the JDX performance. In addition, we have declared dividends of over $65,000,000 since our IPO.

Speaker 2

We have increased the scale of the portfolio meaningfully. We are guiding for 100,000 to 115,000 gold equivalent ounces in 2023 as compared to 63,000 in 2020. We see this increasing to over 140,000 in the next 5 years. Our portfolio now totals 229 assets, Increase from 75 at our IPO. We now have 29 paying assets as compared to 15 at IPO.

Speaker 2

Our ESG practices have been recognized by Sustainalytics as we are ranked 4th out of 114 companies. We expect this to continue in the future. In 2022, we increased our dividend and our cash flow continues to grow. In 2022, we also listed our shares on the New York Stock Exchange, increasing access to U. S.

Speaker 2

Investors and in 2023 our shares were added to 3 indices. Triple Flag has made much progress since our IPO and we are well positioned to continue our track record of creating shareholder value. I'll now ask James to speak to some of our portfolio highlights.

Speaker 3

Thanks Sheldon. Overall, portfolio assets are performing well. We expect deliveries from North Park to be back end weighted with open pit mining of E-thirty 1, which hosts a higher gold grade than the current run of mine. In Peru, unusually heavy rainfall caused by Cyclone Yacu affected the region in which Cerralindo is located, resulting in the suspension of production for approximately 2 weeks during March. Nexa expects to increase production in the coming months and has maintained its 2023 guidance.

Speaker 3

Also drilling in the southeast area of the mine is continuing to extend mineralization, which benefits our stream. Camino Rojo, a gold mine operated by Ola Mining and acquired as part of the Mavericks asset, a transaction It's performing the plan and is on track to meet its 2023 guidance of 100,000 to 110,000 ounces. Fosterville poured its 4th millionth quarter since beginning the sulfide project in 2,005, Which is particularly impressive when one considers that the mine had a reserve of around 1,000,000 ounces at the time. Agnico Eagle has reported the abatement trials of the new Low frequency noise was completed in the Q1 of 2023. I believe that the results are promising And they are now being considered by the EPA with respect to the current prohibition notice.

Speaker 3

Agnico has reaffirmed its guidance for the year at Fosterville of between to 295,000 and 315,000 ounces. Corora announced record quarterly results and strong exploration results for Beta Hunt, to an Australian gold mine we acquired as part of the Mavericks transaction. From our perspective, the expense of 2,000,000 tonnes per annum delivers near term growth and the strong exploration results position B2H Hunt for a long future. I'll turn it back to Sean.

Speaker 1

Thanks, James. So turning to Slide 9, Triple Flag transitioned from a private to public company 2 years ago with a concentrated shareholder register with limited liquidity. Our portfolio characteristics compared favorably with our targeted peer set in terms of duration, cost position, precious metals concentration, to our focus on royalties and streams and our jurisdictional concentration in good mining regions. The impediment to our valuation potential was dominated by Our focus remains as substantial owners of this business and continuing to build value for our investors in a disciplined manner as we have done to the prior 5 years since founding the business. We're now very happy to see our shareholder base expand since the Mavericks acquisition as you welcome many new investors into our stock.

Speaker 1

As shown on this chart, our 3 month average daily traded volume in the Q1 of 2023 increased by over 10 times compared to Q4 of 2022, all while continuing to exemplify our belief that to strong management and inside ownership is critical for a successful business. This dramatically improved liquidity profile has been a primary driver of this enhanced investor interest and bodes well for the future as we seek to broaden our investor appeal and ownership, removing an obvious obstacle to closing the valuation gap with our senior peers. We view our alignment with our shareholders as a differentiating part of our business strategy, acting as owners and being prudent shepherds of our capital. So moving to Slide 10. We embarked on a journey 7 years ago to build the next senior precious metal streamer and provided competitive structured finance to an underserved mining sector, while seeking to add value to our mining partners beyond the competitive cost of funding via our approach to ESG, our commercial and technical capabilities and our global networks.

