Triple Flag Precious Metals Q2 2023 Earnings Call Transcript

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Provided by Quartr
August 9, 2023

There are 7 speakers on the call.

Operator

Gentlemen, thank you for standing by. My name is Sheryl, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Triple Flag Q2 2023 Results Conference 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

Followed by the number 1 on your telephone keypad. Thank you. I would now like to turn the call over to Chief Executive Officer, Sean Usmar. Your line is now open.

Speaker 1

Thank you, Sheryl. Good morning, everyone, and thank you for joining us to discuss Triple Flag's Q2 2023 results. Today, I'm joined by our CFO, Sheldon Van de Kooij our SVP of Corporate Development, James Dendel and our VP of Finance, Ivan Bari. Moving to the next slide. Our business continues its strong performance during the Q2 with sales of 26,616 gold equivalent ounces, resulting in US41 $1,000,000 of operating cash flow, with our new quarterly records.

Speaker 1

Our portfolio is performing well with many assets experiencing positive catalysts during the quarter such as Deptgold's Phase 2 funding for ATO, Fosterville's Prohibition Notice, which restricted underground activities having been lifted to North Park's mobilization of surface mining equipment for the high gold grade E-thirty one open pit to name but a few. In addition, we acquired a 2.5 percent NSR royalty on the producing Agbaou mine operated by Allied Gold for $15,500,000 which brings immediate GEOs to our top line. During July, we released our 2022 sustainability report entitled Progress in Motion, showcasing our contributions and commitment to helping evolve market leading sustainability performance. I'd encourage you to view this document, which can be found on our website. Also, subsequent to the quarter end, Triple Flag received a rating of AA in MSCI to the CIE ESG rating assessment, placing us amongst the leaders in the gold sector.

Speaker 1

Finally, we're pleased to announce that our Board of Directors approved a dividend increase to US0.21 dollars per share on an annualized basis, which is a 5% increase and is our 2nd consecutive annual increase of the dividend since our May 2021 initial public offering. I'll now turn it over to Sheldon to discuss our financials for Q2 2023.

Speaker 2

Thank you, Sean. We had a record second quarter realizing over 26,600 gold equivalent ounces. This resulted in record revenues, adjusted EBITDA and operating cash flow in the quarter. Net earnings of over $16,000,000 resulted in an increase to our earnings per share compared to the Q2 of 2022. Our operating cash flow of nearly $41,000,000 resulted in operating cash flow per share of $0.20 an increase compared to the same period in 2022.

Speaker 2

The portfolio is performing well and we are on track with our guidance. I am particularly pleased that we increased our dividend by 5% to $0.21 on an annualized basis. We have robust cash flow and the portfolio has embedded future growth that does not require further capital investment. I expect this will allow us to and our track record of increases in future years. In the quarter, we paid out over $10,000,000 of dividends to our shareholders.

Speaker 2

We also returned capital to shareholders through the NCIB in the quarter. We believe that our shares represent significant value and we will be opportunistic in buying back our shares as opportunities present themselves. We repaid $15,000,000 of debt in the quarter with a balance of $65,000,000 at quarter end. This represents less than 2 quarters of cash flow. Lastly, our asset margins for the quarter remained strong at 91%.

Speaker 2

High asset margins are a key feature of the streaming and royalty model and help ensure robust cash flow generation. I'll now turn to Slide 6. Slide 6 highlights 3 very important aspects of our portfolio, namely asset diversification, to Precious Metals focus and a portfolio which is predominantly centered in the Americas and Australia. Our revenue is well diversified across our portfolio. North Parks and Cerro Lindo are the biggest contributors in the quarter, representing 17% 15% of quarterly revenues, respectively.

Speaker 2

We are strongly precious metals focused. Gold and silver accounted for 95% of our revenues, among the highest in the sector. Our portfolio is predominantly located in mining friendly jurisdictions. By geography, the country with the single greatest contribution is Australia. To our Australian producing assets include North Parks, Fosterville and Beta Hunt as well as a number of smaller contributors.

Speaker 2

Outside of Australia, we are largely focused in Latin America and North America. I'll now turn to James, who will speak to our asset highlights.

Speaker 3

Thanks, Sheldon. On Page 7, there were a number of important advances made across the portfolio during the Q2. ATO secured funding package to develop Phase 2 expansion. As a reminder, Triple Flag participated in the acquisition and financing of the heap leach oxide project. Our stream area entitles us to production from the Phase 2 expansion without the need for further investment, representing tangible upside from the original investment case.

