Altius Minerals Q2 2023 Earnings Call Transcript

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Provided by Quartr
August 9, 2023

There are 7 speakers on the call.

Operator

Morning, ladies and gentlemen, and welcome to the Altius Minerals Corporation Second Quarter 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 Wednesday, Wednesday, August 9, 2023. I would now like to turn the conference over to Ms.

Operator

Flora Wood, VPIR and Sustainability. Please go ahead.

Speaker 1

Thank you, Hilda. Good morning, everyone, and welcome to our Q2 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 of the webcast along with the presentation slides that are on our website and on the webcast site. Brian Dalton, CEO, will speak on the call And we have Stephanie Hussey, VP Finance speaking today as she's substituting for Ben Lewis, our CFO.

Speaker 1

We also have Lawrence Winter, VP, Generative and Technical, who many of you know he's here for questions you might have on silicon or on Project Generation. The forward looking statement on Slide 2 applies And with that, Stephanie is up first. Go ahead, Stephanie.

Speaker 2

Thank you, Flora, and good morning, everybody. Royalty revenue for Q2 2023 was $18,700,000 or $0.39 per share compared to $28,600,000 or $0.61 per share in Q2 2022. Adjusted EBITDA followed the trend of revenue in the 2nd quarter. The Mineral Royalty segment had an EBITDA margin of 81%. 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 last year.

Speaker 2

The prior year quarter also included a positive Thermal coal adjustment of $1,600,000 relating to 2021 sales. Q2222023 adjusted operating cash flow of $14,100,000 or $0.30 per share compares to $16,600,000 or $0.35 per share in the same quarter last year. The decrease follows the trend of lower revenue as well as higher interest paid and some working capital adjustments. Our balance sheet is strong and we remain focused on our capital allocation strategies. During the quarter, Altius Received $8,900,000 from Lithium Royalty Corp.

Speaker 2

As a return of capital distribution to the pre IPO shareholders. We expect to receive a further combination of cash and shares over the next 24 months as described in LRC's prospectus. We made $2,000,000 in scheduled principal repayments on our term debt during the quarter, paid cash dividends of 3,600,000 or $0.08 per share to its common shareholders and issued approximately 9,800 common shares valued at 200,000 under the corporation's dividend reinvestment plan. The Board of Directors approved an $0.08 dividend that will be paid to shareholders of record on August 31st, with a payment date of September 15. The corporation repurchased and canceled approximately 98,000 common shares under its normal course issuer bid for a total cost of $2,100,000 during the quarter.

Speaker 2

Our current liquidity consists of $25,000,000 in cash at the end of Q2 $94,000,000 in unused revolver room on our credit facility. ARR held cash of US41 $1,000,000 at quarter end. The combined term and revolving credit balance was $116,000,000 while the market value of our holdings in LIORC, ARR, LRC and the PG Equity's portfolio stood at a combined total of 387,000,000 Subsequent to the quarter, Adventistent announced a US9 $1,000,000 financing, of which US $4,000,000 was provided by Altius in the form of a convertible debenture. The debenture bears interest at 10% per annum and is set to mature by December 31st this year. Altius will have the right to convert the principal and the interest into shares at any time.

Speaker 2

And if the loan is not repaid by maturity, Altius may convert the outstanding amount into a 0.63% NSR. We currently hold a 2% NSR on the Curipamba El Domo project, which is a high grade copper gold project in late stage permitting. In addition, ARR funded $9,900,000 into GBR, representing its 50% portion of new renewable royalty investment deployment. And with that, I'll turn it over to Brian.

Speaker 3

Thank you, Seth. The highlights for me this quarter relate mainly Several items of option value realization progress from preproduction stage assets. These include confirmation that the Silicon project Represents a new world class gold district discovery, continued positive progress from the Saova copper discovery within Chapada district An encouraging indication for metallurgical test work at Champion's Kami iron ore project. Each of these assets hold the potential to add Significant long term royalty revenue growth to our portfolio and this will come with no additional cost or equity dilution impacts to Altius shareholders. At Silicon in Nevada, an exploration target of 6,800,000 ounces of gold was announced by AngloGold Ashanti for the Merlin deposit, while also noting that the deposit remains open in most directions for further expansion.

