Altius Minerals Corp

TSX:ALS

Earnings Call Transcript 2024-Q1

[Operator]

Good morning, ladies and gentlemen, and welcome to the Altius Minerals Corporation Q1 2024 Conference Call and Webcast. [Operator Instructions] Following the presentation, we will conduct a question-and-answer session. If at any time during this call, you require assistance let press star for the operator. This call is being recorded on Thursday, May 9, 2024. I would now like to turn the conference over to Stephanie Hussey, VP of Finance, who is substituting in for Ms. Flora Wood in Investor Relations. Please go ahead.

[Stephanie Hussey, executive]

Thank you, and good morning, everybody. Welcome to our Q1 2024 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 this call, along with the presentation slides that have been added to our website at altiusminerals.com. 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 our Q&A session. And with that, Ben will take you through the numbers.

[Ben Lewis, executive]

Thank you, Stephanie, and good morning, everyone. Royalty revenue for Q1 2024 was $17.4 million compared to $21.4 million in Q1 2023. Revenue and adjusted EBITDA for the quarter were impacted by lower coal and potash revenue and partially offset by the growth of renewable royalty revenue, which we present on a consolidated 100% basis. The Minerals Royalty segment had an EBITDA margin of 75% in Q1 2024 compared to 86% in Q1 2023. The current quarter's margin was also impacted by higher professional fees associated with the Silicon arbitration. The Renewable Royalties segment had an EBITDA margin of 75% and 36% for the current and prior year quarters, respectively, reflecting the growth in the renewable royalty revenue.Q1 2024 adjusted operating cash flow of $5.5 million compares to $4.5 million in Q1 of last year. The increase is largely reflective of lower cash taxes. Q1 2023 included foreign taxes paid of [ $903,000 ] to Chilean tax authorities in relation to a distribution of funds received in 2022. Net earnings of $4.8 million or $0.10 per share compared to net earnings of $5.5 million or $0.11 per share in Q1 of 2023. The Renewable Royalties segment included GBR's noncash equity losses of $1.9 million related to early-stage development investments as well as $1.6 million in interest expense related to GBR's new credit facility. Net earnings for the quarter were also affected by the highly higher cost of sales on our Chapada copper story. Q1 2024 adjusted net earnings of [ $0.07 ] per share is consistent with the first quarter of 2023 and includes adjustments for realized and unrealized gains associated with derivatives as well as foreign exchange revaluations. ARR reported its Q1 2024 results on May 2, and details can be found on ARR's website. ARR is expected to continue its trend of revenue growth with the Q1 commencement of operations at the Canyon Wind project. The expected near-term commencement at the El Sauz wind project and the recently acquired Angelo Solar project, which is expected to contribute revenue in Q4 of this year. I'll now turn to capital allocation and liquidity. During the quarter, we made our scheduled debt repayments of $2.0 million, a cash dividends of $3.6 million, and issued 7,800 common shares under the corporation's dividend reinvestment plan. The corporation repurchased and canceled 429,000 shares under its normal course issuer bid, or a total cost of $8.2 million during the quarter. The Board of Directors also approved a [ $0.09 ] quarterly dividend, an increase of 12.5% from the previous quarterly dividend. This dividend will be paid to shareholders of record on May 31 with a payment date of June 14. Our current liquidity consists of $10.5 million in cash at the end of Q1 2024. And we have $93 million in unused revolver room on our credit facility. ARR held cash of USD 67 million at the end of Q1. In addition, on May 2, Altius Minerals received $9.6 million from Adventus Mining Corp. On settlement of an outstanding loan receivable, all part of Adventus' plan of arrangement with the Silvercorp announced on April 25. We continue to hold a 2% next month of return royalty on the Curipamba-El Domo project, which with the acquisition by Silvercorp appears to be fully funded and awaiting a construction decision. And with that, I'll turn it over to Brian.

[Brian Dalton, executive]