Speaker 1

I believe our track record is revealing the quality of this team and the ability to execute against our strategic objectives. As major shareholders ourselves, our focus remains on disciplined deal execution and value creation, pursuing sensible and accretive deals in a patient manner rather than pursuing growth at any cost. We appreciate the support and trust of our stakeholders and we look forward to providing further updates soon. Thank you. With that, Bedi, happy to answer any questions.

Operator

Thank you. And your first question will come from the line of Cosmos Chiu. Your line is open.

Speaker 4

Great. Thanks, Sean, Sheldon and James for the presentation and taking my questions here. Maybe my first question is on accounting. Just want to dive a bit deeper into the $5,600,000 in the non cash adjustment to cost of sales related to prepaid contracts. Is that has there been a change in accounting policies?

Speaker 4

Is this are these contracts This is related to contracts coming from MAVERICK's, including Oramed. I'm just trying to get a sense in terms of What happened here, if there's any changes and how we should look at it on a go forward basis?

Speaker 2

Hi, Cosmos. This is Sheldon. I can answer your questions.

Speaker 4

Hi, Cosmos.

Speaker 2

As a technical matter, it's not an accounting change, but I I think there might be perceived as something akin to an accounting change because what it is, is the revenue from the prepays come through and this does include the Oramat contract. We had a small prepay on our Q4 statement, but this is just growing in amount and I think that's what gave it a little more prominence. The cost of sales comes through and reduces the earnings, but the bulk of that relates actually to the acquisition cost of the The Orumet contract that we acquired on the acquisition. What Mavericks did previously is it adjusted that out as an adjusting item when it Bridged from earnings to adjusted earnings. But when we looked into this with the accountants, We determined that that wasn't appropriate to do as an adjusting item, but we want to stress it has nothing to do with any issue with the actual contracts.

Speaker 2

It's actually purely accounting and the cash Both fully show up because it's a non cash charge.

Speaker 4

I agree, because I think earnings came in Lower than consensus, but your cash flow came in to bang on. So I agree it's an accounting thing. But on that, like is this recurring, like should we how do we look at it in Q2, Q3 and Q4 coming up?

Speaker 2

Yes. So the prepays, they actually get revalued because they're considered a financial instrument. And then the cost of sales will basically be what the marked up cost is. So when you look at our prepay volumes, In order to determine what that non cash charge would be, it would be the per ounce value on the latest quarterly mark. And so we should be able to work through quite well with that to understand what the cash flow impacts are or sorry, the cash flow impact it flows Currently, the cash flow, what the EPS impact is.

Speaker 4

Okay, great. Maybe switching gears a little bit. Sean, as you mentioned, strong start to Q1 on track to hit your full year guide in the 100 to 115. I know in the past you never really gave us kind of any indication in terms of quarter over quarter, but I'll try anyways. It sounds like There's a North Park shipment that didn't make the cut off in Q1, could come in Q2.

Speaker 4

It looks like RB Platts' Implementation of operations strategies could improve in future quarters. So are we looking at a Q2 that's going to be Stronger than Q1 and how does it kind of look quarter over quarter?

Speaker 1

Yes, Cosmos, I know we'd all like the

Speaker 4

Sort of,

Speaker 1

comfort of more sort of metronomic and reliable quarterly timeframe. But I think it was interesting seeing Bill's comments In his earnings recently, we talked about just the variability particularly associated with streams of business and stream deliveries and you mentioned North Parks. We've got several of those sorts of things where within the period of a year and beyond, you have pretty good line Sorry to that, but your quarterly shipment windows are just not things that I want to opine on just given For example, there you came from New South Wales on rail to port, then all the way crossing the hemisphere to either China or Japan, and there is always room for slippage around the quarter. So I think we feel very comfortable with what we put for the year. James' comments as well on things like Wolf Parks and even things like RB Platts and that with the start of the that should be back end weighted.

Speaker 1

But I think you're still going to see some of the variability around windows or periods and you saw that last year, right?

Speaker 4

I think

Speaker 1

within the fullness of the year revealed itself, But you still get the variability on quarter to quarter.

Speaker 4

Great. Maybe one last question. Nevada Copper, I guess yesterday they announced a bought deal. So I just want to understand the situation. It sounds like They have likely over $100,000,000 committed.