Speaker 3

This is in addition to the 3,400,000 indicated and 800,000 3rd gold ounces that were reported for the Silicon Central deposit earlier this year. AGA also announced that it is now evaluating both deposits On an integrated production basis, given their close proximity, referring to it as the expanded silicon project. Indeed, we speculate We will be particularly keen to learn what optimized production level range will be determined from that work. This factor now represents one of the largest remaining sensitivities in estimating the value of the royalty. The 1.5% MSR we hold Originally generated through an early stage exploration funding agreement completed by predecessor company Callanan Royalties and that cost around $250,000 We also note that dates have now been set in early April of next year for a BC based arbitration hearing To determine the extent of the lands that our royalty applies to, it's our contention that it extends to include AGA's full consolidated land package Rather than just the land hosting most of the Silicon and Merlin deposits, holds up then several additional known deposits With a current combined endowment of more than 4,000,000 historical ounces in various categories, plus considerable further exploration potential will be added to our royalty inventory.

Speaker 3

At Kami, we understand that Champion remains on track for completion of a feasibility study at around year end. This study is targeting the production of high purity, Doctor, pellet feed material, which is both relatively rare and projected to be in significant deficit in coming years. This is owing to the ongoing transition of the global steelmaking fleet to electric arc furnaces from traditional coal fired blast furnaces. EA furnaces can only input Doctor grade iron ore and scrap steel. During an investor presentation that Champion recently delivered, it commented that its Preliminary metallurgical findings suggest that Kami Ores are amenable to Doctor grade concentration.

Speaker 3

Our cost to originate the Kami project were reported this quarter. Lundin did note in its investor conference call that, and I quote, In February, we announced the maiden indicated resource estimate for the Siouve discovery and view it as the first of many iterations of increasing mineral estimates to come. We are very excited about this discovery and we'll continue to evaluate potential expansion opportunities, best exploit the significant mineral resource base and the growing Suva deposit. We recall specifically viewing the Suva Formiga area as an exciting target for future exploration and option value realization potential at In addition to its LRC equity position, Altius also holds minority partnership interest in 3 LRC royalties, one of which commenced production during the quarter And 2 others are expected to begin operations later this year or early next year. This should introduce the first ever royalty revenue related Among several others in our existing portfolio and reiterated how maintaining discipline around external growth opportunities was particularly critical for us at this time as a result, And particularly so for any situations that might involve corporate level equity dilution.

Speaker 3

Our conviction has only strengthened in this regard since then. Quickly now on the operating stage portfolio, the main factor impacting revenue this past quarter, at least relative to the year ago quarter, Generally lower commodity prices. Production volumes were also challenged by the impacts from plant maintenance issues at Boise Bay and Chapada, Forest fires in Labrador and Quebec that limited IOC production and sales and from constrained potash logistics. These volume issues have now been mainly resolved with better second half signal at most operations. On prices, we do note some stabilization and modest improvement Recently for some, although commodity markets are still acting very choppy and most prices remain well below our estimates of mid cycle incentivization levels.

Speaker 3

ARR continues to ramp up its number of producing stage assets and also added another large developer platform to its portfolio this quarter. U. S. Merchant electricity prices, which were quite weak in the first half as gas prices fell, are more recently being positively impacted by extreme heat conditions And a surge in power demand. Longer term PPA or contracted prices continue to move up nicely in response to industry cost pressures.

Speaker 3

Renewables team at GBR ARR are seeing strong royalty financing deal origination activity as competing forms of capital such as equity and debt remain challenged. At Genesee, Capital Power has announced delays with natural gas based repowering plans and that it now Expect to eliminate coal burning in 2024 as opposed to towards the end of this year that was expected earlier. On Potash, Nutrien has announced that it is pausing investment around its expansion program, citing current market conditions and capital allocation prioritization decisions. We continue to believe that this expansion will be required in the market as global demand growth trends reassert themselves following the recent period of unusual volatility and market Supply uncertainty. Mosaic, on the other hand, announced the completion of a meaningful expansion of Esterhazy's nameplate capacity.