Thank you, Ben, and thank you, everyone, for being with us today. Last quarter, we noted that the widely forecast looming supply-demand deficit in copper is no longer looming. It has begun. This seems to be gaining broader market recognition now with a meaningful price [ response late ]. A couple of years ago, we would have said that current prices were getting close to incentivization. This is not the current case though, as the capital and operating cost increases in the industry over that time have pushed that bar significantly higher. Things are heading in the right direction. Lithium prices continue to show signs of stabilizing as higher cost production is forced from the market and broader price discovery for this nascent commodity continues. The same can be said for nickel in some ways as the ability of new production from Indonesia to drive down the cost curve seems to be reaching its limits as near plan high-grading opportunities in that region have now exhausted themselves. Potash continues to show demand recovery at current price levels and to be reverting to its long-term global demand growth trend line. We also note that Mosaic continues to drive up capacity at Esterhazy through incremental investments and that operation can now boast to being the world's largest potash mine. As an offset to the end of coal royalties within our portfolio, ARR had another strong quarter with continuing ramp-up of renewable energy royalties, both from existing investments as well as new investment deployments. The new investments have been able to utilize the nondilutive debt facility that was put in place last year. This has been important given that equity valuations for the sector continue to be weak, with the [ TFX ] Renewables index now trading at 1/3 of the levels that date and the time of the ARR IPO just over 3 years ago now. To put this in context, if ARR's performance and simply match the relevant index since IPO, it would now be trading at less than $4 a share. But kudos to Frank and the team for that relative outperformance as they've successfully seized upon the long-term opportunities provided by the depressed conditions.It is also worth noting here that subsequent to the quarter, our appeal of our coal expropriation lawsuit we dismissed by the Alberta Court of Appeal despite the contrary guidance at the Supreme Court of Canada provided last year. In essence, it said that it did not want to uphold law that would cause governments to pay for private property expropriations when making regulatory decisions on environmental grounds. We never in this entire process ever objected to the right of government to make regulatory decisions for whatever reason the [ deem fits ], including an environmental or climate change grounds. We merely argued that its decisions caused the effect of -- if those decisions caused the effect of expropriation of pre-existing property rights and compensation was due, a position that [ NGL Group ] spot strenuously against, including as interveners in our case. We believe still that the SEC decision agreed with our position, but apparently, the Alberta Court of Appeal felt that protecting the public purse was more important than protecting Canadian private property owners from uncompensated government takings. It is a sad day for the law and property [ rates ] in Canada, in our opinion, and one that should give all land owners and investors do pause. We still find it ironic that in the year that we made our investments in Alberta, it was deemed as the safest mining investment jurisdiction in the world by the Fraser Institute. Our only potential future course from here is to appeal, be heard by the Supreme Court of Canada. This is not a light decision by any means, however, and when we continue to deliver at on with our counsel. In iron ore, benchmark prices were very volatile, first declining significantly, but since rebounding nicely as steel margins show improvement. IOC had a better operational quarter after recent issues and continue to invest strongly in refurbishment and growth initiatives. We talked about Champion positive study results for Kami during our last call. I won't repeat here other than to note that it continues to advance next milestones.We understand Champion and continue to be busy with efforts to partner the project, and it has now registered the project environmental assessment materials. Silicon. Wow! Subsequent to the quarter, we got a first look at AngloGold Ashanti's current conceptual level mining plans for Merlin, for which we published a more than [ 9 million ounce ] maiden resource during the quarter, while noting continuing good growth potential. What really stood out on this is the potential impact on early years production rates that the higher-grade domains offer. If these plans are realized upon, Merlin alone will represent one of, if not the largest gold mine by production rate in the world at its peak. Incredible!This is before even considering the date the silicon deposit resource area and the ongoing exploration potential of this newly recognized world-class gold system and district. Also, subsequent to the quarter end, we completed the in-person hearing portion of our arbitration to determine the full geographic extent of our royalty rights in the silicon district. Both sides are scheduled to file post-hearing briefs and reply by May 28, and then we will await the decision of the arbitrators. It should also be noted here to avoid any confusion that the vast majority of currently known resources at Merlin and all of the known resources at silicon are not in dispute. The arbitration deals with the broader district scale land holdings that AGA has consolidated. And with that, I can turn it over to questions.

[Operator]

Thank you. [Operator Instructions] Your first question comes from Brian MacArthur with Raymond James.

[Brian MacArthur, analyst]

Just following up on the last comments for silicon, which is obviously very exciting. Can you just go through how the process works after May 28. Is this something that can go on for years and get [ appealed to appeal ]? Or what's your understanding of how this resolution will happen because I guess then it probably impacts how you look at potentially creating value with this asset?

[Brian Dalton, executive]

Yes. So the arbitration clause in the agreement is -- it's completed on our international arbitration laws using [ BC ] as a base. The decision is binding. So really the only way to appeal binding arbitration decision is if there's some material error in law. These are very professional arbitrators, I can't really speak to how long it will take them after receiving final submissions to make their decision, but they again, it's a dedicated tribunal to this case. It will get their full attention.

[Brian MacArthur, analyst]

And given, as you mentioned, the high production rates in the early years potentially at silicon and I realize it's still preliminary. Is there any -- have you changed your views about potentially looking at all options to monetize the value here, whether it be swapping, selling? Or is it just better to keep it now?

[Brian Dalton, executive]

I think we're looking at it still pretty much the same. All options are definitely on the table where we'd be open to a sale, particularly if it involved assets coming our way. But again, silicon, we said this before, is a deposit that ticks all the boxes that Altius looks for in terms of [ churn ] upside, continuing upside potential, large scale, good counterparty, long life, expandable. So we're also quite open to the idea of having it what it looks like now is probably a very core part of our portfolio if we choose to maintain it.

[Brian MacArthur, analyst]

And my last question just relates to the junior portfolio. Just a couple of questions. In that $45.4 million, maybe this is for Ben. I assume that's where the origin royalties position is? And then the second thing is the Adventus receivable in that $45 million? Or was that sitting somewhere outside? And my third question related to [ happen ] is just where does that Adventus loan receivables sit on the balance sheet now?

[Brian Dalton, executive]

Yes. The Adventus loan receivable is not included in that. And your first question, I think you were asking about the other word -- origin shares. So the origin shares are included in that. And yes, I can't recall exactly when we exercised the warrants. I think it may have been after quarter end, but so just the value of the warrants would be in there -- at the quarter end.

[Brian MacArthur, analyst]

Right. That's what I'm trying to figure out. So you would have -- you're going to get more cash in from the Adventus -- that $9.6 million, the loan outstanding would have been forced, you're going to have an extra cash and a profit over and above that $45.4 million, right, for a in resulting in this going forward.

[Brian Dalton, executive]

Okay. Great. I just wanted to clarify, I wasn't right always hard to tell exactly what the net $45.4 million.

[Operator]

[Operator Instructions] There seems to be no further questions at this time. I will now pass it back to the speakers for any closing.

[Stephanie Hussey, executive]

Thank you. I don't have anything else, but thank you very much for joining our call today, and we look forward to speaking to you guys again at Q2.

[Ben Lewis, executive]

Thanks everyone.

[Brian Dalton, executive]

Thank you.

[Stephanie Hussey, executive]

Thanks, take care.

[Operator]

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.