Speaker 4

I guess my question is in 2 parts. Number 1, how much more is Triple Play in terms of commitment for further sort of capital injection. It sounds like $10,000,000 in tranche A, but there is 1 third that's Triple Flag, the $15,000,000 in metal deliveries for a promise that it would be reinvested, another potential increase from $25,000,000 to $35,000,000 in terms of to the credit facility. So how much more is Triple Flag in terms of your commitment on a go forward basis? And then if you can talk They're getting capital injection in total of over $100,000,000 that's sufficient for their underground sort of restart.

Speaker 1

Yes. Look, firstly, we're really pleased with the announcement and I think the very strong support that the sort of key investors between Particularly Paola and Mercuria, who are contributing equity alongside ourselves for this. And look, Randy, Tom Albanese, the team have made some really significant progress. I think The funding which was announced late last year, this is very much consistent with the raises that were anticipated that were needed to for them to finish the ramp up and the estimates are that there should be ample for them to be able to be successful with that ramp up. They've made progress now with the vent fans being concluded.

Speaker 1

They've crossed 2 or 3 dikes, which are on the critical path. And as far as I can see, they should be on track for the Q3 start of the mill, which is an And just to remind you and others on the call, I mean, we've not included ounces from this in the 2022 guidance. It's indeed any ramping assets that's always been our stance. So, I'll give you that as a backdrop. I think the commitment from us and I'll ask Sheldon to comment.

Speaker 1

He's done a wonderful job leading the negotiations on our behalf on this. But it's a modest period where consistent with our business model, we've got a very secure position Overall in the capital stack which we've maintained and we've really spread the cash component of this and have the smallest sort of incremental contribution Of anyone in this period. So, Chuck, do you want to comment?

Speaker 2

Hey, Cosmos. I mean Nevada Copper put out a pretty fulsome release And there's a lot of components to the package, but with respect to us, it's actually quite a bit more simple. It's $115,000,000 package in total. And our commitment under that is just over $21,000,000 and it comes in, in really two pieces. One is, there's a couple of tranches of A2 debt and that's senior debt.

Speaker 2

It's only junior. It's only subordinated to the KFW project financing, But it sits in 2nd lien position. And of the total of 20, we're committing to a third of that. So that will be $6,600,000 And then the other thing that we've committed to is subject to certain conditions, we will reinvest net Stream cash flows of up to $15,000,000 in 2023 2024. And so what that means is deliveries that are made under the stream would be made to us.

Speaker 2

We realize our net proceeds after the ongoing payment And then we'd lend them an equivalent amount of money. And that lending would actually come in at the A2 level too. So that's nice and secure from our standpoint. But that is capped at the $15,000,000 It's only if Nevada Copper needs the funds. And it's also limited to the net cash we need on stream delivery.

Speaker 2

So there's no net new fresh cash outflow on us for that component. So we thought that was quite reasonable from our perspective.

Speaker 1

And Cosmo, I think just one thing to add, which I think is worth highlighting is, the package which was announced really does a lot to clean up the balance sheet for investors coming in. There's I think over $80,000,000 of a pile of debt that is being equitized, which I think it's a welcome development. Great.

Speaker 4

Thanks again, Sean and team. And those are the questions I have. Thank you.

Speaker 3

Thanks, Kuzma.

Operator

And your next question comes from the line of John Burke. Your line is open. And John, if you're speaking, we can't hear you right now. You may need to mute to

Speaker 1

unmute locally.

Operator

All right. The next question comes from Shane Nachsley. Your line is open.

Speaker 5

Thanks. Maybe Sheldon best for you, on the global minimum tax rate, if I recall correctly, Mavericks didn't have any foreign streaming income, and they would have had some tax loss carry forwards in Canada that you could hopefully use to shelter some income as well. But maybe just remind us of what the impact is that you would see from that global minimum tax rate and maybe have approximate impact on your Net asset value if legislation is enacted before, I guess next year.

