Altius Minerals Corp

TSX:ALS

Earnings Call Transcript 2024-Q2

[Operator]

Good morning, ladies and gentlemen, and welcome to the Altius Minerals Q2 2024 Conference Call and Webcast. [Operator Instructions] This call is being recorded on Friday, August 9, 2024.

I would now like to turn the conference over to Flora Wood. Please go ahead.

[Flora Wood, executive]

Thank you, Mike. Good morning, everyone, and welcome to our Q2 call. Our press release and interim filings were released yesterday after the close and are available on the homepage and on the Investor page of the website.

This event is being webcast live, and you'll be able to access a replay of the call afterwards along with the presentation slides that are added to our website.

Brian Dalton, CEO; and Ben Lewis, CFO are both speakers on the call. With me in the room today are Stephanie Hussey, VP, Finance; and John Baker, our Executive Chair, both can be resources for questions.

And with that, I'll turn it over to Ben to take us through the numbers.

[Ben Lewis, executive]

Thank you, Flora, and good morning, everyone. Thank you for

[Audio Gap]

2024 was $21.8 million compared to $18.7 million in Q2 2023.

Revenue and adjusted EBITDA for the quarter reflects higher base metal prices, higher dividends from iron ore and growth of the Renewable Royalty portfolio, partially offset by lower potash prices and the closure of the Genesee coal mine.

The Mineral Royalties segment has an EBITDA margin of 77% in Q2 2024 compared to 81% in Q2 2023 and was impacted by higher professional fees.

Q2 2024 adjusted operating cash flow of $9.2 million compares to $14.1 million in Q2 last year. The decrease is reflective of timing associated with royalty revenue cash receipts as well as other working capital changes.

Net earnings of $8.3 million or $0.18 per share compares to net earnings of $3.3 million or $0.06 per share in Q2 of last year. The increase in net earnings reflects higher revenues as well as lower amortization offset by marginally higher costs. Net earnings in the quarter were also positively impacted by tax recoveries from recognition of certain tax losses on our coal assets as well as investment income and the settlement of the loan receivable from Adventus.

Q2 2024 adjusted net earnings of $0.09 per share is higher than the second quarter of 2023 and includes adjustments for nonrecurring income, impairment charges and tax recoveries.

ARR reported its Q2 2024 results on August 5 and details can be found on their website, arr.energy.

ARR continues to accelerate its revenue growth with commencement of operations at the 195-megawatt Angelo Solar project as well as the expected Q3 commencement of commercial operations at the 300-megawatt El Sauz wind project. GBR closed a number of new deals, including a $30 million financing of distributed developer Nokomis Energy, LLC; and in July, announced a $40 million bridge loan facility to Nova Clean Energy. Both deals will provide future royalties to GBR related to a portfolio of projects.

I'll now turn to capital allocation and liquidity. During the quarter, we made scheduled debt repayments of $2 million, paid total cash dividends of $3.8 million and issued 15,224 common shares under the corporation's dividend reinvestment plan. The corporation repurchased and canceled 119,300 shares through its normal course issuer bid for a total cost of $2.5 million during the quarter.

The Board of Directors also approved a $0.09 quarterly dividend that will be paid to shareholders of record on August 30, 2024, with a payment date of September 16, 2024.

Our current liquidity consists of $19.2 million in cash at the end of Q2, and we have $93 million in unused revolver room on our credit facility.

ARR held cash of USD 65.9 million plus has additional capacity under its GBR debt facilities at the end of Q2 with sufficient room to fund its commitments and to continue to pursue new opportunities.

And with that, I'll turn it over to Brian.

[Brian Dalton, executive]

Thank you, Ben, and thank you, everyone, for joining us again. I'll start today on our base and battery metals segment. It's 11 years and counting, that's how long it's been now since the copper sector has experienced price-based capital investment conditions. And considering -- we considered against our running estimates of average operating and capital cost intensities for material new mine builds. While it is true that phenomenal copper price reached a new all-time high during the quarter before again retreating, the reality is that operating and capital costs have increased over those 11 years to the point that we now estimate that something closer to $6 a pound is what is required for potential new mine builders to see an adequate risk-adjusted return.