Speaker 3

As Agnico Eagle has announced, Fosterville returned to normal operations in June with a noise prohibition lifted. North Park has commenced mining the E-thirty one open pits, which hosts higher gold grades and we expect to see E31 open pit ore processed later this year and into 2024. Cerralindo has renewed access to the high grade area of the mine. It was restricted after heavy rainfall earlier this year. The rainfall event was highly unusual.

Speaker 3

Cerro Lindo is located in a very arid part of Peru. Excelsior announced the JV agreement with Rio Tinto's new to venture to evaluate sulfide heap leaching in Johnson Camp. Johnson Camp is within the stream area and represent additional upside to our underwritten investment case. Excelsior remains committed to the in situ leaching project at Gunnison and is pursuing Johnson Camp with Newton Technologies in parallel. And after a prolonged competitive process, Implant has successfully acquired RB Platt.

Speaker 3

Implant is one of the world's largest integrated PGM producers and bring the strong balance sheet to have a track record of excellent operational performance and productivity at neighboring mines. RB Platts assets are contiguous and complementary to Implant's operations, securing a significant Western Limb production base. To Slide 8. As Sean previously mentioned, in late June, we acquired a 2.5% net smelter return royalty on the producing Agba mine operated by Allied Gold for a total consideration of $15,500,000 comprised of $13,500,000 in cash, plus a non royalty asset that was acquired as part of the Mavericks transaction. To Agba's open pit mine and CIL processing facility with an attractive land package and exploration upside run by a capable team of ex Yamana executives and represents an important asset in Allied Gold's Cote D'ivoire operating hub.

Speaker 1

On Slide 9, as this snapshot demonstrates, Triple Flag is primed to build on our leading growth track record with ample firepower of over US650 $1,000,000 in available liquidity, a broad base of 229 assets and a 5 year production outlook of over 140,000 gold equivalent ounces. We're excited to continue growing Triple Flag into a leader in the sector with our top sustainability ratings and prudent capital allocation decisions. With the management team being large shareholders ourselves, We are completely aligned in ensuring the best outcomes for our stakeholders. With more than 53,000 GEOs sold in the first half of this year, We're on track to achieve near the midpoint of our guidance range for 2023, which remains unchanged at 100,000 to 115,000 ounces. On the final slide, to conclude, our business model continue to prove itself in providing investors with competitive risk adjusted returns and exposure to precious metals through free cash flow generation, diversification, embedded optionality, consistently high margins and a low scalable G and A base.

Speaker 1

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. I'd like to end by thanking our mining partners, our team and the Board for another solid quarter. I'd also like to welcome David Lee to our team, who joins us from Barrick in the role of VP IR. David is a great addition to Triple Flag, who adds considerable capacity to our team as we continue to develop our public market presence. Thank you for your time.

Speaker 1

And operator, please open the line up for questions.

Operator

Your first question comes from the line of Cosmo Chew with CIBC. Your line is now open.

Speaker 4

Great. Thank you, Sean, Sean and James, and welcome, David. First off, you'll be happy that I will not be Any complex accounting questions on this call. I'm actually quite happy about that as well. So with that, maybe my first question is on North Park.

Speaker 4

James, as you mentioned, and Sean, you mentioned this as well, to mobilized mining equipment for the E31 higher grade deposit. I know you said that mining should start sometime later on in 2023, but I just want to make sure, would that contribute to your accounts? Would that come to Will there be any contributions to Triple Flag later on in 2023? And has that been factored into guidance? Yes.

Speaker 3

So I can take this. So North Platte has started mining E31. There's a pre strip element and then there's an oxide element. The oxide will be stockpiled for processing at a future date. The sulfide ore is really what drives production.

Speaker 3

From what we've seen so far, it looks like Sulfide ore will be treated later on this year. There are scenarios where that happens a bit sooner because the sulfide is being encountered further up in the profile than expected, which is good. If it is treated this year and is encountered earlier, Of course, we'll have to see whether it works its way through the concentrator all the way through the sales pipeline to impact positively our Q3 to our results, which is incorporated in part of the range that we've put out to our guidance. If it doesn't come into Q4 in 2023, of course, we'll to see it from 2024. But the mines are making good progress on exposing that sulfide.

Speaker 3

The The sulfide as well as worth mentioning will be treated contemporaneously with the underground ore sources of the mine is mining at present.

Speaker 4

Of course. That's great. And then maybe switching gears, Cerro Lindo, as you mentioned, usually not a lot of rain, but quite a bit of rainfall in Q2 that impeded getting to some of those higher grades. But as you said, sometime in Q3, There will be renewal access to those higher grades. Are we there yet?