Speaker 2

Yes. Thanks, Shane. It's something that we along with a lot of other companies are monitoring closely. First of all, just on the Mavericks portfolio, you're right. They All of their income was effectively subject to Canadian tax or tax in Australia or the United States.

Speaker 2

They didn't have the offshore structure that some of the streaming companies do. And we've maintained that. So we haven't moved any other streams offshore. We've maintained the status quo there. In terms of low minimum tax, I mean, the latest statements are the Pillar 2 is Scheduled to come into effect for 2024, the Canadian government has made statements that it implies it intends to to meet this timeline as well.

Speaker 2

We're still waiting for the legislation from the Canadian government, but we expect to see that I believe over the next few months. It's interesting because there's a minimum revenue threshold that's been put out by the G20, which is the €700,000,000 threshold and we're well below it. So if the Canadian rules Are in accordance with the guidance that's been put out to date, we actually would fall below it and we wouldn't be subject to it, which, of course, Would be good. But if you could take the hypothetical that does apply in 2024 and it does apply to us, The impact is fairly muted. It's a less than 4% impact on NAV on our calculation.

Speaker 2

So It's, I prefer not to pay the global minimum tax, but it's not too large in quantum.

Speaker 5

Great. Thanks. And then, Johnny didn't give out quarterly delivery guidance, I understand. But just On Cerralinda, we've seen a few moving pieces. Obviously, they increased their vocational period at the end of last year, had the heavy rainfall in Q1.

Speaker 5

Without, I guess, specific guiding to the quarter, but when would you expect to get to back to, I guess, a normal Delivery run rate for that asset, thinking the latter half of Q3, something like that?

Speaker 1

Yes. Look, firstly, I think we're through the QP Moves that we sort of telegraphed and commented on last year. I mean, it was obviously a fairly sizable commercial move that we'd experienced. And I think the Even though Cirralindo has reiterated or Nexa has reiterated the Cirralindo guidance or NBB guidance For the year, the 2 week window will have some impact on us in terms of timing of deliveries on the quarter. But You can think about, I mean, the run rates have actually been on annualized basis, very robust for us in terms of silver deliveries.

Speaker 1

We expect the same for this year. And In fact, on our 5 year outlook, I think 2025 is seen as being a sizable increase. James?

Speaker 2

Yes, I

Speaker 3

mean, for the quarter, it's sort of generally recently consistent over the 1st 3 quarters of the year, but then We're expecting some increased deliveries towards the back end. So I suppose in aggregate, it's expected to be back end weighted. That was the view we had Earlier this year, we'll have to see if the cyclonic activity in the suspension they experienced impacts that timing. But generally speaking, it was the back half of the year, I should say.

Speaker 1

Yes. Good to say, Cosmos, just a philosophical metaphor for For yourself and Cosmos' earlier question, someone has always been in mining companies where you actually have controls of the reins with finance teams that provide forecasts, Let alone most money companies struggle with and I think what you're doing is seeing through us, we're seeing through finance teams and the uncertainties and variabilities. I know it's stating the obvious, but we're always going to, I think, try and adopt just a fairly level headed view when we put this out because I think you'd appreciate when you look back over time in any of these things, you always have Sort of quarterly variability. I think the annual guidance is the area that we're going to continue to focus on. So I have a little sympathy for the difficulties in the quarterly spreadsheets, but it's very hard to say take the annualized number and divide by 4 because it's just never like that, right?

Speaker 5

Yes, absolutely. Thanks for the call from me.

Speaker 1

Thanks so much.

Operator

And our next question comes from John Tumazos. Your line is open.

Speaker 6

Thank you. And just Elaborating on the last discussion, quarterly earnings are meaningless for gold companies because most of the fluctuation Almost measurement precisions in ore grade estimation to a tenth of a gram. So that It's good of you not to waste your time on quarterly guidance. My question involves How you evaluate new investment opportunities is Triple Flag is so much bigger With Mavericks, with debt almost repaid and twice as many producing assets as the onset, How many professionals with the merged firm are evaluating new investments? Do you read submittals from 3rd parties or investment dealers or whatnot?