Meanwhile, the existing stock of mines continues to deplete and deteriorate. We are therefore steadfast in our bullishness and well positioned for the when, not if scenario that is before us.

Our particular base and battery metals royalty projects portfolio is advancing nicely despite the market backdrop I just noted. We currently have 3 new projects in late-stage construction, namely, the Eastern Deeps nickel copper cobalt mine at Goethite Bay in Labrador and the Tres Quebradas and Mariana, lithium mines in Argentina.

A few days ago, it was also announced that the El Domo-Curipamba project has received approval from the government of Ecuador to begin construction and operations. This project boasts extremely high grades of copper and gold from a planned open pit, allowing for excellent indicated economics.

With the closing of the acquisition of Adventus Mining by Silvercorp last week, the project is now controlled by an experienced mine builder and operator with ample capital to complete to build. We look forward now to future updates concerning the expected time line for first production and the beginning of royalties from our 2% NSR royalty.

We give a very strong shout-out to the whole Adventus team that overcame such an array of challenges over the past several years to bring this project to this stage. You have redefined the word, perseverance, for me and should feel very proud of your achievements. We look forward to hopefully working with you again on your next endeavors.

We also note that Lundin Mining continues to make positive progress in delineating and extending the depth of the high-grade Sauva copper discovery at the Chapada project. This work is now being factored into ongoing expansion studies for the district.

Turning to potash. It was another quarter of relative stability after the volatility seen in the past few years. Prices held in reasonably well while global consumption is on track to remeet long-term demand growth trends.

Nutrien held its Investor Day during the quarter, and we were pleased to hear that they remain focused on continuing to implement the increased production levels, approximately 8% growth anticipated over the next 1 to 2 years. It also noted the meaningful total demand growth that is expected in the market through the rest of the decade, which we have spoken about often while highlighting their advantaged position to meet this demand from the assets we hold royalties on.

This quarter marks the 10-year anniversary of our acquisition of these royalties, and it is gratifying to note the steady and meaningful volume growth that has occurred since then and to look forward to its continuation for many decades to come. These are very special royalties.

Altius Renewable Royalties had a particularly strong quarter in terms of continuing to deploy capital and meeting the goal of building meaningful scale and diversity for its U.S.-based renewable energy royalty portfolio. The underlying GBR joint venture, of which ARR controls 50% alongside major global private equity player, Apollo, is now on the cusp of reaching USD 500 million in deployed and committed capital, and its revenue and cash flow profile is in the early stages of significant ramp-up.

It now has 12 operating stage wind and solar projects that total more than 2.5 gigawatts and another 700-megawatt project under construction, in addition to multiple gigawatts of development-stage project exposures. Its counter-party [ is saying ] some of the strongest names in the industry, including the likes of NextEra and Enbridge, and the reputation that Frank and the team have established as an innovative and trusted partner has solidified remarkably over the short history since inception. ARR has also noted that it continues to find attractive opportunities against the current weak backdrop conditions amongst competing forms of capital.

This stands in stark contrast with the strong power demand growth rate projections developing in its key markets. These are currently at levels that have not been seen in more than a generation and are being confirmed by a steady increase in long-term contracted power purchase prices.

Turning to iron ore. IOC continued to make progress in its efforts to achieve improved operational stability while continuing to invest meaningfully in growth initiatives. This translated into a strong quarterly dividend declaration from LIORC, the pass-through vehicle for royalties and equity dividends from IOC in which we are a significant shareholder.