Speaker 4

I'm just trying to get a handle on, again, an update in terms of the renewed access.

Speaker 3

Yes. The access looks to be pretty much there. I think it's worth keeping in mind, of course, that there's a couple of dynamics. As you know, this is a zinc copper mine. The highest silver grades tend to be with the copper and the lead.

Speaker 3

So you would get variability depending on the mine's focus between zinc and copper rich areas. And the other element, of course, is that the There is a time delay between production at the mine and production at concentrates and sales under the stream. So whilst they look to be back in the areas they want to be in, there will be a delay in terms of those access flowing through to the stream.

Speaker 4

Great. And

Speaker 1

then Around 4 months. That's typically 3, 4 months, if you recall that delay. Great.

Speaker 4

Thank you, Sean. And then maybe one last question on Nevada Copper, Pumpkin Hollow, sounds very good that Development mining sounds to be ahead of schedule. There's a good number of stockpiles as well. Again, could you remind us when that might start contributing?

Speaker 1

Yes, because look, we're cautiously encouraged with the progress that they're making. They are still guiding to, I think at the end of Q3 to start the mill and hit that 3,000 ton a day and then ramp up towards 5 by the end of the year. That's really what they're working towards. And as you recall, we're taking a sort of cautious stance until they're up at production capacity on that. So That's the stance we've adopted, but we're very encouraged with the progress they're making.

Speaker 4

Of course. Thanks, Sean. As promised, no accounting questions. Sorry, Kjell, but thanks again.

Speaker 1

Thanks, Kurt. Thanks, Kurt.

Operator

Your next question comes from the line of Greg Barnes with TD Securities. Your line is now open.

Speaker 5

Thank you. James, just on ATO, with the Phase 2 expansion. When do you expect that to start to deliver GEOs to you? And what does the GEO profile look like? I know there are Perhaps at some point to kick in.

Speaker 3

Yes. Greg, good question. I mean, the company is and I refer to Step Gold is guiding to the sort of high 20s ish on gold production over the next couple of years as they transition towards building the Phase 2 and ramping that up. Fairly shortly after they ramp that up, we'll be into the cap based on their production expectations. There will be a period where the oxide is coming down in terms of its production rate in the absence of further discovery, whilst the Phase 2 element is ramping up.

Speaker 3

Now that could mean that we're getting more than we do currently or it could mean we're getting less depending on that schedule. Right now, we're not at the stage where we have clarity of around the front end engineering design and the exact scheduling and that ramp up profile. So it's somewhat challenging to say exactly to see what that crossover will look like because as you can appreciate, if you've got 3 or 6 month gap, it can result in quite significant variance depending on The profile of 1 of the oxide and the profile of sulfide. So we're not in a position to provide a sort of firm view on that, but We'll look to we'll ensure that view is reflected in our guidance going forward and of course our 5 year out.

Speaker 1

And Greg, we had a couple of our team members in Mongolia just a few weeks ago, first time since COVID, to look at the progress on-site. They've taken a few selfies with Lots of cyanide stockpiles, so we're very happy to see that. And as you know, I'm pretty encouraged with the transition to Phase 2 and the funding of that announcement.

Speaker 5

Okay. So the Phase 2 expansion, when is construction expected to be complete and will actually be into the Phase 2 mining?

Speaker 3

Yes. Look, I think we're really looking at 2025 before that gets going. But I think it's important to keep in mind that a lot of this Infrastructure in relation to plants is installed by virtue of the first phase. And also the bulk of the primary crushing infrastructure installations has been So they're sort of doing it progressively in some senses, but of course, we won't ramp up until they get through. They need to mine to the oxide before they can access the sulfide in any

Speaker 1

case. Got you. Okay. That's helpful.

Speaker 3

Thanks. And I should just mention that STEP is actively exploring for extension to the oxide. One of the things we noticed when we first looked at ATO is there is a lot of gold mineralization in the area. There is some opportunity to extend the life of the oxide through incremental additions and discovery proximal to the existing operations.

Speaker 5

And would any of those satellite deposits impact the GEO caps that you have or the gold and silver caps that you have?

Speaker 3

It'd be a nice problem to have. So we'll see. I think they could do. But Again, I think we'll have to wait to see what those all sources look like before we can make a determination on whether it hits the cap or not.

Speaker 5

Okay. Okay. Good enough. Thank you.

Speaker 1

Thanks, Greg.

Operator

Your final question comes from the line of Lawson Winder of Bank of America. Your line is now open.