Speaker 3

Lastly, the PG business is also quite busy on the deal making front with several project deals recently completed and in the works that are resulting in new early stage royalties and junior equity positions being added to the portfolio. Despite tough exploration market conditions, we expect option value exposure to reach almost 300 kilometers of drilling this year in our PG business, and this is being entirely funded by our partners. With that, I will open the floor to questions. Thank you.

Operator

Thank you. We will now begin the question and answer session. And we have a question from Carey MacRury from Canaccord Genuity. Please go ahead.

Speaker 4

Good morning, Brian and everyone. Maybe just a question on the balance sheet, just given where interest rates are. Can you Remind us what you're paying on the revolver and is there any desire to pay down any debt quickly? I know the debt was not that

Speaker 3

Dave, do you have that?

Speaker 2

Yes. Yes, we're paying about 7.5% carry on the revolver.

Speaker 3

And what would the term amount be locked in

Speaker 2

The effective interest rate on the term is like 5.5%, I think, right, with all the costs baked in, yes, and the swap.

Speaker 3

Yes. So, Kerry, I guess, as far as how aggressive we might want to be with that, it doesn't Awesome. I mean, we're obviously watching what's going on with interest rates right now. But like, for example, would we raise equity to pay down debt or no? I'd actually probably just in terms of prioritization, I think there's A better argument right now to be made on the buyback than there would be for discretionary debt repayment.

Speaker 3

But again, we'll just have to keep an eye on where Rates go and how we see the ongoing pricing of the company in the market relative to the value. So it's So it's something we watch almost daily.

Speaker 4

And then maybe just switching to potash. I mean, I think potash is A lot weaker than probably everybody expected. Just wondering what your thoughts are on what's going on in the potash market and

Speaker 3

How that's going to look maybe later this

Speaker 4

year or into next year?

Speaker 3

Well, it's a good one. Good question. I think part of it is that it certainly seems now that more production is getting out of Eastern Europe than probably was Originally expected would, I mean the channels that's getting out at are uncertain, but there's obviously product finding its way to markets. That said, the price volatility has probably been the biggest factor that's impacting demand lately. It's kind of like catch the falling knife a little bit and people being fairly hesitant.

Speaker 3

But that said, it does seem that Inventories are getting pretty precarious at this point in time. Hard to make the call, but it does look like there may be some bottoming action in the prices right now. But long term, I think everything is completely intact. There's We're still eating the same amount and the same amount is required and deferral ultimately had to be met with over application. So big picture here, there's really No ship.

Speaker 3

There's just so much volatility. I think it's making it difficult for everyone, particularly farmers to make a call And when to really act, but again, main point here is that nothing has changed in the big picture. There are There is demand growth and there is not enough supply Currently being incentivized to meet that demand. So story is intact.

Speaker 4

Great. Thanks. I'll pass it on. Thanks, Brian.

Operator

Thank you. Our next question comes from Craig Hutchinson from TD Securities, please go ahead.

Speaker 5

Hey, good morning guys.

Speaker 6

Just on the

Speaker 5

hey Brian, you mentioned that there'll be a couple more payments Post the lithium royalty Corp IPO, nice to see you got $9,000,000 in the quarter and there's a couple more in the next couple of years. Can you just give us a sense of How much cash and kind of shares are you starting to receive in the next 2 years and maybe the timing on that if you have it?

Speaker 3

I don't have that on the top of my head to be honest with you, but Where you can source that is it's laid out in schedule in the recent IPO documents that LRC published. So that sort of release schedule for the share tranches as well as potential additional cash payments is All to be found right there.

Speaker 5

No worries. And just on the silicon gold royalty, Obviously, great to see the expansion potential there. What's your best sense in terms of potential start up of production? I I know obviously the pre feasibility studies come out year end, but and maybe just a sense of where do you think the production starts In terms of those targets based on what AngloGold set in the past?

Speaker 3

I think the challenging part of that is still trying to get their Arms around this animal, it's hard to make a definitive call and say this is it, we're going to engineering right now and resource continues to grow at this kind of a pace. I note that because they've integrated Merlin and silicon now, they're not talking PFS, they're back to Concept study PEA and I think that's a function of just the fact that Merlin is not at proper resource category. So there's limit to how far you can go Which study is there? I think end of 2025 is when they're talking about their start up At the North Bullfrog, selling off to the Northeast, but yes, I don't know. I think we'll have to wait till towards the end of the year to get a better handle on When they're actually going to get to the point with delineation drilling and resource modeling To start to ballpark when construction and production could start.