Champion Iron noted in its recent results presentation that it continues to advance permitting activities for the Kami project while also continuing negotiations with potential strategic industry partners. It highlighted the recent designation of high purity iron ore, the type which Kami is designed to produce, as a critical mineral by Canada with emphasis on the potential benefits this offers in terms of various financial and other incentives available to support its development ambitions.

Now turning to our Silicon royalty in Nevada. During the quarter, we completed an initial round solicitation process with the key precious metals-focused royalty companies for potential acquisition and/or asset trade interest. This resulted in a number of strong and diverse proposals that have added confirmation to our own view of the rare Tier 1 significance of the asset and highlighted what we think is a meaningful disconnect between how its value is generally being perceived by financial industry versus royalty industry professionals.

We continue to evaluate a short list of the various proposals while awaiting the results of the arbitration that was conducted during the quarter to determine the full geographic extent of the royalty rights.

Following that, we expect to carry out a second round of offer solicitations, and depending upon results, make a determination as to whether we believe some form of a disposition or a hold of the royalty will be the best long-term result for our shareholders.

We would also note that earlier this week, AngloGold Ashanti provided additional results from a 10-rig 66,000-meter drilling campaign that was completed during the quarter at the Merlin deposit. This included a remarkable intercept of 144.5 meters grading 10.53 grams per ton gold, which is likely situated within a future open pit and is oxidized rock material. This was among several other excellent intercepts.

AGA also highlighted, "A significant intercept was recently received from a geotechnical hole drilled 900 meters north of the silicon deposit," that they note underscores the scale and upside potential of the mineralizing system at silicon Merlin.

A remarkable geological story continues to unfold here as we witness the birth of one of the world's truly mega-scale gold district.

Now I'll turn it over to any questions.

[Operator]

[Operator Instructions] Our first question comes from Craig Hutchison at TD Cowen.

[Craig Hutchison, analyst]

Good to hear the progress going on, on the silicon. I guess you said the first and second rounds are kind of proceeding there. In your comments, you mentioned the potential disposition or keeping the royalty. I was wondering if you could just give some comments in terms of like what you're seeing from the counter-parties you're discussing with in terms of the potential to swap the royalty for some type of producing base metal royalty on their side?

[Brian Dalton, executive]

Yes. I think there's pretty limited color I can give you on that at this point just out of respect for the process. But we did receive, I guess, a variety of proposals, some of which did include assets that we think could at least form partial consideration if we choose to sell. But Craig, I really -- I don't want to do anything to disrespect the process really there.

[Craig Hutchison, analyst]

Okay. I guess there are some opportunities, but maybe it sounds like it could be a blend of, if you were to dispose, of maybe the blend of cash and some kind of assets.

[Brian Dalton, executive]

Absolutely.

[Craig Hutchison, analyst]

Okay. Great. Then just on the potash, I know the volumes seem to be ramping up on Nutrien then. Prices are a bit softer here, but any sense in terms of what type of volume growth we should think about in terms of your specific royalties in those potash assets over the next year or so?

[Brian Dalton, executive]

We've got some guidance on that. Nutrien is guiding up by 2026, what would be, I guess, about 8%, 9% volume growth and that's mainly coming just through automation type initiatives and those sorts of things. And they certainly believe that the market -- broader market growth is there for them to hold market share.

I think collectively between Nutrien and Mosaic, our -- the mines that we have royalties on represent about 25% of global production. Look, the way we've always looked at this and then it's -- I mean that can be lumpy year-to-year, but there's about -- there's a pretty good long-term trend line of 2.5% to 3% global demand growth every year in potash.

And these guys have not only been holding market share, but since we've acquired the royalties 10 years ago now, there's actually been some reasonable market share gain along the way. But when we think about the longer term, we just -- and in potash, when you say long term, you really do mean long term. But when we think about, say, 10-year increments here, we just run that 2.5% to 3% number out and use a basic assumption that they will continue to hold market share because there's certainly no resource constraint and there's a lot of technical and geopolitical advantages that those operators enjoy.