Speaker 6

Thank you, operator, and hello, gentlemen. Good morning. Thank you for the update today. I wanted to ask, 1st of all, on the Agbaou acquisition, congratulations on closing that. So when that asset was sold by Endeavor, I mean, there weren't many years of

Speaker 4

remaining production expected. So I assume Triple Flag must

Speaker 6

see some upside. Production expected. So I assume Triple Flag must see some upside on that mine site. What are you looking for in terms of mine life and annual production? I

Speaker 3

think, Lawson, Allied Gold has done a wonderful job with the assets they've acquired, including Bonachrone and Sadiola of both exploring and developing, cutting costs and optimizing their production profiles. And I think it's probably quite well known they've done that with Sally Ola. And we see the same with Agbaou. The company is actually undertaking the largest exploration program in the history of that operation at present. So they've meaningfully extended the life from when Endeavour sold it.

Speaker 3

And we see quite a promising future in that asset. And I think It's actually helpful that Agbaou and Bonacro form quite a neat operating unit in Cote d'Ivoire, whereas previously they were 2 separate assets So we see quite a few years of life on that asset. I expect to see some public disclosures from Allied Gold that they'll expect to go public later this month. So There'll be reports available in that conference.

Speaker 6

Okay. That's helpful context. And then thinking about the deal pipeline, is Agbaou and that sort of size of transaction the type of thing that you're seeing? Or What is sort of the range of transaction size you're seeing in the pipeline?

Speaker 1

Yes. Wilson, Good to chat to you. So we are obviously, I mean, Agba is a demonstration. We are seeing stuff in that size or snack bracket. We're also continuing to see things in the sort of 100 of 1,000,000 of dollars as we've seen throughout this year, which is sort of quite encouraging.

Speaker 1

The pipeline continues to sort of remain active in that size range that we've seen through this year and not just on to the kind of late development stage stuff that you always see. I think we're continuing to see actionable sort of tens of 1,000,000 to 100 of 1,000,000 of dollars on sort of late stage development and some producing stuff as well.

Speaker 6

Great. Thanks for that, Sean. And guys, maybe if I could also ask one more question just on Presque Isle. I think we've discussed this before on these calls. But now that it's closed, congratulations on that.

Speaker 6

Any updated thoughts on on your thinking on what you see in the feasibility study in order to proceed with that $80,000,000 investment? And are you seeing any early indications as to how you might proceed with that.

Speaker 1

Yes. So I mean, yes, just as a reminder, because I know it's a while ago we announced it. Seeing that close with that gross revenue royalty is important. Seeing the IDC come in as part of that was, I think, a strong vote of to confidence in both that opportunity and the team. It didn't get a lot of attention up here, but certainly in to Australia.

Speaker 1

There were some articles as well on the equity investments that they've had with groups that have got a good track record of sort of modular to mine developments with a view to sort of more rapid ore body access. So they've come into that story, which we're now look quite Happy to see both for the additional liquidity and also the know how and capability that they bring. So from our point of view, you recall, we structured this on the one hand with the gross revenue royalty modest check $10,000,000 Aussie, but the next phase is sort of an option in our favor for $80,000,000 decent return. I think the thing in particular that I'm encouraged by as I look at that is, I've yet to see how Just humanity is going to solve this apparent gap between apparent demand for copper supply and the available sources out there. Brownfield situation with sunk capital and know how with clearly significant mineralization, I think is an underappreciated opportunity and this is like squarely in that category.

Speaker 1

So we're looking to the back end of this year to early next to sort of see where they get to on that study as well as the funding and to make sure obviously It meets our requirements before we make the commitment. I'm very pleased with how it's playing out so far.

Speaker 6

Fantastic. Have a great rest of your summer, guys. Thank you.

Speaker 1

Thank you. You too.

Operator

At this time, there are no more questions. I'm going to turn the call back over to our CTO, Sean Leuchmaar.

Speaker 1

Sure. Well, thank you and thanks for the questions. Thank you for the time. I'm just going to end by remind Sorry, operator, there's a bit of noise in the background. Yes, just drawing to your attention, we've hopefully starting to demonstrate to the investment audience and beyond this team's ability to just sensibly execute, deliver actual ounces, sector leading growth in a very sustainable way.

Speaker 1

And I think this quarter is just yet another demonstration of that high margins, strong cash flow, to a robust balance sheet, a progressive dividend that we've just increased as well and a team that I think is well poised to continue on the journey that we've demonstrated for the last seven and a half years. So with that, thank you for your time. Enjoy the rest of the summer and Well, I'll leave it there. Thank you.

Operator

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

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Earnings Conference Call
Triple Flag Precious Metals Q2 2023
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