Speaker 6

Or do you rely on your own historic relationships and proactively proposing seek deals. For example, Sean would know all of the fraternity of ex Barrick managers from Different waves of regime change at Barrick. It's a big fraternity across the industry. Seeking out deals proactively is One allocation of time as opposed to reactively looking at proposals, please.

Speaker 1

Yes, John, it's great to talk to you. Look, I think as you probably appreciate, we've done most of our deals proactively. We get to see All the bank led stuff and it's not like we're not going to participate in a number of our sort of assets that we've added to the portfolio have come by to the channel, but the vast majority have come via networks and essentially bilateral deal flow. Just this week again, we put out several proposals That sort of via that channel of generative work that we've done, We've seen now we must be approaching 700 opportunities over the 7 years. So you can figure out the amount of shoe leather that it takes to actually convert those into real deals on the other end.

Speaker 1

And some a huge number just go nowhere. Some have a gestation period that occasionally when there's a use of proceeds or a good corporate need and very often that can be in the form of things like People looking as part of their capital stacks in an acquisition or otherwise for a partner that they know, will help structure a deal in a very Sort of reliable and timely way in a competitive fashion, because we often get the question from investors, well, why would a management team Ever do that and not just go out and run a sort of competitive process. And the answer is, if you've got a limited execution timeframe, You want to go to a team that's knowledgeable, has a track record and can actually get things done. And they know that you're not going to jam them last minute in order to squeeze out more basis points or do things that would not help them in the ultimate goal of say landing a deal on an acquisition. So that's the backdrop.

Speaker 1

The earlier part of your question, the Mavericks transaction, as you'd appreciate, they were They added 26%, well, they've got about 20, call it a quarter or so, the shareholders of the business. And There's a lot of duplication of effort. These are we're not adding another mining company. So really what we've done with the integration is we've Been fortunate to bring across Warren Beel, the General Counsel. That's the 1 net addition.

Speaker 1

Essentially, the team, the focus and the capability On the deal making front is the same as it's been for the last 7 years. And a lot of that has been predicated on the way we ran M and A at to Xtrata. I've worked in Beatrice Billiton and other places and deal teams and the way we ran these things in certainly Billiton and Xtrata to me was very effective And that was limit the amount of time and effort you spend on internal process, make sure that you got a smaller high functioning team of individuals to our owners and are highly incentivized, very motivated and utilize external expertise in a very surgical way when you need it for Whether it's technical, commercial, tax, regional capability and we've done that I think to quite good effect over the last 7 years. It allows us to get the information we need to essentially make the best decisions we can in the face of uncertainty And we always use that in coming up with underwritten cases. So, hopefully that answers your question.

Speaker 6

Thank you and congratulations on all the progress.

Speaker 1

Thanks,

Speaker 3

John.

Operator

There are no further questions. At this At this time, I will turn the call back over to Sean Asmar, CEO for closing remarks.

Speaker 1

Yes, Billy, thank you and thanks everyone for the Questions, I know that there's a number of participants as well who are having to try and do this on the fly today and site visits. I really appreciate to the demands in this earnings period on people. Yes, just by way of closing, look, it's been a great start. Most acquisitions, The MBA books will tell you often don't achieve their sort of anticipated benefits, often due to poor integration. The team has done a great job on that.

Speaker 1

These are not complex businesses to integrate. I think you're really seeing the window outside of some of the accounting noise of to why we went about this and you're definitely seeing the benefits in terms of liquidity. And we've got some great new investors and names on the register as a consequence of this As I sit here today, as on our 7th pretty much our 7th anniversary though, and I look at the opportunities that lie ahead, I still don't see a fire hose of new capital available from general sources for this sector. Everyone seems to have found religion more or less on the energy transition and other things. I just think there's a better opportunity going forward than we've seen to date and I think is a very exciting prospect for us to continue to deploy capital and really grow this business.

Speaker 1

So with that, just thank you all. Thanks to our shareholders, our stakeholders And our mining partners and special thanks to my team. Thank you.

Operator

This concludes today's conference call. You may now disconnect.

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Earnings Conference Call
Plains All American Pipeline Q1 2023
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