Speaker 3

I mean, Having that date pushed back because the resource continues to grow and the scale of the ultimate scale of the operation Likely continues to expand is a great reason for a delay. It's about the only good reason I can think of for a delay in the mining project. It's too early to call. This thing is growing really quickly. It's a monster.

Speaker 5

Okay. One last question maybe for me. Just you mentioned there's the challenging markets for the exploration development front, which I agree. Are you seeing opportunities for Additional royalties there, you mentioned you've got an active portfolio in the project generation side, but outside of that, are you seeing opportunities For creating new royalties here in this market environment.

Speaker 3

Do you mean at the exploration stage or further out?

Speaker 5

Yes, exploration stage. And further out if you can collaborate on that.

Speaker 3

Yes, look, as far as the Exploration stage opportunities go. I mean, we're just basically monitoring everything that's going on out there in exploration land and Anything really catches our eye, we do get in touch and make proposals, usually combined sort of equity early stage royalty type investments there, but I can't really say that there's lots that's On our plate right now, there's a few things that we're watching pretty closely and a few discussions underway, but it's maybe if we get into the And then a lot more exploration results flow starts to happen. And obviously, the longer it goes here with equity markets for juniors Sort of being closed, the more opportunity that we're going to see just because One of the few conduits to exploration funding that exists when equity markets close. We're poised.

Speaker 5

Okay, great. Thanks guys.

Speaker 3

Thank you, sir.

Operator

Thank you. Your next question comes from Brian MacArthur from Raymond James. Please go ahead.

Speaker 6

Hi, good morning. My question has to do with silicon as well. In the MDAA, you talked about looking at value creation alternatives For that royalty, including a full or partial sale or swap transaction for non precious metal royalty, I got three questions related to that. How do you think about the timing of that given, A, as you mentioned, it's hard to know exactly how big this is? And B, you probably won't get clarity now to mid-twenty 24 in the lawsuit.

Speaker 6

2nd part then is, when you say non precious metals, Would that include renewables or lithium or are those sort of sanctioned in the You can't do it. They all have to go through ARR on the renewable side or Lithium Royalty Corp on the lithium side. And I guess then the final point is, I mean, if this gets as big as you may be seeing, is there even Large enough base metal royalty opportunities out there to effectively redeploy the capital.

Speaker 3

Yes. I guess the way I'll answer that is that just in terms of timing for that kind of a decision, I think you zoned in on 2 key factors. The arbitration is obviously Very meaningful, pretty big delta in total contained ounces depending on how that goes. And I guess the other big The factor that could really impact valuation and this is both from our sense of what it's worth and what potential buyers might think it's worth It's just what is the ultimate production rate that to be quite honest has probably more impact going forward on value right now Just adding more ounces, it's already huge and going to go for decades, but what production rate will it run at that, that will be a Real driver. There are base metal royalties out there that I think can match silicon in terms of Scale and sort of continuing optionality, whether anyone's willing to part with those in trade is It's kind of an open question, but we'd certainly be open to that kind of a transaction.

Speaker 3

And I mean, I won't close the door either. I mean, as this thing grows in scale here to Just being a holder, that's always a possibility. But from a timing perspective, we're going to want to see The study later this year, maybe it's published in early next year and then we've got that hearing coming up, the arbitration hearing coming up in early April. So those are Two big factors that are pretty much sort of required prerequisites to That's really getting our heads around what we're going to do with this royalty.

Speaker 6

Great. Thanks very much for the color.

Speaker 3

My pleasure.

Operator

Thank you. Thank you. At this moment, we show no further questions. I would like to hand the call back to our presenters for any final remarks.

Speaker 1

Thank you, Hilda, and thank you everybody for dialing me in for the questions. And we'll look forward to speaking with you again in Q3.

Speaker 3

Thank you, everyone. Enjoy your summer.

Speaker 2

Thank you, everybody. Thank you.

Speaker 3

See you everybody.

Operator

Thank you. Ladies and gentlemen, this concludes your conference. Please disconnect

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Altius Minerals Q2 2023
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