So that's kind of how we look at it in the bigger picture. It's very hard, obviously, year-to-year to adjust for that. But in the big picture, that's certainly what seems to be playing out.

[Operator]

Our next question comes from the line of Brian MacArthur at Raymond James.

[Brian MacArthur, analyst]

It also has to do with silicon. So maybe let me ask it this way. In the MD&A, you talked about waiting now for the arbitration before recommencing discussion with interested parties.

Is that, a, you think that's reasonably imminent? So it's obviously going to help you with knowing what you have; b, is it because you've seen something else on the land that's disputed, and therefore, it makes sense to wait; or c, was it just in the deals that came in, the value you got didn't reflect the probability that you could win that. I don't know how much color you can give me on that, Brian. I know you're somewhat restricted, but anything would help.

[Brian Dalton, executive]

The result is, I guess, it's somewhat material is how I would describe it. The majority of the resource and certainly all of the new silicon Merlin and a lot of that remaining upside is in land that are not disputed. So really, what we're talking about is a much broader district scale potential. So longer term, we do see a lot of upside there.

And in the context of entertaining proposals, that upside and how it might get reflected in offers matters. So it's -- again, I think that's the sort of the short and medium term. There's really no -- there wouldn't be a big delta, but in the bigger picture and maybe in terms of the kind of premium that an asset like this might attract in the market, the result of that arbitration is important for us. It's also important for any potential buyers of the asset to consider.

As for timing, we really don't have any more color than you do. Everything is concluded. It's in the hands of the arbitrators now, they've had it for a while. So it could be tomorrow morning, it could be later. We really don't have more guidance than that. But everything is done. There are no more submissions or anything else. It's for a decision and the, I guess, the writing and communicating of that decision are the steps that are ahead still.

[Brian MacArthur, analyst]

Great. That's very helpful color. Second question is just a financial question. So I don't know if maybe it's for Ben. Just in the financial statements, I got a couple of things. On the Adventus deal, you got your $9 million and then there's another $4 million of derivatives. Was that $4 million stuff, was that cash or was that accounting? Because where I'm going with this is when I look at your proceeds at $15 million for the quarter, but then you also had an outflow in Orogen. So I'm just trying to figure out where all those pieces of the puzzle are on the cash flow and financial statement.

[Ben Lewis, executive]

Okay. Well, first, I'll talk about Adventus. So yes, it was CAD 9 million and change, close to CAD 10 million. The original loan amount was USD 4 million and we had accrued interest on that as well, but we did recognize a gain on that obviously when they wanted it settled. So that was grouped in other investment income. So yes, that's all real cash at $9.8 million, I believe it is. That's cash in.

The only cash outflows we had of significance was the purchase of -- we had some warrants and some investments during the quarter. In particular, Orogen comes to mind, and we bumped our interest up to 18% and change. And other than that, it was selling some noncore project generation created investments during the quarter when we saw the opportunities in that. So does that help, Brian?

[Brian MacArthur, analyst]

Yes. So that $15 million is Adventus net Orogen plus some other stuff you sold, all cash. Is that the way I should look at it?

[Ben Lewis, executive]

Hang on a moment. Go ahead, Stephanie.

[Stephanie Hussey, executive]

This is Stephanie. Ben, [ this is just sitting ] in the cash flow statement there as proceeds from our payment alone. So the $5.3 million that's there, that's the number that we would have in -- the USD 4 million converted to CAD. So the $15.7 million proceeds from sale of investments, that's the PG portfolio that Ben just spoke about.

[Operator]

[Operator Instructions] There are no further questions at this time. I'd now like to turn the call back over to Flora Wood for closing comments.

[Flora Wood, executive]

Thank you, Mike, and thank you to everyone who dialed in. Thanks for the questions. And we look forward to speaking to you in November for Q3.

[Brian Dalton, executive]

Thanks, everyone.

[Operator]

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